Document:

Unassociated Document

    Exhibit
10.1

    

    
      	
              

            	
              LOAN
      AND SECURITY AGREEMENT

              (CASH
      COLLATERAL ACCOUNT)

            

    

     

    
      	
              OBLIGOR#

              8718029017

            	
              NOTE
      #

              N/A

            	
              AGREEMENT
      DATE

              February
      10, 2009

            
	
              CREDIT
      LIMIT

              $1,000,000.00

            	
              INTEREST
      RATE

              Daily
      LIBOR plus 2.15%

            	
              OFFICER
      NO./INITIALS

              48828

            

    

    

     

    THIS
AGREEMENT is entered into as of February 10, 2009, between COMERICA BANK
("Bank") as secured party, whose Western Market headquarters office is 333 West
Santa Clara Street, San Jose, California and the undersigned AKEENA SOLAR, INC.,
a Delaware corporation ("Borrower"), whose sole place of business (if it has
only one), chief executive office (if it has more than one place of business) or
residence (if an individual) is located at the address set forth below its name
on the signature page to this Agreement, with reference to the following
facts:

     

    WHEREAS,
Borrower and Bank are parties to that certain Loan and Security Agreement
(Accounts and Inventory) dated January 29, 2007 (as modified by the First
Modification to Loan and Security Agreement dated as of June 26, 2007, the
Second Modification to Loan and Security Agreement dated as of December 31, 2007
and the Third Modification to Loan and Security Agreement dated as of August 4,
2008, collectively the "Prior Agreement") pursuant to which Bank has made
certain credit facilities available to Borrower.  In connection with
the Prior Agreement, ANDALAY SOLAR, INC., a California corporation ("Andalay")
executed that certain Guaranty dated as of December 31, 2007 (the "Andalay
Guaranty") and that certain Security Agreement dated as of December 31, 2007
(the "Andalay Security Agreement").  Borrower and Andalay have asked
Bank to (i) terminate the Andalay Guaranty and the Andalay Security Agreement,
(ii) make certain modifications to the existing credit facilities, and
(iii) replace the Prior Agreement with this Agreement.  In connection
with the termination of the Andalay Guaranty and the Andalay Security Agreement,
Borrower and Bank desire to amend and restate the Prior Agreement in its
entirety.

     

    NOW
THEREFORE, in consideration of the mutual covenants and conditions hereof, the
parties to this Agreement hereby agree that the Prior Agreement is hereby
amended and restated in full as follows:

     

    
      
        	
                1. 

              	
                DEFINITIONS.

              

      

       

      1.1           "Agreement"
shall mean and includes this Loan and Security Agreement (Cash Collateral
Account), any concurrent or subsequent rider to this Loan and Security Agreement
(Cash Collateral Account) and any extensions, supplements, amendments or
modifications to this Loan and Security Agreement (Cash Collateral Account)
and/or to any such rider.

       

      1.2           "Bank
Expenses" shall mean and includes: all costs or expenses required to be paid by
Borrower under this Agreement which are paid or advanced by Bank; taxes and
insurance premiums of every nature and kind of Borrower paid by Bank; filing,
recording, publication and search fees, appraiser fees, auditor fees and costs,
and title insurance premiums paid or incurred by Bank in connection with Bank's
transactions with Borrower; costs and expenses incurred by Bank (with or without
suit) to correct any default or enforce any provision of this Agreement, in
maintaining, handling, preserving, selling, disposing of, preparing for sale
and/or advertising to sell the Collateral, whether or not a sale is consummated;
costs and expenses of suit incurred by Bank in enforcing or defending this
Agreement or any portion hereof, including, but not limited to, expenses
incurred by Bank in attempting to obtain relief from any stay, restraining
order, injunction or similar process which prohibits Bank from exercising any of
its rights or remedies; and reasonable attorneys' fees and expenses incurred by
Bank in advising, structuring, drafting, reviewing, amending, terminating,
enforcing, defending or concerning this Agreement, or any portion hereof or any
agreement related hereto, whether or not suit is brought.  Bank
Expenses shall include Bank's in-house legal charges at reasonable
rates.

       

      1.3           "Borrower's
Books" shall mean and includes all of Borrower's books and records including but
not limited to minute books; ledgers; records indicating, summarizing or
evidencing Borrower's assets (including, without limitation, the Cash Collateral
Account), liabilities, business operations or financial condition, and all
information relating thereto, computer programs; computer disk or tape files;
computer printouts; computer runs; and other computer prepared information and
equipment of any kind.

       

      
        
          
          

        

        
          -1-

          
            

          

        

        
          
          

        

      

      
        LOAN
AND SECURITY AGREEMENT

        (CASH
COLLATERAL ACCOUNT)

      

       

      1.4           “Cash
Collateral Account” shall mean that certain money market deposit account
number 1894-04634-9 maintained by Borrower at Bank.

       

      1.5           "Collateral"
shall mean and include the Cash Collateral Account and all sums on deposit
therein from time to time.

       

      1.6           "Credit"
shall mean all Indebtedness, except that Indebtedness arising pursuant to any
other separate contract, instrument, note or other separate agreement which, by
its terms, provides for a specified interest rate and term.

       

      1.7           "Credit
Limit" shall mean One Million and 00/100 Dollars ($1,000,000.00).

       

      1.8           "Daily
Balance" shall mean the principal amount determined by taking the amount of the
Credit owed at the beginning of a given day, adding the principal amount of any
new Credit advanced or incurred on such date, and subtracting any payments or
collections which are deemed to be paid and are applied by Bank in reduction of
the Credit on that date under the provisions of this Agreement.

       

      1.9           "Debt"
shall mean, as of any applicable date of determination, all items of
indebtedness, obligation or liability of a Person, whether matured or unmatured,
liquidated or unliquidated, direct or indirect, absolute or contingent, joint or
several, that should be classified as liabilities in accordance with
GAAP.  In the case of Borrower, the term "Debt" shall include, without
limitation, the Indebtedness.

       

      1.10         "Event
of Default" shall mean one or more of those events described in Section 7
contained herein below.

       

      1.11         "GAAP"
shall mean, as of any applicable period, generally accepted accounting
principles in effect during such period.

       

      1.12         "Indebtedness"
shall mean and includes any and all loans, advances, Letter of Credit
Obligations, overdrafts, debts, liabilities (including, without limitation, any
and all amounts charged to Borrower's loan account pursuant to any agreement
authorizing Bank to charge Borrower's loan account), obligations, lease
payments, guaranties, covenants and duties owing by Borrower to Bank of any kind
and description whether advanced pursuant to or evidenced by this Agreement; by
any note or other Instrument; or by any other agreement between Bank and
Borrower and whether or not for the payment of money, whether direct or
indirect, absolute or contingent, due or to become due now existing or hereafter
arising, including, without limitation, any interest, fees, expenses, costs and
other amounts owed to Bank that but for the provisions of the United States
Bankruptcy Code would have accrued after the commencement of any Insolvency
Proceeding, and including, without limitation, any debt, liability, or
obligations owing from Borrower to others which Bank may have obtained by
assignment, participation, purchase or otherwise, and further including, without
limitation, all interest not paid when due and all Bank Expenses which Borrower
is required to pay or reimburse by this Agreement, by law, or
otherwise.

       

      1.13         "Insolvency
Proceeding" shall mean and includes any proceeding or case commenced by or
against Borrower, or any guarantor of Borrower's Indebtedness, under any
provisions of the United States Bankruptcy Code, as amended, or any other
bankruptcy or insolvency law, including, but not limited to assignments for the
benefit of creditors, formal or informal moratoriums, composition or extensions
with some or all creditors, any proceeding seeking a reorganization, arrangement
or any other relief under the United States Bankruptcy Code, as amended, or any
other bankruptcy or insolvency law.

       

      1.14         "Judicial
Officer or Assignee" shall mean and includes any trustee, receiver, controller,
custodian, assignee for the benefit of creditors or any other person or entity
having powers or duties like or similar to the powers and duties of trustee,
receiver, controller, custodian or assignee for the benefit of
creditors.

       

      1.15         "Letter
of Credit Obligations" shall mean, as of any applicable date of determination,
the sum of the undrawn amount of any letter(s) of credit issued by Bank upon the
application of and/or for the account of Borrower, plus any unpaid reimbursement
obligations owing by Borrower to Bank in respect of any such letter(s) of
credit.

       

      
        
          
          

        

        
          -2-

          
            

          

        

        
          
          

        

      

      
        LOAN
AND SECURITY AGREEMENT

        (CASH
COLLATERAL ACCOUNT)

         

      

      1.16         "LIBOR
Addendum" shall mean that certain Daily Adjusting LIBOR Addendum to Loan and
Security Agreement attached hereto and incorporated herein by this
reference.

       

      1.17         “Maturity
Date” means January 1, 2011.

       

      1.18         "Person"
or "person" shall mean and includes any individual, corporation, partnership,
joint venture, firm, association, trust, unincorporated association, joint stock
company, government, municipality, political subdivision or agency or other
entity.

       

      1.19         "Subordinated
Debt" shall mean indebtedness of Borrower to third parties which has been
subordinated to the Indebtedness pursuant to a subordination agreement in form
and content satisfactory to Bank.

       

      1.20         "Tangible
Effective Net Worth" shall mean, with respect to any Person and as of any
applicable date of determination, Tangible Net Worth plus Subordinated
Debt.

       

      1.21         "Tangible
Net Worth" shall mean, with respect to any Person and as of any applicable date
of determination, the excess of:

       

      a.           
 the net book value of all assets of such Person (excluding affiliate
receivables, patents, patent rights, trademarks, trade names, franchises,
copyrights, licenses, goodwill, and all other intangible assets of such Person)
after all appropriate deductions in accordance with GAAP (including, without
limitation, reserves for doubtful receivables, obsolescence, depreciation and
amortization), over

       

      b.          
  all Debt of such Person at such time.

       

      Any and
all terms used in the foregoing definitions and elsewhere in this Agreement
shall be construed and defined in accordance with the meaning and definition of
such terms under and pursuant to the California Uniform Commercial Code
(hereinafter referred to as the "Uniform Commercial Code") as amended, revised
or replaced from time to time.  Notwithstanding the foregoing, the
parties intend that the terms used herein which are defined in the Uniform
Commercial Code have, at all times, the broadest and most inclusive meanings
possible.  Accordingly, if the Uniform Commercial Code shall in the
future be amended or held by a court to define any term used herein more broadly
or inclusively than the Uniform Commercial Code in effect on the date of this
Agreement, then such term, as used herein, shall be given such broadened
meaning.  If the Uniform Commercial Code shall in the future be
amended or held by a court to define any term used herein more narrowly, or less
inclusively, than the Uniform Commercial Code in effect on the date of this
Agreement, such amendment or holding shall be disregarded in defining terms used
in this Agreement.

       

      
        	
                2. 

              	
                LOAN AND TERMS OF
      PAYMENT.

