Schedule 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /X/
Filed by a party other than the Registrant //
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted
by Rule 14a-6(e)(2)
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c)
or Section 240.14a-12
RLI CORP.
...........................................................
(Name of Registrant as Specified In Its Charter)
...........................................................
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ 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):
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/ / 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:
(LOGO)
RLI CORP.
9025 NORTH LINDBERGH DRIVE
PEORIA, ILLINOIS 61615
March 26, 2001
Dear Shareholder:
Please consider this letter your personal invitation to attend the 2001 RLI
Corp. Annual Shareholders Meeting. It will be held at 9025 North Lindbergh
Drive, Peoria, Illinois, 61615, the Company's principal office, on May 3, 2001,
at 2:00 P.M. CDT.
Business scheduled to be considered at the meeting is the election of Class II
directors.
In addition, we will review significant events of 2000 and their impact on you
and your Company. Directors, officers and representatives of KPMG will be
available before and after the meeting to talk with you and answer any questions
you may have.
YOUR VOTE IS IMPORTANT TO US, NO MATTER HOW MANY SHARES YOU OWN. Shareholders
will have a choice of voting over the Internet, by telephone or by using a
traditional proxy card. Check the proxy card forwarded by your bank, broker,
other holder of record or our proxy administrators to see the options available
to you. If you do attend the Annual Meeting and desire to vote in person, you
may do so even though you have previously voted your proxy.
Thank you for your interest in your Company as well as your confidence and
support in our future.
Sincerely,
Gerald D. Stephens, CPCU
Chairman of the Board
(LOGO)
RLI CORP.
9025 North Lindbergh Drive
Peoria, Illinois 61615
-------------------------------------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
MAY 3, 2001
-------------------------------------------------------
To the Shareholders of RLI Corp.:
NOTICE IS HEREBY GIVEN that the Annual Meeting of the Shareholders of
RLI Corp. ("Company") will be held at 9025 North Lindbergh Drive, Peoria,
Illinois, 61615, on Thursday, May 3, 2001, at 2:00 P.M. Central Daylight Time
to:
1. Elect four (4) directors for a three-year term expiring in 2004 or
until their successors are elected and qualified; and
2. 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, 2001, are entitled to notice of and to vote at the Annual
Meeting.
By Order of the Board of Directors
Camille J. Hensey
Vice President/Corporate Secretary
Peoria, Illinois
March 26, 2001
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 complete the enclosed proxy card,
and sign, date and return it as promptly as possible in the envelope enclosed
for that purpose. You may also vote your shares by telephone or on the Internet
by following the instructions on your proxy card. 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. If you attend
the Annual Meeting and desire to vote in person, your proxy may be withdrawn
upon request.
TABLE OF CONTENTS
PAGE
GENERAL INFORMATION .........................................
Proxy Solicitation..................................
Voting .............................................
Mailing ............................................
Voting Via Telephone or the Internet................
Electronic Access to Proxy Materials
and Annual Report................................
Shareholder Proposals...............................
Shareholders Entitled to Vote.......................
SHARE OWNERSHIP OF CERTAIN BENEFICIAL OWNERS.................
Principal Shareholders..............................
Directors and Officers..............................
PROPOSAL ONE: ELECTION OF DIRECTORS.........................
Nominees............................................
Voting of Proxies...................................
Substitute Nominees.................................
Director and Nominee Information....................
BOARD COMMITTEES.............................................
Audit Committee.....................................
Executive Resources Committee.......................
Nominating Committee................................
BOARD MEETINGS AND COMPENSATION..............................
Meetings............................................
Director Compensation...............................
Stock Option Plan for Outside Directors.............
Director Deferred Compensation Plan.................
AUDIT COMMITTEE REPORT.......................................
Members of the Audit Committee......................
EXECUTIVE RESOURCES COMMITTEE REPORT.........................
General.............................................
Base Salary.........................................
MVP Bonus...........................................
Incentive Stock Options.............................
ESOP................................................
Chief Executive Officer.............................
Internal Revenue Code Section 162(m)................
Members of the Executive Resources Committee........
EXECUTIVE MANAGEMENT COMPENSATION............................
Executive Officers..................................
Summary Compensation Table..........................
Option Grants in Last Fiscal Year...................
Aggregated Option Exercises in Last Fiscal Year and
Fiscal Year-End Option Values.....................
Pension Plan........................................
COMMON STOCK PERFORMANCE CHART...............................
INDEPENDENT PUBLIC ACCOUNTANTS...............................
OTHER BUSINESS...............................................
AUDIT COMMITTEE CHARTER - EXHIBIT A..........................
RLI CORP.
9025 NORTH LINDBERGH DRIVE
PEORIA, ILLINOIS 61615
-----------------------------------
PROXY STATEMENT
-----------------------------------
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD
MAY 3, 2001
-----------------------------------
GENERAL INFORMATION
This Proxy Statement is furnished to the shareholders of RLI Corp.
("Company") in connection with the solicitation, by the Board of Directors of
the Company, of proxies to be used at the Annual Meeting of Shareholders to be
held at 2:00 P.M. Central Daylight Time on Thursday, May 3, 2001, 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 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 Securities
and Exchange Commission ("SEC") and the New York Stock Exchange ("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.
VOTING. As many shareholders cannot attend the Annual Meeting in
person, it is necessary that a large number be represented by proxy. Even if you
expect to attend, it is important that you complete the enclosed proxy card, and
sign, date and return it as promptly as possible in the envelope enclosed for
that purpose. You may also vote your shares by telephone or on the Internet by
following the instructions on your proxy card. 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. If you attend
the Annual Meeting and desire to vote in person, your proxy may be withdrawn
upon request.
Each proxy will be voted in accordance with the shareholder's
specifications. If there are no such specifications, it will be voted as
recommended by the Board of Directors. 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 Corporate Secretary at 9025 North Lindbergh
Drive, Peoria, Illinois, 61615, or by timely delivery of a properly executed
proxy, including an Internet or telephone vote, bearing a later date, or by
voting in person at the Annual Meeting. All shares
1
represented by valid, unrevoked proxies will be voted at the Annual Meeting.
Assuming the presence of a quorum, the election of directors requires
the affirmative vote of a plurality of the votes cast by the holders of the
outstanding shares of Common Stock. 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. Brokers who hold
shares for the accounts of their clients may vote such shares either as directed
by their clients or at their own discretion if permitted by the Stock Exchange
or other organization of which they are members. Members of the NYSE are
permitted to vote their clients' proxies at their own discretion as to the
election of directors if the clients have not furnished voting instructions
within ten days of the meeting. If an executed proxy is returned by a broker
holding shares in street name which indicates that 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 will not be considered to be
represented at the Annual Meeting for purposes of calculating the vote.
