SEPARATION AGREEMENT AND GENERAL RELEASE
     THIS SEPARATION AGREEMENT AND GENERAL RELEASE (this “Agreement”), dated as
of November 13, 2005, is made and entered into by and between THOMAS E. MANGOLD
(“Executive”) and AFFIRMATIVE INSURANCE HOLDINGS, INC., a Delaware corporation
(the “Company”).
RECITALS:
     A. Executive has been employed by the Company as its Chairman, Chief
Executive Officer and President pursuant to the terms of an employment agreement
entered into on or before May 27, 2004 and effective as of July 14, 2004 (the
“Employment Agreement”).
     B. Executive is a party to Stock Option Agreements granted under the
Company’s 1998 Omnibus Incentive Plan, as amended (the “1998 Plan”), and Stock
Option Agreements granted under the Company’s 2004 Stock Incentive Plan (the
“2004 Plan”) pursuant to which the Company has granted to Executive stock
options covering shares of Common Stock under the 1998 Plan (the “1998 Options”)
and stock options covering shares of Common Stock under the 2004 Plan (the “2004
Options”).
     C. Executive is, pursuant hereto and in connection with his termination
hereunder irrevocably resigning from all positions as an officer or director of
the Company and all entities affiliated with the Company effective November 13,
2005 (the “Resignation Date”).
     D. Executive and the Company have reached an agreement regarding the
termination of Executive’s employment with the Company effective as of the
Effective Date (as defined in Section 16 of this Agreement).
     E. Without making any admission of liability whatsoever, it is the desire
of Executive and the Company to settle fully and finally all differences or
potential differences between them, including all differences or potential
differences that arise out of or relate to Executive’s employment or termination
of employment with the Company.
STATEMENT OF AGREEMENTS
     NOW, THEREFORE, in consideration of the foregoing and the representations,
warranties, covenants and agreements set forth in this Agreement, the
sufficiency of which is hereby acknowledged, and intending to be legally bound
by the terms of this Agreement, Executive and the Company agree as follows:
     1. Termination of Employment and Resignation of Positions. As of the
Effective Date, Executive’s employment by and with the Company and any
subsidiaries shall terminate. As of the Effective Date, the Employment Agreement
shall terminate (other than Section 5 thereof) and the parties acknowledge and
agree that, pursuant hereto, the Executive is voluntarily terminating his
employment with the Company as of the Effective Date. Executive acknowledges
that, pursuant hereto, the Executive is voluntarily irrevocably resigning from
all positions as an officer or director of the Company and as an officer or
director of all entities affiliated with the Company as of the Resignation Date.
Executive agrees to execute such

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documents and take such actions as the Company may deem necessary or desirable
to effectuate the foregoing.
     2. Consideration. Executive shall receive, in full settlement of any
compensation and benefits to which he would otherwise be entitled (except as
provided herein) under the Employment Agreement or under any other compensation
or benefits plan, program, policy or arrangement maintained by the Company in
which Employee has at any time been a participant, including without limitation,
accrued vacation and other paid time off:
          2.1 Executive shall be entitled to payment for accrued and unpaid base
salary through the Effective Date, less applicable income and employment tax
withholding and benefit plan deductions. The net amount paid pursuant to this
Section 2.1 after applicable deductions and withholding shall be paid on the
earlier of the next regular payroll date of the Company following the Effective
Date or such earlier date as may be required by law.
          2.2 Executive shall be entitled to payment for accrued and unpaid Paid
Time Off (“PTO”) through the Effective Date, less applicable income and
employment tax withholding. The net amount paid pursuant to this Section 2.2
after applicable withholding shall be paid on the earlier of the next regular
payroll date of the Company following the Effective Date or such earlier date as
may be required by law. Such amount shall be paid in complete satisfaction of
any liability for accrued vacation and other paid time off.
          2.3 Executive shall be entitled to payment of a prorata bonus for the
year 2005 in the amount of Three Hundred Thirty-Four Thousand Five Hundred
Eighty-Three and 35/100 Dollars ($334,583.35), less applicable income and
employment tax withholding. The net amount after applicable withholding shall be
paid by wire transfer (Bank of America ABA # 111000025, Account # 005770427161
(the “Wire Instructions”)) on the Effective Date. The payment will be made on
the Effective Date against receipt of the executed Acknowledgement of
Non-Revocation in the form of “Exhibit B” to this Agreement and faxing same to
the Company’s General Counsel.
          2.4 The Company shall pay Executive a cash severance payment of Two
Million Seven Hundred Ninety-Five Thousand Dollars and no/100 ($2,795,000.00),
less applicable income and employment tax withholding. The net amount after
applicable withholding shall be paid by wire transfer in accordance with the
Wire Instructions on the Effective Date. The payment will be made on the
Effective Date against receipt of the executed Acknowledgement of Non-Revocation
in the form of “Exhibit B” to this Agreement and faxing same to the Company’s
General Counsel.
          2.5 Executive agrees that he will submit to the Company, before the
Effective Date, a request for all expenses (through the Resignation Date) to
which he is entitled to receive reimbursement pursuant to Company policies. The
Company agrees to pay such amounts within 10 days of the date the Executive
submits such requests. Executive agrees that no reimbursable expenses shall be
incurred by Executive after the Resignation Date.

