Document:

EX 10.2 Registration Rights Agreement

REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this “Agreement”) is dated July 23, 2013 and is by and among UCP, Inc., a Delaware corporation (the “Company”), and PICO Holdings, Inc. (“PICO”), a Delaware corporation.

RECITALS 

WHEREAS, the Company is currently contemplating an underwritten initial public offering (“IPO”) of shares of its Common Stock (as defined below); 

WHEREAS, the Company, PICO and UCP, LLC have entered into an Exchange Agreement, July 23, 2013 (the “Exchange Agreement”), under which PICO has the right to receive Common Stock in exchange for UCP, LLC Series A Units held by PICO on the terms and conditions set out therein; and

WHEREAS, the Company desires to grant registration rights to PICO on the terms and conditions set out in this Agreement.  

NOW, THEREFORE, the parties agree as follows:  
ARTICLE I

DEFINITIONS 

SECTION 1.1 Certain Definitions.  As used in this Agreement:

“Affiliate” has the meaning ascribed thereto in Rule 12b-2 promulgated under the Exchange Act, as in effect on the date hereof.  
“Agreement” has the meaning set forth in the preamble.  

“Audit Committee” means the Audit Committee of the Board of Directors of the Company.  

 “Blackout Period” has the meaning set forth in Section 2.3(g).

“Company” has the meaning set forth in the preamble.  

“Common Stock” means the shares of Class A common stock, par value $0.01 per share, of the Company, and any other capital stock of the Company into which such stock is reclassified or reconstituted.  

“Control” (including its correlative meanings, “Controlled by” and “under common Control with”) means possession, directly or indirectly, of the power to direct or cause the direction of management or policies (whether through ownership of securities or partnership or other ownership interests, by contract or otherwise) of a Person.

“Demand Party” has the meaning set forth in Section 2.1(a).  

“Exchange Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder, as the same may be amended from time to time.  

“Exchange Agreement” has the meaning set forth in the preamble.

“FINRA” means the Financial Industry Regulatory Authority.  

“Free Writing Prospectus” has the meaning set forth in Section 2.4(c).

“Governmental Authority” means any nation or government, any state or other political subdivision thereof, and any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government.  

“Holder” means PICO or any Transferee of PICO.  

“Indemnified Parties” has the meaning set forth in Section 3.1.

“IPO” has the meaning set forth in the preamble.  

“Law” means any statute, law, regulation, ordinance, rule, injunction, order, decree, governmental approval, directive, requirement, or other governmental restriction or any similar form of decision of, or determination by, or any interpretation or administration of any of the foregoing by, any Governmental Authority.  

“Lockup Period” has the meaning set forth in Section 2.5(d)(i).  

“Person” means an individual, a partnership, a corporation, a limited liability company, an association, a joint stock company, a trust, a joint venture, an unincorporated organization and a governmental entity or any department, agency or political subdivision thereof.  

“PICO” has the meaning set forth in the preamble. 

“Public Offering” means a public offering of equity securities in the Company or any successor thereto or any Subsidiary of the Company pursuant to a registration statement declared or otherwise becoming effective under the Securities Act.  

“Registrable Securities” means (i) all shares of Common Stock issued or issuable to the Holders pursuant to the Exchange Agreement and (ii) any shares of Common Stock issued or issuable with respect to any shares described in clause (i) above by way of a stock dividend or stock split or in connection with a combination of shares, recapitalization, merger, consolidation or other reorganization.  As to any Registrable Securities, such Securities will cease to be Registrable Securities when:  

(i)    a registration statement covering such Registrable Securities has been declared effective and such Registrable Securities have been disposed of pursuant to such effective registration statement; 

(ii)    such Registrable Securities shall have been sold pursuant to Rule 144 or 145 (or any similar provision then in effect) under the Securities Act; 

(iii)    such Registrable Securities may be sold pursuant to Rule 144 or 145 (or any similar provision then in effect) under the Securities Act, without reporting obligations or restriction as to volume; or 

(iv)    such Registrable Securities cease to be outstanding.  
“Registration Expenses” means any and all expenses incident to the performance by the Company of its obligations under this Agreement, including:  

(i)    all SEC, stock exchange and FINRA registration and filing fees (including, if applicable, the fees and expenses of any “qualified independent underwriter,” as such term is defined in Rule 5121 of FINRA, and of its counsel); 

(ii)    all fees and expenses of complying with securities or blue sky Laws (including fees and disbursements of counsel for the underwriters in connection with blue sky qualifications of the Registrable Securities); 

(iii)    all printing, messenger and delivery expenses; 

(iv)    all fees and expenses incurred in connection with the listing of the Registrable Securities on any securities exchange and FINRA and any rating agency fees; 

(v)    the reasonable fees and disbursements of counsel for the Company and of its independent public accountants, including the expenses of any special audits and/or “cold comfort” letters required by or incident to such performance and compliance; 

(vi)    any fees and disbursements of underwriters customarily paid by the issuers of Securities but excluding underwriting discounts and commissions and transfer taxes, if any; 

(vii)    the reasonable fees and out-of-pocket expenses of not more than one law firm (as selected by the holders of a majority of the Registrable Securities included in such registration) incurred by all the Holders in connection with the registration; and

(viii)    the costs and expenses of the Company relating to analyst and investor presentations or any “road show” undertaken in connection with the registration and/or marketing of the Registrable Securities (including reasonable out of pocket expenses of Holders); and 

(ix)    any other fees and disbursements customarily paid by issuers of securities.

 “SEC” means the U.S. Securities and Exchange Commission or any successor agency.  

“Securities” means capital stock, limited partnership interests, limited liability company interests, beneficial interests, warrants, options, notes, bonds, debentures, and other securities, equity interests, ownership interests and similar obligations of every kind and nature of any Person.  

“Securities Act” means the U.S. Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder, as the same may be amended from time to time.

“Shelf Notice” has the meaning set forth in Section 2.3(a).

“Shelf Registration Statement” has the meaning set forth in Section 2.3(a).

 “Subsidiary” means, with respect to any Person, any corporation, limited liability company, partnership, association or other business entity of which:  (i) if a corporation, a majority of the total voting power of shares of stock entitled (without regard to the occurrence of any contingency) to vote in the election of directors, representatives or trustees thereof is at the time owned or Controlled, directly or indirectly, by that Person or one or more of the other Subsidiaries of that Person or a combination thereof; or (ii) if a limited liability company, partnership, association or other business entity, a majority of the total voting power of stock (or equivalent ownership interest) of the limited liability company, partnership, association or other business entity is at the time owned or Controlled, directly or indirectly, by any Person or one or more Subsidiaries of that Person or a combination thereof.  For purposes hereof, a Person or Persons shall be deemed to have a majority ownership interest in a limited liability company, partnership, association or other business entity if such Person or Persons shall be allocated a majority of limited liability company, partnership, association or other business entity gains or losses or shall be or Control the managing director or general partner of such limited liability company, partnership, association or other business entity.  

