UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

  
FORM 10-Q 

 
(Mark One)
 	x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934	
 
FOR THE QUARTERLY PERIOD ENDED APRIL 30, 2013
 
OR
 
 	¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934	
 
FOR THE TRANSITION PERIOD FROM              TO             
 
Commission File Number: 001-34755

Limoneira Company
(Exact name of Registrant as Specified in its Charter) 

 
Delaware	77-0260692	
(State or Other Jurisdiction of
Incorporation or Organization)	(I.R.S. Employer
Identification No.)	
 
1141 Cummings Road, Santa Paula, CA	93060	
(Address of Principal Executive Offices)	(Zip Code)	
 
Registrant’s telephone number, including area code: (805) 525-5541
 
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)

 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     x   Yes     ¨   No
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or such shorter period that the registrant was required to submit and post such files). x  Yes  ¨  No
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
¨   Large accelerated filer	x  Accelerated filer	¨  Non-accelerated filer	¨  Smaller reporting company	
 	 	
 	(Do not check if a smaller reporting company)	
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     ¨   Yes     x   No
 
As of May 31, 2013, there were 13,305,931 shares outstanding of the registrant’s common stock.
 
 1	

 	
  
LIMONEIRA COMPANY
 
TABLE OF CONTENTS
 
PART I. FINANCIAL INFORMATION	4	
 	 	 	
Item 1.	Financial Statements (unaudited)	4	
 	 	 	
Consolidated Balance Sheets - April 30, 2013 and October 31, 2012	4	
 	 	
Consolidated Statements of Operations - three and six months ended April 30, 2013 and 2012	5	
 	 	
Consolidated Statements of Comprehensive Income (Loss) - three and six months ended April 30, 2013 and 2012	6	
 	 	
Consolidated Statements of Cash Flows - six months ended April 30, 2013 and 2012	7	
 	 	
Notes to Consolidated Financial Statements	10	
 	 	
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	23	
 	 	 	
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	42	
 	 	 	
Item 4.	Controls and Procedures	42	
 	 	 	
PART II. OTHER INFORMATION	43	
 	 	 	
Item 1.	Legal Proceedings	43	
 	 	 	
Item 1A.	Risk Factors	43	
 	 	 	
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	43	
 	 	 	
Item 3.	Defaults Upon Senior Securities	43	
 	 	 	
Item 4.	Mine Safety Disclosures	43	
 	 	 	
Item 5.	Other Information	43	
 	 	 	
Item 6.	Exhibits	44	
 	 	 	
SIGNATURES	45	
 
2	

 	
 
Cautionary Note on Forward-Looking Statements.
 
This Quarterly Report on Form 10-Q contains both historical and forward-looking statements. Forward-looking statements in this 10-Q are subject to a number of risks and uncertainties, some of which are beyond the Company’s control. The potential risks and uncertainties that could cause our actual financial condition, results of operations and future performance to differ materially from those expressed or implied include:
 
 	·	changes in laws, regulations, rules, quotas, tariffs and import laws;	
 
 	·	weather conditions, including freezes, that affect the production, transportation, storage, import and export of fresh produce;	
 
 	·	market responses to industry volume pressures;	
 
 	·	increased pressure from disease, insects and other pests;	
 
 	·	disruption of water supplies or changes in water allocations;	
 
 	·	product and raw materials supplies and pricing;	
 
 	·	energy supply and pricing;	
 
 	·	changes in interest and current exchange rates;	
 
 	·	availability of financing for land development activities;	
 
 	·	general economic conditions for residential and commercial real estate development:	
 
 	·	political changes and economic crises;	
 
 	·	international conflict;	
 
 	·	acts of terrorism;	
 
 	·	labor disruptions, strikes or work stoppages;	
 
 	·	loss of important intellectual property rights; and	
 
 	·	other factors disclosed in our public filings with the Securities and Exchange Commission.	
 
The Company’s actual results, performance, prospects or opportunities could differ materially from those expressed in or implied by the forward-looking statements. Additional risks of which the Company is not currently aware or which the Company currently deems immaterial could also cause the Company’s actual results to differ, including those discussed in the section entitled “Risk Factors” included elsewhere in this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K for the fiscal year ended October 31, 2012. Although we believe the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. You should not place undue reliance on these forward-looking statements, which apply only as of the date of this Quarterly Report on Form 10-Q. We undertake no obligation to update these forward-looking statements, even if our situation changes in the future.
 
The terms the “Company,” “we,” “our” and “us” as used throughout this Quarterly Report on Form 10-Q refer to Limoneira Company and its consolidated subsidiaries, unless otherwise indicated.
 
3	

 	
 
PART I. FINANCIAL INFORMATION
 
Item 1. Financial Statements
 
Limoneira Company
 
Consolidated Balance Sheets (unaudited)
 
 	 	April 30,
2013	 	 	October 31,
2012	 	
Assets	 	 	 	 	 	 	 	 	
Current assets:	 	 	 	 	 	 	 	 	
Cash	 	$	34,000	 	 	$	11,000	 	
Accounts receivable, net	 	 	10,246,000	 	 	 	4,252,000	 	
Notes receivable - related parties	 	 	11,000	 	 	 	42,000	 	
Cultural costs	 	 	1,302,000	 	 	 	2,254,000	 	
Prepaid expenses and other current assets	 	 	2,770,000	 	 	 	2,116,000	 	
Income taxes receivable	 	 	641,000	 	 	 	712,000	 	
Total current assets	 	 	15,004,000	 	 	 	9,387,000	 	
 	 	 	 	 	 	 	 	 	
Property, plant and equipment, net	 	 	54,701,000	 	 	 	53,380,000	 	
Real estate development	 	 	80,503,000	 	 	 	77,772,000	 	
Equity in investments	 	 	7,283,000	 	 	 	8,947,000	 	
Investment in Calavo Growers, Inc.	 	 	14,180,000	 	 	 	15,701,000	 	
Notes receivable - related parties	 	 	16,000	 	 	 	16,000	 	
Notes receivable	 	 	1,985,000	 	 	 	2,296,000	 	
Other assets	 	 	5,455,000	 	 	 	5,123,000	 	
Total assets	 	$	179,127,000	 	 	$	172,622,000	 	
 	 	 	 	 	 	 	 	 	
Liabilities and stockholders’ equity	 	 	 	 	 	 	 	 	
Current liabilities:	 	 	 	 	 	 	 	 	
Accounts payable	 	$	5,861,000	 	 	$	3,670,000	 	
Growers payable	 	 	2,740,000	 	 	 	2,085,000	 	
Accrued liabilities	 	 	2,867,000	 	 	 	4,017,000	 	
Fair value of derivative instrument	 	 	359,000	 	 	 	1,072,000	 	
Current portion of long-term debt	 	 	741,000	 	 	 	760,000	 	
Total current liabilities	 	 	12,568,000	 	 	 	11,604,000	 	
Long-term liabilities:	 	 	 	 	 	 	 	 	
Long-term debt, less current portion	 	 	59,118,000	 	 	 	88,875,000	 	
Deferred income taxes	 	 	10,727,000	 	 	 	10,488,000	 	
Other long-term liabilities	 	 	9,082,000	 	 	 	8,953,000	 	
Total long-term liabilities	 	 	78,927,000	 	 	 	108,316,000	 	
Commitments and contingencies	 	 	 	 	 	 	 	 	
Stockholders’ equity:	 	 	 	 	 	 	 	 	
Series B Convertible Preferred Stock - $100.00 par value (50,000 shares authorized: 30,000 shares issued and outstanding at April 30, 2013 and October 31, 2012) (8.75% coupon rate)	 	 	3,000,000	 	 	 	3,000,000	 	
Series A Junior Participating Preferred Stock - $.01 par value (20,000 shares authorized: 0 issued or outstanding at April 30, 2013 and October 31, 2012)	 	 	-	 	 	 	-	 	
Common Stock - $.01 par value (19,900,000 shares authorized:	 	 	 	 	 	 	 	 	
13,305,931 and 11,203,180 shares issued and outstanding at April 30, 2013 and October 31, 2012, respectively)	 	 	133,000	 	 	 	112,000	 	
Additional paid-in capital	 	 	71,931,000	 	 	 	35,714,000	 	
Retained earnings	 	 	14,731,000	 	 	 	16,398,000	 	
Accumulated other comprehensive loss	 	 	(2,163,000	)	 	 	(2,522,000	)	
Total stockholders’ equity	 	 	87,632,000	 	 	 	52,702,000	 	
Total liabilities and stockholders’ equity	 	$	179,127,000	 	 	$	172,622,000	 	
 
The accompanying notes are an integral part of these unaudited consolidated financial statements.
 
4	

 	
 
Limoneira Company
 
Consolidated Statements of Operations (unaudited)
 
 	 	Three months ended
April 30,	 	 	Six months ended
April 30,	 	
 	 	2013	 	 	2012	 	 	2013	 	 	2012	 	
Revenues:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Agribusiness	 	$	22,190,000	 	 	$	15,046,000	 	 	$	38,488,000	 	 	$	24,248,000	 	
Rental operations	 	 	1,055,000	 	 	 	1,006,000	 	 	 	2,091,000	 	 	 	1,997,000	 	
Real estate development	 	 	41,000	 	 	 	44,000	 	 	 	89,000	 	 	 	88,000	 	
Total revenues	 	 	23,286,000	 	 	 	16,096,000	 	 	 	40,668,000	 	 	 	26,333,000	 	
Costs and expenses:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Agribusiness	 	 	17,262,000	 	 	 	11,680,000	 	 	 	35,849,000	 	 	 	23,070,000	 	
Rental operations	 	 	638,000	 	 	 	530,000	 	 	 	1,257,000	 	 	 	1,098,000	 	
Real estate development	 	 	226,000	 	 	 	241,000	 	 	 	469,000	 	 	 	489,000	 	
Selling, general and administrative	 	 	2,774,000	 	 	 	2,513,000	 	 	 	6,039,000	 	 	 	5,284,000	 	
Total costs and expenses	 	 	20,900,000	 	 	 	14,964,000	 	 	 	43,614,000	 	 	 	29,941,000	 	
Operating income (loss)	 	 	2,386,000	 	 	 	1,132,000	 	 	 	(2,946,000	)	 	 	(3,608,000	)	
Other income (expense):	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Interest expense	 	 	-	 	 	 	(71,000	)	 	 	(124,000	)	 	 	(246,000	)	
Interest income from derivative instrument	 	 	221,000	 	 	 	196,000	 	 	 	442,000	 	 	 	355,000	 	
Gain on sale of stock in Calavo Growers, Inc.	 	 	3,138,000	 	 	 	-	 	 	 	3,138,000	 	 	 	-	 	
Interest income	 	 	22,000	 	 	 	27,000	 	 	 	46,000	 	 	 	52,000	 	
Other (expense) income, net	 	 	(29,000	)	 	 	(137,000	)	 	 	388,000	 	 	 	208,000	 	
Total other income	 	 	3,352,000	 	 	 	15,000	 	 	 	3,890,000	 	 	 	369,000	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Income before income tax (provision) benefit and equity in losses of investments	 	 	5,738,000	 	 	 	1,147,000	 	 	 	944,000	 	 	 	(3,239,000	)	
Income tax (provision) benefit	 	 	(1,427,000	)	 	 	(385,000	)	 	 	228,000	 	 	 	1,195,000	 	
Equity in losses of investments	 	 	(1,806,000	)	 	 	(25,000	)	 	 	(1,789,000	)	 	 	(28,000	)	
Net income (loss)	 	 	2,505,000	 	 	 	737,000	 	 	 	(617,000	)	 	 	(2,072,000	)	
Preferred dividends	 	 	(65,000	)	 	 	(65,000	)	 	 	(131,000	)	 	 	(131,000	)	
Net income (loss) applicable to common stock	 	$	2,440,000	 	 	$	672,000	 	 	$	(748,000	)	 	$	(2,203,000	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Basic net income (loss) per common share	 	$	0.19	 	 	$	0.06	 	 	$	(0.06	)	 	$	(0.20	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Diluted net income (loss) per common share	 	$	0.19	 	 	$	0.06	 	 	$	(0.06	)	 	$	(0.20	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Dividends per common share	 	$	0.04	 	 	$	0.03	 	 	$	0.08	 	 	$	0.06	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Weighted-average common shares outstanding-basic	 	 	12,789,000	 	 	 	11,201,000	 	 	 	12,114,000	 	 	 	11,203,000	 	
Weighted-average common shares outstanding-diluted	 	 	12,789,000	 	 	 	11,201,000	 	 	 	12,114,000	 	 	 	11,203,000	 	
 
The accompanying notes are an integral part of these unaudited consolidated financial statements.
 
5	

 	
 
Limoneira Company
 
Consolidated Statements of Comprehensive Income (Loss) (unaudited)
 
 	 	Three months ended
April 30,	 	 	Six months ended
April 30,	 	
 	 	2013	 	 	2012	 	 	2013	 	 	2012	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Net income (loss)	 	$	2,505,000	 	 	$	737,000	 	 	$	(617,000	)	 	$	(2,072,000	)	
Other comprehensive income (loss), net of tax:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Minimum pension liability adjustment	 	 	155,000	 	 	 	124,000	 	 	 	310,000	 	 	 	246,000	 	
Unrealized holding gains (losses) on security available-for-sale	 	 	(442,000	)	 	 	592,000	 	 	 	78,000	 	 	 	2,446,000	 	
Unrealized gains (losses) from derivative instruments	 	 	(255,000	)	 	 	71,000	 	 	 	(29,000	)	 	 	(912,000	)	
Total other comprehensive income (loss), net of tax	 	 	(542,000	)	 	 	787,000	 	 	 	359,000	 	 	 	1,780,000	 	
Comprehensive income (loss)	 	$	1,963,000	 	 	$	1,524,000	 	 	$	(258,000	)	 	$	(292,000	)	
 
The accompanying notes are an integral part of these unaudited consolidated financial statements.
 
6	

 	
 
Limoneira Company
Consolidated Statements of Cash Flows (unaudited)
 
 	 	Six months ended April 30,	 	
 	 	2013	 	 	2012	 	
Operating activities	 	 	 	 	 	 	 	 	
Net loss	 	$	(617,000	)	 	$	(2,072,000	)	
Adjustments to reconcile net income to net cash provided by operating activities:	 	 	 	 	 	 	 	 	
Depreciation and amortization	 	 	1,087,000	 	 	 	1,066,000	 	
Gain on sale of stock in Calavo Growers, Inc.	 	 	(3,138,000	)	 	 	-	 	
Loss on disposals/sales of assets	 	 	-	 	 	 	205,000	 	
Stock compensation expense	 	 	551,000	 	 	 	451,000	 	
Equity in losses of investments	 	 	1,789,000	 	 	 	28,000	 	
Amortization of deferred financing costs	 	 	20,000	 	 	 	21,000	 	
Non-cash interest income on derivative instruments	 	 	(442,000	)	 	 	(355,000	)	
Accrued interest on notes receivable	 	 	(39,000	)	 	 	(39,000	)	
Changes in operating assets and liabilities:	 	 	 	 	 	 	 	 	
Accounts and notes receivable	 	 	(6,199,000	)	 	 	(4,693,000	)	
Cultural costs	 	 	952,000	 	 	 	(195,000	)	
Prepaid expenses and other current assets	 	 	(605,000	)	 	 	(866,000	)	
Income taxes receivable	 	 	71,000	 	 	 	(795,000	)	
Other assets	 	 	(121,000	)	 	 	(96,000	)	
Accounts payable and growers payable	 	 	2,278,000	 	 	 	3,872,000	 	
Accrued liabilities	 	 	(1,292,000	)	 	 	328,000	 	
Other long-term liabilities	 	 	326,000	 	 	 	116,000	 	
Net cash used in operating activities	 	 	(5,379,000	)	 	 	(3,024,000	)	
 	 	 	 	 	 	 	 	 	
Investing activities	 	 	 	 	 	 	 	 	
Capital expenditures	 	 	(4,692,000	)	 	 	(3,774,000	)	
Net proceeds from sale of stock in Calavo Growers, Inc.	 	 	4,788,000	 	 	 	-	 	
Equity investment contributions	 	 	(125,000	)	 	 	(98,000	)	
Collection of note receivable	 	 	350,000	 	 	 	-	 	
Investments in mutual water companies and water rights	 	 	(16,000	)	 	 	(15,000	)	
Other	 	 	-	 	 	 	(15,000	)	
Net cash provided by (used in) investing activities	 	 	305,000	 	 	 	(3,902,000	)	
 	 	 	 	 	 	 	 	 	
Financing activities	 	 	 	 	 	 	 	 	
Borrowings of long-term debt	 	 	34,540,000	 	 	 	18,695,000	 	
Repayments of long-term debt	 	 	(64,316,000	)	 	 	(10,846,000	)	
Dividends paid - Common	 	 	(919,000	)	 	 	(700,000	)	
Dividends paid - Preferred	 	 	(131,000	)	 	 	(131,000	)	
Net proceeds from issuance of common stock	 	 	35,923,000	 	 	 	-	 	
Repurchase of common stock	 	 	-	 	 	 	(6,000	)	
Payments of debt financing costs	 	 	-	 	 	 	(91,000	)	
Net cash provided by financing activities	 	 	5,097,000	 	 	 	6,921,000	 	
 	 	 	 	 	 	 	 	 	
Net increase (decrease) in cash	 	 	23,000	 	 	 	(5,000	)	
Cash at beginning of period	 	 	11,000	 	 	 	21,000	 	
Cash at end of period	 	$	34,000	 	 	$	16,000	 	
 
The accompanying notes are an integral part of these unaudited consolidated financial statements.
 
7	

 	
 
Limoneira Company
 
Consolidated Statements of Cash Flows (unaudited) (continued)
 
 	 	Six months ended April 30,	 	
 	 	2013	 	 	2012	 	
Supplemental disclosures of cash flow information	 	 	 	 	 	 	 	 	
Cash paid during the period for interest	 	$	1,705,000	 	 	$	1,770,000	 	
Cash paid during the period for income taxes, net of (refunds) received	 	$	(300,000	)	 	$	(400,000	)	
Non-cash investing and financing transactions:	 	 	 	 	 	 	 	 	
Unrealized holding gain on investment in Calavo Growers, Inc.	 	$	(130,000	)	 	$	(4,063,000	)	
Capital expenditures accrued but not paid at period-end	 	$	256,000	 	 	$	45,000	 	
Accrued interest on note receivable	 	$	39,000	 	 	$	39,000	 	
Accrued investment contribution obligation in water company	 	$	270,000	 	 	$	270,000	 	
 
The accompanying notes are an integral part of these unaudited consolidated financial statements.
 
8	

 	
 
Limoneira Company
 
Consolidated Financial Statements (unaudited)
 
Preface
 
The preparation of the unaudited interim consolidated financial statements requires management to make use of estimates and assumptions that affect the reported amount of assets and liabilities, revenue and expenses and certain financial statement disclosures. Actual results may differ from these estimates.
 
The unaudited interim consolidated financial statements for the three and six months ended April 30, 2013 and 2012 and balance sheet as of April 30, 2013 included herein have not been audited by an independent registered public accounting firm, but in management’s opinion, all adjustments (consisting of normal recurring adjustments) necessary to make a fair statement of the financial position at April 30, 2013 and the results of operations and the cash flows for the periods presented herein have been made. The results of operations for the three and six months ended April 30, 2013 are not necessarily indicative of the operating results expected for the full fiscal year.
 
The consolidated balance sheet at October 31, 2012 included herein has been derived from the audited consolidated financial statements at that date but does not include all of the information and footnotes required by U.S. generally accepted accounting principles for complete financial statements.
 
The unaudited interim consolidated financial statements included herein have been prepared pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (the “SEC”). Although we believe the disclosures made are adequate to make the information presented not misleading, certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles have been condensed or omitted pursuant to such rules or regulations. These unaudited interim consolidated financial statements should be read in conjunction with the October 31, 2012 consolidated financial statements and notes thereto included in the Company’s Form 10-K for the fiscal year ended October 31, 2012.
 
9	

 	
 
Limoneira Company
 
Notes to Consolidated Financial Statements (unaudited)
 
1. Business
 
Limoneira Company, a Delaware corporation (the “Company”), engages primarily in growing citrus and avocados, picking and hauling citrus and packing, marketing and selling lemons. The Company is also engaged in residential rentals and other rental operations and real estate development activities.
 
The Company markets and sells lemons directly to foodservice, wholesale and retail customers throughout the United States, Canada, Asia and other international markets. The Company is a member of Sunkist Growers, Inc. (“Sunkist”), an agricultural marketing cooperative, and sells its oranges, specialty citrus and other crops to Sunkist-licensed and other third-party packinghouses.
 
The Company sells all of its avocado production to Calavo Growers, Inc. (“Calavo”), a packing and marketing company listed on NASDAQ under the symbol CVGW. Calavo’s customers include many of the largest retail and foodservice companies in the United States and Canada. The Company’s avocados are packed by Calavo, sold and distributed under Calavo brands to its customers.
 
The unaudited interim consolidated financial statements include the accounts of the Company and the accounts of all the subsidiaries and investments in which a controlling interest is held by the Company. The unaudited interim consolidated financial statements represent the consolidated balance sheets, consolidated statements of operations, consolidated statements of comprehensive income (loss) and consolidated statements of cash flows of the Company and its wholly-owned subsidiaries. The Company’s subsidiaries include: Limoneira Company International Division, LLC, Limoneira Mercantile, LLC, Windfall Investors, LLC and Templeton Santa Barbara, LLC. All significant intercompany balances and transactions have been eliminated in consolidation. The Company considers the criteria established under the Financial Accounting Standards Board - Accounting Standards Code (“FASB ASC”) 810,  Consolidations,  and the effect of variable interest entities, in its consolidation process. These unaudited consolidated financial statements should be read in conjunction with the notes thereto included in this quarterly report.
 
2. Summary of Significant Accounting Policies
 
Recent Accounting Pronouncements
 
FASB ASU 2011-05, Comprehensive Income (Topic 220).
 
In June 2011, the FASB issued guidance regarding the presentation of comprehensive income. The new standard requires the presentation of comprehensive income, the components of net income and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. The new standard also requires presentation of adjustments for items that are reclassified from other comprehensive income to net income in the statement where the components of net income and the components of other comprehensive income are presented. The updated guidance is effective on a retrospective basis for financial statements issued for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2011.
 
In December 2011, the FASB issued ASU 2011-12 Comprehensive Income (Topic 220) to defer the effective date for those aspects of ASU 2011-05 relating to the presentation of reclassification adjustments out of accumulated other comprehensive income. The adoption of this standard will only impact the presentation of the Company’s consolidated financial statements and will have no impact on the reported results of operations.
 
FASB ASU 2012-04, Technical Corrections and Improvements.
 
In October 2012, the FASB issued guidance clarifying the Codification correcting unintended application of guidance, which includes amendments identifying when the use of fair value should be linked to the definition of fair value in Topic 820, Fair Value Measurement. Amendments to the Codification without transition guidance are effective upon issuance, and amendments subject to transition guidance will be effective for fiscal periods beginning after December 15, 2012. The adoption of this guidance will not have a material impact on our financial statements.
 
10	

 	
 
Limoneira Company
 
Notes to Consolidated Financial Statements (unaudited) (continued)
 
3. Fair Value Measurements
 
Under the FASB ASC 820, Fair Value Measurement and Disclosures, a fair value measurement is determined based on the assumptions that a market participant would use in pricing an asset or liability. A three-tiered hierarchy draws distinctions between market participant assumptions based on (i) observable inputs such as quoted prices in active markets (Level 1), (ii) inputs other than quoted prices in active markets that are observable either directly or indirectly (Level 2) and (iii) unobservable inputs that require the Company to use present value and other valuation techniques in the determination of fair value (Level 3).
 
The following table sets forth the Company’s financial assets and liabilities as of April 30, 2013, that are measured on a recurring basis during the period, segregated by level within the fair value hierarchy:

 	 	Level 1	 	 	Level 2	 	 	Level 3	 	 	Total	 	
Assets at fair value:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Available- for -sale securities	 	$	14,180,000	 	 	$	-	 	 	$	-	 	 	$	14,180,000	 	
Liabilities at fair value:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Derivatives	 	$	-	 	 	$	3,444,000	 	 	$	-	 	 	$	3,444,000	 	
 
Available-for-sale securities consist of marketable securities in Calavo common stock. The Company currently owns 500,000 shares, representing approximately 3.4% of Calavo’s outstanding common stock. These securities are measured at fair value by quoted market prices. Calavo’s stock price at April 30, 2013 was $28.36 per share.
 
Derivatives consist of interest rate swaps (see Note 11), the fair values of which are estimated using industry-standard valuation models. Such models project future cash flows and discount the future amounts to a present value using market-based observable inputs.
 
4. Accounts Receivable
 
The Company grants credit in the course of its operations to customers, cooperatives, companies and lessees of the Company’s facilities. The Company performs periodic credit evaluations of its customers’ financial condition and generally does not require collateral. The Company provides allowances on its receivables, as required, based on accounts receivable aging and certain other factors. At April 30, 2013 and October 31, 2012, the allowances totaled $142,000 and $109,000, respectively.
 
5. Concentrations
 
The Company’s primary concentrations of credit risk at April 30, 2013 consist of $1,349,000 and $1,037,000 due from two third-party packinghouses, respectively, for oranges and specialty citrus. Sales to these two packinghouses represented 8% and 6% of total revenues in the three months ended April 30, 2013, respectively, and 6% and 4% of total revenues in the six months ended April 30, 2013, respectively. The Company sells all of its avocado production to Calavo.
 
Lemons procured from third-party growers were 43% of lemon supply in the three months ended April 30, 2013, of which one third-party grower was 14% of lemon supply. Lemons procured from third-party growers were 66% of lemon supply in the six months ended April 30, 2013, of which two third-party growers were 23% and 16% of lemon supply, respectively.
 
11	

 	
 
Limoneira Company
 
Notes to Consolidated Financial Statements (unaudited) (continued)
 
6. Real Estate Development Assets
 
Real estate development assets consist of the following:
 
 	 	April 30, 
2013	 	 	October 31,
2012	 	
 	 	 	 	 	 	 	
East Areas 1 and 2	 	$	49,198,000	 	 	$	47,384,000	 	
Templeton Santa Barbara, LLC	 	 	11,038,000	 	 	 	10,532,000	 	
Windfall Investors, LLC	 	 	20,267,000	 	 	 	19,856,000	 	
 	 	$	80,503,000	 	 	$	77,772,000	 	
 
East Areas 1 and 2
 
In fiscal year 2005, the Company began capitalizing the costs of two real estate development projects east of Santa Paula, California, for the development of 550 acres of land into residential units, commercial buildings and civic facilities. During the three months ended April 30, 2013 and 2012, the Company capitalized $1,003,000 and $606,000, respectively, of costs related to these projects. During the six months ended April 30, 2013 and 2012, the Company capitalized $1,814,000 and $1,315,000, respectively, of costs related to these projects. Additionally, in relation to these projects, the Company has incurred net expenses of $2,000 and $33,000 in the three months ended April 30, 2013 and 2012, respectively, and $4,000 and $39,000 in the six months ended April 30, 2013 and 2012, respectively.
 
On August 24, 2010, the Company entered into an amendment (the “Amendment”) to a Real Estate Advisory Management Consultant Agreement (the “Consultant Agreement”) with Parkstone Companies, Inc. (the “Consultant”) dated April 1, 2004, that includes provisions for the Consultant to earn a success fee (the “Success Fee”) upon the annexation by the City of Santa Paula, California of East Area I. Under the terms of the Amendment, the Company agrees to pay the Success Fee, in cash or common stock at the discretion of the Company, in an amount equal to 4% of the incremental Property Value under a formula defined in the Amendment. The Success Fee is due and payable 120 days following the earlier to occur of (a) the sale of all or any portion of East Area I, including any unrelated third party material investment in the property, (b) the determination of an appraised value of the East Area I or (c) the second anniversary of the property annexation (each a “Success Fee Event”). In February 2013, East Area 1 was annexed into the City of Santa Paula. Annexation was required in order to re-zone the land for residential, commercial and light industrial development. As of April 30, 2013, the estimated amount of the Success Fee was zero.
 
In connection with facilitating the annexation of East Area 1 into the City of Santa Paula, during February 2013, the Company entered into a Capital Improvement Cost Sharing Agreement for Improvements to Santa Paula Creek Channel (the “Cost Sharing Agreement”) with the Ventura County Watershed Protection District (the “District”). The Cost Sharing Agreement requires the Company to reimburse the District 28.5% of the costs of the improvements, up to a maximum of $5,000,000. Additionally, the Company is required to pay the cost of preparing a study to determine a feasible scope of work and budget for the improvements. As of April 30, 2013, $150,000 has been accrued for the cost of the study.
 