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          2.6 Executive shall be entitled to receive the following payment in
lieu of any benefits provided by the Company under the group insurance plans or
other arrangements maintained by the Company, subject to the following:
               2.6.1 Within seven days after the Effective Date, the Company
shall pay Executive the sum of Thirty-Eight Thousand Dollars ($38,000) in lieu
of any continuation of benefits by the Company other than as set forth in
Section 2.6.2 hereof. The payment will be made against receipt of the executed
Acknowledgement of Non-Revocation in the form of “Exhibit B” to this Agreement
and faxing same to the Company’s General Counsel.
               2.6.2 Executive may elect to continue health benefit coverage
under the Company’s group health plan (medical and dental coverages) for
himself, his spouse and/or eligible dependants to the extent available under the
terms of the plan pursuant to the healthcare coverage continuation provisions of
the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended
(“COBRA”), at the same coverage level provided immediately prior to the
Effective Date (subject to any changes in employee coverage under the plan that
may be made from time to time with respect to the coverage generally applicable
to the Company’s senior executives). Executive will pay the cost of such COBRA
coverage.
               2.6.3 Executive shall be entitled to vested benefits under the
Company’s 401(k) plan according to the terms of such plan and his rights and the
Company’s obligations thereunder shall not be affected by this Agreement.
     3. Stock Options.
          3.1 All vested 1998 Options shall be exercisable in accordance with
the terms of the 1998 Plan. Notwithstanding anything in the 1998 Plan to the
contrary, all unvested 1998 Options shall become fully vested as of the
Effective Date against receipt of the executed Acknowledgement of Non-Revocation
in the form of “Exhibit B” to this Agreement and faxing same to the Company’s
General Counsel and may be thereafter exercised by Executive according to the
1998 Plan.
          3.2 All of the 2004 Options granted under the 2004 Plan are hereby
cancelled. Executive agrees to execute such documents and take such actions as
the Company may deem necessary or desirable to further evidence the cancellation
of the 2004 Options.
          3.3 In connection with the exercise or other activity with respect to
the 1998 Options (or shares received upon exercise thereof) or other shares of
the Company (collectively, the “Company Equity”), the Company agrees to
reasonably assist Executive with efforts to exercise such 1998 Options or hedge
the value of such Company Equity, including by reasonably cooperating with any
broker or bank with whom Executive arranges for a cashless exercise of such 1998
Options or hedge of such Company Equity; provided, however, that the Company
shall incur no out of pocket cost or expense or incur any obligation or
liability in connection with assisting Executive as provided in this
Section 3.3.
     4. Non-Admission of Discrimination or Wrongdoing.

