Document:

exv10w3

 

Exhibit 10.3

FINDER FEE AGREEMENT

     This Finder Fee Agreement (the “Agreement”) is entered into on the 30th day of August, 2006
between PawnMart, Inc., a Nevada corporation (the “Company”), and Abbington Capital Group LLC, a
Delaware limited liability company (“Finder”). Sometimes the Company and Finder are referred to
herein individually as a “party” and collectively as the “parties.”

     WHEREAS, 3,050,000 Series A Convertible Preferred Shares (the “Shares”) of Integrity Mutual
Funds, Inc. (“Integrity”) are issued and outstanding, and are currently held of record by
approximately eight shareholders; and

     WHEREAS, Finder has introduced the Company to Ancora Securities, Inc. (“Ancora”), which holds
of record the Shares beneficially held by the eight Shareholders; and

     WHEREAS, the Company, as buyer, and Ancora, as broker, have entered into a purchase and sale
agreement dated on or about August 30, 2006 (the “Integrity Agreement”) whereby Ancora will arrange
to deliver to the Company a minimum of 2,000,000 and a maximum of 3,050,000 Shares; and

     WHEREAS, the Company has agreed to purchase all Shares delivered by Ancora under the terms of
the Integrity Agreement;

     NOW, THEREFORE, in consideration of the mutual agreements contained herein and other good and
valuable consideration, the receipt and sufficiency of which is acknowledged by the parties, the
parties agree as follows:

     1. Finder’s Fee. The Company agrees to pay Finder a cash finder’s fee of 33/100 cents
($0.0033) per Share for each Share delivered by Ancora and purchased by the Company, up to a
maximum of $10,000.00.

     2. Payment. The Finder’s Fee will be paid to Finder within three (3) business days after the
closing of the purchase and sale of the Shares, which is anticipated occur on or about October 1,
2006.

     3. Acceptance of Investment. The Company will only be liable for payment of a Finder’s Fee if
the purchase and sale of the Shares is closed.

     4. Representations of Finder. Finder hereby represents that its participation in the
transaction will be limited to introducing Ancora to the Company, and nothing more. Finder will
not discuss nor negotiate any terms or details of the transaction with the holders of the Shares
outstanding.

     5. Termination. This Agreement can be terminated by either party by written notice, delivered
by hand or by certified mail, to the addresses for Company and Finder. Such termination shall not
effect the obligations under this Agreement for any introductions or funding arrangements made
prior to the date of the termination.

 

 

     6. Notices.

          (a) Any notice under this Agreement must be written. Notices must be either (i) hand
delivered to the address set forth below for the recipient; or (ii) placed in the United States
mail, certified, return receipt requested, addressed to the recipient as specified below; or (iii)
deposited with an overnight delivery service, addressed to the recipient as specified below; or
(iv) telecopied by facsimile transmission to the party at the telecopy number listed below,
provided that the transmission is confirmed by telephone on the date of the transmission and is
followed with a copy sent by overnight delivery or regular mail to the address specified below.
Any mailed notice is effective upon deposit with the United States Postal Service or the overnight
delivery service, as applicable; all other notices are effective upon receipt.

          (b) The Company’s address for all purposes under this Agreement is:

PawnMart, Inc.

6400 Atlantic Boulevard, Suite 190

Norcross, Georgia 30071

Attention: Jeffrey A. Cummer

Telephone: 678-720-0660

Telecopy: 678-720-0671

with a copy to:

Margaret E. Holland

Holland, Johns, Schwartz & Penny, L.L.P.

306 West Seventh Street, Suite 500

Fort Worth, Texas 76102

Telephone: 817-335-1050

Telecopy: 817-332-3140

          (c) Finder’s address for all purposes under this Agreement is:

Abbington Capital Group LLC

5 Abbington Drive

Lloyd Harbor, NY 11743

Telephone: 631-549-1859

Attention: Jerry Szilagyi

Telecopy: 631-549-1859

          (d) A party may designate another address for this Agreement by giving the other
parties at least five (5) business days’ advance notice of its address change. A party’s attorney
may send notices on behalf of that party, but a notice is not effective against a party if sent
only to that party’s attorney.

     7. Governing Law. This Agreement shall be governed by and construed and enforced in
accordance with the laws of the state of Texas.

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     8. Submission to Jurisdiction. The parties hereby irrevocably submit to the jurisdiction of
any Texas state or United States federal court sitting in Tarrant County, Texas over any action or
proceeding arising out of or relating to this Agreement, and the parties hereby irrevocably agree
that all claims in respect of such action or proceeding may be heard and determined in such state or federal court. Each party
hereby irrevocably consents to the service of any and all process in any such action or proceeding
by the mailing of copies of such process to such party at its or his address as specified below.
Each party agrees that a final judgment in any such action or proceeding shall be conclusive and
may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by
law. Each party further waives any objection to venue in such state and any objection to an action
or proceeding in such state on the basis of forum non conveniens. Each party waives any right it
or he may have to a jury trial.

     9. Counterparts. This Agreement may be executed in any number of counterparts, each of which
will be deemed an original, but all of which together shall constitute one and the same instrument.
This Agreement shall become binding upon the parties hereto when one or more counterparts of this
Agreement, individually or taken together, bear the signatures of all of the parties hereto.

     10. Entire Agreement. This Agreement constitutes the only agreement between the parties
relating to the subject matter of this Agreement and no prior or contemporaneous representations,
promises, understandings or agreements, oral or otherwise, not herein contained shall be of any
force or effect.

     IN WITNESS WHEREOF, this Agreement has been executed in multiple originals by the parties
hereto on the date and year first above written.

	 	 	 	 	 	 	 
	Company:	 	PawnMart, Inc.	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	/s/ Dwayne A. Moyers	 	 
	 

	 	 	 	 

Dwayne A. Moyers,
	 	 
	 

	 	 	 	Chairman & CEO	 	 
	 
	 	 	 	 	 	 
	Finder:	 	Abbington Capital Group LLC	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	/s/ Jerry Szilagyi	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Jerry Szilagyi, President	 	 

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Exhibit 10.4

AGREEMENT

     This agreement (“Agreement”) is made as of this 4th day of October, 2006 between PawnMart,
Inc. (“PawnMart”) and Integrity Mutual Funds, Inc. (“Integrity”). Sometimes PawnMart and Integrity
are referred to herein individually as a “party” and collectively as the “parties.”

     WHEREAS, PawnMart owns 3,050,000 Series A Convertible Preferred Shares (the “Shares”) of
Integrity, which Shares are convertible on a one-for-one basis into shares of common shares of
Integrity (the “Common Shares”); and

     WHEREAS, the parties desire to place certain restrictions on the conversion of the Shares.

     NOW, THEREFORE, the parties hereto hereby agree as follows:

     1. On or before the earlier to occur of (a) September 30, 2008 or (b) a Sale of Integrity
(defined herein) PawnMart agrees that it will not convert such number of Shares that, combined with
PawnMart’s and its affiliates’ then holdings of Common Shares, will cause PawnMart and its
affiliates to own more than twenty-five percent (25%) of the outstanding Common Shares.

     2. Following the earlier to occur of (i) September 30, 2008 or (ii) a Sale of Integrity,
PawnMart can convert Shares free and clear of any restrictions imposed by this Agreement.

     3. For purposes of this Agreement, a “Sale of Integrity” means the occurrence of any one of
the following events: (i) the sale or other transfer of fifty percent (50%) or more of the Common
Shares; (ii) the sale of all or substantially all of the assets of Integrity; (iii) the merger,
consolidation or other reorganization of Integrity with and into another entity, whether or not
Integrity is the surviving entity, in which the Common Shares are converted into shares of the
successor entity or a holding company thereof (representing fifty percent (50%) or less of the
voting power of all capital shares thereof immediately after the merger or consolidation); or (iv)
the approval of a plan of complete liquidation of Integrity.

     IN WITNESS WHEREOF, the parties hereto have duly caused this Agreement to be executed in
multiple counterparts as of the day and year first above written.

	 	 	 	 	 	 	 
	PAWNMART:	 	PAWNMART, INC.	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	/s/ Dwayne A. Moyers	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Dwayne A. Moyers, Executive Vice
President	 	 
	 
	 	 	 	 	 	 
	INTEGRITY:	 	INTEGRITY MUTUAL FUNDS, INC.	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	/s/ Robert E. Walstad	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Robert E. Walstad,	 	 
	 

	 	 	 	Chief Executive Officerexv10w1

 

Exhibit 10.1

EXECUTIVE EMPLOYMENT AGREEMENT

     THIS EXECUTIVE EMPLOYMENT AGREEMENT (this “Agreement”) is made and entered into as of the
5th day of October, 2006 (the “Effective Date”) by and between Affirmative Insurance
Holdings, Inc. (the “Company”) and Kevin R. Callahan (“Executive”).

PRELIMINARY STATEMENTS

     A. Executive has served as interim Chief Executive Officer, and the Company now desires to
employ Executive as Chief Executive Officer, and Executive desires to be employed by the Company in
this capacity; and

     B. Each party desires to set forth in writing the terms and conditions of their understandings
and agreements.

     NOW, THEREFORE, in consideration of the mutual covenants and obligations contained herein, the
Company hereby agrees to employ Executive and Executive hereby accepts such employment upon the
terms and conditions set forth in this Agreement:

STATEMENT OF AGREEMENT

     1. Position.

          (a) The Company agrees to employ Executive in the position of Chief Executive Officer.
Executive shall serve and perform the duties which may from time to time be assigned to him by the
Company’s Board of Directors (the “Board”).

          (b) Executive agrees to serve as Chief Executive Officer and agrees that he will devote his
best efforts and all of his business time and attention to all facets of the business of the
Company and will faithfully and diligently carry out the duties of these positions; provided,
however, that Executive may participate on the Board of Directors for Corus Bankshares, Inc. and
the Advisory Board for AlphaConnect (or its affiliates), so long as neither entity beneficially
owns or disposes of or acquires beneficial ownership in the stock of a Competitor or operates a
Competitor, as defined in Section 8(b)(i) below, and so long as such participation does not
interfere with the performance of his duties hereunder. Executive agrees to comply with all
Company policies in effect from time to time, and to comply with all laws, rules and regulations
applicable to the Company, including, but not limited to, those established by the Department of
Insurance, the Securities and Exchange Commission, or any self-regulatory organization having
jurisdiction or authority over Executive or the Company.

          (c) Executive will serve on the Company’s Board of Directors (“Board”), at the continuing
discretion of the stockholders, during the Term of this Agreement. Further and upon request by
the Board of the Company and consent by Executive, Executive shall serve as a Director of any and
all of Company’s subsidiaries, provided, however, such consent shall not be unreasonably withheld.

          (d) Executive agrees to travel as necessary to perform his duties under this Agreement.

 

 

          (e) The Company, in its sole discretion, may require that Executive be designated an employee
of one or more of the Company’s subsidiaries or affiliates for such purposes as payroll and
benefits administration. The employment of Executive by any such subsidiary or affiliate to
facilitate the Company’s internal administrative purposes shall be considered employment by the
Company within the meaning of this Agreement and shall not otherwise affect any of the rights or
responsibilities of the Company or Executive hereunder, including, but not limited to, Executive’s
level of compensation. Notwithstanding the foregoing, the Company shall not be entitled to
redesignate Executive’s employment as contemplated in this Section, if such redesignation would
preclude him from being represented in all public filings as the Chief Executive Officer of the
Company.

          (f) The position of Chief Executive Officer shall be located at the Company’s administrative
offices, presently located in Chicago, Illinois.

     2. Term of Agreement.

          (a) Initial Term. The initial term of this Agreement shall be three (3) years from
the Effective Date (“Initial Term”), unless otherwise terminated pursuant to Section 5 of this
Agreement. The Initial Term, and any extension thereof shall be referred to herein as the “Term.”

          (b) Expiration of Term. This Agreement will terminate automatically upon the
expiration of the Initial Term, or any extension thereof. In the event that the parties do not
renew this Agreement at the end of Initial Term, Executive shall immediately vest in fifty percent
(50%) of the then-unvested equity and equity-based awards made in Section 3(c) of this Agreement.

     3. Compensation and Benefits.

          (a) Base Salary. The Company shall pay Executive an annual salary rate of Six Hundred
Fifty Thousand Dollars ($650,000), with such amounts to be paid on a bi-weekly basis (“Base
Salary”) pursuant to the Company’s standard payroll practices. Executive’s Base Salary shall be
reviewed at least annually for consideration of appropriate merit increases and, once established,
the Base Salary shall not be decreased during the Term without the consent of Executive.

          (b) Bonus Opportunities. In addition to the Base Salary, Executive will be eligible
to participate in the Company’s bonus plan(s) (“Bonus”) on a basis no less favorable than any other
senior executive of the Company, with an annual target bonus of no less than Three Hundred Fifty
Thousand Dollars ($350,000) (the “Target Bonus”), through the end of 2006, to be paid on a prorated
basis based on the number of months Executive is employed by Company during 2006 under this
Agreement, pursuant to the criteria set forth as Exhibit A attached hereto. Thereafter,
Executive’s annual incentive opportunities shall be as determined by the Compensation Committee
pursuant to criteria set forth on or before March 31 of each fiscal year.