              

      

       

      For value
received, Borrower promises to pay to the order of Bank the entire Credit,
together with interest, as provided for below.

       

      2.1           Upon
the request of Borrower, made at any time and from time to time prior to the
Maturity Date, and so long as no Event of Default has occurred and is
continuing, Bank shall make credit available to Borrower hereunder; provided, however,
that  the Daily Balance shall not exceed the Credit Limit, minus all Letter of
Credit Obligations.  If at any time for any reason, the amount of
Indebtedness owed by Borrower to Bank pursuant to this Section 2.1 and
Section 2.3 of
this Agreement is greater than the aggregate amount available to be drawn under
this Section 2.1,
Borrower shall immediately pay to Bank, in cash, the amount of such
excess.  The outstanding principal amount of all loans made under this
Section 2.1, together with all accrued and unpaid interest thereon, shall in any
event be due and payable in full on the earlier of the Maturity Date or the
termination of this Agreement.

       

      2.2           Except
as hereinbelow provided, the Credit shall bear interest, on the Daily Balance
owing, in accordance with the LIBOR Addendum.  Accrued and unpaid
interest on the Indebtedness shall be payable in accordance with the LIBOR
Addendum.

       

      2.3           Subject
to the terms and conditions of this Agreement, upon the request of Borrower,
made at any time and from time to time prior to the Maturity Date, and so long
as no Event of Default has occurred and is continuing, Bank agrees to issue or
cause to be issued letters of credit for the account of  Borrower
during the term of this Agreement in the aggregate outstanding face amount not
to exceed (i) the Credit Limit, minus (ii) the then outstanding Daily
Balance, provided that the Letter of Credit Obligations shall not in any case
exceed One Million and 00/100 Dollars ($1,000,000.00).  All letters of
credit shall be, in form and substance, acceptable to Bank in its sole
discretion and shall be subject to the terms and conditions of Bank's form of
standard Letter of Credit Application and Agreement.

       

      
        
          
          

        

        
          -3-

          
            

          

        

        
          
          

        

      

      
        LOAN
AND SECURITY AGREEMENT

        (CASH
COLLATERAL ACCOUNT)

         

      

      a.           The
obligation of Borrower to immediately reimburse Bank for drawings made under
letters of credit shall be absolute, unconditional and irrevocable in accordance
with the terms of this Agreement and the Letter of Credit Application and
Agreement with respect to each such letter of credit.  In the absence
of such reimbursement, the amount so advanced immediately and automatically
shall be deemed to be an advance under Section 2.1 of this Agreement and,
thereafter, shall bear interest at the rate then applicable to advances under
Section 2.2 hereof.

       

      b.           Unless
agreed to in writing by Bank, no letter of credit shall have an expiration date
that is later than the Maturity Date.

       

      c.           Borrower
shall indemnify, defend, protect and hold Bank harmless from any loss, cost,
expense, or liability, including, without limitation, reasonable attorney's fees
incurred by Bank, whether in-house or outside counsel is used, arising out of or
in connection with any letters of credit.

       

      2.4           Bank
and Borrower agree that any other loans which Bank in its sole discretion has
made or may now or hereafter make to Borrower (sometimes hereinafter
collectively referred to as the "Loans") shall be subject to the terms and
conditions of this Agreement unless otherwise agreed to in writing by Bank and
Borrower.  In the event there are contradictions between the
provisions of this Agreement and any other written agreement with the Bank, this
Agreement shall prevail.  The Loans shall be subject to the terms and
conditions of this Agreement, the LIBOR Addendum, any promissory note(s)
executed in connection therewith and/or previously or subsequently executed, and
all amendments, renewals and extensions thereof (singularly or collectively, the
"Notes"), and all those certain security agreements and/or such other security
or other documents as Bank has required or may now or hereafter require in
connection with the Loans (collectively, the "Loan Documents").  All
such Loan(s) shall be included in the Indebtedness.

       

      a.           This
Agreement supplements the terms and conditions of the other Loan
Documents.  Except as otherwise defined herein, all terms used in this
Agreement shall have the same meaning as given in the LIBOR Addendum and/or the
other Loan Documents which are incorporated herein by this
reference.

       

      b.           The
principal and interest on the Loans shall be payable on the terms set forth in
the Notes and/or the other Loan Documents entered into in connection
therewith.  Except as specifically modified hereby, all of the terms
and conditions of the Notes and/or the other Loan Documents shall remain in full
force and effect.

       

      2.5           Borrower
shall pay to Bank:

       

      a.           all
Bank Expenses, as and when they are invoiced to Borrower, and

       

      b.           an
unused commitment fee of 0.25% for the Credit on the average Daily Balance by
which the Credit Limit exceeds the outstanding amount of Credit, payable
quarterly in arrears, with the first quarterly payment on April 1, 2009 and
thereafter on each July 1, October 1, January 1 and April 1 of each
year.  Such unused commitment fee shall be computed on the basis of a
year of 360 days, and shall be assessed for the actual number of days
elapsed.

       

      
        	
                3. 

              	
                TERM.

              

      

       

      3.1           This
Agreement shall remain in full force and effect until the Maturity Date, unless
earlier terminated by notice by Borrower, provided, however, that
notwithstanding any such notice of termination by Borrower, this Agreement shall
remain in full force and effect until the later of (i) the latest maturity date
upon which the Indebtedness or any portion thereof shall be due and payable
hereunder and (ii) the date upon which all Indebtedness is paid in
full.  Notice of such earlier termination by Borrower shall be
effectuated by mailing of a registered or certified letter not less than
ten (10) days prior to the effective date of such termination, addressed to
Bank at the address set forth herein and the termination shall be effective as
of the date so fixed in such notice.  Any commitment of Bank, pursuant
to the terms of this Agreement, to make loans under this Agreement or any other
document, instrument or agreement entered into by Borrower with or in favor of
Bank shall expire on the Maturity Date, subject to Bank’s right to renew said
commitment in its sole and absolute discretion at Borrower’s
request.  Any such renewal of said commitment shall not be binding
upon Bank unless it is in writing and signed by an officer of Bank.

       

      
        
          
          

        

        
          -4-

          
            

          

        

        
          
          

        

      

      LOAN
AND SECURITY AGREEMENT

      (CASH
COLLATERAL ACCOUNT)

       

      3.2           Notwithstanding
the foregoing, should an Event of Default have occurred and be continuing, Bank
may terminate this Agreement at any time upon notice from Bank to
Borrower.  Notwithstanding the foregoing, should either Bank or
Borrower become insolvent or unable to meet its debts as they mature, or fail,
suspend, or go out of business, the other party shall have the right to
terminate this Agreement at any time without notice.  On the date of
termination all Indebtedness shall become immediately due and payable without
notice or demand; provided, however, that no such notice of termination by
Borrower shall be effective until the payment in full in cash of all
Indebtedness to Bank (including without limitation the expiration or cash
collateralization of all Letter of Credit Obligations in accordance with the
terms and conditions of this Agreement).  Any notice of termination
given by Borrower shall be irrevocable unless Bank otherwise agrees in writing,
and Bank shall have no obligation to make any loans or issue any letters of
credit on or after the termination date stated in such
notice.  Borrower may elect to terminate this Agreement in its
entirety only.  No section of this Agreement or type of loan available
hereunder may be terminated singly.

       

      3.3           All
undertakings, agreements, covenants, warranties, and representations of Borrower
contained in this Agreement or any other document, instrument or agreement
entered into with or in favor of Bank in connection herewith shall survive any
such termination, and Bank shall retain its security interest in and to all
existing Collateral and Collateral arising thereafter, any and all liens
thereon, and all of its rights and remedies under this Agreement or any other
document, instrument or agreement entered into with or in favor of Bank in
connection herewith notwithstanding such termination until the payment in full
in cash of all Indebtedness to Bank (including, without limitation, the
expiration or cash collateralization of all Letter of Credit Obligations in
accordance with the terms and conditions of this Agreement and the payment in
full of all applicable termination charges, if any).  Notwithstanding
the satisfaction in full of the Indebtedness, Bank shall not be required to
terminate its security interests in the Collateral unless, with respect to any
loss or damage Bank may incur as a result of dishonored checks or other items of
payment received by Bank and applied to the Indebtedness, Bank shall, at its
option, (a) have received a written agreement, executed by Borrower and by any
Person whose loans or other advances to Borrower are used in whole or in part to
satisfy the Indebtedness, indemnifying Bank from any such loss or damage, or (b)
have retained such monetary reserves and liens on the Collateral for such period
of time as Bank, in its reasonable discretion, may deem necessary to protect
Bank from any such loss or damage.

       

      3.4           After
termination and when Bank has received payment in full of Borrower's
Indebtedness to Bank, Bank shall reassign to Borrower all Collateral held by
Bank, and shall execute and/or file a termination of all security agreements and
security interests given by Borrower to Bank.

       

      
        	
                4. 

              	
                CREATION OF SECURITY
      INTEREST.

              

      

       

      4.1           Borrower
hereby grants to Bank a continuing security interest in all presently existing
and hereafter arising Collateral in order to secure prompt repayment of any and
all Indebtedness owed by Borrower to Bank and in order to secure prompt
performance by Borrower of each and all of its covenants and obligations under
this Agreement and otherwise created. Bank's security interest in the Collateral
shall attach to all Collateral without further act on the part of Bank or
Borrower.

       

      4.2           Bank's
security interest in the Cash Collateral Account shall attach to the Cash
Collateral Account and all sums on deposit therein from time to time without
further act on the part of Bank or Borrower.

       

      4.3           [Intentionally
Deleted].

       

      4.4           Concurrently
with Borrower's execution of this Agreement, and at any time or times hereafter
at the request of Bank, Borrower shall (a) execute and deliver to Bank
security agreements, mortgages, assignments, certificates of title, affidavits,
reports, notices, schedules of accounts, letters of authority and all other
documents that Bank may reasonably request, in form satisfactory to Bank, to
perfect and maintain perfected Bank's security interest in the Collateral and in
order to fully consummate all of the transactions contemplated under this
Agreement, (b) cooperate with Bank in obtaining a control agreement in form
and substance satisfactory to Bank with respect to all deposit accounts,
electronic chattel paper, investment property, and letter-of-credit rights, and
(c) in the event that any Collateral is in the possession of a third party,
Borrower shall join with Bank in notifying such third party of Bank’s security
interest and Borrower shall use its best efforts to obtain an acknowledgment
from such third party that it is holding such Collateral for the benefit of
Bank.  By authenticating or becoming bound by this Agreement, Borrower
authorizes the filing of initial financing statement(s), and any amendment(s)
covering the Collateral to perfect and maintain perfected Bank's security
interest in the Collateral.  Upon the occurrence and during the
continuance of an Event of Default, Borrower hereby irrevocably makes,
constitutes and appoints Bank (and any of Bank's officers, employees or agents
designated by Bank) as Borrower's true and lawful attorney-in-fact with power to
sign the name of Borrower on any security agreement, mortgage, assignment,
certificate of title, affidavit, letter of authority, notice of other similar
documents which must be executed and/or filed in order to perfect or continue
perfected Bank's security interest in the Collateral, and to take such actions
in its own name or in Borrower’s name as Bank, in its sole discretion, deems
necessary or appropriate to establish exclusive possession or control (as
defined in the Uniform Commercial Code) over any Collateral of such nature that
perfection of Bank's security interest may be accomplished by possession or
control.

