Document:

exv10w1w1

 

EXHIBIT 10.1.1

MANAGEMENT AND ADMINISTRATIVE SERVICES AGREEMENT

BY AND BETWEEN

SPECIALTY UNDERWRITERS’ ALLIANCE, INC.

AND

SYNDICATED SERVICES COMPANY, INC.

CONTENTS

	 	 	 
	PREAMBLE
	 	 
	 
	 	 
	Section One

	 	Appointment
	 
	 	 
	Section Two

	 	General Agreements
	 
	 	 
	Section Three

	 	General Responsibilities Of The Manager
	 
	 	 
	Section Four

	 	Compensation Of Manager
	 
	 	 
	Section Five

	 	Term of Agreement and Termination
	 
	 	 
	Section Six

	 	Arbitration
	 
	 	 
	Section Seven

	 	Execution
	 
	 	 
	Appendix I

	 	General Responsibilities Of The Manager
	 
	 	 
	Appendix II

	 	Compensation Of Manager

 

 

MANAGEMENT AND ADMINISTRATIVE SERVICES AGREEMENT

PREAMBLE

This MANAGEMENT AND ADMINISTRATIVE SERVICES AGREEMENT (hereinafter referred to
as the “Agreement”) is made this 1st day of November, 2003 (“effective date”)
by and between Specialty Underwriters’ Alliance, Inc. a Delaware domiciled
insurance holding company having its principal place of business at Dallas,
Texas, for and on behalf of itself and its subsidiaries existing now and
hereafter (hereinafter collectively referred to as the “Company”) and
Syndicated Services Company, Inc. having its principal place of business at
Manchester, NH (hereinafter referred to as the “Manager”).

FOR AND IN CONSIDERATION OF the mutual covenants and agreements contained
herein, and intending to be legally bound hereby, the parties hereto agree as
follows:

SECTION ONE

APPOINTMENT

	1.	 	APPOINTMENT
	 
	 	 	The Company hereby appoints, nominates and grants to the Manager an
appointment with full and express authority to act on its behalf for and in
connection with commercial lines program business issued or written by
Company
	 
	2.	 	MANAGER’S ROLE AS SERVICE PROVIDER
	 
	 	 	The Company hereby delegates the authority, obligation and responsibility
for providing administrative services in connection with and support of
business written under this Agreement to the Manager, all as more fully set
forth and described in Appendix I hereto. Manager shall act at the
Company’s direction.
	 
	 	 	The Manager shall have no authority, obligation or responsibility hereunder
to produce or solicit insurance business, accept or reject individual
insurance risks, adjust claims or negotiate reinsurance on behalf of the
Company.
	 
	 	 	It is understood and agreed that the Manager is not entering into an
exclusive arrangement under this Agreement, and that Manager may contract to
provide similar services to other parties at any time.

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	3.	 	CONFIDENTIALITY
	 
	 	 	Neither the Company nor Manager will at any time, disclose or communicate to
any other person or entity any confidential information or trade secrets
relating to the business of the other party hereto, or any affiliate or
agent of such other party, such confidential information or trade secrets to
include, but not be limited to, business methods and techniques, research
data, marketing and sales information, customer or policyholder lists,
know-how or any other information concerning the business of a party or any
of its affiliates or agents, its manner of operation, its plans, or other
data not disclosed to the general public. Neither party will use any
confidential information, filings, client lists, expiration or renewal lists
to the detriment of the other party.
	 
	4.	 	INDEMNIFICATION OF COMPANY
	 
	 	 	The Manager will hold harmless and indemnify the Company from and against
any damages, liability, actions, claims, or costs and expenses, including
but not limited to reasonable attorney’s fees and associated costs, incurred
by the Company as a direct and proximate result of the Manager’s negligence
or failure to comply with the terms of this Agreement, any law, or any
regulation. The indemnities provided shall be in addition to any other
liability which the Manager otherwise might have to the Company. The
Manager will reimburse the Company for any and all expenses and costs
reasonably incurred in connection with investigating or defending against
any such damage, liability, action or claim. The Company will have the
right to select its own counsel in any such proceeding.
	 
	5.	 	INDEMNIFICATION OF MANAGER
	 
	 	 	The Company will hold harmless and indemnify the Manager from and against
any damages, liability, actions, claims, or costs and expenses, including
but not limited to reasonable attorney’s fees and associated costs, incurred
by the Manager arising out of or based upon or asserted against the Manager
as a result of the performance or non-performance by the Company of its
obligations in connection with this Agreement. The Company will reimburse
the Manager for any and all expenses and costs reasonably incurred in
connection with investigating or defending against any such damage,
liability, action, or claim. The Manager will have the right to select its
own counsel in any such proceeding.
	 
	6.	 	COMPANY STATUS
	 
	 	 	The Company agrees to maintain such licenses and requirements as are
required to support the programs under this Agreement. The Company will use
reasonable efforts to obtain and maintain an A- or better rating from A.M.
Best.

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	7.	 	COMPLIANCE
	 
	 	 	The Manager will ensure that, for each program it manages under this
Agreement, information and data will be retained and supplied to the Company
sufficient to meet compliance, regulatory or external reporting requirements
of the Company as more fully set forth and described in Appendix I hereto.
	 
	8.	 	CHANGE BY MUTUAL CONSENT
	 
	 	 	The terms of this Agreement may only be changed by mutual written consent of
the Company and the Manager which is memorialized in a signed addendum to
this Agreement.
	 
	9.	 	POLICY RIGHTS AND USE OF INFORMATION
	 
	 	 	The Manager agrees that the rights to the renewals and expirations on
policies issued and information given under this Agreement remain the
property of the Company and its Program Agents as their interests may
appear. The Manager agrees that it will honor these rights and, in the
event of termination of this Agreement at any time, it will not utilize
filings it has made on behalf of the Program Agent or the Company to compete
against the Program Agent or the Company for policyholders or subproducers
for a period of twelve (12) months from the effective date of termination of
the Producer Agreement for which any such filings were made. The Company
may, however, release the Manager from all or a part of this time
restriction at any time, during or after the term of this Agreement with any
such release to apply to whatever rights to such renewals and expirations,
if any, are or may be held by the Company.

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SECTION TWO

GENERAL AGREEMENTS

	1.	 	AUDIT
	 
	 	 	The Company has the right, subject to reasonable notice and during normal
business hours, to audit the books and records of the Manager that directly
relate to the operation of this Agreement or any individual program.
Manager agrees to make all such books and records available, and to permit
authorized Company personnel or representatives access to same, when
requested as provided herein.
	 
	2.	 	VIOLATION
	 
	 	 	The Manager and the Company agree that no indulgence or acceptance by
either, or ratification after the fact of any violation or breach of any
provision of this Agreement by either, will be construed as a waiver of any
of its rights to seek damages or other relief hereunder for any future or
subsequently discovered past violations or breaches of any provision of this
Agreement.
	 
	3.	 	UNENFORCEABILITY
	 
	 	 	The invalidity or unenforceability of any particular provision of this
Agreement will not affect the other provisions hereof. This Agreement will
be construed in all respects as if the invalid or unenforceable provision
had been amended and reformed to the minimum extent necessary to render it
valid and fully enforceable under applicable law.
	 
	 	 	The subject headings of the Sections and numbered subsections of this
Agreement are included for purposes of identification and convenience only
and shall not affect the construction or interpretation of any of its
provisions.
	 
