Exhibit 10.1

 

EXECUTION COPY

 

SETTLEMENT AGREEMENT

 

This AGREEMENT, dated as of March 18, 2016 (this “Agreement”), is made and
entered into by PICO Holdings, Inc., a California corporation (“PICO” or the
“Company”), and each of the other persons set forth on the signature page hereto
(each, an “Investor” and collectively, the “Investors” or “Investor Group”)
which presently are or may be deemed to be members of a “group” with respect to
the common stock of the Company, par value $0.001 per share (the “Common
Stock”), pursuant to Rule 13d-5 promulgated by the U.S. Securities and Exchange
Commission (the “SEC”) under the Securities Exchange Act of 1934, as amended
(the “Exchange Act”);

 

WHEREAS, the Company and the Investor Group have engaged in discussions
regarding the Company’s board composition and its business, financial
performance, and strategic plans;

 

WHEREAS, the Investor Group is deemed to beneficially own shares of the Common
Stock totaling, in the aggregate, 1,407,498 shares or approximately six and one-
tenth of a percent (6.1%) of the Common Stock outstanding as of February 25,
2016; and

 

WHEREAS, the Company and the Investor Group believe that the best interests of
the Company and its shareholders would be served at this time by, among other
things, agreeing to appoint, at the request and recommendation of the Investor
Group, Andrew F. Cates (“New Director A”) and Daniel B. Silvers (“New Director
B,” and, together with New Director A, the “New Directors”) to the Company’s
Board of Directors (the “Board”) and agreeing to the other covenants and
agreements contained herein.

 

NOW, THEREFORE, in consideration of the foregoing premises and the mutual
covenants and agreements contained herein, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto, intending to be legally bound hereby, agree as follows:

 

1.        Board Matters; Board Appointments; Board Policies and Procedures.

 

(a)        Board Matters.

 

(i)        Prior to the execution of this Agreement (i) the Corporate Governance
and Nominating Committee of the Board (the “Nominating Committee”) has reviewed
and approved the qualifications of the New Directors to serve as members of the
Board and (ii) the Board has determined that each of the New Directors are
“independent” as defined by the listing standards of NASDAQ. The Company agrees
that the Board and all applicable committees of the Board shall take all
necessary actions, effective immediately following the execution of this
Agreement, to (i) cause the Board to increase the size of its membership from
seven (7) to nine (9) members; (ii) appoint New Director A as a director of the
Company in Class III with a term expiring at the Company’s 2017 Annual Meeting
of Shareholders (the “2017 Annual Meeting”); (iii) appoint New Director B as a
director of the Company in Class I with a term expiring at the Company’s 2018

 

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Annual Meeting of Shareholders (the “2018 Annual Meeting”); and (iv) cause the
Board to decrease the size of its Class II membership by one, effective upon the
conclusion of the 2016 Annual Meeting of Shareholders (the “2016 Annual
Meeting”), such that only eight (8) directors are serving on the Board upon the
conclusion of the 2016 Annual Meeting of Shareholders; provided that, for the
avoidance of doubt, nothing contained herein shall restrict the Board from
increasing its size or the size of any class at any time thereafter.

 

(ii)       At the 2017 Annual Meeting, the Company agrees to nominate New
Director A (or any replacement for New Director A who has been appointed to the
Board pursuant to Section 1(e) hereof) in the same manner and for the same term
as the Company’s other Class III directors who are up for election at the 2017
Annual Meeting and recommend, support and solicit proxies for the election of
New Director A (or any applicable replacement) in the same manner as the Company
has supported its nominees up for election at prior annual meetings of
shareholders at which the election of directors was uncontested; provided that,
for the avoidance of doubt, if the shareholders of the Company approve, at the
2016 Annual Meeting, a binding proposal from the Company to declassify the Board
such that the Class III directors stand for election at the 2017 Annual Meeting
for a term that expires at the conclusion of the 2018 Annual Meeting, then New
Director A shall stand for election at the 2017 Annual Meeting for a term that
expires at the conclusion of the 2018 Annual Meeting.

 

(iii)      The Company agrees that at any special meeting of shareholders held
during the Standstill Period that seeks the removal of any directors of the
Company, it will recommend, support and solicit proxies against the removal of
the New Directors in the same manner as the Company recommends and solicits
proxies against the removal of the Company’s other directors.

 

(iv)      The Company agrees that the New Directors shall receive (i) the same
benefits of director and officer insurance, and any indemnity and exculpation
arrangements available generally to the directors on the Board, (ii) the same
compensation for their service as directors as the compensation received by
other non-management directors on the Board, and (iii) such other benefits on
the same basis as all other non-management directors on the Board, including,
without limitation, having the Company (or legal counsel) prepare and file with
the SEC, at the Company’s expense, any Forms 3, 4 and 5 under Section 16 of the
Exchange Act that are required to be filed by each director of the Company.

 

(b)        Committees of the Board.

 

(i)        The Company agrees that, concurrent with the New Directors’
appointment to the Board, New Director A shall be appointed as a member of the
Audit Committee and Nominating Committee and New Director B shall be appointed
as a member of the Compensation Committee and Nominating Committee, and shall be
permitted to serve on such committees for at least twelve (12) months from the
date hereof, provided that the New Directors are and continue to remain eligible
to serve in such capacity pursuant to applicable law and the rules of NASDAQ,
and shall be considered along with all other Board members for Board committee
assignments in connection with

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the Board’s annual review of committee composition or upon the formation of any
special committee of the Board.

 

(ii)       Concurrent with the New Directors’ appointment to the Board, the
Board shall form a strategy committee (the “Strategy Committee”) to be composed
of four (4) members of the Board, and New Director A and New Director B shall be
appointed to serve as members of the Strategy Committee and shall be permitted
to serve on such committee for at least twelve (12) months from the date hereof.
The responsibilities of the Strategy Committee shall include monitoring the
Company’s previously announced plans to return capital to shareholders as assets
are monetized with such capital being returned through stock repurchases or
special dividends. During the Standstill Period (as defined below), any action
by the Strategy Committee must be approved by at least three (3) members of the
Strategy Committee.

 

(c)        Board Policies and Procedures. The Investors agree that they shall
cause the New Directors to (i) comply with all policies, processes, procedures,
codes, rules, standards, and guidelines applicable to members of the Board,
including, but not limited to, the Company’s Corporate Governance Guidelines,
Legal and Ethical Conduct Policy, and policies on insider trading, hedging,
pledging, stock ownership, public disclosures and confidentiality, copies of
which are publicly available or have been delivered to the New Directors prior
to the execution of this Agreement, which the Investors acknowledge and confirm
have been delivered to the New Directors, and (ii) strictly preserve the
confidentiality of Company business and information, including the discussion of
any matters considered in meetings of the Board or Board committees whether or
not the matters relate to material non-public information, unless previously
publicly disclosed by the Company. The Investor Group shall provide, and shall
cause the New Directors to provide, the Company with such information as is
reasonably requested by the Company concerning the New Directors and/or the
Investor Group as is required to be disclosed under applicable law or stock
exchange regulations, in each case as promptly as necessary to enable the timely
filing of the Company’s proxy statement and other periodic reports with the SEC.

 

(d)       Resignation. As a condition to commencement of a term on the Board (or
nomination therefor), including, but not limited to, in the case of replacement
directors appointed pursuant to Section 1(e) hereof, the Investors agree that
the New Directors (and any replacements thereof) will resign (and shall be
deemed hereby to have irrevocably agreed to so resign, it being understood that
it shall be in the Board’s sole discretion whether to accept or reject such
resignation) and the Company’s obligations under this Section 1 shall terminate
effective immediately upon such time as (i) any Investor or any Affiliate (as
defined below) or Associate (as defined below) thereof submits a notice of a
nomination of directors for election to the Board or any other shareholder
proposal at any annual or special meeting of shareholders held during the
Standstill Period, (ii) any Investor or any Affiliate or Associate thereof seeks
to call a special meeting of shareholders or take any action by written consent
during the Standstill Period, (iii) any Investor or any Affiliate or Associate
thereof breaches Section 2 of this Agreement, (iv) any Investor (or any New
Director, to the extent that such New Director is an Affiliate or Associate of
any of the Investors) otherwise violates Section 3 hereof, or (v)

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any Investor or any Affiliate or Associate thereof otherwise breaches this
Agreement in any material respect not referred to in the preceding Section
1(d)(i), Section 1(d)(ii), Section 1(d)(iii) or Section 1(d)(iv). In connection
with any alleged breach or violation of the type referred to in Section 1(d)(iv)
or Section 1(d)(v), the Company shall first provide written notice to the
Investors of such alleged breach or violation and to the extent such alleged
breach or violation is curable, any such resignation of the New Directors (and
any replacements thereof) or termination of the Company’s obligations under this
Section 1 shall only become effective if such alleged breach or violation has
not been cured within fifteen (15) calendar days after the Investors receive
written notice from the Company of such alleged breach or violation. If the
Investors, in good faith, dispute any alleged breach or violation of the type
referred to in Section 1(d)(iv) or Section 1(d)(v), any such resignation of the
New Directors (and any replacements thereof) or termination of the Company’s
obligations under this Section 1 shall not become effective until (i) the
Investors agree not to dispute such breach or violation or (ii) a court of
competent jurisdiction in a final judgment on the merits (whether or not subject
to appeal) has confirmed or determined the existence of such breach or
violation; provided that any decision by the Investors to dispute such alleged
breach or violation shall be made in good faith and with the good faith belief
that a reasonable basis exists that they did not breach or violate this
Agreement as alleged by the Company. In furtherance of this Section 1(d), the
New Directors and any replacement directors appointed in accordance with Section
1(e) below, as a condition to being appointed or nominated to the Board pursuant
hereto, shall execute and deliver to the Company an irrevocable advance letter
of resignation in the form attached hereto as Exhibit A.

