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| RLI CORP.◻
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| RLI CORP. NOTICE OF 2018 ANNUAL MEETING AND PROXY STATEMENT
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RLI CORP. NOTICE OF 2021 ANNUAL MEETING AND PROXY STATEMENT. RLI© DIFFERENT WORKS PRELIMINARY – SUBJECT TO COMPLETION – DATED MARCH 10, 2023 
| 9025 N. LINDBERGH DRIVE •· PEORIA, IL 61615 |
PHONE: 309-692-1000 •· FAX: 309-692-1068
WWW.RLICORP.COM
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RLI Corp. 9025 NorthN. Lindbergh Drive Peoria, Illinois 61615 March 22, 2018 [●], 2023 Dear Fellow Shareholders: Please consider this letter your personal invitation to attend the 20182023 RLI Corp. Annual Shareholders Meeting. ItMeeting, which will be held at the Mt. Hawley Country Club, 7724 North Knoxville Avenue, Peoria, Illinois 61614,conducted via live audio webcast on May 3, 2018,4, 2023, at 2 p.m.9:00 a.m. CDT. In order to provide expanded access, improved communication and cost savings for our shareholders and our Company, this year’s Annual Meeting will be a completely “virtual” meeting of shareholders. You will be able to attend the virtual Annual Meeting, vote your shares and submit questions during the meeting via the live webcast by visiting www.virtualshareholdermeeting.com/rli2023. To participate, you will need the 16-digit control number included in your proxy materials or on your proxy card. We encourage you to allow ample time for online check-in, which will begin at 8:45 a.m. CDT. Please note that there will be no in-person meeting for you to attend. Business scheduled to be considered at the meeting includes the election of directors,Directors, an amendment to the Company’s Certificate of Incorporation to include the exculpation of officers, approval of the reincorporation of the Company from the State of Illinois to the State of Delaware,2023 RLI Corp. Long-Term Incentive Plan, an advisory vote on our executive compensation, and ratification of KPMGDeloitte & Touche LLP as our independent registered public accounting firm for the current year. In addition, we will review significant events of 20172022 and their impact on you and yourthe Company. Again, this year we are furnishing our proxy materials via the Internet. Shareholders will receive a mailed notice card with instructions on how to view our proxy materials over the Internet and other information. Thank you for your interest in RLI as well as your confidence in, and support of, our future. Sincerely, 
Jonathan E. Michael Chairman & Chief Executive Officerof the Board  
RLI Corp. | 9025 N. Lindbergh Drive | Peoria, Illinois 61615 Notice of Annual Meeting of Shareholders
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS May 3, 20184, 2023 To the Shareholders of RLI Corp.: NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of RLI Corp. (“Company”) will be held at the Mt. Hawley Country Club, 7724 North Knoxville Avenue, Peoria, Illinois 61614,conducted via live audio webcast on Thursday, May 3, 2018,4, 2023, at 2 p.m.9:00 a.m. Central Daylight Time at www.virtualshareholdermeeting.com/rli2023 for the following purposes:purpose: | 1. | | to elect as directorsDirectors the ten (10)eleven (11) nominees named in the attached proxy statement for a one-year term expiring at the 20192024 Annual Meeting of Shareholders; |
| 2. | | to approve the reincorporation of the Company from the State of Illinois to the State of Delaware;
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| 3.
| | to hold an advisory vote onto approve executive compensation (the “Say-on-Pay” vote); |
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3. | approval of an amendment to the Company’s Certificate of Incorporation to include the exculpation of officers; |
| 4. | approval of the 2023 RLI Corp. Long-Term Incentive Plan; |
| 5. | to ratify the selection of KPMGDeloitte & Touche LLP as the independent registered public accounting firm of the Company for the current year; and |
| 5.
6. | | to 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 5, 2018,6, 2023, are entitled to notice of and to vote at the Annual Meeting. | By Order of the Board of Directors | | | | 
| | Jeffrey D. Fick | | Sr. Vice President, Chief Legal Officer & Corporate Secretary
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Peoria, Illinois March 22, 2018[●], 2023 It is important, regardless of the number of shares you hold, that you personally be presentattend the Annual Meeting via the live webcast or be represented by proxy at the Annual Meeting.proxy. Even if you expect to attend it is important thatvia the live webcast, we encourage you to promptly submit your proxy by any method described below:below to ensure your vote is counted: | ·
● | | By Internet: by submittingsubmit your proxy over the Internet in accordance with the instructions provided on your proxy card or Notice of Internet Availability of Proxy Materials; |
| ·
● | | By Phone: by submittingsubmit your proxy by telephone, toll-free, in accordance with the instructions provided on your proxy card, or |
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● | | By Mail: if you received your proxy card by mail, by completingcomplete the proxy card and signing, datingsign, date and returningreturn it as promptly as possible. |
You have the right to revoke your proxy at any time prior to its usethe Annual Meeting by filing a written notice of revocation with the Corporate Secretary of the Company prior to the convening of the Annual Meeting, or by presentingsubmitting another proxy card with a later date or voting by telephone or over the Internet at a later date. If you attend the Annual Meeting and desire tovia live webcast, you may change your vote by voting online while the meeting is in person,progress by visiting www.virtualshareholdermeeting.com/rli2023. You will need your 16-digit control number included in your proxy may be withdrawn upon request.materials, on your proxy card, or on the instructions that accompanied your proxy materials. TABLE OF CONTENTS Table of Contents
RLI Corp. 2018 Proxy Statement | 1
RLI Corp. 2023 Proxy Statement | 1 2 | RLI Corp. 2018 Proxy Statement
RLI Corp. 2018 Proxy Statement | 3
2 | RLI Corp. 2023 Proxy Statement RLI Corp. 2023 Proxy Statement | 3 PROXY SUMMARY This Proxy Statement Summary (“Summary”) highlights information contained in this Proxy Statement, the Annual Report on Form 10-K, or on our website at www.rlicorp.com. This Summary does not contain all the information you should consider, so please read the entire Proxy Statement carefully before voting. For more information regarding our 2022 performance, please review the Annual Report on Form 10-K for the year ended December 31, 2022, a copy of which is available at the Investors section of our website at www.rlicorp.com. MATTERS TO BE VOTED ON: The following is a summary of the proposals to be voted on at the Annual Meeting and the Board’s voting recommendations with respect to each proposal: | | | | | | | Board | | | ANNEX D SECTION 11.70 OF THE ILLINOIS BUSINESS CORPORATION ACT PROCEDURE TO DISSENT
| D-1
| Recommendation |
| Page | | | | | | PROPOSAL 1: Election of Directors | | FOR | | 15 | | | | | | PROPOSAL 2: Non-Binding, Advisory Vote to Approve the Compensation of the Company’s Named Executive Officers | | FOR | | 33 | | | | | | PROPOSAL 3: Approval of Amendment to the Company’s Certificate of Incorporation to Include the Exculpation of Officers | | FOR | | 56 | | | | | | PROPOSAL 4: Approval of the 2023 RLI Corp. Long-Term Incentive Plan | | FOR | | 61 | | | | | | PROPOSAL 5: Ratification of the Selection of Independent Registered Public Accounting Firm | | FOR | | 69 |
CORPORATE GOVERNANCE HIGHLIGHTS: | ● | Annual election of Directors |
| ● | 9 of our 11 Director nominees are Independent |
| ● | Five new Independent Directors in the last seven years |
| ● | Split Chairman & CEO roles effective January 1, 2022 |
| ● | Independent Lead Director position empowered with broad responsibilities and significant governance duties |
| ● | Comprehensive Code of Conduct that applies to all employees and Directors |
| ● | Executive sessions of Independent Directors conducted at regularly scheduled board meetings |
| ● | Oversight of executive succession planning by the Human Capital & Compensation Committee of the Board |
| ● | Directors elected by majority vote |
| ● | Regular Board, Committee, and Director Evaluations |
| ● | Ethics and corporate compliance program and anonymous whistleblower hotline |
| ● | Stock ownership guidelines for Directors and Officers |
4 | RLI Corp. 2023 Proxy Statement BOARD COMPOSITION & EXPERIENCE: | | | | | | | | | | | | Legal, Regulatory, or Government | | ● | | | | | | ● | ● | | ● | Strategy formulation and planning | ● | ● | ● | ● | ● | | ● | ● | ● | ● | ● | Accounting | ● | | | | | ● | ● | | | ● | | Audit | ● | ● | | | | ● | ● | | | ● | | Private equity/venture capital | ● | | | ● | ● | | | | | | | Brand & Marketing | ● | | ● | | | | | | | ● | | M&A / Corporate Development | ● | | ● | ● | ● | ● | | | ● | | ● | Investments & Capital Markets | | | | ● | ● | | ● | | | | ● | Internet / Digital & Social Media | | | | | ● | | | | | | | Insurance Industry Expertise | ● | ● | ● | ● | ● | ● | ● | ● | ● | | ● | Information technology | | | | | ● | | | | | | | Human Resources / Compensation | | | ● | ● | | | | ● | ● | | | C-Suite / Executive Management | ● | ● | ● | | ● | ● | ● | ● | ● | ● | ● | Risk Management | ● | ● | ● | | | | ● | ● | ● | | ● | Academia & Education | | ● | | ● | | | | | | | | Actuarial | ● | ● | | | | | | ● | | | | Demographics | Race/Ethnicity | African American | | | | | | | | | | ● | | White / Caucasian | ● | ● | ● | ● | ● | ● | ● | ● | ● | | ● | Gender | | | | | | | | | | | | Male | ● | ● | ● | | ● | ● | ● | ● | ● | | ● | Female | | | | ● | | | | | | ● | | Board Tenure | Years | 13 | 9 | 5 | 4 | 18 | 0 | 25 | 2 | 6 | 4 | 10 |
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BOARD OF DIRECTORS TRANSITIONS: On August 17, 2022, John T. Baily informed the Company that he will retire from the Board upon conclusion of his term on at the Annual Meeting. Mr. Baily has been a member of the Company’s Board since 2003 and currently serves as member of the Audit Committee, Chair of the Nominating & Corporate Governance Committee, and serves as Lead Director. The Board of Directors will select a new Lead Director at its May meeting. On November 1, 2022, Paul B. Medini was appointed to the Company’s Board of Directors and was appointed to the Company’s Audit and Human Capital and Compensation Committee effective February 1, 2023. On January 31, 2023, Calvin G. Butler, Jr. resigned from the Board of Directors of RLI Corp. 2018 Proxy Statement
(“RLI”) in light of the demands of his new role as President and Chief Executive Officer of Exelon Corporation. Mr. Butler was a member of the Audit Committee and Nominating & Corporate Governance Committee. RLI Corp. 2023 Proxy Statement | 5 | COMPANY HIGHLIGHTS | OUR HISTORY: | RLI is a specialty insurance company with more than 50 years of experience serving diverse niche, property, casualty, and surety markets. | | 
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| OUR PRODUCTS: | Product diversification has fueled our growth & financial success. | | 
| *Based on 2022 net written premium |
6 | RLI Corp. 2023 Proxy Statement OUR BUSINESS MODEL: | RLI is a domestic, specialty insurance company that does its own underwriting. | | 
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| ● We hire experienced, entrepreneurial underwriters | ● Underwriting leadership compensation is tied directly to underwriting profit | ● Our products are run like stand-alone businesses | ● Organic product growth | | | | | ● We focus on difficult markets that require unique expertise | 
| ● Diversification reduces corporate risk | ● Talent acquisition & start-ups | | | | | ● Strong feedback loop between underwriting and claims | ● 91% Institutions & other public investors ● 9% Insiders & Employee Stock Ownership Plan “(ESOP”) | ● Many products are convenient and tailored to fill a void in the market | |
| | | OUR STRATEGY: | From our niche product offerings to our business model, our culture to our results — we’re different. | | We aspire to: | Be a premier specialty underwriting company that achieves long-term industry leading combined ratios and book value growth. Remain a destination for talented, entrepreneurial underwriters with ‘narrow & deep’ expertise. Seek out difficult markets while maintaining a highly diverse product portfolio. Emphasize profit maximization and enhance our ability to grow over the long term, with a focus on organic opportunities and acquisitions that preserve the unique culture that has made RLI successful. |
| | In November 2021, Jonathan E. Michael, Chairman of the Board of Directors and Chief Executive Officer, announced his resignation as Chief Executive Officer of RLI Corp. (the “Company”) effective December 31, 2021. He remains Chairman of the Board. Mr. Michael’s resignation as Chief Executive Officer was part of a succession plan previously approved by Independent Directors of the Board. Effective January 1, 2022 the Board appointed Craig W. Kliethermes as President and Chief Executive Officer of the Company and appointed Jennifer L. Klobnak as Chief Operating Officer of the Company. |
RLI Corp. 2023 Proxy Statement | 7 2022 FINANCIAL PERFORMANCE FINANCIAL RESULTS: As a result of the efforts of our associates, we achieved outstanding financial results in 2022. These results included posting a 84.4 combined ratio, which marked our 27th consecutive year of underwriting profit; delivering return on equity of 48.6 percent*, a testament to our sustained profitability; growing book value per share by 25 percent during the year, inclusive of dividends; and continuing to reward shareholders through regular dividends and a $7.00 per share special dividend which resulted in returning $318 million to shareholders in 2022 and paying more than $1.3 billion in dividends over the last 10 years. | | | | | | Gross Premiums Written (in millions) $1,565 Compared to $1,347 million in the previous year | | Comprehensive Earnings (in millions) $304.5 Compared to $220.5 million in the previous year | | | | | | | | | | Combined Ratio 84.4 27th consecutive year below 100 | | Net Cash Flow from Operations (in millions) $250.4 Compared to $384.9 million in the previous year | | | | | | | | | | Regular / Special Dividend Per Share Paid in 2022 $1.03 / $7.00 47 years of paying and increasing regular dividends | | Book Value per Share at December 31 $25.89 25% increase from year-end 2021, inclusive of dividends | | | |
FINANCIAL STRENGTH: | | | AM Best A+ (Superior) | | Standard & Poor’s A (Strong) | | | | | | | | | | Moody’s A2 | | Ward’s 50® Top P&C Performer 32 Consecutive Years One of two companies named every year since inception | | | |
* Return on equity for 2022 includes $484.4 million of after-tax realized gain from the sale of our equity method investment in Maui Jim. 8 | RLI Corp. 2023 Proxy Statement SUSTAINABLE BUSINESS PRACTICES The Company is a specialty underwriting company and our financial performance starts with our entrepreneurial and ownership culture. We are steadfast in our belief that to deliver strong returns for our shareholders, we must also remain a sustainable organization. Our approach to sustainability reflects our focus on doing the right thing – for our customers, our employees, our communities, and the environment. With that philosophy guiding our efforts, we are committed to continue integrating sound and relevant Environmental, Social and Governance principles into our business. Additional detail on how we are integrating these principles into our work can be found in our Sustainability Report which can be viewed at www.rlicorp.com/sustainability. Ethical Business Conduct: Our Code of Conduct, which applies to all employees and Directors, provides guidance on ethical business behavior to support our strong reputation as a leading specialty property and casualty insurance company. Annually, employees and Directors are asked to read, understand, agree to comply with the Code and other Company policies, and confirm they have complied with the Code in the last year. No waiver of the Code was made in 2022 for any executive or Director. We also maintain a Third-Party Code of Conduct for our suppliers, vendors, consultants, and business partners to communicate ethical business standards under which Third Parties are expected to operate when providing goods and services to the Company. Diversity and Inclusion: The Company strives to deliver excellent customer service and achieve superior business results by cultivating an exceptional workforce. Our goal is to attract, develop and retain the best employee talent from diverse backgrounds while promoting an environment where different viewpoints are valued and individuals feel respected, are treated fairly, and have an opportunity to excel in their chosen careers. Our Diversity and Inclusion Counsel ensures employees and management are engaged on topics related to an inclusive workforce. Employee resource groups (ERGs) provide further opportunities for employees to connect with each other on shared interested and experiences. We actively support, and participate in, initiatives led by the American Property Casualty Insurance Association that aim to increase diversity in the insurance industry. The Company sustains its high-performance ownership culture through ongoing investments in our greatest assets - our people. Our Total Rewards program is designed to attract the best talent in the industry and we strive to help all employees realize their potential through training, mentoring and professional development. The Company believes in fostering an open and collaborative workplace that encourages employees to take ownership of their performance and development. We consistently track employee engagement and satisfaction metrics, along with other workforce data and insights, to assess the health of our workforce culture on an ongoing basis and make improvements based on employee feedback. Every two years, we conduct an employee engagement survey. Results from RLI’s last employee engagement survey reflected strong employee engagement scores exceeding a finance and insurance benchmark. The Company also has a goal of establishing diversity among members of its Board of Directors reflecting, but not limited to, profession, background, experience, geography, skills, ethnicity, and gender. The Nominating & Corporate Governance Committee of the Board is committed to actively seeking highly qualified candidates, including women and minority candidates, and will include such candidates in each director search it undertakes, including those by third-party search firms. Environmental Stewardship: Information on the Company’s environmental stewardship and climate change-related risk management can be found at www.rlicorp.com/environment. The Company has demonstrated its commitment to a renewable future through its $5 million investment in a 1.8-megawatt solar field on our corporate campus in Peoria, Illinois. Located on six and a half acres, the 4,752-panel solar field is capable of producing annual electrical power equal to or exceeding annual electrical usage for our office buildings in Peoria, which house approximately 43% of our workforce. In 2022, the Company’s solar field produced 1,375,000 kilowatt hours (“kWh”) of electricity. The Company purchased 160,000 kWh of electricity for Peoria facilities for times when the solar field was not operational and returned 526,000 excess kWh produced by the solar farm to the electrical grid. While we are doing our part to support the global transition to more sustainable energy sources, we also believe this process will be lengthy and complex. Current energy needs cannot be met solely through green technologies and many, including those who are the most economically vulnerable, cannot simply stop using fossil fuels. By providing insurance products to the energy market, our responsible underwriting and sound risk management practices serve to support a reliable energy supply and enable a transition to more sustainable energy sources over time. RLI Corp. 2023 Proxy Statement | 9 RLI Corp. | 9025 N. Lindbergh Drive | Peoria, Illinois 61615
PROXY STATEMENT
Annual Meeting of Shareholders to be held May 3, 20184, 2023 GENERAL INFORMATION This Proxy Statement is furnished to the shareholders of RLI Corp., an Illinoisa Delaware corporation (“Company”), in connection with the solicitation by the Board of Directors of the Company (“Board” or “Board of Directors”), of proxies to be used at the Annual Meeting of Shareholders (“Annual Meeting”) to be held at 2 p.m.9:00 a.m. Central Daylight Time on Thursday, May 3, 2018,4, 2023 which will be conducted via live webcast at the Mt. Hawley Country Club, 7724 North Knoxville Avenue, Peoria, Illinois, 61614,www.virtualshareholdermeeting.com/rli2023 and at any adjournments or postponements of the Annual Meeting. This year, we are pleased to again be taking advantage of a Securities and Exchange Commission (“SEC”) rule that allows companies to furnish their proxy materials over the Internet. As a result, we are mailing to our shareholders a Notice of Internet Availability of Proxy Materials (“E-Proxy Notice”) instead of a paper copy of the proxy materials. The E-Proxy Notice contains instructions that will enable shareholders receiving the E-Proxy Notice to access these materials over the Internet and, if so desired, to request a paper copy of these proxy materials by mail. Shareholders who do not receive the E-Proxy Notice will receive a paper copy of the proxy materials by mail. The Company intends to mail the E-Proxy Notice to shareholders on or about March 22, 2018.[●], 2023. VOTING AND QUORUM VOTING
Because many shareholders cannot attend the Annual Meeting in person, it is necessary that a large number of our voting shares be represented at the Annual Meeting by proxy to achieve a quorum. Pursuant to the Company’s Bylaws, at least a majority in voting power of the stock issued and outstanding voting sharesand entitled to vote must be present (in person or by proxy) at the Annual Meeting to conduct the meeting, which is known as a “quorum” of shares. Even if you expect to attend it is important thatthe virtual Annual Meeting, we encourage you vote your shares by submittingto promptly submit your proxy in advance.
by any method described below to ensure your vote is counted. Whether you hold your shares directly as the shareholder of record or through a broker, trustee, or other nominee (“in street name”), you may vote by proxy without attending the Annual Meeting in three different ways:following methods: | ·
● | | Internet: Shareholders may submit their proxy over the Internet by following the instructions provided on the proxy card or on the E-Proxy Notice. Shareholders will need to have the 16-digit control number appearing on their proxy card or E-Proxy Notice available in order to submit their proxy over the Internet. |
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● | | Telephone: Shareholders may submit their proxy by telephone, toll-free, by following the instructions provided on the proxy card or on the E-Proxy Notice. Shareholders will need to have the 16-digit control number appearing on their proxy card or E-Proxy Notice available in order to submit their proxy by telephone. |
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● | | Mail: Shareholders who receive a paper copy of a proxy card by mail may submit their proxy by signing, dating, and returning the proxy card as promptly as possible in the envelope enclosed for that purpose. |
| ● | Virtually During the Meeting: Shareholders may vote during the Annual Meeting at www.virtualshareholdermeeting.com/rli2023 by using the 16-digit control number included with these proxy materials provided. However, as explained below, shares held in the RLI Corp. Employee Stock Ownership Plan (“ESOP”) must be voted before 11:59 p.m. on May 1, 2023. |
Shareholders can save the Company expense by submitting their proxy by telephone or over the Internet. If you submit your proxy by telephone or over the Internet, you do not need to also submit a proxy card, although you may do so as one method of changing your vote as described below. The method of voting will not limit a shareholder’s right to attend the Annual Meeting.
Each proxy will be voted in accordance with the shareholder’s specifications. If you return a signed proxy card without providing voting instructions or do not designate a voting preference when using the other methods, your shares will be voted as recommended by the Board of Directors. Directors, except that if your shares are held in the Company’s (“ESOP”) and no vote is received for those shares by 11:59 p.m. on May 1, 2023, the Trustee (as defined herein) of the ESOP will vote such shares in proportion to other ESOP votes cast unless contrary to applicable law, as further explained in note 3 on page 13. All proxies delivered pursuant to this solicitation are revocable at any time RLI Corp. 2018 Proxy Statement | 5
prior to the meeting at the option of the shareholder either by giving written notice to the Corporate Secretary at 9025 North Lindbergh Drive, Peoria, Illinois, 61615, or by timely delivery ofsubmitting a properly completed proxy whether by proxy card or by Internet or telephone vote,any method bearing a later date, or by voting in personelectronically at the Annual Meeting. AllAttending the virtual Annual Meeting will not, in and of itself, revoke a proxy. Beneficial shareholders may revoke any prior voting instructions by contacting the broker, bank, or other nominee that holds their shares represented by valid, unrevoked proxies will be voted at the Annual Meeting. Assuming the presence, in person or by proxy,voting online during the meeting.
10 | RLI Corp. 2023 Proxy Statement The proposal to approve the Company’s reincorporation from the State of Illinois to the State of Delaware (Proposal Two) requires the affirmative vote of a majority of the Company’s issued and outstanding voting shares.
Assuming the presence, in person or by proxy, of a quorum, the proposal to ratify the selection of KPMG as the Company’s independent accounting firm (Proposal Four) requires the affirmative vote of a majority of the shares represented in person or by proxy at the Annual Meeting and entitled to vote.
The “Say-on-Pay” vote (Proposal Three) is advisory (not binding) in nature so there is no specified voting requirement for approval. However, the Board of Directors will consider that the shareholders have approved executive compensation on an advisory basis if this agenda item receives the affirmative vote of a majority of the votes cast (in person or by proxy).
With respect to Proposals Two and Four shareholders may vote “For,” “Against” or “Abstain” on each proposal. Abstentions are deemed present at the meeting, and thus will be counted for quorum purposes, but will have the same effect as a vote against the matters respectively set forth in Proposals Two and Four.
Brokers who hold shares for the accounts of their clients “in street name” may vote such shares either as directed by their clients or at their own discretion if permitted by the New York Stock Exchange (“NYSE”) and other organizations of which they are members. If an executed proxy is returned by a broker on behalf of its client that indicates the broker does not have discretionary authority as to certain shares to vote on one or more matters (a “broker non-vote”), such shares will be considered present at the Annual Meeting for purposes of determining a quorum, but are not considered entitled to vote on that matter. Therefore, broker non-votes will not have any effect on any of the proposals being voted upon at the meeting. If your broker holds your shares “in street name” and you do not instruct your broker how to vote, your broker will have discretion to vote your shares on routine matters, such as Proposal Four, the ratification of the selection of the Company’s independent public accounting firm.
Your broker will not, however, have discretion to vote on non-routine matters absent direction from you. Among other matters, brokers are not entitled to use their discretion to vote uninstructed proxies in director elections or executive compensation matters. As a result, your broker will not be able to vote your shares on Proposals One through Three without your direction. Therefore, it is important that you provide your broker with voting instructions on all proposals. If your shares are held by your broker “in street name,” you will receive a voting instruction form from your broker or the broker’s agent asking you how your shares should be voted. Please complete the form and return it as instructed by the broker or agent.
SHAREHOLDERS ENTITLED TO VOTE Shareholders of record at the close of business on March 5, 2018,6, 2023, the record date, shall be entitled to vote at the 20182023 Annual Meeting. As of the record date, the Company had [☐]45,551,955 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 20182023 Annual Meeting. VOTES REQUIRED TO APPROVE THE PROPOSALS The following chart describes the proposals to be considered at the meeting, the vote required to elect directors and to adopt each other proposal, and the manner in which votes will be counted: | | Vote Required to Approve the Proposal | | Effect of “Broker Non-Votes” | | For, against, or abstain on each nominee | | | No effect. No broker discretion to vote. | | | | | No effect. No broker discretion to vote. | Approve Amendment to the Company’s Certificate of Incorporation to Include Exculpation of Officers | | Majority of shares outstanding | Counted as vote. Same effect as votes against. | Same effect as a vote against. No broker discretion to vote. | Approve 2023 Long-Tern Incentive Plan | | | | No effect. No broker discretion to vote. | Ratify selection of Deloitte & Touche LLP | | | | Brokers have discretion to vote. |
6 | RLI Corp. 2018 Proxy Statement
In the election of directors, a nominee for director will be elected if the votes cast for such nominee exceed the votes cast against such nominee. For all other matters except for the approval of the amendment to the Company’s Certificate of Incorporation to include the exculpation of officers, approval will require the affirmative vote of a majority of the votes cast. For the approval of the amendment to the Company’s Certificate of Incorporation to include the exculpation of officers, the affirmative vote of a majority of the shares of common stock outstanding on the record date will be required.
If you are a beneficial holder with your shares in street name and do not provide specific voting instructions to your broker, the organization that holds your shares will not be authorized to vote your shares, which would result in “broker non-votes” on proposals other than the ratification of the selection of Deloitte & Touche LLP as our independent registered public accounting firm. Any shares represented by “broker non-votes” are not considered votes cast or entitled to vote and therefore will not impact the outcome of such proposals, except that a broker non-vote will have the same impact as a vote “against” the proposal to approve the amendment to the Company’s Certificate of Incorporation to include the exculpation of officers. Accordingly, we encourage you to vote promptly, even if you plan to attend the virtual annual meeting. ATTENDING THE VIRTUAL ANNUAL MEETING In order to provide expanded access, improved communication and cost savings for our shareholders and our Company, this year’s Annual Meeting will be a completely “virtual” meeting of shareholders, which will be conducted via live audio webcast. We believe that hosting a virtual meeting will enable more of our shareholders to attend and participate in the meeting since our shareholders can participate from any location around the world with Internet access. You will be able to attend the Annual Meeting online and submit your questions during the meeting by visiting www.virtualshareholdermeeting.com/rli2023. Such questions must be confined to matters properly before the Annual Meeting and of general Company concern. You will also be able to vote your shares electronically at the Annual Meeting. To participate, you will need your 16-digit control number included in your proxy materials, on your proxy card, or on the instructions that accompanied your proxy materials. If you are not a shareholder of record but hold shares as a beneficial owner in street name, you may be required to provide proof of beneficial ownership, such as your most recent account statement as of the record date, a copy of the voting instruction form provided by your broker, trustee or other nominee, or other similar evidence of ownership. If your shares are held in the ESOP, you will not be able to vote your shares at the virtual Annual Meeting. RLI Corp. 2023 Proxy Statement | 11 The meeting will begin promptly at 9:00 a.m. Central Daylight Time. We encourage you to access the meeting prior to the start time. Online access will open at 8:45 a.m. Central Daylight Time, and you should allow ample time to log in to the meeting webcast and test your computer audio system. We recommend that you carefully review the procedures needed to gain admission in advance. We will have technicians ready to assist you with any technical difficulties you may have accessing the virtual meeting. If you encounter any difficulties accessing the virtual meeting during check-in or during the meeting, please call the technical support number that will be posted on the virtual shareholder meeting login page at www.virtualshareholdermeeting.com/rli2023. A replay of the Annual Meeting will be posted as soon as practical at www.virtualshareholdermeeting.com/rli2023 along with answers to shareholder questions pertinent to meeting matters that are received before and during the Annual Meeting that cannot be answered during the Annual Meeting due to time constraints. PROXY SOLICITATION The Company will bear the cost of proxy solicitation. In addition to the use of the mail, proxies may be solicited in person or by telephone, facsimile or other electronic means, by directors,Directors, officers, or employees of the Company. No additional compensation will be paid to such persons for their services. In accordance with the regulations of the SEC and the NYSE, 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 beneficial owners of the Company’s Common Stock and obtaining their proxies or voting instructions. The Company has engaged Okapi Partners LLC (“Okapi”) to assist with the solicitation of proxies and expects to pay a maximum of $15,000 to Okapi for these services, plus reimbursement of out-of-pocket expenses. ELECTRONIC ACCESS TO PROXY MATERIALS AND ANNUAL REPORT TO SHAREHOLDERS This Notice of 2023 Annual Meeting of Shareholders and Proxy Statement and the Company’s 20172022 Annual Report to Shareholders are available on the Company’s website at www.rlicorp.com and at www.proxyvote.com.http://materials.proxyvote.com/749607. 12 | RLI Corp. 2023 Proxy Statement SHARE OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT PRINCIPAL SHAREHOLDERS Following are theThe following table includes persons or entities known to the Company who beneficially own more than 5 percent of the Company’s Common Stock as of December 31, 2017 noted:2022:
| | | | | | | | | | Name and Address | | Number of Shares | | Percent of Outstanding | of Beneficial Owner | | Beneficially Owned | | Common Stock | The Vanguard Group, Inc. (1) | | 4,781,024 | | 10.54% | 100 Vanguard Boulevard | | | | | Malvern, Pennsylvania 19355 | | | | | | | | | | BlackRock, Inc. (2) | | 4,771,661 | | 10.50% | 55 East 52nd Street | | | | | New York, New York 10055 | | | | | | | | | | State Street Corporation (3) | | 4,639,518 | | 10.22% | State Street Financial Center | | | | | One Lincoln Street | | | | | Boston, Massachusetts 02111 | | | | | | | | | | Kayne Anderson Rudnick Investment Management LLC (4) | | 2,846,623 | | 6.27% | 1800 Avenue of the Stars | | | | | 2nd Floor | | | | | Los Angeles, CA 90067 | | | | |
| | | | | | | Name and Address | | Number of Shares | | Percent of Outstanding | | | of Beneficial Owner | | Beneficially Owned | | Common Stock | | | State Street Corporation(1) | | 5,609,875 | | 12.73% | | | State Street Financial Center | | | | | | | One Lincoln Street | | | | | | | Boston, Massachusetts 02111 | | | | | | | | | | | | | | BlackRock, Inc.(2) | | 4,925,896 | | 11.20% | | | 55 East 52nd Street | | | | | | | New York, New York 10055 | | | | | | | | | | | | | | The Vanguard Group, Inc. (3) | | 4,384,256 | | 9.95% | | | 100 Vanguard Boulevard | | | | | | | Malvern, Pennsylvania 19355 | | | | | | | | | | | | | | Neuberger Berman Group LLC (4) | | 2,237,630 | | 5.08% | | | 1290 Avenue of the Americas | | | | | | | New York, New York 10104 | | | | | | | | | | | | | |
| (1) | (1)
| | The information shown is based solely on a Schedule 13G dated February 14, 2018,9, 2023, filed with the SEC by The Vanguard Group, Inc. (“Vanguard”). According to the Schedule 13G, as of December 31, 2022, Vanguard is the beneficial owner of 4,781,024 shares, and has no sole voting power with respect to any shares held, sole dispositive power with respect to 4,674,870 shares, shared voting power with respect to 67,075 shares and shared dispositive power with respect to 106,154 shares. |
| (2) | The information shown is based solely on a Schedule 13G dated January 23, 2023, filed with the SEC by BlackRock, Inc. (“BlackRock”). According to the Schedule 13G, as of December 31, 2022, BlackRock is the beneficial owner of 4,771,661 shares, has sole voting power with respect to 4,683,613 shares, sole dispositive power with respect to 4,771,661 shares and no shared voting or shared dispositive power with respect to any shares beneficially held. |
| (3) | The information shown is based solely on a Schedule 13G dated February 3, 2023, filed with the SEC by State Street Corporation (“State Street”). According to the Schedule 13G, as of December 31, 2022, State Street Bank andGlobal Advisors Trust Company (“Trustee”), a subsidiary of State Street, in its capacity as trustee of the Company’sRLI Corp. Employee Stock Ownership Plan (“ESOP”), held 3,231,9113,489,257 shares on behalf of participants in such plan. State Street further disclosed no sole voting or sole dispositive power with respect to the shares, and shared voting and shared dispositive power with respect to 5,609,875 shares. Each ESOP participant or beneficiary may direct the Trustee as to the manner in which the shares allocated to each participant under the ESOP are to be voted. The Trustee has sole voting power with respect to all unallocated shares and sole investment power as to all allocated and unallocated shares. With respect to allocated shares for which no votes are received, the Trustee will vote such shares in proportion to the votes cast on behalf of allocated shares for which votes are received. |
| (2)
| | The information shown is based solely on a Schedule 13G dated January 17, 2018, filed with the SEC by BlackRock, Inc. (“BlackRock”). Accordingreceived unless contrary to the Schedule 13G, as of December 31, 2017, BlackRock is the beneficial owner of 4,925,896 shares, and hasapplicable law. State Street further disclosed no sole voting with respect to 4,843,235 shares andor sole dispositive power with respect to 4,925,896 shares.
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RLI Corp. 2018 Proxy Statement | 7
| (3)
| | The information shown is based solely on a Schedule 13G dated February 7, 2018, filed with the SEC by The Vanguard Group, Inc. (“Vanguard”). According to the Schedule 13G, Vanguard is the beneficial owner of 4,384,256any shares and has solebeneficially held, shared voting with respect to 70,116 shares, sole dispositive power with respect to 4,312,147 shares, shared voting power with respect to 5,2084,541,556 shares, and shared dispositive power with respect to 72,1094,639,518 shares.
|
| (4) | (4)
| | The information shown is based solely on a Schedule 13G dated February 14, 2018,2023, filed with the SEC by Neuberger Berman GroupKayne Anderson Rudnick Investment Management, LLC (“Neuberger”Kayne Anderson”). According to the Schedule 13G, Neubergeras of December 31, 2022, Kayne Anderson is the beneficial owner of 2,237,6302,846,623 shares, and has no sole voting orpower with respect to 1,867,671 shares, sole dispositive power with respect to the2,231,146 shares, and has shared voting power with respect to 2,223,090 shares and sharedshare dispositive power with respect to 2,237,630615,477 shares. |
RLI Corp. 2023 Proxy Statement | 13 DIRECTORS AND OFFICERS The following is information regarding beneficial ownership of the Company’s Common Stock by each directorDirector and named executive officerNamed Executive Officer (“NEO”) (whose compensation is disclosed in this Proxy Statement), and the directorsDirectors and executive officers of the Company as a group, as of December 31, 2017. March 6, 2023: | | | | | | | Name of Individual or | | Number of Shares | | Percent of Outstanding | | | Number of Persons in Group | | Beneficially Owned(1) | | Common Stock | | | Kaj Ahlmann(2) | | 11,132 | | * | | | Barbara R. Allen | | 22,591 | | * | | | Michael E. Angelina (2) | | 11,917 | | * | | | John T. Baily (2) (3) | | 71,108 | | * | | | Thomas L. Brown(4) (5) (6) | | 80,488 | | * | | | Calvin G. Butler, Jr. | | 2,305 | | * | | | David B. Duclos (2) | | 2,369 | | * | | | Jeffrey D. Fick (4) (6) | | 72,049 | | * | | | Jordan W. Graham (2) | | 48,617 | | * | | | Craig W. Kliethermes (4) (5) | | 128,095 | | * | | | Jennifer L. Klobnak (4) (6) | | 43,187 | | * | | | F. Lynn McPheeters (2) | | 92,426 | | * | | | Jonathan E. Michael (4) (5) (6) (7) | | 1,260,523 | | 2.8% | | | Robert P. Restrepo, Jr. | | 8,325 | | * | | | James J. Scanlan (2) | | 8,290 | | * | | | Michael J. Stone (5) (6) (8) (9) | | 515,160 | | 1.2% | | | | | | | | | | Directors and executive officers as a group (18 persons) (4) (5) (6) | | 2,467,126 | | 5.54% | | |
| | | | | | | | | | Name of Individual or | | Number of Shares | | Percent of Outstanding | Number of Persons in Group | | Beneficially Owned (1) | | Common Stock | Kaj Ahlmann (2) (3) | | 13,372 | | * | Michael E. Angelina (2) (3) | | 19,753 | | * | John T. Baily (2) (3) (4) | | 88,130 | | * | Todd W. Bryant (5) (8) | | 81,360 | | * | Aaron P. Diefenthaler (5) (6) (7) | | 76,699 | | * | David B. Duclos (2) (3) | | 8,098 | | * | Jeffrey D. Fick (5) (7) | | 102,980 | | * | Susan S. Fleming (2) (3) | | 8,322 | | * | Jordan W. Graham (2) (3) | | 58,581 | | * | Craig W. Kliethermes (5) (6) (7) | | 122,711 | | * | Jennifer L. Klobnak (5) (7) | | 108,159 | | * | Paul B. Medini (2) (8) | | 594 | | * | Jonathan E. Michael (5) (6) (7) (9) | | 1,294,559 | | 2.8% | Robert P. Restrepo, Jr. (3) | | 12,338 | | * | Debbie S. Roberts (2) (3) | | 8,371 | | * | Michael J. Stone (3) (10) | | 222,243 | | * | | | | | | Directors and executive officers as a group (17 persons) (5) (6) (7) (8) | | 2,288,686 | | 5.00% |
*Less than 1%1 percent of Class. | (1) | (1)
| | Unless otherwise noted, each person has sole voting power and sole investmentdispositive power with respect to the shares reported. |
| (2) | (2)
| | Includes shares held by a bank trustee under an irrevocable trust established by the Company pursuantwith respect to the RLI Corp. Nonemployee Director Deferred Compensation Plan (“Director Deferred Plan”) for the benefit of the following: Mr. Ahlmann 8,55810,024 shares; Mr. Angelina 3,7306,674 shares; Mr. Baily 36,79247,600 shares; Mr. Butler 2,305 shares, Mr. Duclos 4514,849 shares; Dr. Fleming 5,725 shares; Mr. Graham 43,75852,180 shares; Mr. McPheeters 44,591Medini 594 shares; and Mr. Scanlan 2,006Ms. Roberts 7,688 shares. Each participating directorDirector has no voting or investment power with respect to such shares. |
| (3) | (3)
The above number of shares beneficially owned includes 682 Restricted Stock Units (“RSUs”) (643 RSU’s granted plus dividend equivalents through March 6, 2023) granted to nonemployee Directors on May 5, 2022. Directors can elect to either receive the RSUs as shares of Company stock upon vesting or defer receipt of those shares under the Director Deferred Plan. RSUs have dividend rights that accrue as additional RSUs payable upon vesting or distribution from the Director Deferred Plan. The RSUs will vest, under the terms of the Award, on the date of the Company’s 2023 Annual Meeting. |
| (4) | | Includes 6,000 shares held by Mr. Baily’s spouse. |
| (5) | (4)
| | Includes shares allocated to the named personsexecutive officers and one other executive officer under the ESOP as of March 6, 2023 with respect to which such persons have sole voting power (pursuant to their ability to direct the Trustee to vote their shares) and no investment power. As of January 1, 2018,March 6, 2023, the following shares were allocated under the ESOP: Mr. Brown 2,697Bryant 30,009 shares; Mr. Diefenthaler 4,124 shares; Mr. Fick 10,60812,315 shares; Mr. Kliethermes 11,2847,266 shares; Ms. Klobnak 15,395;19,522 shares; and Mr. Michael 241,305268,441 shares. During 2017, Messrs. Fick, Kliethermes and Michael and Ms. Klobnak were eligible to elect to diversify their respective ESOP shares. |
8 | RLI Corp. 2018 Proxy Statement
| (6) | (5)
| | Includes shares allocated to the named persons which shares are held by a bank trustee under an irrevocable trust established by the Company pursuantwith respect to the RLI Corp. Executive Deferred Compensation Plan (“Deferred Plan”) for the benefit of the following: Mr. Brown 7,123Diefenthaler 1,442 shares; Mr. Kliethermes 18,765 shares; Mr. Michael 52,51710,991 shares; and Mr. Stone 41,516Michael 61,514 shares. Each participant has no voting or investment power with respect to such shares. |
| (7) | (6)
| | Includes shares that may be acquired by the named persons within 60 days after December 31, 2017,March 6, 2023, under the Omnibus Plan and the LTIPs2015 LTIP (as described herein), upon the exercise of outstanding stock options as follows: Mr. Brown 34,600Bryant 23,850 shares; Mr. Diefenthaler 45,400 shares; Mr. Fick 17,30028,348 shares; Mr. Kliethermes 14,00043,800 shares; Ms. Klobnak 15,880 shares; Mr. Michael 101,00055,400 shares; and Mr. Stone 152,000Michael 68,349 shares. |
14 | RLI Corp. 2023 Proxy Statement | (8) | (7)
The above number of shares beneficially owned includes 594 Restricted Stock Units (“RSUs”) (563 RSU’s granted plus dividend equivalents through March 7, 2022) granted to Mr. Medini on November 1, 2022. Directors can elect to either receive the RSUs as shares of Company stock upon vesting or defer receipt of those shares under the Director Deferred Plan. RSUs have dividend rights that accrue as additional RSUs payable upon vesting or distribution from the Director Deferred Plan. The RSUs will vest, under the terms of the Award, on the date of the Company’s 2023 Annual Meeting. |
| (9) | | Includes 130,129152,423 shares allocated under the Key Employee Excess Benefit Plan (“Key Plan”), over which Mr. Michael has no voting or investment power; and 40,95620,433 shares owned by the Jonathan E. Michael Grantor Retained Annuity Trusts,Family Trust, over which Mr. Michael, as Trustee, has sole voting and sole investment power. |
| (10) | (8)
| | Includes 880135 shares held by Mr. Stone’s wife; and 1,580 shares held by Mr. Stone’s wife, as Custodian — UTMA-FL, as to which Mr. Stone disclaimsrefuses any beneficial interest. |
| (9)
| | Includes 30,062 shares owned by the Michael J. Stone Grantor Retained Annuity Trusts, over which Mr. Stone, as Trustee, has sole voting and sole investment power.
|
The information with respect to beneficial ownership of Common Stock of the Company is based on information furnished to the Company by each individual included in the table. SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended (“Exchange Act”), requires the Company’s directors, executive officers and beneficial owners of more than 10 percent of the Common Stock of the Company to file with the SEC certain reports regarding their ownership of Common Stock or any changes in such ownership.
Based solely on its review of the copies of such reports received by it, and/or written representations from certain reporting persons, the Company believes that during the year ended December 31, 2017, the reporting persons have complied with all filing requirements of Section 16(a).
PROPOSAL ONE: ELECTION OF DIRECTORS
GENERAL
GENERAL At this year’s Annual Meeting, all ten (10) directors11 Directors are to be elected, each to hold office for a one-year term expiring at the 20192024 Annual Meeting unless that director dies, resignsand until such Director’s successor is elected and qualified or is removed prior to that time.until such Director’s earlier death, resignation, or removal. Unless otherwise instructed, the shares represented by a signed proxy card will be voted for the election of each of the 1011 nominees named below. The affirmative vote of a majority of the shares of common stock of the Company present in person or represented by proxy at the Annual Meeting and entitled to votevotes cast is required for the election of directors.each Director. Votes will be tabulated by an Inspector of Election appointed at the Annual Meeting. Shares may be voted for, against or withheldabstained from, each nominee. Cumulative voting for the directorsDirectors is not permitted under the Company’s Amended and Restated ArticlesCertificate of Incorporation. NOMINEES NOMINEES
Dr. Susan S. Fleming, Ms. Debbie S. Roberts and Messrs. Kaj Ahlmann, Michael E. Angelina, John T. Baily, Calvin G. Butler, Jr., David B. Duclos, Jordan W. Graham, Craig W. Kliethermes, Paul B. Medini, Jonathan E. Michael, Robert P. Restrepo, Jr., James J. Scanlan and Michael J. Stone, each a current director,Director, are standing for election. Each wasis nominated by the Nominating/Corporate Governance Committee to serve for a one-year term expiring in 2019. Mr. F. Lynn McPheeters and Ms. Barbara R. Allen have decided to retire fromat the Board on May 3, 2018 and will not stand for election. 2024 Annual Meeting. 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, the shares represented by a proxy will be voted for the election of a substitute nominee selected by the persons appointed as proxies and recommended by the Board, unless the Board should RLI Corp. 2018 Proxy Statement | 9
determine to reduce the number of directorsDirectors pursuant to the Company’s Bylaws or allow the vacancy to stay open until a replacement is designated by the Board. The Board of Directors recommends that the shareholders vote “FOR” the election of all 1011 nominees listed below. DIRECTOR NOMINEE INFORMATION
Below are specific qualifications, skills, attributes and experience with respect to the director nominees to the Board of Directors furnished to the Company by such individuals, summarized herein and more fully detailed in the individual professional history below, which information led to the conclusion they are qualified to serve as a director and are beneficial to the Company. The Nominating/Corporate Governance Committee and the Board considered, in particular, the following with respect to each director: Messrs. Ahlmannand Duclos — their broad reinsurance and insurance expertise, executive management experience, as well as their global insurance experience. Mr. Angelina — his significant insurance industry experience including his extensive risk management background. Messrs. Baily and Scanlan — their extensive experience in accounting and auditing in the insurance and reinsurance industries. Mr. Butler – his significant executive management experience, together with his regulatory, external affairs, customer service and innovation and technology expertise. Mr. Graham — his strong financial services, strategy, merger/acquisition and advisory experience as well as deep information technology and internet background. Mr. Restrepo – his extensive insurance expertise, executive management, finance, regulatory, and risk management experience. The Board also considered the over 35 years of experience with the Company represented by Mr. Michael and over 38 years of insurance industry experience (19 years at the Company) represented by Mr. Stone.
| | | DIRECTOR | | | NAME | AGE | | SINCE | | PRINCIPAL OCCUPATION AND BACKGROUND | Kaj Ahlmann | 67 | | 2009 | | Mr. Ahlmann retired after serving October 2009 through December 2016 as Global Head, Strategic Services and Chair, Advisory Board of Deutsche Bank after having provided independent services to the Council of Global Insurance Asset Management, Deutsche Asset Management, since 2006. He brings over 40 years of experience with various companies related to the reinsurance and insurance industries and asset management. From 2001 to 2003, Mr. Ahlmann was the Chairman and CEO of inreon, a global electronic reinsurance venture created by Munich Re, Swiss Re, Internet Capital Group and Accenture. He was Vice Chairman and Executive Officer of E.W. Blanch Holdings, Inc., a provider of integrated risk management and distribution services, from 1999 to 2001. Prior to that, from 1993 to 1999, he was Chairman, President and CEO of Employers Reinsurance Corporation, a global reinsurance company and served as a director of the parent organization, GE Capital Services. He served on the boards of Erie Indemnity Company, Erie Insurance Group from 2003 to 2008 and SCPIE Holdings, Inc., from 2006 to 2008. Mr. Ahlmann, with his family, owns and operates the Six Sigma Ranch & Winery in Lower Lake, California, which produces artisanal wines for retail distribution. Mr. Ahlmann currently serves as Senior Advisor to the insurance sector for Arena Investors, LP, on the board of the American Institute for CPCU (Chartered Property and Casualty Underwriter) and the Advisory Boards of Six Sigma Academy and Insurance Thought Leadership, Inc. He has a Bachelor’s degree in Mathematics and a Master’s degree in Mathematical Statistics and Probability and Actuarial Science, both from the University of Copenhagen. | 
| | Michael E. Angelina | 51 | | 2013 | | Mr. Angelina is the Executive Director of the Maguire Academy of Insurance and Risk Management at Saint Joseph’s University since April 2012. He leads the Risk Management and Insurance program within the Haub School of Business and coordinates the Maguire Academy activities. From June 2005 to April 2012, Mr. Angelina was the Chief Risk Officer and Chief Actuary for Endurance Specialty Holdings, Ltd., where he was a functional leader of pricing, reserving and risk management and the leader of the Enterprise Risk Management Initiative. From January 2000 to June 2005, Mr. Angelina was the Managing Principal of Tillinghast-Towers Perrin where he led the Philadelphia office and co-led Tillinghast Asbestos practice. Mr. Angelina serves as a Board Member of Equator Re, Hagerty Insurance Group, and a member of American Academy of Actuaries Committee on Property & Liability Financial Reporting and former Chair of AAA Casualty Practice Council. Mr. Angelina has a Bachelor’s degree in Mathematics from Drexel University. | 
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10 | RLI Corp. 2018 Proxy Statement
RLI Corp. 2023 Proxy Statement | 15 | | | DIRECTOR | | | NAME | AGE | | SINCE | | PRINCIPAL OCCUPATION AND BACKGROUND | John T. Baily (1) | 74 | | 2003 | | Mr. Baily retired after serving as President of Swiss Re Capital Partners from 1999 through 2002. In this role, he was involved in investments and acquisitions in the insurance industry. He was previously the National Insurance Industry Chairman and Partner of the accounting firm of Coopers & Lybrand LLP (C&L) (now known as PricewaterhouseCoopers LLP) retiring in 1999 after 33 years, 23 years of which he was a partner. He served as Chairman of the C&L insurance practice for 13 years, where he was responsible for all of the firm’s services to the insurance industry (including audit, tax, actuarial, management consulting). He was also a member of C&L’s governing body, the U.S. Board of Partners. Mr. Baily serves on the boards of Endurance U.S. Specialty Holdings Corp., Golub Capital BDC, Inc., and its affiliates, is a member of the Pennsylvania Institute of CPA’s and the Connecticut Society of CPA’s, and is Chairman Emeritus of the Board of Albright College. He previously served on the boards of Erie Indemnity Company, NYMagic, Inc. and CIFG Holdings, Ltd. He has a Bachelor’s degree in Economics from Albright College and an MBA from the University of Chicago. | 
| |
Jonathan E. Michael | 
Age: 69 Director since: 1997 Management Director Committees: ●Board Chairman | BACKGROUND Mr. Michael has been Chairman of the Board since May 5, 2011. Mr. Michael served as CEO of the Company from January 1, 2001 until his retirement on December 31, 2021. He served as President & CEO from January 1, 2001 until December 31, 2020 when he stepped down as President of the Company as part of the planned succession for his role in connection with his retirement as CEO on December 31, 2021. He was elected Chairman of the Board & CEO of the Company’s principal insurance subsidiaries on January 1, 2002 until his resignation as CEO effective December 31, 2021. Mr. Michael served as Chief Operating Officer of the Company from 1994 to 2001, and prior to that served for several years as Executive Vice President, responsible for running the Company’s insurance operations. Mr. Michael joined the Company in 1982. Prior to 1982, Mr. Michael was associated with Coopers & Lybrand LLP. | | QUALIFICATIONS Mr. Michael has over 40 years of experience with the Company and has held various managerial and executive officer positions. This significant experience with the Company provides Mr. Michael with a unique perspective into our operations, our people and the strategic vision needed to meet our performance goals. He has a Bachelor’s degree in Business Administration from Ohio Dominican College. | | OTHER COMPANY BOARD SERVICE Mr. Michael serves as Lead Director on the Board of Directors of investment management software maker SS&C Technologies Holdings, Inc. and is Chairman of the Board of business analytic technology firm TADA Cognitive Solutions, LLC. Mr. Michael served on the Board of sunglasses manufacturer Maui Jim, Inc. until its acquisition in September 2022. He is currently a member of the OSF St. Francis Medical Center Community Advisory Board; Vice-Chair of the Bradley University Board of Trustees; and the immediate past Chair of Easterseals Central Illinois. He is a member and Past Chair of Property Casualty Insurers Association of America (now known as American Property Casualty Insurance Association) Board of Governors. |
Calvin G. Butler, Jr. | 48 | | 2016 | | Mr. Butler has been the CEO of Baltimore Gas and Electric Company (BGE) since March 2014. In February 2008, Mr. Butler joined Exelon and has held various managerial positions through the current date. The positions included VP, State Legislation & Government Affairs; SVP, External Affairs LCS State Legislation & Government Affairs; SVP, ComEd Corporate Affairs; SVP, Human Resources, Exelon Corp.; SVP, Corporate Affairs; SVP, Regulatory & External Affairs; and currently CEO of Baltimore Gas and Electric, an Exelon company. From 1999 to January 2008, Mr. Butler held leadership positions with RR Donnelly, including vice president of manufacturing, senior director of government affairs, and senior vice president of external affairs. Mr. Butler worked from 1994 to 1999 at CILCORP. (Central Illinois Light Company) in its government affairs, legal and strategy departments. Mr. Butler currently is board chair, Bradley University Board of Trustees; director, University of Maryland Medical Center; director, PNC Funds. In addition, Mr. Butler serves on the Board of Directors of several civil and charitable organizations in and around the Baltimore area. He has a Bachelor’s degree in Public Relations from Bradley University, and received his Law degree from Washington University School of Law in St. Louis. | 
| | David B. Duclos | 60 | | 2017 | | Mr. Duclos brings 39 years of experience with various companies related to the insurance and reinsurance industries. Most recently retired as CEO of QBE, North America in July, 2016. He was appointed to this position in April 2013 and is now serving as a Non-Executive Director on the Emerging Markets and Equator Re Boards. He retired December 2012 from XL Group, having served as Chief Executive of XL Insurance from January 2008 through December 2011. Mr. Duclos joined XL in October 2003 and served in several senior level underwriting and field operations roles, including running XL’s global specialty business. From September 1999 through July 2003, Mr. Duclos was the President, Small Business Group of Kemper Insurance Company. Mr. Duclos was employed at Cigna Corporation from July 1979 through July 1999 in various underwriting and managerial positions. The positions included Branch Underwriting, Marketing Manager, Branch Executive, AVP-Field Operations, Region President and Specialty Business Leader. He served as a Director of RLI Corp. from August 16, 2012 until February 26, 2013. He is a director of St. Joseph University’s School of Risk Management, serves on the board of AAIS and is a former director of QBE Insurance Company of North America. Mr. Duclos has a Bachelor’s degree in Business Administration from Eastern Illinois University and is a graduate of the Advanced Insurance Executive Education Program at the Wharton School of the University of Pennsylvania. | 
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RLI Corp. 2018 Proxy Statement | 11
Kaj Ahlmann | 
Age: 72 Director since: 2009 Independent Director Committees: ●Audit ●Nominating & Corporate Governance | BACKGROUND Mr. Ahlmann retired after serving from October 2009 through December 2016 as Global Head, Strategic Services and Chair, Advisory Board of Deutsche Bank after having provided independent services to the Council of Global Insurance Asset Management, Deutsche Asset Management, since 2006. From 2001 to 2003, Mr. Ahlmann was the Chairman and CEO of inreon, a global electronic reinsurance venture created by Munich Re, Swiss Re, Internet Capital Group and Accenture. He was Vice Chairman and Executive Officer of E.W. Blanch Holdings, Inc., a provider of integrated risk management and distribution services, from 1999 to 2001. Prior to that, from 1993 to 1999, he was Chairman, President and CEO of Employers Reinsurance Corporation, a global reinsurance company and served as a Director of the parent organization, GE Capital Services. Mr. Ahlmann, with his family, owns and operates the Six Sigma Ranch & Winery in Lower Lake, California, which produces artisanal wines for retail distribution. | | QUALIFICATIONS Mr. Ahlmann has broad global reinsurance and insurance expertise and executive management experience. He brings over 40 years of experience with various companies related to the reinsurance and insurance industries and asset management. He has a Bachelor’s degree in Mathematics and a Master’s degree in Mathematical Statistics and Probability and Actuarial Science, both from the University of Copenhagen. | | OTHER COMPANY BOARD SERVICE Mr. Ahlmann served on the boards of Erie Indemnity Company, Erie Insurance Group from 2003 to 2008 and SCPIE Holdings, Inc., from 2006 to 2008. Mr. Ahlmann currently serves as Senior Advisor to the insurance sector for Arena Investors, LP; board member, The Institutes f/k/a American Institute for CPCU (Chartered Property and Casualty Underwriter); and an advisory board member of Six Sigma Academy. |
16 | RLI Corp. 2023 Proxy Statement | | | DIRECTOR | | | NAME | AGE | | SINCE | | PRINCIPAL OCCUPATION AND BACKGROUND | Jordan W. Graham | 57 | | 2004 | | Mr. Graham has been Managing Director with Quotient Partners since May 2011, providing business strategy and merger/acquisition advisory services to financial services, digital media, internet and information services companies. He has over 30 years of experience working both in and providing information technology based products and services to the financial services industry globally. From 2010 to 2011, he served as President of FICO Consumer Services and Executive Vice President of Credit Scoring and Predictive Analytics at Fair Isaac, Inc., the leading provider of credit, analytics, and decision management technologies. From 2007 to 2010, Mr. Graham was Managing Director and Head of North America Business Development for the Global Transaction Services (GTS) Division of Citigroup responsible for strategic planning, global partnerships and acquisitions. For the preceding two years, he was retained as a full-time consultant to the CEO of Citigroup GTS and provided strategy and acquisition advisory services. From 1998 to 2004, he was an executive with Cisco Systems, serving as Vice President of the Internet Business Solutions Group, Services Industries Strategy Consulting, leading internet business strategy consulting practices for the financial services, healthcare, energy and media/entertainment industries globally. Previously he was Managing Director and Global Head of Cisco’s Financial Services Industry Consulting Practice providing internet business strategy services to CXO level executives in Global 500 insurance, banking and securities firms. He has also been the CEO of two successful venture capital-backed businesses, a financial services technology company and an internet cloud-based solutions provider, as well as a board director and member of the Investment Committee for Securitas Capital, a SwissRe and Credit Suisse backed private equity fund investing in insurance and risk related ventures. Mr. Graham currently serves on the board of Yiftee, Inc. and has a Bachelor’s degree in Business Entrepreneurship from the University of Southern California. | 
| | Jonathan E. Michael(2) | 64 | | 1997 | | Mr. Michael has been Chairman of the Board since May 5, 2011 and President & CEO of the Company since January 1, 2001. He was elected Chairman of the Board & CEO of the Company’s principal insurance subsidiaries January 1, 2002. Mr. Michael joined the Company in 1982 and has held various managerial and executive officer positions, including Controller, Vice President, Finance/Chief Financial Officer. Additionally, as Executive Vice President he was responsible for running the Company’s insurance operations for several years before becoming Chief Operating Officer in 1994. Prior to 1982, Mr. Michael was associated with Coopers & Lybrand LLP. He serves on the Board of Directors of investment management software maker SS&C Technologies Holdings, Inc., sunglass manufacturer Maui Jim, Inc, and business analytic technology firm TADA Cognitive Solutions, LLC. He is currently a member of the OSF St. Francis Medical Center Community Advisory Board, a member of the OSF Healthcare Foundation Board, a member of the Illinois Neurological Institute Advisory Board, Vice Chairman and member of Central Illinois Easter Seals Foundation Board of Trustees, and a member of the Bradley University Board of Trustees. He is a member and Past Chair of the Property Casualty Insurers Association Board of Governors. He has a Bachelor’s degree in Business Administration from Ohio Dominican College. | 
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Michael E. Angelina | 
Age: 56 Director since: 2013 Independent Director Committees: ● Chair, Audit ●Strategy & Risk | BACKGROUND Mr. Angelina is an Executive in Residence of the Maguire Academy of Insurance and Risk Management at Saint Joseph’s University since January 2021. Prior to this position he was the Executive Director of the Maguire Academy where he led the Risk Management and Insurance program within the Haub School of Business and coordinated the Maguire Academy activities. From June 2005 to April 2012, Mr. Angelina was the Chief Risk Officer and Chief Actuary for Endurance Specialty Holdings, Ltd., where he was a functional leader of pricing, reserving and risk management and the leader of the Enterprise Risk Management Initiative. From January 2000 to June 2005, Mr. Angelina was the Managing Principal of Tillinghast-Towers Perrin where he led the Philadelphia office and co-led the Tillinghast Asbestos practice. | | QUALIFICATIONS Mr. Angelina has significant insurance industry experience including his extensive risk management background. Mr. Angelina has a Bachelor’s degree in Mathematics from Drexel University. | | OTHER COMPANY BOARD SERVICE Mr. Angelina serves as Chairman of the Board for Hagerty, Inc; a Board Member of CoAction Specialty and QBE Equator Reinsurances Limited; and a former member of American Academy of Actuaries Committee on Property & Liability Financial Reporting and former Chair of AAA Casualty Practice Council. |
12 | RLI Corp. 2018 Proxy Statement
David B. Duclos | 
Age: 65 Director since: 2017 Independent Director Committees: ●Chair, Human Capital & Compensation ●Finance & Investment | BACKGROUND Mr. Duclos retired as CEO of QBE, North America in July 2016, which he was appointed to in April 2013. He retired December 2012 from XL Group, having served as Chief Executive of XL Insurance from January 2008 through December 2011. Mr. Duclos joined XL in October 2003 and served in several senior level underwriting and field operations roles, including running XL’s global specialty business. From September 1999 through July 2003, Mr. Duclos was the President, Small Business Group of Kemper Insurance Company. Mr. Duclos was employed at Cigna Corporation from July 1979 through July 1999 in various underwriting and managerial positions. The positions included Branch Underwriting, Marketing Manager, Branch Executive, AVP-Field Operations, Region President and Specialty Business Leader. He previously served as a Director of RLI Corp. from August 16, 2012 until February 26, 2013. | | QUALIFICATIONS Mr. Duclos brings 44 years of experience with various companies related to the insurance and reinsurance industries. Mr. Duclos has broad global reinsurance and insurance expertise, and executive management experience. Mr. Duclos has a Bachelor’s degree in Business Administration from Eastern Illinois University and is a graduate of the Advanced Insurance Executive Education Program at the Wharton School of the University of Pennsylvania. | | OTHER COMPANY BOARD SERVICE Mr. Duclos serves as Chair of QBE Groups subsidiary board for the Blue Ocean and Equator Re companies, a Director of Maguire Academy of Insurance and Risk Management at Saint Joseph’s University; a member of the board of the American Association of Insurance Services; and Advisor to the CEO of Brightway Insurance Brokerage. He is a former Director of QBE Latin American Insurance Holdings Limited, formerly known as QBE Emerging Markets Holdings Limited and former non-executive Chairman of Lloyd’s Global Network, an advisory Board of Lloyd’s of London. |
RLI Corp. 2023 Proxy Statement | 17 | | | DIRECTOR | | | NAME | AGE | | SINCE | | PRINCIPAL OCCUPATION AND BACKGROUND | Robert P. Restrepo, Jr.(3) | 67 | | 2016 | | Mr. Restrepo retired in May 2015 as CEO and President of State Auto Insurance Companies and as Chairman in December 2015. Mr. Restrepo brings 44 years of experience with various companies related to the insurance industries. Mr. Restrepo was appointed Chairman, CEO and President of State Auto in 2006. From 2005 to 2006, Mr. Restrepo served as Senior Vice President, Insurance Operations of Main Street America Group and was responsible for personal lines, commercial lines, bonds, claims, marketing, information technology and customer service. From 1998 to 2003, Mr. Restrepo was the President and CEO, Property & Casualty of Allmerica Financial. From 1996 to 1998, Mr. Restrepo was the President and CEO, Personal Lines at Travelers Property & Casualty and was responsible for the newly combined personal property and casualty operations of Travelers and Aetna. In 1972 Mr. Restrepo joined Aetna Life & Casualty and held various managerial positions through 1996, including positions in marketing, technology and field management, and ended as Senior Vice President, Personal Lines. Mr. Restrepo serves on the Board of Directors of Majesco, Genworth Financial, Big I Reinsurance Company, Nuclear Electric Insurance Limited, and the Larry H. Miller Group. Mr. Restrepo is a former Director of Property Casualty Insurance Association of America, Insurance Information Institute, and The Institutes. Mr. Restrepo has a Bachelor’s degree in English from Yale University. | 
| | James J. Scanlan | 63 | | 2015 | | Mr. Scanlan retired after serving as United States Insurance Industry Leader and as a member of the Global Insurance Leadership Team of the accounting firm PricewaterhouseCoopers LLP (“PwC”) from 2003 through 2013. He was responsible for seventy-five partners and all areas of practice management, including risk management and new business development. Mr. Scanlan joined PwC in 1976 and was admitted to Partnership in 1986. He was also past Partner in Charge of Philadelphia Healthcare Practice (1989–1992); Philadelphia Financial Services Practice (1993–1997); and Southeast Regional Financial Services and Insurance Practice (1998–2001). He was a member of PwC Extended Leadership Team from 2007 through 2013. He serves on the Board of Directors of The Warranty Group, a leading global provider of warranty solutions and underwriting services and Jackson National Life Insurance Company, a subsidiary of Prudential plc, Incorporated. He is Chair of the Finance Committee of Drexel Neumann Academy and West Catholic Preparatory High School. He has a Bachelor’s degree in accounting from Pennsylvania State University. | 
| | Michael J. Stone | 69 | | 2012 | | Mr. Stone is the former President and Chief Operating Officer of the Company’s principal insurance subsidiaries from January 2002 until his retirement in December 2015, where his responsibilities included the overall direction of the companies. Mr. Stone joined the Company in May 1996 and held various executive officer positions. From 1977 to May 1996, Mr. Stone held various managerial and executive officer positions with Travelers Insurance Group. Mr. Stone serves as Chairman of the Board on the Board of Directors for UnityPoint Health and South Side Trust & Savings Bank. He has a Bachelor’s degree in Political Science from Bellarmine College, and received his Law degree, magna cum laude, from the University of Louisville. | 
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The following footnotes reflect directorships held within the past five years at publicly traded companies:
Susan S. Fleming | 
Age: 52 Director since: 2018 Independent Director Committees: ●Nominating & Corporate Governance ●Finance & Investment | (1)
BACKGROUND Dr. Fleming is an entrepreneur in residence, executive educator, and angel investor. From 2009 through 2018, she served as a Senior Lecturer of management and entrepreneurship at the School of Hotel Administration and the Johnson Graduate School of Management of Cornell University. From 2004 through 2009, she pursued a Masters and PhD from Cornell University. From 1998 until December 2003, she was Partner and Principal of Capital Z Financial Services Partners, a private equity fund focused on the financial services industry. From 1994 until December 2003, she served as Vice President, Insurance Partners Advisors, L.P., a private equity fund focused on the insurance and healthcare industries. From 1992 until 1994 she was an analyst with Morgan Stanley & Co. | | QUALIFICATIONS With her years of experience in private equity, investment banking, and education, Dr. Fleming brings expertise in financial services, corporate finance, mergers and acquisitions, and organizational leadership to our Board. Dr. Fleming holds a Bachelor’s Degree in Economics and Asian Studies from the University of Virginia and a Master’s Degree and PhD in Management and Organizations from Cornell University. | | Mr. Baily
OTHER COMPANY BOARD SERVICE Dr. Fleming currently serves as a directorDirector for Virtus Investment Partners, Inc. She was formerly a Director of GolubEndurance Specialty Holdings, Ltd.; Quanta Capital BDC,Holdings, Ltd.; Ceres Group, Inc.; PXRE Group, Ltd.; and Universal American Financial Group, Inc. |
Jordan W. Graham | 
Age: 62 Director since: 2004 Independent Director Committees: ●Human Capital & Compensation ●Chair, Finance & Investment | BACKGROUND Mr. Graham has been Managing Director with Quotient Partners since May 2011, providing business strategy and merger/acquisition advisory services to financial services, digital media, internet, and information services companies. From 2010 to 2011, he served as President of FICO Consumer Services and Executive Vice President of Credit Scoring and Predictive Analytics at Fair Isaac, Inc., the leading provider of credit, analytics, and decision management technologies. From 2007 to 2010, Mr. Graham was Managing Director and Head of North America Business Development for the Global Transaction Services (GTS) Division of Citigroup responsible for strategic planning, global partnerships, and acquisitions. For the preceding two years, he was retained as a full-time consultant to the CEO of Citigroup GTS and provided strategy and acquisition advisory services. From 1998 to 2004, he was an executive with Cisco Systems, serving as Vice President of the Internet Business Solutions Group, Services Industries Strategy Consulting, leading internet business strategy consulting practices for the financial services, healthcare, energy, and media/entertainment industries globally. Previously, he was Managing Director and Global Head of Cisco’s Financial Services Industry Consulting Practice providing internet business strategy services to CXO level executives in Global 500 insurance, banking, and securities firms. He has also been the CEO of two successful venture capital-backed businesses, a financial services technology company and an internet cloud-based solutions provider, and an advisor to the Board of Directors of Hagerty, Inc. | | QUALIFICATIONS Mr. Graham has strong financial services, strategy, merger/acquisition, and advisory experience as well as deep information technology and digital/internet background. He has over 30 years of experience working both in and providing information technology-based products and services to the financial services industry globally. Mr. Graham has a Bachelor’s degree in Business Entrepreneurship from the University of Southern California. | | OTHER COMPANY BOARD SERVICE Mr. Graham currently serves on the board of Yiftee, Inc. Mr. BailyGraham previously served as a directorboard Director and member of Endurance Specialty Holdings Ltd. which was acquired by Sompo Holdings, Incthe Investment Committee for Securitas Capital, a SwissRe and Credit Suisse backed private equity fund investing in March of 2017insurance and is no longer a publicly-traded company.risk related ventures. |
18 | RLI Corp. 2023 Proxy Statement Craig W. Kliethermes | 
Age: 58 Director since: 2021 Management Director Committees: ●Finance & Investment ●Strategy & Risk | (2)
BACKGROUND Mr. Kliethermes has been the President and Chief Executive Officer of the Company since January 1, 2022 and was President and Chief Operating Officer of the Company in 2021. From 2016 until 2020, Mr. Kliethermes was the President and Chief Operating Officer of the Company’s insurance subsidiaries and from 2013 until 2016 he was Executive Vice President, Operations of the Company’s insurance subsidiaries. Mr. Kliethermes joined the Company in 2006. Prior to joining RLI, he served in leadership roles with Lockton Companies, GE Insurance/Employers Reinsurance and John Deere Insurance Company. | | QUALIFICATIONS Mr. Kliethermes has over 36 years of industry experience including nearly 16 years at the Company where, in his current role, he is responsible to ensure the effective and profitable operations of the Company’s business. He has a Bachelor’s degree in Mathematics from Maryville University, a fellow of the Casualty Actuarial Society; a member of the American Academy of Actuaries; and a member of the Chartered Property & Casualty Underwriters Society. | | OTHER COMPANY BOARD SERVICE Mr. Michael currentlyKliethermes serves as a directormember of SS&C Technologies Holdings,the American Property and Casualty Insurance Association Executive Advisory Board; a Director of Maguire Academy of Insurance and Risk Management at Saint Joseph’s University; and a Director of the Heart of Illinois Big Brothers Big Sisters. Mr. Kliethermes previously served as a Director of Maui Jim, Inc. |
Paul B. Medini | 
Age: 65 Director since: 2022 Independent Committees: ●Audit ●Human Capital & Compensation | BACKGROUND Mr. Medini retired in August 2020 as Sr. Vice President and Chief Accounting Officer of Chubb Ltd. Mr. Medini joined ACE Limited in June 2003 as Chief Accounting Officer. In 2016, ACE Limited completed the acquisition of Chubb Corporation and Mr. Medini continued in his prior role and was named Sr. Vice President and Chief Accounting Officer of Chubb Ltd. in January 2016. He was previously a partner in the property/casualty insurance practice at PricewaterhouseCoopers. | | QUALIFICATIONS Mr. Medini has extensive knowledge in accounting and auditing in the insurance and reinsurance industries and brings to the Board in-depth experience of insurance accounting and insurance auditing. He has a Bachelor’s and Master’s degree in Business Administration from Pace University. | | OTHER COMPANY BOARD SERVICE Mr. Medini does not currently serve on any other public company board. |
RLI Corp. 2023 Proxy Statement | 19 Robert P. Restrepo, Jr. | 
Age: 72 Director since: 2016 Independent Director Committees: ●Human Capital & Compensation ●Strategy & Risk | (3)
BACKGROUND Mr. Restrepo retired in May 2015 as CEO and President of State Auto Insurance Companies and as Chairman in December 2015. Mr. Restrepo joined and was appointed Chairman, CEO and President of State Auto in 2006. From 2005 to 2006, Mr. Restrepo served as Senior Vice President, Insurance Operations of Main Street America Group and was responsible for personal lines, commercial lines, bonds, claims, marketing, information technology and customer service. From 1998 to 2003, Mr. Restrepo was the President and CEO, Property & Casualty of Allmerica Financial. From 1996 to 1998, Mr. Restrepo was the President and CEO, Personal Lines at Travelers Property & Casualty and was responsible for the newly combined personal property and casualty operations of Travelers and Aetna. In 1972, Mr. Restrepo joined Aetna Life & Casualty and held various managerial positions through 1996, including positions in marketing, technology, and field management, and ended as Senior Vice President, Personal Lines. | | QUALIFICATIONS Mr. Restrepo brings over 40 years of experience with various companies related to the insurance industries. He has extensive insurance expertise, executive management, finance, regulatory, and risk management experience. He has a Bachelor’s degree in English from Yale University. | | OTHER COMPANY BOARD SERVICE Mr. Restrepo currently serves as a directorDirector of Majesco andEnact Holdings, Inc., Genworth Financial, Inc.and the Larry H. Miller Group. Mr. Restrepo is a former Director of Majesco; Nuclear Electric Insurance Limited; Big I Reinsurance Company; Property Casualty Insurers Association of America (now known as American Property Casualty Insurance Association); Insurance Information Institute; and The Institutes. |
RLI Corp. 2018 Proxy Statement | 13
Debbie S. Roberts | 
Age: 58 Director since: 2018 Independent Director Committees: ●Human Capital & Compensation ●Strategy & Risk | BACKGROUND Ms. Roberts has been the Executive Vice President and Chief Operations Officer of Panera Bread Co. since September 2020. From 2016 until her retirement in 2018, Ms. Roberts was the President East Zone at McDonald’s Corporation. From 2014 to 2016, Ms. Roberts served as President Northeast Zone at McDonald’s Corporation. In her 28-year career at McDonald’s Corporation, she gained increasingly progressive responsibilities in the areas of accounting, marketing and operations including roles as Sr. Vice President, Restaurant Support Officer-East, President Northeast Zone and President East Zone being responsible for $18.7 billion in sales and 7,000 restaurants. | | QUALIFICATIONS Ms. Roberts brings over 30 years of experience, expertise, and background in accounting matters as well as various executive management experience. Ms. Roberts holds a Bachelor’s degree in Accounting from the University of Illinois. | | OTHER COMPANY BOARD SERVICE Ms. Roberts currently serves on the Board of Directors of Krispy Kreme, Inc., The American Red Cross, and the Women’s Foodservice Forum. She is a former member of the University of Illinois Champaign Alumni and Catalyst Board of Directors. |
20 | RLI Corp. 2023 Proxy Statement PROPOSAL TWO: APPROVAL OF THE REINCORPORATION OF THE COMPANY FROM THE STATE OF ILLINOIS TO THE STATE OF DELAWARE
In this section of the Proxy Statement, we sometimes refer to the Company prior to the reincorporation as “RLI (Illinois)” and, we sometimes refer to the Company following the reincorporation as “RLI (Delaware).” Holders of stock in Illinois corporations are referred to in Illinois law as “shareholders,” and holders of stock in Delaware corporations are referred to in Delaware law as “stockholders.” In this section of the Proxy Statement, for convenience, we use the term “shareholders” throughout when referring to the holders of equity in RLI (Illinois) and RLI (Delaware).
The Board has unanimously approved and recommends to our shareholders this proposal to change the Company’s jurisdiction of incorporation from Illinois to Delaware (the “Reincorporation”). If our shareholders approve this proposal, we will effect the Reincorporation by merging the Company with and into a wholly-owned subsidiary of the Company, which is a Delaware corporation, and which will be the surviving corporation of the merger (the “Reincorporation Merger”).
