Exhibit
10.5


 


RLI CORP.


NONEMPLOYEE DIRECTORS


DEFERRED COMPENSATION
PLAN


(Restated
as of January 1, 2009)


 


 


12/12/2008


 

















 


RLI CORP. NONEMPLOYEE DIRECTORS


DEFERRED COMPENSATION PLAN


 


TABLE OF CONTENTS


 


	
   

  	
   

  	
  Page

  
	
  ARTICLE 1

  	
  INTRODUCTION

  	
  1

  
	
  1.1.

  	
  Establishment

  	
  1

  
	
  1.2.

  	
  Purpose

  	
  1

  
	
  1.3.

  	
  Definitions

  	
  1

  
	
   

  	
  1.3.1.

  	
  Account

  	
  1

  
	
   

  	
  1.3.2.

  	
  Affiliate

  	
  1

  
	
   

  	
  1.3.3.

  	
  Beneficiary

  	
  1

  
	
   

  	
  1.3.4.

  	
  Board

  	
  1

  
	
   

  	
  1.3.5.

  	
  Code

  	
  1

  
	
   

  	
  1.3.6.

  	
  Direct Compensation

  	
  2

  
	
   

  	
  1.3.7.

  	
  Director

  	
  2

  
	
   

  	
  1.3.8.

  	
  Employee

  	
  2

  
	
   

  	
  1.3.9.

  	
  ERISA

  	
  2

  
	
   

  	
  1.3.10.

  	
  Participant

  	
  2

  
	
   

  	
  1.3.11.

  	
  Plan

  	
  2

  
	
   

  	
  1.3.12.

  	
  Prior Agreement

  	
  2

  
	
   

  	
  1.3.13.

  	
  RLI

  	
  2

  
	
   

  	
  1.3.14.

  	
  RLI Stock

  	
  2

  
	
   

  	
  1.3.15.

  	
  Successor Corporation

  	
  2

  
	
   

  	
  1.3.16.

  	
  Termination of Service

  	
  2

  
	
   

  	
  1.3.17.

  	
  Vested

  	
  2

  
	
   

  	
  1.3.18.

  	
  Year

  	
  2

  
	
  1.4.

  	
  Nonqualified
  Deferred Compensation

  	
  2

  
	
   

  	
   

  	
   

  
	
  ARTICLE 2

  	
  PARTICIPATION

  	
  3

  
	
  2.1.

  	
  Eligibility

  	
  3

  
	
  2.2.

  	
  Enrollment

  	
  3

  
	
  2.3.

  	
  Direct
  Compensation Deferrals

  	
  3

  
	
   

  	
  2.3.1.

  	
  Elections

  	
  3

  
	
   

  	
  2.3.2.

  	
  Elections Relate to
  Services Performed After the Election and Are Irrevocable

  	
  3

  
	
   

  	
   

  	
   

  
	
  ARTICLE 3

  	
  ACCOUNTS

  	
  4

  
	
  3.1.

  	
  Accounts

  	
  4

  
	
  3.2.

  	
  Credits
  to Accounts

  	
  4

  
	
   

  	
  3.2.1.

  	
  Direct Compensation
  Deferrals

  	
  4

  
	
   

  	
  3.2.2.

  	
  Dividends and Other
  Adjustments

  	
  4

  
	
  3.3.

  	
  Charges
  to Accounts

  	
  4

  
	
   

  	
   

  	
   

  
	
  ARTICLE 4

  	
  BENEFITS

  	
  4

  
	
  4.1.

  	
  Vesting

  	
  4

  
	
  4.2.

  	
  Payment
  of Plan Benefits on Termination of Service - General Rule

  	
  4

  
	
  4.3.

  	
  Changing
  Payment Elections

  	
  5

  
	
   

  	
  4.3.1.

  	
  General Rule

  	
  5

  
					



 


 


1

















 


	
   

  	
  4.3.2.

  	
  Election upon Initial
  Plan Enrollment

  	
  5

  
	
   

  	
  4.3.3.

  	
  Subsequent Election

  	
  5

  
	
  4.4.

  	
  Special
  Rules

  	
  5

  
	
   

  	
  4.4.1.

  	
  Specified Employee
  Exception

  	
  5

  
	
   

  	
  4.4.2.

  	
  Cash-Out of Small
  Amounts

  	
  5

  
	
  4.5.

  	
  Medium
  of Payments

  	
  6

  
	
  4.6.

  	
  Delay
  in Distributions

  	
  6

  
	
  4.7

  	
  Acceleration
  of Distributions

  	
  6

  
	
  4.8

  	
  When a
  Payment is Deemed to be Made

  	
  7

  
	
   

  	
   

  	
   

  
	
  ARTICLE 5

  	
  DEATH BENEFITS

  	
  8

  
	
  5.1.

  	
  Death
  Benefits

  	
  8

  
	
   

  	
  5.1.1.

  	
  Benefits When
  Participant Dies Before Commencement of Payments

  	
  8

  
	
   

  	
  5.1.2.

  	
  Benefits When
  Participant Dies After Commencement of Payments

  	
  8

  
	
   

  	
  5.1.3.

  	
  Medium of Payments

  	
  8

  
	
   

  	
  5.1.4.

