UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

SCHEDULE 14A

(RULE 14a-101)

 

PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES

EXCHANGE ACT OF 1934

 

Filed by the Registrant x

 

Filed by a Party other than the Registrant o

 

Check the appropriate box:

 

o  Preliminary Proxy Statement

o  Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))

x  Definitive Proxy Statement

o  Definitive Additional Materials

o  Soliciting Material Pursuant to §240.14a-12

 

The Navigators Group, Inc.

(Name of Registrant as Specified In Its Charter)

 

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

 

Payment of Filing Fee (Check the appropriate box):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

THE NAVIGATORS GROUP, INC.
6 International Drive
Rye Brook, New York 10573

 

 

ANNUAL MEETING — May 26, 2010

 

 

Dear Stockholder:

 

You are cordially invited to attend the Annual Meeting of Stockholders of the Company to be held at 10:00 a.m. on Wednesday, May 26, 2010 at the Company’s office at Reckson Executive Park, 6 International Drive, Rye Brook, New York 10573.

 

A report of the Company’s current affairs will be presented at the Annual Meeting and Stockholders will have an opportunity for questions and comments.

 

You are requested to sign, date and return your proxy card whether or not you plan to attend the Annual Meeting.

 

We are grateful for your assistance and express our appreciation in advance.

 

Sincerely yours,

 

 

Terence N. Deeks
Chairman

 

April 9, 2010

 

THE NAVIGATORS GROUP, INC.
6 International Drive
Rye Brook, New York 10573
­ ­

 

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

May 26, 2010

 

 

To the Stockholders of The Navigators Group, Inc.:

 

Notice is hereby given that the Annual Meeting of Stockholders of The Navigators Group, Inc. (the “Company”), a Delaware corporation, will be held at the Company’s office at Reckson Executive Park, 6 International Drive, Rye Brook, New York 10573 on Wednesday, May 26, 2010, at 10:00 a.m. At the meeting, stockholders will be asked to:

 

(1) Elect eight (8) directors to serve until the 2011 Annual Meeting of Stockholders or until their respective successors have been duly elected and qualified.

 

(2) Approve The Navigators Group, Inc. Amended and Restated 2005 Stock Incentive Plan.

 

(3) Ratify the appointment by the Company’s Board of Directors of KPMG LLP as the independent auditors of the Company to examine and report on the December 31, 2010 financial statements.

 

(4) Transact such other business as may properly come before the Annual Meeting or any adjournment thereof.

 

The close of business on April 1, 2010 has been fixed by the Board of Directors as the date for the determination of stockholders entitled to notice of and to vote at the Annual Meeting, and only stockholders of record on such date will be entitled to vote. A list of stockholders will be open to examination by stockholders during ordinary business hours for a period of ten (10) days prior to the Annual Meeting at the office of the Company, Reckson Executive Park, 6 International Drive, Rye Brook, New York 10573.

 

By Order of the Board of Directors

 

 

Emily B. Miner
Secretary

 

Rye Brook, New York

April 9, 2010

 

 

 

THE NAVIGATORS GROUP, INC.
6 International Drive
Rye Brook, New York 10573

 

 

ANNUAL MEETING OF STOCKHOLDERS

 

PROXY STATEMENT

 

General Information

 

The accompanying form of proxy is solicited on behalf of the Board of Directors (the “Board”) of The Navigators Group, Inc. for use at the annual meeting (the “Annual Meeting”) of the Company’s stockholders or any adjournment thereof. When we use the terms “we,” “us,” “our” or “the Company,” we are referring to The Navigators Group, Inc. and its subsidiaries, unless the context otherwise requires. The persons named on the proxy card have been designated as proxies by the Company’s Board of Directors. Such persons are officers of the Company. Any stockholder desiring to appoint some other person to represent him or her at the Annual Meeting may do so by completing another form of proxy and delivering the completed proxy to the Secretary of the Company at the address indicated above, prior to the Annual Meeting. It is the responsibility of the stockholder appointing some other person to represent him or her to inform such person of the appointment. The Company has first mailed or electronically delivered these proxy materials to holders (“Stockholders”) of shares of the Company’s Common Stock, par value $.10 per share (the “Common Stock”), on or about April 14, 2010. The Company’s executive and administrative office is located at Reckson Executive Park, 6 International Drive, Rye Brook, New York 10573.

 

The proxy materials are available over the Internet at the web site address shown on your proxy card. Internet voting is available 24 hours a day. If you have access to the Internet, we encourage you to vote this way. If you vote over the Internet, please do not return your proxy card. Stockholders can elect to view future proxy statements and annual reports over the Internet instead of receiving paper copies in the mail. You can choose this option and save the Company the cost of producing and mailing the documents by following the instructions provided if you vote over the Internet. Should you choose to view future proxy statements and annual reports over the Internet, you will receive an e-mail next year with voting instructions and the Internet address of those materials.

 

The proxies that are properly executed and duly returned to the Company and not revoked will be voted as specified and, if no direction is made, will be voted for the election of each of our eight (8) nominees as directors and in favor of Proposals 2 and 3.  Stockholders may also be asked to consider and take action with respect to such other matters as may properly come before the Annual Meeting or any adjournment or adjournments thereof. Each proxy granted is revocable and may be revoked at any time prior to its exercise by giving notice of such revocation to the Secretary of the Company at The Navigators Group, Inc., Reckson Executive Park, 6 International Drive, Rye Brook, New York 10573. A Stockholder who attends the Annual Meeting in person may, if he or she wishes, vote by ballot at the Annual Meeting, thereby canceling any proxy previously given. The outstanding voting stock of the Company as of April 1, 2010, the record date, consisted of 17,228,278 shares of Common Stock, with each share of Common Stock entitled to one vote. Only Stockholders of record at the close of business on April 1, 2010, are entitled to vote at the Annual Meeting. The closing price of the Common Stock on April 1, 2010 was $39.27. A copy of the Company’s Annual Report for the year ended December 31, 2009 is being mailed simultaneously herewith and is electronically available to Stockholders on the Internet by logging on to www.proxyvote.com and following the instructions provided.

 

PROPOSAL 1

 

ELECTION OF DIRECTORS

 

The Board of Directors recommends that you vote FOR the director nominees described below. Proxies will be so voted unless Stockholders specify otherwise in their proxies.

 

The By-laws of the Company provide for the Company to have not less than three nor more than twenty-one directors. The Board of Directors proposes the election of the eight nominees named below to constitute the entire Board of Directors of the Company until the next Annual Meeting of Stockholders or until their successors shall be duly elected and shall qualify. Each of the nominees is currently a director of the Company. All directors other than Marjorie Raines are standing for re-election. The Board of Directors appointed Ms. Raines as a director on February 25, 2010. Mr. Robert Wright, who has served on the Board of Directors, since 1993 is retiring from the Board effective upon the conclusion of the Annual Meeting and will not stand for re-election. In the event any nominee named below is unable or declines to serve, which the Board of Directors does not anticipate, it is intended that the proxies will be voted for the balance of those named and for any substitute nominee that the Board of Directors may designate.

 

 

H. J. Mervyn Blakeney spent a 30-year career with Cadbury Schweppes Plc, the final 10 years as Managing Director of Schweppes International Ltd. and as a director of its holding company. After retiring as an executive in 1988, he has held non-executive directorships in various industries, principally insurance, within the United Kingdom. Mr. Blakeney is a non-executive director of Navigators Underwriting Agency Ltd., a wholly-owned United Kingdom subsidiary of the Company, and until February 2010 was the non-executive Chairman of that board.

 

Peter A. Cheney has been retired since 1996. Prior thereto, Mr. Cheney held various positions at National Re Corporation, including as Executive Vice President, Chief Financial Officer and Director from 1994 to 1996.

 

Terence N. Deeks is our founder. He has been our Chairman since our formation in 1982, and was our President until May 2002 and Chief Executive Officer until December 2002. Mr. Deeks has been engaged in the property and casualty insurance business since 1957. Mr. Deeks has served as an Executive Chairman of the Board since his retirement as Chief Executive Officer. Effective as of the Annual Meeting, Mr. Deeks will be retiring as an executive of the Company, but will continue to serve as the non-executive Chairman of the Board.

 

W. Thomas Forrester retired in March 2007 from Progressive Corporation, where he had been Chief Financial Officer since 1999. From 1984 to 1999, Mr. Forrester held a series of increasingly senior financial and operating positions at Progressive Corporation. Mr. Forrester began his career at the public accounting firm of Price Waterhouse in 1976 and worked in the audit and consulting areas. He is currently a director of Federal National Mortgage Association — Fannie Mae and until May 2006 was a director of Axis Capital Holdings.

 

Stanley A. Galanski has been our President since May 2002 and our Chief Executive Officer since January 2003. Prior thereto, he had been Executive Vice President and Chief Operating Officer of the Company since March 2001. Mr. Galanski was President of XL Insurance Company of New York from 2000 to March 2001, President of XL Specialty Insurance Company from 1997 to March 2001, and President of New Hampshire Insurance Company from 1995 to 1997. From 1980 to 1995, Mr. Galanski held various underwriting and management positions with the

Chubb Group of Insurance Companies. Mr. Galanski is a director of several of our wholly-owned subsidiaries, including as chairman of Navigators Insurance Company.

 

John F. Kirby has been retired from Chubb & Son since 2003 and prior thereto, from 1998 to 2003, he was a Managing Director with worldwide responsibility for ceded reinsurance. From 1995 to 1998, he served as Senior Vice President and Manager — Global Marine & Aviation Practice at Wilcox, Inc. Prior thereto, he held various senior positions at The Continental Corporation from 1987 to 1995. He began his career with the Chubb Group in 1964.

 

Marjorie D. Raines retired from the Chubb Group of Insurance Companies in December 2008. She joined Chubb in 1975 as an equity/portfolio manager, later becoming Executive Vice President - Chief Investment Officer for Chubb’s international operations, the position she held upon her retirement. Ms. Raines is certified as a Chartered Financial Analyst.

 

Marc M. Tract has been a partner of the law firm of Katten Muchin Rosenman LLP and a predecessor firm since 1994, which firms have been counsel to the Company for the same period. Mr. Tract specializes in the areas of corporate and regulatory matters for the insurance industry.

 

Robert F. Wright has been President and Chief Executive Officer of Robert F. Wright Associates, Inc. since 1988. Mr. Wright was a partner of the public accounting firm of Arthur Andersen & Co. from 1960 to 1988. He was a director of U.S.I. Holdings Corporation until May 2007 and is currently a director of Delphi Financial Group, Inc. and Universal American Financial Corporation. Mr. Wright, who has served on the Board of Directors since 1993, is retiring from the Board effective upon the conclusion of the Annual Meeting and will not stand for re-election.

 

Non-Director Executive Officers

 

The current non-director executive officers of the Company are as follows:

 

 

Francis W. McDonnell has been our Senior Vice President and Chief Financial Officer since August 2008. Prior to joining the Company, Mr. McDonnell served as Chief Financial Officer of ACE USA from 2003 to 2008. From 1995 to 2002 he served as the Chief Financial Officer of PMA Capital Corporation and Chief Financial Officer of PMA Reinsurance from 1993 to 1995. Prior thereto, he held various financial management positions at Reliance Insurance Company. Mr. McDonnell is a director of Navigators Insurance Company.

 

Richard P. Bardwell is the Active Underwriter for the Company’s Lloyd’s of London syndicate, managed by Navigators Underwriting Agency Ltd., a wholly-owned subsidiary of the Company (“NUAL”). Mr. Bardwell has been with the Company and its predecessor companies since 1980. Mr. Bardwell has been a Marine and Energy Liability Underwriter and Offshore Energy Underwriter for the Company. Mr. Bardwell is a director of NUAL.

H. Clay Bassett, Jr. has been our Senior Vice President and Chief Underwriting Officer since April 2008 and our Chief Risk Officer since December 2009. Prior to joining the Company, Mr. Bassett served as the Chief Underwriting Officer of Folksamerica Re from 2005 to 2008. Mr. Bassett served in various management positions with Argonaut Group, Inc. from 2002 to 2005, Swiss Re from 1997 to 2002 and American Insurance Group, Inc. from 1990 to 1997. Mr. Bassett began his career at National Reinsurance Corp. in 1987. Mr. Bassett is a director of Navigators Insurance Company and NUAL.

 

Bruce J. Byrnes has been our Senior Vice President, General Counsel and Chief Compliance Officer since June 2009. Prior to joining the Company, Mr. Byrnes held the position of General Counsel at PXRE Reinsurance Company from 2001 until it merged with Argonaut Group, Inc. in August 2007, at which point he joined Hudson Insurance Capital Partners, an insurance industry focused private equity fund, as Principal, Chief Operating Officer & General Counsel. Prior to joining PXRE, Mr. Byrnes had practiced law in several New York law firms, including Morgan, Lewis & Bockius and Baker & McKenzie, specializing in corporate and insurance matters.

 

Michael L. Civisca joined the Company in 1987 and since September 2009 has been the Executive Vice President and Chief Operating Officer of Navigators Management Company, Inc., a wholly-owned subsidiary of the Company (“Navigators Management Company”). Prior thereto, Mr. Civisca was responsible for the marine, energy, inland marine and commercial multi-peril business of Navigators Management Company. Mr. Civisca is a director of Navigators Insurance Company.