          (c) Stock. Executive will also be eligible to participate in the Company’s 2004
Amended and Restated Stock Incentive Plan (“Stock Plan”), as may be amended from time

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to time. Notwithstanding the foregoing, the Company’s Compensation Committee has authorized,
and pursuant to the authority of the Compensation Committee, the Company hereby grants to Executive
the following:

               (i) Restricted Stock. As of the Effective Date, the Company hereby grants to
Executive Seventy Thousand (70,000) restricted shares of common stock of the Company under the
terms of the Stock Plan subject to such restrictions and limitations as are set forth in the
Restricted Stock Agreement attached hereto as Exhibit B.

               (ii) Stock Options. As of the Effective Date, the Company hereby grants to Executive
the following options to purchase shares of common stock of the Company under the terms of the
Stock Plan subject to the restrictions and limitations as are set forth in the Stock Option
Agreement attached hereto as Exhibit C.

               a) Option 1 – Covering 100,000 shares with an exercise price of Fifteen and 60/100 dollars
($15.60) per share.

               b) Option 2 – Covering 100,000 shares with an exercise price of Twenty dollars ($20.00) per
share.

               c) Option 3 – Covering 115,000 shares with an exercise price of Twenty-five dollars ($25.00)
per share.

               d) Option 4 – Covering 115,000 shares with an exercise price of Thirty dollars ($30.00) per
share.

          (d) Automobile Allowance. The Company shall provide Executive an automobile allowance
in an amount to be determined from time to time by the Board or the Company’s Compensation
Committee, provided that such amount shall be no less than one thousand two hundred dollars
($1,200) per month.

          (e) Payment. Payment of all compensation to Executive hereunder shall be made in
accordance with the terms of this Agreement and applicable Company policies in effect from time to
time, including normal payroll practices, and shall be subject to all applicable withholdings and
taxes.

          (f) Benefits Generally. The Company shall make available to Executive, throughout the
term of this Agreement, benefits as are generally provided by the Company to its executive
officers, including but not limited to any group life, health, dental, vision, disability or
accident insurance, 401(k) plan, supplemental retirement plan, deferred compensation plan, or other
such benefit plan or policy which may presently be in effect or which may hereafter be adopted by
the Company for its executive officers and key management personnel; provided, however, that
nothing herein contained shall be deemed to require the Company to adopt or maintain any particular
plan or policy.

          (g) Vacation. Executive shall be entitled to paid time off (“PTO”) of no less than
thirty (30) days during each calendar year, consistent with the policies then applicable to
executive officers.

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     4. Reimbursement of Expenses. The Company shall reimburse Executive for all business
expenses, which are reasonable and necessary and are incurred by Executive while performing his
duties under this Agreement, upon presentation of expense statements, receipts and/or vouchers, or
such other information and documentation as the Company may reasonably require. The Board reserves
the right to deny any unreasonable business expense.

     5. Termination.

          (a) Termination by the Company.

               (i) Without Cause. The Company may terminate this Agreement for any reason or no
reason upon thirty (30) days written notice to Executive. If the Company terminates this Agreement
pursuant to this provision, the Company will provide Executive with the following: (1) the payment
of all earned but unpaid Base Salary and PTO (“Accrued Compensation”), (2) an amount equal to the
previous year’s Bonus paid to Executive prorated on a daily basis for the number of days employed
in year of termination through the date of termination (the “Pro Rata Bonus”), (3) the payment of
an amount equal to two (2) times the sum of (a) the Executive’s then-current Base Salary and (b) an
amount equal to the previous year’s Bonus paid to Executive (provided, however, that if Executive
is terminated without cause during the first year of this Agreement only, this amount will be Three
Hundred Fifty Thousand ($350,000)) (this item (3) constituting the “Additional Severance Payment”),
and (4) the continuation of substantially similar medical, life, dental, vision and disability
insurance for Executive and Executive’s eligible spouse and family members, for the twenty-four
(24) month period following termination or until Executive accepts new employment and becomes
eligible for any such insurance, whichever time period is shortest. Executive shall provide
Company with written notice within five (5) business days after he accepts new employment. The
continued medical benefits will initially be provided through COBRA, and will subsequently be
provided through coverage purchased by the Company for Executive and his eligible spouse and family
members.

               (ii) For Cause. The Company may terminate this Agreement at any time for Cause. Upon
termination by the Company for Cause, Executive shall only be entitled to Accrued Compensation.
“Cause” means any of the following:

               a) Executive’s commission of theft, embezzlement, any other act of dishonesty relating to his
employment with the Company, or any material violation of Company policies (including the Company’s
ethics policies), or any law, rules, or regulations applicable to the Company, including, but not
limited to, those established by the Department of Insurance, the Securities and Exchange
Commission, or any self-regulatory organization having jurisdiction or authority over Executive or
the Company or any failure by Executive to inform the Company of any violation of any law, rule or
regulation by the Company or one of its direct or indirect subsidiaries of which Executive has
knowledge;

               b) Executive’s conviction of, or pleading guilty or nolo contendere to, a felony or any lesser
crime having as its predicate element fraud, dishonesty, misappropriation, or moral turpitude;

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               c) Executive’s neglect of duties or failure to perform obligations under this Agreement (other
than due to disability) that materially causes harm to the Company or that has materially damaged
or interfered with the Company’s relationships with its customers, suppliers, employees or other
agents; provided, however, that the Company shall give the Executive written notice of any actions
or omissions alleged to constitute Cause under this subsection (c) and the Executive shall have
thirty (30) days to cure any such alleged Cause;

               d) Executive’s substance abuse or illegal use of drugs that impairs Executive’s performance,
that materially causes harm to the Company or that, in the reasonable judgment of the Board, has
damaged or interfered with the Company’s relationships with its customers, suppliers, employees or
other agents;

               e) Executive’s commission of an act or acts in the performance of his duties under this
Agreement amounting to gross negligence or willful misconduct; or

               f) Executive’s breach of Sections 7 or 8 of this Agreement.

               g) The Company may place Executive on paid administrative leave from work during any
investigation by the Company of a “cause” reason for Executive’s termination, and may prohibit
Executive from coming into work, accessing the Company’s computer system, and contacting its
employees or customers during this time; provided, however, upon a failure of the Board of
Directors to find that Cause exists, such placing of Executive on leave two times during the Term
shall constitute Good Reason under Section 5 below.

               h) Cause shall be determined by the affirmative vote of at least a majority of the members of
the Board (excluding the Executive, if a Board member). Executive shall be given fifteen (15) days
written notice of the Board meeting at which Cause shall be decided, and shall be given an
opportunity prior to the vote on Cause to appear before the Board, with or without counsel, at
Executive’s election, to present arguments on his own behalf. The notice to Executive of the Board
meeting shall identify with reasonable detail the reasons for such consideration of Cause. The
pendency of the notice period described herein shall not prevent or delay the Company’s ability to
enforce the restrictive covenants contained herein.

               (iii) Change in Control. If following a Change in Control, (A) the Company terminates
this Agreement for reasons other than Cause, or, (B) Executive terminates this Agreement for Good
Reason, the Company shall provide Executive with the following: (1) Accrued Compensation, (2) a
Pro Rata Bonus, (3) an amount equal to the Additional Severance Payment, (4) the full and immediate
vesting of all outstanding equity or equity based awards, and (5) the continuation of all medical,
life, dental, vision and disability insurance for Executive and Executive’s eligible spouse and
family members, for the twenty-four (24) month period following termination. The term “Change in
Control” shall mean a transaction or event (or series of transactions or events) as a result of
which any “person” as such term is used in Section 13(d) and 14(d) of the Exchange Act (other than
any Excluded Person, the Company or any Company employee benefit plan, including its trustees) is
or becomes the “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of all of the securities of the Company held by New Affirmative LLC held immediately
prior to such transaction or event (or

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series of transactions or events) and all director designees of New Affirmative LLC are no
longer on the Company’s Board; provided, however, that in no event shall the distribution, sale,
transfer, or acquisition of securities of the Company held by New Affirmative LLC or any Excluded
Persons (or any successor thereof) to any Excluded Person trigger a “Change in Control.” “Excluded
Person” shall mean any of New Affirmative LLC, Affirmative Investment LLC, The Enstar Group, Inc.
and any of their respective stockholders, members, affiliates, subsidiaries, or any such persons
under common control.

          (b) Termination by Executive.

               (i) No Good Reason. Executive may terminate this Agreement for any reason upon
providing thirty (30) days written notice to the Company. If Executive terminates this Agreement
pursuant to this provision, the Company will pay Executive the Accrued Compensation.

               (ii) For Good Reason. For purposes of this Agreement, the term “Good Reason” shall
mean termination of Executive’s employment with the Company by the Executive by giving at least
thirty (30) days advance written notice within thirty (30) days of the occurrence of one of the
following events:

               a) the Company’s material breach of any provision of this Agreement or any of the covenants
contained herein that, if capable of being cured, remains uncured after Executive has delivered a
written notice of breach to the Company and after the Company has had thirty (30) days after
receipt of such written notice to cure such breach;

               b) in the event of a requirement that Executive relocate Executive’s principal office to a
location that is more than forty (40) miles from the location of the Company’s administrative
offices in Chicago, Illinois; provided, however, that travel as necessary to perform duties under
this Agreement shall not be deemed a violation of this subsection (b).

               c) without the Executive’s written consent: (A) a material adverse change in the Executive’s
status, office, title, position or responsibilities (including reporting responsibilities) as Chief
Executive Officer which represents a material adverse change from his status, office, title,
position or responsibilities as Chief Executive Officer as in effect at any time within 90 days
preceding such occurrence or at any time thereafter; provided, however, that if Executive holds the
position of Chairman of the Board at any time during this Agreement, then any such change as to the
position of Chairman of the Board shall not be deemed a violation of this subsection (c); (B) the
assignment to Executive of any duties or responsibilities which are materially inconsistent with
and adverse to his status, office, title, position or responsibilities as Chief Executive Officer
in effect at any time within 90 days preceding such occurrence or at any time thereafter; provided,
however, that if Executive holds the position of Chairman of the Board at any time during this
Agreement, then any such assignment as to the position of Chairman of the Board shall not be deemed
a violation of this subsection (c); or (C) any removal of the Executive from any such material
status, office, title, position or responsibility as Chief Executive Officer; provided, however,
that if Executive holds the position of Chairman of the

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Board at any time during this Agreement, then any such removal as to the position of Chairman
of the Board shall not be deemed a violation of this subsection (c);

               d) without the Executive’s written consent, a reduction in the Executive’s base salary or any
failure to pay the Executive any compensation or benefits to which he is entitled within five days
of the date due; provided, however, that the Executive shall give the Company written notice of any
actions or omissions alleged to constitute Good Reason under this subparagraph (d) and the Company
shall have ten (10) business days to cure any such alleged Good Reason; or

               e) without the Executive’s written consent, the Company fails to nominate Executive for a
position on the Board in connection with the Company’s regularly scheduled annual stockholders’
meeting.

Upon termination for “Good Reason” pursuant to this provision, Executive shall be entitled to all
benefits and payments as provided in Section 5(a)(i) hereof for a termination by the Company
without Cause. Executive shall only be required to give notice one time under this Section
5(b)(ii) and shall not be required to provide notice and a cure period for any breach or other
action that is not capable of cure.

          (c) Disability. The Company may terminate this Agreement at any time Executive shall
be deemed by the Board to have sustained a “disability.” Executive shall be deemed to have
sustained a “disability” if he shall have been unable, with reasonable accommodation, to perform
his duties for a period of more than ninety (90) consecutive days in any twelve (12) month period.
Upon termination of this Agreement for disability, the Company shall pay Executive his Accrued
Compensation, and the Pro Rata Bonus.

          (d) Death. This Agreement will terminate automatically upon Executive’s death. Upon
termination of this Agreement because of Executive’s death, the Company shall pay Executive’s
estate his Accrued Compensation, and the Pro Rata Bonus.

          (e) Employment. Upon termination of this Agreement for any reason, including
expiration of the Term, written notice of intent not to renew this Agreement pursuant to Section 2,
or a termination for a reason specified in this Section 5, Executive’s employment shall also
terminate and cease, and Executive will voluntarily resign any Director or Board positions he
holds, unless otherwise requested by the Company.

          (f) Transition Period. Upon termination of this Agreement, and for a period of thirty
(30) days thereafter (the “Transition Period”), Executive agrees to make himself available to
assist the Company with transition projects reasonably assigned to him by the Board. Executive
will be paid at a daily rate of Two Thousand Five Hundred Dollars ($2,500.00) dollars per day, for
each day which Executive worked on behalf of the Company pursuant to this Section 5(f).

          (g) Severance Payment. Any payment to Executive under this Section 5 (other than
pursuant to Section 5(a)(iii)) will be payable in equal monthly installments due on the first day
of each month during the course of the Non-Interference Period. In the event of a payment to be
made to Executive pursuant to Section 5(a)(iii), such payment shall be made

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within five (5) business days of such termination. Executive shall not be entitled to, and
the Company shall not pay, any severance under any other plan, program or policy of the Company.