 

(e)        Replacements.

 

(i)        The Company agrees that if either of the New Directors (other than as
a result of either (i) in accordance with the terms of this Agreement, not being
nominated to serve as a director at an annual meeting of shareholders or special
meeting of shareholders held in lieu thereof, or (ii) ceasing to serve as a
director under the circumstances contemplated by Section 1(d) hereof) is unable
to serve as a director for any reason, resigns as a director, or is removed as a
director prior to the end of the term of office set forth above during the
Standstill Period (as defined below), and at such time the Investor Group
beneficially owns in the aggregate at least five percent (5.0%) of the Company’s
then outstanding Common Stock (subject to adjustment for share issuances, stock
splits, reclassifications, combinations and similar actions by the Company that
increase the number of outstanding shares of Common Stock), then the Investor
Group shall have the ability to recommend a substitute person.

 

(ii)       Any substitute person recommended by the Investor Group pursuant to
Section 1(e)(i) above shall be reasonably acceptable to the Nominating Committee
and shall qualify as “independent” pursuant to NASDAQ’s listing standards and
have the relevant financial and business experience to fill the resulting
vacancy. The Nominating Committee shall make its determination and
recommendation regarding whether such person is reasonably acceptable and meets
the foregoing criteria within twenty (20) business days after representatives of
the Board have conducted interview(s) of such director candidate. The Company
shall use its reasonable best efforts to cause any

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interview(s) contemplated by this Section 1(e) to be conducted as promptly as
practicable, but in any case, assuming reasonable availability of the proposed
director candidate, within twenty (20) business days after the Investor Group’s
submission of such director candidate’s credentials, including, but not limited
to, a completed copy of the Company’s standard director and officer
questionnaire and the Investors agreeing to make any such person available for
an in-person interview with the Nominating Committee and other representatives
of the Board as determined by the Board.

 

(iii)      In the event that the Nominating Committee does not accept a
substitute person recommended by the Investor Group pursuant to Section 1(e)(i)
above, then the Investor Group shall have the right to recommend an additional
substitute person for consideration by the Nominating Committee in accordance
with the procedures described above.

 

(iv)      Upon acceptance of a replacement director candidate by the Nominating
Committee, and the agreement by such replacement director candidate that such
candidate will resign (and shall be deemed hereby to have irrevocably agreed to
so resign, it being understood that it shall be in the Board’s sole discretion
whether to accept or reject such resignation) pursuant to Section 1(d) hereof
and, in furtherance thereof, such candidate provides the Company with an
executed irrevocable advance letter of resignation in the form attached hereto
as Exhibit A, the Board shall take such actions as to appoint such replacement
director candidate to the Board no later than ten (10) business days after the
Nominating Committee’s recommendation; provided, however, that if the Board does
not elect such replacement director candidate to the Board pursuant to this
Section 1(e), the Company and the Investor Group shall continue to follow the
procedures of this Section 1(e) until a replacement director candidate is
elected to the Board. Following the appointment of any director to replace a New
Director in accordance with this Section 1(e), any reference to New Director
herein shall be deemed to include such replacement director.

 

(v)       Any replacement director appointed to the Board in accordance with
this Section 1(e) shall be appointed to any applicable committees of the Board
of which the replaced director was a member immediately prior to such director’s
resignation or removal and the Investors shall cause such replacement director
to comply with the terms and conditions applicable to a New Director under this
Agreement, including, but not limited to, Section 1(c) and Section 1(d) hereof;
provided, however, that in the event the replacement director is found in the
reasonable judgment of the Nominating Committee to be an Affiliate or Associate
of any Investor, such replacement director will be required to execute a
document confirming that he or she will be legally bound by the terms and
conditions of this Agreement applicable to any Affiliate or Associate of any
Investor including, but not limited to, Section 1(c), Section 1(d), Section 2,
Section 3 and Section 7(a) hereof.

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2.        Voting Agreement.

 

(a)        Shareholder Meetings.

 

(i)        At each annual and special meeting of shareholders held prior to the
expiration of the Standstill Period (as defined below), each of the Investors
agrees to, and shall cause their Affiliates and Associates to, (A) appear at
such shareholders’ meeting or otherwise cause all shares of Common Stock
beneficially owned by each Investor and their respective Affiliates and
Associates to be counted as present thereat for purposes of establishing a
quorum; (B) vote, or cause to be voted, all shares of Common Stock beneficially
owned by each Investor and their respective Affiliates and Associates on the
Company’s proxy card or voting instruction form in favor of (1) each of the
nominees for election as directors nominated by the Board and recommended by the
Board (and not in favor of any other nominees to serve on the Board) and in any
election of directors where cumulative voting is permitted, shall cumulate votes
for any or all of the nominees for election as directors nominated by the Board
and recommended by the Board in accordance with the instructions of the Board;
and (2) except in connection with any Opposition Matter (as defined below), each
of the shareholder proposals listed on the Company’s proxy card or voting
instruction form as identified in the Company’s proxy statement in accordance
with the Board’s recommendations, including in favor of all matters recommended
by the Board for shareholder approval and against all matters which the Board
recommends against shareholder approval; and (C) not execute any proxy card or
voting instruction form in respect of such shareholders’ meeting other than the
proxy card and related voting instruction form being solicited by or on behalf
of the Company or the Board. For purposes of this Agreement, “Opposition Matter”
shall mean any of the following transactions proposed by the Company for
approval by its shareholders, but only to the extent that such transaction is
required to be submitted by the Board to the Company’s shareholders for approval
under the California Corporations Code, as amended, and/or applicable NASDAQ
rules: (A) the sale or transfer of all or substantially all of the Company’s
assets in one or a series of transactions; (B) the sale or transfer of a
majority of the outstanding shares of the Company’s Common Stock (through a
merger, stock purchase, or otherwise); (C) any merger, consolidation,
acquisition of control or other business combination; (D) any tender or exchange
offer; (E) any dissolution, liquidation, or reorganization; (F) any changes in
the Company’s capital structure (but excluding any proposal to increase the
Company’s authorized capital stock, and also any proposal regarding adoption or
amendment of equity plans, all of which shall not be deemed an Opposition Matter
for purposes of this Agreement); (G) any transactions that would result in a
change in control of the Company; or (H) any debt or equity financings.

 

(ii)       Without limiting Section 2(a)(i) above, with respect to any proposal
proposed for consideration at any meeting of the Company’s shareholders by Leder
Holdings, LLC, LH Brokerage, LLC, Leder Holdings Opportunity Fund LLC, Sean M.
Leder and/or any Affiliate or Associate thereof (collectively, the “Leder
Group”), prior to the expiration of the Standstill Period, each of the Investors
agrees to, and shall cause each of their respective Affiliates and Associates
to, take all necessary action to cause any of their shares of Common Stock
beneficially owned by such Investor or any of their respective Affiliates or
Associates to be voted (i) in accordance with the recommendation

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of the Board, and (ii) solely on the proxy card or voting instruction form
solicited by or behalf of the Company or the Board.

 

(iii)      No later than five (5) business days prior to each annual or special
meeting of shareholders held prior to the expiration of the Standstill Period,
each Investor shall, and shall cause each of its Associates and Affiliates to,
vote any shares of Common Stock beneficially owned by such Investors or any of
their respective Affiliates or Associates in accordance with this Section 2.

 

(iv)     No Investor nor any of its Affiliates or Associates nor any person
under its direction or control shall take any position, make any statement or
take any action inconsistent with this Section 2(a).

 

(b)        Actions By Written Consent.

 

(i)        In connection with any action by written consent that is sought to be
taken by any party, other than the Company or the Board, prior to the expiration
of the Standstill Period (as defined below), each of the Investors agrees not
to, and shall cause their respective Affiliates and Associates not to, vote and
shall take all necessary action, including, without limitation, the execution
and completion of any consent revocation card solicited by the Company or the
Board, in accordance with the recommendation of the Board, to cause not to be
voted, any of their shares of Common Stock beneficially owned by each Investor
and/or their respective Affiliates and Associates on any consent card solicited
by any party, other than the Company or the Board.