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          4.1 This Agreement shall not in any way be construed as an admission
that the Company or any individual has any liability to or acted wrongfully in
any way with respect to Executive or any other person. The Company specifically
denies that it has any liability to or that it has done any wrongful or
discriminatory acts against Executive or any other person on the part of itself,
or its officers, employees and/or agents.
          4.2 Executive understands and agrees that he has not suffered any
discrimination in terms, conditions or privileges of his employment based on
age, race, gender, religious creed, color, national origin, ancestry, physical
disability, mental disability, medication condition, marital status, sexual
orientation and/or sexual or racial harassment. Executive understands and agrees
that he has no claim for employment discrimination under any legal or factual
theory.
     5. Separation of Employment. Executive acknowledges that his employment
with the Company shall terminate as of the Effective Date, and that such
employment will not be resumed again at any time. In addition, Executive will
not apply for or otherwise seek employment with the Company at any time in the
future.
     6. Company Property. Executive represents and agrees that he has turned
over to the Company all equipment, files, memoranda, records, and other
documents, Confidential Information (as defined in Section 10.2 hereof) that is
in physical or electronic form and any other physical or personal property which
are the property of the Company and which he has in his possession, custody or
control at the time this Agreement is executed. Executive will return to the
Company any additional company property in his possession, including, but not
limited to, company files, work product, computer equipment, computer software,
cell phones, pagers, corporate credit cards, identification cards, manuals,
company documents and company keys. Notwithstanding the foregoing, the Company
agrees that Executive may keep the cell phone and the cell phone number that he
currently uses, and the Company and Executive will cooperate to transfer
responsibility for payment on the bills related thereto from the Company to
Executive effective at a time mutually acceptable to the Company and Executive.
Executive further agrees to cooperate and work with Company’s General Counsel to
ensure his compliance with this Section 6.
     7. Release. In exchange for the accommodations by the Company provided
herein and the mutual obligations set forth herein, and except for the
obligations set forth or referenced herein (including, without limitation,
Executive’s rights under the 1998 Options, Executive’s vested 401(k) and
Executive’s rights to indemnification under the Company’s Bylaws, Certificate of
Incorporation or otherwise) (collectively, the “Excluded Claims”), Executive
knowingly and voluntarily waives and releases all rights and claims, known and
unknown, which Executive may have against the Company, and or any of the
Company’s parents and/or their respective subsidiaries and related or affiliated
entities or successors, or any of their respective current or former officers,
directors, managers, employees or representatives thereof respectively
(collectively, the “Released Parties”) arising out of or relating to
(i) Executive’s employment or termination of employment with the Company,
(ii) the Employment Agreement, (iii) the 1998 Plan, except with respect to
Executive’s rights under the 1998 Options, (iv) the 2004 Plan and the 2004
Options or (v) any acts, occurrences or omissions taking place prior to the date
of execution of this Agreement by Executive (the “Release”), including any and
all charges,

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complaints, claims, liabilities, obligations, promises, agreements, contracts,
controversies, damages, actions, causes of action, suits, rights, demands,
costs, losses, debts and expenses of any kind, at law, equity or otherwise,
arising in tort, contract or otherwise, whether known or unknown, suspected or
unsuspected (other than Excluded Claims), which Executive has or may have
against them. This Release extends to and includes, but is not limited to,
claims for employment discrimination, wrongful termination, constructive
termination, violation of public policy, breach of any express or implied
contract, breach of any implied covenant, fraud, intentional or negligent
misrepresentation, emotional distress, or any other claims relating to
Executive’s employment or termination of employment with the Company. This
Release also includes a release of any claims (other than Excluded Claims) by
Executive under federal, state or local employment laws or regulations,
including, but not limited to: (1) Title VII of the Civil Rights Act of 1964, 42
U.S.C. Section 2000(e), et. seq. (race, color, religion, sex, and national
origin discrimination); (2) the Age Discrimination in Employment Act, 29 U.S.C.
§§ 621, et. seq. (age discrimination); (3) Section 1981 of the Civil Rights Act
of 1866, 42 U.S.C. § 1981 (race discrimination); (4) the Equal Pay Act of 1963,
29 U.S.C. § 206 (equal pay); (5) the Fair Labor Standards Act, 29 U.S.C. §§ 201,
et. seq. (wage and hour matters, including overtime pay); (6) COBRA;
(7) Executive Order 11141 (age discrimination); (8) Section 503 of the
Rehabilitation Act of 1973, 29 U.S.C. §§ 701, et. seq. (disability
discrimination); (9) the Employee Retirement Income Security Act of 1974, 29
U.S.C. §§ 1001, et. seq. (employment benefits); (10) Title I of the Americans
with Disabilities Act (disability discrimination); (11) the Sarbanes Oxley Act;
and (12) any applicable Texas employment laws.
     8. No Lawsuits.
          8.1 Executive promises never to file a lawsuit of any kind with any
court or arbitrator against the Company or any Released Parties, asserting any
claims that are released in this Agreement.
          8.2 Executive represents and agrees that, prior to signing this
Agreement, he has not filed or pursued any complaints, charges or lawsuits of
any kind with any court, governmental or administrative agency or arbitrator
against the Company or any Released Parties, asserting any claims that are
released in this Agreement.
     9. Ownership of Claims. Executive represents and agrees that Executive has
not assigned or transferred, or attempted to assign or transfer, to any person
or entity, any of the claims Executive is releasing in this Agreement.
     10. Restrictive Covenants.
          10.1 Compliance with Covenants. Executive agrees to comply at all
times after the date hereof with all provisions of this Section 10 and which
include covenants concerning the non-disclosure of confidential information and
other restrictive covenants. Executive acknowledges and agrees that these
provisions shall survive the termination of his employment and the execution of
this Agreement, to the extent specified in such provisions, regardless of the
nature of or reason for his separation and the payments made with regard
thereto.

