Document:

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                             .

 

	
   

  	
  RLI CORP.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Its:

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  And

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Its:Exhibit 10.6

 

RLI CORP. EXECUTIVES

 

DEFERRED COMPENSATION
PLAN

 

(Restated as of January 1,
2009)

 

 

12/12/2008

 

 

RLI CORP. EXECUTIVES

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.

  	
  Base Salary

  	
  1

  
	
   

  	
   

  	
  1.3.4.

  	
  Beneficiary

  	
  2

  
	
   

  	
   

  	
  1.3.5.

  	
  Board

  	
  2

  
	
   

  	
   

  	
  1.3.6.

  	
  Chief Executive Officer

  	
  2

  
	
   

  	
   

  	
  1.3.7.

  	
  Code

  	
  2

  
	
   

  	
   

  	
  1.3.8.

  	
  Committee

  	
  2

  
	
   

  	
   

  	
  1.3.9.

  	
  Deferral Eligible
  Amounts

  	
  2

  
	
   

  	
   

  	
  1.3.10.

  	
  Employee

  	
  2

  
	
   

  	
   

  	
  1.3.11.

  	
  ERISA

  	
  2

  
	
   

  	
   

  	
  1.3.12.

  	
  Incentive Compensation

  	
  2

  
	
   

  	
   

  	
  1.3.13.

  	
  Participant

  	
  2

  
	
   

  	
   

  	
  1.3.14.

  	
  Performance-Based
  Compensation

  	
  2

  
	
   

  	
   

  	
  1.3.15.

  	
  Plan

  	
  3

  
	
   

  	
   

  	
  1.3.16.

  	
  Prior Agreement

  	
  3

  
	
   

  	
   

  	
  1.3.17.

  	
  RLI

  	
  3

  
	
   

  	
   

  	
  1.3.18.

  	
  RLI Stock

  	
  3

  
	
   

  	
   

  	
  1.3.19.

  	
  Specified Employee

  	
  3

  
	
   

  	
   

  	
  1.3.20.

  	
  Successor Corporation

  	
  3

  
	
   

  	
   

  	
  1.3.21.

  	
  Termination of
  Employment

  	
  3

  
	
   

  	
   

  	
  1.3.22.

  	
  Vested

  	
  4

  
	
   

  	
   

  	
  1.3.23.

  	
  Year

  	
  4

  
	
   

  	
  1.4.

  	
  “Top-Hat”
  Plan

  	
  4

  
	
   

  	
   

  	
   

  
	
  ARTICLE 2

  	
  PARTICIPATION

  	
  4

  
	
   

  	
  2.1.

  	
  Eligibility
  and Selection

  	
  4

  
	
   

  	
  2.2.

  	
  Notification

  	
  4

  
	
   

  	
  2.3.

  	
  Enrollment

  	
  4

  
	
   

  	
  2.4.

  	
  Elective
  Deferrals

  	
  5

  
	
   

  	
   

  	
  2.4.1.

  	
  Elections

  	
  5

  
	
   

  	
   

  	
  2.4.2.

  	
  Elections Relate to
  Services Performed After the Election and Are Irrevocable

  	
  5

  
	
   

  	
   

  	
  2.4.3.

  	
  Limits

  	
  6

  
	
   

  	
   

  	
   

  
	
  ARTICLE 3

  	
  ACCOUNTS

  	
  6

  
	
   

  	
  3.1.

  	
  Accounts

  	
  6

  
	
   

  	
  3.2.

  	
  Credits
  to Accounts

  	
  6

  
	
   

  	
   

  	
  3.2.1.

  	
  Elective Deferrals

  	
  6

  
	
   

  	
   

  	
  3.2.2.

  	
  Dividends and Other
  Adjustments

  	
  6

  

 

i

 

	
   

  	
  3.3.

  	
  Charges
  to Accounts

  	
  6

  
	
   

  	
   

  	
   

  
	
  ARTICLE 4

  	
  BENEFITS

  	
  6

  
	
   

  	
  4.1.

