RELATED-PARTY TRANSACTIONS

Deferred Compensation

In July 2017, the Company’s board of directors terminated the Company’s deferred compensation plans. Consequently, while participant compensation remains deferred at December 31, 2017, the plan is no longer active. In accordance with applicable regulations, distribution of the remaining assets and settlement of the deferred compensation obligation will be made to the participants no earlier than one year from the date the plans were terminated. The total value of the deferred compensation obligation for all participants at December 31, 2017 and December 31, 2016 was $4.1 million and $27.3 million, respectively, and is included in the accompanying consolidated balance sheets.

In conjunction with the termination of the Company’s former CEO, assets valued at $23.3 million were distributed from the trust accounts during 2017.

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



	December 31, 2017		December 31, 2016
Former CEO			53,996
Mr. Webb, CEO	1,375		1,375
Number of shares held	1,375		55,371
Fair value of PICO stock held in deferred compensation accounts	$	17,600	$	839,000

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.

Employment Agreements:

During 2016, the Company entered into employment agreements with Mr. Webb and Mr. Perri, effective as of January 1, 2017, that stipulated their annual salary and participation in the 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 and an executive change in control bonus plan, as described below.

Executive Bonus Plan:

The bonus plan is effective from January 1, 2016 through December 31, 2020 and replaced and superseded the previous bonus plan maintained by the Company.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. 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.

For the year ended December 31, 2017, a bonus pool of $88,000 was calculated based on the Company’s financial results for 2017. Such total will be allocated according to the specifics discussed above with 70% of the award distributed in cash during 2018 and 30% of the award issued in RSU that will vest immediately, but will not be stock settled for three years from the grant date.

Executive Change in Control Bonus Plan:

In connection with exploring strategic alternatives, the Compensation Committee approved a change in control bonus plan during 2017. In summary, if a change in control occurs during the term of the agreement and the participants are terminated without cause in connection with such change in control, then a pool of funds will be made available for the payment of bonuses under the plan. The change in control bonus plan terminates at December 31, 2018 if no transaction is consummated.

Under the plan, a change in control occurs when any person (as defined in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934) becomes the beneficial owner, directly or indirectly, of securities of the Company representing more than 50% of the total combined voting power of the Company’s then outstanding securities entitled to vote generally in the election of directors of the Company; provided, however, that a change in control transaction shall not be deemed to have occurred if such degree of beneficial ownership results from any acquisition directly from the Company, any acquisition by the Company or any acquisition by an entity owned directly or indirectly by the stockholders of the Company in substantially the same proportions as their ownership of the voting securities of the Company; or either the direct or indirect sale or exchange in a single or series of related transactions by the stockholders of the Company of securities of the Company representing more than 50% of the total combined voting power of the Company’s then outstanding securities entitled to vote generally in the election of directors of the Company or a merger or consolidation in which the Company is a party (collectively, a “Transaction”) in which the stockholders of the Company immediately before the Transaction do not retain immediately after the Transaction direct or indirect beneficial ownership of more than fifty percent (50%) of the total combined voting power of the outstanding securities entitled to vote generally in the election of directors of the Company.

The bonus is calculated as the sum of the total purchase price for the Company’s securities, less all cash and cash equivalents of the Company as of the closing date of the transaction, other than any cash remaining as of the closing date that is attributable to the sale or disposal of assets prior to the closing date but had not yet been distributed or committed to be distributed to shareholders and less all selling costs of the transaction. The sum of those three amounts is multiplied by 0.8% to calculate the bonus pool. Such bonus pool will be allocated two-thirds to Mr. Webb and one-third to Mr. Perri.

Termination of the Company’s CEO and Other Related Changes in Executive Management During 2016:

During 2016, the Company terminated its CEO. In connection with the termination, the Company’s board of directors appointed Mr. Webb as President and Chief Executive Officer and as a class III director of the Company and appointed Mr. 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 received severance benefits as 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. Such benefits included certain severance and vacation differential payments totaling approximately $10.4 million, certain medical benefits that are on-going, 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.

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. The compensation earned and accrued under this plan during the year ended December 31, 2017 was $414,000. There was no compensation earned during the years ended December 31, 2016 or 2015.

Sale of Oil and Gas Assets

In conjunction with exiting our residual oil and gas operations, during 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 Company expects to sell the legal business entities that were created to operate the oil and gas operations to its service agent. Consequently, at December 31, 2017, the Company had accrued $150,000 of disposal expense related to the final sale.