Exhibit 10.1
 

EMPLOYMENT AGREEMENT
(As Amended and Restated, Effective February 1, 2017)
 
THIS EMPLOYMENT AGREEMENT (the “Agreement”) between UCP, Inc., a Delaware
corporation (the “Company”), and Dustin L. Bogue (the “Executive”) is entered
into as of February 1, 2017 (the “Effective Date”), and is an amendment and
restatement of the Employment Agreement between the Company and the Executive
dated July 23, 2013, and as thereafter amended on April 1, 2016.  In
consideration of the covenants contained herein, the parties agree as follows:
 
1.            Employment.  The term of Executive’s employment by the Company
under this Agreement, as amended and restated as set forth herein, will begin on
the Effective Date, and will continue until February 1, 2020, unless earlier
terminated pursuant to Section 4 hereof; provided, however, that on each monthly
anniversary of the Effective Date, the Agreement shall automatically be extended
for one additional month unless either the Company or Executive shall have
terminated this automatic extension provision by written notice to the other
party at least 60 days prior to the automatic extension date.  The term of
employment in effect from time to time hereunder is hereinafter called the
“Employment Period.”  Subject to the terms of this Agreement, Executive’s
employment is at will, which means that either Executive or the Company may
terminate this relationship with or without Cause or notice.
 
2.            Position and Duties.
 

(a)
Position.  During the Employment Period, Executive shall serve as the President
and Chief Executive Officer of the Company and shall report to the Board of
Directors of the Company (the “Board”) and have the normal duties,
responsibilities and authority of an executive serving in such positions,
subject to the direction of the Board.  Executive shall be appointed to serve as
a member of the Board. At each annual meeting of the Company’s stockholders
during the Employment Period, the Company shall nominate Executive to serve as a
member of the Board, with such service as a member of the Board subject to any
required stockholder approval.  Upon the termination of Executive’s service as
President and Chief Executive Officer for any reason, unless otherwise
determined by the Board, Executive shall be deemed to have resigned from the
Board (and any boards of subsidiaries) and any other positions held at the
Company or any of its subsidiaries or affiliates voluntarily, without any
further required action by Executive, as of the cessation of Executive’s
services, and Executive, at the Board’s request, shall execute any documents
deemed in the discretion of the Company to be reasonably necessary to reflect
his resignation(s).

 

(b)
Obligations.  During the Employment Period, Executive shall devote his full
business time and efforts to the business and affairs of the Company and its
subsidiaries.  Notwithstanding the foregoing, during his employment, Executive
may devote reasonable time to the supervision of his personal investments and
activities involving professional, charitable, community, educational, religious
and similar types of organizations, speaking engagements, membership on the
boards of directors of other organizations, and other types of activities, to
the

 
 

--------------------------------------------------------------------------------

 
extent that such other activities are not competitive with the Company or
otherwise conflict with the business of the Company or Executive’s duties
hereunder; provided, however, that before Executive agrees to serve on the board
of directors of any for-profit company (whether publicly or privately held),
Executive will obtain the approval of the Audit Committee of the Board (or such
other committee to which the Board may subsequently delegate this
responsibility).
 
3.            Compensation and Benefits.
 

(a)
Base Salary.  As compensation for Executive’s performance of Executive’s duties
hereunder, Company shall pay to Executive an initial Base Salary of $530,000 per
year, payable in accordance with the normal payroll practices of the Company,
less required deductions for state and federal withholding tax, social security
and all other employment taxes and payroll deductions. The Base Salary shall be
reviewed for increases by the Board in good faith, based upon Executive’s
performance, not less often than annually.  The term “Base Salary” shall refer
to the Base Salary as so increased by the Board.

