THE MIDLAND COMPANY
7000 MIDLAND BOULEVARD
AMELIA, OHIO 45102
NOTICE OF ANNUAL MEETING
TO THE SHAREHOLDERS OF THE MIDLAND COMPANY:
Notice is hereby given that the Annual Meeting of the Shareholders of
The Midland Company will be held at the Company's offices, 7000 Midland
Boulevard, Amelia, Ohio 45102, on Thursday, April 9, 1998, at 10 a.m., for the
following purposes:
1. To elect 5 members of the Board of Directors to hold office for
terms of three years.
2. To approve an amendment to the Articles of Incorporation of the
Company to increase the maximum number of shares authorized to be
outstanding to twenty million five hundred thousand (20,500,000)
of which twenty million (20,000,000) shall be common shares
without par value and five hundred thousand (500,000) shall be
preferred shares without par value
3. To approve an amendment to the Code of Regulations of the Company
so that the Chairman of the Board of Directors of the Company is
not required to be the Chief Executive Officer of the Company.
4. To approve amendments to The Midland Company Stock Option Plan for
Non-Employee Directors (the "Plan") to permit non-employee
directors to choose either grants of 1,000 restricted shares of
common stock or grants of 3,000 options to purchase shares of
common stock.
5. To ratify and approve the appointment of Deloitte & Touche LLP as
independent auditors.
6. To transact any other business that may lawfully come before the
meeting.
As of the date of this notice, the foregoing is the only business
which the Board of Directors intends to present or which the Board of Directors
has knowledge that others will present at the meeting.
You are urged to be present. If you do not expect to be present at the
meeting but wish your stock to be voted, please date, fill in and sign the
enclosed form of proxy and mail it in the enclosed return envelope which
requires no postage if mailed in the United States.
Shareholders of record at the close of business on March 6, 1998,
will be entitled to vote at the meeting or any adjournment thereof.
DATED AT AMELIA, OHIO THIS 6th day of March, 1998.
JOHN R. LABAR
Secretary
<PAGE>
TABLE OF CONTENTS
-----------------
PAGE
----
Proxy Statement............................................................1
Stock Ownership of Certain Beneficial Owners...............................1
Election of Directors......................................................2
Executive Compensation.....................................................7
Report of the Compensation Committee......................................10
Five Year Total Return....................................................11
Approval of an Increase in Authorized Shares Outstanding..................12
Approval of Amendment to Code of Regulation...............................12
Approval of Amendments to the Midland Company Stock Option Plan for
Non-Employee Directors................................................12
Ratification of Selection of Auditors.....................................13
Shareholder Proposals.....................................................13
Cost of Solicitation......................................................13
Other Matters.............................................................13
Exhibit A.................................................................14
Exhibit B.................................................................14
Exhibit C.................................................................14
<PAGE>
THE MIDLAND COMPANY
7000 Midland Boulevard
Amelia, Ohio 45102
The proxy and statement will first be sent to shareholders on or about
March 20, 1998.
PROXY STATEMENT
The enclosed proxy is solicited by the Board of Directors of The Midland
Company ("Midland" or the "Company"). Each person giving a proxy may revoke it
at any time before it is voted by giving notice to the Company in writing or in
open meeting or by a later dated proxy received by the Company. Any written
notice of revocation should be addressed to the Company (at the address
indicated above) to the attention of the Secretary. Each valid proxy received
in time will be voted at the meeting, and, if a choice is specified on the
ballot, it will be voted in accordance with such specification. If no choice is
specified on the ballot, the shares will be voted as recommended by the Board of
Directors, i.e., "FOR" Proposal 1 to elect the five persons nominated as
directors by the Board of Directors, "FOR" Proposal 2 to increase the number of
shares of the Company authorized to be outstanding, "FOR" Proposal 3 to amend
the Code of Regulations of the Company, "FOR" Proposal 4 to amend The Midland
Company Stock Option Plan for Non-Employee Directors, and "FOR" Proposal 5 to
ratify the appointment of the Independent Public Accountants. Holders of stock
on the books of the Company at the close of business on the 6th day of March,
1998, are entitled to notice of and to vote at the meeting. On March 6, 1998,
the Company had outstanding voting securities consisting of 3,100,592 shares of
common stock, the holders of which are entitled to one (1) vote per share.
Abstentions and shares otherwise not voted for any reason will have no effect on
the outcome of any vote at the annual meeting.
STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth, as of March 6, 1998, the holdings of
persons (including any "group" as that term is used in Section 13(d)(3) of the
Securities Exchange Act of 1934) known by the Company to be the beneficial owner
of more than 5% of the Company's outstanding common stock. Information has been
furnished by the persons listed. Beneficial ownership has been determined in
accordance with rules and regulations of the Securities and Exchange
Commission.
Name of Beneficial Amount Beneficially
Owner Address Owned Percent of Class
J.P. Hayden, Jr. 7000 Midland Boulevard 550,427 17.6 %
Amelia, Ohio 45102
Robert W. Hayden 7000 Midland Boulevard 450,514 14.5%
Amelia, Ohio 45102
Burgess L. Doan 5710 Wooster Road 377,110 12.2%
Cincinnati, Ohio 45227
John R. LaBar 7000 Midland Boulevard 330,865 10.6%
Amelia, Ohio 45102
Gabelli Fund One Corporate Center 293,800 9.5%
Rye, NY 10580
William McD. Kite 525 Vine Street 193,086 6.2%
Cincinnati, Ohio 45202
1
<PAGE>
(1) Includes 405,772 shares over which J. P. Hayden, Jr. has sole voting
and investment power, 105,337 shares over which he has sole voting
power only, 11,018 shares over which he shares voting and investment
power, and 28,300 shares that may be acquired through exercise of
options within 60 days of March 6, 1998.
(2) Includes 437,914 shares over which Robert W. Hayden has sole voting
and investment power, 4,600 shares over which he has sole voting
power, and 8,000 shares that may be acquired through exercise of
options within 60 days of March 6, 1998.
