<PAGE>
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 /x/
Check the appropriate box:
/x/ 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 240.14a-11(c) or Section
240.14a-12
RLI CORP.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/x/ $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4)
and 0-11.
1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how 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:
------------------------------------------------------------------------
<PAGE>
(LOGO)
RLI CORP.
9025 North Lindbergh Drive
Peoria, Illinois 61615
March , 1996
Dear Shareholder:
Please consider this letter your personal invitation to attend the 1996 RLI
Corp. Annual Shareholders Meeting. It will be held at 9025 North Lindbergh
Drive, Peoria, Illinois 61615, the Company's principal office, on May 2, 1996 at
2:00 p.m.
Matters scheduled for consideration during the meeting include the nomination of
three Directors, selection of the Company's independent accounting firm and
consideration of an amendment to the Company's Articles of Incorporation to
increase the number of authorized shares of Common Stock. Following the custom
of past meetings, there will be a report to shareholders on the progress of the
Company during 1995.
Even if you do not plan to attend, it is important that you date, sign and
return the enclosed proxy card in the envelope provided for your convenience.
Your vote is vital no matter how many shares you own. If you do attend the
Annual Meeting and desire to vote in person, you may do so even though you have
previously sent in a proxy.
Thank you for your interest in your Company and confidence in our future.
Sincerely,
Gerald D. Stephens, CPCU
President
<PAGE>
(LOGO)
RLI CORP.
9025 North Lindbergh Drive
Peoria Illinois 61615
-------------------------------------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
MAY 2, 1996
-------------------------------------------------------
To the Shareholders of RLI Corp.:
NOTICE IS HEREBY GIVEN that the Annual Meeting of the Shareholders of RLI
Corp. (the "Company") will be held at 9025 North Lindbergh Drive, Peoria,
Illinois, 61615, on Thursday, May 2, 1996, at 2:00 P.M., Central Daylight Time,
to:
1. Elect three (3) directors for a three-year term expiring in 1999
or until their successors are elected and qualified;
2. Consider and act upon a proposal to amend the Company's Articles of
Incorporation to increase the number of authorized shares of Common Stock
from 12 million shares to 50 million shares;
3. Consider and act upon a proposal to appoint KPMG Peat Marwick LLP
as independent public accountants of the Company for the current year;
and
<PAGE>
4. Transact such other business as may properly be brought before
the meeting.
Only holders of Common Stock of the Company, of record at the close of
business on March 4, 1996, are entitled to notice of and to vote at the Annual
Meeting.
By Order of the Board of Directors
Camille J. Hensey
Secretary
Peoria, Illinois
March , 1996
It is important, regardless of the number of shares you hold, that you
personally be present or be represented by proxy at the Annual Meeting.
Accordingly, whether or not you plan to attend the Annual Meeting, it is
requested you promptly sign and date the enclosed proxy and return it in the
envelope provided that requires no postage if mailed in the United States. If
you attend the Annual Meeting, your proxy may be withdrawn upon request.
<PAGE>
-------------------------------------------------------
RLI CORP.
PROXY STATEMENT
FOR ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 2, 1996
-------------------------------------------------------
GENERAL INFORMATION
This Proxy Statement is furnished to the shareholders of RLI Corp. (the
"Company") in connection with the solicitation by the Board of Directors of the
Company, of proxies to be used at the Annual Meeting of its Shareholders to be
held at 2:00 P.M., Central Daylight Time, on Thursday, May 2, 1996, at 9025
North Lindbergh Drive, Peoria, Illinois, 61615, and at any adjournments of the
Meeting.
PROXY SOLICITATION. The Company will bear the cost of solicitation of proxies.
In addition to the use of the mail, proxies may be solicited personally or by
telephone or telefax, by officers or regular employees of the Company. No
additional compensation will be paid to such persons for their services. The
Company will
1
<PAGE>
reimburse banks, brokerage firms, investment advisors and other custodians,
nominees, fiduciaries and service bureaus for their reasonable out-of-pocket
expenses for forwarding soliciting material to the beneficial owners of the
stock and obtaining their proxies or voting instructions.
VOTING. Each proxy will be voted in accordance with the shareholder's
specifications thereon. If there are no such specifications, it will be voted
in favor of the election of directors, and in accordance with the Board of
Directors' recommendations on other proposals. All proxies delivered pursuant
to this solicitation are revocable at any time at the option of the shareholder
either by giving written notice to the Secretary of the Company or delivering a
proxy bearing a later date or by voting in person at the Annual Meeting. All
shares represented by valid, unrevoked proxies will be voted at the Annual
Meeting.
MAILING. This Proxy Statement and enclosed Proxy are first being mailed to
shareholders entitled to notice of and to vote at the Annual Meeting on or about
March 26, 1996.
SHAREHOLDER PROPOSALS. To be included in the Board of Directors' proxy
statement for the 1997 Annual Meeting of the Shareholders, a
2
<PAGE>
shareholder proposal must be received by the Company on or before December 1,
1996. Proposals should be directed to the attention of the Secretary at 9025
North Lindbergh Drive, Peoria, Illinois, 61615.
SHAREHOLDERS ENTITLED TO VOTE. At the close of business on March 4, 1996, the
record date for the determination of shareholders entitled to vote at the Annual
Meeting, the Company had 7,935,776 shares of Common Stock outstanding and
entitled to vote. Common share ownership entitles the holder to one vote per
share upon each matter to be voted at the Annual Meeting.