 “Transfer” (including its correlative meanings, “Transferor”, “Transferee” and “Transferred”) shall mean, with respect to any security, directly or indirectly, to sell, contract to sell, give, assign, hypothecate, pledge, encumber, grant a security interest in, offer, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, lend or otherwise transfer or dispose of any economic, voting or other rights in or to such security.  When used as a noun, “Transfer” shall have such correlative meaning as the context may require.  

SECTION 1.2  Other Definitional Provisions; Interpretation.

(a)The words “hereof,” “herein,” and “hereunder” and words of similar import when used in this Agreement refer to this Agreement as a whole and not to any particular provision of this Agreement, and references in this Agreement to a designated “Article” or “Section” refer to an Article or Section of this Agreement unless otherwise specified.  

(b)The headings in this Agreement are included for convenience of reference only and do not limit or otherwise affect the meaning or interpretation of this Agreement.  

(c)The meanings given to terms defined herein are equally applicable to both the singular and plural forms of such terms.  

ARTICLE II
REGISTRATION RIGHTS

SECTION 2.1  Demand Registration.

(a)    At any time following the expiration of the Lockup Period, upon the written request of a Holder (in such capacity, a “Demand Party”) requesting that the Company effect the registration under the Securities Act of Registrable Securities and specifying the amount and intended method of disposition thereof, the Company will (i) promptly give written notice of such requested registration to any other Holders pursuant to Section 2.2 and other holders of Securities entitled to 

notice of such registration, if any, and (ii) as expeditiously as possible, and in any event within forty-five (45) days after a request for registration pursuant to this Section 2.1(a) is given to the Company, use its reasonable best efforts to file a registration statement to effect the registration under the Securities Act of:  

(A)    such Registrable Securities which the Company has been so requested to register by the Demand Party in accordance with the intended method of disposition thereof; 

(B)    the Registrable Securities of any other Holders which the Company has been requested to register by written request given to the Company within fifteen (15) days after the giving of such written notice by the Company pursuant to Section 2.2; and

(C)    all shares of Common Stock which the Company may elect to register in connection with any offering of Registrable Securities pursuant to this Section 2.1.
Notwithstanding the foregoing, the Company shall not be obligated to file a registration statement relating to any registration request under this Section 2.1(a):

(x) within a period of sixty (60) days (or such lesser period as the managing underwriters in an underwritten offering may permit) after the effective date of any other registration statement relating to any registration request under this Section 2.1(a) or relating to any registration referred to in Section 2.2 or 2.3; or

(y) if the Company has previously effected one (1) such registration pursuant to this Section 2.1(a) at the request of a Holder.

(b)    The Company shall use reasonable best efforts to cause the registration statement filed pursuant to Section 2.1(a) to be declared effective by the SEC (if such registration statement is not an automatic shelf registration statement) within ninety (90) days after the filing date thereof.  A demand registration shall not be deemed to have been effected and shall not count for purposes of Section 2.1(a): (i) unless a registration statement with respect thereto has become effective and has remained effective for a period of at least ninety (90) days (or such shorter period in which all Registrable Securities included in such registration statement have actually been sold thereunder), (ii) if, after it has become effective, such registration statement becomes subject prior to ninety (90) days after effectiveness to any stop order, injunction or other order or requirement of the SEC or other Governmental Authority for any reason or (iii) if the conditions to closing specified in the underwriting agreement entered into in connection with such registration statement are not satisfied, other than by reason of any act or omission by such Demand Party.
    
(c)    Each registration statement prepared at the request of a Demand Party shall be effected on such appropriate form as requested by the Demand Party and as shall be reasonably acceptable to the Company.  

(d)    The Company will pay all Registration Expenses in connection with each registration of Registrable Securities requested pursuant to this Section 2.1.  
    
(e)    If a requested registration pursuant to this Section 2.1 involves an underwritten offering, the Demand Party shall have the right to select the investment banker or bankers and managers to administer the offering, including the lead managing underwriter; provided, however, that such investment banker or bankers and managers shall be reasonably satisfactory to the Company.  For the avoidance of doubt, each applicable Holder participating in such an underwritten offering shall be responsible for paying the underwriting discounts and commissions applicable to such Holder's Registrable Securities sold by the underwriters in such underwritten offering.

(f)    If a requested registration pursuant to this Section 2.1 involves an underwritten offering and the managing underwriter advises the Company in writing that, in its opinion, the number of Securities requested to be included in such registration (including Securities of the Company which are not Registrable Securities) exceeds the number which can be sold in such offering, so as to be likely to have an adverse effect on the price, timing or distribution of the Securities offered in such offering, then the number of such Securities to be included in such registration shall be allocated in the following order of priority:  (i) first, up to the number of Registrable Securities requested to be included in such registration by the Demand Party and such other Holders who have requested to have Registrable Securities included in such registration pursuant to Section 2.2, which, in the opinion of the managing underwriter, can be sold without having the adverse effect referred to above, which number of Registrable Securities shall be allocated pro rata among the Demand Party and the requesting Holders on the basis of the relative number of Registrable Securities requested to be included in such registration statement; (ii) second, Securities the Company proposes to sell; and (iii) third, all other Securities of the Company duly requested to be included in such registration statement by holders thereof who have then-existing registration rights with respect to such Securities, which, in the 

opinion of the managing underwriter, can be sold without having the adverse effect referred to above, which number of Securities shall be allocated pro rata among such other holders on the basis of the amount of such other Securities requested to be included or such other method determined by the Company.

(g)    The Company shall not be obligated to maintain the effectiveness of a registration statement under the Securities Act filed pursuant to this Section 2.1 for a period longer than ninety (90) days.  In addition, the Company shall be entitled to postpone (upon written notice to all applicable Holders) for up to two occasions, and in no event for more than an aggregate of one hundred twenty (120) days, the filing or the effectiveness of a registration statement filed pursuant to this Section 2.1 (but no more than twice in any period of twelve (12) consecutive months) if the Audit Committee determines in good faith and in its reasonable judgment that the filing or effectiveness of such registration statement would cause the disclosure of material, non-public information that the Company has a bona fide business purpose for preserving as confidential.  If the Company shall so postpone the filing of a registration statement, the Holders of Registrable Securities to be registered shall have the right to withdraw the request for registration by giving written notice from such Holders within forty‐five (45) days after receipt of the notice of postponement (and, in the event of such withdrawal, such request shall not be counted for purposes of determining the number of requests for registration to which the Holders are entitled pursuant to Section 2.1(a) or 2.2(a), as the case may be).    

SECTION 2.2  Piggyback Rights.

