EXECUTIVE EMPLOYMENT AGREEMENT

EXECUTIVE EMPLOYMENT AGREEMENT

THIS EXECUTIVE EMPLOYMENT AGREEMENT (this “Agreement”) is made and entered into as of the 27^th day of November, 2006 (the “Effective Date”) by and between Affirmative Insurance Holdings, Inc. (the “Company”) and Xxxxxx Xxxxx (“Executive”).

PRELIMINARY STATEMENTS

A. The Company desires to employ Executive as Executive Vice President: Chief Operating Officer, and Executive desires to be employed by the Company in this capacity.

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

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

STATEMENT OF AGREEMENT

1. Position.

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

(b) Executive agrees to serve as Executive Vice President: Chief Operating Officer and agrees that he will devote his best efforts and substantially all of his business time and attention to all facets of the business of the Company and will faithfully and diligently carry out the duties of these positions; provided, however that Executive may devote reasonable time to activities involving professional, charitable, and similar types of organizations, speaking engagements and memberships on the boards of directors of other organizations, so long a such activities do not interfere with the performance of Executive’s duties hereunder, and do not represent a conflict of interest. Executive agrees to comply with all Company policies in effect from time to time, and to comply with all laws, rules and regulations applicable to the Company, including, but not limited to, those established by the Department of Insurance, the Securities and Exchange Commission, or any self-regulatory organization having jurisdiction or authority over the Executive or the Company.

(d) The Company, in its sole discretion, may require that Executive be designated an employee of one or more of the Company’s subsidiaries or affiliates for such purposes as payroll and benefits administration. The employment of Executive by any such subsidiary or affiliate to facilitate the Company’s internal administrative purposes shall be

1 of 17

considered employment by the Company within the meaning of this Agreement and shall not otherwise affect any of the rights or responsibilities of the Company or Executive hereunder, including, but not limited to, Executive’s level of compensation.

(e) The position of Executive Vice President: Chief Operating Officer shall be located at the Company’s corporate office in Chicago, Illinois.

2. Term. The initial term of this Agreement shall be three (3) years from the Effective Date (“Initial Term”), unless otherwise terminated pursuant to Section 5 of this Agreement. Executive will not be entitled to any severance payments under this Agreement upon the expiration of the Initial Term or expiration of any subsequent extension of such term. If the Company does not renew this Agreement prior to the expiration of the Agreement, Executive’s unvested stock options will immediately vest, as provided in the Stock Option Agreement, and Executive’s unvested restricted stock will immediately vest, as provided in the Restricted Stock Agreement.

3. Compensation and Benefits.

(a) Base Salary. The Company shall pay Executive the gross amount of $11,538.46 on a bi-weekly basis (“Base Salary”) for the first year of employment, $12,500.00 on a bi-weekly basis (“Base Salary”) for the second year, and $13,461.54 a bi-weekly basis (“Base Salary”) for the third year.

(b) Bonus Opportunities. In addition to the Base Salary, Executive will be eligible to participate in the Company’s bonus plan(s) (“Bonus”) with eligibility for a target annual bonus of 50% of base salary. Annual bonus amount to be determined based on achieving objectives as determined by the Board of Directors and the Compensation Committee. A guaranteed minimum bonus will be paid in March, 2007 in the amount of $220,000, of which $100,000 will be payable in cash and the remainder will be paid in Restricted Stock

(c) Stock. Executive will also be eligible to participate in the Company’s 2004 Amended and Restated Stock Incentive Plan (“Stock Plan”), as may be amended from time to time. Notwithstanding the foregoing, the Company’s Compensation Committee has authorized, and pursuant to the authority of the Compensation Committee, the Company hereby grants to Executive the following:

(i) Restricted Stock. As of the Effective Date, the Company hereby grants to Executive Twenty-five Thousand (25,000) restricted shares of common stock of the Company under the terms of the Stock Plan subject to such restrictions and limitations as are set forth in the Restricted Stock Agreement attached hereto as Exhibit A.

