MEADOWBROOK INSURANCE GROUP, INC.

 

26255 American Drive

Southfield, Michigan 48034

(248) 358-1100

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS

 

Date:  May 9, 2008

Time:  2:00 p.m., EST

26255 American Drive

Southfield, Michigan 48034

 

We invite you to attend the Meadowbrook Insurance Group, Inc. Annual Meeting of Shareholders to:

 

 

The record date for the Annual Meeting is March 14, 2008. Only shareholders of record at the close of business on that date are entitled to vote at the Annual Meeting. This notice was mailed only to those shareholders.

 

A proxy statement, a proxy card and the Company’s 2007 Annual Report are enclosed. Whether you plan to attend the meeting or not, whether you own a few or many shares of stock, the Board of Directors urges you to vote promptly. You may vote by completing, signing, dating and returning the enclosed proxy card in the enclosed envelope.

 

By Order of the Board of Directors,

 

 

Michael G. Costello
Secretary

 

Southfield, Michigan

Dated: April 3, 2008

 

IF YOU DO NOT EXPECT TO ATTEND THE MEETING

PLEASE COMPLETE, DATE AND SIGN THE ENCLOSED PROXY CARD

AND RETURN IT PROMPTLY IN THE POSTAGE-PAID ENVELOPE.

 

MEADOWBROOK INSURANCE GROUP, INC.

 

PROXY STATEMENT

 

QUESTIONS AND ANSWERS

 

 

A proxy is a procedure which enables you, as a shareholder, to authorize someone else to cast your vote for you. The Board of Directors of Meadowbrook Insurance Group, Inc. (the “Company”) is soliciting your proxy, and asking you to authorize Robert S. Cubbin, President and Chief Executive Officer, Karen M. Spaun, Senior Vice President and Chief Financial Officer, or Michael G. Costello, Senior Vice President, General Counsel and Secretary of the Company, to cast your vote at the 2008 Annual Meeting. You may, of course, cast your vote in person or abstain from voting, if you so choose. The term proxy is also used to refer to the person who is authorized by you to vote for you.

 

 

A proxy statement is the document the United States Securities and Exchange Commission requires to explain the matters on which you are asked to vote. A proxy card is the form by which you may authorize someone else, and in this case Mr. Cubbin, Ms. Spaun, or Mr. Costello, to cast your vote for you. This proxy statement and proxy card with respect to the Company’s 2008 Annual Meeting were mailed on or about April 3, 2008 to all shareholders entitled to vote at the Annual Meeting.

 

 

Only holders of shares of the Company’s common stock at the close of business on March 14, 2008 (the “Record Date”) are entitled to vote at the Annual Meeting. Each shareholder of record has one vote for each share of common stock for each matter presented for a vote.

 

 

At the Annual Meeting, shareholders will vote upon:

 

 

 

The Board of Directors recommends a vote FOR each proposal.

 

 

You can vote in person or by proxy. To vote by proxy, complete, sign, date and return the enclosed proxy card in the enclosed envelope. If you returned your signed proxy card to the Company before the Annual Meeting, the persons named as proxies on the card will vote your shares as you direct. Shares represented by proxies, which are marked “WITHHELD” to vote for all three nominees for director, or for any individual nominee(s) for election as director(s) and which are not otherwise marked “FOR” the other nominees, will not be counted in determining whether a plurality vote has been received for the election of directors. Similarly, shares represented by proxies which are marked “ABSTAIN” on the proposals to ratify the appointment of Ernst & Young LLP as independent registered public accounting firm for the Company in 2008, will not be counted in determining whether the requisite vote has been received for such proposal. IF YOU WISH TO VOTE IN THE MANNER THE BOARD OF DIRECTORS RECOMMENDS, IT IS NOT NECESSARY TO SPECIFY

YOUR CHOICE ON THE PROXY CARD. SIMPLY SIGN, DATE AND RETURN THE PROXY CARD IN THE ENCLOSED ENVELOPE. You may revoke a proxy at any time before the proxy is voted by:

 

 

 

 

 

Yes, your vote is confidential. Only the inspectors of election and certain employees associated with processing proxy cards and counting the votes have access to your proxy card. All comments received will be forwarded to management on an anonymous basis unless, of course, you ask that your name be disclosed.

 

 

There were 37,021,032 shares of the Company’s common stock outstanding on the Record Date. A majority of the outstanding shares, or 18,510,517 shares, present or represented by proxy, constitutes a quorum. A quorum must exist to conduct business at the Annual Meeting. Abstentions and broker non-votes are counted as votes present. A broker non-vote is a proxy a broker submits that does not indicate a vote for the proposal, because the broker does not have discretionary voting authority and the broker did not receive instructions as to how to vote on the proposal.

 

 

If a quorum exists at the Annual Meeting, a plurality vote, being the greatest number, of the shares voted, although not a majority is required to elect the three nominees for director. The three nominees receiving the highest number of votes will be elected. If a quorum is present, the affirmative vote by the holders of a majority of the shares present, or represented by proxy, is required to ratify the appointment of Ernst & Young LLP as the independent registered public accounting firm of the Company in 2008. Broker non-votes are excluded for each of these purposes. Therefore, a broker non-vote will have no effect on the proposals to elect the three nominees for director and ratify the appointment of Ernst & Young LLP as the independent registered public accounting firm for the Company in 2008.

 

The Company will vote properly executed proxies it receives prior to the Annual Meeting in the way you direct. If you do not specify instructions, the shares represented by proxies will be voted FOR the nominees for director and FOR the ratification of Ernst & Young LLP as the Company’s independent registered public accounting firm for the Company in 2008.

 

 

The Company pays the cost of preparing and printing the proxy statement, proxy card and soliciting proxies. The Company will solicit proxies primarily by mail, but also may solicit proxies personally and by telephone, facsimile or other means. Officers and regular employees of the Company and its subsidiaries also may solicit proxies, but will receive no additional compensation for doing so, nor will their efforts result in more than a minimal cost to the Company. The Company also will reimburse banks, brokerage houses and other custodians, nominees and fiduciaries for their out-of-pocket expenses for forwarding solicitation material to beneficial owners of the Company’s common stock.

 

 

All shareholder proposals to be considered for inclusion in next year’s proxy statement under Securities and Exchange Commission Rule 14a-8 must be submitted in writing to the Secretary of the Company at the address shown on the Notice of Annual Meeting of Shareholders on the first page of this booklet by December 4, 2008.

 

For any proposal that is not submitted for inclusion in next year’s proxy statement but instead is sought to be presented directly at next year’s annual meeting, Securities and Exchange Commission rules permit

management to vote proxies in its discretion if (a) the Company receives notice of the proposal before the close of business on February 17, 2009 and advises shareholders in next year’s proxy statement about the nature of the matter and how management intends to vote on such matter, or (b) does not receive notice of the proposal prior to the close of business on February 17, 2009.

 

The Company reserves the right to reject, rule out of order, or take other appropriate action with respect to any proposal that does not comply with these and other applicable requirements.

 

THE FIRST PROPOSAL ON WHICH YOU ARE VOTING
THE ELECTION OF THREE DIRECTORS

 

The Company’s Board of Directors (the “Board”) is divided into three classes with each class of directors elected to a three-year term of office. At each annual meeting of shareholders, the shareholders elect one class of directors for a three-year term to succeed the class of directors whose term of office expires at that meeting.

 

This year you are voting on three candidates for director. The Company’s Board, acting upon the recommendation of its Governance and Nominating Committee, has nominated: Robert H. Naftaly, Robert W. Sturgis, and Bruce E. Thal as directors with terms expiring in 2011. Each nominee currently serves as a director, has consented to their nomination and has agreed to serve as a director, if elected.

 

If any of the nominees are unable to stand for election, the Company may vote the shares to elect a substitute nominee, who is nominated by the Board, or the number of directors to be elected at the Annual Meeting may be reduced.

 

The Company’s Board recommends a vote FOR each of the nominees.

