<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-2.
</TABLE>
THE NAVIGATORS GROUP, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-12.
(1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
(5) Total fee paid:
------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------------
(3) Filing Party:
------------------------------------------------------------------------
(4) Date Filed:
------------------------------------------------------------------------
<PAGE> 2
THE NAVIGATORS GROUP, INC.
123 WILLIAM STREET
NEW YORK, NEW YORK 10038
ANNUAL MEETING - May 28, 1998
To the Stockholders of
The Navigators Group, Inc.:
You are cordially invited to attend the Annual Meeting of your
Company to be held at 11:00 a.m. on Thursday, May 28, 1998 at The Down Town
Association, 60 Pine Street, New York, New York 10005.
A report of current affairs of your Company will be presented at the
Meeting and Stockholders will have an opportunity for questions and comments.
It is earnestly requested that you sign, date and mail 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, President and
Chief Executive Officer
April 30, 1998
<PAGE> 3
THE NAVIGATORS GROUP, INC.
123 WILLIAM STREET
NEW YORK, NEW YORK 10038
----------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
MAY 28, 1998
----------
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 Down Town Association, 60 Pine Street, New York, New York, on Thursday, May
28, 1998, at 11:00 a.m., Eastern Standard Time, for the following purposes:
(1) To elect seven (7) directors to serve until the 1999 Annual
Meeting of Stockholders or until their respective successors
have been duly elected and qualified;
(2) To ratify the appointment by the Company's Board of Directors
of KPMG Peat Marwick LLP as the independent auditors of the
Company to examine and report on the financial statements for
1998; and
(3) To transact such other business as may properly come before
the Annual Meeting or any adjournment thereof.
The close of business on April 15, 1998, 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 at 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 meeting at the offices of the Company, 123 William
Street, New York, New York 10038.
By Order Of The Board Of Directors
Bradley D. Wiley, Secretary
New York, New York
April 30, 1998
- --------------------------------------------------------------------------------
IMPORTANT
If you do not plan to attend this meeting, please sign and return the
enclosed proxy. No postage is required if mailed in the United States. PLEASE
MAIL YOUR PROXY PROMPTLY IN THE ENCLOSED ENVELOPE.
- --------------------------------------------------------------------------------
<PAGE> 4
THE NAVIGATORS GROUP, INC.
123 WILLIAM STREET
NEW YORK, NEW YORK 10038
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. (the "Company") for use
at the annual meeting (the "Meeting") of the Company's stockholders or any
adjournment thereof. The persons named in the form of proxy 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
at the Meeting may do so either by inserting such person's name in the blank
space provided in the enclosed form of proxy, or by completing another form of
proxy and, in either case, delivering the completed proxy to the Secretary of
the Company at the address indicated above, before the time of the Meeting. It
is the responsibility of the stockholder appointing some other person to
represent him to inform such person of his appointment. The Company has first
mailed these proxy materials to holders ("Stockholders") of shares of Common
Stock, $.10 par value per share (the "Common Stock"), on or about April 30,
1998. The Company's executive offices are located at 123 William Street, New
York, New York 10038.
The proxies in the accompanying form which 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 management's
seven (7) nominees for election as directors and in favor of Proposal 2.
Stockholders may also be asked to consider and take action with respect to such
other matters as may properly come before the 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 to the Company of its revocation. A
Stockholder who attends the Meeting in person may, if he wishes, vote by ballot
at the Meeting, thereby canceling any proxy previously given. The outstanding
voting stock of the Company as of April 15, 1998, the record date, consisted of
8,402,801 shares of Common Stock, held by approximately 100 holders of record,
with each share of Common Stock entitled to one vote. Only Stockholders of
record at the close of business on April 15, 1998, are entitled to vote at the
Meeting. The closing price of the Common Stock on April 22, 1998 was $18.13.
A copy of the Company's Annual Report for the year ended December
31, 1997, is being mailed to Stockholders simultaneously herewith. The financial
statements of the Company for the year ended December 31, 1997, and the
Management's Discussion and Analysis of Financial Condition and Results of
Operations contained in such Annual Report, are specifically incorporated herein
by reference and made a part hereof.
