Document:

EX 10.7 FORM OF TRANSITION SERVICES AGREEMENT

EXHIBIT 10.7
TRANSITION SERVICES AGREEMENT

THIS TRANSITION SERVICES AGREEMENT (including the exhibits hereto, the “Agreement”) is entered into as of the            day of          , 2013 (the “Effective Date”), by and between PICO HOLDINGS, INC., a California corporation (“PICO”), and UCP, INC., a Delaware corporation (“UCP”).  PICO and UCP may be referred to in this Agreement separately as a “Party” or collectively as the “Parties.” 

W I T N E S S E T H:

WHEREAS, prior to the completion of the initial public offering of shares of its common stock (the “Offering”), UCP was a wholly owned subsidiary of PICO;

WHEREAS, upon completion of the Offering, PICO maintains a controlling ownership stake in UCP;

WHEREAS, upon completion of the Offering, notwithstanding PICO's controlling ownership stake in UCP, UCP desires to engage PICO as a third party service provider to provide certain accounting, human resources and information technology services as set forth herein, at UCP's direction and control and subject to the terms and conditions described in this Agreement; and

WHEREAS, in order to assist UCP in its operations, PICO desires to provide such accounting, human resources and information technology services to UCP, at UCP's direction and control and subject to the terms and conditions described in this Agreement.

NOW, THEREFORE, in consideration of the covenants and agreements set forth herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties, intending to be legally bound hereby, agree as follows:

ARTICLE I
DEFINITIONS
    
For purposes of this Agreement, the following terms shall have the respective meanings set forth below:

“Additional Services” has the meaning set forth in Section 2.5.

“Affiliate” shall mean as to any Person, another Person that directly, or indirectly through one or more intermediaries, Controls, is Controlled by, or is under common Control with, such Person.

“Audit Committee” has the meaning set forth in Section 4.2(a).

“Control” shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of the person controlled, whether through ownership of voting securities, by contract or otherwise.

“Confidential Information” has the meaning set forth in Section 6.1.

“Effective Date” has the meaning set forth in the preamble hereto.

“Guest User” has the meaning set forth in Section 7.1.

“Host” has the meaning set forth in Section 7.1.

“Initial Term” has the meaning set forth in Section 4.1.

“Laws” means all federal, state, regional, provincial, local or foreign laws, including statutes, ordinances, codes, rules, regulations, published guidelines, directives, orders, writs, injunctions, judgments, decrees, arbitration awards, and the common law.

“Losses” means any and all costs, claims, actions, demands, damages, fees, penalties, injuries, expenses (including reasonable attorneys' fees, costs of investigation and court costs), interest and liability.

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“Offering” has the meaning set forth in the first recital hereto.

“Optional Renewal Term” has the meaning set forth in Section 4.1.

“Party” or “Parties” has the meaning set forth in the preamble hereto.

“Person” means any legal entity including a corporation, unincorporated organization, association, limited liability company, partnership, trust, business trust, joint venture, or sole proprietorship, governmental organization or body, or any agency, department or instrumentality thereof, and includes a natural person.

“Personally Identifiable Information” means any and all tangible and intangible information provided or disclosed hereunder about present, former or potential customers, contractors or Representatives of UCP or its Affiliates, including name, address, telephone number, email address, account or policy information, and any list, description, or other grouping of such Persons, and any medical records or other medical information of such Persons and any other type of information deemed “nonpublic” and protected by privacy Laws and any other applicable Law.

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

“Recovery Plans” has the meaning set forth in Section 2.6(c).

“Representatives” has the meaning set forth in Section 6.3.

“Sales Tax” has the meaning set forth in Section 3.3(a).

“Senior Managers” shall mean, Max Webb and John Perri, in the case of PICO, and Dustin Bogue, Allen Bennett and William La Herran, in the case of UCP.

“Service Coordinators” has the meaning set forth in Section 2.2.

“Service Fees” has the meaning set forth in Section 3.1.

“Services” has the meaning set forth in Section 2.1.

“Significant Service Shortfall” has the meaning set forth in Section 2.6(b).

“Systems” has the meaning set forth in Section 7.1.

“Term” has the meaning set forth in Section 4.1.

“Third Party” or “Third Parties” means any Person or Persons other than UCP or PICO, or any of their respective Affiliates.

“UCP” has the meaning set forth in the preamble hereto.

“UCP Indemnified Person” has the meaning set forth in Section 5.3.

“Unauthorized Access” has the meaning set forth in Section 6.1.

ARTICLE II
SERVICES

2.1    Services.  Subject to the terms and conditions of this Agreement, PICO agrees to provide or cause to be provided to UCP, for the benefit of UCP, its Controlled Affiliates and designated recipients, the services set forth on  Exhibit A, Exhibit B and Exhibit C hereto (collectively, the “Services”).  PICO shall provide the Services at UCP's reasonable direction, which direction may include granting PICO certain permissions and authority; provided, however, that notwithstanding the foregoing, and without limiting the generality of Section 2.10, PICO has no authority to bind UCP to any Third Party agreement or to make any filing on behalf of UCP with any governmental authority or under applicable Law.

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2.2    Service Coordinators.  Each Party will nominate a representative to act as its primary contact with respect to the provision of the Services (together, the “Service Coordinators”). Unless otherwise agreed, all notices and communications relating to this Agreement shall be directed to the Service Coordinators, other than those day to day communications and billings relating to the actual provision of the Services, which shall be directed to the appropriate personnel of each Party, as directed by the Service Coordinators.

2.3    Direction of PICO Employees.  PICO shall be solely responsible for all salary, employment, engagement, payroll, bonuses, fees and other benefits of and liabilities relating to, and compliance with immigration and visa laws and requirements in respect of, its personnel assigned to perform the Services.  In performing their respective duties hereunder, all personnel of PICO engaged in providing the Services shall be under the direction, control and supervision of PICO; and PICO shall have the sole right to exercise all authority with respect to the employment (including termination of employment), assignment and compensation of such PICO personnel.  The employees of PICO engaged in providing Services to UCP shall not, by virtue thereof, become employees of UCP.  PICO shall provide prompt written notice to UCP upon the departure of any Service Coordinator, or any key employee who is providing a Service.

2.4    Cooperation.  UCP shall use its reasonable efforts to (a) cooperate with PICO with respect to the provision of the Services and (b) enable PICO to provide the Services in accordance with this Agreement.  

2.5    Additional Services.  The Parties each have exerted their commercially reasonable efforts to identify and describe the Services.  However, the Parties acknowledge and agree that there may be services useful or necessary to UCP's accounting, human resources or information technology operations which are not identified on Exhibit A, Exhibit B or Exhibit C (collectively, the “Additional Services”).  At any time and from time to time during the Term, UCP may provide written notice to PICO requesting Additional Service(s) and setting forth in reasonable detail a description of the requested Additional Service(s), the proposed start date or dates and the proposed termination date or dates.  Upon receiving UCP's written request, PICO shall, to the extent it is able to do so without unreasonable adverse consequences to its own operations, provide or cause to be provided such Additional Service subject to the Parties agreement on any adjustment to the Service Fees to the extent of any increased cost of providing the Services.  The provision of such Additional Services shall in all respects be subject to the terms of this Agreement, shall be considered added to Exhibit A, Exhibit B or Exhibit C, as applicable, shall constitute an amendment to this Agreement and shall thereafter be considered a Service.  Unless otherwise agreed by the Parties, the term for such Additional Services shall be the Term of this Agreement.

2.6    Standard of Services.

(a)General Standard.  PICO shall use commercially reasonable efforts to perform or cause to be performed the Services at a level that is not materially less favorable than past practices of PICO in providing or causing to be provided such service to itself, its Affiliates and/or UCP as such practices existed during the twelve (12) months immediately preceding the Offering. UCP understands and agrees that PICO is not in the business of providing transition services to Third Parties, and PICO shall not be held accountable to a higher standard of care than that set forth herein.  UCP shall receive the benefit of any and all warranties, guarantees, representations, service level standards and indemnities given to PICO by Third Party service providers in respect of the Services.

(b)Shortfall in Services.  If UCP provides PICO with written notice of the occurrence of any Significant Service Shortfall (as defined below) in the Services, as reasonably determined by UCP in good faith, PICO shall use commercially reasonable efforts to rectify such Significant Service Shortfall as soon as reasonably possible.  For purposes of this Section 2.6(b), a “Significant Service Shortfall” shall be deemed to have occurred if the timing or quality of performance of one or more Services provided by PICO hereunder falls below the standard required by Section 2.6(a) hereof.

(c)Recovery Plans.  For as long as Services are provided hereunder, PICO shall, and shall cause its relevant Affiliates to, maintain backup, business continuation and disaster recovery plans, procedures and policies (collectively, “Recovery Plans”) consistent with past practices as they existed during the twelve (12) months immediately preceding the Offering.  PICO shall provide UCP: 

(i)Annually, a report describing the details of the then-current Recovery Plans and analyzing PICO's ability to perform the Services in the event such Recovery Plans are invoked;

(ii)At least once per year, the opportunity to review copies of PICO's then-current Recovery Plans; and

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(iii)Without limiting PICO's obligations under Section 6.2, immediately upon notice of any incident that gives cause to invoke any Recovery Plan or which may reasonably affect the Services, Confidential Information or Personally Identifiable Information, a report of the type of incident, potential cause (if known), work being undertaken to recover, estimated time to recover and primary and alternative contact details.

2.7    Subcontracting.  PICO may subcontract for the performance of any Service to: (a) any person if the Service to be subcontracted is primarily a routine task or function generally considered ancillary to the Services; (b) an Affiliate of PICO; (c) an existing subcontractor that was providing such Service to PICO or UCP immediately before the Effective Date; or (d) any other person with prior written notice to, and approval (not to be unreasonably withheld or delayed) from, UCP; provided that no such subcontracting shall relieve PICO from any of its obligations or liabilities hereunder, and PICO shall remain responsible for all obligations or liabilities of such subcontractor with respect to the providing of such Service or Services, as if provided by PICO.

2.8    Compliance with Laws; Consents.  PICO represents that it shall, and shall cause its Affiliates to, comply at all times during the term of this Agreement with all applicable Laws, including HIPAA, HITECH, Sarbanes Oxley (SOX) Section 404 and other Laws relating in any way to the privacy or data security related to Personally Identifiable Information.  PICO shall obtain and maintain all material permits, approvals and licenses necessary or appropriate to perform its duties and obligations (including all Services) under this Agreement and shall at all times comply (or in the case of any providers of Services who are contractors or independent Third Parties, use commercially reasonable efforts to cause them to comply) with the terms and conditions of such permits, approvals and licenses. 

2.9    Conflict with Laws. Notwithstanding anything in this Agreement to the contrary, PICO shall not be obligated to provide any Service if the provision of such Service would violate any applicable Law or rules of professional ethics or breach any contract or other agreement, due to the failure to obtain such consent, license or approval or otherwise, notwithstanding PICO's reasonable efforts to obtain such consent, license or approval.  If PICO is prevented from providing, or causing to be provided, any Service by reason of the foregoing, PICO shall use commercially reasonable efforts to (a) notify UCP of such prevention as soon as practicable, and (b) provide alternative equivalent services at no additional cost to UCP; provided, however, that under no circumstances shall the performance of such Service require PICO or any of its directors (or persons in similar positions), officers, employees or agents to violate any applicable Law or breach any contract or other agreement.

2.10    Relationship of Parties; No Agency. The relationship of the Parties hereunder are those of independent contractors and nothing contained in this Agreement nor the Parties' performance hereunder creates a fiduciary relationship, partnership, joint venture or relationship of trust or agency between the Parties.  Each Party acknowledges that it has entered into this Agreement for independent business reasons.  Neither Party shall have any power or authority to negotiate or conclude any agreement, or to make any representation or to give any understanding on behalf of the other Party in any way whatsoever.

2.11    UCP Capabilities.  UCP acknowledges that PICO is willing to provide the Services as a short term accommodation to assist UCP in transitioning its operations to those typically seen in independent publicly traded companies. UCP will use commercially reasonable efforts to develop its internal capabilities so that it is able to act on its own behalf in the areas covered by the Services.