 

INFORMATION ABOUT THE NOMINEES, THE INCUMBENT DIRECTORS AND
OTHER EXECUTIVE OFFICERS

 

The following is information about the nominees for election as a director, each of the directors whose term of office will continue after the meeting, and others who are executive officers of the Company. The information is as of the date of record, March 14, 2008.

 

Nominee Directors — Terms Expiring in 2011

 

Robert H. Naftaly, age 70 has been a director since 2002 and is the Chairman of the Compensation Committee and a member of the Audit Committee, the Finance Committee and the Governance and Nominating Committee of the Board of the Company. He is retired as President and Chief Executive Officer of PPOM, an independent operating subsidiary of Blue Cross Blue Shield of Michigan (“BCBSM”) and as Executive Vice President and Chief Operating Officer of BCBSM. Previously, Mr. Naftaly served as Vice President and general auditor of Detroit Edison Company and was the director of the Department of Management and Budget for the State of Michigan. He was a managing partner and founder of Geller, Naftaly, Herbach & Shapiro, a certified public accounting firm. Mr. Naftaly also serves upon the Board of Directors for Sun Communities, Inc.

 

Robert W. Sturgis, age 66 has been a director since 2000 and is a member of the Audit Committee and the Finance Committee of the Board of the Company. He is a retired director and principal of Tillinghast-Towers Perrin, a global management and actuarial consulting firm.

 

Bruce E. Thal, age 76 has been a director since 1995 and is the Chairman of the Audit Committee and a member of the Investment Committee and the Finance Committee of the Board of the Company. He is a retired partner of Deloitte & Touche LLP, a public accounting firm.

 

Incumbent Directors — Terms Expiring in 2010

 

Merton J. Segal, age 79, is the founder of the Company. Mr. Segal has been a director since 1985 and is Chairman of the Board of the Company. Mr. Segal is a member of the Finance Committee and the Investment Committee of the Board of the Company. Further, Mr. Segal is a director of the Company’s property and casualty

insurance company subsidiaries, Star Insurance Company (“Star”), Savers Property and Casualty Insurance Company (“Savers”), Williamsburg National Insurance Company (“Williamsburg”), and Ameritrust Insurance Corporation (“Ameritrust”), as well as Meadowbrook, Inc. (“Meadowbrook”) an insurance agency and risk management subsidiary of the Company. Mr. Segal holds the designation of Chartered Property & Casualty Underwriter (“CPCU”) and is a Licensed Insurance Counselor (“LIC”).

 

Joseph S. Dresner, age 82 has been a director since 1985 and he is the Chairman of the Investment Committee and a member of the Finance Committee of the Board of the Company. Mr. Dresner is Chairman of the Highland Companies, a Detroit-area-based developer and manager of commercial, industrial and residential properties.

 

David K. Page, age 74 has been a director since 2000 and is the Chairman of the Finance Committee and a member of the Compensation Committee, the Investment Committee and the Governance and Nominating Committee of the Board of the Company. Mr. Page is a partner in the Detroit, Michigan law firm of Honigman Miller Schwartz & Cohn. Mr. Page also serves upon the Board of Directors for Keyco Bond Fund, Inc.

 

Herbert Tyner, age 77 has been a director since 1985 and is a member of the Compensation Committee of the Board of the Company. He is Chief Executive Officer of Hartman & Tyner, Inc., a Detroit-based real estate developer with land, apartment developments and other real estate holdings in Michigan and Florida.

 

Incumbent Directors — Terms Expiring in 2009

 

Robert S. Cubbin, age 50 and a director since 1995, was appointed as President and Chief Executive Officer of the Company in May 2002. Prior to then, Mr. Cubbin served as President and Chief Operating Officer since February 1999. Mr. Cubbin is a member of the Finance Committee and the Investment Committee of the Board of the Company. In 1999, Mr. Cubbin was also appointed Chairman of the Board of Directors of the following subsidiaries of the Company: Star, Savers, Williamsburg, Ameritrust, and Meadowbrook. Mr. Cubbin is also the President of Meadowbrook. From 1996 until his appointment as President and Chief Operating Officer in February 1999, Mr. Cubbin was an Executive Vice President of the Company. Mr. Cubbin joined the Company in 1987, as Vice President and General Counsel. Prior to joining the Company, Mr. Cubbin, was with Plunkett & Cooney, P.C., a Michigan law firm specializing in insurance law.

 

Hugh W. Greenberg, age 77 has been a director since 1985 and is the Chairman of the Governance and Nominating Committee and a member of the Audit Committee, the Finance Committee and the Compensation Committee of the Board of the Company. He is Chairman of DataNet Quality Systems, which was formerly Detroit Gauge & Tool Company. DataNet Quality Systems develops manufacturing quality control software and systems.

 

Florine Mark, age 75 has been a director since 1996 and is a member of the Governance and Nominating Committee and the Investment Committee of the Board of the Company. She is President and Chief Executive Officer of The WW Group, Inc., one of the largest franchisee’s of Weight Watchers International.

 

Other Executive Officers

 

Karen M. Spaun, age 43, was appointed Chief Financial Officer in 2003 and has served as Senior Vice President of the Company since 2002. She also serves as Director and Vice President of Star, Savers, Williamsburg, Ameritrust and Meadowbrook. In addition, she serves as Treasurer of Meadowbrook. Ms. Spaun joined the Company in 1998 as Director of Investor Relations. In 1997, Ms. Spaun served as Controller of CoverX, an excess and surplus lines company. From 1993 to 1997 she served as Director of Financial Accounting at Citizens Insurance Company, a member of the former Allmerica Financial Corporation, in Howell, Michigan. Ms. Spaun previously held financial and accounting positions in public companies and the former Coopers & Lybrand public accounting firm.

 

Michael G. Costello, age 47, was appointed Senior Vice President, General Counsel and Secretary of the Company, Star, Savers, Ameritrust, Williamsburg and Meadowbrook in 1999. Previously, Mr. Costello served as Vice President and General Counsel of the Company, Star, Savers and Meadowbrook. Mr. Costello joined the Company in 1993 as Vice President and Assistant General Counsel. Mr. Costello was formerly a shareholder with Plunkett & Cooney, P.C., a Michigan law firm specializing in insurance law.

Stephen A. Belden, age 52, is Senior Vice President and Chief Actuary for Meadowbrook, Star, Savers, Williamsburg and Ameritrust. Mr. Belden joined the Company in 2003. He previously served as Chief Actuary for Zurich North American Construction from 1995 to 2003. From 1990 to 1995, Mr. Belden worked with Orion Capital Companies as Assistant Vice President and Actuary. Previous to this, Mr. Belden’s experience includes serving as a Consultant with Tillinghast and with Touche, Ross and Company as an Actuarial Officer for the St. Paul Companies. He started his career in 1977 with Aetna Life and Casualty, where he served in various positions in the Actuarial Department. Mr. Belden’s credentials include both FCAS and CPCU designations.

 

Robert Christopher Spring, age 54, is Senior Vice President of Business Operations of Meadowbrook. He was formerly the President of the Company’s TPA Associates Division, which was acquired by the Company in 1999. Mr. Spring co-founded TPA Associates in 1993. He served as Executive Vice President of TPA from 1993 through 2000. He previously served as Assistant Vice President with American Mutual Insurance Companies from 1987 through 1989. From 1989 through 1993, Mr. Spring worked with Towers Perrin as a risk management consultant. He began his career in 1977 with Signature Group, an Illinois insurance company.

 

Archie S. McIntyre, age 42, is Senior Vice President of Business Development for Meadowbrook and also serves as a Director for Star, Savers, Williamsburg and Ameritrust. Mr. McIntyre joined the Company in 1986. From 1986 to 1988, Mr. McIntyre held various positions in the agency, marketing and finance divisions of the Company. From 1988 to 1996, Mr. McIntyre was a manager in the Company’s public entity division. In 1996, Mr. McIntyre was named Vice President managing the Company’s Alabama Branch office. In 1999, Mr. McIntyre was appointed to manage the Company’s Business Development Department, which includes marketing, acquisitions, program implementation, and corporate communications. Mr. McIntyre graduated from the University of Michigan-Dearborn and holds an ARM (Associate in Risk Management) designation.