SHARE OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The only persons known to the Company who beneficially own more than five
percent of the Company's Common Stock as of December 31, 1995, are as follows:
<TABLE>
<CAPTION>
Name and Address Amount and Nature of Percent
of Beneficial Owner Beneficial Ownership of Class
- ------------------- -------------------- --------
<S> <C> <C>
Franklin Resources, Inc. 617,961 7.9%
777 Mariners Island Blvd.
P.O. Box 7777
San Mateo, CA 94403-7777
(1)
3
<PAGE>
Sanford C. Bernstein & Co., Inc. 415,119 5.3%
One State Street Plaza
New York, New York 10004
(2)
FMR Corp. 500,000 6.4%
82 Devonshire Street
Boston, Massachusetts 02109
(3)
RLI Corp. 1,410,290 18.0%
Employee Stock Ownership Plan &
Trust ("ESOP")
c/o Bank One
124 S.W. Adams Street
Peoria, IL 61649 (4)
Gerald D. Stephens 641,663 8.2%
493 E. High Point Dr.
Peoria, IL 61614
(5)
</TABLE>
(1) The Company has obtained the information with respect to Franklin
Resources, Inc. ("Franklin"), Charles B. Johnson and Rupert H. Johnson, Jr.
from their filing under Section 13G of the Securities and Exchange Act of
1934, which filing indicates Franklin and Messrs. Johnson have sole voting
power with respect to 573,275 shares, shared voting power with respect to
22,123 shares, no voting power with respect to 22,563 shares and shared
dispositive power with respect to 617,961 shares. Messrs. Johnson are the
principal shareholders of Franklin.
(2) The Company has obtained the information with respect to Sanford C.
Bernstein & Co., Inc. from its filing under Section 13G
4
<PAGE>
of the Securities and Exchange Act of 1934. Such filing indicates that
Sanford C. Bernstein & Co., Inc. has sole voting power with respect to
303,475 shares, shared voting power with respect to 6,875 shares, no voting
power with respect to 104,769 shares and sole dispositive power with
respect to 415,119 shares.
(3) The Company has obtained the information with respect to FMR Corp.
("FMR"), Edward C. Johnson 3d and Abigail P. Johnson from its filing under
Section 13G of the Securities and Exchange Act of 1934. Such filing
indicates that FMR, Mr. Johnson and Ms. Johnson have the sole dispositive
power with respect to 500,000 shares. Neither FMR nor Mr. Johnson,
Chairman of FMR, has the sole power to vote or direct the voting of the
shares owned directly by the Fidelity Funds, which power resides with the
Funds' Boards of Trustees. Fidelity carries out the voting of the shares
under written guidelines established by the Funds' Boards of Trustees.
Fidelity Management & Research Company is a wholly-owned subsidiary of FMR
and an investment adviser registered under Section 203 of the Investment
Advisers Act of 1940 to various investment companies. One investment
company, Fidelity Low-Priced Stock Fund is the owner of the shares listed.
Mr. Johnson, Ms. Johnson and members of their family may be deemed to be a
controlling group of FMR.
5
<PAGE>
(4) Each Employee Stock Ownership Plan participant or beneficiary may
direct the ESOP trustee as to the manner in which the shares allocated to
each under the ESOP are to be voted. The ESOP Administrative Committee,
comprised of disinterested members of the Board of Directors, may direct
the ESOP trustee as to the manner in which unallocated shares are to be
voted. The Committee has sole investment power as to all allocated and
unallocated shares, except as to those shares which are the subject of a
participant's diversification election. During 1995, none of the executive
officers were eligible to elect to diversify any shares owned by the ESOP.
(5) Includes 200,764 shares allocated to Mr. Stephens under the ESOP;
22,610 shares allocated under the RLI Corp. Key Employee Excess Benefit
Plan over which Mr. Stephens has no voting or investment power; 28,143
shares held of record by Mr. Stephens' spouse; 6,562 shares held in
custodian accounts for the benefit of Mr. Stephens' grandchildren, over
which he has the sole voting and investment power; and 1,295 shares in the
H. O. Stephens Trust for the benefit of Mr. Stephens' mother, over which
Mr. Stephens, as trustee, has the sole voting and investment power. Mr.
Stephens disclaims any beneficial interest in these shares except for the
ESOP shares detailed in (2) above and the Plan shares.
6
<PAGE>
SHARE OWNERSHIP OF MANAGEMENT
The following information is furnished as to the beneficial ownership of
the shares of the Company's Common Stock by each current director, nominees for
director, named executive officers, and directors and executive officers of the
Company as a group as of December 31, 1995:
<TABLE>
<CAPTION>
Amount and
Name of Individual or Nature of Percent
Number of Persons in Beneficial of
Group Ownership (1) Class
- --------------------- ------------- -----
<S> <C> <C>
Bernard J. Daenzer (2) 99,849 1.3%
Michael W. Dalton (3) (8) 25,923 *
Richard J. Haayen (9) 2,723 *
William R. Keane (4) (9) 69,512 *
Gerald I. Lenrow (5) (9) 5,189 *
7
<PAGE>
John S. McGuinness (6) 937 *
Jonathan E. Michael (8) 24,494 *
Edwin S. Overman (9) 17,808 *
Gerald D. Stephens (7) (8) 641,663 8.2%
Edward F. Sutkowski (9) 65,243 *
Gregory J. Tiemeier (8) 23,796 *
Robert O. Viets (9) 3,588 *
Joseph E. Dondanville (8) 13,047 *
Directors and Executive
Officers as a Group
(16 persons) (8) 1,006,819 12.8%
</TABLE>
*Less than 1% of Class.
