<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 4, 2000
REGISTRATION NO. 333-
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
PICO HOLDINGS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
--------------------------------
CALIFORNIA 94-2723335
(State or Other Jurisdiction (IRS Employer Identification Number)
of Incorporation or Organization)
875 PROSPECT STREET, SUITE 301
LA JOLLA, CALIFORNIA 92037
(858) 456-6022
(Address, Including Zip Code, and Telephone Number, Including
Area Code, of Registrant's Principal Executive Offices)
--------------------------------
JAMES F. MOSIER, SECRETARY
875 PROSPECT STREET, SUITE 301
LA JOLLA, CALIFORNIA 92037
(858) 456-6022
(NAME, ADDRESS, Including Zip Code, and Telephone Number, Including
Area Code, of Agent for Service)
COPIES TO:
DOUGLAS J. REIN, ESQ.
MICHAEL J. BROWN, ESQ.
GRAY CARY WARE &FREIDENRICH LLP
4365 EXECUTIVE DRIVE, SUITE 1600
SAN DIEGO, CA 92121
TELEPHONE: (858) 677-1400
FACSIMILE: (858) 677-1477
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the Effective Date of this Registration statement.
<PAGE> 2
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b)under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule
462(c)under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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<S> <C> <C> <C> <C>
PROPOSED PROPOSED
AMOUNT MAXIMUM MAXIMUM AMOUNT OF
TITLE OF SHARES TO BE AGGREGATE PRICE AGGREGATE REGISTRATION
TO BE REGISTERED REGISTERED PER SHARE OFFERING PRICE FEE
- ------------------------------------------------------------------------------------------------------
Common Stock, ($0.001 par value) 7,860,536* $15.00 $117,908,040 $31,128
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* Including 1,314,039 shares which could potentially be issued under the
Standby Commitment and Additional Shares Agreement, if necessary. See
discussion of Standby Commitment and Additional Shares Agreement on page 1
and Exhibit 99.1.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE
REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT
THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN
ACCORDANCE WITH SECTION 8(a)OF THE SECURITIES ACT OF 1933 OR UNTIL THE
REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE
COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
================================================================================
THE INFORMATION AGENT FOR THE OFFER IS:
CORPORATE INVESTOR COMMUNICATIONS, INC.
111 COMMERCE ROAD
CARLSTADT, NJ 07072-2586
BANKS AND BROKERAGE FIRMS CALL: (201) 896-1900
STOCKHOLDERS PLEASE CALL 1-877-977-6190 (TOLL FREE)
<PAGE> 3
The information in the prospectus is not complete and may be changed. We
may not sell these securities until the registration statement filed with the
Securities Exchange Commission is effective. This prospectus is not an offer to
sell these securities and it is not soliciting an offer to buy these securities
in any state where the offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED FEBRUARY 4, 2000
PICO HOLDINGS, INC.
6,546,497 SHARES OF COMMON STOCK
$15.00 PER SHARE
PICO Holdings, Inc. is offering 6,546,497 shares of common stock to all
of our shareholders who owned shares of our common stock on March 1, 2000. For
every two shares of common stock that you owned on March 1, 2000, you will
receive, at no cost, a non-transferable subscription right to buy one share of
common stock at a price of $15.00. We will not issue fractional rights, and we
will not pay cash in place of rights.
The subscription rights are exercisable beginning on March 1, 2000 and
continuing until 5:00 p.m., Eastern Standard Time on March 27, 2000. If you want
to participate in the rights offering and are using a broker or bank, we
recommend that you submit your subscription documents to your broker or bank at
least 10 days before that deadline. Please see page 25 for further instructions
on submitting subscriptions. All subscriptions will be held in escrow by our
subscription agent, Harris Trust Company of New York, through the expiration
date of the rights offering. We reserve the right to cancel the rights offering
at any time before the expiration date.
We are not required to sell any minimum number of shares in order to
complete the rights offering. Shareholders who do not participate in the rights
offering will continue to own the same number of shares, but will own a smaller
percentage of the total shares outstanding. Your subscription rights are not
transferable. The subscription rights will not be listed for trading on any
stock exchange.
PICO Equity Investors, L.P., has committed to purchase for $15.00 per
share any shares of common stock that are not purchased by our shareholders
pursuant to this rights offering, up to a total of 3,333,333 shares of common
stock having an aggregate subscription price of $50,000,000. In the event less
than 3,333,333 shares of common stock remain unpurchased by our shareholders on
March 27, PICO Holdings, Inc. has committed to sell and PICO Equity Investors,
L.P. has committed to purchase that number of shares of common stock necessary
to increase the total number of shares of common stock purchased by PICO Equity
Investors to 3,333,333. As of February 3, 2000, PICO Equity Investors did not
own any of our shares of common stock.
Our common stock is quoted on the Nasdaq National Market under the
symbol "PICO". On January 31, 2000, the last sale price of our common stock as
reported on the Nasdaq National Market was $13.1875.
THIS INVESTMENT INVOLVES A HIGH DEGREE OF RISK. YOU SHOULD PURCHASE SHARES ONLY
IF YOU CAN AFFORD A COMPLETE LOSS OF YOUR INVESTMENT.
SEE "RISK FACTORS" BEGINNING ON PAGE 9.
Neither the SEC nor any state securities commission has approved or disapproved
of these securities or passed upon the adequacy or accuracy of this prospectus.
Any representation to the contrary is a criminal offense.
----------------
The date of this prospectus is February __, 2000.
<PAGE> 4
TABLE OF CONTENTS
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PAGE
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PROSPECTUS SUMMARY........................................................... 1
QUESTIONS AND ANSWERS ABOUT THE RIGHTS OFFERING.............................. 7
RISK FACTORS................................................................. 9
WHERE YOU CAN FIND MORE INFORMATION..........................................19
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS............................20
USE OF PROCEEDS..............................................................20
PRINCIPAL SHAREHOLDERS.......................................................21
THE RIGHTS OFFERING..........................................................24
FEDERAL INCOME TAX CONSIDERATIONS............................................28
LEGAL MATTERS................................................................30
EXPERTS......................................................................30
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<PAGE> 5
PROSPECTUS SUMMARY
This section summarizes the information contained in this prospectus.
You should read the following summary together with the information set forth
under the heading "Risk Factors."
BACKGROUND AND PURPOSE OF THE RIGHTS OFFERING
The purpose of the rights offering is to raise funds for developing
existing water and water storage assets, acquiring additional water assets,
strategic investments, and general working capital needs. If all shares of
common stock being offered pursuant to this rights offering are sold, we
anticipate receiving approximately $98.2 million in net proceeds from the sale
of the shares of common stock. In addition, up to $19.7 million in additional
proceeds may be received in the event less than 3,333,333 shares of common stock
remain unpurchased by our shareholders on March 27, 2000 and it then becomes
necessary to issue additional shares of common stock under the additional shares
agreement (see "Standby Commitment and Additional Shares Agreement" below). We
will use the net proceeds for the above corporate purposes.
THE RIGHTS OFFERING
Rights We are distributing, at no cost, to
each record holder of shares of our
common stock as of the close of
business on the record date, one
non-transferable right to purchase one
share of common stock at $15.00 per
share for every two shares of common
stock held. We will issue a total of
up to approximately 6,546,497 rights
to purchase approximately 6,546,497
shares of common stock.
Record Date March 1, 2000.
Subscription Price $15.00 per share of common stock.
Closing Price of the common stock
on the Nasdaq on January 31, 2000 $13.1875 per share of common stock.
Subscription Each right permits its holder to
purchase one share of common stock for
$15.00.
Standby Commitment and Additional PICO Equity Investors, L.P., has
Shares Agreement committed to purchase (subject to
certain customary rights to terminate
such obligation) for $15.00 per share
any shares of common stock that are
not purchased by our shareholders
pursuant to this rights offering, up
to a total of 3,333,333 shares of
common stock having an aggregate
subscription price of $50,000,000. In
the event less than 3,333,333 shares
of common stock remain unpurchased by
our shareholders on March 27, 2000,
PICO Holdings, Inc. has committed to
sell and PICO Equity Investors, L.P.
has committed to purchase that number
of shares of common stock necessary to
increase the total number of shares of
common stock purchased by PICO Equity
Investors to 3,333,333. PICO Holdings,
Inc. subsidiaries own 4,038,588 shares
of PICO common stock and, therefore,
will be issued rights to purchase
2,019,294 shares of common stock.
Pursuant to a contractual commitment,
none of PICO Holdings' subsidiaries
will exercise any of their rights to
purchase PICO Holdings common stock.
As a result of the contractual
commitment of PICO Holdings'
subsidiaries not to exercise their
rights to purchase 2,019,294 shares of
common stock, the maximum number of
shares to be issued under the
additional shares agreement would be
1,314,039. Rights will expire on March
1
<PAGE> 6
27, 2000 if the offering has not been
completed by that date. The Board of
Directors has approved the terms and
conditions of PICO Equity Investors'
standby commitment and additional
shares agreement. See "The Rights
Offering - Standby Commitment and
Additional Shares Agreement." As of
February 3, 2000, PICO Equity
Investors did not beneficially own any
of our outstanding shares of common
stock. The anticipated size of a
holder's beneficial ownership interest
after completion of this offering
cannot be determined at or before the
time that holder exercises its rights
because the size of that interest will
depend in large part on the number of
shares of common stock subscribed for
by other holders. However, in light of
PICO Equity Investors' standby
commitment and the additional shares
agreement, a holder, in calculating
its beneficial ownership interest, may
assume that at least 3,333,333 shares
of common stock offered for sale in
this offering will be issued. See "The
Rights Offering - Standby Commitment
and Additional Shares Agreement."
Transferability of Rights Rights may not be transferred, except
by operation of law.
Subscription Agent Harris Trust Company of New York.
Procedure for Exercise A holder may exercise his or her
subscription privilege by properly
completing and executing the
subscription documents and forwarding
those materials, together with payment
of $15.00 for each share of common
stock subscribed for, to the
subscription agent on or before the
expiration date. If a holder chooses
to forward subscription documents and
payment by mail, we recommend using
insured, registered mail. A rights
holder may not revoke any exercise of
a subscription privilege.
No Fractional shares of common We will not issue any fractional
stock shares of common stock for the
exercise of any rights or through the
standby commitment.
Persons Holding Through Others Persons holding shares of common stock
and receiving rights through a broker,
dealer, commercial bank, trust company
or other nominee who would prefer to
have such institutions exercise rights
and subscribe for shares of common
stock on their behalf, should contact
the appropriate nominee or institution
and request it to effect such
transactions for them. See "The Rights
Offering -- Method of Exercising
Rights."
Issuance of Certificates Certificates representing shares of
common stock purchased in this
offering will be delivered to
subscribers as soon as practicable
following the expiration date. See
"The Rights Offering -- Delivery of
Shares of Common Stock."
Shares of common stock Outstanding
Before this Offering(1) 13,448,533
Preferred Shares Outstanding
Before this Offering(1) NONE
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<PAGE> 7
Shares of common stock Outstanding 21,309,069
After this Offering(2)
Use of Proceeds We intend to use the net proceeds of
this offering for developing existing
water and water storage assets,
acquiring additional water assets,
strategic investments, and general
working capital needs. See "Use of
Proceeds."
Expiration Date March 27, 2000 at 5:00 p.m., Eastern
Standard Time, unless we select a
later date and time in our sole
discretion. After that time, rights
will be void and have no value.
-------------------------
(1) As of December 31, 1999.
(2) Assumes all Rights are exercised, except 2,019,294 issued to PICO
subsidiaries, which are then purchased by PICO Equity Investors under
the standby commitment. Includes 1,314,039 additional shares issued
under the additional shares agreement, if necessary.
ABOUT PICO HOLDINGS
We are a diversified holding company with operations in wholesale water
and storage through our subsidiary Vidler Water Company, Inc.; real estate and
minerals through our subsidiary Nevada Land and Resource Company, LLC; and
insurance through our subsidiaries Sequoia Insurance Company and Citation
Insurance Company. In addition, we have a number of strategic value investments.
Our objective is to use our resources to increase shareholder value through
investments in businesses that we believe are undervalued or will benefit from
additional capital, restructuring of operations or management, or improved
competitiveness through operational efficiencies with our existing operations.
We were incorporated in 1981 and began operations in 1982 as an insurance
holding company. We were known as Citation Insurance Group prior to the November
20, 1996 reverse merger between a wholly-owned subsidiary and Physicians
Insurance Company of Ohio. Our principal executive office is located at 875
Prospect Street, Suite 301, La Jolla, California 92037, and our telephone number
is (858) 456-6022.
SUBSIDIARIES
Unless otherwise indicated, each subsidiary is directly or indirectly
wholly-owned by us. Our operating subsidiaries and their principal subsidiaries
or affiliates are as follows:
GLOBAL EQUITY CORPORATION
In September 1995, we acquired approximately 38.2% of Global Equity
Corporation. In July 1997, we purchased an additional 11.7% of Global Equity
Corporation from the Mackenzie Fund, increasing our holdings to approximately
49.9%. On August 18, 1997, Global Equity Corporation issued shares through a
secondary public offering and we subscribed additional shares increasing our
ownership of Global Equity Corporation to approximately 51.2%. For a number of
reasons, including the simplification of the structure of the combined
companies, on December 16, 1998, we acquired the remaining 48.8% minority
interest of Global Equity Corporation through a combination in exchange for our
common stock. We refer you to the PICO and Global Equity Corporation Joint
Management Information Circular and Proxy Statement dated October 13, 1998 filed
with the Commission with Form DEFM14A on October 16, 1998 for additional
information regarding the combination with us and Global Equity Corporation
approved by shareholders on November 20, 1998.
Incorporated under the laws of the Province of Ontario, Canada, Global
Equity Corporation operates primarily, both directly and indirectly through its
various subsidiaries, as an international investment and operating company. The
emphasis of Global Equity Corporation's investment strategy is to increase
shareholder value through the long-term appreciation of its assets. Global
Equity Corporation's investment portfolio comprises holdings in public equity
securities, strategic investments and convertible instruments in North American,
Asian and European corporations, as well as a diversified portfolio of surface,
water and mineral rights in the western United States, and oil and gas lease
interests in North America.
3
<PAGE> 8
VIDLER WATER COMPANY, INC.
Effective November 14, 1995, a wholly-owned subsidiary of Global Equity
Corporation acquired all of the outstanding common stock of Vidler Water
Company, Inc. The purchase price was $5.8 million in cash. Vidler Water Company,
Inc., a corporation formed under the laws of the state of Colorado, changed its
state of domicile to Delaware in 1998. Vidler Water Company, Inc. is engaged in
the water marketing and transfer business. In 1998, a former employee of Vidler
Water Company, Inc. exercised stock options to purchase approximately 1.9% of
Vidler Water Company, Inc.
Vidler Water Company provides long-term reliable water supplies in the
western United States. The company acquires, manages, develops and reallocates
water rights and related storage and distribution assets for municipal
authorities and private industry. Vidler intends to establish a long-term income
stream through the sale or lease of water rights and underground storage
facilities to public and private end users.
The most significant of Vidler's assets is its Arizona underground water
storage facility located in the Harquahala Valley. The business plan is to build
facilities capable of recharging and storing surplus water in a large aquifer
underlying much of the valley. Harquahala Valley is located approximately 75
miles west of the Phoenix metropolitan area and is approximately 300 square
miles in size. When water is stored in the aquifer, it remains in place until
needed, and can be recovered by groundwater wells.
Vidler began aggregating parcels of land necessary for the underground water
storage operation in late 1996. The aggregated lands are located around the
Central Arizona Project, the aqueduct that delivers 1,500,000 acre-feet of water
per year from the Colorado River to Phoenix and Tucson. This proximity to the
Central Arizona Project is a competitive advantage, as it minimizes the costs of
water conveyance facilities. Vidler estimates its recharge and storage facility
will cost approximately $10 million to build.
Vidler intends to charge fees at the time the water is recharged and also
when it is recovered. Additionally, Vidler intends to charge an annual fee on
the cumulative amount of water stored, but not yet recovered. Potential users of
the facility would include: local governments within Arizona, the Las Vegas
Metropolitan area and California, as well as the Bureau of Reclamation.
The facility itself is being constructed in two phases: a pilot facility and
a large-scale facility. The pilot facility is complete and was constructed to
obtain cost/benefit information regarding three recharge methods and to obtain
general hydrogeologic data necessary to submit a permit for the full-scale
facility. The full-scale facility will be for commercial use. In 1997, Vidler
and its consultants began the process of assembling data for submittal to the
Arizona Department of Water Resources to obtain a pilot permit. The pilot permit
was obtained in July 1998. Construction of the pilot facility was completed in
October 1998 and the recharge of water was begun at that time. One test was
conducted at the pilot facility during the late fall of 1998 to determine the
most cost efficient method to recharge water and to collect general data
regarding the hydrogeology of the site. Information from this test was compiled
and submitted in November 1999 to the Arizona Department of Water Resources as
part of Vidler Water Company's full-scale permit process. A second test was
conducted during the fall of 1999 to obtain additional information regarding the
subsurface movement of recharged water.
4
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The permit for the full-scale facility was submitted in November 1999 and
when approved would give Vidler the right to recharge and store 100,000
acre-feet of water per year. Vidler anticipates receiving approval on its
full-scale permit from the Arizona Department of Water Resources during the
second quarter of 2000. Following receipt of the permit, construction of the
full-scale facility will begin. Construction is expected to take approximately 6
months.
To this point, only the pilot facility has been permitted and constructed,
and therefore Vidler has not attempted to store water at commercial levels.
Once permitted and constructed, Vidler's full-scale recharge facility is
anticipated to have the capacity to recharge 100,000 acre-feet per year and
store in excess of 1 million acre-feet of water in the aquifer underlying
Harquahala Valley.
Vidler estimated the aquifer's storage volume primarily from a
hydrogeological report prepared in 1990 for the Central Arizona Water
Conservation District by an independent engineering firm. The report concludes
that there is storage capacity of 3.7 million acre-feet which is in excess of
the 1 million acre-feet indicated by Vidler.
Vidler will have the right to recover the quantity of water it recharged to
the subsurface under both the pilot permit and the submitted full-scale permit.
Having water already stored in the aquifer makes recovery of water easier.
Vidler is not required to recover the same molecules of water that it stored,
only the same quantity of water molecules whether or not they were stored in the
aquifer by Vidler.
Recharge/recovery capacity is significant because it indicates how fast
water can be stored underground or pumped from the underground. In wet years, it
is important to have a high recharge capacity so that as much available water as
possible may be stored. In dry years, the critical factor is the ability to
recover water as quickly as possible.
In November 1998 Vidler Water Company, Inc. reached an agreement with
the Semitropic Water Storage District to acquire 185,000 acre-feet of
underground water storage and associated rights to recharge and recover water at
Semitropic Water Storage District located near the California Aqueduct northwest
of Bakersfield, California. The strategic location of Semitropic Water Storage
District relative to other water delivery systems and storage facilities will
enable Vidler Water Company, Inc. to complete exchanges and water transfers in
California.
NEVADA LAND AND RESOURCE COMPANY, LLC
On April 23, 1997, we, along with Global Equity Corporation, acquired a
100% membership interest in Nevada Land and Resource Company, LLC. The total
purchase price for Nevada Land and Resource Company, LLC was $48.6 million.
Nevada Land and Resource Company, LLC's principal asset consists of
approximately 1.3 million acres of deeded land located in northern Nevada,
together with appurtenant water and mineral rights. Nevada Land and Resource
Company, LLC is actively engaged in maximizing the property's value in relation
to water rights, mineral rights and land sales, exchanges and development.
Nevada Land and Resource Company, LLC is the largest private landowner in the
state. Nevada Land and Resource Company, LLC anticipates that revenues will be
generated from the asset by land sales, exchanges and development and
exploration of mineral and water rights. Nevada Land and Resource Company, LLC's
mineral exploration strategy is to identify potential gold discoveries (or other
high unit resources), develop them to the point where a meaningful data set can
be established and then to vend the properties to advanced stage exploration or
production companies.
CITATION INSURANCE COMPANY
Citation Insurance Company is a California-domiciled insurance company
licensed to write property and casualty insurance in Arizona, California,
Colorado, Nevada, Hawaii, New Mexico and Utah. Citation Insurance Company
primarily writes commercial property and casualty insurance. Citation Insurance
Company has also written Workers Compensation insurance; however, Citation
Insurance Company sold that line of business through a transfer to and sale of
its wholly-owned subsidiary, Citation National Insurance Company, effective June
30, 1997. Citation National Insurance Company wrote no new business in 1997
prior to its sale.
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SEQUOIA INSURANCE COMPANY
Sequoia Insurance Company is a California-domiciled insurance company
licensed to write insurance coverage for property and casualty risks within the
State of California and Nevada. Sequoia Insurance Company writes business
through independent agents and brokers covering risks located primarily within
northern and central California and Nevada. Although multiple line underwriting
is conducted and at one time or another all major lines of property and casualty
insurance except workers' compensation and ocean marine have been written,
Sequoia Insurance Company has transitioned from writing primarily personal lines
of business (automobile, homeowners, etc.) to commercial lines.
PHYSICIANS INSURANCE COMPANY OF OHIO
Physicians Insurance Company of Ohio, an Ohio licensed insurance
corporation, operates primarily as an insurance company. Its operations and
those of its direct and indirect subsidiaries include investment operations,
property and casualty insurance, the wind down of the settlement of insurance
claims liabilities arising from Physicians' terminated medical professional
liability insurance business (the "runoff"), and other. Through December 4,
1998, an indirect subsidiary of Physicians Insurance Company of Ohio, American
Physicians Life Insurance Company, engaged in life and health insurance.
Physicians Insurance Company of Ohio has been licensed as a property and
casualty insurer by the Ohio Department of Insurance since 1976 and is also
licensed by the Kentucky Department of Insurance. During 1995, there was another
overall shift in the strategic direction of Physicians Insurance Company of Ohio
when it sold its existing medical professional liability insurance business.
Physicians Insurance Company of Ohio continues to administer and adjust its
remaining claims and loss adjustment expense reserves. Based upon careful
analysis of various alternative scenarios for handling the runoff of the
remaining claims reserves, management determined that the best option was to
process the existing claims internally with existing staff, rather than through
a third party administrator or through an outright sale of the claims and loss
adjustment expense reserves. In addition, although there can be no assurance, it
is expected that shareholders' equity may be better served by retaining the
investments necessary to fund the payment of these claims and loss adjustment
expense reserves, managing them along with the rest of the Company's investment
holdings, as opposed to selling or fully reinsuring these reserves and giving up
the corresponding funds.
PHYSICIANS INVESTMENT COMPANY
Physicians Investment Company is a holding company that owned 100% of
American Physicians Life Insurance Company prior to its sale on December 4,
1998. The Company entered into an agreement to sell American Physicians Life
Insurance Company and their wholly-owned subsidiary, Living Benefit
Administrators Agency, Inc. on June 16, 1997. American Physicians Life Insurance
Company offered critical illness insurance through "Survivor Key" policies as
well as other life and health insurance products. Physicians Insurance Company
of Ohio owns approximately 65.1% of Physicians Investment Company. Sequoia
Insurance Company and Citation Insurance Company own approximately 9.1% and
25.8%, respectively.
THE PROFESSIONALS INSURANCE COMPANY
The Professionals Insurance Company is an Ohio domiciled insurance
company first licensed to write property and casualty insurance in Ohio in 1979.
It is also licensed in Kentucky, West Virginia and Wisconsin. The Professional
Insurance Company primarily offered medical professional liability insurance to
doctors, dentists and other medical professionals in Ohio until the sale of its
medical professional liability business in 1995.
6
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QUESTIONS AND ANSWERS ABOUT THE RIGHTS OFFERING
What is a right?
A right is the opportunity to purchase additional shares of PICO Holdings
common stock for $15.00 per share. PICO Holdings has granted to its
shareholders on March 1, 2000 one right for every two outstanding shares of
common stock. Each shareholder may purchase one newly-issued share of common
stock for every right. This is the "subscription privilege."
May shareholders purchase shares in the rights offering in addition to the
subscription privilege?
No.
Why is PICO Holdings offering the rights?
The purpose of the rights offering is to raise funds for developing existing
water and water storage assets, acquiring additional water assets, strategic
investments, and general working capital needs. If all shares of common
stock being offered pursuant to this rights offering are sold, we anticipate
receiving approximately $98.2 million in net proceeds from the sale of the
shares of common stock. In addition, up to $19.7 million in additional
proceeds may be received in the event less than 3,333,333 shares of common
stock remain unpurchased by our shareholders on March 27, 2000 and it then
becomes necessary to issue additional shares of common stock under the
additional shares agreement. We will use the net proceeds for the above
purposes. After review by management, we determined that this rights
offering is the best approach to providing additional capital, given that it
is the only financing available that lets all shareholders participate
equitably.
How soon must shareholders act?
The rights expire at 5:00 p.m., Eastern Standard Time, on March 27, 2000.
The subscription agent must actually receive all required documents and
payments before that time and date.
Has the Board of Directors made a recommendation regarding this offering?
The PICO Holdings Board of Directors does not make any recommendation to you
about whether you should exercise any rights.
To whom do shareholders direct questions or send forms and payment?
Questions about the rights or additional copies of offering documents: call
Harris Trust Company of New York at the number (212) 701-7624.
Subscription documents and payments: send to Harris Trust Company of New
York, at the address indicated in the instructions forwarded with this
prospectus.
Other questions and copies of recent PICO Holdings' SEC filings: contact
PICO Holdings through its internet site or telephone number, or refer to
other sources, such as those described under "Available Information" below.
How are shareholders affected if they do not exercise any rights?
You are not required to exercise any rights or otherwise take any action in
response to this rights offering. If you do not exercise any rights, the
number of shares which you own will not change, but your percentage
ownership of PICO Holdings' total outstanding common stock will decline, if
the rights offering is completed.
If you do not exercise you rights, your equity ownership percentage of PICO
will be diluted by the issuance of additional shares under the rights
offering, the standby commitment and the additional shares agreement, if
needed. However, your equity ownership percentage may actually increase if
you exercise some or all of your
7
<PAGE> 12
rights, depending upon the number of rights exercised by other shareholders.
Even if you fully exercise your rights, your percentage ownership may be
diluted, up to as much as approximately 5.3%, if it is necessary to issue up
to 1,314,039 shares under the additional shares agreement as a result of all
shareholders fully subscribing to the rights offering.
In addition, as a result of the issuance of additional shares and the
receipt of additional capital at a discount to PICO's current book value per
share, PICO's book value per share will decline. It can reasonably be
anticipated that the market price of PICO common stock will reflect the
resulting dilution.
What forms and payment are required to purchase shares?
As a record holder of PICO Holdings common stock on March 1, 2000, you are
receiving with this prospectus a subscription agreement and instructions on
how to purchase shares. The subscription agreement must be properly filled
out and delivered with full payment to Harris Trust Company of New York
before expiration of the rights.
What if a broker, bank or other nominee is the record holder of my shares?
If you wish to purchase shares, please promptly contact the broker, bank or
other company holding your shares. Your broker or other nominee holder is
the record holder of the shares you own and must exercise the subscription
agreement on your behalf for shares you wish to purchase. The broker, bank
or other nominee has been requested to contact you for instructions on
exercising your rights.
