UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended _________March 31, 1999_________________________
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________________to_____________________________
Commission file number _________________________1-6026_________________________
_____________________________The Midland Company_______________________________
(Exact name of registrant as specified in its charter)
________Incorporated in Ohio__________________ ____________31-0742526_________
(State or other jurisdiction of incorporation (I.R.S. Employer Identification
or organization) No.)
7000 Midland Boulevard, Amelia, Ohio 45102-2607
(Address of principal executive offices)
(Zip Code)
(513) 943-7100
(Registrant's telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days.
Yes ___X___ . No _______ .
The number of common shares outstanding as of March 31, 1999 was
9,515,249.
<PAGE>
PART I. FINANCIAL INFORMATION
THE MIDLAND COMPANY
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1999 AND DECEMBER 31, 1998
Amounts in 000's
(Unaudited)
March 31, Dec. 31,
ASSETS 1999 1998
---------- ----------
MARKETABLE SECURITIES AVAILABLE FOR SALE:
Fixed income (cost, $429,933 at March 31, 1999 and
$443,975 at December 31, 1998) $ 435,238 $ 453,422
Equity (cost, $39,664 at March 31, 1999 and
$37,736 at December 31, 1998) 136,201 136,748
---------- ----------
Total 571,439 590,170
---------- ----------
CASH 4,878 3,687
---------- ----------
RECEIVABLES:
Accounts receivable 59,112 60,094
Less allowance for losses 753 753
---------- ----------
Net 58,359 59,341
---------- ----------
REINSURANCE RECOVERABLES AND
PREPAID REINSURANCE PREMIUMS 35,528 33,955
---------- ----------
PROPERTY, PLANT AND EQUIPMENT - AT COST 114,120 114,466
Less accumulated depreciation and amortization 48,069 46,629
---------- ----------
Net 66,051 67,837
---------- ----------
OTHER REAL ESTATE - NET 8,700 8,700
---------- ----------
DEFERRED INSURANCE POLICY ACQUISITION COSTS 68,102 63,962
---------- ----------
OTHER ASSETS 9,373 9,568
---------- ----------
TOTAL ASSETS $ 822,430 $ 837,220
========== ==========
See notes to consolidated financial statements.
<PAGE>
THE MIDLAND COMPANY
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1999 AND DECEMBER 31, 1998
Amounts in 000's
(Unaudited)
March 31, Dec. 31,
LIABILITIES & SHAREHOLDERS' EQUITY 1999 1998
---------- ----------
UNEARNED INSURANCE PREMIUMS $ 259,054 $ 255,115
---------- ----------
INSURANCE LOSS RESERVES 125,893 125,496
---------- ----------
INSURANCE COMMISSIONS PAYABLE 18,504 20,272
---------- ----------
FUNDS HELD UNDER REINSURANCE AGREEMENTS
AND REINSURANCE PAYABLES 10,326 14,624
---------- ----------
LONG-TERM DEBT 53,706 54,563
---------- ----------
OTHER NOTES PAYABLE:
Banks 7,000 15,000
Commercial paper 6,742 6,522
---------- ----------
Total 13,742 21,522
---------- ----------
DEFERRED FEDERAL INCOME TAX 36,976 39,305
---------- ----------
OTHER PAYABLES AND ACCRUALS 53,225 57,491
---------- ----------
COMMITMENTS AND CONTINGENCIES - -
---------- ----------
SHAREHOLDERS' EQUITY:
Common stock (issued and outstanding: 9,515 shares
at March 31, 1999 and 9,352 shares at
December 31, 1998 after deducting treasury stock
of 1,413 shares and 1,576 shares, respectively) 911 911
Additional paid-in capital 17,385 15,947
Retained earnings 185,615 178,398
Accumulated other comprehensive income 66,217 70,507
Treasury stock - at cost (15,097) (15,293)
Unvested restricted stock awards (4,027) (1,638)
---------- ----------
Total 251,004 248,832
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 822,430 $ 837,220
========== ==========
See notes to consolidated financial statements.
<PAGE>
THE MIDLAND COMPANY
AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED INCOME (Unaudited)
FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998
Amounts in 000's except per share data
1999 1998
---------- ----------
REVENUES:
Insurance:
Premiums earned $ 98,137 $ 90,479
Net investment income 6,071 5,842
Net realized investment gains 1,070 1,039
Other insurance income 746 485
Transportation 7,927 9,237
Other 133 155
---------- ----------
Total 114,084 107,237
---------- ----------
COSTS AND EXPENSES:
Insurance:
Losses and loss adjustment expenses 48,382 48,121
Commissions and other policy acquisition cost 30,005 25,513
Operating and administrative expenses 14,867 14,855
Transportation operating expenses 7,688 8,150
Interest expense 1,062 1,257
Other operating and administrative expenses 995 757
---------- ----------
Total 102,999 98,653
---------- ----------
INCOME BEFORE FEDERAL INCOME TAX 11,085 8,584
---------- ----------
PROVISION FOR FEDERAL INCOME TAX 3,225 2,544
---------- ----------
NET INCOME $ 7,860 $ 6,040
========== ==========
BASIC EARNINGS PER SHARE
OF COMMON STOCK $ 0.86 $ 0.67
========== ==========
DILUTED EARNINGS PER SHARE
OF COMMON STOCK $ 0.83 $ 0.64
========== ==========
CASH DIVIDENDS PER SHARE
OF COMMON STOCK - DECLARED $ .0675 $ .0625
========== ==========
See notes to consolidated financial statements.
<PAGE>
<TABLE>
THE MIDLAND COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998 (Unaudited)
Amounts in 000's
Accumulated Unvested
Additional Other Compre- Restricted Compre-
Common Paid-In Retained hensive Treasury Stock hensive
Stock Capital Earnings Income Stock Awards Total Income
-------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1997 $911 $15,359 $153,797 $44,123 $(14,704) $(2,460) $197,026
Comprehensive income:
Net income 6,040 6,040 $ 6,040
Increase in unrealized gain
on marketable securities,
net of related income tax
effect of $2,174 4,037 4,037 4,037
--------
Total comprehensive income $10,077
========
Purchase of treasury stock, net 32 (642) (610)
Cash dividends declared (581) (581)
Exercise of stock options (7) 28 21
Amortization and cancellation of
unvested restricted stock awards (30) (51) 229 148
-------------------------------------------------------------------------------------------
BALANCE, MARCH 31, 1998 $911 $15,354 $159,256 $48,160 $(15,369) $(2,231) $206,081
===============================================================================
BALANCE, DECEMBER 31, 1998 $911 $15,947 $178,398 $70,507 $(15,293) $(1,638) $248,832
Comprehensive income:
Net income 7,860 7,860 $ 7,860
Decrease in unrealized gain
on marketable securities,
net of related income tax
effect of $(2,329) (4,290) (4,290) (4,290)
--------
Total comprehensive income $ 3,570
========
Purchase of treasury stock, net 64 (2,368) (2,304)
Cash dividends declared (643) (643)
Exercise of stock options (37) 1,297 1,260
Restricted stock awards 1,411 1,267 (2,678) -
Amortization and cancellation of
unvested restricted stock awards 289 289
-------------------------------------------------------------------------------
BALANCE, MARCH 31, 1999 $911 $17,385 $185,615 $66,217 $(15,097) $(4,027) $251,004
===============================================================================
See notes to consolidated financial statements.
