Directors
of The Midland Company (“Midland” or the “Company”) and Munich-American Holding
Corporation (“Munich-American”) have been named as defendants in a purported
class action on behalf of the public shareholders of the Company challenging the
proposed merger of the Company into a wholly owned subsidiary of Munich-American
pursuant to the Agreement and Plan of Merger dated October 16, 2007 among
Munich-American, Monument Corporation and the Company. On or about
December 7, 2007, plaintiff filed the First Amended Class Action Complaint,
which is pending in the Court of Common Pleas, Clermont County, Ohio, General
Division captioned
Superior
Partners v. Bushman et al
., Case No. 2007CVH2224. Among other
things, plaintiff alleges that the director defendants have breached their
fiduciary duties to the Company’s shareholders in pursuing the proposed merger,
including by acting to cause or facilitate the proposed transaction through a
materially deficient proxy statement, and that the filing of such proxy
statement caused the SEC to publicize a proxy statement in connection with the
proposed transaction which failed to disclose certain information which a
reasonable shareholder would find material in determining whether to vote for
the proposed merger. Plaintiff also asserts a claim against
Munich-American for aiding and abetting the directors’ alleged breach of
fiduciary duties. Plaintiff seeks, among other things, declaratory
relief in connection with such claim and the proposed transaction and
unspecified damages.
On
February 27, 2008, the director defendants and Munich-American entered into a
memorandum of understanding with plaintiff regarding a settlement in principle
of this action. In connection with the proposed settlement, the
Company agreed to make certain additional disclosures to its shareholders, which
are contained in the proxy statement mailed to shareholders on or about February
25, 2008. Subject to the completion of certain confirmatory discovery
by counsel to plaintiff and certain other conditions, the memorandum of
understanding contemplates that the parties will enter into a stipulation of
settlement. The stipulation of settlement will be subject to
customary conditions, including court approval following notice to the Company’s
shareholders and consummation of the merger. In the event that the
parties enter into a stipulation of settlement, a hearing will be scheduled at
which the court will consider the fairness, reasonableness and adequacy of the
settlement which, if finally approved by the court, will resolve all of the
claims that were or could have been brought in connection with this action being
settled, including all claims relating to the merger, the merger agreement and
any disclosure made in connection therewith. In addition, in
connection with the settlement and as provided in the memorandum of
understanding,
t
he parties
contemplate that that plaintiff's counsel will seek from the court approval of
the payment by Midland of attorneys' fees and expenses, in an agreed
amount, as part of the settlement. There can be no assurance that the
parties will ultimately enter into a stipulation of settlement or that the court
will approve the settlement even if the parties were to enter into such
stipulation. In such event, the proposed settlement, as contemplated
by the memorandum of understanding, may be terminated. The settlement
will not affect the amount of the merger consideration that the Company’s
shareholders are entitled to receive in the merger. The director
defendants and Munich-American vigorously deny all liability with respect to the
facts and claims alleged in this action, and specifically deny that any
modifications made to the proxy statement or any further supplemental disclosure
made pursuant to the memorandum of understanding was required under any
applicable rule, statute, regulation or law. However, to avoid the
risk of delaying or adversely affecting the merger and the related transactions,
to minimize the expense of defending the action, and to provide additional
information to the Company’s shareholders at a time and in a manner that would
not cause any delay of the merger, the Company, its directors and
Munich-American agreed to the settlement described above. The
director defendants and Munich-American further considered it desirable that the
actions be settled to avoid the substantial burden, expense, risk, inconvenience
and distraction of continued litigation and to fully and finally resolve the
settled claims.
