Exhibit 10.1

EMPLOYMENT AGREEMENT

This Employment Agreement (the “Agreement”) is entered into as of March 3, 2009,
by and between PICO Holdings, Inc., a California corporation (the “Company”),
and Richard H. Sharpe (“Executive”).

RECITALS

 

A.

   The Company believes it is prudent and appropriate to build and operate
businesses where significant value can be created from the development of unique
assets, and to acquire businesses which the Company identifies as undervalued,
and where the Company’s participation can aid in the recognition of the
businesses’ fair value, as well as create additional value.

B.

   The Company believes that Executive possesses unique skills, knowledge, and
experience in pursuing the Company’s goals.

C.

   The Company believes that it is imperative that it be able to rely on
Executive’s skills and services for a reasonable time in the future.

D.

   Executive is currently the Executive Vice President and Chief Operating
Officer of the Company and the Company wishes to continue his employment in such
capacity.

AGREEMENT

In consideration of the foregoing, and of their mutual promises contained
herein, the parties agree and intend to be legally bound as follows:

1. Duties and Scope of Employment.

(a) Positions and Duties. Executive will continue to serve as the Company’s
Executive Vice President and Chief Operating Officer. Executive will report to
the Company’s Board of Directors (the “Board”) and the Company’s Chief Executive
Officer (the “CEO”). Executive will render such business and professional
services in the performance of his duties, consistent with Executive’s position
within the Company, as will reasonably be assigned to him by the Board and the
CEO. The period Executive is employed by the Company under this Agreement is
referred to herein as the “Employment Term”.

(b) Obligations. During the Employment Term, Executive will devote Executive’s
full business efforts and time to the Company and will use good faith efforts to
discharge Executive’s obligations under this Agreement to the best of
Executive’s ability and in accordance with each of the Company’s corporate
guidance and ethics guidelines, conflict of interests policies and code of
conduct. For the duration of the Employment Term, Executive agrees not to
actively engage in any other employment, occupation, or consulting activity for
any direct or indirect remuneration without the prior approval of the Board
(which approval will not be unreasonably withheld); provided, however, that
Executive may, without the approval of the Board, serve in any capacity with any
civic, educational, or charitable organization, provided such services do not
interfere with Executive’s obligations to Company.

 

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(c) Other Entities. Executive agrees to serve and will be appointed, without
additional compensation, as an officer and director for each of the Company’s
subsidiaries, partnerships, joint ventures, limited liability companies and
other affiliates, including entities in which the Company has a significant
investment as determined by the Company. As used in this Agreement, the term
“affiliates” will include any entity controlled by, controlling, or under common
control of the Company.

2. At-Will Employment. Subject to the terms of this Agreement, Executive and the
Company agree that Executive’s employment with the Company constitutes “at-will”
employment. Executive and the Company acknowledge that this employment
relationship may be terminated at any time, upon written notice to the other
party, with or without good cause or for any or no cause, at the option either
of the Company or Executive. However, as described in this Agreement, Executive
may be entitled to severance benefits depending upon the circumstances of
Executive’s termination of employment.

3. Compensation.

(a) Base Salary. During the Employment Term and as long as Executive is employed
by the Company, the Company will pay Executive an annual salary of $362,323 as
compensation for his services (such annual salary, as is then effective, to be
referred to herein as “Base Salary”). The Base Salary will be paid periodically
in accordance with the Company’s normal payroll practices and be subject to all
applicable withholdings. The Base Salary shall be subject to review no less
frequently than annually, in accordance with the Company’s normal and customary
practices, at such time or times as the Company’s other senior executives as a
group are reviewed, and may be increased, but not decreased, by the Board or by
the Compensation Committee of the Board (the “Committee”) at any time or from
time to time as the Board or Committee deems appropriate.

(b) Annual Incentive, Performance or Discretionary Awards. Executive will be
eligible to receive annual cash incentives as determined by the Board or by the
Committee.

