Document:

Exhibit 10.2

 

RLI CORP. DIRECTOR AND OFFICER

INDEMNIFICATION AGREEMENT

 

THIS INDEMNIFICATION AGREEMENT
(this “Agreement”) is entered into
as of the             
day of                 ,
2006, by and between RLI Corp., an Illinois corporation (the “Company”), and                                     
(“Indemnitee”).

 

RECITALS

 

A.            The Company is aware
that competent and experienced persons are increasingly reluctant to serve or
continue serving as directors or officers of companies unless they are
protected by comprehensive liability insurance and adequate indemnification due
to the increased exposure to litigation costs and risks resulting from service
to such companies that often bear no relationship to the compensation of such
directors or officers.

 

B.            The statutes and
judicial decisions regarding the duties of directors and officers often fail to
provide directors and officers with adequate, reliable knowledge of the legal
risks to which they are exposed or the manner in which they are expected to
execute their fiduciary duties and responsibilities.

 

C.            The Company and the
Indemnitee recognize that plaintiffs often seek damages in such large amounts,
and the costs of litigation may be so great (whether or not the case is
meritorious), that the defense and/or settlement of such litigation can create
an extraordinary burden on the personal resources of directors and officers.

 

D.            The board of directors
of the Company has concluded that, to attract and retain competent and
experienced persons to serve as directors and officers of the Company, it is
not only reasonable and prudent but necessary to promote the best interests of
the Company and its stockholders for the Company to contractually indemnify its
directors and certain of its officers in the manner set forth herein, and to
assume for itself liability for expenses and damages in connection with claims
against such directors and officers in connection with their service to the
Company as provided herein.

 

E.             The Company desires
and has requested the Indemnitee to serve or continue to serve as a director
and/or officer of the Company, and the Indemnitee is willing to serve, or to
continue to serve, as a director and/or officer of the Company if the
Indemnitee is furnished the indemnity provided for herein by the Company.

 

NOW, THEREFORE, in
consideration of the foregoing premises and the mutual covenants and agreements
set forth below, the parties hereto, intending to be legally bound, hereby
agree as follows:

 

1.             Definitions. For purposes of this Agreement, the following
terms shall have the corresponding meanings set forth below.

 

 

“Claim” means a
claim or action asserted by a Person in a Proceeding or any other written
demand for relief in connection with or arising from an Indemnification Event.

 

“Company Action”
means a Proceeding in which a Claim has been brought by or in the name of the
Company to procure a judgment in its favor.

 

“Covered Entity”
means (i) the Company, (ii) any subsidiary of the Company or (iii) any
other Person for which Indemnitee is or was or may be deemed to be
serving, at the request of the Company or any subsidiary of the Company, as a
director, officer, employee, controlling person, agent or fiduciary.

 

“Disinterested Director”
means, with respect to any determination contemplated by this Agreement, any
Person who, as of the time of such determination, is a member of the Company’s
board of directors but is not a party to any Proceeding then pending with
respect to any Indemnification Event.

 

“ERISA” means
Employee Retirement Income Security Act of 1974, as amended, or any similar
Federal statute then in effect.

 

“Exchange Act” means
the Securities Exchange Act of 1934, as amended, or any similar Federal statute
then in effect.

 

“Expenses” means any
and all direct and indirect fees and costs, retainers, court costs, transcript
costs, fees of experts, witness fees, travel expenses, duplicating, printing
and binding costs, telephone charges, postage and delivery service fees and all
other disbursements or expenses of any type or nature whatsoever reasonably
incurred by Indemnitee (including, subject to the limitations set forth in Section 3(c) below, reasonable
attorneys’ fees) in connection with or arising from an Indemnification Event,
including, without limitation: (i) the investigation or defense of a
Claim; (ii) being, or preparing to be, a witness or otherwise
participating, or preparing to participate, in any Proceeding; (iii) furnishing,
or preparing to furnish, documents in response to a subpoena or otherwise in
connection with any Proceeding; (iv) any appeal of any judgment, outcome
or determination in any Proceeding (including, without limitation, any premium,
security for and other costs relating to any cost bond, supersedeas bond or any
other appeal bond or its equivalent); (v) establishing or enforcing any
right to indemnification under this Agreement (including, without limitation,
pursuant to Section 2(c) below),
Illinois law or otherwise, regardless of whether Indemnitee is ultimately
successful in such action, unless as a part of such action, a court of
competent jurisdiction over such action determines that each of the material
assertions made by Indemnitee as a basis for such action was not made in good
faith or was frivolous; (vi) Indemnitee’s defense of any Proceeding instituted
by or in the name of the Company under this Agreement to enforce or interpret
any of the terms of this Agreement (including, without limitation, costs and
expenses incurred with respect to Indemnitee’s counterclaims and cross-claims
made in such action); and (vii) any Federal, state, local or foreign taxes
imposed on Indemnitee as a result of the actual or deemed receipt of any
payments under this Agreement, including all interest, assessments and other
charges paid or payable with respect to such payments. For purposes of
clarification, Expenses shall not include Losses.

