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Section 1: DEF 14A (DEF 14A)

rli_Proxy_Statement

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Schedule 14A INFORMATION

 

Proxy Statement Pursuant to Section 14(a) of

the Securities Exchange Act of 1934 (Amendment No.    )

 

Filed by the Registrant ☒

Filed by a party other than the Registrant ☐

 

Check the appropriate box:

☐    Preliminary Proxy Statement

☐    Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)

☒    Definitive Proxy Statement

☐    Definitive Additional Materials

☐    Soliciting Material Pursuant to Section 24 0.14a-12

 

 

RLI CORP.

...................................................................................................................................................................................

 

(Name of Registrant as Specified In Its Charter)

 

 

...................................................................................................................................................................................

 

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

 

Payment of Filing Fee (Check the appropriate box):

 

☒    No fee required

 

☐    Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11

 

(1)  Title of each class of securities to which transaction applies:

 

(2) Aggregate number of securities to which transaction applies:

 

(3)  Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):

 

(4) Proposed maximum aggregate value of transaction:

 

(5) Total fee paid:

 

☐    Fee paid previously with preliminary materials.

 

☐    Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously.  Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.

 

(1)  Amount Previously Paid:

 

(2)  Form, Schedule or Registration Statement No.:

 

(3)  Filing Party:

 

(4)  Date Filed:

 

 

 

    


 

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RLI CORP. NOTICE OF 2018 ANNUAL MEETING AND PROXY STATEMENT

 

 

 

 

 

    


 

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9025 N. LINDBERGH DRIVE • PEORIA, IL 61615

PHONE: 309-692-1000 • FAX: 309-692-1068

WWW.RLICORP.COM

 

RLI Corp.

9025 North Lindbergh Drive

Peoria, Illinois 61615

 

March 22, 2018

 

Dear Shareholders:

 

Please consider this letter your personal invitation to attend the 2018 RLI Corp. Annual Shareholders Meeting. It will be held at the Mt. Hawley Country Club, 7724 North Knoxville Avenue, Peoria, Illinois 61614, on May 3, 2018, at 2 p.m. CDT.

 

Business scheduled to be considered at the meeting includes the election of directors, approval of the reincorporation of the Company from the State of Illinois to the State of Delaware,  an advisory vote on our executive compensation, and ratification of KPMG LLP as our independent registered public accounting firm for the current year. In addition, we will review significant events of 2017 and their impact on you and your 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,

 

Picture 1

 

Jonathan E. Michael

Chairman & Chief Executive Officer

    


 

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RLI Corp. | 9025 N. Lindbergh Drive | Peoria, Illinois 61615


Notice of Annual Meeting of Shareholders

May 3, 2018


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, on Thursday, May 3, 2018, at 2 p.m. Central Daylight Time for the following purposes:

1.

to elect as directors the ten (10) nominees named in the attached proxy for a one-year term expiring at the 2019 Annual Meeting of Shareholders;

2.

to approve the reincorporation of the Company from the State of Illinois to the State of Delaware;

3.

to hold an advisory vote on executive compensation (the “Say-on-Pay” vote);

4.

to ratify the selection of KPMG LLP as the independent registered public accounting firm of the Company for the current year; and

5.

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, are entitled to notice of and to vote at the Annual Meeting.

 

By Order of the Board of Directors

 

 

 

C:\Users\cdean\AppData\Local\Microsoft\Windows\Temporary Internet Files\Content.Outlook\055ULH2M\Jeff Signature.png

 

Jeffrey D. Fick

 

Sr. Vice President, Chief Legal Officer

 

Peoria, Illinois

March 22, 2018

It is important, regardless of the number of shares you hold, that you personally be present or be represented by proxy at the Annual Meeting. Even if you expect to attend, it is important that you submit your proxy by any method described below:

·

By Internet: by submitting 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 submitting your proxy by telephone, toll-free, in accordance with the instructions provided on your proxy card, or

·

By Mail: if you received your proxy card by mail, by completing the proxy card and signing, dating and returning it as promptly as possible.

You have the right to revoke your proxy at any time prior to its use by filing a written notice of revocation with the Corporate Secretary of the Company prior to the convening of the Annual Meeting, or by presenting 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 to vote in person, your proxy may be withdrawn upon request.

