PAGE 1
SCHEDULE 14A -- INFORMATION REQUIRED IN PROXY
STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OR 1934 (AMENDMENT NO. )
Filed by the Registrant / X /
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
/ X / Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
RLI CORP.
------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
----------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/ X / $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14a.
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11
(1) Title of each class of securities to
which transaction applies ____________________________
(2) Aggregate number of securities to
which transaction applies ____________________________
(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (Set forth the
amount on which the filing fee is calculated and state how
determined): ____________________________________________________
(4) Proposed maximum aggregate value of transaction: ________________
(5) Total fee paid: _________________________________________________
/ / Fee paid previously with preliminary materials
/ / Check box of any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid: _________________________________________
(2) Form, Schedule or Registration Statement No.: ___________________
(3) Filing Party: ___________________________________________________
PAGE 2
This page in the printed proxy statement contains a picture of a man in the
process of carving a duck decoy out of wood. The man pictured is Dick Millham
of Carving NOC in West Simsbury, CT, a home-based businessowner who has chosen
RLI's unique In-Home Business Program to insure his livelihood. This picture
is omitted from this electronic filing.
PAGE 3
RLI CORP.
9025 North Lindbergh Drive
Peoria, Illinois 61615
RLI
March 30, 1995
Dear Shareholder:
Please consider this letter your personal invitation to attend the 1995 RLI
Corp. Annual Shareholders Meeting. It will be held at 9025 North Lindbergh
Drive, Peoria, Illinois, 61615, the Company's principal office, on May 11,
1995 at 2:00 P.M.
Matters scheduled for consideration during the meeting include the nomination
of three Directors, the adoption of the Company's 1995 Incentive Stock Option
Plan, and the selection of the Company's independent accounting firm.
Following the custom of past meetings, there will be a report to shareholders
on the progress of the Company during 1994.
Even if you do not plan to attend, it is important that you date, sign and
return the enclosed proxy card in the envelope provided for your convenience.
Your vote is vital no matter how many shares you own. If you do attend the
Annual Meeting and desire to vote in person, you may do so even though you
have previously sent in a proxy.
Thank you for your interest in your Company and confidence in our future.
Sincerely,
/s/Gerald D. Stephens
Gerald D. Stephens, CPCU
President and
Chief Executive Officer
PAGE 4
RLI
RLI CORP.
9025 North Lindbergh Drive
Peoria, Illinois 61615
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
May 11, 1995
To the Shareholders of RLI Corp.:
NOTICE IS HEREBY GIVEN that the Annual Meeting of the Shareholders of RLI
Corp. (the "Company") will be held at 9025 North Lindbergh Drive, Peoria,
Illinois, 61615, on Thursday, May 11, 1995, at 2:00 P.M., Central Daylight
Time, to:
1. Elect three (3) directors for a three-year term expiring in 1998 or until
their successors are elected and qualified;
2. Consider and act upon a proposal to adopt the Company's 1995 Incentive
Stock Option Plan;
3. Consider and act upon a proposal to appoint KPMG Peat Marwick LLP as
independent public accountants of the Company for the current year; and
4. Transact such other business as may properly be brought before the
meeting.
Only holders of Common Stock of the Company, of record at the close of
business on March 13, 1995, are entitled to notice of and to vote at the
Annual Meeting.
By Order of the Board of Directors
Camille J. Hensey
Secretary
Peoria, Illinois
March 30, 1995
IT IS IMPORTANT, REGARDLESS OF THE NUMBER OF SHARES YOU HOLD, THAT YOU
PERSONALLY BE PRESENT OR BE REPRESENTED BY PROXY AT THE ANNUAL MEETING.
ACCORDINGLY, WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING, IT IS
REQUESTED YOU PROMPTLY SIGN AND DATE THE ENCLOSED PROXY AND RETURN IT IN THE
ENVELOPE PROVIDED THAT REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES. IF
YOU ATTEND THE ANNUAL MEETING, YOUR PROXY MAY BE WITHDRAWN UPON REQUEST.
PAGE 5
RLI CORP.
PROXY STATEMENT
FOR ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 11, 1995
GENERAL INFORMATION
This Proxy Statement is furnished to the shareholders of RLI Corp. (the
"Company") in connection with the solicitation by the Board of Directors of
the Company, of proxies to be used at the Annual Meeting of its Shareholders
to be held at 2:00 P.M., Central Daylight Time, on Thursday, May 11, 1995, at
9025 North Lindbergh Drive, Peoria, Illinois, 61615, and at any adjournments
of the Meeting.
PROXY SOLICITATION. The Company will bear the cost of solicitation of
proxies. In addition to the use of the mail, proxies may be solicited
personally or by telephone or telefax, by officers or regular employees of the
Company. No additional compensation will be paid to such persons for their
services. The Company will reimburse banks, brokerage firms, investment
advisors and other custodians, nominees, fiduciaries and service bureaus for
their reasonable out-of-pocket expenses for forwarding soliciting material to
the beneficial owners of the stock and obtaining their proxies or voting
instructions.
VOTING. Each proxy will be voted in accordance with the shareholder's
specifications thereon. If there are no such specifications, it will be voted
in favor of the election of directors, and in accordance with the Board of
Directors' recommendations on other proposals. All proxies delivered pursuant
to this solicitation are revocable at any time at the option of the
shareholder either by giving written notice to the Secretary of the Company or
delivering a proxy bearing a later date or by voting in person at the Annual
Meeting. All shares represented by valid, unrevoked proxies will be voted at
the Annual Meeting.
MAILING. This Proxy Statement and enclosed Proxy are first being mailed
to shareholders entitled to notice of and to vote at the Annual Meeting on or
about March 30, 1995.
SHAREHOLDER PROPOSALS. To be included in the Board of Directors' proxy
statement for the 1996 Annual Meeting of the Shareholders, a shareholder
proposal must be received by the Company on or before November 30, 1995.
Proposals should be directed to the attention of the Secretary at 9025 North
Lindbergh Drive, Peoria, Illinois, 61615.
SHAREHOLDERS ENTITLED TO VOTE. At the close of business on March 13, 1995,
the record date for the determination of shareholders entitled to vote at the
Annual Meeting, the Company had 6,028,892 shares of Common Stock outstanding
and entitled to vote. Common share ownership entitles the holder to one vote
per share upon each matter to be voted at the Annual Meeting.
1
PAGE 6
SHARE OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The only persons known to the Company who beneficially own more than five
percent of the Company's Common Stock as of December 31, 1994, are as follows:
NAME AND ADDRESS AMOUNT AND NATURE OF PERCENT
OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP OF CLASS
----------------------------------- ---------------------- --------
Franklin/Templeton Group of Funds (1) 487,549 8.1%
777 Mariners Island Blvd.
P.O. Box 7777
San Mateo, CA 94403-7777
Quest Advisory Corp. 361,600 6.0%
and Quest Management Company (2)
1414 Avenue of the Americas
New York, NY 10019
RLI Corp. 1,300,218 21.6%
Employee Stock Ownership Plan & Trust ("ESOP") (3)
c/o Bank One
124 S.W. Adams Street
Peoria, IL 61649
Gerald D. Stephens (4) 512,194 8.5%
493 E. High Point Dr.
Peoria, IL 61614
(1) The Company has obtained the information with respect to Franklin/
Templeton Group of Funds from its filing under Section 13G of the
Securities and Exchange Act of 1934, which filing indicates Franklin/
Templeton has sole voting power with respect to 457,000 shares, shared
voting power with respect to 12,499 shares, no voting power with respect
to 18,050 shares and shared dispositive power with respect to 487,549
shares.
