-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Elq2F7tffYpydRzmFeApKD4r3YJ3Wme/B9KHaJXATe8VkZE5xs7uH0/ea7gbAHfl NVlabqF/OeqEGo0ISsihYA== 0000950152-01-503928.txt : 20010815 0000950152-01-503928.hdr.sgml : 20010815 ACCESSION NUMBER: 0000950152-01-503928 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 20010630 FILED AS OF DATE: 20010814 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MIDLAND CO CENTRAL INDEX KEY: 0000066025 STANDARD INDUSTRIAL CLASSIFICATION: FIRE, MARINE & CASUALTY INSURANCE [6331] IRS NUMBER: 310742526 STATE OF INCORPORATION: OH FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-06026 FILM NUMBER: 1710833 BUSINESS ADDRESS: STREET 1: 7000 MIDLAND BLVD STREET 2: P O BOX 125 CITY: AMELIA STATE: OH ZIP: 45102-2607 BUSINESS PHONE: 5139437100 MAIL ADDRESS: STREET 1: 537 E PETE ROSE WAY STREET 2: P O BOX 1256 CITY: CINCINNATI STATE: OH ZIP: 45201 10-Q 1 l89900ae10-q.txt THE MIDLAND COMPANY 10-Q 1 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 June 30, 2001 --------------------- 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) Ohio 31-0742526 - ------------------------------- ------------------------------------ (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 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 July 31, 2001 was 8,908,936. 2 PART I. FINANCIAL INFORMATION THE MIDLAND COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS JUNE 30, 2001 AND DECEMBER 31, 2000 AMOUNTS IN 000'S
(UNAUDITED) JUNE 30, DEC. 31, ASSETS 2001 2000 -------- -------- MARKETABLE SECURITIES AVAILABLE FOR SALE: Fixed income (cost, $496,383 at June 30, 2001 and $534,038 at December 31, 2000) $507,602 $540,337 Equity (cost, $85,320 at June 30, 2001 and $74,983 at December 31, 2000) 150,855 152,320 -------- -------- Total 658,457 692,657 -------- -------- CASH 11,148 8,391 -------- -------- ACCOUNTS RECEIVABLE - NET 94,014 70,396 -------- -------- REINSURANCE RECOVERABLES AND PREPAID REINSURANCE PREMIUMS 52,359 46,030 -------- -------- PROPERTY, PLANT AND EQUIPMENT - NET 55,523 56,976 -------- -------- DEFERRED INSURANCE POLICY ACQUISITION COSTS 100,193 91,574 -------- -------- OTHER ASSETS 22,684 27,826 -------- -------- TOTAL ASSETS $994,378 $993,850 ======== ========
See notes to condensed consolidated financial statements. 3 THE MIDLAND COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS JUNE 30, 2001 AND DECEMBER 31, 2000 AMOUNTS IN 000'S
(UNAUDITED) JUNE 30, DEC. 31, LIABILITIES & SHAREHOLDERS' EQUITY 2001 2000 --------- --------- UNEARNED INSURANCE PREMIUMS $ 393,528 $ 357,185 --------- --------- INSURANCE LOSS RESERVES 138,064 135,887 --------- --------- INSURANCE COMMISSIONS PAYABLE 19,511 22,181 --------- --------- FUNDS HELD UNDER REINSURANCE AGREEMENTS AND REINSURANCE PAYABLES 2,576 2,803 --------- --------- LONG-TERM DEBT 39,326 40,025 --------- --------- OTHER NOTES PAYABLE: Banks 12,000 39,000 Commercial paper 12,832 6,020 --------- --------- Total 24,832 45,020 --------- --------- DEFERRED FEDERAL INCOME TAX 30,551 32,938 --------- --------- OTHER PAYABLES AND ACCRUALS 57,344 74,634 --------- --------- COMMITMENTS AND CONTINGENCIES -- -- --------- --------- SHAREHOLDERS' EQUITY: Common stock (issued and outstanding: 8,908 shares at June 30, 2001 and 9,000 shares at December 31, 2000 after deducting treasury stock of 2,020 shares and 1,928 shares, respectively) 911 911 Additional paid-in capital 20,083 19,838 Retained earnings 254,012 239,679 Accumulated other comprehensive income 49,899 54,396 Treasury stock - at cost (35,302) (30,404) Unvested restricted stock awards (957) (1,243) --------- --------- Total 288,646 283,177 --------- --------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 994,378 $ 993,850 ========= =========
See notes to condensed consolidated financial statements. 4 THE MIDLAND COMPANY AND SUBSIDIARIES STATEMENTS OF CONDENSED CONSOLIDATED INCOME (UNAUDITED) FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2001 AND 2000 AMOUNTS IN 000'S (EXCEPT PER SHARE INFORMATION)
SIX-MOS. ENDED JUNE 30, THREE-MOS. ENDED JUNE 30, ------------------------- ------------------------- 2001 2000 2001 2000 -------- -------- -------- -------- REVENUES: Insurance: Premiums earned $242,297 $222,764 $123,726 $112,266 Net investment income 18,054 14,452 9,220 7,391 Net realized investment gains 2,677 3,201 1,606 1,319 Other insurance income 3,009 4,174 1,238 2,215 Transportation 17,554 16,034 7,948 9,034 Other 254 559 125 218 -------- -------- -------- -------- Total 283,845 261,184 143,863 132,443 -------- -------- -------- -------- COSTS AND EXPENSES: Insurance: Losses and loss adjustment expenses 137,681 116,939 75,415 61,963 Commissions and other policy acquisition costs 68,714 68,039 33,955 33,177 Operating and administrative expenses 36,331 35,344 17,266 17,511 Transportation operating expenses 16,314 13,496 7,742 7,186 Interest expense 2,590 2,056 1,177 1,168 Other operating and administrative expenses 492 1,280 201 429 -------- -------- -------- -------- Total 262,122 237,154 135,756 121,434 -------- -------- -------- -------- INCOME BEFORE FEDERAL INCOME TAX 21,723 24,030 8,107 11,009 PROVISION FOR FEDERAL INCOME TAX 5,964 7,517 2,040 3,679 -------- -------- -------- -------- NET INCOME $ 15,759 $ 16,513 $ 6,067 $ 7,330 ======== ======== ======== ======== BASIC EARNINGS PER SHARE OF COMMON STOCK $ 1.82 $ 1.80 $ 0.71 $ 0.80 ======== ======== ======== ======== DILUTED EARNINGS PER SHARE OF COMMON STOCK $ 1.75 $ 1.75 $ 0.68 $ 0.78 ======== ======== ======== ======== CASH DIVIDENDS DECLARED PER SHARE OF COMMON STOCK $ 0.160 $ 0.150 $ 0.080 $ 0.075 ======== ======== ======== ========
See notes to condensed consolidated financial statements. 5 THE MIDLAND COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY FOR THE SIX MONTHS ENDED JUNE 30, 2001 AND 2000 (Unaudited) Amounts in 000's
ACCUMULATED UNVESTED ADDITIONAL OTHER COM- RESTRICTED COMPRE- COMMON PAID-IN RETAINED PREHENSIVE TREASURY STOCK HENSIVE STOCK CAPITAL EARNINGS INCOME STOCK AWARDS TOTAL INCOME -------------------------------------------------------------------------------------------- BALANCE, DECEMBER 31, 1999 $911 $18,583 $207,005 $49,388 $(15,786) $(2,099) $258,002 Comprehensive income: Net income 16,513 16,513 $16,513 Decrease in unrealized gain on marketable securities, net of related income tax effect of $(367) (677) (677) (677) ------- Total comprehensive income $15,836 ======= Purchase of treasury stock (2,799) (2,799) Issuance of treasury stock for options exercised and employee savings plan 125 259 384 Cash dividends declared (1,415) (1,415) Federal income tax benefit related to the exercise or granting of stock awards 263 263 Revaluation of stock options relating to a plan amendment 776 776 Amortization and cancellation of unvested restricted stock awards (83) (122) 532 327 -------------------------------------------------------------------------------- BALANCE, JUNE 30, 2000 $911 $19,664 $222,103 $48,711 $(18,448) $ (1,567) $271,374 ================================================================================ BALANCE, DECEMBER 31, 2000 $911 $19,838 $239,679 $54,396 $(30,404) $ (1,243) $283,177 Comprehensive income: Net income 15,759 15,759 $15,759 Decrease in unrealized gain on marketable securities, net of related income tax effect of $(2,387) (4,497) (4,497) (4,497) ------- Total comprehensive income $11,262 ======= Purchase of treasury stock (7,233) (7,233) Issuance of treasury stock for options exercised and employee savings plan (599) 2,335 1,736 Cash dividends declared (1,426) (1,426) Federal income tax benefit related to the exercise or granting of stock awards 844 844 Amortization and cancellation of unvested restricted stock awards 286 286 -------------------------------------------------------------------------------- BALANCE, JUNE 30, 2001 $911 $20,083 $254,012 $49,899 $(35,302) $ (957) $288,646 ================================================================================
See notes to condensed consolidated financial statements. 6 THE MIDLAND COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) FOR THE SIX-MONTHS ENDED JUNE 30, 2001 AND 2000 AMOUNT IN 000'S
2001 2000 --------- --------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 15,759 $ 16,513 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 4,197 4,630 Net realized investment gains (2,677) (3,201) Increase in unearned insurance premiums 36,343 29,224 Increase in net accounts receivable (23,618) (13,955) Increase (decrease) in other accounts payable and accruals (16,475) 1,189 Increase in deferred insurance policy acquisition costs (8,619) (6,533) Increase in reinsurance recoverables and prepaid reinsurance premiums (6,329) (4,989) Decrease (increase) in other assets 4,847 (292) Decrease in insurance commissions payable (2,670) (192) Increase (decrease) in insurance loss reserves 2,177 (4,033) Increase (decrease) in funds held under reinsurance agreements and reinsurance payables (227) 155 Increase in deferred federal income tax -- 368 Other-net (719) (988) --------- --------- Net cash provided by operating activities 1,989 17,896 --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of marketable securities (132,209) (122,228) Sale of marketable securities 104,110 89,881 Decrease in cash equivalent marketable securities 45,304 9,877 Maturity of marketable securities 13,477 16,254 Acquisition of property, plant and equipment (2,284) (841) Proceeds from sale of property, plant and equipment 151 2,161 Net cash used in business acquisition -- (2,471) --------- --------- Net cash provided by (used in) investing activities 28,549 (7,367) --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Decrease in net short-term borrowings (20,188) (6,539) Purchase of treasury stock (7,233) (2,799) Issuance of treasury stock 1,736 384 Dividends paid (1,397) (1,352) Repayment of long-term debt (699) (2,107) --------- --------- Net cash used in financing activities (27,781) (12,413) --------- --------- NET INCREASE (DECREASE) IN CASH 2,757 (1,884) CASH AT BEGINNING OF PERIOD 8,391 10,098 --------- --------- CASH AT END OF PERIOD $ 11,148 $ 8,214 ========= ========= INTEREST PAID $ 2,466 $ 2,074 INCOME TAXES PAID $ 2,900 $ 5,330
See notes to the condensed consolidated financial statements. 7 THE MIDLAND COMPANY AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) JUNE 30, 2001 1. BASIS OF PRESENTATION The accompanying unaudited condensed consolidated financial statements of The Midland Company and subsidiaries (the "Company") have been prepared in accordance with accounting principles generally accepted in the United States of America 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 accounting principles generally accepted in the United States of America 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, 2000 has been derived from the audited consolidated financial statements of the Company. Revenue and operating results for the six and three-month periods ended June 30, 2001 are not necessarily indicative of the results that may be expected for the year ending December 31, 2001. For further information, refer to the audited consolidated financial statements and footnotes thereto for the year ended December 31, 2000 included in the Company's Annual Report on Form 10-K. Certain reclassifications (minor in nature) have been made to the 2000 amounts to conform to 2001 classifications. 2. 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 ------------- --------------- Six months ended June 30: 2001 8,673 9,003 ===== ===== 2000 9,156 9,461 ===== ===== 3. INCOME TAXES The federal income tax provisions for the three and six-month periods ended June 30, 2001 and 2000 are different from amounts derived by applying the statutory tax rates to income before federal income tax as follows (000's):
SIX-MOS. ENDED JUNE 30, THREE-MOS. ENDED JUNE 30, ----------------------- ------------------------- 2001 2000 2001 2000 ---- ---- ---- ---- Federal income tax at statutory rate $ 7,603 $ 8,410 $ 2,837 $ 3,853 Add (deduct) the tax effect of: Tax exempt interest and excludable dividend income (1,798) (1,660) (879) (842) Federal excise tax -- 570 -- 570 Other - net 159 197 82 98 ------- ------- ------- ------- Provision for federal income tax $ 5,964 $ 7,517 $ 2,040 $ 3,679 ======= ======= ======= =======
4. SEGMENT DISCLOSURES Since the Company's annual report for 2000, 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 2001 and 2000 is as follows (000's): 8 THE MIDLAND COMPANY AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
Six Months Ended June 30, 2001 Three Months Ended June 30, 2001 ------------------------------ -------------------------------- Revenues- Revenues- Total External Pre-Tax External Pre-Tax Assets Customers Income Customers Income ------ --------- ------ --------- ------ Reportable Segments: Insurance: Manufactured housing n/a $158,208 $ 12,286 $79,288 $ 4,611 Other n/a 87,100 10,881 45,678 4,433 Unallocated $940,739 - (683) - (303) Transportation 26,579 17,554 1,080 7,948 137 Corporate and all other - - (1,841) - (771) -------- ------- $ 21,723 $ 8,107 ======== =======
Six Months Ended June 30, 2000 Three Months Ended June 30, 2000 ------------------------------ -------------------------------- Revenues- Revenues- Total External Pre-Tax External Pre-Tax Assets Customers Income Customers Income ------ --------- ------ --------- ------ Reportable Segments: Insurance: Manufactured housing n/a $152,960 $ 18,795 $76,957 $ 7,679 Other n/a 73,978 5,644 37,524 2,428 Unallocated $855,186 - (976) - (316) Transportation 31,089 16,034 2,039 9,034 1,479 Corporate and all other - - (1,472) - (261) -------- -------- $ 24,030 $ 11,009 ======== ========
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. 5. NEW ACCOUNTING STANDARDS The Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 133 "Accounting for Derivative Instruments and Hedging Activities" during 1998. SFAS No. 133, as amended by SFAS Nos. 137 and 138, is effective for fiscal years beginning January 1, 2001. The Company's investment portfolio includes approximately $34 million of convertible securities, which contain imbedded derivatives. The embedded conversion options are valued separately, and the change in market value of the embedded options is reported in the results from operations. For both the three and six-month periods ended June 30, 2001, the Company has recorded an $880,000 pre-tax gain on these securities, which is included in investment income. On June 29, 2001, SFAS No. 141, "Business Combinations" was approved by the FASB. SFAS No. 141 requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001. Goodwill and certain intangible assets will remain on the balance sheet and not be amortized. On an annual basis, and when there is reason to suspect that their values have been diminished or impaired, these assets must be tested for impairment, and write-downs may be necessary. The Company is required to implement SFAS No. 141 on July 1, 2001 and it has not determined the impact, if any, that this statement will have on its consolidated financial position or results of operations. On June 29, 2001, SFAS No. 142, "Goodwill and Other Intangible Assets" was approved by the FASB. SFAS No. 142 changes the accounting for goodwill from an amortization method to an impairment-only approach. Amortization of goodwill, including goodwill recorded in past business combinations, will cease upon adoption of this statement. The Company is required to implement SFAS No. 142 on January 1, 2002. The impact on after-tax income is only $0.04 per share each year in 2000 and also in 2001. 9 ITEM 2. 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 2000 Annual Report on Form 10-K. Except as discussed below, no material changes have taken place in 2001 and, accordingly, the discussion is not repeated herein. RESULTS OF OPERATIONS INSURANCE Insurance Premiums Direct and assumed written premiums generated from American Modern Insurance Group's (AMIG) property and casualty and life insurance operations increased 17.5% in the second quarter to $167.7 million from $142.7 million for the same quarter of 2000. Net earned premiums for the second quarter of 2001 increased 10.2% to $123.7 million from $112.3 million for the comparable quarter in 2000. On a year-to-date basis, direct and assumed written premiums generated by AMIG's insurance operations increased 10.9% to $300.7 million from $271.1 million for the same six-month period in 2000. Year-to-date net earned premiums increased 8.8% to $242.3 million from $222.8 million in 2000. The growth in direct and assumed written premiums for the periods presented is primarily due to the growth in motorsports insurance products (motorcycle, watercraft and snowmobile). This business came to American Modern through a third quarter, 2000 reinsurance agreement with GuideOne Insurance. Motorsports insurance products direct and assumed written premiums increased $18.1 million in the second quarter of 2001 from $0 in the second quarter of 2000. On a year-to-date basis, motorsports insurance products direct and assumed written premiums increased to $28.8 million from $0 in the comparable prior year period. On a quarterly basis, mobile home and related direct and assumed written premiums increased 1.7% to $92.8 million in the current quarter compared to $91.3 million in the prior period. On a year-to-date basis, mobile home and related direct and assumed written premiums decreased 3.4% from $175.3 million in 2000 to $169.3 in 2001. All remaining specialty property and casualty insurance products direct and assumed written premiums increased 7.7% in the second quarter of 2001 to $44.5 million from $41.3 million in the same quarter in 2000. On a year-to-date basis, all other specialty property and casualty direct and assumed written premiums increased 6.6% to $82.9 million in the current period from $77.8 million in the prior year period. Credit life direct and assumed written premiums increased 21.1% during the second quarter of 2001 to $12.3 million from $10.1 million in the second quarter of 2000. On a year-to-date basis, credit life direct and assumed written premiums increased 9.3% in the current period to $19.7 million from $18.0 million in the comparable period in 2000. Investment Income and Realized Capital Gains Excluding the impact of SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities", AMIG's net investment income (before taxes and excluding capital gains) increased 12.8% to $8.3 million in the second quarter of 2001 from $7.4 million for the second quarter of 2000. On a year-to-date basis, AMIG's net investment income (exclusive of the items mentioned above) increased 18.8% to $17.2 million from $14.5 million for the same six-month period in 2000. SFAS 133 increased the aforementioned net investment income by $0.9 million (6 cents per share after-tax diluted) for both the second quarter and first six months of 2001. SFAS 133 did not affect 2000 results. Investment income increased due to the continued growth in AMIG's investment portfolio. AMIG's net realized capital gains (after-tax) increased to $1.0 million, $0.11 per share (diluted), for the second quarter of 2001, from $0.9 million, $0.09 per share (diluted), for the same quarter in 2000. On a year-to-date basis, AMIG's net realized capital gains (after-tax) decreased to $1.7 million, $0.19 per share (diluted), from $2.1 million, $0.22 per share (diluted), for the same six-month period in 2000. Losses and Loss Adjustment Expenses AMIG's losses and loss adjustment expenses in the second quarter increased 21.7% to $75.4 million from $62.0 million for the second quarter of 2000. AMIG's weather-related catastrophe losses for the second quarter of 2001 amounted to $10.8 million on a pre-tax basis compared with $5.2 million for the same quarter of 2000. These losses had an after-tax impact of approximately $0.78 per share 10 (diluted) in the second quarter of 2001 compared to $0.36 per share (diluted) in the second quarter of 2000. Excluding catastrophe losses, the property and casualty combined ratio for the second quarter was 92.9% compared to 94.3% for the same quarter in 2000. On a year-to-date basis, AMIG's losses and loss adjustment expenses increased 17.7% to $137.7 million from $116.9 million for the same six-month period in 2000. AMIG's weather-related catastrophe losses for the first six months of 2001 amounted to $16.4 million on a pre-tax basis compared with $7.7 million for the same period in 2000. These losses had an after-tax impact of approximately $1.19 per share (diluted) in the first six months of 2001 compared to $0.53 per share (diluted) in the same period of 2000. Excluding catastrophe losses, the property and casualty combined ratio for the first six months of 2001 was 92.6% compared to 93.5% for the same period in 2000. Catastrophe losses from Tropical Storm Allison and other severe storms coupled with an overall increase in the fire loss ratio in 2001 compared to 2000 were the primary reasons for the increases in AMIG's losses and loss adjustment expenses for the second quarter and first half of 2001 compared to the same periods in 2000. Commissions and Other Policy Acquisition Costs and Operating and Administration Expenses AMIG's commissions and other policy acquisition costs and operating and administrative expenses for the second quarter of 2001 increased 1.1% to $51.2 million from $50.7 million in the second quarter of 2000. On a year-to-date basis, AMIG's commissions and other policy acquisition costs and operating and administrative expenses for the first six months of 2001 increased 1.6% to $105.0 million from $103.4 million for the same six-month period in 2000. These increases are due to continued growth in net earned premiums offset by a decrease in contingent commission expense due to the catastrophe losses incurred in the second quarter and first six months of 2001. Property and Casualty Underwriting Results AMIG's property and casualty operations generated a pre-tax underwriting loss of ($2.2) million for the second quarter of 2001 compared to a pre-tax underwriting profit of $1.1 million for the same quarter in 2000. 