 

Stephen R. Coward joined the Company in 2002 and oversees the Company’s global technical risk underwriting divisions (NavTech). Mr. Coward has held various management positions in NUAL and prior to joining the Company, Mr. Coward held senior underwriting management positions at SCOR UK and Copenhagen Reinsurance Co. Ltd. Mr. Coward is a director of Navigators Insurance Company and NUAL.

 

Christopher C. Duca joined the Company in 2001 and since September 2009 has been the President and CEO of Navigators Management Company. In addition, Mr. Duca oversees the Company’s global management and professional liability business and specialty casualty business. Prior thereto, Mr. Duca was President of Navigators Management Company’s professional liability division (NavPro), where he oversaw the management liability, professional liability and casualty business. Mr. Duca is a director of Navigators Insurance Company and NUAL.

 

R. Scott Eisdorfer has been our Senior Vice President and Chief Administrative Officer since October 2008, prior to which, from 2001, he was our Senior Vice President and Chief Information Officer and held the same titles with our insurance subsidiaries since 1999. From 1996 to 1999, Mr. Eisdorfer was a Vice President and Applications Manager of General Reinsurance Corporation, and prior thereto from 1985 held various information technology positions at National Reinsurance Corporation. Mr. Eisdorfer is a director of Navigators Insurance Company.

 

Paul V. Hennessy joined the Company in 2008 and as the President of Navigators Holdings (UK) Ltd., a wholly-owned subsidiary of the Company, is the head of the Company’s operations in Europe. Mr. Hennessy is also the Managing Director of NUAL. Prior to joining the Company, Mr. Hennessy was employed by Arch Insurance Group from 2007 to 2008 as Vice President of Underwriting. Prior to that he spend almost 10 years with CNA, including four years as Chief Underwriting Officer of CNA Europe and, prior thereto, 22 years with the Chubb Group of Insurance Companies in a variety of assignments, including European Commercial Customer Group Manager. Mr. Hennessy holds the designation of Associate of the Chartered Insurance Institute. Mr. Hennessy is a director of Navigators Insurance Company and NUAL.

 

Jane E. Keller has been our Senior Vice President and Chief Claims Officer since June 2004. Prior to joining the Company, Ms. Keller served as the Senior Vice President and Chief Claims Officer of Liberty International Underwriters from 2002 to 2004 and the Vice President of Claims from 2000 to 2002. From 1994 to 2000, she was the Senior Vice President of Claims at a division of Great American Insurance Company. Prior thereto, Ms. Keller was with the Home Insurance Company and in private legal practice. Ms. Keller is a director of Navigators Insurance Company.

 

LoriAnn Lowery-Biggers joined the Company in September 2009 as a Senior Vice President of Navigators Management Company, and oversees Field Operations for the Company. Ms. Lowery-Biggers has 22 years of experience in the insurance industry that most recently included serving as President of Lloyd’s Inc., North

America. Prior thereto, she held executive positions at Wells Fargo Insurance Services USA, Inc. and worked as a Managing Director at Marsh & McClellan Companies, Inc.

 

Ownership of Voting Securities By Certain Beneficial Owners and Management

 

The following table sets forth the beneficial ownership, reported to the Company as of April 1, 2010, of shares of Common Stock (i) by each person who holds of record or is known by us to own beneficially more than 5% of the outstanding Common Stock, (ii) by each of our current directors, (iii) by each of the named executive officers in the Summary Compensation Table under “Compensation Discussion and Analysis” below, and (iv) by all current directors and executive officers as a group. Except as otherwise indicated, to our knowledge all shares are beneficially owned by the persons named as owners.

 

 

 

 

 

Related Party Transactions

 

Our Corporate Code of Ethics and Conduct applies to all of our employees and directors and requires such individuals to discuss any possible conflicts of interest with our Chief Compliance Officer. Conflicts of interest are defined to include situations where officers and directors or their family members have interests in customers of or suppliers to the Company. In the case of transactions involving directors or officers, the Chief Compliance Officer reports the proposed transactions to the non-interested members of the Board of Directors for approval. Approval is based on whether the transaction is fair and equitable and on terms no less favorable than the Company could obtain in arm’s length transactions with unaffiliated third parties. In our experience, this process has been adequate for the review and approval of the few related party transactions that have arisen from time to time.

 

The Board of Directors has adopted a policy requiring a director to offer his or her resignation from the Board upon a change in employment. The Board of Directors has discretion to determine, based upon its evaluation of whether such change in employment would create a possible conflict of interest or affect a director’s independence, as well as any other factors that it may deem applicable, whether or not to accept such resignation.

 

In addition, the Board of Directors annually reviews related party transactions in connection with director independence and determines whether the director has any relationship with the Company that, in the Board’s opinion, would interfere with the exercise of his independent judgment in carrying out the responsibilities of a director. During 2009, the following relationships with two of our directors were reviewed and were found not to present a conflict of interest or affect such director’s independence:

 

Marc M. Tract is a partner of Katten Muchin Rosenman LLP, which law firm serves as counsel to the Company and received fees of approximately $251,394 in 2009. Mr. Tract, who does not have any direct or indirect material interest in the legal fees paid to Katten Muchin Rosenman LLP, is a member of the Finance Committee of the Board of Directors.

 

H.J. Mervyn Blakeney currently serves as a non-executive director of the board of NUAL, and until February 2010 served as the non-executive chairman of the NUAL board and was paid £36,670 in 2009 for such NUAL board service, or $59,405 based on a conversion rate, as of December 31, 2009, of £1 = $1.62. Mr. Blakeney is a member of the Compensation and Finance Committees of the Board of Directors.

Board of Directors and Committees

 

Board Leadership Structure

 

As of April 1, 2010, the Board of Directors of the Company had nine members, including seven independent members. The roles of Chairman and President and Chief Executive Officer are undertaken by separate individuals. Mr. Deeks, the Company’s founder and former President and Chief Executive Officer until 2002, is the Chairman of the Board of Directors, and Mr. Galanski is the Company’s current President and Chief Executive Officer. In light of the active involvement by all independent directors, the Board has not named a lead independent director. In order to promote open discussion among the non-management directors, the Board schedules regular executive sessions, at least four times each year, in which those directors meet without management participation. The chair of each executive session rotates amongst the chairpersons of the Company’s standing committees in the following order: (1) Audit, (2) Finance, (3) Compensation, (4) Corporate Governance & Nominating, and (5) Risk and Underwriting Advisory. Under the Company’s Corporate Governance Guidelines, the directors have complete access to Company management as needed and each director is free to suggest topics of discussion for Board or committee meetings.

 

Board Risk Oversight

 

The Board of Directors is responsible for overseeing the Company’s risk policies including, but not limited to, oversight of its risk tolerance and appetite. The Board of Directors has assigned the Board’s Risk and Underwriting Advisory Committee with primary oversight of the Company’s enterprise risk management program. The Audit Committee also periodically reviews the Company’s risk management policies.

 

Risk management is a collaborative effort of management, the Company’s Board of Directors and key functions within the Company that are focused on risk. The Company has established an Enterprise Risk Management (ERM) Steering Committee consisting of our Chief Risk Officer (Chair), Chief Financial Officer, Chief Administrative Officer, General Counsel & Chief Compliance Officer, the President of our U.S. underwriting agency and the Managing Director of our U.K. Operations. The ERM Steering Committee plays a key role in risk oversight by coordinating, facilitating, and overseeing the effectiveness and integrity of the Company’s risk management activities. The ERM Steering Committee is also charged with establishing the methodology and tools used to identify and evaluate risks and, where risks are outside the Company’s risk appetite, ensuring that there is an appropriate response. The ERM Steering Committee has four sub-committees which are charged with the review and oversight of Finance & Credit Risk, Operational Risk, Underwriting & Claims Risk and Compliance & Governance Risk. The Chief Risk Officer reports directly to the Risk and Underwriting Advisory Committee and Audit Committee on a quarterly basis.

 

The Company’s Internal Audit department provides another level of risk oversight by independently assessing the effectiveness of the Company’s risk management processes, practices and controls and by providing timely feedback on the effectiveness of the Company’s risk oversight process. The Director of Internal Audit reports directly to the Audit Committee.

 

The Company believes that the foregoing corporate risk oversight framework is structured in a way that enables the Company to take an active approach to risk management. Through the efforts of management, the Company’s internal risk oversight functions and the Board of Directors, the Company believes it is able to limit unnecessary risks while accepting certain other risks which may be beneficial to the Company and its stockholders.

 

Board Skills and Director Nominations

 

When considering whether directors and nominees have the experience, qualifications, attributes and skills, taken as a whole, to enable the Board of Directors to satisfy its oversight responsibilities effectively, the Company’s Corporate Governance and Nominating Committee and the Board of Directors focus primarily on the information included in each of the directors’ individual biographies set forth above. The Corporate Governance and Nominating Committee has not adopted a formal policy with regard to the consideration of diversity in identifying director nominees. In reviewing director candidates, however, consideration is given to the diversity of professional background, skills sets and other personal qualities of existing directors and the potential candidates to evaluate whether the director candidate would add diverse experience, skills or other qualities that would further strengthen

the Board of Directors. Particular skills considered include those in the areas of insurance, reinsurance, finance, accounting, investment and general executive management.

 

The particular experience, qualifications, attributes or skills that led the Board of Directors to conclude that each person could serve as a director of the Company are summarized below.

 

 

In accordance with its charter, the Corporate Governance and Nominating Committee shall, from time to time, establish criteria or qualifications for Board membership based on the nature, size and complexity of the Company and the stage of its development. These criteria may include, among other things, an individual’s experience as a senior executive at a publicly traded corporation, management consultant, investment banker, partner at a law firm or registered public accounting firm, professor at an accredited law or business school, experience in the management or leadership of a substantial private business enterprise, educational or not-for-profit organization, or such other professional experience as the Committee shall determine. The Corporate Governance and Nominating Committee has not adopted specific minimum qualifications that nominees must meet to be recommended by the Committee.

 

The Corporate Governance and Nominating Committee reviews its policy with respect to the identification and evaluation of candidates for director from time to time and may modify the policy in light of changes to applicable legal or listing standards, as well as changes in the Company’s development and needs.

 

The Corporate Governance and Nominating Committee’s policy is to consider recommendations for potential Board of Directors nominees received from Stockholders and to evaluate such nominees in the same manner that potential nominees recommended by Board members, management or other parties are evaluated. The name of any recommended candidate for director, together with a brief biographical resume, a document indicating the candidate’s willingness to serve, if elected, and evidence of the nominating person’s ownership of any of the

Company’s stock, should be sent to the Secretary of the Company for referral to the Chairman of the Corporate Governance and Nominating Committee.

 

Board Meetings and Committees

 

The Board of Directors held seven meetings in 2009 and met in executive session without management present at four of those meetings. During 2009 all incumbent directors attended or participated in at least 75% of the meetings of the Board of Directors and meetings of the committees of the Board of which the directors are members. Directors are encouraged to attend the Company’s Annual Meeting. All of the directors serving on the Board of Directors at the time of the 2009 Annual Meeting, except for Leandro S. Galban, Jr., attended that meeting. The Board of Directors has determined that all of the directors of the Company who are listed in the table below, other than Messrs. Deeks and Galanski, are “independent directors” as such term is defined in Rule 4200(a)(15) of the NASDAQ listing standards. The members of the Audit Committee are also independent under the applicable SEC standards. The independent members of the Board of Directors meet at least four times per year in executive session without management present.

 

The following table shows each of the five standing committees established by the Board of Directors and the members and chairperson of each Committee:

 

MEMBERSHIP(1) AND MEETINGS OF BOARD COMMITTEES

 

 

 

 

Below is a description of each committee of the Board of Directors. Each of the committees has authority to engage legal counsel or other experts or consultants as it deems appropriate to carry out its responsibilities.

 

The Audit Committee is responsible for providing independent, objective oversight of the quality and integrity of the Company’s financial reports and monitoring the reporting process and internal controls of the Company. The Audit Committee’s role includes discussing with management the Company’s processes for managing business and financial risk and for compliance with significant applicable legal, ethical and regulatory requirements. The Audit Committee is responsible for the appointment, replacement, compensation and oversight of the independent auditors engaged to prepare or issue audit reports on the financial statements of the Company. The Audit Committee relies on the expertise and knowledge of management and the independent auditors in carrying out its oversight responsibilities. The Board of Directors has determined that each Audit Committee member has sufficient

knowledge in financial and auditing matters to serve on the Audit Committee. Messrs. Cheney, Forrester and Wright have been designated as the financial experts serving on the Audit Committee. The Audit Committee operates under a charter which is reviewed annually and updated as necessary. The charter is available on our website at www.navg.com under the Corporate Governance link.