 

 

 

 


 

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Table of Contents

 

 

 

General Information 

5

Voting 

5

Shareholders Entitled to Vote 

6

Proxy Solicitation 

7

Electronic Access to Proxy Materials and Annual Report to Shareholders 

7

Share Ownership of Certain Beneficial Owners 

7

Principal Shareholders 

7

Directors and Officers 

8

Section 16(a) Beneficial Ownership Reporting Compliance 

9

Proposal One Election of Directors 

9

General 

9

Nominees 

9

Director Nominee Information 

10

Proposal two Approval of the reincorporation of the company from the state of illinois to the state of delaware 

14

Summary 

14

General Information 

14

Reasons for the Reincorporation 

15

Changes as a Result of the Reincorporation 

16

The Reincorporation Merger Agreement 

16

Effect of Vote for the Reincorporation 

16

Effect of Not Obtaining Vote for Approval 

17

Description of the Company’s Capital Stock Upon the Effectiveness of the Reincorporation 

17

General 

17

Common Stock 

17

Preferred Stock 

18

The Charters and Bylaws of RLI (Delaware) and RLI (Illinois) 

18

Limitation of Director Liability and Indemnification and Advancement of Expenses 

18

Employee Benefit Plans 

19

Dissenters’ or Appraisal Rights Relating to the Reincorporation 

19

Delaware Business Combination Statute 

20

Transfer Agent 

20

Market Listing 

20

Tax Rider 

20

Material U.S. Federal Income Tax Consequences of the Reincorporation Merger 

20

Accounting Treatment 

22

Rights of Our Shareholders Prior to and After the Reincorporation from Illinois to Delaware 

22

Amounts and Classification of Share Capital 

22

Number of Directors; Term of Office 

23

Dividends/Distributions 

23

Action by Written Consent of Shareholders 

23

Revocability of Proxies 

24

Quorum/Voting 

24

Election, Removal and Vacancies of Directors 

25

Director Duties 

25

Indemnification and Limitation of Monetary Liability for Breach of Fiduciary Duty 

26

 

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Stock Repurchases or Redemptions 

26

Annual Meetings of Shareholders 

27

Special Meetings 

27

Directors’ Meetings 

27

Inspection of Corporate Records 

28

Shareholder Proposals 

28

Charter Amendments 

28

Amendments to Bylaws 

29

Merger, Consolidations, Share Exchanges and Sales of All of Substantially All Assets 

29

Interested Director Transactions 

31

Dissenters’ Rights; Appraisal Rights 

31

Business Combinations Provisions 

32

Dissolution 

33

Shareholder Derivative Suits 

34

Waiver of Corporate Opportunity Doctrine 

34

Exclusive Forum 

34

Significant Provisions to be Carried Over 

35

Authorized Shares 

35

Size of Board 

35

Term and Election of Directors 

35

Special Meeting of Shareholders 

35

No Cumulative Voting 

35

No Preemptive Rights 

35

Indemnification 

35

Vote on Mergers, Consolidations and Sales of All of Substantially All Assets 

36

Possible Anti-Takeover Effect of Provisions 

36

Authorized Preferred Shares 

36

Special Meetings of Shareholders 

36

Where You Can Find Additional Information 

36

Vote Required and Board Recommendation 

37

PROPOSAL THREE NON-BINDING, ADVISORY VOTE REGARDING THE COMPENSATION OF THE COMPANY’S NAMED EXECUTIVE OFFICERS 

37

PROPOSAL FOUR Ratification of Selection of Independent Registered Public Accounting Firm 

38

Fees Paid to Independent Registered Public Accounting Firm 

38

Corporate Governance and Board Matters 

39

Corporate Governance Principles 

39

Director Independence 

39

Board Independence Status 

41

Director Evaluation Process 

41

Director Nomination Policy 

42

Code of Conduct 

42

Shareholder and Interested Parties Communications 

43

Company Policy on Related Party Transactions 

43

Certain Relationships and Related Party Transactions 

43

Committees of the Board of Directors 

43

Audit Committee 

43

Executive Resources Committee 

44

 

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Finance and Investment Committee 