  	
  Cash-Out of Small
  Amounts

  	
  8

  
	
  5.2.

  	
  Designation
  of Beneficiary

  	
  8

  
	
   

  	
  5.2.1.

  	
  Persons Eligible to
  Designate

  	
  8

  
	
   

  	
  5.2.2.

  	
  Form and Method of
  Designation

  	
  8

  
	
   

  	
  5.2.3.

  	
  No Effective
  Designation

  	
  9

  
	
   

  	
  5.2.4.

  	
  Successor Beneficiary

  	
  9

  
	
   

  	
   

  	
   

  
	
  ARTICLE 6

  	
  PAYMENT PROCEDURES

  	
  9

  
	
  6.1.

  	
  Application
  for Benefits

  	
  9

  
	
  6.2.

  	
  Deferral
  of Payment

  	
  9

  
	
   

  	
   

  	
   

  
	
  ARTICLE 7

  	
  ADMINISTRATION

  	
  10

  
	
  7.1.

  	
  Administrator

  	
  10

  
	
   

  	
  7.1.1.

  	
  Delegation

  	
  10

  
	
   

  	
  7.1.2.

  	
  Automatic Removal

  	
  10

  
	
   

  	
  7.1.3.

  	
  Conflict of Interest

  	
  10

  
	
   

  	
  7.1.4.

  	
  Binding Effect

  	
  10

  
	
   

  	
  7.1.5.

  	
  Third-Party Service
  Providers

  	
  10

  
	
  7.2.

  	
  Benefits
  Not Transferable

  	
  10

  
	
  7.3.

  	
  Benefits
  Not Secured

  	
  11

  
	
  7.4.

  	
  RLI’s
  Obligations

  	
  11

  
	
  7.5.

  	
  Withholding
  Taxes

  	
  11

  
	
  7.6.

  	
  Service
  of Process

  	
  11

  
	
  7.7.

  	
  Limitation
  on Liability

  	
  11

  
	
   

  	
   

  	
   

  
	
  ARTICLE 8

  	
  AMENDMENT AND TERMINATION

  	
  11

  
	
  8.1.

  	
  Amendment

  	
  11

  
	
  8.2.

  	
  Termination

  	
  11

  
	
   

  	
   

  	
   

  
	
  ARTICLE 9

  	
  MISCELLANEOUS

  	
  12

  
	
  9.1.

  	
  Effect
  on Other Plans

  	
  12

  
	
  9.2.

  	
  Effect
  on Service

  	
  12

  
	
  9.3.

  	
  Disqualification

  	
  12

  
	
  9.4.

  	
  Rules of Document Construction

  	
  12

  
	
  9.5.

  	
  References
  to Laws

  	
  12

  
					



 


 

















 


	
  9.6.

  	
  Choice
  of Law

  	
  12

  
	
  9.7.

  	
  Binding
  Effect

  	
  12

  



 

















 


RLI CORP. NONEMPLOYEE DIRECTORS


DEFERRED COMPENSATION PLAN


 


ARTICLE 1


 


INTRODUCTION


 


1.1.                            Establishment.  RLI 
established the RLI Corp. Nonemployee Directors Deferred Compensation
Plan effective January 1, 2005. 
Prior to that date, RLI provided similar deferred compensation
opportunities to its Directors under certain Prior Agreements.  All obligations under the Prior Agreements
(including any predecessor arrangements) will be satisfied under the Prior
Agreements, rather than under this Plan. 
RLI hereby restates the Plan,
effective January 1, 2009, to comply with the requirements of the final
regulations issued under Section 409A of the Code (“Section 409A”) on
April 10, 2007.


 


This restatement applies to amounts deferred
under the Plan on or after January 1, 2009 (the “Restatement Date”), and
to the payment of all amounts deferred under the Plan (whether such amounts
were deferred before, on, or after the Restatement Date) that have not yet been
distributed as of the Restatement Date. 
Except as set forth in Article 6, no amount deferred under the Plan
is intended to be “grandfathered” under Section 409A.


 


The obligation of RLI to make payments under
the Plan constitutes an unsecured (but legally enforceable) promise of RLI to
make such payments and no person, including any Participant or Beneficiary,
shall have any lien, prior claim or other security interest in any property of
RLI as a result of the Plan.


 


1.2.                            Purpose.  The purpose of the Plan is to attract and
retain qualified Directors and to provide them with an opportunity to save on a
pre-tax basis and accumulate tax-deferred income to achieve their financial
goals.


 


1.3.                            Definitions.  When the following terms are used herein with
initial capital letters, they shall have the following meanings:


 


1.3.1.                  Account
— the separate recordkeeping account (unfunded and unsecured) maintained
for each Participant in connection with the Participant’s participation in the
Plan.


 


1.3.2.                  Affiliate
—  a business entity which is under a “common
control” with RLI or which is a member of an “affiliated service group” that
includes RLI, as those terms are defined in Code § 414(b), (c) and
(m).


 


1.3.3.                  Beneficiary
— the person or persons designated as such under Sec. 5.2.


 


1.3.4.                  Board — the
Board of Directors of RLI.


 


1.3.5.                  Code
— the Internal Revenue Code of 1986, as the same may be amended from time to
time.


 


1

















 


1.3.6.                  Direct
Compensation — the total amounts, as determined by RLI, payable to a
Director for services as a Director, whether payable in cash or in RLI Stock,
but excluding amounts determined by RLI to be expense reimbursements.