(2) The Company has obtained the information with respect to Quest Advisory
Corp. and Quest Management Company from its filing under Section 13G of
the Securities and Exchange Act of 1934, which filing indicates Quest
Advisory Corp. has sole voting and sole dispositive power with respect to
352,300 shares and Quest Management Company has sole voting and sole
dispositive power with respect to 9,300 shares.
(3) Each Employee Stock Ownership Plan participant or beneficiary may direct
the ESOP trustee as to the manner in which the shares allocated to each
under the ESOP are to be voted. The ESOP Administrative Committee,
comprised of disinterested members of the Board of Directors, may direct
the ESOP trustee as to the manner in which unallocated shares are to be
voted. The Committee has sole investment power as to all allocated and
unallocated shares except as to those shares which are the subject of a
participant's diversification election. During 1994, none of the
executive officers was eligible to elect to diversify any shares owned by
the ESOP.
PAGE 7
(4) Includes 160,540 shares allocated to Mr. Stephens under the ESOP; 17,488
shares allocated under the RLI Corp. Key Employee Excess Benefit Plan
(the "Plan") over which Mr. Stephens has no voting or investment power;
22,515 shares held of record by Mr. Stephens' spouse; 4,250 shares held
in custodian accounts for the benefit of Mr. Stephens' grandchildren,
over which he has the sole voting and investment power; and 1,012 shares
in the H.O. Stephens Trust for the benefit of Mr. Stephens' mother, over
which Mr. Stephens, as trustee, has the sole voting and investment power.
Mr. Stephens disclaims any beneficial interest in these shares except for
the ESOP shares detailed in (3) above and the Plan shares.
2
SHARE OWNERSHIP OF MANAGEMENT
The following information is furnished as to the beneficial ownership of
the shares of the Company's Common Stock by each current director, nominees
for director, named executive officers, and directors and executive officers
of the Company as a group as of December 31, 1994:
Name of Individual or Amount and Nature Percent
Number of Persons in Group of Beneficial Ownership (1) of Class
--------------------------- --------------------------- --------
Bernard J. Daenzer (2) 87,881 1.5%
Michael W. Dalton (3)(8) 20,737 *
Richard J. Haayen (9) 1,232 *
William R. Keane (4) (9) 53,864 *
Gerald I. Lenrow (5) (9) 2,899 *
John S. McGuinness (6) 750 *
Jonathan E. Michael (8) 19,524 *
Edwin S. Overman (9) 12,801 *
Gerald D. Stephens (7) (8) 512,194 8.5%
Edward F. Sutkowski (9) 50,379 *
Gregory J. Tiemeier (8) 18,843 *
Robert O. Viets (9) 1,571 *
James E. Zogby (8)(10) 45,621 *
Directors and executive officers 848,517 14.0%
as a group (16 persons) (8)
*Less than 1% of Class.
(1) Unless otherwise noted, each person has sole voting power and sole
investment power with respect to the shares reported.
(2) Includes 26,135 shares held of record by Mr. Daenzer's spouse, and 17,731
shares held in a trust for the benefit of Mr. Daenzer's adult children
and grandchildren of which a bank and Mr. Daenzer's spouse act as
cotrustees, as to which Mr. Daenzer disclaims any beneficial interest.
(3) Includes 150 shares held in a trust for the benefit of Mr. Dalton's
spouse and her siblings in which Mrs. Dalton acts as trustee, as to which
Mr. Dalton disclaims any beneficial interest.
PAGE 8
(4) Includes 21,943 shares held by Mr. Keane's spouse, Evelyn Corral, an
honorary Vice President of the Company, as to which Mr. Keane claims
beneficial interest.
(5) Includes 100 shares held by Mr. Lenrow's spouse in a custodian account
for the benefit of their minor daughter, as to which Mr. Lenrow disclaims
any beneficial interest.
(6) 750 shares are held by Dr. McGuinness' spouse, as to which Dr. McGuinness
disclaims beneficial interest.
(7) Includes 160,540 shares allocated to Mr. Stephens under the ESOP; 17,488
shares allocated under the RLI Corp. Key Employee Excess Benefit Plan
over which Mr. Stephens has no voting or investment power; 22,515 shares
held of record by Mr. Stephens' spouse; 4,250 shares held in custodian
accounts for the benefit of Mr. Stephens' grandchildren, over which Mr.
Stephens has the sole voting and investment power; and, as trustee of
1,012 shares in the H.O. Stephens Trust in which Mr. Stephens' mother is
entitled to the income and principal. Mr. Stephens, as trustee under the
H.O. Stephens Trust, has the sole voting and investment power of the
shares in such Trust. Mr. Stephens disclaims any beneficial interest in
all shares except for those allocated to him under the ESOP and the Plan.
(8) Includes shares allocated to the executive officers under the ESOP with
respect to which such officers have sole voting power and no investment
power, except during the period which any such executive officer is
eligible to elect to diversify a percentage, not to exceed 50%, of such
officer's ESOP benefit. As of December 31, 1994, the following shares
were allocated under the ESOP: Mr. Stephens 160,540 shares; Mr. Dalton
20,587 shares; Mr. Michael 19,524 shares; Mr. Tiemeier 18,470 shares; and
Mr. Zogby 45,251 shares.
(9) Includes shares held by a bank trustee under an irrevocable trust
established by the Company pursuant to the Company's Director Deferred
Compensation Plan for the benefit of the following: Mr. Haayen 1,032
shares; Mr. Keane 27,367 shares; Mr. Lenrow 2,799 shares; Dr. Overman
12,801 shares; Mr. Sutkowski 13,907 shares; and, Mr. Viets 1,071 shares.
Each participating director has no voting or investment power with
respect to such shares.
(10) Mr. Zogby terminated his employment January 31, 1995.
The information with respect to beneficial ownership of Common Shares of
the Company is based on information furnished to the Company by each
individual included in the table.
3
PAGE 9
ELECTION OF DIRECTORS
NOMINEES. At the Annual Meeting, three directors are to be elected, each
to hold office for a three-year term or until a successor is elected and
qualified. Messrs. John S. McGuinness and Gerald D. Stephens are Class II
directors. They were elected by the shareholders in 1992 for three-year terms
expiring in 1995. Mr. Robert O. Viets is also a Class II director. He was
elected by the Board of Directors at its March 11, 1993 meeting for a term
expiring in 1995.
VOTING OF PROXIES. Unless otherwise instructed, it is intended the shares
represented by the enclosed Proxy will be voted for the election of the three
nominees named above. The affirmative vote of a majority of the shares
present in person or represented by Proxy at the Annual Meeting and entitled
to vote is required for the election of directors. Votes will be tabulated by
an Inspector of Election appointed at the Annual Meeting. Abstentions and
broker non-votes have no effect on determinations of majority except to the
extent that they affect the total votes received by any particular candidate.
SUBSTITUTE NOMINEES. The Board of Directors has no reason to believe that
any nominee will be unable to serve if elected. In the event that any nominee
shall become unavailable for election, it is intended that such shares will be
voted for the election of a substitute nominee selected by the persons named
in the enclosed proxy unless the Board should determine to reduce the number
of directors pursuant to the Company's By-Laws.
DIRECTOR AND NOMINEE INFORMATION. The following includes certain
information with respect to the current directors and nominees to the Board of
Directors furnished to the Company by such individuals:
Name Age Director Since Principal Occupation
------------------- --- -------------- ---------------------------
John S. McGuinness 72 1983 President of John S. McGuinness
(to be elected for a Associates in Scotch Plains, NJ,
term of three years consultants in actuarial science
expiring in 1998) and management, since 1964.
Gerald D. Stephens 62 1965 Mr. Stephens founded the Company
(to be elected for in 1965 and has been President
a term of three years and Chief Executive Officer
expiring in 1998). since 1972.