MAILING. This Proxy Statement and enclosed Proxy are first being mailed
or electronically delivered to shareholders entitled to notice of and to vote at
the Annual Meeting on or about March 26, 2001.
VOTING VIA TELEPHONE OR THE INTERNET. Shareholders can save the Company
expense by voting their shares over the telephone, toll-free from the United
States or Canada, or by voting through the Internet. The voting procedures are
designed to authenticate each shareholder by use of a control number, to allow
shareholders to vote their shares, and to confirm that their instructions have
been properly recorded. Specific instructions to be followed by any shareholder
interested in voting by telephone or the Internet are set forth on the proxy
card. The method of voting will not limit a shareholder's right to attend the
Annual Meeting.
ELECTRONIC ACCESS TO PROXY MATERIALS AND ANNUAL REPORT. This notice of
Annual Meeting and Proxy Statement and the 2000 Annual Report are available on
RLI Corp.'s Internet site at www.rlicorp.com. Shareholders can elect to view
future proxy statements and annual reports over the Internet instead of
receiving paper copies in the mail. You can choose this option and save the
Company the cost of producing and mailing these documents by following the
instructions provided if you vote over
2
the Internet or by telephone. Should you choose to view future proxy statements
and annual reports over the Internet, you will receive an e-mail next year with
voting instructions and the Internet address of those materials.
SHAREHOLDER PROPOSALS. To be included in the Board of Directors' Proxy
Statement for the 2002 Annual Meeting of Shareholders, a shareholder proposal
must be received by the Company on or before November 26, 2001. Proposals should
be directed to the attention of the Corporate Secretary at 9025 North Lindbergh
Drive, Peoria, Illinois, 61615. If a shareholder raises a matter at the 2002
Annual Meeting of Shareholders, the Company may exercise discretionary authority
(vote the shares in the discretion of the persons appointed in the Proxy Card)
unless the shareholder notifies the Company of the matter before February 11,
2002.
SHAREHOLDERS ENTITLED TO VOTE. At the close of business on March 5,
2001, the record date for the determination of shareholders entitled to vote at
the Annual Meeting, the Company had 9,811,546 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
PRINCIPAL SHAREHOLDERS. The only entities known to the Company who
beneficially own more than five percent of the Company's Common Stock as of
December 31, 2000, are as follows:
NAME AND ADDRESS AMOUNT AND NATURE OF PERCENT
OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP OF CLASS
------------------- -------------------- --------
Oak Value Capital Management, Inc. 928,519 9.0%
3100 Tower Boulevard
Suite 700
Durham, North Carolina 27707
(1)
Dimensional Fund Advisors Inc. 577,747 5.9%
1299 Ocean Avenue
11th Floor
Santa Monica, California 90401
(2)
Franklin Resources, Inc. 516,836 5.3%
777 Mariners Island Boulevard
San Mateo, California 94404
(3)
3
RLI Corp. 1,265,591 12.9%
Employee Stock Ownership Plan &
Trust
c/o Michael A. Price
9025 N. Lindbergh Drive
Peoria, Illinois 61615
(4)
Gerald D. Stephens 890,133 9.1%
493 East High Point Drive
Peoria, Illinois 61614
(5)
(1) The information shown is based solely on a Schedule 13G dated February 6,
2001, filed by Oak Value Capital Management, Inc., ("Oak Value"), George
W. Brumley, III ("Brumley") and David R. Carr, Jr. ("Carr"), which filing
indicates Oak Value, Brumley and Carr have shared voting power with
respect to 843,584 shares and shared dispositive power with respect to
928,519 shares. Mr. Brumley is the Chairman, Chief Executive Officer,
Treasurer, Director, Portfolio Manager and principal shareholder of Oak
Value. Mr. Carr is the President, Chief Investment Officer, Director,
Portfolio Manager and principal shareholder of Oak Value. Oak Value and
Messrs. Brumley and Carr disclaim beneficial ownership of any shares owned
by Oak Value on behalf of its clients.
(2) The information shown is based solely on a Schedule 13G dated February 2,
2001, filed by Dimensional Fund Advisors Inc. ("Dimensional"), an
investment advisor for four investment companies and investment manager to
certain other commingled group trusts and separate accounts. Dimensional
possesses sole voting and sole dispositive power with respect to the
shares. Dimensional disclaims beneficial ownership of such shares.
(3) The information shown is based solely on a Schedule 13G dated February 2,
2001, filed by Franklin Resources, Inc, ("Franklin"), Charles B. Johnson,
Rupert H. Johnson, Jr., and Franklin Advisory Services, LLC, which filing
indicates that one or more open- or closed-end investment companies or
other managed accounts which are advised by direct and indirect investment
advisory subsidiaries of Franklin have sole voting power with respect to
512,618 shares and sole dispositive power with respect to 516,836 shares.
Messrs. Johnson and Johnson are the principal shareholders of Franklin.
4
(4) Each Employee Stock Ownership Plan ("ESOP") 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
("Committee"), comprised of outside 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.
(5) Includes 255,114 shares allocated to Mr. Stephens under the ESOP over
which Mr. Stephens has sole voting power and no investment power; 51,023
shares allocated under the RLI Corp. Key Employee Excess Benefit Plan
("Key Plan") over which Mr. Stephens has no voting or investment power;
13,845 shares held in custodian accounts for the benefit of Mr. Stephens'
grandchildren, over which Mr. Stephens has sole voting and investment
power; 1,757 shares in the H. O. Stephens Trust for the benefit of Mr.
Stephens' mother, over which Mr. Stephens, as trustee, has sole voting and
investment power; 26,031 shares owned by the Gerald D. and Helen M.
Stephens Foundation, over which Mr. Stephens, as President, has sole
voting and investment power; 103,461 exercisable stock options; and 4,688
shares held by a bank, as trustee, under an irrevocable trust established
by the Company pursuant to the RLI Corp. Executive Deferred Compensation
Agreement. Excludes 35,178 shares owned by Mr. Stephens' spouse, over
which Mr. Stephens has no voting or investment power, as to which Mr.
Stephens disclaims beneficial ownership.
