--------------------------------------------------------------------------------

EXHIBIT 10.39
 
MANAGEMENT SERVICES AGREEMENT
 
This Management Services Agreement ("Agreement") is effective the 1st day of
July, 2011, by and between Meadowbrook Insurance Group, Inc., a Michigan
corporation (hereinafter referred to as "MIGI" ), Star Insurance Company, a
Michigan corporation, Williamsburg National Insurance Company, a Michigan
corporation, Ameritrust Insurance Corporation, a Michigan corporation, Savers
Property and Casualty Insurance Company, a Missouri corporation, Century Surety
Company, an Ohio corporation, ProCentury Insurance Company, a Texas corporation,
and ProCentury Risk Partners Insurance Company, a District of Columbia
corporation (collectively, the "Company"), and Meadowbrook, Inc., a Michigan
corporation ("Manager").
 
RECITALS:
 
WHEREAS, MIGI is a Michigan domiciled insurance holding company formed pursuant
to the laws of the State of Michigan;
 
WHEREAS, Star Insurance Company, Williamsburg National Insurance Company and
Ameritrust Insurance Corporation are insurance companies domiciled in the State
of Michigan operating and licensed in various jurisdictions, pursuant to
applicable insurance laws and regulations;
 
WHEREAS, Savers Property and Casualty Insurance Company is an insurance company
domiciled in the state of Missouri, which operates and is licensed in various
jurisdictions under applicable insurance laws and regulations;
 
WHEREAS, Century Surety Company is domiciled in the state of Ohio operating and
licensed in various jurisdictions, pursuant to applicable insurance laws and
regulations;
 
WHEREAS, ProCentury Insurance Company is an insurance company domiciled in the
state of Texas operating and licensed in various jurisdictions, pursuant to
applicable insurance laws and regulations;
 
WHEREAS, ProCentury Risk Partners Insurance Company is an insurance company
domiciled in the District of Columbia operating and licensed in various
jurisdictions, pursuant to applicable insurance laws and regulations;
 
WHEREAS, the Manager is a full service risk management organization which
performs marketing, underwriting, claims, loss control, actuarial, accounting,
tax, treasury management, investment, information technology, and reinsurance
services for insurance companies, organizations, trusts, pools and other similar
companies; and
 
WHEREAS, the Company has retained the Manager to perform the aforementioned
services on behalf of the Company as more fully described below.
 
In consideration of the mutual agreements described herein, the Company and the
Manager agree as follows:
 
AGREEMENT:
 
ARTICLE 1 - APPOINTMENT OF MANAGER
 
The Company and the Manager agree the Manager will perform services for the
Company as described in this Agreement and in the manner provided in this
Agreement. All marketing, underwriting, claims, loss control, actuarial,
accounting, tax, treasury management, investment, information technology, and
reinsurance services (sometimes, collectively referred to as "Services")
provided to the Company by the Manager shall be based upon the criteria,
guidelines and standards of the Company. The Company shall have the ultimate and
final authority over decisions and policies, including but not limited to the
acceptance, rejection or canceling of risks, the payment or non-payment of
claims and the purchase of reinsurance.
 
 
Page 1 of 10

--------------------------------------------------------------------------------

 
 
Notwithstanding any other provision of this Agreement, it is understood the
business affairs of the Company shall ultimately be controlled and managed by
its Board of Directors and its officers, in accordance with relevant law. Also,
to the extent required by law, the Board of Directors shall present to the
Company's shareholders issues for vote.
 
ARTICLE 2 - DUTIES
 
2.01         Management Services
 
A.           Accounting Services, Financial Statements and Tax Returns
 
The Manager will perform services for the Company's operations and provide all
accounting, tax, treasury management and investment related services. The
Manager will prepare all of the Company's financial statements required for
filing with regulatory authorities, including statutory financial statements as
required under the applicable insurance laws. The Manager will perform these
services in a manner and at a time, which complies with the requirements of the
insurance bureau, taxing authorities, and as otherwise reasonably required by
the Company. Accounting services shall include the preparation of financial
statements and analytic reports, including all supporting documentation and
reconciliations, maintenance of proper accounts, and experience statistics as
required for management and for filing with any regulatory authority. The
Manager will prepare the Company's financial statements on a quarterly and
annual basis. Prior to their due dates, the Manager will prepare and deliver to
the Company all tax returns to be filed with any taxing authority of the
Company. Also, the Manager shall provide actuarial services to the Company.
 