PROPOSAL NO. 1
ELECTION OF DIRECTORS
The By-Laws of the Company provide for the Company to have not less
than three nor more than twenty-one directors. Management proposes the election
of the seven nominees named below to constitute the entire Board of Directors of
the Company until the next Annual Meeting of Stockholders and until their
successors shall be duly elected and shall qualify. Each of the nominees is
currently a director of the Company. In the event any nominee named below is
unable or declines to serve, which the Board does not anticipate, it is intended
that the proxies will be voted for the balance of those named and for any
substitute nominees that the Board may designate, unless the Board has taken
prior action to reduce its membership.
1
<PAGE> 5
<TABLE>
<CAPTION>
Name Age Position With The First Became a
Company Director
---- --- ----------------- ---------------
<S> <C> <C> <C>
Terence N. Deeks................................................ 58 Chairman, President and CEO 1982
Robert M. DeMichele............................................. 53 Director 1983
Leandro S. Galban, Jr........................................... 63 Director 1983
John F. Knight.................................................. 78 Director 1988
Marc M. Tract................................................... 38 Director 1991
William D. Warren............................................... 62 Director 1996
Robert F. Wright................................................ 72 Director 1993
</TABLE>
Terence N. Deeks is the Company's founder. He has been Chairman of
the Board, President and Chief Executive Officer of the Company since its
formation in 1982, and is chairman and a director of several of the Company's
wholly owned subsidiaries. Mr. Deeks has been engaged in the property and
casualty insurance business since 1957.
Robert M. DeMichele has been President and Chief Executive Officer
of Lexington Global Asset Managers, Inc. since December 1995. Mr. DeMichele has
been Chairman of the Board and Chief Executive Officer of Lexington Management
Corporation ("LMC") since 1982. From 1982 until December 1995, Mr. DeMichele
served as Director, President and Chief Executive Officer of Piedmont Management
Company Inc. ("Piedmont"), which was a stockholder of the Company until December
1995 when it was merged into Chartwell Re Corporation ("Chartwell"), which
resulted in Chartwell becoming a Stockholder of the Company. From 1982 to
December 1995, Mr. DeMichele served as President of The Reinsurance Corporation
of New York, which was subsequently renamed The Insurance Corporation of New
York ("ICNY"). ICNY is a Stockholder of the Company and is a wholly owned
subsidiary of Chartwell. He is a director of Chartwell and Vanguard Cellular
Systems, Inc.
Leandro S. Galban, Jr. has been employed by Donaldson, Lufkin &
Jenrette Securities Corporation ("DLJ") since 1977, and prior thereto for a
predecessor company of DLJ from 1958 to 1977. Since 1990, Mr. Galban has served
as a Managing Director and Principal of DLJ.
John F. Knight, currently retired, was active as a consultant for
H.S. Fox Corporation, a reinsurance broker, since 1988. Prior thereto he was
Vice Chairman of Republic Financial Services, Inc. from 1983 to 1988 and prior
to that he was its President from 1975 to 1983. Until 1996, he was a director of
Republic Financial Services, Inc. and Foremost Corporation of America.+
Marc M. Tract has been a partner of the law firm of Rosenman & Colin
LLP since August 1994. Mr. Tract was a partner of the law firm of Kroll & Tract
from 1990 to August 1994. Rosenman & Colin has been counsel to the Company since
August 1994.*+
William D. Warren has been Vice Chairman of General Reinsurance
Corporation since 1997. From 1980 until December 1996, he was Chairman,
President and Chief Executive Officer of National Reinsurance Corporation
("National Re"). From 1989 until December 1996, Mr. Warren served as Chairman,
President and Chief Executive Officer of National Re Corporation, National Re's
parent company.*
Robert F. Wright was a partner of the public accounting firm of
Arthur Andersen & Co. from 1960 to 1988. He has been President of Robert F.
Wright Associates, Inc. since 1988. Mr. Wright is a director of Deotexis Inc.,
Hanover Direct, Inc., Norweb North American Corp, Reliance Standard Life
Insurance Companies, Rose Technology Group, Ltd., U.S. Timberlands L.P. and
Williams Real Estate Co., Inc.*+
2
<PAGE> 6
* Member of the Compensation Committee.
+ Member of the Audit Committee.
