Document:

2004 Stock Incentive Plan

 Exhibit 10.2 
  
 AFFIRMATIVE INSURANCE HOLDINGS, INC. 
  
 2004 STOCK INCENTIVE PLAN 
  
 1. Purpose; Eligibility. 
  
 1.1. Eligible Stock Award Recipients. The persons eligible to receive Stock Awards are the Employees, Directors and Consultants of
the Company and its Affiliates. 
  
 1.2.
Available Stock Awards. The purpose of the Plan is to provide a means by which eligible recipients of Stock Awards may be given an opportunity to benefit from increases in value of the Common Stock through the granting of the following Stock
Awards: (a) Incentive Stock Options, (b) Nonstatutory Stock Options, (c) stock bonuses and (d) rights to acquire restricted stock. 
  
 1.3. General Purpose. The Company, by means of the Plan, seeks to retain the services of the group of persons eligible to receive
Stock Awards, to secure and retain the services of new members of this group and to provide incentives for such persons to exert maximum efforts for the success of the Company and its Affiliates. 
  
 2. Definitions. 
  
 2.1. “Administrator” means the Board
or the Committee appointed by the Board in accordance with Section 3.3. 
  
 2.2. “Affiliate” means any parent corporation or subsidiary corporation of the Company, whether now or hereafter
existing, as those terms are defined in Sections 424(e) and (f), respectively, of the Code. 
  
 2.3. “Annual Retainer” means the annual fee paid to Directors in January of each year as compensation for services
as a Director. 
  
 2.4.
“Award” means an award or sale of shares of Common Stock under the Plan. 
  
 2.5. “Board” means the Board of Directors of the Company. 
  
 2.6. “Cause” means if the
Participant is a party to an employment or service agreement with the Company or its Affiliates and such agreement provides for a definition of Cause, the definition therein contained, or, if no such agreement exists, it shall mean (a) the
commission of, or plea of guilty or no contest to, a felony or a crime involving moral turpitude or the commission of any other act involving willful malfeasance with respect to the Company or an Affiliate, (b) conduct tending to bring the Company
into substantial public disgrace, or disrepute, or (c) gross negligence or willful misconduct with respect to the Company or an Affiliate. The Administrator, in its absolute discretion, shall determine the effect of all matters and questions
relating to whether a Participant has been discharged for Cause. 
  

			
	Affirmative Insurance Holdings, Inc. 2004 Stock Incentive Plan	  	Page 1

 2.7. “Change in Control” shall mean: 
  
 (a) The consummation of a merger or consolidation of the
Company with or into another entity or any other corporate reorganization or the sale of stock of the Company, if more than 30% of the combined voting power (which voting power shall be calculated by assuming the conversion of all equity securities
convertible (immediately or at some future time) into shares entitled to vote, but not assuming the exercise of any warrant or right to subscribe to or purchase those shares) of the continuing or Surviving Entity’s securities outstanding
immediately after such merger, consolidation, reorganization or sale of stock is owned, directly or indirectly, by persons who were not shareholders of the Company immediately prior to such merger, consolidation, reorganization or sale of stock;
provided, however, that in making the determination of ownership by the shareholders of the Company, immediately after the reorganization, equity securities which persons own immediately before the reorganization as shareholders of another party to
the transaction shall be disregarded; or 
  
 (b)
The sale, transfer or other disposition of all or substantially all of the Company’s assets. 
  
 (c) A transaction shall not constitute a Change in Control if its sole purpose is to change the state of the Company’s incorporation
or to create a holding company that will be owned in substantially the same proportions by the persons who held the Company’s securities immediately before such transaction. 
  
 (d) A transaction shall not constitute a Change in Control if it constitutes an initial public offering or a
secondary public offering that results in any security of the Company being listed (or approved for listing) on any securities exchange or designated (or approved for designation) as a national market security on an interdealer quotation system.

  
 2.8. “Code” means the
Internal Revenue Code of 1986, as amended. 
  
 2.9. “Committee” means a committee of one or more members of the Board appointed by the Board in accordance with Section 3.3. 
  
 2.10. “Common Stock” means the common stock of the Company. 
  
 2.11. “Company” means Affirmative
Insurance Holdings, Inc., a Delaware corporation. 
  
 2.12. “Consultant” means any person, including an advisor, (a) engaged by the Company or an Affiliate to render consulting or advisory services and who is compensated for such services or who provides bona
fide services to the Company or an Affiliate pursuant to a written agreement or (b) who is a member of the Board of Directors of an Affiliate. 
  
 2.13. “Continuous Service” means that the Participant’s service with the Company or an Affiliate, whether as
an Employee, Director or Consultant, is not interrupted or terminated. The Participant’s Continuous Service shall not be deemed to have terminated merely because of a change in the capacity in which the Participant renders service to the
Company or an Affiliate as an Employee, Consultant or Director or a change in the entity for which the 

  

			
	Affirmative Insurance Holdings, Inc. 2004 Stock Incentive Plan	  	Page 2

 
Participant renders such service, provided that there is no interruption or termination of the Participant’s Continuous Service. For example, a change
in status from an Employee of the Company to a Consultant of an Affiliate or a Director will not constitute an interruption of Continuous Service. The Administrator or the chief executive officer of the Company, in that party’s sole discretion,
may determine whether Continuous Service shall be considered interrupted in the case of any leave of absence approved by that party, including sick leave, military leave or any other personal leave. 
  
 2.14. “Covered Employee” means the
chief executive officer and the four (4) other highest compensated officers of the Company for whom total compensation is required to be reported to stockholders under the Exchange Act, as determined for purposes of Section 162(m) of the Code.

  
 2.15. “Director”
means a member of the Board of Directors of the Company. 
  
 2.16. “Disability” means the permanent and total disability of a person within the meaning of Section 22(e)(3) of the Code. 
  
 2.17. “Dividend Equivalent Right” means a Stock Award granted pursuant to Section
7.6. 
  
 2.18. “Effective
Date” shall mean May 25, 2004. 
  
 2.19. “Employee” means any person employed by the Company or an Affiliate. Mere service as a Director or payment of a director’s fee by the Company or an Affiliate shall not be sufficient to constitute
“employment” by the Company or an Affiliate. 
  
 2.20. “Exchange Act” means the Securities Exchange Act of 1934, as amended. 
  
 2.21. “Fair Market Value” means, as of any date, the value of the Common Stock determined in good faith by the
Administrator; provided, however, that the Fair Market Value on the date of the Company’s initial public offering of its Common Stock shall be the initial price to public of the Common Stock, and thereafter (i) if the Common Stock
is admitted to quotation on the National Association of Securities Dealers Automated Quotation System (“Nasdaq”), the Fair Market Value on any given date shall not be less than the average of the highest bid and lowest asked
prices of the Common Stock reported for such date or, if no bid and asked prices were reported for such date, for the last day preceding such date for which such prices were reported or (ii) if the Common Stock is admitted to trading on a national
securities exchange or the Nasdaq National Market or Nasdaq Small Cap Market, the Fair Market Value on any date shall not be less than the closing price reported for the Common Stock on such exchange or system for such date or, if no sales were
reported for such date, for the last date preceding the date for such a sale was reported. 
  
 2.22. “Incentive Stock Option” means an Option intended to qualify as an incentive stock option within the meaning
of Section 422 of the Code and the regulations promulgated thereunder. 
  

			
	Affirmative Insurance Holdings, Inc. 2004 Stock Incentive Plan	  	Page 3

 2.23. “Listing Date” means the first date upon which any security
of the Company is listed (or approved for listing) upon notice of issuance on any securities exchange or designated (or approved for designation) upon notice of issuance as a national market security on an interdealer quotation system. 

 
 2.24. “Non-Employee Director”
means a Director who is a “non-employee director” within the meaning of Rule 16b-3 and who is also an “outside director” within the meaning of Section 162(m) of the Code. 
  
 2.25. “Nonstatutory Stock Option”
means an Option not intended to qualify as an Incentive Stock Option. 
  
 2.26. “Officer” means (a) before the Listing Date, any person designated by the Company as an officer and (b) on and after the Listing Date, a person who is an officer of the Company within the
meaning of Section 16 of the Exchange Act and the rules and regulations promulgated thereunder. 
  
 2.27. “Option” means an Incentive Stock Option or a Nonstatutory Stock Option granted pursuant to the Plan.

  
 2.28. “Option
Agreement” means a written agreement between the Company and an Optionholder evidencing the terms and conditions of an individual Option grant. Each Option Agreement shall be subject to the terms and conditions of the Plan and need not
be identical. 
  
 2.29.
“Optionholder” means a person to whom an Option is granted pursuant to the Plan or, if applicable, such other person who holds an outstanding Option. 
  
 2.30. “Participant” means a person to whom a Stock Award is granted pursuant to the
Plan or, if applicable, such other person who holds an outstanding Stock Award. 
  
 2.31. “Performance Stock Award” means Awards granted pursuant to Section 7.4. 
  
 2.32. “Plan” means this Affirmative
Insurance Holdings, Inc. 2004 Stock Incentive Plan. 
  
 2.33. “Rule 16b-3” means Rule 16b-3 promulgated under the Exchange Act or any successor to Rule 16b-3, as in effect from time to time. 
  
 2.34. “SEC” means the Securities and Exchange Commission. 
  
 2.35. “Securities Act” means the
Securities Act of 1933, as amended. 
  
 2.36.
“Stock Appreciation Right” means the right pursuant to an award granted under Section 7.5 to receive an amount equal to the excess, if any, of (A) the Fair Market Value, as of the date such Stock Appreciation Right or
portion thereof is surrendered, of the shares of 

  

			
	Affirmative Insurance Holdings, Inc. 2004 Stock Incentive Plan	  	Page 4

 
Stock covered by such right or such portion thereof, over (B) the aggregate exercise price of such right or such portion thereof. 
  