Robert O. Viets(1) 51 1993 President and CEO since 1988 of
(to be elected for CILCORP Inc., a holding company
a term of three years in Peoria, IL, whose principal
expiring in 1998) business subsidiary is Central
Illinois Light Company
("CILCO"). Mr. Viets joined
CILCO in 1973 and held various
managerial and officer positions
until his promotion to President
and CEO.
4
PAGE 10
Certain information concerning the remaining directors, whose terms expire
either in 1996 or 1997, is set forth as follows based upon information
furnished to the Company by such individuals:
Name Age Director Since Principal Occupation
------------------- --- -------------- ---------------------------
Bernard J. Daenzer 79 1972 Owner of Daenzer Associates,
(term expiring in 1997) Key Largo, FL, an insurance
consulting services firm, since
1980. Formerly President and
Chairman of Wohlreich & Anderson
Insurance Companies and the
Howden Swan Insurance Agencies
until his retirement in 1980.
Richard J. Haayen(2) 70 1993 Chairman and CEO of Allstate
(term expiring in 1997) Insurance Company in Northbrook,
IL, until his retirement in
1989. Currently Executive-In-
Residence at Southern Methodist
University in Dallas, TX.
William R. Keane 78 1966 Former Vice President, Contacts,
(term expiring in 1996) Inc. (contact lens laboratory)
in Chicago, IL, until retirement
in 1983.
Gerald I. Lenrow 67 1993 Consultant since 1990 and former
(term expiring in 1996) partner in the international
accounting firm of Coopers &
Lybrand.
Edwin S. Overman 72 1987 President Emeritus of the
(term expiring in 1996) Insurance Institute of America,
a national educational
organization in Malvern, PA,
since his retirement as
President of the Institute in
1987.
5
PAGE 11
Name Age Director Since Principal Occupation
------------------- --- -------------- ---------------------------
Edward F. Sutkowski(3) 56 1975 President of the law firm of
(term expiring in 1997) Sutkowski & Washkuhn Ltd. in
Peoria, IL, since 1965.
(1) Mr. Viets is a director of CILCORP Inc. in Peoria, Illinois, whose
securities are registered pursuant to Section 12 or subject to the
requirements of Section 15(d) of the Securities and Exchange Act of 1934.
(2) Mr. Haayen is a director of Paragon Group, Inc. in Dallas, Texas, whose
securities are registered pursuant to Section 12 or subject to the
requirements of Section 15(d) of the Securities and Exchange Act of 1934.
(3) Mr. Sutkowski is associated with the law firm of Sutkowski & Washkuhn
Ltd., which has provided legal services to the Company prior to and
during 1994. It is expected that the Company's relationship with
Sutkowski & Washkuhn Ltd. will continue in the future.
ADOPTION OF THE 1995 INCENTIVE STOCK OPTION PLAN
The Board has adopted and recommends that the shareholders adopt the 1995
Incentive Stock Option Plan. The ISO Plan is designed to enable the Company
to remain competitive in the recruitment, motivation and retention of officers
of both the Company and any other corporation at least 50% of the shares of
which are owned by the Company. The Board limited the number of shares
available for options to 1,000,000 shares and established an ISO Committee
comprised of outside directors Messrs. Haayen, McGuinness, Viets, Daenzer,
Keane and Overman. If the shareholders adopt the ISO Plan, the Committee
shall administer the Plan, identify optionees, and determine the number of
shares to be granted. The ISO Plan is attached to this Proxy Statement as
Exhibit A.
SUMMARY. In general, an officer may be granted an option to purchase
shares at 100% of the grant date share value (110% if the optionee and
affiliates own 10% or more of the shares), payable in cash. Options may be
granted only during the ten year period beginning on the date the shareholders
adopt the ISO Plan. An optionee may not transfer an option, other than by
will, and must exercise an option within the first to occur of ten years (five
years if the optionee and affiliates own 10% or more of the shares) from the
grant date, or three months after the optionee ceases to be an employee. The
grant date value of the shares subject to each installment exercisable for the
first time during any calendar year may not exceed $100,000. An optionee may
not transfer any share purchased pursuant to an option, other than by will or
other excepted transfer, within the later of the two year period beginning on
the grant date or the one year period beginning on the date the share was
transferred to the optionee.
PAGE 12
FEDERAL TAX CONSEQUENCES. Counsel has advised that, under the present
Federal tax laws and regulations, an optionee has no taxable income when an
option is granted. Upon the exercise of an option, the optionee has no
taxable income if the optionee has been an employee of the Company or a
related corporation at all times during the period beginning on the grant date
and ending three months (one year in the case of a disabled optionee) before
the exercise date; however, the excess of the share value at the exercise date
over the share exercise price is subject to the alternative minimum tax. If
the optionee makes a disqualifying disposition of the shares, the optionee
will recognize taxable income equal to the excess of the share value at the
exercise date (or if less, the amount realized) over the option price. In
general, a "disqualifying disposition" includes a sale, exchange, gift or
other transfer within the later of one year of the exercise date or two years
of the grant date.
In general, if the optionee satisfies applicable conditions, the optionee
will realize long term capital gain, or loss equal to the difference between
the sale price and the exercise price. Under such circumstances, the Company
will not be entitled to a tax deduction either at grant date or the exercise
date.
AUDIT COMMITTEE
The Company's Audit Committee, comprised of outside directors Messrs.
Haayen, Keane, Lenrow, McGuinness and Viets, met two times in 1994 to consider
an outside audit firm and to discuss the planning of the Company's annual
outside audit and its results. The Audit Committee also monitored the
Company's management of its exposures to risk of financial loss, oversaw the
accounting affairs of the Company, assessed the auditors' performance,
reviewed the adequacy of the Company's internal controls, and the extent and
scope of audit coverage, monitored selected financial reports, and made audit
and auditor engagement recommendations to the Board of Directors.
6
EXECUTIVE RESOURCES COMMITTEE
The Company's Executive Resources Committee, comprised of outside
directors Messrs. Daenzer, Haayen, Lenrow, McGuinness, Overman and Sutkowski,
met two times in 1994 to review and recommend the compensation of the
executive officers and other officers of the Company. The Committee also
evaluated executive performance, executive back-up plans, examined the officer
development program, and was responsible for searching, enlisting and
maintaining a file of prospective new Board members and potential executive
officers.
NOMINATING COMMITTEE
The Company does not have a standing Nominating Committee.
PAGE 13
BOARD MEETINGS AND COMPENSATION
MEETINGS. During the year 1994, five meetings of the Board of Directors
were held. No director attended fewer than 75% of the aggregate number of
meetings of the Board and Board Committees on which he served.
DIRECTOR COMPENSATION. All Directors of the Company (other than officers
of the Company) are compensated at the rate of $11,000 per year, entitled to a
Company performance bonus, paid $925 for each Board meeting attended, $925 for
each Committee of the Board attended, $925 for each Committee of the Board
chaired, reimbursed for actual travel and related expenses incurred, and
provided a travel accident policy funded by the Company. The Company
performance bonus is equal to $1,250 for each percent, or fraction thereof, of
the excess of the Company's return on the Company's beginning Shareholders'
Equity over the average industry return, not to exceed $12,500.
DIRECTOR DEFERRED COMPENSATION. Prior to the beginning of each fiscal
year, an outside director may elect to defer the compensation otherwise
payable to him during the succeeding fiscal year pursuant to the RLI Corp.
Director Deferred Compensation Plan. Under the Plan, the Company must
transfer to a bank trustee under an irrevocable trust established by the
Company, such number of shares as are equal to the compensation deferred at
the close of the referent fiscal year. When the amount of the Company
performance bonus is determined, the Company must likewise transfer such
number of shares as are equal to the performance bonus deferred. In general,
Plan benefits are distributable beginning when the director's status
terminates. Effective June 18, 1993, the Plan superseded the Company's prior
unfunded non-qualified deferred compensation plan for the benefit of the
directors.