(a)    If at any time following the expiration of the Lockup Period, the Company proposes to register equity Securities under the Securities Act (other than a registration on Form S-4 or S-8, or any successor or other forms promulgated for similar purposes), whether for its own account or for the account of Security holders, it will, at each such time following expiration of the Lockup Period, give prompt written notice to the Holders of its intentions and of such Holders' rights under this Section 2.2; provided that the Company shall not be obligated to provide the foregoing notice to Holders or to effect the registration of Registrable Securities of the Holders pursuant to this Section 2.2 if the Company has previously effected three (3) such registrations for any Holders pursuant to this Section 2.2.  Subject to the foregoing proviso, upon the written request of any Holder made within fifteen (15) days after the receipt of any such notice (which request shall specify the number of Registrable Securities intended to be disposed of by such Holder), the Company will use its reasonable best efforts to effect the registration under the Securities Act of all Registrable Securities which the Holders have so requested to be registered; provided that:  (i) if, at any time after giving written notice of its intention to register any Securities and prior to the effective date of the registration statement filed in connection with such registration, the Company shall determine for any reason not to proceed with the proposed registration of the Securities to be sold by it, the Company may, at its election, give written notice of such determination to the Holders and, thereupon, the Company shall be relieved of its obligation to register any Registrable Securities in connection with such registration (but not from its obligation to pay the Registration Expenses incurred in connection therewith) (and, for the avoidance of doubt, in such event, the request of any Holders to be included in such registration shall not be counted for purposes of determining the number of requests for registration to which the Holders are entitled pursuant to this Section 2.2(a)); and (ii) if such registration involves an underwritten offering, the Holders requesting to be included in the registration must sell their Registrable Securities to the underwriters selected by the Company on the same terms and conditions as apply to the Company, with, in the case of a combined primary and secondary offering, only such differences, including any with respect to representations and warranties, indemnification and liability insurance, as may be customary or appropriate in combined primary and secondary offerings.  

(b)    The Company will pay all Registration Expenses in connection with each registration of Registrable Securities requested pursuant to this Section 2.2.  

(c)    If a registration pursuant to this Section 2.2 involves an underwritten offering and the managing underwriter advises the Company in writing that, in its opinion, the number of Registrable Securities and other Securities requested to be included in such registration exceeds the number which can be sold in such offering, so as to be likely to have an adverse effect on the price, timing or distribution of the Securities offered in such offering, then the number of Securities to be included in such registration shall be allocated in the following order of priority:  (i) first, 100% of the Securities the Company proposes to sell; (ii) second, up to the number of Registrable Securities requested to be included in such registration by all Holders who have requested to have Registrable Securities included in such registration, which, in the opinion of the managing underwriter, can be sold without having the adverse effect referred to above, which number of Registrable Securities shall be allocated pro rata among such Holders on the basis of the relative number of Registrable Securities requested to be included in such registration statement; and (iii) third, all other Securities of the Company duly requested to be included in such registration statement by holders thereof who have then-existing registration rights with respect to such Securities, which, in the opinion of the managing underwriter, can be sold without having the adverse effect referred to above, which number of Securities shall be allocated pro rata among such other holders on the basis of the amount of such other Securities requested to be included or such other method determined by the Company.  

(d)The Company shall not be obligated to effect any registration of Registrable Securities under this Section 2.2 incidental to the registration of any of its Securities in connection with:  

(1)any Public Offering relating to employee benefits plans or dividend reinvestment plans; or 

(2)any Public Offering relating to the acquisition or merger after the date hereof by the Company or any of its Subsidiaries of or with any other businesses.  

(e)If a registration pursuant to this Section 2.2 involves an underwritten offering, the Company shall select the investment banker or bankers and managers to administer the offering, including the lead managing underwriter; provided, however, that if PICO has requested that its Registrable Securities be registered pursuant to this Section 2.2 such investment banker or bankers and managers shall be reasonably satisfactory to PICO.  For the avoidance of doubt, each applicable Holder participating in such an underwritten offering shall be responsible for paying the underwriting discounts and commissions applicable to such Holder's Registrable Securities sold by the underwriters in such underwritten offering.

SECTION 2.3  Shelf Registration.

(a)    At any time following the expiration of the Lockup Period and subject to the availability of a Registration Statement on Form S-3 to the Company, any Demand Party may by written notice delivered to the Company (the “Shelf Notice”) request that the Company file as soon as practicable (but no later than forty-five (45) days after the date the Shelf Notice is delivered), and use reasonable best efforts to cause to be declared effective by the SEC (if the Shelf Registration Statement (as defined below) is not an automatic shelf registration statement) within ninety (90) days after such filing date, a Registration Statement on Form S-3 providing for an offering to be made on a continuous basis pursuant to Rule 415 under the Securities Act relating to the offer and sale, from time to time, of the Registrable Securities owned by such Demand Party and any other Holders who elect to participate therein as provided in Section 2.3(b) in accordance with the plan and method of distribution set forth in the prospectus included in such Registration Statement on Form S-3 (the “Shelf Registration Statement”).  

(b)    Promptly after receipt of a Shelf Notice pursuant to Section 2.3(a), the Company will deliver written notice thereof to each other Holder pursuant to Section 2.2.  Each such Holder may elect to participate in the Shelf Registration Statement by delivering to the Company a written request to so participate within fifteen (15) days after the Shelf Notice is received by any such Holder.

(c)    Subject to Section 2.3(g), the Company will use its reasonable best efforts to keep the Shelf Registration Statement continuously effective, and, if necessary, to file one or more successor Shelf Registration Statements and keep such successor Shelf Registration Statement(s) continuously effective, such that there is no period when a Shelf Registration Statement is not in effect until the date on which all Registrable Securities covered by the Shelf Registration Statement have been sold thereunder in accordance with the plan and method of distribution disclosed in the prospectus included in the Shelf Registration Statement.

(d)    Subject to Section 2.3(g), each Holder who elected to participate in the Shelf Registration Statement shall have the right to request that an underwritten offering be effected off the Shelf Registration Statement at any time; provided that in no event shall the Company be obligated to effect:  (i) an underwritten offering pursuant to this Section 2.3(d) within a period of sixty (60) days (or such lesser period as the managing underwriters in an underwritten offering may permit) after the effective date of any registration statement relating to any registration effected pursuant to Section 2.1 or 2.2; or (ii) more than three (3) underwritten offerings pursuant to this Section 2.3(d) in any single six‐month period.  Promptly after receipt of a request that an underwritten offering be effected off the Shelf Registration Statement, the Company will deliver written notice thereof to each other Holder who elected to participate in the Shelf Registration Statement, and each such Holder may elect to participate in the underwritten offering by delivering to the Company a written request to so participate within five (5) days after such notice is received by any such Holder.  If an underwritten offering is effected off the Shelf Registration Statement, the holders of at least a majority of the Registrable Securities included in the Shelf Registration Statement shall have the right to select the investment banker or bankers and managers to administer the offering, including the lead managing underwriter; provided, however, that such investment banker or bankers and managers shall be reasonably satisfactory to the Company.  For the avoidance of doubt, each applicable Holder participating in such an underwritten offering shall be responsible for paying the underwriting discounts and commissions applicable to such Holder's Registrable Securities sold by the underwriters in such underwritten offering.  A request for an underwritten offering may be withdrawn by at least a majority of the Registrable Securities included in such offering prior to the consummation thereof, and, in such event, such withdrawal shall not be treated as a request for an underwritten offering which shall have been effected pursuant to this Section 2.3(d).