 2.37. “Stock Award” means any right
granted under the Plan, including an Option, a Stock Bonus Award, a Restricted Stock Award, an Unrestricted Stock Award, a Performance Stock Award, a Stock Appreciation Right and a Dividend Equivalent Right. 
  
 2.38. “Stock Award Agreement” means
a written agreement between the Company and a holder of a Stock Award evidencing the terms and conditions of an individual Stock Award grant. Each Stock Award Agreement shall be subject to the terms and conditions of the Plan. 
  
 2.39. “Ten Percent Stockholder”
means a person who owns (or is deemed to own pursuant to Section 424(d) of the Code) stock possessing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or of any of its Affiliates. 
  
 2.40. “Unrestricted Stock Award”
means any Award granted pursuant to Section 7.3. 
  
 3.
Administration. 
  
 3.1. Administration
by Board. The Board shall administer the Plan unless and until the Board delegates administration to a Committee, as provided in Section 3.3. 
  
 3.2. Powers of Board. The Board shall have the power, subject to, and within the limitations of, the express provisions of the
Plan: 
  
 (a) To determine from time to time
which of the persons eligible under the Plan shall be granted Stock Awards; when and how each Stock Award shall be granted; what type or combination of types of Stock Award shall be granted; the provisions of each Stock Award granted (which need not
be identical), including the time or times when a person shall be permitted to receive Common Stock pursuant to a Stock Award; and the number of shares of Common Stock with respect to which a Stock Award shall be granted to each such person.

  
 (b) To construe and interpret the Plan and
Stock Awards granted under it, and to establish, amend and revoke rules and regulations for its administration. The Board, in the exercise of this power, may correct any defect, omission or inconsistency in the Plan or in any Stock Award Agreement,
in a manner and to the extent it shall deem necessary or expedient to make the Plan fully effective. 
  
 (c) To amend the Plan or a Stock Award as provided in Section 12. 
  
 (d) Generally, to exercise such powers and to perform such acts as the Board deems necessary or expedient to
promote the best interests of the Company which are not in conflict with the provisions of the Plan. 
  

			
	Affirmative Insurance Holdings, Inc. 2004 Stock Incentive Plan	  	Page 5

 3.3. Delegation to Committee. 
  
 (a) General. The Board may delegate administration of
the Plan to a Committee or Committees of one (1) or more members of the Board, and the term “Committee” shall apply to any person or persons to whom such authority has been delegated. If administration is delegated to a
Committee, the Committee shall have, in connection with the administration of the Plan, the powers theretofore possessed by the Board, including the power to delegate to a subcommittee any of the administrative powers the Committee is authorized to
exercise (and references in this Plan to the Board shall thereafter be to the Committee or subcommittee), subject, however, to such resolutions, not inconsistent with the provisions of the Plan, as may be adopted from time to time by the Board. The
Board may abolish the Committee at any time and revest in the Board the administration of the Plan. 
  
 (b) Committee Composition when Common Stock is Publicly Traded. At such time as the Common Stock is publicly traded, in the
discretion of the Board, a Committee may consist solely of two or more Non-Employee Directors. Within the scope of such authority, the Board or the Committee may (i) delegate to a committee of one or more members of the Board who are not
“outside directors” within the meaning of Section 162(m) of the Code the authority to grant Stock Awards to eligible persons who are either (A) not then Covered Employees and are not expected to be Covered Employees at the time of
recognition of income resulting from such Stock Award or (B) not persons with respect to whom the Company wishes to comply with Section 162(m) of the Code or (ii) delegate to a committee of one or more members of the Board who are not
“non-employee directors” within the meaning of Rule 16b-3 the authority to grant Stock Awards to eligible persons who are not then subject to Section 16 of the Exchange Act. 
  
 3.4. Effect of Board’s Decision. All determinations, interpretations and constructions made by
the Administrator in good faith shall not be subject to review by any person and shall be final, binding and conclusive on all persons. Members of the Board and Committee and any officer or employee of the Company or any Affiliate acting at the
direction of, or on behalf of, the Board or Committee shall not be personally liable for any action or determination taken or made in good faith with respect to the Plan, and shall, to the extent permitted by law, be fully indemnified by the Company
with respect to any such action or determination. 
  
 4. Shares
Subject to the Plan. 
  
 4.1. Share
Reserve. Subject to the provisions of Section 11 relating to adjustments upon changes in Common Stock, the Common Stock that may be issued pursuant to Stock Awards shall not exceed in the aggregate One Million Five Hundred Thousand
(1,500,000) shares of Common Stock. 
  
 4.2.
Reversion of Shares to the Share Reserve. If any Stock Award shall for any reason expire or otherwise terminate, in whole or in part, without having been exercised in full, the shares of Common Stock not acquired under such Stock Award shall
revert to and again become available for issuance under the Plan. If shares issued under the Plan are reacquired by 

  

			
	Affirmative Insurance Holdings, Inc. 2004 Stock Incentive Plan	  	Page 6

 
the Company pursuant to the terms of any forfeiture provision, right of repurchase or right of first refusal, such shares shall again be available for the
purposes of the Plan. 
  
 4.3. Source of
Shares. The shares of Common Stock subject to the Plan may be unissued shares or reacquired shares, bought on the market or otherwise. 
  
 5. Eligibility. 
  
 5.1. Eligibility for Specific Stock Awards. Incentive Stock Options may be granted only to Employees. Stock Awards other than
Incentive Stock Options may be granted to Employees, Directors and Consultants. 
  
 5.2. Ten Percent Stockholders. A Ten Percent Stockholder shall not be granted an Incentive Stock Option unless the exercise price
of such Option is at least one hundred ten percent (110%) of the Fair Market Value of the Common Stock at the date of grant and the Option is not exercisable after the expiration of five (5) years from the date of grant. 
  
 5.3. Section 162(m) Limitation. Subject to the
provisions of Section 11 relating to adjustments upon changes in the shares of Common Stock, no Employee shall be eligible to be granted Options or Stock Appreciation Rights covering more than Fifty Thousand (50,000) shares of Common Stock
during any calendar year. This Section 5.3 shall not apply prior to the Listing Date and, following the Listing Date, this Section 5.3 shall not apply until (a) the earliest of: (i) the first material modification of the Plan
(including any increase in the number of shares of Common Stock reserved for issuance under the Plan in accordance with Section 4.1); (ii) the issuance of all of the shares of Common Stock reserved for issuance under the Plan; (iii) the
expiration of the Plan; or (iv) the first meeting of stockholders at which Directors are to be elected that occurs after the close of the third calendar year following the calendar year in which occurred the first registration of an equity security
under Section 12 of the Exchange Act; or (b) such other date required by Section 162(m) of the Code and the rules and regulations promulgated thereunder. 
  
 5.4. Consultants. 
  
 (a) Prior to the Listing Date, a Consultant shall not be eligible for the grant of a Stock Award if, at the time of grant, either the
offer or the sale of the Company’s securities to such Consultant is not exempt under Rule 701 of the Securities Act (“Rule 701”) because of the nature of the services that the Consultant is providing to the Company, or
because the Consultant is not a natural person, or as otherwise provided by Rule 701, unless the Company determines that such grant need not comply with the requirements of Rule 701 and will satisfy another exemption under the Securities Act as well
as comply with the securities laws of all other relevant jurisdictions. 
  
 (b) From and after the Listing Date, a Consultant shall not be eligible for the grant of a Stock Award if, at the time of grant, a Form S-8 Registration Statement under the Securities Act (“Form
S-8”) is not available to register either the offer or the sale of the Company’s securities to such Consultant because of the nature of the services that the Consultant is providing to the Company, or because the Consultant is not
a natural person, or as otherwise provided by the rules governing the use of Form S-8, unless the Company determines both (i) 

  

			
	Affirmative Insurance Holdings, Inc. 2004 Stock Incentive Plan	  	Page 7

 
that such grant (1) shall be registered in another manner under the Securities Act (e.g., on a Form S-3 Registration Statement) or (2) does not require
registration under the Securities Act in order to comply with the requirements of the Securities Act, if applicable, and (ii) that such grant complies with the securities laws of all other relevant jurisdictions. 
  
 5.5. Directors. 
  
 (a) Eligibility. Each Director of the Company shall
be eligible to receive an automatic Option grant under the Plan in accordance with this Section 5.5 only if such director (i) is not then an employee of the Company or any of its Affiliates, (ii) has not, within two (2) years immediately
preceding such time, received any stock option, stock bonus, stock appreciation right, or other similar stock award from the Company or any of its Affiliates, other than options granted to such director under this Section 5.5, and (iii) does
not then beneficially own more than ten percent (10%) of the outstanding stock of the Company (an “Eligible Director”). Only Eligible Directors may receive automatic options under the Plan. A Director of the Company shall not
be deemed to be an employee of the Company or any of its Affiliates solely by reason of the existence of an agreement between such Director and the Company or any Affiliate thereof pursuant to which the Director provides services as a consultant to
the Company or its Affiliates on a regular or occasional basis for compensation. 
  
 (b) Automatic Option Grants. Nonstatutory Stock Options to purchase shares of Common Stock of the Company shall be granted
automatically to each Eligible Director as follows: 
  
 (1) An option to purchase Five Thousand (5,000) shares of Common Stock of the Company (the “Initial Inducement Option”) shall be granted automatically to each Eligible Director on the later of the date on which this
Plan is approved by the stockholders of the Company (provided such person is still an Eligible Director on such date) or the date on which such Director first becomes an Eligible Director (the “Initial Option Date”). Initial Inducement
Options will become exercisable Twelve (12) months after the date of grant. 
  
 (2) Thereafter, an option to purchase an additional Five Thousand (5,000) shares of common stock of the Company (an “Annual Incentive Option”) shall be granted automatically to each Eligible
Director who receives an Initial Inducement Option on the last trading date in January of each subsequent year if such director is still an Eligible Director on such anniversary. Annual Incentive Options will become exercisable Twelve (12) months
after the date of grant. 
  