 

Kenn R. Allen, age 59, is Senior Vice President of the Company and President of the Meadowbrook Insurance Agency and also serves as a Director for Star, Savers, Williamsburg and Ameritrust. Mr. Allen has served as President of the Meadowbrook Insurance Agency since 1986. Prior to joining the Company, Mr. Allen held many positions at Wells Fargo, formerly known as Republic Hogg Robinson, where he was a Regional Senior Vice President for its self-funded groups/associations, self-insureds and property/casualty business. Mr. Allen is a graduate of the University of Cincinnati and Henry Ford College. His credentials include CIC (Certified Insurance Counselor) and CHCM (Certified Hazard Control Manager).

 

Joseph E. Mattingly, age 48, became Senior Vice President — Insurance Operations, effective March 1, 2007 and is President and Director of Star, Savers, Ameritrust, and Williamsburg, and Director of Meadowbrook. He is responsible for corporate underwriting, claims, loss control, premium audit, reinsurance, business development, and information services. Mr. Mattingly joined the Company in 2003. He served as branch manager for the Company’s office in Overland Park, Kansas from 2004 until November 1, 2006. From 1997 to 2003, he held the position of Vice President with One Beacon Insurance. Prior to 1997, Mr. Mattingly held various positions at Great American Insurance and The Hartford Insurance Group. Mr. Mattingly is a graduate of the University of Missouri.

 

James M. Mahoney, age 57, became Senior Vice President — Field Operations, effective March 1, 2007. He is responsible for management of the Company’s branch operations. Mr. Mahoney joined the Company in 2000. He served as branch manager for the Company’s office in Andover, Massachusetts from 2000 through 2006. From 1978 to 1995, he held various positions, including New England Regional Executive, Northeast Zone Executive, and Corporate Vice President — Field Operations, at The Hanover Insurance Company. In 1995, Mr. Mahoney joined the Lumber Insurance Group as Senior Vice President. Mr. Mahoney is a graduate of Merrimack College and holds a CPCU designation.

 

CORPORATE GOVERNANCE

 

Board Matters

 

In 2007, the Board met twelve times and Committees of the Board held seventeen additional meetings. During 2007, each of the directors attended (in the aggregate) at least 75% of the total number of meetings of the Board and

the total number of meetings held by all the Committees of the Board upon which he/she served, with the exception of Florine Mark who attended 71% of such meetings.

 

It is the policy of the Board to encourage attendance by its members at all meetings of the Board and Committees of the Board. Nine of the ten members of the Board attended the 2007 Annual Meeting.

 

Independence Determination

 

The Board has determined that Messrs. Dresner, Greenberg, Naftaly, Page, Sturgis, Thal, Tyner, and Ms. Mark are independent as such term is defined in the New York Stock Exchange’s independence standards, as modified or supplemented, and these directors have no other relationship that would impair such independence.

 

Executive Sessions

 

Executive sessions of non-management directors were held at each regularly scheduled meeting of the Board, as well as at each meeting of the Audit Committee, Compensation Committee, Governance and Nominating Committee, Finance Committee, and the Investment Committee. Executive sessions are presided over by the Chairman of each Committee and the Chairman of the Finance Committee presides over the executive sessions of the Board.

 

Committees of the Board of Directors

 

The Board has established an Audit Committee, Compensation Committee, Finance Committee, Investment Committee and Governance and Nominating committee. Each of the Committees of the Board have adopted a Charter. A current copy of each Committee’s Charter is available on the Company’s website at www.meadowbrook.com.

 

Audit Committee

 

The Audit Committee is responsible for reviewing the services of the Company’s independent registered public accounting firm and actuaries, consults with the accountants and actuaries, reviews the financial statements of the Company and internal controls of the Company and monitors the Internal Audit Department of the Company. The Audit Committee members are Bruce E. Thal (Chairman), Hugh W. Greenberg, Robert H. Naftaly and Robert W. Sturgis. The members of the Audit Committee satisfy the independence and experience requirements of the New York Stock Exchange. In addition, the Board has determined that Bruce E. Thal qualifies as “audit committee financial expert,” as defined by the Securities and Exchange Commission. The Audit Committee met four times in 2007. Refer to the Audit Committee Report below for details of the Committee’s proceedings during 2007.

 

Compensation Committee

 

The Compensation Committee adopted a Committee Charter (the “Charter”) to assure our named executives are appropriately compensated in relation to their duties, responsibilities and performance. The Charter authorizes the Compensation Committee to review and approve the goals and objectives for the Chairman and Chief Executive Officer, evaluate their performance and approve their compensation. The Compensation Committee recommends to the Board the base salary levels, bonuses and equity compensation for the Chief Executive Officer and Chairman of the Board. In addition, the Compensation Committee approves the guidelines to determine salary levels, bonuses and equity compensation for other executive officers and managers of the Company. The Compensation Committee reviews and makes recommendations with respect to the Company’s compensation plans and is responsible for administering the Company’s 1995 and 2002 Amended and Restated Stock Option Plans and the Company’s Long Term Incentive Plan, as well as approving any stock option or long term incentive awards granted to applicable employees. The Committee has authority to directly retain outside consultants of its selection to advise the Compensation Committee with respect to the Company’s compensation and benefits programs. Previously in 2006, the Compensation Committee retained Towers Perrin to provide information relating to competitive compensation levels and current compensation trends, as well as to assess the Company’s annual bonus and Long Term Incentive Plan. In 2007, the Compensation Committee did not retain Towers Perrin, or any other firm, to provide information or to review the Company’s compensation plans.

The Compensation Committee members are Robert H. Naftaly (Chairman), Hugh W. Greenberg, David K. Page, and Herbert Tyner. The Compensation Committee met two times in 2007. The report of the Compensation Committee is set forth later in this proxy statement.

 

Finance Committee

 

The Finance Committee reviews the Company’s banking relationships, business operations, potential acquisitions, capital strategy, financial results and information, and litigation relating to the Company. Members of the Finance Committee are David K. Page (Chairman), Joseph S. Dresner, Hugh W. Greenberg, Robert H. Naftaly, Bruce E. Thal, Robert W. Sturgis, Merton J. Segal and Robert S. Cubbin. The Finance Committee met six times in 2007.

 

Investment Committee

 

The Investment Committee reviews and approves the Company’s Investment Policy Guidelines, investment transactions of the Company, consults with the Company’s outside investment manager, and monitors investment performance and adherence to the Company’s Investment Policy Guidelines. The Investment Committee members are Joseph S. Dresner (Chairman), Robert S. Cubbin, Florine Mark, David K. Page, Merton J. Segal and Bruce E. Thal. The Investment Committee met four times in 2007.

 

Governance and Nominating Committee

 

The Governance and Nominating Committee reviews the criteria for the selection of senior executives and directors of the Company. The Governance and Nominating Committee reviews the performance of the directors and recommends directors for election to the Board. The Governance and Nominating Committee monitors compliance with the Company’s Code of Conduct, Business Conduct Policy and other corporate governance policies. The Governance and Nominating Committee also reviews and approves any related-party transactions involving the Company. The Governance and Nominating Committee members are Hugh W. Greenberg (Chairman), Florine Mark, David K. Page, and Robert H. Naftaly. The Governance and Nominating Committee met one time in 2007.

 

The Board has adopted Corporate Governance Guidelines. The Charter for the Governance and Nominating Committee is available to shareholders on the Company’s website, at www.meadowbrook.com. Each member of the Governance and Nominating Committee is independent as defined in the New York Stock Exchange’s independence standards, as those standards have been modified or supplemented, and these Directors have no other relationship that would impair their independence.

