Document:

exv10w2

 

Exhibit 10.2

SEVENTH AMENDMENT TO RESTATED

CREDIT AND SECURITY AGREEMENT

     THIS SEVENTH AMENDMENT TO RESTATED CREDIT AND SECURITY AGREEMENT (the “Seventh Amendment”) by
and between EDUCATIONAL DEVELOPMENT CORPORATION, a Delaware corporation, as borrower (the
“Company”), and ARVEST BANK, as lender (the “Bank”), is entered into effective as of the
2nd day of September, 2005.

     WITNESSETH:

     WHEREAS, pursuant to the Restated Credit and Security Agreement dated as of June 30, 1999, as
amended by the First Amendment thereto dated as of June 30, 2000, as further amended by the Second
Amendment thereto dated as of June 30, 2001, as further amended by the Third Amendment thereto
dated as of June 30, 2002, as further amended by the Fourth Amendment thereto dated as of June 30,
2003, as further amended by the Fifth Amendment thereto dated as of June 30, 2004, and as further
amended by the Seventh Amendment thereto dated as of September 2, 2005 (collectively the “Restated
Credit Agreement”), the Bank extended a Three Million Five Hundred Thousand and No/100 Dollars
($3,500,000.00) revolving line of credit (the “Revolving Credit Loan”) to the Company until June
30, 2006, upon the terms and conditions therein set forth, the Revolving Credit Loan being secured
by the Collateral defined and described in Section 7.1 of the Restated Credit Agreement and in the
Security Agreement more particularly described and defined therein; and

     WHEREAS, the Company has requested the Bank to increase the maximum principal amount of the
Revolving Credit Loan from $3,500,000.00 to $5,000,000.00 and reduce the interest rate by fifty
basis points (0.50%) until the existing maturity of June 30, 2006; and

     WHEREAS, subject to the terms, provisions and conditions hereinafter set forth, the Bank is
willing to so amend and modify the Revolving Credit Loan facility established pursuant to the
Restated Credit Agreement in the increased maximum principal amount of $5,000,000.00 until the
existing maturity date of June 30, 2006;

     NOW, THEREFORE, for good and valuable consideration and for the extension and amendment of the
Restated Credit Agreement, the Company and the Bank hereby agree as follows:

     1. The maturity date of the Revolving Credit Loan shall remain June 30, 2006, and Revolving
Credit Loan advances shall be evidenced by that certain replacement Revolving Credit Note of even
date herewith in the increased original principal amount of Five Million and No/100 Dollars
($5,000,000.00) payable to the order of the Bank and bearing interest at a variable annual rate
equal from day to day to Prime Rate (as therein defined) minus three-quarters of one percentage
point (0.75%). A true and correct copy of the replacement Revolving Credit Note is annexed hereto
as Exhibit A and made a part hereof (the “Replacement Note”).

 

 

Each reference in the Restated Loan Agreement to “$3,500,000.00” shall be deleted and replaced with
a reference to “$5,000,000.00”.

     2. The remaining terms, provisions and conditions set forth in the Restated Credit Agreement
shall remain in full force and effect for all purposes. The Company restates, confirms and
ratifies the warranties, covenants and representations set forth therein and further represents to
the Bank that no defaults or Events of Default exist under the Restated Credit Agreement as of the
date hereof. The Company further confirms, ratifies, continues, grants and re-grants to and in
favor of the Bank, as secured party, a continuous and continuing first and prior security interest
in all of the items and types of Collateral more particularly described in Section 7.1 of the
Restated Credit Agreement and in Section 2 of the Security Agreement described therein without any
interruption thereof, as security and collateral for the $5,000,000.00 Replacement Note, as the
same may be extended, renewed, rearranged, substituted, exchanged, replaced, consolidated or
otherwise modified from time to time, all of which such terms and provisions are incorporated
herein by reference with the same force and effect as if set forth and restated herein verbatim.

     3. The Company represents and warrants to the Bank that it is a corporation duly organized and
validly existing and in good standing under the laws of the State of Delaware and that the Company
is duly licensed, qualified and in good standing under the laws of the State of Oklahoma as a
foreign corporation. The Company will not change the jurisdiction or state of its incorporation or
otherwise re-incorporate without prior notification thereof to the Bank, including authorization to
the Bank to file amended or supplemental financing statements and execution by the Company of such
supplemental or amended security agreements and/or financing statements as deemed appropriate by
the Bank.

     4. The Company agrees to pay the Bank’s legal fees incurred in connection with the
negotiation, preparation and closing of this Seventh Amendment.

     IN WITNESS WHEREOF, this Seventh Amendment is executed and delivered to the Bank in Tulsa,
Oklahoma, by the undersigned duly authorized corporate officer of the Company, which officer has
full power and authority to do so on behalf and in the name of the Company by virtue of all
necessary corporate action of the Board of Directors of the Company, effective as of the
2nd day of September, 2006.

	 	 	 	 	 	 	 
	 	 	EDUCATIONAL DEVELOPMENT
	 	 	CORPORATION
	 
	 	 	 	 	 	 
	 

	 	By	 	 	 	 
	 	 	 	 	 	 	 
	 

	 	 	 	     Randall White	 	 
	 

	 	 	 	     President	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	“Company”	 	 

	 	 	 	 	 	 	 
	 	 	ARVEST BANK  
	 
	 	 	 	 	 	 
	 

	 	By	 	 	 	 
	 	 	 	 	 	 	 
	 

	 	 	 	     Dennis Colvard

     Senior Vice President	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	“Bank”	 	 

 

 

Exhibit A

REVOLVING CREDIT NOTE

			
	$5,000,000.00
	 	Tulsa, Oklahoma

September 2, 2005

     FOR VALUE RECEIVED, the undersigned (the “Maker”) promises to pay to the order of ARVEST BANK
(the “Payee”), at the Payee’s main banking office in Tulsa, Oklahoma, the principal sum of FIVE
MILLION AND NO/100 DOLLARS ($5,000,000.00), or so much thereof as shall have been advanced by
Payee to Maker and remains unpaid, on June 30, 2006, together with interest thereon from the date
funds are advanced hereon (including accrued but unpaid interest on the Prior Note as herein
defined) on the unpaid balances of principal from time to time outstanding, at the variable annual
rate of interest hereinafter specified, which interest is payable in monthly installments due and
payable on the last day of each calendar month, commencing September 30, 2005, and at final
maturity on June 30, 2006.