 

(ii)       Without limiting Section 2(b)(i) above, with respect to any action by
written consent proposed or sought to be taken by the Leder Group and/or any
Affiliate or Associate thereof prior to the expiration of the Standstill Period,
each of the Investors agrees to, and shall cause their respective Affiliates and
Associates to, take all necessary action, including, but not limited to, the
execution and completion of the Company’s consent revocation card in accordance
with the recommendation of the Board, to cause any of their shares of Common
Stock beneficially owned by such Investor not to be voted for any action by
written consent proposed or sought to be taken by the Leder Group and/or any
Affiliate or Associate thereof.

 

(iii)      No Investor nor any of its Affiliates or Associates nor any person
under its direction or control shall take any position, make any statement or
take any action inconsistent with this Section 2(b).

 

(c)        Special Meeting Demands.

 

(i)       In connection with any demand by a shareholder of the Company that the
Company call a special meeting of shareholders, made prior to the expiration of
the Standstill Period (as defined below), each of the Investors agrees not to,
and shall cause their respective Affiliates and Associates not to, vote and
shall take all necessary action, including, but not limited to, the execution
and completion of any consent revocation card solicited by the Company or the
Board in accordance with the recommendation of the Board, to cause not to be
voted, any of their shares of Common

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Stock beneficially owned by each Investor and/or their respective Affiliates and
Associates for any special meeting demand proposed or sought to be made by any
party.

 

(ii)      Without limiting Section 2(c)(i) above, with respect to any special
meeting demand proposed or sought to be made by the Leder Group and/or any
Affiliate or Associate thereof prior to the expiration of the Standstill Period,
each of the Investors agrees to, and shall cause their respective Affiliates and
Associates to, take all necessary action, including, but not limited to, the
execution and completion of the Company’s consent revocation card in accordance
with the recommendation of the Board, to cause any of their shares of Common
Stock beneficially owned by such Investor or any of their respective Affiliates
or Associates not to be voted for any special meeting demand proposed or sought
to be made by the Leder Group and/or any Affiliate or Associate thereof.

 

(iii)      No Investor nor any of its Affiliates or Associates nor any person
under its direction or control shall take any position, make any statement or
take any action inconsistent with this Section 2(c).

 

(d)       No Other Voting Agreements. Each Investor represents and warrants to
the Company that such Investor, and any Affiliate or Associate thereof, has not,
prior to or on the date of this Agreement, with respect to the shares of Common
Stock listed on Exhibit B, executed or delivered any proxy, consent card or
voting instruction form or entered into any voting agreement, commitment or
similar arrangement with any person, including, but not limited to, the Leder
Group.

 

3.        Standstill.

 

(a)       Each Investor agrees that, from the date of this Agreement until the
expiration of the Standstill Period (as defined below), without the prior
written consent of a majority of the Board specifically expressed in a written
resolution, neither it nor any of its Related Persons (as defined herein) nor
any other persons acting under the control or direction of any of the Investors,
will, and it will cause each of its Affiliates, Associates and such other
persons under its control not to, directly or indirectly, alone or in concert
with others, in any manner:

 

(i)       propose or publicly announce or otherwise disclose an intent to
propose or enter into or agree to enter into, singly or with any other person,
directly or indirectly, (x) any form of business combination or acquisition or
other transaction relating to a material amount of assets or securities of the
Company or any of its subsidiaries, (y) any form of restructuring,
recapitalization or similar transaction with respect to the Company or any of
its subsidiaries or (z) any form of tender or exchange offer for the Common
Stock, whether or not such transaction involves a change of control of the
Company;

 

(ii)      engage in any solicitation of proxies or written consents to vote any
voting securities of the Company, or conduct any non-binding referendum with
respect to any voting securities of the Company, or assist or participate in any
other way,

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directly or indirectly, in any solicitation of proxies or written consents with
respect to any voting securities of the Company, or otherwise become a
“participant” in a “solicitation,” as such terms are defined in Instruction 3 of
Item 4 of Schedule 14A and Rule 14a-1 of Regulation 14A, respectively, under the
Exchange Act, to vote any securities of the Company in opposition to any
recommendation or proposal of the Board;

 

(iii)      acquire, offer or propose to acquire, or agree to acquire, directly
or indirectly, whether by purchase, tender or exchange offer, through the
acquisition of control of another person, by joining a partnership, limited
partnership, syndicate or other group (including any group of persons that would
be treated as a single “person” under Section 13(d) of the Exchange Act),
through swap or hedging transactions or otherwise, any (A) interests in any of
the Company’s indebtedness, or (B) economic ownership of any Common Stock
(including any rights decoupled from the underlying securities of the Company)
representing in the aggregate (amongst all of the Investors and any Affiliate or
Associate thereof) in excess of 10% of the shares of Common Stock outstanding;

 

(iv)      seek to advise, encourage or influence any person with respect to the
voting of (or execution of a written consent in respect of) or disposition of
any securities of the Company, other than in a manner in accordance with a
recommendation made by the Board;

 

(v)      sell, offer or agree to sell directly or indirectly, through swap or
hedging transactions or otherwise, the securities of the Company or any rights
decoupled from the underlying securities held by the Investors to any person or
entity not an (A) party to this Agreement, (B) member of the Board, (C) officer
of the Company, or (D) an Affiliate or Associate of the Investors (any person or
entity not set forth in clauses (A)-(D) shall be referred to as a “Third Party”)
that would knowingly result in such Third Party, together with its Affiliates
and Associates, owning, controlling or otherwise having any, beneficial,
economic or other ownership interest representing in the aggregate in excess of
5.0% of the shares of Common Stock outstanding at such time;

 

(vi)     knowingly, intentionally, purposefully, or willfully sell, offer or
agree to sell directly or indirectly, through swap or hedging transactions or
otherwise, the securities of the Company or any rights decoupled from the
underlying securities held by the Investors to any member of the Leder Group or
any Affiliate or Associate thereof;

 

(vii)     engage in any short sale or any purchase, sale or grant of any option,
warrant, convertible security, stock appreciation right, or other similar right
(including, without limitation, any put or call option or “swap” transaction)
with respect to any security (other than a broad-based market basket or index)
that includes, relates to or derives any significant part of its value from a
decline in the market price or value of the securities of the Company;

 

(viii)     take any action in support of or make any proposal or request that
constitutes: (A) advising, controlling, changing or influencing the Board or

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management of the Company, including any plans or proposals to change the number
or term of directors or to fill any vacancies on the Board, except as set forth
in this Agreement, (B) any material change in the capitalization, stock
repurchase programs and practices or dividend policy of the Company, (C) any
other material change in the Company’s management, business or corporate
structure, (D) seeking to have the Company waive or make amendments or
modifications to the Company’s Restated Articles of Incorporation or Bylaws, or
other actions that may impede or facilitate the acquisition of control of the
Company by any person, (E) causing a class of securities of the Company to be
delisted from, or to cease to be authorized to be quoted on, any securities
exchange; or (F) causing a class of securities of the Company to become eligible
for termination of registration pursuant to Section 12(g)(4) of the Exchange
Act;

 

(ix)      initiate, propose or otherwise “solicit” shareholders of the Company
for the approval of any shareholder proposals (whether pursuant to Rule 14a-8
under the Exchange Act or otherwise);

 

(x)       communicate with shareholders of the Company or others pursuant to
Rule 14a-1(l)(2)(iv) under the Exchange Act;

 

(xi)      engage in any course of conduct with the purpose of causing
shareholders of the Company to vote contrary to the recommendation of the Board
on any matter presented to the Company’s shareholders for their vote at any
meeting of the Company’s shareholders;

 

(xii)      otherwise publicly act to seek to control or influence the
management, the Board, or policies of the Company or initiate or take any action
to obtain representation on the Board, except as permitted expressly by this
Agreement;

 

(xiii)     call or seek to call, or request the call of, alone or in concert
with others, any meeting of shareholders, whether or not such a meeting is
permitted by the Company’s Restated Articles of Incorporation or Bylaws,
including, but not limited to, a “town hall meeting;”

 

(xiv)    acquire or agree, offer, seek or propose to acquire, or cause to be
acquired, ownership (including beneficial ownership) of any of the assets or
business of the Company or any rights or options to acquire any such assets or
business from any person; provided, however, that for the avoidance of doubt,
the term “assets” used in this Section 3(a)(xiv) does not include Common Stock;

 

(xv)      seek election to the Board or seek to place a representative on the
Board;

 

(xvi)     seek the removal of any director from the Board;

 

(xvii)    deposit any Common Stock in any voting trust or subject any Common
Stock to any arrangement or agreement with respect to the voting of any Common
Stock;

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(xviii)  seek, or encourage any person, to submit nominations in furtherance of
a “contested solicitation” for the election or removal of directors with respect
to the Company or seek, encourage or take any other action with respect to the
election or removal of any directors of the Company; provided, however, that
nothing in this Agreement shall prevent the Investors or their Affiliates or
Associates from taking actions, during the sixty (60) days prior to the
expiration of the advance notice period for the submission by shareholders of
director nominations (as set forth in the advance notice provisions of the
Company’s Bylaws) for consideration at the 2018 Annual Meeting, in furtherance
of identifying director candidates, solely to be nominated by the Investors, in
connection with such annual meeting, so long as such actions do not create a
public disclosure obligation for the Investors or the Company and are not
publicly disclosed by the Investors or their Affiliates or Associates and are
undertaken on a basis reasonably designed to be confidential and in accordance
in all material respects with the Investors’ normal practices in the
circumstances;