       

      
        
          
          

        

        
          -5-

          
            

          

        

        
          
          

        

      

      LOAN
AND SECURITY AGREEMENT

      (CASH
COLLATERAL ACCOUNT)

       

      4.5           Borrower
shall make appropriate entries in Borrower's Books disclosing Bank's security
interest in the Cash Collateral Account.  Bank (through any of its
officers, employees or agents) shall have the right at any time or times
hereafter, provided that reasonable notice is provided, during Borrower's usual
business hours, or during the usual business hours of any third party having
control over the records of Borrower, to inspect and verify Borrower's Books in
order to verify the amount or condition of, or any other matter, relating to,
said Collateral and Borrower's financial condition.

       

      4.6           Effective
only upon the occurrence and during the continuance of an Event of Default,
Borrower appoints Bank or any other person whom Bank may designate as Borrower's
attorney-in-fact, with power to do all things necessary to carry out this
Agreement. Borrower ratifies and approves all acts of the
attorney-in-fact.  Neither Bank nor its attorney-in-fact will be
liable for any acts or omissions or for any error of judgement or mistake of
fact or law.  This power being coupled with an interest, is
irrevocable until the Indebtedness has been fully satisfied.

       

      4.7           [Intentionally
Deleted].

       

      4.8           Borrower
agrees that Bank may provide information relating to this Agreement or relating
to Borrower to Bank's parent, affiliates, subsidiaries and service
providers.

       

      
        	
                5. 

              	
                CONDITIONS
      PRECEDENT.

              

      

       

      5.1           As
conditions precedent to the making of the loans and the extension of the
financial accommodations hereunder, Borrower shall execute, or cause to be
executed, and deliver to Bank, in form and substance satisfactory to Bank and
its counsel, the following:

       

      a.           This
Agreement and other documents, instruments and agreements required by
Bank;

       

      b.           If
Borrower is a corporation, limited liability company, limited partnership or
other such entity, certified copies of all actions taken by Borrower, any
grantor of a security interest to Bank to secure the Indebtedness, and any
guarantor of the Indebtedness, authorizing the execution, delivery and
performance of this Agreement and any other documents, instruments or agreements
entered into in connection herewith, and authorizing specific officers to
execute and deliver any such documents, instruments and agreements;

       

      c.           If
Borrower is a corporation, limited liability company, limited partnership or
other such entity, then a certificate of good standing showing that Borrower is
in good standing under the laws of the state of its incorporation or formation
and certificates indicating that Borrower is qualified to transact business and
is in good standing in any other state in which it conducts
business;

       

      d.           If
Borrower is a partnership, then a copy of Borrower's partnership agreement
certified by each general partner of Borrower;

       

      e.           UCC
searches and financing statements, tax lien and litigation searches, fictitious
business statement filings, insurance certificates, notices or other similar
documents which Bank may require and in such form as Bank may require, in order
to reflect, perfect or protect Bank's first priority security interest in the
Collateral and in order to fully consummate all of the transactions contemplated
under this Agreement; and

       

      f.           A
certificate confirming no change in the financial condition of Borrower that
would represent a material adverse change from that reflected in its most recent
financial statements delivered to Bank.

       

      
        	
                6. 

              	
                WARRANTIES.
      REPRESENTATIONS AND
COVENANTS.

              

      

       

      6.1           Borrower
warrants, represents, covenants and agrees that Borrower has good and marketable
title to the Collateral. Bank has and shall continue to have a first priority
perfected security interest in and to the Collateral. The Collateral shall at
all times remain free and clear of all liens, encumbrances and security
interests (except those in favor of Bank);

       

      
        
          
          

        

        
          -6-

          
            

          

        

        
          
          

        

      

      LOAN
AND SECURITY AGREEMENT

      (CASH
COLLATERAL ACCOUNT)

       

      6.2           Borrower
represents, warrants and covenants with Bank that Borrower will not, without
Bank's prior written consent, grant a security interest in or permit a lien,
claim or encumbrance upon any of the Collateral to any person, association,
firm, corporation, entity or governmental agency or
instrumentality.

       

      6.3           Borrower
represents, warrants, covenants and agrees that:

       

      a.           Borrower’s
true and correct legal name is that set forth on the signature page to this
Agreement.  Except as disclosed in writing to Bank on or before the
date of this Agreement, Borrower has not, prior to the date hereof, done
business under any name other than that set forth on the signature page to this
Agreement;

       

      b.           If
Borrower is a registered organization that is organized under the laws of any
one of the states comprising the United States (e.g. corporation, limited
partnership, registered limited liability partnership or limited liability
company), and is located (as determined pursuant to the Uniform Commercial Code)
in the state under the laws of which it was organized, Borrower’s form of
organization and the state in which it has been organized are those set forth
immediately following Borrower’s name on the signature page to this
Agreement;

       

      6.4           If
Borrower is a corporation, Borrower represents, warrants and covenants as
follows:

       

      a.           Borrower
is and shall at all times hereafter be a corporation duly organized and existing
in good standing under the laws of the state of its incorporation and qualified
and licensed to do business in California and in all other states in which such
qualification and/or licensing is required by applicable law for the conduct of
its business;

       

      b.           Borrower
has the right and power and is duly authorized to enter into this Agreement;
and

       

      c.           The
execution by Borrower of this Agreement shall not constitute a breach of any
provision contained in Borrower's articles of incorporation or
by-laws.

       

      6.5           The
execution of and performance by Borrower of all of the terms and provisions
contained in this Agreement shall not result in a breach of or constitute an
event of default under any agreement to which Borrower is now or hereafter
becomes a party.

       

      6.6           All
assessments and taxes, whether real, personal or otherwise, due or payable by,
or imposed, levied or assessed against, Borrower or any of its property have
been paid, and shall hereafter be paid in full, before delinquency, except to
the extent disputed in good faith and for which adequate reserves are maintained
in accordance with GAAP. Borrower shall make due and timely payment or deposit
of all federal, state and local taxes, assessments or contributions required of
it by law, and will execute and deliver to Bank, on demand, appropriate
certificates attesting to the payment or deposit thereof. Borrower will make
timely payment or deposit of all F.I.C.A. payments and withholding taxes
required of it by applicable laws, and will upon request furnish Bank with proof
satisfactory to it that Borrower has made such payments or deposit. If Borrower
fails to pay any such assessment, tax, contribution, or make such deposit, or
furnish the required proof, Bank may, in its sole and absolute discretion and
without notice to Borrower, (i) make payment of the same or any part
thereof, or (ii) set up such reserves in Borrower's loan account as Bank
deems necessary to satisfy the liability therefor, or both. Bank may
conclusively rely on the usual statements of the amount owing or other official
statements issued by the appropriate governmental agency. Each amount so paid or
deposited by Bank shall constitute a Bank Expense and an additional advance to
Borrower.

       

      6.7           As
of the date hereof and except as heretofore specifically disclosed in writing to
Bank, there are no actions or proceedings pending by or against Borrower or any
guarantor of Borrower before any court or administrative agency and Borrower has
no knowledge of any pending, threatened or imminent litigation, governmental
investigations or claims, complaints, actions or prosecutions involving Borrower
or any guarantor of Borrower, in each case which could reasonably be expected to
result in a judgment against Borrower or any such guarantor in excess of
$500,000.  If any of the foregoing arise during the term of the
Agreement, Borrower shall immediately notify Bank in writing.

       

      6.8           All
financial statements and information relating to Borrower which have been or may
hereafter be delivered by Borrower to Bank are true and correct and have been
prepared in accordance with GAAP consistently applied and there has been no
material adverse change in the financial condition of Borrower since the
submission of such financial information to Bank.

       

      
        
          
          

        

        
          -7-

          
            

          

        

        
          
          

        

      

      LOAN
AND SECURITY AGREEMENT

      (CASH
COLLATERAL ACCOUNT)

       

      6.9           Financial
Reporting.

       

      a.           Borrower
at all times hereafter shall maintain a standard and modern system of accounting
in accordance with GAAP consistently applied with ledger and account cards
and/or computer tapes and computer disks, computer printouts and computer
records pertaining to the Collateral which contain information as may from time
to time be requested by Bank, not modify or change its method of accounting or
enter into, modify or terminate any agreement presently existing, or at any time
hereafter entered into with any third party accounting firm and/or service
bureau for the preparation and/or storage of Borrower's accounting records
without the written consent of Bank first obtained and without said accounting
firm and/or service bureau agreeing to provide information regarding Borrower's
financial condition to Bank.

       

      b.           Borrower
shall deliver to Bank within ninety (90) days after the end of each of
Borrower's fiscal years, a CPA audited statement of the financial condition of
Borrower for each such fiscal year, including but not limited to, a balance
sheet and profit and loss statement and any other report requested by Bank
relating to the Collateral and the financial condition of Borrower, and a
certificate signed by an authorized employee of Borrower to the effect that all
reports, statements, computer disk or tape files, computer printouts, computer
runs, or other computer prepared information of any kind or nature relating to
the foregoing or documents delivered or caused to be delivered to Bank under
this subparagraph are complete, correct and thoroughly present the financial
condition of Borrower and that there exists on the date of delivery to Bank no
condition or event which constitutes a breach or Event of Default under this
Agreement.  In the event that Borrower is a public company, Borrower's
filing of its Annual Report on Form 10-K within the timeframe set forth above,
shall be deemed compliance with the requirements of this Subsection 6.9(b)
regarding delivery of Borrower's financial statements.

       

      6.10         Borrower
shall promptly supply Bank (and cause any guarantor to supply Bank) with such
other information (including tax returns) concerning its financial affairs (or
that of any guarantor) as Bank may reasonably request from time to time
hereafter, and shall promptly notify Bank of any material adverse change in
Borrower's financial condition and of any condition or event which constitutes a
breach of or an event which constitutes an Event of Default under this
Agreement.

       

      6.11         Borrower
is now and shall be at all times hereafter solvent and able to pay its debts
(including trade debts) as they mature.

       

      6.12         Borrower
shall immediately and without demand reimburse Bank for all sums expended by
Bank in connection with any action brought by Bank to correct any default or
enforce any provision of this Agreement, including all Bank Expenses; Borrower
authorizes and approves all advances and payments by Bank for items described in
this Agreement as Bank Expenses.