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 101.9% compared to 99.0% in the second quarter of 2000. On a year-to-date basis, AMIG's property and casualty pre-tax underwriting income decreased from $6.4 million in the first half of 2000 to $1.2 million during the first six months of 2001. AMIG's combined ratio for its property and casualty business was 99.5% for the first six months of 2001 compared to 97.1% for the same period in 2000. TRANSPORTATION M/G Transport, the Company's transportation subsidiary, reported comparable levels of revenue for the quarter, after the exclusion of a $1.0 million capital gain on the sale of equipment in the second quarter of 2000. On a year-to-date basis, revenue (excluding $1.0 million in capital gains) increased $2.6 million to $17.6 million in the first six months of 2001 from $15.0 in the comparable prior year period. Pre-tax operating profit (excluding gains from the sale of equipment) decreased in the current quarter to $0.1 million from $0.4 in the second quarter of 2000. Decreased earnings were due to a larger concentration of lower margin northbound freight in 2001 compared to 2000. On a year-to-date basis, pre-tax operating profit was comparable at $1.1 million during the first half of 2001 compared to $1.0 million during the comparable period in 2000. Revenues increased on a year-to-date basis due to an increase in longer duration affreightment movements which have a lower profit margin. CORPORATE During the second quarter of 2000, Midland recorded a gain of $7.0 million from the curtailment of a portion of its pension plan. This gain was offset by excise taxes on the withdrawal of a portion of overfunded pension assets and by one-time expenses related to consulting agreements with retired executives. These transactions--exclusive of the excise tax--were included in the income statement as a credit to other operating and administrative expenses. The excise tax component was included in the Provision for Federal Income Tax. The net impact of these transactions was a net after-tax charge to earnings of one cent per share. 11 LIQUIDITY, CAPITAL RESOURCES AND CHANGES IN FINANCIAL CONDITION Cash flows from operating and investing activities were used to decrease the Company's short-term borrowings (Other Notes Payable) from year-end 2000. Accounts Receivable increased from year-end 2000 due to the writing of multi-year insurance policies which are being financed over the term of the policy. On January 25, 2001, the Company's Board of Directors approved an increase in the number of shares authorized under the Company's Common Stock Repurchase Program from 500,000 shares to 1,000,000 shares. In the second quarter of 2001, the Company repurchased 16,000 shares at a cost of $0.6 million bringing the year-to-date total to 128,000 shares and a total cost of $4.2 million. 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 $1.4 million in dividends to its shareholders during the first six months of 2001. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The market risks associated with the Company's investment portfolios have not changed materially from those disclosed in the 2000 Annual Report on Form 10-K. OTHER MATTERS COMPREHENSIVE INCOME The only difference between net income and comprehensive income is the net after-tax change in unrealized gains on marketable securities. For the three and six-month periods ended June 30, 2001 and 2000, such net unrealized gains decreased, net of related income tax effects, by the following amounts (in thousands): 2001 2000 ---- ---- Three months ended June 30 $1,574 $5,560 ====== ====== Six months ended June 30 $4,497 $ 677 ====== ====== Changes in net unrealized gains on marketable securities result from both market conditions and realized gains recognized in a reporting period. PRIVATE SECURITIES REFORM ACT OF 1995 - FORWARD LOOKING STATEMENTS DISCLOSURE This report contains forward looking statements. Such statements can be identified by the use of forward-looking terminology such as "may," "will," "expect," "anticipate," "estimate," "continue" or other similar words. These statements discuss future expectations, contain projections of results or operations or of financial condition or state other "forward-looking" information. Although management believes that the expectations reflected in its forward-looking statements are based on reasonable assumptions, there are certain facts that could cause a difference between actual results and those 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 2001 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 judgement, 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 or fluctuations in interest rates, any one of which might materially affect the operations of the company and/or its subsidiaries. Any forward-looking statement 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. When considering forward-looking statements contained herein, you should keep in mind the other cautionary statements herein. 12 INDEPENDENT ACCOUNTANTS' REPORT The Midland Company: We have reviewed the accompanying condensed consolidated balance sheet of The Midland Company and subsidiaries as of June 30, 2001, and the related condensed consolidated statements of income for the three-month and six-month periods ended June 30, 2001 and 2000 and of changes in shareholders' equity and cash flows for the six-month periods ended June 30, 2001 and 2000. 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 auditing standards generally accepted in the United States of America, 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 condensed consolidated financial statements for them to be in conformity with accounting principles generally accepted in the United States of America. We have previously audited, in accordance with auditing standards generally accepted in the United States of America, the consolidated balance sheet of The Midland Company and subsidiaries as of December 31, 2000, 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 8, 2001, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, 2000 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 July 19, 2001 13 PART II. OTHER INFORMATION THE MIDLAND COMPANY AND SUBSIDIARIES JUNE 30, 2001 Item 1. Legal Proceedings ----------------- None Item 2. Changes in Securities and Use of Proceeds ----------------------------------------- None Item 3. Defaults Upon Senior Securities ------------------------------- None Item 4. Submission of Matters to a Vote of Security Holders --------------------------------------------------- At the Company's 2000 annual meeting of Shareholders held on April 12, 2001, 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 2004 and until their successors are chosen and qualified:
VOTES BROKER NAME VOTES FOR WITHHELD ABSTENTIONS NON-VOTES ---- --------- -------- ----------- --------- J. P. Hayden, Jr. 8,483,034 10,058 0 0 William T. Hayden 8,469,805 23,287 0 0 John M. O'Mara 8,456,534 36,558 0 0 Glenn E. Schembechler 8,454,534 38,558 0 0 Francis Marie Thrailkill 8,482,134 10,958 0 0 John Von Lehman 8,398,026 95,066 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, 2001, was approved by the Shareholders. The Shareholders cast 8,488,707 votes in favor of this proposal and 3,069 votes against it. There were 1,316 abstentions. c) The following directors were not due for election in 2001 and will continue to serve on the Board of Directors through their respective elected term: James E. Bushman John W. Hayden James H. Carey Robert W. Hayden Michael J. Conaton William J. Keating, Jr. Jerry A. Grundhofer John R. LaBar J. P. Hayden III David B. O'Maley Item 5. Other Information ----------------- None Item 6. Exhibits and Reports on Form 8-K -------------------------------- a) Exhibit 10.1 - The Midland Company Non-Employee Director Deferred Compensation Plan b) Exhibit 10.2 - The Midland Company Supplemental Retirement Plan* c) Exhibit 10.3 - Midland-Guardian Co. Salaried Employees' Non-Qualified Savings Plan* d) Exhibit 10.4 - Midland-Guardian Co. Non-Qualified Self-Directed Retirement Plan* 14 Item 6. Exhibits and Reports on Form 8-K (cont'd) ----------------------------------------- e) Exhibit 10.5 - The Midland Company Stock Option Plan for Non-Employee Directors as Amended January 2000 f) Exhibit 15 - Letter re: Unaudited Interim Financial Information g) Reports on Form 8-K - None *Management Compensatory Plan or Arrangement 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 duly authorized. THE MIDLAND COMPANY Date August 14, 2001 /s/John I. Von Lehman ------------------------ --------------------------------------------- John I. Von Lehman, Executive Vice President, Chief Financial Officer and Secretary EX-10.1 3 l89900aex10-1.txt EXHIBIT 10.1 1 Exhibit 10.1 THE MIDLAND COMPANY NON-EMPLOYEE DIRECTOR DEFERRED COMPENSATION PLAN 2 TABLE OF CONTENTS
Page ---- ARTICLE 1 GENERAL........................................................................ 1 ARTICLE 2 DEFINITIONS AND USAGE.......................................................... 1 2.1 Definitions.................................................................... 1 2.2 Usage.......................................................................... 3 2.3 Eligibility.................................................................... 3 ARTICLE 3 PARTICIPATION IN PLAN.......................................................... 3 3.1 Participation.................................................................. 3 3.2 Agreement Procedure............................................................ 3 ARTICLE 4 AMOUNT OF BENEFIT IN MIDLAND STOCK ACCOUNT..................................... 4 4.1 Benefit........................................................................ 4 4.2 Midland Stock Account.......................................................... 4 4.3 Deferred Amounts............................................................... 4 4.4 Dividends...................................................................... 5 ARTICLE 5 AMOUNT OF BENEFIT IN GUARANTEED INTEREST ACCOUNT............................... 5 5.1 Benefit........................................................................ 5 5.2 Guaranteed Interest Account.................................................... 5 5.3 Deferred Amounts............................................................... 5 5.4 Investment of Guaranteed Interest Account...................................... 6 ARTICLE 6 PAYMENT OF BENEFIT............................................................. 6 6.1 Payment; Possible Forfeiture................................................... 6 6.2 Amount of Payment.............................................................. 6 6.3 Form of Benefit Payments....................................................... 6 ARTICLE 7 DEATH OR DISABILITY OF PARTICIPANT............................................. 6 7.1 Commencement of Benefit Payments After Death................................... 6 7.2 Designation of Beneficiary..................................................... 7 7.3 Commencement of Benefit Payments After Disability.............................. 7 ARTICLE 8 HARDSHIP DISTRIBUTIONS......................................................... 7 8.1 Distribution................................................................... 7 8.2 Unforeseeable Emergency........................................................ 7
3
Page ---- ARTICLE 9 ADMINISTRATION.................................................................. 8 9.1 General......................................................................... 8 9.2 Administrative Rules............................................................ 8 9.3 Duties.......................................................................... 8 9.4 Fees............................................................................ 8 ARTICLE 10 CLAIMS PROCEDURE................................................................ 9 10.1 General......................................................................... 9 10.2 Denials......................................................................... 9 10.3 Notice.......................................................................... 9 10.4 Appeals Procedure............................................................... 9 10.5 Review.......................................................................... 9 ARTICLE 11 CHANGE IN CONTROL PROVISIONS.................................................... 10 11.1 Impact of Event................................................................. 10 11.2 Definition of "Change in Control"............................................... 10 ARTICLE 12 MISCELLANEOUS PROVISIONS........................................................ 11 12.1 Amendment and Termination....................................................... 11 12.2 No Assignment................................................................... 11 12.3 Successors and Assigns.......................................................... 11 12.4 Governing Law................................................................... 11 12.5 No Guarantee of Continued Election.............................................. 11 12.6 Severability.................................................................... 12 12.7 Notification of Addresses....................................................... 12 12.8 Income Tax Payment.............................................................. 12 12.9 Bonding......................................................................... 12 ARTICLE 13 INDEMNIFICATION................................................................. 12
4 THE MIDLAND COMPANY NON-EMPLOYEE DIRECTOR DEFERRED COMPENSATION PLAN PREAMBLE WHEREAS, The Midland Company recognizes the valuable services the non-employee Directors of The Midland Company provide and desires to establish an unfunded plan to provide an incentive for non-employee Directors to defer compensation in a manner that aligns their interests with those of The Midland Company's stockholders, and WHEREAS, The Midland Company has determined that the implementation of such a plan will best serve its interest in retaining and motivating non-employee Director. NOW, THEREFORE, The Midland Company hereby adopts The Midland Company Non-Employee Director Deferred Compensation Plan as hereinafter provided: ARTICLE 1 GENERAL The provisions of the Plan shall be effective as of January 1, 1999. The rights, if any, of any person whose status as a Director of Midland has terminated shall be determined pursuant to the Plan as in effect on the date of such termination, unless a subsequently adopted provision of the Plan is made specifically applicable to such person. ARTICLE 2 DEFINITIONS AND USAGE 2.1 DEFINITIONS. Wherever used in the Plan, the following words and phrases shall have the meaning set forth below unless the context plainly requires a different meaning: (a) "ADMINISTRATOR" means the person or persons described in Article 9. (b) "AGREEMENT" means an Agreement for Deferral of Compensation between Midland and a Director in accordance with Article 3. (c) "BOARD" means the members of the Board of Director of Midland. (d) "BENEFIT" means the benefit of a Participant related to a Deferred Amount for any Plan Year as determined under Article 4 or Article 5. (e) "CODE" means the Internal Revenue Code of 1986, as amended from time to time. 5 (f) "COMMON SHARE" means a share of common stock of Midland. (g) "COMPENSATION" means the total of all cash compensation which is payable to a Director during a Plan Year prior to subtracting any Deferred Amounts including the annual retainer, committee fees and meeting attendance fees. (h) "DEFERRED AMOUNT" means, for each Plan Year, the amount of Compensation deferred by a Director pursuant to Article 3. The Deferred Amount for any Plan Year shall not exceed 100% of the Participant's Compensation for the year. Deferred Amounts may be allocated to a Midland Stock Account under Article 4 or a Guaranteed Interest Account under Article 5 in such proportions specified in the Agreement. (i) "EFFECTIVE DATE" means the date identified as the effective date in Article 1. (j) "DIRECTOR" means any non-employee member of the Board of Directors of Midland. (k) "DISABILITY" means permanent and total disability, mental or physical, which prevents the Participant from discharging the duties and obligations or from otherwise providing the services for which Compensation is paid by Midland; provided, however, that such disability shall not be deemed to commence or exist until such time as the Administrator shall determine in its sole discretion, upon the basis of proof satisfactory to the Administrator, that the Participant has been thus disabled. (l) "EXCHANGE ACT" means the Securities Exchange Act of 1934. (m) "FAIR MARKET VALUE" means the closing sales price of a Common Share on the relevant date, or if there were no sales on such date, the closing sales price on the nearest day before or the nearest day after the relevant date, as reported in the Wall Street Journal or a similar publication selected by the Administrator. (n) "GUARANTEED INTEREST ACCOUNT" means an account established on behalf of the Participant as described in Section 5.2. (o) "MIDLAND" means The Midland Company and any successor thereto. (p) "MIDLAND STOCK ACCOUNT" means the account established on behalf of a Participant as described in Section 4.2. (q) "PARTICIPANT" means a Director who is participating in the Plan in accordance with Article 3. 6 (r) "PLAN" means The Midland Company Non-Employee Director Deferred Compensation Plan. (s) "PLAN YEAR" means initially the period beginning on the Effective Date and ending on December 31, 1999, and thereafter means the calendar year. (t) "SUBSIDIARY" means any corporation, other than Midland, in an unbroken chain of corporations beginning with Midland, if each of the corporations other than the last corporation in the unbroken chain owns stock possessing 50% or more of the total combined voting power of all classes of stock in one or more of the other corporations in such chain. 2.2 USAGE. Except where otherwise indicated by the context, any masculine terminology used herein shall also include the feminine and vice versa, and the definition of any term herein in the singular shall also include the plural and vice versa. 