 

(xix)     form, join or in any other way participate in any “group” (within the
meaning of Section 13(d)(3) of the Exchange Act) with respect to the Common
Stock (other than the Investor Group); provided, however, that nothing herein
shall limit the ability of an Affiliate of the Investor Group to join the
“group” following the execution of this Agreement, so long as any such Affiliate
agrees to be bound in writing by the terms and conditions of this Agreement and
such Affiliate has been disclosed in a Schedule 13D Amendment filed by the
Investor Group within two (2) business days disclosing that the Investor has
formed a group with such Affiliates;

 

(xx)      take any action that would be deemed, pursuant to this Agreement, to
be acting as a “group” (within the meaning of Section 13(d)(3) of the Exchange
Act) with another person relating to any action prohibited by this Section 3,
including, without limitation, changing or influencing the control of the
Company, or in connection with or as a participant in any transaction having
that purpose or effect;

 

(xxi)     demand a copy of the Company’s list of shareholders or its other books
and records, whether pursuant to any provisions of the California Corporations
Code or otherwise;

 

(xxii)    commence, encourage, or support any derivative action in the name of
the Company, or any class action against the Company or any of its officers or
directors; provided, however, that for the avoidance of doubt, the foregoing
shall not prevent any Investor from (A) bringing litigation to enforce the
provisions of this Agreement, (B) making counterclaims with respect to any
proceeding initiated by, or on behalf of, the Company against an Investor, or
(C) exercising statutory dissenters, appraisal or similar rights under the
California Corporations Code; provided, further, that the foregoing shall also
not prevent the Investors from responding to or complying with a validly issued
legal process in connection with litigation that it did not initiate, invite,
facilitate or encourage, except as otherwise permitted in this Section
(3)(a)(xxii);

 

(xxiii)   disclose publicly or privately, in a manner that could reasonably be
expected to become public any intent, purpose, plan or proposal with respect

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to the Board, the Company, its management, policies or affairs, any of its
securities or assets or this Agreement that is inconsistent with the provisions
of this Agreement;

 

(xxiv)   enter into any discussions, negotiations, agreements or understandings
with any person or entity with respect to any of the foregoing, or advise,
assist, knowingly encourage or seek to persuade any person or entity to take any
action or make any statement with respect to any of the foregoing, or otherwise
take or cause any action or make any statement inconsistent with any of the
foregoing;

 

(xxv)    make any request or submit any proposal to amend the terms of this
Section 3 other than through non-public communications with the Company that
would not be reasonably determined to trigger public disclosure obligations for
any party;

 

(xxvi)   take any action challenging the validity or enforceability of any of
the provisions of this Section 3 or publicly disclose, or cause or facilitate
the public disclosure (including, without limitation, the filing of any document
with the SEC or any other governmental agency or any disclosure to any
journalist, member of the media or securities analyst) of, any intent, purpose,
plan or proposal to either (A) obtain any waiver or consent under, or any
amendment of, any provision of this Agreement, or (B) take any action
challenging the validity or enforceability of any provisions of this Section 3;

 

(xxvii)  take any action that could reasonably be expected to force the Company
to make any public disclosure with respect to any of the foregoing; or

 

(xxviii)  otherwise take, or solicit, cause or encourage others to take, any
action inconsistent with the foregoing.

 

(b)       The provisions of this Section 3 shall not limit in any respect the
actions of any director of the Company in his or her capacity as such,
recognizing that such actions are subject to such director’s fiduciary duties to
the Company and its shareholders (it being understood and agreed that neither
the Investors nor any of their Affiliates or Associates shall seek to do
indirectly through the New Directors anything that would be prohibited if done
by any of the Investors or their Affiliates and Associates directly). The
provisions of this Section 3 shall also not prevent the Investor Group from
freely voting its shares of Common Stock (except as otherwise provided in
Section 2 hereto) or taking any actions as specifically contemplated in Section
1 hereto.

 

(c)       As of the date of this Agreement, none of the Investors, nor any of
their respective Affiliates or Associates, are aware of any actions seeking to
change the composition of the Board, the governance or management of the Company
or which actions, if taken by the Investors following the execution of this
Agreement, would violate any of the terms hereof, other than any actions that
have been publicly disclosed as of the date of this Agreement, by any person,
including, but not limited to, any member of the Leder Group, and none of the
Investors, nor any of their respective Affiliates or Associates, are engaged in
any discussions or negotiations, or have any agreements, arrangements or
understandings, written or oral, formal or informal, whether or not legally
enforceable, with any person, including, but not limited to, any member of the
Leder Group, with

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respect to any such actions or the acquisition of economic ownership of any
securities of the Company, and none of the Investors, nor any of their
respective Affiliates or Associates, have any actual and non-public knowledge
that any other shareholders of the Company, including, but not limited to, any
member of the Leder Group, have any present or future intention of taking any
actions, which actions, if taken by the Investors following the execution of
this Agreement, would violate any of the terms hereof, other than any such
actions that have been publicly disclosed as of the date of this Agreement. The
Investors agree to, and shall cause their respective Affiliates and Associates
to, refrain from taking any actions during the Standstill Period to
intentionally encourage or facilitate other shareholders of the Company or any
other persons, including, but not limited to, any member of the Leder Group, to
engage, directly or indirectly, in any of the actions that if taken by the
Investors or any of their respective Affiliates or Associates would violate any
of the terms of this Agreement.

 

(d)       As used in this Agreement, the terms “Affiliate” and “Associate” shall
have the respective meanings set forth in Rule 12b-2 promulgated by the SEC
under the Exchange Act; the terms “beneficial owner” and “beneficial ownership”
shall have the same meanings as set forth in Rule 13d-3 promulgated by the SEC
under the Exchange Act; the terms “economic owner” and “economically own” shall
have the same meanings as “beneficial owner” and “beneficially ownership,”
except that a person will also be deemed to economically own and to be the
economic owner of (i) all shares of Common Stock which such person has the right
to acquire pursuant to the exercise of any rights in connection with any
securities or any agreement, regardless of when such rights may be exercised and
whether they are conditional, and (ii) all shares of Common Stock in which such
person has any economic interest, including, without limitation, pursuant to a
cash settled call option or other derivative security, contract or instrument in
any way related to the price of shares of Common Stock; the terms “person” or
“persons” shall mean any individual, corporation (including not-for-profit),
general or limited partnership, limited liability company, joint venture,
estate, trust, association, organization or other entity of any kind or nature;
and the term “Related Person” shall mean, as to any person, any Affiliates or
Associates of such person.

 

(e)         Notwithstanding anything contained in this Agreement to the
contrary:

 

(i)       The provisions of Sections 1, 2, and 3 of this Agreement shall
automatically terminate upon the occurrence of a Change of Control transaction
(as defined below) involving the Company if the acquiring or counter-party to
the Change of Control transaction has conditioned the closing of the transaction
on the termination of such sections; provided, however, that the Company shall
not directly or indirectly, propose, seek, encourage or otherwise influence such
acquiring or counter-party to the Change of Control transaction to condition the
closing of such transaction on the termination of Sections 1, 2, and 3 of this
Agreement; and

 

(ii)       For purposes of this Agreement, a “Change of Control” transaction
shall be deemed to have taken place if (1) any person is or becomes a beneficial
owner, directly or indirectly, of securities of the Company representing more
than 50% of

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the equity interests and voting power of the Company’s then outstanding equity
securities or (2) the Company enters into a stock-for-stock transaction whereby
immediately after the consummation of the transaction the Company’s shareholders
retain less than 50% of the equity interests and voting power of the surviving
entity’s then outstanding equity securities.

 

(f)        For purposes of this Agreement, “Standstill Period” shall mean the
period commencing on the date of this Agreement and ending at 11:59 p.m.,
Pacific Time, on the date that is the earlier of (x) ten (10) calendar days
prior to the expiration of the advance notice period for the submission by
shareholders of director nominations for consideration at the 2018 Annual
Meeting (as set forth in the advance notice provisions of the Company’s Bylaws)
and (y) one hundred (100) calendar days prior to the first anniversary of the
2017 Annual Meeting.

 

4.       Expenses. Each of the Company and the Investors shall be responsible
for its own fees and expenses incurred in connection with the negotiation,
execution, and effectuation of this Agreement and the transactions contemplated
hereby, including, but not limited to attorneys’ fees incurred in connection
with the negotiation and execution of this Agreement and all other activities
related to the foregoing; provided, however, that the Company shall reimburse
the Investor Group for reasonable legal fees and expenses as actually incurred
in connection with the matters related to seeking Board representation at the
Company, the matters related to the 2016 Annual Meeting, the filing of a
Schedule 13D amendment in connection with this Agreement and the negotiation and
execution of this Agreement in an amount not to exceed $100,000.