  	
  Vesting

  	
  6

  
	
   

  	
  4.2.

  	
  Payment
  of Plan Benefits on Termination of Employment - General Rule

  	
  7

  
	
   

  	
  4.3.

  	
  Changing
  Payment Elections

  	
  7

  
	
   

  	
   

  	
  4.3.1.

  	
  General Rule

  	
  7

  
	
   

  	
   

  	
  4.3.2.

  	
  Election upon Initial
  Plan Enrollment

  	
  7

  
	
   

  	
   

  	
  4.3.3.

  	
  Subsequent Election

  	
  7

  
	
   

  	
  4.4.

  	
  Special
  Rules

  	
  7

  
	
   

  	
   

  	
  4.4.1.

  	
  Specified Employee
  Exception

  	
  7

  
	
   

  	
   

  	
  4.4.2.

  	
  Cash-Out of Small
  Amounts

  	
  8

  
	
   

  	
  4.5.

  	
  Medium
  of Payments

  	
  8

  
	
   

  	
  4.6.

  	
  Delay
  in Distributions

  	
  8

  
	
   

  	
  4.7

  	
  Acceleration
  of Distributions

  	
  8

  
	
   

  	
  4.8

  	
  When a
  Payment is Deemed to be Made

  	
  10

  
	
   

  	
   

  	
   

  
	
  ARTICLE 5

  	
  DEATH BENEFITS

  	
  10

  
	
   

  	
  5.1.

  	
  Death
  Benefits

  	
  10

  
	
   

  	
   

  	
  5.1.1.

  	
  Benefits When
  Participant Dies Before Commencement of Payments

  	
  10

  
	
   

  	
   

  	
  5.1.2.

  	
  Benefits When
  Participant Dies After Commencement of Payments

  	
  10

  
	
   

  	
   

  	
  5.1.3.

  	
  Medium of Payments

  	
  10

  
	
   

  	
   

  	
  5.1.4.

  	
  Cash-Out of Small
  Amounts

  	
  10

  
	
   

  	
  5.2.

  	
  Designation
  of Beneficiary

  	
  10

  
	
   

  	
   

  	
  5.2.1.

  	
  Persons Eligible to
  Designate

  	
  10

  
	
   

  	
   

  	
  5.2.2.

  	
  Form and Method of
  Designation

  	
  11

  
	
   

  	
   

  	
  5.2.3.

  	
  No Effective
  Designation

  	
  11

  
	
   

  	
   

  	
  5.2.4.

  	
  Successor Beneficiary

  	
  11

  
	
   

  	
   

  	
   

  
	
  ARTICLE 6

  	
  CLAIMS AND REVIEW PROCEDURES

  	
  12

  
	
   

  	
  6.1.

  	
  Application
  for Benefits

  	
  12

  
	
   

  	
  6.2.

  	
  Claims
  and Review Procedures

  	
  12

  
	
   

  	
   

  	
  6.2.1.

  	
  Initial Claim

  	
  12

  
	
   

  	
   

  	
  6.2.2.

  	
  Notice of Initial
  Adverse Determination

  	
  12

  
	
   

  	
   

  	
  6.2.3.

  	
  Request for Review

  	
  12

  
	
   

  	
   

  	
  6.2.4.

  	
  Claim on Review

  	
  13

  
	
   

  	
   

  	
  6.2.5.

  	
  Notice of Adverse
  Determination for Claim on Review

  	
  13

  
	
   

  	
  6.3.

  	
  Claims
  Rules

  	
  13

  
	
   

  	
  6.4.

  	
  Deadline
  to File Claim

  	
  14

  
	
   

  	
  6.5.

  	
  Exhaustion
  of Administrative Remedies

  	
  14

  
	
   

  	
  6.6.

  	
  Arbitration

  	
  14

  
	
   

  	
  6.7.