2.3 ELIGIBILITY. All Directors shall be eligible to participate in the Plan while serving as a director. ARTICLE 3 PARTICIPATION IN PLAN 3.1 PARTICIPATION. Each Director may become a Participant by entering into an Agreement in the manner provided in Section 3.2. A Participant shall continue as a Participant until his entire Benefit has been paid. 3.2 AGREEMENT PROCEDURE. (a) TERMS OF AGREEMENT. Midland and each Participant shall execute an Agreement for each Plan Year that shall set forth: (i) the Deferred Amount for each Plan Year; (ii) the allocation of the Deferred Amount between a Midland Stock Account and a Guaranteed Interest Account; (iii) the time the Benefit will be paid out as specified in Section 6.1; (iv) the form of payment of the Benefit as specified in Section 6.3; and (v) the Participant's beneficiary for all Benefits under the Plan in the event of the Participant's death. The Agreement shall generally be revocable until the Participant receives any Compensation in the Plan Year to which it applies; provided that a Participant may choose to have the Agreement be irrevocable when delivered to the Administrator. -3- 7 (b) DATE OF AGREEMENT. (i) A Participant who is eligible to participate in the Plan at the beginning of a Plan Year shall properly complete, execute and deliver the Agreement to the Administrator on or before the last business day of the prior Plan Year. (ii) A Participant who is not eligible to participate in the Plan at the beginning of a Plan Year shall properly complete, execute and deliver the Agreement to the Administrator within 30 days following designation of such Participant's eligibility to participate in the Plan by the Administrator. The Agreement completed in accordance with the preceding sentence shall be effective with respect to Compensation payable after the date the Agreement is delivered to the Administrator. ARTICLE 4 AMOUNT OF BENEFIT IN MIDLAND STOCK ACCOUNT 4.1 BENEFIT. The Benefit of a Participant electing to have Deferred Amounts credited to a Midland Stock Account shall be the amounts credited to such Participant's Midland Stock Account pursuant to this Article 4. The payment of the Benefit (or portion thereof) to a Participant shall be determined in accordance with Section 6.1. The payment of the Benefit to the beneficiary of a deceased Participant shall be determined in accordance with Article 7. 4.2 MIDLAND STOCK ACCOUNT. The Administrator shall establish a separate Midland Stock Account for each Participant for each Plan Year for which the Participant completes an Agreement. The Midland Stock Account will reflect the total of all Deferred Amounts credited to that Account for that Plan Year (pursuant to section 4.3 below) and all dividends credited to that Account (pursuant to section 4.4 below). All amounts shall be calculated in share equivalents as described below. All amounts which are credited to a Midland Stock Account shall remain subject to the claims of Midland's general creditors. A Participant shall not have any interest or right in or to such Midland Stock Account at any time. The Administrator shall have sole responsibility and authority for determining the amount of a Participant's Midland Stock Account. A new Midland Stock Account will be established for each Plan Year the Participant completes an Agreement. 4.3 DEFERRED AMOUNTS. The Deferred Amount attributable to each payment of Compensation to a Director shall be credited to the Midland Stock Account based on a transfer on the last business day of the month in which the Compensation is payable to the Participant. Upon such date, the Deferred Amount credited to the Midland Stock Account shall be converted to share equivalents based on the Fair Market Value of the Common Shares. By way of example, if the Deferred Amount for any date is $2,000.00 and the Fair Market Value of the Common Shares on -4- 8 such date is $25.00, then the Midland Stock Account would be credited with 80 (2,000 ) 25) share equivalents. 4.4 DIVIDENDS. An amount equal to the amount of any dividends paid on Common Shares shall be credited to a Participant's Midland Stock Account based on the number of share equivalents credited to such Account at the time Midland pays a dividend on its Common Shares to its shareholders. The amount of the dividends to be credited shall be calculated based on the share equivalents credited to the Participant's Midland Stock Account and then divided by the Fair Market Value of the Common Shares. All amounts credited are added to the Midland Stock Account. By way of example, if a Midland Stock Account contains 80 share equivalents at the time Midland pays a dividend on its Common Shares and the per share dividend payable by Midland is $0.0625 per Common Share and the Fair Market Value of Midland Common Shares on the date the dividend is payable is $25.00, then the Midland Stock Account would be credited with 0.2 share equivalents (80 * 0.0625 ) 25). In the event of any stock split, stock dividend, recapitalization, reorganization or other corporate transaction affecting the capital structure of Midland, the Administrator shall make such adjustments to the Participant's Midland Stock Account as the Administrator shall deem necessary or appropriate to prevent the dilution or enlargement of the Participant's rights. ARTICLE 5 AMOUNT OF BENEFIT IN GUARANTEED INTEREST ACCOUNT 5.1 BENEFIT. The Benefit of a Participant electing to have Deferred Amounts credited to a Guaranteed Interest Account shall be the amounts allocated to such Participant's Guaranteed Interest Account pursuant to this Article 5. The payment of the Benefit (or portion thereof) to a Participant shall be determined in accordance with Section 6.1. The payment of the Benefit to the beneficiary of a deceased Participant shall be determined in accordance with Article 7. 5.2 GUARANTEED INTEREST ACCOUNT. The Administrator shall establish a separate Guaranteed Interest Account for each Participant for each Plan Year for which the Participant completes an Agreement. The Guaranteed Interest Account will reflect the Deferred Amounts and the investment results allocated to that Account for that Plan Year. All amounts which are allocated to a Participant's Guaranteed Interest Account shall remain subject to the claims of Midland's general creditors. A Participant shall not have any interest or right in or to such Guaranteed Interest Account at any time. A new Guaranteed Interest Account will be established for each Plan Year the Participant completes an Agreement. 5.3 DEFERRED AMOUNTS. The Deferred Amount attributable to each payment of Compensation to a Director shall be credited to the Guaranteed Interest Account based on a transfer on the last business day of the month in which the Compensation is payable to the Participant. -5- 9 5.4 INVESTMENT OF GUARANTEED INTEREST ACCOUNT. The Administrator shall determine the rate of return which shall serve as the basis for crediting earnings (or losses) hereunder compounded quarterly. The interest rate shall be determined on January 1 of each year based on the five year treasury bill rates as reported in the Wall Street Journal on the last business day of the preceding year. The rate will be locked in for the remainder of the year and will be reset as of January 1 of each year. For each Plan Year, the Participant's Guaranteed Interest Account shall be increased or decreased as if it had earned the rate of return corresponding to the amount determined by the Administrator. ARTICLE 6 PAYMENT OF BENEFIT 6.1 PAYMENT; POSSIBLE FORFEITURE. Except as provided in Articles 7 and 8, the payment of a Participant's Benefit credited to a Participant's Midland Stock Account or Guaranteed Interest Account shall be made as specified in the Agreement by the Participant and shall commence no later than the earlier of the following events occurs: (a) the time specified by the Participant in the Agreement (which shall be within 30 days after the end of a Plan Year); or (b) within 30 days after the end of the Plan Year during which the Participant ceases to serve as a Director. 6.2 AMOUNT OF PAYMENT. The Benefit of a Participant shall be equal to the total amount credited to the Participant's Midland Stock Account and Guaranteed Interest Account. The amount of the Benefit in a participant's Midland Stock Account shall be calculated by multiplying the share equivalents in the Account by the Fair Market Value of Common Shares on the last business day of the Plan Year immediately preceding the calculation of the Benefit. 6.3 FORM OF BENEFIT PAYMENTS. The Benefit in a Participant's Midland Stock Account and Guaranteed Interest Account shall be paid in the form of cash in a single lump sum or, a Participant may elect to receive part or all of such payment in up to 10 annual installments, with the amount to be distributed each year determined by dividing the unpaid Benefit in an Account (plus any dividends and any earnings or less losses) credited by the number of remaining installments. An election shall not be effective unless made in the Agreement at the time of the Participant's initial enrollment. In the event a Participant fails to make an election, the Benefit will be paid in the form of cash in a single lump sum. ARTICLE 7 DEATH OR DISABILITY OF PARTICIPANT 7.1 COMMENCEMENT OF BENEFIT PAYMENTS AFTER DEATH. If a Participant dies before receiving all of the Benefit, then the remaining Benefit otherwise payable with respect to the Participant shall be paid to the Participant's beneficiary or beneficiaries in a lump sum in cash within 30 days following the date on which the Administrator is notified of the Participant's death. -6- 10 7.2 DESIGNATION OF BENEFICIARY. A Participant may, by written instrument delivered to the Administrator during the Participant's lifetime, designate one or more primary and contingent beneficiaries to receive the Benefit which may be payable hereunder following the Participant's death, and may designate the proportions in which such beneficiaries are to receive such payments. A Participant may change such designations from time to time, and the last written designation filed with the Administrator prior to the Participant's death shall control. If a Participant fails to specifically designate a beneficiary, or if no designated beneficiary survives the Participant, payment shall be made by the Administrator in the following order of priority: (a) to the Participant's surviving spouse, or if none, (b) to the Participant's children, per stirpes, or if none, (c) to the Participant's estate. 7.3 COMMENCEMENT OF BENEFIT PAYMENTS AFTER DISABILITY. If a Participant incurs a Disability before receiving all of the Benefit, then the remaining Benefit otherwise payable shall be paid to the Participant within 30 days following the date on which the Administrator is notified of the Participant's Disability. ARTICLE 8 HARDSHIP DISTRIBUTIONS 8.1 DISTRIBUTION. Subject to the approval of the Administrator, a Participant may withdraw all or a portion of his Benefit in the event of a hardship. A request for a hardship distribution shall be made in the form of a written application. A hardship distribution shall only be made in the event of an unforeseeable emergency that would result in severe financial hardship to the Participant if hardship distributions were not permitted. Withdrawals of amounts because of an unforeseeable emergency shall only be permitted to the extent reasonably needed to satisfy the emergency need. 8.2 UNFORESEEABLE EMERGENCY. For purposes of this Article, an unforeseeable emergency is defined as severe financial hardship to the Participant resulting from a sudden and unexpected illness or accident of the Participant or a dependent of the Participant, loss of the Participant's property due to casualty, or other similar extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the Participant. The circumstances that will constitute an unforeseeable emergency will depend upon the facts of each case, but, in any case, payment may not be made to the extent that such hardship is or may be relieved (i) through reimbursement or compensation by insurance or otherwise; (ii) by liquidation of the Participant's assets, to the extent the liquidation of such assets would not itself cause severe financial hardship; or (iii) by cessation of deferrals under the plan. -7- 11 ARTICLE 9 ADMINISTRATION 9.1 GENERAL. The Administrator shall be the Board, or such other person or persons as designated by the Board. Except as otherwise specifically provided in the Plan, the Administrator shall be responsible for administration of the Plan. 9.2 ADMINISTRATIVE RULES. The Administrator may adopt such rules of procedure as it deems desirable for the conduct of its affairs, except to the extent that such rules conflict with the provisions of the Plan. 9.3 DUTIES. The Administrator shall have the following rights, powers and duties: (a) The decision of the Administrator in matters within its jurisdiction shall be final, binding and conclusive upon Midland and upon any other person affected by such decision, subject to the claims procedure hereinafter set forth. (b) The Administrator shall have the duty and authority to interpret and construe the provisions of the Plan, to determine eligibility for Benefits, to decide any question which may arise regarding the rights of directors, Participants, and beneficiaries, and the amounts of their respective interests, to adopt such rules and to exercise such powers as the Administrator may deem necessary for the administration of the Plan, and to exercise any other rights, powers or privileges granted to the Administrator by the terms of the Plan. (c) The Administrator shall maintain full and complete records of its decisions. Its records shall contain all relevant data pertaining to the Participant and his rights and duties under the Plan. The Administrator shall maintain the Account records of all Participants. (d) The Administrator shall cause the principal provisions of the Plan to be communicated to the Participants, and a copy of the Plan and other documents shall be available at the principal office of Midland for inspection by the Participants at reasonable times determined by the Administrator. (e) The Administrator shall periodically report to the Board with respect to the status of the Plan. 9.4 FEES. No fee or compensation shall be paid to any person for services as the Administrator. -8- 12 ARTICLE 10 CLAIMS PROCEDURE 10.1 GENERAL. A Participant or beneficiary ("claimant") who believes that his Benefit has not been paid in full shall file such objection on the form prescribed for such purpose with the Administrator. 10.2 DENIALS. The Administrator shall review such filing and provide a notice of the decision regarding such filing to the claimant within a reasonable period of time after receipt of the notice by the Administrator. 10.3 NOTICE. Any claimant whose objection to a payment of his Benefit is denied shall be furnished written notice setting forth: (a) the specific reason or reasons for the denial; (b) specific reference to the pertinent provision of the Plan upon which the denial is based; (c) a description of any additional material or information necessary for the claimant to perfect the objection; and (d) an explanation of the claim review procedure under the Plan. 10.4 APPEALS PROCEDURE. In order that a claimant may appeal a denial of his objection to the amount of his Benefit, the claimant or the claimant's duly authorized representative may: (a) request a review by written application to the Administrator, or its designate, no later than 60 days after receipt by the claimant of written notification of denial of his objection; (b) review pertinent documents; and (c) submit issues and comments in writing. 10.5 REVIEW. A decision on review of a denied objection shall be made not later than 60 days after receipt of a request for review, unless special circumstances require an extension of time for processing, in which case a decision shall be rendered within a reasonable period of time, but not later than 120 days after receipt of a request for review. The decision on review shall be in writing and shall include the specific reason(s) for the decision and the specific reference(s) to the pertinent provisions of the Plan on which the decision is based. -9- 13 ARTICLE 11 CHANGE IN CONTROL PROVISIONS 11.1 IMPACT OF EVENT. In the event of a "Change in Control" as defined in Section 11.2, (i) the contribution of Deferred Amounts to the Plan shall terminate as of the effective date of the Change in Control; (ii) a Participant's Midland Stock Account shall be transferred automatically to a Guaranteed Interest Account (by multiplying the number of share equivalents in the Account by the Fair Market Value of a Common Share as of the effective date of the Change in Control; (iii) the Guaranteed Interest Account shall be paid within 60 days of the effective date of the Change in Control; (iv) earnings shall be credited to a Participant's Midland Stock Account pursuant to Article 4, in the Plan Year in which the Change in Control occurs for the period the Plan is in existence during such Plan Year prior to the effective date of the Change in Control; and (v) the Administrator shall be responsible for determining the identity of any person entitled to receive Benefits under the Plan and the amount of such Benefits and for completing the payment of Benefits to any person entitled to receive Benefits under the Plan based on the records of the Administrator prior to the Change in Control. Notwithstanding the foregoing and anything else to the contrary herein, a Participant may elect to receive part or all of any payment of the Participant's Guaranteed Interest Account payable upon the occurrence of a Change in Control, in up to 10 annual installments, with the amount to be distributed each year determined by dividing the unpaid Benefit by the number of remaining installments. 11.2 DEFINITION OF "CHANGE IN CONTROL". For purposes of Subsection (a), a "Change in Control" means the occurrence of any of the following: (a) When any "person," as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), other than Midland or a Subsidiary, becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly of securities of Midland representing 50% or more of the combined voting power of Midland's then outstanding securities; (b) Any transaction or event relating to Midland required to be described pursuant to the requirements of Item 6(e) of Schedule 14A (change of control description required in the proxy statement) of the Securities and Exchange Commission under the Exchange Act (as in effect on the Effective Date of this Plan), whether or not Midland is then subject to such reporting requirement; -10- 14 (c) When, during any period of two consecutive years during the existence of the Plan, the individuals who, at the beginning of such period, constitute the Board, cease for any reason other than death to constitute at least a two-thirds majority thereof; provided, however, that a director who was not a director at the beginning of such period shall be deemed to have satisfied the two-year requirement if such director was elected by, or on the recommendation of, at least two-thirds of the directors who were directors at the beginning of such period (either actually or by prior operation of this Subsection (c); or (d) The occurrence of a transaction requiring shareholder approval for the acquisition of Midland by an entity other than a Subsidiary through purchase of assets, by merger, or otherwise. ARTICLE 12 MISCELLANEOUS PROVISIONS 12.1 AMENDMENT AND TERMINATION. Midland reserves the right to amend or terminate the Plan in any manner that it deems advisable, by a resolution of the Board. Notwithstanding the preceding, no amendment or termination of the Plan (i) shall reduce or adversely affect the Benefit of any Participant or beneficiary hereunder entitled to receive a Benefit under the Plan; (ii) shall reduce or adversely affect the right of any other Participant to receive upon ceasing to be a Director, the Benefit he would have received if such termination had occurred immediately prior to any such amendment or termination of the Plan; or (iii) shall modify the provisions of Article 11 after a Change in Control has occurred, except as necessary to comply with any federal or state law. 12.2 NO ASSIGNMENT. The Participant shall not have the power to pledge, transfer, assign, anticipate, mortgage or otherwise encumber or dispose of in advance any interest in amounts payable hereunder or any of the payments provided for herein, nor shall any interest in amounts payable hereunder or in any payments be subject to seizure for payments of any debts, judgments, alimony or separate maintenance, or be reached or transferred by operation of law in the event of bankruptcy, insolvency or otherwise. 