 

(b)
Annual Incentive Compensation.  During the Employment Period, Executive shall be
eligible to receive an annual cash incentive bonus determined by the
Compensation Committee of the Board (the “Committee”) in its sole discretion, as
a percentage of Executive’s Base Salary, with a target bonus of not less than
50% of Executive’s Base Salary, and based upon Executive’s and/or the Company’s
achievement of annual performance goals or objectives established by the
Committee, in its sole discretion. Payment of any annual cash incentive bonus
earned shall be made on or before March 15th of each calendar year immediately
following the year in which such compensation is earned.

 

(c)
Equity-Based Compensation.  Subject to approval by the Committee, Executive
shall be eligible to be granted equity-based compensation awards based upon
Executive’s and/or the Company’s achievement of annual performance goals or
objectives established by the Committee, in its sole discretion; provided that
the target grant date value of such awards granted each year during the
Employment Period shall be not less than 125% of Executive’s Base Salary.

 

(d)
Other Benefits.

 
(i)            Savings and Retirement Plans.  Executive shall be entitled to
participate in all qualified and non-qualified savings and retirement plans
applicable generally to other senior executives of the Company, in accordance
with the terms of the plans, as may be amended from time to time.
 
(ii)           Welfare Benefit Plans.  Executive and/or his eligible dependents
shall be eligible to participate in and shall receive all benefits under the
Company’s welfare benefit plans and programs applicable generally to other
senior executives
2

--------------------------------------------------------------------------------

of the Company, in accordance with the terms of the plans, as may be amended
from time to time.
 
(iii)          Fringe Benefits.  During the Employment Period, Executive shall
be entitled to such fringe benefits as may be available generally to other
senior executives of the Company.
 
(iv)          Vacation.  Executive shall be entitled to accrue paid vacation
time consistent with the applicable policies of the Company as in effect from
time to time, but in no event shall Executive be eligible to accrue less than
five weeks of such vacation per year.
 
(v)            Business Expenses.  Subject to Section 17 and compliance with
applicable Company policies (including any requirements for acceptable
documentation), Executive shall be reimbursed for all reasonable travel and
other expenses incurred in the performance of Executive’s duties on behalf of
the Company.
 
4.            Termination of Employment.
 

(a)
The Employment Period shall end upon the first to occur of: (i) the expiration
of the term of this Agreement pursuant to Section 1 hereof; (ii) termination of
Executive’s employment by the Company on account of Executive’s inability to
perform the essential functions of Executive’s position, with or without
reasonable accommodation, due to a physical or mental disability (as determined
by the Board in good faith), for a period of more than six consecutive months
(“Termination for Disability”); (iii) termination of Executive’s employment by
the Company for Cause (as defined in Exhibit A attached hereto) (“Termination
for Cause”); (iv) termination of  Executive’s employment by the Company other
than a Termination for Disability or a Termination for Cause (“Termination
Without Cause”); (v) Executive’s death; (vi) termination of Executive’s
employment by Executive for Good Reason (as defined in Exhibit A attached
hereto) (“Termination for Good Reason”); or (vii) termination of Executive’s
employment by Executive for any reason other than Good Reason.

 

(b)
If the Employment Period ends for any reason set forth in Section 4(a), except
as otherwise provided in this Section 4, Executive shall cease to have any
rights to salary, bonus (if any) or benefits hereunder, other than (i) payment
of unpaid Base Salary through and including the date of termination or
resignation (which in the case of a termination by the Company shall be paid on
the final day of employment, and in the case of a resignation shall be paid out
on the final day of employment or within seventy-two hours after the
resignation, whichever occurs later), (ii) Executive’s business expenses that
are reimbursable pursuant to Section 3(d) but have not been reimbursed by the
Company as of the date of termination, (iii) Executive’s annual bonus for the
fiscal year immediately preceding the fiscal year in which the date of
termination occurs, if such bonus has been earned, but has not been paid as of
the date of termination, (iv) any accrued vacation pay to the extent not
theretofore paid, and (v) any other amounts or benefits required to

 
 
3

--------------------------------------------------------------------------------

be paid or provided by law or under any plan, program, policy or practice of the
Company (“Accrued Compensation and Benefits”).
 