ARTICLE III
SERVICE FEES

3.1    Service Fees. UCP shall pay PICO the fees set forth on each of Exhibit A, Exhibit B and Exhibit C (collectively, the “Service Fees”), each of which Service Fees corresponds to the module of Services described on the applicable Exhibit.  On a quarterly basis, the Parties will discuss in good faith whether the Service Fees need to be revised in light of the costs, including customary overhead allocation, actually incurred in providing the Services and any changes anticipated as a result of changes in the scope of services or applicable requirements which the Services are intended to address; provided, however, that in no event shall the Parties have a binding obligation to agree to or accept any such revisions to the Services Fees.  To the extent that UCP notifies PICO in accordance with Section 4.2 that it requires only a portion of a specific Service to be provided, the Parties will negotiate to determine an appropriate reduction of the Service Fees.  The Service Fees include all out-of-pocket charges and costs of performing the Services hereunder, including, license fees, royalties or provider services fees, and any and all compensation for personnel providing the Services hereunder, including compensation, benefits and bonuses.

3.2    Payment. PICO shall invoice UCP on a quarterly basis in arrears for the Services provided hereunder, which invoice shall be adjusted, on a pro rata basis, for any Service that is suspended, reduced, discontinued or otherwise terminated under Section 4.2.  Payment in full of the undisputed invoiced amounts shall be made by electronic funds transfer or other method satisfactory to the Parties, within thirty (30) days after the date of receipt of the quarterly invoice. 

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3.3    Taxes.  

(a)The fees payable by UCP to PICO shall, in each case, be taken to be exclusive of any value added taxes, sales taxes, or similar taxes (“Sales Tax”) properly chargeable in respect of the transactions hereunder, and an amount equal to such taxes so chargeable shall, subject to receipt of a valid Sales Tax receipt or invoice in accordance with Section 3.3(c) below, be paid by UCP to PICO in addition to the fees otherwise payable under this Agreement.

(b)In the event that applicable Law requires that any amount in respect of taxes be withheld from any payment by UCP to PICO under this Agreement, UCP shall withhold the required amounts and pay such withheld amounts over to the applicable governmental authority in accordance with the requirements of applicable Law, and any amount so withheld and paid over shall be treated as having been paid to PICO, and UCP shall not be required to pay any additional amount as a result of or in respect of such withholding.  UCP shall provide PICO with documentation evidencing payment to the applicable governmental authority of any amounts so withheld.

(c)In each case where an amount in respect of Sales Tax is payable by UCP in respect of a Service provided by PICO, PICO shall furnish in a timely manner a valid Sales Tax receipt or invoice to UCP in the form and manner required by law to allow UCP to recover such Sales Tax to the extent allowable by Law.

ARTICLE IV
TERM AND TERMINATION
4.1    Term. Unless earlier terminated as set forth herein, this Agreement shall commence as of the Effective Date and remain in force for the following term (the “Term” of this Agreement): (a) one (1) year following the Effective Date (the “Initial Term”); (b) after expiration of the Initial Term, up to two (2)  optional, successive ninety (90) day periods (each an “Optional Renewal Term”), each exercisable by UCP in its sole discretion at any time prior to the expiration of the Initial Term or the first Optional Renewal Term, as applicable and upon sixty (60) days prior written notice to PICO; and (c) after the expiration of the Initial Term and any applicable Optional Renewal Terms, this Agreement shall remain in force on a month-to-month basis until canceled by either Party, for any reason or no reason, upon (i) thirty (30) days prior written notice, if UCP is the cancelling Party or (ii) sixty (60) days prior written notice, if PICO is the cancelling Party.  Prior to any termination or expiration of this Agreement the Audit Committee shall approve such termination as contemplated by Section 4.2(a).

4.2    Discontinuation or Reduction of Services; Termination. 

(a)UCP may, without limiting any of UCP's rights or remedies hereunder (including under Section 4.5), upon not less than thirty (30) days prior written notice, elect to discontinue or partially reduce any Service(s); provided that the Audit Committee of UCP (the “Audit Committee”) shall have approved such discontinuation or reduction in Services provided by PICO and reasonably concluded that, following such discontinuation or partial reduction in Services, UCP would be able to satisfy the information and inspection rights of PICO contained in Article IV of the Investor Rights Agreement of even date herewith among UCP, PICO and the other parties thereto; further provided that PICO may waive the requirement for Audit Committee approval if PICO determines that such discontinuation or partial reduction in Services would not be reasonably expected to materially adversely affect the ability of (or information required for) PICO to carry out its reporting and other legal requirements.  In the event of any discontinuation or partial reduction with respect to one or more, but less than all, of the Services, this Agreement shall continue in full force and effect with respect to any other Services. The Parties shall amend Exhibit A, Exhibit B and Exhibit C and the Service Fees set forth therein, as applicable, to reflect the discontinuation or partial reduction of any Service(s).

(b)UCP may, without limiting any of UCP's rights or remedies hereunder (including under Section 4.5), upon not less than thirty (30) days prior written notice, elect to discontinue all of the Services by terminating this Agreement for any reason or no reason; provided, however, that any such termination shall be approved by the Audit Committee as contemplated by Section 4.2(a).

4.3    Suspension of Services for Non-Payment. If UCP fails to pay any fees and/or charges not disputed in good faith within sixty (60) days of the date such fees and/or charges are due, PICO may, upon further written notice to UCP, suspend its provision of Services; provided, however, that PICO shall resume promptly (and in any event within twenty four (24) hours) the provision of Services upon UCP's cure of such failure to pay such undisputed fees and/or charges.

4.4    Records Post-Termination. PICO will maintain records related to the Services, and the provision thereof, that are necessary or advisable for the performance of its obligations under this Agreement. After termination of this Agreement, PICO will maintain all files related to the Services, and the provision thereof, for one year, all of which shall be treated as Confidential Information under this Agreement. During the period in which PICO maintains the files, UCP may request to examine and copy the files or direct PICO to provide such files or copies thereof to UCP.  Nothing herein shall require PICO to transfer or dispose 

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of any files or records prior to the time when PICO would be permitted to do so in compliance with applicable regulatory requirements and its document retention policy.  After one year following termination of this Agreement, PICO may dispose of files and records that it no longer needs for its own regulatory compliance purposes consistent with the manner it uses to dispose of its own confidential information.  

4.5    Effect of Termination.  Termination or expiration of this Agreement, or suspension or discontinuance of the Services provided under this Agreement, shall not affect any obligations or liability of either Party that accrued prior to the effective date of termination, including any damages or other liability that may arise under or as a result of a Significant Service Shortfall.

4.6    Survival.   Article I, Section 2.10, Section 4.4, Section 4.5, this Section 4.6, Article V, Article VI, Article IX, Section 10.1, Section 10.2 and Sections 10.4-10.14 shall survive the termination of this Agreement.

ARTICLE V
LIMITATION ON LIABILITY; DISCLAIMER; INDEMNIFICATION
5.1    Limitation of Liability.  The maximum liability of any Party hereto to the other Party and such other Party's Affiliates hereunder shall not exceed the Service Fees payable for the initial twelve (12) months of the Term of this Agreement, calculated as if all Services provided hereunder were provided for such twelve (12) months, except that the foregoing liability cap shall not apply to: (a) claims based on a Party's willful misconduct, gross negligence or fraud; (b) claims based on a breach of Article VI hereunder; or (c) claims for indemnity under Section 5.3 hereunder.  Notwithstanding anything else in this Agreement, the Parties waive any claim to any special, indirect, punitive or consequential damages against each other, except to the extent awarded to a Third Party claim that is subject to indemnification under Section 5.3.

5.2    DISCLAIMER.  EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN THIS AGREEMENT, PICO MAKES NO EXPRESS WARRANTIES, AND NO WARRANTY SHALL BE IMPLIED UNDER THIS AGREEMENT OR AT LAW, INCLUDING ANY WARRANTY OF MERCHANTABILITY OR WARRANTY OF FITNESS FOR A PARTICULAR PURPOSE. 

5.3    Indemnification.  PICO shall indemnify, defend and hold harmless UCP, its Affiliates and their respective Representatives (each, a “UCP Indemnified Person”), from, against and in respect of, and reimburse any UCP Indemnified Person for, any Third Party Losses imposed, sustained, incurred or suffered by or asserted against any of the UCP Indemnified Persons, relating to, resulting from or arising out of: (a) any fraud, gross negligence or willful misconduct by or on behalf of PICO or any of its Affiliates in providing any of the Services that PICO is obligated to provide hereunder; (b) any claim that any Service, or the provision thereof, infringes or violates any Third Party's intellectual property rights; or (c) any material breach of this Agreement, including any breach of Section 2.8 or Section 6.1.

5.4    Indemnification Procedure.  A UCP Indemnified Person shall give PICO prompt notice of any claim, action or suit against it asserting Losses, and PICO shall have the right to defend such action or suit.  PICO shall have control over the claim or proceeding, including the right to settle; provided, however, that PICO shall not, absent the prior written consent of the UCP Indemnified Person, consent to the entry of any judgment or enter into any settlement that (a) provides for any relief other than the payment of monetary damages for which PICO shall be solely liable and (b) in which the claimant or plaintiff does not release UCP Indemnified Person from all liability in respect thereof.

ARTICLE VI
CONFIDENTIALITY

6.1    Confidential Information.  Each Party covenants that it will (a) accord the Confidential Information (as defined below) of the other Party the same degree of confidential treatment that it accords its similar proprietary and confidential information, (b) not use such Confidential Information for any purpose other than those stated in this Agreement, and (c) not disclose such Confidential Information to any Person unless disclosure to such Person is made in the ordinary course of such Party's conduct of its business and is subject to protections, at least as stringent as those herein, and comparable to those such Party would apply in connection with a comparable disclosure of its own Confidential Information.  Notwithstanding any other provision of this Agreement, a Party may disclose Confidential Information of the other Party, without liability for such disclosure, to the extent the disclosing Party demonstrates that such disclosure is (x) required to be made pursuant to applicable law, government authority, duly authorized subpoena, or court order, (y) required to be made to a court or other tribunal in connection with the enforcement of such Party's rights under this Agreement or to contest claims between the Parties, or (z) approved by the prior written consent of the other Party.  Each Party will promptly notify the other Party if it receives a subpoena or otherwise becomes aware of events that may legally require it to disclose Confidential Information of the other Party, and will cooperate with the other Party (at the other Party's expense) to obtain an order quashing or otherwise modifying the scope of such subpoena or legal requirement, in an effort to prevent the disclosure of such Confidential Information.  For purposes of this Agreement, “Confidential Information” 

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means all confidential or proprietary information and documentation of either Party made available to the other Party under this Agreement that is either identified in writing as confidential or which the receiving Party should reasonably have recognized at the time of disclosure as being of a confidential nature; provided, however, that information required to be disclosed in a report or filing under applicable securities Laws shall not be considered Confidential Information.  For the avoidance of doubt, any and all data, including Personally Identifiable Information, that is provided to or accessed by PICO in the course of providing the Services, shall be considered UCP's Confidential Information, even if such data is generated by PICO in the course of providing the Services.

6.2    Unauthorized Acts.  Each Party shall (a) notify the other Party promptly of any unauthorized possession, use, access to, or knowledge of any Confidential Information by any Person which shall become known to it, any attempt by any Person to gain possession of Confidential Information without authorization or any attempt to use or acquire knowledge of any Confidential Information without authorization (collectively, “Unauthorized Access”), (b) promptly furnish to the other Party full details of the Unauthorized Access and use reasonable efforts to assist the other Party in investigating or preventing the reoccurrence of any Unauthorized Access, (c) cooperate with the other Party in any litigation and investigation against Third Parties deemed necessary by such Party to protect its proprietary rights, and (d) use commercially reasonable efforts to prevent a recurrence of any such Unauthorized Access.

6.3    Insider Trading Policy. Each Party shall instruct its respective Affiliates, officers, directors, controlling Persons, partners, employees, lenders, agents, advisors and representatives (collectively, “Representatives”) that it is a violation of applicable Law for any Representative to purchase or sell securities of the other Party based on non-public information obtained in connection with the performance of this Agreement. 