DIRECTORS AND OFFICERS. The following information is furnished as to
the beneficial ownership of the shares of the Company's Common Stock by each
current director, nominee for director and named executive officer, and the
directors and executive officers of the Company as a group, as of December 31,
2000:
Amount and
Name of Individual or Nature of Percent
Number of Persons in Beneficial of
Group Ownership (1) Class
--------------------- ---------------- ---------
+Richard H. Blum (2) 140 *
Bernard J. Daenzer (3) (11) 54,828 *
5
Joseph E. Dondanville(4) (10) (12) (13) 41,341 *
William R. Keane (2) (5) (11) 94,120 1.0%
Gerald I. Lenrow (2) (6) (11) 19,353 *
+F. Lynn McPheeters (2) 274 *
Jonathan E. Michael (7) (10) (12) (13) 91,320 *
Mary Beth Nebel (8)(10)(12)(13) 17,687 *
Edwin S. Overman (2) (11) 36,331 *
Gerald D. Stephens (9) (10) (12) (13) 890,133 9.1%
Michael J. Stone (10) (12) (13) 28,945 *
Edward F. Sutkowski (2) (11) 110,268 1.1%
Robert O. Viets (2) (11) 24,269 *
Directors and executive
officers as a group
(15 persons) (10) (12) (13) 1,431,453 14.6%
*Less than 1% of Class.
+Mr. McPheeters and Mr. Blum were elected to the Board of Directors on August
24, 2000, and November 15, 2000, respectively.
(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. Director Deferred
Compensation Plan for the benefit of the following: Mr. Blum 140 shares;
Mr. Keane 51,686 shares; Mr. Lenrow 13,268 shares; Mr. McPheeters 274
shares; Dr. Overman 30,081 shares; Mr. Sutkowski 31,582 shares; and Mr.
Viets 10,538 shares. Each participating director has no voting or
investment power with respect to such shares and disclaims beneficial
ownership of such shares for purposes of Section 13(d) of the Securities
Exchange Act of 1934.
6
(3) Includes 26,703 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.
(4) Includes 300 shares held by Mr. Dondanville's spouse in a custodian
account for the benefit of their minor children, as to which Mr.
Dondanville disclaims any beneficial interest.
(5) Includes 18,092 shares owned by Mr. Keane's spouse, Evelyn Corral Keane,
as to which Mr. Keane claims beneficial interest.
(6) Includes 435 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.
(7) Includes 34,967 shares allocated to Mr. Michael under the ESOP, over which
Mr. Michael has sole voting power and no investment power; and 11,111
shares allocated under the Key Plan, over which Mr. Michael has no voting
or investment power.
(8) Includes 434 shares held by Ms. Nebel in a custodian account for the
benefit of her minor son, as to which Ms. Nebel claims beneficial
interest.
(9) Includes 255,114 shares allocated to Mr. Stephens under the ESOP, over
which Mr. Stephens has sole voting power and no investment power; 51,023
shares allocated under the Key Plan, over which Mr. Stephens has no voting
or investment power; 13,845 shares held in custodian accounts for the
benefit of Mr. Stephens' grandchildren, over which Mr. Stephens has sole
voting and investment power; 1,757 shares in the H. O. Stephens Trust for
the benefit of Mr. Stephens' mother, over which Mr. Stephens, as trustee,
has sole voting and investment power; and 26,031 shares owned by the
Gerald D. and Helen M. Stephens Foundation, over which Mr. Stephens, as
President, has sole voting and investment power. Excludes 35,178 shares
owned by Mr. Stephens' spouse, over which Mr. Stephens has no voting or
investment power, as to which Mr. Stephens disclaims beneficial interest.
(10) 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 in which any such executive officer may
diversify a percentage, not to exceed 50%, of such officer's ESOP benefit.
During 2000, one of the executive officers was eligible to elect to
7
diversify shares owned by the ESOP. As of December 31, 2000, the following
shares were allocated under the ESOP: Mr. Dondanville 20,334 shares; Mr.
Michael 34,967 shares; Ms. Nebel 10,565 shares; Mr. Stephens 255,114
shares; and Mr. Stone 3,131 shares.
(11) Includes shares which may be acquired within 60 days of December 31, 2000,
under the Directors' Stock Option Plan for Outside Directors, upon the
exercise of outstanding stock options as follows: Mr. Daenzer 6,250
shares; Mr. Keane 6,250 shares; Mr. Lenrow 5,650 shares; Dr. Overman 6,250
shares; Mr. Sutkowski 6,250 shares; and Mr. Viets 6,250 shares.
(12) Includes shares which may be acquired by the executive officers within 60
days of December 31, 2000, under the Incentive Stock Option Plan, upon the
exercise of outstanding stock options as follows: Mr. Dondanville 13,690
shares; Mr. Michael 29,401 shares; Ms. Nebel 4,221; Mr. Stephens 103,461
shares; and Mr. Stone 18,152 shares.
(13) Includes shares allocated to the executive officers which shares are held
by a bank trustee under an irrevocable trust established by the Company
pursuant to the RLI Corp. Executive Deferred Compensation Agreement for
the benefit of the following: Mr. Dondanville 3,340 shares; Mr. Michael
5,268 shares; Ms. Nebel 1,726 shares; Mr. Stephens 4,688 shares; and Mr.
Stone 4,636 shares. Each participating executive officer has no voting or
investment power with respect to such shares and disclaims beneficial
ownership of such shares for purposes of Section 13(d) of the Securities
Exchange Act of 1934.
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.
PROPOSAL ONE:
ELECTION OF DIRECTORS
NOMINEES. At the Annual Meeting, four (4) directors are to be elected,
each to hold office for a three-year term or until a successor is elected and
qualified. Messrs. Gerald D. Stephens and Robert O. Viets are Class II directors
who were elected by the shareholders in 1998 for three-year terms expiring in
2001. Messrs. F. Lynn McPheeters and Richard H. Blum are also Class II directors
who were elected to such office by the Board of Directors on August 24, 2000,
and November 15, 2000, respectively.
8
VOTING OF PROXIES. Unless otherwise instructed, the shares represented by
a Proxy will be voted for the election of the four nominees named above. The
affirmative vote of a plurality 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. Shares may be voted for, or withheld from, each nominee.
Shares that are withheld and broker non-votes have no effect on determinations
of plurality except to the extent that they affect the total votes received by
any particular nominee. There is no cumulative voting for the directors under
the Company's Articles of Incorporation.
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, the shares represented by a Proxy will be
voted for the election of a substitute nominee selected by the persons appointed
as proxies unless the Board of Directors 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:
DIRECTOR PRINCIPAL
NAME AGE SINCE OCCUPATION
Richard H. Blum 62 2000 Senior Advisor to Marsh & McLennan
Companies, Inc., a risk and insurance
services firm, and director of Marsh &
McLennan Securities Corporation since 1999.
Vice Chairman of J&H Marsh & McLennan from
1997 to 1999 and former Chairman, CEO of Guy
Carpenter & Company, Inc., having joined
that firm in 1958.
