THIS MANAGEMENT
AGREEMENT ( this “Agreement”) is entered into this 16th
day of April, 2007 by and between MEADOWBROOK, INC., a Michigan
corporation (the “Company”), and Evergreen/UNI RW
Acquisition Corp., an Ohio corporation the “Manager”).
The Company and the Manager are referred to individually as a
“Party” and collectively as the
“Parties.”
WHEREAS, the
Company, Meadowbrook Insurance Group, Inc. (“MIGI” and,
together with the Company, “Meadowbrook”), the Manager
and the shareholders of the Manager entered into a certain Asset
Purchase Agreement dated as of April 16, 2007 (the
“Asset Purchase Agreement”) and certain of such parties
entered into other ancillary agreements (including, without
limitation, that certain Noncompetition Agreement dated as of
April 16, 2007 (the “Noncompetition Agreement”)
among the Company, MIGI, US Specialty Underwriters, Inc., an
Arizona corporation, the Manager and the shareholders of the
Manager).
WHEREAS, certain
capitalized terms and conditions, if not defined in this Agreement,
shall have the same meaning as set forth in the Asset Purchase
Agreement;
WHEREAS, the Asset
Purchase Agreement provides for the sale of substantially all of
the assets used or held for use by Seller in the operation of its
business of providing excess workers compensation coverage for low
to moderate hazard business (the “Acquired Business”)
to the Company in exchange for cash, stock of MIGI, and certain
contingent consideration;
WHEREAS, the
execution and delivery of this Agreement by the Parties (whereby
the Manager would, subject to the terms and conditions of the Asset
Purchase Agreement and this Agreement, manage the Acquired
Business) is a condition to the Closing;
WHEREAS, the
Company desires that Manager manage the Acquired Business on the
terms and conditions described herein, and Manager wishes to so
manage, with such management to commence on the Closing Date;
and
NOW, THEREFORE,
the Parties do hereby agree as follows:
1.
Appointment . Effective as of the Closing Date, the Company
hereby appoints and designates Manager to manage and operate the
Acquired Business during the Management Term, and Manager hereby
accepts such appointment and designation, subject to the terms and
conditions set forth below. Except as set forth in the next
sentence, Manager is not an agent of the Company with respect to
the Acquired Business or otherwise and does not have the authority
to and shall not bind the Company to any agreement or other
obligation (including, without limitation, signing agreements on
behalf of the Company). Manager and Daniel J. Clark
(“Clark”) are authorized to enter into contracts on
behalf of the Company in the ordinary course of the Acquired
Business which would include, but not be limited to, agency
agreements, appointments of sub-agents, agreements with policy
holders and reinsurance arrangements, in any such case, only in a
manner which relates exclusively to the Acquired
Business.
2.1.1
Subject to the terms of this Agreement (including, without
limitation, Section 2.1.6), (i) Manager shall manage and
operate the ordinary course, day-to-day operations of the Acquired
Business, and in such capacity, shall have the attendant rights and
responsibilities as set forth in this Agreement,
(ii) Manager’s duties in such capacity shall be to
control, direct and supervise the ordinary course, day-to-day
operations of the Acquired Business, (iii) Manager will have
limited decision-making power with respect to the Acquired
Business’s personnel, including appointment of employees of
the Acquired Business (which shall be employees of the Company for
payroll, tax, employee benefit and all other purposes), culture,
compensation structure and arrangements with respect to the
Acquired Business (excluding the compensation of Manager), choice
of and dealings with Clients, prospects, suppliers and other
business associates, and products and services sold or rendered by
the Acquired Business and (iv) Manager may control the manner
of its performance of its duties hereunder.
2.1.2
In performing its duties hereunder, Manager shall, and shall use
reasonable efforts to cause each other representative of the
Acquired Business to, in all material respects (i) abide by
and comply with all applicable laws, statutes, orders, rules,
regulations, policies or guidelines promulgated, or judgments,
decisions or orders entered by, any court, arbitral tribunal,
administrative agency, or commission or other governmental or
regulatory body, agency or instrumentality or authority relating to
the Acquired Business’ properties or business,
(ii) adopt and adhere to the accounting policies, financial
reporting practices and standards and cash management systems,
policies and practices (as set forth on Exhibit A hereto) and
otherwise as adopted by Meadowbrook from time to time and
applicable to its business generally (the “Meadowbrook
Policies”) provided that such Meadowbrook Policies shall
allow for the efficient and effective administration of the Asset
Purchase Agreement including, without limitation, Section 2.14
thereof, (iii) abide by and adhere to the provisions of the
Articles of Incorporation and Bylaws of the Company, and
(iv) conduct itself with respect to the Acquired Business with
the prudence, care, dedication and skill as would be manifested by
one in the operation and management of its own assets and
properties. Manager agrees to manage the Acquired Business in a
reasonable and judicious manner, including by selling the products
and services of the kind or nature previously sold by the Acquired
Business. Manager shall not commingle any of its assets with those
of the Company or the Acquired Business.