45

Nominating/Corporate Governance Committee 

45

Strategy Committee 

45

Committee Membership 

45

Board Meetings and Compensation 

46

Meetings 

46

Director Compensation 

46

Nonemployee Director Deferred Compensation Plan 

47

Director Share Ownership 

47

Board Leadership Structure 

47

Audit Committee Report 

48

Members of the Audit Committee 

50

Executive Resources Committee Report 

50

Members of the Executive Resources Committee 

50

Compensation Committee Interlocks and Insider Participation 

50

Compensation Discussion & Analysis 

50

Introduction 

50

Executive Summary 

51

Key Attributes of RLI Executive Compensation 

51

HOW THE ERC OPERATES 

52

ERC Members 

52

ERC Responsibilities 

52

ERC Meetings 

52

Response to 2017 Say-on-Pay Vote 

53

Input From Management 

53

Compensation Consultant 

53

OVERVIEW OF RLI EXECUTIVE COMPENSATION 

53

Objectives 

53

Elements of Company Executive Compensation 

53

Balance of Short-Term and Long-Term Compensation 

54

Market Value Potential Incentive Program — General 

54

Annual Compensation 

55

Base Salary 

55

Market Value Potential Executive Incentive Program —Annual Incentive Compensation Component 

56

Management Incentive Program 

57

Long-Term Compensation 

58

Market Value Potential Executive Incentive Program —Long-Term Incentive Compensation Component and Forfeiture Provisions (Clawback) 

58

Long-Term Incentive Plans 

60

Employee Stock Ownership Plan 

61

401(k) Plan 

62

Deferred Compensation Plan 

62

Key Employee Excess Benefit Plan 

62

Elements of Post-Termination Compensation and Benefits 

63

Stock Ownership/Retention Guideline 

64

Executive Management 

65

Executive Officers 

65

Executive Compensation 

66

Summary Compensation Table 

66

Grants of Plan-Based Awards 

67

 

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Outstanding Equity Awards at Fiscal Year-end 

69

Option Exercises and Stock Vested 

70

Non-qualified Deferred Compensation 

70

RATIO OF CEO TO MEDIAN EMPLOYEE TOTAL COMPENSATION 

71

SAFEGUARDS AGAINST UNNECESSARY OR EXCESSIVe risk 

71

Senior Management Compensation 

71

Underwriting Compensation 

72

Investment Practices 

72

Employee and Executive Equity Ownership 

72

Board’s ROLE IN RISK OVERSIGHT 

73

Equity Compensation Plan Information 

74

Shareholder Proposals 

74

Other Business 

75

Investor Information 

75

Annual Shareholders Meeting 

75

Internet Voting 

75

Shareholder Inquiries 

76

Direct Stock Purchase & Dividend Reinvestment Plan 

76

Requests for Additional Information 

76

Multiple Shareholders Having the Same Address 

76

Contacting RLI 

76

RLI on the Web 

76

annex A aGREEMENT AND pLAN OF mERGER BETWEEN rli cORP., A DELAWARE CORPORATION AND rLI CORP., AN ILLINOIS CORPORATION 

A-1

ANNEX B AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF RLI CORP. 

B-1

ANNEX C BYLAWS OF RLI CORP. 

C-1

ANNEX D SECTION 11.70 OF THE ILLINOIS BUSINESS CORPORATION ACT PROCEDURE TO DISSENT 

D-1

 

 

 

 

 

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RLI Corp. | 9025 N. Lindbergh Drive | Peoria, Illinois 61615


PROXY STATEMENT


Annual Meeting of Shareholders to be held May 3, 2018

GENERAL INFORMATION

 

This Proxy Statement is furnished to the shareholders of RLI Corp., an Illinois 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. Central Daylight Time on Thursday, May 3, 2018, at the Mt. Hawley Country Club, 7724 North Knoxville Avenue, Peoria, Illinois, 61614, and at any adjournments 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.

 

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 of the outstanding voting shares 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 that you vote your shares by submitting your proxy in advance.

 

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:

 

·

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 control number appearing on their proxy card or E-Proxy Notice available in order to submit their proxy over the Internet.

 

·

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 control number appearing on their proxy card or E-Proxy Notice available in order to submit their proxy by telephone.

 

·

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.

 

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. All proxies delivered pursuant to this solicitation are revocable at any time

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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 of a properly completed proxy, whether by proxy card or by Internet or telephone vote, bearing a later date, or by voting in person at the Annual Meeting. All shares represented by valid, unrevoked proxies will be voted at the Annual Meeting.