(term expiring in 2001)
PICTURE
F. Lynn McPheeters 58 2000 Vice President and Chief Financial Officer
of Caterpillar Inc., manufacturer of
construction, mining and related equipment.
Mr. McPheeters joined Caterpillar Inc. in
1964 and held various finance positions
until his promotion to Vice President and
CFO in 1998.
(term expiring in 2001)
PICTURE
9
Gerald D. Stephens 68 1965 Elected Chairman of the Board of the
Company January 1, 2001. Mr. Stephens
founded the Company in 1965 and served as
President from 1972 until his election as
Chairman of the Board.
(term expiring in 2001)
PICTURE
Robert O. Viets (1) 57 1993 Since 1999, President of ROV Consultants,
LLC, which provides consulting services to
AES Corporation, a global power company.
Former President, CEO and Director from 1988
until 1999 of CILCORP Inc., a holding
company in Peoria, Illinois, whose principal
business subsidiary is Central Illinois
Light Company.
(term expiring in 2001)
PICTURE
Certain information concerning the remaining directors, whose terms expire
either in 2002 or 2003, is set forth as follows based upon information furnished
to the Company by such individuals:
Bernard J. Daenzer 85 1972 Owner of Daenzer Associates, Key Largo,
Florida, an insurance consulting services firm,
since 1980. Formerly President and Chairman of
Wolhreich and Anderson Insurance Companies and
the Howden Swan Insurance Agencies until his
retirement in 1980.
(term expiring in 2003)
PICTURE
William R. Keane 84 1966 Former Vice President, Contacts, Inc.(contact lens
laboratory) in Chicago, Illinois, until his
retirement in 1983.
(term expiring in 2002)
PICTURE
Gerald I. Lenrow 73 1993 Since 1999, in private practice providing
consultation services to certain members of the
insurance industry. Consultant to General
Reinsurance Corporation until December 31, 1998.
Former partner in the international accounting
firm of Coopers & Lybrand LLP until
10
1990, following which he served as its
consultant until 1996.
(term expiring in 2002)
PICTURE
Jonathan E. Michael 47 1997 Elected President, Chief Executive Officer
of the Company and its principal subsidiaries
January 1, 2001. Since 1992, served as Executive
Vice President of the Company and President,
Chief Operating Officer of RLI Insurance Company
and Mt. Hawley Insurance Company, the Company's
principal subsidiaries.
(term expiring in 2003)
PICTURE
Edwin S. Overman 78 1987 President Emeritus of the Insurance Institute of
America, a national educational organization in
Malvern, Pennsylvania, since his retirement as
President, CEO of the Institute in 1987.
(term expiring in 2002)
PICTURE
Edward F. Sutkowski (2) 62 1975 President of the law firm of Sutkowski & Washkuhn
Ltd. in Peoria, Illinois, since 1965.
(term expiring in 2003)
PICTURE
(1) Mr. Viets is a director of Philadelphia Suburban Corporation, whose
securities are registered pursuant to Section 12 or subject to the
requirements of Section 15(d) of the Securities Exchange Act of 1934.
(2) Mr. Sutkowski is President of the law firm of Sutkowski & Washkuhn Ltd.,
which has provided legal services to the Company prior to and during 2000.
It is expected that the Company's relationship with Sutkowski & Washkuhn
Ltd. will continue in the future.
BOARD COMMITTEES
AUDIT COMMITTEE. The Company's Audit Committee, comprised of outside
directors Messrs. Keane, Lenrow, McPheeters and Viets, met
11
two times in 2000 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, the extent and scope of audit coverage, monitored selected
financial reports, and made audit and auditor engagement recommendations to the
Board of Directors.
In 1999, the Board of Directors approved and adopted an Audit Committee
Charter, which is attached to this Proxy Statement as Exhibit A. Aggregate fees
paid for the last fiscal year to KPMG LLP, the Company's independent public
accountants, were: Audit Fees, $271,500; Financial Information Systems Design
and Implementation Fees, $0; and All Other Fees, $29,100. The Audit Committee
considered the effects that the provision of non-audit services may have on the
Company's independent public accountants' services.
EXECUTIVE RESOURCES COMMITTEE. The Company's Executive Resources
Committee, comprised of outside directors Messrs. Daenzer, Lenrow and Overman,
met one time in 2000 to evaluate and recommend the compensation and incentive
stock option grants of the executive officers and other officers of the Company.
The Committee also evaluated executive performance, executive back-up plans, and
examined the officer development program. The Committee reviews and evaluates
the compensation and stock options of the outside directors of the Company. At
its meeting held December 8, 2000, the Board of Directors revised the Committee
membership as follows: Robert O. Viets, Chairman; Richard H. Blum, Gerald I.
Lenrow, F. Lynn McPheeters and Edwin S. Overman, members.
NOMINATING COMMITTEE. The Company does not have a standing nominating
committee.
BOARD MEETINGS AND COMPENSATION
MEETINGS. During the year 2000, four 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. During 2000, all outside directors of the
Company were compensated at the rate of $20,000 per year and paid $1,100 for
each Board meeting attended, $1,100 for each
12
Committee meeting of the Board attended, and $1,100 for each Committee meeting
of the Board chaired. Directors are also reimbursed for actual travel and
related expenses incurred and are provided a travel accident policy funded by
the Company.
STOCK OPTION PLAN FOR OUTSIDE DIRECTORS. The Stock Option Plan for
Outside Directors ("Director Plan") provides for the grant of an option to
purchase 3,000 shares of the Company's Common Stock to each newly elected or
appointed outside director exercisable at fair market value on the date of
grant. In addition, effective the first business day in February of each year,
each outside director is annually granted an option to purchase 900 shares of
the Company's Common Stock under the Director Plan, exercisable at fair market
value on the date of grant. If the Company earns more than its cost of capital
and the ESOP contribution as provided under its Market Value Potential Plan in
each respective year, each outside director is granted an option to purchase 900
additional shares of the Company's Common Stock under the Director Plan
effective the first business day in February of the succeeding year exercisable
at fair market value on the date of grant.
DIRECTOR DEFERRED COMPENSATION PLAN. Prior to the beginning of each
year, an outside director may elect to defer the compensation otherwise payable
to the director during the succeeding year pursuant to the Director Deferred
Compensation Plan ("Deferred Plan"). Under the Deferred 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 as earned and
deferred during the referent year. Dividends on these shares are reinvested
quarterly under the Company's Dividend Reinvestment Plan. In general, Deferred
Plan benefits are distributable beginning when the director's status terminates.