 

 

An “Indemnification
Event” shall be deemed to have occurred if Indemnitee was or is or
becomes, or is threatened to be made, a party to or witness or other
participant in, or was or is or becomes obligated to furnish or furnishes
documents in response to a subpoena or otherwise in connection with, any
Proceeding by reason of the fact that Indemnitee is or was or may be
deemed a director, officer, employee, controlling person, agent or fiduciary of
any Covered Entity, or by reason of any action or inaction on the part of
Indemnitee while serving in any such capacity (including, without limitation,
rendering any written statement that is a Required Statement or is made to
another officer or employee of the Covered Entity to support a Required
Statement).

 

“Independent Legal Counsel”
means an attorney or firm of attorneys designated by the Disinterested
Directors (or, if there are no Disinterested Directors, the Company’s board of
directors) that is experienced in matters of corporate law and neither
presently is, nor in the thirty-six (36) months prior to such designation has
been, retained to represent:  (i) the
Company or Indemnitee in any matter material to either such party, or (ii) any
other party to the Proceeding giving rise to a claim for indemnification
hereunder.

 

“Losses” means any
and all losses, claims, damages, liabilities, judgments, fines, penalties,
settlement payments, awards and amounts of any type whatsoever incurred by
Indemnitee in connection with or arising from an Indemnification Event. For
purposes of clarification, Losses shall not include Expenses.

 

“Organizational Documents”
means any and all organizational documents, charters or similar agreements or
governing documents, including, without limitation, (i) with respect to a
corporation, its articles of incorporation and bylaws, (ii) with respect
to a limited liability company, its operating agreement, and (iii) with
respect to a limited partnership, its partnership agreement.

 

“Proceeding” means
any threatened, pending or completed claim, action, suit, proceeding,
arbitration or alternative dispute resolution mechanism, investigation,
inquiry, administrative hearing or appeal or any other actual, threatened or
completed proceeding, whether brought in the right of a Covered Entity or
otherwise and whether of a civil (including intentional or unintentional tort
claims), criminal, administrative or investigative nature.

 

“Person” means an
individual, a partnership, a corporation, a limited liability company, an
association, a joint stock company, a trust, a joint venture, an unincorporated
organization or other enterprise or government or agency or political
subdivision thereof.

 

“Required Statement”
means a written statement of a Person that is required to be, and is, filed
with the SEC regarding the design, adequacy or evaluation of a Covered Entity’s
internal controls or disclosure controls and procedures or the accuracy,
sufficiency or completeness of reports or statements filed by a Covered Entity
with the SEC pursuant to federal law and/or administrative regulations,
including without limitation, the certifications contemplated by
Sections 302 and 906 of the Sarbanes-Oxley Act of 2002, as amended, or any
rule or regulation promulgated pursuant thereto.

 

 

“Reviewing Party”
means, with respect to any determination contemplated by this Agreement, any
one of the following:  (i) a
majority of the Disinterested Directors, even if such Persons would not
constitute a quorum of the Company’s board of directors; (ii) a committee
consisting solely of Disinterested Directors, even if such Persons would not
constitute a quorum of the Company’s board of directors, so long as such
committee was designated by a majority of the Disinterested Directors; (iii) Independent
Legal Counsel (in which case, any determination shall be evidenced by the
rendering of a written opinion); or (iv) in the absence of any
Disinterested Directors, the Company’s stockholders.

 

“SEC” means the
Securities and Exchange Commission.

 

“Securities Act”
means the Securities Act of 1933, as amended, or any similar Federal statute
then in effect.

 

2.             Indemnification.

 

(a)           Indemnification of
Losses and Expenses. If an Indemnification Event has occurred, then, subject
to Section 9 below, the
Company shall indemnify and hold harmless Indemnitee, to the fullest extent
permitted by law, against any and all Losses and Expenses, but only if the
Indemnitee acted in good faith and in a manner Indemnitee reasonably believed
to be in, or not opposed to, the best interests of the Company, and, with
respect to any criminal Proceeding, had no reasonable cause to believe
Indemnitee’s conduct was unlawful. The termination of any Proceeding by
judgment, order, settlement or conviction or on plea of nolo contendere, or its
equivalent, shall not, of itself, create a presumption that Indemnitee (i) did
not act in good faith and in a manner which Indemnitee reasonably believed to
be in, or not opposed to, the best interests of the Company, or (ii) with
respect to any criminal Proceeding, had reasonable cause to believe that
Indemnitee’s conduct was unlawful.

 

(b)           Limitation with
Respect to Company Actions. Notwithstanding the foregoing, the Company
shall not indemnify and hold harmless Indemnitee with respect to any Losses or
Expenses in connection with or arising from any Company Action as to which the
Indemnitee shall have been finally adjudged to be liable to the Company by a
court of competent jurisdiction due to Indemnitee’s negligence or misconduct in
the performance of the Indemnitee’s duties to the Company, unless, and then
only to extent that, any court in which such Company Action was brought shall
determine upon application that, despite the adjudication of liability, but in
view of all the circumstances of the case, the Indemnitee is fairly and
reasonably entitled to Expenses for such indemnification as such court shall
deem proper.