       

      6.13         Each
warranty, representation and agreement contained in this Agreement shall
automatically be deemed repeated with each advance and shall be conclusively
presumed to have been relied on by Bank regardless of any investigation made or
information possessed by Bank. The warranties, representations and agreements
set forth herein shall be cumulative and in addition to any and all other
warranties, representations and agreements which Borrower shall give, or cause
to be given, to Bank, either now or hereafter.

       

      6.14         Borrower
shall furnish to Bank:  (a) as soon as possible, but in no event
later than thirty (30) days after Borrower knows or has reason to know that
any reportable event with respect to any deferred compensation plan has
occurred, a statement of the chief financial officer of Borrower setting forth
the details concerning such reportable event and the action which Borrower
proposes to take with respect thereto, together with a copy of the notice of
such reportable event given to the Pension Benefit Guaranty Corporation, if a
copy of such notice is available to Borrower; (b) promptly after the filing
thereof with the United States Secretary of Labor or the Pension Benefit
Guaranty Corporation, copies of each annual report with respect to each deferred
compensation plan; (c) promptly after receipt thereof, a copy of any notice
Borrower may receive from the Pension Benefit Guaranty Corporation or the
Internal Revenue Service with respect to any deferred compensation plan; provided, however, this
subparagraph shall not apply to notice of general application issued by the
Pension Benefit Guaranty Corporation or the Internal Revenue Service; and
(d) when the same is made available to participants in the deferred
compensation plan, all notices and other forms of information from time to time
disseminated to the participants by the administrator of the deferred
compensation plan.

       

      
        
          
          

        

        
          -8-

          
            

          

        

        
          
          

        

      

      LOAN
AND SECURITY AGREEMENT

      (CASH
COLLATERAL ACCOUNT)

       

      6.15         Borrower
is now and shall at all times hereafter remain in compliance in all material
respects with all federal, state and municipal laws, regulations and ordinances
relating to the handling, treatment and disposal of toxic substances, wastes and
hazardous material and shall maintain all necessary authorizations and
permits.

       

      6.16         Restrictions on Withdrawals
From Cash Collateral Account.  Borrower shall maintain at least
One Million Dollars ($1,000,000.00) on deposit at all times in the Cash
Collateral Account.  Borrower shall be allowed to withdraw funds from
the Cash Collateral Account only if (i) no Event of Default has occurred and is
continuing, and (ii) following such withdrawal, there is at least $1,000,000.00
remaining on deposit in the Cash Collateral Account.

       

      
        	
                7. 

              	
                EVENTS OF
      DEFAULT.

              

      

       

      The
occurrence of any one or more of the following events shall constitute an Event
of Default by Borrower under this Agreement:

       

      a.           If
Borrower fails or neglects to perform, keep or observe any term, provision,
condition, covenant, agreement, warranty or representation contained in this
Agreement, or any other present or future document, instrument or agreement
between Borrower and Bank, which failure shall continue for thirty (30) days
after notice thereof has been given by Bank to Borrower;

       

      b.           If
any representation, statement, report or certificate made or delivered by
Borrower, or any of its officers, employees or agents to Bank is not true and
correct in any material respect;

       

      c.           If
Borrower fails to pay when due and payable or declared due and payable, all or
any portion of Borrower's Indebtedness (whether of principal, interest, taxes,
reimbursement of Bank Expenses, or otherwise), provided that such failure
continues for three (3) Business Days;

       

      d.           If
there is a material impairment of the value or priority of Bank's security
interest in the Collateral;

       

      e.           If
all or a material amount of Borrower's assets are attached, seized, subject to a
writ or distress warrant, or are levied upon, or come into the possession of any
Judicial Officer or Assignee and the same are not released, discharged or bonded
against within twenty (20) days thereafter;

       

      f.           If
any Insolvency Proceeding is filed or commenced by or against Borrower without
being dismissed within thirty (30) days thereafter;

       

      g.           If
any proceeding is filed or commenced by or against Borrower for its dissolution
or liquidation which is not dismissed within thirty (30) days
thereafter;

       

      h.           If
Borrower is enjoined, restrained or in any way prevented by court order from
continuing to conduct all or any material part of its business affairs for a
period of more than ten (10) days;

       

      i.           If
a notice of lien, levy or assessment in excess of $200,000 is filed of record
with respect to any or all of Borrower's assets by the United States Government,
or any department, agency or instrumentality thereof, or by any state, county,
municipal or other government agency, or if any taxes or debts owing at any time
hereafter in excess of $200,000 to any one or more of such entities becomes a
lien, whether inchoate or otherwise, upon any or all of Borrower's assets and
the same is not paid on the payment date thereof;

       

      j.           If
a judgment or other claim becomes a lien or encumbrance upon all or any material
portion of Borrower's assets and the same is not satisfied, dismissed or bonded
against within twenty (20) days thereafter;

       

      k.           If
Borrower permits a default in any material agreement to which Borrower is a
party with third parties in excess of $200,000 so as to result in an
acceleration of the maturity of Borrower's indebtedness to others, whether under
any indenture, agreement or otherwise;

       

      l.           If
Borrower makes any payment on account of indebtedness which has been
subordinated to Borrower's Indebtedness to Bank except as otherwise permitted
under the terms of this Agreement;

       

      
        
          
          

        

        
          -9-

          
            

          

        

        
          
          

        

      

      LOAN
AND SECURITY AGREEMENT

      (CASH
COLLATERAL ACCOUNT)

       

      m.           If
any reportable event, which Bank determines constitutes grounds for the
termination of any deferred compensation plan by the Pension Benefit Guaranty
Corporation or for the appointment by the appropriate United States District
Court of a trustee to administer any such plan, shall have occurred and be
continuing thirty (30) days after written notice of such determination
shall have been given to Borrower by Bank, or any such Plan shall be terminated
within the meaning of Title IV of the Employment Retirement Income Security Act
("ERISA"), or a trustee shall be appointed by the appropriate United States
District Court to administer any such plan, or the Pension Benefit Guaranty
Corporation shall institute proceedings to terminate any plan and in case of any
event described in this Section 7, the
aggregate amount of Borrower's liability to the Pension Benefit Guaranty
Corporation under Sections 4062, 4063 or 4064 of ERISA shall exceed five
percent (5%) of Borrower's Tangible Effective Net Worth.

       

      
        	
                8. 

              	
                BANK'S RIGHTS AND
      REMEDIES.

              

      

       

      8.1           Upon
the occurrence of an Event of Default by Borrower under this Agreement, Bank
may, at its election, without notice of its election and without demand, do any
one or more of the following, all of which are authorized by
Borrower:

       

      a.           Declare
Borrower's Indebtedness, whether evidenced by this Agreement, installment notes,
demand notes or otherwise, immediately due and payable to Bank;

       

      b.           Cease
advancing money or extending credit to or for the benefit of Borrower under this
Agreement, or any other agreement between Borrower and Bank;

       

      c.           Terminate
this Agreement as to any future liability or obligation of Bank, but without
affecting Bank's rights and security interests in the Collateral, and the
Indebtedness of Borrower to Bank;

       

      d.           Without
notice to or demand upon Borrower or any guarantor, make such payments and do
such acts as Bank considers necessary or reasonable to protect its security
interest in the Collateral. Borrower agrees to assemble the Collateral if Bank
so requires and to make the Collateral available to Bank as Bank may designate.
Borrower authorizes Bank to enter the premises where the Collateral is located,
take and maintain possession of the Collateral and the premises (at no charge to
Bank), or any part thereof, and to pay, purchase, contest or compromise any
encumbrance, charge or lien which in the opinion of Bank appears to be prior or
superior to its security interest and to pay all expenses incurred in connection
therewith;

       

      e.           [Intentionally
Deleted];

       

      f.           [Intentionally
Deleted];

       

      g.           [Intentionally
Deleted];

       

      h.           [Intentionally
Deleted];

       

      i.           Borrower
shall pay all Bank Expenses incurred in connection with Bank's enforcement and
exercise of any of its rights and remedies as herein provided, whether or not
suit is commenced by Bank;

       

      j.           Any
deficiency which exists after disposition of the Collateral as provided above
will be paid immediately by Borrower. Any excess will be returned, without
interest and subject to the rights of third parties, to Borrower by Bank, or, in
Bank's discretion, to any party who Bank believes, in good faith, is entitled to
the excess;

       

      k.           Without
constituting a retention of Collateral in satisfaction of an obligation within
the meaning of 9620 of the Uniform Commercial Code or an action under California
Code of Civil Procedure 726, apply any and all amounts maintained by
Borrower as deposit accounts (as that term is defined under 9102 of the Uniform
Commercial Code) or other accounts that Borrower maintains with Bank against the
Indebtedness;

       

      l.           The
proceeds of any sale or other disposition of Collateral authorized by this
Agreement shall be applied by Bank first upon all expenses authorized by the
Uniform Commercial Code and all reasonable attorney fees and legal expenses
incurred by Bank, whether in-house or outside counsel is used, the balance of
the proceeds of the sale or other disposition shall be applied in the payment of
the Indebtedness, first to interest, then to principal, then to remaining
Indebtedness and the surplus, if any, shall be paid over to Borrower or to such
other person(s) as may be entitled to it under applicable
law.  Borrower shall remain liable for any deficiency, which it shall
pay to Bank immediately upon demand.  Borrower agrees that Bank shall
be under no obligation to accept any noncash proceeds in connection with any
sale or disposition of Collateral unless failure to do so would be commercially
unreasonable.  If Bank agrees in its sole discretion to accept noncash
proceeds (unless the failure to do so would be commercially unreasonable), Bank
may ascribe any commercially reasonable value to such
proceeds.  Without limiting the foregoing, Bank may apply any discount
factor in determining the present value of proceeds to be received in the future
or may elect to apply proceeds to be received in the future only as and when
such proceeds are actually received in cash by Bank; and

       

      
        
          
          

        

        
          -10-

          
            

          

        

        
          
          

        

      

      LOAN
AND SECURITY AGREEMENT

      (CASH
COLLATERAL ACCOUNT)

       

      m.           [Intentionally
Deleted].

       

      8.2           In
addition to any and all other rights and remedies available to Bank under or
pursuant to this Agreement or any other documents, instrument or agreement
contemplated hereby, Borrower acknowledges and agrees that (i) at any time
following the occurrence and during the continuance of any Event of Default,
and/or (ii) termination of Bank's commitment or obligation to make loans or
advances or otherwise extend credit to or in favor of Borrower hereunder, in the
event that and to the extent that there are any Letter of Credit Obligations
outstanding at such time, upon demand of Bank, Borrower shall deliver to Bank,
or cause to be delivered to Bank, to the extent not already on deposit in the
Cash Collateral Account, cash collateral in an amount not less than such Letter
of Credit Obligations, which cash collateral shall be held and retained by Bank
as cash collateral for the repayment of such Letter of Credit Obligations,
together with any and all other Indebtedness of Borrower to Bank remaining
unpaid, and Borrower pledges to Bank and grants to Bank a continuing first
priority security interest in such cash collateral so delivered to
Bank.  Alternatively, Borrower shall cause to be delivered to Bank an
irrevocable standby letter of credit issued in favor of Bank by a bank
acceptable to Bank, in its sole discretion, in an amount not less than such
Letter of Credit Obligations, and upon terms acceptable to Bank, in its sole
discretion.