     The rate of interest payable upon the indebtedness evidenced by this note shall be a variable
annual rate of interest equal from day to day to Prime Rate, as hereinafter defined, minus
three-quarters of one percentage point (0.75%). Prime Rate of interest shall be effective with
respect to this note as of the date upon which any change in such rate of interest shall occur.
Interest shall be computed on the basis of a year of 360 days but assessed only for the actual
number of days elapsed.

     For the purposes of this note, Prime Rate shall mean, as of the date upon which such rate of
interest is to be determined, the prime rate of interest published in the Money Rates column of The
Wall Street Journal (Southwest Edition) or a similar rate as determined by Payee if such rate
ceases to be published.

     All parties (maker, endorsers, sureties, guarantors and all others now or hereafter liable for
payment of the indebtedness evidenced by this note) waive presentment and diligence in collection
and agree that without notice to, and without discharging the liability of any party, this note may
be extended or renewed from time to time and for any term or terms by agreement between the holder
of this note and any of such parties and all parties shall remain liable on each such extension or
renewal.

     If the principal or any installment of interest due upon this note is not paid as and when the
same becomes due and payable (whether by extension, acceleration or otherwise), or any party now or
hereafter liable (directly or indirectly) for payment of this note makes an assignment for benefit
of creditors, becomes insolvent, has an order for relief under the United States Bankruptcy Code,
as amended, entered against it, or any receiver, trustee, custodian or like officer is appointed to
take custody, possession or control of any property of any such party, the holder hereof may,
without notice, declare all of the unpaid balance hereof to be immediately due and payable. Such
right of acceleration is cumulative and in addition to any other right or rights of acceleration
under the Restated Credit and Security Agreement between the Maker and

 

 

the Payee dated as of June
30, 1999, as amended by the First Amendment thereto dated as of June 30, 2000, as further amended
by the Second Amendment thereto dated as of June 30, 2001, as further amended by the Third
Amendment thereto dated as of June 30, 2002, as further amended by the Fourth Amendment thereto
dated as of June 30, 2003, as further amended by the Fifth Amendment thereto dated as of June 30,
2004, as further amended by the Sixth
Amendment thereto dated as of June 30, 2005, and as further amended by the Seventh Amendment
thereto dated as of even date herewith (collectively the “Credit Agreement”) and any other writing
now or hereafter evidencing or securing payment of any of the indebtedness evidenced hereby. After
maturity, whether by acceleration, extension or otherwise, this note shall bear interest at a
variable annual rate equal to Prime Rate plus four percentage points (4.0%). Maker and all other
parties liable hereon shall pay all reasonable attorney fees and all court costs and other costs
and expenses of collection incurred by the holder hereof.

     This is the Revolving Credit Note defined in the Credit Agreement and constitutes an increase
and modification of that certain $3,500,000.00 Revolving Credit Note dated as of June 30, 2005 (the
“Prior Note”). Reference is made to the Credit Agreement and to the Security Agreement and
Assignment dated as of June 10, 1996, for the provisions with respect to acceleration, description
of collateral securing payment of the indebtedness evidenced hereby, rights and remedies in respect
thereof and other matters, the terms, liens and priorities of which such Security Agreement are
hereby ratified, confirmed and continued in full force and effect in all respects to the fullest
extent permitted by applicable law without any interruption whatsoever.

     This note is executed and delivered to the order of the Payee in Tulsa, Oklahoma, by the
undersigned duly authorized corporate officer of the Maker pursuant to all necessary corporate
action and shall be governed by and construed in accordance with the laws of the State of Oklahoma.

	 	 	 	 	 	 	 
	 	 	EDUCATIONAL DEVELOPMENT
	 	 	CORPORATION, a Delaware corporation
	 
	 	 	 	 	 	 
	 

	 	By	 	 	 	 
	 	 	 	 	 	 	 
	 

	 	 	 	     Randall White	 	 
	 

	 	 	 	     President	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	“Maker”	 	 

Due: June 30, 2006exv10w1

 

Exhibit 10.1

SEPARATION AGREEMENT

AND

GENERAL RELEASE

TO: George M. Daly

     This Separation Agreement and General Release (the “Agreement”) is executed on the dates given
on the signature pages by and between Affirmative Services, Inc. (the “Company”) and George M. Daly
(“Executive,” “you” or “I”).

RECITALS

     WHEREAS, Executive is currently employed by the Company as its Senior Vice President, Retail
Companies. The following entities are affiliated with the Company and are herein collectively
defined as the “Affiliated Entities”: Affirmative Insurance Holdings, Inc., Affirmative Retail,
Inc., A-Affordable Insurance Agency, Inc., Driver’s Choice Insurance Agencies, Inc., Driver’s
Choice Insurance Services, LLC, Fed USA Retail, Inc., Instant Auto Insurance Agency of Arizona,
Inc., Instant Auto Insurance Agency of Colorado, Inc., Instant Auto Insurance Agency of Indiana,
Inc., Instant Auto Insurance Agency of New Mexico, Inc., InsureOne Independent Insurance Agency,
Inc., and Yellow Key Insurance Agency, Inc.