May shareholders transfer rights?
No.
Must all holders of rights pay the subscription price in cash?
All shareholders granted rights who wish to participate in the offering must
timely pay the subscription price by wire transfer, certified or cashier's
check drawn on a U.S. bank, or personal check that clears before expiration
of the rights.
What if my shares of common stock result in fractional rights?
If your shares of common stock would entitle you to receive a fractional
right, the number of rights you are entitled to receive will be rounded up
to the nearest whole right. You will not be issued a fractional right.
Will my money be returned if the rights offering is cancelled?
Yes, but without any payment of interest.
What fees or charges apply if I purchase shares?
PICO Holdings is not charging any fee or sales commission to issue rights to
you or to issue shares to you if you exercise rights. If you exercise rights
through a broker or other holder of your shares, you are responsible for
paying any fees that person may charge.
May I change or cancel my exercise of rights after I send in the required forms?
No.
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RISK FACTORS
In addition to the other information in this prospectus or incorporated
in this prospectus by reference, you should consider carefully the following
factors in evaluating PICO Holdings and our business before purchasing the
common stock offered by this prospectus. This prospectus contains
forward-looking statements that involve risks and uncertainties. The statements
contained in this prospectus that are not purely historical are forward-looking
statements within the meaning of Section 27A of the Exchange Act, including
statements regarding our expectations, beliefs, intentions, plans or strategies
regarding the future. All forward-looking statements included in this document
are based on information available to us on the date thereof, and we assume no
obligation to update any such forward-looking statements.
RISKS RELATED TO THE RIGHTS OFFERING:
IF YOU DO NOT PARTICIPATE IN THIS RIGHTS OFFERING, YOUR PERCENTAGE OWNERSHIP OF
OUR COMPANY WILL BE DILUTED
If you do not exercise your rights and subscribe for shares of our
common stock, you will experience immediate dilution of your percentage of
equity ownership interest in PICO Holdings upon completion of the rights
offering (and the issuance of additional common stock under the additional
shares agreement , if necessary). This dilution will be significant, even if the
rights offering is totally unsubscribed to, provided the standby commitment
shares are purchased. In addition, because rights are not transferable, if you
do not exercise your rights, you will relinquish any value inherent in those
rights. Even if you subscribe fully to the rights offering, your percentage of
equity ownership interest in our company may be significantly diluted, up to
approximately 5.3%, if it should become necessary to issue additional shares of
common stock under the additional shares agreement.
IF THE RIGHTS OFFERING IS COMPLETED, PICO EQUITY INVESTORS AND THEIR
REPRESENTATIVES WILL HAVE THE ABILITY TO EXERCISE SIGNIFICANT INFLUENCE OVER
PICO
If no rights are exercised and PICO Equity Investors purchase all the
standby commitment shares of common stock it is required to purchase under the
standby commitment, PICO Equity Investors will own approximately 19.9% of our
issued and outstanding shares of common stock after completion of this offering.
PICO Equity Investors, an entity managed by PICO Equity Investors Management,
LLC, which is owned by Ronald Langley, John R. Hart and John D. Weil, will
exercise all voting and investment decisions with respect to these shares for up
to 10 years. The purchase of shares of common stock by PICO Equity Investors
through the standby commitment will enable Messrs. Langley, Hart and Weil, who
are all current directors of our company, to significantly influence the outcome
of all matters submitted to shareholders for a vote, including the election of
directors and, consequently, our management, policies and operations. Messrs.
Langley and Hart are also current officers of our company.
IF THIS RIGHTS OFFERING IS COMPLETED, OUR BOOK VALUE PER SHARE WILL BE
SIGNIFICANTLY DILUTED, WHICH CAN AFFECT MARKET PRICE.
We will experience immediate and significant dilution in our net
tangible book value per share (shareholders' equity divided by the number of
issued and outstanding shares of common stock, net of treasury stock) of up to
approximately 13.7% following the completion of this rights offering and, if
necessary, the additional shares transaction, because:
- - we are offering our shares at a significant discount to book value per share
to attract new capital; and
- - our subsidiaries will not be subscribing to the rights offering and,
therefore, the proportion of treasury shares to issued and outstanding
shares will decline making the denominator of the book value per share
equation larger.
This dilution effect on book value per share can reasonably be expected
to be reflected in the market price of our common stock.
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IF WE REQUIRE ADDITIONAL FUNDING FOR OUR OPERATING OR INVESTMENT NEEDS IN THE
FUTURE, WE CANNOT BE CERTAIN THAT WE WILL BE ABLE TO OBTAIN THE NEEDED FUNDS,
WHICH MAY RESULT IN A SIGNIFICANT CURTAILMENT OF OUR OPERATIONS
Although we believe that, after this offering, our cash reserves, cash
flows from operations, anticipated cash flows from asset sales and available
funding will be adequate to fund our operations through the end of 2000, we can
give no assurance that these sources will be sufficient or that we will not need
additional funding either during or after this period. If we require additional
financing, we can provide no assurance that such financing will be available or,
if available, that it will be available to us on commercially reasonable terms.
If adequate funds are not available to satisfy either our short- or long-term
capital requirements, we may be required to limit our operations significantly.
IF PICO EQUITY INVESTORS DOES NOT PURCHASE ITS STANDBY COMMITMENT SHARES, WE MAY
NOT RECEIVE FUNDS SUFFICIENT TO MEET OUR NEEDS
PICO Equity Investors has agreed to purchase the standby commitment
shares of common stock. However, the PICO Equity Investors' obligations under
the standby commitment are not secured by any collateral and there can be no
assurance that PICO Equity Investors will purchase such standby commitment
shares of common stock. In addition, the PICO Equity Investors' obligations
under the standby commitment are subject to certain customary rights to
terminate. If PICO Equity Investors does not purchase its standby commitment
shares of common stock (whether through the failure to perform its obligations,
through the exercise of any termination rights or through the failure of this
offering to be completed on or before March 27, 2000), we may not receive
proceeds sufficient to enable us meet our operating and investment objectives
for 2000.
OUR MARKET PRICE IS SUBJECT TO SUDDEN AND SIGNIFICANT SWINGS, WHICH MAY CAUSE
THE RESALE PRICE OF YOUR SHARES TO BE LESS THAN THE SUBSCRIPTION PRICE
There can be no assurance that, after we issue the shares of common
stock upon exercise of rights, a subscribing holder will be able to sell shares
of common stock purchased in this offering at a price equal to or greater than
the subscription price.
DO NOT PLACE UNDUE RELIANCE ON THE SUBSCRIPTION PRICE, SINCE IT BEARS NO
RELATIONSHIP TO THE VALUE OF OUR ASSETS, FINANCIAL CONDITION OR OTHER
ESTABLISHED CRITERIA FOR VALUE
The $15.00 subscription price represents the average price of PICO
Holdings common stock on the Nasdaq National Market for the ten trading days
prior to our board of directors' approval of the rights offering rounded to the
nearest dollar. The offering price does not necessarily bear any relationship to
the book value of our assets, past operations, cash flow, earnings, financial
condition or any other established criteria for value and should not be
considered an indication of our underlying value.
IF YOU EXERCISE YOUR RIGHTS, YOU CANNOT REVOKE THEM. IF WE CANCEL THE RIGHTS
OFFERING, YOU WILL NOT BE ENTITLED TO INTEREST ON ANY SUBSCRIPTION PAYMENTS
Once you exercise your rights, you may not revoke the exercise for any
reason. We may terminate the rights offering at any time. If we elect to
withdraw or terminate the rights offering, neither we nor the subscription agent
will have any obligation with respect to the rights except to return, without
interest, any subscription payments.
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RISKS RELATED TO PICO HOLDINGS:
IF WE DO NOT SUCCESSFULLY LOCATE, SELECT AND MANAGE INVESTMENTS AND ACQUISITIONS
OR IF OUR INVESTMENTS OR ACQUISITIONS OTHERWISE FAIL OR DECLINE IN VALUE, OUR
FINANCIAL CONDITION COULD SUFFER
We invest in businesses that we believe are undervalued or that will
benefit from additional capital, restructuring of operations or improved
competitiveness through operational efficiencies.
Failures and/or declines in the market values of businesses we invest in
or acquire, as well as our failure to successfully locate, select and manage
investment and acquisition opportunities, could have a material adverse effect
on our business, financial condition, results of operations and cash flows. Such
business failures, declines in market values, and/or failure to successfully
locate, select and manage investments and acquisitions could result in inferior
investment returns compared to those which may have been attained had we
successfully located, selected and managed new investments and acquisition
opportunities, or had our investments or acquisitions not failed or declined in
value. We could also lose part or all of our investments in these businesses and
experience reductions in our net income, cash flows, assets and shareholders'
equity.
We will continue to make selective investments, and endeavor to enhance
and realize additional value to these acquired companies through our influence
and control. This could involve the restructuring of the financing or management
of the entities in which we invest and initiating and facilitating mergers and
acquisitions. Any acquisition could result in the use of a significant portion
of our available cash, significant dilution to you, and significant acquisition
related charges. Acquisitions may also result in the assumption of liabilities,
including liabilities that are unknown or not fully known at the time of the
acquisition, which could have a material adverse effect on us.
We do not know of any reliable statistical data that would enable us to
predict the probability of success or failure of our investments or to predict
the availability of suitable investments at the time we have available cash. You
will be relying on the experience and judgment of management to locate, select
and develop new acquisition and investment opportunities. Sufficient
opportunities may not be found and this business strategy may not be successful.
We have made a number of investments in the past that have been highly
successful, such as Fairfield Communities, Inc., which we sold in 1996 and
Resource America, Inc., which we sold in 1997. We have also made investments
that have lost money, such as our approximate $4 million loss from Korean
investments in 1997 and approximately $5 million in investments written down in
1998. We reported net realized investment gains in 1997 of $27.1 million and in
1996 of $21.4 million; however, we reported a net realized investment loss of
$4.4 million for 1998. Our financial statements indicated a net unrealized
investment gain of $10.6 million at December 31, 1996, and a net unrealized
investment loss of $2.6 million and $2.5 million at December 31, 1997 and 1998,
respectively. At September 30, 1999, the Company reported a net unrealized
investment gain of $9.1 million.
Our ability to achieve an acceptable rate of return on any particular
investment is subject to a number of factors which are beyond our control,
including increased competition and loss of market share, quality of management,
cyclical or uneven financial results, technological obsolescence, foreign
currency risks and regulatory delays.
Our investments may not achieve acceptable rates of return and we may
not realize the value of the funds invested; accordingly, these investments may
have to be written down or sold at their then-prevailing market values.
We may not be able to sell our investments in both private and public
companies when it appears to be advantageous to do so and we may have to sell
these investments at a discount. Investments in private companies are not as
marketable as investments in public companies. Investments in public companies
are subject to prices determined in the public markets and, therefore, values
can vary dramatically. In particular, the ability of the public markets to
absorb a large block of shares offered for sale can affect our ability to
dispose of an investment in a public company.
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To successfully manage newly acquired companies, we must, among other
things, continue to attract and retain key management and other personnel. The
diversion of the attention of management from the day-to-day operations, or
difficulties encountered in the integration process, could have a material
adverse effect on our business, financial condition, results of operations and
cash flows.
WE MAY MAKE INVESTMENTS AND ACQUISITIONS THAT MAY YIELD LOW OR NEGATIVE RETURNS
FOR AN EXTENDED PERIOD OF TIME, WHICH COULD TEMPORARILY OR PERMANENTLY DEPRESS
OUR RETURN ON INVESTMENTS
We generally make strategic investments and acquisitions that tend to be
long term in nature. We invest in businesses that we believe to be undervalued
or may benefit from additional capital, restructuring of operations or
management or improved competitiveness through operational efficiencies with our
existing operations. We may not be able to develop acceptable revenue streams
and investment returns. We may lose part or all of our investment in these
assets. The negative impacts on cash flows, income, assets and shareholders'
equity may be temporary or permanent. We make investments for the purpose of
enhancing and realizing additional value by means of appropriate levels of
shareholder influence and control. This may involve restructuring of the
financing or management of the entities in which we invest and initiating or
facilitating mergers and acquisitions. These processes can consume considerable
amounts of time and resources. Consequently, costs incurred as a result of these
investments and acquisitions may exceed their revenues and/or increases in their
values for an extended period of time until we are able to develop the potential
of these investments and acquisitions and increase the revenues, profits and/or
values of these investments. Ultimately, however, we may not be able to develop
the potential of these assets that we anticipated.
IF MEDICAL MALPRACTICE INSURANCE CLAIMS TURN OUT TO BE GREATER THAN THE RESERVES
WE ESTABLISH TO PAY THEM, WE MAY NEED TO LIQUIDATE CERTAIN INVESTMENTS IN ORDER
TO SATISFY OUR RESERVE REQUIREMENTS
Under the terms of our medical malpractice liability policies, there is
an extended reporting period for claims. Under Ohio law the statute of
limitations is one year after the cause of action accrues. Also, under Ohio law
a person must make a claim within four years; however, the courts have
determined that the period may be longer in situations where the insured could
not have reasonably discovered the injury in that four-year period. Claims of
minors must be brought within one year of the date of majority. As a result,
some claims may be reported a number of years following the expiration of the
medical malpractice liability policy period.
Physicians Insurance Company of Ohio and The Professionals Insurance
Company have established reserves to cover losses on claims incurred under the
medical malpractice liability policies including not only those claims reported
to date, but also those that may have been incurred but not yet reported. The
reserves for losses are estimates based on various assumptions and, in
accordance with Ohio law, have been discounted to reflect the time value of
money. These estimates are based on actual and industry experience and
assumptions and projections as to claims frequency, severity and inflationary
trends and settlement payments. In accordance with Ohio law, Physicians
Insurance Company of Ohio and The Professionals Insurance Company annually
obtain a certification from an independent actuary that their respective
reserves for losses are adequate. They also obtain a concurring actuarial
opinion. Due to the inherent uncertainties in the reserving process, there is a
risk that Physicians Insurance Company of Ohio's and The Professionals Insurance
Company's reserves for losses could prove to be inadequate. This could result in
a decrease in income and shareholders' equity. If we underestimate our reserves,
they could reach levels which are lower than required by law.
Reserves are money that we set aside to pay insurance claims. We strive
to establish a balance between maintaining adequate reserves to pay claims while
at the same time using our cash resources to invest in new companies.
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IF WE UNDERESTIMATE THE AMOUNT OF INSURANCE CLAIMS, OUR FINANCIAL CONDITION
COULD BE MATERIALLY MISSTATED AND OUR FINANCIAL CONDITION COULD SUFFER
Our insurance subsidiaries may not have established reserves adequate to
meet the ultimate cost of losses arising from claims. It has been, and will
continue to be, necessary for our insurance subsidiaries to review and make
appropriate adjustments to reserves for claims and expenses for settling claims.
Inadequate reserves could have a material adverse effect on our business,
financial condition, results of operations and cash flows. Inadequate reserves
could cause our financial condition to fluctuate from period to period and cause
our financial condition to appear to be better than it actually is for periods
in which insurance claims reserves are understated. In subsequent periods when
we discover the underestimation and pay the additional claims, our cash needs
will be greater than expected and our financial results of operations for that
period will be worse than they would have been had our reserves been accurately
estimated originally.
The inherent uncertainties in estimating loss reserves are greater for
some insurance products than for others, and are dependent on:
- - the length of time in reporting claims;
- - the diversity of historical losses among claims;
- - the amount of historical information available during the estimation
process;
- - the degree of impact that changing regulations and legal precedents may have
on open claims; and
- - the consistency of reinsurance programs over time.
Because medical malpractice liability and commercial liability and
casualty claims may not be completely paid off for several years, estimating
reserves for these types of claims can be more uncertain than estimating
reserves for other types of insurance. As a result, precise reserve estimates
cannot be made for several years following the year for which reserves were
initially established.
During the past several years, the levels of the reserves for our
insurance subsidiaries have been very volatile. As a result of our claims
experience, we have had to significantly increase these reserves in the past
several years.
Significant increases in the reserves may be necessary in the future,
and the level of reserves for our insurance subsidiaries may be volatile in the
future. These increases or volatility may have an adverse effect on our
business, financial condition, results of operations and cash flows.
THERE HAS BEEN A DOWNTURN IN THE PROPERTY AND CASUALTY INSURANCE BUSINESS WHICH,
IN THE SHORT TERM, HINDERS OUR ABILITY TO PROFIT FROM THIS INDUSTRY
The property and casualty insurance industry has been highly cyclical,
and the industry has been in a cyclical downturn over the last several years.
This is due primarily to competitive pressures on pricing, which has resulted in
lower profitability for us. Pricing is a function of many factors, including the
capacity of the property and casualty industry as a whole to underwrite
business, create policyholders' surplus and generate positive returns on their
investment portfolios. The level of surplus in the industry varies with returns
on invested capital and regulatory barriers to withdrawal of surplus. Increases
in surplus have generally been accompanied by increased price competition among
property and casualty insurers.
The cyclical trends in the industry and the industry's profitability can
also be affected by volatile and unpredictable developments, including natural
disasters, fluctuations in interest rates, and other changes in the investment
environment which affect market prices of investments and the income generated
from those investments. Inflationary pressures affect the size of losses and
court decisions affect insurers' liabilities. These trends may adversely affect
our business, financial condition, results of operations and cash flows by
reducing revenues and profit margins, by increasing ratios of claims and
expenses to premiums, and by decreasing cash receipts. Capital invested in our
insurance companies may produce inferior investment returns during periods of
downturns in the insurance cycle due to reduced profitability.
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STATE REGULATORS COULD REQUIRE CHANGES TO THE OPERATIONS OF OUR INSURANCE
SUBSIDIARIES AND/OR TAKE THEM OVER IF WE FAIL TO MAINTAIN ADEQUATE RESERVE
LEVELS
In the past few years, the National Association of Insurance
Commissioners has developed risk-based capital measurements for both property
and casualty and life and health insurers. These measurements prescribe the
reserve levels that insurance companies must maintain The Commissioners have
delegated to the state regulators varying levels of authority based on the
adequacy of an insurer's reserves. The insurance companies' reserve levels are
reported annually in their statutory annual statements to the insurance
departments.
Failure to meet one or more reserve levels may result in state
regulators requiring the insurance company to submit a business plan
demonstrating achievement of the required reserve levels. This may include the
addition of capital, a restructuring of assets and liabilities, or changes in
operations. At or below certain lower reserve levels, state regulators may
supervise the operation of the insurance company and/or require the liquidation
of the insurance company. Such insurance department actions could adversely
affect our business, financial condition, results of operations and cash flows
and decrease the value of our investments in our insurance subsidiaries. If the
restructuring of our assets and liabilities, our investment returns could
suffer. If the insurance departments were to place our insurance companies under
their supervision, we would lose customers, our revenues may decrease more
rapidly than our expenses, and our investment returns would suffer. We may even
lose part or all of our investments in our insurance subsidiaries if our
insurance subsidiaries are liquidated by the insurance departments.
WE MAY BE INADEQUATELY PROTECTED AGAINST MAN MADE AND NATURAL CATASTROPHES,
WHICH COULD REDUCE THE AMOUNT OF CAPITAL AND SURPLUS AVAILABLE FOR INVESTMENT
OPPORTUNITIES
As with other property and casualty insurers, operating results and
financial condition can be adversely affected by volatile and unpredictable
natural and man made disasters, such as hurricanes, windstorms, earthquakes,
fires, and explosions. Our insurance subsidiaries generally seek to reduce their
exposure to catastrophic events through individual risk selection and the
purchase of reinsurance. Our insurance subsidiaries' estimates of their
exposures depend on their views of the possibility of a catastrophic event in a
given area and on the probable maximum loss created by that event. While our
insurance subsidiaries attempt to limit their exposure to acceptable levels, it
is possible that an actual catastrophic event or multiple catastrophic events
could significantly exceed the maximum loss anticipated, resulting in a material
adverse effect on our business, financial condition, results of operations and
cash flows. Such events could cause unexpected insurance claims and expenses for
settling claims well in excess of premiums, increasing cash needs, reducing
surplus and reducing assets available for investments. Capital invested in our
insurance companies may produce inferior investment returns as a result of these
additional funding requirements.
We insure ourselves against catastrophic losses by obtaining insurance
through other insurance companies known as reinsurers. The future financial
results of our insurance subsidiaries could be adversely affected by disputes
with their reinsurers with respect to coverage and by the solvency of the
reinsurers.
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OUR INSURANCE SUBSIDIARIES COULD BE DOWNGRADED WHICH WOULD NEGATIVELY IMPACT OUR
BUSINESS
Our insurance subsidiaries' ratings may not be maintained or increased,
and a downgrade would likely adversely affect our business, financial condition,
results of operations and cash flows. A. M. Best and Company's (" A. M.
Best")ratings reflect the assessment of A. M. Best of an insurer's financial
condition, as well as the expertise and experience of its management. Therefore,
A. M. Best ratings are important to policyholders. A. M. Best ratings are
subject to review and change overtime. Failure to maintain or improve our A. M.
Best ratings could have a material adverse effect on the ability of our
insurance subsidiaries to underwrite new insurance policies, as well as
potentially reduce their ability to maintain or increase market share.
Management believes that many potential customers will not insure with an
insurer that carries an A. M. Best rating of less than B+, and that customers
who do so will demand lower rates.
Our insurance subsidiaries are currently rated as follows:
- - Sequoia Insurance Company B++(Very Good)
- - Citation Insurance Company B+(Very Good)
- - Physicians Insurance Company of Ohio NR-3 (rating procedure inapplicable)
- - The Professionals Insurance Company NR-3 (rating procedure inapplicable)
POLICY HOLDERS MAY NOT RENEW THEIR POLICIES, WHICH WOULD UNEXPECTEDLY REDUCE OUR
REVENUE STREAM
Insurance policy renewals have historically accounted for a significant
portion of our net revenue. We may not be able to sustain historic renewal rates
for our products in the future. A decrease in renewal rates would reduce our
revenues. It would also decrease our cash receipts and the amount of funds
available for investments and acquisitions. If we were not able to reduce
overhead expenses correspondingly, this would adversely affect our business,
financial condition, results of operations and cash flows.
IF WE ARE REQUIRED TO REGISTER AS AN INVESTMENT COMPANY, THEN WE WILL BE SUBJECT
TO A SIGNIFICANT REGULATORY BURDEN
We at all times intend to conduct our business so as to avoid being
regulated as an investment company under the Investment Company Act of 1940.
However, if we were required to register as an investment company, our ability
to use debt would be substantially reduced, and we would be subject to
significant additional disclosure obligations and restrictions on our
operational activities. Because of the additional requirements imposed on an
investment company with regard to the distribution of earnings, operational
activities and the use of debt, in addition to increased expenditures due to
additional reporting responsibilities, our cash available for investments would
be reduced. The additional expenses would reduce income. These factors would
adversely affect our business, financial condition, results of operations and
cash flows.
SUBSTANTIAL REGULATION MAY PREVENT US FROM REALIZING A PROFIT FROM OUR WATER
RIGHTS
The water rights held by us and the transferability of these rights to
other uses and places of use are governed by the laws concerning water rights in
the states of Arizona, California, Colorado and Nevada, as well as by federal
regulations. The volumes of water actually derived from these rights may vary
considerably based upon physical availability and may be further limited by
applicable legal restrictions. As a result, the amounts of acre feet anticipated
do not in every case represent a reliable, firm annual yield of water, but in
some cases describe the face amount of the water right claims or management's
best estimate of such entitlement. Legal impediments exist to the sale or
transfer of some of these water rights, which in turn may affect their
commercial value. If we were unable to transfer or sell our water rights, we
will not be able to make a profit, we will not have enough cash receipts to
cover cash needs, and we may lose some or all of our value in our water rights
investments.
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OUR FUTURE WATER REVENUES ARE UNCERTAIN AND DEPEND ON A NUMBER OF FACTORS, WHICH
MAY MAKE OUR REVENUE STREAMS AND PROFITABILITY VOLATILE
We engage in various water rights acquisition, management, development,
sale and lease activities. Accordingly, our long-term future profitability will
be primarily dependent on our ability to develop and sell or lease water and
water rights, and will be affected by various factors, including timing of
acquisitions, transportation arrangements, and changing technology. To the
extent we possess junior or conditional water rights, such rights may be
subordinated to superior water right holders in periods of low flow or drought.
Our current water rights and the transferability of these rights to
other uses and places of use are governed by the laws concerning water rights in
the states of Arizona, California, Colorado and Nevada, as well as by federal
regulations. The volumes of water actually derived from these rights may vary
considerably based upon physical availability and may be further limited by
applicable legal restrictions. Legal impediments exist to sale or transfer of
some of these water rights which may affect their commercial value.
In addition to the risk of delays associated with receiving all
necessary regulatory approvals and permits, we may also encounter unforeseen
technical difficulties which could result in construction delays and cost
increases with respect to our water development projects.
OUR WATER ASSETS MAY BECOME CONCENTRATED IN A LIMITED NUMBER OF FACILITIES,
MAKING OUR GROWTH AND PROFITABILITY VULNERABLE TO FLUCTUATIONS IN LOCAL
ECONOMIES AND GOVERNMENTAL REGULATIONS.
We anticipate that in the future, a significant amount of Vidler's
revenues and asset value may be derived from a single asset, the MBT Ranch water
storage facility. Currently, we have obtained only a pilot permit for the
recharge and storage of a limited amount of water at that facility. We have not
yet applied for a recovery permit and have applied for, but not yet received, a
full-scale permit for that facility. There can be no assurance:
- - that we will be able to obtain permits for the facility at the recharge,
storage or recovery levels anticipated, or at all;
- - that the full-scale storage facility will have the capacity currently
anticipated; or
- - that we will be able to contract with third parties for storage of water on
commercially reasonable terms, or at all.
A majority of our water revenue historically has been derived from the
Vidler Tunnel. Although we have recently begun to acquire additional water
assets, we anticipate that our revenues will be derived from a limited number of
water assets for the foreseeable future.
THE PRICE OF WATER IS VOLATILE, WHICH CAN HAVE A SIGNIFICANT EFFECT ON OUR COSTS
OF ACQUIRING WATER AND THE PRICES AT WHICH WE ARE ABLE TO SELL WATER.
Our profitability is significantly affected by changes in the market
price of water. Water prices may in the future fluctuate widely and are affected
by climatic, demographic and technologic factors affecting demand.
ENVIRONMENTAL REGULATIONS MAY DETRACT FROM OUR FUTURE REVENUE STREAMS AND
PROFITABILITY BY LIMITING OUR CUSTOMER BASE.
Water we lease or sell may be subject to regulation as to quality by the
United States Environmental Protection Agency acting pursuant to the federal
Safe Drinking Water Act. While environmental regulations do not directly affect
us, the regulations regarding the quality of water distributed affects our
intended customers and may, therefore, depending on the quality of our water,
impact the price and terms upon which we may in the future sell our water or
water rights.
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OUR WATER SALES MAY MEET WITH POLITICAL OPPOSITION IN CERTAIN LOCATIONS, THEREBY
LIMITING OUR GROWTH IN THESE AREAS
The transfer of water rights from one use to another may affect the
economic base of a community and will, in some instances, be met with local
opposition. Moreover, certain of the end users of our water rights , namely
municipalities, regulate the use of water in order to control or deter growth.