  	
  Deadline
  to File an Arbitration Action

  	
  15

  
	
   

  	
  6.8.

  	
  Knowledge
  of Fact by Participant Imputed to Beneficiary

  	
  15

  
	
   

  	
  6.9.

  	
  Deferral
  of Payment

  	
  15

  
	
   

  	
   

  	
   

  
	
  ARTICLE 7

  	
  ADMINISTRATION

  	
  15

  
	
   

  	
  7.1.

  	
  Administrator

  	
  15

  
	
   

  	
   

  	
  7.1.1.

  	
  Delegation

  	
  15

  
	
   

  	
   

  	
  7.1.2.

  	
  Automatic Removal

  	
  15

  
	
   

  	
   

  	
  7.1.3.

  	
  Conflict of Interest

  	
  16

  

 

ii

 

	
   

  	
   

  	
  7.1.4.

  	
  Binding Effect

  	
  16

  
	
   

  	
   

  	
  7.1.5.

  	
  Third-Party Service
  Providers

  	
  16

  
	
   

  	
  7.2.

  	
  Benefits
  Not Transferable

  	
  16

  
	
   

  	
  7.3.

  	
  Benefits
  Not Secured

  	
  16

  
	
   

  	
  7.4.

  	
  RLI’s
  Obligations

  	
  16

  
	
   

  	
  7.5.

  	
  Withholding
  Taxes

  	
  16

  
	
   

  	
  7.6.

  	
  Service
  of Process

  	
  16

  
	
   

  	
  7.7.

  	
  Limitation
  on Liability

  	
  16

  
	
   

  	
   

  	
   

  
	
  ARTICLE 8

  	
  AMENDMENT AND TERMINATION

  	
  17

  
	
   

  	
  8.1.

  	
  Amendment

  	
  17

  
	
   

  	
  8.2.

  	
  Termination

  	
  17

  
	
   

  	
   

  	
   

  
	
  ARTICLE 9

  	
  MISCELLANEOUS

  	
  17

  
	
   

  	
  9.1.

  	
  Effect
  on Other Plans

  	
  17

  
	
   

  	
  9.2.

  	
  Effect
  on Employment

  	
  17

  
	
   

  	
  9.3.

  	
  Disqualification

  	
  17

  
	
   

  	
  9.4.

  	
  Rules of
  Document Construction

  	
  17

  
	
   

  	
  9.5.

  	
  References
  to Laws

  	
  18

  
	
   

  	
  9.6.

  	
  Choice
  of Law

  	
  18

  
	
   

  	
  9.7.

  	
  Binding
  Effect

  	
  18

  

 

iii

 

RLI CORP. EXECUTIVES

DEFERRED COMPENSATION PLAN

 

ARTICLE 1

 

INTRODUCTION

 

1.1.                            Establishment.  RLI 
established the RLI Corp. Executives Deferred Compensation Plan
effective January 1, 2005.  Prior to
that date, RLI provided similar deferred compensation opportunities to a select
group of executives 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 executives 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                     Base
Salary — the Participant’s total salary and wages from all Affiliates,
including any amount that would be included in the definition of Base Salary
but for the individual’s election to defer some of such Participant’s salary
pursuant to the Plan or any other deferred compensation plan established by an
Affiliate; but excluding disability pay and any other remuneration paid by
Affiliates, such as overtime, incentive compensation, stock options,
distributions of compensation previously deferred, restricted stock, allowances
for expenses (including moving, travel expenses, and automobile allowances),
and fringe benefits whether payable in cash or in a form other than cash.  In the case of an individual in a plan
sponsored by an Affiliate that is described in Section 401(k), 125 or 132(f) of
the Code, the term Base Salary shall include any amount that would be included
in the definition of Base

 

1

 

Salary but for the individual’s election to reduce such individual’s
salary and have the amount of the reduction contributed to or used to purchase
benefits under such plan.