(3) Includes 196,831 shares over which Burgess L. Doan has sole
voting and investment power, including 46,638 shares held in trust
for the benefit of the family of J. P. Hayden, III, 40,162 shares
held in trust for the benefit of the family of John W. Hayden and
51,354 shares held in trust for the benefit of the family of William
T. Hayden. These shares held in trust are not shown as owned
beneficially by J. P. Hayden, III, John W. Hayden or William T.
Hayden. In addition, Mr. Doan shares voting and investment power
over 138,630 shares as co-trustee with William McD. Kite, under
agreement with J. Page Hayden, deceased. J. P. Hayden, Jr. is among
the beneficiaries of the J. Page Hayden Trust entitled to receive
distribution of income. These trust shares are not shown as
beneficially owned by J. P. Hayden, Jr. Mr. Doan shares voting and
investment power over 33,134 shares held in trust as a co-trustee
for the benefit of the children of Robert W. Hayden. Furthermore,
Mr. Doan shares voting and investment power over 8,515 shares held
in trust as co-trustee with William T. Hayden (6,263) and
J.P. Hayden, III (2,252).
(4) Includes 306,465 shares over which John R. LaBar has sole voting and
investment power, 4,600 shares over which he has sole voting power,
11,600 shares over which he shares voting and investment power, and
8,200 shares that may be acquired through exercise of options within
60 days of March 6, 1998.
(5) Includes 2,100 shares over which William McD. Kite has sole
voting and investment power and 185,986 shares over which he shares
voting and investment power, including 138,630 shares over which
Mr. Kite is a co-trustee with Burgess L. Doan under agreement with
J. Page Hayden, deceased, and 33,134 shares over which Mr. Kite is a
co-trustee for the benefit of the children of Robert W. Hayden.
J. P. Hayden, Jr. is among the beneficiaries of the J. Page Hayden
Trust entitled to receive distribution of income. These trust
shares are not shown as beneficially owned by J. P. Hayden, Jr.
Also, it includes 5,000 shares that may be acquired through exercise
of options within 60 days of March 6, 1998. Mr. Kite is a member of
the law firm of Cohen, Todd, Kite & Stanford, LLC, general counsel
for the Company. The Company paid the firm fees of $376,537 in
1997.
As of March 6, 1998, all Directors and Officers of the Company, as a
group, beneficially owned 1,510,841 shares of the common stock of the Company.
This amount includes 100,700 shares which may be acquired through exercise of
options within 60 days of March 6, 1998. The amount so beneficially owned
represents 47.2% of the aggregate of the shares outstanding on that date plus
the shares which may be so acquired through exercise of options.
ELECTION OF DIRECTORS
It is intended that proxies given to the persons named in the enclosed
form of proxy will be voted for the election of nominees listed below. In case
any nominee is unable or declines to serve, it is intended that proxies will be
voted for the balance of those named and for such person as shall be designated
by the Board of Directors to replace any such nominee. The issuer has no
knowledge or reason to believe that any nominee will be unable or unwilling to
serve.
Cumulative Voting Rights. Shareholders have cumulative voting rights in
the election of Directors. If notice in writing is given by any shareholder to
the President, a Vice President, or the Secretary of the Company, not less than
forty-eight (48) hours before the time fixed for holding the annual meeting that
a shareholder desires that the voting for the election of Directors be
cumulative and if an announcement of the giving of such notice is made upon
convening of the meeting, then each shareholder shall have the right to cumulate
his shares in voting for the Directors. By this procedure a shareholder,
instead of registering one vote per share for each candidate of his choice, may
cast the entire total of his
2
<PAGE>
votes (i.e., a total number of votes equal to the number of Directors to be
elected multiplied by the number of shares held by the shareholder) for one
candidate or distribute them among the candidates otherwise as the shareholder
desires. This proxy does not solicit discretionary authority to accumulate
votes.
The Board of Directors recommends a vote FOR each of the Directors
nominated in this proxy statement. Nominees receiving the highest number of
votes will be elected to the Board of Directors.
Information as to Nominees and Continuing Directors. The Board of
Directors will consist of fifteen members divided into three classes. Five
directors are to be elected at the annual meeting to serve until the annual
meeting in 2001 and until their successors have been elected and qualified. It
is intended that the accompanying proxy will be voted for the election of the
following five nominees:
Shares of
Common Stock of
Company
Principal Occupation Beneficially Percent
and Other Director Owned on of
Directors Business Affiliations Since March 6, 1998 Class
- --------------------------------------------------------------------------------
J.P. Hayden, Jr. (1) Chairman of the Board 1961 550,427(2) 17.6%
(Age 68) and Chief Executive
Officer of the Company;
Director, Star Banc
Corporation
William T. Hayden (1) Attorney; Formerly 1994 121,837(12) 3.9%
(Age 44) Partner of Firm of
Cohen, Todd, Kite &
Stanford
John M. O'Mara Financial Consultant; 1983 8,000(8) 0.3%
(Age 70) Director, Baldwin &
Lyons, Inc.,
Plantronic, Inc.;
Formerly Chairman of
the Executive
Committee, Quality Care
Systems
Glenn E. Schembechler Professor Emeritus, 1981 10,535(9) 0.3%
(Age 68) University of Michigan;
Formerly President,
Detroit Tigers Baseball
Club; Formerly,
Athletic Director and
Head Football Coach,
University of Michigan;
Director, Riddell
Sports, Inc.
John I. Von Lehman Executive Vice 1991 11,060(10) 0.4%
(Age 45) President
and Chief Financial
Officer of the Company
3
<PAGE>
The following Directors have been elected to serve until the annual
meeting in 1999 and until their successors have been elected and qualified:
Shares of
Common Stock of
Company
Principal Occupation Beneficially Percent
and Other Director Owned on of
Directors Business Affiliations Since March 6, 1998 Class
- --------------------------------------------------------------------------------
James E. Bushman President and CEO, 1997 1,000(13) ---
(Age 53) Cast-Fab Technologies,
Inc.