(c)
If the Employment Period ends on account of Termination Without Cause or
Termination for Good Reason, Executive shall receive a severance payment (the
“Severance Payment”) in an amount equal to two times the sum of (A) Executive’s
Base Salary at the time of termination (or, in the event of a Termination for
Good Reason, the Base Salary prior to the event constituting Good Reason if such
Base Salary is higher than the Base Salary at the time of termination) plus (B)
Executive’s target annual bonus for the year in which Executive’s employment
terminates.  In addition, if the Employment Period ends on account of death,
Termination Without Cause, Termination for Good Reason or Termination for
Disability, the Company shall pay Executive after such termination of employment
(or to Executive’s family in the event of his death), on a monthly basis, an
amount equal to the monthly amount of the Consolidated Omnibus Budget
Reconciliation Act of 1985 (“COBRA”) continuation coverage premium for such
month, at the same level and cost to Executive (or Executive’s family in the
event of his death) as immediately preceding the date of termination, under the
Company group medical plan in which Executive participated immediately preceding
the date of termination, less the amount of Executive’s portion of such monthly
premium as in effect immediately preceding the date of termination, until the
earlier of (A) 24 months after the date of termination; and (B) the date on
which Executive and his family have obtained other substantially similar
healthcare coverage or become entitled to Medicare coverage.  Subject to Section
17, the Severance Payment shall be paid in a lump sum payment on the sixtieth
day following the termination date.  As a condition to Executive’s receipt of
the post-employment payments and benefits set forth in this Section 4(c),
Executive must execute, return, not rescind and comply with a commercially
reasonable written release agreement in a form prescribed by the Company (the
“Release”).

 

(d)
If, during the two year period following a Change in Control (as defined in
Exhibit A attached hereto), Executive’s employment is terminated due to a
Termination Without Cause or a Termination for Good Reason, Executive shall
receive the benefits set forth in Section 4(c), except that (1) in lieu of the
Severance Payment described in Section 4(c), Executive shall receive three times
the sum of (A) Executive’s Base Salary at the time of such termination or Change
in Control, whichever Base Salary level is greater, plus (B) the average of
Executive’s annual bonuses for the three most recently completed years prior to
Executive’s termination of employment or Change in Control, whichever average is
greater or, if Executive has not been employed for at least three full years,
the average of Executive’s annual bonuses for all completed years prior to
Executive’s termination of employment or Change in Control, whichever is greater
(the “CIC Severance Payment”).  Subject to Section 17, the CIC Severance Payment
shall be paid in a lump sum payment on the sixtieth day following the
termination date.    As a condition to Executive’s receipt of the post-

 
4

--------------------------------------------------------------------------------

 
employment payments and benefits set forth in this Section 4(d), Executive must
execute, return, not rescind and comply with a Release.
 

(e)
Notwithstanding the foregoing, if the payment required to be paid under Section
4(d), when considered either alone or with other payments paid or imputed to
Executive (the “Total Payments”) from the Company that would be deemed “excess
parachute payments” under Section 280G(b)(1) of the Internal Revenue Code of
1986, as amended (the “Code”), is determined by the Company, with the assistance
of a nationally recognized accounting firm acceptable to Executive, to be a
“parachute payment” under Section 280G(b)(2) of the Code, then the Total
Payments shall be automatically reduced to an amount equal to $1.00 less than
three times (3x) the “base amount” (as defined in Section 280G(3) of the Code)
(the “Reduced Amount”); provided, however, such reduction shall not apply if the
sum of (A) the Total Payments  less (B) the amount of excise tax payable by the
Executive under Section 4999 of the Code with respect to the Total Payments, is
greater than the Reduced Amount.  Any such reduction shall occur in the
following order:  (i)  by eliminating the acceleration of vesting of any stock
options for which the exercise price exceeds the fair market value (and if there
is more than one option award so outstanding, then the acceleration of the
vesting of the most “under water” option shall be reduced first, and so-on);
(ii)  by reducing the CIC Severance Payment and any other cash payments not
subject to Section 409A of the Code;  (iii) by reducing any benefit continuation
payments (and if there be more than one such payment, by reducing the payments
in reverse order, with the payments made the earliest being reduced first);
(iv), by reducing any cash payments that are subject to Section 409A of the Code
(and if there be more than one such payment, by reducing the payments in reverse
order, with the payments made the earliest being reduced first); (v) by reducing
the payments of any restricted stock, restricted stock units, performance awards
or similar equity-based awards that have been awarded to Executive by the
Company that are subject to performance-based vesting (and if there be more than
one such award held by Executive, by reducing the awards in the reverse order of
the date of their award, with the most-recently awarded reduced first and the
oldest award reduced last); (vi) by reducing the payments of any restricted
stock, restricted stock units, performance awards or similar equity-based awards
that have been awarded to Executive by the Company that are subject to
time-based vesting (and if there be more than one such award held by Executive,
by reducing the awards in the reverse order of the date of their award, with the
most-recently awarded reduced first and the oldest award reduced last); and
(vii) by reducing the acceleration of vesting of any stock options that are not
described in (i), above.