 

(c)           Advancement of
Expenses. The Company shall advance Expenses to or on behalf of Indemnitee
as soon as practicable, but in any event not later than 30 days after written
request therefor by Indemnitee, which request shall be accompanied by vouchers,
invoices or similar evidence documenting in reasonable detail the Expenses
incurred or to be incurred by Indemnitee. The Indemnitee hereby undertakes to
repay such amounts advanced only if, and to the extent that, it shall
ultimately be determined that Indemnitee is not entitled to be indemnified by
the Company as authorized by this Agreement.

 

 

(d)           Contribution. If,
and to the extent, the indemnification of Indemnitee provided for in Section 2(a) above for any reason
is held by a court of competent jurisdiction not to be permissible for
liabilities arising under Federal securities laws or ERISA, then the Company,
in lieu of indemnifying Indemnitee under this Agreement, shall contribute to
the amount paid or payable by Indemnitee as a result of such Losses or Expenses
(i) in such proportion as is appropriate to reflect the relative benefits
received by the Covered Entities and all officers, directors or employees of
the Covered Entities other than Indemnitee who are jointly liable with
Indemnitee (or would be if joined in such Proceeding), on the one hand, and
Indemnitee, on the other hand, or (ii) if the allocation provided by
clause (i) above is not permitted by applicable law, in such proportion as
is appropriate to reflect not only the relative benefits referred to in clause (i) above
but also the relative fault of the Covered Entities and all officers, directors
or employees of the Covered Entities other than Indemnitee who are jointly
liable with Indemnitee (or would be if joined in such Proceeding), on the one
hand, and the Indemnitee, on the other hand, in connection with the action or
inaction that resulted in such Losses or Expenses, as well as any other
relevant equitable considerations. The relative fault of the Covered Entities
and all officers, directors or employees of the Covered Entities other than
Indemnitee who are jointly liable with Indemnitee (or would be if joined in
such Proceeding), on the one hand, and Indemnitee, on the other hand, shall be
determined by reference to, among other things, the degree to which their
actions were motivated by intent to gain personal profit or advantage, the
degree to which their liability is primary or secondary, and the degree to
which their conduct is active or passive. No Person found guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was not
found guilty of such fraudulent misrepresentation.

 

3.             Indemnification Procedures.

 

(a)           Notice of
Indemnification Event. Indemnitee shall give the Company notice as soon as
practicable of any Indemnification Event of which Indemnitee becomes aware and
of any request for indemnification hereunder, provided that any failure to so
notify the Company shall not relieve the Company of any of its obligations
under this Agreement, except if, and then only to the extent that, such failure
increases the liability of the Company under this Agreement.

 

(b)           Notice to Insurers.
If, at the time the Company receives notice of an Indemnification Event
pursuant to Section 3(a) above,
the Company has liability insurance in effect which may cover such
Indemnification Event, the Company shall give prompt written notice of such
Indemnification Event to the insurers in accordance with the procedures set
forth in each of the applicable policies of insurance. The Company shall
thereafter take all necessary or desirable action to cause such insurers to
pay, on behalf of Indemnitee, all amounts payable as a result of such
Indemnification Event in accordance with the terms of such policies; provided
that nothing in this Section 3(b) shall
affect the Company’s obligations under this Agreement or the Company’s
obligations to comply with the provisions of this Agreement in a timely manner
as provided.

 

(c)           Selection of Counsel.
If the Company shall be obligated hereunder to pay or advance Expenses or
indemnify Indemnitee with respect to any Losses, the Company shall be entitled
to assume the defense of any related Claims, with counsel selected by the
Company. After the retention of such counsel by the Company, the Company will
not be liable to 

 

 

Indemnitee
under this Agreement for any fees of counsel subsequently incurred by
Indemnitee with respect to the defense of such Claims; provided that:  (i) Indemnitee shall have the right to
employ counsel in connection with any such Claim at Indemnitee’s expense; and (ii) if
(A) the employment of counsel by Indemnitee has been previously authorized
by the Company, (B) counsel for Indemnitee shall have provided the Company
with written advice that there is a conflict of interest between the Company
and Indemnitee in the conduct of any such defense, or (C) the Company
shall not continue to retain such counsel to defend such Claim, then the fees
and expenses of Indemnitee’s counsel shall be at the expense of the Company.

 

4.             Determination of Right to Indemnification.

 

(a)           Successful
Proceeding. To the extent Indemnitee has been successful, on the merits or
otherwise, in defense of any Proceeding referred to in Section 2(a) or 2(b), the Company shall indemnify
Indemnitee against Losses and Expenses incurred by him in connection therewith.
If Indemnitee is not wholly successful in such Proceeding, but is successful,
on the merits or otherwise, as to one or more but less than all Claims in such
Proceeding, the Company shall indemnify Indemnitee against all Losses and
Expenses actually or reasonably incurred by Indemnitee in connection with each
successfully resolved Claim.

 

(b)           Other Proceedings.
In the event that Section 4(a) is
inapplicable, the Company shall nevertheless indemnify Indemnitee, unless, but
then only to the extent that, a Reviewing Party chosen pursuant to Section 4(c) determines that
Indemnitee has not met the applicable standard of conduct set forth in Section 2(a) or 2(b), as applicable, as a condition to such
indemnification.

