RELATED-PARTY TRANSACTIONS

Termination of the Company’s CEO and Other Related Changes in Executive Management:

On October 10, 2016, the Company terminated its CEO, effective as of October 12, 2016. In connection with the termination, the Company’s board of directors appointed Mr. Maxim C.W. Webb as President and Chief Executive Officer and as a class III director of the Company, effective as of October 12, 2016, with a term that expires at the Company’s 2017 Annual Meeting of Stockholders, and appointed Mr. John T. Perri as Chief Financial Officer. Mr. Webb and Mr. Perri irrevocably and unconditionally waived their right to receive any bonus payment that would have otherwise been payable pursuant to the terms of the Company’s then existing executive bonus plan

The Company’s former CEO is entitled to the severance benefits set forth in Section 4(b) of his Amended and Restated Employment Agreement with the Company, dated March 11, 2016 and filed with the SEC on March 14, 2016 (the “Employment Agreement”). Such benefits include certain severance and vacation differential payments totaling approximately $10.4 million, certain medical benefits, and immediate vesting of the outstanding RSU and PBO previously granted. The Company’s former CEO was also entitled to the balance of his accrued vacation and personal days valued at $338,000 which was paid to him during October 2016.

The Company accrued the $10.4 million in severance benefits, vacation differential, stock-based compensation, and related expenses in the fourth quarter of 2016, which is presented within other liabilities in the accompanying consolidated balance sheets. In accordance with applicable regulations, payment of the severance benefits and vacation differential, stock settlement of the vested RSU, and distribution of deferred compensation balances, discussed below, will be made to the Company’s former CEO no earlier than six months and a day from the effective date of the termination.

Employment Agreements:

In 2016, the Company entered into employment agreements with Mr. Webb and Mr. Perri, effective as of January 1, 2017, that provided for an initial base salary of $496,000 and $440,000, respectively for 2017, and standard benefits package, subject to an annual cost of living adjustment that is subject to Compensation Committee approval, certain termination benefits, and participation in a revised bonus plan, as described below.

Executive Bonus Plan:

The revised bonus plan is effective from January 1, 2016 through December 31, 2020 and replaced and superseded the previous bonus plan maintained by the Company. Such arrangement awards an annual bonus only if 1) there is a net gain derived from a sale or other disposal of assets, as defined, and 2) cash proceeds from such transactions are distributed directly to the Company’s shareholders during the same year.

The agreement establishes a bonus pool that is calculated as 8.75% of the adjusted total net gain from assets sold or otherwise disposed. The plan defines the total net gain as the difference between the cash received in sale or other disposal transactions less (a) the invested capital of each such asset as of the sale date, as determined in accordance with U.S. GAAP, subject to adjustment by the compensation committee to the extent necessary to reflect the capitalization of costs with respect to such assets as required by GAAP; (b) any bonus paid or payable to the Company’s management for the sale or other disposition of each such asset, other than any bonus under the bonus plan; and (c) administrative expenses specified in the bonus plan. Such total net gain is then also multiplied by an adjustment factor resulting in an adjusted total net gain. The adjustment factor is a fraction, the numerator of which is the total amount of cash distributed or committed to be distributed to the Company’s shareholders with respect to all such assets sold or otherwise disposed of during the year, and the denominator, which is the total amount of cash received after payment of all selling costs, including any fees and commissions for which all such assets were sold or otherwise disposed of during the year. For assets distributed directly to the Company’s shareholders, the adjustment factor is 100%. The resulting bonus pool is allocated 55% to Mr. Webb, 32.5% to Mr. Perri, and 12.5% to other employees of the Company who are designated by the compensation committee as eligible to participate in the bonus plan with respect to the applicable bonus plan year, in amounts designated by the compensation committee, in each case based on the recommendation of the Mr. Webb. If there is no such employee designated as eligible to participate in the bonus plan, the remaining 12.5% will not be allocated to any individual in the respective bonus plan year. Each individual will be entitled to his allocated portion of the bonus pool for the year if employed by the Company on the last day of the year. However, in the event that Mr. Webb’s or Mr. Perri’s employment with the Company is terminated in certain circumstances as provided in their employment agreements such terminated individual will be entitled to payment of an amount under the bonus plan for a portion of the year in which such termination occurs.