B.           Accounts Receivable
 
The Manager will collect all funds due the Company. Manager shall use due
diligence and utilize all reasonable efforts for the collection of amounts due
the Company, but shall be responsible to the Company only for premiums which are
actually collected. The Manager shall regularly account to the Company on monies
received by the Manager on behalf of the Company. Due diligence in the
collection of accounts receivable shall mean regular contact of persons owing
money to the Company with the demand for payment and maintenance of records
adequate to legally enforce any debts owed. Due diligence shall include any
legal enforcement of the debts owed.
 
C.          Deposits of Monies Received
 
The Manager shall deposit daily into accounts of the Company all monies received
by the Manager for the Company. If the Manager is the agent for the policy, all
premium will be deposited, in accordance with the terms of any relevant Agency
Agreement. All premiums collected by the Manager shall be held in trust
segregated by the Company and held in a fiduciary capacity.
 
 
Page 2 of 10

--------------------------------------------------------------------------------

 
 
D.           Accounts Payable
 
The Manager will process and pay the accounts payable of the Company which are
incurred by the Company in the ordinary course of business; and which represent
expenses of the Company in areas for which the Manager is responsible under this
Agreement.
 
For that purpose, the Manager may be designated as the signatory on certain
depository and checking accounts of the Company. The Manager shall provide
regular accounting to the Company of the payments, which the Manager has paid
for the Company.
 
E.           Reports and Records
 
At least annually, and more often as may reasonably be requested by the Company,
the Manager will provide information on the Company's overall financial
conditions, results of business operations and future capital requirements. The
Manager will maintain the coverage documents or policies offered through the
Company and any amendments, and will be responsible for developing and
furnishing all necessary forms for the coverage of policyholders of the Company.
These forms shall include applications, claims reports, premium collection or
invoice forms, loss control, coverage documents, rating forms, and related
reports or explanatory forms required for operations of the Company. All reports
and records as described above will be provided as mutually agreed with the
Manager and the Company.
 
F.           Advice and Other Services
 
The Manager will have no responsibility as to other matters pertaining to the
Company and its business operations. The Manager will perform such other related
services as may be reasonably necessary for the proper conduct of the Company's
business operations and which are within the scope of this Agreement.
 
G.           Underwriting
 
The Company shall retain the ultimate right and responsibility to refuse any
risk and/or cancel any policy. The Manager shall perform such underwriting
services as the Company shall from time to time request. Underwriting services
shall include the review of applications for policies of insurance, develop
coverage forms, follow up with applicants for additional information, and
working with reinsurers of the Company as requested. Certain underwriting
services to be performed by the Manager may be delegated to a third-party upon
approval by the Company. The Manager will comply with all written guidelines set
forth by the Company with respect to underwriting, the acceptance or rejection
of certain classes of business, the scope of coverage and the provisions of the
coverage document or related to the issuance of policies.
 
H.           Reinsurance
 
The Manager shall seek to arrange for appropriate reinsurance, including the
preparation of all necessary documents with respect to such reinsurance. The
Manager shall act as the liaison with the reinsurers with respect to both the
acceptance of applications, the payment and remittance of premiums, the
reporting of claims and collection of reinsurance payments due the Company.
Also, the Manager shall negotiate the terms, conditions and premiums for such
reinsurance.
 
 
Page 3 of 10

--------------------------------------------------------------------------------

 
 
I.             Investments
 
The Company shall have custody of, responsibility for and control all
investments of the Company. The Manager will comply with the Investment Policy
Guidelines of the Company. The Company shall have the ultimate and final
authority over decisions regarding the purchase and sale of securities.
 