SUMMARY
Assuming shareholder approval of this proposal is obtained and the Reincorporation Merger is consummated:
Michael J. Stone | 
Age: 74 Director since: 2012 Independent Director Committees: ●Finance & Investment ●Chair, Strategy & Risk | ·
BACKGROUND Mr. Stone is the former President and Chief Operating Officer of the Company’s principal insurance subsidiaries from January 2002 until his retirement in December 2015. Mr. Stone joined the Company in May 1996 and held various executive officer positions. From 1977 to May 1996, Mr. Stone held various managerial and executive officer positions with Travelers Insurance Group. | | QUALIFICATIONS Mr. Stone has nearly 40 years of insurance industry expertise and 19 years at the Company where he was responsible for the overall direction of the Company’s principal insurance subsidiaries. He has a Bachelor’s degree in Political Science from Bellarmine College, and received his Law degree, magna cum laude, from the University of Louisville. | | the internal affairs
OTHER COMPANY BOARD SERVICE Mr. Stone serves as a Director of SILAC, Inc. He is also a former member of Board of Directors of Kairos Acquisition Corp. and UnityPoint Health and former member of the Company will cease to be governed by the Illinois Business Corporation ActBellarmine University Board of 1983, as amended (the “ILBCA”), and will become subject to Delaware General Corporation Law, as amended (the “DGCL”), and the Company’s existing Amended and Restated Articles of Incorporation (the “Illinois Articles of Incorporation”) and existing Bylaws (the “Illinois Bylaws”) will be replaced by a new certificate of incorporation and new bylaws, as more fully described below;Trustees. |
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| | the separate corporate existence of RLI (Illinois) will cease and (i) RLI (Delaware) will continue in existence as the surviving corporation of the Reincorporation Merger and will succeed to and possess all rights, privileges, powers and franchises of RLI (Illinois), (ii) all of the assets and property of whatever kind and character of RLI (Illinois) will vest in RLI (Delaware) and (iii) RLI (Delaware) will be liable for all of the liabilities and obligations of RLI (Illinois), and any claim or judgment against RLI (Illinois) may be enforced against RLI (Delaware), as the surviving corporation of the Reincorporation Merger, in accordance with the ILBCA and the DGCL;
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| | each share of RLI (Illinois) common stock, par value $1.00 per share, that is outstanding immediately prior to the consummation of the Reincorporation Merger will be converted into one outstanding share of RLI (Delaware) common stock, par value $0.01 per share, and each option, restricted stock unit or other right to acquire shares of RLI (Illinois) common stock that is outstanding immediately prior to the consummation of the Reincorporation Merger will be converted into an outstanding option, restricted stock unit or other right to acquire shares of RLI (Delaware) common stock; YOU WILL NOT NEED TO EXCHANGE YOUR EXISTING STOCK CERTIFICATES FOR STOCK CERTIFICATES OF RLI (DELAWARE);
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| | each director or officer of RLI (Illinois) immediately prior to the consummation of the Reincorporation Merger will hold the same respective office with RLI (Delaware) at and after the consummation of the Reincorporation Merger; and
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| | those shareholders who do not vote in favor of the Reincorporation may dissent and obtain payment for the “estimated fair value” of their shares of RLI (Illinois) common stock under the ILBCA, subject to compliance with the procedures explained under “Dissenters’ or Appraisal Rights Relating to the Reincorporation” below.
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GENERAL INFORMATION
The Board has approved an agreement and plan of merger substantially in the form attached as Annex A to this Proxy Statement (the “Reincorporation Merger Agreement”) to accomplish the Reincorporation. This proposal will require the approval of the affirmative vote of holders of at least a majority of the outstanding shares of the Company entitled to vote on the proposal. Those holders of shares of common stock outstanding at the close of business on the record date will be
14 | RLI Corp. 2018 Proxy Statement
entitled to vote on this proposal. Assuming that shareholder approval of this proposal is obtained, the Company intends to file with the Illinois Secretary of State articles of merger (the “Illinois Articles of Merger”) and intends to file with the Delaware Secretary of State a certificate of merger (the “Delaware Certificate of Merger”). From and after the consummation of the Reincorporation Merger, the Company will be subject to the DGCL and the provisions of the Amended and Restated Certificate of Incorporation of RLI (Delaware), in the form attached as Annex B to this Proxy Statement (the “Delaware Certificate of Incorporation”) and the Amended and Restated Bylaws of RLI (Delaware) in the form attached as Annex C to this Proxy Statement (the “Delaware Bylaws”).
There will be no interruption in your ability to trade your shares as a result of the Reincorporation. From and after the consummation of the Reincorporation Merger, the common stock of RLI (Delaware) will trade on the New York Stock Exchange under the same symbol, “RLI” that the common stock of RLI (Illinois) traded prior to the consummation of the Reincorporation Merger. RLI (Delaware) will file periodic reports and other documents as and to the extent required by the rules and regulations of the SEC. Shareholders who own shares of RLI (Illinois) common stock that are freely tradable prior to the Reincorporation will have freely tradable shares in RLI (Delaware) after the Reincorporation. Shareholders holding restricted shares of RLI (Illinois) common stock prior to the Reincorporation will hold shares in RLI (Delaware) after the Reincorporation subject to the same restrictions on transfer. In summary, the Reincorporation will not change the respective positions of the Company or its shareholders under federal securities laws or stock exchange rules.
REASONS FOR THE REINCORPORATION
For many years, Delaware has followed a policy of encouraging incorporation in that state and, in furtherance of that policy, has been a leader in adopting, construing and implementing comprehensive, flexible corporate laws responsive to the legal and business needs of corporations organized under its laws. Many corporations have initially chosen Delaware, or chosen to reincorporate in Delaware, in a manner similar to that being proposed by the Company. We believe the principal reasons for considering the Reincorporation are:
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| | the development in Delaware over the last century of a well-established body of case law construing the DGCL, which provides businesses with a greater measure of predictability than exists in any other jurisdiction;
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| | the certainty afforded by the well-established principles of corporate governance under Delaware law are of benefit to RLI (Illinois) and its shareholders and should assist RLI (Illinois) in its ability to continue to attract and retain outstanding directors and officers;
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| | the DGCL itself, which is updated annually to reflect business needs and developments, is generally acknowledged to be the most advanced and flexible corporate statute in the United States;
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| | the Delaware Court of Chancery, which has exclusive jurisdiction over matters relating to the DGCL and in which cases are heard by judges, without juries, brings to its handling of complex corporate issues a level of experience, a speed of decision and a degree of sophistication and understanding unmatched by any other court in the United States, and the Delaware Supreme Court, the only Delaware appeals court, which is highly regarded and has demonstrated its willingness to schedule and rule on business matters on an expedited schedule where prompt resolution is important to the business needs of the parties involved;
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| | the Delaware General Assembly, to meet changing business needs, considers and adopts annually statutory amendments to the DGCL that have been proposed by the Corporation Law Section of the Delaware bar; and
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| | the Delaware Division of Corporations, which is open from 8 am to 12 am Monday through Friday to accept corporate filings, has a procedure for “preclearance” of corporate filings and offers same day, two (2) hour, one (1) hour and half-hour processing of corporate filings, thus allowing prompt and efficient evidence of filings and certifications to be obtained to facilitate business and transactional needs, and also has a procedure to accommodate closings occurring in international time zones outside of normal business hours or on weekends or holidays.
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RLI Corp. 2018 Proxy Statement | 15
CHANGES AS A RESULT OF REINCORPORATION
If this proposal is approved, the Reincorporation will effect a change in the state of incorporation of the Company and other changes of a legal nature, the most significant of which are described below in the section entitled “Rights of our Shareholders Prior to and After the Reincorporation.” The Reincorporation is not expected to affect any of the Company’s material contracts with any third parties, and the Company’s rights and obligations under such material contracts will continue as rights and obligations of RLI (Delaware). The Reincorporation itself will not result in any change in the Company’s business, jobs, management, number of employees, assets, liabilities or net worth (other than transaction costs incident to the Reincorporation). Further, the directors and officers of RLI (Illinois) immediately prior to the Reincorporation will be the directors and officers of RLI (Delaware) immediately after the Reincorporation, and the subsidiaries of RLI (Illinois) immediately prior to the Reincorporation will be the subsidiaries of RLI (Delaware) immediately after the Reincorporation. The Company will not change its physical headquarters from Peoria, Illinois or the domicile of its insurance company subsidiaries, all of which are in Illinois, in connection with the Reincorporation.
THE REINCORPORATION MERGER AGREEMENT
The Reincorporation will be effected pursuant to the Reincorporation Merger Agreement. The Reincorporation Merger Agreement provides that RLI (Illinois) will merge with and into its wholly-owned subsidiary, RLI (Delaware), on the terms and conditions set forth in the Reincorporation Merger Agreement. By virtue of the Reincorporation Merger, RLI (Delaware) will continue in existence as the surviving corporation and, without further transfer or action, succeed to and possess all rights, privileges, powers and franchises of RLI (Illinois), and all of the assets and property of whatever kind and character of RLI (Illinois) shall vest in RLI (Delaware), as the surviving corporation of the Reincorporation Merger. RLI (Delaware), as the surviving corporation of the Reincorporation Merger, will be liable for all of the liabilities and obligations of RLI (Illinois); and any claim or judgment against RLI (Illinois) may be enforced against RLI (Delaware), as the surviving corporation of the Reincorporation Merger. Each director and officer of RLI (Illinois) immediately prior to the consummation of the Reincorporation Merger will hold the same respective office with RLI (Delaware) at and after the consummation of the Reincorporation Merger.
If this proposal is approved by our shareholders, the Reincorporation would become effective upon the filing (and acceptance thereof by the Illinois Secretary of State and the Delaware Secretary of State, as applicable) and effectiveness of the Illinois Articles of Merger and the Delaware Certificate of Merger. If this proposal is approved by our shareholders, it is anticipated that the Board will cause the Reincorporation to be effected as soon as practicable thereafter. However, the Reincorporation Merger Agreement may be terminated and the merger abandoned by the action of the Board of either RLI (Illinois) or RLI (Delaware) at any time prior to the effective time of the Reincorporation Merger, whether before or after approval by our shareholders, for any reason whatsoever.
If this proposal is approved, shareholders will not be required to exchange their RLI (Illinois) stock certificates for new RLI (Delaware) stock certificates. Rather, at and following the consummation of the Reincorporation Merger, the stock certificates that previously represented shares of common stock of RLI (Illinois) will represent the same number of shares of common stock of RLI (Delaware) until submitted to the Company for transfer, whether pursuant to a sale or otherwise, and thereupon will be exchanged for RLI (Delaware) stock certificates. Shareholders should not destroy any stock certificate(s) and should not submit any certificate(s) to the Company unless and until requested to do so.
EFFECT OF VOTE FOR THE REINCORPORATION
A vote in favor of the Reincorporation is a vote in favor of the adoption of the Reincorporation Merger Agreement, the Delaware Certificate of Incorporation and the Delaware Bylaws.
16 | RLI Corp. 2018 Proxy Statement
EFFECT OF NOT OBTAINING THE REQUIRED VOTE FOR APPROVAL
If we fail to obtain the requisite vote of shareholders for approval of this proposal, the Reincorporation Merger will not be consummated and the Company will continue to be incorporated in Illinois and governed by the ILBCA, the Illinois Articles of Incorporation and the Illinois Bylaws.
DESCRIPTION OF THE COMPANY’S CAPITAL STOCK UPON THE EFFECTIVENESS OF THE REINCORPORATION
Assuming that our shareholders approve this proposal and the Reincorporation becomes effective, the Company will merge with and into RLI (Delaware), which is a wholly-owned subsidiary of the Company incorporated in the State of Delaware and formed solely for purposes of effecting the Reincorporation, and which will be the surviving corporation of the Reincorporation Merger. The rights of the shareholders of RLI (Delaware) will be governed by Delaware law, the Delaware Certificate of Incorporation and the Delaware Bylaws. The following is a description of the capital stock of RLI (Delaware) upon the effectiveness of the Reincorporation. This description is not intended to be complete and is qualified in its entirety by reference to Delaware law, including the DGCL, and the full texts of the Delaware Certificate of Incorporation, a copy of which is attached as Annex B to this Proxy Statement, and the Delaware Bylaws, a copy of which is attached as Annex C to this Proxy Statement.
General
The authorized capital stock of RLI (Illinois) consists of 100,000,000 shares of common stock, par value $1.00 per share, and 5,000,000 shares of preferred stock, par value $0.01 per share. Upon the consummation of the Reincorporation Merger, the number of shares of authorized capital stock of RLI (Delaware) will be 100,000,000 shares of common stock and 5,000,000 shares of preferred stock. However, the common stock of RLI (Delaware) will have a par value of $0.01 per share, rather than $1.00 per share, as is the case with respect to the common stock of RLI (Illinois). This change merely reduces the minimum consideration payable upon the issuances of stock of RLI (Delaware), reduces the filing fees for documents affecting the stock of RLI (Delaware) filed with the Delaware Secretary of State and increases the funds available under Delaware law for dividends and stock repurchases and will have no material impact upon the financial statements of RLI (Delaware).
Common Stock
Dividends; Liquidation. Subject to the preferences of any outstanding shares of preferred stock, holders of common stock of RLI (Delaware) will have equal ratable rights to dividends (payable in cash, stock or property) out of funds legally available for that purpose, when, as and if dividends are declared by the Board of RLI (Delaware). Holders of common stock are entitled to share ratably, as a single class, in all of the assets of RLI (Delaware) available for distribution to holders of shares of common stock upon the liquidation or dissolution of RLI (Delaware) or the winding up of the affairs of RLI (Delaware), after payment of the liabilities of RLI (Delaware) and any amounts to holders of outstanding shares of preferred stock.
Voting Rights. Generally, holders of the common stock of RLI (Delaware) will vote together as a single class on every matter acted upon by the shareholders. Holders of RLI (Delaware) common stock will be entitled to one vote per share on all matters submitted to a vote of shareholders. Shareholders will not be entitled to cumulate votes in voting for directors. The holders of a majority in voting power of the outstanding shares of stock entitled to vote on a matter, represented in person or by proxy, will constitute a quorum at any meeting of shareholders. If a quorum is present, the affirmative vote of the majority of the votes cast on a matter will be the act of the shareholders, unless the vote of a minimum or other number or amount is provided for such matter by the DGCL, the Delaware Certificate of Incorporation or the Delaware Bylaws or the rules and regulations of any stock exchange or other regulatory body, in which case such minimum or other vote will be the required vote of shareholders on such matter. Except as otherwise provided by law, or the Delaware Certificate Incorporation by the resolution or resolutions adopted by the Board designating the rights, powers and preferences of any series and/or class of preferred stock, the holders of RLI (Delaware) common stock have the exclusive right to vote for the election of directors and for all matters presented to the shareholders.
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Other. The holders of RLI (Delaware) common stock have no preferences or rights of conversion, exchange, pre-emption or other subscription rights. There are no redemption or sinking fund provisions applicable to the RLI (Delaware) common stock. The rights of the holders of RLI (Delaware) common stock are subject to the rights and preferences of any series of preferred stock that RLI (Delaware) may issue.
Preferred Stock
By resolution of the Board, RLI (Delaware) may, without any further vote by its shareholders, authorize and issue an aggregate of 5,000,000 shares of preferred stock. Shares of preferred stock may be issued from time to time in one or more series and/or classes. The Board may by resolution fix the voting rights, if any, designations, powers, preferences and the relative, participation, optional or other rights, if any, and the qualification, limitations or restrictions thereof, of any unissued series and/or class of preferred stock, and may fix the number of shares constituting such series and/or class, and may increase or decrease the number of shares of any such series and/or class (but not below the number of shares thereof then outstanding). The authority of the Board to issue preferred shares without the additional approval of the shareholders could have a possible anti-takeover effect, which we describe in more detail below in the section entitled “Possible Anti-Takeover Effect of Provisions – Authorized Preferred Shares.”
THE CHARTERS AND BYLAWS OF RLI (DELAWARE) AND RLI (ILLINOIS)
The provisions of the Delaware Certificate of Incorporation and the Delaware Bylaws are substantially similar in substance to those of the Illinois Articles of Incorporation and Illinois Bylaws. The differences in the provisions of the Delaware governing documents as compared to the provisions of the Illinois governing documents include, but are not limited to, the following: (i) the elimination of the presumption of assent to any action the Board takes, by directors who are present at a meeting unless the director’s dissent is entered in the minutes of the meeting or the director files a written dissent to such action; and (ii) the expansion of the powers which the Board may in its discretion grant to each Board committee.
In addition, the proposed Reincorporation includes the implementation of certain other provisions in the Delaware Certificate of Incorporation and the Delaware Bylaws that are different from the Illinois Articles of Incorporation and Illinois Bylaws. For a discussion of such changes, see “Rights of our Shareholders Prior to and After the Reincorporation from Illinois to Delaware.” The discussion of the Delaware Certificate of Incorporation and the Delaware Bylaws is qualified by reference to the provisions of the DGCL, and the Delaware Certificate of Incorporation, a copy of which is attached as Annex B to this Proxy Statement, and the Delaware Bylaws, a copy of which is attached as Annex C to this Proxy Statement. In addition, RLI (Delaware) could implement certain other changes in the future by amending the Delaware Certificate of Incorporation or the Delaware Bylaws in accordance with Delaware law.
LIMITATION OF DIRECTOR LIABILITY AND INDEMNIFICATION AND ADVANCEMENT OF EXPENSES
Illinois and Delaware have similar laws relating to indemnification by a corporation of its officers, directors, employees and other agents. The laws of Illinois and Delaware permit corporations to adopt a provision in their articles of incorporation or certificates of incorporation, as applicable, eliminating the liability of a director to the corporation or its shareholders for monetary damages for breach of the director’s fiduciary duties except where such liability is based on:
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In addition, Illinois and Delaware have similar laws relating to indemnification and advancement of expenses by a corporation of its officers, directors, employees and other agents. The Illinois Articles of Incorporation provide for mandatory indemnification and, if approved by the Board, the advancement of expenses to its current and former directors and officers,
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where the person seeking indemnification acted in good faith and in a manner the person reasonably believed to be in or not opposed to the best interests of the Company, and, with respect to any criminal action or proceeding, had no reasonable cause to believe the conduct was unlawful, to the extent permitted by the ILBCA. The Illinois Articles of Incorporation also provide that the Company may indemnify and advance expenses to any person who is or was an employee or agent of the Company, or is or was an employee or agent of the Company serving at the request of the Company as a director, officer or employee of another corporation, partnership, joint venture, trust or other enterprise, to the extent and under the circumstances provided above with respect to a person who is or was a director or officer of the Company.
The indemnification provisions of the Delaware Bylaws are substantially identical to those contained in the Illinois Bylaws. However, the Delaware Bylaws mandate the advancement of expenses to an indemnified party and omit the requirement that the Company shall report any indemnification or advancement of expenses in writing to the shareholders with or before the notice of the next shareholders’ meeting.
EMPLOYEE BENEFIT PLANS
All employee benefit plans of RLI (Illinois), including deferred compensation, stock option, restricted stock unit and other equity-based plans, will be assumed by RLI (Delaware), and each stock option, restricted stock unit and other equity-based award issued and outstanding pursuant to such plans would automatically be converted into a stock option, restricted stock unit or other equity-based award with respect to the same number of shares of RLI (Delaware), upon the same terms and subject to the same conditions as set forth in the applicable plan under which the award was granted and in the agreement reflecting the award. Approval of the Reincorporation would constitute approval of the assumption of these plans by RLI (Delaware). RLI (Delaware) will also assume other employee benefit arrangements of RLI (Illinois) upon the terms and subject to the conditions currently in effect, as may be amended from time to time.
DISSENTERS’ OR APPRAISAL RIGHTS RELATING TO THE REINCORPORATION
Under Illinois law, Company shareholders who do not vote in favor of the Reincorporation and who follow the procedures required by Section 11.70 of the ILBCA, which is attached as Annex D to this Proxy Statement, will have the right to dissent from the Reincorporation Merger which effects the Reincorporation and obtain payment for their shares in the form of cash in the event of the completion of the Reincorporation. If you are considering exercising your dissenters’ rights, you should carefully review Annex D to this Proxy Statement. Because of the complexity of the procedure established for exercising dissenters’ rights under Section 11.70 of the ILBCA, the Company encourages you to consult an attorney before electing or attempting to exercise these rights.
Under the ILBCA, all shareholders entitled to dissenters’ rights must be notified of that fact and the procedure to dissent in the meeting notice relating to the transaction with respect to which they are entitled to assert dissenters’ rights. This Proxy Statement constitutes that notice. Because the Company has furnished to shareholders in this Proxy Statement material information with respect to the Reincorporation, including the merger of RLI (Illinois) with and into RLI (Delaware), that will objectively enable a shareholder to evaluate the Reincorporation, to vote on the proposal and to determine whether or not to exercise dissenters’ rights, a shareholder may assert these rights only if (i) prior to the vote on the Reincorporation, including the Reincorporation Merger, at the Annual Meeting, the shareholder delivers to the Company a written demand, as described in Section 11.70 of the ILBCA, for payment for his or her shares in the event the Reincorporation Merger is completed and (ii) the shareholder does not vote in favor of the Reincorporation, including the Reincorporation Merger Agreement.
If a shareholder votes in favor of the Reincorporation, the shareholder will not be entitled to dissent and obtain payment for his or her shares, and a vote against the Reincorporation will not satisfy the above requirement that a written demand for payment be delivered to the Company before the vote on Reincorporation. Failure to vote against the approval of the Reincorporation will not waive a shareholder’s dissenters’ rights; provided that the shareholder has not voted in favor of the Reincorporation and, provided, further, that the shareholder has complied in all other respects with the ILBCA in preserving the shareholder’s dissenters’ rights. See Annex D of this Proxy Statement for the full text of Section 11.70 of the ILBCA.
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DELAWARE BUSINESS COMBINATION STATUTE
Like Illinois, Delaware has a “business combination” statute that is applicable to publicly traded corporations incorporated in Delaware that do not opt out of its provisions in its certificate of incorporation or bylaws. The Delaware business combination statute is similar to the Illinois business combination statute currently applicable to the Company. Delaware’s business combination statute provides that an “interested shareholder” (defined as a person who owns fifteen percent (15%) or more of the outstanding voting stock of a corporation or who is an associate or affiliate of the corporation and, within the preceding three-year period, owned fifteen percent (15%) or more of the outstanding voting stock of the corporation), and the affiliates and associates of such person may not engage in specified business combinations with the corporation for a period of three years after the date on which the person became an interested shareholder unless (i) prior to such time the board of directors of the corporation approved either the business combination or the transaction which resulted in the shareholder becoming an interested shareholder, (ii) upon consummation of the transaction which resulted in the shareholder becoming an interested shareholder, the interested shareholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced excluding certain shares, and (iii) at or subsequent to the time the business combination is approved by the board of directors and authorized at an annual or special meeting of shareholders (and not by written consent) by the affirmative vote of at least sixty-six and two-thirds percent (66 2/3%) of the outstanding voting stock of the corporation not owned by the interested shareholder. Delaware law defines the term “business combination” to encompass a wide variety of transactions with or caused by an interested shareholder, including mergers, asset sales and transactions in which the interested shareholder receives or could receive a benefit on other than a pro rata basis with all other shareholders of the corporation. RLI (Delaware) may amend the Delaware Certificate of Incorporation in the future in accordance with Delaware law to no longer be governed by the Delaware business combination statute. Because RLI (Delaware) has not elected to opt-out of this provision in the Delaware Certificate of Incorporation, the provision might discourage takeover attempts that might result in a premium over the market price for shares of common stock of RLI (Delaware) at a given time.
TRANSFER AGENT
EQ Shareholder Services, the transfer agent for the common stock of RLI (Illinois) will serve as the transfer agent for the common stock of RLI (Delaware).
MARKET LISTING
The common stock of RLI (Delaware) will trade on the New York Stock Exchange under the symbol “RLI”, the same symbol as the common stock of RLI (Illinois).
TAX RIDER
Material U.S. Federal Income Tax Consequences of the Reincorporation Merger
The following is a discussion of the material U.S. federal income tax consequences of the Reincorporation Merger, but does not purport to be a complete analysis of all potential tax considerations. The effects of other U.S. federal tax laws, such as estate and gift tax laws, and any applicable state, local or foreign tax laws are not discussed. This discussion is based on the U.S. Internal Revenue Code of 1986, as amended (the “Code”), U.S. Treasury Regulations promulgated thereunder, judicial decisions, and published rulings and administrative pronouncements of the U.S. Internal Revenue Service (the “IRS”), in each case in effect as of the date hereof. These authorities may change or be subject to differing interpretations. Any such change or differing interpretation may be applied retroactively in a manner that could affect the tax consequences described herein. We have not sought and will not seek any rulings from the IRS regarding the matters discussed below. There can be no assurance the IRS or a court will not take a contrary position to that discussed below regarding the tax consequences of the Reincorporation Merger.
This discussion does not address the U.S. federal income tax consequences relevant to holders of our common stock who exercise dissenters’ rights or to other specific holders of our common stock in light of their particular circumstances and
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who are subject to special rules, including, without limitation:
•U.S. expatriates and former citizens or long-term residents of the United States;
•persons subject to the alternative minimum tax;
•persons holding our common stock as part of a hedge, straddle or other risk reduction strategy or as part of a conversion transaction or other integrated investment;
•banks, insurance companies, and other financial institutions;
•real estate investment trusts or regulated investment companies;
•brokers, dealers or traders in securities;
•“controlled foreign corporations,” “passive foreign investment companies,” and corporations that accumulate earnings to avoid U.S. federal income tax;
•S corporations, partnerships (or other entities or arrangements treated as partnerships for U.S. federal income tax purposes) and investors therein;
•tax-exempt organizations or governmental organizations;
•persons who hold or receive our stock pursuant to the exercise of any employee stock option or otherwise as compensation;
•tax-qualified retirement plans;
•persons subject to special tax accounting rules as a result of any item of gross income with respect to the notes being taken into account in an applicable financial statement; and
•“qualified foreign pension funds” as defined in Section 897(l)(2) of the Code and entities all of the interests of which are held by qualified foreign pension funds.
If an entity treated as a partnership for U.S. federal income tax purposes holds our stock, the tax treatment of the entity’s owners relating to the Reincorporation Merger may impart upon the status of the owners, the activities of the entity and certain determinations made at the owner level. Any such entity should consult its own tax advisor regarding the U.S. federal income tax considerations applicable to it and its owners relating to the Reincorporation Merger.
THIS DISCUSSION IS FOR INFORMATIONAL PURPOSES ONLY AND IS NOT TAX ADVICE. THIS DISCUSSION DOES NOT ADDRESS INCOME TAX CONSEQUENCES TO HOLDERS OF OUR COMMON STOCK WHO EXERCISE DISSENTERS’ RIGHTS. ALL HOLDERS OF OUR COMMON STOCK SHOULD CONSULT THEIR TAX ADVISORS WITH RESPECT TO THE APPLICATION OF THE U.S. FEDERAL INCOME TAX LAWS TO THEIR PARTICULAR SITUATIONS AS WELL AS ANY TAX CONSEQUENCES OF THE REINCORPORATION MERGER ARISING UNDER THE U.S. FEDERAL ESTATE OR GIFT TAX LAWS OR UNDER THE LAWS OF ANY STATE, LOCAL OR NON-U.S. TAXING JURISDICTION OR UNDER ANY APPLICABLE INCOME TAX TREATY.
The Reincorporation Merger is intended to qualify as “reorganization” pursuant to Section 368(a)(1)(F) of the Code. Assuming that the Reincorporation Merger so qualifies:
•no gain or loss with be recognized by RLI (Illinois) or RLI (Delaware) as a result of the Reincorporation Merger;
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•holders of shares RLI (Illinois) common stock will not recognize gain or loss upon the conversion of their shares of RLI (Illinois) common stock to RLI (Delaware) common stock;
•the aggregate tax basis of shares of RLI (Delaware) common stock received pursuant to the conversion of shares of RLI (Illinois) common stock in the Reincorporation Merger will be equal to the aggregate tax basis of the converted shares of RLI (Illinois) common stock; and
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| | the holding period of the shares of RLI (Delaware) common stock received pursuant to the conversion of RLI (Illinois) common stock in the Reincorporation Merger will include the holding period of the converted shares of RLI (Illinois) common stock.
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ACCOUNTING TREATMENT
We expect that the Reincorporation will have no material effect from an accounting perspective. As such, the financial statements of RLI (Illinois) previously filed with the SEC will remain the financial statements of RLI (Delaware) following the Reincorporation.
RIGHTS OF OUR SHAREHOLDERS PRIOR TO AND AFTER THE REINCORPORATION FROM ILLINOIS TO DELAWARE
The rights of RLI (Illinois) shareholders are currently governed by the ILBCA and Illinois common law, the Illinois Articles of Incorporation and the Illinois Bylaws. The rights of shareholders of RLI (Delaware) after the completion of the Reincorporation will be governed by Delaware law, principally the DGCL and Delaware common law, the Delaware Certificate of Incorporation and the Delaware Bylaws. As a result of the differences between the ILBCA and the DGCL and between the governing documents of RLI (Illinois) and RLI (Delaware), certain of your rights as a shareholder of RLI (Delaware) will vary in some respects from your current rights as a shareholder of RLI (Illinois).
It is not practical to summarize in this Proxy Statement all of the differences between the DGCL and the ILBCA or between the Delaware Certificate of Incorporation and the Delaware Bylaws, on the one hand, and the Illinois Articles of Incorporation and Illinois Bylaws, on the other. Instead, this section summarizes some of the material differences and describes how those differences may affect the rights and interests of shareholders of RLI (Illinois) if and when they become shareholders of RLI (Delaware).
For a description of the capital stock of RLI (Delaware) see “Description of the Company’s Capital Stock upon the Effectiveness of the Reincorporation.” You should also refer to the ILBCA and the DGCL, as well as the Illinois Articles of Incorporation and Illinois Bylaws and the Delaware Certificate of Incorporation and the Delaware Bylaws to be in effect immediately upon the effectiveness of the Reincorporation. The Delaware Certificate of Incorporation is attached as Annex B to this Proxy Statement, and the Delaware Bylaws are attached as Annex C to this Proxy Statement. The Illinois Articles of Incorporation and the Illinois Bylaws have been filed as exhibits to the current report of RLI (Illinois) on Form 8-K filed with the SEC on May 5, 2017 and are incorporated herein by reference. See “Where You Can Find More Information.”
Amount and Classification of Share Capital
RLI (Illinois)
The authorized common stock of RLI (Illinois) consists of 100,000,000 shares of common stock, par value $1.00 per share, and 5,000,000 preferred shares, par value $0.01 per share. As of March 5, 2018, RLI (Illinois) had outstanding [ ] shares of common stock and no shares of preferred stock.
RLI (Delaware)
The authorized capital stock of RLI (Delaware) will consist of 100,000,000 shares of common stock, par value $0.01 per
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share, and 5,000,000 shares of preferred stock, $0.01 par value per share. Upon the consummation of the Reincorporation Merger, the total number of outstanding shares of RLI (Delaware) common stock is estimated to be approximately [ ] (based on the number of shares of RLI (Illinois) common stock outstanding as of March 5, 2018), and no shares of preferred stock will be outstanding.
Number of Directors; Term of Office
RLI (Illinois)
Under the ILBCA, the number of directors is fixed by the bylaws, or absent such provision, by the articles of incorporation or by resolution of the incorporator in the organizational minutes, and may provide for a range by prescribing a minimum and maximum (which may not exceed the minimum by more than five). The Illinois Bylaws provide that the number of directors shall be determined from time to time by the Board, but the number of directors shall be not less than nine (9) nor more than thirteen (13). The term of office of each director is one (1) year with each director to be elected each year at the Company’s annual meeting.
RLI (Delaware)
The DGCL provides that a corporation’s board of directors must consist of one or more members, with the number fixed by, or in the manner provided in, the bylaws, unless the certificate of incorporation fixes the number, in which case a change in the number of directors shall be made only by amendment of the certificate. Similar to the Illinois Bylaws, the Delaware Bylaws provide that the number of directors shall be determined from time to time by the Board, but the number of directors shall be not less than nine (9) nor more than thirteen (13). Each director shall hold office until the next annual meeting of shareholders and until such director’s successor is duly elected and qualified or until such director’s earlier death, resignation or removal.
Dividends/Distributions
RLI (Illinois)
Under Illinois law, a corporation may not make any distribution to its shareholders if, after giving effect to the distribution, (i) the corporation would be insolvent; or (ii) the net assets of the corporation would be less than zero or less than the maximum amount payable at the time of distribution to shareholders having preferential rights in liquidation if the corporation were then to be liquidated.
RLI (Delaware)
Delaware law permits a corporation to declare and pay dividends upon its shares out of (i) surplus or, (ii) if there is no surplus, out of net profits for the fiscal year in which the dividend is declared and/or for the preceding fiscal year as long as the amount of capital of the corporation following the declaration and payment of the dividend is not less than the aggregate amount of the capital represented by the issued and outstanding stock of all classes having a preference upon the distribution of assets.
Action by Written Consent of Shareholders
RLI (Illinois)
The ILBCA allows shareholders to take action by unanimous written consent of all shareholders entitled to vote on the matter or by signed written consent of the holders of shares having not less than the minimum number of votes necessary to take action at a meeting in which all shares entitled to vote on the matter were present and voting, unless such right is denied by the articles of incorporation. The Illinois Articles of Incorporation do not deny such right. The ILBCA provides for at least five (5) days’ advance notice of the action contemplated (unless consent will be unanimous) and prompt notice afterwards to non-consenting shareholders of the action taken without a meeting. The Illinois Bylaws also provide for
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advance notice and other procedural requirements in connection with shareholder action by written consent.
RLI (Delaware)
The DGCL also provides that shareholders may take action by the written consent of the holders of shares having not less than the minimum number of votes necessary to take action at a meeting in which all shares entitled to vote on the matter were present and voting, unless such right is limited or restricted by the certificate of incorporation. The Delaware Certificate of Incorporation does not limit or restrict such right. If action is taken by less than unanimous written consent, the DGCL requires prompt notice afterwards to non-consenting holders of the action taken; however, the DGCL does not require advance notice to shareholders of the contemplated action as is required by the ILBCA. The Delaware Bylaws also provide for advance notice and other procedural requirements in connection with shareholder action by written consent.
Revocability of Proxies
RLI (Illinois)
Under the ILBCA, a duly executed proxy is revocable unless it conspicuously states that it is irrevocable and the appointment is coupled with an interest. Under the ILBCA, unless otherwise provided in the proxy, no proxy shall be valid more than eleven (11) months from the date of the proxy.
RLI (Delaware)
Under the DGCL, a duly executed proxy is irrevocable if it states that it is irrevocable and if, and only as long as, it is coupled with an interest sufficient in law to support an irrevocable power. Under the DGCL, unless otherwise provided in the proxy, no proxy shall be valid more than three (3) years from the date of the proxy.
Quorum/Voting
RLI (Illinois)
The Illinois Bylaws provide that a majority of the outstanding shares entitled to vote on a matter, represented in person or by proxy, constitutes a quorum for consideration of such matter at a meeting of shareholders. If a quorum is present at a duly called or convened meeting, the affirmative vote of the majority of the shares represented at the meeting and entitled to vote on a matter is the act of the shareholders, unless the vote of a greater number or voting by classes is required by law or the governing documents of RLI (Illinois).
RLI (Delaware)
Similarly, the Delaware Bylaws provide that the holders of a majority in voting power of the outstanding shares of stock, represented in person or by proxy, constitutes a quorum at a meeting of shareholders. If a quorum is present at a duly called or convened meeting, except as otherwise provided by the Delaware Certificate of Incorporation, the Delaware Bylaws, the rules or regulations of any stock exchange applicable to the Company’s securities or applicable law or pursuant to any regulation applicable to the Company, the affirmative vote of the holders of a majority of the votes cast on the matter (excluding abstentions and broker non-votes) is the act of the shareholders.
Election, Removal and Vacancies of Directors
RLI (Illinois)
Under the ILBCA, shareholders are entitled to cumulative voting rights in the election of directors unless otherwise provided in the corporation’s articles of incorporation. The Illinois Articles of Incorporation provide that no holder of any shares of any class of stock shall be entitled to cumulative voting rights in the election of the directors. Illinois provides for a
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“majority voting” system for the election of directors. Accordingly, the affirmative vote of a majority of the shares of common stock of RLI (Illinois) represented in person or by proxy and entitled to vote is required to elect a director of RLI (Illinois).
Under the ILBCA and the Illinois Bylaws, a director of RLI (Illinois) may be removed, with or without cause, by the approval of a majority of the outstanding shares of the class that elected such director. Removal may only occur at a meeting of shareholders pursuant to a notice that states that the purpose of the meeting is to vote upon the removal of one or more directors named in the notice and only the named directors may be removed at the meeting. The ILBCA provides that any vacancy occurring in the board of directors may be filled by shareholder election at an annual meeting or a special meeting called for the specific purpose of filling such vacancy; provided, however, that the bylaws may provide for a procedure for filling vacancies on the board that occur between meetings of shareholders. The Illinois Bylaws provide that any vacancy occurring in the Board, including a vacancy occurring as a result of the death, resignation or disqualification of a director, and any directorship to be filled by reason of an increase in the number of directors, may be filled by a majority of the remaining directors, even if less than a quorum, with each such appointed director serving until such director’s successor shall have been elected and shall qualify or until such director shall resign or shall have been removed.
RLI (Delaware)
Under the DGCL, cumulative voting in the election of directors is only permitted if expressly authorized in a corporation’s certificate of incorporation. The Delaware Certificate of Incorporation does not provide for cumulative voting in the election of directors. The Delaware Bylaws provide that the affirmative vote of a majority of the votes cast is required to elect a director of RLI (Delaware).
Under the DGCL, any director or the entire Board may be removed, with or without cause, by the holders of a majority of the shares then entitled to vote at an election of directors. If a director is elected by a class or series of shares pursuant to the certificate of incorporation, he or she may be removed without cause by the holders of a majority of the shares of that class or series. Under the DGCL, vacancies and newly created directorships may be filled by a majority of the directors then in office unless otherwise provided in the certificate of incorporation or bylaws. Whenever the holders of any class or series of stock are entitled to elect one or more directors by the certificate of incorporation, vacancies and new created directorships may be filled by a majority of the directors elected by such class or series then in office or by the sole remaining director so elected. The Delaware Certificate of Incorporation and the Delaware Bylaws do not alter the DGCL provision that a director may be removed, with or without cause, by the approval of a majority of the outstanding shares of the class that elected such director. The Delaware Bylaws provide that a majority of directors then in office shall have the power to fill any vacancy occurring in the Board as a result of a director resignation. The Delaware Bylaws provide that any vacancy resulting from any increase in the authorized number of directors shall be filled only by a majority of directors then in office. Directors appointed by the board to fill any vacancy shall hold office until the Company’s next annual meeting and until such director’s successor shall have been elected and qualified.
Director Duties
The fiduciary duties of directors under Delaware law are generally similar to the duties prescribed under Illinois law. Unlike the ILBCA, however, the DGCL does not include a provision specifically permitting directors, in discharging their duties, to consider the effects of any action (including, without limitation, actions that may involve or relate to a change or potential change in control of the corporation) upon employees, suppliers and customers of the corporation or its subsidiaries, and upon communities in which offices or other establishments of the corporation or its subsidiaries are located. To the contrary, Delaware case law permits directors to consider the interests of constituencies other than shareholders only where the interests of those constituencies are coextensive with the interests of shareholders.
Indemnification and Limitation of Monetary Liability For Breach of Fiduciary Duty
Illinois and Delaware have similar laws relating to indemnification by a corporation of its officers, directors, employees and other agents. The laws of Illinois and Delaware permit corporations to adopt a provision in their articles of incorporation or certificates of incorporation, as applicable, eliminating the liability of a director to the corporation or its shareholders for monetary damages for breach of the director’s fiduciary duties except where such liability is based on:
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RLI (Illinois)
In addition, Illinois and Delaware have similar laws relating to indemnification and advancement of expenses by a corporation of its officers, directors, employees and other agents. The Illinois Articles of Incorporation provide for mandatory indemnification and, if approved by the Board, the advancement of expenses to its current and former directors and officers, where the person seeking indemnification acted in good faith and in a manner the person reasonably believed to be in or not opposed to the best interests of the Company, and, with respect to any criminal action or proceeding, had no reasonable cause to believe the conduct was unlawful, to the extent permitted by the ILBCA. The Illinois Articles of Incorporation also provide that the Company may indemnify and advance expenses to any person who is or was an employee or agent of the Company, or is or was an employee or agent of the Company serving at the request of the Company as a director, officer or employee of another corporation, partnership, joint venture, trust or other enterprise, to the extent and under the circumstances provided above with respect to a person who is or was a director or officer of the Company.
RLI (Delaware)
The indemnification provisions of the Delaware Bylaws are substantially identical to those contained in the Illinois Bylaws. However, the Delaware Bylaws mandate the advancement of expenses to an indemnified party and omit the requirement that the Company shall report any indemnification or advancement of expenses in writing to the shareholders with or before the notice of the next shareholders’ meeting.
Stock Repurchases or Redemptions
RLI (Illinois)
Under the ILBCA, a corporation may repurchase or redeem its shares, unless after giving effect to the repurchase or redemption the corporation would be insolvent or the net assets of the corporation would be less than zero or less than the maximum amount then payable to shareholders having preferential rights in liquidation if the corporation were then liquidated.
RLI (Delaware)
The DGCL generally provides that a corporation may redeem or repurchase its shares only if the redemption or repurchase would not impair the capital of the corporation (with certain exceptions). In addition, under the DGCL, a corporation may redeem some or all of its shares only if their redemption is authorized in its certificate of incorporation. However, a corporation may repurchase some or all of its shares in accordance with the requirements of applicable law regardless of whether the repurchase is authorized in the certificate of incorporation.
Annual Meetings of Shareholders
RLI (Illinois)
The Illinois Bylaws provide that the annual meeting of shareholders shall be held at the date and time as determined by the Board for the purpose of electing directors and for the transaction of such other business as may properly come before
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the meeting.
RLI (Delaware)
The provision of the Delaware Bylaws regarding the annual meeting of shareholders is substantially identical to the annual meeting provision of the Illinois Bylaws.
Special Meetings
RLI (Illinois)
Under ILBCA, special meetings of shareholders may be called by the president, a majority of the board of directors or the holders of not less than one-fifth (1/5) of all outstanding shares entitled to vote on the matter for which the meeting is called or by other persons as provided in the articles of incorporation or bylaws. The Illinois Bylaws provide that special shareholder meetings may be called by the chairman of the Board, a majority of the members of the Board or the secretary, following the receipt of one or more written demands by the holders of record, as of the record date fixed in accordance with the Illinois Bylaws, in the aggregate, of at least twenty percent (20%) of the outstanding shares of the Company entitled to vote on the matter and who comply with the other notice and procedural requirements set forth in the Illinois Bylaws. Additionally, the Illinois Bylaws also permit the chairman of the Board to call a special shareholders’ meeting.
RLI (Delaware)
Under the DGCL, a special meeting of shareholders may be called by the board of directors or any other person authorized to do so in the corporation’s certificate of incorporation or bylaws. The Delaware Bylaws provide that special shareholders’ meetings may be called by the chairman of the Board, a majority of the members of the Board, or by the secretary, upon receipt of one or more written demands to call a special meeting from shareholders of record as of the record date fixed in accordance with the Delaware Bylaws who hold, in the aggregate, at least twenty percent (20%) of the voting power of the outstanding shares and who comply with the other notice and procedural requirements set forth in the Delaware Bylaws.
Directors’ Meetings
RLI (Illinois)
The Illinois Bylaws provide that an annual meeting of the Board shall be held immediately after, and at the same place as, the annual meeting of the shareholders unless otherwise determined by the Board. Additional regular meetings of the Board shall be held at such other times at such other locations as the Board may determine. Special meetings of the Board may be called by the president or at the request of a majority of the Board. A majority of the directors then in office will constitute a quorum, and if a quorum is present the act of a majority of the directors present at the meeting will be the act of the Board, unless the act of a greater number is required by the ILBCA, the Illinois Articles of Incorporation or the Illinois Bylaws.
RLI (Delaware)
The Delaware Bylaws provide that regular meetings of the Board may be held at such time and such place as shall from time to time be determined by the Board. Special meetings of the Board may be called by the chairman of the Board, the chief executive officer, the president or the secretary at the request of a majority of total number of directors constituting the Board. A majority of the total number of directors shall constitute a quorum for transaction of business at any meeting of the Board and, if a quorum is present, the act of a majority of the directors present at the meeting will be the act of the Board, except as may be specifically required by the DGCL, the Delaware Certificate of Incorporation or the Delaware Bylaws.
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Inspection of Corporate Records
RLI (Illinois)
The ILBCA provides that any shareholder, in person or by agent, has the right, upon written demand, to examine the corporation’s books and records of account, minutes, voting trust agreement filed with the corporation and record of shareholders for a proper purpose, and to make extracts therefrom, but only for a proper purpose. A complete list of the shareholders entitled to vote at a shareholder meeting must be available for shareholder inspection by the earlier of twenty (20) days after the record date for the meeting or ten (10) days before the meeting. Such list must be produced and kept open at the time and place of the meeting and shall be subject to the inspection of any shareholder during the whole time of the meeting. The Illinois Bylaws provide that, at least ten (10) days before every shareholder meeting, a complete list of the shareholders entitled to vote at such meeting be open to examination at the office of the Company in Peoria, Illinois, by any shareholder during ordinary business hours, for any purpose germane to the meeting during the ten (10) day period ending on the date of the meeting.
RLI (Delaware)
The DGCL provides that any shareholder, in person or by attorney or other agent, shall, upon written demand under oath stating the purpose thereof, have the right, during the usual hours for business, to inspect the corporation’s stock ledger, shareholders’ lists and other books and records for a purpose reasonably related to the person’s interest as a shareholder. The Delaware Bylaws provide that a complete list of the shareholders entitled to vote at a shareholder meeting must be available for shareholder inspection either (i) on a reasonably accessible electronic network or (ii) during ordinary business hours at the Company’s principal place of business at least ten (10) days before the meeting and must be available for inspection during any meeting of shareholders.
Shareholder Proposals
RLI (Illinois)
Shareholders may submit proposals to RLI (Illinois) to be considered at an annual meeting. Any such proposals must comply in all respects with the notice and procedural requirements in the Illinois Bylaws and all applicable rules and regulations of the Securities and Exchange Commission relating to shareholder proposals. The ILBCA does not address shareholder proposals.
RLI (Delaware)
Shareholders may submit proposals to RLI (Delaware) to be considered at an annual meeting. As is the case with RLI Illinois, any such proposals must comply in all respects with the notice and procedural requirements in the Delaware Bylaws and all applicable rules and regulations of the Securities and Exchange Commission relating to shareholder proposals. The DGCL does not address shareholder proposals.
Charter Amendments
RLI (Illinois)
Under the ILBCA, except for enumerated matters which can be amended by majority director vote alone (removing the names and addresses of initial directors and the registered agent, altering par value, splitting shares, minor corporate name changes, reducing authorized shares and restating articles as amended), amendments to the articles of incorporation require a resolution of the Board submitting the amendment to a vote of shareholders and the approval of shareholders holding two-thirds (2/3) of the voting power of the corporation, except in cases specified in the ILBCA where class voting is required, in which case, approval of two-thirds (2/3) of the voting power of each such class is required. The articles of incorporation may provide for a lower vote (but not less than a majority of the outstanding shares entitled to vote on the
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matter) or a higher vote. The Illinois Articles of Incorporation lower the voting requirement such that the affirmative vote of the holders of a majority of the outstanding shares entitled to vote on such matter shall be required for the shareholders of RLI (Illinois) to approve an amendment to the Illinois Articles of Incorporation.
RLI (Delaware)
To amend the certificate of incorporation, the DGCL generally requires the Board to adopt a resolution setting forth the amendment proposed, declare the amendment advisable and submit the amendment to the shareholders for approval. The amendment must be approved by the affirmative vote of the holders of a majority in voting power of the outstanding shares of stock entitled to vote. If the charter amendment would increase the number of authorized shares of a class of stock, change the par value of such class, or adversely affect the rights, powers or preferences of such class, a separate affirmative vote by the class affected by the amendment. The certificate of incorporation may provide, however, that the number of authorized shares of any such class of stock may be increased or decreased (but not below the number of shares thereof then outstanding) by the affirmative vote of the holders of majority of the stock of the corporation entitled to vote irrespective the right to vote as described in the preceding sentence. The Delaware Certificate of Incorporation includes such a provision.
Amendments to Bylaws
RLI (Illinois)
The ILBCA provides that, unless the power to amend or alter the bylaws is reserved to the shareholders by the articles of incorporation, the bylaws of a corporation may be altered or amended by shareholders or the board of directors, except that no bylaw adopted by the shareholders may be altered or amended by the board of directors if the bylaws so provide. The Illinois Bylaws provide that they may be altered, amended, or repealed by either shareholders or the Board. The Illinois Bylaws also provide that any bylaw made, altered amended or repealed by shareholders may be altered, amended or repealed by the Board or by the shareholders.
RLI (Delaware)
Under Delaware law, bylaws may be adopted, amended or repealed by the shareholders. A corporation may, in its certificate of incorporation, confer upon the directors the power to amend, alter or repeal the bylaws, but it may not eliminate the power of the shareholders to amend the bylaws. As provided in the Delaware Certificate of Incorporation, the Delaware Bylaws may be amended, altered or repealed by either shareholders or the Board.
Merger, Consolidations, Share Exchanges and Sales of All or Substantially All Assets
RLI (Illinois)
The ILBCA generally requires two-thirds (2/3) of the outstanding voting shares to approve most mergers, consolidations and share exchanges or sales of all or substantially all assets, unless the approval is reduced to as low as a simple majority or increased as provided in the articles of incorporation. The Illinois Articles of Incorporation modify the two-thirds (2/3) voting standard set forth in the ILBCA with respect to approval of mergers, consolidations and share exchanges opting for the affirmative vote of the holders of at least a majority of the outstanding shares entitled to vote on the transaction.
RLI (Delaware)
The DGCL generally requires the holders of a majority in voting power of the outstanding shares of stock entitled to vote on the transaction to approve statutory mergers, consolidations and sales of all or substantially all assets, which is consistent with the voting standard enumerated in the Illinois Articles of Incorporation. The Delaware Certificate of Incorporation and the Delaware Bylaws do not modify the DGCL’s voting standard.
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General
Under both the DGCL and ILBCA, a shareholder vote of a constituent corporation surviving a merger is not required to authorize a merger (unless the corporation’s certificate of incorporation provides otherwise) if:
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| | the merger agreement does not amend the certificate of incorporation of such corporation;
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| | each share of stock of such corporation outstanding immediately before the effective date of the merger is to be an identical share outstanding of the surviving corporation after the effective date of the merger; and
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| | the number of shares of common stock to be issued by the corporation in the merger does not exceed twenty percent (20%) of the number of shares outstanding immediately before the merger.
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Under both the DGCL and the ILBCA the vote of the shareholders of a corporation (the “subsidiary”) is not required where ninety percent (90%) of each class of the voting stock of the subsidiary is owned by another corporation (the “parent”) in a merger where the parent merges the subsidiary into itself. In the case of the parent merging itself into the subsidiary, a shareholder vote of the parent’s shareholders is required.
Under Section 251(h) of the DGCL, unless expressly required by the certificate of incorporation, no vote of the shareholders of a target corporation that has a class or series of stock that is listed on a national securities exchange or held of record by more than 2,000 holders immediately prior to the execution of the merger agreement by such corporation is required in order to authorize a merger if (i) the merger agreement expressly permits or requires such merger to be effected under Section 251(h) and provides that the merger will be effected as soon as practicable following the consummation of the offer, (ii) the purchasing corporation commences a tender or exchange offer for all outstanding shares of the target corporation that would otherwise be entitled to vote on the adoption of the merger agreement; (iii) immediately following consummation of the tender or exchange offer, the stock of the target corporation irrevocably accepted for purchase or exchange by the purchasing corporation, combined with the stock of the target corporation otherwise owned by the purchasing corporation or its affiliates and any rollover stock, equals at least the percentage of stock of the target corporation that would be required to adopt the merger agreement; and (iv) the purchasing corporation as promptly as practicable effects a merger with the target corporation in which the shares that were subject to the tender or exchange offer, and not accepted for purchase in the tender or exchange offer, are converted into the same consideration as was paid for shares in the tender or exchange offer.
In addition, under the DGCL, unless expressly required by the certificate of incorporation, no vote of shareholders of a constituent corporation is required to authorize a holding company reorganization merger if: (i) the constituent corporation merges into a direct or indirect wholly-owned subsidiary of the constituent corporation; (ii) in the merger the shareholders of the constituent corporation receive an identical number and kind of shares of stock in the holding company as they had in the corporation; (iii) the holding company and the constituent corporation are Delaware corporations and the direct or indirect wholly-owned subsidiary that is the other constituent entity to the merger is a Delaware corporation or limited liability company, (iv) the certificate of incorporation and bylaw provisions of the holding company immediately following the effective time of the merger are identical to those of the constituent corporation immediately prior to the effective time of the merger (other than certain specified provisions), (v) as a result of the merger, the constituent corporation or its successor becomes or remains a direct or indirect wholly-owned subsidiary of the holding company, (vi) the directors of the constituent corporation become or remain the directors of the holding company upon the effective time of the merger and (vii) the organizational documents of the surviving entity in the merger immediately following the effective time of the merger must contain provisions identical to those of the constituent corporation immediately prior to the effective time of the merger (other than certain specified provisions).
Interested Director Transactions
Under both Delaware and Illinois law, certain contracts or transactions in which one or more of a corporation’s directors has an interest are not void or voidable solely because of such interest; provided that certain conditions, such as obtaining
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the required approval and fulfilling the requirements of good faith and full disclosure, are met.
RLI (Illinois)
Under Illinois law, if a transaction is “fair” when authorized, approved or ratified, then the fact that a director has an interest in the transaction is not grounds for invalidating the transaction or the interested director’s vote regarding such transaction. In any proceeding relating to such a transaction, the person asserting its validity will have the burden of proof unless, after full disclosure of such director’s interest:
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| | a majority of the disinterested directors approved the transaction; or
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| | such transaction was approved by the shareholders without counting the votes of any shareholder who is an interested director.
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RLI (Delaware)
Under Delaware law, no contract or transaction between a corporation and one or more of its directors or officers or between a corporation and any other entity in which one or more of its directors or officers, are directors or officers, or have a financial interest, shall be void or voidable solely for this reason or because the director or officer is present at or participates in the meeting of the board or committee that authorized the contract or transaction or because such director’s or officer’s votes counted for such purpose, if:
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| | the shareholders or the disinterested members of the board of directors approved such contract or transaction after full disclosure of the material facts; or
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| | the contract or transaction is “fair” as to the corporation at the time it was authorized, approved or ratified by the board, a committee or the shareholders.
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Dissenters’ Rights; Appraisal Rights
RLI (Illinois)
Under the ILBCA, shareholders of an Illinois corporation have dissenters’ rights entitling a shareholder to dissent from certain mergers, sales of assets or other specified corporate acts, described below, in order to obtain the corporation’s assessment of the “fair value” of such shareholder’s shares and to proceed with an action seeking the difference between the shareholder’s estimate of fair value and interest due and the amount of the “fair value” payment by the corporation. Under Illinois law, dissenters’ rights are available only in the event of any of the following corporate transactions:
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| | completion of a plan of merger or consolidation or a plan of share exchange to which the corporation is a party if shareholder authorization is required for such merger, consolidation or share exchange or the corporation is a ninety percent (90%) or more owned subsidiary that is merged with its parent or another subsidiary or as regards to the parent, when it is merged into a ninety percent (90%) or more owned subsidiary, when the latter is the survivor thereof;
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| | completion of a sale, lease or exchange of all, or substantially all, of the property and assets of the corporation other than in the usual and regular course of business;
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| | an amendment of the articles of incorporation that materially and adversely affects rights in respect of a dissenter’s shares; or
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| | any other corporate action taken pursuant to a shareholder vote if the articles of incorporation, bylaws or a resolution of the board of directors of the corporation provide that shareholders are entitled to dissent and obtain payment for their shares in accordance with the procedures of the ILBCA.
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The Illinois Articles of Incorporation and the Illinois Bylaws do not grant any additional dissenters’ rights. To exercise dissenters’ rights, among other procedural requirements, a shareholder must submit a written demand to the corporation prior to the taking of the vote on the matter giving rise to dissenters’ rights and must not vote in favor of the action from which the shareholder dissents. With respect to the Reincorporation, holders of RLI (Illinois) shares will be entitled to
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dissenters’ rights. See “Dissenters’ or Appraisal Rights Relating to the Reincorporation.” See Annex D to this Proxy Statement for additional information on dissenters’ rights under ILBCA.
RLI (Delaware)
Under the DGCL, a shareholder of a corporation participating in certain mergers and consolidations may be entitled to appraisal rights pursuant to which such shareholder may receive payment of the “fair value” of the shareholder’s shares as determined by the Delaware Court of Chancery instead of the consideration the shareholder would otherwise receive in the proposed transaction. Under the DGCL, appraisal rights are only available in connection with certain mergers and consolidations and are not available for stock (or depository receipts in respect thereof) that at the record date either was listed on a national securities exchange or are held of record by more than 2,000 holders unless the holders of such stock are required by the terms of the merger or consolidation agreement to accept anything except:
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| | shares of stock of the corporation surviving or resulting from such merger or consolidation (or depository receipts in respect thereof);
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| | shares of stock of any other corporation (or depository receipts in respect thereof) that will be either listed on a national securities exchange or held of record by more than 2,000 holders on the effective date;
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| | cash in lieu of fractional shares or fractional depository receipts; or
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| | any combination of the shares of stock, depository receipts and cash in lieu of fractional shares or fractional depository receipts, as described above.
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In addition, shareholders of a corporation are not entitled to appraisal rights in a merger if the merger did not require for its approval the vote of the shareholders of the corporation as provided in Section 251(f) or (g) of the DGCL. The certificate of incorporation of a Delaware corporation may provide for appraisal rights in any merger or consolidation in which appraisal rights are not otherwise provided by statute, or in connection with any amendment to the certificate of incorporation or any sale of all or substantially all assets. The Delaware Certificate of Incorporation does not contain a provision providing appraisal rights in circumstances where they are not required by the DGCL.
Business Combination Provisions
Section 203 of the DGCL and Section 11.75 of the ILBCA prohibit corporations from engaging in a “business combination” with an “interested shareholder” for three years following the date that such person becomes an interested shareholder. With certain exceptions, under Section 203 of the DGCL and Section 11.75 of the ILBCA, an interested shareholder is a person or group who or which owns fifteen percent (15%) or more of the corporation’s outstanding voting stock (including any rights to acquire stock pursuant to an option, warrant, agreement, arrangement or understanding, or upon the exercise of conversion or exchange rights and stock with respect to which the person has voting rights only), or is an affiliate or associate of the corporation and was the owner of fifteen percent (15%) or more of such voting stock at any time within the previous three years.
For purposes of Section 203 of the DGCL and Section 11.75 of the ILBCA, the term “business combination” is defined broadly to include, among other things, mergers with or, in some cases, caused by the interested shareholder, sales or other dispositions to the interested shareholder (except proportionately with the corporation’s other shareholders) of assets of the corporation or a subsidiary equal to ten percent (10%) or more of the aggregate market value of the corporation’s consolidated assets or its outstanding stock, the issuance or transfer by the corporation or a subsidiary of stock of the corporation or such subsidiary to the interested shareholder (with certain exceptions) or receipt by the interested shareholder (except proportionately as a shareholder), directly or indirectly, of any loans, advances, guarantees, pledges or other financial benefits provided by or through the corporation or a subsidiary.
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The three-year prohibition imposed on business combinations by Section 203 of the DGCL or Section 11.75 of the ILBCA does not apply if:
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| | before the date on which such shareholder becomes an interested shareholder, the board of directors approves either the business combination or the transaction that resulted in the person becoming an interested shareholder;
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| | the interested shareholder owns eighty-five percent (85%) of the corporation’s voting stock (excluding certain shares) upon completion of the transaction that made him or her an interested shareholder; or
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| | on or after the date such person becomes an interested shareholder, the board approves the business combination and it is also approved at a shareholder meeting by sixty-six and two-thirds percent (66-2/3%) of the voting stock not owned by the interested shareholder.
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Section 7.85 of the ILBCA provides extra protection to corporations subject to the reporting requirements of the Securities Exchange Act of 1934 (including RLI (Illinois)), for “business combinations” with an “interested shareholder” (defined similarly to the definition in Section 11.75 of the ILBCA) transactions. Section 7.85 of the ILBCA requires the approval of holders of at least eighty percent (80%) of the combined voting power of the then outstanding shares of all classes of the corporation’s capital stock entitled to vote in the election of directors and the approval of a majority of the voting shares held by disinterested shareholders. The higher voting requirements are not required if certain procedural and price requirements are met or if the business combination is approved by at least two-thirds (2/3) of the “disinterested directors.” Disinterested directors are directors who are not associated with the interested shareholder, were members of the Board prior to the time the interested shareholder became an interested shareholder or were recommended by a majority of the disinterested directors to succeed a disinterested director, and were not nominated by an interested shareholder or its affiliates.
RLI (Illinois)
An Illinois corporation may elect not to be governed by Sections 7.85 and 11.75 of the ILBCA. The Illinois Articles of Incorporation or the Illinois Bylaws have not modified or superseded the vote required by those sections.
RLI (Delaware)
Delaware corporations may, in their certificates of incorporation elect not to be governed by Section 203. The Delaware Certificate of Incorporation does not make such an election.
Dissolution
RLI (Illinois)
Under the ILBCA, upon adoption of a board resolution submitting a dissolution proposal to shareholders, or in the event that the board fails to submit a dissolution proposal to shareholders for more than one (1) year after being requested to do so by the holders of more than one-fifth (1/5) of the shares entitled to vote on dissolution, shareholders holding at least two-thirds (2/3) of the total voting power (or such lesser percentage not less than a simple majority or such greater number as may be provided in the articles of incorporation) may authorize a corporation’s dissolution. The ILBCA also authorizes the dissolution of a corporation by unanimous written consent of all outstanding shares entitled to vote on dissolution, without the vote or action of the directors of a corporation. The Illinois Articles of Incorporation do not modify these statutory provisions.
RLI (Delaware)
Under the DGCL, a corporation may be dissolved upon the adoption of a resolution to dissolve by a majority of the whole board of directors and the approval of such resolution by the holders of a majority in voting power of the then outstanding shares of stock entitled to vote on such matter. Like the ILBCA, the DGCL also permits a dissolution to be
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authorized by unanimous written consent of all outstanding shares entitled to vote on dissolution without the directors adopting a resolution to dissolve.
Shareholder Derivative Suits
RLI (Illinois)
Illinois law provides that a shareholder bringing a derivative action on behalf of a corporation must have been a shareholder at the time of the transaction in question; provided that a shareholder not meeting that requirement may be permitted in the discretion of the court to bring the action if such shareholder can prove that he or she acquired the shares prior to disclosure of the wrongdoing complained of by the shareholder.
RLI (Delaware)
Under Delaware law, a shareholder may only bring a derivative action on behalf of the corporation if the shareholder was a shareholder of the corporation at the time of the transaction in question or the shareholder was granted such stock thereafter by operation of law.
Waiver of Corporate Opportunity Doctrine
RLI (Illinois)
The ILBCA does not expressly prohibit a corporation from renouncing in its articles of incorporation any interest, expectancy or opportunity to participate in specified business opportunities that are presented to the corporation or its officers, directors or shareholders, although the ILBCA does prohibit provisions eliminating or limiting a director’s liability for breach of his or her duty of loyalty to the corporation and its shareholders. The Illinois Articles of Incorporation do not waive such corporate opportunities.
RLI (Delaware)
The DGCL expressly permits a corporation to renounce, in its certificate of incorporation or by action of its board of directors, any interest, expectancy or opportunity to participate in specified business opportunities or specified classes or categories of business opportunities that are presented to the corporation or its officers, directors or shareholders. The Delaware Certificate of Incorporation does not waive such corporate opportunities.
Exclusive Forum
RLI (Illinois)
The ILBCA neither authorizes the inclusion of nor prohibits a corporation’s governing documents from including restrictions with respect to the venue in which a shareholder may bring an action. The Illinois Articles of Incorporation and the Illinois Bylaws do not contain any restrictions with respect to the venue in which a shareholder may bring an action.
RLI (Delaware)
The DGCL expressly authorizes the inclusion of exclusive forum provisions in the governing documents of a Delaware corporation. The Delaware Bylaws contain a provision establishing, to the fullest extent permitted by law, the Delaware Court of Chancery (or, in the event the Delaware Court of Chancery does not have jurisdiction, the federal district court for the District of Delaware or other state courts of the State of Delaware) as the sole and exclusive forum for (i) any derivative action or proceeding brought on behalf of RLI (Delaware), (ii) any action asserting a claim of breach of a fiduciary duty owed by any director, officer or shareholder of RLI (Delaware) to RLI (Delaware) or its shareholders, (iii) any action arising pursuant to any provision of the DGCL, the Delaware Certificate of Incorporation or the Delaware Bylaws (as amended from
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time to time) or (iv) any action asserting a claim against RLI (Delaware) governed by the internal affairs doctrine.
SIGNIFICANT PROVISIONS TO BE CARRIED OVER
Authorized Shares
As previously noted, upon the consummation of the Reincorporation Merger, RLI (Delaware) will be authorized to issue 100,000,000 shares of common stock and 5,000,000 shares of preferred stock. Upon the consummation of the Reincorporation Merger, it is anticipated that there will be [☐] shares of RLI (Delaware) common stock outstanding and no shares of RLI (Delaware) preferred stock outstanding. The only change is that the authorized common stock of RLI (Illinois) has a par value of $1.00 per share and authorized preferred stock of RLI (Illinois) has a par value of $0.01 per share, whereas the authorized common and preferred stock of RLI (Delaware) will have a par value of $0.01 per share. For more information, see “Description of the Company’s Capital Stock upon the Effectiveness of the Reincorporation.”
Size of Board
The Illinois Bylaws and the Delaware Bylaws authorize the directors to fix or change the number of directors, provided, that the Board must consist of no less than nine (9), and no more than thirteen (13), directors.
Term and Election of Directors
Both the Illinois Bylaws and the Delaware Bylaws provide that the term of office of each director shall be one (1) year, and each director shall be elected each year at the Company’s annual meeting. The Illinois Bylaws provide that a majority of the outstanding voting power is required to elect a director. The Delaware Bylaws provide that the majority of the votes cast is required to elect a director.
Special Meeting of Shareholders
The Illinois Bylaws and the Delaware Bylaws provide that special meetings of the shareholders may be called by the chairman of the Board, a majority of the Board, or by the secretary, upon receipt of one or more written demands to call a special meeting from shareholders of record on the record date holding, in the aggregate, not less than twenty percent (20%) of all the outstanding shares of the Company who otherwise comply with the advanced notice and procedural requirements of the Illinois Bylaws or the Delaware Bylaws, as applicable.
No Cumulative Voting
The shareholders of RLI (Illinois) do not, and the shareholders of RLI (Delaware) will not, have the right of cumulative voting in the election of directors.
No Preemptive Rights
The shareholders of RLI (Illinois) do not, and the shareholders of RLI (Delaware) will not, have preemptive rights to acquire newly issued capital stock.
Indemnification
The indemnification provisions of the Delaware Bylaws are substantially identical to those contained in the Illinois Articles of Incorporation. However, the Delaware Bylaws mandate the advancement of expenses to an indemnified party and omit the requirement in the Illinois Bylaws that the corporation shall report any indemnification or advance to the shareholders, in writing, with or before the notice of the next shareholders’ meeting.
Vote on Mergers, Consolidations and Sales of All or Substantially All Assets
The DGCL requires the same vote as is required by the Illinois Articles of Incorporation, the holders of a majority in
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voting power of the outstanding voting shares entitled to vote to approve any mergers, consolidations and sales of all or substantially all assets for which approval of the shareholders is required under the DGCL or the Delaware Certificate of Incorporation.
POSSIBLE ANTI-TAKEOVER EFFECT OF PROVISIONS
Both the Illinois Articles of Incorporation and Illinois Bylaws, as well as Illinois law, and the Delaware Certificate of Incorporation and Delaware Bylaws, as well as Delaware law, contain some provisions that may be viewed as having a possible anti-takeover effect.
Authorized Preferred Shares
Under both the Illinois Articles of Incorporation and the Delaware Certificate of Incorporation, the Board is authorized to issue 5,000,000 preferred shares. In each case, the Board may issue these preferred shares in one or more series and may establish the designations, preferences and rights, including voting rights, of each series. These preferred shares of RLI (Illinois) are, and the shares of preferred stock of RLI (Delaware) will be (upon the filing of a certificate of designations with the Delaware Secretary of State pursuant to a Board resolution), available for issuance from time to time to any person for such consideration as the Board may determine without the requirement of further action by our shareholders, except as required by the New York Stock Exchange or other exchange on which Company shares are then listed. The Board may decide to issue such preferred stock for a variety of reasons including but not limited to the issuance in a public or private sale for cash as a means of obtaining additional capital for use in the Company’s business and operations, issuance as part or all of the consideration required to be paid for acquisitions of other business properties and issuance as a share dividend to equity holders. Depending on its terms, the issuance of preferred stock may or may not have a dilutive effect on the equity interest or voting power of the then current shareholders of the Company.
Although our Board has no present intention to do so, authorized but unissued and undesignated preferred shares may also be issued as a defense to an attempted takeover. For example, the Board could, to the extent consistent with the directors’ fiduciary duties, sell a block of preferred stock to a “white knight” thereby diluting the share ownership of persons seeking to obtain control. The Board could utilize the authorized but unissued and undesignated preferred stock in connection with a new rights plan or “poison pill.”
Special Meetings of Shareholders
Limits on the rights of shareholders to call special meetings of shareholders could have an anti-takeover effect as a potential acquirer may wish to call a special meeting of shareholders for the purpose of considering the removal of directors or an acquisition offer. The Illinois Bylaws and the Delaware Bylaws each provide that shareholders of RLI (Illinois) or shareholders of RLI (Delaware), respectively, holding at least twenty percent (20%) of the outstanding shares entitled to vote thereat may make written demand of the Company’s secretary to call special meetings of shareholders, provided such shareholders comply with the other requirements set forth in the Illinois Bylaws or the Delaware Bylaws, as applicable.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
The Company files annual, quarterly and current reports, proxy statements and other information with the SEC. You may read and copy any documents the Company files at the SEC’s public reference room at 100 F Street, N.E., Washington, D.C. 20549. Please call the SEC at 1-888-SEC-0330 for further information on the public reference room. The Company’s SEC filings are also available to the public from the SEC’s website at www.sec.gov or through the Company’s website at www.rlicorp.com. The Company has not incorporated by reference into this Proxy Statement the information included on or linked from its website, and you should not consider that information to be part of this Proxy Statement.
36 | RLI Corp. 2018 Proxy Statement
VOTE REQUIRED AND BOARD RECOMMENDATION
The affirmative vote of the holders of at least a majority of the outstanding shares of RLI (Illinois) is necessary to approve this proposal. Abstentions and broker non-votes will have the same effect as votes against this proposal.
The Board of Directors recommends that the shareholders vote “FOR” the proposal to approve the reincorporation of the Company from the State of Illinois to the State of Delaware.
*****
PROPOSAL THREE: NON-BINDING, ADVISORY VOTE REGARDING THE COMPENSATION OF THE COMPANY’S NAMED EXECUTIVE OFFICERS
The Dodd-Frank Wall Street Reform and Consumer Protection Act and related SEC regulations require that we seek an advisory (non-binding) vote from our shareholders to approve the compensation of our named executive officers as disclosed in the Compensation Discussion & Analysis (“CD&A”), compensation tables and related disclosures in this Proxy Statement.
As discussed in our CD&A starting on page 50, our executive compensation programs have been designed to provide a competitive total executive compensation program linked to Company performance that will attract, retain and motivate talented executives critical to the Company’s long-term success.
The Executive Resources Committee of our Board (“ERC”) developed an overall compensation philosophy that is built on a foundation of the following principles:
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| | The focus is on the linkage between long-term shareholder value creation and executive pay;
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| | Incentives for executives directly involved in underwriting are based on underwriting profit measured over a period of years consistent with the income and risk to the Company;
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| | Compensation should reflect both the Company’s and individual’s performance;
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| | A meaningful element of equity-based compensation and significant executive equity holdings are important to ensure alignment of management and shareholder interests;
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| | The Company’s overall executive pay levels must be competitive in the marketplace for executive talent to enable the Company to attract, motivate and retain the best talent; and
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| | Appropriate safeguards must be in place to ensure annual incentives are aligned with long-term risk and value creation to protect against unnecessary and excessive risk to the Company.
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We are asking you to indicate your support for our executive compensation programs as described in this Proxy Statement. This proposal, commonly known as a “Say-on-Pay” proposal, gives you the opportunity to express your views on our 2017 executive compensation policies and procedures for named executive officers. This non-binding vote is not intended to address any specific item of compensation, but rather the overall compensation of our named executive officers and the policies and procedures described in this Proxy Statement. Accordingly, we ask the shareholders to vote “FOR” the following resolution at the Annual Meeting:
RESOLVED, that the compensation paid to the Company’s named executive officers, as disclosed pursuant to the compensation disclosure rules of the Securities and Exchange Commission, including the CD&A, compensation tables and any related material disclosed in the Company’s Proxy Statement is hereby APPROVED.
Your vote is advisory, and therefore not binding on the ERC or the Board. However, we value your opinions and to the extent there is any significant vote against the named executive officer compensation as disclosed in this Proxy Statement, we will consider our shareholders’ concerns. The ERC will evaluate whether any actions are necessary to address those concerns.
RLI Corp. 2018 Proxy Statement | 37
The Board of Directors recommends that the shareholders vote “FOR” the proposal to approve the compensation of the Company’s named executive officers as described in this Proxy Statement.
PROPOSAL FOUR: RATIFICATION OF THE SELECTION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Audit Committee has selected KPMG LLP (“KPMG”), the Company’s independent registered public accounting firm since 1983, as the Company’s independent registered public accounting firm for 2018, and the Board is asking shareholders to ratify that selection. Although current law, rules and regulations, as well as the Charter of the Audit Committee, require our independent auditor to be appointed, retained and supervised by the Audit Committee, the Board considers the selection of an independent auditor to be an important matter of shareholder concern and considers a proposal for shareholders to ratify such selection to be an important opportunity for shareholders to provide direct feedback to the Board on an important issue of corporate governance. If the appointment of KPMG is not ratified by shareholders, the Audit Committee will take such action, if any, with respect to the appointment of the independent auditor as the Audit Committee deems appropriate, which may include continued retention of such audit firm. Even if the selection is ratified, the Audit Committee, in its discretion, may select a different independent registered public accounting firm at any time during the year if it determines that such a change would be in the best interests of the Company and our shareholders.
Representatives of KPMG are expected to be present at the Annual Meeting with the opportunity to make a statement, if they desire, and will be available to respond to appropriate questions from the shareholders.
The affirmative vote of the holders of at least a majority of the shares of Common Stock of the Company present in person or represented by proxy at the Annual Meeting and entitled to vote is required for adoption of this proposal.
The Board of Directors recommends that the shareholders vote “FOR” the proposal to ratify the selection of KPMG LLP as independent registered public accounting firm of the Company for the current fiscal year.
FEES PAID TO THE INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Fees for services rendered by KPMG, the Company’s Independent Registered Public Accounting Firm, for the past two fiscal years for each of the following categories of services, are set forth below:
| | | | | | | | | | Fiscal Year | | Fiscal Year | | | | 2017 | | 2016 | | Audit Fees | | $ | 1,373,000 | | $ | 1,266,000 | | Audit-Related Fees | | $ | — | | $ | — | | Tax Fees | | | | | | | | Tax Compliance | | $ | — | | $ | — | | Other Tax Services | | $ | — | | $ | — | | All Other Fees | | $ | — | | $ | — | | Total Fees | | $ | 1,373,000 | | $ | 1,266,000 | |
Audit fees relate to professional services rendered for the audit of the consolidated financial statements of the Company, audits of the statutory financial statements of certain subsidiaries, review of quarterly consolidated financial statements and assistance with review of documents filed with the SEC, including attestation as required under Section 404 of the Sarbanes-Oxley Act of 2002.