ARTICLE VII
SYSTEM ACCESS 
7.1    System Access.  If either Party is at any time given access (each in such capacity, a “Guest User”) to the other's computer system(s) or software (collectively, “Systems”) in connection with the performance of this Agreement, such Guest User shall comply with the other Party's (each in such capacity, a “Host”) Systems security policies, procedures and requirements which the Host makes available to the Guest User in writing upon request.

ARTICLE VIII
MUTUAL REPRESENTATIONS AND WARRANTIES
8.1    Mutual Representations and Warranties.  Each Party represents and warrants to the other that as of the Effective Date:

(a)it has been duly incorporated and is validly existing as a corporation in good standing under the laws of the jurisdiction in which it is incorporated;

(b)it has full power and authority to execute, deliver and perform its obligations under this Agreement; 

(c)this Agreement has been duly and validly authorized, executed and delivered on behalf of such Party and is a valid and binding agreement of such Party, enforceable against such Party in accordance with its terms, except as such enforcement may be limited by bankruptcy, insolvency (including, without limitation, all laws relating to fraudulent transfers), reorganization, moratorium or similar laws affecting such enforcement, and except as enforcement is subject to general principles of equity (regardless of whether enforcement is considered in a proceeding in equity or at law); and

(d)its execution and delivery of this Agreement by such Party and the performance of its obligations hereunder do not violate, or constitute a breach of or default under, its organizational documents or any agreement or instrument by which it is bound, and it has no knowledge that its performance of such obligations will violate, or constitute a breach of or default under, any order, rule, law or regulation applicable to such Party of any court, governmental body, administrative agency or self-regulatory authority having jurisdiction over such Party.

ARTICLE IX
DISPUTE RESOLUTION

9.1    Prior to the initiation of legal proceedings, the Parties shall first attempt to resolve any dispute arising out of or in connection with this Agreement or the transactions contemplated hereby informally, as follows:

(a)The Parties shall first attempt, through the Service Coordinators, to resolve all disputes and shall attempt to initiate such efforts within two (2) business days after receipt of notice of any such dispute.  If the Parties are unable to resolve 

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a dispute in an amount of time that either Party deems reasonable under the circumstances, such Party may refer the dispute for resolution to the Senior Managers pursuant to the provisions of Section 9.1(b).

(b)Within five (5) business days of a notice under Section 9.1(a) referring a dispute for resolution by Senior Managers, each Party shall brief its Senior Managers as to the background of the dispute, along with any appropriate supporting documentation.  The designated Senior Managers will confer as often as they deem reasonably necessary in order to gather and exchange information, discuss the dispute and negotiate in good faith, in an effort to resolve the dispute without the need for any formal proceedings.

(c)Legal proceedings may not be initiated until at least ten (10) business days after the receipt by a Party of a notice under Section 9.1(a) referring a dispute to Senior Managers.  If there is a dispute between the Parties, each Party shall continue to perform all of its obligations under this Agreement (including the obligations in dispute) until such dispute is resolved by the Parties in accordance with this Article IX or by a court of competent jurisdiction.  Without limiting the generality of the preceding sentence, if there is a dispute between the Parties regarding the Service Fee(s) in respect of a particular Service or whether PICO is obligated to engage in a particular task as a Service hereunder, PICO shall provide such Service or engage in such disputed task at UCP's direction as if such Service or disputed task was a Service hereunder, until such dispute is resolved by the Parties in accordance with this Article IX or by a court of competent jurisdiction.

ARTICLE X
MISCELLANEOUS

10.1    Construction Rules. The article and section headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. Words used in this Agreement in the singular, where the context so permits, shall be deemed to include the plural and vice versa. Words used in the masculine or the feminine, where the context so permits, shall be deemed to mean the other and vice versa. Any reference to a section number in this Agreement shall mean the section number in this Agreement unless otherwise expressly stated.   The terms “this Agreement,” “herein,” “hereof,” “hereunder” and similar expressions refer to this Agreement and not to any particular section or other portion of this Agreement.  Lists of examples following “including”, “e.g.”, “such as”, or “for example” are interpreted to include “without limitation”, unless qualified by words such as “only” or “solely.”  Unless stated or context requires otherwise all internal references are to this Agreement or its Exhibits; “days” means calendar days; “may” means that the applicable Party has a right, but not a concomitant duty; “current” or “currently” means “as of the Effective Date”, but “then-current” means the present time when the applicable right is exercised or performance rendered or measured; “notify” means to give notice as provided in Section 10.2; each Party's choices under this Agreement are in its sole discretion; “or” is not meant to be exclusive; and any reference to any agreement defined herein shall include such agreement as amended, modified or supplemented in accordance with its terms.

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

To: UCP     UCP, Inc.
6489 Camden Avenue, Suite 204 
San Jose, CA 95120
Attention: W. Allen Bennett, General Counsel
Fax: 559-439-4477
Email: allen@unioncommunityllc.com
To: PICO:        PICO Holdings, Inc.
7979 Ivanhoe Avenue, Suite 300
La Jolla, CA 92037
Attention: Chief Financial Officer
Fax: 858-456-6480 
Email: mwebb@picoholdings.com

10.3    Assignment. This Agreement is a personal services agreement and neither this Agreement nor any of the rights or obligations hereunder shall be assigned by PICO (whether by operation of law, by contract, merger, change in Control, sale of subject assets, assumption or otherwise), without, in each instance, the prior written consent of UCP, provided that, the foregoing 

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shall in no way restrict the performance of a Service by an Affiliate of PICO or a Third Party as otherwise allowed under this Agreement in accordance with Section 2.7.

10.4    Benefit of Agreement.  This Agreement shall be binding upon the Parties hereto and shall inure to the benefit of such Parties and their permitted assignees.

10.5    Amendment. This Agreement may not be modified or amended in any respect except in a writing signed by both Parties.  No waiver shall be deemed to have been granted or created by any course of conduct or acquiescence, and no waiver shall be enforceable against either Party hereto unless in writing and signed by the party against which such waiver is claimed.  No amendment, addition to, alteration, modification or waiver of any part of this Agreement shall be of any effect, whether by course of dealing or otherwise, unless explicitly set forth in writing referencing this Agreement and the provision(s) to be amended, altered, modified or waived and executed by the Parties.

10.6    Waiver; Remedies. The waiver by a Party of any breach of any provision of this Agreement shall not operate or be construed as a waiver of any subsequent breach. The failure of a Party to require strict performance of any provision of this Agreement shall not affect such Party's right to full performance thereof at any time thereafter. No right, remedy or election given by any term of this Agreement or made by a Party shall be deemed exclusive, but shall be cumulative with all other rights, remedies and elections available at law or in equity. The Parties acknowledge that the rights created hereby are unique and recognize and affirm that in the event of a breach of this Agreement irreparable harm would be caused, money damages may be inadequate and an aggrieved Party may have no adequate remedy at law. Accordingly, the Parties agree that the other Party shall have the right, in addition to any other rights and remedies existing in its favor at law or in equity, to enforce such Party's rights and the obligations of the other Party not only by an action or actions for damages but also by an action or actions for specific performance, injunctive and/or other equitable relief (without posting of a bond or other security).

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

10.8    Multiple Counterparts. This Agreement may be executed in one or more counterparts, by facsimile or electronic signature, each of which shall be deemed an original and all of which shall, taken together, be considered one and the same agreement, it being understood that both Parties need not sign the same counterpart.

10.9    Further Actions. Each Party shall execute, deliver, acknowledge and file such other documents and take such further actions as may be reasonably requested from time to time by the other Party hereto to give effect to and carry out the transactions contemplated in this Agreement, and to provide the Services.

10.10    Regulations.  PICO shall, and shall cause all of its personnel and Third Parties authorized to provide Services, when on the property of UCP, conform to the rules and regulations of UCP concerning safety, health and security which are made known to such Persons in advance in writing.  In connection with receiving the Services, UCP shall, and shall cause all of its applicable personnel, when on the property of PICO, conform to the rules and regulations of PICO concerning safety, health and security which are made known to such Persons in advance in writing.

10.11    Entire Agreement. This Agreement and the exhibits constitute the entire agreement of the Parties with respect to the subject matter hereof and supersedes and cancels all prior agreements and understandings, either oral or written, between the Parties with respect to the subject matter hereof.

10.12    No Drafting Presumption. In the event an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted by the Parties, and no presumption or burden of proof shall arise favoring or disfavoring any Party by virtue of the authorship of any of the provisions of this Agreement.    

10.13    Governing Law; Venue; Jurisdiction. All issues and questions concerning the construction, validity, enforcement and interpretation of this Agreement shall be governed by, and construed in accordance with, the laws of the State of Delaware, without giving effect to any choice of law or conflict of law rules or provisions (whether of the State of Delaware or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of Delaware. The Parties further agree that any dispute arising out of this Agreement shall be decided by either the state or federal court in Santa Clara County, 

9

California. The Parties shall each submit to the jurisdiction of those courts and agree that service of process by certified mail, return receipt requested, shall be sufficient to confer said courts with in personam jurisdiction. 

10.14    WAIVER OF JURY TRIAL. THE PARTIES HEREBY WAIVE ANY RIGHT TO TRIAL BY JURY OF ANY ISSUE TRIABLE BY A JURY FULLY TO THE EXTENT THAT ANY SUCH RIGHT NOW OR HEREAFTER EXISTS WITH REGARD TO THIS AGREEMENT, OR ANY CLAIM, COUNTERCLAIM OR OTHER ACTION ARISING IN CONNECTION THEREWITH. THIS WAIVER OF RIGHT TO TRIAL BY JURY IS GIVEN KNOWINGLY AND VOLUNTARILY BY THE PARTIES AND IS INTENDED TO ENCOMPASS INDIVIDUALLY EACH INSTANCE AND EACH ISSUE AS TO WHICH THE RIGHT TO A TRIAL BY JURY MAY OTHERWISE ACCRUE. THE PARTIES ARE EACH HEREBY AUTHORIZED TO FILE A COPY OF THIS SECTION IN ANY PROCEEDING AS CONCLUSIVE EVIDENCE OF THIS WAIVER BY THE OTHER PARTY.

[REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]

10

IN WITNESS WHEREOF, the Parties have executed and delivered this Agreement effective as of the day and year first written above.

PICO Holdings, Inc.,
a California corporation

By:_________________

Name: 
Title:    

UCP, Inc.,
a Delaware corporation
By:_________________
         
Name: 
Title:    

11

EXHIBIT A 

Accounting Services
Description of Accounting Services:
PICO will provide, or cause to be provided, the following accounting services (“Accounting Services”):

Provide accounts payable and expense processing, and settlement support.

Provide accounts receivable and cash receipts processing, and settlement support.

Provide investment accounting and investment data entry.

Provide tax compliance support.

Maintain UCP's general ledger, including monthly and quarter-end journal entries and account reconciliations, which ledger shall be provided to UCP for approval.

Consolidate UCP's financial statements and supporting schedules each quarter, with the input and current assistance from UCP staff, which financial statements and supporting schedules shall be provided to UCP for approval.

Conduct and support UCP's financial statement audit as requested by UCP accountants or UCP's auditor.

Provide monthly and quarterly closing schedule and technical accounting support to UCP accountants.

Provide SEC financial reporting compliance consult and support.

Provide budgeting and financial analysis support.

Provide services to support ERP and accounting processing transition.

Provide stock administration.

Provide training of UCP staff in regard to current procedures, policies and schedules. 

Provide certain access and authority to use the Oracle operating system, including project module, Expense, AP, budgeting and other modules and functionalities necessary to maintain accounting records and financial statements. 

Provide development support for internal controls, internal audits and accounting policies and procedures.

All accounting or related entries or related schedules supporting such entries that are processed by PICO must comply with GAAP and be in accordance with current PICO policies and procedures as defined in internal control processes for Sarbanes-Oxley compliance and shall comply with UCP's financial reporting requirements.

Service Fee for Accounting Services:

PICO will provide, included as part of the fees determined herein, the necessary human resources and related overhead support to provide the activities listed above. The Service Fee for Accounting Services during the Term shall be an amount equal to: $150,000 per quarter, pro rated as required hereunder.