	4.	 	ENTIRE AGREEMENT
	 
	 	 	The terms and provisions contained herein constitute the entire Agreement
between the parties and supersede any previous communications,
representations or Agreements, either oral or written, with respect to the
subject matter hereof.
	 
	5.	 	NOTICES
	 
	 	 	Notices or other communications required or permitted hereunder will be
sufficiently and presumptively given on the date of service or receipt if
served in hand or by telecopier or facsimile with documentation thereof, or
on the next business day after mailing if sent by overnight mail (e.g.
Federal Express) with documentation thereof, or on the day received if sent
by registered mail, postage prepaid, return receipt requested, to the
address of a party last furnished by such party to the other in writing.

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	 	 	All notices, requests, consents and other communications by either party
which arise from or relate to this Agreement, must be in writing and
addressed as follows:

	 	 	 
	If to the Company:

	 	Courtney Smith, President & CEO
	

	 	Specialty Underwriters’ Alliance, Inc.
	

	 	8585 Stemmons Freeway, Suite 200
	

	 	South Tower
	

	 	Dallas, TX 75247
	

	 	T: (469) 547-3035
	

	 	F: (214) 689-1877
	 
	 	 
	If to the Manager:

	 	George P. Lagos, President & CEO
	

	 	Syndicated Services Company, Inc.
	

	 	1155 Elm Street, 6th Floor
	

	 	Manchester, NH 03101
	

	 	T: (603) 622-4220
	

	 	F: (603) 647-9716

	6.	 	JURISDICTION
	 
	 	 	This Agreement shall be interpreted in all respects in accordance with the
laws of Company’s state of domicile which is Delaware.
	 
	7.	 	BOOKS AND RECORDS
	 
	 	 	The Manager shall prepare and maintain, in compliance with all applicable
statutes, regulations and established practices, books, records and accounts
pertaining to Manager’s obligations under this Agreement.
	 
	8.	 	RELATIONSHIP OF THE PARTIES
	 
	 	 	Nothing herein shall be construed to create the relationship of
employer/employee, partners, or joint venturers between the Company and the
Manager.
	 
	9.	 	DUTIES NOT TRANSFERABLE
	 
	 	 	The duties of the Company and the Manager hereunder shall not be assignable
or transferable, and shall not be delegated or sub-contracted to others by
any person, by operation of law or otherwise, without the advance written
consent of the other party.

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	10.	 	ADVERTISING AND SOLICITATION MATERIALS
	 
	 	 	The Manager agrees that no pamphlets, booklets, advertising materials or any
other promotional materials relating to the Company shall be used, issued or
circulated by the Manager.
	 
	11.	 	CONSENT BEFORE LEGAL ACTION
	 
	 	 	The Manager shall not take legal action in connection with any matter
pertaining to the business of the Company without the advance written
consent of the Company. The Manager shall promptly notify the Company of
any legal action involving the Company with respect to any matters which are
the subject of this Agreement.
	 
	12.	 	NONSOLICITATION
	 
	 	 	Each party agrees that, unless otherwise agreed to by the other party in
writing, during the term of this Agreement and for a period of one (1) year
thereafter, it will not directly or indirectly solicit, hire or otherwise
retain, as an employee or independent contractor, an employee of the other
party or a former employee who voluntarily left the employ of the other
party.

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SECTION THREE

GENERAL RESPONSIBILITIES OF MANAGER

The Manager will provide services as specified in Appendix I attached hereto.

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SECTION FOUR

COMPENSATION OF MANAGER

The Manager will be compensated for services and expenses as specified in
Appendix II attached hereto.

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SECTION FIVE

TERM OF AGREEMENT AND TERMINATION

This Agreement will be for an initial twenty-six (26) month period and
continuous until terminated thereafter subject to the following:

	1.	 	General Termination Provisions
	 
	a.	 	The Company or the Manager may give to either party ninety (90) days
notice of termination of this Agreement in writing at any time with such
notice to be given by either party not earlier than October 1, 2005.
	 
	b.	 	This Agreement may be terminated at any time upon the mutual written
agreement of the Company and the Manager.
	 
	c.	 	This Agreement may be terminated by the Manager immediately upon written
notice by the Manager to the Company in the event that:

	 	i)	 	The Company transfers or disposes of all or a substantial part of
its assets to another person, firm or corporation not affiliated with
the transferor;
	 
	 	ii)	 	The Company transfers control over all or substantially all of
its business (by transfer of stock, merger, consolidation, or
otherwise) to another person, firm or corporation not affiliated with
the transferor; or
	 
	 	iii)	 	The Company commits fraud, or gross and wilful misconduct.

	d.	 	This Agreement may be terminated by the Company immediately upon written
notice by the Company to the Manager in the event that:

	 	i)	 	The Manager transfers or disposes of all or a substantial part of
its assets to another person, firm or corporation not affiliated with
the transferor;
	 
	 	ii)	 	The Manager transfers control over all or substantially all of
its business (by transfer of stock, merger, consolidation, or
otherwise) to another person, firm or corporation not affiliated with
the transferor; or
	 
	 	iii)	 	The Manager commits fraud, or gross and wilful misconduct.

	e.	 	This Agreement may be terminated immediately upon written notice by the
Manager or Company to the other party in the event that the Company or the
Manager:

	 	i)	 	Liquidates its business; takes voluntary action seeking
bankruptcy, reorganization or any other proceeding intended to produce
an adjustment with, or distribution of assets

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	 	 	 	to, creditors; or becomes the subject of any order (i) adjudging the
party a bankrupt or insolvent, (ii) appointing a receiver,
rehabilitator, conservator, liquidator or trustee, or (iii)
sequestering its property or winding up its affairs, unless any such
order is dismissed, stayed or vacated within sixty (60) days; or
	 
	 	ii)	 	Fails to maintain any license or regulatory authority necessary
to perform its duties hereunder.

	f.	 	This Agreement may be terminated by Company upon one hundred twenty (120)
days written notice by Company to the Manager in the event that:

	 	i)	 	The level and quality of service provided by Manager is
materially deficient, or
	 
	 	ii)	 	Manager materially breaches this Agreement.

	g.	 	If Company seeks to terminate the Agreement pursuant to 1.f. above,
Company will provide Manager written notice (“notice”) of its intent to
terminate, including the specific reasons and facts supporting that
decision. Manager will have thirty (30) days from receipt of notice to
cure any defect or resolve any issue cited by Company in the notice. If
Manager is unable to resolve the issue or to cure the defect, termination
of the Agreement will be effective in accordance with the notice.
	 
	2.	 	Obligations of Company and Manager if Termination Provisions are
invoked.
	 
	a.	 	During the period between the date of written notification of termination
and the effective termination date under this section, the Manager will
continue to provide management services on individual in force programs
until the effective Agreement termination date and shall have no further
responsibilities thereafter. The Company will be responsible for making
payments to the Manager pursuant to Section Four of this Agreement until
the effective date of termination.
	 
	b.	 	The Company will continue to honor and act in the spirit of this
Agreement and will not introduce operational constraints or requirements
that did not apply at the time of issuing notice of termination, or
otherwise take any action to hinder the Manager in fulfilling its
obligations to the Company or any of its Program Agents.
	 
	c.	 	Upon the effective termination date of this Agreement, ownership and
possession of all books, records and accounts of the Manager with respect
to its operations and programs, whether in the possession of the Company
or the Manager, will, without further notice or consideration, be
transferred to and vest in the Company.