     WHEREAS, the Company and Executive entered into a Change in Control Agreement dated July 18,
2005 (“Change in Control Agreement”).

     WHEREAS, effective November 30, 2005, Executive shall resign from the Company as its Senior
Vice President, Retail Companies, unless his employment from the Company is earlier terminated as
provided herein.

     WHEREAS, the parties agree that Executive’s employment with the Company, and the separation
therefrom, are the result of a mutual agreement between Executive and the Company.

     WHEREAS, Executive, on the one hand, and the Company, on the other hand, have agreed to
provide each other with a general release of claims as contained herein and in the Supplemental
General Release Agreement, attached hereto as Exhibit “A” and incorporated herein by reference (the
“Supplemental Release”).

     Now, therefore, Executive and the Company hereby agree to enter into this Agreement setting
forth their respective obligations related to Executive’s separation as follows:

EXECUTIVE’S INITIALS

 

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I. Separation of Employment

     A. Executive shall resign as the Senior Vice President, Retail Companies of the Company and
the Affiliated Entities effective November 30, 2005.

     B. The time period between the Effective Date of this Agreement (as defined in Section IV(K))
and November 30, 2005 shall be defined as the “Transition Period.” During the Transition Period,
Executive agrees to assist, at the discretion and request of the Company, with the transition of
his duties to his successor and provide such other services as may be requested by the Company from
time to time. Executive agrees that, at any time prior to expiration of the Transition Period, the
Company shall be entitled to terminate Executive, to assign Executive to work from home or to
relieve Executive of his obligations and duties as an employee of the Company and all Related
Entities if it determines, in its sole discretion, that Executive is not satisfactorily performing
his assigned duties.

     C. During the Transition Period, Executive shall have no authority to bind the Company or any
of the Affiliated Entities and shall take no action with respect to third parties on behalf of the
Company or any of the Affiliated Entities unless he receives the prior express written permission
of the Chief Executive Officer of the Company, or his designees, including the President of the
Retail Division Companies.

     D. On the earlier of December 1, 2005 or the effective date of Executive’s termination,
Executive shall sign and deliver to the Company the Supplemental Release. Should Executive fail to
sign and deliver the Supplemental Release on December 1, 2005, he shall be in material breach of
this Agreement. In the event of Executive’s breach of this Section, the Company shall be entitled
to an order of specific performance from a court of competent jurisdiction requiring Executive to
sign and deliver the Supplemental Release to the Company and Executive hereby consents to the entry
of such an order.

II. Special Compensation and Benefits

     A. The Company agrees to provide Executive with a general release of claims as detailed in
Section III(C).

     B. During the Transition Period, the Company will pay Executive his normal salary, such
payments being paid on the Company’s regular paydays in accordance with the Company’s
normal payroll practices (“Installment Transition Payments”) and the first installment being
paid on the first regular payday after the Effective Date of this Agreement. The Installment
Transition Payments are subject to termination as provided in Sections I(B) and IV(C) of this
Agreement.

     C. During the Transition Period, Executive’s health and welfare benefits will
continue for him
and his family at the current level of premium contribution between the

EXECUTIVE’S INITIALS

 

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Company and Executive.
After the expiration of the Transition Period, Executive will be entitled to elect COBRA
continuation of his insurance benefits, at his own expense.

III. Mutual Release

     In return for the special compensation and benefits referenced in this Agreement, I, George M.
Daly, agree to the following:

     A. I agree, on behalf of myself and all of my heirs or personal representatives, to release
the Company, its parent companies, including without limitation, Affirmative Insurance Holdings,
Inc., subsidiaries, all affiliates of each, including without limitation, the Affiliated Entities,
predecessors and successors, and all of its present or former officers, partners, directors,
members, managers, representatives, employees, agents, attorneys, employee benefit programs, and
the trustees, administrators, fiduciaries and insurers of such programs (collectively the “Company
Released Parties”), from any and all claims for relief of any kind, whether known to me or unknown,
which in any way arise out of or relate to my employment at the Company or any of the Company
Released Parties, the separation of my employment at the Company or any of the Company Released
Parties, any agreements between the Company or any of the Company Released Parties and me,
including but not limited to the Change in Control Agreement, and concerning any set of facts or
events occurring at any time up to the Effective Date of this Agreement, including, but not limited
to, any and all claims of discrimination of any kind, and any contractual, tort or other common law
claims. This settlement and waiver includes all such claims, whether for breach of contract,
quasi-contract, implied contract, quantum meruit, unjust enrichment, compensation, deferred
compensation, equity interest, any tort claims, any and all claims under any applicable federal
laws, including, but not limited to, the Age Discrimination in Employment Act, as amended, Title
VII of the Civil Rights Act of 1964, as amended, the Civil Rights Act of 1991, 42 U.S.C. § 1981,
the Americans with Disabilities Act, as amended, the Equal Pay Act, as amended, the Worker
Adjustment and Retraining Notification Act, the Employee Retirement Income Security Act of 1974, as
amended, the Family and Medical Leave Act, as amended, the Fair Labor Standards Act, as amended,
the Sarbanes-Oxley Act, or under any applicable state or local laws or ordinances or any other
legal restrictions on the Company’s rights, including the Texas Commission on Human Rights Act.

     B. I further agree not to file a suit of any kind against the Company or any of the Company
Released Parties relating to my employment at the Company or any of the Company Released Parties,
the separation thereof, any agreements between the Company or any of the
Company Released Parties and me, including but not limited to the Change in Control Agreement, any
set of facts or events occurring up to the Effective Date of this Agreement, or to participate
voluntarily in any employment-related claim brought by any other party against the Company or any
of the Company Released Parties. Even if a court rules that I may file a lawsuit against the
Company or any of the Company Released Parties arising from my employment at the Company or any of
the Company Released Parties, or the separation thereof, or based on any other set of facts or
events occurring prior to the Effective Date of this Agreement, I agree not to

EXECUTIVE’S INITIALS

 

Page 3 of   9

 

accept any money
damages or any other relief in connection with any such lawsuit. I understand that this Agreement
and General Release effectively waives any right I might have to sue the Company or any of the
Company Released Parties for any claim arising out of my employment at the Company or any of the
Company Released Parties, the separation of my employment, any agreements between the Company or
the Company Released Parties and me, including but not limited to the Change in Control Agreement,
or based on any other set of facts or events occurring prior to the Effective Date of this
Agreement.