 

(c)           Reviewing Party
Determination. If, and to the extent, any applicable law requires the
determination that Indemnitee has met the applicable standard of conduct set
forth in Section 2(a) or
2(b), as applicable, as a
condition to any such indemnification, a Reviewing Party chosen by the Company’s
board of directors shall make such determination, subject to the following:

 

(i)            A
Reviewing Party so chosen shall act in the utmost good faith to assure
Indemnitee a complete opportunity to present to such Reviewing Party Indemnitee’s
case that Indemnitee has met the applicable standard of conduct.

 

(ii)           Indemnitee
shall be deemed to have acted in good faith if Indemnitee’s action is based on
the records or books of account of a Covered Entity, including, without
limitation, its financial statements, or on information supplied to Indemnitee
by the officers or employees of a Covered Entity in the course of their duties,
or on the advice of legal counsel for a Covered Entity or on information or
records given, or reports made, to a Covered Entity by an independent certified
public accountant or by an appraiser or other expert selected with reasonable
care by a Covered Entity. In addition, the knowledge and/or actions, or failure
to act, of any director, officer, agent or employee of a Covered Entity shall
not be imputed to Indemnitee for purposes of determining the right to
indemnification under this Agreement. Whether or not the foregoing provisions
of this Section 4(c)(ii) are
satisfied, it shall in any event be presumed that Indemnitee has at all times
acted in good faith and in a manner Indemnitee reasonably believed to be in or
not opposed to the best interests of the Company. Any 

 

 

Person seeking to overcome this
presumption shall have the burden of proof and the burden of persuasion, by
clear and convincing evidence.

 

(iii)          If
a Reviewing Party chosen pursuant to this Section 4(c) shall
not have made a determination whether Indemnitee is entitled to indemnification
within thirty (30) days after receipt by the Company of the request therefor,
the requisite determination of entitlement to indemnification shall be deemed
to have been made and Indemnitee shall be entitled to such indemnification,
absent (A) a misstatement by Indemnitee of a material fact, or an omission
of a material fact necessary to make Indemnitee’s statement not materially
misleading, in connection with the request for indemnification, or (B) a
prohibition of such indemnification under applicable law; provided, however,
that such 30 day period may be extended for a reasonable time, not to
exceed an additional fifteen (15) days, if the Reviewing Party in good faith
requires such additional time for obtaining or evaluating documentation and/or
information relating thereto; and provided, further, that the foregoing provisions
of this Section 4(c)(iii) shall
not apply if (I) the determination of entitlement to indemnification is to be
made by the stockholders of the Company, (II) a special meeting of stockholders
is called by the board of directors of the Company for such purpose within
thirty (30) days after the stockholders are chosen as the Reviewing Party,
(III) such meeting is held for such purpose within sixty (60) days after
having been so called, and (IV) such determination is made thereat.

 

(d)           Appeal to Court.
Notwithstanding a determination by a Reviewing Party chosen pursuant to Section 4(c) that Indemnitee is
not entitled to indemnification with respect to a specific Claim or Proceeding
(an “Adverse Determination”),
Indemnitee shall have the right to apply to the court in which that Claim or
Proceeding is or was pending or any other court of competent jurisdiction for
the purpose of enforcing Indemnitee’s right to indemnification pursuant to this
Agreement, provided that Indemnitee shall commence any such Proceeding seeking
to enforce Indemnitee’s right to indemnification within one (1) year
following the date upon which Indemnitee is notified in writing by the Company
of the Adverse Determination. In the event of any dispute between the parties
concerning their respective rights and obligations hereunder, the Company shall
have the burden of proving that the Company is not obligated to make the
payment or advance claimed by Indemnitee.

 

(e)           Presumption of
Success. The Company acknowledges that a settlement or other disposition
short of final judgment shall be deemed a successful resolution for purposes of
Section 4(a) if it
permits a party to avoid expense, delay, distraction, disruption or uncertainty.
In the event that any Proceeding to which Indemnitee is a party is resolved in
any manner other than by adverse judgment against Indemnitee (including,
without limitation, settlement of such Proceeding with or without payment of
money or other consideration), it shall be presumed that Indemnitee has been
successful on the merits or otherwise in such Proceeding. Anyone seeking to
overcome this presumption shall have the burden of proof and the burden of
persuasion, by clear and convincing evidence.

 

5.             Additional Indemnification
Rights; Non-exclusivity.

 

(a)           Scope. The Company hereby agrees to indemnify
Indemnitee to the fullest extent permitted by law, even if such indemnification
is not specifically authorized by the 

 

 

other
provisions of this Agreement or any other agreement, the Organizational
Documents of any Covered Entity or by applicable law. In the event of any
change after the date of this Agreement in any applicable law, statute or rule which
expands the right of an Illinois corporation to indemnify a member of its board
of directors or an officer, employee, controlling person, agent or fiduciary,
it is the intent of the parties hereto that Indemnitee shall enjoy by this
Agreement the greater benefits afforded by such change. In the event of any
change in any applicable law, statute or rule which narrows the right of
an Illinois corporation to indemnify a member of its board of directors or an
officer, employee, controlling person, agent or fiduciary, such change, to the
extent not otherwise required by such law, statute or rule to be applied
to this Agreement, shall have no effect on this Agreement or the parties rights
and obligations hereunder except as set forth in Section 9(a) hereof.