PICO shall bill Third Party charges such as couriers at actual cost and provide documentation for such expenses.

12

EXHIBIT B

Human Resources Services

Description of Human Resources Services:

PICO will provide, or cause to be provided, the following human resources services (“HR Services”):

Provide pre-hire processing to include background checks and pre-hire paperwork.

Provide new hire processing and new employee orientation. 

Provide employee termination processing.

Manage personnel records and provide human resources reports.

Manage employee relations.

Provide compensation processing.

Maintenance of time off files for Associates

Provide worker's comp claim processing?

Provide performance appraisal/goal management and tracking.

Provide training as necessary to employees. 

Interact with auditors and provide documentation necessary for review of payroll, 401(k) and other human resource functions

Provide leave processing.

Provide the following payroll and benefit administration services:
		
	◦
	Issue and mail payroll checks and direct deposit confirmations for employees.

		
	◦
	Work with Paychex to ensure the preparation and filing of payroll tax reports, including W-2 Forms.

		
	◦
	Maintain payroll system and database and provide system security, training and upgrades as necessary in the normal course of business.

		
	◦
	Provide direct deposit facility.

		
	◦
	Process stop payments and direct deposit reversals.

		
	◦
	Process all garnishments as submitted by UCP.

		
	◦
	Provide administration services for benefit plans.  Specifically, allow each UCP employee and his or her dependents, where applicable and in accordance with the terms of the plans identified below, to be eligible to participate in the following employee benefit plans:  

		
	▪
	Health & Welfare Plans:

		
	•
	Medical Plan (currently high deductible health plan with HSA under Anthem Blue Cross)

		
	•
	Dental PPO Plan (currently under Metlife)

		
	•
	Vision Plan (currently under Vision Service Providers)

		
	•
	Life, AD&D, STD, LTD and Dependent Life (currently under UNUM)

		
	•
	Flexible Spending Plan (currently with eflex)

		
	•
	HSA Account Maintenance 

		
	▪
	Supplemental & Executive Benefit Plans:  

		
	•
	Additional Life Insurance for Officers (currently under Reliance)

		
	▪
	Retirement Savings Plans:  

		
	•
	PICO HOLDINGS, INC. EMPLOYEES 401(k) RETIREMENT PLAN AND TRUST

Service Fee for HR Services:

PICO will provide, included as part of the fees determined herein, the necessary human resources and related overhead 

13

support to provide the activities listed above. The Service Fee for HR Services during the Term shall be an amount equal to: $25,000 per quarter, pro rated as required hereunder.

PICO shall bill Third Party charges such as couriers at actual cost and provide documentation for such expenses.

14

EXHIBIT C

Information Technology Services

Description of Information Technology Services:

PICO will provide, or cause to be provided, the following information technology services (“IT Services”):

Support approved corporate mobile devices with the ability to send and receive corporate e-mail, including any corporate mobile devices used by UCP personnel as of the Effective Date or devices of substantially similar kind during the period contemplated herein.

Maintain and assist in the acquisition of end user computing equipment and software, office equipment (copiers, scanners, facsimile machines, etc.) for UCP which adhere to the Service standard set forth in Section 2.6(a) of this Agreement.

As requested by UCP, negotiate overall purchasing agreements with information technology vendors with whom PICO does business and consult with UCP prior to making any decisions regarding standards or vendor changes for UCP.  PICO shall have no authority to legally bind UCP.

Manage a service desk which provides a single point of contact for any request for IT Services or issues with services in accordance with PICO's practices as of the date of this Agreement.  Ensure that a single phone number can be called to get assistance.  In addition, the user can submit less urgent requests via email or website.

Provide vendor management services for any Third Party service providers in accordance with PICO's practices, including license management in respect of IT Services.

Support electronic mail, client email package (Microsoft Outlook), enterprise email infrastructure (Microsoft Exchange), anti-virus and spam filtering Services, and Internet email Gateway Services.

Create, maintain and provide access to shared resources for the enterprise in accordance with PICO's practices as of the date of this Agreement.  Specifically, these shared resources shall include secure access to space on servers, printers, electronic mail, intranet and internet portals, Internet connections, networks, database management, storage area networks, failover systems and disaster recovery, firewall, and network administrators, among others.

Detect, troubleshoot and repair the Intranet, LAN, WAN, and Internet when degraded performance or outright failure occurs, including providing for appropriate notification of outages and their expected duration, provision of workarounds, and coordination of efforts of Third Party providers in the resolution in accordance with the Service standard set forth in Section 2.6(a) of this Agreement.

Monitor and manage network and other resources to ensure that the services are available and meeting the needs of UCP and the user community.

Administrative services shall be made available to assist in the appropriate use and setup of the services in accordance with the Service standard set forth in Section 2.6(a) of this Agreement.

Provide telecom services in accordance with the Service standard set forth in Section 2.6(a) of this Agreement.

Service Fee for IT Services:

PICO will provide, included as part of the fees determined herein, the necessary human resources and related overhead support to provide the activities listed above. The Service Fee for IT Services during the Term shall be an amount equal to: $24,000 per quarter, pro rated as required hereunder.

PICO shall bill Third Party charges such as couriers at actual cost and provide documentation for such expenses.

15EX 10.8 FORM OF TAX RECEIVABLE AGREEMENT UCP INC.

EXHIBIT 10.8

TAX RECEIVABLE AGREEMENT
among
UCP, INC.
UCP, LLC
and
PICO HOLDINGS, INC
Dated as of __________ __, 2013

TABLE OF CONTENTS

	
				
	 
	 
	 
	PAGE

	 
	 
	ARTICLE 1
	 

	 
	 
	DEFINITIONS
	 

	Section 1.01.
	 
	Definitions
	3

	Section 1.02.
	 
	Other Definitional and Interpretative Provisions
	8

	 
	 
	 
	 

	 
	 
	ARTICLE 2
	 

	 
	 
	DETERMINATION OF CUMULATIVE REALIZED TAX BENEFIT
	 

	Section 2.01.
	 
	Exchange Basis Schedule
	8

	Section 2.02.
	 
	Tax Benefit Schedule
	9

	Section 2.03.
	 
	Procedures, Amendments
	9

	 
	 
	 
	 

	 
	 
	ARTICLE 3
	 

	 
	 
	TAX BENEFIT PAYMENTS
	 

	Section 3.01.
	 
	Payments
	9

	Section 3.02.
	 
	No Duplicative Payments
	10

	Section 3.03.
	 
	Pro Rata Payments
	10

	Section 3.04.
	 
	Sufficient Funds
	10

1

	
				
	 
	 
	ARTICLE 4
	 

	 
	 
	TERMINATION
	 

	Section 4.01.
	 
	Early Termination and Breach of Agreement
	10

	Section 4.02.
	 
	Early Termination Notice
	11

	Section 4.03.
	 
	Payment upon Early Termination
	11

	 
	 
	 
	 

	 
	 
	ARTICLE 5
	 

	 
	 
	SUBORDINATION AND LATE PAYMENTS
	 

	Section 5.01.
	 
	Subordination
	13

	Section 5.02.
	 
	Late Payments by UCP
	13

	 
	 
	 
	 

	 
	 
	ARTICLE 6
	 

	 
	 
	NO DISPUTES: CONSISTENCY; COOPERATION
	 

	Section 6.01.
	 
	PICO's Participation in UCP's and the Company's Tax Matters
	13

	Section 6.02.
	 
	Consistency
	13

	Section 6.03.
	 
	Cooperation
	13

	Section 6.04.
	 
	Section 754 Elections
	14

	
				
	 
	 
	ARTICLE 7
	 

	 
	 
	MISCELLANEOUS
	 

	Section 7.01.
	 
	Notices
	14

	Section 7.02.
	 
	Counterparts
	14

	Section 7.03.
	 
	Entire Agreement; No Third Party Beneficiaries
	14

	Section 7.04.
	 
	Governing Law
	14

	Section 7.05.
	 
	Severability
	14

	Section 7.06.
	 
	Successors; Assignment; Amendments; Waivers
	15

	Section 7.07.
	 
	Titles and Subtitles
	15

	Section 7.08.
	 
	Consent to Jurisdiction
	15

	Section 7.09.
	 
	Reconciliation
	15

	Section 7.10.
	 
	Withholding
	16

	Section 7.11.
	 
	Admission of UCP into a Consolidated Group; Transfers of Corporate Assets
	16

	Section 7.12.
	 
	Confidentiality
	16

	Section 7.13.
	 
	LLC Agreement
	16

	Section 7.14.
	 
	Change in Tax Law
	16

	Section 7.15.
	 
	WAIVER OF JURY TRIAL
	17

2

TAX RECEIVABLE AGREEMENT
among
UCP, INC.
UCP, LLC
and
PICO HOLDINGS, INC.
TAX RECEIVABLE AGREEMENT, dated as of ___________  __, 2013 (this “Agreement”), among UCP, Inc., a Delaware corporation (“UCP, Inc.”), UCP, LLC, a Delaware limited liability company (the “Company”), and PICO Holdings, Inc., a California corporation (“PICO”).  Capitalized terms used but not otherwise defined are defined in or by reference to Section 1.01.
W I T N E S S E T H:
WHEREAS, PICO holds membership interests (“PICO Membership Interests”) in the Company, which is treated as a partnership for United States federal income tax purposes;
WHEREAS, UCP, Inc. is the managing member of, and holds and will hold membership interests (“UCP, Inc. Membership Interests”) in, the Company;
WHEREAS, as a result of PICO's eventual Exchanges (as defined below) of PICO Membership Interests (rather than transferring all of its PICO Membership Interests in exchange for Class A Shares (as defined below)), UCP, Inc. expects to incur significantly lower tax liabilities on an ongoing basis with respect to the operations of the Company and its direct and indirect subsidiaries; 
WHEREAS, PICO may sell certain of its Membership Interests to UCP, Inc. in exchange for cash raised by UCP, Inc. in the IPO (the “IPO Sale”);
WHEREAS, upon admission of UCP, Inc., the Company will be treated as a partnership for United States federal income tax purposes and will have in effect a Section 754 Election, for each Taxable Year in which an exchange of PICO Membership Interests for Class A Shares occurs, which election is intended to result in an adjustment to the Tax basis of the assets owned by the Company and such subsidiaries (solely to the extent allocated to UCP, Inc.) at the time (each such time, an “Exchange Date”) of an exchange of PICO Membership Interests for Class A Shares or any other deemed or actual acquisition of PICO Membership Interests by UCP, Inc. for cash or otherwise, including the IPO Sale, if applicable, (each such exchange or acquisition, an “Exchange”) by reason of such Exchange and the payments under this Agreement;
WHEREAS, the income, gain, loss, expense and other Tax items of UCP, Inc., as a member of the Company (and in respect of each of the Company's direct and indirect subsidiaries treated as a disregarded entity or a partnership for U.S. federal income tax purposes) may be affected by the Basis Adjustment, and the income, gain, loss, expense and other Tax items of UCP, Inc. may be affected by the Imputed Interest; and
WHEREAS, the parties to this Agreement desire to make certain arrangements with respect to the effect of the Basis Adjustment and the Imputed Interest on the liability for Taxes of UCP, Inc.;
NOW, THEREFORE, the parties hereto hereby agree as follows:

ARTICLE 1
DEFINITIONS

Section 1.01. Definitions. As used in this Agreement, the following terms have the following meanings:

“Advisory Firm” means _____________ or any other law or accounting firm that is a nationally recognized as being expert in Tax matters and that is appointed by the Board.

3

“Affiliate” means, with respect to any Person, any other Person that directly or indirectly, through one or more intermediaries, Controls, is Controlled by, or is under common Control with, such first Person.

“Agreed Rate” means LIBOR plus 100 basis points.

“Agreement” is defined in the preamble.

“Amended Schedule” is defined in Section 2.03(b) of this Agreement.

“Applicable Law” means, to the extent applicable to UCP, Inc., the Company or their activities or PICO, as applicable: (a) all U.S. federal and state statutes and laws and all statutes and laws of foreign countries; (b) all rules and regulations (including interpretations thereof) of all regulatory agencies, organizations and bodies; and (c) all rules and regulations (including interpretations thereof) of all self-regulatory agencies, organizations and bodies now or hereafter in effect.

