MEADOWBROOK INSURANCE GROUP INC
EMPLOYMENT CONTRACT B/W MICHAEL G. COSTELLO
<DOCUMENT>
<TYPE>EX-10.26
<SEQUENCE>6
<FILENAME>k64540ex10-26.txt
<DESCRIPTION>EMPLOYMENT CONTRACT B/W MICHAEL G. COSTELLO
<TEXT>
<PAGE>   1
                                                                   EXHIBIT 10.26

                              EMPLOYMENT AGREEMENT


         THIS EMPLOYMENT AGREEMENT (hereinafter referred to as the "Agreement")
is effective June 1, 2001, by and between Meadowbrook, Inc., and Meadowbrook
Insurance Group, Inc., (hereinafter referred to as the "Company"), and Michael
G. Costello (hereinafter referred to as the "Executive").

                                    RECITALS:

         WHEREAS, the Company and the Executive desire to set forth their
respective rights and obligations in connection with the employment of the
Executive by the Company by entering into a contract of employment;

         NOW THEREFORE, in consideration of the premises and of the mutual
covenants, agreements and understandings contained herein, the parties hereto
agree as follows:

                                   AGREEMENT:

         1. EMPLOYMENT. The Company agrees to employ the Executive during the
Employment Term (as such term is hereinafter defined in Paragraph 5.) and the
Executive hereby accepts such employment by the Company, subject to the terms
and conditions hereinafter set forth and the Company's Associate Manual
(hereinafter referred to as the "Manual"). To the extent that the terms and
Conditions of this Agreement conflict with the Manual, this Agreement shall
control while in effect.

         2. RESPONSIBILITIES AND DUTIES. The Executive shall be employed as the
Company's Senior Vice President and General Counsel or in such other position(s)
and with such responsibilities and duties as the President of the Company may
from time to time determine. The Executive shall devote his full working time to
the performance of his responsibilities and duties hereunder.

         3. COMPENSATION. In consideration of the performance by Executive of
his obligations during the Employment Term, the Company will during the
Employment Term pay the Executive:

                  (A)      BASE SALARY. A base salary of not less than
                           $16,749.00 per month. Such Base Salary shall be
                           payable in accordance with the normal payroll
                           practices of the Company then in effect. Any
                           increases in the Base Salary shall be determined by
                           the Company.

                  (B)      DISCRETIONARY BONUS. A discretionary bonus targeted
                           at forty percent (40%) of Executive's Base Salary.
                           This discretionary bonus may be paid at the sole
                           discretion of the Company and will be based on
                           attainment of:






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                           (1) Corporate Goals (growth & profit);
                           (2) Profit Center Goals; and
                           (3) Personal Goals and Objectives.

                           The Company reserves the right to amend the
                           Discretionary Bonus target of the Executive and/or
                           the bonus formula described in Section 3 (B)(1)-(3).

                  (C)      SEVERANCE.

                           (1) WITHOUT CAUSE OR CHANGE IN CONTROL TERMINATION.
                           In the event Executive's employment is terminated by
                           the Company during the Employment Term without Cause
                           or as a result of Change in Control of the Company:

                                    A. Executive shall be paid a severance equal
                                    to twelve (12) months of his Base Salary.
                                    This severance shall be paid bi-monthly in
                                    accordance with the Company's regular
                                    payment schedule of its employees. The
                                    Company's obligation to pay this severance
                                    shall immediately cease on the date the
                                    Executive commences any subsequent
                                    comparable employment;

                           (2) FOR CAUSE TERMINATION.

                                    A. For purposes of this Agreement, "Cause"
                                    shall mean:

                                            (I) the failure by the Executive to
                                            obey the reasonable and lawful
                                            orders of the President of the
                                            Company;

                                            (II) misconduct by the Executive
                                            that is materially  injurious to the
                                            Company; or

                                            (III) the Executive engaging in
                                            dishonest activities injurious to
                                            the Company;

                                    B. Should the Executive's employment be
                                    terminated by the Company for Cause during
                                    the Employment Term, this Agreement shall be
                                    terminated forthwith without notice or
                                    payment in lieu thereof and the Executive
                                    shall not be entitled to receive any other
                                    consideration (beyond consideration accrued
                                    to the date of dismissal that is owing but
                                    not yet paid) from the Company; and





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                                    C. In the event the Executive's employment
                                    is terminated by the Company during the
                                    Employment Term for Cause, the Executive
                                    shall be paid no severance payments.

                  (D)      CHANGE IN CONTROL. For purposes of this Agreement,
                           "Change in Control" shall be defined as any purchaser
                           acquiring 50% or more of the outstanding shares of
                           Meadowbrook Insurance Group, Inc.