The current executive officers of the Company other than directors
who are named in the Summary Compensation Table below, are as follows:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Michael J. Abdallah. . . . . . . . . . . 45 Senior Vice President
Bradley D. Wiley. . . . . . . . . . . . . 44 Senior Vice President, Chief Financial
Officer and Secretary
Salvatore A. Margarella. . . . . . . . . 48 Vice President and Treasurer
</TABLE>
Michael J. Abdallah joined the Company in August 1996 and was
appointed Senior Vice President of the Company in March 1997. He was appointed
President of Navigators Insurance and NIC in April 1998 and prior thereto was
Executive Vice President from September 1997 and Senior Vice President from
February 1997. From 1990 to 1996, Mr. Abdallah was Vice President -
International Energy, Marine and Engineering for CIGNA International (London).
He is a director of Navigators Insurance and NIC.
Bradley D. Wiley has been Senior Vice President, Chief Financial
Officer and Secretary of the Company since December 1996. Prior thereto, Mr.
Wiley was Senior Vice President and Chief Financial Officer of Christiania Re
Corp. and its wholly owned subsidiary, Christiania General Insurance Corp., from
1992 until 1996. Mr. Wiley also has been Senior Vice President, Chief Financial
Officer and Secretary of Navigators Insurance and NIC since February 1997, and
is a director of Navigators Insurance and NIC.
Salvatore A. Margarella has been Vice President and Treasurer of the
Company since March 1997 and prior thereto he was Controller of the Company
since its inception. Mr. Margarella has been Vice President and Treasurer of
Navigators Insurance since 1987 and NIC since 1989, and is a director of
Navigators Insurance and NIC.
3
<PAGE> 7
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 15, 1998, of Common Stock (i) by each person who holds
of record or is known by the Company to own beneficially more than 5% of the
outstanding Common Stock, (ii) by each of the Company's current directors and
nominees for directors, (iii) by each of the executive officers named in the
Summary Compensation Table below, and (iv) by all directors and executive
officers as a group. Except as otherwise indicated, to the Company's knowledge
all shares are beneficially owned by the persons named as owners.
<TABLE>
<CAPTION>
PERCENTAGE
NUMBER OWNERSHIP
OF OF COMMON
NAME AND ADDRESS OF BENEFICIAL OWNER SHARES STOCK
- ------------------------------------ ------ ----------
<S> <C> <C> <C>
Terence N. Deeks(1) 3,874,286 45.8%
123 William Street
New York, New York 10038
Marc M. Tract (2)(3) 1,033,322 12.3%
575 Madison Avenue
New York, New York 10022
The Insurance Corporation of New York(4) 814,700 9.7%
300 Atlantic Street, Suite 400
Stamford, Connecticut 06901
Cortland Associates, Inc.(5) 415,223 4.9%
800 Maryland Avenue, Suite 730
St. Louis, Missouri 63105
Michael J. Abdallah -- *
Bradley D. Wiley 13,250 *
Robert M. DeMichele(6) 46,636 *
Leandro S. Galban, Jr.(7) 19,836 *
John F. Knight(8) 31,116 *
Robert F. Wright 5,296 *
William D. Warren 1,296 *
All current directors and officers
as a group
(1)(2)(3)(6)(7)(8) 4,456,077 52.6%
</TABLE>
- -------------------------
* Less than 1% of issued and outstanding Common Stock.
(1) Includes options to receive 58,500 shares of Common Stock at exercise
prices varying between $12.00 and $28.00 per share and 29,000 shares of
Common Stock owned by Somerset Insurance Limited, a Bermuda corporation
controlled by Mr. Deeks. Also includes 588,836 shares considered
beneficially owned by Mr. Deeks which are held under several instruments
of trust for the benefit of minor children of Mr. Deeks. Excludes 392,490
shares which are held under certain other instruments of trust for the
benefit of non-minor children of Mr. Deeks. Mr. Deeks disclaims beneficial
ownership of all shares held in trust for the benefit of his children.
(2) Includes 49,800 shares held as trustee pursuant to a testamentary trust
for the benefit of Mrs. Harold M. Tract, and with remainder interests in
Marc M. Tract and Laurence T. Tract.