(e)    If an underwritten offering is effected off the Shelf Registration Statement and the managing underwriter advises the Company in writing that, in its opinion, the number of Securities requested to be included in such underwritten offering (including Securities of the Company which are not Registrable Securities) exceeds the number which can be sold in such offering, so as to be likely to have an adverse effect on the price, timing or distribution of the Securities offered in such offering, then the number of such Securities to be included in such underwritten offering shall be allocated in the following order of priority:  (i) first, 100% of the Securities the Company proposes to sell, if any; (ii) second, up to the number of Registrable Securities requested to be included in such underwritten offering by all Holders who have requested to have Registrable Securities included in such underwritten offering, which, in the opinion of the managing underwriter, can be sold without having the adverse effect referred to above, which number of Registrable Securities shall be allocated pro rata among such Holders on the basis of the relative number of Registrable Securities requested to be included in such underwritten offering; and (iii) third, all other Securities of the Company duly requested to be included in such underwritten offering by holders thereof who have then-existing registration rights with respect to such Securities, which, in the opinion of the managing underwriter, can be sold without having the adverse effect referred to above, which number of Securities shall be allocated pro rata among such other holders on the basis of the amount of such other Securities requested to be included or such other method determined by the Company.

(f)The Company will pay all Registration Expenses in connection with each registration of Registrable Securities requested pursuant to this Section 2.3.

(g)Notwithstanding anything to the contrary contained in this Agreement, the Company shall be entitled, from time to time, by providing written notice to the Holders who elected to participate in the Shelf Registration Statement, to require such Holders to suspend the use of the prospectus for sales of Registrable Securities under the Shelf Registration Statement for a reasonable period of time not to exceed sixty (60) days in succession or one hundred twenty (120) days in the aggregate in any 12-month period (a “Blackout Period”) if the Company shall determine that it is required to disclose in the Shelf Registration Statement a financing, acquisition, corporate reorganization or other similar transaction or other material event or circumstance affecting the Company or its securities, and that the disclosure of such information at such time would be detrimental to the Company or the holders of its equity Securities.  Immediately upon receipt of such notice, the Holders covered by the Shelf Registration Statement shall suspend the use of the prospectus until the requisite changes to the prospectus have been made as required below.  Any Blackout Period shall terminate at such time as the public disclosure of such information is made, and the Company will promptly notify such Holders of the termination of the Blackout Period.  After the expiration of any Blackout Period and without any further request from a Holder, the Company shall as promptly as reasonably practicable prepare a post-effective amendment or supplement to the Shelf Registration Statement or the prospectus, or any document incorporated therein by reference, or file any other required document so that, as thereafter delivered to purchasers of the Registrable Securities included therein, the prospectus will not include an untrue statement of a material fact or omit to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading.  The time period for which the Company is required to maintain the effectiveness of the Shelf Registration Statement shall be extended by the aggregate number of days of all Blackout Periods occurring with respect thereto.

SECTION 2.4  Registration Procedures.  If and whenever the Company is required to file a registration statement with respect to, or to use its reasonable best efforts to effect or cause the registration of, any Registrable Securities under the Securities Act as provided in this Agreement, the Company will as expeditiously as possible:

(a)    prepare and file with the SEC a registration statement on an appropriate form with respect to such Registrable Securities and, if such registration statement is not an automatically effective registration statement, use its reasonable best efforts to cause such registration statement to become effective; provided, however, that the Company may discontinue any registration of Securities which it has initiated for its own account at any time prior to the effective date of the registration statement relating thereto (and, in such event, the Company shall pay the Registration Expenses incurred in connection therewith); and provided, further, that before filing a registration statement or prospectus, or any amendments or supplements thereto, the Company will furnish to counsel for the sellers of Registrable Securities covered by such registration statement copies of all documents proposed to be filed, which documents will be subject to the review of such counsel; 

(b)    prepare and file with the SEC such amendments and supplements to such registration statement and the prospectus used in connection therewith as may be necessary to keep such registration statement effective and to comply with the provisions of the Securities Act and the Exchange Act with respect to the disposition of all Securities covered by such registration statement during such period in accordance with the intended methods of disposition by the seller or sellers thereof set forth in such registration statement; provided that before filing a registration statement or prospectus, or any amendments or supplements thereto, the Company will furnish to counsel for the sellers of Registrable Securities covered by such registration statement copies of all documents proposed to be filed, which documents will be subject to the review of such counsel;  

(c)    furnish to each seller of such Registrable Securities such number of copies of such registration statement and of each amendment and supplement thereto (in each case including all exhibits filed therewith, excluding any documents incorporated by reference), such number of copies of the prospectus included in such registration statement (including each preliminary prospectus and summary prospectus) and each free writing prospectus (as defined in Rule 405 of the Securities Act) (a “Free Writing Prospectus”) utilized in connection therewith and any other prospectus filed under Rule 424 under the Securities Act, in conformity with the requirements of the Securities Act, and such other documents as such seller may reasonably request in order to facilitate the disposition of the Registrable Securities by such seller; 

(d)    use its reasonable best efforts to register or qualify such Registrable Securities covered by such registration in such jurisdictions as each seller shall reasonably request, and do any and all other acts and things which may be reasonably necessary or advisable to enable such seller to consummate the disposition in such jurisdictions of the Registrable Securities owned by such seller, except that the Company shall not for any such purpose be required to qualify generally to do business as a foreign corporation in any jurisdiction where, but for the requirements of this subsection (d), it would not be obligated to be so qualified, to subject itself to taxation in any such jurisdiction or to consent to general service of process in any such jurisdiction; 

(e)    use its reasonable best efforts to cause such Registrable Securities covered by such registration statement to be registered with or approved by such other governmental agencies or authorities, and maintain such registrations or approvals, as may be necessary to enable the seller or sellers thereof to consummate the disposition of such Registrable Securities; 

(f)    notify each seller of any such Registrable Securities covered by such registration statement, at any time when a prospectus relating thereto is required to be delivered under the Securities Act, of the Company's becoming aware that the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing, and at the request of any such seller, promptly prepare, file  and furnish to such seller a reasonable number of copies of an amended or supplemental prospectus as may be necessary so that, as thereafter delivered to the purchasers of such Registrable Securities, such prospectus shall not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing; 