On May 8, 2013, the Company amended the mitigation agreement it has with the Santa Paula Union High School District, which is associated with the East Area 1 development agreement. In exchange for the release of approximately 7 acres of property previously reserved for school facilities within East Area 1, subject to certain conditions, the amendment requires the Company to pay a total of $1,750,000 comprised of a $1,000,000 payment expected to be paid in June of 2013 and an increase in school facility fees of $1,500 per unit for each of the first 500 certificates of occupancy issued in connection with the residential development of East Area 1. Such costs will be capitalized as real estate development costs.
 
In May 2013, the Ventura Local Area Formation Commission unanimously approved the annexation of our East Area 2 real estate development project into the City of Santa Paula. The annexation is expected to be completed and recorded during June 2013.
 
12	

 	
 
Limoneira Company
 
Notes to Consolidated Financial Statements (unaudited) (continued)
 
6. Real Estate Development Assets (continued)
 
Templeton Santa Barbara, LLC
 
The four real estate development parcels within the Templeton Santa Barbara, LLC project are described as Centennial Square (“Centennial”), The Terraces at Pacific Crest (“Pacific Crest”), Sevilla and East Ridge. The net carrying values of Centennial, Pacific Crest and Sevilla at April 30, 2013 were $3,069,000, $3,331,000 and $4,638,000, respectively, and at October 31, 2012 were $2,889,000, $3,165,000 and $4,478,000, respectively.
 
During the three months ended April 30, 2013 and 2012, the Company capitalized $231,000 and $309,000, respectively, of costs related to these real estate parcels. During the six months ended April 30, 2013 and 2012, the Company capitalized $506,000 and $506,000, respectively, of costs related to these real estate parcels. Additionally, in relation to these parcels, the Company incurred net expenses of $8,000 and $3,000 in the three months ended April 30, 2013 and 2012, respectively, and $26,000 and $16,000 in the six months ended April 30, 2013 and 2012, respectively.
 
In February 2010, the Company and HM Manager, LLC formed a limited liability company, HM East Ridge, LLC (“East Ridge”), for the purpose of developing the East Ridge parcel. The Company’s initial capital contribution into East Ridge was the land parcel with a net carrying value of $7,207,000. The Company made cash contributions of $45,000 and $44,000 to East Ridge during the three months ended April 30, 2013 and 2012, respectively and $91,000 and $88,000 during the six month periods ended April 30, 2013 and 2012, respectively. Since the Company has significant influence over, but less than a controlling interest in, East Ridge, the Company is accounting for its investment in East Ridge using the equity method of accounting and the investment is included in equity in investments in the Company’s consolidated balance sheets.
 
On April 8, 2013, the Company and HM East Ridge, LLC entered into a Purchase and Sale Agreement to sell its East Ridge parcel of property for $6,000,000. The property is located in the city of Santa Maria, County of Santa Barbara, California and includes approximately 40 acres of land. The transaction is expected to close in June 2013 and will generate net proceeds of approximately $5,750,000. During April 2013, the Company wrote down its investment in HM East Ridge. LLC and recognized a loss of $1,814,000, which is included in equity in losses of investments in the accompanying consolidated statements of operations.
 
Windfall Investors, LLC
 
On November 15, 2009, the Company acquired Windfall Investors, LLC, which included $16,842,000 of real estate development assets. During the three months ended April 30, 2013 and 2012, the Company capitalized $167,000 and $167,000, respectively, of costs related to this real estate development project. During the six months ended April 30, 2013 and 2012, the Company capitalized $411,000 and $402,000, respectively, of costs related to this real estate development project. Additionally, in relation to this project, the Company has incurred net expenses of $175,000 and $164,000, in the three months ended April 30, 2013 and 2012, respectively, and $350,000 and $349,000 in the six months ended April 30, 2013 and 2012, respectively.
 
13	

 	
 
Limoneira Company
 
Notes to Consolidated Financial Statements (unaudited) (continued)
 
7. Investment in Calavo Growers, Inc.
 
In June 2005, the Company entered into a stock purchase agreement with Calavo. Pursuant to this agreement, the Company purchased 1,000,000 shares, or approximately 6.9%, of Calavo’s common stock for $10,000,000 and Calavo purchased 1,728,570 shares, or approximately 15.1%, of the Company’s common stock for $23,450,000. Under the terms of the agreement, the Company received net cash consideration of $13,450,000. The Company has classified its marketable securities investment as available-for-sale. In fiscal year 2009, the Company sold 335,000 shares of Calavo stock for a total of $6,079,000, recognizing a gain of $2,729,000.
 
On April 11, 2013, the Company sold 165,000 shares of Calavo stock at a price of $29.02 per share (the closing price on April 10, 2013). Calavo repurchased the shares pursuant to the 2005 stock purchase agreement between the companies. Following the sale, the Company continues to own 500,000 shares of Calavo common stock. The net proceeds to the Company from the sale were $4,788,000 and the Company recognized a gain of $3,138,000.
 
Additionally, changes in the fair value of the available-for-sale securities result in unrealized holding gains or losses for the remaining shares held by the Company. The Company recorded unrealized holding (losses) gains of ($734,000) (($442,000) net of tax) and $984,000 ($592,000, net of tax), during the three months ended April 30, 2013 and 2012, respectively. The Company recorded unrealized holding gains of $130,000 ($78,000 net of tax) and $4,063,000 ($2,446,000 net of tax), during the six months ended April 30, 2013 and 2012, respectively.
 
8. Notes Receivable
 
In connection with the Company’s stock grant program, the Company has recorded total notes receivable and accrued interest from certain related parties of $27,000 and $58,000 at April 30, 2013 and October 31, 2012, respectively.
 
In February 2013, the Company received $350,000 from the lessee of a retail facility owned by the Company for payment in full of a note receivable issued in connection with tenant improvements made to the property.
 
9. Other Assets
 
Other assets consist of the following:
 
 	 	April 30,
2013	 	 	October 31,
2012	 	
 	 	 	 	 	 	 	
Investments in mutual water companies	 	$	2,076,000	 	 	$	1,791,000	 	
Acquired water and mineral rights	 	 	1,536,000	 	 	 	1,536,000	 	
Deferred lease assets and other	 	 	1,488,000	 	 	 	1,437,000	 	
Revolving funds and memberships	 	 	355,000	 	 	 	359,000	 	
 	 	$	5,455,000	 	 	$	5,123,000	 	
 
14	

 	
 
Limoneira Company
 
Notes to Consolidated Financial Statements (unaudited) (continued)

10. Long-Term Debt
 
Long-term debt is comprised of the following:
 
 	 	April 30, 
2013	 	 	October 31,
2012	 	
Rabobank revolving credit facility secured by property with a net book value of $12,260,000 At April 30, 2013 and October 31, 2012. The interest rate is variable based on the one-month London Interbank Offered Rate (LIBOR), which was 0.20% at April 30, 2013 plus 1.50%. Interest is payable monthly and the principal is due in full in June 2018.	 	$	45,214,000	 	 	$	61,261,000	 	
 	 	 	 	 	 	 	 	 	
Farm Credit West term loan secured by property with a net book value of $11,621,000 at April 30, 2013 and $11,626,000 at October 31, 2012. The interest rate is variable and was 3.25% at April 30, 2013. The loan is payable in quarterly installments through November 2022.	 	 	5,505,000	 	 	 	5,743,000	 	
 	 	 	 	 	 	 	 	 	
Farm Credit West term loan secured by property with a net book value of $11,626,000 at October 31, 2012. The interest rate was variable and was 3.25% at October 31, 2012. The loan was paid in full in February 2013.	 	 	-	 	 	 	861,000	 	
 	 	 	 	 	 	 	 	 	
Farm Credit West non-revolving line of credit secured by property with a net book value of $3,877,000 at April 30, 2013 and $3,864,000 at October 31, 2012. The interest rate is variable and was 3.50% at April 30, 2013. Interest is payable monthly and the principal is due in full in May 2018.	 	 	492,000	 	 	 	13,000,000	 	
 	 	 	 	 	 	 	 	 	
Farm Credit West term loan secured by property with a net book value of $20,267,000 at April 30, 2013 and $19,856,000 at October 31, 2012. The interest rate is fixed at 3.65% until November 2014, becoming variable for the remainder of the loan. The loan is payable in monthly installments through October 2035.	 	 	8,648,000	 	 	 	8,770,000	 	
 	 	 	 	 	 	 	 	 	
Subtotal	 	 	59,859,000	 	 	 	89,635,000	 	
Less current portion	 	 	741,000	 	 	 	760,000	 	
Total long-term debt, less current portion	 	$	59,118,000	 	 	$	88,875,000	 	
 
In November 2011, the Company entered into a Second Amendment to Amended and Restated Line of Credit Agreement dated as of December 15, 2008, between the Company and Rabobank in order to (i) increase the revolving line of credit from $80,000,000 to the lesser of $100,000,000 or 60% of the appraised value of any real estate pledged as collateral, which was $87,000,000 at April 30, 2013, (ii) amend the interest rate such that the line of credit bears interest equal to LIBOR plus 1.80% effective July 1, 2013 and (iii) extend the maturity date from June 30, 2013 to June 30, 2018. The Company is subject to an annual financial covenant and certain other restrictions measured at its fiscal year end.
 
During February 2013, the Company repaid $35,923,000 of its long-term debt with the proceeds from its public offering as described in Note 19.
 
Interest is capitalized on non-bearing orchards, real estate development projects and significant construction in progress. The Company capitalized interest of $517,000 and $665,000 during the three months ended April 30, 2013 and 2012, respectively, and $1,294,000 and $1,372,000 during the six months ended April 30, 2013 and 2012, respectively. Capitalized interest is included in property, plant and equipment and real estate development assets in the Company’s consolidated balance sheets.
 
15	

 	
 
Limoneira Company
 
Notes to Consolidated Financial Statements (unaudited) (continued)
 
11. Derivative Instruments and Hedging Activities
 
The Company enters into interest rate swaps to minimize the risks and costs associated with its financing activities. Derivative financial instruments are as follows:
 
 	 	Notional Amount	 	 	Fair Value Liability	 	
 	 	April 30,  
2013	 	 	October 31,
2012	 	 	April 30,    
2013	 	 	October 31,
2012	 	
Pay fixed-rate, receive floating-rate interest rate swap, maturing June 2013	 	$	42,000,000	 	 	$	42,000,000	 	 	$	359,000	 	 	$	1,072,000	 	
Pay fixed-rate, receive floating-rate forward interest rate swap, beginning July 2013 until June 2018	 	$	40,000,000	 	 	$	40,000,000	 	 	$	3,085,000	 	 	$	2,768,000	 	
 
In April 2010, the Company cancelled two interest rate swaps with notional amounts of $10,000,000 each and amended the remaining interest rate swap from a notional amount of $22,000,000 to a notional amount of $42,000,000. This remaining interest rate swap was also amended to a pay-fixed rate of 3.63%, which is 62 basis points lower than the original pay-fixed rate. The receive floating-rate and maturity date of the amended interest rate swap remain unchanged. The Company did not incur any out-of-pocket fees related to the cancellation or amendment of these interest rate swaps.
 
These interest rate swaps previously qualified as cash flow hedges and were accounted for as hedges under the short-cut method. On the amendment date of the swap agreements, the fair value liability and the related accumulated other comprehensive loss balance was $2,015,000. The accumulated other comprehensive loss balance is being amortized and included in interest income from derivative instruments over the remaining period of the original swap agreements. Amortization for each of the three month periods ended April 30, 2013 and 2012 was $135,000. Amortization for the six month periods ended April 30, 2013 and 2012 was $271,000 and $270,000, respectively. The remaining accumulated other comprehensive loss balance is $90,000, net of amortization of $1,925,000 at April 30, 2013.
 
As a result of the re-negotiated terms of the derivatives above, the remaining interest rate swap with a notional amount of $42,000,000 no longer qualified for hedge accounting as of April 30, 2010. Therefore, mark to market adjustments to the underlying fair value liability are being recorded in interest income from derivative instruments and the liability balance continues to be recorded in other long-term liabilities in the Company’s consolidated balance sheets. The mark to market adjustments recognized by the Company during the three month periods ended April 30, 2013 and 2012 resulted in non-cash interest income of $356,000 and $331,000, respectively. The mark to market adjustments recognized by the Company during the six month periods ended April 30, 2013 and 2012 resulted in non-cash interest income of $713,000 and $625,000, respectively.
 
In November 2011, the Company entered into a forward interest rate swap agreement with Rabobank International, Utrecht to fix the interest rate at 4.30% on $40,000,000 of its outstanding borrowings under the Rabobank line of credit beginning July 2013 until June 2018. This interest rate swap qualifies as a cash flow hedge and is accounted for as a hedge under the short-cut method. Therefore, the fair value liability is included in other long-term liabilities and related accumulated other comprehensive loss at April 30, 2013 and October 31, 2012.
 
12. Basic and Diluted Net Income per Share
 
Basic net income (loss) per common share is calculated using the weighted-average number of common shares outstanding during the period without consideration of the dilutive effect of stock-based compensation. Diluted net income per common share is calculated using the weighted-average number of common shares outstanding plus the dilutive effect of stock-based compensation calculated using the treasury stock method. There was no dilution due to stock-based compensation for the three and six month periods ended April 30, 2013 and 2012. The Series B convertible preferred shares are anti-dilutive.
 
16	

 	
 
Limoneira Company
 
Notes to Consolidated Financial Statements (unaudited) (continued)
 
13. Related-Party Transactions
 
The Company rents certain of its residential housing assets to employees on a month-to-month basis. The Company recorded $145,000 and $144,000 of rental income from employees in the three months ended April 30, 2013 and 2012, respectively. The Company recorded $265,000 and $266,000 of rental income from employees in the six months ended April 30, 2013 and 2012, respectively. There were no rental payments due from employees at April 30, 2013 and October 31, 2012.
 
The Company has representation on the boards of directors of the mutual water companies in which the Company has investments. The Company recorded capital contributions and purchased water and water delivery services from such mutual water companies, in aggregate, of $130,000 and $127,000 in the three months ended April 30, 2013 and 2012, respectively. The Company recorded capital contributions and purchased water and water delivery services from such mutual water companies, in aggregate, of $690,000 and $657,000 in the six months ended April 30, 2013 and 2012, respectively. Such amounts are included in agribusiness expense in the Company’s consolidated statements of operations. Payments due to the mutual water companies were, in aggregate, $319,000 and $20,000 at April 30, 2013 and October 31, 2012, respectively.
 
The Company has a presence on the board of directors of a non-profit cooperative association that provides pest control services for the agricultural industry. The Company purchased services and supplies of $107,000 and $53,000 from the association in the three months ended April 30, 2013 and 2012, respectively. The Company purchased services and supplies of $363,000 and $486,000 from the association in the six months ended April 30, 2013 and 2012, respectively. Such amounts are included in agribusiness expense in the Company’s consolidated statements of operations. Payments due to the association were $15,000 and $72,000 at April 30, 2013 and October 31, 2012, respectively.
 
The Company recorded dividend income of $432,000 and $366,000 in the six months ended April 30, 2013 and 2012, respectively, on its investment in Calavo, which is included in other income (expense), net in the Company’s consolidated statements of operations. The Company had $2,700,000 and $601,000 of avocado sales to Calavo for the three months ended April 30, 2013 and 2012, respectively. The Company had $2,707,000 and $725,000 of avocado sales to Calavo for the six months ended April 30, 2013 and 2012, respectively. Such amounts are included in agribusiness revenues in the Company’s consolidated statements of operations. The amounts receivable from Calavo were $1,138,000 and zero at April 30, 2013 and October 31, 2012, respectively. Additionally, the Company leases office space to Calavo and received rental income of $69,000 and $66,000 in the three months ended April 30, 2013 and 2012, respectively. The Company received rental income from Calavo of $136,000 and $131,000 in the six months ended April 30, 2013 and 2012, respectively. Such amounts are included in rental operations revenues in the Company’s consolidated statements of operations.
 
Certain members of the Company’s Board of Directors market lemons through the Company pursuant to its customary marketing agreements. During the three months ended April 30, 2013 and 2012, the aggregate amount of lemons procured from entities owned or controlled by members of the Board of Directors was $203,000 and $388,000, respectively. During the six months ended April 30, 2013 and 2012, the aggregate amount was $225,000 and $473,000, respectively. Such amounts are included in agribusiness expense in the accompanying consolidated statements of operations. Payments due to these Board members were zero and $705,000 at April 30, 2013 and October 31, 2012, respectively.
 
14. Income Taxes
 
The Company’s effective tax rate for the first six months of fiscal year 2013 is approximately 27.0%, inclusive of certain discrete items and an adjustment to reconcile the fiscal year 2012 tax provision to the 2012 tax return.
 
There has been no material change to the Company’s uncertain tax position for the three and six month periods ended April 30, 2013. The Company does not expect its unrecognized tax benefits to change significantly over the next 12 months.
 
The Company’s policy is to recognize interest expense and penalties related to income tax matters as a component of income tax expense. The Company has not accrued any interest and penalties associated with uncertain tax positions as of April 30, 2013.
 
17	

 	
 
Limoneira Company
 
Notes to Consolidated Financial Statements (unaudited) (continued)
 
15. Retirement Plans
 
The Limoneira Company Retirement Plan (the “Plan”) is a noncontributory, defined benefit, single employer pension plan, which provides retirement benefits for all eligible employees of the Company. Benefits paid by the Plan are calculated based on years of service, highest five-year average earnings, primary Social Security benefit and retirement age. Effective June 2004, the Company froze the Plan and no additional benefits accrued to participants subsequent to that date. The Plan is administered by City National Bank and Mercer Human Resource Consulting.
 
The Plan is funded consistent with the funding requirements of federal law and regulations. There were funding contributions of $125,000 and $159,000 during the three month periods ended April 30, 2013 and 2012, respectively, and $152,000 and $266,000 during the six month periods ended April 30, 2013 and 2012, respectively. 
  
The net periodic pension costs for the Plan for the three months ended April 30 were as follows:
 
 	 	2013	 	 	2012	 	
 	 	 	 	 	 	 	
Service cost	 	$	41,000	 	 	$	37,000	 	
Interest cost	 	 	180,000	 	 	 	201,000	 	
Expected return on plan assets	 	 	(240,000	)	 	 	(248,000	)	
Recognized actuarial loss	 	 	258,000	 	 	 	205,000	 	
Net periodic pension cost	 	$	239,000	 	 	$	195,000	 	
 
The net periodic pension costs for the Plan for the six months ended April 30 were as follows:
 
 	 	2013	 	 	2012	 	
 	 	 	 	 	 	 	
Service cost	 	$	82,000	 	 	$	73,000	 	
Interest cost	 	 	360,000	 	 	 	402,000	 	
Expected return on plan assets	 	 	(480,000	)	 	 	(495,000	)	
Recognized actuarial loss	 	 	516,000	 	 	 	409,000	 	
Net periodic pension cost	 	$	478,000	 	 	$	389,000	 	
 
16. Other Long-term Liabilities
 
Other long-term liabilities consist of the following:
 
 	 	April 30,
2013	 	 	October 31,
2012	 	
 	 	 	 	 	 	 	
Minimum pension liability	 	$	5,942,000	 	 	$	6,130,000	 	
Fair value of derivative instrument	 	 	3,085,000	 	 	 	2,768,000	 	
Other	 	 	55,000	 	 	 	55,000	 	
 	 	$	9,082,000	 	 	$	8,953,000	 	
 
18	

 	
 
Limoneira Company
 
Notes to Consolidated Financial Statements (unaudited) (continued)
 
17. Stockholders’ Equity
 
As of April 30, 2013, there are 7,810 shares of common stock issued to employees in connection with a discontinued stock option plan. Such shares are subject to repurchase by the Company and constitute a liability due to the repurchase obligation. The repurchase obligation of $6,000 is included in other long-term liabilities in the Company’s consolidated balance sheets at April 30, 2013 and October 31, 2012, respectively.
 
The Company has a stock-based compensation plan (the “Stock Plan”) that allows for the grant of common stock of the Company to members of management based on achievement of certain annual financial performance and other criteria. The number of shares granted is based on a percentage of the employee’s base salary divided by the stock price on the grant date. Shares granted under the Stock Plan generally vest over a three year period. During December 2012, 34,721 shares of common stock were issued to management under the Stock Plan for fiscal year 2012 performance. This resulted in total compensation expense of approximately $657,000, with $216,000 recognized in the year-ended October 31, 2012 and the balance to be recognized over the next two years as the shares vest. No shares were granted for fiscal year 2011 performance. Shares will be granted for fiscal year 2013, when it is determined whether or not the performance criteria have been achieved. Stock-based compensation expense is recognized over the performance and vesting periods and is summarized as follows:
 
 	 	 	 	 	Three Months Ended
April 30,	 	 	Six  Months Ended
April 30,	 	
Performance
Year	 	Shares
Granted	 	 	2013	 	 	2012	 	 	2013	 	 	2012	 	
2010	 	 	62,287	 	 	$	-	 	 	$	137,000	 	 	$	91,000	 	 	$	273,000	 	
2012	 	 	34,721	 	 	 	50,000	 	 	 	-	 	 	 	110,000	 	 	 	-	 	
2013	 	 	-	 	 	 	75,000	 	 	 	-	 	 	 	150,000	 	 	 	-	 	
 	 	 	 	 	 	$	125,000	 	 	$	137,000	 	 	$	351,000	 	 	$	273,000	 	
 
During January 2013, members of management exchanged 9,642 and 214 shares of common stock with fair market values of $21.40 and $18.92 per share (at the date of the exchanges), respectively, for the payment of payroll taxes associated with the vesting of shares under the Company’s stock-based compensation programs.
 
During January 2013, 9,040 shares of common stock were granted to the Company’s non-employee directors under the Company’s stock-based compensation plans. The Company incurred no stock-based compensation to non-employee directors during each of the three month periods ended April 30, 2013 and 2012. The Company recognized $200,000 and $180,000 of stock-based compensation to non-employee directors during the six months ended April 30, 2013 and 2012, respectively.
 
During February 2013, members of management exchanged 1,154 shares of common stock with a fair market value of $21.75 per share (at the date of the exchange) for the repayment of notes issued in relation to payroll taxes associated with the vesting of shares under the Company’s stock-based compensation programs.
 
During February 2013, the Company sold 2,070,000 shares of common stock at a price of $18.50 per share. See Note 19.
 
On May 21, 2013, the Company’s board of directors authorized a donation of $100,000 of the Company’s common stock to the Museum of Ventura County (the “Museum”), a California non-profit corporation. The shares will be issued on or about June 30, 2013 and the number of shares will be based on the stock price on June 30, 2013. The donation is to be used by the Museum to establish and operate an agriculture museum in Santa Paula, California depicting the history of agriculture in Ventura County.
 
19	

 	
 
Limoneira Company
 
Notes to Consolidated Financial Statements (unaudited) (continued)
 
18. Segment Information
 
The Company operates in three reportable operating segments: agribusiness, rental operations and real estate development. The reportable operating segments of the Company are strategic business units with different products and services, distribution processes and customer bases. The agribusiness segment includes farming and citrus packing operations. The rental operations segment includes residential and commercial rental operations, leased land and organic recycling. The real estate development segment includes real estate development operations. The Company measures operating performance, including revenues and earnings, of its operating segments and allocates resources based on its evaluation. The Company does not allocate selling, general and administrative expense, other income (expense), interest expense and income tax expense, or specifically identify them to its operating segments.
 
Segment information for the three months ended April 30, 2013:
 
 	 	Agribusiness	 	 	Rental
Operations	 	 	Real Estate
Development	 	 	Corporate 
and Other	 	 	Total	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Revenues	 	$	22,190,000	 	 	$	1,055,000	 	 	$	41,000	 	 	$	-	 	 	$	23,286,000	 	
Costs and expenses	 	 	16,876,000	 	 	 	547,000	 	 	 	208,000	 	 	 	2,724,000	 	 	 	20,355,000	 	
Depreciation and amortization	 	 	386,000	 	 	 	91,000	 	 	 	18,000	 	 	 	50,000	 	 	 	545,000	 	
Operating income (loss)	 	$	4,928,000	 	 	$	417,000	 	 	$	(185,000	)	 	$	(2,774,000	)	 	$	2,386,000	 	

Segment information for the three months ended April 30, 2012:
 
 	 	Agribusiness	 	 	Rental
Operations	 	 	Real Estate
Development	 	 	Corporate 
and Other	 	 	Total	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Revenues	 	$	15,046,000	 	 	$	1,006,000	 	 	$	44,000	 	 	$	-	 	 	$	16,096,000	 	
Costs and expenses	 	 	11,294,000	 	 	 	437,000	 	 	 	228,000	 	 	 	2,459,000	 	 	 	14,418,000	 	
Depreciation and amortization	 	 	386,000	 	 	 	93,000	 	 	 	13,000	 	 	 	54,000	 	 	 	546,000	 	
Operating income (loss)	 	$	3,366,000	 	 	$	476,000	 	 	$	(197,000	)	 	$	(2,513,000	)	 	$	1,132,000	 	
 
The following table sets forth revenues by category, by segment for the three months ended:
 
 	 	April 30,
2013	 	 	April 30,
2012	 	
 	 	 	 	 	 	 	
Lemons	 	$	15,513,000	 	 	$	12,398,000	 	
Avocados	 	 	2,700,000	 	 	 	601,000	 	
Navel and Valencia oranges	 	 	2,258,000	 	 	 	788,000	 	
Specialty citrus and other crops	 	 	1,719,000	 	 	 	1,259,000	 	
Agribusiness revenues	 	 	22,190,000	 	 	 	15,046,000	 	
 	 	 	 	 	 	 	 	 	
Rental operations	 	 	601,000	 	 	 	579,000	 	
Leased land	 	 	428,000	 	 	 	380,000	 	
Organic recycling and other	 	 	26,000	 	 	 	47,000	 	
Rental operations revenues	 	 	1,055,000	 	 	 	1,006,000	 	
 	 	 	 	 	 	 	 	 	
Real estate development revenues	 	 	41,000	 	 	 	44,000	 	
Total revenues	 	$	23,286,000	 	 	$	16,096,000	 	
 
20	

 	
 
Limoneira Company
 
Notes to Consolidated Financial Statements (unaudited) (continued)
 
18. Segment Information (continued)
 
Segment information for the six months ended April 30, 2013:
 
 	 	Agribusiness	 	 	Rental
Operations	 	 	Real Estate
Development	 	 	Corporate 
and Other	 	 	Total	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Revenues	 	$	38,488,000	 	 	$	2,091,000	 	 	$	89,000	 	 	$	-	 	 	$	40,668,000	 	
Costs and expenses	 	 	35,070,000	 	 	 	1,077,000	 	 	 	438,000	 	 	 	5,942,000	 	 	 	42,527,000	 	
Depreciation and amortization	 	 	779,000	 	 	 	180,000	 	 	 	31,000	 	 	 	97,000	 	 	 	1,087,000	 	
Operating income (loss)	 	$	2,639,000	 	 	$	834,000	 	 	$	(380,000	)	 	$	(6,039,000	)	 	$	(2,946,000	)	
 
Segment information for the six months ended April 30, 2012:
 
 	 	Agribusiness	 	 	Rental
Operations	 	 	Real Estate
Development	 	 	Corporate
and Other	 	 	Total	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Revenues	 	$	24,248,000	 	 	$	1,997,000	 	 	$	88,000	 	 	$	-	 	 	$	26,333,000	 	
Costs and expenses	 	 	22,322,000	 	 	 	913,000	 	 	 	463,000	 	 	 	5,177,000	 	 	 	28,875,000	 	
Depreciation and amortization	 	 	748,000	 	 	 	185,000	 	 	 	26,000	 	 	 	107,000	 	 	 	1,066,000	 	
Operating income (loss)	 	$	1,178,000	 	 	$	899,000	 	 	$	(401,000	)	 	$	(5,284,000	)	 	$	(3,608,000	)	
 
The following table sets forth revenues by category, by segment for the six months ended:
 
 	 	April 30,
2013	 	 	April 30,
2012	 	
 	 	 	 	 	 	 	
Lemons	 	$	29,481,000	 	 	$	20,165,000	 	
Avocados	 	 	2,707,000	 	 	 	725,000	 	
Navel and Valencia oranges	 	 	3,698,000	 	 	 	1,288,000	 	
Specialty citrus and other crops	 	 	2,602,000	 	 	 	2,070,000	 	
Agribusiness revenues	 	 	38,488,000	 	 	 	24,248,000	 	
 	 	 	 	 	 	 	 	 	
Rental operations	 	 	1,185,000	 	 	 	1,138,000	 	
Leased land	 	 	859,000	 	 	 	758,000	 	
Organic recycling and other	 	 	47,000	 	 	 	101,000	 	
Rental operations revenues	 	 	2,091,000	 	 	 	1,997,000	 	
 	 	 	 	 	 	 	 	 	
Real estate development revenues	 	 	89,000	 	 	 	88,000	 	
Total revenues	 	$	40,668,000	 	 	$	26,333,000	 	
 
21	

 	
 
Limoneira Company
 
Notes to Consolidated Financial Statements (unaudited) (continued)
 
19. Public Offering of Common Stock
 
On August 24, 2011, the Company’s shelf registration statement became effective for an aggregate amount of up to $100 million of common stock. During February 2013, the Company completed the sale of 2,070,000 shares of common stock, at a price of $18.50 per share, to institutional and other investors in a registered offering under the shelf registration statement. The offering represented 16% of the Company’s outstanding common stock on an after-issued basis. Upon completion of the offering and issuance of common stock, the Company had 13,307,085 shares of common stock outstanding. The gross proceeds of the offering totaled $38,295,000 and after an underwriting discount of $2,106,000 and other offering expenses of $266,000, the net proceeds were $35,923,000. The planned uses of proceeds from the offering are general corporate purposes, which may include repayment of debt, real estate development, including activities related to East Area 1 and future acquisitions of agriculture properties. During February 2013, the Company used the net offering proceeds to repay long-term debt.
 