 

The Governance and Nominating Committee’s policy is to consider director candidates recommended by shareholders. Such recommendations must be made pursuant to timely notice in writing to:

 

Meadowbrook Insurance Group, Inc.
26255 American Drive
Southfield, Michigan 48034-2438
Attention: Governance and Nominating Committee

 

The Governance and Nominating Committee has not established specific minimum qualifications and skills for directors to possess. The Governance and Nominating Committee uses a subjective process for identifying and evaluating nominees for director, based upon the information available to members of the Governance and Nominating Committee and the then current needs of the Company. The Governance and Nominating Committee does not believe there would be any difference in the manner in which it evaluates nominees based on whether the nominee is recommended by a shareholder or director. Historically, nominees have been the existing directors or persons with significant business, insurance, accounting, actuarial or legal experience.

 

Code of Conduct

 

The Company has adopted a Code of Conduct that applies to all of its employees, officers and directors, including its principal executive officer, principal financial officer, controller or persons performing similar

functions. Annually, the Company reviews the Code of Conduct for any amendments, which are thereafter reviewed and approved by the Governance and Nominating Committee and the Board.

 

The Company’s Code of Conduct contains written standards that are intended to deter wrongdoing and promote:

 

 

In addition, the Company has a Whistleblower Policy, which allows employees to anonymously report ethical or illegal conduct on the part of employees. All reports are investigated by the Compliance Officer and then reported to the Audit Committee of the Board for further action.

 

The Company has also posted it on its website at www.meadowbrook.com. The Company will provide a copy of the Code of Conduct to any person, without charge and upon request. Requests for a copy of our Code of Conduct, Corporate Governance Guidelines or Committee Charters should be made to the Secretary at 26255 American Drive, Southfield, Michigan 48034. The Company intends to satisfy the disclosure requirement under Item 5.05 of Form 8-K regarding an amendment to, or a waiver from, a provision of our Code of Conduct that applies to our principal executive officer, principal financial officer, controller or persons performing similar functions and that relates to any element of the code definition enumerated in Securities and Exchange Commission, Regulation S-K, Item 406(b) by posting such information on our website at www.meadowbrook.com within five business days following the date of the amendment or waiver. To date, no such waivers have been made.

 

Compensation Committee Interlocks and Insider Participation

 

No member of the Compensation Committee is a current or former employee of the Company or any of its subsidiaries. No member of the Compensation Committee had any relationship with the Company, which would have required disclosure in this Proxy Statement under the caption “Certain Relationships and Related Party Transactions.” No executive officer of the Company served on the Compensation Committee or as a director of any other entity whose executive officer(s) served on the Company’s Compensation Committee or Board.

 

Shareholder Communications with Directors

 

Any shareholder may communicate directly with the Board, or with any one or more individual members of the Board. A shareholder wishing to do so, should address the communication to “Board of Directors” or to one or more individual members of the Board and submit the communication to the Company at the address of the Company noted on the first page of this Notice of Meeting and Proxy Statement. All such communications received by the Company and addressed to the Board of Directors will be forwarded to the Chairman of the Board, or to the individual member or members of the Board, if addressed to them.

 

All of these communications will be reviewed by our Secretary to filter out communications that are not appropriate, specifically, spam or communications offering to buy or sell products or services. The Secretary will forward all remaining communications to the appropriate directors.

 

Any interested party may communicate with our non-management directors by writing to:

 

Meadowbrook Insurance Group, Inc.
26255 American Drive
Southfield, Michigan 48034
Attention: Non-Management Directors

 

COMPENSATION OF DIRECTORS

 

 

Director Compensation

 

During 2007, directors who were not officers of the Company received an annual retainer fee of $25,000, plus $1,500 for each board or committee meeting attended. Directors who serve as chairman of a committee of the Board, received an additional annual retainer of $5,000.

 

The Compensation Committee reviewed the annual compensation for the Board. For 2008, the Compensation Committee recommended to the Board that the annual retainer be increased from $25,000 to $30,000, effective January 1, 2008. The Compensation Committee recommended no changes to the meeting fee or the committee chairman retainer. On February 8, 2008, the Board voted to approve these recommendations of the Compensation Committee.

 

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

 

The following table sets forth as of the Record Date the beneficial ownership of the Company’s common stock by: (i) each person known by the Company to beneficially own five percent or more of such shares, (ii) each nominee and incumbent director, (iii) each person named in the Summary Compensation Table, and (iv) all nominees and incumbent directors and Executive Officers as a group, together with their respective percentage

ownership of the outstanding shares. Unless otherwise indicated, each individual has sole investment and voting power with respect to such shares.

 

 

 

 

 

SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

 

Section 16(a) of the Securities Exchange Act of 1934, as amended, requires that the Company’s directors, executive officers and persons who own more than ten percent of a registered class of the Company’s equity securities, to file reports of ownership and any subsequent changes in ownership with the Securities and Exchange Commission within prescribed time limits. The Company believes that, for the reporting period January 1, 2007 to December 31, 2007, all executive officers, directors, and ten percent or more shareholders complied with the reporting requirements under Section 16(a), except for the sale of shares on July 24, 2007 by Mr. Segal in conjunction with the Company’s equity offering. This Form 4 was not filed until August 2, 2007.

 

COMPENSATION OF EXECUTIVE OFFICERS

 

Compensation Discussion & Analysis

 

Overview

 

The Compensation Committee (the “Committee”) of the Board reviews and approves the goals and objectives for the Chairman and Chief Executive Officer, as well as evaluates their performance and approves their compensation. The Committee is also responsible for reviewing recommendations made by the Chief Executive Officer relating to the compensation of our named executive officers who report to the Chief Executive Officer. In addition, the Committee is responsible for reviewing and approving stock option awards and/or long-term incentive awards granted to applicable employees. The Committee is authorized to periodically review our compensation philosophy relating to the salaries, bonuses and other long-term incentive awards paid to our employees.

 

It is our policy to offer a compensation package including a competitive salary, an incentive bonus based upon individual and Company performance, as well as, competitive benefits. Our compensation policy for our named executive officers is similar to that of other employers and is intended to attract, motivate, and retain talented management, continued performance and attainment of corporate and personal goals, as well as to further promote our financial success by aligning executive officers’ financial interest with long-term shareholder value.

 

The primary elements of our executive compensation program are base salary, annual incentive bonus, long-term cash and equity incentives, post-termination severance, and other benefits and perquisites. Other benefits and perquisites consist of a qualified 401(k) savings plan, a non-qualified deferred compensation plan, automobile allowance, and other miscellaneous perquisites summarized within the Summary Compensation Table.

 

Criteria for awarding stock options or long-term incentive awards to our named executive officers includes level of responsibility, expected future contributions, market data for our competitors in the insurance industry, corporate performance and actual achievement of individually established goals.

 

Compensation Assessment

 

Periodically, the Committee has retained Towers Perrin to review our compensation plans, as well as the compensation for our senior executives and the Board.

 

During 2006, the Committee engaged Towers Perrin to: 1) provide information relating to competitive salary, target annual and long term incentive levels for eight of our senior executives (excluding the Chairman of the Board) and current compensation trends, and 2) assess the structure of our annual bonus and Long Term Incentive Plan (“LTIP”). The review considered the compensation practices in the insurance industry, which was supplemented with general industry data and companies similar in size, assets and revenue. The eight executive salaries and target annual bonus opportunities were within the competitive range of market median levels. However, the executives’ long-term incentive award opportunities were, on average, below market median levels. For reference purposes, in addition to the survey pay analysis described above, Towers Perrin presented fiscal 2005 pay levels (from proxy filings) of nine insurance companies, specifically, HCC Insurance Holdings, Inc., Markel Corporation, Philadelphia Consolidated Holding Corporation, ProAssurance Corporation, RLI Corporation, Argonaut Group, Inc., Sea Bright Insurance Holdings, Inc., Tower Group and American Physicians Capital, Inc.

The Committee considered many factors, including Towers Perrin’s analysis and recommendations, when adjusting the structure of our executive compensation program. For 2007, minor adjustments were made to the executives’ base salary and annual incentive bonus award opportunities. Certain of the executives’ target award opportunities under the LTIP were increased to align with market competitive levels given our interest in recruiting and retaining a strong management team.

 

In 2007, we did not retain Towers Perrin, or any other firm, to review our compensation plans or to review the compensation of our senior executives and the Board.