 

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

 

1.3.5.                  Board — the
Board of Directors of RLI.

 

1.3.6.                  Chief
Executive Officer — the Chief Executive Officer of RLI.

 

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

 

1.3.8.                  Committee
— the Executive Resources Committee of the Board.

 

1.3.9.                  Deferral
Eligible Amounts —with respect to a Participant for any period, means the
sum of such Participant’s Base Salary and Incentive Compensation for such
period.

 

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

 

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

 

1.3.12.           Incentive
Compensation — the total remuneration of the Participant of the Participant
from all Affiliates under the various incentive compensation programs
maintained by Affiliates, including, but not limited to, amounts received under
the Market Value Potential (“MVP”) Executive Incentive Program and the Underwriting
Profit Program (“UPP”), but excluding any other type of remuneration paid by
Affiliates, such as Base Salary, overtime, stock options, distributions of
compensation previously deferred, restricted stock, allowances for expenses,
and fringe benefits.  The Committee, from
time to time, shall designate those items of a Participant’s Compensation
deemed to be Incentive Compensation.

 

1.3.13.           Participant
— an eligible Employee who enrolls as a Participant in the Plan under Sec.
2.3.  An Employee who becomes a
Participant shall remain a Participant in the Plan until the earlier of the
following:

 

(a)                                  The
complete payment of the Participant’s Account balance after the Participant’s
Termination of Employment; or

 

(b)                                 The
Participant’s death.

 

1.3.14.           Performance-Based
Compensation —the Incentive Compensation of the Participant for a period
where the amount of, or entitlement to, the Incentive Compensation is
contingent on the satisfaction of pre-established organizational or individual
performance criteria relating to a performance period of at least 12
consecutive months.  Organizational or
individual performance criteria are considered pre-established if established
in writing by no later than 90 days of the commencement period of service to
which the criteria relate, provided that the outcome is substantially uncertain
at the time the criteria are established. 
Performance-Based Compensation may include payment based on performance
criteria that are not approved by the Board or the Compensation Committee of
the Board or by the stockholders of the Company.  Performance-Based Compensation does not
include any amount or portion

 

2

 

of any amount that
will be paid either regardless of performance, or based upon a level of
performance that is substantially certain to be met at the time the criteria
are established.

 

1.3.15.           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. Executives Deferred Compensation
Plan.”

 

1.3.16.           Prior
Agreement — an individual agreement entered into by an Employee and RLI to
provide deferred compensation opportunities to the Employee.

 

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

 

1.3.18.           RLI
Stock — the common stock of RLI.

 

1.3.19.           Specified
Employee — means an employee of an
Affiliate who is subject to the six-month delay rule described in Section 409A(2)(B)(i) of
the Code.  RLI shall establish a written
policy for identifying Specified Employees in a manner consistent with Section 409A,
which policy may be amended by RLI from time to time as permitted by Section 409A.

 

1.3.20.           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.

 

1.3.21.           Termination
of Employment —with respect to a
Participant, means the Participant’s separation from service with all
Affiliates, within the meaning of Section 409A(a)(2)(A)(i) of the
Code and the regulations under such section. 
Solely for this purpose, a Participant who is an eligible Employee will
be considered to have a Termination of Employment when the Participant dies,
retires, or otherwise has a termination of employment with all Affiliates.  The employment relationship is treated as
continuing intact while the Participant is on military leave, sick leave, or
other bona fide leave of absence if the period of such leave does not exceed
six months, or if longer, so long as the individual retains a right to
reemployment with an Affiliate under an applicable statute or by contract.  For purposes hereof, a leave of absence
constitutes a bona fide leave of absence only if there is a reasonable
expectation that the Participant will return to perform services for an
Affiliate.  If the period of leave
exceeds six months and the individual does not retain a right to reemployment
under an applicable statute or by contract, the employment relationship is
deemed to terminate on the first date immediately following such six-month
period.  Notwithstanding the foregoing,
where a leave of absence is due to any medically determinable physical or
mental impairment that can be expected to last for a continuous period of not
less than six months, where such impairment causes the employee to be unable to
perform the duties of such employee’s position of employment or any
substantially similar position of employment, RLI may substitute a 29-month
period of absence for such six-month period.