 “Basis Adjustment” means the adjustment to the Tax basis of an Exchange Asset as a result of (x) an Exchange or (y) the payments made pursuant to this Agreement, in each case, under, or under the principles of, Sections 732(b) and 1012 of the Code (in situations where, as a result of one or more Exchanges, the Company becomes an entity that is disregarded as separate from its owner for U.S. federal income tax purposes), or Sections 743(b) and 754 of the Code (including in situations where, following an Exchange, the Company remains in existence as an entity for U.S. federal income tax purposes) and, in each case, comparable sections of state and local tax laws. Notwithstanding any other provision of this Agreement, the amount of any Basis Adjustment (a “Basis Adjustment Amount”) resulting from an Exchange of PICO Membership Interests shall be determined without regard to any Pre-Exchange Transfer of such PICO Membership Interests and as if any such Pre-Exchange Transfer had not occurred. For the avoidance of doubt, payments under this Agreement shall not be treated as resulting in a Basis Adjustment to the extent such payments are treated as Imputed Interest.

A “Beneficial Owner” means, with respect to a security, any Person who directly or indirectly, through any contract, arrangement, understanding, relationship or otherwise, has or shares: (i) voting power, which includes the power to vote, or to direct the voting of, such security and/or (ii) investment power, which includes the power to dispose of, or to direct the disposition of, such security. The terms “Beneficially Own” and “Beneficial Ownership” shall have correlative meanings.

“Board” means the board of directors of UCP, Inc.

“Business Day” means any day, other than a Saturday or Sunday, on which federally chartered banks in the United States are open for business.

“Change in Tax Law” is defined in Section 7.14 of this Agreement.

“Change of Control” means the occurrence of any of the following events:

	
			
	 
	(i)
	any Person, or any group of Persons acting together that would constitute a “group” for purposes of Section 13(d) of the Securities and Exchange Act of 1934 or any successor provisions thereto, becomes the Beneficial Owner, directly or indirectly, of securities of UCP, Inc. representing more than fifty percent (50%) of the combined voting power of UCP, Inc.'s then-outstanding voting securities; or

	
			
	 
	(ii)
	the following people cease for any reason to constitute a majority of the number of directors of UCP, Inc. then serving: people who, on the date of the consummation of the IPO, constitute the Board and any new director (other than a director whose initial assumption of office is in connection with an actual or threatened election contest, including but not limited to a consent solicitation, relating to an election of directors of UCP, Inc.) whose appointment or election by the Board or nomination for election by UCP, Inc.'s stockholders was approved or recommended by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors on the date of the consummation of the IPO or whose appointment, election or nomination for election was previously so approved or recommended by the directors referred to in this clause (ii); or

4

	
			
	 
	(iii)
	there is consummated a merger or consolidation of UCP, Inc. with any other corporation or other entity, and, immediately after the consummation of such merger or consolidation, either (x) members of the Board immediately prior to the merger or consolidation do not constitute at least a majority of the board of directors of the company surviving the merger or, if the surviving company is a subsidiary, the ultimate parent thereof, or (y) all of the Persons who were the respective Beneficial Owners of the voting securities of UCP, Inc. immediately prior to such merger or consolidation do not Beneficially Own, directly or indirectly, more than 50% of the combined voting power of the then-outstanding voting securities of the Person resulting from such merger or consolidation; or

	
			
	 
	(iv)
	the stockholders of UCP, Inc. approve a plan of complete liquidation or dissolution of UCP or there is consummated an agreement or series of related agreements for the sale or other disposition, directly, or indirectly, by UCP, Inc. of all or substantially all of UCP, Inc.'s assets, other than such sale or other disposition by UCP, Inc. of all or substantially all of UCP, Inc.'s assets to an entity, at least fifty percent (50%) of the combined voting power of which is owned by stockholders of UCP, Inc. in substantially the same proportions as their voting power of UCP, Inc. immediately prior to such sale.

Notwithstanding the foregoing, except with respect to clause (ii) and clause (iii)(x) above, a “Change of Control” shall not be deemed to have occurred by virtue of the consummation of any transaction or series of integrated transactions immediately following which the record holders of the shares of capital stock of UCP, Inc. immediately prior to such transaction or series of transactions continue to have substantially the same proportionate voting power in an entity which owns all or substantially all of the assets of UCP, Inc. immediately following such transaction or series of transactions.

“Change Notice” is defined in Section 6.01(b) of this Agreement.

“Class A Shares” means Class A shares of common stock of UCP, Inc.

“Code” means the Internal Revenue Code of 1986, as amended.

“Company” is defined in the Preamble of this Agreement.

“Control” means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a Person, whether through ownership of voting securities, by contract or otherwise.

“Corporation Return” means the U.S. federal and/or state and/or local Tax Return, as applicable, of UCP, Inc. filed with respect to Taxes for any Taxable Year.

“Cumulative Net Realized Tax Benefit” for a Taxable Year means the cumulative amount (but not less than zero) of Realized Tax Benefits for all Taxable Years of UCP, Inc., up to and including such Taxable Year, net of the cumulative amount of Realized Tax Detriments for the same period. The Realized Tax Benefit and Realized Tax Detriment for each Taxable Year shall be determined based on the most recent Tax Benefit Schedule or Amended Schedule, if any, in existence at the time of such determination.

“Default Rate” means LIBOR plus 300 basis points.

“Determination” shall have the meaning ascribed to such term in Section 1313(a) of the Code or similar provision of state and local Tax law, as applicable, or any other event (including the execution of an IRS Form 870-AD or similar state or local form) that finally and conclusively establishes the amount of any liability for Tax.

“Early Termination Date” means the date of an Early Termination Notice for purposes of determining the Early Termination Payment.

“Early Termination Notice” is defined in Section 4.02 of this Agreement.

“Early Termination Payment” is defined in Section 4.03(b) of this Agreement.

“Early Termination Rate” means LIBOR plus 100 basis points.

“Early Termination Schedule” is defined in Section 4.02 of this Agreement.

5

“Excess Payment” is defined in Section 3.01(c) of this Agreement.

“Exchange” is defined in the recitals; “Exchanged” and “Exchanging” shall have correlative meanings.

“Exchange Asset” means each asset that is held by the Company, or by any of its direct or indirect subsidiaries treated as a partnership or disregarded entity for purposes of the applicable Tax, at the time of an Exchange.

“Exchange Basis Schedule” is defined in Section 2.01 of this Agreement.

“Exchange Date” is defined in the recitals.

“Exchange Payment” is defined in Section 5.01 of this Agreement.

“Expert” is defined in Section 7.09 of this Agreement.

“Hypothetical Tax Liability” means, with respect to any Taxable Year, the liability for income Taxes of UCP, Inc. or any consolidated group of which UCP, Inc. is a member (or, without duplication, the Company, but only with respect to UCP, Inc.'s pro rata share of the Company's income Tax liability for such Taxable Year determined using the same methods, elections, conventions and similar practices used on the Corporation Return for such Taxable Year) as would be shown on its Tax Return (including any consolidated return in which UCP, Inc. joins) but determined (i) using the Non-Stepped Up Tax Basis of the Exchange Assets as reflected on the Exchange Basis Schedule, including amendments thereto, for the Taxable Year instead of the Tax basis of the Exchange Assets reflecting the Basis Adjustments and (ii) excluding any deduction attributable to Imputed Interest for the Taxable Year. Hypothetical Tax Liability shall be determined without taking into account the carryover or carryback of any Tax item (or portions thereof) that is attributable to any Basis Adjustment or to the Imputed Interest.

“Imputed Interest” shall mean any interest imputed under Section 1272, Section 1274 or Section 483 or other provision of the Code and any similar provision of state and local Tax law applicable with respect to UCP, Inc.'s payment obligations under this Agreement.

“Interest Amount” is defined in Section 3.01(b) of this Agreement.

“IPO” means the initial public offering of Class A Shares by UCP, Inc.

“IPO Sale” is defined in the recitals.

“IRS” means the U.S. Internal Revenue Service.

“LIBOR” means for each month (or portion thereof) during any period, an interest rate per annum equal to the rate per annum reported, on the date two calendar days prior to the first day of such month, on Reuters Screen LIBOR01 Page (or if such screen shall cease to be publicly available, as reported by any other publicly available source of such market rate) for London interbank offered rates for United States dollar deposits for such month (or portion thereof).

“LLC Agreement” means the Second Amended and Restated Limited Liability Company Operating Agreement of the Company dated as of ___________, 2013, as amended.

“Market Value” means, with respect to the Class A Shares, on any given date: (i) if the Class A Shares are listed for trading on the NYSE, the closing sale price per share of the Class A Shares on the NYSE, on that date (or, if no closing sale price is reported, the last reported sale price), (ii) if the Class A Shares are not listed for trading on the NYSE, the closing sale price (or, if no closing sale price is reported, the last reported sale price) as reported on that date in composite transactions for the principal national securities exchange registered pursuant to Section 6(g) of the Exchange Act, on which the Class A Shares are listed, (iii) if the Class A Shares are not so listed on a national securities exchange, the last quoted bid price for the Class A Shares on that date in the over-the-counter market as reported by OTC Markets Group or a similar organization, or (iv) if the Class A Shares are not so quoted by OTC Markets Group or a similar organization such value as the Board, in its sole discretion, shall determine in good faith.

“Net Tax Benefit” is defined in Section 3.01(b).

“Non-Stepped Up Tax Basis” means, with respect to any asset at any time, the Tax basis that such asset would have had at such time if no Basis Adjustments had been made with respect to such asset.

6

“Notice” is defined in Section 7.01.

“NYSE” means the New York Stock Exchange.

“Objection Notice” is defined in Section 2.03(a).

“Payment Limitation” is defined in Section 3.03.

“Person” means any individual, corporation, firm, partnership, joint venture, limited liability company, estate, trust, business association, organization, governmental entity or other entity.

“PICO” is defined in the Preamble of the Agreement.

“PICO Membership Interests” is defined in the recitals.

“Pre-Exchange Transfer” means any transfer of one or more PICO Membership Interests (i) that occurs prior to an Exchange of such PICO Membership Interests, and (ii) to which Section 743(b) of the Code applies.

“Realized Tax Benefit” means, for a Taxable Year, the excess, if any, of the Hypothetical Tax Liability over the actual liability for income Taxes of UCP, Inc. (or, without duplication, the Company, but only with respect to UCP, Inc.'s pro rata share of the Company's income Tax liability for such Taxable Year determined using the same methods, elections, conventions and similar practices used on the Corporation Return for such Taxable Year). If the actual liability for such Taxes for the Taxable Year is adjusted as a result of an audit by a Taxing Authority of such Taxable Year or any other Taxable Year, such adjustment shall not be included in determining the Realized Tax Benefit unless and until there has been a Determination.

“Realized Tax Detriment” means, for a Taxable Year, the excess, if any, of the actual liability for income Taxes of UCP, Inc. (or, without duplication, the Company, but only with respect to UCP, Inc.'s pro rata share of the Company's income Tax liability for such Taxable Year determined using the same methods, elections, conventions and similar practices used on the Corporation Return for such Taxable Year) over the Hypothetical Tax Liability for such Taxable Year. If the actual liability for such Taxes for the Taxable Year is adjusted as a result of an audit by a Taxing Authority of such Taxable Year or any other Taxable Year, such adjustment shall not be included in determining the Realized Tax Detriment unless and until there has been a Determination.

“Reconciliation Dispute” is defined in Section 7.09 of this Agreement.

“Reconciliation Procedures” shall mean those procedures set forth in Section 7.09 of this Agreement.

“Schedule” means any of (i) an Exchange Basis Schedule, (ii) a Tax Benefit Schedule or (iii) an Early Termination Schedule.

“Section 754 Election” means an election under Section 754 of the Code and any comparable election under applicable state or local income tax laws.

“Senior Obligations” is defined in Section 5.01 of this Agreement.

“Shortfall” is defined in Section 3.01(c) of this Agreement.