(g)    otherwise use its reasonable best efforts to comply with all applicable rules and regulations of the SEC, and make available to its Security holders, as soon as reasonably practicable (but not more than eighteen (18) months) after the effective date of the registration statement, an earnings statement which shall satisfy the provisions of Section 11(a) of the Securities Act; 

(h)(i) use its reasonable best efforts to list such Registrable Securities on any securities exchange on which other Securities of the Company are then listed if such Registrable Securities are not already so listed and if such listing is then permitted under the rules of such exchange; and (ii) provide a transfer agent and registrar for such Registrable Securities covered by such registration statement not later than the effective date of such registration statement; 

(i)enter into such customary agreements (including an underwriting agreement in customary form), which may include indemnification provisions in favor of underwriters and other Persons in addition to, or in substitution for, the indemnification provisions hereof, and take such other actions as sellers of a majority of such Registrable Securities or the underwriters, if any, reasonably request in order to expedite or facilitate the disposition of such Registrable Securities; 

(j)obtain a “cold comfort” letter or letters from the Company's independent public accountants in customary form and covering matters of the type customarily covered by “cold comfort” letters as the seller or sellers of a majority of such Registrable Securities shall reasonably request; 

(k)make available for inspection by any seller of such Registrable Securities covered by such registration statement, by any underwriter participating in any disposition to be effected pursuant to such registration statement and by any attorney, accountant or other agent retained by any such seller or any such underwriter, all pertinent financial and other records, pertinent corporate documents and properties of the Company as reasonably requested by any such seller, underwriter, attorney, accountant or agent in connection with such registration statement, and cause all of the Company's officers, directors and employees to supply all information reasonably requested by any such seller, underwriter, attorney, accountant or agent in connection with such registration statement; 

(l)notify counsel for the Holders of Registrable Securities included in such registration statement and the managing underwriter or agent, immediately, and confirm the notice in writing:  (i) when the registration statement, or any post-effective amendment to the registration statement, shall have become effective, or any supplement to the prospectus or any amendment to any prospectus or any Free Writing Prospectus utilized in connection therewith shall have been filed; (ii) of the receipt of any comments from the SEC; (iii) of any request of the SEC to amend the registration statement or amend or supplement the prospectus or for additional information; and (iv) of the issuance by the SEC of any stop order suspending the effectiveness of the registration statement or of any order preventing or suspending the use of any preliminary prospectus, or of the suspension of the qualification of the registration statement for offering or sale in any jurisdiction, or of the institution or threatening of any proceedings for any of such purposes; 

(m)provide each holder of Registrable Securities included in such registration statement reasonable opportunity to comment on the registration statement, any post-effective amendments to the registration statement, any supplement to the prospectus or any amendment to any prospectus; 

(n)make every reasonable effort to prevent the issuance of any stop order suspending the effectiveness of the registration statement or of any order preventing or suspending the use of any preliminary prospectus and, if any such order is issued, to obtain the withdrawal of any such order at the earliest possible moment; 

(o)if requested by the managing underwriter or agent or any holder of Registrable Securities covered by the registration statement, promptly incorporate in a prospectus supplement or post-effective amendment such information as the managing underwriter or agent or such holder reasonably requests to be included therein, including, with respect to the number of Registrable Securities being sold by such holder to such underwriter or agent, the purchase price being paid therefor by such underwriter or agent and with respect to any other terms of the underwritten offering of the Registrable Securities to be sold in such offering; and make all required filings of such prospectus supplement or post-effective amendment as soon as practicable after being notified of the matters incorporated in such prospectus supplement or post-effective amendment; 

(p)cooperate with the holders of Registrable Securities covered by the registration statement and the managing underwriter or agent, if any, to facilitate the timely preparation and delivery of certificates (not bearing any restrictive legends) representing Securities to be sold under the registration statement, and enable such Securities to be in such denominations and registered in such names as the managing underwriter or agent, if any, or the Holders may request; 

(q)use its reasonable best efforts to make available the executive officers of the Company to participate with the holders of Registrable Securities and any underwriters in any “road shows” that may be reasonably requested by the holders in connection with distribution of Registrable Securities; 

(r)obtain for delivery to the holders of Registrable Securities being registered and to the underwriter or agent an opinion or opinions from counsel for the Company in customary form and in form, substance and scope reasonably satisfactory to such holders, underwriters or agents and their counsel; and 

(s)cooperate with each seller of Registrable Securities and each underwriter or agent participating in the disposition of such Registrable Securities and their respective counsel in connection with any filings required to be made with FINRA.  

SECTION 2.5  Other Registration-Related Matters.

(a)    The Company may require any seller of Registrable Securities pursuant to Section 2.1, 2.2 or 2.3 to furnish to the Company in writing such information regarding such Person and pertinent to the disclosure requirements relating to the registration and the distribution of the Registrable Securities which are included in such Public Offering as the Company may from time to time reasonably request in writing.  

(b)    Upon receipt of any notice from the Company of the happening of any event of the kind described in Section 2.4(f), each Holder will forthwith discontinue disposition of Registrable Securities pursuant to the registration statement covering such Registrable Securities until its receipt of the copies of the amended or supplemented prospectus contemplated by Section 2.4(f) and, if so directed by the Company, each Holder will deliver to the Company or destroy (at the Company's expense) all copies, other than permanent file copies then in their possession, of the prospectus covering such Registrable Securities current at the time of receipt of such notice.  In the event the Company gives  any such notice, any applicable period during which such registration statement must remain effective pursuant to this Agreement shall be extended by the number of days during the period from and including the date of the giving of such notice pursuant to Section 2.4(f) to 

and including the date when all such sellers of Registrable Securities covered by such registration statement shall receive such a supplemented or amended prospectus and such prospectus shall have been filed with the SEC. 

(c)    Upon receipt of any notice from the Company of the happening of any event of the kind described in Section 2.4(l)(iv), each Holder will forthwith discontinue disposition of Registrable Securities pursuant to the registration statement covering such Registrable Securities until the lifting of such stop order, other order or suspension or the termination of such proceedings and, if so directed by the Company, each Holder will deliver to the Company or destroy (at the Company's expense) all copies, other than permanent file copies then in its possession, of the prospectus covering such Registrable Securities current at the time of receipt of such notice.  In the event the Company gives any such notice, any applicable period during which such registration statement must remain effective pursuant to this Agreement shall be extended by the number of days during the period from and including the date of the giving of such notice pursuant to Section 2.4(l)(iv) to and including the date when such stop order, other order or suspension is lifted or such proceedings are terminated.  