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

2 of 17

a) Option 1 – Covering 60,000 shares with an exercise price equal to the fair market value of the shares on the day the Executive begins employment with the Company.

b) Option 2 – Covering 50,000 shares with an exercise price of Twenty dollars ($20.00) per share.

c) Option 3 – Covering 50,000 shares with an exercise price of Twenty-five dollars ($25.00) per share.

Each vest over five (5) years, and have a ten (10) year term. Additional information is included in our Stock Option Agreement. The Board of Directors and the Compensation Committee may consider additional annual stock option awards based on performance.

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

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

(c) Vacation/Sick Time. Executive shall be entitled to paid time off (“PTO”) accruing at 8.31 hours per period, or twenty seven (27) days when annualized, consistent with the policies then applicable to executive officers.

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

5. Termination.
(a) Termination by the Company.

(i) Without Cause. The Company may terminate this Agreement for any reason or no reason upon thirty (30) days written notice to Executive. If the Company terminates this Agreement pursuant to this provision, the Company will pay Executive: (1) all earned but unpaid Base Salary (“Accrued Compensation”), (2) an additional severance payment equal to one (1) year of the sum of the Executive’s then-current (a) Base Salary and (b) an amount equal to the previous year’s Bonus paid to Executive (“Additional Severance Payment”); and (3) Executive’s unvested stock options and restricted stock awards will immediately vest, as

3 of 17

provided in the Stock Option and Restricted Stock Agreements. Upon termination of this Agreement by the Company pursuant to Section 5(a)(i), the Company shall pay the cost to Executive as such costs become due for continuation coverage under COBRA (hereinafter referred to as the “Termination COBRA Payments”) during the Continuation Period (as hereafter defined). If and when the COBRA coverage ceases during the Continuation Period, the Company will reimburse Executive for comparable coverage as received under COBRA during the reminder of the Continuation Period. The Continuation Period shall be the period commencing on the date of termination of this Agreement and end twelve (12) months after the date of termination of this Agreement.

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

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

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

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

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

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

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

The Company may place Executive on paid administrative leave from work during any investigation by the Company of a “cause” reason for Executive’s termination, and may prohibit Executive from coming into work, accessing the Company’s computer system, and contacting its employees or customers during this time; provided, however, upon a failure of the Board of

4 of 17

Directors to find that Cause exists, such placing of Executive on leave two times during the Term shall constitute Good Reason under Section 5 below.

(iii) Change in Control. If the Company terminates the Agreement following a Change in Control, which results in a substantial diminution of Executive’s duties and responsibilities or a material reduction of compensation or benefits, the Company shall pay Executive: (1) Accrued Compensation, and (2) the Additional Severance Payment, and (3) Executive’s unvested stock options and restricted stock awards will immediately vest, as provided in the Stock Option and Restricted Stock Agreements. “Change in Control” shall mean a transaction or event (or series of transactions or events) as a result of which any “person” as such term is used in Section 13(d) and 14(d) of the Exchange Act (other than any Excluded Person, the Company or any Company employee benefit plan, including its trustees) is or becomes the “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of all of the securities of the Company held by New Affirmative LLC held immediately prior to such transaction or event (or series of transactions or events) and all director designees of New Affirmative LLC are no longer on the Company’s Board; provided, however, that in no event shall the distribution, sale, transfer, or acquisition of securities of the Company held by New Affirmative LLC or any Excluded Persons (or any successor thereof) to any Excluded Person trigger a “Change in Control.” “Excluded Person” shall mean any of New Affirmative LLC, Affirmative Investment LLC, The Enstar Group, Inc. and any of their respective stockholders, members, affiliates, subsidiaries, or any such persons under common control.

(b)	Termination by Executive.