20. Subsequent Events
 
The Company has evaluated events subsequent to April 30, 2013 to assess the need for potential recognition or disclosure in this Quarterly Report on Form 10-Q. Based upon this evaluation, except as disclosed in the notes to consolidated financial statements, it was determined that no subsequent events occurred that require recognition or disclosure in the unaudited consolidated financial statements.
 
22	

 	
 
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
Overview
 
Limoneira Company was incorporated in Delaware in 1990 as the successor to several businesses with operations in California since 1893. We are an agribusiness and real estate development company founded and based in Santa Paula, California, committed to responsibly using and managing our approximately 8,271 acres of land, water resources and other assets to maximize long-term shareholder value. Our current operations consist of fruit production, sales and marketing, real estate development and capital investment activities.
 
We are one of California’s oldest citrus growers. According to Sunkist Growers, Inc. (“Sunkist”), we are one of the largest growers of lemons in the United States and, according to the California Avocado Commission, the largest grower of avocados in the United States. In addition to growing lemons and avocados, we grow oranges and a variety of specialty citrus and other crops. We have agricultural plantings throughout Ventura and Tulare counties in California, which plantings consist of approximately 2,060 acres of lemons, 1,169 acres of avocados, 1,654 acres of oranges and 773 acres of specialty citrus and other crops. We also operate our own packinghouse in Santa Paula, California, where we process and pack lemons that we grow, as well as lemons grown by others.
 
Our water resources include water rights, usage rights to the water in aquifers under, and canals that run through, the land we own. Water for our farming operations is sourced from the existing water resources associated with our land, which includes rights to water in the adjudicated Santa Paula Basin (aquifer) and the un-adjudicated Fillmore and Paso Robles Basins (aquifers). We also use ground water and water from local water districts in Tulare County, which is in the San Joaquin Valley.
 
For more than 100 years, we have been making strategic investments in California agribusiness and real estate development. We currently have six active real estate development projects in California. Our real estate developments range from apartments to single-family homes and include approximately 200 completed units and another approximately 2,000 units in various stages of planning and development.
 
Business Segment Summary
 
We have three business segments: agribusiness, rental operations and real estate development. Our agribusiness segment currently generates the majority of our revenue from its farming and lemon packing operations; our rental operations segment generates revenue from our housing, organic recycling and commercial and leased land operations; and our real estate development segment generates revenue from the sale of real estate development projects. Generally, we see the Company as a land and farming company that generates annual cash flows to support its progress into diversified real estate development activities. As real estate development projects are monetized, our agribusiness will then be able to expand more rapidly into new regions and markets.
 
Agribusiness
 
We are one of the largest growers of lemons and the largest grower of avocados in the United States and, as a result, our agribusiness segment is the largest of our three segments, representing approximately 93%, 88% and 87% of our fiscal year 2012, 2011 and 2010 consolidated revenues, respectively. We market and sell lemons directly to our foodservice, wholesale and retail customers throughout the United States, Canada, Asia and other international markets. During the three months ended April 30, 2013, lemon sales were comprised of approximately 76% to U.S. and Canada-based customers, 22% to domestic exporters and 2% to international customers. During the six months ended April 30, 2013, lemon sales were comprised of approximately 71% to U.S. and Canada-based customers, 28% to domestic exporters and 1% to international customers. We are a member of Sunkist, an agricultural marketing cooperative, and we sell our oranges, specialty citrus and other crops to Sunkist-licensed and other third-party packinghouses.
 
Historically, our agricultural operations have been seasonal in nature with quarterly revenue fluctuating depending on the timing and variety of the crops being harvested. Cultural costs in our agribusiness segment tend to be higher in the first and second quarters and lower in the third and fourth quarters because of the timing of expensing cultural costs in the current year that were inventoried in the prior year. Our harvest costs generally increase in the second quarter and peak in the third quarter coinciding with the increasing production and revenue.
 
23	

 	
 
Fluctuations in price are a function of global supply and demand with weather conditions, such as unusually low or high temperatures, typically having the most dramatic effect on the amount of lemons supplied in any individual growing season. We believe we have a competitive advantage by operating our own lemon packing operation, even though a significant portion of the costs related to our lemon packing operations are fixed. As a result, cost per carton is a function of fruit throughput. While we regularly monitor our costs for redundancies and opportunities for cost reductions, we also supplement the number of lemons we pack in our packinghouse with additional lemons from other growers. Because the fresh utilization rate for our lemons, or the percentage of lemons we harvest and pack that go to the fresh market, is directly related to the quality of lemons we pack and, consequently, the price we receive per 40-pound carton, we only pack lemons from other growers if we determine their lemons are of high quality.
 
Our avocado producing business is important to us yet nevertheless faces some constraints on growth as there is little additional land that can be cost-effectively acquired to support new avocado orchards in Southern California. Also, avocado production is cyclical as avocados typically bear fruit on a bi-annual basis with large crops in one year followed by smaller crops the next year. While our avocado production remains volatile, the profitability and cash flow realized from our avocados frequently offsets occasional losses in other crops we grow and helps to diversify our fruit production base.
 
In addition to growing lemons and avocados, we also grow oranges, specialty citrus and other crops, typically utilizing land not suitable for growing high quality lemons. We regularly monitor the demand for the fruit we grow in the ever-changing marketplace to identify trends. For instance, while per capita consumption of oranges in the United States has been decreasing since 2000 primarily as a result of consumers increasing their consumption of mandarin oranges and other specialty citrus, the international market demand for U.S. oranges has increased. As a result, we have focused our orange production on high quality late season Navel and Valencia oranges primarily for export to Japan, China and Korea, which are typically highly profitable niche markets. We produce our specialty citrus and other crops in response to consumer trends we identify and believe that we are a leader in the niche production and sale of certain of these high margin fruits. Because we carefully monitor the respective markets of specialty citrus and other crops, we believe that demand for the types and varieties of specialty citrus and other crops that we grow will continue to increase throughout the world.
 
Rental Operations
 
Our rental operations segment represented approximately 6% of our fiscal year 2012 consolidated revenues and approximately 7% of our fiscal year 2011 and 2010 consolidated revenues. Our rental housing units generate reliable cash flows which we use to partially fund the operations of all three of our business segments, and provide affordable housing to many of our employees, including our agribusiness employees, a unique employment benefit that helps us maintain a dependable, long-term employee base. In addition, our leased land business provides us with a typically profitable diversification. Revenue from our rental operations segment is generally level throughout the year.
 
Real Estate Development
 
Our real estate development segment represented 1% of our consolidated revenues in fiscal year 2012, 5% of our consolidated revenues in fiscal year 2011 and 6% of our consolidated revenues in fiscal year 2010. We recognize that long-term strategies are required for successful real estate development activities. We plan to redeploy real estate earnings and cash flow into the expansion of our agribusiness and other income producing real estate.
 
Recent Developments
 
In February, 2013, our East Area 1 real estate development project was annexed into the City of Santa Paula. The annexation enables us to proceed with our master planned community project consisting of 1,500 residential units, 210,000 square feet of commercial space and 350,000 square feet of light industrial space. Annexation into the City of Santa Paula was required in order to re-zone the land for residential, commercial and light industrial development. We plan to begin tract mapping of the area for development, applying for infrastructure building permits and expect to break ground on the project in 2014. In May 2013, the Ventura Local Area Formation Commission unanimously approved the annexation of our East Area 2 real estate development project into the City of Santa Paula. The annexation is expected to be completed and recorded during June 2013.
 
On August 24, 2011, our shelf registration statement became effective for an aggregate amount of up to $100 million of common stock. During February 2013, we completed the sale of 2,070,000 shares of common stock, at a price of $18.50 per share, to institutional and other investors in a registered offering under the shelf registration statement. The offering represented 16% of our outstanding common stock on an after-issued basis. Upon completion of the offering and issuance of common stock, we had 13,307,085 shares of common stock outstanding. The gross proceeds of the offering totaled $38,295,000 and after an underwriting discount of $2,106,000 and other offering expenses of $266,000, the net proceeds were $35,923,000. The planned use of proceeds from the offering are general corporate purposes, which may include repayment of debt, real estate development, including activities related to East Area 1 and future acquisitions of agriculture properties. During February 2013, we used the net offering proceeds to repay long-term debt.
 
24	

 	
 
On March 25, 2013, we declared a $0.0375 per share dividend paid on April 16, 2013 in the aggregate amount of $499,000 to common shareholders of record on April 8, 2013.
 
In April 2013, we purchased land for use as a citrus orchard for a purchase price of $375,000 cash. The acquisition was for approximately 25 acres of agricultural property located adjacent to the Sheldon Ranch. This acquisition was accounted for as an asset purchase with substantially the entire purchase price allocated to land.
 
On April 8, 2013, the Company and HM East Ridge, LLC entered into a Purchase and Sale Agreement to sell its East Ridge parcel of property for $6,000,000. The property is located in the city of Santa Maria, County of Santa Barbara, California and includes approximately 40 acres of land. The transaction is expected to close in June 2013 and will generate net proceeds of approximately $5,750,000. During April 2013, the Company wrote down its investment in HM East Ridge, LLC and recognized a loss of $1,814,000, which is included in equity in losses of investments in the accompanying consolidated statements of operations.
 
On April 11, 2013, we sold 165,000 shares of Calavo Growers, Inc. (“Calavo ”) common stock at a price of $29.02 per share (the closing price on April 10, 2013). Calavo repurchased the shares pursuant to a stock purchase agreement between the companies in 2005. Following the sale of shares of Calavo, we continue to own 500,000 shares of Calavo common stock. The net proceeds to our Company from the sale were approximately $4.8 million, resulting in a gain of $3.1 million. We used the proceeds to repay our long-term debt.
 
Results of Operations
 
The following table shows the results of operations for the three and six months ended April 30:
 
 	 	Quarter Ended April 30,	 	 	Six Months Ended April 30,	 	
 	 	2013	 	 	2012	 	 	2013	 	 	2012	 	
Revenues:	 	 	 	 	 	 	 	 	 	 	 	 	
Agribusiness	 	$	22,190,000	 	 	$	15,046,000	 	 	$	38,488,000	 	 	$	24,248,000	 	
Rental operations	 	 	1,055,000	 	 	 	1,006,000	 	 	 	2,091,000	 	 	 	1,997,000	 	
Real estate development	 	 	41,000	 	 	 	44,000	 	 	 	89,000	 	 	 	88,000	 	
Total revenues	 	 	23,286,000	 	 	 	16,096,000	 	 	 	40,668,000	 	 	 	26,333,000	 	
Costs and expenses:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Agribusiness	 	 	17,262,000	 	 	 	11,680,000	 	 	 	35,849,000	 	 	 	23,070,000	 	
Rental operations	 	 	638,000	 	 	 	530,000	 	 	 	1,257,000	 	 	 	1,098,000	 	
Real estate development	 	 	226,000	 	 	 	241,000	 	 	 	469,000	 	 	 	489,000	 	
Selling, general and administrative	 	 	2,774,000	 	 	 	2,513,000	 	 	 	6,039,000	 	 	 	5,284,000	 	
Total costs and expenses	 	 	20,900,000	 	 	 	14,964,000	 	 	 	43,614,000	 	 	 	29,941,000	 	
Operating income (loss):	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Agribusiness	 	 	4,928,000	 	 	 	3,366,000	 	 	 	2,639,000	 	 	 	1,178,000	 	
Rental operations	 	 	417,000	 	 	 	476,000	 	 	 	834,000	 	 	 	899,000	 	
Real estate development	 	 	(185,000	)	 	 	(197,000	)	 	 	(380,000	)	 	 	(401,000	)	
Selling, general and administrative	 	 	(2,774,000	)	 	 	(2,513,000	)	 	 	(6,039,000	)	 	 	(5,284,000	)	
Operating income (loss)	 	 	2,386,000	 	 	 	1,132,000	 	 	 	(2,946,000	)	 	 	(3,608,000	)	
Other income (expense):	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Interest expense	 	 	-	 	 	 	(71,000	)	 	 	(124,000	)	 	 	(246,000	)	
Interest income from derivative instrument	 	 	221,000	 	 	 	196,000	 	 	 	442,000	 	 	 	355,000	 	
Gain on sale of stock in Calavo Growers, Inc.	 	 	3,138,000	 	 	 	-	 	 	 	3,138,000	 	 	 	-	 	
Interest income and other	 	 	(7,000	)	 	 	(110,000	)	 	 	434,000	 	 	 	260,000	 	
Total other income	 	 	3,352,000	 	 	 	15,000	 	 	 	3,890,000	 	 	 	369,000	 	
Income tax (provision) benefit	 	 	(1,427,000	)	 	 	(385,000	)	 	 	228,000	 	 	 	1,195,000	 	
Equity in losses of investments	 	 	(1,806,000	)	 	 	(25,000	)	 	 	(1,789,000	)	 	 	(28,000	)	
Net income (loss)	 	$	2,505,000	 	 	$	737,000	 	 	$	(617,000	)	 	$	(2,072,000	)	
 
25	

 	
 
Non-GAAP Financial Measures
 
Due to significant depreciable assets associated with the nature of our operations and interest costs associated with our capital structure, management believes that earnings before interest, income taxes, depreciation and amortization (“EBITDA”) and adjusted EBITDA, which excludes impairments on real estate development assets when applicable, is an important measure to evaluate our results of operations between periods on a more comparable basis. Such measurements are not prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) and should not be construed as an alternative to reported results determined in accordance with GAAP. The non-GAAP information provided is unique to our Company and may not be consistent with methodologies used by other companies. EBITDA is summarized and reconciled to net income (loss) which management considers to be the most directly comparable financial measure calculated and presented in accordance with GAAP as follows:
 
 	 	Quarter ended April 30,	 	 	Six Months Ended April 30,	 	
 	 	2013	 	 	2012	 	 	2013	 	 	2012	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Net income (loss)	 	$	2,505,000	 	 	$	737,000	 	 	$	(617,000	)	 	$	(2,072,000	)	
Total interest income, net	 	 	(243,000	)	 	 	(152,000	)	 	 	(364,000	)	 	 	(161,000	)	
Income taxes	 	 	1,427,000	 	 	 	385,000	 	 	 	(228,000	)	 	 	(1,195,000	)	
Depreciation and amortization	 	 	545,000	 	 	 	546,000	 	 	 	1,087,000	 	 	 	1,066,000	 	
EBITDA	 	$	4,234,000	 	 	$	1,516,000	 	 	$	(122,000	)	 	$	(2,362,000	)	
 
Second Quarter Fiscal Year 2013 Compared to Second Quarter Fiscal Year 2012
 
Revenues
 
Total revenue for the second quarter of fiscal year 2013 was $23.3 million compared to $16.1 million for the second quarter of fiscal year 2012. The 45% increase of $7.2 million was primarily the result of increased agribusiness revenue, as detailed below:
 
 	 	Agribusiness Revenues for the Quarters Ended April 30,	
 	 	2013	 	 	2012	 	 	Change	
 	 	 	 	 	 	 	 	 	
Lemons	 	$	15,513,000	 	 	$	12,398,000	 	 	$	3,115,000	 	 	25%	
Avocados	 	 	2,700,000	 	 	 	601,000	 	 	 	2,099,000	 	 	349%	
Navel and Valencia oranges	 	 	2,258,000	 	 	 	788,000	 	 	 	1,470,000	 	 	187%	
Specialty citrus and other crops	 	 	1,719,000	 	 	 	1,259,000	 	 	 	460,000	 	 	37%	
Agribusiness revenues	 	$	22,190,000	 	 	$	15,046,000	 	 	$	7,144,000	 	 	47%	
 
 	·	Lemons: The increase in the second quarter of fiscal year 2013 was primarily the result of increased volume of fresh lemons sold, partially offset by lower prices. During the second quarters of fiscal years 2013 and 2012, fresh lemon sales were $13.2 million and $11.1 million, respectively, on 912,000 and 688,000 cartons of lemons sold at average per carton prices of $14.47 and $16.13, respectively. The lower average per carton prices in fiscal year 2013 compared to fiscal year 2012 were primarily due to less favorable overall market conditions. Additionally, lemon by-product and other lemon sales were $2.4 million in the second quarter of fiscal year 2013 compared to $1.3 million during the same period in fiscal year 2012	
 
 	·	Avocados: The increase in the second quarter of fiscal year 2013 was primarily the result of increased volume, partially offset by lower prices. The California avocado crop typically experiences alternating years of high and low production due to plant physiology. During the second quarter of fiscal year 2013, 3.3 million pounds of avocados were sold at an average per pound price of $0.82 compared to 0.6 million pounds sold at an average per pound price of $1.00 during the same period in fiscal year 2012.	
 
 	·	Navel and Valencia oranges: The increase in the quarter of fiscal year 2013 was primarily the result of increased volume from the Sheldon Ranch. In accordance with the terms of the Sheldon Ranch leases, we did not share in the citrus crop revenue in fiscal year 2012. During the second quarter of fiscal year 2013, 272,000 field boxes of oranges were sold at an average per field box price of $8.30 compared to 90,000 field boxes sold at an average per field box price of $8.76 during the same period in fiscal year 2012	
 
26	

 	
 
 	·	Specialty citrus and other crops: The increase in the second quarter of fiscal year 2013 was primarily the result of increased volume of specialty citrus sold at higher prices. During the second quarter of fiscal year 2013, 99,000 field boxes of specialty citrus were sold at an average per field box price of $17.36 compared to 83,000 field boxes sold at an average per field box price of $15.17 during the same period in fiscal year 2012.	
 
Costs and Expenses
 
Our total costs and expenses in the second quarter of fiscal year 2013 were $20.9 million compared to $15.0 million in the second quarter of fiscal year 2012, for a 40% increase of $5.9 million. This increase was primarily attributable to increases in our agribusiness costs and selling, general and administrative expenses. Costs associated with our agribusiness include packing costs, harvest costs, growing costs, costs related to the lemons we process and sell for third-party growers and depreciation expense. These costs are discussed further below:
 
 	 	Agribusiness Costs and Expenses for the Quarters Ended April 30,	
 	 	2013	 	 	2012	 	 	Change	
 	 	 	 	 	 	 	 	 	
Packing costs	 	$	4,951,000	 	 	$	3,307,000	 	 	$	1,644,000	 	 	50%	
Harvest costs	 	 	2,848,000	 	 	 	1,648,000	 	 	 	1,200,000	 	 	73%	
Growing costs	 	 	3,804,000	 	 	 	2,167,000	 	 	 	1,637,000	 	 	76%	
Third-party grower costs	 	 	5,273,000	 	 	 	4,172,000	 	 	 	1,101,000	 	 	26%	
Depreciation and amortization	 	 	386,000	 	 	 	386,000	 	 	 	-	 	 	-	
Agribusiness costs and expenses	 	$	17,262,000	 	 	$	11,680,000	 	 	$	5,582,000	 	 	48%	
 
 	·	Packing costs: Packing costs consist of the costs to pack lemons for sale such as labor and benefits, cardboard cartons, fruit treatments, packing and shipping supplies and facility operating costs. The increase in the second quarter of fiscal year 2013 was primarily attributable to a higher volume of fresh lemons packed and sold compared to the same period in fiscal year 2012. During the second quarter of fiscal year 2013, we packed and sold 912,000 cartons at average per carton costs of $5.43 compared to 688,000 cartons packed and sold at average per carton costs of $4.81during the same period in fiscal year 2012. The $0.62 increase in average per carton costs during the second quarter of fiscal year 2013 was mainly due to $0.19 per carton increase in costs for purchased, packed fruit to sell, $0.15 per carton increase in labor and benefits and $0.28 per carton net increase in supplies and other packing costs compared to the same period in fiscal year 2012.	
 
 	·	Harvest costs: The increase in the second quarter of fiscal year 2012 was primarily attributable to higher avocado, Navel orange and specialty citrus harvest volumes compared to the same period in fiscal year 2012.	
 
 	·	Growing costs: Growing costs, also referred to as cultural costs, consist of orchard maintenance costs such as cultivation, fertilization and soil amendments, pest control, pruning and irrigation. The increase in the second quarter of fiscal year 2013 was primarily attributable to $0.9 million growing costs from the Sheldon Ranch, comprised of $0.7 million of costs associated with the current harvest period and $0.2 million of net lease expense. The Sheldon Ranch incurred $0.1 million of growing costs during the second quarter of fiscal year 2012, comprised primarily of net lease expense. Additionally, during the second quarter of fiscal year 2013, fertilization and soil amendments, pest control and pruning increased, in aggregate, $0.6 million on our remaining ranches due to weather and the timing of harvest cycles compared to the second quarter of fiscal year 2012.	
 
 	·	Third-party grower costs: We sell lemons that we grow and lemons that we procure from other growers. The cost of procuring lemons from other growers is referred to as third-party grower costs. The increase in the second quarter of fiscal year 2013 was primarily attributable to a higher percentage of third-party grower lemons relative to the total volume of cartons sold. Of the 912,000 and 688,000 cartons sold during the second quarter of fiscal years 2013 and 2012, respectively, 536,000 (59%) and 338,000 (49%) were procured from third-party growers at average per carton costs of $9.84 and $12.34, respectively. As a result of our agreement with Associated Citrus Packers, we sold 81,000 cartons of lemons procured from Arizona in the second quarter of 2013 compared to zero in the second quarter of fiscal year 2012.	
 
Selling, general and administrative costs in the second quarter of fiscal year 2013 were $2.8 million compared to $2.5 million for the second quarter of fiscal year 2012. This 10% increase of $0.3 million was primarily due to the following:
 
27	

 	
 
 	·	$0.1 million increase in salaries, benefits and incentive compensation due to employee compensation increases and vesting of stock-based compensation in the second quarter of fiscal year 2013 compared to the same period in fiscal year 2012.	
 
 	·	$0.1 million increase in selling expenses due to increased lemon sales volume in the second quarter of fiscal year 2013 compared to the same period in fiscal year 2012.	
 
 	·	$0.1 million increase in other selling, general and administrative expenses, including certain consulting expenses associated with our strategic growth initiatives, in the second quarter of fiscal year 2013 compared to the same period in fiscal year 2012.	
 
Other Income (Expense)
 
Other income (expense) for the second quarter of fiscal year 2013 was $3.4 million of income compared to $15,000 of income for the second quarter of fiscal year 2012. The $3.3 million increase in income was primarily attributable to the following:
 
 	·	$0.1 million decrease in interest expense as a result of lower average debt levels in the second quarter of fiscal year 2013 compared to the same period in fiscal year 2012 due to repayments of long-term debt made with the proceeds from our February 2013 public offering of common stock. As a result, all interest incurred during the second quarter of fiscal year 2013 was capitalized on non-bearing orchards, real estate development projects and significant construction in progress.	
 
 	·	$3.1 million gain on the sale of stock in Calavo in the second quarter of fiscal year 2013. There was no such gain in the second quarter of fiscal year 2012.	
 
 	·	$0.1 million decrease in other expense, net in the second quarter of fiscal year 2013 compared to the same period in fiscal year 2012.	
 
Income Taxes
 
We recorded an estimated income tax provision of $1.4 million in the second quarter of fiscal year 2013 on pre-tax earnings of $3.9 million compared to an estimated income tax provision of $0.4 million on pre-tax earnings of $1.1 million in the second quarter of fiscal year 2012.
 
Our projected annual effective tax rate for fiscal year 2012 is 36.1% at April 30, 2013, resulting in a 36.3% effective tax rate, after certain discrete items, for the second quarter of fiscal year 2012. In comparison, our projected annual effective tax rate was 34.0% at April 30, 2012, resulting in a 34.3% effective tax rate, after certain discrete items, for the second quarter of fiscal year 2012.
 
Equity in Losses of Investments
 
Equity in losses of investments was $1.8 million for the second quarter of fiscal year 2013 compared to $25,000 for the second quarter of fiscal year 2012. The $1.8 million increase in losses is primarily due to a loss recognized on our investment in HM East Ridge, LLC resulting from an agreement to sell the property owned by the LLC at an amount below net book value. The sale of the property is expected to close in June 2013.
 
Six Months Ended April 30, 2013 Compared to the Six Months Ended April 30, 2012
 
Revenues
 
Total revenue for the six months ended April 30, 2013 was $40.7 million compared to $26.3 million for the six months ended April 30, 2012. The 54% increase of $14.4 million was primarily the result of increased agribusiness revenues as detailed below:
 
 	 	Agribusiness Revenues for the Six Months Ended April 30,	
 	 	2013	 	 	2012	 	 	Change	
 	 	 	 	 	 	 	 	 	
Lemons	 	$	29,481,000	 	 	$	20,165,000	 	 	$	9,316,000	 	 	46%	
Avocados	 	 	2,707,000	 	 	 	725,000	 	 	 	1,982,000	 	 	273%	
Navel and Valencia oranges	 	 	3,698,000	 	 	 	1,288,000	 	 	 	2,410,000	 	 	187%	
Specialty citrus and other crops	 	 	2,602,000	 	 	 	2,070,000	 	 	 	532,000	 	 	26%	
Agribusiness revenues	 	$	38,488,000	 	 	$	24,248,000	 	 	$	14,240,000	 	 	59%	
 
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 	·	Lemons: The increase in the first six months of fiscal year 2013 was primarily the result of increased volume of fresh lemons sold partially offset by lower prices. During the first six months of fiscal years 2012 and 2011, fresh lemon sales were $25.9 million and $18.3 million, respectively, on 1,749,000 and 1,103,000 cartons of lemons sold at average per carton prices of $14.81 and $16.59, respectively. The lower average per carton prices in fiscal year 2013 compared to fiscal year 2012 were primarily due to less favorable overall market conditions. Additionally, lemon by-product and other lemon sales were $3.6 million in the first six months of fiscal year 2013 compared to $1.9 million during the same period in fiscal year 2012.	
 
 	·	Avocados: The increase in the first six months of fiscal year 2013 was primarily the result of increased volume, partially offset by lower prices. The California avocado crop typically experiences alternating years of high and low production due to plant physiology. During the first six months of fiscal year 2013, 3.3 million pounds of avocados were sold at an average per pound price of $0.82 per pound compared to 0.8 million pounds sold at an average per pound price of $0.91 during the same period in fiscal year 2012.	
 
 	·	Navel and Valencia oranges: The increase in the first six months of fiscal year 2013 was primarily the result of increased volume from the Sheldon Ranch. In accordance with the terms of the Sheldon Ranch leases, we did not share in the citrus crop revenue in fiscal year 2012. During the first six months of fiscal year 2013, 444,000 field boxes of oranges were sold at an average per field box price of $8.33 compared to 154,000 field boxes sold at an average per field box price of $8.36 during the same period in fiscal year 2012.	
 
 	·	Specialty citrus and other crops: The increase in the first six months of fiscal year 2013 is primarily the result of increased volume of specialty citrus sold at higher prices. During the first six months of fiscal year 2013, 162,000 field boxes of specialty citrus were sold at an average per field box price of $16.06 compared to 148,000 field boxes sold at an average per field box price of $13.99 during the same period in fiscal year 2012.	
 