WE ARE DIRECTLY IMPACTED BY INTERNATIONAL AFFAIRS, WHICH DIRECTLY EXPOSES US TO
THE ADVERSE EFFECTS OF ANY FOREIGN ECONOMIC OR GOVERNMENTAL INSTABILITY
As a result of global investment diversification, our business,
financial condition, results of operations and cash flows may be adversely
affected by:
- exposure to fluctuations in exchange rates;
- the imposition of governmental controls;
- the need to comply with a wide variety of foreign and U. S. export
laws;
- political and economic instability;
- trade restrictions;
- changes in tariffs and taxes;
- volatile interest rates;
- changes in certain commodity prices;
- exchange controls which may limit our ability to withdraw money;
- the greater difficulty of administering business overseas; and
- general economic conditions outside the United States.
Changes in any or all of these factors could result in reduced market
values of investments, loss of assets, additional expenses, reduced investment
income, reductions in shareholders' equity due to foreign currency fluctuations
and a reduction in our global diversification.
OUR COMMON STOCK PRICE MAY BE LOW WHEN YOU WANT TO SELL YOUR SHARES
The trading price of our common stock has historically been, and is
expected to be, subject to fluctuations. The market price of the common stock
may be significantly impacted by:
- quarterly variations in financial performance;
- shortfalls in revenue or earnings from levels forecast by securities
analysts;
- changes in estimates by such analysts;
- product introductions;
- our competitors' announcements of extraordinary events; such as
- acquisitions;
- litigation; and
- general economic conditions.
Our results of operations have been subject to significant fluctuations,
particularly on a quarterly basis, and our future results of operations could
fluctuate significantly from quarter to quarter and from year to year. Causes of
such fluctuations may include the inclusion or exclusion of operating earnings
from newly acquired or sold operations. At December 31, 1997, the closing price
of our common stock on the Nasdaq National Market was $32.19 per share, compared
to $12.31 at December 31, 1999. On a quarterly basis between these two dates,
closing prices have ranged from a high of $28.75 at March 31,1998 to a low of
$12.31 at December 31, 1999.
Statements or changes in opinions, ratings, or earnings estimates made
by brokerage firms or industry analysts relating to the markets in which we do
business or relating to us specifically could result in an immediate and adverse
effect on the market price of our common stock.
17
<PAGE> 22
WE MAY NOT BE ABLE TO RETAIN KEY MANAGEMENT PERSONNEL WE NEED TO SUCCEED, WHICH
COULD ADVERSELY AFFECT OURS ABILITY TO MAKE SOUND INVESTMENT DECISIONS
We have several key executive officers. If they depart, it could have a
significant adverse effect. In particular, Ronald Langley, our Chairman, and
John R. Hart, our President and Chief Executive Officer, play key roles in
investment decisions. Messrs. Langley and Hart have entered into employment
agreements with us dated as of December 31, 1997, for a period of four years.
Messrs. Langley and Hart are key to the implementation of our strategic focus,
and our ability to successfully develop our current strategy is dependent upon
our ability to retain the services of Messrs. Langley and Hart.
OUR CHARTER DOCUMENTS MAY INHIBIT A TAKEOVER, PREVENTING YOU FROM RECEIVING A
PREMIUM ON YOUR SHARES
The Board of Directors has authority to issue up to 1 million shares of
preferred stock and to fix the rights, preference, privileges and restrictions,
including voting rights, of those shares without any further vote or action by
the shareholders. Your rights as common stock holders will be subject to, and
may be adversely affected by, the rights of the holders of the preferred stock.
The issuance of preferred stock, while providing desirable flexibility in
connection with possible acquisitions and other corporate purposes, could have
the effect of making it more difficult for a third party to acquire a majority
of our outstanding voting stock, thereby delaying, deferring or preventing a
change in control of PICO. Furthermore, such preferred stock may have other
rights, including economic rights senior to the common stock, and, as a result,
the issuance thereof could have a material adverse effect on the market value of
the common stock.
The foregoing factors, individually or in the aggregate, could
materially adversely affect our operating results and could make comparison of
historic operating results and balances difficult or not meaningful.
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<PAGE> 23
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and
other information with the Commission. You may read and copy any document we
file at the public reference facilities maintained by the Commission at 450
Fifth Street, N. W., Washington, D. C. 20549 and at the Regional Offices of the
Commission at Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661; and at 75 Park Place, New York, New York 10007. You can obtain
information on the operation of the public reference room by calling the SEC at
l-800-SEC-0330. Our common stock is traded on The Nasdaq National Market.
Reports and other information concerning us can also be inspected at the offices
of the National Association of Securities Dealers, Inc., Market Listing Section,
1735 K Street, N. W., Washington, D. C. 20006. Such reports and other
information may also be inspected without charge at a Web site maintained by the
Commission. The address of the site is http:\www.sec.gov.
The Commission allows us to "incorporate by reference" the information
we file with them, which means that we can disclose important information to you
by referring you to those documents. The information incorporated by reference
is considered to be part of this prospectus, and information that we file later
with the Commission will automatically update and supersede this information. We
incorporate by reference the documents listed below and any future filings we
will make with the Commission under Sections 13(a), 13(c), 14 or 15(d)of the
Securities Exchange Act of 1934. This prospectus is part of a registration
statement filed with the Commission.
(1) Our Annual Report on Form 10-K/A for the fiscal year ended December
31, 1998 filed with the Commission on January 27, 2000 (File No. 000-18786).
(2) Our Quarterly Report on Form 10-Q/A for the quarter ended March 31,
1999 filed with the Commission on January 27, 2000 (File No. 033-36383).
(3) Our Quarterly Report on Form 10-Q/A for the quarter ended June
30, 1999 filed with the Commission on January 27, 2000 (File No. 033-36383).
(4) Our Quarterly Report Form 10-Q/A for the quarter ended September 30,
1999 filed with the Commission on January 27, 2000 (File No. 033-36383).
We will provide without charge to each person to whom this prospectus is
delivered, upon oral or written request, a copy of any or all of the foregoing
documents incorporated herein by reference (other than exhibits to such
documents unless such exhibits are specifically incorporated by reference into
the information that this prospectus incorporates). Written or telephone
requests should be directed to James F. Mosier, Secretary, at PICO Holdings,
Inc., 875 Prospect Street, Suite 301, La Jolla, California 92037, telephone
number (858) 456-6022.
You should rely only on the information incorporated by reference or
provided in this prospectus or any supplement. We have not authorized anyone
else to provide you with different information. We will not make an offer of
these shares in any state where the offer is not permitted. You should not
assume that the information in this prospectus or any supplement is accurate as
of any date other that the date on the front of those documents.
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<PAGE> 24
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Some of the information in this prospectus, including the above risk
factors section, contains forward-looking statements that involve risks and
uncertainties. These statements relate to future events or our future financial
performance. In many cases, you can identify forward-looking statements by
terminology such as "may," "will," "should," "expects," "plans," "anticipates,"
"believes," "estimates," "predicts," "potential," or "continue," or the negative
of such terms and other comparable terminology. These statements are only
predictions. Our actual results could differ materially from those anticipated
in these forward-looking statements as a result of certain factors, including
the risks faced by us described above and elsewhere in this prospectus.
We believe it is important to communicate our expectations to our
investors. However, there may be events in the future that we are not able to
predict accurately or over which we have no control. The risk factors listed
above, as well as any cautionary language in this prospectus, provide examples
of risks, uncertainties and events that may cause our actual results to differ
materially from the expectations we describe in our forward-looking statements.
Before you invest in our common stock, you should be aware that the occurrence
of the events described in these risk factors and elsewhere in this prospectus
could have a material adverse effect on our business, operating results and
financial condition.
USE OF PROCEEDS
If all shares of common stock being offered pursuant to this rights
offering are sold, we anticipate receiving approximately $98.2 million in net
proceeds from the sale of the shares of common stock. In addition, up to $19.7
million in additional proceeds may be received in the event less than 3,333,333
shares of common stock remain unpurchased by our shareholders on March 27, 2000
and it then becomes necessary to issue additional shares of common stock under
the additional shares agreement.
We will use the net proceeds for the following corporate purposes:
DEVELOPMENT OF EXISTING WATER AND WATER STORAGE ASSETS. Our water
storage facility in Arizona requires substantial infrastructure to be
constructed in order to deliver water for storage from Arizona's main water
delivery system, the Central Arizona Project. Additionally, our water
development projects in Nevada call for us to construct water delivery
infrastructures from our water sources to our end-users. Our obligations under
the Semitropic Water District agreement for water storage capabilities in
California also require significant outlays each year.
ACQUISITION OF ADDITIONAL WATER ASSETS. We have identified several
potential opportunities to acquire water rights and storage facilities in the
Southwestern United States that allow Vidler to facilitate the transfer of
underutilized water to areas of high demand.
STRATEGIC INVESTMENTS. We have identified potential opportunities to
acquire further value situations. Typically, the assets we have identified are
publicly traded companies that trade at significant discounts to their net
tangible assets and exhibit strong recurring cash flows from operations.
In addition to the above capital requirements, we anticipate a portion
of the net proceeds from the sale of the shares of common stock to be used for
general working capital needs.
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<PAGE> 25
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information regarding the
beneficial ownership of our common stock of current stockholders as of
December 31, 1999 by:
- each person who is known to us to currently own beneficially 5% or
more of the outstanding shares of common stock;
- each director and director-nominee of PICO Holdings;
- the Chief Executive Officer and the other executive officers of PICO
Holdings as of December 31, whose salary and bonus for the year
ended December 31, 1999 exceeded $100,000; and
- all of our directors and executive officers as a group.
The percentages set forth in the percent column under the beneficial
ownership after the rights offering heading have been calculated based on the
assumption that each of the current principal shareholders would subscribe for
its pro-rata portion, determined as of December 31, 1999, of this rights
offering. In the event each shareholder subscribes for its pro-rata portion of
the rights offering, its beneficial ownership percentage of PICO Holdings after
the rights offering will not be identical to its beneficial ownership percentage
of PICO Holdings prior to the rights offering because SEC regulations require
that we include stock options exercisable within 60 days of December 31, 1999,
for purposes of the calculations in this table. However, for determining each
shareholder's pro-rata portion of the rights offering, we only include the PICO
Holdings common stock owned by each shareholder and did not include exercisable
or unexercisable options. In addition, issuance of additional shares under the
additional shares agreement, if necessary, and the failure of PICO subsidiaries
to subscribe to their rights privileges (since these shares are excluded from
the calculation of beneficial ownership) will cause beneficial ownership
percentages after the rights offering to differ from those prior to the offering
even if shareholders fully subscribe. However, a shareholder's equity ownership
percentage may actually increase if it exercises some or all of its rights,
depending on the number of rights exercised by other shareholders.
To the extent any shareholder elects not to subscribe for its pro-rata
portion of the rights offering, its beneficial ownership of PICO Holdings after
the rights offering will be less than is indicated in this table. As noted
above, PICO Equity Investors has committed to purchase any portion of the rights
offering that other shareholders elect not to subscribe for, plus additional
shares under an additional shares agreement, the total of which will aggregate
to 3,333,333 shares of common stock and the sum of $50 million.
Except as otherwise indicated, the address of each beneficial owner is
c/o PICO Holdings, Inc., 875 Prospect Street, Suite 301, La Jolla, California
92037. The table is based upon information supplied to PICO Holdings by the
officers, directors and principal shareholders. Except as otherwise indicated,
we believe that the persons or entities named in the table have sole voting and
investment power with respect to all shares of common stock and preferred stock
shown as beneficially owned by them, subject to community property laws where
applicable.
21
<PAGE> 26
As of December 31, 1999, there were 13,448,533 shares of PICO Holdings
issued and outstanding. Of these shares, 4,394,127 are held by PICO Holdings and
subsidiaries, and may therefore not be voted under California law. The following
table excludes shares of PICO Holdings held by PICO Holdings and its
subsidiaries since those shares are not entitled to vote and includes 6,546,497
shares issued under the rights offering and standby commitment and 1,314,039
shares under the additional shares agreement, if necessary.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP OF
CURRENT SHAREHOLDERS AFTER THE RIGHTS OFFERING
--------------------------------------------------
NUMBER OF SHARES AND NATURE PERCENTAGE OWNERSHIP
NAME AND ADDRESS OF BENEFICIAL OWNER OF BENEFICIAL OWNERSHIP (1) OF VOTING SHARES(1)
------------------------------------ --------------------------- --------------------
<S> <C> <C>
Ronald Langley(2)(4) 730,515 4.0%
John R. Hart(3)(4) 720,882 3.9%
Robert R. Broadbent 17,924 *
Carlos C. Campbell -0- *
S. Walter Foulkrod, III, Esq 4,356 *
Richard D. Ruppert, MD (5) 10,461 *
John D. Weil (6) 850,589 4.7%
David A. Williams 118,040 *
Richard H. Sharpe (7) 71,755 *
Gary W. Burchfield (8) 49,645 *
James F. Mosier (9) 49,913 *
Sheila C. Ferguson (10) 11,952 *
Maxim C. W. Webb (11) 30,931 *
Executive Officers and Directors as a Group 2,666,963 14.6%
(13 persons)
</TABLE>
-------------------------
*Less than one percent (1%)
(1) Sole voting and investment power unless otherwise indicated. Assumes all
rights are subscribed to and that it is necessary to issue 1,314,039
additional shares under the additional shares agreement.
(2) Of these shares, 555,863 represent beneficial ownership of currently
exercisable options. 1,418 shares are held in the Company's 401(k) Plan.
Mr. Langley has been Chairman and a Director of GEC since September 5,
1995. He has been Chairman, and a Director of the Company since November
20, 1996.
(3) Of these shares, 613,170 represent beneficial ownership of currently
exercisable options. Mr. Hart has been President and CEO and a Director of
GEC since September 5, 1995. He has been President and CEO of the Company
since November 20, 1996.
(4) Mr. Langley and Mr. Hart formerly had stock options, granted in 1995, to
purchase shares of GEC; these shares were converted on December 17, 1998
into economically equivalent stock options to purchase shares of the
Company. Mr. Langley and Mr. Hart each had 1993 call option agreements
with GPG; in August 1998, the Company assumed GPG's obligations with
respect to these 412,846 options. Mr. Langley exercised 57,307 of his call
options in December 1998 and has 149,116 call option remaining. Mr. Hart
has not exercised any call options and has 206,423 call options remaining.
22
<PAGE> 27
(5) Dr. Ruppert shares voting and investment power with his wife.
(6) Of these shares, 512,058 are owned by a partnership which Mr. Weil
controls.
(7) Of these shares, 60,119 represent beneficial ownership of currently
exercisable options. In addition, 3,246 shares are held in the Company's
401(k) Plan.
(8) Of these shares, 42,083 represent beneficial ownership of currently
exercisable options. In addition, 886 shares are held in the Company's
401(k) Plan.
(9) Of these shares, 42,083 represent beneficial ownership of currently
exercisable options. In addition, 2,371 shares are held in the Company's
401(k) Plan.
(10) Of these shares, 3,702 represent beneficial ownership of currently
exercisable options. In addition, 971 shares are held in the Company's
401(k) Plan.
(11) Of these shares, 29,177 represent beneficial ownership of currently
exercisable options. In addition, 788 shares are held in the Company's
401(k) Plan.
23
<PAGE> 28
THE RIGHTS OFFERING
SUBSCRIPTION; LIMITATIONS ON SUBSCRIPTION
PICO Holdings is distributing, at no cost, to each holder of shares of
common stock of record as of the close of business on the record date, one right
for every two shares of common stock held. Each right entitles its holder to
purchase one share of common stock for $15.00.
The anticipated size of a holder's beneficial ownership interest after
consummation of this offering cannot be determined at the time or before that
holder exercises its rights because the size of that interest will depend in
large part on the number of shares of common stock subscribed for by other
holders. However, in light of the standby commitment and the additional shares
agreement, a holder, in calculating such beneficial ownership interest, may
assume that at least 3,333,333 shares of common stock offered for sale in the
offering will be issued. See "-- Standby Commitment and Additional Shares
Agreement."
Shareholders on the record date will receive subscription materials with
the delivery of this prospectus. A holder of rights may (a) subscribe for shares
of common stock through the exercise of all of its rights, (b) subscribe for
shares of common stock through the exercise of a portion of its rights or (c)
allow all or a portion of its rights to expire unexercised.
PICO will not issue fractional rights or pay cash in lieu of fractional
rights.
Promptly after the expiration date, PICO will send each holder
exercising the subscription a written confirmation of the number of shares of
common stock purchased by that holder. Certificates representing shares of
common stock purchased through the subscription will be delivered to holders as
soon as practicable following the expiration date.
EXPIRATION DATE
The rights will expire at 5:00 p.m., Eastern Standard Time, on March 27,
2000 or such later date and time as PICO may determine in its sole discretion.
After that time, rights will become void and have no value. If PICO extends the
period for the exercise of the rights, PICO or the subscription agent will give
notice to shareholders of record on the record date, by mail or by publication
in a newspaper of national circulation, of a new expiration date
SUBSCRIPTION PRICE
The subscription price for one share of common stock, which may be
purchased upon the exercise of one right, is $15.00. Shareholders exercising
subscription rights and PICO Equity Investors will have the same subscription
price.
WITHDRAWAL
PICO reserves the right to withdraw the offering at any time prior to or
at the expiration date and for any reason (including, without limitation, a
change in the market price of the shares of common stock), in which event all
funds received from holders will be refunded promptly without interest.
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<PAGE> 29
SUBSCRIPTION AGENT
The subscription agent and escrow agent for this offering is Harris
Trust Company of New York. The address to which rights certificates,
subscription agreements, and payments should be mailed or delivered is:
<TABLE>
<CAPTION>
By Regular Mail: By Facsimile Transmission: By Hand or Overnight Courier:
---------------- -------------------------- -----------------------------
<S> <C> <C>
(for Eligible Institutions only)
Harris Trust Company of New Harris Trust Company of New York Harris Trust Company of New
York, Subscription Agent Confirm by Telephone (212) York, Subscription Agent
Wall Street Station 701-7624 (for Facsimile Wall Street Plaza
Confirmation Only) 88 Pine Street, 19th Floor
P. O. Box 1023 (212) 701-7636 (FAX) New York, NY 10005
New York, NY 10268-1023
(212) 701-7624
</TABLE>
Delivery of subscription materials, and payments (other than wire
transfers) other than as set forth above will not constitute a valid delivery.
ANY QUESTIONS OR REQUESTS FOR ASSISTANCE CONCERNING THE METHOD OF
SUBSCRIBING FOR SHARES OF COMMON STOCK OR FOR ADDITIONAL COPIES OF THIS
PROSPECTUS SHOULD BE DIRECTED TO HARRIS TRUST COMPANY OF NEW YORK, THE
SUBSCRIPTION AGENT, AT (212) 701-7624
FRACTIONAL SHARES OF COMMON STOCK
No fractional shares of common stock will be issued as a result of the
exercise of any rights or pursuant to the standby commitment. Subscription
rights may not be divided in any manner as to create fractional rights. Banks,
trust companies, securities dealers and brokers that hold shares of common stock
as nominees for more than one beneficial owner may have a rights certificate
divided by the subscription agent or may, upon proper showing to the
subscription agent, exercise their rights on the same basis as if the beneficial
owners were record holders on the record date. PICO reserves the right to deny
any division of rights certificates if in its opinion the result would be
inconsistent with the intent of this privilege.
METHOD OF EXERCISING RIGHTS
In the case of holders of rights that are held of record through The
Depository Trust Company, those rights may be exercised by instructing The
Depository Trust Company to transfer rights from that holder's Depository Trust
Company account to the subscription agent's Depository Trust Company account,
together with payment of the full subscription price. The properly completed and
duly executed subscription agreement, rights certificate and the payment must be
received by the subscription agent prior to the expiration date. Rights
certificates received after the expiration date will not be honored.
Payments must be made in full in United States currency by either (a) a
check or bank draft drawn upon a U.S. bank or postal, express money order
payable to Harris Trust Company of New York, as subscription agent, or (b) a
wire transfer of funds to the account maintained by the subscription agent for
that purpose at Harris Trust Company of New York, 88 Pine Street, 19th Floor,
New York, NY 10005. Any wire transfer of funds should clearly indicate the
identity of the subscriber who is paying the subscription price by the wire
transfer. Holders should contact the subscription agent at (212) 701-7624 for
specific payment instructions. The subscription price will be deemed to have
been received by the subscription agent only upon (i) clearance of any
uncertified check, (ii) receipt by the subscription agent of any certified check
or bank draft drawn upon a U.S. bank or of any postal, express money order or
(iii) receipt of good funds in the subscription agent's account designated
above.
25
<PAGE> 30
The instruction letter accompanying the rights certificate should be
read carefully and strictly followed. DO NOT SEND SUBSCRIPTION DOCUMENTS OR
PAYMENTS TO PICO HOLDINGS. The subscription agent will not have received a
proper subscription until the subscription agent has received delivery of a
properly completed and duly executed subscription agreement, rights
certificate,and payment of the full subscription price. The holder, not PICO or
the subscription agent, bears the risk of delivery of all documents and
payments.
THE RIGHTS HOLDERS BEAR THE RISK OF THE METHOD OF DELIVERY OF RIGHTS
CERTIFICATES AND PAYMENT OF THE SUBSCRIPTION PRICE TO THE SUBSCRIPTION AGENT IF
SENT BY MAIL. PICO RECOMMENDS THAT THOSE CERTIFICATES AND PAYMENTS BE SENT BY
REGISTERED MAIL, PROPERLY INSURED, WITH RETURN RECEIPT REQUESTED, AND THAT
HOLDERS ALLOW A SUFFICIENT NUMBER OF DAYS TO ENSURE DELIVERY TO THE SUBSCRIPTION
AGENT AND CLEARANCE OF PAYMENT PRIOR TO THE EXPIRATION DATE. BECAUSE UNCERTIFIED
PERSONAL CHECKS MAY TAKE UP TO FIVE BUSINESS DAYS TO CLEAR, YOU ARE STRONGLY
URGED TO PAY OR ARRANGE FOR PAYMENT BY MEANS OF CERTIFIED OR CASHIER'S CHECK,
MONEY ORDER OR WIRE TRANSFER OF FUNDS.
TRANSFERABILITY OF RIGHTS
The rights may not be transferred, except by operation of law in the
event of death or dissolution of their holder.
VALIDITY OF SUBSCRIPTIONS
PICO will determine all questions regarding the validity and form of the
exercise of the subscription privilege (including time of receipt and
eligibility to participate in the offering), and this determination will be
final and binding. Once made, subscriptions and directions are irrevocable, and
no alternative, conditional or contingent subscriptions or directions will be
accepted. PICO reserves the absolute right to reject any subscriptions or
directions not properly submitted or the acceptance of which, in the opinion of
PICO's counsel, would be unlawful. See "--Subscription; Limitations on
Subscription." Holders of rights must cure any irregularities in connection with
subscriptions prior to the expiration date unless waived by PICO in its sole
discretion. Neither PICO nor the subscription agent shall be under any duty to
give notification of defects in subscriptions or incur any liability for failure
to give that notification. A subscription will be deemed to have been accepted
(subject to PICO's right to withdraw or terminate the offering or to limit the
size of the subscription as described in "-- Subscription; Limitations on
Subscription") only when the subscription agent has received a properly
completed and duly executed subscription agreement, rights certificate, any
other required documents and payment of the full subscription price. PICO's
interpretations of the terms and conditions of the offering shall be final and
binding.
ESCROW ARRANGEMENTS; RETURN OF FUNDS
Funds received in payment of the subscription price for shares of common
stock subscribed for will be held in a segregated account by the subscription
agent pending completion of this offering. Monies will be held in escrow until
this offering is completed or is canceled. If the offering is canceled for any
reason, monies will be returned to subscribers without interest or deduction
promptly thereafter.
RIGHTS OF SUBSCRIBERS
Holders will have no rights as shareholders of PICO with respect to
shares of common stock subscribed for until certificates representing those
shares of common stock are issued to them. Holders will have no right to revoke
their subscriptions after delivery to the subscription agent of a completed
subscription agreement and any other required documents.
26
<PAGE> 31
FOREIGN SHAREHOLDERS
Rights certificates will not be mailed to holders whose addresses are
outside the United States or who have an APO or FPO address, (other than holders
whose addresses are within those provinces of Canada in which a Canadian rights
offering circular has been filed with and accepted by the applicable Canadian
provincial securities regulatory authority and then, only to the extent
permitted by the laws of such province), but will be held by the subscription
agent for their account. To exercise rights, those holders must notify the
subscription agent by completing an international holder subscription form which
will be delivered to those holders in lieu of a rights certificate, and sending
it by mail or telecopy to the subscription agent at the address and telecopy
number specified above.
NO REVOCATION
ONCE A HOLDER HAS EXERCISED HIS OR HER SUBSCRIPTION PRIVILEGE, THAT
EXERCISE MAY NOT BE REVOKED.
STANDBY COMMITMENT AND ADDITIONAL SHARES AGREEMENT
PICO Equity Investors, L.P., has committed to purchase (subject to
certain customary rights to terminate such obligation) for $15.00 per share any
shares of common stock that are not purchased by our shareholders pursuant to
this rights offering, up to a total of 3,333,333 shares of common stock having
an aggregate subscription price of $50,000,000. In the event less than 3,333,333
shares of common stock remain unpurchased by our shareholders on March 27, 2000,
PICO Holdings, Inc. has committed to sell and PICO Equity Investors, L.P. has
committed to purchase that number of shares of common stock necessary to
increase the total number of shares of common stock purchased by PICO Equity
Investors to 3,333,333. PICO Holdings, Inc. subsidiaries own 4,038,588 shares of
PICO common stock and, therefore, will be issued rights to purchase 2,019,294
shares of common stock. Pursuant to a contractual commitment, none of PICO
Holdings' subsidiaries will exercise any of their rights to purchase PICO
Holdings common stock. As a result of the contractual commitment of PICO
Holdings' subsidiaries not to exercise their rights to purchase 2,019,294 shares
of common stock, the maximum number of shares to be issued under the additional
shares agreement would be 1,314,039. Rights will expire on March 27, 2000 if the
offering has not been completed by that date. The Board of Directors has
approved the terms and conditions of PICO Equity Investors' standby commitment
and additional shares agreement. As of February 2, 2000, PICO Equity Investors
did not beneficially own any of our outstanding shares of common stock.
DELIVERY OF SHARES OF COMMON STOCK
Certificates representing shares of common stock purchased through the
exercise of the subscription privilege or the standby commitment will be
delivered as soon as practicable after the expiration date, the receipt of all
required documents and payment in full of the aggregate subscription price due
for such shares of common stock. In the case of shareholders whose shares of
common stock are held through The Depository Trust Company and third-party
investors who arrange for delivery and payment through The Depository Trust
Company, the appropriate participant account will be credited.
DETERMINATION OF OFFERING PRICE
Our board of directors determined the offering price without any
independent appraisal of the value of the common stock. The offering price does
not necessarily bear any relationship to the book value of our assets, past
operations, cash flow, earnings, financial condition or any other established
criteria for value and should not be considered an indication of our underlying
value.