</TABLE>
<PAGE>
THE MIDLAND COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998
Amounts in 000's
1999 1998
---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 7,860 $ 6,040
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 2,180 2,111
Net realized investment gains (1,070) (1,039)
Decrease in other accounts payable and accruals (4,324) (1,242)
Decrease in funds held under reinsurance
agreements and reinsurance payables (4,298) (2,255)
Increase in deferred insurance policy acquisition
costs (4,140) (1,217)
Increase (decrease) in unearned insurance premiums 3,939 (4,031)
Decrease in insurance commissions payable (1,768) (3,020)
Decrease (increase) in reinsurance recoverables and
prepaid reinsurance premiums (1,573) 5,166
Decrease in net accounts receivable 982 1,755
Increase in insurance loss reserves 397 6,599
Decrease (increase) in other assets 195 (133)
Other-net 1,002 475
---------- ----------
Net cash provided by provided by
operating activities (618) 9,209
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of marketable securities (32,097) (48,030)
Sale of marketable securities 18,650 24,883
Decrease in cash equivalent marketable securities 15,369 24,511
Maturity of marketable securities 10,292 10,887
Acquisition of property, plant and equipment (296) (2,223)
Sale of property, plant and equipment 120 88
---------- ----------
Net cash used in investing activities 12,038 10,116
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Decrease in net short-term borrowings (7,780) (19,644)
Net treasury stock transactions (1,007) (582)
Repayment of long-term debt (747) (874)
Dividends paid (585) -
Payment of capitalized lease obligations (110) (100)
---------- ----------
Net cash used in financing activities (10,229) (21,200)
---------- ----------
NET INCREASE (DECREASE) IN CASH 1,191 (1,875)
CASH AT BEGINNING OF PERIOD 3,687 5,277
---------- ----------
CASH AT END OF PERIOD $ 4,878 $ 3,402
========== ==========
See notes to consolidated financial statements.
<PAGE>
THE MIDLAND COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
MARCH 31, 1999
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of The Midland
Company and subsidiaries (the "Company") have been prepared in accordance with
generally accepted accounting principles for interim financial information and
with the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete annual financial
statements. In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been
included. Financial information as of December 31, 1998 has been derived from
the audited consolidated financial statements of the Company. Revenue and
operating results for the three-month period ended March 31, 1999 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 1999. For further information, refer to the audited consolidated
financial statements and footnotes thereto for the year ended December 31,
1998 included in the Company's Annual Report on Form 10-K.
Certain reclassifications (minor in nature) have been made to the 1998 amounts
to conform to 1999 classifications.
2. THREE-FOR-ONE STOCK SPLIT
On April 9, 1998, the Company approved a three-for-one stock split effective May
21, 1998 for holders of record on April 30, 1998. Accordingly, data related to
the Company's common stock (number of shares, average shares outstanding,
earnings per share and dividends per share) were adjusted for the period ended
March 31, 1998 to reflect the impact of this stock split.
3. EARNINGS PER SHARE
Earnings per share (EPS) of common stock amounts are computed by dividing net
income by the weighted average number of shares outstanding during the period
for basic EPS, plus the dilutive share equivalents for stock options and
restricted stock awards for diluted EPS. Shares used for EPS calculations were
as follows (000's):
For Basic EPS For Diluted EPS
------------- ---------------
Three months ended March 31:
1999 9,098 9,439
===== =====
1998 8,994 9,374
===== =====
4. INCOME TAXES
The federal income tax provisions for the three-month periods ended March 31,
1999 and 1998 are different from amounts derived by applying the statutory tax
rates to income before federal income tax as follows (000's):
1999 1998
------- -------
Federal income tax at statutory rate $3,880 $3,005
Tax effect of:
Tax exempt interest and
excludable dividend income (737) (451)
Other - net 82 (10)
------- -------
Provision for federal income tax $3,225 $2,544
======= =======
<PAGE>
THE MIDLAND COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(Continued)
5. SUPPLEMENTAL CASH FLOW DISCLOSURES
The Company paid interest of $1.0 million and $1.2 million in the first three
months of 1999 and 1998, respectively. The Company paid no income taxes during
the first three months of 1999 and received a tax refund of $1.4 million during
the first three months of 1998. In February, 1999, the Company issued 119,500
shares of treasury stock under a restricted stock award program that decreased
treasury stock by approximately $1.3 million and also increased paid-in capital
by approximately $1.4 million.
6. SEGMENT DISCLOSURES
Since the Company's annual report for 1998, there have been no changes in
reportable segments or the manner in which the Company determines reportable
segments or measures segment profit or loss. Summarized segment information
for the interim periods for 1999 and 1998 is as follows (000's):
Three Months Three Months
Ended March 31, 1999 Ended March 31, 1998
---------------------------- --------------------------
Revenues- Revenues-
Total External Pre-Tax Total External Pre-Tax
Assets Customers Income Assets Customers Income
-------- --------- ------- ------ --------- -------
Reportable Segments:
Insurance:
Manufactured housing n/a $68,768 $ 9,670 n/a $60,387 $ 9,889
Other n/a 30,115 3,346 n/a 30,577 1,664
Unallocated $743,618 - (320) $668,303 - (2,305)
Transportation 35,462 7,927 171 41,409 9,237 1,218
Corporate and all
other (1,782) (1,882)
-------- --------
$11,085 $ 8,584
======== ========
Intersegment revenues are insignificant. Revenues reported above, by
definition, exclude investment income and realized gains. Certain amounts are
not allocated to segments ("n/a" above) by the Company.
7. NEW ACCOUNTING STANDARDS
The Fianancial Accounting Standards Board's Statement of Financial Accounting
Standards (SFAS) No. 133, "Accounting for Derivative Investments and Hedging
Activities", must be adopted by the Company effective with the first quarter of
2000. The Company is currently evaluating the impact of adoption of SFAS 133.
<PAGE>
INDEPENDENT ACCOUNTANTS' REPORT
The Midland Company:
We have reviewed the accompanying consolidated balance sheet of The
Midland Company and subsidiaries as of March 31, 1999, and the related
consolidated statements of income, changes in shareholders' equity and
cash flows for the three-month periods ended March 31, 1999 and 1998.