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SECTION SIX

ARBITRATION

As a condition precedent to any right of action hereunder, any dispute arising
out of the interpretation, performance or breach of this Agreement, including
the formation or validity thereof, which cannot be informally resolved after
reasonable efforts to do so by both parties, will be submitted for decision to
a panel of three arbitrators.

One arbitrator will be chosen by each party and those two arbitrators will,
before instituting the hearing, choose an impartial third arbitrator who will
preside at the hearing. If either party fails to appoint its arbitrator
within thirty (30) days after being requested to do so by the other party, the
latter, after ten (10) days’ notice of its intention to do so, may appoint the
second arbitrator.

If the two arbitrators are unable to agree upon the third arbitrator within
thirty (30) days of their appointments, the third arbitrator will be selected
from a list of six individuals (three named by each arbitrator), with each
arbitrator eliminating two individuals from the other arbitrator’s list, and
the third arbitrator will be determined by a blind drawing from the two
remaining individuals.

All arbitrators will be disinterested active or former executive officers of
property and casualty insurance or reinsurance companies or Underwriters at
Lloyd’s, London.

Within thirty (30) days after notice of appointments of all arbitrators, the
panel will meet and determine a schedule for the filing of briefs, discovery
procedures, and hearings.

The panel will be relieved of all judicial formality and will not be bound by
the strict rules of procedure and evidence. Unless the panel agrees otherwise,
arbitration will take place in Chicago, Illinois, but the venue may be changed
when deemed by the panel to be in the best interests of the arbitration
proceeding. The decision of any two arbitrators, when rendered in writing,
will be final and binding. The panel is empowered to grant interim relief as
it may deem appropriate.

The panel will make its decision considering the custom and practice of the
applicable insurance and reinsurance business as promptly as possible following
the termination of the hearings. Judgement upon the award may be entered in
any court having jurisdiction thereof.

Each party will bear the expense of its own arbitrator and will jointly and
equally bear with the other party the cost of the third arbitrator. The
remaining costs of the arbitration will be allocated by the panel. The panel
may, at its discretion, award such further costs and expenses as it considers
appropriate, including but not limited to attorney’s fees.

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SECTION SEVEN

EXECUTION

This Agreement shall be effective when duly executed on behalf of both the
Company and the Manager.

IN WITNESS WHEREOF, the parties hereto have set their hands at the places and
on the dates as set forth below:

	 	 	 
	By COMPANY at Dallas Texas this 26th day of December, 2003.
	 	 
	 City / State
	 	 

COMPANY:
Specialty Underwriters’ Alliance, Inc., for and on behalf of
itself and its subsidiaries existing now or hereafter

BY: /s/ Courtney Smith

NAME: Courtney Smith

TITLE: President & CEO

Witnessed by: /s/ Kevin Smith

	 	 	 
	Kevin Smith
	 	 
	

	 	 
	Print or Type Name
	 	 

	 	 	 
	By MANAGER at Manchester NH this 29 day of December, 2003.
	 	 
	 City / State
	 	 

MANAGER: Syndicated
Services Company, Inc.

BY: /s/ George P. Lagos

NAME: George P. Lagos

TITLE: President & CEO

Witnessed by: /s/ James L. Gugrin

	 	 	 
	James L. Gugrin
	 	 
	

	 	 
	Print or Type Name
	 	 

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APPENDIX I

SYNDICATED SERVICES COMPANY, INC. (“MANAGER”)

SCHEDULE OF SERVICES FOR

SPECIALTY UNDERWRITERS’ ALLIANCE, INC. (“COMPANY”)

A. PROGRAM UNDERWRITING & ADMINISTRATION

	1.	 	Due Diligence/Operations Review
	 
	 	 	Manager: Will obtain completed background information forms,
including current licensing for the Program Agent and will prepare a summary
due diligence report for review by Company. Manager will also complete an
on-site operational review of the Program Agent in accordance with the
Manager program review guidelines and will prepare a summary report
identifying critical operational issues to be provided to Company within 7
business days after the on-site visit.
	 
	 	 	Company: Will review Manager reports and advise on any issue it
believes needs action.
	 
	2.	 	Underwriting Guidelines/Program Rules
	 
	 	 	Manager: Creates standard underwriting guidelines, eligibility
rules, and procedures manuals for each program. These guidelines and
manuals will be created from information provided by the Program Agent and
Company. They will be comprehensive in documenting every aspect of
delegated authority and company procedures required to issue policies for
each line of business. These documents will be the basis upon which systems
will be designed, filings created, and audits performed. These documents
will be electronic for easy and immediate reference. Manager will keep
these documents updated on a regular basis.
	 
	 	 	Company: Will review, comment on and approve final versions of the
above.
	 
	3.	 	Pricing by Program/Rating Rules
	 
	 	 	Manager: Will create pricing and rating rules and algorithms to be
used based upon the information provided by the Program Agent and Company.
Manager will use these rules to create filings for rate rules for each
state. Manager will provide these rules to Company to incorporate into the
rating piece of the system. Rating rules will be tailored to each line of
business and each program in accordance with Company pricing objectives and
state regulatory requirements. Manager will incorporate as much flexibility
as possible into the rules as is available in each state to allow Company
maximum pricing flexibility.
	 
	 	 	Company: Will review, comment on and approve final versions of the
above.
	 
	4.	 	Coverage Forms
	 
	 	 	Manager: Will identify and create all program specific forms,
including review against most recent bureau forms with updates made.
Manager will create new products to ensure Company has a full complement of
forms products available as required by its program partners.
	 
	 	 	Company: Will agree forms requirements, review, comment on and
approve final versions.

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	5.	 	Underwriting Manuals/ISO/NCCI/Carrier/Individual Program
	 
	 	 	Manager: Will create and maintain rate, rule and forms manuals of
all ISO / NCCI / other adoptions including all notices, declaration pages
etc. Manager will create and maintain rate, rule, and forms manuals for non
bureau company filings to be utilized across multiple programs. Manager
will create and maintain rate, rule and forms manuals for each program in
accordance with program filings.
	 
	 	 	Company: Will agree requirements, review, comment on and approve
final versions.
	 
	6.	 	Residual Market Survey/Analysis
	 
	 	 	Manager: Will summarize individual state residual market mechanisms
and associated procedures and cost for all programs. This may require
external resources (see Appendix II).
	 
	 	 	Company: Will review summary and advise Manager on any changes
required to rating rules to accommodate additional costs.
	 
	7.	 	Actuarial Resource
	 
	 	 	Manager: Will research and identify external actuarial resources
that are appropriate for specific programs as required for general program
evaluation, pricing, state filings and underwriting objectives. Manager
will manage the creation of actuarial exhibits required to support state
filings.
	 
	 	 	Company: Will manage actuarial analysis in support of underwriting
objectives.
	 
	8.	 	Develop Milestones/Metrics
	 
	 	 	Manager: Will propose reports to be produced from the vendor system
and production database as measurement tools. After review by Company,
Manager will work with the system vendor to create these reports for use by
Company.
	 
	 	 	Company: Will review Manager suggested reports, propose other
reports and agree on a set of standard reports to be built by the system
vendor for use by Company in monitoring this book of business.
	 