CORPORATE GOVERNANCE AND BOARD MATTERS CORPORATE GOVERNANCE PRINCIPLES The Company is committed to having sound corporate governance principles that are designed to ensure that the Board exercises reasonable business judgment in discharging its obligations to the Company and its shareholders. Corporate governance practices also help to ensure that full and transparent disclosures are made to the Company’s shareholders and the SEC. 38 | RLI Corp. 2018 Proxy Statement
The Company’s published Corporate Governance Guidelines, which are publicly available on the Company’s website under the Investors section at www.rlicorp.com, outline the directors’Directors’ responsibilities, which include attendance at shareholder, Board, and committee meetings. All 12 members of the BoardDirectors then in office attended the 20172022 Annual Meeting of Shareholders and were available to respond to appropriate questions from the shareholders. DIRECTOR ORIENTATION AND CONTINUING EDUCATION The Company has developed an orientation process for new directorsDirectors and also encourages new directorsDirectors to attend a directorDirector seminar in their first year as a director. Each incumbentDirector. Directors are also required to maintain the necessary level of expertise to perform their responsibilities and to help ensure that they remain currently informed on corporate governance, financial and accounting practices, ethical issues for Directors and management, industry related topics, and similar matters. The sources through which Directors acquire and maintain this knowledge include webinars, websites, periodicals, newsletters, director is expectededucation programs, conferences, seminars, and director educational and compliance presentations by the Company. Directors are encouraged to attend an accredited directorannually a forum, conference or conferences that will contribute to their performance on the Company Board and the Company reimburses Directors for the reasonable costs of attending Director education seminar at least once a year, and each Auditprograms. The Nominating & Corporate Governance Committee member is expectedannually reviews Director education to attend an audit committee forum/conference at least once a year.ensure all Directors are receiving regular education on appropriate topics. DIRECTOR INDEPENDENCE The Board is required to affirmatively determine the independence of each directorDirector and to disclose such determination in the proxy statementProxy Statement for each Annual Meeting of Shareholders of the Company. The Board has established guidelines, which are set forth below, to assist it in making this determination, which incorporate all of the NYSE independence standards. Only independent directorsIndependent Directors may serve on the Company’s Audit Committee, Executive ResourcesHuman Capital & Compensation Committee, and Nominating/Nominating & Corporate Governance Committee. It is the policy of the Board of Directors of the Company that a majority of its members be independent,Independent, which is also a requirement for listing on the NYSE. To be considered independent under the NYSE Listing Standards, the Board must affirmatively determine that a directorDirector or directorDirector nominee (collectively referred to as “director”“Director”) has no material relationship with the Company (directly or as a partner, shareholder or officer of an organization that has a relationship with the Company), RLI Corp. 2023 Proxy Statement | 21 and also meets other specific independence tests. The Board examines the independence of each of its members once per year, and again if a member’s outside affiliations change substantially during the year. With the exception of the Messrs. Michael and Stone, the Board has affirmatively determined that each director is independent within the meaning of the NYSE Listing Standards and the Company’s Director Independence Standards. The Board has established the following categorical standards, incorporating the NYSE’s independence standards to assist it in determining director independence:if a Director is “Independent”: | (a) | (a)
| | A Director will not be independent“Independent” if: |
| (i) | | the Director is, or has been within the last three years, an employee of RLI, or an immediate family member of the Director is, or has been within the last three years, an executive officer of RLI; |
| (ii) | | the Director has received, or has an immediate family member who has received, during any 12-month period within the last three years, more than $120,000 in direct compensation from RLI, other than Director and committee fees and pension or other forms of deferred compensation for prior service (provided such compensation is not contingent in any way on continued service); |
| (iii) | | (A) the Director is a current partner or employee of a firm that is RLI’s internal or external auditor; (B) the Director has an immediate family member who is a current partner of such firm; (C) the Director has an immediate family member who is a current employee of such firm and personally works on RLI’s audit; or (D) the Director or an immediate family member was within the last three years a partner or employee of such a firm and personally worked on RLI’s audit within that time; |
| (iv) | | the Director or an immediate family member is, or has been within the last three years, employed as an executive officer of another company where any of RLI’s present executive officers at the same time serves or served on that company’s compensation committee; or |
| (v) | | the Director is a current employee, or an immediate family member is a current executive officer, of a company that has made payments to, or received payments from, RLI for property or services in an amount which, in any of the last three fiscal years, exceeds the greater of $1 million, or 2 percent of such other company’s consolidated gross revenues. |
RLI Corp. 2018 Proxy Statement | 39
| (b) | (b)
| | The following commercial and charitable relationships will not be considered to be material relationships that would impair a Director’s independence: |
| (i) | | if a Director, or an immediate family member of the Director, is an executive officer, director,Director, employee, or holder of an equity interest of a company that has made payments to, or received payments from, RLI for property or services in an amount which, in the last fiscal year, does not exceed the greater of $1 million, or 2 percent of such other company’s consolidated gross revenues; |
| (ii) | | if a Director, or an immediate family member of the Director, is an executive officer, director,Director, employee, or holder of an equity interest of a company that is indebted to RLI, or to which RLI is indebted, and the total amount of either company’s indebtedness to the other does not exceed the greater of $1 million, or 2 percent of such other company’s total consolidated assets; |
| (iii) | | if a Director, or an immediate family member of the Director, is an executive officer, directorDirector, or employee of a company in which RLI owns an equity interest, and the amount of RLI’s equity interest in such other company does not exceed the greater of $1 million, or 2 percent of such other company’s total shareholders’ equity; |
| (iv) | | if a Director, or an immediate family member of the Director, is a holder of an equity interest of a company of which a class of equity security is registered under the Securities Exchange Act of 1934, as amended, and in which RLI owns an equity interest; |
| (v) | | if a Director, or an immediate family member of the Director, is an executive officer, director,Director, employee, or holder of an equity interest of a company that owns an equity interest in RLI; and |
| (vi) | | if a Director, or an immediate family member of the Director, serves as an officer, directorDirector or trustee of a tax exempttax-exempt organization, and the contributions from RLI to such tax exempttax-exempt organization in the last fiscal year do not exceed the greater of $1 million, or 2 percent of such tax exempttax-exempt organization’s consolidated gross revenues. (RLI’s automatic matching of employee charitable contributions will not be included in the amount of RLI’s contributions for this purpose.) |
| (c) | (c)
| | For relationships not covered by the standards in subsection (b) above, the determination of whether the relationship is material or not, and therefore whether the Director would be independent“Independent” or not, shall be made by the Directors who satisfy the independence standards set forth in subsections (a) and (b) above. RLI is required to explain in its proxy statement the basis for any Board determination that a relationship was immaterial, despite the fact that it did not meet the categorical standards of immateriality set forth in subsection (b) above. |
22 | RLI Corp. 2023 Proxy Statement proxy statement the basis for any Board determination that a relationship was immaterial, despite the fact that it did not meet the categorical standards of immateriality set forth in subsection (b) above. BOARD INDEPENDENCE STATUS The following table identifies the independence status of our Director nominees and Directors as of December 31, 2017:who served on the Board during 2022: Director | Independent | | | | Director
| Independent
| | Management | Non-Management
| Kaj Ahlmann | X●
| | | | Barbara R. Allen
| X
| | | | Michael E. Angelina | X●
| | | | John T. Baily(1) | X●
| | | | Calvin G. Butler, Jr.(2) | X●
| | | | David B. Duclos | X●
| | Susan S. Fleming | ● | | Jordan W. Graham | X●
| | | | F. Lynn McPheetersCraig W. Kliethermes
| X
| ● | Paul B. Medini | ● | | Jonathan E. Michael | | | X
| ● | Robert P. Restrepo, Jr. | X●
| | | | James J. ScanlanDebbie S. Roberts
| X●
| | | | Michael J. Stone*Stone | ● | | | X
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| (1) | Mr. Baily will retire from the Board upon conclusion of his term on May 4, 2023. |
| (2) | Mr. Butler resigned from the Board of Directors in light of the demands of his new role as President and Chief Executive Officer of Exelon Corporate effective January 31, 2023. |
* Mr. Stone retired from the Company effective December 31, 2015. While no longer considered a Management Director, he is not considered an Independent Director pursuant to the NYSE Listing Standards, as adopted by the Company.
40 | RLI Corp. 2018 Proxy Statement
The following relationships were reviewed in connection with determining directorDirector independence but were determined to not be material relationships and to not affect such person’s independence under the Board independence standards: | ·
● | | Mr. Baily wasand Dr. Fleming were previously a directorDirectors of Endurance Specialty Holdings Ltd. (“Endurance”), affiliates of which include reinsurance companies. Endurance Specialty Holdings, Ltd. was acquired by SOMPO Holdings, Inc. After the acquisition, Dr. Fleming resigned from the Board and Mr. Baily became a Director of Endurance U.S. Insurance Holdings Corp., the U.S. holding company for the Sompo International group. From time to time, the Company’s principal insurance subsidiaries enter into reinsurance arrangements with Endurance and its affiliates. |
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● | | Mr. Baily and Mr. Scanlan areis a former partnerspartner with PricewaterhouseCoopers LLP (“PwC”), and retired from PwC in 1999 and 2014, respectively. Each of1999. Mr. Baily and Mr. Scanlan receives a pension paymentpayments from PwC. From time to time, the Company engages PwC for special projects and services in actuarial, tax, and other areas. |
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● | | Mr. Angelina is a directorDirector of QBE Equator Reinsurance Ltd.,Reinsurances Limited, a subsidiary of QBE Re. Mr. Duclos is a non-executive directorChairman of QBE Groups subsidiary board for Equator Reinsurances Limited and Blue Ocean Limited and a former Director of QBE Emerging Markets and Equator Reinsurance Ltd.Latin American Insurance Holdings Limited. From time to time, the Company’s principal insurance subsidiaries enter into reinsurance arrangements with QBE Re. |
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● | | Mr. Angelina is a directorLead Director and Chairman of the Board of Hagerty, Insurance GroupInc. (“Hagerty”) and Mr. Graham provides consulting services to Hagerty.Chairman of the Board of Hagerty Reinsurance Ltd. (“Hagerty Re”). Hagerty Re has reinsurance arrangements with the Company’s principal insurance subsidiaries. Hagerty Insurance Agency, a subsidiary of Hagerty, also produces insurance business for the Company’s principal insurance subsidiaries. |
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| | Mr. Restrepo is a director of Majesco, which provides billing and collection software services to the Company.
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DIRECTOR EVALUATION PROCESS To ensure that thorough attention is given to individual and collective Directors’ performance and optimizing the composition of our Board, the Board and Committees utilize an annual evaluation process. Each Director self-evaluatescompletes an evaluation that assesses the performance of the Committees on which he/shethe Director serves as well asand the Board as a whole. In addition, Directors are annually asked to complete a self-evaluation on individual performance, and members of senior management evaluate the Board. Finally, periodically Directors are asked to complete a peer-evaluation on the contributions and performance of each other Director. The peer evaluation was last conducted in 2020. The Annual Board Evaluation focuses on board processes, policies, effectiveness, strategy, and individual Director performance. Detailed composites are completedwere prepared to obtain perspective on each Director’s individual performance and each Committee’s performance in relationship to its respective Charter, effectiveness, functionality, areas of improvement and overall performance. The Annual Board Evaluation focuses on board processes, policies, effectiveness, committee composition and strategy as well as performance whereby establishing activities to maximize shareholder value. This process is handled by the Nominating/Nominating & Corporate Governance Committee. RLI Corp. 2023 Proxy Statement | 23 Further, each Director participates in a robust evaluation process, wherein annually all Directors provide a peer evaluation on a variety of director characteristics. Those evaluations are assessed by the Nominating/Corporate Governance Committee, and each reviewed Board member meets with the Chairman of the Board and/and the Lead Director meet or Leadconfer separately with each Director to discuss, among other matters, (1) Director and Board performance; (2) recommendations to improve meetings; (3) Committees’ structure and leadership; (4) the consolidated comments. effectiveness of the Lead Director; (5) whether key topics are sufficiently considered by the Board; (6) support from management; (7) succession planning; and (8) compensation. The Chairman of the Board and Lead Director summarize their discussions with the Nominating & Corporate Governance Committee. Based on the cumulative results of each Director’s overall performance, the Nominating/Nominating & Corporate Governance Committee reviews and evaluates the Board candidates and their respective qualifications in detail to determine if it is in the best interest of the Company and its shareholders to nominate each Director to stand for election. DIRECTOR NOMINATION POLICY NOMINATIONS The Nominating/Nominating & Corporate Governance Committee of our Board considers directorDirector candidates based upon a number of qualifications. As minimum qualifications, a nominee should have: | ·
● | | A reputation for the highest professional and personal ethics and values, fairness, honesty, and good judgment; |
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● | | A significant breadth of experience, knowledge, and abilities to assist the Board in fulfilling its responsibilities; |
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● | | Been in a generally recognized position of leadership in his or her field of endeavor; and |
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● | | A commitment to enhancing shareholder value. |
A nominee should not have a conflict of interest that would impair the nominee’s ability to represent the interests of the Company’s shareholders and fulfill the responsibilities of a director. RLI Corp. 2018 Proxy Statement | 41
Director. The Nominating/Nominating & Corporate Governance Committee conducts an annual assessment of the composition of the Board and its committees. In its annual assessment and when conducting a director search, the Nominating/Nominating & Corporate Governance Committee reviews the appropriate skills and characteristics required of Board members with a goal of establishing diversity among directors reflecting, but not limited to, profession, background, experience, geography, skills, ethnicity, and gender. The Nominating/Nominating & Corporate Governance Committee is committed to actively seekseeking and will include highly qualified women and minority candidates forin each director search it undertakes.undertakes, including those by third party search firms. Annually, the Nominating/Nominating & Corporate Governance Committee will review this Policy and assess its effectiveness in bringing forth both diverse and non-diverse Board candidates that meet the qualifications and have the capabilities to provide strategic direction, governance, and oversight to the Company. The Nominating/Nominating & Corporate Governance Committee relies upon recommendations from a wide variety of its business contacts, including current executive officers, directors,Directors, community leaders, and shareholders as sources for potential director candidates, and may also utilize third party search firms. The Nominating/Nominating & Corporate Governance Committee will consider qualified director candidates recommended by shareholders as further set forth under SHAREHOLDER PROPOSALS on page 1, but the Nominating/Corporate Governance Committee has no obligation to recommend such candidates. Assumingassuming the appropriate biographical and background material (including qualifications) is provided for candidates recommended by shareholders, the Nominating/shareholders. The Nominating & Corporate Governance Committee will evaluate those candidates by following substantially the same process and applying substantially the same criteria as for candidates recommended by other sources. Shareholders may also nominate director candidates directly pursuant to the procedures set forth in our Bylaws and referenced under Shareholder Proposals on page 71. CODE OF CONDUCT The Company has adopted a Code of Conduct, which is designed to help directors,Directors, officers, and employees maintain ethical behavior and resolve ethical issues in an increasingly complex global business environment. The Code of Conduct applies to all directors,Directors, officers, and employees, including specifically the Chief Executive Officer, the Chief Financial Officer, the Controller, theChief Investment Officer, Chief Legal Officer, and any other employee with any responsibility for the preparation and filing of documents with the SEC. The Code of Conduct covers topics including, but not limited to, ethical behavior, conflicts of interest, corporate opportunities, confidentiality of information and compliance with laws and regulations. The Company conducts an annual compliance acknowledgement completed by all Directors, officers, and employees to ensure compliance with the Code of Conduct as well as other Company policies. A copy of our Code of Conduct is available at the Company’s website under the Investors section at www.rlicorp.com. Any amendments to the Code of Conduct will be posted on the website, and anyor waiver that applies to a directorDirector or executive officer will be disclosedposted on our website. HEDGING AND PLEDGING POLICY The Company implemented a formal policy in accordance with2015 prohibiting executive officers from using financial instruments to reduce the rulesrisk of holding Company stock (hedging); or from using Company shares for margin trading or collateral purpose. At the time the policy was implemented, no executive officer had engaged in hedging, pledging, or margining shares of Company stock. 24 | RLI Corp. 2023 Proxy Statement The Company’s Insider Trading Policy prohibits Directors, executive officers, and other officers of the SECCompany at the level of Vice President or higher from engaging in hedging transactions involving the Company’s securities, including, without limitation, short sales, or put or call options. In addition, it prohibits Directors and NYSE.executive officers from holding Company securities in a margin account or pledging Company securities as collateral for a loan. Officers of the Company at the level of Vice President or higher who are not executive officers may hold in margin accounts or pledge as collateral for loans a limited number of Company securities, subject to certain preclearance procedures. Other employees of the Company are not prohibited from hedging or pledging Company shares, but may not enter into such a transaction during a Company blackout period established prior to each quarterly earnings release (and which may be established in connection with other transactions or events). SHAREHOLDER AND INTERESTED PARTIES COMMUNICATIONS Any shareholder or other interested party who desires to communicate with the Board’s Lead Director, of the Board’s independent directorsIndependent Directors, or any of the other members of the Board of Directors may do so electronically by sending an email to the following address: Lead.Director@rlicorp.com. Alternatively, a shareholder or other interested party may communicate with the Lead Director or any of the other members of the Board by writing to: Lead Director, RLI Corp. 9025 N. Lindbergh Drive, Peoria, Illinois 61615. Communications may be addressed to the Lead Director, an individual director,Director, a Board Committee, the independent directorsIndependent Directors, or the full Board. Communications received by the Lead Director will then be distributed to the appropriate directors. Solicitations for the sale of merchandise, publications, or services of any kind will not be forwarded to the directors. COMPANY POLICY ON RELATED PARTY TRANSACTIONS The Company recognizes that related party transactions present a heightened risk of conflicts of interest and/or improper valuation (or the perception thereof) and therefore has adopted a written Related Party Transaction Policy, which shall be followed in connection with all related party transactions involving the Company. The Related Party Transaction Policy generally requires annualreview and approval by the Nominating/Nominating & Corporate Governance Committee prior to the original or renewal effective date for all transactions above $10,000 to be entered into between the Company and its directors,Directors, officers, shareholders owning in excess of 5 percent of the Common Stock of the Company, and their family members and affiliates. ThereThe Policy also provides that related party transactions in the form of ordinary course business transactions meeting specific conditions are deemed ratified or approved and do not require Committee or Board pre-approval. No new related party transactions were no transactions to be entered into falling within the purview of the Related Party Transaction Policy that were presented and approved by the Nominating/Nominating & Corporate Governance Committee in 2017. 2022. The Nominating & Corporate Governance Committee previously approved one related party transaction between the Company and SS&C Technologies Holdings, Inc. (“SS&C”) that continued in 2022 as described immediately below. 42 | RLI Corp. 2018 Proxy Statement
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS In 2017,Since January 1, 2022, the transactions, or series of similar transactions to which the Company was a party in which the amount involved exceeded $120,000 and in which any director,Director, executive officer, or holder of more than 5 percent of the Common Stock of the Company (or any of their immediate family members) had a direct or indirect material interest was the Company’s transaction with SS&C Technologies Holdings, Inc. (“SS&C”).
are set forth below: In 2013, the Company entered into a business arrangementcontract with SS&C to license SS&C’s off-the-shelf investment portfolio accounting software for an annual amount based on the value of the Company’s investment portfolio. The Company’s agreement with SS&C is solely related to the use of the software product and related transaction processing services which provide operational support and are not advisory in nature. In October 1, 2018, the Company renewed the SS&C contract for an additional five-year term. The contract with SS&C was approved after a request for proposal process that considered multiple vendors against the Company’s needs, the levels of service offered, and costs. In 2019, the Company entered into an addendum to the contract with SS&C to provide investment portfolio accountingupgrades and data processing services.enhancements to its software. The addendum commenced on July 1, 2019 for a five-year term. The Company paid SS&C $525,152 in 2022. SS&C does not provide advisory services to the Company nor does it earn a commission from the Company. The Company selected SS&C as a result of the arm’s length request for proposal process. The Company’s President & CEOformer Chief Executive Officer (Mr. Michael) is a member ofserves as the Lead Director on the Board of Directors of SS&C. The Chairman and CEO of SS&C is also the brother of Mr. Stone, a Director, and former Chief Operating Officer of the Company’s principal insurance subsidiaries. The Company paidNeither Messrs. Michael, Stone, nor the Chairman and CEO of SS&C $278,316were involved in 2017. negotiations, contract review, term-setting, final decisions, or any other aspect of the process for the initial contract, renewal, or addendum. This transaction falls within the purview of the Related Party Transaction Policy described in the previous paragraphs and iswas subject to review and approval by the Nominating/Nominating & Corporate Governance Committee pursuant to that Policy. In addition, our external portfolio managers may at times invest in securities issued by SS&C. Such securities are purchased in ordinary course, arms-length transactions and the Company is not directly involved in the investment decision. RLI Corp. 2023 Proxy Statement | 25 BOARD’S ROLE IN RISK OVERSIGHT The Company’s Strategy & Risk Committee has responsibility for overall oversight of the Company’s enterprise risk management (“ERM”) program. The Strategy & Risk Committee also has oversight for specific areas of ERM, as do the other Board committees, as specified in their respective charters, which can be found at the Company’s website at www.rlicorp.com, and which are listed in the table below. Board Committee | Areas of ERM oversight | Strategy & Risk | Overall ERM oversight Underwriting Information Technology Growth Insurance markets | Human Capital & Compensation | Talent development Management succession Culture Compensation and benefits | Finance & Investment | Investment Capital | Nominating & Corporate Governance | Environmental, social and governance matters Regulatory and legislative | Audit | Catastrophe exposure – including climate change Reserving Reinsurance Business Continuity Cybersecurity Third Party Management |
Annually, the Strategy & Risk Committee ensures that processes are in place to enable Board oversight of each area of ERM by conducting an ERM risk mapping review. For each ERM risk focus area, the mapping review details the primary Board committee responsible for oversight, considers management reports that are provided to Board committees, and the frequency at which such reports are provided. The mapping review also provides a summary description of each risk, mitigating factors, and means by which each risk is monitored by the Company. The Board’s risk oversight is achieved through management assessing and reporting on risk to Board Committees, which Committees in turn report out to the full Board at each meeting. Annually, the Company provides a Company-wide ERM report to the full Board, which is periodically updated for each risk to the respective Board committee identified below. The Chief Executive Officer and other members of senior management have responsibility for assessing and managing the Company’s risk exposure through a management Risk Committee. The management Risk Committee meets quarterly to reassess its risk environment and relies on the expertise of outside advisors with respect to several risks to anticipate future threats and trends. In addition, the Company’s internal audit department regularly assesses key risks in its audits and reports to the Audit Committee and the full Board. Management, in turn, reports to the Board Committees identified above on specific risks. In addition to regular reports from management related to areas of overall ERM, an in-depth report is provided on each area of ERM oversight on a biennial basis, and if appropriate, in a joint meeting with the Committee responsible for oversight of the selected topic. In 2022, in-depth discussions on catastrophe, underwriting, growth, reserving, and people risks were presented to the Strategy & Risk Committee as part of overall oversight of ERM. In addition, the Strategy & Risk Committee and the Audit Committee held a joint meeting in 2022 to discuss the catastrophe exposure ERM focus area. CYBERSECURITY RISK MANAGEMENT The Company maintains numerous guidelines and policies designed to protect the Company from cybersecurity risk. The Company’s information security policies, based on controls, objectives, and implementation guidance of the ISO/IEC27002:2013 Information Security Standard and NIST Cyber Security Framework, establishes core requirements for continuous protection of the Company’s information, process, and technologies in response to emerging and changing cyber threats and vulnerabilities. Among other guidelines and policies to safeguard our data and the data of our customers and employees, the Company: 1) annually engages a third-party to perform a series of tests to assess our incident response capabilities and to discover any vulnerabilities; 2) has a robust security awareness program for employees that includes 26 | RLI Corp. 2023 Proxy Statement monthly phishing simulations, periodic informational distributions, and semi-annual mandatory cybersecurity training for all employees; and 3) maintains cyber insurance coverage for cybersecurity events should one occur. The Company has not experienced a material information security breach in the last three years. The Audit Committee oversees cybersecurity risk management by receiving regular quarterly reports from management discussing the Company’s cybersecurity efforts described above highlighting the Company’s: 1) active and planned initiatives; 2) protection and prevention measures; 3) detection and response measures; and 4) emerging and potential future risk topics being monitored. The Company’s chief information security officer presents at each regularly scheduled quarterly Audit Committee meeting and on an informal basis from time to time. The Audit Committee provides oversight of the steps management has taken to monitor and control cybersecurity risk by: 1) discussing guidelines and policies that govern the risk; 2) analyzing the extent to which those guidelines and policies would have a material adverse effect on the Company; 3) assessing, with management, the processes used to appropriately identify, evaluate, prioritize, and manage the risk. From time to time, additional reports are provided to the Audit Committee on additional related cybersecurity risk topics as recommended by management, the Audit Committee, or the Board. The Audit Committee Chair provides a summary report of discussions at each quarterly Board meeting. In 2022, members of management provided the Board of Directors an educational session on cybersecurity including: 1) the current threat landscape; 2) the Company’s cyber environment; 3) Company protections; 4) the Company’s Cybersecurity Incident Response Plan; and 5) the Board’s oversight obligations related to cybersecurity risk. COMMITTEES OF THE BOARD OF DIRECTORS The Board has five standing committees: Audit, Executive Resources,Human Capital & Compensation, Finance and& Investment, Nominating/Nominating & Corporate Governance, and Strategy.Strategy & Risk. The Audit, Executive ResourcesHuman Capital & Compensation and Nominating/Nominating & Corporate Governance Committees are composed solely of independent directorsIndependent Directors in compliance with the Company’s requirements and the NYSE Listing Standards. The Nominating/Nominating & Corporate Governance Committee annually evaluates both Committee members and Committee Chairs, and rotates members as deemed necessary. InAt his discretion, the Chairman of the Board may attend any or all Committee meetings. All committees meet at least quarterly and also hold informal discussions from time to time. Charters for each committeeCommittee are available on the Company’s website under the Investors section at www.rlicorp.com. COMMITTEE MEMBERSHIP | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Human Capital & | | Nominating & | | Finance & | | Strategy & | Director | | Board | | Audit | | Compensation | | Corporate Governance | | Investment | | Risk | Kaj Ahlmann | | ● | | • | | | | ● | | | | | Michael E. Angelina | | ● | | Chair | | | | | | | | ● | John T. Baily (Lead Director) | | ● | | ● | | | | Chair | | | | | David B. Duclos | | ● | | | | Chair | | | | ● | | | Susan S. Fleming | | ● | | | | | | ● | | ● | | | Jordan W. Graham | | ● | | | | ● | | | | Chair | | | Craig W. Kliethermes | | ● | | | | | | | | ● | | ● | Paul B. Medini | | ● | | ● | | ● | | | | | | | Jonathan E. Michael | | Chair | | | | | | | | | | | Robert P. Restrepo, Jr. | | ● | | | | ● | | | | | | ● | Debbie S. Roberts | | ● | | | | ● | | | | | | ● | Michael J. Stone | | ● | | | | | | | | ● | | Chair | Number of Meetings in 2023 | | 4 | | 8 | | 5 | | 4 | | 4 | | 3 |
RLI Corp. 2023 Proxy Statement | 27 AUDIT COMMITTEE The Company’s Audit Committee, composed exclusively of independent directors,Independent Directors, met nineeight times in 20172022 to consider various audit and financial reporting matters, including the Company’s outside audit firm relationship and to discuss the planning of the Company’s annual outside audit and its results. Prior to November 2016,In addition, the Audit Committee provided oversight for overall enterprise risk management, risk profile and risk assessment.Strategy & Risk Committees held one joint meeting to discuss the catastrophe exposure ERM focus area. The Audit Committee also: | ·
● | | monitoredMonitored the Company’s management of its exposures to risk of financial loss;
|
| ·
● | | reviewedReviewed the adequacy of the Company’s internal controls, including the Company’s successful adoption ofcontinued adherence to the Committee of Sponsoring Organizations of the Treadway Commission Internal Control - Integrated Framework (COSO) 2013 update;
|
| ·
● | | reviewedReviewed the extent and scope of audit coverage;
|
| ·
● | | reviewedReviewed quarterly financial results;
|
| ·
● | Reviewed Company loss reserves; |
| monitored●
| Monitored selected financial reports; |
| ·
● | | assessedAssessed the auditors’ performance; and
|
| ·
● | | selectedSelected the Company’s independent registered public accounting firm.
|
In addition to the nine meetings described above, the Audit Committee also held one joint meeting with the Strategy Committee of the Board of Directors. The purpose of the joint meeting with the Strategy Committee was to discuss safeguards against unnecessary or excessive risk that could arise from the Company’s underwriting, catastrophe management, reserving, reinsurance, regulatory environment and business continuity. The Audit Committee also meets in executive session, with no members of management present, after its regular meetings, as well as private executive sessions with KPMGthe independent registered public accounting firm and various members of management.
The Chair of the Audit Committee is notified directly by the Company’s anonymous whistleblower complaint hotline provider any time a complaint is made through that system. The Audit Committee is responsible for approving every engagement of KPMG, LLP, Ernst & Young LLP, Deloitte & Touche LLP, RSM US LLP, and PricewaterhouseCoopers LLP (or their successors) to perform audit or non-audit services on behalf of the Company or any of its subsidiaries before KPMG isany of the above-mentioned firms are engaged to provide those services, with theservices. The Chair of the RLI Corp. 2018 Proxy Statement | 43
Audit Committee beingis authorized to pre-approve non-audit services and then reportingreports those services to the full Audit Committee, as described in the Audit Committee Report. The Audit Committee evaluates the effects that the provision of non-audit services may have on the Company’s independent registered public accounting firm’ssuch firms’ independence with respect to the current, or potential, audit of our financial statements. The Audit Committee is also responsible for enterprise risk management in the areas of business continuity risk, catastrophe risk, cybersecurity risk, reinsurance risk, reserving risk, and third-party risk. The Audit Committee receives either quarterly, semi-annual, or annual reports for each risk focus area to ensure the Audit Committee provides appropriate compliance oversight. From time to time the Audit Committee will also engage a third party to assist in providing appropriate compliance oversight. The Board of Directors annually determines the “financial literacy” of the members of the Audit Committee pursuant to the NYSE required standards. The Board has determined that based on those standards, each member of the Audit Committee is independent and financially literate, and that each member possesses accounting or related financial management expertise. The Board of Directors has further determined that each of the Audit Committee members qualifies as an “audit committee financial expert” as defined by the SEC. From October 1, 2016 through May 4, 2017,For 2022, the members of the Audit Committee were Messrs. ScanlanAngelina (Chair), Ahlmann, Angelina,Baily, and Butler. Mr. Butler resigned from the Board of Directors on January 31, 2023 in light of the demands of his new role as President and Viets. After May 4, 2017,Chief Executive Officer of Exelon Corporation and ceased being a member of the Audit Committee. Effective, February 1, 2023, the members of the Audit Committee were Messrs. ScanlanAngelina (Chair), Ahlmann, AngelinaBaily, and Butler.Medini.
EXECUTIVE RESOURCES COMMITTEE
HUMAN CAPITAL & COMPENSATION COMMITTEE The Company’s Executive ResourcesHuman Capital & Compensation Committee (“ERC”HCCC”), composed exclusively of independent directors,Independent Directors, met five times in 20172022 to evaluate and recommend compensation of the President & CEO and certain key executive officers of the Company, discuss and evaluate the Company’s Market Value Potential Executive Incentive Program (“MVP Program”) and to develop objective criteria for the selection and ongoing management of, select the Company’s compensation peer group, and to enhanceevaluate the overall effectiveness of the executive compensation programs. The ERCCommittee also held numerous informal discussions related to CEO succession. The HCCC reviews and evaluates the CEO’scorporate goals and objectives,for the senior leadership team, management development, and succession planning, and the Company’s deferred compensation, stock option,annual and long-term incentive programs, and retirement and medical programs. In additionFor additional details on the HCCC, see “Compensation Discussion & Analysis – How the HCCC Operates” on page 36. 28 | RLI Corp. 2023 Proxy Statement The HCCC is responsible for enterprise risk management in the area human capital management and effectiveness, including but not limited to topics such as management succession, talent development, employee benefits, incentive compensation, and culture. The Committee reviews periodic reports on plans, actions, and metrics related to Company culture and human capital, including: employee survey results; diversity and inclusion; workforce planning; employee headcount and turnover; and legal, regulatory, and policy developments and compliance. The HCCC receives either quarterly, semi-annual, or annual reports for each risk focus area, to ensure the five meetings described above, the ERC also held one joint meeting with the Strategy CommitteeHCCC provides appropriate compliance oversight. For 2022, members of the Board of Directors to discuss safeguards against unnecessary or excessive risk that could arise from the Company’s executive compensation policiesHCCC were Messrs. Duclos (Chair), Graham, and practices. From JulyRestrepo and Ms. Roberts. Effective February 1, 2016 through May 4, 2017, 2023, the members of the ERCHCCC were Messrs. McPheetersDuclos (Chair), Graham, Medini, and Messrs. Graham, Restrepo and Scanlan. After May 4, 2017, the members of the ERC were Messrs. McPheeters (Chair), Duclos, Graham, Restrepo and Scanlan.Ms. Roberts.
FINANCE AND& INVESTMENT COMMITTEE The Company’s Finance and& Investment Committee oversees the Company’s investment and corporate finance transactions, policies, and guidelines, which includes reviewing investment performance, investment risk management exposure and the Company’s capital structure. ThisThe Finance and& Investment Committee met four times in 20172022 to discuss ongoing financial, investment and capital matters. In 2022, the Finance & Investment Committee also conducted one joint meeting with the Strategy & Risk Committee to discuss various aspects of the Maui Jim transaction. The Finance & Investment Committee is also responsible for enterprise risk management in the area of investment risk management and capital and financial management including interest rate risk, credit risk, and liquidity risk. The Finance & Investment Committee receives either quarterly, semi-annual, or annual reports for each risk focus area to ensure the Finance & Investment Committee provides appropriate compliance oversight. From May 5, 2016 through May 4, 2017,For 2022, the members of the Finance and Investment Committee were Messrs. Graham (Chair), Baily, Linke, McPheetersDuclos, Kliethermes, Stone and Stone. After May 4, 2017, the members of the Finance and Investment Committee were Messrs. Graham (Chair), Baily, Duclos, McPheeters, and Stone.Dr. Fleming.
NOMINATING/NOMINATING & CORPORATE GOVERNANCE COMMITTEE
The Company’s Nominating/Nominating & Corporate Governance Committee, composed exclusively of independent directors,Independent Directors, met four times in 20172022 to guide the Company’s corporate governance program, and to monitor and discuss current and emerging corporate governance principles and procedures.procedures, to select and interview Director candidates, and to recommend a Director for appointment to the Company’s Board of Directors. The Nominating/Committee also held numerous informal discussions related to the director evaluation process and CEO and director succession planning. The Nominating & Corporate Governance Committee provides oversight of Company enterprise risk management in areas including but not limited to regulatory; legislative; corporate governance, environmental, health and safety, corporate social responsibility, sustainability (collectively “ESG”) and related matters, in coordination with other Board committees as appropriate. The Nominating & Corporate Governance Committee also counsels the Board with respect to Board and Committee organization, compensation, membership, function, and Board and Committee performance assessments, individually and collectively. The Nominating/Nominating & Corporate Governance Committee identifies and reviews qualified individuals as potential new directorDirector candidates. From October 1, 2016 through May 4, 2017,For 2022, the members of the Nominating/Corporate Governance Committee were Messrs. Messrs. Baily (Chair), Butler, Linke and Viets and Ms. Allen. After May 4, 2017, members of the Nominating/Nominating & Corporate Governance Committee were Messrs. Baily (Chair) and, Ahlmann, Butler and Ms. Allen.
44 | RLI Corp. 2018 Proxy Statement
STRATEGY & RISK COMMITTEE The Company’s Strategy & Risk Committee met fourthree times in 20172022 to oversee the Company’s strategic plan and its implementation. After November 2016,In 2022, the Committee was renamed from the Strategy Committee to reflect the Strategy & Risk Committee to reflects its risk management oversight role. As described above, the Strategy & Risk Committee also held a joint meeting with the Finance & Investment Committee to discuss various aspects of the Maui Jim transaction and one joint meeting with the Audit Committee to discuss the catastrophe exposure risk focus area. The Strategy & Risk Committee also provides oversight for overall enterprise risk management, risk profile, and risk assessment. The Strategy Committee held one joint meeting with the Audit Committee of the Board of Directors to discuss safeguards against unnecessary or excessive risk that could ariseassessment, including risks from the Company’s underwriting, catastrophe management, reserving, reinsurance, regulatory environmentinformation technology, insurance market, and business continuity.growth. In addition, the full Board held a full day strategic retreat meeting in August 2022. The Strategy Committee also heldstrategic retreat focused on providing additional details and updates on the Company’s strategic plan as well as in-depth discussions on one joint meeting with the ERC of the Board of Directors to discuss safeguards against unnecessary or excessive risk that could arise from the Company’s executive compensation policies and practices. six strategic focus areas. From July 1, 2016 through May 4, 2017,For 2022, members of the Strategy Committee were Angelina (Chair), Ahlmann, Restrepo and Stone and Ms. Allen. After May 4, 2017, members of the Strategy& Risk Committee were Messrs. AngelinaStone (Chair), Ahlmann,Angelina, Kliethermes, Restrepo, and Stone and Ms. Allen.Roberts.
RLI Corp. 2023 Proxy Statement | 29 | | | | | | | | Executive
| Nominating/
| Finance and
| | Director
| Audit
| Resources
| Corporate Governance
| Investment
| Strategy
| Kaj Ahlmann
| X
| | | | X
| Barbara R. Allen
| | | X
| | X
| Michael E. Angelina
| X
| | | | X*
| John T. Baily
| | | X*
| X
| | Calvin G. Butler, Jr.
| X
| | X
| | | David B. Duclos
| | X
| | X
| | Jordan W. Graham
| | X
| | X*
| | F. Lynn McPheeters
| | X*
| | X
| | Jonathan E. Michael
| | | | | | Robert P. Restrepo, Jr.
| | X
| | | X
| James J. Scanlan
| X*
| X
| | | | Michael J. Stone
| | | | X
| X
|
* Chair of Committee
BOARD MEETINGS AND COMPENSATION MEETINGS During 2017, six2022, five meetings of the Board of Directors were held. All directorsheld and all Directors were in attendance except for one director missed one meeting.meeting in which two Directors had prior commitments that prevented their attendance. No directorDirector attended fewer than 75 percent of the aggregate number of meetings of the Board and Board committees onfor the period in which he or she served. In connection with each Board meeting, the independent directorsIndependent Directors also meet in executive session with no members of management present. Effective May 5, 2011, the Lead Director position was established, whicha position existsto exist when the Company’s CEO is also the Board Chairman. PursuantChairman or when the Chairman is not an Independent Director. Prior to November 2022, pursuant to the Company’s Corporate Governance Guidelines and the Charter for the Lead Director position, the Chairman of the Board’s Nominating/Nominating & Corporate Governance Committee also servesserved as Lead Director of the Board. Among other responsibilities, the Lead Director presides at the Board’s executive sessions. In November 2022, the Lead Director Charter was amended so that any Independent Director may serve as Lead Director. RLI Corp. 2018 Proxy Statement | 45
2022 DIRECTOR COMPENSATION
During 2017,2022, the Company’s Independent Directors were compensated as follows:set forth in the following table and as described below: | | | | | | | | Annual Board Retainer: | | $ | 80,000 | Restricted Stock Units: | | $ | 75,000 | Annual Committee Retainer: | | | | Audit | | $ | 15,000 | All Other Committees | | $ | 10,000 | Lead Director Retainer: | | $ | 20,000 | Additional Annual Committee Chair Retainer: | | | | Audit | | $ | 20,000 | Human Capital & Compensation | | $ | 20,000 | All Other Committees | | $ | 10,000 |
| | | | Annual Board Retainer: | | $ | 105,000 | Annual Committee Retainer: | | | | Audit | | $ | 15,000 | All Other Committees | | $ | 10,000 | Lead Director Retainer (if Nonemployee Director): | | $ | 10,000 | Additional Annual Committee Chair Retainer: | | | | Audit | | $ | 20,000 | Executive Resources | | $ | 20,000 | All Other Committees | | $ | 10,000 |
Effective January 1, 2018, the Annual Board Retainer decreased from $105,000 to $80,000. In addition, each director will beEach Independent Director, except for Mr. Medini, was granted $50,000 ina whole number of Restricted Stock Units (“RSUs”) corresponding with $75,000 in value on May 5, 2022, which will vest on the earlier of one year after grant or the date of the 2023 Annual Shareholders Meeting. Mr. Medini was granted a one-year vesting period,whole number of RSUs corresponding with $75,000 in value upon election athis appointment, on November 1, 2022, which will vest on the 2018earlier of one year after grant or the date of the 2023 Annual Shareholders’Shareholders Meeting.
Directors may elect to either receive the RSUs as shares of Company stock upon vesting or defer receipt of those shares under the Nonemployee Director Deferred Compensation Plan (the “Director Deferred Plan”). In addition, the RSUs have dividend rights, which accrue as additional RSUs payable upon vesting or distribution from the Director Deferred Plan. Directors are also reimbursed for actual travel and related expenses incurred and are provided a travel accident policy funded by the Company. Directors are also eligible to participate in the Company’s charitable foundation matching gift program pursuant to which the Company will match qualifying charitable contributions of up to $3,000 per calendar year. Effective January 1, 2023, the Nominating/Corporate Governance Committee recommended and the Board approved an increase in the value of RSU award from $75,000 to $100,000. RSUs will be granted upon election at the 2023 Annual Shareholders Meeting. In recommending changes, the Nominating & Corporate Governance Committee used market, industry, and peer data to assess the overall competitiveness and reasonableness of the Company’s nonemployee Director compensation program. The following table provides the compensation of the Company’s Board ofnonemployee* Directors earned for the fiscal year ended December 31, 2017.2022. *Mr. Michael is a Company employee and Chairman of the Board and did not receive Director fees in 2022. In 2022, Mr. Michael received a base salary of $350,000, an MVP bonus bank payout for prior years of $2,407,060, and a quarterly stock option award of 7,000 shares approved in May 2021, when he was the Company’s CEO, and granted February 2022 of 7,000 shares. As of December 31, 2022, Mr. Michael holds 68,349 outstanding stock options. Also, during 2022, Mr. Michael was permitted to use the Company’s fractionally-owned aircraft for up to 35 hours annually at an hourly rate set by the Independent Directors of the Board. Mr. Michael, as an employee of the Company, is eligible to participate in | | | | | | | | | | | | | Change in Pension | | | | | | | | Value and | | | | | | | | Nonqualified | | | | Fees Earned | | | Non-Equity | Deferred | | | | or Paid in | Stock | Option | Incentive Plan | Compensation | All Other | | Name | Cash ($)(1) | Awards ($) | Awards ($) | Compensation ($) | Earnings | Compensation ($) | Total ($) | (a) | (b) | (c) | (d) | (e) | (f) | (g) | (h) | Kaj Ahlmann | 130,000 | | | | | | 130,000 | Barbara R. Allen | 125,000 | | | | | | 125,000 | Michael E. Angelina | 140,000 | | | | | | 140,000 | John T. Baily | 145,000 | | | | | | 145,000 | Calvin G. Butler, Jr. | 130,000 | | | | | | 130,000 | David B. Duclos (2) | 82,363 | | | | | | 82,363 | Jordan W. Graham | 135,000 | | | | | | 135,000 | Charles M. Linke (3) | 42,894 | | | | | | 42,894 | F. Lynn McPheeters | 145,000 | | | | | | 145,000 | Jonathan E. Michael (4) | | | | | | | | Robert P. Restrepo, Jr. | 125,000 | | | | | | 125,000 | James J. Scanlan | 150,000 | | | | | | 150,000 | Michael J. Stone | 125,000 | | | | | | 125,000 | Robert O. Viets (3) | 44,609 | | | | | | 44,609 |
30 | RLI Corp. 2023 Proxy Statement employee benefit programs under the terms of those programs, but is not eligible to participate in the Company’s annual or long-term incentive programs. *Mr. Kliethermes is a Company employee and a management Director and did not receive Director fees for 2022. His compensation as President & CEO for 2022 is disclosed under the Executive Compensation 2022 Summary Compensation Table on pages 47-48. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Change in | | | | | | | | | | | | | | | Pension | | | | | | | | | | | | | | | Value and | | | | | | | | | | | | | Non-Equity | | Nonqualified | | | | | | | Fees Earned | | | | | | Incentive Plan | | Deferred | | All Other | | | | | or Paid in | | Stock | | Option | | Compensation | | Compensation | | Compensation | | | Name | | Cash ($) (1) | | Awards ($) (2) | | Awards ($) | | ($) | | Earnings | | ($) | | Total ($) | (a) | | (b) | | (c) | | (d) | | (e) | | (f) | | (g) | | (h) | Kaj Ahlmann | | 105,000 | | 74,974 | | | | | | | | | | 179,974 | Michael E. Angelina | | 125,000 | | 74,974 | | | | | | | | | | 199,974 | John T. Baily | | 135,000 | | 74,974 | | | | | | | | | | 209,974 | Calvin G. Butler, Jr. | | 105,000 | | 74,974 | | | | | | | | | | 179,974 | David B. Duclos | | 120,000 | | 74,974 | | | | | | | | | | 194,974 | Susan S. Fleming | | 100,000 | | 74,974 | | | | | | | | | | 174,974 | Jordan W. Graham | | 110,000 | | 74,974 | | | | | | | | | | 184,974 | Paul B. Medini (3) | | 17,500 | | 74,868 | | | | | | | | | | 92,368 | Robert P. Restrepo, Jr. | | 100,000 | | 74,974 | | | | | | | | | | 174,974 | Debbie S. Roberts | | 100,000 | | 74,974 | | | | | | | | | | 174,974 | Michael J. Stone | | 110,000 | | 74,974 | | | | | | | | | | 184,974 |
| (1) | (1)
| | Outside directorsNonemployee Directors elect the form of their Annual Board Retainer, Annual Committee Retainer, Lead Director Retainer and Annual Committee Chair Retainer, if applicable, which may be received either in cash or in Company stock, or a combination of both,deferred, in accordance with the Director Deferred Plan. Amounts shown includein column (b) shows total fees earned, whether or not deferred.
|
| (2) | For nonemployee Directors except Mr. Medini, 643 RSUs were granted upon election at the value of fees taken in the form of Company stock. |
| (2)
| | 2022 Annual Shareholders’ Meeting. For Mr. Duclos was electedMedini, 543 RSUs were granted upon appointment to the Board on May 4, 2017 and his fees reflected above include fees earned from May 4, 2017 through year end. |
| (3)
| | Mr. Linke and Mr. Viets retiredNovember 1, 2022. Directors can elect to either receive the RSUs as shares of Company stock upon vesting or defer receipt of those shares under the Director Deferred Plan. In addition, the RSUs have dividend rights that accrue as additional RSUs payable upon vesting or distribution from the Board effective May 4, 2017. Their fees reflected above include fourth quarter 2016 fees (paidDirector Deferred Plan. The amounts reported in 2017), first quarter 2017 fees and prorated second quarter 2017 fees.
|
| (4)
| | Mr. Michael,this column were calculated in accordance with FASB ASC Topic 718 based on the Company’s stock price as Chairman of the Board and a management director, does not receive director fees. His compensation as President & CEO is disclosed undergrant date. Please refer to footnote 2 to the Executive Compensation Summary Compensation Table.
beneficial ownership table on page 14 for the number of shares held for each Director in the rabbi trust established with respect to the Director Deferred Plan. |
| (3) | Mr. Medini was appointed to the Board of Directors effective November 1, 2022. For 2022, this amount reflects the Annual Board Retainer calculated pro rata from the date of appointment through December 31, 2022 and the value of the RSU award granted upon his appointment to the Board. |
46 | RLI Corp. 2018 Proxy Statement
NONEMPLOYEE DIRECTOR DEFERRED COMPENSATION PLAN (DIRECTOR DEFERRED PLAN) Prior to the beginning of each year, a nonemployee directorDirector may elect to defer the compensation otherwise payable or awarded to the directorDirector during the succeeding year pursuant to the Director Deferred Plan. Under the Director Deferred Plan, a Director may elect to direct deferred amounts to a notional investment in one or more of several mutual funds, or Company shares. If deferred amounts are directed to RLI shares, a Director’s account is credited with RLI stock credits equal to the number of Company shares that could be purchased by the amount of compensation deferred, with any cash dividend similarly converted to additional Company stock credits. The Company transfers to a bank trustee, under an irrevocable trust established by the Company, such number of shares of the Company as arecash equal to the compensation deferred by the director during the relevant year. The deferred compensationwhich is used to purchase an equivalent amount of Company Common Stock.common stock to be held in the trust. The assets held in this trust are subject to the claims by the Company’s creditors. Dividends on these shares are reinvested quarterly under the Company’s Dividend Reinvestment Plan. In general,used to purchase additional shares of Company stock. Director Deferred Plan benefits deferred to Company shares are distributable,distributed, in the form of Company Common Stock,common stock, while other amounts deferred to other notational investments is distributed in cash, consistent with each Director’s investment election. Directors have the option to choose to receive a scheduled distribution beginning when the director’sDirector’s status terminates.terminates or while actively serving on the Board. RLI Corp. 2023 Proxy Statement | 31 DIRECTOR SHARE OWNERSHIP For 2017, Nonemployee Directors wereare encouraged to within five years of their initial appointment as a Company director, own shares of the Common Stock of the Company having a value of not less than 500 percent of such director’s Annual Board Retainer, which Retainer was $105,000 in 2017. Shares held directly and in Company benefit plans were counted to satisfy the guideline. Effective January 1, 2018 the ownership requirement was changed to a flat dollar value of $500,000 to be met within five (5)years of initial appointment to the Board. Shares held directly and amounts notionally invested in Company deferred compensation plans are counted to satisfy the guideline. The Nominating & Corporate Governance Committee monitors Directors’ share ownership annually. Shares beneficially owned by each Director are reflected in the table on page 14. As of December 31, 2022, all Directors have met their respective goal or are within five years of initial appointment to the Board.
The Nominating/Corporate Governance Committee monitors directors’ share ownership and may make allowances to accommodate periodic adjustments to the Annual Board Retainer, and other factors affecting a director’s share ownership level.
BOARD LEADERSHIP STRUCTURE Immediately following the 2017 Annual Shareholders Meeting,The Company’s Board Chairman and CEO roles were separated effective January 1, 2022. Mr. Michael was re-appointedserved as Chairman of the Board in addition2022. Given Mr. Michael’s role as prior CEO and management Director, the Board has determined that the Lead Director position remains an important counterbalancing governance structure and made no changes to his current officer positions of President and CEO of the Company.
role for 2022. The Company does not have a formal policy regarding separation of the offices of Chairman of the Board and chief executive officer. The Board believes that the decision whether or not to combine or separate such positions will vary from company to company and depends upon a company’sthe Company’s particular circumstances at a given point in time. The Board believesUntil November 2022, the Corporate Governance Guidelines provided that a joint Board Chairman and chief executive officer position is advisable and in the best interests of the Company and its shareholders given our current Board and Lead Director configuration. This structure promotes unified leadership, continuity and direction for the Company. This combined position also provides a clear focus for management to execute the Company’s strategy and business plan, while fostering clear accountability and decision-making in such roles. The Board believes the designation of an empowered “Lead Director” provides a counterbalancing governance structure and enables an appropriate balance between strategic execution and independent oversight of management.
The Lead Director (an independent director) isIndependent Director) would be the person serving as the Chairperson of the Board’s Nominating/Nominating & Corporate Governance Committee and iswould be elected/confirmed by the Board’s independent directors.Independent Directors. The Lead Director Charter was amended in November 2022 to permit any Independent Director to serve as Lead Director. The Lead Director (a) presides over executive sessions of the independent directors,Independent Directors, (b) serves as a liaison between the Chairman and the independent directors,Independent Directors, (c) assists in setting Board meeting agendas and schedules, (d) assists in determining information sent to directorsDirectors for meetings, (e) may call meetings of the independent directors,Independent Directors, (f) may consult with major shareholders if requested by the Chairman of the Board, and (g) consults with the Chairman/CEOChairman of the Board regarding results of annual performance reviews of the Board Committees and Board members, all as set forth in the charterCharter for the Lead Director position.
Several factors promote a strong and independentIndependent Board at our Company. Currently all directorsDirectors, except for Messrs. Michael and StoneKliethermes, are independentIndependent as defined in the applicable NYSE listing standards (as adopted by the Company). The Audit, Executive Resources and Nominating/Corporate Governance Committees ofIn addition, our Board are comprised entirely of independent directors. Also, our independent directorsIndependent Directors meet quarterly in executive session without management present. Consequently, with our Lead Director position, we believe our Board continues to be strong and independent and provides appropriate counterbalance to a combined Chairman/CEO position.non-independent Chairman. Since May 2016, Mr. Baily has served in the Lead Director role. DELINQUENT SECTION 16(a) REPORTS RLI Corp. 2018 Proxy Statement | 47Section 16(a) of the Securities Exchange Act of 1934, as amended (“Exchange Act”), requires the Company’s directors, executive officers, and beneficial owners of more than 10 percent of the Common Stock of the Company to file with the SEC certain reports regarding their ownership of Common Stock or any changes in such ownership.
Based solely on its review of the copies of such reports received by it, and/or written representations from certain reporting persons, the Company believes that during the year ended December 31, 2022, the reporting persons have complied with all filing requirements of Section 16(a), except that a Form 4 was not timely filed for Mr. Aaron P. Diefenthaler, Chief Investment Officer for a transaction occurring on December 2, 2022 due to an administrative oversight, but such Form 4 was subsequently filed on December 7, 2022. 32 | RLI Corp. 2023 Proxy Statement PROPOSAL TWO: NON-BINDING, ADVISORY VOTE TO APPROVE THE COMPENSATION OF THE COMPANY’S NAMED EXECUTIVE OFFICERS The Dodd-Frank Wall Street Reform and Consumer Protection Act and related SEC regulations require that we seek an advisory (non-binding) vote from our shareholders to approve the compensation of our Named Executive Officers (“NEOs”) as disclosed in the Compensation Discussion & Analysis (“CD&A”), compensation tables and related disclosures in this Proxy Statement. As discussed in our CD&A starting on page 35, our executive compensation programs have been designed to provide a competitive total executive compensation program linked to Company performance that will attract, retain and motivate talented executives critical to the Company’s long-term success. The Human Capital & Compensation Committee of our Board (“HCCC”) developed an overall compensation philosophy that is built on a foundation of the following principles: | ● | The focus is on the linkage between long-term shareholder value creation and executive pay; |
| ● | Incentives for executives directly involved in underwriting are based on underwriting profit measured over a period of years consistent with the income and risk to the Company; |
| ● | Compensation should reflect both the Company’s and individual’s performance; |
| ● | A meaningful element of equity-based compensation and significant executive equity holdings are important to ensure alignment of management and shareholder interests; |
| ● | The Company’s overall executive pay levels must be competitive in the marketplace for executive talent to enable the Company to attract, motivate and retain the best talent; and |
| ● | Appropriate safeguards must be in place to ensure annual incentives are aligned with long-term risk and value creation to protect against unnecessary and excessive risk to the Company. |
We are asking you to indicate your support for our executive compensation programs as described in this Proxy Statement. This proposal gives you the opportunity to express your views on our 2022 executive compensation policies and procedures for NEOs. This non-binding vote is not intended to address any specific item of compensation, but rather the overall compensation of our NEOs and the policies and procedures described in this Proxy Statement. Accordingly, we ask the shareholders to vote “FOR” the following resolution at the Annual Meeting: RESOLVED, that the compensation paid to the Company’s NEOs, as disclosed pursuant to the compensation disclosure rules of the Securities and Exchange Commission, including the CD&A, compensation tables and any related material disclosed in the Company’s Proxy Statement is hereby APPROVED. Your vote is advisory, and therefore not binding on the HCCC or the Board. However, we value your opinions and to the extent there is any significant vote against the named executive officer compensation as disclosed in this Proxy Statement, we will consider our shareholders’ concerns. The HCCC will evaluate whether any actions are necessary to address those concerns. The Board of Directors recommends that the shareholders vote “FOR” the proposal to approve the compensation of the Company’s NEOs as described in this Proxy Statement. RLI Corp. 2023 Proxy Statement | 33 EXECUTIVE MANAGEMENT INFORMATION ABOUT OUR EXECUTIVE OFFICERS Information regarding our executive officers is provided below: | | | | Name | Age | Position with Company | Executive
Officer
Since | Craig W. Kliethermes (1) | 58 | President & Chief Executive Officer | 2007 | Todd W. Bryant (2) | 54 | Chief Financial Officer | 2009 | Jennifer L. Klobnak (3) | 51 | Chief Operating Officer | 2016 | Aaron P. Diefenthaler | 49 | Chief Investment Officer & Treasurer | 2012 | Jeffrey D. Fick (4) | 62 | Chief Legal Officer & Corporate Secretary | 2016 | Seth A. Davis (5) | 51 | Vice President, Controller | 2019 |
| (1) | Mr. Kliethermes was promoted to President & Chief Executive Officer of the Company effective January 1, 2022. Prior to his promotion, Mr. Kliethermes was President & Chief Operating Officer of the Company since 2021 and was President & Chief Operating Officer of the Company’s principal insurance subsidiaries since 2016. |
| (2) | Mr. Bryant was promoted to Chief Financial Officer effective July 1, 2019. Prior to his promotion, Mr. Bryant was Vice President, Finance, and Controller since 2009. |
| (3) | Ms. Klobnak was promoted to Chief Operating Officer of the Company effective January 1, 2022. Prior to her promotion, Ms. Klobnak was Sr. Vice President, Operations of the Company’s principal insurance subsidiaries since January 2016. |
| (4) | Mr. Fick was promoted to Chief Legal Officer & Corporate Secretary on January 1, 2020. Prior to his promotion, Mr. Fick had been Chief Legal Officer from October 2016 through December 2019. |
| (5) | Mr. Davis was promoted to Vice President, Controller on July 1, 2019. Prior to his promotion, Mr. Davis was Vice President, Corporate Services from June 2018 through June 2019 and Vice President, Internal Audit from December 2005 through May 2018. |
HUMAN CAPITAL & COMPENSATION COMMITTEE REPORT The Human Capital & Compensation Committee has reviewed and discussed with management of the Company the Compensation Discussion & Analysis section of this Proxy Statement. Based on the Human Capital & Compensation Committee’s review and discussions, it recommended to the Board, and the Board approved, that the Compensation Discussion and Analysis be included in this Proxy Statement and its Annual Report on Form 10-K for the year ended December 31, 2022. MEMBERS OF THE HUMAN CAPITAL & COMPENSATION COMMITTEE David B. Duclos (Chair) Jordan W. Graham Paul B. Medini Robert P. Restrepo, Jr. Debbie S. Roberts 34 | RLI Corp. 2023 Proxy Statement COMPENSATION DISCUSSION & ANALYSIS INTRODUCTION The Human Capital & Compensation Committee (“HCCC”) of the Company’s Board of Directors, with the review and approval of the Board of Directors, administers specific compensation programs for senior executive officers and oversees other executive compensation programs and management succession and development processes. The following Compensation Discussion & Analysis (“CD&A”) describes our executive compensation programs and actions with respect to the following Named Executive Officers (“NEOs”) for 2022: Craig W. Kliethermes, President & Chief Executive Officer Todd W. Bryant, Chief Financial Officer Jennifer L. Klobnak, Chief Operating Officer Aaron P. Diefenthaler, Chief Investment Officer & Treasurer Jeffrey D. Fick, Chief Legal Officer & Corporate Secretary EXECUTIVE SUMMARY With the exception of gross premiums written, the following financial metrics are used as targets in our incentive plans and our results are used to calculate annual incentives for our senior executive officers. Our results for 2022, reflected in the table below, exclude the net gain from the sale of the Company’s interest in Maui Jim - net of tax; net of transaction costs; and net of one-time transactions bonuses paid to all employees other than the NEOs. These financial measures (other than gross premiums written and combined ratio) are non-GAAP and should not be considered substitutes for GAAP measures. We consider them key performance indicators and employ them as well as other factors in determining senior management incentive compensation. The calculation of these non-GAAP metrics can be found in the discussions below with respect to the incentive plans in which those metrics are used: | | | | | | | | | | Our Results in 2022: | | 2022 | | 2021 | Gross Premiums Written: | | $1.57 billion | | $1.35 billion | Operating Earnings* | | $233.7 million | | $177.1 million | (Net Earnings minus Realized Gains and Unrealized Gains (Losses) on Equity Securities Net of Tax) | | | | | Combined Ratio | | 84.4 | | 86.8 | (Net Loss and Operating Expense/Net Premiums Earned) | | | | | Operating Return on Equity | | 19.2% | | 15.6% | (Operating Earnings/Shareholders' Equity) | | | | | Market Value Potential (MVP) | | $61.1 million | | $240.6 million | (After Tax Returns Above Cost of Capital) | | | | | Five-Year Growth in Book Value: Rank Among Peer Companies | | 3/14 | | 2/13 |
*As noted above, excludes net gain from sale of interest in Maui Jim, includes equity in earnings of Maui Jim for 2021 and partial year 2022. In 2022, the Company continued to grow revenue and posted solid underwriting and operating performance. Gross premiums written were $1.57 billion, an increase of 16.2 percent over 2021. We posted $250.4 million of positive net cash flow from operating activities in 2022, which was used to support insurance operations, expand our investment portfolio, and allow us to return capital to our shareholders in the form of ordinary and special dividends. The Company achieved an 84.4 combined ratio. Combined ratio is a common industry measure of profitability defined as expenses and losses as a percentage of net premiums earned. Thus, a combined ratio below 100 signifies an underwriting profit. Our result represents our 27th consecutive year of a combined ratio below 100. Market Value Potential (“MVP”), which is a measure of our after-tax returns above our cost of capital (explained in more detail on page 39) decreased to $61.1 million (excluding the after-tax gain from the Maui Jim transaction) from $240.6 million last year, as investment returns in 2021 outpaced returns in 2022. At year-end 2022, we were third among our 13 peers when comparing the five-year growth in book value (excluding the after-tax gain from the Maui Jim transaction). RLI Corp. 2023 Proxy Statement | 35 KEY ATTRIBUTES OF RLI EXECUTIVE COMPENSATION | ● | Performance-based compensation: Total executive compensation is directly linked to Company performance. As in prior years, all executives participate in an incentive plan, through which they are eligible to earn compensation based on achievement of Company financial objectives and strategic objectives that are designed to be aligned with shareholder value creation. |
| ● | At risk compensation: A significant portion of annual incentive compensation for our President & CEO, COO, CFO, and each executive with oversight responsibility for product group underwriting is paid over time through a bonus bank concept to provide an incentive for sustained shareholder value creation. Amounts credited to the bonus bank are reduced dollar-for-dollar should negative results occur in a future period. As a result, net losses in a future period reduce the amount available in the bonus bank and could result in a negative balance. |
| ● | Compensation based on relative company performance: Each year we conduct a review of executive compensation within an insurance peer group to evaluate whether the Company’s executive compensation remains fair, competitive, and consistent with the Company’s absolute and relative performance. The MVP Program for the President & CEO, COO, and CFO includes an adjustment factor (positive and negative) for relative company performance compared to selected Peer Companies. |
| ● | Significant executive stock ownership: Our compensation programs encourage our employees to build and maintain an ownership interest in the Company. We have established specific executive stock ownership guidelines and our NEOs, as well as our other executive officers, currently maintain significant share ownership in the Company. As reflected on page 14, as of March 6, 2023, executive officers and Directors beneficially held 5.00% percent of Company shares, providing strong alignment with shareholders. |
The HCCC believes that the Company’s overall compensation approach provided meaningful incentives for the talented management team at the Company to provide outstanding results for shareholders again this year. HOW THE HCCC OPERATES HCCC RESPONSIBILITIES The HCCC operates under a Charter, which can be found on the Company’s website under the Investors section at www.rlicorp.com. The HCCC Charter is reviewed annually by the HCCC and any proposed changes to the Charter are submitted to the Nominating & Corporate Governance Committee for recommendation to the full Board for approval. The HCCC is responsible to the Board for: (1) reviewing and providing advice regarding the Company’s executive compensation; (2) reviewing and providing advice regarding the Company’s management succession and development processes; (3) monitoring compensation actions by management below the executive level; (4) producing an annual report on executive compensation for approval by the Board for inclusion in the Company’s proxy statement; (5) reviewing the Company’s employee benefit plans; and (6) monitoring the Company’s culture and human capital effectiveness. HCCC MEETINGS The HCCC held five meetings in 2022. The agenda for each HCCC meeting is established by the Chair of the HCCC, in consultation with other HCCC members and Mr. Kliethermes and Kathleen M. Kappes, Vice President, Human Resources; and approved by Mr. Michael. HCCC materials are prepared by Mr. Kliethermes and Ms. Kappes with input from members of senior management and are reviewed and approved by the HCCC Chair and Mr. Michael in advance of distribution to HCCC members. The HCCC meetings are attended by Messrs. Michael and Kliethermes, Ms. Kappes, and from time-to-time, other members of senior management, who are excused from the meeting during the Committee’s executive session. RESPONSE TO 2022 SAY-ON-PAY VOTE At the 2022 Annual Shareholder’s Meeting, we held a shareholder advisory vote on the compensation of our named executive officers, referred to as a Say-on-Pay vote, with over 96 percent of shareholder votes cast on that item in favor of our executive compensation programs. We considered this vote to represent strong support by shareholders for our long-standing executive compensation policies and practices. In 2022, therefore, the HCCC continued its general approach to executive compensation, as described above in “KEY ATTRIBUTES OF RLI EXECUTIVE COMPENSATION,” and did not make any changes to the Company’s executive compensation programs in response to the 2022 Say-on-Pay vote. 36 | RLI Corp. 2023 Proxy Statement INPUT FROM MANAGEMENT Mr. Kliethermes played an important role in the HCCC’s consideration of executive compensation levels and the design of executive compensation plans and programs for other senior executive officers in 2022. For these individuals, Mr. Kliethermes recommended the following components of executive compensation to the HCCC for review and recommendation to the Board: | ● | annual base salary levels; |
| ● | annual incentive targets and financial and personal goals; and |
| ● | the form and amount of long-term incentives. |
Mr. Kliethermes made such compensation recommendations based on external market data; achievement of respective performance criteria by each executive; and his judgment related to internal pay equity among Company executives, potential for advancement, and contribution to team initiatives. Mr. Kliethermes also relied upon the input of the senior leadership team when making such recommendations. Mr. Kliethermes did not make recommendations with respect to his own compensation. COMPENSATION CONSULTANT The HCCC Charter specifically provides that if a compensation consultant is to assist in the evaluation of CEO or senior executive compensation, the HCCC has sole authority to retain and terminate the consulting firm including sole authority to approve the firm’s fees and retention terms. Management also has authority to retain a compensation consultant, but may not retain the same compensation consulting firm retained by the HCCC without approval in advance by the HCCC. The HCCC retained Meridian Compensation Partners as a compensation consultant in 2022 to provide input on: 1) the design of executive compensation plans and programs; and 2) peer companies used by the Company for assessing executive compensation. Management retained Lockton Financial Advisors, LLC in 2022 to provide advice regarding various elements of executive compensation. The Company has assessed the independence of Meridian Compensation Partners and Lockton Financial Advisors, LLC pursuant to the NYSE rules and the Company concluded that the retention of Meridian Compensation Partners and Lockton Financial Advisors, LLC’s did not raise any conflicts of interest. MARKET DATA For 2022, the HCCC considered its normal pay practices when setting executive compensation, using market data to assess the overall competitiveness and reasonableness of the Company’s executive compensation program. The table below outlines Peer Companies that were used to evaluate 2022 executive compensation. The HCCC amended the Peer Companies in November 2021 to: 1) remove Protective Insurance Company due to its acquisition by The Progressive Corporation; and 2) add Axis Capital Holdings Limited and Kemper Corporation. Peer Companies for Assessing 2022 Compensation (“Peer Company(ies)”). | Alleghany Corporation Argo Group Intl Holdings, Ltd. Axis Capital Holdings Limited Global Indemnity Limited The Hanover Insurance Group, Inc. James River Group Holdings, Ltd. Kemper Corporation | Kinsale Capital Group, Inc. Old Republic International Corporation ProAssurance Corporation Selective Insurance Group, Inc. United Fire Group, Inc. W.R. Berkley Corporation |
The HCCC selected these Peer Companies based on its judgment and input from Meridian Compensation Partners. Each of the Peer Companies competes within the property and casualty insurance industry and sells a variety of specialty insurance products that serve both commercial entities and individuals that can generally be defined as specialty in nature, or targeted toward niche markets. The Peer Companies have established records of financial performance, and all have been publicly traded for at least five years, facilitating the comparison of the Company’s financial performance to that of the Peer Companies. The HCCC also reviews the market capitalization of the Company compared to the Peer Companies to ensure that the Company is at or near the median market capitalization among those companies at the time of the Company’s RLI Corp. 2023 Proxy Statement | 37 review of the Peer Companies. For the Peer Company comparison performed in 2022, the Company’s market capitalization was third among fourteen companies within the Peer Companies, which includes the Company. Each year, the HCCC compares the relative ranking among the Company and Peer Companies based on the most recently available public data (2021 data reviewed in 2022) for base salaries and total compensation for the President & CEO, COO and CFO positions to the relative performance ranking for the following publicly available performance metrics for the prior year: price-to-book ratio; return on equity; combined ratio; and total shareholder return ("TSR") for one, three and five-year time frames to determine the overall competitiveness of the Company’s executive compensation. The Company’s rank among the Peer Companies for 2022, based on 2021 results, is shown in the table below: | | | | | | | | | | | | | Performance Metric | | Price/Book | | Return on Equity | | Combined Ratio | | One-Year TSR | | Three-Year TSR | | Five-Year TSR | RLI Rank | | 2 | | 2 | | 2 | | 8 | | 3 | | 3 |
Base salaries and total compensation for other NEOs and executive positions are established by reference to publicly available survey data, including median base salary levels, for comparable executives in the insurance industry. The compensation information was primarily gathered from a survey of companies with assets greater than $1.5 billion with a median of $4.5 billion; and a survey with data regressed to the Company’s revenue size. OVERVIEW OF RLI EXECUTIVE COMPENSATION OBJECTIVE The objective of the Company’s executive compensation program is to provide a competitive total executive compensation program linked to Company performance that will attract, retain, and motivate talented executives critical to the Company’s long-term success. ELEMENTS OF COMPANY EXECUTIVE COMPENSATION The Company’s total executive compensation program is comprised of the following components, each of which is described in greater detail below: | 1. | Total annual cash compensation consisting of: |
| (b) | Annual incentive awards under the MVP Program, which incorporates annual and long-term design features, for the President & CEO COO and CFO; |
| (c) | Annual incentive awards under the Management Incentive Program (“MIP”) for other home office executives; |
| (d) | Annual incentive awards under the Underwriter Profit Program (“UPP”) for executives with oversight responsibility for product group underwriting; |
| 2. | Long-term incentive compensation grants: equity-based awards under the 2015 LTIP to all NEOs and other management members; long-term components through at-risk payouts over time under: 1) the MVP Program for the President & CEO, COO, and CFO; and 2) the UPP Program for the Chief Investment Officer & Treasurer; and |
| 3. | Limited perquisites. All Company executives are provided with travel accident insurance and are reimbursed for out of pocket costs for an annual health examination not covered by the Company’s health plan. The President & CEO, COO, and CFO are permitted to use the Company’s fractionally-owned aircraft for personal use for an hourly rate approved by the Board of Directors, with maximum annual use limited to total charges of 6.5 percent of their respective annual base salary. The Company generally does not provide any income tax gross-ups for our executive compensation. |
BALANCE OF SHORT-TERM AND LONG-TERM COMPENSATION The HCCC works to balance short-term and long-term elements of total compensation, as described in the following sections. The goal is to provide a meaningful level of long-term compensation to align with long-term value creation and mitigate the risk that members of management make decisions or take actions solely to increase short-term compensation while adding excessive risk to the Company. In that regard, the HCCC believes that a greater percentage of total compensation should be in the form of long-term compensation for more senior positions. 38 | RLI Corp. 2023 Proxy Statement We consider those salary and annual incentive amounts earned in 2022 and paid for 2022 to be short-term compensation. MVP Program payments made in 2022 from amounts earned in prior years, UPP payments in 2022 for prior underwriting years, and the grant date fair value of stock options awards in 2022, on the other hand, are considered long-term compensation. The following table compares the percentage of total compensation, which is short-term in nature, to the percentage, which is long-term in nature. | | | | | | | | | | | | Short-Term as % of Total Compensation | | Long-Term as % of Total Compensation | | | (Salary and Annual Incentive Earned | | (Payment from Bonus Bank for Prior Years and | Name | | and Paid in 2023) | | Grant Date Fair Value of Stock Options Awarded) | Craig W. Kliethermes | | 27% | | 73% | Todd W. Bryant | | 31% | | 69% | Jennifer L. Klobnak | | 30% | | 70% | Aaron P. Diefenthaler (1) (2) | | 50% | | 50% | Jeffrey D. Fick (1) | | 68% | | 32% |
(1) | Messrs. Fick and Diefenthaler participate in the MIP, which does not have a long-term component, instead of MVP, which does have a long-term component, and consequently their long-term percentage is less than the other NEOs. |
(2) | Mr. Diefenthaler also participates in UPP, which does have a long-term payout component. |