 

The Compensation Committee is responsible for: (i) setting the compensation of the Chief Executive Officer and Chairman of the Board, and reviewing and approving the compensation of other executive officers of the Company; (ii) reviewing executive bonus plan allocations; (iii) overseeing and advising the Board of Directors on the adoption of policies that govern the Company’s compensation programs; (iv) overseeing the Company’s administration of its equity-based compensation and other benefit plans; (v) approving grants of stock options and stock awards to officers and employees of the Company under its stock incentive plan; and (vi) periodic review and approval of the compensation paid to non-employee directors for annual retainers (including retainers paid to committee chairpersons) and meeting fees, and making recommendations to the Board of Directors for any adjustments. The Compensation Committee reviews and approves corporate goals and objectives relevant to the President and Chief Executive Officer’s compensation and the recommendations of the President and Chief Executive Officer with respect to the compensation of other executive officers. When requested by the Compensation Committee, management advises the Compensation Committee on the design and implementation of compensation plans and programs. The Compensation Committee may engage compensation consultants or other advisors at its discretion and may form and delegate to subcommittees when appropriate. It did not take any of these actions in 2009. The Compensation Committee regularly reports and consults with the independent members of the Board of Directors on executive compensation matters. The Compensation Committee’s role includes reviewing and approving the Compensation Discussion and Analysis and producing the Compensation Committee Report required by SEC rules and regulations. The specific responsibilities of the Compensation Committee are set forth in the Compensation Committee Charter which is available on our website at www.navg.com under the Corporate Governance link. The Compensation Committee Charter is reviewed annually and updated as necessary. All members of the Compensation Committee are independent as defined in the NASDAQ listing standards.

 

The Corporate Governance and Nominating Committee is responsible for overseeing the Board of Directors and its committees so that all are appropriately constituted to meet their legal obligations to our Stockholders and the Company. The specific responsibilities and functions of the Corporate Governance and Nominating Committee are set forth in the Corporate Governance and Nominating Committee Charter which is available on our website at www.navg.com under the Corporate Governance link. The Corporate Governance and Nominating Committee Charter is reviewed annually and updated as necessary.

 

The Finance Committee monitors the performance of the Company’s investment portfolio and evaluates individual investment portfolio managers on a regular basis. It is responsible for the oversight of our investment strategy, guidelines, transactions and performance and for assessing the capital and financial resources of the Company. The specific responsibilities and functions of the Finance Committee are set forth in the Finance Committee Charter which is available on our website at www.navg.com under the Corporate Governance link. The Finance Committee Charter is reviewed annually and updated as necessary.

 

The Risk and Underwriting Advisory Committee is responsible for (i) the oversight of our insurance underwriting strategy, guidelines and practices and (ii) the review and oversight of the Company’s enterprise risk management program. The specific responsibilities and functions of the Risk and Underwriting Advisory Committee are set forth in the Risk and Underwriting Advisory Committee Charter which is available on our website at www.navg.com under the Corporate Governance link. The Risk and Underwriting Advisory Committee Charter is reviewed annually and updated as necessary.

 

Compensation Discussion and Analysis

 

This section provides information regarding the compensation of the Company’s Named Executive Officers in 2009.

 

The objectives of the Company’s compensation program are to (1) provide fair, adequate and competitive compensation to all employees, (2) attract qualified new individuals to enter into employment with the Company, (3) facilitate the retention of qualified employees and continuity of management, (4) provide incentives and rewards

for such employees to enhance the profitability and growth of the Company, and (5) align the interests of employees and Stockholders. The Company uses the various elements of its compensation program together to achieve these objectives.

 

The Company’s approach to employee compensation is grounded in a pay-for-performance philosophy that seeks to emphasize underwriting profitability over growth in premium revenues, while maintaining conservative investment and accounting practices. The Company’s compensation program is designed to reward employees based upon the annual performance of the Company and their individual roles in achieving that level of corporate performance. The Company’s Board of Directors and its senior management believe that compensation decisions for each Named Executive Officer listed in the Summary Compensation Table below should reflect the continued growth and financial performance of the Company, the underwriting performance of the business division, if any, for which such Named Executive Officer has responsibility, and the individual contribution of the Named Executive Officer to the overall financial success of the Company.

 

The Company does not generally target any specific allocation among the various elements of total compensation for Named Executive Officers or other employees. Rather, compensation decisions for Named Executive Officers other than the President and Chief Executive Officer are based upon a reasoned, subjective evaluation by the President and Chief Executive Officer of the individual performance and future potential of such Named Executive Officers, subject to the review and approval of the Compensation Committee. Compensation decisions for the President and Chief Executive Officer are made by the Compensation Committee based upon the factors described under “Compensation Discussion and Analysis — Executive Performance Incentive Plan” below. Other than the President and Chief Executive Officer, no Named Executive Officer or other officer plays a role in determining compensation for the Named Executive Officers.

 

Among the factors considered by the Company in determining appropriate base salary, bonus and total compensation levels for the Named Executive Officers for 2009 was compensation information for corresponding executive officers in peer companies. The companies selected by the Company and the Compensation Committee as peer companies are considered comparable to the Company either because of revenue size or market capitalization, or because they are in lines of business similar to the Company’s lines of business, or because the Company competes with them for talent or business. In 2009, these peer companies were Argo Group International Holdings, Ltd., W. R. Berkley Corp., Markel Corp. and RLI Corp.

 

The Company’s management compensation program currently consists of the following elements: base salary; an executive performance incentive plan (the “Executive Performance Incentive Plan” or “EPIP”), which provides for an annual cash bonus for designated individuals that is intended to qualify for tax deductibility under section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”); an annual incentive compensation plan (the “Annual Incentive Program” or “AIP”), which provides for annual bonuses to all employees other than participants in the EPIP, consisting of cash and, for employees at more senior levels, stock awards that vest in equal annual installments over four years; the Admirals’ Program (the “Admirals’ Program”), which provides for stock awards to certain key underwriters and other employees that vest in three equal installments on the third, fourth and fifth anniversaries of the grant date; and retirement income plans including a money purchase plan (the “Money Purchase Plan” or “MPP”), a 401(k) plan with matching Company contribution (the “401(k) Plan”), and a U.K. pension scheme (the “U.K. Plan”), which together provide for contributions by the Company on behalf of each eligible employee based upon the employee’s base salary and, with respect to the 401(k) Plan, the employee’s own contribution to the 401(k) Plan. Changes, if any, to base salary, and awards under the Executive Performance Incentive Plan, the Annual Incentive Program and the Admirals’ Program are generally made once each year, in February or early March. Set forth below is a description of these various elements of the Company’s compensation program for the year ended December 31, 2009, why the Company pays each element of compensation, how the Company arrived at the amount of each element, and how each element fits into the Company’s overall compensation objectives.

 

In 2009, the compensation of our President and Chief Executive Officer, Mr. Galanski, included base salary, a bonus award under our EPIP and a stock award made in accordance with the terms of our Admirals’ Program. Each element of Mr. Galanski’s compensation is discussed separately below. In respect of Mr. Galanski’s 2009 compensation package, a number of factors were considered, including (i) the business and leadership skills

and experience of Mr. Galanski, (ii) the Company’s performance and return to shareholders since Mr. Galanski joined the Company in 2001, (iii) Mr. Galanski’s significant contributions to the growth of the Company during his tenure, and (iv) the importance of Mr. Galanski to the continued growth, success, and future of the Company, and the need to provide him with a significant incentive as well as to motivate him and retain his services as President and Chief Executive Officer. In addition to these factors, Mr. Galanski’s compensation package, including his participation in the EPIP, was designed to be consistent with the objectives of the Company’s compensation program described above and its pay-for-performance philosophy. Since Mr. Galanski joined the Company in 2001, the Company’s annual diluted earnings per share have increased from $0.84 to $3.65, its book value per share has increased from $17.05 to $47.58, and its share price has increased from $13.31 to $47.11. (All figures are as of December 31, 2000 and December 31, 2009, respectively.)

 

Base Salaries.  The Company pays base salaries to each Named Executive Officer to compensate the officer for their ongoing performance throughout the year, to promote retention and in accordance with accepted industry market practice. Base salaries are determined after evaluating a number of factors, including local market conditions, individual job performance, amounts paid to executives with comparable experience at peer insurance companies, qualifications and responsibilities of executives at other insurance companies and underwriting management companies, and the overall financial results of the Company. For Named Executive Officers, base salary increases are not generally awarded annually, but are awarded only when the Compensation Committee deems such increases appropriate after evaluating the various factors described above. In 2009, Mr. Galanski’s base salary was increased from $600,000 to $725,000 and Mr. Hennessy’s base salary was increased from £175,000, or $283,500 based on a conversion rate, as of December 31, 2009, of £1 = $1.62, to £195,000, or $315,900 based on such conversion rate. Base salaries were not increased for any other Named Executive Officers in 2009. The Company recognizes the need to pay competitive base salaries to support its recruitment and retention compensation objectives and its ability to provide fair, adequate and competitive compensation to the Named Executive Officers.

 

Executive Performance Incentive Plan.  The Company’s Executive Performance Incentive Plan currently provides for annual incentive payments to the Chairman and to the President and Chief Executive Officer of the Company based upon the Company’s results as described below. It is intended to promote the Company’s pay-for-performance compensation philosophy by providing a direct linkage between Company performance and employee compensation. The EPIP is administered by the Compensation Committee, which selects the key executives of the Company who are eligible to receive cash awards under this plan along with the target and maximum award levels and the performance targets each year. For 2009, the EPIP provided for bonus awards for Mr. Galanski of up to 150% of his base salary. No other Named Executive Officer participated in the EPIP in 2009.

 

The Executive Performance Incentive Plan bonus award criteria are based upon the degree to which the Company meets its budget plan each year, with particular emphasis on achieving the revenue, net income, earnings per share after taxes and return on equity annual budget plan targets. The Compensation Committee reviews these various bonus award criteria components each year to determine what criteria to use in setting the annual bonus awards under the EPIP for such year. For 2009, the EPIP bonus award payable to each participating executive was determined by the degree to which the Company achieved corporate performance targets (the “Basic Bonus Target”) based on its budget plan with respect to earnings per share after taxes and return on equity. Under the EPIP, return on equity for purposes of the Basic Bonus Target is calculated based on operating results before catastrophic or other unusual losses, and bonus payments derived from operating results based on pre-catastrophic or pre-other unusual losses may be adjusted downwards at the discretion of the Compensation Committee. For 2009 EPIP awards, return on equity was calculated based on operating results before (i) net realized investment losses and (ii) bonus accruals provided for under this plan. For 2009, the Basic Bonus Target consisted of earnings per share of $5.34 and a return on equity of 14.4%. Achievement of 100% of the Basic Bonus Target would entitle each executive participating in the EPIP to receive the full EPIP bonus award of 100% of his base salary. Achievement of 50% of the Basic Bonus Target (earnings per share of $2.67 and a return on equity of 7.2%) would entitle each participating executive to receive 30% of his base salary as his EPIP bonus award. Achievement of 115% or more of the Basic Bonus Target (earnings per share of $6.14 and a return on equity of 16.6%) would entitle each participating executive to receive the maximum of 150% of his base salary for his EPIP bonus award, subject to applicable maximum limits for each participating executive. Achievement of between 50% and 115% of the Basic Bonus Target would entitle each participating executive to receive a pre-determined level of EPIP bonus award of

between 30% and 150% of his base salary, subject to applicable maximum limits for each participating executive. For 2009, the Company achieved earnings per share of $3.76 and a return on equity of 9.2%, calculated as explained above; therefore, Mr. Galanski would have been eligible to receive an EPIP bonus payment of 64.6% of his base salary. Although the Company did achieve an underwriting profit in 2009, the Company recorded an underwriting loss during the fourth quarter of 2009, which caused results for 2009 to fall below the Company’s expectations and internal forecasts. As a result, Mr. Galanski recommended to the Compensation Committee that the cash bonus award under the EPIP be reduced to 50% of his base salary to reflect the dissatisfaction with this result. The Compensation Committee accepted Mr. Galanski’s recommendation. Accordingly, Mr. Galanski received a cash bonus award under the EPIP for 2009 in the amount of $362,500.

 

The Compensation Committee believes that performance targets for annual bonuses under the EPIP have been set at levels that can be achieved only with significant effort on the part of participants in the EPIP and that payment of the maximum award amounts under the EPIP would reflect results substantially in excess of expectations. The Compensation Committee has no discretion under the EPIP to increase individual awards above the amount determined by the applicable bonus award criteria. The Compensation Committee selects the applicable bonus award criteria, and the respective weights assigned to them, each year in the first quarter. The Executive Performance Incentive Plan supports the Company’s retention compensation objectives by enabling the Company to provide the participating executives with fair, adequate and competitive compensation and appropriate incentives to enhance the profitability and growth of the Company. Mr. Galanski will again participate in the Executive Performance Incentive Plan for 2010.

 

Annual Incentive Program.  The Company’s Annual Incentive Program, in which all employees of the Company other than the Chairman and the President and Chief Executive Officer participated in 2009, provides for the payment of annual bonuses consisting of cash and, for employees at relatively senior levels, stock awards that vest in equal installments over four years, with a greater proportion of an employee’s AIP award generally being paid in stock awards at the more senior levels. All grants of stock awards are made pursuant to the Company’s 2005 Amended Stock Incentive Plan.

 

Awards under the AIP are based on corporate performance, divisional underwriting performance and individual performance within the overall guidelines of the AIP. At more senior employee levels, awards are weighted somewhat more heavily toward corporate performance and, where applicable, divisional underwriting performance, whereas at lower levels awards are weighted somewhat more heavily toward individual performance. The Compensation Committee determines the relative weights of the corporate, divisional and individual performance components of AIP bonus awards, as well as the various elements of corporate performance and divisional performance, each year.