 

(b)           Non-exclusivity. The rights to indemnification,
contribution and advancement of Expenses provided in this Agreement shall not
be deemed exclusive of, but shall be in addition to, any other rights to which
Indemnitee may at any time be entitled under the Organizational Documents
of any Covered Entity, any other agreement, any vote of stockholders or
Disinterested Directors, the laws of the State of Illinois or otherwise. Furthermore,
no right or remedy herein conferred is intended to be exclusive of any other
right or remedy, and every other right and remedy shall be cumulative and in
addition to every other right and remedy given hereunder or now or hereafter
existing at law or in equity or otherwise. The assertion of any right or remedy
hereunder or otherwise shall not prevent the concurrent assertion of any other
right or remedy. The rights to indemnification, contribution and advancement of
Expenses provided in this Agreement shall continue as to Indemnitee for any
action Indemnitee took or did not take while serving in an indemnified capacity
even though Indemnitee may have ceased to serve in such capacity.

 

6.             No Duplication of Payments. The Company shall not be liable under this
Agreement to make any payment of any amount otherwise indemnifiable hereunder,
or for which advancement is provided hereunder, if and to the extent Indemnitee
has otherwise actually received such payment, whether pursuant to any insurance
policy, the Organizational Documents of any Covered Entity or otherwise.

 

7.             Mutual Acknowledgment. Both the Company and Indemnitee acknowledge
that, in certain instances, Federal law or public policy may override
applicable state law and prohibit the Company from indemnifying its directors
and officers under this Agreement or otherwise. For example, the Company and
Indemnitee acknowledge that the SEC has taken the position that indemnification
is not permissible for liabilities arising under certain Federal securities
laws, and Federal legislation prohibits indemnification for certain ERISA
violations. Indemnitee understands and acknowledges that the Company has
undertaken, or may be required in the future to undertake, with the SEC to
submit the question of indemnification to a court in certain circumstances for
a determination of the Company’s right under public policy to indemnify
Indemnitee, and any right to indemnification hereunder shall be subject to, and
conditioned upon, any such required court determination.

 

8.             Liability Insurance. To the extent the Company maintains liability
insurance applicable to directors, officers, employees, controlling persons,
agents or fiduciaries of any Covered Entity, Indemnitee shall be covered by
such policy or policies in such a manner as to provide Indemnitee the same
rights and benefits as are accorded to the most favorably insured of 

 

 

the Covered Entity’s directors, if Indemnitee is a director of such
Covered Entity, or of the Covered Entity’s officers, if Indemnitee is not a
director of such Covered Entity but is an officer of such Covered Entity, or of
the Covered Entity’s key employees, controlling persons, agents or fiduciaries,
if Indemnitee is not an officer or director but is a key employee, controlling
person, agent or fiduciary of such Covered Entity, as the case may be. The
Company shall advise Indemnitee as to the general terms of, and the amounts of
coverage provide by, any liability insurance policy described in this Section 8 and shall promptly notify
Indemnitee if, at any time, any such insurance policy will no longer be
maintained or the amount of coverage under any such insurance policy will be
decreased.

 

9.             Exceptions. Any other provision herein to the contrary
notwithstanding, the Company shall not be obligated pursuant to the terms of
this Agreement to indemnify Indemnitee:

 

(a)           against
any Losses or Expenses, or advance Expenses to Indemnitee, with respect to
Claims initiated or brought voluntarily by Indemnitee, and not by way of
defense (including, without limitation, affirmative defenses and
counter-claims), except (i) Claims to establish or enforce a right to
indemnification, contribution or advancement with respect to an Indemnification
Event, whether under this Agreement, any other agreement or insurance policy,
the Company’s Organizational Documents of any Covered Entity, the laws of the
State of Illinois or otherwise, or (ii) if the Company’s board of
directors has approved specifically the initiation or bringing of such Claim;

 

(b)           against
any Losses or Expenses, or advance Expenses to Indemnitee, with respect to
Claims arising (i) with respect to an accounting of profits made from the
purchase and sale (or sale and purchase) by Indemnitee of securities of the
Company within the meaning of Section 16(b) of the Exchange Act or (ii) pursuant
to Section 304 or 306 of the Sarbanes-Oxley Act of 2002, as amended, or
any rule or regulation promulgated pursuant thereto; or

 

(c)           if,
and to the extent, that a court of competent jurisdiction renders a final,
unappealable decision that such indemnification is not lawful.

 

10.          Miscellaneous.

 

(a)           Counterparts. This Agreement may be executed in
one or more counterparts, each of which shall constitute an original.