MARKET VALUE POTENTIAL EXECUTIVE INCENTIVE PROGRAM (MVP PROGRAM) — GENERAL MVP Defined. As discussed in further detail below, the MVP Program provides a mechanism with which the HCCC can correlate incentive compensation to long-term shareholder value creation. The MVP Program uses an economic profit measure called “Market Value Potential” (“MVP”), which measures the after-tax returns earned by the Company above its cost of capital, as a gauge of shareholder value creation. MVP is defined as (1) the Actual Return (the increase in adjusted GAAP book value as defined immediately below), less (2) the Required Return (beginning capital multiplied by the blended cost of capital). If the Company does not earn the Required Return in a given year and MVP is negative, no incentive award is made pursuant to the MVP Program for that year. For the purposes of the MVP Program, the increase or decrease in GAAP book value is calculated as ending capital less beginning capital. Ending capital is defined as ending GAAP book value, less unrealized gains or losses net of tax on available-for-sale fixed income investments, plus outstanding long-term debt instruments at the end of the period; and adjusted for capital transactions during the year. Beginning capital is defined as beginning GAAP book value, less unrealized gains or losses net of tax on available-for-sale fixed maturity investments, plus outstanding long-term instruments at the beginning of the period. The Company’s blended cost of capital is defined as the weighted average of the cost of equity capital and the cost of debt capital. The cost of equity capital is the average ten-year U.S. Treasury Note rate, plus a market risk premium of five percent modified by the Company’s ten-year beta versus the S&P 500 index. The Company’s cost of debt capital is the forward market rate on its outstanding long-term debt. MVP Program Participation. Participation in the MVP Program, percentage incentive awards and the formula to calculate MVP are recommended by the HCCC and approved annually by the Independent Directors of the Board for Mr. Kliethermes and by the entire Board for other participants. In 2022, participation in the MVP Program was limited to Messrs. Kliethermes and Bryant and Ms. Klobnak. The Board has concluded based on the position responsibilities and ongoing assessment of individual performance against operational and financial goals that the senior executive management team is most responsible for the operating and investment decisions and actions that directly impact the creation of long-term shareholder value, and, therefore, should be rewarded with a portion of their incentive compensation being directly and exclusively tied to the creation of MVP. MVP Components. As discussed in more detail below, there are two components to the MVP Program. The first component, based on strategic objectives, represents annual compensation. The second component, based on financial objectives, is paid out over time out of amounts credited to a bonus bank, which is at risk of forfeiture based on future performance and as such represents long-term compensation. The component based on financial objectives is also adjusted based on a relative comparison of the Company's five-year growth in book value to that of the Peer Companies. The Company’s relative growth in book value, in turn, is calculated by comparing its compound annual growth rate (“CAGR”) in GAAP comprehensive earnings over the applicable five-year period to that of the Peer Companies. CAGR in comprehensive earnings is calculated based on publicly disclosed comprehensive earnings of Peer Companies for the five-year period ending at the third quarter of the fifth year. MVP Percentage Award. For 2022, each participant in the MVP Program received an MVP incentive award expressed as a percentage of MVP created by the Company in that calendar year. Each year the HCCC confirms that the percentage awards remain appropriate by reviewing historical incentive award payouts, projected future payouts, and resulting total compensation for MVP Program participants, which in turn, is compared to the performance of the Company necessary to RLI Corp. 2023 Proxy Statement | 39 achieve such payouts. The HCCC compares the performance of the Company and total compensation of the MVP Program participants with comparable performance metrics and compensation at the Peer Companies. The MVP percentage award, expressed as a percentage of MVP, for each participant for 2022 was as follows, the same as for 2021: 2.0 percent for Mr. Kliethermes; 1.0 percent for Mr. Bryant; and 1.15 percent for Ms. Klobnak. The HCCC set the percentage incentive awards for 2022 based on the factors described above and based on the range of expected MVP to be created by the Company in 2022 and the projected incentive awards and incentive payouts that would result. For 2023, the HCCC approved an increase to the percentage of MVP awarded to each participant for future awards. Mr. Kliethermes’ percentage award was increased from 2.0 percent to 2.25 percent. Ms. Klobnak’s percentage award was increased from 1.15 percent to 1.5 percent. Mr. Bryant’s percentage award was increased from 1.0 percent to 1.1 percent. Individual MVP Award payments during any fiscal year, including payments from amounts credited to a bonus bank in prior years, are capped at $7.5 million under the terms of the RLI Corp. Annual Incentive Compensation Plan. Pursuant to the Annual Incentive Compensation Plan under which the MVP Program operates, the Board of Directors may exercise discretion to alter MVP Awards based on such objective or subjective criteria it deems appropriate. MVP Program Guideline Amendment. In 2022 the Company sold its minority interest in Maui Jim, Inc. (“Maui Jim”) to Kering Eyewear for cash proceeds of $686.6 million. We recognized a net realized gain of $571.0 million as a result of the sale. Prior to the sale, RLI had held its minority ownership interest in Maui Jim since 1996, when RLI Vision Corp., its legacy ophthalmic services subsidiary, merged with Hester Enterprises, Inc. to form Maui Jim. Since 1996, various RLI executive officers served on Maui Jim’s Board of Directors, but because of its minority ownership interest, RLI did not direct the business activities of Maui Jim. At the time of the sale of RLI’s Maui Jim shares, Messrs. Michael, Kliethermes, and Diefenthaler served on the Maui Jim Board. The RLI Corp. Annual Incentive Compensation Plan, under which the MVP Program operates, provides the HCCC authority to adjust annual performance goals or performance results to exclude the effects of an extraordinary, unusual or nonrecurring event; discontinued operations; or a divestiture, among other events. In 2022 the HCCC revised the MVP Program to provide that the net gain in 2022 from the sale of Maui Jim shares – net of tax; net of transaction costs; and net of one-time transactions bonuses paid to all employees other than the NEOs, a total of $434.4 million - would be excluded from the calculation of the Actual Return (increase in adjusted GAAP book value), which in turn is used to calculate MVP as described on page 39. The HCCC made this determination on the basis of a number of factors including: the guiding principles of RLI executive compensation discussed on page 33; the unique one-time nature of the transaction; market precedent for the treatment of gains by other companies from a one-time sale or divestiture transaction; the longstanding nature of the Company’s investment in Maui Jim; RLI’s contractual obligation to sell its Maui Jim shares pursuant to a Shareholder’s Agreement with the majority owner of Maui Jim; and the minority interest held by RLI and resulting lack of direct control over Maui Jim’s business by RLI, among other factors. MVP is also a financial goal in the Management Incentive Program in which Messrs. Diefenthaler and Fick participate, as further explained on page 42, and in Company’s Underwriter Incentive Program and Associate Incentive Program. The net after-tax gain in 2022 from the sale of RLI’s Maui Jim shares was excluded from the calculation of MVP achieved in 2022 in each of these incentive programs in the same manner and for the same reasons it was excluded from the MVP Program. The HCCC revised the calculation of MVP for 2023 MVP Program and MIP Guidelines to exclude the net gain from the sale of Maui Jim subsequently received by the Company from certain escrow accounts established at the time of the close of the transaction in 2022. 40 | RLI Corp. 2023 Proxy Statement ANNUAL COMPENSATION BASE SALARY Executive base salaries are targeted to be at the median base salary for comparable positions in the insurance industry, taking into account performance, experience, potential and the level of base salary necessary to attract and retain top executive talent. In 2022, the HCCC set base salary ranges for the President & CEO, CFO and COO based on publicly available executive compensation data for 2022 from the Peer Companies described on page 37. Effective January 1, 2022, the HCCC and Board approved a base salary increase for Mr. Kliethermes’ of 20.4% and a base salary increase of 20.3% for Ms. Klobnak in conjunction with their respective promotions to President & CEO and COO. At the May 2022 Board meeting, when the annual review of base salaries was conducted by the HCCC, Mr. Kliethermes recommended no base salary increase for himself or Ms. Klobnak in light of their base salary increases on January 1, 2022. Based on an assessment of annual cash compensation levels (base salary and annual incentive program payouts), Mr. Kliethermes recommended an increase of 7.1% for Mr. Bryant, a 3.0% increase for Mr. Diefenthaler, and a 2.9% increase for Mr. Fick in light of the placement of their respective base salaries compared to other similar positions in the insurance industry. The HCCC and Board approved Mr. Kliethermes’ recommendations. MARKET VALUE POTENTIAL EXECUTIVE INCENTIVE PROGRAM — ANNUAL INCENTIVE COMPENSATION COMPONENT Twenty percent of the preliminary MVP award calculated for each participant is evaluated against annual objectives and an achievement rating of 0 to 100 percent is assigned to that portion of the award. This amount represents the annual compensation component of the MVP Program award (The long-term incentive component of the MVP Program is explained under the section Long-Term Compensation on pages 43-44). For 2022, Messrs. Kliethermes and Bryant and Ms. Klobnak shared annual objectives weighted as follows: customer experience (15 percent); innovation and strategic fit (15 percent); product adjacencies (15 percent); cultural adaptability (15 percent); people (15 percent); technology alignment (15 percent) and financial and growth goals (10 percent). The annual financial performance metric, combined ratio, is non-GAAP and should not be considered a substitute for GAAP measures. The calculation of this non-GAAP metric is described on page 35. The annual growth goal relates to premium growth over one-, three-, and five-years. Under each annual objective category, there were a number of shared goals against which performance would be assessed to determine whether the annual objectives had been achieved. The evaluation of performance relative to these objectives is inherently subjective, involving a high degree of judgment by the CEO and the Board. The annual objectives are established as difficult stretch goals, requiring superior effort and execution to achieve 100 percent on all goals. The annual objectives component of an MVP award will only be paid if objectives are achieved and if positive MVP is created for shareholders. If MVP is positive and annual objectives are achieved, the annual objectives component of the award will be paid annually to provide direct linkage of annual incentive compensation for the achievement of those annual goals. However, if MVP is negative for a year, no MVP award will be made for that year with respect to the annual objective’s component. For 2022, the Committee evaluated annual objectives and a 97 percent overall achievement factor was applied. The following annual incentive compensation component was paid to each participant under the MVP Program: Calculation of MVP Program Annual Incentive Award | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | (A) | | (B) | | (C = A x B) | | (D = C x 20%) | | (E = % Achieved) | | (F = D x E) | | | 2022 MVP | | Percentage | | 2022 Preliminary | | 20% Annual Component | | Achievement | | 2022 Annual | Participant | | Created | | Award | | MVP Award | | Based on Strategic Goals | | Rating | | Incentive Award | C. Kliethermes | | $ | 61,080,000 | | 2.0% | | $ | 1,221,600 | | $ | 244,320 | | 97% | | $ | 236,990 | T. Bryant | | $ | 61,080,000 | | 1.0% | | $ | 610,800 | | $ | 122,160 | | 97% | | $ | 118,495 | J. Klobnak | | $ | 61,080,000 | | 1.15% | | $ | 702,420 | | $ | 140,484 | | 97% | | $ | 136,269 |
*The net gain from the sale of the Company’s shares in Maui Jim, as explained on page 40, was excluded from 2022 MVP created, which had the impact of lowering the MVP created for purposes of the Company’s incentive programs. RLI Corp. 2023 Proxy Statement | 41 MANAGEMENT INCENTIVE PROGRAM (MIP) Participants in the MIP include home office vice presidents, assistant vice presidents and other senior managers. Awards are granted annually and expressed as a percentage of year-end base pay based on targets for three financial goals and annual objectives related to strategic goals. The financial goals are: operating return on equity (“ROE”), combined ratio, and MVP. The annual objectives for 2022 were the same annual objectives for the MVP Program: customer experience (15 percent); innovation and strategic fit (15 percent); product adjacencies (15 percent); cultural adaptability (15 percent); people (15 percent); technology alignment (15 percent) and financial and growth goals (10 percent). Awards are based on actual results for the financial and growth goals, and an assessment of achievement of annual objectives as discussed above in relation to the MVP Program. ROE and combined ratio are used as financial goals to provide an incentive to increase annual profitability. ROE is a ratio calculated as our operating earnings divided by our beginning equity adjusted for capital transactions such as share repurchases and special dividends. Operating earnings, in turn, are our net earnings minus realized investment gains or losses and unrealized gains or losses on equity securities, net of tax. For 2022, the calculation of ROE excluded the net gain from the sale of the Company’s interest in Maui Jim - net of tax; net of transaction costs; and net of one-time transactions bonuses paid to all employees other than the NEOs, but included equity in earnings of Maui Jim for the partial year prior to the sale. Combined ratio is a profitability measure and is calculated as the sum of our incurred losses and settlement expenses plus our policy acquisition costs and operating expenses, divided by our net premiums earned. The difference between the combined ratio and 100 reflects the per-dollar rate of underwriting income or loss. MVP is used as a financial goal as a proxy for shareholder value creation and is explained on page 39. Actual awards for a year are paid in the first quarter of the following year. The HCCC approves award levels for MIP participants at the senior vice president and vice president levels, who are designated as executive officers under Section 16 of the Exchange Act. Mr. Kliethermes approves award levels for other MIP participants. For 2022, Mr. Kliethermes recommended, and the HCCC approved, an MIP maximum annual incentive opportunity for Messrs. Diefenthaler and Fick of 90 percent of their respective year-end base salary, 67.5 percent of which was based on the achievement of financial goals of MVP, ROE and combined ratio and 22.5 percent of which was based on the annual objectives. The MIP maximum annual incentive opportunity for Messrs. Diefenthaler and Fick did not change as compared to 2021. For 2023, Mr. Kliethermes recommended, and the HCCC approved, the MIP maximum annual incentive opportunity for Messrs. Diefenthaler and Fick be increased from 90 percent to 100 percent of their respective year-end base, 40 percent of which will be based on the achievement of financial goals of MVP, 20 percent on the ROE, 20 percent on the combined ratio goal, and 20 percent on the achievement of annual objectives. For 2022, targets levels and corresponding achievement levels for actual results for financial goals are measured according to the following proportionate payout ranges. 2022 MIP Maximum – Diefenthaler and Fick | | | | | | | | | | | | | | | | Payout Range | | | Management Incentive Plan Goals | | 0% Payout | | 100% Payout | | Bonus Opportunity | STRATEGIC GOALS | | | | | | | Annual Objectives | | 0% achievement | | 100% achievement | | 22.50% | FINANCIAL GOALS | | | | | | | Operating Return on Equity (ROE) | | 7% | | 16% | | 22.50% | Market Value Potential (MVP) | | $0 | | $100M | | 22.50% | Combined Ratio | | 100% | | 85% | | 22.50% | | | | | | | MAXIMUM BONUS | | | | | | | 90.00% |
In 2022, the following MIP awards were calculated based on the corresponding actual results with respect to financial goals and an aggregate 97% achievement of annual objectives based upon an assessment by senior management of achievement of each annual objective: 2022 MIP Award | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Actual | | | | | | | | | | MIP | | | | | | | | | | | Actual | | | | Strategy | | | | | | Total | | | Level | | Actual | | Bonus | | Actual | | | | Combined | | | | Scorecard | | | | Total | | MIP | Participant | | % | | ROE % | | % | | MVP | | Bonus % | | Ratio | | Bonus % | | % | | Bonus % | | MIP % | | Bonus | Aaron P. Diefenthaler | | 90 | | 19.2 | | 22.5 | | $ | 61,080,000 | | 13.748 | | 84.4 | | 22.5 | | 97 | | 21.825 | | 80.573 | | $ | 273,948 | Jeffrey D. Fick | | 90 | | 19.2 | | 22.5 | | $ | 61,080,000 | | 13.748 | | 84.4 | | 22.5 | | 97 | | 21.825 | | 80.573 | | $ | 290,063 |
*The net after-tax gain from the sale of the Company’s shares in Maui Jim, as explained on page 40, was excluded from 2022 MVP created, which had the impact of lowering the MVP created for purposes of the Company’s incentive programs. 42 | RLI Corp. 2023 Proxy Statement UNDERWRITER PROFIT-SHARING PROGRAM (UPP) – ANNUAL INCENTIVE COMPENSATION COMPONENT Executives with oversight responsibility for product group underwriting participate in UPP and are eligible to earn an annual incentive based on a percentage of underwriting profit created by that product for a given underwriting year. In addition to his other duties as Chief Investment Officer & Treasurer, Mr. Diefenthaler has oversight responsibility for underwriting for two products. Under the terms of the UPP, Mr. Diefenthaler is eligible to receive a UPP bonus for each of these products based on 2% of the underwriting profit created over the respective payout periods for those products (six to ten years for one of the products and four to eight years for the other product). For UPP, underwriting profit is calculated as premiums earned net of reinsurance (“Premium”) minus expenses and actual and estimated losses (collectively “Losses”). Because Losses are determined over a multi-year payout period over which they may develop, only a partial incentive award based on underwriting profit is paid each year until all actual Losses likely to develop have occurred and a final underwriting profit figure can be determined for the applicable underwriting year. If expenses and Losses exceed the Premium, there is an underwriting loss (negative underwriting profit) for a given underwriting year in the payout period. This such negative amount will be deducted from underwriting profit from other years to determine a UPP payout. If in aggregate a negative amount results in a given year for all underwriting years the amount will be deducted from Mr. Diefenthaler’s MIP bonus for that given year. The percentage of the incentive award paid out ranges from 20% to 100%, based on product and year in the payout period, with the cumulative payout percentage increasing for later years in the payout period. Mr. Diefenthaler’s UPP award calculation also includes an adjustment for investment income over a payout period, which is calculated by multiplying the investment rate by the unpaid award balance as of the previous year-end or December 31, 2021. The investment rate, 1.22 percent, was derived by matching the duration of the product reserves to a matching bond term and is net of investment expenses of 0.15 percent. For UPP payouts, the payout for the same calendar year as the underwriting year is deemed annual incentive compensation, while payouts based on underwriting profit in prior underwriting years are deemed long-term compensation. The following table illustrates the UPP award calculation, determined on an aggregate basis for both products. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | UPP Award Calculation | | | (A) | | | | | | | | (E) | | | | (G = E - F) | | | | Underwriting Profit | | (B) | | (C = A x B) | | (D) | | Cumulative | | (F) | | UPP Payout | | | | (Premium less | | Award | | Total Eligible | | Payout | | Eligible | | Paid to | | by Award | | | | Losses) | | Percentage | | Award | | Percentage | | Award | | Date | | Year | | Award Year | | ($) | | (%) | | ($) | | (%) | | ($) | | ($) | | ($) | | 2022 Underwriting Year | | 749,372 | | 2 | | 14,987 | | 36.8 | | 5,508 | | — | | 5,508 | | Prior Underwriting Years | | 37,426,218 | | 2 | | 748,524 | | 91.9 | | 687,904 | | 467,667 | | 220,237 | | Total 2022 UPP Award (sum of G) | | | | | | | | | | | | | | 226,842 | (1) |
| (1) | Under the terms of the UPP Program, $1,097 of investment income accrued on the unpaid profit-sharing balance as described above in included in the 2022 UPP Award. |
LONG-TERM COMPENSATION MARKET VALUE POTENTIAL EXECUTIVE INCENTIVE PROGRAM — LONG-TERM INCENTIVE COMPENSATION COMPONENT AND FORFEITURE PROVISION (CLAWBACK) The MVP Program is described on page 39. Eighty percent of the preliminary MVP award calculated under that program (which will be positive if MVP is positive or negative if MVP is negative) is subject to an assessment of Company performance compared to the Peer Companies (the “financial component”). This represents the long-term component of the MVP award. The financial component of a preliminary award will be adjusted in a range from a 20 percent reduction (minimum) to a 25 percent increase (maximum) based on the Company’s long-term performance relative to the Peer Companies measured by five-year growth in book value per share. The Company’s relative growth in book value per share is calculated by comparing its CAGR in GAAP comprehensive earnings over the applicable five-year period to that of the Peer Companies. CAGR in comprehensive earnings is calculated based on publicly disclosed comprehensive earnings of Peer Companies for the five-year period ending at the third quarter of the fifth year. The adjustment to the financial component is made according to the following schedule: Adjustment of Preliminary Financial Award Based on RLI’s Relative Five-Year Book Value per Share Growth | | | | | | Relative Performance |
| Adjustment | 90th percentile of peers or greater |
| 125% (maximum) | 60th percentile of peers |
| 100% (target) | 33rd percentile of peers or less |
| 80% (minimum) | Results between the stated values for relative performance will be interpolated to determine the achievement rating. |
As noted above, the Company must perform at the 60th percentile, above the median of long-term performance of its Peer Companies, in order for 100 percent of the long-term financial component of an MVP award otherwise earned to be made. RLI Corp. 2023 Proxy Statement | 43 The financial component of an MVP award earned is not immediately paid to participants; rather it is credited (if positive) or charged (if negative) to each participant’s long-term bonus bank. A bonus bank, in turn, may be positive or negative based on prior year results. The aggregate bonus bank balance for all prior years is paid out annually at a rate of 33 percent, if the balance is positive, meaning that it will take more than 10 years to completely pay out an incentive award for a given year deposited into a bonus bank since 33% of the remaining balance from a prior year (if positive) is paid in a given year. Until paid out, all amounts in the MVP Program bonus bank are subject to a risk of forfeiture if future financial performance results in a negative MVP calculation. In other words, negative MVP charged to a bonus bank will reduce a positive balance in that bonus bank from prior years, effectively causing a forfeiture of such positive balance. If the aggregate bonus bank is negative after the financial component of an MVP award for a given year is credited or charged to a bonus bank, no award will be paid from the bank until the aggregate balance is positive as a result of future positive amounts credited to the bank from future year awards. The forfeiture provision in the MVP Program bonus bank in the event of negative MVP, in effect, operates as a clawback for negative shareholder results by reducing the amount payable from the bonus bank when the Company has negative MVP. The Company’s MVP in 2022 was $61.1 million, after excluding the after-tax gain from the sale of the Company’s shares in Maui Jim compared to MVP of $240.6 million in 2021. The following table shows the manner in which 2022 annual and long-term MVP award payouts and remaining at-risk bank balances were calculated for Messrs. Kliethermes, Bryant, and Ms. Klobnak. | | | | | 2022 MVP Program Incentive Awards and Payouts | | Annual Objectives Achieved | | | 97.0 | % | Peer Company Adjustment Factor | | | 120.51 | % | | | | (A) | | 2022 MVP Achieved (after tax) | | $ | 61,080,000 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | Formula for | | | | | | | | | | | | | 2022 MVP Award: | | (B) | | (C = A x B) | | (D = C x 20%) | | (E = D x % Achieved) | | (F = C x 80%) | | (G = F x Peer Factor) | | | | | | | Annual | | Annual | | | | Financial | | | | | Preliminary | | Objectives | | Objectives | | Financial | | Award | Participant | | MVP % | | MVP Award ($) | | Component ($) | | Award ($) | | Component ($) | | ($) | Craig W. Kliethermes | | 2.0 | % | 1,221,600 | | 244,320 | | 236,990 | | 977,280 | | 1,177,720 | Todd W. Bryant | | 1.0 | % | 610,800 | | 122,160 | | 118,495 | | 488,640 | | 588,860 | Jennifer L. Klobnak | | 1.15 | % | 702,420 | | 140,484 | | 136,269 | | 561,936 | | 677,189 |
| | | | | | | | | | | | | | | | | | | | | | Formula for 2022 | | | | | | | | | | | Payout from MVP Bank: | | (H) | | (G) (from above) | | (I = G + H) | | (J = I x 33%) | | (K = I - J) | | | Beginning Bank | | 2022 Award | | Total Pre-payout | | Payout | | Remaining | Participant | | Balance ($) (1) | | Credited to Bank ($) | | Balance ($) | | of Bank ($) | | At-Risk Bank | Craig W. Kliethermes | | 5,721,010 | | 1,177,720 | | 6,898,730 | | 2,276,581 | | 4,622,149 | Todd W. Bryant | | 2,412,844 | | 588,860 | | 3,001,704 | | 990,562 | | 2,011,142 | Jennifer L. Klobnak | | 3,074,831 | | 677,189 | | 3,752,020 | | 1,238,167 | | 2,513,853 |
| | | | | | | | | | | | | | Formula for Total | | | | | | | 2022 MVP Payout: | | | | (E) (from above) | | | | | (J) (from above) | | Payout of 2022 | | (L = J + E) | | | Payout | | Annual Objectives | | Total 2022 | Participant | | of Bank ($) | | Component ($) | | Payout ($) | Craig W. Kliethermes | | 2,276,581 | | 236,990 | | 2,513,571 | Todd W. Bryant | | 990,562 | | 118,495 | | 1,109,057 | Jennifer L. Klobnak | | 1,238,167 | | 136,269 | | 1,374,436 |
| (1) | Under the terms of the MVP Program, interest at the three-year U.S. Government Treasury Note rate (0.97 percent) was accrued on the unpaid bonus bank balance on December 31, 2021. The following interest was accrued to the December 31, 2022 bonus bank balance as follows: Mr. Kliethermes, $54,961; Mr. Bryant, $23,180; and Ms. Klobnak $29,539. |
UNDERWRITER PROFIT-SHARING PROGRAM — LONG-TERM INCENTIVE COMPENSATION COMPONENT As noted on page 43, payouts based on underwriting profit for prior underwriting years are deemed long-term compensation. For Mr. Diefenthaler, UPP payouts of $220,237 in 2022 for prior underwriting years 2016-2021 are deemed long-term incentive compensation. 44 | RLI Corp. 2023 Proxy Statement LONG-TERM INCENTIVE PLAN The Company has a long-term incentive plan that covers award of equity/stock-based compensation to participants, the 2015 Long-Term Incentive Plan (“2015 LTIP”). Messrs. Kliethermes, Bryant, Diefenthaler, Fick and Ms. Klobnak have outstanding stock option awards under the 2015 LTIP, described immediately below. The purpose of our 2015 LTIP is to promote the interests of the Company and its shareholders by providing key personnel of the Company with an opportunity to acquire an equity interest in the Company and rewarding them for achieving or exceeding the Company’s performance goals. The grant of equity awards, the value of which is related to the value of the Company’s Common Stock, aligns the interests of the Company’s executive officers with that of the shareholders. The HCCC believes this arrangement develops a strong incentive for Company executives to put forth maximum effort for the continued creation of shareholder value and long-term growth of the Company. Under the Company’s 2015 LTIP, certain employees, officers, and Directors of the Company are eligible to receive equity awards in a variety of forms including non-qualified stock options, stock appreciation rights, performance units, restricted stock awards and other equity awards. All executives at the Company are required to own a significant level of Company stock, stated as a multiple of base salary. Equity grants provide a means for executives to meet their ownership requirement. As explained further on page 46, executives are required to hold all net shares from an equity grant until their stock ownership level is met. The HCCC believes equity awards serve as incentives to executives to maximize long-term growth and profitability of the Company, an arrangement that benefits executives, shareholders, and other stakeholders of the Company. Equity awards also provide a means to attract and retain key employees. The HCCC establishes and recommends to the Independent Directors of the Board the annual equity award for Mr. Kliethermes, which is established based on a review of long-term incentive compensation of CEO positions among the Peer Companies described above, an assessment of his performance and initiatives underway and a comparison of his equity awards compared to awards to other executives. A target range of the value of annual equity awards, expressed as a percentage of base salary based on comparisons with respect to Peer Companies and executive compensation benchmarking surveys has been established for all other Company executives. In 2022, the Company awarded long-term incentives in the form of non-qualified stock option grants to the NEOs in amounts recommended by the HCCC and approved by the Board of Directors (Independent Directors with respect to Mr. Kliethermes’ award). Grant amounts in 2022 were based upon market data, year-to-date Company performance, Company stock price performance in 2021 and through the grant date in 2022, and executive retention considerations. The HCCC believes that non-qualified stock options provide an effective form of performance-based compensation to align the interests of NEOs and shareholders. In reaching that conclusion, the HCCC considered the following: stock options provide more leverage than equity awards such as restricted stock; stock options are directly aligned with shareholder interests since they provide rewards only with share price appreciation; and, stock options are understood and supported by recipients. The Company targets long-term incentives at approximately the median of competitive market data. Mr. Kliethermes recommends to the HCCC proposed long-term incentive awards within the target range for each executive officer based on the executive officer’s position and a subjective assessment of the executive officer’s individual performance and anticipated future contributions to the Company. The HCCC considers Mr. Kliethermes’ recommendations and then approves and recommends stock option awards to the Board for approval. Options expire eight years after grant. Add for retention – CEO succession include the number for one-time grant. In determining 2022 stock option awards the Committee considered peer company compensation, compensation survey benchmarking, individual and Company performance, and the need to retain the senior leadership team in light of planned CEO succession that occurred in 2022. Stock options vest over five years at the rate of 20 percent per year, or upon termination of employment due to the death, Disability, or qualified Retirement of the recipient. Upon termination of employment (other than due to death, Disability, or Retirement), vested options must be exercised within the earlier of 90 days of termination or expiration of the option award, except that options are forfeited in the event the employment of an option recipient is terminated for cause. EMPLOYEE STOCK OWNERSHIP PLAN (ESOP) The Company’s ESOP offers another performance-based means of retaining and motivating employees, including executive officers, who work 1,000 or more hours per year, by offering ownership in the Company on a long-term basis. The Board may approve an annual contribution to the ESOP based on the profitability of the Company that is used by the ESOP to purchase Common Stock on behalf of participating employees, including executive officers. For 2022, the HCCC recommended, and the Board approved, a discretionary profit-sharing contribution to the ESOP of 7.8 percent of participants’ eligible compensation. In addition, plan forfeitures equal to 0.175 percent of eligible compensation were added to all participants’ accounts. RLI Corp. 2023 Proxy Statement | 45 401(K) PLAN The Company sponsors a 401(k) Plan in which all employees, including executive officers, scheduled to work 1,000 or more hours per year, are entitled to participate. All participants receive a “safe harbor” annual contribution by the Company to their 401(k) accounts of three percent of eligible compensation. The Board may also approve discretionary profit-sharing contributions to the 401(k) Plan. For 2022, in addition to the safe harbor three percent annual contribution, the HCCC recommended and the Board approved a discretionary profit-sharing contribution to the 401(k) of 4.8 percent of participants’ eligible compensation and plan forfeitures equal to 0.036 percent of eligible compensation were added to all participants’ accounts. DEFERRED COMPENSATION PLAN (DEFERRED PLAN) Under the Company’s Deferred Plan, an executive officer may elect to defer up to 100 percent of total cash compensation after payroll deductions. Upon an election by an executive officer to defer compensation (a “Participant”), the Participant may elect to direct deferred amounts to a notional investment in one or more of several mutual funds or RLI shares. If deferred amounts are directed to RLI shares, the Company allocates to the Participant RLI stock credits equal to the number of shares that could be purchased with the amount deferred. Additional RLI stock credits are allocated to a Participant’s account equal to shares of RLI stock that could be purchased with dividends paid on RLI stock credited to a Participant’s account. The Company transfers cash equal to the amount deferred to a bank trustee under an irrevocable trust established by the Company, and the trustee purchases a number of shares of common stock of the Company representing an amount equal to the compensation deferred by the Participant. Dividends paid on the shares in such trust are used by the trustee to purchase additional shares of common stock of the Company, which are placed in the trust. The trust is considered to be a “Rabbi Trust” or grantor trust for tax purposes. The assets of the trust are subject to claims by the Company’s creditors. Deferred Plan benefits are distributable, in the form of Company common stock or cash, consistent with each participant’s investment election. Participants have the option to choose to receive a scheduled distribution while still employed or to have their account distributed upon termination of employment. In either case, distributions may be paid in a lump sum, or in annual installments ranging from five to 15 years. Messrs. Kliethermes, Bryant, Fick, and Ms. Klobnak did not elect to defer any income for 2022 while Mr. Diefenthaler elected to defer income in 2022. Messrs. Kliethermes, Diefenthaler, and Fick have deferred income under the Deferred Plan in prior years. STOCK OWNERSHIP/RETENTION GUIDELINE It is the Company’s belief that key executives should hold significant amounts of Company common stock. The value of all shares owned or vested, including: those held outright; those in benefit plans; and the value of in-the-money vested stock options, must equal or exceed a multiple of their annual base salary, as shown below: | | | | | | Position | | $Value of Shares | Chief Executive Officer | | 6.0 x Base Salary | Chief Operating Officer | | 4.0 x Base Salary | Chief Financial Officer | | 3.0 x Base Salary | Chief Legal Officer, Chief Investment Officer, Sr. VP | | 2.0 x Base Salary | Vice President | | 1.5 x Base Salary |
Executives to whom this Guideline applies are encouraged to reach their respective stock ownership level within five years of the date on which an individual assumes an executive position covered by this Guideline. Until an executive reaches the required ownership level, all net shares obtained from the exercise of stock options or other long-term incentive awards must be retained and may not be sold. The HCCC reviews the progress of executives, to whom the Guideline applies, toward their stock ownership goal each year. As of December 31, 2022, all NEOs have met their respective stock ownership goals. The Company prohibits NEOs from using financial instruments to reduce the risk of holding Company stock (hedging), or from using Company shares for margin trading or collateral purpose. Refer to our “Hedging and Pledging Policy” on page 24 for further details. 46 | RLI Corp. 2023 Proxy Statement EXECUTIVE COMPENSATION 2022 SUMMARY COMPENSATION TABLE The aggregate compensation earned from the Company and its subsidiaries during the last fiscal year is set forth below for the Company’s President & CEO CFO; and the other three most highly compensated executive officers, referred to herein collectively as NEOs. None of the NEOs have an employment contract with the Company. The key elements of compensation presented in the 2022 Summary Compensation Table include base salary (column c); payouts under annual incentive programs (column g); and stock option awards (column f). Amounts reflected in column (g) titled “Non-Equity Incentive Plan” for Messrs. Kliethermes, Bryant, and Ms. Klobnak reflect payouts from each of their respective MVP Program bonus bank accounts of amounts earned in prior years based on financial performance of the Company in those years. As described in detail on pages 39-41, payouts under the long-term component of the MVP Program are reflective of amounts earned in prior years, which are banked and paid out over a period of time of up to 10 years. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Change in Pension | | | | | | | | | | | | | | | | | | | Value and | | | | | | | | | | | | | | | | | Non-Equity | | Nonqualified | | | | | | | | | | | | | Stock | | Option | | Incentive Plan | | Deferred | | All Other | | | Name and | | | | | | Bonus | | Awards | | Awards | | Compensation | | Compensation | | Compensation | | | Principal Position | | Year | | Salary ($) | | ($) | | ($) | | ($) (1) | | ($) (2) | | Earnings ($) | | ($) (3)(4)(5) | | Total ($) | (a) | | (b) | | (c) | | (d) | | (e) | | (f) | | (g) | | (h) | | (i) | | (j) | Craig W. Kliethermes | | 2022 | | 648,942 | | 0 | | 0 | | 1,603,500 | | 2,513,571 | | — | | 80,767 | | 4,846,780 | President & Chief Executive Officer | | 2021 | | 538,000 | | 0 | | 0 | | 499,240 | | 3,704,994 | | — | | 61,197 | | 4,803,431 | | | 2020 | | 525,000 | | 0 | | 0 | | 527,600 | | 2,235,030 | | — | | 48,092 | | 3,335,722 | | | | | | | | | | | | | | | | | | | | Todd W. Bryant | | 2022 | | 366,539 | | 0 | | 0 | | 637,915 | | 1,109,057 | | — | | 78,430 | | 2,191,941 | Chief Financial Officer | | 2021 | | 344,500 | | 0 | | 0 | | 228,130 | | 1,634,125 | | — | | 61,197 | | 2,267,952 | | | 2020 | | 330,000 | | 0 | | 0 | | 183,400 | | 816,742 | | — | | 48,092 | | 1,378,234 | | | | | | | | | | | | | | | | | | | | Jennifer L. Klobnak | | 2022 | | 474,539 | | 0 | | 0 | | 919,340 | | 1,374,436 | | — | | 69,840 | | 2,838,155 | Chief Operating Officer | | 2021 | | 389,039 | | 0 | | 0 | | 249,620 | | 2,025,616 | | — | | 61,197 | | 2,725,472 | | | 2020 | | 370,000 | | 0 | | 0 | | 263,800 | | 1,120,446 | | — | | 48,092 | | 1,802,338 | | | | | | | | | | | | | | | | | | | | Aaron P. Diefenthaler | | 2022 | | 336,616 | | 0 | | 0 | | 406,220 | | 500,790 | | — | | 69,840 | | 1,313,466 | Chief Investment Officer & Treasurer | | 2021 | | 326,164 | | 0 | | 0 | | 142,640 | | 490,048 | | — | | 61,197 | | 1,020,049 | | | 2020 | | 315,000 | | 0 | | 0 | | 164,875 | | 343,516 | | — | | 48,092 | | 871,483 | | | | | | | | | | | | | | | | | | | | Jeffrey D. Fick | | 2022 | | 356,616 | | 0 | | 0 | | 293,123 | | 290,063 | | — | | 69,840 | | 1,009,642 | Chief Legal Officer & Corporate Secretary | | | | | | | | | | | | | | | | | | |
| (1) | The amounts shown in column (f) reflect the aggregate grant date fair value of stock option awards computed in accordance with FASB ASC Topic 718. Assumptions used in the calculation of these amounts are included in footnote 8 to the Company’s audited financial statements for the fiscal year ended December 31, 2022, included in the Company’s Annual Report on Form 10-K filed with the SEC on February 24, 2023. |
| (2) | The amount shown in column (g) for Messrs. Kliethermes, Bryant, and Ms. Klobnak reflects the cash awards paid under the MVP Program, which is discussed in further detail on pages 39-41, and includes the annual award payout under the MVP Program and long-term payout reflecting 33 percent of their respective bonus bank balances. The bank balance, in turn, includes amounts credited to their bonus banks for 2022. The amount reflected in column (g) for Mr. Diefenthaler reflects the cash award paid under the MIP, which is discussed in further detail on page 42, and the cash award paid under the UPP, which is discussed in further detail on page 43. The amount reflected in column (g) for Mr. Fick reflects the cash award paid under the MIP. |
| (3) | The amounts shown in column (i) include: |
| a. | A Company contribution to the ESOP of $24,319 for 2022 for each of the NEOs. |
| b. | A Company contribution to the 401(k) Plan of $23,898 for 2022 for each of the NEOs. |
| c. | The amounts reflected in this column represent the maximum amount expended on an individual annual executive physical examination for a NEO. The maximum amount is used for all NEOs to ensure that no protected health-related information is disclosed. |
| d. | The proportionate amounts of travel accident insurance provided for all Company management at the assistant vice president level and above. |
RLI Corp. 2023 Proxy Statement | 47 | (4) | Messrs. Kliethermes, Bryant and Ms. Klobnak were authorized by the Board to use the Company’s fractionally-owned aircraft for personal use in 2022, at an hourly rate established from time to time by the Board, with personal hours flown limited such that the net hourly charges to the Company (the variable hourly rate paid by the Company less the hourly rate paid to the Company by Messrs. Kliethermes, Bryant and Ms. Klobnak) are equal to or less than 6.5 percent of their respective base salaries, a maximum for Mr. Kliethermes of $42,250, Mr. Bryant of $24,375 and Ms. Klobnak of $30,875. The hourly rate prior to September 1, 2022 was set at $2,100 per hour. Effective September 1, 2022, the hourly rate was increased to $2,300 per hour. Ms. Klobnak did not use this benefit in 2022. The amounts included in the All Other Compensation column for Messrs. Kliethermes and Bryant reflect the difference between the Company’s hourly variable operating costs, less the hourly rates paid by each, respectively, for all personal hours flown as reflected in column (e) in the following table: |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | (a) | | (b) | | (c) | | (d = b - c) | | (e = a x d) | | | | | | | | | | | | | | | | Total aggregate | | | | | | | | | | | | | Aggregate | | incremental | | | | | | | Company | | | | | incremental | | cost to | | | | | | | variable | | Hourly rate | | cost to | | Company | | | | | | | operating | | charged for | | Company | | for all personal | | | | | Personal | | cost per | | personal | | | per personal | | hours flown | | | Year | | hours flown | | hour flown | | hours flown | | hour flown | | in year | Craig W. Kliethermes | | 2022 | | 6.5 | | $ | 3,781 | | $ | 2,100 | | $ | 1,681 | | $ | 10,927 | Todd W. Bryant | | 2022 | | 5.8 | | $ | 3,781 | | $ | 2,300 | | $ | 1,481 | | $ | 8,590 |
2022 GRANTS OF PLAN-BASED AWARDS The following table sets forth information about estimated possible payouts under non-equity incentive plan awards, which consist of potential payouts under the long-term component of the MVP Program for Messrs. Kliethermes, Bryant, and Ms. Klobnak, under MIP for Mr. Fick, and under the MIP and UPP for Mr. Diefenthaler. The table also shows information regarding grants of stock options made to the NEOs under the 2015 LTIP. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | All Other | | Exercise | | | | | | | | | | | | | Option Awards: | | or Base | | Grant Date | | | | | | | | | | | Number of | | Price of | | Fair Value | | | | | Estimated Possible Payouts Under | | Securities | | Option | | of Stock | | | | | Non-Equity Incentive Plan Awards | | Underlying | | Awards | | and Option | Name | | Grant Date | | Threshold ($) (1) | | Target ($) (2) | | Maximum ($) (3) | | Options (#) (4) | | ($/Sh)(5) | | Awards ($) | (a) | | (b) | | (c) | | (d) | | (e) | | (f) | | (g) | | (h) | Craig W. Kliethermes | | 05/05/22 | | | | | | | | 75,000 | | 109.60 | | 1,603,500 | | | | | 0 | | 3,704,994 | | 7,500,000 | | | | | | | | | | | | | | | | | | | | | | Todd W. Bryant | | 02/01/22 | | | | | | | | 3,000 | | 97.85 | | 51,840 | | | 05/05/22 | | | | | | | | 8,500 | | 109.60 | | 181,730 | | | 08/01/22 | | | | | | | | 8,500 | | 103.56 | | 172,380 | | | 11/01/22 | | | | | | | | 8,500 | | 125.98 | | 231,965 | | | | | 0 | | 1,634,125 | | 7,500,000 | | | | | | | | | | | | | | | | | | | | | | Jennifer L. Klobnak | | 05/05/22 | | | | | | | | 43,000 | | 109.60 | | 919,340 | | | | | 0 | | 2,025,616 | | 7,500,000 | | | | | | | | | | | | | | | | | | | | | | Aaron P. Diefenthaler | | 05/05/22 | | | | | | | | 19,000 | | 109.60 | | 406,220 | | | | | 0 | | 490,048 | | 7,500,000 | | | | | | | | | | | | | | | | | | | | | | Jeffrey D. Fick | | 02/01/22 | | | | | | | | 2,000 | | 97.85 | | 34,560 | | | 05/05/22 | | | | | | | | 3,750 | | 109.60 | | 80,175 | | | 08/01/22 | | | | | | | | 3,750 | | 103.56 | | 76,050 | | | 11/01/22 | | | | | | | | 3,750 | | 125.98 | | 102,338 | | | | | 0 | | 298,113 | | 7,500,000 | | | | | | |
| (1) | The MVP Program applicable to Messrs. Kliethermes, Bryant and Ms. Klobnak discussed in further detail on pages 39-41, does not provide for a minimum threshold award level. Messrs. Diefenthaler and Fick participate in the MIP and the amounts shown in column (c) represent the minimum award under MIP, discussed in further detail on page 42, which is equal to zero if strategic objectives and financial goals are not met. The amount shown in column (c) for Mr. Diefenthaler also includes UPP, discussed in further detail on page 44, which does not provide a minimum threshold award level. |
| (2) | The MVP Program applicable to Messrs. Kliethermes, Bryant and Ms. Klobnak does not provide for a target award. The amounts shown in column (d) are their respective 2021 MVP Program payouts for 2021 performance, which are shown as representative amounts for a target MVP Program award for 2022. For Mr. Diefenthaler, the amount in column (d) reflects the amount he received as a payout under both MIP ($281,078) and UPP ($208,970) for 2021, which is |
48 | RLI Corp. 2023 Proxy Statement | representative of a target award for 2022. For Mr. Fick, the amount in column (d) reflects the amount he received as a payout under MIP for 2021, which is representative of a target award for 2022. |
| (3) | The amounts shown in column (e) reflect the maximum incentive award permitted under the RLI Corp. Annual Incentive Compensation Plan approved by shareholders in 2016 and amended in 2018 and 2020, which governs the MVP Program, MIP, and UPP. |
| (4) | Twenty percent of each option grant becomes exercisable one year after the date of the grant and each year thereafter in 20 percent increments. Options expire on the eighth anniversary of the grant date. The 2022 grants were granted pursuant to the 2015 LTIP. The stock option grants vest upon the death or the termination of employment of a stock option recipient due to Disability or Retirement. Retirement is defined as termination of employment of an employee with combined age and years of service of 75 or greater. Under FASB ASC Topic 718, option awards to recipients who are current employees, but who qualify for Retirement upon departure from the Company, are expensed at the time of grant, rather than over the five-year vesting period. Because Messrs. Bryant’s and Fick’s age and years of service exceeded 75, the HCCC decided to grant option awards to Messrs. Bryant and Fick on a quarterly basis (one fourth of aggregate annual grant awarded in May, August and November of the current year, and February of the subsequent year) to avoid a disproportionate expense in the quarter of grant if the option award was made in a single annual grant. The HCCC also sets and approves the date upon which each quarterly grant will be awarded following the same schedule each year: 1) the initial grant occurs on the same date of all other annual option awards in May in conjunction with the meeting of the Board; and 2) each remaining quarterly grant occurs on the first trading day in the months of August, November, and February. |
| (5) | Option exercise prices were adjusted to reflect a reduction in the exercise price equal to the $7.00 special dividend paid on December 20, 2022 to all of our shareholders in order to prevent dilution to stock option holders. The grant date fair value of stock option award did not change as a result of such exercise price adjustments. |
RLI Corp. 2023 Proxy Statement | 49 OUTSTANDING EQUITY AWARDS AT 2022 FISCAL YEAR-END The following table sets forth information with respect to the NEOs regarding the outstanding stock option awards as of December 31, 2022. As of December 31, 2022, none of our NEOs held outstanding RSUs or other equity-based awards with respect to the Company. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Option Awards | | | | | | | | | | | Equity | | | | | | | | | | | | | | | Incentive | | | | | | | | | | | Number of | | Number of | | Plan Awards | | | | | | | | | | | Securities | | Securities | | Number of | | | | | | | | | | | Underlying | | Underlying | | Underlying | | | | | | | | | | | Unexercised | | Unexercised | | Unexercised | | Option | | Option | | | | | | | Options (#) | | Options (#) | | Unearned | | Exercise | | Exercise | | Name | | Grant Date | | | Exercisable (1) | | Unexercisable (1) | | Options (#) | | Price (2) | | Date | | (a) | | (b) | | | (c) | | (d) | | (e) | | (f) | | (g) | | Craig W. Kliethermes | | 05/03/18 | | | 0 | | 4,000 | | | | 56.14 | | 05/03/26 | | | | 05/02/19 | | | 10,500 | | 7,000 | | | | 75.66 | | 05/02/27 | | | | 08/21/20 | | | 8,000 | | 12,000 | | | | 86.24 | | 08/21/28 | | | | 05/06/21 | | | 2,800 | | 11,200 | | | | 106.02 | | 05/06/29 | | | | 05/05/22 | | | 0 | | 75,000 | | | | 109.60 | | 05/05/30 | | Todd W. Bryant | | 05/03/18 | | | 2,200 | | 1,800 | | | | 56.14 | | 05/03/26 | | | | 05/02/19 | | | 2,250 | | 1,500 | | | | 75.66 | | 05/02/27 | | | | 08/01/19 | | | 2,250 | | 1,500 | | | | 82.47 | | 08/01/27 | | | | 11/01/19 | | | 2,250 | | 1,500 | | | | 89.32 | | 11/01/27 | | | | 02/03/20 | | | 1,500 | | 2,250 | | | | 87.62 | | 02/03/28 | | | | 08/21/20 | | | 2,000 | | 3,000 | | | | 86.24 | | 08/21/28 | | | | 11/02/20 | | | 2,000 | | 3,000 | | | | 82.28 | | 11/02/28 | | | | 02/01/21 | | | 1,000 | | 4,000 | | | | 90.64 | | 02/01/29 | | | | 05/06/21 | | | 600 | | 2,400 | | | | 106.02 | | 05/06/29 | | | | 08/02/21 | | | 600 | | 2,400 | | | | 101.07 | | 08/02/29 | | | | 11/01/21 | | | 600 | | 2,400 | | | | 103.02 | | 11/01/29 | | | | 02/01/22 | | | 0 | | 3,000 | | | | 97.85 | | 02/01/30 | | | | 05/05/22 | | | 0 | | 8,500 | | | | 109.60 | | 05/05/30 | | | | 08/01/22 | | | 0 | | 8,500 | | | | 103.56 | | 08/01/30 | | | | 11/01/22 | | | 0 | | 8,500 | | | | 125.98 | | 11/01/30 | | Jennifer L. Klobnak | | 05/03/18 | | | 16,000 | | 4,000 | | | | 56.14 | | 05/03/26 | | | | 05/02/19 | | | 12,000 | | 8,000 | | | | 75.66 | | 05/02/27 | | | | 08/21/20 | | | 8,000 | | 12,000 | | | | 86.24 | | 08/21/28 | | | | 05/06/21 | | | 2,800 | | 11,200 | | | | 106.02 | | 05/06/29 | | | | 05/05/22 | | | 0 | | 43,000 | | | | 109.60 | | 05/05/30 | | Aaron P. Diefenthaler | | 05/05/16 | | | 9,000 | | 0 | | | | 57.09 | | 05/05/24 | | | | 05/04/17 | | | 11,000 | | 0 | | | | 49.71 | | 05/04/25 | | | | 05/03/18 | | | 7,200 | | 1,800 | | | | 56.14 | | 05/03/26 | | | | 05/02/19 | | | 4,500 | | 3,000 | | | | 75.66 | | 05/02/27 | | | | 08/21/20 | | | 5,000 | | 7,500 | | | | 86.24 | | 08/21/28 | | | | 05/06/21 | | | 1,600 | | 6,400 | | | | 106.02 | | 05/06/29 | | | | 05/05/22 | | | 0 | | 19,000 | | | | 109.60 | | 05/05/30 | | Jeffrey D. Fick | | 05/03/18 | | | 6,000 | | 3,000 | | | | 56.14 | | 05/03/26 | | | | 05/02/19 | | | 9,000 | | 6,000 | | | | 75.66 | | 05/02/27 | | | | 08/21/20 | | | 1,666 | | 2,501 | | | | 86.24 | | 08/21/28 | | | | 11/02/20 | | | 1,666 | | 2,501 | | | | 82.28 | | 11/02/28 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (1) | Options vest 20 percent per year over five years and expire on the eighth anniversary of the grant date. |
| (2) | Option exercise prices adjusted to reflect a reduction in the exercise price equal to the $7.00 special dividend paid on December 20, 2022 to all of our shareholders in order to prevent dilution to stock option holders. |
2022 OPTION EXERCISES AND STOCK VESTED The following table sets forth information with respect to the NEOs regarding the exercise of options during 2022, and with respect to Mr. Diefenthaler, sets forth information with respect to RSUs that vested during 2022. Value realized on exercise 50 | RLI Corp. 2023 Proxy Statement is the excess of the fair market value of the underlying stock on the exercise date over the exercise price under the option and the value realized on the vesting of RSUs is based on the closing stock price on the date of vesting. | | | | | | | | | | | | | | | | | | | | Option Awards | | | | Stock Awards | | | | | Number of Shares | | Value Realized | | Number of Shares | | Value Realized | Name | | Acquired on Exercise (#) | | on Exercise ($) | | Acquired on Vesting (#)(1) | | on Vesting ($) | (a) | | (b) | | (c) | | (d) | | (e) | Craig W. Kliethermes | | 27,400 | | 2,033,214 | | 0 | | 0 | Todd W. Bryant | | 11,200 | | 884,502 | | 0 | | 0 | Jennifer L. Klobnak | | 33,000 | | 2,437,490 | | 0 | | 0 | Aaron P. Diefenthaler | | 12,000 | | 1,094,880 | | 321.27 | | 37,033 | Jeffrey D. Fick | | 15,200 | | 1,170,108 | | 0 | | 0 |
| (1) | Includes an award of 300 RSUs granted to Mr. Diefenthaler under the 2015 LTIP on May 2, 2019 which vested on May 2, 2022. RSUs have dividend rights that accrued as an additional 21.27 RSUs which were also paid upon vesting. |
2022 NON-QUALIFIED DEFERRED COMPENSATION The following table sets forth information on the non-qualified deferred compensation for the NEOs in 2022. The Company does not make contributions to the deferred compensation plan. | | | | | | | | | | | | | | | | | | | | Executive Contributions | | Aggregate Earnings | | Aggregate Withdraws/ | | Aggregate Balance | | | in Last FY | | in Last FY | | Distributions | | at Last FYE | Name | | ($) | | ($) | | ($) | | ($) | (a) | | (b) | | (c) | | (d) | | (e) | Craig W. Kliethermes (1) | | 0 | | 253,043 | | 0 | | 1,603,360 | Todd W. Bryant (2) | | 0 | | 0 | | 0 | | 0 | Jennifer L. Klobnak (2) | | 0 | | 0 | | 0 | | 0 | Aaron P. Diefenthaler (3) | | 33,280 | | 29,935 | | 0 | | 246,895 | Jeffrey D. Fick (4) | | 0 | | (46,559) | | 0 | | 252,145 |
| (1) | The amounts shown for Mr. Kliethermes in column (c) reflect the dividends paid on, and change in the value of, the investments held in his account under the Deferred Plan, which is described in further detail on page 46. Dividends paid on Company shares held in the Deferred Plan are also deferred and are used to purchase additional shares held in the Deferred Plan. Amounts deferred in previous years were included in the Summary Compensation Table in the year of such deferrals. |
| (2) | Mr. Bryant and Ms. Klobnak have not participated in the Deferred Plan in any prior years. |
| (3) | The amounts shown for Mr. Diefenthaler in column (b) reflect the amounts deferred compensation earned in 2022. These amounts were included in the amounts shown in the 2022 Summary Compensation Table for Mr. Diefenthaler. The amounts shown in column (c) reflect the dividends paid on, and change in the value of, the investments held in his account under the Deferred Plan, which is described in further detail on page 46. Dividends paid on Company shares held in the Deferred Plan are also deferred and are used to purchase additional shares held in the Deferred Plan. The amounts shown in column (c) were not included in amounts shown in the 2022 Summary Compensation Table for Mr. Diefenthaler. Amounts deferred in previous years were included in the Summary Compensation Table in the year of such deferrals. |
| (4) | The amounts shown for Mr. Fick in column (c) reflect the change in the value of, the investments held in his account under the Deferred Plan, which is described in further detail on page 46. The amounts shown in column (c) were not included in amounts shown in the 2022 Summary Compensation Table for Mr. Fick. Amounts deferred in previous years were included in the Summary Compensation Table in the year of such deferrals. |
RLI Corp. 2023 Proxy Statement | 51 ELEMENTS OF POST-TERMINATION COMPENSATION AND BENEFITS The table below shows potential amounts payable to each NEO had their employment terminated on December 31, 2022 based on the following scenarios: departure other than death, Disability, or Retirement; departure from death, Disability, or Retirement; for cause; and change in control. Post Termination Compensation | | | | | | | | | | | | | | | | | | | | Termination of | | | | | | | Name | | Employment Scenarios | | MVP/MIP/UPP ($) | | LTIP ($) | | Total ($) | Craig W. Kliethermes (2) | | Departure Other Than Death, Disability, or Retirement | | 0 | | 0 | | 0 | | | Departure From Death, Disability, or Retirement | | 7,135,720 | | 4,153,045 | | 11,288,765 | | | For Cause | | 0 | | 0 | | 0 | | | Change in Control | | 7,135,720 | | 4,153,045 | | 11,288,765 | Todd W. Bryant (1) | | Departure Other Than Death, Disability, or Retirement | | N/A | | N/A | | N/A | | | Departure From Death, Disability, or Retirement | | 3,120,199 | | 2,502,066 | | 5,622,265 | | | For Cause | | 0 | | 0 | | 0 | | | Change in Control | | 3,120,199 | | 2,502,066 | | 5,622,265 | Jennifer L. Klobnak | | Departure Other Than Death, Disability, or Retirement | | 0 | | 0 | | 0 | | | Departure From Death, Disability, or Retirement | | 3,888,289 | | 4,800,710 | | 8,688,999 | | | For Cause | | 0 | | 0 | | 0 | | | Change in Control | | 3,888,289 | | 4,800,710 | | 8,688,999 | Aaron P. Diefenthaler (2) | | Departure Other Than Death, Disability, or Retirement | | 590,679 | | 0 | | 590,679 | | | Departure From Death, Disability, or Retirement | | 590,679 | | 3,834,630 | | 4,425,309 | | | For Cause | | 0 | | 0 | | 0 | | | Change in Control | | 590,679 | | 3,834,630 | | 4,425,309 | Jeffrey D. Fick (2) | | Departure Other Than Death, Disability, or Retirement | | N/A | | N/A | | N/A | | | Departure From Death, Disability, or Retirement | | 290,063 | | 2,510,618 | | 2,800,681 | | | For Cause | | 0 | | 0 | | 0 | | | Change in Control | | 290,063 | | 2,510,618 | | 2,800,681 |
| (1) | Messrs. Bryant and Fick have met the requisite age and years of service to qualify for Retirement upon their departure from the Company, meaning any departure, other than termination for cause, would meet the definition of Retirement. |
| (2) | Each NEO participating in a Company deferred compensation plan, upon departure for any reason, is entitled to the amounts payable to them under the Plan. For amounts due to each NEO see the table on page 51. |
The Company has not entered into any employment or severance agreements or arrangements with any of its executive officers that would compensate the executive officers for or after departing the Company. The following paragraphs describe the circumstances under which the Retirement or other termination of employment will result in a payment to a NEO under the Company’s annual and long-term incentive plans. MVP/MIP/UPP. Under the Company’s MVP Program, an employee must be employed on the date bonuses are paid under the MVP Program in order to receive a bonus for that year, unless the employee’s termination of employment was due to death, Disability, or Retirement. Under the Company’s MIP and UPP Programs, an employee must be employed on the last calendar day of the year in order to receive a bonus for that year, unless the employee’s termination of employment was due to death, Disability, or Retirement. Retirement requires: in order to receive a bonus payout for that year, or from a bonus bank if applicable, (1) the termination of employment of an employee who has reached age and years of service equal to or greater than 75 at the time of departure; or (2) the termination of employment of an employee who satisfies a non-competition covenant or other terms and conditions specified by the Company. Under the UPP, an employee may receive award payouts for prior underwriting years until the payout period has expired. In order to receive continued UPP payout, an employee must satisfy the certain conditions for continued UPP payout described in the UPP guidelines. The amounts in the above table show annual incentives payable upon termination of employment in the event of a death, Disability, or Retirement assuming all NEOs would have met the definition of Retirement at year-end 2022. Messrs. Bryant and Fick have met the definition based on age and years of service. Upon the termination of employment of a participant qualifying as Retirement, a positive MVP bonus bank calculated on the last day of the quarter during which the participant’s bonus participation ended will be paid to a participant in a lump sum on the first day of the seventh month after termination if the participant is age 65 or older, and as a quarterly annuity starting after the first day of the seventh month after termination, and continuing to age 65 using the interest rate for the five-year Treasury Note in effect at the date of Retirement if the Participant’s age is less than 65. A bonus bank balance will also be calculated at the end of the quarter prior to a participant’s bonus participation ending and the Company may, in its discretion, pay the lower of the calculated bonus banks. All such payments upon a termination of employment qualifying as Retirement are subject to ongoing restrictions on: the participant’s employment in the insurance industry; solicitation of Company employees for employment elsewhere; solicitation of business away from the Company; and disclosure of confidential information of the Company. 52 | RLI Corp. 2023 Proxy Statement Long-Term Incentives. Under the terms of the 2015 LTIP, stock option grants automatically vest upon the death or Disability of an optionee, but will vest upon the Retirement of an optionee only if the underlying stock option agreement so provides. The awards of stock options to the NEOs, and all other stock option recipients at the Company, provide for the immediate vesting of outstanding unvested stock options in the event of a recipient’s termination of employment qualifying as a Retirement. Retirement is defined under the 2015 LTIP as the termination of employment of a participant who has combined age and years of service of 75 or greater at the time of departure. Stock options must be exercised within the earlier of one year of the death of an optionee, or three years of the termination of employment due to the Disability or Retirement of an optionee, and the original expiration date of the stock option award. In the event of the termination of employment of an optionee for reasons other than death, Disability, or Retirement, vested options must be exercised within the earlier of 90 days of the termination of employment or the original expiration of the option award. In 2022, Messrs. Bryant and Fick met the definition of Retirement and, accordingly, upon their termination of employment with the Company, all of their respective unvested stock option grants will immediately vest, expiring on the earlier of the original expiration date or three years after termination. For Cause. In the event of a termination for cause, all unpaid bonuses, amounts in a bonus bank, and unexercised stock options are forfeited. Change in Control. In the event of a change in control of the Company, as defined under the 2015 LTIP, the Board must take one of two actions with respect to outstanding stock option awards. Under the first alternative, the Board must make appropriate provisions for the replacement of the outstanding awards by the substitution of equity-based awards of the surviving company with substantially similar terms and conditions, with full vesting for qualifying terminations of employment, such as involuntary termination by the Company or termination by the employee with good reason, in either case, within two years following the change in control. Alternatively, the Board must permit the options to be exercised prior to the change in control, or cashed out as part of the change in control. For illustration purposes, the table shown on the previous page assumes a change in control occurred followed immediately by an involuntary termination by the Company or termination by the employee with good reason as of December 31, 2022. The 2016 RLI Corp. Annual Incentive Compensation Plan, which governs the MVP, MIP, and UPP bonus programs, includes a change in control provision, with “change in control” defined as in the 2015 LTIP. The Annual Incentive Compensation Plan provides that upon change in control, any amounts credited to a bonus bank and any amounts earned during a full or partial performance period shall not be forfeited, but will be paid out as specified under the applicable bonus program. The amounts shown in the table above show the full bonus bank balance under the MVP Program for Messrs. Kliethermes, Bryant, and Ms. Klobnak. For Mr. Diefenthaler, the amount shown is the full year bonus under the MIP and the full bonus bank balance under the UPP. For Mr. Fick, the amount shown is the full year bonus under the MIP. RATIO OF CEO TO MEDIAN EMPLOYEE TOTAL COMPENSATION Under the Dodd-Frank Act, the SEC requires disclosure of the CEO to median employee ratio of total compensation. We determined the median employee for purposes of this disclosure by generating a report from our payroll system reflecting either the base salary, or wages and overtime, as appropriate, for the calendar year 2022 for every full-time, part-time, seasonal, and temporary employee (other than Mr. Kliethermes), annualizing that amount for any full-time or part-time employee who had worked for less than a full year. Because there were no changes to our employee population or employee compensation arrangements (base salary, incentive programs, or retirement programs) in 2022, the same median employee identified in 2020 was used for purposes of calculating the pay ratio in 2021 and 2022. The median employee is a senior underwriter for the Company and is paid an annual salary, participated in the Company’s Underwriter Incentive Program, and participated in the Company’s retirement plans (401k and Employee Stock Ownership Plan.) The median employee and Mr. Kliethermes receive the same percentage contributions of their respective base salaries to the retirement plans, except that the salary on which Mr. Kliethermes’s contribution is based was capped in 2022 pursuant to the IRS regulation at $305,000. We calculated the median employee’s total compensation for 2022 in the same manner used to calculate Mr. Kliethermes’ total compensation as reflected in the 2022 Summary Compensation Table on page 47. For the median employee, we included base salary, annual incentive payouts (which included a one-time incentive award paid to all employees who were not a NEO related to the Company’s sale of its shares of Maui Jim), and retirement contributions to the employee’s accounts under the Company’s retirement plans. Amounts reflected in Mr. Kliethermes’ total compensation in the form of long-term incentive awards and limited perquisites did not apply to the median employee. | | | | | | | | Ratio of CEO to Median Employee Total Compensation | | | | Median Employee 2022 Total Compensation | | $ | 134,626 | Craig W. Kliethermes 2022 Total Compensation | | $ | 4,846,780 | Ratio of CEO to Median Employee Compensation | | | 36:1 |
RLI Corp. 2023 Proxy Statement | 53 PAY FOR PERFORMANCE The following table sets forth information regarding the Company’s performance and the Compensation Actually Paid (“CAP”) to our NEOs, as calculated in accordance with SEC disclosure rules: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Value of Initial Fixed $100 Investment Based On: | | | | | | Year (1) | | Summary Compensation Table Total for PEO Kliethermes ($)(2) | | Summary Compensation Table Total for PEO Michael ($)(2) | | CAP to PEO Kliethermes ($)(3) | | CAP to PEO Michael ($)(3) | | Average Summary Compensation Table Total for Non-PEO NEOs ($)(3) | | Average CAP to Non-PEO NEOs ($)(2) | | Total Shareholder Return
($) | | Peer Group Total Shareholder Return ($)(5) | | Net Income ($) | | Company Selected Measure (MVP) ($)(6) | | (a) | | (b) | | | | (c) | | | | (d) | | (e) | | (f) | | (g) | | (h) | | (i) | | 2022 | $ | 4,846,780 | $ | N/A | $ | 7,899,333 | $ | N/A | $ | 1,838,301 | $ | 2,918,562 | $ | 163.00 | $ | 148.50 | $ | 580,000,000 | $ | 61,080,000 | | 2021 | $ | N/A | $ | 6,004,410 | $ | N/A | $ | 7,205,891 | $ | 2,704,226 | $ | 3,239,253 | $ | 130.80 | $ | 125.00 | $ | 279,354,000 | $ | 240,593,000 | | 2020 | $ | N/A | $ | 4,712,442 | $ | N/A | $ | 6,413,579 | $ | 1,846,944 | $ | 2,364,844 | $ | 118.10 | $ | 106.30 | $ | 157,091,000 | $ | 128,129,000 | |
| (1) | The Principal Executive Officer (“PEO”) and NEOs for the applicable years were as follows: |
| - | 2022: Mr. Kliethermes served as the PEO for the entirety of 2022. The Company’s other NEOs for 2022 were: Todd W. Bryant, Jennifer L. Klobnak, Aaron P. Diefenthaler, and Jeffrey D. Fick. |
| - | 2021: Mr. Michael served as the PEO for the entirety of 2021. The Company’s other NEOs for 2021 were: Craig W. Kliethermes; Todd W. Bryant; Jennifer L. Klobnak; and Aaron P. Diefenthaler. |
| - | 2020: Mr. Michael served as the PEO for the entirety of 2020. The Company’s other NEOs for 2020 were: Craig W. Kliethermes; Todd W. Bryant; Jennifer L. Klobnak; and Aaron P. Diefenthaler. |
| (2) | Amounts reported in this column represent (i) the total compensation reported in the Summary Compensation Table for the applicable year in which the NEO served as PEO in the case of Messrs. Kliethermes and Michael and (ii) the average of the total compensation reported in the Summary Compensation Table for the applicable year for the Company’s NEOs reported for the applicable year other than the individual serving as PEO during the applicable year. Because Mr. Kliethermes did not serve as PEO during 2021 or 2020, his compensation is included in the average for the Non-PEO NEOs for such years |
| (3) | To calculate Compensation Actually Paid, adjustments were made to the amounts reported in the Summary Compensation Table for the applicable year. A reconciliation of the adjustments for Messrs. Kliethermes and Michael for the period they served as PEO and for the average of the other NEOs is set forth following the footnotes to this table. |
| (4) | Pursuant to rules of the SEC, the comparison assumes $100 was invested on December 31, 2019. Historic stock price performance is not necessarily indicative of future stock price performance. |
| (5) | The TSR Peer Group consists of the Standard & Poor’s 500 P&C Index (the “S&P 500 P&C Index”), an independently prepared index that includes companies in the property and casualty insurance industry. |
| (6) | As noted in “Compensation Discussion and Analysis,” “Market Value Potential” (“MVP”) provides a mechanism with which the HCCC can correlate incentive compensation to long-term shareholder value creation and it is a key metric used in the Company’s incentive programs and is a component of each of our NEO’s compensation. MVP measures the after-tax returns earned by the Company above its cost of capital, as a gauge of shareholder value creation. MVP is defined as (1) the Actual Return (the increase in adjusted GAAP book value), less (2) the Required Return (beginning capital multiplied by the blended cost of capital). To calculate MVP, the increase or decrease in GAAP book value is calculated as ending capital less beginning capital. Ending capital is defined as ending GAAP book value, less unrealized gains or losses net of tax on available-for-sale fixed income investments, plus outstanding long-term debt instruments at the end of the period; and adjusted for capital transactions during the year. Beginning capital is defined as beginning GAAP book value, less unrealized gains or losses net of tax on available-for-sale fixed maturity investments, plus outstanding long-term instruments at the beginning of the period. The Company’s blended cost of capital is defined as the weighted average of the cost of equity capital and the cost of debt capital. |
54 | RLI Corp. 2023 Proxy Statement | | The cost of equity capital is the average ten-year U.S. Treasury Note rate, plus a market risk premium of five percent modified by the Company’s ten-year beta versus the S&P 500 index. The Company’s cost of debt capital is the forward market rate on its outstanding long-term debt. As noted in the “Compensation Discussion and Analysis,” in 2022, the HCCC revised the MVP calculation to provide that the net gain in 2022 from the sale of Maui Jim shares – net of tax; net of transaction costs; and net of one-time transactions bonuses paid to all employees other than the NEOs, a total of $434.4 million - would be excluded from the calculation of the Actual Return (increase in adjusted GAAP book value). |
Reconciliation of CAP Adjustments | | | | | | | | | | | | | | | | | CAP Adjustments | | | | | | | | | | | | | | | | | | | | | | (Minus) | | Plus | | Plus/(Minus) | | Plus | | Plus/(Minus) | | (Minus) | | Equals | | | Summary Compensation Table Total | | Grant Date Fair Value of Stock Option Awards Granted in Fiscal Year | | Fair Value at Fiscal Year-End of Outstanding and Unvested Stock Option and Stock Awards Granted in Fiscal Year | | Change in Fair Value of Outstanding and Unvested Stock Option and Stock Awards Granted in Prior Fiscal Years | | Fair Value at Vesting of Stock Option and Stock Awards Granted in Fiscal Year that Vested During Fiscal Year | | Change in Fair Value as of Vesting Date of Stock Option and Stock Awards Granted in Prior Years for which Applicable Vesting Conditions Were Satisfied During Fiscal Year | | Fair Value as of Prior Fiscal Year-End of Stock Option and Stock Awards Granted in Prior Fiscal Years that Failed to Meet Applicable Vesting Conditions During Fiscal Year | | CAP | Year | | ($)(a) | | ($)(b) | | ($)(c) | | ($)(d) | | ($)(e) | | ($)(f) | | ($)(g) | | ($) | Craig W. Kliethermes(h) | 2022 | $ | 4,846,780 | $ | (1,603,500) | $ | 3,079,526 | $ | 1,439,227 | $ | 0 | $ | 137,300 | $ | 0 | $ | 7,899,333 | Jonathan E. Michael | 2021 | $ | 6,004,410 | $ | (555,346) | $ | 901,682 | $ | 714,328 | $ | 0 | $ | 140,817 | $ | 0 | $ | 7,205,891 | 2020 | $ | 4,712,442 | $ | (525,258) | $ | 951,982 | $ | 1,383,921 | $ | 0 | $ | (109,508) | $ | 0 | $ | 6,413,579 | Average Other NEOs(i) | 2022 | $ | 1,838,301 | $ | (564,150) | $ | $ 1,060,797 | $ | 533,977 | $ | 0 | $ | 49,636 | $ | 0 | $ | 2,918,562 | 2021 | $ | 2,704,226 | $ | (279,908) | $ | $ 383,201 | $ | 298,130 | $ | 0 | $ | 133,604 | $ | 0 | $ | 3,239,253 | 2020 | $ | 1,846,944 | $ | (284,919) | $ | $ 520,199 | $ | 519,221 | $ | 0 | $ | (236,601) | $ | 0 | $ | 2,364,844 |
| (a) | Represents Total Compensation as reported in the Summary Compensation Table for the indicated fiscal year. With respect to the Average Other NEOs, amounts shown represent averages. |
| (b) | Represents the grant date fair value of the stock option awards granted during the indicated fiscal year, computed in accordance with the methodology used for financial reporting purposes. |
| (c) | Represents the fair value as of the indicated fiscal year-end of the outstanding and unvested stock option awards granted during such fiscal year, computed in accordance with the methodology used for financial reporting purposes. |
| (d) | Represents the change in fair value during the indicated fiscal year of the outstanding and unvested stock option and stock awards held by the applicable NEO as of the last day of the indicated fiscal year, computed in accordance with the methodology used for financial reporting purposes including the value associated with any dividend accruals. |
| (e) | Represents the fair value at vesting of the stock option awards that were granted and vested during the indicated fiscal year, computed in accordance with the methodology used for financial reporting purposes. |
| (f) | Represents the change in fair value, measured from the prior fiscal year-end to the vesting date, of each stock option and stock award that was granted in a prior fiscal year and which vested during the indicated fiscal year, computed in accordance with the methodology used for financial reporting purposes, including the value associated with any dividend accruals. |
| (g) | Represents the fair value as of the last day of the prior fiscal year of the stock option and stock awards that were granted in a prior fiscal year and which failed to meet the applicable vesting conditions in the indicated fiscal year, computed in accordance with the methodology used for financial reporting purposes. |
| (h) | For 2021 and 2020, the compensation of Mr. Kliethermes, the Company’s current Chief Executive Officer, is reported in the Average Other NEOs section of this table as Mr. Kliethermes was not the PEO for any portion of those years. |
| (i) | See footnote 1 above for the NEOs included in the average for each year. |
RLI Corp. 2023 Proxy Statement | 55 Relationship Between Pay and Performance We believe the “Compensation Actually Paid” in each of the years reported above and over the three-year cumulative period are reflective of the Human Capital & Compensation Committee’s emphasis on “pay-for-performance” as the “Compensation Actually Paid” fluctuated year-over-year, primarily due to the result of our stock performance and our varying levels of achievement against pre-established performance goals under our incentive programs. The relationship between compensation paid and the pay of our NEOs is further described below: | ● | Relationship Between Compensation Paid to the PEO and Average Other NEOs and the Company’s Cumulative TSR – As calculated in accordance with the SEC disclosure rules, the Compensation Actually Paid to our PEO was $6,413,489 for 2020, primarily driven by our MVP and stock price performance. During 2020, the Company’s TSR, measured assuming a $100 investment in the Company’s stock, increased by over 18.1% to $118.10. Since December 31, 2020, our TSR, measured assuming a $100 investment in the Company’s common stock as of December 31, 2019, increased to $163.00 as of December 31, 2022 and, similarly, the “Compensation Actually Paid” to the PEO increased to $7,899,333 as of December 31, 2022, driven by the increase in our stock price as well as our MVP performance. While our PEO’s “Compensation Actually Paid” was most significantly impacted by our TSR performance given the significant portion of compensation delivered through stock options, the average “Compensation Actually Paid” for our other NEOs was also similarly impacted by our TSR performance, with the average “Compensation Actually Paid” for 2020 equal to $2,364,844 and increasing to $2,918,561 as of December 31, 2022. |
| ● | Relationship Between Compensation Paid to the PEO and Average Other NEOs and the Company’s Net Income – As required by SEC disclosure rules, we are presenting the relationship between net income and the Compensation Actually Paid to our NEOs. Net income is not a component of our executive compensation program. Although our executive compensation program is not dependent on our net income performance, over the three-year period from 2020 to 2022, our net income increased by approximately 269% while our Compensation Actually Paid for the PEO position and the average of our NEOs increased by approximately 20% and 23%, respectively. |
| ● | Relationship Between Compensation Paid to the PEO and Average Other NEOs and MVP – As noted above, the Company-Selected Measure is MVP. MVP measures the after-tax returns earned by the Company above its cost of capital, as a gauge of shareholder value creation. While MVP represents a significant component of our executive compensation program, the Compensation Actually Paid is also impacted by our stock price as equity awards represent a significant component of the Company’s executive compensation program. In particular, the equity awards granted to the NEOs in 2022 increased as compared to the equity awards granted in prior years, resulting in an increase in the 2022 Compensation Actually Paid as compared to prior years, which was also compounded by the increase in our stock price over the course of 2022. The Compensation Actually Paid for the PEO and the average of the other NEOs was $6,413,489 and $2,364,844, respectively, in 2020, while MVP was $128,129,000. In 2021, the Compensation Actually Paid to the PEO and the average for the other NEOs was $7,205,891 and $3,239,253, respectively, while MVP increased to $240,593,000 for 2021. For 2022, the MVP declined to $61,080,000, although the Compensation Actually Paid for the PEO and the average for the other NEOs was $7,899,333 and $2,918,561, respectively, which was driven, in part, by the equity awards granted in 2022, the appreciation in the value of the Company’s stock price over the course of 2022 and distributions of banked amounts for prior years’ performance under the Company’s incentive programs, as further described in the “Compensation Discussion and Analysis.” In addition, as described in the “Compensation Discussion and Analysis,” the 2022 MVP was impacted by the HCCC’s election to exclude the net gain from the sale of the Company’s interest in Maui Jim from the MVP calculation. In connection with the transaction, we recognized a net realized gain of $574.7 million. The RLI Corp. Annual Incentive Compensation Plan provides the HCCC authority to adjust annual performance goals or performance results to exclude the effects of an extraordinary, unusual or nonrecurring event; discontinued operations; or a divestiture, among other events. In 2022 the HCCC revised the MVP calculation to provide that the net gain in 2022 from the sale of Maui Jim shares – net of tax; net of transaction costs; and net of one-time transactions bonuses paid to all employees other than the NEOs, a total of $434.4 million - would be excluded from the calculation of the Actual Return (increase in adjusted GAAP book value), which in turn is used to calculate MVP. The HCCC made this determination on the basis of a number of factors including: the guiding principles of RLI executive compensation discussed at page 40; the unique one-time nature of the transaction; market precedent for the treatment on gains by other companies from a one-time sale or divestiture transaction; the longstanding nature of the Company’s investment in Maui Jim; RLI’s contractual obligation to sell its Maui Jim shares pursuant to a Shareholder’s Agreement with the majority owner of Maui Jim; and the minority interest held by RLI and resulting lack of direct control over Maui Jim’s business by RLI, among other factors. The election to exclude the net gain from the sale had the impact of reducing the MVP calculation for the year. |
56 | RLI Corp. 2023 Proxy Statement | ● | Relationship Between Company TSR and Peer Group TSR –As noted in the table above, during 2020 - 2022, our TSR outperformed the TSR of our Peer Group. Assuming a $100 investment on December 31, 2019, (i) for the period ending December 31, 2020, our TSR increased to $118.10 compared to our Peer Group’s TSR of $106.30, (ii) for the period ending December 31, 2021, our TSR increased to $130.80 compared to our Peer Group’s TSR of $125.00, and (iii) for the period ending December 31, 2022, our TSR increased to $163.00 compared to our Peer Group’s TSR of $148.50. |
Performance Measures Used to Link Company Performance and Compensation Actually Paid to the NEOs The following is a list of financial performance measures, which in our assessment represent the most important financial performance measures used by the Company to link Compensation Actually Paid to the NEOs for 2022. In addition to the metrics noted below, the Company’s MIP and MVP Program also incorporates annual objectives relating to customer experience, innovation and strategic fit, product adjacencies, cultural adaptability, people, technology alignment and financial and growth goals. Please see the “Compensation Discussion and Analysis” for a further description of the metrics used in the Company’s executive compensation programs, including “Market Value Potential Executive Incentive Program (MVP Program) – General”, “Market Value Potential Executive Incentive Program (MVP Program) – Annual Incentive Compensation Component”, “Management Incentive Program (MIP)”, Underwriting Profit-Sharing Program (UPP) – Annual Incentive Compensation Component”, “Market Value Potential Executive Incentive Program (MVP Program) – Long-Term Incentive Compensation Component and Forfeiture Provision (Clawback)”, and “Underwriter Profit-Sharing Program – Long-Term Incentive Compensation Component” on pages 39-44. | ● | Market Value Potential (applicable to all NEOs) |
| ● | Operating Return on Equity (applicable to Messrs. Diefenthaler and Fick) |
| ● | Combined Ratio (applicable to Messrs. Diefenthaler and Fick) |
| ● | Five-Year Growth in Book Value: Rank Among Peer Companies (applicable to Messrs. Kliethermes and Bryant, and Ms. Klobnak) |
| ● | Underwriting Profit (applicable to Mr. Diefenthaler) |
| ● | Stock Price (applicable to all NEOs through the use of stock options) |
SAFEGUARDS AGAINST UNNECESSARY OR EXCESSIVE COMPENSATION RISK Management of the Company, including leaders in legal and human resources, undertook analysis of the Company’s long-standing compensation structure considering the Company’s compensation policies and practices with respect to the NEOs, as well as the other employees of the Company, to determine whether incentives arising from compensation policies or practices relating to any of the Company’s employees would be reasonably likely to have a material adverse effect on the Company. Based on the analysis and discussions, the HCCC and management concluded that the Company’s compensation policies and practices do not create risks reasonably likely to have a material adverse effect on the Company, and again confirmed that the mix of compensation types and time frames tend to align risk-taking with appropriate medium and long-term rewards for the Company. The following is a discussion of how the Company’s compensation policies and practices for its employees will affect risk management practices and risk-taking incentives. The Company is in the business of insurance and therefore takes on the risk of others in return for appropriate premiums. The Company is therefore particularly sensitive to matching the annual incentives it pays to its employees with the long-term risk and value created by the insurance business it writes. The following discussion is broken into four areas: (1) Senior Management Compensation; (2) Underwriting Compensation; (3) Investment Practices; and (4) Employee and Executive Equity Ownership. SENIOR MANAGEMENT COMPENSATION In 2022, the Company’s President & CEO, COO, and CFO participated in the MVP Program, an incentive program described in further detail on page 39. The MVP Program balances risk and opportunity by incorporating a risk-based cost of capital target. The MVP Program contains three features which adjust, for longer-term considerations, the annual measure of shareholder value creation used to determine incentive awards. The first is a banking feature that deposits the financial component of MVP-based incentive awards (which may be positive or negative) into a “bonus bank,” paying out 33 percent of the bonus bank’s balance annually. A bonus bank balance is at risk based on future performance — future positive MVP will increase the bonus bank and payouts, while negative MVP will decrease the bank and payouts. By exposing the bonus bank balance to future performance, the MVP Program provides an incentive to sustain long-term shareholder value creation. RLI Corp. 2023 Proxy Statement | 57 The second is a Peer Company adjustment factor applicable to the financial component of an MVP Program award that rates the relative performance of the Company to that of the peer group with respect to growth in comprehensive earnings over a five-year period. The third is Board discretion to reduce awards resulting from excessively risky actions by management, or for other subjective or objective criteria. Additionally, the MVP Program includes a Board approval mechanism, which requires the prior approval of the Independent Directors of the Board of the financial portion of any annual award (positive or negative) contributed to an MVP bonus bank that exceeds 300 percent of a participant’s base salary. This Board approval limit gives the Board the ability to reduce an award if the Board determines that MVP did not correspondingly increase shareholder value. The HCCC believes that the risk-based cost of capital target, long-term banking feature, Peer Company adjustment factor for five-year growth in book value and Board discretion to reduce incentive awards significantly reduce the likelihood that senior management will take high-risk actions solely to improve short-term financial results to the detriment of long-term performance. UNDERWRITING COMPENSATION Underwriters are paid annual incentives under one of two annual incentive programs, the Underwriter Profit Program (“UPP”) or the Underwriting Incentive Plan (“UIP”). Participants in UPP, product group executives with oversight responsibility for respective product group underwriting, earn an annual incentive equal to a percentage of underwriting profit created. All other underwriters at the Company participate in UIP. UIP provides incentives based on specific performance factors such as individual and product group loss ratio, underwriting profit, combined ratio, Gross Premiums Written, and new business generation. To calculate underwriting profit under UPP, actual and estimated losses are subtracted from premiums to ensure that the annual incentives based on underwriting profit reflect losses that occur over several years. For most products, actual and estimated losses are measured over a four to eight-year period. Over that four to eight-year period, only a partial incentive award is paid each year until all losses develop and a final underwriting profit figure can be determined for the applicable underwriting year. For earthquake and hurricane insurance, modeled expected losses are used to calculate underwriting profit for incentive purposes since losses are typically experienced over a significantly longer period of time. The HCCC believes that by subjecting premiums to risk of actual and estimated losses, the Company’s underwriting incentive plans, UPP and UIP, ensure that the income and risk to the Company from underwriting results are closely aligned with the incentives paid to underwriters. In this manner, UPP and UIP are designed to ensure that underwriters are not given an incentive to produce short-term underwriting results without regard to the long-term income and risk consequences of their underwriting. INVESTMENT PRACTICES The HCCC believes that the following controls protect the Company against the Company taking excessive and unnecessary risk to maximize short-term investment results: | ● | The Company's investment portfolio is managed pursuant to the oversight of the Finance & Investment Committee of the Board; |
| ● | The Finance & Investment Committee has established an Investment Policy Statement setting forth detailed investment objectives, benchmarks, constraints, and operating policies for the portfolio; |
| ● | All security transactions are confirmed by three Company officers; and |
| ● | All investment actions must comply with state insurance regulatory provisions related to the investments in the portfolio. |
EMPLOYEE AND EXECUTIVE EQUITY OWNERSHIP Finally, the Company has a long-standing employee ownership culture, reflected by its ESOP implemented in 1975. The ownership culture creates strong alignment between the interests of employees and shareholders to foster a long-term shareholder value creation perspective. To further support the employee ownership culture, the HCCC has designed the executive compensation program to provide equity-based long-term incentives and has implemented a stock ownership guideline requiring significant levels of stock ownership for key executives, described in detail at page 46. The HCCC believes that significant stock holdings by employees and executives provide a strong incentive to grow long-term shareholder value and to avoid actions that increase short-term results in a manner that prevents excessive and unnecessary risk to long-term results. 58 | RLI Corp. 2023 Proxy Statement EQUITY COMPENSATION PLAN INFORMATION The following table provides information as of December 31, 2022, regarding Common Stock that may be issued under the Company’s equity compensation plans, including the Director Deferred Plan, the Deferred Plan, the 2010 LTIP, and the 2015 LTIP. As of December 31, 2022, the Company had 45,469,752 shares of Common Stock outstanding. Information is included for both equity compensation plans approved and not approved by the Company’s shareholders. | | | | | | | | | | | | | | | | | | | | | | | | | Number of securities | | | | Number of securities | | | | | remaining available for | | | | to be issued upon exercise | | Weighted-average exercise | | future issuance under equity | | | | of outstanding options, | | price of outstanding options | | compensation plans (excluding | | Plan Category | | warrants and rights | | warrants and rights | | securities reflected in column (a)) | | | | (a) | | (b) | | (c) | | Equity compensation plans | | | | | | | | | approved by shareholders (1) | | 1,739,868 | (2) | | 82.42 | (3) | 784,121 | (4) | | | | | | | | | | Equity compensation plans not | | | | | | | | | approved by shareholders (5) | | — | | | — | | — | (6) | | | | | | | | | | Total | | 1,739,868 | | $ | 82.42 | | 784,121 | |
| (1) | Consists of the 2010 LTIP and 2015 LTIP. |
| (2) | Includes 3,000 options to purchase shares exercisable under the 2010 LTIP, 1,692,660 options to purchase shares exercisable under the 2015 LTIP and 44,208 restricted share units (“RSU”) which will be issued upon vesting in May 2023 through May 2025 under the 2015 LTIP. |
| (3) | Only applies to outstanding options, as RSU’s do not have exercise prices. |
| (4) | Shares available for future issuance under the 2015 LTIP. Pursuant to the terms of the 2015 LTIP and for purposes of calculating the number of securities remaining available for future issuance under equity compensation plans, each RSU is a Full Value Award and therefore is counted as 2.5 shares. |
| (5) | Consists of the Director Deferred Plan and the Deferred Plan. |
| (6) | No specific number of shares of the Company’s Common Stock are reserved for future issuance under these plans. Under the Company’s Director Deferred Plan and Deferred Plan, executive officers and Directors may elect to defer compensation otherwise payable to them. Under the Director Deferred Plan and Deferred Plan, the Company must transfer to a bank trustee, under an irrevocable trust established by the Company, such number of shares of Common Stock as are equal to the compensation earned and deferred. |