AUDIT COMMITTEE REPORT
The following report by the Audit 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.
The Audit Committee of the Company's Board of Directors is composed of
four independent directors and operates under a written charter adopted by the
Board of Directors, which is
13
attached to this Proxy Statement as Exhibit A. The Board of Directors and Audit
Committee believe that the Audit Committee's current composition satisfies the
New York Stock Exchange rules governing audit committee composition and that
each of the members of the Audit Committee is independent for purposes of the
New York Stock Exchange listing standards. The members of the Committee are:
Messrs. Keane, Lenrow, McPheeters and Viets.
The Committee recommends to the Board of Directors the selection of the
Company's independent accountants. The Committee also provides assistance to the
members of the Board of Directors in fulfilling their oversight functions over
the financial reporting practices and financial statements of the Company. It is
not the duty of the Committee, however, to plan or conduct audits or to
determine that the Company's financial statements are complete and accurate and
are in accordance with generally accepted accounting principles. The
responsibility to plan and conduct audits is that of the Company's independent
accountants. The Company's management has the responsibility to determine that
the Company's financial statements are complete and accurate and in accordance
with generally accepted accounting principles.
The Committee received reports and reviewed and discussed the audited
financial statements with management and the independent accountants. The
Committee also discussed with the independent accountants matters required to be
discussed by Statement on Auditing Standards No. 61. The Company's independent
accountants also provided to the Committee the written disclosures and letter
required by the Independence Standards Board Standard No.1. The Committee
discussed with the independent accountants that firm's independence and any
relationships that may impact that firm's objectivity and independence.
Based on the Committee's discussion with and reports from management
and its independent accountants and the Committee's reliance on the
representation of management that the Company's consolidated financial
statements were prepared in accordance with generally accepted accounting
principles, the Committee recommended to the Board of Directors that the audited
financial statements of the Company be included in the Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 2000, as filed with the
Securities and Exchange Commission.
14
Members of the Audit Committee
Gerald I. Lenrow, Chairman
William R. Keane
F. Lynn McPheeters
Robert O. Viets
EXECUTIVE RESOURCES COMMITTEE REPORT
The following report by the Executive Resources Committee is required
by the rules of the Securities and Exchange Commission to be included in this
Proxy Statement and shall not be considered incorporated by reference in other
filings by the Company with the Securities and Exchange Commission.
GENERAL. The Executive Resources Committee is responsible for
determining specific compensation levels of certain executive officers. The
Company aims to offer total compensation packages that attract, retain and
motivate high quality executives and that reward executives for Company
profitability and the enhancement of shareholder value. The following components
of executive compensation have been designed to meet these objectives.
BASE SALARY. The Executive Resources Committee sets base salary ranges
for certain executive officer positions based on executive compensation data
from nationally recognized surveys of a group of comparable insurance companies
prepared by Watson Wyatt, an independent actuarial firm. Actual salaries, which
consider individual performance and job content in the context of these ranges,
are targeted to fall within these ranges of salaries offered in the Company's
competitive market.
MVP BONUS. The Company pays annual cash bonuses to certain executive
officers based upon achievement of the Company's annual business plan. Since
adoption of the Market Value Potential Plan ("MVP Plan") in 1996, the Company
has paid bonuses pursuant to the MVP Plan, which rewards participants for
earnings in excess of the Company's cost of capital. The MVP Plan thus
encourages participants to manage and allocate Company capital to products that
produce income in excess of the cost of capital, thereby enhancing the potential
for appreciation of shareholder value.
Under the MVP Plan, the total annual bonus pool for the Company, if
any, is based upon a Committee-specified percentage of the Company's return on
capital in excess of its cost of capital. The Executive Resources Committee
awards individual bonuses out of the pool taking into account Watson Wyatt
studies of bonus compensation in the Company's competitive market and the
executive officer's job content. A memo account is established for each
participant in the MVP Plan and the participant's allocated
15
percentage of the MVP Bonus Pool for each year (whether a positive or negative
amount) is annually credited to each participant's account without limitation.
Once a year, an interest factor is credited to positive balances and forty
percent of each participant's positive account balance is paid out. The
remaining positive balance or any negative balance is rolled into the next year
and is adjusted by subsequent MVP Plan results.
INCENTIVE STOCK OPTIONS. Stock options awarded pursuant to the
Incentive Stock Option Plan are another important element of the Company's
compensation philosophy. The Company believes options serve as incentives to
executives to maximize the long-term growth and profitability of the Company,
which will be reflected in the Company's stock price. Under the Incentive Stock
Option Plan, options may not be granted for less than fair market value of the
Company's Common Stock on the date of grant, so that recipients will recognize
value from the grants only if the Common Stock price increases in the future.
Furthermore, all options granted provide for twenty percent annual vesting over
a period of five years. In the event of a recipient's termination of employment
with the Company on or after age sixty-five, or a recipient's death or
disability, all options granted become fully vested.
ESOP. The Company's ESOP also offers a valuable way of aligning the
interests of its employees, including its executive officers, with those of its
shareholders on a long-term basis. Pursuant to the ESOP, the Company makes
annual cash contributions that are used to purchase Company Common Stock on
behalf of the Company's employees, including its executive officers. All
employees, including executive officers, may have an annual contribution of
fifteen percent of wages (limited to $25,500). The ESOP vests 100% at the end of
five years. Mr. Stephens and Mr. Michael are eligible to participate in
individualized Key Employee Excess Benefit Plans ("Key Plan"). Under the Key
Plan, the Company makes annual cash contributions which are used to purchase
stock held in a trust it maintains for Mr. Stephens' and Mr. Michael's benefit
in an amount equal in value to the excess of the contribution allowable to them
under the ESOP (determined without regard to any limitations on compensation
imposed by the Internal Revenue Code), over the contribution actually made for
them under the ESOP (determined with regard to such limitations).
CHIEF EXECUTIVE OFFICERS. Policies with respect to the Chief Executive
Officers are the same as those discussed for executive officers generally except
that, in addition to the ESOP,
16
Mr. Stephens and Mr. Michael are eligible to participate in individualized Key
Employee Excess Benefit Plans.
INTERNAL REVENUE CODE SECTION 162(m). The Company intends that total
compensation, including bonuses awarded pursuant to the MVP Plan, will satisfy
the conditions necessary for deductibility by the Company under Section 162(m)
of the Internal Revenue Code, which limits the ability of the Company to deduct
any compensation in excess of $1,000,000 per year for federal income tax
purposes unless such conditions are met.
