Document:

EXHIBIT 10.35

 

Exhibit 10.35

SECURITIES PURCHASE AGREEMENT

          This Securities Purchase Agreement (the “Agreement”) is made as of December 20, 2005 by and
between Laurus Master Fund, Ltd. (“Purchaser”), and JMAR Technologies, Inc. (“Company”), whereby
the parties agree as follows:

          1. In exchange for and in complete cancellation of 100,000 shares of Series E 8% Cumulative
Convertible Preferred Stock (“Series E Preferred Stock”) presently outstanding and owned by the
Purchaser, the Purchaser hereby purchases from the Company and the Company hereby sells and issues
to the Purchaser the following securities: a) 1,041,667 shares of the Company’s common stock, par
value $.01 per share (the “Common Shares”), and b) a Warrant (the “Warrant”) for the purchase of
375,000 shares of Common Stock (the “Warrant Shares”), with an exercise price equal to $1.50, not
exercisable for the first six months and a term of five years and the “piggy-back” registration
rights set forth in paragraph 4, below. In the event that the resale of the Warrant Shares is not
covered by an effective registration statement at the time that the Purchaser elects to exercise
the Warrant, the Company will allow the Purchaser to effect a cashless exercise by either payment
of shares of Common Stock or through a net issuance of the Warrant Shares based on the market value
of the Company’s Common Stock on the date of exercise.

          2. Since the Common Shares and the Warrant are being issued and sold in exchange for the
outstanding shares of Series E Preferred Stock, the Common Shares and the Warrant will have the
benefit of tacking of the Rule 144(d) holding period of the Series E Preferred Stock from the date
of purchase by Purchaser of the Series E Preferred Stock (January 7, 2004). In addition, following
the original issuance of the Series E Preferred Stock the Company registered the resale by
Purchaser of a total of 750,278 shares of Common Stock which are issuable upon conversion of the
Series E Preferred Stock and related dividends. The resale of these 750,278 shares of Common Stock
is registered under Form S-3 Registration Statement (No. 333-111993) declared effective by the
Securities and Exchange Commission in January, 2004. As a result, the Company acknowledges and
represents that 750,278 shares of Common Stock will be free of restrictive legends and when issued
will be free of any resale restrictions. A total of 291,389 shares of Common Stock will be
restricted securities which will be publicly sellable pursuant to the volume limitations under Rule
144(e). Under these volume limitations, no more than approximately 350,000 shares may be sold in
any 90 day period under Rule 144 (excluding shares sold pursuant to a registration statement). As
a result, the Purchaser may sell the entire 291,389 shares of Common Stock in compliance with the
procedures of Rule 144 (which involve sale of the shares through a broker and the filing of a Form
144 prior to engaging in the sale of those shares). After January 7, 2006, the two year holding
period will have expired and pursuant to Rule 144(k) the 291,389 shares may be sold free of the
manner of sale and notice filing restrictions of Rule 144. The registration and resale status of
the Warrant Shares shall be governed by the last sentence of Section 1 of this Agreement.

 

 

          3. Upon execution of this Agreement, the Company will deliver written instructions to
its transfer agent to issue the Shares to Purchaser in accordance with the provisions of
Section 2 above.

          4. Piggy-Back Registrations. If at any time after the date hereof (i) there is not an
effective Registration Statement covering all of the Warrant Shares or (ii) the Warrant
does not have the benefit of tacking of Rule 144 and as a result when exercised the
Warrant Shares are not free of any resale restrictions, the Company shall determine to
prepare and file with the Commission a registration statement relating to an offering for
its own account or the account of others under the Securities Act, then the Company shall
send to Purchaser written notice of such determination and, if within fifteen (15) days
after receipt of such notice, the Purchaser shall so request in writing, the Company shall
include in such registration statement all or any part of such Warrant Shares Purchaser
requests to be registered to the extent the Company may do so without violating
registration rights of others which exist as of the date of this Agreement, subject to
customary underwriter cutbacks applicable to all holders of registration rights and subject
to obtaining any required consent of any selling stockholder(s) to such inclusion under
such registration statement.

        Delivery of an executed copy of a signature page to this Agreement by facsimile transmission
shall be effective as delivery of a manually executed copy of this Agreement and shall be effective
and enforceable as the original. This Agreement shall be governed and construed in accordance with
the internal laws of the State of California without giving effect to the conflicts of law
principles thereunder.