 

Whether a termination of employment has
occurred is determined based on whether the facts and circumstances indicate
that the Affiliate and the Participant reasonably anticipated that no further
services will be performed after a certain date or that the level of bona fide
services the Participant will perform after such date will permanently decrease
to no more than 49 percent of the average level of bona fide services performed
over the immediately preceding 36-month period (or the full period of services
if the Participant has been providing services for less than 36 months).

 

3

 

Notwithstanding anything in Section 1.3.2
to the contrary, in determining whether a Participant has had a Termination of
Employment with an Affiliate, an entity’s status as an “Affiliate” shall be
determined substituting “50 percent” for “80 percent” each place it appears in Section 1563(a)(1),(2),
and (3) and in Treasury Regulation Section 1.414(c)-2.

 

RLI shall have discretion to determine
whether a Participant has experienced a Termination of Employment in connection
with an asset sale transaction entered into by RLI or an Affiliate, provided
that such determination conforms to the requirements of Section 409A and
the regulations and other guidance issued under such section, in which case RLI’s
determination shall be binding on the Participant.

 

1.3.22.           Vested
— nonforfeitable.

 

1.3.23.           Year
— the calendar year.

 

1.4.                            “Top-Hat”
Plan.  The Plan is intended to be a “top-hat”
plan — that is, an unfunded plan maintained primarily for the purpose of
providing deferred compensation for a select group of management or highly
compensated individuals within the meaning of ERISA §§ 201(2), 301(a)(3) and
401(a)(1), which is exempt from Parts 2, 3 and 4 of Title I of ERISA.  The Plan also 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
and Selection.  The following
Employees shall be eligible to enroll as Participants in the Plan:

 

(a)                                  Employees
with the titles:  Chairman of the Board,
Chief Executive Officer, President and Senior Vice President; and

 

(b)                                 Such
other Employees as the Committee, in its sole discretion, shall determine from
time to time, provided that each such Employee must;

 

(1)                                  Have
the title of Vice President or above, and

 

(2)                                  Be
expected to have compensation in excess of the Code § 401(a)(17) limit in
the Participant’s initial Year of eligibility.

 

2.2.                            Notification.  RLI shall provide each eligible Employee with
(i) written notification of the Employee’s eligibility to participate in
the Plan, and (ii) either copy of the Plan or written notification that
such a copy is available upon request.

 

2.3.                            Enrollment.  An eligible Employee will be allowed to
enroll in the Plan during the thirty (30) day period coinciding with and
following the date the Employee is notified of the Employee’s eligibility to
participate in accordance with Sec. 2.2. 
Such an enrollment will be effective as of the date it is made.

 

4

 

Thereafter, an eligible
Employee 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).

 

2.4.                            Elective
Deferrals.

 

2.4.1.                  Elections.  A Participant may elect to reduce Deferral
Eligible Amounts by any dollar amount or whole percent, but not more than
one-hundred percent (100%).  A separate reduction
amount or percentage may apply to base compensation and to bonuses.  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. 2.3.

 

2.4.2.                  Elections Relate
to Services Performed After the Election and Are Irrevocable.  An election will apply to all Deferral
Eligible Amounts attributable to services performed in a given Year, regardless
of when such Deferral Eligible Amounts would otherwise be payable to the
Participant (for example, an election to defer a bonus 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
Deferral Eligible Amounts earned after the election is made, and not
before.  For example, an election
made in connection with a mid-year enrollment under Sec. 2.3 will only be
effective for Deferral Eligible Amounts attributable to services performed on
and after the effective date of the enrollment as provided in Sec. 2.3.  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.