2.1.3
Manager shall devote, and shall cause Clark to devote, such
attention and time necessary to fulfill Manager’s duties and
responsibilities under this Agreement. It is expressly understood
that Clark (a) will perform such gainful work, in addition to
the performance of Manager’s duties hereunder, as reasonably
determined by Clark (subject to Sections 9 and 10 of this
Agreement), (b) may devote other time to charitable, civic and
industry-related boards or organizations and (c) will manage the
Manager’s business, financial and legal affairs. Manager may
set the hours of work for Clark with respect to the performance of
the duties hereunder. The activities of Manager and Clark which are
permitted under this Section 2.1.3 shall not conflict with the
terms and conditions of this Agreement, the Asset Purchase
Agreement, the Ancillary Agreements or the Meadowbrook
Policies.
2.1.4
Any and all agreements or understandings, whether oral or written,
relating to the business, operations, activities, nature or
otherwise within the purview of the Acquired Business, shall only
be entered into by and for the benefit of the Company. Manager
shall not enter into, directly or indirectly, any agreement or
understanding, including with any
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employee,
affiliate or customer of the Company or any entity that has a
business relationship with the Company, that is in violation of
this Agreement.
2.1.5
All expenses incurred by or on behalf of the Acquired Business or
in connection with the operations or activities of the Acquired
Business shall be expenses of the Company and shall be reflected on
the books and records of the Company.
2.1.6
Notwithstanding anything to the contrary contained in this
Agreement, the following provisions concerning the Manager and the
management of the Acquired Business shall apply:
(i) Manager’s
operation of the Acquired Business shall be subject to the
oversight of the President & CEO of the Company or his
designee. Notwithstanding anything to the contrary, management of
the Acquired Business shall be vested in the Board of Directors of
the Company as provided by resolution or applicable law.
(ii) Subject
to the other provisions of this Agreement, Manager may enter into
affiliation agreements or contracts with any insurance company,
agent organization or producer in connection with selling the
products and services of the kind and nature generally sold by the
Acquired Business.
(iii) Manager
shall report to the President & CEO of the Company or his
designee in fulfilling its responsibilities hereunder and Manager
shall use its reasonable best efforts to comply with such
Person’s reasonable requests and directions.
(iv) Without
the prior written consent of the President & CEO of the Company
or his designee, Manager shall not, on behalf of the Company, nor
shall it permit any representative of the Acquired Business, on
behalf of the Company, to:
(A) enter
into any Non-Ordinary Course Transaction (as defined in
Section 28.6 of this Agreement);
(B) make
any expenditures or enter into any agreements, contracts or other
commitments other than on behalf of the Acquired
Business;
(C) make
any expenditures or enter into any agreements, contracts or other
commitments not contemplated by the Budget;
(D) enter
into any agreements, contracts or other commitments that could
restrict or result in any restriction on the ability of the Company
to choose where and with whom it does business; and
(E) cause
the Acquired Business to operate outside the Ordinary Course of
Business.
2.2
Place of Performance . Manager and Clark shall be based in
northeastern Ohio. However, if and only if Manager determines it
necessary or appropriate to conduct the operations of the Acquired
Business elsewhere, Manager and Clark shall be based at such other
place or places as Manager determines, subject to the advice and
written consent of the Company.
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2.3
Working Capital and Bank Accounts .
2.3.1
The Company shall provide necessary cash to support reasonable
working capital needs within the Company’s cash
management’s policies and procedures. Manager shall not be in
default of its obligations under this Agreement to the extent it is
unable to perform any obligation due to the lack of available funds
for the operation of the Acquired Business due to the
Company’s failure to provide required working capital. In no
event shall Manager be required to advance any of its funds for the
operation of the Acquired Business.
2.3.2
The cash receipts of the Acquired Business shall be administered in
accordance with the Company’s cash receipts policies and
procedures.
2.3.3
All funds received in relation to the collection of premiums on
behalf of the related carrier, will be deposited into the
appropriate premium trust account as designated by the
Company.
2.4
Manager Compliance with Company Contracts . Manager’s
obligation to comply with Company contracts related to the conduct
of the Acquired Business that are not otherwise entered into on
behalf of the Company at the direction of the Manager, shall be
limited to the extent the Manager’s performance under such
contracts is consistent with its duties under this Agreement and
such contracts do not increase the Manager’s obligations or
decrease the Manager’s rights under this
Agreement.
2.5
Manager Employees . Manager shall be responsible for all
payroll taxes and withholdings associated with the performance of
services by Manager and Clark and Manager’s other employees
and representatives under this Agreement.
