Document:

Exhibit 10.1

 

EXECUTION COPY

 

SETTLEMENT AGREEMENT

 

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

 

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

 

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

 

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

 

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

 

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

 

(a)        Board Matters.

 

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

    	 

    	

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

 

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

 

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

 

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

 

(b)        Committees
of the Board.

 

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

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

 

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

 

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

 

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

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

 

(e)        Replacements.

 

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

 

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

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

 

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

 

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

 

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

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2.        Voting Agreement.

 

(a)        Shareholder
Meetings.

 

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

 

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

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

 

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

 

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

 

(b)        Actions
By Written Consent.

 

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

 

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

 

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

 

(c)        Special Meeting
Demands.

 

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

 

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

 

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

 

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

 

3.        Standstill.

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

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

 

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

 

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

 

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

 

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

 

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

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

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

 

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

 

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

 

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

 

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

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

 

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

 

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

 

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

 

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

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

 

7.        Mutual Non-Disparagement.

 

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

 

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

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

 

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

 

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

 

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

 

9.        SEC Filings.

 

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

 

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

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

 

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

 

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

 

If to the Company:

 

PICO Holdings, Inc.

7979 Ivanhoe Avenue, Suite 300

La Jolla, CA 92037

Fax No.: 858-456-6480

Email: mwebb@picoholdings.com

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

 

With copies (which shall not constitute notice)
to:

 

Morgan, Lewis & Bockius LLP

1111 Pennsylvania Avenue, NW

Washington, DC 20004

Fax No.: 202-739-3001

Email: kgottfried@morganlewis.com

Attention: Keith E. Gottfried, Esq.

 

and

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Cooley LLP

4401 Eastgate Mall

San Diego, CA 92121-1909

Fax No.: 858.550.6420

Email: jkent@cooley.com

Attention: Jason L. Kent, Esq.

 

If to any Investor:

 

Central Square Management LLC

1813 N. Mill Street, Suite F

Naperville, IL 60563

Fax No.: (630) 210-8927

Email: kelly.cardwell@csquarecapital.com

Attention: Kelly Cardwell, Managing Member

 

With copies (which shall not constitute notice)
to:

 

Olshan Frome Wolosky LLP

65 East 55th Street, Park Avenue Tower

New York, NY 10022

Fax No.: (212) 451-2333

E-mail: swolosky@olshanlaw.com

  mreda@olshanlaw.com

Attention: Steve Wolosky, Esq.

  Meagan Reda, Esq.

 

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

 

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

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

 

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

 

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

 

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

 

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

 

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

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

 

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

 

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

 

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

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

 

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

 

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

 

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

 

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

 

[SIGNATURE PAGE FOLLOWS]

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[SIGNATURE PAGE TO AGREEMENT]

 

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

 

PICO HOLDINGS, INC.

 

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

 

CENTRAL SQUARE MANAGEMENT LLC

 

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

 

CENTRAL SQUARE CAPITAL LP

By: Central Square GP LLC

General Partner

 

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

 

CENTRAL SQUARE CAPITAL MASTER LP

By: Central Square GP II LLC

General Partner

 

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

 

CENTRAL SQUARE GP LLC

 

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

 

CENTRAL SQUARE GP II LLC

 

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

 

	/s/ Kelly Cardwell	 
	KELLY CARDWELL	 

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EXHIBIT A

 

FORM OF IRREVOCABLE LETTER OF RESIGNATION

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IRREVOCABLE ADVANCE LETTER OF DIRECTOR
RESIGNATION

 

[NAME AND ADDRESS OF NEW DIRECTOR]

 

March [•], 2016

 

PICO Holdings, Inc.

Attention: Board of Directors

7979 Ivanhoe Avenue, Suite 300

La Jolla, CA 92037

 

Ladies and Gentlemen:

 

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

 

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

 

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

 

Sincerely,

 

[NEW DIRECTOR]

 

 

 

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

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EXHIBIT A TO LETTER OF DIRECTOR RESIGNATION

 

EXCERPTED SECTION 1(d) OF AGREEMENT

 

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

 

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

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EXHIBIT B

 

SHAREHOLDERS, AFFILIATES, AND OWNERSHIP

 

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

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

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EXHIBIT C

 

FORM OF PRESS RELEASE

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NEWS RELEASE

 

PICO
reaches agreement with Central Square

Appoints Two New Independent Directors
Andy Cates and Daniel Silvers

 

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

 

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

 

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

 

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

 

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

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

 

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

 

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

 

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

 

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

 

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

 

About Daniel B. Silvers

 

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

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

 

About Andrew F. Cates

 

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

 

About PICO Holdings

 

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

 

About Central Square Management LLC

 

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

 

Cautionary Note Regarding Forward-Looking
Statements

 

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

 

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

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

 

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

 

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

 

Important Additional Information and
Where to Find It

 

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

 

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

 

Contacts

Sard Verbinnen & Co.

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Paul Verbinnen (PVerbinnen@sardverb.com)

Mark Harnett (MHarnett@sardverb.com)

212-687-8080

 

OR

 

Financial Profiles, Inc.

Paige Hart (PICO@finprofiles.com)

310-622-8244

    	32fac-ex101_8.htm

Exhibit 10.1

 

Compensation of Joseph S. Borbely

 

	
Annual Base Salary:
	
$430,000 commencing on April 1, 2016, subject to increase at the discretion of the Compensation Committee.

	
 
	
 

	
Bonus:
	
Mr. Borbely is entitled to participate in the Senior Management Bonus Program.

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