8
<PAGE>
(1) Unless otherwise noted, each person has sole voting power and sole
investment power with respect to the shares reported.
(2) Includes 32,668 shares held of record by Mr. Daenzer's spouse, and 22,163
shares held in a trust for the benefit of Mr. Daenzer's adult children and
grandchildren of which a bank and Mr. Daenzer's spouse act as co-trustees, as to
which Mr. Daenzer disclaims any beneficial interest.
(3) Includes 187 shares held in a trust for the benefit of Mr. Dalton's spouse
and her siblings in which Mrs. Dalton acts as trustee, as to which Mr. Dalton
disclaims any beneficial interest.
(4) Includes 27,428 shares held by Mr. Keane's spouse, Evelyn Corral, an
honorary Vice President of the Company, as to which Mr. Keane claims beneficial
interest.
(5) Includes 125 shares held by Mr. Lenrow's spouse in a custodian account for
the benefit of their minor daughter, as to which Mr. Lenrow disclaims any
beneficial interest.
(6) 937 shares are held by Dr. McGuinness' spouse, as to which Dr. McGuinness
disclaims beneficial interest. Dr. McGuinness failed to
9
<PAGE>
file a Form 4 reflecting the ownership of 2,187 shares owned by two of his
emancipated children who reside with Dr. and Mrs. McGuinness. Dr. McGuinness
has since filed a Form 5 reflecting such ownership, and disclaims any beneficial
ownership with respect to such shares.
(7) Includes 200,764 shares allocated to Mr. Stephens under the ESOP; 22,610
shares allocated under the RLI Corp. Key Employee Excess Benefit Plan over which
Mr. Stephens has no voting or investment power; 28,143 shares held of record by
Mr. Stephens' spouse; 6,562 shares held in custodian accounts for the benefit of
Mr. Stephens' grandchildren, over which Mr. Stephens has the sole voting and
investment power; and, as trustee of 1,295 shares in the H.O. Stephens Trust in
which Mr. Stephens' mother is entitled to the income and principal. Mr.
Stephens, as trustee under the H.O. Stephens Trust, has the sole voting and
investment power of the shares in such Trust. Mr. Stephens disclaims any
beneficial interest in all shares except for those allocated to him under the
ESOP and the Plan.
(8) Includes shares allocated to the executive officers under the ESOP with
respect to which such officers have sole voting power and no investment power,
except during the period which any such
10
<PAGE>
executive officer is eligible to elect to diversify a percentage, not to exceed
50%, of such officer's ESOP benefit. As of December 31, 1995, the following
shares were allocated under the ESOP: Mr. Stephens 200,764 shares; Mr. Dalton
25,736 shares; Mr. Michael 24,494 shares; Mr. Tiemeier 23,163 shares; and Mr.
Dondanville 13,029 shares.
(9) Includes shares held by a bank trustee under an irrevocable trust
established by the Company pursuant to the Company's Director Deferred
Compensation Plan for the benefit of the following: Mr. Haayen 2,473 shares;
Mr. Keane 36,392 shares; Mr. Lenrow 5,064 shares; Dr. Overman 17,808 shares; Mr.
Sutkowski 19,223 shares; and, Mr. Viets 2,963 shares. Each participating
director has no voting or investment power with respect to such shares.
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.
ELECTION OF DIRECTORS
11
<PAGE>
NOMINEES. At the Annual Meeting, three directors are to be elected, each to
hold office for a three-year term or until a successor is elected and qualified.
Messrs. William R. Keane, Gerald I. Lenrow and Edwin S. Overman are Class III
directors. They were elected by the shareholders in 1993 for three-year terms
expiring in 1996.
VOTING OF PROXIES. Unless otherwise instructed, it is intended the shares
represented by the enclosed Proxy will be voted for the election of the three
nominees named above. The affirmative vote of a majority of the shares present
in person or represented by Proxy at the Annual Meeting and entitled to vote is
required for the election of directors. Votes will be tabulated by an Inspector
of Election appointed at the Annual Meeting. Abstentions and broker non-votes
have no effect on determinations of majority except to the extent that they
affect the total votes received by any particular candidate.
SUBSTITUTE NOMINEES. The Board of Directors has no reason to believe that any
nominee will be unable to serve if elected. In the event that any nominee shall
become unavailable for election, it is intended that such shares will be voted
for the election of a substitute nominee selected by the persons named in the
enclosed
12
<PAGE>
Proxy unless the Board should determine to reduce the number of directors
pursuant to the Company's By-Laws.
DIRECTOR AND NOMINEE INFORMATION. The following includes certain information
with respect to the current directors and nominees to the Board of Directors
furnished to the Company by such individuals:
<TABLE>
<CAPTION>
DIRECTOR PRINCIPAL
NAME AGE SINCE OCCUPATION
<S> <C> <C> <C>
William R. Keane 79 1966 Former Vice President, Contacts,
(to be elected for a term Inc. (contact lens Laboratory) of
three years expiring in in Chicago, IL until retirement
1999)in 1983.
PICTURE
Gerald I. Lenrow 68 1993 Consultant to General
(to be elected for a term of Reinsurance Corporation since
three years expiring in 1999) 1996. Former partner in the
international accounting firm of
Coopers & Lybrand LLP until 1990,
following which he served as their
Consultant until joining General
Reinsurance Corporation.
PICTURE
Edwin S. Overman 73 1987 President Emeritus of the
(to be elected for a term of Insurance Institute of America,
three years expiring in 1999) a national educational
organization in Malvern, PA, since
his retirement as President of the
Institute in 1987.