 


1.3.7.                  Director
— an individual who is a member of the Board but who is not an Employee of RLI
or an Affiliate.


 


1.3.8.                  Employee
—  a common-law employee of RLI or an
Affiliate (while it is an Affiliate).


 


1.3.9.                  ERISA
—  the Employee Retirement Income
Security Act of 1974, as the same may be amended from time to time.


 


1.3.10.           Participant
— a Director who enrolls as a Participant in the Plan under Sec. 2.2.


 


1.3.11.           Plan
— the unfunded deferred compensation plan that is set forth in this document,
as the same may be amended from time to time. 
The name of the Plan is the “RLI Corp. Nonemployee Directors Deferred
Compensation Plan.”


 


1.3.12.           Prior
Agreement — an individual agreement entered into by a Director and RLI to
provide deferred compensation opportunities to the Director.  In certain cases, such Prior Agreement was a
successor to an earlier arrangement known as the Director Non-Qualified
Deferred Compensation Plan.


 


1.3.13.           RLI
— RLI Corp. and any Successor Corporation.


 


1.3.14.           RLI
Stock — the common stock of RLI.


 


1.3.15.           Successor
Corporation — any entity that succeeds to the business of RLI through
merger, consolidation, acquisition of all or substantially all of its assets,
or any other means and which elects before or within a reasonable time after
such succession, by appropriate action evidenced in writing, to continue the
Plan.


 


1.3.16.           Termination
of Service —the Participant’s departure from the Board, unless the Director
then becomes an Employee. 
Notwithstanding the foregoing, a “Termination of Service” will be deemed
not to have occurred if such departure would not be considered a “separation
from service” under Code § 409A(a)(2)(A)(i) or any regulations or
other guidance issued by the Treasury Department under Code § 409A.  In such case, a Termination of Service will
be deemed to have occurred at the earliest time allowed under Code § 409A.


 


1.3.17.           Vested
— nonforfeitable.


 


1.3.18.           Year
— the calendar year.


 


1.4.                            Nonqualified
Deferred Compensation.  The Plan is a
nonqualified deferred compensation plan subject to Code § 409A.  To the extent any provision of the Plan does
not satisfy the requirements contained in Code § 409A or in any
regulations or other guidance issued by the Treasury Department under Code
§ 409A, such provision will be applied in a manner consistent with such
requirements, regulations or guidance, notwithstanding any contrary provision
of the Plan or any inconsistent election made by a Participant.


 





















 


ARTICLE
2


 


PARTICIPATION


 


2.1.                            Eligibility.  All Directors will be eligible to participate
in the Plan.  A Director may continue to
participate in the Plan for so long as the Plan remains in effect and  remains a Director.


 


2.2.                            Enrollment.  A Director will be allowed to enroll in the
Plan during the thirty (30) day period coinciding with and following the date
the individual becomes a Director.  Such
an enrollment will be effective as of the date it is made.  Thereafter, a Director may elect to enroll
for a Year during the enrollment period established by RLI for such Year, which
enrollment period will be a period of not less than thirty (30) days that ends
not later than the last day of the prior Year. 
Enrollment must be made in such manner and in accordance with such rules as
may be prescribed for this purpose by RLI (including by means of a voice
response or other electronic system under circumstances authorized by RLI).


 


2.3.                            Direct
Compensation Deferrals.


 


2.3.1.                  Elections.  A Director may elect to reduce Direct
Compensation by any whole percent, but not more than one-hundred percent
(100%).  A separate reduction percentage
may apply to the portion of a Director’s Direct Compensation that is payable in
cash and to the portion that is payable in RLI Stock granted under the RLI
Corp. Omnibus Stock Plan.  An election
must be made in such manner and in accordance with such rules as may be
prescribed for this purpose by RLI (including by means of a voice response or
other electronic system under circumstances authorized by RLI).  An election must be made as part of the
enrollment described in Sec. 2.2.


 


2.3.2.                  Elections
Relate to Services Performed After the Election and Are Irrevocable.  An election will
apply to all Direct Compensation attributable to services performed in a given
Year, regardless of when such Direct Compensation would otherwise be provided
to the Participant (for example, an election to defer an annual fee
attributable to services performed in a given Year but payable in the next
Year, must be made as part of the enrollment election made prior to the Year in
which the services are performed). 
However, an election will only
be effective to defer Direct Compensation earned after the election is made,
and not before.  For example, an
election made in connection with a mid-year enrollment under Sec. 2.2 will
only be effective for Direct Compensation attributable to services performed on
and after the effective date of the enrollment as provided in
Sec. 2.2.    An election will apply
solely with respect to the given Year — that is, an election will not
automatically be carried over and applied to the next Year.