Costs and Expenses
 
Total costs and expenses for the six months ended April 30, 2013 were $43.6 million compared to $29.9 million for the six months ended April 30, 2012, for a 46% increase of $13.7 million. This increase was primarily attributable to increases in our agribusiness costs and selling, general and administrative expenses. Costs associated with our agribusiness include packing costs, harvest costs, growing costs, costs related to the lemons we process for third-party growers and depreciation expense. These costs are discussed further below:
 
 	 	Agribusiness Costs and Expenses for the Six Months Ended April 30,	
 	 	2013	 	 	2012	 	 	Change	
 	 	 	 	 	 	 	 	 	
Packing costs	 	$	9,638,000	 	 	$	5,937,000	 	 	$	3,701,000	 	 	62%	
Harvest costs	 	 	3,685,000	 	 	 	2,367,000	 	 	 	1,318,000	 	 	56%	
Growing costs	 	 	7,476,000	 	 	 	5,133,000	 	 	 	2,343,000	 	 	46%	
Third-party grower costs	 	 	14,271,000	 	 	 	8,885,000	 	 	 	5,386,000	 	 	61%	
Depreciation and amortization	 	 	779,000	 	 	 	748,000	 	 	 	31,000	 	 	4%	
Agribusiness costs and expenses	 	$	35,849,000	 	 	$	23,070,000	 	 	$	12,779,000	 	 	55%	
 
 	·	Packing costs: Packing costs consist of the costs to pack lemons for sale such as labor and benefits, cardboard cartons, fruit treatments, packing and shipping supplies and facility operating costs. The increase in the first six months of fiscal year 2013 was primarily attributable to a higher volume of fresh lemons packed and sold compared to the same period in fiscal year 2012. During the first six months of fiscal year 2013, we packed and sold 1,749,000 cartons of lemons at average per carton costs of $5.51 compared to 1,103,000 cartons packed and sold at average per carton costs of $5.38 during the same period in fiscal year 2012. The $0.13 increase in average per carton costs during the first six months of fiscal year 2013 was mainly due to $0.08 per carton increase in costs for purchased, packed fruit to sell and $0.08 per carton increase in cardboard cartons, partially offset by $0.03 per carton net decrease in supplies and other packing costs compared to the same period in fiscal year 2012.	
 
 	·	Harvest costs: The increase in the first six months of fiscal year 2012 was primarily attributable to higher avocado, Navel orange and specialty citrus harvest volumes compared to the same period in fiscal year 2012.	
 
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 	·	Growing costs: Growing costs, also referred to as cultural costs, consist of orchard maintenance costs such as cultivation, fertilization and soil amendments, pest control, pruning and irrigation. The increase in the first six months of fiscal year 2013 is primarily attributable to $1.5 million growing costs from the Sheldon Ranch, comprised of $0.8 million of costs associated with the current harvest period, $0.4 million net amortization of costs capitalized in fiscal year 2012 and $0.3 million of net lease expense. The Sheldon Ranch incurred $0.2 million of growing costs during the first six months of fiscal year 2012, comprised primarily of net lease expense. Additionally, during the first six months of 2013, cultivation and fertilizer and soil amendments increased, in aggregate, $0.4 million on our remaining ranches due to weather and the timing of harvest cycles compared to the same period in fiscal year 2012.	
 
 	·	Third-party grower costs: We sell lemons that we grow and lemons that we procure from other growers. The cost of procuring lemons from other growers is referred to as third-party grower costs. The increase in the first six months of fiscal year 2013 was primarily attributable to a higher percentage of third-party grower lemons relative to the total volume of cartons sold. Of the 1,749,000 and 1,103,000 cartons sold during the first six months of fiscal years 2013 and 2012, respectively, 1,324,000 (76%) and 693,000 (63%) were procured from third-party growers at average per carton costs of $10.78 and $12.82, respectively. As a result of our agreement with Associated Citrus Packers, we sold 588,000 cartons of lemons procured from Arizona in the first six months of 2013 compared to zero in the first six months of fiscal year 2012.	
 
Selling, general and administrative expenses for the six months ended April 30, 2013 were $6.0 million compared to $5.3 million in the same period in fiscal year 2012. This 14% increase of $0.7 million was primarily attributable to the following:
 
 	·	$0.3 million increase for salaries, benefits and incentive compensation due to employee compensation increases and vesting of stock-based compensation in the first six months of fiscal year 2013 compared to the same period in fiscal year 2012.	
 
 	·	$0.2 million increase in selling expenses due to increased lemon sales volume in the first six months of fiscal year 2013 compared to the same period in fiscal year 2012.	
 
 	·	$0.2 million net increase in other selling, general and administrative expenses, including certain consulting expenses associated with our strategic growth initiatives, in the first six months of fiscal year 2013 compared to the same period in fiscal year 2012.	
 
Other Income (Expense)
 
Other income (expense) for the six months ended April 30, 2013 was $3.9 million of income compared to $0.4 million of income for the same period in fiscal year 2012. The $3.5 million increase in income was primarily attributable to the following:
 
 	·	$0.1 million decrease in interest expense as a result of lower average debt levels in the first six months of fiscal year 2013 compared to the same period in fiscal year 2012 due to repayments of long-term debt made with the proceeds from our February 2013 public offering of common stock. As a result, all interest incurred during the second quarter of fiscal year 2013 was capitalized on non-bearing orchards, real estate development projects and significant construction in progress.	
 
 	·	$0.1 million increase in income from fair value adjustments on one of our interest rate swaps in the first six months of fiscal year 2013 compared to the same period in fiscal year 2012.	
 
 	·	$3.1 million gain on the sale of stock in Calavo in the first six months of fiscal year 2013. There was no such gain in the first six months of fiscal year 2012.	
 
 	·	$0.2 million increase in other income, net in the first six months of fiscal year 2013 due primarily to a $0.1 million increase in Calavo dividend received compared to the same period in fiscal year 2012.	
 
Income Taxes
 
We recorded an estimated income tax benefit of $0.2 million in the six months ended April 30, 2013 on a pre-tax loss of $0.8 million compared to an estimated income tax benefit of $1.2 million on a pre-tax loss of $3.3 million in the six months ended April 30, 2012.
 
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Our projected annual effective tax rate for fiscal year 2013 is 36.1% at April 30, 2013, resulting in a 27.0% effective tax rate, after certain discrete items, for the six months ended April 30, 2013. In comparison, our projected annual effective tax rate was 34.0% at April 30, 2012, resulting in a 36.6% effective tax rate, after certain discrete items, for the six months ended April 30, 2012.
 
Equity in Losses of Investments
 
Equity in losses of investments for the six months ended April 30, 2013 was $1.8 million compared to $28,000 for the same period in fiscal year 2012. The $1.8 million increase is primarily due to a loss recognized on our investment in HM East Ridge, LLC resulting from an agreement to sell the property owned by the LLC at an amount below net book value. The sale of the property is expected to close in June 2013.
 
Segment Results of Operations
 
We evaluate the performance of our agribusiness, rental operations and real estate development segments separately to monitor the different factors affecting financial results. Each segment is subject to review and evaluations for current market conditions, market opportunities and available resources. The following table shows the segment results of operations for the second quarter and six months ended April 30, 2013 and 2012:
 
 	 	Quarter Ended April 30,	 	Six Months Ended April 30,	
 	 	2013	 	2012	 	2013	 	2012	
Revenues:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Agribusiness	 	$	22,190,000	 	 	95%	 	$	15,046,000	 	 	93%	 	$	38,488,000	 	 	95%	 	$	24,248,000	 	 	92%	
Rental operations	 	 	1,055,000	 	 	5%	 	 	1,006,000	 	 	6%	 	 	2,091,000	 	 	5%	 	 	1,997,000	 	 	7%	
Real estate development	 	 	41,000	 	 	-	 	 	44,000	 	 	1%	 	 	89,000	 	 	-	 	 	88,000	 	 	1%	
Total revenues	 	 	23,286,000	 	 	100%	 	 	16,096,000	 	 	100%	 	 	40,668,000	 	 	100%	 	 	26,333,000	 	 	100%	
Costs and expenses:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Agribusiness	 	 	17,262,000	 	 	83%	 	 	11,680,000	 	 	78%	 	 	35,849,000	 	 	82%	 	 	23,070,000	 	 	77%	
Rental operations	 	 	638,000	 	 	3%	 	 	530,000	 	 	4%	 	 	1,257,000	 	 	3%	 	 	1,098,000	 	 	4%	
Real estate development	 	 	226,000	 	 	1%	 	 	241,000	 	 	1%	 	 	469,000	 	 	1%	 	 	489,000	 	 	1%	
Corporate and other	 	 	2,774,000	 	 	13%	 	 	2,513,000	 	 	17%	 	 	6,039,000	 	 	14%	 	 	5,284,000	 	 	18%	
Total costs and expenses	 	 	20,900,000	 	 	100%	 	 	14,964,000	 	 	100%	 	 	43,614,000	 	 	100%	 	 	29,941,000	 	 	100%	
Operating income (loss):	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Agribusiness	 	 	4,928,000	 	 	 	 	 	3,366,000	 	 	 	 	 	2,639,000	 	 	 	 	 	1,178,000	 	 	 	
Rental operations	 	 	417,000	 	 	 	 	 	476,000	 	 	 	 	 	834,000	 	 	 	 	 	899,000	 	 	 	
Real estate development	 	 	(185,000	)	 	 	 	 	(197,000	)	 	 	 	 	(380,000	)	 	 	 	 	(401,000	)	 	 	
Corporate and other	 	 	(2,774,000	)	 	 	 	 	(2,513,000	)	 	 	 	 	(6,039,000	)	 	 	 	 	(5,284,000	)	 	 	
Total operating income (loss)	 	$	2,386,000	 	 	 	 	$	1,132,000	 	 	 	 	$	(2,946,000	)	 	 	 	$	(3,608,000	)	 	 	
 
Second Quarter of Fiscal Year 2013 Compared to the Second Quarter of Fiscal Year 2012
 
The following analysis should be read in conjunction with the previous section “Results of Operations”.
 
Agribusiness
 
For the second quarter of fiscal year 2013, our agribusiness segment revenue was $22.2 million compared to $15.0 million for the second quarter of fiscal year 2012. The 47% increase of $7.2 million primarily reflected higher lemon, avocado and orange revenue for the fiscal year 2013 second quarter compared to the fiscal year 2012 second quarter. The increase in agribusiness revenue consisted of the following:
 
 	·	Lemon revenue for the second quarter of fiscal year 2013 was $3.1 million higher than the second quarter of fiscal year 2012.	
 
 	·	Avocado revenue for the second quarter of fiscal year 2013 was $2.1 million higher than the second quarter of fiscal year 2012.	
 
 	·	Navel and Valencia orange revenues for the second quarter of fiscal year 2013 were $1.5 million higher than the second quarter of fiscal year 2012.	
 
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 	·	Specialty citrus and other crop revenues for the second quarter of fiscal year 2013 were $0.5 million higher than the second quarter of fiscal year 2012.	
 
Costs associated with our agribusiness segment include packing costs, harvest costs, growing costs, costs related to the lemons we process and sell for third-party growers and depreciation expense. For the second quarter of fiscal year 2013, our agribusiness costs were $17.3 million compared to $11.7 million for the second quarter of fiscal year 2012. The 48% increase of $5.6 million primarily consisted of the following:
 
 	·	Packing costs for the second quarter of fiscal year 2013 were $1.6 million higher than the second quarter of fiscal year 2012.	
 
 	·	Harvest costs for the second quarter of fiscal year 2013 were $1.2 million higher than the second quarter of fiscal year 2012.	
 
 	·	Cultural costs for the second quarter of fiscal year 2013 were $1.6 million higher than the second quarter of fiscal year 2012.	
 
 	·	Third-party grower costs for the second quarter of fiscal year 2013 were $1.1 million higher than the second quarter of fiscal year 2011.	
 
 	·	Depreciation and amortization expense was similar quarter to quarter at approximately $0.4 million.	
 
Rental Operations
 
Our rental operations segment had revenues of approximately $1.1 million and $1.0 million in the second quarters of fiscal years 2013 and 2012, respectively. All three areas of this segment (residential and commercial rental operations, leased land and organic recycling) were similar quarter to quarter.
 
Costs in our rental operations segment were approximately $0.5 million and $0.4 million in the second quarters of fiscal years 2013 and 2012, respectively. Depreciation expense was similar quarter to quarter at approximately $0.1 million.
 
Real Estate Development
 
Our real estate development segment had no significant revenues in the second quarters of fiscal years 2013 and 2012.
 
Real estate development costs and expenses were approximately $0.2 million in the second quarters of fiscal years 2013 and 2013.
 
Corporate and Other
 
Corporate costs and expenses include selling, general and administrative costs and other costs not allocated to the operating segments. Corporate and other costs for the second quarter of fiscal year 2013 were approximately $0.3 million higher than the second quarter of fiscal year 2012. Depreciation expense was similar quarter to quarter at approximately $50,000.
 
Six Months Ended April 30, 2013 Compared to the Six Months Ended April 30, 2012
 
The following analysis should be read in conjunction with the previous section “Results of Operations”.
 
Agribusiness
 
For the six months ended April 30, 2013, our agribusiness segment revenue was $38.5 million compared to $24.2 million for the six months ended April 30, 2012. The 59% increase of $14.3 million primarily reflected higher lemon, avocado and orange revenue for the fiscal year 2013 period compared to the fiscal year 2012 period. The increase in agribusiness revenue primarily consisted of the following:
 
 	·	Lemon revenue for the six months ended April 30, 2013 was $9.3 million higher than the six months ended April 30, 2012.	
  
 	·	Avocado revenue for the six months ended April 30, 2013 was $2.0 million higher than the six months ended April 30, 2012.	
 
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 	·	Navel and Valencia orange revenues for the six months ended April 30, 2013 were $2.4 million higher than the six months ended April 30, 2012.	
 
 	·	Specialty citrus and other crop revenues for the six months ended April 30, 2013 were $0.5 million higher than the six months ended April 30, 2012.	
 
Costs associated with our agribusiness segment include packing costs, harvest costs, growing costs, costs related to the lemons we process and sell for third-party growers and depreciation expense. For the six months ended April 30, 2013, our agribusiness costs and expenses were $35.8 million compared to $23.1 million for the six months ended April 30, 2012. The 55% increase of $12.7 million primarily consisted of the following:
 
 	·	Packing costs for the six months ended April 30, 2013 were $3.7 million higher than the six months ended April 30, 2012.	
 
 	·	Harvest costs for the six months ended April 30, 2012 were $1.3 million higher than the six months ended April 30, 2012.	
 
 	·	Growing costs for the six months ended April 30, 2013 were $2.3 million higher than the six months ended April 30, 2012.	
 
 	·	Third-party grower costs for the six months ended April 30, 2013 were $5.4 million higher than the six months ended April 30, 2012.	
 
 	·	Depreciation and amortization expense was similar period to period at approximately $0.8 million.	
 
Rental Operations
 
Our rental operations segment had revenues of approximately $2.1 million and $2.0 million in the six months ended April 30, 2013 and 2012, respectively. All three areas of this segment (residential and commercial rental operations, leased land and organic recycling) were similar period to period.
 
Costs in our rental operations segment were approximately $1.1 million and $0.9 million for the six months ended April 30, 2013 and 2012, respectively. Depreciation expense was similar period to period at approximately $0.2 million.
 
Real Estate Development
 
Our real estate development segment had revenues of approximately $0.1 million in the six month periods ended April 30, 2013 and 2012.
 
Real estate development costs and expenses were approximately $0.5 million for the six months ended April 30, 2013 and 2012.
 
Corporate and Other
 
Corporate costs and expenses include selling, general and administrative costs and other costs not allocated to the operating segments. Corporate and other costs for the six months ended April 30, 2013 were approximately $0.7 million higher than the six months ended April 30, 2012. Depreciation expense was similar period to period at approximately $0.1 million.
 
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Seasonal Operations
 
Historically, our agricultural operations have been seasonal in nature with the least amount of our annual revenue being generated in our first quarter, increasing in the second quarter, peaking in the third quarter and declining in the fourth quarter. Cultural costs in our agribusiness tend to be higher in the first and second quarters and lower in the third and fourth quarters because of the timing of expensing cultural costs in the current year that were inventoried in the prior year. Our harvest costs generally increase in the second quarter and peak in the third quarter coinciding with increasing production and revenue. Due to this seasonality and to avoid the inference that interim results are indicative of the estimated results for a full fiscal year, we present supplemental information for 12-month periods ended at the interim date for the current and preceding years.
 
The following table shows the unaudited results of operations for the trailing twelve months:
 
 	 	Twelve months ended April 30,	 	
 	 	2013	 	 	2012	 	
Revenues:	 	 	 	 	 	 	 	 	
Agribusiness	 	$	75,793,000	 	 	$	53,995,000	 	
Rental operations	 	 	4,117,000	 	 	 	3,979,000	 	
Real estate development	 	 	253,000	 	 	 	2,443,000	 	
Total revenues	 	 	80,163,000	 	 	 	60,417,000	 	
Costs and expenses:	 	 	 	 	 	 	 	 	
Agribusiness	 	 	60,079,000	 	 	 	40,872,000	 	
Rental operations	 	 	2,577,000	 	 	 	2,236,000	 	
Real estate development	 	 	1,017,000	 	 	 	3,383,000	 	
Selling, general and administrative	 	 	11,272,000	 	 	 	9,442,000	 	
Total costs and expenses	 	 	74,945,000	 	 	 	55,933,000	 	
Operating income	 	 	5,218,000	 	 	 	4,484,000	 	
Other income (expense):	 	 	 	 	 	 	 	 	
Interest expense	 	 	(386,000	)	 	 	(884,000	)	
Interest income from derivative instrument	 	 	826,000	 	 	 	377,000	 	
Gain on sale of stock Calavo Growers, Inc.	 	 	3,138,000	 	 	 	-	 	
Interest income and other	 	 	342,000	 	 	 	487,000	 	
Total other income (expense)	 	 	3,920,000	 	 	 	(20,000	)	
Net income before income taxes and equity in earnings of investments	 	 	9,138,000	 	 	 	4,464,000	 	
Income tax provision	 	 	(2,945,000	)	 	 	(1,421,000	)	
Equity in (losses) earnings of investments	 	 	(1,588,000	)	 	 	74,000	 	
Net income	 	$	4,605,000	 	 	$	3,117,000	 	
 
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Liquidity and Capital Resources
 
Overview
 
Our liquidity and capital position fluctuates during the year depending on seasonal production cycles, weather events and demand for our products. Typically, our first and last fiscal quarters coincide with the fall and winter months during which we are growing crops that are harvested and sold in the spring and summer, our second and third quarters. To meet working capital demand and investment requirements of our agribusiness and real estate development segments and to supplement operating cash flows, we utilize our revolving credit facility to fund agricultural inputs and farm management practices until sufficient returns from crops allow us to repay amounts borrowed. Raw materials needed to propagate the various crops grown by us consist primarily of fertilizer, herbicides, insecticides, fuel and water and are readily available from local sources.
 
Cash Flows from Operating Activities
 
For the six months ended April 30, 2013 and 2012, net cash used in operating activities was $5.4 million and $3.0 million, respectively. The significant components of our Company’s cash flows used in operating activities as included in the unaudited consolidated statements of cash flows are as follows:
 
 	·	Net loss for the first six months of fiscal year 2013 was $0.6 million compared to $2.1 million for the first six months of fiscal year 2012. The decrease of $1.5 million in the first six months of fiscal year 2012 compared to the same period in fiscal year 2011 was primarily attributable to an increase in operating income of $0.7 million and an increase in other income of $3.5 million partially offset by a decrease in income tax benefit of $1.0 million and an increase in equity in losses of investments of $1.8 million.	
 
 	·	Depreciation and amortization remained consistent period to period at $1.1 million primarily because the balance of depreciable assets did not change significantly.	
 
 	·	During the six months ended April 30, 2013, we sold 165,000 shares of Calavo Growers, Inc. stock which resulted in a gain of $3.1 million. No such transaction occurred during the same period of fiscal year 2012.	
 
 	·	Loss on disposals/sales of fixed assets of $0.2 million in the first six months of fiscal year 2012 was the result of expenses incurred from an orchard removal as part of our fiscal year 2012 orchard redevelopment plan. There were no expenses incurred from orchard removals in the first six months of fiscal year 2013.	
 
 	·	Non-cash stock compensation expense was approximately $0.5 million for each of the six month periods ended April 30, 2013 and 2012.	
 
 	·	Equity in losses of investments was $1.8 million during the first six months of 2013 and was primarily due to a loss recognized on our investment in HM East Ridge, LLC.	
 
 	·	Non-cash interest income on derivative instruments was $0.4 million for each of the six month periods ended April 30, 2013 and 2012 and consisted of $0.7 million of mark to market adjustments to the underlying fair value net liability, partially offset by $0.3 million of amortization of the accumulated other comprehensive loss balance.	
 
 	·	Accounts and notes receivable used $6.2 million in operating cash flows during the six months ended April 30, 2013 compared to using $4.7 million in operating cash flows during the same period in fiscal year 2012. This increase was primarily the result of a $5.9 million increase in accounts receivable during the first six months of fiscal year 2013 compared to an increase of $4.7 million in accounts receivable during the first six months of fiscal year 2012, which was due to higher agribusiness revenue in the first six months of fiscal year 2013 compared to the same period in fiscal year 2012.	
 
 	·	Cultural costs provided $1.0 million in operating cash flows during the first six months of fiscal year 2013 compared to using $0.2 million in operating cash flows during the same period in fiscal year 2012, primarily due to our Company entering into the Sheldon Ranch leases for approximately 1,000 acres of lemon, orange, specialty citrus and other crop orchards in January 2012. We did not share in the related citrus crop revenue in our fiscal year ended October 31, 2012; therefore, the cultural costs incurred in fiscal year 2012 were capitalized and are being amortized over the citrus crop harvest period in fiscal year 2013.	
 
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 	·	Income taxes receivable provided $0.1 million in operating cash flows in the six months ended April 30, 2013, consisting primarily of a $0.3 million income tax refund partially offset by an income tax benefit of $0.2 million. Income taxes receivable used $0.8 million in operating cash flows for the same period in fiscal year 2012, consisting primarily of a $1.2 million income tax benefit partially offset by a $0.4 million income tax refund.	
 
 	·	Accounts payable and growers payable provided $2.3 million in operating cash flows in the six months ended April 30, 2013 compared to providing $3.9 million of operating cash flows during the same period in fiscal year 2012. The operating cash provided during the six months ended April 30, 2013 is primarily the result of a $2.2 million increase in accounts payable due to increased agribusiness costs. The operating cash provided during the six months ended April 30, 2012 is primarily the result of a $3.4 million increase in grower payable due the cost of procured lemons and the timing and amounts of payments made to third-party growers.	
 
 	·	Accrued liabilities used $1.3 million in operating cash flows in the six months ended April 30, 2013 compared to providing $0.3 million of operating cash flows during the same period in fiscal year 2012. This was primarily due to $0.8 million of accrued bonuses at October 31, 2012 for fiscal year 2012 that were paid in the first six months of fiscal year 2013. Additionally, accrued Sheldon Ranch lease expense of $0.5 million at October 31, 2012 was paid during the six months ended April 30, 2013.	
 
 	·	Other long-term liabilities provided $0.3 million of operating cash flows in the six months ended April 30, 2013 and represented $0.5 million of non-cash pension expense offset by $0.2 million of pension contributions for the period. The $0.1 million of operating cash flows provided during the six months ended April 30, 2012 represented $0.4 million of non-cash pension expense offset by a pension contribution of $0.3 million for the period.	
 
Cash Flows from Investing Activities
 
For the six months ended April 30, 2013, net cash provided by investing activities was $0.3 million compared to net cash used in investing activities of $3.9 million during the same period in fiscal year 2012.
 
Net cash provided by (used in) investing activities is primarily comprised of capital expenditures and the sale of assets. Capital expenditures were $4.7 million in the first six months of fiscal year 2013, comprised of $2.0 million for property, plant and equipment, $0.4 million for an agriculture property acquisition and $2.3 million for real estate development projects. Offsetting these capital expenditures was $4.8 million of net proceeds from the sale of 165,000 shares of stock in Calavo and $0.4 million collection of a note receivable. Capital expenditures were $3.8 million in the first six months of fiscal year 2012, comprised of $2.1 million for property, plant and equipment and $1.7 million for real estate development projects.
 
Cash Flows from Financing Activities
 
For the six months ended April 30, 2013, net cash provided by financing activities was $5.1 million compared to $6.9 million during the same period in fiscal year 2012.
 
The $5.1 million of cash provided by financing activities during the first six months of fiscal year 2013 is comprised primarily of net payments of long-term debt in the amount $29.8 million and net proceeds from our public offering of common stock in the amount of $35.9 million. The $6.9 million of cash provided by financing activities during the first six months of fiscal year 2012 is comprised primarily of net borrowings of long term debt in the amount of $7.8 million. Additionally, we paid common and preferred dividends of $1.1 million in the first six months of fiscal year 2013 compared to $0.8 million in first six months of fiscal year 2012.
 
Transactions Affecting Liquidity and Capital Resources
 
We finance our working capital and other liquidity requirements primarily through cash from operations and our revolving credit facility with Rabobank, NA (“Rabobank Credit Facility”). In addition, we have three term loans with Farm Credit West, FLCA, (“Farm Credit West Term Loans”) and a non-revolving line of credit, (“Farm Credit West Line of Credit”) with Farm Credit West, PCA (together with Farm Credit West FLCA, “Farm Credit West”). Additional information regarding the Rabobank Credit Facility, the Farm Credit West Term Loans and the Farm Credit West Line of Credit can be found in Note 10 to the unaudited consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.
 
We believe that the cash flows from operations and available borrowing capacity from our existing credit facilities will be sufficient to satisfy our capital expenditures, debt service, working capital needs and other contractual obligations for the remainder of fiscal 2013. In addition, we have the ability to control the timing of a portion of our investing cash flows to the extent necessary based on our liquidity demands.
 
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Rabobank Revolving Credit Facility
 
As of April 30, 2013, our outstanding borrowings under the Rabobank Credit Facility were approximately $45.2 million and we had approximately $41.8 million of availability. The Rabobank Credit Facility bears interest at a variable rate equal to the one month London Interbank Offer Rate (“LIBOR”) plus a spread of 1.50%. The interest rate resets on the first of each month and was 1.74% at April 30, 2013. We have the ability to prepay any amounts outstanding under the Rabobank Credit Facility without penalty. In November 2011, we entered into a Second Amendment to Amended and Restated Line of Credit Agreement in order to (i) increase the revolving line of credit from $80 million to the lesser of $100 million or 60% of the appraised value of any real estate pledged as collateral which was $87 million at April 30, 2013, (ii) amend the interest rate such that the line of credit bears interest at a rate equal to LIBOR plus 1.80% effective July 1, 2013 and (iii) extend the maturity date from June 30, 2013 to June 30, 2018.
 
In February 2013, we repaid approximately $22.6 million of our outstanding borrowings under the Rabobank Credit Facility with the net proceeds from our common stock offering. See “- Public Offering of Common Stock.”
 
The Rabobank Credit Facility is secured by certain of our agricultural properties and a portion of the equity interest in the San Cayetano Mutual Water Company, and subjects us to affirmative and restrictive covenants including, among other customary covenants, financial reporting requirements, requirements to maintain and repair any collateral, restrictions on the sale of assets, restrictions on the use of proceeds, prohibitions on the incurrence of additional debt and restrictions on the purchase or sale of major assets. We are also subject to a covenant that we will maintain a debt service coverage ratio, as defined in the Rabobank Credit Facility, of less than 1.25 to 1.0 measured annually at October 31, with which we were in compliance at October 31, 2012.
 
Farm Credit West Term Loans and Non-Revolving Credit Facility
 
As of April 30, 2013, we had an aggregate of approximately $14.6 million outstanding under the Farm Credit West Term Loans and Farm Credit West Line of Credit. The following provides further discussion on the term loans and non-revolving credit facility:
 
 	·	Term Loan Maturing November 2022. As of April 30, 2013, we had $5.5 million outstanding under the Farm Credit West Term Loan that matures in November 2022. This term loan bears interest at a variable rate equal to an internally calculated rate based on Farm Credit West’s internal monthly operations and their cost of funds and generally follows the changes in the 90-day treasury rates in increments divisible by 0.25% and is payable in quarterly installments through November 2022. The interest rate resets monthly and was 3.25% at April 30, 2013. This term loan is secured by certain of our agricultural properties.	
 
 	·	Term Loan Maturing May 2032. In February 2013, this term loan was paid in full with the net proceeds from our common stock offering. See “- Public Offering of Common Stock.”	
 