PICTURE
Certain information concerning the remaining directors, whose terms expire
either in 1997 or 1998, is set forth as follows based upon information furnished
to the Company by such individuals:
13
<PAGE>
Bernard J. Daenzer 80 1972 Owner of Daenzer Associates, Key
(term expiring in 1997) Largo, FL, an insurance
consulting services firm since
PICTURE 1980. Formerly President and
Chairman of Wohlreich and Anderson
Insurance Companies and the Howden Swan
Insurance Agencies until his retirement
in 1980.
Richard J. Haayen (2) 71 1993 Chairman and CEO of Allstate
(term expiring in 1997) Insurance Company in Northbrook,
IL until his retirement in 1989.
PICTURE Currently Executive-In-Residence
at Southern Methodist University
in Dallas, TX.
John S. McGuinness 73 1983 President of John S. McGuinness
(term expiring in 1998) Associates in Scotch Plains, NJ,
consultants in actuarial science
and management, since 1964.
PICTURE
Gerald D. Stephens 63 1965 Mr. Stephens founded the Company
(term expiring in 1998) in 1965 and has been President
since 1972.
PICTURE
Robert O. Viets (1) 52 1993 President and CEO since 1988 of
(term expiring in 1998) Cilcorp, Inc., a holding company
in Peoria, IL, whose principal
business subsidiary is Central
Illinois Light Company ("CILCO").
PICTURE Mr. Viets joined CILCO in 1973
and held various managerial and
officer positions until his
promotion to President and CEO.
Edward F. Sutkowski (3) 57 1975 President of the law firm of
(term expiring in 1997) Sutkowski & Washkuhn Ltd. in
Peoria, IL since 1965.
PICTURE
</TABLE>
14
<PAGE>
(1) Mr. Viets is a director of Cilcorp Inc. in Peoria, Illinois, whose
securities are registered pursuant to Section 12 or subject to the requirements
of Section 15(d) of the Securities and Exchange Act of 1934.
(2) Mr. Haayen is a director of Paragon Group, Inc. in Dallas, Texas, whose
securities are registered pursuant to Section 12 or subject to the requirements
of Section 15(d) of the Securities and Exchange Act of 1934.
(3) Mr. Sutkowski is associated with the law firm of Sutkowski & Washkuhn Ltd.
which has provided legal services to the Company prior to and during 1995. It
is expected that the Company's relationship with Sutkowski & Washkuhn Ltd. will
continue in the future.
AUDIT COMMITTEE
The Company's Audit Committee, comprised of outside directors Messrs.
Haayen, Keane, Lenrow, McGuinness, and Viets, met two times
15
<PAGE>
in 1995 to consider an outside audit firm and to discuss the planning of the
Company's annual outside audit and its results. The Audit Committee also
monitored the Company's management of its exposures to risk of financial loss,
assessed the auditors' performance, reviewed the adequacy of the Company's
internal controls, and the extent and scope of audit coverage, monitored
selected financial reports, and made audit and auditor engagement
recommendations to the Board of Directors.
EXECUTIVE RESOURCES COMMITTEE
The Company's Executive Resources Committee, comprised of outside directors
Messrs. Daenzer, Haayen, Lenrow, McGuinness, Overman and Sutkowski, met one time
in 1995 to review and recommend the compensation of the executive officers and
other officers of the Company. The Committee also evaluated executive
performance, executive back-up plans, examined the officer development program,
and was responsible for searching, enlisting and maintaining a file of
prospective new Board members and potential executive officers. The Committee
administers the Incentive Stock Option Plan through a subcommittee comprised of
disinterested outside directors Messrs. Haayen, Daenzer, Keane, McGuinness,
Overman and Viets .
16
<PAGE>
NOMINATING COMMITTEE
The Company does not have a standing nominating committee.
BOARD MEETINGS AND COMPENSATION
MEETINGS. During the year 1995, five meetings of the Board of Directors were
held. No director attended fewer than 75% of the aggregate number of meetings
of the Board and Board committees on which he served.
DIRECTOR COMPENSATION. All directors of the Company (other than officers of the
Company) are compensated at the rate of $11,000 per year, entitled to a Company
performance bonus, paid $925 for each Board meeting attended, $925 for each
Committee of the Board attended, $925 for each Committee of the Board chaired,
reimbursed for actual travel and related expenses incurred, and provided a
travel accident policy funded by the Company. The Company performance bonus is
equal to $1,250 for each percent, or fraction thereof, of the excess of the
Company's return on the Company's beginning Shareholders' Equity over the
average industry return, not to exceed $12,500.
17
<PAGE>
DIRECTOR DEFERRED COMPENSATION. Prior to the beginning of each fiscal year, an
outside director may elect to defer the compensation otherwise payable to him
during the succeeding fiscal year pursuant to the RLI Corp. Director Deferred
Compensation Plan. Under the Plan, the Company must transfer to a bank trustee
under an irrevocable trust established by the Company, such number of shares as
are equal to the compensation deferred at the close of the referent fiscal year.
When the amount of the Company performance bonus is determined, the Company must
likewise transfer such number of shares as are equal to the performance bonus
deferred. In general, Plan benefits are distributable beginning when the
director's status terminates. Effective June 18, 1993, the Plan superseded the
Company's prior unfunded non-qualified deferred compensation plan for the
benefit of the directors.
EXECUTIVE RESOURCES COMMITTEE REPORT
The following report by the Executive Resources Committee is required by
the rules of the Securities and Exchange Commission to be included in this Proxy
Statement and shall not be considered incorporated by reference in other filings
by the Company with the Securities and Exchange Commission.