“Subsidiaries” means, with respect to any Person, as of any date of determination, any other Person as to which such Person, owns, directly or indirectly, or otherwise controls more than 50% of the voting power or other similar interests (including the general partner interests or managing member or similar interests) of such Person.

“Tax Benefit Payment” is defined in Section 3.01(b) of this Agreement.

“Tax Benefit Schedule” is defined in Section 2.02 of this Agreement.

“Tax Return” means any return, declaration, report or similar statement filed or required to be filed with respect to Taxes (including any attached schedules), including, without limitation, any information return, claim for refund, amended return and declaration of estimated Tax.

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“Taxable Year” means a taxable year of UCP, Inc. as defined in Section 441(b) of the Code or comparable section of state or local Tax law, as applicable (and, therefore, may include a period of less than 12 months for which a Corporation Return is prepared) in which there is a Basis Adjustment or increased depreciation, amortization or interest deductions attributable to an Exchange.

“Taxes” means any and all U.S. federal, state and local taxes, assessments or similar charges that are based on or measured with respect to net income or profits and any interest related to such taxes.

“Taxing Authority” shall mean any domestic, federal, national, state, county or municipal or other local government, any subdivision, agency, commission or authority thereof, or any quasi-governmental body exercising any taxing authority or any other authority exercising Tax regulatory authority.

“Treasury Regulations” means the final, temporary and proposed regulations under the Code promulgated from time to time (including corresponding provisions and succeeding provisions) as in effect for the relevant taxable period.

“UCP, Inc.” is defined in the Preamble of this Agreement.

“UCP, Inc. Membership Interests” is defined in the recitals.

“Valuation Assumptions” shall mean, as of an Early Termination Date, the assumptions that (1) in each Taxable Year ending on or after such Early Termination Date, UCP, Inc. will have sufficient taxable income to utilize fully the deductions arising from the Basis Adjustments and the Imputed Interest, (2) the U.S. federal income Tax rates and state and local income Tax rates that will be in effect for each such Taxable Year will be those specified for each such Taxable Year by the Code and other applicable laws as in effect on the Early Termination Date, (3) any loss carryovers attributable to any Basis Adjustment or Imputed Interest and available as of the date of the Early Termination Schedule will be utilized by UCP, Inc. on a  pro rata  basis from the date of the Early Termination Schedule through the date that is the scheduled expiration date of such loss carryovers, (4) any non-amortizable assets will be disposed of on the fifteenth anniversary of the earlier of (x) the Basis Adjustment and (y) the Early Termination Date and (5) if, at the Early Termination Date, there are PICO Membership Interests that have not been Exchanged, then each such PICO Membership Interest shall be deemed to be Exchanged for the Market Value of the Class A Shares and the amount of the cash payment to which PICO would be entitled under this Agreement if the Exchange occurred on the Early Termination Date.

Section 1.02. Other Definitional and Interpretative Provisions. The words “hereof,” “herein” and “hereunder” and words of like import used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement. References to Articles and Sections are to Articles and Sections of this Agreement unless otherwise specified. Any singular term in this Agreement shall be deemed to include the plural, and any plural term the singular. Whenever the words “include,” “includes” or “including” are used in this Agreement, they shall be deemed to be followed by the words “without limitation,” whether or not they are in fact followed by those words or words of like import. “Writing,” “written” and comparable terms refer to printing, typing and other means of reproducing words (including electronic media) in a visible form. References to any agreement or contract are to that agreement or contract as amended, modified or supplemented from time to time in accordance with the terms thereof. References to any Person include the successors and permitted assigns of that Person. References from or through any date mean, unless otherwise specified, from and including or through and including, respectively. References to “law,” “laws” or to a particular statute or law shall be deemed also to include any and all Applicable Laws.

ARTICLE 2
DETERMINATIONOF CUMULATIVE REALIZED TAX BENEFIT

Section 2.01. Exchange Basis Schedule. Within 60 calendar days after the filing of the U.S. federal income Corporation Return for each Taxable Year, UCP, Inc. shall deliver to PICO a schedule (the “Exchange Basis Schedule”) that shows in reasonable detail (i) the Non-Stepped Up Tax Basis of the Exchange Assets as of each applicable Exchange Date, (ii) the Basis Adjustment Amount with respect to the Exchanges effected in such Taxable Year, calculated in the aggregate, (iii) the period or periods, if any, over which the Exchange Assets are amortizable and/or depreciable and (iv) the period or periods, if any, over which each Basis Adjustment Amount is amortizable and/or depreciable (which, for non-amortizable assets, shall be based on the Valuation Assumptions).

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Section 2.02. Tax Benefit Schedule. (a) Within 60 calendar days after the filing of the U.S. federal income Corporation Return for any Taxable Year in which there is a Realized Tax Benefit or Realized Tax Detriment, UCP, Inc. shall provide to PICO a schedule showing, in reasonable detail, the calculation of the Realized Tax Benefit or Realized Tax Detriment for such Taxable Year (a “Tax Benefit Schedule”). On no more than a quarterly basis, UCP, Inc. agrees to confirm, at the request of PICO, the Market Value of the applicable Class A Shares with respect to any Exchanges in the prior calendar quarter. The Tax Benefit Schedule will become final as provided in Section 2.03(a) and may be amended as provided in Section 2.03(b) (subject to the procedures set forth in Section 2.03(b)).

(b) Applicable Principles. Subject to Section 3.03, the Realized Tax Benefit or Realized Tax Detriment for each Taxable Year is intended to measure the decrease or increase in the actual liability for Taxes of UCP, Inc. for such Taxable Year attributable to the Basis Adjustments and Imputed Interest. The actual liability for Taxes will take into account the deduction of the portion of the Tax Benefit Payment that must be accounted for as interest under the Code based upon the characterization of Tax Benefit Payments as additional consideration payable by UCP, Inc. for the PICO Membership Interests acquired in an Exchange.  Carryovers or carrybacks of any Tax item attributable to the Basis Adjustments and the Imputed Interest shall be considered to be subject to the rules of the Code and the Treasury Regulations or the appropriate provisions of U.S. state and local income and franchise tax law, as applicable, governing the use, limitation and expiration of carryovers or carrybacks of the relevant type. If a carryover or carryback of any Tax item includes a portion that is attributable to the Basis Adjustment or the Imputed Interest and another portion that is not, such portions shall be considered to be used in accordance with the “with and without” methodology. All Tax Benefit Payments (other than amounts accounted for as interest under the Code) will (A) be treated as subsequent upward purchase price adjustments that give rise to further Basis Adjustments to Exchange Assets for UCP, Inc. and (B) have the effect of creating additional Basis Adjustments to Exchange Assets for UCP, Inc. in the year of payment, and, as a result, such additional Basis Adjustments will be incorporated into the current year calculation and into future year calculations, as appropriate.

Section 2.03. Procedures, Amendments.

(a) Procedures. Each time UCP, Inc. delivers to PICO an applicable Schedule under this Agreement, including any Amended Schedule, but excluding any Early Termination Schedule or amended Early Termination Schedule, UCP, Inc. also shall (x) deliver to PICO the Corporation Return, along with schedules and work papers, as determined by UCP, Inc. or requested by PICO, providing reasonable detail regarding the preparation of such Schedule and (y) allow PICO reasonable access to the appropriate representatives of UCP, Inc. and the Advisory Firm in connection with a review of such Schedule. Each party shall bear its own expenses associated with such review and investigation. The applicable Schedule shall become final and binding on all parties unless PICO, within 30 calendar days after an Exchange Basis Schedule or amendment thereto or a Tax Benefit Schedule or amendment thereto was provided to PICO, provides UCP, Inc. with notice of a material objection to such Schedule (“Objection Notice”) made in good faith. If UCP, Inc. and PICO are unable to resolve the issues raised in such notice within 30 calendar days of receipt by UCP, Inc. of an Objection Notice with respect to such Exchange Basis Schedule or Tax Benefit Schedule, UCP, Inc. and PICO shall employ the reconciliation procedures as provided for in Section 7.09 of this Agreement (the “Reconciliation Procedures”).

(b) Amended Schedule. The applicable Schedule for any Taxable Year shall be amended from time to time by UCP, Inc. (i) in connection with a Determination affecting such Schedule, (ii) to correct material inaccuracies in the Schedule identified as a result of the receipt of additional factual information that was not previously taken into account, (iii) to comply with the Expert's determination under the Reconciliation Procedures, (iv) to reflect a material change (relative to the amounts in the original Tax Benefit Schedule) in the Realized Tax Benefit or Realized Tax Detriment for such Taxable Year attributable to a carryback or carryforward of a loss or other Tax item to such Taxable Year, (v) to reflect a material change (relative to the amounts in the original Tax Benefit Schedule) in the Realized Tax Benefit or Realized Tax Detriment for such Taxable Year attributable to an amended Tax Return filed for such Taxable Year, or (vi) to adjust the Exchange Basis Schedule to take into account payments made pursuant to this Agreement (any such Schedule, an “Amended Schedule”).

ARTICLE 3
TAX BENEFIT PAYMENTS

Section 3.01. Payments.

(a) Payments. Within five (5) Business Days of a Tax Benefit Schedule that was delivered to PICO becoming final in accordance with Section 2.03(a), UCP, Inc. shall pay to PICO the applicable Tax Benefit Payment determined pursuant to 

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Section 3.01(b). Each such Tax Benefit Payment shall be made by wire transfer of immediately available funds to the bank account designated by PICO;  provided  that no Tax Benefit Payment shall be made in respect of estimated Tax payments, including, without limitation, estimated U.S. federal income Tax payments.

(b) A “Tax Benefit Payment” means an amount, not less than zero, equal to the Net Tax Benefit and the Interest Amount. For the avoidance of doubt, for Tax purposes, the Interest Amount shall not be treated as interest but instead shall be treated as additional consideration for PICO Membership Interests in Exchanges.  The “Net Tax Benefit” for a Taxable Year shall be an amount equal to the excess, if any, of 85% of the Cumulative Net Realized Tax Benefit as of the end of such Taxable Year over the total amount of Tax Benefit Payments with respect to Net Tax Benefits previously made under this Section 3.01;  provided, however , that PICO shall not be required to return any portion of any previously received Tax Benefit Payment under any circumstances.  The “Interest Amount” for a Taxable Year shall equal the interest on the Net Tax Benefit for such Taxable Year calculated at the Agreed Rate from the due date (without extensions) for the filing of the Corporation Return with respect to Taxes for such Taxable Year until the date of payment.  The Net Tax Benefit shall be determined separately with respect to each separate Exchange on an individual basis by reference to the amount realized by PICO on the Exchange of PICO Membership Interests and the resulting Basis Adjustments to UCP, Inc. (as determined pursuant to Section 2.02(b)).

(c) Increase or Decrease in Future Payments. (i) Within five (5) Business Days after the delivery of an Amended Schedule to PICO for any Taxable Year, the Company shall pay to PICO an amount equal to the excess, if any, of (x) the amount PICO is entitled to receive under this Agreement in respect of the relevant Taxable Year (based on such Amended Schedule) over (y) the cumulative amount PICO actually received in respect of such Taxable Year pursuant to this Agreement.

(ii) In the event that an Amended Schedule reflects a decrease in the Realized Tax Benefit for such year (including, without limitation, by reason of net operating loss carryovers or carrybacks) and payments have previously been made based on the higher Realized Tax Benefit reflected in any prior Schedule (either such excess, an “Excess Payment”), future payments, if any, to be made under this Section 3.01 shall be reduced by the amount of the Excess Payment until such Excess Payment has effectively been repaid. For the avoidance of doubt, if future payments are insufficient to repay any Excess Payment (a “Shortfall”), PICO shall have no obligation to repay to the Company or any other Person any such Shortfall.

Section 3.02. No Duplicative Payments. It is intended that the provisions of this Agreement will not result in duplicative payment of any amount (including interest) required under this Agreement. It is also intended that the provisions of this Agreement, subject to Article 4 and Section 7.14, will result in 85% of UCP, Inc.'s Cumulative Net Realized Tax Benefit being paid to PICO pursuant to this Agreement. The provisions of this Agreement shall be construed in the appropriate manner to ensure such intentions are realized.