 

The AIP supports the Company’s recruitment objectives by enabling the Company to attract qualified new employees. The AIP, like the EPIP, also supports the Company’s retention objectives, as well as its ability to provide participating Named Executive Officers with competitive compensation and appropriate incentives to enhance the profitability and growth of the Company. For a Named Executive Officer who has responsibility for one of the Company’s various business divisions, the divisional component of the AIP enables the Company to directly tailor the amount of his incentive compensation to the performance of his division. The long term vesting of the stock award component of the AIP award is intended to align the long term interests of employees, including the Named Executive Officers, with those of the Stockholders.

 

The Committee believes that performance targets for annual bonuses under the AIP, as under the EPIP, have been set at levels that can be achieved only with significant effort on the part of the Named Executive Officers who participate in the AIP, and that payment of the maximum award amounts under the AIP would reflect results substantially in excess of expectations. The Compensation Committee has discretion to amend individual awards upward or downward, subject to the maximum award amounts permitted under the AIP, to assure that such awards reflect the contributions of participating executives.

 

The AIP divides employees into several groups, which are subject to various performance indicators and objectives based upon responsibilities, skills, experience and other relevant factors appropriate for each group. The performance of each employee is reviewed no less than once each year. Employees in each group are eligible to earn an incentive compensation award based upon a target percentage of their base salary, which ranges from 5% to 85%

among the different groups. Under the AIP, eligible employees may receive an annual award of up to 150% of the target percentage of their base salary. For achievement of 100% of the corporate, individual and, where applicable, divisional performance targets, AIP participants are entitled to receive 100% of their target percentages under the AIP. For achievement of less than 100% of such corporate, individual and, where applicable, divisional targets, AIP participants receive correspondingly less than 100% of their target percentages. For achievement of more than 100% of such corporate, individual and, where applicable, divisional targets, AIP participants are entitled to receive correspondingly more than 100% of their target percentages under the AIP, up to a maximum of 150% of their target percentages.

 

In 2009, the targets for the corporate performance component of the AIP bonus award were based on the extent to which the Company achieved its 2009 budget plan with respect to gross written premium, combined ratio, and return on equity, with these three elements being weighted at 15%, 50% and 35%, respectively, of corporate performance. The targets for the divisional performance component of the AIP bonus award were based on the extent to which the applicable business division achieved its 2009 divisional budget plan with respect to gross written premium and combined ratio, with these two elements being weighted at 25% and 75%, respectively, of the divisional performance component.

 

The following table sets forth the 2009 targets and the actual achievement relative to such targets for the corporate performance component of the AIP bonus awards:

 

 

Based on achievements in 2009 relative to the corporate and divisional performance targets and the aggregate individual performance results, management’s initial proposed aggregate bonus pool that would have been payable pursuant to the AIP with respect to 2009 was approximately $13.8 million. In reviewing the Company’s 2009 performance, including the Company’s failure to achieve its performance targets, the adverse development in loss reserves across certain lines of business in 2009 and the failure to achieve an underwriting profit during the fourth quarter of 2009, the Compensation Committee, consistent with its pay-for-performance philosophy, determined to exercise its discretion and reduced the aggregate bonus pool payable under the AIP with respect to 2009 to $10.5 million.

 

The Compensation Committee exercised further discretion and elected to pay all 2009 AIP awards in cash only. The payment of a portion of the AIP awards in equity is generally intended to align the long term interests of our employees with those of our stockholders. The Company’s common stock has been recently trading at prices below the Company’s book value per share and well below historical trading multiples. While the Compensation Committee endorses a pay for performance culture and supports the inclusion of equity grants in annual performance awards in order to link employee financial incentives with shareholder returns, the Compensation Committee felt that it was in the best interests of shareholders to reduce the portion of employee annual compensation payable in equity for 2009. The Compensation Committee expects to continue the practice of paying a portion of the AIP bonus in stock awards for 2010 and future years.

 

The relative weight of the corporate, divisional and individual performance components used to determine the AIP bonus awards for the Named Executive Officers varied. For Mr. Coward, who has management responsibility for a business division within the Company, 25% of his overall AIP bonus award is determined by the Company’s corporate performance, 50% by the underwriting performance of his business division, and 25% by his individual performance. For 2009, the target for gross written premium was an 11.3% decrease for the business division run by Mr. Coward relative to that division’s gross written premium for 2008 and the target for the combined ratio was 85.1%. For Mr. Hennessy, who has oversight of the Company’s United Kingdom and European operations, 25% of his overall AIP bonus award is determined by the Company’s corporate performance, 50% by the business performance of the operations of the Company that he oversees, and 25% by his individual performance. For Mr. McDonnell and Ms. Keller, neither of whom has management responsibility for a business division, 50% of their overall AIP bonus award is determined by the Company’s corporate performance and 50% by their individual performance. The remaining Named Executive Officer, Mr. Galanski, participated in the Executive Performance

Incentive Plan and so did not participate in the Annual Incentive Program. The individual performance component of the AIP bonus awards for Messrs. Coward, Hennessy and McDonnell and Ms. Keller was determined by Mr. Galanski, based upon his reasoned, subjective evaluation of the individual performance of each such Named Executive Officer. The AIP bonus award for each participating Named Executive Officer was reviewed and approved by the Compensation Committee. As a result of the Compensation Committee’s decision to reduce the aggregate bonus pool payable under the AIP with respect to 2009, the bonus awards paid under the AIP to Named Executive Officers were reduced by approximately 30% as compared to the amounts that would have been payable based on the formulaic results.

 

The AIP bonus awards paid to each of Messrs. Coward and Hennessy for 2009 was in the amount of £124,312, or $201,386, based on a conversion rate of $1.62 per £1 on December 31, 2009. The AIP bonus awards paid to Mr. McDonnell and Ms. Keller were $210,000 and $75,000, respectively. Each of the bonus awards paid to the Named Executive Officers was paid in cash.

 

Admirals’ Program.  In 2006, the Compensation Committee, working with senior management of the Company, established the Admirals’ Program, which provides for special stock award grants under the Company’s Amended 2005 Stock Incentive Plan for certain key underwriters and other employees of the Company (“Admiral Awards”). Only employees who are highly significant contributors to the Company, have been employed by the Company for at least three years, and participate at relatively high levels in the AIP generally receive Admiral Awards. Typically, recipients of Admiral Awards receive an award every other year.

 

The Admirals’ Program is primarily designed to retain qualified employees and facilitate continuity of management by providing significant long term incentive stock awards to key employees. It is intended to be a wealth-creation device for employees of proven ability who are believed to have a long term commitment to the success of the Company. The Admirals’ Program also supports the Company’s recruitment objectives by enabling the Company to attract qualified new employees, and it enhances the Company’s ability to provide Named Executive Officers and others with competitive compensation and appropriate incentives to enhance the profitability and growth of the Company. The size of each Admiral Award is determined by the Compensation Committee based upon the recommendation of senior management, and reflects the position of the award recipient within the organization, the importance of that individual to the continued growth and success of the Company, the need to retain his or her services and related factors. The Compensation Committee determines the amount of any Admirals’ Program awards to the President and Chief Executive Officer. The Compensation Committee also determines the amount of any Admirals’ Program awards to the other Named Executive Officers, and, as part of this decision, will consider the recommendations of the President and Chief Executive Officer. The Admirals’ Program fits into the Company’s overall compensation objectives by providing a unique long term retention mechanism targeted toward a small number of highly significant and valued contributors.

 

Admiral Awards vest in equal installments on the third, fourth and fifth anniversaries of the grant date. The number of shares of Common Stock that an employee may receive from his or her initial Admiral Award is fixed at the time of grant. For future Admiral Awards to that employee, the Compensation Committee will set a target number of shares for each vesting date and the actual number of shares that employee receives on a vesting date will vary based on the Company’s return on equity over a three-year period. This three-year period will be the three years prior to the year in which a vesting date occurs. For example, if an employee received his or her second Admiral Award on March 1, 2009, the Company’s return on equity for the 2009-2011 time period would determine how many shares that employee receives when the first installment of that Admiral Award vests. The chart below lists, for any vesting date of an Admiral Award (other than an initial award), the three-year return on equity of the Company amounts for a recipient to receive the threshold, target and maximum amount of shares under an Admiral Award.

 

 

For a return on equity value between 7% and 15% for any three-year period, the employee will receive a corresponding percentage of the target shares ranging between 25% and 150% of target.

The Compensation Committee has discretion to amend the terms and conditions of the Admirals’ Program from time to time. Admirals’ Program grants are generally awarded annually in late February or early March of each year.

 

In 2009, the Compensation Committee approved a subsequent award under the Admirals Program to Ms. Keller in the target amount of 8,000 shares, which will vary with the Company’s return on equity as described above. The amount of this grant and the decision to authorize it after Ms. Keller had received a prior award in 2007 reflect the Compensation Committee’s consideration of the importance of Ms. Keller to the Company, the importance of our claims function to the Company’s success, the need to provide her with incentive and to retain her services.

 

Although the Admirals’ Program was originally not created with the intention of including the Chief Executive Officer, the Compensation Committee determined in 2009 to make a stock award grant to Mr. Galanski in the target amount of 25,000 shares, which will vary with the Company’s return on equity in the same manner as awards under the Admirals’ Program. This grant was made based on an overall review of Mr. Galanski’s compensation. As noted above, a number of factors were considered, including (i) the business and leadership skills and experience of Mr. Galanski, (ii) the Company’s performance and return to shareholders since Mr. Galanski joined the Company in 2001, (iii) Mr. Galanski’s significant contributions to the growth of the Company during his tenure, and (iv) the importance of Mr. Galanski to the continued growth, success, and future of the Company, and the need to provide him with a significant incentive as well as to motivate him and retain his services as President and Chief Executive Officer. In addition to these factors, Mr. Galanski’s compensation package, including his participation in the Executive Performance Incentive Plan, was designed to be consistent with the objectives of the Company’s compensation program described above and its pay-for-performance philosophy.

 

No Admirals’ Program grants were made to any other Named Executive Officer in 2009.

 

NavPro Plan.  In lieu of participating in the Company’s Annual Incentive Program, certain senior employees of Navigators Pro, a division of Navigators Management Company, Inc., a wholly-owned subsidiary of the Company, were eligible to receive awards under a Navigators Pro division bonus plan that covered the 2005 and prior underwriting years (the “NavPro Plan”). The NavPro Plan was terminated on December 31, 2005, however, payment has continued past such date in respect of the prior underwriting years. Awards under the NavPro Plan are made in cash and increase or decrease depending upon the development of the underwriting results within the Navigators Pro division for the years covered by the NavPro Plan. The final distribution of underwriting profits for the years covered by the NavPro Plan was scheduled to be made in 2010. In 2009, the Company experienced adverse loss development in the loss reserves related to the NavPro business for the 2006 and later underwriting years. As a result, Mr. Galanski recommended, and the Compensation Committee agreed, to defer final calculation and distribution of underwriting profits for the years covered by the NavPro Plan until 2011. None of the Named Executive Officers are eligible for awards under the NavPro Plan.

 

Retirement Income Plans.  The Company’s retirement income plans include the Money Purchase Plan, the 401(k) Plan, and the U.K. Plan. The Company’s Money Purchase Plan is a defined contribution plan that, in 2009, provided for a mandatory annual contribution by the Company on behalf of each eligible employee of 7.5% of such employee’s base salary, subject to certain maximum contribution limits under applicable law, as well as for an additional 7.5% of such employee’s AIP award up to a maximum annual additional contribution of $2,500. All U.S. employees currently become eligible to participate in the Money Purchase Plan as of the January 1st immediately following their date of hire. The Company’s contributions to the MPP vest in annual installments of 20% on each of the second, third, fourth, fifth and sixth anniversaries of the date on which an employee joined the Company, and become fully vested after the employee has been employed by the Company for six years.

 

In addition to the Money Purchase Plan, all U.S. employees are eligible to participate in the Company’s 401(k) Plan. The 401(k) Plan provides for the Company to match each participating U.S. employee’s annual contributions to the Plan up to 4% of such employee’s base salary, subject to certain maximum contribution limits under applicable law. In addition, at the discretion of the Compensation Committee depending upon the yearly financial performance of the Company, the Company may contribute up to an additional 4% of each eligible employee’s base salary for such year. For 2009, the Compensation Committee elected not to make additional contributions under the 401(k) Plan. The Company’s entire 401(k) Plan matching contribution and discretionary contribution vest immediately.

The Company’s U.K. employees participate in the U.K. Plan rather than in the Money Purchase Plan and the 401(k) Plan. The U.K. Plan, like the Money Purchase Plan, is a defined contribution plan. The U.K. Plan provides for a mandatory monthly contribution by the Company on behalf of each eligible employee of 15% of such employee’s base salary, subject to certain maximum contribution limits under applicable law, as well as for an additional 15% of such employee’s AIP award up to a maximum annual additional contribution of $2,500. All Company contributions to the U.K. Plan vest immediately. U.K. employees are also entitled to make a voluntary annual contribution to the U.K. Plan, which is deducted from their net base salary. All U.K. employees become eligible to participate in the U.K. Plan as of the date they become employees of the Company.