12.3 SUCCESSORS AND ASSIGNS. The provisions of the Plan are binding upon and inure to the benefit of Midland, its successors and assigns, and the Participant, his beneficiaries, heirs, legal representatives and assigns. 12.4 GOVERNING LAW. The Plan shall be subject to and construed in accordance with the laws of the State of Ohio to the extent not preempted by the provisions of any federal law. 12.5 NO GUARANTEE OF CONTINUED ELECTION. Nothing contained in the Plan shall be construed to give any Participant the right to continue to serve as a Director or any equity or other interest in the assets, business or affairs of Midland. No Participant hereunder shall have a security interest in assets of Midland used to make contributions or pay Benefits. -11- 15 12.6 SEVERABILITY. If any provision of the Plan shall be held illegal or invalid for any reason, such illegality or invalidity shall not affect the remaining provisions of the Plan, but the Plan shall be construed and enforced as if such illegal or invalid provision had never been included herein. 12.7 NOTIFICATION OF ADDRESSES. Each Participant and each beneficiary shall file with the Administrator, from time to time, in writing, the post office address of the Participant, the post office address of each beneficiary, and each change of post office address. Any communication, statement or notice addressed to the last post office address filed with the Administrator (or if no such address was filed with the Administrator, then to the last post office address of the Participant or beneficiary as shown on Midland's records) shall be binding on the Participant and each beneficiary for all purposes of the Plan and neither the Administrator nor Midland shall be obliged to search for or ascertain the whereabouts of any Participant or beneficiary. 12.8 INCOME TAX PAYMENT. Unless otherwise required by law, each Participant shall be responsible for the payment of any federal, state or local taxes of any kind related to any Account or any Benefit, and Midland shall not withhold any such taxes from the payment of any Benefit to a Participant. The obligations of Midland under the Plan shall be conditional on payment by the Participant of such taxes. 12.9 BONDING. The Administrator and all agents and advisors employed by it shall not be required to be bonded, except as otherwise required by federal law. ARTICLE 13 INDEMNIFICATION Midland shall indemnify and hold harmless the members of the Board and the Administrator from and against any and all liabilities, costs, and expenses incurred by such persons as a result of any act, or omission to act, in connection with the performance of such persons' duties, responsibilities and obligations under this Plan, other than such liabilities, costs and expenses as may result from the negligence, gross negligence, bad faith, willful conduct or criminal acts of such persons. The undersigned, pursuant to the approval of the Board on December 3, 1998, executes The Midland Company Non-Employee Director - ----------- Deferred Compensation Plan. THE MIDLAND COMPANY BY: /s/ John I. Von Lehman --------------------------------------- ITS: Exec. V.P. --------------------------------------- - 12 - 16 FIRST AMENDMENT TO THE MIDLAND COMPANY NON-EMPLOYEE DIRECTOR DEFERRED COMPENSATION PLAN THIS FIRST AMENDMENT, made and executed this 31 day of May, 2000, by -- ---- THE MIDLAND COMPANY (the "Company"). WITNESSETH: WHEREAS, the Company maintains a nonqualified deferred compensation plan known as The Midland Company Non-Employee Director Deferred Compensation Plan (the "Plan"); WHEREAS, the Company is now the sponsor of the Plan; WHEREAS, the Company determined that it would be in the best interest of the Company and its eligible employees to adopt a Rabbi Trust effective as of April 1, 2000 to provide for the payment of benefits from the Plan; WHEREAS, the Company further determined that it would be in the best interest of the Company and its eligible employees to allow eligible employees to amend their elections regarding the receipt of benefits under the Plan; WHEREAS, pursuant to Section 12.1 of the Plan, the Company desires to amend the Plan in order to provide for the payment of benefits through a Rabbi Trust, to provide for the operation of the Plan after a Change of Control, and to allow eligible employees to amend their elections regarding the receipt of benefits under the Plan effective as of April 1, 2000. NOW THEREFORE, the Plan is amended as follows: 1. Article 6 is hereby amended by deleting Section 6.1 in its entirety and replacing it with the following: 6.1 PAYMENT OF BENEFIT. Except as provided in Articles 7 and 8, the payment of a Participant's benefit credited to a Participant's Midland Stock Account or Guaranteed Interest Account shall be made as specified in the Agreement by the Participant, and shall commence no later than the time specified by the Participant in the Agreement (which shall be within thirty (30) days after the end of a Plan year). A Participant shall have the right to amend the time specified in the Agreement at any time, provided that any date elected by the Participant to receive a payment of his benefit must occur no less than two (2) years from the date the Agreement is amended. Further, a Participant may elect to receive a distribution of the balance of his Midland Stock Account or Guaranteed Interest Account at any time, upon the filing of an amended Agreement with the Company; provided that unless the Participant's request meets the criteria set forth in Article 8 hereof, the Participant's Midland Stock Account and Guaranteed Interest Account shall be reduced by ten percent (10%) of the balance therein at the time of the Participant's election. Distributions pursuant to this paragraph 17 shall be made as soon as administratively practicable after one (1) year following the Participant's election. 2. Section 7.1 is hereby deleted in its entirety and replaced with the following: 7.1 COMMENCEMENT OF BENEFIT PAYMENTS AFTER DEATH. If a Participant dies before receiving all of the Benefit, all funds in the Participant's Midland Stock Account and Guaranteed Interest Account and any earnings thereon, will be paid out as determined by the Plan Administrator, but no later than the date specified in the Participant's Agreement. 3. Section 7.3 is hereby deleted in its entirety and replaced with the following: 7.3 COMMENCEMENT OF BENEFIT PAYMENTS AFTER DISABILITY. If a Participant incurs a Disability before receiving all of the Benefit, all funds in the Participant's Midland Stock Account and Guaranteed Interest Account, and any earnings thereon, will be paid out as determined by the Plan Administrator, but no later than the date specified in the Agreement. 4. Article 11 is hereby deleted in its entirely and replaced with the following: ARTICLE I1 CHANGE OF CONTROL PROVISIONS 11.1 IMPACT OF EVENT. In the event of a "Change of Control," as defined in Section 11.2 (i) Company shall, as soon as possible, but in no event longer than five (5) business days following the Change of Control, or sooner if directed by the Board, make an irrevocable contribution to the Rabbi Trust, as provided in Section 12.6, in an amount that is necessary to fully fund the benefits for each Plan Participant or beneficiary pursuant to the terms of the Plan as of the date on which the Change of Control occurred; (ii) a Participant's Midland Stock Account shall be transferred automatically to a Guaranteed Interest Account (by multiplying the number of share equivalents in the Account by the Fair Market Value of a common share as of the effective date of the change of control); (iii) the Guaranteed Interest Account shall be paid to the Participant within thirty (30) days of the effective date of the Change of Control; (iv) earnings shall be credited to a Participant's Midland Stock Account pursuant to Article 4 in the Plan Year in which the change of control occurs for the period the Plan is in existence during such Plan Year prior to the effective date of the Change of Control. and (v) the Plan Administrator shall be responsible for determining the identity of the person entitled to receive Benefits under the Plan and the amount of such Benefits and for completing the payment of Benefits to any person entitled to receive Benefits under the Plan based on the records of the Company prior to the Change of Control. 11.2 DEFINITIONS OF "CHANGE OF CONTROL". a. "Change of Control" shall mean the first to occur of the following events: 18 i. The "acquisition" after the date hereof by any "Person" (as such term is defined below) of "Beneficial Ownership" (within the meaning of Rule 13d-3 promulgated under the Securities Exchange Act of 1934, as amended (the "1934 Act"), of any securities of the Company (the "Voting Securities") which, when added to the Voting Securities then "Beneficially Owned" by such Person, would result in such Person "Beneficially Owning" 33-1/3% or more of the combined voting power of the Company's then outstanding Voting Securities; provided, however, that for purposes of this paragraph "a," a Person shall not be deemed to have made an acquisition of Voting Securities if such Person: (A) acquires Voting Securities as a result of a stock split, stock dividend or other corporate restructuring in which all stockholders of the class of such Voting Securities are treated on a pro rata basis; (B) is generally engaged in the business of underwriting securities and acquires the Voting Securities (the "Underwriting Securities") pursuant to the terms of an underwriting agreement (an "Underwriting Agreement") to which the Company and such underwriter are parties and which Underwriting Agreement is in accordance with Rule 10b-7 promulgated under the 1934 Act or to cover over allotments created in connection with a distribution of Voting Securities pursuant to an Underwriting Agreement; (C) acquires the Voting Securities directly from the Company; (D) as a result of a redemption or purchase of Voting Securities by the Company, becomes the Beneficial Owner of more than the permitted percentage of Voting Securities by the Company pursuant to a reduction of the number of Voting Securities outstanding resulting in an increase in the proportional number of shares Beneficially Owned by such Person; (E) is the Company or any corporation or other Person of which a majority of its voting power or its equity securities or equity interest is owned directly or indirectly by the Company (a "Subsidiary") or (F) acquires Voting Securities in connection with a "Non-Control Transaction" (as defined below). ii. The individuals who, as of January 1, 2000, are members of the Board of Directors of the Company (the "Incumbent Board"), cease for any reason to constitute at least two-thirds of the Board of Directors of the Company; PROVIDED, HOWEVER, that if either the election of any new director or the nomination for election of any new director by the Company's stockholders was approved by a vote of at least two-thirds of the Incumbent Board, such new director shall be considered as a member of the Incumbent Board; PROVIDED FURTHER, HOWEVER, that no individual shall be considered a member of the Incumbent Board if such individual initially assumed office as a result of either an actual or threatened election contest or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board of Directors (a "Proxy Contest") including by reason of any agreement intended to avoid or settle any election contest or Proxy Contest. iii. Approval by shareholders of the Company of: (1) A merger, consolidation or reorganization involving the Company (a "Business Combination") other than a Non-Control Transaction; or (2) An agreement for the sale or other disposition of all or substantially all of the assets of the Company to any Person (other than a transfer to a Subsidiary). 19 Notwithstanding the foregoing, a Change of Control shall not be deemed to occur solely because 33-1/3% or more of the then outstanding Voting Securities is Beneficially Owned by (x) a trustee or other fiduciary holding securities under one or more employee benefit plans or arrangements (or any trust forming a part thereof) maintained by the Company or any Subsidiary or (y) any corporation which, immediately prior to its acquisition of such interest, is owned directly or indirectly by the shareholders of the Company in the same proportion as their ownership of stock in the Company immediately prior to such acquisition. b. "Non-Control Transaction" shall mean a Business Combination in which: i. The shareholders of the Company, immediately before the Business Combination, own, directly or indirectly immediately following the Business Combination, at least 67% of the combined voting power for the election of directors generally of the outstanding securities of the corporation resulting from the Business Combination (the "Surviving Corporation") in substantially the same proportion as their ownership of the Voting Securities immediately before the Business Combination; ii. The individuals who were members of the Board of Directors of the Company immediately prior to the execution of the agreement providing for the Business Combination constitute at least two-thirds of the members of the Board of Directors of the Surviving Corporation; or iii. No Person (other than the Company or any Subsidiary, a trustee or other fiduciary holding securities under one or more employee benefit plans or arrangements or any trust forming a part thereof maintained by the Company, the Surviving Corporation, or any Subsidiary) who, immediately prior to the Business Combination, did not have Beneficial Ownership of 33-1/3% or more of the then outstanding Voting Securities, upon consummation of the Business combination, shall be the Beneficial Owner of 33-1/3% or more of the combined voting power of the election of directors generally of the Surviving Corporation's then outstanding securities. 5. The Plan is amended by adding a new Section 12.6 titled Rabbi Trust immediately following Section 12.5 to read as follows: 12.6 RABBI TRUST The Plan shall be entirely funded upon a Change of Control as provided in Section 11.1 through a Rabbi Trust Agreement as prescribed in Rev. Proc. 92-64 adopted simultaneously with this Amendment to the Plan and no other provisions shall be made with respect to segregating assets of the Company for payment of any distributions hereunder except as may be required by Section 11.1. The right of a Participant or his designated beneficiary to receive a distribution hereunder shall be an unsecured claim against the general assets of the Company, the Midland-Guardian Company or any related employer and neither the Participant nor a designated beneficiary shall have any rights in or against any specific assets of the Company, the Midland-Guardian Company or any related employer. 6. The Effective Date of this First Amendment shall be April 1, 2000 unless otherwise provided. 20 IN WITNESS WHEREOF and as evidence of the adoption of this FIRST AMENDMENT, the Company has caused the same to be executed as of the day and year first above written. WITNESSES: THE MIDLAND COMPANY /s/ Maria D. Bevington By: /s/ John I. Von Lehman - ------------------------------------ ------------------------------------ Exec. V.P. /s/ Hans Zimmer By: /s/ Paul T. Brizzolara SVP - ------------------------------------ ------------------------------------ EX-10.2 4 l89900aex10-2.txt EXHIBIT 10.2 1 Exhibit 10.2 THE MIDLAND COMPANY SUPPLEMENTAL RETIREMENT PLAN The Midland Company continues, with this Agreement, a plan for the purpose of providing benefits for certain participants in the Midland-Guardian Co. Salaried Employees' Retirement Plan in excess of the limitations on benefits imposed by specific sections of the Internal Revenue Code. This Plan is an amended plan, the original plan being established by, and consisting of, a Board of Directors Resolution adopted on December 4, 1986. ARTICLE I DEFINITIONS Wherever used herein the following terms shall have the meanings hereinafter set forth: 1.1 "Beneficiary" means the Participant's Surviving Spouse or other person or persons designated as a beneficiary under the Qualified Plan. 1.2 "Board" means the Board of Directors of the Company. 1.3 "Code" means the Internal Revenue Code of 1986, as amended from time to time, and any regulations relating thereto. 1.4 "Company" means The Midland Company, an Ohio corporation, or, to the extent provided in Section 6.9 below, any successor corporation or other entity resulting from a merger or consolidation into or with the Company or a transfer or sale of substantially all of the assets of the Company. 1.5 "Normal Retirement Date" means the first day of the month coinciding with or next following a Participant's 65th birthday. 1.6 "Participant" means an officer of the Company at a level of vice president and above who is a participant under the Qualified Plan. 1.7 "Plan" means The Midland Company Supplemental Retirement Plan. 1.8 "Qualified Plan" means the Midland-Guardian Co. Salaried Employees' Retirement Plan and each predecessor, successor or replacement salaried employees' retirement plan. 2 1.9 "Qualified Plan Benefit" means the aggregate benefit payable to a Participant pursuant to the Qualified Plan by reason of his retirement, termination of employment, or death. 1.10 "Supplemental Benefit" means the benefit payable to a Participant pursuant to the Plan by reason of his retirement, his termination of employment, or death. 1.11 "Surviving Spouse" means a person who is married to a Participant at the date of his death and for at least one year prior thereto. 1.12 Words in the masculine gender shall include the feminine and the singular shall include the plural, and vice versa, unless qualified by the context. Any headings used herein are included for ease of reference only, and are not to be construed so as to alter the terms hereof. ARTICLE II ELIGIBILITY A Participant or Beneficiary who is eligible to receive a Qualified Plan Benefit, the amount of which is reduced by reason of the application of the limitations on benefits of Section 415 of the Code, the limitation on compensation of Section 401(a)(17) of the Code or any other limitations on benefits imposed by the Code, as in effect on the date for commencement of the Qualified Plan Benefit, or as in effect at any time thereafter, to the Qualified Plan shall be eligible to receive a Supplemental Retirement Benefit. ARTICLE III BENEFITS 3.1 AMOUNT. The Supplemental Benefit payable to an eligible Participant or a Beneficiary on behalf of a Participant, shall be an amount equal to the difference between (a) and (b) below: (a) The monthly amount of the Qualified Plan Benefit to which the Participant would have been entitled under the Qualified Plan if such Benefit were computed without giving effect to the limitations on benefits and compensation imposed by application of Sections 415 and 401(a)(17) of the Code; and (b) The monthly amount of the Qualified Plan Benefit actually payable to the Participant under the Qualified Plan. -2- 3 3.2 FORM OF BENEFIT. The Supplemental Benefit payable to a Participant or Beneficiary shall be paid in the same form under which the Qualified Plan Benefit is payable to the Participant or Beneficiary. The Participant's election under the Qualified Plan of any optional form of payment of his Qualified Plan Benefit (with the valid consent of his Surviving Spouse where required under the Qualified Plan) shall also be applicable to the payment of his Supplemental Benefit. 3.3 COMMENCEMENT OF BENEFIT. Payment of the Supplemental Benefit to a Participant shall commence on the same date as payment of the Qualified Plan Benefit to the Participant commences. Any election under the Qualified Plan made by the Participant with respect to the commencement of payment of his Qualified Plan Benefit shall also be applicable with respect to the commencement of payment of his Supplemental Retirement Benefit. 