AGREED AND ACCEPTED, as of the date indicated above:

	 	 	 	 	 
	 

	 	 	 	 
	JMAR Technologies, Inc.	 	 
	 
	 	 	 	 
	 
	 	 	 	 
	By: /s/ Dennis E. Valentine	 	 
	     Name:

	Dennis E. Valentine	 	 
	     Title:

	Chief Financial Officer	 	 
	 
	 	 	 	 
	 
	 	 	 	 
	PURCHASER:
	 	 
	 
	 	 	 	 
	 
	 	 	 	 
	Laurus Master Fund, Ltd.	 	 
	 
	 	 	 	 
	By:   /s/ David Grin	 	 
	Print Name: David Grin	 	 
	Title:exv10w6

 

SEPARATION AGREEMENT AND GENERAL RELEASE

     THIS SEPARATION AGREEMENT AND GENERAL RELEASE (this “Agreement”), dated as of November 13,
2005, is made and entered into by and between THOMAS E. MANGOLD (“Executive”) and AFFIRMATIVE
INSURANCE HOLDINGS, INC., a Delaware corporation (the “Company”).

RECITALS:

     A. Executive has been employed by the Company as its Chairman, Chief Executive Officer and
President pursuant to the terms of an employment agreement entered into on or before May 27, 2004
and effective as of July 14, 2004 (the “Employment Agreement”).

     B. Executive is a party to Stock Option Agreements granted under the Company’s 1998 Omnibus
Incentive Plan, as amended (the “1998 Plan”), and Stock Option Agreements granted under the
Company’s 2004 Stock Incentive Plan (the “2004 Plan”) pursuant to which the Company has granted to
Executive stock options covering shares of Common Stock under the 1998 Plan (the “1998 Options”)
and stock options covering shares of Common Stock under the 2004 Plan (the “2004 Options”).

     C. Executive is, pursuant hereto and in connection with his termination hereunder irrevocably
resigning from all positions as an officer or director of the Company and all entities affiliated
with the Company effective November 13, 2005 (the “Resignation Date”).

     D. Executive and the Company have reached an agreement regarding the termination of
Executive’s employment with the Company effective as of the Effective Date (as defined in Section
16 of this Agreement).

     E. Without making any admission of liability whatsoever, it is the desire of Executive and the
Company to settle fully and finally all differences or potential differences between them,
including all differences or potential differences that arise out of or relate to Executive’s
employment or termination of employment with the Company.

STATEMENT OF AGREEMENTS

     NOW, THEREFORE, in consideration of the foregoing and the representations, warranties,
covenants and agreements set forth in this Agreement, the sufficiency of which is hereby
acknowledged, and intending to be legally bound by the terms of this Agreement, Executive and the
Company agree as follows:

     1. Termination of Employment and Resignation of Positions. As of the Effective Date,
Executive’s employment by and with the Company and any subsidiaries shall terminate. As of the
Effective Date, the Employment Agreement shall terminate (other than Section 5 thereof) and the
parties acknowledge and agree that, pursuant hereto, the Executive is voluntarily terminating his
employment with the Company as of the Effective Date. Executive acknowledges that, pursuant
hereto, the Executive is voluntarily irrevocably resigning from all positions as an officer or
director of the Company and as an officer or director of all entities affiliated with the Company
as of the Resignation Date. Executive agrees to execute such

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documents and take such actions as the Company may deem necessary or desirable to effectuate
the foregoing.

     2. Consideration. Executive shall receive, in full settlement of any compensation and
benefits to which he would otherwise be entitled (except as provided herein) under the Employment
Agreement or under any other compensation or benefits plan, program, policy or arrangement
maintained by the Company in which Employee has at any time been a participant, including without
limitation, accrued vacation and other paid time off:

          2.1 Executive shall be entitled to payment for accrued and unpaid base salary through the
Effective Date, less applicable income and employment tax withholding and benefit plan deductions.
The net amount paid pursuant to this Section 2.1 after applicable deductions and withholding shall
be paid on the earlier of the next regular payroll date of the Company following the Effective Date
or such earlier date as may be required by law.