 
5.            Confidential Information.  Executive acknowledges that the
information, observations and data obtained by him while employed by the Company
pursuant to this Agreement, as well as those obtained by him while employed by
the Company or any of its subsidiaries prior to the date of this Agreement,
concerning the business or affairs of the Company or any of its subsidiaries
(“Confidential Information”) are the property of the Company or such subsidiary.
Therefore, Executive agrees that during the Employment Period and for three
years thereafter that he shall not disclose to any unauthorized person or use
for his own account any Confidential
5

--------------------------------------------------------------------------------

Information without the prior written consent of the Board unless and except to
the extent that such Confidential Information becomes generally known to and
available for use by the public other than as a result of Executive’s acts or
omissions to act. Executive shall deliver to the Company at the termination of
the Employment Period, or at any other time the Company may request, all
memoranda, notes, plans, records, reports, computer tapes and software and other
documents and data (and copies thereof) relating to the Confidential Information
or the business of the Company or any of its subsidiaries or affiliates which he
may then possess or have under his control.
 
6.            Enforcement.  Because the services of Executive are unique and
Executive has access to confidential information of the Company, the parties
hereto agree that the Company would be damaged irreparably in the event the
provisions of Section 5 hereof were not performed in accordance with its terms
or were otherwise breached and that money damages would be an inadequate remedy
for any such nonperformance or breach. Therefore, the Company or its successors
or assigns shall be entitled, in addition to other rights and remedies existing
in their favor, to an injunction or injunctions to prevent any breach or
threatened breach of any of such provisions and to enforce such provisions
specifically (without posting a bond or other security).
 
7.            Indemnification and Insurance.  The Company shall indemnify
Executive to the full extent provided for in its corporate Bylaws and to the
maximum extent that the Company indemnifies any of its other directors and
senior executive officers, and he will be entitled to the protection of any
insurance policies the Company may elect to maintain generally for the benefit
of its directors and senior executive officers against all costs, charges,
liabilities and expenses incurred or sustained by him in connection with any
action, suit or proceeding to which he may be made a party by reason of his
being or having been a director, officer or employee of the Company or any of
its affiliates or his serving or having served any other enterprise, plan or
trust as a director, officer, employee or fiduciary at the request of the
Company or any of its affiliates (other than any dispute, claim or controversy
arising under or relating to this Agreement (except for this Section 7)).  The
Company will enter into an indemnification agreement with the Executive in the
standard form that it has or will adopt for the benefit of its other directors
and senior executive officers.
 