3.4 APPROVAL OF COMPANY. Notwithstanding the provisions of Sections 3.2 and 3.3 above, an election made by the Participation under the Qualified Plan with respect to the form of payment of his Qualified Plan Benefit, or the date for commencement of payment thereof, shall not be effective with respect to the form of payment or date for commencement of payment of his Supplemental Benefit unless such election is expressly approved in writing by the Company with respect to his Supplemental Benefit. If the Company shall not approve such election in writing, then the form of payment or date for commencement of payment of the Supplemental Benefit shall be selected by the Company in its sole discretion. ARTICLE IV ADMINISTRATION OF THE PLAN 4.1 ADMINISTRATION BY THE COMPANY. The Company shall be responsible for the general operation and administration of the Plan and for carrying out the provisions thereof. 4.2 GENERAL POWERS OF ADMINISTRATION. All provisions set forth in the Qualified Plan with respect to the administrative powers and duties of the Company, expenses of administration, and procedures for filing claims shall also be applicable with respect to the Plan. The Company shall be entitled to rely conclusively upon all tables, valuations, certificates, opinions and reports furnished by any actuary, accountant, controller, counsel or other person employed or engaged by the Company with respect to the Plan. -3- 4 ARTICLE V AMENDMENT OR TERMINATION 5.1 AMENDMENT OR TERMINATION. The Company intends the Plan to be permanent but reserves the right to amend or terminate the Plan when, in the sole opinion of the Company, such amendment or termination is advisable. Any such amendment or termination shall be made pursuant to a resolution of the Board and shall be effective as of the date of such resolution. 5.2 EFFECT OF AMENDMENT OR TERMINATION. No amendment or termination of the Plan shall reduce or eliminate the benefits to which a current or former Participant or Beneficiary was entitled prior to the effective date of such amendment or termination. Upon amendment or termination of the Plan, the Company shall calculate the value of a Participant's benefits under this Plan as if he had terminated employment on the effective date of the Plan amendment or termination using the actuarial assumptions of the Qualified Plan and shall make benefit payments in accordance with Sections 3.2 and 3.3 which are at least equal in value to the benefits so calculated. ARTICLE VI GENERAL PROVISIONS 6.1 FUNDING. Nothing contained herein shall be construed as providing for assets to be held in trust or escrow or any other form of segregation for the Participant or Beneficiary. No Participant, Beneficiary or any other person shall have any interest in any particular assets of the Company by reason of the right to receive a benefit under the Plan and any such Participant, Beneficiary or other person shall have only the rights of a general unsecured creditor of the Company with respect to any rights under the Plan. 6.2 GENERAL CONDITIONS. Except as otherwise expressly provided herein, all terms and conditions of the Qualified Plan applicable to a Qualified Plan Benefit shall also be applicable to a Supplemental Benefit payable hereunder. Any Qualified Plan Benefit shall be paid solely in accordance with the terms and conditions of the Qualified Plan and nothing in this Plan shall operate or be construed in any way to modify, amend or affect the terms and provisions of the Qualified Plan. 6.3 No GUARANTY OF BENEFITS. Nothing contained in the Plan shall constitute a guaranty by the Company or any other entity or person that the assets of the Company will be sufficient to pay any benefit hereunder. 6.4 NO ENLARGEMENT OF EMPLOYEE RIGHTS. No Participant or Beneficiary shall have any right to a benefit under the Plan -4- 5 except in accordance with the terms of the Plan. Establishment of the Plan shall not be construed to give any Participant the right to be retained in the service of the Company. 6.5 SPENDTHRIFT PROVISION. No interest of any person or entity in, or right to receive a benefit under, the Plan shall be subject in any manner to sale, transfer, assignment, pledge, attachment, garnishment, or other alienation or encumbrance of any kind; nor may such interest or right to receive a benefit be taken, either voluntarily or involuntarily, for the satisfaction of the debts of, or other obligations or claims against, such person or entity, including claims for alimony, support, separate maintenance and claims in bankruptcy proceedings. 6.6 APPLICABLE LAW. The Plan shall be construed and administered under the laws of the State of Ohio. 6.7 SMALL BENEFITS. If the actuarial value of any Supplemental Benefit is less than $3,500, the Company may pay the actuarial value of such Benefit to the Participant or Beneficiary in a single lump sum in lieu of any further benefit payments hereunder. 6.8 INCAPACITY OF RECIPIENT. If any person entitled to a benefit payment under the Plan is deemed by the Company to be incapable of personally receiving and giving a valid receipt for such payment, then, unless and until claim therefor shall have been made by a duly appointed guardian or other legal representative of such person, the Company may provide for such payment or any part thereof to be made to any other person or institution then contributing toward or providing for the care and maintenance of such person. Any such payment shall be a payment for the account of such person and a complete discharge of any liability of the Company and the Plan therefor. 6.9 CORPORATE SUCCESSORS. The Plan shall not be automatically terminated by a transfer or sale of assets of the Company or by the merger or consolidation of the Company into or with any other corporation or other entity, but the Plan shall be continued after such sale, merger or consolidation only if and to the extent that the Transferee, purchaser or successor entity agrees to continue the Plan. In the event that the Plan is not continued by the transferee, purchaser or successor entity, then the Plan shall terminate subject to the provisions of Section 5.2. 6.10 UNCLAIMED BENEFIT. Each Participant shall keep the Company informed of his current address and the current address of his spouse. The Company shall not be obligated to search for the whereabouts of any person. If the location of a Participant is not made known to the Company within three (3) years after the date on which payment of the Participant's Supplemental -5- 6 Retirement Benefit may first be made, payment may be made as though the Participant had died at the end of the three year period. If, within one additional year after such three year period has elapsed, or, within three years after the actual death of a Participant, the Company is unable to locate any Beneficiary, then the Company shall have no further obligation to pay any benefit hereunder to such Participant or Beneficiary or any other person and such benefit shall be irrevocably forfeited. 6.11 LIMITATIONS ON LIABILITY. Except for the Supplemental Benefit provided for by Section 3.1 and notwithstanding any of the other preceding provisions of the Plan, neither the Company nor any individual acting as an employee or agent of the Company shall be liable to any Participant, former Participant, Beneficiary or any other person for any claim, loss, liability or expense incurred in connection with the Plan. IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by its duly authorized officer this 31 day of December, 1992. ---- --------- THE MIDLAND COMPANY Attest: By /s/ John I. Von Lehman ----------------------------------------- Vice President -6- 7 FIRST AMENDMENT TO THE MIDLAND COMPANY SUPPLEMENTAL RETIREMENT PLAN THIS FIRST AMENDMENT, made and executed this 31st day of March, 2000, by THE MIDLAND COMPANY (the "Company"). W I T N E S S E T H: WHEREAS, the Company maintains a nonqualified deferred compensation plan known as The Midland Company Supplemental Retirement Plan (the "Plan); WHEREAS, the Company is now the sponsor of the Plan; WHEREAS, the Company determined that it would be in the best interest of the Company and its eligible employees to adopt a Rabbi Trust effective as of March 31, 2000, to provide for the payment of benefits from the Plan; WHEREAS, Section 5.1 of the Plan allows the Company to amend the Plan; WHEREAS, pursuant to Section 5.1 of the Plan, the Company desires to amend the Plan in order to permit the Company to direct the payments to Participants, provide for the payment of benefits through a Rabbi Trust and to provide for the operation of the Plan after a Change of Control effective as of March 31, 2000. NOW THEREFORE, the Plan is amended as follows: 1. Section 3.3 of the Plan is hereby amended by adding the following paragraph: "The foregoing notwithstanding, upon recommendation of its Board of Directors or a committee duly designated by the Board of Directors, the Company may, at any time upon the Participant's consent, direct the payment in a lump sum of the Participant's Supplemental Retirement Benefit. In the event the Company exercises this option and the Participant consents, the Supplemental Benefit shall be converted into a lump sum using an interest rate and a mortality table as prescribed by Regulation 1.417(e)-1(d), or its successor provision as described in Section 7.03 of the Qualified Plan. The Participant shall have no right to request a distribution pursuant to this paragraph, and this paragraph shall not be construed to enlarge the Participants to receive distributions other than as provided above." 8 2. Section 6.1 of the Plan is hereby deleted in its entirety and replaced with the following: 6.1 Rabbi Trust. The Plan shall be entirely funded upon a Change of Control as provided in Section 7.1 through a Rabbi Trust Agreement as prescribed in Rev. Proc. 92-64 and no other provisions shall be made with respect to segregating assets of the Company for payment of any distributions hereunder except as may be required by Section 7.1. The right of a Participant or his designated beneficiary to receive a distribution hereunder shall be an unsecured claim against the general assets of the Company, the Midland-Guardian Co. or any related employer and neither the Participant nor a designated beneficiary shall have any rights in or against any specific assets of the Company, the Midland-Guardian Co. or any related employer. 3. The Plan is amended by deleting Section 6.9 from the terms of the Plan. In addition, Section 6.10 shall be renumbered as Section 6.9 and Section 6.11 shall be renumbered as Section 6.10. 4. The Plan is amended by adding a new Article VII immediately following Article VI to read as follows: ARTICLE VII CHANGE OF CONTROL PROVISIONS 7.1 Impact of Event. In the event of a "Change of Control," as defined in Section 7.2 (i) the Supplemental Benefit determined under Article III shall include all benefits based on payments made to Participant as a result of the Change of Control ("Change of Control Compensation") or potential benefits and any benefits which a Participant is no longer eligible to receive under the Qualified Plan as a result of the Change of Control; (ii) Company shall, as soon as possible, but in no event longer than five (5) business days following the Change of Control, or sooner if directed by the Board, make an irrevocable contribution to the Rabbi Trust, as provided in Section 6.1, in an amount that is necessary to fully fund the benefits or potential benefits (including benefits provided in (i) above) for each Plan participant or beneficiary pursuant to the terms of the Plan as of the date on which the Change of Control occurred; (iii) the Supplemental Benefit shall be converted into a lump sum using an interest rate and a mortality table as prescribed by Regulation 1.417(e)-1(d) or its successor provision, as described in Section 7.03 of the Qualified Plan, and paid to the Participant within thirty (30) days of the effective date of the Change of Control or subsequent triggering event; and (iv) the Company shall be responsible for determining the identity of the person entitled to receive Supplemental Benefits under the Plan and the amount of such Supplemental Benefits and for completing the payment of Supplemental Benefits to any person entitled to receive Supplemental Benefits under the Plan based on the records of the Company prior to the change of Control. 9 7.2 Definitions of "Change of Control". a. "Change of Control" shall mean the first to occur of the following events: i. The "acquisition" after the date hereof by any "Person" (as such term is defined below) of "Beneficial Ownership" (within the meaning of Rule 13d-3 promulgated under the Securities Exchange Act of 1934, as amended (the "1934 Act"), of any securities of the Company (the "Voting Securities") which, when added to the Voting Securities then "Beneficially Owned" by such Person, would result in such Person "Beneficially Owning" 33-1/3% or more of the combined voting power of the Company's then outstanding Voting Securities; provided, however, that for purposes of this paragraph "a," a Person shall not be deemed to have made an acquisition of Voting Securities if such Person: (A) acquires Voting Securities as a result of a stock split, stock dividend or other corporate restructuring in which all stockholders of the class of such Voting Securities are treated on a pro rata basis; (B) is generally engaged in the business of underwriting securities and acquires the Voting Securities (the "Underwriting Securities") pursuant to the terms of an underwriting agreement (an "Underwriting Agreement") to which the Company and such underwriter are parties and which Underwriting Agreement is in accordance with Rule 10b-7 promulgated under the 1934 Act or to cover over allotments created in connection with a distribution of Voting Securities pursuant to an Underwriting Agreement; (C) acquires the Voting Securities directly from the Company; (D) as a result of a redemption or purchase of Voting Securities by the Company, becomes the Beneficial Owner of more than the permitted percentage of Voting Securities by the Company pursuant to a reduction of the number of Voting Securities outstanding resulting in an increase in the proportional number of shares Beneficially Owned by such Person; (E) is the Company or any corporation or other Person of which a majority of its voting power or its equity securities or equity interest is owned directly or indirectly by the Company (a "Subsidiary") or (F) acquires Voting Securities in connection with a "Non-Control Transaction" (as defined below). ii. The individuals who, as of January 1, 2000, are members of the Board of Directors of the Company (the "Incumbent Board"), cease for any reason to constitute at least two-thirds of the Board of Directors of the Company; provided, however, that if either the election of any new director or the nomination for election of any new director by the Company's stockholders was approved by a vote of at least two-thirds of the Incumbent Board, such new director shall be considered as a member of the Incumbent Board; provided further, however, that no individual shall be considered a member of the Incumbent Board if such individual initially assumed office as a result of either an actual or threatened election contest or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board of Directors (a "Proxy Contest") including by reason of any agreement intended to avoid or settle any election contest or Proxy Contest. iii. Approval by shareholders of the Company of: -3- 10 (1) A merger, consolidation or reorganization involving the Company (a "Business Combination") other than a Non-Control Transaction; or (2) An agreement for the sale or other disposition of all or substantially all of the assets of the Company to any Person (other than a transfer to a Subsidiary). Notwithstanding the foregoing, a Change of Control shall not be deemed to occur solely because 33-1/3% or more of the then outstanding Voting Securities is Beneficially Owned by (x) a trustee or other fiduciary holding securities under one or more employee benefit plans or arrangements (or any trust forming a part thereof) maintained by the Company or any Subsidiary or (y) any corporation which, immediately prior to its acquisition of such interest, is owned directly or indirectly by the shareholders of the Company in the same proportion as their ownership of stock in the Company immediately prior to such acquisition. b. "Non-Control Transaction" shall mean a Business Combination in which: i. The shareholders of the Company, immediately before the Business Combination, own, directly or indirectly immediately following the Business Combination, at least 67% of the combined voting power for the election of directors generally of the outstanding securities of the corporation resulting from the Business Combination (the "Surviving Corporation") in substantially the same proportion as their ownership of the Voting Securities immediately before the Business Combination; ii. The individuals who were members of the Board of Directors of the Company immediately prior to the execution of the agreement providing for the Business Combination constitute at least two-thirds of the members of the Board of Directors of the Surviving Corporation; or iii. No Person (other than the Company or any Subsidiary, a trustee or other fiduciary holding securities under one or more employee benefit plans or arrangements or any trust forming a part thereof maintained by the Company, the Surviving Corporation, or any Subsidiary) who, immediately prior to the Business Combination, did not have Beneficial Ownership of 33-1/3% or more of the then outstanding Voting Securities, upon consummation of the Business combination, shall be the Beneficial Owner of 33-1/3% or more of the combined voting power of the election of directors generally of the Surviving Corporation's then outstanding securities. 5. The Effective Date of this First Amendment shall be March 31, 2000 unless otherwise provided. -4- 11 IN WITNESS WHEREOF and as evidence of the adoption of this FIRST AMENDMENT, the Company has caused the same to be executed as of the day and year first above written. WITNESSES: THE MIDLAND COMPANY /s/ Maria D. Bevington By: /s/ W. Todd Gray - ------------------------------ ------------------------------------- s/ Hans Zimmer Its: Treasurer - ------------------------------ -------------------------------- -5- EX-10.3 5 l89900aex10-3.txt EXHIBIT 10.3 1 Exhibit 10.3 THE MIDLAND-GUARDIAN CO. SALARIED EMPLOYEES NONQUALIFIED SAVINGS PLAN The Midland-Guardian Co. Salaried Employees Nonqualified Savings Plan (the "Plan") is adopted effective February 1, 1996. The Plan is established and maintained by The Midland-Guardian Co. (the "Company") for the purpose of permitting certain of its salaried employees who participate in The Midland-Guardian Co. Employees Nonqualified Savings Plan to defer compensation and to receive matching contributions in excess of the limitations on deferrals and matching contributions imposed by Sections 401(a)(17), 401(k), 402(g) and 415 of the Internal Revenue Code of 1986 as amended. ARTICLE I DEFINITIONS Wherever used herein, the following terms shall have the meanings hereinafter set forth: 1.1 "Accounting Date" means any December 31. 1.2 "Beneficiary" means the person(s) designated by the Participant to receive the benefits due the Participant under the Plan. 1.3 "Board" means the Board of Directors of the Company. 1.4 "Code" means the Internal Revenue Code of 1986 as amended from time to time and any regulations relating thereto. 1.5 "Company" means The Midland-Guardian Co. and any affiliated company that is a member of a controlled group of corporations as defined in Section 1563 of the Code, or, to the extent provided in Section 8.8 below, any successor corporation or other entity resulting from a merger or consolidation into or with the Company or a transfer or sale of substantially all of the assets of the Company. 1.6 "Participant" means an employee of the Company who is a participant under the Qualified Plan or with respect to whom contributions may be made under the Plan. 1.7 "Plan" means The Midland-Guardian Co. Salaried Employees Nonqualified Savings Plan. 1.8 "Plan Year" means the calendar year or any other twelve (12) consecutive month period that may be designated by the Company as its fiscal year and the fiscal year of the qualified plan. 1.9 "Qualified Plan" means The Midland-Guardian Co. Salaried Employees Savings Plan effective January 1, 1982 and 2 each predecessor, successor or replacement salaried employees cash or deferred arrangement. 