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

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

a) Executive’s removal from his position as Executive Vice President and Chief Operating Officer, other than for Cause or by death or Disability, during the term of this Agreement;

b) without Executive’s written consent, a reduction in Executive’s Base Salary or Target Bonus or any failure to pay Executive any compensation or benefits to which heis entitled within five (5) days of the date due; provided, however, that Executive shall give the Company written notice of any actions or omissions alleged to constitute Good Reason under this subsection (b) and the Company shall have ten (10) business days to cure any such alleged Good Reason;

5 of 17

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

d) a materially adverse change in Executive’s duties and responsibilities or a material reduction of compensation or benefits;

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

f) the failure of the Company to comply with and satisfy its obligations under Section 25 hereof.

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

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

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

(e) Employment. Upon termination of this Agreement for any reason, including expiration of the Term, or a termination for a reason specified in this Section 5, Executive’s employment shall also terminate and cease, and Executive will voluntarily resign any Director or Board positions he holds, unless otherwise requested by the Company.

(f) Transition Period. Upon termination of this Agreement, and for a period of thirty (30) days thereafter (the “Transition Period”), Executive agrees to make himself available to assist the Company with transition projects assigned to him by the Board. Executive will be paid at a daily rate of one-thousand five hundred and no/100 ($1,500.00) dollars for any work performed for the Company during the Transition Period.

(g) Severance Payment. Any payment to Executive under this Section 5 will be payable in monthly installments due on the first day of each month during the course of the Non-Interference Period. Executive shall not be entitled to, and the Company shall not pay, any severance under any other plan, program or policy of the Company.

6 of 17

Notwithstanding the foregoing severance provisions, if the Board (or its delegate) determines in its or his discretion that Executive is a “Specified Employee” (as defined in Xxxxxxx 000X xx xxx Xxxxxx Xxxxxx Internal Revenue Code of 1986, as amended (“Section 409A”)), as of the date of termination, and that Section 409A applies with respect to any payment(s) to Executive pursuant to any of the paragraphs of this Section 5, such payment(s) shall not begin until the six-month anniversary of the date of termination, and will continue in monthly installments thereafter through completion of the Non-Interference Period (with each monthly installment being paid in the gross sum of the full payment divided by 18); provided, however, that if the Board (or its delegate) determines in its or his discretion that Executive is not a Specified Employee as of the date of termination (or that Section 409A does not apply with respect to a payment to Executive pursuant to Section 5), such payment shall be made in accordance with the provisions of this Section 5, provided that the requirements set forth in Section 6 have been met by Executive.

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

7.	Nondisclosure.

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

(b) Executive agrees that all Confidential Information, whether prepared by Executive or otherwise coming into his possession, shall remain the exclusive property of the Company during Executive’s employment with the Company and thereafter. Executive further agrees that he shall not, without the prior written consent of the Company, use or disclose to any third party any of the Confidential Information described herein, directly or indirectly, either

7 of 17

during Executive’s employment with the Company or at any time following the termination of Executive’s employment with the Company, except as Executive may be required by Court Order. If such Court Order is issued, Executive shall inform the Company a reasonable time prior to compliance.

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

8.	Noncompete, Nonsolicitation, and Non-Disparagement.

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

(b)	Scope of Noncompetition Obligation.

(i) Executive acknowledges and agrees that the period of one (1) year following the termination or expiration of this Agreement for any reason will constitute the non-compete, non-solicit and non-divert period (the “Non-Interference Period”). During his employment and during the Non-Interference Period, Executive will not engage in duties or provide services to a Competitor which are substantially similar to those Executive provided to the Company under this Agreement, in any capacity, upon the termination or expiration of this Agreement in states where the Company is doing business or has expended resources in pursuit of, or in preparation to do, business (the “Prohibited Market”). The term “Competitor” means (i) insurance companies providing non-standard automobile insurance coverage of any type or class as a primary line of business (in excess of fifteen percent (15%) of aggregate revenues), (ii) underwriting agencies (or managing general agencies) that produce and administer non-standard automobile insurance as a primary line of business, and (iii) retail agencies that sell non-standard automobile insurance policies as a primary line of business.