	9.	 	TRIA Requirements
	 
	 	 	Manager: Will monitor and advise Company and Program Agents on the
ongoing federal TRIA legislation and the associated regulatory steps
necessary for compliance. Manager will create notices and forms as
necessary and implement documentation of TRIA compliance necessary for both
compliance with and reimbursement under the Act.
	 
	 	 	Company: Will lend political support to ensure Program Agents abide
by the TRIA requirements and provide instructions by program for inclusion /
exclusion of TRIA coverage.
	 
	10.	 	Program Agent Auditing
	 
	 	 	Manager: Will conduct on-site program specific audits based on
Company requirements, program Underwriting Guidelines and individual state
regulatory requirements.
	 
	 	 	Company: Will approve Manager’s audit process and review each audit
report. Company will agree or change recommendations in each audit report
and direct Manager and/or the Program Agent with respect to the
implementation of each recommendation.

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	11.	 	Program Agent Support
	 
	 	 	Manager: Will provide ongoing support to Company and its Program
Agents with respect to all aspects of the program, including but not limited
to product and pricing (re)design, filings and/or regulatory guidance with
respect to compliance issues. Manager will identify any external vendors
which can supply critical underwriting, regulatory and loss control
information and make recommendations to Company for selection of vendors.
	 
	 	 	Company: Will review information provided by Manager and make
decisions where necessary on product and pricing (re)design, compliance
issues, and vendor selection.
	 
	12.	 	Premium Auditing
	 
	 	 	Manager: Will offer policy premium auditing on a fee for service
basis. This is not included in the up front fee. The advantage of this
initially is that it integrates the premium audit process into other
accounting and reporting mechanisms so that premium auditable policies can
be proactively tracked and actioned.
	 
	 	 	Company: Will make decision on how to handle premium auditing.

B. RATE/RULE/FORM FILINGS

	1.	 	Identify Carrier Existing ISO Filing Status
	 
	 	 	Manager: Will review the information available from the Company
carrier, ISO, individual states and other research resources to determine
what filings the Company carrier currently has in place.
	 
	 	 	Company: Will assist Manager in gaining access to the Company
carrier, review Manager findings, and advise on specific courses of action
that Manager will need to take to support Company program requirements.
	 
	2.	 	Research Filing Options (e.g., NY Free Trade Zone, Risk Purchasing
Groups, etc.)
	 
	 	 	Manager: Will provide options by program that may eliminate or
minimize the filing requirements in the program target state(s) including
but not limited to utilization of individual risk filings.
	 
	 	 	Company: Will review Manager recommendations and options presented
and make decisions on direction as required.
	 
	3.	 	Develop Filing Priorities by Program
	 
	 	 	Manager: Will recommend to Company filing priorities by program
based on anticipated volume, actual volume, individual state approval
procedures and Manager experience.
	 
	 	 	Company: Company will review Manager recommendations and will make
the decision on filing priorities by program.
	 
	4.	 	Advise on Individual State Requirements
	 
	 	 	Manager: Will provide advice and support to Company and Program
Agents regarding the different regulations on various topics by line of
business as applicable to each program. Individual state research prevents
the loss of time and resource by avoiding the filing of forms, rules and
rates that a state will not approve.
	 
	 	 	Company: Will review Manager research and make decisions on
direction as required.

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	5.	 	Complete State Filing Transmittals/Form, Rate & Rule
	 
	 	 	Manager: Will complete the individual state transmittal forms
required for each filing. Actuarial work required to support rate filings
will be outsourced.
	 
	 	 	Company: Will provide any corporate information required to complete
state transmittal forms.
	 
	6.	 	Determine State Filing Fees
	 
	 	 	Manager: Each state has a different method for determining the fees
associated with a filing. Manager will monitor the individual state
requirements in this area and track the amount associated with the
individual program filings for management purposes.
	 
	 	 	Company: Will reimburse Manager for the state filing fees.
	 
	7.	 	Complete State Filing Packages
	 
	 	 	Manager: Will create and prepare the individual state rate/rule and
form filing packages by line by program and work with the individual
regulators to obtain the necessary approvals as per agreed upon performance
standards.
	 
	 	 	Company: Will review and approve final packages as necessary and
review/approve Manager’s responses to insurance departments when required.

C. CLAIMS

	1.	 	Manager will offer consulting and support to Company on an as agreed
basis in developing its claim organization, including but not limited to
the following areas:

	 	•	 	Staffing/In House
	 
	 	•	 	Claim Adjusters
	 
	 	•	 	Claim Authorities
	 
	 	•	 	Claim System/Data Collection
	 
	 	•	 	Reserving Philosophy
	 
	 	•	 	Fraud Unit
	 
	 	•	 	Auditing

It is recognized that Company intends to develop its own claims handling
operation and capabilities. Manager can assist in interim arrangements to
facilitate an expedited implementation plan, and can act as an ongoing resource
as agreed.

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D. FINANCE/ACCOUNTING

	1.	 	General Ledger
	 
	 	 	Manager: Will provide Company with a monthly electronic interface or
manual posting summaries to Company general ledger to record premium
transactions managed through Manager. This will include premium
recorded/processed and cash applied by Program Agent.
	 
	 	 	Company: Will provide specifications to Manager for the electronic
interface or information required for manual posting entries.
	 
	 	 	Note: Timing of exchange to be agreed between Manager and Company.
	 
	2.	 	Annual Statement/Ins. Expense Exhibit/Statutory Data Calls/State Premium
Taxes
	 
	 	 	Manager: Will provide Company with the required data (formats to be
agreed) to complete the premium and claim statistical exhibits/schedules
enabling Company to complete the NAIC Convention Annual and Quarterly
statements, Insurance Expense Exhibit. Manager to capture and supply data
required to satisfy state statutory data calls and premium, such data calls
and premium tax returns to be provided to Company for filing as required.
Manager will select a premium tax software package.
	 
	 	 	Company: Company to provide forms/schedules received for Premium
Taxes and statutory data calls as received from each state and will
reimburse Manager for cost of premium tax software.
	 
	3.	 	Billing & Collection
	 
	 	 	Manager: Will handle all Program Agent premium billing (item billed
on a monthly basis from Manager to Program Agent), collection via ACH from
the Program Agents to Manager, cash application and statement reconciliation
per contract terms of trade to include aging of outstanding receivable
transactions in a format to be agreed.
	 
	 	 	Company: Will define terms of trade for Program Agents, ACH
protocols to enable cash transfers from Manager to Company should premium
funds be held at Manager until reconciled. Format of management reports to
monitor outstanding receivable transactions to be agreed.
	 
	4.	 	Financial Reporting
	 
	 	 	Manager: Will develop custom reports, as agreed, to balance/control
financial activity relating to premium and claims data exchanged between
Manager’s data base and Company, Program Agents or source systems.
	 
	 	 	Company: Will be provided copies of the protocols for sign off.
	 
	5.	 	Banking Relationships
	 
	 	 	Manager: Will establish a fiduciary premium trust account to hold
Program Agent funds. Establish ACH linkage and protocols to affect the
transfer of funds to Company (per terms of trade) along with agreed
financial reports to support funds movement.
	 
	 	 	Company: Will advise ACH protocols to affect the transfer of funds
and terms of trade.

 - 17 -

 

	 	 	Note: Company may elect to have Program Agent funds transferred from the
Program Agents directly to an account managed by Company.
	 