     However, this release does not waive my rights to enforce this Agreement. In addition, this
release does not give up my rights, if any, to COBRA benefits under the Company’s standard benefit
programs applicable to me. Further, this release does not waive my rights to vested 401(k) or
pension monies, my final paycheck, reimbursement of any outstanding business expense amounts (in
accordance with the Company’s existing reimbursement policies) or my rights to indemnification, if
any, under the Company’s declaration of trust or bylaws.

     C. In return for the consideration referenced in this Agreement, the Company agrees to the
following:

     Except as set forth in the last paragraph of this Section, the Company agrees, on behalf of
itself and all of its parent companies, subsidiaries, affiliates, predecessors and successors, to
release Executive and his heirs (collectively the “Executive Released Parties”), from any and all
claims for relief of any kind, whether known to it or unknown, which in any way arise out of or
relate to Executive’s employment at the Company or any of the Company Released Parties, the
separation of Executive’ s employment at the Company or any of the Company Released Parties, or any
agreements between the Company or any of the Company Released Parties and Executive, including but
not limited to the Change in Control Agreement, and concerning any set of facts or events occurring
at any time up to the Effective Date of this Agreement.

     Except as set forth in the last paragraph of this Section, the Company further agrees not to
file a suit of any kind against Executive or any of the Executive Released Parties relating to
Executive’s employment at the Company, the separation thereof, any agreements between the Company
or any of the Company Released Parties and Executive, including but not limited to the Change in
Control Agreement, or to participate voluntarily in any employment-related claim brought by any
other party against Executive or any of the Executive Released Parties. Except as set forth in the
last paragraph, even if a court rules that the Company may file a lawsuit against Executive or any
of the Executive Released Parties arising from Executive’s employment
at the Company or any of the Company Released Parties, or the separation thereof, or based on any
other set of facts or events occurring prior to the Effective Date of this Agreement, the Company
agrees not to accept any money damages or any other relief in connection with any such lawsuit.
The Company understands that this Agreement and General Release effectively waives any right it
might have to sue Executive or any of the Executive Released Parties for any claim arising out of
Executive’s employment at the Company or any of the Company Released Parties, any agreements
between the Company or the Company Released Parties and Executive,

EXECUTIVE’S INITIALS

 

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including but not limited to the
Change in Control Agreement, or the separation of Executive’s employment, or based on any other set
of facts or events occurring prior to the Effective Date of this Agreement, except as set forth in
the last paragraph of this Section.

     Notwithstanding the generality of the foregoing, nothing contained herein shall release the
Executive Released Parties from any claim relating to (i) a breach by Executive of any provision of
any agreement that pursuant to the Separation Agreement survives the execution thereof, including
but not limited to non-disclosure, non-competition and non-solicitation agreements with the Company
or any of the Company Release Parties, (ii) Executive’s obligations set forth herein, or (iii)
Executive’s fraud, willful misconduct or gross negligence.

     D. I agree to execute the Supplemental Release attached hereto as Exhibit A on the earlier of
December 1, 2005 or the effective date of my termination and immediately deliver it to the Company.

IV. Restrictive Covenants and Miscellaneous Provisions

     A. While I understand that I have had such an obligation since I began my employment with the
Company or any of the Company Released Parties, I confirm that I shall not disclose any of the
trade secrets or other confidential or restricted information of the Company or any of the Company
Released Parties and shall not make use of such trade secrets or confidential or restricted
information in any fashion at any time, including in any future employment.

     B. I agree to comply at all times after the Effective Date of this Agreement with all
provisions of Sections 6(a), (b) and (c) of the Change in Control Agreement, which provisions are
substantively set forth in subsections (1) through (5) below and which include covenants concerning
the non-disclosure of confidential information, a non-competition covenant and a non-solicitation
covenant. I acknowledge and agree that these provisions shall survive the separation of my
employment and the execution of this Agreement, and shall apply at all times after the Effective
Date of this Agreement, regardless of the nature of or reason for my separation and the payments
made with regard thereto.

     (1) Confidential Information. I acknowledge and agree that the Company and Affiliated
Entities have, since the inception of my employment and throughout the entire period thereof,
provided me with Confidential Information (as defined below). I agree that I will not
divulge or disclose to anyone (other than the Company, Affiliated Entities or any persons
employed or designated by the Company) any Confidential Information. Confidential Information
shall include all information of a confidential nature relating to the business of the Company or
any of its subsidiaries or affiliates (including the Affiliated Entities), including, without
limitation, customer lists, contract terms, marketing plans, business plans, financial data, cost
information, sales data, or business opportunities whether for existing, new or developing
businesses, and I further agree not to disclose, publish or make use of any such knowledge or

EXECUTIVE’S INITIALS

 

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Confidential Information at any time, including in any future employment, without the consent of
the Company.