 

The Money Purchase Plan, the 401(k) Plan and the U.K. Plan are together considered important long term retirement benefits that support the Company’s overall compensation objectives by helping to provide fair, adequate and competitive compensation to all employees, by helping to attract qualified new employees, and by facilitating the long term retention of key existing employees. The Money Purchase Plan and the U.K. Plan facilitate recruiting and retention by distinguishing the Company from many of its peer companies that do not provide this element of compensation. The Money Purchase Plan, the 401(k) Plan and the U.K. Plan also facilitate retirement planning by Named Executive Officers and other employees.

 

The Company does not offer a defined benefit pension plan or a nonqualified deferred compensation plan.

 

Employee Stock Purchase Plan.  The Company’s Employee Stock Purchase Plan provides employees, including the Named Executive Officers, with the opportunity to acquire, subject to certain annual limits, shares of Navigators common stock at a 10% discount from the market price at the beginning or end of each six-month Plan period, whichever is less. Employees purchase these shares through regular payroll deductions. The Company generally encourages its employees to own its stock, and have their equity at risk, to better align the long term interests of its employees and Stockholders. As of December 31, 2009, 198 out of the Company’s 503 employees own stock that was purchased by them through the Company’s Employee Stock Purchase Plan.

 

Benefits.  Executive officers also participate in those benefit arrangements which are available to our employees, including health and welfare benefit plans and the 401(k) Plan. For a discussion of the Company’s 401(k) Plan, please see “Compensation Discussion and Analysis — Retirement Income Plans” above.

 

Mr. Galanski receives an annual car allowance from the Company in the amount of $12,000, pursuant to the terms of his employment agreement. In addition, the Company pays for the cost of an annual physical examination for executive officers and members of the Board of Directors.

 

Employment Agreements.  The Company has entered into employment agreements with Messrs. Galanski, Coward and Hennessy, which agreements are still in effect. None of the other Named Executive Officers has an employment agreement with the Company. The Company believes that employment agreements can be an effective tool to retain the expertise of certain executives and to protect the interests of the Company. For a discussion of the employment agreements with Messrs. Galanski, Coward and Hennessy, please see “Employment Agreements” below.

 

Stock Ownership Guidelines.  The Company requires the Chief Executive Officer and Chief Financial Officer of the Company to maintain ownership of common stock of the Company equal to five and three times their respective base salaries. This is equivalent to an investment in the Company by Mr. Galanski of $3.6 million and Mr. McDonnell of $1.2 million, representing 76,947 and 25,472 common shares, respectively, based on the closing price of $47.11 per common share as of December 31, 2009. We believe that the levels of share ownership specified above provide a meaningful alignment of the interests of our Chief Executive Officer and Chief Financial Officer with the interests of our shareholders, which furthers our goal to provide attractive long-term returns for our shareholders. As of the date hereof, Messrs. Galanski and McDonnell have achieved their target ownership levels. Common stock owned outright, common stock that is subject to vested unexercised share options, unvested restricted shares and unvested share units are counted toward fulfilling this requirement.

 

Tax Deductibility of Compensation.  Under Section 162(m) of the Code, annual compensation in excess of $1.0 million paid to the chief executive officer or any of the other three most highly compensated officers, other than the chief financial officer, of any publicly held corporation will not be deductible in certain circumstances. Generally, “performance-based” compensation, as defined in Section 162(m), is not subject to the limitation if certain requirements are satisfied. The Compensation Committee has structured the Executive Performance

Incentive Plan so that such compensation is intended to qualify as performance-based compensation under Section 162(m). However, the Compensation Committee may award compensation that is not fully deductible if it determines that such an award is consistent with the Company’s compensation philosophy and in the best interests of the Company and its Stockholders.

 

Relationship between Compensation Policies and Risk Management.  The Company has assessed its compensation programs and does not believe that there are any risks arising from the compensation policies and practices for employees that are reasonably likely to have a material adverse effect on the Company. Given (1) the emphasis of underwriting profitability, rather than growth in premium revenues, in measuring both corporate and individual performance, (2) that a significant portion of compensation is generally paid in equity that vests over a long period of time, and (3) that the vesting of a significant portion of such equity is dependent upon the return on equity over an extended period of time, the Company does not feel that this incentive compensation structure encourages any unnecessary or excessive risk to be taken by management.

 

Conclusion.  Each element of the Company’s compensation program complements the other elements in that all elements together are designed to support the Company’s pay-for-performance philosophy. The various elements of each Named Executive Officer’s compensation package are designed collectively to assure that the package provides for fair and competitive compensation, facilitates the retention of the Named Executive Officer and therefore the continuity of the Company’s management, and provides incentives and rewards for the Named Executive Officer to enhance the profitability and growth of the Company. However, the amount of any individual element of a Named Executive Officer’s compensation does not generally affect the amount of the other elements of his or her compensation.

 

The Compensation Committee evaluates the Company’s management compensation program on an ongoing basis to assure that it is consistent with the objectives of the program and with the Company’s pay-for-performance compensation philosophy.

 

Compensation Committee Report

 

The Board’s Compensation Committee is charged, among other things, to perform periodic reviews of the Company’s compensation arrangements with executive officers and to make recommendations to the Board of Directors with respect to such arrangements. The Compensation Committee’s function is more fully described in its charter, which the Board has adopted and is available on our website at www.navg.com under the Corporate Governance link.

 

The Compensation Committee has reviewed and discussed with management the Compensation Discussion and Analysis section of the Company’s 2010 Proxy Statement. Based on such review and discussion, the Committee has recommended to the Board of Directors that the Compensation Discussion and Analysis be included in the Company’s 2010 Proxy Statement.

 

The Compensation Committee:

 

H. J. Mervyn Blakeney

W. Thomas Forrester

John F. Kirby (Chair)

 

The foregoing Report of the Compensation Committee shall not be deemed to be “soliciting material” or “filed” with the SEC or incorporated by reference in any previous or future document filed by us with the SEC under the Securities Act of 1933, as amended (the “Securities Act”) or the Exchange Act, or subject to Regulation 14A or 14C or to the liabilities of Section 18 of the Exchange Act except to the extent that we specifically request that such Report be treated as soliciting material or specifically incorporates such Report by reference in any such document.

 

Summary Compensation Table

 

The following table sets forth a summary of the compensation paid by the Company to the Chief Executive Officer, Chief Financial Officer and each of the three other most highly paid executive officers of the Company or its subsidiaries (the “Named Executive Officers”).

 

SUMMARY COMPENSATION TABLE

 

 

 

 

Grants of Plan-Based Awards

 

The following table contains information concerning the grants of plan-based awards made to each of the Named Executive Officers in the year ended December 31, 2009.

 

 

 

 

 

Employment Agreements

 

On March 26, 2001, the Company entered into an employment agreement with Mr. Galanski providing for an initial three-year term of employment that continues for successive one-year periods unless either party elects to terminate the agreement upon 120 days’ notice to the other party prior to the expiration of the then-current one-year period. The agreement provided for the issuance to Mr. Galanski as of the date of the agreement of a stock grant of 100,000 shares of Common Stock subject to vesting provisions of 25% per year. All of such shares are now fully vested. In the event that a change of control of the Company had occurred during the initial three-year term resulting in the termination of Mr. Galanski’s employment or the resignation of Mr. Galanski following a material reduction in his responsibilities or a demotion from his current position, Mr. Galanski would have been entitled to receive his base salary for the remaining term of his employment agreement and all outstanding unvested stock grants made to Mr. Galanski during the initial term would have immediately vested. The agreement provides for a $12,000 annual car allowance for Mr. Galanski. Upon the termination of Mr. Galanski’s employment agreement, the Company may elect to enforce against Mr. Galanski one-year restrictive covenants with respect to nonsolicitation of the Company’s employees and noncompetition with the Company’s business, provided that the Company continues to pay to Mr. Galanski his then-current base salary during such one-year period. In accordance with its terms, Mr. Galanski’s employment agreement was automatically renewed in December 2009 for a one-year period through March 2011.

 

Effective January 2, 2002, NUAL entered into an employment agreement with Mr. Coward, which continues in effect until either party provides six months’ advance notice of termination to the other party or until the last day of the month in which Mr. Coward reaches the age of 60. The agreement provides that Mr. Coward may not compete with NUAL or solicit any employee of NUAL during the six-month period following termination. The agreement does not include provisions regarding change of control or acceleration of outstanding stock grants.

 

Effective October 1, 2008, Navigators Holdings (UK) Ltd., a wholly-owned subsidiary of the Company, entered into an employment agreement with Mr. Hennessy, which provides that either party must provide twelve months’ advance notice of termination to the other party. The agreement does not include provisions regarding change of control or acceleration of outstanding stock grants.

 

None of the other Named Executive Officers is currently a party to an employment agreement with the Company or any of its subsidiaries.

 

Amended 2005 Stock Incentive Plan

 

The purposes of the Amended 2005 Stock Incentive Plan are to induce certain individuals to remain in the employ of, or to continue to serve as directors of, or to remain independent consultants to the Company and its present and future subsidiaries, to attract new individuals to enter into such employment and service, and to encourage such individuals to secure or increase, on reasonable terms, their stock ownership in the Company. The Board of Directors believes that the granting of incentive stock options, non-incentive stock options, stock awards, and stock appreciation rights for the Company’s Common Stock (each, an “Award”) under the Amended 2005 Stock Incentive Plan will promote continuity of management, increased incentive and personal interest in the welfare of the Company and aid in securing the Company’s continued growth and financial success. Since 2005, the Company has issued stock awards under the 2005 Stock Incentive Plan.

 

The 2005 Stock Incentive Plan, as amended in 2009, authorizes the issuance of 1,500,000 shares of Common Stock pursuant to Awards. The Amended 2005 Stock Incentive Plan was originally approved by Stockholders at the May 20, 2005 Annual Meeting of Stockholders and the Stockholders approved an amendment increasing the

authorized shares from 1,000,000 to 1,500,000 at the April 29, 2009 Annual Meeting of Stockholders. The Amended 2005 Stock Incentive Plan provides for discretionary grants of Awards to all employees, non-employee directors and consultants to the Company or any of its subsidiaries, or employees of any corporation acquired by the Company or any of its subsidiaries who hold stock options of that acquired corporation. The Amended 2005 Stock Incentive Plan is the only plan under which the Compensation Committee currently issues equity awards. For a discussion of the equity awards made to employees under the Amended 2005 Stock Incentive Plan in connection with the Company’s Annual Incentive Program and Admirals’ Program, please see “Compensation Discussion and Analysis — Annual Incentive Plan” and “Compensation Discussion and Analysis — Admirals’ Program”. No Awards were made in 2009 to any Named Executive Officer under the Amended 2005 Stock Incentive Plan other than pursuant to the Annual Incentive Program and the Admirals’ Program.

 

Unless terminated sooner, the Amended 2005 Stock Incentive Plan will terminate on May 20, 2015. At any time, the Board of Directors may terminate the Amended 2005 Stock Incentive Plan or make such modifications to the Amended 2005 Stock Incentive Plan as it may deem advisable. The Board of Directors, however, may not, without approval by the Stockholders of the Company, increase the number of shares of Common Stock as to which Awards may be granted under the Amended 2005 Stock Incentive Plan, change the manner of determining stock option prices or stock appreciation right values or change the class of persons eligible to participate in the 2005 Stock Incentive Plan.

 

As discussed below under Proposal 2, the Board of Directors is recommending that the Stockholders approve an Amended and Restated 2005 Stock Incentive Plan. The purpose of the amendment and restatement of the existing stock plan is to give the Board more flexibility in the manner and form in which it makes awards, especially with respect to performance based awards that could qualify for more favorable tax treatment under Section 162(m) of the Code. The Company is not seeking to add any additional shares to the 1,500,000 shares of Common Stock currently authorized under the Amended 2005 Stock Incentive Plan.

 

The Amended 2005 Stock Incentive Plan is administered by our Compensation Committee. The Compensation Committee has discretion to determine the participants under the 2005 Stock Incentive Plan, the types, terms and conditions of Awards, including performance and other earnout and/or vesting contingencies, permit transferability of Awards to an immediate family member of a participant or a trust established on behalf of such immediate family member, interpret the 2005 Stock Incentive Plan’s provisions and otherwise administer the Amended 2005 Stock Incentive Plan in a manner that is consistent with its purpose. The Compensation Committee does not have authority to “reprice” any Award without Stockholder approval.

 

Under the 2005 Stock Incentive Plan, the Compensation Committee may grant an option to purchase shares of Common Stock at a specified exercise price. The initial per-share exercise price for any stock option may not be less than 100% of the fair market value of a share of Common Stock on the date of grant. However, in the case of an incentive stock option granted to a participant who, at such time, owns stock representing more than 10% of the total combined voting power of the Common Stock, the per-share exercise price must be no less than 110% of such fair market value.

 

No stock option granted pursuant to the Amended 2005 Stock Incentive Plan may be exercised more than 10 years after the date of grant, except that incentive stock options granted to participants who own more than 10% of the total combined voting power of the Common Stock at the time the incentive stock option is granted may not be exercised more than five years after the date of grant. Any stock option granted to a non-employee director of the Company or any of its subsidiaries will be 10 years in duration.

 

The Amended 2005 Stock Incentive Plan also permits the grant of a Stock Award, which is a grant of a right to receive shares of Common Stock in the future. Each Stock Award will be subject to conditions, restrictions and contingencies established by the Compensation Committee. Unless the Compensation Committee determines otherwise, a Stock Award will vest in 25% increments on the first, second, third and fourth anniversary of the date the Stock Award is granted.