 

(b)           Binding Effect;
Successors and Assigns. This Agreement shall be binding upon and inure to
the benefit of and be enforceable by the parties hereto and their respective
successors and assigns (including with respect to the Company, any direct or
indirect successor by purchase, merger, consolidation or otherwise to all or
substantially all of the business and/or assets of the Company) and with
respect to Indemnitee, his or her spouse, heirs, and personal and legal
representatives. The Company shall require and cause any successor or assign
(whether direct or indirect, by purchase, merger, consolidation or otherwise)
to all, substantially all, or a substantial part, of the business and/or assets
of the Company, to assume and agree to perform this Agreement in the same
manner and to the same extent that the Company would be required to perform if
no such succession or assignment had taken place. This Agreement shall continue

 

 

in effect with
respect to Claims relating to Indemnification Events regardless of whether
Indemnitee continues to serve as a director, officer, employee, controlling
person, agent or fiduciary of any Covered Entity.

 

(c)           Notice. All
notices and other communications required or permitted hereunder shall be in
writing, shall be effective when given, and shall in any event be deemed to be
given (a) five (5) days after deposit with the U.S. Postal Service or
other applicable postal service, if delivered by first class mail, postage
prepaid, (b) upon delivery, if delivered by hand, (c) one (1) business
day after the business day of deposit with Federal Express or similar,
nationally recognized overnight courier, freight prepaid, or (d) one (1) business
day after the business day of delivery by confirmed facsimile transmission, if deliverable
by facsimile transmission, with copy by other means permitted hereunder, and
addressed, if to Indemnitee, to the Indemnitee’s address or facsimile number
(as applicable) as set forth beneath the Indemnitee’s signature to this
Agreement, or, if to the Company, at the address or facsimile number (as
applicable) of its principal corporate offices (attention:  Secretary),
or at such other address or facsimile number (as applicable) as such party may designate
to the other parties hereto.

 

(d)           Enforceability. This
Agreement is a legal, valid and binding obligation of the Company, enforceable
against the Company in accordance with its terms.

 

(e)           Consent to
Jurisdiction. The Company and Indemnitee each hereby irrevocably consent to
the jurisdiction and venue of the courts of the State of Illinois for all
purposes in connection with any Proceeding which arises out of or relates to
this Agreement and agree that any Proceeding instituted under this Agreement
shall be commenced, prosecuted and continued only in the courts of the State of
Illinois.

 

(f)            Severability. The
provisions of this Agreement shall be severable in the event that any of the
provisions hereof (including any provision within a single section, paragraph
or sentence) are held by a court of competent jurisdiction to be invalid, void
or otherwise unenforceable, and the remaining provisions shall remain
enforceable to the fullest extent permitted by law. Furthermore, to the fullest
extent possible, the provisions of this Agreement (including, without
limitation, each portion of this Agreement containing any provision held to be
invalid, void or otherwise unenforceable that is not itself invalid, void or
unenforceable) shall be construed so as to give effect to the extent manifested
by the provision held invalid, illegal or unenforceable.

 

(g)           Choice of Law. This
Agreement shall be governed by and its provisions shall be construed and
enforced in accordance with, the laws of the State of Illinois, without regard
to the conflict of laws principles thereof.

 

(h)           Subrogation. In
the event of payment under this Agreement, the Company shall be subrogated to
the extent of such payment to all of the rights of recovery of Indemnitee who
shall execute all documents required and shall do all acts that may be
necessary to secure such rights and to enable the Company effectively to bring
suit to enforce such rights.

 

(i)            Amendment and
Termination. No amendment, modification, termination or cancellation of
this Agreement shall be effective unless it is in a writing signed by the
parties 

 

 

to be bound
thereby. Notice of same shall be provided to all parties hereto. No waiver of
any of the provisions of this Agreement shall be deemed or shall constitute a
waiver of any other provisions hereof (whether or not similar) nor shall such
waiver constitute a continuing waiver.

 

(j)            No Construction as
Employment Agreement. Nothing contained in this Agreement shall be
construed as giving Indemnitee any right to be retained or continue in the
employ or service of any Covered Entity.

 

[remainder of page intentionally left
blank; signature page follows]

 

 

IN WITNESS WHEREOF,
the parties hereto have executed this Agreement on and as of the day and year
first above written.

 

	
   

  	
  COMPANY:

  
	
   

  	
   

  
	
   

  	
  RLI Corp.

  
	
   

  	
  an Illinois corporation

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  	
   

  	
   

  
	
   

  	
  Title:

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  INDEMNITEE:Exhibit
10.3

 

RLI CORP.

Omnibus Stock Plan

 

Non-Statutory Stock Option Agreement

 

	
  Name of
  Optionee:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Number of Shares
  Covered:

  	
   

  	
  Date of Grant:

  
	
   

  	
   

  	
   

  
	
  Exercise Price
  Per Share:

  	
   

  	
  Expiration Date:

  
	
   

  	
   

  	
   

  
	
  Exercise
  Schedule (Cumulative):

  	
   

  	
   

  

 

	
  Date(s) of

  Exercisability

  	
   

  	
  Number of Shares as to Which

  Option Becomes Exercisable

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  

 

This is a Non-Statutory
Stock Option Agreement (the “Agreement”)
between RLI Corp., an Illinois corporation (the “Company”),
and the optionee identified above (the “Optionee”) effective
as of the date of grant specified above.