James H. Carey Corporate 1971 4,440(3) 0.1%
(Age 64) Director/Advisor
since September, 1995;
Managing Director,
Briarcliff Financial
Associates since June,
1991; formerly CEO,
National Capital
Benefits Corp.;
Director, Airborne
Freight Corporation;
Cowan Group of Funds
John W. Hayden (1) Senior Executive Vice 1991 81,422(4) 2.6%
(Age 40) President of the
Company; Vice Chairman
of American Modern
Insurance Group, Inc.
(a wholly owned
Subsidiary of The
Midland Company)
Robert W. Hayden (1) Vice President of the 1968 450,514(2) 14.5%
(Age 59) Company
David B. O'Maley Chairman, President & 1998 --- ---
(Age 51) CEO, The Ohio National
Life Insurance Company
and Ohio National Life
Assurance Company;
Chairman and Director,
the O.N. Equity Sales
Company and Ohio
National Equities,
Inc.; Director, Star
Banc Corporation.
4
<PAGE>
The following Directors have been elected to serve until the annual
meeting in 2000 and until their successors have been elected and qualified:
Shares of
Common Stock of
Company
Principal Occupation Beneficially Percent
and Other Director Owned on of
Directors Business Affiliations Since March 6, 1998 Class
- --------------------------------------------------------------------------------
George R. Baker Corporate Director/ 1971 7,440(5) 0.2%
(Age 68) Advisor since July 1,
1985; Director,
Reliance Group
Holdings, Inc.,
Reliance Insurance
Co., W. W. Grainger,
Inc., WMS Industries,
Inc.
Michael J. Conaton President and Chief 1969 58,468(6) 1.9%
(Age 64) Operating Officer of
the Company
J. P. Hayden, III (1) Senior Executive Vice 1989 50,043(7) 1.7%
(Age 45) President of the
Company; President
of M/G Transport
Services, Inc. (a
wholly owned
Subsidiary of The
Midland Company)
William J. Keating Formerly Chairman and 1991 5,000(11) 0.2%
(Age 70) Publisher and Chief
Executive Officer of
The Cincinnati
Enquirer
John R. LaBar Vice President and 1963 330,865(2) 10.6%
(Age 66) Secretary of the Company
William McD. Kite (Director since 1966), John R. Orther (Director since
1961) and William F. Plettner (Director since 1961) retired from the Company's
Board of Directors on March 5, 1998. All three retiring Directors have been
appointed to the honorary position of Director Emeritus.
Information has been furnished by the persons listed. Beneficial
ownership has been determined in accordance with rules and regulations of the
Securities and Exchange Commission. Periods of service as directors include
service as directors of the Company's predecessor, Midland-Guardian Co.
(1) J. P. Hayden, Jr. and Robert W. Hayden, both of whom are executive officers
of the Company and various subsidiaries, are brothers. J. P. Hayden, III,
John W. Hayden and William T. Hayden are sons of J. P. Hayden, Jr.
(2) With reference to the holdings of J. P. Hayden, Jr., Robert W. Hayden, and
John R. LaBar, see footnotes (1) through (5) under Principal Holders of
Voting Securities.
(3) Includes 440 shares over which James H. Carey has sole voting and
investment power, and 4,000 shares that may be acquired through exercise of
options within 60 days of March 6, 1998. Mr. Carey was indebted to the
Company in the amount of $97,000 in 1997 on a loan for personal purposes.
The rate of interest on the loan was 8%. As of March 6, 1998, Mr. Carey
has repaid the loan in full.
5
<PAGE>
(4) Includes 2,675 shares over which John W. Hayden has sole voting and
investment power, 7,100 over which he has sole voting power, 4,526 shares
over which he shares voting and investment power, 60,221 shares over which
he shares investment power only, and 6,900 shares that may be acquired
through exercise of options within 60 days of March 6, 1998.
(5) Includes 3,440 shares over which George R. Baker has sole voting and
investment power and 4,000 shares that may be acquired through exercise of
options within 60 days of March 6, 1998.
(6) Includes 11,000 shares over which Michael J. Conaton has sole voting power,
34,468 shares over which he has sole voting and investment powers, and
13,000 shares that may be acquired through exercise of options within 60
days of March 6, 1998.
(7) Includes 2,115 shares over which J. P. Hayden, III has sole voting and
investment power, 7,100 shares over which he has sole voting power, 13,591
shares over which he shares voting and investment power, 22,937 shares over
which he shares investment power only, and 7,300 shares that may be
acquired through exercise of options within 60 days of March 6, 1998.
(8) Includes 3,000 shares over which John M. O'Mara has sole voting and
investment power, and 5,000 shares that may be acquired through exercise
of options within 60 days of March 6, 1998.
(9) Includes 5,535 shares over which Glenn E. Schembechler has sole voting and
investment power and 5,000 shares that may be acquired through exercise of
options within 60 days of March 6, 1998.
(10) Includes 2,460 shares over which John I. Von Lehman has sole voting and
investment power, 4,600 shares over which he has sole voting power, and
4,000 shares that may be acquired through exercise of options within 60
days of March 6, 1998.
(11) Includes 2,000 shares over which William J. Keating shares voting and
investment powers and 3,000 shares that may be acquired through exercise of
options within 60 days of March 6, 1998.
(12) Includes 330 shares over which William T. Hayden has sole voting and
investment power, 62,399 shares over which he shares voting and investment
power, 55,108 shares over which he shares investment power only,
and 4,000 shares that may be acquired through exercise of options within 60
days of March 6, 1998. Mr. Hayden is an attorney and the Company paid him
fees of $265,000 in 1997 for professional services provided to the Company.
(13) Includes 1,000 shares over which James E. Bushman has sole voting and
investment power.
Committees of the Board of Directors. The Board of Directors of the
Company has an audit committee, a compensation committee and an executive
committee, but has no nominating committee. The audit committee is composed of
James E. Bushman, James H. Carey, John M. O'Mara and Glenn E. Schembechler. The
function of the audit committee is to nominate auditors for the annual audit of
the Company and discuss the audit work with the auditors appointed to perform
the audit. The compensation committee is composed of George R. Baker, James H.