(i) During the Employment Term and as long as Executive is employed by the
Company, Executive shall be entitled to receive an annual cash performance award
(“Annual Award”) based on the performance, incentive or discretionary award as
determined by the Compensation Committee with respect to the Company’s current
CEO, John R. Hart, pursuant to his employment agreement, dated May 7, 2007, as
amended, or otherwise (collectively, the “Reference Amount”). For clarity and
subject to the terms hereof, Executive shall be entitled to an annual cash
incentive award calculated as follows:

Annual Award = (Reference Amount divided by CEO base salary) multiplied by Base
Salary.

Such annual performance award shall be paid within 2 and  1/ 2 months after the
end of the fiscal year in which Executive performed the services for which in
Incentive Award relates.

 

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(ii) During the Employment Term and as long as Executive is employed by the
Company, Executive shall be entitled to receive annual or other periodic
discretionary cash or other incentive bonus as the Board or the Committee shall
determine, in their sole discretion, from time to time, may be appropriate. Such
bonus shall be paid within 2 and  1/2 months after the end of the fiscal year in
which Executive completed the services for which in Incentive Award relates

(c) Restricted Stock Units. The Company, through the Board, will grant on the
date hereof to Executive, 80,000 Restricted Stock Units pursuant to the PICO
Holdings, Inc. 2005 Long-Term Incentive Plan (the “Plan”). The terms of the
Restricted Stock Units shall be governed by the Plan and the Participant’s Award
Agreement, as defined in the Plan. Subject to the terms hereof and the Plan,
such Restricted Stock Units shall unconditionally, fully and completely vest
three (3) years from the Effective Date.

4. Executive Benefits. Executive will be eligible to participate in accordance
with the terms of all Company employee benefit plans, policies and arrangements
that are applicable to other executive officers of the Company, as such plans,
policies and arrangements may exist from time to time. The Company reserves the
right to modify, suspend or discontinue any and all of its benefits referred to
in this Section at any time without recourse by Executive so long as such action
is taken generally with respect to other similarly situated peer executives and
does not single out Executive.

5. Expenses. The Company will reimburse Executive for reasonable travel,
entertainment and other expenses incurred by Executive in the furtherance of the
performance of Executive’s duties hereunder, in accordance with the Company’s
expense reimbursement policy as in effect from time to time. Any such
reimbursements that are unpaid by the Company shall be paid to Executive no
later than the last day of Executive’s taxable year following the year in which
the expense was incurred.

6. Termination of Employment. In the event Executive’s employment with the
Company terminates for any reason, including death or Disability, defined below,
Executive will be entitled to any (a) unpaid Base Salary accrued up to the
effective date of termination; (b) unpaid, but earned and accrued annual
incentive for any completed fiscal year as of his termination of employment;
(c) pay for accrued but unused vacation; (d) benefits or compensation as
provided under the terms of any employee benefit and compensation agreements or
plans applicable to Executive through the date of his termination;
(e) unreimbursed business expenses required to be reimbursed to Executive in
accordance with Section 5; and (f) rights to indemnification Executive may have
under the Company’s Articles of Incorporation, Bylaws, the Agreement, or
separate indemnification agreement, as applicable. In addition, Executive will
be entitled to the applicable severance benefits specified in Section 7.

7. Severance.

(a) Termination Without Cause, Resignation for Good Reason other than in
Connection with a Change of Control. If Executive’s employment is terminated on
or before the end of the Employment Term by the Company without Cause, or if
Executive resigns for Good Reason, then, subject to Executive’s compliance with
his obligations under Section 8, as of the termination date, Executive will
receive: (i) a lump sum payment equal to twelve (12) months of Base Salary plus
an amount equal to the Target Amount, if any, for the year in which the
termination occurs (less all applicable withholdings); (ii) immediate, complete,
and full vesting with respect to Executive’s

 

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then outstanding, unvested equity awards (other than any awards that vest based
on performance); and (iii) reimbursement for any premiums paid for continued
health benefits for Executive (and any eligible dependents) under the Company’s
health plans, if Executive and such dependents are covered under such plans,
until the earlier of (i) eighteen (18) months, payable upon the Company’s
receipt of proof of payment (provided Executive validly elects to continue
coverage under the Consolidated Omnibus Budget Reconciliation Act (“COBRA”), or
(ii) the date upon which Executive and Executive’s eligible dependents become
covered under similar plans.