8.            Reimbursement of Expenses.  If any contest or dispute shall arise
under this Agreement involving termination of the Executive’s employment with
the Company or involving the failure or refusal of the Company to perform fully
in accordance with the terms hereof, the Company shall reimburse the Executive,
on a current basis and in accordance with Section 17, for all legal fees and
expenses, if any, incurred by the Executive in connection with such contest or
dispute, together with interest in an amount equal to the U.S. Prime Rate as
published in the “Money Rates” section of The Wall Street Journal, but in no
event higher than the maximum legal rate permissible under applicable law, such
interest to accrue from the date the Company receives the Executive’s statement
for such fees and expenses through the date of payment thereof; provided,
however, that in the event the resolution of any such contest or dispute
includes a finding denying, in total, the Executive’s claims in such contest or
dispute, the Executive shall be required to reimburse the Company, over a period
of 12 months from the date of such resolution, for all sums advanced to the
Executive pursuant to this Section 8.
 
6

--------------------------------------------------------------------------------

 
9.            Survival.  Sections 5, 6, 7, 8 and 17 hereof shall survive and
continue in full force and effect in accordance with their respective terms,
notwithstanding any termination of the Employment Period.
 
10.         Notices.  Any notice provided for in this Agreement shall be in
writing and shall be either personally delivered, or sent by certified mail,
return receipt requested, postage prepaid, addressed (a) if to Executive, to his
last known address shown on the payroll records of the Company, and if to the
Company, to UCP, Inc., 99 Almaden, Fourth floor, San Jose, CA 95113 attention: 
Chairman of the Compensation Committee of the Board of Directors, with a copy to
the General Counsel of the Company at the same address, or (b) to such other
address as either party shall have furnished to the other in accordance with
this Section 10.
 
11.         Severability.  Whenever possible, each provision of this Agreement
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be invalid,
illegal or unenforceable in any respect under applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability shall not affect
any other provision or any other jurisdiction, but this Agreement shall be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision had never been contained herein.
 
12.         Entire Agreement. This Agreement constitutes the entire agreement
and understanding between the parties with respect to the subject matter hereof
and supersedes and preempts any prior understandings, agreements or
representations by or between the parties, written or oral, which may have
related in any manner to the subject matter hereof.
 
13.         Successors and Assigns. This Agreement shall inure to the benefit of
and be enforceable by Executive and his heirs, executors and personal
representatives, and the Company and its successors and assigns. Any successor
or assignee of the Company shall assume the liabilities of the Company
hereunder.
 
14.         Governing Law.  This Agreement shall be governed by the internal
laws (as opposed to the conflicts of law provisions) of the State of California.
 
15.         Amendment and Waiver.  The provisions of this Agreement may be
amended or waived only with the prior written consent of the Company and
Executive, and no course of conduct or failure or delay in enforcing the
provisions of this Agreement shall affect the validity, binding effect or
enforceability of this Agreement.
 
16.         Withholding.  All payments and benefits under this Agreement are
subject to withholding of all applicable taxes.
 
17.         Code Section 409A.  This Agreement is intended to comply with the
requirements of Section 409A of the Code, and shall be interpreted and construed
consistently with such intent.  The payments to Executive pursuant to this
Agreement are also intended to be exempt from Section 409A of the Code to the
maximum extent possible, under either the separation pay exemption pursuant to
Treasury regulation §1.409A-1(b)(9)(iii) or as short-term deferrals pursuant to
Treasury regulation §1.409A-1(b)(4), and for such purposes, each payment to
Executive under this Agreement shall be considered a separate payment.    In the
event the terms
7