          (h) Notwithstanding the foregoing severance provisions, if the Board (or its delegate)
determines in its or his or her discretion that Executive is a “Specified Employee” (as defined in
Section 409A of the United States Internal Revenue Code of 1986, as amended (“Section 409A”)), as
of the date of termination, and that Section 409A applies with respect to any payment(s) to
Executive pursuant to any of the paragraphs of this Section 5, such payment(s) shall not (solely to
the extent required by Section 409A) begin until the six (6) month anniversary of the date of
termination, and at which time Executive shall be paid a single lump sum equal to those payment(s)
he would otherwise have received during such six (6) months, and then the balance of the payment(s)
will continue in monthly installments thereafter through completion of the Non-Interference Period
(with each monthly installment being paid in the gross sum of the full payment(s) divided by 24) as
may be provided herein; provided, however, that if the Board (or its delegate) determines in its or
his or her discretion that Executive is not a Specified Employee as of the date of termination (or
that Section 409A does not apply with respect to a payment to Executive pursuant to Section 5),
such payment shall be made in accordance with the provisions of this Section 5, provided that the
requirements set forth in Section 6 have been met by Executive.

     6. Release. Notwithstanding any other provision in this Agreement to the contrary, as
a condition precedent to receiving any payment set forth in Section 5 of this Agreement, Executive
agrees to execute (and not revoke) a severance and release agreement in the form attached hereto as
Exhibit D (the “Release”). If Executive fails to execute and deliver the Release, or revokes the
Release, Executive agrees that he shall not be entitled to receive the above-stated severance
payments. For purposes of this Agreement, the Release shall be considered to have been executed by
Executive if it is signed by his legal representative in the case of legal incompetence or on
behalf of Executive’s estate in the case of his death. No payments shall be made under Section 5
until the period to revoke the release has terminated.

     7. Nondisclosure.

          (a) The Company shall, immediately after executing this Agreement, provide Executive with some
or all of the Company’s various trade secrets and confidential or proprietary information,
including information he has not received before, consisting of, but not limited to, all
information: that is non-public or proprietary to the Company, or its affiliates including, but not
limited to, information concerning its business activities including, but not limited to, the
present marketing and administration of certain insurance business and processes, including but not
limited to any and all information concerning non-standard automobile insurance business, financial
information, administrative procedures, pricing methods and policies, client lists and information,
business and marketing strategies, claims and underwriting procedures and guidelines, claims and
underwriting files, utilization review and manuals, data format, data gathering retrieval systems
and methods, ideas about current and future services. Confidential Information shall not include:
(i) information that Executive may furnish to third parties regarding his obligations under
Sections 7 and 8; or (ii) information that becomes generally available to the public by means other
than Executive’s breach of Section 7 (for example, not as a result of Executive’s unauthorized
release of marketing materials).

8

 

          (b) Executive agrees that all Confidential Information, whether prepared by Executive or
otherwise coming into his possession, shall remain the exclusive property of the Company during
Executive’s employment with the Company and thereafter. Executive further agrees that he shall
not, without the prior written consent of the Company, use or disclose to any third party any of
the Confidential Information described herein, directly or indirectly, either during Executive’s
employment with the Company or at any time following the termination of Executive’s employment with
the Company, except as Executive may be required by Court Order. If such Court Order is issued,
Executive shall inform the Company a reasonable time prior to compliance.

          (c) Upon termination of this Agreement, Executive agrees that all Confidential Information and
other files, documents, materials, records, notebooks, customer lists, business proposals,
contracts, agreements and other repositories containing information concerning the Company or the
business of the Company (including all copies thereof) in Executive’s possession, custody or
control, whether prepared by Executive or others, shall remain with or be returned to the Company
promptly (within seventy-two (72) hours) after the termination or expiration of this Agreement for
any reason.

     8. Noncompete, Nonsolicitation, and Non-Disparagement.

          (a) Business Relationships and Goodwill. Executive acknowledges and agrees that, as
an employee and representative of the Company, Executive will be given Confidential Information.
Executive acknowledges and agrees that this creates a special relationship of trust and confidence
between the Company, Executive and the Company’s current and prospective customers, limited
partners, and investors. Executive further acknowledges and agrees that there is a high risk and
opportunity for any person given such responsibility and Confidential Information to misappropriate
the relationship and goodwill existing between the Company and the Company’s current and
prospective customers, limited partners, and investors. Executive therefore acknowledges and
agrees that it is fair and reasonable for the Company to take steps to protect itself from the risk
of such misappropriation. Consequently, Executive agrees to the following noncompetition and
nonsolicitation covenants.

          (b) Scope of Noncompetition Obligation.

               (i) Executive acknowledges and agrees that the period of two (2) years following the
termination or expiration of this Agreement for any reason will constitute the non-compete,
non-solicit and non-divert period (the “Non-Interference Period”). During his employment and
during the Non-Interference Period, Executive will not engage in duties or provide services to a
Competitor which are substantially similar to those Executive provided to the Company under this
Agreement, in any capacity, upon the termination or expiration of this Agreement in states where
the Company is doing business or has expended resources in pursuit of, or in preparation to do,
business (“Prohibited Market”). The term “Competitor” means (i) insurance companies providing
non-standard automobile insurance coverage of any type or class as a primary line of business (in
excess of fifteen percent (15%) of aggregate revenues), (ii) underwriting agencies (or managing
general agencies) that produce and administer non-standard automobile insurance as a primary line
of business, and (iii) retail agencies that sell non-standard automobile insurance policies as a
primary line of business.

9

 

               (ii) Executive agrees that he shall not at any time during his employment divert away or
attempt to divert away any business from the Company to another company, business, or individual.
Additionally, Executive shall not, during the Non-Interference Period, solicit, divert away or
attempt to divert away business from any Company Customer, either directly or indirectly. “Company
Customer” is defined as any then-current customer that Executive contacted, solicited, serviced, or
had accessed Confidential Information about. “Solicit” is defined as soliciting, inducing,
attempting to induce, or assisting any other person, firm, entity, business or organization,
whether direct or indirect, in any such solicitation, inducement or attempted inducement, in all
cases regardless of whether the initial contact was by Executive, the Company Customer, or any
other person, firm, entity, business, or organization.

               (iii) Executive further agrees that during the Non-Interference Period, he will not directly
or indirectly: (a) solicit, entice, persuade or induce any employee, agent or representative of
the Company, who was an employee, agent or representative of the Company upon the termination or
expiration of this Agreement, to terminate such person’s relationship with the Company or to become
employed by any business or person other than the Company; (b) approach any such person for any of
the foregoing purposes; (c) authorize, solicit or assist in the taking of such actions by any third
party; or (d) take actions to hire any such person.

               (iv) Executive further agrees that, during the Non-Interference Period, he shall not own,
manage, operate, control, invest or acquire an interest in, or otherwise similarly engage or
participate in (whether as a proprietor, owner, member, partner, stockholder, director, officer,
employee, consultant, joint venturer, investor, sales representative or other participant) any
Competitor or business or entity that owns or operates, or controls another business or entity that
owns or operates a Competitor located in the Prohibited Market; provided, however, that the
foregoing provisions shall not prohibit the Employee from: (a) being a passive investor in any
publicly traded entity, as long as any such investment does not exceed ten percent (10%) of the
outstanding equity securities of such entity; (b) continuing as a non controlling investor in any
entity which subsequent to the date of the Executive’s investment therein becomes the owner or
operator of, or acquires control of another business or entity that owns or operates, a Competitor
in a Prohibited Market (provided that if any entity in which the Executive is a non controlling
investor acquires a non-standard automobile insurance in a Prohibited Market, the Executive shall
limit his participation in such entity to a passive role); or (c) investing in or becoming employed
by any entity whose ownership, operation or control of a Competitor is not material relative to its
principal business activities provided Executive’s participation in such a Competitor is not a
material part of Executive’s duties.

          (c) Non-Disparagement. During the term of Executive’s employment with the Company and
following the termination or expiration of this Agreement for any reason, Executive shall not
disparage, discredit or otherwise criticize, directly or indirectly, verbally or in writing, the
Company or any of its subsidiaries, or any of their respective businesses, products, practices,
trademarks, employees, officers, or directors. Further, during the term of Executive’s employment
with the Company and following the termination or expiration of this Agreement, the officers of the
Company shall not disparage, discredit or otherwise criticize, directly or indirectly, verbally or
in writing, including issuing a public statement, Executive.

10

 

          (d) Acknowledgement. Executive acknowledges that the compensation and Confidential
Information provided to Executive pursuant to this Agreement, give rise to the Company’s interest
in restraining Executive from competing with the Company, that the noncompetition and
nonsolicitation covenants are designed to enforce such consideration and that any limitations as to
time, geographic scope and scope of activity to be restrained as defined herein are reasonable and
do not impose a greater restraint than is necessary to protect the goodwill or other business
interest of the Company.

          (e) Survival of Covenants. Sections 7 and 8 shall survive the expiration or
termination of this Agreement for any reason. Executive agrees not to challenge the enforceability
or scope of Sections 7 and 8. Executive further agrees to notify all future persons, businesses,
or other entities, with which he becomes affiliated or employed by, of the restrictions set forth
in Sections 7 and 8, prior to the commencement of any such affiliation or employment.

     9. Severability and Reformation. If any one or more of the terms, provisions,
covenants or restrictions of this Agreement shall be determined by a court of competent
jurisdiction to be invalid, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions shall remain in full force and effect, and the invalid, void or
unenforceable provisions shall be deemed severable. Moreover, if any one or more of the provisions
contained in this Agreement shall for any reason be held to be excessively broad as to duration,
geographical scope, activity or subject, it shall be reformed by limiting and reducing it to the
minimum extent necessary, so as to be enforceable to the extent compatible with the applicable law
as it shall then appear.

     10. Entire Agreement. This Agreement sets forth the entire agreement between the
parties hereto and fully supersedes any and all prior agreements or understandings, written or
oral, between the parties hereto pertaining to the subject matter hereof.

     11. Notices. All notices and other communications required or permitted to be given
hereunder shall be in writing and shall be deemed to have been duly given if delivered personally,
mailed by certified mail (return receipt requested) or sent by overnight delivery service, or
electronic mail, or facsimile transmission (with electronic confirmation of successful
transmission) to the parties at the following addresses or at such other addresses as shall be
specified by the parties by like notice, in order of preference of
the recipient: if to the Company, General Counsel, 4450 Sojourn
Drive, Suite 500, Addison, TX 75001 and if to Executive, to such
address as specified by the Executive to the
Company from time to time in writing. Notice so given shall, in the case of mail, be deemed to be given and received on the fifth
calendar day after posting, in the case of overnight delivery service, on the date of actual
delivery and, in the case of facsimile transmission or personal delivery, on the date of actual
transmission or, as the case may be, personal delivery.

11

 

     12. Governing Law and Venue. This Agreement will be governed by and construed in
accordance with the laws of the State of Illinois, without regard to any conflict of laws rule or
principle which might refer the governance or construction of this Agreement to the laws of another
jurisdiction. Any action or arbitration in regard to this Agreement or arising out of its terms
and conditions, pursuant to Sections 26 and 27, shall be instituted and litigated only in Chicago,
Illinois.

     13. Assignment. This Agreement is personal to Executive and may not be assigned in
any way by Executive without the prior written consent of the Company. The Company may assign its
rights and obligations under this Agreement.

     14. Counterparts. This Agreement may be executed in counterparts, each of which will
take effect as an original, and all of which shall evidence one and the same Agreement.

     15. Amendment. This Agreement may be amended only in writing signed by Executive and
by a duly authorized representative of the Company (other than Executive).

     16. Construction. The headings and captions of this Agreement are provided for
convenience only and are intended to have no effect in construing or interpreting this Agreement.
The language in all parts of this Agreement shall be in all cases construed in accordance to its
fair meaning and not strictly for or against the Company or Executive.

     17. Non-Waiver. The failure by either party to insist upon the performance of any one
or more terms, covenants or conditions of this Agreement shall not be construed as a waiver or
relinquishment of any right granted hereunder or of any future performance of any such term,
covenant or condition, and the obligation of either party with respect hereto shall continue in
full force and effect, unless such waiver shall be in writing signed by the Company (other than
Executive) and Executive.

     18. Announcement. Company shall have the right to make public announcements
concerning the execution of this Agreement and the terms contained herein, at the Company’s
discretion.

     19. Use of Name, Likeness and Biography. Company shall have the right (but not the
obligation) to use, publish and broadcast, and to authorize others to do so, the name, approved
likeness and approved biographical material of Executive to advertise, publicize and promote the
business of Company and its affiliates, but not for the purposes of direct endorsement without
Executive’s consent. This right shall terminate upon the termination of this Agreement. An
“approved likeness” and “approved biographical material” shall be, respectively, any photograph or
other depiction of Executive, or any biographical information or life story concerning the
professional career of Executive that is approved in advance by Executive.