 


In general, an election shall become
irrevocable as of the last day of the enrollment period applicable to it.  However, if a Participant incurs an “unforeseeable
emergency,” as defined in Section 4.8(h), or becomes entitled to receive a
hardship distribution pursuant to Treas. Reg. Sec. 1.401(k)-1(d)(3) after
the election otherwise becomes irrevocable, the election shall be cancelled as
of the date on which the Participant is determined to have incurred the
unforeseeable emergency or becomes eligible to receive the hardship
distribution and no further deferrals will be made under it.  In addition, if a Participant becomes “disabled”
(as defined below), RLI may, in its discretion, cancel the Participant’s
election then in effect, provided that such cancellation is made no later than
end of the Plan Year, or if later, the 15th day of the third month following the date on
which the Participant becomes disabled, and provided further that RLI does not
allow the Participant a direct or indirect election regarding the cancellation.  For purposes of the preceding sentence, “disability”
means any medically determinable physical or mental impairment resulting in the
Participant’s inability to perform the duties of the


 

















 


Participant’s position or any substantially similar position, where
such impairment can be expected to result in death or can be expected to last
for a continuous period of not less than six months.


 


ARTICLE
3


 


ACCOUNTS


 


3.1.                            Accounts.  RLI shall establish
and maintain a separate Account for each Participant.  The Account shall be for recordkeeping
purposes only and shall not represent a trust fund or other segregation of
assets for the benefit of the Participant. 
The balance of each Participant’s Account will be maintained in full and
fractional shares of RLI Stock.


 


3.2.                            Credits
to Accounts.  Each Participant’s
Account shall be credited from time to time as provided in this section.


 


3.2.1.                  Direct
Compensation Deferrals.  The amount
of each Direct Compensation cash payment or RLI Stock grant which the Participant
has elected to defer under the Plan shall be credited to the Participant’s
Account on, or as soon as administratively practicable after, the date it would
otherwise be provided to the Participant. 
Any cash amount shall be converted to RLI Stock credits, equal to the
number of full and fractional shares that could be purchased with such amount
on, or as soon as administratively feasible after, the date such amount is
credited to the Participant’s Account.


 


3.2.2.                  Dividends
and Other Adjustments.  The Participant’s
Account shall be credited with additional RLI Stock credits, equal to the
number of full and fractional shares of RLI Stock that could be purchased with
any cash dividends which would be payable on the RLI Stock credited to the
Participant’s Account.  For this
purposes, the share price on, or as soon as administratively practicable after,
the date the dividend is paid will be used. 
The Account also will be adjusted for any stock split, redemption or
similar event, in a manner determined to be reasonable by RLI.


 


3.3.                            Charges
to Accounts.  As of the date any Plan
benefit measured by the Account is paid to the Participant or the Participant’s
Beneficiary, the Account shall be charged with the amount of such benefit
payment.


 


ARTICLE 4


 


BENEFITS


 


4.1.                            Vesting.
 The
Participant’s Account shall be fully (100%) Vested.


 


4.2.                            Payment
of Plan Benefits on Termination of Service - General Rule.  If the Participant
has an Account balance at Termination of Service, RLI shall pay that balance to
the Participant in five (5) annual installments, as follows:


 


(a)                                  Time.  The first
installment shall be paid on the January 1 following the Year in which the
Participant’s Termination of Service occurs. 
The remaining installments shall be paid on each subsequent January 1.


 
















 


(b)                                 Amount.  The amount of
each installment shall be determined using a “fractional” method — by
multiplying the Participant’s Account balance immediately before the
installment payment date by a fraction, the numerator of which is one and the
denominator of which is the number of installments remaining (including the
installment in question).  The result
shall be rounded down to the next lower full share of RLI Stock, except for the
final installment, which shall be rounded up to the next higher full share of
RLI Stock.


 


4.3.                            Changing
Payment Elections.


 


4.3.1.                  General
Rule.  A Participant may elect to
change the number of annual installments the Participant receives under the
Plan to ten (10) or fifteen (15) installments, subject to the rules below.  Any such election must be made in such manner
and in accordance with such rules as may be prescribed for this purpose by
RLI (including by means of a voice response or other electronic system under
circumstances authorized by RLI).  The
installments shall commence on the date specified in Sec. 4.2(a), unless
otherwise postponed by this Article 4, and the amount of each installment
shall be determined under the fractional method described in Sec. 4.2(b).


 


4.3.2.                  Election
upon Initial Plan Enrollment.  An
election to extend the number of installments may be made as part of the
Participant’s initial enrollment in the Plan, as described in Sec. 2.3.


 


4.3.3.                  Subsequent
Election .  If a Participant did not
elect to extend the number of installments upon initial enrollment, or if the
Participant wants to further change the number of installments after becoming a
Participant, such Participant may elect to change the number of installments in
accordance with the following rules:


 


(a)                                  The
election must be received by RLI in writing and in proper form and must not take effect for at least 12 months from
the date on which it is submitted to RLI;


 


(b)                                 The election must be submitted to RLI at least
12 months prior to the specified date of distribution; and


 


(c)                                  The
commencement of installments must be delayed at least five (5) years from
the date payments would otherwise commence without this subsequent election.


 


4.4.                            Special
Rules.


 


4.4.1.                  Specified
Employee Exception.  If a Participant
becomes an Employee and subsequently has a “separation of service” (within the
meaning of Code § 409A(a)(2)(A)(i)), the initial installment (or lump-sum
payment, if applicable) shall be delayed to the extent necessary to comply with
Code § 409A(a)(2)(B)(i) or any regulations or other guidance issued
by the Treasury Department thereunder.