PROPOSAL THREE: APPROVE AMENDMENT TO THE COMPANY’S CERTIFICATE OF INCORPORATION TO INCLUDE THE EXCULPATION OF OFFICERS The Delaware General Corporation Law (the “DGCL”) was recently amended to permit Delaware companies to exculpate their officers, in addition to their directors, for personal liability in certain actions. After careful consideration, the Board approved an amendment and restatement of our Amended and Restated Certificate of Incorporation (the "Charter") to include the exculpation of officers pursuant to these recent amendments to the DGCL, subject to the approval of our shareholders. As amended, the DGCL only permits, and our proposed amendment would only permit, exculpation of officers for claims that do not involve breaches of the duty of loyalty, acts or omissions not in good faith or that involve intentional misconduct or a knowing violation of law, or any transaction in which the officer derived an improper personal benefit. In addition, the exculpation of officers would not apply to claims brought by or in the right of the Company, such as derivative claims. If the proposed amendment is adopted, the types of claims that would be barred against certain senior officers are a subset of those claims that are already barred against directors under our Charter, as permitted by Delaware law. RLI Corp. 2023 Proxy Statement | 59 Officers, like directors, are exposed to a substantial risk of lawsuits or proceedings seeking to impose personal monetary liability. Officer exculpation is intended to enable our officers to exercise their business judgment in furtherance of the interests of our shareholders while minimizing the potential for distraction posed by frivolous lawsuits and costs which are often borne by the Company either directly, through indemnification, or indirectly through higher insurance premiums. Without officer exculpation, the potential for such frivolous claims may impede the Corporation’s ability to attract and retain quality executives to work on its behalf, present barriers to the Corporation’s ability to accomplish its business objectives due to the diversion of management attention and result in a waste of corporate resources. The Board believes that eliminating personal monetary liability for officers under the circumstances permitted by the DGCL is reasonable and appropriate. This limitation provides the proper balance between shareholders’ interest in accountability and their interest in limiting the assertion of potentially frivolous claims for negligence. We expect that many of our peers incorporated in Delaware, with whom we compete for executive talent, will adopt exculpation clauses that limit the personal liability of officers in their Certificates of Incorporation. Although the amendment is not being proposed in response to any specific resignation, threat of resignation or refusal to serve by any officer, we believe a failure to adopt the proposed amendment could impact our recruitment and retention of exceptional officer candidates who may conclude that, without the protection of exculpation, the potential exposure to liabilities, costs of defense and other risks of proceedings exceeds the benefits of serving as an officer of the Corporation. Taking into account the limits on the type of claims for which officers’ liability would be exculpated, and the benefits the Board believes would accrue to the Company and its shareholders, the Board determined that it is in the best interests of the Company and our shareholders to amend the Charter as described herein. The proposed amendments to Article Sixth of the Charter are as follows, with added text underlined. SIXTH: The personal liability of the directors and officers of the Corporation, to the Corporation or its stockholders for monetary damages for breach of his or her fiduciary duty as director or officer, is hereby eliminated to the fullest extent permitted by the DGCL, as the same may be amended and supplemented. Any amendment, repeal, or modification of this Article Sixth, or the adoption of any provision of the Amended and Restated Certificate of Incorporation inconsistent with this Article Sixth, shall not adversely affect any right or protection of a director or officer of the Corporation existing immediately prior to such amendment, repeal or modification. If the DGCL is amended after approval by the stockholders of this Article Sixth to authorize corporate action further eliminating or limiting the personal liability of directors or officers, then the liability of a director or officer of the Corporation shall be eliminated or limited to the fullest extent permitted by the DGCL as so amended. For purposes of this Article Sixth, “officer” shall have the meaning provided in Section 102(b)(7) of the DGCL, as it presently exists or may hereafter be amended from time to time. The full text of the proposed Amended and Restated Certificate of Incorporation is included in Exhibit A to this Proxy Statement. The affirmative vote of the holders of a majority of the outstanding shares of common stock is required to authorize the proposed amendment to the Charter. If this proposal to amend our Charter is approved by our shareholders, the resulting Amended and Restated Certificate of Incorporation for the Company will be filed with the Secretary of State of the State of Delaware shortly after the Annual Meeting. If this proposal to amend our Charter is not adopted and approved, the current Charter will remain unchanged. The Board of Directors unanimously recommends that the shareholders vote “FOR” the Amendment of the Certificate of Incorporation to Include the Exculpation of Officers as Permitted by Delaware Law. 60 | RLI Corp. 2023 Proxy Statement PROPOSAL FOUR: APPROVAL OF THE RLI CORP. 2023 LONG-TERM INCENTIVE PLAN On February 9, 2023, the Board approved the RLI Corp. 2023 Long-Term Incentive Plan (the “2023 LTIP”), subject to approval by our shareholders. The 2023 LTIP will replace the RLI Corp. 2015 Long-Term Incentive Plan (the “2015 LTIP”). If the 2023 LTIP is approved, no awards will be granted under the 2015 LTIP after the 2023 LTIP becomes effective. As of March 6, 2023, there were 754,121 shares of common stock that remained available for future issuance under the 2015 LTIP. Any shares reserved under the 2015 LTIP that have been unused at the time our shareholders approve the 2023 LTIP will cease to be available for future grants under the 2015 LTIP, and instead will be added to the 3,250,000 new shares reserved for future grant under the 2023 LTIP. If the 2023 LTIP is approved by shareholders, we will continue to be able to make awards of long-term equity incentives, which we believe are critical for attracting, motivating, rewarding and retaining a talented team who will contribute to our success. If the 2023 LTIP is not adopted by our shareholders, the Company will continue to operate the 2015 LTIP pursuant to its current provisions and we may be required to increase the cash component of our compensation mix which would inhibit our ability to align our executives’ interests with the interests of our shareholders, to recruit and retain new executives, key employees and non-employee directors, and motivate our current executives and key employees over a long-term horizon. EQUITY GRANT PRACTICES As of March 6, 2023, there were approximately 45,808 full value awards (that is, awards other than stock options and stock appreciation rights) and approximately 1,582,026 stock options outstanding under the 2015 LTIP. As of that date, the weighted average exercise price of our outstanding stock options was $85.62, and the weighted average remaining contractual term for the outstanding stock options was 4.90 years. As noted above, as of March 6, 2023, 754,121 shares of common stock remained available for issuance under the 2015 LTIP. Dilution Annual dilution from our equity compensation program is measured as the total number of shares subject to equity awards granted in a given year, less cancellations and other shares returned to the reserve that year, divided by total shares outstanding at the end of the year. Annual dilution from our equity compensation program for fiscal year 2022 was 0.86%. Overhang is another measure of the dilutive impact of equity programs. Our overhang is equal to the number of shares subject to outstanding equity compensation awards plus the number of shares available to be granted, divided by the total number of outstanding shares. As of March 6, 2023, our overhang was 1.66%. As of March 6, 2023, the 3,250,000 additional shares being requested under the 2023 LTIP, together with the shares remaining available as of March 6, 2023 under the 2015 LTIP, would bring our aggregate overhang to approximately 8.84%. Overhang percentages are based on 45,551,955 shares of common stock outstanding as of March 6, 2023. Burn Rate Burn rate is a measure of the number of shares subject to equity awards that we grant annually, which helps indicate the life expectancy of our equity plans and is another measure of shareholder dilution. We determine our value-adjusted burn rate by calculating the number of shares granted each year divided by shares outstanding. The Company’s burn rate for the past three calendar years has been as follows: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Year | | Options Granted | | | Restricted Stock Units Granted | | | Options + Restricted Stock Units Granted | | | Weighted Average Number of Ordinary Shares Outstanding | | | Burn Rate | | | | | | | | | | | | | | | | 2022 | | | 346,100 | | | | 48,171 | | | | 394,271 | | | | 45,268,369 | | | 1.03% | 2021 | | | 239,775 | | | | 41,950 | | | | 281,725 | | | | 45,090,139 | | | 0.76% | 2020 | | | 336,600 | | | | 46,075 | | | | 382,675 | | | | 44,852,664 | | | 1.01% |
Our three-year average Burn Rate is 0.93%. CERTAIN FEATURES OF THE 2023 LTIP The following features of the 2023 LTIP are designed to reinforce alignment between the equity compensation arrangements awarded pursuant to the 2023 LTIP and our shareholders’ interests: | ● | Awards will be subject to a one-year minimum vesting period, other than awards with respect to up to 5% of the total number of shares initially available for awards under the 2023 Plan and subject to the Plan Committee’s (as |
RLI Corp. 2023 Proxy Statement | 61 | | defined below) ability to provide for accelerated exercisability or vesting of any award, including in cases of “Retirement” (as defined in the 2023 LTIP), death, “Disability” (as defined in the 2023 LTIP) or a change in control, in the terms of the Award Agreement or otherwise; |
| ● | No discounting of the exercise price or base price of stock options or stock appreciation rights; |
| ● | No repricing or replacement of underwater stock options or stock appreciation rights without shareholder approvalother than in connection with a change in control or pursuant to the plan’s adjustment provisions, such as in connection with a recapitalization, stock split, stock dividend, or extraordinary dividend.; |
| ● | No dividend equivalents on stock options or stock appreciation rights; |
| ● | Any dividends or dividend equivalents accrued on unvested awards are subject to the same vesting conditions as the underlying awards; |
| ● | Prohibition of the recycling of shares used to pay the exercise price or taxes with respect to options and stock appreciation rights; |
| ● | Annual non-employee director compensation limit, which cannot be amended without shareholder approval; and |
| ● | No liberal definition of “change in control”. |
PURPOSES OF THE 2023 LTIP Equity-based compensation is a significant component of our compensation program and the 2023 LTIP is intended to serve the following purposes: | ● | Align the interests of the Company’s shareholders and recipients of awards under the 2023 LTIP by increasing the proprietary interest of such recipients in the Company’s growth and success; |
| ● | Advance the interests of the Company by attracting and retaining officers, other employees, non-employee directors, consultants, independent contractors and agents; and |
| ● | Motivate such persons to act in the long-term best interests of the Company and its shareholders. |
Under the 2023 LTIP, the Company may grant: | ● | Non-qualified stock options; |
| ● | Incentive stock options (within the meaning of Section 422 of the Internal Revenue Code); |
| ● | Stock appreciation rights (“SARs”); |
| ● | Restricted stock, restricted stock units and other stock awards (collectively “Stock Awards”); and |
DESCRIPTION OF THE 2023 LTIP The following description is qualified in its entirety by reference to the plan document, a copy of which is attached as Appendix B and incorporated into this Proxy Statement by reference. Administration The 2023 LTIP will be administered by the Human Capital & Compensation Committee of the Board, or a subcommittee thereof, or such other committee designated by the Board (the “Plan Committee”), in each case consisting of two or more members of the Board. Each member of the Plan Committee is intended to be (i) a “non-employee director” within the meaning of Rule 16b-3 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and (ii) “independent” within the meaning of the rules of NYSE. Subject to the express provisions of the 2023 LTIP, the Plan Committee has the authority to select eligible persons to receive awards and determine all of the terms and conditions of each award. All awards are evidenced by an agreement containing such provisions not inconsistent with the 2023 LTIP as the Plan Committee approves. The Plan Committee also has authority to establish rules and regulations for administering the 2023 LTIP and to decide questions of interpretation or application of any provision of the 2023 LTIP. The Plan Committee may take any action such that (1) any outstanding options and SARs become exercisable in part or in full, (2) all or any portion of a restriction period on any outstanding awards lapse, (3) all or a portion of any performance period applicable to any outstanding awards lapse, and (4) any performance measures applicable to any outstanding award be deemed satisfied at the target, maximum or any other level. The Plan Committee may delegate some or all of its power and authority under the 2023 LTIP to the Board, a subcommittee of the Board, a member of the Board, the President and the Chief Executive Officer or any other executive officer of the Company as the Plan Committee deems appropriate, except that it may not delegate its power and authority to a member of the Board, the President and the Chief Executive Officer or any other executive officer with regard to awards to persons subject to Section 16 of the Exchange Act. 62 | RLI Corp. 2023 Proxy Statement Available Shares Under the 2023 LTIP, the number of shares of common stock initially available for all awards, other than substitute awards granted in connection with a corporate transaction, will be equal to the sum of (i) 3,250,000 shares of Common Stock and (ii) the number of shares of common stock that remain available for issuance under the 2015 LTIP as of the effective date of the 2023 Plan, all of which may be delivered as incentive stock options. This amount is subject to adjustment in the event of any equity restructuring that causes the per share value of shares of common stock to change, such as a stock dividend, stock split, spinoff, rights offering or recapitalization through an extraordinary cash dividend. The number of available shares will be reduced by the sum of 1.0 times the number of shares of common stock that become subject to outstanding options or SARs and 2.5 times the number of shares of common stock that become subject to a Stock Award or a performance award. The number of shares of common stock subject to a performance award will be deemed to be the maximum number of shares that could be received under such performance award. On the record date of March 6, 2023, the closing sales price per share of our common stock as reported on NYSE was $137.62. At the time 2023 LTIP becomes effective, none of the shares of common stock available for future grant under the 2015 LTIP will be available for grant under the 2015 LTIP. To the extent that shares of common stock subject to an outstanding award granted under the 2023 LTIP or the 2015 LTIP are not issued or delivered by reason of (i) the expiration, termination, cancellation or forfeiture of such award (excluding shares of common stock subject to an option canceled upon settlement of a related tandem SAR or subject to a tandem SAR cancelled upon exercise of a related option) or (ii) the settlement of such award in cash, then such shares of common stock will again be available under the 2023 LTIP; provided that shares of common stock subject to an award granted under the 2023 LTIP or the 2015 LTIP will not again be available for issuance under the 2023 LTIP if the shares are (x) shares that were subject to an option or a stock-settled SAR and were not issued or delivered upon the net settlement or net exercise of such option or SAR, (y) shares delivered to or withheld by the Company to pay the withholding taxes payable with respect to such award, or (z) shares repurchased by the Company on the open market with the proceeds of an option exercise. The number of shares of common stock that again become available will be equal to one share of common stock for each share of common stock subject to an option or SAR and (ii) 2.5 shares of common stock for each share of common stock subject to a Stock Award or performance Award. Change In Control Unless otherwise provided in an award agreement, in the event of a change in control of the Company, the Board (as constituted prior to such change in control) may, in its discretion, require that (i) some or all outstanding options and SARs will become exercisable in full or in part, either immediately or upon a subsequent termination of employment, (ii) the restriction period applicable to some or all outstanding Stock Awards will lapse in full or in part, either immediately or upon a subsequent termination of employment, (iii) the performance period applicable to some or all outstanding awards will lapse in full or in part, and (iv) the performance measures applicable to some or all outstanding awards will be deemed satisfied at the target, maximum or any other level. In addition, in the event of a change in control, the Board may, in its discretion, require that shares of capital stock of the company resulting from or succeeding to the business of the Company pursuant to such change in control, or the parent thereof, be substituted for some or all of the shares of Company common stock subject to outstanding awards as determined by the Board, and/or require outstanding awards, in whole or in part, and whether vested or unvested, to be surrendered to the Company in exchange for a payment of cash, other property, shares of capital stock in the company resulting from the change in control, or the parent thereof, or a combination of cash and shares, in each case having a value equal to the surrendered award. For the avoidance of doubt, except as explicitly authorized by an award agreement or the change in control provision of the 2023 LTIP or with the consent of the participant, the Board may not terminate or cancel any equity awards (whether vested or unvested) in connection with a Change in Control. Under the terms of the 2023 LTIP, a change in control is generally defined as (i) certain acquisitions of 30% or more of the Company’s voting power; (ii) the consummation of certain mergers, consolidations, reorganizations, statutory share exchanges, exchange offers or similar transactions involving the Company in which either (a) Company shareholders immediately prior to the transaction would not, immediately after the transaction, as a result of their ownership of voting stock of the Company immediately prior to the transaction (x) hold shares sufficient to elect a majority of the members of the board of directors of the resulting entity and (y) hold shares of the resulting entity in substantially the same proportion as their ownership of the voting stock of the Company immediately prior to the transaction, or (b) directors of the Company immediately prior to the transaction would not, immediately after the transaction, constitute a majority of the directors of the resulting entity, (iii) the sale or disposition of all or substantially all of the Company’s assets to a person other than an affiliate, or (iv) the number of directors of the Company who were not elected or nominated by the Board or its nominating/governance committee constitute a majority of directors of the Company. The Plan Committee has authority to determine whether a change in control of the Company has occurred, and the date of the occurrence of such change in control and any incidental matters relating thereto. RLI Corp. 2023 Proxy Statement | 63 No Repricing The Plan Committee may not, without the approval of shareholders, (i) reduce the purchase price or base price of any previously granted stock option or SAR, (ii) cancel any previously granted stock option or SAR in exchange for another stock option or SAR with a lower purchase price or base price or (iii) cancel any previously granted stock option or SAR in exchange for cash or another award if the purchase price of such stock option or the base price of such SAR exceeds the fair market value of a share of common stock on the date of such cancellation, in each case, other than in connection with a change in control or pursuant to the plan’s adjustment provisions, such as in connection with a recapitalization, stock split, stock dividend, or extraordinary dividend. Clawback Of Awards The awards granted under the 2023 LTIP and any cash payment or shares of common stock delivered pursuant to an award are subject to forfeiture, recovery by the Company or other action pursuant to the applicable award agreement or any clawback or recoupment policy which the Company may adopt from time to time, including any such policy which the Company may be required to adopt under the Dodd-Frank Wall Street Reform and Consumer Protection Act and implementing rules and regulations thereunder, or as otherwise required by law. Effective Date, Termination And Amendment The 2023 LTIP will become effective as of the date of approval by the Company’s shareholders and will terminate as of the first annual meeting of the Company’s shareholders to occur on or after the tenth anniversary of such shareholder approval, unless earlier terminated by the Board. The Board may amend the 2023 LTIP at any time, subject to any requirement of shareholder approval required by applicable law, rule or regulation, including any rule of NYSE, and provided that no amendment may be made that seeks to modify the non-employee director compensation limit or the prohibition on repricing of stock options and SARs without shareholder approval under the 2023 LTIP and no amendment may materially impair the rights of a holder of an outstanding award without the consent of such holder. Eligibility Participants in the 2023 LTIP will consist of such officers, other employees, non-employee directors, consultants, independent contractors and agents of the Company and its subsidiaries (and such persons who are expected to become any of the foregoing) as selected by the Plan Committee. As of March 6, 2023, 996 employees and nine non-employee directors would be eligible to participate in the 2023 LTIP. Non-Employee Director Compensation Limit Under the terms of the 2023 LTIP, the aggregate value of cash compensation and the grant date fair value of shares of common stock that may be awarded or granted during any fiscal year of the Company to any non-employee director will not exceed $600,000. Minimum Vesting Conditions No awards granted under the 2023 LTIP will become exercisable or vested prior to the one-year anniversary of the date of grant; provided, however, that, such restriction will not apply to awards granted under the 2023 LTIP with respect to the number of shares of common stock that, in the aggregate, does not exceed five percent (5%) of the total number of shares initially available for awards under 2023 LTIP. The foregoing restriction does not apply to the Plan Committee’s right to accelerate or continue the vesting or exercisability of an award upon or after a change in control or termination of employment or otherwise pursuant to the administrative provisions under the 2023 LTIP. Stock Options And SARS The 2023 LTIP provides for the grant of stock options and SARs. The Plan Committee will determine the conditions to the exercisability of each option and SAR. Each option will be exercisable for no more than ten (10) years after its date of grant, as determined by the Plan Committee. If the option is an incentive stock option and the optionee owns greater than ten percent (10%) of the voting power of all shares of capital stock of the Company (a “ten percent holder”), then the option will be exercisable for no more than five years after its date of grant. Except in the case of substitute awards granted in connection with a corporate transaction, the exercise price of an option will not be less than 100% of the fair market value of a share of common stock on the date of grant, unless the option is an incentive stock option and the optionee is a ten percent holder, in which case the exercise price will be the price required by the Internal Revenue Code. 64 | RLI Corp. 2023 Proxy Statement Each SAR will be exercisable for no more than ten (10) years after its date of grant, as determined by the Plan Committee. Other than in the case of substitute awards granted in connection with a corporate transaction, the base price of a SAR will not be less than 100% of the fair market value of a share of common stock on the date of grant, provided that the base price of a SAR granted in tandem with an option (a “tandem SAR”) will be the exercise price of the related option. A SAR entitles the holder to receive upon exercise (subject to withholding taxes) shares of common stock (which may be restricted stock) or, to the extent set forth in the award agreement, cash or a combination thereof, with an aggregate value equal to the difference between the fair market value of the shares of common stock on the exercise date and the base price of the SAR. All of the terms relating to the exercise, cancellation or other disposition of stock options and SARs (i) upon a termination of employment of a participant, whether by reason of Disability, Retirement, death or any other reason, or (ii) during a paid or unpaid leave of absence, are determined by the Plan Committee; provided that, unless otherwise determined by the Plan Committee and set forth in the award agreement relating to the stock option or SAR, the following terms will apply: | ● | Death. Upon a termination of employment with or service to the Company by reason of death, then any option or SAR that has not expired or been terminated will becomefully vested and exercisable in full and may be exercised by the participant’s beneficiary at any time, or from time to time, within one year after the date of the participant’s death; |
| ● | Disability. Upon a termination of employment with or service to the Company by reason of Disability, then any option or SAR that has not expired or been terminated will become fully vested and exercisable in full and may be exercised by the participant’s beneficiary at any time, or from time to time, within three years after the date of such termination of employment or service; |
| ● | Retirement. Upon a termination of employment with or service to the Company by reason of Retirement, then any option or SAR (or portion thereof) that has not expired or been terminated, will, to the extent vested and exercisable as of the date of such termination of employment or service (including as a result of any acceleration that occurs under the award agreement) remain exercisable by the participant at any time, or from time to time, for three years after the date of such termination of employment or service, and the remaining portion of such option or SAR shall be forfeited. |
| ● | Qualifying Termination. Upon an involuntary termination of employment without cause or a termination of employment for good reason that occurs within two years following a change in control (or, in certain circumstances prior to, but related to a change in control) (any such termination, a “qualifying termination”), then any option or SAR (or portion thereof) that has not expired or been terminated, will become fully vested and exercisable as of the date of such termination of employment or service and remain exercisable by the participant at any time, or from time to time, until the expiration of the term of such option or SAR. |
| ● | Other Termination. Upon a termination of employment with or service to the Company for any reason other than death, Disability, Retirement, a qualifying termination or cause, then any option or SAR (or portion thereof) that has not expired or been terminated, will to the extent vested and exercisable as of the date of such termination of employment or service remain exercisable by the participant at any time, or from time to time, for three months after the date of such termination, and the remaining portion of such option or SAR shall be forfeited; |
| ● | Cause. Upon a termination of employment with or service to the Company for cause, then any option or SAR that that has not expired or been terminated may be exercised, shall be forfeited without consideration, whether vested or unvested; and |
| ● | Non-employee Director. Notwithstanding the foregoing, if the participant is a non-employee director, upon on a termination of service to the Company for any reason other than cause, then any option or SAR (or portion thereof) that has not expired or been terminated, will if (i) unvested and not exercisable as of the date of such termination of employment or service, be treated for vesting purposes in accordance with the terms described above based on the type of termination and (ii) vested and exercisable as of the date of such termination of employment or service, remain exercisable by the participant at any time, or from time to time, until the expiration of the term of such option or SAR. |
Notwithstanding anything in the award agreement to the contrary, the holder of an option or SAR will not be entitled to receive dividend equivalents with respect to the shares of common stock subject to such option or SAR. Stock Awards The 2023 LTIP provides for the grant of Stock Awards. The Plan Committee may grant a Stock Award as a restricted stock award, restricted stock unit award or as another stock award. Restricted stock awards and restricted stock unit awards are RLI Corp. 2023 Proxy Statement | 65 subject to forfeiture if the holder does not remain continuously in the employment of the Company during the restriction period or if specified performance measures (if any) are not attained during the performance period. Unless otherwise set forth in a restricted stock award agreement, the holder of shares of restricted stock has rights as a shareholder of the Company, including the right to vote and receive dividends with respect to shares of restricted stock and to participate in any capital adjustments applicable to all holders of the Company’s common stock; provided, however, that a distribution or dividend with respect to shares of common stock, including a regular cash dividend, will be deposited by the Company and will be subject to the same restrictions as the shares of Company common stock with respect to which such dividend or distribution was made. The agreement awarding restricted stock units will specify (1) whether such award may be settled in shares of common stock, cash or a combination thereof; and (2) whether the holder will be entitled to receive, on a current or deferred basis, dividend equivalents, and, if determined by the Plan Committee, interest on, or the deemed reinvestment of, any deferred dividend equivalents, with respect to the number of shares of common stock subject to such award. Any dividend equivalents with respect to restricted stock units that are subject to vesting conditions will be subject to the same vesting conditions as the underlying awards. Prior to settlement of a restricted stock unit, the holder of a restricted stock unit has no rights as a shareholder of the Company. The Plan Committee may grant other awards that may be denominated or payable in, valued in whole or in part by reference to, or otherwise based on, or related to, shares of our common stock, including shares of common stock granted as a bonus and not subject to any vesting conditions, dividend equivalents, deferred stock units, stock purchase rights and shares of our common stock issued in lieu of obligations of the Company to pay cash under any compensatory plan or arrangement, subject to such terms as shall be determined by the Plan Committee. Any distribution, dividend or dividend equivalents with respect to other stock awards contemplated by this paragraph will be subject to vesting conditions will be subject to the same vesting conditions as the underlying awards. All of the terms relating to the satisfaction of performance measures and the termination of a restriction period or performance period relating to a Stock Award, or the forfeiture and cancellation of a Stock Award (i) upon a termination of employment, whether by reason of Disability, Retirement, death or any other reason, or (ii) during a paid or unpaid leave of absence, will be determined by the Plan Committee; provided that, notwithstanding the foregoing,unless otherwise determined by the Plan Committee and set forth in the applicable agreement relating to the performance award, upon a termination of employment during the restriction period as a result of (x) death or Disability, then all restrictions shall lapse with respect to anumber of shares of common stock under the Stock Award that has been prorated for the portion of the restriction period prior to the such termination of employmentand, in the case of performance-based awards, based on target performance, or (y) any other reason, then the holder will immediately forfeit any portion of the Stock Award that is unvested as of the date of such termination of employment or service. Performance Awards The 2023 LTIP also provides for the grant of performance awards. The agreement relating to a performance award will specify whether such award may be settled in shares of common stock (including shares of restricted stock) or cash or a combination thereof. The agreement relating to a performance award will provide, in the manner determined by the Plan Committee, for the vesting of such performance award if the specified performance measures are satisfied or met during the specified performance period and for the forfeiture of such award if the specified performance measures are not satisfied or met during the specified performance period. Any dividends or dividend equivalents with respect to a performance award will be subject to the same restrictions as such performance award. Prior to the settlement of a performance award in shares of common stock, the holder of such award has no rights as a shareholder of the Company with respect to such shares. All of the terms relating to the satisfaction of performance measures and the termination of a performance period, or the forfeiture and cancellation of a performance award upon (i) a termination of employment, whether by reason of Disability, Retirement, death or any other reason, or (ii) during a paid or unpaid leave of absence, will be determined by the Plan Committee; provided that, unless otherwise determined by the Plan Committee and set forth in the applicable agreement relating to the performance award, upon a termination of employment during the performance period as a result of (x) death or Disability, then all restrictions shall lapse with respect to a number of shares of common stock under the performance award that has been prorated for the portion of the performance period prior to the such termination of employmentand based on target performance, or (y) any other reason, then the holder will immediately forfeit any portion of the performance award that is unvested as of the date of such terminationof employment or service. Performance Measures Under the 2023 LTIP, the grant, vesting, exercisability or payment of certain awards, or the receipt of shares of common stock subject to certain awards, may be made subject to the satisfaction of performance measures. The performance goals applicable to a particular award will be determined by the Plan Committee at the time of grant. Such performance criteria and objectives may include, without limitation, any one or more of the following business criteria for the Company, on a 66 | RLI Corp. 2023 Proxy Statement consolidated basis, and/or for specified subsidiaries, business or geographical units or operating areas of the Company (except with respect to the total shareholder return and earnings per share criteria) on an individual basis: the attainment by a share of common stock of a specified fair market value for a specified period of time; increase in shareholder value; earnings per share; return on or net assets; return on equity; return on investments; return on capital or invested capital; total shareholder return; earnings or income of the Company before or after taxes and/or interest; earnings before interest, taxes, depreciation and amortization (“EBITDA”); EBITDA margin; operating income; revenues; operating expenses, attainment of expense levels or cost reduction goals; market share; cash flow, cash flow per share, cash flow margin or free cash flow; interest expense; economic value created; gross profit or margin; operating profit or margin; net cash provided by operations; price-to-earnings growth;comprehensive earnings; growth in book value; combined ratio (or corollary underwriting profit); and strategic business criteria, consisting of one or more objectives based on meeting specified goals relating to market penetration, customer acquisition, business expansion, cost targets, customer satisfaction, reductions in errors and omissions, reductions in lost business, management of employment practices and employee benefits, supervision of litigation, supervision of information technology, quality and quality audit scores, efficiency, and acquisitions or divestitures, or such other goals as the Plan Committee may determine whether or not listed herein. Each such goal may be determined on a pre-tax or post-tax basis or on an absolute or relative basis, and may include comparisons based on current internal targets, the past performance of the Company (including the performance of one or more subsidiaries, divisions, or operating units) or the past or current performance of other companies or market indices (or a combination of such past and current performance). In addition to the ratios specifically enumerated above, performance goals may include comparisons relating to capital (including, but not limited to, the cost of capital), shareholders’ equity, shares outstanding, assets or net assets, sales, or any combination thereof. In establishing a performance measure or determining the achievement of a performance measure, the Plan Committee may provide that achievement of the applicable performance measures may be amended or adjusted to include or exclude components of any performance measure, including, without limitation, foreign exchange gains and losses, asset write-downs, acquisitions and divestitures, change in fiscal year, unbudgeted capital expenditures, special charges such as restructuring or impairment charges, debt refinancing costs, extraordinary or noncash items, unusual, infrequently occurring, nonrecurring or one-time events affecting the Company or its financial statements or changes in law or accounting principles. Performance measures will be subject to such other special rules and conditions as the Plan Committee may establish at any time. NEW PLAN BENEFITS The number of stock options or other forms of award that will be granted under the 2023 LTIP is not currently determinable. Information regarding awards granted in 2022 under the 2015 LTIP to the Named Executive Officers is provided in the “2022 Summary Compensation Table” and the “2022 Grants of Plan-Based Awards” table. Information regarding awards granted in 2022 under the 2015 LTIP to non-employee directors is provided in the “2022 Director Compensation” table. FEDERAL INCOME TAX CONSEQUENCES The following is a brief summary of certain United States federal income tax consequences generally arising with respect to awards under the 2023 LTIP. This discussion does not address all aspects of the United States federal income tax consequences of participating in the 2023 LTIP that may be relevant to participants in light of their personal investment or tax circumstances and does not discuss any state, local or non-United States tax consequences of participating in the 2023 LTIP. Each participant is advised to consult his or her particular tax advisor concerning the application of the United States federal income tax laws to such participant’s particular situation, as well as the applicability and effect of any state, local or non-United States tax laws before taking any actions with respect to any awards. Section 162(m) Of The Internal Revenue Code Section 162(m) of the Internal Revenue Code generally limits to $1 million the amount that a publicly held corporation is allowed each year to deduct for the compensation paid to each of the corporation’s chief executive officer, the corporation’s chief financial officer and certain other current and former executive officers of the corporation. Stock Options A participant will not recognize taxable income at the time an option is granted and the Company will not be entitled to a tax deduction at that time. A participant will recognize compensation taxable as ordinary income (and subject to income tax withholding in respect of an employee) upon exercise of a non-qualified stock option equal to the excess of the fair market value of the shares purchased over their exercise price, and the Company will be entitled to a corresponding deduction, subject to the deduction limits under Section 162(m) of the Internal Revenue Code. A participant will not recognize income (except for purposes of the alternative minimum tax) upon exercise of an incentive stock option. If the shares acquired by exercise of an incentive stock option are held for the longer of two years from the date the option was granted and one year from the date it was exercised, any gain or loss arising from a subsequent disposition of those shares will be taxed as long- RLI Corp. 2023 Proxy Statement | 67 term capital gain or loss, and the Company will not be entitled to any deduction. If, however, those shares are disposed of within the above-described period, then in the year of that disposition the participant will recognize compensation taxable as ordinary income equal to the excess of (1) the lesser of the amount realized upon that disposition and the fair market value of those shares on the date of exercise over (2) the exercise price, and the Company will be entitled to a corresponding deduction, subject to the deduction limits under Section 162(m) of the Internal Revenue Code. SARS A participant will not recognize taxable income at the time SARs are granted and the Company will not be entitled to a tax deduction at that time. Upon exercise, the participant will recognize compensation taxable as ordinary income (and subject to income tax withholding in respect of an employee) in an amount equal to the fair market value of any shares delivered and the amount of cash paid by the Company, and the Company will be entitled to a corresponding deduction, subject to the deduction limits under Section 162(m) of the Internal Revenue Code. Stock Awards A participant will not recognize taxable income at the time restricted stock is granted and the Company will not be entitled to a tax deduction at that time, unless the participant makes an election to be taxed at that time. If such election is made, the participant will recognize compensation taxable as ordinary income (and subject to income tax withholding in respect of an employee) at the time of the grant in an amount equal to the excess of the fair market value for the shares at such time over the amount, if any, paid for those shares. If such election is not made, the participant will recognize compensation taxable as ordinary income (and subject to income tax withholding in respect of an employee) at the time the restrictions constituting a substantial risk of forfeiture lapse in an amount equal to the excess of the fair market value of the shares at such time over the amount, if any, paid for those shares. The amount of ordinary income recognized by making the above-described election or upon the lapse of restrictions constituting a substantial risk of forfeiture is deductible by the Company as compensation expense, subject to the deduction limits under Section 162(m) of the Internal Revenue Code. In addition, a participant receiving dividends with respect to restricted stock for which the above-described election has not been made and prior to the time the restrictions constituting a substantial risk of forfeiture lapse will recognize compensation taxable as ordinary income (and subject to income tax withholding in respect of an employee), rather than dividend income, in an amount equal to the dividends paid and the Company will be entitled to a corresponding deduction, subject to the deduction limits under Section 162(m) of the Internal Revenue Code. A participant will not recognize taxable income at the time a restricted stock unit is granted and the Company will not be entitled to a tax deduction at that time. Upon settlement of restricted stock units, the participant will recognize compensation taxable as ordinary income (and subject to income tax withholding in respect of an employee) in an amount equal to the fair market value of any shares delivered and the amount of any cash paid by the Company, and the Company will be entitled to a corresponding deduction, subject to the deduction limits under Section 162(m) of the Internal Revenue Code. The tax treatment, including the timing of taxation, of other stock awards will depend on the terms of such awards at the time of grant. Performance Awards A participant will not recognize taxable income at the time performance awards are granted and the Company will not be entitled to a tax deduction at that time. Upon settlement of performance awards, the participant will recognize compensation taxable as ordinary income (and subject to income tax withholding in respect of an employee) in an amount equal to the fair market value of any shares delivered and the amount of cash paid by the Company, and the Company will be entitled to a corresponding deduction, subject to the deduction limits under Section 162(m) of the Internal Revenue Code. The Board of Directors unanimously recommends that the shareholders vote “FOR” the approval of the RLI Corp. 2023 Long-Term Incentive Plan. 68 | RLI Corp. 2023 Proxy Statement PROPOSAL FIVE: RATIFICATION OF THE SELECTION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM The Audit Committee has selected Deloitte & Touche LLP (“Deloitte”) as the Company’s independent registered public accounting firm for 2023, and the Board and the Audit Committee are recommending that shareholders ratify that selection. 2023 will be the fourth year that Deloitte will serve as the independent registered public accounting firm for the Company. Although current law, rules and regulations, as well as the Charter of the Audit Committee, require our independent auditor to be appointed, retained and supervised by the Audit Committee, the Board considers the selection of an independent auditor to be an important matter of shareholder concern and considers a proposal for shareholders to ratify such selection to be an important opportunity for shareholders to provide direct feedback to the Board on an important issue of corporate governance. If the appointment of Deloitte is not ratified by shareholders, the Audit Committee will take such action, if any, with respect to the appointment of the independent auditor as the Audit Committee deems appropriate, which may include continued retention of such audit firm. Even if the selection is ratified, the Audit Committee, in its discretion, may select a different independent registered public accounting firm at any time during the year if it determines that such a change would be in the best interests of the Company and our shareholders. Representatives of Deloitte are expected to be present at the virtual Annual Meeting with the opportunity to make a statement, if they desire, and will be available to respond to appropriate questions from the shareholders. The affirmative vote of the holders of at least a majority of votes cast is required for approval of this proposal. The Board of Directors and the Audit Committee recommend that the shareholders vote “FOR” the proposal to ratify the selection of Deloitte & Touche LLP as independent registered public accounting firm of the Company for the current fiscal year. AUDIT COMMITTEE REPORT The following report by the Company’s Audit Committee is required by the rules of the SEC to be included in this Proxy Statement and shall not be considered incorporated by reference in other filings by the Company with the SEC. The Audit Committee is currently composed of four independent directorsIndependent Directors and operates under a written charter adopted by the Board of Directors. The primary role of the Audit Committee is to assist the Board of Directors in its oversight of (a) the Company’s corporate accounting and reporting practices, (b) the quality and integrity of the Company’s financial statements, (c) the performance of the Company’s system of internal control over financial reporting, (d) the Company’s compliance with related legal and regulatory requirements over financial reporting, (e) the qualifications, independence and performance of the Company’s independent registered public accounting firm (the “Auditor”), Deloitte & Touche LLP (“Deloitte”) for 2022, including the selectiona review of andthe performance of the lead engagement partner and other partners involved in the audit of the Company’s financial statements, and (f) the performance of the Company’s internal audit function. In addition to those primary roles, the Audit Committee also performs other roles and functions as outlined in its charter, including preliminary review of earnings releases and other activities. The Audit Committee also acts as the audit committee for each of the Company’s insurance company subsidiaries. A more detailed description of the Audit Committee’s roles, functions and activities is set forth in the description of Board committees elsewhere in this Proxy Statement and in the Committee’s charter, which is available on the Company’s website under the Investors section at www.rlicorp.com. The Board of Directors has determined that each of the members of the Audit Committee qualifies as “independent”“Independent” within the meaning of the NYSE Listing Standards and the rules of the SEC. The Board of Directors has further determined that each of Messrs. Ahlmann, Angelina, Butler and Scanlan isthe members are an “audit committee financial expert” within the meaning of the SEC rules. The Audit Committee reviewsoversees the internal audit function of the Company, including the independence and authority of its reporting obligations, the proposed audit plans for the coming year, and the coordination of such plans with the Auditor. The Company’s Internal Audit Services department provides the internal audit function, which provides objective assurance and consulting services designed to add value and improve the organization’s operations. The Audit Committee oversees the Internal Audit Services departmentoperational, financial, and the overall internal audit function at the Company.compliance controls. The Company’s internal audit function operates under the terms of the RLI Internal Audit Services Charter, which is reviewed by the Audit Committee and approved by the Audit Committee’s chair and the Company’s CEO. To assist with this oversight, the Internal Audit Services department RLI Corp. 2023 Proxy Statement | 69 provides an annual risk-based audit plan to the Audit Committee and periodic reports are additionally made to the Audit Committee summarizing results of internal audit activities. The Audit Committee appoints and annually evaluates the performance of the Auditor andalso provides assistance to the members of the Board of Directors in fulfilling their oversight functions of the financial reporting practices, including satisfying obligations imposed by Section 404 of the Sarbanes Oxley Act of 2002, and financial statements of the Company. It is not the duty of the Audit Committee, however, to plan or conduct audits or to determine that the Company’s financial statements are complete and accurate and in accordance with U.S. generally accepted accounting principles (“GAAP”). The Auditor is responsible for planning and conducting audits of the financial statements and internal controls over financial reporting; and the Company’s management is responsible for preparing the financial statements, designing, and assessing the effectiveness of internal control over financial reporting, and determining that the Company’s financial statements, including disclosures, are complete and accurate and in accordance with GAAP and applicable laws and regulations. The Company’s current Auditor is KPMG LLP (“KPMG”). KPMG has been the Company’s Auditor continuously since 1983 and the Audit Committee has selected KPMG to be the Company’s Auditor for fiscal 2018. Pursuant to the Sarbanes Oxley Act of 2002 and the rules of the Public Company Accounting Oversight Board (the “PCAOB”), the Auditor’s lead engagement partner is required to rotate every five years. The current KPMG lead engagement partner is in the 3rd year of the five-year rotation requirement for the 2017 audit. The Audit Committee interviews and evaluates the experience of the audit partner to help ensure he or she possesses the requisite experience and knowledge to conduct and lead the audit team’s integrated audit of the Company’s financial statements and internal control over financial reporting.
48 | RLI Corp. 2018 Proxy Statement
The Audit Committee contracts with and sets the fees paid to the Auditor. The fees for KPMG’sDeloitte’s audit services during the past two fiscal years are set forth on page 38. Audit fees relate to professional services rendered for the audit of consolidated financial statements of the Company, audits of the statutory financial statements of certain subsidiaries, review of quarterly consolidated financial statements and assistance with review of documents filed with the SEC, including attestation as required under Section 404 of the Sarbanes Oxley Act of 2002.
There were no non-audit services provided by KPMG in 2017. Any non-audit services must be reviewed and pre-approved by the Chair of the Audit Committee. The Chair will report such hiring to the Audit Committee no later than the next scheduled Committee meeting.
page. The Audit Committee appoints and annually conducts evaluations ofevaluates the Auditor to determine if it will recommend the retention of the Auditor for the next year. As part of the evaluation of the Auditor, the Audit Committee conducts periodic reviews and surveys to determine if the Auditor is meeting Committee expectations and providing appropriate audit services. A survey conducted in 2017 was created by a group of professional accounting and auditing organizations, including the National Association of Corporate Directors and the Center for Audit Quality and was completed by select RLI management and the Chair of the Audit Committee. The Auditor evaluation includes topics such as: (a) quality of services and sufficiency of resources provided by the auditor; (b) communication and interaction with the auditor; and (c) Auditor independence, objectivity and professional skepticism. The results of the Audit Committee’s evaluation, including any resulting action items, are considered in the Audit Committee’s decision regarding reappointmentperformance of the Auditor. Also, the results of the evaluation are discussed with the Auditor by the Audit Committee. In addition, theThe Audit Committee obtains and reviews, at least annually, a report by the Auditor describing; the firm’s internal quality-control procedures; any material issues raised by the most recent internal quality-control review, orand peer review, of the firm, or by any inquiry or investigation by governmental or professional authorities, within the preceding five years, respecting one or more independent audits carried out by the firm, and any steps taken to deal with any such issues; and (to assess the Auditor’s independence) all relationships between the Auditor and the Company. TheFinally, the Audit Committee also reviews the PCAOBmost recently available Public Company Accounting Oversight Board (“PCAOB”) annual inspection reportreports of the Auditor. Additionally,Auditor, and the Auditor’s responses thereto, including quality improvement initiatives undertaken to address inspection report observations. Pursuant to the Sarbanes Oxley Act of 2002 and the rules of the PCAOB, the Auditor’s lead engagement partner is required to rotate every five years. The current Deloitte lead engagement partner was in the 3rdyear of the five-year rotation requirement for the 2022 audit and will be on the 4th year for the 2023 audit. In addition to the Audit Committee’s evaluation of the Auditor, the Audit Committee assessesalso interviews and evaluates the performanceexperience of the lead engagementaudit partner and other supporting partners to ascertain whether anyhelp ensure they possess the requisite experience and knowledge to conduct and lead the audit quality matters were identified during the most recent quality assurance cycle conducted by regulators, peer reviews or internal quality reviews. Based upon the results of such evaluations, the Audit Committee makes its recommendation regarding retentionteam’s integrated audit of the Auditor.Company’s financial statements and internal control over financial reporting. TheFor 2022, the Audit Committee reviewed and discussed the audit of the Company’s financial statements and internal control over financial reporting with management and the Auditor.Deloitte. The Audit Committee also discussed with the AuditorDeloitte the matters required to be discussed by the applicable requirements of the PCAOB Standard No. 16, Communication with Audit Committees.and the SEC. The Audit Committee received from the AuditorDeloitte the written disclosures and letter required by the applicable PCAOB requirements regarding the Auditor’sDeloitte’s communications with the Audit Committee concerning independence. The Audit Committee also discussed the Auditor’sDeloitte’s independence with the Auditor.representatives from Deloitte. Additionally, the Audit Committee promotes the Auditor’sDeloitte’s independence by ensuring that the lines of communication are always open and constant between the Auditor and the Audit Committee. The Chair of the Audit Committee iswas in contact with the AuditorDeloitte numerous times throughout the year. This includes normalregularly scheduled in-person or virtual meetings, executive sessions, telephonic meetings and periodicallyperiodic discussions in between normallyregularly scheduled meetings. The purpose of this iswas to allow open and unobstructed access to the Audit Committee should the AuditorDeloitte need to bring anything to the Audit Committee’s attention.
Based on the review and discussions referred to above, as well as the Audit Committee’s reliance on the representation of management that the Company’s consolidated financial statements were prepared in accordance with GAAP, the Audit Committee recommended to the Board of Directors that the audited financial statements of the Company be included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2017,2022, as filed with the SEC. The foregoing report has been approved by all members of the Audit Committee. MEMBERS OF THE AUDIT COMMITTEE James J. ScanlanMichael E. Angelina (Chair)
Kaj Ahlmann RLI Corp. 2018 Proxy Statement | 49John T. Baily
70 | RLI Corp. 2023 Proxy Statement FEES PAID TO THE INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Michael E. AngelinaFees for services rendered by Deloitte during fiscal year 2022, the Company’s independent registered public accounting firm, for the past two fiscal years for each of the following categories of services, are set forth below:
| | | | | | | | | | | | | | | | Fiscal Year | | Fiscal Year | | | 2022 | | 2021 | Audit Fees | | $ | 1,100,000 | | $ | 1,095,000 | Audit-Related Fees | | $ | — | | $ | — | Tax Fees | | $ | — | | $ | — | Tax Compliance | | $ | — | | $ | — | Other Tax Services | | $ | — | | $ | — | All Other Fees | | $ | — | | $ | — | Total Fees | | $ | 1,100,000 | | $ | 1,095,000 |
Calvin G. Butler, Jr.
EXECUTIVE RESOURCES COMMITTEE REPORT
The Executive Resources Committee has reviewed and discussed with managementAudit fees relate to professional services rendered for the audit of the consolidated financial statements of the Company, the Compensation Discussion and Analysis section of this Proxy Statement. Based on the Executive Resources Committee’s review and discussions, it recommended to the Board, and the Board approved, that the Compensation Discussion and Analysis be included in the Company’s 2018 Proxy Statement.
MEMBERS OF THE EXECUTIVE RESOURCES COMMITTEE
F. Lynn McPheeters (Chair)
David B. Duclos
Jordan W. Graham
Robert P. Restrepo, Jr.
James J. Scanlan
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
No memberaudits of the ERC is a current or former employee or officerstatutory financial statements of certain subsidiaries, review of quarterly consolidated financial statements and assistance with review of documents filed with the SEC, including attestation as required under Section 404 of the Company or otherwise had any relationships to be disclosed within the scope of SEC regulations.
COMPENSATION DISCUSSION & ANALYSIS
INTRODUCTION
The Executive Resources Committee (“ERC”) of the Company’s Board of Directors, with the review and approval of the Board of Directors, administers specific compensation programs for senior executive officers and oversees other executive compensation programs and management succession and development processes.
EXECUTIVE SUMMARY
With the exception of gross written premium, the following financial metrics are used as targets in our incentive plans and actual results are used to calculate annual incentives for our senior executive officers. These financial measures (other than gross written premium) are non-GAAP and should not be considered substitutes for GAAP measures. We consider them key performance indicators and employ them as well as other factors in determining senior management incentive compensation. The calculation of these non-GAAP metrics can be found in the discussions below with respect to the incentive plans in which those metrics are used.
| | | | | | Our Results in 2017: | | 2017 | | 2016 | | Gross Written Premium | | $ 885.3 million | | $ 874.9 million | | Operating Earnings | | $ 102.2 million | | $ 92.4 million | | (Net Earnings minus Realized Investment Gains Net of Tax) | | | | | | Combined Ratio | | 96.4 | | 89.5 | | (Net Loss and Operating Expense/Net Premiums Earned) | | | | | | Operating Return on Equity | | 12.5% | | 11.3% | | (Operating Earnings/Shareholder’s Equity) | | | | | | Market Value Potential (MVP) | | $ 86.5 million | | $ 82.1 million | | (After Tax Returns Above Cost of Capital) | | | | | | Five-Year Growth in Book Value: Rank Among Peer Companies | | 2/15 | | 2/13 | |
In 2017, we continued to post industry leading underwriting and operating performance. The pricing environment remains competitive but our underwriters continued to find opportunities for profitable growth. During 2017, our gross
50 | RLI Corp. 2018 Proxy Statement
premiums grew by $10.4 million (1%), inclusive of some product exits and repositioning of our diversified portfolio of products. Our commitment to underwriting discipline translates into our willingness to address underperforming products quickly and severely, without regard to the impact on written premium. We delivered a 96.4 combined ratio, which includes 4 percentage points of hurricane losses. (Combined ratio is a common industry measure of profitability defined as expenses and losses as a percentage of Net Earned Premium. Thus, a combined ratio below 100 signifies an underwriting profit.) We expect the Property-Casualty insurance industry to post a combined ratio above 100 for 2017, heavily influenced by the year’s hurricane and other catastrophe events. Our result not only beats the industry’s projection but also represents our 22nd consecutive year of a combined ratio below 100. This result was achieved despite experiencing our worst catastrophe year in over 20 years and is a testament to our underwriters’ discipline and the benefits of a diversified product portfolio.
Operating earnings and Operating Return on Equity were $102.2 million and 12.5%, respectively. Strong underwriting and investment performancecontributed to these results, as did certain tax-related benefits, most notably corporate tax reform. The Tax Cuts and JobsSarbanes-Oxley Act of 2017 (TCJA) lowered future taxes applicable to unrealized gains on investments2002.
There were no non-audit services provided by Deloitte in 2022 or 2021. Any non-audit services must be reviewed and other deferred tax items resulted in a reduction in our net deferred tax liability, which in turn increased both operating earnings and operating return on equity.Market Value Potential (“MVP”), which is a measure of our after-tax returns above our cost of capital (explained in more detail on pages 54-55) increased to $86.5 million versus $82.1 million last year. This measure was also driven by the aforementioned underwriting and investment performance and benefits associated with tax reform. Finally, we compare our relative growth in book value over a five-year period to our peer companies and use that performance as a factor in calculating incentive compensation. For the five-year period ending in 2017, our rank remained at second among our peer companies, similar to 2016. KEY ATTRIBUTES OF RLI EXECUTIVE COMPENSATION
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| | Performance-based compensation: Total executive compensation is directly linked to Company performance. As in prior years, all executives participate in an incentive plan, through which they are eligible to earn compensation based on achievement of Company financial objectives and personal objectives that are aligned with shareholder value creation.
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| | At risk compensation: A significant portion of annual incentive compensation for our CEO, COO, CFO, Sr. Vice President, Operations and each product group vice president is paid over time through a bonus bank concept to provide an incentive for sustained shareholder value creation. Amounts credited to the bonus bank are reduced dollar-for-dollar, should negative results occur in a future period. As a result, net losses in a future period reduce the amount available in the bonus bank and could result in a negative balance.
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| | Compensation based on relative company performance: Each year we conduct a review of executive compensation within an insurance peer group to ensure that the Company’s executive compensation remains fair, competitive and consistent with the Company’s absolute and relative performance. The MVP Program for the CEO, COO, CFO and Sr. Vice President, Operations includes an adjustment factor (positive and negative) for relative company performance.
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| | Significant executive stock ownership: Our compensation programs encourage our employees to build and maintain an ownership interest in the Company. We have established specific executive stock ownership guidelines and our executive officers whose compensation is included in the Summary Compensation Table (referred to herein collectively as “named executive officers” or “NEOs”), as well as our other executive officers, currently maintain significant share ownership in the Company. As reflected on page 8, as of December 31, 2017, executive officers and Directors beneficially held 5.54% percent of Company shares, providing strong alignment with shareholders.
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The ERC believes that the Company’s overall compensation approach provided meaningful incentives for the talented management team at the Company to provide outstanding results for shareholders again this year.
RLI Corp. 2018 Proxy Statement | 51
HOW THE ERC OPERATES
ERC MEMBERS
From July 1, 2016 through May 4, 2017, the members of the ERC were Messrs. McPheeters (Chair), Graham, Restrepo and Scanlan. After May 4, 2017, the members of the ERC were Messrs. McPheeters (Chair), Duclos, Graham, Restrepo and Scanlan. ERC members are nominated by the Nominating/Corporate Governance Committee, elected by the Board and may be removed from the ERC by the Board at any time, with or without cause. The members of the ERC are independent directors under the independence standards developed by the Board, which incorporate all of the NYSE independence standards which are applicable to directors generally, and which are set out under the section entitled Corporate Governance and Board Matters on page 38. The Board annually determines the independence of each member of the ERC under those independence standards.
ERC RESPONSIBILITIES
The ERC operates under a Charter, which can be found on the Company’s website under the Investors section at www.rlicorp.com. The ERC Charter is reviewed annually by the ERC and any proposed changes to the Charter are submitted to the Nominating/Corporate Governance Committee for recommendation to the full Board for approval. The ERC is responsible to the Board for: (1) reviewing and providing advice regarding the Company’s executive compensation; (2) reviewing and providing advice regarding the Company’s management succession and development processes; (3) monitoring compensation actions by management below the executive level; (4) producing an annual report on executive compensation for approval by the Board for inclusion in the Company’s proxy statement; and (5) reviewing the Company’s employee benefit plans.
ERC MEETINGS
The ERC held five meetings in 2017. The ERC also held a joint meeting with the Strategy Committee of the Board of Directors to discuss safeguards against unnecessary or excessive risk that could arise from the Company’s executive compensation policies and practices. The agenda for each ERC meeting is establishedpreapproved by the Chair of the ERC in consultation with other ERC members, and with Mr. Michael and Kathleen M. Kappes, Vice President, Human Resources. ERC materials are prepared by Mr. Michael and Ms. Kappes with input from members of senior management and are reviewed and approved by the ERCAudit Committee. The Chair in advance of distribution to ERC members. The ERC meetings are attended by Mr. Michael, Ms. Kappes and from time-to-time, other members of senior management, who are excused from the meeting during the Committee’s executive session.
RESPONSE TO 2017 SAY-ON-PAY VOTE
At the May 2017 annual shareholder’s meeting, we held a shareholder advisory vote on the compensation of our named executive officers, referred to as a Say-on-Pay vote, with over 98 percent of shareholder votes cast on that item in favor of our executive compensation programs. We considered this vote to represent strong support by shareholders for our long-standing executive compensation policies and practices. In 2017, therefore, the ERC continued its general approach to executive compensation, as described above in “KEY ATTRIBUTES OF RLI EXECUTIVE COMPENSATION.”
INPUT FROM MANAGEMENT
Mr. Michael plays an important role in the ERC’s consideration of executive compensation levels and the design of executive compensation plans and programs for other senior executive officers. For these individuals, Mr. Michael recommends the following components of executive compensation to the ERC for review and recommendation to the Board:
| ·
| | annual base salary levels;
|
| ·
| | annual incentive targets and financial and personal goals; and
|
| ·
| | the form and amount of long-term incentives.
|
52 | RLI Corp. 2018 Proxy Statement
Mr. Michael makeswill report such compensation recommendations based on external market data; achievement of respective performance criteria by each executive; and his judgment related to internal pay equity among Company executives, potential for advancement, and contribution to team initiatives. Mr. Michael also relies upon the input of the senior leadership team when making such recommendations.
COMPENSATION CONSULTANT
The ERC Charter specifically provides that if a compensation consultant is to assist in the evaluation of CEO or senior executive compensation, the ERC has sole authority to retain and terminate the consulting firm including sole authority to approve the firm’s fees and retention terms. Management also has authority to retain a compensation consultant, but may not retain the same compensation consulting firm retained by the ERC without approval in advance by the ERC. The ERC did not retain a compensation consultant in 2017. Management retained Willis Towers Watson in 2017 to provide advice with respect to long-term incentive design.
OVERVIEW OF RLI EXECUTIVE COMPENSATION
OBJECTIVES
The objective of the Company’s executive compensation program is to provide a competitive total executive compensation program linked to Company performance that will attract, retain and motivate talented executives critical to the Company’s long-term success.
ELEMENTS OF COMPANY EXECUTIVE COMPENSATION
The Company’s total executive compensation program is comprised of the following components, each of which is described in greater detail below:
| 1.
| | Total annual cash compensation consisting of:
|
| (b)
| | Annual incentive awards under the MVP Program, which incorporates annual and long-term design features, for the CEO; COO; CFO; and Sr. Vice President, Operations;
|
| (c)
| | Annual incentive awards under the Management Incentive Program (“MIP”) for other home office executives;
|
| (d)
| | Annual incentive awards under the Underwriter Profit Program for product group executives;
|
| 1.
| | Long-term incentive compensation granted under the LTIPs (as described herein); and under the MVP Program for the CEO; COO; CFO; and Sr. Vice President, Operations.
|
| 2.
| | Limited perquisites. All Company executives are provided with travel accident insurance and are reimbursed for out of pocket costs for an annual health examination not covered by the Company’s health plan. The CEO and COO are permitted to use the Company’s fractionally-owned aircraft for personal use for an hourly rate approved by the Board of Directors, with maximum annual use limited to total charges of 6.5 percent of annual base salary. The Company does not provide any income tax gross-ups.
|
BALANCE OF SHORT-TERM AND LONG-TERM COMPENSATION
The ERC works to balance short-term and long-term elements of total compensation, as described in the following sections. The goal is to provide a meaningful level of long-term compensation to align with long-term value creation and mitigate the risk that members of management make decisions or take actions solely to increase short-term compensation while adding excessive risk to the Company. In that regard, the ERC believes that a greater percentage of total compensation should be in the form of long-term compensation the more senior the role is. The Committee also takes into account the significant ownership of Company stock by Mr. Michael when determining his long-term incentive award.
RLI Corp. 2018 Proxy Statement | 53
We consider those salary and annual incentive amounts earned in 2017 and paid in 2017 to be short-term compensation. MVP Program payments in 2017 made from amounts earned in prior years and credited to the bonus bank for prior year MVP Program awards; and the grant date fair value of stock options awards in 2017, on the other hand, are considered to be long-term compensation. The following table compares the percentage of total compensation which is short-term in nature, to the percentage which is long-term in nature.
| | | | | | | Short-Term as % of Total Compensation | | Long-Term as % of Total Compensation | | | (Salary and Annual Incentive Earned | | (Payment from Bonus Bank for Prior Years and | Name | | and Paid in 2017) | | Grant Date Fair Value of Stock Options Awarded)(1)(2) | Jonathan E. Michael | | 47% | | 53% | Craig W. Kliethermes | | 55% | | 45% | Thomas L. Brown | | 53% | | 47% | Jennifer L. Klobnak (1) | | 82% | | 18% | Jeffrey D. Fick (2) | | 78% | | 22% |
| (1)
| | In 2016 and in prior years, Ms. Klobnak participated in the MIP instead of MVP and consequently her long-term percentage is less than the other NEOs.
|
| (2)
| | Mr. Fick does not participate in the MVP Program, but instead participates in the MIP, which does not have a bonus bank or long-term payout feature, and consequently his long-term percentage is less than the other NEOs.
|
MARKET VALUE POTENTIAL EXECUTIVE INCENTIVE PROGRAM (MVP PROGRAM) — GENERAL
MVP Defined. As discussed in further detail below, the MVP Program provides a mechanism with which the ERC can correlate incentive compensation to long-term shareholder value creation. The MVP Program uses an economic profit measure called “Market Value Potential” (“MVP”), which measures the after-tax returns earned by the Company above its cost of capital, as a gauge of shareholder value creation. MVP is defined as (1) the Actual Return (the increase in adjusted GAAP book value as defined immediately below), less (2) the Required Return (beginning capital multiplied by the blended cost of capital). If the Company does not earn the Required Return in a given year and MVP is negative, no incentive award is made pursuant to the MVP Program for that year.
For the purposes of the MVP Program, the increase or decrease in GAAP book value is calculated as ending capital less beginning capital. Ending capital is defined as ending GAAP book value, less unrealized gains or losses net of tax on available-for-sale fixed maturity investments, plus outstanding long-term debt instruments at the end of the period; and adjusted for capital transactions during the year. Beginning capital is defined as beginning GAAP book value, less unrealized gains or losses net of tax on available-for-sale fixed maturity investments, plus outstanding long-term instruments at the beginning of the period. The Company’s blended cost of capital is defined as the weighted average of the cost of equity capital and the cost of debt capital. The cost of equity capital is the average ten-year U.S. Treasury Note rate, plus a market risk premium multiplied by the Company’s beta. The Company’s cost of debt capital is the forward market rate on the outstanding long-term debt.
MVP Program Participation. Participation in the MVP Program, percentage incentive awards and the formula to calculate MVP are recommended by the ERC and approved annually by the independent Directors of the Board for Mr. Michael and by the entire Board for other participants. In 2017, participation in the MVP Program was limited to Messrs. Michael, Kliethermes, Brown and Ms. Klobnak. The Board has concluded based on the position responsibilities and ongoing assessment of individual performance against operational and financial goals that the senior executive management team (comprised of the CEO, COO, CFO and Sr. Vice President, Operations) is most responsible for the operating and investment decisions and actions that directly impact the creation of long-term shareholder value, and, therefore, should be rewarded with a portion of their incentive compensation being directly and exclusively tied to the creation of MVP.
MVP Components. As discussed in more detail below, there are two components to the MVP Program. The first component, based on strategic objectives, represents annual compensation. The second component, based on financial objectives, is paid out over time out of amounts credited to a bonus bank, which is at risk of forfeiture based on future performance and as such represents long-term compensation. The component based on financial objectives is also adjusted
54 | RLI Corp. 2018 Proxy Statement
based on a relative comparison of the Company's five-year growth in book value to that of its Peer Companies. (The Company’s relative growth in book value, in turn, is calculated by comparing its compound annual growth rate (“CAGR”) in GAAP comprehensive earnings over the applicable five-year period to that of its Peer Companies. CAGR in comprehensive earnings is calculated based on publicly disclosed comprehensive earnings of Peer Companies for the five-year period ending at the third quarter of the fifth year.)
MVP Percentage Award. For 2017, each participant in the MVP Program received a MVP incentive award expressed as a percentage of MVP created by the Company in that calendar year. Each year the ERC confirms that the percentage awards remain appropriate by reviewing historical incentive award payouts, projected future payouts and resulting total compensation for MVP Program participants, which in turn, is compared to the performance of the Company necessary to achieve such payouts. The ERC compares the performance of the Company and total compensation of the MVP Program participants with comparable performance metrics and compensation at companies in the peer group. The MVP percentage award, expressed as a percentage of MVP, for each participant for 2017 was as follows: 2.5 percent for Mr. Michael, 1.8 percent for Mr. Kliethermes, 1.0 percent for Mr. Brown, and 1.0 percent for Ms. Klobnak. The ERC set the percentage incentive awards for 2017 based on the factors described above and based on the range of expected MVP to be created by the Company in 2017 and the projected incentive awards and incentive payouts that would result. For 2017, Mr. Michael’s percentage award remained at 2.5 percent; Mr. Kliethermes' percentage award increased from 1.5 percent to 1.8 percent in recognition of his increased responsibilities as President & COO; Mr. Brown remained at 1.0 percent; and Ms. Klobnak’s percentage award was set at 1.0 percent consistent with the scope of her responsibilities.
Individual MVP Award payments during any fiscal year, including payments from amounts credited to a bonus bank in prior years, are capped at $7.5 million under the terms of the RLI Corp. Annual Incentive Compensation Plan approved by Shareholders in 2016. Pursuant to the Annual Incentive Compensation Plan, under which the MVP Program operates, the Board of Directors may exercise discretion to decrease MVP Awards based on such objective or subjective criteria it deems appropriate.
ANNUAL COMPENSATION
BASE SALARY
Executive base salaries are targeted to be at the median base salary for comparable positions in the insurance industry, taking into account performance, experience, potential and the level of base salary necessary to attract and retain top executive talent.
In 2017, the ERC set base salary ranges for the CEO, CFO and COO based on publicly available executive compensation data for 2017 from the following peer companies: Alleghany Corp.; Allied World Assurance Company Holdings; AmTrust Financial Services; Argo Group Intl Holdings, Ltd.; Aspen Insurance Holdings Ltd.; Baldwin & Lyons Inc.; Endurance Specialty Holdings LTD.; Global Indemnity Ltd.; Markel Corp.; Navigators Group Inc.; Old Republic International Corp.; OneBeacon Insurance Group Ltd.; ProAssurance Corporation and Selective Insurance Group, Inc. (“Peer Company(ies)”). The ERC selected these Peer Companies based on its judgment. Each of the Peer Companies competes within the property and casualty insurance industry and sells a variety of specialty insurance products that serve both commercial entities and individuals that can generally be defined as specialty in nature, or targeted toward niche markets. The Peer Companies have established records of financial performance, and most have been publicly traded for at least five years, facilitating the comparison of the Company’s financial performance to that of the Peer Companies. The ERC also reviews the market capitalization of the Company compared to the Peer Companies to ensure that the Company is at or near the median market capitalization among those companies. For the Peer Company comparison performed in 2017, the Company’s market capitalization was ninth among fifteen companies within the peer group.
RLI Corp. 2018 Proxy Statement | 55
Each year, the ERC compares the relative ranking among the Company and Peer Companies based on the most recently available public data (2016 data reviewed in 2017) for base salaries and total compensation for the CEO, COO and CFO positions to the relative performance ranking for the following publicly available performance metrics for the prior year: price-to-book ratio; return on equity; combined ratio; and total shareholder return ("TSR") for one, three and five-year time frames to determine the overall competitiveness of the Company’s executive compensation. The Company’s rank among the Peer Companies for 2017, based on 2016 results, is shown in the table below:
| | | | | | | | | | | | | | Performance Metric | | Price/Book | | Return on Equity | | Combined Ratio | | One-Year TSR | | Three-Year TSR | | Five -Year TSR | | RLI Rank | | 1 | | 1 | | 2 | | 12 | | 8 | | 8 | |
Base salaries and total compensation for other NEOs and executive positions are established by reference to the publicly available survey data, including median base salary levels, for comparable executives in the insurance industry.
At the May 2017 Board meeting, when the annual review of base salaries was conducted by the ERC, Mr. Michael recommended no base salary increases for himself, Mr. Kliethermes or Mr. Brown based on an assessment of annual cash compensation levels (base salary and annual incentive payouts from the MVP Program). Mr. Michael recommended a 4.8 percent increase for Ms. Klobnak in light of the placement of her base salary compared to other similar positions in the insurance industry. Mr. Michael recommended a 4.9 percent increase for Mr. Fick in light of the additional responsibilities gained upon promotion to Sr. Vice President, Chief Legal Officer and the placement of his base salary within a competitive pay range. The ERC and Board approved Mr. Michael’s recommendations.
MARKET VALUE POTENTIAL EXECUTIVE INCENTIVE PROGRAM — ANNUAL INCENTIVE COMPENSATION COMPONENT
Twenty percent of the preliminary MVP award calculated for each participant is evaluated against annual objectives and an achievement rating of 0 to 100 percent is assigned to that portion of the award. This amount represents the annual compensation component of the MVP Program award (The long-term incentive component of the MVP Program is explained under the section Long-Term Compensation on pages 58-60). For 2017, Messrs. Michael, Kliethermes, and Brown and Ms. Klobnak had shared annual objectives related to the ongoing implementation of a company-wide executive succession and development process; strategy; relative annual financial performance; and growth initiatives. The annual objectives are established as difficult stretch goals, requiring superior effort and execution to achieve 100% on all goals. The annual objectives component of an MVP award will only be paid if objectives are achieved and if positive MVP is created for shareholders. If MVP is positive and annual objectives are achieved, the annual objectives component of the award will be paid annually to provide direct linkage of annual incentive compensation for the achievement of those annual goals. However, if MVP is negative for a year, no MVP award will be made for that year with respect to the annual objectives component.
In 2016 and prior years, Ms. Klobnak participated in the MIP discussed immediately below. Under the MIP, annual bonuses are paid out in their entirety, compared to annual bonuses under the MVP Program which are credited to a bonus bank, with 33 percent of the bonus bank paid out annually. As a transition from participation in MIP to the MVP Program, the ERC agreed that for 2017, Ms. Klobnak would be paid the greater of the bonus calculated under MIP or the MVP Program, with such amount deducted from her MVP bonus bank. Based on 2017 results, the bonus payable to Ms. Klobnak was greater under the MVP Program.
For 2017, annual objectives were evaluated by the Committee and an 84 percent overall achievement factor was
56 | RLI Corp. 2018 Proxy Statement
applied. The following annual incentive compensation was paid to each participant under the MVP Program:
Calculation of MVP Program Annual Incentive Award
| | | | | | | | | | | | | | | | | | | | (A) | | (B) | | (C = A x B) | | (D = C x 20%) | | (E = % Achieved) | | (F = D x E) | | | | 2017 MVP | | Percentage | | 2017 Preliminary | | 20% Annual Component | | Achievement | | 2017 Annual | | Participant | | Created | | Award | | MVP Award | | Based on Strategic Goals | | Rating | | Incentive Award | | J. Michael | | $ | 86.531 million | | 2.5% | | $ | 2,163,275 | | $ | 432,655 | | 84% | | $ | 363,430 | | C. Kliethermes | | $ | 86.531 million | | 1.8% | | $ | 1,557,558 | | $ | 311,512 | | 84% | | $ | 261,670 | | T. Brown | | $ | 86.531 million | | 1.0% | | $ | 865,310 | | $ | 173,062 | | 84% | | $ | 145,372 | | J. Klobnak | | $ | 86.531 million | | 1.0% | | $ | 865,310 | | $ | 173,062 | | 84% | | $ | 145,372 | |
MANAGEMENT INCENTIVE PROGRAM (MIP)
Participants in the MIP include home office vice presidents, assistant vice presidents and other senior managers. Awards are granted annually and expressed as a percentage of year-end base pay based on targets for three financial goals: operating return on equity (“ROE”), combined ratio and MVP. Awards are based on actual results for these metrics and achievement of personal objectives.
ROE and combined ratio are used as financial goals to provide an incentive to increase annual profitability. ROE is a ratio calculated as our operating earnings divided by our beginning equity adjusted for capital transactions such as share repurchases and special dividends. Operating earnings, in turn, are our net earnings minus realized investment gains or losses net of tax. Combined ratio is an expense measure and is calculated as the sum of our incurred losses and settlement expenses plus our policy acquisition costs and operating expenses, divided by our net premiums earned. The difference between the combined ratio and 100 reflects the per-dollar rate of underwriting income or loss. MVP is used as a financial goal as a proxy for shareholder value creation and is explained on pages 54-55.
Actual awards for a year are paid in the first quarter of the following year. The ERC approves award levels for MIP participants at the vice president level, who are designated as executive officers under Section 16 of the Exchange Act. Mr. Michael approves award levels for other MIP participants.
For 2017, Mr. Michael recommended, and the ERC approved, a MIP maximum annual incentive opportunity for Ms. Klobnak and Mr. Fick of 90 percent of their respective year-end base salary, 72 percent of which was based on the achievement of financial goals of MVP, ROE and combined ratio and 18 percent of which was based on personal objectives related to strategic projects.
As discussed above under the MVP Program, as a transition for 2017, Ms. Klobnak was paid the greater of the bonus calculated under the MVP Program and MIP. Because the bonus calculated under the MVP Program was greater, she was paid a bonus for 2017 under the MVP Program, and no bonus was paid to her under the MIP. Beginning in 2018, Ms. Klobnak will no longer participate in the MIP.
RLI Corp. 2018 Proxy Statement | 57
Targets levels and corresponding achievement levels for actual results for financial goals are measured according to the following schedules.
| | | | | | | | | | | | | | MIP Maximum | | | | | | | | | | | | 90% Maximum | | | | | 90% Maximum | Target | 90% Maximum | | | | Target ROE % | Bonus % | | | | Target MVP | Bonus % | Combined Ratio | Bonus % | | | | Less than | 6.0 | 0.000 | Less than | | $ | 0 | 0.000 | Greater than | 100.0 | 0.000 | | | | | 7.0 | 2.667 | | | | 12,000,000 | 2.618 | | 99.0 | 1.212 | | | | | 8.0 | 5.333 | | | | 24,000,000 | 5.236 | | 97.0 | 3.636 | | | | | 9.0 | 8.000 | | | | 36,000,000 | 7.854 | | 95.0 | 6.061 | | | | | 10.0 | 10.667 | | | | 48,000,000 | 10.473 | | 92.6 | 8.970 | | | | | 11.0 | 13.333 | | | | 60,000,000 | 13.091 | | 90.0 | 12.121 | | | | | 12.0 | 16.000 | | | | 72,000,000 | 15.709 | | 87.6 | 15.030 | | | | | 13.0 | 18.667 | | | | 84,000,000 | 18.327 | | 85.0 | 18.182 | | | | | 14.0 | 21.333 | | | | 96,000,000 | 20.945 | | 82.6 | 21.091 | | | | Max | 15.0 | 24.000 | Max | | | 110,000,000 | 24.000 | Max | 80.0 | 24.000 | | | |
In 2017, the following MIP awards were calculated based on the corresponding actual results:
| | | | | | | | | | | | | | | 2017 MIP Award | | | | | | | | | | | | | | | | | | | | | | | Actual | | Personal | | | | Participant | | Actual ROE % | Bonus % | | Actual MVP | Bonus % | Combined Ratio | Bonus % | Objective % | Total MIP % | Total MIP Bonus | Jennifer L. Klobnak (1) | | 12.5 | 17.335 | | $86.5M | 18.879 | | 96.4 | 4.362 | 15.120 | 55.696 | $ | 181,011 | Jeffrey D. Fick | | 12.5 | 17.335 | | $86.5M | 18.879 | | 96.4 | 4.362 | 16.200 | 56.776 | $ | 181,682 |
| (1)
| | As discussed under the MVP Program, as a transition for 2017, Ms. Klobnak was paid the greater of the bonus calculated under the MVP Program and MIP. Because the bonus calculated under the MVP Program was greater, she was paid a bonus for 2017 under the MVP Program, and no bonus was paid to her under the MIP.
|
LONG-TERM COMPENSATION
MARKET VALUE POTENTIAL EXECUTIVE INCENTIVE PROGRAM — LONG-TERM INCENTIVE COMPENSATION COMPONENT AND FORFEITURE PROVISION (CLAWBACK)
The MVP Program is described on pages 54-55. Eighty percent of the preliminary MVP award calculated under that program (which will be positive if MVP is positive, or negative if MVP is negative) is subject to an assessment of Company performance compared to Peer Companies (the “financial component”). This represents the long-term component of the MVP award. The financial component of a preliminary award will be adjusted in a range from a 20 percent reduction (minimum) to a 25 percent increase (maximum) based on the Company’s long-term performance relative to Peer Companies measured by five-year growth in book value per share. The Company’s relative growth in book value is calculated by comparing its CAGR in GAAP comprehensive earnings over the applicable five-year period to that of its Peer Companies. CAGR in comprehensive earnings is calculated based on publicly disclosed comprehensive earnings of Peer Companies for the five-year period ending at the third quarter of the fifth year. The adjustment to the financial component is made according to the following schedule:
Adjustment of Preliminary Financial Award Based on
RLI’s Relative Five-Year Book Value per Share Growth
| | Relative Performance
| Adjustment
| | 90th percentile of peers or greater
| 125% (maximum)
| | 60th percentile of peers
| 100% (target)
| | 33rd percentile of peers or less
| 80% (minimum)
| | Results between the stated values for relative performance will be interpolated to determine the achievement rating.
|
58 | RLI Corp. 2018 Proxy Statement
As noted above, the Company must perform at the 60th percentile, above the median of long-term performance of Peer Companies, in order for 100 percent of the long-term financial component of an MVP award otherwise earned to be made.