       

      8.3           Bank's
rights and remedies under this Agreement and all other agreements shall be
cumulative. Bank shall have all other rights and remedies not inconsistent
herewith as provided by law or in equity. No exercise by Bank of one right or
remedy shall be deemed an election, and no waiver by Bank of any default on
Borrower's part shall be deemed a continuing waiver. No delay by Bank shall
constitute a waiver, election or acquiescence by Bank.

       

      9.            
TAXES AND EXPENSES
REGARDING BORROWER'S PROPERTY.  If Borrower fails to pay
promptly when due to another person or entity, monies which Borrower is required
to pay by reason of any provision in this Agreement, Bank may, but need not, pay
the same and charge Borrower's loan account therefor, and Borrower shall
promptly reimburse Bank.  All such sums shall become additional
Indebtedness owing to Bank, shall bear interest at the rate hereinabove
provided, and shall be secured by all Collateral.  Any payments made
by Bank shall not constitute (i) an agreement by it to make similar
payments in the future, or (ii) a waiver by Bank of any default under this
Agreement.  Bank need not inquire as to, or contest the validity of,
any such expense, tax, security interest, encumbrance or lien and the receipt of
the usual official notice of the payment thereof shall be conclusive evidence
that the same was validly due and owing.  Such payments shall
constitute Bank Expenses and additional advances to Borrower.

       

      
        	
                10. 

              	
                WAIVERS.

              

      

       

      10.1         Borrower
agrees that checks and other instruments received by Bank in payment or on
account of Borrower's Indebtedness constitute only conditional payment until
such items are actually paid to Bank and Borrower waives the right to direct the
application of any and all payments at any time or times hereafter received by
Bank on account of Borrower's Indebtedness and Borrower agrees that Bank shall
have the continuing exclusive right to apply and reapply such payments in any
manner as Bank may deem advisable, notwithstanding any entry by Bank upon its
books.

       

      10.2         Borrower
waives demand, protest, notice of protest, notice of default or dishonor, notice
of payment and nonpayment, notice of any default, nonpayment at maturity,
release, compromise, settlement, extension or renewal of any or all commercial
paper, accounts, documents, instruments, chattel paper, and guarantees at any
time held by Bank on which Borrower may in any way be liable.

       

      10.3         [Intentionally
Deleted].

       

      10.4         Borrower
waives the right and the right to assert a confidential relationship, if any, it
may have with any accountant, accounting firm and/or service bureau or
consultant in connection with any information requested by Bank pursuant to or
in accordance with this Agreement, and agrees that Bank may contact directly any
such accountants, accounting firm and/or service bureau or consultant in order
to obtain such information.

       

      
        
          
          

        

        
          -11-

          
            

          

        

        
          
          

        

      

      LOAN
AND SECURITY AGREEMENT

      (CASH
COLLATERAL ACCOUNT)

       

      10.5         [Intentionally
Deleted].

       

      10.6         THE UNDERSIGNED AND THE BANK
ACKNOWLEDGE THAT THE RIGHT TO TRIAL BY JURY IS A CONSTITUTIONAL ONE, BUT THAT IT
MAY BE WAIVED UNDER CERTAIN CIRCUMSTANCES.  TO THE EXTENT PERMITTED BY
LAW,.  EACH PARTY, AFTER CONSULTING (OR HAVING HAD THE OPPORTUNITY TO
CONSULT) WITH COUNSEL OF THEIR CHOICE, KNOWINGLY AND VOLUNTARILY, AND FOR THEIR
MUTUAL BENEFIT, WAIVES ANY RIGHT TO TRIAL BY JURY IN THE EVENT OF LITIGATION
REGARDING THE PERFORMANCE OR ENFORCEMENT OF, OR IN ANY WAY RELATED TO, THIS
AGREEMENT OR THE INDEBTEDNESS.

       

      10.7         [Intentionally
Deleted].

       

      10.8         In
the event that Bank elects to waive any rights or remedies hereunder, or
compliance with any of the terms hereof, or delays or fails to pursue or enforce
any term, such waiver, delay or failure to pursue or enforce shall only be
effective with respect to that single act and shall not be construed to affect
any subsequent transactions or Bank's right to later pursue such rights and
remedies.

       

      11.           ONE CONTINUING LOAN
TRANSACTION.  All loans and advances heretofore, now or at any
time or times hereafter made by Bank to Borrower under this Agreement or any
other agreement between Bank and Borrower, shall constitute one loan secured by
Bank's security interests in the Collateral and by all other security interests,
liens, encumbrances heretofore, now or from time to time hereafter granted by
Borrower to Bank.

       

      Notwithstanding
the above, (i) to the extent that any portion of the Indebtedness is a
consumer loan, that portion shall not be secured by any deed of trust or
mortgage on or other security interest in Borrower's principal dwelling which is
not a purchase money security interest as to that portion, unless expressly
provided to the contrary in another place, or (ii) if Borrower (or any of
them) has (have) given or give(s) Bank a deed of trust or mortgage covering real
property, that deed of trust or mortgage shall not secure the loan and any other
Indebtedness of Borrower (or any of them), unless expressly provided to the
contrary in another place.

       

      12.           NOTICES. Unless
otherwise provided in this Agreement, all notices or demands by either party on
the other relating to this Agreement shall be in writing and shall be sent by
personal delivery, national overnight courier or regular United States mail,
postage prepaid, in each case properly addressed to Borrower or to Bank at the
addresses stated in this Agreement, or to such other addresses as Borrower or
Bank may from time to time specify to the other in writing.  Notices
sent by personal delivery or national overnight courier shall be deemed
delivered upon completion of delivery or when proper delivery is
refused.  Notices sent by United States mail shall be deemed delivered
upon the third business day after the date of mailing.  Requests for
information made to Borrower by Bank from time to time hereunder may be made
orally or in writing, at Bank’s discretion.

       

      13.           AUTHORIZATION TO
DISBURSE.  Bank is hereby authorized to make loans and advances
hereunder upon telephonic or other instructions received from anyone purporting
to be an officer, employee, or representative of Borrower, or at the discretion
of Bank if said loans and advances are necessary to meet any Indebtedness of
Borrower to Bank. Bank shall have no duty to make inquiry or verify the
authority of any such party, and Borrower shall hold Bank harmless from any
damage, claims or liability by reason of Bank's honor of, or failure to honor,
any such instructions.

       

      14.           PAYMENTS.  Borrower
hereby authorizes Bank to deduct the full amount of any interest, fees, costs,
or Bank Expenses due under this Agreement and not paid or collected when due in
accordance with the terms and conditions hereof from any account maintained by
Borrower with Bank.  Should there be insufficient funds in any such
account to pay all such sums when due, the full amount of such deficiency shall
be immediately due and payable by Borrower; provided, however, that Bank
shall not be obligated to advance funds to cover any such payment.

       

      15.           DESTRUCTION OF BORROWER'S
DOCUMENTS.  Any documents, schedules, invoices or other papers
delivered to Bank, may be destroyed or otherwise disposed of by Bank
six (6) months after they are delivered to or received by Bank, unless
Borrower requests, in writing, the return of the said documents, schedules,
invoices or other papers and makes arrangements, at Borrower's expense, for
their return.

       

      16.           CHOICE OF
LAW.  The validity of this Agreement, its construction,
interpretation and enforcement, and the rights of the parties hereunder and
concerning the Collateral, shall be determined according to the laws of the
State of California.  The parties agree that all actions or
proceedings arising in connection with this Agreement shall be tried and
litigated only in the state and federal courts in California.

       

      
        
          
          

        

        
          -12-

          
            

          

        

        
          
          

        

      

      
        LOAN
AND SECURITY AGREEMENT

        (CASH
COLLATERAL ACCOUNT)

         

      

      
        	
                17. 

              	
                GENERAL
      PROVISIONS.

              

      

       

      17.1          This
Agreement shall be binding and deemed effective when executed by Borrower and
accepted and executed by Bank at its Western Market headquarters
office.

       

      17.2          This
Agreement shall bind and inure to the benefit of the respective successors and
assigns of each of the parties; provided, however, that
Borrower may not assign this Agreement or any rights hereunder without Bank's
prior written consent and any prohibited assignment shall be absolutely
void.  No consent to an assignment by Bank shall release Borrower or
any guarantor from their obligations to Bank.  Bank may assign this
Agreement and its rights and duties hereunder.  Bank reserves the
right to sell, assign, transfer, negotiate or grant participations in all or any
part of, or any interest in Bank's rights and benefits hereunder.  In
connection therewith, Bank  may disclose all documents and information
which Bank now or hereafter may have relating to Borrower or Borrower's
business.  If Bank grants a participation interest in Bank's rights
and benefits hereunder, Bank shall still retain all of its obligations
hereunder.

       

      17.3          Paragraph
headings and paragraph numbers have been set forth herein for convenience only;
unless the contrary is compelled by the context, everything contained in each
paragraph applies equally to this entire Agreement.  Unless the
context of this Agreement clearly requires otherwise, references to the plural
include the singular, references to the singular include the plural, and the
term “including” is not limiting.  The words “hereof,” “herein,”
“hereby,” “hereunder,” and similar terms in this Agreement refer to this
Agreement as a whole and not to any particular provision of this
Agreement.

       

      17.4          Neither
this Agreement nor any uncertainty or ambiguity herein shall be construed or
resolved against Bank or Borrower, whether under any rule of construction or
otherwise; on the contrary, this Agreement has been reviewed by all parties and
shall be construed and interpreted according to the ordinary meaning of the
words used so as to fairly accomplish the purposes and intentions of all parties
hereto.

       

      17.5          Each
provision of this Agreement shall be severable from every other provision of
this Agreement for the purpose of determining the legal enforceability of any
specific provision.

       

      17.6          This
Agreement cannot be changed or terminated orally.  This Agreement
contains the entire agreement of the parties hereto and supersedes all prior
agreements, understandings, representations, warranties and negotiations, if
any, related to the subject matter hereof, and none of the parties shall be
bound by anything not expressed in writing.

       

      17.7          The
parties intend and agree that their respective rights, duties, powers,
liabilities, obligations and discretions shall be performed, carried out,
discharged and exercised reasonably and in good faith.

       

      17.8          In
addition, if this Agreement is secured by a deed of trust or mortgage covering
real property, then the trustor or mortgagor shall not mortgage or pledge the
mortgaged premises as security for any other indebtedness or
obligations.  This Agreement, together with all other indebtedness
secured by said deed of trust or mortgage, shall become due and payable
immediately, without notice, at the option of Bank, (a) if said trustor or
mortgagor shall mortgage or pledge the mortgaged premises for any other
indebtedness or obligations or shall convey, assign or transfer the mortgaged
premises by deed, installment sale contract or other instrument; (b) if the
title to the mortgaged premises shall become vested in any other person or party
in any manner whatsoever, or (c) if there is any disposition (through one
or more transactions) of legal or beneficial title to a controlling interest of
said trustor or mortgagor.