     20. Corporate Opportunities. Executive acknowledges that during the course of
Executive’s employment by Company, Executive may be offered or become aware of business or
investment opportunities in which Company may or might have an interest (a “Corporate Opportunity”)
and that Executive has a duty to advise Company of any such Corporate Opportunities before acting
upon them. Accordingly, Executive agrees: (a) that Executive will disclose to the Board any
Corporate Opportunity offered to Executive or of which Executive

12

 

becomes aware, and (b) that Executive will not act upon any Corporate Opportunity for
Executive’s own benefit or for the benefit of any Person other than Company without first obtaining
consent or approval of the Board (whose consent or approval may be granted or denied solely at the
discretion of the Board; provided, that Executive, at Executive’s election, may act upon any such
Corporate Opportunity for Executive’s benefit or the benefit of any other Person if the Board has
not caused Company to act upon any such Corporate Opportunity within sixty (60) days after
disclosure of such Corporate Opportunity to Company by Executive.

     21. Right to Insure. Company shall have the right to secure, in its own name or
otherwise, and at its own expense, life, health, accident or other insurance covering Executive,
and Executive shall have no right, title or interest in and to such insurance. Executive shall
assist Company in procuring such insurance by submitting to reasonable examinations and by signing
such applications and other instruments as may be reasonably required by the insurance carriers to
which application is made for any such insurance.

     22. Assistance in Litigation. Executive shall reasonably cooperate with the Company
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 that relate to events or occurrences that transpired
while Executive was employed by the Company. Executive’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 also shall reasonably cooperate with the Company 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 Executive was
employed by the Company. The Company will pay Executive a reasonable hourly rate for Executive’s
cooperation pursuant to this Section 22.

     23. No Inconsistent Obligations. Executive represents and warrants that to his
knowledge he has no obligations, legal, in contract, or otherwise, inconsistent with the terms of
this Agreement or with his undertaking employment with the Company to perform the duties described
herein. Executive will not disclose to the Company, or use, or induce the Company to use, any
confidential, proprietary, or trade secret information of others. Executive represents and warrants
that to his knowledge he has returned all property and confidential information belonging to all
prior employers, if he is obligated to do so.

     24. Notification of New Employer. Upon termination of this Agreement for any reason,
or expiration of this Agreement, Executive hereby consents to the notification by the Company to
Executive’s new employer of the provisions of Sections 7, 8, and 9 of this Agreement. In
addition, in the event that Executive plans to render services to a company that works in a similar
field as the Company, Executive agrees to provide the Company with as much notice as possible of
Executive’s intention to join that company or business but in no event will Executive provide less
than two weeks notice of that intention; provided, however, the provision of such notice and the
Company’s receipt thereof shall not constitute a waiver of any breach of any provision of this
Agreement.

13

 

     25. Binding Agreement. This Agreement shall inure to the benefit of and be binding
upon Executive, his heirs and personal representatives, and the Company, its successors and
assigns.

     26. Remedies. The parties recognize and affirm that in the event of a breach of
Sections 7 and 8 of this Agreement, money damages would be inadequate and the Company would not
have an adequate remedy at law. Accordingly, the parties agree that in the event of a breach or a
threatened breach of Sections 7 and 8, the Company may, in addition and supplementary to other
rights and remedies existing in its favor, apply to any court of law or equity of competent
jurisdiction for specific performance and/or injunctive or other relief in order to enforce or
prevent any violations of the provisions hereof (without posting a bond or other security). In
addition, Executive agrees that in the event a court of competent jurisdiction or an arbitrator
finds that Executive violated Sections 7 or 8, the time periods set forth in those Sections shall
be tolled until such breach or violation has been cured. Executive further agrees that the Company
shall have the right to offset the amount of any damages resulting from a breach by Executive of
Sections 7 or 8 against any payments due Executive under this Agreement; provided, however, that
any such amount offset will be deposited into an escrow account pending adjudication of the dispute
giving rise to the offset. The parties agree that if one of the parties is found to have breached
this Agreement by a court of competent jurisdiction, the breaching party will be required to pay
the non-breaching party’s attorneys’ fees.

     27. Arbitration. Other than as stated in Section 26, the parties agree that any
controversy or claim arising out of or relating to this Agreement, or the breach thereof, shall be
resolved by arbitration administered by the American Arbitration Association (“AAA”) under its
Commercial Arbitration Rules. The arbitration will take place in Chicago, Illinois. All disputes
shall be resolved by a one (1) arbitrator. The method for selecting the arbitrator is set forth in
the AAA’s Commercial Arbitration Rules. The arbitrator will have the authority to award the same
remedies, damages, and costs that a court could award, and will have the additional authority to
award those remedies set forth in Section 26. The arbitrator shall issue a reasoned award
explaining the decision, the reasons for the decision, and any damages awarded, including those set
forth in Section 26 where the arbitrator finds Executive violated Sections 7 or 8. The
arbitrator’s decision will be final and binding. The judgment on the award rendered by the
arbitrator may be entered in any court having jurisdiction thereof. The arbitration proceedings,
any record of the same, and the award shall be considered Confidential Information under this
Agreement. This provision and any decision and award hereunder can be enforced under the Federal
Arbitration Act.

     28. Fees and Expenses. To induce the Executive to execute this Agreement and to
provide the Executive with reasonable assurance that the purposes of this Agreement will not be
frustrated by the cost of its enforcement should the Company fail to perform its obligations under
this Agreement:

          (a) In the event that the Executive’s employment is terminated by the Company prior to a
Change in Control either for Cause or without Cause, the Company shall reimburse the Executive for
any reasonable attorneys’ fees, expenses and court costs incurred by the Executive as a result of
any litigation by the Executive regarding the validity, enforceability or interpretation of any
provision of this Agreement (including as a result of any litigation by the

14

 

Executive regarding the benefits payable to the Executive pursuant to this Agreement);
provided, however, that such reimbursement shall only be payable by the Company (i) if the
Executive prevails on any material issues involved in such litigation and (ii) upon receipt of
proof of such expenses.

          (b) In the event that the Executive’s employment is terminated after a Change in Control
either by the Company either for Cause or without Cause or by the Executive for Good Reason, the
Company shall reimburse the Executive for any reasonable attorneys’ fees, expenses and court costs
incurred by the Executive as a result of any litigation by the Executive regarding the validity,
enforceability or interpretation of any provision of this Agreement (including as a result of any
litigation by the Executive regarding the benefits payable to the Executive pursuant to this
Agreement) upon receipt of proof of such expenses regardless of which party, if any, prevails in
the contest.

     29. Tax Gross Up.

          (a) If, as a result of payments provided for under or pursuant to this Agreement together with
all other payments in the nature of compensation provided to or for the benefit of Executive under
any other agreement in connection with a Change in Control, Executive becomes subject to taxes of
any state, local or federal taxing authority that would not have been imposed on such payments but
for the occurrence of a Change in Control, including any excise tax under Section 4999 of the Code
an any successor or comparable provision, then, in addition to any other benefits provided under or
pursuant to this Agreement or otherwise, Company (including any successor to Company) shall pay to
Executive at the time any such payments are made under or pursuant to this or the other agreements,
an amount equal to the amount of any such taxes imposed or to be imposed on Executive (the amount
of any such payment, the “Parachute Tax Reimbursement”).

          (b) In addition, Company (including any successor to Company) shall “gross up” such Parachute
Tax Reimbursement by paying to Executive at the same time an additional amount equal to the
aggregate amount of any additional taxes (whether income taxes, excise taxes, special taxes,
employment taxes or otherwise) that are or will be payable by Executive as a result of the
Parachute Tax Reimbursement being paid or payable to Executive and/or as a result of the additional
amounts paid or payable to Executive pursuant to this sentence, such that after payment of such
additional taxes Executive shall have been paid on a net after-tax basis an amount equal to the
Parachute Tax Reimbursement.

          (c) The amount of any Parachute Tax Reimbursement and of any such gross-up amounts shall be
determined by a nationally recognized accounting firm selected by the Company (with all such cost
borne by the Company), whose determination, absent manifest error, shall be treated as conclusive
and binding absent a binding determination by a governmental taxing authority that a greater amount
of taxes is payable by Executive.

     30. Voluntary Agreement. Each party to this Agreement has read and fully understands
the terms and provisions hereof, has had an opportunity to review this Agreement with legal
counsel, has executed this Agreement based upon such party’s own judgment and advice of counsel (if
any), and knowingly, voluntarily, and without duress, agrees to all of the

15

 

terms set forth in this Agreement. The parties have participated jointly in the negotiation
and drafting of this Agreement. If an ambiguity or question of intent or interpretation arises,
this Agreement will be construed as if drafted jointly by the parties and no presumption or burden
of proof will arise favoring or disfavoring any party because of authorship of any provision of
this Agreement. Except as expressly set forth in this Agreement, neither the parties nor their
affiliates, advisors and/or their attorneys have made any representation or warranty, express or
implied, at law or in equity with respect of the subject matter contained herein. Without limiting
the generality of the previous sentence, the Companies, their affiliates, advisors, and/or
attorneys have made no representation or warranty to Executive concerning the state or federal tax
consequences to Executive regarding the transactions contemplated by this Agreement.

     31. No Set-Off; No Mitigation. Except as provided herein, the Company’s obligation to
make the payments provided for in this Agreement and otherwise to perform its obligations hereunder
shall not be affected by any circumstances, including any set-off, counterclaim, recoupment,
defense or other right which the Company may have against Executive or others. In no event shall
Executive be obligated to seek other employment or take any other action by way of mitigation of
the amounts payable to Executive under any of the provisions of this Agreement, and such amounts
shall not be reduced whether or not Executive obtains other employment.

     31. Indemnification. The Company agrees that if Executive is made a party to or
involved in, or is threatened to be made a party to or otherwise to be involved in, any action,
suit or proceeding, whether civil, criminal, administrative or investigative (a “Proceeding”), by
reason of the fact that he is or was an officer or employee of the Company or is or was serving at
the request of the Company as an officer, member, employee or agent of another corporation, limited
liability corporation, partnership, joint venture, trust or other enterprise, including service
with respect to employee benefit plans, whether or not the basis of such Proceeding is Executive’s
alleged action in an official capacity while serving as an officer, member, employee or agent,
Executive shall be indemnified and held harmless by the Company against any and all liabilities,
losses, expenses, judgments, penalties, fines and amounts reasonably paid in settlement in
connection therewith, and shall be advanced reasonable expenses (including attorneys’ fees) as and
when incurred in connection therewith, to the fullest extent legally permitted or authorized by the
Company’s By-laws or, if greater, by the laws of the State of Delaware, as may be in effect from
time to time, except that this Section 31 shall not apply to the following Proceedings: (a) any
Proceeding initiated or brought voluntarily by Executive against the Company or its directors,
officers employees or other indemnitees, unless the Board of Directors has authorized or consented
to the initiation of the Proceeding (or any part of the Proceeding), and (b) for an accounting of
profits made from the purchase and sale (or sale and purchase) by Executive of securities of the
Company within the meaning of Section 16(b) of the Exchange Act or any similar successor statute.
The rights conferred on Executive by this Section 31 shall not be exclusive of any other rights
which Executive may have or hereafter acquire under any statute, the By-laws, agreement, vote of
stockholders or disinterested directors, or otherwise. The indemnification and advancement of
expenses provided for by this Section 31 shall continue until and terminate upon the latest of:
(a) the statute of limitations applicable to any claim that could be asserted against Executive
with respect to which he may be entitled to indemnification under this Section 31, (b) ten years
after the date that Executive has ceased to serve as a director or officer of the Company or as a
director, officer, employee, member, or agent of any other corporation, limited liability
corporation, partnership, joint venture, trust or

16

 

other enterprise at the request of the Company, or (c) if, at the later of the dates referred
to in (a) and (b) above, there is a pending Proceeding in respect of which Executive is granted
rights of indemnification under this Section 31, one year after the final termination of such
Proceeding, including any and all appeals. The indemnification and advancement of expenses
provided for by this Section 31 shall inure to the benefit of his heirs, executors and
administrators.

<remainder of page intentionally left blank>

17

 

     IN WITNESS WHEREOF, the Company and Executive have executed this Agreement, effective as
of the day and year first above written.

	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	COMPANY
	 
	 	 	 	 	 	 	 	 
	Dated:

	 	October 5, 2006 	 	 	 	By:	 	/s/ Mark E. Pape
	 

	 	 
	 	 	 	 	 	 
	 

	 	 	 	 	 	Name:
	 	Mark E. Pape
	 

	 	 	 	 	 	Title:
	 	Executive Vice President
	 
	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	EXECUTIVE
	 
	 	 	 	 	 	 	 	 
	Dated:

	 	October 5, 2006 	 	 	 	By:	 	/s/ Kevin R. Callahan 
	 

	 	 
	 	 	 	 	 	 
	 

	 	 	 	 	 	Name:
	 	Kevin R. Callahan

18

 

Exhibit A

Bonus Opportunities

As determined by the Compensation Committee of the Board.

 

 

Exhibit B

Restricted Stock Agreement

 

 

AFFIRMATIVE INSURANCE HOLDINGS, INC.

