THE MIDLAND COMPANY
7000 MIDLAND BOULEVARD
AMELIA, OHIO 45102
NOTICE OF ANNUAL MEETING
TO THE SHAREHOLDERS OF THE MIDLAND COMPANY:
We are providing you notice 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 13, 2000, at 10 a.m., for the following
purposes:
1. To elect 5 members of the Board of Directors to hold office for
three year terms.
2. To approve adoption of the Associate Discount Stock Purchase
Plan.
3. To approve the Amended and Restated 1992 Associate Incentive
Stock Plan.
4. To approve an amendment to the Stock Option Plan for
Non-Employee Directors.
5. To approve an amendment to the Amended and Restated Code of
Regulations.
6. To ratify and approve the appointment of Deloitte & Touche, LLP
as independent auditors of the Company.
7. To transact any other business that may lawfully come before the
meeting.
At the time of this notice, the items listed above are the only items of
business that the Board of Directors either intends to present or knows will be
presented at the meeting.
You are urged to be present at the annual meeting. If you do not plan on
attending the meeting, however, and wish your stock to be voted, please date,
fill in and sign the enclosed proxy form and mail it to us in the enclosed
pre-paid return envelope. It is important that your shares are represented and
voted at the meeting and we hope that you will return the enclosed proxy card.
You are entitled to vote at the meeting if you were a shareholder of record at
the close of business on March 3, 2000.
DATED AT AMELIA, OHIO THIS 17th day of March, 2000.
JOHN I. VON LEHMAN
Secretary
<PAGE>
TABLE OF CONTENTS
PAGE
----
Proxy Statement 1
Voting at the Annual Meeting 1
Proposal 1: Election of Directors 2
Proposal 2: Approval of the Associate Discount Stock
Purchase Plan 2
Proposal 3: Approval of Amended and Restated 1992 Associate
Incentive Stock Plan 5
Proposal 4: Approval of Amendment to Stock Option
Plan for Non-Employee Directors 8
Proposal 5: Approval of Amendment to the Amended and
Restated Code of Regulations 9
Proposal 6: Ratification of Selection of Auditors 10
Stock Ownership of Certain Beneficial Owners 10
Management 12
Stock Ownership of Directors and Executive Officers 16
Executive Compensation 18
Change in Control Arrangements 21
Compensation Committee Interlocks and Insider Participation 22
Report of the Compensation Committee on Executive Compensation 22
Five Year Total Return 24
Shareholder Proposals 24
Cost of Solicitation 24
Other Matters 25
<PAGE>
THE MIDLAND COMPANY
7000 Midland Boulevard
Amelia, Ohio 45102
PROXY STATEMENT
Annual Meeting of Shareholders
April 13, 2000
We are providing these proxy materials on or about March 17, 2000 in
connection with the solicitation by the Board of Directors of The Midland
Company ("Midland" or the "Company") of proxies for use at the April 13, 2000
annual meeting of shareholders, and any adjournment thereof. Shareholders on the
books of the Company at the close of business on March 3, 2000 are entitled to
notice of and to vote at the meeting. On March 3, 2000, the Company had
9,458,413 shares of common stock outstanding. The holders of common
shares are entitled to one (1) vote per share.
VOTING AT THE ANNUAL MEETING
Each valid proxy received before the annual meeting 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 nominees named in these proxy materials to the
Board of Directors to hold office for terms of three years, "FOR" Proposal 2 to
approve adoption of the Associate Discount Stock Purchase Plan, "FOR" Proposal 3
to approve the amended and restated 1992 Associate Incentive Stock Plan, "FOR"
Proposal 4 to approve an amendment to the Stock Option Plan for Non-Employee
Directors, "FOR" Proposal 5 to approve an amendment to the Amended and Restated
Code of Regulations of the Company and "FOR" Proposal 6 to ratify and approve
the appointment of Deloitte & Touche, LLP as independent auditors. Abstentions
and shares otherwise not voted for any reason, including broker non-votes, will
have no effect on the outcome of any vote at the annual meeting.
Each person giving a proxy may revoke it at any time before it is voted
by giving notice to the Company in writing, by attending the meeting and voting
in person or by submitting a later dated proxy that is received by the Company
before the meeting. Any written notice of revocation should be addressed to the
Company (at the address indicated above) to the attention of the Secretary.
Shareholders have cumulative voting rights in the election of Directors.
If written notice 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 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. In
the event that cumulative voting will be used, the proxies solicited include
discretionary authority to cumulate votes.
1
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PROPOSAL 1: ELECTION OF DIRECTORS
The Company's Code of Regulations provides that the Board of Directors
be comprised of three classes of Directors, Class I, II and III, with each class
elected for a three-year term. One class is elected annually. The terms of the
Class II directors expire at the 2000 Annual Meeting of Shareholders, the terms
of the Class III directors expire at the 2001 Annual Meeting of Shareholders and
the terms of the Class I directors expire at the 2002 Annual Meeting of
Shareholders.
The Board of Directors is nominating for reelection five of its present
Class II directors -- Michael J. Conaton, Jerry A. Grundhofer,
Joseph P. Hayden III, William J. Keating and John R. LaBar. Proxies solicited
by the Board will be voted for the election of these five nominees. Information
regarding these nominees is set forth below under "Management."
All Class II directors elected at the Annual Meeting will be elected to
hold office for three years and until their successors are elected and duly
qualified.
Should any of the nominees become unable to serve, proxies will be voted
for any substitute nominee designated by the Board.
We recommend a vote FOR each of the nominees named above. Nominees
receiving the highest number of votes cast for the positions to be filled will
be elected.
PROPOSAL 2: APPROVAL OF ASSOCIATE DISCOUNT STOCK PURCHASE PLAN
On January 27, 2000, the Board of Directors adopted, subject to approval
of Midland shareholders at the 2000 Annual Meeting, the Midland Company
Associate Discount Stock Purchase Plan. The Stock Purchase Plan will provide
employees of Midland with the ability to purchase Midland Common Stock at a
price discounted from the market price. The discount may be up to 15% as
determined by the Board of Directors.
Purpose of the Plan
- -------------------
The purpose of the Stock Purchase Plan is to provide employees of
Midland and its subsidiaries added incentive to their employment and to
encourage their increased efforts to promote the best interests of Midland.
Plan Administration and Termination
- -----------------------------------
The Stock Purchase Plan will be administered by the Board of Directors
or by a committee (the "Stock Purchase Plan Committee") designated by the Board
of Directors of Midland. The Stock Purchase Plan Committee has the power:
- To amend or terminate the Stock Purchase Plan;
- To interpret and administer the Stock Purchase Plan;
- To establish rules and regulations and appoint agents to
administer the Stock Purchase Plan; and
- To make any other determination and take any other action that
the Stock Purchase Plan Committee deems necessary or desirable
for administration of the Stock Purchase Plan.
2
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The Committee has engaged The Fifth Third Bank as agent (the "Agent") to
perform certain custodial and record-keeping functions for the Stock Purchase
Plan.
Unless earlier terminated, the Stock Purchase Plan will continue in
effect until the earlier of (i) the purchase of the maximum number of shares
available under the Stock Purchase Plan or (ii) the date that is ten years from
the effective date of the Stock Purchase Plan.
Eligible Participants
- ---------------------
Employees of Midland, and of subsidiaries designated from time to time
by the Committee, will be eligible to participate in the Stock Purchase Plan
provided that:
- The employee's customary employment by Midland is greater than
20 hours per week and more than five months in any calendar
year;
- The employee does not own 5% or more of Midland Common Stock;
and
- Eligibility ceases upon termination of employment with Midland
or a designated subsidiary.
Subject to these eligibility requirements, all of the Company's
employees (approximately 1,000 persons) would have been eligible to participate
as of March 3, 2000.
Securities to be Utilized
- -------------------------
The maximum number of shares of Midland Common Stock which may be
purchased by eligible employees under the Stock Purchase Plan is 250,000
(subject to antidilution provisions). Shares sold to participating employees
may be previously acquired treasury shares or authorized but unissued shares or,
if and to the extent authorized by the Committee, shares purchased in market
transactions by the Agent.
Method and Price of Purchase
- ----------------------------
Each eligible employee may elect to have a specified amount, not to be
more than 10% of his or her salary, deducted from each regular paycheck.