 


4.4.2.                  Cash-Out
of Small Amounts.  Any contrary
provision or election notwithstanding, if the Participant’s Account balance is
less than one hundred thousand dollars ($100,000) as of the date installments
are to commence, the Account shall be paid to the Participant in a single
lump-sum, as full settlement of all benefits due under the Plan; provided that,
for purposes of applying the one hundred thousand dollar ($100,000) cash-out
limit, all nonqualified deferred compensation amounts payable to


 

















 


the Participant by
RLI and its Affiliates shall be aggregated if and to the extent required under
Code § 409A or any regulations or other guidance issued by the Treasury
Department thereunder.


 


4.5.                            Medium
of Payments.  All
payments to a Participant shall be made in shares of RLI Stock.  Unless the shares have been registered under
the Securities Act of 1933 (the “Act”), are otherwise exempt from the
registration requirements of the Act, are the subject of a favorable no action
letter issued by the Securities and Exchange Commission, or are the subject of
an opinion of counsel acceptable to RLI to the effect that such shares are
exempt from the registration requirements of the Act, the certificates
representing such shares shall contain a legend precluding the transfer of such
shares except in accordance with the provisions of Rule 144 of the Act, as
the same may be amended from time to time.


 


4.6.                            Delay in Distributions.  A
payment under the Plan may be delayed by RLI under any of the following
circumstances so long as all payments to similarly situated Participants are
treated on a reasonably consistent basis:


 


(a)                                  RLI reasonably anticipates that if such
payment were made as scheduled, RLI’s deduction with respect to such payment
would not be permitted under Section 162(m) of the Code, provided
that the payment is made either during the first Plan Year in which RLI
reasonably anticipates, or should reasonably anticipate, that if the payment is
made during such year, the deduction of such payment will not be barred by
application of Section 162(m) or during the period beginning with the
date of the Participant’s Termination of Employment and ending on the later of
the last day of RLI’s fiscal year in which the Participant has a Termination of
Employment or the 15th day of
the third month following the Termination of Employment.


 


(b)                                 RLI reasonably anticipates that the making of
the payment will violate Federal securities laws or other applicable law,
provided that the payment is made at the earliest date at which RLI reasonably
anticipates that the making of the payment will not cause such violation.


 


(c)                                  Upon such other events as determined by RLI
and according to such terms as are consistent with Section 409A or are
prescribed by the Commissioner of Internal Revenue.


 


4.7                               Acceleration of Distributions.  RLI
may, in its discretion, distribute all or a portion of a Participant’s Accounts
at an earlier time and in a different form than specified as otherwise provided
in this Article 4, under the circumstances described below:


 


(a)                                  As may be necessary to fulfill a Domestic
Relations Order.  Distributions
pursuant to a Domestic Relations Order shall be made according to
administrative procedures established by RLI.


 


(b)                                 To the extent reasonably necessary to avoid
the violation of ethics laws or conflict of interest laws pursuant to Section 1.409A-3(j)(ii) of
the Treasury regulations.


 


(c)                                  To pay FICA on amounts deferred under the
Plan and the income tax resulting from such payment.


 


(d)                                 To pay the amount required to be included in
income as a result of the Plan’s failure to comply with Section 409A.


 


(e)                                  If
RLI determines, in its discretion, that it is advisable to liquidate the Plan
in connection with a termination of the Plan subject to the requirements of Section 409A.


 

















 


(f)                                    As satisfaction of a debt of the Participant
to an Affiliate, where such debt is incurred in the ordinary course of the
service relationship between the Affiliate and the Participant, the entire
amount of the reduction in any Plan Year does not exceed $5,000, and the
reduction is made at the same time and in the same amount as the debt otherwise
would have been due and collected from the Participant.


 


(g)                                 To pay state, local or foreign tax
obligations that may arise with respect to amounts deferred under the Plan and
the income tax resulting from such payment.


 


(h)                                 If the Participant has an unforeseeable
emergency.  For these purposes an “unforeseeable
emergency” is a severe financial hardship to the Participant, resulting from an
illness or accident of the Participant, the Participant’s spouse, the
Beneficiary, or the Participant’s dependent (as defined in Section 152,
without regard to Section 152(b)(1), (b)(2), and (d)(1)(B) of the
Code); loss of the Participant’s property due to casualty (including the need
to rebuild a home following damage to a home not otherwise covered by
insurance); or other similar extraordinary and unforeseeable circumstances
arising as a result of events beyond the control of the Participant.  For example, the imminent foreclosure of or
eviction from the Participant’s primary residence may constitute an
unforeseeable emergency.  In addition,
the need to pay for medical expenses, including non-refundable deductibles, as
well as for the cost of prescription drug medication, may constitute an
unforeseeable emergency.  Finally, the
need to pay for funeral expenses of a spouse, Beneficiary, or a dependent (as
defined in Section 152, without regard to 152(b)(1), (b)(2), and (d)(1)(B) of
the Code) may also constitute an unforeseeable emergency.  Except as otherwise provided in this
paragraph (h), the purchase of a home and the payment of college tuition are
not unforeseeable emergencies.  Whether a
Participant is faced with an unforeseeable emergency permitting a distribution
under this paragraph (h) is to be determined based on the relevant facts
and circumstances of each case, but, in any case a distribution on account of
an unforeseeable emergency may not be made to the extent that such emergency is
or may be relieved through reimbursement or compensation from insurance or
otherwise, by liquidation of the Participant’s assets, to the extent the
liquidation of such assets would not cause severe financial hardship, or by
cessation of Elective Deferrals.