 

Notwithstanding
the foregoing, elections for Incentive Compensation that is Performance-Based
Compensation must be completed and submitted to the Company not later than six
months before the end of the performance period for the Incentive Compensation;
provided, however, that in order for such an election to be valid, the a
Participant must perform services continuously from the beginning of the
performance period (or the date the performance criteria are established, if
later) through the date the election is entered into, and provided further,
that in no event may an election be effective to defer Incentive Compensation
after the Incentive Compensation has become reasonably ascertainable.  For purposes hereof, if Incentive
Compensation is a specific or calculable amount, the Incentive Compensation is
readily ascertainable if and when the amount is first substantially certain to
be paid.  If Incentive Compensation is
not a specific or calculable amount, the Incentive Compensation, or any portion
thereof, is readily ascertainable when the amount is both calculable and
substantially certain to be paid.  Accordingly,
in general, any minimum amount that is both calculable and substantially
certain to be paid will be treated as readily ascertainable.

 

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 4.7(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

 

5

 

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 required by 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.

 

                                                2.4.3.                  Limits.  RLI may, in its sole discretion, limit
the minimum or maximum amount of deferrals that are allowed under the Plan by
any Participant or any group of Participants, provided that such limit is
established prior to the beginning of the Year or prior to enrollment of the
affected Participant.

 

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.                  Elective
Deferrals.  Each Deferral Eligible
Amount 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 paid to the Participant.  The 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.

 

6

 

4.2.                            Payment
of Plan Benefits on Termination of Employment - General Rule.  If the Participant has an Account balance
at Termination of Employment, 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 Employment 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 individual 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
is a Specified Employee, the Participant’s initial installment (or lump-sum
payment, if applicable) shall be delayed to the later of the January 1 following the Year in which the
Participant’s Termination of Employment occurs or the first

 

7

 

day of the seventh month following the
Participant’s Termination of Employment. 
This delay shall not apply in the event of the Participant’s death.  Any remaining annual installments shall be
paid as described in Sec. 4.2(a) and Sec. 5.1.

 

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.

 

8

 

(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

 

9

 

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. 4.4, 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. 4.3(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. 4.6.

 

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

 

10

 

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.

 

Notwithstanding
any provision of this Sec. 5.2 to the contrary, any Beneficiary designation
made under the Prior Agreements will continue in effect under this Plan until
modified by the Participant pursuant to this Sec. 5.2.

 

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
Participant’s estate.

 

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
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
Participant’s estate.

 

11

 

ARTICLE
6

 

CLAIMS
AND REVIEW 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.  This written request shall be considered a
claim for the purposes of this article.

 

6.2.                            Claims
and Review Procedures.  The claims
and review procedures set forth in this article shall be the mandatory claims
and review procedures for the resolution of disputes and disposition of claims
filed under the Plan.

 

6.2.1.                  Initial
Claim.  An individual may, subject to
any applicable deadline, file with the Committee a written claim for benefits
under the Plan in a form and manner prescribed by RLI.

 

(a)                                  If
the claim is denied in whole or in part, the Committee shall notify the
claimant of the adverse benefit determination within ninety (90) days after
receipt of the claim.

 

(b)                                 The
ninety (90) day period for making the claim determination may be extended for
ninety (90) days if the Committee determines that special circumstances require
an extension of time for determination of the claim, provided that the
Committee notifies the claimant, prior to the expiration of the initial ninety
(90) day period, of the special circumstances requiring an extension and the
date by which a claim determination is expected to be made.

 

6.2.2.                  Notice
of Initial  Adverse Determination.  A notice of an adverse determination shall
set forth in a manner calculated to be understood by the claimant:

 

(a)                                  The
specific reasons for the adverse determination;

 

(b)                                 References
to the specific provisions of the Plan (or other applicable document) on which
the adverse determination is based;

 

(c)                                  A
description of any additional material or information necessary to perfect the
claim and an explanation of why such material or information is necessary; and

 

(d)                                 A
description of the claims review procedures, including the time limits
applicable to such procedures.