2.02          Claims
 
A.           Claims Administration
 
The Company shall have ultimate responsibility for claims adjustments and
payments. The Manager will receive all claims and notice of claims from
policyholders of the Company. The Manager will review, process, investigate,
adjust, settle or resist all claims received in accordance with the Company's
direction, the terms of Company coverage documents, and any written guidelines
or decision of the Company regarding coverage, handling or payment of claims.
The Manager will establish loss reserves for each claim as deemed necessary in
accordance with the Company's direction. The Manager will make subrogation
investigations and consult with the Company or its representatives for the
proper adjusting of subrogation matters. The Manager will engage attorneys as
necessary, to represent policyholders in any suit covered by the Company's
policy.
 
B.           Claims Expenses
 
The Company will pay allocated loss expenses, which include reasonable expense
items, such as attorney's fees, incidental legal fees, experts' fees, witnesses'
travel expense, extraordinary travel expense incurred by the Manager at the
request of the Company, court reporter's fees, transcript fees, and the cost of
obtaining public records and witness fees. The Company will pay expenses
associated with the investigation, negotiation, settlement or defense of any
claim hereunder or as required for the collection of subrogation payments from
third parties on behalf of the Company. All claims expenses other than allocated
loss adjustment expenses shall be considered unallocated loss adjustment
expenses and shall be paid by the Manager.
 
C.           Claims Reports
 
The Manager will establish claim files for each reported claim which will be
subject to review by the Company or its representatives at any reasonable time
without prior notice. Reports for the Company will be furnished, in formats and
frequencies approved by the Company, to show claims fund activity and payments,
losses paid, pending and reserved, by participant coverage, type, cause
function, size, and so on. The Manager will assist as needed with all litigation
and defense activities related to claims pursuant to the Company program within
guidelines established by the Company. These activities shall include
recommendation of attorneys on a case or retainer basis for approval by the
Company, preparation of all claim documentation, retention of witnesses and
performance of other steps as necessary to properly defend against claims
against insureds of the Company.
 
 
Page 4 of 10

--------------------------------------------------------------------------------

 
 
2.03        Loss Prevention
 
The Manager will arrange for and coordinate loss prevention services as agreed
with the Company, including furnishing assistance and professional consultation
to participating insureds, in developing loss prevention systems, making
inventories and surveys regarding exposures and risks covered under the Company
program, analyzing claim causes and trends, including frequency and severity,
developing and conducting training programs, and other information for loss
prevention. The type of services which will be provided to individual insureds
to help them to develop loss prevention systems will include review and analysis
of past claims, management controls and development of recommendations to
improve risk management.
 
ARTICLE 3 - COMPENSATION
 
3.01        Expenses and Fees
 
Expenses shall be determined on an annual basis, based on the costs associated
with the business underwritten by the Company. All indirect and shared expenses
will be allocated to the Company, in accordance with a method of cost allocation
in conformity with SSAP No. 70.
 
In consideration of the services provided by the Manager, the Company shall pay
the Manager a fee based upon the costs and expenses incurred with regard to
business underwritten by the Company. The fees shall be allocated to each
individual insurance company (i.e., Star Insurance Company, Williamsburg
National Insurance Company, Ameritrust Insurance Corporation, Savers Property
and Casualty Insurance Company, Century Surety Company, ProCentury Insurance
Company, and ProCentury Risk Partners Insurance Company) based on their
respective gross earned premium and in accordance with SSAP No. 70. The fees
shall be reviewed annual by the Manager and the Company based on a review of
Services performed by the Manager for the Company. Manager's compensation under
this Agreement shall be based on actual cost without a profit factor built into
cost. In no event will the amount charged to the Company for services provided
under this Agreement exceed the Company's direct cost in performing
substantially the same service for itself.
 
3.02        Time of Payment
 
The amount agreed upon as described in paragraph 3.01 will be payable monthly
within 5 business days succeeding the end of the prior month. At the end of each
calendar year the Manager and the Company may adjust the fee based upon the
actual costs and expenses. Within 30 days after the end of each calendar year,
the Manager and the Company will determine if the amounts paid by the Company to
the Manager for services provided during the preceding calendar year meet the
compensation guidelines noted in Paragraph 3.01. If any discrepancy exists, the
difference between the actual amount paid by the Company and the amount that
should have been paid under Paragraph 3.01 will be settled by the parties within
30 days. Any records retained by the Manager and Company under this Paragraph
shall be made available upon request for review by the applicable insurance
department.
 