AMENDED AND RESTATED 2004 STOCK INCENTIVE PLAN

as amended

RESTRICTED STOCK AWARD AGREEMENT

     This Restricted Stock Award Agreement (this “Agreement”), made as of the 5th day of
October, 2006 (the “Grant Date”) by and between Affirmative Insurance Holdings, Inc. (the
“Company”), and Kevin R. Callahan (the “Grantee”), evidences the grant by the Company of a Stock
Award (the “Award”) of restricted Common Stock, par value $0.01 per share (the “Common Stock”) to
the Grantee on such date and the Grantee’s acceptance of the Award in accordance with the
provisions of the Company’s Amended and Restated 2004 Stock Incentive Plan, as amended (the
“Plan”), a copy of which is attached hereto as Exhibit A.

     NOW, THEREFORE, in consideration of the premises and the benefits to be derived from the
mutual observance of the covenants and promises contained herein and other good and valuable
consideration, the sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:

     1.     Basis for Award. This Award is made pursuant to the Plan for services rendered to the
Company by the Grantee.

     2.     Restricted Stock Award. The Company hereby awards and grants to Grantee, in consideration
for past services rendered to the Company or an Affiliate of the Company which services have a
value in excess of the aggregate par value of the Common Stock awarded to Grantee, 70,000 shares of
Common Stock of the Company (the “Restricted Stock Award”) which shall be subject to the
restrictions and conditions set forth in the Plan and in this Agreement.

     3.     Vesting. The Restricted Stock Award (the “Restricted Stock”) shall vest and be held
subject to the following:

              (a)     provided Grantee continues to provide Continuous Service to the Company or any Affiliate,
the Restricted Stock Award will become vested and exercisable with respect to twenty percent (20%)
of the Restricted Stock on the first anniversary of October 5, 2006 (the “Vesting Commencement
Date”) and thereafter, at the end of each full succeeding year, for four years, on the anniversary
date of the Vesting Commencement Date, will become vested and exercisable as to twenty percent
(20%) of the Restricted Stock until the Restricted Stock is vested and exercisable with respect to
one hundred percent (100%) of the Restricted Stock. If application of the vesting percentage
causes a fractional share, such share shall be rounded down to the nearest whole share for each
vesting period except for the last period in such vesting period, at the end of which last period
this Restricted Stock Award shall become exercisable for the full remainder of the Restricted
Stock; and

              (b)     notwithstanding the foregoing, the Restricted Stock shall become immediately vested and
free of all restrictions hereunder upon the earliest of the following to occur:

                       (i)     Termination by the Company other than for Cause;

 

 

                       (ii)     Termination by the Grantee for Good Reason; or

                       (iii)     Non-renewal of Participant’s employment agreement, to the extent and only to the extent
provided in Section 2(b) of Participant’s employment agreement.

For purposes of clarity, a termination due to death or disability of Participant shall not cause
the Award to become immediately vested and fully exercisable. For purposes of this Agreement, the
terms Cause, Good Reason, death or disability shall have the meaning ascribed to them under the
Participant’s employment agreement.

     4.     Compliance with Laws and Regulations. The issuance and transfer of Common Stock shall be
subject to compliance by the Company and Grantee with all applicable requirements of federal and
state securities laws and with all applicable requirements of any stock exchange on which the
Company’s Common Stock may be listed at the time of such issuance or transfer. Grantee understands
that the Company is under no obligation to register or qualify the Common Stock with the SEC, any
state securities commission or any stock exchange to effect such compliance.

     5.     Tax Withholding.

              (a)     Grantee agrees that, subject to Section 5(b) below, no later than the first to
occur of (i) the date as of which the restrictions on the Restricted Stock shall lapse with respect
to all or any of the Restricted Stock covered by this Agreement or (ii) the date required by
Section 5(b) below, Grantee shall pay to the Company (in cash or to the extent permitted by
the Board, Company Stock held by the Grantee whose Fair Market Value on the date the Restricted
Stock vests is equal to the amount of Grantee’s tax withholding liability) any federal, state or
local taxes of any kind required by law to be withheld, if any, with respect to the Restricted
Stock for which the restrictions shall lapse. The Company shall, to the extent permitted by law,
have the right to deduct from any payment of any kind otherwise due to Grantee any federal, state
or local taxes of any kind required by law to be withheld with respect to the shares of such
Company Stock.

              (b)     Grantee has the right to elect, within thirty (30) days of the Grant Date, to include in
gross income for federal income tax purposes an amount equal to the Fair Market Value of the
Restricted Stock less the amount, if any, paid by the Grantee for the Restricted Stock, which was
granted hereunder pursuant to Section 83(b) of the Internal Revenue Code of 1986, as amended.
Grantee shall pay to the Company, or make other arrangements satisfactory to the Board to pay to
the Company on the date of such grant, any federal, state or local taxes required to be withheld
with respect to such Company Stock. If Grantee fails to make such payments, the Company shall, to
the extent permitted by law, have the right to deduct from any payment of any kind otherwise due to
Grantee any federal, state or local taxes of any kind required by law to be withheld with respect
to such Restricted Stock.

     6.     No Right to Continued Service. Nothing in this Agreement shall be deemed by implication or
otherwise to impose any limitation on any right of the Company to terminate the Grantee’s service
at any time. In the event Grantee’s employment with the Company is

 

 

terminated by the Company, by Grantee or as a result of Grantee’s death or disability, no
unvested shares of Common Stock shall become vested after such termination of employment.

     7.     Representations and Warranties of Grantee. Grantee represents and warrants to the Company
that:

              (a)     Agrees to Terms of the Plan. Grantee has received a copy of the Plan and has read
and understands the terms of the Plan and this Agreement, and agrees to be bound by their terms and
conditions. Grantee acknowledges that there may be adverse tax consequences upon the vesting of
Restricted Stock or disposition of the shares of Common Stock once vested, and that Grantee should
consult a tax advisor prior to such time.

              (b)     Stock Ownership. Grantee is the record and beneficial owner of the shares of
Restricted Stock with full right and power to transfer the Unvested Shares defined below, to the
Company free and clear of any liens, claims or encumbrances and Grantee understands that the stock
certificates evidencing the Restricted Stock will bear a legend referencing this Agreement.

              (c)     SEC Rule 144. Grantee understands that Rule 144 promulgated under the Securities
Act may indefinitely restrict transfer of the Common Stock so long as Grantee remains an
“affiliate” of the Company or if “current public information” about the Company (as defined in Rule
144) is not publicly available.

     8.     Dividends. Grantee shall be entitled to receive dividends and distributions paid on all
unvested Restricted Stock; provided, however, that no dividends or distributions shall be payable
to or for the benefit of Grantee with respect to record dates for such dividends or distributions
occurring before or prior to the Vesting Commencement Date, or with respect to record dates for
such dividends or distributions occurring on or after the date, if any, on which Grantee has
forfeited the Restricted Stock.

     9.     Voting Rights. Grantee shall be entitled to vote all unvested Restricted Stock; provided,
however, that Grantee shall not be entitled to vote Restricted Stock with respect to record dates
for any Restricted Stock occurring on or after the date, if any, on which the Grantee has forfeited
the Restricted Stock.

     10.     Compliance with U.S. Federal Securities Laws. Grantee understands and acknowledges that
notwithstanding any other provision of the Agreement to the contrary, the vesting and holding of
the Common Stock is expressly conditioned upon compliance with the Securities Act and all
applicable state securities laws. Grantee agrees to cooperate with the Company to ensure
compliance with such laws.

     11.     Forfeiture of Unvested Stock. In the event that the Restricted Stock was issued to
Grantee solely in consideration for services rendered and shares of unvested Common Stock
(“Unvested Shares”) standing the in name of Grantee on the books of the Company do not become
vested on or before the expiration of the period during which the applicable vesting conditions
must occur, such Unvested Shares shall be automatically forfeited and cancelled as outstanding
shares of Common Stock immediately upon the occurrence of the event or time period after which such
Unvested Shares may no longer become vested.

 

 

     12.     Restrictions on Unvested Shares.

              (a)     Deposit of the Unvested Shares. Grantee shall deposit all of the Unvested Shares
with the Company to hold until the Unvested Shares become vested, at which time such vested shares
shall no longer constitute Unvested Shares. The Company will deliver to Grantee the shares of
Common Stock that become vested upon vesting of such shares. Grantee shall execute and deliver to
the Company, concurrently with the execution of this Agreement blank stock powers for use in
connection with the transfer to the Company or its designee of Unvested Shares that do not become
vested.

              (b)     Restriction on Transfer of Unvested Shares. Grantee shall not transfer, assign,
grant a lien or security interest in, pledge, hypothecate, encumber or otherwise dispose of any of
the Unvested Shares, or any economic interest or voting rights with respect to the foregoing except
as permitted by this Agreement.

     13.     Adjustments. The number of Unvested Shares shall be automatically adjusted to reflect any
stock split, stock dividend, recapitalization, merger, consolidation, reorganization, combination
or exchanges of shares or other similar event affecting the Company’s outstanding Common Stock
subsequent to the date of this Agreement. If Grantee becomes entitled to receive any additional
shares of Common Stock or other securities (“Additional Securities”) in respect of the Unvested
Shares, the total number of Unvested Shares shall be equal to the sum of (i) the initial Unvested
Shares; and, (ii) the number of Additional Securities issued or issuable in respect of the initial
Unvested Shares and any Additional Securities previously issued to Grantee.

     14.     Restrictive Legends and Stop-Transfer Orders.

              (a)     Legends. Grantee understands and agrees that the Company will place the legends
set forth below or similar legends on any stock certificate(s) evidencing the Common Stock,
together with any other legends that may be required by state or U.S. Federal securities laws, the
Company’s Certificate of Incorporation or Bylaws, any other agreement between Grantee and the
Company or any agreement between Grantee and any third party:

THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN RESTRICTIONS
ON PUBLIC RESALE AND TRANSFER AS SET FORTH IN A RESTRICTED STOCK AWARD AGREEMENT
BETWEEN THE ISSUER AND THE ORIGINAL HOLDER OF THESE SHARES. SUCH PUBLIC SALE AND
TRANSFER RESTRICTIONS ARE BINDING ON TRANSFEREES OF THESE SHARES.

              (b)     Stop-Transfer Instructions. Grantee agrees that, to ensure compliance with
the restrictions imposed by this Agreement, the Company may issue appropriate “stop-transfer”
instructions to its transfer agent, if any, and if the Company transfers its own securities, it may
make appropriate notations to the same effect in its own records.

              (c)     Refusal to Transfer. The Company will not be required (i) to transfer on its
books any shares of Common Stock that have been sold or otherwise transferred in violation of any
of the provisions of this Agreement or (ii) to treat as owner of such shares, or to accord the
right to vote or pay dividends to any purchaser or other transferee to whom such shares have been
so transferred.

 

 

     15.     Modification. The Agreement may not be modified except in writing signed by both parties.

     16.     Plan. Except as otherwise provided herein, or unless the context clearly indicates
otherwise, capitalized terms herein which are defined in the Plan have the same definitions as
provided in the Plan. The terms and provisions of the Plan are incorporated herein by references,
and the Grantee hereby acknowledges receiving a copy of the Plan. In the event of a conflict or
inconsistency between the terms and provisions of the Plan and the provisions of this Agreement,
the Plan shall govern and control.

     17.     Interpretation. Any dispute regarding the interpretation of this Agreement shall be
submitted by Grantee or the Company to the Plan Administrator for review. The resolution of such a
dispute by the Plan Administrator shall be final and binding on the Company and Grantee.

     18.     Entire Agreement. The Plan and Grantee’s employment agreement are incorporated herein by
reference. This Agreement and the Plan constitute the entire agreement of the parties and supercede
all prior undertakings and agreements with respect to the subject matter hereof. If any
inconsistency should exist between the nondiscretionary terms and conditions of this Agreement and
the Plan, the Plan shall govern and control.

     19.     Notices. Any notice required to be given or delivered to the Company under the terms of
this Agreement shall be in writing and addressed to the Corporate Secretary of the Company at its
principal corporate offices. Any notice required to be given or delivered to Grantee shall be in
writing and addressed to Grantee at the address indicated on the signature page hereof or to such
other address as such party may designate in writing from time to time to the Company. All notices
shall be deemed to have been given or delivered upon: (a) personal delivery; (b) three (3) days
after deposit in the United States mail by certified or registered mail (return receipt requested);
(c) one (1) business day after deposit with any return receipt express courier (prepaid); or (d)
one (1) business day after transmission by facsimile or telecopier.

     20.     Successors and Assigns. The Company may assign any of its rights under this Agreement.
This Agreement shall be binding upon and inure to the benefit of the successors and assigns of the
Company. Subject to the restrictions on transfer set forth herein, this Agreement shall be binding
upon Grantee and Grantee’s heirs, executors, administrators, legal representatives, successors and
assigns.

     21.     Governing Law. This Agreement shall be governed by and construed in accordance with the
laws of the State of Delaware without giving effect to its conflict of law principles. If any
provision of this Agreement is determined by a court of law to be illegal or unenforceable, then
such provision will be enforced to the maximum extent possible and the other provisions will remain
fully effective and enforceable.

 

 

     22.     Acceptance. Grantee hereby acknowledges receipt of a copy of the Plan and this Agreement.
Grantee has read and understands the terms and provisions thereof, and accepts the Award subject
to all the terms and conditions of the Plan and this Agreement. Grantee acknowledges that there
may be adverse tax consequences upon vesting of the Award or disposition of the underlying shares
and that Grantee should consult a tax advisor prior to such exercise or disposition.