 	·	Term Loan Maturing October 2035. As of April 30, 2013, our wholly-owned subsidiary, Windfall Investors, LLC, had $8.6 million outstanding under the Farm Credit West Term Loan that matures in October 2035. Effective November 2011, we entered into an agreement with Farm Credit West fixing the interest rate at 3.65% for three years after which time the rate becomes variable at a rate equal to an internally calculated rate based on Farm Credit West’s internal monthly operations and their cost of funds and generally follows the changes in the 90-day treasury rates in increments divisible by 0.25% until the loan matures. This term loan is secured by the Windfall Farms property.	
 
 	·	Non-Revolving Line of Credit Maturing May 2013. As of April 30, 2013, we had $0.5 million outstanding under the Farm Credit West Line of Credit that matures in May 2018. The line of credit bears interest at a variable rate equal to an internally calculated rate based on Farm Credit West’s internal monthly operations and their cost of funds and generally follows the changes in the 90-day treasury rates in increments divisible by 0.25% with interest payable on a monthly basis. The interest rate resets monthly and was 3.50% at April 30, 2013. The terms require us to remit to Farm Credit West special principal payments of a minimum of $175,000 per lot sold on the Windfall Investors, LLC real estate development project. This line of credit is secured by certain of our agricultural properties.	
 
In February 2013, we repaid approximately $12.5 million of our outstanding borrowings under the Farm Credit West Non-Revolving Line of Credit and repaid the entire approximately $0.8 million outstanding under the Farm Credit Term Loan maturing May 2032 with the net proceeds from our common stock offering. See “- Public Offering of Common Stock.”
 
Effective June 1, 2013, the interest rates on the term loan maturing November 2022 and the non-revolving line of credit were each reduced to 2.75%. Also effective June 1, 2013, the terms of the non-revolving line of credit were amended to remove the $175,000 principal payment requirement associated with Windfall Investors, LLC lot sales.
 
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The Farm Credit West Term Loans and Farm Credit West Line of Credit contain various conditions, covenants and requirements with which we and Windfall Investors must comply. In addition, we and Windfall Investors, LLC are subject to limitations on, among other things, selling, abandoning or ceasing business operations; merging or consolidating with a third party; disposing of a substantial portion of assets by sale, transfer, gifts or lease except for inventory sales in the ordinary course of business; obtaining credit or loans from other lenders other than trade credit customary in the business; becoming a guarantor or surety on or otherwise liable for the debts or obligations of a third party; and mortgaging, pledging, leasing for over a year, or otherwise making or allowing the filing of a lien on any collateral.
 
Public Offering of Common Stock
 
On August 24, 2011, our shelf registration statement became effective for an aggregate amount of up to $100 million of common stock. During February 2013, we completed the sale of 2,070,000 shares of common stock, at a price of $18.50 per share, to institutional and other investors in a registered offering under the shelf registration statement.  The offering represented 16% of our outstanding common stock on an after-issued basis. Upon completion of the offering and issuance of common stock, we had 13,307,085 shares of common stock outstanding. The gross proceeds of the offering totaled $38,295,000 and after an underwriting discount of $2,106,000 and other offering expenses of $266,000, the net proceeds were $35,923,000. The planned use of proceeds from the offering are general corporate purposes, which may include repayment of debt, real estate development, including activities related to East Area 1 and future acquisitions of agriculture properties. During February 2013, we used the net offering proceeds to repay long-term debt.
 
Interest Rate Swaps
 
We enter into interest rate swap agreements to manage the risks and costs associated with our financing activities. On April 29, 2010, we cancelled two interest rate swaps with notional amounts of $10.0 million each and amended the remaining interest rate swap from a notional amount of $22.0 million to a notional amount of $42.0 million. At April 30, 2013, we had an interest rate swap agreement which locks in the interest rate on $42.0 million of our $59.8 million in debt at approximately 5.13% until June 2013. The interest rate swaps previously qualified as cash flow hedges and the fair value adjustments to the swap agreements were deferred and included in accumulated other comprehensive income (loss). As a result of the re-negotiated terms, the remaining interest rate swap no longer qualifies for hedge accounting and accordingly, fair value adjustments from April 30, 2010 are included in interest income (expense). The swap expires June 30, 2013.
 
In November 2011, the Company entered into a forward interest rate swap agreement with Rabobank International, Utrecht to fix the interest rate at 4.30% on $40,000,000 of its outstanding borrowings under the Rabobank Credit Facility beginning July 2013 until June 2018. This interest rate swap qualifies as a cash flow hedge and is accounted for as a hedge under the short-cut method. Therefore, the fair value adjustments to the underlying debt are deferred and included in accumulated other comprehensive loss and the liability is being recorded in other long-term liabilities in the Company’s consolidated balance sheet at April 30, 2013. Additional information, regarding the interest rate swaps can be found in Note 11 to the unaudited consolidated financial statements for the quarter ended April 30, 2013 included elsewhere in this Quarterly Report on Form 10-Q.
 
Of the remaining $17.8 million in debt, $9.2 million bears interest at variable rates, which were 3.50% or less at April 30, 2013 and $8.6 million bears interest at a fixed rate of 3.65%, which becomes variable in November 2014.
 
Contractual Obligations
 
The following table presents our contractual obligations at April 30, 2013 for which cash flows are fixed and determinable:
 
 	 	Payments due by Period	 	
Contractual Obligations:	 	Total	 	 	< 1 year	 	 	1-3 years	 	 	3-5 years	 	 	5+ years	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Fixed rate debt (principal)	 	$	41,361,000	 	 	$	253,000	 	 	$	534,000	 	 	$	574,000	 	 	$	40,000,000	 	
Variable rate debt (principal)	 	 	18,498,000	 	 	 	488,000	 	 	 	1,025,000	 	 	 	1,094,000	 	 	 	15,891,000	 	
Operating lease obligations	 	 	12,395,000	 	 	 	1,985,000	 	 	 	3,354,000	 	 	 	3,336,000	 	 	 	3,720,000	 	
Total contractual obligations	 	$	72,254,000	 	 	$	2,726,000	 	 	$	4,913,000	 	 	$	5,004,000	 	 	$	59,611,000	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Interest payments on fixed and variable rate debt	 	$	14,584,000	 	 	$	2,346,000	 	 	$	4,635,000	 	 	$	4,513,000	 	 	$	3,090,000	 	
 
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We believe that the cash flows from our agribusiness and rental operations business segments as well as available borrowing capacity from our existing credit facilities will be sufficient to satisfy our future capital expenditure, debt service, working capital and other contractual obligations for the remainder of fiscal year 2013. In addition, we have the ability to control the timing of a portion of our investing cash flows to the extent necessary based on our liquidity demands.
 
Fixed Rate and Variable Rate Debt
 
Details of amounts included in long-term debt and interest rate swaps can be found above and in Notes 10 and 11 to the unaudited consolidated financial statements for the quarter ended April 30, 2013 included elsewhere in this Quarterly Report on Form 10-Q. The table above assumes that long-term debt is held to maturity.
 
Interest Payments on Fixed and Variable Debt
 
The above table assumes that our fixed rate and long-term debt is held to maturity and the interest rates on our variable rate debt remain unchanged for the remaining life of the debt from those in effect at April 30, 2013.
 
Operating Lease Obligations
 
We have various operating lease commitments with remaining terms ranging from less than one year to ten years. We have installed a one mega-watt photovoltaic array on one of our agricultural properties located in Ventura County that produces a significant portion of the power to operate our lemon packinghouse. The construction of this array was financed by Farm Credit Leasing and we have a long-term lease with Farm Credit Leasing for this array. Annual payments for this lease are $0.5 million, and at the end of ten years we have an option to purchase the array for $1.1 million. We entered into a similar transaction with Farm Credit Leasing for a second photovoltaic array at one of our agricultural properties located in the San Joaquin Valley to supply a significant portion of the power to operate four deep-water well pumps located on our property. Annual lease payments for this facility range from $0.3 million to $0.8 million, and at the end of ten years we have the option to purchase the array for $1.3 million. Additionally, we have agreements with an electricity utility through the California Solar Initiative which entitle us to receive rebates for energy produced by our solar arrays. These rebates, which reduce our agribusiness costs, are scheduled to expire in fiscal year 2014, were $0.4 million in each of the six month periods ended April 30, 2013 and 2012 and have averaged approximately $1.0 million per year since the inception of the leases.
 
In January 2012, our Company entered into the Sheldon Ranch leases for approximately 1,000 acres of lemon, orange, specialty citrus and other crop orchards in Lindsay, California. Each of the leases is for ten-year terms and provides for four five-year renewal options with an aggregate base rent of approximately $500,000 per year. The leases also contain profit share arrangements with the landowners as additional rent on each of the properties and a provision for the potential purchase of the properties by Limoneira in the future. In accordance with the terms of the lease agreements, Limoneira did not share in the citrus crop revenue in its fiscal year ending October 31, 2012. During the three and six months ended April 30, 2013, we incurred $155,000 and $307,000, respectively, of net lease expense related to these leases.
 
We lease pollination equipment under a lease renewed through fiscal year 2022 with annual payments of $0.3 million. We also lease machinery and equipment for our packing operations and other land for our agricultural operations under leases with annual lease commitments that are individually immaterial.
 
Preferred Stock Dividends
 
In 1997, in connection with the acquisition of Ronald Michaelis Ranches, Inc., our Company issued 30,000 shares of Series B Convertible Preferred Stock at $100 par value (the “Series B Stock”). The holders of the Series B Stock are entitled to receive cumulative cash dividends at an annual rate of 8.75% of par value. Such dividends are payable quarterly on the first day of January, April, July and October in each year commencing July 1, 1997 and totaled $0.3 million in each of the fiscal years 2012, 2011 and 2010. We paid preferred stock dividends of approximately $0.1 million during the six months ended April 30, 2013.
 
Defined Benefit Plan Contributions
 
As more fully described in Note 15 to our unaudited consolidated financial statements for the quarter ended April 30, 2013, our Company’s noncontributory, defined benefit, single employer pension plan (the “Plan”) was frozen as of June 30, 2004. During the six months ended April 30, 2013, we made contributions of $0.2 million to the Plan and we expect to contribute a minimum of approximately $0.4 million to the Plan in fiscal year 2013.
 
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Real Estate Development Activities and Related Capital Resources
 
As noted above under “Transactions Affecting Liquidity and Capital Resources,” we have the ability to control the timing of a portion of our investing cash flows to the extent necessary based upon our liquidity demands. In order for our real estate development operations to reach their maximum potential benefit to us, however, we will need to be successful over time in identifying other third party sources of capital to partner with us to move those development projects forward. While we have been in discussions with several external sources of capital in respect of all of our development projects, current market conditions for California real estate projects, while improving, continue to be challenging and make it difficult to predict the timing and amounts of future capital that will be required to complete the development of our projects.
 
Off-Balance Sheet Arrangements
 
We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future material effect on our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.
 
Recent Accounting Pronouncements
 
Please see Note 2 to the unaudited consolidated financial statements for the period ended April 30, 2013 elsewhere in this Quarterly Report on Form 10-Q for information concerning our Recently Adopted Accounting Pronouncements.
 
Critical Accounting Policies and Estimates
 
The preparation of our consolidated financial statements in accordance with generally accepted accounting principles requires us to develop critical accounting policies and make certain estimates and judgments that may affect the reported amounts of assets, liabilities, revenues and expenses.  We base our estimates and judgments on historical experience, available relevant data and other information that we believe to be reasonable under the circumstances.  Actual results may materially differ from these estimates under different assumptions or conditions as new or additional information becomes available in future periods.  We believe the following critical accounting policies reflect our more significant estimates and judgments used in the preparation of our consolidated financial statements.
 
Revenue Recognition - As a general policy, revenue and related costs are recognized when (i) persuasive evidence of an arrangement exists, (ii) delivery has occurred, (iii) selling price is fixed or determinable and (iv) collectability is reasonably assured. We record a sales allowance in the period revenue is recognized as a provision for estimated customer discounts and concessions.
 
Agribusiness revenue - Revenue from the sales of certain of our agricultural products is recorded based on estimated proceeds provided by certain of our sales and marketing partners (Calavo and other third-party packinghouses) due to the time between when the product is delivered by us and the closing of the pools for such fruits at the end of each month. Calavo and other third-party packinghouses are agricultural cooperatives or function in a similar manner as an agricultural cooperative. As such, we apply specific authoritative agribusiness revenue recognition guidance related to transactions between patrons and agribusiness marketing cooperatives to record revenue at time of delivery to the packinghouses relating to fruits that are in pools that have not yet closed at month end if (a) the related fruits have been delivered to and accepted by Calavo and other third-party packinghouses (i.e. title has transferred to Calavo and other third-party packinghouses) and (b) sales price information has been provided by Calavo and other third-party packinghouses (based on the marketplace activity for the related fruit) to estimate with reasonable certainty the final selling price for the fruit upon the closing of the pools. Historically, the revenue that is recorded based on the sales price information provided to us by Calavo and other third-party packinghouses at the time of delivery, has not materially differed from the actual amounts that are paid after the monthly pools are closed.
 
Our avocados, oranges, specialty citrus and other specialty crops are packed and sold through by Calavo and other third-party packinghouses. Specifically, we deliver all of our avocado production from our orchards to Calavo. These avocados are then packed by Calavo at its packinghouse, and sold and distributed under Calavo brands to its customers primarily in the United States and Canada. Our arrangements with other third-party packinghouses related to oranges, specialty citrus and other specialty crops are similar to our arrangement with Calavo.
 
Our arrangements with our third-party packinghouses are such that we are the producer and supplier of the product and the third-party packinghouses are our customers.  The revenues we recognize related to the fruits sold to the third-party packinghouses are based on the volume and quality of the fruits delivered, the market price for such fruit, less the packinghouses’ charges to pack and market the fruit. Such packinghouse charges include the grading, sizing, packing, cooling, ripening and marketing of the related fruit.   We bear inventory risk until the product is delivered to the third-party packinghouses at which time title and inventory risk to the product is transferred to the third-party packinghouses and revenue is recognized. Such third-party packinghouse charges are recorded as a reduction of revenue based on the application of specific authoritative revenue recognition guidance related to a “Vendor’s Income Statement Characterization of Consideration Given to a Customer”.  The identifiable benefit we receive from the third-party packinghouses for packaging and marketing services cannot be sufficiently separated from the third-party packinghouses’ purchase of our products.  In addition, we are not able to reasonably estimate the fair value of the benefit received from the third-party packinghouses for such services and as such, these costs are characterized as a reduction of revenue in our consolidated statement of operations.
 
40	

 	
 
Revenue from crop insurance proceeds is recorded when the amount of, and the right to receive, the payment can be reasonably determined.
 
Rental revenue - Minimum rental revenues are generally recognized on a straight-line basis over the respective initial lease term. Contingent rental revenues are contractually defined as to the percentage of rent received by us and are based on fees collected by the lessee. Our rental arrangements generally require payment on a monthly or quarterly basis.
 
Real estate development revenue - The Company recognizes revenue on real estate development projects in accordance with FASB ASC 360-20,  Real Estate Sales , which provides for profit to be recognized in full when real estate is sold, provided that a sale has been consummated and profit is determinable, collection of sales proceeds is estimable with the seller’s receivable not subject to subordination, risks and rewards of ownership have been transferred to the buyer and the earnings process is substantially complete with no significant seller activities or obligations required after the date of sale. To the extent the above conditions are not met, a portion or all of the profit is deferred.
 
Incidental operations may occur during the holding or development period of real estate development projects to reduce holding or development costs. Incremental revenue from incidental operations in excess of incremental costs from incidental operations is accounted for as a reduction of development costs. Incremental costs from incidental operations in excess of incremental revenue from incidental operations are charged to operations.
 
Real estate development costs - We capitalize the planning, entitlement, construction and development costs associated with our various real estate projects.  Costs that are not capitalized are expensed as incurred. A real estate development project is considered substantially complete upon the cessation of construction and development activities. Once a project is substantially completed, future costs are expensed as incurred. For the six months ended April 30, 2013, we capitalized approximately $2.7 million of costs related to our real estate projects and expensed approximately $0.4 million of costs.
 
Income taxes - Deferred income tax assets and liabilities are computed annually for differences between the financial statement and income tax basis of assets and liabilities that will result in taxable or deductible amounts in the future. Such deferred income tax asset and liability computations are based on enacted tax laws and rates applicable to periods in which the differences are expected to affect taxable income. A valuation allowance is established, when necessary, to reduce deferred income tax assets to the amount expected to be realized.
 
Tax benefits from an uncertain tax position are only recognized if it is more likely than not that the tax position will be sustained upon examination by the taxing authorities based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement.
 
Derivative financial instruments - We use derivative financial instruments for purposes other than trading to manage our exposure to interest rates as well as to maintain an appropriate mix of fixed and floating-rate debt. Contract terms of our hedge instruments closely mirror those of the hedged item, providing a high degree of risk reduction and correlation. Contracts that are effective at meeting the risk reduction and correlation criteria are recorded using hedge accounting. If a derivative instrument is a hedge, depending on the nature of the hedge, changes in the fair value of the instrument will be either offset against the change in the fair value of the hedged assets, liabilities or firm commitments through earnings or be recognized in other comprehensive income until the hedged item is recognized in earnings. The ineffective portion of an instrument’s change in fair value will be immediately recognized in earnings. Instruments that do not meet the criteria for hedge accounting, or contracts for which we have not elected hedge accounting, are valued at fair value with unrealized gains or losses reported in earnings during the period of change.
 
Impairment of long-lived assets - We evaluate our long-lived assets, including our real estate development projects, for impairment when events or changes in circumstances indicate the carrying value of these assets may not be recoverable.  As a result of the economic downturn in recent years, we recorded impairment charges of zero, $1.2 million and $2.4 million in fiscal years 2012, 2011 and 2010, respectively.  These charges were based on independent appraisals and other factors and were developed using various facts, assumption and estimates.  Future changes in these facts, assumptions and estimates could result in additional charges.
 
41	

 	
 
Defined benefit retirement plan - As discussed in Note 15 to our unaudited consolidated financial statements, we sponsor a defined benefit retirement plan that was frozen in June, 2004, and no future benefits accrued to participants subsequent to that time.  Ongoing accounting for this plan under FASB ASC 715,  Compensation - Retirement Benefits , provides guidance as to, among other things, future estimated pension expense, minimum pension liability and future minimum funding requirements.  This information is provided to us by third-party actuarial consultants.  In developing this data, certain estimates and assumptions are used, including among other things, discount rate, long-term rates of return and mortality tables.  Changes in any of these estimates could materially affect the amounts recorded that are related to our defined benefit retirement plan.
 
Item 3.	 Quantitative and Qualitative Disclosures About Market Risk
 
There have been no material changes in the disclosures discussed in the section entitled “Quantitative and Qualitative Disclosures About Market Risk” in Part II, Item 7A of our Annual Report on Form 10-K for the fiscal year ended October 31, 2012 as filed with the SEC on January 14, 2013.
 
Item 4. Controls and Procedures
 
Disclosure Controls and Procedures. As of April 30, 2013, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as such term is defined in Rule 13a-15(e) promulgated under the Exchange Act. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this Quarterly Report. There have been no significant changes in our internal controls over financial reporting during the period covered by this Quarterly Report on Form 10-Q or, to our knowledge, in other factors that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.
 
Limitations on the Effectiveness of Controls. Control systems, no matter how well conceived and operated, are designed to provide a reasonable, but not an absolute, level of assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
 
42	

 	
 
PART II. OTHER INFORMATION
 
Item 1. Legal Proceedings
 
We are from time to time involved in legal proceedings arising in the normal course of business. Other than proceedings incidental to our business, we are not a party to, nor is any of our property the subject of, any material pending legal proceedings and no such proceedings are, to our knowledge, threatened against us.
 
Item 1A. Risk Factors
 
Risk factors and uncertainties associated with our business have not changed materially from those disclosed in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended October 31, 2012 as filed with the SEC on January 14, 2013.
 
Item 2.	 Unregistered Sales of Equity Securities and Use of Proceeds
 
During the second quarter of fiscal year 2013 we purchased shares of our common stock as follows:
 
Period	 	Total Number
of Shares
Purchased(1)	 	 	Average
Price
Paid per
Share	 	 	Total Number of
Shares
Purchased as
Part of Publicly
Announced
Plans or
Programs	 	 	Maximum
Number (or
Approximate
Dollar Value) of
Shares that May
Yet Be Purchased
Under the Plans
or Programs(2)	 	
February 1, 2013 through February 28, 2013	 	 	1,154	 	 	$	21.75	 	 	 	-	 	 	 	-	 	
March 1, 2013 through March 31, 2013	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 	
April 1, 2013 through April 30, 2013	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 	
Total	 	 	1,154	 	 	 	 	 	 	 	-	 	 	 	-	 	

(1)  We presently have no publicly announced repurchase program in place. Shares were acquired from our employees in accordance with our stock-based compensation plan as a result of share withholdings to pay income tax related to the vesting and distribution of a restricted stock award.
 
(2)  No publicly announced repurchase program in place.
 
Item 3.     	Defaults Upon Senior Securities
 
None.
 
Item 4.     	Mine Safety Disclosures
 
Not applicable.
 
Item 5.    	Other Information
 
None.
 
43	

 	
Item 6.     	Exhibits
 
Exhibit	 	 	
Number	 	Exhibit 	
 	 	 	
10.1*†	 	Option Agreement by and among the Company, Jason B. Rushing, Trustee of the Jason B. Rushing Trust dated July 10, 1997, Jennifer R. Rushing, Trustee of the Jennifer R. Rushing Revocable Trust dated March 19, 2008, Zella A. Rushing, Trustee of the 1988 Zella Rushing Trust dated May 12, 1988 dated February 27, 2013.	
 	 	 	
10.2	 	Purchase and Sale Agreement and Escrow Instructions by and among HM East Ridge LLC, a Delaware limited liability company, Limoneira Company, a Delaware corporation and IPDC Construction, Inc., a California corporation, dated April 8, 2013 (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K (Commission File No. 001-34755) filed on April 12, 2013.	
 	 	 	
31.1	 	Certificate of the Principal Executive Officer Pursuant to Exchange Act Rule 13a-14(a) and 15d-14(a)	
 	 	 	
31.2	 	Certificate of the Principal Financial and Accounting Officer Pursuant to Exchange Act Rule 13a-14(a) and 15d-14(a)	
 	 	 	
32.1	 	Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	
 	 	 	
32.2	 	Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	
 	 	 	
101.INS*	 	XBRL Instance Document	
 	 	 	
101.SCH*	 	XBRL Taxonomy Extension Schema Document	
 	 	 	
101.CAL*	 	XBRL Taxonomy Extension Calculation Linkbase Document	
 	 	 	
101.DEF*	 	XBRL Taxonomy Extension Definition Linkbase Document	
 	 	 	
101.LAB*	 	XBRL Taxonomy Extension Label Linkbase Document	
 	 	 	
101.PRE*	 	XBRL Taxonomy Extension Presentation Linkbase Document	
 
*Filed herewith
 
†Certain portions have been omitted pursuant to a confidential treatment request. Omitted information has been filed separately with the Securities and Exchange Commission.
 
44	

 	
 
SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
 	LIMONEIRA COMPANY	
 	 	 	
June 10, 2013	By:	/s/ HAROLD S. EDWARDS 	
 	 	Harold S. Edwards	
 	 	Director, President and Chief Executive Officer	
 	 	(Principal Executive Officer)	
 	 	 	
June 10, 2013	By:	/s/ JOSEPH D. RUMLEY 	
 	 	Joseph D. Rumley	
 	 	Chief Financial Officer	
 	 	(Principal Financial and Accounting Officer)	
 
45	

 
Exhibit 10.1
 
[*] Certain information in this document has been omitted and filed separately with the Securities and
Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.
 
OPTION AGREEMENT
AND ESCROW INSTRUCTIONS
 
THIS OPTION AGREEMENT AND ESCROW INSTRUCTIONS (this “Agreement”) is made and entered into as of February 27, 2013 (the “ Effective Date ”), by and between  Jason B. Rushing, Trustee of the Jason B. Rushing Trust dated July 10, 1997 ;  JENNIFER R. RUSHING, Trustee of the JENNIFER RUSHING REVOCABLE TRUST dated March 19, 2008 ; and  Zella A. Rushing, Trustee of the 1988 Zella Rushing Trust dated May 12, 1988  (together, “ Optionor ”), and  LIMONEIRA COMPANY , a Delaware corporation (“ Optionee ”). Optionor and Optionee are hereinafter sometimes individually referred to as a “party” and collectively as the “parties.”
 
RECITALS
 
A.           Optionor is the owner of that certain real property located at State Highway 126 and Hallock Drive in the City of Santa Paula, County of Ventura, State of California, consisting of approximately Seven and Twenty-two Hundredths (7.22) acres [APNs: 107-0-043-140, -010 and -025], which real property is described on  Exhibit A  (the “ Property ”).
 
B.           Optionee desires to obtain an option to acquire the Property, together with all personal property and all easements, rights of way and other rights appurtenant to the Property (collectively, the “ Option Property ”).
 
C.           The Option Property is one (1) of the parcels referred to in that certain Pre-Annexation and Development Agreement (East Area II), by and among the City of Santa Paula, Optionor and Optionee, which Development Agreement neither Optionor nor Optionee is obligated to execute.
 
D.           The purpose of this Agreement is to set forth the terms and conditions agreed upon between Optionor and Optionee with respect to the grant of an option to Optionee to purchase the Option Property and, if and to the extent exercised, the purchase and sale of the Option Property.
 
NOW, THEREFORE, in consideration of the mutual covenants and agreements set forth in this Agreement, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows:
 
1.          Grant of Option. Subject to the terms and conditions set forth in this Agreement, and the payment by Optionee of the Option Consideration (as that term is defined below), Optionor hereby grants to Optionee the right and option (the “ Option ”) to purchase the Option Property for a period of time, beginning on the date of Opening of Escrow and expiring on February 28, 2018, unless this Agreement is terminated earlier, as provided herein.
 
-1-	

 	
 
[*] Certain information in this document has been omitted and filed separately with the Securities and
Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.
 
2.          Option Consideration.
 
2.1           Option Consideration. For and in consideration of the grant of the Option, Optionee agrees to pay to Optionor the option consideration described below (the “ Option Consideration ”), which Option Consideration shall be paid in installments as provided below. The Option Consideration shall be deemed earned upon receipt, and shall be non-refundable except if  (a)  any of Optionee’s Conditions are not satisfied or otherwise waived by Optionee as set forth in  Section 7.2 , and/or  (b)  Escrow fails to close due to a default by Optionor of its obligations under this Agreement, in either such case, the Option Consideration shall be promptly returned or refunded to Optionee. The First Year Option Payment, Second Year Option Payment, Third Year Option Payment, Fourth Year Option Payment and Fifth Year Option Payment, each as received by Optionor, shall be applied as a credit toward the Purchase Price at Closing.
 
2.2           First Year Option Payment. On or before February 28, 2013, Optionee shall deposit with Escrow Holder (as that term is defined below), in immediately available funds, the first installment of the Option Consideration in an amount equal to  [*]  (the “ First Year Option Payment ”). Immediately following the payment by Optionee of the First Year Option Payment to Escrow Holder, Escrow Holder is instructed to release the First Year Option Payment directly to Optionor, which release from Escrow shall be without liability to Escrow Holder. Notwithstanding the foregoing, if Optionee fails to deposit the First Year Option Payment with Escrow Holder on or before the applicable due date, Optionee shall be deemed to have elected to terminate this Agreement, in which case, this Agreement shall automatically terminate and neither party shall have any further rights or obligations under this Agreement.
 
2.3           Second Year Option Payment. On or before February 28, 2014, and provided this Agreement has not been terminated prior thereto, Optionee shall deposit with Escrow Holder, in immediately available funds, the second year Option Consideration, in an amount equal to  [*]  (the “ Second Year Option Payment ”). Immediately following the payment by Optionee of the Second Year Option Payment to Escrow Holder, Escrow Holder is instructed to release the Second Year Option Payment directly to Optionor, which release from Escrow shall be without liability to Escrow Holder. Notwithstanding the foregoing, if Optionee fails to deposit the Second Year Option Payment with Escrow Holder on or before the applicable due date, Optionee shall be deemed to have elected to terminate this Agreement, in which case, this Agreement shall automatically terminate and neither party shall have any further rights or obligations under this Agreement.
 