     (2) Non-Compete. In consideration of the parties’ various mutual promises contained
herein, including without limitation those involving Confidential Information, I agree that upon
the separation of my employment from the Company (for whatever reason), I shall not enter into or
engage in any phase of the business conducted by the Company in any state in which the Company is
conducting business on the date of termination of my employment with the Company, either as an
individual for my own account, as a partner or joint venturer, or as an employee, agent, officer,
director, or substantial shareholder of a corporation or otherwise for a period of one (1) year
following the date of my separation from the Company. As of the Effective Date of this Agreement,
the business conducted by the Company is defined as owning and operating (i) insurance companies
providing automobile insurance coverage of any type or class, (ii) underwriting agencies (or
managing general agencies) that produce and administer automobile insurance, and (iii) retail
agencies that sell automobile insurance policies. My obligations set forth in this paragraph may
be excused only upon written consent of the President of the Company.

     (3) Non-Solicitation. In consideration of the parties’ various mutual promises
contained herein, including without limitation those involving Confidential Information, I agree
that upon the separation of my employment from the Company (for whatever reason), I shall not
directly or indirectly solicit either (i) any employees of the Company to leave their employment
with the Company for employment with any other entity, or (ii) business in the area of automobile
insurance from any entity, organization or person which has contracted with the Company, which has
been doing business with the Company, from which the Company was soliciting business at the time of
my separation of employment, or from which I knew or had reason to know that the Company was going
to solicit business at the time of my separation of employment, in each case for a period of one
(1) year from the date of my separation from the Company.

     (4) Enforcement. I acknowledge and agree that any of the covenants contained in this
Section may be specifically enforced through injunctive relief, but such right to injunctive relief
shall not preclude Company from other remedies which may be available to it.

     (5) Reformation. I agree and stipulate that the agreements and covenants not to
compete and not to solicit contained in this Section are fair and reasonable in light of all of the
facts and circumstances of the relationship between me and the Company; however, I am aware
that in certain circumstances courts have refused to enforce certain terms of agreements not to
compete and agreements not to solicit. Therefore, in furtherance of, and not in derogation of the
provisions of this Section, I agree that in the event a court should decline to enforce any
provision of this Section, that this Section shall be deemed to be modified or reformed to restrict
my competition with the Company or the Affiliated Entities to the maximum extent, as to time,
geography and business scope, that the court shall find enforceable; provided, however, in no

EXECUTIVE’S INITIALS

 

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event
shall the provisions of this Section be deemed to be more restrictive to me than those contained
herein.

     C. I understand and agree that the Company shall have the right to and will terminate the
Installment Transition Payments and/or sue me for breach of this Agreement if I violate the
provisions of Section IV(B), or otherwise fail to comply with this Agreement. I further
acknowledge that but for my agreements to comply with my obligations described in this Section and
this Agreement, the Company would not provide me with the compensation, benefits and consideration
set forth in Section II.

     D. I warrant that upon the separation of my employment, I will return to the Company all
company property in my possession, including, but not limited to, company files, work product,
computer equipment, computer software, cell phones, pagers, corporate credit cards, identification
cards, manuals, company documents and company keys. I further agree to cooperate and work with
Company’s General Counsel to ensure my compliance with this Section IV(D).

     E. I understand that the short-term disability, long-term disability and life insurance
coverage provided by the Company, if any, will end on November 30, 2005. I also understand that
the Company will not pay for any business-related or other charges incurred by me after November
30, 2005, unless such expenses are expressly approved in advance by the Chief Executive Officer of
the Company. I further understand that I will cease to accrue vacation and/or Paid Time Off
(“PTO”) as of November 30, 2005. Executive shall be paid for any accrued, unused vacation and/or
PTO within fourteen (14) days after the Effective Date of the Supplemental Release (as defined
therein).

     F. This Agreement does not constitute an admission of any kind by the Company, but is simply
an accommodation that offers certain extra benefits to which I would not otherwise be entitled in
return for my agreeing to and signing this document.

     G. I agree not to voluntarily make the terms and conditions or the circumstances surrounding
this Agreement known to anyone other than an attorney and/or tax consultant from whom I receive
counseling, or, if I am married, to my spouse, or except as otherwise required by law. I
acknowledge that any such person must agree not to further disclose the terms of this Agreement.

     H. I agree not to make any statements that disparage the reputation of the Company or any of
the Company Released Parties, or their businesses or services. I agree that any breach or
violation of this non-disparagement provision shall entitle the Company to sue me on this Agreement
for the immediate recovery of any damages caused by such breach.

     I. All payments and benefits under this Agreement are gross amounts and will be subject to
taxes and lawful deductions, if any.

EXECUTIVE’S INITIALS

 

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     J. The venue for the litigation of any dispute arising out of this Agreement shall be a court
of competent jurisdiction in Dallas County, Texas. If either party files a lawsuit in state court
arising out of this Agreement, the other party may remove the lawsuit to federal court to the
extent jurisdiction exists. Texas law shall govern the interpretation and enforcement of this
Agreement.

     K. I am entering into this Agreement freely and voluntarily. I have carefully read and
understand all of the provisions of this Agreement. I understand that it sets forth the entire
agreement between me and the Company and I represent that no other statements, promises, or
commitments of any kind, written or oral, have been made to me by the Company, or any of its
agents, to cause me to accept it. I acknowledge that I have been advised to consult legal counsel
concerning this Agreement prior to signing the Agreement, and that I have had sufficient
opportunity to do so. I understand that I may have up to twenty-one (21) days from the date of this
letter to consider this Agreement. I understand that if I sign this Agreement, I will then have
seven (7) days to cancel it if I so choose. I may cancel this Agreement by delivering a written
notice of cancellation to the General Counsel of Company. However, if I elect to cancel this
Agreement, I understand I will not be entitled to any of the benefits, compensation, or other
consideration referenced in this Agreement. I realize this Agreement is not effective or
enforceable until the seven-day period expires without revocation. I understand that this
Agreement will not become effective until the eighth day after I sign the Agreement without
revocation (the “Effective Date”). I understand that the Company will have no duty to pay me or
provide me with the compensation and benefits listed in Section II until the Effective Date of this
Agreement.