 (3) Anything set
forth in the Plan to the contrary notwithstanding, no Option or Options shall be granted at any time to purchase an aggregate number of shares of Common Stock of the Company which exceeds the total number of shares of such Common Stock which are
then available for issuance under the Plan minus the total number of shares of such Common Stock subject to Options which have been granted previously and are then outstanding under the Plan; and Options which are granted as of the same date to
purchase less shares than otherwise provided in this Section 5.5(b)(1) or Section 5.5(b)(2) because of the foregoing limitation shall cover equal numbers of shares; provided, however, if there are insufficient shares available for
issuance under the Plan at a time when an Option under 

  

			
	Affirmative Insurance Holdings, Inc. 2004 Stock Incentive Plan	  	Page 8

 
subparagraph 5.5(b)(1) or (2) is to be granted, the portion of the option not granted shall be automatically granted at the time shares become available for
issuance under the Plan (with the Options which were deferred the longest being granted first and if there is more than one Option which was deferred on the same date, then any available shares shall be allocated pro rata among such Options).

  
 (c) Exercise Price and Term. The
exercise price per share of the shares subject to any Option shall be 100% of the Fair Market Value per share of Common Stock of the Company on the date the Option is granted. The Director Options shall be exercisable for up to ten (10) years from
the date they are granted. In the event a Director’s Continuous Service terminates (other than upon death or Disability), the Director may exercise his or her Option (to the extent that the Director was entitled to exercise such Option as of
the date of termination) but only within such period of time ending on the earlier of (a) the date three (3) months following the termination of the Director’s Continuous Service, or (b) the expiration of the term of the Option as set forth in
the Option Agreement. In the event a Director’s Continuous Service terminates as a result of death or Disability, the respective provisions of Section 6.10 or Section 6.11 shall apply. 
  
 (d) Election to Receive Restricted Stock in Lieu of
Annual Retainer. An Eligible Director may elect to receive Restricted Stock in lieu of his or her Annual Retainer by making an election on or before June 30 of the calendar year preceding the calendar year for which the Director’s services
attributable to such Annual Retainer are performed. The number of shares of Restricted Stock will be determined by dividing the amount of the Annual Retainer by a per share price equal to 75% of the Fair Market Value of a share of the Company Common
Stock on the last trading date in January or such later date as of which the Annual Retainer otherwise would be paid. Such Restricted Stock will be subject to forfeiture if the Director’s Continuous Service ceases within six months following
the Award date. 
  
 (e) Discretionary
Grants. Notwithstanding anything to the contrary in this Section 5.5, the Administrator in it’s discretion may grant additional Stock Awards under the Plan to Eligible Directors. 
  
 6. Option Provisions. Each Option shall be in such form and shall
contain such terms and conditions as the Administrator shall deem appropriate. All Options shall be separately designated Incentive Stock Options or Nonstatutory Stock Options at the time of grant, and, if certificates are issued, a separate
certificate or certificates will be issued for shares of Common Stock purchased on exercise of each type of Option. Notwithstanding the foregoing, the Company shall have no liability to any Participant or any other person if an Option designated as
an Incentive Stock Option fails to qualify as such at any time. The provisions of separate Options need not be identical, but each Option shall include (through incorporation of provisions hereof by reference in the Option or otherwise) the
substance of each of the following provisions: 
  
 6.1. Term. Subject to the provisions of Section 5.2 regarding Ten Percent Stockholders, no Incentive Stock Option shall be exercisable after the expiration of ten (10) years from the date it was granted. 
  

			
	Affirmative Insurance Holdings, Inc. 2004 Stock Incentive Plan	  	Page 9

 6.2. Exercise Price of an Incentive Stock Option. Subject to the provisions of
Section 5.2 regarding Ten Percent Stockholders, the exercise price of each Incentive Stock Option shall be not less than one hundred percent (100%) of the Fair Market Value of the Common Stock subject to the Option on the date the Option is
granted. Notwithstanding the foregoing, an Incentive Stock Option may be granted with an exercise price lower than that set forth in the preceding sentence if such Option is granted pursuant to an assumption or substitution for another option in a
manner satisfying the provisions of Section 424(a) of the Code. 
  
 6.3. Exercise Price of a Nonstatutory Stock Option. The exercise price of each Nonstatutory Stock Option shall be not less than twenty percent (20%) of the Fair Market Value of the Common Stock subject to the
Option on the date the Option is granted. Notwithstanding the foregoing, a Nonstatutory Stock Option may be granted with an exercise price lower than that set forth in the preceding sentence if such Option is granted pursuant to an assumption or
substitution for another option in a manner satisfying the provisions of Section 424(a) of the Code. 
  
 6.4. Consideration. 
  
 (a) The purchase price of Common Stock acquired pursuant to an Option shall be paid, to the extent permitted by applicable statutes and
regulations, either (i) in cash or check at the time the Option is exercised or (ii) at the discretion of the Administrator at the time of the grant of the Option (or subsequently in the case of a Nonstatutory Stock Option) (1) by delivery to the
Company of other Common Stock, (2) according to a deferred payment or other similar arrangement with the Optionholder, or (3) in any other form of legal consideration that may be acceptable to the Administrator, including, without limitation, a
“cashless” exercise program established with a broker following a Listing Date; provided, however, a cashless exercise by a Director or executive officer that involves or may involve a direct or indirect extension of credit
or arrangement of an extension of credit by the Company or an Affiliate in violation of Section 402(a) of the Sarbanes-Oxley Act (codified as Section 13(k) of the Securities Exchange Act of 1934, 15 U.S.C. § 78m(k)) shall be prohibited. Unless
otherwise specifically provided in the Option, the purchase price of Common Stock acquired pursuant to an Option that is paid by delivery to the Company of other Common Stock acquired, directly or indirectly from the Company, shall be paid only by
shares of the Common Stock of the Company that have been held for more than six (6) months (or such longer or shorter period of time required to avoid a charge to earnings for financial accounting purposes). 
  
 (b) In the case of any deferred payment arrangement,
interest shall be compounded at least annually and shall be charged at the minimum rate of interest necessary to avoid the treatment as interest, under any applicable provisions of the Code, of any amounts other than amounts stated to be interest
under the deferred payment arrangement and payment of the Common Stock’s “par value” shall not be made by deferred payment. 
  
 6.5. Transferability of an Incentive Stock Option. An Incentive Stock Option shall not be transferable except by will or by the
laws of descent and distribution and shall be exercisable during the lifetime of the Optionholder only by the Optionholder. Notwithstanding the foregoing, the Optionholder may, by delivering written notice to the Company, in a form 

  

			
	Affirmative Insurance Holdings, Inc. 2004 Stock Incentive Plan	  	Page 10

 
satisfactory to the Company, designate a third party who, in the event of the death of the Optionholder, shall thereafter be entitled to exercise the Option.

  
 6.6. Transferability of a Nonstatutory
Stock Option. A Nonstatutory Stock Option shall be transferable to the extent provided in the Option Agreement. If the Nonstatutory Stock Option does not provide for transferability, then the Nonstatutory Stock Option shall not be transferable
except by will or by the laws of descent and distribution and shall be exercisable during the lifetime of the Optionholder only by the Optionholder. Notwithstanding the foregoing, the Optionholder may, by delivering written notice to the Company, in
a form satisfactory to the Company, designate a third party who, in the event of the death of the Optionholder, shall thereafter be entitled to exercise the Option. 
  
 6.7. Vesting Generally. The Option may, but need not, vest and therefore become exercisable in
periodic installments that may, but need not, be equal. The Option may be subject to such other terms and conditions on the time or times when it may be exercised (which may be based on performance or other criteria) as the Administrator may deem
appropriate. The vesting provisions of individual Options may vary. No Option may be exercised for a fraction of a share of Common Stock. The Administrator in its discretion may provide for an acceleration of vesting and exercisability in the terms
of any Option Agreement in the event a Change in Control occurs. 
  
 6.8. Termination of Continuous Service. Unless otherwise provided in an Option Agreement or in an employment agreement the terms of which have been approved by the Administrator, in the event an
Optionholder’s Continuous Service terminates (other than upon the Optionholder’s death or Disability), the Optionholder may exercise his or her Option (to the extent that the Optionholder was entitled to exercise such Option as of the date
of termination) but only within such period of time ending on the earlier of (a) the date three (3) months following the termination of the Optionholder’s Continuous Service, or (b) the expiration of the term of the Option as set forth in the
Option Agreement. If, after termination, the Optionholder does not exercise his or her Option within the time specified in the Option Agreement, the Option shall terminate. 
  
 6.9. Extension of Termination Date. An Optionholder’s Option Agreement may also provide that if
the exercise of the Option following the termination of the Optionholder’s Continuous Service (other than upon the Optionholder’s death or Disability) would be prohibited at any time solely because the issuance of shares of Common Stock
would violate the registration requirements under the Securities Act, then the Option shall terminate on the earlier of (a) the expiration of the term of the Option set forth in Section 6.1 or (b) the expiration of a period of three (3)
months after the termination of the Optionholder’s Continuous Service during which the exercise of the Option would not be in violation of such registration requirements. 
  
 6.10. Disability of Optionholder. Unless otherwise provided in an Option Agreement, in the event that
an Optionholder’s Continuous Service terminates as a result of the Optionholder’s Disability, the Optionholder may exercise his or her Option (to the extent that the Optionholder was entitled to exercise such Option as of the date of
termination), but only within such period of time ending on the earlier of (a) the date twelve (12) months following such 

  

			
	Affirmative Insurance Holdings, Inc. 2004 Stock Incentive Plan	  	Page 11

 
termination or (b) the expiration of the term of the Option as set forth in the Option Agreement. If, after termination, the Optionholder does not exercise
his or her Option within the time specified herein, the Option shall terminate. 
  