(b) Termination Without Cause or Resignation for Good Reason in Connection with
a Change of Control; Termination upon Death or Disability. If Executive’s
employment is terminated on or before the end of the Employment Term by the
Company without Cause or by Executive for Good Reason, and the termination is in
Connection with a Change of Control, or upon death or Disability, then, subject
to Executive’s compliance with his obligations under Section 8, as of the
termination date, Executive will receive: (i) a lump sum payment equal to
twenty-four (24) months of Base Salary plus an amount equal to twice the Target
Amount, if any, for the year in which the termination occurs (less applicable
tax withholdings); (ii) immediate, full, and complete vesting with respect to
Executive’s then outstanding unvested equity awards; and (iii) reimbursement for
premiums paid for continued health benefits for Executive (and any eligible
dependents) under the Company’s health plans until the earlier of (i) twenty
four (24) months, payable upon the Company’s receipt of proof of payment
(provided Executive validly elects to continue coverage under COBRA), or
(ii) the date upon which Executive and Executive’s eligible dependents become
covered under similar plans.

(c) Voluntary Termination Without Good Reason or Termination for Cause. If
Executive’s employment is terminated voluntarily, without Good Reason or is
terminated for Cause by the Company, then, except as provided in Section 6,
(i) all further vesting of Executive’s outstanding equity awards will terminate
immediately; (ii) all payments of compensation by the Company to Executive
hereunder will terminate immediately; and (iii) Executive will be eligible for
severance benefits only in accordance with the Company’s then established
severance plans, if any.

(d) Severance Benefits Generally Available. The foregoing to the contrary
notwithstanding, Executive shall also be entitled to receive all other severance
benefits generally available to all employees of the Company.

(e) Payment of Severance Benefits. Any lump sum payments or vested awards due
Executive in accordance with this Section 7 shall be paid to Executive no later
than 2 and  1/2 months following the end of the month in which the termination
of employment occurs.

8. Conditions to Receipt of Severance; No Duty to Mitigate.

(a) Non-solicitation and Non-competition. Executive agrees that during the
Employment Term and for a period of one (1) year thereafter, Executive will not
(i) solicit any employee of the Company for employment other than at the
Company, or (ii) directly or indirectly engage in, have any ownership interest
in or participate in any entity that as of the date of termination, competes
with the Company in any substantial business of the Company. Executive’s passive
ownership of not more than 2.0% of any publicly traded company and/or 15.0%
ownership of any privately held company will not constitute a breach of this
Section 8(a).

 

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(b) Non-disparagement. During the Employment Term and for a period of one
(1) year thereafter, neither Executive nor the Company will knowingly and
materially disparage, criticize, or otherwise make any derogatory statements
regarding the other. Notwithstanding the foregoing, nothing contained in this
Agreement will be deemed to restrict Executive, the Company or any of the
Company’s current or former officers and/or directors from providing information
to any governmental or regulatory agency (or in any way limit the content of any
such information) to the extent they are requested or required to provide such
information pursuant to applicable law or regulation.

(c) No Duty to Mitigate. Executive will not be required to mitigate the amount
of any payment contemplated by this Agreement, nor will any earnings that
Executive may receive from any other source reduce any such payment.

(d) Excise Tax Matters.