18
<PAGE>
GENERAL. The Executive Resources Committee determines the base and incentive
compensation of the executive officers. The incentive compensation is designed
to attract, retain and motivate high quality executives and reward the executive
officers for Company profitability and the enhancement of shareholder values.
It is influenced heavily by the Company's profitability. The Committee is of
the opinion that the total compensation payable is comparable to that provided
by the Company's competitors.
An executive officer's base compensation is computed by reference to
industry compensation studies; it relates to both annual and long-term
performance objectives established by the Committee. A significant portion of
an executive officer's compensation is at risk. For example, in the case of Mr.
Stephens, his bonus, if any, is computed largely with reference to the Company's
pre-tax profits, but in no event may it exceed 40% of his base compensation.
COMPENSATION POLICIES FOR OTHER EXECUTIVE OFFICERS. The compensation programs
for the other executive officers are the same as those available for the chief
executive officer except for the Company's Key Employee Excess Benefit Plan in
favor of Mr. Stephens. See: Footnote (3) under Summary Compensation Table.
19
<PAGE>
Executive officer compensation is based on officer responsibility, the
profitability of the officer's segment of the Company, productivity, budgetary
compliance, and an in depth individual officer evaluation.
MEMBERS OF THE EXECUTIVE RESOURCES COMMITTEE
Edwin S. Overman, Chairman
Bernard J. Daenzer
Richard J. Haayen
Gerald I. Lenrow
John S. McGuinness
Edward F. Sutkowski
EXECUTIVE OFFICERS
The following information is provided as to each current executive officer
of the Company:
<TABLE>
<CAPTION>
Executive
Position Term of Officer
Name and Age with Company Office Since
- ------------ ------------ ------- ---------
<S> <C> <C> <C>
Gerald D. Stephens President, One Year 1965
Age 63 and Director
20
<PAGE>
Jonathan E. Michael Executive Vice One Year 1985
Age 42 (1) President; President,
Chief Operating Officer
of RLI Insurance
Company and Mt. Hawley
Insurance Company, the
Company's wholly-owned
insurance subsidiaries
Joseph E. Dondanville Vice President, One Year 1992
Age 39 (2) Chief Financial
Officer
Mary Beth Nebel Vice President One Year 1994
Age 39 (3) and General
Counsel
Camille J. Hensey Corporate One Year 1987
Age 54 Secretary
Gregory J. Tiemeier Senior Vice President One Year 1992
Age 38 (4) and Assistant Secretary
of RLI Insurance Company
and Mt. Hawley Insurance
Company, the Company's
wholly-owned insurance
subsidiaries
Michael W. Dalton President, Chief One Year 1993
Age 42 (5) Operating Officer of
RLI Vision Corp.
the Company's wholly-owned
ophthalmic subsidiary
Timothy J. Krueger Treasurer/Chief One Year 1995
Age 32 (6) Investment Officer
</TABLE>
(1) Mr. Michael has been Executive Vice President since 1992. He was promoted
from Executive Vice President to President and Chief Operating Officer of the
Company's wholly-owned insurance subsidiaries, RLI Insurance
21
<PAGE>
Company and Mt. Hawley Insurance Company, in 1994. Prior to his promotion to
Executive Vice President of the Company and its subsidiaries in 1992, Mr.
Michael served as Vice President, Chief Financial Officer since 1985.
(2) Mr. Dondanville was elected Vice President, Chief Financial Officer in
1992. Prior to his promotion to Vice President, Chief Financial Officer, Mr.
Dondanville served as Controller since 1985.
(3) Ms. Nebel was promoted to Vice President and General Counsel in 1994. Ms.
Nebel joined the Company in 1988 as Assistant General Counsel.
(4) Mr. Tiemeier was promoted to Senior Vice President of the Company's
wholly-owned insurance subsidiaries, RLI Insurance Company and Mt. Hawley
Insurance Company, in 1994 and was appointed Assistant Secretary on January 31,
1995. Prior to his promotion to Senior Vice President, Mr. Tiemeier had been
Vice President of Management Information Services since 1992. Mr. Tiemeier has
held various managerial positions since he joined the Company in 1979.
(5) Mr. Dalton joined the Company in 1977 as an Ophthalmic Field Sales
Representative. He has held various managerial positions, including President
of the Company's Canadian operations, until his promotion to Vice
22
<PAGE>
President of RLI Vision Corp., in 1990. He was promoted from Vice President to
President, Chief Operating Officer of RLI Vision Corp., in 1994.
(6) Mr. Krueger joined the Company in October, 1992 as Chief Accountant. He
was promoted to Controller in July, 1994 and Treasurer/Chief Investment Officer
in March, 1995. Prior to his joining the Company, Mr. Krueger held various
positions at KPMG Peat Marwick LLP from 1986, including Supervising Senior and
Audit Manager.