1.10 "Qualified Plan Subaccount" means the account established for a Participant under the Qualified Plan. 1.11 "Supplemental Company Matching Contribution" means the matching contribution made by the Company for the benefit of a Participant under and in accordance with the terms of the Plan in any Plan Year. 1.12 "Supplemental Salary Reduction Contribution" means the salary reduction contribution made by the Company for the benefit of a Participant under and in accordance with the terms of the Plan in any Plan Year. 1.13 "Supplemental Subaccount" means the account maintained by the Company under the Plan for a Participant that is credited with amounts contributed under Section 3.1 of the Plan. 1.14 "Benefits Committee" shall mean the Committee designated by the Company to administer the Plan. ARTICLE II ELIGIBILITY 2.1 A Participant who is eligible to receive the benefit of Qualified Plan Salary Reduction Contributions and Qualified Plan Company Matching Contributions the total amount of which is reduced by reason of the application of the limitations on contributions imposed by Sections 401(a)(17), 401(k), 402(g) or 415 of the Code as in effect on any date for allocation of the amount of the Qualified Plan Salary Reduction Contribution and Qualified Plan Company Matching Contribution or as in effect at any time thereafter to the Qualified Plan or who has been designated by the Company shall be eligible to participate in the Plan. The Company shall review the designation of eligible employees on an annual basis and notify designated employees of their eligibility. ARTICLE III SUPPLEMENTAL CONTRIBUTIONS 3.1 SUPPLEMENTAL SALARY REDUCTION CONTRIBUTION. The Supplemental Salary Reduction Contribution to be made by the Company for the benefit of a Participant for any Plan Year shall be in an amount equal to the difference between A. and B. below. A. The amount elected by the Participant in the form specified in Section 3.2, LESS 2 3 B. If such election is made by the Participant, the maximum amount of the Salary Reduction Contribution allocable to the Qualified Plan Subaccount of the Participant for the Plan Year after application of the limitations imposed by Sections 401(a)(17), 401(k), 402(g) or 415 of the Code on the Qualified Plan. Supplemental Salary Reduction Contributions made for the benefit of a Participant for any Plan Year shall be credited to the Qualified Plan Subaccount maintained under the Plan in the name of such Participant within forty-five (45) days after the last day of such Plan Year. 3.2 SUPPLEMENTAL SALARY REDUCTION AGREEMENT. As a condition to the Company's obligation to make a Supplemental Salary Reduction Contribution for the benefit of a Participant pursuant to Section 3.1, the Participant must execute a Supplemental Salary Reduction Agreement in the form attached hereto. The Agreement in any Plan Year shall be made before the beginning of that year and shall remain in effect for that Plan Year. 3.3 SUPPLEMENTAL COMPANY MATCHING CONTRIBUTIONS. The Supplemental Company Matching Contributions to be made by the Company for the benefit of a Participant for any Plan Year shall be in an amount equal to the amount set forth in Section 3.4 for any funds remaining in the Plan after the application of Section 3.1(B). Such Supplemental Company Matching Contributions shall be credited to the Participant's Supplemental Subaccount within forty-five (45) days after the last day of the Plan Year. 3.4 AMOUNT OF MATCHING CONTRIBUTION. The amount of the Supplemental Company Matching Contribution shall be an amount equal to seventy-five percent (75%) of Supplemental Salary Reduction Contributions for the first six percent (6%) of a Participant's compensation remaining in the Plan after the application of Section 3.1(B). Any Supplemental Salary Reduction Contributions in excess of six percent (6%) of a Participant's Compensation shall not receive a Supplemental Matching Contribution. Supplemental Salary Reduction Contributions allocated to the Qualified Plan Subaccount shall be allocated the amount of matching contributions applicable to the Qualified Plan. 3.5 PENSION MAKE-UP CONTRIBUTION. The Company shall restore an amount equal to any reduction in a Participant's pension plan benefits under the Midland-Guardian Co. Salaried Employees Pension Plan caused by Supplemental Salary Reduction Contributions under this Plan to the extent such pension plan benefits are not restored by any other Company-provided plan or agreement. Any amounts contributed by the Company pursuant to this Section 3.5 shall be treated as additional Salary Reduction Contributions and invested in the same manner as such contributions. 3 4 ARTICLE IV INVESTMENT OF SUPPLEMENTAL CONTRIBUTION Amounts credited hereunder to the Supplemental Subaccount of a Participant shall be invested pursuant to the Participant's direction on an election form supplied to the Company pursuant to Section 3.2. ARTICLE V DISTRIBUTIONS 5.1 DISTRIBUTIONS ON TERMINATION OF EMPLOYMENT, DEATH, DISABILITY OR DATE CERTAIN. All amounts credited to a Participant's Supplemental Subaccount including gains and losses credited pursuant to Article IV hereof shall be distributed to or with respect to a Participant upon a date certain elected by the Participant at the time of the Participant's initial filing of a Supplemental Salary Reduction Agreement under Section 3.2. Such election may be changed by the Participant at any time provided that any date certain elected by the Participant must occur no less than two (2) years from the date the election is amended. All amounts distributable under the Plan shall be subject to the following: A. If a Participant terminates employment or retires without the approval of the Benefits Committee, all funds in the Participant's account and any earnings thereon will be paid out as soon as administratively practicable. B. If a Participant terminates employment or retires with the approval of the Benefits Committee, all funds in the Participant's account and any earnings thereon will be paid out in accordance with the Participant's previous election. C. If a Participant dies or becomes permanently disabled, all funds in the Participant's account and any earnings thereon will be paid out as determined by the Benefits Committee, but no later than the date specified in the Participant's previous election. The Participant shall further elect the manner in which payments are to be made from the following options: A. Lump sum. B. Annual payments over a period of time not to exceed fifteen (15) years. If a Participant should die before distribution of the full amount of his subaccounts, any remaining amounts shall be distributed to the Beneficiary in the method designated by the Participant in a writing delivered to the Company prior to his 4 5 death. If a Participant has not designated a Beneficiary or method of distribution or if no designated Beneficiary is living on the date of distribution, such amount shall be distributed to those persons entitled to receive distributions of the Participant's accounts under the Qualified Plan and in the same method as distribution is made under the Qualified Plan. 5.2 DISTRIBUTIONS PRIOR TO TERMINATION OF EMPLOYMENT, DEATH, DISABILITY OR DATE CERTAIN. Notwithstanding the provisions of Section 5.1, a Participant may elect to receive a distribution of the balance of his Supplemental Subaccount upon the occurrence of the following events: A. The Participant's election filed with the Company at any time provided that unless the Participant's request meets the criteria of Paragraph B. hereof, the Participant's account shall be reduced by ten percent (10%) of the balance therein at the time of the Participant's election. Distributions pursuant to this paragraph shall be made as soon as administratively practicable after ninety (90) days following the Participant's election for Participants deemed "non-insiders" and one year following the Participant's election for Participants deemed "insiders" by the Benefits Committee. B. The Participant's election filed with the Company at any time upon the occurrence of the Participant's severe financial hardship created by an unforeseeable emergency as defined in Code Section 457 and Reg. ss.1.457-2(h)(4) and (5). Distributions pursuant to this paragraph shall be made as soon as administratively practicable following the Participant's election. ARTICLE VI ADMINISTRATION OF THE PLAN 6.1 ADMINISTRATION BY THE BENEFITS COMMITTEE. The Benefits Committee shall be responsible for the general operation and administration of the Plan and for carrying out the provisions thereof. 6.2 GENERAL POWERS OF ADMINISTRATION. All provisions set forth in the Qualified Plan with respect to the administrative powers and duties of the Benefits Committee, expenses of administration and procedures for filing claim shall also be applicable with respect to the Plan. The Benefits Committee shall be entitled to rely conclusively upon all tables, valuations, certificates, opinions and reports furnished by any actuary, accountant, controller, counsel or other person employed or engaged by the Benefits Committee with respect to the Plan. ARTICLE VII 5 6 AMENDMENT OR TERMINATION 7.1 AMENDMENT OR TERMINATION. The Company intends the Plan to be permanent but reserves the right to amend or terminate the Plan when, in the sole opinion of the Company, such amendment or termination is advisable. Any such amendment or termination shall be made pursuant to a resolution of the Board and shall be effective as of the date of such resolution. 7.2 EFFECT OF AMENDMENT OR TERMINATION. No amendment or termination of the Plan shall directly or indirectly reduce the balance of any subaccount held hereunder as of the effective date of such amendment or termination. Upon termination of the Plan, distribution of amounts in any subaccount shall be made to the Participant or his beneficiary in the manner and at the time described in Section 5.1 of the Plan. No additional credits of Supplemental Salary Reduction Contributions or Supplemental Company Matching Contributions shall be made to the subaccounts of a Participant after termination of the Plan but the Company shall continue to credit gains and losses to the subaccounts of the Participant pursuant to Section 4.1 until the balance of such subaccounts has been fully distributed to the Participant or his beneficiary. ARTICLE VIII GENERAL PROVISIONS 8.1 PARTICIPANTS RIGHT UNSECURED. The Plan, at all times, shall be entirely funded through a Rabbi Trust Agreement as prescribed in Rev. Proc. 92-64 adopted simultaneously with the Plan and no provisions shall be made with respect to segregating assets of the Company for payment of any distributions hereunder. The right of a Participant or his designated beneficiary to receive a distribution hereunder shall be an unsecured claim against the general assets of the Company and The Midland Company and neither the Participant nor a designated beneficiary shall have any rights in or against any specific assets of the Company or The Midland Company. All amounts credited to the Participant's Supplemental Subaccount shall constitute general assets of the Company and The Midland Company and may be disposed of by the Company at such time and for such purposes as it may deem appropriate. 8.2 GENERAL CONDITIONS. Except as otherwise expressly provided herein, all terms and conditions of the Qualified Plan applicable to Qualified Plan Salary Reduction Contributions or Qualified Plan Company Matching Contributions will also be applicable to Supplemental Salary Reduction Contributions or Supplemental Company Matching Contributions to be made hereunder. Any Qualified Plan Salary Reduction Contributions or Qualified Plan Company Matching Contributions or any other contributions to be made under the Qualified Plan shall be made solely in 6 7 accordance with the terms and conditions of the Qualified Plan and nothing in this Plan shall operate or be construed in any way to modify, amend or affect the terms and conditions of the Qualified Plan. 8.3 NO GUARANTEE OF BENEFITS. Nothing contained in the Plan shall constitute a guarantee by the Company or any other person or entity that the assets of the Company will be sufficient to pay any benefit hereunder. 8.4 NO ENLARGEMENT OF EMPLOYEE RIGHTS. No Participant shall have any right to receive a distribution of contributions made under the Plan except in accordance with the terms of the Plan. Establishment of the Plan shall not be construed to give any Participant the right to be retained in the employment of the Company. 8.5 SPENDTHRIFT PROVISION. No interest of any person or entity in or right to receive a distribution under the Plan shall be subject to any manner to sale, transfer assignment, pledge, attachment, garnishment or other alienation or income rents of any kind. Normally such interest or right to receive a distribution be taken either voluntarily or involuntarily for the satisfaction of the debts of or other obligations or claims against such person or entity including claims for alimony, support, separate maintenance and claims in bankruptcy proceedings. 8.6 APPLICABLE LAW. The Plan shall be construed and administered under the laws of the State of Ohio. 8.7 INCAPACITY OF RECIPIENT. If any person entitled to a distribution under the Plan is deemed by the Company to be incapable of personally receiving and giving a valid receipt for such payment then, unless and until claim therefore shall have been made by duly appointed guardian or other legal representative of such person, the Company may provide for such payment or any part thereof to be made to any other person or institution then contributing toward or providing for the care and maintenance of such person. Any such payment shall be a payment for the account of such person and be a complete discharge of any liability of the Company and the Plan therefore. 8.8 SUCCESSORS. The Plan shall not be automatically terminated by a transfer or sale of assets of the Company or by the merger or consolidation of the Company into or with any other corporation or other entity, but the Plan shall be continued after such sale, merger or consolidation only if and to the extent that the transferee, purchaser or successor entity agrees to continue the Plan. In the event that the Plan is not continued by the transferee, purchaser or successor entity, then the Plan shall terminate subject to the provisions of Section 7.2. 7 8 8.9 UNCLAIMED BENEFIT. Each Participant shall keep the Company informed of his current address and the current address of his designated beneficiary. The Company shall not be obligated to search for the whereabouts of any person. If the location of a Participant is not made known to the Company within three (3) years after the date on which payment of the Participant's subaccounts may first be made, payment may be made as though the Participant had died at the end of the three (3) year period. If within one additional year after such three (3) years period has elapsed or within three (3) years after the actual death of a Participant the Company is unable to locate any designated beneficiary of the Participant, then the Company shall have no further obligation to pay any benefit hereunder to such Participant or designated beneficiary and such benefit shall be irrevocably forfeited. 8.10 LIMITATIONS ON LIABILITY. Notwithstanding any of the preceding provisions of the Plan, neither the Company nor any individual acting as employee or agent of the Company shall be liable to any Participant, former Participant or other person for any claim, loss, liability or expense incurred in connection with the Plan. MIDLAND-GUARDIAN CO. By: /s/ John I. Von Lehman ----------------------------- By: /s/ Michael J. Conaton ----------------------------- THE MIDLAND COMPANY By: /s/ John I. Von Lehman ----------------------------- By: /s/ Edward J. Heskamp ----------------------------- By: /s/ Ronald L. Gramke ----------------------------- Adopted: 8 9 FIRST AMENDMENT TO THE MIDLAND-GUARDIAN CO. SALARIED EMPLOYEES NONQUALIFIED SAVINGS PLAN -------------------------------------------- THIS FIRST AMENDMENT, made and executed this 31 day of March, 2000, by THE MIDLAND-GUARDIAN CO. (the "Company"). W I T N E S S E T H : WHEREAS, the Company maintains a nonqualified deferred compensation plan known as The Midland-Guardian Co. Salaried Employees Nonqualified Savings Plan (the "Plan"); WHEREAS, the Company is now the sponsor of the Plan; WHEREAS, Section 7.1 of the Plan allows the Company to amend the Plan; WHEREAS, pursuant to Section 7.1 of the Plan, the Company desires to amend the Plan in order to provide for the operation of the Plan after a Change of Control and to amend the provision regarding the rabbi trust effective as of March 31, 2000. NOW, THEREFORE, the Plan is amended as follows: 1. Section 8.1 is amended to add the words "and any related employer" after the provisions that read "assets of the Company and The Midland Company" so that Section 8.1 reads as follows: 8.1 RABBI TRUST. The Plan, at all times, shall be entirely funded through a Rabbi Trust Agreement as prescribed in Rev. Proc. 92-64 adopted simultaneously with the Plan and no other provisions shall be made with respect to segregating assets of the Company for payment of any distributions hereunder except as may be required by Section 9.1. The right of a Participant or his designated beneficiary to receive a distribution hereunder shall be an unsecured claim against the general assets of the Company, The Midland Company or any related employer and neither the Participant nor a designated beneficiary shall have any rights in or against any specific assets of the Company, The Midland Company or any related employer. 2. The Plan is amended by deleting Section 8.8 (Successors) from the terms of the Plan. In addition, Section 8.9 shall be renumbered as Section 8.8 and Section 8.10 shall be renumbered as Section 8.9. 3. The Plan is amended by adding a new Article IX titled Change of Control Provisions immediately following Article VIII to read as follows: 10 - 2 - ARTICLE IX CHANGE OF CONTROL PROVISIONS 9.1 IMPACT OF EVENT. In the event of a "Change of Control" as defined in Section 9.2, (i) the Supplemental contributions and all earnings determined under this Plan shall include all benefits based on payments made to a Participant as a result of the Change of Control ("Change of Control Compensation") or potential benefits and any benefits which a Participant is no longer eligible to receive under the Midland Guardian Co. Salaried Employees 401(k) Savings Plan as a result of the Change of Control; (ii) Company shall, as soon as possible, but in no event longer than five (5) business days following the Change of Control, or sooner if directed by the Board, make an irrevocable contribution to the Rabbi Trust, as provided in Section 8.1, in an amount that is necessary to fully fund the benefits or potential benefits (including benefits provided in (i) above) for each Plan Participant or beneficiary pursuant to the terms of the Plan as of the date on which the Change of Control occurred; (iii) the Supplemental Subaccount shall be paid within 30 days of the effective date of the Change of Control or subsequent triggering event; and (iv) the Benefits Committee identified in Section 6.1 of the Plan shall be responsible for determining the identity of the person entitled to receive the amount in the Supplemental Subaccount under the Plan and the amount of such Supplemental Subaccount and for completing the payment of Supplemental Subaccount to any person entitled to receive the amount in the Supplemental Subaccount under the Plan based on the records of the Benefits Committee prior to the Change of Control. 