The financial component of an MVP award earned is not immediately paid to participants; rather it is credited (if positive) or charged (if negative) to each participant’s long-term bonus bank. A bonus bank, in turn, may be positive or negative based on prior year results. The bonus bank is paid annually at a rate of 33 percent of a positive bank balance, meaning that it will take more than 10 years to completely pay out an incentive award for a given year deposited into a bonus bank.
Until paid out, all amounts in the MVP Program bonus bank are subject to a risk of forfeiture if future financial performance results in a negative MVP calculation. In other words, negative MVP charged to a bonus bank will reduce a positive balance in that bonus bank, effectively causing a forfeiture of such positive balance. If a bonus bank is negative after the financial component of an MVP award is credited or charged to a bonus bank, no award will be paid from the bank until it is positive as a result of future positive amounts credited to the bank. The forfeiture provision in the MVP Program bonus bank in the event of negative MVP, in effect, operates as a clawback for negative shareholder results by reducing the amount payable from the bonus bank when the Company has negative MVP. In light of the clawback feature of the MVP Program in the event of negative MVP, and given the lack of a regulatory framework for clawbacks under the Dodd-Frank Act, the ERC has decided to wait to implement broader clawback provisions until after such regulations are finalized.
The Company’s MVP in 2017 was $ 86.5 million compared to MVP of $82.1 million in 2016. The following table shows the manner in which 2017 annual and long-term MVP award payouts and remaining at-risk bank balances were calculated for Messrs. Michael, Kliethermes, and Brown and Ms. Klobnak.
RLI Corp. 2018 Proxy Statement | 59
2017 MVP Program Incentive Awards and Payouts
| | | | Personal Objectives Achieved
| 84.0%
| | | Peer Company Adjustment Factor
| 125%
| | | | (A)
| | | 2017 MVP Achieved (after tax)
| $86,531,000
| | |
| | | | | | | | | | | | | | Formula for | | | | | | | | | | | | | | 2017 MVP Award: | | (B) | | (C = A x B) | | (D = C x 20%) | | (E = D x % Achieved) | | (F = C x 80%) | | (G = F x Peer Factor) | | | | | | | | Personal | | Personal | | | | Financial | | | | | | Preliminary | | Objectives | | Objectives | | Financial | | Award | | Participant | | MVP % | | MVP Award ($) | | Component ($) | | Award ($) | | Component ($) | | ($) | | Jonathan E. Michael | | 2.5% | | 2,163,275 | | 432,655 | | 363,430 | | 1,730,620 | | 2,163,275 | | Craig W. Kliethermes | | 1.8% | | 1,557,558 | | 311,512 | | 261,670 | | 1,246,046 | | 1,557,558 | | Thomas L. Brown | | 1.0% | | 865,310 | | 173,062 | | 145,372 | | 692,248 | | 865,310 | | Jennifer L. Klobnak | | 1.0% | | 865,310 | | 173,062 | | 145,372 | | 692,248 | | 865,310 | |
| | | | | | | | | | | | Formula for 2017 | | | | | | | | | | | | Payout from MVP Bank: | | (H) | | (G)(from above) | | (I = G + H) | | (J = I x 33%) | | (K = I - J) | | | | Beginning Bank | | 2017 Award | | Total Pre-payout | | Payout | | Remaining | | Participant | | Balance ($)(1) | | Credited to Bank ($) | | Balance ($) | | of Bank ($) | | At-Risk Bank | | Jonathan E. Michael | | 4,866,938 | | 2,163,275 | | 7,030,213 | | 2,319,970 | | 4,710,243 | | Craig W. Kliethermes | | 2,070,732 | | 1,557,558 | | 3,628,290 | | 1,197,336 | | 2,430,954 | | Thomas L. Brown | | 1,567,645 | | 865,310 | | 2,432,955 | | 802,875 | | 1,630,080 | | Jennifer L. Klobnak | | 0 | | 865,310 | | 865,310 | | 285,552 | | 579,758 | |
| | | | | | | | | Formula for Total | | | | | | | | | 2017 MVP Payout: | | | | (E)(from above) | | | | | | | (J)(from above) | | Payout of 2017 | | (L = J + E) | | | | | Payout | | Personal Objectives | | Total 2017 | | | Participant | | of Bank ($) | | Component ($) | | Payout ($) | | | Jonathan E. Michael | | 2,319,970 | | 363,430 | | 2,683,400 | | | Craig W. Kliethermes | | 1,197,336 | | 261,670 | | 1,459,005 | | | Thomas L. Brown | | 802,875 | | 145,372 | | 948,247 | | | Jennifer L. Klobnak | | 285,552 | | 145,372 | | 430,924 | | |
| (1)
| | Under the terms of the MVP Program, interest at the three-year U.S. Government Treasury Note rate (1.47 percent) was accrued on the unpaid bonus bank balance on December 31, 2017. The following interest was accrued to the December 31, 2017 bonus bank balance as follows: Mr. Michael, $70,508; Mr. Kliethermes, $29,999; and Mr. Brown, $22,711.
|
LONG-TERM INCENTIVE PLANS
The Company has three long-term incentive plans which cover our award of equity/stock-based compensation to participants. Those plans are the Omnibus Plan (effective 2005 to 2010), the 2010 Long-Term Incentive Plan (“2010 LTIP”) effective from 2010 to 2015, and the 2015 Long-Term Incentive Plan (“2015 LTIP”). The Omnibus Plan and 2010 LTIP are inactive, and the 2015 LTIP is currently in effect. Together, these plans are sometimes referred to as “LTIPs”
Under the Company’s Omnibus Plan certain employees, officers, consultants and directors of the Company were eligible to receive long-term incentive compensation in a variety of forms including non-qualified stock options, incentive stock options, stock appreciation rights, performance units, restricted stock awards and other equity awards. The 2010 LTIP was adopted in 2010 and replaced the Omnibus Plan. The 2015 LTIP, described immediately below, was adopted in 2015 and replaced the 2010 LTIP. Messrs. Michael, Kliethermes, Brown, Fick, and Ms. Klobnak have outstanding stock option awards under the 2010 LTIP and the 2015 LTIP.
The purpose of our LTIPs is to promote the interests of the Company and its shareholders by providing key personnel of the Company with an opportunity to acquire an equity interest in the Company and rewarding them for achieving or exceeding the Company’s performance goals. The grant of equity awards, the value of which is related to the value of the Company’s Common Stock, aligns the interests of the Company’s executive officers with that of the shareholders. The ERC
60 | RLI Corp. 2018 Proxy Statement
believes this arrangement develops a strong incentive for Company executives to put forth maximum effort for the continued creation of shareholder value and long-term growth of the Company.
Under the Company’s 2015 LTIP, certain employees, officers and directors of the Company are eligible to receive equity awards in a variety of forms including non-qualified stock options, stock appreciation rights, performance units, restricted stock awards and other equity awards. All executives at the Company are required to own a significant level of Company stock, stated as a multiple of base salary. Equity grants provide a means for executives to meet their ownership requirement. As explained further on page 64, executives are required to hold all net shares from an equity grant until their stock ownership level is met.
The ERC believes equity awards serve as incentives to executives to maximize long-term growth and profitability of the Company, an arrangement that benefits both the executives and shareholders. Equity awards also provide a means to attract and retain key employees. The ERC establishes and recommends to the independent Directors of the Board the annual equity award for Mr. Michael, which is established based on a review of long-term incentive compensation of CEO positions among the Peer Companies described above, an assessment of his performance and initiatives underway and a comparison of his equity awards compared to awards to other executives. A target range of the value of annual equity awards, expressed as a percentage of base salary based on peer company comparisons and executive compensation benchmarking surveys, has been established for all other Company executives.
In 2017, the Company awarded long-term incentives in the form of non-qualified stock option grants to the NEOs in amounts recommended by the ERC and approved by the Board of Directors (independent Directors with respect to Mr. Michael’s award). The ERC believes that non-qualified stock options provide an effective form of performance-based compensation to align the interests of NEOs and shareholders. In reaching that conclusion, the ERC considered the following: stock options provide more leverage than equity awards such as restricted stock; are directly aligned with shareholder interests since they provide rewards only with share price appreciation; and, are understood and supported by recipients. Other Company employees eligible for long-term incentive awards received non-qualified stock options and restricted stock units in 2017.
The Company targets long-term incentives at approximately the median of competitive market data. Mr. Michael recommends to the ERC proposed long-term incentive awards within the target range for each executive officer based on the executive officer’s position and a subjective assessment of the executive officer’s individual performance and anticipated future contributions to the Company. The ERC considers Mr. Michael’s recommendations and then approves and recommends stock option awards to the Board for approval. Options granted prior to May 2009 expire 10 years after grant, options awarded from May 2009 and after expire eight years after grant. The change in 2009 to an eight-year term for stock options was implemented to reduce the expense of option grants.
Stock options vest over five years at the rate of 20 percent per year, or upon termination of employment due to the death, disability, or qualified retirement of the recipient. Upon termination of employment (other than due to death, disability, or retirement), vested options must be exercised within the earlier of 90 days of termination or expiration of the option award, except that options are forfeited in the event the employment of an option recipient is terminated for cause.
EMPLOYEE STOCK OWNERSHIP PLAN (ESOP)
The Company’s ESOP offers another performance-based means of retaining and motivating employees, including executive officers, who work 1,000 or more hours per year, by offering ownership in the Company on a long-term basis. The Board may approve an annual contribution to the ESOP based on the profitability of the Company that is used by the ESOP to purchase Common Stock on behalf of participating employees, including executive officers. For 2017, the ERC recommended and the Board approved a discretionary profit sharing contribution to the ESOP of 6.7 percent of participants’ eligible compensation. In addition, plan forfeitures equal to 0.116 percent of eligible compensation were added to all participants’ accounts.
RLI Corp. 2018 Proxy Statement | 61
401(K) PLAN
The Company sponsors a 401(k) Plan in which all employees, including executive officers, scheduled to work 1,000 or more hours per year, are entitled to participate. All participants receive a “safe harbor” annual contribution by the Company to their 401(k) accounts of 3 percent of eligible compensation. The Board may also approve discretionary profit sharing contributions to the 401(k) Plan. For 2017, in addition to the safe harbor 3 percent annual contribution, the ERC recommended and the Board approved a discretionary profit sharing contribution to the 401(k) of 3.7 percent of participants’ eligible compensation and plan forfeitures equal to 0.021 percent of eligible compensation were added to all participants’ accounts.
DEFERRED COMPENSATION PLAN (DEFERRED PLAN)
Under the Company’s Deferred Plan, an executive officer may elect to defer up to 100 percent of total cash compensation after payroll deductions. Upon an election by an executive officer to defer compensation, the Company transfers cash equal to the amount deferred to a bank trustee under an irrevocable trust established by the Company, and the trustee purchases a number of shares of Common Stock of the Company representing an amount equal to the compensation deferred by the executive officer. Pursuant to the Deferred Plan, dividends paid on the shares in such trust are used by the trustee to purchase additional shares of Common Stock of the Company, which are placed in the trust. The trust is considered to be a “Rabbi Trust” or grantor trust for tax purposes. The assets of the trust are subject to claims by the Company’s creditors. The Deferred Plan generally provides that the shares credited to the participant’s account will be transferred to the participant upon termination of employment over five years. Messrs. Michael, Kliethermes, Brown, Fick, and Ms. Klobnak did not elect to defer any income for 2017. Messrs. Michael, Kliethermes and Brown have deferred income under the Deferred Plan in prior years and their respective accounts are credited with dividends on shares held in their account, which are used to purchase additional shares.
KEY EMPLOYEE EXCESS BENEFIT PLAN (KEY PLAN)
The purpose of the Key Plan is to restore benefits lost to certain executive officers under the ESOP and 401(k) Plan due to limitations on benefits contained in the Internal Revenue Code. The Company transfers to a bank trustee under an irrevocable trust established by the Company such number of shares of Common Stock of the Company representing an amount equal to the benefits the participant would have earned in the 401(k) and ESOP but for the limitation in the Internal Revenue Code on the maximum compensation on which those benefits may be calculated. The trust is considered to be a “Rabbi Trust” or grantor trust for tax purposes. The assets of the trust are subject to claims by the Company’s creditors. The Key Plan generally provides that dividends are credited to the participant’s account and reinvested in shares of Common Stock of the Company. The shares credited to the participant’s account pursuant to the Key Plan will be paid upon termination of employment in five annual installments. Mr. Michael ceased active participation in the Key Plan in 2005. Dividends on his shares held in the Key Plan continue to be credited to his account in the Key Plan. No other employee participates or has participated in the Key Plan, which is now frozen.
62 | RLI Corp. 2018 Proxy Statement
ELEMENTS OF POST-TERMINATION COMPENSATION AND BENEFITS
The following table shows potential amounts payable to each NEO had their employment terminated on December 31, 2017 based on the following scenarios: departure other than death, disability, or retirement; departure from death, disability, or retirement; for cause; and change in control.
Post Termination Compensation
| | | | | | | | | | | | | | | | | | | | | | Deferred | | | | | | | | Termination of | | | | | | Compensation | | | | | | Name | | Employment Scenarios | | MVP/MIP ($) | | LTIPs ($) | | ($) | | Key Plan ($) | | Total ($) | | Jonathan E. Michael | | Departure Other Than Death, Disability, or Retirement | | N/A (1) | | N/A (1) | | 3,185,670 | | 7,893,661 | | 11,079,331 | | | | Departure From Death, Disability, or Retirement | | 7,393,643 | | 2,956,225 | | 3,185,670 | | 7,893,661 | | 21,429,199 | | | | For Cause | | 0 | | 0 | | 3,185,670 | | 7,893,661 | | 11,079,331 | | | | Change in Control | | 7,393,643 | | 2,956,225 | | 3,185,670 | | 7,893,661 | | 21,429,199 | | Craig W. Kliethermes | | Departure Other Than Death, Disability, or Retirement | | 0 | | 104,400 | | 1,138,358 | | N/A | | 1,242,758 | | | | Departure From Death, Disability, or Retirement | | 3,889,960 | | 1,174,660 | | 1,138,358 | | N/A | | 6,202,978 | | | | For Cause | | 0 | | 0 | | 1,138,358 | | N/A | | 1,138,358 | | | | Change in Control | | 3,889,960 | | 1,174,660 | | 1,138,358 | | N/A | | 6,202,978 | | Thomas L. Brown | | Departure Other Than Death, Disability, or Retirement | | 0 | | 560,700 | | 432,103 | | N/A | | 992,803 | | | | Departure From Death, Disability, or Retirement | | 2,578,327 | | 1,206,420 | | 432,103 | | N/A | | 4,216,850 | | | | For Cause | | 0 | | 0 | | 432,103 | | N/A | | 432,103 | | | | Change in Control | | 2,578,327 | | 1,206,420 | | 432,103 | | N/A | | 4,216,850 | | Jennifer L. Klobnak | | Departure Other Than Death, Disability, or Retirement | | 0 | | 305,443 | | N/A | | N/A | | 305,443 | | | | Departure From Death, Disability, or Retirement | | 1,010,682 | | 719,469 | | N/A | | N/A | | 1,730,151 | | | | For Cause | | 0 | | 0 | | N/A | | N/A | | 0 | | | | Change in Control | | 1,010,682 | | 719,469 | | N/A | | N/A | | 1,730,151 | | Jeffrey D. Fick | | Departure Other Than Death, Disability, or Retirement | | 181,682 | | 370,665 | | N/A | | N/A | | 552,347 | | | | Departure From Death, Disability, or Retirement | | 181,682 | | 781,164 | | N/A | | N/A | | 962,846 | | | | For Cause | | 0 | | 0 | | N/A | | N/A | | 0 | | | | Change in Control | | 181,682 | | 781,164 | | N/A | | N/A | | 962,846 | |
| (1)
| | Mr. Michael has met the requisite age and years of service to qualify for retirement upon his departure from the Company.
|
The Company has not entered into any employment or severance agreements or arrangements with any of its executive officers that would compensate the executive officers for or after departing the Company. The following paragraphs describe the circumstances under which the retirement or other termination of employment will result in a payment to an NEO under the Company’s annual and long-term incentive plans.
MVP/MIP. Under the Company’s MVP Program, an employee must be employed on Bonus Payment Date in order to receive a bonus for that year, unless the employee’s termination of employment was due to death, disability, or Retirement. Under the Company’s MIP Program, an employee must be employed on the last calendar day of the year in order to receive a bonus for that year, unless the employee’s termination of employment was due to death, disability, or Retirement. Retirement requires: in order to receive a bonus payout for that year, or from a bonus bank if applicable, (1) the termination of employment of an employee who has reached age and years of service equal to or greater than 75 at the time of departure; or (2) the termination of employment of an employee who satisfies a non-competition covenant or other terms and conditions specified by the Company. The amounts in the above table show annual incentives payable upon termination of employment in the event of a death, disability, or Retirement assuming all NEOs would have met the definition of Retirement at year-end 2017, although only Mr. Michael has met the definition based on age and years of service.
Upon the termination of employment of a participant qualifying as retirement, a positive MVP bonus bank calculated on the last day of the quarter during which the participant’s employment ended will be paid to a participant in a lump sum on the first day of the seventh month after termination if the participant is age 65 or older, and as a quarterly annuity starting after
RLI Corp. 2018 Proxy Statement | 63
the first day of the seventh month after termination, and continuing to age 65 using the interest rate for the five-year Treasury Note in effect at the date of Retirement if the Participant’s age is less than 65. A bonus bank balance will also be calculated at the end of the quarter prior to a participant’s termination of employment and the Company may, in its discretion, pay the lower of the calculated bonus banks. All such payments upon a termination of employment qualifying as retirement are subject to ongoing restrictions on: the participant’s employment in the insurance industry; solicitation of Company employees for employment elsewhere; solicitation of business away from the Company; and disclosure of confidential information of the Company.
Long-Term Incentives. Under the terms of our LTIPs, stock option grants automatically vest upon the death or disability of an optionee, but will vest upon the Retirement of an optionee only if the underlying stock option agreement so provides. The awards of stock options to the NEOs, and all other stock option recipients at the Company, provide for the immediate vesting of outstanding unvested stock options in the event of a recipient’s termination of employment qualifying as a retirement. Retirement is defined under the LTIPs as the termination of employment of a participant who has combined age and years of service of 75 or greater at the time of departure. Stock options must be exercised within the earlier of one year of the death of an optionee, or three years of the termination of employment due to the disability or Retirement of an optionee, and the original expiration date of the stock option award. In the event of the termination of employment of an optionee for reasons other than death, disability, or Retirement, vested options must be exercised within the earlier of 90 days of the termination of employment or the original expiration of the option award. In 2017, Mr. Michael’s respective age and years of service exceeded 75. Accordingly, upon Mr. Michael’s termination of employment with the Company, all of his respective unvested stock option grants will immediately vest, expiring on the earlier of the original expiration date or three years.
For Cause. In the event of a termination for cause, all unpaid bonuses, amounts in a bonus bank, and unexercised stock options are forfeited.
Change in Control. In the event of a change in control of the Company, as defined under the 2015 LTIP, the Board must take one of two actions with respect to outstanding stock option awards. Under the first alternative, the Board must make appropriate provisions for the replacement of the outstanding awards by the substitution of equity based awards of the surviving company with substantially similar terms and conditions, with full vesting for qualifying terminations of employment, such as involuntary termination by the Company or termination by the employee with good reason, in either case, within two years following the fundamental change. Alternatively, the Board must permit the options to be exercised prior to the change in control, or cashed out as part of the change in control. For illustration purposes, the table shown on the previous page assumes the Board of Directors had exercised discretion as described above to cash out outstanding stock options granted by permitting each participant to exercise all outstanding stock options as of December 31, 2017 to realize the in-the-money value of those options.
The 2016 RLI Corp. Annual Incentive Compensation Plan, which governs the MVP and MIP bonus program, includes a change in control provision, with “change in control” defined as in the 2015 LTIP. The Annual Incentive Compensation Plan provides that upon change in control, any amounts credited to a bonus bank and any amounts earned during a full or partial performance period shall not be forfeited, but will be paid out as specified under the applicable bonus program. The amounts shown in the table above show the full bonus bank balance under the MVP Program for Messrs. Michael, Kliethermes, Brown and Ms. Klobnak and the full year bonus under the MIP Program for Mr. Fick.
STOCK OWNERSHIP/RETENTION GUIDELINE
It is the Company’s belief that key executives should hold significant amounts of Company stock. The value of all shares owned or vested, including: those held outright; those in benefit plans; and the value of in-the-money vested stock options, must equal or exceed a multiple of their annual base salary, as shown below:
| | | | | Position
| | $ Value of Shares
| CEO
| | 6.0
| x
| Base Salary
| COO
| | 4.0
| x
| Base Salary
| CFO; Executive VP
| | 3.0
| x
| Base Salary
| Senior Vice President
| | 2.0
| x
| Base Salary
| Vice President
| | 1.5
| x
| Base Salary
|
64 | RLI Corp. 2018 Proxy Statement
Executives to whom this Guideline applies are encouraged to reach their respective stock ownership level within five years of the date on which an individual assumes an executive position covered by this Guideline. Until an executive reaches the required ownership level, all net shares obtained from the exercise of stock options or other long-term incentive awards must be retained and may not be sold. The ERC reviews the progress of executives, to whom the Guideline applies, toward their stock ownership goal each year. All NEOs have met their respective stock ownership goals. The Company implemented a formal policy in 2015 prohibiting the NEOs from using financial instruments to reduce the risk of holding company stock (hedging); or from using Company shares for margin trading or collateral purpose. At the time the policy was implemented, none of the NEOs had engaged in hedging, pledging, or margining shares of RLI stock.
EXECUTIVE MANAGEMENT
EXECUTIVE OFFICERS
The Compensation Discussion & Analysis provides information about the fiscal 2017 compensation programs for our executive officers who, in 2017, were:
| | | | Name | Age | Position with Company | Executive Officer Since | Jonathan E. Michael | 64 | President & Chief Executive Officer | 1985 | Craig W. Kliethermes | 53 | President & Chief Operating Officer of the Company’s principal insurance subsidiaries | 2007 | Thomas L. Brown | 61 | Sr. Vice President, Chief Financial Officer | 2011 | Jennifer L. Klobnak (1) | 46 | Sr. Vice President, Operations of the Company’s principal insurance subsidiaries | 2016 | Jeffrey D. Fick (2) | 57 | Sr. Vice President, Chief Legal Officer | 2016 | Todd W. Bryant | 49 | Vice President, Finance, and Controller | 2009 | Aaron P. Diefenthaler | 44 | Vice President, Chief Investment Officer, and Treasurer | 2012 |
| (1)
| | Ms. Klobnak was promoted to Sr. Vice President, Operations of the Company’s principal insurance subsidiaries in January 2016. Prior to her promotion Ms. Klobnak had been Senior Vice President, Risk Services from May 2014 through December 2015, Vice President, Risk Services from July 2012 through April 2014, and Assistant Vice President, Risk Services from May 2009 through June 2012.
|
| (2)
| | Mr. Fick was promoted to Sr. Vice President, Chief Legal Officer in October 2016. Prior to his promotion Mr. Fick had been Vice President, Human Resources since October 2005.
|
RLI Corp. 2018 Proxy Statement | 65
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The aggregate compensation earned from the Company and its subsidiaries during the last fiscal year is set forth below for the Company’s President & CEO; Vice President, Chief Financial Officer; and the other three most highly compensated executive officers, referred to herein collectively as “named executive officers” or “NEOs”. None of the NEOs have an employment contract with the Company.
The key elements of compensation presented in the summary compensation table include base salary (column c); payouts under annual incentive programs (column g); and stock option awards (column f). Amounts reflected in the column titled “Non-Equity Incentive Plan” for Messrs. Michael, Kliethermes, and Brown reflect payouts from each of their respective MVP Program bonus bank accounts of amounts earned in prior years based on financial performance of the Company in those years. As described in greater detail on pages 58-60, payouts under the long-term component of the MVP Program are reflective of amounts earned in prior years, which are banked and paid out over a period of time of up to 10 years.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Change In Pension | | | | | | | | | | | | | | | | | | | Value and | | | | | | | | | | | | | | | | | Non-Equity | | Nonqualified | | | | | | | | | | | | | Stock | | Option | | Incentive Plan | | Deferred | | All Other | | | Name and | | | | | | Bonus | | Awards | | Awards | | Compensation | | Compensation | | Compensation | | | Principal Position | | Year | | Salary ($) | | ($) | | ($) | | ($)(1) | | ($)(2)(3) | | Earnings ($) | | ($)(4)(5) | | Total ($) | (a) | | (b) | | (c) | | (d) | | (e) | | (f) | | (g) | | (h) | | (i) | | (j) | Jonathan E. Michael | | 2017 | | 775,000 | | 0 | | 0 | | 441,938 | | 2,683,400 | | – | | 89,413 | | 3,989,751 | President & Chief Executive Officer | | 2016 | | 775,000 | | 0 | | 0 | | 409,038 | | 2,682,514 | | – | | 66,378 | | 3,932,930 | | | 2015 | | 775,000 | | 0 | | 0 | | 440,350 | | 2,765,928 | | – | | 52,530 | | 4,033,808 | | | | | | | | | | | | | | | | | | | | Craig W. Kliethermes | | 2017 | | 475,000 | | 0 | | 0 | | 332,220 | | 1,459,006 | | – | | 38,214 | | 2,304,440 | President & Chief Operating Officer of the | | 2016 | | 473,269 | | 0 | | 0 | | 342,600 | | 1,197,193 | | – | | 39,580 | | 2,052,642 | Company’s principal insurance subsidiaries | | 2015 | | 430,000 | | 0 | | 0 | | 357,600 | | 1,018,568 | | – | | 36,328 | | 1,842,496 | | | | | | | | | | | | | | | | | | | | Thomas L. Brown | | 2017 | | 425,000 | | 0 | | 0 | | 253,120 | | 948,247 | | – | | 43,458 | | 1,669,825 | Vice President, Chief Financial Officer | | 2016 | | 417,308 | | 0 | | 0 | | 262,660 | | 888,975 | | – | | 33,828 | | 1,602,771 | | | 2015 | | 405,000 | | 0 | | 0 | | 268,200 | | 826,863 | | – | | 34,858 | | 1,534,921 | | | | | | | | | | | | | | | | | | | | Jennifer L. Klobnak | | 2017 | | 319,231 | | 0 | | 0 | | 174,020 | | 430,927 | | – | | 36,568 | | 960,746 | Sr. Vice President, Operations of the | | 2016 | | 298,462 | | 0 | | 0 | | 125,620 | | 184,546 | | – | | 33,828 | | 642,456 | principal insurance subsidiaries | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Jeffrey D. Fick | | 2017 | | 314,231 | | 0 | | 0 | | 142,380 | | 181,682 | | – | | 38,745 | | 677,038 | Sr. Vice President, Chief Legal Officer | | 2016 | | 302,308 | | 0 | | 0 | | 114,200 | | 158,515 | | | | 36,222 | | 611,245 |
| (1)
| | The amounts shown in column (f) reflect the aggregate grant date fair value of stock option awards computed in accordance with FASB ASC Topic 718. Assumptions used in the calculation of these amounts are included in footnote 8 to the Company’s audited financial statements for the fiscal year ended December 31, 2017, included in the Company’s Annual Report on Form 10-K filed with the SEC on February 23, 2018.
|
| (2)
| | The amount shown in column (g) for Messrs. Michael, Kliethermes, Brown and Ms. Klobnak (2017 only) reflects the cash awards paid under the MVP Program, which is discussed in further detail on pages 54-55, and includes the annual award payout under that Program and long-term payout reflecting 33 percent of their respective bonus bank balances. The bank balance, in turn, includes amounts credited to their bonus banks for 2017. The amount reflected in column (g) for Ms. Klobnak (2016 only) and Mr. Fick reflects the cash award paid under the MIP, which is discussed in further detail on pages 57- 58. Mr. Fick’s 2016 MIP was awarded based on a prorated amount equal to 1) 75 percent of his base salary while serving as Vice President, Human Resources where 60 percent of which was based on the achievement of financial goals of MVP, ROE and combined ratio and 15 percent of which was based on personal objectives related to strategic projects and 2) 90 percent of his base salary while serving as Sr. Vice President, Chief Legal Officer where 72 percent of which was based on the achievement of financial goals of MVP, ROE and combined ratio and 18 percent of which was based on personal objectives related to strategic projects.
|
| (3)
| | The amounts shown in column (i) include:
|
66 | RLI Corp. 2018 Proxy Statement
| a.
| | A Company contribution to the ESOP of $18,404 for 2017; $22,993 for 2016; and $22,032 for 2015 for each of the NEOs.
|
| b.
| | A Company contribution to the 401(k) Plan of $18,147 for 2017; $12,817 for 2016; and $12,807 for 2015 for each of the NEOs.
|
| c.
| | Amounts for executive physical examinations for Messrs. Michael, Kliethermes, Brown and Fick; and proportionate amounts of travel accident insurance provided for all Company management at the assistant vice president level and above.
|
| (4)
| | Messrs. Michael and Kliethermes were authorized by the Board to use the Company’s fractionally-owned aircraft for personal use in 2017, at an hourly rate established from time to time by the Board, limited to the maximum hourly charges equal to 6.5 percent of base salary. The hourly rate after September 1, 2016 was set at $1,600 per hour which takes into account the variable hourly operating cost, including fuel prices, of the Company aircraft. Previously, the hourly rate was set at $1,800 per hour The amounts included in the All Other Compensation column for Messrs. Michael and Kliethermes reflect the difference between the Company’s hourly variable operating costs, less the hourly rates paid by them, for all personal hours flown in a year as reflected in column (e) in the following table:
|
| | | | | | | | | (a) | (b) | (c) | (d = b - c) | (e = a x d) | | Year | Personal hours flown | Company variable operating cost per hour flown | Hourly rate charged for personal hours flown | Aggregate incremental cost to Company per personal hour flown | Total aggregate incremental cost to Company for all personal hours flown in year | | 2017 | 24.3 | $ 3,129 | $ 1,600 | $ 1,529 | $ 37,155 | Jonathan Michael | 9/1 - 12/31/2016 | 5.8 | $ 2,827 | $ 1,600 | $ 1,227 | $ 16,269 | | 1/1 - 8/31/2016 | 8 | $ 2,944 | $ 1,800 | $ 1,144 | | | 2015 | 14.4 | $ 2,981 | $ 1,800 | $ 1,181 | $ 17,006 | | 2017 | 0 | N/A | N/A | N/A | N/A | Craig W. Kliethermes | 9/1 - 12/31/2016 | 0 | N/A | N/A | N/A | $ 1,716 | | 1/1 - 8/31/2016 | 1.5 | $ 2,944 | $ 1,800 | $ 1,144 | | | 2015 | N/A | N/A | $ 1,800 | N/A | N/A |
| (5)
| | In 1996, when the Company acquired an equity ownership interest in Maui Jim, Inc. (“Maui Jim”) Mr. Michael was elected to the Board of Directors of Maui Jim, a position he continues to hold. Mr. Michael was paid an initial board of director retainer in the form of 20,000 non-qualified options to purchase shares of Maui Jim stock and was paid a director fee of $1,500 for each of the nine Maui Jim board meetings held from December 1996 through February 2002. Mr. Michael elected to be paid his entire Maui Jim director fees in the form of non-qualified options to purchase shares of Maui Jim stock valued pursuant to an annual appraisal, which election was available to members of the Maui Jim Board of Directors who were not Maui Jim employees. After February 2002, no further director fees were paid to Mr. Michael for his service as a director of Maui Jim. Mr. Michael exercised all of his options to purchase 67,878 Maui Jim shares in 2003. Mr. Michael paid cash for such shares and incurred an income tax liability on the gain at the time of exercise. Mr. Michael received a dividend of $50,908 in 2016 on his shares of Maui Jim stock. No dividend was paid by Maui Jim in 2015 or 2017. The amounts reflected in column (i) do not include dividends paid to Mr. Michael on the Maui Jim stock in 2016.
|
RLI Corp. 2018 Proxy Statement | 67
Grants of Plan-Based Awards
The following table sets forth information about estimated possible payouts under non-equity incentive plan awards, which consist of potential payouts under the long-term component of the MVP Program for Messrs. Michael, Kliethermes, Brown and Ms. Klobnak and under the MIP for Mr. Fick. The table also shows information regarding grants of stock options made to the named executive officers under the LTIPs.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | All Other | | Exercise | | | | | | | | | | | | | | | | Option Awards: | | or Base | | Grant Date | | | | | | | Estimated Possible Payouts Under | | Number of | | Price of | | Fair Value | | | | | Grant | | Non-Equity Incentive Plan Awards | | Securities | | Option | | of Stock | | | | | Approval | | | | | | | | Underlying | | Awards | | and Option | Name | | Grant Date | | Date | | Threshold ($)(1) | | Target ($)(2) | | | Maximum ($)(3) | | Options (#)(4) | | ($/Sh) | | Awards($) | (a) | | (b) | | | | (c) | | (d) | | (e) | | (f) | | (g) | | (h) | Jonathan E. Michael | | 02/01/17 | | 05/07/16 | | | | | | | | | 8,750 | | 59.77 | | 74,288 | | | 05/04/17 | | 05/04/17 | | | | | | | | | 15,000 | | 56.71 | | 118,650 | | | 08/01/17 | | 05/04/17 | | | | | | | | | 15,000 | | 58.01 | | 123,750 | | | 11/01/17 | | 05/04/17 | | | | | | | | | 15,000 | | 58.73 | | 125,250 | | | | | N/A | | — | | 2,682,514 | | | 7,500,000 | | | | | | | Craig W. Kliethermes | | 05/04/17 | | 05/04/17 | | | | | | | | | 42,000 | | 56.71 | | 332,220 | | | | | N/A | | — | | 1,197,193 | | | 7,500,000 | | | | | | | Thomas L. Brown | | 05/04/17 | | 05/04/17 | | | | | | | | | 32,000 | | 56.71 | | 253,120 | | | | | N/A | | — | | 888,975 | | | 7,500,000 | | | | | | | Jennifer L. Klobnak | | 05/04/17 | | 05/04/17 | | | | | | | | | 22,000 | | 56.71 | | 174,020 | | | | | N/A | | — | | 398,885 | | | 7,500,000 | | | | | | | Jeffrey D. Fick | | 05/04/17 | | 05/04/17 | | | | | | | | | 18,000 | | 56.71 | | 142,380 | | | | | N/A | | — | | 192,000 | | | 288,000 | | | | | | |
| (1)
| | The MVP Program applicable to Messrs. Michael, Kliethermes, Brown and Ms. Klobnak discussed in further detail on pages 54-55, does not provide for a minimum threshold award level. Mr. Fick participates in the MIP and the amounts shown in column (c) represent the minimum award under the MIP, discussed in further detail on pages 57-58, which is equal to zero if personal objectives and financial goals are not met.
|
| (2)
| | The MVP Program applicable to Messrs. Michael, Kliethermes, Brown and Ms. Klobnak does not provide for a target award. The amounts shown in column (d) are their respective 2016 MVP Program payouts for 2016 performance, which are shown as representative amounts for a target MVP Program awards for 2017. For Ms. Klobnak, the amount shown in column (d) is the amount she would have received as a payout if she had participated in MVP in 2016 as a first year participant with a 1% MVP Percentage Award. For Mr. Fick, the amount in column (d) represents his target award under MIP which is equal to 60 percent of his annual base salary rate at year-end.
|
| (3)
| | The amounts shown in column (e) for Messrs. Michael, Kliethermes, and Brown and Ms. Klobnak reflect the maximum incentive award permitted under the RLI Corp. Annual Incentive Compensation Plan approved by shareholders in 2016, which governs the MVP Program. For Mr. Fick, the amount shown under column (e) represents his maximum award under MIP which is equal to 90 percent of his annual base salary at year-end.
|
| (4)
| | Twenty percent of each option grant becomes exercisable one year after the date of the grant and each year thereafter in 20 percent increments. Options expire on the eighth anniversary of the grant date. The 2017 grants were granted pursuant to the 2015 LTIP. The stock option grants vest upon the death or the termination of employment of a stock option recipient due to disability or Retirement. Retirement is defined as termination of employment of an employee with combined age and years of service of 75 or greater. Under FASB ASC Topic 718, option awards to recipients who are current employees, but who qualify for retirement upon departure from the Company, must be expensed at the time of grant, rather than over the five-year vesting period. Because Mr. Michael’s age and years of service exceeded 75 in 2006, the ERC decided to grant option awards to Mr. Michael beginning in 2006 on a quarterly basis to avoid a disproportionate expense in the quarter of grant if the option award was made in a single annual grant.
|
68 | RLI Corp. 2018 Proxy Statement
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END
The following table sets forth information with respect to the named executive officers regarding the outstanding stock option awards as of December 31, 2017. The number of options and exercise price reflect the two-for-one stock split effective January 15, 2014.
| | | | | | | Option Awards | | Number of | Number of | Equity Incentive Plan Awards: | | | | Securities Underlying | Securities Underlying | Number of Securities | | Option | | Unexercised Options (#) | Unexercised Options (#) | Underlying Unexercised | Option | Expiration | Name | Exercisable(1) | Unexercisable(1) | Unearned Options (#) | Exercise Price(2) | Date | (a) | (b) | (c) | (d) | (e) | (f) | Jonathan E. Michael | 0 | 6,000 | | 28.24 | 02/01/21 | | 0 | 4,000 | | 29.42 | 05/02/21 | | 4,000 | 4,000 | | 35.27 | 08/01/21 | | 16,000 | 4,000 | | 40.55 | 11/01/21 | | 12,000 | 8,000 | | 35.43 | 02/03/22 | | 9,000 | 6,000 | | 38.21 | 05/01/22 | | 9,000 | 6,000 | | 38.15 | 08/01/22 | | 9,000 | 6,000 | | 44.26 | 11/03/22 | | 6,000 | 9,000 | | 46.82 | 02/02/23 | | 4,000 | 6,000 | | 47.61 | 05/07/23 | | 4,000 | 6,000 | | 54.14 | 08/03/23 | | 4,000 | 6,000 | | 59.04 | 11/02/23 | | 2,000 | 8,000 | | 61.27 | 02/01/24 | | 1,750 | 7,000 | | 64.09 | 05/05/24 | | 1,750 | 7,000 | | 68.66 | 08/01/24 | | 1,750 | 7,000 | | 54.81 | 11/01/24 | | 0 | 8,750 | | 59.77 | 02/01/25 | | 0 | 15,000 | | 56.71 | 05/04/25 | | 0 | 15,000 | | 58.01 | 08/01/25 | | 0 | 15,000 | | 58.73 | 08/01/25 | | | | | | | Craig W. Kliethermes | 0 | 8,000 | | 29.42 | 05/02/21 | | 0 | 15,200 | | 38.21 | 05/01/22 | | 8,000 | 24,000 | | 47.61 | 05/07/23 | | 6,000 | 24,000 | | 64.09 | 05/05/24 | | 0 | 42,000 | | 56.71 | 05/04/25 | | | | | | | Thomas L. Brown | 0 | 8,000 | | 29.42 | 05/02/21 | | 18,000 | 12,000 | | 38.21 | 05/01/22 | | 12,000 | 18,000 | | 47.61 | 05/07/23 | | 4,600 | 18,400 | | 64.09 | 05/05/24 | | 0 | 32,000 | | 56.71 | 05/04/25 | | | | | | | Jennifer L. Klobnak | 280 | 0 | | 25.35 | 05/03/20 | | 2,000 | 0 | | 23.20 | 09/03/20 | | 2,400 | 2,400 | | 29.42 | 05/02/21 | | 3,000 | 6,000 | | 38.21 | 05/01/22 | | 6,000 | 9,000 | | 47.61 | 05/07/23 | | 2,200 | 8,800 | | 64.09 | 05/05/24 | | 0 | 22,000 | | 56.71 | 05/04/25 | | | | | | | Jeffrey D. Fick | 3,600 | 0 | | 25.35 | 05/03/20 | | 3,600 | 3,600 | | 29.42 | 05/02/21 | | 2,700 | 5,400 | | 38.21 | 05/01/22 | | 5,400 | 8,100 | | 47.61 | 05/07/23 | | 2,000 | 8,000 | | 64.09 | 05/05/24 | | 0 | 18,000 | | 56.71 | 05/04/25 | | | | | | |
| (1)
| | These grants are included in column (f) of the Summary Compensation Table on page 66 and do not constitute additional compensation from what is reported there. Options vest 20 percent per year over five years and expire on the eighth anniversary of the grant date.
|
| (2)
| | Option exercise price reflected in the table above is adjusted to reflect a reduction in the exercise price equal to the $2.50 special dividend paid December 20, 2012, $1.50 special dividend paid December 20, 2013, $3.00 special dividend paid December 22, 2014, and $2.00 special dividend paid on December 22, 2015 to prevent dilution to stock option holders. The adjustments described above for each of the years 2012 and 2013 are adjusted to reflect the two-for-one stock split that occurred on January 15, 2014.
|
RLI Corp. 2018 Proxy Statement | 69
OPTION EXERCISES AND STOCK VESTED
The following table sets forth information with respect to the named executive officers regarding the exercise of options during the last fiscal year (2017). Value realized on exercise is the excess of the fair market value of the underlying stock on the exercise date over the exercise price under the option.
| | | | | | | Option Awards | | | | | Number of Shares | | Value Realized | Name | | Acquired on Exercise (#) | | on Exercise ($) | (a) | | (b) | | (c) | Jonathan E. Michael | | 34,000 | | 1,183,330 | Craig W. Kliethermes | | 22,800 | | 638,596 | Thomas L. Brown | | 19,200 | | 618,912 | Jennifer L. Klobnak | | 0 | | 0 | Jeffrey D. Fick | | 0 | | 0 |
NON-QUALIFIED DEFERRED COMPENSATION
The following table sets forth information on the non-qualified deferred compensation for the named executive officers in 2017. The Company does not make contributions to the deferred compensation plan.
| | | | | | | | | Executive Contributions | | Aggregate Earnings | | Aggregate Balance | | | in Last FY | | in Last FY | | at Last FYE | Name | | ($)(1) | | ($)(2)(3)(4) | | ($) | (a) | | (b) | | (c) | | (d) | Jonathan E. Michael | | 0 | | 34,346 | | 11,079,330 | Craig W. Kliethermes | | 0 | | 3,556 | | 1,138,358 | Thomas L. Brown | | 0 | | 1,350 | | 432,103 | Jennifer L. Klobnak | | 0 | | 0 | | 0 | Jeffrey D. Fick | | 0 | | 0 | | 0 |
| (1)
| | Contributions shown are in respect to income deferred in 2016, but not contributed until 2017.
|
| (2)
| | The amounts shown in column (c) for Mr. Michael reflect the dividends paid on, and change in the value of, Company shares held in his accounts under the Deferred Plan, which is described in further detail on page 62, and the Key Plan, which is described in further detail on page 62. Dividends paid on shares held in the Deferred Plan and Key Plan are used to purchase additional shares held in those plans. Mr. Michael did not participate in the Deferred Plan in 2015, 2016 or 2017, and no contributions were made on his behalf under the Key Plan in 2015, 2016 or 2017. The amounts shown in column (c) were not included in amounts shown in the Summary Compensation Table for 2015, 2016 or 2017 for Mr. Michael. Amounts deferred by Mr. Michael in previous years and contributions on his behalf under the Key Plan in previous years were included in the Summary Compensation Table in the year of such deferrals or contributions.
|
| (3)
| | The amounts shown for Messrs. Kliethermes and Brown in column (c) reflect the dividends paid on, and change in the value of, the Company shares held in their respective accounts under the Deferred Plan, which is described in further detail on page 62. Dividends paid on shares held in the Deferred Plan are used to purchase additional shares held in the Plan. Mr. Brown deferred income under the Deferred Plan in 2014. Mr. Kliethermes deferred income under the Deferred Plan in 2015. The amounts shown in column (c) were not included in amounts shown in the Summary Compensation Table for 2015, 2016 or 2017 for Messrs. Kliethermes and Brown. Amounts deferred in previous years were included in the Summary Compensation Table in the year of such deferrals.
|
| (4)
| | Ms. Klobnak and Mr. Fick have not participated in the Deferred Plan in any prior years.
|
70 | RLI Corp. 2018 Proxy Statement
Ratio of ceo to median employee total compensation
As a result of the recently adopted rules under the Dodd-Frank Act, beginning with our 2018 Proxy Statement, the SEC requires disclosure of the CEO to median employee ratio of total compensation.
We determined the median employee for purposes of this disclosure by generating a report from our payroll system reflecting either the base salary, or wages and overtime, as appropriate, for the calendar year 2017 for every full-time, part-time, seasonal, and temporary employee (other than Mr. Michael), annualizing that amount for any full-time or part-time employee who had worked for less than a full year. Once we determined the median employee, we calculated that employee’s total compensation for 2017 in the same manner used to calculate Mr. Michael’s total compensation as reflected in the Summary Compensation Table at page 66. For the median employee, we included base salary, annual incentive payout, and retirement contributions to the employee’s accounts under the Company’s Employee Stock Ownership Plan and 401(k) Plan. Amounts reflected in Mr. Michael’s total compensation in the form of long-term incentive awards and limited perquisites did not apply to the median employee.
Mr. Michael had 2017 total compensation of $3,989,751 while the median employee had 2017 total compensation of $105,360 for a ratio of 38 to 1.
SAFEGUARDS AGAINST UNNECESSARY OR EXCESSIVE RISK
Management of the Company, including leaders in legal and human resources, undertook analysis of the Company’s compensation structure considering the Company’s compensation policies and practices with respect to the named executive officers, as well as the other employees of the Company, to determine whether incentives arising from compensation policies or practices relating to any of the Company’s employees would be reasonably likely to have a material adverse effect on the Company. This analysis was reviewed and discussed by the ERC and Strategy Committee in their joint meeting in 2017. Based on the analysis and discussions, the ERC and management concluded that the Company’s compensation policies and practices do not create risks reasonably likely to have a material adverse effect on the Company, and again confirmed that the mix of compensation types and time frames tend to align risk-taking with appropriate medium and long-term rewards for the Company.
The following is a discussion of how the Company’s compensation policies and practices for its employees will affect risk management practices and risk-taking incentives. The Company is in the business of insurance and therefore takes on the risk of others in return for appropriate premiums. The Company is therefore particularly sensitive to matching the annual incentives it pays to its employees with the long-term risk and value created by the insurance business it writes. The following discussion is broken into four areas: (1) Senior Management Compensation; (2) Underwriting Compensation; (3) Investment Practices; and (4) Employee and Executive Equity Ownership.
SENIOR MANAGEMENT COMPENSATION
The Company’s CEO, COO, CFO and Sr. Vice President, Operations participate in the MVP Program, an incentive program described in further detail on pages 54-55. The MVP Program balances risk and opportunity by incorporating a risk-based cost of capital target. The MVP Program contains three features which adjust, for longer-term considerations, the annual measure of shareholder value creation used to determine incentive awards.
The first is a banking feature that deposits the financial component of MVP-based incentive awards (which may be positive or negative) into a “bonus bank,” paying out 33 percent of the bonus bank’s balance annually. A bonus bank balance is at risk based on future performance — future positive MVP will increase the bonus bank and payouts, while negative MVP will decrease the bank and payouts. By exposing the bonus bank balance to future performance, the MVP Program provides an incentive to sustain long-term shareholder value creation.
The second is a peer company adjustment factor applicable to the financial component of an MVP Program award that rates the relative performance of the Company to that of its peer group with respect to growth in book value over a five-year period.
The third is Board discretion to reduce awards resulting from excessively risky actions by management, or for other
RLI Corp. 2018 Proxy Statement | 71
subjective or objective criteria. Additionally, the MVP Program includes a Board approval mechanism, which requires the prior approval of the independent directors of the Board of the financial portion of any annual award (positive or negative) contributed to a MVP bonus bank that exceeds 300 percent of a participant’s base salary. This Board approval limit gives the Board the ability to reduce an award if the Board determines that MVP did not correspondingly increase shareholder value.
The ERC believes that the risk-based cost of capital target, long-term banking feature, peer company adjustment factor for five-year growth in book value and Board discretion to reduce incentive awards significantly reduce the likelihood that senior management will take high-risk actions solely to improve short-term financial results to the detriment of long-term performance.
UNDERWRITING COMPENSATION
Underwriters are paid annual incentives under one of two annual incentive programs, the Underwriter Profit Program (“UPP”) or the Underwriter Incentive Plan (“UIP”). Participants in UPP, product group executives with oversight responsibility for respective product group underwriting, earn an annual incentive equal to a percentage of underwriting profit created. All other underwriters at the Company participate in UIP. UIP provides incentives based on specific performance factors such as individual and product group loss ratio, underwriting profit, combined ratio, gross written premium and new business generation.
To calculate underwriting profit for purposes of UPP and UIP, actual and estimated losses are subtracted from net premiums to ensure that the annual incentives based on underwriting profit reflect losses that occur over several years. For most products, actual and estimated losses are measured over a four to eight-year period. Over that four to eight-year period, only a partial incentive award is paid each year until all losses develop and a final underwriting profit figure can be determined for the applicable underwriting year. For earthquake insurance, modeled expected losses are used to calculate underwriting profit for incentive purposes since losses are typically experienced over a significantly longer period of time. The ERC believes that by subjecting premiums to risk of actual and estimated losses, the Company’s underwriting incentive plans, UPP and UIP, ensure that the income and risk to the Company from underwriting results are closely aligned with the incentives paid to underwriters. In this manner, UPP and UIP are designed to ensure that underwriters are not given an incentive to produce short-term underwriting results without regard to the long-term income and risk consequences of their underwriting.
INVESTMENT PRACTICES
The ERC believes that the following controls protect the Company against the Company taking excessive and unnecessary risk to maximize short-term investment results:
| ·
| | The Company's investment portfolio is managed pursuant to the oversight of the Finance and Investment Committee of the Board;
|
| ·
| | The Finance and Investment Committee has established an Investment Policy Statement setting forth detailed investment objectives, benchmarks, constraints and operating policies for the portfolio;
|
| ·
| | All security transactions are confirmed by three Company officers; and
|
| ·
| | All investment actions must comply with state insurance regulatory provisions related to the investments in the portfolio.
|
EMPLOYEE AND EXECUTIVE EQUITY OWNERSHIP
Finally, the Company has a long-standing employee ownership culture, reflected by its ESOP implemented in 1975. The ownership culture creates strong alignment between the interests of employees and shareholders to foster a long-term shareholder value creation perspective. To further support the employee ownership culture, the ERC has designed the executive compensation program to provide equity-based long-term incentives and has implemented a stock ownership guideline requiring significant levels of stock ownership for key executives, described in detail at page 64. The ERC believes
72 | RLI Corp. 2018 Proxy Statement
that significant stock holdings by employees and executives provide a strong incentive to grow long-term shareholder value and to avoid actions that increase short-term results in a manner that prevents excessive and unnecessary risk to long-term results.
BOARD’S ROLE IN RISK OVERSIGHT
The Board’s risk oversight is accomplished both at the full Board level and through its committee structure. The full Board discusses and considers risk management issues at each of its meetings. The Board will adjust its practices with respect to risk management oversight when it determines it needs to do so and will involve itself in particular areas or business circumstances where its proper exercise of oversight demands it. The Board’s role in risk oversight is consistent with the Company’s leadership structure, with the Chief Executive Officer and other members of senior management having responsibility for assessing and managing the Company’s risk exposure, and the Board and its committees providing oversight in connection with these efforts.
The individual Committee responsibilities with respect to risk oversight are included in their respective Charters. The Audit Committee has sole authority to retain and compensate outside auditors and reviews and monitors underwriting, catastrophe management, reserving, reinsurance, regulatory environment, and business continuity, among other things. The Company’s Vice President, Internal Audit reports jointly to Mr. Michael, administratively, andnon-audit services to the Audit Committee functionally, to ensure an open and effective line of communication with respect to Company risk oversight. In 2017,no later than the Auditnext scheduled Committee and Strategy Committee met to discuss monitoring and safeguards against unnecessary or excessive risk that could arise from the Company’s business practices in the areas of underwriting, catastrophe management, reserving, reinsurance, regulatory environment, and business continuity. The Finance and Investment Committee oversees the Company’s investment and corporate finance transactions, policies and guidelines, which includes the oversight of investment performance, investment risk exposure and the Company’s capital structure, among other activities. In February 2018, the Finance and Investment Committee and Strategy Committee met to discuss monitoring and safeguards against unnecessary or excessive risk that could arise from the Company’s financing and investment activities in the areas of equity, interest rates, credit and capital. As discussed in more detail under “Safeguards Against Unnecessary or Excessive Risk,” the ERC monitors and oversees executive compensation and incentive programs and associated goals, and, together with the Board, ascertains that such programs do not create the likelihood that employees will take unnecessary and excessive risks to maximize short-term gains to the detriment of long-term performance. The ERC and Strategy Committees met in 2017 to discuss executive compensation and safeguards against unnecessary and excessive risk. The Nominating/Corporate Governance Committee provides oversight of the Company enterprise risk management in areas including, but not limited to corporate governance, regulatory, legislative and related matters, in coordination with other Board committees as appropriate. The Strategy Committee is responsible to the Board for oversight of the Company’s corporate strategy and corporate growth/development, and as of November 2016 the overall enterprise risk management and associated risks. Each of the Board committees works within their area of responsibility and coordinates with other committees, the full Board and executive management in risk management at the Company.meeting.
RLI Corp. 2018 Proxy Statement | 73
EQUITY COMPENSATION PLAN INFORMATION
The following table provides information as of December 31, 2017, regarding Common Stock that may be issued under the Company’s equity compensation plans, including the Director Deferred Plan, the Deferred Plan, the Omnibus Plan, the 2010 LTIP and the 2015 LTIP. As of December 31, 2017, the Company had 44,148,355 shares of Common Stock outstanding. Information is included for both equity compensation plans approved and not approved by the Company’s shareholders.
| | | | | | | | | | | | | | Number of securities | | | | Number of securities | | | | remaining available for | | | | to be issued upon exercise | | Weighted-average exercise | | future issuance under equity | | | | of outstanding options, | | price of outstanding options | | compensation plans (excluding | | Plan Category | | warrants and rights | | warrants and rights | | securities reflected in column (a)) | | | | (a) | (b) | (c) | | Equity compensation plans | | | | | | | | approved by shareholders (1) | | 2,272,315 (2) | | $46.80 (3) | | 2,588,173 (4) | | | | | | | | | | Equity compensation plans not | | | | | | | | approved by shareholders (5) | | – | | – | | (6) | | | | | | | | | | Total | | 2,272,315 | | $46.80 | | 2,588,173 | |
| (1)
| | Consists of the Omnibus Plan, the 2010 LTIP and the 2015 LTIP.
|
| (2)
| | Includes options to purchase 23,800 shares exercisable under the Omnibus Plan, 899,940 options to purchase shares exercisable under the 2010 LTIP, 1,333,275 options to purchase shares exercisable under the 2015 LTIP and 15,300 restricted share units (“RSU”) granted in May 2017 which will be issued upon vesting in May 2020 under the 2015 LTIP.
|
| (3)
| | Only applies to outstanding options, as RSU’s don’t have exercise prices.
|
| (4)
| | Shares available for future issuance under the 2015 LTIP. Pursuant to the terms of the 2015 LTIP and for purposes of calculating the number of securities remaining available for future issuance under equity compensation plans, each RSU is a Full Value Award and therefore is counted as 2.5 shares.
|
| (5)
| | Consists of the Director Deferred Plan and the Deferred Plan.
|
| (6)
| | No specific number of shares of the Company’s Common Stock are reserved for future issuance under these plans. Under the Company’s Director Deferred Plan and Deferred Plan, executive officers and directors may elect to defer compensation otherwise payable to them. Under the Director Deferred Plan and Deferred Plan, the Company must transfer to a bank trustee, under an irrevocable trust established by the Company, such number of shares of Common Stock as are equal to the compensation earned and deferred.
|
SHAREHOLDER PROPOSALS To be included in the Company’s Proxy Statement for the 20192024 Annual Meeting of Shareholders pursuant to Rule 14a-8 under the Exchange Act, a shareholder proposal must be received by the Company on or beforeno later than November 21, 2018,[●], 2023, and otherwise comply with all applicable federal securities laws. Proposals should be directed to the attention of the Corporate Secretary at 9025 North Lindbergh Drive, Peoria, Illinois 61615. The Company’s Bylaws provide notice, information and procedural requirements for shareholder nominations of candidates to the Company’s Board and for shareholder proposals at shareholder meetings. These provisions do not affect the rights of shareholders to request inclusion of proposals in the Company’s proxy statement pursuant to Rule 14a-8 under the Exchange Act.
Pursuant to our Bylaws, in order for a shareholder to nominate a Board candidate or propose other business at Companythe Company’s annual shareholder meetings, such nomination or notice of other business must be submitteddelivered to, or mailed and received at, the Company’s principal executive offices, in writing to the Company no laternot less than 90 days prior, nor more than 120 days prior, to the one-year anniversary of the previouspreceding year’s annual shareholder meeting, or 10 days after public disclosure of any special meeting of shareholders. The notice 74 | RLI Corp. 2018 Proxy Statement
must provide information regarding (a) the proposed Board nominee(s), (b) the person making the nomination (proponent), (c) share ownership by the nominee(s) and the proponent, (d) arrangements between the proponent and the nominee(s) and (e) arrangements relating to the Company’s stock. The proponent must also make certain representations, including updatingotherwise comply with the information providedand procedural requirements set forth in the notice and other matters.
Proposals and business desired to be brought by shareholders at Company shareholder meetings (other than director nominations) must be submitted in writing to the Company no later than 90 days prior to the anniversary of the previous year’s annual shareholder meeting or 10 days after public disclosure of any special meeting of shareholders. The notice must provide information regarding (a) the nature of the proposed business, (b) the shareholder and its Company stock ownership, (c) certain relationships and arrangements involving the shareholder and other parties and (d) certain arrangements involving the shareholder and the Company’s stock. The shareholder must also make certain representations, including updating the information provided in the notice and other matters.
our Bylaws. Therefore, in order for a shareholder to nominate a candidate for directorDirector or raise another matterother business at the 20192024 Annual Meeting of Shareholders, the Company must have received proper notice of the nomination or the other matter beforeno earlier than the close of business on January 5, 2024, nor any later than February 4, 2024. In addition to satisfying the requirements in out Bylaws, to comply with the universal proxy rules, shareholders who intend to solicit proxies in support of direction nominees other than the Company’s nominees must provide notice that sets forth the information required by Rule 14a-19 under the Exchange Act no later than March 5, 2018. 2024. These descriptions are summaries only, and for the complete provisions, shareholders should refer to the Company’s Restated Bylaws, which were filed with the SEC on Form 8-K on May 5, 2017. Bylaws. OTHER BUSINESS The Board of Directors knows of no other business to be presented at the virtual Annual Meeting; however, if any other matters do properly come before the meeting, it is intended that the persons appointed as proxies will vote in accordance with their best judgment. It is important that proxies be voted promptly so 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 virtual Annual Meeting, you are requested to promptly submit your proxy in one of the manners described on page 5.9. | | | By Order of the Board of Directors | |
| | Jeffrey D. Fick | | Sr. Vice President, Chief Legal Officer & Corporate Secretary
|
Peoria, Illinois March 22, 2018[●], 2023 RLI Corp. 2023 Proxy Statement | 71 INVESTOR INFORMATION
ANNUAL SHAREHOLDERS MEETING The 20182023 Annual Meeting of Shareholders will be held at 2 p.m.9:00 a.m., CDT, on May 3, 2018,4, 2023, via live webcast at the Mt. Hawley Country Club, 7724 North Knoxville Avenue, Peoria, Illinois 61614.www.virtualshareholdermeeting.com/rli2023. Please note that there is no in-person meeting for you to attend. INTERNET VOTING
As a convenience, you may submit your proxies via the Internet at http://www.proxyvote.com. Instructions are in your E-Proxy Notice or in the proxy card that you receive. Registered shareholders may sign up to access the Company’s Annual Report to Shareholders and Proxy Statement over the Internet in the future by following the instructions provided when submitting your proxy by telephone or over the Internet or provided in the E-Proxy Notice. Beneficial owners may contact the brokers, banks, or other holders of record of their stock to find out whether electronic delivery is available. RLI Corp. 2018 Proxy Statement | 75
SHAREHOLDER INQUIRIES
Shareholders of record with requests concerning individual account balances, stock certificates, dividends, stock transfers, tax information or address corrections should contact the Company’s transfer agent and registrar: | | First Class/Registered/Certified Mail: | | Computershare Investor Services
P.O. Box 43006 Providence, RI 02940-3006 | Computershare Investor Services
150 Royall St., Suite 101 Canton, MA 02021 | Shareholder Services Number(s): 1-800-736-3001 | Investor Centre™ portal: www.computershare.com/investor |
EQ Shareholder Services
P.O. Box 64854
St. Paul, MN 55164-0854
Phone: 800-468-9716 or 651-450-4064
Fax: 651-450-4033
www.shareowneronline.com
DIRECT STOCK PURCHASE AND DIVIDEND REINVESTMENT PLAN
If you wish to sign up for the Company’s Direct Stock Purchase and Dividend Reinvestment Plan, or to have your dividends deposited directly into your checking, savings or money market accounts, send your request to the transfer agent and registrar, as noted above.
REQUESTS FOR ADDITIONAL INFORMATION Electronic versions of the following documents are available on our website: 20172022 Annual Report to Shareholders, which contains our 20172022 Annual Report on Form 10-K Annual Report, and 20182023 Proxy Statement. Printed copies of these documents are available without charge to any shareholder. To be placed on a mailing list to receive shareholder materials,request printed copies, please contact our corporate headquarters.Assistant Corporate Secretary, Christina Dean, at 309-689-3836, at christina.dean@rlicorp.com or at 9025 N. Lindbergh Drive, Peoria, Illinois 61615. MULTIPLE SHAREHOLDERS HAVING THE SAME ADDRESS
If you and other residents at your mailing address own shares of common stock “in street name,” your broker or bank may have sent you a notice that your household will receive only one copy of our 2018this Proxy Statement, 20172021 Annual Report to Shareholders and/or notice regarding Internet availability of our proxy materials.E-Proxy Notice. This practice, known as “householding,” is designed to reduce our printing and postage costs. If you reside at the same address as another shareholder of the Company and wish to receive a separate copy of the applicable materials, you may do so by sending your name, the name of your brokerage firm, and your account number to Broadridge, Householding Department, 51 Mercedes Way, Edgewood, New York 11717. This revocation of your consent to householding will be effective 30 days following its receipt. In any event, if you did not receive an individual copy of this Proxy Statement, 20172022 Annual Report to Shareholders and/or notice regarding Internet availability of our proxy materials,E-Proxy Notice, or if you wish to receive individual copies of ourthis Proxy Statement, 2022 Annual Report to Shareholders and/or notice regarding Internet availability of our proxy materials for future meetings,E-Proxy Notice, we will send a copy to you promptly upon your written or oral request. Please contact our Vice President,Assistant Corporate Development Aaron JacobySecretary at 309-693-5880, at aaron.jacoby@rlicorp.comthe telephone number or at 9025 N. Lindbergh Drive, Peoria, Illinois 61615.address provided above. Shareholders who share the same address and currently receive multiple copies of the Proxy Statement, 20172022 Annual Report to Shareholders and/or notice regarding Internet availability of our proxy materials,E-Proxy Notice who wish to receive only one copy in the future may contact their bank, broker or other holder of record, or our Vice President,Assistant Corporate Development Aaron JacobySecretary, Christina Dean, at the contact information listedtelephone number or address provided above. CONTACTING RLI
For investor relations requests, and management’s perspective on specific issues,please contact Aaron Jacoby,Diefenthaler, Vice President, Corporate DevelopmentChief Investment Officer & Treasurer at 309-693-5880309-693-5846 or at aaron.jacoby@rlicorp.com.aaron.diefenthaler@rlicorp.com. RLI ON THE WEB Our corporate website is www.rlicorp.com (Informationwww.rlicorp.com. Information on the website is not incorporated by reference into this Proxy Statement.) 76 72 | RLI Corp. 20182023 Proxy Statement
ANNEX A
AGREEMENT AND PLAN OF MERGER
BETWEEN
RLI CORP.
(a Delaware Corporation)
AND
RLI CORP.
(an Illinois Corporation)
This AGREEMENT AND PLAN OF MERGER (this “Agreement”) is made and entered into as of [ ], 2018 between RLI Corp., a Delaware corporation (“Merger Corp”), and RLI Corp., an Illinois corporation (“RLI”).
RECITALS
WHEREAS, Merger Corp is a corporation duly organized and existing under the laws of the State of Delaware;
WHEREAS, RLI is a corporation duly organized and existing under the laws of the State of Illinois; and
WHEREAS, the Board of Directors of RLI and the Board of Directors of Merger Corp deem it advisable and in the best interests of RLI and Merger Corp for RLI to merge with and into Merger Corp on the terms and subject to the conditions set forth herein (the “Merger”).
NOW, THEREFORE, in consideration of the mutual agreements contained herein and other good and valuable consideration, the receipt of which is hereby acknowledged, the parties hereto agree as follows:
ARTICLE I
MERGER
1.1The Merger. After satisfaction or, to the extent permitted hereunder, waiver of all conditions to the Merger, and subject to the applicable provisions of the General Corporation Law of the State of Delaware (the “DGCL”) and the Illinois Business Corporation Act of 1983, as amended (the “ILBCA”), RLI shall be merged with and into Merger Corp, and Merger Corp shall file a Certificate of Merger (the “DE Certificate”) with the Secretary of State of the State of Delaware (the “DE SOS”) in accordance with the provisions of the DGCL, file Articles of Merger (the “IL Certificate” and, together with the DE Certificate, the “Merger Certificates”) with the Secretary of State of the State of Illinois (the “IL SOS”) in accordance with the provisions of the ILBCA and make all other filings or recordings required by Delaware or Illinois law in connection with the Merger.
1.2Effective Time. The Merger shall become effective as set forth in the Merger Certificates (the “Effective Time”). At the Effective Time, the separate corporate existence of RLI shall cease and Merger Corp shall continue its corporate existence under the DGCL as the surviving corporation of the Merger (the “Surviving Corporation”).
1.3Conditions to the Merger. The respective obligation of RLI and Merger Corp to consummate the Merger is subject to the satisfaction or waiver (to the extent permitted hereunder) of the following conditions:
(a)This Agreement shall have been adopted by the sole stockholder of Merger Corp in accordance with the requirements of the DGCL and the Certificate of Incorporation and the Bylaws of Merger Corp;
(b)This Agreement shall have been adopted by the shareholders of RLI in accordance with the requirements of the ILBCA, the Amended and Restated Articles of Incorporation and the Bylaws of RLI.
1.4Transfer, Conveyance and Assumption. At the Effective Time, Merger Corp shall continue in existence as the Surviving Corporation and, without further transfer, succeed to and possess all rights, privileges, powers and franchises of RLI, and all of the assets and property of whatever kind and character of RLI shall vest in Merger Corp, as the Surviving Corporation, without further action. Thereafter, Merger Corp, as the Surviving Corporation, shall be liable for all of the liabilities and obligations of RLI, and any claim or judgment against RLI may be enforced against Merger Corp, as the Surviving Corporation, in accordance with Section 259 of the DGCL and Section 11.50 of the ILBCA.
RLI Corp. 2018 Proxy Statement | A-1EXHIBIT A
1.5Certificate of Incorporation; Bylaws.
(a)From and after the Effective Time, the Amended and Restated Certificate of Incorporation of Merger Corp immediately prior to the Effective Time shall be the Certificate of Incorporation of the Surviving Corporation.
(b)From and after the Effective Date, the Bylaws of Merger Corp, as in effect immediately prior to the Effective Time, shall be the Bylaws of the Surviving Corporation.
1.6Directors and Officers of the Surviving Corporation. The directors and officers of Merger Corp immediately prior to the Effective Time shall be, from and after the Effective Time, the directors and officers of the Surviving Corporation.
ARTICLE II
CONVERSION OF SHARES
2.1Conversion of Stock.
(a)At the Effective Time, by virtue of the Merger and without any action on the part of any holder thereof, each share of capital stock of Merger Corp (the “Merger Corp Stock”) issued and outstanding immediately prior to the Effective Time, it being understood that all such shares are held by RLI, shall be automatically cancelled and cease to exist, and no consideration shall be issued in respect thereof.
(b)At the Effective Time, by virtue of the Merger and without any action on the part of any holder thereof, each share of common stock, par value $1.00 per share, of RLI (the “RLI Common Stock”) that is issued and outstanding immediately prior to the Effective Time shall be automatically converted into one share of common stock, par value $0.001 per share, of the Surviving Corporation (the “Surviving Corporation Common Stock”).
2.2Stock Certificates. From and after the Effective Time, the stock certificates, if any, representing shares of RLI Common Stock issued prior to the Effective Time shall, by virtue of the Merger, represent an equal number of shares of Surviving Corporation Common Stock and shall be so registered on the books and records of the Surviving Corporation or its transfer agents. The registered owner of any such outstanding stock certificate shall, until such certificate shall have been surrendered as provided under this Section 2.2, have and be entitled to exercise any voting and other rights with respect to and receive any dividend and any other distributions upon the shares of the Surviving Corporation Common Stock represented by such outstanding certificate as provided above. Upon surrender of any such stock certificate, the Surviving Corporation shall issue a new certificate representing such shares of Surviving Corporation Common Stock.
2.3Stock Options, Restricted Stock Units and Other Derivative Securities.At the Effective Time, by virtue of the Merger and without any action on the part of any holder thereof, each (i) option to purchase shares of RLI Common Stock (each, an “Option”), (ii) restricted stock unit that may vest into shares of RLI Common Stock (each, an “RSU”) and (iii) any other derivative security exercisable, convertible or exchangeable for RLI Common Stock that is outstanding immediately prior to the Effective Time shall be automatically converted into one option to purchase, one restricted stock unit which may vest into or such other derivative security exercisable, convertible or exchangeable for, on the same terms and conditions as were applicable under such Option, RSU or other derivative security immediately prior to the Effective Time, an equal number of shares of Surviving Corporation Common Stock. All terms and conditions of each Option, RSU or other derivative security shall otherwise remain unchanged.
2.4Shares of RLI Dissenting Shareholders. Notwithstanding anything to the contrary contained herein, holders of RLI Common Stock that have complied with the requirements for perfecting dissenters’ rights under Section 11.70 of the ILBCA (such shares, the “Dissenting Shares”) shall not be converted into Surviving Corporation Common Stock as provided for in Section 2.1(b). At the Effective Time, all Dissenting Shares shall be cancelled and cease to exist, and the holders thereof shall cease to have any rights with respect thereto, other than such rights as may be granted to them under Section 11.70 of the ILBCA. If any holder of Dissenting Shares shall fail to perfect, or shall otherwise waive, withdraw or lose, its dissenters’ rights under the ILBCA, such that dissenters’ rights can no longer be legally perfected or exercised under the ILBCA with respect to such RLI Common Stock, then such holder’s shares shall no longer be deemed to be Dissenting Shares and shall be treated as if they had been converted automatically at the Effective Time into the right to receive Surviving Corporation Common Stock as provided for in Section 2.1(b).
ARTICLE III
EMPLOYEE BENEFIT PLANS
At the Effective Time, the Surviving Corporation hereby assumes all obligations of RLI under all of RLI’s employee benefit plans or arrangements of any type, including, but not limited to, plans described in section 3(3) of the Employee
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Retirement Income Security Act of 1974, as amended, stock option plans, bonus plans or arrangements, incentive plans or arrangements, deferred compensation agreements or arrangements, executive compensation or supplemental income agreements, employee stock ownership plans, consulting agreements and employment agreements.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
4.1Representations and Warranties of Merger Corp. Merger Corp hereby represents and warrants that it:
(a)is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware, and has all the requisite power and authority to own, lease and operate its properties and assets and to carry on its business as it is now being conducted;
(b)is duly qualified to do business as a foreign person and is in good standing in each jurisdiction where the character of its properties or the nature of its activities make such qualification necessary;
(c)is not in violation of any provisions of its Certificate of Incorporation or its Bylaws; and
(d)has full corporate power and authority to execute and deliver this Agreement and, assuming the adoption of this Agreement by the sole stockholder of Merger Corp in accordance with the DGCL, the Certificate of Incorporation of Merger Corp and the Bylaws of Merger Corp, to consummate the Merger and the other transactions contemplated hereby.
4.2Representations and Warranties of RLI.RLI hereby represents and warrants that it:
(a)is a corporation duly organized, validly existing and in good standing under the laws of the State of Illinois, and has all the requisite power and authority to own, lease and operate its properties and assets and to carry on its business as it is now being conducted;
(b)is duly qualified to do business as a foreign person and is in good standing in each jurisdiction where the character of its properties or the nature of its activities make such qualification necessary;
(c)is not in violation of any provisions of its Amended and Restated Articles of Incorporation or its Bylaws; and
(d)has full corporate power and authority to execute and deliver this Agreement and, assuming the adoption of this Agreement by the shareholders of RLI in accordance with the ILBCA, the Amended and Restated Articles of Incorporation of RLI and the Bylaws of RLI, to consummate the Merger and the other transactions contemplated hereby.
ARTICLE V
TERMINATION
5.1Termination. At any time prior to the Effective Time, this Agreement may be terminated and the Merger abandoned for any reason whatsoever by the Board of Directors of Merger Corp or the Board of Directors of RLI, notwithstanding the adoption of this Agreement by any or all of the sole stockholder of Merger Corp or the shareholders of RLI.
ARTICLE VI
FURTHER ASSURANCES
6.1Further Assurances. If, at any time after the Effective Time, the Surviving Corporation shall consider or be advised that any further assignment, conveyance or assurance in law, or any other acts, are necessary or desirable to (i) vest, perfect or confirm in the Surviving Corporation its right, title or interest in, to or under any of the rights, properties or assets of RLI acquired or to be acquired by the Surviving Corporation as a result of, or in connection with, the Merger, or (ii) otherwise carry out the purposes of this Agreement, RLI, Merger Corp and each of their respective proper officers shall be deemed to have granted to the Surviving Corporation an irrevocable power of attorney to execute and deliver all such proper deeds, assignments and assurances in law, and to do all other acts necessary or proper, to vest, perfect or confirm title to and possession of such rights, properties or assets in the Surviving Corporation and to otherwise carry out the purposes of this Agreement; and the officers and directors of the Surviving Corporation are fully authorized, in the name of RLI, Merger Corp or otherwise, to take any and all such action.
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ARTICLE VII
MISCELLANEOUS
7.1Amendment. At any time prior to the Effective Time, this Agreement may be amended, modified or supplemented by the Board of Directors of Merger Corp and the Board of Directors of RLI, whether before or after the adoption of this Agreement by the sole stockholder of Merger Corp and/or the shareholders of RLI; provided, however, that after any such adoption, no amendment shall be made that by law requires the further approval by such stockholder of Merger Corp or such shareholders of RLI without such further approval. This Agreement may not be amended except by an instrument in writing signed on behalf of each of Merger Corp and RLI.
7.2No Waivers. No failure or delay by any party hereto in exercising any right, power or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies herein provided shall be cumulative and not exclusive of any rights or remedies provided by law.
7.3Assignment; Third Party Beneficiaries. Neither this Agreement nor any right, interest or obligation hereunder shall be assigned by any of the parties hereto without the prior written consent of each of the other parties hereto. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. This Agreement is not intended to confer any rights or benefits upon any person other than the parties hereto.
7.4Governing Law. This Agreement shall in all respects be interpreted by, and construed, interpreted and enforced in accordance with and pursuant to, the laws of the State of Delaware.
7.5Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.
7.6Entire Agreement. This Agreement and the documents referred to herein are intended by the parties hereto as a final expression of their agreement with respect to the subject matter hereof, and are intended as a complete and exclusive statement of the terms and conditions of such agreement, and there are no other agreements or understandings, written or oral, among the parties hereto, relating to the subject matter hereof. This Agreement supersedes all prior agreements and understandings, written or oral, among the parties hereto with respect to the subject matter hereof.
[SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, the undersigned, intending to be legally bound hereby, have duly executed this Agreement as of the date first stated above.
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ANNEX B
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF RLI CORP. The name of the corporation is RLI Corp. (the “Corporation”). The Corporation was incorporated under the name RLI Corp. by the filing of its original Certificate of Incorporation with the Secretary of State of the State of Delaware on November 20, 2017. This Amended and Restated Certificate of Incorporation of the Corporation, which amends and restates in its entirety the Corporation’s original Certificate of Incorporation, was duly adopted in accordance with the provisions of Sections 242 and 245 of the General Corporation Law of the State of Delaware (the “DGCL”) and by the written consent of its stockholders in accordance with Section 228 of the DGCL. The original Certificate of Incorporation of the Corporation is hereby amended, integrated and restated to read in its entirety as follows: FIRST:The name of the Corporation is RLI Corp. SECOND:The address of the Corporation’s registered office in the State of Delaware is 251 Little Falls Drive, Wilmington, County of New Castle, Delaware, 19808, and the name of its registered agent at such address is Corporation Service Company. THIRD:The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the DGCL, as it now exists or may hereafter be amended and supplemented. FOURTH:The Corporation is authorized to issue two classes of stock to be designated, respectively, “Common Stock” and “Preferred Stock.” The total number of shares of capital stock which the Corporation shall have authority to issue is 105,000,000.205,000,000. The total number of shares of Common Stock that the Corporation is authorized to issue is 100,000,000,200,000,000, having a par value of $0.01 per share, and the total number of shares of Preferred Stock that the corporation is authorized to issue is 5,000,000, having a par value of $0.01 per share. FIFTH:The designations and the powers, privileges and rights, and the qualifications, limitations or restrictions thereof in respect of each class of capital stock of the Corporation are as follows: | 1.General. The voting, dividend, liquidation, conversion and stock split rights of the holders of the Common Stock are subject to and qualified by the rights of the holders of the Preferred Stock of any series as may be designated by the Board of Directors of the Corporation (the “Board of Directors”) upon any issuance of the Preferred Stock of any series.
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1.General.The voting, dividend, liquidation, conversion and stock split rights of the holders of the Common Stock are subject to and qualified by the rights of the holders of the Preferred Stock of any series as may be designated by the Board of Directors of the Corporation (the “Board of Directors”) upon any issuance of the Preferred Stock of any series. | 2.Voting. Each holder of Common Stock shall be entitled to one (1) vote for each share of Common Stock held by such holder. Each holder of Common Stock shall be entitled to notice of any stockholders’ meeting in accordance with the Bylaws of the Corporation (as in effect at the time in question) (the “Bylaws”) and applicable law on all matters put to a vote of the stockholders of the Corporation.