 

Background

 

A.            The Company maintains the RLI Corp.
Omnibus Stock Plan (the “Plan”). Capitalized terms used but not otherwise
defined herein shall have the meaning set forth in the Plan.

 

B.            Under the Plan, the Executive
Resources Committee of the Board of Directors of the Company (the “Committee”) administers the Plan and has the authority to
determine the awards to be granted under the Plan.

 

C.            The Committee has determined that
the Optionee is eligible to receive an award under the Plan in the form of a
non-statutory stock option (the “Option”).

 

D.            The Company hereby grants the Option
to the Optionee under the terms and conditions as follows.

 

 

Terms and Conditions

 

1.                                      Grant.
The Optionee is granted the Option to purchase the number of shares of common
stock of the Company (the “Shares”)
specified at the beginning of this Agreement.

 

2.                                      Exercise Price. The price to the
Optionee of each Share subject to the Option will be the exercise price
specified at the beginning of this Agreement (which price shall not be less
than the Fair Market Value as of the date of grant).

 

3.                                      Non-Statutory Stock Option. The
Option is not intended to be an “incentive stock option” within the meaning of
Section 422 of the Internal Revenue Code of 1986, as amended (the “Code”).

 

4.                                      Exercise
Schedule. The Option will vest and become exercisable as to the number
of Shares and on the dates specified in the exercise schedule at the beginning
of this Agreement. The exercise schedule will be cumulative; thus, to the
extent the Option has not already been exercised and has not expired,
terminated or been cancelled, the Optionee or the person otherwise entitled to
exercise the Option as provided herein may at any time, and from time to time,
purchase all or any portion of the Shares then purchasable under the exercise
schedule.

 

The
Option may also be exercised in full (notwithstanding the exercise schedule)
under the circumstances described in Section 8 of this Agreement if it has
not expired prior thereto.

 

5.                                      Expiration.
The Option shall expire at 5:00 p.m. Central Time on the expiration date
specified at the beginning of this Agreement. In no event may anyone exercise
the Option, in whole or in part, after it has expired, notwithstanding any
other provision of this Agreement.

 

6.                                      Procedure
to Exercise Option.

 

Notice of
Exercise. The Option may be exercised by delivering written
notice of exercise to the Company at the principal executive office of the
Company, to the attention of the Company’s Secretary. The notice shall state
the number of Shares to be purchased, and shall be signed by the person
exercising the Option. If the person exercising the Option is not the Optionee,
he/she also must submit appropriate proof of his/her right to exercise the
Option. The Company may designate a third party to administer the option
program in which case the third part may receive any required notice.

 

Tender of
Payment. Upon giving notice of any exercise hereunder, the
Optionee shall provide for payment of the purchase price of the Shares being
purchased through one or a combination of the following methods:

 

(a)           Cash (including check, bank draft or
money order);

 

(b)           By delivery or tender to the Company
of unencumbered Shares having an aggregate Fair Market Value on the date of
exercise equal to the purchase price of the Shares acquired upon exercise; or

 

2

 

(c)           By directing a broker designated by
the Company to effect a broker assisted cashless exercise program to sell
Shares issued on exercise of the Option having an aggregate Fair Market Value
on the date of exercise equal to the purchase price of the Shares acquired upon
exercise and to remit the proceeds of the such sale to the Company.

 

Notwithstanding
the foregoing, the Optionee shall not be permitted to pay any portion of the
purchase price with Shares if the Committee, in its sole discretion, determines
that payment in such manner could have adverse financial accounting
consequences for the Company.

 

Delivery
of Certificates. As soon as practicable after the Company
receives the notice and purchase price provided for above, it shall deliver to
the person exercising the Option, in the name of such person, a certificate or
certificates representing the Shares being purchased; provided, however, that
the Company may deliver the Shares electronically in book-entry form. The
Company shall pay any original issue or transfer taxes with respect to the
issue or transfer of the Shares and all fees and expenses incurred by it in
connection therewith. All Shares so issued shall be fully paid and
nonassessable. Notwithstanding anything to the contrary in this Agreement, no
certificate for Shares distributable under the Plan shall be issued and
delivered unless the issuance of such certificate complies with all applicable
legal requirements including, without limitation, compliance with the
provisions of applicable state securities laws, the Securities Act and the
Exchange Act.

 

Withholding
Taxes. Optionee is responsible for payment of any federal,
state, local or other taxes which must be withheld upon the exercise of the
Option, and Optionee must promptly pay to the Company any such taxes. The
Company and its subsidiaries are authorized to deduct from any payment owed to
Optionee any taxes required to be withheld with respect to the Shares,
including social security and Medicare (FICA) taxes and federal, state and
local income tax with respect to income arising from the exercise of the Option.
The Company shall have the right to require the payment of any such taxes
before issuing any Shares pursuant to an exercise of the Option. In lieu of all
or any part of a cash payment, Optionee may elect to have a portion of the
Shares otherwise issuable upon exercise of the Option withheld by the Company
to satisfy withholding tax requirements (based on the minimum supplemental wage
withholding rates) relating to the Option exercise with such Shares valued in
the same manner as used in computing such withholding taxes. Any fractional
share amount due relating to such tax withholding will be rounded up to the
nearest whole share and the additional amount will be added to Optionee’s
federal withholding.