         4. OTHER BENEFITS. The Executive shall also be entitled to such
additional benefits as outlined in the Manual during the Employment Term or
severance period, with the exception of 401-K participation during the severance
period.

         5. EMPLOYMENT TERM. The period of the Executive's employment by the
Company under this Agreement (the "Employment Term") shall commence on June 1,
2001 and shall continue through December 31, 2003 (and annually thereafter as
provided below) or the earliest date on which any of the following events
occurs:

                  (A)      the death or retirement of the Executive;

                  (B)      the date on which the Company discharges the
                           Executive by reason of the Executive's Total
                           Disability. For purposes of this Agreement, "Total
                           Disability" shall have the same meaning as used in
                           the Manual and consistent with the Long Term
                           Disability Benefits of the Company;

                  (C)      a mutual written agreement between the Company and
                           the Executive regarding an early termination date; or

                  (D)      the date on which the Company terminates the
                           Executive's employment for Cause as recited in
                           Paragraph 3 (C) (2).

Either party hereto may elect not to renew this Employment Agreement by giving
the other party written notice on or before June 30, 2003. If written notice of
the election not to renew this Agreement is not provided on or before June 30,
2003, and annually thereafter, this Agreement shall renew for an employment term
of one (1) year commencing January 1, 2004, and annually thereafter.

         6. CONFIDENTIAL INFORMATION AGREEMENT. Executive hereby reaffirms the
Confidential Information Agreement, executed by him and dated January 15,1996,
and agrees that it shall remain in full force and effect;

         7. BINDING EFFECT; ASSIGNMENT. The Company may assign this Agreement to
any of its affiliates or their successors or assigns. This Agreement shall be
binding upon and shall inure to the benefit of the Company, its affiliates and
their successors and





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assigns. This Agreement shall be binding upon and shall inure to the benefit of
the Executive. Neither this Agreement nor any right or interest hereunder shall
be assignable or transferable by the Executive, his beneficiaries or legal
representatives.

         8. MISCELLANEOUS. No provision of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is agreed to
in writing and signed by the Executive and the Company. No waiver by either
party hereto at any time of any breach by the other party hereto of, or
compliance with, any condition or provision of this Agreement to be performed by
such other party shall be deemed a waiver of similar or dissimilar provisions or
conditions at the same or at any or subsequent time. No agreement or
representations, oral or otherwise, express or implied, with respect to the
subject matter hereof have been made by either party which are not expressly set
forth in this Agreement.

         9. NOTICES. All notices or other communications required or permitted
hereunder shall be given in writing and shall be deemed sufficient if delivered
by hand (including by courier), mailed by registered or certified mail, postage
prepaid (return receipt requested), or sent by facsimile transmission, as
follows:

         If to the Executive:               If to the Company:

         To the address on file             MEADOWBROOK, INC
         with the Company's                 Attn:  Human Resources
         Human Resources                    26600 Telegraph Road, Suite 300
         Department as the                  Southfield,  MI  48034
         Executive's home address.

or such other address as shall be furnished in writing by such party, and any
such notice or communication shall be effective and be deemed to have been given
as of the date so delivered or, if mailed upon receipt thereof; provided,
however, that any notice or communication changing any of the addresses set
forth above shall be effective and deemed given only upon its receipt.

         10. SEVERABILITY. If any provision of this Agreement, or any
application thereof to any circumstance, is invalid, in whole or in part, such
provision or application shall to that extent be severable and shall not affect
other provisions or applications of this Agreement.

         11. GOVERNING LAW. This Agreement shall be construed in accordance with
and governed by the laws of the State of Michigan, excluding any choice of law
rule requiring application of the law or any other jurisdiction. Any action
arising out of or relating to this Agreement, its performance, enforcement or
breach, will be venued in the Circuit Court for the County of Oakland, State of
Michigan.





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         12. ENTIRE AGREEMENT. This Agreement and Confidential Information and
Non-Solicitation Agreement which is reaffirmed and incorporated by reference,
set forth the entire understanding of the parties hereto with respect to the
subject matter hereof and supersedes all prior and contemporaneous agreements,
written or oral, between them as to such subject matter.

         13. HEADINGS. The headings contained herein are solely for the purpose
of reference, are not part of this Agreement and shall not in any way affect the
meaning or interpretation of this Agreement.

         IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed and effective as of the date first written above.

WITNESSES:                                  MEADOWBROOK INSURANCE
                                            GROUP, INC.



--------------------                        ------------------------
                                            By: Robert S. Cubbin
                                            Its: President & COO


                                            MEADOWBROOK, INC.


--------------------                        ------------------------
                                            By: Robert S. Cubbin
                                            Its:  President


--------------------                        ------------------------
                                            Michael G. Costello





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