27
<PAGE> 32
SHARES OF COMMON STOCK OUTSTANDING AFTER THE RIGHTS OFFERING
Assuming we issue all of the shares of common stock offered in the
rights offering, approximately 21,309,069 shares of common stock will be issued
and outstanding following the rights offering. This would represent a 58.4%
increase in the number of outstanding shares of our common stock. If you do not
exercise your subscription privilege, the percentage of PICO Holdings common
stock that you hold will decrease. Even if you fully exercise your subscription
privilege, your percentage ownership may be diluted, up to as much as
approximately 5.3%, if it is necessary to issue the full 1,314,039 shares under
the additional shares agreement as a result of all shareholders fully exercising
their subscription privileges.
CERTAIN OWNERSHIP LIMITS AND REPORTING REQUIREMENTS
Any person or group that acquires direct or indirect beneficial
ownership of more than 5% of the outstanding shares of our common stock will be
subject to special reporting requirements under Section 13(d) or 13(g) of the
Securities Exchange Act of 1934. Any person or group that acquires direct or
indirect beneficial ownership of more than 10% of the outstanding shares of our
common stock will be subject to special reporting requirements under Section
16(a) of the Exchange Act and may become liable under Section 16(b) of the
Exchange Act for reimbursement of any "short-swing profits." Please consult with
your attorney to see if these rules will apply to you.
STATE AND FOREIGN SECURITIES LAWS
The rights offering is not being made in any state or foreign country in
which it is unlawful to do so, nor are we selling or accepting subscriptions
from holders who are residents of any such state or country. We may delay the
commencement of the rights offering in certain states or other jurisdictions in
order to comply with the securities law requirements of those states or other
jurisdictions. We do not anticipate that there will be any changes in the terms
of the rights offering. We may decline, in our sole discretion, to make
modifications to the terms of the rights offering requested by certain states or
other jurisdictions, in which case shareholders who live in those states or
jurisdictions will not be eligible to participate in the rights offering.
NO RECOMMENDATIONS
We are not making any recommendation as to whether or not you should
exercise your subscription rights. You should make your decision based on your
own assessment of your best interests.
FEDERAL INCOME TAX CONSIDERATIONS
The following discussion is a summary of the material federal income tax
considerations of the rights offering. This summary is based on current law,
which is subject to change at any time, possibly with retroactive effect. This
summary is not a complete discussion of all federal income tax consequences of
the rights offering, and, in particular, may not address federal income tax
consequences applicable to shareholders subject to special treatment under
federal income tax law. In addition, this summary does not address the tax
consequences of the rights offering under applicable state, local or foreign tax
laws. This discussion assumes that your shares of PICO stock and the
subscription rights and shares issued to you pursuant to the rights offering
constitute capital assets.
Receipt and exercise of the subscription rights distributed pursuant to
the rights offering is intended to be nontaxable to shareholders, and the
following summary assumes you will qualify for such nontaxable treatment. We
have not sought, nor do we intend to seek, any ruling from the IRS or an opinion
of counsel related to the tax matters described below.
This discussion is included for your general information only. You
should consult your tax advisor to determine the tax consequences to you of the
rights offering in light of your particular circumstances, including any state,
local and foreign tax consequences.
28
<PAGE> 33
TAXATION OF SHAREHOLDERS
Receipt of a subscription right: You will not recognize any gain or
other income upon receipt of a subscription right.
Tax basis of subscription rights: Your tax basis in each subscription
right will depend on whether you exercise the subscription right or allow the
subscription right to expire.
If you exercise a subscription right, your tax basis in the subscription
right will be determined by allocating the tax basis of your PICO stock on which
the subscription right is distributed between the PICO stock and the
subscription right, in proportion to their relative fair market values on the
date of distribution of the subscription right. However, if the fair market
value of your subscription rights is less than 15% of the fair market value of
your existing shares of PICO stock, then the tax basis of each subscription
right will be deemed to be zero, unless you elect, by attaching an election
statement to your federal income tax return for 2000, to allocate tax basis to
your subscription rights.
If you allow a subscription right to expire, it will be treated as
having no tax basis.
Holding period of subscription rights: Your holding period for a
subscription right will include your holding period for the shares of common
stock upon which the subscription right is issued.
Expiration of subscription rights: You will not recognize any loss upon
the expiration of a subscription right.
Exercise of subscription rights: You generally will not recognize a gain
or loss on the exercise of a subscription right. The tax basis of any share of
common stock that you purchase through the rights offering will be equal to the
sum of your tax basis, if any, in the subscription right exercised and the price
paid for the share. The holding period of the shares of common stock purchased
through the rights offering will begin on the date that you exercise your
subscription rights.
If treated as a taxable distribution: If, contrary to PICO's intent, the
rights offering does not qualify as nontaxable, you would be treated as
receiving a taxable distribution equal to the fair market value of the
subscription rights on their distribution date. The distribution would be taxed
as a dividend to the extent made out of our current or accumulated earnings and
profits; and any excess would be treated first as a return of your basis
(investment) in your PICO stock and then as a capital gain. You would have a tax
basis in the rights equal to the fair market value of the rights on the date of
the rights distribution and your holding period in the rights would begin on the
day following the date of distribution of the rights. Expiration of the
subscription rights would result in a capital loss. You generally will not
recognize gain or loss on the exercise of a subscription right. The tax basis of
any share of common stock that you purchase through the rights offering will be
equal to the sum of your tax basis, if any, in the subscription right exercised
and the price paid for the share. The holding period of the shares of common
stock purchased through the rights offering will begin on the date that you
exercise your subscription rights.
TAXATION OF PICO HOLDINGS
We will not recognize any gain, other income or loss upon the issuance
of the subscription rights, the lapse of the subscription rights, or the receipt
of payment for shares of common stock upon exercise of the subscription rights.
29
<PAGE> 34
LEGAL MATTERS
Gray Cary Ware & Freidenrich LLP will deliver an opinion to us about the
validity of the issuance of the shares of our common stock upon exercise of the
subscription rights.
EXPERTS
The consolidated financial statements and financial statement schedules
for the years ended December 31, 1997 and 1998 incorporated in this prospectus
by reference to our annual report on Form 10-K/A for the year ended December 31,
1998 have been audited by Deloitte & Touche LLP, independent auditors, as stated
in their reports (which expresses an unqualified opinion and includes an
explanatory paragraph relating to the restatement disclosed in Note 22), which
are incorporated herein by reference, and have been so incorporated in reliance
upon the reports of such firm given upon their authority as experts in
accounting and auditing.
The consolidated financial statements and consolidated financial
statement schedules of PICO for the year ended December 31, 1996, incorporated
by reference herein and included in our annual report on Form 10-K/A for the
year ended December 31, 1998, have been audited by PricewaterhouseCoopers LLP,
independent accountants, as set forth in their reports dated April 7, 1997,
except as to the information presented in Note 22 to the consolidated financial
statements, for which the date is January 26, 2000 (which express an unqualified
opinion and include a reference to the restatement disclosed in Note 22),
accompanying such financial statements and financial statement schedules. The
financial statements and financial statement schedules referred to above have
been so incorporated in reliance upon the reports of such firm, which reports
are given upon their authority as experts in accounting and auditing.
The consolidated financial statements for the year ended December 31,
1997 for Global Equity Corporation incorporated in this registration
statement by reference from our annual report on Form 10-K/A for the year ended
December 31, 1998 have been audited by KPMG LLP, chartered accountants, as
stated in their report dated March 17, 1998, which is incorporated herein by
reference, and has been so incorporated in reliance upon the report of such firm
given upon their authority as experts in accounting and auditing.
30
<PAGE> 35
================================================================================
No one (including any salesman or broker) is authorized to provide oral
or written information about this offering that is not included in this
prospectus.
PICO HOLDINGS, INC.
6,546,497 SHARES OF COMMON STOCK
$15.00 PER SHARE
---------------------------
PROSPECTUS
---------------------------
February , 2000
================================================================================
<PAGE> 36
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
Other expenses in connection with the registration of the common stock
hereunder will be substantially as follows (all expenses other than the SEC
Registration Fee and the Nasdaq National Market Listing Fee are estimates):
<TABLE>
<CAPTION>
Company
Item Expense
- ---- -------
<S> <C>
SEC Registration Fee ................. $31,128
Nasdaq National Market Listing Fee ... $17,000
Printing and engraving expenses ...... $ 2,000
Legal fees and expenses .............. $ 5,000
Accounting fees and expenses ......... $10,000
Subscription Agent fees .............. $ 5,000
Miscellaneous ........................ $ 4,872
Total ........................ $75,000
</TABLE>
Item 15. Indemnification of Directors and Officers.
Pursuant to provisions of the California General Corporation Law (the
"CGCL"), Registrant's Articles of Incorporation include a provision which
eliminates the personal liability of its directors to Registrant and its
shareholders for monetary damages to the fullest extent permissible under
California law. This limitation has no effect on a director's liability (i) for
acts or omissions that involve intentional misconduct or a knowing and culpable
violation of law, (ii) for acts or omissions that a director believes to be
contrary to the best interest of Registrant or its shareholders or that involve
the absence of good faith on the part of the director, (iii) for any transaction
from which a director derived an improper benefit, (iv) for acts or omissions
that show a reckless disregard for the director's duty to Registrant or its
shareholders in circumstances in which the director was aware, or should have
been aware, in the ordinary course of performing a director's duties, of a risk
of serious injury to Registrant or its shareholders, (v) for acts or omissions
that constitute an unexcused pattern of inattention that amounts to an
abdication of the director's duty to Registrant or its shareholders, (vi) under
Section 310 of the CGCL (concerning contracts or transactions between the
corporation and a director) or (vii) under Section 316 of the CGCL (concerning a
director's liability for improper distributions, loans and guarantees). The
provision does not eliminate liability of a director for any acts or omissions
which occurred prior to November 18, 1988, the effective date of Registrant's
amended Articles of Incorporation including such provision, and it does not
eliminate or limit the liability of an officer for any act or omission as an
officer, notwithstanding that the officer is also a director or that his or her
actions, if negligent or improper, have been ratified by the Board of Directors.
Further, the provision has no effect on claims arising under federal or state
securities laws and does not affect the availability of injunctions and other
equitable remedies available to Registrant's shareholders for any violation of a
director's fiduciary duty to Registrant or its shareholders. Although the
validity and scope of the legislation underlying the provision have not yet been
interpreted to any significant extent by the California courts, the provision
may relieve directors of monetary liability to Registrant for grossly negligent
conduct, including conduct in situations involving attempted takeovers of
Registrant.
Registrant's Articles of Incorporation also include a section
authorizing Registrant to indemnify its officers, directors and other agents
through bylaw provisions, agreements with such agents, vote of shareholders or
otherwise in excess of the indemnification permitted by Section 317 of the CGCL,
subject only to the limits set forth in Section 204 of the CGCL with respect to
actions for breach of duty to the corporation and its shareholders. The By-Laws
expressly provide that Registrant shall have the right to purchase and maintain
insurance against any liability asserted against or incurred by officers,
directors and other agents, whether or not Registrant would have the power to
indemnify such person against the liability insured against.
II-1
<PAGE> 37
The Registrant has obtained directors and officers liability and company
reimbursement insurance pursuant to three policies currently in effect (the "D&O
Policies") with underwriters at Lloyd's, London-SPMI (" Lloyd's"), Lloyds of
London, Executive Risk Indemnity, Inc. and General Star Indemnity, the limit of
coverage is $10 million with a retention of $500,000. Pursuant to the D&O
Policies, Lloyd's will pay on behalf of directors and officers of the
Registrant, certain losses (a "Loss") incurred as a result of a wrongful act (a
"Wrongful Act") by such persons, for which they are not being indemnified by the
Registrant. In addition, Lloyd's will reimburse the Registrant for Losses over
$1,000,000 incurred as a result of Registrant's indemnification of an officer or
director in connection with a Wrongful Act. However, the D&O Policies provide
that Lloyd's aggregate liability to the Registrant with respect to a single
policy year shall not exceed $2,000,000. The D&O Policies are subject to
customary exclusions.
The Registrant has entered into agreements with its executive officers
and directors to provide indemnity to such persons to the maximum extent
permitted under applicable law.
Section 317 of the California General Corporation law makes provisions
for the indemnification of officers, directors and other corporate agents in
terms sufficiently broad to indemnify such persons, under certain circumstances,
against such liabilities (including reimbursement of expenses incurred) arising
under the Securities Act.
Item 16. Exhibits.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- -------- -----------------------
<S> <C>
5.1 Opinion of Gray Cary Ware & Freidenrich LLP.
23.1 Independent Auditors' Consent - Deloitte & Touche LLP.
23.2 Consent of Independent Accountants - PricewaterhouseCoopers LLP.
23.3 Accountants Consent - KPMG LLP.
23.4 Consent of Gray Cary Ware & Freidenrich LLP (Included in Exhibit 5.1).
24 Power of Attorney (included in the Signature Page contained in Part II
of the Registration statement).
99.1 Standby Commitment and Additional Shares Agreement
99.2 Subscription Agreement
99.3 Letter to Shareholders
99.4 Letter to Securities Dealers
99.5 Letter from Brokers
99.6 Operating Agreement of PICO Equity Investors Management, LLC
99.7 Agreement of Limited Partnership of PICO Equity Investors, L.P.
</TABLE>
II-2
<PAGE> 38
Item 17. Undertakings.
(a) The undersigned Registrant hereby undertakes:
(i) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(a) To include any prospectus required by section 10(a)(3) of
the Securities Act of 1933 (the "Securities Act");
(b) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the
most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental change
in the information set forth in the registration statement.
Notwithstanding the foregoing, any increase or decrease in
volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered)
and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) if,
in the aggregate, the changes in volume and price represent no
more than a 20% change in the maximum aggregate offering price
set forth in the "Calculation of Registration Fee" table in the
effective registration statement;
(c) To include any material information with respect to the plan
of distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement; provided, however, that paragraphs
(a)(l)(i) and (a)(l)(ii) do not apply if the information
required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports tiled by the
Registrant pursuant to Section 13 or Section 15(d) of the
Securities Exchange Act of 1934 that are incorporated by
reference in the registration statement.
(ii) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(iii) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
Registrant's annual report pursuant to section 13(a) or section 15(d) of
the Securities Exchange Act of 1934 that is incorporated by reference in
the registration statement shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering
of such securities at that time shall be deemed to be the initial bona
tide offering thereof.
(c) The undersigned Registrant hereby undertakes to deliver or cause to
be delivered with the prospectus, to each person to whom the prospectus
is sent or given, the latest annual report to security holders that is
incorporated by reference in the prospectus and furnished pursuant to
and meeting the requirements of Rule 14a-3 or Rule 14c-3 under the
Securities Exchange Act of 1934; and, where interim financial
information required to be presented by Article 3 of Regulation S-X are
not set forth in the prospectus, to deliver, or cause to be delivered to
each person to whom the prospectus is sent or given, the latest
quarterly report that is specifically incorporated by reference in the
prospectus to provide such interim financial information.
II-3
<PAGE> 39
(d) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers, and controlling
persons of the Registrant pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against
public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer, or controlling person of the
Registrant in the successful defense of any action, suit, or proceeding)
is asserted by such director, officer, or controlling person in
connection with the securities being registered, the Registrant will,
unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final
adjudication of such issue.
(e) The undersigned Registrant hereby undertakes that:
(i) For the purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus tiled as part
of this registration statement in reliance upon Rule 430A and contained
in a form of prospectus filed by the Registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to
be part of the registration statement as of the time it was declared
effective.
(ii) For the purposes of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-4
<PAGE> 40
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements of filing on Form S-3 and has duly caused this Registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized in the City of San Diego, State of California on February 4, 2000.
PICO Holdings, Inc.
By: /s/ John R. Hart
---------------------------------
John R. Hart
Chief Executive Officer,
President and Director
(PRINCIPAL EXECUTIVE OFFICER)
II-5
<PAGE> 41
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned does hereby make,
constitute and appoint John R. Hart and James F. Mosier and each of them, acting
together or alone, his true and lawful attorneys-in-fact and agents with full
power of substitution, in his name, place and stead to execute on his behalf, in
his capacity as a director and/or officer of PICO HOLDINGS, INC. (the
"Company"), a registration statement on Form S-3 or other appropriate form and
any and all amendments thereto (including post-effective amendments),
registering shares of the common stock of the Company, to be filed with the
Securities and Exchange Commission (the "Commission") pursuant to the Securities
Act and any and all instruments which said attorneys-in-fact and agents deem
necessary or advisable to enable the Company to comply with the Securities Act
and the rules, regulations and requirements of the Commission in respect
thereof, giving and granting to said attorneys-in-fact and agents, and each of
them, acting together or alone, full power and authority to do and perform each
and every act and thing whatsoever necessary or appropriate to be done in and
about the premises as fully to all intents as he might or would do if personally
present at the doing thereof, with full power of substitution and revocation,
hereby ratifying and confirming all that his said attorneys-in-fact or
substitutes may or shall lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed by the following persons in the capacities and on the
date indicated:
February 4, 2000
<TABLE>
<CAPTION>
SIGNATURE TITLE
<S> <C>
/s/ Ronald Langley Chairman of the Board
- --------------------------------
Ronald Langley
/s/ John R. Hart Chief Executive Officer, President
- -------------------------------- and Director
John R. Hart
/s/ Gary W. Burchfield Chief Financial Officer and Treasurer
- -------------------------------- (Chief Accounting Officer)
Gary W. Burchfield
/s/ S. Walter Foulkrod, III, Esq. Director
- --------------------------------
S. Walter Foulkrod, III, Esq.
/s/ Richard D. Ruppert, M.D. Director
- --------------------------------
Richard D. Ruppert, M.D.
/s/ David A. Williams Director
- --------------------------------
David A. Williams
/s/ Carlos C. Campbell Director
- --------------------------------
Carlos C. Campbell
/s/ Robert R. Broadbent Director
- --------------------------------
Robert R. Broadbent
/s/ John D. Weil Director
- --------------------------------
John D. Weil
</TABLE>
<PAGE> 42
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- -------- -----------------------
5.1 Opinion of Gray Cary Ware & Freidenrich LLP.
23.1 Independent Auditors' Consent - Deloitte & Touche LLP.
23.2 Consent of Independent Accountants - PricewaterhouseCoopers LLP.
23.3 Accountants' Consent - KPMG LLP.
23.4 Consent of Gray Cary Ware & Freidenrich LLP (Included in Exhibit
5.1).
24 Power of Attorney (included in the Signature Page contained in Part
II of the Registration statement).
99.1 Standby Commitment and Additional Shares Agreement
99.2 Subscription Agreement
99.3 Letter to Shareholders
99.4 Letter to Securities Dealers
99.5 Letter from Brokers
99.6 Operating Agreement of PICO Equity Investors Management, LLC.
99.7 Agreement of Limited Partnership of PICO Equity Investors, L.P.
- -----------------
<PAGE> 1
EXHIBIT 5.1
[Letterhead of Gray Cary Ware & Freidenrich LLP]
February 4, 2000
Securities and Exchange Commission
Judiciary Plaza
450 Fifth Street, N.W.
Washington, D.C. 20549
RE: PICO HOLDINGS, INC. REGISTRATION STATEMENT ON FORM S-3
Ladies and Gentlemen:
As legal counsel to PICO Holdings, Inc., a California corporation (the
"Company"), we are rendering this opinion in connection with the registration
under the Securities Act of 1933, as amended, of those shares of the Company's
common stock to be issued by the Company upon exercise of rights to purchase
shares of the Company's common stock and the sale of shares of the Company's
common stock under the additional shares agreement as set forth in the
registration statement on form S-3 (the "Registration Statement") to which this
opinion is being filed as Exhibit 5.1 (the "Shares").
We have examined all instruments, documents and records which we deemed
relevant and necessary for the basis of our opinion hereinafter expressed. In
such examination, we have assumed the genuineness of all signatures and the
authenticity of all documents submitted to us as originals and the conformity to
the originals of all documents submitted to us as copies.
We express no opinion with respect to (i) the availability of equitable
remedies, including specific performance or (ii) the effect of bankruptcy,
insolvency, reorganization, moratorium or equitable principles relating to or
limiting creditors' rights generally.
Based on such examination, we are of the opinion that the Shares
identified in the above-referenced Registration Statement will be, upon
effectiveness of the Registration Statement and when sold in accordance with the
Registration Statement and the subscription agreement or the additional shares
agreement, validly authorized, legally issued, fully paid and nonassessable.
We hereby consent to the filing of this opinion as an exhibit to the
above-referenced Registration Statement and to the use of our name wherever it
appears in said Registration Statement, including the Prospectus constituting a
part thereof, as originally filed or as subsequently amended.
Respectfully submitted,
/s/ Gray Cary Ware & Freidenrich
------------------------------------
GRAY CARY WARE & FREIDENRICH LLP
<PAGE> 1
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration statement of
PICO Holdings, Inc. on Form S-3 of our reports dated March 26, 1999, January 26,
2000, as to Note 22 (which expresses an unqualified opinion and includes an
explanatory paragraph relating to the restatement disclosed in Note 22)
appearing in the Annual Report on Form 10-K/A of PICO Holdings, Inc. for the
year ended December 31, 1998 and to the reference to us under the heading
"Experts" in the Prospectus, which is part of this Registration statement.
Deloitte & Touche LLP
San Diego, California
February 4, 2000
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in this registration statement on
Form S-3 of our reports dated April 7, 1997, except as to the information
presented in Note 22 to the consolidated financial statements, for which the
date is January 26, 2000 (which express an unqualified opinion and include a
reference to the restatement disclosed in Note 22), on our audit of the
consolidated financial statements and consolidated financial statement schedules
of PICO Holdings, Inc. for the year ended December 31,1996 included in the
Annual Report on Form 10-K/A for the year ended December 31, 1998. We also
consent to the reference to our Firm under the caption "Experts".
PricewaterhouseCoopers LLP
San Diego, California
February 4, 2000
<PAGE> 1
EXHIBIT 23.3
ACCOUNTANTS' CONSENT
The Board of Directors
Global Equity Corporation
We consent to the incorporation by reference in this Registration Statement
(No. __) on Form S-3 of PICO Holdings, Inc. of our report dated March 17, 1998
relating to the consolidated statement of financial position of Global Equity
Corporation as at December 31, 1997, and the related consolidated statements of
operations, deficit and changes in financial position for the year then ended,
which report appears in the Annual Report on Form 10-K/A of PICO Holdings, Inc.
for the year ended December 31, 1998 and to the reference to our firm under the
heading "Experts" in the prospectus.
"KPMG LLP"
Chartered Accountants
Toronto, Canada
February 2, 2000
<PAGE> 1
EXHIBIT 99.1
AGREEMENT
This Agreement is between PICO Holdings, Inc. ("PICO"), a corporation
formed under the laws of California with offices at 875 Prospect Street, Suite
301, La Jolla, California 92037 and PICO Equity Investors, L.P. ("PEI"), a
limited partnership formed under the laws of California, with its offices at 875
Prospect Street, Suite 301, La Jolla, California 92037.
On December 16, 1999, the Board of Directors of PICO approved a rights
offering to PICO's shareholders. Under the terms of the rights offering, each
PICO shareholder will be given the right to buy one share of PICO common stock
for each two shares of PICO common stock held by said shareholder, at the price
of $15.00 per share.
PICO and PEI hereby agree that in the event not all shareholders
exercise their rights pursuant to the rights offering, PEI will acquire up to
$50 million of PICO stock through the exercise of those unsubscribed rights. In
the event that there is not $50 million of stock available from such
unsubscribed rights, PICO agrees to sell shares of PICO to PEI in a private
placement at $15.00 per share, so that the total number of shares purchased by
PEI at $15.00 per share will equal $50 million. In the event that PEI purchases
shares in a private placement PICO hereby agrees to grant PEI standard demand
registration rights and piggyback registration rights.
PICO hereby agrees to pay and be responsible for any and all of the
expenses incurred by PICO Investors Management, LLC and PEI and to pay and be
responsible for any and all future expenses incurred by PICO Equity Investors
Management, LLC and PEI, subject to prior approval by PICO which shall not
unreasonably be withheld.
PICO HOLDINGS, INC. PICO EQUITY INVESTORS, L.P.
____________________________________ ___________________________________
By: James F. Mosier By: John R. Hart, Member
Title: General Counsel and Secretary PICO Equity Investors Management, LLC
Date: December 16, 1999 General Partner
Date: December 16, 1999
<PAGE> 1
EXHIBIT 99.2
Expiration Date: March 27, 2000
______________________________________ unless extended
Number of Shares You May Subscribe For at the sole discretion
of the Company
PICO HOLDINGS, INC.
SUBSCRIPTION AGREEMENT
FOR RIGHTS OFFERING OF SHARES OF COMMON STOCK
PICO Holdings, Inc. (the "Company") is conducting a rights offering
which entitles holders of the Company's common stock, $.001 par value per share
(the "Common Stock"), as of the close of business on March 1, 2000 (the "Record
Date") to purchase for $15.00 per share one new share of Common Stock for every
two shares of Common Stock held on the Record Date. The number of shares of
Common Stock that you are entitled to purchase at the subscription price of
$15.00 per share (the "Subscription Privilege") is indicated above. If any
shares of Common Stock are not purchased by the shareholders pursuant to their
Subscription Privileges, an investment partnership may purchase up to 3,333,333
shares of Common Stock at $15.00 per share (for an aggregate purchase price of
up to $50 million). No fractional rights or cash in lieu thereof will be issued
or paid.
FOR A MORE COMPLETE DESCRIPTION OF THE TERMS AND CONDITIONS OF THE
RIGHTS OFFERING, PLEASE REFER TO THE PROSPECTUS DATED __________, 2000 (THE
"PROSPECTUS"), WHICH IS INCORPORATED HEREIN BY REFERENCE. HOLDERS OF RIGHTS
SHOULD REVIEW THE PROSPECTUS BEFORE EXERCISING THEIR RIGHTS. Corporate Investor
Communications, Inc., PICO's Information Agent, has agreed to provide services
to PICO in connection with the rights offering. If you require assistance,
please contact our Information Agent toll-free at 1-877-977-6190. Banks and
brokers, please call 201-896-1900.
To subscribe for shares of Common Stock, a shareholder must present to
Harris Trust Company of New York, the Subscription Agent, prior to 5:00 p.m.,
Eastern Standard Time, on the Expiration Date, a properly completed and executed
copy of this Subscription Agreement, rights certificate, together with a money
order or check drawn on a bank located in the United States of America and
payable to "Harris Trust Company of New York, as Subscription Agent" or a wire
transfer of funds for an amount equal to the number of shares subscribed for
multiplied by $15.00. ANY RIGHTS NOT EXERCISED PRIOR TO THE EXPIRATION DATE WILL
BE NULL AND VOID. ANY SUBSCRIPTION FOR SHARES OF COMMON STOCK IN THE RIGHTS
OFFERING MADE HEREBY IS IRREVOCABLE.
EXERCISE AND SUBSCRIPTION: The undersigned hereby irrevocably subscribes
for the number of shares of Common Stock indicated below, on the terms and
subject to the conditions specified in the Prospectus, receipt of which is
hereby acknowledged.
a. Number of shares subscribed for pursuant to the
Subscription Privilege: _____ X $15.00 = $_________
payment.