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2.Voting.Each holder of Common Stock shall be entitled to one (1) vote for each share of Common Stock held by such holder. Each holder of Common Stock shall be entitled to notice of any stockholders’ meeting in accordance with the Bylaws of the Corporation (as in effect at the time in question) (the “Bylaws”) and applicable law on all matters put to a vote of the stockholders of the Corporation.The number of authorized shares of Common Stock may be increased or decreased (but not below the number of shares thereof then outstanding) by the affirmative vote of the holders of a majority of the stock of the Corporation entitled to vote, irrespective of the provisions of Section 242(b)(2) of the DGCL. 3.Dividends. Subject to the rights of any holders of any shares of Preferred Stock which may from time to time come into existence and be outstanding, the holders of Common Stock shall be entitled to the payment of dividends when and as declared by the Board of Directors in accordance with applicable law and to receive other distributions from the Corporation. Any dividends declared by the Board of Directors to the holders of the then outstanding Common Stock shall be paid to the holders thereof prorata in accordance with the number of shares of Common Stock held by each such holder as of the record date of such dividend. 4.Liquidation. Subject to the rights of any holders of any shares of Preferred Stock which may from time to time come into existence and be outstanding, in the event of any liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary, the funds and assets of the Corporation that may be legally distributed to the Corporation’s stockholders shall be distributed among the holders of the then outstanding Common Stock prorata in accordance with the number of shares of Common Stock held by each such holder. | 3.Dividends. Subject to the rights of any holders of any shares of Preferred Stock which may from time to time come into existence and be outstanding, the holders of Common Stock shall be entitled to the payment of dividends when and as declared by the Board of Directors in accordance with applicable law and to receive other distributions from the Corporation. Any dividends declared by the Board of Directors to the holders of the then outstanding Common Stock shall be paid to the holders thereof prorata in accordance with the number of shares of Common Stock held by each such holder as of the record date of such dividend.
B. | PREFERRED STOCK |
| 4.Liquidation. Subject to the rights of any holders of any shares of Preferred Stock which may from time to time come into existence and be outstanding, in the event of any liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary, the funds and assets of the Corporation that may be legally distributed to the Corporation’s stockholders shall be distributed among the holders of the then outstanding Common Stock prorata in accordance with the number of shares of Common Stock held by each such holder.
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Preferred Stock may be issued from time to time in one or more series, each of such series to have such terms as stated or expressed herein and in the resolution or resolutions providing for the issue of such series adopted by the Board of Directors as hereinafter provided. RLI Corp. 2023 Proxy Statement | 73 Authority is hereby expressly granted to the Board of Directors from time to time to issue the Preferred Stock in one or more series, and in connection with the creation of any such series, by adopting a resolution or resolutions providing for the issuance of the shares thereof and by filing a certificate of designations relating thereto in accordance with the DGCL, to determine and fix the number of shares of such series and such voting powers, full or limited, or no voting powers, and such designations, preferences and relative participating, optional or other special rights, and qualifications, limitations or restrictions thereof, including without limitation thereof, dividend rights, conversion rights, redemption privileges and liquidation preferences, as shall be stated and expressed in such resolutions, all to the fullest extent now or hereafter permitted by the DGCL. Without limiting the generality of the foregoing, the resolution or resolutions providing for the issuance of any series of Preferred Stock may provide that such series shall be superior or rank equally or be junior to any other series of Preferred Stock to the extent permitted by law. The number of authorized shares of Preferred Stock may be increased or decreased (but not below the number of shares thereof then outstanding) by the affirmative vote of the holders of a majority of the stock of the Corporation entitled to vote, irrespective of the provisions of Section 242(b)(2) of the DGCL. SIXTH:SIXTH: The personal liability of the directorsand officers of the Corporation, to the Corporation or its stockholders for monetary damages for breach of his or her fiduciary duty as directoror officer, is hereby eliminated to the fullest extent permitted by the DGCL, as the same may be amended and supplemented. Any amendment, repeal or modification of this Article Sixth, or the adoption of any provision of the Amended and Restated Certificate of Incorporation inconsistent with this Article Sixth, shall not adversely affect any right or protection of a director or officerof the Corporation existing immediately prior to such amendment, repeal or modification. If the DGCL is amended after approval by the stockholders of this Article Sixth to authorize corporate action further eliminating or limiting the personal liability of directors or officers, then the liability of a directoror officer of the Corporation shall be eliminated or limited to the fullest extent permitted by the DGCL as so amended.For purposes of this Article Sixth, “officer” shall have the meaning provided in Section 102(b)(7) of the DGCL, as it presently exists or may hereafter be amended from time to time.
SEVENTH:The Corporation shall, through the Bylaws or otherwise, to the fullest extent permitted by the DGCL, as the same exists or may hereafter be amended and supplemented, indemnify, advance expenses and hold harmless any person who was or is a director or officer of the Corporation or its subsidiaries. The Corporation may, by action of the Board of Directors, provide rights to indemnification and to advancement of expenses to such other employees or agents of the Corporation or its subsidiaries to such extent and to such effect as the Board of Directors shall determine to be appropriate and authorized by the DGCL. Any amendment, repeal or modification of this Article Seventh shall not adversely affect any rights or protection existing hereunder immediately prior to such repeal or modification. Notwithstanding the foregoing, the Corporation shall be required to indemnify a person in connection with any action, suit or proceeding, whether civil, criminal, administrative or investigative (each a “Proceeding”), initiated by such person only if the Proceeding was authorized in the specific case by the Board of Directors. EIGHTH:From time to time any of the provisions of this Amended and Restated Certificate of Incorporation may be amended, altered, changed or repealed, and other provisions authorized by the laws of the State of Delaware at the time in force may be added or inserted in the manner and at the time prescribed by said laws, and all rights at any time conferred upon the stockholders of the Corporation by this Amended and Restated Certificate of Incorporation are granted subject to the provisions of this Article Eighth. NINTH:In furtherance and not in limitation of the rights, powers, privileges and discretionary authority granted or conferred by the DGCL or other statutes or laws of the State of Delaware, the Board of Directors is expressly authorized to make, alter, amend or repeal the Bylaws, without any action on the part of the stockholders, but the stockholders may make additional Bylaws and may alter, amend or repeal any Bylaw whether adopted by them or otherwise. The Corporation may in its Bylaws confer powers upon its Board of Directors in addition to the foregoing and in addition to the powers and authorities expressly conferred upon the Board of Directors by applicable law. [Signature Page to Follow.]
B-2 | RLI Corp. 2018 Proxy Statement
IN WITNESS WHEREOF, the Corporation has executed this Amended and Restated Certificate of Incorporation on this 5th[●] day of May, 2018.2023 Craig W. Kliethermes RLI Corp. 2018 Proxy Statement | B-3
President & Chief Executive Officer 74 | RLI Corp. 2023 Proxy Statement ANNEX C
Bylaws of
EXHIBIT B RLI CORP. 2023 LONG-TERM INCENTIVE PLAN (a Delaware corporation)
I. INTRODUCTION 1.1Purposes. The purposes of the RLI Corp. 2018 Proxy Statement | C-1 C-2 | RLI Corp. 2018 Proxy Statement
Amended and Restated Bylaws of
RLI Corp.
Article I - Corporate Offices
The address2023 Long-Term Incentive Plan (this “Plan”) are (i) to align the interests of the registered officeCompany’s stockholders and the recipients of RLI Corp. (the “Corporation”)awards under this Plan by increasing the proprietary interest of such recipients in the StateCompany’s growth and success, (ii) to advance the interests of Delaware,the Company by attracting and retaining officers, other employees, Non-Employee Directors, consultants and independent contractors and (iii) to motivate such persons to act in the long-term best interests of the Company and its stockholders.
1.2Certain Definitions. “Agreement” shall mean the written or electronic agreement evidencing an award hereunder between the Company and the namerecipient of its registered agent at such address,award. “Automatic Exercise Date” shall mean the last business day of the term of an option or SAR. “Board” shall mean the Board of Directors of the Company. “Cause” shall mean the participant’s: (i) failure to comply with any material policies and procedures of the Company or any Subsidiary; (ii) conduct reflecting dishonesty or disloyalty to the Company or any Subsidiary, or which may have a negative impact on the reputation of the Company or any Subsidiary; (iii) commission of a felony, theft or fraud, or violations of law involving moral turpitude; (iv) failure to perform the material duties of his or her employment; (v) excessive absenteeism; (vi) unethical behavior. If a participant’s employment is terminated for “Cause,” the date on which the participant’s employment is considered to be terminated, for purposes hereof, shall be the time at which such participant is instructed or notified to cease performing job responsibilities for the Company or any Subsidiary, whether or not for other reasons, such as payroll, benefits or compliance with legal procedures or requirements, he or she may still have other attributes of an employee. “Change in Control” shall have the meaning set forth in Section 5.8(b). “Code” shall mean the Corporation’s certificateInternal Revenue Code of incorporation,1986, as amended. “Committee” shall mean the same may be amended and/or restated from time to time (the “Certificate of Incorporation”). The Corporation may have additional offices at any place or places, within or outside the State of Delaware, as the Corporation’s board of directors (the “Board”) may from time to time establish or as the businessHuman Capital & Compensation Committee of the Corporation may require.
Article II - Meetings of Stockholders
2.1Place of Meetings.
Meetings of stockholders shall be held atBoard, or a subcommittee thereof, or such place, if any, within or outside the State of Delaware,other committee designated by the Board. The Board, may, in its sole discretion, determine that a meetingeach case, consisting of stockholders shall not be held at any place, but may instead be held solely by means of remote communication as authorized by Section 211(a)(2)two or more members of the General Corporation LawBoard, each of whom is intended to be (i) a “Non-Employee Director” within the meaning of Rule 16b-3 under the Exchange Act and (ii) “independent” within the meaning of the rules of the New York Stock Exchange or, if the Common Stock is not listed on the New York Stock Exchange, within the meaning of the rules of the principal stock exchange on which the Common Stock is then traded.
“Common Stock” shall mean the common stock, par value $0.01 per share, of the Company, and all rights appurtenant thereto. “Company” shall mean RLI Corp., a corporation organized under the laws of the State of Delaware, (the “DGCL”). In the absence ofor any such designationsuccessor thereto. “Disabled” or determination, stockholders’ meetings shall be held at the Corporation’s principal executive office. 2.2Annual Meeting.
The Board shall designate the date and time of the annual meeting. At the annual meeting, directors shall be elected and other proper business properly brought before the meeting in accordance“Disability,” with Section 2.4 may be transacted.
2.3Special Meeting.
(i)Special meetings of the stockholders for any purpose or purposes may be called only (a) by the chairman of the Board, (b) by the Board, pursuantrespect to a resolution approved by a majority ofparticipant, means that the entire Board or (c) byparticipant satisfies the Secretary ofrequirements to receive long-term disability benefits under the Corporation, following his or her receipt of one or more written demands to call a special meeting ofCompany-sponsored group long-term disability plan in which the stockholders in accordance with, and subject to, this Section 2.3 from stockholders of record as of the record date fixed in accordance with Section 2.3(iv) who hold,participant participates (or in the aggregate, at least 20 percent (20%)case of the voting power of the outstanding shares of the Corporation and who otherwise comply witha Non-Employee Director, would have satisfied the requirements of Section 2.3. The notice of a special meeting shall state the purposeCompany-sponsored long-term disability plan had the Non-Employee Director participated) without regard to any waiting periods, or purposes ofthat the special meeting, andparticipant has been determined by the businessSocial Security Administration to be conducted at the special meeting shall be limitedeligible to the purpose or purposes stated in the notice. Except in accordance with this Section 2.3, stockholders shall not be permitted to propose business to be brought beforereceive Social Security disability benefits. In addition, if Disability constitutes a special meeting of the stockholders. Stockholders who nominate persons for election to the Board at a special meeting must also comply with the requirements set forth in Section 2.5 and Section 2.6.
(ii)No stockholder may demand that the Secretary of the Corporation call a special meeting of the stockholders pursuant to Section 2.3(i) unless a stockholder of record has first submitted a request in writing that the Board fix a record date ( a “Demand Record Date”) for the purpose of determining the stockholders entitled to demand that the Secretary of the Corporation call such special meeting, which request shall be in proper form and delivered to, or mailed and received by, the Secretary of the Corporation at the principal executive offices of the Corporation.
(iii)To be in proper form for purposes of this Section 2.3, a request by a stockholder for the Board to fix a Demand Record Date shall set forth:
(a)As to each Requesting Person (as defined below), the Stockholder Information (as defined in Section 2.4(iii)(a), except that for purposes of this Section 2.3 the term “Requesting Person” shall be substituted for the term “Proposing Person” in all places it appears in Section 2.4(iii)(a));
(b)As to each Requesting Person, any Disclosable Interests (as defined in Section 2.4(iii)(b), except that for purposes of this Section 2.3 the term “Requesting Person” shall be substituted for the term “Proposing Person” in all places it appears in Section 2.4(iii)(c) and the disclosure in clause (A) of Section 2.4(iii)(b) shall be made with respect to the business proposed to be conducted at the special meeting or the proposed election of directors at the special meeting, as the case may be);
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(c)As to the purpose or purposes of the special meeting, (A) a reasonably brief description of the purpose or purposes of the special meeting and the business proposed to be conducted at the special meeting, the reasons for conducting such business at the special meeting and any material interest in such business of each Requesting Person, and (B) a reasonably detailed description of all agreements, arrangements and understandings (x) between or among any of the Requesting Persons or (y) between or among any Requesting Person and any other record or beneficial holder of the shares of any class or series of the Corporation (including their names) in connection with the request for the special meeting or the business proposed to be conducted at the special meeting;
(d)If directors are proposed to be elected at the special meeting, the Nominee Information for each person whom a Requesting Person expects to nominate for election as a director at the special meeting; and
(e)For purposes of this Section 2.3(iii), the term “Requesting Person” shall mean (a) the stockholder making the request to fix a Demand Record Date for the purpose of determining the stockholders entitled to demand that the Secretary call a special meeting, (b) the beneficial owner or beneficial owners, if different, on whose behalf such request is made and (c) any affiliate of such stockholder or beneficial owner.
(iv)Within ten (10) days after receipt of a request to fix a Demand Record Date in proper form and otherwise in compliance with this Section 2.3 from any stockholder of record, the Board may adopt a resolution fixing a Demand Record Date for the purpose of determining the stockholders entitled to demand that the Secretary of the Corporation call a special meeting, which date shall not precede the date upon which the resolution fixing the Demand Record Date is adopted by the Board. If no resolution fixing a Demand Record Date has been adopted by the Board within the ten (10) day period after the date on which such a request to fix a Demand Record Date was received, the Demand Record Date in respect thereof shall be deemed to be the twentieth (20th) day after the date on which such a request is received. Notwithstanding anything in this Section 2.3 to the contrary, no Demand Record Date shall be fixed if the Board determines that the demand or demands that would otherwise be submitted following such Demand Record Date could not comply with the requirements set forth in clauses (b), (d), (e) or (f) of Section 2.3(vi).
(v)Without qualification, a special meeting of the stockholders shall not be called pursuant to Section 2.3(i) unless stockholders of record as of the Demand Record Date who hold, in the aggregate, at least 20 percent (20%) of the voting power of the outstanding shares of the Corporation (the “Requisite Percentage”) timely provide one or more demands to call such special meeting in writing and in proper form to the Secretary of the Corporation at the principal executive offices of the Corporation. Only stockholders of record on the Demand Record Date shall be entitled to demand that the Secretary of the Corporation call a special meeting of the stockholders pursuant to Section 2.3(i). To be timely, a stockholder’s demand to call a special meeting must be delivered to, or mailed and received at, the principal executive offices of the Corporation not later than the sixtieth (60th) day following the Demand Record Date. To be in proper form for purposes of this Section 2.3, a demand to call a special meeting shall set forth (a) the business proposed to be conducted at the special meeting or the proposed election of directors at the special meeting, as the case may be, (b) the text of the proposal or business (including the text of any resolutions proposed for consideration), if applicable, and (c)payment event with respect to any stockholder or stockholders submitting a demandaward which provides for the deferral of compensation and is subject to call a special meeting (except for any stockholder that has provided such demandCode Section 409A, the disability described in response to a solicitation made pursuant to, and in accordance with, Section 14(a)the preceding sentences of the Exchange Act by way of a solicitation statement filed on Schedule 14A) (a “Solicited Stockholder”) the information required to be provided pursuant to this Section 2.32(i) must be a “disability” within the meaning of a Requesting Person.Treasury Regulation Section 1.409A-3(i)(4). A stockholder may revoke a demand to call a special meeting by written revocation delivered to the Secretary at any time prior to the special meeting. If any such revocation(s) are received by the Secretary after the Secretary’s receipt of written demands from the holders of the Requisite Percentage of stockholders, and as a result of such revocation(s), there no longer are unrevoked demands from the Requisite Percentage of stockholders to call a special meeting, the Board shall have the discretion to determine whether or not to proceed with the special meeting.
(vi)The Secretary shall not accept, and shall consider ineffective, a written demand from a stockholder to call a special meeting (a) that does not comply with this Section 2.3, (b) that relates to an item of business to be transacted at such meeting that is not a proper subject for stockholder action under applicable law, (c) that includes an item of business to be transacted at such meeting that did not appear on the written request that resulted in the determination of the Demand Record Date, (d) that relates to an item of business (other than the election of directors) that is identical or substantially similar to an item of business (a “Similar Item”) for which a record date for notice of a stockholder meeting (other than the Demand Record Date) was previously fixed and such demand is delivered between the time beginning on the sixty-first (61st) day after such previous record date and ending on the one-year anniversary of such previous record date, (e) if a Similar Item will be submitted for stockholder approval at any stockholder meeting to be held on or before the ninetieth (90th) day after the Secretary receives such demand, or (f) if a Similar Item has been presented at the most recent annual meeting or at any special meeting held within one year prior to receipt by the Secretary of such demand to call a special meeting.
(vii)After receipt of demands in proper form and in accordance with this Section 2.3 from a stockholder or stockholders holding the Requisite Percentage, the Board shall duly call, and determine the place, date and time of, a special meeting of stockholders for the purpose or purposes and to conduct the business specified in the demands
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received by the Corporation. Notwithstanding anything in these bylaws to the contrary, the Board may submit its own proposal or proposals for consideration at such a special meeting. The record date for notice and voting for such a special meeting shall be fixed in accordance with Section 2.13. The Board shall provide written notice of such special meeting to the stockholders in accordance with Section 2.7.
(viii)In connection with a special meeting called in accordance with this Section 2.3, the stockholder or stockholders (except for any Solicited Stockholder) who requested that the Board fix a record date for notice and voting for the special meeting in accordance with this Section 2.3 or who delivered a demand to call a special meeting to the Secretary shall further update and supplement the information previously provided to the Corporation in connection with such request or demand, if necessary, so that the information provided or required to be provided in such request or demand pursuant to this Section 2.3 shall be true and correct as of the record date for stockholders entitled to vote at the special meeting and as of the date that is ten (10) business days prior to the special meeting or any adjournment or postponement thereof, and such update and supplement shall be delivered to, or mailed and received by, the Secretary at the principal executive offices of the Corporation not later than five (5) business days after the record date for stockholders entitled to vote at the special meeting (in the case of the update and supplement required to be made as of such record date), and not later than eight (8) business days prior to the date for the special meeting or, if practicable, any adjournment or postponement thereof (and, if not practicable, on the first practicable date prior to the date to which the special meeting has been adjourned or postponed) (in the case of the update and supplement required to be made as of ten (10) business days prior to the special meeting or any adjournment or postponement thereof).
(ix)Notwithstanding anything in these bylaws to the contrary, the Secretaryparticipant shall not be requiredconsidered to call a special meeting pursuant to this Section 2.3 except in accordance with this Section 2.3. Ifbe “Disabled” unless the Board shall determine that any request to fix a record date for notice and voting forparticipant furnishes proof of the special meeting or demand to call and hold a special meeting was not properly made in accordance with this Section 2.3, or shall determine that the stockholder or stockholders requesting that the Board fix such record date or submitting a demand to call the special meeting have not otherwise complied with this Section 2.3, then the Board shall not be required to fix such record date or to call and hold the special meeting. In additionDisability to the requirements of this Section 2.3, each Requesting PersonCompany in such form and manner as the Company may require.
“Exchange Act” shall comply with all requirements of applicable law, including all requirements of the Exchange Act, with respect to any request to fix a record date for notice and voting for the special meeting or demand to call a special meeting. 2.4Advance Notice Procedures for Business Brought before a Meeting.
(i)At an annual meeting of the stockholders, only such business shall be conducted as shall have been properly brought before the meeting. To be properly brought before an annual meeting, business must be (a) specified in a notice of meeting given by or at the direction of the Board, (b) if not specified in a notice of meeting, otherwise brought before the meeting by the Board or the chairperson of the Board or (c) otherwise properly brought before the meeting by a stockholder present in person who (A) (1) was a beneficial owner of shares of the Corporation both at the time of giving the notice provided for in this Section 2.4 and at the time of the meeting, (2) is entitled to vote at the meeting and (3) has complied with this Section 2.4 in all applicable respects or (B) properly made such proposal in accordance with Rule 14a-8 undermean the Securities Exchange Act of 1934, as amended,amended.
“Fair Market Value” shall mean the closing transaction price of a share of Common Stock as reported on the New York Stock Exchange on the date as of which such value is being determined or, if the Common Stock is not listed on the New York Stock Exchange, the closing transaction price of a share of Common Stock on the principal national stock exchange on which the Common Stock is traded on the date as of which such value is being determined or, if there shall be no reported transactions for such date, on the next following date for which transactions were reported; provided, however, the Company may in its discretion use the closing transaction price of a share of Common Stock on the day preceding the date as of which such value is being determined to the extent the Company determines such method is more practical for administrative purposes, such as for purposes of tax withholding. If the Common Stock is not listed on a national stock exchange or if Fair Market Value for any date cannot be so determined, Fair Market Value shall be determined by the Committee by whatever means or method as the Committee, in the good faith exercise of its discretion, shall at such time deem appropriate and in compliance with Section 409A of the Code. RLI Corp. 2023 Proxy Statement | 75 “Free-Standing SAR” shall mean an SAR which is not granted in tandem with, or by reference to, an option, which entitles the holder thereof to receive, upon exercise, shares of Common Stock (which may be Restricted Stock) or, to the extent set forth in the applicable Agreement, cash or a combination thereof, with an aggregate value equal to the excess of the Fair Market Value of one share of Common Stock on the date of exercise over the base price of such SAR, multiplied by the number of such SARs which are exercised. “Fundamental Change” means a dissolution or liquidation of the Company, a sale of substantially all of the assets of the Company, a merger or consolidation of the Company with or into any other corporation, regardless of whether the Company is the surviving corporation, or a statutory share exchange involving capital stock of the Company. “Good Reason” means any of the following conditions arising without the consent of the participant: (i) a material diminution in base salary or in the opportunity for any bonus or incentive compensation; (ii) a material diminution in the participant’s authority, duties or responsibilities; (iii) a material diminution in the authority, duties or responsibilities of the supervisor to whom the participant is required to report, including a requirement that the participant report to an officer or employee instead of directly to the Board; (iv) a material diminution in the budget over which the participant retains authority;(v) a material change in the geographic location at which the participant must perform services; or (vi) any action or inaction that results in a material breach in the terms of an applicable employment agreement. A termination will only be considered to have been made for Good Reason if the participant provides written notice of the existence of such condition to the Company or any successor employer within 90 days after the participant first becomes aware of such condition, the Company or successor employer fails to cure such condition within 30 days after receipt of such notice and the participant terminates employment within six months after the existence of such condition. “Incentive Stock Option” shall mean an option to purchase shares of Common Stock that meets the requirements of Section 422 of the Code, or any successor provision, which is intended by the Committee to constitute an Incentive Stock Option. “Non-Employee Director” shall mean any director of the Board who is considered a non-employee director within the meaning of Rule 16b-3(b)(3) of the Exchange Act or its successor provision. “Nonqualified Stock Option” shall mean an option to purchase shares of Common Stock which is not an Incentive Stock Option. “Other Stock Award” shall mean an award granted pursuant to Section 3.4 of the Plan. “Performance Award” shall mean a right to receive an amount of cash, Common Stock, or a combination of both, contingent upon the attainment of specified Performance Measures within a specified Performance Period. “Performance Measures” shall mean the criteria and objectives, established by the Committee, which shall be satisfied or met (i) as a condition to the grant or exercisability of all or a portion of an option or SAR or (ii) during the applicable Restriction Period or Performance Period as a condition to the vesting of the holder’s interest, in the case of a Restricted Stock Award, of the shares of Common Stock subject to such award, or, in the case of a Restricted Stock Unit Award, Other Stock Award or Performance Award, to the holder’s receipt of the shares of Common Stock subject to such award or of payment with respect to such award. Such performance criteria and objectives may include, without limitation, any one or more of the following business criteria for the Company, on a consolidated basis, and/or for specified subsidiaries, business or geographical units or operating areas of the Company (except with respect to the total shareholder return and earnings per share criteria) on an individual basis: the attainment by a share of Common Stock of a specified Fair Market Value for a specified period of time; increase in stockholder value; earnings per share; return on or net assets; return on equity; return on investments; return on capital or invested capital; total stockholder return; earnings or income of the Company before or after taxes and/or interest; earnings before interest, taxes, depreciation and amortization (“EBITDA”); EBITDA margin; operating income; revenues; operating expenses, attainment of expense levels or cost reduction goals; market share; cash flow, cash flow per share, cash flow margin or free cash flow; interest expense; economic value created; gross profit or margin; operating profit or margin; net cash provided by operations; price-to-earnings growth; comprehensive earnings; growth in book value; combined ratio (or corollary underwriting profit); and strategic business criteria, consisting of one or more objectives based on meeting specified goals relating to market penetration, customer acquisition, business expansion, cost targets, customer satisfaction, reductions in errors and omissions, reductions in lost business, management of employment practices and employee benefits, supervision of litigation, supervision of information technology, quality and quality audit scores, efficiency, and acquisitions or divestitures,or such other goals as the Committee may determine whether or not listed herein. Each such goal may be determined on a pre-tax or post-tax basis or on an absolute or relative basis, and may include comparisons based on current internal targets, the past performance of the Company (including the performance of one or more subsidiaries, divisions, or operating units) or the past or current performance of other companies or market indices (or a combination of such past and current performance). In addition to the ratios specifically enumerated above, performance goals may include comparisons relating to capital (including, but not limited to, the cost of capital), shareholders’ equity, shares outstanding, assets or net assets, sales, or any combination thereof. In establishing a Performance Measure or determining the achievement of a Performance Measure, the Committee may provide that achievement of the applicable Performance Measures may be amended or adjusted to include or exclude components of any Performance Measure, including, without limitation, foreign exchange gains and losses, asset write-downs, acquisitions and divestitures, change in fiscal year, unbudgeted capital expenditures, special charges such as restructuring or impairment charges, debt refinancing costs, extraordinary or noncash items, unusual, infrequently occurring, nonrecurring or one-time events affecting the Company or its financial statements or changes in law or accounting principles. Performance Measures shall be subject to such other special rules and conditions as the Committee may establish at any time. 76 | RLI Corp. 2023 Proxy Statement “Performance Period” shall mean any period designated by the Committee during which (i) the Performance Measures applicable to an award shall be measured and (ii) the conditions to vesting applicable to an award shall remain in effect. “Prior Plan” shall mean the RLI Corp. 2015 Long-Term Incentive Plan. “Qualifying Termination” means an involuntary termination of employment without Cause or a termination of employment for Good Reason that occurs within two years following a Change in Control. In addition, if the participant’s termination of employment occurs prior to a Change in Control and it is determined that such termination (A) was at the request of a third party who has indicated an intention or taken steps reasonably calculated to effect a Change in Control and who subsequently effectuates a Change in Control or (B) otherwise occurred in connection with, or in anticipation of, a Change in Control which actually occurs, for purposes of this definition, the date of a Change in Control with respect to the participant shall mean the date immediately prior to the date of the participant’s termination of employment. “Restricted Stock” shall mean shares of Common Stock which are subject to a Restriction Period and which may, in addition thereto, be subject to the attainment of specified Performance Measures within a specified Performance Period. “Restricted Stock Award” shall mean an award of Restricted Stock under this Plan. “Restricted Stock Unit” shall mean a right to receive one share of Common Stock or, in lieu thereof and to the extent set forth in the applicable Agreement, the Fair Market Value of such share of Common Stock in cash, which shall be contingent upon the expiration of a specified Restriction Period and which may, in addition thereto, be contingent upon the attainment of specified Performance Measures within a specified Performance Period. “Restricted Stock Unit Award” shall mean an award of Restricted Stock Units under this Plan. “Restriction Period” shall mean any period designated by the Committee during which (i) the Common Stock subject to a Restricted Stock Award may not be sold, transferred, assigned, pledged, hypothecated or otherwise encumbered or disposed of, except as provided in this Plan or the Agreement relating to such award, or (ii) the conditions to vesting applicable to a Restricted Stock Unit Award or Other Stock Award shall remain in effect. “Retirement” or “Retires” means a participant’s termination of employment on or after the date when the participant’s age plus years of service equals at least 75. For this purpose, (i) a participant’s age shall be measured in whole and partial years (with partial years measured in days) as of the date of the participant’s termination of employment and (ii) a participant’s years of service shall be based only on the participant’s actual service with the Company or a Subsidiary (and not with any other employer that may be acquired by the Company with respect to service prior to the acquisition, except as otherwise provided by the Company in writing) and shall be calculated based on the number of whole and partial years of employment (with partial years measured in days) that the participant has completed from the date of the participant’s initial employment with the Company or a Subsidiary through the date of the participant’s termination of employment. Notwithstanding the foregoing, the Committee may specify, in its discretion, in a written Agreement, policy or guideline that a participant will be considered to have had a “Retirement” if the participant satisfies the terms of a non-competition covenant or under such other terms and conditions as specified by the Committee in its discretion. “SAR” shall mean a stock appreciation right which may be a Free-Standing SAR or a Tandem SAR. “Stock Award” shall mean a Restricted Stock Award, Restricted Stock Unit Award or Other Stock Award. “Subsidiary” shall mean any corporation, limited liability company, partnership, joint venture or similar entity in which the Company owns, directly or indirectly, an equity interest possessing more than 50% of the combined voting power of the total outstanding equity interests of such entity. “Substitute Award”shall mean an award granted under this Plan upon the assumption of, or in substitution for, outstanding equity awards previously granted by a company or other entity in connection with a corporate transaction, including a merger, combination, consolidation or acquisition of property or stock; provided, however, that in no event shall the term “Substitute Award” be construed to refer to an award made in connection with the cancellation and repricing of an option or SAR. “Tandem SAR” shall mean an SAR which is granted in tandem with, or by reference to, an option (including a Nonqualified Stock Option granted prior to the date of grant of the SAR), which entitles the holder thereof to receive, upon exercise of such SAR and surrender for cancellation of all or a portion of such option, shares of Common Stock (which may be Restricted Stock) or, to the extent set forth in the applicable Agreement, cash or a combination thereof, with an aggregate value equal to the excess of the Fair Market Value of one share of Common Stock on the date of exercise over the base price of such SAR, multiplied by the number of shares of Common Stock subject to such option, or portion thereof, which is surrendered. “Tax Date” shall have the meaning set forth in Section 5.5. “Ten Percent Holder” shall have the meaning set forth in Section 2.1(a). 1.3Administration. This Plan shall be administered by the Committee. Any one or a combination of the following awards may be made under this Plan to eligible persons: (i) options to purchase shares of Common Stock in the form of Incentive Stock Options or Nonqualified Stock Options; (ii) SARs in the form of Tandem SARs or Free-Standing SARs; (iii) Stock Awards in the form of Restricted Stock, Restricted Stock Units or Other Stock Awards; and (iv) Performance Awards. The Committee shall, subject to the terms of this Plan, select eligible persons for participation in this Plan and determine the form, amount and timing of each award to such persons and, if applicable, the number of shares of Common Stock subject to an award, the number of SARs, the number of Restricted Stock Units, the dollar value subject to a Performance Award, the purchase price or base price associated with the award, the time and conditions of exercise or settlement of the award RLI Corp. 2023 Proxy Statement | 77 and all other terms and conditions of the award, including, without limitation, the form of the Agreement evidencing the award. The Committee may, in its sole discretion and for any reason at any time, take action such that (i) any or all outstanding options and SARs shall become exercisable in part or in full, (ii) all or a portion of the Restriction Period applicable to any outstanding awards shall lapse, (iii) all or a portion of the Performance Period applicable to any outstanding awards shall lapse and (iv) the Performance Measures (if any) applicable to any outstanding awards shall be deemed to be satisfied at the target, maximum or any other level. The Committee shall, subject to the terms of this Plan, interpret this Plan and the application thereof, establish rules and regulations thereunder (as so amendedit deems necessary or desirable for the administration of this Plan and inclusivemay impose, incidental to the grant of an award, conditions with respect to the award, such as limiting competitive employment or other activities. All such interpretations, rules, regulations and conditions shall be conclusive and binding on all parties. The Committee may delegate some or all of its power and authority hereunder to the Board or, subject to applicable law, to a subcommittee of the Board, a member of the Board, the President and the Chief Executive Officer or other executive officer of the Company as the Committee deems appropriate; provided, however, that the Committee may not delegate its power and authority to a member of the Board, the President and the Chief Executive Officer or other executive officer of the Company with regard to the selection for participation in this Plan of an officer, director or other person subject to Section 16 of the Exchange Act or decisions concerning the timing, pricing or amount of an award to such an officer, director or other person. No member of the Board or Committee, and neither the President and the Chief Executive Officer nor any other executive officer to whom the Committee delegates any of its power and authority hereunder, shall be liable for any act, omission, interpretation, construction or determination made in connection with this Plan in good faith, and the members of the Board and the Committee and the President and the Chief Executive Officer or other executive officer shall be entitled to indemnification and reimbursement by the Company in respect of any claim, loss, damage or expense (including attorneys’ fees) arising therefrom to the full extent permitted by law (except as otherwise may be provided in the Company’s Certificate of Incorporation and/or By-laws) and under any directors’ and officers’ liability insurance that may be in effect from time to time. 1.4Eligibility. Participants in this Plan shall consist of such rulesofficers, other employees, Non-Employee Directors, consultants and regulations,independent contractors, and persons expected to become officers, other employees, Non-Employee Directors, consultants and independent contractors of the “Exchange Act”)Company and its Subsidiaries as the Committee in its sole discretion may select from time to time. The Committee’s selection of a person to participate in this Plan at any time shall not require the Committee to select such person to participate in this Plan at any other time. Except as otherwise provided for in an Agreement, for purposes of this Plan, references to employment by the Company shall also mean employment by a Subsidiary, and references to employment shall include service as a Non-Employee Director, consultant or independent contractor. The Committee shall determine, in its sole discretion, the extent to which a participant shall be considered employed during an approved leave of absence. The aggregate value of cash compensation and the grant date fair value of shares of Common Stock that may be awarded or granted during any fiscal year of the Company to any Non-Employee Director shall not exceed $600,000. 1.5SharesAvailable. The foregoing clause (c)Subject to adjustment as provided in Section 5.7 and to all other limits set forth in this Plan, the number of shares of Common Stock that shall initially be available for all awards under this Plan, other than Substitute Awards, shall be the exclusive meanssum of (i) 3,250,000 and (ii) the number of Shares that remain available for issuance under the Prior Plan as of the effective date of this Plan, all of which may be issued under the Plan in connection with Incentive Stock Options.To the extent the Company grants an option or a stockholderFree-Standing SAR under the Plan, the number of shares of Common Stock that remain available for future grants under the Plan shall be reduced by an amount equal to propose businessthe number of shares subject to such option or Free-Standing SAR. To the extent the Company grants a Stock Award or settles a Performance Award in shares of Common Stock, the number of shares of Common Stock that remain available for future grants under the Plan shall be reduced by an amount equal to 2.5 times the number of shares subject to such Stock Award or Performance Award. The number of shares of Common Stock subject to a Performance Award shall be deemed to be brought beforethe maximum number of Shares that could be received under such Performance Award. 78 | RLI Corp. 2023 Proxy Statement To the extent that shares of Common Stock subject to an annual meetingoutstanding option, SAR, Stock Award or Performance Award granted under the Plan or the Prior Plan, other than Substitute Awards, are not issued or delivered by reason of (i) the expiration, termination, cancellation or forfeiture of such award (excluding shares subject to an option cancelled upon settlement in shares of a related Tandem SAR or shares subject to a Tandem SAR cancelled upon exercise of a related option) or (ii) the settlement of such award in cash, then such shares of Common Stock shall again be available under this Plan; provided, however, that shares of Common Stock subject to an award under this Plan or the Prior Plan shall not again be available for issuance under this Plan if such shares are (x) shares that were subject to an option or stock-settled SAR and were not issued or delivered upon the net settlement or net exercise of such option or SAR, (y) shares delivered to or withheld by the Company to pay the purchase price or the withholding taxes related to an outstanding award or (z) shares repurchased by the Company on the open market with the proceeds of an option exercise. The number of shares that again become available pursuant to this paragraph shall be equal to (i) one share for each share subject to an option or Free-Standing SAR described herein and (ii) 2.5 shares for each share subject to a Stock Award or Performance Award described herein. At the time this Plan becomes effective, none of the stockholders. For purposesshares of this Section 2.4, “present in person” shall mean thatCommon Stock available for future grant under the stockholder proposing that the business be brought before the annual meeting of the Corporation, or a qualified representative of such proposing stockholder, appear at such annual meeting. A “qualified representative” of such proposing stockholderPrior Plan shall be a duly authorized officer, manager or partneravailable for grant under the Prior Plan. The number of such stockholder or any other person authorized by a writing executed by such stockholder or an electronic transmission delivered by such stockholder to actshares of Common Stock available for such stockholder as proxy at the meeting of stockholders and such person must produce such writing or electronic transmission, or a reliable reproduction of the writing or electronic transmission, at the meeting of stockholders. Stockholders seeking to nominate persons for election to the Board must comply with Section 2.5 and Section 2.6 andawards under this Section 2.4Plan shall not be reduced by (i) the number of shares of Common Stock subject to Substitute Awards or (ii) available shares under a stockholder approved plan of a company or other entity which was a party to a corporate transaction with the Company (as appropriately adjusted to reflect such corporate transaction) which become subject to awards granted under this Plan (subject to applicable to nominations except as expressly provided in Section 2.5 and Section 2.6.stock exchange requirements). (ii)Without qualification, for businessShares of Common Stock to be properly brought before an annual meeting bydelivered under this Plan shall be made available from authorized and unissued shares of Common Stock, or authorized and issued shares of Common Stock reacquired and held as treasury shares or otherwise or a stockholder,combination thereof.
1.6Minimum Vesting Requirements. No award granted under the stockholder must (a) provide Timely Notice (as defined below) thereof in writing and in proper form to the Secretary of the Corporation and (b) provide any updatesPlan shall become exercisable or supplements to such notice at the times and in the forms required by this Section 2.4. To be timely, a stockholder’s notice must be delivered to, or mailed and received at, the principal executive offices of the Corporation not less than ninety (90) days nor more than one hundred twenty (120) daysvested prior to the one-year anniversary of the preceding year’s annual meeting;date of grant; provided, however, that, such restriction shall not apply to awards granted under this Plan with respect to the number of shares of Common Stock which, in the aggregate, does not exceed five percent (5%) of the total number of shares initially available for awards under this Plan. This Section 1.7 shall not restrict the right of the Committee to accelerate or continue the vesting or exercisability of an award upon or after a Change in Control or termination of employment or otherwise pursuant to Section 1.3 of the Plan. II. STOCK OPTIONS AND STOCK APPRECIATION RIGHTS 2.1Stock Options. The Committee may, in its discretion, grant options to purchase shares of Common Stock to such eligible persons as may be selected by the Committee; provided that an Incentive Stock Option may be granted only to an employee of the Company or one of its Subsidiaries in accordance with Section 422 of the Code. Each option, or portion thereof, that is not an Incentive Stock Option, shall be a Nonqualified Stock Option. To the extent that the aggregate Fair Market Value (determined as of the date of grant) of shares of Common Stock with respect to which options designated as Incentive Stock Options are exercisable for the first time by a participant during any calendar year (under this Plan or any other plan of the Company, or any parent or Subsidiary) exceeds the amount (currently $100,000) established by the Code, such options shall constitute Nonqualified Stock Options. Options shall be subject to the following terms and conditions and shall contain such additional terms and conditions, not inconsistent with the terms of this Plan, as the Committee shall deem advisable: (a)Number of Shares and Purchase Price. The number of shares of Common Stock subject to an option and the purchase price per share of Common Stock purchasable upon exercise of the option shall be determined by the Committee; provided, however, that the purchase price per share of Common Stock purchasable upon exercise of an option shall not be less than 100% of the Fair Market Value of a share of Common Stock on the date of grant of such option; providedfurther, that if an Incentive Stock Option shall be granted to any person who, at the time such option is granted, owns capital stock possessing more than 10 percent of the total combined voting power of all classes of capital stock of the Company (or of any parent or Subsidiary) (a “Ten Percent Holder”), the purchase price per share of Common Stock shall not be less than the price (currently 110% of Fair Market Value) required by the Code in order to constitute an Incentive Stock Option. Notwithstanding the foregoing, in the case of an option that is a Substitute Award, the purchase price per share of the shares subject to such option may be less than 100% of the Fair Market Value per share on the date of grant, provided, that the excess of: (a) the aggregate Fair Market Value (as of the date such Substitute Award is granted) of the shares subject to the Substitute Award, over (b) the aggregate purchase price thereof does not exceed the excess of: (x) the aggregate fair market value (as of the time immediately preceding the transaction giving rise to the Substitute Award, such fair market value to be determined by the Committee) of the shares of the predecessor company or other entity that were subject to the grant assumed or substituted for by the Company, over (y) the aggregate purchase price of such shares. RLI Corp. 2023 Proxy Statement | 79 (b)Option Period and Exercisability. The period during which an option may be exercised shall be determined by the Committee; provided, however, that no option shall be exercised later than ten years after its date of grant; providedfurther, that if an Incentive Stock Option shall be granted to a Ten Percent Holder, such option shall not be exercised later than five years after its date of grant. The Committee may, in its discretion, establish Performance Measures which shall be satisfied or met as a condition to the grant of an option or to the exercisability of all or a portion of an option. The Committee shall determine whether an option shall become exercisable in cumulative or non-cumulative installments and in part or in full at any time. An exercisable option, or portion thereof, may be exercised only with respect to whole shares of Common Stock. (c)Method of Exercise. An option may be exercised (i) by giving written notice to the Company specifying the number of whole shares of Common Stock to be purchased and accompanying such notice with payment therefor in full (or arrangement made for such payment to the Company’s satisfaction) either (A) in cash, (B) by delivery (either actual delivery or by attestation procedures established by the Company) of shares of Common Stock having a Fair Market Value, determined as of the date of exercise, equal to the aggregate purchase price payable by reason of such exercise, (C) authorizing the Company to withhold whole shares of Common Stock which would otherwise be delivered having an aggregate Fair Market Value, determined as of the date of exercise, equal to the amount necessary to satisfy such obligation, (D) in cash by a broker-dealer acceptable to the Company to whom the participant has submitted an irrevocable notice of exercise or (E) a combination of (A), (B) and (C), in each case to the extent set forth in the Agreement relating to the option, (ii) if applicable, by surrendering to the Company any Tandem SARs which are cancelled by reason of the exercise of the option and (iii) by executing such documents as the Company may reasonably request; provided that, notwithstanding anything in this Section 2.1(c) to the contrary, payment shall not be permitted with shares of Common Stock if, in the opinion of the Committee, payment in such manner could have adverse financial accounting consequences for the Company. No shares of Common Stock shall be issued and no certificate representing Common Stock shall be delivered until the full purchase price therefor and any withholding taxes thereon, as described in Section 5.5, have been paid (or arrangement made for such payment to the Company’s satisfaction). (d)Automatic Exercise. The Company may, in its discretion, provide in an Agreement or adopt procedures that an option outstanding on the Automatic Exercise Date that has a “Specified Minimum Value” shall be automatically and without further action by the participant (or in the event of the participant’s death, the participant’s personal representative or estate), be exercised on the Automatic Exercise Date. Payment of the exercise price applicable to such option may be made pursuant to such procedures as may be approved by the Company from time to time and the Company shall deduct or withhold an amount sufficient to satisfy all taxes associated with such exercise in accordance with Section 5.5. For purposes of this Section 2.1(d), the term “Specified Minimum Value” means that the Fair Market Value per share of Common Stock exceeds the exercise price of a share of Common Stock subject to an expiring option by at least such amount as the Company shall determine from time to time. The Company may elect to discontinue the automatic exercise of options pursuant to this Section 2.1(d) at any time upon notice to a participant or to apply the automatic exercise feature only to certain groups of participants. The automatic exercise of an option pursuant to this Section 2.1(d) shall apply only to an option that has been timely accepted by a participant under procedures specified by the Company from time to time. 2.2Stock Appreciation Rights. The Committee may, in its discretion, grant SARs to such eligible persons as may be selected by the Committee. The Agreement relating to an SAR shall specify whether the SAR is a Tandem SAR or a Free-Standing SAR. SARs shall be subject to the following terms and conditions and shall contain such additional terms and conditions, not inconsistent with the terms of this Plan, as the Committee shall deem advisable: (a)Number of SARs and Base Price. The number of SARs subject to an award shall be determined by the Committee. Any Tandem SAR related to an Incentive Stock Option shall be granted at the same time that such Incentive Stock Option is granted. The base price of a Tandem SAR shall be the purchase price per share of Common Stock of the related option. The base price of a Free-Standing SAR shall be determined by the Committee; provided, however, that such base price shall not be less than 100% of the Fair Market Value of a share of Common Stock on the date of grant of such SAR (or, if earlier, the date of grant of the option for which the SAR is exchanged or substituted). 80 | RLI Corp. 2023 Proxy Statement Notwithstanding the foregoing, in the case of an SAR that is a Substitute Award, the base price per share of the shares subject to such SAR may be less than 100% of the Fair Market Value per share on the date of grant, provided, that the excess of: (a) the aggregate Fair Market Value (as of the date such Substitute Award is granted) of the shares subject to the Substitute Award, over (b) the aggregate base price thereof does not exceed the excess of: (x) the aggregate fair market value (as of the time immediately preceding the transaction giving rise to the Substitute Award, such fair market value to be determined by the Committee) of the shares of the predecessor company or other entity that were subject to the grant assumed or substituted for by the Company, over (y) the aggregate base price of such shares. (b)Exercise Period and Exercisability. The period for the exercise of an SAR shall be determined by the Committee; provided, however, that (i) no Tandem SAR shall be exercised later than the expiration, cancellation, forfeiture or other termination of the related option and (ii) no Free-Standing SAR shall be exercised later than ten years after its date of grant. The Committee may, in its discretion, establish Performance Measures which shall be satisfied or met as a condition to the grant of an SAR or to the exercisability of all or a portion of an SAR. The Committee shall determine whether an SAR may be exercised in cumulative or non-cumulative installments and in part or in full at any time. An exercisable SAR, or portion thereof, may be exercised, in the case of a Tandem SAR, only with respect to whole shares of Common Stock and, in the case of a Free-Standing SAR, only with respect to a whole number of SARs. If an SAR is exercised for shares of Restricted Stock, a certificate or certificates representing such Restricted Stock shall be issued in accordance with Section 3.2(c), or such shares shall be transferred to the holder in book entry form with restrictions on the shares duly noted, and the holder of such Restricted Stock shall have such rights of a stockholder of the Company as determined pursuant to Section 3.2(d). Prior to the exercise of a stock-settled SAR, the holder of such SAR shall have no rights as a stockholder of the Company with respect to the shares of Common Stock subject to such SAR. (c)Method of Exercise. A Tandem SAR may be exercised (i) by giving written notice to the Company specifying the number of whole SARs which are being exercised, (ii) by surrendering to the Company any options which are cancelled by reason of the exercise of the Tandem SAR and (iii) by executing such documents as the Company may reasonably request. A Free-Standing SAR may be exercised (A) by giving written notice to the Company specifying the whole number of SARs which are being exercised and (B) by executing such documents as the Company may reasonably request. No shares of Common Stock shall be issued and no certificate representing Common Stock shall be delivered until any withholding taxes thereon, as described in Section 5.5, have been paid (or arrangement made for such payment to the Company’s satisfaction). (d)Automatic Exercise. The Company may, in its discretion, provide in an Agreement or adopt procedures that an SAR outstanding on the Automatic Exercise Date that has a “Specified Minimum Value” shall be automatically and without further action by the participant (or in the event of the participant’s death, the participant’s personal representative or estate), be exercised on the Automatic Exercise Date. The Company shall deduct or withhold an amount sufficient to satisfy all taxes associated with such exercise in accordance with Section 5.5. For purposes of this Section 2.2(d), the term “Specified Minimum Value” means that the Fair Market Value per share of Common Stock exceeds the base price of a share of Common Stock subject to an expiring SAR by at least such amount as the Company shall determine from time to time. The Company may elect to discontinue the automatic exercise of SARs pursuant to this Section 2.2(d) at any time upon notice to a participant or to apply the automatic exercise feature only to certain groups of participants. The automatic exercise of an SAR pursuant to this Section 2.2(d) shall apply only to an SAR that has been timely accepted by a participant under procedures specified by the Company from time to time. 2.3Termination of Employment or Service.All of the terms relating to the exercise, cancellation or other disposition of an option or SAR (i) upon a termination of employment with or service to the Company of the holder of such option or SAR, as the case may be, whether by reason of Disability, Retirement, death or any other reason, or (ii) during a paid or unpaid leave of absence, shall be determined by the Committee and set forth in the applicable Agreement; provided that, notwithstanding the foregoing, unless otherwise determined by the Committee and set forth in the applicable Agreement, the following terms shall apply to an option or SAR: (a)Death. Upon a termination of employment with or service to the Company by reason of death, then any option or SAR that has not expired or been terminated shall become fully vested and exercisable in full and may be exercised by the participant’s beneficiary at any time, or from time to time, within one year after the date of the annual meeting is more than thirty (30) days beforeparticipant’s death. (b)Disability. Upon a termination of employment with or more than sixty (60) days after such anniversary date, noticeservice to the Company by reason of Disability, then any option or SAR that has not expired or been terminated shall become fully vested and exercisable in full and may be exercised by the stockholderparticipant’s beneficiary at any time, or from time to be timely must be so delivered,time, within three years after the date of such termination of employment or mailedservice. (c)Retirement. Upon a termination of employment with or service to the Company by reason of Retirement, then any option or SAR (or portion thereof) that has not expired or been terminated, shall, to the extent vested and received, not later than the ninetieth (90th) day prior to such annual meeting or, if later, the tenth (10th) day following the day on which public disclosureexercisable RLI Corp. 2023 Proxy Statement | 81 as of the date of such annual meeting was first made (such notice within such time periods, “Timely Notice”). In no event shall any adjournmenttermination of employment or postponement of an annual meeting or the announcement thereof commence a new time period for the giving of Timely Notice as described above. RLI Corp. 2018 Proxy Statement | C-5
(iii)To be in proper form for purposes of this Section 2.4, a stockholder’s notice to the Secretary shall set forth:
(a)As to each Proposing Person (as defined below), (A) the name and address of such Proposing Person (including, if applicable, the name and address that appear on the Corporation’s books and records); and (B) the class or series and number of shares of the Corporation that are, directly or indirectly, owned of record or beneficially owned (within the meaning of Rule 13d-3 under the Exchange Act) by such Proposing Person, except that such Proposing Person shall in all events be deemed to beneficially own any shares of any class or series of the Corporation as to which such Proposing Person has a right to acquire beneficial ownership at any time in the future (the disclosures to be made pursuant to the foregoing clauses (A) and (B) are referred to as “Stockholder Information”);
(b)As to each Proposing Person, (A) the full notional amount of any securities that, directly or indirectly, underlie any “derivative security” (as such term is defined in Rule 16a-1(c) under the Exchange Act) that constitutes a “call equivalent position” (as such term is defined in Rule 16a-1(b) under the Exchange Act) (“Synthetic Equity Position”) and that is, directly or indirectly, held or maintained by such Proposing Person with respect to any shares of any class or series of shares of the Corporation; provided that, for the purposes of the definition of “Synthetic Equity Position,” the term “derivative security” shall also include any security or instrument that would not otherwise constitute a “derivative security”service, including as a result of any featureacceleration that would make any conversion, exercise or similar right or privilege of such security or instrument becoming determinable only at some future date or upon the happening of a future occurrence, in which case the determination of the amount of securities into which such security or instrument would be convertible or exercisable shall be made assuming that such security or instrument is immediately convertible or exercisable at the time of such determination; and, provided, further, that any Proposing Person satisfying the requirements of Rule 13d-1(b)(1) under the Exchange Act (other than a Proposing Person that so satisfies Rule 13d-1(b)(1) under the Exchange Act solely by reason of Rule 13d-1(b)(1)(ii)(E)) shall not be deemed to hold or maintain the notional amount of any securities that underlie a Synthetic Equity Position held by such Proposing Person as a hedge with respect to a bona fide derivatives trade or position of such Proposing Person arising in the ordinary course of such Proposing Person's business as a derivatives dealer, (B) any rights to dividends on the shares of any class or series of shares of the Corporation owned beneficially by such Proposing Person that are separated or separable from the underlying shares of the Corporation, (C) any material pending or threatened legal proceeding in which such Proposing Person is a party or material participant involving the Corporation or any of its officers or directors, or any affiliate of the Corporation, (D) any other material relationship between such Proposing Person, on the one hand, and the Corporation, any affiliate of the Corporation, on the other hand, (E) any direct or indirect material interest in any material contract or agreement of such Proposing Person with the Corporation or any affiliate of the Corporation (including, in any such case, any employment agreement, collective bargaining agreement or consulting agreement), (F) a representation that such Proposing Person intends or is part of a group which intends to deliver a proxy statement or form of proxy to holders of at least the percentage of the Corporation’s outstanding capital stock required to approve or adopt the proposal or otherwise solicit proxies from stockholders in support of such proposal and (G) any other information relating to such Proposing Person that would be required to be disclosed in a proxy statement or other filing required to be made in connection with solicitations of proxies or consents by such Proposing Person in support of the business proposed to be brought before the meeting pursuant to Section 14(a) of the Exchange Act (the disclosures to be madeoccurs pursuant to the foregoing clauses (A) through (G) are referred to as “Disclosable Interests”); provided, however, that Disclosable Interests shall not include any such disclosures with respect to the ordinary course business activities of any broker, dealer, commercial bank, trust company or other nominee who is a Proposing Person solely as a result of being the stockholder directed to prepare and submit the notice required by these Bylaws on behalf of a beneficial owner; and
(c)As to each item of business that the stockholder proposes to bring before the annual meeting, (A) a brief descriptionterms of the business desired to be brought beforeapplicable Agreement, remain exercisable by the annual meeting, the reasons for conducting such business at the annual meeting and any material interest in such business of each Proposing Person, (B) the text of the proposal or business (including the text of any resolutions proposed for consideration), and (C) a reasonably detailed description of all agreements, arrangements and understandings (x) between or among any of the Proposing Persons or (y) between or among any Proposing Person and any other record or beneficial holder(s) or persons(s) who have a right to acquire beneficial ownershipparticipant at any time, inor from time to time, for three years after the future of the shares of any class or series of the Corporation (including their names) in connection with the proposaldate of such business bytermination of employment or service, and any remaining portion of such stockholder; and (D) any other information relating to such item of business that would be required to be disclosed in a proxy statementoption or other filing required to be made in connection with solicitations of proxies in support of the business proposed to be brought before the meeting pursuant to Section 14(a) of the Exchange Act; provided, however, that the disclosures required by this paragraph (c) shall not include any disclosures with respect to any broker, dealer, commercial bank, trust company or other nominee who is a Proposing Person solely as a result of being the stockholder directed to prepare and submit the notice required by these Bylaws on behalf of a beneficial owner.
(iv)For purposes of this Section 2.4, the term “Proposing Person” shall mean (a) the stockholder providing the notice of business proposed to be brought before an annual meeting, (b) the beneficial owner or beneficial owners, if different, on whose behalf the notice of the business proposed to be brought before the annual meeting is made and (c) any participant (as defined in paragraphs (a)(ii)-(vi) of Instruction 3 to Item 4 of Schedule 14A) with such stockholder in such solicitation.
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(v)A Proposing Person shall update and supplement its notice to the Corporation of its intent to propose business at an annual meeting, if necessary, so that the information provided or required to be provided in such notice pursuant to this Section 2.4SAR shall be true and correctforfeited as of the record date for stockholders entitled to vote at the meeting and as of the date that is ten (10) business days prior to the meeting or any adjournment or postponement thereof, and such update and supplement shall be delivered to, or mailed and received by, the Secretary at the principal executive offices of the Corporation not later than five (5) business days after the record date for stockholders entitled to vote at the meeting (in the case of the update and supplement required to be made as of such record date), and not later than eight (8) business days prior to the date for the meeting or, if practicable, any adjournment or postponement thereof (and, if not practicable, on the first practicable date prior to the date to which the meeting has been adjourned or postponed) (in the case of the update and supplement required to be made as of ten (10) business days prior to the meeting or any adjournment or postponement thereof).
(vi)Notwithstanding anything in these Bylaws to the contrary, no business shall be conducted at an annual meeting that is not properly brought before the meeting in accordance with this Section 2.4. The presiding officer of the meeting shall, if the facts warrant, determine that the business was not properly brought before the meeting in accordance with this Section 2.4, and if he or she should so determine, he or she shall so declare to the meeting and any such business not properly brought before the meeting shall not be transacted.
(vii)This Section 2.4 is expressly intended to apply to any business proposed to be brought before an annual meeting of stockholders other than any proposal made in accordance with Rule 14a-8 under the Exchange Act and included in the Corporation’s proxy statement. In addition to the requirements of this Section 2.4 with respect to any business proposed to be brought before an annual meeting, each Proposing Person shall comply with all applicable requirements of the Exchange Act with respect to any such business. Nothing in this Section 2.4 shall be deemed to affect the rights of stockholders to request inclusion of proposals in the Corporation’s proxy statement pursuant to Rule 14a-8 under the Exchange Act.
(viii)For purposes of these Bylaws, “public disclosure” shall mean disclosure in a press release reported by a national news service or in a document publicly filed by the Corporation with the Securities and Exchange Commission pursuant to Sections 13, 14 or 15(d) of the Exchange Act.
2.5Advance Notice Procedures for Nominations of Directors.
(i)Nominations of any person for election to the Board at an annual meeting or at a special meeting (but only if the election of directors is a matter specified in the notice of meeting given by or at the direction of the person calling such special meeting) may be made at such meeting only (a) by or at the direction of the Board, including by any committee or persons authorized to do so by the Board or these bylaws or (b) by a stockholder present in person (A) who was a beneficial owner of shares of the Corporation both at the time of giving the notice provided for in this Section 2.5 and at the time of the meeting, (B) is entitled to vote at the meeting and (C) has complied with this Section 2.5 and Section 2.4 as to such notice and nomination. For purposes of this Section 2.5, “present in person” shall mean that the stockholder proposing that the business be brought before the meeting of the Corporation, or a qualified representative of such stockholder, appear at such meeting. A “qualified representative” of such proposing stockholder shall be a duly authorized officer, manager or partner of such stockholder or any other person authorized by a writing executed by such stockholder or an electronic transmission delivered by such stockholder to act for such stockholder as proxy at the meeting of stockholders and such person must produce such writing or electronic transmission, or a reliable reproduction of the writing or electronic transmission, at the meeting of stockholders. The foregoing clause (b) shall be the exclusive means for a stockholder to make any nomination of a person or persons for election to the Board at an annual meeting or special meeting.
(ii)(a) (A) Without qualification, for a stockholder to make any nomination of a person or persons for election to the Board at an annual meeting, the stockholder must (1) provide Timely Notice (as defined in Section 2.4) thereof in writing and in proper form to the Secretary of the Corporation, (2) provide the information, agreements and questionnaires with respect to such stockholder and its candidate for nomination as required to be set forth by this Section 2.5 and Section 2.6 and (3) provide any updates or supplements to such notice at the times and in the forms required by this Section 2.5 and Section 2.6.
(b)Without qualification, if the election of directors is a matter specified in the notice of meeting given by or at the direction of the person calling a special meeting, then for a stockholder to make any nomination of a person or persons for election to the Board at a special meeting, the stockholder must (A) provide timely notice thereof in writing and in proper form to the Secretary of the Corporation at the principal executive offices of the Corporation, (B) provide the information with respect to such stockholder and its candidate for nomination as required by this Section 2.5 and Section 2.6 and (C) provide any updates or supplements to such notice at the times and in the forms required by this Section 2.5 and Section 2.6. To be timely, a stockholder’s notice for nominations to be made at a special meeting must be delivered to, or mailed and received at, the principal executive offices of the Corporation not earlier than the one hundred twentieth (120th) day prior to such special meeting and not later than the ninetieth (90th) day prior to such special meeting
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or, if later, the tenth (10th) day following the day on which public disclosure (as defined in Section 2.4) of the date of such special meeting was first made.
(c)In no eventtermination.
(d)Qualifying Termination. Upon a Qualifying Termination, then any option or SAR (or portion thereof) that has not expired or been terminated, shallbecome fully vested and exercisable as of the date of such termination of employment or service, remain exercisable by the participant at any adjournmenttime, or postponementfrom time to time, until the expiration of the term of such option or SAR. (e)Other Termination. Upon a termination of employment with or service to the Company for any reason other than death, Disability, Retirement, a Qualifying Termination or Cause, then any option or SAR (or portion thereof) that has not expired or been terminated, shall, to the extent vested and exercisable as of the date of such termination of employment or service, remain exercisable by the participant at any time, or from time to time, for three months after the date of such termination, and any remaining portion of such option or SAR shall be forfeited as of the date of such termination. (f)Cause. Upon a termination of employment with or service to the Company for Cause, then any option or SAR that that has not expired or been terminated may be exercised, shall be forfeited without consideration, whether vested or unvested. (g)Non-Employee Director. Notwithstanding the foregoing, if the holder is a Non-Employee Director, upon on a termination of service to the Company for any reason other than Cause, then any option or SAR (or portion thereof) that has not expired or been terminated, shall if (i) unvested and not exercisable as of the date of such termination of service, be treated for vesting purposes in accordance with the terms of clauses (a)-(e) based on the type of termination and (ii) vested and exercisable as of the date of such termination of service, remain exercisable by the participant at any time, or from time to time, until the expiration of the term of such option or SAR. 2.4No Repricing. The Committee shall not, without the approval of the stockholders of the Company, (i) reduce the purchase price or base price of any previously granted option or SAR, (ii) cancel any previously granted option or SAR in exchange for another option or SAR with a lower purchase price or base price or (iii) cancel any previously granted option or SAR in exchange for cash or another award if the purchase price of such option or the base price of such SAR exceeds the Fair Market Value of a share of Common Stock on the date of such cancellation, in each case, other than in connection with a Change in Control or the adjustment provisions set forth in Section 5.7. 2.5No Dividend Equivalents.Notwithstanding anything in an Agreement to the contrary, the holder of an annual meetingoption or special meeting or the announcement thereof commence a new time period for the giving of a stockholder’s notice as described above.(iii)ToSAR shall not be in proper form for purposes of this Section 2.5, a stockholder’s noticeentitled to the Secretary shall set forth:
(a)As to each Nominating Person (as defined below), the Stockholder Information (as defined in Section 2.4(iii)(a) of these bylaws) except that for purposes of this Section 2.5, the term “Nominating Person” shall be substituted for the term “Proposing Person” in all places it appears in Section 2.4(iii)(a);
(b)As to each Nominating Person, any Disclosable Interests (as defined in Section 2.4(iii)(b), except that for purposes of this Section 2.5 the term “Nominating Person” shall be substituted for the term “Proposing Person” in all places it appears in Section 2.4(iii)(b) and the disclosurereceive dividend equivalents with respect to the businessnumber of shares of Common Stock subject to such option or SAR.
III. STOCK AWARDS 3.1StockAwards. The Committee may, in its discretion, grant Stock Awards to such eligible persons as may be brought beforeselected by the meetingCommittee. The Agreement relating to a Stock Award shall specify whether the Stock Award is a Restricted Stock Award, a Restricted Stock Unit Award or, in Section 2.4(iii)(c)the case of an Other Stock Award, the type of award being granted. 3.2Terms of Restricted Stock Awards. Restricted Stock Awards shall be madesubject to the following terms and conditions and shall contain such additional terms and conditions, not inconsistent with the terms of this Plan, as the Committee shall deem advisable. (a)Number of Shares and Other Terms. The number of shares of Common Stock subject to a Restricted Stock Award and the Restriction Period, Performance Period (if any) and Performance Measures (if any) applicable to a Restricted Stock Award shall be determined by the Committee. (b)Vesting and Forfeiture. The Agreement relating to a Restricted Stock Award shall provide, in the manner determined by the Committee, in its discretion, and subject to the provisions of this Plan, for the vesting of the shares of Common Stock subject to such award (i) if the holder of such award remains continuously in the employment of the Company during the specified Restriction Period or (ii) if specified Performance Measures (if any) are satisfied or met during a specified Performance Period, and for the forfeiture of the shares of Common Stock subject to such award (x) if the holder of such award does not remain continuously in the employment of the Company during the specified Restriction Period or (y) if specified Performance Measures (if any) are not satisfied or met during a specified Performance Period. 82 | RLI Corp. 2023 Proxy Statement (c)Stock Issuance. During the Restriction Period, the shares of Restricted Stock shall be held by a custodian in book entry form with restrictions on such shares duly noted or, alternatively, a certificate or certificates representing a Restricted Stock Award shall be registered in the holder’s name and may bear a legend, in addition to any legend which may be required pursuant to Section 5.6, indicating that the ownership of the shares of Common Stock represented by such certificate is subject to the restrictions, terms and conditions of this Plan and the Agreement relating to the Restricted Stock Award. All such certificates shall be deposited with the Company, together with stock powers or other instruments of assignment (including a power of attorney), each endorsed in blank with a guarantee of signature if deemed necessary or appropriate, which would permit transfer to the Company of all or a portion of the shares of Common Stock subject to the Restricted Stock Award in the event such award is forfeited in whole or in part. Upon termination of any applicable Restriction Period (and the satisfaction or attainment of applicable Performance Measures), subject to the Company’s right to require payment of any taxes in accordance with Section 5.5, the restrictions shall be removed from the requisite number of any shares of Common Stock that are held in book entry form, and all certificates evidencing ownership of the requisite number of shares of Common Stock shall be delivered to the holder of such award. (d)Rights with Respect to Restricted Stock Awards. Unless otherwise set forth in the Agreement relating to a Restricted Stock Award, and subject to the terms and conditions of a Restricted Stock Award, the holder of such award shall have all rights as a stockholder of the Company, including, but not limited to, voting rights, the right to receive dividends and the right to participate in any capital adjustment applicable to all holders of Common Stock; provided, however, that a distribution or dividend with respect to shares of Common Stock, including a regular cash dividend, shall be deposited with the Company and shall be subject to the same restrictions as the shares of Common Stock with respect to which such distribution was made. 3.3Terms of Restricted Stock Unit Awards. Restricted Stock Unit Awards shall be subject to the following terms and conditions and shall contain such additional terms and conditions, not inconsistent with the terms of this Plan, as the Committee shall deem advisable. (a)Number of Shares and Other Terms. The number of shares of Common Stock subject to a Restricted Stock Unit Award, including the number of shares that are earned upon the attainment of any specified Performance Measures, and the Restriction Period, Performance Period (if any) and Performance Measures (if any) applicable to a Restricted Stock Unit Award shall be determined by the Committee. (b)Vesting and Forfeiture. The Agreement relating to a Restricted Stock Unit Award shall provide, in the manner determined by the Committee, in its discretion, and subject to the provisions of this Plan, for the vesting of such Restricted Stock Unit Award (i) if the holder of such award remains continuously in the employment of the Company during the specified Restriction Period or (ii) if specified Performance Measures (if any) are satisfied or met during a specified Performance Period, and for the forfeiture of the shares of Common Stock subject to such award (x) if the holder of such award does not remain continuously in the employment of the Company during the specified Restriction Period or (y) if specified Performance Measures (if any) are not satisfied or met during a specified Performance Period. (c)Settlement of Vested Restricted Stock Unit Awards. The Agreement relating to a Restricted Stock Unit Award shall specify (i) whether such award may be settled in shares of Common Stock or cash or a combination thereof and (ii) whether the holder thereof shall be entitled to receive, on a current or deferred basis, dividend equivalents, and, if determined by the Committee, interest on, or the deemed reinvestment of, any deferred dividend equivalents, with respect to the nominationnumber of each Person for election as a director at the meeting); and(c)Asshares of Common Stock subject to each candidate whom a Nominating Person proposes to nominate for election as a director, (A) all informationsuch award. Any dividend equivalents with respect to Restricted Stock Units that are subject to vesting conditions shall be subject to the same vesting conditions as the underlying awards. Prior to the settlement of a Restricted Stock Unit Award, the holder of such candidate for nomination that would be requiredaward shall have no rights as a stockholder of the Company with respect to bethe shares of Common Stock subject to such award.
3.4Other Stock Awards. Subject to the limitations set forth in the Plan, the Committee is authorized to grant other awards that may be denominated or payable in, valued in whole or in part by reference to, or otherwise based on, or related to, shares of Common Stock, including without limitation shares of Common Stock granted as a stockholder’s notice pursuantbonus and not subject to this Section 2.5any vesting conditions, dividend equivalents, deferred stock units, stock purchase rights and Section 2.6 ifshares of Common Stock issued in lieu of obligations of the Company to pay cash under any compensatory plan or arrangement, subject to such candidate for nomination were a Nominating Person, (B) all informationterms as shall be determined by the Committee. The Committee shall determine the terms and conditions of such awards, which may include the right to elective deferral thereof, subject to such terms and conditions as the Committee may specify in its discretion. Any distribution, dividend or dividend equivalents with respect to Other Stock Awards that are subject to vesting conditions shall be subject to the same vesting conditions as the underlying awards. 3.5Termination of Employment or Service.All of the terms relating to the satisfaction of Performance Measures and the termination of the Restriction Period or Performance Period relating to a Stock Award, or any forfeiture and cancellation of such candidate for nomination that is requiredaward (i) upon a termination of employment with or service to be disclosed in a proxy statement or other filings required to be made in connection with solicitationsthe Company of proxies for electionthe holder of directors in a contested election pursuant to Section 14(a) under the Exchange Act (including such candidate’s written consent to being named in the proxy statement as a nominee and to serving as a director if elected), (C) a descriptionaward, whether by RLI Corp. 2023 Proxy Statement | 83 reason of Disability, Retirement, death or any other participantsreason, or (ii) during a paid or unpaid leave of absence, shall be determined by the Committee and set forth in such solicitation, on the other hand, including, without limitation,applicable Agreement; provided that, notwithstanding the foregoing, unless otherwise determined by the Committee and set forth in the applicable Agreement, if the holder of an award has a termination of employment during the Restriction Period or the Performance Period as a result of (i) the holder’s death or Disability, then all informationrestrictions shall lapse with respect to a number of Shares under the Stock Award that would be required to be disclosed pursuant to Item 404 under Regulation S-K if such Nominating Person werehas been prorated for the “registrant” for purposesportion of such rule and the candidate for nomination were a directorRestriction Period or executive officer of such registrant (the disclosures to be made pursuantPerformance Period prior to the foregoing clauses (A) through (C) are referred to as “Nominee Information”) and (D) a completed and signed questionnaire, representation and agreement as provided in Section 2.6(a). (iv)For purposesholder’s termination of this Section 2.5,employment, based on target performance, or (y) any other reason, the term “Nominating Person” shall mean (a) the stockholder providing the noticeholder will immediately forfeit any portion of the nomination proposed to be made at the meeting, (b) the beneficial owner or beneficial owners, if different, on whose behalf the notice of the nomination proposed to be made at the meetingStock Award that is made and (c) any other participant in such solicitation.
(v)A stockholder providing notice of any nomination proposed to be made at a meeting shall further update and supplement such notice, if necessary, so that the information provided or required to be provided in such notice pursuant to this Section 2.5 shall be true and correct as of the record date for stockholders entitled to vote at the meeting andunvested as of the date of the holder’s termination of employment or service.
IV. PERFORMANCE AWARDS 4.1Performance Awards. The Committee may, in its discretion, grant Performance Awards to such eligible persons as may be selected by the Committee. 4.2Terms of Performance Awards. Performance Awards shall be subject to the following terms and conditions and shall contain such additional terms and conditions, not inconsistent with the terms of this Plan, as the Committee shall deem advisable. (a)Value of Performance Awards and Performance Measures. The method of determining the value of the Performance Award and the Performance Measures and Performance Period applicable to a Performance Award shall be determined by the Committee. (b)Vesting and Forfeiture. The Agreement relating to a Performance Award shall provide, in the manner determined by the Committee, in its discretion, and subject to the provisions of this Plan, for the vesting of such Performance Award if the specified Performance Measures are satisfied or met during the specified Performance Period and for the forfeiture of such award if the specified Performance Measures are not satisfied or met during the specified Performance Period. (c)Settlement of Vested Performance Awards. The Agreement relating to a Performance Award shall specify whether such award may be settled in shares of Common Stock (including shares of Restricted Stock) or cash or a combination thereof. If a Performance Award is settled in shares of Restricted Stock, such shares of Restricted Stock shall be issued to the holder in book entry form or a certificate or certificates representing such Restricted Stock shall be issued in accordance with Section 3.2(c) and the holder of such Restricted Stock shall have such rights as a stockholder of the Company as determined pursuant to Section 3.2(d). Any dividends or dividend equivalents with respect to a Performance Award shall be subject to the same restrictions as such Performance Award. Prior to the settlement of a Performance Award in shares of Common Stock, including Restricted Stock, the holder of such award shall have no rights as a stockholder of the Company. 4.3Termination of Employment or Service. All of the terms relating to the satisfaction of Performance Measures and the termination of the Performance Period relating to a Performance Award, or any forfeiture and cancellation of such award (i) upon a termination of employment with or service to the Company of the holder of such award, whether by reason of Disability, Retirement, death or any other reason, or (ii) during a paid or unpaid leave of absence, shall be determined by the Committee and set forth in the applicable Agreement; provided that, is ten (10) business daysnotwithstanding the foregoing, unless otherwise determined by the Committee and set forth in the applicable Agreement, if the holder of an award has a termination of employment during the Performance Period as a result of (i) the holder’s death or Disability, then all restrictions shall lapse with respect to a number of Shares under the Award that has been prorated for the portion of the Performance Period prior to the meetingholder’s termination of employment, based on target performance, or (y) any adjournment or postponement thereof, and such update and supplement shall be delivered to, or mailed and received by,other reason, the Secretary at the principal executive officesholder will immediately forfeit any portion of the Corporation not later than five (5) business days after the record date for stockholders entitled to vote at the meeting (in the case of the update and supplement required to be made as of such record date), and not later than eight (8) business days prior to the date for the meeting or, if practicable, any adjournment or postponement thereof (and, if not practicable, on the first practicable date prior to the date to which the meeting has been adjourned or postponed) (in the case of the update and supplement required to be made as of ten (10) business days prior to the meeting or any adjournment or postponement thereof).(vi)In addition to the requirements of this Section 2.5 with respect to any nomination proposed to be made at a meeting, each Nominating Person shall comply with all applicable requirements of the Exchange Act with respect to any such nominations.
2.6Additional Requirement for Valid Nomination of Candidates to Serve As a Director and, if Elected, to be Seated as Directors.
(i)To be eligible to be a candidate for election as a director of the Corporation at an annual or special meeting, a candidate must be nominated in the manner prescribed in Section 2.5 and the candidate for nomination, whether nominated by the Board or by a stockholder of record, must have previously delivered (in accordance with the time period prescribed for delivery in a notice to such candidate given by or on behalf of the Board), to the Secretary at the principal executive offices of the Corporation, (a) a completed written questionnaire (in a form provided by the Corporation)
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with respect to the background, qualifications, stock ownership and independence of such proposed nominee and (b) a written representation and agreement (in form provided by the Corporation)Performance Award that such candidate for nomination (A) is not and, if elected as a director during his or her term of office, will not become a party to (1) any agreement, arrangement or understanding with, and has not given and will not give any commitment or assurance to, any person or entity as to how such proposed nominee, if elected as a director of the Corporation, will act or vote on any issue or question (a “Voting Commitment”) or (2) any Voting Commitment that could limit or interfere with such proposed nominee’s ability to comply, if elected as a director of the Corporation, with such proposed nominee’s fiduciary duties under applicable law, (B) is not, and will not become a party to, any agreement, arrangement or understanding with any person or entity other than the Corporation with respect to any direct or indirect compensation or reimbursement for service as a director that has not been disclosed therein or to the Corporation and (C) if elected as a director of the Corporation, will comply with all applicable corporate governance, conflict of interest, confidentiality, stock ownership and trading and other policies and guidelines of the Corporation applicable to directors and in effect during such person’s term in office as a director (and, if requested by any candidate for nomination, the Secretary of the Corporation shall provide to such candidate for nomination all such policies and guidelines then in effect).
(ii)The Board may also require any proposed candidate for nomination as a director to furnish such other information as may reasonably be requested by the Board in writing prior to the meeting of stockholders at which such candidate’s nomination is to be acted upon in order for the Board to determine the eligibility of such candidate for nomination to be an independent director of the Corporation in accordance with the Corporation’s Corporate Governance Guidelines.
(iii)A candidate for nomination as a director shall further update and supplement the materials delivered pursuant to this Section 2.6, if necessary, so that the information provided or required to be provided pursuant to this Section 2.6 shall be true and correct as of the record date for stockholders entitled to vote at the meeting andunvested as of the date thatof the holder’s termination of employment or service.