       

      17.9          Each
undersigned Borrower hereby agrees that it is jointly and severally, directly,
and primarily liable to Bank for payment and performance in full of all duties,
obligations and liabilities under this Agreement and each other document,
instrument and agreement entered into by Borrower with or in favor of Bank in
connection herewith, and that such liability is independent of the duties,
obligations and liabilities of any other Borrower or any other guarantor of the
Indebtedness, as applicable.  Each reference herein to Borrower shall
mean each and every Borrower party hereto, individually and collectively,
jointly and severally.

       

      17.10      
This Agreement may be executed by the parties hereto in several counterparts,
each of which shall be deemed to be an original and all of which shall
constitute together but one and the same agreement. This Agreement, together
with each other document, instrument and agreement entered into with or in favor
of Bank in connection herewith, constitute the entire understanding among the
parties hereto, written or oral, with respect to the subject matter
hereof.

       

      17.11      
TERMINATION OF ANDALAY
GUARANTY AND ANDALAY SECURITY AGREEMENT.  The Andalay Guaranty
and the Andalay Security Agreement are hereby terminated.  Bank hereby
confirms that Andalay shall have no further liability under the Andalay Guaranty
and the Andalay Security Agreement.

       

      17.12      
AMENDMENT AND
RESTATEMENT.  The Prior Agreement is hereby amended and
restated in its entirety by this Agreement.

       

      
        
          
          

        

        
          -13-

          
            

          

        

        
          
          

        

      

      
        LOAN
AND SECURITY AGREEMENT

        (CASH
COLLATERAL ACCOUNT)

         

      

      IN
WITNESS WHEREOF, the parties hereto have caused this Loan and Security Agreement
(Accounts and Inventory) to be executed as of the date first hereinabove
written.

       

      
        	Accepted and
      effective as of February 10, 2009 at Bank’s Western Market Headquarters
      Office	 	

                BORROWER:

                 

                AKEENA
      SOLAR, INC., a Delaware corporation

              
	BANK:	 	 	 
	 	 	 	By: 	 /s/ Gary
      Effren
	

                

                  COMERICA
      BANK

                

              	 	 	 Gary Effren,
      its CFO
	

                 

              	 	 	 	 
	By:  	/s/ Reed
      Geisreiter	 	 	 
	 	

                Reed
      Geisreiter,

                First
      Vice President-Western Market

              	 	 	Address for
      Notices:
	 	 	 	 	 
	 	 	 	 	

                16005
      Los Gatos Blvd.

                Los
      Gatos, California 95032

              
	

                Address
      for Notices:

                 

                75
      East Trimble Road

                San
      Jose, California 95131

                Attn:  Credit
      Manager

                Fax
      number:  (408) 556-5097

              	 	 	 

      

       

      
        
          
          

        

        
          -14-

          
            

          

        

        
          
          

        

      

      LOAN
AND SECURITY AGREEMENT

      (CASH
COLLATERAL ACCOUNT)

       

      LIBOR
ADDENDUM

       

      (To be
Attached)

       

      
        
          
          

        

        
          
            
              	
                      LIBOR
      ADDENDUM – Page - 1Employment Agreement, Richard H. Sharpe

 Exhibit 10.1 
 EMPLOYMENT AGREEMENT 
 This Employment Agreement (the “Agreement”) is entered into as of
March 3, 2009, by and between PICO Holdings, Inc., a California corporation (the “Company”), and Richard H. Sharpe (“Executive”). 
 RECITALS 
  

			
	 A.
	  	The Company believes it is prudent and appropriate to build and operate businesses where significant value can be created from the development of unique assets, and to acquire businesses
which the Company identifies as undervalued, and where the Company’s participation can aid in the recognition of the businesses’ fair value, as well as create additional value.
		
	 B.
	  	The Company believes that Executive possesses unique skills, knowledge, and experience in pursuing the Company’s goals.
		
	 C.
	  	The Company believes that it is imperative that it be able to rely on Executive’s skills and services for a reasonable time in the future.
		
	 D.
	  	Executive is currently the Executive Vice President and Chief Operating Officer of the Company and the Company wishes to continue his employment in such capacity.

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

 1. Duties and Scope of Employment. 
 (a) Positions and Duties. Executive will continue to serve as the Company’s Executive Vice President and Chief Operating Officer. Executive will report to the Company’s Board of Directors (the
“Board”) and the Company’s Chief Executive Officer (the “CEO”). Executive will render such business and professional services in the performance of his duties, consistent with Executive’s position within the Company, as
will reasonably be assigned to him by the Board and the CEO. The period Executive is employed by the Company under this Agreement is referred to herein as the “Employment Term”. 
 (b) Obligations. During the Employment Term, Executive will devote Executive’s full business efforts and time to the Company
and will use good faith efforts to discharge Executive’s obligations under this Agreement to the best of Executive’s ability and in accordance with each of the Company’s corporate guidance and ethics guidelines, conflict of interests
policies and code of conduct. For the duration of the Employment Term, Executive agrees not to actively engage in any other employment, occupation, or consulting activity for any direct or indirect remuneration without the prior approval of the
Board (which approval will not be unreasonably withheld); provided, however, that Executive may, without the approval of the Board, serve in any capacity with any civic, educational, or charitable organization, provided such services do not
interfere with Executive’s obligations to Company. 
  

 -1- 

 (c) Other Entities. Executive agrees to serve and will be appointed, without
additional compensation, as an officer and director for each of the Company’s subsidiaries, partnerships, joint ventures, limited liability companies and other affiliates, including entities in which the Company has a significant investment as
determined by the Company. As used in this Agreement, the term “affiliates” will include any entity controlled by, controlling, or under common control of the Company. 
 2. At-Will Employment. Subject to the terms of this Agreement, Executive and the Company agree that Executive’s employment with the Company
constitutes “at-will” employment. Executive and the Company acknowledge that this employment relationship may be terminated at any time, upon written notice to the other party, with or without good cause or for any or no cause, at the
option either of the Company or Executive. However, as described in this Agreement, Executive may be entitled to severance benefits depending upon the circumstances of Executive’s termination of employment. 
 3. Compensation. 
 (a)
Base Salary. During the Employment Term and as long as Executive is employed by the Company, the Company will pay Executive an annual salary of $362,323 as compensation for his services (such annual salary, as is then effective, to be
referred to herein as “Base Salary”). The Base Salary will be paid periodically in accordance with the Company’s normal payroll practices and be subject to all applicable withholdings. The Base Salary shall be subject to review no
less frequently than annually, in accordance with the Company’s normal and customary practices, at such time or times as the Company’s other senior executives as a group are reviewed, and may be increased, but not decreased, by the Board
or by the Compensation Committee of the Board (the “Committee”) at any time or from time to time as the Board or Committee deems appropriate. 
 (b) Annual Incentive, Performance or Discretionary Awards. Executive will be eligible to receive annual cash incentives as determined by the Board or by the Committee. 
 (i) During the Employment Term and as long as Executive is employed by the Company, Executive shall be entitled to receive an annual cash
performance award (“Annual Award”) based on the performance, incentive or discretionary award as determined by the Compensation Committee with respect to the Company’s current CEO, John R. Hart, pursuant to his employment agreement,
dated May 7, 2007, as amended, or otherwise (collectively, the “Reference Amount”). For clarity and subject to the terms hereof, Executive shall be entitled to an annual cash incentive award calculated as follows: 
 Annual Award = (Reference Amount divided by CEO base salary) multiplied by Base Salary. 
 Such annual performance award shall be paid within 2 and  1/
2 months after the end of the fiscal year in which Executive performed the services for which in Incentive Award relates. 
  

 -2- 

 (ii) During the Employment Term
and as long as Executive is employed by the Company, Executive shall be entitled to receive annual or other periodic discretionary cash or other incentive bonus as the Board or the Committee shall determine, in their sole discretion, from time to
time, may be appropriate. Such bonus shall be paid within 2 and  1/2 months after the end of the fiscal year in which Executive
completed the services for which in Incentive Award relates 
 (c) Restricted Stock Units. The Company, through
the Board, will grant on the date hereof to Executive, 80,000 Restricted Stock Units pursuant to the PICO Holdings, Inc. 2005 Long-Term Incentive Plan (the “Plan”). The terms of the Restricted Stock Units shall be governed by the Plan and
the Participant’s Award Agreement, as defined in the Plan. Subject to the terms hereof and the Plan, such Restricted Stock Units shall unconditionally, fully and completely vest three (3) years from the Effective Date. 
 4. Executive Benefits. Executive will be eligible to participate in accordance with the terms of all Company employee benefit plans, policies and
arrangements that are applicable to other executive officers of the Company, as such plans, policies and arrangements may exist from time to time. The Company reserves the right to modify, suspend or discontinue any and all of its benefits referred
to in this Section at any time without recourse by Executive so long as such action is taken generally with respect to other similarly situated peer executives and does not single out Executive. 
 5. Expenses. The Company will reimburse Executive for reasonable travel, entertainment and other expenses incurred by Executive in the furtherance
of the performance of Executive’s duties hereunder, in accordance with the Company’s expense reimbursement policy as in effect from time to time. Any such reimbursements that are unpaid by the Company shall be paid to Executive no later
than the last day of Executive’s taxable year following the year in which the expense was incurred. 
 6. Termination of
Employment. In the event Executive’s employment with the Company terminates for any reason, including death or Disability, defined below, Executive will be entitled to any (a) unpaid Base Salary accrued up to the effective date of
termination; (b) unpaid, but earned and accrued annual incentive for any completed fiscal year as of his termination of employment; (c) pay for accrued but unused vacation; (d) benefits or compensation as provided under the terms of
any employee benefit and compensation agreements or plans applicable to Executive through the date of his termination; (e) unreimbursed business expenses required to be reimbursed to Executive in accordance with Section 5; and
(f) rights to indemnification Executive may have under the Company’s Articles of Incorporation, Bylaws, the Agreement, or separate indemnification agreement, as applicable. In addition, Executive will be entitled to the applicable
severance benefits specified in Section 7. 
 7. Severance. 
 (a) Termination Without Cause, Resignation for Good Reason other than in Connection with a Change of Control. If Executive’s
employment is terminated on or before the end of the Employment Term by the Company without Cause, or if Executive resigns for Good Reason, then, subject to Executive’s compliance with his obligations under Section 8, as of the termination
date, Executive will receive: (i) a lump sum payment equal to twelve (12) months of Base Salary plus an amount equal to the Target Amount, if any, for the year in which the termination occurs (less all applicable withholdings);
(ii) immediate, complete, and full vesting with respect to Executive’s 