<PAGE> 2
b. METHOD OF PAYMENT (CHECK AND COMPLETE APPROPRIATE
BOX(ES))
[ ] Check or money order payable to "Harris Trust Company of
New York, as Subscription Agent"; or
[ ] Wire transfer directed to Chase Manhattan Bank, New
York, NY, ABA No. 021000021 for A/C Harris Trust Company
of New York, Subscription Agent for PICO Holdings, Inc.
A/C No. 617-999988 - Attention: Harris Trust Company of
New York.
If the aggregate amount enclosed or transmitted is insufficient to
purchase the total number of shares included in line (a), or if the number of
shares being subscribed for is not specified, the holder of this Subscription
Agreement shall be deemed to have subscribed for the maximum amount of shares
that could be subscribed for upon payment of such amount enclosed or
transmitted. To the extent any portion of the aggregate subscription price
enclosed or transmitted remains after the foregoing procedure, those excess
funds shall be returned by mail to the subscriber without interest as soon as
practicable.
IF THE UNDERSIGNED DOES NOT MAKE FULL PAYMENT OF ANY AMOUNTS DUE, THE
COMPANY RESERVES THE RIGHT TO (i) APPLY ANY PAYMENT ACTUALLY RECEIVED BY IT
TOWARD THE PURCHASE OF THE GREATEST NUMBER OF SHARES WHICH COULD BE ACQUIRED BY
THE UNDERSIGNED UPON EXERCISE OF THE UNDERSIGNED'S RIGHTS; AND/OR (ii) EXERCISE
ANY AND ALL OTHER RIGHTS AND REMEDIES TO WHICH IT MAY BE ENTITLED.
Subscriber's Signature:
--------------------------------
Name (please print):
--------------------------------
Telephone No.: ( )
--------------------------------
Unless indicated below, shares purchased will be sent to the record address of
the shareholder:
--------------------------------
--------------------------------
--------------------------------
<PAGE> 3
PICO HOLDINGS, INC.
RIGHTS OFFERING
INSTRUCTIONS FOR COMPLETING THE SUBSCRIPTION AGREEMENT
The enclosed Subscription Agreement entitles you to purchase the number
of shares of common stock, no par value (the "Common Stock"), of PICO Holdings,
Inc. (the "Company") as set forth in the Subscription Agreement.
To subscribe for shares of Common Stock, you must present to Harris
Trust Company of New York (the "Subscription Agent") prior to 5:00 p.m., Eastern
Standard Time, on March 27, 2000, a properly completed and executed Subscription
Agreement, rights certificate, and a money order or check drawn on a bank
located in the United States of America and payable to "Harris Trust Company of
New York, as Subscription Agent" or a wire transfer of funds for an amount equal
to the number of shares subscribed for multiplied by the subscription price of
$15.00 per share.
As soon as practicable following the Expiration Date and after payment
for any shares of Common Stock subscribed for has cleared (which clearance may
take up to 15 days from receipt of the payment), subscribers will receive from
the Subscription Agent stock certificates for the number of shares of Common
Stock acquired.
<PAGE> 1
EXHIBIT 99.3
PICO HOLDINGS, INC
875 Prospect Avenue, Suite 301
La Jolla, CA 92037
Dear Shareholder: _________, 2000
On behalf of the Board of Directors of PICO Holdings, Inc. (the
"Company"), we are pleased to provide details on the Company's rights offering
to purchase shares of the Company's common stock, $.001 par value (the "Common
Stock"). The shares of Common Stock are being offered at the subscription price
of $15.00 per share.
Each beneficial owner of Common Stock has the right to purchase one
share of Common Stock for every two shares of the Common Stock that he or she
owned on March 1, 2000. All fractional shares will be rounded up to the nearest
whole number.
We have enclosed copies of the following documents:
1. the Prospectus;
2. the Subscription Agreement;
3. the "Instructions for Completing the Subscription Agreement";
4. a return envelope addressed to Harris Trust Company of New York,
the Subscription Agent;
5. Rights certificate;
6. Substitute Form W-9; and
7. Guidelines for certification of taxpayer identification number.
The enclosed Prospectus describes the rights offering and the procedure
to follow if you choose to exercise your rights. Please read the Prospectus and
other enclosed materials carefully.
Your prompt action is requested. The rights offering will expire at 5:00
p.m., Eastern Standard Time, on March 27, 2000, unless extended by the Company
in its sole discretion (the "Expiration Date").
To exercise your rights, a properly completed and executed Subscription
Agreement, rights certificate, and payment in full for all of the shares
purchased must be delivered to the Subscription Agent as indicated in the
Prospectus prior to 5:00 p.m., Eastern Standard Time, on the Expiration Date.
Corporate Investor Communications, Inc., PICO's Information Agent, has
agreed to provide services to PICO in connection with the rights offering. If
you require assistance, please contact our Information Agent toll-free at
1-877-977-6190. Banks and brokers, please call 201-896-1900.
<PAGE> 2
Also, Corporate Investor Communications, Inc., our information agent
for the rights offering, has agreed to provide services to PICO in connection
with the rights offering. If you require assistance please contact our
Information Agent toll-free at 1-877-977-6190. Banks and brokers should call
(201) 896-1900.
We are pleased to offer you this opportunity and hope that you will
consider a further investment in the Company.
Sincerely,
PICO Holdings, Inc.
<PAGE> 1
EXHIBIT 99.4
PICO HOLDINGS, INC
875 Prospect Avenue, Suite 301
La Jolla, CA 92037
___________, 2000
To Securities Dealers, Commercial Banks,
Trust Companies and Other Nominees:
RE: RIGHTS OFFERING FOR SHARES OF COMMON STOCK OF PICO HOLDINGS, INC.
PICO Holdings, Inc. (the "Company") is offering, upon the terms and
subject to the conditions set forth in the enclosed Prospectus dated __________,
2000 (the "Prospectus"), rights to purchase shares of its common stock, $.001
par value (the "Common Stock"), to holders of record ("Holders") of its Common
Stock on March 1, 2000 (the "Record Date").
Pursuant to the rights offering, each Holder will have the right to
purchase one share of Common Stock for every two shares of Common Stock held by
such Holder on the Record Date at the subscription price of $15.00 per share.
We are asking you to contact your clients, for whom you hold shares of
Common Stock registered in your name or in the name of your nominee or who hold
shares of Common Stock registered in their own names, to obtain instructions as
to whether your clients would like you to purchase shares of our common stock
pursuant to the rights offering.
We have enclosed copies of the following documents:
1. the Prospectus;
2. "Instructions for Completing the Subscription Agreement";
3. the Subscription Agreement;
4. a form of a letter which may be sent to your clients for whose
accounts you hold shares of Common Stock registered in your name
or the name of your nominee;
5. a return envelope addressed to Harris Trust Company of New York,
as Subscription Agent;
6. Substitute Form W-9;
7. Rights certificate; and
8. Guidelines for certification of taxpayer identification number.
<PAGE> 2
Your prompt action is requested. The rights offering will expire at 5:00
p.m., Eastern Standard Time, on March 27, 2000, unless extended by the Company
in its sole discretion (the "Expiration Date").
To participate in the rights offering, properly completed and executed
Subscription Agreements, rights certificates, and payments in full for all
shares of Common Stock purchased must be delivered to the Subscription Agent as
indicated in the Subscription Agreement and the Prospectus prior to 5:00 p.m.,
Eastern Standard Time, on the Expiration Date.
Corporate Investor Communications, Inc., PICO's Information Agent, has
agreed to provide services to PICO in connection with the rights offering. If
you require assistance, please contact our Information Agent toll-free at
1-877-977-6190. Banks and brokers, please call 201-896-1900.
Very truly yours,
PICO Holdings, Inc.
NOTHING HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU OR ANY PERSON
AS AN AGENT OF THE COMPANY OR THE SUBSCRIPTION AGENT, OR AUTHORIZE YOU OR ANY
OTHER PERSON TO MAKE ANY STATEMENTS ON BEHALF OF EITHER OF THEM WITH RESPECT TO
THE RIGHTS OFFERING, EXCEPT FOR STATEMENTS EXPRESSLY MADE IN THE PROSPECTUS.
<PAGE> 1
EXHIBIT 99.5
[FORM OF LETTER FROM BROKERS AND OTHER NOMINEES]
PICO HOLDINGS, INC.
RIGHTS OFFERING
To Our Clients:
Enclosed for your consideration are a prospectus, dated ___________,
2000 (the "Prospectus"), and an instruction form (the "Instruction Form")
relating to the rights offering by PICO Holdings, Inc. (the "Company") of rights
to purchase shares of its common stock, $.001 par value ("Common Stock"), to
holders of record ("Holders") of Common Stock on March 1, 2000 (the "Record
Date").
Pursuant to the rights offering, each Holder is entitled to purchase one
share of Common Stock for every two shares of Common Stock held by such Holder
on the Record Date at the subscription price of $15.00 per share (the
"Subscription Privilege"). Holders are entitled to subscribe for all or any
portion of the shares underlying their Subscription Privilege.
The materials enclosed are being forwarded to you as the beneficial
owner of shares of Common Stock carried by us in your account but not registered
in your name. Exercises of subscription rights may only be made by us as the
Holder of Record and pursuant to your instructions.
Accordingly, we request instructions as to whether you wish us to
subscribe for any Shares for which you are entitled to subscribe for pursuant to
the terms and conditions set forth in the enclosed Prospectus. HOWEVER, WE URGE
YOU TO READ THESE DOCUMENTS CAREFULLY BEFORE INSTRUCTING US TO EXERCISE ANY
SUBSCRIPTION RIGHTS.
Your instructions to us should be forwarded as promptly as possible in
order to permit us to exercise the subscription rights on your behalf in
accordance with the provisions of the rights offering. The rights offering will
expire at 5:00 p.m., Eastern Standard Time, on March 27, 2000, unless extended
by the Company in its sole discretion. ONCE YOU HAVE EXERCISED YOUR SUBSCRIPTION
RIGHTS, YOU MAY NOT REVOKE YOUR ELECTION FOR ANY REASON.
If you wish to have us exercise, on your behalf, your right to purchase
shares of Common Stock for which you are entitled to subscribe, please so
instruct us by completing, executing, detaching and returning to us, and not the
Subscription Agent, the attached Instruction Form along with proper payment for
the number of shares for which you are subscribing at the subscription price.
Corporate Investor Communications, Inc., PICO's Information Agent, has
agreed to provide services to PICO in connection with the rights offering. If
you require assistance, please contact our Information Agent toll-free at
1-877-977-6190. Banks and brokers, please call 201-896-1900.
<PAGE> 2
PICO Holdings, Inc.
Instructions by Beneficial Owners to Brokers and
Other Nominees Regarding Subscriptions for Common Stock
Pursuant to Rights Offering
The undersigned acknowledges receipt of your letter and the enclosed
materials referred to therein relating to the offering of rights to purchase
shares of common stock, $.001 par value (the "Common Stock"), of PICO Holdings,
Inc. (the "Company").
This will instruct you on whether to purchase the Common Stock
distributed with respect to the Company's Common Stock held by you for the
account of the undersigned, pursuant to the terms and conditions set forth in
the Prospectus.
box 1. Please do not exercise my rights to purchase shares of Common
Stock of the Company.
box 2. Please exercise my rights to purchase shares of Common Stock of
the Company.
NUMBER OF SHARES SUBSCRIPTION PRICE PAYMENT
- ---------------- ------------------ -------
___________________ X $15.00 = $_________
box 3. Payment in the following amount is enclosed:
$____________________.
box 4. Please deduct payment from the following account maintained
by you:
__________________________ ____________________________
Type of Account Account No.
Date:__________________________, 2000 Signature(s) of Beneficial Owner:
Address:___________________________ ___________________________________
___________________________________
Print Name:________________________
Telephone (day):___________________
(evening)__________________ Title or Capacity:_________________
(if applicable)
<PAGE> 1
EXHIBIT 99.6
OPERATING AGREEMENT
OF
PICO EQUITY INVESTORS MANAGEMENT, LLC
THIS OPERATING AGREEMENT is entered into as of the Effective Date (as
defined below) by (i) Ronald Langley and (ii) John R. Hart and (iii) John D.
Weil (collectively, the "Members"), by which the parties form Pico Equity
Investors Management, LLC (the "Company").
The Members hereby agree as follows:
1. Formation of Company.
a. The parties hereto form the Company as a limited
liability company under and pursuant to the Beverly-Killea Limited Liability
Company Act, Cal. Corp. Code Sections 17000, et seq. (the "Act").
b. The Members shall file Articles of Organization with
the California Secretary of State, pursuant to the provisions of the Act. The
Effective Date shall be the date such Articles of Organization are filed.
2. Name of Company. The name of the Company shall be Pico Equity
Investors Management, LLC.
3. Management by Members.
a. The Company shall be managed by its Members who shall
have all of the powers and authority as outlined in Sections 17150 to 17158 of
the Act.
<PAGE> 2
b. In the event a Member ceases to be actively involved
in the management of the Company (the "Inactive Member"), the Membership
Interest of the Inactive Member shall forfeited and vested in a successor member
elected by the remaining members as soon as practicable.
4. Principal Place of Business. The principal place of business
of the Company shall be 875 Prospect Street, Suite 301, La Jolla, CA 92037-4264,
or such other place in the State of California as the Members shall determine.
5. Officers. The Members may delegate their powers and authority
to the officers of the Company. The officers of the Company shall be:
Chairman Ronald Langley
President John R. Hart
Secretary/Chief Financial Officer John D. Weil
6. The Members.
<TABLE>
<CAPTION>
Percentage
Interest
--------
<S> <C> <C>
a. Ronald Langley
c/o PICO Holdings, Inc.
875 Prospect Street, Suite 301 33.3%
La Jolla, CA 92037-4264
b. John R. Hart
c/o PICO Holdings, Inc. 33.3%
875 Prospect Street, Suite 301
La Jolla, CA 92037-4264
c. John D. Weil 33.3%
c/o PICO Holdings, Inc.
875 Prospect Street, Suite 301
La Jolla, CA 92037-4264
</TABLE>
-2-
<PAGE> 3
7. Term of the Company. The term of the Company shall commence
as of the date the Articles of Organization are filed with the California
Secretary of State, and shall continue until December 31, 2010, at which time it
shall be dissolved and wound up unless such date is extended by the written
consent of the Members or unless the Company is earlier dissolved by operation
of law, mutual agreement of the Members or judicial decree.
8. Purposes.
a. The primary purpose of the Company shall be to (i)
act as the general partner of PICO Investors, L.P. and/or (ii) engage in any
other business or activity which a limited liability company may carry on under
the laws of the State of California.
b. The Company may execute, deliver and perform all
contracts and other undertakings and engage in all activities and transactions
as may in the opinion of the officers be necessary or advisable to carry out the
foregoing objects and purposes.
9. Capital Contributions.
a. The Members shall make initial capital contributions
as described on Exhibit A.
b. Additional capital contributions shall be made at the
times and in such amounts as shall be mutually agreed upon by the Members.
c. Capital accounts shall be maintained in accordance
with Internal Revenue Code ("Code") Section 704(b).
-3-
<PAGE> 4
10. Income and Losses. All income and losses of the Company
shall be allocated to the Members in proportion to their percentage interests.
All allocations of income and loss shall be made in a manner that complies with
the Treasury Regulations under Code Section 704.
11. Distributions of Cash and Other Property. Any distributions
of cash or other property from the Company shall be made to the Members in
proportion to their percentage interests. On dissolution, distributions shall be
made to the Members in proportion to their positive capital account balances. No
Member shall be obligated to restore a negative balance in such Member's capital
account.
12. Amendment of the Operating Agreement. This Operating
Agreement may be amended, in whole or in part, upon the written consent of all
Members.
13. Governing Law. This Operating Agreement, and the rights of
the Members hereunder, shall be governed by and construed in accordance with the
laws of the State of California as they are applied to contracts entered into
between residents of California.
14. Counterparts. This Operating Agreement may be executed in
any number of identical counterparts, each of which shall be deemed to be an
original, and all of which together shall be deemed to be one and the same
instrument when each party has signed one (1) such counterpart.
-4-
<PAGE> 5
IN WITNESS WHEREOF, the parties have executed this Agreement as
of the date first above written.
______________________________________ ______________________________________
Ronald Langley John R. Hart
______________________________________
John D. Weil
-5-
<PAGE> 6
EXHIBIT A
CAPITAL CONTRIBUTIONS
<TABLE>
<CAPTION>
Member Contribution
------ ------------
<S> <C>
Ronald Langley $1,000.00 cash
John R. Hart $1,000.00 cash
John D. Weil $1,000.00 cash
</TABLE>
<PAGE> 1
EXHIBIT 99.7
AGREEMENT
OF LIMITED PARTNERSHIP
OF
PICO EQUITY INVESTORS, L.P.
THIS SECURITY HAS NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE
COMMISSION UNDER THE SECURITIES ACT OF 1933, 15 U.S.C. Section 15b ET SEQ., AS
AMENDED (THE "FEDERAL ACT"), IN RELIANCE UPON ONE (1) OR MORE EXEMPTIONS FROM
THE REGISTRATION REQUIREMENTS OF THE FEDERAL ACT. IN ADDITION, THE ISSUANCE OF
THIS SECURITY HAS NOT BEEN QUALIFIED UNDER THE CALIFORNIA CORPORATE SECURITIES
LAW OF 1968 OR ANY OTHER STATE SECURITIES LAWS (COLLECTIVELY, THE "STATE ACTS"),
IN RELIANCE UPON ONE (1) OR MORE EXEMPTIONS FROM THE REGISTRATION PROVISIONS OF
THE STATE ACTS. IT IS UNLAWFUL TO CONSUMMATE A SALE OR OTHER TRANSFER OF THIS
SECURITY OR ANY INTEREST THEREIN TO, OR TO RECEIVE ANY CONSIDERATION THEREFOR
FROM, ANY PERSON OR ENTITY WITHOUT THE OPINION OF COUNSEL FOR THE COMPANY THAT
THE PROPOSED SALE OR OTHER TRANSFER OF THIS SECURITY DOES NOT AFFECT THE
AVAILABILITY TO THE COMPANY OF SUCH EXEMPTIONS FROM REGISTRATION AND
QUALIFICATION, AND THAT SUCH PROPOSED SALE OR OTHER TRANSFER IS IN COMPLIANCE
WITH ALL APPLICABLE STATE AND FEDERAL SECURITIES LAWS. THE TRANSFER OF THIS
SECURITY IS FURTHER RESTRICTED UNDER THE TERMS OF THIS AGREEMENT.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
SECTION 1. NAME AND PRINCIPAL EXECUTIVE OFFICE...........................................1
1.1 Name..........................................................................1
1.2 Certificate of Limited PARTNERSHIP............................................1
1.3 Fictitious Business Name Statement............................................1
SECTION 2. PURPOSES AND NATURE OF BUSINESS...............................................1
2.1 Purpose.......................................................................1
2.2 Limitations...................................................................2
SECTION 3. TERM..........................................................................2
SECTION 4. CAPITAL CONTRIBUTIONS AND ACCOUNTS............................................2
4.1 Capital Contributions in General..............................................2
4.2 Initial Capital Contributions.................................................2
4.3 Capital Accounts of PARTNERS..................................................3
4.4 Withdrawal of Capital.........................................................3
4.5 Interest on Capital Accounts..................................................3
4.6 Deficit Capital Accounts......................................................4
4.7 Optional Adjustments to Capital Accounts......................................4
4.8 Representations and Warranties of Each LIMITED PARTNER........................4
SECTION 5. DISTRIBUTIONS.................................................................5
5.1 Distribution of Cash Available for Distribution and Net Proceeds of
Sale, Refinancing or Other Disposition........................................5
5.2 Distribution Upon Termination of the PARTNERSHIP..............................5
5.3 Valuation and Distribution of Non-Cash Distributions..........................6
5.4 Discretion in Making Distributions............................................6
5.5 Limitation on Other Distributions.............................................6
5.6 Tax Distribution..............................................................6
SECTION 6. ALLOCATIONS OF NET INCOME, NET LOSS AND GAIN..................................7
6.1 Allocation of Net Loss........................................................7
6.2 Allocation of Net Income and Gain.............................................7
6.3 Qualified Income Offset.......................................................7
6.4 Minimum Gain Chargeback.......................................................8
6.5 Tax Allocations Under Code Section 704(c).....................................8
6.6 Accounting With Reference to Issuance or Transfer of PARTNERSHIP
Interest......................................................................8
6.7 Allocation to a Trust or an Estate............................................9
SECTION 7. TAX ELECTIONS.................................................................9
7.1 Fiscal Year...................................................................9
7.2 Basis Adjustment..............................................................9
7.3 Elections.....................................................................9
</TABLE>
-i-
<PAGE> 3
TABLE OF CONTENTS
(continued)
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
7.4 Tax Matters Partner...........................................................9
SECTION 8. ADMISSION OF ADDITIONAL PARTNERS.............................................10
SECTION 9. MANAGEMENT...................................................................10
9.1 In General...................................................................10
9.2 Specific Authority...........................................................10
9.3 Time Devoted to Business.....................................................11
9.4 Power to Employ and Contract With Affiliated Entities........................12
9.5 PARTNERSHIP Expenses.........................................................12
9.5.1 Reimbursable Expenses.................................................12
9.5.2 Non-Reimbursable Expenses.............................................12
9.6 Fiduciary Duty...............................................................12
9.7 Competing Ventures...........................................................12
9.8 Fees.........................................................................12
9.9 Investment Limitations.......................................................12
9.10 ERISA Participation..........................................................13
SECTION 10. LIABILITY AND INDEMNIFICATION................................................15
10.1 GENERAL PARTNER..............................................................15
SECTION 11. VOTING RIGHTS AND MEETINGS...................................................16
11.1 Approval Rights of LIMITED PARTNERS..........................................16
11.2 Meetings of PARTNERS.........................................................16
11.2.1 Call..................................................................16
11.2.2 Location..............................................................16
11.2.3 Waiver................................................................16
11.2.4 Proposal..............................................................17
11.2.5 Quorum................................................................17
11.2.6 Written Consent.......................................................17
11.2.7 Proxies...............................................................17
11.2.8 Record Date...........................................................18
11.2.9 Notice of Meeting.....................................................18
SECTION 12. TRANSFER OF INTERESTS OF PARTNERS............................................19
12.1 Additional PARTNERS..........................................................19
12.2 Assignment by PARTNERS.......................................................19
12.2.1 Unauthorized Assignments Void.........................................19
12.2.2 GENERAL PARTNER'S Right of First Refusal..............................20
12.2.3 Conditions to Assignment..............................................20
12.3 Substituted LIMITED PARTNER..................................................20
12.4 Payment of Expenses..........................................................20
12.5 Substitution Instrument......................................................20
12.6 No Dissolution Upon Assignment...............................................21
</TABLE>
-ii-
<PAGE> 4
TABLE OF CONTENTS
(continued)
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
12.7 Withdrawal of LIMITED PARTNER................................................21
12.8 Units of GENERAL PARTNER.....................................................21
SECTION 13. AMENDMENT AND POWER OF ATTORNEY..............................................21
13.1 Amendment by PARTNERS........................................................21
13.2 Amendment by GENERAL PARTNER.................................................21
13.3 Power of Attorney............................................................21
13.4 Additional Instruments.......................................................22
SECTION 14. RECORDS, REPORTS AND BANK ACCOUNTS...........................................22
14.1 Records......................................................................22
14.2 Amendments...................................................................23
14.3 Tax Information..............................................................23
14.4 Financial Information........................................................23
SECTION 15. DISSOLUTION AND TERMINATION OF THE PARTNERSHIP...............................24
15.1 Events of Dissolution........................................................24
15.2 Continuation by LIMITED PARTNERS.............................................24
15.3 The PARTNERSHIP Interest of a Former GENERAL PARTNER.........................24
15.4 Procedure on Death, Bankruptcy, Dissolution or Incompetency of a
LIMITED PARTNER..............................................................25
15.5 Lack of Election to Continue and Termination.................................25
15.6 Time for Liquidation.........................................................25
15.7 No Liability for Return of Capital...........................................25
SECTION 16. GENERAL PROVISIONS...........................................................26
16.1 Notices......................................................................26
16.2 Survival of Rights...........................................................26
16.3 Construction.................................................................26
16.4 Section Headings.............................................................26
16.5 Agreement in Counterparts....................................................26
16.6 Governing Law................................................................26
16.7 Time.........................................................................26
16.8 Additional Documents.........................................................26
16.9 Validity.....................................................................26
16.10 Pronouns.....................................................................27
16.11 Descriptions.................................................................27
16.12 Arbitration..................................................................27
16.13 Partition....................................................................27
16.14 Representative Capacity; Trusts..............................................27
16.15 Joint Ownership..............................................................27
</TABLE>
-iii-
<PAGE> 5
TABLE OF CONTENTS
(continued)
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
16.16 Valuation of Non-Cash Assets.................................................28
16.16.1 Real Property.......................................................28
16.16.2 Marketable Securities...............................................28
16.16.3 Other Assets........................................................28
SECTION 17. DEFINITIONS..................................................................28
</TABLE>
-iv-
<PAGE> 6
AGREEMENT
OF LIMITED PARTNERSHIP
OF
PICO EQUITY INVESTORS, L.P.
THIS AGREEMENT OF LIMITED PARTNERSHIP (the "Agreement") is made and
entered into as of the Effective Date by and between (i) PICO Equity Investors
Management, LLC, a California limited liability company, (the "GENERAL
PARTNER"), and (ii) the persons listed on the signature pages hereof, as LIMITED
PARTNERS, for the purpose of forming a limited partnership under the laws of the
State of California and upon the terms and conditions hereafter set forth.
Certain capitalized terms used in this Agreement are defined in Section 17
below.
NOW, THEREFORE, the parties hereto agree as follows:
AGREEMENT
SECTION 1. NAME AND PRINCIPAL EXECUTIVE OFFICE.
1.1 Name. The name of the PARTNERSHIP is PICO Equity Investors, L.P..
The principal executive office of the PARTNERSHIP is 875 Prospect Street, Suite
301, La Jolla, California 92037-4264, unless changed by the GENERAL PARTNER, in
its sole and absolute discretion, with written notice given to the other
PARTNER(S) of such change.
1.2 Certificate of Limited PARTNERSHIP. The GENERAL PARTNER shall file a
Certificate of Limited PARTNERSHIP (the "Certificate") in the form and manner
required by law. Within thirty (30) days of the occurrence of any event
affecting the accuracy of the Certificate or if required by law, the GENERAL
PARTNER shall cause an amendment to the Certificate to be filed in the form and
manner required by law.
1.3 Fictitious Business Name Statement. The GENERAL PARTNER is
authorized to file and publish a Fictitious Business Name Statement for the
PARTNERSHIP in any jurisdiction it deems appropriate.
SECTION 2. PURPOSES AND NATURE OF BUSINESS.