 

5.        Representations and Warranties of the Company. The Company represents
and warrants to the Investors that (a) the Company has the corporate power and
authority to execute the Agreement and to bind it thereto, (b) this Agreement
has been duly and validly authorized, executed and delivered by the Company,
constitutes a valid and binding obligation and agreement of the Company, and is
enforceable against the Company in accordance with its terms, except as
enforcement thereof may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, fraudulent conveyance or similar laws generally
affecting the rights of creditors and subject to general equity principles and
(c) the execution, delivery and performance of this Agreement by the Company
does not and will not violate or conflict with (i) any law, rule, regulation,
order, judgment or decree applicable to it, or (ii) result in any breach or
violation of or constitute a default (or an event which with notice or lapse of
time or both could become a default) under or pursuant to, or result in the loss
of a material benefit under, or give any right of termination, amendment,
acceleration or cancellation of, any organizational document, or any material
agreement, contract, commitment, understanding or arrangement to which the
Company is a party or by which it is bound.

 

6.        Representations and Warranties of the Investors. Each Investor, on
behalf of itself, severally represents and warrants to the Company that (a) as
of the date hereof, such Investor beneficially owns, directly or indirectly,
only the number of shares of Common Stock as described opposite its name on
Exhibit B and Exhibit B includes all Affiliates and Associates of any Investors
that own any securities of the Company beneficially or of record and reflects
all shares of Common Stock in which the Investors have any interest or right to

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acquire, whether through derivative securities, voting agreements or otherwise,
(b) this Agreement has been duly and validly authorized, executed and delivered
by such Investor, and constitutes a valid and binding obligation and agreement
of such Investor, enforceable against such Investor in accordance with its
terms, except as enforcement thereof may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium, fraudulent conveyance or similar laws
generally affecting the rights of creditors and subject to general equity
principles, (c) such Investor has the authority to execute the Agreement on
behalf of itself and the applicable Investor associated with that signatory’s
name, and to bind such Investor to the terms hereof, (d) each of the Investors
shall use its commercially reasonable efforts to cause its respective
Affiliates, Associates, officers, directors and other Investor Agents (as
defined below), including each to comply with the terms of this Agreement and
(e) the execution, delivery and performance of this Agreement by such Investor
does not and will not violate or conflict with (i) any law, rule, regulation,
order, judgment or decree applicable to it, or (ii) result in any breach or
violation of or constitute a default (or an event which with notice or lapse of
time or both could become a default) under or pursuant to, or result in the loss
of a material benefit under, or give any right of termination, amendment,
acceleration or cancellation of, any organizational document, agreement,
contract, commitment, understanding or arrangement to which such member is a
party or by which it is bound.

 

7.        Mutual Non-Disparagement.

 

(a) Each Investor agrees that, until the earlier of (i) the expiration of the
Standstill Period and (ii) any material breach of this Agreement by the Company
(provided that the Company shall have three (3) business days following written
notice from such Investor of material breach to remedy such material breach if
capable of remedy), neither it nor any of its Affiliates or Associates will, and
it will cause each of its Affiliates and Associates not to, directly or
indirectly, publicly make, express, transmit, speak, write, verbalize or
otherwise publicly communicate in any way (or cause, further, assist, solicit,
encourage, support or participate in any of the foregoing), any remark, comment,
message, information, declaration, communication or other statement of any kind,
whether verbal or in writing, that might reasonably be construed to be
derogatory or critical of, or negative toward, the Company or any of its
directors, officers, Affiliates, Associates, subsidiaries, employees, agents or
representatives (collectively, the “Company Representatives”), or that reveals,
discloses, incorporates, is based upon, discusses, includes or otherwise
involves any confidential or proprietary information of the Company or its
subsidiaries or Affiliates or Associates, or to malign, harm, disparage, defame
or damage the reputation or good name of the Company, its business or any of the
Company Representatives.

 

(b)       The Company hereby agrees that, until the earlier of (i) the
expiration of the Standstill Period and (ii) any material breach of this
Agreement by an Investor (provided that such Investor shall have three (3)
business days following written notice from the Company of material breach to
remedy such material breach if capable of remedy), neither it nor any of its
Affiliates will, and it will cause each of its Affiliates not to, directly or
indirectly, publicly make, express, transmit, speak, write, verbalize or
otherwise publicly communicate in any way (or cause, further, assist, solicit,
encourage, support or participate in any of the foregoing), any remark, comment,
message, information, declaration, communication or other statement of any kind,
whether verbal or in writing, that might

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reasonably be construed to be derogatory or critical of, or negative toward, the
Investors or their Affiliates or Associates or any of their agents or
representatives (collectively, the “Investor Agents”), or that reveals,
discloses, incorporates, is based upon, discusses, includes or otherwise
involves any confidential or proprietary information of any Investor or its
Affiliates or Associates, or to malign, harm, disparage, defame or damage the
reputation or good name of any Investor, its business or any of the Investor
Agents.

 

(c)        Notwithstanding the foregoing, nothing in this Section 7 or elsewhere
in this Agreement shall prohibit any party from making any statement or
disclosure required under the federal securities laws or other applicable laws;
provided, that such party must provide written notice to the other parties at
least two business days prior to making any such statement or disclosure
required under the federal securities laws or other applicable laws that would
otherwise be prohibited by the provisions of this Section 7, and reasonably
consider any comments of such other parties.

 

(d)        The limitations set forth in Section 7(a) and 7(b) shall not prevent
any party from responding to any public statement made by the other party of the
nature described in Section 7(a) and 7(b) if such statement by the other party
was made in breach of this Agreement.

 

8.        Public Announcements. Promptly following the execution of this
Agreement, the Company and the Investor Group shall issue a mutually agreeable
press release (the “Press Release”) announcing this Agreement, substantially in
the form attached hereto as Exhibit C. Prior to the issuance of the Press
Release, neither the Company nor any of the Investors shall issue any press
release or make any public announcement regarding this Agreement or take any
action that would require public disclosure thereof without the prior written
consent of the other party. No party or any of its Affiliates or Associates
shall make any public statement (including, without limitation, in any filing
required under the Exchange Act) concerning the subject matter of this Agreement
inconsistent with the Press Release.

 

9.        SEC Filings.

 

(a)        No later than two (2) business days following the execution of this
Agreement, the Company shall file a Current Report on Form 8-K with the SEC
reporting entry into this Agreement and appending or incorporating by reference
this Agreement as an exhibit thereto.

 

(b)        No later than two (2) business days following the execution of this
Agreement, the Investor Group shall file an amendment to its Schedule 13D with
respect to the Company that has been filed with the SEC, reporting the entry
into this Agreement, amending applicable items to conform to their obligations
hereunder and appending or incorporating by reference this Agreement as an
exhibit thereto. Except for amendments to the Schedule 13D filed by the Investor
Group made solely to report material changes to the information contained
therein, including a change in the level of ownership of Common Stock and the
entry into this Agreement and the issuance of the Press Release, none of the
Investors or the New Directors shall, during the Standstill Period, (i) issue a
press release in connection with this Agreement or the actions contemplated
hereby or (ii) otherwise make

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any public statement, disclosure or announcement with respect to this Agreement
or the actions contemplated hereby, in each case without the prior written
consent of the Company, with such consent to be approved by a vote of a majority
of the Board’s entire membership, unless required by applicable law.

 

10.      Specific Performance. Each of the Investors, on the one hand, and the
Company, on the other hand, acknowledges and agrees that irreparable injury to
the other party hereto may occur in the event any of the provisions of this
Agreement are not performed in accordance with their specific terms or are
otherwise breached and that such injury would not be adequately compensable in
monetary damages. It is accordingly agreed that the Investors or any Investor,
on the one hand, and the Company, on the other hand (the “Moving Party”), shall
each be entitled to seek specific enforcement of, and injunctive or other
equitable relief to prevent any violation of, the terms hereof, and the other
party hereto will not take action, directly or indirectly, in opposition to the
Moving Party seeking such relief on the grounds that any other remedy or relief
is available at law or in equity.

 

11.      Notice. Any notices, consents, determinations, waivers or other
communications required or permitted to be given under the terms of this
Agreement must be in writing and will be deemed to have been delivered: (i) upon
receipt, when delivered personally; (ii) upon receipt, when sent by facsimile
(provided confirmation of transmission is mechanically or electronically
generated and kept on file by the sending party); or (iii) one (1) business day
after deposit with a nationally recognized overnight delivery service, in each
case properly addressed to the party to receive the same. The addresses and
facsimile numbers for such communications shall be:

 

If to the Company:

 

PICO Holdings, Inc.

7979 Ivanhoe Avenue, Suite 300

La Jolla, CA 92037

Fax No.: 858-456-6480

Email: mwebb@picoholdings.com

Attention: Maxim C. W. Webb, Executive Vice President, Chief Financial Officer,
Treasurer & Corporate Secretary

 

With copies (which shall not constitute notice) to:

 

Morgan, Lewis & Bockius LLP

1111 Pennsylvania Avenue, NW

Washington, DC 20004

Fax No.: 202-739-3001

Email: kgottfried@morganlewis.com

Attention: Keith E. Gottfried, Esq.