 

7.                                      Termination
of Employment. The Option may be exercised only while the Optionee
remains employed with the Company or a parent or subsidiary thereof, and only
if the Optionee has been continuously so employed since the date the Option was
granted; provided that:

 

(a)           Except as otherwise provided below,
the Option may be exercised for three months after termination of the Optionee’s
employment, but only to the extent that it was exercisable immediately prior to
termination of employment;

 

3

 

(b)           The Option may be exercised for one year
after termination of the Optionee’s employment if such termination is because
of death of the Optionee;

 

(c)           The Option may be exercised for three
years after termination of the Optionee’s employment if such termination of
employment is because of disability (within the meaning of Section 22(e)(3) of
the Code) of the Optionee; and

 

(d)           The Option may be exercised for three
years after termination of the Optionee’s employment if such termination is
because of the Optionee’s Retirement (as defined in the Plan and interpreted to
count only full years, such that any fractional year of age or service shall be
disregarded).

 

Notwithstanding
the above, the Option may not be exercised after it has expired. In addition,
the Option shall terminate immediately if Optionee is notified that Optionee’s
employment is being terminated for cause. For purposes of this Agreement, the
term “cause” shall mean the
Optionee’s gross mismanagement
or gross neglect of his or her duties which materially and adversely affects
the business or affairs of the Company; the Optionee’s willful conduct which is
(or which will be if continued) demonstrably and materially injurious to the
Company, monetarily or otherwise; the Optionee’s fraud, misappropriation or
embezzlement in connection with the Company; the Optionee’s conviction of a
felony crime; or the Optionee’s willful committing of unethical acts in the
course of his or her employment with the Company.

 

8.                                      Acceleration
of Vesting. In the event of the death, disability or Retirement of the
Optionee, any portion of the Option that was not previously exercisable shall
become immediately exercisable in full if the Optionee shall have been
continuously employed by the Company or a parent or subsidiary thereof between
the date the Option was granted and the date of such death, disability or
Retirement.

 

9.                                      Limitation
on Transfer. During the lifetime of the Optionee, only the Optionee or
his/her guardian or legal representative may exercise the Option. The Option
may not be assigned or transferred by the Optionee otherwise than by will or
the laws of descent and distribution or pursuant to a qualified domestic
relations order. Notwithstanding the foregoing, the Optionee may transfer the
Option, without payment or consideration from the transferee, to any one or
more of the Optionee’s spouse or issue, to one or more trusts established
solely for the benefit of the Optionee’s spouse or issue or to one or more
partnerships in which the only partners are the Optionee’s spouse or issue. For
purpose of this provision, the term “spouse” shall include a former spouse who
receives a transfer pursuant to a qualified domestic relations order, and the
term issue shall include a stepchild or step-grandchild. No such transfer shall
be effective unless reasonable prior notice thereof is delivered to the Company.
Any such permitted transferee shall be subject to all of the terms and
conditions applicable to the person transferring the Option including the terms
and conditions set forth in the Plan and this Agreement.

 

4

 

10.                               No
Shareholder Rights Before Exercise. No person shall have any of the
rights of a shareholder of the Company with respect to any Share subject to the
Option until the Share actually is issued to him/her upon exercise of the
Option.

 

11.                               Discretionary
Adjustment. In the event of any reorganization, merger, consolidation,
recapitalization, liquidation, reclassification, stock dividend, stock split,
combination of shares, rights offering, or extraordinary dividend or
divestiture (including a spin-off), or any other change in the corporate
structure or Shares of the Company, the Committee (or if the Company does not
survive any such transaction, a comparable committee of the board of directors
of the surviving corporation) may, without the consent of the Optionee, make
such adjustment as it determines in its discretion to be appropriate as to the
number and kind of securities subject to and reserved under the Plan and, in
order to prevent inappropriate dilution or enlargement of rights of the
Optionee, the number and kind of securities issuable upon exercise of the
Option and the exercise price hereof.

 

12.                               Interpretation of this Agreement. All
decisions and interpretations made by the Committee with regard to any question
arising hereunder or under the Plan shall be binding and conclusive upon the
Company and the Optionee. If there is any inconsistency between the provisions
of this Agreement and the Plan, the provisions of the Plan shall govern.

 

13.                               Discontinuance
of Employment. This Agreement shall not give the Optionee a right to
continued employment with the Company or any parent or subsidiary of the
Company, and the Company or any such parent or subsidiary employing the
Optionee may terminate his/her employment at any time and otherwise deal with
the Optionee without regard to the effect it may have upon him/her under this
Agreement.

 

14.                               Binding Effect. This Agreement
shall be binding in all respects on the heirs, representatives, successors and
assigns of the Optionee.

 

15.                               Choice of Law. This Agreement is
entered into under the laws of the State of Illinois and shall be construed and
interpreted thereunder (without regard to its conflict of law principles).

 

5

 

The Optionee and the Company have executed this
Agreement as of the       day of

 

	
   

  	
  OPTIONEE

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  RLI Corp.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By

  	
   

  
	
   

  	
  Its

  	
   

  
				

 

6

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