[SIGNATURE PAGE FOLLOWS]

 

 

     IN WITNESS WHEREOF, the parties hereto have signed this Agreement as of the date first
above written.

	 	 	 	 	 
	 	 	AFFIRMATIVE INSURANCE HOLDINGS, INC.
	 
	 	 	 	 
	 

	 	By:	 	/s/ Mark E. Pape
	 
	 	 	 	 
	 

	 	Name:	 	Mark E. Pape
	 

	 	 	 	 
	 

	 	Title:	 	Chief Financial Officer
	 

	 	 	 	 

	 	 	 	 	 
	 

	 	GRANTEE	 	 
	 
	 	 	 	/s/ Kevin R. Callahan
	 	 	 
	 
	 	 	 	 
	 

	 	Address:	 	 
	 

	 	 	 	 
	 
	 	 	 	 
	 

	 	 	 	 
	 
	 	 	 	 
	 

	 	 	 	 

			
	 	 	 
	Affirmative Insurance Holdings, Inc. Restricted Stock Award Agreement
	 	Page 7

 

 

EXHIBIT A

Affirmative
Insurance Holdings, Inc. 2004 Amended and Restated Stock Incentive Plan

as
amended

 

 

Exhibit C

Stock Option Agreement

 

 

AFFIRMATIVE INSURANCE HOLDINGS, INC.

AMENDED AND RESTATED 2004 STOCK INCENTIVE PLAN

as amended

STOCK OPTION AGREEMENT

     This Stock Option Agreement (the “Agreement”) is made and entered
into as of the date of grant set forth below (the “Date of Grant”) by and between Affirmative
Insurance Holdings, Inc., a Delaware corporation (the “Company”), and the participant named below
(the “Participant”). Capitalized terms not defined herein shall have the meaning ascribed to them
in the Company’s Amended and Restated 2004 Stock Incentive Plan, as amended (the “Plan”).

	 	 	 	 	 	 	 
	 

	 	Participant:
	 	Kevin R. Callahan	 	 
	 

	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	 

	 	Address:	 	 	 	 
	 

	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	 

	 	Total Option Shares:
	 	<number>	 	 
	 

	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	 

	 	Exercise Price Per Share:
	 	<price>	 	 
	 

	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	 

	 	Date of Grant:
	 	October 5, 2006	 	 
	 

	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	 

	 	Expiration Date:
	 	October 5, 2016	 	 
	 

	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	 

	 	Vesting Commencement Date:
	 	October 5, 2006	 	 
	 

	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	 	 	Vesting Schedule:	 	The Option will become vested and exercisable
with respect to twenty percent (20%) of the
Shares (defined below) on the first anniversary
of the Vesting Commencement Date set forth
above and thereafter, at the end of each full
succeeding year, for four years, on the
anniversary date of the Vesting Commencement
Date the Option will become vested and
exercisable as to twenty percent (20%) of the
Shares until the Option is vested and
exercisable with respect to one hundred percent
(100%) of the Shares.
	 
	 	 	 	 	 	 
	 	 	Type of Stock Option:	 	o Incentive Stock Option
	 
	 	 	 	 	 	 
	 	 	 	 	þ Nonstatutory Stock Option

     1. Grant of Option. The Company hereby grants to Participant an option (this “Option”) to
purchase the total number of shares of Common Stock of the Company set forth

Page 1

 

above as Total Option Shares (the “Shares”) at the Exercise Price Per Share set forth above
(the “Exercise Price”), subject to all of the terms and conditions of this Agreement and the Plan.
If designated as an Incentive Stock Option above, the Option is intended to qualify as an
“incentive stock option” (an “ISO”) within the meaning of Section 422 of the Internal Revenue Code
of 1986, as amended (the “Code”), although the Company makes no representation or guarantee that
such Option will qualify as an ISO.

     2. Exercise Period; Vesting.

          2.1. Exercise Period. Unless expired as provided in Section 3 of this
Agreement, this Option may be exercised from time to time after the Date of Grant set forth above
(the “Date of Grant”) to the extent the Option has vested in accordance with the vesting schedule
in Subsection 2.2.

          2.2. Vesting. Provided Participant’s employment pursuant to his employment agreement
has not terminated prior to such vesting dates, the Option will become vested and exercisable
according to the Vesting Schedule. If application of the vesting percentage causes a fractional
share, such share shall be rounded down to the nearest whole share for each vesting period except
for the last period in such vesting period, at the end of which last period this Option shall
become exercisable for the full remainder of the Shares. The Shares issued upon exercise of the
Option will be subject to the restrictions on transfer set forth in Sections 8 and
9 below.

          2.3. Acceleration of Vesting. Notwithstanding the foregoing, any unvested portion of
the Option shall become immediately vested and fully exercisable upon the earliest of the following
to occur:

               (a) Termination by the Company other than for Cause;

               (b) Termination by the Participant for Good Reason; or

               (c) Non-renewal of Participant’s employment agreement, to the extent and only to the extent
provided in Section 2(b) of Participant’s employment agreement.

For purposes of clarity, a termination due to death or disability of Participant shall not cause
the Option to become immediately vested and fully exercisable. For purposes of this Option, the
terms Cause, Good Reason, death or disability shall have the meaning ascribed to them under the
Participant’s employment agreement.

     3. Expiration. The Option shall expire on the Expiration Date set forth above or earlier as
provided in Section 4 below or, if applicable, pursuant to Section 11 of the Plan.

     4. Termination of Continuous Service.

          4.1. Termination for Any Reason Except Death, Disability or Cause. Unless otherwise
provided in an employment agreement the terms of which have been approved by the Administrator, if
Participant’s Continuous Service is terminated for any reason, except death, disability or for
Cause, the Option, to the extent (and only to the extent) that it would have been

Page 2

 

exercisable by Participant on the date of termination, may be exercised by Participant no
later than the one (1) month anniversary of the date of termination, but in any event no later than
the Expiration Date.

          4.2. Termination Because of Death or Disability. If Participant’s Continuous Service
is terminated because of death or disability of Participant, the Option, to the extent that it
would have been exercisable by Participant on the date of termination, may be exercised by
Participant (or Participant’s legal representative) no later than twelve (12) months after the date
of termination, but in any event no later than the Expiration Date. If permitted by this
Agreement, any exercise beyond twelve (12) months after the date of termination when the
termination is for Participant’s disability is deemed to be a Nonstatutory Stock Option (an “NSO”)
and not an ISO.

          4.3. Termination for Cause. If Participant’s Continuous Service is terminated for
Cause, then the Option will expire on the Participant’s date of termination.

          4.4. No Obligation to Employ. Nothing in the Plan or this Agreement shall confer on
Participant any right to continue in the employ of, or other relationship with, the Company or any
Affiliate, or limit in any way the right of the Company or any Affiliate to terminate Participant’s
employment or other relationship at any time, with or without Cause.

     5. Manner of Exercise.

          5.1. Stock Option Exercise Agreement. To exercise this Option, Participant (or in the
case of exercise after Participant’s death or incapacity, Participant’s executor, administrator,
heir or legatee, as the case may be) must deliver to the Company an executed stock option exercise
agreement in the form attached hereto as Exhibit A, or in such other form as may be
approved by the Administrator from time to time (the “Exercise Agreement”), which shall set forth,
inter alia, (a) Participant’s election to exercise the Option, (b) the number of
Shares being purchased, (c) any restrictions imposed on the Shares and (d) any representations,
warranties, and agreements regarding Participant’s investment intent and access to information as
may be required by the Company to comply with applicable securities laws. If someone other than
Participant exercises the Option, then such person must submit documentation reasonably acceptable
to the Company verifying that such person has the legal right to exercise the Option.

          5.2. Limitations on Exercise. The Option may not be exercised unless such exercise is
in compliance with all applicable federal and state securities laws, as they are in effect on the
date of exercise. The Option may not be exercised for fewer than one (1) Share unless it is
exercised as to all Shares as to which the Option is then exercisable.

          5.3. Payment. The Exercise Agreement shall be accompanied by full payment of the
Exercise Price for the shares being purchased in cash (by certified check or wire transfer), or
where permitted by law and upon written approval by the Administrator:

               (a) by surrender of shares of the Company’s Common Stock that (i) either (1) have been owned
by Participant for more than six (6) months and have been paid for within the meaning of SEC Rule
144 (and, if such shares were purchased from the Company by use of promissory note, such note has
been fully paid with respect to such shares); or (2) were

Page 3

 

obtained by Participant in the open public market; and (ii) are clear of all liens, claims,
encumbrances or security interests;

               (b) provided that a Listing Date has occurred: (i) through a “same day sale” commitment from
Participant and a broker-dealer that is a member of the National Association of Securities Dealers
(an “NASD Dealer”) whereby Participant irrevocably elects to exercise the Option and to sell a
portion of the Shares so purchased sufficient to pay for the total Exercise Price and whereby the
NASD Dealer irrevocably commits upon receipt of such Shares to forward the total Exercise Price
directly to the Company, or (ii) through a “margin” commitment from Participant and an NASD Dealer
whereby Participant irrevocably elects to exercise the Option and to pledge the Shares so purchased
to the NASD Dealer in a margin account as security for a loan from NASD Dealer in the amount of the
total Exercise Price, and whereby the NASD Dealer irrevocably commits upon receipt of such Shares
to forward the total Exercise Price directly to the Company; provided, however, a
cashless exercise by a Director or executive officer that involves or may involve a direct or
indirect extension of credit or arrangement of an extension of credit by the Company or an
Affiliate in violation of Section 402(a) of the Sarbanes-Oxley Act (codified as Section 13(k) of
the Securities Exchange Act of 1934, 15 U.S.C. § 78m(k)) shall be prohibited;

               (c) by any other form of legal consideration that may be acceptable to the Administrator; or

               (d) by any combination of the foregoing.

          5.4. Tax Withholding. Prior to the issuance of the Shares upon exercise of the
Option, Participant must pay or provide for any applicable federal, state and local withholding
obligations of the Company.

          5.5. Issuance of Shares. Provided that the Exercise Agreement and payment are in form
and substance satisfactory to counsel for the Company, the Company shall issue the Shares
registered in the name of Participant, Participant’s authorized assignee, or Participant’s legal
representative, and shall deliver certificates representing the Shares with the appropriate legends
affixed thereto.

     6. Notice of Disqualifying Disposition of ISO Shares. If the Option is an ISO, and if
Participant sells or otherwise disposes of any of the Shares acquired pursuant to the ISO on or
before the later of (a) the date two (2) years after the Date of Grant, and (b) the date one (1)
year after transfer of such Shares to Participant upon exercise of the Option, Participant shall
immediately notify the Company in writing of such disposition. Participant agrees that Participant
may be subject to income tax withholding by the Company on the compensation income recognized by
Participant from the early disposition by payment in cash or out of the current wages or other
compensation payable to Participant.

     7. Compliance with Laws and Regulations. The exercise of the Option and the issuance and
transfer of Shares shall be subject to compliance by the Company and Participant with all
applicable requirements of federal and state securities laws and with all applicable requirements
of any stock exchange on which the Company’s Common Stock may be listed at

Page 4

 

the time of such issuance or transfer. Participant understands that the Company is under no
obligation to register or qualify the Shares with the SEC, any state securities commission or any
stock exchange to effect such compliance.

     8. Nontransferability of Option. If the Option is an ISO, the Option may not be transferred
in any manner other than by will or by the laws of descent and distribution and may be exercised
during the lifetime of Participant only by Participant or in the event of Participant’s incapacity,
by Participant’s legal representative. The terms of the Option shall be binding upon the
executors, administrators, successors and assigns of Participant. If the Option is not an ISO,
upon written approval by the Administrator, it may be transferred by gift or domestic relations
order to a member of the Participant’s immediate family (child, stepchild, grandchild, parent,
stepparent, grandparent, spouse, former spouse, sibling, niece, nephew, mother-in-law,
father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law, including adoptive
relationships, any person sharing the Participant’s household (other than a tenant or employee), a
trust in which these persons have more than 75% of the beneficial interest, a foundation in which
these persons (or the Participant) control the management of assets, and any other entity in which
these persons (or the Participant) own more than 75% of the voting interests.

     9. Privileges of Stock Ownership. Participant shall not have any of the rights of a
stockholder with respect to any Shares until the Shares are issued to Participant.

     10. General.

          10.1. Interpretation. Any dispute regarding the interpretation of this Agreement
shall be submitted by Participant or the Company to the Administrator for review. The resolution
of such a dispute by the Administrator shall be final and binding on the Company and Participant.

          10.2. Entire Agreement. The Plan and Participant’s employment agreement are
incorporated herein by reference. This Agreement and the Plan constitute the entire agreement of
the parties and supercede all prior undertakings and agreements with respect to the subject matter
hereof. If any inconsistency should exit between the nondiscretionary terms and conditions of this
Agreement and the Plan, the Plan shall govern and control.