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          10.2 Confidential Information. Executive acknowledges and agrees that
the Company and its affiliated entities have, since the inception of his
employment and throughout the entire period thereof, provided him with trade
secrets (as defined under Texas law), and Confidential Information (as defined
below). Executive agrees that Executive will not divulge or disclose to anyone
(other than the Company, its affiliated entities or any persons employed or
designated by the Company) any Confidential Information. Confidential
Information shall include this Agreement, all information of a confidential
nature relating to the business of the Company or any of its subsidiaries or
controlled affiliates, including, without limitation, customer lists, contract
terms, marketing plans, business plans, financial data and information, cost
information, sales data, business opportunities (whether for existing, new or
developing businesses), pricing information, pricing strategies and techniques,
employee lists, employee personnel information, salary information, business
forms, computer and internet software and files, computer programs, compilations
of information, partners or investors, methods of doing business, research
information, processes, methods, designs, inventions, improvements, discoveries,
and other confidential information that is regularly used in the operating,
technology, and business dealings of the Company and its controlled affiliates.
Executive further agrees not to disclose, publish or make use of any such
knowledge or Confidential Information at any time, including in any future
employment, without the consent of the Company. Notwithstanding the foregoing,
this Section 10.2 and Section 5(a) shall not apply to Confidential Information
(i) that becomes known to persons other than the Company through no fault of
Executive (other than persons subject to a direct or indirect confidentiality
obligation to the Company), or (ii) the disclosure of which is required under
law or legal process, provided that Executive gives the Company prompt notice of
such requirement of law or legal process and uses reasonable efforts to allow
the Company an opportunity to seek a protective order or other relief limiting
or barring such disclosure.
          10.3 Continuing Restrictive Covenants. Executive acknowledges and
agrees that the restrictive covenants set forth in Section 5(a)-(c) of the
Employment Agreement (a copy of such Section 5 is attached as Exhibit A) shall
remain in full force and effect. Executive acknowledges and agrees that
Executive shall continue to be bound by the restrictive covenants set forth in
Section 5(a)-(c) of the Employment Agreement. Executive agrees not to judicially
challenge the enforceability of any of the restrictive covenants set forth in
Section 5(a)-(c) of the Employment Agreement, including any judicial challenges
to consideration or the reasonableness of the restrictive covenants. Executive
further agrees that if he judicially challenges the enforceability of any of the
restrictive covenants set forth in Section 5(b)-(c) of the Employment Agreement,
including any judicial challenges to consideration or the reasonableness of the
restrictive covenants (including, without limitation, any challenge made in the
course of prosecuting or defending), or if a court determines (in a proceeding
to which the Company or a successor or assign hereunder is party) preliminarily
in relation to injunctive relief, or on a final determination, that any of the
restrictive covenants in Section 5(b)-(c) of the Employment Agreement are
unenforceable or overbroad (excluding, for avoidance of doubt, any such
determination related to comparable provisions of other agreements to which
Executive is not a party), and if Executive is or has prior to such
determination or judicial challenge directly or indirectly conducted activities
that would constitute a material violation of this Section 10.3 or Section
5(b)-(c), as written, Executive will be obligated to pay Company the sum of One
Million Five Hundred Thousand Dollars ($1,500,000.00), representing a portion of
the amounts and benefits paid to or received by Executive under Sections 2.3,
2.4, 2.6.1 and 3.1 hereof, which