V. GENERAL 5.1EffectiveDateand TermofPlan. This Plan shall be submitted to the stockholders of the Company for approval at the Company’s 2023 annual meeting of stockholders and shall become effective as of the date on which the Plan is ten (10) business daysapproved by stockholders. This Plan shall terminate as of the first annual meeting of the Company’s stockholders to occur on or after the tenth anniversary of its effective date, unless terminated earlier by the Board. Termination of this Plan shall not affect the terms or conditions of any award granted prior to termination. Awards hereunder may be made at any time prior to the meeting or any adjournment or postponement thereof, and such update and supplement shalltermination of this Plan, provided that no Incentive Stock Option may be delivered to, or mailed and receivedgranted later than ten years after the date on which the Plan was approved by the Secretary atBoard. In the principal executive officesevent that 84 | RLI Corp. 2023 Proxy Statement this Plan is not approved by the stockholders of the Corporation (or any other office specified by the Corporation in any public announcement) not later than five (5) business days after the record date for stockholders entitled to vote at the meeting (in the case of the update and supplement required to be made as of such record date), and not later than eight (8) business days prior to the date for the meeting or, if practicable, any adjournment or postponement thereof (and, if not practicable, on the first practicable date prior to the date to which the meeting has been adjourned or postponed) (in the case of the update and supplement required to be made as of ten (10) business days prior to the meeting or any adjournment or postponement thereof). (iv)No candidate shall be eligible for nomination as a director of the Corporation unless such candidate for nomination and the Nominating Person seeking to place such candidate’s name in nomination has complied with Section 2.5 andCompany, this Section 2.6, as applicable. The presiding officer at the meeting shall, if the facts warrant, determine that a nomination was not properly made in accordance with Section 2.5 and this Section 2.6, and if he or she should so determine, he or she shall so declare such determination to the meeting, the defective nomination shall be disregardedPlan and any ballots cast for the candidate in question (but in the case of any form of ballot listing other qualified nominees, only the ballots case for the nominee in question)awards hereunder shall be void and of no force or effect.
(v)Notwithstanding anythingeffect, and the RLI Corp. 2015 Long-Term Incentive Plan shall remain in these bylawseffect in accordance with its terms.
5.2Amendments. The Board may amend this Plan as it shall deem advisable; provided, however, that no amendment to the contrary, no candidate for nominationPlan shall be eligibleeffective without the approval of the Company’s stockholders if (i) stockholder approval is required by applicable law, rule or regulation, including any rule of the New York Stock Exchange, or any other stock exchange on which the Common Stock is then traded, or (ii) such amendment seeks to modify the Non-Employee Director compensation limit set forth in Section 1.3 or the prohibition on repricing set forth in Section 2.4 hereof; providedfurther, that no amendment may materially impair the rights of a holder of an outstanding award without the consent of such holder. 5.3Agreement. Each award under this Plan shall be evidenced by an Agreement setting forth the terms and conditions applicable to such award. No award shall be valid until an Agreement is executed by the Company and, to the extent required by the Company, executed or electronically accepted by the recipient of such award. Upon such execution or acceptance and delivery of the Agreement to the Company within the time period specified by the Company, such award shall be effective as of the effective date set forth in the Agreement. 5.4Non-Transferability. No award shall be transferable other than by will, the laws of descent and distribution or pursuant to beneficiary designation procedures approved by the Company or, to the extent expressly permitted in the Agreement relating to such award, to the holder’s family members, a trust or entity established by the holder for estate planning purposes, a charitable organization designated by the holder or pursuant to a domestic relations order, in each case, without consideration. Except to the extent permitted by the foregoing sentence or the Agreement relating to an award, each award may be exercised or settled during the holder’s lifetime only by the holder or the holder’s legal representative or similar person. Except as permitted by the second preceding sentence, no award may be sold, transferred, assigned, pledged, hypothecated, encumbered or otherwise disposed of (whether by operation of law or otherwise) or be subject to execution, attachment or similar process. Upon any attempt to so sell, transfer, assign, pledge, hypothecate, encumber or otherwise dispose of any award, such award and all rights thereunder shall immediately become null and void. 5.5Tax Withholding. The Company shall have the right to require, prior to the issuance or delivery of any shares of Common Stock or the payment of any cash pursuant to an award made hereunder, payment by the holder of such award of any federal, state, local or other taxes which may be required to be seatedwithheld or paid in connection with such award. An Agreement may provide that (i) the Company shall withhold whole shares of Common Stock which would otherwise be delivered to a holder, having an aggregate Fair Market Value determined as of the date the obligation to withhold or pay taxes arises in connection with an award (the “Tax Date”), or withhold an amount of cash which would otherwise be payable to a holder, in the amount necessary to satisfy any such obligation or (ii) the holder may satisfy any such obligation by any of the following means: (A) a cash payment to the Company; (B) delivery (either actual delivery or by attestation procedures established by the Company) to the Company of previously owned whole shares of Common Stock having an aggregate Fair Market Value, determined as of the Tax Date, equal to the amount necessary to satisfy any such obligation; (C) authorizing the Company to withhold whole shares of Common Stock which would otherwise be delivered having an aggregate Fair Market Value, determined as of the Tax Date, or withhold an amount of cash which would otherwise be payable to a holder, in either case equal to the amount necessary to satisfy any such obligation; (D) in the case of the exercise of an option, a cash payment by a broker-dealer acceptable to the Company to whom the participant has submitted an irrevocable notice of exercise or (E) any combination of (A), (B) and (C), in each case to the extent set forth in the Agreement relating to the award. Shares of Common Stock to be withheld may not have an aggregate Fair Market Value in excess of the amount determined by applying the minimum statutory withholding rate (or, if permitted by the Company, such other rate as will not cause adverse accounting consequences under the accounting rules then in effect, and is permitted under applicable IRS withholding rules). Any fraction of a share of Common Stock which would be required to satisfy such an obligation shall be disregarded and the remaining amount due shall be paid in cash by the holder. 5.6Restrictions on Shares. Each award made hereunder shall be subject to the requirement that if at any time the Company determines that the listing, registration or qualification of the shares of Common Stock subject to such award upon any securities exchange or under any law, or the consent or approval of any governmental body, or the taking of any other action is necessary or desirable as a directorcondition of, or in connection with, the Corporationdelivery of shares thereunder, such shares shall not be delivered unless nominatedsuch listing, registration, qualification, consent, approval or other action shall have been effected or obtained, free of any conditions not acceptable to the Company. The Company may require that certificates evidencing shares of Common Stock delivered pursuant to any award made hereunder bear a legend indicating that the sale, transfer or other disposition thereof by the holder is prohibited except in compliance with the Securities Act of 1933, as amended, and electedthe rules and regulations thereunder. 5.7Adjustment. In the event of any Fundamental Change or equity restructuring (within the meaning of Financial Accounting Standards Board Accounting Standards Codification Topic 718, Compensation—Stock Compensation or any successor or replacement accounting standard) that causes the per share value of shares of Common Stock to change, such as a stock dividend, stock split, spinoff, rights offering or recapitalization through an extraordinary cash dividend, the number RLI Corp. 2023 Proxy Statement | 85 and class of securities available under this Plan, the terms of each outstanding option and SAR (including the number and class of securities subject to each outstanding option or SAR and the purchase price or base price per share), the terms of each outstanding Stock Award (including the number and class of securities subject thereto), and the terms of each outstanding Performance Award (including the number and class of securities subject thereto, if applicable), shall be appropriately adjusted by the Committee, such adjustments to be made in the case of outstanding options and SARs in accordance with Section 2.5 and this Section 2.6.2.7Notice409A of Stockholders’ Meetings.
Unless otherwise provided by law, the Certificate of Incorporation or these bylaws,Code. In the noticeevent of any meetingother change in corporate capitalization, including a merger, consolidation, reorganization, or partial or complete liquidation of stockholdersthe Company, such equitable adjustments described in the foregoing sentence may be made as determined to be appropriate and equitable by the Committee to prevent dilution or enlargement of rights of participants. In either case, the decision of the Committee regarding any such adjustment shall be sentfinal, binding and conclusive.
5.8Change in Control. (a)Subject to the terms of the applicable Agreements, in the event of a “Change in Control,” the Board, as constituted prior to the Change in Control, may, in its discretion: (1) require that (i) some or otherwise givenall outstanding options and SARs shall become exercisable in full or in part, either immediately or upon a subsequent termination of employment, (ii) the Restriction Period applicable to some or all outstanding Stock Awards shall lapse in full or in part, either immediately or upon a subsequent termination of employment, (iii) the Performance Period applicable to some or all outstanding awards shall lapse in full or in part, and (iv) the Performance Measures applicable to some or all outstanding awards shall be deemed to be satisfied at the target, maximum or any other level; (2) require that shares of capital stock of the corporation resulting from or succeeding to the business of the Company pursuant to such Change in Control, or a parent corporation thereof, be substituted for some or all of the shares of Common Stock subject to an outstanding award, with an appropriate and equitable adjustment to such award as determined by the Board in accordance with either Section 2.85.7; and/or (3) require outstanding awards, in whole or Section 8.1in part, to be surrendered to the Company by the holder, and to be immediately cancelled by the Company, and to provide for the holder to receive (i) a cash payment or other property in an amount equal to (A) in the case of these bylawsan option or an SAR, the aggregate number of shares of Common Stock then subject to the portion of such option or SAR surrendered, whether or not less than ten (10) nor more than sixty (60) days beforevested or exercisable, multiplied by the excess, if any, of the Fair Market Value of a share of Common Stock as of the date of the meetingChange in Control, over the purchase price or base price per share of Common Stock subject to each stockholder entitled to vote at such meeting. The notice shall specify the place, if any, date and hour of the meeting, the means of remote communication, if any, by which stockholders and proxy holders may be deemed to be present in Person and vote at such meeting, and,option or SAR, (B) in the case of a special meeting,Stock Award or a Performance Award denominated in shares of Common Stock, the purposenumber of shares of Common Stock then subject to the portion of such award surrendered to the extent the Performance Measures applicable to such award have been satisfied or are deemed satisfied pursuant to Section 5.8(a)(i), whether or not vested, multiplied by the Fair Market Value of a share of Common Stock as of the date of the Change in Control, and (C) in the case of a Performance Award denominated in cash, the value of the Performance Award then subject to the portion of such award surrendered to the extent the Performance Measures applicable to such award have been satisfied or are deemed satisfied pursuant to Section 5.8(a)(i); (ii) shares of capital stock of the corporation resulting from or succeeding to the business of the Company pursuant to such Change in Control, or a parent corporation thereof, having a fair market value not less than the amount determined under clause (i) above; or (iii) a combination of the payment of cash pursuant to clause (i) above and the issuance of shares pursuant to clause (ii) above. For the avoidance of doubt, except as explicitly authorized in an Agreement, by this Section 5.8(a) or by a participant in writing, the Board may not terminate or cancel any equity awards (whether vested or unvested) in connection with a Change in Control. (b)For purposes for which the meeting is called.2.8Manner of Giving Notice; Affidavit of Notice.
Notice of any meeting of stockholdersthis Plan, a “
Change in Control” shall be deemed given:(i)if mailed, when depositedto have occurred if:
(1) any “Person,” within the meaning of Section 13(d) or 14(d) under the Exchange Act, including any group (within the meaning of Section 13(d)(3) under the Exchange Act), becomes the “Beneficial Owner,” as such term is defined in Rule 13d-3 promulgated under the U.S. mail, postage prepaid, directed to the stockholder at hisExchange Act, of 30% or her address as it appears on the Corporation’s records; or(ii)if electronically transmitted as provided in Section 8.1 of these bylaws.
An affidavitmore of the secretary or an assistant secretary of the Corporation or of the transfer agent or any other agent of the Corporation that the notice has been given by mail or by a form of electronic transmission, as applicable, shall, in the absence of fraud, be prima facie evidence of the facts stated therein.
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2.9Quorum.
Unless otherwise provided by law, the Certificate of Incorporation or these bylaws, the holders of a majority incombined voting power of the stock issued andCompany’s outstanding and entitled to vote, present in Person,shares, other than beneficial ownership by (A) the Company or by remote communication, if applicable, or represented by proxy, shall constitute a quorum for the transaction of business at all meetingsany subsidiary of the stockholders. If, however, a quorum is not present or represented atCompany, (B) any meetingemployee benefit plan of the stockholders, then either (i) the chairpersonCompany
86 | RLI Corp. 2023 Proxy Statement or any subsidiary of the meetingCompany or (ii) a majority in voting power(C) any entity of the stockholders entitled to vote at the meeting, present in Person, or by remote communication, if applicable, or represented by proxy, shall have power to adjourn the meeting from time to time in the manner provided in Section 2.10 of these bylaws until a quorum is present or represented.2.10Adjourned Meeting; Notice.
When a meeting is adjourned to another time or place, if any, notice need not be given of the adjourned meeting if the time, place, if any, thereof, and the means of remote communications, if any, by which stockholders and proxy holders may be deemed to be present in Person and vote at such adjourned meeting are announced at the meeting at which the adjournment is taken. At any adjourned meeting, the Corporation may transact any business which might have been transacted at the original meeting. If the adjournment isCompany for more than thirty (30) days, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. If after the adjournment a new record date for determination of stockholders entitled to vote is fixed for the adjourned meeting, the Board shall fix as the record date for determining stockholders entitled to notice of such adjourned meeting the same or an earlier date as that fixed for determination of stockholders entitled to vote at the adjourned meeting, and shall give notice of the adjourned meeting to each stockholder of record as of the record date so fixed for notice of such adjourned meeting.
2.11Conduct of Business.
The date and time of the opening and the closing of the polls for each matter upon which the stockholders will vote at a meeting shall be announced at the meeting by the Person presiding over the meeting. The Board may adopt by resolution such rules and regulations for the conduct of the meeting of stockholders as it shall deem appropriate. Except to the extent inconsistent with such rules and regulations as adopted by the Board, the chairperson of any meeting of stockholders shall have the right and authority to convene and (for any or no reason) to recess and/or adjourn the meeting, to prescribe such rules, regulations and procedures and to do all such acts as, in the judgment of such chairperson, are appropriate for the proper conduct of the meeting. Such rules, regulations or procedures, whether adopted by the Board or prescribed by the chairperson of the meeting, may include, without limitation, the following: (i) the establishment of an agenda or order of business for the meeting; (ii) rules and procedures for maintaining order at the meeting and the safety of those present; (iii) limitations on attendance at or participation in the meeting to stockholders entitled to vote at the meeting, their duly authorized and constituted proxies or such other Persons as the chairperson of the meeting shall determine; (iv) restrictions on entry to the meeting after the time fixed for the commencement thereof; and (v) limitations on the time allotted to questions or comments by participants. Unless and to the extent determined by the Board or the chairperson of the meeting, meetings of stockholders shall not be required to be held in accordance with the rules of parliamentary procedure.
2.12Voting.
Except as may be otherwise provided in the Certificate of Incorporation, these bylaws or the DGCL, each stockholder shall be entitled to one (1) vote for each share of capital stock held by such stockholder. Except as otherwise provided by the Certificate of Incorporation, at all duly called or convened meetings of stockholders at which a quorum is present for the election of directors, a majority of the votes cast shall be sufficient to elect a director. Except as otherwise provided by the Certificate of Incorporation, these bylaws, the rules or regulations of any stock exchange applicable to the Corporation, or applicable law or pursuant to the terms of any regulation applicable tosuch plan.
Notwithstanding the Corporation or its securities, each other matter presented to the stockholders atforegoing, a duly called or convened meeting at which a quorum is present shall be decided by the affirmative vote of the holders of a majority of the votes cast (excluding abstentions and broker non-votes) on such matter. 2.13Record Date for Stockholder Meetings and Other Purposes.
In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, the Board may fix a record date, which record dateChange in Control shall not precede the date upon which the resolution fixing the record date is adopted by the Board, and which record date shall not be more than sixty (60) days nor less than ten (10) days before the date of such meeting. If the Board so fixes a date, such date shall also be the record date for determining the stockholders entitled to vote at such meeting unless the Board determines, at the time it fixes such record date, that a later date on or before the date of the meeting shall be the date for making such determination. If no record date is fixed by the Board, the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be the close of business on the next day preceding the day on which notice is first given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board may fix a new record date for the adjourned meeting; and in such case shall also
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fixoccur as the record date for stockholders entitled to noticeresult of such adjourned meeting the same or an earlier date as that fixed for determination of stockholders entitled to vote in accordance herewith at the adjourned meeting.
In order that the Corporation may determine the stockholders entitled to receive payment of any dividend or other distribution or allotment or any rights or the stockholders entitled to exercise any rights in respect of any change, conversion or exchange of capital stock, or for the purposes of any other lawful action, the Board may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted, and which record date shall be not more than sixty (60) days prior to such action. If no record date is fixed, the record date for determining stockholders for any such purpose shall be at the close of business on the day on which the Board adopts the resolution relating thereto.
2.14Proxies.
Each stockholder entitled to vote at a meeting of stockholders may authorize another Person or Persons to act for such stockholder by proxy authorized by an instrument in writing or by a transmission permitted by law filed in accordance with the procedure established for the meeting, but, no such proxy shall be voted or acted upon after three (3) years from its date, unless the proxy provides for a longer period. The revocability of a proxy that states on its face that it is irrevocable shall be governed by the provisions of Section 212 of the DGCL. A proxy may be in the form of a telegram, cablegram or other means of electronic transmission which sets forth or is submitted with information from which it can be determined that the telegram, cablegram or other means of electronic transmission was authorized by the stockholder.
2.15List of Stockholders Entitled to Vote.
The Corporation shall prepare, at least ten (10) days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting (provided, however, that if the record date for determining the stockholders entitled to vote is less than ten (10) days before the date of the meeting, the list shall reflect the stockholders entitled to vote as of the tenth day before the meeting date), arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. The Corporation shall not be required to include electronic mail addresses or other electronic contact information on such list. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting for a period of at least ten (10) days prior to the meeting: (i) on a reasonably accessible electronic network, provided that the information required to gain access to such list is provided with the notice of the meeting, or (ii) during ordinary business hours, at the Corporation’s principal executive office. In the event that the Corporation determines to make the list available on an electronic network, the Corporation may take reasonable steps to ensure that such information is available only to stockholders of the Corporation. If the meeting is to be held at a place, then the list shall be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. If the meeting is to be held solely by means of remote communication, then the list shall also be open to the examination of any stockholder during the whole time of the meeting on a reasonably accessible electronic network, and the information required to access such list shall be provided with the notice of the meeting. Such list shall presumptively determine the identity of the stockholders entitled to vote at the meeting and the number of shares held by each of them. Except as otherwise provided by law, the stock ledger shall be the only evidence as to who are the stockholders entitled to examine the list of stockholders required by this Section 2.15 or to vote in Person or by proxy at any meeting of stockholders.
2.16Shareholder Action by Written Consent without a Meeting.
(i)Any action required or permitted to be taken at an annual or special meeting of stockholders may be taken without a meeting, without prior notice and without a vote, if a consent or consents in writing, setting forth the action so taken, (a) shall be signed by holders of record on the record date established pursuant to Section 2.16(ii) (the “Written Consent Record Date”)acquisition of outstanding shares of the Corporation having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted and (b) shall be delivered to the Corporation at its registered office in the State of Delaware, at its principal place of business or to an officer or agent of the Corporation having custody of the minute books in which proceedings of meetings of stockholders are recorded. Delivery shall be made by hand or by certified or registered mail, return receipt requested. Every written consent shall bear the date of the signature of each stockholder who signs the consent, and no written consent shall be effective to take corporate action unless, within sixty (60) days of the earliest dated valid consent delivered in the manner described in this Section 2.16, written consents signed by a sufficient number of holders to take such action are delivered to the Corporation in the manner described in this Section 2.16. Only stockholders of record on the Written Consent Record Date shall be entitled to consent to corporate action in writing without a meeting.
(ii)Without qualification, any stockholder of record seeking to have the stockholders authorize or take any action by written consent shall first request in writing that the Board fix a Written Consent Record Date for the purpose of determining the stockholders entitled to take such action, which request shall be in proper form and delivered to, or mailed and receivedCompany by the Secretary of the Corporation at the principal executive offices of the Corporation. Within ten (10) days after receipt of a request in proper form and otherwise in compliance with this Section 2.16(ii) from any such stockholder, the Board may adopt a resolution fixing a Written Consent Record Date for the purpose of determining the stockholders entitled to take such action,Company which, date shall not be more than ten (10) days after the date upon which the
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resolution fixing the record date is adopted by the Board. If no resolution fixing a record date has been adopted by the Board within such ten (10) day period after the date on which such a request is received, (a) the Written Consent Record Date for determining stockholders entitled to consent to such action, when no prior action of the Board is required by applicable law, shall be the first date on which valid signed written consents constituting applicable percentage of the outstanding shares of the Corporation and setting forth the action taken or proposed to be taken is delivered to the Corporation in the manner described in this Section 2.16, and (b) the Written Consent Record Date for determining stockholders entitled to consent to such action, when prior action by the Board is required by applicable law, shall be at the close of business on the date on which the Board adopts the resolution taking such prior action.
(iii)To be in proper form for purposes of this Section 2.16, a request by a stockholder for the Board to fix a Written Consent Record Date shall set forth:
(a)As to each Soliciting Person (as defined below), the Stockholder Information (as defined in Section 2.4(iii)(a), except that for purposes of this Section 2.16 the term “Soliciting Person” shall be substituted for the term “Proposing Person” in all places it appears in Section 2.4(iii)(a));
(b)As to each Soliciting Person, any Disclosable Interests (as defined in Section 2.4(iii)(b), except that for purposes of this Section 2.16 the term “Soliciting Person” shall be substituted for the term “Proposing Person” in all places it appears in Section 2.4(iii)(b) and the disclosure in clause (A) of Section 2.4(iii)(b) shall be made with respect to the action or actions proposed to be taken by written consent);
(c)As to the action or actions proposed to be taken by written consent, (A) a reasonably brief description of the action or actions, the reasons for taking such action or actions and any material interest in such action or actions of each Soliciting Person, (B) the text of the resolutions or consent proposed to be acted upon by written consent of the stockholders, and (C) a reasonably detailed description of all agreements, arrangements and understandings (x) between or among any of the Soliciting Persons and (y) between or among any Soliciting Person and any other record or beneficial owner of capital stock of the Corporation (including their names) in connection with the request or such action or actions;
(d)If directors are proposed to be elected by written consent, the Nominee Information for each person whom a Requesting Person proposes to elect as a director by written consent; and
(e)For purposes of this Section 2.16, the term “Soliciting Person” shall mean (a) the stockholder making a request for the Board to fix a record date and proposing the action or actions to be taken by written consent, (b) the beneficial owner or beneficial owners, if different, on whose behalf such request is made, and (c) any affiliate of such stockholder or beneficial owner.
(iv)In connection with an action or actions proposed to be taken by written consent in accordance with this Section 2.16, the stockholder or stockholders seeking such action or actions shall further update and supplement the information previously provided to the Corporation in connection therewith, if necessary, so that the information provided or required to be provided pursuant to this Section 2.16 shall be true and correct as of the record date for determining the stockholders eligible to take such action and as of the date that is five (5) business days prior to the date the consent solicitation is commenced, and such update and supplement shall be delivered to, or mailed and received by, the Secretary at the principal executive offices of the Corporation not later than five (5) business days after the record date for determining the stockholders eligible to take such action (in the case of the update and supplement required to be made as of the record date), and not later than three (3) business days prior to the date that the consent solicitation is commenced (in the case of the update and supplement required to be made as of five (5) business days prior to the commencement of the consent solicitation).
(v)Notwithstanding anything in these bylaws to the contrary, no action may be taken by the stockholders by written consent except in accordance with this Section 2.16. If the Board shall determine that any request to fix a Written Consent Record Date or to take stockholder action by written consent was not properly made in accordance with this Section 2.16, or the stockholder or stockholders seeking to take such action do not otherwise comply with this Section 2.16, then the Board shall not be required to fix a Written Consent Record Date and any such purported action by written consent shall be null and void to the fullest extent permitted by applicable law. In addition to the requirements of this Section 2.16 with respect to stockholders seeking to take an action by written consent, each Soliciting Person shall comply with all requirements of applicable law, including all requirements of the Exchange Act, with respect to such action.
2.17Inspectors of Election.
Before any meeting of stockholders, the Corporation shall appoint an inspector or inspectors of election to act at the meeting or its adjournment and make a written report thereof. The Corporation may designate one or more Persons as alternate inspectors to replace any inspector who fails to act. If any Person appointed as inspector or any alternate fails to appear or fails or refuses to act, then the chairperson of the meeting shall appoint a Person to fill that vacancy.
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Such inspectors shall:
(i)determinereducing the number of shares outstanding, andincreases the voting power of each, theproportionate number of shares represented atbeneficially owned by a Person to 30% or more of the meetingshares of the Company then outstanding; provided, however, that if a Person becomes the Beneficial Owner of 30% or more of the shares of the Company then outstanding by reason of share purchases by the Company and shall, after such share purchases by the validityCompany, become the Beneficial Owner of any proxies and ballots;
(ii)count all votes or ballots;
(iii)count and tabulate all votes;
(iv)determine and retain for a reasonable period a recordadditional shares of the dispositionCompany, then a Change in Control shall be deemed to have occurred; or
(2) the Company consummates a merger or consolidation with another entity, or engages in a reorganization with or a statutory share exchange or an exchange offer for the Company’s outstanding voting stock of any challenges made to any determinationclass with another entity or acquires another entity by means of a statutory share exchange or an exchange offer, or engages in a similar transaction; provided that no Change in Control shall have occurred by reason of this paragraph unless either: 1(A) the inspector(s); and(v)certify its or their determinationstockholders of the number of shares represented atCompany immediately prior to the meeting and its or their count of all votes and ballots.
Each inspector, before entering upon the dischargeconsummation of the dutiestransaction would not, immediately after such consummation, as a result of inspector, shall taketheir beneficial ownership of voting stock of the Company immediately prior to such consummation
(I)be the Beneficial Owners, directly or indirectly, of securities of the resulting or acquiring entity entitled to elect a majority of the members of the board of directors or other governing body of the resulting or acquiring entity; and sign an oath faithfully (II)be the Beneficial Owners of the resulting or acquiring entity in substantially the same proportion as their beneficial ownership of the voting stock of the Company immediately prior to executesuch transaction; or 1(B) those persons who were directors of the duties of inspection with strict impartiality and accordingCompany immediately prior to the best of such inspector’s ability. Any report or certificate made by the inspectors of election is prima facie evidenceconsummation of the facts stated therein. The inspectors of election may appointproposed transaction would not, immediately after such Persons to assist them in performing their duties as they determine.Article III – Directors
3.1Powers.
Except as otherwise provided by the Certificate of Incorporation or the DGCL, the business and affairs of the Corporation shall be managed by or under the direction of the Board.
3.2Number of Directors.
Subject to the Certificate of Incorporation, the total number of directors constituting the Board shall be not less than nine (9) nor more than thirteen (13) as determined from time to time by resolution of the Board. No reduction of the authorized number of directors shall have the effect of removing any director before that director’s term of office expires.
3.3Election, Qualification and Term of Office of Directors.
Except as provided in Section 3.4, each director, including a director elected to fill a vacancy or newly created directorship, shall hold office until the expiration of the term of the class, if any, for which elected and until such director’s successor is elected and qualified or until such director’s earlier death, resignation or removal. The Certificate of Incorporation or these bylaws may prescribe qualifications for directors.
3.4Resignation and Vacancies.
Any director may resign at any time upon notice given in writing or by electronic transmission to the Corporation. The resignation shall take effect at the time specified therein or upon the happening of an event specified therein, and if no time or event is specified, at the time of its receipt. When one or more directors so resigns and the resignation is effective at a future date or upon the happening of an event to occur on a future date,consummation, constitute a majority of the directors thenof the resulting entity; or
(3) the sale or disposition, in office, including those who have so resigned, shall have powerone or a series of related transactions, of all or substantially all of the assets of the Company to fill such vacancyany Person (as defined in paragraph (1) above) other than a Subsidiary; or vacancies, (4) the vote thereon to take effect when such resignation or resignations shall become effective, and each director so chosen shall hold office as provided in this section in the filling of other vacancies.Unless otherwise provided in the Certificate of Incorporation or these bylaws, vacancies and newly created directorships resulting from any increase in the authorized number of duly elected and qualified directors shall be filled only by a majority of the directors then in office, although less than a quorum, orCompany who were not either elected by a sole remaining director. Any director appointed in accordance with the preceding sentence shall hold office for the remainder of the term of the class, if any, to which the director is appointed and until such director’s successor shall have been elected and qualified. A vacancy in the Board shall be deemed to exist under these bylaws in the case of the death, removal or resignation of any director.
3.5Place of Meetings; Meetings by Telephone.
The Board may hold meetings, both regular and special, either within or outside the State of Delaware. Unless otherwise restricted by the Certificate of Incorporation or these bylaws, members of the Board or any committee designatednominated by the Board may participate in a meeting of the Board, or anyits nominating/governance committee by means of conference telephone or other communications equipment by means of which all Persons participating in the meeting can hear each other, and such participation in a meeting pursuant to this bylaw shall constitute presence in Person at the meeting.
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3.6Regular Meetings.
Regular meetings of the Board may be held without notice at such time and at such place as shall from time to time be determinedfor election by the Board.
3.7Special Meetings; Notice.
Special meetings of the Board for any purpose or purposes may be called at any time by the chairperson of the Board, the chief executive officer, the president or the secretary at the request ofshareholders constitute a majority of the total number of directors constituting the Board.
Notice of the timeCompany as fixed by its Bylaws;
provided, that with respect to any nonqualified deferred compensation that becomes payable on account of the Change in Control, the transaction or event described in clause (1), (2), (3) or (4) also constitutes a “change in control event,” as defined in Treasury Regulation §1.409A-3(i)(5) if required in order for the payment not to violate Section 409A of the Code. The Committee shall have full and placefinal authority, which shall be exercised in its discretion, to determine conclusively whether a Change in Control of special meetingsthe Company has occurred pursuant to the above definition, and the date of the occurrence of such Change in Control and any incidental matters relating thereto. 5.9Deferrals and Section 409A. The Committee may determine that the delivery of shares of Common Stock or the payment of cash, or a combination thereof, upon the settlement of all or a portion of any award made hereunder, other than awards of options or SARs, shall be:(i)delivered Personallybe deferred, or the Committee may, in its sole discretion, approve deferral elections made by hand, by courier or by telephone;
(ii)sent by United States first-class mail, postage prepaid;
(iii)sent by facsimile or electronic mail; or
(iv)sent by other meansholders of electronic transmission,
directed to each director at that director’s address, telephone number, facsimile number or electronic mail address, or other addressawards. Deferrals shall be for electronic transmission,such periods and upon such terms as the caseCommittee may determine in its sole discretion, subject to the requirements of Section 409A of the Code. Awards under the Plan are intended to comply with, or be as shown onexempt from, the Corporation’s records.
Ifapplicable requirements of Section 409A of the noticeCode and shall be limited, construed and interpreted in accordance with such intent. Although the Company does not guarantee any particular tax treatment, to the extent that any award is (i) delivered Personally by hand, by courier or by telephone, (ii) sent by facsimile or electronic mail, or (iii) sent by other meanssubject to Section 409A of electronic transmission,the Code, it shall be delivered or sent at least two (2) days before the timepaid in a manner that is intended to comply with Section 409A of the holdingCode, including regulations and any other guidance issued by the Secretary of the meeting. IfTreasury and the notice is sentInternal Revenue
RLI Corp. 2023 Proxy Statement | 87 Service with respect thereto. In no event whatsoever shall the Company be liable for any additional tax, interest or penalties that may be imposed on the participant by U.S. mail, itSection 409A of the Code or any damages for failing to comply with Section 409A of the Code. Notwithstanding anything in the Plan or any Agreement to the contrary, each participant shall be depositedsolely responsible for the tax consequences of awards, and in no event shall the Company have any responsibility or liability if an award does not meet any applicable requirements of Section 409A. Although the Company intends to administer the Plan to prevent taxation under section 409A, the Company does not represent or warrant that the Plan or any award complies with Section 409A or any other provision of federal, state, local or other tax law. 5.10NoRight ofParticipation, Employment or Service. Unless otherwise set forth in an employment agreement, no person shall have any right to participate in this Plan. Neither this Plan nor any award made hereunder shall confer upon any person any right to continued employment by or service with the Company or any Subsidiary or affect in any manner the right of the Company or any Subsidiary to terminate the employment or service of any person at any time without liability hereunder. 5.11Rights as Stockholder. No person shall have any right as a stockholder of the Company with respect to any shares of Common Stock or other equity security of the Company which is subject to an award hereunder unless and until such person becomes a stockholder of record with respect to such shares of Common Stock or equity security. 5.12Designation of Beneficiary. To the extent permitted by the Company, a holder of an award may file with the Company a written designation of one or more persons as such holder’s beneficiary or beneficiaries (both primary and contingent) in the U.S. mail at least four (4) days before the timeevent of the holding ofholder’s death or incapacity. To the meeting.extent an outstanding option or SAR granted hereunder is exercisable, such beneficiary or beneficiaries shall be entitled to exercise such option or SAR pursuant to procedures prescribed by the Company. Each beneficiary designation shall become effective only when filed in writing with the Company during the holder’s lifetime on a form prescribed by the Company. The notice need not specify the place of the meeting (if the meeting is to be held at the Corporation’s principal executive office) nor the purpose of the meeting.3.8Quorum.
At all meetings of the Board, a majority of the total number of directors shall constitute a quorum for the transaction of business. The votespouse of a majoritymarried holder domiciled in a community property authority shall join in any designation of a beneficiary other than such spouse. The filing with the directors present at any meeting at whichCompany of a quorum is presentnew beneficiary designation shall cancel all previously filed beneficiary designations. If a holder fails to designate a beneficiary, or if all designated beneficiaries of a holder predecease the holder, then each outstanding award held by such holder, to the extent vested or exercisable, shall be the act of the Board, except aspayable to or may be otherwise specifically providedexercised by statute,such holder’s executor, administrator, legal representative or similar person.
5.13Awards Subject to Clawback. The awards granted under this Plan and any cash payment or shares of Common Stock delivered pursuant to such an award are subject to forfeiture, recovery by the Certificate of IncorporationCompany or these bylaws. If a quorum is not present atother action pursuant to the applicable Agreement or any meeting ofclawback or recoupment policy which the Board, then the directors present thereatCompany may adjourn the meetingadopt from time to time, including without notice other than announcement atlimitation any such policy which the meeting, until a quorum is present.A meeting at which a quorum is initially present may continue to transact business notwithstanding the withdrawal of directors, if any action taken is approved by at least a majority of the required quorum for that meeting.
3.9Board Action by Written Consent without a Meeting.
Unless otherwise restricted by the Certificate of Incorporation or these bylaws, any action required or permitted to be taken at any meeting of the Board, or of any committee thereof,Company may be taken without a meeting if all members ofrequired to adopt under the BoardDodd-Frank Wall Street Reform and Consumer Protection Act and implementing rules and regulations thereunder, or committee, as the case may be, consent thereto in writing orotherwise required by electronic transmissionlaw.
5.14Governing Law. This Plan, each award hereunder and the writing or writings or electronic transmission or transmissions are filed with the minutes of proceedings of the Board or committee. Such filing shall be in paper form if the minutes are maintained in paper formrelated Agreement, and shall be in electronic form if the minutes are maintained in electronic form.3.10Fees and Compensation of Directors.
Unless otherwise restricted by the Certificate of Incorporation or these bylaws, the Board shall have the authority to fix the compensation, including fees and reimbursement of expenses, of directors for services to the Corporation in any capacity.
3.11Dividends.
The Board, subject to any restrictions contained in either (i) the DGCL or (ii) the Certificate of Incorporation, may declare and pay dividends upon the shares of its capital stock. Dividends may be paid in cash, in property or in shares of the Corporation’s capital stock.
The Board may set apart out of any of the funds of the Corporation available for dividends a reserve or reserves for any proper purpose and may abolish any such reserve. Such purposes shall include but not be limited to equalizing dividends, repairing or maintaining any property of the Corporation, and meeting contingencies.
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Article IV – Committees
4.1Committees of Directors.
The Board may designate one (1) or more committees, each committee to consist, of one (1) or more of the directors of the Corporation. The Board may designate one (1) or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. The chairperson of any committee shall be selected from among the members of the committee by the Board. In the absence or disqualification of a member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not such member or members constitute a quorum, may unanimously appoint another member of the Board to act at the meeting in the place of any such absent or disqualified member. Any such committee, to the extent provided in the resolution of the Board or in these bylaws, shall have and may exercise all the powers and authority of the Board in the management of the business and affairs of the Corporation, and may authorize the seal of the Corporation to be affixed to all papers that may require it; but no such committee shall have the power or authority to (i) approve or adopt, or recommend to the stockholders, any action or matter expressly required by the DGCL to be submitted to stockholders for approval, or (ii) adopt, amend or repeal any bylaw of the Corporation.
4.2Committee Minutes.
Each committee shall keep regular minutes of its meetings and report the same to the Board when required.
4.3Meetings and Actions of Committees.
Meetingsdeterminations made and actions of committees shall be governed by, and held and taken in accordance with, the provisions of:
(i)Section 3.5 (place of meetings and meetings by telephone);
(ii)Section 3.6 (regular meetings);
(iii)Section 3.7 (special meetings and notice);
(iv)Section 3.9 (action without a meeting); and
(v)Section 7.11 (waiver of notice),
with such changes in the context of those bylaws as are necessary to substitute the committee and its members for the Board and its members. However:
(i)the time of regular meetings of committees may be determined either by resolution of the Board or by resolution of the committee;
(ii)special meetings of committees may also be called by resolution of the Board or the chairperson of the applicable committee; and
(iii)the Board may adopt rules for the governance of any committee to override the provisions that would otherwise apply to the committee pursuant to this Section 4.3, provided that such rules do not violate the provisions of the Certificate of Incorporation or applicable law.
Article V – Officers
5.1Officers.
The officers of the Corporation shall include a president and a secretary. The Corporation may also have, at the discretion of the Board, a chairperson of the Board, a vice chairperson of the Board, a chief executive officer, a chief financial officer, a treasurer, one (1) or more vice presidents, one (1) or more assistant vice presidents, one (1) or more assistant treasurers, one (1) or more assistant secretaries, and any such other officers as may be appointed in accordance with the provisions of these bylaws. Any number of offices may be held by the same Person.
5.2 Appointment of Officers.
The Board shall appoint the officers of the Corporation, except such officers as may be appointed in accordance with the provisions of Section 5.3 of these bylaws.
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5.3Subordinate Officers.
The Board may appoint, or empower the chief executive officer or, in the absence of a chief executive officer, the president, to appoint, such other officers and agents as the business of the Corporation may require. Each of such officers and agents shall hold office for such period, have such authority, and perform such duties as are provided in these bylaws or as the Board may from time to time determine.
5.4Removal and Resignation of Officers.
Subject to the rights, if any, of an officer under any contract of employment, any officer may be removed, either with or without cause, by the Board or, except in the case of an officer chosen by the Board, by any officer upon whom such power of removal may be conferred by the Board.
Any officer may resign at any time by giving written notice to the Corporation. Any resignation shall take effect at the date of the receipt of that notice or at any later time specified in that notice. Unless otherwise specified in the notice of resignation, the acceptance of the resignation shall not be necessary to make it effective. Any resignation is without prejudice to the rights, if any, of the Corporation under any contract to which the officer is a party.
5.5Vacancies in Offices.
Any vacancy occurring in any office of the Corporation shall be filled by the Board or as provided in Section 5.2.
5.6Representation of Shares of Other Corporations.
The chairperson of the Board, the chief executive officer, the president of the Corporation, or any other Person authorized by the Board, the chief executive officer, or the president of Corporation authorized to vote, represent and exercise on behalf of this Corporation all rights incident to any and all shares of any other corporation or corporations standing in the name of this Corporation. The authority granted herein may be exercised either by such Person directly or by any other Person authorized to do so by proxy or power of attorney duly executed by such Person having the authority.
5.7Authority and Duties of Officers.
All officers of the Corporation shall respectively have such authority and perform such duties in the management of the business of the Corporation as may be provided herein or designated from time to time by the Board and,thereto, to the extent not so provided, as generally pertain to their respective offices, subject tootherwise governed by the controlCode or the laws of the Board.
Article VI – Records
A stock ledger consisting of one or more records in which the names of all of the Corporation’s stockholders of record, the address and number of shares registered in the name of each such stockholder, and all issuances and transfers of stock of the corporation are recorded in accordance with Section 224 of the DGCLUnited States, shall be administered by or on behalf of the Corporation. Any records administered by or on behalf of the Corporation in the regular course of its business, including its stock ledger, books of account, and minute books, may be kept on, or by means of, or be in the form of, any information storage device, or method, or one or more electronic networks or databases (including one or more distributed electronic networks or databases), provided that the records so kept can be converted into clearly legible paper form within a reasonable time and, with respect to the stock ledger, that the records so kept (i) can be used to prepare the list of stockholders specified in Sections 219 and 220 of the DGCL, (ii) record the information specified in Sections 156, 159, 217(a) and 218 of the DGCL, and (iii) record transfers of stock as governed by Article 8 of the Uniform Commercial Code.
Article VII - General Matters
7.1Execution of Corporate Contracts and Instruments.
The Board, except as otherwise provided in these bylaws, may authorize any officer or officers, or agent or agents, to enter into any contract or execute any instrument in the name of and on behalf of the Corporation; such authority may be general or confined to specific instances. Unless so authorized or ratified by the Board or within the agency power of an officer, no officer, agent or employee shall have any power or authority to bind the Corporation by any contract or engagement or to pledge its credit or to render it liable for any purpose or for any amount.
7.2Construction; Definitions.
Unless the context requires otherwise, the general provisions, rules of construction and definitions in the DGCL shall govern the construction of these bylaws. Without limiting the generality of this provision, the singular number includes the plural and the plural number includes the singular.
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7.3Fiscal Year.
The fiscal year of the Corporation shall be fixed by resolution of the Board and may be changed by the Board.
7.4Seal.
The Corporation may adopt a corporate seal, which shall be adopted and which may be altered by the Board. The Corporation may use the corporate seal by causing it or a facsimile thereof to be impressed or affixed or in any other manner reproduced.
7.5Stock Certificates.
The shares of the Corporation shall be represented by certificates, provided that the Board by resolution may provide that some or all of the shares of any class or series of stock of the Corporation shall be uncertificated. Certificates for the shares of stock, if any, shall be in such form as is consistent with the Certificate of Incorporation and applicable law. Every holder of stock represented by a certificate shall be entitled to have a certificate signed by, or in the name of the Corporation by, any two officers authorized to sign stock certificates representing the number of shares registered in certificate form. The chairperson or vice chairperson of the Board, the president, vice president, the treasurer, any assistant treasurer, the secretary or any assistant secretary of the Corporation shall be specifically authorized to sign stock certificates. Any or all of the signatures on the certificate may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate has ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if he or she were such officer, transfer agent or registrar at the date of issue.
7.6Lost Certificates.
The Corporation may issue a new certificate of stock or uncertificated shares in the place of any certificate theretofore issued by it, alleged to have been lost, stolen or destroyed, and the Corporation may require the owner of the lost, stolen or destroyed certificate, or such owner’s legal representative, to give the Corporation a bond sufficient to indemnify it against any claim that may be made against it on account of the alleged loss, theft or destruction of any such certificate or the issuance of such new certificate or uncertificated shares.
7.7Shares Without Certificates
The Corporation may adopt a system of issuance, recordation and transfer of its shares of stock by electronic or other means not involving the issuance of certificates, provided the use of such system by the Corporation is permitted in accordance with applicable law.
7.8Transfer of Stock.
Shares of the Corporation shall be transferable in the manner prescribed by law and in these bylaws. Shares of stock of the Corporation shall be transferred on the books of the Corporation only by the holder of record thereof or by such holder’s attorney duly authorized in writing, upon surrender to the Corporation of the certificate or certificates representing such shares endorsed by the appropriate Person or Persons (or by delivery of duly executed instructions with respect to uncertificated shares), with such evidence of the authenticity of such endorsement or execution, transfer, authorization and other matters as the Corporation may reasonably require, and accompanied by all necessary stock transfer stamps. No transfer of stock shall be valid as against the Corporation for any purpose until it shall have been entered in the stock records of the Corporation by an entry showing the names of the Persons from and to whom it was transferred.
7.9Stock Transfer Agreements.
The Corporation shall have power to enter into and perform any agreement with any number of stockholders of any one or more classes or series of stock of the Corporation to restrict the transfer of shares of stock of the Corporation of any one or more classes owned by such stockholders in any manner not prohibited by the DGCL.
7.10Registered Stockholders.
The Corporation:
(i) shall be entitled to recognize the exclusive right of a Person registered on its books as the owner of shares to receive dividends and to vote as such owner; and
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(ii)shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of another Person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of the State of Delaware.
7.11WaiverDelaware and construed in accordance therewith without giving effect to principles of Notice.
Whenever notice is requiredconflicts of laws.
5.15Foreign Employees. Without amending this Plan, the Committee may grant awards to be given under any provisioneligible persons who are foreign nationals and/or reside outside of the DGCL,United States on such terms and conditions different from those specified in this Plan as may in the Certificate of Incorporation or these bylaws, a written waiver, signed by the Person entitled to notice, or a waiver by electronic transmission by the Person entitled to notice, whether before or after the timejudgment of the event for which notice isCommittee be necessary or desirable to be given, shall be deemed equivalent to notice. Attendancefoster and promote achievement of a Person at a meeting shall constitute a waiver of notice of such meeting, except when the Person attends a meeting for the express purpose of objecting at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the stockholders need be specified in any written waiver of notice or any waiver by electronic transmission unless so required by the Certificate of Incorporation or these bylaws.Article VIII - Notice by Electronic Transmission
8.1Notice by Electronic Transmission.
Without limiting the manner by which notice otherwise may be given effectively to stockholders pursuant to the DGCL, the Certificate of Incorporation or these bylaws, any notice to stockholders given by the Corporation under any provision of the DGCL, the Certificate of Incorporation or these bylaws shall be effective if given by a form of electronic transmission consented to by the stockholder to whom the notice is given. Any such consent shall be revocable by the stockholder by written notice to the Corporation. Any such consent shall be deemed revoked if:
(i)the Corporation is unable to deliver by electronic transmission two (2) consecutive notices given by the Corporation in accordance with such consent; and
(ii)such inability becomes known to the secretary or an assistant secretary of the Corporation or to the transfer agent, or other Person responsible for the giving of notice.
However, the inadvertent failure to treat such inability as a revocation shall not invalidate any meeting or other action. Any notice given pursuant to the preceding paragraph shall be deemed given:
(i)if by facsimile telecommunication, when directed to a number at which the stockholder has consented to receive notice;
(ii)if by electronic mail, when directed to an electronic mail address at which the stockholder has consented to receive notice;
(iii)if by a posting on an electronic network together with separate notice to the stockholder of such specific posting, upon the later of (A) such posting and (B) the giving of such separate notice; and
(iv)if by any other form of electronic transmission, when directed to the stockholder.
An affidavit of the secretary or an assistant secretary or of the transfer agent or other agent of the Corporation that the notice has been given by a form of electronic transmission shall, in the absence of fraud, be prima facie evidence of the facts stated therein.
8.2Definition of Electronic Transmission.
An “electronic transmission” means any form of communication, not directly involving the physical transmission of paper, including the use of, or participation in, one or more electronic networks or databases (including one or more distributed electronic networks or databases), that creates a record that may be retained, retrieved and reviewed by a recipient thereof, and that may be directly reproduced in paper form by such a recipient through an automated process.
Article IX – Indemnification
9.1Indemnification of Directors and Officers.
The Corporation shall indemnify and hold harmless, to the fullest extent permitted by the DGCL as it presently exists or may hereafter be amended, any director or officer of the Corporation who was or is made or is threatened to be made a party or is otherwise involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative (a “Proceeding”) by reason of the fact that he or she, or a Person for whom he or she is the legal representative, is or was a
C-18 | RLI Corp. 2018 Proxy Statement
director or officer of the Corporation or, while serving as a director or officer of the Corporation, is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation or of a partnership, joint venture, trust, enterprise or non-profit entity, including service with respect to employee benefit plans, against all liability and loss suffered and expenses (including attorneys’ fees, judgments, fines ERISA excise taxes or penalties and amounts paid in settlement) reasonably incurred by such Person in connection with any such Proceeding. Notwithstanding the preceding sentence, except as otherwise provided in Section 9.4, the Corporation shall be required to indemnify a Person in connection with a Proceeding initiated by such Person only if the Proceeding was authorized in the specific case by the Board.
9.2Indemnification of Others.
The Corporation shall have the power to indemnify and hold harmless, to the fullest extent permitted by applicable law as it presently exists or may hereafter be amended, any employee or agent of the Corporation who was or is made or is threatened to be made a party or is otherwise involved in any Proceeding by reason of the fact that he or she, or a Person for whom he or she is the legal representative, is or was an employee or agent of the Corporation or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation or of a partnership, joint venture, trust, enterprise or non-profit entity, including service with respect to employee benefit plans, against all liability and loss suffered and expenses reasonably incurred by such Person in connection with any such Proceeding.
9.3Prepayment of Expenses.
The Corporation shall to the fullest extent not prohibited by applicable law pay the expenses (including attorneys’ fees) incurred by any officer or director of the Corporation, and may pay the expenses incurred by any employee or agent of the Corporation, in defending any Proceeding in advance of its final disposition; provided, however, that, to the extent required by law, such payment of expenses in advance of the final disposition of the Proceeding shall be made only upon receipt of an undertaking by the Person to repay all amounts advanced if it should be ultimately determined that the Person is not entitled to be indemnified under this Article IX or otherwise.
9.4Determination; Claim.
If a claim for indemnification (following the final disposition of such Proceeding) under this Article IX is not paid in full within sixty (60) days, or a claim for advancement of expenses under this Article IX is not paid in full within thirty (30) days, after a written claim therefor has been received by the Corporation the claimant may thereafter (but not before) file suit to recover the unpaid amount of such claim and, if successful in whole or in part, shall be entitled to be paid the expense of prosecuting such claim to the fullest extent permitted by law. In any such action the Corporation shall have the burden of proving that the claimant was not entitled to the requested indemnification or payment of expenses under applicable law.
9.5Non-Exclusivity of Rights.
The rights conferred on any Person by this Article IX shall not be exclusive of any other rights which such Person may have or hereafter acquire under any statute, provision of the Certificate of Incorporation, these bylaws, agreement, vote of stockholders or disinterested directors or otherwise.
9.6Insurance.
The Corporation may purchase and maintain insurance on behalf of any Person who is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust enterprise or non-profit entity against any liability asserted against him or her and incurred by him or her in any such capacity, or arising out of his or her status as such, whether or not the Corporation would have the power to indemnify him or her against such liability under the provisions of the DGCL.
9.7Other Indemnification.
The Corporation’s obligation, if any, to indemnify or advance expenses to any Person who was or is serving at its request as a director, officer, employee or agent of another corporation, partnership, joint venture, trust, enterprise or non-profit entity shall be reduced by any amount such Person may collect as indemnification or advancement of expenses from such other corporation, partnership, joint venture, trust, enterprise or non-profit enterprise.
9.8Continuation of Indemnification.
The rights to indemnification and to prepayment of expenses provided by, or granted pursuant to, this Article IX shall continue notwithstanding that the Person has ceased to be a director or officer of the Corporation and shall inure to the benefit of the estate, heirs, executors, administrators, legatees and distributees of such Person.
RLI Corp. 2018 Proxy Statement | C-19
9.9Amendment or Repeal; Interpretation.
The provisions of this Article IX shall constitute a contract between the Corporation, on the one hand, and, on the other hand, each individual who serves or has served as a director or officer of the Corporation (whether before or after the adoption of these bylaws), in consideration of such Person’s performance of such services, and pursuant to this Article IX the Corporation intends to be legally bound to each such current or former director or officer of the Corporation. With respect to current and former directors and officers of the Corporation, the rights conferred under this Article IX are present contractual rights and such rights are fully vested, and shall be deemed to have vested fully, immediately upon adoption of theses bylaws. With respect to any directors or officers of the Corporation who commence service following adoption of these bylaws, the rights conferred under this provision shall be present contractual rights and such rights shall fully vest, and be deemed to have vested fully, immediately upon such director or officer commencing service as a director or officer of the Corporation. Any repeal or modification of the foregoing provisions of this Article IX shall not adversely affect any right or protection (i) hereunder of any Person in respect of any act or omission occurring prior to the time of such repeal or modification or (ii) under any agreement providing for indemnification or advancement of expenses to an officer or director of the Corporation in effect prior to the time of such repeal or modification.
Any reference to an officer of the Corporation in this Article IX shall be deemed to refer exclusively to the chairperson of the Board, a vice chairperson of the Board, a chief executive officer, a chief financial officer, a treasurer appointed pursuant to Article V of these bylaws, and to any vice president, assistant secretary, assistant treasurer, or other officer of the Corporation appointed by (x) the Board pursuant to Article V of these Bylaws or (y) an officer to whom the Board has delegated the power to appoint officers pursuant to Article V of these bylaws, and any reference to an officer of any other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise shall be deemed to refer exclusively to an officer appointed by the board of directors (or equivalent governing body) of such other entity pursuant to the Certificate of Incorporation and bylaws (or equivalent organizational documents) of such other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise. The fact that any Person who is or was an employee of the Corporation or an employee of any other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise has been given or has used the title of “vice president” or any other title that could be construed to suggest or imply that such Person is or may be an officer of the Corporation or of such other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise shall not result in such Person being constituted as, or being deemed to be, an officer of the Corporation or of such other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise for purposes of this Article IX.
Article X – Amendments
The Board is expressly empowered to adopt, amend or repeal the bylaws of the Corporation. The stockholders also shall have power to adopt, amend or repeal the bylaws of the Corporation.
Article XI - Forum Selection
Unless the Corporation consents in writing to the selection of an alternative forum, the Court of Chancery (the “Chancery Court”) of the State of Delaware (or, in the event that the Chancery Court does not have jurisdiction, the federal district court for the District of Delaware or other state courts of the State of Delaware) shall, to the fullest extent permitted by law, be the sole and exclusive forum for (i) any derivative action or proceeding brought on behalf of the Corporation, (ii) any action asserting a claim of breach of a fiduciary duty owed by any director, officer or stockholder of the Corporation to the Corporation or to the Corporation’s stockholders, (iii) any action arising pursuant to any provision of the DGCL or the Certificate of Incorporation or these bylaws (as either may be amended from time to time) or (iv) any action asserting a claim against the Corporation governed by the internal affairs doctrine. If any action the subject matter of which is within the scope of the preceding sentence is filed in a court other than a court located within the State of Delaware (a “Foreign Action”) in the name of any stockholder, such stockholder shall be deemed to have consented to (a) the Personal jurisdiction of the state and federal courts located within the State of Delaware in connection with any action brought in any such court to enforce the preceding sentence and (b) having service of process made upon such stockholder in any such action by service upon such stockholder’s counsel in the Foreign Action as agent for such stockholder.
Article XII – Definitions
As used in these bylaws, unless the context otherwise requires, the term:
“Affiliate” means, with respect to any Person, any other Person that controls, is controlled by, or is under common control with such Person. For the purposes of this definition, “control,” when used with respect to any Person, means the power to direct or cause the direction of the affairs or management of that Person, whether through the ownership of voting securities, as trustee (or the power to appoint a trustee), Personal representative or executor, by contract, credit arrangement or otherwisePlan and, “controlled” and “controlling” have meanings correlative to the foregoing.
“Person” means any individual, general partnership, limited partnership, limited liability company, corporation, trust, business trust, joint stock company, joint venture, unincorporated association, cooperative or association or any other legal entity or organization of whatever nature, and shall include any successor (by merger or otherwise)in furtherance of such entity.
C-20 | RLI Corp. 2018 Proxy Statement
RLI Corp.
Certificate of Amendment and Restatement of Bylaws
The undersigned hereby certifies that she ispurposes the duly elected, qualified, and Corporate Secretary of RLI Corp., a Delaware corporation (the “Corporation”), and that the foregoing bylaws were approved on May 5, 2018, effective as of May 5, 2018 by the Corporation’s board of directors.
IN WITNESS WHEREOF, the undersigned has hereunto set her hand this day of , 2018.
| | | | | Jean M. Stephenson
| | Vice President, Corporate Secretary
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RLI Corp. 2018 Proxy Statement | C-21
ANNEX D
SECTION 11.70 OF THE ILLINOIS BUSINESS CORPORATION ACT:
PROCEDURE TO DISSENT
(a) If the corporate action giving rise to the right to dissent is to be approved at a meeting of shareholders, the notice of meeting shall inform the shareholders of their right to dissentCommittee may make such modifications, amendments, procedures, subplans and the procedure to dissent. If, prior to the meeting, the corporation furnishes to the shareholders material information with respect to the transaction that will objectively enable a shareholder to vote on the transaction and to determine whether or not to exercise dissenters’ rights, a shareholder may assert dissenters’ rights only if the shareholder delivers to the corporation before the vote is taken a written demand for payment for his or her shares if the proposed action is consummated, and the shareholder does not vote in favor of the proposed action.
(b) If the corporate action giving rise to the right to dissent is not to be approved at a meeting of shareholders, the notice to shareholders describing the action taken under Section 11.30 or Section 7.10 shall inform the shareholders of their right to dissent and the procedure to dissent. If, prior to or concurrently with the notice, the corporation furnishes to the shareholders material information with respect to the transaction that will objectively enable a shareholder to determine whether or not to exercise dissenters’ rights, a shareholder may assert dissenter’s rights only if he or she delivers to the corporation within thirty (30) days from the date of mailing the notice a written demand for payment for his or her shares.
(c) Within ten (10) days after the date on which the corporate action giving rise to the right to dissent is effective or thirty (30) days after the shareholder delivers to the corporation the written demand for payment, whichever is later, the corporation shall send each shareholder who has delivered a written demand for payment a statement setting forth the opinion of the corporationlike as to the estimated fair value of the shares, the corporation’s latest balance sheet as of the end of a fiscal year ending not earlier than sixteen (16) months before the delivery of the statement, together with the statement of income for that year and the latest available interim financial statements, and either a commitment to pay for the shares of the dissenting shareholder at the estimated fair value thereof upon transmittal to the corporation of the certificate or certificates, or other evidence of ownership, with respect to the shares, or instructions to the dissenting shareholder to sell his or her shares within ten (10) days after delivery of the corporation’s statement to the shareholder. The corporation may instruct the shareholder to sell only if there is a public market for the shares at which the shares may be readily sold. If the shareholder does not sell within that ten (10) day period after being so instructed by the corporation, for purposesnecessary or advisable to comply with provisions of this Section the shareholder shall be deemed to have sold hislaws in other countries or her shares at the average closing price of the shares, if listed on a national exchange, or the average of the bid and asked price with respect to the shares quoted by a principal market maker, if not listed on a national exchange, during that ten (10) day period.
(d) A shareholder who makes written demand for payment under this Section retains all other rights of a shareholder until those rights are cancelled or modified by the consummation of the proposed corporate action. Upon consummation of that action, the corporation shall pay to each dissenter who transmits to the corporation the certificate or other evidence of ownership of the shares the amount the corporation estimates to be the fair value of the shares, plus accrued interest, accompanied by a written explanation of how the interest was calculated.
(e) If the shareholder does not agree with the opinion of the corporation as to the estimated fair value of the shares or the amount of interest due, the shareholder, within thirty (30) days from the delivery of the corporation’s statement of value, shall notify the corporation in writing of the shareholder’s estimated fair value and amount of interest due and demand payment for the difference between the shareholder’s estimate of fair value and interest due and the amount of the payment by the corporation or the proceeds of sale by the shareholder, whichever is applicable because of the procedure for which the corporation opted pursuant to subsection (c).
(f) If, within sixty (60) days from delivery to the corporation of the shareholder notification of estimate of fair value of the shares and interest due, the corporation and the dissenting shareholder have not agreed in writing upon the fair value of the shares and interest due, the corporation shall either pay the difference in value demanded by the shareholder, with interest, or file a petition in the circuit court of the county in which either the registered office or the principal office of the corporation is located, requesting the court to determine the fair value of the shares and interest due. The corporation shall make all
RLI Corp. 2018 Proxy Statement | D-1
dissenters, whether or not residents of this State, whose demands remain unsettled parties to the proceeding as an action against their shares and all parties shall be served with a copy of the petition. Nonresidents may be served by registered or certified mail or by publication as provided by law. Failure of the corporation to commence an action pursuant to this Section shall not limit or affect the right of the dissenting shareholders to otherwise commence an action as permitted by law.
(g) The jurisdiction of the courtjurisdictions in which the proceeding is commenced under subsection (f) by a corporation is plenary and exclusive. The court may appoint oneCompany or more persons as appraisers to receive evidence and recommend decision on the question of fair value. The appraisers have the power described in the order appointing them,its Subsidiaries operates or in any amendment to it.
has employees.(h) Each dissenter made a party to the proceeding is entitled to judgment for the amount, if any, by which the court finds that the fair value of his or her shares, plus interest, exceeds the amount paid by the corporation or the proceeds of sale by the shareholder, whichever amount is applicable.
(i) The court, in a proceeding commenced under subsection (f), shall determine all costs of the proceeding, including the reasonable compensation and expenses of the appraisers, if any, appointed by the court under subsection (g), but shall exclude the fees and expenses of counsel and experts for the respective parties. If the fair value of the shares as determined by the court materially exceeds the amount which the corporation estimated to be the fair value of the shares or if no estimate was made in accordance with subsection (c), then all or any part of the costs may be assessed against the corporation. If the amount which any dissenter estimated to be the fair value of the shares materially exceeds the fair value of the shares as determined by the court, then all or any part of the costs may be assessed against that dissenter. The court may also assess the fees and expenses of counsel and experts for the respective parties, in amounts the court finds equitable, as follows:
(1) Against the corporation and in favor of any or all dissenters if the court finds that the corporation did not substantially comply with the requirements of subsections (a), (b), (c), (d), or (f).
(2) Against either the corporation or a dissenter and in favor of any other party if the court finds that the party against whom the fees and expenses are assessed acted arbitrarily, vexatiously, or not in good faith with respect to the rights provided by this Section.
If the court finds that the services of counsel for any dissenter were of substantial benefit to other dissenters similarly situated and that the fees for those services should not be assessed against the corporation, the court may award to that counsel reasonable fees to be paid out of the amounts awarded to the dissenters who are benefited. Except as otherwise provided in this Section, the practice, procedure, judgment and costs shall be governed by the Code of Civil Procedure.
(j) As used in this Section:
(1) “Fair value”, with respect to a dissenter’s shares, means the proportionate interest of the shareholder in the corporation, without discount for minority status or, absent extraordinary circumstance, lack of marketability, immediately before the consummation of the corporate action to which the dissenter objects excluding any appreciation or depreciation in anticipation of the corporate action, unless exclusion would be inequitable.
(2) “Interest” means interest from the effective date of the corporate action until the date of payment, at the average rate currently paid by the corporation on its principal bank loans or, if none, at a rate that is fair and equitable under all the circumstances.
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88 | RLI Corp. 2023 Proxy Statement RLI Corp. 2023 Proxy Statement | 89 
90 | RLI Corp. 2023 Proxy Statement  
| © 2018Signature [PLEASE SIGN WITHIN BOX] Date Signature (Joint Owners) Date TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: KEEP THIS PORTION FOR YOUR RECORDS DETACH AND RETURN THIS PORTION ONLY THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED. Preliminary Proxy Card - Subject to Completion - Dated March 10, 2023 V02435-P89765 For Against Abstain For Against Abstain ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! RLI CORP. 9025 N. LINDBERGH DRIVE PEORIA, IL 61615-1431 P: 309.692.1000 | WWW.RLICOR P.COM
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| *** Exercise Your Right to Vote *** Important Notice Regarding the Availability of Proxy Materials for the Shareholder Meeting to Be Held on May 3, 2018. RLI CORP. You are receiving this communication because you hold shares in the company named above. This is not a ballot. You cannot use this notice to vote these shares. This communication presents only an overview of RLI CORP. 9025 NORTH LINDBERGH DRIVE PEORIA, IL 61615 Nominees: 1b. Michael E. Angelina 1a. Kaj Ahlmann 1e. Jordan W. Graham Please sign exactly as your name(s) appear(s). Executors, trustees, and others signing in a representative capacity should include their name and the more complete proxy materials that are availablecapacity in which they sign. 1c. David B. Duclos 1d. Susan S. Fleming 1f. Craig W. Kliethermes 1g. Paul B. Medini 1h. Jonathan E. Michael 1i. Robert P. Restrepo 1j. Debbie S. Roberts 1k. Michael J. Stone 2. Non-Binding, Advisory Vote to you onApprove the Internet. You may view the proxy materials online at www.proxyvote.com or easily request a paper copy (see reverse side). We encourage you to access and review allCompensation of the important information contained inCompany's Named Executive Officers (the "Say-on-Pay" vote). 3. Approval of an Amendment to the proxy materials before voting. proxy materials and voting instructions. E36980-P01829 SeeCompany's Certificate of Incorporation to Include the reverse sideExculpation of this notice to obtain Meeting Information Meeting Type:Annual Meeting For holders as of:March 5, 2018 Date: May 3, 2018Time: 2:00 PM Location: Mt. Hawley Country Club 7724 North Knoxville Avenue Peoria, IL 61614
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| Before You Vote How to Access the Proxy Materials Have the information that is printed in the box marked by the arrow XXXX XXXX XXXX XXXX (located on the by the arrow XXXX XXXX XXXX XXXX (located on the following page) in the subject line. How To Vote Please Choose OneOfficers. 4. Approval of the Following Voting Methods box marked by2023 RLI Corp. Long-Term Incentive Plan. 5. Ratification of the arrow XXXX XXXX XXXX XXXX (located on the following page) available and follow the instructions. E36981-P01829 Vote In Person: Please checkSelection of Independent Registered Public Accounting Firm. NOTE: Such other business as may properly come before the meeting materials foror any special requirements for meeting attendance. At the meeting, you will need to request a ballot to vote these shares. Vote By Internet: To vote now by Internet, go to www.proxyvote.com. Have the information that is printed in the Vote By Mail: You can vote by mail by requesting a paper copyadjournment thereof. 1. Election of the materials, which will include a proxy card. Proxy Materials Available to VIEW or RECEIVE: NOTICE AND PROXY STATEMENTANNUAL REPORT How to View Online: following page) and visit: www.proxyvote .com. How to Request and Receive a PAPER or E-MAIL Copy: If you want to receive a paper or e-mail copy of these documents, you must request one. There is NO charge for requesting a copy. Please choose one of the following methods to make your request: 1) BY INTERNET:www.proxyvote.com 2) BY TELEPHONE: 1-800-579-1639 3) BY E-MAIL*:sendmaterial@proxyvote.com * If requesting materials by e-mail, please send a blank e-mail with the information that is printed in the box marked Requests, instructions and other inquiries sent to this e-mail address will NOT be forwarded to your investment advisor. Please make the request as instructed above on or before April 19, 2018 to facilitate timely delivery.
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| Directors The Board of Directors recommends you vote FOR the following: 1. Election of Directors Nominees: 01) 02) 03) 04) 05) Kaj Ahlmann Michael E. Angelina John T. Baily Calvin G. Butler, Jr. David B. Duclos 06) 07) 08) 09) 10) Jordan W. Graham Jonathan E. Michael Robert P. Restrepo, Jr. James J. Scanlan Michael J. Stone The Board of Directors recommends you vote FOR proposals 2, 3, 4 and 4. 2. Approve the reincorporation of the Company from the State of Illinois to the State of Delaware. 3. Advisory vote on executive compensation (the "Say-on-Pay" vote). 4. Ratify the selection of KPMG LLP as the Company's Independent Registered Public Accounting Firm. NOTE: This proxy also grants the Trustee the ability to vote in their discretion upon other matters as may properly come before the meeting. E36982-P01829 Voting Items |
| The Board of Directors recommends you vote FOR the following: 1. Election of Directors Nominees: 01) 02) 03) 04) 05) Kaj Ahlmann Michael E. Angelina John T. Baily Calvin G. Butler, Jr. David B. Duclos 06) 07) 08) 09) 10) Jordan W. Graham Jonathan E. Michael Robert P. Restrepo, Jr. James J. Scanlan Michael J. Stone The Board of Directors recommends you vote FOR proposals 2, 3 and 4. 2. Approve the reincorporation of the Company from the State of Illinois to the State of Delaware. 3. Advisory vote on executive compensation (the "Say-on-Pay" vote). 4. Ratify the selection of KPMG LLP as the Company's Independent Registered Public Accounting Firm. NOTE: This proxy also grants the Proxies the ability to vote in their discretion upon other matters as may properly come before the meeting. E36983-P01829 Voting Items
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| 5. VOTE BY INTERNET Before The Meeting - Go to www.proxyvote.com or scan the QR Barcode above Use the Internet to transmit your voting instructions and for electronic delivery of information untilinformation. Vote by 11:59 P.M.p.m. Eastern Time the day before the meeting date.on May 3, 2023 for shares held directly and by 11:59 p.m. Eastern Time on May 1, 2023 for shares held in a Plan. Have your proxy card in hand when you access the web site and follow the instructions to obtain your records and to create an electronic voting instruction form. RLI CORP. 9025 NORTH LINDBERGH DRIVE PEORIA, IL 61615 ELECTRONIC DELIVERY OF FUTURE PROXY MATERIALS If you would likeDuring The Meeting - Go to reducewww.virtualshareholdermeeting.com/rli2023 You may attend the costs incurred by our company in mailing proxy materials, you can consent to receiving all future proxy statements, proxy cards and annual reports electronicallymeeting via e-mail or the Internet. To sign up for electronic delivery, please follow the instructions above to vote using the Internet and when prompted, indicatevote during the meeting. Have the information that you agree to receive or access proxy materials electronicallyis printed in future years.the box marked by the arrow available and follow the instructions. VOTE BY PHONE - 1-800-690-6903 Use any touch-tone telephone to transmit your voting instructions untilinstructions. Vote by 11:59 P.M.p.m. Eastern Time the day before the meeting date.on May 3, 2023 for shares held directly and by 11:59 p.m. Eastern Time on May 1, 2023 for shares held in a Plan. Have your proxy card in hand when you call and then follow the instructions. VOTE BY MAIL Mark, sign and date your proxy card and return it in the postage-paid envelope we have provided or return it to Vote Processing, c/o Broadridge, 51 Mercedes Way, Edgewood, NY 11717. SCAN TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: E36956-P01829 KEEP THIS PORTION FOR YOUR RECORDS DETACH AND RETURN THIS PORTION ONLY THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED. RLI CORP. The Board of Directors recommends you vote FOR the following: For Withhold For All AllAllExcept To withhold authority to vote for any individual nominee(s), mark "For All Except" and write the number(s) of the nominee(s) on the line below. ! ! ! 1. Election of Directors Nominees: 01) 02) 03) 04) 05) Kaj Ahlmann Michael E. Angelina John T. Baily Calvin G. Butler, Jr. David B. Duclos 06) 07) 08) 09) 10) Jordan W. Graham Jonathan E. Michael Robert P. Restrepo, Jr. James J. Scanlan Michael J. Stone For Against Abstain The Board of Directors recommends you vote FOR proposals 2, 3 and 4. ! ! ! ! ! ! ! ! ! 2. Approve the reincorporation of the Company from the State of Illinois to the State of Delaware. 3. Advisory vote on executive compensation (the "Say-on-Pay" vote). 4. Ratify the selection of KPMG LLP as the Company's Independent Registered Public Accounting Firm. NOTE: This proxy also grants the Proxies the ability to vote in their discretion upon other matters as may properly come before the meeting. Please sign exactly as your name(s) appear(s). Executors, trustees, and others signing in a representative capacity should include their name and the capacity in which they sign. Signature [PLEASE SIGN WITHIN BOX] Date Signature (Joint Owners) DateVIEW MATERIALS & VOTEw |
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| V02436-P89765 Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting: The Annual Report & Notice and Proxy Statement and 10K Wrap are available at www.proxyvote.com. E36957-P01829 THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORSTRUSTEE OF RLI CORP. The undersigned hereby appoints Michael E. Angelina and Jordan W. Graham, as Proxies, each with the power to appoint his substitute, and hereby authorizes them, or either one of them, to represent and to vote, as indicated on the other side of this form or as indicated by phone or Internet, the shares of Common Stock of RLI Corp. held of record by the undersigned on March 5, 20186, 2023, at the RLI Corp. Annual Meeting of Shareholders to be held on May 3, 20184, 2023 or any adjournments thereof. If no vote is provided, the Proxies shall vote (a) for each of the director nominees listed on the reverse side of this form, and (b) for Proposals 2, 3, 4 and 4,5, and in their discretion, upon such other business as may properly come before the meeting. (Continued and to be signed and dated on the reverse side.) |
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| Signature [PLEASE SIGN WITHIN BOX] Date Signature (Joint Owners) Date TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: KEEP THIS PORTION FOR YOUR RECORDS DETACH AND RETURN THIS PORTION ONLY THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED. Preliminary Proxy Card - Subject to Completion - Dated March 10, 2023 V02437-P89765 For Against Abstain For Against Abstain ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! RLI CORP. RLI CORP. 9025 NORTH LINDBERGH DRIVE PEORIA, IL 61615 Nominees: 1b. Michael E. Angelina 1a. Kaj Ahlmann 1e. Jordan W. Graham Please sign exactly as your name(s) appear(s). Executors, trustees, and others signing in a representative capacity should include their name and the capacity in which they sign. 1c. David B. Duclos 1d. Susan S. Fleming 1f. Craig W. Kliethermes 1g. Paul B. Medini 1h. Jonathan E. Michael 1i. Robert P. Restrepo 1j. Debbie S. Roberts 1k. Michael J. Stone 2. Non-Binding, Advisory Vote to Approve the Compensation of the Company's Named Executive Officers (the "Say-on-Pay" vote). 3. Approval of an Amendment to the Company's Certificate of Incorporation to Include the Exculpation of Officers. 4. Approval of the 2023 RLI Corp. Long-Term Incentive Plan. 5. Ratification of the Selection of Independent Registered Public Accounting Firm. NOTE: Such other business as may properly come before the meeting or any adjournment thereof. 1. Election of Directors The Board of Directors recommends you vote FOR the following: The Board of Directors recommends you vote FOR proposals 2, 3, 4 and 5. VOTE BY INTERNET Before The Meeting - Go to www.proxyvote.com or scan the QR Barcode above Use the Internet to transmit your voting instructions and for electronic delivery of information untilinformation. Vote by 11:59 P.M.p.m. Eastern Time April 30, 2018.on May 3, 2023 for shares held directly and by 11:59 p.m. Eastern Time on May 1, 2023 for shares held in a Plan. Have your proxy card in hand when you access the web site and follow the instructions to obtain your records and to create an electronic voting instruction form. RLI CORP. 9025 NORTH LINDBERGH DRIVE PEORIA, IL 61615 ELECTRONIC DELIVERY OF FUTURE PROXY MATERIALS If you would likeDuring The Meeting - Go to reducewww.virtualshareholdermeeting.com/rli2023 You may attend the costs incurred by our company in mailing proxy materials, you can consent to receiving all future proxy statements, proxy cards and annual reports electronicallymeeting via e-mail or the Internet. To sign up for electronic delivery, please follow the instructions above to vote using the Internet and when prompted, indicatevote during the meeting. Have the information that you agree to receive or access proxy materials electronicallyis printed in future years.the box marked by the arrow available and follow the instructions. VOTE BY PHONE - 1-800-690-6903 Use any touch-tone telephone to transmit your voting instructions untilinstructions. Vote by 11:59 P.M.p.m. Eastern Time April 30, 2018.on May 3, 2023 for shares held directly and by 11:59 p.m. Eastern Time on May 1, 2023 for shares held in a Plan. Have your proxy card in hand when you call and then follow the instructions. VOTE BY MAIL Mark, sign and date your proxy card and return it in the postage-paid envelope we have provided or return it to Vote Processing, c/o Broadridge, 51 Mercedes Way, Edgewood, NY 11717. SCAN TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: E36958-P01829 KEEP THIS PORTION FOR YOUR RECORDS DETACH AND RETURN THIS PORTION ONLY THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED. RLI CORP. The Board of Directors recommends you vote FOR the following: For Withhold For All AllAllExcept To withhold authority to vote for any individual nominee(s), mark "For All Except" and write the number(s) of the nominee(s) on the line below. ! ! ! 1. Election of Directors Nominees: 01) 02) 03) 04) 05) Kaj Ahlmann Michael E. Angelina John T. Baily Calvin G. Butler, Jr. David B. Duclos 06) 07) 08) 09) 10) Jordan W. Graham Jonathan E. Michael Robert P. Restrepo, Jr. James J. Scanlan Michael J. Stone For Against Abstain The Board of Directors recommends you vote FOR proposals 2, 3 and 4. ! ! ! ! ! ! ! ! ! 2. Approve the reincorporation of the Company from the State of Illinois to the State of Delaware. 3. Advisory vote on executive compensation (the "Say-on-Pay" vote). 4. Ratify the selection of KPMG LLP as the Company's Independent Registered Public Accounting Firm. NOTE: This proxy also grants the Trustee the ability to vote in its discretion upon other matters as may properly come before the meeting. Please sign exactly as your name(s) appear(s). Executors, trustees, and others signing in a representative capacity should include their name and the capacity in which they sign. Signature [PLEASE SIGN WITHIN BOX] Date Signature (Joint Owners) DateVIEW MATERIALS & VOTEw |
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| V02438-P89765 Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting: The Annual Report & Notice and Proxy Statement and 10K Wrap are available at www.proxyvote.com. E36959-P01829 Confidential Voting Instructions THIS PROXY IS SOLICITED ON BEHALF OF THE TRUSTEE OF THE RLI CORP. EMPLOYEE STOCK OWNERSHIP PLAN By signing on the reverse side or by voting by phone or Internet, you direct the Trustee of the RLI Corp. Employee Stock Ownership Plan (ESOP) to vote (in person or by proxy), as provided, the number of shares of RLI Corp. Common Stock credited to this account as of March 5, 20186, 2023 under the RLI Corp. ESOP, at the RLI Corp. Annual Meeting of Shareholders to be held on May 3, 20184, 2023 or any adjournments thereof. If no vote is provided, the Trustee shall vote (a) for each of the director nominees listed, and (b) for Proposals 2, 3, 4 and 4,5, and in their discretion, all on a pro rata basis with all shares of Common Stock held in the RLI Corp. ESOP (based upon the vote of all other participants who provide voting instructions)instructions unless contrary to applicable law), and, in its discretion, upon such other business as may properly come before the meeting. These confidential voting instructions will be seen only by our tabulator, Broadridge Financial Solutions. (Continued and to be signed and dated on the reverse side.) |
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