Exhibit 10.42


Employment
Agreement


This Employment Agreement (“Agreement”) is made by and
between MICHAEL E. JALBERT (“Employee”) and EFJ, INC., a Delaware corporation (“Company”)
this 15th day of October 2002.


The Company wishes to employ Employee as Chairman,
President and Chief Executive Officer (“CEO”) of the Company on the terms set
forth in this Agreement, and Employee desires to be employed by Company in this
capacity. Company and Employee desire to set forth in writing the terms and
conditions of their agreements and understandings.


THEREFORE, in consideration of the mutual promises set
forth herein, it is mutually agreed between the parties as follows:


Section 1.   Employment Term.   The Company
hereby employs the Employee and the Employee hereby accepts employment as
Chairman, CEO and President of the Company on the terms of this Agreement,
commencing as of the date hereof and continuing for a period of two (2) years,
until October 14, 2004, unless terminated earlier in accordance with the
provisions set forth herein. Following the initial term of employment, this
Agreement may be renewed for additional two (2) year terms. At the
expiration of each term (the initial two year term or each two year extension
period excluding the term that would expire on October 14, 2008 in
accordance with Section 4), employment shall be automatically renewed for
an additional two (2) year term unless written notice to the contrary is
given by the Company or the Employee by May 14th of each year
preceding the October 14 termination date. Neither the Company nor the
Employee is not required to give written notice of termination for the term
that would expire on October 14, 2008. The provisions of the Agreement
shall apply during the initial term and any renewals of the term.


Section 2.   Duties and Authority.   The Employee’s
duties shall be as determined by the Board of Directors. The duties of
Chairman, CEO and President are generally set forth in the job description for
such position, and such duties may change from time to time.


Section 3.   Compensation.


A.   Base Salary.   Employee will
receive a base salary of Three Hundred and Ten Thousand Dollars ($310,000.00)
per year, paid biweekly, as long as Employee is employed with the Company. Such
base salary will be subject to annual review, taking into consideration
employee’s performance during the preceding year, base salary adjustments for
the executive staff and other internal and external factors as described in the
corporate bylaws and public document filings.


B.   Bonus.   If the Company
meets or exceeds the annual objectives set forth for Employee by the Board of
Directors, then the Employee will receive an annual bonus at the discretion of
the Board of Directors. The bonus will be paid annually in February. At the
discretion of the Board of Directors, up to fifty (50%) of Employee’s annual
bonus may be granted to Employee in the form of restricted Common Stock or
Stock Options in accordance with the Company’s 1996 Stock Option Plan.


C.   Additional Benefits.   Employee also
will receive such additional employee benefits commensurate with his position,
including those that the Company may from time to time make available to its
executive officers, including 4 weeks paid vacation, qualified profit-sharing
plans, employee group insurance and disability insurance. In addition, the
Company shall provide Employee a one million dollar ($1,000,000) life insurance
policy with the beneficiary(ies) of such policy selected by Employee.


D.   Withholdings.   All payments
made to Employee pursuant to this Agreement shall be reduced by all required
federal, state and local withholdings for taxes and similar charges and by all
contributions or payments required to be made by Employee in connection with
any employee benefit plan maintained by the Company.











Section 4.   Retirement.   On October 14, 2008, if the
Employee is still employed by the Company, the Employee shall terminate his
employment relationship with the Company. If the Employee does not enter into a
full-time employee relationship with any other entity, then he is eligible for
retirement benefits stated in Section 5. If Employee subsequently enters
into a fulltime employment relationship, then the Company may immediately
terminate any Retirement Benefits stated in Section 5.


Section 5.   Retirement Benefits.   Upon the
retirement of Employee in accordance with Section 4, and following the
cessation of Employee’s employment, the Company shall provide the following
(hereinafter referred to as “Benefits”:


(a)   Unused Vacation.   The Company will pay Employee
the full amount of Employee’s accrued but unused vacation time.


(b)   Company Property.   The Company will give Employee
the computer which belongs to the Company but which the Employee is then
utilizing as Chairman.


(c)   Health and Dental Insurance Upon Termination.   The Company
shall continue to provide health insurance for Employee pursuant to the Company’s
Health and Dental Insurance Plan, for all his dependents for one year after
Employee retires in accordance with Section 4. Employee’s participation in
the Company’s Health Insurance Plan shall be subject to the same restrictions
and limitations as are applicable to current employees of the Company
participating in the Health Insurance Plan including, without limitation, the
Company’s right to modify, amend, change or discontinue the Health Insurance
Plan in any way, at any time and for any reason. The Company hereby
specifically reaffirms and reserves its right to modify, amend, change or
discontinue the Health Insurance Plan in any way, at any time and for any
reason. Cost of insurance will be at rates offered to other employees, which,
at the Company discretion, may be payable directly to the plan administration.
At the end of the one year period, Employee shall be notified of his election
rights to continue insurance coverage in accordance with COBRA.