 

Base Salary

 

Base salary is established based on various criteria consisting of level of responsibility, corporate performance, personal contribution to our success, experience, expertise and market data for our competitors in the insurance industry. We provide the opportunity for our executive officers to earn a competitive annual base salary. Generally, we believe executive base salaries should be set within the competitive range of salaries for executives in similar positions at comparable companies. Base salaries are reviewed annually and increases are based on corporate performance and individual performance. For 2007, the average increase in salaries of the named executive officers from 2006 salaries was approximately 3.0%. For 2008, the average increase in salaries of the named executive officers from 2007 salaries is approximately 5.0%.

 

Annual Incentive Bonus

 

In addition to base salaries, we have established a variable compensation Annual Bonus Plan (“Bonus Plan”) as an incentive for performance of our executive officers. We believe performance based cash bonuses are an important factor in providing incentives to executive officers to achieve pre-defined annual objectives. Criteria for determining the named executive officers’ annual incentive bonus includes corporate performance, personal contribution to our success, achievement of individually established goals, market data for our competitors in the insurance industry and the attainment of other corporate objectives.

 

The Bonus Plan is a discretionary cash bonus plan premised upon a targeted growth in net after-tax earnings on a year over year basis. Each year, the Committee and our Board establish a new target based upon prior year performance and the forecasted performance levels anticipated for the following year. If the minimum threshold is met, the Bonus Plan is funded from 0% up to a maximum of 120% of the targeted bonus pool. The amount of the bonus pool is established by aggregating the individual targets for each participant, which is a percentage of salary.

 

At the end of the year, the Committee and the Board review our performance in relation to performance targets and then establish the total bonus pool to be utilized to pay cash bonuses to the management team based upon overall corporate and individual participant goals. At the discretion of the Board, actual bonuses paid may be above or below targeted bonus levels. Ultimately, all awards are reviewed and approved by the Board both at inception and distribution.

 

In February 2007, the Board, upon recommendation of the Committee, established target bonus awards, based on a percentage of salary for each named executive officer. In February 2008, the Committee and the Board determined the applicable performance goals were substantially achieved in 2007 and on February 8, 2008, the Committee and the Board approved the distribution of the annual bonus awards.

 

Long Term Incentive Plan Compensation

 

We provide the opportunity for our named executive officers and other executives to earn a long-term incentive award under our LTIP. The LTIP is intended to provide an incentive to management to improve performance over a three-year period, thereby increasing shareholder value. The LTIP is not discretionary and is based upon a target for an average three-year return on beginning equity. The first performance period was for the years 2004-2006 (“2004 LTIP Grant”). On February 9, 2007, the Committee and the Board approved the targets for the 2007-2009 performance period (“2007 LTIP Grant”).

 

The targets under the 2007 LTIP Grant are predicated upon a minimum annual growth rate of 15% of after-tax operating income being achieved prior to the achievement of the targets relating to the 2007 LTIP Grant. The return

on beginning equity target for the 2007 LTIP Grant is 13.1%. In addition, the 2007 LTIP Grant award is based upon the achievement of a cumulative three-year net operating income target of $89.0 million. If the targets are met and all other terms and conditions are satisfied, the 2007 LTIP Grant award would be awarded upon the final approval of the Committee and the Board in the beginning of 2010. The 2007 LTIP Grant can be funded from 0% up to 120%, or 160% for our executive officers who report directly to our Chief Executive Officer.

 

One-half of the LTIP is paid in cash and one-half is paid in common stock. The cash portion of the award is made in three annual installments, with the first payment being paid as of the end of the performance period. The remaining two payments would be paid in the subsequent two years. Any unpaid portion of a cash award is subject to forfeiture if the participant voluntarily leaves, or is discharged for cause. The stock portion of the award is issued as a stock award under the terms and conditions of our 2002 Amended and Restated Stock Option Plan as of the end of the performance period. The number of shares of common stock awarded is based upon the closing stock price at the beginning of the three year performance period. A participant’s percentage is established by the Committee and the Board in advance of any new three-year LTIP award. Ultimately, all awards under the LTIP are reviewed and approved by the Board both at inception and distribution.

 

The following table outlines the computation of the three-year target award for each named executive officer under the LTIP, which is based upon a percentage of salary at the beginning of the performance period.

 

 

The grant date share price for the potential stock award under the 2007 LTIP Grant was $9.89, the closing price of the Company’s common stock on December 29, 2006.

 

Stock Options

 

In addition to the above variable compensation plans, we also provide for the granting of stock options under our 2002 Amended and Restated Stock Options Plan (the “Plan”). The Plan is intended to further our interests and our shareholders interests by attracting, retaining, and motivating key management. The Plan provides for the grant of stock options (which may be nonqualified options or incentive stock options for tax purposes) and restricted stock awards.

 

The Committee is authorized to determine the terms and conditions of all restricted stock awards and option grants, subject to the limitations that the option price per share may not be less than the fair market value of a share of common stock on the date of grant and the term of an option may not be longer than ten years. Payment of the option price may be made in any manner specified by the Committee (which may include payment in cash or common stock or by “cashless exercise”).

 

We did not grant any stock options during 2007 and have not granted any stock options since 2003.

 

Executive Perquisites

 

We provide the opportunity for our named executive officers to receive certain perquisites, such as automobile allowances and reimbursement for club membership dues. We also offer participation in our defined contribution 401(k) plan, as well as a non-qualified deferred compensation plan. In addition, our named executive officers occasionally receive tickets to sporting events or entertainment for personal use if the tickets are not needed for business use, for which we do not incur incremental costs. These benefits are provided as an additional incentive for our executives and to remain competitive within the marketplace for such talent. These perquisites are summarized within the Other Compensation Table below.

Chief Executive Officer Compensation

 

For 2007, the Committee established fourteen performance objectives for Mr. Cubbin. The performance goals included financial, operational and entity-wide control objectives. The financial objectives included goals for return on equity, earnings per share, targeted combined ratio, growth of after-tax profit, written premium, and fee and commission revenue. The operational goals included a benchmark for the implementation of new programs, growth of the Company’s fee based business and consideration of strategic acquisitions. Further, the entity-wide control objectives included implementation of a risk assessment policy, and maintenance of the internal controls over financial reporting. The Committee determined that Mr. Cubbin achieved substantially all of these performance objectives for 2007. Mr. Cubbin’s base salary for the year ended December 31, 2007 was $575,000. In addition, Mr. Cubbin received an annual bonus of $450,000 for his performance in 2007. Based upon Mr. Cubbin’s performance in 2007, the Committee awarded a salary increase for 2008 of $45,000. Further, the Committee approved a targeted annual bonus for 2008 of 50% of his base salary.

 

Summary Compensation Table

 

The following table sets forth information concerning the compensation of our Chief Executive Officer, Chief Financial Officer and the three most highly compensated Executive Officers, other than the Chief Executive Officer and Chief Financial Officer, whose total annual salary and bonus exceeded $100,000 and includes all compensation paid to such officers during 2007:

 

 

 

 

All Other Compensation included in the Summary Compensation Table above includes the following components:

 

 

 

 

2007 Grants of Plan-Based Awards

 

The following table shows the grant of an award, as described above within the Compensation Discussion & Analysis, for each named executive officer in the Summary Compensation Table and the estimated future payouts with respect to the 2007 LTIP Grant award, which would be fully earned at the end of 2009 upon achievement of the associated targets.

 

 

 

 

Employment Agreements

 

We maintain employment agreements with Robert S. Cubbin, our Chief Executive Officer, Merton J. Segal, our Chairman, and Michael G. Costello, our General Counsel. These agreements are described in more detail within the Employment Contracts section of this proxy statement.

 

Long Term Incentive Plan Award

 

As described above within the Compensation Discussion and Analysis — Long Term Incentive Plan Compensation of this proxy statement, we grant a long term performance based incentive award to each of our executive officers and other employees pursuant to the LTIP. These incentive awards are based on performance over a three-year period, which is paid one half in cash and one half in common stock.