	6.	 	Reinsurance Accounting
	 
	 	 	Manager: Will handle all reinsurance premium and claim accounting
(quota share or facultative), cash transfers via ACH, cash application and
statement reconciliation per contract terms of trade to include aging of
outstanding receivable transactions in a format to be agreed. Manager to
advise ACH protocols to the intermediary to facilitate large loss cash
calls.
	 
	 	 	Company: Will define reinsurance terms of trade (to include large
loss cash calls), ACH protocols to enable cash transfers from Manager to the
reinsurance intermediary (or reinsurance company in the case of facultative
reinsurance). The format of management reports to monitor outstanding
receivable transactions to be agreed.

E. LEGAL/REGULATORY

	1.	 	Regulatory/Compliance
	 
	 	 	Manager: Will develop and implement procedures to assure regulatory
compliance and manage any regulatory issues arising, including but not
limited to regulatory or market conduct inquiries. The procedures which
Manager will create and monitor for Company will include, but not be limited
to, state cancellation/non-renewal notice requirements, residual markets,
insurance department complaints and mandated record keeping, insurance
department regulator contacts, document retention, and arising issues
involving regulatory matters.
	 
	 	 	Company: Will review and approve procedures and direct Manager
counsel in specific matters.
	 
	2.	 	Clean Shell with A.M. Best Rating
	 
	 	 	Manager: Will assist Company in the acquisition of a shell company
and the procurement of appropriate company licenses to support Company
programs. Manager will act as Regulatory Counsel and liaison for Company
with regard to regulatory matters, including preparation of state filings,
retention of outside expert counsel when indicated, and management and
control of outside legal expenses for regulatory matters.
	 
	 	 	Company: Will direct Manager in managing regulatory issues.
	 
	3.	 	Program Agent Contracts
	 
	 	 	Manager: Will work with Company to prepare template language for the
Producer Agreement between Company and Program Agents. As individual
programs are agreed by Company, Manager will prepare the formal Producer
Agreement documents, address any
concerns or requested changes by other parties and bring those to Company’s
attention when necessary for its consent, and facilitate signatures by the
appropriate parties.
	 
	 	 	Company: Will agree on template language and review and approve all
program Producer Agreements before signing.

 - 18 -

 

	4.	 	Program Agent Licensing & Appointments
	 
	 	 	Manager: Will obtain confirmation of existing state licenses of each
Program Agent to ensure appropriate licensing in the agreed program
territories. Manager will coordinate the processing of the required
documentation with regulatory authorities to appoint the Program Agents on
behalf of Company in the agreed program territories, and will monitor all
Program Agent licensing and appointments on a going forward basis to assure
regulatory compliance.
	 
	 	 	Company: Will review reports, comment when necessary and pay
requisite appointment fees.
	 
	5.	 	MGA Act Issues/Compliance
	 
	 	 	Manager: Will manage and monitor MGA compliance issues in each
state. If MGA issues are triggered, Manager will so advise Company
management and will recommend procedures to either avoid MGA requirements
or, alternatively, ensure that all Producer Agreements and procedures are
modified to reflect those requirements.
	 
	 	 	Company: Will review and approve recommendations.
	 
	6.	 	Internal Auditing
	 
	 	 	Manager: Will develop and implement an internal audit function to
assure regulatory compliance. Manager will draft internal audit procedures
for Company’s review and approval and, once approved, will implement them on
an ongoing basis. Manager will prepare reports of its findings, and
recommendations for change if warranted, for Company review.
	 
	 	 	Company: Will review reports and respond as necessary.
	 
	7.	 	Complaint Handling
	 
	 	 	Manager: Will implement and manage insurance department complaint
procedures addressing all issues arising from Company business or claim
matters. Manager will ensure that an appropriate response is drafted and
sent on a timely basis and will deal with insurance regulators for and on
behalf of Company, keeping Company management apprised of all such
situations.
	 
	 	 	Company: Will approve each submission in advance, review summary
reports submitted.
	 
	F. INFORMATION SYSTEMS
	 
	1. System and Vendor Selection:

	 	a.	 	Manager will research policy rating / issuance systems and advise
on the due diligence conducted as requested by Company.
	 
	 	b.	 	Company will confirm chosen system application meets with Company
data requirements and supports Company’s required system functionality.
	 
	 	c.	 	Company will select a vendor rating / issuance system incorporating
all required rating bureau codes applicable for compliant reporting.

 - 19 -

 

	2.	 	Upon Company selecting a vendor integrated rating / issuance system solution:

	 	(Manager implementation and performance of the responsibilities
itemized herein are dependent and contingent upon all of the
following being in place:
	 
	 	i.	 	Negotiation by Company, with or without the
assistance of Manager at Company’s discretion, and
agreement between Company and bureau and state reporting
agencies on the timing, quality, and quantity of
statistical reporting.
	 
	 	ii.	 	Action plans for each Program Agent agreed upon by
and among Company, Manager, and each Program Agent.
	 
	 	iii.	 	Chosen vendor’s completion and delivery of a
statistical reporting module.
	 
	 	iv.	 	Manager will not be a guarantor or warrantor of
Program Agent data.)

	 	a.	 	License and Sublicense:

	 	1.	 	Manager will obtain a license agreement with rating /
issuance system vendor for use of its base system for all commercial
lines of insurance and workers compensation insurance as they are
fully developed, implemented and available from vendor.
	 
	 	2.	 	Manager will sublicense to Company rights to use the vendor
rating / issuance system during the term of this Agreement. The
charge for that sublicense to Company will be incorporated within
the fixed compensation paid to Manager.
	 
	 	3.	 	Company will contract directly with the vendor for custom
development work required above or outside the capabilities or
functionality of the vendor rating / issuance system.

	 	b.	 	System Support:

	 	1.	 	Manager will expand its internal hardware infrastructure to
accommodate the needs of hosting the vendor rating / issuance system
software applications for broadcasting to Company and its Program
Agents.
	 
	 	2.	 	Company will research, purchase and install the hardware
infrastructure, operating systems, communications and applicable
software for access to hosted Manager site required at the Company
offices.
	 
	 	3.	 	Company will develop and Manager will manage integration of
table building, set-up and customization of various components of
the vendor rating / issuance system for Company’s particular needs.

	 	c.	 	Systems Installation:

	 	1.	 	Manager will install, setup and maintain the vendor rating /
issuance system at Manager site or agreed to hosting site
(contracted by Company) and provide remote access to all system
applications necessary to Company and its Program Agents

 - 20 -

 

	 	d.	 	System Database:

	 	1.	 	Manager will provide the necessary database environment to
accommodate the additional policy administration data (i.e., claims
and accounting) not included in the vendor rating / issuance system.
	 
	 	2.	 	Manager will be responsible for managing the integration of
third party applications used to support the vendor rating /
issuance system (ex., DMV, ISO).
	 
	 	3.	 	Manager will manage the integration of the chosen vendor
rating and issuance systems and provide necessary communication of
data to Program Agent to insure policy issuance can take place at
Program Agent’s office.
	 
	 	4.	 	Company will purchase and Manager will manage the
installation and integration of ISO / NCCI and other required
reporting software for state and bureau reporting including bureau
data edit packages.
	 
	 	5.	 	Company is responsible for integrating Manager extracted data
to Company home office systems for any internal and external
management reporting.
	 