Carey and William J. Keating. The function of the compensation committee is to
review and make recommendations as to compensation of the senior executive
officers of the Company. The executive committee is composed of Joseph P.
Hayden, Jr., Michael J. Conaton, Joseph P. Hayden, III, John W. Hayden and
William J. Keating. The executive committee has the authority, during intervals
between meetings of the Board of Directors, to exercise all powers of the Board
of Directors other than that of filling vacancies among the Board of Directors
or in any committee of the Board of Directors.
Board and Committee Meetings and Attendance. The Board of Directors of
the Company had four meetings, the audit committee had four meetings and the
compensation committee had three meetings in 1997. All Directors attended at
least 75% of the meetings of the Board of Directors and at least 75% of the
meetings of all of the committees of which they were members during 1997.
6
<PAGE>
Director Compensation. The Company pays non-employee Directors an
annual fee of $12,000 plus an attendance fee of $1,000 for each regularly held
meeting. In addition, the Company pays non-employee Directors who serve on the
audit committee or the compensation committee an annual fee of $2,000 for
services on such committees. Directors who are employees of the Company do not
receive any compensation for serving as a Director. The net value realized from
the exercise of options in 1997 by non-employee directors was $87,125.
Currently, non-employee Directors receive, on a bi-annual basis, a grant of an
option to purchase 1,000 shares of Company common stock under The Midland
Company Stock Option Plan for Non-Employee Directors (the "Plan"). Subject to
the approval of amendments to the Plan by the shareholders, non-employee
Directors will, beginning in 1999, on a bi-annual basis, receive (at the
election of the non-employee Director) either: (a) a grant of 1,000 restricted
shares of Company common stock (on a post-split basis), or (b) a grant of an
option to purchase 3,000 shares of Company common stock (on a post split basis).
Compliance with Section 16 of the Securities Exchange Act of 1934.
Based on a review of filings with the Securities and Exchange Commission and
written representations that no other reports were required, the Company
believes that all of the Company's officers, directors and persons who own more
than ten percent of the shares of the Company's common stock complied with the
reporting requirements of Section 16(a) of the Securities Exchange Act of 1934,
with the exception that Mr. Bushman filed Form 3 more than ten days after the
event which subjected him to Section 16(a) of the Securities Exchange Act of
1934. The delay was the result of an administrative error on the Company's
part in processing the filing on behalf of Mr. Bushman.
EXECUTIVE COMPENSATION
The following Summary Compensation Table provides an overview of
compensation paid, earned or awarded to the CEO and the four other most highly
paid executive officers of the Company as to whom total annual salary and bonus
exceeded $100,000 for 1997.
SUMMARY COMPENSATION TABLE
Long Term Compensation All Other
Annual Compensation ______Awards____ ____Compensations____
Restricted
Name and Stock Options/ Savings
Principle Position Year Salary Bonus Awards(1) SAR'S Plans(2) Insurance(3)
- --------------------------------------------------------------------------------
J. P. Hayden, Jr. 1997 $600,000 $217,935 $558,750 $ 0 $36,807 $81,746
Chairman of the 1996 600,000 0 0 0 27,622 50,147
Board and Chief 1995 550,000 112,641 540,625 0 4,620 14,031
Executive Officer
Michael J. Conaton 1997 315,000 108,967 223,500 0 19,079 3,721
President and 1996 315,000 0 0 0 14,468 3,566
Chief Operating 1995 298,000 56,321 216,250 0 4,620 0
Officer
J. P. Hayden, III 1997 245,000 53,656 186,250 0 13,440 676
Senior Executive 1996 245,000 52,868 0 0 11,266 381
Vice President 1995 225,000 33,643 90,825 0 4,620 357
John W. Hayden 1997 230,000 121,731 186,250 0 15,828 367
Senior Executive 1996 230,000 5,000 0 0 11,733 228
Vice President 1995 210,000 81,984 90,825 0 4,620 211
John I. Von Lehman 1997 200,000 79,909 93,125 0 12,596 522
Executive Vice 1996 200,000 5,000 0 0 9,478 293
President, 1995 187,000 41,303 90,825 0 4,620 279
Treasurer & CFO
7
<PAGE>
(1) Dividends will be paid on stock reported in this column. The aggregate
number of restricted stock holdings and valuations at 12/31/97 were as
follows: J. P. Hayden, Jr., 35,500 shares valued at $2,047,500; Michael J.
Conaton, 13,500 shares valued at $850,500; J. P. Hayden, III, 8,600 shares
valued at $541,800; John W. Hayden, 8,600 shares valued at $541,800; and
John I. Von Lehman, 6,100 shares valued at $384,300.
(2) Total Company matching contributions earned during year from savings plans.
(3) The Company has instituted a split-dollar life insurance program for J. P.
Hayden, Jr., a director and an executive officer of the Company. Under this
program, the Company has purchased life insurance policies on the lives of
J. P. Hayden, Jr. and his wife. J. P. Hayden, Jr. is responsible for a
portion of the premiums and the Company pays the remainder of the premiums
on the life insurance policies. The amount of premium advanced by the
Company in 1997 was $588,687. No interest is charged on the amount advanced
but repayment of such amount is secured by collateral assignment of the
policies. Upon the death of J. P. Hayden, Jr. and his wife, the Company
will be entitled to receive that portion of the benefits paid under the life
insurance policy as is equal to the premiums paid by the Company on that
policy. In the event of surrender of a policy prior to death of an insured,
the Company would recover the premiums it has paid from the cash surrender
value of the policy or from the insureds. The life insurance trust
established by the decedent will receive the remainder of the death
benefits. The economic value of the benefit for the period the funds were
advanced during 1997, using the Demand Loan Approach and the Company's
commercial paper rate of 5.29%, is $70,406 for J. P. Hayden, Jr. Such
amount is reflected in the Summary Compensation Table. The remaining amounts
represent total group term life insurance premium paid by the Company during
the year. Similar programs have been instituted for Robert W. Hayden and
John R. LaBar, both directors and executive officers of the Company. The
amount of premium advanced by the Company in 1997 was $235,634 for Robert W.