(d)   Life Insurance.   In addition, the Company shall
provide Employee a one million dollar ($1,000,000) life insurance policy with
the beneficiary(ies) of such policy selected by Employee. Upon Employee
retiring in accordance with Section 4, the Company will continue to pay
the life insurance the premiums for a period of one (1) year.


(e)   Office Space and Administrative Support.   The Company
shall make available office space within its then-existing facility for a
period of one (1) year. If the Company’s terminates its occupancy within
the facility, its only obligation shall be to provide Employee office space in
any of its then-existing facilities.


(f)   Administrative Support.   The Company shall make available
administrative support for a period of one (1) year, with the support
being provided by a then current Company employee, working at the Company’s
facility. In no event shall the administrative support be greater, or equal to,
the administrative support provide prior to the Employee’s retirement.


Section 6.   Reimbursement for Expenses.   Employee is
expected to incur certain expenses on behalf of the Company for travel,
promotion, telephone, entertainment and similar items. During the period of
Employee’s employment with the Company, the Company will reimburse the Employee
for all ordinary, necessary and reasonable amounts of such expenses, as
determined by the Board of Directors, incurred by Employee. Such amounts shall
be payable promptly upon receipt of reasonable written documentation signed by
the Employee itemizing such expenses.


Section 7.   Indemnification.   Employee shall
be indemnified and held harmless by the Company to the fullest extent
authorized by the General Corporation Law of the State of Delaware, as the same
exists or may hereafter be amended (however, in the case of any such amendment,
only to the extent that such amendment permits the Company to provide broader
indemnification rights than such law permitted the Company to provide prior to
such amendment). The Company’s bylaws, attached as Exhibit C, contain an
indemnification procedure for directors and officers of the Company. Generally,
if Employee is made or is 











threatened to be made a
party to any action, suit or proceeding relating to his employment or service
as a director of the Company, he shall have the right to select individual
counsel and he shall be indemnified and held harmless by the Company against
all reasonable expenses, liability and loss reasonably incurred in connection
with such action, if the payment of such expenses is in accordance with
Delaware law. Employee has the right to bring suit against the Company if a
claim made in accordance with the Company’s bylaws is not paid in full within
sixty (60) days after a written claim has been received, except in the case of
a claim for an advancement of expenses, in which case the applicable period is
twenty (20) days.


Section 8.   Termination / Severance


A.     The
Company shall have the right to terminate this Agreement, upon thirty (30) days
written notice, if the following events occur:


1.      The
determination by the Board of Directors that the Employee has become disabled,
and cannot complete the essential functions of the position with  reasonable accommodation and is unable to
continue his service to the Company; or


2.      The
Employee’s death; or


3.      The
determination by the Board of Directors that there is “good cause” for
termination of this Agreement. For purposes of the Agreement, “good cause”
means the Employee’s willful neglect of his duties under this Agreement and the
job duties as assigned by the Board of Directors, theft or misappropriation of
the Company’s assets by the Employee, fraud of the Employee or gross
insubordination. The Company shall provide Employee written notice of and a
reasonable opportunity to cure anything that the Company believes constitutes
willful neglect of duties or gross insubordination.


Upon termination pursuant to section 8A1 or 8A2, the
Company shall pay Employee (or, in the event of termination due to Employee’s
death, his estate), a lump sum severance payment equal to one year’s base salary
(at the time of termination). In addition, in the event of termination under
section 8A1, the Company shall continue to provide Benefits described herein
for one year after termination. No severance payment or Benefit continuation
will be provided if employee is terminated pursuant to section 8A3.


B.     Either
party may terminate this Agreement upon (60) days’ prior written notice without
good cause. In the event of a termination by the Company without good cause the
Company shall continue to provide all benefits for one year after termination
and shall pay Employee a lump sum severance payment equal to the greater of: 1)
his annual base salary (at the time of termination) or, 2) his base salary (at
the time of termination) for the remaining term of the then current Agreement.
Upon commencement of full time employment with a different company as described
in the attached non-compete agreement, or full time self employment, all
Benefits shall cease. Employee’s COBRA termination date shall be the date all
benefits cease.