          10.3. Notices. Any notice required to be given or delivered to the Company under the
terms of this Agreement shall be in writing and addressed to the Corporate Secretary of the Company
at its principal corporate offices. Any notice required to be given or delivered to Participant
shall be in writing and addressed to Participant at the address indicated above or to such other
address as such party may designate in writing from time to time to the Company. All notices shall
be deemed to have been given or delivered upon: (a) personal delivery; (b) five (5) days after
deposit in the United States mail by certified or registered mail (return receipt requested); (c)
two (2) business day after deposit with any return receipt express courier (prepaid); or (d) one
(1) business day after transmission by facsimile.

          10.4. Successors and Assigns. The Company may assign any of its rights under this
Agreement. This Agreement shall be binding upon and inure to the benefit of the successors and
assigns of the Company. Subject to the restrictions on transfer set forth herein, this

Page 5

 

Agreement shall be binding upon Participant and Participant’s heirs, executors,
administrators, legal representatives, successors and assigns.

          10.5. Governing Law. This Agreement shall be governed by and construed in accordance
with the laws of the State of Delaware without giving effect to its conflict of law principles. If
any provision of this Agreement is determined by a court of law to be illegal or unenforceable,
then such provision will be enforced to the maximum extent possible and the other provisions will
remain fully effective and enforceable.

     11. Acceptance. Participant hereby acknowledges receipt of a copy of the Plan and this
Agreement. Participant has read and understands the terms and provisions thereof, and accepts the
Option subject to all the terms and conditions of the Plan and this Agreement. Participant
acknowledges that there may be adverse tax consequences upon exercise of the Option or disposition
of the Shares and that Participant should consult a tax advisor prior to such exercise or
disposition.

[SIGNATURE PAGE FOLLOWS]

Page 6

 

     IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by its duly
authorized representative and Participant has executed this Agreement, effective as of the Date of
Grant.

	 	 	 	 	 
	 	 	AFFIRMATIVE INSURANCE HOLDINGS, INC.
	 
	 	 	 	 
	 

	 	By:	 	/s/ Mark E. Pape
	 

	 	 	 	 
	 

	 	Name:
	 	Mark E. Pape
	 

	 	Title:
	 	Executive Vice President
	 
	 	 	 	 
	 	 	PARTICIPANT
	 
	 	 	 	/s/ Kevin R. Callahan
	 	 	 
	 	 	(Signature)
	 
	 	 	 	 
	 	 	Printed Name: Kevin R. Callahan

Page 7

 

EXHIBIT A

FORM OF STOCK OPTION EXERCISE AGREEMENT

 

AFFIRMATIVE INSURANCE HOLDINGS, INC.

AMENDED AND RESTATED 2004 STOCK INCENTIVE PLAN

as amended

STOCK OPTION EXERCISE AGREEMENT

     This Stock Option Exercise Agreement (the “Exercise
Agreement”) is made and entered into as of                                          (the “Effective Date”), by and
between Affirmative Insurance Holdings, Inc., a Delaware corporation (the “Company”), and the
purchaser named below (the “Purchaser”). Capitalized terms not defined herein shall have the
meanings ascribed to them in the Company’s Amended and Restated 2004 Stock Incentive Plan, as
amended (the “Plan”) or the Stock Option Agreement.

	 	 	 	 	 	 	 
	 

	 	Participant:	 	 	 	 
	 

	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	 

	 	Social Security Number:	 	 	 	 
	 

	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	 

	 	Address:	 	 	 	 
	 

	 	 	 	 

	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	 

	 	Option Shares Being Purchased:	 	 	 	 
	 

	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	 

	 	Exercise Price Per Share:	 	 	 	 
	 

	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	 

	 	Date of Grant:	 	 	 	 
	 

	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	 

	 	Expiration Date:	 	 	 	 
	 

	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	 

	 	Type of Stock Option:
	 	o Incentive Stock Option	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	o Nonstatutory Stock Option
	 	 

     1. Exercise of Option.

          1.1. Exercise. Pursuant to exercise of that certain option (the “Option”) granted to
Purchaser under the Plan and the Stock Option Agreement and subject to the terms and conditions of
this Exercise Agreement, Purchaser hereby purchases from the Company, and the Company hereby sells
to Purchaser, the Total Number of Shares set forth above (the “Shares”) of the Company’s Common
Stock at the Exercise Price Per Share set forth above (the “Exercise Price”). As used in this
Exercise Agreement, the term “Shares” refers to the Shares purchased under this Exercise Agreement
and includes all securities received (a) in replacement of the Shares, (b) as a result of stock
dividends or stock splits with respect to the Shares, and (c) all securities received in
replacement of the Shares in a merger, recapitalization, reorganization or similar corporate
transaction.

			
	 	 	 
	Affirmative Insurance Holdings, Inc. Stock Option Exercise Agreement
	 	Page 1
	 	 	 

 

 

          1.2. Title to Shares. The exact spelling of the name(s) under which Purchaser
will take title to the Shares is:                                                            

          Purchaser desires to take title to the Shares as follows:

          o Individual, as separate property

          o Husband and wife, as community property

          o Joint Tenants

          o Other; please specify:                                                            

          1.3. Payment. Purchaser hereby delivers payment of the Exercise Price in cash (by
check), whether or not acquired through a loan from the Company, in the amount of $                                        ,
receipt of which is acknowledged by the Company.

     2. Delivery.

          2.1. Deliveries by Purchaser. Purchaser hereby delivers to the Company (a) this
Exercise Agreement, (b) if Purchaser is married, a consent of spouse in the form of Exhibit
A attached hereto executed by Purchaser’s spouse, (c) the Exercise Price and payment or other
provision for any applicable tax obligations in the form of a check, or, if permitted under
applicable law and permitted by the Administrator, a secured full recourse promissory note (“Note”)
and (d) if the Purchaser has provided a Note for exercise of the Shares, a stock pledge agreement
executed by Purchaser (“Pledge Agreement”) and two (2) copies of a blank stock power (“Stock
Power”), both executed by Purchaser (and Purchaser’s spouse, if any).

          2.2. Deliveries by the Company. Upon its receipt of the Exercise Price, payment or
other provision for any applicable tax obligations and all the documents to be executed and
delivered by Purchaser to the Company under Section 2.1 hereof, the Company will issue a
duly executed stock certificate evidencing the Shares in the name of Purchaser, provided,
however, if the Purchaser has provided a Note for exercise of the Shares, such stock
certificate shall be placed in escrow as provided in Section 10 hereof to secure payment of
Purchaser’s obligation under the Note.

     3. Representations and Warranties of Purchaser. Purchaser represents and warrants to the
Company that:

          3.1. Agrees to Terms of the Plan. Purchaser has received a copy of the Plan and the
Stock Option Agreement, has read and understands the terms of the Plan, the Stock Option Agreement
and this Exercise Agreement, and agrees to be bound by their terms and conditions. Purchaser
acknowledges that there may be adverse tax consequences upon exercise of the Option or disposition
of the Shares, and that Purchaser should consult a tax advisor prior to such exercise or
disposition.

          3.2. SEC Rule 144. Purchaser understands that Rule 144 promulgated under the
Securities Act may indefinitely restrict transfer of the Shares so long as Purchaser remains an

			
	 	 	 
	Affirmative Insurance Holdings, Inc. Stock Option Exercise Agreement
	 	Page 2
	 	 	 

 

 

“affiliate” of the Company or if “current public information” about the Company (as defined in Rule
144) is not publicly available.

     4. Compliance with Securities Laws. Purchaser understands and acknowledges that,
notwithstanding any other provision of the Stock Option Agreement to the contrary, the exercise of
any rights to purchase any Shares is expressly conditioned upon compliance with the Securities Act
and all applicable state securities laws. Purchaser agrees to cooperate with the Company to ensure
compliance with such laws.

     5. Rights as a Stockholder. Subject to the terms and conditions of this Exercise Agreement,
Purchaser will have all of the rights of a stockholder of the Company with respect to the Shares
from and after the date that Shares are issued to Purchaser until such time as Purchaser disposes
of the Shares.

     6. Escrow. If the Purchaser has provided a Note for exercise of the Shares, as security for
Purchaser’s faithful performance of this Exercise Agreement, Purchaser agrees, immediately upon
receipt of the stock certificate(s) evidencing the Shares, to deliver such certificate(s), together
with the Stock Powers executed by Purchaser and by Purchaser’s spouse, if any (with the date and
number of Shares left blank), to the Secretary of the Company or other designee of the Company (the
“Escrow Holder”), who is hereby appointed to hold such certificate(s) and Stock Powers in escrow
and to take all such actions and to effectuate all such transfers and/or releases of such Shares as
are in accordance with the terms of this Exercise Agreement. Purchaser and the Company agree that
Escrow Holder will not be liable to any party to this Exercise Agreement (or to any other party)
for any actions or omissions unless Escrow Holder is grossly negligent or intentionally fraudulent
in carrying out the duties of Escrow Holder under this Exercise Agreement. Escrow Holder may rely
upon any letter, notice or other document executed with any signature purported to be genuine and
may rely on the advice of counsel and obey any order of any court with respect to the transactions
contemplated by this Exercise Agreement. The Shares will remain in escrow so long as they are
subject to the Pledge Agreement.

     7. Tax Consequences. PURCHASER UNDERSTANDS THAT PURCHASER MAY SUFFER ADVERSE TAX CONSEQUENCES
AS A RESULT OF PURCHASER’S PURCHASE OR DISPOSITION OF THE SHARES. PURCHASER REPRESENTS: (a) THAT
PURCHASER HAS CONSULTED WITH ANY TAX ADVISOR THAT PURCHASER DEEMS ADVISABLE IN CONNECTION WITH THE
PURCHASE OR DISPOSITION OF THE SHARES AND (b) THAT PURCHASER IS NOT RELYING ON THE COMPANY FOR ANY
TAX ADVICE.

     8. Compliance with Laws and Regulations. The issuance and transfer of the Shares will be
subject to and conditioned upon compliance by the Company and Purchaser with all applicable state,
local and U.S. Federal laws and regulations and with all applicable requirements of any stock
exchange or automated quotation system on which the Company’s Common Stock may be listed or quoted
at the time of such issuance or transfer.

     9. Successors and Assigns. The Company may assign any of its rights under this Exercise
Agreement. This Exercise Agreement shall be binding upon and inure to the benefit of

			
	 	 	 
	Affirmative Insurance Holdings, Inc. Stock Option Exercise Agreement
	 	Page 3
	 	 	 

 

 

the
successors and assigns of the Company. This exercise Agreement will be binding upon Purchaser and
Purchaser’s heirs, executors, administrators, legal representatives, successors and assigns.

     10. Governing Law; Severability. This Exercise Agreement shall be governed by and construed
in accordance with the laws of the State of Delaware without giving effect to its conflict of law
principles. If any provision of this Exercise Agreement is determined by a court of law to be
illegal or unenforceable, then such provision will be enforced to the maximum extent possible and
the other provisions will remain fully effective and enforceable.

     11. Notices. Any notice required to be given or delivered to the Company shall be in writing
and addressed to the Corporate Secretary of the Company at its principal corporate offices. Any
notice required to be given or delivered to Purchaser shall be in writing and addressed to
Purchaser at the address indicated above or to such other address as Purchaser may designate in
writing from time to time to the Company. All notices shall be deemed effectively given upon
personal delivery, (a) five (5) days after deposit in the United States mail by certified or
registered mail (return receipt requested), (b) two (2) business day after its deposit with any
return receipt express courier (prepaid), or (c) one (1) business day after transmission by
facsimile.

     12. Further Instruments. The parties agree to execute such further instruments and to take
such further action as may be reasonably necessary to carry out the purposes and intent of this
Exercise Agreement.

     13. Headings. The captions and headings of this Exercise Agreement are included for ease of
reference only and will be disregarded in interpreting or construing this Exercise Agreement.

     14. Entire Agreement. The Plan, the Stock Option Agreement and this Exercise Agreement,
together with all Exhibits thereto, constitute the entire agreement and understanding of the
parties with respect to the subject matter of this Exercise Agreement, and supersede all prior
understandings and agreements, whether oral or written, between the parties hereto with respect to
the specific subject matter hereof. If there is any inconsistency between the terms of this
Exercise Agreement and the terms of the Plan and Stock Option Agreement, the terms of the Plan and
Stock Option Agreement shall govern and control.

[SIGNATURE PAGE FOLLOWS]

			
	 	 	 
	Affirmative Insurance Holdings, Inc. Stock Option Exercise Agreement
	 	Page 4
	 	 	 

 

 

     IN WITNESS WHEREOF, the Company has caused this Exercise Agreement to be executed in
triplicate by its duly authorized representative and Purchaser has executed this Exercise Agreement
in triplicate as of the Effective Date, indicated above.