 

and

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Cooley LLP

4401 Eastgate Mall

San Diego, CA 92121-1909

Fax No.: 858.550.6420

Email: jkent@cooley.com

Attention: Jason L. Kent, Esq.

 

If to any Investor:

 

Central Square Management LLC

1813 N. Mill Street, Suite F

Naperville, IL 60563

Fax No.: (630) 210-8927

Email: kelly.cardwell@csquarecapital.com

Attention: Kelly Cardwell, Managing Member

 

With copies (which shall not constitute notice) to:

 

Olshan Frome Wolosky LLP

65 East 55th Street, Park Avenue Tower

New York, NY 10022

Fax No.: (212) 451-2333

E-mail: swolosky@olshanlaw.com

mreda@olshanlaw.com

Attention: Steve Wolosky, Esq.

Meagan Reda, Esq.

 

12.      Governing Law. This Agreement shall be governed in all respects,
including validity, interpretation, and effect, by, and construed in accordance
with, the laws of the State of California executed and to be performed wholly
within the State of California, without giving effect to the choice of law or
conflict of law principles thereof or of any other jurisdiction.

 

13.      Jurisdiction. Each of the parties hereto (a) consents to submit itself
to the personal jurisdiction of federal or state courts of the State of
California located in the County of San Diego in the event any dispute arises
out of this Agreement or the transactions contemplated by this Agreement, (b)
agrees that it shall not bring any action relating to this Agreement or the
transactions contemplated by this Agreement in any court other than the federal
or state courts of the State of California located in the County of San Diego,
and each of the parties irrevocably waives the right to trial by jury, (c)
agrees to waive any bonding requirement under any applicable law, in the case
any other party seeks to enforce the terms by way of equitable relief, and (d)
irrevocably consents to service of process by first class certified mail, return
receipt requested, postage prepaid, to the address of such party’s principal
place of business or as otherwise provided by applicable law. Each of the
parties hereto irrevocably waives, and agrees not to assert, by way of motion,
as a defense, counterclaim or otherwise, in any action, suit or other legal
proceeding with respect to this Agreement, (a) any claim that it is not
personally subject to the jurisdiction of the above-named courts for any reason,
(b) that it or

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its property is exempt or immune from jurisdiction of any such court or from any
legal process commenced in such courts (whether through service of notice,
attachment before judgment, attachment in aid of execution of judgment,
execution of judgment or otherwise), and (c) to the fullest extent permitted by
applicable law, that (i) such action, suit or other legal proceeding in any such
court is brought in an inconvenient forum, (ii) the venue of such action, suit
or other legal proceeding is improper or (iii) this agreement, or the subject
matter hereof, may not be enforced in or by such court.

 

14.      Waiver of Jury Trial. EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY
CONTROVERSY WHICH MAY ARISE UNDER THIS AGREEMENT IS LIKELY TO INVOLVE
COMPLICATED AND DIFFICULT ISSUES AND, THEREFORE, EACH SUCH PARTY IRREVOCABLY AND
UNCONDITIONALLY WAIVES ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF
ANY LEGAL ACTION ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE
TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT. EACH PARTY TO THIS AGREEMENT
CERTIFIES AND ACKNOWLEDGES THAT (A) NO REPRESENTATIVE OF ANY OTHER PARTY HAS
REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT SEEK TO
ENFORCE THE FOREGOING WAIVER IN THE EVENT OF A LEGAL ACTION, (B) SUCH PARTY HAS
CONSIDERED THE IMPLICATIONS OF THIS WAIVER, (C) SUCH PARTY MAKES THIS WAIVER
VOLUNTARILY, AND (D) SUCH PARTY HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT
BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION
14.

 

15.      Representative. Each Investor hereby irrevocably appoints Central
Square Management LLC as its attorney-in-fact and representative (the “Central
Square Representative”), in such Investor’s place and stead, to do any and all
things and to execute any and all documents and give and receive any and all
notices or instructions in connection with this Agreement and the transactions
contemplated hereby. The Company shall be entitled to rely, as being binding on
each Investor, upon any action taken by the Central Square Representative or
upon any document, notice, instruction or other writing given or executed by the
Central Square Representative.

 

16.      Entire Agreement. This Agreement constitutes the full and entire
understanding and agreement among the parties with regard to the subject matter
hereof, and supersedes all prior and contemporaneous agreements, understandings
and representations, whether oral or written, of the parties with respect to the
subject matter hereof. There are no restrictions, agreements, promises,
representations, warranties, covenants or undertakings, oral or written, between
the parties other than those expressly set forth herein.

 

17.      Headings. The section headings contained in this Agreement are for
reference purposes only and shall not effect in any way the meaning or
interpretation of this Agreement.

 

18.      Waiver. No failure on the part of any party to exercise, and no delay
in exercising, any right, power or remedy hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise of such right, power or remedy
by such party preclude any other or further exercise thereof or the exercise of
any other right, power or remedy.

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19.      Remedies. All remedies hereunder are cumulative and are not exclusive
of any other remedies provided by law or equity.

 

20.      Receipt of Adequate Information; No Reliance; Representation by
Counsel. Each party acknowledges that it has received adequate information to
enter into this Agreement, that it has had adequate opportunity to make whatever
investigation or inquiry it may deem necessary or desirable in connection with
the subject matter of this Agreement prior to the execution hereof, and that it
has not relied on any promise, representation or warranty, express or implied
not contained in this Agreement. Each of the parties hereto acknowledges that it
has been represented by counsel of its choice throughout all negotiations that
have preceded the execution of this Agreement, and that it has executed the same
with the advice of said independent counsel. Each party cooperated and
participated in the drafting and preparation of this Agreement and the documents
referred to herein, and any and all drafts relating thereto exchanged among the
parties shall be deemed the work product of all of the parties and may not be
construed against any party by reason of its drafting or preparation.
Accordingly, any rule of law or any legal decision that would require
interpretation of any ambiguities in this Agreement against any party that
drafted or prepared it is of no application and is hereby expressly waived by
each of the parties hereto, and any controversy over interpretations of this
Agreement shall be decided without regards to events of drafting or preparation.
Further, any rule of law or any legal decision that would provide any party with
a defense to the enforcement of the terms of this Agreement against such party
shall have no application and is expressly waived. The provisions of the
Agreement shall be interpreted in a reasonable manner to effect the intent of
the parties.

 

21.      Construction. When a reference is made in this Agreement to a Section,
such reference shall be to a Section of this Agreement, unless otherwise
indicated. The headings contained in this Agreement are for reference purposes
only and shall not affect in any way the meaning or interpretation of this
Agreement. Whenever the words “include,” “includes” and “including” are used in
this Agreement, they shall be deemed to be followed by the words “without
limitation.” The words “hereof, “herein” and “hereunder” and words of similar
import when used in this Agreement shall refer to this Agreement as a whole and
not to any particular provision of this Agreement. The word “will” shall be
construed to have the same meaning as the word “shall.” The words “dates hereof”
will refer to the date of this Agreement. The word “or” is not exclusive. The
definitions contained in this Agreement are applicable to the singular as well
as the plural forms of such terms. Any agreement, instrument, law, rule or
statute defined or referred to herein means, unless otherwise indicated, such
agreement, instrument, law, rule or statute as from time to time amended,
modified or supplemented.

 

22.      Severability. If any provision of this Agreement is held invalid or
unenforceable by any court of competent jurisdiction, the other provisions of
this Agreement shall remain in full force and effect. Any provision of this
Agreement held invalid or unenforceable only in part or degree shall remain in
full force and effect to the extent not held invalid or unenforceable. The
parties further agree to replace such invalid or unenforceable provision of this
Agreement with a valid and enforceable provision that will achieve, to the
extent possible, the purposes of such invalid or unenforceable provision.

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23.      Amendment. This Agreement may be modified, amended or otherwise changed
only in a writing signed by all of the parties hereto, or in the case of the
Investors, the Central Square Representative, or their respective successors or
assigns.

 

24.      Successors and Assigns. The terms and conditions of this Agreement
shall be binding upon and be enforceable by the parties hereto and the
respective successors, heirs, executors, legal representatives and permitted
assigns of the parties, and inure to the benefit of any successor, heir,
executor, legal representative or permitted assign of any of the parties;
provided, however, that no party may assign this Agreement or any rights or
obligations hereunder without, with respect to any Investor, the express prior
written consent of the Company (with such consent specifically authorized in a
written resolution adopted by a vote of a majority of the entire membership of
the Board), and with respect to the Company, the prior written consent of the
Central Square Representative.

 

25.      No Third-Party Beneficiaries. The representations, warranties and
agreements of the parties contained herein are intended solely for the benefit
of the party to whom such representations, warranties or agreements are made,
and shall confer no rights, benefits, remedies, obligations, or liabilities
hereunder, whether legal or equitable, in any other person or entity, and no
other person or entity shall be entitled to rely thereon.