All cash severance amounts described in sections 8A
through 8B shall be paid to Employee upon the termination of his employment.


C.     In the
event of a termination by Employee, the Company shall not be obligated to
provide any Benefits, Severance or any other compensation.


D.     Change in
Control. For the purposes of this Agreement, “change in control” means:  1) A change in the ownership of the shares of
the Company that results in a change in a majority of the board of directors;
or, 2) a sale, assignment or transfer of all or substantially all of the assets
of the Company. If there is a change in control, then the Company may terminate
this Agreement upon thirty (30) days written notice. If there is a change in
control and a material diminishment in the employee’s position, duties, or
responsibilities, that is not mutually agreed among the parties, then Employee
may terminate this Agreement upon thirty (30) days written notice. Upon
termination by either party pursuant to this section 8D, the Company shall pay
to Employee a lump sum severance payment equal to three years of base salary
(at the time of termination), and shall consider providing a 











transaction bonus, which
will take into consideration shareholder value created as a result of the
change of control event. In addition, the Company shall continue to provide all
benefits for one year after termination.


E.     If the
Company elects not to renew the Agreement for (i.e., beyond October __,
2006), the Company shall pay Employee a lump sum severance payment equal to his
annual base salary (at the time of termination), and shall continue to provide
all benefits for one year after termination.


Section 9.   Automobile Allowance.   The Company
shall pay a net car allowance of $750.00 per month during the Employee’s full
time employment with the Company (“Automobile Allowance”). In the event of a
termination pursuant to section 8A1, 8B, 8D, or 8E the Company shall continue
to provide Employee with the Automobile Allowance for one year. Upon
commencement of full time employment with a different company as described in
the Employee’s non-compete agreement, or full time self employment, the
Automobile Allowance shall cease.


Section 10.   Entire Agreement.   This Agreement
contains the entire understanding and agreement between the Company and the
Employee and supersedes any prior agreements and negotiations between them
pertaining to the Employee’s terms and conditions of employment with the
Company. There are no representations, warranties, promises, covenants or
understandings between the Company and the Employee with respect to such
employment other than those expressly set forth in this Agreement. This
Agreement takes precedence over other conflicting agreements with the Employee.


Section 11.   Governing Law.   This Agreement
shall be governed by the laws of the State of Delaware.


Section 12.   Non-Assignability; Successors.   The obligations
of the Employee under this Agreement are not assignable by him. This Agreement
is personal in nature and may not be assigned by the Company without the
written consent of the Employee, except that the consent of the Employee shall
not be reasonably withheld in connection with the sale to any person,
partnership, corporation or other entity of substantially all the assets of the
company, provided that the assignee assumes all the liabilities of the Company
hereunder. Except as provided in the immediately preceding sentence, this
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their successors.


Section 13.   Notices.   Any notice required to be given
in writing by any party to this Agreement may be personally delivered or mailed
by registered or certified mail to the last known address of the party to be
notified. Any such notice personally delivered shall be effective upon delivery
and any such notice mailed shall be effective four (4) business days after
the date of mailing by registered or certified mail with postage prepaid to the
last known address of the party to be notified.


Section 14.   Severability.   The invalidity
or unenforceability of any particular provision of this Agreement shall not
affect the other provisions of this Agreement, and this Agreement shall be
construed in all respects as if such invalid or unenforceable provision were
omitted.


Section 15.   Headings.   The Section and other
headings contained in this Agreement are for reference purposes only and shall
not affect the interpretation of this Agreement.


Section 16.   Construction.   Whenever
required by the context, references to the singular shall include the plural,
and the masculine gender shall include the feminine gender.


Section 17.   Restrictive Covenants.   Employee shall
execute, concurrently with this Agreement, a Confidentiality and Non Compete
Agreement in the form attached as Exhibit D.


Section 18.   Amendments.   No changes, modifications,
waivers, discharges, amendments or additions to this Employment Agreement shall
be binding unless it is in writing and signed by the Company and the Employee.











IN
WITNESS WHEREOF, the Company has caused this Agreement to be executed on its
behalf and the Employee has signed his name hereto, effective as of the date
first written above.


	
   

  	
  EFJ, INC., a Delaware corporation

  
	
   

  	
  /s/ Thomas R. Thomsen

  
	
   

  	
  BY:

  	
   

  
	
   

  	
  Its

  	
   

  
	
   

  	
  /s/ Michael E. Jalbert

  
	
   

  	
  Michael E. Jalbert