          2.2 Executive shall be entitled to payment for accrued and unpaid Paid Time Off (“PTO”)
through the Effective Date, less applicable income and employment tax withholding. The net amount
paid pursuant to this Section 2.2 after applicable withholding shall be paid on the earlier of the
next regular payroll date of the Company following the Effective Date or such earlier date as may
be required by law. Such amount shall be paid in complete satisfaction of any liability for
accrued vacation and other paid time off.

          2.3 Executive shall be entitled to payment of a prorata bonus for the year 2005 in the amount
of Three Hundred Thirty-Four Thousand Five Hundred Eighty-Three and 35/100 Dollars ($334,583.35),
less applicable income and employment tax withholding. The net amount after applicable withholding
shall be paid by wire transfer (Bank of America ABA # 111000025, Account # 005770427161 (the “Wire
Instructions”)) on the Effective Date. The payment will be made on the Effective Date against
receipt of the executed Acknowledgement of Non-Revocation in the form of “Exhibit B” to this
Agreement and faxing same to the Company’s General Counsel.

          2.4 The Company shall pay Executive a cash severance payment of Two Million Seven Hundred
Ninety-Five Thousand Dollars and no/100 ($2,795,000.00), less applicable income and employment tax
withholding. The net amount after applicable withholding shall be paid by wire transfer in
accordance with the Wire Instructions on the Effective Date. The payment will be made on the
Effective Date against receipt of the executed Acknowledgement of Non-Revocation in the form of
“Exhibit B” to this Agreement and faxing same to the Company’s General Counsel.

          2.5 Executive agrees that he will submit to the Company, before the Effective Date, a request
for all expenses (through the Resignation Date) to which he is entitled to receive reimbursement
pursuant to Company policies. The Company agrees to pay such amounts within 10 days of the date
the Executive submits such requests. Executive agrees that no reimbursable expenses shall be
incurred by Executive after the Resignation Date.

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          2.6 Executive shall be entitled to receive the following payment in lieu of any benefits
provided by the Company under the group insurance plans or other arrangements maintained by the
Company, subject to the following:

               2.6.1 Within seven days after the Effective Date, the Company shall pay Executive the sum of
Thirty-Eight Thousand Dollars ($38,000) in lieu of any continuation of benefits by the Company
other than as set forth in Section 2.6.2 hereof. The payment will be made against receipt of the
executed Acknowledgement of Non-Revocation in the form of “Exhibit B” to this Agreement and faxing
same to the Company’s General Counsel.

               2.6.2 Executive may elect to continue health benefit coverage under the Company’s group health
plan (medical and dental coverages) for himself, his spouse and/or eligible dependants to the
extent available under the terms of the plan pursuant to the healthcare coverage continuation
provisions of the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended (“COBRA”), at
the same coverage level provided immediately prior to the Effective Date (subject to any changes in
employee coverage under the plan that may be made from time to time with respect to the coverage
generally applicable to the Company’s senior executives). Executive will pay the cost of such
COBRA coverage.

               2.6.3 Executive shall be entitled to vested benefits under the Company’s 401(k) plan according
to the terms of such plan and his rights and the Company’s obligations thereunder shall not be
affected by this Agreement.

     3. Stock Options.

          3.1 All vested 1998 Options shall be exercisable in accordance with the terms of the 1998
Plan. Notwithstanding anything in the 1998 Plan to the contrary, all unvested 1998 Options shall
become fully vested as of the Effective Date against receipt of the executed Acknowledgement of
Non-Revocation in the form of “Exhibit B” to this Agreement and faxing same to the Company’s
General Counsel and may be thereafter exercised by Executive according to the 1998 Plan.

          3.2 All of the 2004 Options granted under the 2004 Plan are hereby cancelled. Executive
agrees to execute such documents and take such actions as the Company may deem necessary or
desirable to further evidence the cancellation of the 2004 Options.

          3.3 In connection with the exercise or other activity with respect to the 1998 Options (or
shares received upon exercise thereof) or other shares of the Company (collectively, the “Company
Equity”), the Company agrees to reasonably assist Executive with efforts to exercise such 1998
Options or hedge the value of such Company Equity, including by reasonably cooperating with any
broker or bank with whom Executive arranges for a cashless exercise of such 1998 Options or hedge
of such Company Equity; provided, however, that the Company shall incur no out of pocket cost or
expense or incur any obligation or liability in connection with assisting Executive as provided in
this Section 3.3.