MEMBERS OF THE EXECUTIVE RESOURCES COMMITTEE
Robert O. Viets, Chairman
Richard H. Blum
Gerald I. Lenrow
F. Lynn McPheeters
Edwin S. Overman
EXECUTIVE MANAGEMENT COMPENSATION
EXECUTIVE OFFICERS. The following information is provided as to each
current executive officer of the Company:
EXECUTIVE
POSITION OFFICER
NAME AND AGE WITH COMPANY SINCE
------------ ------------ ---------
Joseph E. Dondanville Vice President, 1992
Age 44 Chief Financial
Officer
Camille J. Hensey Vice President and 1987
Age 59 Corporate Secretary
Jonathan E. Michael President, Chief Executive 1985
Age 47(1) Officer and Director
Mary Beth Nebel Vice President 1994
Age 44 and General
Counsel
Michael A. Price Treasurer 1998
Age 37 (2)
Gerald D. Stephens Chairman of the Board 1965
Age 68(3)
17
Michael J. Stone Executive Vice President 1997
Age 52 (4) of RLI Insurance
Company and Mt. Hawley
Insurance Company, the
Company's wholly owned
insurance subsidiaries
(1) Mr. Michael was promoted from Executive Vice President to President, Chief
Executive Officer of the Company effective January 1, 2001.
(2) Mr. Price joined the Company as Treasurer in June of 1996. As Mr. Price's
duties and responsibilities in connection with his position currently meet
the "Executive Officer" definition of the SEC rules for disclosure
purposes, the Board of Directors classified him as an executive officer of
the Company effective December 3, 1998.
(3) Mr. Stephens was promoted from President to Chairman of the Board of the
Company effective January 1, 2001.
(4) Mr. Stone joined the Company as Vice President of Claims in May of 1996
after having served in various positions for Travelers Insurance Group of
Hartford, Connecticut, since 1977, including Vice President of Claims. As
Mr. Stone assumed significant policy-making functions during his first
year as an officer of the Company's wholly owned insurance subsidiaries,
the Board of Directors classified him as an executive officer of the
Company effective August 7, 1997. He was promoted to Senior Vice President
of Claims in May of 1998 and Executive Vice President in December of 1998.
SUMMARY COMPENSATION TABLE. The aggregate compensation earned from the
Company and its subsidiaries during the last three fiscal years is expressed
below for the Company's President and the other four most highly compensated
executive officers.
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
-------------------------------- ------------------------
AWARDS PAYOUTS
---------- -------
SECURITIES LTIP
NAME and PRINCIPAL UNDERLYING PAYOUTS ALL OTHER
POSITION YEAR SALARY ($) BONUS ($)(1) OPTIONS (#)(2) ($)(3) COMPENSATION ($)(4)
---------------- ---- ---------- ------------ ------------------------ -------------------
Gerald D. Stephens 2000 462,792 322,202 28,000 122,467
President 1999 462,792 0 30,700 246,715 201,334
18
1998 462,792 743,932(5) 41,250 240,670
Jonathan E. Michael 2000 300,000(5) 225,541 28,000 79,730
Executive Vice President 1999 300,000(5) 0 28,900 172,700 134,274
1998 288,080(5) 520,753(5) 19,251 158,295
Michael J. Stone 2000 224,952(5) 124,284 14,000 28,095
Executive Vice 1999 215,600(5) 0 15,000 63,085 26,291
President, RLI Insurance 1998 195,967(5) 249,976(5) 12,500 25,377
Company and Mt. Hawley
Insurance Company
Joseph E. Dondanville 2000 163,909 114,754 10,000 28,095
Vice President, Chief 1999 157,590 0 10,500 90,082 26,291
Financial Officer 1998 153,000(5) 267,508(5) 9,376 25,377
Mary Beth Nebel 2000 121,019 55,889 3,500 26,981
Vice President and 1999 116,353 0 3,700 42,242 26,291
General Counsel 1998 113,327(5) 128,406(5) 1,125 25,377
(1) Amounts represent compensation accrued during fiscal year 2000 and paid
in 2001 pursuant to the Company's MVP Plan, exclusive of the following
additional amounts which may be payable to such individuals in future
years under the MVP Plan: Gerald D. Stephens $322,201; Jonathan E.
Michael $225,541; Michael J. Stone $124,283; Joseph E. Dondanville
$114,754; and Mary Beth Nebel $55,889.
(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 the ten-year period beginning on the grant
date.
(3) Amounts represent payment of 50% of the executive officers' remaining
positive balance in the MVP bonus pool earned in years 1996 through
1998.
(4) Represents the value of Company contributions to the ESOP on behalf of
the named executive officers. In the case of Messrs. Stephens and
Michael, the amounts include shares allocated to them under their
respective Key Plans as follows: Mr. Stephens 6,237 in respect of 2000;
7,310 shares in respect of 1999 and 10,630 shares in respect of 1998.
Mr. Michael 3,513 in respect of 2000; 4,181 shares in respect of 1999
and 2,246 shares in respect of 1998. In general, benefits are
distributable to Messrs. Stephens and Michael when their employment
terminates. Under the Key Plan, the Company must transfer to the
trustee under an irrevocable trust maintained by the Company for the
benefit of Messrs. Stephens and Michael such number of shares as are
equal in value to the excess of (a) the contribution allocable to them
under the ESOP determined without regard to any limitation on
compensation imposed by the Internal Revenue Code, over (b) the
contribution actually allocable to them under the ESOP determined with
regard to any limitation on compensation imposed by the Internal
Revenue Code. The total value of their Key Plan benefits as of December
31, 2000, was: Mr. Stephens $2,374,520 and Mr. Michael $548,176.
(5) Includes amounts voluntarily deferred under the Company's Executive
Deferred Compensation Agreement ("Agreement"). The Agreement allows
executive officers to defer portions of current base salary and bonus
compensation otherwise payable during the year.
OPTION GRANTS IN LAST FISCAL YEAR. The following table shows
information regarding grants of stock options made to the named executive
officers under the Company's Incentive Stock Option Plan during the fiscal year
ended December 31, 2000. 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 $51.41 and $81.87, respectively. The amounts shown as potential
realizable values for all shareholders represent the corresponding increases in
the market value of 9,803,962 outstanding
19
shares of the Company's Common Stock held by all shareholders as of December 31,
2000, which would total approximately $504,041,164 and $802,601,314,
respectively. No gain to the optionees is possible without an increase in stock
price, which will benefit all shareholders proportionately. These potential
realizable values are based solely on arbitrarily assumed rates of appreciation
required by applicable Securities and Exchange Commission regulations. Actual
gains, if any, on option exercises and common stock holdings are dependent on
the future performance of the Company's Common Stock. There can be no assurance
that the potential realizable values shown in this table will be achieved.