 

6.2.3.                  Request
for Review.  Within ninety (90) days
after receipt of an initial adverse benefit determination notice, the claimant
may file with the Board a written request for a review of the adverse
determination and may, in connection therewith submit written comments,
documents, records and other information relating to the claim benefits.  Any request for review of the initial adverse
determination not filed within ninety (90) days after receipt of the initial
adverse determination notice shall be untimely.

 

12

 

6.2.4.                  Claim
on Review.  If the claim, upon
review, is denied in whole or in part, the Board shall notify the claimant of
the adverse benefit determination within sixty (60) days after receipt of such
a request for review.

 

(a)                                  The
sixty (60) day period for deciding the claim on review may be extended for
sixty (60) days if the Board determines that special circumstances require an
extension of time for determination of the claim, provided that the Board
notifies the claimant, prior to the expiration of the initial sixty (60) day
period, of the special circumstances requiring an extension and the date by
which a claim determination is expected to be made.

 

(b)                                 In
the event that the time period is extended due to a claimant’s failure to
submit information necessary to decide a claim on review, the claimant shall
have sixty (60) days within which to provide the necessary information and the
period for making the claim determination on review shall be tolled from the
date on which the notification of the extension is sent to the claimant until
the date on which the claimant responds to the request for additional
information or, if earlier, the expiration of sixty (60) days.

 

(c)                                  The
Board’s review of a denied claim shall take into account all comments,
documents, records, and other information submitted by the claimant relating to
the claim, without regard to whether such information was submitted or
considered in the initial benefit determination.

 

6.2.5.                  Notice
of Adverse Determination for Claim on Review.  A notice of an adverse determination for a
claim on review shall set forth in a manner calculated to be understood by the
claimant:

 

(a)                                  The
specific reasons for the denial;

 

(b)                                 References
to the specific provisions of the Plan (or other applicable document) on which
the adverse determination is based; and

 

(c)                                  A
statement that the claimant is entitled to receive, upon request and free of
charge, reasonable access to, and copies of, all documents, records, and other
information relevant to the claimant’s claim for benefits.

 

6.3.                            Claims
Rules.

 

(a)                                  No
inquiry or question shall be deemed to be a claim or a request for a review of
a denied claim unless made in accordance with the established claims and review
procedures.  RLI may require that any
claim for benefits and any request for a review of a denied claim be filed on
forms to be furnished by RLI upon request.

 

(b)                                 All
decisions on claims and on requests for a review of denied claims shall be made
by RLI.

 

(c)                                  Claimants
may be represented by a lawyer or other representative at their own expense,
but RLI reserves the right to (i) require the claimant to furnish written
authorization and (ii) establish reasonable procedures for determining
whether an individual has been

 

13

 

authorized to act on behalf of a claimant.  A claimant’s representative shall be entitled
to copies of all notices given to the claimant.

 

(d)                                 The
decision of RLI on a claim and on a request for a review of a denied claim may
be provided to the claimant in electronic form instead of in writing at the
discretion of RLI.

 

(e)                                  In
connection with the review of a denied claim, the claimant or the claimant’s
representative shall be provided, upon request and free of charge, reasonable
access to, and copies of, all documents, records, and other information
relevant to the claimant’s claim for benefits.

 

(f)                                    The
time period within which a benefit determination will be made shall begin to
run at the time a claim or request for review is filed in accordance with the
claims and review procedures, without regard to whether all the information
necessary to make a benefit determination accompanies the filing.

 

(g)                                 The
claims and review procedures shall be administered with appropriate safeguards
so that benefit claim determinations are made in accordance with governing Plan
documents and, where appropriate, the Plan provisions have been applied
consistently with respect to similarly situated claimants.

 

(h)                                 For
the purpose of this article, a document, record, or other information shall be
considered “relevant” if such document, record, or other information:  (i) was relied upon in making the
benefit determination; (ii) was submitted, considered, or generated in the
course of making the benefit determination, without regard to whether such
document, record, or other information was relied upon in making the benefit
determination; or (iii) demonstrates compliance with the administration
processes and safeguards designed to ensure that the benefit claim
determination was made in accordance with governing Plan documents and that,
where appropriate, the Plan provisions have been applied consistently with
respect to similarly situated claimants.