For assets sold or otherwise disposed of entirely or partially for non-cash consideration by the Company, the calculation of total net gain with respect to the non-cash consideration will instead be made in the year in which the non-cash consideration is ultimately sold or otherwise disposed of for cash by the Company. For assets distributed directly to the Company’s shareholders, other than an asset resulting from a previous sale or other disposal of an asset for non-cash consideration as described in the preceding sentence, the total net gain will be determined by deducting items (a) through (c) above from the value of such assets upon such distribution, as determined in accordance with U.S. GAAP.

Deferred Compensation

The Company has agreements with its executive management, and the Company’s former CEO, to defer compensation into Rabbi Trust accounts held in the name of the Company. The total value of the deferred compensation obligation for all participants at December 31, 2016 and 2015, was $27.3 million and $25.5 million, respectively, and is included in the accompanying consolidated balance sheets. These totals include a fair value of $839,000 and $805,000 of the Company’s common stock, for each of the respective years, with the balance in various publicly traded debt and equity securities, and cash. In conjunction with the termination of the Company’s former CEO, assets with a value of $23.3 million as of December 31, 2016 will be distributed from the trust accounts in April 2017.

Within these accounts, the following individuals are the beneficiaries of the following number of PICO common shares:



	December 31, 2016	December 31, 2015
Former CEO	53,996	53,996
Mr. Webb, CEO	1,375	1,375
	55,371	55,371

The trustee for the accounts is U.S. Bank. The accounts are subject to the claims of outside creditors, and the cost of the shares of PICO common stock held in the accounts are reported as treasury stock in the consolidated financial statements.

On January 20, 2015, the Company sold equity securities with a cost basis of $2.3 million to certain deferred compensation Rabbi Trust accounts held by the Company, for the benefit of the Company’s former CEO, for total proceeds of $5 million, which represented the market value of these securities on the date of sale.

Incentive Compensation

Certain officers of Vidler are eligible to receive an annual incentive award based on the combined net income, after certain adjustments, of Vidler. No compensation was earned under this plan during the years ended December 31, 2016, 2015, or 2014.

Certain officers of UCP are eligible to receive an annual incentive compensation award which is paid in cash. Compensation of $578,000 and $350,000 was earned under the plan for the years ended December 31, 2016 and 2015, respectively. No compensation was earned under this plan for the year ended December 31, 2014.

Investment in Synthonics

The Company has an investment in preferred stock of Synthonics, a company co-founded by Mr. Slepicka, formerly a non-employee director of the Company, who is currently the Chairman, Chief Executive Officer and acting Chief Financial Officer of Synthonics. As of December 31, 2016, the Company had invested $2.2 million for 18.2% of the voting interest in Synthonics. Mr. Slepicka resigned as a member of the Company’s Board of Directors effective July 27, 2016. In addition, the Company extended a $450,000 line of credit to Synthonics during 2014, which bore interest at 15% per annum. The outstanding balance and accrued interest was repaid in April 2015. During the year ended December 31, 2016, the Company recorded an impairment loss on its investment and wrote the carrying value down to zero. See Note 4 “Investments” for additional information.

Sale of Oil and Gas Assets in 2017

In conjunction with exiting our residual oil and gas operations, during the three months ending March 31, 2017, the Company sold the majority of the remaining oil and gas lease assets to the service agent the Company had contracted with to operate and manage such oil and gas operations. The Company received book value for the majority of the assets sold resulting in no significant gain or loss on the transaction. The service agent continues to provide management services to the Company in conjunction with the wind-down of the remaining operations.