(3) Includes 981,326 shares held as trustee under several instruments of trust
for the benefit of children of Mr. Deeks.
(4) Based upon a Schedule 13G/A filed with the Securities and Exchange
Commission (the "Commission") by Chartwell, dated February 12, 1996. The
shares owned by ICNY may be deemed to be beneficially owned by its
immediate and intermediate parent companies, Chartwell Reinsurance
Company, Chartwell Re Holdings Corporation and Chartwell.
(5) Based upon a Schedule 13G filed with the Commission by Cortland
Associates, Inc. ("Cortland"), an investment adviser registered under the
Investment Advisers Act of 1940, dated February 9, 1998. Shares owned by
Cortland are held for the benefit of its investment advisory clients,
except for 22,425 shares owned directly or beneficially by principals of
Cortland.
(6) Excludes 175,000 shares owned by clients of Lexington Global Asset
Managers, Inc., for which Mr. DeMichele serves as Director and President.
Mr. DeMichele disclaims beneficial ownership of such shares.
(7) Includes 1,350 shares held by Mr. Galban's son and 150 shares held by Mr.
Galban's wife.
4
<PAGE> 8
(8) Includes 10,950 shares held as trustee of The Jeffrey J. Knight, Melanie
K. Eggers, John Mark Knight, Jane M. Knight and James M. Knight Trusts.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company has a consulting agreement (the "Wright Consulting Agreement")
with Robert F. Wright Associates, Inc., pursuant to which Robert F. Wright
Associates, Inc. provides certain consulting services to the Company. Robert F.
Wright, a director of the Company, is the President of Robert F. Wright
Associates, Inc. The Wright Consulting Agreement provides for an annual
consultation fee of $26,000 to be paid to Robert F. Wright Associates, Inc. Mr.
Wright is a member of the Audit, Compensation, Finance and Nominating
Committees.
The Company also has a consulting agreement (the "Warren Consulting
Agreement") with William D. Warren, pursuant to which Mr. Warren provides
certain consulting services to the Company. The Warren Consulting Agreement
provides for an annual consultation fee of $25,000. Mr. Warren is a member of
the Compensation and Executive Committees.
Navigators Insurance has an investment management agreement with LMC,
pursuant to which LMC provides investment management services. Robert M.
DeMichele, a director of the Company, is Chairman of the Board and Chief
Executive Officer of LMC and is President and Chief Executive Officer of
Lexington Global Asset Managers, Inc., of which LMC is a wholly owned
subsidiary. Mr. DeMichele is also a director of Chartwell, a Stockholder of the
Company. Chartwell's wholly owned subsidiary, ICNY which is also a Stockholder
of the Company, is a member of several of the insurance pools managed by a
subsidiary of the Company. Mr. DeMichele is a member of the Finance Committee.
Management believes that the terms of the consulting agreements and the
investment management agreement are no less favorable to the Company and
Navigators Insurance than those which could be obtained from unaffiliated third
parties. Management further believes that all other transactions with affiliated
companies have in the past and will in the future be on fair and equitable terms
no less favorable than the Company and Navigators Insurance could obtain in
arm's length transactions with unaffiliated third parties.
Terence N. Deeks and members of his family own in the aggregate 95% of
Somerset Insurance Limited, a Bermuda corporation ("Somerset Bermuda"), with the
remaining 5% being owned by a director of Navigators Insurance and various
outside investors. Somerset Bermuda reinsures Navigators Insurance and other
members of several of the pools managed by a subsidiary of the Company. Mr.
Deeks is a member of the Company's Executive and the Finance Committees.
Marc M. Tract is both a director of the Company as well as a partner of
Rosenman & Colin LLP. Rosenman & Colin LLP has served as counsel to the Company
since August 1994. Mr. Tract serves as trustee under several instruments of
trust for the benefit of children of Mr. Deeks. Mr. Tract is a member of the
Audit, Compensation and Nominating Committees.
5
<PAGE> 9
BOARD OF DIRECTORS
The Board of Directors of the Company held four meetings in 1997. No
directors attended or participated in fewer than 75 percent of the meetings of
the Board and meetings of the committees of the Board during 1997, other than
Mr. Warren who attended 50 percent of the meetings of the Board.