<remainder of page intentionally left blank>

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I acknowledge acceptance of this Agreement by my signature below:

  			
	/s/
GEORGE M. DALY	 	October 13,
2005
	George M. Daly 	 	Date

Agreed to and accepted on behalf of Affirmative Services, Inc.:

	 	 	 	 	 
	By:
	 	/s/ DAVID B. SNYDER	 	 
	

	 	 	 	 
	 
	 	 	 	 
	Name:
	 	David B. Snyder	 	 
	

	 	 	 	 
	Title:
	 	Senior Vice President	 	 
	

	 	 	 	 
	Date:
	 	October 13, 2005	 	 
	

	 	 	 	 

EXECUTIVE’S INITIALS

 

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Exhibit A

SUPPLEMENTAL GENERAL RELEASE AGREEMENT

     This Supplemental General Release Agreement is entered into on this 30th day
of November, 2005 by and between Affirmative Services, Inc. (the “Company”) and George M. Daly
(“Executive,” “you” or “I”).

RECITALS

     WHEREAS, Executive is currently employed by the Company as its Senior Vice President, Retail
Companies. The following entities are affiliated with the Company and are herein collectively
defined as the “Affiliated Entities”: Affirmative Insurance Holdings, Inc., Affirmative Retail,
Inc., A-Affordable Insurance Agency, Inc., Driver’s Choice Insurance Agencies, Inc., Driver’s
Choice Insurance Services, LLC, Fed USA Retail, Inc., Instant Auto Insurance Agency of Arizona,
Inc., Instant Auto Insurance Agency of Colorado, Inc., Instant Auto Insurance Agency of Indiana,
Inc., Instant Auto Insurance Agency of New Mexico, Inc., InsureOne Independent Insurance Agency,
Inc., and Yellow Key Insurance Agency, Inc.

     WHEREAS, the Company and Executive entered into a Separation Agreement and General Release
dated October 12, 2005 (“Separation Agreement”).

     WHEREAS, Executive agreed to sign and deliver this Supplemental General Release Agreement as a
material inducement to have the Company enter into the Separation Agreement.

     Now, therefore, Executive and the Company hereby agree to enter into this Supplemental General
Release Agreement setting forth their respective supplemental obligations related to Executive’s
separation as follows:

I. Special Compensation and Benefits

     In consideration for his release of claims, as well as his other promises contained herein,
the Company agrees to provide Executive with the following special consideration:

     A. Provided Executive has satisfactorily performed his duties and responsibilities during the
Transition Period (as defined in the Separation Agreement), which duties were set forth in the
Separation Agreement, the Company agrees to pay to Executive severance pay in the gross amount of
$125,000.00, payable as follows: (i) one lump sum payment in the amount of $25,000.00 payable to
Executive on December 1, 2005; (ii) subsequent periodic payments in the amount of $20,000.00 per
month payable on the first day of each of January, February, March and April 2006; and (iii)
$20,000.00 payable on November 1, 2006. All payments made pursuant to this Paragraph shall be
subject to taxes and lawful deductions.

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     B. The Company agrees to provide Executive with a general release of claims as detailed in
Section II(C).

II. Mutual Release

     In return for the special compensation and benefits referenced in this Agreement, I, George M.
Daly, agree to the following:

     A. I agree, on behalf of myself and all of my heirs or personal representatives, to release
the Company, its parent companies, including without limitation, Affirmative Insurance Holdings,
Inc., subsidiaries, all affiliates of each, including without limitation, the Affiliated Entities,
predecessors and successors, and all of its present or former officers, partners, directors,
members, managers, representatives, employees, agents, attorneys, employee benefit programs, and
the trustees, administrators, fiduciaries and insurers of such programs (collectively the “Company
Released Parties”), from any and all claims for relief of any kind, whether known to me or unknown,
which in any way arise out of or relate to my employment at the Company or any of the Company
Released Parties, the separation of my employment at the Company or any of the Company Released
Parties, any agreements between the Company or any of the Company Released Parties and me,
including but not limited to the Change in Control Agreement, and concerning any set of facts or
events occurring at any time up to the Effective Date of this Agreement (as defined herein),
including, but not limited to, any and all claims of discrimination of any kind, and any
contractual, tort or other common law claims. This settlement and waiver includes all such claims,
whether for breach of contract, quasi-contract, implied contract, quantum meruit, unjust
enrichment, compensation, deferred compensation, equity interest, any tort claims, any and all
claims under any applicable federal laws, including, but not limited to, the Age Discrimination in
Employment Act, as amended, Title VII of the Civil Rights Act of 1964, as amended, the Civil Rights
Act of 1991, 42 U.S.C. § 1981, the Americans with Disabilities Act, as amended, the Equal Pay Act,
as amended, the Worker Adjustment and Retraining Notification Act, the Employee Retirement Income
Security Act of 1974, as amended, the Family and Medical Leave Act, as amended, the Fair Labor
Standards Act, as amended, the Sarbanes-Oxley Act, or under any applicable state or local laws or
ordinances or any other legal restrictions on the Company’s rights, including the Texas Commission
on Human Rights Act.

     B. I further agree not to file a suit of any kind against the Company or any of the Company
Released Parties relating to my employment at the Company or any of the Company Released Parties,
the separation thereof, any agreements between the Company or any of the Company Released Parties
and me, including but not limited to the Change in Control Agreement, any set of facts or events
occurring up to the Effective Date of this Agreement, or to participate voluntarily in any
employment-related claim brought by any other party against the Company or any of the Company
Released Parties. Even if a court rules that I may file a lawsuit against the Company or any of
the Company Released Parties arising from my employment at the Company or any of the Company
Released Parties, or the separation thereof, or based on any

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other set of facts or events occurring prior to the Effective Date of this Agreement, I agree not
to accept any money damages or any other relief in connection with any such lawsuit. I understand
that this Agreement and General Release effectively waives any right I might have to sue the
Company or any of the Company Released Parties for any claim arising out of my employment at the
Company or any of the Company Released Parties, the separation of my employment, any agreements
between the Company or the Company Released Parties and me, including but not limited to the Change
in Control Agreement, or based on any other set of facts or events occurring prior to the Effective
Date of this Agreement.