 

The Amended 2005 Stock Incentive Plan also permits the grant of stock appreciation rights (“SARs”), which is a grant of the right to receive shares of Common Stock equal to the “value” of the SAR. The value of a SAR with respect to one share of Common Stock on any date is the excess of the fair market value of a share on such date over the “base value” of such SAR. The base value of any SAR with respect to one share of Common Stock is the fair

market value of a share of Common Stock as of the date the SAR is granted. A SAR may not be exercised until vested and, unless the Compensation Committee determines otherwise, a SAR will vest in 25% increments on the first, second, third and fourth anniversary of the date on which the SAR was granted.

 

Participants do not have any interest or voting rights in shares covered by their Awards until the Awards have been exercised (in the case of options and SARs) or the receipt of shares (in the case of Stock Awards).

 

If the Company experiences a change in control and a participant’s service is involuntarily terminated without cause or voluntarily terminated for good reason within one year after the change in control, all of such participant’s Awards will become fully vested. Any stock options or SARs that are not executed by the participant on the date they fully vest due to the above will be forfeited to the Company.

 

2002 Stock Incentive Plan

 

At the May 30, 2002 Annual Meeting, the Stockholders approved the 2002 Stock Incentive Plan (the “2002 Stock Plan”). Pursuant to the 2002 Stock Plan, the Company may grant to eligible persons awards including, but not limited to, incentive stock options, non-incentive stock options and restricted shares of Common Stock. The 2002 Stock Plan authorized awards relating to an aggregate of up to 1,000,000 shares of Common Stock, of which no more than 100,000 awards may be in the form of restricted stock grants.

 

The 2002 Stock Plan is administered by our Compensation Committee, which shall consist of two or more members of the Board. The members of the Compensation Committee are appointed annually by, and serve at the pleasure of, the Board. In the event that no Compensation Committee is appointed, the 2002 Stock Plan shall be administered by the Board of Directors.

 

No option granted pursuant to the 2002 Stock Plan may be exercised more than 10 years after the date of grant, except that incentive stock options granted to participants who own more than 10% of the total combined voting power of the Common Stock at the time the incentive stock option is granted may not be exercised more than five years after the date of grant.

 

As a result of the approval of the 2005 Stock Plan at the May 20, 2005 Annual Meeting of Stockholders, no further stock or option awards have been granted since such date or will be granted under the 2002 Stock Plan.

 

Stock Option Plans and Stock Appreciation Rights Plan

 

In 1986 and 1987, the Company adopted two stock option plans (the “Stock Option Plans”) which allowed for the grant to key employees of the Company, its subsidiaries and affiliates, of options to purchase an aggregate of 900,000 shares of Common Stock. The stock options vest at a rate of 25% per year. The Stock Option Plans are administered by the Compensation Committee of the Board. As a result of the approval of the 2002 Stock Plan at the May 30, 2002 Annual Meeting of Stockholders date no further options have been granted since such date and no additional grants will be made under the Stock Option Plans.

 

In 1996, the Company adopted a phantom stock appreciation rights plan (the “SARs Plan”) which allows for the grant to key employees of the Company and its affiliates of up to 300,000 SARs. The Compensation Committee administers the SARs Plan and approves the employees who will receive grants of the rights. The SARs vest at a rate of 25% per year. Upon exercise of a stock appreciation right, the key employee is entitled to receive cash in an amount equal to the difference between the fair market value of the Common Stock at the exercise date and the exercise price (which shall not be less than 90% of the fair market value of the Common Stock at the date of grant). As a result of the approval of the 2005 Stock Plan at the May 20, 2005 Annual Meeting of Stockholders, since such date no further SARs have been granted and no additional grants will be made under the SARs Plan.

Outstanding Equity Awards at Fiscal Year-End

 

The following table sets forth information for each of the Named Executive Officers with respect to their outstanding equity awards as of December 31, 2009.

 

OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END

 

 

 

 

Options Exercised and Stock Vested

 

The following table sets forth information for each of the Named Executive Officers with respect to options exercised and stock grants vested, and the value realized on such exercise or vesting, during the year ended December 31, 2009.

 

OPTIONS EXERCISED AND STOCK VESTED

 

 

 

 

The following table sets forth the payments that would be received by each Named Executive Officer if his employment with the Company were terminated as of December 31, 2009.

 

POTENTIAL PAYMENTS UPON TERMINATION OF EMPLOYMENT

 

 

 

 

Compensation of Directors

 

During 2009, each director who was not an officer or employee of the Company received an annual payment consisting of $30,000 in immediately vested restricted shares of the Company’s Common Stock, payable in the first quarter of each year for service during the preceding year (based on the closing price of the Company’s Common Stock on the last business day of such preceding year), and $30,000 in cash, payable in quarterly installments, as well as a fee of $2,000 for each Board meeting attended and $1,000 for each telephonic Board meeting attended. In addition, members of the Audit Committee of the Board were paid $2,000 for each Audit Committee meeting attended in person and $1,000 for each Audit Committee meeting attended by telephone, and members of all other Board committees are paid $1,000 for each committee meeting attended in person and $500 for each committee meeting attended by telephone. The chairmen of the Audit Committee and the Compensation Committee were paid annual retainers of $20,000 and $10,000, respectively. Chairmen of other Board committees do not currently receive annual retainers for their services as chairmen.

 

The Compensation Committee of the Board recognizes the importance of ownership of the Common Stock of the Company by its independent directors in aligning the interests of the Board with those of our Stockholders. Accordingly, as described above, each director receives payment of $30,000 in restricted shares of the Company’s Common Stock as part of his annual compensation for Board service, and is required to hold such shares for a minimum of one year. Our directors have generally retained ownership of their Common Stock after such restrictions have lapsed.

 

In 2010, after consideration of the Company’s compensation structure in relation to peer companies, the Compensation Committee and Nominating and Corporate Governance Committee recommended that the Company move away from a meeting fee based system and adjust the annual retainer. Commencing in 2010, each director who was not an officer or employee of the Company will receive an annual payment consisting of $30,000 in restricted shares of the Company’s Common Stock, payable in the first quarter of each year for service during the preceding year (based on the closing price of the Company’s Common Stock on the last business day of such preceding year), and $45,000 in cash, payable in quarterly installments. In addition, members of the Audit Committee of the Board will be paid an additional annual retainer of $10,000. The chairmen of the Audit Committee and the Compensation Committee will be paid annual retainers of $30,000 and $20,000, respectively. Chairmen of other Board committees will not receive annual retainers for their services as chairmen.

Shown below is a table that sets forth the total compensation paid to each independent Board member in 2009.

 

Director Compensation

 

 

 

 

Equity Compensation Plan Information

 

The following chart includes information as of December 31, 2009 with respect to equity compensation plans where equity securities of the Company may be issued:

 

 

 

 

Compensation Committee Interlocks and Insider Participation

 

None of Messrs. Blakeney, Forrester or Kirby, each of the members of the Compensation Committee, has ever been an officer or employee of the Company or of any of its subsidiaries or affiliates. None of our executive officers has served on the board of directors or on the compensation committee of any other entity where any officer of such entity served either on the Company’s Board or on its Compensation Committee.

 

Audit Committee Report

 

The Audit Committee of the Board is responsible for providing independent, objective oversight of the Company’s accounting functions, internal controls and financial reporting process. The Audit Committee is currently composed of three directors, each of whom meets the independence requirements of the NASDAQ stock market and the SEC. The Audit Committee operates under a written charter approved by the Board, which was reviewed in 2009 and is available on our website at www.navg.com under the Corporate Governance link.

 

The Company’s management is responsible for the Company’s internal controls and financial reporting process. The independent registered public accounting firm KPMG LLP is responsible for performing an independent audit of the Company’s consolidated financial statements in accordance with generally accepted accounting principles and to issue a report thereon. The Audit Committee’s responsibility is to monitor and oversee these processes.

 

In connection with these responsibilities, the Audit Committee met with management and the independent auditors to discuss the audited December 31, 2009 financial statements. The Audit Committee also discussed with the independent auditors the matters required by Statement on Auditing Standards No. 114, Communication with Audit Committees, as currently in effect. The Audit Committee also received written disclosures from the independent auditors required by Independence Standards Board Standard No. 1, Independence Discussions with Audit Committees, as currently in effect, and the Audit Committee discussed with the independent auditors that firm’s independence.

 

The Audit Committee also reviewed, and discussed with management and KPMG LLP, management’s report and KPMG LLP’s report and attestation on internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act of 2002. Management is responsible for those activities required to ensure compliance with this legislation.

 

Based upon the Audit Committee’s discussions with management and the independent auditors, and the Audit Committee’s review of the representations of management, the Audit Committee recommended that the Board of Directors include the audited consolidated financial statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2009, to be filed with the SEC.

 

The Audit Committee:

 

Peter A. Cheney

W. Thomas Forrester (Chairman)

Robert F. Wright

 

PROPOSAL 2
APPROVAL OF THE NAVIGATORS GROUP, INC.
AMENDED AND RESTATED 2005 STOCK INCENTIVE PLAN

 

The Board recommends a vote “FOR” Proposal 2. Proxies will be so voted unless Stockholders specify otherwise in their proxies.

 

We are requesting Stockholders to vote in favor of adopting The Navigators Group, Inc. Amended and Restated 2005 Stock Incentive Plan (the “Restated Plan”). On March 25, 2010, our Board of Directors, based on the recommendation of the Compensation Committee, adopted the Restated Plan, subject to its approval by Stockholders. If Stockholders approve the Restated Plan, it will become effective on the date of the Annual Meeting (May 26, 2010), and it will replace the Amended 2005 Stock Incentive Plan (the “Prior Plan”), and all awards granted under the Prior Plan that are outstanding as of the effective date of the Restated Plan will be governed by the Restated Plan. The description of certain key features of the Restated Plan below is subject to the specific provisions in the full text of the Restated Plan, which is attached as Appendix A to this Proxy Statement.

 

The approval of the Restated Plan is important for many reasons. Among other things, Stockholder approval of the Restated Plan is necessary for us to grant performance-based awards that qualify for the exception to the deductibility limit set forth in Section 162(m) of the Code. In addition, approval of the Restated Plan will provide us with an incentive plan that expands the types of incentive compensation awards that may be granted to eligible persons. The equity awards made under the Prior Plan pursuant to our current AIP and Admirals’ Program are performance-based compensation awards, but the Prior Plan did not contain the performance-based metrics that would permit that Company to qualify for the exception to the deductibility limit set forth in Section 162(m). The awards payable under the Company’s EPIP are performance-based awards that qualify for the exception to the deductibility limit set forth in Section 162(m), but the EPIP awards may only be made in cash. If the Restated Plan is approved, the Company will terminate the EPIP after 2010 and future performance based awards to our President and Chief Executive Officer will be made under the Restated Plan.

 

Purposes and Eligibility

 

The purposes of the Restated Plan are to induce certain individuals to remain in the employ of, or to continue to serve as directors of, or to remain independent contractors to, the Company and its present and future subsidiaries, to attract new individuals to enter into such employment and service, to encourage such individuals, upon whom, in large measure, our sustained progress, growth and profitability depend, to achieve long-term Company goals, and to align the participants’ interests with those of Stockholders by providing them with a proprietary interest in our growth and performance.

 

Employees, non-employee directors, and independent consultants to the Company and its subsidiaries are eligible to participate in the Restated Plan. As of December 31, 2009, the Company had 503 employees and eight non-employee directors of the Company and its subsidiary, Navigators Underwriting Agency Ltd. There was also one independent contractor eligible for participation in the Restated Plan.

 

Shares Authorized for Issuance

 

Under the Restated Plan, the shares of Common Stock that are authorized for issuance are the 1,500,000 shares authorized for issuance under the Prior Plan; no additional shares are authorized for issuance under the Restated Plan beyond those currently authorized under the Prior Plan. Shares related to outstanding awards under the Prior Plan may become available under the Restated Plan if such shares are not delivered due to forfeiture, termination or satisfaction of a share-based award in cash or other property other than shares, and further increased by shares subject to an award is settled in cash. The number of shares available under the Restated Plan will be reduced by one for each share delivered as a result of the exercise or payment of any award granted under the Restated Plan or the Prior Plan. Shares subject to a substitute award will not reduce the number of shares available under the Restated Plan. The Restated Plan provides that shares used to pay the exercise price or required tax withholding for an award under the Restated Plan will not be available for future awards under the Restated Plan. As of April 1, 2010, the market price per share of our Common Stock was $39.27 (based on the closing price on such date), there were

approximately 917,946 shares already subject to awards made under the Prior Plan. This means 582,054 shares are still available for issuance under the Restated Plan.

 

Administration and Types of Awards

 

The Restated Plan is administered by the Compensation Committee (unless the Board of Directors determines otherwise), which interprets the Restated Plan and has broad discretion to select the eligible persons to whom awards will be granted, as well as the type, size and terms and conditions of each award, including the exercise price of stock options, the number of shares subject to awards and the expiration date of, and the vesting schedule or other restrictions applicable to, awards.