ARTICLE 4 -THIRD PARTIES
 
The Manager and the Company agree the Manager may engage, employ and delegate
certain functions under this Agreement to unaffiliated third parties, or
affiliates of the Manager. In addition, the Manager shall have the authority to
terminate such retention. The Company will have the authority to approve or
terminate an unaffiliated third-party, as well as, approve all commission rates.
To the extent the Manager has delegated such function to an unaffiliated third
party, the fee for such service shall be paid by the Manager.
 
 
Page 5 of 10

--------------------------------------------------------------------------------

 
 
ARTICLE 5 - TERM AND TERMINATION
 
5.01        Term
 
The Term of this Agreement will be from July 1, 2011 through June 30, 2014
("Original Term"). The Term will be automatically extended for three (3) year
periods thereafter, unless either party provides written notice to the other
within ninety (90) days prior to the end of the Original Term, or any extended
Term, as applicable, that it does not wish to extend the Term.
 
This Agreement may be terminated for "cause" by either party, in accordance with
the following procedure. Termination of this Agreement by or with the insurance
companies individually shall not terminate the Agreement for the non-terminated
parties.
 
The terminating party shall provide written notification to the other party
describing the basis for the termination. The recipient shall have 180 days in
which to cure the problem, or, if such problem cannot be cured within this
timeframe, take reasonable steps within 180 days to cure the problem. If the
problem has not been cured, the Agreement may be terminated 90 days after
expiration of the 180 days notification provision, or 90 days after the party
was unable to cure the problem.
 
This Agreement may be terminated upon the dissolution, bankruptcy or insolvency
of either party. The effective date of such termination shall be immediate, or
the date ordered by the regulatory authority or court having jurisdiction over
the matter. This Agreement may be terminated on a date mutually agreed to, in
writing, by both parties.
 
In addition, either party may terminate this Agreement upon 360 days written
notice to the other party, plus a reasonable transaction period to be negotiated
by the parties. If this Agreement is terminated, prior written notification
shall be provided to the insurance departments of the states where each Company
is domiciled.
 
ARTICLE 6 - OWNERSHIP OF RECORDS
 
The Manager will maintain all appropriate records, files, ledgers, and reports
so as to accurately reflect at all times the financial transactions of the
Company. Upon reasonable notice, the Manager shall make all such records
available for inspection by the Company. All records of any kind relating to the
Company shall be the property of the Company and shall be in the Company's
custody and control or will be available for inspection.
 
ARTICLE 7 - GENERAL REQUIREMENTS OF THE MANAGER
 
7.01        Manager's General Duties
 
The Manager is responsible to perform the duties assumed under this Agreement in
accordance with standard procedures for the performance of such duties, which
exist, in the insurance industry.
 
7.02        Dealing with Third Parties
 
The Manager is authorized and may act for, bind, make commitments, and represent
the Company to any third-party, in the ordinary course of business and in
fulfillment of its obligations under this Agreement.
 
 
Page 6 of 10

--------------------------------------------------------------------------------

 

ARTICLE 8 - MISCELLANEOUS
 
8.01        Notices
 
All notice requirements and other communications indicated shall be deemed given
when personally delivered or on the third succeeding business day after being
mailed by registered or certified mail, return receipt requested, to the
appropriate party at its address below or at such other address as shall be
specified by notice given hereunder.
 

MIGI: THE MANAGER:     Meadowbrook Insurance Group, Inc. Meadowbrook, Inc. 26255
American Drive 26255 American Drive Southfield, Ml 48034-2438 Southfield, Ml
48034 Attn: President Attn: President     THE COMPANY:       Star Insurance
Company Williamsburg National Insurance Company 26255 American Drive 26255
American Drive Southfield, Ml 48034 Southfield, Ml 48034 Attn: President Attn:
President     Ameritrust Insurance Corporation Savers Property & Casualty
Insurance Co. 26255 American Drive 26255 American Drive Southfield, MI 48034
Southfield, Ml 48034 Attn: President Attn: President     Century Surety Company
ProCentury Insurance Company 465 Cleveland Avenue 465 Cleveland Avenue
Westerville, OH 43082 Westerville, OH 43082 Attn: President Attn: President    
ProCentury Risk Partners Ins. Co.   465 Cleveland Avenue   Westerville, OH 43082
  Attn: President  

 
8.02        Assignment
 
This Agreement shall be binding upon and inure to the benefit of the parties
hereto and their respective successors.
 