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will be immediately due and owing to the Company upon any such determination.
Such payment shall be in addition to any other remedies available to the Company
for breach of this Agreement by Executive. The amount of any damages incurred by
the Company as a result of breach of this Agreement or Section 5(b)-(c) of the
Employment Agreement by Executive will be reduced by the amount of any payment
made by Executive to the Company as provided above. Notwithstanding anything to
the contrary in this Section 10.3, if the Company initiates any proceeding
against Executive for enforcement of Section 5(a)-(c) of the Employment
Agreement, Executive reserves the right defend such proceeding on the basis that
his activity does not constitute a violation of the provision.
          10.4 Enforcement. Executive and the Company acknowledge and agree that
any of the covenants contained in this Section and Section 5 of the Employment
Agreement may be specifically enforced through injunctive relief, but such right
to injunctive relief shall not preclude Company from other remedies which may be
available to it.
          10.5 Reformation. The Company and Executive agree and stipulate that
the agreements and covenants not to compete and not to solicit contained in
Section 5(b)-(c) of the Employment Agreement are fair and reasonable in light of
all of the facts and circumstances of the relationship between Executive and the
Company; however, Executive is aware that in certain circumstances courts have
refused to enforce certain terms of agreements not to compete and agreements not
to solicit. Therefore, in furtherance of, and not in derogation of the
provisions of Section 5(b)-(c), Executive agrees that in the event a court
should decline to enforce any provision of Section 5(b)-(c) of the Employment
Agreement, that Section 5(b)-(c) of the Employment Agreement, as the case may
be, shall be deemed to be modified or reformed to restrict his competition with
the Company or its affiliated entities to the maximum extent, as to time,
geography and business scope, that the court shall find enforceable; provided,
however, in no event shall the provisions of Section 5(b)-(c) of the Employment
Agreement be deemed to be more restrictive to him than those contained herein or
therein.
          10.6 Reliance on Compliance. Executive understands and agrees that the
Company shall have the right to sue him for breach of this Agreement if
Executive violates the provisions of this Section or Section 5 of the Employment
Agreement, or otherwise fails to comply with this Agreement. Executive further
acknowledges that but for his agreements to comply with his obligations
described in this Section and Section 5 of the Employment Agreement and this
Agreement, the Company would not provide him with all or part of the
compensation, benefits and consideration set forth in Sections 2.3, 2.4, 2.6.1
and 3.1 of this Agreement.
     11. No Benefits. Executive understands that Executive’s participation in
all benefit plans, programs, policies, insurance plans or other arrangements
maintained by the Company or provided by the Company, if any, will end at the
Effective Date, except as provided herein. Executive also understands that the
Company will not pay for any business-related or other charges incurred by him
after the Resignation Date unless such expenses are expressly approved in
advance by the Chief Executive Officer of the Company. Executive further
understands that Executive will cease to accrue PTO as of the Effective Date.