POTENTIAL REALIZABLE VALUE AT
ASSUMED ANNUAL RATES OF STOCK
INDIVIDUAL GRANTS PRICE APPRECIATION FOR OPTION TERM
-------------------------------------------------- -------------------------------------
IF STOCK AT IF STOCK AT
$51.41 $81.87
NUMBER OF % OF TOTAL
SECURITIES OPTIONS
UNDERLYING GRANTED TO EXERCISE
OPTIONS EMPLOYEES OR BASE
GRANTED IN FISCAL PRICE EXPIRATION
NAME (#)(1) YEAR ($/SH)(2) DATE 5%($)(3) 10%($)(3)
-------------------------------------------------------------------------------------------------------------------
ALL SHAREHOLDERS' 504,041,164 802,601,314
STOCK APPRECIATION
Gerald D. Stephens 28,000 18.88% 31.5625 05/04/10 555,786 1,408,470
Jonathan E. Michael 28,000 18.88% 31.5625 05/04/10 555,786 1,408,470
Michael J. Stone 14,000 9.44% 31.5625 05/04/10 277,893 704,235
Joseph E. Dondanville 10,000 6.74% 31.5625 05/04/10 198,495 503,025
Mary Beth Nebel 3,500 2.36% 31.5625 05/04/10 69,473 176,059
--------------------------------------------------------------------------
(1) Each option grant becomes exercisable in 20% increments on the first
five anniversaries of the grant date. Such options lapse on the tenth
anniversary of the grant date.
(2) The exercise price is the fair market value on the date of grant.
(3) The dollar amounts under these columns are the result of calculations
at the 5% and 10% rates dictated by the Securities and Exchange
Commission when the "Potential Realizable Value" alternative is used.
These are not intended to be a forecast of the Company's stock price.
20
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END
OPTION VALUES. The following table sets forth information with respect to the
named executive officers concerning the exercise of options during the last
fiscal year and unexercised options held December 31, 2000. Value realized upon
exercise is the excess of the fair market value of the underlying stock on the
exercise date over the exercise price under the option. Value of unexercised,
in-the-money options at fiscal year end is the difference between its exercise
price and the fair market value of the underlying stock on December 31, 2000,
which was $44.69 per share. These values, unlike the amounts set forth in the
column headed "Value Realized," have not been, and may never be, realized. The
underlying options have not been, and may never be, exercised; actual gains on
exercise, if any, will depend on the value of the Company's Common Stock on the
date of exercise. There can be no assurance that these values will be realized.
NUMBER OF
SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT
FISCAL YEAR END (#) FISCAL YEAR END ($)
----------------------------- ----------------------------
SHARES
ACQUIRED
ON VALUE
EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
NAME (#) ($)
-------------------------------------------------------------------------------------------------------------
Gerald D. Stephens 0 0.00 103,461 99,335 2,123,285 1,198,656
Jonathan E. Michael 0 0.00 29,401 67,594 477,357 791,516
Michael J. Stone 0 0.00 18,152 37,348 291,145 441,448
Joseph E. Dondanville 0 0.00 13,690 26,624 223,482 305,442
Mary Beth Nebel 0 0.00 4,221 7,385 94,323 92,323
------------------------------------------------------------------------------
PENSION PLAN. The following table illustrates the estimated annual
benefits which are not subject to any deduction for social security or other
offset amount (based on a straight-life annuity payable beginning at age 65, but
in no event less than 120 monthly payments) under the Company's pension plan for
specified compensation and service levels assuming a participant retired on
July 1, 2001, at age 65 after selected years of service:
AVERAGE ANNUAL ESTIMATED ANNUAL PENSION BENEFIT UPON RETIREMENT AT
COMPENSATION JULY 1, 2001, WITH YEARS OF SERVICE INDICATED
------------ -------------------------------------------------------
15 YRS. 20 YRS. 25 YRS. 30 YRS. 35 YRS.
------- ------- ------- ------- --------
$115,000 $22,922 $30,562 $38,203 $45,843 $53,484
130,000 26,319 35,092 43,865 52,638 61,411
145,000 29,717 39,622 49,528 59,433 69,339
160,000 33,114 44,152 55,190 66,228 77,266
164,000* 34,020 45,360 56,700 68,040 79,380
21
*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 -
$140,000 for 2001) or 100% of his average compensation for his high three years.
Effective 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 (as adjusted for
cost-of-living increases - $170,000).
Mr. Stephens' current compensation covered by the pension plan is
$164,000 with 34 years of plan participation; Mr. Michael's current covered
compensation is $164,000 with 17 years of plan participation; Mr. Stone's
current covered compensation is $164,000 with four years of plan participation;
Mr. Dondanville's current covered compensation is $164,000 with 16 years of plan
participation; and Ms. Nebel's current covered compensation is $163,261 with 11
years of plan participation.
COMMON STOCK PERFORMANCE CHART
A line graph comparing the percentage change in the cumulative total
shareholder return, including the reinvestment of dividends, on the Company's
Common Stock with a cumulative total return of the S&P Composite 500 Stock Index
and the S&P Property and Casualty Index for the period beginning December 31,
1995, through December 31, 2000 has been omitted from this electronic filing.
The table below contains the data used to create the omitted line graph:
ANNUALIZED COMPOUNDED TOTAL RETURN
COMPARISON OF FIVE YEAR CUMULATIVE
RLI, S&P 500 and S&P P/C INS INDEX
RLI - 19.41%
S&P 500 - 17.77%
S&P P/C Ins - 11.87%
Assumes $100 invested on December 31, 1995 in RLI,
S&P 500 and S&P P/C Ins Index
with reinvestment of dividends.
Measurement Period S&P 500 S&P P/C Ins
(Fiscal Year Covered) RLI Corp. Index Index
--------------------- --------- ------- ------------
Measurement Pt - 12/31/95 $100 $100 $100
FYE 12/31/96 136 123 119
FYE 12/31/97 207 158 170
FYE 12/31/98 175 195 156
FYE 12/31/99 182 237 113
FYE 12/31/00 243 227 175
22
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 table shall not be deemed incorporated by reference by
any general statement incorporating by reference this proxy statement into any
filing under the Securities Act of 1933 or the Securities Exchange Act of 1934,
except to the extent that the Company specifically incorporates this information
by reference and shall not otherwise be deemed filed under such Acts.
INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors, upon the recommendation of the Audit Committee,
has selected KPMG LLP ("KPMG"), the Company's independent public accountants
since 1983, to serve as the Company's independent public accountants for the
current fiscal year. 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.