	 	6.	 	Company will be responsible for all costs and licenses of
additional software applications used to support the vendor rating /
issuance system.

	3.	 	In the event it is determined policy issuance / rating vendor cannot
supply a completed product in a commercially reasonable timeframe, the
following will apply:

	 	(Manager implementation and performance of the responsibilities
itemized herein are dependent and contingent upon all of the
following being in place:
	 
	 	i.	 	Negotiation by Company, with or without the
assistance of Manager at Company’s discretion, and
agreement between Company and bureau and state reporting
agencies on the timing, quality, and quantity of
statistical reporting.
	 
	 	ii.	 	Action plans for each Program Agent agreed upon by
and among Company, Manager, and each Program Agent.
	 
	 	iii.	 	A policy issuance solution provided by each Program
Agent.
	 
	 	iv.	 	Company will be responsible for the Program Agents
providing bureau compliant data per Manager specifications
to properly report data to bureaus.
	 
	 	v.	 	Manager will not be a guarantor or warrantor of
Program Agent data.)

	 	a.	 	Systems Capabilities:

	 	1.	 	Manager will review Program Agent’s capabilities for policy
issuance, data capture and extract development for Manager data
reporting.
	 
	 	2.	 	Manager will provide Company with written documentation of
its findings and an action plan for integration with Program Agent
for approval by Company.
	 
	 	3.	 	In accordance with the agreed to action plan, Manager will
provide a means of integration and data capture from Program Agent’s
existing systems.
	 
	 	4.	 	Company will be responsible for resolving data quality issues
with Program Agents and the resolution of data quality issues.

 - 21 -

 

	 	b.	 	System Database:

	 	1.	 	Manager will provide the necessary database environment to
accommodate the policy administration data included in the agreed
action plan referenced above.
	 
	 	2.	 	Manager will provide the necessary database environment to
accommodate the additional policy administration data (i.e. claims
and accounting) not included in the agreed action plan referenced
above.
	 
	 	3.	 	Company is responsible for integrating Manager extracted data
to Company home office systems for any internal and external
management reporting.
	 
	 	4.	 	In agreement with Company, Manager will organize with outside
IT consultants the integration of legacy data into vendor rating /
issuance system.

G. OFFICE ADMINISTRATION

	1.	 	Manager will assist or consult on an as agreed basis with Company on
administrative matters including but not limited to the following areas:

	 	•	 	HR Function
	 
	 	•	 	Hiring
	 
	 	•	 	Office Space/Employee Benefits/Payroll Administration
	 
	 	•	 	Furniture & Equipment
	 
	 	•	 	Lease
	 
	 	•	 	Code of Conduct/Conflict
	 
	 	•	 	Document Management
	 
	 	•	 	Telephone & Communications

 - 22 -

 

APPENDIX II

COMPENSATION OF MANAGER

	A.	 	Fees
	 
	 	 	Initial fee payable by Company to the Manager is $500,000 payable $200,000
at December 31, 2003 and $300,000 at March 31, 2004.
	 
	 	 	For the calendar year January 1 – December 31, 2004, the Company will pay
the Manager $4,466,664 payable in eight (8) equal instalments of $558,333
each commencing in May 1, 2004; each such instalment will be due to the
Manager within thirty (30) days following the end of each month with the
last installment being due and payable no later than January 31, 2005.
	 
	 	 	For the calendar year January 1, 2005 – December 31, 2005, the Company will
pay the Manager $8,933,328 payable in twelve (12) equal instalments of
$744,444 each commencing on January 1, 2005; each instalment will be due to
the Manager within thirty (30) days following the end of each month with the
last instalment being due and payable no later than January 31, 2006.
	 
	 	 	Company and Manager agree to review Manager’s costs as of December 31, 2004
and to increase the monthly payment for 2005 if needed, but in no event will
the payment be reduced below the minimum of $744,444.
	 
	B.	 	Expenses
	 
	 	 	Certain expenses may be incurred and reimbursable to Manager with the prior
approval of Company. Such expenses are payable within ten (10) days of
invoice date. These expenses are in addition to the Fees described above:

	 	1.	 	Air fare, travel, hotel and meals expenses.
	 
	 	2.	 	Actual filing costs imposed by state regulators for form, rate and
rule filings.
	 
	 	3.	 	Actuarial fees in support of rate filings.
	 
	 	4.	 	Attorney or consultant fees incurred to expedite filings or to deal
with specific legal or regulatory issues.
	 
	 	5.	 	Agent licensing and/or appointment fees.
	 
	 	6.	 	IT license, maintenance, consulting, development or programming
fees required to support Program Manager(s) or internal requirements as
agreed, except that the cost of Manager sublicensing the vendor system
to Company is included in the Fee set forth above.

 - 23 -exv10w1w2

 

Exhibit 10.1.2

MMC Securities Corp.

One Madison Avenue

New York, NY 10010

November 24, 2003

Confidential

Courtney C. Smith

Chief Executive Officer

Specialty Underwriters’ Alliance

330 Los Colinas Blvd E., #1614

Irving, TX 75039

Re: Engagement Letter

Dear Courtney:

	1.	 	Consulting and Advisory Services. Specialty Underwriters’ Alliance, Inc.
(collectively, “you,” “your” or the “Company”) hereby agrees to retain MMC
Securities Corp. (“MMCSC,” “we,” “us” or “our”) to (i) provide consulting
and advisory services to the Company in connection with the capitalization
of the Company and the formation of a specialty property and casualty
company (the “Insurance Carrier”).

	2.	 	Responsibilities. MMCSC’s responsibilities are as follows:

(a) identifying and negotiating with potential general agents that
wish to do business with the Company;

(b) assisting potential investors in the Company (“Potential Investors”)
in evaluating the specialty property and casualty marketplace; and

(c) providing such other services as you and we agree are
appropriate under the circumstances.

The Company acknowledges that it is also entering into an engagement letter
with MMCSC’s affiliate, Guy Carpenter & Company, Inc. (“Guy Carpenter”),
pursuant to which Guy Carpenter will undertake responsibilities separate and
distinct from those referenced herein, in conjunction with serving as the
exclusive reinsurance advisor to the Company and Guy Carpenter will be
compensated by the Company in accordance with the terms of such engagement
letter.

	3.	 	Disclosure; Material Changes You agree to make available all corporate
actuarial, financial and operating information that is reasonably
necessary and sufficient to allow Potential Investors to evaluate the
Company and to provide MMCSC with reasonable access to the Company’s
officers, actuaries, accountants, counsel and other professionals, as
appropriate. You agree to make all such information available to us and
hereby authorize us to provide such information to Potential Investors in
the Company. You represent and warrant to MMCSC that all such information
concerning the Company will not contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein or previously made, in light of
the circumstances under which they were made, not misleading, except with
respect to (x) any financial statements, which the Company hereby
represents and warrants shall fairly present the consolidated financial
position, the consolidated results of operations, the changes in
stockholder

 

 

	 	 	equity, the cash flow and the other information included
therein, as the case may be, for the periods
or as of the dates therein set forth, in each case in accordance with the
generally acceptable accounting principles (“GAAP”) consistently applied
during the periods involved, except as otherwise noted therein and except
that any unaudited financial statements will be subject to normal year end
adjustments and lack footnotes and other presentation items required for
full disclosure under GAAP; and (y) any financial projections that may be
prepared by the Company in connection with the transactions, which the
Company hereby represents and warrants shall be prepared in good faith based
upon reasonable assumptions; it being understood and agreed that such
projections are subject to significant uncertainties and contingencies (many
of which are beyond the Company’s control) and that no assurances can be
given that such projections will be realized. The Company will advise MMCSC
immediately of the occurrence of any event or any other change known to the
Company which results in such information containing an untrue statement of
a material fact or omitting to state a material fact required to be stated
therein or necessary to make the statements therein or previously made, in
light of the circumstances under which they were made, not misleading.
	 