 

The Restated Plan allows us to grant the following types of awards:

 

 

Stock Options.  Options may be granted by the Compensation Committee and may be either non-qualified options or incentive stock options. Options are subject to the terms and conditions, including vesting conditions, set by the Compensation Committee (and incentive stock options are subject to statutory restrictions that are set forth in the Restated Plan). Unless the Compensation Committee determines otherwise, options will vest in 25% increments on the first, second, third and fourth anniversaries of the date the option is granted. The exercise price for all stock options granted under the Restated Plan will be determined by the Compensation Committee, except that no stock options can be granted with an exercise price that is less than 100% of the fair market value of the Common Stock on the date of grant. Also, Stockholders who own more than 10% of our voting stock will not be granted incentive stock options that have an exercise price less than 110% of the fair market value of the Common Stock on the date of grant.

 

The term of all stock options granted under the Restated Plan will be determined by the Compensation Committee and will generally not exceed 10 years. However, the term of an incentive stock option may not exceed 10 years (five years for incentive stock options granted to Stockholders who own more than 10% of our voting stock). No incentive stock option may be granted to a participant, which, when combined with all of such participant’s other incentive stock options becoming exercisable in any calendar year, would have an aggregate fair market value in excess of $100,000. In the event a participant is awarded incentive stock options in excess of this $100,000 limit, such excess will be treated as non-qualified stock options. Each option gives the participant the right to receive a number of shares of Common Stock upon exercise of the option and payment of the exercise price. The exercise price may be paid in cash (including cash obtained through a broker selling the share acquired on exercise), personal check or wire transfer.

 

The Restated Plan prohibits the repricing of stock options. For this purpose, “repricing” means (1) lowering of the exercise price of a stock option after it is granted, (2) canceling a stock option at a time when the exercise price exceeds the fair market value of the underlying Common Stock in exchange for another award (except in the case of certain adjustments permitted by the Restated Plan and described in the Adjustments section below), and (3) any other action that is treated as repricing under generally accepted accounting principles.

 

Stock Appreciation Rights or SARs.  All SARs must be granted on a stand-alone basis (i.e., not in conjunction with stock options granted under the Restated Plan) and will have a term of 10 years, unless the Compensation Committee determines otherwise. SARs are subject to the terms and conditions, including vesting conditions, set by the Compensation Committee. Unless the Compensation Committee determines otherwise, SARs will vest in 25%

increments on the first, second, third and fourth anniversaries of the date the SAR is granted. A SAR granted under the Restated Plan entitles its holder to receive, at the time of exercise, an amount per share equal to the excess of the fair market value (on the date of exercise) of a share of the Common Stock over a specified price, known as the strike price, fixed by the Compensation Committee, which will not be less than 100% of the fair market value of the Common Stock on the grant date of the SAR. Payment may be made in cash, shares of the Common Stock, or other property, in any combination as determined by the Compensation Committee. The Restated Plan prohibits the repricing of SARs (as described in the Stock Options section above).

 

Restricted Stock and Restricted Stock Units.  Restricted stock is Common Stock that is forfeitable until the restrictions lapse. Restricted stock units are rights granted as an award to receive shares of Common Stock, conditioned upon the satisfaction of restrictions imposed by the Compensation Committee. The Compensation Committee will determine the restrictions for each award. Restrictions may include time-based restrictions, the achievement of specific performance goals or the occurrence of a specific event. Unless the Compensation Committee determines otherwise, restricted stock and restricted stock units will vest in 25% increments on the first, second, third and fourth anniversaries of the date of the grant. Participants have voting rights on restricted stock but not on restricted stock units. If the performance goals are not achieved, or if the restrictions do not lapse within the time period provided in the award agreement, the participant will forfeit his or her restricted stock and/or restricted stock units.

 

Performance Units.  Performance units are any grant of (1) a bonus consisting of cash or other property the amount and value of which, and/or the receipt of which, is conditioned upon the achievement of certain performance goals specified by the Compensation Committee, or (2) a unit valued by reference to a designated amount of property. Performance units may be paid in cash, shares of Common Stock, restricted stock or restricted stock units. The Compensation Committee will determine the number and terms of all performance units, including the performance goals and performance period during which such goals must be met. If the performance goals are not attained during the performance period specified in the award agreement, the participant will forfeit all of his or her performance units.

 

Annual Incentive Awards.  The Restated Plan includes annual incentive awards. The Compensation Committee will determine the amounts and terms of all annual incentive awards, including performance goals, which may be weighted for different factors and measures. In the case of annual incentive awards intended to qualify for the performance-based exception from the deductibility limitations of Section 162(m), the Compensation Committee will designate individuals eligible for annual incentive awards within the first 90 days of the year for which the annual incentive award will apply and will certify attainment of performance goals within 60 days following the end of each year. In addition, the Compensation Committee will establish the threshold, target and maximum annual incentive award opportunities for each participant. Annual incentive awards may be paid in cash, shares of Common Stock, restricted stock, options or any other award under the Restated Plan.

 

Substitute Awards.  Substitute awards are awards that may be granted in replacement of stock or stock-based awards from another business held by current and former employees or non-employee directors of, or consultants to, such business that is acquired by us. To preserve the economic value of all or a portion of a replaced award on such terms and conditions (including price), as the Compensation Committee determines.

 

Dividend Equivalents.  Dividend equivalents are rights to receive payments equal to dividends on shares or restricted stock units, if and when we pay dividends to Stockholders. The Compensation Committee may award dividend equivalents on a stand-alone basis or in conjunction with another award (other than options and SARs). If the dividend equivalent is issued in conjunction with another award and if the participant forfeits all or a part of the award, the participant also forfeits the portion of the dividend equivalents award related to other award the participant forfeited.

 

Performance-Based Compensation

 

The objective performance criteria for awards (other than stock options and SARs) granted under the Restated Plan that are designed to qualify for the performance-based exception from the tax deductibility limitations of Section 162(m) are to be based on one or more of the following measures:

 

 

 

In any calendar year, no participant may be granted awards for options or SARs that exceed, in the aggregate, 500,000 underlying shares of Common Stock. In any calendar year, no participant may be granted awards for restricted stock, restricted stock units or performance units (or any other award other than options or SARs that is determined by reference to the value of shares or appreciation in the value of shares) that exceed, in the aggregate, 250,000 underlying shares of Common Stock. No participant may be granted a cash award for any calendar year, the maximum payout for which would exceed $3 million. No participant may be granted a cash award for a performance period of more than one year, the maximum payout for which would exceed $5 million. These limits are higher than we expect to be needed for awards under the Restated Plan, and are included in the Restated Plan to comply with the requirements for deductibility of awards subject to Section 162(m).

 

Change in Control

 

Unless provided otherwise in an award agreement, a participant’s awards will become vested, the relevant restrictions will lapse, and the relevant performance goals will be deemed to be met upon the involuntary termination of such participant’s employment or service without cause during the one-year period following the occurrence of a change in control. The same treatment of a participant’s awards will occur if he or she terminates employment or service for good reason during such one-year period. In addition, the Compensation Committee may, to maintain a participant’s rights in the event of any change in control of the Company, (1) make any adjustments to an outstanding award to reflect such change in control or (2) cause the acquiring or surviving entity to assume or substitute rights with respect to an outstanding award. Also, the Compensation Committee may cancel any outstanding unexercised options or SARs (whether or not vested) that have an exercise price or strike price, as applicable, that exceeds the fair market value of the Common Stock as of the date of the change in control. Under the

Restated Plan, the Compensation Committee will also have the ability to cash out any options or SARs (whether or not vested) that have an exercise price or strike price, as applicable, that is less than the fair market value of the Common Stock as of the date of the change in control. If the Compensation Committee determines that such an award should be cashed out, the participant will receive the lesser of the fair market value of a share of the Common Stock on the date of the change in control or the price paid per share in the transaction that constitutes the change in control.

 

For purposes of the Restated Plan, a “change in control” generally occurs when (1) any corporation, person or other entity, including a group of those (a) becomes the beneficial owner of more than 35% of our then-outstanding Common Stock or (b) acquires all or substantially all of the Company’s assets or (2) within any 12-month period a majority of our Board of Directors is replaced by directors whose appointment or election is not endorsed by a majority of the Board of Directors prior to the date of such appointment or election.

 

For purposes of the Restated Plan, “cause” means (1) any act of dishonesty, willful misconduct, gross negligence, intentional or conscious abandonment or neglect of duty, (2) violation of any of our lawful policies or rules, including and code of conduct or ethics, (3) commission of a criminal activity, fraud, embezzlement or any act of moral turpitude, (4) failure to reasonably cooperate in any investigation or proceeding concerning us, (5) any unauthorized disclosure or use of confidential information or trade secrets, or (6) any violation of any restrictive covenant (such as a non-compete, non-solicit or non-disclosure agreement), in each case as determined by the Compensation Committee. However, if a participant is subject to an employment agreement with us that contains a different definition of “cause,” the definition contained in the employment agreement will control.

 

For purposes of the Restated Plan, “good reason” means that, after the change in control and without the consent of the participant, we (1) materially reduce the participant’s base salary, authority, duties or responsibilities, or (2) stop his or her participation in any compensation plan in which he or she participated immediately before the change in control, or (3) move the participant’s primary office more than 50 miles from his or her prior primary office. To be a “good reason,” any of the above acts must not be an isolated, insubstantial or inadvertent action. Also, if we promptly remedy the issue, the act at issue will not constitute a “good reason.” However, if a participant is subject to an employment agreement with us that contains a different definition of “good reason,” the definition contained in the employment agreement will control.

 

Termination of Employment or Service

 

With respect to stock options and SARs granted pursuant to an award agreement, unless the applicable award agreement provides otherwise, in the event of an employee’s or director’s termination of employment or service due to his or her death, disability or retirement or, in the case of an independent consultant, his or her death, such participant’s outstanding stock options and SARs will fully vest and remain exercisable until six months after such termination (but not beyond the original term of the option or SAR), and any that remain unvested after this six-month period will be canceled and forfeited to us. In the event of a participant’s termination of employment or service for cause, such participant’s outstanding stock options and SARs will immediately be canceled and forfeited to us. Unless the applicable award agreement provides otherwise, in the event of a participant’s termination of employment or service for any other reason, such participant’s vested stock options and SARs (to the extent exercisable at the time of such termination) will remain exercisable until 90 days after such termination (but not beyond the original term of the option or SAR) and any that remain unexercised after this 90-day period will be canceled and forfeited to us.

 

With respect to restricted stock, unless the applicable award agreement provides otherwise, in the event of an employee’s or director’s termination of employment or service due to his or her death, disability or retirement or, in the case of an independent consultant, his or her death, all unvested shares of restricted stock will immediately vest. Unless the applicable award agreement provides otherwise, in the event of a participant’s termination of employment or service for any other reason, such participant’s restricted stock will be canceled and forfeited to us.

Amendment and Termination

 

Unless the Restated Plan is earlier terminated by our Board of Directors, the Restated Plan will automatically terminate on the earlier of (1) the date all shares subject to the Restated Plan have been purchased or acquired and the restrictions on all restricted stock granted under the Restated Plan have lapsed, and (2) ten years from the Restated Plan’s effective date. Awards granted before the termination of the Restated Plan may extend beyond the Restated Plan’s termination date in accordance with their terms. The Board of Directors may, at any time, amend the Restated Plan. Also, the Compensation Committee may, with the Board of Directors’ approval, amend the Restated Plan. The Compensation Committee is permitted to amend the terms and conditions of outstanding awards, including to extend the exercise period and accelerate the vesting schedule of such awards, but no such action may adversely affect the rights of any participant with respect to outstanding awards without the applicable participant’s written consent. Stockholder approval of any such amendment will be obtained if required to comply with applicable law or the rules of the NASDAQ Global Select Market.

 

Transferability

 

Unless otherwise determined by the Compensation Committee, awards granted under the Restated Plan are not transferable except by will or the laws of descent and distribution. The Compensation Committee will have sole discretion to permit the transfer of an award to certain family members specified in the Restated Plan.

 

Adjustments

 

In the event a stock dividend, stock split, reorganization, recapitalization, spin-off, or other similar event affects our Common Stock such that the Compensation Committee determines an adjustment to be appropriate to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under the Restated Plan, the Compensation Committee will (among other actions and subject to certain exceptions) adjust the number and type of shares available under the Restated Plan, the number and type of shares subject to outstanding awards and the exercise price of outstanding stock options and other awards.

 

Non-United States Participants

 

The Compensation Committee may make adjustments or modifications to awards, authorize appropriate procedures and subplans, and grant awards or substitutes for awards to permit eligible individuals who are employed outside the United States to participate in the Restated Plan or to otherwise conform to the laws or practices of non-U.S. jurisdictions.

 

Federal Tax Consequences

 

The following summary is based on U.S. federal income tax laws in effect as of January 1, 2010. Such laws and regulations are subject to change. This summary assumes that all awards will be exempt from, or comply with, the rules under Section 409A of the Code regarding nonqualified deferred compensation. If an award fails to comply with Section 409A of the Code, the award may be subject to immediate taxation, interest and tax penalties in the year the award vests or is granted. This summary does not constitute tax advice and does not address possible state, local or foreign tax consequences.