Hayden and $278,185 for John R. LaBar. No interest is charged on the
amounts advanced. The economic value of the benefits for the period the
funds were advanced during 1997, using the Demand Loan Approach and the
Company's commercial paper rate of 5.29%, are $28,092 for Robert W. Hayden,
Jr. and $34,243 for John R. LaBar.
Savings Plans. The Board of Directors has approved two savings plans: a
Qualified 401(K) Savings Plan that has been approved by the Internal Revenue
Service and a Non-Qualified Savings Plan. These plans provide additional
retirement benefits for salaried employees. An employee may make basic pre-tax
contributions to his plan account up to 6% of his compensation. An employee may
also make supplemental contributions up to an additional 10% of his
compensation. Under the Qualified 401(K) Savings Plan: 1) the Company
contributes $.50 for each dollar of the employee's basic contribution, 2) an
employee's total contribution may not exceed the lesser of $9,500 or 16% of an
employee's compensation in 1997 and 3) all funds under this plan are not
available to the Company's creditors in the case of bankruptcy or change in
ownership. Under the Non-Qualified Plan: 1) the Company contributes $.75 for
each dollar of the employee's basic contribution, 2) an employee's total
contribution may not exceed 16% of the employee's compensation and 3) all
amounts in this plan are subject to the Company's creditors in the case of
bankruptcy or change of control. The Company does not match supplemental
contributions under either plan. Cash Compensation paid pursuant to these plans
is included in the Summary Compensation Table as All Other Compensation.
Pension Plans. A Pension Plan has been adopted by the Board of
Directors and approved by the Internal Revenue Service. The Pension Plan
provides for payment of annual benefits to salaried employees of the Company
upon retirement. The monthly benefits equal the years of service (up to a
maximum of 35 years) multiplied by the sum of 1% of that portion of average
monthly salary (plus bonus) constituting Social Security covered compensation,
plus 1.75% of that portion of average monthly salary (plus bonus) not
constituting Social Security covered compensation. Average monthly salary (plus
bonus) is based on the highest average salary for 5 consecutive years.
8
<PAGE>
Proposed compensation in the form of payments from this non-contributory
defined benefit pension plan are not included in the Summary Compensation Table.
The 1997 estimated annual benefits (after deduction for social security
benefits) payable upon retirement is a straight line annuity paid from the
Pension Plan and may be individually estimated by reference to the following
table:
Average Years of Service
Annual ----------------------------------------------------
Salaries 15 20 25 30 35
100,000 22,748 30,331 37,914 45,496 53,079
150,000 35,873 47,831 59,789 71,746 83,704
200,000 48,998 65,331 81,664 97,996 114,329
250,000 62,123 82,831 103,539 124,246 144,954 *
300,000 75,248 100,331 125,414 150,496 * 175,579 *
350,000 88,373 117,831 147,289 * 176,746 * 206,204 *
400,000 101,498 135,331 * 169,164 * 202,996 * 236,829 *
450,000 114,623 152,831 * 191,039 * 229,246 * 267,454 *
500,000 127,748 170,331 * 212,914 * 255,496 * 298,079 *
550,000 140,873 * 187,831 * 234,789 * 281,746 * 328,704 *
600,000 153,998 * 205,331 * 256,664 * 307,996 * 359,329 *
650,000 167,123 * 222,831 * 278,539 * 334,246 * 389,954 *
700,000 180,248 * 240,331 * 300,414 * 360,496 * 420,579 *
750,000 193,373 * 257,831 * 322,289 * 386,746 * 451,204 *
* Under the Internal Revenue Code, the maximum allowable annual benefit
payable by the qualified pension plan in 1998 is $130,000. In addition, the
maximum pay that can be used to determine the benefit is $160,000. The Board of
Directors has approved the payment to participants directly by the Company of
any reduction in benefits occasioned by limitations on benefits contained in the
Internal Revenue Code.
The compensation covered by the Pension Plan includes basic salary,
overtime and bonus. The credited years of service through 1997 covered by the
plan (not to exceed 35 years) for each of the five most highly compensated
executive officers of the Company is: J. P. Hayden, Jr. (35), Michael J.
Conaton (35), J. P. Hayden, III (21.3), John W. Hayden (15.6) and John I.
Von Lehman (17.5).
The following table sets forth the aggregated option exercises during
1997 and the option value as of December 31, 1997 for the CEO and the four other
most highly paid executive officers of the Company under the 1992 Employee
Incentive Stock Option Plan adopted by the Board of Directors and approved by
the shareholders.
9
<PAGE>
Aggregate Option/SAR Exercises in Last Fiscal Year
and FY-End Option/SAR Values
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Options/SARs Options/SARs
at FY End 1996 at Year End
Shares
Acquired Value Exercisable/ Exercisable/
Name on Exercise Realized Unexercisable Unexercisable
- --------------------------------------------------------------------------------
J.P. Hayden, Jr. - - 28,300 $1,025,450
0 0
Michael J. Conaton - - 13,000 471,000
0 0
J. P. Hayden, III - - 7,300 264,450
0 0
John W. Hayden - - 6,900 249,850
0 0
John I. Von Lehman 3,000 100,519 4,000 144,000
0 0
REPORT OF THE COMPENSATION COMMITTEE
The Compensation Committee's compensation policies are designed to
attract and retain qualified executive officers, to reward them for profitable
corporate performance and to provide incentives for them to create long-term
corporate stability and growth. Therefore, the Company's compensation package
for its executive officers consists of base salary, annual performance based
bonus and incentive awards. The level of these amounts is determined by the
Compensation Committee.
The Committee sets base salaries at levels believed by the Committee to
be sufficient to attract and retain qualified executives, including the Chief
Executive Officer, considering other compensation components offered by the
Company and salaries offered by other companies. The Chief Executive Officer's
1997 salary of $600,000 was a 0% increase over 1996. Salaries of executive
officers are listed in the Summary Compensation Table.