Section 3.03. Pro Rata Payments. Notwithstanding anything in Section 3.01 to the contrary, to the extent that (i) UCP, Inc.'s aggregate Tax benefit with respect to any Basis Adjustment or Imputed Interest is limited in a particular Taxable Year because UCP, Inc. does not have sufficient Taxable income or (ii) UCP, Inc. has insufficient funds to make a payment hereunder as a result of (x) applicable limitations imposed by credit agreements or similar arrangements in respect of indebtedness for borrowed money to which the Company is a party (including, without limitation, limitations on the ability of the Company and its direct and indirect Subsidiaries to make distributions or payments to UCP, Inc.), (y) a determination by the Board in good faith that making such payments would result in a default under any such credit agreement or similar arrangement or (z) a determination by the Board in good faith that (A) such payments could be set aside as fraudulent transfers or conveyances or similar actions under fraudulent transfer laws or (B) such payments could cause UCP, Inc. to be undercapitalized (each of (x), (y) and (z), a “Payment Limitation”), the limitation on the Tax benefit or the Tax Benefit Payments that may be made, as the case may be, shall be taken into account in the same proportion as Tax Benefit Payments would have been made absent the limitations in clauses (i) and (ii) of this paragraph, as applicable. 

Section 3.04. Sufficient Funds.  UCP, Inc. shall use good faith efforts to ensure that it has sufficient funds to make all payments due under this Agreement.

ARTICLE 4
TERMINATION

Section 4.01. Early Termination, Change of Control and Breach of Agreement.

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(a) UCP, Inc. may terminate this Agreement with respect to all of the PICO Membership Interests held (or previously Exchanged) by PICO at any time by paying to PICO the Early Termination Payment;  provided, however , that this Agreement shall terminate only upon the receipt of the Early Termination Payment by PICO, and  provided, further , that UCP, Inc. may withdraw any Early Termination Notice prior to the time at which any Early Termination Payment has been paid. Upon payment of the Early Termination Payment by UCP, Inc., neither PICO nor UCP, Inc. shall have any further payment obligations under this Agreement, other than for any (x) Tax Benefit Payment agreed to by UCP, Inc. and PICO, acting in good faith, to be due and payable but unpaid as of the Early Termination Notice and (y) Tax Benefit Payment due for the Taxable Year ending with or including the date of the Early Termination Notice (except to the extent that the amount described in this clause (y) is included in the Early Termination Payment). If an Exchange occurs after UCP, Inc. makes the Early Termination Payments with respect to PICO, UCP, Inc. shall have no obligations under this Agreement with respect to such Exchange, and its only obligation under this Agreement in such case shall be its obligations under Section 4.03(a).

(b) Upon a Change of Control or if UCP, Inc. breaches any of its material obligations under this Agreement, then all of UCP's obligations hereunder shall be accelerated and calculated as if an Early Termination Notice had been delivered on the date of such Change of Control or breach and such obligations shall include, but shall not be limited to, (1) the Early Termination Payment calculated as if an Early Termination Notice had been delivered on the date of such acceleration, (2) any Tax Benefit Payment agreed to by UCP, Inc. and PICO acting in good faith, to be due and payable but unpaid as of the date of such acceleration and (3) any Tax Benefit Payment due for the Taxable Year ending with or including the date of such acceleration (except to the extent that the amount described in this clause (3) is included in the amount described in clause (1)). Notwithstanding the foregoing, in the event that UCP, Inc. breaches this Agreement, PICO shall be entitled to elect to receive the amounts set forth in clauses (1), (2) and (3) above or to seek specific performance of the terms hereof. The parties agree that the failure to make any payment due pursuant to this Agreement within three months of the date such payment is due shall be deemed to be a breach of a material obligation under this Agreement for all purposes of this Agreement;  provided  that it will not be considered to be a breach of a material obligation under this Agreement to make a payment due pursuant to this Agreement within three months of the date such payment is due;  provided further  that UCP, Inc. shall be deemed not to be in breach of a material obligation by reason of the failure to make a payment under this Agreement until the later of (x) three months after the date such payment was originally due and (y) the thirtieth (30 th ) calendar day after UCP, Inc. received a written notice from PICO specifying the amount due. Notwithstanding anything in this Agreement to the contrary, it shall not be a breach of this Agreement if UCP, Inc. fails to make any Tax Benefit Payment when due because, and to the extent, of a Payment Limitation (but only for so long as such Payment Limitation continues);  provided  that the interest provisions of Section 5.02 shall apply to any such late payment (but the Default Rate shall be replaced by the Agreed Rate).

(c) UCP, Inc., the Company and PICO hereby acknowledge and agree that, as of the date of this Agreement and as of the date of each Exchange, the aggregate value of the Tax Benefit Payments cannot reasonably be ascertained for U.S. federal income Tax or other applicable Tax purposes.

Section 4.02. Early Termination Notice. If UCP, Inc. exercises its right of early termination under Section 4.01, UCP, Inc. shall deliver to PICO notice of such intention to exercise such right (“Early Termination Notice”) and a schedule (the “Early Termination Schedule”) specifying UCP, Inc.'s intention to exercise such right and showing in reasonable detail the calculation of the Early Termination Payment. At the time UCP, Inc. delivers the Early Termination Notice to PICO, UCP, Inc. shall (a) deliver to PICO schedules and work papers, as determined by UCP, Inc. or requested by PICO, providing reasonable detail regarding the calculation of the Early Termination Payment and (b) allow PICO reasonable access to the appropriate representatives of UCP, Inc. and the Advisory Firm in connection with its review of such calculation.  Each party shall bear its own expenses associated with such review.  The Early Termination Payment shall become final and binding on the parties unless PICO provides UCP, Inc. with notice of a material objection to the calculation of the Early Termination Payment made in good faith within 30 calendar days after the Early Termination Schedule was provided to PICO (or such shorter period as may be mutually agreed in writing by the parties).  If PICO provides UCP with written notice of its objection to the calculation of the Early Termination Payment, and PICO and UCP, Inc., for any reason, cannot agree upon the amount of the Early Termination Payment within 30 calendar days following UCP, Inc.'s receipt of PICO's objection, UCP, Inc. and PICO shall employ the Reconciliation Procedures as described in Section 7.09 of this Agreement.

Section 4.03. Payment upon Early Termination.

(a) Within five (5) Business Days after the Early Termination Schedule has become final and binding, UCP, Inc. shall pay to PICO an amount equal to the Early Termination Payment. Such payment shall be made by wire transfer of immediately available funds to the bank account designated by PICO.

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(b) The “Early Termination Payment” as of the date of the delivery of an Early Termination Schedule shall equal, with respect to PICO, the present value, discounted at the Early Termination Rate as of such date, of all Tax Benefit Payments that would be required to be paid by UCP, Inc. to PICO beginning from the Early Termination Date and assuming that the Valuation Assumptions are applied.

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ARTICLE 5
SUBORDINATIONAND LATE PAYMENTS

Section 5.01. Subordination. Notwithstanding any other provision of this Agreement to the contrary, any Tax Benefit Payment or Early Termination Payment required to be made by UCP, Inc. to PICO under this Agreement (an “Exchange Payment”) shall rank subordinate and junior in right of payment to any principal, interest or other amounts due and payable in respect of all obligations in respect of indebtedness of UCP, Inc. (“Senior Obligations”) and shall rank  pari passu  with all current or future unsecured obligations of UCP, Inc. that are not Senior Obligations.

Section 5.02. Late Payments by UCP, Inc. Except as otherwise noted in this Agreement, the amount of all or any portion of any Exchange Payment not made to PICO when due (without regard to Section 5.01) under the terms of this Agreement shall be payable together with interest thereon, computed at the Default Rate and commencing from the date on which such Exchange Payment was due and payable.

ARTICLE 6
NO DISPUTES; CONSISTENCY; COOPERATION

Section 6.01. PICO Participation in UCP, Inc.'s and the Company's Tax Matters. (a) Except as otherwise provided herein, UCP, Inc. shall have full responsibility for, and sole discretion over, all Tax matters concerning UCP, Inc. and the Company, including without limitation the preparation, filing or amending of any Tax Return and defending, contesting or settling any issue pertaining to Taxes. Notwithstanding the foregoing, UCP, Inc. shall notify PICO of any audit of UCP, Inc. and the Company by a Taxing Authority the outcome of which is reasonably expected to affect PICO's rights and obligations under this Agreement, and shall provide to PICO reasonable opportunity to provide information and other input to UCP, Inc., the Company, and their respective advisors concerning the conduct of any such portion of such audit; PICO shall have the right to attend in person or by telephone (but not participate in) any audit of UCP, Inc. or the Company the outcome of which could reasonably be expected to affect the amount of net payments that PICO are expected to receive under this Agreement;  provided, however , that UCP, Inc. and the Company shall not be required to take any action that is inconsistent with any provision of the LLC Agreement. UCP, Inc. shall not settle or fail to contest any issue pertaining to taxes that is reasonably expected to affect PICO' rights and obligations under this Agreement without the consent of PICO, such consent not to be unreasonably withheld or delayed.

(b) If UCP, Inc., the Company, or any of their respective Subsidiaries receives a 30-day letter, a final audit report, a statutory notice of deficiency or similar written notice from any Taxing Authority with respect to the Tax treatment of any Exchange (a “Change Notice”), which, if sustained, would result in (i) a reduction in the amount of Realized Tax Benefit with respect to a Taxable Year preceding the taxable year in which the Change Notice is received or (ii) a reduction in the amount of Tax Benefit Payments UCP, Inc. will be required to pay to PICO with respect to Taxable Years after and including the taxable year in which the Change Notice is received, UCP, Inc. shall deliver prompt written notice of such Change Notice to PICO.

Section 6.02. Consistency. (i) Except upon the written advice of the Advisory Firm to UCP, Inc., UCP, Inc. and PICO agree to report and cause to be reported for all purposes, including U.S. federal, state and local Tax purposes and financial reporting purposes, all Tax-related items (including without limitation items arising from the Basis Adjustments and each Tax Benefit Payment) in a manner consistent with that specified by UCP, Inc. in any Schedule provided by or on behalf of UCP, Inc. under this Agreement.  Any dispute concerning such advice shall be subject to Section 7.09.

(ii) In the event that the Advisory Firm is replaced by UCP, Inc., such replacement Advisory Firm shall be required to perform its services under this Agreement using procedures and methodologies consistent with those used by the previous Advisory Firm, unless (a) otherwise required by law or (b) UCP, Inc. and PICO agree to the use of other procedures and methodologies.

Section 6.03. Cooperation. PICO shall (a) furnish to UCP, Inc. in a timely manner such information, documents and other materials as UCP, Inc. may reasonably request for purposes of making any determination or computation necessary or appropriate under this Agreement, preparing any Tax Return or contesting or defending any audit, examination or controversy with any Taxing Authority, (b) make itself available to UCP, Inc. and its representatives to provide explanations of documents and materials and such other information as UCP, Inc. or its representatives may reasonably request in connection with any of the matters described in clause (a) above, and (c) reasonably cooperate in connection with any such matter described in clause 

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(a) above. UCP, Inc. shall reimburse PICO for any reasonable third-party costs and expenses incurred pursuant to this Section 6.03.

Section 6.04. Section 754 Elections. If at any point the Company or any of its direct or indirect Subsidiaries that is a partnership for U.S. federal income tax purposes does not have a Section 754 Election in effect, UCP, Inc. shall cause the Company or such Subsidiary, as applicable, to make a Section 754 Election at the time that the Company or such Subsidiary, as applicable, files its next U.S. federal income Tax Return.

ARTICLE 7
MISCELLANEOUS

Section 7.01. Notices. All notices, requests, consents and other communications hereunder (each, a “Notice”) to any party shall be in writing and shall be delivered in person or sent by facsimile (provided a copy is thereafter promptly delivered as provided in this Section 7.01) or nationally recognized overnight courier, addressed to such party at the address or facsimile number set forth below or such other address or facsimile number as may hereafter be designated in writing by such party to the other parties:

If to the Company or UCP, Inc., to:

6489 Camden Avenue, Suite 204
San Jose, CA 95120
Attention:  President
Fax:  408-323-1114

If to PICO, to:

7979 Ivanhoe Avenue, Suite 300
La Jolla, CA  92037
Attention:  President
Fax:  858-456-6480

Each Notice shall be deemed received on the date sent to the recipient thereof in accordance with this Section 7.01, if sent prior to 5:00 p.m. in the place of receipt and such day is a Business Day; otherwise, such Notice shall be deemed not to have been received until the next succeeding Business Day.