OTHER BUSINESS
The Board of Directors knows of no other business to be presented at
the Annual Meeting; however, if any other matters do properly come before the
meeting, it is intended that the persons appointed as proxies will vote in
accordance with their best judgment.
It is important that proxies be voted promptly so the presence of a
quorum may be assured well in advance of the Annual Meeting, thus avoiding the
expense of follow-up solicitations. Accordingly, even if you expect to attend
the Annual Meeting, you are requested to date, execute and return the enclosed
proxy in the stamped, self-addressed envelope provided. If possible, vote your
proxy over the Internet or by telephone using the instructions on your proxy
card.
By Order of the Board of Directors
Camille J. Hensey
Vice President/Corporate Secretary
Peoria, Illinois
March 26, 2001
23
EXHIBIT A
RLI CORP.
AUDIT COMMITTEE CHARTER
Organization
There shall be a committee of the board of directors to be known as the audit
committee. The audit committee shall be composed of directors who are
independent of the management of the corporation and are free of any
relationship that, in the opinion of the board of directors, would interfere
with their exercise of independent judgment as a committee member.
Statement of Policy
The audit committee shall provide assistance to the corporate directors in
fulfilling their responsibility to the shareholders, potential shareholders, and
investment community relating to corporate accounting, reporting practices of
the corporation, and the quality and integrity of the financial reports of the
corporation. In so doing, it is the responsibility of the audit committee to
maintain free and open means of communication between the directors, the
independent auditors, the internal auditors, and the financial management of the
corporation.
Responsibilities
In carrying out its responsibilities, the audit committee believes its policies
and procedures should remain flexible, in order to best react to changing
conditions and to ensure to the directors and shareholders that the corporate
accounting and reporting practices of the corporation are in accordance with all
requirements and are of the highest quality.
In carrying out these responsibilities, the audit committee will:
o Review and recommend to the directors the independent auditors to be
selected to audit the financial statements of the corporation and its
divisions and subsidiaries.
o Meet with the independent auditors and financial management of the
corporation to review the scope of the proposed audit for the current year
and the audit procedures to be utilized, and at the conclusion thereof
review such audit, including any comments or recommendations of the
independent auditors.
o Review with the independent auditors, the company's internal auditor,
and financial and accounting personnel, the adequacy and effectiveness of
the accounting and financial controls of the corporation, and elicit any
recommendations for the
24
improvement of such internal control procedures or particular areas
where new or more detailed controls or procedures are desirable.
Particular emphasis should be given to the adequacy of such internal
controls to expose any payments, transactions, or procedures that might
be deemed illegal or otherwise improper. Further, the committee
periodically should review company policy statements to determine their
adherence to the code of conduct.
o Review the internal audit function of the corporation including the
independence and authority of its reporting obligations, the proposed
audit plans for the coming year, and the coordination of such plans with
the independent auditors.
o Receive prior to each meeting, a summary of findings from completed
internal audits and a progress report on the proposed internal audit
plan, with explanations for any deviations from the original plan.
o Review the financial statements contained in the annual report to
shareholders with management and the independent auditors to determine
that the independent auditors are satisfied with the disclosure and
content of the financial statements to be presented to the shareholders.
Any changes in accounting principles should be reviewed.
o Provide sufficient opportunity for the internal and independent
auditors to meet with the members of the audit committee without members
of management present. Among the items to be discussed in these meetings
are the independent auditors' evaluation of the corporation's financial,
accounting, and auditing personnel, and the cooperation that the
independent auditors received during the course of the audit.
o Accounting and financial human resources and succession planning is
monitored by the executive resources committee of the board.
o Submit the minutes of all meetings of the audit committee to, or
discuss the matters discussed at each committee meeting with, the board of
directors.
o Investigate any matter brought to its attention within the scope of
its duties, with the power to retain outside counsel for this purpose
if, in its judgment, that is appropriate.
25
Page 1 of 2
(LOGO)
IF YOU WISH TO VOTE BY TELEPHONE OR INTERNET,
PLEASE READ THE INSTRUCTIONS BELOW
RLI Corp. encourages you to take advantage of new and convenient ways to vote
your shares for matters to be covered at the 2001 Annual Meeting of
Shareholders. Please take the opportunity to use one of the three voting methods
below to cast your ballot. We've made it easier than ever.
VOTE BY TELEPHONE - 1-800-690-6903
Use any touch-tone telephone to vote your proxy 24 hours a day, 7 days a week.
Have your proxy card in hand when you call. You will be prompted to enter your
12-digit Control Number, which is located below, then follow the simple
instructions the Vote Voice provides you.
VOTE BY INTERNET - WWW.PROXYVOTE.COM
Use the Internet to vote your proxy 24 hours a day, 7 days a week. Have your
proxy card in hand when you access the web site. You will be prompted to enter
your 12-digit Control Number, which is located below, to obtain your records and
create an electronic ballot.
VOTE BY MAIL
Mark, sign and date your proxy card and return it in the postage-paid envelope
we've provided or return it to RLI Corp., c/o ADP, 51 Mercedes Way, Edgewood, NY
11717.
[CONTROL NUMBER]
IF YOU VOTE BY TELEPHONE OR VOTE USING THE INTERNET,
PLEASE DO NOT MAIL YOUR PROXY.
THANK YOU FOR VOTING.
To vote, mark blocks below in blue or black ink as follows:
..........................................................................
THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED.
(LOGO)
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE FOLLOWING PROPOSAL:
1. ELECTION OF CLASS II DIRECTORS
(mark one):
NOMINEES: RICHARD H. BLUM, F. LYNN MCPHEETERS, GERALD D. STEPHENS AND
ROBERT O. VIETS
____
FOR ALL /___/
____
WITHHOLD ALL /___/
To withhold authority to vote for any individual nominee, write that nominee's
name on the line below.
Please sign exactly as your name(s) appear(s). Executors, trustees, and others
signing in a representative capacity should include their name and the capacity
in which they sign.
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Signature Date
Signature (Joint Owners) Date
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(LOGO)
RLI CORP.
9025 North Lindbergh Drive
Peoria, Illinois 61615
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints William R. Keane and Gerald D.
Stephens, as Proxies, each with the power to appoint his substitute, and hereby
authorizes them, or either one of them, to represent and to vote, as designated
below, the shares of Common Stock of RLI Corp. held of record by the undersigned
on March 5, 2001, at the Annual Meeting of Shareholders to be held on May 3,
2001 or any adjournments thereof.
If no other indication is made on the reverse side of this form, the
proxies shall vote for each of the nominees listed on the reverse side of this
form and, in their discretion, upon such other business as may properly come
before the meeting.
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