 6.11. Death of Optionholder. Unless otherwise provided in an Option Agreement, in the event an Optionholder’s Continuous
Service terminates as a result of the Optionholder’s death, then the Option may be exercised (to the extent the Optionholder was entitled to exercise such Option as of the date of death) by the Optionholder’s estate, by a person who
acquired the right to exercise the Option by bequest or inheritance or by a person designated to exercise the Option upon the Optionholder’s death, but only within the period ending on the earlier of (a) the date twelve (12) months following
the date of death or (b) the expiration of the term of such Option as set forth in the Option Agreement. If, after death, the Option is not exercised within the time specified herein, the Option shall terminate. 
  
 6.12. Early Exercise. The Option may, but need not,
include a provision whereby the Optionholder may elect at any time before the Optionholder’s Continuous Service terminates to exercise the Option as to any part or all of the shares of Common Stock subject to the Option prior to the full
vesting of the Option. Any unvested shares of Common Stock so purchased may be subject to a repurchase option in favor of the Company or to any other restriction the Administrator determines to be appropriate. The Company will not exercise its
repurchase option until at least six (6) months (or such longer or shorter period of time required to avoid a charge to earnings for financial accounting purposes) have elapsed following exercise of the Option unless the Administrator otherwise
specifically provides in the Option. 
  
 6.13.
Reload Options. At the discretion of the Administrator, the Option may include a “reload” feature pursuant to which an Optionholder exercising an option by the delivery of a number of shares of Common Stock in accordance with
Section 6.4 hereof would automatically be granted an additional Option (with an exercise price equal to the Fair Market Value of the Common Stock on the date the additional Option is granted and with the same expiration date as the original
Option being exercised, and with such other terms as the Administrator may provide) to purchase that number of shares of Common Stock equal to the number delivered to exercise the original Option. 
  
 7. Provisions of Stock Awards Other Than Options. 
  
 7.1. Stock Bonus Awards. Each stock bonus agreement
shall be in such form and shall contain such terms and conditions as the Administrator shall deem appropriate. The terms and conditions of stock bonus agreements may change from time to time, and the terms and conditions of separate stock bonus
agreements need not be identical, but each stock bonus agreement shall include (through incorporation of provisions hereof by reference in the agreement or otherwise) the substance of each of the following provisions: 
  
 (a) Consideration. A stock bonus may be awarded in
consideration for past services actually rendered to the Company or an Affiliate for its benefit. 
  
 (b) Vesting. Shares of Common Stock awarded under the stock bonus agreement may, but need not, be subject to a share repurchase
option in favor of the Company in 

  

			
	Affirmative Insurance Holdings, Inc. 2004 Stock Incentive Plan	  	Page 12

 
accordance with a vesting schedule to be determined by the Administrator. The Administrator in its discretion may provide for an acceleration of vesting in
the terms of any stock bonus agreement in the event a Change in Control occurs. 
  
 (c) Termination of Participant’s Continuous Service. In the event a Participant’s Continuous Service terminates, the
Company may reacquire any or all of the shares of Common Stock held by the Participant which have not vested as of the date of termination under the terms of the stock bonus agreement. 
  
 (d) Transferability. Rights to acquire shares of Common Stock under the stock bonus agreement shall
be transferable by the Participant only upon such terms and conditions as are set forth in the stock bonus agreement, as the Administrator shall determine in its discretion, so long as Common Stock awarded under the stock bonus agreement remains
subject to the terms of the stock bonus agreement. 
  
 7.2. Restricted Stock Awards. Each restricted stock purchase agreement shall be in such form and shall contain such terms and conditions as the Administrator shall deem appropriate. The terms and conditions of the restricted stock
purchase agreements may change from time to time, and the terms and conditions of separate restricted stock purchase agreements need not be identical, but each restricted stock purchase agreement shall include (through incorporation of provisions
hereof by reference in the agreement or otherwise) the substance of each of the following provisions: 
  
 (a) Purchase Price. The purchase price of restricted stock awards shall be determined by the Administrator, and may be stated as
cash, property or prior services. 
  
 (b)
Consideration. The consideration for Common Stock acquired pursuant to the restricted stock purchase agreement shall be paid either: (i) in cash at the time of purchase; (ii) at the discretion of the Administrator, according to a deferred
payment or other similar arrangement with the Participant; or (iii) in any other form of legal consideration that may be acceptable to the Administrator in its discretion including, without limitation, prior services that the Administrator
determines have a value at least equal to the Fair Market Value of such Common Stock; provided, however, that payment of the Common Stock’s “par value,” shall not be made by deferred payment. 
  
 (c) Vesting. Shares of Common Stock acquired under
the restricted stock purchase agreement may, but need not, be subject to a share repurchase option in favor of the Company in accordance with a vesting schedule to be determined by the Administrator, or forfeiture in the event the consideration was
in the form of prior services. The Administrator in its discretion may provide for an acceleration of vesting in the terms of any restricted stock purchase agreement in the event a Change in Control occurs. 
  
 (d) Termination of Participant’s Continuous
Service. Unless otherwise provided in an Option Agreement or in an employment agreement the terms of which have been approved by the Administrator, in the event a Participant’s Continuous Service terminates for any reason, the Company may
repurchase or otherwise reacquire, or the Participant shall forfeit unvested shares acquired in consideration of prior services, any or all of 

  

			
	Affirmative Insurance Holdings, Inc. 2004 Stock Incentive Plan	  	Page 13

 
the shares of Common Stock held by the Participant which have not vested as of the date of termination under the terms of the restricted stock purchase
agreement. 
  
 (e) Transferability. Rights
to acquire shares of Common Stock under the restricted stock purchase agreement shall be transferable by the Participant only upon such terms and conditions as are set forth in the restricted stock purchase agreement, as the Administrator shall
determine in its discretion, so long as Common Stock awarded under the restricted stock purchase agreement remains subject to the terms of the restricted stock purchase agreement. 
  
 (f) Concurrent Tax Payment. The Administrator, in its sole discretion, may (but shall not be required
to) provide for payment of a concurrent cash award in an amount equal, in whole or in part, to the estimated after tax amount required to satisfy applicable federal, state or local tax withholding obligations arising from the receipt and deemed
vesting of restricted stock for which an election under Section 83(b) of the Code may be required. 
  
 7.3. Unrestricted Stock Awards. 
  
 (a) Grant or Sale of Unrestricted Stock. The Administrator may, in its sole discretion, grant (or sell at a purchase price
determined by the Administrator) an Unrestricted Stock Award to any Participant, pursuant to which such individual may receive shares of Common Stock free of any vesting restriction (“Unrestricted Stock”) under the Plan.
Unrestricted Stock Awards may be granted or sold as described in the preceding sentence in respect of past services or other valid consideration, or in lieu of any cash compensation due to such individual. 
  
 (b) Deferral of Awards. Each Participant who has made
an election to receive shares of Unrestricted Stock under this Section 7.3 will have the right to defer receipt of up to 100% of such shares of Unrestricted Stock payable to such Participant in accordance with such rules and procedures as may
from time to time be established by the Company for that purpose, and such election shall be effective on the later of the date six months and one day from the date of such election or the beginning of the next calendar year. The deferred
Unrestricted Stock shall be entitled to receive Dividend Equivalent Rights settled in shares of Common Stock. 
  
 (c) Restrictions on Transfers. The right to receive Unrestricted Stock on a deferred basis may not be sold, assigned, transferred,
pledge or otherwise encumbered, other than by will or the laws of descent and distribution. 
  
 7.4. Performance Stock Awards. 
  
 (a) Nature of Performance Stock Awards. A Performance Stock Award is a Stock Award entitling the recipient to acquire shares of
Common Stock upon the attainment of specified performance goals. The Administrator may make Performance Stock Awards independent of or in connection with the granting of any other Stock Award under the Plan. Performance Stock Awards may be granted
under the Plan to any Participant, including those who qualify for awards under other performance plans of the Company. The Administrator in its sole discretion shall determine whether and to whom Performance Stock 

  

			
	Affirmative Insurance Holdings, Inc. 2004 Stock Incentive Plan	  	Page 14

 
Awards shall be made, the performance goals applicable under each Stock Award, the periods during which performance is to be measured, and all other
limitation and conditions applicable to the awarded shares; provided, however, that the Administrator may rely on the performance goals and other standards applicable to other performance unit plans of the Company in setting the
standards for Performance Stock Awards under the Plan. Performance goals shall be based on a pre-established objective formula or standard that specifies the manner of determining the number of Performance Stock Award shares that will be granted or
will vest if the performance goal is attained. Performance goals will be determined by the Administrator prior to the time 25 percent of the service period has elapsed and may be based on one or more business criteria that apply to a Participant, a
business unit or the Company and its Affiliates. Such business criteria may include, by way of example and without limitation, loss ratio, expense ratio, combined ratio, gross premiums written, growth in total revenues or any component thereof,
profits, EBITDA, return on equity, stock price, market share, sales, earnings per share or costs. Such objective performance goals do not have to be based on increases in a specific business criteria, but may be based on maintaining the status quo
or limiting economic losses. 
  
 (b)
Restrictions on Transfer. Performance Stock Awards and all rights with respect to such Performance Stock Awards may not be sold, assigned, transferred, pledged or otherwise encumbered. 
  
 (c) Rights as a Stockholder. A Participant receiving
a Performance Stock Award shall have the rights of a stockholder only as to shares actually received by the Participant under the Plan and not with respect to shares subject to the Stock Award but not actually received by the Participant. A
Participant shall be entitled to receive a stock certificate evidencing the acquisition of shares of Common Stock under a Performance Stock Award only upon satisfaction of all conditions specified in the written instrument evidencing the Performance
Stock Award (or in a performance plan adopted by the Administrator). 
  
 (d) Termination. Except as my otherwise be provided by the Administrator at any time, a Participant’s rights in all Performance Stock Awards shall automatically terminate upon the Participant’s
termination of employment (or business relationship) with the Company and its Affiliates for any reason. 
  