(i) Non-De Mimimis Gross-Up. If (x) any payment or benefit to which Executive
becomes entitled from the Company will be subject to the tax imposed by
Section 4999 of the United States Internal Revenue Code of 1986, as amended (the
“Code”) (or any similar tax that may hereafter be imposed) (the “Excise Tax”)
and (y) the amount of such Excise Tax, as determined in good faith by the
Company, would be more than the de minimis amount described in sub-clause
8(d)(ii) below, then the Company shall pay to Executive within 30 days following
Executive’s receipt or deemed receipt of such payment or benefit, an additional
amount (the “Gross-up Payment”) such that the net amount retained by Executive,
after deduction of any Excise Tax on the Total Payments (as hereinafter defined)
and any federal, state and local income tax and Excise Tax upon the payment
provided for by this subsection, shall be equal to the Total Payments. For
purposes of determining whether any of such payments or benefits will be subject
to the Excise Tax, and the amount of such Excise Tax, (i) any other payments or
benefits received or to be received by the Executive in Connection with a Change
of Control or his termination of employment, whether pursuant to the terms of
this Agreement or otherwise (which together with the payments and benefits
pursuant to this Agreement, constitute the “Total Payments”) shall be treated as
“parachute payments” within the meaning of section 280G(b)(2) of the Code, and
all “excess parachute payments” within the meaning of section 280G(b)(1) shall
be treated as subject to the Excise Tax, unless in the opinion of tax counsel,
selected by the Company’s independent auditors and acceptable to the Executive,
such other payments or benefits (in whole or in part) do not constitute
parachute payments, or such excess parachute payments (in whole or in part)
represent reasonable compensation for services actually rendered within the
meaning of section 280G(b)(4) of the Code in excess of the base amount within
the meaning of section 280G(b)(3) of the Code, or are otherwise not subject to
the Excise Tax, (ii) the amount of the Total Payments which shall be treated as
subject to the Excise Tax shall be equal to the lesser of (A) the total amount
of the Total Payments or (B) the amount of excess parachute payments within the
meaning of section 280G(b)(l) (after applying paragraph (i), above), and
(iii) the value of any non-cash benefits or any deferred payment or benefit
shall be determined by the Company’s independent auditors in accordance with the
principles of sections 280G(d)(3) and (4) of the Code. For purposes of
determining the amount of the Gross-Up Payment, the Executive shall be deemed to
pay federal income taxes at the highest marginal rate of federal income taxation
in the calendar year in which the Gross-Up Payment is to be made and state and
local income taxes at the highest marginal rate of taxation in the state and
locality of his residence, net of the maximum reduction in federal income taxes
which could be obtained from

 

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deduction of such state and local taxes. In the event that the Excise Tax is
subsequently determined to be less than the amount taken into account hereunder
at the time of termination of his employment, Executive shall repay to the
Company at the time that the amount of such reduction in Excise Tax is finally
determined the portion of the Gross-Up Payment attributable to such reduction
(plus the portion of the Gross-Up Payment attributable to the Excise Tax and
federal and state and local income tax imposed on the Gross-Up Payment being
repaid by him if such repayment results in reduction in Excise Tax and/or a
federal and state and local income tax deduction) plus interest on the amount of
such repayment at the rate provided in section 1274(b)(2)(B) of the Code. In the
event that the Excise Tax is determined to exceed the amount taken into account
hereunder at the time of payment (including by reason of any payment the
existence or amount of which cannot be determined at the time of the Gross-Up
Payment), the Company shall make an additional Gross-Up Payment in respect of
such excess (plus any interest payable with respect to such excess) at the time
that the amount of such excess is finally determined. If the amounts of any
payments under this Agreement cannot be finally determined on or before the
payment date otherwise scheduled for payment, the Company shall pay to Executive
on such date an estimate, as determined in good faith by the Company, of the
minimum amount of such payment and shall pay the reminder of such payments
(together with interest at the rate provided in section 1274(b)(2)(B) of the
Code) as soon as the amount thereof can be determined. In the event that the
amount of the estimated payments exceeds the amount subsequently determined to
have been due, Executive shall pay the amount of such excess to the Company on
or before the fifth (5th) day after demand by the Company (together with
interest at the rate provided in section 1274(b)(2)(B) of the Code). In all
events, the final, full amount of each Gross-Up Payment to Executive shall be
completed by December 31 of the calendar year following the calendar year in
which Executive remits the corresponding excise tax to the taxing authority.