(ii) Executive agrees that he shall not at any time during his employment divert away or attempt to divert away any business from the Company to another company, business, or individual. Additionally, Executive shall not, during the Non-Interference Period, solicit, divert away or attempt to divert away business from any Company Customer,

8 of 17

either directly or indirectly. “Company Customer” is defined as any person, company, or business that Executive contacted, solicited, serviced, or had access to Confidential Information about. “Solicit” is defined as soliciting, inducing, attempting to induce, or assisting any other person, firm, entity, business or organization, whether direct or indirect, in any such solicitation, inducement or attempted inducement, in all cases regardless of whether the initial contact was by Executive, the Company Customer, or any other person, firm, entity, business, or organization.

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

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

(v) If Executive requests, the Company will notify Executive in writing within fourteen (14) business days of the request whether any action proposed to be taken by Executive would be viewed by the Company in good faith to be inconsistent with Executive’s obligations in this Section 8(b). If the Company informs Executive that it would not consider such action to be a violation of any of Executive’s obligations in this Section 8(b), then the Company shall have forever waived any claim that such action taken by Executive violates any of Executive’s obligations in this Section 8(b).

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

9 of 17

the Company shall not disparage, discredit or otherwise criticize, directly or indirectly, verbally or in writing, Executive.

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

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

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

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

11. Notices. All notices and other communications required or permitted to be given hereunder shall be in writing and shall be deemed to have been duly given if delivered personally, mailed by certified mail (return receipt requested) or sent by overnight delivery service, or electronic mail, or facsimile transmission (with electronic confirmation of successful transmission) to the parties at the following addresses or at such other addresses as shall be specified by the parties by like notice, in order of preference of the recipient:

If to the Company:	Senior Vice President, General Counsel
	000 Xxxxxxxxx Xxxxx, Xxxxx 000
	Xxxx Xxxxx, Xxxxxxxx 00000

If to Executive:

Xxxxxx Xxxxx

00000 Xxxxxxxxx Xxxxx

Xxxx Xxxxxxxxxx, XX 00000

10 of 17

Notice so given shall, in the case of mail, be deemed to be given and received on the fifth calendar day after posting, in the case of overnight delivery service, on the date of actual delivery and, in the case of facsimile transmission or personal delivery, on the date of actual transmission or, as the case may be, personal delivery.

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

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

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

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

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

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

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

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

11 of 17

20. Corporate Opportunities. Executive acknowledges that during the course of Executive’s employment by Company, Executive may be offered or become aware of business or investment opportunities in which Company may or might have an interest (a “Corporate Opportunity”) and that Executive has a duty to advise Company of any such Corporate Opportunities before acting upon them. Accordingly, Executive agrees: (a) that Executive will disclose to the Board any Corporate Opportunity offered to Executive or of which Executive becomes aware, and (b) that Executive will not act upon any Corporate Opportunity for Executive’s own benefit or for the benefit of any Person other than Company without first obtaining consent or approval of the Board (whose consent or approval may be granted or denied solely at the discretion of the Board; provided, that Executive, at Executive’s election, may act upon any such Corporate Opportunity for Executive’s benefit or the benefit of any other Person if the Board has not caused Company to act upon any such Corporate Opportunity within sixty (60) days after disclosure of such Corporate Opportunity to Company by Executive.

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

22. Assistance in Litigation. Executive shall reasonably cooperate with the Company in the defense or prosecution of any claims or actions now in existence or that may be brought in the future against or on behalf of the Company that relate to events or occurrences that transpired while Executive was employed by the Company. Executive’s cooperation in connection with such claims or actions shall include, but not be limited to, being available to meet with counsel to prepare for discovery or trial and to act as a witness on behalf of the Company at mutually convenient times. Executive also shall cooperate fully with the Company in connection with any investigation or review by any federal, state, or local regulatory authority as any such investigation or review relates to events or occurrences that transpired while Executive was employed by the Company. The Company will pay Executive one thousand five hundred dollars ($1,500) per eight-hour day for the Executive’s cooperation pursuant to this Section 22.