 


Distributions because of an
unforeseeable emergency must be limited to the amount reasonably necessary to
satisfy the emergency need (which may include amounts necessary to pay any
Federal, state, local, or foreign income taxes or penalties reasonably
anticipated to result from the distribution). 
A determination of the amounts reasonably necessary to satisfy the
emergency need must take into account any additional compensation that is
available due to cancellation of the Participant’s election as a result of this
paragraph (h).


 


Notwithstanding anything in
this Section 4.7 to the contrary, except for a Participant’s election to
request a distribution due to an unforeseeable emergency under paragraph (h),
above (which the Participant, in the Participant’s discretion, may elect to
make or not make), RLI shall not provide the Participant with discretion or a
direct or indirect election regarding whether a payment is accelerated pursuant
to this Section 4.7.


 


4.8                               When
a Payment is Deemed to be Made.  Any payment that is due to be
distributed as of a particular date pursuant to the provisions of the Plan,
will be deemed to be distributed as of that date if it is distributed on such
date or a later date within the same calendar year, or, if later, by the 15th day of the third calendar month following the
date, and the Participant is not permitted, directly or indirectly, to
designate the calendar year of payment. 
Further, a payment will be treated as made on a date if it is made no
earlier than 30 days before the date, and the Participant is not permitted,
directly or indirectly, to


 





















 


designate the calendar year of payment.  For purposes of the foregoing, if the payment
is required to be made during a period of time, the specified date is treated
as the first day of the period of time.


 


ARTICLE 5


 


DEATH BENEFITS


 


5.1.                            Death
Benefits.


 


5.1.1.                  Benefits
When Participant Dies Before Commencement of Payments.  If the Participant dies before installments
commence, the Participant’s Account balance shall be paid to the Participant’s
Beneficiary as follows:


 


(a)                                  If
the Participant has made a valid election under Sec. 4.3, payments shall
be made in ten (10) or fifteen (15) annual installments, as elected by the
Participant.


 


(b)                                 Otherwise,
payments shall be made in five (5) annual installments.


 


The first
installment shall be paid on the January 1 following the Year in which the
Participant’s death occurs.  The
remaining installments shall be paid on each subsequent January 1.  The amount of each installment shall be
determined using the “fractional” method described in Sec. 4.2(b).


 


5.1.2.                  Benefits
When Participant Dies After Commencement of Payments.  If the Participant dies after installments
commence and the Participant has an Account balance at death, the remaining
Account balance shall be paid to the Participant’s Beneficiary in the same
manner as if the Participant were still living.


 


5.1.3.                  Medium
of Payments.  All payments to a
Beneficiary shall be made in shares of RLI Stock, subject to any legend
precluding transfer that is required under Sec. 4.5.


 


5.1.4.                  Cash-Out
of Small Amounts.  Any contrary
provision or election notwithstanding, if the amount payable to the Beneficiary
is less than one hundred thousand dollars ($100,000) as of the date
installments are to commence, the benefit shall be paid to the Beneficiary in a
single lump-sum, as full settlement of all benefits due under the Plan,
subject, however, to any limitation on such cash-out under Code § 409A or
any regulations or other guidance issued by the Treasury Department thereunder.


 


5.2.                            Designation
of Beneficiary.


 


5.2.1.                  Persons
Eligible to Designate.  Any
Participant may designate a Beneficiary to receive any amount payable under the
Plan as a result of the Participant’s death, provided that the Beneficiary
survives the Participant.  The
Beneficiary may be one or more persons, natural or otherwise.  By way of illustration, but not by way of
limitation, the Beneficiary may be an individual, trustee, executor, or
administrator.  A Participant may also
change or revoke a designation previously made, without the consent of any
Beneficiary named therein.


 


5.2.2.                  Form and
Method of Designation.  Any
designation or a revocation of a prior designation of Beneficiary shall be in
writing on a form acceptable to RLI and shall be filed with RLI.  RLI and all other parties involved in making
payment to a Beneficiary may rely on the latest Beneficiary designation on file


 

















 


with RLI at the
time of payment or may make payment pursuant to Sec. 5.2.3 if an effective
designation is not on file, shall be fully protected in doing so, and shall
have no liability whatsoever to any person making claim for such payment under
a subsequently filed designation of Beneficiary or for any other reason.


 


5.2.3.                  No
Effective Designation.  If there is
not on file with RLI an effective designation of Beneficiary by a deceased
Participant, the Beneficiary shall be the person or persons surviving the
Participant in the first of the following classes in which there is a survivor,
share and share alike:


 


(a)                                  The
Participant’s spouse.  (A “spouse” is a
person of the opposite sex to whom the Participant is legally married,
including a common-law spouse if the marriage was entered into in a state that
recognizes common-law marriages and RLI has received acceptable proof and/or
certification of common-law married status.)


 


(b)                                 The
Participant’s then living descendants, per stirpes.