EXECUTIVE RESOURCES COMMITTEE REPORT
The following report by the Executive Resources Committee is required by
the rules of the Securities and Exchange Commission to be included in this
Proxy Statement and shall not be considered incorporated by reference in other
filings by the Company with the Securities and Exchange Commission.
GENERAL. The Executive Resources Committee determines the base and
incentive compensation of the executive officers. The incentive compensation
is designed to attract, retain and motivate high quality executives and reward
the executive officers for Company profitability and the enhancement of
shareholder values. It is influenced heavily by the Company's profitability.
The Committee is of the opinion that the total compensation payable is
comparable to that provided by the Company's competitors.
An executive officer's base compensation is computed by reference to
industry compensation studies; it relates to both annual and long-term
performance objectives established by the Committee. A significant portion of
an executive officer's compensation is at risk. For example, in the case of
Mr. Stephens, his bonus, if any, is computed largely with reference to the
Company's pre-tax profits, but in no event may it exceed 40% of his base
compensation.
PAGE 14
COMPENSATION POLICIES FOR OTHER EXECUTIVE OFFICERS. The compensation
programs for the other executive officers are the same as those available for
the Chief Executive Officer except for the Company's Key Employee Excess
Benefit Plan in favor of Mr. Stephens. See Footnote (2) under Summary
Compensation Table. Executive officer compensation is based on officer
responsibility, the profitability of the officer's segment of the Company,
productivity, budgetary compliance, and an in-depth individual officer
evaluation.
MEMBERS OF THE EXECUTIVE RESOURCES COMMITTEE
Edmin S. Overman, Chairman Bernard J. Daenzer Richard J. Haayen
Gerald I. Lenrow John S. McGuinness Edward F. Sutkowski
7
PAGE 15
EXECUTIVE OFFICERS
The following information is provided as to each current executive officer of
the Company:
EXECUTIVE
POSITION TERM OF OFFICER
NAME AND AGE WITH COMPANY OFFICE SINCE
------------------- ----------------------------- -------- --------
Gerald D. Stephens President, Chief Executive One Year 1965
Age 62 Officer and Director
Jonathan E. Michael Executive Vice President; One Year 1985
Age 41 President, Chief Operating
Officer of RLI Insurance Company
and Mt. Hawley Insurance Company,
the Company's wholly-owned
insurance subsidiaries
Joseph E. Dondanville Vice President, Chief Financial One Year 1992
Age 38 (1) Officer
Mary Beth Nebel Vice President and General One Year 1994
Age 38 (2) Counsel
Camille J. Hensey Corporate Secretary One Year 1987
Age 53
Gregory J. Tiemeier Senior Vice President and One Year 1992
Age 37 (3) Assistant Secretary of RLI
Insurance Company and Mt. Hawley
Insurance Company, the Company's
wholly-owned insurance subsidiaries
Michael W. Dalton President, Chief Operating Officer One Year 1993
Age 41 (4) of RLI Professional Technologies,
Inc., the Company's wholly-owned
ophthalmic subsidiary
(1) Mr. Dondanville was elected Vice President, Chief Financial Officer in
1992. Prior to his promotion to Vice President, Chief Financial Officer,
Mr. Dondanville served as Controller since 1985.
(2) Ms. Nebel was promoted to Vice President and General Counsel in 1994.
Ms. Nebel joined the Company in 1988 as Assistant General Counsel.
(3) Mr. Tiemeier was promoted to Senior Vice President of the Company's
wholly-owned insurance subsidiaries, RLI Insurance Company and Mt.
Hawley Insurance Company, in 1994 and was appointed Assistant Secretary
on January 31, 1995. Prior to his promotion to Senior Vice President,
Mr. Tiemeier had been Vice President of Management Information Services
since 1992. Mr. Tiemeier has held various managerial positions since he
joined the Company in 1979.
PAGE 16
(4) Mr. Dalton joined the Company in 1977 as an Ophthalmic Field Sales
Representative. He has held various managerial positions, including
President of the Company's Canadian operations, until his promotion to
Vice President of RLI Professional Technologies, Inc., in 1990. He was
promoted from Vice President to President, Chief Operating Officer of
RLI Professional Technologies, Inc., in 1994.
8
EXECUTIVE COMPENSATION
The aggregate cash compensation earned from the Company and its
subsidiaries during the 1994 fiscal year is expressed below for the Company's
Chief Executive Officer and four most highly-compensated executive officers:
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION
NAME AND ------------------- ALL OTHER
PRINCIPAL POSITION YEAR SALARY($) BONUS($) (1) COMPENSATION($) (2)
---------------------- ----- --------- ------------ -------------------
Gerald D. Stephens 1994 376,640 0 3,837
President and CEO 1993 351,680 143,808 74,698
1992 327,816 100,800 71,442
Jonathan E. Michael 1994 216,250 0 1,187
Executive Vice 1993 185,263 73,850 30,000
President 1992 169,169 70,000 25,583
Michael W. Dalton 1994 112,791 23,000 1,132
President, Chief 1993 102,631 30,355 16,767
Operating Officer, 1992 99,700 0 16,446
RLI Professional
Technologies, Inc.
James E. Zogby 1994 116,547 0 1,184
Treasurer and Assistant 1993 110,283 33,117 21,726
Secretary 1992 102,771 22,697 19,830
Gregory J. Tiemeier 1994 117,448 0 1,172
Senior Vice President, 1993 102,570 30,665 21,506
RLI Insurance Company 1992 94,931 29,066 14,251
and Mt. Hawley
Insurance Company
(1) Represents compensation accrued during fiscal year 1994 and paid in 1995
pursuant to the Company's Executive Achievement Target Salary Plan. With
the exception of Mr. Dalton, none of the named executive officers
received a bonus in respect of the 1994 fiscal year.
PAGE 17
(2) Represents the value of Company contributions to the ESOP on behalf of
the named executive officers. Effective January 1, 1995, the Company
amended the ESOP to exclude any employee of RLI Professional
Technologies, Inc. from participating in the ESOP; however, the future
service of any participant will continue to be considered for vesting
purposes. In December of 1994, the Board of Directors determined not
to cause the Company to make a contribution to the ESOP in respect of
1994 given the financial results of the Company. The amounts represent
the value of participant forfeitures allocated to such executive officer
under the ESOP. In the case of Mr. Stephens, the amount includes shares
allocated to him under the Company's Key Employee Excess Benefit Plan:
1,914 shares in respect of 1994; 1,930 shares in respect of 1993; and,
2,110 shares in respect of 1992. Benefits are distributable to Mr.
Stephens when his employment terminates. Under the Plan, the Company
must transfer to the trustee under an irrevocable trust maintained by
the Company for the benefit of Mr. Stephens, such number of shares as
are equal to the excess of (a) the contribution allocable to him under
the ESOP determined without regard to any limitation on compensation
imposed by the Internal Revenue Code, over (b) the contribution actually
allocable to him under the ESOP determined with regard to any limitation
on compensation imposed by the Internal Revenue Code. The value of each
share transferred is equal to the per share closing price as of the
close of the last business day of the referent fiscal year. The total
value of his Plan benefit was $432,350 as of December 31, 1994.
Effective June 26, 1993, the Plan superseded the Company's prior plan
established for the benefit of Mr. Stephens.