 (e) Acceleration, Waiver, Etc. At any time prior to the Participant’s termination of employment (or other business
relationship) by the Company and its Affiliates, the Administrator may in its sole discretion accelerate, waive or, subject to Section 12, amend any or all of the goals, restrictions or conditions imposed under any Performance Stock Award.
The Administrator in its discretion may provide for an acceleration of vesting in the terms of any Performance Stock Award in the event a Change in Control occurs. 
  
 7.5. Stock Appreciation Rights. 
  
 (a) General. Stock Appreciation Rights may be granted either alone (“Free Standing
Rights”) or in conjunction with all or part of any Option granted under the Plan (“Related Rights”). In the case of a Nonstatutory Stock Option, Related Rights may be granted either at or after the time of the
grant of such Stock Option. In the case of an Incentive Stock Option, Related Rights may be granted only at the time of the grant of the Incentive Stock 

  

			
	Affirmative Insurance Holdings, Inc. 2004 Stock Incentive Plan	  	Page 15

 
Option. Upon exercise thereof, the holder of a Stock Appreciation Right shall be entitled to receive from the Company, upon a written request filed with the
Secretary of the Company at its principal offices, a number of shares of Common Stock (with or without restrictions as to substantial risk of forfeiture and transferability, as determined by the Administrator in its sole discretion), an amount of
cash, or any combination of Common Stock and cash, as specified in the written request (but subject to the approval of the Administrator in its sole discretion, at any time up to and including the time of payment, as to the making of any cash
payment), having an aggregate Fair Market Value equal to the product of (i) the excess of the Fair Market Value, on the date of such written request, of one share of Common Stock over the exercise price per share specified in such Stock Appreciation
Right or its related Option, multiplied by (ii) the number of shares for which such Stock Appreciation Right shall be exercised. 
  
 (b) Exercise Price. The exercise price of a Free Standing Stock Appreciation Right shall be determined by the Administrator, but
shall not be less than one hundred percent (100%) of the Fair Market Value of one share of Common Stock on the date of grant of such Stock Appreciation Right. A Related Stock Appreciation Right granted simultaneously with or subsequent to the grant
of an Option and in conjunction therewith or in the alternative thereto shall have the same exercise price as the related Option, shall be transferable only upon the same terms and conditions as the related Option, and shall be exercisable only to
the same extent as the related Option; provided, however, that a Stock Appreciation Right, by its terms, shall be exercisable only when the Fair Market Value per share of Common Stock subject to the Stock Appreciation Right and related
Option exceeds the exercise price per share thereof. 
  
 (c) Reduction in the Underlying Option Shares. Upon any exercise of a Stock Appreciation Right, the number of shares of Common Stock for which any related Option shall be exercisable shall be reduced by the number of shares for which
the Stock Appreciation Right shall have been exercised. The number of shares of Common Stock for which a Stock Appreciation Right shall be exercisable shall be reduced upon any exercise of any related Option by the number of shares of Common Stock
for which such Option shall have been exercised. 
  
 (d) Written Request. Any election by an Optionholder to receive cash in full or partial settlement of a Stock Appreciation Right, and any exercise of such Stock Appreciation Right for cash, may be made only by a written request filed
with the Corporate Secretary of the Company during the period beginning on the third business day following the date of release for publication by the Company of quarterly or annual summary statements of earnings and ending on the twelfth business
day following such date. Within thirty (30) days of the receipt by the Company of a written request to receive cash in full or partial settlement of a Stock Appreciation Right or to exercise such Stock Appreciation Right for cash, the Administrator
shall, in its sole discretion, either consent to or disapprove, in whole or in part, such written request. A written request to receive a cash in full or partial settlement of a Stock Appreciation Right or to exercise a Stock Appreciation Right for
cash may provide that, in the event the Administrator shall disapprove such written request, such written request shall be deemed to be an exercise of such Stock Appreciation Right for shares of Common Stock. 
  

			
	Affirmative Insurance Holdings, Inc. 2004 Stock Incentive Plan	  	Page 16

 (e) Disapproval by Administrator. If the Administrator disapproves in whole or in
part any election by an Optionholder to receive cash in full or partial settlement of a Stock Appreciation Right or to exercise such Stock Appreciation Right for cash, such disapproval shall not affect such Optionholder’s right to exercise such
Stock Appreciation Right at a later date, to the extent that such Stock Appreciation Right shall be otherwise exercisable, or to elect the form of payment at a later date, provided that an election to receive cash upon such later exercise shall be
subject to the approval of the Administrator. Additionally, such disapproval shall not affect such Optionholder’s right to exercise any related Option. 
  
 7.6. Dividend Equivalent Rights. A Dividend Equivalent Right is a Stock Award entitling the recipient to receive credits based on
cash dividends that would be paid on the shares of Common Stock specified in the Dividend Equivalent Right (or other award to which it relates) if such shares were held by the recipient. A Dividend Equivalent Right may be granted hereunder to any
Participant as a component of another Stock Award or as a freestanding award. The terms and conditions of Dividend Equivalent Rights shall be specified in the grant. Dividend equivalents credited to the holder of a Dividend Equivalent Right may be
paid currently or may be deemed to be reinvested in additional shares of Common Stock as of the dividend payment date, which may thereafter accrue additional equivalents. Any such reinvestment shall be at Fair Market Value on the date of
reinvestment or such other price as may then apply under a dividend reinvestment plan sponsored by the Company, if any. Dividend Equivalent Rights may be settled in cash or shares of Common Stock or a combination thereof, in a single installment or
installments. A Dividend Equivalent Right shall be settled upon exercise, settlement, or payment of, or lapse of restrictions on, such other award, and that such Dividend Equivalent Right shall expire or be forfeited or annulled under the same
conditions as such other award. A Dividend Equivalent Right granted as a component of another Stock Award may also contain terms and conditions different from such other award. 
  
 7.7. Interest Equivalents. Any Stock Award under this Plan that is settled in whole or in part in
cash on a deferred basis my provide in the grant for interest equivalents to be credited with respect to such cash payment. Interest equivalents may be compounded and shall be paid upon such terms and conditions as may be specified by the grant.

  
 8. Covenants of the Company. 
  
 8.1. Availability of Shares. During the terms of the
Stock Awards, the Company shall keep available at all times the number of shares of Common Stock required to satisfy such Stock Awards. 
  
 8.2. Securities Law Compliance. The Company shall seek to obtain from each regulatory commission or agency having jurisdiction over
the Plan such authority as may be required to grant Stock Awards and to issue and sell shares of Common Stock upon exercise of the Stock Awards; provided, however, that this undertaking shall not require the Company to register under
the Securities Act the Plan, any Stock Award or any Common Stock issued or issuable pursuant to any such Stock Award. If, after reasonable efforts, the Company is unable to obtain from any such regulatory commission or agency the authority which
counsel for the Company deems necessary for the lawful issuance and sale of Common Stock under the Plan, the 

  

			
	Affirmative Insurance Holdings, Inc. 2004 Stock Incentive Plan	  	Page 17

 
Company shall be relieved from any liability for failure to issue and sell Common Stock upon exercise of such Stock Awards unless and until such authority is
obtained. 
  
 9. Use of Proceeds from Stock. Proceeds from
the sale of Common Stock pursuant to Stock Awards shall constitute general funds of the Company. 
  
 10. Miscellaneous. 
  
 10.1. Acceleration of Exercisability and Vesting. The Administrator shall have the power to accelerate the time at which a Stock
Award may first be exercised or the time during which a Stock Award or any part thereof will vest in accordance with the Plan, notwithstanding the provisions in the Stock Award stating the time at which it may first be exercised or the time during
which it will vest. 
  
 10.2. Stockholder
Rights. No Participant shall be deemed to be the holder of, or to have any of the rights of a holder with respect to, any shares of Common Stock subject to such Stock Award unless and until such Participant has satisfied all requirements for
exercise of the Stock Award pursuant to its terms. 
  
 10.3. No Employment or other Service Rights. Nothing in the Plan or any instrument executed or Stock Award granted pursuant thereto shall confer upon any Participant any right to continue to serve the Company or an Affiliate in the
capacity in effect at the time the Stock Award was granted or shall affect the right of the Company or an Affiliate to terminate (a) the employment of an Employee with or without notice and with or without Cause, (b) the service of a Consultant
pursuant to the terms of such Consultant’s agreement with the Company or an Affiliate or (c) the service of a Director pursuant to the Bylaws of the Company or an Affiliate, and any applicable provisions of the corporate law of the state in
which the Company or the Affiliate is incorporated, as the case may be. 
  
 10.4. Transfer, Approved Leave of Absence. For purposes of the Plan, no termination of employment by an Employment shall be deemed to result from either (a) a transfer to the employment of the Company from an
Affiliate or from the Company to an Affiliate, or from one Affiliate to another; or (b) an approved leave of absence for military service or sickness, or for any other purpose approved by the Company, if the employee’s right to re-employment is
guaranteed either by a statute or by contract or under the policy pursuant to which the leave of absence was granted or if the Administrator otherwise so provides in writing. 
  
 10.5. Incentive Stock Option $100,000 Limitation. To the extent that the aggregate Fair Market Value
(determined at the time of grant) of Common Stock with respect to which Incentive Stock Options are exercisable for the first time by any Optionholder during any calendar year (under all plans of the Company and its Affiliates) exceeds one hundred
thousand dollars ($100,000), the Options or portions thereof which exceed such limit (according to the order in which they were granted) shall be treated as Nonstatutory Stock Options. 
  