Employees will also have the ability to designate portions of their annual bonus
for purchases of Midland Common Stock under the Stock Purchase Plan. No eligible
employee may purchase shares with an aggregate fair market value of more than
$25,000 in any calendar year. The initially established purchase period is a
three-month period, although the Company reserves the right to change the
purchase period in its discretion. Amounts deducted from employee paychecks
under the Stock Purchase Plan will be used to purchase the maximum number of
whole and fractional shares of Midland Common Stock that such amounts can
purchase at the applicable purchase price. The purchase price for shares is
discounted up to 15% from the lesser of the fair market value (the closing price
on the NASDAQ National Market) of the Midland Common Stock on the first or last
day of the purchase period. Purchases under the Stock Purchase Plan will take
place at the conclusion of each purchase period.
Payroll deductions will be held by Midland subject to withdrawal by the
employee, and will not bear interest, pending their application to share
purchases. Dividends received on shares held in an employee's account will be
used to purchase additional shares.
3
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Amendment of the Stock Purchase Plan
- ------------------------------------
The Board of Directors can amend the Stock Purchase Plan at any time as
long as no amendment:
- Materially adversely affects any purchase rights outstanding
under the Stock Purchase Plan during the purchase period in
which such amendment is to be effected;
- Increases the maximum number of Midland Common Stock that may be
purchased under the Stock Purchase Plan;
- Decreases the purchase price of the Midland Common Stock for any
purchase period below the lesser of 85% of fair market value on
the first or last day of the purchase period; or
- Adversely affects the qualification of the Stock Purchase Plan
under Section 423 of the Internal Revenue Code, as amended (the
"Code").
Federal Income Tax Consequences
- -------------------------------
The Stock Purchase Plan is intended to comply with the requirements
governing employee stock purchase plans set forth in Section 423 of the Code.
Certain favorable tax consequences are afforded purchasers of stock pursuant to
an employee stock purchase plan meeting those requirements.
If a participant acquires stock under such a plan, the participant will
not recognize taxable income on the purchase price. If the participant holds
the acquired stock for a period of the later of two years from the date the
purchase right is granted and one year from the actual purchase date, the
participant will realize ordinary income upon the disposition of such stock to
the extent of the excess of the fair market value of such stock at the time the
purchase right was granted over its purchase price (which in the Stock Purchase
Plan would be up to a 15% reduction in price), and the participant would report
any additional gain as capital gain. If such stock is disposed of when its fair
market value is less than its fair market value was at the time the purchase
right was granted, the amount of ordinary income is limited to the excess of the
fair market value at the time of disposition over the purchase price.
Neither the grant of a purchase right under an employee stock purchase
plan meeting the requirements of the Code nor the exercise of such a purchase
right has tax consequences to the Company or the participant. If a participant
disposes of stock acquired pursuant to such a purchase right within two years
from the date the purchase right is granted or one year from the date the
purchase right is exercised, the participant must report as additional ordinary
income the difference between the purchase price and the fair market value of
the stock at the time the purchase right is exercised, and the Company may take
an income tax deduction in that amount.
Recommendation
- --------------
We recommend a vote FOR adoption of the Stock Purchase Plan. The
affirmative vote of a majority of common shares voting at the Annual Meeting is
required for adoption of this proposal.
4
<PAGE>
PROPOSAL 3: APPROVAL OF THE AMENDED AND RESTATED 1992 ASSOCIATE INCENTIVE STOCK
PLAN
On January 27, 2000, the Board of Directors adopted, subject to approval
of Midland shareholders at the 2000 Annual Meeting, the Amended and Restated
Midland Company 1992 Incentive Stock Plan. This Amended and Restated Plan
supercedes the Incentive Stock Plan initially approved by the Company's
shareholders in April 1992. The purpose of the Incentive Stock Plan is (i) to
advance the interests of Midland and its subsidiaries by providing its officers
and key management personnel with an additional incentive, (ii) to encourage
their proprietary interest in the success of Midland through stock ownership and
monetary payments based upon the value of Midland Common Stock and (iii) to
encourage employees to remain employed at Midland.
The Incentive Stock Plan provides for the grant of options, stock
appreciation rights (SARs), restricted stock and performance share awards which
may be earned in whole or in part upon attainment of performance criteria
established by the Board of Directors' Compensation Committee which administers
the Incentive Stock Plan. The Compensation Committee will be comprised of two or
more directors satisfying the requirements of "Non-Employee Directors" as
defined in Rule 16b-3 under the Securities Exchange Act and of "outside
directors" to the extent required by Section 162(m) of the Code.
Principal Changes
- -----------------
The Board has adopted and the Shareholders are being asked to approve a
comprehensive amendment and restatement of the Incentive Stock Plan. The
purpose of these changes is to update the plan both in terms of features and
administrative provisions. The significant changes from the existing plan
provided by the Amended and Restated Plan:
(1) Allow for the award of performance shares in amounts and for
terms to be determined from time to time by the Compensation
Committee, such performance shares to be permitted in addition
to other incentives currently in the plan;
(2) Provide for immediate vesting of awarded options, grants and
performance shares upon the Company's Change of Control;
(3) Upon a participant's approved retirement, provide for an option
expiry date of the earlier of the original expiry date or three
years from the participant's approved retirement;
(4) Provide that grants and performance shares vest at the date of
approved retirement or, if services continue to be rendered to
the Company following approved retirement, at such date as the
services shall cease to be rendered to the Company; provided,
however, that the vesting date shall in no event exceed three
years from the date of approved retirement; and
(5) Provide for the Compensation Committee to have the authority to
amend the 1992 Incentive Stock Plan on a prospective basis,
provided, however, that the Compensation Committee shall not
have the authority to alter the amount of common stock allocated
to and reserved for the plan.
For purposes of items (3) and (4) above, the three year expiry term shall not
commence until the employee is no longer providing services to the Company as a
consultant or board member.
5
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Plan Administration and Termination
- -----------------------------------
The Compensation Committee has broad power under the plan, including the
power:
- To determine eligibility to participate under the Incentive
Stock Plan;
- To delegate the authority to grant awards, except that awards to
executive officers of Midland must be granted by the
Compensation Committee;
- To determine the types and combinations of awards to be granted;
and
- To determine the terms of the awards.
Unless earlier terminated, the Incentive Stock Plan will continue in
effect until the expiration of all Awards granted under the Incentive Stock Plan
provided that no incentive options, awards or rights may be granted after
April 9, 2002.
Eligible Participants
- ---------------------
Employees of Midland, and of subsidiaries designated from time to time
by the Committee, will be eligible to participate in the Incentive Stock Plan.
Eligibility generally ceases upon termination of employment with Midland
or a designated subsidiary. Approximately 120 employees would have been
eligible to participate as of March 3, 2000.
Securities to be Utilized
- -------------------------
The maximum number of shares of Midland Common Stock that may be
acquired by eligible employees under the Incentive Stock Plan is 1,650,000
(subject to antidilution provisions). Prior to the date hereof, awards have
been made with respect to 907,700 shares. Shares issued to participating
employees by Midland may be previously acquired treasury shares or authorized
but unissued shares or, if and to the extent authorized by the Committee,
shares purchased in market transactions by Midland.
Awards
- ------
Options. The Committee determines the type of option, vesting schedule
and exercise price for options granted under the Incentive Stock Plan. Options
granted under the Incentive Stock Plan can be either incentive stock options or
nonqualified stock options. The exercise price for a nonqualified stock option
may be less than the fair market value per share, but the exercise price for an
incentive stock option may not be less than the fair market value per share.
For purposes of the Incentive Stock Plan, "fair market value" means the most
recent closing price on the NASDAQ National Market. Persons owning 5% or more
of the outstanding Midland Common Stock, however, must be granted incentive
stock options with exercise prices of at least 110% of fair market value.
Generally, payment for shares purchased upon exercise of an option must be made
in cash. The Committee, however, may permit payment by any other method
including the delivery of shares of Common Stock previously owned by the
participant.
SARs. SARs are designed to compensate recipients based on the increase
in market value of Midland Common Stock over the term of an SAR. SARs are
granted with a specific grant price equal to the fair market value on the date
of grant. Upon exercise, the holder of an SAR is entitled to be paid an amount
equal to the number of SARs being exercised times the difference between the
fair market value of the Midland Common Stock on the exercise date minus the
fair market value on the grant date.