The Committee believes that a significant portion of total compensation
should be subject to specific annual performance criteria. Consequently, the
annual bonus potential is set at a significant percentage of salary. The target
bonus is based on the annual profit performance of the Company and the
individual officer's percentage of participation in the Profit Sharing Plan.
The Board of Directors of the Company has continued its policy of adopting a
Profit Sharing Plan first initiated in 1968 under which the Board is authorized
to pay to certain of the executive officers of the Company as additional
compensation during each year an aggregate sum not to exceed 3.6% of the
consolidated earnings (before taxes) of the Company during such year. The
Compensation Committee determines each respective executive officer's
(including the Chief Executive Officer's) percentage of participation in the
Plan based on specific job responsibilities. Total executive bonuses are
generally less than 50 percent of the executive's base salary. The Chief
Executive Officer's annual bonus for 1997 was $217,935. This amount is more
than prior years and reflects the Company's profit performance for 1997. Cash
compensation paid pursuant to the Plan is included in the Summary Compensation
Table.
10
<PAGE>
Long-term incentive awards are made under the Company's 1992 Employee
Incentive Stock Plan which authorizes restricted stock awards, stock option
grants and stock appreciation rights. The Plan was adopted to provide
incentives to encourage employee contribution to the Company's stability and
growth. The Plan is administered by the members of the Compensation Committee.
Restricted stock was awarded to the Chief Executive Officer and other executive
officers in 1995 and 1997 as set forth in the Summary Compensation Table, but no
stock was awarded in 1996.
The Compensation Committee is composed of three independent non-employee
directors, whose names are:
George R. Baker
James H. Carey
William J. Keating
FIVE YEAR TOTAL RETURN
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN*
AMONG MIDLAND CO., AMERICAN STOCK EXCHANGE COMPOSITE AND THE S&P PROPERTY AND
CASUALTY GROUP
1992 1993 1994 1995 1996 1997
------ ------ ------ ------ ------ ------
MIDLAND 100 99.8 98.5 113.3 90.2 149.7
S&P PROPERTY & CASUALTY GROUP 100 98.2 103.0 139.5 169.5 246.6
AMEX COMPOSITE 100 117.6 109.6 141.0 143.3 179.2
ASSUMES $100 INVESTED ON DECEMBER 31, 1992 IN MIDLAND COMMON STOCK, AMEX
COMPOSITE AND THE S & P PROPERTY AND CASUALTY GROUP.
* TOTAL RETURN ASSUMES REINVESTMENT OF DIVIDENDS.
11
<PAGE>
APPROVAL OF AN INCREASE IN AUTHORIZED SHARES OUTSTANDING
At its meeting on March 5, 1998, the Board of Directors approved an
amendment to the Company's Articles of Incorporation to increase the maximum
number of common shares authorized to be outstanding to twenty million five
hundred thousand (20,500,000) of which twenty million (20,000,000) shall be
common shares without par value and five hundred thousand shall be preferred
shares without par value. The Board directed that the amendment be submitted to
a vote of shareholders at the annual meeting. Currently, the Company's Articles
of Incorporation authorize the issuance of five million five hundred thousand
(5,500,000) shares of which five million (5,000,000) shall be common shares
without par value and five hundred thousand (500,000) shall be preferred shares
without par value. As of March 6, 1998, 3,100,592 common shares of the Company
were outstanding and approximately 646,000 common shares had been reserved for
issuance pursuant to various director and employee benefit plans of the Company.
This left approximately 1,253,408 common shares available for future issuances
by the Company. The Board of Directors believes that it is desirable to
increase the number of authorized shares in order to make available additional
shares for issuance for possible stock dividends, stock splits, benefit plan
issuances, acquisitions, financings and for such other corporate purposes as may
arise. Subject to the approval by the shareholders of the increase in the
authorized shares outstanding, the Board has approved a 3-for-1 stock split of
the common shares of the Company to be accomplished by the issuance of two
additional shares for each one share held by any shareholder so that after the
stock split, each shareholder shall hold three shares for every one share
previously held. In the event that the shareholders approve the increase in the
maximum number of shares authorized to be outstanding, then the Board of
Directors will instruct management of the Company to take such steps as are
necessary to accomplish the stock split. The Company has no specific plans
currently calling for issuance of any of the additional shares other than the
3-for-1 stock split described above. All newly authorized shares would have the
same rights as the presently authorized shares, including the right to cast one
vote per share and to participate in dividends when and to the extent declared
and paid. A copy of the full resolution for which the Board of Directors seeks
approval from the shareholders is attached hereto as Exhibit A.
The Board of Directors recommends a vote FOR the increase in the
maximum number of shares authorized to be outstanding. The affirmative vote of
a majority of common shares voting at the annual meeting of shareholders is
required for ratification of this proposal.
APPROVAL OF AMENDMENT TO CODE OF REGULATIONS
At its meeting on March 5, 1998, the Board of Directors approved an
amendment to The Midland Company Code of Regulations. The Board directed that
the amendment to the Code of Regulations be submitted to a vote of shareholders
at the annual meeting. Currently, the Code of Regulations of the Company
requires that the Chairman of the Board of Directors of the Company must also
serve as the Chief Executive Officer of the Company. This restriction limits
the ability of the Board of Directors to elect various persons to the offices
for which they may be qualified. The amendment to the Code of Regulations
proposed by the Board would permit the Board to elect the Chief Executive
Officer of the Company independently of the Chairman of the Board of Directors.
A copy of the full resolution for which the Board of Directors seeks approval is
attached hereto as Exhibit B.
The Board of Directors recommends a vote FOR the amendment to the
Company's Code of Regulations. The affirmative vote of a majority of common
shares voting at the annual meeting of shareholders is required for
ratification of this proposal.