	4.	 	Compliance. In the event that such Potential Investors do invest in the
Company, you will comply with all laws, whether U.S. federal, state or
other, applicable to the proposed investment. In addition, you hereby
confirm your intention that if the Company engages in a capital raising,
it will be by way of a private placement or sale that is exempt from
registration pursuant to Section 4(2) of the Securities Act of 1933, as
amended (the “Securities Act”) and the securities will be sold exclusively
to “accredited investors” within the meaning of Regulation D of the
Securities Act and, to the extent that U.S. federal, state or other
securities laws may be applicable, such sale will not be made in violation
of such securities laws. You acknowledge that such laws may prevent
certain Potential Investors from participating in any proposed investment
and may require that certain limitations be placed on the ability of
investors of any securities of the Company to resell such securities.
	 
	5.	 	Fees. In consideration of the services provided or to be provided by us
pursuant to Section 1, you hereby agree to pay a success fee to MMCSC in
cash, equal to $1 million, payable at the closing of the purchase and sale
pursuant to the Offering (as defined in that certain engagement letter
dated September 5, 2003, by and among the Company and Friedman, Billings,
Ramsey & Co., Inc. (the “FBR Engagement Letter”)) (the “Closing”). The
success fee shall also be payable if the Company completes a similar
offering of its securities in lieu of the Offering either during the Term
(as defined in paragraph 7 hereof) or during the twelve (12) month period
following the expiration or termination of the Term or any extension
thereof (the “Fee Tail Period”).
	 
	6.	 	Expenses. You will also reimburse MMCSC for all pre-approved, reasonable
out-of-pocket expenses incurred by us or our affiliates, including,
without limitation, printing, courier, postage, travel, telephone, and any
fees and disbursements of tax, legal, accounting or other professionals
retained by MMCSC in connection with providing the services contemplated
hereunder. MMCSC’s expenses accrued in connection with providing the
services contemplated hereunder shall be payable on a monthly basis, and
any expenses incurred following the Commencement Date shall be payable no
later than thirty (30) days after request by MMCSC. Notwithstanding the
foregoing, the aggregate amount of expenses to be reimbursed by the
Company during the Term of this Agreement shall not exceed Fifty Thousand
Dollars ($50,000) plus outside legal expenses incurred by MMCSC to date.
	 
	7.	 	Term; Termination. The term of this Agreement is for a period of two (2)
years from the date of execution of this Agreement (the “Term”), unless
extended by mutual agreement; provided, however, that (a) either party
may terminate this Agreement upon 10 days prior written notice at any time
after the one (1) year anniversary hereof, (b) your obligations pursuant
to paragraphs 5, 6, 8 ,9, 11, 12 and 13 and the provisions of 3, 4, 7, 14,
15, 16, 17, 18, 19 and 22 hereof will survive any such expiration or
termination, and (c) the survival of your and our obligations pursuant to
this paragraph shall not exceed the duration of the applicable statute of
limitations relating to those obligations under the governing law of this
Agreement.

Page 2/6

 

	8.	 	Confidentiality. The Company hereby acknowledges and agrees that all
written and oral opinions, advice and materials provided by MMCSC in
connection with our engagement hereunder are intended solely for your
benefit and for your internal use only and the Company hereby covenants
and agrees that no such opinion, advice or material shall be used for any
other purpose whatsoever or reproduced, disseminated, quoted from or
referred to in whole or in part at any time, in any manner or for any
purpose, nor shall any public references to MMCSC be made by the Company
without the prior written consent of MMCSC in each specific instance.
	 
	 	 	Notwithstanding the foregoing, any information exchanged between the parties
in connection with this Agreement may be utilized in any litigation between
the Company and MMCSC, subject to a joint protective order. Effective from
the date of commencement of discussions concerning a Proposed Transaction,
the Company and its employees, representatives, and other agents may
disclose to any and all persons, without limitation of any kind, the tax
treatment and tax structure of such Proposed Transaction and all materials
of any kind relating thereto.
	 
	9.	 	Grant of Warrants.
	 
	 	 	Concurrently with the consummation of the Offering, MMCSC and its designated
affiliates shall receive a grant of warrants to purchase shares representing
ownership of the Company (the “MMCSC Warrants”) equal to Two Hundred Fifty
Thousand Dollars ($250,000). The MMCSC Warrants shall vest upon the third
anniversary of the Closing. All other terms of the MMCSC Warrants will be
agreed upon by the parties prior to the grant of such warrants
	 
	10.	 	Indemnification. You agree to indemnify and hold MMCSC, its affiliates
and their respective directors, officers, employees and agents
(collectively, the “Indemnified Parties” and individually, an “Indemnified
Party”) harmless from and against any and all losses, claims, actions,
suits, proceedings, damages, judgments, assessments, demands, costs,
expenses and other liabilities of whatsoever nature or kind, and you will
reimburse each such Indemnified Party for all reasonable fees and expenses
(including, without limitation, attorneys’ fees and expenses and court
costs) as they are incurred in investigating, preparing, pursuing or
defending any claim, action, suit, proceeding or investigation, whether or
not in connection with pending or threatened litigation and whether or not
any Indemnified Party is a party, relating to or arising out of or in
connection with:

	(i)	 	advice or services rendered or to be rendered by
any Indemnified Party pursuant to this Agreement or any
Indemnified Party’s actions or inaction in connection with any
such advice or services; and
	 
	(ii)	 	actions taken or omitted to be taken by you or
any affiliates, employees, directors, officers, partners,
representatives, or agents of you in connection with this
Agreement;
	 
	(iii)	 	any untrue statement or alleged untrue statement
of a material fact contained in any document furnished by you
to MMCSC, any Potential Investor, or any Potential Acquiree
and any omission or alleged omission to state a material fact
necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading;
provided that, solely with respect to clauses (i) and (ii)
above, you will not be responsible for any liabilities or
expenses of any Indemnified Party that are determined by a
judgment of a court of competent jurisdiction which is no
longer subject to appeal or further review (or in a settlement
tantamount thereto) to have resulted solely from such
Indemnified Party’s gross negligence or willful misconduct in
connection with any of the advice, actions, inaction or
services referred to above.

Page 3/6

 

You also agree to reimburse each Indemnified Party for all expenses as
they are incurred in connection with enforcing such Indemnified Party’s
rights under this Agreement.

     You agree to waive any right you might have of first requiring the
Indemnified Party to proceed against or enforce any other right, power,
remedy, security or claim payment from any other person before claiming
this indemnity.

     In case any action is brought against an Indemnified Party in
respect of which indemnity may be sought against you, the Indemnified
Party will give you prompt written notice of any such action of which the
Indemnified Party has knowledge and you will undertake the investigation
and defense thereof on behalf of the Indemnified Party, including the
prompt employment of counsel acceptable to the Indemnified Parties
affected and the payment of all expenses. Failure by the Indemnified
Party to so notify shall not relieve you of your obligation of
indemnification hereunder unless (and only to the extent that) such
failure results in a forfeiture by you of substantive rights or defenses.