6
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Restricted Stock. Restricted stock awards are grants of shares of
Common Stock that are subject to forfeiture upon the happening of specified
events. The vesting of restricted stock may be conditioned upon the completion
of a period of employment with Midland, the attainment of performance goals or
such other conditions as the Committee determines. Unless an award otherwise
provides, a participant may not vote nor receive dividends on restricted stock
until vested.
Performance Share Awards. Performance share awards are awards payable
in stock based upon the attainment of Company goals as specified in the
performance share certificate.
Amendment of the Stock Incentive Plan
- -------------------------------------
The Board of Directors can amend the Stock Incentive Plan at any time as
long as no amendment:
- Changes the definition of employees eligible to receive awards;
- Except for antidilution adjustments, increases the number of
shares which may be subject to awards granted; or
- Causes the Stock Incentive Plan or any award to fail to be
excluded from the $1 million deduction limitation imposed by
Section 162(m) of the Code, or, to fail to qualify as an
"Incentive Option" as defined by Section 422 of the Code if the
Committee intended for such Award to qualify as an "Incentive
Option."
Federal Income Tax Consequences
- -------------------------------
The following summarizes only the federal income tax consequences of
awards granted under the Stock Incentive Plan. State and local tax consequences
may differ.
Options. Neither the grant nor exercise of an incentive stock option
will be subject to regular federal income taxes. However, at the time of
exercise, the excess of the fair market value of the stock over the exercise
price would be a "tax preference item," subject to the federal alternative
minimum income tax, unless the shares are later disposed of in a "disqualified
disposition."
A disqualified disposition occurs when an optionee sells or otherwise
disposes of stock acquired through the exercise of an incentive stock option
within two years from the date of grant and one year from the date of exercise.
If the stock acquired pursuant to the exercise of an incentive stock option were
to be disposed of within that period, then any of the gain attributable to the
spread on the date of exercise would be treated as ordinary income and taxed at
ordinary income rates. If there is gain in excess of this amount, the remainder
would be treated as long-term capital gain and taxed at the long-term capital
gain rate, which is currently 20%. If the stock is sold before the special
holding period has elapsed, the spread is not also treated as a tax preference
item. The Company does not receive a deduction on the exercise of an incentive
stock option as it generally does not result in income recognition to the
holder, except to the extent that an optionee recognizes ordinary income because
of a disqualified disposition.
If the stock acquired pursuant to the exercise of an incentive stock
option is sold or disposed of after the special holding period referred to
above has elapsed, all gain is treated as long-term capital gain and taxed
appropriately.
7
<PAGE>
The grant of non-qualified stock options will not result in the
recognition of taxable income for federal income tax purposes. However, when a
non-qualified stock option is exercised, the optionee recognizes, as ordinary
income, the excess of the fair market value of the stock on the date of exercise
over the exercise price. The Company will be entitled to an income tax
deduction to the same extent and at the same time as income is recognized by the
optionee.
SARs and Performance Share Awards. Persons who receive SARs or
performance share awards incur no federal income tax liability at the time of
grant. Persons exercising SARs or performance share awards recognize taxable
income, and Midland receives a tax deduction, equal to the amount of cash and
the value of shares received by such person.
Restricted Stock. The grant of restricted stock will subject the
recipient to ordinary income on the difference between the amount paid for such
stock and the fair market value of the Midland Common Stock on the date that the
restrictions lapse. The Company is entitled to an income tax deduction in the
amount of the income recognized by the recipient. Any gain or loss on the
recipient's subsequent disposition of the Midland Common Stock will receive long
or short-term capital gain or loss treatment depending on whether the shares are
held for more than twelve months and depending on how long the stock has been
held since the restrictions lapsed. The Company does not receive a tax
deduction for any such gain. Recipients of restricted stock may make an election
under Internal Revenue Code Section 83(b) to recognize as ordinary compensation
income in the year that such restricted stock is granted the amount equal to the
spread between the amount paid for such stock and the fair market value on date
of the issuance of the stock. If such an election is made, the recipient
recognizes no further amounts of compensation income upon the lapse of any
restrictions and any gain or loss on subsequent disposition will be long or
short-term capital gain. The Section 83(b) election must be made within
thirty days from the time the restricted stock is issued.
Recommendation
- --------------
We recommend a vote FOR approval of the Amendment to the 1992 Associate
Incentive Stock Plan. The affirmative vote of a majority of common shares
voting at the 2000 Annual Meeting is required for adoption of this proposal.
PROPOSAL 4: APPROVAL OF AMENDMENT TO STOCK OPTION PLAN
FOR NON-EMPLOYEE DIRECTORS
On January 27, 2000, the Board of Directors adopted, subject to approval
of Midland shareholders at the 2000 Annual Meeting, amendments to The Midland
Company Stock Option Plan for Non-Employee Directors (the "Directors Plan").
The purpose of the Directors Plan is to advance the interests of Midland by
providing directors who are not full time employees of Midland with an
opportunity to obtain a proprietary interest in Midland as an additional
incentive to promote its success.
The Board of Directors of Midland administers the Directors Plan.
Unless earlier terminated, the Directors Plan will continue in effect until
April 9, 2002.
Only directors who are not also employees of Midland are eligible to
participate in the Directors Plan.
The amended Directors Plan provides that the maximum of shares of
Midland Common Stock that may be purchased under the Directors Plan is 250,000
(subject to antidilution provisions). The
8
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Directors Plan originally provided for a maximum number of 150,000 shares.
Shares issued under the Directors Plan can be newly issued or reacquired shares
held as treasury stock.
The Directors Plan previously provided for a biennial grant of
(i) options to purchase 3,000 shares of the Company's Common Stock or (ii) 1,000
shares of the Company's Common Stock, at the option of the non-employee
director. Awards under the Directors Plan were made on the last business day of
January in each odd-numbered year. The Directors Plan, as amended, would
provide for annual grants of options to purchase the Company's Common Stock in
such amounts as determined by the Board of Directors. For the year 2000, the
award for non-employee directors will be options to purchase 2,000 shares of
Common Stock. The exercise price for options granted under the Directors Plan
is the fair market value (the most recent closing price on the NASDAQ National
Market) as of the date of grant. The exercise period of the options will be
determined from time to time by the Board of Directors.
Under the amended Directors Plan, any option or unexercised portion of
an option will terminate three years from such person's last day as a director,
or the date of expiration of the option period, whichever occurs earlier. Prior
to the amendment, options terminated on the earlier of one year after the end of
service as a director or the date of expiration of the option period.
Options granted under the Directors Plan will be non-qualified stock
options. The grant of non-qualified stock options will not result in the
recognition of taxable income for federal income tax purposes. However, when a
non-qualified stock option is exercised, the optionee recognizes, as ordinary
income, the excess of the fair market value of the stock on the date of exercise
over the exercise price. The Company will be entitled to an income tax
deduction to the same extent and at the same time as income is recognized by the
optionee.
Recommendation
- --------------
We recommend a vote FOR the amendment to the Stock Option Plan for
Non-Employee Directors. The affirmative vote of a majority of common shares
voting at the 2000 Annual Meeting is required for adoption of this proposal.
PROPOSAL 5: APPROVAL OF AMENDMENT TO THE AMENDED AND RESTATED
CODE OF REGULATIONS
On January 27, 2000, the Board of Directors adopted, subject to approval
at the Annual Meeting, an amendment to the Company's Amended and Restated Code
of Regulations. The proposed amendment will:
- Allow the Company's Directors and Officers to receive the
maximum indemnification not prohibited by law; and
- Allow the Board of Directors to fix the date of the annual
meeting of Shareholders, in its discretion, subject to all
applicable laws and regulations.
Recommendation
- --------------
We recommend a vote FOR the amendment to the Company's Amended and
Restated Code of Regulations. The affirmative vote of a majority of common
shares voting at the 2000 Annual Meeting is required for adoption of this
proposal.
9
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PROPOSAL 6: 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
2000. 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.
Recommendation
- --------------
We recommend a vote FOR the ratification of Deloitte & Touche LLP as
auditors of the Company. The affirmative vote of a majority of common shares
voting at the 2000 Annual Meeting is required for ratification of this proposal.
STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth, as of March 3, 2000, 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 and/or has been obtained from reports filed by
the persons listed with the Securities and Exchange Commission ("SEC").