     4. Non-Admission of Discrimination or Wrongdoing.

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          4.1 This Agreement shall not in any way be construed as an admission that the Company or any
individual has any liability to or acted wrongfully in any way with respect to Executive or any
other person. The Company specifically denies that it has any liability to or that it has done any
wrongful or discriminatory acts against Executive or any other person on the part of itself, or its
officers, employees and/or agents.

          4.2 Executive understands and agrees that he has not suffered any discrimination in terms,
conditions or privileges of his employment based on age, race, gender, religious creed, color,
national origin, ancestry, physical disability, mental disability, medication condition, marital
status, sexual orientation and/or sexual or racial harassment. Executive understands and agrees
that he has no claim for employment discrimination under any legal or factual theory.

     5. Separation of Employment. Executive acknowledges that his employment with the
Company shall terminate as of the Effective Date, and that such employment will not be resumed
again at any time. In addition, Executive will not apply for or otherwise seek employment with the
Company at any time in the future.

     6. Company Property. Executive represents and agrees that he has turned over to the
Company all equipment, files, memoranda, records, and other documents, Confidential Information (as
defined in Section 10.2 hereof) that is in physical or electronic form and any other physical or
personal property which are the property of the Company and which he has in his possession, custody
or control at the time this Agreement is executed. Executive will return to the Company any
additional company property in his possession, including, but not limited to, company files, work
product, computer equipment, computer software, cell phones, pagers, corporate credit cards,
identification cards, manuals, company documents and company keys. Notwithstanding the foregoing,
the Company agrees that Executive may keep the cell phone and the cell phone number that he
currently uses, and the Company and Executive will cooperate to transfer responsibility for payment
on the bills related thereto from the Company to Executive effective at a time mutually acceptable
to the Company and Executive. Executive further agrees to cooperate and work with Company’s
General Counsel to ensure his compliance with this Section 6.

     7. Release. In exchange for the accommodations by the Company provided herein and the
mutual obligations set forth herein, and except for the obligations set forth or referenced herein
(including, without limitation, Executive’s rights under the 1998 Options, Executive’s vested
401(k) and Executive’s rights to indemnification under the Company’s Bylaws, Certificate of
Incorporation or otherwise) (collectively, the “Excluded Claims”), Executive knowingly and
voluntarily waives and releases all rights and claims, known and unknown, which Executive may have
against the Company, and or any of the Company’s parents and/or their respective subsidiaries and
related or affiliated entities or successors, or any of their respective current or former
officers, directors, managers, employees or representatives thereof respectively (collectively, the
“Released Parties”) arising out of or relating to (i) Executive’s employment or termination of
employment with the Company, (ii) the Employment Agreement, (iii) the 1998 Plan, except with
respect to Executive’s rights under the 1998 Options, (iv) the 2004 Plan and the 2004 Options or
(v) any acts, occurrences or omissions taking place prior to the date of execution of this
Agreement by Executive (the “Release”), including any and all charges,

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complaints, claims, liabilities, obligations, promises, agreements, contracts, controversies,
damages, actions, causes of action, suits, rights, demands, costs, losses, debts and expenses of
any kind, at law, equity or otherwise, arising in tort, contract or otherwise, whether known or
unknown, suspected or unsuspected (other than Excluded Claims), which Executive has or may have
against them. This Release extends to and includes, but is not limited to, claims for employment
discrimination, wrongful termination, constructive termination, violation of public policy, breach
of any express or implied contract, breach of any implied covenant, fraud, intentional or negligent
misrepresentation, emotional distress, or any other claims relating to Executive’s employment or
termination of employment with the Company. This Release also includes a release of any claims
(other than Excluded Claims) by Executive under federal, state or local employment laws or
regulations, including, but not limited to: (1) Title VII of the Civil Rights Act of 1964, 42
U.S.C. Section 2000(e), et. seq. (race, color, religion, sex, and national origin discrimination);
(2) the Age Discrimination in Employment Act, 29 U.S.C. §§ 621, et. seq. (age discrimination); (3)
Section 1981 of the Civil Rights Act of 1866, 42 U.S.C. § 1981 (race discrimination); (4) the Equal
Pay Act of 1963, 29 U.S.C. § 206 (equal pay); (5) the Fair Labor Standards Act, 29 U.S.C. §§ 201,
et. seq. (wage and hour matters, including overtime pay); (6) COBRA; (7) Executive Order 11141
(age discrimination); (8) Section 503 of the Rehabilitation Act of 1973, 29 U.S.C. §§ 701, et. seq.
(disability discrimination); (9) the Employee Retirement Income Security Act of 1974, 29 U.S.C. §§
1001, et. seq. (employment benefits); (10) Title I of the Americans with Disabilities Act
(disability discrimination); (11) the Sarbanes Oxley Act; and (12) any applicable Texas employment
laws.