     No admission of liability and no settlement of any action shall be
made without your consent and the consent of the Indemnified Parties
affected, such consent not to be unreasonably withheld.

     Notwithstanding that you will undertake the investigation and
defense of any action, an Indemnified Party will have the right to employ
separate counsel in any such action and participate in the defense
thereof, but the fees and expenses of such counsel will be at the expense
of the Indemnified Party unless:

	i)	 	employment of such counsel has been authorized by
you; or
	 
	ii)	 	you have not assumed the defense of the action
within five (5) days after receiving notice of the action; or
	 
	iii)	 	the named parties to any such action include both
you and the Indemnified Party or two or more Indemnified
Parties and at least one Indemnified Party shall have been
advised by counsel that there may be a conflict of interest
between you and the Indemnified Party or at least two such
Indemnified Parties; or
	 
	iv)	 	there are one or more legal defenses available to
an Indemnified Party which are different from or in addition
to those available to you or to another Indemnified Party.

You constitute MMCSC as trustee for each of the other Indemnified Parties
of your covenants under this paragraph with respect to such persons and
MMCSC agrees to accept such trust and to hold and enforce such covenants
on behalf of such persons.

If for any reason other than the gross negligence or willful misconduct
(as determined by final judgment of a court of competent jurisdiction
which is no longer subject to appeal or further review or in a settlement
tantamount thereto) of the Indemnified Parties (or any of them) being the
primary cause of the loss, claim, damage, liability, cost or expense, the
foregoing indemnification is unavailable to be Indemnified Parties (or
any of them) or insufficient to hold them harmless, you shall contribute
to the amount paid or payable by the Indemnified Parties as a result of
any and all such losses, claims, damages, liabilities, costs or expense
in such proportion as is appropriate to reflect not only the relative
benefits received by the Company and its shareholders on the one hand and
the Indemnified Parties on the other, but also the relative fault of the
parties and other equitable considerations which may be relevant.
Notwithstanding the foregoing, you shall in any event contribute to the
amount paid or payable by the Indemnified Parties, as result of the loss,

Page 4/6

 

claim, damage, liability, cost or expense (other than a loss, claim,
damage, liability, cost or expense, the sole cause of which is the gross
negligence or willful misconduct of the Indemnified Parties or any of
them, as determined by final judgment of a court of competent
jurisdiction which is no longer subject to appeal or further review), in
excess of the amount of the fees actually received by the Indemnified
Parties hereunder.

	11.	 	Hold Harmless. The Company agrees that the Indemnified Parties shall not
have any liability, whether direct or indirect, in contract, tort or
otherwise, to the Company incurred in connection with advice or services
rendered or to be rendered under this Agreement, or any of the Indemnified
Parties’ actions or inactions in connection with any such advice or
services, except for liability resulting solely from any Indemnified
Party’s gross negligence or willful misconduct (as determined by final
judgment of a court of competent jurisdiction which is no longer subject
to appeal or further review or in a settlement tantamount thereto), in
connection with such advice, actions, inactions or services.
Notwithstanding the foregoing, in no event will any Indemnified Party be
liable to the Company for loss of profits or any other special,
incidental, and/or consequential damage of any kind howsoever incurred or
designated arising in connection with such advice, actions, inactions or
services.
	 
	12.	 	Publication. If the Proposed Transaction is successfully completed, and
provided MMCSC is not in breach of any material provision hereof, MMCSC
shall be permitted to publish, at its own expense, such advertisements or
announcements relating to the services provided hereunder in such
newspaper or other publications as MMCSC considers appropriate.
	 
	13.	 	Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York without regard to
principles of conflict of laws. The parties hereby submit to the State
and Federal Courts sitting in the Borough of Manhattan in New York City
for the resolution of any disputes hereunder and waive any objection to
the laying of venue of any proceedings brought in any such court, that
such proceedings have been brought in an inconvenient forum, or that such
court does not have jurisdiction over it, and agree not to plead the same.
	 
	14.	 	Entire Agreement. This Agreement contains the entire understanding of
the parties with respect to the subject matter contained herein,
superseding all prior agreements, understandings, and negotiations with
respect to such matters.
	 
	15.	 	Performance. MMCSC may perform its obligations hereunder either alone or
in conjunction with its affiliates and in such event the provisions of
this Agreement shall apply equally to MMCSC and each such affiliate.
	 
	16.	 	Severability. If any provision of this Agreement is found to be invalid
or unenforceable, this Agreement shall be read and construed as if such
provision was never a part hereof and its invalidity or unenforceability
shall not affect the validity or enforceability of the remainder of this
Agreement.
	 
	17.	 	Amendment. This Agreement may be modified or otherwise amended, and the
observance of any term of this Agreement may be waived, if such
modification, amendment or waiver is in writing and signed by the parties
hereto.
	 
	18.	 	Successors. This Agreement and all rights, liabilities and obligations
hereunder shall be binding upon and inure to the benefit of each party’s
successors but may not be assigned without the prior written approval of
the other party.
	 
	19.	 	April 16 Engagement Letter. That certain engagement letter, dated April
16, 2003, by and among the Company and Marsh McLennan Securities
Corporation (the “April 16 Engagement Letter”) is hereby terminated and
shall be superseded by this Agreement in its entirety; provided that
Sections 6, 10 and 11 of the April 16 Engagement Letter shall survive such
termination for a period of time not to

Page 5/6

 

	 	 	exceed the duration of the applicable statute of limitations relating to
those obligations under the governing law of the April 16 Engagement Letter.
	 
	20.	 	Headings. The descriptive headings of the paragraphs of this Agreement
are inserted for convenience only, do not constitute a part of this
Agreement and shall not affect in any way the meaning or interpretation of
this Agreement.
	 
	21.	 	Counterparts. This Agreement may be executed in counterparts, each of
which shall be deemed an original, but all of which taken together shall
constitute one and the same instrument.
	 
	22.	 	Notices. Except as otherwise expressly provided in this Agreement,
whenever notice is required by the provisions of this Agreement to be
given (i) to the Company, such notice shall be in writing to the Company,
at its offices at the address above, facsimile number: (972) 506-7774
attention: Courtney C. Smith, and (ii) to MMCSC, such notice shall be in
writing addressed to Marsh & McLennan Securities Corporation at its office
at One Madison Avenue, New York, New York 10010, facsimile number (917)
937-3987, attention: Christopher M. McGhee, with a copy to the Chief
Counsel.

If the foregoing is in accordance with your understanding, please indicate your
agreement to the above terms and conditions by signing the enclosed copy of
this Agreement and returning the same to us.

Yours very truly,

MMC Securities Corp.

	 	 	 
	By:

	 	/s/ Christopher M. McGhee
	

	 	

	Name:

	 	Christopher M. McGhee
	Title:

	 	Managing Director

The foregoing is in accordance with our understanding and is
agreed by us this 24th day of November, 2003.

SPECIALTY UNDERWRITERS’ ALLIANCE, INC.

	 	 	 
	By:

	 	/s/ Courtney C. Smith
	

	 	

	Name:

	 	Courtney C. Smith
	Title:

	 	CEO

Page 6/6

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