Shares of Common
Stock Beneficially
Name and Address of Beneficial Owner Owned Percent of Class
- --------------------------------------------------------------------------------
J. P. Hayden, Jr. & Lois T. Hayden
7000 Midland Boulevard
Amelia, Ohio 45102 1,358,346(1) 14.0%
Robert W. Hayden
7000 Midland Boulevard
Amelia, Ohio 45102 1,296,087(2) 13.4%
William T. Hayden
7000 Midland Boulevard
Amelia, Ohio 45102 827,664(3) 8.6%
Gabelli Fund
One Corporate Center
Rye, NY 10580 728,000 7.5%
Burgess L. Doan
5710 Wooster Road
Cincinnati, Ohio 45227 689,987 (4) 7.1%
John R. LaBar
7000 Midland Boulevard
Amelia, Ohio 45102 631,860 (5) 6.5%
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(1) J.P. Hayden, Jr. and Lois T. Hayden are husband and wife. Includes
91,576 shares over which J. P. Hayden, Jr. has sole voting and
investment power, 314,157 shares over which he has sole voting
power only and 45,000 shares that may be acquired through exercise of
options within 60 days of March 3, 2000. Includes 258,262 shares owned
by Hayden Investments Limited Partnership ("HILP"). Lois T. Hayden is
the sole shareholder of the general partner of HILP and owns all of the
limited partnership interests of HILP and has sole voting and investment
power over the shares owned by HILP. Includes 649,351 shares owned by
J & L Hayden Holdings Limited Partnership ("J & L Holdings"), of which
Ms. Hayden controls all voting for the general partner of J & L Holdings
and is a 1% limited partner. Lois Hayden has sole voting and investment
power over the shares owned by J & L Holdings.
(2) Includes 504,404 shares over which Robert W. Hayden has sole
voting and investment power, 7,500 shares over which he has
sole voting power and 5,000 shares that may be acquired through exercise
of options within 60 days of March 3, 2000. Also includes
779,183 shares owned by the R. Hayden Investments Limited
Partnership, of which Mr. Hayden is the sole general and limited
partner.
(3) Includes 8,988 shares owned by Mr. Hayden's wife, 369,981 shares over
which William T. Hayden has sole voting and investment power, 260,041
shares over which he shares voting and investment power, 171,654 shares
over which he shares investment power only and 17,000 shares that may be
acquired through exercise of options within 60 days of March 3, 2000.
Of the shares over which Mr. Hayden shares voting and investment power,
Mr. Hayden shares voting and investment power over: (a) 164,314 shares
held in trust as a co-trustee with Burgess L. Doan; (b) 53,163 shares
held in trust as co-trustee with John W. Hayden and (c) 25,384 shares
held in trust as co-trustee with Joseph P. Hayden III. Of the shares
over which Mr. Hayden shares investment power only, such shares are held
in trust as co-trustee with John W. Hayden. J.P. Hayden, Jr. has the
voting power over all of the shares over which William T. Hayden shares
investment power only.
(4) Includes 58,722 shares over which Burgess L. Doan has sole voting and
investment power. In addition, Mr. Doan shares voting and investment
power over 415,890 shares held in trust 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.
Furthermore, Mr. Doan shares voting and investment power over 164,314
shares held in trust as co-trustee with William T. Hayden and 7,661
shares held in trust as co-trustee with Joseph P. Hayden III.
(5) Includes 574,160 shares over which John R. LaBar has sole
voting and investment power, 7,500 shares over which he has
sole voting power, 45,200 owned by his wife and 5,000 shares that may be
acquired through exercise of options within 60 days of March 3, 2000.
11
<PAGE>
MANAGEMENT
Identification of Directors and Officers
- ----------------------------------------
The following table sets forth information concerning Midland's
directors and certain executive officers as of March 17, 2000:
Name Age Position
- ---- --- --------
Joseph P. Hayden III(1) 47 Chairman of the Board and Chief Operating
Officer
John W. Hayden(1) 42 President, Chief Executive Officer and a
Director
J. P. Hayden, Jr.(1) 70 Chairman of the Executive Committee of the
Board of Directors
Michael J. Conaton(1) 66 Vice Chairman of Midland and
Vice Chairman of the Board
John I. Von Lehman 47 Executive Vice President, Chief Financial
Officer, Secretary and a Director
George R. Baker 70 Director
James E. Bushman(1)(2)(3) 55 Director
James H. Carey(2)(3) 67 Director
Jerry A. Grundhofer(4) 55 Director
Robert W. Hayden 61 Director
William T. Hayden(4) 46 Director
William J. Keating(1)(3) 72 Director
John R. LaBar 68 Director
David B. O'Maley(3)(4) 53 Director
John M. O'Mara(1)(2) 72 Director
Glenn E. Schembechler(2) 70 Director
______________________
(1) Executive Committee Member
(2) Audit Committee Member
(3) Compensation Committee Member
(4) Governance Committee Member
George R. Baker. Mr. Baker has served as a Director of the Company
since 1971. Mr. Baker will retire as a Director when his current term expires
at the 2000 Annual Meeting. For the last five years, Mr. Baker has been
self-employed as a corporate director and advisor. He is a Director of Reliance
Group Holdings, Inc., Reliance Insurance Co. and W. W. Grainger, Inc.
12
<PAGE>
James E. Bushman. Mr. Bushman has served as a Director of the Company
since 1997. Mr. Bushman's term as a Director expires in 2002. Mr. Bushman is
the President and Chief Executive Officer of Cast-Fab Technologies, Inc. and
has served in that capacity for over ten years.
James H. Carey. Mr. Carey has served as a Director of the Company since
1971. Mr. Carey's term as a Director expires in 2002. Mr. Carey currently
serves as a corporate director and advisor and has served as the managing
director of Briarcliff Financial Associates since 1991. Mr. Carey currently
serves as a Director of Airborne Freight Corporation, Nantucket Industries, Inc.
and S.G. Cowan Group of Mutual Funds. Mr. Carey formerly served as the Chief
Executive Officer of National Capital Benefits Corporation and the President and
Chief Executive Officer of the Berkshire Bank.
Michael J. Conaton. Mr. Conaton has served as a Director of the Company
since 1969. Mr. Conaton's current term as a Director expires at the 2000 Annual
Meeting. Mr. Conaton is currently Vice Chairman of the Company and Vice
Chairman of the Board of Directors. Mr. Conaton served as President of the
Company from 1988 until April, 1998. Mr. Conaton has served the Company in
various capacities since 1961.
Jerry A. Grundhofer. Mr. Grundhofer has served as a Director of the
Company since 1998. Mr. Grundhofer's current term as a Director expires at the
2000 Annual Meeting. Mr. Grundhofer currently serves as the President and Chief
Executive Officer of Firstar Corporation and Firstar Bank, N.A. Prior to its
merger with Firstar Corporation, Mr. Grundhofer served as the Chairman of the
Board and Chief Executive Officer of Star Bank, N.A. and had served in that
capacity since 1993. Mr. Grundhofer also became a Director of ECOLAB, Inc.
during 1999.
John W. Hayden. Mr. Hayden has served as a Director of the Company
since 1991. Mr. Hayden's term as a Director expires in 2002. He is currently
the Chief Executive Officer and President of the Company. In addition,
Mr. Hayden serves as the Chairman, Chief Executive Officer and President of
American Modern Insurance Group, Inc., a wholly owned subsidiary of the Company.
Before assuming his current responsibilities, Mr. Hayden served as a Senior
Executive Vice President of the Company and as Vice Chairman of the American
Modern Insurance Group. Mr. Hayden has served in various capacities for the
Company and its subsidiaries since 1981. Mr. Hayden also became a Director of
Ohio National Financial Services in 1999.
Joseph P. Hayden III. Mr. Hayden has served as a Director of the
Company since 1989. Mr. Hayden's current term as a Director expires at the 2000
Annual Meeting. Mr. Hayden is currently Chairman of the Board of Directors and
Chief Operating Officer of the Company. Mr. Hayden also serves as Chairman and
Chief Executive Officer of M/G Transport Services, Inc., a wholly owned
subsidiary of the Company. Mr. Hayden has served in various capacities for the
Company and its subsidiaries since 1975.
J.P. Hayden, Jr. Mr. Hayden has served as a Director of the Company
since 1961. Mr. Hayden's term as a Director expires in 2001. Mr. Hayden is
currently Chairman of the Executive Committee of the Company's Board of
Directors. From 1980 through April, 1998, Mr. Hayden served as the Chairman of
the Board and the Chief Executive Officer of the Company and from 1960 through
1979 he served as President of the Company. Mr. Hayden has served the Company
and its subsidiaries in various capacities since 1950. Mr. Hayden has also
served as a Director of Firstar Corporation and Firstar Bank, N.A. (or its
predecessor(s)) since 1973.