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

24. Notification of New Employer. Upon termination of this Agreement for any reason, or expiration of this Agreement, Executive hereby consents to the notification by the Company to Executive’s new employer of Executive’s rights and obligations under this Agreement. In addition, in the event that Executive plans to render services to a company that works in a similar field as the Company, Executive agrees to provide the Company with as much notice as possible of Executive’s intention to join that company or business but in no event will

12 of 17

Executive provide less than two weeks notice of that intention; provided, however, the provision of such notice and the Company’s receipt thereof shall not constitute a waiver of any breach of any provision of this Agreement.

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

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

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

28. Indemnification. The Company agrees that if Executive is made a party to or involved in, or is threatened to be made a party to or otherwise to be involved in, any action, suit or proceeding, whether civil, criminal, administrative or investigative (a “Proceeding”), by reason of the fact that heis or was an officer or employee of the Company or is or was serving at the request of the Company as an officer, member, employee or agent of another corporation, limited liability corporation, partnership, joint venture, trust or other enterprise, including service with respect to employee benefit plans, whether or not the basis of such Proceeding is

13 of 17

Executive’s alleged action in an official capacity while serving as an officer, member, employee or agent, Executive shall be indemnified and held harmless by the Company against any and all liabilities, losses, expenses, judgments, penalties, fines and amounts reasonably paid in settlement in connection therewith, to the fullest extent legally permitted or authorized by the Company’s By-laws or, if greater, by the laws of the State of Delaware, as may be in effect from time to time, except that this Section 28 shall not apply to the following Proceedings: (a) any Proceeding initiated or brought voluntarily by Executive against the Company or its directors, officers employees or other indemnitees, unless the Board of Directors has authorized or consented to the initiation of the Proceeding (or any part of the Proceeding), and (b) for an accounting of profits made from the purchase and sale (or sale and purchase) by Executive of securities of the Company within the meaning of Section 16(b) of the Exchange Act or any similar successor statute. The rights conferred on Executive by this Section 28 shall not be exclusive of any other rights which Executive may have or hereafter acquire under any statute, the By-laws, agreement, vote of stockholders or disinterested directors, or otherwise. The indemnification provided for by this Section 28 shall continue until and terminate upon the latest of: (a) the statute of limitations applicable to any claim that could be asserted against Executive with respect to which he may be entitled to indemnification under this Section 28, (b) ten years after the date that Executive has ceased to serve as a director or officer of the Company or as a director, officer, employee, member, or agent of any other corporation, limited liability corporation, partnership, joint venture, trust or other enterprise at the request of the Company, or (c) if, at the later of the dates referred to in (a) and (b) above, there is a pending Proceeding in respect of which Executive is granted rights of indemnification under this Section 28, one year after the final termination of such Proceeding, including any and all appeals. The indemnification provided for by this Section 28 shall inure to the benefit of his heirs, executors and administrator

29.	Tax Gross Up.

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

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

14 of 17

payment of such additional taxes Executive shall have been paid on a net after-tax basis an amount equal to the Parachute Tax Reimbursement.

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

(d) The term “Change in Control” shall mean a transaction or event (or series of transactions or events) as a result of which any “person” as such term is used in Section 13(d) and 14(d) of the Exchange Act (other than any Excluded Person, the Company or any Company employee benefit plan, including its trustees) is or becomes the “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of all of the securities of the Company held by New Affirmative LLC held immediately prior to such transaction or event (or series of transactions or events) and all director designees of New Affirmative LLC are no longer on the Company’s Board; provided, however, that in no event shall the distribution, sale, transfer, or acquisition of securities of the Company held by New Affirmative LLC or any Excluded Persons (or any successor thereof) to any Excluded Person trigger a “Change in Control.” “Excluded Person” shall mean any of New Affirmative LLC, Affirmative Investment LLC, The Enstar Group, Inc. and any of their respective stockholders, members, affiliates, subsidiaries, or any such persons under common control.

30. 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 (except as stated in Section 8(e), and 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) if the Executive prevails on any material issues involved in such litigation and (ii) upon receipt of proof of such expenses.