(d)    (i) Each Holder (x) shall, with respect to the Registrable Securities owned by such Holder, be bound by any and all restrictions on the sale, disposition, distribution, hedging or other transfer of any interest in Registrable Securities imposed on PICO in connection with the IPO by the underwriters managing such offering for the duration of the term of such restriction (the period in which such sale, disposition, distribution, hedging or other transfer of any interest is restricted, the “Lockup Period”) and (y) will, in connection with a Public Offering of the Company's equity Securities (whether for the Company's account or for the account of any Holder or Holders, or both), upon the request of the Company or of the underwriters managing any underwritten offering of the Company's Securities, agree in writing not to effect any sale, disposition, distribution, hedging or other transfer of Registrable Securities (other than those included in the Public Offering) without the prior written consent of the managing underwriter for such period of time commencing seven (7) days before and ending one hundred eighty (180) days (or such earlier date as the managing underwriter shall agree) after the effective date of such registration; provided that all directors and officers of the Company, holders of more than 5% of the Registrable Securities and all other Persons with registration rights with respect to the Company's Securities (whether or not pursuant to this Agreement) holding more than 5% of the Registrable Securities shall enter into agreements similar to those contained in this Section 2.4(d)(i) (without regard to this proviso); and (ii) the Company and its Subsidiaries will, in connection with an underwritten Public Offering of the Company's Securities in respect of which Registrable Securities are included, upon the request of the underwriters managing such offering, agree in writing not to effect any sale, disposition or distribution of equity Securities of the Company (other than those included in such Public Offering, offered on Form S-8, issuable upon conversion of Securities or upon the exercise of options, or the grant of options in the ordinary course of business pursuant to then-existing management equity plans or equity-based employee benefit plans, in each case outstanding on the date a request is made pursuant to Section 2.1(a) or 2.3(a) or a notice is given by the Company pursuant to Section 2.2(a), as the case may be), without the prior written consent of the managing underwriter, for such period of time commencing seven (7) days before and ending one hundred eighty (180) days (or such earlier date as the managing underwriter shall agree) after the effective date of such registration.  

(e)    With a view to making available the benefits of certain rules and regulations of the SEC which may at any time permit the sale of Securities of the Company to the public without registration after such time as a public market exists for Registrable Securities, the Company agrees:  

(1)    to make and keep public information available, as those terms are understood and defined in Rule 144 under the Securities Act, at all times after the effective date of the first registration under the Securities Act filed by the Company for an offering of its Securities to the public; 

(2)    to use its commercially reasonable efforts to then file with the SEC in a timely manner all reports and other documents required of the Company under the Securities Act and the Exchange Act (at any time after it has become subject to such reporting requirements); and 

(3)    so long as a Holder owns any Registrable Securities, to furnish to such Holder promptly upon request:  (A) a written statement by the Company as to its compliance with the reporting requirements of Rule 144 (at any time after ninety (90) days after the effective date of the first registration statement filed by the Company for an offering of its Securities to the public), and of the Securities Act and the Exchange Act (at any time after it has become subject to such reporting requirements); (B) a copy of the most recent annual or quarterly report of the Company; and (C) such other reports and documents of the Company as such Holder may reasonably request in availing itself or himself of any rule or regulation of the SEC allowing such Holder to sell any such Securities without registration.  

(f)    Counsel to represent holders of Registrable Securities shall be selected by the holders of at least a majority of the Registrable Securities included in the relevant registration.  

(g)    Each of the parties hereto agrees that the registration rights provided to the Holders herein are not intended to, and shall not be deemed to, override or limit any other restrictions on Transfer to which any such Holder may otherwise be subject.  

ARTICLE III

INDEMNIFICATION

SECTION 3.1  Indemnification by the Company.  In the event of any registration of any Securities of the Company under the Securities Act pursuant to Section 2.1, 2.2 or 2.3, the Company hereby indemnifies and agrees to hold harmless, to the fullest extent permitted by Law, each Holder who sells Registrable Securities covered by such registration statement, each Affiliate of such Holder and their respective directors, officers, managers, general and limited partners (and the directors, officers, managers, employees, Affiliates and controlling Persons of any of the foregoing), each other Person who participates as an underwriter in the offering or sale of such Securities and each other Person, if any, who controls such Holder or any such underwriter within the meaning of the Securities Act (collectively, the “Indemnified Parties”), against any and all losses, claims, damages or liabilities, joint or several, and reasonable and documented expenses to which such Indemnified Party may become subject under the Securities Act, common law or otherwise, insofar as such losses, claims, damages or liabilities (or actions or proceedings in respect thereof, whether or not such Indemnified Party is a party thereto) arise out of or are based upon:  (a) any untrue statement or alleged untrue statement of any material fact contained in any registration statement under which such Securities were registered under the Securities Act, any preliminary, final or summary prospectus contained therein, or any Free Writing Prospectus, or any amendment or supplement to any of the foregoing, or any document incorporated by reference therein; or (b) any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, in the case of a prospectus, in the light of the circumstances when they were made, and the Company will reimburse such Indemnified Party for any legal or other expenses reasonably incurred by it in connection with investigating or defending any such loss, claim, liability, action or proceeding; provided that the Company will not be liable to any Indemnified Party in any such case to the extent that any such loss, claim, damage, liability (or action or proceeding in respect thereof) or expense arises out of or is based upon any untrue statement or alleged untrue statement or omission or alleged omission made in such registration statement, in any such preliminary, final or summary prospectus, or Free Writing Prospectus or any amendment or supplement thereto in reliance upon and in conformity with written information with respect to such Indemnified Party furnished to the Company by such Indemnified Party expressly for use in the preparation thereof.  Such indemnity will remain in full force and effect regardless of any investigation made by or on behalf of such Holder or any Indemnified Party and will survive the Transfer of such Securities by such Holder or any termination of this Agreement.  

SECTION 3.2  Indemnification by the Holders.  If Registrable Securities of a Holder are included in any registration statement filed in accordance with Section 2.1, 2.2 or 2.3, such Holder does hereby agree, severally and not jointly, to indemnify and hold harmless (in the same manner and to the same extent as set forth in Section 3.1) the Company, all other Holders or any prospective underwriter, as the case may be, and any of their respective Affiliates, directors, officers, managers and controlling Persons, with respect to any untrue statement in or omission from such registration statement, any preliminary, final or summary prospectus contained therein, or any Free Writing Prospectus or any amendment or supplement to any of the foregoing, if such untrue statement or omission was made in reliance upon and in conformity with written information with respect to such Holder furnished to the Company by such Holder expressly for use in the preparation of such registration statement, preliminary, final or summary prospectus or Free Writing Prospectus or amendment or supplement, or a document incorporated by reference into any of the foregoing.  Such indemnity will remain in full force and effect regardless of any investigation made by or on behalf of the Company or any of the Holders, or any of their respective Affiliates, directors, officers or controlling Persons and will survive the Transfer of such Securities by such Holder.  In no event shall the liability of any selling Holder of Registrable Securities hereunder be greater in amount than the dollar amount of the proceeds actually received by such Holder upon the sale of the Registrable Securities giving rise to such indemnification obligation.  