2.1 Purpose. The purposes of the PARTNERSHIP and the business to be
carried on by it, subject to the limitations contained elsewhere in this
Agreement, are:
(a) To raise a minimum of Fifty Million Dollars
($50,000,000) and a maximum of One Hundred Million Dollars ($100,000,000) to
underwrite a common stock rights offering to the shareholders of PICO Holdings,
Inc. ("PICO") of between Seventy-Five Million Dollars ($75,000,000) and One
Hundred and Fifty Million Dollars ($150,000,000) and at
-1-
<PAGE> 7
a price of not more than the lesser of (i) Eighteen Dollars ($18.00) per share
or (ii) the Closing Average (as defined below). The PARTNERSHIP will commit its
cash assets to acquire all available shares of PICO common stock (the
"Property") not acquired by PICO shareholders in a rights offering undertaken
within six months of the establishment of the PARTNERSHIP. For the purposes of
this Section 2.1, the Closing Average shall mean average closing price of PICO
common stock during the ten (10) trading days preceding the day that the rights
offering is priced.
(b) To acquire, hold, manage, invest, reinvest, monitor,
sell, exchange, transfer or otherwise dispose of the Property;
(c) To hold, manage, invest, reinvest, monitor, sell,
transfer, exchange or otherwise dispose of those other assets which may be
acquired by the PARTNERSHIP; and
(d) To carry on any other activities necessary to, in
connection with or incidental to the accomplishment of the foregoing purposes of
the PARTNERSHIP.
2.2 Limitations. The PARTNERSHIP shall not purchase the Property unless
it is able to invest at least Fifty Million Dollars ($50,000,000). Without the
express approval of the LIMITED PARTNERS holding 75% of the Units held by all
LIMITED PARTNERS, the PARTNERSHIP shall neither (a) incur indebtedness nor (b)
engage in any business other than acquiring, holding, selling, distributing to
PARTNERS or otherwise disposing of the Property.
SECTION 3. TERM.
The PARTNERSHIP shall commence on the Effective Date and shall continue
until the tenth (10th) anniversary of the Effective Date, unless terminated
earlier in accordance with the dissolution and termination provisions of this
Agreement, or by law.
SECTION 4. CAPITAL CONTRIBUTIONS AND ACCOUNTS.
4.1 Capital Contributions in General. The capital of the PARTNERSHIP
shall consist of the initial capital contributions of the PARTNERS pursuant to
Section 4.2 and any additional capital contributions pursuant to Section 4.6.
The GENERAL PARTNER and the LIMITED PARTNERS shall each receive one (1) Unit for
every One Hundred Dollars ($100.00) contributed to the PARTNERSHIP.
4.2 Initial Capital Contributions. Upon 10 days notice from the GENERAL
PARTNER, the PARTNERS shall make cash capital contributions to the PARTNERSHIP,
and receive Units in the PARTNERSHIP, as described on the signature page. The
obligation of the LIMITED PARTNERS to make such capital contribution shall be
contingent upon (i) receipt of an opinion of counsel in form and substance
reasonably satisfactory to the LIMITED PARTNER as to the due formation and tax
status of the PARTNERSHIP and (ii) a certificate from the GENERAL PARTNER and
PICO that the materials provided in connection with the rights offering of the
Property are true, correct and complete in all material respects and that such
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capital contributions are necessary to enable the PARTNERSHIP to purchase the
Property in accordance with the limitations set forth in this Agreement.
4.3 Capital Accounts of PARTNERS. An individual capital account shall be
determined and maintained for each PARTNER in accordance with Regulations
Section 1.704-1(b)(2)(iv), which provides that a PARTNER's capital account shall
be increased by (i) the amount of cash contributed to the PARTNERSHIP by such
PARTNER, (ii) the Fair Market Value of Property contributed by such PARTNER to
the PARTNERSHIP (net of liabilities secured by such contributed Property that
the PARTNERSHIP is considered to assume or take subject to under Code Section
752), and (iii) any PARTNERSHIP Net Income or Gain (or item thereof) allocated
to such PARTNER (including income and gain exempt from tax). A PARTNER's capital
account shall be decreased by (i) the amount of cash distributed by the
PARTNERSHIP to such PARTNER, (ii) the Fair Market Value of Property distributed
to such PARTNER by the PARTNERSHIP (net of liabilities secured by such
distributed Property that such PARTNER is considered to assume or take subject
to under Code Section 752), (iii) such PARTNER's allocable share of PARTNERSHIP
expenditures described in Code Section 705(a)(2)(B), and (iv) any PARTNERSHIP
Net Loss (or item thereof) allocated to such PARTNER. The PARTNERS' capital
accounts shall also be adjusted to reflect upward or downward basis adjustments,
as the case may be, described in Code Section 48(q) in the manner set forth in
Regulations Section 1.704-1(b)(2)(iv)(j). Such Net Income, Gain, and Net Loss
shall be determined in accordance with the federal income tax return filed by
the PARTNERSHIP, the allocations provided for in Section 6 of this Agreement,
and by reference to the definitions contained in Section 17, provided that, in
any circumstances in which Property is reflected on the books of the PARTNERSHIP
(as maintained in accordance with Regulations Section 1.704-1(b)(2)(iv)) at a
book value that differs from the adjusted tax basis of such Property, Net
Income, Gain, and Net Loss (or item thereof) shall be determined by reference to
the book value of such Property. Such allocation of book items shall be made in
accordance with Regulations Section 1.704-1(b)(2)(iv)(g). In the event a PARTNER
transfers all or any portion of his PARTNERSHIP interest, the transferee shall
succeed to the individual capital contributions, capital account and capital
account balance of the transferor to the extent such individual capital
contributions, capital account and capital account balance relate to the
transferred interest. Neither contributions to the capital of the PARTNERSHIP
nor the PARTNERS' capital account balances shall bear interest.
4.4 Withdrawal of Capital. Without the consent of the GENERAL PARTNER,
or as otherwise provided for in this Agreement, no PARTNER shall have any right
to withdraw or make a demand for withdrawal or return of any capital until the
sixth (6th) anniversary of the Effective Date (the "Interim Distribution Date").
At any time after the Interim Distribution Date, and once in any twelve-month
period, a PARTNER may, on 30 days' written notice to the GENERAL PARTNER,
request a distribution of up to twenty-five percent (25%) of its capital
contribution to the GENERAL PARTNER. At the option of the GENERAL PARTNER, a
partial return of capital to a PARTNER under this section may be delayed for up
to 90 days if, in the view of the GENERAL PARTNER, such delay is in the best
interests of the PARTNERSHIP. Such distribution may be made to the PARTNERS in
cash or non-cash consideration, on a Pro rata basis, as determined in the
reasonable discretion of the GENERAL PARTNER.
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4.5 Interest on Capital Accounts. No interest shall be paid on any
capital contributions.
4.6 Deficit Capital Accounts. If the GENERAL PARTNER has a deficit
capital account balance following the liquidation of its interest in the
PARTNERSHIP, as determined after taking into account all capital account
adjustments for all periods, including the PARTNERSHIP taxable year during which
such liquidation occurs (other than those made pursuant to this Section 4.6),
the GENERAL PARTNER shall restore the amount of such deficit to the PARTNERSHIP
by the end of such taxable year, or, if later, within ninety (90) days after the
date of such liquidation. Said amount shall, upon liquidation of the
PARTNERSHIP, be treated as proceeds from said liquidation for purposes of
Section 5.2. This Section 4.6 is for the benefit of the PARTNERS of the
PARTNERSHIP only, and not for the benefit of any creditor of the PARTNERSHIP.
4.7 Optional Adjustments to Capital Accounts. Upon (i) a contribution of
cash or property (which shall be valued at its Fair Market Value) to the
PARTNERSHIP by a new or existing PARTNER for a PARTNERSHIP interest, or (ii) a
distribution by the PARTNERSHIP to a retiring or continuing PARTNER for a
PARTNERSHIP interest, the PARTNERSHIP may, in the discretion of the GENERAL
PARTNER, increase or decrease the capital accounts of the PARTNERS to reflect a
revaluation of PARTNERSHIP Property on the books of the PARTNERSHIP, in
accordance with the provisions of Regulations Section 1.704-(b)(2)(iv)(f).
4.8 Representations and Warranties of Each LIMITED PARTNER. Each LIMITED
PARTNER hereby represents and warrants to the PARTNERSHIP and each other PARTNER
that:
(a) If that PARTNER is an organization, that it is duly
organized, validly existing, and in good standing under the law of its state of
organization and that it has full organizational power to execute and agree to
the Agreement to perform its obligations hereunder;
(b) Such PARTNER is acquiring its interest in the
PARTNERSHIP for its own account for investment purposes only and not with a view
to the resale or distribution of all or any part of such interest and such
PARTNER has no present intention, agreement or arrangement to divide its
participation with others or to sell, assign, transfer or otherwise dispose of
all or any party of such interest. Such PARTNER is aware that the interests have
not been registered under the Securities Act of 1933, or any state securities
laws and that such interests may not be resold or otherwise disposed of unless
they are registered thereunder or an exemption from registration is available.
Accordingly, such PARTNER is aware that as a PARTNER it must bear the economic
risk of investment in the PARTNERSHIP for an indefinite period of time. Such
PARTNER is capable of bearing that risk.
(c) Such PARTNER has been advised and understands that
its investment under this Agreement is by its nature speculative and that it is
not relying upon any representations or warranties relating to the anticipated
profit of the PARTNERSHIP.
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(d) The decision to invest in the PARTNERSHIP was made
by such LIMITED PARTNER as a person (i) who is authorized to make such
investment decision and (ii) who has relied on its own tax, legal and financial
advisers with regard to all matters relating to the investment in the
PARTNERSHIP and not on any advice or recommendation of the GENERAL PARTNER, PICO
Holdings, Inc. or its respective affiliates. Such LIMITED PARTNER's prior
investment experience and general knowledge about the management, proposed
operations and prospects of the PARTNERSHIP enable such LIMITED PARTNER together
with its advisers to make an informed decision with respect to an investment in
the PARTNERSHIP; moreover, such LIMITED PARTNER has had substantial experience
in making investment decisions and is able to bear the economic risk of this
investment.
SECTION 5. DISTRIBUTIONS.
5.1 Distribution of Cash Available for Distribution and Net Proceeds of
Sale, Refinancing or Other Disposition. Cash Available for Distribution, Net
Proceeds of Refinancing and Net Proceeds of Sale or Other Disposition, as
defined in Section 17, when distributed from time to time, shall be distributed
to the PARTNERS, as follows:
5.1.1 First to the PARTNERS in proportion to their capital
contributions, up to the full amount thereof, less any amounts previously
distributed to the PARTNERS under Section 4.4 and this Section 5.1.1.
5.1.2 Thereafter to the PARTNERS, Pro rata.
5.2 Distribution Upon Termination of the PARTNERSHIP. Upon the final
termination of the PARTNERSHIP, the GENERAL PARTNER shall take account of all of
the PARTNERSHIP's assets and liabilities. After distribution of all Net Proceeds
of Sale, Refinancing or Other Disposition pursuant to Section 5.1, the assets
may be liquidated as promptly as is consistent with obtaining a reasonable value
therefor, and the proceeds therefrom together with assets distributed in kind,
to the extent thereof, shall be applied and distributed in the following order:
5.2.1 To the payment of debts and liabilities of the PARTNERSHIP
which are then due (other than any loans or advances that may have been made by
any of the PARTNERS to the PARTNERSHIP) and the expenses of liquidation.
5.2.2 To the setting up of any reserves which the GENERAL
PARTNER may deem reasonably necessary for any contingent or unforeseen
liabilities or obligations or debts or liabilities not yet payable of the
PARTNERSHIP which have arisen out of or in connection with the PARTNERSHIP. Such
reserves may be held for disbursement by the GENERAL PARTNER or delivered to an
independent escrow holder, designated by the GENERAL PARTNER, to be held by such
escrow holder for the purpose of disbursing such reserves in payment of any of
the aforementioned contingencies, debts or liabilities, and, at the expiration
of such period as the GENERAL PARTNER shall deem advisable, to distribute the
balance thereafter remaining in the manner hereinafter provided.
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5.2.3 To the repayment of any unpaid loans or advances which are
then due and which have been made by any of the PARTNERS to the PARTNERSHIP,
including any accrued but unpaid interest thereon, in proportion to the loan
amount, up to the full amounts thereof, and then any other loans or advances,
including any accrued but unpaid interest thereon, in proportion to the loan
amount, up to the full amounts thereof.
5.2.4 To the PARTNERS, in proportion to their positive capital
account balances as of the date of such distribution, after giving effect to all
capital account adjustments for all periods, including the PARTNERSHIP taxable
year during which such distribution occurs (other than those made pursuant to
this Section 5.2.4 or Section 4.6), in an amount equal to the sum of the
PARTNERS' capital accounts. The distribution described in this Section 5.2.4
shall occur by the end of the taxable year of PARTNERSHIP dissolution, or, if
later, within ninety (90) days after the date of such dissolution. If the
GENERAL PARTNER has a deficit capital account balance following the liquidation
of its interest hereunder, such GENERAL PARTNER shall restore the amount of such
deficit as provided in Section 4.6.
5.3 Valuation and Distribution of Non-Cash Distributions. To the extent
that non-cash assets shall be distributed in kind pursuant to this Section 5.3,
the Fair Market Value of such assets shall first be determined, pursuant to
Section 16.16, and the distribution of such assets shall be made in accordance
with such valuation after first allocating to the capital accounts of the
PARTNERS the amount of Gain or Net Loss which would have been allocated to said
capital accounts if the non-cash asset had been sold at such Fair Market Value
rather than distributed in kind. Any non-cash assets (including, but not limited
to, promissory notes) received by the PARTNERSHIP in connection with a sale or
other disposition may be distributed in kind to the PARTNERS or to a collection
account with the proceeds to be distributed in accordance with the terms of this
Section 5.3 as received. Any such distribution of non-cash assets shall be at
the reasonable discretion of the GENERAL PARTNER and shall be made on a Pro rata
basis. Any non-cash assets distributed shall be subject to any then existing
agreements or restrictions relating thereto.
5.4 Discretion in Making Distributions. The PARTNERSHIP shall
distribute, subject to the reasonable discretion of the GENERAL PARTNER, Cash
Available for Distribution and, pursuant to this Section 5.4, assets in kind
from time to time on a Pro rata basis, without regard to whether or not funds
represent income for the purpose of determining tax liability, or net profit for
the purpose of PARTNERSHIP accounting. Such distributions shall be made in the
reasonable discretion of the GENERAL PARTNER in accordance with good and sound
business practices.
5.5 Limitation on Other Distributions. No PARTNER shall be entitled to
receive distributions other than as specifically provided by this Agreement.
5.6 Tax Distribution. Notwithstanding any other provision of this
Agreement, distributions of Cash Available for Distribution, Net Proceeds of
Refinancing and Net Proceeds of Sale or Other Disposition for any year shall be
made to each PARTNER on or before April 15 of the following year of amounts
which are not less than the result obtained by multiplying the Tax Rate (as
hereinafter defined) by the estimated taxable Net Income and Gain of the
PARTNERSHIP allocable to such PARTNER under Section 6.2 for such year. The "Tax
Rate"
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shall be forty percent (40%). Any amounts distributed under this Section 5.6
shall be taken into account in computing subsequent distributions under Section
5.1, so that the total amount distributed under Section 5.1 and this Section 5.6
shall be the amount which would have been distributed under Section 5.1 if the
special distribution under this Section 5.6 had not occurred.
SECTION 6. ALLOCATIONS OF NET INCOME, NET LOSS AND GAIN.
6.1 Allocation of Net Loss. Except as provided in Section 6.5, Net Loss,
and each item thereof, of the PARTNERSHIP for any accounting period shall be
allocated among the PARTNERS as follows:
6.1.1 First, Net Loss shall be allocated to the PARTNERS in
proportion to the cumulative Net Income and Gain allocated to the PARTNERS
pursuant to Section 6.2.3, up to the full amount thereof, less any amount of Net
Loss previously so allocated pursuant to this Section 6.1.1.
6.1.2 Second, Net Loss shall be allocated to the PARTNERS, Pro
rata, until the sum (the "Sum") of each LIMITED PARTNER's (i) capital account
balance, plus (ii) the amount each such LIMITED PARTNER is deemed obligated to
restore to its capital account pursuant to Regulations Section 1.704-2(g) has
been reduced to zero (0), taking into account the adjustments for anticipated
distributions, allocations or other adjustments described in Regulations Section
1.704-(b)(2)(ii)(d)(4), (5) and (6) which are reasonably expected to be made as
of the end of such PARTNERSHIP taxable year. Provided, however, Net Loss shall
not be allocated hereunder to any LIMITED PARTNER whose Sum under the preceding
sentence has been reduced to zero, even though the Sum for other LIMITED
PARTNERS has not been reduced to zero. The Net Loss otherwise allocable to such
LIMITED PARTNER shall be allocated to the other PARTNERS Pro rata, and so on,
until the Sum of all LIMITED PARTNERS is zero.
6.1.3 Thereafter, any remaining Net Loss shall be allocated to
the GENERAL PARTNER.
6.2 Allocation of Net Income and Gain. Except as provided in Sections
6.3, 6.4 and 6.5, Net Income and Gain shall be allocated among the PARTNERS as
follows:
6.2.1 First, to the GENERAL PARTNER up to an amount equal to the
cumulative Net Loss allocated pursuant to Section 6.1.3 above, less any amount
of Net Income or Gain previously so allocated pursuant to this Section 6.2.1.
6.2.2 Second, to the PARTNERS in proportion to the Net Loss
allocated pursuant to the Section 6.1.2 above, up to an amount equal to the
cumulative Net Loss so allocated, less any amount of Net Income or Gain
previously so allocated pursuant to this Section 6.2.2.
6.2.3 Thereafter, Net Income and Gain shall be allocated to the
PARTNERS Pro rata.
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6.3 Qualified Income Offset. Any PARTNER who unexpectedly receives an
adjustment, allocation or distribution described in Regulations Section
1.704-1(b)(2)(ii)(d)(4), (5) or (6), so as to cause or increase a deficit
balance in such PARTNER's capital account (in excess of any limited dollar
amount of such deficit balance that such PARTNER is obligated or deemed
obligated to restore within the meaning of Regulations Section
1.704-1(b)(2)(ii)(c) and 1.704-2(g), shall be allocated items of gross income
and gain in an amount and manner sufficient to eliminate such deficit balance as
quickly as possible. Any such allocation of items of income or gain pursuant to
this Section 6.3 shall be taken into account in computing subsequent allocations
of Net Income or Gain pursuant to this Section 6, so that the net amount of any
item so allocated and the Net Income, Gain, Loss and Net Loss and all other
items allocated to each PARTNER pursuant to this Section 6 shall, to the extent
possible, be equal to the net amount that would have been allocated pursuant to
the provisions of this Section 6 if such unexpected adjustment, allocations or
distribution had not occurred.
6.4 Minimum Gain Chargeback. Notwithstanding any other provision in this
Agreement, if there is a net decrease in PARTNERSHIP minimum gain (as defined in
Regulations Section 1.704-2(b)(2)), during any taxable year, items of
PARTNERSHIP income and gain shall be allocated in accordance with the provisions
of Regulations Section 1.704-2(f). This Section 6.4 is intended to comply with
Regulations Section 1.704-2(e)(3). Any special allocation of items of income or
gain pursuant to this Section 6.4 shall be taken into account in computing
subsequent allocations of Net Income or Gain pursuant to this Section 6, so that
the net amount of any item so allocated and the Net Income, Gain and Net Loss
and other items allocated to each PARTNER pursuant to this Section 6, shall, to
the extent possible, be equal to the net amount that would have been allocated
pursuant to the provisions of this Section 6 if such decrease in minimum gain
had not occurred.
6.5 Tax Allocations Under Code Section 704(c). Notwithstanding the
allocations set forth herein, in any circumstance in which Property is reflected
on the books of the PARTNERSHIP (as maintained in accordance with Regulations
Section 1.704-1(b)(2)(i-v)) at a book value that differs from the adjusted tax
basis of such Property, Net Income, Gain and Net Loss allocations (or items
thereof) with respect to such Property shall take account of any variation
between the adjusted tax basis of such Property and its book value, in the same
manner as under Code Section 704(c) and the Regulations promulgated thereunder.
Any elections or other decisions relating to such allocations shall be made by
the GENERAL PARTNER in any manner that reasonably reflects the purpose and
intention of this Agreement. Allocations pursuant to this Section 6.5 are solely
for the purposes of federal and state taxes and shall not affect, or in any way
be taken into account in computing, any PARTNER's capital account balance.
6.6 Accounting With Reference to Issuance or Transfer of PARTNERSHIP
Interest. Upon the admission of any additional PARTNER of the PARTNERSHIP or
upon the transfer of any PARTNERSHIP interest (as permitted herein) to an
Assignee or to any person being admitted as a Substituted LIMITED PARTNER, the
Net Income, Gain, and Net Loss, and each item thereof, for the year in which any
such admission or transfer occurs, attributable to the new interest or the
interest transferred, shall be allocated to the newly admitted PARTNER or
between the transferor and transferee (Assignee or Substituted LIMITED PARTNER)
as the case
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may be, as follows: all Net Income, Gain, and Net Loss, and each item thereof,
which are to be allocated for the fiscal year in which the admission or transfer
occurs shall be prorated as of the date upon which the admission or transfer is
recognized by the GENERAL PARTNER as having occurred, so that for the purpose of
making such proration, the items for such year shall be deemed to have been
earned or incurred in equal daily increments, without regard to the date such
items are actually earned or incurred during the periods before and after the
date upon which the admission or transfer occurs.
6.7 Allocation to a Trust or an Estate. Notwithstanding any contrary
provision herein, depreciation and depletion deductions attributable to a
PARTNER which is a trust or an estate shall be specifically allocated to such
PARTNER as if such depreciation and depletion deduction(s) were realized by such
PARTNER directly from the depreciable or depletable PARTNERSHIP Property.
SECTION 7. TAX ELECTIONS.
7.1 Fiscal Year. The fiscal year of the PARTNERSHIP shall be the
calendar year.
7.2 Basis Adjustment. In the case of a distribution of PARTNERSHIP
Property or a transfer of a PARTNERSHIP interest, the GENERAL PARTNER may cause
the PARTNERSHIP to file an election under Section 754 of the Code to adjust the
basis of the PARTNERSHIP Property. As a result of this election, the GENERAL
PARTNER shall have the right to require, as a condition to the granting of
consent to any transfer, the reimbursement of expenditures made by the
PARTNERSHIP for any legal and accounting fees incurred to make any such basis
adjustment. The GENERAL PARTNER shall have the right, in its sole and absolute
discretion, to decline to make such an election; and further, the making or
failure to make any election under Section 754 of the Code in connection with
any particular transfer of an interest in the PARTNERSHIP shall not affect the
right of the GENERAL PARTNER to make, or refuse to make, such an election with
respect to any subsequent transfer of an interest in the PARTNERSHIP.
7.3 Elections. The PARTNERSHIP shall have the right, in the sole and
absolute discretion of the GENERAL PARTNER, to make or refuse to make any other
elections or determinations required or permitted for federal or state income
tax or other tax purposes. The GENERAL PARTNER may rely upon the advice of the
PARTNERSHIP's accountants or tax attorneys with respect to the making of any
such election.
7.4 Tax Matters Partner. The GENERAL PARTNER is hereby designated the
"Tax Matters Partner" for purposes of Sections 6221-6233 of the Code. Under such
provisions of the Code, in the event of an audit of the PARTNERSHIP, the Tax
Matters Partner ("TMP") has, without limitation, the following powers:
7.4.1 To deal with Internal Revenue Service ("IRS") agents;
7.4.2 To consent to an extension of the statute of limitations
as to PARTNERSHIP items for all PARTNERS;
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7.4.3 To the extent permitted by Code Sections 6221-6233, to
settle with the IRS on its own behalf and on behalf of each PARTNER; and
7.4.4 To litigate, on behalf of the PARTNERSHIP against a
proposed deficiency assessment of the IRS, in either the United States Tax
Court, United States District Court or the United States Claims Court. The TMP
shall have the right in its absolute discretion to make or refuse to make any
election, or to take or refuse to take any action, permitted to be made or taken
pursuant to the provisions of Sections 6221-6233 of the Code. The TMP may rely
upon the advice of the PARTNERSHIP's accountants or tax attorneys with respect
to any election, action or determination relating to a PARTNERSHIP audit and any
proceedings arising therefrom. The TMP shall be reimbursed for any expenditures
reasonably made or expenses reasonably incurred by it on behalf of the
PARTNERSHIP in connection with such audit or proceeding.
SECTION 8. ADMISSION OF ADDITIONAL PARTNERS.
No additional PARTNERS shall be admitted to the PARTNERSHIP without the
prior written consent of the GENERAL PARTNER.
SECTION 9. MANAGEMENT.
9.1 In General. All decisions with respect to the business and affairs
of the PARTNERSHIP and the management of the Property shall be made by the
GENERAL PARTNER. The GENERAL PARTNER shall manage the business and affairs of
the PARTNERSHIP and the Property in good faith and in the reasonable exercise of
business judgment. The LIMITED PARTNERS shall not participate in the management
of the PARTNERSHIP.
9.2 Specific Authority. In addition to the powers given by law, the
GENERAL PARTNER is hereby authorized without further consent or approval of the
LIMITED PARTNERS (but subject to the limitations of Section 2.2):
9.2.1 To negotiate, enter into and execute contracts of every
nature with respect to the Property or on behalf of the PARTNERSHIP;
9.2.2 To employ at the expense of the PARTNERSHIP such agents,
employees, managers, accountants, attorneys, consultants, and other persons
necessary or appropriate to carry out the business and affairs of the
PARTNERSHIP, whether or not any such persons so employed are Affiliates of the
GENERAL PARTNER, and to pay such compensation to such persons as is reasonable
and competitive with the compensation paid to unaffiliated persons in the area
for similar services;
9.2.3 To pay, extend, renew, modify, adjust, submit to
arbitration, prosecute, defend, or settle, upon such terms as it may deem
sufficient, any obligation, suit, liability, cause of action, or claim,
including tax audits, either in favor of or against the PARTNERSHIP;
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9.2.4 To pay any and all reasonable fees and make any and all
reasonable expenditures that it deems necessary or appropriate in connection
with the organization of the PARTNERSHIP, the management of the affairs of the
PARTNERSHIP, and the carrying out of its obligations and responsibilities under
this Agreement;
9.2.5 Pursuant to and subject to the terms of Section 12, to
admit an assignee of a PARTNERSHIP interest as a Substituted LIMITED PARTNER, or
to admit additional LIMITED PARTNERS;
9.2.6 To establish and maintain accounts with financial
institutions, including federal or state banks, brokerage firms, trust
companies, savings and loan institutions, or money market funds, in such amounts
as the GENERAL PARTNER may deem necessary;
9.2.7 To invest and reinvest the PARTNERSHIP assets in whatever
real or personal, tangible or intangible property the GENERAL PARTNER determines
advisable, subject to the limitations of Section 2, including, but not by way of
limitation, corporate obligations of every kind, stocks, preferred or common,
investment trusts, common trust funds, limited partnerships, general
partnerships, joint ventures and limited liability companies without any
requirement as to diversification and without being restricted by any statutory
limitations on investments by a GENERAL PARTNER;
9.2.8 To sell, assign, convey, exchange (in a transaction
described in Code Section 1031), or otherwise transfer all or any portion of the
PARTNERSHIP assets, including but not limited to, the prepayment, recasting,
increase, modification, extension, refinancing of any PARTNERSHIP obligation,
upon such terms as the GENERAL PARTNER may deem advisable and proper, and to
reinvest the proceeds of any such activities;
9.2.9 To purchase and maintain, at PARTNERSHIP expense,
liability and other insurance to protect the PARTNERSHIP's assets from third
party claims; provided that, in its judgment, such insurance is appropriate,
available and reasonably priced;
9.2.10 To cause to be paid any and all taxes, charges, and
assessments that may be levied, assessed, or imposed upon any of the assets of
the PARTNERSHIP, unless the same are contested by the GENERAL PARTNER;
9.2.11 To determine the amount and timing of distributions to
the PARTNERS in accordance with Section 5 hereof and to elect to forego
distributions and to invest or reinvest PARTNERSHIP assets in the furtherance of
the purposes of the PARTNERSHIP;
9.2.12 To execute, acknowledge and deliver any and all
instruments and take such other steps as are necessary to effectuate the
foregoing and as are consistent therewith;
9.2.13 To make, execute, assign, acknowledge, file, and deliver
any and all documents or instruments and amendments thereto, and to take any and
all other actions, that the GENERAL PARTNER may deem appropriate to carry out
the purposes and business of the PARTNERSHIP as set forth herein, on such terms
and conditions as it deems proper.