(b) In the event that the Executive’s employment is terminated after a Change in Control either by the Company either for Cause or without Cause or by the Executive for Good Reason, the Company shall reimburse the Executive for any reasonable attorneys’ fees, expenses and court costs incurred by the Executive as a result of any litigation by the Executive regarding the validity, enforceability or interpretation of any provision of this Agreement (except as stated in Section 8(e)), and 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.

15 of 17

31. Voluntary Agreement. Each party to this Agreement has read and fully understands the terms and provisions hereof, has had an opportunity to review this Agreement with legal counsel, has executed this Agreement based upon such party’s own judgment and advice of counsel (if any), and knowingly, voluntarily, and without duress, agrees to all of the terms set forth in this Agreement. The parties have participated jointly in the negotiation and drafting of this Agreement. If an ambiguity or question of intent or interpretation arises, this Agreement will be construed as if drafted jointly by the parties and no presumption or burden of proof will arise favoring or disfavoring any party because of authorship of any provision of this Agreement. Except as expressly set forth in this Agreement, neither the parties nor their affiliates, advisors and/or their attorneys have made any representation or warranty, express or implied, at law or in equity with respect of the subject matter contained herein. Without limiting the generality of the previous sentence, the Companies, their affiliates, advisors, and/or attorneys have made no representation or warranty to Executive concerning the state or federal tax consequences to Executive regarding the transactions contemplated by this Agreement.

16 of 17

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

COMPANY

Dated:

January 26, 2007

By: /s/ Xxxxx Xxxxxxxx

Name: Xxxxx Xxxxxxxx

Title: Chief Executive Officer

EXECUTIVE

Dated:

January 26, 2007

By: /s/ Xxxxxx Xxxxx

Name: Xxxxxx Xxxxx

17 of 17

EXHIBIT A

RESTRICTED STOCK AGREEMENT

AFFIRMATIVE INSURANCE HOLDINGS, INC.

AMENDED AND RESTATED 2004 STOCK INCENTIVE PLAN

as amended

RESTRICTED STOCK AWARD AGREEMENT

This Restricted Stock Award Agreement (this “Agreement”), made as of the 27^th day of November, 2006 (the “Grant Date”) by and between Affirmative Insurance Holdings, Inc. (the “Company”), and Xxxxxx Xxxxx (the “Grantee”), evidences the grant by the Company of a Stock Award (the “Award”) of restricted Common Stock, par value $0.01 per share (the “Common Stock”) to the Grantee on such date and the Grantee’s acceptance of the Award in accordance with the provisions of the Company’s Amended and Restated 2004 Stock Incentive Plan, as amended (the “Plan”), a copy of which is attached hereto as Exhibit A.

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

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

2. Restricted Stock Award. The Company hereby awards and grants to Grantee, in consideration for past services rendered to the Company or an Affiliate of the Company which services have a value in excess of the aggregate par value of the Common Stock awarded to Grantee, 25,000 shares of Common Stock of the Company (the “Restricted Stock Award”) which shall be subject to the restrictions and conditions set forth in the Plan and in this Agreement.

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

(a) provided Grantee continues to provide Continuous Service to the Company or any Affiliate, the Restricted Stock Award will become vested and exercisable with respect to twenty percent (20%) of the Restricted Stock on the first anniversary of November 27, 2006 (the “Vesting Commencement Date”) and thereafter, at the end of each full succeeding year, for four years, on the anniversary date of the Vesting Commencement Date, will become vested and exercisable as to twenty percent (20%) of the Restricted Stock until the Restricted Stock is vested and exercisable with respect to one hundred percent (100%) of the Restricted Stock. If application of the vesting percentage causes a fractional share, such share shall be rounded down to the nearest whole share for each vesting period except for the last period in such vesting period, at the end of which last period this Restricted Stock Award shall become exercisable for the full remainder of the Restricted Stock; and

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

Page 1

(i)	Termination by the Company other than for Cause;
(ii)	Termination by the Grantee for Good Reason; or

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

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

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

5.	Tax Withholding.

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

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

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

Page 2

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

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

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

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

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

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

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

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

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

Page 3

12.	Restrictions on Unvested Shares.

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

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

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

14.	Restrictive Legends and Stop-Transfer Orders.

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

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

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

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

Page 4

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

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

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

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

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

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

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

Page 5

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

[SIGNATURE PAGE FOLLOWS]

Page 6

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


AFFIRMATIVE INSURANCE HOLDINGS, INC.