 

Assuming the presence, in person or by proxy, of a quorum, the election of directors (Proposal One) requires the affirmative vote of a majority of the shares represented in person or by proxy at the Annual Meeting and entitled to vote. With respect to the election of directors, shareholders may vote in favor of all nominees, or withhold their votes as to all nominees, or withhold their votes as to specific nominees. Votes withheld are deemed present at the meeting and thus will be counted for quorum purposes and have the effect of a vote against the director.

 

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, the record date, shall be entitled to vote at the 2018 Annual Meeting. As of the record date, the Company had 44,239,351 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 2018 Annual Meeting.

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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, 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.

 

ELECTRONIC ACCESS TO PROXY MATERIALS AND ANNUAL REPORT TO SHAREHOLDERS

 

This Notice of Annual Meeting of Shareholders and Proxy Statement and the Company’s 2017 Annual Report to Shareholders are available on the Company’s website at www.rlicorp.com and at www.proxyvote.com.

SHARE OWNERSHIP OF CERTAIN BENEFICIAL OWNERS

 

PRINCIPAL SHAREHOLDERS

 

Following are the 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:

 

 

 

 

 

 

 

 

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)

The information shown is based solely on a Schedule 13G dated February 14, 2018, filed with the SEC by State Street Corporation (“State Street”). According to the Schedule 13G, State Street Bank and Trust Company (“Trustee”), a subsidiary of State Street, in its capacity as trustee of the Company’s Employee Stock Ownership Plan (“ESOP”), held 3,231,911 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”). According to the Schedule 13G, as of December 31, 2017, BlackRock is the beneficial owner of 4,925,896 shares, and has sole voting with respect to 4,843,235 shares and sole dispositive power with respect to 4,925,896 shares.

 

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(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 4,384,256 shares, and has sole voting with respect to 70,116 shares, sole dispositive power with respect to 4,312,147 shares, shared voting power with respect to 5,208 shares and shared dispositive power with respect to 72,109 shares.

 

(4)

The information shown is based solely on a Schedule 13G dated February 14, 2018, filed with the SEC by Neuberger Berman Group LLC (“Neuberger”). According to the Schedule 13G, Neuberger is the beneficial owner of 2,237,630 shares, has no sole voting or sole dispositive power with respect to the shares and has shared voting power with respect to 2,223,090 shares and shared dispositive power with respect to 2,237,630 shares.

 

DIRECTORS AND OFFICERS

 

The following is information regarding beneficial ownership of the Company’s Common Stock by each director and named executive officer (whose compensation is disclosed in this Proxy Statement), and the directors and executive officers of the Company as a group, as of December 31, 2017.  

 

 

 

 

 

 

 

 

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%

 

 

*Less than 1% of Class.

 

(1)

Unless otherwise noted, each person has sole voting power and sole investment power with respect to the shares reported.

 

(2)

Includes shares held by a bank trustee under an irrevocable trust established by the Company pursuant to the RLI Corp. Nonemployee Director Deferred Compensation Plan (“Director Deferred Plan”) for the benefit of the following: Mr. Ahlmann 8,558 shares; Mr. Angelina 3,730 shares; Mr. Baily 36,792 shares; Mr. Butler 2,305 shares, Mr. Duclos 451 shares; Mr. Graham 43,758 shares; Mr. McPheeters 44,591 shares; and Mr. Scanlan 2,006 shares. Each participating director has no voting or investment power with respect to such shares.

 

(3)

Includes 6,000 shares held by Mr. Baily’s spouse.

 

(4)

Includes shares allocated to the named persons under the ESOP with respect to which such persons have sole voting power and no investment power. As of January 1, 2018, the following shares were allocated under the ESOP: Mr. Brown 2,697 shares; Mr. Fick 10,608 shares; Mr. Kliethermes 11,284 shares; Ms. Klobnak 15,394; and Mr. Michael 241,305 shares. During 2017, Messrs. Fick, Kliethermes and Michael and Ms. Klobnak were eligible to elect to diversify their respective ESOP shares.

 

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(5)

Includes shares allocated to the named persons which shares are held by a bank trustee under an irrevocable trust established by the Company pursuant to the RLI Corp. Executive Deferred Compensation Plan (“Deferred Plan”) for the benefit of the following: Mr. Brown 7,123 shares; Mr. Kliethermes 18,765 shares; Mr. Michael 52,517 shares; and Mr. Stone 41,516 shares. Each participant has no voting or investment power with respect to such shares.