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     12. Tax Withholdings and Reporting. All payments and benefits under this
Agreement are gross amounts and will be subject to any required income and
employment tax withholding. The parties agree to act in good faith to cooperate
and confer on appropriate and consistent tax reporting relating to the payments
and benefits under this Agreement.
     13. Cooperation. Executive shall reasonably cooperate with the Company and
its subsidiaries in the defense or prosecution of any claims or actions now in
existence or that may be brought in the future against or on behalf of the
Company and its subsidiaries that relate to events or occurrences that
transpired while Executive was employed by the Company. Executive further
represents and agrees that he will not furnish information to or cooperate with
any non-governmental entity (other than the Company and its affiliated entities)
which is a party to such claims or actions; provided, however, nothing shall
prohibit Executive from responding to the requirements of law or legal process,
provided that Executive gives the Company prompt notice of such requirement of
law or legal process and uses reasonable efforts to allow the Company an
opportunity to seek a protective order or other relief limiting or barring such
disclosure. Employee’s cooperation in connection with such claims or actions
shall include, but not be limited to, being available to meet with counsel to
prepare for discovery or trial and to act as a witness on behalf of the Company
at mutually convenient times. Executive represents and agrees that he will give
truthful and accurate testimony in any such proceedings or legal actions.
Executive also shall cooperate fully with the Company and its subsidiaries in
connection with any investigation or review by any federal, state, or local
regulatory authority as any such investigation or review relates to events or
occurrences that transpired while Employee was employed by the Company. Solely
in recognition of the value of his time, if Executive meets with the Company or
its affiliates at the request of the Company at any time after the Effective
Date, the Company shall pay to Executive the sum of $2,000.00 per day plus
documented travel expenses.
     14. Governing Law and Venue. The venue for the litigation of any dispute
arising out of this Agreement shall be a court of competent jurisdiction in
Dallas County, Texas. Texas law shall govern the interpretation and enforcement
of this Agreement, notwithstanding the conflict-of-law principles of such
jurisdiction.
     15. Effective Date. Executive is entering into this Agreement freely and
voluntarily. Executive has carefully read and understands all of the provisions
of this Agreement. Executive acknowledges that Executive has been advised to
consult legal counsel concerning this Agreement prior to signing the Agreement,
and that Executive has had sufficient opportunity to do so. Executive
understands that Executive may have up to twenty-one (21) days from the date of
this Agreement to consider this Agreement. Executive understands that if
Executive signs this Agreement, Executive will then have seven (7) days to
cancel it if Executive so chooses. Executive may cancel this Agreement by faxing
a written notice of cancellation to the General Counsel of Company, provided,
however, that the Executive’s resignation from his positions as an officer and
director of the Company and all subsidiaries and affiliates shall remain in full
force and effect. However, if Executive elects to cancel this Agreement,
Executive understands Executive will not be entitled to any of the benefits,
compensation, or other consideration referenced in this Agreement. Executive
realizes this Agreement is not effective or enforceable until the seven-day
period expires without revocation. Executive understands that this Agreement
will not become effective until the eighth day after Executive signs the
Agreement

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without revocation (the “Effective Date”). If this Agreement does not become
effective, the parties acknowledge that the Employment Agreement remains in full
force and effect until terminated in accordance with the provisions thereof.
Executive understands that the Company will have no duty to pay him or provide
him with the compensation and benefits listed in this Agreement until the
Effective Date of this Agreement, including, without limitation, all amounts and
benefits paid to or received by Executive under Sections 2.3, 2.4, 2.6.1 and 3.1
hereof, other than compensation and benefits to which he is otherwise entitled,
such as salary, expense reimbursements, and Company benefit plans. All amounts
and benefits paid to or received by Executive under Sections 2.3, 2.4, 2.6.1 and
3.1 hereof will be made on the Effective Date against receipt of the executed
Acknowledgement of Non-Revocation in the form of “Exhibit B” to this Agreement
and faxing same to the Company’s General Counsel. Executive understands that he
is not waiving any age discrimination claim that may arise after the Effective
Date. Executive further acknowledges that he is receiving consideration, that he
is not otherwise entitled to, for his agreement herein to release any age
discrimination claim.
     16. Notice. All notices and other communications provided for in this
Agreement (including the Acknowledgement of Non-Revocation) shall be in writing
and shall be deemed to have been duly given upon personal delivery or receipt
when sent by fax and shall be addressed as follows:
     If to the Executive:  Thomas E. Mangold care of Benjamin Nelson of Hughes &
Luce LLP (214.939.5849); and
     If to the Company:  David B. Snyder, General Counsel (972.728.6491)
     17. No Representations. The parties and each of them represent and agree
that no promises, statements or inducements have been made to them that have
caused them to sign this Agreement other than those expressly stated in this
Agreement.
     18. Indemnification; Directors and Officer’s Insurance. The Company shall
fulfill and honor in all respects the obligations of the Company pursuant to any
indemnification provisions under the Certificate of Incorporation or Bylaws or
otherwise, each as in effect on the date hereof. To the extent that the Company,
in its sole discretion, elects to maintain professional liability insurance
policies from time to time, the Company will not exclude Executive as a covered
person to the extent that such policies cover former directors or officers.
     19. Successors. All of the terms and provisions contained in this Agreement
shall inure to the benefit of and shall be binding upon the parties hereto and
their respective heirs, legal representatives, successors and assigns.
     20. Severability. Should any of the provisions in this Agreement be
declared or be determined to be illegal or invalid, all remaining parts, terms
or provisions shall be valid, and the illegal or invalid part, term or provision
shall be deemed not to be a part of this Agreement.
     21. Proper Construction.
          21.1 The language of all parts of this Agreement shall in all cases be
construed as a whole according to its fair meaning, and not strictly for or
against any of the parties.