  

 -3- 

 
then outstanding, unvested equity awards (other than any awards that vest based on performance); and (iii) reimbursement for any premiums paid for
continued health benefits for Executive (and any eligible dependents) under the Company’s health plans, if Executive and such dependents are covered under such plans, until the earlier of (i) eighteen (18) months, payable upon the
Company’s receipt of proof of payment (provided Executive validly elects to continue coverage under the Consolidated Omnibus Budget Reconciliation Act (“COBRA”), or (ii) the date upon which Executive and Executive’s eligible
dependents become covered under similar plans. 
 (b) Termination Without Cause or Resignation for Good Reason in
Connection with a Change of Control; Termination upon Death or Disability. If Executive’s employment is terminated on or before the end of the Employment Term by the Company without Cause or by Executive for Good Reason, and the termination
is in Connection with a Change of Control, or upon death or Disability, then, subject to Executive’s compliance with his obligations under Section 8, as of the termination date, Executive will receive: (i) a lump sum payment equal to
twenty-four (24) months of Base Salary plus an amount equal to twice the Target Amount, if any, for the year in which the termination occurs (less applicable tax withholdings); (ii) immediate, full, and complete vesting with respect to
Executive’s then outstanding unvested equity awards; and (iii) reimbursement for premiums paid for continued health benefits for Executive (and any eligible dependents) under the Company’s health plans until the earlier of
(i) twenty four (24) months, payable upon the Company’s receipt of proof of payment (provided Executive validly elects to continue coverage under COBRA), or (ii) the date upon which Executive and Executive’s eligible
dependents become covered under similar plans. 
 (c) Voluntary Termination Without Good Reason or Termination for
Cause. If Executive’s employment is terminated voluntarily, without Good Reason or is terminated for Cause by the Company, then, except as provided in Section 6, (i) all further vesting of Executive’s outstanding equity
awards will terminate immediately; (ii) all payments of compensation by the Company to Executive hereunder will terminate immediately; and (iii) Executive will be eligible for severance benefits only in accordance with the Company’s
then established severance plans, if any. 
 (d) Severance Benefits Generally Available. The foregoing to the contrary
notwithstanding, Executive shall also be entitled to receive all other severance benefits generally available to all employees of the Company. 
 (e) Payment of Severance Benefits. Any lump sum payments or vested awards
due Executive in accordance with this Section 7 shall be paid to Executive no later than 2 and  1/2 months following the end
of the month in which the termination of employment occurs. 
 8. Conditions to Receipt of Severance; No Duty to Mitigate.

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

 -4- 

 (b) Non-disparagement. During the Employment Term and for a period of one
(1) year thereafter, neither Executive nor the Company will knowingly and materially disparage, criticize, or otherwise make any derogatory statements regarding the other. Notwithstanding the foregoing, nothing contained in this Agreement will
be deemed to restrict Executive, the Company or any of the Company’s current or former officers and/or directors from providing information to any governmental or regulatory agency (or in any way limit the content of any such information) to
the extent they are requested or required to provide such information pursuant to applicable law or regulation. 
 (c) No
Duty to Mitigate. Executive will not be required to mitigate the amount of any payment contemplated by this Agreement, nor will any earnings that Executive may receive from any other source reduce any such payment. 
 (d) Excise Tax Matters. 
 (i) Non-De Mimimis Gross-Up. If (x) any payment or benefit to which Executive becomes entitled from the Company will be subject to the tax imposed by Section 4999 of the United States Internal Revenue
Code of 1986, as amended (the “Code”) (or any similar tax that may hereafter be imposed) (the “Excise Tax”) and (y) the amount of such Excise Tax, as determined in good faith by the Company, would be more than the de
minimis amount described in sub-clause 8(d)(ii) below, then the Company shall pay to Executive within 30 days following Executive’s receipt or deemed receipt of such payment or benefit, an additional amount (the “Gross-up
Payment”) such that the net amount retained by Executive, after deduction of any Excise Tax on the Total Payments (as hereinafter defined) and any federal, state and local income tax and Excise Tax upon the payment provided for by this
subsection, shall be equal to the Total Payments. For purposes of determining whether any of such payments or benefits will be subject to the Excise Tax, and the amount of such Excise Tax, (i) any other payments or benefits received or to be
received by the Executive in Connection with a Change of Control or his termination of employment, whether pursuant to the terms of this Agreement or otherwise (which together with the payments and benefits pursuant to this Agreement, constitute the
“Total Payments”) shall be treated as “parachute payments” within the meaning of section 280G(b)(2) of the Code, and all “excess parachute payments” within the meaning of section 280G(b)(1) shall be treated as subject
to the Excise Tax, unless in the opinion of tax counsel, selected by the Company’s independent auditors and acceptable to the Executive, such other payments or benefits (in whole or in part) do not constitute parachute payments, or such excess
parachute payments (in whole or in part) represent reasonable compensation for services actually rendered within the meaning of section 280G(b)(4) of the Code in excess of the base amount within the meaning of section 280G(b)(3) of the Code, or are
otherwise not subject to the Excise Tax, (ii) the amount of the Total Payments which shall be treated as subject to the Excise Tax shall be equal to the lesser of (A) the total amount of the Total Payments or (B) the amount of excess
parachute payments within the meaning of section 280G(b)(l) (after applying paragraph (i), above), and (iii) the value of any non-cash benefits or any deferred payment or benefit shall be determined by the Company’s independent auditors in
accordance with the principles of sections 280G(d)(3) and (4) of the Code. For purposes of determining the amount of the Gross-Up Payment, the Executive shall be deemed to pay federal income taxes at the highest marginal rate of federal income
taxation in the calendar year in which the Gross-Up Payment is to be made and state and local income taxes at the highest marginal rate of taxation in the state and locality of his residence, net of the maximum reduction in federal income taxes
which could be obtained from 

  

 -5- 

 
deduction of such state and local taxes. In the event that the Excise Tax is subsequently determined to be less than the amount taken into account hereunder
at the time of termination of his employment, Executive shall repay to the Company at the time that the amount of such reduction in Excise Tax is finally determined the portion of the Gross-Up Payment attributable to such reduction (plus the portion
of the Gross-Up Payment attributable to the Excise Tax and federal and state and local income tax imposed on the Gross-Up Payment being repaid by him if such repayment results in reduction in Excise Tax and/or a federal and state and local income
tax deduction) plus interest on the amount of such repayment at the rate provided in section 1274(b)(2)(B) of the Code. In the event that the Excise Tax is determined to exceed the amount taken into account hereunder at the time of payment
(including by reason of any payment the existence or amount of which cannot be determined at the time of the Gross-Up Payment), the Company shall make an additional Gross-Up Payment in respect of such excess (plus any interest payable with respect
to such excess) at the time that the amount of such excess is finally determined. If the amounts of any payments under this Agreement cannot be finally determined on or before the payment date otherwise scheduled for payment, the Company shall pay
to Executive on such date an estimate, as determined in good faith by the Company, of the minimum amount of such payment and shall pay the reminder of such payments (together with interest at the rate provided in section 1274(b)(2)(B) of the Code)
as soon as the amount thereof can be determined. In the event that the amount of the estimated payments exceeds the amount subsequently determined to have been due, Executive shall pay the amount of such excess to the Company on or before the fifth
(5th) day after demand by the Company (together with interest at the rate provided in section 1274(b)(2)(B) of the Code). In all events, the
final, full amount of each Gross-Up Payment to Executive shall be completed by December 31 of the calendar year following the calendar year in which Executive remits the corresponding excise tax to the taxing authority. 
 (ii) De Mimimis Election. If the Excise Tax, as determined in good faith by the Company, would be less than three percent
(3.0%) of the total severance benefits available in Connection with a Change of Control, then Executive’s benefits hereunder shall be either (x) delivered in full, or (y) delivered as to such lesser extent which would result in
no portion of such benefits being subject to the Excise Tax, whichever of the foregoing amounts, taking into account the applicable U.S. federal, state and local income taxes and the Excise Tax, results in the receipt by Executive on an after-tax
basis, of the greatest amount of benefits, notwithstanding that all or some portion of such benefits may be taxable under the Excise Tax. Unless Executive and the Company agree otherwise in writing, the determination of Executive’s excise tax
liability, if any, and the amount, if any, required to be paid under this Section 8 will be made in writing by the independent auditors who are primarily used by the Company immediately prior to the Change of Control (the
“Accountants”). In the event of a reduction in benefits hereunder, Executive shall be given the choice of which benefits to reduce. 
 (iii) Determinations; Costs. For purposes of making the calculations required by this Section 8, the Accountants may make reasonable assumptions and approximations concerning applicable taxes and may rely
on reasonable, good faith interpretations concerning the application of Sections 280G and 4999 of the Code. Executive and the Company agree to furnish such information and documents as the Accountants may reasonably request in order to make a
determination under this Section 8. The Company will bear all costs the Accountants and outside legal or tax counsel may reasonably incur in connection with any calculations contemplated by this Section 8. 
  

 -6- 

 9. Definitions. 
 (a) Cause. For purposes of this Agreement, “Cause” will mean: 
 (i) Executive’s willful and continued failure to materially perform the duties and responsibilities of his position after there has
been delivered to Executive a written demand for performance from the Board which describes the basis for the Board’s belief that Executive has not substantially performed his duties and provides Executive with thirty (30) days to take
corrective action; 
 (ii) Any act of personal dishonesty taken by Executive in connection with his responsibilities as an
employee of the Company with the intention or reasonable expectation that such action may result in the substantial personal enrichment of Executive; 
 (iii) Executive’s conviction of, or plea of nolo contendere to, a felony that the Board reasonably believes has had or will have a material detrimental effect on the Company’s reputation or business;

 (iv) A breach of any fiduciary duty owed to the Company by Executive that has a material detrimental effect on the
Company’s reputation or business; 
 (v) Executive being found liable in any United States Securities and Exchange
Commission or other civil or criminal securities law action or entering any cease and desist order with respect to such action (regardless of whether or not Executive admits or denies liability); or 
 (vi) Executive (A) obstructing or impeding; (B) endeavoring to influence, obstruct or impede, or (C) failing to materially
cooperate with, any investigation authorized by the Board or any governmental or self-regulatory entity (an “Investigation”). However, Executive’s failure to waive attorney-client privilege relating to communications with
Executive’s own attorney in connection with an Investigation will not constitute “Cause”. 
 (b) Change of
Control. For purposes of this Agreement, “Change of Control” will mean the occurrence of any of the following events: 
 (i) The consummation by the Company of a merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior
thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than 50% of the total voting power represented by the voting securities of the Company or such surviving
entity outstanding immediately after such merger or consolidation; 
 (ii) The approval by the stockholders of the Company, or
if stockholder approval is not required, approval by the Board, of a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all of the Company’s assets; 
  