SECTION 3.3  Notices of Claims, Etc.  Promptly after receipt by an Indemnified Party hereunder of written notice of the commencement of any action or proceeding with respect to which a claim for indemnification may be made pursuant to this Article III, such Indemnified Party will, if a claim in respect thereof is to be made against an indemnifying party, give written notice to the latter of the commencement of such action; provided that the failure of the Indemnified Party to give notice as provided herein will not relieve the indemnifying party of its obligations under Section 3.1 or 3.2, except to the extent that the indemnifying party is actually prejudiced by such failure to give notice.  In case any such action is brought against an Indemnified Party, unless in such Indemnified Party's reasonable judgment a conflict of interest between such indemnified and indemnifying parties may exist in respect of such claim, the indemnifying party will be entitled to participate in and to assume the defense thereof, jointly with any other indemnifying party similarly notified to the extent that it may wish, with counsel selected by the Holders of at least a majority of the Registrable Securities included in the relevant registration, and after notice 

from the indemnifying party to such Indemnified Party of its election so to assume the defense thereof, the indemnifying party will not be liable to such Indemnified Party for any legal or other expenses subsequently incurred by the latter in connection with the defense thereof other than reasonable costs of investigation.  If, in such Indemnified Party's reasonable judgment, having common counsel would result in a conflict of interest between the interests of such indemnified and indemnifying parties, then such Indemnified Party may employ separate counsel reasonably acceptable to the indemnifying party to represent or defend such Indemnified Party in such action, it being understood, however, that the indemnifying party will not be liable for the reasonable fees and expenses of more than one separate firm of attorneys at any time for all such Indemnified Parties (and not more than one separate firm of local counsel at any time for all such Indemnified Parties) in such action.  No indemnifying party will consent to entry of any judgment or enter into any settlement which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such Indemnified Party of a release from all liability in respect of such claim or litigation.  

SECTION 3.4  Contribution.  If the indemnification provided for hereunder from the indemnifying party is unavailable to an Indemnified Party hereunder in respect of any losses, claims, damages, liabilities or expenses referred to herein for reasons other than those described in the proviso in the first sentence of Section 3.1, then the indemnifying party, in lieu of indemnifying such Indemnified Party, shall contribute to the amount paid or payable by such Indemnified Party as a result of such losses, claims, damages, liabilities or expenses in such proportion as is appropriate to reflect the relative fault of the indemnifying party and Indemnified Parties in connection with the actions which resulted in such losses, claims, damages, liabilities or expenses, as well as any other relevant equitable considerations.  The relative fault of such indemnifying party and Indemnified Parties shall be determined by reference to, among other things, whether any action in question, including any untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact, has been made by, or relates to information supplied by, such indemnifying party or Indemnified Parties, and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such action.  The amount paid or payable by a party under this Section 3.4 as a result of the losses, claims, damages, liabilities and expenses referred to above shall be deemed to include any legal or other fees or expenses reasonably incurred by such party in connection with any investigation or proceeding.  In no event shall the liability of any selling Holder of Registrable Securities hereunder be greater in amount than the dollar amount of the proceeds actually received by such Holder upon the sale of the Registrable Securities giving rise to such contribution obligation.  

The parties hereto agree that it would not be just and equitable if contribution pursuant to this Section 3.4 were determined by pro rata allocation or by any other method of allocation which does not take account of the equitable considerations referred to in the immediately preceding paragraph.  No Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation.  

SECTION 3.3  Non-Exclusivity.  The obligations of the parties under this Article III will be in addition to any liability which any party may otherwise have to any other party.  

ARTICLE IV

OTHER

SECTION 4.1  Notices.  All notices, requests, consents and other communications hereunder to any party shall be deemed to be sufficient if contained in a written instrument delivered in person or sent by facsimile (provided a copy is thereafter promptly delivered as provided in this Section 4.1) or nationally recognized overnight courier, addressed to such party at the address or facsimile number set forth below or such other address or facsimile number as may hereafter be designated in writing by such party to the other parties:

if to the Company:  
UCP, Inc. 
6489 Camden Avenue, Suite 204
San Jose, California 95120 
(Telephone) (408) 323-1113
(Facsimile) (408) 323-1114
Attention:  General Counsel

if to PICO:  
Pico Holdings, Inc.
7979 Ivanhoe Avenue, Suite 300 
La Jolla, California 92037
(Telephone) (888) 389-3222
(Facsimile) (858) 456-6480
Attention: President

if to any other Holder, at the last address or facsimile number last provided by such Holder in writing, or if none, to PICO's address set forth above.

SECTION 4.2  Assignment.  Neither the Company nor any Holder shall assign all or any part of this Agreement without the prior written consent of the Company and PICO; provided, however, that PICO may assign its rights and corresponding obligations in whole or in part to any of its Affiliates.  Except as otherwise provided herein, this Agreement will inure to the benefit of and be binding on the parties hereto and their respective successors and permitted assigns.  

SECTION 4.3  Amendments; Waiver.  This Agreement may be amended, supplemented or otherwise modified only by a written instrument executed by the Company and the Holders holding a majority of the shares of Common Stock subject to this Agreement; provided that no such amendment, supplement or other modification shall adversely affect the economic interests of any Holder hereunder disproportionately to other Holders without the written consent of such Holder.  No waiver by any party of any of the provisions hereof will be effective unless explicitly set forth in writing and executed by the party so waiving.  Except as provided in the preceding sentence, no action taken pursuant to this Agreement, including without limitation, any investigation by or on behalf of any party, will be deemed to constitute a waiver by the party taking such action of compliance with any covenants or agreements contained herein.  The waiver by any party hereto of a breach of any provision of this Agreement will not operate or be construed as a waiver of any subsequent breach.  

SECTION 4.4  Entire Agreement; No Third Party Beneficiaries. This Agreement (a) constitutes the entire agreement and supersedes all other prior agreements, both written and oral, among the parties with respect to the subject matter hereof and (b) is not intended to confer upon any Person, other than the parties hereto and the parties entitled to indemnification or contribution pursuant to Sections 3.2, 3.3 or 3.4 hereto, any rights or remedies hereunder.

SECTION 4.5  Governing Law; Equitable Remedies. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF DELAWARE (WITHOUT GIVING EFFECT TO CONFLICT OF LAWS PRINCIPLES THEREOF). The parties hereto agree that irreparable damage would occur in the event that any of the provisions of this Agreement were not performed in accordance with its specific terms or was otherwise breached. It is accordingly agreed that the parties hereto shall be entitled to an injunction or injunctions and other equitable remedies to prevent breaches of this Agreement and to enforce specifically the terms and provisions hereof in any of the Selected Courts (as defined below), this being in addition to any other remedy to which they are entitled at law or in equity. Any requirements for the securing or posting of any bond with respect to such remedy are hereby waived by each of the parties hereto. Each party further agrees that, in the event of any action for an injunction or other equitable remedy in respect of such breach or enforcement of specific performance, it will not assert the defense that a remedy at law would be adequate.