 


(c)                                  The
individuals entitled to inherit the Participant’s property under the law of the
state in which the Participant resides immediately before the Participant’s
death, in the proportions determined under such law.


 


Determination of the identity of the Beneficiary in each case shall be
made by RLI.


 


5.2.4.                  Successor
Beneficiary.  If a Beneficiary who
survives the Participant subsequently dies before receiving the complete
payment to which the Beneficiary was entitled, the successor Beneficiary,
determined in accordance with the provisions of this section, shall be entitled
to the payments remaining.  The successor
Beneficiary shall be the person or persons surviving the Beneficiary in the
first of the following classes in which there is a survivor, share and share
alike:


 


(a)                                  The
Beneficiary’s spouse.  (A “spouse” is a
person of the opposite sex to whom the Beneficiary is legally married,
including a common-law spouse if the marriage was entered into in a state that
recognizes common-law marriages and RLI has received acceptable proof and/or
certification of common-law married status.)


 


(b)                                 The
Beneficiary’s then living descendants, per stirpes.


 


(c)                                  The
individuals entitled to inherit the Beneficiary’s property under the law of the
state in which the Beneficiary resides immediately before the Beneficiary’s
death, in the proportions determined under such law.


 


ARTICLE
6


 


PAYMENT
PROCEDURES


 


6.1.                            Application
for Benefits.  Benefits shall be paid
to Participants automatically (without a written request) at the time and in
the manner specified in the Plan. 
Benefits shall be paid to a Beneficiary upon RLI’s receipt of a written
request for the benefits, including appropriate proof of the Participant’s
death and the Beneficiary’s identity and right to payment.


 


6.2.                            Deferral
of Payment.  If
there is a dispute regarding a Plan benefit, RLI, in its sole discretion, may
defer payment of the benefit until the dispute has been resolved.


 

















 


ARTICLE
7


 


ADMINISTRATION


 


7.1.                            Administrator.  RLI shall be the administrator of the
Plan.  RLI shall control and manage the
administration and operation of the Plan and shall make all decisions and
determinations incident thereto.  Except
with respect to the ordinary day-to-day administration of the Plan, action on
behalf of RLI must be taken by one of the following:


 


(a)                                  The
Board; or


 


(b)                                 The
Nominating/Corporate Governance Committee of the Board.


 


7.1.1.                  Delegation.  The ordinary day-to-day administration of the
Plan may be delegated by the chief executive officer of RLI to an individual or
a committee.  Such individual or
committee shall have the authority to delegate or redelegate to one or more
persons, jointly or severally, such functions assigned to such individual or
committee as such individual or committee may from time to time deem advisable.


 


7.1.2.                  Automatic
Removal.  If any individual or
committee member to whom responsibility under the Plan is allocated is a
director, officer or employee of RLI or an Affiliate when responsibility is so
allocated, then such individual shall be automatically removed as a member of a
committee at the earliest time such individual ceases to be a director, officer
or employee of RLI or an Affiliate.  This
removal shall occur automatically and without any requirement for action by RLI
or any notice to the individual so removed.


 


7.1.3.                  Conflict of Interest.  If any individual or committee member to whom
responsibility under the Plan is allocated is also a Participant or
Beneficiary, such individual shall have no authority as such member with
respect to any matter specifically affecting such Participant or Beneficiary’s
individual interest hereunder (as distinguished from the interests of all
Participants and Beneficiaries or a broad class of Participants and
Beneficiaries), all such authority being reserved exclusively to the other
members to the exclusion of such Participant or Beneficiary, and such Participant
or Beneficiary shall act only in an individual capacity in connection with any
such matter.


 


7.1.4.                  Binding
Effect.  The
determination of the Board or the Nominating/Corporate Governance Committee of
the Board in any matter within its authority shall be binding and conclusive
upon RLI and all persons having any right or benefit under the Plan.


 


7.1.5.                  Third-Party
Service Providers.  RLI may from time
to time appoint or contract with an administrator, recordkeeper or other
third-party service provider for the Plan. 
Any such administrator, recordkeeper or other third-party service
provider will serve in a nondiscretionary capacity and will act in accordance
with directions given and procedures established by RLI.


 


7.2.                            Benefits
Not Transferable.  No Participant or Beneficiary shall
have the power to transmit, alienate, dispose of, pledge or encumber any
benefit payable under the Plan before its actual payment to the Participant or
Beneficiary.  Any such effort by a
Participant or Beneficiary to convey any interest in the Plan shall not be
given effect under the Plan.  No benefit
payable under the Plan shall be subject to


 

















 


attachment,
garnishment, execution following judgment or other legal process before its
actual payment to the Participant or Beneficiary.


 


7.3.                            Benefits
Not Secured.  The rights of each
Participant and Beneficiary shall be solely those of an unsecured, general
creditor of RLI.  No Participant or
Beneficiary shall have any lien, prior claim or other security interest in any
property of RLI.


 


7.4.                            RLI’s Obligations. 
RLI shall provide the benefits under the Plan.  RLI’s obligation may be satisfied by
distributions from a trust fund created and maintained by RLI, in its sole
discretion, for such purpose.  However,
the assets of any such trust fund shall be subject to claims by the general
creditors of RLI in the event RLI is (i) unable to pay its debts as they
become due, or (ii) is subject to a pending proceeding as a debtor under
the United States Bankruptcy Code.