 

26.      Counterparts; Facsimile / PDF Signatures. This Agreement and any
amendments hereto may be signed in any number of counterparts, each of which
shall be an original, with the same effect as if the signatures thereto and
hereto were upon the same instrument. This Agreement shall become effective when
each party hereto shall have received a counterpart hereof signed by the other
parties hereto. In the event that any signature to this Agreement or any
amendment hereto is delivered by facsimile transmission or by e-mail delivery of
a portable document format (.pdf or similar format) data file, such signature
shall create a valid and binding obligation of the party executing (or on whose
behalf such signature is executed) with the same force and effect as if such
facsimile or “.pdf” signature page were an original thereof.

 

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

 

[SIGNATURE PAGE FOLLOWS]

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[SIGNATURE PAGE TO AGREEMENT]

 

IN WITNESS WHEREOF the parties have duly executed and delivered this Agreement
as of the date first above written.

 

PICO HOLDINGS, INC.

 

By:  /s/ John R. Hart   Name: John R. Hart   Title: CEO  

 

CENTRAL SQUARE MANAGEMENT LLC

 

By:  /s/ Kelly Cardwell   Name: Kelly Cardwell   Title: Managing Member  

 

CENTRAL SQUARE CAPITAL LP

By: Central Square GP LLC

General Partner

 

By:  /s/ Kelly Cardwell   Name: Kelly Cardwell   Title: Managing Member  

 

CENTRAL SQUARE CAPITAL MASTER LP

By: Central Square GP II LLC

General Partner

 

By:  /s/ Kelly Cardwell   Name: Kelly Cardwell   Title: Managing Member  

 

CENTRAL SQUARE GP LLC

 

By:  /s/ Kelly Cardwell   Name: Kelly Cardwell   Title: Managing Member  

 

CENTRAL SQUARE GP II LLC

 

By:  /s/ Kelly Cardwell   Name: Kelly Cardwell   Title: Managing Member  

 

/s/ Kelly Cardwell   KELLY CARDWELL  

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EXHIBIT A

 

FORM OF IRREVOCABLE LETTER OF RESIGNATION

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IRREVOCABLE ADVANCE LETTER OF DIRECTOR RESIGNATION

 

[NAME AND ADDRESS OF NEW DIRECTOR]

 

March [•], 2016

 

PICO Holdings, Inc.

Attention: Board of Directors

7979 Ivanhoe Avenue, Suite 300

La Jolla, CA 92037

 

Ladies and Gentlemen:

 

I refer to the Agreement (the “Agreement”) dated as of March 18, 2016, between
PICO Holdings, Inc., a California corporation (the “Company”), on the one hand,
and Central Square Management LLC, Central Square Capital LP, Central Square
Capital Master LP, Central Square GP LLC, Central Square GP II LLC, and Kelly
Cardwell (collectively, the “Investors”), on the other hand. Capitalized terms
used but not defined in this letter have the meanings set forth in the
Agreement.

 

This letter is to confirm that, in accordance with Section 1(d) of the
Agreement1,, I hereby irrevocably tender my resignation as a member of the board
of directors of the Company and each committee of the board of directors on
which I serve, it being understood that (i) the tender of such resignation shall
be effective at such time, and subject to the conditions, provided for in
Section 1(d) of the Agreement, and (ii) any resignation shall be effective only
as, if and when accepted by the Company’s board of directors.

 

I understand and acknowledge that this advance letter of resignation is
irrevocable and may not be withdrawn by me at any time.

 

Sincerely,

 

[NEW DIRECTOR]

 

 

 

1 Section 1(d) of the Agreement is attached as Exhibit A to this letter.

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EXHIBIT A TO LETTER OF DIRECTOR RESIGNATION

 

EXCERPTED SECTION 1(d) OF AGREEMENT

 

1.          Board Matters; Board Appointments; Board Policies and Procedures.

 

(d)    Resignation. As a condition to commencement of a term on the Board (or
nomination therefor), including, but not limited to, in the case of replacement
directors appointed pursuant to Section 1(e) hereof, the Investors agree that
the New Directors (and any replacements thereof) will resign (and shall be
deemed hereby to have irrevocably agreed to so resign, it being understood that
it shall be in the Board’s sole discretion whether to accept or reject such
resignation) and the Company’s obligations under this Section 1 shall terminate
effective immediately upon such time as (i) any Investor or any Affiliate (as
defined below) or Associate (as defined below) thereof submits a notice of a
nomination of directors for election to the Board or any other shareholder
proposal at any annual or special meeting of shareholders held during the
Standstill Period, (ii) any Investor or any Affiliate or Associate thereof seeks
to call a special meeting of shareholders or take any action by written consent
during the Standstill Period, (iii) any Investor or any Affiliate or Associate
thereof breaches Section 2 of this Agreement, (iv) any Investor (or any New
Director, to the extent that such New Director is an Affiliate or Associate of
any of the Investors) otherwise violates Section 3 hereof, or (v) any Investor
or any Affiliate or Associate thereof otherwise breaches this Agreement in any
material respect not referred to in the preceding Section 1(d)(i), Section
1(d)(ii), Section 1(d)(iii) or Section 1(d)(iv). In connection with any alleged
breach or violation of the type referred to in Section 1(d)(iv) or Section
1(d)(v), the Company shall first provide written notice to the Investors of such
alleged breach or violation and to the extent such alleged breach or violation
is curable, any such resignation of the New Directors (and any replacements
thereof) or termination of the Company’s obligations under this Section 1 shall
only become effective if such alleged breach or violation has not been cured
within fifteen (15) calendar days after the Investors receive written notice
from the Company of such alleged breach or violation. If the Investors, in good
faith, dispute any alleged breach or violation of the type referred to in
Section 1(d)(iv) or Section 1(d)(v), any such resignation of the New Directors
(and any replacements thereof) or termination of the Company’s obligations under
this Section 1 shall not become effective until (i) the Investors agree not to
dispute such breach or violation or (ii) a court of competent jurisdiction in a
final judgment on the merits (whether or not subject to appeal) has confirmed or
determined the existence of such breach or violation; provided that any decision
by the Investors to dispute such alleged breach or violation shall be made in
good faith and with the good faith belief that a reasonable basis exists that
they did not breach or violate this Agreement as alleged by the Company. In
furtherance of this Section 1(d), the New Directors and any replacement
directors appointed in accordance with Section 1(e) below, as a condition to
being appointed or nominated to the Board pursuant hereto, shall execute and
deliver to the Company an irrevocable advance letter of resignation in the form
attached hereto as Exhibit A.

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EXHIBIT B

 

SHAREHOLDERS, AFFILIATES, AND OWNERSHIP

 

Investor   Shares of Common Stock
Beneficially Owned         Central Square Management LLC   1,407,498          
Central Square Capital LP   972,642          

Central Square Capital Master LP

  434,856           Central Square GP LLC   972,642           Central Square GP
II LLC   434,856           Kelly Cardwell   1,407,498           Aggregate total
beneficially owned by Central Square Management:   1,407,498  

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EXHIBIT C

 

FORM OF PRESS RELEASE

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[x1_c84403a002.jpg] 

 

 

NEWS RELEASE

 

PICO reaches agreement with Central Square

Appoints Two New Independent Directors Andy Cates and Daniel Silvers

 

LA JOLLA, Calif., March 18, 2016 – PICO Holdings, Inc. (Nasdaq: PICO), today
announced that it has entered into an agreement with Central Square Management
LLC and affiliates, which own approximately 6.1% of PICO’s outstanding shares,
regarding the composition of PICO’s Board of Directors. Under the terms of the
agreement, the PICO Board has appointed Andrew F. Cates as a Class III director
and Daniel B. Silvers as a Class I director, effective immediately. With the
addition of Messrs. Cates and Silvers to the PICO Board, the PICO Board will be
comprised of nine directors, eight of whom are non-employee directors and five
of whom have been added to the PICO Board since the beginning of 2016. PICO also
agreed to nominate Mr. Cates for reelection at the 2017 Annual Meeting of
Shareholders and to cause at least one Class II director not to be renominated
for re-election at the 2016 Annual Meeting such that the size of the PICO Board
would be reduced to eight directors immediately following the conclusion of the
2016 Annual Meeting.

 

Mr. Cates is the Managing Member of Value Acquisition Fund and Chief Executive
Officer of RVC Outdoor Destinations, a developer and operator of outdoor
resorts. He has acquired and asset managed commercial real estate throughout the
United States within various entities, including Value Acquisition Fund, an
acquisition, development, and asset management company that he founded in 2004.
Mr. Cates is a member of the Board of Directors of Pioneer Natural Resources
Co., which is engaged in the development, exploration, and production of oil and
gas in the United States.

 

Mr. Silvers is the Managing Member of Matthews Lane Capital Partners LLC, an
investment firm. He currently serves on the boards of directors of Forestar
Group Inc. and India Hospitality Corp. He has previously served on the boards of
directors of International Game Technology, bwin.party digital entertainment plc
and Universal Health Services, Inc., and previously served as President of
Western Liberty Bancorp.

 

“We are pleased to welcome Andy and Daniel to the PICO Board of Directors,” said
John R. Hart, PICO’s Chief Executive Officer. “Their addition to our Board of
Directors furthers our ongoing efforts to expand the depth and breadth of the
PICO Board with new independent directors who will add competencies, experiences
and insights that enhance the ability of the Board to create value for the
benefit of all PICO shareholders. We believe the asset management and real
estate investment backgrounds and public company Board experience of our newest
directors will be beneficial to PICO and our shareholders as we continue to
execute on our business plan to maximize shareholder value by returning capital
to shareholders as assets are monetized.”