By:	/s/ Xxxx X. Xxxxxxxx

	Xxxx X. Xxxxxxxx
Title:	Senior VP, Human Resources

GRANTEE

/s/ Xxxxxx Xxxxx

Xxxxxx Xxxxx

Address: 00000 Xxxxxxxxx Xxxxx

Xxxxxxxxxx, Xxxxxxxx 00000

Page 7

EXHIBIT B

STOCK OPTION AGREEMENTS

AFFIRMATIVE INSURANCE HOLDINGS, INC.

AMENDED AND RESTATED 2004 STOCK INCENTIVE PLAN

as amended

STOCK OPTION AGREEMENT

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

	Participant:		Xxxxxx Xxxxx

	Address:		00000 Xxxxxxxxx Xxxxx

			Xxxxxxxxxx, Xxxxxxxx 00000

	Total Option Shares:		50,000

	Exercise Price Per Share:		$20.00

	Date of Grant:		November 27, 2006

	Expiration Date:		November 27, 2016

	Vesting Commencement Date:		November 27, 2006
	Vesting Schedule:		The Option will become vested and exercisable with respect to twenty percent (20%) of the Shares (defined below) on the first anniversary of the Vesting Commencement Date set forth above and thereafter, at the end of each full succeeding year, for four years, on the anniversary date of the Vesting Commencement Date the Option will become vested and exercisable as to twenty percent (20%) of the Shares until the Option is vested and exercisable with respect to one hundred percent (100%) of the Shares.
	Type of Stock Option:		[ ] Incentive Stock Option
			[ X ] Nonstatutory Stock Option

Page 1

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

2.	Exercise Period; Vesting.

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

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

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

(a)	Termination by the Company other than for Cause;
(b)	Termination by the Participant for Good Reason; or

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

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

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

4.	Termination of Continuous Service.

4.1. Termination for Any Reason Except Death, Disability or Cause. Unless otherwise provided in an employment agreement the terms of which have been approved by the

Page 2

Administrator, if Participant’s Continuous Service is terminated for any reason, except death, disability or for Cause, the Option, to the extent (and only to the extent) that it would have been exercisable by Participant on the date of termination, may be exercised by Participant no later than the one (1) month anniversary of the date of termination, but in any event no later than the Expiration Date.

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

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

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

5.	Manner of Exercise.

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

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

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

(a) by surrender of shares of the Company’s Common Stock that (i) either (1) have been owned by Participant for more than six (6) months and have been paid for

Page 3

within the meaning of SEC Rule 144 (and, if such shares were purchased from the Company by use of promissory note, such note has been fully paid with respect to such shares); or (2) were obtained by Participant in the open public market; and (ii) are clear of all liens, claims, encumbrances or security interests;

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

(d)	by any combination of the foregoing.

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

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

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

7. Compliance with Laws and Regulations. The exercise of the Option and the issuance and transfer of Shares shall be subject to compliance by the Company and Participant

Page 4

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

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

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

10.	General.

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

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

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

Page 5

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

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

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

[SIGNATURE PAGE FOLLOWS]

Page 6

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

AFFIRMATIVE INSURANCE HOLDINGS, INC.

By:	/s/ Xxxx X. Xxxxxxxx

Name:	Xxxx X. Xxxxxxxx
Title:	Senior VP, Human Resources

PARTICIPANT

/s/ Xxxxxx Xxxxx

(Signature)

Printed Name: Xxxxxx Xxxxx

Page 7

AFFIRMATIVE INSURANCE HOLDINGS, INC.