These financial statements are the responsibility of the Company's
management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical
procedures to financial data and of making inquiries of persons
responsible for financial and accounting matters. It is substantially
less in scope than an audit conducted in accordance with generally
accepted auditing standards, the objective of which is the expression of
an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to such consolidated financial statements for them to be
in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted
auditing standards, the consolidated balance sheet of The Midland
Company and subsidiaries as of December 31, 1998, and the related
consolidated statements of income, changes in shareholders' equity and
cash flows for the year then ended (not presented herein); and in our
report dated February 11, 1999, we expressed an unqualified opinion on
those consolidated financial statements. In our opinion, the information
set forth in the accompanying consolidated balance sheet as of
December 31, 1998 is fairly stated, in all material respects, in relation
to the consolidated financial statements from which it has been derived.
s/Deloitte & Touche LLP
- -----------------------
Deloitte & Touche LLP
Cincinnati, Ohio
April 12, 1999
<PAGE>
THE MIDLAND COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
A detailed discussion of the Company's liquidity and capital resources
is included in the 1998 Annual Report on Form 10-K. Except as discussed below,
no material changes have taken place since that date and, accordingly, the
discussion is not repeated herein.
RESULTS OF OPERATIONS
Insurance
- ---------
Pre-Tax Income
For the Company's insurance subsidiary, American Modern Insurance Group,
Inc. (AMIG), pre-tax income amounted to $12.7 million for the first quarter of
1999 compared to $9.2 million for the first quarter of 1998.
Insurance Premiums
AMIG's direct and assumed written premiums generated from AMIG's
property and casualty and life insurance operations increased 3.2% in the first
quarter to $106.6 million from $103.3 million for the same quarter of 1998. Net
earned premiums for the first quarter increased 8.5% to $98.1 million from $90.5
million for the comparable quarter in 1998. The primary factor contributing to
the growth in direct and assumed written premiums was continued volume increases
in manufactured home and related coverages insurance premium. Manufactured home
and related coverages direct and assumed written premium increased to $70.4
million from $68.7 million for the same quarter of 1998. The increase in net
earned premiums is primarily the result of both the growth in written premium
and the Company's decision to cede less written business to reinsurers.
Investment Income and Realized Capital Gains
AMIG's net investment income (before taxes and excluding capital gains)
increased by approximately 3.9% to $6.1 million in the first quarter of 1999
from $5.8 million for the first quarter of 1998. The increase in investment
income was primarily the result of the continued growth of AMIG's investment
portfolio which resulted, inpart, from the investment of positive cash flow from
underwriting activities.
AMIG's after-tax net realized capital gains were approximately $0.7
million, or $0.07 per share (diluted) for the first quarters of 1999 and 1998.
Losses and Loss Adjustment Expenses
AMIG's losses and loss adjustment expenses in the first quarter of 1999
and 1998 were $48.4 million and $48.1 million, respectively. These expenses
were consistent from year-to-year primarily because of fewer weather related
catastrophes in 1999 ($4.2 million pre-tax) compared to 1998 ($5.9 million
pre-tax). Excluding catastrophe losses, the property and casualty combined
ratio for the first quarter was 90.2% vs. 88.5% for the first quarter of 1998.
Commissions, Other Policy Acquisition Costs and Other Operating and
Administration Expenses
AMIG's commissions, other policy acquisition costs and other operating
and administrative expenses for the first quarter increased 11.1% to $44.9
million from $40.4 million for the first quarter of 1998. These increases are
due primarily to the continued growth in net earned premiums including the
effects of less offsets for ceded commission income as a result of the decision
to cede less insurance premiums to reinsurers.
Overall Underwriting Results
AMIG's property and casualty operations generated a pre-tax underwriting
income of $5.3 million for the first quarter of 1999 compared to a pre-tax
underwriting income of $4.2 million for the same quarter of 1998. For the
current quarter, AMIG's combined ratio (ratio of losses and expenses as a
percent of earned premium) for its property and casualty business was 94.5% vs.
95.2% a year ago.
Transportation
- --------------
For the quarter, the Company's transportation subsidiary, M/G Transport
(M/G), reported pre-tax revenue of $7.9 million compared with $9.2 million in
the first quarter of 1998 and pre-tax operating profits of $0.2 million vs.
$1.2 million. These decreases are the result of lower prices for petroleum
products which have affected shipping patterns. Management anticipates that
these factors will continue to adversly impact M/G's operating profit for the
balance of 1999. Net income from M/G contributed $0.1 million, or $0.01 per
share (diluted), in the first quarter of 1999, compared with $0.8 million, or
$0.09 per share (diluted), in the first quarter of 1998.
FINANCIAL CONDITION
Cash flows from sales and maturities of marketable securities were used
to decrease the Company's short-term borrowings from year-end 1998.
Shareholders' equity increased to $251.0 million at March 31, 1999 from $248.8
million at year-end 1998. This is due to the net income generated in the first
quarter of 1999 offset by the decrease in the accumulated other comprehensive
income resulting from a decrease in the market value of the Company's investment
portfolio. The changes in funds held under reinsurance agreements and
reinsurance payables and deferred insurance policy acquisition costs are due to
changes in the amounts of insurance premiums ceded to reinsurers under certain
reinsurance treaties and the continued growth in written premiums. The decrease
in accumulated other comprehensive income (net unrealized gains) also resulted
in a decrease in deferred federal income tax.
Management expects that cash and other liquid investments, coupled with
future operating cash flows, will be readily available to meet the Company's
operating cash requirements for the next twelve months. The Company declared
$0.6 million in dividends to its shareholders during the first quarter of 1999.
OTHER MATTERS
Comprehensive Income
- --------------------
For the Company, the only difference between net income and
comprehensive income is the net change in unrealized gain on marketable
securities. Changes in net unrealized gain result from both market conditions
and realized gains recognized in a reporting period. For the three-month
periods ended March 31, 1999 and 1998, the Company recognized comparable
realized gains, as discussed above, and, net of tax effects, a decrease in net
unrealized gain of $4.3 million in the first quarter of 1999 and an increase in
net unrealized gain of $4.0 million in the first quarter of 1998.
Year 2000 Compliance
- --------------------
The Year 2000 Issue
The Year 2000 Issue arises from the common computer programming
convention of using a two digit shorthand to represent a calendar year
(i.e., "99" means 1999). Some computer systems and embedded chips may not
recognize the entry "00" as the two digit shorthand for calendar year 2000.
This could lead to erroneous results or, in the worst case, to system shutdowns.
Status of the Company's Response to the Year 2000 Issue
The Company's information systems professional staff began preparing for
the Year 2000 Issue as early as 1992. Since that time, the Company has been
upgrading and replacing its computer hardware and software systems. These
upgrades and replacements have been driven by non-Year 2000 related business
requirements. However, the Company believes that all of its mission-critical,
internal computer hardware and software systems are now Year 2000 compliant.
The Company has developed a comprehensive Year 2000 work plan to deal
with the Year 2000 Issue. As of March 31, 1999, the Company, with minor
exceptions, had met the schedule established in its Year 2000 Work Plan.
The Company's Year 2000 Work Plan consists of five phases:
1) awareness; 2) assessment; 3) remediation; 4) testing and
5) implementation. The awareness and assessment phases of the Company's Year
2000 Work Plan are ongoing, but have been substantially completed. Remediation,
testing and implementation have been completed for all of the Company's internal
mission critical systems.