2.4           Third Year Option Payment. On or before February 28, 2015, and provided this Agreement has not been terminated prior thereto, Optionee shall deposit with Escrow Holder, in immediately available funds, the third year Option Consideration, in an amount equal to  [*]  (the “ Third Year Option Payment ”). Immediately following the payment by Optionee of the Third Year Option Payment to Escrow Holder, Escrow Holder is instructed to release the Third Year Option Payment directly to Optionor, which release from Escrow shall be without liability to Escrow Holder. Notwithstanding the foregoing, if Optionee fails to deposit the Third Year Option Payment with Escrow Holder on or before the applicable due date, Optionee shall be deemed to have elected to terminate this Agreement, in which case, this Agreement shall automatically terminate and neither party shall have any further rights or obligations under this Agreement.
 
-2-	

 	
 
[*] Certain information in this document has been omitted and filed separately with the Securities and
Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.  
 
2.5           Fourth Year Option Payment. On or before February 29, 2016, and provided this Agreement has not been terminated prior thereto, Optionee shall deposit with Escrow Holder, in immediately available funds, the fourth year Option Consideration, in an amount equal to  [*]  (the “ Fourth Year Option Payment ”). Immediately following the payment by Optionee of the Fourth Year Option Payment to Escrow Holder, Escrow Holder is instructed to release the Fourth Year Option Payment directly to Optionor, which release from Escrow shall be without liability to Escrow Holder. Notwithstanding the foregoing, if Optionee fails to deposit the Fourth Year Option Payment with Escrow Holder on or before the applicable due date, Optionee shall be deemed to have elected to terminate this Agreement, in which case, this Agreement shall automatically terminate and neither party shall have any further rights or obligations under this Agreement.
 
2.6           Fifth Year Option Payment. On or before February 28, 2017, and provided this Agreement has not been terminated prior thereto, Optionee shall deposit with Escrow Holder, in immediately available funds, the fifth year Option Consideration, in an amount equal to  [*]  (the “ Fifth Year Option Payment ”). Immediately following the payment by Optionee of the Fifth Year Option Payment to Escrow Holder, Escrow Holder is instructed to release the Fifth Year Option Payment directly to Optionor, which release from Escrow shall be without liability to Escrow Holder. Notwithstanding the foregoing, if Optionee fails to deposit the Fifth Year Option Payment with Escrow Holder on or before the applicable due date, Optionee shall be deemed to have elected to terminate this Agreement, in which case, this Agreement shall automatically terminate and neither party shall have any further rights or obligations under this Agreement.
 
2.7           Exercise of Option. Optionee shall have the right to exercise the Option at any time during the term of this Agreement by giving written notice thereof (the “ Closing Notice ” )  to Optionor and Escrow Holder on or before 5:00 p.m. on January 28, 2018 (the “ Closing Notice Deadline ”). Upon the receipt of the Closing Notice by Optionor, this Agreement shall be a binding agreement for the purchase and sale of the Option Property in accordance with the terms and provisions hereof. If Optionor and Escrow Holder do not physically receive the Closing Notice on or before the Closing Notice Deadline, Optionee shall be deemed to have elected to not exercise the Option, in which case, this Agreement shall automatically terminate and neither party shall have any further rights or obligations under this Agreement.
 
3.          Purchase Price.
 
3.1          Purchase Price. The purchase price for the Option Property shall be calculated as follows (the “ Purchase Price) :
 
(a)          If Optionee exercises the Option and the Closing Date is on or prior to February 28, 2014, the purchase price shall be  [*]  per square foot. For purposes of this Agreement, the calculation of square footage of the Property shall be based upon gross acres without offset or deduction for easements and rights of way. Any survey of the Option Property shall be at the sole cost and expense of Optionee.
 
-3-	

 	
 
[*] Certain information in this document has been omitted and filed separately with the Securities and
Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.  
 
(b)          If Optionee exercises the Option and the Closing Date is after February 28, 2014, but on or prior to February 28, 2015, the purchase price shall be  [*]  per square foot.
 
(c)          If Optionee exercises the Option and the Closing Date is after February 28, 2015, but on or prior to February 29, 2016, the purchase price shall be  [*]  per square foot.
 
(d)          If Optionee exercises the Option and the Closing Date is after February 29, 2016, but on or prior to February 28, 2018, the purchase price shall be the greater of  (1)  [*]  per square foot or  (2)  the appraised value as determined by Kevin MacAtee of Hoffman, Vance and Worthington.
 
3.2          Payment of Purchase Price. On or before one (1) business day prior to the Close of Escrow, Optionee shall deposit with Escrow Holder, in immediately available funds, the full amount of the Purchase Price, less the Option Consideration received by Optionor (the “ Cash Payment ”), plus an amount equal to Optionee’s share of the closing costs and prorations as set forth in  Section 8.6 . At Close of Escrow, the Cash Payment shall be disbursed to Optionor, less Optionor’s share of the closing costs and prorations as set forth in  Section 8.6 .
 
4.          Opening of Escrow. Within three (3) business days following the mutual execution of this Agreement, Optionor and Optionee shall open an escrow (the “ Escrow ”) with LandAmerica Lawyer’s Title, Attn: Judy Cook, Escrow Officer, 2751 Park View Court, Suite 241, Oxnard, CA 93036 (“ Escrow Holder ”), by delivering an executed copy of this Agreement to Escrow Holder. Optionor shall also deliver to Escrow Holder a Memorandum of Option executed and acknowledged by Optionor and Optionee in the form attached hereto as  Exhibit B  (the “ Memorandum of Option” ). Optionee shall deliver to Escrow Holder a Quitclaim Deed executed and acknowledged by Optionee in the form attached hereto as  Exhibit C  (the “ Quitclaim Deed” ). Escrow Holder is directed to record the Memorandum of Option against the Option Property in the Official Records of the County of Ventura concurrent with the release of the First Option Payment to Optionor. Escrow Holder shall hold the Quitclaim Deed until required to deliver the same to Optionor pursuant to the express provisions of this Agreement, including, without limitation,  Sections 6  and  8.5 . As used in this Agreement, the term “ Opening of Escrow ” shall mean the date on which a fully-executed copy of this Agreement has been delivered to Escrow Holder. Upon receipt of the fully-executed copy of this Agreement, Escrow Holder is hereby instructed to open the Escrow, and advise the parties (including each of the party’s respective attorneys, if any) of the date of the Opening of Escrow. This Agreement shall constitute escrow instructions to Escrow Holder, together with Escrow Holder’s general provisions. If there is any conflict between Escrow Holder’s general provisions and the provisions of this Agreement, the provisions of this Agreement shall control.
 
-4-	

 	
 
[*] Certain information in this document has been omitted and filed separately with the Securities and
Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.  
 
5.          Due Diligence. Commencing as of January 4, 2013, Optionee had the right to review the suitability of the Option Property for its intended purposes as determined by Optionee in its sole, subjective discretion. In particular, Optionee shall have the right to review and investigate the condition of title to the Option Property (including the review of any surveys of the Option Property) as further described in  Section 5.1 , the physical and environmental condition of the Option Property, the character, quality, value and general utility of the Option Property, the zoning, land use, environmental and building requirements and restrictions applicable to the Option Property, the economic feasibility of using the Option Property for Optionee’s intended purposes, and other factors or matters relevant to Optionee’s decision to purchase the Option Property. If on or before February 28, 2013, Optionee determines in its sole, subjective discretion that the Property is not acceptable for any reason whatsoever, Optionee shall have the right to terminate this Agreement by giving notice thereof to Optionor pursuant to  Section 5.4 , and upon giving of such notice, Optionee shall be repaid any previously paid Option Consideration.
 
5.1           Preliminary Title Report. Optionee ordered a Preliminary Title Report for the Option Property, dated October 29, 2012, from LandAmerica Lawyer’s Title (“ Title Company” ) [File No. 412240915], together with legible copies of the documents of record evidencing all title exceptions (collectively, the “ Title Report ”). Optionee shall have until February 8, 2013, to notify Optionor and Escrow Holder, in writing, of Optionee’s disapproval of any exceptions shown on the Title Report (the “ Title Review Period ”). If Optionee does not give Optionor and Escrow Holder written notice of disapproval by the end of the Title Review Period, the Title Report and supporting documents shall be deemed approved and all exceptions therein (other than the Deemed Disapproved Exceptions (defined below)) shall be deemed “ Permitted Exceptions ” and this condition shall be deemed satisfied; provided , however , that following the expiration of the Title Review Period, if Optionee exercises the Option without disapproval, Optionee shall take title to the Option Property subject to all encumbrances, rights, restrictions and interests affecting the Option Property shown as exceptions in the Title Report, except that Optionor shall remove, at or before the Close of Escrow, and shall cause the Option Property to be delivered free and clear of, any deeds of trusts, mortgages, mechanics’ liens and/or other monetary liens (except non-delinquent taxes and assessments) encumbering the Option Property, and not created, caused or consented to by Optionee (collectively, the “ Deemed Disapproved Exceptions ”). Optionee shall have the right, prior to the Close of Escrow, to disapprove any title exceptions reflected on any supplement to the Title Report issued by the Title Company (the “ New Exceptions ”), except to the extent the New Exceptions arise or result from the activities of Optionee or Optionee’s agents.
 
-5-	

 	
 
[*] Certain information in this document has been omitted and filed separately with the Securities and
Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.  
 
5.1.1           Within five (5) business days of receipt of Optionee’s notice of disapproval of any exceptions (including any New Exceptions), Optionor shall notify Optionee and Escrow Holder whether Optionor is willing to remove, on or before the Close of Escrow, any such item which Optionee has disapproved. If Optionor gives timely notice of its election to remove the disapproved item and thereafter fails to do so before the Close of Escrow, then Optionor shall be deemed to be in default hereunder. If Optionor does not give Optionee and Escrow Holder written notice within said five (5) business day period, Optionor shall be deemed to have elected not to remove any such item which Optionee has disapproved. If there are exceptions which Optionee has disapproved and which Optionor is not willing to remove at Optionor’s expense (or is deemed to have elected to not remove), Optionee shall have until fifteen (15) days after the end of the Title Review Period or with respect to any New Exceptions, five (5) business days after the date on which Optionor delivers to Optionee its written notice or, if Optionor has failed to timely deliver to Optionee said notice, the date which is five (5) business days after the expiration of said five (5) business day period to notify Optionor in writing of Optionee’s election to either  (a)  waive its disapproval and approve such exceptions, or  (b)  terminate this Agreement and shall be repaid any previously paid Option Consideration. If Optionee elects to waive its disapproval and approves any such exceptions, or if Optionee does not expressly elect to terminate by timely delivery of a termination notice (or other notice of termination in connection with Optionee’s disapproval of any New Exceptions), such exceptions then shall be deemed to become Permitted Exceptions at the Close of Escrow .  In the event of the termination of this Agreement by Optionee prior to Close of Escrow as provided above in this Section, the Option Consideration shall be refunded to Optionee by Optionor and neither party shall have any further rights, duties, or obligations hereunder with respect to the Option Property, except for such matters which expressly survive the termination of this Agreement as set forth herein.
 
5.2        Optionee’s Investigation. Optionor shall deliver to Optionee legible photocopies of all reports, studies, documents and agreements (except proprietary financial information) in Optionor’s possession or control that relate to the Option Property (collectively, the “ Property Documents ”). Optionee shall have the right to conduct such independent investigations as Optionee deems necessary or appropriate concerning the condition, use, sale, development or suitability of the Option Property for Optionee’s intended purposes. Except as expressly provided in this Agreement, including, without limitation, under  Sections 5.5  and  9 , Optionor makes no representations or warranties with respect to any aspect or condition of the Option Property.
 
5.3        Right to Enter. Pursuant to that certain Access and Indemnity Agreement, dated January 4, 2012, by and between Optionor and Optionee, Optionor has granted to Optionee and its agents, employees, contractors and consultants a nonexclusive license to enter upon the Option Property.
 
5.4        Notice of Termination. Optionee shall have the right, at its sole option, to terminate this Agreement at any time prior to Optionee’s delivery of the Closing Notice if Optionee determines in its sole, subjective discretion that it does not wish to purchase the Option Property, by giving written notice of termination of this Agreement to Optionor and Escrow Holder. Upon receipt of such written notice, this Agreement shall automatically terminate, and neither party shall have any further rights, duties or obligations under this Agreement, except those provisions that by their terms survive the termination of this Agreement.
 
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[*] Certain information in this document has been omitted and filed separately with the Securities and
Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.  
 
5.5           “AS-IS” Sale. OPTIONEE ACKNOWLEDGES THAT OPTIONEE IS PURCHASING THE OPTION PROPERTY "AS IS" AND "WHERE IS" AND OPTIONEE CONFIRMS THAT, EXCEPT AS MAY BE EXPRESSLY OTHERWISE SET FORTH IN THIS AGREEMENT, OPTIONOR AND/OR OPTIONOR'S AGENTS HAVE NOT MADE, AND ARE NOT MAKING, ANY REPRESENTATIONS OR WARRANTIES WHATSOEVER, EXPRESS OR IMPLIED, CONCERNING OR WITH RESPECT TO THE OPTION PROPERTY, INCLUDING, WITHOUT LIMITATION, ITS ENVIRONMENTAL CONDITION, THE USE OR DEVELOPMENT THEREOF, THE REQUIREMENTS OF ANY OR ALL FEDERAL, STATE, COUNTY OR LOCAL LAWS, REGULATIONS, ADMINISTRATIVE OR REGULATORY RULINGS OR ANY OTHER LEGAL MATTERS RELATING TO THE OPTION PROPERTY, THE DEVELOPMENT OF THE OPTION PROPERTY OR ANY OTHER MATTERS WHATSOEVER. OPTIONEE ACKNOWLEDGES, REPRESENTS AND WARRANTS THAT, WITH THE EXCEPTION OF THE REPRESENTATIONS, WARRANTIES AND COVENANTS MADE BY OPTIONOR IN THIS AGREEMENT, OPTIONEE IS RELYING UPON OPTIONEE'S OWN INDEPENDENT INVESTIGATION OF THE OPTION PROPERTY IN CONNECTION WITH ITS EXECUTION AND DELIVERY OF THIS AGREEMENT AND/OR OPTIONEE'S PERFORMANCE HEREUNDER. OPTIONEE ACKNOWLEDGES, REPRESENTS AND WARRANTS THAT AS OF THE CLOSING IT HAS THOROUGHLY INSPECTED THE OPTION PROPERTY AND ALL FACTORS RELEVANT TO ITS USE, INCLUDING, BUT NOT LIMITED TO, THE PHYSICAL CONDITION OF THE PROPERTY, THE CONDITION OF SOILS AND GROUNDWATER, THE ENVIRONMENTAL CONDITION, ALL UTILITIES AND ALL PHYSICAL AND FUNCTIONAL ASPECTS OF THE PROPERTY; ALL MATTERS RELATING TO TITLE TO THE OPTION PROPERTY; TOGETHER WITH ALL FEDERAL, STATE, COUNTY, MUNICIPAL AND OTHER LEGAL REQUIREMENTS CONCERNING THE PROPERTY SUCH AS TAXES, ASSESSMENTS, ZONING, ENVIRONMENTAL REGULATION AND/OR CONDITION, USE PERMITS AND BUILDING CODES. OPTIONEE FURTHER ACKNOWLEDGES, REPRESENTS AND WARRANTS THAT, WITH THE EXCEPTION OF THE REPRESENTATIONS, WARRANTIES AND COVENANTS MADE BY OPTIONOR IN THIS AGREEMENT, IT IS ACQUIRING THE PROPERTY IN AN "AS IS" AND "WHERE IS" CONDITION, SOLELY IN RELIANCE ON ITS OWN INSPECTION(S) AND EXAMINATION(S). EXCEPT AS SPECIFICALLY SET FORTH IN  SECTION 9 , NEITHER OPTIONOR NOR ITS AGENTS, REPRESENTATIVES, ATTORNEYS, OR EMPLOYEES, OR ANY OF THEM, HAVE MADE REPRESENTATIONS OR WARRANTIES, DIRECT OR INDIRECT, EXPRESS OR IMPLIED, VERBAL OR WRITTEN, WITH RESPECT TO THE OPTION PROPERTY, OR ITS FITNESS FOR ANY PARTICULAR USE OR PURPOSE.
 
6.          Termination of Option; Liquidated Damages.
 
6.1 	         Termination of Option. If Optionee fails to pay any of the Second Year Option Payment, Third Year Option Payment, Fourth Year Option Payment or Fifth Year Option Payment when due, or if Optionee fails to give the Closing Notice by the Closing Notice Deadline, or if Escrow fails to close on or before February 28, 2018, for any reason other than an Optionor default or the failure of an Optionee Condition under  Section 7.2 , then this Agreement and the Option shall automatically terminate without further notice to Optionee and shall be of no further force or effect. Optionee shall pay all Escrow and title cancellation charges, and neither party shall have any further rights, duties or obligations to the other with respect to the Option Property, except for those obligations that survive the termination of this Agreement. Except to the extent Escrow fails to close due to a Optionor default or due to the failure of an Optionee Condition under  Section 7.2 , the Option Consideration in the possession of Optionor shall be retained by Optionor and Escrow Holder shall immediately deliver the Quitclaim Deed to Optionor, who shall then record such Quitclaim Deed in the Official Records of the County of Ventura.
 
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[*] Certain information in this document has been omitted and filed separately with the Securities and
Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.  
 
6.2           Liquidated Damages. IF OPTIONEE FAILS TO COMPLETE THE PURCHASE OF THE OPTION PROPERTY AS A RESULT OF OPTIONEE’S BREACH OF ITS OBLIGATIONS UNDER THIS AGREEMENT, OPTIONOR SHALL BE ENTITLED TO OBTAIN AND KEEP THE OPTION CONSIDERATION RECEIVED AS OF THE DATE OF THE BREACH AS LIQUIDATED DAMAGES, AS OPTIONOR’S SOLE AND EXCLUSIVE LEGAL OR EQUITABLE REMEDY FOR OPTIONEE’S FAILURE TO CLOSE ESCROW DUE TO A BREACH OF OPTIONEE’S OBLIGATIONS UNDER THIS AGREEMENT. IN LIGHT OF THE DIFFICULTY THE PARTIES WOULD HAVE IN DETERMINING OPTIONOR’’S ACTUAL DAMAGES AS A RESULT OF SUCH A BREACH, IT IS EXPRESSLY UNDERSTOOD AND AGREED BY THE PARTIES THAT THE AMOUNT OF THE OPTION CONSIDERATION THEN RELEASED TO OPTIONOR IS A REASONABLE ESTIMATE OF THE EXTENT TO WHICH OPTIONOR WOULD BE DAMAGED BY SUCH A BREACH BY OPTIONEE. THE PARTIES ACKNOWLEDGE THAT THE PAYMENT OF SUCH LIQUIDATED DAMAGES IS NOT INTENDED AS A FORFEITURE OR PENALTY WITHIN THE MEANING OF CALIFORNIA CIVIL CODE SECTIONS 3275 OR 3369, BUT IS INTENDED TO CONSTITUTE LIQUIDATED DAMAGES TO SELLER PURSUANT TO CALIFORNIA CIVIL CODE SECTIONS 1671, 1676 AND 1677. NOTWITHSTANDING THE FOREGOING, IN NO EVENT SHALL THIS SECTION LIMIT THE DAMAGES RECOVERABLE BY OPTIONOR AGAINST OPTIONEE DUE TO OPTIONEE'S OBLIGATION TO INDEMNIFY OPTIONOR IN ACCORDANCE WITH THE PROVISIONS OF THE ACCESS AND INDEMNITY AGREEMENT REFERENCED IN  SECTION 5.3 . BY SEPARATELY INITIALING THIS SECTION, BOTH OPTIONOR AND OPTIONEE ACKNOWLEDGE THAT THEY HAVE READ AND UNDERSTAND THE ABOVE PROVISION COVERING LIQUIDATED DAMAGES, AND THAT EACH PARTY WAS REPRESENTED BY COUNSEL WHO EXPLAINED THE CONSEQUENCES OF THIS LIQUIDATED DAMAGES PROVISION AT THE TIME THIS AGREEMENT WAS EXECUTED.
 
 	OPTIONOR’S INITIALS:	______	OPTIONEE’S INITIALS:	______	
 	 	______	 	 	
 	 	______	 	 	
 
7.          Conditions to Close of Escrow.
 
7.1           Conditions for the Benefit of Optionee. Optionee’s obligation to purchase the Option Property, and the Close of Escrow, shall be conditional and contingent upon the satisfaction, or written waiver by Optionee, as and when required below, of each of the following conditions (collectively, the “ Optionee Conditions ”), all of which shall also constitute covenants of Optionor:
 
7.1.1           Representations and Warranties. The representations and warranties of Optionor set forth in Section 9  shall be true and correct in all material respects as of the Close of Escrow.
 
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[*] Certain information in this document has been omitted and filed separately with the Securities and
Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.  
 
7.1.2           Title Insurance. Title Company shall be committed to issue to Optionee at Optionor’s sole expense, as of the Close of Escrow, a CLTA Standard Coverage Owner's Policy of Title Insurance with liability limits equal to the Purchase Price, insuring fee title as being vested in Optionee, free of the encumbrances that Optionor is required to remove under  Section 5.1 .
 
7.1.3           No Material Change. There shall have been no material adverse change in the physical condition or title of the Property.
 
7.1.4           Performance by Optionor. Optionor shall have materially performed, observed and complied with all covenants, agreements and conditions required by this Agreement to be performed, observed and complied with by Optionor prior to, or as of, the Close of Escrow.
 
7.2          Failure of Optionee Conditions. If any of the Optionee Conditions has not been satisfied (or is not in a position to be satisfied) or waived by Optionee in writing on or before Close of Escrow, then Optionee shall have the right to terminate this Agreement and the Escrow by written notice of termination delivered to Optionor and Escrow Holder. In the event of such termination of this Agreement by reason of the failure of any such Optionee Condition, the Option Consideration shall be returned to Optionee, each party shall pay one half (1/2) of any Escrow and title cancellation charges, and neither party shall have any further rights, duties or obligations under this Agreement, except for those obligations which expressly survive the termination of this Agreement.
 
8.          Close of Escrow.
 
8.1         Close of Escrow. The Close of Escrow shall take place through Escrow on or before the thirtieth (30th) day after the date on which the Closing Notice has been given to Optionor and Escrow Holder, but in no event later than February 28, 2018 (the  “ Outside Closing Date ” ). For purposes of this Agreement, the terms “ Closing Date ” and “ Close of Escrow ” shall mean and refer to the date of recordation, in the Official Records of the County of Ventura, of the Grant Deed conveying title to the Option Property to Optionee. In the event the Close of Escrow has not occurred by the Outside Closing Date, either party (provided such party is not in breach of its obligations hereunder) shall have the right to terminate this Agreement by written notice of termination to the other and to Escrow Holder, in which event this Agreement shall terminate, and neither party shall have any further rights, duties or obligations hereunder, except for those obligations which by their terms survive the termination of this Agreement.
 
8.2         Deliveries by Optionor to Escrow Holder. Upon receipt of the Closing Notice, Optionor hereby covenants and agrees to deliver to Escrow Holder a fully executed and acknowledged Grant Deed, substantially in the form attached hereto as  Exhibit D  (the “ Grant Deed ”), conveying the Option Property to Optionee, or to Optionee’s nominee, in a form reasonably acceptable to Optionee, and all other documents and funds required hereunder or otherwise reasonably required by Escrow Holder to be deposited by Optionor to close the Escrow.
 
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[*] Certain information in this document has been omitted and filed separately with the Securities and
Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.  
 
8.3           Deliveries by Optionee to Escrow Holder. Optionee hereby covenants and agrees to deliver to Escrow Holder, at least one (1) business day prior to the Closing Date, the Cash Payment in immediately available funds, and all funds necessary to pay Optionee’s share of the Escrow fees, prorations, and other charges, and all other documents required hereunder or otherwise reasonably required by Escrow Holder to be deposited by Optionee to close the Escrow.
 
8.4           Title Policy. Optionor shall pay the premium for the Title Policy. If Optionee requires an American Land Title Association (“ ALTA ”) Owner’s Extended Coverage Policy of title insurance, or a binder in lieu of a policy of title insurance, then:  (a)  Optionee shall make such election in a timely manner so as to not interfere with or delay the Close of Escrow;  (b)  Optionor shall pay only the cost of the Standard Coverage CLTA Owner’s Policy of title insurance; and  (c)  Optionee shall pay the additional cost of obtaining such ALTA Extended Coverage Policy or binder including, without limitation, any survey cost.
 
8.5           Escrow Cancellation. If the Close of Escrow fails to occur due to Optionor’s default, and Optionee elects to terminate this Agreement, Optionor shall pay all Escrow Cancellation Charges and the Option Consideration shall be immediately refunded to Optionee by Optionor. If the Close of Escrow fails to occur due to Optionee’s default, Optionee shall pay all Escrow Cancellation Charges and the Option Consideration shall be retained by Optionor. “ Escrow Cancellation Charges ” means all fees, charges and expenses of Escrow Holder hereunder and all fees, charges and expenses related to the services of Escrow Holder as the Title Company in connection with the issuance of the Title Report and other title matters hereunder.
 
8.6           Costs and Prorations. Except as otherwise provided herein, Optionee and Optionor shall each pay one-half (1/2) of Escrow Holder’s escrow fees for the Escrow. Optionor shall bear the cost of all documentary transfer taxes and the cost of the Title Policy. All recording costs or fees and all other costs or expenses not otherwise provided for in this Agreement shall be apportioned or allocated between Optionee and Optionor in the manner customary in the County of Ventura. All nondelinquent general and special real property taxes, bonds and assessments shall be prorated through Escrow, based upon the latest available tax bills using customary escrow procedures.
 
8.7           Documents. Optionee shall, subject to any contractual restrictions imposed in contracts with third parties, within five (5) business days after receipt of written request from Optionor, deliver to Optionor, at no cost to Optionor, copies of all studies, tests, surveys, applications, maps, agreements, plans and other documents (except proprietary financial information) related to the Option Property in Optionee’s possession or control (collectively, “ Diligence Documents ”), whether previously delivered to Optionee by Optionor or obtained by Optionee in connection with its investigations of the Option Property (except that the foregoing shall not include any architectural renderings or market studies); provided , however , that copies of such Diligence Documents shall be delivered to Optionor without any representation or warranty of any kind as to the accuracy, content or completeness of such Diligence Documents and without liability to Optionee.
 
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[*] Certain information in this document has been omitted and filed separately with the Securities and
Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.  
 
8.8           Like-Kind Exchange Cooperation. The parties acknowledge that one or more of the individuals who comprise Optionor may desire to complete this transaction in whole or in part as one or more exchanges which will qualify for non-recognition of gain under Section 1031 of the Internal Revenue Code of 1986, and Section 18031 of the California Revenue and Taxation Code, as heretofore or hereafter amended. In such event, Optionee agrees to reasonably cooperate with Optionor to effect such an exchange transaction if requested to do so by Optionor, including, but not limited to, entering into agreements, escrow instructions and other documents reasonably acceptable to Optionee in order to comply with said Sections 1031 and 18031 and the regulations and/or rulings thereunder; provided , however , that Optionee shall incur no additional costs or expenses in connection therewith nor shall Optionee be required to take legal title to any exchange property. In the event of such exchange, Optionor shall indemnify, defend and hold harmless Optionee from any and all Claims incurred by Optionee arising from the exchange, which Claims would not have been incurred if this were a cash sale without an exchange. The inability of Optionor to effect an exchange shall not delay the Close of Escrow or relieve Optionor of the obligation to sell the Option Property to Optionee pursuant to the terms of this Agreement.
 
9.          Representations and Warranties of Optionor. Each Optionor hereby represents and warrants to Optionee as of the Effective Date, as follows, which representations and warranties shall be true and correct in all material respects as of the Closing Date:
 
9.1           Power. Each Optionor has the legal power, right and authority to enter into this Agreement and the instruments referenced herein, to perform their obligations hereunder and to consummate the transaction contemplated hereby and the individuals executing this Agreement on behalf of each Optionor have the authority to bind such Optionor to Optionor’s obligations set forth herein.
 
9.2           Title. Optionor has good and marketable title to the Property. Except as shown on the Title Report and the Weatherford Land Lease and the Williams Homes Ground Space Lease Agreement, each described in  Section 11.2 , there are no encumbrances, liens, covenants, restrictions, reservations, options, rights-of-way, easements, encroachments, claims or other matters affecting title to or possession of the Property.
 
9.3           Requisite Action. All requisite action has been taken by each Optionor in connection with the entering into of this Agreement, the execution and delivery of the instruments referenced herein, and the consummation of the transactions contemplated hereby.
 
9.4           Enforceability. This Agreement constitutes the legal, valid and binding obligation of each Optionor, enforceable against each Optionor in accordance with its terms, subject only to applicable bankruptcy, insolvency, reorganization, moratorium or similar laws or equitable principles affecting or limiting rights of contracting parties generally.
 