 

Stock Options

 

There were no stock options granted to the named executive officers or any other employees in 2007.

 

Outstanding Equity Awards at December 31, 2007

 

The following table sets forth information regarding all unexercised stock options held by each of our named executive officers as of December 31, 2007.

 

 

2007 Option Exercises and Stock Vested

 

The following table provides information regarding options exercised and shares of stock that vested for each of our named executive officers as of December 31, 2007.

 

 

Deferred Compensation

 

The following table sets forth information regarding deferred compensation for each of our named executive officers as of December 31, 2007.

 

 

Our Executive Nonqualified Excess Plan (the “Excess Plan”) is intended to be a nonqualified deferred compensation plan. The Excess Plan allows certain employees, including the named executive officers, to defer receipt of current compensation in order to provide retirement and other benefits, as provided for in the Excess Plan. Deferred amounts are credited with earnings or losses based on the rate of return of funds selected by the participants in the plan. The Excess Plan is intended to be an unfunded plan maintained primarily for the purpose of providing deferred compensation benefits for eligible employees. We do not make contributions to participants’ accounts under the Excess Plan. Participants may defer up to 100% of salary and bonus payments. Distributions are made in either a lump sum or installments over a period not to exceed five years as chosen by the executive at the time of the deferral.

 

Pension Benefits

 

We do not sponsor any qualified or non-qualified defined benefit plans and therefore our named executive officers do not participate in these types of plans.

 

Potential Payments upon Termination or Changes in Control

 

We have entered into employment agreements with certain of our named executive officers. The employment agreements provide for payments of certain benefits, as outlined in the table below, upon termination. The named executive officer’s rights upon termination are dependent upon certain circumstances. The employment agreements are described in further detail after the table.

The following table illustrates the potential maximum payouts to each named executive officer under each circumstance. The table assumes the termination occurred on December 31, 2007.

 

 

EMPLOYMENT CONTRACTS

 

Merton J. Segal Employment Agreement

 

The Company entered into an employment agreement with Mr. Segal effective January 1, 2006 through December 31, 2008.

 

Mr. Segal’s employment agreement provides for (a) a base salary of not less than $31,250 per month, (b) a discretionary bonus targeted at fifty percent of his base salary (at the sole discretion of the Company) upon the attainment of certain growth and profitability goals, profit center goals and personal goals and objectives, (c) participation in Company Option Plans, (d) participation in the Company’s Long Term Incentive Plan, (e) life insurance benefits, and (f) severance benefits upon termination of Mr. Segal’s employment under the circumstances described below.

 

In the event Mr. Segal’s employment is terminated by the Company and without cause, or by Mr. Segal for good reason, the Company shall pay to Mr. Segal (a) his base salary for twenty-four months, or the remaining

months of his employment term, whichever is less, in accordance with the Company’s regularly scheduled payroll, (b) a pro rata share of the portion of Mr. Segal’s discretionary bonus that is based on Company performance criteria, and (c) Mr. Segal’s COBRA premiums for health care coverage for eighteen months, or, if earlier, the cessation of Mr. Segal’s and his family members’ eligibility for COBRA continuation coverage.

 

In the event Mr. Segal’s employment is terminated by the Company following a change in control and without cause, or by Mr. Segal for good reason, the Company shall pay to Mr. Segal (a) an amount equal to two times the sum of (i) Mr. Segal’s annual base salary, plus (ii) Mr. Segal’s target discretionary bonus, to be paid in a lump sum payment within ten days following the date Mr. Segal’s employment terminates, (b) a pro rata share of the portion of Mr. Segal’s discretionary bonus that is based on Company performance criteria no later than the February 28th following the year Mr. Segal’s employment terminates, (c) Mr. Segal’s COBRA premiums for health care coverage for eighteen months, or, if earlier, the cessation of Mr. Segal’s and his family members’ eligibility for COBRA continuation coverage and (d) any outstanding stock options, if any, shall vest and become exercisable by Mr. Segal.

 

In the event his employment terminates following a change in control and Mr. Segal becomes entitled to the aforementioned payments, Mr. Segal has agreed to be subject to restrictive covenants against competing with the Company for a period of two years following such termination of employment. These restrictions are in addition to those already in effect for all Company employees. In the event Mr. Segal’s employment is terminated for cause, he is not entitled to any severance payment under the employment agreement.

 

In the event of Mr. Segal’s death, fifty percent of his remaining base salary that may be due under the employment agreement would be paid to his designee.

 

Robert S. Cubbin and Michael G. Costello Employment Agreements

 

The Company entered into employment agreements with Mr. Cubbin and Mr. Costello effective January 1, 2004 through December 31, 2006. Unless either the Company or they give notice to the other party of an election not to renew their employment agreement on or before December 31, 2004, and annually thereafter, the employment agreement will automatically be extended one additional year.

 

Mr. Cubbin’s employment agreement provides for a base salary of not less than $37,500 per month. Mr. Costello’s provides for a base salary of not less than $18,417 per month. In addition, at the sole discretion of the Company, upon the attainment of certain growth and profitability goals, profit center goals and personal goals and objectives, each agreement provides for a discretionary bonus. Mr. Cubbin’s agreement provides for a discretionary bonus targeted at fifty percent of his base salary. Mr. Costello’s agreement provides for a discretionary bonus targeted at forty percent of his base salary. Furthermore, each agreement provides for; (1) participation in Company Option Plans, (2) participation in the Company’s Long Term Incentive Plan, and (3) severance benefits upon termination of employment under the circumstances described below.

 

In the event Mr. Cubbin’s employment is terminated by the Company and without cause, or by Mr. Cubbin for good reason, the Company shall pay to Mr. Cubbin (a) his base salary for twenty-four months over the Company’s regularly scheduled payroll, (b) a pro rata share of the portion of Mr. Cubbin’s discretionary bonus that is based on Company performance criteria, and (c) Mr. Cubbin’s COBRA premiums for health care coverage for eighteen months, or, if earlier, the cessation of Mr. Cubbin’s and his family members’ eligibility for COBRA continuation coverage.

 

In the event Mr. Cubbin’s employment is terminated by the Company following a change in control and without cause, or by Mr. Cubbin for good reason, the Company shall pay to Mr. Cubbin (a) an amount equal to two times the sum of (i) Mr. Cubbin’s annual base salary, plus (ii) Mr. Cubbin’s target discretionary bonus, to be paid in a lump sum payment within ten days following the date Mr. Cubbin’s employment terminates, (b) a pro rata share of the portion of Mr. Cubbin’s discretionary bonus that is based on Company performance criteria no later than the February 28th following the year Mr. Cubbin’s employment terminates, (c) Mr. Cubbin’s COBRA premiums for health care coverage for eighteen months, or, if earlier, the cessation of Mr. Cubbin’s and his family members’ eligibility for COBRA continuation coverage, and (d) any outstanding stock options, if any, shall vest and become exercisable by Mr. Cubbin. In the event his employment terminates following a change in control and Mr. Cubbin becomes entitled to the aforementioned payments, Mr. Cubbin has agreed to be subject to restrictive covenants

against competing with the Company for a period of two years following such termination of employment. These restrictions are in addition to those already in effect for all Company employees.

 

In the event Mr. Cubbin’s employment is terminated for cause, he is not entitled to any severance payment under the employment agreement, he forfeits all of the shares of Company stock subject to a pledge agreement with the Company, but the Demand Note he has with the Company is cancelled and deemed paid in full. (See “Certain Relationships and Related Party Transactions”). The Demand Note was amended effective June 1, 2001 and deemed a non-recourse loan with the Company’s sole remedy in the event of a default being the reclamation of the shares of the Company that were pledged as collateral. The employment agreement also provides that in the event Mr. Cubbin’s employment is terminated by the Company without Cause or as a result of any purchaser acquiring fifty percent or more of the outstanding shares of the Company, then (a) the Demand Note shall be cancelled and deemed paid in full, and (b) Mr. Cubbin shall be entitled to retain his shares of Company stock subject to the pledge agreement or, in his discretion, sell the shares back to the Company at the then current market price or book value, whichever is greater. This provision continues in effect the identical provision contained in the amendment to Mr. Cubbin’s prior employment agreement with the Company that was adopted on June 15, 2002.