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          21.2 As used in this Agreement, the term “or” shall be deemed to
include the term “and/or” and the singular or plural number shall be deemed to
include the other whenever the context so indicates or requires.
          21.3 The paragraph headings used in this Agreement are intended solely
for convenience of reference and shall not in any manner amplify, limit, modify
or otherwise be used in the interpretation of any of the provisions hereof.
     22. Entire Agreement. This Agreement (and Section 5 of the Employment
Agreement and the 1998 Option agreements) is the entire agreement between
Executive and the Company and fully supersedes any and all prior oral or written
agreements or understandings between the parties pertaining to its subject
matter.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement the day and
year first above written.

              Executive  
 
                  Thomas E. Mangold
 
       
 
  Company    
 
            Affirmative Insurance Holdings, Inc.
 
       
 
  By:    
 
       
 
  Name:    
 
       
 
  Title:    
 
       

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EXHIBIT A
Excerpts from Section 5 of Employment Agreement
     5. Restrictive Covenants.
     (a) Confidential Information. During the Term and at all times thereafter,
the Executive agrees that he will not divulge to anyone (other than the Company
or any persons employed or designated by the Company) any knowledge or
information of a confidential nature relating to the business of the Company or
any of its subsidiaries or affiliates, including, without limitation, customer
lists, contract terms, financial costs, sales data, or business opportunities
whether for existing, new or developing businesses, and the Executive further
agrees not to disclose, publish or make use of any such knowledge or information
without the consent of the Company.
     (b) Non-Compete. Upon voluntary termination of Executive’s employment, upon
termination of Executive’s employment by the Company for Cause, or upon
termination of Executive’s employment without Cause, Executive agrees not to
enter into or engage in any phase of the business conducted by the Company in
any state in which the Company is conducting business on the date of termination
of Executive’s employment with the Company, either as an individual for his own
account, as a partner or joint venturer, or as an employee, agent, officer,
director, or substantial shareholder of a corporation or otherwise for a period
of two (2) years following the date of Executive’s termination of his employment
with the Company. As of the date of execution of this Agreement, the business
conducted by the Company was defined as owning and operating (i) insurance
companies providing automobile insurance coverage of any type or class,
(ii) underwriting agencies (or managing general agencies) that produce and
administer automobile insurance, and (iii) retail agencies that sell automobile
insurance policies. Notwithstanding the foregoing, in the event Executive’s
employment is not terminated for Cause, if Executive reasonably shows that his
proposed employment is not directly competitive with the Company’s business,
Executive may enter into such employment.
     (c) Non-Solicitation. Upon termination or expiration of his employment,
whether voluntary or involuntary, Executive agrees not to directly or indirectly
solicit either (i) any employees of the Company to leave their employment with
the Company in favor of employment with any other entity, or (ii) business from
any entity, organization or person which has contracted with the Company, which
has been doing business with the Company, from which the Company was soliciting
business at the time of Executive’s termination, or from which the Executive
knew or had reason to know that the Company was going to solicit business at the
time of Executive’s termination, in each case for a two-year period from the
date of Executive’s termination of his employment with the Company.

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EXHIBIT B
ACKNOWLEDGEMENT OF NON-REVOCATION AFTER EXPIRATION OF
SEVEN-DAY PERIOD
     I, Thomas Mangold, acknowledge that I executed a SEPARATION AGREEMENT AND
GENERAL RELEASE (“Agreement”) with Affirmative Insurance Holdings, Inc., that I
was given a seven-day period immediately following my execution of that
Agreement within which to revoke that Agreement, that the seven-day period has
now expired without any revocation by me, and that the Agreement is now
irrevocable. By executing this Reaffirmation, I affirm that I have not
heretofore, or contemporaneously with the execution of this Reaffirmation,
revoked, or attempted to revoke the Agreement, either by notice to the Company,
or otherwise, and that I am now, by virtue of my execution of this
Reaffirmation, fully bound by all of the terms and conditions of the Agreement.
     EXECUTED in Dallas, Texas this ___day of November, 2005.
Thomas Mangold