9
PAGE 18
PENSION PLAN
The table below illustrates the estimated annual benefits (based on a
straight life annuity at age 65, but in no event less than 120 monthly
payments) payable under the Company's pension plan for specified compensation
and service levels assuming normal retirement on July 1, 1995, at age 65 after
selected years of service:
AVERAGE ANNUAL ESTIMATED ANNUAL PENSION BENEFIT UPON RETIREMENT AT
COMPENSATION JULY 1, 1995 WITH YEARS OF SERVICE INDICATED
------------ --------------------------------------------
15 Yrs. 20 Yrs. 25 Yrs. 30 Yrs. 35 Yrs.
------- ------- ------- ------- -------
$100,000 $ 20,473 $ 27,297 $ 34,121 $ 40,945 $ 47,770
125,000 26,135 34,847 43,559 52,270 60,982
150,000* 31,798 42,397 52,996 63,595 74,195
* Generally, a participant's annual benefit payable beginning at his social
security retirement age (determined on the basis of his year of birth) must
not exceed the lesser of $90,000 (as adjusted for cost-of-living increases--
$118,800 for 1994) or 100% of his average compensation for his high three
years. In addition, effective beginning in 1994, the Internal Revenue Code
reduced the level of a participant's compensation which may be considered in
determining benefits under all types of tax qualified plans from the 1993
level of $235,840 to $150,000. In applying the $150,000 limit, the Plan must
freeze benefits for any participant whose benefit is based on compensation in
excess of $150,000 as of December 31, 1993. The frozen benefit may be
adjusted for increases in compensation after 1993, but adjustments are not
permitted unless the participant's updated compensation exceeds the
compensation that determined the participant's frozen benefit. Based upon the
foregoing, a participant's annual benefit is limited to $74,453 unless such
participant's earned benefit was greater than $74,453 as of December 31, 1993.
Mr. Stephens' current compensation covered by the Plan is $150,000 with 28
years of pension plan participation; Mr. Michael's current covered
compensation is $150,000 with 11 years of pension plan participation; Mr.
Zogby's current covered compensation is $149,669 with 17 years of pension plan
participation; Mr. Dalton's current covered compensation is $143,146 with 16
years of pension plan participation; and Mr. Tiemeier's current covered
compensation is $148,194 with 13 years of pension plan participation.
Effective January 1, 1995, the Company amended the pension plan to exclude any
employee of RLI Professional Technologies, Inc. from participating in the
plan; however, the future service of any participant will continue to be
considered for vesting purposes and related purposes.
PAGE 19
COMMON STOCK PERFORMANCE CHART
A line graph comparing the percentage change in the cumulative total
shareholder return, including the reinvestment of dividends, on the Company's
Common Stock with a cumulative total return of the S&P Composite 500 Stock
Index and the S&P Property and Casualty Index for the period beginning
December 31, 1989 through December 31, 1994 has been omitted from this
electronic filing. The table below contains the data used to create the
omitted line graph.
TOTAL RETURN
COMPARISON OF FIVE YEAR CUMULATIVE
RLI, S&P 500, S&P P/C INS INDEX
Compounded Total Return
RLI - 22.69%
S&P 500 - 8.64%
S&P P/C Ins - 5.43%
Assumes $100 invested on December 31, 1989
RLI, S&P 500 Index, and S&P P/C Ins Index
Total Return assumes reinvestment of dividends
Measurement Period S&P 500 S&P P/C Ins
(Fiscal Year Covered) RLI Corp. Index Index
--------------------- --------- ------- -----------
Measurement Pt-12/31/89 $100 $100 $100
FYE 12/31/90 177 97 94
FYE 12/31/91 208 126 110
FYE 12/31/92 321 136 133
FYE 12/31/93 351 150 127
FYE 12/31/94 278 151 130
10
There can be no assurance that the Company's stock performance will
continue into the future with the same or similar trends. The Company will
neither make nor endorse any predictions as to future stock performance.
The foregoing Stock Price Performance Graph shall not be deemed
incorporated by reference by any general statement incorporating by reference
this proxy statement into any filing under the Securities Act of 1933 or the
Securities Exchange Act of 1934, except to the extent that the Company
specifically incorporates this information by reference, and shall not
otherwise be deemed filed under such Acts.
PAGE 20
RELATIONSHIP WITH INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors, upon the recommendation of the Audit Committee,
has selected KPMG Peat Marwick LLP ("KPMG"), the Company's independent public
accountants since 1983, to serve as the independent public accountants of the
Company for the current fiscal year if their selection is approved by the
shareholders. In view of the difficulty and expense involved in changing
auditors on short notice, if KPMG is not approved by the shareholders, it is
contemplated the appointment for the fiscal year 1995 will be permitted to
stand unless the Board finds other compelling reasons for making a change.
Disapproval of KPMG by the shareholders will be considered an indication to
the Board to select other auditors for the following year. Representatives of
KPMG are expected to be present at the Annual Meeting with the opportunity to
make a statement, if they desire, and their representatives are expected to be
available to respond to appropriate questions from the shareholders.
OTHER BUSINESS
The Board of Directors knows of no other business to be presented at the
Annual Meeting; however, if any other matters do come before the meeting, it
is intended that the persons named in the proxy will vote in accordance with
their best judgment.
It is important that proxies be returned promptly so that the presence of
a quorum may be assured well in advance of the Annual Meeting, thus avoiding
the expense of follow-up solicitations. Accordingly, even if you expect to
attend the Annual Meeting, you are requested to date, execute and return the
enclosed proxy in the stamped, self-addressed envelope provided.
If you attend the meeting in person, your proxy will be returned to you on
request.
By Order of the Board of Directors
Camille J. Hensey
Secretary
Peoria, Illinois
March 30, 1995
11
PAGE 21
APPENDIX A
EXHIBIT A
-------------------------------------
RLI CORP. INCENTIVE STOCK OPTION PLAN
-------------------------------------
I. RECITALS: ...................................................... A-2
A. PURPOSES ................................................... A-2
B. TAX LAW CONSIDERATIONS ..................................... A-2
C. SECURITIES LAW CONSIDERATIONS .............................. A-2
II. AGREEMENTS: .................................................... A-2
1. ELIGIBILITY FOR PARTICIPATION .............................. A-2
1.1 Eligible Employee, Eligible Corporation .............. A-2
1.2 Plan Conditions and Limitations ...................... A-2
1.2(a) Disposition Limitation ....................... A-2
1.2(b) Employment Limitation ........................ A-3
1.2(c) Aggregate Shares ............................. A-3
1.2(d) Class of Participants ........................ A-3
1.2(e) Shareholder Approval ......................... A-3
1.2(f) Option Grant Period .......................... A-3
1.2(g) Option Exercise Period ....................... A-3
1.2(h) Option Price ................................. A-3
1.2(i) Transferability and Exercisability ........... A-3
1.2(j) Share Ownership Limitation ................... A-3
1.2(k) Aggregate Annual Limitation:
One Hundred Thousand Dollars ................. A-4
2. OPTION EXERCISE PROCEDURES ................................. A-4
2.1 Instrument ........................................... A-4
2.2 Registration of Shares ............................... A-4
2.3 Taxes ................................................ A-4
3. ADMINISTRATION ............................................. A-4
3.1 Assignability ........................................ A-4
3.2 Expenses ............................................. A-4
3.3 Funding .............................................. A-4
3.4 Identity of Plan Administrator ....................... A-4
3.5 Liability ............................................ A-4
3.6 Majority Rule ........................................ A-4
3.7 Payment .............................................. A-5
3.8 Powers ............................................... A-5
3.9 Reports .............................................. A-5
3.10 Shareholder Rights ................................... A-5
4. PLAN AMENDMENT OR SUSPENSION ............................... A-5
5. PLAN TERMINATION ........................................... A-5
5.1 Employment or Related Agreements ..................... A-5
5.2 Incorporation by Reference; Internal Revenue Code .... A-5
5.3 Interpretive Guidelines .............................. A-5
5.4 Invalid Provision .................................... A-5
5.5 Legal Actions ........................................ A-5
PAGE 22
6. GLOSSARY ................................................... A-6
Board ...................................................... A-6
Code ....................................................... A-6
Disabled ................................................... A-6
Eligible Corporation ....................................... A-6
Eligible Employee .......................................... A-6
Exchange Act ............................................... A-6
Fair Market Value .......................................... A-6
Option ..................................................... A-6
Parent ..................................................... A-6
Plan ....................................................... A-6
Plan Administrator ......................................... A-6
Rule 16(b)-3 ............................................... A-6
Subsidiary ................................................. A-6
Tax ........................................................ A-6
Transfer ................................................... A-6
A-1
PAGE 23
THIS RLI CORP. INCENTIVE STOCK OPTION PLAN is made at Peoria, Illinois.