Robert W. Hayden. Mr. Hayden has served as a Director of the Company
since 1968. Mr. Hayden's term as a Director expires in 2002. Mr. Hayden
retired, effective January 29, 1999, as a Vice President of the Company.
Mr. Hayden served the Company and its subsidiaries in various capacities from
1960 until his retirement.
13
<PAGE>
William T. Hayden. Mr. Hayden has served as a Director of the Company
since 1994. Mr. Hayden's term as a Director expires in 2001. Mr. Hayden has
been an attorney in private practice for over five years and was formerly a
partner of the law firm of Cohen, Todd, Kite & Stanford in Cincinnati, Ohio.
William J. Keating. Mr. Keating has served as a Director of the
Company since 1991. Mr. Keating's current term as a Director expires at the
2000 Annual Meeting. Prior to his retirement in 1992, Mr. Keating served as the
Chairman, Publisher and Chief Executive Officer of The Cincinnati Enquirer.
Mr. Keating had been associated with The Cincinnati Enquirer in various
executive capacities since 1973.
John R. LaBar. Mr. LaBar has served as a Director of the Company since
1963. Mr. LaBar's current term as a Director expires at the 2000 Annual
Meeting. Mr. LaBar retired as Vice President and Secretary of the Company
effective December 31, 1998. Mr. LaBar served the Company and its subsidiaries
in various capacities from 1953 through 1998.
David B. O'Maley. Mr. O'Maley has served as a Director of the Company
since 1998. Mr. O'Maley's term as a Director expires in 2002. Mr. O'Maley is
currently Chairman of the Board, President and Chief Executive Officer of the
Ohio National Financial Services (Ohio National Life Insurance Company and Ohio
National Life Assurance Company) and has served in that capacity since 1994.
Mr. O'Maley is also Chairman and Director of the ON Equity Sales Company and
Ohio National Equities, Inc. Mr. O'Maley has also served as a Director of
Firstar Corporation and Firstar Bank, N.A. (or its predecessor(s)) since 1995.
John M. O'Mara. Mr. O'Mara has served as a Director of the Company
since 1983. Mr. O'Mara's term as a Director expires in 2001. Since 1990,
Mr. O'Mara has served as a financial consultant, has provided general advice to
corporations and has acted as a consultant to parties in leveraged buy-out
transactions. Prior to 1990, Mr. O'Mara was Chairman and Chief Executive
Officer of Global Natural Resources, Inc. Mr. O'Mara is a Director of Baldwin
& Lyons, Inc., Plantronics, Inc. and Glenoit, Inc. Mr. O'Mara formerly served
as Chairman of the Executive Committee of Quality Care Systems.
Glenn E. Schembechler. Mr. Schembechler has served as a Director of the
Company since 1981. Mr. Schembechler's term as a Director expires in 2001.
Mr. Schembechler is Professor Emeritus at the University of Michigan.
Mr. Schembechler served as President of the Detroit Tigers Baseball Club from
1990 to 1992 and served as Athletic Director and Head Football Coach at the
University of Michigan until 1990. Mr. Schembechler is a Director of Riddell
Sports, Inc.
John I. Von Lehman. Mr. Von Lehman has served as a Director of the
Company since 1991. Mr. Von Lehman's term as a Director expires in 2001.
Mr. Von Lehman is currently Executive Vice President, Chief Financial Officer
and Secretary of the Company. Mr. Von Lehman has served the Company in various
capacities with progressively increasing responsibilities since 1980.
Periods of service as directors include service as directors of the
Company's predecessor, Midland-Guardian Co.
J. P. Hayden, Jr. and Robert W. Hayden are brothers. Joseph P.
Hayden III, John W. Hayden and William T. Hayden are brothers and are sons of
J. P. Hayden, Jr. Thomas R. Hayden is the son of J.P. Hayden, Jr. and Lois T.
Hayden and the brother of Joseph P. Hayden III, John W. Hayden and William T.
Hayden. Thomas R. Hayden is employed by a subsidiary of the Company and
received salary and bonus payments of $113,510 during 1999. William T. Hayden
is an attorney and the Company paid him fees of $251,663 in 1999 for
professional services provided to the Company. Jeff Martin and Mike Jackson are
the brothers-in-law of Joseph P. Hayden III and are employed by a subsidiary of
the Company. Mssrs. Martin and Jackson each received salary and bonus payments
of less than $90,000 in 1999.
14
<PAGE>
Board and Committee Actions and Compensation
- --------------------------------------------
Committees of the Board of Directors. The Board of Directors of the
Company has an audit committee, a compensation committee, a governance committee
and an executive committee, but has no nominating committee. The Audit
Committee is composed of James H. Carey, James E. Bushman, 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 William J. Keating, James H. Carey, David B. O'Maley and James E. Bushman.
The function of the Compensation Committee is to review and establish the
compensation of the senior executive officers of the Company. The Governance
Committee is composed of William T. Hayden, Jerry A. Grundhofer and
David B. O'Maley. The function of the Governance Committee is to review and
act on matters of corporate compliance, corporate ethics and other corporate
governance matters. During 1999, the Executive Committee was composed of
J.P. Hayden, Jr., Michael J. Conaton, Joseph P. Hayden III, John W. Hayden and
William J. Keating. In January, 2000, John M. O'Mara and James E. Bushman were
additionally appointed to the Executive Committee. 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 in the Board of Directors or in any committee of the Board of
Directors.
Board and Committee Meetings. During 1999, the Board of Directors of
the Company had four meetings. During 1999, the Executive Committee met two
times, the Audit Committee met four times, the Compensation Committee met six
times and the Governance Committee met once.
Director Compensation. During 1999, the Company paid 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 paid non-employee Directors
who serve on the Governance Committee, Executive Committee, Audit Committee or
the Compensation Committee an annual fee of $2,000 for services on each
committee. For 2000, the Company will pay non-employee Directors $16,000
annually plus $2,000 per regular or special meeting. Additionally, the Company
will pay non-employee Directors serving as (i) chairs of standing committees
$1,000 annually, and (ii) members of a standing committee $750 per committee
meeting attended. Non-employee Directors may defer receipt of some or all of
their annual fees, attendance fees and committee fees under the Company's
Non-Employee Director Deferred Compensation Plan. Under the Deferred
Compensation Plan, non-employee Directors may either invest deferred
compensation in Company stock equivalents or may receive a fixed rate of return
on compensation they have deferred.
Prior to January 1, 2000, non-employee Directors received, on a biennial
basis (at the election of the non-employee Director) either: (a) a grant of
1,000 restricted shares of Company common stock, or (b) a grant of an option to
purchase 3,000 shares of Company common stock. Assuming approval by the
shareholders of Proposal 4 described above, during 2000, non-employee Directors
will receive an option grant entitling the Director to purchase 2,000 shares of
Company common stock. Directors who are employees of the Company or who are
presently under consulting agreements with the Company do not receive any
compensation for serving as a Director. The net value realized from the
exercise of options in 1999 by non-employee Directors was $250,590.
The Company maintains split-dollar life insurance programs for
Robert W. Hayden and John R. LaBar, both directors of the Company. The amount
of premium advanced by the Company in 1999 was $234,809 for Robert W. Hayden and
$276,362 for John R. LaBar. No interest is charged on the amounts advanced.
The economic value accrued in 1999 of the premiums advanced to date, using the
Demand Loan Approach and the Company's average commercial paper rate of 5.043%,
was $50,514 for Robert W. Hayden and $60,636 for John R. LaBar.
15
<PAGE>
Consulting Agreements. In 1999, John R. LaBar, a Director of the
Company and, until December 31, 1998, the Vice President and Secretary of the
Company, received $150,000 in consulting fees and other benefits, including
health insurance, club dues and airplane and automobile expenses with a value of
$25,116. Mr. LaBar also received $134,460 in benefit payments under the
Company's Pension Plan. In 1999, Robert W. Hayden, a Director of the Company
and, until January 28, 1999, a Vice President of the Company, received $225,000
in consulting fees and other benefits, including health insurance, club dues and
airplane and automobile expenses with a value of $34,272.