APPROVAL OF AMENDMENTS TO THE MIDLAND COMPANY
STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS
At its meeting on March 5, 1998, the Board of Directors approved
amendments to the Midland Company Stock Option Plan for Non-Employee Directors
(the "Plan"). The Board directed that the
12
<PAGE>
amendments to the Plan be submitted to a vote of shareholders at the annual
meeting. The effect of the amendments and the Plan is to give non-employee
Directors a choice between a bi-annual grant of options to purchase 3,000 shares
of the Company's common stock (on a post-split basis) or a grant of 1,000
restricted shares (the "Restricted Shares") of the Company's common stock (on a
post-split basis). The Board of Directors believes that amendments to the Plan
will allow the Company to more effectively attract and retain qualified
directors. Non-employee Directors will be unable to transfer the Restricted
Shares for one year after receipt of the Restricted Shares. If a non-employee
Director leaves the Board of Directors for any reason other than death or
disability, then any Restricted Shares then outstanding which have not yet
vested will be forfeited by the Director. If a non-employee Director dies while
holding Restricted Shares, the Restricted Shares may be transferred under a will
or by the laws of descent and distribution, provided that the recipient of the
Restricted Shares agrees to be bound by all of the restrictions governing the
Restricted Shares. A copy of the amendments to The Midland Company Stock Option
Plan For Non-Employee Directors for which the Board of Directors seeks approval
is attached hereto as Exhibit C.
The Board of Directors recommends a vote FOR the amendments to the
Plan. The affirmative vote of a majority of common shares voting at the annual
meeting of shareholders is required for ratification of this proposal.
RATIFICATION OF SELECTION OF AUDITORS
The Board of Directors has selected the firm of Deloitte & Touche LLP
as auditors to make an examination of the accounts of the Company for the year
1998. This firm of independent certified public accountants has made the annual
audits of the accounts of the Company and its predecessor, Midland-Guardian Co.,
since 1952. Such selection of auditors is submitted to the shareholders for
ratification and approval or rejection. If rejected, the audit committee of the
Board of Directors will select other auditors. Representatives of such auditors
are expected to be present at the meeting and will have an opportunity to make a
statement and be available to respond to appropriate questions. The affirmative
vote of a majority of common shares voting at the annual meeting of
shareholders is required for ratification of this proposal.
SHAREHOLDER PROPOSALS
Proposals of shareholders intended to be presented at the 1999 annual
meeting must be received at the Company's executive offices on or before
November 13, 1998, in order to be included in the proxy statement and form of
proxy relating to that meeting.
COST OF SOLICITATION
The cost of preparing and mailing this statement and the accompanying
notice of meeting and proxy, and any additional material relating to the
meeting, and the cost of soliciting proxies, will be borne by the Company.
OTHER MATTERS
The Board of Directors knows of no other matters which are likely to be
brought before the meeting. However, if any other matters not now known
properly come before the meeting, the persons named in the enclosed proxy or
their substitute, will vote said proxy in accordance with their judgment of such
matters.
13
<PAGE>
The above notice and proxy statement are sent by order of the Board of
Directors.
JOHN R. LABAR
Secretary
Dated: March 20, 1998
Shareholders may obtain without charge a copy of the Company's 1997 report to
the Securities and Exchange Commission on Form 10-K by sending a request to:
Office of the Chief Financial Officer - 10K Report, The Midland Company, 7000
Midland Boulevard, Amelia, Ohio 45102.
EXHIBIT A
PROPOSED AMENDMENT TO ARTICLE FOURTH, SECTION 1
OF ARTICLES OF INCORPORATION
RESOLVED, that Article FOURTH, Section 1 of the Articles of Incorporation of the
Company be amended by deletion thereof and substitution of the following:
FOURTH: Section 1. The maximum number of shares which the Corporation is
authorized to have outstanding is Twenty Million Five Hundred Thousand
(20,500,000) shares, which shall be classified and bear designations as
follows: Five Hundred Thousand (500,000) shares, without par value, shall be
designated as Preferred Stock and Twenty Million (20,000,000) shares, without
par value, shall be designated as Common Stock.
EXHIBIT B
PROPOSED AMENDMENT TO ARTICLE THIRD, SECTION 3
OF THE CODE OF REGULATIONS
RESOLVED, that Article THIRD, Section 3 of the Code of Regulations of the
Company be amended so that the Chairman of the Board of Directors of the
Company is not required to be the Chief Executive Officer of the Company, such
amendment to be accomplished by deletion of the first sentence of the third
paragraph of Article THIRD, Section 3 thereof and substitution of the following
sentence:
The Chairman of the Board shall preside at all meetings, regular or special,
of the Board.
EXHIBIT C
PROPOSED AMENDMENTS TO THE MIDLAND COMPANY
STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS
RESOLVED, that The Midland Company Stock Option Plan for Non-Employee Directors
is hereby amended as follows:
1. The name of the Plan shall be amended to The Midland Company Restricted
Stock and
14
<PAGE>
Stock Option Plan for Non-Employee Directors.
2. Section 3 shall be restated in its entirety to read as follows:
"Award of Restricted Stock or Grant of Options. On the last business day
of January, 1999, 2001 and at 2-year intervals thereafter, each Participant
shall receive 1,000 shares of Restricted Stock of the Company or an option to
purchase 3,000 shares of common stock of the Company, as elected by the
Participant at the regular meeting of the Company's Board of Directors held
in the month of December prior to the date mentioned above and as approved by
the Board of Directors at such meeting. (The number of option or share
grants a Participant shall receive has been established based on the
assumption that the shareholders will vote to approve the increase in
authorized shares to be considered at the annual shareholders' meeting on
April 9, 1998. If the shareholders do not vote to approve the increase in
authorized shares, then the number of option or share grants received by
Participant shall be 1,000 options or 333 shares.) Such election shall be
made on a form satisfactory to counsel for the Company."
3. Section 5 shall be restated in its entirety to read as follows:
"Changes in Capital Structure. In the event that the outstanding Common
Shares of the Company are hereafter increased or decreased or changed into or
exchanged for a different number or kind of shares or other securities of the
Company or of another corporation, by reason of reorganization, merger,
consolidation, recapitalization, reclassification, stock split-up,
combination of shares, or dividend payable in corporate shares, appropriate
adjustment shall be made automatically in the number and kind of shares which
may be awarded under the Plan and the number and kind of shares for the
purchase of which options may be granted under the Plan. In addition,
appropriate adjustments shall be made automatically in the number and kind of
shares which may be awarded under the Plan or as to which outstanding options
or portions thereof then unexercised shall be exercisable, to the end that
the Participant's proportionate interest shall be maintained as before the
occurrence of such event. Such adjustment in outstanding options shall be
made without change in the total price applicable to the unexercised portion
of the option and with a corresponding adjustment in the option price per
share."