 10.6. Investment Assurances. The Company may require a Participant, as a condition of exercising or
acquiring Common Stock under any Stock Award, (a) to give written assurances satisfactory to the Company as to the Participant’s knowledge and experience in financial and business matters and/or to employ a purchaser representative reasonably

  

			
	Affirmative Insurance Holdings, Inc. 2004 Stock Incentive Plan	  	Page 18

 
satisfactory to the Company who is knowledgeable and experienced in financial and business matters and that he or she is capable of evaluating, alone or
together with the purchaser representative, the merits and risks of exercising the Stock Award; and (b) to give written assurances satisfactory to the Company stating that the Participant is acquiring Common Stock subject to the Stock Award for the
Participant’s own account and not with any present intention of selling or otherwise distributing the Common Stock. The foregoing requirements, and any assurances given pursuant to such requirements, shall be inoperative if (i) the issuance of
the shares of Common Stock upon the exercise or acquisition of Common Stock under the Stock Award has been registered under a then currently effective registration statement under the Securities Act or (ii) as to any particular requirement, a
determination is made by counsel for the Company that such requirement need not be met in the circumstances under the then applicable securities laws. The Company may, upon advice of counsel to the Company, place legends on stock certificates issued
under the Plan as such counsel deems necessary or appropriate in order to comply with applicable securities laws, including, but not limited to, legends restricting the transfer of the Common Stock. 
  
 10.7. Withholding Obligations. To the extent provided
by the terms of a Stock Award Agreement, the Participant may satisfy any federal, state or local tax withholding obligation relating to the exercise or acquisition of Common Stock under a Stock Award by any of the following means (in addition to the
Company’s right to withhold from any compensation paid to the Participant by the Company) or by a combination of such means: (a) tendering a cash payment; (b) authorizing the Company to withhold shares of Common Stock from the shares of Common
Stock otherwise issuable to the Participant as a result of the exercise or acquisition of Common Stock under the Stock Award, provided, however, that no shares of Common Stock are withheld with a value exceeding the minimum amount of
tax required to be withheld by law; or (c) delivering to the Company owned and unencumbered shares of Common Stock not acquired from the Company. 
  
 11. Adjustments Upon Changes in Stock. 
  
 11.1. Capitalization Adjustments. If any change is made in the Common Stock subject to the Plan, or subject to any Stock Award,
without the receipt of consideration by the Company (through merger, consolidation, reorganization, recapitalization, reincorporation, stock dividend, dividend in property other than cash, stock split, liquidating dividend, combination of shares,
exchange of shares, change in corporate structure or other transaction not involving the receipt of consideration by the Company), the Plan will be appropriately adjusted in the class(es) and maximum number of securities subject to the Plan pursuant
to Section 4.1 and the maximum number of securities subject to award to any person pursuant to Section 5.3, and the outstanding Stock Awards will be appropriately adjusted in the class(es) and number of securities and price per share
of Common Stock subject to such outstanding Stock Awards. The Administrator shall make such adjustments, and its determination shall be final, binding and conclusive. (The conversion of any convertible securities of the Company shall not be treated
as a transaction “without receipt of consideration” by the Company). 
  
 11.2. Dissolution or Liquidation. In the event of a dissolution or liquidation of the Company, then all outstanding Stock Awards
shall terminate immediately prior to such event. 
  

			
	Affirmative Insurance Holdings, Inc. 2004 Stock Incentive Plan	  	Page 19

 11.3. Change in Control – Asset Sale, Merger, Consolidation or Reverse
Merger. If a dissolution or liquidation of the Company, or any corporate separation or division, including, but not limited to, a split-up, a split-off or a spin-off, or a sale of substantially all of the assets of the Company; a merger or
consolidation in which the Company is not the Surviving Entity; or a reverse merger in which the Company is the surviving entity, but the shares of Company stock outstanding immediately preceding the merger are converted by virtue of the merger into
other property, whether in the form of securities, cash or otherwise, then, the Company, to the extent permitted by applicable law, but otherwise in its sole discretion may provide for: (i) the continuation of outstanding Stock Awards by the Company
(if the Company is the Surviving Entity); (ii) the assumption of the Plan and such outstanding Stock Awards by the Surviving Entity or its parent; (iii) the substitution by the surviving entity or its parent of stock awards with substantially the
same terms (including an award to acquire the same consideration paid to the stockholders in the transaction described in this Section 11.3) for such outstanding Stock Awards; or (iv) the cancellation of such outstanding Stock Awards without
payment of any consideration, provided that if such Stock Awards would be canceled in accordance with the foregoing, the Participant shall have the right, exercisable during the later of the ten-day period ending on the fifth day prior to such
merger or consolidation or ten days after the Administrator provides the Stock Awards holder a notice of cancellation, to exercise such Stock Awards in whole or in part without regard to any installment exercise provisions in the Stock Awards
agreement. 
  
 12. Amendment of the Plan and Stock Awards.

  
 12.1. Amendment of Plan. The Board at
any time, and from time to time, may amend the Plan. However, except as provided in Section 11 relating to adjustments upon changes in Common Stock, no amendment shall be effective unless approved by the stockholders of the Company to the
extent stockholder approval is necessary to satisfy any applicable law or any Nasdaq or securities exchange listing requirements. 
  
 12.2. Stockholder Approval. The Board may, in its sole discretion, submit any other amendment to the Plan for stockholder approval,
including, but not limited to, amendments to the Plan intended to satisfy the requirements of Section 162(m) of the Code and the regulations thereunder regarding the exclusion of performance-based compensation from the limit on corporate
deductibility of compensation paid to certain executive officers. 
  
 12.3. Contemplated Amendments. It is expressly contemplated that the Board may amend the Plan in any respect the Board deems necessary or advisable to provide eligible Employees with the maximum benefits
provided or to be provided under the provisions of the Code and the regulations promulgated thereunder relating to Incentive Stock Options and/or to bring the Plan and/or Incentive Stock Options granted under it into compliance therewith.

  
 12.4. No Impairment of Rights. Rights
under any Stock Award granted before amendment of the Plan shall not be impaired by any amendment of the Plan unless (a) the Company requests the consent of the Participant and (b) the Participant consents in writing. 
  
 12.5. Amendment of Stock Awards. The Administrator at
any time, and from time to time, may amend the terms of any one or more Stock Awards; provided, however, that 

  

			
	Affirmative Insurance Holdings, Inc. 2004 Stock Incentive Plan	  	Page 20

 
the rights under any Stock Award shall not be impaired by any such amendment unless (a) the Company requests the consent of the Participant and (b) the
Participant consents in writing. 
  
 13. Disqualifying
Dispositions. Any Participant who shall make a “disposition” (as defined in Section 424 of the Code) of all or any portion of shares of Common Stock acquired upon exercise of an Incentive Stock Option within two (2) years from the date
of grant of such Incentive Stock Option or within one (1) year after the issuance of the shares of Common Stock acquired upon exercise of such Incentive Stock Option shall be required to immediately advise the Company in writing as to the occurrence
of the sale and the price realized upon the sale of such shares of Common Stock. 
  
 14. Termination or Suspension of the Plan. The Board may suspend or terminate the Plan at any time. Unless sooner terminated, the Plan shall terminate on the day before the tenth (10th) anniversary of the date
the Plan is adopted by the Board or approved by the stockholders of the Company, whichever is earlier. No Stock Awards may be granted under the Plan while the Plan is suspended or after it is terminated. 
  
 15. Effective Date of Plan. The Plan shall become effective as of the
Effective Date, but no Stock Award shall be exercised (or, in the case of a stock bonus, shall be granted) unless and until the Plan has been approved by the stockholders of the Company, which approval shall be within twelve (12) months before or
after the date the Plan is adopted by the Board. 
  
 16. Choice
of Law. The law of the State of Delaware shall govern all questions concerning the construction, validity and interpretation of this Plan, without regard to such state’s conflict of law rules. 
  

			
	Affirmative Insurance Holdings, Inc. 2004 Stock Incentive Plan	  	Page 21Employment Agreement with Thomas E. Mangold

 Exhibit 10.3 
  
 EMPLOYMENT AGREEMENT 
  
 THIS EMPLOYMENT AGREEMENT (this “Agreement”) is made by and between Affirmative Insurance Holdings, Inc., a Delaware corporation (the
“Company”), and Thomas E. Mangold, an individual resident of San Antonio, Texas (the “Executive”), to become effective upon the consummation of an initial public offering of securities of the Company registered under the
Securities Act of 1933, as amended, having an aggregate market value of at least $50 million (the “Effective Date”). 
  
 RECITALS: 
  
 A. The Company is a holding company for a group of insurance agencies and property and casualty insurance subsidiaries which offer primary insurance
primarily on personal risks; 
  
 B. The Executive serves as
President and Chief Executive Officer of the Company; 
  
 C. The
Company wishes to assure itself of the continued services of the Executive so that it will have the continued benefit of his ability, experience and services, and the Executive is willing to enter into an agreement to that end, upon the terms and
conditions hereinafter set forth; and 
  
 D. Certain capitalized
terms used in this Agreement shall have the meanings given them in Section 16 hereof. 
  
 NOW, THEREFORE, in consideration of the mutual covenants contained herein, the Company and the Executive hereby agree as follows: 
  
 1. Employment 
  
 (a) The Company hereby agrees to continue to employ the Executive as President and Chief Executive Officer of the Company with such authority, duties and
responsibilities as are commensurate with such position and as may be consistent with such position, and any other position agreed upon by the parties. During the Term, the Executive shall perform such services and duties as the Board may from time
to time designate consistent with such positions, including, without limitation, general charge of the Company’s business, subject to the direction and control of the Board, as provided in the Bylaws of the Company. 
  
 (b) The Executive shall report to the Board. 
  
 (c) The Executive shall devote his best efforts and his full business time to
the business affairs of the Company as may be reasonably necessary for the discharge of his duties as Chief Executive Officer and President. 
  
 (d) The Company, in its sole discretion, may require that the Executive be designated an employee of one or more of the Company’s subsidiaries or
affiliates for such purposes as payroll and 
  

 1 of 12 

 benefits administration. The employment of the Executive by any such subsidiary or affiliate to facilitate the
Company’s internal administrative purposes shall be considered employment by the Company within the meaning of this Agreement and shall not otherwise affect any of the rights or responsibilities of the Company or the Executive hereunder.