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9.3 Time Devoted to Business. The GENERAL PARTNER shall devote such time
to the business affairs of the PARTNERSHIP as the GENERAL PARTNER shall deem to
be reasonably required for its welfare and success.
9.4 Power to Employ and Contract With Affiliated Entities. The GENERAL
PARTNER shall have the right to employ or contract with a PARTNER or entities in
which any PARTNER has an interest without the prior written consent of the
LIMITED PARTNERS as long as the compensation paid pursuant to such contracts is
reasonable and competitive with the compensation paid to unaffiliated persons in
the area for similar services.
9.5 PARTNERSHIP Expenses.
9.5.1 Reimbursable Expenses. The GENERAL PARTNER shall be
reimbursed for all following PARTNERSHIP expenses including, but not limited to:
(a) The actual cost to the GENERAL PARTNER and its
Affiliates of goods and materials used for or by the PARTNERSHIP and obtained
from unaffiliated parties; and
(b) Expenses incurred in connection with rendering
administrative services necessary to the prudent operation of the PARTNERSHIP,
provided that such reimbursement is at the lower of (i) the actual cost to the
GENERAL PARTNER providing such services, or (ii) the amount the PARTNERSHIP
would be required to pay to independent parties for comparable administrative
services in the same geographical location.
9.5.2 Non-Reimbursable Expenses. The GENERAL PARTNER shall not
be reimbursed by the PARTNERSHIP for expenses that are unrelated to the business
of the PARTNERSHIP.
9.6 Fiduciary Duty. The GENERAL PARTNER shall exercise its fiduciary
responsibility for the safekeeping and use of all funds and assets of the
PARTNERSHIP, whether or not in its immediate possession or control, and not
employ or permit another to employ such funds or assets in any manner except for
the exclusive benefit of the PARTNERSHIP. The fiduciary duty of the GENERAL
PARTNER shall be limited to the fiduciary duty owed by a partner to a
partnership and its partners under California law.
9.7 Competing Ventures. Any of the PARTNERS may engage in or possess an
interest in other business ventures of every nature and description,
independently or with others, including but not limited to, the ownership of
assets of the same type and nature as the assets of the PARTNERSHIP, and neither
the PARTNERSHIP nor any of the PARTNERS shall have any right by virtue of this
Agreement in and to such independent ventures or to the income or profits
derived therefrom.
9.8 Fees. Unless otherwise approved by LIMITED PARTNERS holding 75% of
the Units held by all LIMITED PARTNERS, the GENERAL PARTNER shall not receive a
fee for its services hereunder.
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9.9 Investment Limitations.
9.9.1 The GENERAL PARTNER shall use its best efforts to
structure the PARTNERSHIP's investments and otherwise conduct the PARTNERSHIP's
operations so as to avoid the incurrence of any income which is, in the hands of
any tax-exempt LIMITED PARTNER, "unrelated business taxable income" under the
Code ("UBTI"). The GENERAL PARTNER hereby acknowledges that, at the date of this
Agreement, the following activities (without limitation) may cause UBTI with
respect to the tax-exempt LIMITED PARTNERS and hence are subject to the
preceding sentence for as long as they would continue to so cause UBTI:
(i) investment by the PARTNERSHIP in any partnership (or
other entity) that at the time of such investment would be deemed a pass-through
entity for U.S. federal income tax purposes) that engages or would be deemed to
engage in a trade or business for purposes of Section 513 of the Code or any
successor provision thereto; or
(ii) the PARTNERSHIP incurs, directly or indirectly,
"acquisition indebtedness" with respect to any tax-exempt LIMITED PARTNER within
the meaning of Section 514 of the Code or any successor provision thereto; or
(iii) any action that would cause the PARTNERSHIP to make or
hold an investment directly or indirectly in a "controlled foreign corporation"
(within the meaning of Section 957 or Section 953(c) of the Code or any
successor provision thereto) if such investment would cause any LIMITED
PARTNER's share of PARTNERSHIP income or distributions to constitute UBTI
pursuant to Section 512(b)(17) of the Code.
9.10 ERISA Participation.
9.10.1 In the event of an amendment to the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), or any regulation or
authority thereunder after the date of this Agreement, or of a regulation,
ruling, advisory opinion, information letter, judicial or administrative
decision or other authority issued after the date of this Agreement, or of the
occurrence of any other event or circumstance after the date of this Agreement,
the result of any of the foregoing which makes it reasonably likely that the
assets of the PARTNERSHIP would be characterized as or deemed to be "plan
assets" under ERISA, then the GENERAL PARTNER shall use its reasonable best
efforts, in consultation with any affected "ERISA Limited Partners" as defined
below, to (i) identify a course of action that would result in the PARTNERSHIP's
assets not being so deemed to be "plan assets" and that would not penalize such
ERISA Limited Partners or unfairly deprive them of their rights hereunder,
and/or (ii) if the assets of the PARTNERSHIP were to so become "plan assets"
under ERISA, take such action as necessary to avoid a material violation under
ERISA, such as having a "qualified professional asset manager" (as defined under
Prohibited Transaction Exemption 84-14) administer the PARTNERSHIP.
9.10.2 In the event that any ERISA Limited Partner in good faith
reasonably determines that as a result of any event or circumstance referred to
above, it is more likely than not that the assets of the PARTNERSHIP would be so
characterized as or would be so deemed to be "plan assets" under ERISA, such
ERISA Limited Partner shall deliver to the GENERAL PARTNER written notice of
such determination and, if requested by the GENERAL PARTNER
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within ten (10) Business Days after its receipt of such written notice, an
opinion of counsel, which opinion and counsel shall be reasonably acceptable to
the GENERAL PARTNER, to the effect that as a result of such event or
circumstances, it is more likely than not that the assets of the PARTNERSHIP
would be so characterized as "plan assets" under ERISA. The GENERAL PARTNER
shall then have sixty (60) days following the receipt of such written notice to
take curative or corrective measures to prevent the assets of the PARTNERSHIP
from so becoming "plan assets" under ERISA to the reasonable satisfaction of
such ERISA Limited Partner and may elect on or prior to the expiration of such
sixty (60) day period (and in any event prior to the assets of the PARTNERSHIP
so becoming "plan assets" under ERISA), in its sole and absolute discretion, to
dissolve the PARTNERSHIP and liquidate the assets thereof as soon as practicable
(but in no event more than the maximum period of ten (10) years permitted
pursuant to Section 2510.3-101(d) of the regulations promulgated under ERISA),
provided that if the GENERAL PARTNER does not elect to dissolve the PARTNERSHIP
on or prior to the expiration of such sixty (60) day period, and does not adopt
curative or corrective measures to prevent the assets of the PARTNERSHIP from
becoming "plan assets" under ERISA, such ERISA Limited Partner may elect to
withdraw from the PARTNERSHIP by submitting written notice of such election to
the GENERAL PARTNER, at the time and in the manner hereinafter provided.
9.10.3 The withdrawal of any ERISA Limited Partner pursuant to
this Section 9.10 shall be effected by written election delivered to the GENERAL
PARTNER by such ERISA Limited Partner or by written demand delivered to such
ERISA Limited Partner by the GENERAL PARTNER, as the case may be. The GENERAL
PARTNER shall promptly provide to all other ERISA Limited Partners a copy of the
written notice of good faith determination, together with a copy of a written
notice of the election or written demand, as the case may be, and a copy of the
opinion of counsel, if any, furnished to the GENERAL PARTNER or the ERISA
Limited Partner, as the case may be, in accordance with this Section 9.10.
9.10.4 The withdrawal of any ERISA Limited Partner pursuant to
this Section 9.10 shall be effected as of the last day of the fiscal quarter of
the PARTNERSHIP during which such sixty (60) day period expired, or on such
other date as the GENERAL PARTNER and such ERISA Limited Partner may agree (the
"ERISA Withdrawal Date").
9.10.5 Effective upon the ERISA Withdrawal Date, each such
withdrawing ERISA Limited Partner shall cease to be a LIMITED PARTNER of the
PARTNERSHIP for all purposes and, except for its right to receive payment for
its interest as hereinafter provided, shall no longer be entitled to the rights
of a LIMITED PARTNER under this Agreement, including without limitation, the
right to have any allocations made to its Capital Account pursuant to Section 6,
the right to receive distributions during the term of the PARTNERSHIP pursuant
to Section 5.1 and upon dissolution of the PARTNERSHIP pursuant to Section 5.2,
and the right to vote on matters relating to the PARTNERSHIP as provided in this
Agreement. As promptly as practicable following the ERISA Withdrawal Date, the
GENERAL PARTNER shall, where necessary, file and record any required amendment
to the Certificate to reflect such withdrawal.
9.10.6 As promptly as practicable following the ERISA Withdrawal
Date, there shall be distributed to each such withdrawing ERISA Limited Partner,
in full satisfaction of its
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interest in the PARTNERSHIP, the amount equal to the amount which such ERISA
Limited Partner would have been entitled to receive pursuant to Section 5.2 if
(x) the PARTNERSHIP had been dissolved on and as of the ERISA Withdrawal Date,
(y) all of the assets of the PARTNERSHIP had been sold on and as of such date at
their then fair market value, and (z) all gains and losses (including costs of
sale) that would have arisen from such sale had been allocated. Such
distribution to the withdrawing ERISA Limited Partner shall be payable in cash,
cash equivalents, securities or other assets, with each such separate group of
cash, cash equivalents, securities or other assets being distributed to the
withdrawing ERISA Limited Partner on a basis that is Pro rata to such ERISA
Limited Partner's Interest to the extent practicable, unless otherwise required
by law or contract; provided that if the withdrawing ERISA Limited Partner
notifies the GENERAL PARTNER that such ERISA Limited Partner is prohibited by
applicable law or regulation from holding directly the property to be
distributed in-kind, the GENERAL PARTNER will consult and work together with
such ERISA Limited Partner to pursue possible arrangements or restructurings of
such distribution in-kind so as to avoid any violation by such ERISA Limited
Partner of such applicable law or regulation.
9.10.7 Upon the withdrawal of any ERISA Limited Partner from the
PARTNERSHIP pursuant to this Section 9.10, the PARTNERS (including the
Withdrawing ERISA Partner(s)) shall enter into an amendment to this Agreement
reflecting such withdrawal and amending such provisions of this Agreement,
including, without limitation, the provisions regarding allocations and
distributions during the term of the PARTNERSHIP and upon its dissolution, as
may be appropriate so that the intent, spirit, operation and effect of such
allocation, distribution and other provisions shall, to the maximum extent
possible, be preserved after taking into account the withdrawal of such ERISA
Limited Partner(s).
9.10.8 For purposes of this Section 9.10, any LIMITED PARTNER
that is an "employee benefit plan" under ERISA, or any LIMITED PARTNER that
represents in this Agreement or in its subscription agreement to the PARTNERSHIP
that it is a "church plan" as defined in section 414(e) of the Code and ERISA
Section 3(33) which has not elected to be covered by ERISA shall be treated as
an "ERISA Limited Partner" hereunder.
9.10.9 The Pension Fund of The Christian Church (Disciples of
Christ) hereby represents to the PARTNERSHIP that it is a "church plan" as
defined in Section 414(e) of the Code and ERISA Section 3(33) which has not
elected to be covered by ERISA, and further covenants that it will not make an
election to be covered by ERISA if such election would result in the assets of
the PARTNERSHIP being considered as "plan assets" under ERISA, or if, as a
result of such election, the assets of the PARTNERSHIP were to so become "plan
assets" under ERISA, the Pension Fund of The Christian Church (Disciples of
Christ) shall only make such election with the written consent of the GENERAL
PARTNER and shall, at its sole expense, and with the written consent of the
GENERAL PARTNER, take such action as necessary to avoid a material violation
under ERISA, such as having a "qualified professional asset manager" (as defined
under Prohibited Transaction Exemption 84-14) administer the PARTNERSHIP.
SECTION 10. LIABILITY AND INDEMNIFICATION.
10.1 GENERAL PARTNER. The GENERAL PARTNER shall not be liable,
responsible or accountable, in damages or otherwise, to any LIMITED PARTNER or
to the
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PARTNERSHIP for any act or omission performed or omitted by the GENERAL PARTNER
in good faith on behalf of the PARTNERSHIP, and in a manner reasonably believed
by such GENERAL PARTNER to be within the scope of the authority conferred upon
such GENERAL PARTNER by this Agreement and in the best interests of the
PARTNERSHIP. The PARTNERSHIP shall indemnify and hold harmless each of the
GENERAL PARTNER and its principals, employees and agents, from and against any
claim, loss, liability or damage (including attorneys' fees incurred by any of
them in connection with the defense of any action based on any such alleged act
or omission, which attorneys' fees may be paid, as incurred, from PARTNERSHIP
funds) incurred by reason of an act performed, or omitted to be performed, by
any of them in good faith on behalf of the PARTNERSHIP and in a manner
reasonably believed by such GENERAL PARTNER to be within the scope of the
authority conferred upon such GENERAL PARTNER by this Agreement and in the best
interests of the PARTNERSHIP, provided that such indemnification is not
prohibited by law or the act or omission does not amount to gross negligence or
willful misconduct. All judgments against the PARTNERSHIP or any GENERAL
PARTNER, whereby such GENERAL PARTNER is entitled to indemnification as herein
provided, shall first be satisfied from PARTNERSHIP assets. Any GENERAL PARTNER
shall specifically be indemnified and held harmless from any and all actions
taken in good faith and in reasonable reliance on advice of the PARTNERSHIP's
attorney(s) or accountant(s), and any costs relating to litigation incident to
obligations secured by the assets of the PARTNERSHIP or to any tax authorities
shall be borne by the PARTNERSHIP.
SECTION 11. VOTING RIGHTS AND MEETINGS.
11.1 Approval Rights of LIMITED PARTNERS. LIMITED PARTNERS shall have
the right, by vote of a Majority, to approve or disapprove (but may not
initiate), only the following matters affecting the basic structure of the
PARTNERSHIP, and no other rights except as specifically set forth elsewhere in
this Agreement or required by law:
(a) Withdrawal of a GENERAL PARTNER;
(b) Admission of a new GENERAL PARTNER;
(c) Amendment of this Agreement (as provided for in Section
13); and
(d) The matters described in Sections 2.2, 9.8 and 15.1.
11.2 Meetings of PARTNERS.
11.2.1 Call. A meeting of the PARTNERS may be called by the
GENERAL PARTNER or by the other PARTNERS representing more than ten percent
(10%) of the Units held by the other PARTNERS for any matters on which the other
PARTNERS may vote.
11.2.2 Location. Meetings shall be held at the principal
executive office or such other place as may be designated by the GENERAL
PARTNER.
11.2.3 Waiver. The transactions of any meeting of PARTNERS,
however called and noticed, and wherever held, are as valid as though had at a
meeting duly held after regular
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call and notice, if a quorum is present either in person or by proxy, and if,
either before or after the meeting, each of the persons entitled to vote, not
present in person or by proxy, signs a written waiver of notice or a consent to
the holding of the meeting or an approval of the minutes thereof. All waivers,
consents, and approvals shall be filed with the PARTNERSHIP records or made a
part of the minutes of the meeting. Attendance of a person at a meeting shall
constitute a waiver of notice of the meeting, except when the person objects, at
the beginning of the meeting to the transaction of any business because the
meeting is not lawfully called or convened and except that attendance at a
meeting is not a waiver of any right to object to the consideration of matters
required by this Agreement to be included in the notice but not so included, if
the objection is expressly made at the meeting. Neither the business to be
transacted at nor the purpose of any meeting of PARTNERS need be specified in
any written waiver of notice, unless otherwise provided in this Agreement,
except as provided in Section 11.2.4 hereof.
11.2.4 Proposal. Any PARTNER approval at a meeting, other than
unanimous approval by those entitled to vote, shall be valid only if the general
nature of the proposal so approved was stated in the notice of meeting or in any
written waiver of notice.
11.2.5 Quorum. A Majority of the PARTNERS represented in person
or by proxy shall constitute a quorum at a meeting of PARTNERS. The PARTNERS
present at a duly called or held meeting at which a quorum is present may
continue to transact business until adjournment notwithstanding the withdrawal
of enough PARTNERS to leave less than a quorum, if any action taken (other than
adjournment) is approved by the requisite percentage, if any, of PARTNERS
specified in this Agreement. In the absence of a quorum, any meeting of PARTNERS
may be adjourned from time to time by the vote of a Majority of the PARTNERS
represented either in person or by proxy, but no other business may be
transacted, except as provided in the preceding sentence. PARTNERS may
participate in a meeting through the use of conference telephone or similar
communications equipment so long as all PARTNERS participating in such meeting
can hear one another; participation in a meeting through use of such equipment
constitutes presence in person at such meeting for purposes of this Agreement.
11.2.6 Written Consent. Any action which may be taken at any
meeting of the PARTNERS may be taken without a meeting if a consent in writing,
setting forth the action so taken, shall be signed by PARTNERS having not less
than the minimum number of votes that would be necessary to authorize or take
that action at a meeting at which all entitled to vote thereon were present and
voted. In the event the PARTNERS are requested to consent on a matter without a
meeting, each PARTNER shall be given notice of the matter to be voted upon in
the same manner as described in Section 11.2.9. In the event the GENERAL
PARTNER, or other PARTNERS representing more than ten percent (10%) of the Units
held by other PARTNERS, request a meeting for the purpose of discussing or
voting on the matter, the notice of a meeting shall be given in accordance with
Section 11.2.9 and no action shall be taken until the meeting is held. Unless
delayed in accordance with the provisions of the preceding sentence, any action
taken without a meeting will be effective fifteen (15) days after the required
minimum number of voters have signed the consent; however, the action will be
effective immediately if the GENERAL PARTNER and other PARTNERS representing at
least ninety percent (90%) of the Units held by the other PARTNERS have signed
the consent unless unanimous consent is required in which case it shall only
become effective if all PARTNERS have signed the consent.
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11.2.7 Proxies. The use of proxies in connection with this
Section will be governed in the same manner as in the case of corporations
formed under the General Corporation Law of the California Corporations Code.
11.2.8 Record Date. In order that the PARTNERSHIP may determine
the PARTNERS entitled to notices of any meeting or to vote, or entitled to
receive any distribution or to exercise any rights in respect of any other
lawful action, the GENERAL PARTNER, or other PARTNERS representing more than ten
percent (10%) of the Units held by the other PARTNERS who have called a meeting,
may fix, in advance, a record date, which is not more than sixty (60) nor less
than ten (10) days prior to the date of the meeting nor more than sixty (60)
days prior to any other such action. If no record date is fixed:
(a) The record date for determining PARTNERS entitled to
notice of or to vote at a meeting of PARTNERS shall be at the close of business
on the business day next preceding the day on which notice is given or, if
notice is waived, at the close of business on the business day next preceding
the day on which the meeting is held.
(b) The record date for determining PARTNERS entitled to
give consent to PARTNERSHIP action in writing without a meeting shall be the day
on which the first written consent is given.
(c) The record date for determining PARTNERS for any
other purposes shall be at the close of business on the day on which the GENERAL
PARTNER adopts it, or the sixtieth (60th) day prior to the date of the other
action, whichever is later.
(d) The determination of PARTNERS of record entitled to
notice of or to vote at a meeting of PARTNERS shall apply to any adjournment of
the meeting unless the GENERAL PARTNER, or the PARTNERS who called the meeting,
fix a new record date for the adjourned meeting, but the GENERAL PARTNER, or the
PARTNERS who called the meeting, shall fix a new record date if the meeting is
adjourned for more than forty-five (45) days from the date set for the original
meeting.
11.2.9 Notice of Meeting.
(a) Whenever PARTNERS are required or permitted to take
any action at a meeting, a written notice of the meeting shall be given not less
than ten (10), nor more than sixty (60), days before the date of the meeting to
each PARTNER entitled to vote at the meeting. The notice shall state the place,
date, and hour of the meeting and the general nature of the business to be
transacted, and no other business may be transacted without the consent of all
PARTNERS.
(b) Notice of a PARTNERS' meeting or any report shall be
given either personally or by mail or other means of written communication,
addressed to the PARTNER at the address of the PARTNER on the signature page(s)
of this Agreement, or if more recent, appearing on the books of the PARTNERSHIP
or given by the PARTNER to the PARTNERSHIP for the purpose of notice, or, if no
address appears or is given, at the place where the principal executive office
of the PARTNERSHIP is located or by publication at least
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once in a newspaper of general circulation in the county in which the principal
executive office is located. The notice or report shall be deemed to have been
given at the time when delivered personally or deposited in the mail or sent by
other means of written communication. An affidavit of mailing of any notice or
report in accordance with the provisions of this article, executed by the
GENERAL PARTNER, shall be prima facie evidence of the giving of the notice or
report. If any notice or report addressed to the PARTNER at the address of the
PARTNER appearing on the books of the PARTNERSHIP is returned to the PARTNERSHIP
by the United States Postal Service marked to indicate that the United States
Postal Service is unable to deliver the notice or report to the PARTNER at the
address, all future notices or reports shall be deemed to have been duly given
without further mailing if they are available for the PARTNER at the principal
executive office of the PARTNERSHIP for a period of one year from the date of
the giving of the notice or report to all other PARTNERS.
(c) Upon written request to the GENERAL PARTNER by any
person entitled to call a meeting of PARTNERS, the GENERAL PARTNER immediately
shall cause notice to be given to the PARTNERS entitled to vote that a meeting
will be held at a time requested by the person calling the meeting, not less
than ten (10), nor more than sixty (60), days after the receipt of the request.
If the notice is not given within twenty (20) days after receipt of the request,
the person entitled to call the meeting may give the notice or, upon the
application of such person, the superior court of the county in which the
principal executive office of the PARTNERSHIP is located, or if the principal
executive office is not in California, the county in which the PARTNERSHIP's
address in California is located, shall summarily order the giving of the
notice, after notice to the PARTNERSHIP giving it an opportunity to be heard.
The procedure provided in subdivision (c) of Section 305 of the Corporations
Code shall apply to the application. The court may issue any order as may be
appropriate, including, without limitation, an order designating the time and
place of the meeting, the record date for determination of PARTNERS entitled to
vote, and the form of notice.
(d) When a PARTNERS' meeting is adjourned to another
time or place, except as provided in this Section 11.2, notice need not be given
of the adjourned meeting if the time and place thereof are announced at the
meeting at which the adjournment is taken. At the adjourned meeting the
PARTNERSHIP may transact any business which might have been transacted at the
original meeting. If the adjournment is for more than forty-five (45) days or,
if after the adjournment a new record date is fixed for the adjourned meeting, a
notice of the adjourned meeting shall be given to each PARTNER of record
entitled to vote at the meeting.
SECTION 12. TRANSFER OF INTERESTS OF PARTNERS.
12.1 Additional PARTNERS. Except as provided in this Section and Section
15, no additional or substituted PARTNERS, GENERAL or LIMITED, shall be admitted
to the PARTNERSHIP without the prior written consent of the GENERAL PARTNER,
which consent may be granted or withheld in the absolute discretion of the
GENERAL PARTNER.
12.2 Assignment by PARTNERS.
12.2.1 Unauthorized Assignments Void. The Units of a PARTNER may
be assigned only as permitted by the provisions of this Section 12 and, except
as so permitted, no
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PARTNER shall assign, sell, dispose of, pledge, give or otherwise transfer
(hereinafter referred to collectively as "assign") such PARTNER's Units or any
part thereof, whether voluntarily, by operation of law, at judicial sale or
otherwise, to any person or entity. Any attempted assignment prohibited by the
provisions of this Section 12 shall be null and void and of no force or effect.
12.2.2 GENERAL PARTNER'S Right of First Refusal. Any LIMITED
PARTNER desiring to assign its PARTNERSHIP interest pursuant to this Section 12,
shall first offer to assign said interest to the GENERAL PARTNER, upon the same
terms and conditions which the assigning LIMITED PARTNER is willing to accept
from any prospective purchaser. The assigning LIMITED PARTNER shall put such
terms and conditions in writing in the form of an offer of sale which it shall
deliver to the GENERAL PARTNER, and the GENERAL PARTNER shall have thirty (30)
days from the date of receipt of such offer in which to accept or reject it. The
offer shall also identify the prospective purchaser. Upon acceptance of the
offer by the GENERAL PARTNER, the GENERAL PARTNER shall have an additional sixty
(60) days in which to raise the funds necessary to meet the terms of the offer
and close the purchase. Upon rejection of the offer by the GENERAL PARTNER, the
assigning LIMITED PARTNER may then assign its PARTNERSHIP interest to the
prospective purchaser, pursuant to the terms of this Section 12. Assignment
among spouses or to or from children or parents, or to trusts for the benefit of
such persons, by LIMITED PARTNERS shall be permitted without requirement of this
right of first refusal, provided in each instance that all such transferees
shall hold such PARTNERSHIP interest or portion thereof subject to this right of
first refusal with respect to any assignment, and no Assignees shall be admitted
as Substituted LIMITED PARTNERS except as provided in 12.3 below.
12.2.3 Conditions to Assignment. Neither the PARTNERSHIP, nor
any PARTNER, shall be bound by an otherwise valid assignment until (i) a
counterpart of the instrument of assignment, executed and acknowledged by the
parties thereto, is delivered to the GENERAL PARTNER; and (ii) the GENERAL
PARTNER shall have received an opinion of legal counsel satisfactory to the
GENERAL PARTNER that the assignment does not violate the status of the original
sale of such interest relative to any securities law offering exemption, if any,
under federal or state law, pursuant to which such interest was offered and
sold. Fractional Units may not be assigned.
12.3 Substituted LIMITED PARTNER. No Assignee of any PARTNER's interest
shall be entitled to become a Substituted LIMITED PARTNER unless the GENERAL
PARTNER shall, in its reasonable discretion, consent thereto in writing, and
unless the Assignee shall consent in writing, in a form satisfactory to the
GENERAL PARTNER, to be bound by the terms of this Agreement in the place and
stead of the assigning PARTNER. Unless and until an Assignee has become a
Substituted LIMITED PARTNER, such Assignee shall be deemed to be an Assignee
only of the right to share in the distributions and allocations of the
PARTNERSHIP, and shall have no other rights hereunder. The admission of an
Assignee of a GENERAL PARTNER's Units as a Substituted LIMITED PARTNER shall be
governed in accordance with Section 15.3.