 -7- 

 (iii) Any “person” (as such term is used in Sections 13(d) and 14(d) of
the United States Securities Exchange Act of 1934, as amended) becoming the “beneficial owner” (as defined in Rule 13d-3 under said Act), directly or indirectly, of securities of the Company representing 50% or more of the total
voting power represented by the Company’s then outstanding voting securities; or 
 (iv) A change in the composition of
the Board, as a result of which fewer than a majority of the directors are Incumbent Directors. “Incumbent Directors” will mean directors who either (A) are directors of the Company as of the date hereof, or (B) are elected, or
nominated for election, to the Board with the affirmative votes of at least a majority of those directors whose election or nomination was not in connection with any transactions described in subsections (i), (ii), or (iii) or in
connection with an actual or threatened proxy contest relating to the election of directors of the Company. 
 (c)
Disability. For purposes of this Agreement, “Disability” will mean Executive’s inability to perform his responsibilities with the Company on a full-time basis for 120 calendar days in any consecutive twelve (12) months
period as a result of Executive’s mental or physical illness or injury, as determined by the Committee in its sole discretion. 
 (d) Good Reason. For purposes of this Agreement, “Good Reason” means the occurrence of any of the following, without Executive’s express written consent: 
 (i) A material reduction of Executive’s duties, position, or responsibilities, relative to Executive’s duties, position, or
responsibilities in effect immediately prior to such reduction; 
 (ii) A material reduction in Executive’s Base Salary
other than pursuant to a reduction that also is applied to substantially all other similarly situated peer executive officers of the Company and which reduction reduces the Base Salary by a percentage reduction that is no greater than 10%;

 (iii) The relocation of Executive to a facility or location more than fifty (50) miles from his current place of
employment; or 
 (iv) The failure of the Company to obtain the assumption of the employment agreement by a successor or any
other action or inaction that constitutes a material breach by the Company of this Agreement, including, without limitation, a change in the calculation, methodology, or determination of Executive’s annual cash incentive. 
 In order for Executive to resign for “Good Reason”, Executive must provide the Board with written notice of the event(s) giving rise to a
resignation due to “Good Reason” within 90 days of such event(s) occurring and allow the Board to cure such condition(s) within 30 days thereafter. The foregoing notwithstanding, “Good Reason” does not occur unless Executive
terminates employment by no later than two (2) years following the occurrence of an event listed above. 
 (e) In
Connection with a Change of Control. For purposes of this Agreement, a termination of Executive’s employment with the Company is “in Connection with a Change of Control” if Executive’s employment is terminated for any reason
within twelve (12) months following a Change of Control. 
  

 -8- 

 (f) Target Amount. For purposes of this Agreement, the term “Target
Amount” shall mean the average annual cash incentive payment earned by or awarded to Executive for the lesser of (i) five (5) years or (ii) the number of years Executive is employed by the Company, each immediately preceding
termination of this Agreement. 
 10. Term. The Employment Term shall commence as of the Effective Date and shall continue for a
period of three (3) years thereafter, as herein provided. Unless the Company or Executive gives written notice to the other party to the contrary at least 60 days prior to the end of the Employment Term, the Employment Term shall be
automatically extended by one full year. The Term shall continue until the expiration of all automatic extensions affected as aforesaid unless Executive’s employment is terminated sooner as provided in this Agreement. 
 11. Indemnification. Subject to applicable law, Executive will be provided indemnification to the maximum extent permitted by the Company’s
Articles of Incorporation or Bylaws, including, if applicable, any directors and officers insurance policies, with such indemnification to be on terms determined by the Board or any of its committees, but on terms no less favorable than provided to
any other Company executive officer or director and subject to the terms of any separate written indemnification agreement. 
 12.
Assignment. This Agreement will be binding upon and inure to the benefit of (a) the heirs, executors and legal representatives of Executive upon Executive’s death, and (b) any successor of the Company. Any such successor of the
Company will be deemed substituted for the Company under the terms of this Agreement for all purposes. For this purpose, “successor” means any person, firm, corporation, or other business entity which at any time, whether by purchase,
merger, or otherwise, directly or indirectly acquires all or substantially all of the assets or business of the Company. None of the rights of Executive to receive any form of compensation payable pursuant to this Agreement may be assigned or
transferred except by will or the laws of descent and distribution. Any other attempted assignment, transfer, conveyance, or other disposition of Executive’s right to compensation or other benefits will be null and void. 
 13. Notices. All notices, requests, demands and other communications called for hereunder will be in writing and will be deemed given (a) on
the date of delivery if delivered personally; (b) one (1) day after being sent overnight by a well-established commercial overnight service, or (c) four (4) days after being mailed by registered or certified mail, return receipt
requested, prepaid and addressed to the parties or their successors at the following addresses, or at such other addresses as the parties may later designate in writing: 
 If to the Company: 
 PICO Holdings, Inc. 
 875 Prospect Street 
 Suite 301 
 La Jolla, California 92037 
 Attention:
General Counsel 
  

 -9- 

 If to Executive: 
 at the last residential address known by the Company. 
 14. Severability. If any provision hereof becomes or is declared by
a court of competent jurisdiction to be illegal, unenforceable, or void, this Agreement will continue in full force and effect without said provision. 
 15. Arbitration. The Parties agree that any and all disputes arising out of or relating to the terms of this Agreement, Executive’s employment by the Company, Executive’s service as an officer of the
Company, or Executive’s compensation and benefits, their interpretation and any of the matters herein released, will be subject to binding arbitration. In the event of a dispute, the parties (or their legal representatives) will promptly confer
to select a Single Arbitrator mutually acceptable to both parties. If the parties cannot agree on an Arbitrator, then the moving party may file a Demand for Arbitration with the American Arbitration Association (“AAA”) in San Diego,
California, who will be selected and appointed consistent with the AAA-Employment Arbitration Rules and Mediation Procedures, except that such Arbitrator must have the qualifications set forth in this paragraph. Any arbitration will be conducted in
a manner consistent with AAA National Rules for the Resolution of Employment Disputes, supplemented by the California Rules of Civil Procedure. The parties further agree that the prevailing party in any arbitration will be entitled to injunctive
relief in any court of competent jurisdiction to enforce the arbitration award. The parties hereby agree to waive their right to have any dispute between them resolved in a court of law by a judge or jury. This paragraph will not prevent
either party from seeking injunctive relief (or any other provisional remedy) from any court having jurisdiction over the Parties and the subject matter of their dispute relating to Executive’s obligations under this Agreement. The Company
shall pay the fees of all arbitrators, witnesses and such other expenses as may be generated by the arbitration, except Executive’s attorney’s fees unless a majority of the arbitrators concludes that such arbitration procedure was not
instituted in good faith by Executive. In such event the arbitrators shall be empowered to allocate fees and assess costs and other expenses of the arbitration, except attorneys fees, as they may deem appropriate, bearing in mind the relative
financial abilities of the parties and the respective merits of their positions. 
 16. Integration. This Agreement and the standard
forms of equity award grant that describe Executive’s outstanding equity awards, represents the entire agreement and understanding between the parties as to the subject matter herein and supersedes all prior or contemporaneous agreements
whether written or oral. No waiver, alteration, or modification of any of the provisions of this Agreement will be binding unless in a writing and signed by duly authorized representatives of the parties hereto. In entering into this Agreement, no
party has relied on or made any representation, warranty, inducement, promise, or understanding that is not in this Agreement. The paragraph headings and captions contained herein are for reference purposes and convenience only and shall not in any
way affect the meaning or interpretation of this Agreement. It is intended by the parties that this Agreement be interpreted in accordance with its fair and simple meaning, not for or against either party, and neither party shall be deemed to be the
drafter of this Agreement To the extent that any provisions of this Agreement conflict with those of any other agreement to be signed upon Executive’s hire, the terms in this Agreement will prevail. 
  

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 17. Waiver of Breach. The waiver or a breach of any term or provision of this Agreement, which
must be in writing, will not operate as or be construed to be a waiver of any other previous or subsequent breach of this Agreement. 
 18.
Survival. The Confidential Information Agreement and the Company’s and Executive’s responsibilities under Sections 7 and 8 will survive the termination of this Agreement. 
 19. Headings. All captions and Section headings used in this Agreement are for convenient reference only and do not form a part of this Agreement.

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

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

 22. Code Section 409A. 
 (a) It is intended that any amounts payable under this Agreement and the Company’s and Executive’s exercise of authority or discretion hereunder shall comply with and avoid the imputation of any tax, penalty
or interest under Section 409A of the United States Internal Revenue Code of 1986, as amended (including the Treasury Regulations and other published guidance related thereto). This Agreement shall be construed and interpreted consistent with
that intent. This provision shall not be construed as a guarantee by the Company of any particular tax effect to Executive under this Agreement. The Company shall not be liable to Executive for any payment made under this Agreement that is
determined to result in an additional tax, penalty, or interest under Code Section 409A, nor for reporting in good faith any payment made under this Agreement as an amount includible in gross income under Code Section 409A. 
 (b) To the extent that any reimbursement pursuant to this Agreement is taxable to Executive, Executive shall provide the Company with
documentation of the related expenses promptly so as to facilitate the timing of the reimbursement payment contemplated by this paragraph, and any reimbursement payment due to Executive pursuant to such provision shall be paid to Executive on or
before the last day of Executive’s taxable year following the taxable year in which the related expense was incurred. Such reimbursement obligations pursuant to this Agreement are not subject to liquidation or exchange for another benefit and
the amount of such benefits that Executive receives in one taxable year shall not affect the amount of such benefits that Executive receives in any other taxable year. 
 (c) Separation from Service. For purposes of this Agreement, “termination of employment” or words of similar import, as
used in this Agreement, shall mean, for purposes of any payments that are payments of deferred compensation subject to Code Section 409A, a separation from service as defined in United States Treasury Regulations Section 1.409A-1(h)
without regard to any optional alternative definitions available thereunder. 
 (d) Notwithstanding any other provisions
herein, if a payment obligation under this Agreement arises on account of Executive’s termination of employment while Executive is a “specified employee”, as defined under Code Section 409A and determined in good faith by the

  

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Company, any payment of deferred compensation subject to Code Section 409A, after giving effect to any exemptions provided thereunder, that is scheduled
to be paid within fifteen (15) days after the end of the six (6) month period beginning on the date of such termination of employment, or, if earlier, within 15 days after the appointment of the personal representative or executor of the
Executive’s estate following his death. 
 23. Counterparts. This Agreement may be executed in counterparts, and each counterpart
will have the same force and effect as an original and will constitute an effective, binding agreement on the part of each of the undersigned. 
 24. Successors. The Agreement shall inure to the benefit of and be binding on Company and its successors and assigns, as well as Executive and his estate. Executive may not assign or delegate, in whole or in part, his duties or
obligations under this Agreement. This Agreement may be transferred and assigned by Company to any successor of Company by acquisition, merger, reorganization, amalgamation, asset sale or otherwise. 
  

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

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

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