2.6
No Liability of Manager . All debts and liabilities to third
persons incurred by the Acquired Business pursuant to this
Agreement shall be the debts and liabilities of the Company only
and Manager shall not be liable for any such obligations by reason
of its management, supervision, direction and operation of the
Acquired Business. Subject to the terms of this Agreement, Manager
may so inform third parties with whom it deals on behalf of the
Company and may take any other reasonable steps to carry out the
intent of this Section 2.6.
3.
Consideration . The Manager’s consideration for the
performance of its duties hereunder shall be the Management Fee
payable by the Buyer to the Seller pursuant to Section 2.14 of
the Asset Purchase Agreement.
4.1
Management Term . The “Management Term” shall
commence on the Closing Date and terminate on the earlier of
(i) the Contingent Consideration Termination Date, or
(ii) termination of this Agreement, in accordance with
Section 8 of this Agreement.
4.2
Effect of Termination of Management Term . Upon termination
of the Management Term, Manager shall not be obligated to provide
any management, consulting or similar services to the
Company.
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4.3
No Effect on Asset Purchase Agreement . Except as otherwise
contemplated by the Asset Purchase Agreement, the termination of
the Management Term shall not in any manner, regardless of whether
termination is for Cause, material breach, nonperformance or any
other reason, affect the right of the Seller to receive the
Management Fee pursuant to Section 2.14 of the Asset Purchase
Agreement, until the Contingent Consideration Termination Date
shall have occurred (subject to payment of all Management Fees
earned through such date), upon which occurrence, except as
otherwise contemplated by the Asset Purchase Agreement, the Company
is unconditionally and irrevocably required to pay to Seller,
without offset, the Contingent Consideration Termination
Payment.
5.1
Monthly Report . The Company shall provide to the Manager
monthly profit and loss statements in accordance with the
Company’s monthly financial close schedule. The Manager shall
provide to the Company monthly budget to actual variance analysis
in accordance to the Company’s variance reporting
policy.
5.2
Annual Report . The Company shall provide to the Manager an
annual profit and loss statement with a calculation of EBITDA and
the Management Fee as set forth in Section 2.14 of the Asset
Purchase Agreement on or before the Management Fee Payment Date.
The Manager has the ability at its costs to audit the calculation
as contemplated in Section 2.14 of the Asset Purchase
Agreement.
5.3.1
The budget for the Acquired Business for the remainder of calendar
year 2007 is attached hereto as Schedule 5.3. For all other
calendar or fiscal years, Manager shall provide to the Company
annual budgets in accordance with the Company’s budget
process guidelines and annual timeline (the
“Budgets”).
5.3.2
Manager shall provide strategic oversight of the Acquired Business
within the Company’s risk profile and new business
development policies and procedures.
5.3.3
The Company acknowledges that: (a) the Budgets are estimates
only; (b) the Manager does not give any guarantee, warranty or
representation whatsoever in connection with the Budgets; (c) the
Manager does not guarantee the accuracy of the information
contained in the Budgets or the results predicted therein;
(d) the Manager shall not be held responsible for any
divergence between projections contained in the Budgets and the
actual results achieved except to acknowledge that those results
will impact the EBITDA determinations under Section 2.14 of
the Asset Purchase Agreement; and (e) failure of the Acquired
Business to achieve the projected results for any period shall not
constitute a default under this Agreement.
5.4
Manager Reports . Manager shall provide to the Company
quarterly reports presenting an overview of the Acquired
Business’ operations for the quarter including a summary of
any material agreements or arrangements entered into by the Manager
or Clark on behalf of the Company during the quarter.
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6.
Insurance . The Acquired Business, and its agents,
employees, officers and directors shall be insured by MIGI under
its Errors & Omissions Policy during the Management Term at the
sole cost and expense of the Company, which shall be included as an
expense in the Budgets.
7.1
Except as otherwise set forth in this Section 7, Manager shall
be involved in, but not directly control legal proceedings
involving or relating to the Acquired Business or the operation
thereof (other than as between Manager and the Company) at the sole
cost and expense of the Company. Manager’s involvement in
legal proceedings shall include providing the Company written
notice of all legal proceedings and furnishing the Company such
other information reasonably requested, and fully cooperating in
the defense of such legal proceedings. The Company shall direct and
control all legal proceedings involving or related to the Acquired
Business. Manager shall provide, at the Company’s expense,
all cooperation reasonably requested by the Company in any legal
proceeding involving or related to the Acquired Business (other
than as between Manager and the Company).
7.2
Manager shall be entitled to participate at its sole cost and
expense (which shall include the cost of separate counsel if the
Company’s counsel reasonably determines that such counsel
cannot ethically represent both the Company and the Manager) in any
legal proceeding under the direction and control of the Company in
which Manager is a named defendant or which affects any property or
rights of Manager.
8.
Termination of Agreement.
8.1.1
The Company may immediately terminate this Agreement for Cause by
delivering written notice thereof to the Manager.
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