SECTION 4.6  Consent To Jurisdiction. With respect to any suit, action or proceeding (“Proceeding”) arising out of or relating to this Agreement or any transaction contemplated hereby each of the parties hereto hereby irrevocably (i) submits to the exclusive jurisdiction of the United States District Court for the Northern District of California or the Superior Court of the State of California located in the County of Santa Clara (the “Selected Courts”) and waives any objection to venue being laid in the Selected Courts whether based on the grounds of forum non conveniens or otherwise and hereby agrees not to commence any such Proceeding other than before one of the Selected Courts; provided, however, that a party may commence any Proceeding in a court other than a Selected Court solely for the purpose of enforcing an order or judgment issued by one of the Selected Courts; (ii) consents to service of process in any Proceeding by the mailing of copies thereof by registered or certified mail, postage prepaid, or by recognized international express carrier or delivery service, to the Company, PICO or any Holder at their respective addresses referred to in Section 4.1 hereof; provided, however, that nothing herein shall affect the right of any party hereto to serve process in any other manner permitted by law; and (iii) TO THE EXTENT NOT PROHIBITED BY APPLICABLE LAW THAT CANNOT BE WAIVED, WAIVES, AND COVENANTS THAT IT WILL NOT ASSERT (WHETHER AS PLAINTIFF, DEFENDANT OR OTHERWISE) ANY RIGHT TO TRIAL BY JURY IN ANY ACTION ARISING IN WHOLE OR IN PART UNDER OR IN CONNECTION WITH THIS AGREEMENT OR ANY OF THE CONTEMPLATED TRANSACTIONS, WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER SOUNDING IN CONTRACT, TORT OR OTHERWISE, AND AGREES THAT ANY OF THEM MAY FILE A COPY OF THIS PARAGRAPH WITH ANY COURT AS WRITTEN EVIDENCE OF THE KNOWING, VOLUNTARY AND BARGAINED-FOR AGREEMENT AMONG THE PARTIES IRREVOCABLY TO WAIVE ITS RIGHT TO TRIAL BY JURY IN ANY PROCEEDING WHATSOEVER BETWEEN THEM RELATING TO THIS AGREEMENT OR ANY OF THE CONTEMPLATED TRANSACTIONS WILL INSTEAD BE TRIED IN A COURT OF COMPETENT JURISDICTION BY A JUDGE SITTING WITHOUT A JURY.

SECTION 4.7  Severability.  The provisions of this Agreement shall be deemed severable and the invalidity or unenforceability of any provision shall not affect the validity or enforceability of the other provisions hereof. If any provision of this Agreement, or the application thereof to any person or entity or any circumstance, is found to be invalid or unenforceable in any jurisdiction, (a) a suitable and equitable provision shall be substituted therefor in order to carry out, so far as may be valid and enforceable, the intent and purpose of such invalid or unenforceable provision and (b) the remainder of this Agreement and the application of such provision to other Persons or circumstances shall not be affected by such invalidity or unenforceability, nor shall such invalidity or unenforceability affect the validity or enforceability of such provision, or the application thereof, in any other jurisdiction.

SECTION 4.8  Counterparts.  This Agreement may be executed in one or more counterparts, each of which shall be deemed an original and all of which shall, taken together, be considered one and the same agreement.

SECTION 4.9  Effectiveness.  This Agreement shall become effective, as to any Holder, as of the date signed by the Company and countersigned by such Holder.

SECTION 4.10  Interpretation. 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 “included,” “includes” or “including” are used in this Agreement, they shall be deemed to be followed by the words “without limitation.”

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

UCP, INC.
By:  /s/  Dustin L. Bogue
Name:  Dustin L. Bogue
Title:  President and CEO

PICO HOLDINGS, INC.
By:  /s/  Maxim C. W. Webb
Name: Maxim C. W. Webb
Title:  Chief Financial OfficerEX 10.3 DUSTIN L. BOGUE EMPLOYMENT AGREEMENT

EXHIBIT 10.3

EMPLOYMENT AGREEMENT 

THIS EMPLOYMENT AGREEMENT (the “Agreement”) between UCP, Inc., a Delaware corporation (the “Company”), and Dustin L. Bogue (the “Executive”) is entered into as of July 23, 2013 (the “Effective Date”).  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 will begin on the Effective Date, and will continue until the third anniversary of the Effective Date, unless earlier terminated pursuant to Section 4 hereof; provided, however, that on the third anniversary of the Effective Date and each annual anniversary of such date thereafter, the Agreement shall automatically be extended for one additional year 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).

1

EXHIBIT 10.3

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 $500,000 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 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 16 and compliance with applicable Company policies (including any requirements for acceptable documentation), Executive shall be 

2

EXHIBIT 10.3

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 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 

3

EXHIBIT 10.3

substantially similar healthcare coverage or become entitled to Medicare coverage.  Subject to Section 16, 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 16, 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-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 

4

EXHIBIT 10.3

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 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.Survival.  Sections 5, 6, 7 and 16 hereof shall survive and continue in full force and effect in accordance with their respective terms, notwithstanding any termination of the Employment Period. 

9.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., 6489 Camden Avenue, Suite 204, San Jose, CA 95120 attention:  Chairman of the Compensation Committee 

5

EXHIBIT 10.3

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 9. 

10.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. 

11.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. 

12.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. 

13.Governing Law.  This Agreement shall be governed by the internal laws (as opposed to the conflicts of law provisions) of the State of California. 

14.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.

15.Withholding.  All payments and benefits under this Agreement are subject to withholding of all applicable taxes.

16.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 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 

6

EXHIBIT 10.3

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.

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

	 
	 
	UCP, INC.
	 
	 

	 
	 
	 
	 
	 
	 
	 
	 
	 

	 
	 
	 
	 
	By:
	 
	/s/ Michael C. Cortney
	 
	 

	 
	 
	 
	 
	Name:
	 
	Michael C. Cortney
	 
	 

	 
	 
	 
	 
	Title:
	 
	Chairman
	 
	 

	 
	 
	 
	 
	 
	 

	 
	 
	      EXECUTIVE:
	 
	/s/ Dustin L. Bogue
	 

	 
	 
	Name:
	 
	Dustin L. Bogue
	 

    

7

EXHIBIT 10.3

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:

(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 

8

EXHIBIT 10.3

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 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; (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 (i) 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, (ii)  Company fails to correct the circumstances constituting “Good Reason” within 30 days after such notice; and (iii) Executive resigns within six months after the initial existence of such circumstances.

9

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