J. P. Hayden, Jr., Chairman of the Executive Committee of the Board of
Directors, has informed the Company that he intends to resign from active
employment with the Company effective April 1, 2000. The Company and Mr. Hayden
have reached an agreement for Mr. Hayden to serve as a consultant to the Company
through December 31, 2005. Mr. Hayden will receive monthly consulting fees from
the Company of approximately $60,400 in 2000 declining annually to approximately
$16,666 per month in 2005. Mr. Hayden will receive other benefits, including
health insurance, club dues and airplane and automobile allowances, comparable
to the benefits made available to other retired executives of the Company while
Mr. Hayden serves as a consultant to the Company. Mr. Hayden will continue as a
Director of the Company after his retirement from active employment.
Michael J. Conaton, Vice Chairman of the Company, has informed the
Company that he also intends to resign from active employment with the Company
effective April 1, 2000. The Company and Mr. Conaton have reached an agreement
for Mr. Conaton to serve as a consultant to the Company through December 31,
2005. Mr. Conaton will receive monthly consulting fees of $33,333 in 2000
declining annually to $4,166 per month in 2005. Mr. Conaton will receive other
benefits, including health insurance, club dues and airplane and automobile
allowances, comparable to the benefits made available to other retired
executives of the Company while Mr. Conaton serves as a consultant to the
Company. Mr. Conaton will continue as a Director of the Company after his
retirement from active employment.
Section 16(a) Beneficial Ownership Reporting Compliance
- -------------------------------------------------------
Based on a review of filings with the SEC and written representations
that no other reports were required, the Company believes that all of the
Company's executive 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.
STOCK OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth, as of March 3, 2000, the holdings of
directors and nominees for director and executive officers named in the "Summary
Compensation Table" of this Proxy Statement and all directors and executive
officers as a group. Beneficial ownership has been determined in accordance
with rules and regulations of the SEC.
16
<PAGE>
Shares of Common
Stock Beneficially
Name of Beneficial Owner Owned Percent of Class
- --------------------------------------------------------------------------------
George R. Baker 27,320 (5) *
James E. Bushman 14,000 (5) *
James H. Carey 15,320 (5) *
Michael J. Conaton 167,168 (1) 1.7%
Jerry A. Grundhofer 8,000 (5) *
John W. Hayden 473,737 (2) 4.9%
J.P. Hayden, Jr. 1,358,346 (3) 14.0%
Joseph P. Hayden III 390,198 (4) 4.0%
Robert W. Hayden 1,296,087 (3) 13.4%
William T. Hayden 827,664 (3) 8.6%
William J. Keating 20,000 (5) *
John R. LaBar 631,860 (3) 6.5%
David B. O'Maley 8,000 (5) *
John M. O'Mara 27,200 (5) *
Glenn E. Schembechler 32,834 (5) *
John I. Von Lehman 36,425 (5) *
All Directors & Executive Officers
as a Group (18 Persons) 5,342,640 (5) 55.2%
* Less than 1%
(1) Includes 28,000 shares over which Michael J. Conaton has sole
voting power, 118,168 shares over which he has sole voting and
investment powers and 21,000 shares that may be acquired through
exercise of options within 60 days of March 3, 2000.
(2) Includes 149,107 shares over which John W. Hayden has sole
voting and investment power, 30,000 shares over which he has
sole voting power, 95,021 shares over which he shares voting and
investment power, 187,609 shares over which he shares investment power
only and 12,000 shares that may be acquired through exercise of options
within 60 days of March 3, 2000. Of the shares over which Mr. Hayden
shares voting and investment power, Mr. Hayden shares voting and
investment power over: (a) 53,163 shares held in trust as co-trustee
with William T. Hayden and (b) 41,858 shares held in trust as co-trustee
with Joseph P. Hayden, III. Of the shares over which Mr. Hayden shares
investment power only, Mr. Hayden shares investment power over
(a) 70,503 shares held in trust as co-trustee with Joseph P. Hayden III,
and (b) 117,106 shares held
17
<PAGE>
in trust as co-trustee with William T. Hayden. J.P. Hayden, Jr. has the
voting power over all of the shares over which John W. Hayden shares
investment power only.
(3) For information concerning the stock ownership of J.P. Hayden, Jr.,
Robert W. Hayden, William T. Hayden and John R. LaBar, see "Stock
Ownership of Certain Beneficial Owners."
(4) Includes 192,424 shares over which Joseph P. Hayden III has
sole voting and investment power, 30,000 shares over which he
has sole voting power, 74,903 shares over which he shares voting and
investment power, 10,368 shares owned by Mr. Hayden's wife, 70,503
shares over which he shares investment power only and 12,000 shares that
may be acquired through exercise of options within 60 days of March 3,
2000. Of the shares over which Mr. Hayden shares voting and investment
power, Mr. Hayden shares voting and investment power over: (a) 41,858
shares held in trust as co-trustee with John W. Hayden; (b) 25,384
shares held in trust as co-trustee with William T. Hayden and (c) 7,661
shares held in trust as co-trustee with Burgess L. Doan. Of the shares
over which Mr. Hayden shares investment power only, Mr. Hayden shares
investment power over those shares as co-trustee with John W. Hayden.
J.P. Hayden, Jr. has the voting power over all of the shares which
J.P. Hayden III shares investment power only.
(5) The number of shares that may be acquired through exercise of options
within sixty (60) days of March 3, 2000 by the following persons are as
follows: George R. Baker - 17,000; James E. Bushman - 5,000; James H.
Carey - 14,000; Jerry A. Grundhofer - 5,000; William J. Keating -
14,000; David B. O'Maley - 5,000; John M. O'Mara - 17,000; Glenn E.
Schembechler - 14,000; John I. Von Lehman - 12,000; and all directors
and executive officers as a group - 221,500 .
EXECUTIVE COMPENSATION
The following Summary Compensation Table provides an overview of
compensation paid, earned or awarded to the Chief Executive Officer and the four
other most highly paid executive officers of the Company.
<TABLE>
Summary Compensation Table
--------------------------
Long-Term
Annual Compensation Compensation All Other
----------------------- ------------------- ---------------------------------
Restricted
Name and Stock Options/ Savings
Principle Position Year Salary Bonus Awards(1) SAR's Plans(2) Insurance(3) Other
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
J.P. Hayden, Jr. 1999 $725,000 $393,413 $604,125 $0 $49,797 $141,975 $0
Chairman of the Executive 1998 675,000 337,745 0 0 45,574 112,850 0
Committee 1997 600,000 217,935 558,750 0 36,807 81,746 0
Michael J. Conaton 1999 400,000 196,706 223,750 0 26,586 7,077 0
Vice Chairman 1998 375,000 168,873 0 0 24,474 8,190 0
1997 315,000 108,967 223,500 0 19,079 3,721 0
Joseph P. Hayden III 1999 325,000 196,706 335,625 0 22,864 726 0
Chairman of the Board & 1998 290,000 148,608 0 0 19,737 835 0
Chief Operating Officer 1997 245,000 53,656 186,250 0 13,440 676 0
John W. Hayden 1999 325,000 196,706 335,625 0 22,864 446 0
Chief Executive Officer & 1998 290,000 148,608 0 0 19,737 490 0
President 1997 230,000 121,731 186,250 0 15,828 367 0
Kurt R. Schwamberger (4) 1999 320,000 163,168 111,875 0 18,976 1,150 50,000
Senior Vice President 1998 300,000 128,859 0 0 19,299 1,440 50,000
1997 280,000 121,731 93,150 0 18,078 1,325 90,000
18
</TABLE>
<PAGE>
(1) Dividends will be paid on stock reported in this column. The aggregate
number of restricted stock holdings and valuations at December 31, 1999
were as follows: J. P. Hayden, Jr., 109,500 shares valued at $2,272,125;
Michael J. Conaton, 43,000 shares valued at $892,250; Joseph P.
Hayden III, 36,300 shares valued at $753,225; John W. Hayden, 36,300
shares valued at $753,225; and Kurt R. Schwamberger, 12,500 shares
valued at $259,375.
(2) Total Company matching contributions earned during year from savings
plans.
(3) The Company maintains 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 1999 was $582,259. 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 1999,
using the Demand Loan Approach and the Company's average commercial
paper rate of 5.043%, is $126,261 for J. P. Hayden, Jr. Such amount is
reflected in the Summary Compensation Table. The remaining amounts
represent group term life insurance premiums paid by the Company during
the year.
(4) In 1996, in connection with his employment with the Company, Mr.
Schwamberger received a loan of $150,000 from the Company. $50,000 of
that loan was forgiven in each of the years 1997, 1998 and 1999. Mr.