During the awareness phase, the Company formed a multi-disciplinary task
force to address the Year 2000 Issue, defined the Year 2000 Issue, obtained
executive level support, and educated Company personnel, customers, suppliers
and policyholders concerning the Year 2000 Issue and its potential affects on
the Company. Education efforts are ongoing.
During the assessment phase the Company collected a comprehensive list
of internal items (e.g., computer hardware and software, other equipment with
embedded chips, services and products provided by others to the Company, etc.)
that might be affected by Year 2000 Issues. The Company also identified
critical business relationships that might be affected by the Year 2000 Issue
(e.g., customers, vendors, suppliers, etc.). The Company then evaluated these
items and business relationships to determine whether they faced Year 2000
Issues and what effect they would have on the Company if they failed due to Year
2000 Issues. The Company continues to try to identify potential Year 2000
Issues.
During the remediation phase the Company analyzed the items that are
affected by Year 2000 Issues, identified problem areas and remediated those
items. Similarly, during the remediation phase, the Company is communicating
and working with its critical business relationships to help them understand and
remediate their Year 2000 Issues.
During the testing phase the Company thoroughly tested all installed
remediation to critical internal systems. Testing included present and forward
date testing which simulated critical dates in the Year 2000. The Company
believes it has successfully tested all of its critical internal systems and
will attempt to verify Year 2000 compliance of its critical business
relationships.
During the implementation phase the Company placed all items that had
been remediated and successfully tested into use.
Successful completion of the Company's Year 2000 Work Plan is expected
to significantly reduce the Company's level of uncertainty about Year 2000
Issues, and, in particular, about the Year 2000 compliance and readiness of its
material business relationships. The Company believes that with the
implementation of its new computer hardware and software systems and completion
of its Year 2000 Work Plan as scheduled, the possibility of significant
interruptions of normal operations should be reduced.
Risks
The Company believes that its internal mission critical computer
hardware and software and other mission critical equipment is substantially Year
2000 compliant. The Company believes, based on responses it has received to
date, that its significant business partners, including vendors, suppliers
(including suppliers of utilities) and customers, will be Year 2000 compliant
before December 31, 1999. If the Company's Year 2000 Work Plan has failed to
identify or correct Year 2000 Issues in the Company's mission critical computer
hardware and software or other equipment, the Company might not be able to
communicate with and/or provide services to suppliers, customers and
policyholders until corrective measures have been taken. Under such a worst
case scenario, the Company might not be able to process policy applications and
collect premium revenue or conduct normal operations for some period of time.
If corrective actions cannot be taken in a timely fashion, this could have a
material adverse affect on the Company's financial condition or results of
operations.
Sustained Year 2000 failures by certain of the Company's vendors and
suppliers (especially suppliers of utility services such as electric and
telephone) could have similar consequences for the Company. The Company cannot
currently predict the impact of the Year 2000 Issue on its customers. However,
sustained Year 2000 failures by customers which, in the aggregate, provide a
material portion of the Company's revenues could materially reduce cash flow
available to the Company. This, in turn, could have a material adverse affect
on the Company's financial condition or results of operations.
Contingency Plans
The Company has prepared internal Year 2000 contingency plans to deal
with business failures in its operations brought about by Year 2000 Issues.
Contingency planning includes plans for alternative processing of business from
customers who experience disruptions due to the Year 2000 Issue. The Company's
internal contingency plan involves invoking existing disaster recovery plans
where appropriate. The Company is currently discussing contingency planning
with significant customers.
Cost of the Year 2000 Issue
Based upon currently available information, the Company estimates that
the total cost of implementing its Year 2000 Work Plan will be less than
$1.0 million. This estimate does not include costs associated with converting
the Company's mainframe operating system but does include an allocation of
internal costs (i.e. salaries) dedicated to the Year 2000 Work Plan. As
discussed above, the migration to the Company's new mainframe system was made,
primarily, to address specific business needs rather than to address the Year
2000 Issue. The cost estimate, however, does include all activities undertaken
on Year 2000 related matters across the Company including activities pursued as
part of all five phases of the Company's Year 2000 Work Plan. Through March 31,
1999, the Company had expended approximately $0.7 million on the Year 2000 Work
Plan. The majority of the remaining costs are expected to be directed primarily
towards testing and contingency planning activities. These costs have been, and
will continue to be, funded through operating cash flow and are expensed
generally in the period in which they are incurred.
Private Securities Reform Act of 1995 - Forward Looking Statements Disclosure
This Report contains forward looking statements. For purposes of this
Report, a "Forward Looking Statement", within the meaning of the Securities
Reform Act of 1995, is any statement concerning the year 1999 and beyond. The
actions and performance of the Company and its subsidiaries could deviate
materially from what is contemplated by the forward looking statements contained
in this Report. Factors which might cause deviations from the forward looking
statements include, without limitations, the following: 1) changes in the laws
or regulations affecting the operations of the Company or any of its
subsidiaries; 2) changes in the business tactics or strategies of the Company
or any of its subsidiaries; 3) acquisition(s) of assets or of new or
complementary operations, or divestiture of any segment of the existing
operations of the Company or any of its subsidiaries; 4) changing market forces
or litigation which necessitate, in Management's judgment, changes in plans,
strategy or tactics of the Company or its subsidiaries and 5) adverse weather
conditions, fluctuations in the investment markets, changes in the retail
marketplace, Year 2000 related issues or fluctuations in interest rates, any one
of which might materially affect the operations of the Company and/or its
subsidiaries. Any forward looking statements speaks only as of the date made.
We undertake no obligation to update any forward looking statements to reflect
events or circumstances arising after the date on which they are made.
<PAGE>
PART II. OTHER INFORMATION
THE MIDLAND COMPANY AND SUBSIDIARIES
MARCH 31, 1999
Item 1. Legal Proceedings
Reference is made to Item 3 of Registrant's December 31, 1995,
Form 10-K and to Item 3 of Registrant's December 31, 1998,
Form 10-K concerning criminal litigation against M/G Transport
Services, Inc.(M/G), a subsidiary of Registrant. On April 22, 1999,
a three judge panel of the Sixth Circuit Court of Appeals issued an
opinion which reversed the earlier ruling of the trial court which
had dismissed six of the eight counts against M/G and several counts
against individual defendants formerly employed by M/G. All of the
verdicts against M/G on the six counts which had been dismissed by
the trial court were reinstated by the Court of Appeals. The trial
court has not yet set a date for sentencing on the reinstated
verdicts. However, during the sentencing phase of the original trial,
the probation department recommended total fines of $1,000,000 against
M/G for all eight verdicts. M/G has already paid $250,000 in fines on
the two counts the trial court did not dismiss. Registrant believes
that based upon the original fines proposed by the probation department
it has established and maintained adequate accruals related to any
additional fines which may be imposed by the trial court and believes
that any such fines will not have a material adverse affect on the
financial condition or results of operations of Registrant.