(ii) De Mimimis Election. If the Excise Tax, as determined in good faith by the
Company, would be less than three percent (3.0%) of the total severance benefits
available in Connection with a Change of Control, then Executive’s benefits
hereunder shall be either (x) delivered in full, or (y) delivered as to such
lesser extent which would result in no portion of such benefits being subject to
the Excise Tax, whichever of the foregoing amounts, taking into account the
applicable U.S. federal, state and local income taxes and the Excise Tax,
results in the receipt by Executive on an after-tax basis, of the greatest
amount of benefits, notwithstanding that all or some portion of such benefits
may be taxable under the Excise Tax. Unless Executive and the Company agree
otherwise in writing, the determination of Executive’s excise tax liability, if
any, and the amount, if any, required to be paid under this Section 8 will be
made in writing by the independent auditors who are primarily used by the
Company immediately prior to the Change of Control (the “Accountants”). In the
event of a reduction in benefits hereunder, Executive shall be given the choice
of which benefits to reduce.

(iii) Determinations; Costs. For purposes of making the calculations required by
this Section 8, the Accountants may make reasonable assumptions and
approximations concerning applicable taxes and may rely on reasonable, good
faith interpretations concerning the application of Sections 280G and 4999 of
the Code. Executive and the Company agree to furnish such information and
documents as the Accountants may reasonably request in order to make a
determination under this Section 8. The Company will bear all costs the
Accountants and outside legal or tax counsel may reasonably incur in connection
with any calculations contemplated by this Section 8.

 

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9. Definitions.

(a) Cause. For purposes of this Agreement, “Cause” will mean:

(i) Executive’s willful and continued failure to materially perform the duties
and responsibilities of his position after there has been delivered to Executive
a written demand for performance from the Board which describes the basis for
the Board’s belief that Executive has not substantially performed his duties and
provides Executive with thirty (30) days to take corrective action;

(ii) Any act of personal dishonesty taken by Executive in connection with his
responsibilities as an employee of the Company with the intention or reasonable
expectation that such action may result in the substantial personal enrichment
of Executive;

(iii) Executive’s conviction of, or plea of nolo contendere to, a felony that
the Board reasonably believes has had or will have a material detrimental effect
on the Company’s reputation or business;

(iv) A breach of any fiduciary duty owed to the Company by Executive that has a
material detrimental effect on the Company’s reputation or business;

(v) Executive being found liable in any United States Securities and Exchange
Commission or other civil or criminal securities law action or entering any
cease and desist order with respect to such action (regardless of whether or not
Executive admits or denies liability); or

(vi) Executive (A) obstructing or impeding; (B) endeavoring to influence,
obstruct or impede, or (C) failing to materially cooperate with, any
investigation authorized by the Board or any governmental or self-regulatory
entity (an “Investigation”). However, Executive’s failure to waive
attorney-client privilege relating to communications with Executive’s own
attorney in connection with an Investigation will not constitute “Cause”.

(b) Change of Control. For purposes of this Agreement, “Change of Control” will
mean the occurrence of any of the following events:

(i) The consummation by the Company of a merger or consolidation of the Company
with any other corporation, other than a merger or consolidation which would
result in the voting securities of the Company outstanding immediately prior
thereto continuing to represent (either by remaining outstanding or by being
converted into voting securities of the surviving entity) more than 50% of the
total voting power represented by the voting securities of the Company or such
surviving entity outstanding immediately after such merger or consolidation;

(ii) The approval by the stockholders of the Company, or if stockholder approval
is not required, approval by the Board, of a plan of complete liquidation of the
Company or an agreement for the sale or disposition by the Company of all or
substantially all of the Company’s assets;

 