Schwamberger received a relocation bonus of $80,000, half of which was
paid in 1996 and half of which was paid in 1997. Mr. Schwamberger is
indebted to the Company in the amount of $94,595 on a loan for personal
purposes. Mr. Schwamberger resigned from his positions with the Company
and its subsidiaries effective February 18, 2000.
Savings Plans. The Company currently has 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 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 $10,000 or 16% of an employee's
compensation in 1999 and (3) all funds under the plan are not available to the
Company's creditors in the case of bankruptcy. 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 the plan are subject to the
Company's creditors in the case of bankruptcy. The Company does not match
supplemental contributions under either plan. Cash compensation paid pursuant
to these plans is included in the Summary Compensation Table under the heading
All Other Compensation.
Pension Plan. The Company currently has a pension plan in place that
has been 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 overtime and bonus) constituting Social Security covered compensation,
plus 1.75% of that portion of average monthly salary (plus overtime and bonus)
not constituting Social Security covered compensation. Average monthly salary
(plus overtime and bonus) is based on the highest average salary for 5
consecutive years.
The 1999 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:
19
Years of Service
---------------------------------------------------------
Average
Annual
Compensation 15 20 25 30 35
- ------------ -- -- -- -- --
$ 100,000 $ 22,301 $ 29,735 $ 37,169 $ 44,603 $ 52,036
150,000 $ 35,426 $ 47,235 $ 59,044 $ 70,853 $ 82,661
200,000 $ 48,551 $ 64,735 $ 80,919 $ 97,103 $ 113,282
250,000 $ 61,676 $ 82,235 $ 102,794 $ 123,353 $ 143,911*
300,000 $ 74,801 $ 99,735 $ 124,669 $ 149,603* $ 174,536*
350,000 $ 87,926 $ 117,235 $ 146,544* $ 175,853* $ 205,161*
400,000 $ 101,051 $ 134,735* $ 168,419* $ 202,103* $ 235,786*
450,000 $ 114,176 $ 152,235* $ 190,294* $ 228,353* $ 266,411*
500,000 $ 127,301 $ 169,735* $ 212,169* $ 254,603* $ 297,036*
550,000 $ 140,426* $ 187,235* $ 234,044* $ 280,853* $ 327,661*
600,000 $ 153,551* $ 204,735* $ 255,919* $ 307,103* $ 358,286*
650,000 $ 166,676* $ 222,235* $ 277,794* $ 333,353* $ 388,911*
700,000 $ 179,801* $ 239,735* $ 299,669* $ 359,603* $ 419,536*
750,000 $ 192,926* $ 257,235* $ 321,544* $ 385,853* $ 450,161*
800,000 $ 206,051* $ 274,735* $ 343,419* $ 412,103* $ 480,786*
850,000 $ 219,176* $ 292,235* $ 365,294* $ 438,353* $ 511,411*
900,000 $ 232,301* $ 309,735* $ 387,169* $ 464,603* $ 542,036*
950,000 $ 245,426* $ 327,235* $ 409,044* $ 490,853* $ 572,661*
1,000,000 $ 258,551* $ 344,735* $ 430,919* $ 517,103* $ 603,286*
1,050,000 $ 271,676* $ 362,235* $ 452,794* $ 543,353* $ 633,911*
1,100,000 $ 284,801* $ 379,735* $ 474,669* $ 569,603* $ 664,536*
*Under the Internal Revenue Code, the maximum allowable annual benefit
payable by the Pension Plan in 1999 to any one participant is $135,000. In
addition, the maximum compensation that can be used to determine the benefit is
$170,000. 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.
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For purposes of the Pension Plan, the credited years of service through
1999 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), Joseph P. Hayden III (23.3), John W. Hayden (17.6) and
Kurt R. Schwamberger (3.2).
The following table sets forth the aggregated option exercises during
1999 and the option value as of December 31, 1999 for the Chief Executive
Officer and the four other most highly paid executive officers of the Company
under the 1992 Associate Incentive Stock Option Plan adopted by the Board of
Directors and approved by the shareholders.
Aggregate Option/SAR Exercises in Last Fiscal Year
and Fiscal Year-End Option/SAR Values
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Options/SARs Options/SARs
at FY End 1999 at Year End
Shares
Acquired Value Exercisable/ Exercisable/
Name On Exercise Realized Unexercisable Unexercisable
- ---------------------------------------------------------------------------
J.P. Hayden, Jr. 39,900 $675,108 45,000/0 $528,750/0
Michael J. Conaton 18,000 $304,740 21,000/0 $246,750/0
Joseph P. Hayden III 9,900 $167,508 12,000/0 $141,000/0
John W. Hayden 8,700 $147,204 12,000/0 $141,000/0
Kurt R. Schwamberger - - 0/0 $0/0
CHANGE IN CONTROL ARRANGEMENTS
In January, 2000, the Compensation Committee, based upon advice received
from an independent compensation consultant, recommended to the Board of
Directors that the Company enter into agreements with the senior officers of the
Company to provide certain benefits to the officers in the event of a change of
control in the Company. In addition, the Compensation Committee recommended
that an Employee Retention Plan be implemented to provide certain benefits to
the other officers of the Company and its subsidiaries in the event of a change
of control. The Board of Directors approved the recommendation of the
Compensation Committee and authorized the Company to enter into Corporate
Protection Agreements with Joseph P. Hayden III, John W. Hayden, John I.
Von Lehman and Paul Brizzolara. Under these agreements, if a Change of Control
should occur with respect to the Company and the officer should be terminated
(or, for good reason, resign) from employment with the Company, the Company
would be obligated to pay (i) Joseph P. Hayden III, John W. Hayden and John I.
Von Lehman an amount equal to three times their then-current compensation and
(ii) Mr. Brizzolara an amount equal to two times his then-current compensation.
The Company is also obligated to pay additional amounts to offset certain excise
tax liabilities payable with respect to such payments.
For purposes of these Agreements, a Change of Control is deemed to
occur if (i) a shareholder
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who is not presently a shareholder of the Company acquires more than 33 1/3% of
the Company's outstanding common stock, (ii) a majority of the Directors of the
Company are persons who were not directors when the Agreements were entered into
and were not nominated to serve by the existing directors, or (iii) the
Shareholders of the Company approve a merger, consolidation or reorganization
involving the Company.
In addition to the Corporate Protection Agreements with the officers
described above, the Board of Directors approved the Company's establishment of
an Employee Retention Plan under which certain other senior managers of the
Company would receive payments of approximately 1.5 times their current
compensation in the event of a Change of Control and the termination (or, if for
good reason, resignation) of the officer's employment with the Company.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 1999, J.P. Hayden, Jr., an executive officer of the Company,
served as a director of Firstar Corporation. During 1999, Jerry A. Grundhofer,
a Director of the Company, served as an executive officer of Firstar
Corporation. Mr. Grundhofer also served on the Compensation Committee for the
Company's Board of Directors until May of 1999. Mr. Grundhofer, however,
withdrew from the Compensation Committee prior to attending any of the
Compensation Committee's 1999 meetings.
REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
The Company's compensation policy administered by the Compensation
Committee is designed to attract and retain qualified executive officers, to
reward them for profitable corporate performance and to provide incentives for
them to create short-term and long-term corporate stability and growth.
Therefore, the Company's compensation package for its executive officers
consists of base salary, bonus and incentive awards. The level of these amounts
is determined by the Compensation Committee.
The Committee sets base salaries at levels the Committee believes are
sufficient to attract and retain qualified executives, including the Chairman of
the Board, the Chief Executive Officer and the Chairman of the Executive
Committee. In order to properly and fairly establish such compensation, the
Committee sought and received advice from Towers Perrin, a nationally recognized
executive compensation consultant. Based on the Company's 1998 favorable
financial results, particularly with respect to its record net income from
continuing operations for the year, the Committee determined to award raises in
base salary for 1999 of approximately 7-10% to the Chairman of the Board, the
Chief Executive Officer and the Chairman of the Executive Committee. In
addition, the Committee, in determining base salary for the Chief Executive
Officer, considered the factors referred to above as well as the compensation
payable to the chief executive officers of other specialty insurance companies
with comparable asset size and premium income. As a result, during 1999, the
Chairman of the Board's salary was $325,000 (compared to $290,000 in 1998), the
Chief Executive Officer's salary was $325,000 (compared to $290,000 in 1998) and
the Chairman of the Executive Committee's 1999 salary was $725,000 (compared to
$675,000 in 1998). Salaries of other executive officers are listed in the
Summary Compensation Table.