     8. No Lawsuits.

          8.1 Executive promises never to file a lawsuit of any kind with any court or arbitrator
against the Company or any Released Parties, asserting any claims that are released in this
Agreement.

          8.2 Executive represents and agrees that, prior to signing this Agreement, he has not filed or
pursued any complaints, charges or lawsuits of any kind with any court, governmental or
administrative agency or arbitrator against the Company or any Released Parties, asserting any
claims that are released in this Agreement.

     9. Ownership of Claims. Executive represents and agrees that Executive has not
assigned or transferred, or attempted to assign or transfer, to any person or entity, any of the
claims Executive is releasing in this Agreement.

     10. Restrictive Covenants.

          10.1 Compliance with Covenants. Executive agrees to comply at all times after the
date hereof with all provisions of this Section 10 and which include covenants concerning the
non-disclosure of confidential information and other restrictive covenants. Executive acknowledges
and agrees that these provisions shall survive the termination of his employment and the execution
of this Agreement, to the extent specified in such provisions, regardless of the nature of or
reason for his separation and the payments made with regard thereto.

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          10.2 Confidential Information. Executive acknowledges and agrees that the Company and
its affiliated entities have, since the inception of his employment and throughout the entire
period thereof, provided him with trade secrets (as defined under Texas law), and Confidential
Information (as defined below). Executive agrees that Executive will not divulge or disclose to
anyone (other than the Company, its affiliated entities or any persons employed or designated by
the Company) any Confidential Information. Confidential Information shall include this Agreement,
all information of a confidential nature relating to the business of the Company or any of its
subsidiaries or controlled affiliates, including, without limitation, customer lists, contract
terms, marketing plans, business plans, financial data and information, cost information, sales
data, business opportunities (whether for existing, new or developing businesses), pricing
information, pricing strategies and techniques, employee lists, employee personnel information,
salary information, business forms, computer and internet software and files, computer programs,
compilations of information, partners or investors, methods of doing business, research
information, processes, methods, designs, inventions, improvements, discoveries, and other
confidential information that is regularly used in the operating, technology, and business dealings
of the Company and its controlled affiliates. Executive further agrees not to disclose, publish or
make use of any such knowledge or Confidential Information at any time, including in any future
employment, without the consent of the Company. Notwithstanding the foregoing, this Section 10.2
and Section 5(a) shall not apply to Confidential Information (i) that becomes known to persons
other than the Company through no fault of Executive (other than persons subject to a direct or
indirect confidentiality obligation to the Company), or (ii) the disclosure of which is required
under law or legal process, provided that Executive gives the Company prompt notice of such
requirement of law or legal process and uses reasonable efforts to allow the Company an opportunity
to seek a protective order or other relief limiting or barring such disclosure.

          10.3 Continuing Restrictive Covenants. Executive acknowledges and agrees that the
restrictive covenants set forth in Section 5(a)-(c) of the Employment Agreement (a copy of such
Section 5 is attached as Exhibit A) shall remain in full force and effect. Executive acknowledges
and agrees that Executive shall continue to be bound by the restrictive covenants set forth in
Section 5(a)-(c) of the Employment Agreement. Executive agrees not to judicially challenge the
enforceability of any of the restrictive covenants set forth in Section 5(a)-(c) of the Employment
Agreement, including any judicial challenges to consideration or the reasonableness of the
restrictive covenants. Executive further agrees that if he judicially challenges the
enforceability of any of the restrictive covenants set forth in Section 5(b)-(c) of the Employment
Agreement, including any judicial challenges to consideration or the reasonableness of the
restrictive covenants (including, without limitation, any challenge made in the course of
prosecuting or defending), or if a court determines (in a proceeding to which the Company or a
successor or assign hereunder is party) preliminarily in relation to injunctive relief, or on a
final determination, that any of the restrictive covenants in Section 5(b)-(c) of the Employment
Agreement are unenforceable or overbroad (excluding, for avoidance of doubt, any such determination
related to comparable provisions of other agreements to which Executive is not a party), and if
Executive is or has prior to such determination or judicial challenge directly or indirectly
conducted activities that would constitute a material violation of this Section 10.3 or Section
5(b)-(c), as written, Executive will be obligated to pay Company the sum of One Million Five
Hundred Thousand Dollars ($1,500,000.00), representing a portion of the amounts and benefits paid
to or received by Executive under Sections 2.3, 2.4, 2.6.1 and 3.1 hereof, which