8.03        Amendment
 
This Agreement may not be amended, altered or modified except in writing signed
by the party against whom enforcement or any waiver, change, discharge,
alteration or modification is sought.
 
8.04        Invalidity
 
The invalidity of any provision of this Agreement shall not affect the validity
of the remainder of any such provision or the remaining provisions of this
Agreement.
 
 
Page 7 of 10

--------------------------------------------------------------------------------

 

8.05        Interpretation
 
The article, section and paragraph headings included in this Agreement have been
used solely for convenience and shall not be used in conjunction with the
interpretation of this Agreement. References to articles, sections and
paragraphs shall refer to such provisions in this Agreement unless otherwise
stated.
 
8.06        Waiver
 
The failure of either party at any time to require performance by the other
party of any provision of this Agreement shall not be deemed a continuing waiver
of that provision or a waiver of any other provision of this Agreement, and
shall in no way affect the full right to require such performance from the other
party at any time thereafter.
 
8.07        Severability
 
This Agreement and the transaction contemplated herein constitute one
transaction and shall not be divisible in any manner. A breach of any portion of
this Agreement shall be deemed a breach of the whole Agreement.
 
8.08        Counterparts
 
If photocopies or duplicates of the original of this Agreement are signed by the
parties then each such originally signed document shall be deemed to be an
original of this Agreement.
 
8.09        Conflict of Interest
 
The Manager shall not engage in conduct or activities that constitute actual
business competition with the Company, except where the Manager provides
services to other affiliates of the group.
 
8.10        Indemnification
 
Both the Company and the Manager shall hold harmless, indemnify and defend the
other party against any expenses, damages, liability, action, cost or other
claims, including attorney fees arising out of the other party's material breach
of any duty or obligation hereunder.
 
8.11        Errors and Omissions Insurance Coverage
 
The Manager shall maintain an errors and omissions insurance policy in an amount
not less than $2,000,000 per claim and an employee dishonesty bond of not less
than $500,000 per claim.
 
8.12        Governing Law
 
This Agreement shall be interpreted under Michigan law, without regard to its
conflict of law principles.
 
8.13        Entire Agreement
 
This Agreement shall supersede all prior Management Services Agreements between
Company, Manager, and MIGI.
 
 
Page 8 of 10

--------------------------------------------------------------------------------

 
 

     
MEADOWBROOK INSURANCE GROUP, INC.
 
 
 
 
 
DATE:
 
 
 
 
6 - 9 - 11
 
graphic [signature.jpg]
 

 

     
STAR INSURANCE COMPANY
 
 
 
 
 
DATE:
 
 
 
 
6 - 9 - 11
  graphic [signature1.jpg]  

 

     
WILLIAMSBURG NATIONAL INSURANCE
        COMPANY    
 
 
 
DATE:
  
 
 
 
6 - 9 - 11
   graphic [signature1.jpg]  

 

     
AMERITRUST INSURANCE CORPORATION
 
 
 
 
 
DATE:
 
 
 
 
 6 - 9 - 11
  graphic [signature1.jpg]  

 

     
SAVERS PROPERTY & CASUALTY INSURANCE CO.
 
 
 
 
 
DATE:
 
 
 
 
 6 - 9 - 11
  graphic [signature1.jpg]  

 
 
 
 
 
 
DATE:
 
 
 
 
 
 6 - 9 - 11
  graphic [signature2.jpg]  

 
 
Page 9 of 10

--------------------------------------------------------------------------------

 
 
 
 
 
 
 
 
DATE:
 
 
 
 
 
 
 6 - 9 - 11
 
graphic [signature3.jpg]
 

 
 
 
 
 
 
 
DATE:
 
 
 
 
 
 
 6 - 9 - 11
   graphic [signature3.jpg]  

 
 
 
 
 
 
DATE:
 
 
 
 
 
 6 - 9 - 11
  graphic [signature4.jpg]  

 
Page 10 of 10

--------------------------------------------------------------------------------