EXECUTIVE COMPENSATION
The aggregate cash compensation earned from the Company and its
subsidiaries during the 1995 fiscal year is expressed below for the Company's
chief executive officer and four most highly-compensated executive officers:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term
Compensation
------------
ANNUAL COMPENSATION
-------------------
SECURITIES
NAME and PRINCIPAL UNDERLYING ALL OTHER
POSITION YEAR SALARY ($) BONUS ($)(1) OPTIONS (2) COMPENSATION ($)(3)
- ------------- ---- ---------- ------------ ------- -------------------
<S> <C> <C> <C> <C> <C>
Gerald D. Stephens 1995 405,744 0 27,375 67,334
President 1994 376,640 0 - 3,837
1993 351,680 143,808 - 74,698
Jonathan E. Michael 1995 239,719 0 5,375 24,130
Executive Vice President 1994 216,250 0 - 1,187
1993 185,263 73,850 - 30,000
23
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Michael W. Dalton 1995 124,512 0 0 22
President, Chief Operating 1994 112,791 23,000 - 1,132
Officer, RLI Vision Corp. 1993 102,631 30,355 - 16,767
Joseph E. Dondanville 1995 124,271 0 2,250 19,991
Vice President/Chief 1994 111,163 0 - 1,093
Financial Officer 1993 96,206 26,964 - 19,247
Gregory J. Tiemeier 1995 127,667 0 2,625 20,537
Senior Vice President, 1994 117,448 0 - 1,172
RLI Insurance Company 1993 102,570 30,665 - 21,506
and Mt. Hawley Insurance
Company
</TABLE>
(1) Represents compensation accrued during fiscal year 1995 and paid in 1996
pursuant to the Company's Executive Achievement Target Salary Plan. With
the exception of Mr. Dalton, none of the named executive officers received
a bonus in respect of the 1995 fiscal year.
(2) Twenty percent of each option grant becomes exercisable one year after the
date of the grant and each year thereafter in 20% increments. Such options
lapse at the end of ten (10) years after award. These numbers have been
adjusted to reflect the 5-for-4 stock split which was paid in the form of a
stock dividend in June, 1995.
(3) Represents the value of Company contributions to the ESOP on behalf of the
named executive officers. Effective January 1, 1995, the Company amended
the ESOP to exclude any employee of RLI Vision Corp. from participating in
the ESOP; however, the future service of any participant will continue to
be considered for vesting purposes. In December of 1994, the Board of
Directors determined not to cause the Company to make a contribution to the
ESOP in respect of 1994 given the financial results of the Company. The
amounts represent the value of participant forfeitures allocated to such
executive officer under the ESOP. In the case of Mr. Stephens, the amount
includes shares allocated to him under the Company's Key Employee Excess
Benefit Plan: 600 shares plus 4,522 shares pursuant to the 5-for-4 stock
split in respect of 1995; 1,914 shares in respect of 1994; and, 1,930
shares in respect of 1993. Benefits are distributable to Mr. Stephens when
his employment terminates. Under the Plan, the Company must transfer to
the trustee under an irrevocable trust maintained by the Company for the
benefit of Mr. Stephens, such number of shares as are equal to the excess
of (a) the contribution allocable to him under the ESOP determined without
regard to any limitation on
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<PAGE>
compensation imposed by the Internal Revenue Code, over (b) the
contribution actually allocable to him under the ESOP determined with
regard to any limitation on compensation imposed by the Internal Revenue
Code. The value of each share transferred is equal to the per share
closing price as of the close of the last business day of the referent
fiscal year. The total value of his Plan benefit was $617,480 as of
December 31, 1995. Effective June 26, 1993, the Plan superseded the
Company's prior plan established for the benefit of Mr. Stephens.
OPTION GRANTS IN LAST FISCAL YEAR
The following table shows information regarding grants of stock options
made to the named executive officers under RLI's Incentive Stock Option Plan
during the fiscal year ended December 31, 1995. The amounts shown for each of
the named executive officers as potential realizable values are based on
arbitrarily assumed annualized rates of stock price appreciation of five percent
and ten percent over the full ten-year term of the options, which would result
in stock prices of approximately $33.56 and $53.43, respectively. The amounts
shown as potential realizable values for all shareholders represents the
corresponding increases in the market value of 7,850,882 outstanding shares of
RLI Common Stock held by all shareholders as of January 31, 1996, which would
total approximately $263,438,146 and $419,481,219, respectively. No gain to the
optionees is possible without an increase in stock price which will benefit all
shareholders proportionately. These
25
<PAGE>
potential realizable values are based solely on arbitrarily assumed rates of
appreciation required by applicable SEC regulations. Actual gains, if any, on
option exercises and common stockholdings are dependent on the future
performance of RLI Corp. Common Stock. There can be no assurance that the
potential realizable values shown in this table will be achieved.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE AT
ASSUMED ANNUAL RATES OF STOCK
INDIVIDUAL GRANTS PRICE APPRECIATION FOR OPTION TERM
------------------------------------------------------------------------- ----------------------------------
IF STOCK AT IF STOCK AT
$33.56 $53.43
NUMBER OF % OF TOTAL
SECURITIES OPTIONS
UNDERLYING GRANTED TO EXERCISE
OPTIONS EMPLOYEES OR BASE
GRANTED IN FISCAL PRICE EXPIRATION
NAME (#)(1) YEAR(2) ($/SH)(3) DATE 5%(4) 10%(4)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ALL SHAREHOLDERS'
STOCK APPRECIATION $263,438,146 $419,481,219
Gerald D. Stephens 27,375 42.03% $20.60 05/11/05 $ 918,574 $ 1,462,676
Jonathan E. Michael 5,375 8.25% $20.60 05/11/05 $ 180,359 $ 287,192
Joseph E. Dondanville 2,250 3.45% $20.60 05/11/05 $ 75,499 $ 120,220
Michael W. Dalton 0 0.0%
Gregory J. Tiemeier 2,625 4.03% $20.60 05/11/05 $ 88,082 $ 140,257
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Twenty percent of each option grant becomes exercisable one year after the
date of the grant and each year thereafter in 20% increments. Such options
lapse at the end of ten years after award. These numbers have been
adjusted for the 5-for-4 stock split which was paid in the form of a stock
dividend in June, 1995.