 

(6)

Includes shares that may be acquired by the named persons within 60 days after December 31, 2017, under the Omnibus Plan and the LTIPs (as described herein), upon the exercise of outstanding stock options as follows: Mr. Brown 34,600 shares; Mr. Fick 17,300 shares;  Mr. Kliethermes 14,000 shares; Ms. Klobnak 15,880 shares; Mr. Michael 101,000 shares; and Mr. Stone 152,000 shares.

 

(7)

Includes 130,129 shares allocated under the Key Plan, over which Mr. Michael has no voting or investment power; and 40,956 shares owned by the Jonathan E. Michael Grantor Retained Annuity Trusts, over which Mr. Michael, as Trustee, has sole voting and sole investment power.

 

(8)

Includes 880 shares held by Mr. Stone’s wife, as Custodian — UTMA-FL, as to which Mr. Stone disclaims 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

 

At this year’s Annual Meeting, all ten (10) directors are to be elected, each to hold office for a one-year term expiring at the 2019 Annual Meeting unless that director dies, resigns or is removed prior to that time. Unless otherwise instructed, the shares represented by a signed proxy card will be voted for the election of each of the 10 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 vote is required for the election of directors. Votes will be tabulated by an Inspector of Election appointed at the Annual Meeting. Shares may be voted for, or withheld from, each nominee. Cumulative voting for the directors is not permitted under the Company’s Restated Articles of Incorporation.

 

NOMINEES

 

Messrs. Kaj Ahlmann, Michael E. Angelina, John T. Baily, Calvin G. Butler, Jr., David B. Duclos, Jordan W. Graham, Jonathan E. Michael, Robert P. Restrepo, Jr., James J. Scanlan and Michael J. Stone, each a current director, are standing for election. Each was 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 from the Board on May 3, 2018 and will not stand for election.

 

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

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determine to reduce the number of directors 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 10 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. Ahlmann and 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.

Picture 24

 

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.

Picture 26

 

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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.

Picture 25

 

 

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.

Butler

 

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 Maguire Academy of Insurance and Risk Management at Saint Joseph’s University, 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.

Duclos

 

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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.

Picture 36

 

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.

Picture 39

 

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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.

Picture 38

 

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.

Picture 41

 

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.

Picture 40

 

The following footnotes reflect directorships held within the past five years at publicly traded companies:

 

(1)

Mr. Baily currently serves as a director of Golub Capital BDC, Inc. Mr. Baily previously served as a director of Endurance Specialty Holdings Ltd. which was acquired by Sompo Holdings, Inc in March of 2017 and is no longer a publicly-traded company.

 

(2)

Mr. Michael currently serves as a director of SS&C Technologies Holdings, Inc.

 

(3)

Mr. Restrepo currently serves as a director of Majesco and Genworth Financial, Inc.

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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:

 

·

the internal affairs of the Company will cease to be governed by the Illinois Business Corporation Act 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;

 

·

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;

 

·

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); 

 

·

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

 

·

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.

 

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

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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 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:

 

·

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;

 

·

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;

 

·

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;

 

·

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;

 

·

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

 

·

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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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.

 

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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:

 

·

any breach of the director’s duty of loyalty to the corporation or its shareholders;

 

·

acts or omissions not in good faith or that involve intentional misconduct or a knowing violation of law;

 

·

liability of directors for unlawful payment of dividends or unlawful stock purchases or redemptions; or

 

·

any transaction from which the director derived an improper personal benefit.

 

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.

 

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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 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:

 

 

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no gain or loss with be recognized by RLI (Illinois) or RLI (Delaware) as a result of the Reincorporation Merger;

 

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

 

"

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.

 

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 44,239,351 shares of common stock and no shares of preferred stock.

 

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RLI (Delaware)

 

The authorized capital stock of RLI (Delaware) will consist of 100,000,000 shares of common stock, par value $0.01 per 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 44,239,351 (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

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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 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.

 

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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 “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.

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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:

 

·

any breach of the director’s duty of loyalty to the corporation or its shareholders;

 

·

acts or omissions not in good faith or that involve intentional misconduct or a knowing violation of law;

 

·

liability of directors for unlawful payment of dividends or unlawful stock purchases or redemptions; or

 

·

any transaction from which the director derived an improper personal benefit.