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will be immediately due and owing to the Company upon any such determination. Such payment
shall be in addition to any other remedies available to the Company for breach of this Agreement by
Executive. The amount of any damages incurred by the Company as a result of breach of this
Agreement or Section 5(b)-(c) of the Employment Agreement by Executive will be reduced by the
amount of any payment made by Executive to the Company as provided above. Notwithstanding anything
to the contrary in this Section 10.3, if the Company initiates any proceeding against Executive for
enforcement of Section 5(a)-(c) of the Employment Agreement, Executive reserves the right defend
such proceeding on the basis that his activity does not constitute a violation of the provision.

          10.4 Enforcement. Executive and the Company acknowledge and agree that any of the
covenants contained in this Section and Section 5 of the Employment Agreement may be
specifically enforced through injunctive relief, but such right to injunctive relief shall not
preclude Company from other remedies which may be available to it.

          10.5 Reformation. The Company and Executive agree and stipulate that the agreements
and covenants not to compete and not to solicit contained in Section 5(b)-(c) of the Employment
Agreement are fair and reasonable in light of all of the facts and circumstances of the
relationship between Executive and the Company; however, Executive is aware that in certain
circumstances courts have refused to enforce certain terms of agreements not to compete and
agreements not to solicit. Therefore, in furtherance of, and not in derogation of the provisions
of Section 5(b)-(c), Executive agrees that in the event a court should decline to enforce any
provision of Section 5(b)-(c) of the Employment Agreement, that Section 5(b)-(c) of the Employment
Agreement, as the case may be, shall be deemed to be modified or reformed to restrict his
competition with the Company or its affiliated entities to the maximum extent, as to time,
geography and business scope, that the court shall find enforceable; provided, however, in no event
shall the provisions of Section 5(b)-(c) of the Employment Agreement be deemed to be more
restrictive to him than those contained herein or therein.

          10.6 Reliance on Compliance. Executive understands and agrees that the Company shall
have the right to sue him for breach of this Agreement if Executive violates the provisions of this
Section or Section 5 of the Employment Agreement, or otherwise fails to comply with this Agreement.
Executive further acknowledges that but for his agreements to comply with his obligations
described in this Section and Section 5 of the Employment Agreement and this Agreement, the Company
would not provide him with all or part of the compensation, benefits and consideration set forth in
Sections 2.3, 2.4, 2.6.1 and 3.1 of this Agreement.

     11. No Benefits. Executive understands that Executive’s participation in all benefit
plans, programs, policies, insurance plans or other arrangements maintained by the Company or
provided by the Company, if any, will end at the Effective Date, except as provided herein.
Executive also understands that the Company will not pay for any business-related or other charges
incurred by him after the Resignation Date unless such expenses are expressly approved in advance
by the Chief Executive Officer of the Company. Executive further understands that Executive will
cease to accrue PTO as of the Effective Date.

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     12. Tax Withholdings and Reporting. All payments and benefits under this Agreement
are gross amounts and will be subject to any required income and employment tax withholding. The
parties agree to act in good faith to cooperate and confer on appropriate and consistent tax
reporting relating to the payments and benefits under this Agreement.