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
At the Company's 1999 annual meeting of Shareholders held on
April 8, 1999, the following actions were taken:
a.) The following persons were elected as members of the Board
of Directors to serve until the annual meeting of 2002
and until their successors are chosen and qualified:
Votes Broker
Votes For Withheld Abstentions Non-Votes
--------- -------- ----------- ---------
James E. Bushman 7,979,834 17,466 0 0
James H. Carey 7,978,935 18,385 0 0
John W. Hayden 7,979,254 18,066 0 0
Robert W. Hayden 7,979,254 18,066 0 0
David B. O'Maley 7,979,754 17,566 0 0
b.) A proposal by the Board of Directors to ratify the appointment of
the firm of Deloitte & Touche, LLP, as the Company's independent
auditors to conduct the annual audit of the financial statements of
the Company for the year ending December 31, 1999, was approved by
the Shareholders. The Shareholders cast 7,978,934 votes in favor
of this proposal and 3,458 votes against. There were 14,928
abstentions.
c.) A proposal by the Board of Directors to amend and restate the
Company's Code of Regulations was approved by the Shareholders.
The Shareholders cast 6,058,151 votes in favor of this proposal and
1,125,254 votes against. There were 34,228 abstentions.
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
a.) Exhibit 3(ii) - Code of Regulations (Amended and Restated)
Exhibit 15 - Letter re: Unaudited Interim Financial Information
Exhibit 27 - Financial Data Schedule
b.) Reports on Form 8-K - None
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto dully authorized.
THE MIDLAND COMPANY
Date _________April 12, 1999__________ s/John I. Von Lehman_________
John I. Von Lehman, Executive
Vice President and Chief
Financial Officer
Exhibit 3(ii)
AMENDED AND RESTATED CODE OF REGULATIONS OF
THE MIDLAND COMPANY
ARTICLE I
Section 1 - Principal Office:
The principal office of the corporation shall be at 7000 Midland Blvd., Amelia,
Ohio, until such time as otherwise designated by the Board of Directors.
Section 2 - Other Offices:
The corporation shall also have offices at such other places without, as well
as within the State of Ohio, as the Board of Directors may from time to time
determine.
ARTICLE II
Section 1 - Annual Meeting:
The Annual Meeting of the shareholders of the corporation for the purpose of
electing directors and transacting such other business as may come before the
meeting shall be held at 10 a.m. on the second Thursday in April of each year,
if not a legal holiday, but if a legal holiday, then on the next business day
following or on such other date as may be provided for by the Board of
Directors.
Section 2 - Special Meetings:
Special Meetings of the shareholders may be called at any time by the
Chairman of the Board, President or Vice President, or by a majority of the
Board of Directors acting with or without a meeting, or by the holder or
holders of forty percent (40%) of all shares outstanding and entitled to vote
thereat.
Section 3 - Place of Meetings:
Meetings of shareholders shall be held at the office of the corporation in
Amelia, Ohio, or at such other place within or without the State of Ohio as
shall be determined by the Board of Directors and set forth in the notice
thereof.
Section 4 - Notice of Meetings:
Unless waived, written, printed or typewritten notice of each annual or
special meeting stating the time, place and purpose thereof shall be served
upon or mailed to each shareholder of record entitled to vote or entitled to
notice, not more than sixty (60) days nor less than ten (10) days before any
such meeting. If mailed, it shall be directed to shareholders at their
address as the same appears upon records of the corporation.
Section 5 - Waiver of Notice:
Any shareholder either before or after any meeting may waive any notice
required to be given by law or these regulations.
Section 6 - Quorum and Voting:
The holders of shares entitling them to exercise a majority of the voting
power of the corporation, present in person or by proxy, shall constitute a
quorum for any meeting. The shareholders present in person or by proxy,
whether or not a quorum be present, may adjourn the meeting from time to time
without notice other than by announcement at the meeting.
In any other matter brought before any meeting of shareholders, the
affirmative vote of the holders of shares representing a majority of the
votes actually cast shall be the act of the shareholders provided, however,
that no action required by law, the Articles of Incorporation, or this Code
of Regulations to be authorized or taken by the holders of a designated
proportion of the shares of the corporation may be authorized or taken by a
lesser proportion.
Section 7 - Notice of Shareholder Business and Nominations:
(a) Annual Meeting of Shareholders. Nominations of persons for
election to the Board of Directors and the proposal of business to be
considered by the shareholders may be made at an annual meeting of
shareholders pursuant to the corporation's notice of the meeting, by or at
the direction of the Board of Directors or by any shareholder of the
corporation who was a shareholder of record at the time of giving of notice
provided for in this Code of Regulations, who is entitled to vote at the
meeting and who complies with the notice procedures set forth herein.
For nominations or other business properly to be brought before an annual
meeting by a shareholder, the shareholder must have given timely notice
thereof in writing to the Secretary of the corporation and such other
business must otherwise be a proper matter for shareholder action. To be
timely, a shareholder's notice shall be delivered to the Secretary at the
principal executive offices of the corporation not later than the close of
business on the 90th day prior to the first anniversary of the date of mailing
of the notice of the preceding year's annual meeting; provided, however, that
if the date of the annual meeting is more than sixty (60) days before or
after such anniversary date, notice must be so delivered not later than the
close of business on the later of the 60th day prior to such annual meeting or
the 10th day following the day on which public announcement of the date of
such meeting is first made by the corporation. In no event shall the public
announcement of an adjournment of an annual meeting commence a new time
period for the giving of notice. Such notice shall set forth as to each
person whom the shareholder proposes to nominate for election as a director
all information relating to such person that is required to be disclosed in
solicitations of proxies for election of directors pursuant to Regulation 14A
under the Securities Exchange Act of 1934 (the "Exchange Act") and Rule 14a-
11 thereunder including such person's written consent to be named in the
proxy statement as a nominee and to serving as a director if elected. As to
any other business that the shareholder proposes to bring before the meeting,
such notice shall include a brief description of the business desired to be
brought before the meeting, the reasons for conducting such business at the
meeting and any material interest in such business of such shareholder and
the beneficial owner, if any, on whose behalf the proposal is made. The
shareholder giving the notice and the beneficial owner, if any, on whose
behalf the nomination or proposal is made shall state the name and address of
such shareholder, as they appear on the corporation's books, and of such
beneficial owner and the class and number of shares of the corporation which
are owned beneficially and of record by such shareholder and such beneficial
owner.
If the number of directors to be elected is increased and there is no public
announcement by the corporation naming all of the nominees for the director
or specifying the size of the increased Board of Directors at least seventy
(70) days prior to the first anniversary of the preceding year's annual
meeting, a shareholder's notice required by this Code of Regulations shall
also be considered timely, but only with respect to nominees for any new
positions created by such increase, if it shall be delivered to the Secretary
at the principal executive offices of the corporation not later than the
close of business on the 10th day following the day on which such public
announcement is first made by the corporation.