I. RECITALS:
A. PURPOSES
The purposes of this RLI Corp. Incentive Stock Option Plan ("Plan") are to:
closely associate the interests of the management of RLI Corp. ("RLI") with
its shareholders by reinforcing the relationship between management rewards
and shareholder gains; provide management with additional equity ownership in
RLI commensurate with RLI performance reflected in increased shareholder
value; maintain competitive compensation levels; replace incentives in respect
of compensation which may no longer be considered for tax qualified plan
benefit purposes; and, encourage management to continue long term employment
with RLI.
B. TAX LAW CONSIDERATIONS
Section 421 GENERAL RULES provides that if a share is transferred to an
employee in a transfer in respect of which the requirements expressed in
Section 422(a) INCENTIVE STOCK OPTIONS are met, then no income shall result at
the time of the transfer of such share to such employee upon the exercise of
such Option, no deduction shall be allowable at any time to the employer
corporation, and no amount other than the price paid under the Option shall be
considered as received by the employer corporation for the share so
transferred.
The Plan is intended to qualify as an Incentive Stock Option plan as defined
in Section 422 INCENTIVE STOCK OPTIONS, and the Options to qualify as such.
C. SECURITIES LAW CONSIDERATIONS
The Plan and any share issuable pursuant thereto must comply with Rule 16b-3
and any subsequent legislation.
II. AGREEMENTS:
NOW, THEREFORE, the Plan Administrator agrees as follows:
1. ELIGIBILITY FOR PARTICIPATION
1.1 ELIGIBLE EMPLOYEE, ELIGIBLE CORPORATION
The Plan Administrator may periodically grant to any Eligible
Employee of any Eligible Corporation an Option ("Option") to
purchase any share of any Eligible Corporation.
1.2 PLAN CONDITIONS AND LIMITATIONS
This Plan and any Option granted pursuant to this Plan must satisfy
the conditions expressed in the following sections.
PAGE 24
1.2(a) DISPOSITION LIMITATION
Except as otherwise provided in the following sentence, no
disposition of any share may be made within the two (2) year
period beginning on the date of the grant of an Option or
within the one (1) year period beginning on the date the
share which was the subject of such Option was transferred
to the Eligible Employee. If an Option is exercised after
the death of the Eligible Employee by the estate of the
Eligible Employee, or by a Person who acquired the right to
exercise such Option by bequest or inheritance, or by reason
of the death of the Eligible Employee, the holding period
expressed in the preceding sentence shall not apply.
For purposes of the preceding paragraph, a disposition
includes a sale, exchange, gift, or a Transfer of legal
title, but does not include: (a) a Transfer from a decedent
to an estate or a Transfer by bequest or inheritance; (b) an
exchange to which Sections 354 EXCHANGES OF STOCK AND
SECURITIES IN CERTAIN REORGANIZATIONS, 355 DISTRIBUTION OF
STOCK AND SECURITIES OF A CONTROLLED CORPORATION, 356
RECEIPT OF ADDITIONAL CONSIDERATION, or 1036 STOCK FOR STOCK
OF SAME CORPORATION (or so much of Section 1036 as relates
to Section 1036) applies; (c) a mere pledge or
hypothecation; (d) a Transfer between spouses or incident to
divorce which meets the conditions expressed in Section
1041(a) GENERAL RULE; and, (e) if such share is acquired in
the name of the Eligible Employee and another jointly with
the right of survivorship or a subsequent Transfer of a
share into such joint ownership shall not be deemed a
disposition, but a termination of such joint tenancy (except
to the extent such Eligible Employee acquires ownership of
such shares) shall be treated as a disposition by such
Eligible Employee at the time such joint tenancy is
terminated.
If an insolvent Eligible Employee holds a share acquired
pursuant to an exercise of an Option, and if such share is
transferred to a trustee, receiver, or any other similar
fiduciary in any proceeding under Title 11 or any other
similar insolvency proceeding, neither such Transfer, nor
any other Transfer of such share for the benefit of such
Eligible Employee's creditors in such proceeding, shall
constitute a disposition of such share.
A-2
PAGE 25
1.2(b) EMPLOYMENT LIMITATION
Except as otherwise provided in the following paragraph, at
all times during the period beginning on the date of the
grant of the Option and ending on the date three (3) months
before the exercise of the Option, the Eligible Employee was
an employee of an Eligible Corporation or a corporation
assuming such Option in a transaction to which Section
424(a) CORPORATE REORGANIZATIONS, LIQUIDATIONS, ETC.
applies.
In the case of an Eligible Employee who is Disabled, the
three month period expressed in the preceding paragraph
shall be one (1) year. If an Option is exercised after the
death of the Eligible Employee by the estate of the Eligible
Employee, or by a Person who acquired the right to exercise
such Option by bequest or inheritance, or by reason of the
death of the Eligible Employee, the employment requirement
expressed in the preceding paragraph shall not apply.
1.2(c) AGGREGATE SHARES
The aggregate number of shares which may be issued under
Options granted pursuant to this Plan must not exceed one
million (1,000,000) shares. For purposes of the preceding
paragraph, if any change in the outstanding shares of an
Eligible Corporation occurs by reason of any stock split,
dividend, split-up, split-off, spin-off, recapitalization,
merger, consolidation, rights offering, reorganization,
combination or exchange of shares, a sale by an Eligible
Corporation of all of its assets, any distribution to
shareholders other than a normal cash dividend or other
extraordinary or unusual event, the Plan Administrator may
adjust the terms of any Option or the number of shares
available.
1.2(d) CLASS OF PARTICIPANTS
No Eligible Employee other than an officer of an Eligible
Corporation may be granted an Option pursuant to this Plan.
1.2(e) SHAREHOLDER APPROVAL
The Plan must be approved by the shareholders of RLI within
the twelve (12) month period beginning on the date the Plan
is adopted by the Board.
1.2(f) OPTION GRANT PERIOD
An Option must be granted within the ten (10) year period
beginning on the earlier of the date the Plan is adopted
by the Board or the date the Plan is approved by the
shareholders of RLI.
PAGE 26
1.2(g) OPTION EXERCISE PERIOD
Except as otherwise provided in 1.2(j) SHARE OWNERSHIP
LIMITATION, an Option must be exercised before the
expiration of the ten (10) year period beginning on the
date such Option is granted.
1.2(h) OPTION PRICE
The Option price must not be less than the Fair Market Value
of such share at the time the Option is granted. For
purposes of the preceding sentence, the Fair Market Value of
any share shall be determined without regard to any
restriction other than a restriction which, by its terms,
will never lapse.
1.2(i) TRANSFERABILITY AND EXERCISABILITY
An Option must not be transferable by an Eligible Employee
otherwise than by will, the laws of descent and
distribution, and be exercisable if at all, during the
lifetime of such Eligible Employee, only by such Eligible
Employee.