 

In the event Mr. Costello’s employment is terminated by the Company and without cause, or by Mr. Costello for good reason, the Company shall pay to Mr. Costello (a) his base salary for twenty-four months over the Company’s regularly scheduled payroll, (b) a pro rata share of the portion of Mr. Costello’s discretionary bonus that is based on Company performance criteria, and (c) Mr. Costello’s COBRA premiums for health care coverage for eighteen months, or, if earlier, the cessation of Mr. Costello’s and his family members’ eligibility for COBRA continuation coverage.

 

In the event Mr. Costello’s employment is terminated by the Company following a change in control and without cause, or by Mr. Costello for good reason, the Company shall pay to Mr. Costello (a) an amount equal to two times the sum of (i) Mr. Costello’s annual base salary, plus (ii) Mr. Costello’s target discretionary bonus, to be paid in a lump sum payment within ten days following the date Mr. Costello’s employment terminates, (b) a pro rata share of the portion of Mr. Costello’s discretionary bonus that is based on Company performance criteria no later than the February 28th following the year Mr. Costello’s employment terminates, (c) Mr. Costello’s COBRA premiums for health care coverage for eighteen months, or, if earlier, the cessation of Mr. Costello’s and his family members’ eligibility for COBRA continuation coverage, and (d) any outstanding stock options, if any, shall vest and become exercisable by Mr. Costello. In the event his employment terminates following a change in control and Mr. Costello becomes entitled to the aforementioned payments, Mr. Costello has agreed to be subject to restrictive covenants against competing with the Company for a period of two years following such termination of employment. These restrictions are in addition to those already in effect for all Company employees.

 

In the event Mr. Costello’s employment is terminated for cause, he is not entitled to any severance payment under the employment agreement.

 

Terms Applicable to the Employment Agreements

 

“Cause” is generally defined to include (i) a failure by the executive to obey the reasonable and lawful orders of the Board of Directors; (ii) misconduct by the executive that is materially injurious to the Company; or (iii) dishonest activities injurious to the Company. If the executive’s employment is terminated for Cause, he is not entitled to any severance payment.

 

“Change in Control” is generally defined as

 

 

 

 

 

“Good Reason” is generally defined as the executive tendering his resignation within 6 months following the date on which (a) the executive is not reelected to or is removed from the title and office he currently holds with the Company, (b) the Company fails to vest in the executive the responsibilities, authority or resources he reasonably needs to competently perform his duties in his current title and office for the Company, (c) the Company changes the executive’s primary location of employment to a place more than 50 miles from Southfield, Michigan, (d) the Company commits a material breach of its obligations under the employment agreement and fails to cure the breach within 30 days following the executive giving notice of the breach, or (e) the Company gives notice that it will not renew the employment agreement. (Not applicable to Employment Agreement of Mr. Segal, dated January 1, 2006.)

 

AT-WILL EMPLOYMENT AND SEVERANCE AGREEMENTS

 

It is the Company’s philosophy to attract and retain high-quality people, which is crucial to the short-term and long-term success of the Company. In order to further this goal, the Company determined that it was in the best interests of the Company to enter into At-Will Employment and Severance Agreements (the “Agreements”) with twelve senior executives of the Company, including Karen M. Spaun and James M. Mahoney. These Agreements provide for a lump-sum severance payment (of up to twelve months of the executive’s annual base salary, plus one times the executive’s targeted annual bonus) to the executive in the event the executive’s employment is terminated without “Good Cause” or by the executive for “Good Reason” within two years following a “Change of Control” of the Company. If the executive is terminated within the two year period following a “Change of Control” and the termination is for “Good Cause,” then, no severance payment would be due the executive. Further, if the executive voluntarily resigns or his or her employment is not terminated within the two year period following a “Change of Control” and the executive’s employment is terminated thereafter, no severance payment would be due the executive.

 

Under the Agreements, the terms “Cause,” “Change in Control,” and “Good Reason” have substantially the same meanings as those terms described above in the section entitled Terms Applicable to the Employment Agreements.

 

The Compensation Committee reviewed and approved the Agreements and those executives eligible for such Agreements. The actions of the Compensation Committee were also ratified by the Board of Directors of the Company.

 

Meadowbrook Insurance Group, Inc. Stock Option Plans

 

The Company maintains a stock option plan, the 2002 Amended and Restated Stock Option Plan (the “2002 Plan”) for which shares of common stock may be issued. The number of shares which may be issued under the 2002 Plan is 2,000,000. The Company previously issued stock options under its 1995 Amended and Restated Stock Option Plan (the “1995 Plan”), which was a ten-year plan and expired in 2005. Therefore, shares of common stock may no longer be issued under the 1995 Plan. Options issued under the 2002 Plan, which are unexercised and expired, will again become available for grant under the 2002 Plan. Cash exercises of stock appreciation rights and cash supplemental payments will not count against these limits. Lapsed, forfeited or canceled awards will also not count against these limits. The maximum number of shares of Common Stock which may be issued under the 2002 Plan to any single individual is 800,000.

 

As of the Record Date, the number of shares of common stock remaining available for future issuance under the 2002 Plan was 774,601 shares. As of the Record Date, there were 69,750 options outstanding, which were provided for in the 1995 Plan. There were no outstanding options provided for in the 2002 Plan outstanding as of the Record Date.

 

REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD ON
EXECUTIVE COMPENSATION

 

The Compensation Committee of the Company’s Board of Directors has submitted the following report for inclusion in the Proxy Statement:

 

The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis contained in this Proxy Statement with management. Based on this review and the discussions with management with respect to the Compensation Discussion and Analysis, we have recommended to the Board of Directors that the Compensation Discussion and Analysis be included in the Proxy Statement and in the Company’s Annual Report on Form 10-K for the year ended December 31, 2007 for filing with the SEC.

 

The foregoing report is provided by the following directors, who constitute the Compensation Committee:

 

The Compensation Committee

 

Robert H. Naftaly, Chairman
Hugh W. Greenberg
David K. Page
Herbert Tyner

 

REPORT OF THE AUDIT COMMITTEE

 

The Audit Committee (the “Committee”) has adopted a Charter outlining its duties and responsibilities on matters relating to financial reporting, internal audit, accounting practices, internal controls, loss reserving and selection of the Company’s independent registered public accounting firm. This Charter is available to shareholders on the Company’s website, at www.meadowbrook.com.

 

The Committee consists of all independent directors. The members are: Bruce E. Thal, Chairman, Robert H. Naftaly, Robert Sturgis and Hugh Greenberg. The Committee recommended and the Board of Directors appointed Bruce E. Thal as the Committee’s financial expert, in accordance with the Sarbanes-Oxley Act of 2002.

 

During 2007, the Committee met with members of the Company’s financial management team at each of its meetings. The Company’s independent auditors attended all of the Committee meetings. The Committee also met with the Company’s independent actuarial consultants. During these meetings, the Committee held discussions with the independent auditors and the actuarial consultants relating to financial management, accounting practices, loss reserves, internal audit and other internal control related issues. The Committee met in executive sessions with the Company’s independent auditors and actuarial consultants. In addition, the Committee met in executive sessions with the Company’s Chief Financial Officer, Chief Actuary, Director of Internal Audit and General Counsel.

 

In 2007, the Committee appointed (subject to ratification by the shareholders) Ernst & Young LLP as the Company’s independent registered public accounting firm, which was approved by the Board of Directors of the Company.

 

During 2007, the Committee reviewed the Company’s financial management with the independent registered public accounting firm. The Committee reviewed the results of the Ernst & Young LLP audit for 2007. The Committee reviewed the audited financial statements, which are included in the Company’s Annual Report on Form 10-K. The Committee received a report from the Company’s independent actuarial firm relating to the Company’s loss reserves. In addition, the Committee received reports from Ernst & Young LLP and the Company’s Internal Audit Department relating to the Company’s compliance with Section 404 of the Sarbanes-Oxley Act of 2002. The Committee is responsible for overseeing the Company’s project plan and compliance with Section 404.