 

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.

 

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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 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

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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.

 

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

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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 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.

 

 

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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.

 

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:

 

·

the merger agreement does not amend the certificate of incorporation of such corporation;

 

·

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

 

·

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.

 

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

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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 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:

 

·

a majority of the disinterested directors approved the transaction; or

 

·

such transaction was approved by the shareholders without counting the votes of any shareholder who is an interested director.

 

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:

 

·

the shareholders or the disinterested members of the board of directors approved such contract or transaction after full disclosure of the material facts; or

 

·

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.

 

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:

 

·

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;

 

·

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;

 

·

an amendment of the articles of incorporation that materially and adversely affects rights in respect of a dissenter’s shares; or

 

·

any other corporate action taken pursuant to a shareholder vote if the articles of incorporation, bylaws or a

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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.

 

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 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:

 

·

shares of stock of the corporation surviving or resulting from such merger or consolidation (or depository receipts in respect thereof);

 

·

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;

 

·

cash in lieu of fractional shares or fractional depository receipts; or

 

·

any combination of the shares of stock, depository receipts and cash in lieu of fractional shares or fractional depository receipts, as described above.

 

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

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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.

 

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:

 

·

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;

 

·

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

 

·

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.

 

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.

 

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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 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

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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 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 44,239,351 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

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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 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

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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.

 

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:

 

·

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, 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,

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we will consider our shareholders’ concerns. The ERC 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 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.

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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.

 

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’ responsibilities, which include attendance at shareholder, Board and committee meetings. All 12 members of the Board attended the 2017 Annual Meeting of Shareholders and were available to respond to appropriate questions from the shareholders.

 

The Company has developed an orientation process for new directors and also encourages new directors to attend a director seminar in their first year as a director. Each incumbent director is expected to attend an accredited director education seminar at least once a year, and each Audit Committee member is expected to attend an audit committee forum/conference at least once a year.

 

DIRECTOR INDEPENDENCE

 

The Board is required to affirmatively determine the independence of each director and to disclose such determination in the proxy 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 directors serve on the Company’s Audit Committee, Executive Resources Committee and Nominating/Corporate Governance Committee.

 

It is the policy of the Board of Directors of the Company that a majority of its members be 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 director or director nominee (collectively referred to as “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), 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:

 

(a)

A Director will not be 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;

 

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(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.

 

(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, 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, 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, director 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, 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, director or trustee of a tax exempt organization, and the contributions from RLI to such tax exempt organization in the last fiscal year do not exceed the greater of $1 million, or 2 percent of such tax 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)

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 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.

 

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BOARD INDEPENDENCE STATUS

 

The following table identifies the independence status of our Directors as of December 31, 2017:

 

 

 

 

 

 

Director

Independent

    

Management

Non-Management

Kaj Ahlmann

X

 

 

 

Barbara R. Allen

X

 

 

 

Michael E. Angelina

X

 

 

 

John T. Baily

X

 

 

 

Calvin G. Butler, Jr.

X

 

 

 

David B. Duclos

X

 

 

 

Jordan W. Graham

X

 

 

 

F. Lynn McPheeters

X

 

 

 

Jonathan E. Michael

 

 

X

 

Robert P. Restrepo, Jr.

X

 

 

 

James J. Scanlan

X

 

 

 

Michael J. Stone*

 

 

 

X

 

*  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.

 

The following relationships were reviewed in connection with determining director independence but were determined to not be material relationships and to not affect such person’s independence under the Board independence standards:

 

·

Mr. Baily was previously a director 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, Mr. Baily became a Director of Endurance U.S. Insurance Holdings Corp. From time to time, the Company’s principal insurance subsidiaries enter into reinsurance arrangements with Endurance and its affiliates.

 

·

Mr. Baily and Mr. Scanlan are former partners with PricewaterhouseCoopers LLP (“PwC”), and retired from PwC in 1999 and 2014, respectively.  Each of Mr. Baily and Mr. Scanlan receives a pension payment from PwC. From time to time, the Company engages PwC for special projects and services in actuarial, tax and other areas.