AMENDED AND RESTATED 2004 STOCK INCENTIVE PLAN

as amended

STOCK OPTION AGREEMENT

	Participant:		Xxxxxx Xxxxx

	Address:		00000 Xxxxxxxxx Xxxxx

			Xxxxxxxxxx, Xxxxxxxx 00000

	Total Option Shares:		50,000

	Exercise Price Per Share:		$25.00

	Date of Grant:		November 27, 2006

	Expiration Date:		November 27, 2016

	Vesting Commencement Date:		November 27, 2006

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

Page 1

2.	Exercise Period; Vesting.

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

(a)	Termination by the Company other than for Cause;
(b)	Termination by the Participant for Good Reason; or

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

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

4.	Termination of Continuous Service.

4.1. Termination for Any Reason Except Death, Disability or Cause. Unless otherwise provided in an employment agreement the terms of which have been approved by the

Page 2

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

5.	Manner of Exercise.

(a) by surrender of shares of the Company’s Common Stock that (i) either (1) have been owned by Participant for more than six (6) months and have been paid for

Page 3

(d)	by any combination of the foregoing.

7. Compliance with Laws and Regulations. The exercise of the Option and the issuance and transfer of Shares shall be subject to compliance by the Company and Participant

Page 4

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

10.	General.

Page 5

[SIGNATURE PAGE FOLLOWS]

Page 6

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

AFFIRMATIVE INSURANCE HOLDINGS, INC.

By:	/s/ Xxxx X. Xxxxxxxx

Name:	Xxxx X. Xxxxxxxx
Title:	Senior VP, Human Resources

PARTICIPANT

/s/ Xxxxxx Xxxxx

(Signature)

Printed Name: Xxxxxx Xxxxx

Page 7

AFFIRMATIVE INSURANCE HOLDINGS, INC.

AMENDED AND RESTATED 2004 STOCK INCENTIVE PLAN

as amended

STOCK OPTION AGREEMENT

	Participant:		Xxxxxx Xxxxx

	Address:		00000 Xxxxxxxxx Xxxxx

			Xxxxxxxxxx, Xxxxxxxx 00000

	Total Option Shares:		60,000

	Exercise Price Per Share:		$16.08

	Date of Grant:		November 27, 2006

	Expiration Date:		November 27, 2016

	Vesting Commencement Date:		November 27, 2006

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

Page 1

[ X ] Nonstatutory Stock Option

2.	Exercise Period; Vesting.

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

(a)	Termination by the Company other than for Cause;
(b)	Termination by the Participant for Good Reason; or

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

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

4.	Termination of Continuous Service.

Page 2

4.1. Termination for Any Reason Except Death, Disability or Cause. Unless otherwise provided in an employment agreement the terms of which have been approved by the Administrator, if Participant’s Continuous Service is terminated for any reason, except death, disability or for Cause, the Option, to the extent (and only to the extent) that it would have been exercisable by Participant on the date of termination, may be exercised by Participant no later than the one (1) month anniversary of the date of termination, but in any event no later than the Expiration Date.

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

5.	Manner of Exercise.

Page 3

(a) by surrender of shares of the Company’s Common Stock that (i) either (1) have been owned by Participant for more than six (6) months and have been paid for within the meaning of SEC Rule 144 (and, if such shares were purchased from the Company by use of promissory note, such note has been fully paid with respect to such shares); or (2) were obtained by Participant in the open public market; and (ii) are clear of all liens, claims, encumbrances or security interests;

(d)	by any combination of the foregoing.

Page 4

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

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

10.	General.

Page 5

[SIGNATURE PAGE FOLLOWS]

Page 6

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

AFFIRMATIVE INSURANCE HOLDINGS, INC.

By:	/s/ Xxxx X. Xxxxxxxx

Name:	Xxxx X. Xxxxxxxx
Title:	Senior VP, Human Resources

PARTICIPANT

/s/ Xxxxxx Xxxxx

(Signature)

Printed Name: Xxxxxx Xxxxx

Page 7

Document Metadata

Table of Contents

EXECUTIVE EMPLOYMENT AGREEMENT

Document Metadata