 

The Committee also discussed with the independent registered public accounting firm other matters required to be discussed by Statement of Auditing Standards No. 61, “Communications with Audit Committees,” as amended and as adopted by the Public Company Accounting Oversight Board in Rule 3200T. The Committee received and discussed with the independent registered public accounting firm their annual written report on their independence from the Company and its management, which is made under Independence Standards Board Standard No. 1, “Independence Discussions with Audit Committees.”

 

In reliance upon these reviews and discussions, and the report of the independent registered public accounting firm, the Committee has recommended to the Board of Directors, and the Board of Directors has approved, that the audited financial statements be included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2007.

 

The Audit Committee

 

Bruce E. Thal, Chairman
Hugh W. Greenberg
Robert H. Naftaly
Robert W. Sturgis

 

THE SECOND PROPOSAL ON WHICH YOU ARE VOTING
RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM

 

Subject to ratification by the shareholders, the Board has appointed Ernst & Young LLP as the independent registered public accounting firm of the Company for the current year. The affirmative vote of a majority of shares of the Company’s common stock present in person or represented by proxy at the Annual Meeting is required to ratify the appointment of Ernst & Young LLP. Unless you otherwise indicate on your proxy card, your returned proxy will be voted FOR ratification of the reappointment of Ernst & Young LLP.

 

A representative from Ernst & Young LLP will be available at the annual meeting to respond to any appropriate questions from shareholders.

 

The Company’s Board recommends you vote FOR the ratification of the appointment

of the independent registered public accounting firm.

 

AUDIT AND RELATED FEES

 

Set forth below is the information relating to fees billed to the Company by Ernst & Young LLP in respect to the services provided for fiscal years 2007 and 2006. The Audit Committee and the Board reviewed and approved such fees and determined the services provided were compatible with maintaining the independence of Ernst & Young LLP.

 

 

Audit Fees

 

Annual audit fees relate to services rendered in connection with the audit of the annual financial statements and internal control over financial reporting, as of December 31, 2007, as well as the interim quarterly reviews of financial statements included in the Company’s Form 10-Q filings. In addition, a portion of the fees paid to Ernst & Young LLP in 2007 included fees related to the Company’s equity offering in 2007, as well as consultation fees related to the Company’s response to a Securities and Exchange Commission comment letter received by the Company in 2007.

 

Audit Related Fees

 

Audit related fees would be for professional services rendered by the independent registered public accounting firm in connection with services related to the performance of the audit. No professional services were rendered by Ernst & Young LLP for audit related fees.

 

Tax Fees

 

These fees relate to tax services including fees for tax compliance, tax advice and tax planning.

 

All Other Fees

 

No professional services were rendered by Ernst & Young LLP for other services.

Audit Committee Policy on Pre-Approval of Services Rendered by Independent Registered Public Accounting Firm

 

In accordance with the Securities and Exchange Commission rules issued pursuant to the Sarbanes Oxley Act of 2002, which require, among other things, the Audit Committee pre-approve all audit and non-audit services provided by the Company’s independent registered public accounting firm. The Audit Committee has adopted a formal policy on auditor independence. This policy requires the approval by the audit committee for all professional services rendered by the Company’s independent registered public accounting firm prior to the commencement of the specified services. The Audit Committee pre-approved all professional services rendered by the Company’s independent registered public accounting firm. Likewise, the Board pre-approved all professional services rendered by the Company’s independent registered public accounting firm prior to the commencement of the services.

 

Audit Committee Financial Expert

 

The Board has determined that the Company have an Audit Committee financial expert, as defined by the Securities and Exchange Commission, serving on its Audit Committee. Mr. Bruce E. Thal is the Audit Committee financial expert. He is independent as such term for audit committee members as defined in the New York Stock Exchange’s independence standards, as those standards have been modified or supplemented, and he has no other relationship that would impair his independence.

 

Auditor Independence

 

The Audit Committee had considered whether the providing of services described under the subheading “Tax Fees” above were compatible with maintaining Ernst & Young LLP’s independence. After such consideration, the Audit Committee determined the services were compatible with maintaining the auditor’s independence.

 

Certain Relationships and Related Party Transactions

 

The Company’s Governance and Nominating Committee Charter states that the Governance and Nominating Committee is responsible for reviewing and approving all related party transactions between the Company and any related party. Annually, the Company requires all management employees, including the named executive officers, and Board members to complete a questionnaire disclosing potential conflicts of interest transactions and/or relationships. The Governance and Nominating Committee annually reviews transactions with the Company and other companies with which the Company’s Board members and executive officers are affiliated to the extent reported in response to the questionnaires. In addition, the Governance and Nominating Committee is responsible for establishing, reviewing, and monitoring compliance with the Company’s Code of Conduct and Business Conduct policies. For purposes of the Governance and Nominating Committee approval, a related party transaction is defined as any transaction that is required to be reported under Item 404 of SEC Regulation S-K.

 

All transactions disclosed below have been reviewed and approved or ratified by the Governance and Nominating Committee.

 

Demand Note

 

At December 31, 2007, the Company held an $870,000 Demand Note receivable, including $209,000 of accrued interest, from Robert S. Cubbin and Kathleen D. Cubbin. In 2007, Mr. Cubbin paid $43,800 to the Company in interest relating to the Demand Note. This Demand Note arose from a transaction in late 1998 whereby the Company loaned Robert S. Cubbin and Kathleen D. Cubbin funds to exercise 64,718 common stock options to cover the exercise price and associated tax withholdings. The Demand Note bears a rate of interest equal to the rate charged the Company pursuant to its current revolving credit agreement. On December 31, 2007, the rate was 6.2%. The Demand Note is due on demand. The loan is partially collateralized by 64,718 shares of the Company’s common stock, pursuant to a Stock Pledge Agreement. The Demand Note between the Company and Mr. and Mrs. Cubbin is a non-recourse loan with the Company’s sole remedy in the event of a default being the reclamation of the shares of the Company that were pledged as collateral. Refer to the EMPLOYMENT CONTRACTS section above.

Employees

 

Sue Cubbin, Vice President of Human Resources, is the sister of Robert S. Cubbin, President and Chief Executive Officer of the Company. In her capacity as Vice President of Human Resources, Ms. Cubbin is responsible for all human resource matters relating to compensation, fringe benefits, payroll, education and training, hiring and performance reviews of the Company’s employees. In addition, she is responsible for facilities management of the Company’s Southfield, Michigan headquarters.

 

Laura Segal, a Vice President in the Southfield branch, is the daughter of the Chairman of the Board, Merton J. Segal. Ms. Segal is responsible for management of the Company’s largest public entity program, which is located in Michigan.

 

Carol Ziecik, Vice President of Corporate Communications, is the daughter of the Chairman of the Board, Merton J. Segal. Ms. Ziecik is responsible for the corporate communications of the Company, marketing materials, the annual report and other similar matters.

 

In 2007, the total compensation for Ms. Cubbin, Ms. Segal, and Ms. Ziecik was $488,896, which included a total of $88,000 in annual incentive bonuses earned in 2007, but paid in 2008 and $84,096 related to stock option exercises.

 

On February 7, 2008, the Governance and Nominating Committee reviewed the compensation of Ms. Cubbin, Ms. Segal and Ms. Ziecik. The Governance and Nominating Committee determined there had been no material change in either the compensation or duties of these employees and concluded the compensation paid these employees was fair and reasonable in relation to the comparable information and their experience, duties and responsibilities. On February 8, 2008, the Board approved the continued employment of Ms. Cubbin, Ms. Segal and Ms. Ziecik.

 

OTHER MATTERS

 

The Company is not aware of any matter that may be brought before the Annual Meeting other than as described above. In the event any other matter properly comes before the Annual Meeting, the persons named in the accompanying form of proxy have discretionary authority to vote on such matters.

 

Dated: April 3, 2008