  
 2. Term. Unless earlier terminated as provided herein,
the Executive’s employment under this Agreement shall be for a term (the “Term”) of three (3) years from the Effective Date. The Term shall be automatically extended for an additional year on each anniversary of the Effective Date,
unless written notice of non-extension is provided by either party to the other party at least 90 days prior to such anniversary. 
  
 3 . Compensation and Benefits. In consideration of the services rendered by the Executive during the Term, the Company shall pay or provide to the
Executive the amounts and benefits set forth below. 
  
 (a)
Salary. Executive shall receive an annual base salary of $450,000. The base salary shall be paid in accordance with the Company’s normal payroll practices. The Executive’s base salary shall be reviewed at least annually for
consideration of appropriate merit increases and, once established, the base salary shall not be decreased during the Term. 
  
 (b) Other Incentive Plans. The Executive shall participate in all annual and long-term bonus or incentive plans or arrangements in which
substantially all other executives of the Company of a comparable level are eligible to participate from time to time. The Executive’s incentive compensation opportunities under such plans and arrangements shall be determined from time to time
by the Compensation Committee. 
  
 (c) Equity Incentives.
The Executive shall be given consideration, at least annually, for the grant of options to purchase shares of the common stock of the Company. In addition, the Executive shall be given consideration to receive awards under any stock option, stock
purchase or equity-based incentive compensation plan or arrangement adopted by the Company from time to time for which executives of the Company of a comparable level are eligible to participate. The Executive’s awards under such plans and
arrangements may be determined from time to time by the Compensation Committee. 
  
 (d) Employee Benefits. The Executive shall be entitled to participate in employee benefit plans, programs, practices or arrangements of the Company in which substantially all other executives of the Company of
a comparable level are eligible to participate from time to time, including, without limitation, any qualified or non-qualified pension, profit sharing and savings plans, any death benefit and disability benefit plans, and any medical, dental,
health and welfare plans. Without limiting the generality of the foregoing, the Company shall provide the Executive with the following: 
  
 (i) long-term disability insurance coverage in an amount and on terms consistent with the coverage in place for other management personnel
of the Company; and 
  

 2 of 12 

 (ii) continued provision of life insurance coverage in an amount and on terms consistent
with the coverage in place for other management personnel of the Company. 
  
 (e) Fringe Benefits and Perquisites. The Executive shall be entitled to all fringe benefits and perquisites which are generally made available to executives of the Company of a comparable level from time to
time. Without limiting the generality of the foregoing, the Company shall provide the Executive with the following: 
  
 (i) provision of offices and secretarial staff; 
  

(ii) vacation in accordance with the Company’s policy for other executives of a comparable level; 
  
 (iii) an automobile owned or leased by the Company of a make
and model appropriate for the Executive’s position or, in lieu thereof, provision of a non-accountable automobile allowance in an amount to be determined from time to time by the Board or the Compensation Committee; 
  
 (iv) reimbursement of dues for one social or country club
and payment of dues for a reasonable number of professional associations of which Executive is a member in furtherance of his duties hereunder; and 
  
 (v) reimbursement of all reasonable travel and other business expenses and disbursements incurred by the Executive in the performance of
his duties under this Agreement, upon proper accounting in accordance with the Company’s normal practices and procedures for reimbursement of business expenses. 
  
 4. Termination. 
  
 (a) The Executive’s employment under this Agreement may be terminated prior to the end of the Term only as follows: 
  
 (i) upon the resignation or death of the Executive;

  
 (ii) by the Company due to the Disability of
the Executive upon delivery of a Notice of Termination to the Executive; 
  
 (iii) by the Company for Cause or without Cause, in either event upon delivery of a Notice of Termination to the Executive; or 
  

(iv) by the Executive for Good Reason upon delivery of a Notice of Termination to the Company. 
  
 (b) If the Executive’s employment with the Company is terminated during
the Term (i) by reason of the Executive’s resignation or death, or (ii) by the Company for Disability or Cause, the Company shall pay to the Executive (or in the case of his death, the Executive’s estate) within thirty 
  

 3 of 12 

 (30) days after the Termination Date a lump sum cash payment equal to the Accrued Compensation and, if such termination
is other than as a result of Executive’s resignation or by the Company for Cause, the Pro Rata Bonus. 
  
 (c) If the Executive’s employment with the Company is terminated by the Company without Cause or by the Executive for Good Reason, the Executive
shall be entitled to the following: 
  
 (i) the
Company shall pay the Executive in cash within thirty (30) days of the Termination Date an amount equal to all Accrued Compensation and the Pro Rata Bonus; 
  
 (ii) at the end of each of the thirty-six (36) consecutive 30-day periods following the Termination Date, the Company shall pay to the
Executive in cash an amount equal to one-twelfth of the sum of the Base Amount (including any increases in base salary) plus the Bonus Amount (including any increases in bonus amount) or, in the alternative, the Executive may elect to receive a lump
sum equal to the present value of the payments due under this paragraph (c)(ii), to be payable within thirty (30) days of such election; provided, however, that such lump sum amount shall be reduced to its net present value assuming an
interest rate equal to six percent (6%) and the applicable number of equal monthly payments commencing on the Termination Date; and 
  
 (iii) (A) for a period of thirty-six (36) months following the Termination Date or (B) for such longer period as any plan, program,
practice or policy may provide, the Company shall continue benefits to the Executive and/or the Executive’s family at least equal to those which would have been provided to them in accordance with the Company’s plans, programs, practices
and policies providing medical, dental, health, death and disability benefits if the Executive’s employment had not been terminated in accordance with the most favorable plans, practices, programs or policies of the Company and its affiliated
companies as in effect and applicable generally to other peer executives and their families during the 90-day period immediately preceding the Executive’s termination of employment; provided, however, that if the Executive becomes
reemployed with another employer and is eligible to receive medical and other welfare benefits under another employer-provided plan, the medical and other welfare benefits described herein shall be secondary to those provided under such other plan
during such applicable period of eligibility. 
  

 4 of 12 

 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. 
  
 (d) Enforcement. Executive and the Company acknowledge and agree that any of the covenants contained in this Section
5 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. 
  
 (e) Termination. Notwithstanding any provision to the contrary otherwise contained in this Agreement, the agreements
and covenants contained in this Section 5 shall not terminate upon Executive’s termination of his employment with the Company or upon the termination of this Agreement under any other provision of this Agreement. 
  

 5 of 12 

 6. Successors, Binding Agreement. 
  
 (a) This Agreement shall be binding upon and shall inure to the benefit of the Company (including each of its subsidiaries),
its successors and assigns and any person, firm, corporation or other entity which succeeds to all or substantially all of the business, assets or property of the Company. The Company will require any successor (whether direct or indirect, by
purchase, merger, consolidation, or otherwise) to all or substantially all of the business, assets or property of the Company, to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would
be required to perform it if no such succession had taken place. As used in this Agreement, the “Company” shall mean the Company as hereinbefore defined and any successor to its business, assets or property as aforesaid which executes and
delivers an agreement provided for in this Section 6 or which otherwise becomes bound by all the terms and provisions of this Agreement by operation of law. 
  
 (b) This Agreement and all rights of the Executive hereunder shall inure to the benefit of and be enforceable by the Executive’s personal or legal
representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If the Executive should die while any amounts are due and payable to him hereunder, all such amounts, unless otherwise provided herein, shall be paid
to the Executive’s designated beneficiary or, if there be no such designated beneficiary, to the legal representatives of the Executive’s estate. 
  
 7. Fees and Expenses. To induce the Executive to execute this Agreement and to provide the Executive with reasonable assurance that the purposes of
this Agreement will not be frustrated by the cost of its enforcement should the Company fail to perform its obligations under this Agreement: 
  
 (a) In the event that the Executive’s employment is terminated by the Company prior to a Change in Control either for Cause or without Cause, the
Company shall reimburse the Executive for any reasonable attorneys’ fees, expenses and court costs incurred by the Executive as a result of any litigation by the Executive regarding the validity, enforceability or interpretation of any
provision of this Agreement (including as a result of any litigation by the Executive regarding the benefits payable to the Executive pursuant to this Agreement); provided, however, that such reimbursement shall only be payable by the
Company (i) after the Executive prevails on substantially all issues involved in such litigation and (ii) upon receipt of proof of such expenses. 
  
 (b) In the event that the Executive’s employment is terminated after a Change in Control either by the Company either for Cause or without Cause or
by the Executive for Good Reason, the Company shall reimburse the Executive for any reasonable attorneys’ fees, expenses and court costs incurred by the Executive as a result of any litigation by the Executive regarding the validity,
enforceability or interpretation of any provision of this Agreement (including as a result of any litigation by the Executive regarding the benefits payable to the Executive pursuant to this Agreement) upon receipt of proof of such expenses
regardless of which party, if any, prevails in the contest. 
  
 8.
Notice. All notices and other communications provided for in this Agreement (including the Notice of Termination) shall be in writing and shall be deemed to have been duly 
  

 6 of 12 

 given upon personal delivery or receipt when sent by certified mail, return receipt requested, postage prepaid, or by a
nationally recognized overnight courier service that provides written proof of delivery, and shall be addressed as follows (or to such other address as either party shall have furnished to the other in writing in accordance herewith): 
  

			
	 If to the Executive:
	  	 Thomas E. Mangold

	 	  	 14 Bridgenorth Lane

	 	  	 San Antonio, Texas 78218-6056

		
	 If to the Company:
	  	 Affirmative Insurance Holdings, Inc.

	 	  	 4450 Sojourn Drive, Suite 500

	 	  	 Addison, Texas, 75001

	 	  	 Attention: Chief Executive Officer

	 	  	 Copy to: General Counsel

  
 9. Settlement of
Claims. The Company’s obligation to make the payments provided for in this Agreement and to otherwise perform its obligations hereunder shall not be affected by any circumstances, including, without limitation, any set-off, counterclaim,
recoupment, defense or other right which the Company may have against the Executive or others. The Company may, however, withhold from any benefits payable under this Agreement all federal, state, city or other taxes as shall be required pursuant to
any law or governmental regulation or ruling. 
  