     13. Cooperation. Executive shall reasonably cooperate with the Company and its
subsidiaries in the defense or prosecution of any claims or actions now in existence or that may be
brought in the future against or on behalf of the Company and its subsidiaries that relate to
events or occurrences that transpired while Executive was employed by the Company. Executive
further represents and agrees that he will not furnish information to or cooperate with any
non-governmental entity (other than the Company and its affiliated entities) which is a party to
such claims or actions; provided, however, nothing shall prohibit Executive from responding to the
requirements of law or legal process, provided that Executive gives the Company prompt notice of
such requirement of law or legal process and uses reasonable efforts to allow the Company an
opportunity to seek a protective order or other relief limiting or barring such disclosure.
Employee’s cooperation in connection with such claims or actions shall include, but not be limited
to, being available to meet with counsel to prepare for discovery or trial and to act as a witness
on behalf of the Company at mutually convenient times. Executive represents and agrees that he
will give truthful and accurate testimony in any such proceedings or legal actions. Executive also
shall cooperate fully with the Company and its subsidiaries in connection with any investigation or
review by any federal, state, or local regulatory authority as any such investigation or review
relates to events or occurrences that transpired while Employee was employed by the Company.
Solely in recognition of the value of his time, if Executive meets with the Company or its
affiliates at the request of the Company at any time after the Effective Date, the Company shall
pay to Executive the sum of $2,000.00 per day plus documented travel expenses.

     14. Governing Law and Venue. The venue for the litigation of any dispute arising out
of this Agreement shall be a court of competent jurisdiction in Dallas County, Texas. Texas law
shall govern the interpretation and enforcement of this Agreement, notwithstanding the
conflict-of-law principles of such jurisdiction.

     15. Effective Date. Executive is entering into this Agreement freely and voluntarily.
Executive has carefully read and understands all of the provisions of this Agreement. Executive
acknowledges that Executive has been advised to consult legal counsel concerning this Agreement
prior to signing the Agreement, and that Executive has had sufficient opportunity to do so.
Executive understands that Executive may have up to twenty-one (21) days from the date of this
Agreement to consider this Agreement. Executive understands that if Executive signs this
Agreement, Executive will then have seven (7) days to cancel it if Executive so chooses. Executive
may cancel this Agreement by faxing a written notice of cancellation to the General Counsel of
Company, provided, however, that the Executive’s resignation from his positions as an officer and
director of the Company and all subsidiaries and affiliates shall remain in full force and effect.
However, if Executive elects to cancel this Agreement, Executive understands Executive will not be
entitled to any of the benefits, compensation, or other consideration referenced in this Agreement.
Executive realizes this Agreement is not effective or enforceable until the seven-day period
expires without revocation. Executive understands that this Agreement will not become effective
until the eighth day after Executive signs the Agreement

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without revocation (the “Effective Date”). If this Agreement does not become effective, the
parties acknowledge that the Employment Agreement remains in full force and effect until terminated
in accordance with the provisions thereof. Executive understands that the Company will have no
duty to pay him or provide him with the compensation and benefits listed in this Agreement until
the Effective Date of this Agreement, including, without limitation, all amounts and benefits paid
to or received by Executive under Sections 2.3, 2.4, 2.6.1 and 3.1 hereof, other than compensation
and benefits to which he is otherwise entitled, such as salary, expense reimbursements, and Company
benefit plans. All amounts and benefits paid to or received by Executive under Sections 2.3, 2.4,
2.6.1 and 3.1 hereof will be made on the Effective Date against receipt of the executed
Acknowledgement of Non-Revocation in the form of “Exhibit B” to this Agreement and faxing same to
the Company’s General Counsel. Executive understands that he is not waiving any age discrimination
claim that may arise after the Effective Date. Executive further acknowledges that he is receiving
consideration, that he is not otherwise entitled to, for his agreement herein to release any age
discrimination claim.

     16. Notice. All notices and other communications provided for in this Agreement (including
the Acknowledgement of Non-Revocation) shall be in writing and shall be deemed to have been duly
given upon personal delivery or receipt when sent by fax and shall be addressed as follows:

     If to the Executive:  Thomas E. Mangold care of Benjamin Nelson of Hughes & Luce
LLP (214.939.5849); and

     If to the Company:  David B. Snyder, General Counsel (972.728.6491)

     17. No Representations. The parties and each of them represent and agree that no
promises, statements or inducements have been made to them that have caused them to sign this
Agreement other than those expressly stated in this Agreement.

     18. Indemnification; Directors and Officer’s Insurance. The Company shall fulfill and honor
in all respects the obligations of the Company pursuant to any indemnification provisions under the
Certificate of Incorporation or Bylaws or otherwise, each as in effect on the date hereof. To the
extent that the Company, in its sole discretion, elects to maintain professional liability
insurance policies from time to time, the Company will not exclude Executive as a covered person to
the extent that such policies cover former directors or officers.