(2) The Company granted options representing 65,125 shares to employees during
1995.
(3) The exercise price has been adjusted for the 5-for-4 stock split which was
paid in the form of a stock dividend in June, 1995.
(4) The dollar amounts under these columns are the result of calculations at
the 5% and 10% rates dictated by the SEC when the "Potential Realizable
Value" alternative is used.
26
<PAGE>
These are not intended to be a forecast of the Corporation's stock price.
PENSION PLAN
The table below illustrates the estimated annual benefits (based on a
straight life annuity at age 65, but in no event less than 120 monthly payments)
payable under the Company's pension plan for specified compensation and service
levels assuming normal retirement on July 1, 1996, at age 65 after selected
years of service:
<TABLE>
<CAPTION>
AVERAGE ANNUAL ESTIMATED ANNUAL PENSION BENEFIT UPON RETIREMENT AT
COMPENSATION JULY 1, 1996 WITH YEARS OF SERVICE INDICATED
- ------------ --------------------------------------------
15 YRS. 20 YRS. 25 YRS. 30 YRS. 35 YRS.
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
$100,000 $ 20,338 $ 27,117 $ 33,896 $ 40,675 $ 47,455
125,000 26,000 34,667 43,334 52,000 60,667
150,000* 31,663 42,217 52,771 63,325 73,880
</TABLE>
*Generally, a participant's annual benefit payable beginning at his social
security retirement age (determined on the basis of his year of birth) must not
exceed the lesser of $90,000 (as adjusted for cost-of-living increases--$120,000
for 1995) or 100% of his average compensation for his high three years. In
addition, effective beginning in 1994, the Internal Revenue Code reduced the
level of a participant's compensation which may be considered in determining
benefits under all types of tax qualified plans from the 1993 level of $235,840
to $150,000. In applying the $150,000 limit, the Plan must freeze benefits for
any participant whose benefit is based on compensation in excess of $150,000 as
of December 31, 1993. The frozen benefit may be adjusted for increases in
compensation after 1993, but adjustments are not permitted unless the
participant's updated compensation exceeds the compensation that determined the
participant's
27
<PAGE>
frozen benefit. Based upon the foregoing, a participant's annual benefit is
limited to $74,453 unless such participant's earned benefit was greater than
$74,453 as of December 31, 1993.
Mr. Stephens' current compensation covered by the Plan is $150,000 with 29
years of pension plan participation; Mr. Michael's current covered compensation
is $150,000 with 12 years of pension plan participation; Mr. Dondanville's
current covered compensation is $124,271 with 11 years of pension plan
participation; Mr. Dalton's current covered compensation is $0 with 16 years of
pension plan participation; and Mr. Tiemeier's current covered compensation is
$127,667 with 14 years of pension plan participation.
Effective January 1, 1995, the Company amended the pension plan to exclude
any employee of RLI Vision Corp. from participating in the plan; however, the
future service of any participant will continue to be considered for vesting
purposes and related purposes.
COMMON STOCK PERFORMANCE CHART
A line graph comparing the percentage change in the cumulative total
shareholder return, including the reinvestment of dividends, on the Company's
Common Stock with a cumulative total return of the S & P Composite 500 Stock
Index and the S & P Property and Casualty
28
<PAGE>
Index for the period beginning December 31, 1990 through December 31, 1995 has
been omitted from this electronic filing. The table below contains the data
used to create the omitted line graph:
TOTAL RETURN
COMPARISON OF FIVE YEAR CUMULATIVE
RLI, S&P 500, S&P P/C INS INDEX
Compounded Total Return
RLI - 19.61%
S&P 500 - 16.49%
S&P P/C Ins - 12.92%
Assumes $100 invested on December 31, 1990
RLI, S&P 500 Index, and S&P P/C Ins Index
Total Return assumes reinvestment of dividends
<TABLE>
<CAPTION>
Measurement Period S&P 500 S&P P/C Ins
(Fiscal Year Covered) RLI Corp. Index Index
- --------------------- ---------- ------- -----------
<S> <C> <C> <C>
Measurement Pt-12/31/90 $100 $100 $100
FYE 12/31/91 117 130 116
FYE 12/31/92 181 140 141
FYE 12/31/93 198 155 134
FYE 12/31/94 157 157 138
FYE 12/31/95 245 214 184
</TABLE>
There can be no assurance that the Company's stock performance will
continue into the future with the same or similar trends. The Company will
neither make nor endorse any predictions as to future stock performance.
The foregoing Stock Price Performance Graph shall not be deemed
incorporated by reference by any general statement
29
<PAGE>
incorporating by reference this proxy statement into any filing under the
Securities Act of 1933 or the Securities Exchange Act of 1934, except to the
extent that the Company specifically incorporates this information by reference,
and shall not otherwise be deemed filed under such Acts.
PROPOSAL TO AMEND THE COMPANY'S ARTICLES OF INCORPORATION TO INCREASE THE SHARES
OF COMMON STOCK AUTHORIZED TO BE ISSUED
The Board of Directors has approved, and submits for authorization and
approval of shareholders, a proposal to amend the Company's Articles of
Incorporation to increase the number of shares of authorized Common Stock, $1.00
par value per share, from 12,000,000 shares to 50,000,000 shares (the
"Amendment"). The text of the proposed Amendment of the first paragraph of
Article Four is as follows:
"The aggregate number of shares which the Corporation is authorized to
issue is fifty million (50,000,000) shares of Common Stock with a par value
of one dollar ($1.00) per share."