 10.
Modification and Waiver. No provisions of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing and signed by the Executive and the Company. No waiver by any party hereto at
any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at
any prior or subsequent time. 
  
 11. Governing Law. This
Agreement shall be governed by and construed and enforced in accordance with the laws of the State of Texas without giving effect to the conflict of laws principles thereof. 
  
 12. Severability. The provisions of this Agreement shall be deemed severable, and the invalidity or unenforceability
of any provision shall not affect the validity or enforceability of the other provisions hereof. 
  
 13. Entire Agreement. This Agreement constitutes the entire agreement between the parties hereto and supersedes all prior agreement, if any,
understandings and arrangements, oral or written, between the parties hereto with respect to the subject matter hereof. 
  
 14. Headings. The headings of Sections herein are included solely for convenience of reference and shall not control the meaning or interpretation
of any of the provisions of this Agreement. 
  

 7 of 12 

 15. Counterparts. This Agreement may be executed in one or more counterparts, each shall be deemed
an original but all of which together shall constitute one and the same instrument. 
  
 16. Definitions. For purposes of this Agreement, the following terms shall have the following meanings: 
  
 (a) “Accrued Compensation” shall mean an amount which shall include all amounts earned or accrued through the Termination Date but not paid as
of the Termination Date, including without limitation, (i) base salary, (ii) deferred compensation accumulated under any plan, arrangement or agreement, (iii) reimbursement for reasonable and necessary expenses incurred by the Executive on behalf of
the Company prior to Termination Date, and (iv) bonuses and incentive cash compensation (other than the Pro Rata Bonus). 
  
 (b) “Base Amount” shall mean the greater of the Executive’s annual base salary (i) at the rate in effect on the Termination Date or (ii)
the highest rate in effect at any time during the 90-day period prior to a Change in Control, and shall include all amounts of his base salary that are deferred under any plans, arrangements or agreements of the Company or any of its affiliates.

  
 (c) “Board” shall mean the Board of Directors of the
Company. 
  
 (d) “Bonus Amount” shall mean the greater
of (i) the most recent annual cash bonus paid or payable to the Executive, or, if greater, the annual cash bonus paid or payable for the year ended prior to the fiscal year during which a Change in Control occurred, or (ii) the average of the annual
cash bonuses paid or payable during the three full fiscal years ended prior to the Termination Date, or, if greater, the three full fiscal years prior to a Change in Control (or, in each case, such lesser period for which annual bonuses were paid or
payable to the Executive). 
  
 (e) “Cause” shall mean

  
 (i) neglect of his material duties or failure
to perform his material obligations under this Agreement that materially causes harm to the Company or that, in the reasonable judgment of the Company, has materially damaged or interfered with the Company’s relationships with its customers,
suppliers, employees or other agents; provided, however, that the Company shall give the Executive written notice of any actions or omissions alleged to constitute Cause under this subparagraph (a) and the Executive shall have
forty-five (45) days to cure any such alleged Cause; 
  
 (ii) refusal or failure to follow lawful directives of the Board that are not arbitrary and capricious; provided, however, that the Company shall give the Executive written notice of any actions or omissions alleged to
constitute Cause under this subparagraph (b) and the Executive shall have forty-five (45) days to cure any such alleged Cause; 
  
 (iii) conviction of, or a plea of nolo contendere to, or deferred adjudication for (x) a felony relating to the Company’s
assets, activities, operations or employees or (y) a felony or a misdemeanor involving moral turpitude that causes harm to the Company or that, in the good faith judgment of the Company, has damaged or interfered with the Company’s
relationships with its customers, suppliers, employees or other agents; 
  

 8 of 12 

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

  
 (v) commission of an act of fraud,
illegality, theft or intentional dishonesty in the course of Executive’s employment with the Company and relating to $5,000 or more of the Company’s assets, or causing $5,000 or more in harm or damages with respect to the Company’s
activities, operations or employees; or 
  
 (vi)
breach by Executive of Section 5 of this Agreement. 
  
 (f) A
“Change in Control” shall mean the happening during the Term of any of the following: 
  
 (i) when any “person” as such term is used in Section 13(d) and 14(d) of the Exchange Act (other than the Company or any Company
employee benefit plan, including its trustees) is or becomes the “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly of securities of the Company representing twenty percent (20%) or more of the
combined voting power of the Company’s then outstanding securities; 
  
 (ii) the occurrence of any transaction or event relating to the Company required to be described pursuant to the requirements of Item 6(e) of Schedule 14A of Regulation 14A under the Exchange Act; 
  
 (iii) when, during any period of two (2) consecutive years
during the Term, the individuals who, at the beginning of such period, constitute the Board cease, for any reason other than death, to constitute at least a majority thereof, unless each director who was not a director at the beginning of such
period was elected by, or on the recommendation of, at least two-thirds (2/3) of the directors at the beginning of such period; or 
  
 (iv) the occurrence of a transaction requiring stockholder approval for the acquisition of the Company by an entity other than the Company
through purchase of assets, or by merger, or otherwise. 
  
 (g)
“Compensation Committee” shall mean the Compensation Committee of the Board. 
  
 (h) “Disability” shall mean the inability of the Executive to perform his duties to the Company on account of physical or mental illness for a period of six consecutive full months, or for a period of eight
full months during any 12-month period. The Executive’s employment shall terminate in such a case on the last day of the applicable period; provided, however, in no event shall the Executive be terminated by reason of Disability
unless (i) the Executive is eligible for the long-term 
  

 9 of 12 

 disability benefits set forth in Section 3(d)(i) hereof and (ii) the Executive receives written notice from the Company,
at least 30 days in advance of such termination, stating its intention to terminate the Executive for reason of Disability and setting forth in reasonable detail the facts and circumstances claimed to provide a basis for such termination.

  

	 	(i)	“Effective Date” shall mean the day and year first above written. 

  

	 	(j)	“Exchange Act” shall mean the Securities Exchange Act of 1934, as amended. 

  
 (k) “Good Reason” shall mean any of the events or conditions described in subsections (i) through (viii) hereof:

  
 (i) (A) a change in the Executive’s
status, office, title, position or responsibilities (including reporting responsibilities) which, in the Executive’s reasonable judgment, represents an adverse change from his status, office, title, position or responsibilities as in effect at
any time within 90 days preceding the date of a Change in Control or at any time thereafter; (B) the assignment to the Executive of any duties or responsibilities which, in the Executive’s reasonable judgment, are inconsistent with his status,
office, title, position or responsibilities as in effect at any time within 90 days preceding the date of a Change in Control or at any time thereafter; (C) any removal of the Executive from, or failure to reappoint or reelect him to, any such
status, office, title, position or responsibility; or (D) any other change in condition or circumstances that in the Executive’s reasonable judgment makes it materially more difficult for the Executive to carry out the duties and
responsibilities of his office that existed at any time within 90 days preceding the date of a Change in Control or at any time thereafter; 
  
 (ii) a reduction in the Executive’s base salary or any failure to pay the Executive any compensation or benefits to which he is
entitled within five days of the date due; 
  
 (iii) the Company’s requiring the Executive to be based at any place outside a 30-mile radius from the executive offices occupied by the Executive immediately prior to a Change in Control, except for reasonably required travel on the
Company’s business which is not materially greater than such travel requirements prior to the Change in Control; 
  
 (iv) the failure by the Company to (A) continue in effect (without reduction in benefit level and/or reward opportunities) any material
compensation or employee benefit plan in which the Executive was participating at any time within ninety (90) days preceding the date of a Change in Control or at any time thereafter, unless such plan is replaced with a plan that provides
substantially equivalent compensation or benefits to the Executive or (B) provide the Executive with compensation and benefits, in the aggregate, at least equal (in terms of benefit levels and/or reward opportunities) to those provided for under
each other employee benefit plan, program and practice in which the Executive was participating at any time within 90 days preceding the date of a Change in Control or at any time thereafter; 
  
 (v) the insolvency of the Company, or the filing by any
person or entity, including the Company or any of its subsidiaries, of a petition for bankruptcy of the Company, or other relief under any other moratorium or similar law, which petition is not dismissed within 60 days; 
  

 10 of 12 

 (vi) any material breach by the Company of this Agreement; 
  
 (vii) any purported termination of the Executive’s
employment for Cause by the Company which does not comply with the terms of this Agreement; or 
  
 (viii) the failure of the Company to comply with and satisfy its obligations under Section 6(a) hereof. 
  
 The Executive’s right to terminate his employment for Good Reason shall not be affected
by his incapacity due to physical or mental illness. 
  
 (l)
“Notice of Termination” shall mean a written notice of termination from the Company or the Executive which specifies an effective date of termination, indicates the specific termination provision in this Agreement relied upon. 

 
 (m) “Pro Rata Bonus” shall mean an amount equal to the Bonus
Amount multiplied by a fraction the numerator of which is the number of days in the applicable year through the Termination Date and the denominator of which is 365. 
  
 (n) “Termination Date” shall mean, in the case of the Executive’s death, his date of death, and in all other
cases, the date specified in the Notice of Termination. 
  
 [SIGNATURES ON FOLLOWING PAGE] 
  

 11 of 12 

 IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by its officer thereunto duly
authorized, and the Executive has signed this Agreement, effective as of the date first above written. 
  

			
	AFFIRMATIVE INSURANCE
HOLDINGS, INC.
	
	/s/ DAVID B. SNYDER

	By:	 	 David B. Snyder

	Its:	 	 Vice President

	
	EXECUTIVE:
	
	/s/ THOMAS E. MANGOLD

	Thomas E. Mangold

  

 12 of 12

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00067-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00067-of-00352.parquet"}]]