(b) Special Meetings of Shareholders. Only such business shall be
conducted at a special meeting of shareholders as shall have been brought
before the meeting pursuant to the corporation's notice of meeting.
Nominations of persons for election to the Board of Directors may be made at
a special meeting of shareholders at which directors are to be elected
pursuant to the corporation's notice of meeting (a) by or at the direction
of the Board of Directors or (b) provided that the Board of Directors has
determined that directors shall be elected at such meeting, by any
shareholder of the corporation who is a shareholder of record at the time of
giving notice provided for in this Code of Regulations, who shall be entitled
to vote at the meeting and who complies with the notice procedures set forth
in this Code of Regulations. If the Corporation calls a special meeting of
shareholders for the purpose of electing one or more directors to the Board
of Directors, any such shareholder may nominate a person or persons for
election to such position(s) as specified in the corporation's notice of
meeting, if the shareholder's notice required by this Code of Regulations
shall be delivered to the Secretary at the principal executive offices of the
corporation not earlier than the close of business on the 90th day prior to
such special meeting and not later than the close of business on the later of
the 60th day prior to such special meeting or the 10th day following the day on
which public announcement is first made of the date of the special meeting
and of the nominees proposed by the Board of Directors to be elected at such
meeting. In no event shall the public announcement of an adjournment of a
special meeting commence a new time period for the giving of a shareholder's
notice as described above.
(c) General. Only such persons who are nominated in accordance with
the procedures set forth in this Regulation shall be eligible to serve as
directors and only such business shall be conducted at a meeting of
shareholders as shall have been brought before the meeting in accordance with
the procedures set forth in this Code of Regulations. Except as otherwise
provided by law, the Articles of Incorporation or these Code of Regulations,
the Chairman of the meeting shall have the power and duty to determine
whether a nomination or any business proposed to be brought before the
meeting was made or proposed, as the case may be, in accordance with the
procedures set forth in this Code of Regulations and, if any proposed
nomination or business is not in compliance with this Code of Regulations, to
declare that such defective proposal or nomination shall be disregarded.
Section 8 - Electronic Notices, Proxy Submission, Etc.:
The corporation may, from time to time, establish procedures whereby
shareholders may choose to, but shall not be required to, receive notice of
meetings and other documents and information required to be provided to
shareholders by the corporation by telephone, facsimile transmission,
electronic mail or by other means of electronic or telephonic transmission.
Notice of meetings to a shareholder who chooses to receive notices in any
such manner shall be deemed sufficient notice for purposes of Section 4 of
this Article. The corporation may, from time to time, establish procedures
whereby shareholders may, but shall not be required to, make submission of
proxies for voting at meetings of shareholders and other documents and
information to the corporation by telephone, facsimile transmission, electronic
mail or by other means of electronic or telephonic transmission.
ARTICLE III
DIRECTORS
Section 1 - Number of Directors:
The business of the corporation shall be managed and conducted by a Board of
Directors consisting of not less than three (3) members, one of whom shall be
designated Chairman and none of whom need be shareholders of the corporation.
Without amendment of this Code of Regulations, the number of Directors may be
fixed or changed by resolution at any annual meeting or at any special
meeting of shareholders called for that purpose or the purpose of electing
Directors, adopted by the vote of the holders of shares, present in person or
by proxy, entitling them, to exercise a majority of the voting power
represented at such meeting or by a resolution of the Directors adopted at
any meeting of the Board of Directors by a majority vote. Where action is
taken by the Board of Directors, the Directors in office may fill any
Directors' office that is created by an increase in the number of Directors.
No reduction of the number of Directors shall have the effect of removing any
Director prior to the expiration of his or her term of office.
Section 2 - Tenure and Election of Directors:
Directors shall be divided into three classes each of which shall consist of
not less than one (1) Director. Such three classes shall be known initially
as three-year, two-year, and one-year classes. The term of office of the
one-year Directors shall expire at the first annual meeting of the
corporation; the term of office of the two-year Directors shall expire at the
second annual meeting and the term of office of the three-year Directors
shall expire at the third annual meeting. Upon expiration of the terms of
office of the Directors as set forth above, their successors shall be elected
for a term of three years or until their successors are elected and
qualified. Election of Directors shall be at the annual meeting of
shareholders and may be conducted in such manner as may be approved at such
meeting.
Section 3 - Meeting of the Board:
An organization meeting of the Board of Directors shall be held either
immediately following the adjournment of each shareholders' annual meeting
(and notice of such annual meeting of Directors need not be given) or at such
other time (pursuant to notice) as the Board may determine.
At such annual organizational meeting of the Board, the Directors may choose
one of their number as Chairman of the Board.
The Chairman of the Board shall preside at all meetings, regular or special,
of the Board. In the event that no Chairman of the Board shall have been
elected or, if a Chairman of the Board shall have been elected, in the
absence of the Chairman of the Board from any meeting of the Board or from
the affairs of the corporation as such Chairman of the Board, the Vice
Chairman of the Board shall act as Chairman of the Board. In the event that
no Vice Chairman of the Board shall have been elected or, if a Vice Chairman
of the Board shall have been elected, in the absence of the Vice Chairman of
the Board from any meeting of the Board, the President of the corporation, if
the person then holding such office be a member of the Board, shall act as
Chairman of the Board.
The Board of Directors may, by by-laws or resolutions, provide for other
regular meetings of the Board in addition to the annual organizational
meeting.
Special meetings of the Board of Directors may be held at any time upon the
call of the Chairman of the Board or the President of the corporation, or any
two members of the Board. Notice of any special meeting of the Board shall
be given either personally, by telephone, facsimile transmission, electronic
mail or by other means of electronic or telephonic transmission to each
Director at least two days before the date on which the meeting is to be held
or by mail at least five days before the date on which the meeting is to be
held. Notice may be waived by any Director present in person at such special
meeting. Every notice must state the time and place of the meeting, but need
not state the purpose thereof.
Any meeting of the Board (whether organization, regular or special) shall be
a legal meeting, even though no prior notice of any kind has been given, if a
majority of the Directors then qualified and acting shall actually be present
thereat. Any and all meetings of the Board, except the annual organizational
meeting may be held at any place in the United States as may be specified in
the notice thereof.
Section 4 - Quorum:
A majority of the Board of Directors (then qualified and acting) shall
constitute a quorum for the transaction of business.
Section 5 - Vacancies:
Vacancies in the Board of Directors may be filled by a majority vote of the
remaining Directors until the next annual meeting. Shareholders entitled to
elect Directors shall have the right to fill any vacancy in the Board
(whether the same has been temporarily filled by the remaining Directors or
not) at any meeting of the shareholders and attended by a quorum thereof,
held for any purpose during the interim, and any Directors elected at such
meeting of the shareholders shall serve until the next annual election of
Directors, and until their successors are elected and qualified.