--------------------------------------------------------------------------------

of this Agreement would subject Executive to taxes or penalties under Section
409A of the Code (“409A Penalties”), the Company and Executive shall cooperate
diligently to amend the terms of the Agreement to avoid such 409A Penalties, to
the extent possible; provided that in no event shall the Company be responsible
for any 409A Penalties that arise in connection with any amounts payable under
this Agreement.  To the extent any amounts under this Agreement are payable by
reference to Executive’s “termination of employment” such term and similar terms
shall be deemed to refer to Executive’s “separation from service,” within the
meaning of Section 409A of the Code.  Notwithstanding any other provision in
this Agreement, to the extent any  payments hereunder constitutes nonqualified
deferred compensation, within the meaning of Section 409A, and Executive is a
specified employee (within the meaning of Section 409A of the Code) as of the
date of Executive’s separation from service, each such payment that is payable
upon Executive’s separation from service and would have been paid prior to the
six-month anniversary of  Executive’s separation from service, shall be delayed
until the earlier to occur of (i) the first day of the seventh month following
Executive’s separation from service or (ii) the date of Executive’s death.  Any
reimbursement payable to Executive pursuant to this Agreement shall be
conditioned on the submission by Executive of all expense reports reasonably
required by Employer under any applicable expense reimbursement policy, and
shall be paid to Executive within 30 days following receipt of such expense
reports, but in no event later than the last day of the calendar year following
the calendar year in which Executive incurred the reimbursable expense.  Any
amount of expenses eligible for reimbursement, or in-kind benefit provided,
during a calendar year shall not affect the amount of expenses eligible for
reimbursement, or in-kind benefit to be provided, during any other calendar
year.  The right to any reimbursement or in-kind benefit pursuant to this
Agreement shall not be subject to liquidation or exchange for any other benefit.
 
8

--------------------------------------------------------------------------------

 
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
date first written above.
 

 
UCP, INC.
         
 
By:
/s/ James M. Pirrello       Name: James M. Pirrello       Title:   Chief
Financial Officer          

 

 
EXECUTIVE:
         
 
 
/s/ Dustin L. Bogue       Dustin L. Bogue  

 

 

 
 
 
 
 
 
 
 
[Signature Page to the Employment Agreement for Dustin L. Bogue]

--------------------------------------------------------------------------------

EXHIBIT A
 
DEFINITIONS
 
“Cause” shall mean the occurrence of any of the following conditions:
 
(i)            any act or omission that constitutes a material breach by
Executive of any of his material obligations under this Agreement, after a
written demand for substantial performance is delivered to Executive by the
Board that specifically identifies the manner in which the Board believes that
Executive has materially breached such obligations and Executive’s failure to
cure such alleged breach not later than 30 days following his receipt of such
notice;
 
(ii)           conviction or plea of guilty to a charge of commission of a
felony;
 
(iii)          the commission of dishonest, fraudulent or deceptive acts or
practices in connection with Executive’s employment that are materially
injurious to the Company, monetarily or otherwise; or
 
(iv)          Executive's ongoing willful refusal to follow the proper and
lawful directions of the Board after a written demand for substantial
performance is delivered to Executive by the Board that specifically identifies
the manner in which the Board believes that Executive has refused to follow its
instructions and Executive’s failure to cure such refusal not later than 30 days
following his receipt of such notice.
 
For purposes of this definition, no act, or failure to act, on the part of
Executive shall be considered “willful” unless it is done, or omitted to be
done, by Executive in bad faith or without reasonable belief that Executive’s
action or omission was in the best interests of the Company.  Any act, or
failure to act, based upon (A) authority given pursuant to a resolution duly
adopted by the Board or (B) the advice of counsel for the Company shall be
conclusively presumed to be done, or omitted to be done, by Executive in good
faith and in the best interests of the Company.  The cessation of employment of
Executive shall not be deemed to be for Cause unless and until there shall have
been delivered to Executive a copy of a resolution duly adopted by the
affirmative vote of not less than three-quarters of the entire membership of the
Board (excluding Executive, if Executive is a member of the Board) at a meeting
of the Board called and held for such purpose (after reasonable notice is
provided to Executive and Executive is given an opportunity, together with
counsel for Executive, to be heard before the Board), finding that, in the good
faith opinion of the Board, the conditions set forth in clauses (i), (ii), (iii)
or (iv) above have been satisfied, and specifying the particulars thereof in
detail.
 