Upon the death of an Eligible Employee, any Option
exercisable on the date of the death of such Eligible
Employee may be exercised by the Eligible Employee's estate
or by a Person who acquired the right to exercise such
Option by bequest or inheritance, or by reason of the death
of the Eligible Employee. The provisions of the preceding
sentence shall apply, notwithstanding the fact that the
Eligible Employee's employment may have terminated prior to
death, but only to the extent of any Option exercisable on
the date of the Eligible Employee's death.
1.2(j) SHARE OWNERSHIP LIMITATION
Except as otherwise provided in the following paragraph,
an Eligible Employee must not, at the time the Option is
granted, own shares possessing more than ten percent (10%)
of the total combined voting power of all classes of shares
of RLI, any Parent, or any Subsidiary.
The preceding paragraph shall not apply if, at the time such
Option is granted, the Option price is at least one hundred
ten percent (110%) of the fair market value of the shares
subject to Option and such Option must be exercised before
the expiration of the five(5) year period beginning on the
date such Option is granted.
A-3
PAGE 27
In applying the ten percent (10%) ownership limitation, the
Eligible Employee shall be considered as owning shares
owned, directly or indirectly, by or for such Eligible
Employee's brothers and sisters (whether by the whole or the
half blood), spouse, and lineal descendants, and shares
owned directly or indirectly by or for a corporation,
partnership, estate or trust shall be considered as being
owned proportionately by or for the shareholders, partners
or beneficiaries.
1.2(k) AGGREGATE ANNUAL LIMITATION: ONE HUNDRED THOUSAND DOLLARS
To the extent that the aggregate Fair Market Value of shares
exercisable for the first time by any Eligible Employee
during any calendar year, (under all plans of the Eligible
Employee's employer corporation and its Parent and any
Subsidiary corporation) exceeds One Hundred Thousand Dollars
($100,000), such Options shall be treated as Options which
are not incentive stock Options, as defined in Section 422
INCENTIVE STOCK OPTIONS. The preceding sentence shall be
applied by taking Options into account in the order in which
they were granted. The Fair Market Value of any share shall
be determined as of the time the Option with respect to such
share is granted.
2. OPTION EXERCISE PROCEDURES
2.1 INSTRUMENT
Each Option granted pursuant to the Plan must be evidenced by an
instrument in such form as the Plan Administrator periodically
prescribes.
2.2 REGISTRATION OF SHARES
The Plan Administrator may periodically recommend that RLI list,
register or qualify any shares subject to any Option, seek the
consent or approval of any governmental body, or obtain an agreement
from the Eligible Employee that the transfer of the shares in
respect of such Option may not be consummated unless such listing,
registration, qualification, consent or approval shall have been
obtained in such form as the Plan Administrator shall periodically
determine to be appropriate.
2.3 TAXES
RLI may deduct from any Plan payment or receive from any Person to
whom any share is issuable before issuing any such share, any Tax.
PAGE 28
3. ADMINISTRATION
The Plan shall be administered as expressed in the following sections.
3.1 ASSIGNABILITY
Except as otherwise determined by the Plan Administrator, no
interest under this Plan may be Transferred to any other Person.
3.2 EXPENSES
The expenses of the Plan shall be borne by RLI.
3.3 FUNDING
The Plan shall be unfunded. RLI shall not be required to establish
any special or separate fund or to make any other segregation of
assets to assure the payment of any Option under the Plan, and any
right to the payment of any Option shall be no greater than any
right of the general creditors of RLI.
3.4 IDENTITY OF PLAN ADMINISTRATOR
Except as otherwise provided in the following paragraph, the Plan
shall be administered by the Plan Administrator. No member of the
Plan Administrator may have received an Option pursuant to this
Plan during the twelve (12) month period ending on the date of such
appointment if such receipt would cause such member to cease to be
a "disinterested person" under Rule 16b-3.
3.5 LIABILITY
No member of the Plan Administrator and no officer of RLI shall be
liable for anything done or omitted by any other member of the Plan
Administrator or by any officer of RLI in connection with the
performance of any duty under this Plan, except as to any willful
misconduct or as expressly provided by statute.
3.6 MAJORITY RULE
The Plan Administrator may act only by a majority of its members,
except that any member may authorize any one or more of their
members or any officer of RLI to execute and deliver any document
or to take any other ministerial action on behalf of the Plan
Administrator.
A-4
3.7 PAYMENT
The Plan Administrator may periodically determine the method by
which the Eligible Employee may pay for the shares issuable incident
to the exercise of an Option, including but not limited to, payment
for such shares in the form of other shares of any Eligible
Corporation.
PAGE 29
3.8 POWERS
The Plan Administrator shall have the power to: (a) interpret the
Plan and the Options granted under the Plan; (b) establish, amend
and rescind any rules and regulations relating to the Plan; and (c)
make any other determination which it deems desirable for the
administration of the Plan.
The interpretation and administration of the Plan shall lie within
its sole and absolute discretion and shall be final, conclusive and
binding on all parties. Determinations to be made by the Plan
Administrator under the Plan may be made by any delegate.
3.9 REPORTS
The officers of RLI shall cause to be filed any report, return or
other information regarding any Option or share issuable pursuant
thereto as may periodically be required by Section 13 or 15(d) of
the Exchange Act or any other applicable statute, rule or
regulation.
3.10 SHAREHOLDER RIGHTS
No Eligible Employee shall have any right as a shareholder unless
and until a certificate evidencing a share of the Eligible
Corporation is issued to such Eligible Employee.
4. PLAN AMENDMENT OR SUSPENSION
The Plan may be periodically amended or suspended by the Board; however,
no amendment shall be effective until approved by the shareholders of RLI
where the failure to obtain such approval would adversely affect the
compliance of the Plan with Rule 16b-3 and with other applicable law. No
amendment of the Plan shall adversely affect any right of any Eligible
Employee with respect to any Option granted before such amendment.
5. PLAN TERMINATION
This Plan shall terminate upon the earlier of the adoption of a resolution
of the Board terminating the Plan, or ten years from the date the Plan is
initially approved and adopted by the shareholders of RLI.
5.1 EMPLOYMENT OR RELATED AGREEMENTS
This Plan does not constitute a contract between the Employer and
any Eligible Employee, a consideration for or an inducement for the
employment of any Eligible Employee. Nothing contained in this Plan
will be deemed to give any Eligible Employee the right to be
retained in the service or to interfere with the right of any
Eligible Corporation to discharge any Eligible Employee at any time
regardless of the effect which such discharge will have upon such
individual under this Plan.
PAGE 30
5.2 INCORPORATION BY REFERENCE; INTERNAL REVENUE CODE
Any reference to Section or Sections is to such section or sections
of the Internal Revenue Code, as may be amended.
5.3 INTERPRETIVE GUIDELINES
The words and phrases set off by quotation marks in the Glossary
have the meanings therein indicated. Any word or phrase which
appears in this Plan in parenthesis, set off by quotation marks and
capitalized, has the meaning denoted by its context. Whenever the
words and phrases defined either in the Glossary or elsewhere in
this Plan are intended to have their defined meanings, the first
letter of such word or the first letters of all substantive words in
such phrase will be capitalized. When the context permits, a word
or phrase used in the singular means the plural, and when used in
any gender, its meaning also includes all genders. Captions of
Sections are inserted as a matter of convenience only and do not
define, limit or extend the scope or intent of this Plan or any
provision hereof.
5.4 INVALID PROVISION
If any term or provision of this Plan or the application thereof
to any Person or circumstance will to any extent be invalid or
unenforceable, the remainder of this Plan, or the application of
such term or provision to such Person or circumstance other than
that as to which it is invalid or unenforceable, will not be
affected, and each term and provision of this Plan will be valid
and will be enforced to the fullest extent permitted by law.