 

Kelly Cardwell, Managing Member of Central Square Management LLC, said, “We are
pleased to

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have worked collaboratively with the PICO Board and management team to reach
this agreement which we believe is a good outcome for all shareholders. Our
recent conversations with PICO’s Board and senior management team have been
constructive and encouraging and have only validated our beliefs about the
quality and character of PICO’s recently refreshed Board and management team. We
believe the addition of Andy Cates and Daniel Silvers to the Board, alongside
PICO’s management team and the other Board members, will be instrumental in
helping the Company further identify and execute upon opportunities to unlock
the significant value that remains trapped in PICO’s undervalued share price. We
believe that, as a result of our discussions and engagement with PICO’s Board
and management team, we now share many of the same priorities and are aligned in
our commitment to maximizing value for all PICO shareholders. Given the
agreement that we have reached with PICO and the substantial changes in the
composition of the PICO Board and strategic direction that we believe has
resulted from our engagement with PICO, we stand firmly with PICO in opposing
the special meeting that Sean M. Leder is seeking to call and have agreed to
oppose the special meeting and vote our shares against the proposals that he is
seeking to bring before a special meeting.”

 

Messrs. Cates and Silvers stated, “We look forward to serving on the Board of
PICO as it implements its business plan to monetize assets and return capital
back to shareholders. We look forward to working collaboratively with the rest
of the PICO Board to build upon the solid foundation that is in place.”

 

Under the terms of the agreement, Central Square has agreed to vote its shares
in support of, among other things, the election of PICO’s slate of directors at
the 2016 and 2017 annual shareholders’ meetings and at any other shareholders’
meetings held prior to the expiration of the standstill period provided for in
the agreement and to abide by certain standstill provisions. Central Square has
also agreed to vote its shares against the calling of a special meeting of
shareholders by Mr. Leder or any of his affiliates and against any proposals
that Mr. Leder or any of his affiliates may seek to bring before a special
meeting.

 

Concurrently with being named to the PICO Board, PICO has also agreed to appoint
Mr. Cates to the Audit Committee and Corporate Governance and Nominating
Committee of the PICO Board and Mr. Silvers to the Compensation Committee and
Corporate Governance and Nominating Committee of the PICO Board. In addition,
Messrs. Cates and Silvers are each being named to a newly-formed Strategy
Committee of the PICO Board that will be responsible for, among other duties,
monitoring PICO’s previously announced plans to return capital to shareholders
as assets are monetized with such capital being returned to shareholders through
stock repurchases or special dividends.

 

The complete agreement between PICO and Central Square will be filed in a
Current Report on Form 8-K with the Securities and Exchange Commission.

 

Morgan, Lewis & Bockius LLP advised PICO in connection with its agreement with
Central Square. Central Square was advised by Olshan Frome Wolosky LLP.

 

About Daniel B. Silvers

 

Daniel Silvers is the Managing Member of Matthews Lane Capital Partners LLC. He
currently serves on the boards of directors of Forestar Group Inc. and India
Hospitality Corp. He has previously served on the boards of directors of
International Game Technology, bwin.party

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digital entertainment plc and Universal Health Services, Inc., and previously
served as President of Western Liberty Bancorp, an acquisition-oriented company
which bought and recapitalized Service 1st Bank of Nevada, a community bank in
Las Vegas, Nevada. In 2015, Mr. Silvers was featured in the National Association
of Corporate Directors’ “A New Generation of Board Leadership: Directors Under
Age 40” list of emerging corporate directors. Mr. Silvers holds a Bachelor of
Science in Economics and an M.B.A. in Finance from The Wharton School of the
University of Pennsylvania.

 

About Andrew F. Cates

 

Mr. Cates is the Managing Member of Value Acquisition Fund and Chief Executive
Officer of RVC Outdoor Destinations, a developer and operator of outdoor
resorts. He has acquired and asset managed commercial real estate throughout the
United States within various entities, including Value Acquisition Fund, an
acquisition, development, and asset management company that he founded in 2004.
After starting his career in Dallas, Texas with Crow Family Holdings and Viceroy
Investments, he became the Project Developer and founding Board Chairman of
Soulsville, one of the largest inner city revitalization projects in the United
States. In 2000, he began working with a team of civic and business leaders that
attracted the Vancouver Grizzlies NBA franchise to Memphis, Tennessee in 2001.
Mr. Cates is a member of the Board of Directors of Pioneer Natural Resources
Co., which is engaged in the development, exploration, and production of oil and
gas in the United States. Mr. Cates also serves on the board of the Myelin
Repair Foundation. Mr. Cates holds a Bachelor of Business Administration in
Finance from the University of Texas.

 

About PICO Holdings

 

PICO Holdings, Inc. is a diversified holding company that seeks to maximize
long-term shareholder value. As previously announced, PICO’s current business
plan contemplates that, as assets are monetized, rather than reinvest the
proceeds, PICO intends to return capital to shareholders through a stock
repurchase program or by other means such as special dividends. For more
information, please visit www.picoholdings.com.

 

About Central Square Management LLC

 

Central Square Management LLC is an investment management firm that seeks to
invest in undervalued public companies.

 

Cautionary Note Regarding Forward-Looking Statements

 

Statements in this press release that are not historical, including statements
regarding our business plan and our current intention to return capital to
shareholders through a stock repurchase program or by other means such as
special dividends, are forward-looking statements based on current expectations
and assumptions that are subject to risks and uncertainties.

 

A number of other factors may cause results to differ materially from our
expectations, such as: any slow down or downturn in the housing recovery or in
the real estate markets in which UCP and Vidler operate; fluctuations in the
prices of water and water rights; physical, governmental and legal restrictions
on water and water rights; a downturn in some sectors of the stock

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market; general economic conditions; prolonged weakness in the overall U.S. and
global economies; the performance of the businesses and investments in foreign
companies; the continued service and availability of key management personnel;
potential capital requirements and financing alternatives; the impact of
international events; and the costs of responding to the actions of activist
investors and the disruption caused to PICO’s business activities by these
actions.

 

For further information regarding risks and uncertainties associated with our
business, please refer to the “Management’s Discussion and Analysis of Financial
Condition and Results of Operations” and “Risk Factors” sections of our SEC
filings, including our Annual Report on Form 10-K and our Quarterly Reports on
Form 10-Q, copies of which may be obtained by contacting us at (858) 456-6022 or
at http://investors.picoholdings.com.

 

We undertake no obligation to (and we expressly disclaim any obligation to)
update our forward-looking statements, whether as a result of new information,
subsequent events, or otherwise, in order to reflect any event or circumstance
which may arise after the date of this press release, except as may otherwise be
required by law. Readers are urged not to place undue reliance on these
forward-looking statements, which speak only as of the date of this press
release.

 

Important Additional Information and Where to Find It

 

PICO, its directors and certain of its executive officers and employees are
deemed to be participants in the solicitation of proxies from PICO shareholders
in connection with the matters to be considered at a proposed special meeting of
PICO’s shareholders. PICO intends to file a proxy statement with the U.S.
Securities and Exchange Commission (the “SEC”) in connection with any such
solicitation of proxies from PICO shareholders. INVESTORS AND SHAREHOLDERS ARE
STRONGLY ENCOURAGED TO READ ANY SUCH PROXY STATEMENT (INCLUDING ANY AMENDMENTS
OR SUPPLEMENTS THERETO) AND THE ACCOMPANYING WHITE PROXY CARD AND OTHER
DOCUMENTS FILED WITH THE SEC CAREFULLY AND IN THEIR ENTIRETY WHEN THEY BECOME
AVAILABLE BECAUSE AS THEY WILL CONTAIN IMPORTANT INFORMATION. Detailed
information regarding the identity of potential participants, and their direct
or indirect interests, by security holdings or otherwise, can be found in PICO’s
Definitive Consent Revocation Solicitation Statement on Schedule 14A, including
the schedules and appendices thereto, filed with the SEC on February 25, 2016,
and will be set forth in the proxy statement and other materials to be filed
with the SEC in connection with the proposed special meeting.

 

Shareholders will be able to obtain any proxy statement, any amendments or
supplements to the proxy statement and other documents filed by PICO with the
SEC for no charge at the SEC’s website at www.sec.gov. Copies will also be
available at no charge at PICO’s website (http://investors.picoholdings.com) or
by writing to the Company’s Corporate Secretary at PICO Holdings, Inc., 7979
Ivanhoe Avenue, Suite 300, La Jolla, CA 92037 or by calling PICO’s Corporate
Secretary at (858) 456-6022.

 

Contacts

Sard Verbinnen & Co.

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Paul Verbinnen (PVerbinnen@sardverb.com)

Mark Harnett (MHarnett@sardverb.com)

212-687-8080

 

OR

 

Financial Profiles, Inc.

Paige Hart (PICO@finprofiles.com)

310-622-8244

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