“Change in Control”  shall mean, except as otherwise provided below, the
occurrence of a “change in the ownership,” a “change in the effective control”
or a “change in the ownership of a substantial portion of the assets” of the
Company.  In determining whether an event shall be considered a “change in the
ownership,” a “change in the effective control” or a “change in the ownership of
a substantial portion of the assets” of the Company, the following provisions
shall apply:
A-1

--------------------------------------------------------------------------------

 
(i)            A “change in the ownership” of the Company shall occur on the
date on which any one person, or more than one person acting as a group,
acquires ownership of stock of the Company that, together with stock held by
such person or group, constitutes more than 50% of the total fair market value
or total voting power of the stock of the Company, as determined in accordance
with Treasury Regulation § 1.409A-3(i)(5)(v).  If a person or group is
considered either to own more than 50% of the total fair market value or total
voting power of the stock of the Company, or to have effective control of the
Company within the meaning of clause (ii) of this definition, and such person or
group acquires additional stock of the Company, the acquisition of additional
stock by such person or group shall not be considered to cause a “change in the
ownership” of the Company.
 
(ii)            A “change in the effective control” of the Company shall occur
on either of the following dates:
 
(A)  The date on which any one person, or more than one person acting as a
group, acquires (or has acquired during the 12-month period ending on the date
of the most recent acquisition by such person or persons) ownership of stock of
the Company possessing 30% or more of the total voting power of the stock of the
Company, as determined in accordance with Treasury Regulation §
1.409A-3(i)(5)(vi).  If a person or group is considered to possess 30% or more
of the total voting power of the stock of the Company, and such person or group
acquires additional stock of the Company, the acquisition of additional stock by
such person or group shall not be considered to cause a “change in the effective
control” of the Company; or
 
(B)  The date on which a majority of the members of the Board is replaced during
any 12-month period by directors whose appointment or election is not endorsed
by a majority of the members of the Board before the date of the appointment or
election, as determined in accordance with Treasury Regulation §
1.409A-3(i)(5)(vi).
 
(iii)            A “change in the ownership of a substantial portion of the
assets” of the Company shall occur on the date on which any one person, or more
than one person acting as a group, acquires (or has acquired during the 12-month
period ending on the date of the most recent acquisition by such person or
persons) assets from the Company that have a total gross fair market value equal
to or more than 40% of the total gross fair market value of all of the assets of
the Company immediately before such acquisition or acquisitions, as determined
in accordance with Treasury Regulation § 1.409A-3(i)(5)(vii).  A transfer of
assets shall not be treated as a “change in the ownership of a substantial
portion of the assets” when such transfer is made to an entity that is
controlled by the shareholders of the Company, as determined in accordance with
Treasury Regulation § 1.409A-3(i)(5)(vii)(B).
 
Notwithstanding the occurrence of any of the foregoing events, an initial public
offering or any bona fide primary or secondary public offering following the
occurrence of an initial public offering shall not constitute a Change in
Control.  Additionally, the ownership of stock by
A-2

--------------------------------------------------------------------------------

Pico Holdings, Inc., or its affiliates, as of and following the initial public
offering shall not constitute a Change of Control.
 
“Good Reason” shall mean any of the following actions, if taken without the
express written consent of Executive:   (i) a material diminution in Executive’s
Base Salary, short-term incentive opportunity, long-term incentive opportunity
or employee benefits; (ii) a material diminution in Executive’s authority,
duties or responsibilities; (iii) requiring Executive to move his place of
employment more than 50 miles from his place of employment prior to such move;
or (iv) a material breach by the Company of this Agreement.  Executive’s
employment with the Company may be terminated for Good Reason if (A) Executive
provides written notice to Company of the occurrence of the Good Reason event
(as described above) within 90 days after Executive has knowledge of the
circumstances constituting Good Reason, which notice shall specifically identify
the circumstances which Executive believes constitute Good Reason, (B)  Company
fails to correct the circumstances constituting “Good Reason” within 30 days
after such notice; and (C) Executive resigns within six months after the initial
existence of such circumstances.
 

 
 
 
 
 
 
 
 
A-3

--------------------------------------------------------------------------------