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(iii) Any “person” (as such term is used in Sections 13(d) and 14(d) of the
United States Securities Exchange Act of 1934, as amended) becoming the
“beneficial owner” (as defined in Rule 13d-3 under said Act), directly or
indirectly, of securities of the Company representing 50% or more of the total
voting power represented by the Company’s then outstanding voting securities; or

(iv) A change in the composition of the Board, as a result of which fewer than a
majority of the directors are Incumbent Directors. “Incumbent Directors” will
mean directors who either (A) are directors of the Company as of the date
hereof, or (B) are elected, or nominated for election, to the Board with the
affirmative votes of at least a majority of those directors whose election or
nomination was not in connection with any transactions described in
subsections (i), (ii), or (iii) or in connection with an actual or threatened
proxy contest relating to the election of directors of the Company.

(c) Disability. For purposes of this Agreement, “Disability” will mean
Executive’s inability to perform his responsibilities with the Company on a
full-time basis for 120 calendar days in any consecutive twelve (12) months
period as a result of Executive’s mental or physical illness or injury, as
determined by the Committee in its sole discretion.

(d) Good Reason. For purposes of this Agreement, “Good Reason” means the
occurrence of any of the following, without Executive’s express written consent:

(i) A material reduction of Executive’s duties, position, or responsibilities,
relative to Executive’s duties, position, or responsibilities in effect
immediately prior to such reduction;

(ii) A material reduction in Executive’s Base Salary other than pursuant to a
reduction that also is applied to substantially all other similarly situated
peer executive officers of the Company and which reduction reduces the Base
Salary by a percentage reduction that is no greater than 10%;

(iii) The relocation of Executive to a facility or location more than fifty
(50) miles from his current place of employment; or

(iv) The failure of the Company to obtain the assumption of the employment
agreement by a successor or any other action or inaction that constitutes a
material breach by the Company of this Agreement, including, without limitation,
a change in the calculation, methodology, or determination of Executive’s annual
cash incentive.

In order for Executive to resign for “Good Reason”, Executive must provide the
Board with written notice of the event(s) giving rise to a resignation due to
“Good Reason” within 90 days of such event(s) occurring and allow the Board to
cure such condition(s) within 30 days thereafter. The foregoing notwithstanding,
“Good Reason” does not occur unless Executive terminates employment by no later
than two (2) years following the occurrence of an event listed above.

(e) In Connection with a Change of Control. For purposes of this Agreement, a
termination of Executive’s employment with the Company is “in Connection with a
Change of Control” if Executive’s employment is terminated for any reason within
twelve (12) months following a Change of Control.

 

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(f) Target Amount. For purposes of this Agreement, the term “Target Amount”
shall mean the average annual cash incentive payment earned by or awarded to
Executive for the lesser of (i) five (5) years or (ii) the number of years
Executive is employed by the Company, each immediately preceding termination of
this Agreement.

10. Term. The Employment Term shall commence as of the Effective Date and shall
continue for a period of three (3) years thereafter, as herein provided. Unless
the Company or Executive gives written notice to the other party to the contrary
at least 60 days prior to the end of the Employment Term, the Employment Term
shall be automatically extended by one full year. The Term shall continue until
the expiration of all automatic extensions affected as aforesaid unless
Executive’s employment is terminated sooner as provided in this Agreement.

11. Indemnification. Subject to applicable law, Executive will be provided
indemnification to the maximum extent permitted by the Company’s Articles of
Incorporation or Bylaws, including, if applicable, any directors and officers
insurance policies, with such indemnification to be on terms determined by the
Board or any of its committees, but on terms no less favorable than provided to
any other Company executive officer or director and subject to the terms of any
separate written indemnification agreement.