     However, this release does not waive my rights to enforce this Agreement. In addition, this
release does not give up my rights, if any, to COBRA benefits under the Company’s standard benefit
programs applicable to me. Further, this release does not waive my rights to vested 401(k) or
pension monies, my final paycheck, reimbursement of any outstanding business expense amounts (in
accordance with the Company’s existing reimbursement policies) or my rights to indemnification, if
any, under the Company’s declaration of trust or bylaws.

     C. In return for the consideration referenced in this Agreement, the Company agrees to the
following:

     Except as set forth in the last paragraph of this Section, the Company agrees, on behalf of
itself and all of its parent companies, subsidiaries, affiliates, predecessors and successors, to
release Executive and his heirs (collectively the “Executive Released Parties”), from any and all
claims for relief of any kind, whether known to it or unknown, which in any way arise out of or
relate to Executive’s employment at the Company or any of the Company Released Parties, the
separation of Executive’ s employment at the Company or any of the Company Released Parties, or any
agreements between the Company or any of the Company Released Parties and Executive, including but
not limited to the Change in Control Agreement, and concerning any set of facts or events occurring
at any time up to the Effective Date of this Agreement.

     Except as set forth in the last paragraph of this Section, the Company further agrees not to
file a suit of any kind against Executive or any of the Executive Released Parties relating to
Executive’s employment at the Company, the separation thereof, any agreements between the Company
or any of the Company Released Parties and Executive, including but not limited to the Change in
Control Agreement, or to participate voluntarily in any employment-related claim brought by any
other party against Executive or any of the Executive Released Parties. Except as set forth in the
last paragraph, even if a court rules that the Company may file a lawsuit against Executive or any
of the Executive Released Parties arising from Executive’s employment at the Company or any of the
Company Released Parties, or the separation thereof, or based on any other set of facts or events
occurring prior to the Effective Date of this Agreement, the Company agrees not to accept any money
damages or any other relief in connection with any such lawsuit. The Company understands that this
Agreement and General Release effectively waives any right it might have to sue Executive or any of
the Executive Released Parties for any claim arising out of Executive’s employment at the Company
or any of the Company Released

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Parties, any agreements between the Company or the Company Released Parties and Executive,
including but not limited to the Change in Control Agreement, or the separation of Executive’s
employment, or based on any other set of facts or events occurring prior to the Effective Date of
this Agreement, except as set forth in the last paragraph of this Section.

     Notwithstanding the generality of the foregoing, nothing contained herein shall release the
Executive Released Parties from any claim relating to (i) a breach by Executive of any provision of
any agreement that pursuant to the Separation Agreement survives the execution thereof, including
but not limited to non-disclosure, non-competition and non-solicitation agreements with the Company
or any of the Company Released Parties, (ii) Executive’s obligations set forth herein, or (iii)
Executive’s fraud, willful misconduct or gross negligence.

III. Restrictive Covenants and Miscellaneous Provisions

     A. While I understand that I have had such an obligation since I began my employment with the
Company or any of the Company Released Parties, I confirm that I shall not disclose any of the
trade secrets or other confidential or restricted information of the Company or any of the Company
Released Parties and shall not make use of such trade secrets or confidential or restricted
information in any fashion at any time, including in any future employment.

     B. I agree to comply at all times after the Effective Date of this Agreement with all
provisions of Sections 6(a), (b) and (c) of the Change in Control Agreement, which provisions are
substantively set forth in subsections (1) through (5) below and which include covenants concerning
the non-disclosure of confidential information, a non-competition covenant and a non-solicitation
covenant. I acknowledge and agree that these provisions shall survive the separation of my
employment and the execution of this Agreement, and shall apply at all times after the Effective
Date of this Agreement, regardless of the nature of or reason for my separation and the payments
made with regard thereto.

     (1) Confidential Information. I acknowledge and agree that the Company and Affiliated
Entities have, since the inception of my employment and throughout the entire period thereof,
provided me with Confidential Information (as defined below). I agree that I will not divulge or
disclose to anyone (other than the Company, Affiliated Entities or any persons employed or
designated by the Company) any Confidential Information. Confidential Information shall include
all information of a confidential nature relating to the business of the Company or any of its
subsidiaries or affiliates (including the Affiliated Entities), including, without limitation,
customer lists, contract terms, marketing plans, business plans, financial data, cost information,
sales data, or business opportunities whether for existing, new or developing businesses, and I
further agree not to disclose, publish or make use of any such knowledge or Confidential
Information at any time, including in any future employment, without the consent of the Company.

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     (2) Non-Compete. In consideration of the parties’ various mutual promises contained
herein, including without limitation those involving Confidential Information, I agree that upon
the separation of my employment from the Company (for whatever reason), I shall not enter into or
engage in any phase of the business conducted by the Company in any state in which the Company is
conducting business on the date of termination of my employment with the Company, either as an
individual for my own account, as a partner or joint venturer, or as an employee, agent, officer,
director, or substantial shareholder of a corporation or otherwise for a period of one (1) year
following the date of my separation from the Company. As of the Effective Date of this Agreement,
the business conducted by the Company is defined as owning and operating (i) insurance companies
providing automobile insurance coverage of any type or class, (ii) underwriting agencies (or
managing general agencies) that produce and administer automobile insurance, and (iii) retail
agencies that sell automobile insurance policies. My obligations set forth in this paragraph may
be excused only upon written consent of the President of the Company.