9.5           Leases. Except for the Weatherford Land Lease and the Williams Homes Ground Space Lease Agreement, each described in  Section 11.2 , there are no oral or written leases or other occupancy agreements affecting all or any part of the Option Property and there are no written promises, understandings, agreements or commitments between any Optionor and/or any other occupant affecting the Option Property.
 
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[*] Certain information in this document has been omitted and filed separately with the Securities and
Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.  
 
9.6           No Contracts. Except for the Weatherford Land Lease and the Williams Homes Ground Space Lease Agreement, each described in  Section 11.2 , there are no concession agreements, management agreements, service contracts or other agreements (collectively, “ Agreements ”), affecting any part of the Property or the operation or maintenance thereof which will be binding upon Optionee or otherwise remain in effect after the Closing, nor shall any Optionor enter into any such Agreements after the Opening of Escrow.
 
9.7           Hazardous Substances. To the Best Knowledge of Optionor, the Option Property has been used for equipment storage for approximately twenty-five (25) years. Prior to that time, a portion of the Option Property was a producing orchard. As part of this agricultural use, Optionor’s predecessors in title and tenants have used and discharged certain chemical fertilizers, chemical pesticides and other substances, the exact nature or identity of which are unknown to Optionor, which substances may be considered “hazardous” or “toxic” substances under federal law, state law, and/or city and county ordinances. Optionor hereby warrants, to the Best Knowledge of Optionor, that there are no tanks on or below the surface of the Option Property and there is no asbestos or asbestos related product on the Option Property. As of the Effective Date, Optionor is not aware of any condition or use, other than stated above and as communicated by Optionee to Optionor after the preliminary results of a Phase I Environmental Site Assessment, which would have resulted in a hazardous substance condition which might require remediation and/or removal or which otherwise violates any applicable federal, state or local hazardous substance law. Except as disclosed above and as communicated by Optionee to Optionor after the preliminary results of a Phase I Environmental Site Assessment, to the Best Knowledge of Optionor, the Option Property contains no hazardous substances and, to the Best Knowledge of Optionor, no hazardous substances have been released, disposed of, generated, produced, or stored on or under the Option Property.
 
9.8           No Actions. To the Best Knowledge of Optionor, there is no action, suit, proceeding or investigation pending or threatened against Optionor or the Option Property which would become a cloud on Optionee’s title or have a material adverse impact upon the Option Property or any portion thereof, or which questions the validity or enforceability of the transactions contemplated by this Agreement or any action taken pursuant hereto or thereto, in any court or before or by any federal, district, county, or municipal department, commission, board, bureau, agency or other governmental instrumentality or any dispute resolution agency.
 
9.9           No Condemnation. Neither the whole nor any portion of the Property is subject to temporary requisition or use by any governmental authority of which any Optionor has received written notice, nor is there pending as of the date hereof any condemnation proceeding affecting the Option Property or any portion thereof of which any Optionor has received written notice.
 
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[*] Certain information in this document has been omitted and filed separately with the Securities and
Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.  
 
9.10         Property Documents. To the Best Knowledge of Optionor, the Property Documents constitute all reports, studies, documents and agreements (except proprietary financial information) in Optionor’s possession or control that relate to the Option Property and are true and complete copies.
 
9.11         Complete Disclosure. Optionor has disclosed to Optionee any and all matters known to the Best Knowledge of Optionor affecting or in any way relating to the Property, or any portion thereof, and Optionee's use and/or development of the Property, or any portion thereof.
 
If any material change in condition or circumstances renders any of the foregoing representations or warranties of Optionor inaccurate in any material respect between the Effective Date and the Close of Escrow, Optionor shall immediately deliver written notice to Optionee of such change and Optionee shall have a period of 10 days after such written notice (and the Closing Date shall be extended as necessary so that it does not occur until the expiration of such 10 day period) to accept such changed representation or warranty or to terminate this Agreement , by giving written notice to Optionor. In the event of such termination, Optionor shall immediately return to Optionee all Option Consideration previously paid by Optionee, and the Escrow shall be canceled and the parties shall thereafter be released from all obligations hereunder. Alternatively, Optionee may waive the effect of any such changed warranty or representation and close the purchase and sale of the Property. If Optionee receives no such notice, then each of the representations and warranties contained in this  Section 9  are acknowledged by Optionor to be material and to be relied upon by Optionee in proceeding with this transaction, shall be deemed to have been remade by Optionor as of the Closing and shall survive for a period of one (1) year after the Close of Escrow.
 
10.         Representations and Warranties of Optionee. Optionee hereby represents and warrants to Optionor as of the Effective Date, as follows, which representations and warranties shall be true and correct in all material respects as of the Closing Date:
 
10.1         Organization. Optionee is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware.
 
10.2         Authority and Enforceability. Optionee has the legal capacity and authority to enter into and perform its obligations under this Agreement. The execution, delivery and performance by Optionee of this Agreement and the consummation by Optionee of the transactions contemplated hereby have been duly authorized by all necessary corporate action on the part of Optionee. This Agreement has been duly and validly executed and delivered by Optionee and constitutes the legal, valid and binding obligation of Optionee, enforceable against Optionee in accordance with its terms, except to the extent that such enforceability:  (a)  may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws relating to creditors’ rights generally; and  (b)  is subject to general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law). The execution, delivery and performance by Optionee of this Agreement and the consummation by Optionee of the transactions contemplated hereby:  (i)  do not require the consent, approval, clearance, waiver, order or authorization of any third party;  (ii)  do not violate any provision of the Articles of Incorporation or Bylaws of Optionee; (iii)  do not conflict with or violate any permit, concession, grant, franchise, statute, law, rule or regulation of any governmental entity or any order, judgment, award or decree of any court or other governmental entity to which Optionee is subject; and  (iv) do not conflict with, or result in any breach of, or default or loss of any right under (or an event or circumstance that, with notice or the lapse of time, or both, would result in a default), or the creation of an encumbrance pursuant to, or cause or permit the acceleration prior to maturity of any amounts owing under, any indenture, mortgage, lease, or other agreement to which Optionee is a party.
 
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[*] Certain information in this document has been omitted and filed separately with the Securities and
Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.  
 
10.3        Investigation; Sole Reliance. Optionee has made, or will make, such independent investigations as Optionee deems necessary in Optionee’s sole, subjective discretion, advisable or material concerning all aspects of the Option Property, including, but not limited to, the condition, use, sale, development or suitability of the Option Property for Optionee’s intended purposes. In that regard, except for the express representations and warranties of Optionor, set forth in this Agreement, or as otherwise specifically provided in this Agreement, Optionee expressly represents and warrants to Optionor that Optionee is relying solely upon its own inspection, investigation and analysis of the Option Property in electing to purchase the Option Property.
 
11.         Additional Representations, Warranties and Covenants of Parties.
 
11.1        General Assignment. Optionor agrees, concurrently with the Close of Escrow, to assign to Optionee all of Optionor’s right, title and interest, if any, in and to all warranties, guarantees, licenses, permits, plans, maps, entitlements, approvals, and rights under any documents and instruments pertaining to the Option Property.
 
11.2        Leases.
 
(a)          Weatherford Lease. Optionor entered into that certain Land Lease for Office and Shop Building, dated September 1, 1979, as subsequently amended, with Weatherford U.S., L.P., a Louisiana limited partnership (" Weatherford "), that includes the approximately 3.91 acre parcel identified as APN 107-0-043-025. Weatherford currently uses the approximately 3.91 acre parcel for equipment storage in exchange for monthly rent in the amount of  [*] . On or after the Closing Date, Optionee may elect to give Weatherford one (1) year prior written notice for termination of the Lease as to the approximately 3.91 acre parcel. Prior to the Close of Escrow, Optionor shall execute and deliver into Escrow an assignment to Optionee of all of Optionor's rights and obligations under the Weatherford Land Lease, in a form reasonably acceptable to Optionee.
(b)          Williams Homes Lease. Optionor entered into that certain Ground Space Lease Agreement for Sign Placement, dated November 29, 2012, with Williams Homes, Inc. (“ Williams ”). Williams has the right for signage at the south-east corner of Highway 126 and S. Hallock Drive in exchange for monthly rent in the amount of  [*] . On or after the Closing Date, Optionee may elect to give Williams one (1) year prior written notice for termination of the Ground Space Lease Agreement. Prior to the Close of Escrow, Optionor shall execute and deliver into Escrow an assignment to Optionee of all of Optionor's rights and obligations under the Ground Space Lease Agreement, in a form reasonably acceptable to Optionee.
 
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[*] Certain information in this document has been omitted and filed separately with the Securities and
Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.  
 
11.3       Mutual Release. As additional consideration for the transactions contemplated herein, effective upon the Close of Escrow, the parties hereby agree to the following:
 
11.3.1   Release of Optionor. With the exception of the representations, warranties and covenants of Optionor set forth herein, Optionee, on behalf of itself and its officers, directors, shareholders, employees, agents, administrators, representatives, successors, and assigns hereby releases and discharges Optionor and its executors, heirs, administrators, representatives, successors and assigns from all liability, claims, demands, actions, or causes of action of any kind or character, whether fixed or contingent, known or unknown, arising from or relating to the Option Property and accruing after the Close of Escrow.
 
11.3.2   Release of Optionee. With the exception of the representations, warranties and covenants of Optionee set forth herein, each Optionor on behalf of itself and their executors, administrators, beneficiaries, representatives, successors, and assigns hereby releases and discharges Optionee and its representatives, successors and assigns from all liability, claims, demands, actions, or causes of action of any kind or character, whether fixed or contingent, known or unknown, arising from or relating to the Option Property and accruing prior to the Close of Escrow.
 
11.3.3   Unknown or Unsuspected Consequences. The parties understand and acknowledge that Sections 11.3.1  and  11.3.2  apply to and include all unknown or unsuspected consequences or results arising from or relating to the relationships, transactions, occurrences, or agreements referred to in those Sections. Optionor and Optionee, on behalf of themselves and their respective related parties described in  Sections 11.3.1  and  11.3.2 , represent and warrant that they have read the contents of California Civil Code Section 1542, which provides as follows:
 
A general release does not extend to claims which the creditor does not know or suspect to exist in his or her favor at the time of executing the release, which if known by him or her must have materially affected his or her settlement with the debtor.
 
OPTIONOR AND OPTIONEE, FOR THEMSELVES AND THEIR RESPECTIVE RELATED PARTIES, EXPRESSLY WAIVE ANY AND ALL RIGHTS AND BENEFITS UNDER CALIFORNIA CIVIL CODE SECTION 1542.
 
11.3.4   Nature of Release. Each party hereby acknowledges that they have read this Section, that they fully understand the contents of this Section, and that THIS IS A GENERAL RELEASE GIVING UP ALL RIGHTS WITH RESPECT TO THE MATTERS THAT ARE BEING RELEASED UNDER THIS AGREEMENT.
 
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[*] Certain information in this document has been omitted and filed separately with the Securities and
Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.  
 
12.         Broker’s Commission. Optionor and Optionee each represents to the other that no brokerage commission, finder’s fee or other compensation of any kind is due or owing to any real estate broker or other person or entity in connection with the transactions covered by this Agreement. Each party agrees to and does hereby indemnify and hold the other free and harmless from and against any and all costs, demands, liabilities, losses, damages, claims, causes of action or proceedings (including reasonable attorneys’ fees) which may result from any broker, agent or finder, licensed or otherwise, claiming through, under or by reason of the conduct of the indemnifying party in connection with this transaction.
 
13.         Indemnification. Optionor covenants and agrees to indemnify and hold Optionee harmless in respect of: (a) all liabilities of Optionor of any nature, whether accrued, absolute, contingent or otherwise;  (b)  any damage resulting from any breach of Optionor’s representations, warranties and covenants herein;  (c)  all liabilities arising from or connected with the Property and accruing before the Close of Escrow; and  (d)  all actions, suits, proceedings, demands, assessments, judgments, costs and expenses incident to any of the foregoing, including reasonable attorneys’ fees. The provisions of this Section shall survive for a period of one (1) year after the Close of Escrow or any earlier termination of this Agreement.
 
14.         Default and Remedies. Notwithstanding any other provision herein, if any obligation hereunder is not performed as herein provided: (1) the party claiming that a default has occurred shall give written notice of that default to the other party; and (2) there shall be the following remedies:
 
(a)          In the event of a material default by Optionee, if the default is the failure to close the Escrow when obligated, Optionee shall have only 5 business days after delivery of written notice of such default within which to cure the default, otherwise, Optionee shall have 10 business days to cure any default. Optionor’s written notice shall describe the nature of Optionee’s default in reasonable detail so that Optionee is notified of the steps and actions Optionee must effect to cure the default, and in the case of a default other than a failure to close the Escrow when obligated, if the default cannot reasonably be cured within 10 days, Optionee shall have such longer period as may be necessary to cure, so long as Optionee commences to cure within the 10-day period and diligently pursues the cure to completion. If Optionee fails to cure the default within the applicable cure period, Optionee shall be in breach. If Optionee’s breach is not timely cured, then Optionor’s sole remedy shall be to retain all Option Consideration paid by Optionee as liquidated damages pursuant to Section 6.2. In no event shall Optionee have liability for any special, incidental, consequential, punitive or other damages.
 
(b)          In the event of a material default, misrepresentation or breach of a warranty or covenant by Optionor, following delivery of a notice of default by Optionee if the default is not cured by Optionor within 10 business days, (i) Optionee may elect to terminate this Agreement, in which case Optionor shall immediately return to Optionee all Option Consideration and shall pay all Escrow and title cancellation charges, the Escrow shall be canceled, and the parties shall thereafter be released from all obligations hereunder, except for those obligations which expressly survive the termination of this Agreement, which provisions shall survive for a period of one (1) year after the Close of Escrow, or (ii) Optionee may elect to treat this Agreement as being in full force and effect and Optionee shall have the right to an action for specific performance.
 
-16-	

 	
 
[*] Certain information in this document has been omitted and filed separately with the Securities and
Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.  
 
15.         Confidentiality of Agreement. Optionee acknowledges that all information with respect to the Option Property furnished to or to be obtained by Optionee is so furnished or obtained on the condition that Optionee, after the date of this Agreement until the Close of Escrow, use Commercially Reasonable Efforts to maintain the confidentiality thereof. The parties agree to use their Commercially Reasonable Efforts to maintain the confidentiality of this Agreement, and to hold in strict confidence, and not to disclose to any other person or entity without the prior written consent of the other party, all such information, unless and until the Closing. Notwithstanding the forgoing, such information may be disclosed to individuals or entities reasonably necessary to consummate the transactions contemplated herein (such as lenders, engineers, environmental consultants, attorneys, accountants and tax advisors).
 
16.         Miscellaneous Provisions.
 
16.1         Successors and Assigns. This Agreement may not be assigned by Optionee without the prior written consent of Optionor, with such consent to be given or withheld in Optionor’s sole and absolute discretion; provided , however , that Optionee may assign its rights hereunder to an entity in which Optionee owns a majority interest without the consent of Optionor. Subject to the preceding sentence, this Agreement shall inure to the benefit of and shall be binding upon the executors, administrators, beneficiaries, representatives, successors and assigns of Optionor and the officers, directors, shareholders, employees, agents, administrators, representatives, successors and assigns of Optionee.
 
16.2         Attorneys’ Fees. In the event of any claim, dispute or controversy arising out of or relating to this Agreement, including an action for declaratory relief, the prevailing party in such action or proceeding shall be entitled to recover its court costs and reasonable out-of-pocket expenses including, but not limited to, reasonable attorneys’ fees, to be fixed by the court. Such recovery shall include court costs, out-of-pocket expenses and attorneys’ fees on appeal, if any. The court shall determine the party that is the “prevailing party,” whether or not the dispute or controversy proceeds to final judgment.
 
16.3         Notices. Any and all notices, demands, requests or other communications required or permitted by this Agreement or by law to be served on, given to or delivered to any party hereto by any other party to this Agreement shall be in writing and shall be deemed duly served, given or delivered upon delivery:  (a)  by facsimile transmission or other electronic means (confirmed by any of the methods that follow);  (b)  by courier service or overnight delivery service (with proof of service); or  (c)  by certified or registered mail (return receipt requested and first-class postage prepaid), and addressed as follows:
 
 	If to Optionee:	Limoneira Company	
 	 	Attn: Harold Edwards, President and CEO	
 	 	1141 Cummings Road	
 	 	Santa Paula, CA 93060	
 	 	 	
 	 	Tel: (805) 525-5541	
 	 	Facsimile: (805) 525-8211	
 	 	E-mail: hedwards@limoneira.com	
 
-17-	

 	
 
[*] Certain information in this document has been omitted and filed separately with the Securities and
Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.  
 
 	If to Optionor:	Zella R. de Inbanez	
 	 	Post Office Box 280	
 	 	Tecate, CA  91980-0280	
 	 	 	
 	 	Tel: 011-526-654-4774	
 	 	Facsimile: 011-526-655-3015	
 	 	E-mail: zella@prodigy.net.mx  	
 	 	 	
 	And	Jason B. Rushing	
 	 	1934 Camino Vera Cruz	
 	 	Camarillo, CA 93010	
 	 	 	
 	 	Tel: (805) 402-1022	
 	 	E-mail: jbrushin@aol.com	
 	 	 	
 	And	Jennifer R. Rushing	
 	 	10619 Red Ribbon Road	
 	 	Versailles, MO 65084-4166	
 	 	 	
 	 	Tel: (____) ___________	
 	 	E-mail: jenncria@yahoo.com	
 	 	 	
 	If to Escrow Holder:	LandAmerica Lawyer’s Title	
 	 	Attn: Judy Cook, Escrow Officer	
 	 	2751 Park View Court, Suite 241	
 	 	Oxnard, CA 93036	
 	 	 	
 	 	Tel: (805) 484-2701	
 	 	Facsimile: (805) 988-0269	
 	 	E-mail: jcook@ltic.com	
 
Any notice that is addressed and delivered in the manner herein provided shall be conclusively presumed to have been duly served, given or delivered to the party to which it is addressed:  (1)  on the third day after the day it is so placed in the mail;  (2) on the day of delivery by facsimile transmission or other electronic means (if confirmed by any of the methods above);  (3)  on the day of delivery by courier service or overnight delivery (with proof of service); or  (4)  upon the intended recipient’s refusal to accept delivery. Any notice, demand, request or other communication required or permitted by this Agreement or by law shall refer to the specific Section of this Agreement under which notice, demand, request or other communication is being given and describe with specificity the reason for such notice, demand, request or other communication. Any party may change its address for the purposes of this Agreement, by giving notice of the address change, in the manner required by this Section, to the other parties.
 
-18-	

 	
 
[*] Certain information in this document has been omitted and filed separately with the Securities and
Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.  
 
16.4         Waiver; Consent. Either party may specifically and expressly waive in writing any breach by the other party of any provision of this Agreement, but no such waiver shall constitute a further or continuing waiver of any preceding or succeeding breach of the same or any other provision. The consent by one party to any act by the other for which such consent was required shall not be deemed to imply consent or waiver of the necessity of obtaining such consent for the same or any similar acts in the future.
 
16.5         Survivability. All covenants of Optionee or Optionor that are intended hereunder to be performed in whole or in part after the Closing, and all representations, warranties and indemnities by either party to the other, shall survive the Closing, and be binding upon and inure to the benefit of the parties and their respective heirs, executors, administrators, successors and assigns for a period of one (1) year after the Closing Date.
 
16.6         Further Documents and Acts. Each of the parties hereto agrees to cooperate in good faith with each other, and to execute and deliver such further documents and perform such other acts as may be reasonably necessary or appropriate to consummate and carry into effect the transactions contemplated under this Agreement.
 
16.7         Entire Agreement. This Agreement, its Exhibits and the Access and Indemnity Agreement constitute the entire agreement between the parties pertaining to the subject matter hereof, and the final, complete and exclusive expression of the terms and conditions thereof. All prior agreements, representations, negotiations and understandings of the parties, oral or written, express or implied, are hereby superseded and merged herein.
 
16.8         Time. Time is of the essence with respect to every provision of this Agreement in which time is an element. Any references in this Agreement to time for performance of obligations or elapsed time shall mean consecutive calendar days, months, or years, as applicable, unless otherwise explicitly indicated herein.
 
16.9         Governing Law. This Agreement shall be construed and governed by the laws of the State of California, without regard to the conflict of laws rules of the State of California or any other jurisdiction that would call for the application of the laws of any jurisdiction other than the State of California. By execution and delivery of this Agreement, the parties hereto agree and accept that any legal action or proceeding with respect to this Agreement shall be brought in the federal or state courts for the State of California, County of Ventura, and the parties expressly waive any objection to personal jurisdiction, venue or forum non conveniens .
 
16.10         Invalidity of Provision. If any provision of this Agreement as applied to either party or to any circumstance shall be adjudged by a court of competent jurisdiction to be void or unenforceable for any reason, the same shall in no way affect (to the maximum extent permissible by law) any other provision of this Agreement, the application of any such provision under circumstances different from those adjudicated by the court, or the validity or enforceability of the Agreement as a whole; provided , however , that the invalidity or unenforceability of such provision does not materially adversely affect the benefits accruing to, or the obligations imposed upon, any party hereunder.
  
-19-	

 	
 
[*] Certain information in this document has been omitted and filed separately with the Securities and
Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.
 
16.11   Captions; Exhibits. The titles and captions contained in this Agreement are inserted herein only as a matter of convenience and for reference and in no way define, limit, extend or describe the scope of this Agreement or the intent of any provision hereof. Unless otherwise specified to the contrary, all references to Sections are references to Sections of this Agreement and all references to Exhibits are references to Exhibits to this Agreement. All Exhibits attached hereto are hereby incorporated into this Agreement and are hereby made a part hereof as if set out in full in this Agreement.
 
16.12   Commercially Reasonable Efforts. For purposes of this Agreement, the term “Commercially Reasonable Efforts ” shall mean, as to a party hereto, an undertaking by such party to perform or satisfy an obligation or duty or otherwise act in a manner reasonably calculated to obtain the intended result by action or expenditure not disproportionate or unduly burdensome in the circumstances, which means, among other things, that such party shall not be required to:  (a)  expend funds other than for payment of the reasonable and customary costs and expenses of employees, counsel, consultants, representatives or agents of such party in connection with the performance or satisfaction of such obligation or duty or other action;  (b)  institute litigation or arbitration as a part of its Commercially Reasonable Efforts;  (c)  act in a manner inconsistent with the party’s overall business strategy;  (d)  take actions which would result in a materially adverse change in the benefits to such party under this Agreement;  (e)  undertake any action that may cause any material adverse change to its business;  (f)  expend any other material funds;  (g)  incur any other material burden; or  (h)  act in a manner contrary to its normal commercial practices. The failure to accomplish a given objective is not an indication that the obligated party did not in fact utilize its Commercially Reasonable Efforts in attempting to accomplish the objective.
 
16.13   Knowledge. As used in this Agreement, “Best Knowledge” of Optionor, or words to that effect. includes, but is not limited to, the actual knowledge or awareness of the Optionor without investigation or inquiry. As used in this Agreement, “ Best Knowledge ” of Optionee, or words to that effect, means the actual knowledge or awareness of Optionee’s officers and other individuals exercising supervisory authority without investigation or inquiry.
 
16.14   Counterparts. This Agreement may be executed in multiple counterparts, each of which shall constitute an original, and all of which shall constitute a fully-executed Agreement. Transmittal and receipt of a facsimile or emailed copy of this Agreement with facsimile or scanned and emailed signatures shall be binding on the parties hereto. The failure to deliver the original executed signature copy and the non-receipt of the original executed signature copy shall have no effect upon the binding and enforceable nature of this Agreement.
 
[Remainder of page left blank - signatures on next page.]
 
-20-	

 	
 
[*] Certain information in this document has been omitted and filed separately with the Securities and
Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.
 
IN WITNESS WHEREOF, Optionor and Optionee have executed this Agreement as of the Effective Date.
 
Optionor:	 	Optionee:	
 	 	 	
 	 	LIMONEIRA COMPANY,	
/s/ Jason B. Rushing	 	a Delaware corporation	
JASON B. RUSHING, Trustee of the	 	 	
JASON B. RUSHING TRUST dated	 	 	
July 10, 1997	 	 	
 	 	By:	/s/ Harold S. Edwards	
 	 	Name:	Harold S. Edwards	
/s/ Jennifer R. Rushing	 	Its:	President and Chief Executive Officer	
JENNIFER R. RUSHING, Trustee of the	 	 	
JENNIFER RUSHING REVOCABLE	 	 	
TRUST dated March 19, 2008	 	 	
 	 	 	
/s/ Zella A. Rushing	 	 	
ZELLA A. RUSHING, Trustee of the 1988	 	 	
ZELLA RUSHING TRUST dated	 	 	
May 12, 1988	 	 	
 
[SIGNATURE PAGE FOR OPTION AGREEMENT
AND ESCROW INSTRUCTIONS]
 
-21-	

 	
 
EXHIBIT A
 
OPTION AGREEMENT
AND ESCROW INSTRUCTIONS
 
Property Description
 
Parcel A:
 
Parcel 2, in the City of Santa Paula, County of Ventura, State of California, as per map filed in Book 30, Pages 98 and 99 of Parcel Maps, in the office of the County Recorder of said County
 
EXCEPT from a portion of said land, one-half of the oil and mineral rights as reserved by Clyde Williams, et ux., in deed recorded May 28, 1954, in Book 1206, Page 8 of Official Records.
 
ALSO EXCEPT from a portion of said land all oil, gas and mineral rights below a depth of 500 feet from the surface, without the right of surface entry as reserved by Alfred E. Emard, et al., in deed recorded December 24, 1969, in Book 3598, Page 155 of Official Records.
 
Parcel B:
 
Parcel 2 of Parcel Map No. 91-32, in the City of Santa Paula, County of Ventura, State of California, as per Map recorded in Book 53, Pages 27 and 28 of Parcel Maps, in the office of the County Recorder of said County.
 
EXCEPT from a portion of said land, one-half of the oil and mineral rights as reserved by Clyde Williams, et ux., in deed recorded May 28, 1954, in Book 1206, Page 8 of Official Records.
 
ALSO EXCEPT from a portion of said land all oil, gas and mineral rights below a depth of 500 feet from the surface, without the right of surface entry as reserved by Alfred E. Emard, et al., in deed recorded December 24, 1969, in Book 3598, Page 155 of Official Records.
 
Parcel C:
 
That portion of the North 1/2 of the Southwest 1/4 of the Northwest 1/4 of Section 12, Township 3 North, Range 21 West, San Bernardino Meridian, in the City of Santa Paula, County of Ventura, State of California, according to the official plat thereof described as follows:
 
A-1	

 	
 
EXHIBIT A
 
Commencing at the Southwesterly terminus of that curve shown concave Southeasterly, having a radius of 2019 feet and a central angle of 7º 24' 11”, a tangent to which bears North 50º 12' 05” East, in the general Northwesterly line of Parcel 6 of State Highway Relinquishment No. 418, recorded October 6, 1966, in Book 3052, Page 52 of Official Records, in the office of the County Recorder of said County, and as shown on map recorded August 26, 1965 in State Highway Map Book No. 2, Page 70, in said office; thence Northeasterly along said curve, an arc distance of 199.55 feet through a central angle of 05º 39' 46”; thence non-tangent to said curve North 51º 22' 54” East 556.40 feet; thence North 43º 39' 50” East, 208.72 feet; thence North 37º 12' 16” East, 232.23 feet; thence North 57º 43' 18” East 106.35 feet; thence North 32º 16' 42” West 35.32 feet to the true point of beginning; thence
 
 	1st:	North 18º 53' 23” East 42.23 feet; thence	
 
 	2nd:	North 38º 45' 44” East 41.67 feet to the Northerly line of the land acquired by the State of California as Parcel 12B of Final Order of Condemnation (State Parcel B7617), recorded May 28, 1964, in Book 2550, Page 43 of said Official Records; thence along the boundary of said acquired land the following three courses:	
 
 	3rd:	South 87º 14' 02” East 140.39 feet; thence	
 
 	4th:	South 38º 48' 48” East 229.80 feet; thence	
 
 	5th:	South 56º 45' 45” West 213.43 feet to the Southeasterly prolongation of that course hereinabove described as North 32º 16' 42” West; thence along said prolongation and said course	
 
 	6th:	North 32º 16' 42” West 272.48 feet to the true point of beginning.	
 
ALSO EXCEPT one-half of the oil and mineral rights as reserved by Clyde Williams and Love Williams, husband and wife, in deed recorded May 28, 1954, in Book 1206, Page 8 of Official Records.
 