Section 6 - Committees:
The Board of Directors may create an Executive Committee to consist of one
(1) or more Directors, and may delegate to such executive committee all of
the authority of the Board of Directors, however conferred, other than that
of filling vacancies among the Board of Directors or in any committee of the
Board of Directors. The Board of Directors may create any other committee of
the Directors, to consist of one (1) or more Directors, and may delegate to
such committee any of the authority of the Directors, however conferred,
other than that of filling vacancies among the Board of Directors or in any
committee of the Board of Directors.
Section 7 - Relationship with Corporation:
Directors shall not be barred from providing professional or other services
to the corporation. No contract, action or transaction shall be void or
voidable with respect to the corporation for the reason that it is between or
affects the corporation and one or more of its Directors, or between or
affects the corporation and any other person in which one or more of its
Directors are directors, trustees or officers or have a financial or personal
interest, or for the reason that one or more interested Directors participate
in or vote at a meeting of the Directors or committee thereof that authorizes
such contract, action or transaction, if in any such case any of the
following apply:
(a) the material facts as to the Director's relationship or interest
and as to the contract, action or transaction are disclosed or are known to
the Directors or the committee and the Directors or committee, in good faith,
reasonably justified by such facts, authorize the contract, action or
transaction by the affirmative vote of a majority of the disinterested
Directors, even though the disinterested Directors constitute less than a
quorum;
(b) the material facts as to the Director's relationship or interest
and as to the contract, action or transaction are disclosed or are known to
the shareholders entitled to vote thereon and the contract, action or
transaction is specifically approved at a meeting of the shareholders held
for such purpose by the affirmative vote of the holders of shares entitling
them to exercise a majority of the voting power of the corporation held by
persons not interested in the contract, action or transaction; or
(c) the contract, action or transaction is fair as to the
corporation.
This Section 7 is intended to be used only in instances in which the
corporation intends to provide a conclusive determination regarding the
circumstances described in the second sentence hereof. This Section 7 shall
not be read to require that any of the steps outlined in subsections (a), (b)
and (c) above need be followed with respect to any transaction of the nature
described above.
Section 8 - Attendance at Meetings of Persons Who Are Not Directors:
Unless waived by a majority of Directors in attendance, not less than twenty
four (24) hours before any regular or special meeting of the Board of
Directors, any Director who desires the presence at such meeting of a person
who is not a Director shall so notify all other Directors, requesting the
presence of such person at the meeting, and stating the reason in writing.
Such person will not be permitted to attend the Directors' meeting unless a
majority of the Directors in attendance vote to admit such person to the
meeting. Such vote shall constitute the first order of business for any such
meeting of the Board of Directors. Such right to attend, whether granted by
waiver or vote, may be revoked at any time during any such meeting by the
vote of a majority of the Directors in attendance.
ARTICLE IV
OFFICERS
Section 1 - General Provisions:
The Board of Directors shall elect a President, a Secretary and a Treasurer, and
may elect a Chairman of the Board, one or more Vice Presidents, and such other
officers and assistant officers as the Board may from time to time deem
necessary. The Chairman of the Board, if any, shall be a Director, but none of
the other officers need be a Director. Any two or more offices may be held by
the same person, but no officer shall execute, acknowledge or verify any
instrument in more than one capacity if such instrument is required to be
executed, acknowledged or verified by two or more officers.
Section 2 - Powers and Duties:
All officers, as between themselves and the corporation, shall respectively have
such authority and perform such duties as are customarily incident to their
respective offices, and as may be specified from time to time by the Board of
Directors, regardless of whether such authority and duties are customarily
incident to such office. In the absence of any officer of the corporation, or
for any other reason the Board of Directors may deem sufficient, the powers or
duties of such officer, or any of them may be delegated, to any other officer or
to any Director. The Board of Directors may from time to time delegate to any
officer authority to appoint and remove subordinate officers and to prescribe
their authority and duties.
Section 3 - Term of Office and Removal:
3.1 Term. Each officer of the corporation shall hold office at the
pleasure of the Board of Directors, and unless sooner removed by the Board of
Directors, until the meeting of the Board of Directors following the date of
election of Directors and until his or her successor is elected and
qualified.
3.2 Removal. The Board of Directors may remove any officer at any
time with or without cause by the affirmative vote of a majority of Directors
in office.
Section 4 - Compensation of Officers:
Unless compensation is otherwise determined by a majority of the Directors at a
regular or special meeting of the Board of Directors or unless such
determination is delegated by the Board of Directors to a committee of the Board
of Directors or to another officer or officers, the President of the Corporation
from time to time shall determine the compensation to be paid to all officers
and other employees for services rendered to the corporation.
ARTICLE V
AMENDMENTS
This Code of Regulations may be amended or repealed at any meeting of
shareholders called for that purpose by the affirmative votes of the holders
of record of shares entitling them to then exercise a majority of the voting
power on such proposal.
ARTICLE VI
INDEMNIFICATION
Section 1 - Right to Indemnification:
Each person who was or is made a party of is threatened to be made a party to
or is otherwise involved (including, without limitation, as a witness) in any
actual or threatened action, suit, or proceeding, whether civil, criminal,
administrative, or investigative (hereinafter a "proceeding"), by reason of
the fact that he or she is or was a Director or officer of the corporation or
that, being or having been such a Director or officer of the corporation, he
or she is or was serving at the request of an executive officer of the
corporation as a director, officer, partner, employee, or agent of another
corporation, partnership, joint venture, trust, limited liability company, or
other enterprise, including service with respect to an employee benefit plan
(hereinafter an "indemnitee"), whether the basis of such proceeding is
alleged action in an official capacity as such a director, officer, partner,
employee, or agent, shall be indemnified and held harmless by the corporation
to the fullest extent permitted by the General Corporation Law of Ohio, as
the same exists or may hereafter be amended (but, in the case of any such
amendment, only to the extent that such amendment permits the corporation to
provide broader indemnification rights than permitted prior thereto), or by
other applicable law as then in effect, against all expense, liability, and
loss (including attorneys' fees, judgments, fines, ERISA excise taxes or
penalties and amounts paid in settlement) actually and reasonably incurred or
suffered by such indemnitee in connection therewith and such indemnification
shall continue as to an indemnitee who has ceased to be a director, officer,
employee or agent and shall inure to the benefit of the indemnitee's heirs,
executors and administrators. Except as provided in Section 2, below, with
respect to proceedings seeking to enforce rights to indemnification, the
corporation shall indemnify any such indemnitee in connection with a
proceeding (or part thereof) initiated by such indemnitee only if such
proceeding (or part thereof) was authorized or ratified by the Board of
Directors of the corporation.