     (3) Non-Solicitation. In consideration of the parties’ various mutual promises
contained herein, including without limitation those involving Confidential Information, I agree
that upon the separation of my employment from the Company (for whatever reason), I shall not
directly or indirectly solicit either (i) any employees of the Company to leave their employment
with the Company for employment with any other entity, or (ii) business in the area of automobile
insurance from any entity, organization or person which has contracted with the Company, which has
been doing business with the Company, from which the Company was soliciting business at the time of
my separation of employment, or from which I knew or had reason to know that the Company was going
to solicit business at the time of my separation of employment, in each case for a period of one
(1) year from the date of my separation from the Company.

     (4) Enforcement. I acknowledge and agree that any of the covenants contained in this
Section may be specifically enforced through injunctive relief, but such right to injunctive relief
shall not preclude Company from other remedies which may be available to it.

     (5) Reformation. I agree and stipulate that the agreements and covenants not to
compete and not to solicit contained in this Section are fair and reasonable in light of all of the
facts and circumstances of the relationship between me and the Company; however, I am aware that in
certain circumstances courts have refused to enforce certain terms of agreements not to compete and
agreements not to solicit. Therefore, in furtherance of, and not in derogation of the provisions
of this Section, I agree that in the event a court should decline to enforce any provision of this
Section, that this Section shall be deemed to be modified or reformed to restrict my competition
with the Company or the Affiliated Entities to the maximum extent, as to time, geography and
business scope, that the court shall find enforceable; provided, however, in no event shall the
provisions of this Section be deemed to be more restrictive to me than those contained herein.

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     C. I understand and agree that the Company shall have the right to and will sue me for breach
of this Agreement if I violate the provisions of Section III(B), or otherwise fail to comply with
this Agreement. I further acknowledge that but for my agreements to comply with my obligations
described in this Section and this Agreement, the Company would not provide me with the
compensation, benefits and consideration set forth in Section I.

     D. I warrant that upon the separation of my employment, I will return to the Company all
company property in my possession, including, but not limited to, company files, work product,
computer equipment, computer software, cell phones, pagers, corporate credit cards, identification
cards, manuals, company documents and company keys. I further agree to cooperate and work with
Company’s General Counsel to ensure my compliance with this Section III(D).

     E. I understand that the short-term disability, long-term disability and life insurance
coverage provided by the Company, if any, will end on the earlier of November 30, 2005 or my
termination. I also understand that the Company will not pay for any business-related or other
charges incurred by me after the earlier of November 30, 2005 or my termination, unless such
expenses are expressly approved in advance by the Chief Executive Officer of the Company. I
further understand that I will cease to accrue vacation and/or Paid Time Off (“PTO”) as of the date
of my termination from the Company. Executive shall be paid for any accrued, unused vacation
and/or PTO within fourteen (14) days after the Effective Date of this Agreement.

     F. This Agreement does not constitute an admission of any kind by the Company, but is simply
an accommodation that offers certain extra benefits to which I would not otherwise be entitled in
return for my agreeing to and signing this document.

     G. I agree not to voluntarily make the terms and conditions or the circumstances surrounding
this Agreement known to anyone other than an attorney and/or tax consultant from whom I receive
counseling, or, if I am married, to my spouse, or except as otherwise required by law. I
acknowledge that any such person must agree not to further disclose the terms of this Agreement.

     H. I agree not to make any statements that disparage the reputation of the Company or any of
the Company Released Parties, or their businesses or services. I agree that any breach or
violation of this non-disparagement provision shall entitle the Company to sue me on this Agreement
for the immediate recovery of any damages caused by such breach.

     I. All payments and benefits under this Agreement are gross amounts and will be subject to
taxes and lawful deductions, if any.

     J. The venue for the litigation of any dispute arising out of this Agreement shall be a court
of competent jurisdiction in Dallas County, Texas. If either party files a lawsuit in state court
arising out of this Agreement, the other party may remove the lawsuit to federal court to

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the extent jurisdiction exists. Texas law shall govern the interpretation and enforcement of
this Agreement.

     K. I am entering into this Agreement freely and voluntarily. I have carefully read and
understand all of the provisions of this Agreement. I understand that it sets forth the entire
agreement between me and the Company and I represent that no other statements, promises, or
commitments of any kind, written or oral, have been made to me by the Company, or any of its
agents, to cause me to accept it. I acknowledge that I have been advised to consult legal counsel
concerning this Agreement prior to signing the Agreement, and that I have had sufficient
opportunity to do so. I understand that I may have up to twenty-one (21) days from the date of this
letter to consider this Agreement. I understand that if I sign this Agreement, I will then have
seven (7) days to cancel it if I so choose. I may cancel this Agreement by delivering a written
notice of cancellation to the General Counsel of Company. However, if I elect to cancel this
Agreement, I understand I will not be entitled to any of the benefits, compensation, or other
consideration referenced in this Agreement. I realize this Agreement is not effective or
enforceable until the seven-day period expires without revocation. I understand that this
Agreement will not become effective until the eighth day after I sign the Agreement without
revocation (the “Effective Date”). I understand that the Company will have no duty to pay me or
provide me with the compensation and benefits listed in Section I until the Effective Date of this
Agreement.

<remainder of page intentionally left blank>

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I acknowledge acceptance of this Agreement by my signature below:
 

    				
	  	 	 	 
	George M. Daly 	 	Date
	 

Agreed to and accepted on behalf of Affirmative Services, Inc.:

	 	 	 	 	 
	By:
	 	 	 	 
	

	 	 	 	 
	 
	 	 	 	 
	Name:
	 	 	 	 
	

	 	 	 	 
	Title:
	 	 	 	 
	

	 	 	 	 
	Date:
	 	 	 	 
	

	 	 	 	 

EXECUTIVE’S INITIALS

 

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