	 	 	 	 	 	 	 
	 	 	AFFIRMATIVE INSURANCE HOLDINGS, INC.	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	Name:
	 	 

	 	 
	 

	 	Title:
	 	 

	 	 
	 

	 	 	 	 	 	 

	 	 	 	 	 	 	 
	 	 	PARTICIPANT	 	 
	 
	 	 	 	 	 	 
	 	 	 	 	 
	 

	 	(Signature)	 	 	 	 
	 

	 	Printed Name:	 	 	 	 
	 

	 	 	 	 

	 	 

			
	 	 	 
	Affirmative Insurance Holdings, Inc. Stock Option Exercise Agreement
	 	Page 5
	 	 	 

 

 

EXHIBIT A

SPOUSE CONSENT

     The undersigned spouse of                                                             
 (the “Purchaser”) has read,
understands, and hereby approves the Stock Option Exercise Agreement (the “Agreement”) between
Purchaser and Affirmative Insurance Holdings, Inc., a Delaware corporation (the “Company”). In
consideration of the Company’s granting my spouse the right to purchase the Shares as set forth in
the Agreement, the undersigned hereby agrees to be irrevocably bound by the Agreement and further
agrees that any community property interest I may have in the Shares shall similarly be bound by
the Agreement. The undersigned hereby appoints Purchaser as my attorney-in-fact with respect to
any amendment or exercise of any rights under the Agreement.

	 	 	 	 	 	 	 
	 

	 	Dated:	 	 	 	 
	 

	 	 	 	 

	 	 
	 

	 	SPOUSE	 	 	 	 
	 
	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	 	 	 	 	 
	 

	 	(Signature)	 	 	 	 
	 
	 	 	 	 	 	 
	 	 	 	 	 
	 	 	Printed Name	 	 
	 
	 	 	 	 	 	 
	 

	 	Address:	 	 	 	 
	 

	 	 	 	 

	 	 
	 	 	 	 	 
	 
	 	 	 	 	 	 
	 	 	 	 	 

 

 

Exhibit D

SEVERANCE AND RELEASE AGREEMENT

 

 

SEPARATION AGREEMENT AND RELEASE

     THIS SEPARATION AGREEMENT AND RELEASE (“Agreement”) is made and entered into by and between
Kevin R. Callahan (“Executive”) and Affirmative Insurance Holdings, Inc. (“the Company”).

     WHEREAS the parties acknowledge and agree that Executive and the Company entered into an
Employment Agreement effective on October 5, 2006 (“Employment Agreement”);

     WHEREAS the Employment Agreement has been terminated and Executive’s last date of employment
was                      (“Separation Date”); and

     WHEREAS Executive and the Company desire to settle fully and finally any and all differences
between them, including, but not limited to, any and all differences arising from or in any way
connected with Executive’s employment with the Company or the termination of that employment.

     NOW, THEREFORE, in consideration of the mutual promises, agreements and valuable consideration
contained herein, the sufficiency of which is hereby acknowledged, it is agreed as follows:

     1. Separation Payments and Benefits.

          (a) Pursuant to Section 6 of the Employment Agreement, and in exchange for execution of this
Agreement and Executive’s release of claims against the Releasees in Paragraph 2, Executive will
receive the appropriate severance payment and/or benefits, as applicable, pursuant to Section 5 of
the Employment Agreement;

          (b) If Executive does not execute this Agreement within twenty-one (21) calendar days from the
Separation Date pursuant to Paragraph 4(a) below, or if Executive revokes this Agreement pursuant
to Paragraph 4(b) below, or if Executive is otherwise in non-compliance with this Agreement, the
Company will have no obligation to provide severance payments and/or benefits, as specified in this
Paragraph 1.

          (c) Executive acknowledges that the separation payments and/or benefits, as applicable,
described in Paragraphs 1(a) and (b), are good and valuable consideration for the release and other
covenants he is making in this Agreement and are in addition to any consideration to which he may
already be entitled. Executive also acknowledges and agrees that neither the Company nor its
attorneys have made any representations regarding the tax consequences, if any, of the severance
payments and/or benefits referenced in this Paragraph 1.

          (d) Nothing contained herein shall limit or otherwise impair Executive’s right to receive
pension or similar benefit payments which are vested as of the Separation Date under any applicable
tax qualified pension or other tax qualified or non-qualified benefit plans, pursuant to the terms
and conditions of the applicable plan.

1

 

     2. Release.

          (a) General Release. As a material inducement for the Company to enter this
Agreement, except for (i) a claim based upon a breach of this Agreement, and (ii) a claim which is
expressly preserved by this Agreement, Executive does hereby agree to release and forever discharge
the Company (including, without limitation, the Company’s affiliates, owners, stockholders, agents,
directors, officers, members, partners, employees, insurers, representatives, lawyers, management
consultants, human resource consultants, employee welfare benefit plans, pension plans and/or
deferred compensation plans and their trustees, administrators, or other fiduciaries, the
successors or assigns of any of the foregoing, and all persons acting by, through, under, or in
concert with them, or any of them) (hereinafter the “Releasees”) from any and all claims,
complaints, liabilities or obligations of any kind whatsoever, whether known or unknown, arising in
tort or contract, which Executive may have, now has, or has ever had arising from Executive’s
employment with the Company or any predecessor or the termination of that employment, or any other
matter or event which may have occurred as of the date of this Agreement, other than as provided in
under (i) and (ii) above (“Released Claims”). Executive understands and agrees that the Released
Claims include, without limitation, any and all claims, complaints, liabilities or obligations
under applicable federal, state or local law, including, but not limited to, Title VII of the Civil
Rights Act of 1964, as amended by the Civil Rights Act of 1991, the Americans With Disabilities
Act, the Employee Retirement Income Security Act, and the Age Discrimination in Employment Act
(“ADEA”), or any other federal, state, or local statute, regulation, or ordinance governing
employment, discrimination in employment, and/or the payment of wages or benefits, other than as
provided in (i) and (ii) above.

          (b) Warranty That Claims Have Not Been Assigned Or Conveyed. Executive represents and
warrants that he is the only person who may be entitled to assert any claims against the Company
arising from his former employment with the Company and the termination of such employment, and
that he has not assigned or conveyed to anyone else any part of or interest in such claims against
the Company. Executive agrees to indemnify and hold the Company harmless from any liability,
demand, cost, expense, or attorneys’ fee incurred as the result of the assertion of any such claim
or claims by any other person based on such an assignment or conveyance from Executive.

          (c) Waiver of Right to Bring Released Claims. Executive further agrees not to bring
any Released Claims against the Releasees, either individually or collectively; provided however,
that Executive may file a lawsuit to challenge the validity of the release of his ADEA claims under
this Agreement, including the knowing and voluntary nature of the ADEA release under the OWBPA.
Nothing in this Paragraph 2(b) shall interfere with Executive’s right to file a charge with, or
cooperate or participate in an investigation or proceeding conducted by, the Equal Employment
Opportunity Commission (“EEOC”) or other federal or state regulatory or law enforcement agency.
However, the consideration provided to Executive in this Agreement shall be the sole relief
provided for the Released Claims and Executive will not be entitled to recover and Executive agrees
to waive any monetary benefits or recovery against the Releasees in connection with any such charge
or proceeding without regard to who has brought such charge or proceeding.

2

 

          (d) Costs of Enforcement. Executive agrees that if he breaches this Agreement and
brings a Released Claim against any of the Releasees or otherwise breaches this Agreement,
Executive shall be liable for any and all expenses incurred by the person or entity who has to
defend the action, including reasonable attorney’s fees; provided however, that this Paragraph 2(c)
shall not apply to charges filed by Executive with the EEOC or other federal or state regulatory or
law enforcement agency or to claims initiated by Executive to challenge the validity of the release
of ADEA claims under this Agreement, including the knowing and voluntary nature of the ADEA release
under the OWBPA.

     3. Return of Company Property. By the close of business on Executive’s Separation
Date, Executive agrees to return to the Company all property and Confidential Information (as
defined in the Employment Agreement) belonging to the Releasees in his possession or under his
control.

     4. Knowing and Voluntary Execution. Executive understands and agrees as follows:

	 	(a)	 	Executive may take up to twenty-one (21) calendar days from the
Separation Date to consider whether or not he desires to execute this
Agreement;
	 
	 	(b)	 	Executive may revoke this Agreement at any time during the
seven (7) calendar day period after he signs and delivers this Agreement to the
Company’s General Counsel. Any such revocation must be in writing and
personally delivered to the Company’s General Counsel by the end of the seventh
(7th) calendar day. Executive understands that this Agreement is not
effective, and Executive is not entitled to the separation payments and
benefits specified in Paragraph 1, until the expiration of this seven (7)
calendar day revocation period. Executive understands that upon the expiration
of such seven (7) calendar day revocation period, this entire Agreement will be
binding upon Executive and will be irrevocable;
	 
	 	(c)	 	Executive has carefully read and fully understands all of the
provisions of this Agreement;
	 
	 	(d)	 	Executive knowingly and voluntarily agrees to all of the terms
set forth in this Agreement and to be bound by this Agreement;
	 
	 	(e)	 	Executive is hereby advised in writing to consult with an
attorney and tax advisor of his choice prior to executing this Agreement and
has had the opportunity and sufficient time to seek such advice;
	 
	 	(f)	 	Executive understands that rights or claims under the Age
Discrimination in Employment Act that may arise after the date this Release is
executed are not waived; and
	 
	 	(g)	 	Executive agrees that the separation pay provided in this
Agreement is in addition to any consideration to which he may already be
entitled.

3

 

     7. Interpretation. The language 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.

     8. Governing Law and Consent to Venue. This Agreement will be governed by and
construed in accordance with the laws of the State of Illinois, without regard to any conflict of
laws rule or principle which might refer the governance or construction of this Agreement to the
laws of another jurisdiction. The Parties agree that any dispute relating to or arising out of
this Agreement will be heard and decided in a state or federal court of competent jurisdiction in
Chicago, Illinois.

     9. Representations. The parties to this Agreement represent and acknowledge that in
entering and executing this Agreement, they have not relied upon any representations or statements
made by any other party to this Agreement, or by the agents, representatives, or attorneys of any
other party, with regard to the subject matter, basis, or effect of this Agreement.

     10. Entire Agreement. This Agreement sets forth the entire agreement between the
parties hereto and fully supersedes any and all prior agreements or understandings, written or
oral, between the parties hereto pertaining to the subject matter hereof, except for Executive’s
continuing obligations under the Employment Agreement, including, without limitation, Sections 7
and 8 of the Employment Agreement. This Agreement cannot be amended or modified, unless such
amendment or modification is in writing and signed by the Company and the Executive.

     11. Third-Party Beneficiaries. Executive acknowledges and agrees that the terms of
this Agreement, including, without limitation, the releases of claims by Executive, will inure to
the benefit of all Releasees.

     12. Severability. Should any court of competent jurisdiction declare any provision of
this Agreement to be wholly or partially illegal, invalid, or unenforceable, the offending
provision shall be stricken and all remaining provisions shall remain in full force and effect and
shall be unaffected by such declaration.

     13. No Admission of Liability. Nothing in this Agreement is intended to be, or will
be deemed to be, an admission of liability by Executive or the Company to each other, or an
admission that they or any of their agents, affiliates, or employees have violated any state,
federal or local statute, regulation or ordinance or any principle of common law of any
jurisdiction, or that they have engaged in any wrongdoing towards each other.

     14. Waiver of Breach. The failure by either party to insist upon the performance of
any one or more terms, covenants or conditions of this Agreement shall not be construed as a waiver
or relinquishment of any right granted hereunder or of any future performance of any such term,
covenant or condition, and the obligation of either party with respect hereto shall continue in
full force and effect, unless such waiver shall be in writing and signed by the Chief Financial
Officer of the Company and the Executive.

     15. Non-Disparagement. The Executive agrees that on and after the date of this
Agreement, he will not make any disparaging, critical or derogatory statement about the Company or
any affiliate or their shareholders or any of their officers, directors or employees or otherwise
make any disparaging comment on any aspects of Executive’s employment with the

4

 

Company, and the officers of the Company agree not to issue a public statement containing, or
otherwise make, any disparaging, critical or derogatory statement about the Executive or
Executive’s employment with the Company; provided that the provisions of this paragraph shall not
apply to testimony as a witness, any disclosure required by law to be made by the Company or the
Executive, the assertion of or defense against any claim of breach of this Agreement and shall not
require either party to make false statements or disclosures.

     PLEASE READ CAREFULLY. THIS SEPARATION AGREEMENT AND RELEASE INCLUDES THE RELEASE OF ALL
CLAIMS AGAINST THE COMPANY, KNOWN OR UNKNOWN, THAT MAY HAVE OCCURRED AS OF THE DATE OF THIS
AGREEMENT, INCLUDING ALL CLAIMS ARISING UNDER THE AGE DISCRIMINATION IN EMPLOYMENT ACT.

     IN WITNESS WHEREOF, the Company and Executive have executed this Agreement, effective as of
the day and year first above written.

	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	COMPANY
	 
	 	 	 	 	 	 	 	 
	Dated:

	 	 	 	 	 	By:	 	 
	 

	 	 
	 	 	 	 	 	 
	 	 	 	 	 	 	Name: [                                        ]
	 	 	 	 	 	 	Title: [Title]
	 
	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	EXECUTIVE
	 
	 	 	 	 	 	 	 	 
	Dated:

	 	 	 	 	 	By:	 	 
	 

	 	 
	 	 	 	 	 	 
	 	 	 	 	 	 	Name: Kevin R. Callahan

5

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