Section 7.02. Counterparts. This Agreement may be executed in one or more counterparts, all of which shall be considered one and the same agreement and shall become effective when one or more counterparts have been signed by each of the parties and delivered to the other parties, it being understood that all parties need not sign the same counterpart. Delivery of an executed signature page to this Agreement by facsimile transmission shall be as effective as delivery of a manually signed counterpart of this Agreement.

Section 7.03. Entire Agreement; No Third Party Beneficiaries. This Agreement constitutes the entire agreement and supersedes all prior agreements and understandings, both written and oral, among the parties with respect to the subject matter hereof. This Agreement shall be binding upon and inure solely to the benefit of each party hereto and their respective successors and permitted assigns, and nothing in this Agreement, express or implied, is intended to or shall confer upon any other Person any right, benefit or remedy of any nature whatsoever under or by reason of this Agreement.

Section 7.04. Governing Law. This Agreement shall be governed by, and construed and enforced in accordance with, the laws of the State of Delaware, without regard to the conflicts of law principles thereof.

Section 7.05. Severability. If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced by any law or public policy, all other terms and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner 

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materially adverse to any party.  Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in an acceptable manner in order that the transactions contemplated hereby are consummated as originally contemplated to the greatest extent possible.

Section 7.06. Successors; Assignment; Amendments; Waivers. PICO may not assign this Agreement to any person without the prior written consent of UCP, Inc.;  provided, however , that (i) to the extent PICO Membership Interests are effectively transferred in accordance with the terms of the LLC Agreement, PICO may assign to the transferee of such PICO Membership Interests PICO's rights under this Agreement with respect to such transferred PICO Membership Interests and (ii) PICO shall be entitled to assign its rights under this Agreement to (x) a direct or indirect beneficial owner or Affiliate of PICO, in connection with a liquidation, dissolution, winding up or other termination of PICO, and, in either case (i) or (ii), such transferee shall have executed and delivered, or, in connection with such transfer, execute and deliver, a joinder to this Agreement in form and substance reasonably satisfactory to UCP, Inc.), agreeing to become a party for all purposes of this Agreement, except as otherwise provided in such joinder.

No provision of this Agreement may be amended unless such amendment is approved in writing by each of UCP, Inc., the Company and PICO.  No provision of this Agreement may be waived unless such waiver is in writing and signed by the party against whom the waiver is to be effective.

Except as otherwise specifically provided herein, all of the terms and provisions of this Agreement shall be binding upon, shall inure to the benefit of and shall be enforceable by the parties hereto and their respective successors, assigns, heirs, executors, administrators and legal representatives. UCP, Inc. shall require and cause any direct or indirect successor (whether by purchase, merger, consolidation or otherwise) to all or substantially all of the business or assets of UCP, Inc., by written agreement, expressly to assume and agree to perform this Agreement in the same manner and to the same extent that UCP, Inc. would be required to perform if no such succession had taken place.

Section 7.07. Titles and Subtitles. The titles of the articles, sections and subsections of this Agreement are for convenience of reference only and are not to be considered in construing this Agreement.

Section 7.08 Consent to Jurisdiction. The parties hereto agree that any suit, action or proceeding seeking to enforce any provision of, or based on any matter arising out of or in connection with, this Agreement or the transactions contemplated hereby shall be brought and maintained exclusively in the United States District Court for the Northern District of California or the Superior Court of the State of California located in the County of Santa Clara.  Each of the parties irrevocably consents to submit to the personal jurisdiction of such courts (and of the appropriate appellate courts therefrom) in any such suit, action or proceeding.  Process in any such suit, action or proceeding in such courts may be served, and shall be effective, on any party anywhere in the world, whether within or without the jurisdiction of any such court, by any of the methods specified for the giving of Notices pursuant to Section 7.01.  Each of the parties irrevocably waives, to the fullest extent permitted by law, any objection or defense that it may now or hereafter have based on venue, inconvenience of forum, the lack of personal jurisdiction and the adequacy of service of process (as long as the party was provided Notice in accordance with the methods specified in Section 7.01) in any suit, action or proceeding brought in such courts.

Section 7.09. Reconciliation. In the event that UCP, Inc. and PICO are unable to resolve a disagreement with respect to a matter governed by Section 2.03, Section 4.02, or Section 6.02 within the relevant period designated in this Agreement (“Reconciliation Dispute”), the Reconciliation Dispute shall be submitted for determination to a nationally recognized expert (the “Expert”) in the particular area of disagreement mutually acceptable to both parties. The Expert shall be a partner in a nationally recognized accounting firm or a law firm (other than the Advisory Firm), and the Expert shall not, and the firm that employs the Expert shall not, unless otherwise agreed by UCP, Inc. and PICO have any material relationship with either UCP, Inc. or PICO.  If the parties are unable to agree on an Expert within thirty (30) calendar days of receipt by the respondent(s) of written notice of a Reconciliation Dispute, the Expert shall be appointed by the American Arbitration Association.  The Expert shall resolve any matter relating to the Exchange Basis Schedule or an amendment thereto or the Early Termination Schedule or an amendment thereto within thirty (30) calendar days and shall resolve any matter relating to a Tax Benefit Schedule or an amendment thereto within fifteen (15) calendar days or as soon thereafter as is reasonably practicable, in each case, after the matter has been submitted to the Expert for resolution. Notwithstanding the preceding sentence, if the matter is not resolved before any payment that is the subject of a disagreement would be due (in the absence of such disagreement) or any Tax Return reflecting the subject of a disagreement is due, the undisputed amount shall be paid on such date and such Tax Return may be filed as prepared by UCP, Inc., subject to adjustment or amendment upon resolution. In the event that this reconciliation 

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provision is utilized, the fees of the Expert shall be paid in proportion to the manner in which the dispute is resolved, such that, for example, if the entire dispute is resolved in favor of one party, the other party shall pay all of the fees, or if the items in dispute are resolved 50% in favor of UCP, Inc. and 50% in favor of PICO, each of UCP, Inc. and PICO shall pay 50% of the fees of the Expert. Any dispute as to whether a dispute is a Reconciliation Dispute within the meaning of this Section 7.09 shall be decided by the Expert. The Expert shall finally determine any Reconciliation Dispute and the determinations of the Expert pursuant to this Section 7.09 shall be (i) final and may be enforced as if it were the award of an arbitrator issued under and pursuant to the rules of the American Arbitration Association and (ii) binding on UCP, Inc. and PICO and may be entered and enforced in any court having competent jurisdiction.

Section 7.10. Withholding. UCP, Inc. shall be entitled to deduct and withhold from any payment payable pursuant to this Agreement such amounts as UCP, Inc. is required to deduct and withhold with respect to the making of such payment under the Code or any provision of state, local or foreign Tax law. To the extent that amounts are so withheld and paid over to the appropriate Taxing Authority by UCP, Inc., such withheld amounts shall be treated for all purposes of this Agreement as having been paid to PICO.

Section 7.11. Admission of UCP, Inc. into a Consolidated Group; Transfers of Corporate Assets. (a) If UCP, Inc. becomes a member of an affiliated or consolidated group of corporations that files a consolidated income Tax Return pursuant to Section 1501  et seq . of the Code or any corresponding provisions of state, local or foreign law, then: (i) the provisions of this Agreement shall be applied with respect to the group as a whole; and (ii) Tax Benefit Payments, Early Termination Payments and other applicable items hereunder shall be computed with reference to the consolidated taxable income of the group as a whole.

(b) If any entity that is obligated to make an Exchange Payment hereunder transfers one or more assets to a corporation with which such entity does not file a consolidated Tax Return pursuant to Section 1501 of the Code, such entity, for purposes of calculating the amount of any Exchange Payment ( e.g. , calculating the gross income of the entity and determining the Realized Tax Benefit of such entity) due hereunder, shall be treated as having disposed of such asset in a fully taxable transaction on the date of such contribution. The consideration deemed to be received by such entity shall be equal to the fair market value of the contributed asset, plus (i) the amount of debt to which such asset is subject, in the case of a contribution of an encumbered asset or (ii) the amount of debt allocated to such asset, in the case of a contribution of a partnership interest.

Section 7.12. Confidentiality. PICO acknowledges and agrees that the information of UCP, Inc. and of its Affiliates is confidential and, except in the course of performing any duties as necessary for UCP, Inc. and its Affiliates, as required by law or legal process or to enforce the terms of this Agreement, such person shall keep and retain in the strictest confidence and not disclose to any Person any confidential matters, acquired pursuant to this Agreement, of UCP, Inc. and its Affiliates and successors, concerning the Company and its Affiliates and successors learned by PICO heretofore or hereafter. This Section 7.12 shall not apply to (i) any information that has been made publicly available by UCP, Inc. or any of its Subsidiaries, becomes public knowledge (except as a result of an act of PICO in violation of this Agreement) or is generally known to the business community and (ii) the disclosure of information to the extent necessary for PICO to prepare and file its Tax Returns, to respond to any inquiries regarding the sale from any Taxing authority or to prosecute or defend any action, proceeding or audit by any Taxing authority with respect to such returns. Notwithstanding anything to the contrary herein, PICO (and each employee, representative or other agent of PICO or assignee, as applicable) may disclose to any and all Persons, without limitation of any kind, the Tax treatment and Tax structure of UCP, Inc., the Company, PICO and their Affiliates, and any of their transactions, and all materials of any kind (including opinions or other Tax analyses) that are provided to PICO relating to such Tax treatment and Tax structure.

Section 7.13. LLC Agreement. This Agreement shall be treated as part of the partnership agreement of the Company as described in Section 761(c) of the Code and Sections 1.704-1(b)(2)(ii)(h) and 1.761-1(c) of the Treasury Regulations.

Section 7.14. Change in Tax Law. Notwithstanding anything herein to the contrary, if, in connection with an actual or proposed change in law, PICO reasonably believes that the existence of this Agreement could cause income (other than income arising from receipt of a payment under this Agreement) recognized by PICO (or direct or indirect equity holders in such member) upon the IPO or any Exchange to be treated as ordinary income rather than capital gain (or otherwise taxed at ordinary income rates) for U.S. federal income Tax purposes or would have other material adverse Tax consequences to PICO (a “Change in Tax Law”), then (i) at the election of PICO and to the extent specified by PICO, this Agreement shall not apply 

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with respect to an Exchange by PICO occurring after a date specified by PICO, (ii) at the election of PICO, this Agreement shall otherwise be amended in a manner determined by UCP, Inc. and PICO, acting jointly, provided that such amendment shall not result in an increase in payments under this Agreement at any time as compared to the amounts and times of payments that would have been due in the absence of such amendment or (iii) at the election of PICO, this Agreement shall cease to have further effect. For the avoidance of doubt, any election pursuant to this Section 7.14 shall not be considered a breach of this Agreement and shall not trigger an Early Termination Payment under Section 4.01.

Section 7.15. WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS AGREEMENT.

[Signature pages follow]

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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized representatives as of the day and year first above written.

	
						
	 
	 
	 
	 
	 
	 

	UCP, Inc.
	 

	 
	 
	 

	By:
	 
	 
	 
	 

	 
	 
	Name:     
	Dustin L. Bogue

	 
	 
	Title:
	President

	
						
	 
	 
	 
	 
	 
	 

	UCP, LLC
	 

	 
	 
	 

	By:  UCP, Inc., its Managing Member

	 
	 
	 

	By:
	 
	 
	 
	 

	 
	 
	Name:     
	Dustin L. Bogue

	 
	 
	Title:
	President

	
						
	 
	 
	 
	 
	 
	 

	PICO HOLDINGS, INC

	 
	 
	 

	By:
	 
	 
	 
	 

	 
	 
	Name:     
	 

	 
	 
	Title:
	 

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