 

Options.  The grant of stock options under the Restated Plan will not result in taxable income to the recipient of the option or an income tax deduction for the Company. However, the transfer of Common Stock to an option holder upon exercise of his or her options may or may not give rise to taxable income to the option holder and tax deductions for the Company, depending upon whether the options are “incentive stock options” or non-qualified options.

 

The exercise of a non-qualified option by an option holder generally results in immediate recognition of taxable ordinary income by the option holder and a corresponding tax deduction for the Company in the amount by which the fair market value of the shares of Common Stock purchased, on the date of such exercise, exceeds the aggregate exercise price paid. Any appreciation or depreciation in the fair market value of those shares after the date

of such exercise will generally result in a capital gain or loss to the holder at the time he or she disposes of those shares.

 

In general, the exercise of an incentive stock option is exempt from income tax (although not from the alternative minimum tax) and does not result in a tax deduction for the Company if the holder has been an employee of ours at all times beginning with the option grant date and ending three months before the date the holder exercises the option (or 12 months in the case of termination of employment due to disability). If the holder has not been so employed during that time, the holder will be taxed as described above for nonqualified stock options. If the option holder disposes of the shares purchased more than two years after the incentive stock option was granted and more than one year after the option was exercised, then the option holder will recognize any gain or loss upon disposition of those shares as capital gain or loss. However, if the option holder disposes of the shares prior to satisfying these holding periods (known as “disqualifying dispositions”), the option holder will be obligated to report as taxable ordinary income for the year in which that disposition occurs the excess, with certain adjustments, of the fair market value of the shares disposed of, on the date the incentive stock option was exercised, over the exercise price paid for those shares. The Company would be entitled to a tax deduction equal to the amount of ordinary income reported by the option holder. Any additional gain realized by the option holder on the disqualifying disposition of the shares would be capital gain. If the total amount realized in a disqualifying disposition is less than the exercise price of the incentive stock option, the difference would be a capital loss for the option holder.

 

Stock Appreciation Rights.  The granting of SARs does not result in taxable income to the recipient of a SAR or a tax deduction for the Company. Upon exercise of a SAR, the amount of any cash the participant receives and the fair market value as of the exercise date of any Common Stock received are taxable to the participant as ordinary income and such amount will be deductible by the Company.

 

Restricted Stock.  Unless an election is made by the recipient under Section 83(b) of the Code, a participant will not recognize any taxable income upon the award of shares of restricted stock that are not transferable and are subject to a substantial risk of forfeiture. Dividends paid with respect to restricted stock prior to the lapse of restrictions applicable to that stock will be taxable as compensation income to the participant. Generally, the participant will recognize taxable ordinary income at the first time those shares become transferable or are no longer subject to a substantial risk of forfeiture, in an amount equal to the fair market value of those shares when the restrictions lapse, less any amount paid with respect to the award of restricted stock. The recipient’s tax basis will be equal to the sum of the amount of ordinary income recognized upon the lapse of restrictions and any amount paid for such restricted stock. The recipient’s holding period will commence on the date on which the restrictions lapse.

 

As indicated above, a participant may elect, under Section 83(b) of the Code, to recognize taxable ordinary income upon the award date of restricted stock (rather than being taxed as described above) based on the fair market value of the shares of Common Stock subject to the award on the date of the award. If a participant makes that election, any dividends paid with respect to that restricted stock will not be treated as compensation income, but rather as dividend income, and the participant will not recognize additional taxable income when the restrictions applicable to his or her restricted stock award lapse. Assuming compliance with the applicable tax withholding and reporting requirements, the Company will be entitled to a tax deduction equal to the amount of ordinary income recognized by a participant in connection with his or her restricted stock award in the taxable year in which that participant recognizes that ordinary income.

 

Other Awards.  The granting of restricted stock units, performance units or an annual incentive award generally should not result in the recognition of taxable income by the recipient or a tax deduction by the Company. The payment or settlement of these awards should generally result in immediate recognition of taxable ordinary income by the recipient equal to the amount of any cash paid or the then-current fair market value of the shares of Common Stock received, and a corresponding tax deduction by the Company. If the award consists of shares of Common Stock that are not transferable and are subject to a substantial risk of forfeiture, the tax consequences to the participant and the Company will be similar to the tax consequences of restricted stock awards described above, assuming that such award is payable upon the lapse of the restrictions. If the award consists of unrestricted shares of Common Stock, the recipient of those shares will immediately recognize as taxable ordinary income the fair market value of those shares on the date of the award, and the Company will be entitled to a corresponding tax deduction.

Section 162(m) of the Code.  Under Section 162(m), we may be limited as to Federal income tax deductions to the extent that total annual compensation in excess of $1 million is paid to our President and Chief Executive Officer or any one of our other three highest paid executive officers (other than the Chief Financial Officer) who are employed by the Company on the last day of our taxable year. However, certain “performance-based compensation,” the material terms of which are disclosed to and approved by Stockholders, is not subject to this deduction limitation.

 

Section 280G of the Code.  Under certain circumstances, accelerated vesting, exercise or payment of awards under the Restated Plan in connection with a “change in control” of the Company might be deemed an “excess parachute payment” for purposes of the golden parachute payment provisions of Section 280G of the Code. To the extent that it is so considered, the participant holding the award would be subject to an excise tax equal to 20% of the amount of the excess parachute payment, and the Company would be denied a tax deduction for the amount of the excess parachute payment.

 

New Plan Benefits

 

The Company cannot determine the amounts of awards that will be granted under the Restated Plan or the benefits of any awards to the executive officers named in the Summary Compensation Table, the executive officers as a group, or employees who are not executive officers as a group. Under the terms of the Restated Plan, the number of awards to be granted is within the discretion of the Compensation Committee.

 

PROPOSAL 3
RATIFICATION OF THE APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM

 

Independent Registered Public Accounting Firm

 

KPMG LLP, Certified Public Accountants, has been appointed by the Board, upon the recommendation of the Audit Committee after evaluating the performance and independence of KPMG LLP, as independent auditors for the Company to examine and report on its December 31, 2010 financial statements, which appointment will be submitted to the Stockholders for ratification at the Annual Meeting. Submission of the appointment of the auditors to the Stockholders for ratification will not limit the authority of the Board or its Audit Committee to appoint another accounting firm to serve as independent auditors if the present auditors resign or their engagement is otherwise terminated.

 

The Board recommends a vote “FOR” Proposal 3. Proxies will be so voted unless Stockholders specify otherwise in their proxies.

 

Representatives of KPMG LLP are expected to be present at the Annual Meeting, with the opportunity to make a statement if they desire to do so, and to be available to respond to appropriate questions. The following table presents fees for professional audit services rendered by KPMG LLP for the audit of the Company’s annual financial statements for 2009 and 2008, and fees billed for other services rendered by KPMG LLP related to those periods.

 

 

 

 

The Audit Committee approves each engagement of the independent auditors in advance. The Audit Committee’s chairman has been authorized to approve such services subject to ratification at the next Audit Committee meeting.

 

ALL OTHER MATTERS WHICH MAY PROPERLY
COME BEFORE THE ANNUAL MEETING

 

Management does not know of any other matters to be brought before the Annual Meeting except those set forth in the notice thereof. If other business is properly presented for consideration at the Annual Meeting, it is intended that the proxies will be voted by the persons named therein in accordance with their judgment on such matters.

 

Stockholder Approval

 

The presence of the holders of a majority of the outstanding shares of Common Stock entitled to vote at the Annual Meeting, whether in person or represented by proxy, is necessary to constitute a quorum. Abstentions are counted as present and entitled to vote for purposes of determining a quorum. With respect to Proposal 1, directors are elected by the affirmative vote of a plurality of the votes cast by the shares entitled to vote. Votes may be cast in favor or withheld; votes that are withheld will have no effect on the results. Approval of Proposals 2 and 3 requires the affirmative vote of the holders of a majority of the total number of shares of Common Stock represented at the Annual Meeting and entitled to vote. Abstentions are not counted as votes “for” or “against” these proposals and therefore will have the effect of a vote against Proposals 2 or 3 but will have no effect on Proposal 1. Shares held by brokers as nominees or in “street name” for which the broker does not have discretionary authority to vote and has not received specific instructions on how to vote from the customer are not voted and are referred to as “broker non-votes.” Shares that are the subject of broker non-votes will be counted as shares not entitled to vote and therefore will have no effect on the outcome of any of the proposals. Stockholders are entitled to one vote per share on all matters submitted for consideration at the Annual Meeting.

 

Section 16(a) Beneficial Ownership Reporting Compliance

 

Section 16(a) of the Securities Exchange Act of 1934 requires our directors and executive officers, and persons who own more than 10% of our Common Stock, to file certain reports regarding the ownership of the Common Stock with the SEC. These insiders are required by the SEC’s regulations to furnish the Company with copies of all Section 16(a) forms they file. To our knowledge, based solely on review of the copies of such reports furnished to us and written representations that no reports were required, all of our directors, executive officers and 10% Stockholders made all required filings on time except for the filing of a Form 4 by Mr. Eisdorfer on December 24, 2009, which was filed to report on an inadvertent omission to disclose the exercise from time to time of Stock Appreciation Rights at the time that such transactions occurred.

 

We have adopted a code of business conduct and ethics, referred to as our Corporate Code of Ethics and Conduct, that applies to all employees, officers and directors and meets the requirements of the rules of the SEC and of the NASDAQ. In addition, we have adopted a Code of Ethics that applies to our Chief Executive Officer and our senior financial officers which meets the SEC requirements. Both the Corporate Code of Ethics and Conduct and the Code of Ethics are available on our website at www.navg.com under the Corporate Governance link. Any amendments to or waiver of the Corporate Code of Ethics and Conduct or the Code of Ethics will be disclosed on our website under the same link promptly following the date of such amendment or waiver. In addition, in accordance with NASDAQ listing requirements, the Company also intends to disclose on a Form 8-K any waivers from the Corporate Code of Ethics and Conduct that are granted to directors and executive officers.

 

Absence of Dissenters’ or Appraisal Rights

 

Under Section 262 of the Delaware General Corporation Law, Stockholders have the right to dissent from certain corporate actions. In such cases, dissenting Stockholders are entitled to have their shares appraised and be paid the fair value of their shares provided that certain procedures perfecting their rights are followed. The proposals described in this Proxy Statement do not entitle a Stockholder to exercise any such dissenters’ or appraisal rights.

 

Stockholders’ Proposals and Communications

 

Any proposal by a Stockholder of the Company intended to be presented at the 2011 Annual Meeting of Stockholders must be received by the Company at its principal administrative office no later than December 15,

2010 for inclusion in the Company’s proxy statement and form of proxy relating to that meeting. Any such proposal must also comply with the other requirements of the proxy solicitation rules of the SEC.

 

The Board of Directors believes that it is important for Stockholders to have a process to send communications to the Board. Accordingly, Stockholders desiring to send a communication to the Board, or to a specific director, may do so by delivering a letter to the Secretary of the Company at The Navigators Group, Inc., Reckson Executive Park, 6 International Drive, Rye Brook, New York 10573. The mailing envelope must contain a clear notation indicating that the enclosed letter is a “Stockholder-Board Communication” or “Stockholder-Director Communication-name of specific director or directors”. All such letters must identify the author as a Stockholder and clearly state whether the intended recipients of the letter are all members of the Board or certain specified individual directors. The Secretary of the Company will open such communications and make copies, and then circulate them to the appropriate director or directors.

 

Form 10-K Annual Report

 

UPON WRITTEN REQUEST BY A STOCKHOLDER, WE WILL FURNISH THAT PERSON, WITHOUT CHARGE, A COPY OF THE ANNUAL REPORT ON FORM 10-K FOR 2009 WHICH IS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION, INCLUDING THE FINANCIAL STATEMENTS AND SCHEDULES THERETO. The Form 10-K Annual Report for 2009 provided to Stockholders will not include the documents listed in the exhibit index of the Form 10-K. Upon written request, we will furnish to the Stockholder copies of any exhibits for a nominal charge. Requests should be addressed to The Navigators Group, Inc., Attn: Chantal Barjon, Investor Relations Department, Reckson Executive Park, 6 International Drive, Rye Brook, New York 10573. In addition, we make available through our website at www.navg.com under the Investor Relations — SEC Filings link, free of charge, our Annual Report on Form 10-K including exhibits, quarterly reports on Form 10-Q including exhibits, current reports on Form 8-K including exhibits, and all amendments to those reports as soon as reasonably practicable after such material is electronically filed with or furnished to the SEC.

 

Solicitation and Expenses of Solicitation

 

Our officers and employees may solicit proxies. Proxies may be solicited by personal interview, mail and telephone. Brokerage houses and other institutions, nominees and fiduciaries will be requested to forward solicitation material to the beneficial owners of Common Stock, and will be reimbursed for their reasonable out-of-pocket expenses in forwarding such solicitation material. The costs of preparing this Proxy Statement and all other costs in connection with the solicitation of proxies for the Annual Meeting of Stockholders are being borne by the Company. It is estimated that the costs will be nominal.

 

Your cooperation in giving this matter your immediate attention and in returning your proxy promptly will be appreciated.

 

By Order of the Board of Directors

 

 

Emily B. Miner

Secretary

 

Rye Brook, New York

April 9, 2010

Appendix A

 

 

The Navigators Group, Inc.
Amended and Restated 2005 Stock Incentive Plan

 

Table of Contents