As of February 15, 1996, 7,935,776 shares of the Company's Common Stock were
outstanding and 517,673 shares were held in treasury. As of the same date
3,019,232 shares were reserved for issuance
30
<PAGE>
pursuant to the right to convert under the Company's 1993 Convertible Debenture
Offering and the 1995 Stock Option Plan. Consequently, as of February 15, 1996,
there were approximately 527,319 authorized shares of Common Stock that were not
issued or reserved for other purposes. The proposed additional 38,000,000
shares would be a part of the existing class of Common Stock and, if and when
issued, would have the same rights and privileges as the shares of Common Stock
presently issued and outstanding. The holders of Common Stock of the Company
are not entitled to preemptive rights or cumulative voting.
The Board of Directors and management believe that the increase in the number of
authorized but unissued shares is necessary to provide flexibility to meet
future requirements for the issuance of Common Stock pursuant to the conversion
rights of the RLI Corp. Debenture Plan, existing or future stock options,
possible stock splits or stock dividends, and acquisitions or mergers, pursuant
to approval by the Board of Directors should they determine the issuance is in
the best interest of the Company.
The affirmative vote of the holders of at least two-thirds (2/3) of the
outstanding shares of Common Stock of the Company is required for adoption of
this Amendment. If this proposed Amendment is adopted by the shareholders, the
Company intends to promptly effect
31
<PAGE>
the amendment by filing an appropriate amendment to its Articles of
Incorporation with the State of Illinois.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE "IN FAVOR OF" THE
PROPOSED AMENDMENT TO THE COMPANY'S ARTICLES OF INCORPORATION INCREASING THE
NUMBER OF AUTHORIZED SHARES OF COMMON STOCK.
RELATIONSHIP WITH INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors, upon the recommendation of the Audit Committee, has
selected KPMG Peat Marwick LLP ("KPMG"), the Company's independent public
accountants since 1983, to serve as the independent public accountants of the
Company for the current fiscal year if their selection is approved by the
shareholders. In view of the difficulty and expense involved in changing
auditors on short notice, if KPMG is not approved by the shareholders, it is
contemplated the appointment for the fiscal year 1996 will be permitted to stand
unless the Board finds other compelling reasons for making a change.
Disapproval of KPMG by the shareholders will be considered an indication to the
Board to select other auditors for the following year.
Representatives of KPMG are expected to be present at the Annual Meeting
with the opportunity to make a statement, if they
32
<PAGE>
desire, and their representatives are expected to be available to respond to
appropriate questions from the shareholders.
OTHER BUSINESS
The Board of Directors knows of no other business to be presented at the
Annual Meeting; however, if any other matters do come before the Meeting, it is
intended that the persons named in the proxy will vote in accordance with their
best judgment.
It is important that proxies be returned promptly so that the presence of a
quorum may be assured well in advance of the Annual Meeting, thus avoiding the
expense of follow-up solicitations. Accordingly, even if you expect to attend
the Annual Meeting, you are requested to date, execute and return the enclosed
proxy in the stamped, self-addressed envelope provided.
If you attend the meeting in person, your proxy will be returned to you on
request.
33
<PAGE>
By Order of the Board of Directors
Camille J. Hensey
Secretary
Peoria, Illinois
March ____, 1996
34
<PAGE>
APPENDIX "A"
Page 1 of 2
(LOGO) PROXY BALLOT
RLI CORP.
9025 North Lindbergh Drive
Peoria, Illinois 61615
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Gerald D. Stephens, John S. McGuinness and
William R. Keane as Proxies, each with the power to appoint his substitute, and
hereby authorizes them, or any one or more of them, to represent and to vote, as
designated below, the shares of Common Stock of RLI Corp. held of record by the
undersigned on March 4, 1996, at the Annual Meeting of Shareholders to be held
on May 2, 1996 or any adjournments thereof.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE FOLLOWING PROPOSALS:
1. ELECTION OF CLASS III DIRECTORS
(mark one)
FOR ALL NOMINEES LISTED BELOW
(except as marked to the contrary below) / /
WITHHOLD AUTHORITY
to vote for all nominees listed below / /
(INSTRUCTION: To withhold authority to vote for any individual nominee, write
that nominee's name on the space provided below)
- ------------------------------------------------------------------------------
NOMINEES: WILLIAM R. KEANE, GERALD I. LENROW AND EDWIN S. OVERMAN
2. Approve an amendment to the Company's Articles of Incorporation to Increase
the Authorized Shares of Common Stock:
35
<PAGE>
/ / FOR / / AGAINST / / ABSTAIN
3. APPROVE THE APPOINTMENT OF KPMG PEAT MARWICK LLP AS THE INDEPENDENT PUBLIC
ACCOUNTANTS OF THE COMPANY:
/ / FOR / / AGAINST / / ABSTAIN
(PLEASE DO NOT FOLD - DATE AND SIGN REVERSE SIDE)
Page 2
4. In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the meeting.
This Proxy, when properly executed, will be voted in the manner directed
herein by the undersigned shareholder.
IF NO DIRECTION IS GIVEN, THIS PROXY WILL BE VOTED "FOR" PROPOSALS 1, 2 and
3.
DATED: , 1996
----------------------------------------
- ----------------------------------------
Signature
- ----------------------------------------
Signature if held jointly
Please sign exactly as your name
appears hereon. Joint owners
should each sign personally.
Corporate officers, executors,
administrators, trustees, etc.,
should so indicate when signing.
36
<PAGE>
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.
37