The Committee believes that a significant portion of total compensation
for executive officers should be subject to specific annual performance
criteria. Consequently, the annual bonus potential of each executive officer is
set at a significant percentage of such officer's base salary. Historically,
the Board of Directors of the Company has followed a program first initiated in
1968 under which the Board paid to certain of the executive officers of the
Company as bonus compensation during each year an aggregate sum not to exceed
3.0% of the consolidated earnings (before taxes) of the Company during such
year. Based upon the advice of Towers Perrin for 1999, the Compensation
Committee continued this program in
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<PAGE>
order to further its established objectives. For each year, the Compensation
Committee determines each respective executive officer's (including the Chairman
of the Board's, the Chief Executive Officer's and the Chairman of the Executive
Committee's) percentage of participation in the bonus pool based on the specific
job responsibilities of each participating officer. The bonus pool (consisting
of up to 3.0% of consolidated pre-tax earnings) is divided among the
participating officers based upon such percentages. Total executive bonuses are
generally less than 50 percent of the executive's base salary. The Chairman of
the Board's annual bonus for 1999 was $196,706 (compared to $148,608 in 1998).
The Chief Executive Officer's annual bonus for 1999 was $196,706 (compared to
$148,608 in 1998). The Chairman of the Executive Committee's annual bonus for
1999 was $393,413 (compared to $337,745 in 1998). The increase in bonus
compensation from prior years reflects the Company's record profitability for
1999. Bonus compensation paid to such individuals for 1999 is included in the
Summary Compensation Table. As previously mentioned in the discussion of
Consulting Agreements, the Chairman of the Board of Directors' Executive
Committee (as well as the Vice Chairman of the Company) will retire as an
employee of the Company on April 1, 2000 and will not participate in the short-
term incentive plan in 2000.
Long-term incentive awards are made under the Company's 1992 Associate
Incentive Stock Plan which authorizes restricted stock awards, stock option
grants and stock appreciation rights. The Incentive Stock Plan was adopted to
provide incentives to encourage employee contribution to the Company's stability
and growth. The members of the Compensation Committee administer the Plan.
Restricted stock was awarded to the Chairman of the Board, the Chief Executive
Officer and the Chairman of the Executive Committee and to other executive
officers in 1999 and 1997 as set forth in the Summary Compensation Table, but no
stock was awarded in 1998.
Also during 1999, the Committee engaged Towers Perrin to give advice
with respect to the Company's executive compensation program for 2000. The
consultant determined a pier group of companies in the insurance industry and
surveyed available compensation data for such companies to ascertain competitive
levels of base compensation and long and short-term incentive compensation. As
a result of the consultant's recommendation, for 2000, the Company has
implemented a new program for short-term incentive compensation and long-term
incentive awards. With respect to short-term incentive compensation, the
consultant proposed a plan that ties executive bonuses to the achievement of
stipulated goals for top-line growth in revenues and also for profitability and
proper use of capital as measured by the Company's after-tax return on beginning
shareholders' equity. With respect to long-term incentive, the consultant
recommended, and the Committee implemented, a program that would tie a portion
of executive stock awards to specific performance measures. The specific
measure selected was a target of growth in shareholders' equity per share over
a three year period.
Generally, cash compensation in excess of $1,000,000 paid to covered
employees, as that term is defined by the internal revenue code, of a Company
may not be deductible by a corporate taxpayer. In 1999, this limitation had no
effect on the Company because, as permitted by the terms of existing benefit
plans, J.P. Hayden, Jr., deferred a portion of his cash compensation. For
2000, the Compensation Committee has designed compensation policies for its
executive officers using short-term incentive compensation and long-term
incentive awards so that it is not expected that cash compensation to any
covered employee will exceed $1,000,000.
The Compensation Committee is composed of the following four independent
non-employee directors:
James E. Bushman
James H. Carey
William J. Keating
David B. O'Maley
23
<PAGE>
FIVE YEAR TOTAL RETURN
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN *
AMONG THE MIDLAND COMPANY, THE AMERICAN STOCK EXCHANGE INDEX**, THE RUSSELL 2000
EQUITY INDEX AND THE S&P PROPERTY AND CASUALTY GROUP.***
1994 1995 1996 1997 1998 1999
------ ------ ------ ------ ------ ------
MIDLAND 100 115.1 91.7 152.1 176.5 153.7
S&P PROPERTY & CASUALTY GROUP 100 135.4 164.5 239.3 222.7 166.0
RUSSELL 2000 100 126.2 144.8 174.6 168.5 201.6
AMEX COMPOSITE 100 122.4 134.5 157.9 158.9 202.2
* Total return assumes reinvestment of dividends.
** The American Stock Exchange Index is no longer being used for
comparative purposes by the Company because the Company ceased to
be listed on the American Stock Exchange during 1999 as a result
of the Company's decision to become listed on the NASDAQ National
Market System. Future comparisons of cumulative total return
will be made to the Russell 2000 Equity Index rather than the
American Stock Exchange Index.
*** Assumes $100 invested on December 31, 1994 in The Midland Company
common stock, the American Stock Exchange Index, the Russell 2000
Equity Index and the S&P Property and Casualty Group.
SHAREHOLDER PROPOSALS
Proposals of shareholders intended to be presented at the 2001 annual
meeting must be received at the Company's executive offices on or before
December 14, 2000, in order to be considered for inclusion in the proxy
statement and form of proxy relating to that meeting.
COST OF SOLICITATION
The cost of preparing and mailing this proxy 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.
24
<PAGE>
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. The form of proxy grants discretionary authority to the designated
proxies to vote on: (i) any matters that come before the meeting, other than
those set forth in the Company's proxy statement; or (ii) matters as to which
adequate notice has not been received by the Company. In order for a notice to
be deemed adequate for the Company's 2001 annual shareholder meeting it must be
received at the Company's executive offices on or before January 31, 2001.
The above notice and proxy statement are sent by order of the Board of
Directors.
JOHN I. VON LEHMAN
Secretary
Dated: March 17, 2000
Shareholders may obtain without charge a copy of the Company's 1999 report to
the Securities and Exchange Commission on Form 10-K by sending a request to:
Office of the Chief Financial Officer - 10-K Report, The Midland Company,
7000 Midland Boulevard, Amelia, Ohio 45102.
25
<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 Joseph P. Hayden III, John W. Hayden and John
I. Von Lehman, and each of them, attorneys, with the powers which the
undersigned would possess if personally present, including the power of
substitution, to vote, cumulatively or otherwise, 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 13th day of April, 2000, 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 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 listed below.
Michael J. Conaton
Jerry A. Grundhofer
Joseph P. Hayden III
William J. Keating
John R. LaBar
INSTRUCTION: To withhold authority to vote for any individual nominee, write
the nominee's name in the space below.
_______________________________________________________________________
2. PROPOSAL to approve adoption of the Associates Discount Stock Purchase
Plan.
___ FOR ___ AGAINST ___ ABSTAIN
3. PROPOSAL to approve the Amended and Restated 1992 Associate Incentive
Stock Plan.
___ FOR ___ AGAINST ___ ABSTAIN
4. PROPOSAL to approve amendment to the Stock Option Plan for Non-Employee
Directors.
___ FOR ___ AGAINST ___ ABSTAIN
5. PROPOSAL to approve an amendment to the Amended and Restated Code of
Regulations.
___ FOR ___ AGAINST ___ ABSTAIN
<PAGE>
6. PROPOSAL to ratify and approve the appointment of DELOITTE & TOUCHE LLP
as independent auditors of the Company.
___ FOR ___ AGAINST ___ ABSTAIN
The Midland Company
c/o Corporate Trust Services
Mail Drop 10AT66-4129
38 Fountain Square Plaza
Cincinnati, OH 45263
DIRECTIONS TO THE MIDLAND COMPANY
ANNUAL SHAREHOLDERS MEETING
APRIL 8, 1999
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 all Proposals.
ALL FORMER PROXIES ARE HEREBY REVOKED.
Dated:__________________, 2000
__________________________
(Signature of Stockholder)
__________________________
(Signature of Stockholder)
(Please sign exactly as your name or names appear above. All joint owners
should sign. When signing in a fiduciary capacity or as a corporate officer,
please give your full title as such.)