     19. Successors. All of the terms and provisions contained in this Agreement shall
inure to the benefit of and shall be binding upon the parties hereto and their respective heirs,
legal representatives, successors and assigns.

     20. Severability. Should any of the provisions in this Agreement be declared or be
determined to be illegal or invalid, all remaining parts, terms or provisions shall be valid, and
the illegal or invalid part, term or provision shall be deemed not to be a part of this Agreement.

     21. Proper Construction.

          21.1 The language of all parts of this Agreement shall in all cases be construed as a whole
according to its fair meaning, and not strictly for or against any of the parties.

9

 

          21.2 As used in this Agreement, the term “or” shall be deemed to include the term “and/or” and
the singular or plural number shall be deemed to include the other whenever the context so
indicates or requires.

          21.3 The paragraph headings used in this Agreement are intended solely for convenience of
reference and shall not in any manner amplify, limit, modify or otherwise be used in the
interpretation of any of the provisions hereof.

     22. Entire Agreement. This Agreement (and Section 5 of the Employment Agreement and
the 1998 Option agreements) is the entire agreement between Executive and the Company and fully
supersedes any and all prior oral or written agreements or understandings between the parties
pertaining to its subject matter.

IN WITNESS WHEREOF, the parties hereto have executed this Agreement the day and year first above
written.

	 	 	 	 	 
	 	 	Executive
	 
	 
	 	 	 	 
	 	 	 
	 	 	Thomas E. Mangold
	 
	 	 	 	 
	 

	 	Company	 	 
	 
	 	 	 	 
	 	 	Affirmative Insurance Holdings, Inc.
	 
	 	 	 	 
	 

	 	By:	 	 
	 

	 	 	 	 
	 

	 	Name:	 	 
	 

	 	 	 	 
	 

	 	Title:	 	 
	 

	 	 	 	 

10

 

EXHIBIT A

Excerpts from Section 5 of Employment Agreement

     5. Restrictive Covenants.

     (a) Confidential Information. During the Term and at all times thereafter, the
Executive agrees that he will not divulge to anyone (other than the Company or any persons employed
or designated by the Company) any knowledge or information of a confidential nature relating to the
business of the Company or any of its subsidiaries or affiliates, including, without limitation,
customer lists, contract terms, financial costs, sales data, or business opportunities whether for
existing, new or developing businesses, and the Executive further agrees not to disclose, publish
or make use of any such knowledge or information without the consent of the Company.

     (b) Non-Compete. Upon voluntary termination of Executive’s employment, upon
termination of Executive’s employment by the Company for Cause, or upon termination of Executive’s
employment without Cause, Executive agrees not to enter into or engage in any phase of the business
conducted by the Company in any state in which the Company is conducting business on the date of
termination of Executive’s employment with the Company, either as an individual for his own
account, as a partner or joint venturer, or as an employee, agent, officer, director, or
substantial shareholder of a corporation or otherwise for a period of two (2) years following the
date of Executive’s termination of his employment with the Company. As of the date of execution of
this Agreement, the business conducted by the Company was defined as owning and operating (i)
insurance companies providing automobile insurance coverage of any type or class, (ii) underwriting
agencies (or managing general agencies) that produce and administer automobile insurance, and (iii)
retail agencies that sell automobile insurance policies. Notwithstanding the foregoing, in the
event Executive’s employment is not terminated for Cause, if Executive reasonably shows that his
proposed employment is not directly competitive with the Company’s business, Executive may enter
into such employment.

     (c) Non-Solicitation. Upon termination or expiration of his employment, whether
voluntary or involuntary, Executive agrees not to directly or indirectly solicit either (i) any
employees of the Company to leave their employment with the Company in favor of employment with any
other entity, or (ii) business from any entity, organization or person which has contracted with
the Company, which has been doing business with the Company, from which the Company was soliciting
business at the time of Executive’s termination, or from which the Executive knew or had reason to
know that the Company was going to solicit business at the time of Executive’s termination, in each
case for a two-year period from the date of Executive’s termination of his employment with the
Company.

 

EXHIBIT B

ACKNOWLEDGEMENT OF NON-REVOCATION AFTER EXPIRATION OF

SEVEN-DAY PERIOD

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

     EXECUTED in Dallas, Texas this ___day of November, 2005.

Thomas Mangold

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