 


7.5.                            Withholding
Taxes.  RLI shall have the right to
withhold (and transmit to the proper taxing authority) such federal, state or
local taxes as it may be required to withhold by applicable laws.  Such taxes may be withheld from any benefits
due under the Plan or from any other compensation to which the Participant is
entitled from RLI and its Affiliates.


 


7.6.                            Service of Process. 
The chief executive officer of RLI is designated as the appropriate and
exclusive agent for the receipt of service of process directed to the Plan in
any legal proceeding, including arbitration, involving the Plan.


 


7.7.                            Limitation
on Liability.  Neither RLI’s officers
nor any member of its Board nor any individual or committee to whom RLI
delegates responsibility under the Plan in any way secures or guarantees the
payment of any benefit or amount which may become due and payable hereunder to
or with respect to any Participant.  Each
Participant and other person entitled at any time to payments hereunder shall look
solely to the assets of RLI for such payments as an unsecured, general
creditor.  After benefits have been paid
to or with respect to a Participant and such payment purports to cover in full
the benefit hereunder, such former Participant or other person(s), as the case
may be, shall have no further right or interest in the other assets of RLI in
connection with the Plan.  Neither RLI
nor any of its officers nor any member of its Board nor any individual or
committee to whom RLI delegates responsibility under the Plan shall be under
any liability or responsibility for failure to effect any of the objectives or
purposes of the Plan by reason of the insolvency of RLI.


 


ARTICLE
8


 


AMENDMENT
AND TERMINATION


 


8.1.                            Amendment.  RLI reserves the power to amend the Plan
either prospectively or retroactively or both, in any respect, by action of its
Board; provided that, no amendment shall be
effective to reduce or divest benefits payable with respect to the Account of
any Participant or Beneficiary without consent. 
No amendment of the Plan shall be effective unless it is in writing and
signed on behalf of RLI by a person authorized to execute such writing.  No oral representation concerning the
interpretation or effect of the Plan shall be effective to amend the Plan.


 


8.2.                            Termination.  RLI reserves the right to terminate the Plan
at any time by action of its Board; provided that,
the termination of the Plan shall not reduce or divest benefits payable with
respect to the Account of any Participant or Beneficiary or negate the
Participant’s or Beneficiary’s rights with respect


 

















 


to such
benefits.  Any such termination will be
done in accordance with the requirements of Section 409A.


 


ARTICLE
9


 


MISCELLANEOUS


 


9.1.                            Effect
on Other Plans.  This Plan shall not
alter, enlarge or diminish any person’s rights or obligations under any other
benefit plan maintained by RLI or any Affiliate.


 


9.2.                            Effect
on Service.  Neither the terms of
this Plan nor the benefits hereunder nor the continuance thereof shall be a
term of the service of any Director.  RLI
shall not be obliged to continue the Plan. 
The terms of this Plan shall not give any Director the right to continue
serving as a member of the Board, nor shall it create any obligation on the
part of the Board to nominate any Director for reelection by RLI’s stockholders.


 


9.3.                            Disqualification.  Notwithstanding any other provision of the
Plan or any designation made under the Plan, any individual who feloniously and
intentionally kills a Participant shall be deemed for all purposes of the Plan
and all elections and designations made under the Plan to have died before such
Participant.  A final judgment of
conviction of felonious and intentional killing is conclusive for this
purpose.  In the absence of a conviction
of felonious and intentional killing, RLI shall determine whether the killing
was felonious and intentional for this purpose.


 


9.4.                            Rules of
Document Construction.  Whenever appropriate, words used
herein in the singular may be read in the plural, or words used herein in the
plural may be read in the singular; and the words “hereof,” “herein” or “hereunder”
or other similar compounds of the word “here” shall mean and refer to the
entire Plan and not to any particular article, section or paragraph of the Plan
unless the context clearly indicates to the contrary.  The titles given to the various articles and
sections of the Plan are inserted for convenience of reference only and are not
part of the Plan, and they shall not be considered in determining the purpose,
meaning or intent of any provision hereof. 
Written notification under the Plan shall include such other methods
(for example, facsimile or e-mail) as RLI, in its sole discretion, may
authorize from time to time.


 


9.5.                            References
to Laws.  Any reference in the Plan
to a statute shall be considered also to mean and refer to the applicable
regulations for that statute. Any reference in the Plan to a statute or
regulation shall be considered also to mean and refer to any subsequent
amendment or replacement of that statute or regulation.


 


9.6.                            Choice
of Law.  The
Plan has been executed in the State of Illinois and has been drawn in
conformity to the laws of that state and shall, except to the extent that
federal law is controlling, be construed and enforced in accordance with the
laws of the State of Illinois (without regard to its conflict of law
principles).


 


9.7.                            Binding
Effect.  The
Plan shall be binding upon and inure to the benefit of the successors and
assigns of RLI, and the Beneficiaries, personal representatives and heirs of
the Participant.


 

















 


IN WITNESS WHEREOF, RLI has
cause the Plan to be executed by its duly authorized officers as of  the
                
day of                             .


 


	
   

  	
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