5.5 LEGAL ACTIONS
If any claim, suit or proceeding is brought regarding the Plan to
which the Plan Administrator may be a party, and such claim, suit
or proceeding is resolved in favor of the Plan Administrator, any
member of the Plan Administrator shall be entitled to be
A-5
reimbursed by RLI for any cost, attorneys' fee and other expense
incurred. Necessary parties to any accounting, litigation or other
proceedings will include only the Plan Administrator and RLI. The
settlement of any judgment in any case in which RLI is duly served
or cited will be binding upon all Eligible Employees and their
respective estates, as well as upon any Person claiming by, through
or under any of them.
PAGE 31
6. GLOSSARY
"Board" means the Board of Directors of RLI Corp. or its successor.
"Code" means the Internal Revenue Code of 1986, as may periodically be
amended.
"Disabled" means being unable to engage in any substantial gainful
activity by reason of any medically determinable physical or mental
impairment which can be expected to result in death or which has lasted
or can be expected to last for a continuous period of not less than
twelve (12) months.
"Eligible Corporation" means, collectively, (a) RLI; (b) any corporation
(other than RLI), in an unbroken chain of corporations ending with RLI
if, at the time of the granting of the Option, each of the corporations,
other than RLI, owns shares possessing fifty percent (50%) or more of the
total combined voting power of all classes of shares in one of the other
corporations in such chain; and (c) any corporation (other than RLI) in
an unbroken chain of corporations beginning with RLI if, at the time of
the granting of the Option, each of the corporations, other than the last
corporation in the unbroken chain, owns shares possessing fifty percent
(50%) or more of the total combined voting power of all classes of shares
in one of the other corporations in such chain.
"Eligible Employee" means any common law employee of an Eligible
Corporation, thus excluding any non-employee director of an Eligible
Corporation or an independent contractor.
"Exchange Act" means the Securities Exchange Act of 1934, as may
periodically be amended.
"Fair Market Value" means, (a) in respect of any share of RLI, the closing
price on such date or on the next business date, if such date is not a
business day, of a share of RLI reflected in The Wall Street Journal or
any other publication selected by the Plan Administrator; however, if
shares of RLI shall not have been traded on the New York Stock Exchange
for more than ten (10) days immediately preceding such date or if deemed
appropriate by the Plan Administrator for any other reason, the fair
market value of shares of RLI shall be determined by RLI in such other
manner as it may deem appropriate, and (b) as to any share of any other
Eligible Corporation, as determined by the Plan Administrator in
accordance with the Code regulations.
"Option" is defined at Section 1.1 ELIGIBLE EMPLOYEE, ELIGIBLE
CORPORATION.
"Parent" means any corporation (other than the employer corporation) in an
unbroken chain of corporations ending with the employer corporation if, at
the time of the granting of the Option, each of the corporations other
than the employer corporation owns shares possessing fifty percent (50%)
or more of the total combined voting power of all classes of shares in one
of the other corporations in such chain.
"Plan" means this RLI Corp. Incentive Stock Option Plan.
PAGE 32
"Plan Administrator" means the Board, or if designated by the Board, the
Executive Resources Committee, or if any provision of the Exchange Act
or the Code would impair the ability of either the Board or the Executive
Resources Committee to administer the Plan in accordance with the
provisions of Rule 16b-3 and Section 162(m), or such other Person as the
Board periodically determines to be appropriate so as to permit the Plan
to be administered in accordance with Rule 16b-3 and Section 162(m).
"Rule 16b-3" means such rule promulgated under the Securities Exchange
Act of 1934, as may periodically be amended.
"Subsidiary" means any corporation (other than the employer corporation)
in an unbroken chain of corporations beginning with the employer
corporation if, at the time of the granting of the Option, each of the
corporations other than the last corporation in the unbroken chain owns
shares possessing fifty percent (50%) or more of the total combined voting
power of all classes of shares in one of the other corporations in such
chain.
"Tax" means any Federal, state, local or foreign income, gross receipts,
license, payroll, employment, excise, severance, stamp, occupation,
premium, windfall profits, environmental, customs, duties, capital stock,
franchise, profits, withholding, social security, unemployment,
disability, real property, personal property, sales, use, transfer,
registration, value added, alternative or add-on minimum, estimated, or
other tax of any kind whatsoever, including any interest, penalty or
addition, whether disputed or not.
"Transfer" means any direct or indirect, voluntary or involuntary, for
value, by operation of law or otherwise, assignment, or otherwise
disposition of any direct or indirect, economic or legal interest in,
including but not limited to any security interest in or with respect to
either any share or any Option.
A-6
PAGE 33
APPENDIX B
RLI Corp. THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD
RLI 9025 N. Lindbergh Dr. OF DIRECTORS
Peoria, Illinois 61615 The undersigned hereby appoints Gerald D.
Stephens, John S. McGuinness and William R.
Keane as Proxies, each with the power to appoint
his substitute, and hereby authorizes them, or
any one or more of them, to represent and to
PROXY vote, as designated below, the shares of
----- Common Stock of RLI Corp. held of record
by the undersigned on March 13, 1995, at the
Annual Meeting of Shareholders to be held on
May 11, 1995 or any adjournments thereof.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE FOLLOWING PROPOSALS:
1. ELECTION OF CLASS II DIRECTORS (mark one):
/ / FOR ALL NOMINEES LISTED BELOW / / WITHHOLD AUTHORITY
(except as marked to the contrary below) to vote for all nominees
listed below
(INSTRUCTION: To withhold authority to vote for any individual nominee, write
that nominee's name on the space provided below):
_____________________________________________________________________________
NOMINEES: JOHN S. MCGUINNESS, GERALD D. STEPHENS AND ROBERT O. VIETS
2. ADOPT THE COMPANY'S INCENTIVE STOCK / / FOR / / AGAINST / / ABSTAIN
OPTION PLAN
3. APPROVE THE APPOINTMENT OF KPMG PEAT / / FOR / / AGAINST / / ABSTAIN
MARWICK LLP AS THE INDEPENDENT PUBLIC
ACCOUNTANTS OF THE COMPANY:
(PLEASE DO NOT FOLD DATE AND SIGN REVERSE SIDE)
PAGE 34
4. In their discretion, the Proxies are ___________________________________
authorized to vote upon such other PLEASE MARK, SIGN, DATE AND RETURN
business as may properly come before THE PROXY CARD PROMPTLY USING THE
the meeting. ENCLOSED ENVELOPE.
___________________________________
This Proxy, when properly executed,
will be voted in the manner directed
herein by the undersigned shareholder.
Please sign exactly as your name
IF NO DIRECTION IS GIVEN, THIS PROXY appears hereon. Joint owners should
WILL BE VOTED "FOR" PROPOSALS 1, 2 each sign personally. Corporate
AND 3. officers, executors, administrators,
trustees, etc., should so indicate
when signing.
Date:______________________, 1995
_________________________________
Signature
_________________________________
Signature if held jointly
PAGE 35
APPENDIX C
DESCRIPTION OF OMITTED GRAPHIC AND IMAGE MATERIAL
PRINTED
EDGAR PROXY
SECTION DESCRIPTION PAGE # PAGE #
-------------- ------------------------------------ ------ --------
Proxy Statement Refer to page 2 of this EDGAR filing 2 COVER
Cover for a description of the omitted
picture.
Director and Pictures of John S. McGuinness, Gerald 9 4
Nominee D. Stephens and Robert O. Viets,
Information current directors and nominees to the
Board of Directors of the Company
Director and Pictures of Bernard J. Daenzer, Richard 10 5
Nominee J. Haayen, William R. Keane, Gerald I.
Information Lenrow, Edwin S. Overman, current
members of the Board of Directors of the
Company
Director and Picture of Edward F. Sutkowski, current 11 6
Nominee member of the Board of Directors of
Information the Company.
Common Stock Refer to page 19 of this EDGAR filing 19 10
Performance for a description of this omitted
Chart graphic.