9.2 DEFINITION OF "CHANGE OF CONTROL" a. "Change of Control" shall mean the first to occur of the following events: i. The "acquisition" after the date hereof by any "Person" (as such term is defined below) of "Beneficial Ownership" (within the meaning of Rule 13d-3 promulgated under the Securities Exchange Act of 1934, as amended (the "1934 Act"), of any securities of the Company (the "Voting Securities") which, when added to the Voting Securities then "Beneficially Owned" by such Person, would result in such Person "Beneficially Owning" 33-1/3% or more of the combined voting power of the Company's then outstanding Voting Securities; provided, however, that for purposes of this paragraph a, a Person shall not be deemed to have made an acquisition of Voting Securities if such Person: (A) acquires Voting Securities as a result of a stock split, stock dividend or other corporate restructuring in which all stockholders of the class of such Voting Securities are treated on a pro rata 11 - 3 - basis; (B) is generally engaged in the business of underwriting securities and acquires the Voting Securities (the "Underwriting Securities") pursuant to the terms of an underwriting agreement (an "Underwriting Agreement") to which the Company and such underwriter are parties and which Underwriting Agreement is in accordance with Rule 10b-7 promulgated under the 1934 Act or to cover over allotments created in connection with a distribution of Voting Securities pursuant to an Underwriting Agreement; (C) acquires the Voting Securities directly from the Company; (D) as a result of a redemption or purchase of Voting Securities by the Company, becomes the Beneficial Owner of more than the permitted percentage of Voting Securities by the Company pursuant to a reduction of the number of Voting Securities outstanding resulting in an increase in the proportional number of shares Beneficially Owned by such Person; (E) is the Company or any corporation or other Person of which a majority of its voting power or its equity securities or equity interest is owned directly or indirectly by the Company (a "Subsidiary") or (F) acquires Voting Securities in connection with a "Non-Control Transaction" (as defined below). ii. The individuals who, as of January 1, 2000, are members of the Board of Directors of the Company (the "Incumbent Board"), cease for any reason to constitute at least two-thirds of the Board of Directors of the Company; PROVIDED, HOWEVER, that if either the election of any new director or the nomination for election of any new director by the Company's stockholders was approved by a vote of at least two-thirds of the Incumbent Board, such new director shall be considered as a member of the Incumbent Board; PROVIDED FURTHER, HOWEVER, that no individual shall be considered a member of the Incumbent Board if such individual initially assumed office as a result of either an actual or threatened election contest or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board of Directors (a "Proxy Contest") including by reason of any agreement intended to avoid or settle any election contest or Proxy Contest. iii. Approval by shareholders of the Company of: (1) A merger, consolidation or reorganization involving the Company (a "Business Combination") other than a Non-Control Transaction; or 12 - 4 - (2) An agreement for the sale or other disposition of all or substantially all of the assets of the Company to any Person (other than a transfer to a Subsidiary). Notwithstanding the foregoing, a Change of Control shall not be deemed to occur solely because 33-1/3% or more of the then outstanding Voting Securities is Beneficially Owned by (x) a trustee or other fiduciary holding securities under one or more employee benefit plans or arrangements (or any trust forming a part thereof) maintained by the Company or any Subsidiary or (y) any corporation which, immediately prior to its acquisition of such interest, is owned directly or indirectly by the shareholders of the Company in the same proportion as their ownership of stock in the Company immediately prior to such acquisition. b. "Non-Control Transaction" shall mean a Business Combination in which: i. The shareholders of the Company, immediately before the Business Combination, own, directly or indirectly immediately following the Business Combination, at least 67% of the combined voting power for the election of directors generally of the outstanding securities of the corporation resulting from the Business Combination (the "Surviving Corporation") in substantially the same proportion as their ownership of the Voting Securities immediately before the Business Combination; ii. The individuals who were members of the Board of Directors of the Company immediately prior to the execution of the agreement providing for the Business Combination constitute at least two-thirds of the members of the Board of Directors of the Surviving Corporation; or iii. No Person (other than the Company or any Subsidiary, a trustee or other fiduciary holding securities under one or more employee benefit plans or arrangements or any trust forming a part thereof maintained by the Company, the Surviving Corporation, or any Subsidiary) who, immediately prior to the Business Combination, did not have Beneficial Ownership of 33-1/3% or more of the then outstanding Voting Securities, upon consummation of the Business Combination, shall be the Beneficial Owner of 33-1/3% or more of the combined voting power for the election of directors generally of the Surviving Corporation's then outstanding securities. 13 - 5 - 4. The Effective Date of this First Amendment shall be March 31, 2000 unless otherwise provided. IN WITNESS WHEREOF and as evidence of the adoption of this FIRST AMENDMENT, the Company has caused the same to be executed as of the day and year first above written. WITNESSES: THE MIDLAND-GUARDIAN CO. /s/ W. Todd Gray By: /s/ John I. Von Lehman - ---------------------------------- --------------------------------- Edward J. Heskamp Its: Exec. V.P. - ---------------------------------- --------------------------------- 14 SECOND AMENDMENT TO THE MIDLAND-GUARDIAN CO. SALARIED EMPLOYEES NONQUALIFIED SAVINGS PLAN THIS FIRST AMENDMENT, made and executed this 2nd day of January, 2001 by the Midland-Guardian Co. (the "Company"). W I T N E S S E T H: WHEREAS, the Company maintains a nonqualified deferred compensation plan known as The Midland-Guardian Co. Salaried Employees Nonqualified Savings Plan (the "Plan"); WHEREAS, the Company is now the sponsor of the Plan; WHEREAS, Section 7.1 of the Plan allows the Company to amend the Plan; WHEREAS, pursuant to Section 7.1 of the Plan, the Company desires to amend the Plan in order to clarify the rights of a retired participant of the Plan with respect to receipt of benefits from the Plan. NOW THEREFORE, the Plan is amended as follows: 1. Section 1.6 shall be deleted in its entirety and replaced with the following: "Participant means an employee or retiree of the Company who is a Participant under the Qualified Plan or with respect to whom contributions may be made or have been made under the Plan." 2. In all other respects the Plan shall remain unchanged. IN WITNESS WHEREOF and as evidence of the adoption of this SECOND AMENDMENT, the Company has caused the same to be executed as of the day and year first above written. WITNESSES: THE MIDLAND-GUARDIAN CO. /s/ Hans Zimmer By: /s/ Edward J. Heskamp - ---------------------------------- ------------------------------------ /s/ Maria D. Bevington Its: Assistant Treasurer - ---------------------------------- ------------------------------------ EX-10.4 6 l89900aex10-4.txt EXHIBIT 10.4 1 Exhibit 10.4 THE MIDLAND-GUARDIAN CO. NONQUALIFIED SELF-DIRECTED RETIREMENT PLAN The Midland-Guardian Co. Nonqualified Self-Directed Retirement Plan (the "Plan") is adopted effective April 1, 2000. The Plan is established and maintained by The Midland-Guardian Co. (the "Company") for the purpose of permitting certain of its salaried employees who participate in The Midland-Guardian Co. Self-Directed Retirement Plan to receive Company contributions in excess of the limitations on contributions imposed by Sections 401(a)(17), and 415 of the Internal Revenue Code of 1986 as amended. ARTICLE I DEFINITIONS Wherever used herein, the following terms shall have the meaning hereinafter set forth: 1.1 "Accounting Date" means any December 31. 1.2 "Beneficiary" means the person(s) designated by the Participant to receive the benefits due the Participant under the Plan. 1.3 "Board" means the Board of Directors of the Company. 1.4 "Code" means the Internal Revenue Code of 1986 as amended from time to time and any regulations relating thereto. 1.5 "Company" means The Midland-Guardian Co. and any affiliated company that is a member of a controlled group of corporations as defined in Section 1563 of the Code, or, to the extent provided in Section 8.8 below, any successor corporation or other entity resulting from a merger or consolidation into or with the Company or a transfer or sale of substantially all of the assets of the Company. 1.6 "Compensation" means a Participant's Compensation as defined in the Qualified Plan. 1.7 "Participant" means an employee of the Company who is a participant under the Qualified Plan or with respect to whom contributions may be made under the Plan. 1.8 "Plan" means The Midland-Guardian Co. Nonqualified Self-Directed Retirement Plan. 1.9 "Plan Year" means the calendar year or any other twelve (12) consecutive month period that may be designated by the Company as its fiscal year and the fiscal year of the Qualified Plan. 1.10 "Qualified Plan Company Contribution" shall mean the amount contributed by the Company for the benefit of a Participant under the Qualified Plan. 2 1.11 "Qualified Plan" means The Midland-Guardian Co. Self-Directed Retirement Plan effective April 1, 2000. 1.12 "Supplemental Account" means the account maintained by the Company under the Plan for a Participant that is credited with amounts contributed under Section 3.1 and investment earnings or losses under Section 4.1 of the Plan. 1.13 "Supplemental Company Contribution" shall mean the amount contributed by the Company to the Plan for the benefit of a Participant. 1.14 "Plan Administrator" shall mean the Company. The Company may appoint any person, including, but not limited to, Employees of the Employer, to perform the duties of the Administrator. Any person so appointed shall signify his acceptance by filing written acceptance with the Company. Upon the resignation or removal of any individual performing the duties of the Administrator, the Company may designate a successor. ARTICLE II ELIGIBILITY 2.1 A Participant who is eligible to receive the benefit of Qualified Plan Company Contributions the total amount of which is reduced by reason of the application of the limitations on contributions imposed by Sections 401(a)(17), or 415 of the Code as in effect on any date for allocation of the amount of the Qualified Plan Company Contribution or as in effect at any time thereafter to the Qualified Plan. ARTICLE III SUPPLEMENTAL CONTRIBUTIONS 3.1 The Supplemental Company Contribution shall be an amount equal to such percentage of the Participant's Compensation contributed to the Qualified Plan in excess of the limits imposed by Section 401(a)(17) or 415 of the Code, or any successor provision, which shall be credited to the Supplemental Account maintained under the Plan in the name of such Participant as soon as administratively practicable after the Qualified Plan Company Contribution is made. ARTICLE IV INVESTMENT OF SUPPLEMENTAL CONTRIBUTION 4.1 Amounts credited hereunder to the Supplemental Account of a Participant shall be invested pursuant to the Participant's direction. The Participant's Supplemental Account shall be credited with the earnings or losses attributable to the Participant's elections. The foregoing notwithstanding, unless the Company funds a Participant's Supplemental Account pursuant to the Rabbi Trust created under Section 8.1, the Company may direct the investment of the amounts credited to the Supplemental Account of a Participant. Such 2 3 investments may include securities, mutual funds, savings accounts, money market instruments, time deposits, life insurance and other forms of investment deemed suitable by the Company from time to time. In the event the Company chooses to exercise its right to direct such investements, a Participant's Supplemental Account shall be credited on a "phantom" basis, with the earnings or losses attributable to the Participant's investment elections. ARTICLE V DISTRIBUTIONS 5.1 FORM OF BENEFIT ON TERMINATION OF EMPLOYMENT, DEATH OR DISABILITY. All amounts credited to a Participant's Supplemental Account including gains and losses credited pursuant to Article IV hereof shall be paid in the same form under which the Qualified Plan Benefit is payable to the Participant or Beneficiary after the Participant's Termination of Employment, Death or Disability. 5.2 COMMENCEMENT OF BENEFIT ON TERMINATION OF EMPLOYMENT, DEATH OR DISABILITY. Payment of all amounts credited to a Participant's Supplemental Account shall commence on the same date as payment of the Qualified Plan Benefit to the Participant commences after the Participant's Termination of Employment, Death or Disability. Any election under the Qualified Plan made by the Participant with respect to the commencement of payment of his Qualified Plan Benefit shall also be applicable with respect to the payment of his Supplemental Account. Notwithstanding the foregoing (i) if a Participant's Supplemental Account is credited with contributions by virtue of a transfer from the Company's Supplemental Pension Plan, a Participant may elect to receive a distribution of the amount transferred upon no less than one (1) year notice to the Company, and (ii) a Participant may elect to receive all amounts credited to his Supplemental Account on different terms than the elections provided for the Qualified Plan provided that the date elected by the Participant for the receipt of funds must occur no less than two (2) years from the date the Participant election is amended. If a Participant does not provide notice to the Company of a request for a distribution of the amount credited to the Supplemental Account Plan prior to commencing distributions from the Qualified Plan, payments of all balances in the Participant's Supplemental Account shall commence in accordance with the Participant's elections for distribution from the Qualified Plan. 5.3 APPROVAL OF COMPANY. Notwithstanding the provisions of Sections 5.1 and 5.2 above, an election made by the Participant under the Qualified Plan with respect to the form of payment of his Qualified Plan Benefit or the date of commencement of payment thereof, shall not be effective with respect to the form of payment or date of commencement of payment of his Supplemental Account unless such election is expressly approved by the Company. If the Company shall not approve such election in writing, then the form of payment or date of commencement of payment of the Supplemental Account shall be selected by the Company in its sole discretion. 3 4 5.4 DISTRIBUTIONS PRIOR TO TERMINATION OF EMPLOYMENT, DEATH, OR DISABILITY. Notwithstanding the provisions of Section 5.1 - 5.3, a Participant may elect to receive a distribution of the balance of this Supplemental Account upon the occurrence of the Participant's severe financial hardship created by an unforeseeable emergency as defined in Code Section 457 and Reg. ss.1.457-2(h)(4) and (5). Distributions pursuant to this paragraph shall be made as soon as administratively practicable following the Participant's election. 5.5 DISTRIBUTIONS ON COMPANY REQUEST The provisions of Section 5.1-5.4 not-withstanding, the Company, upon recommendation of its Board of Directors or a Committee duly designated by the Board of Directors, may at any time upon the Participant's consent direct the payment in a lump sum of all sums credited to a Participant's Supplemental Account. The Participant shall have no right to request a distribution pursuant to this Section 5.5, and this section shall not be construed to enlarge the Participant's right to receive distributions other than as provided in Sections 5.1-5.4 above. ARTICLE VI ADMINISTRATION OF THE PLAN 6.1 ADMINISTRATION BY THE PLAN ADMINISTRATOR. The PLAN ADMINISTRATOR shall be responsible for the general operation and administration of the Plan and for carrying out the provisions thereof. 6.2 GENERAL POWERS OF ADMINISTRATION. All provisions set forth in the Qualified Plan with respect to the administrative powers and duties of the PLAN ADMINISTRATOR, expenses of administration and procedures for filing claim shall also be applicable with respect to the Plan. The PLAN ADMINISTRATOR shall be entitled to rely conclusively upon all tables, valuations, certificates, opinions and reports furnished by any actuary, accountant, controller, counsel or other person employed or engaged by the PLAN ADMINISTRATOR with respect to the Plan. ARTICLE VII AMENDMENT OR TERMINATION 7.1 AMENDMENT OR TERMINATION. The Company intends the Plan to be permanent but reserves the right to amend or terminate the Plan when, in the sole opinion of the Company, such amendment or termination is advisable. Any such amendment or termination shall be made pursuant to a resolution of the Board and shall be effective as of the date of such resolution. 7.2 EFFECT OF AMENDMENT OR TERMINATION. No amendment or termination of the plan shall directly or indirectly reduce the balance of any subaccount held hereunder as of the effective date of such amendment or termination. The Company reserves the right to change the manner in which the funds credited to a Participant's Supplemental Account are invested from time to time, including the investment of such funds in securities, mutual funds, savings accounts, money market instruments, time deposits or life insurance as the Company may deem appropriate from time to time, provided 4 5 that the Participant's Supplemental Account shall, in such event, be credited with investment earnings or losses, on a "phantom" basis as described in Section 4.1. Upon termination of the Plan, a Participant shall be 100% vested in the balance in his subaccount and distribution of amounts in any subaccount shall be made to the Participant or his beneficiary in the manner and at the time described in Section 5.1 of the Plan. No additional credits of Supplemental Company Contributions shall be made to the subaccounts of a Participant after termination of the Plan but the Company shall continue to credit gains and losses to the subaccounts of the Participant pursuant to Section 4.1 until the balance of such subaccounts has been fully distributed to the Participant or his beneficiary. ARTICLE VIII GENERAL PROVISIONS 8.1 PARTICIPANTS RIGHT UNSECURED. The Plan, at all times, shall be entirely funded through a Rabbi Trust Agreement as prescribed in Rev. Proc. 92-64 adopted simultaneously with the Plan and no provisions shall be made with respect to segregating assets of the Company for payment of any distributions hereunder. The right of a Participant or his designated beneficiary to receive a distribution hereunder shall be an unsecured claim against the general assets of the Company and The Midland Company and neither the Participant nor a designated beneficiary shall have any rights in or against any specific assets of the Company or The Midland Company. All amounts credited to the Participant's Supplemental Account shall constitute general assets of the Company and The Midland Company and may be disposed of by the Company at such time and for such purposes as it may deem appropriate. 8.2 GENERAL CONTRIBUTION. Except as otherwise expressly provided herein, all terms and conditions of the Qualified Plan applicable to Qualified Plan Contributions will also be applicable to Supplemental Company Contributions to be made hereunder. Any Qualified Plan Company Contributions or any other contributions to be made under the Qualified Plan shall be made solely in accordance with the terms and conditions of the Qualified Plan and nothing in this Plan shall operate or be construed in any way to modify, amend or affect the terms and conditions of the Qualified Plan. 8.3 NO GUARANTEE OF BENEFITS. Nothing contained in the Plan shall constitute a guarantee by the Company or any other person or entity that the assets of the Company will be sufficient to pay any benefit hereunder. 