12. Assignment. This Agreement will be binding upon and inure to the benefit of
(a) the heirs, executors and legal representatives of Executive upon Executive’s
death, and (b) any successor of the Company. Any such successor of the Company
will be deemed substituted for the Company under the terms of this Agreement for
all purposes. For this purpose, “successor” means any person, firm, corporation,
or other business entity which at any time, whether by purchase, merger, or
otherwise, directly or indirectly acquires all or substantially all of the
assets or business of the Company. None of the rights of Executive to receive
any form of compensation payable pursuant to this Agreement may be assigned or
transferred except by will or the laws of descent and distribution. Any other
attempted assignment, transfer, conveyance, or other disposition of Executive’s
right to compensation or other benefits will be null and void.

13. Notices. All notices, requests, demands and other communications called for
hereunder will be in writing and will be deemed given (a) on the date of
delivery if delivered personally; (b) one (1) day after being sent overnight by
a well-established commercial overnight service, or (c) four (4) days after
being mailed by registered or certified mail, return receipt requested, prepaid
and addressed to the parties or their successors at the following addresses, or
at such other addresses as the parties may later designate in writing:

If to the Company:

PICO Holdings, Inc.

875 Prospect Street

Suite 301

La Jolla, California 92037

Attention: General Counsel

 

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If to Executive:

at the last residential address known by the Company.

14. Severability. If any provision hereof becomes or is declared by a court of
competent jurisdiction to be illegal, unenforceable, or void, this Agreement
will continue in full force and effect without said provision.

15. Arbitration. The Parties agree that any and all disputes arising out of or
relating to the terms of this Agreement, Executive’s employment by the Company,
Executive’s service as an officer of the Company, or Executive’s compensation
and benefits, their interpretation and any of the matters herein released, will
be subject to binding arbitration. In the event of a dispute, the parties (or
their legal representatives) will promptly confer to select a Single Arbitrator
mutually acceptable to both parties. If the parties cannot agree on an
Arbitrator, then the moving party may file a Demand for Arbitration with the
American Arbitration Association (“AAA”) in San Diego, California, who will be
selected and appointed consistent with the AAA-Employment Arbitration Rules and
Mediation Procedures, except that such Arbitrator must have the qualifications
set forth in this paragraph. Any arbitration will be conducted in a manner
consistent with AAA National Rules for the Resolution of Employment Disputes,
supplemented by the California Rules of Civil Procedure. The parties further
agree that the prevailing party in any arbitration will be entitled to
injunctive relief in any court of competent jurisdiction to enforce the
arbitration award. The parties hereby agree to waive their right to have any
dispute between them resolved in a court of law by a judge or jury. This
paragraph will not prevent either party from seeking injunctive relief (or any
other provisional remedy) from any court having jurisdiction over the Parties
and the subject matter of their dispute relating to Executive’s obligations
under this Agreement. The Company shall pay the fees of all arbitrators,
witnesses and such other expenses as may be generated by the arbitration, except
Executive’s attorney’s fees unless a majority of the arbitrators concludes that
such arbitration procedure was not instituted in good faith by Executive. In
such event the arbitrators shall be empowered to allocate fees and assess costs
and other expenses of the arbitration, except attorneys fees, as they may deem
appropriate, bearing in mind the relative financial abilities of the parties and
the respective merits of their positions.

16. Integration. This Agreement and the standard forms of equity award grant
that describe Executive’s outstanding equity awards, represents the entire
agreement and understanding between the parties as to the subject matter herein
and supersedes all prior or contemporaneous agreements whether written or oral.
No waiver, alteration, or modification of any of the provisions of this
Agreement will be binding unless in a writing and signed by duly authorized
representatives of the parties hereto. In entering into this Agreement, no party
has relied on or made any representation, warranty, inducement, promise, or
understanding that is not in this Agreement. The paragraph headings and captions
contained herein are for reference purposes and convenience only and shall not
in any way affect the meaning or interpretation of this Agreement. It is
intended by the parties that this Agreement be interpreted in accordance with
its fair and simple meaning, not for or against either party, and neither party
shall be deemed to be the drafter of this Agreement To the extent that any
provisions of this Agreement conflict with those of any other agreement to be
signed upon Executive’s hire, the terms in this Agreement will prevail.