 

·

Mr. Angelina is a director of Equator Reinsurance Ltd., a subsidiary of QBE Re. Mr. Duclos is a non-executive director of QBE Emerging Markets and Equator Reinsurance Ltd. From time to time, the Company’s principal insurance subsidiaries enter into reinsurance arrangements with QBE Re.

 

·

Mr. Angelina is a director of Hagerty Insurance Group (“Hagerty”) and Mr. Graham provides consulting services to Hagerty.  Hagerty Insurance Agency, a subsidiary of Hagerty, produces insurance business for the Company’s principal insurance subsidiaries.

 

·

Mr. Restrepo is a director of Majesco, which provides billing and collection software services to the Company.

 

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-evaluates the performance of the Committees on which he/she serves as well as the Board as a whole. Detailed composites are completed to obtain perspective on 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/Corporate Governance Committee.

 

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/or Lead Director to discuss the consolidated comments.

 

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Based on the cumulative results of each Director’s overall performance, the 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

 

The Nominating/Corporate Governance Committee of our Board considers director 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;

 

·

A significant breadth of experience, knowledge and abilities to assist the Board in fulfilling its responsibilities;

 

·

Been in a generally recognized position of leadership in his or her field of endeavor; and

 

·

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.

 

The 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/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/Corporate Governance Committee is committed to actively seek highly qualified women and minority candidates for each director search it undertakes.  Annually, the 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/Corporate Governance Committee relies upon recommendations from a wide variety of its business contacts, including current executive officers, directors, community leaders, and shareholders as sources for potential director candidates, and may also utilize third party search firms. The Nominating/Corporate Governance Committee will consider qualified director candidates recommended by shareholders as further set forth under SHAREHOLDER PROPOSALS on page 74, but the Nominating/Corporate Governance Committee has no obligation to recommend such candidates.  Assuming the appropriate biographical and background material (including qualifications) is provided for candidates recommended by 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.

 

CODE OF CONDUCT

 

The Company has adopted a Code of Conduct, which is designed to help 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, officers and employees, including the Chief Executive Officer, the Chief Financial Officer, the Controller, the 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. 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 any waiver that applies to a director or executive officer will be disclosed in accordance with the rules of the SEC and NYSE.

 

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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 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, a Board Committee, the independent 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 annual approval by the Nominating/Corporate Governance Committee for all transactions above $10,000 to be entered into between the Company and its directors, officers, shareholders owning in excess of 5 percent of the Common Stock of the Company, and their family members and affiliates. There 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/Corporate Governance Committee in 2017. 

 

CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

 

In 2017, 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, 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”). 

 

In 2013, the Company entered into a business arrangement with SS&C to provide investment portfolio accounting and data processing services. The Company’s President & CEO (Mr. Michael) is a member of 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 Officer of the Company’s principal insurance subsidiaries.  The Company paid SS&C $278,316 in 2017.  This transaction falls within the purview of the Related Party Transaction Policy described in the previous paragraphs and is subject to review and approval by the Nominating/Corporate Governance Committee pursuant to that Policy.

COMMITTEES OF THE BOARD OF DIRECTORS

 

The Board has five standing committees: Audit, Executive Resources, Finance and Investment, Nominating/Corporate Governance and Strategy. The Audit, Executive Resources and Nominating/Corporate Governance Committees are composed solely of independent directors in compliance with the Company’s requirements and the NYSE Listing Standards. The Nominating/Corporate Governance Committee annually evaluates both Committee members and Committee Chairs, and rotates as necessary. In 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 committee are available on the Company’s website under the Investors section at www.rlicorp.com.

 

AUDIT COMMITTEE

 

The Company’s Audit Committee, composed exclusively of independent directors, met nine times in 2017 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, the Audit Committee provided oversight for overall enterprise risk management, risk profile and risk assessment.  The Audit Committee also:

 

·

monitored the Company’s management of its exposures to risk of financial loss;

 

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·

reviewed the adequacy of the Company’s internal controls, including the Company’s successful adoption of the Committee of Sponsoring Organizations of the Treadway Commission Internal Control - Integrated Framework (COSO) 2013 update;

 

·

reviewed the extent and scope of audit coverage;

 

·

reviewed quarterly financial results;

 

·

monitored selected financial reports;

 

·

assessed the auditors’ performance; and

 

·

selected 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 KPMG and various members of management.