4. A new Section 6 shall be added to the Plan to read as follows:
"6. Terms and Conditions of Restricted Stock Awards. Restricted Stock
Awards shall be evidenced by an agreement in such form not inconsistent with
this Plan as the Board of Directors shall from time to time determine,
provided that the substance of the following be included therein:
(a) Director Status. The Board of Directors may provide that Restricted
Stock shall be forfeited and must be returned to the Company without
payment therefore if the Participant ceases to be a Director of the
Company within one (1) year of the date of the award of the Restricted
Stock. A forfeiture shall not occur if the Participant's director status
terminates on account of death or disability.
(b) Award Price. There shall be no payment required from a Participant
receiving an award of Restricted Stock.
(c) Other Restrictions.
(1) Assignability. Restricted Stock shall not be assignable or
transferable (while the restrictions are in force) by the Participant
except by will or by the laws of descent and distribution, unless
otherwise determined by the Board of Directors. The
15
<PAGE>
designation of a
beneficiary by a Participant does not constitute a transfer.
(2) Effect of Death While a Director. In the event of the death
of the Participant while he is a director of the Company, any Restricted
Stock may be transferred to his heirs, or legatees provided that they
acknowledge and agree to abide by the terms of the Restricted Stock
Agreement.
(3) Legend on Stock. Certificates representing Restricted Stock
shall bear a legend as counsel to the Corporation may deem appropriate
regarding the restrictions.
(d) Restriction. A Participant may not sell shares of Restricted Stock
until at least one (1) year after award of such stock.
(e) Other Terms and Conditions. The Board of Directors may impose such
other terms, conditions and restrictions as it deems appropriate."
Existing Sections 6, 7, 8, 9, 10 and 11 shall be renumbered to take into
account the incorporation of new Section 6.
5. The first paragraph of Section 9 shall be amended to read as follows:
"This Amendment which has been adopted by the Board of Directors on
March 5, 1998, and shall be subject to approval by the Shareholders of the
Company the next annual meeting of such Shareholders to be held
April 9, 1998.
6. A new Section 12 shall be added to the Plan to read as follows:
"Effect of Plan Amendment. Nothing contained herein shall be construed
to amend or modify any options granted to Participants under the Plan
prior to the date hereof.
7. In all other respects the Plan adopted by the Board of Directors
March 5, 1992, and adopted by the Stockholders April 9, 1992, shall remain
unchanged.
16
<PAGE>
PROXY
The Midland Company
7000 Midland Boulevard
Amelia, OH 45102
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
The undersigned hereby appoints J.P. Hayden, Jr., Michael J. Conaton, and John
R. LaBar, and each of them, attorneys, with the powers which the undersigned
would possess if personally present, including the power of substitution, to
vote all shares of the undersigned at the Annual Meeting of Stockholders of
The Midland Company to be held at the Company's offices, 7000 Midland
Boulevard, Amelia, Ohio 45102, at 10:00 A.M., on the 9th day of April, 1998,
and at any adjournment thereof. The above proxies are hereby instructed to
vote as shown on this card.
The Board of Directors recommends a FOR vote on the election of Directors and
on all proposals. Please mark an X in one box under each item.
1. ELECTION of five (5) Directors
___ FOR all nominees listed below.
___ WITHHOLD AUTHORITY to vote for all nominees below.
INSTRUCTION: To withhold authority to vote for any individual nominee, write
the nominee's name in the space below.
_______________________________________________________________________
2. PROPOSAL to approve an amendment to the Articles of Incorporation of the
Company's increasing authorized shares to 20,500,000.
___ FOR ___ AGAINST ___ ABSTAIN
3. PROPOSAL to approve an amendment to the Code of Regulations of the
Company.
___ FOR ___ AGAINST ___ ABSTAIN
4. PROPOSAL to approve amendments to The Midland Company Stock Option Plan
for Non-Employee Directors.
___ FOR ___ AGAINST ___ ABSTAIN
5. PROPOSAL to ratify and approve the appointment of DELOITTE & TOUCHE LLP
as independent auditors of the Company.
___ FOR ___ AGAINST ___ ABSTAIN
<PAGE>
The Midland Company
c/o Corporate Trust Services
15th Floor
38 Fountain Square Plaza
Cincinnati, OH 45263
DIRECTIONS TO THE MIDLAND COMPANY
ANNUAL SHAREHOLDERS MEETING
APRIL 9, 1998
FROM I-75 OR I-71 IN THE GREATER
CINCINNATI AREA
I-275 East
Exit Beechmont/Amelia (Rt. 125)
Head east on Rt. 125
Drive approximately 3 miles
Turn left onto Bach Buxton Rd. (traffic light)
Drive approximately one half mile
Turn right onto Midland Boulevard
FROM DOWNTOWN CINCINNATI
I-471 South
I-275 North/East to Columbus
Exit Beechmont/Amelia (Rt. 125)
Turn right (east on Rt. 125)
Drive approximately 3 miles
Turn left onto Bach Buxton Rd. (traffic light)
Drive approximately one half mile
Turn right onto Midland Boulevard
fold and detach here
In their discretion, the PROXIES are authorized to vote upon such other
business as may properly come before the meeting. This PROXY when executed
will be voted in the manner directed by the undersigned STOCKHOLDER(S). If no
direction is made, this PROXY will be voted FOR Proposals 1,2,3,4 and 5.
ALL FORMER PROXIES ARE HEREBY REVOKED.
DATE: _______________, 1998
___________________________
(Signature of Stockholder)
___________________________
(Signature of Stockholder)
(Please sign exactly as your name or names appear opposite. All joint owners
should sign. When signing in a fiduciary capacity or as a corporate officer,
please give your full title as such.)