12.4 Payment of Expenses. Neither the PARTNERSHIP, nor any PARTNER,
shall be bound by an otherwise valid assignment, and no Assignee of any
PARTNER's PARTNERSHIP interest shall be entitled to become a Substituted LIMITED
PARTNER, unless the
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PARTNERSHIP is reimbursed for all reasonable expenses, including legal fees,
associated with such assignment and substitution.
12.5 Substitution Instrument. Subject to full compliance with the terms
and provisions of this Agreement, any instrument reflecting the assignment of
the PARTNERSHIP interest of a PARTNER and the admission of the transferee as a
Substituted LIMITED PARTNER of the PARTNERSHIP need only be executed and
acknowledged by a GENERAL PARTNER, the transferor and the transferee.
12.6 No Dissolution Upon Assignment. An assignment of a PARTNERSHIP
interest by a PARTNER shall neither dissolve nor terminate the PARTNERSHIP.
12.7 Withdrawal of LIMITED PARTNER. No LIMITED PARTNER shall be entitled
to withdraw or retire from the PARTNERSHIP nor, except as provided in Section
4.4, to demand the right to the return of capital until dissolution of the
PARTNERSHIP; provided, however, in the event that, following the permitted
transfer of any Units, the transferor shall no longer hold any interest in the
PARTNERSHIP, the transferor shall cease to be a PARTNER and shall be deemed to
have withdrawn from the PARTNERSHIP when there has been full compliance with
this Section 12 to admit the transferee as a Substituted LIMITED PARTNER, but
not otherwise.
12.8 Units of GENERAL PARTNER. The GENERAL PARTNER may not sell, assign
or transfer its Units without the approval of a Majority of the LIMITED
PARTNERS.
SECTION 13. AMENDMENT AND POWER OF ATTORNEY.
13.1 Amendment by PARTNERS. This Agreement may be amended, modified and
changed by a Majority of the PARTNERS other than the GENERAL PARTNER, with the
written consent of the GENERAL PARTNER; provided, however, that any amendment
which, by its terms, purports to reduce the PARTNERSHIP interest held by a
PARTNER or the amount of allocation or distributions with respect to such
PARTNERSHIP interest, or eliminates, reduces or limits the authority or power of
a PARTNER which is expressly referenced herein, or which increases the debts or
liabilities for which a PARTNER is liable shall be effective only if consented
to in writing by the PARTNER thereby affected.
13.2 Amendment by GENERAL PARTNER. Subject to Section 13.1, this
Agreement may be amended from time to time by the GENERAL PARTNER without the
consent of any of the other PARTNERS (i) to add to the representations, duties
or obligations of the GENERAL PARTNER or surrender any right or power granted to
the GENERAL PARTNER herein; (ii) to cure any ambiguity, or correct or supplement
any provision herein which may be inconsistent with any other provision herein
or to correct any printing, stenographic or clerical errors or omissions in
order that this Agreement shall accurately reflect the agreement among the
PARTNERS hereto; (iii) to delete or add any provision of this Agreement lawfully
required to be so deleted or added by any governmental commission or agency,
provided such addition or deletion is deemed by such commission or agency to be
for the benefit or protection of the LIMITED PARTNERS; or (iv) to provide the
necessary information regarding any new GENERAL PARTNER or any Substituted or
Additional LIMITED PARTNERS.
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13.3 Power of Attorney.
13.3.1 Each PARTNER, by its execution hereof, jointly and
severally, makes, constitutes and appoints the GENERAL PARTNER, or any person
which becomes a successor to the GENERAL PARTNER, as its true and lawful agent
and attorney-in-fact, with full power of substitution, in its name, place and
stead to make, execute, sign, acknowledge, swear to, record and file, on its
behalf (i) the original Certificate of Limited PARTNERSHIP and all amendments
thereto required or permitted by law or the provisions of this Agreement; (ii)
all certificates and other instruments deemed advisable by the GENERAL PARTNER
to permit the PARTNERSHIP to become or to continue as a limited partnership or
partnership wherein the LIMITED PARTNERS have limited liability in any
jurisdiction where the PARTNERSHIP may be doing business; (iii) all instruments
that effect a change or modification of the PARTNERSHIP in accordance with this
Agreement, including without limitation the substitution of Assignees as
Substituted PARTNERS pursuant to Section 12; (iv) all conveyances and other
instruments deemed advisable by the GENERAL PARTNER to effect the dissolution
and termination of the PARTNERSHIP; (v) all fictitious or assumed name
certificates required or permitted to be filed on behalf of the PARTNERSHIP; and
(vi) all other instruments which may be required or permitted by law to be filed
on behalf of the PARTNERSHIP.
13.3.2 The foregoing power of attorney:
(a) is coupled with an interest and shall be irrevocable
and survive the death or incapacity of each LIMITED PARTNER;
(b) may be exercised either by signing separately as
attorney-in-fact for each PARTNER or, after listing all of the PARTNERS
executing an instrument, by a single signature of the person acting as
attorney-in-fact for all of them; and
(c) Shall survive the delivery of an assignment by a
PARTNER of the whole or any portion of its interest; except that, where the
Assignee of the whole of such PARTNER's interest has been approved by the
GENERAL PARTNER for admission to the PARTNERSHIP as a Substituted LIMITED
PARTNER, the power-of-attorney of the assignor shall survive the delivery of
such assignment for the sole purpose of enabling the GENERAL PARTNER to execute,
acknowledge and file any instrument necessary to effect such substitution.
13.4 Additional Instruments. Each PARTNER shall execute and deliver to
the GENERAL PARTNER within five (5) days after receipt of the GENERAL PARTNER's
request therefor such further designations, powers of attorney and other
instruments as the GENERAL PARTNER deems necessary to effectuate the purposes of
this Section 13.
SECTION 14. RECORDS, REPORTS AND BANK ACCOUNTS.
14.1 Records. The PARTNERSHIP shall maintain the following records at
its principal executive office:
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(a) A current list of the full name and last known
business or residence address of each PARTNER set forth in alphabetical order
together with the contribution and the share in profits and losses of each
PARTNER.
(b) A copy of the Certificate and all amendments
thereto, together with executed copies of any powers of attorney pursuant to
which the Certificate or any such amendment has been executed.
(c) Copies of the PARTNERSHIP's federal, state, and
local income tax or information returns and reports, if any, for the six (6)
most recent taxable years.
(d) Copies of the original Agreement of Limited
PARTNERSHIP and all amendments thereto.
(e) Financial statements of the PARTNERSHIP for the six
(6) most recent fiscal years.
(f) The PARTNERSHIP's books and records for at least the
current and past three (3) fiscal years.
14.1.2 Upon the request of any PARTNER, the GENERAL PARTNER
shall promptly deliver to the PARTNER, at the expense of the PARTNERSHIP, a copy
of any of the information required to be maintained by the PARTNERSHIP under
subdivisions (a), (b) or (d) of Section 14.1 of this Agreement.
14.1.3 Any PARTNER shall have the right upon reasonable request:
(a) To inspect and copy any of the records required to
be maintained by the PARTNERSHIP under Section 14.1 of this Agreement.
(b) To obtain from the GENERAL PARTNER, promptly after
becoming available, a copy of the PARTNERSHIP's federal, state and local income
tax or information returns for each year.
14.2 Amendments. The GENERAL PARTNER shall promptly furnish to any other
PARTNER a copy of any amendment to the Agreement executed by the GENERAL PARTNER
pursuant to a power of attorney from the other PARTNER.
14.3 Tax Information. The GENERAL PARTNER shall send to each of the
PARTNERS within ninety (90) days after the end of each taxable year such
information as is necessary to complete federal and state income tax or
information returns, and a copy of the PARTNERSHIP's federal, state, and local
income tax or information returns for the year.
14.4 Financial Information. The GENERAL PARTNER shall send to each of
the PARTNERS (a) PARTNERSHIP financial statements and a report on the status,
business and affairs of the PARTNERSHIP on a quarterly basis; and (b) copies of
all reports, statements and other written communications which the PARTNERSHIP
receives as a shareholder of PICO immediately upon receipt of each such item by
the PARTNERSHIP.
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SECTION 15. DISSOLUTION AND TERMINATION OF THE PARTNERSHIP.
Except as otherwise provided in this Agreement, no PARTNER shall have
the right to cause dissolution of the PARTNERSHIP before the expiration of its
term.
15.1 Events of Dissolution. Subject to the provisions of Section 15.2,
the PARTNERSHIP shall be dissolved upon the first to occur of the following
events:
15.1.1 The expiration of the term set forth in Section 3;
15.1.2 The sale of all or substantially all of the assets of the
PARTNERSHIP;
15.1.3 The election by a Majority of the PARTNERS, but only if
(i) either John Hart or Ronald Langley are not serving as senior executive
officers of PICO or (ii) John Hart and Ronald Langley cease to together directly
or indirectly own more than 50% of the equity interests in the GENERAL PARTNER,
or otherwise cease to effectively control the GENERAL PARTNER;
15.1.4 The election by a Majority of the PARTNERS, other than
the GENERAL PARTNER, with the consent of the GENERAL PARTNER; or
15.1.5 The dissolution, withdrawal, death, incompetency
(including a determination of insanity or appointment of a conservator),
termination or Bankruptcy of a GENERAL PARTNER, where there is no remaining
GENERAL PARTNER.
15.2 Continuation by LIMITED PARTNERS. Within sixty (60) days following
the occurrence of an event of dissolution referred to in Section 15.1.4, the
LIMITED PARTNERS shall elect whether to continue the PARTNERSHIP on the same
terms and conditions as are contained in this Agreement, with a new GENERAL
PARTNER or GENERAL PARTNERS, or to wind up the affairs of the PARTNERSHIP,
liquidate its assets in accordance with Section 15.5 and distribute the proceeds
therefrom in accordance with Section 5.2. Election to continue the PARTNERSHIP
and election of a new GENERAL PARTNER or GENERAL PARTNERS shall be effective
only by vote or consent of the LIMITED PARTNERS holding all of the Units held by
the LIMITED PARTNERS, and failure to obtain such vote or consent shall be deemed
an election to wind up and dissolve the PARTNERSHIP. Said election shall be
given in writing to all PARTNERS including the former GENERAL PARTNER affected
by such event. Expenses incurred in the continuation or attempted continuation
of the PARTNERSHIP shall be deemed expenses of the PARTNERSHIP. In the event of
such an election to continue and upon the election of a successor GENERAL
PARTNER or GENERAL PARTNER for the PARTNERSHIP, the PARTNERSHIP shall continue
without interruption.
15.3 The PARTNERSHIP Interest of a Former GENERAL PARTNER. In the event
the LIMITED PARTNERS elect to continue the PARTNERSHIP with a new GENERAL
PARTNER or GENERAL PARTNERS following an event described in Section 15.1.4, the
former GENERAL PARTNER affected by such event, or the personal representative,
executor, administrator, guardian, conservator, receiver, trustee or other
successor in interest of such former GENERAL PARTNER shall be treated as an
Assignee of the former GENERAL
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PARTNER's PARTNERSHIP interest, and upon the winding up and closing of an estate
for which the successor has been acting, it may transfer and assign the former
GENERAL PARTNER's PARTNERSHIP interest, subject to Section 12 hereof, to the
person or persons entitled thereto, who shall likewise be deemed Assignee(s) of
said PARTNERSHIP interest or undivided portions thereof distributed to such
Assignee(s), unless and until admitted as a Substituted LIMITED PARTNER or
LIMITED PARTNERS as provided in this Agreement.
15.4 Procedure on Death, Bankruptcy, Dissolution or Incompetency of a
LIMITED PARTNER. In the event any LIMITED PARTNER shall die, suffer Bankruptcy
(as defined in Section 17), be dissolved or become incompetent with the result
that such LIMITED PARTNER cannot continue to exercise dominion over its
PARTNERSHIP interest, the PARTNERSHIP shall not be dissolved. In any such event,
the personal representative, executor, administrator, trustee, guardian,
conservator or other successor in interest of the LIMITED PARTNER who has been
affected by such event, shall be treated as an Assignee of the PARTNERSHIP
interest of said affected LIMITED PARTNER, and upon the winding up and closing
of an estate for which the successor has been acting, it may transfer and assign
the LIMITED PARTNER's PARTNERSHIP Units, subject to Section 12 hereof, to the
person or persons entitled thereto, who shall likewise be deemed Assignee(s) of
said PARTNERSHIP Units as to the PARTNERSHIP Units or undivided portions thereof
distributed to such Assignee(s), unless and until admitted as a Substituted
LIMITED PARTNER or LIMITED PARTNERS as provided in this Agreement.
15.5 Lack of Election to Continue and Termination. In the event that the
LIMITED PARTNERS do not elect to continue the PARTNERSHIP as permitted by
Section 15.2, or do not elect a new GENERAL PARTNER, then the LIMITED PARTNERS
shall promptly liquidate and wind up the PARTNERSHIP in an orderly fashion and
distribute the net proceeds of liquidation on dissolution and termination
pursuant to Section 5.2 hereof. A PARTNER may be the liquidator by agreement of
a Majority of the LIMITED PARTNERS, provided that upon an event of dissolution
described in Sections 15.1.1 or 15.1.3, the GENERAL PARTNER shall be the
liquidator. In any sale of the PARTNERSHIP's assets, the liquidator shall take
all reasonable steps to locate potential purchasers in order to accomplish the
sale at the highest attainable price. Nothing herein shall prevent any
PARTNER(s) from, directly or indirectly, purchasing the PARTNERSHIP's assets
from the liquidator, provided that the offer of such PARTNER(s) is equal to or
higher than the highest attainable price from a person who is not an Affiliate
of the PARTNERSHIP. The expenses of the liquidator shall be deemed expenses of
the PARTNERSHIP.
15.6 Time for Liquidation. A reasonable time shall be allowed for the
orderly liquidation of the assets of the PARTNERSHIP and the discharge of
liabilities to creditors so as to enable the PARTNERS to minimize the normal
losses attendant upon a liquidation.
15.7 No Liability for Return of Capital. No PARTNER shall be personally
liable for the return of all or any part of the contribution of any other
PARTNER to the PARTNERSHIP. Any such return shall be made solely from the
PARTNERSHIP assets.
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SECTION 16. GENERAL PROVISIONS.
16.1 Notices. Except as otherwise provided herein, any notice,
distribution, offer or other communication which shall be given to any PARTNER
in connection with the affairs of the PARTNERSHIP shall be deemed duly given if
and when reduced to writing and delivered, as follows:
16.1.1 If to a LIMITED PARTNER, when personally delivered to
such LIMITED PARTNER or, if sent by certified mail or by telefax to the last
address furnished by the LIMITED PARTNER for such purpose, at the time of such
mailing or telefaxing; and
16.1.2 If to a GENERAL PARTNER, when personally delivered to
such GENERAL PARTNER or, if sent by certified mail or by telefax to the last
address furnished by the GENERAL PARTNER for such purpose, at the time of such
mailing or telefaxing.
16.2 Survival of Rights. This Agreement shall be binding upon and inure
to the benefit of the PARTNERS and their respective heirs, legatees, legal
representatives, successors and assigns.
16.3 Construction. The language in all parts of this Agreement shall be
construed according to its fair meaning and not strictly for or against any of
the PARTNERS hereto.
16.4 Section Headings. The captions of the sections of this Agreement
are for convenience only.
16.5 Agreement in Counterparts. This Agreement, or any amendment hereto,
may be executed in multiple counterparts, each of which shall be deemed an
original Agreement, and all of which shall constitute one (1) Agreement by each
of the PARTNERS, notwithstanding that all of the PARTNERS are not signatories to
the original or the same counterpart, to be effective as of the day and year
first above written.
16.6 Governing Law. This Agreement shall be construed according to the
laws of the State of California.
16.7 Time. Time is of the essence with respect to this Agreement.
16.8 Additional Documents. Each PARTNER, upon the request of the GENERAL
PARTNER, shall perform any further acts and execute and deliver any documents
which may be reasonably necessary to carry out the provisions of this Agreement,
including, but not limited to, providing acknowledgment before a Notary Public
of any signature heretofore or hereafter made by a PARTNER.
16.9 Validity. Should any portion of this Agreement be declared invalid
and unenforceable, then such portion shall be deemed to be severable from this
Agreement and shall not affect the remainder hereof.
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16.10 Pronouns. All pronouns and any variations thereof shall be deemed
to refer to the masculine, feminine or neuter, singular or plural, as the
identity of the person, persons, entity or entities may require.
16.11 Descriptions. Anything referred to in this Agreement is expressly
incorporated herein by reference as if set forth in full, whether or not
attached hereto.
16.12 Arbitration. Any controversy or claim arising out of or relating
to this Agreement, or the breach hereof, or the interpretation hereof, shall be
settled by arbitration in accordance with the Rules of the American Arbitration
Association; and judgment upon the award rendered in such arbitration shall be
final and may be entered in any court having jurisdiction thereof. All of the
provisions of Section 1283.05 of the Code of Civil Procedure are hereby
expressly made applicable to any such arbitration. Notice of the demand for
arbitration shall be filed in writing with the other party to this Agreement and
with the American Arbitration Association. In no event shall the demand for
arbitration be made after the date when institution of legal or equitable
proceedings based on such claim, dispute, or other matter in question would be
barred by the applicable statute of limitations. This agreement to arbitrate
shall be specifically enforceable under the prevailing arbitration law.
16.13 Partition. The PARTNERS agree that the assets of the PARTNERSHIP
are not and will not be suitable for partition. Accordingly, each of the
PARTNERS hereby irrevocably waives any and all rights that he or she may have,
currently or in the future, to maintain any action for partition of any of the
assets of the PARTNERSHIP.
16.14 Representative Capacity; Trusts. During any period that any
PARTNERSHIP Units are held as assets of a living trust revocable by the trustees
of such trust, such PARTNERSHIP Units shall be treated as owned by the deemed
owner of such trust for income tax purposes, and any acts of the trustee of said
revocable living trust shall be deemed the acts of the deemed owner of such
trust for income tax purposes. The death of the deemed owner of a trust holding
PARTNERSHIP Units shall be the death of a PARTNER for the purposes of Section
15, and the trustee of such a trust shall be the successor for the purposes of
Section 15.
16.15 Joint Ownership. For all purposes hereunder in those cases where
two or more persons are indicated as a LIMITED PARTNER, holding a PARTNERSHIP
interest as joint tenants or community property, the following shall apply:
(a) To the extent required by law, such persons
shall each be considered as LIMITED PARTNERS hereunder, each shall be deemed to
have contributed an equal amount of the capital contribution and to own an equal
amount of such PARTNERSHIP Units, and each shall be deemed to have an initial
capital interest consisting of an equal amount of the capital contribution as
set forth opposite their respective names.
(b) For purpose of voting upon or consenting to any
actions or matters, as provided herein or by law, (i) if only one votes, such
act binds all; (ii) if more than one votes, the act of a majority so voting
binds all; or (iii) if more than one votes, but the vote is evenly split on any
particular matter, each fraction may vote the PARTNERSHIP interest
proportionately.
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(c) Any notices given to either or any of such persons
shall, unless the PARTNERSHIP is otherwise advised in writing, be deemed notice
to all such persons.
16.16 Valuation of Non-Cash Assets. For purposes of this Agreement, the
procedure for valuing any non-cash assets shall, unless otherwise provided
herein, be as follows:
16.16.1 Real Property. If the PARTNERS cannot otherwise agree on
the value of the real property, the GENERAL PARTNER shall select a qualified MAI
appraiser who has customarily been engaged in appraising commercial real
property (or residential real property, if applicable) within the general
vicinity of the real property in question for a period of not less than five (5)
years. Such valuation shall include a ten percent (10%) discount for costs of
sale. The valuation of the appraiser so selected shall be binding on all
PARTNERS.
16.16.2 Marketable Securities. Any securities held by the
PARTNERSHIP, which are traded on an established market, shall be valued
according to the market price. Such valuation shall include a ten percent (10%)
discount for costs of sale.
16.16.3 Other Assets. If the PARTNERS cannot otherwise agree on
the value of other assets, the GENERAL PARTNER, in its reasonable discretion
shall value such assets. Such valuation shall include a ten percent (10%)
discount for costs of sale.
SECTION 17. DEFINITIONS.
As used herein, the following terms have the indicated meanings:
17.1 "Affiliate" means (i) any entity directly or indirectly
controlling, controlled by or under common control with another entity, (ii) any
person or entity owning or controlling ten percent (10%) or more of the
outstanding voting interests of an entity, or (iii) any officer, director or
partner of an entity.
17.2 "Agreement" means this Agreement of Limited PARTNERSHIP.
17.3 "Assignee" means a person who has acquired all or part of the
PARTNERSHIP interest of a PARTNER but has not been admitted as a Substituted
PARTNER. An "Assignee" shall be entitled to the distributions and allocations
accompanying the PARTNERSHIP interest, but shall not be entitled to any other
rights of a PARTNER hereunder.
17.4 "Bankruptcy" with respect to any PARTNER shall be deemed to have
occurred:
(a) When an order for relief against the PARTNER is
entered under Chapter 7 of the federal bankruptcy law;
(b) When the PARTNER: (1) makes a general assignment for
the benefit of creditors, (2) files a voluntary petition under the federal
bankruptcy law, (3) files a petition or answer seeking for that PARTNER any
reorganization, arrangement, composition, readjustment, liquidation, dissolution
or similar relief under any statute, law, or regulation, (4) files an answer or
other pleading admitting or failing to contest the material allegations of a
petition filed against that PARTNER in any proceeding of this nature, or (5)
seeks, consents to,
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or acquiesces in the appointment of a trustee, receiver, or liquidator of the
PARTNER or of all or any substantial part of that PARTNER's properties;
(c) Sixty (60) days after the commencement of any
proceeding against the person seeking reorganization, arrangement, composition,
readjustment, liquidation, dissolution or similar relief under any statute, law
or regulation, if the proceeding has not been dismissed; or
(d) Sixty (60) days after the appointment, without the
person's consent or acquiescence, of a trustee, receiver or liquidator of it or
of all or any substantial part of its properties, if the appointment has not
been vacated or stayed, or, sixty (60) days after the appointment is stayed, if
the appointment has not been vacated.
17.5 "Cash Available for Distribution" means Cash Flow less amounts set
aside for restoration or creation of reserves determined by the GENERAL PARTNER,
in its reasonable discretion, to be necessary and desirable, including but not
limited to reserves for debt service for a reasonable period of time, repairs,
replacement, property maintenance, property taxes, insurance, increases in
working capital and contingencies.
17.6 "Cash Flow" means cash funds provided from operations of the
PARTNERSHIP, without deduction for depreciation or amortization expenses, but
after deducting funds used to pay all other expenses, debt payments, capital
improvements and replacements. The term shall not include Net Proceeds of Sale
or Other Disposition or Net Proceeds of Refinancing.
17.7 "Code" means the Internal Revenue Code of 1986, as amended.
17.8 "Effective Date" means the date the Certificate is filed with the
California Secretary of State.
17.9 "Fair Market Value" shall mean that term as defined in Regulations
Section 1.704-1(b)(2)(iv)(h).
17.10 "LIMITED PARTNERS" means Substituted LIMITED PARTNERS and the
Persons designated on and executing the signature page of this Agreement as
LIMITED PARTNERS.
17.11 "Majority" means PARTNERS collectively holding more than fifty
percent (50%) of the Units held by all PARTNERS to whom reference is made, as
set forth on the signature page hereof.
17.12 "Net Income," "Net Loss," and "Gain" mean, respectively, the
following amounts as designated on the PARTNERSHIP's informational tax return
filed for federal income tax purposes, as determined by the tax attorney(s) or
accountant(s) employed by the PARTNERSHIP: (i) ordinary income, (ii) ordinary
loss, plus net long-term capital loss, net short-term capital loss, and Section
1231 loss; and (iii) net long-term capital gain, net short-term capital gain,
and other net gain under Section 1231. In the event that property is reflected
on the books of the PARTNERSHIP (as maintained in accordance with Regulations
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Section 1.704-1(b)(2)(iv)) at a book value that differs from the adjusted tax
basis of such Property, Net Income, Gain and Net Loss (or item thereof) shall be
determined by reference to the book value of such Property. Such allocation of
book values shall be made in accordance with Regulations Section
1.704-1(b)(2)(iv)(g).
17.13 "Net Proceeds of Refinancing" means the gross proceeds received by
the PARTNERSHIP upon the refinancing of PARTNERSHIP assets (less all costs of
such refinancing, including the payment of all obligations refinanced in
connection therewith). This term shall not include Cash Available for
Distribution.
17.14 "Net Proceeds of Sale or Other Disposition" means the gross
proceeds received by the PARTNERSHIP upon the sale or other disposition of less
than all or substantially all of the PARTNERSHIP assets (less all costs of such
sales, including the payment of all obligations paid in connection therewith).
This term shall not include Cash Available for Distribution.
17.15 "PARTNERS" refers collectively to the GENERAL PARTNER and to the
LIMITED PARTNERS, and reference to a "PARTNER" means any one of the PARTNERS.
17.16 "PARTNERSHIP" refers to the limited partnership created under this
Agreement.
17.17 "Persons" means any individual, partnership, corporation, trust,
Limited Liability Company or other entity.
17.18 "Property" means the stock of PICO Holdings, Inc. acquired by the
PARTNERSHIP.
17.19 "Pro rata" when used with respect to the PARTNERS, or some of them
(if the proration is not otherwise specifically identified by a percentage),
means (as to an item or amount to be contributed or to be allocated to them or
shared by them, or as to a vote by them), the proportion that the number of
Units held by each PARTNER bears to the total of all outstanding Units held by
all PARTNERS (or those PARTNERS to whom reference is made).
17.20 "Regulations" means U.S. Treasury Regulations.
17.21 "Substituted GENERAL or LIMITED PARTNER" means a transferee of an
interest who has obtained the written consent of the GENERAL PARTNER pursuant to
Section 12.3 hereof. A "Substituted GENERAL or LIMITED PARTNER" shall have all
the distribution, allocation, voting and other rights and obligations of a
PARTNER hereunder.
17.22 "Units" are a means of evidencing and determining the PARTNERS'
respective rights to share in the distributions and allocations of the
PARTNERSHIP and to vote on certain matters concerning the PARTNERSHIP as
provided in this Agreement.
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IN WITNESS WHEREOF, the PARTNERS have executed this Agreement effective as of
the date first above written.
<TABLE>
<CAPTION>
Initial Capital
Contribution Units
------------ -----
<S> <C> <C>
GENERAL PARTNER:
PICO Equity Investors Management, LLC
$------------ -------
By:___________________________
John R. Hart
Manager and President
Address: 875 Prospect Street, Ste. 301
La Jolla, CA 92037
LIMITED PARTNER:
The Pension Fund of the Christian Church $ 50,000,000 500,000
(Disciples of Christ)
</TABLE>
By:____________________________
Its:___________________________
Address:_______________________
_______________________
_______________________