 

(i)                                     RLI
may, in its discretion, rely on any applicable statute of limitation or
deadline as a basis for denial of any claim.

 

6.4.                            Deadline
to File Claim.  To be considered
timely under the Plan’s claims and review procedures, a claim must be filed
with the Committee within one (1) year after the claimant knew or
reasonably should have known of the principal facts upon which the claim is
based.

 

6.5.                            Exhaustion
of Administrative  Remedies.  The exhaustion of the claims and review
procedures is mandatory for resolving every claim and dispute arising under the
Plan.  As to such claims and disputes no
claimant shall be permitted to commence an arbitration action to recover Plan
benefits or to enforce or clarify rights under the Plan or under any provision
of the law, whether or not statutory, until the claims and review procedures
set forth herein have been exhausted in their entirety.

 

6.6.                            Arbitration.  Any claim, dispute or other matter in
question of any kind relating to the Plan which is not resolved by the claims
and review procedures shall be settled by arbitration in accordance with the
Federal Arbitration Act 9 U.S.C. §1, et seq. 
Notice of demand for arbitration must be made in writing to the opposing
party within the time period specified in Sec. 6.7.  In no event will a demand for arbitration be
made after the date when the applicable statute of limitations would bar the
institution of a

 

14

 

legal or equitable
proceeding based on such claim, dispute or other matter in question.  The decision of the arbitrator(s) will
be final and may be enforced in any court of competent jurisdiction.  The arbitrator(s) may award reasonable
fees and expenses to the prevailing party in any dispute hereunder and will
award reasonable fees and expenses in the event that the arbitrator(s) find
that the losing party acted in bad faith or with intent to harass, hinder or
delay the prevailing party in the exercise of its rights in connection with the
matter under dispute.  The arbitration
will take place in Peoria, Illinois, unless otherwise agreed by the parties.

 

6.7.                            Deadline
to File an Arbitration Action.  No
arbitration action to recover Plan benefits or to enforce or clarify rights
under the Plan under or under any provision of the law, whether or not
statutory, may be brought by any claimant on any matter pertaining to the Plan
unless the action is commenced before the earlier of:

 

(a)                                  Thirty (30)
months after the claimant knew or reasonably should have known of the principal
facts on which the claim is based, or

 

(b)                                 Six (6) months
after the claimant has exhausted the claims and review procedures.

 

6.8.                            Knowledge
of Fact by Participant Imputed to Beneficiary.  Knowledge of all facts that a Participant
knew or reasonably should have known shall be imputed to every claimant who is
or claims to be a Beneficiary of the Participant or otherwise claims to derive
an entitlement by reference to the Participant for the purpose of applying the
previously specified periods.

 

6.9.                            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
Committee.

 

7.1.1.                  Delegation.  The ordinary day-to-day administration of the
Plan may be delegated by the Chief Executive Officer 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 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.  This removal shall occur
automatically and without any requirement for action by RLI or any notice to
the individual so removed.

 

15

 

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, that individual or committee member shall have no authority as
such member with respect to any matter specifically affecting such individual’s
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 individual, 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, the Committee or the Chief Executive Officer 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, record keeper or other
third-party service provider for the Plan. 
Any such administrator, record keeper 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, including (but not limited to) FICA and FUTA 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 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

 

16

 

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 Employment.  Neither the terms of
this Plan nor the benefits hereunder nor the continuance thereof shall be a
term of the employment of any Employee. 
RLI shall not be obliged to continue the Plan.  The terms of this Plan shall not give any
Employee the right to be retained in the service of RLI or any Affiliate.

 

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

 

17

 

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                             .

 

	
   

  	
  RLI CORP.

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Its:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  And

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Its:

  	
   

  

 

18

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