 

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17. Waiver of Breach. The waiver or a breach of any term or provision of this
Agreement, which must be in writing, will not operate as or be construed to be a
waiver of any other previous or subsequent breach of this Agreement.

18. Survival. The Confidential Information Agreement and the Company’s and
Executive’s responsibilities under Sections 7 and 8 will survive the termination
of this Agreement.

19. Headings. All captions and Section headings used in this Agreement are for
convenient reference only and do not form a part of this Agreement.

20. Tax Withholding. All payments made pursuant to this Agreement will be
subject to withholding of applicable taxes.

21. Governing Law. This Agreement will be governed by the laws of the State of
California without regard to its conflict of laws provisions.

22. Code Section 409A.

(a) It is intended that any amounts payable under this Agreement and the
Company’s and Executive’s exercise of authority or discretion hereunder shall
comply with and avoid the imputation of any tax, penalty or interest under
Section 409A of the United States Internal Revenue Code of 1986, as amended
(including the Treasury Regulations and other published guidance related
thereto). This Agreement shall be construed and interpreted consistent with that
intent. This provision shall not be construed as a guarantee by the Company of
any particular tax effect to Executive under this Agreement. The Company shall
not be liable to Executive for any payment made under this Agreement that is
determined to result in an additional tax, penalty, or interest under Code
Section 409A, nor for reporting in good faith any payment made under this
Agreement as an amount includible in gross income under Code Section 409A.

(b) To the extent that any reimbursement pursuant to this Agreement is taxable
to Executive, Executive shall provide the Company with documentation of the
related expenses promptly so as to facilitate the timing of the reimbursement
payment contemplated by this paragraph, and any reimbursement payment due to
Executive pursuant to such provision shall be paid to Executive on or before the
last day of Executive’s taxable year following the taxable year in which the
related expense was incurred. Such reimbursement obligations pursuant to this
Agreement are not subject to liquidation or exchange for another benefit and the
amount of such benefits that Executive receives in one taxable year shall not
affect the amount of such benefits that Executive receives in any other taxable
year.

(c) Separation from Service. For purposes of this Agreement, “termination of
employment” or words of similar import, as used in this Agreement, shall mean,
for purposes of any payments that are payments of deferred compensation subject
to Code Section 409A, a separation from service as defined in United States
Treasury Regulations Section 1.409A-1(h) without regard to any optional
alternative definitions available thereunder.

(d) Notwithstanding any other provisions herein, if a payment obligation under
this Agreement arises on account of Executive’s termination of employment while
Executive is a “specified employee”, as defined under Code Section 409A and
determined in good faith by the

 

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Company, any payment of deferred compensation subject to Code Section 409A,
after giving effect to any exemptions provided thereunder, that is scheduled to
be paid within fifteen (15) days after the end of the six (6) month period
beginning on the date of such termination of employment, or, if earlier, within
15 days after the appointment of the personal representative or executor of the
Executive’s estate following his death.

23. Counterparts. This Agreement may be executed in counterparts, and each
counterpart will have the same force and effect as an original and will
constitute an effective, binding agreement on the part of each of the
undersigned.

24. Successors. The Agreement shall inure to the benefit of and be binding on
Company and its successors and assigns, as well as Executive and his estate.
Executive may not assign or delegate, in whole or in part, his duties or
obligations under this Agreement. This Agreement may be transferred and assigned
by Company to any successor of Company by acquisition, merger, reorganization,
amalgamation, asset sale or otherwise.

 

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IN WITNESS WHEREOF, each of the parties has executed this Agreement, in the case
of the Company by a duly authorized officer, as of the day and year written
below.

 

THE COMPANY:     PICO HOLDINGS, INC.     /s/ John D. Weil     Date: March 3,
2009 John D. Weil     Chairman of the Board of Directors     EXECUTIVE:     /s/
Richard H. Sharpe     Date: March 3, 2009 Richard H. Sharpe