ALSO EXCEPT any remaining interest in and to all oil, oil rights, minerals, mineral rights, natural gas, natural gas rights, and other hydrocarbons by whatsoever name known that may be within or under the parcel of land hereinabove described, together with the perpetual right of drilling, mining, exploring and operating therefor and removing the same from said land or any other land, including the right to whipstock or directionally drill and mine from lands other than those hereinabove described, oil or gas wells, tunnels and shafts into, through or across the subsurface of the land hereinabove described, and to bottom such whipstocked or directionally drilled wells, tunnels and shafts under and beneath or beyond the exterior limits thereof, and to redrill, retunnel, equip, maintain, repair, deepen and operate any such wells or mines, without, however, the right to drill, mine, explore and operate through the surface or the upper 100 fee of the subsurface of the land as excepted in Final Order of Condemnation recorded May 28, 1964, in Book 2550, Page 43 of Official Records.
 
A-2	

 	
 
EXHIBIT B
 
OPTION AGREEMENT
AND ESCROW INSTRUCTIONS
 
Form of Memorandum of Option
 
RECORDING REQUESTED BY	 	
AND WHEN RECORDED MAIL TO:	 	

Attn: 	 	 	 	

 	 	
 	APNs: 107-0-043-010,	
 	107-0-043-025 and	
 	107-0-043-140	

MEMORANDUM OF OPTION
TO PURCHASE REAL PROPERTY
 
THIS MEMORANDUM is made as of February ___, 2013, by and between Jason B. Rushing, Trustee of the Jason B. Rushing Trust dated July 10, 1997 ;  JENNIFER R. RUSHING, Trustee of the JENNIFER RUSHING REVOCABLE TRUST dated March 19, 2008 ; and  Zella A. Rushing, Trustee of the 1988 Zella Rushing Trust dated May 12, 1988  (together, “ Seller ”), and  LIMONEIRA COMPANY , a Delaware corporation (“ Purchaser ”).
 
1.           Pursuant to that certain Option Agreement and Escrow Instructions (the “Agreement”), dated _________________________, 2013, Seller has granted to Purchaser an option (the “ Option ”) to purchase that certain real property in the County of Ventura, State of California, more particularly described as follows:
 
Parcel A:
 
Parcel 2, in the City of Santa Paula, County of Ventura, State of California, as per map filed in Book 30, Pages 98 and 99 of Parcel Maps, in the office of the County Recorder of said County
 
EXCEPT from a portion of said land, one-half of the oil and mineral rights as reserved by Clyde Williams, et ux., in deed recorded May 28, 1954, in Book 1206, Page 8 of Official Records.
 
ALSO EXCEPT from a portion of said land all oil, gas and mineral rights below a depth of 500 feet from the surface, without the right of surface entry as reserved by Alfred E. Emard, et al., in deed recorded December 24, 1969, in Book 3598, Page 155 of Official Records.
 
B-1	

 	
 
EXHIBIT B
 
Parcel B:
 
Parcel 2 of Parcel Map No. 91-32, in the City of Santa Paula, County of Ventura, State of California, as per Map recorded in Book 53, Pages 27 and 28 of Parcel Maps, in the office of the County Recorder of said County.
 
EXCEPT from a portion of said land, one-half of the oil and mineral rights as reserved by Clyde Williams, et ux., in deed recorded May 28, 1954, in Book 1206, Page 8 of Official Records.
 
ALSO EXCEPT from a portion of said land all oil, gas and mineral rights below a depth of 500 feet from the surface, without the right of surface entry as reserved by Alfred E. Emard, et al., in deed recorded December 24, 1969, in Book 3598, Page 155 of Official Records.
 
Parcel C:
 
That portion of the North 1/2 of the Southwest 1/4 of the Northwest 1/4 of Section 12, Township 3 North, Range 21 West, San Bernardino Meridian, in the City of Santa Paula, County of Ventura, State of California, according to the official plat thereof described as follows:
 
Commencing at the Southwesterly terminus of that curve shown concave Southeasterly, having a radius of 2019 feet and a central angle of 7º 24' 11”, a tangent to which bears North 50º 12' 05” East, in the general Northwesterly line of Parcel 6 of State Highway Relinquishment No. 418, recorded October 6, 1966, in Book 3052, Page 52 of Official Records, in the office of the County Recorder of said County, and as shown on map recorded August 26, 1965 in State Highway Map Book No. 2, Page 70, in said office; thence Northeasterly along said curve, an arc distance of 199.55 feet through a central angle of 05º 39' 46”; thence non-tangent to said curve North 51º 22' 54” East 556.40 feet; thence North 43º 39' 50” East, 208.72 feet; thence North 37º 12' 16” East, 232.23 feet; thence North 57º 43' 18” East 106.35 feet; thence North 32º 16' 42” West 35.32 feet to the true point of beginning; thence
 
 	1st:	North 18º 53' 23” East 42.23 feet; thence	
 
B-2	

 	
 
EXHIBIT B
 
 	2nd:	North 38º 45' 44” East 41.67 feet to the Northerly line of the land acquired by the State of California as Parcel 12B of Final Order of Condemnation (State Parcel B7617), recorded May 28, 1964, in Book 2550, Page 43 of said Official Records; thence along the boundary of said acquired land the following three courses:	
 
 	3rd:	South 87º 14' 02” East 140.39 feet; thence	
 
 	4th:	South 38º 48' 48” East 229.80 feet; thence	
 
 	5th:	South 56º 45' 45” West 213.43 feet to the Southeasterly prolongation of that course hereinabove described as North 32º 16' 42” West; thence along said prolongation and said course	
 
 	6th:	North 32º 16' 42” West 272.48 feet to the true point of beginning.	
 
ALSO EXCEPT one-half of the oil and mineral rights as reserved by Clyde Williams and Love Williams, husband and wife, in deed recorded May 28, 1954, in Book 1206, Page 8 of Official Records.
 
ALSO EXCEPT any remaining interest in and to all oil, oil rights, minerals, mineral rights, natural gas, natural gas rights, and other hydrocarbons by whatsoever name known that may be within or under the parcel of land hereinabove described, together with the perpetual right of drilling, mining, exploring and operating therefor and removing the same from said land or any other land, including the right to whipstock or directionally drill and mine from lands other than those hereinabove described, oil or gas wells, tunnels and shafts into, through or across the subsurface of the land hereinabove described, and to bottom such whipstocked or directionally drilled wells, tunnels and shafts under and beneath or beyond the exterior limits thereof, and to redrill, retunnel, equip, maintain, repair, deepen and operate any such wells or mines, without, however, the right to drill, mine, explore and operate through the surface or the upper 100 fee of the subsurface of the land as excepted in Final Order of Condemnation recorded May 28, 1964, in Book 2550, Page 43 of Official Records.
 
2.           The term of the Option shall extend until February 28, 2018, unless terminated earlier according to the terms and conditions of said Agreement.
 
B-3	

 	
 
EXHIBIT B
 
3.           In the event of any conflict between the terms and conditions of this Memorandum and the Agreement, the Agreement shall control.
 
4.           In the event that a Grant Deed conveying the Option Property from Seller to Purchaser is not recorded in the Official Records of Ventura County, California, on or before February 28, 2018, this Memorandum shall automatically terminate and be of no further force or effect.
 
5.           The parties may execute this Memorandum in two (2) or more counterparts which shall, in the aggregate, be executed by all the parties and shall thereupon be deemed to be a single document.
 
IN WITNESS WHEREOF, the parties have executed this Memorandum of Option on the day and year first above written.
 
 	Seller:	

 	Jason B. Rushing, Trustee of the Jason B.
Rushing Trust dated July 10, 1997	

 	JENNIFER R. RUSHING, Trustee of the JENNIFER
RUSHING REVOCABLE TRUST dated March 19, 2008	

 	Zella A. Rushing, Trustee of the 1988 Zella
Rushing Trust dated May 12, 1988	
 
 	Purchaser:	
 	 	
 	LIMONEIRA COMPANY,	
 	a Delaware corporation	
 	 	 	
 	By:	 	
 	 	 	
 	 	 	 [Name]	
 	 	 	
 	 	 	 [Title]	
 
B-4	

 	
 
EXHIBIT B
 
STATE OF CALIFORNIA	)	
 	)  ss.	
COUNTY OF VENTURA	)	
 
On _________________, 2013, before me, _____________________________, Notary Public, personally appeared JASON B. RUSHING , who proved to me on the basis of satisfactory evidence to be the person whose name is subscribed to the within instrument and acknowledged to me that he executed the same in his authorized capacity, and that by his signature on the instrument the person, or the entity upon behalf of which the person acted, executed the instrument.
 
I certify under PENALTY OF PERJURY under the laws of the State of California that the foregoing paragraph is true and correct.
 
WITNESS my hand and official seal.

 
STATE OF CALIFORNIA	)	
 	)  ss.	
COUNTY OF VENTURA	)	
 
On _________________, 2013, before me, _____________________________, Notary Public, personally appeared JENNIFER R. RUSHING , who proved to me on the basis of satisfactory evidence to be the person whose name is subscribed to the within instrument and acknowledged to me that she executed the same in her authorized capacity, and that by her signature on the instrument the person, or the entity upon behalf of which the person acted, executed the instrument.
 
I certify under PENALTY OF PERJURY under the laws of the State of California that the foregoing paragraph is true and correct.
 
WITNESS my hand and official seal.

 
B-5	

 	
 
EXHIBIT B
 
STATE OF CALIFORNIA	)	
 	)  ss.	
COUNTY OF VENTURA	)	
 
On _________________, 2013, before me, _____________________________, Notary Public, personally appeared ZELLA A. RUSHING , who proved to me on the basis of satisfactory evidence to be the person whose name is subscribed to the within instrument and acknowledged to me that she executed the same in her authorized capacity, and that by her signature on the instrument the person, or the entity upon behalf of which the person acted, executed the instrument.
 
I certify under PENALTY OF PERJURY under the laws of the State of California that the foregoing paragraph is true and correct.
 
WITNESS my hand and official seal.

 
STATE OF CALIFORNIA	)	
 	)  ss.	
COUNTY OF VENTURA	)	
 
On _________________, 2013, before me, _____________________________, Notary Public, personally appeared _______________________________, who proved to me on the basis of satisfactory evidence to be the person whose name is subscribed to the within instrument and acknowledged to me that he/she executed the same in his/her authorized capacity, and that by his/her signature on the instrument the person, or the entity upon behalf of which the person acted, executed the instrument.
 
I certify under PENALTY OF PERJURY under the laws of the State of California that the foregoing paragraph is true and correct.
 
WITNESS my hand and official seal.

 
B-6	

 	
 
EXHIBIT C
 
OPTION AGREEMENT
AND ESCROW INSTRUCTIONS
 
Form of Quitclaim Deed
 
RECORDING REQUESTED BY	 	
AND WHEN RECORDED MAIL TO:	 	
 	 	
FERGUSON CASE ORR PATERSON LLP	 	
Attn: Christopher K. Kitasaki	 	
1050 South Kimball Road	 	
Ventura, California 93004	 	
 	 	
 	APNs 107-0-043-010,	
 	107-0-043-025 and	
 	107-0-043-140	
 
QUITCLAIM DEED
 
THE UNDERSIGNED GRANTOR(s) DECLARE(s):
DOCUMENTARY TRANSFER TAX is $ -0-.
 	x	City of Santa Paula, and	
 	x	No consideration for this deed, which merely clears title from a recorded Memorandum of Option.	
 
FOR A VALUABLE CONSIDERATION, receipt of which is hereby acknowledged, LIMONEIRA COMPANY, a Delaware corporation , hereby REMISES, RELEASES, AND FOREVER QUITCLAIMS to  Jason B. Rushing, Trustee of the Jason B. Rushing Trust dated July 10, 1997 , as to an undivided one-fourth (1/4th) interest in the whole;  JENNIFER R. RUSHING, Trustee of the JENNIFER RUSHING REVOCABLE TRUST dated March 19, 2008 , as to an undivided one-fourth (1/4th) interest in the whole; and  Zella A. Rushing, Trustee of the 1988 Zella Rushing Trust dated May 12, 1988 , as to an undivided one-half (1/2) interest in the whole, the following described real property in the County of Ventura, State of California, more particularly described as follows:
 
Parcel A:
 
Parcel 2, in the City of Santa Paula, County of Ventura, State of California, as per map filed in Book 30, Pages 98 and 99 of Parcel Maps, in the office of the County Recorder of said County
 
EXCEPT from a portion of said land, one-half of the oil and mineral rights as reserved by Clyde Williams, et ux., in deed recorded May 28, 1954, in Book 1206, Page 8 of Official Records.
 
ALSO EXCEPT from a portion of said land all oil, gas and mineral rights below a depth of 500 feet from the surface, without the right of surface entry as reserved by Alfred E. Emard, et al., in deed recorded December 24, 1969, in Book 3598, Page 155 of Official Records.
 
C-1	

 	
 
EXHIBIT C
 
Parcel B:
 
Parcel 2 of Parcel Map No. 91-32, in the City of Santa Paula, County of Ventura, State of California, as per Map recorded in Book 53, Pages 27 and 28 of Parcel Maps, in the office of the County Recorder of said County.
 
EXCEPT from a portion of said land, one-half of the oil and mineral rights as reserved by Clyde Williams, et ux., in deed recorded May 28, 1954, in Book 1206, Page 8 of Official Records.
 
ALSO EXCEPT from a portion of said land all oil, gas and mineral rights below a depth of 500 feet from the surface, without the right of surface entry as reserved by Alfred E. Emard, et al., in deed recorded December 24, 1969, in Book 3598, Page 155 of Official Records.
 
Parcel C:
 
That portion of the North 1/2 of the Southwest 1/4 of the Northwest 1/4 of Section 12, Township 3 North, Range 21 West, San Bernardino Meridian, in the City of Santa Paula, County of Ventura, State of California, according to the official plat thereof described as follows:
 
Commencing at the Southwesterly terminus of that curve shown concave Southeasterly, having a radius of 2019 feet and a central angle of 7º 24' 11”, a tangent to which bears North 50º 12' 05” East, in the general Northwesterly line of Parcel 6 of State Highway Relinquishment No. 418, recorded October 6, 1966, in Book 3052, Page 52 of Official Records, in the office of the County Recorder of said County, and as shown on map recorded August 26, 1965 in State Highway Map Book No. 2, Page 70, in said office; thence Northeasterly along said curve, an arc distance of 199.55 feet through a central angle of 05º 39' 46”; thence non-tangent to said curve North 51º 22' 54” East 556.40 feet; thence North 43º 39' 50” East, 208.72 feet; thence North 37º 12' 16” East, 232.23 feet; thence North 57º 43' 18” East 106.35 feet; thence North 32º 16' 42” West 35.32 feet to the true point of beginning; thence
 
1st:       North 18º 53' 23” East 42.23 feet; thence
 
2nd:      North 38º 45' 44” East 41.67 feet to the Northerly line of the land acquired by the State of California as Parcel 12B of Final Order of Condemnation (State Parcel B7617), recorded May 28, 1964, in Book 2550, Page 43 of said Official Records; thence along the boundary of said acquired land the following three courses:
 
3rd:       South 87º 14' 02” East 140.39 feet; thence
 
C-2	

 	
 
EXHIBIT C
 
4th:       South 38º 48' 48” East 229.80 feet; thence
 
5th:       South 56º 45' 45” West 213.43 feet to the Southeasterly prolongation of that course hereinabove described as North 32º 16' 42” West; thence along said prolongation and said course
 
6th:       North 32º 16' 42” West 272.48 feet to the true point of beginning.
 
ALSO EXCEPT one-half of the oil and mineral rights as reserved by Clyde Williams and Love Williams, husband and wife, in deed recorded May 28, 1954, in Book 1206, Page 8 of Official Records.
 
ALSO EXCEPT any remaining interest in and to all oil, oil rights, minerals, mineral rights, natural gas, natural gas rights, and other hydrocarbons by whatsoever name known that may be within or under the parcel of land hereinabove described, together with the perpetual right of drilling, mining, exploring and operating therefor and removing the same from said land or any other land, including the right to whipstock or directionally drill and mine from lands other than those hereinabove described, oil or gas wells, tunnels and shafts into, through or across the subsurface of the land hereinabove described, and to bottom such whipstocked or directionally drilled wells, tunnels and shafts under and beneath or beyond the exterior limits thereof, and to redrill, retunnel, equip, maintain, repair, deepen and operate any such wells or mines, without, however, the right to drill, mine, explore and operate through the surface or the upper 100 fee of the subsurface of the land as excepted in Final Order of Condemnation recorded May 28, 1964, in Book 2550, Page 43 of Official Records.
 
Dated:  __________________, 2013	LIMONEIRA COMPANY,	
 	a Delaware corporation	
 	 	 	
 	By:	 	
 	 	 	 	
 	 	 	 [Name]	
 	 	 	 	
 	 	 	 [Title]	
 
C-3	

 	
 
EXHIBIT C
 
STATE OF CALIFORNIA	)	
 	)  ss.	
COUNTY OF VENTURA	)	
 
On _________________, 2013, before me, _____________________________, Notary Public, personally appeared _______________________________, who proved to me on the basis of satisfactory evidence to be the person whose name is subscribed to the within instrument and acknowledged to me that he/she executed the same in his/her authorized capacity, and that by his/her signature on the instrument the person, or the entity upon behalf of which the person acted, executed the instrument.
 
I certify under PENALTY OF PERJURY under the laws of the State of California that the foregoing paragraph is true and correct.
 
WITNESS my hand and official seal.

 
C-4	

 	
 
EXHIBIT D
OPTION AGREEMENT
AND ESCROW INSTRUCTIONS
 
Form of Grant Deed
 
RECORDING REQUESTED BY	 	
AND WHEN RECORDED MAIL TO:	 	

 	 	 	

 	 	 	
 	 	
MAIL TAX STATEMENTS TO:	 	

 	 	 	

 	APNs 107-0-043-010,	
 	107-0-043-025 and	
 	107-0-043-140	
 
In accordance with Section 11932 of the California Revenue and Taxation Code, Grantor has declared the amount of the transfer tax that is due by a separate statement which is not being recorded with this Grant Deed.
 
GRANT DEED
 
FOR VALUABLE CONSIDERATION, receipt of which is hereby acknowledged, Jason B. Rushing, Trustee of the Jason B. Rushing Trust dated July 10, 1997 ;  JENNIFER R. RUSHING, Trustee of the JENNIFER RUSHING REVOCABLE TRUST dated March 19, 2008 ; and  Zella A. Rushing, Trustee of the 1988 Zella Rushing Trust dated May 12, 1988 , hereby GRANT to  LIMONEIRA COMPANY, a Delaware corporation , the following described real property in the County of Ventura, State of California, more particularly described as follows:
 
Parcel A:
 
Parcel 2, in the City of Santa Paula, County of Ventura, State of California, as per map filed in Book 30, Pages 98 and 99 of Parcel Maps, in the office of the County Recorder of said County
 
EXCEPT from a portion of said land, one-half of the oil and mineral rights as reserved by Clyde Williams, et ux., in deed recorded May 28, 1954, in Book 1206, Page 8 of Official Records.
 
D-1	

 	
 
EXHIBIT D
 
ALSO EXCEPT from a portion of said land all oil, gas and mineral rights below a depth of 500 feet from the surface, without the right of surface entry as reserved by Alfred E. Emard, et al., in deed recorded December 24, 1969, in Book 3598, Page 155 of Official Records.
 
Parcel B:
 
Parcel 2 of Parcel Map No. 91-32, in the City of Santa Paula, County of Ventura, State of California, as per Map recorded in Book 53, Pages 27 and 28 of Parcel Maps, in the office of the County Recorder of said County.
 
EXCEPT from a portion of said land, one-half of the oil and mineral rights as reserved by Clyde Williams, et ux., in deed recorded May 28, 1954, in Book 1206, Page 8 of Official Records.
 
ALSO EXCEPT from a portion of said land all oil, gas and mineral rights below a depth of 500 feet from the surface, without the right of surface entry as reserved by Alfred E. Emard, et al., in deed recorded December 24, 1969, in Book 3598, Page 155 of Official Records.
 
Parcel C:
 
That portion of the North 1/2 of the Southwest 1/4 of the Northwest 1/4 of Section 12, Township 3 North, Range 21 West, San Bernardino Meridian, in the City of Santa Paula, County of Ventura, State of California, according to the official plat thereof described as follows:
 
Commencing at the Southwesterly terminus of that curve shown concave Southeasterly, having a radius of 2019 feet and a central angle of 7º 24' 11”, a tangent to which bears North 50º 12' 05” East, in the general Northwesterly line of Parcel 6 of State Highway Relinquishment No. 418, recorded October 6, 1966, in Book 3052, Page 52 of Official Records, in the office of the County Recorder of said County, and as shown on map recorded August 26, 1965 in State Highway Map Book No. 2, Page 70, in said office; thence Northeasterly along said curve, an arc distance of 199.55 feet through a central angle of 05º 39' 46”; thence non-tangent to said curve North 51º 22' 54” East 556.40 feet; thence North 43º 39' 50” East, 208.72 feet; thence North 37º 12' 16” East, 232.23 feet; thence North 57º 43' 18” East 106.35 feet; thence North 32º 16' 42” West 35.32 feet to the true point of beginning; thence
 
1st:        North 18º 53' 23” East 42.23 feet; thence
 
2nd:       North 38º 45' 44” East 41.67 feet to the Northerly line of the land acquired by the State of California as Parcel 12B of Final Order of Condemnation (State Parcel B7617), recorded May 28, 1964, in Book 2550, Page 43 of said Official Records; thence along the boundary of said acquired land the following three courses:
 
D-2	

 	
 
EXHIBIT D
 
3rd:        South 87º 14' 02” East 140.39 feet; thence
 
4th:        South 38º 48' 48” East 229.80 feet; thence
 
5th:        South 56º 45' 45” West 213.43 feet to the Southeasterly prolongation of that course hereinabove described as North 32º 16' 42” West; thence along said prolongation and said course
 
6th:        North 32º 16' 42” West 272.48 feet to the true point of beginning.
 
ALSO EXCEPT one-half of the oil and mineral rights as reserved by Clyde Williams and Love Williams, husband and wife, in deed recorded May 28, 1954, in Book 1206, Page 8 of Official Records.
 
ALSO EXCEPT any remaining interest in and to all oil, oil rights, minerals, mineral rights, natural gas, natural gas rights, and other hydrocarbons by whatsoever name known that may be within or under the parcel of land hereinabove described, together with the perpetual right of drilling, mining, exploring and operating therefor and removing the same from said land or any other land, including the right to whipstock or directionally drill and mine from lands other than those hereinabove described, oil or gas wells, tunnels and shafts into, through or across the subsurface of the land hereinabove described, and to bottom such whipstocked or directionally drilled wells, tunnels and shafts under and beneath or beyond the exterior limits thereof, and to redrill, retunnel, equip, maintain, repair, deepen and operate any such wells or mines, without, however, the right to drill, mine, explore and operate through the surface or the upper 100 fee of the subsurface of the land as excepted in Final Order of Condemnation recorded May 28, 1964, in Book 2550, Page 43 of Official Records.
 
Dated: __________________, 20__.

 	Jason B. Rushing, Trustee of the Jason B.	
 	Rushing Trust dated July 10, 1997	

 	JENNIFER R. RUSHING, Trustee of the JENNIFER	
 	RUSHING REVOCABLE TRUST dated March 19, 2008	

 	Zella A. Rushing, Trustee of the 1988 Zella  	
 	Rushing Trust dated May 12, 1988	
 
D-3	

 	
 
EXHIBIT D
 
STATE OF CALIFORNIA	)	
 	)  ss.	
COUNTY OF VENTURA	)	
 
On _________________, 2013, before me, _____________________________, Notary Public, personally appeared JASON B. RUSHING , who proved to me on the basis of satisfactory evidence to be the person whose name is subscribed to the within instrument and acknowledged to me that he executed the same in his authorized capacity, and that by his signature on the instrument the person, or the entity upon behalf of which the person acted, executed the instrument.
 
I certify under PENALTY OF PERJURY under the laws of the State of California that the foregoing paragraph is true and correct.
 
WITNESS my hand and official seal.

 
STATE OF CALIFORNIA	)	
 	)  ss.	
COUNTY OF VENTURA	)	
 
On _________________, 2013, before me, _____________________________, Notary Public, personally appeared JENNIFER R. RUSHING , who proved to me on the basis of satisfactory evidence to be the person whose name is subscribed to the within instrument and acknowledged to me that she executed the same in her authorized capacity, and that by her signature on the instrument the person, or the entity upon behalf of which the person acted, executed the instrument.
 
I certify under PENALTY OF PERJURY under the laws of the State of California that the foregoing paragraph is true and correct.
 
WITNESS my hand and official seal.

 
D-4	

 	
 
EXHIBIT D
 
STATE OF CALIFORNIA	)	
 	)  ss.	
COUNTY OF ____________ 	)	
 
On _________________, 2013, before me, _____________________________, Notary Public, personally appeared ZELLA A. RUSHING , who proved to me on the basis of satisfactory evidence to be the person whose name is subscribed to the within instrument and acknowledged to me that she executed the same in her authorized capacity, and that by her signature on the instrument the person, or the entity upon behalf of which the person acted, executed the instrument.
 
I certify under PENALTY OF PERJURY under the laws of the State of California that the foregoing paragraph is true and correct.
 
WITNESS my hand and official seal.

 
D-5	

 
Exhibit 31.1
 
Certification of the Principal Executive Officer
Pursuant to Rule 13a-14(a) and 15d-14(a)
 
I, Harold S. Edwards, Chief Executive Officer of the registrant, certify that:
 
 	1.	I have reviewed this quarterly report on Form 10-Q of Limoneira Company (the “Registrant”);	
 
 	2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;	
 
 	3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;	
 
 	4.	The Registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d- 15(f)) for the Registrant and have:	
 
 	(a)	designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;	
 
 	(b)	designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;	
 
 	(c)	evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and	
 
 	(d)	disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and	
 
 	5.	The Registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of the Registrant’s board of directors (or persons performing the equivalent functions):	
 
 	(a)	all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and	
 
 	(b)	any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.	
  
June 10, 2013	 	/s/ Harold S. Edwards 	
 	 	Harold S. Edwards,	
 	 	Director, President, and Chief Executive Officer	
 	 	(Principal Executive Officer)	

 

Exhibit 31.2
 
Certification of the Principal Financial Officer
Pursuant to Rule 13a-14(a) and 15d-14(a)
 
I, Joseph D. Rumley, certify that:
 
 	1.	I have reviewed this quarterly report on Form 10-Q of Limoneira Company (the “Registrant”);	
 
 	2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;	
 
 	3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;	
 	 	 	
 	4.	The Registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d- 15(f)) for the Registrant and have:	
 
 	(a)	designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;	
 
 	(b)	designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;	
 
 	(c)	evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and	
 
 	(d)	disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and	
 
 	5.	The Registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of the Registrant’s board of directors (or persons performing the equivalent functions):	
 
 	(a)	all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and	
 
 	(b)	any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.	
 
June 10, 2013	 	/s/ Joseph D. Rumley 	
 	 	Joseph D. Rumley,	
 	 	Chief Financial Officer	
 	 	(Principal Financial and Accounting Officer)	

 

Exhibit 32.1
 
Certification of Principal Executive Officer
Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350)
 
In connection with the Quarterly Report on Form 10-Q for the period ended April 30, 2013 (the “Report”) of Limoneira Company (the “Registrant”), as filed with the Securities and Exchange Commission on the date hereof, I, Harold S. Edwards, Chief Executive Officer of the Registrant, hereby certify that:
 
 	(1)	The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and	
 
 	(2)	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant.	
 
June 10, 2013	 	/s/ Harold S. Edwards 	
 	 	Harold S. Edwards,	
 	 	Director, President, and Chief Executive Officer	
 	 	(Principal Executive Officer)	

 

Exhibit 32.2
 
Certification of Principal Financial Officer
Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350)
 
In connection with the Quarterly Report on Form 10-Q for the period ended April 30, 2013 (the “Report”) of Limoneira Company (the “Registrant”), as filed with the Securities and Exchange Commission on the date hereof, I, Joseph D. Rumley, Chief Financial Officer of the Registrant, hereby certify that:
 
 	(1)	The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and	
 
 	(2)	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant.	
 
June 10, 2013	 	/s/ Joseph D. Rumley 	
 	 	Joseph D. Rumley,	
 	 	Chief Financial Officer	
 	 	(Principal Financial and Accounting Officer)