8.4 NO ENLARGEMENT OF EMPLOYEE RIGHTS. No Participant shall have any right to receive a distribution of contributions made under the Plan except in accordance with the terms of the Plan. Establishment of the Plan shall not be construed to give any participant the right to be retained in the employment of the Company. 8.5 SPENDTHRIFT PROVISION. No interest of any person or entity in or right to receive a distribution under the Plan shall be subject to any manner to sale, transfer assignment, pledge, attachment, garnishment or other alienation or income rents of any kind. Normally such interest or right to receive a distribution be taken either voluntarily or involuntarily for the satisfaction of the 5 6 debts of or other obligations or claims against such person or entity including claims for alimony, support, separate maintenance and claims in bankruptcy proceedings. 8.6 APPLICABLE LAW. The Plan shall be construed and administered under the laws of the State of Ohio. Any legal proceeding initiated by a Participant to determine the benefits payable under the Plan or any other matter arising under the Plan shall be initiated solely in Clermont County, Ohio. Any proceedings initiated in other counties in the State of Ohio or in other jurisdictions shall, at the election of the Company, be transferred to the Common Pleas Courts of Clermont County, Ohio. 8.7 INCAPACITY OF RECIPIENT. If any person entitled to a distribution under the Plan is deemed by the Company to be incapable of personally receiving and giving a valid receipt for such payment then, unless and until claim therefore shall have been made by duly appointed guardian or other legal representative of such person, the Company may provide for such payment or any part thereof to be made to any other person or institution then contributing toward or providing for the care and maintenance of such person. Any such payment shall be a payment for the account of such person and be a complete discharge of any liability of the Company and the Plan therefore. 8.8 SUCCESSORS. The Plan shall not be automatically terminated by a transfer or sale of assets of the Company or by the merger or consolidation of the Company into or with any other corporation or other entity, but the Plan shall be continued after such sale, merger or consolidation only if and to the extent that the transferee, purchaser or successor entity agrees to continue the Plan. In the event that the Plan is not continued by the transferee, purchaser or successor entity, then the Plan shall terminate subject to the provisions of Section 7.2. 8.9 UNCLAIMED BENEFIT. Each Participant shall keep the Company informed of his current address and the current address of his designated beneficiary. The Company shall not be obligated to search for the whereabouts of any person. If the location of a Participant is not made known to the Company within three (3) years after the date on which payment of the Participant's subaccounts may first be made, payment may be made as though the Participant had died at the end of the three (3) year period. If within one additional year after such three (3) year period has elapsed or within three (3) years after the actual death of a Participant the Company is unable to locate any designated beneficiary of the Participant, then the Company shall have no further obligation to pay any benefit hereunder to such Participant or designated beneficiary and such benefit shall be irrevocably forfeited. 8.10 LIMITATION ON LIABILITY. Notwithstanding any of the preceding provisions of the Plan, neither the Company nor any individual acting as employee or agent of the Company shall be liable to any Participant, former participant or other person for any claim, loss, liability or expense incurred in connection with the Plan. ARTICLE IX CHANGE OF CONTROL PROVISIONS 9.1 IMPACT OF EVENT. In the event of a "Change of Control," as defined in Section 9.2 (i), the Supplemental Account and all earnings determined under the Plan shall include all benefits based 6 7 on payments made to Participant as a result of the Change of Control ("Change of Control Compensation") or potential benefits and any benefits which a Participant is no longer eligible to receive under the Qualified Plan as a result of the Change of Control; (ii) Company shall, as soon as possible, but in no event longer than five (5) business days following the Change of Control, or sooner if directed by the Board, make an irrevocable contribution to the Rabbi Trust, as provided in Section 8.1, in an amount that is necessary to fully fund the benefits or potential benefits (including benefits provided in (i) above) for each Plan Participant or beneficiary pursuant to the terms of the Plan as of the date on which the Change of Control occurred; (iii) the Supplemental Account shall be paid to the Participant within thirty (30) days of the effective date of the Change of Control or subsequent triggering event; and (iv) the Company shall be responsible for determining the identity of the person entitled to receive benefits under the Plan and the amount of such benefits and for completing the payment of benefits to any person entitled to receive benefits under the Plan based on the records of the Company prior to the Change of Control. 9.2 DEFINITIONS OF "CHANGE OF CONTROL". a. "Change of Control" shall mean the first to occur of the following events: i. The "acquisition" after the date hereof by any "Person" (as such term is defined below) of "Beneficial Ownership" (within the meaning of Rule 13d-3 promulgated under the Securities Exchange Act of 1934, as amended (the "1934 Act"), of any securities of the Company (the "Voting Securities") which, when added to the Voting Securities then "Beneficially Owned" by such Person, would result in such Person "Beneficially Owning" 33-1/3% or more of the combined voting power of the Company's then outstanding Voting Securities; provided, however, that for purposes of this paragraph "a," a Person shall not be deemed to have made an acquisition of Voting Securities if such Person: (A) acquires Voting Securities as a result of a stock split, stock dividend or other corporate restructuring in which all stockholders of the class of such Voting Securities are treated on a pro rata basis; (B) is generally engaged in the business of underwriting securities and acquires the Voting Securities (the "Underwriting Securities") pursuant to the terms of an underwriting agreement (an "Underwriting Agreement") to which the Company and such underwriter are parties and which Underwriting Agreement is in accordance with Rule 10b-7 promulgated under the 1934 Act or to cover over allotments created in connection with a distribution of Voting Securities pursuant to an Underwriting Agreement; (C) acquires the Voting Securities directly from the Company; (D) as a result of a redemption or purchase of Voting Securities by the Company, becomes the Beneficial Owner of more than the permitted percentage of Voting Securities by the Company pursuant to a reduction of the number of Voting Securities outstanding resulting in an increase in the proportional number of shares Beneficially Owned by such Person; (E) is the Company or any corporation or other Person of which a majority of its voting power or its equity securities or equity interest is owned directly or indirectly by the Company (a "Subsidiary") or (F) acquires Voting Securities in connection with a "Non-Control Transaction" (as defined below). ii. The individuals who, as of January 1, 2000, are members of the Board of Directors of the Company (the "Incumbent Board"), cease for any reason to constitute at least two-thirds of the Board of Directors of the Company; PROVIDED, HOWEVER, that if either the election 7 8 of any new director or the nomination for election of any new director by the Company's stockholders was approved by a vote of at least two-thirds of the Incumbent Board, such new director shall be considered as a member of the Incumbent Board; PROVIDED FURTHER, HOWEVER, that no individual shall be considered a member of the Incumbent Board if such individual initially assumed office as a result of either an actual or threatened election contest or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board of Directors (a "Proxy Contest") including by reason of any agreement intended to avoid or settle any election contest or Proxy Contest. iii. Approval by shareholders of the Company of: (1) A merger, consolidation or reorganization involving the Company (a "Business Combination") other than a Non-Control Transaction; or (2) An agreement for the sale or other disposition of all or substantially all of the assets of the Company to any Person (other than a transfer to a Subsidiary). Notwithstanding the foregoing, a Change of Control shall not be deemed to occur solely because 33-1/3% or more of the then outstanding Voting Securities is Beneficially Owned by (x) a trustee or other fiduciary holding securities under one or more employee benefit plans or arrangements (or any trust forming a part thereof) maintained by the Company or any Subsidiary or (y) any corporation which, immediately prior to its acquisition of such interest, is owned directly or indirectly by the shareholders of the Company in the same proportion as their ownership of stock in the Company immediately prior to such acquisition. b. "Non-Control Transaction" shall mean a Business Combination in which: i. The shareholders of the Company, immediately before the Business Combination, own, directly or indirectly immediately following the Business Combination, at least 67% of the combined voting power for the election of directors generally of the outstanding securities of the corporation resulting from the Business Combination (the "Surviving Corporation") in substantially the same proportion as their ownership of the Voting Securities immediately before the Business Combination; ii. The individuals who were members of the Board of Directors of the Company immediately prior to the execution of the agreement providing for the Business Combination constitute at least two-thirds of the members of the Board of Directors of the Surviving Corporation; or iii. No Person (other than the Company or any Subsidiary, a trustee or other fiduciary holding securities under one or more employee benefit plans or arrangements or any trust forming a part thereof maintained by the Company, the Surviving Corporation, or any Subsidiary) who, immediately prior to the Business Combination, did not have Beneficial Ownership of 33-1/3% or more of the then outstanding Voting Securities, upon consummation of the Business combination, 8 9 shall be the Beneficial Owner of 33-1/3% or more of the combined voting power of the election of directors generally of the Surviving Corporation's then outstanding securities. IN WITNESS WHEREOF, the Company has adopted and executed the Plan as of April 1, 2000. MIDLAND-GUARDIAN CO. By: /s/ John I. Von Lehman ------------------------------- By: /s/ W. Todd Gray ------------------------------- THE MIDLAND COMPANY By: /s/ John I. Von Lehman ------------------------------- By: /s/ W. Todd Gray ------------------------------- By: /s/ Edward J. Heskamp ------------------------------ 9 10 FIRST AMENDMENT TO THE MIDLAND-GUARDIAN CO. NONQUALIFIED SELF-DIRECTED RETIREMENT PLAN ------------------------------------------ THIS FIRST AMENDMENT, made and executed this 2nd day of January, 2001 by the Midland-Guardian Co. (the "Company"). W I T N E S S E T H: WHEREAS, the Company maintains a nonqualified deferred compensation plan known as The Midland-Guardian Co. Salaried Employees Nonqualified Self-Directed Plan (the "Plan"); WHEREAS, the Company is now the sponsor of the Plan; WHEREAS, Section 7.1 of the Plan allows the Company to amend the Plan; WHEREAS, pursuant to Section 7.1 of the Plan, the Company desires to amend the Plan in order to clarify the rights of a retired participant of the Plan with respect to receipt of benefits from the Plan. NOW THEREFORE, the Plan is amended as follows: 1. Section 1.7 shall be deleted in its entirety and replaced with the following: "Participant means an employee or retiree of the Company who is a Participant under the Qualified Plan or with respect to whom contributions may be made or have been made under the Plan." 2. In all other respects the Plan shall remain unchanged. IN WITNESS WHEREOF and as evidence of the adoption of this FIRST AMENDMENT, the Company has caused the same to be executed as of the day and year first above written. WITNESSES: THE MIDLAND-GUARDIAN CO. /s/ Maria D. Bevington By: /s/ Edward J. Heskamp - ------------------------------ --------------------------------- s/ Hans Zimmer Its: Assistant Treasurer - ------------------------------ ------------------------------- EX-10.5 7 l89900aex10-5.txt EXHIBIT 10.5 1 Exhibit 10.5 THE MIDLAND COMPANY STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS AS AMENDED (January 2000) 1. Pulpos. The purpose of The Midland Company Stock Option Plan for Non-Employee Directors (the "Plan") is to advance the interests of The Midland Company (the "Company") by providing directors who are not full time employees of the Company or its Subsidiaries with an opportunity to obtain a proprietary interest in the Company as an additional incentive to promote its success. 2. Participants. Each director of the Company who is not a full time employee of the Company or its Subsidiaries will be a Participant in the Plan. 3. Grant of Options. On the last business day of January 2000, 2001 and 2002, each Participant shall receive an Option to purchase 2,000 shares of common stock of the Company; provided, however, that the Board of Directors may increase or decrease the number of Options to be granted pursuant to this Section. 4. Stock Subject To Award. Subject to the provisions of paragraph , the total number of shares which may be awarded under the Plan is 250,000 Common Shares of the Company without par value which shall be authorized and unissued shares, or reacquired common shares held as treasury stock. Any shares related to awards which terminate without the issuance of such shares shall be available again for award under the Plan. The shares covered by this Plan are in addition to shares subject to outstanding options previously granted to Participants. 5. Changes In Capital Structure. In the event that the outstanding Common Shares of the Company are hereafter increased or decreased or changed into or exchanged for a different number of kind of shares or other securities of the Company or of another corporation, by reason of reorganization, merger, consolidation, recapitalization, reclassification, stock split-up, combination of shares, or dividend payable in corporate shares, appropriate adjustment shall be made automatically in the number and kind of shares for the purchase of which options may be granted under the Plan. In addition, appropriate adjustments shall be made automatically in the number and kind of shares as to which outstanding options, or portions thereof then unexercised, shall be exercisable, to the end that the Optionee's proportionate interest shall be maintained as before the occurrence of such event; such adjustment in outstanding options shall be made without change in the total price applicable to the unexercised portion of the option and with a corresponding adjustment in the option price per share. 6. Terms and Conditions Of Stock Options. Stock Options shall be evidenced by Stock Option Agreements in such form not inconsistent with this Plan as the Board of Directors shall from time to time determine, provided that the substance of the following be included therein. (a) Option Price. The Stock Option exercise price shall be 100% of the Fair Market Value of the Company's common shares on the date the Stock Option is granted. 2 - 2 - (b) Payment Terms. Shares purchased by exercise of a Stock Option shall be paid for in full at the time of purchase, unless the Committee authorizes payment by delivery of other common shares of the Company which have a Fair Market Value at delivery equal to the purchase price of the shares or by appropriate combination of other common shares and cash. (c) Option Tenn. A Stock Option shall expire ten (10) years from the date the Stock Option is granted. (d) Exercise. During the time a Stock Option is outstanding, it may be exercised with respect to any or all of the shares covered thereby. (e) Nonassignability Of Stock Option Rights. A Stock Option shall not be assignable or transferable by the Optionee except by will or by the laws of descent and distribution. The designation of a beneficiary by a Participant does not constitute a transfer. During the life of an Optionee, the Stock Option shall be exercisable only by him. (f) Effect Of Death, Disability or Retirement. If an Optionee ceases to be a director of the Company for any reason whatsoever, any Stock Option or unexercised portion thereof granted to the Optionee, which is otherwise exercisable pursuant to the terms of the Plan, shall terminate three years from the Optionee's last day as a director, or the date of expiration of the option period, whichever occurs earlier. (g) Restriction. A Participant may not sell shares acquired through options awarded under this Plan until at least six (6) months after award of such option. 7. Administration Of The Plan. The Board of Directors of the Company shall be responsible for the administration of the Plan. 8. Effective Date And Termination Of Plan. This plan, which has been adopted by the Board of Directors on March 5, 1992, shall be subject to approval by the shareholders of the Company at the next annual meeting of such shareholders or at any other meeting of such shareholders held before April 9, 1992. The Board of Directors may terminate this Plan at any time. Termination of the Plan will not affect rights and obligations theretofore granted and then in effect. If not terminated earlier, this Plan shall terminate on the tenth anniversary of the later of adoption by the Board of Directors and approved by the shareholders and no Stock Options under this Plan shall be awarded thereafter. 9. Amendment Of Plan. The Board of Directors may at any time amend the Plan, provided that without approval of shareholders there shall be, except by operation of the provisions of paragraph above, no increase in the total number of shares COVERED BY THE PLAN; no change in the class of directors eligible to receive options granted under the Plan; no reduction in the option 3 -3- price; no increase in the frequency or number of options awarded to Participants; no extension of the latest date upon which options may be exercised; and no material increase in the benefits accruing to Participants; and provided further that no amendment may affect any then outstanding options or any unexercised portions thereof Nevertheless, no Plan provisions pertaining to the amount, price or timing of awards or the category of persons eligible to receive awards, may be amended more than once every six (6) months, other than to comport with changes in the Internal Revenue Code, the Employment Retirement Income Security Act or the rules thereunder. 10. Use Of Proceeds. The proceeds from the sale of shares pursuant to options granted under the Plan shall constitute general funds of the Company. 11. Definitions. (a) Fair Market Value. The Fair Market Value of a common share shall be the average of the high and low price for which the Company's common shares have been sold on the American Stock Exchange on the date Fair Market Value is to be determined. If there were no trades on such day, the Fair Market Value shall be the average of the high and low price on the next preceding day on which such trades were made. (b) Subsidiga. A Subsidiary of the Company is a subsidiary corporation as defined in Section 425 of the Internal Revenue Code of 1954. EX-15 8 l89900aex15.txt EXHIBIT 15 1 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 condensed interim financial information of The Midland Company and subsidiaries for the periods ended June 30, 2001 and 2000, as indicated in our report dated July 19, 2001; 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 June 30, 2001, is incorporated by reference in Registration Statements No. 33-64821 on Form S-3 and Nos. 33-48511 and 333-40560 on Forms 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 July 19, 2001 -----END PRIVACY-ENHANCED MESSAGE-----