The right to indemnification conferred in this Section 1 shall be a contract
right and shall include the right to be paid by the corporation the expenses
incurred in defending any such proceeding in advance of its final disposition
(hereinafter an "advancement of expenses"). An advancement of expenses
incurred by an indemnitee in his or her capacity as a director, officer or
employee (and not in any other capacity in which service was or is rendered
by such indemnitee including, without limitation, service to an employee
benefit plan) shall be made only upon delivery to the corporation of an
undertaking, by or on behalf of such indemnitee, to repay all amounts so
advanced if it shall ultimately be determined by final judicial decision from
which there is no further right to appeal that such indemnitee is not
entitled to be indemnified for such expenses under this Section 1 or
otherwise. An advancement of expenses shall not be made if the corporation's
Board of Directors make a good faith determination that such payment would
violate law or public policy.
Section 2 - Right of Indemnitee to Bring Suit:
If a claim under Section 1 of this Article is not paid in full by the
corporation within sixty (60) days after a written claim has been received by
the corporation, except in the case of a claim for an advancement of
expenses, in which case the applicable period shall be twenty (20) days, the
indemnitee may at any time thereafter bring suit against the corporation to
recover the unpaid amount of the claim. If successful in whole or in part in
any such suit, or in a suit brought by the corporation to recover an
advancement of expenses pursuant to the terms of an undertaking, the
indemnitee shall also be entitled to be paid the expense of prosecuting or
defending such suit. The indemnitee shall be presumed to be entitled to
indemnification under this Article upon submission of a written claim (and,
in an action brought to enforce a claim for an advancement of expenses, where
the required undertaking has been tendered to the corporation), and
thereafter the corporation shall have the burden of proof to overcome the
presumption that the indemnitee is so entitled. Neither the failure of the
corporation (including its Board of Directors, independent legal counsel, or
its shareholders) to have made a determination prior to the commencement of
such suit that indemnification of the indemnitee is proper in the
circumstances, nor an actual determination by the corporation (including its
Board of Directors, independent legal counsel, or its shareholders) to have
made a determination prior to the commencement of such suit that
indemnification of the indemnitee is proper in the circumstances, nor an
actual determination by the corporation (including its Board of Directors,
independent legal counsel, or its shareholders) that the indemnitee is not
entitled to indemnification shall be a defense to the suit or create a
presumption that the indemnitee is not so entitled.
Section 3 - Nonexclusivity and Survival of Rights:
The rights to indemnification and to the advancement of expenses conferred in
this Article shall not be exclusive of any other right which any person may
have or hereafter acquire under any statute, provision of the corporation's
Articles of Incorporation, this Code of Regulations, agreement, vote of
shareholders or disinterested directors, or otherwise.
Notwithstanding any amendment to or repeal of this Article, or of any of the
procedures established by the Board of Directors pursuant to Section 7 of
this Article, any indemnitee shall be entitled to indemnification in
accordance with the provisions hereof and thereof with respect to any acts or
omissions of such indemnitee occurring prior to such amendment or repeal.
Without limiting the generality of the foregoing paragraph, the rights to
indemnification and to the advancement of expenses conferred in this Article
shall, notwithstanding any amendment to or repeal of this Article, inure to
the benefit of any person who otherwise may be entitled to be indemnified
pursuant to this Article (or the estate or personal representative of such
person) for a period of six years after the date such person's service to or
in behalf of the corporation shall have terminated or for such longer period
as may be required in the event of a lengthening in the applicable statute of
limitations.
Section 4 - Insurance, Contracts, and Funding:
The corporation may maintain insurance, at its expense, to protect itself and
any director, officer, employee, or agent of the corporation or another
corporation, partnership, joint venture, trust, or other enterprise against
any expense, liability, or loss, whether or not the corporation would have
the power to indemnify such person against such expense, liability, or loss
under the General Corporation Law of Ohio. The corporation may enter into
contracts with any indemnitee in furtherance of the provisions of this
Article and may create a trust fund, grant a security interest, or use other
means (including, without limitation, a letter of credit) to ensure the
payment of such amounts as may be necessary to effect indemnifications as
provided in this Article.
Section 5 - Persons Serving Other Entities:
Any person who is or was a Director, officer, or employee of the corporation
who is or was serving (i) as a director or officer of another corporation of
which a majority of the shares entitled to vote in the election of its
directors is held by the corporation or (ii) in an executive or management
capacity in a partnership, joint venture, trust, limited liability company or
other enterprise which the corporation or a wholly-owned subsidiary of the
corporation is a general partner or member or has a majority ownership shall
be deemed to be so serving at the request of an executive officer of the
corporation and entitled to indemnification and advancement of expenses under
Section 1 of this Article.
Section 6 - Indemnification of Employees and Agents of the Corporation:
The corporation may, by action of its Board of Directors, authorize one or
more executive officers to grant rights to advancement of expenses to
employees or agents of the corporation on such terms and conditions no less
stringent than provided in Section 1 of this Article as such officer or
officers deem appropriate under the circumstances. The corporation may, by
action of its Board of Directors, grant rights to indemnification and
advancement of expenses to employees or agents or groups of employees or
agents of the corporation with the same scope and effect as the provisions of
this Article with respect to the indemnification and advancement of expenses
of Directors and officers of the corporation; provided, however, that an
undertaking shall be made by an employee or agent only if required by the
Board of Directors.
Section 7 - Procedures for the Submission of Claims:
The Board of Directors may establish reasonable procedures for the submission
of claims for indemnification pursuant to this Article, determination of the
entitlement of any person thereto, and review of any such determination.
Such procedures shall be set forth in an appendix to these Code of
Regulations and shall be deemed for all purposes to be a part hereof.
ARTICLE VII
STOCK CERTIFICATE
The certificates in and for the shares of the corporation of any class may be
executed by any two of the following officers (either by actual or facsimile
signing): Chairman of the Board, President, Executive Vice President, Vice
President, Secretary, Treasurer. The stock certificates of the corporation,
within the limitations of the Articles of Incorporation of this corporation
as amended, may be such as the Board of Directors of this corporation shall
from time to time determine. The Board of Directors of this Company is
authorized to enter into arrangements with one or more transfer agents for
the stock of the corporation and/or a registrar either in the City of
Cincinnati, or City of New York, or elsewhere.
EXHIBIT 15
LETTER RE: UNAUDITED INTERIM FINANCIAL INFORMATION
The Midland Company:
We have made a review, in accordance with standards established by the
American Institute of Certified Public Accountants, of the unaudited
interim financial information of The Midland Company and subsidiaries
for the periods ended March 31, 1999 and 1998, as indicated in our
report dated April 12, 1999; because we did not perform an audit, we
expressed no opinion on that information.
We are aware that our report referred to above, which is included in
your Quarterly Report on Form 10-Q for the quarter ended March 31, 1999,
is incorporated by reference in Registration Statements No. 33-64821 on
Form S-3 and No. 33-48511 on Form S-8.
We are also aware that the aforementioned report, pursuant to Rule
436(c) under the Securities Act of 1933, is not considered a part of the
Registration Statement prepared or certified by an accountant or a
report prepared or certified by an accountant within the meaning of
Sections 7 and 11 of that Act.
s/Deloitte & Touche LLP
- -----------------------
Deloitte & Touche LLP
Cincinnati, Ohio
April 12, 1999
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