 

The Audit Committee is responsible for approving every engagement of KPMG to perform audit or non-audit services on behalf of the Company or any of its subsidiaries before KPMG is engaged to provide those services, with the Chair of the Audit Committee being authorized to pre-approve non-audit services and then reporting 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’s independence with respect to the audit of our financial statements.  

 

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,  the members of the Audit Committee were Messrs. Scanlan (Chair), Ahlmann, Angelina, Butler and Viets.  After May 4, 2017, the members of the Audit Committee were Messrs. Scanlan (Chair), Ahlmann, Angelina and Butler.

 

EXECUTIVE RESOURCES COMMITTEE

 

The Company’s Executive Resources Committee (“ERC”), composed exclusively of independent directors, met five times in 2017 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 the Company’s compensation peer group and to enhance the overall effectiveness of the executive compensation programs.  The ERC also reviews and evaluates the CEO’s goals and objectives, management development and succession planning and the Company’s deferred compensation, stock option, retirement and medical programs. In addition to the five meetings described above, the ERC also held one 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.    

 

From July 1, 2016 through May 4, 2017,  the members of the ERC were Messrs. McPheeters (Chair) and Messrs. Graham, Restrepo and Scanlan.  After May 4, 2017, the members of the ERC were Messrs. McPheeters (Chair), Duclos, Graham, Restrepo and Scanlan.

 

44    |    RLI Corp. 2018 Proxy Statement

 

 


 

Table of Contents

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. This Finance and Investment Committee met four times in 2017 to discuss ongoing financial, investment and capital matters.

 

From May 5, 2016 through May 4, 2017,  the members of the Finance and Investment Committee were Messrs. Graham (Chair), Baily, Linke, McPheeters and Stone. After May 4, 2017, the members of the Finance and Investment Committee were Messrs. Graham (Chair), Baily, Duclos, McPheeters, and Stone.

 

NOMINATING/CORPORATE GOVERNANCE COMMITTEE

 

The Company’s Nominating/Corporate Governance Committee, composed exclusively of independent directors, met four times in 2017 to guide the Company’s corporate governance program and to monitor and discuss current and emerging corporate governance principles and procedures. 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/Corporate Governance Committee identifies and reviews qualified individuals as potential new director candidates.

 

From October 1, 2016 through May 4, 2017, 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/Corporate Governance Committee  were Messrs. Baily (Chair) and Butler and Ms. Allen.

 

STRATEGY COMMITTEE

 

The Company’s Strategy Committee met four times in 2017 to oversee the Company’s strategic plan and its implementation. After November 2016, the Strategy 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 arise from the Company’s underwriting, catastrophe management, reserving, reinsurance, regulatory environment and business continuity. The Strategy Committee also held 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.    

 

From July 1, 2016 through May 4, 2017, members of the Strategy Committee were Angelina (Chair), Ahlmann, Restrepo and Stone and Ms. Allen.  After May 4, 2017, members of the Strategy Committee were Messrs. Angelina (Chair), Ahlmann, Restrepo and Stone and Ms. Allen.

 

COMMITTEE MEMBERSHIP

 

 

 

 

 

 

 

 

 

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

RLI Corp. 2018 Proxy Statement    |    45

 


 

Table of Contents

BOARD MEETINGS AND COMPENSATION

 

MEETINGS

 

During 2017,  six meetings of the Board of Directors were held. All directors were in attendance, except one director missed one meeting. No director attended fewer than 75 percent of the aggregate number of meetings of the Board and Board committees on which he or she served. In connection with each Board meeting, the independent directors meet in executive session with no members of management present. Effective May 5, 2011, the Lead Director position was established, which position exists when the Company’s CEO is also the Board Chairman. Pursuant to the Charter for the Lead Director position, the Chairman of the Board’s Nominating/Corporate Governance Committee also serves as Lead Director of the Board. Among other responsibilities, the Lead Director presides at the Board’s executive sessions.

 

DIRECTOR COMPENSATION 

 

During 2017, the Company’s Independent Directors were compensated as follows:

 

 

 

 

 

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 be granted $50,000 in Restricted Stock Units, with a one-year vesting period, upon election at the 2018 Annual Shareholders’ Meeting.

 

Directors are also reimbursed for actual travel and related expenses incurred and are provided a travel accident policy funded by the Company.

 

The following table provides the compensation of the Company’s Board of Directors earned for the fiscal year ended December 31, 2017.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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)