The Board's Compensation Committee oversees the Company's compensation and
benefit policies and programs, including the stock option and stock appreciation
rights plans of the Company and the annual salaries and annual incentive plan
for selected officers. During 1997, the Compensation Committee held one meeting.
The members of the Compensation Committee are Marc M. Tract, William D. Warren
and Robert F. Wright.
The Board's Audit Committee recommends the selection of independent
Certified Public Accountants and reviews the scope and results of independent or
internal audits. During 1997, the Audit Committee held two meetings. The members
of the Audit Committee are John F. Knight, Robert F. Wright and Marc M.
Tract.
The Board's Nominating Committee recommends nominees for election to the
Company's Board of Directors. The Nominating Committee met once during 1997. The
members of the Nominating Committee are Robert F. Wright and Marc M. Tract.
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
SUMMARY OF COMPENSATION
The following Summary Compensation Table sets forth compensation paid by
the Company for each of the years in the three-year period ended December 31,
1997 to the Chairman, President and Chief Executive Officer of the Company and
to each of the four other most highly paid executive officers of the Company or
its subsidiaries (the "Named Executive Officers").
6
<PAGE> 10
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term Compensation
Annual Compensation Awards
------------------- ----------------------
Name and Principal Securities Underlying All other
Position Year Salary Bonus Options/SARs Compensation
------------------ ---- ------ ----- --------------------- ------------
$ $ # $
<S> <C> <C> <C> <C> <C>
Terence N. Deeks 1997 $400,000 $ 30,000 -- $69,144(1)
Chairman, President 1996 400,000 327,357 -- 69,252(1)
and Chief Executive Officer 1995 416,666 373,333 50,000 69,144(1)
Michael J. Abdallah 1997 250,000 100,000 -- 95,960(2)
Senior Vice President 1996 92,951 227,322 50,000 --
1995 -- -- -- --
Bradley D. Wiley 1997 197,500 50,000 20,000 --
Senior Vice President, CFO 1996 28,817 -- 30,000 --
and Secretary 1995 -- -- -- --
Francis V. Bigley, Jr. 1997 213,852 47,750 -- --
Former Vice President of 1996 185,000 30,564 -- --
Navigators Insurance 1995 183,333 22,200 50,000 --
Robert A. Rogers 1997 231,923 47,750 -- --
Former Senior Vice President 1996 218,333 129,468 -- --
1995 180,833 113,466 60,000 --
</TABLE>
(1) Represents the dollar value of life insurance premiums paid by the Company
for the benefit of Mr. Deeks net of reimbursement payments received from
Mr. Deeks in the amount of $1,855, $1,747 and $1,855 for 1997, 1996 and
1995, respectively.
(2) Represents reimbursement for primarily relocation expenses and taxes.
EMPLOYMENT AGREEMENTS
The Company entered into employment agreements (the "Employment
Agreements") with Mr. Deeks and Mr. W. Allen Barnett. Mr. Barnett resigned his
position as Senior Vice President of the Company effective February 7, 1997. In
general, the Employment Agreements provided for the continuation of a base
salary for such executives for a period of three years from June 30, 1994 and
that such executives would be eligible to participate in an annual incentive
plan. The Employment Agreements generally provided that if the Company
terminated the employment of the named executive other than for Cause or
Disability (as such terms are defined in the Employment Agreements), the Company
would continue to pay amounts of the base salary until the earlier of (i) the
end of the employment period, (ii) one year from the date of his termination of
employment or (iii) the date as of which any of the provisions of the Employment
Agreements are breached.
The Company has entered into a separation agreement with Mr. Barnett (the
"Separation Agreement"), which sets forth the terms of his separation from the
Company. Pursuant to the provisions of the Separation Agreement, and subject to
certain conditions, Mr. Barnett received the balance of his compensation payable
through June 30, 1997; a continuation of his salary commencing July 1, 1997
through February 14, 1998, at an annual rate of $112,500; a bonus payment in the
amount of $15,000 for 1997; an extension until December 31, 1999 of the time by
which he must exercise or abandon the stock options granted to him (all of which
shall be deemed vested by that date); and certain employee benefits for which he
is eligible.
The Company has entered into a letter agreement with Michael J. Abdallah
(the "Abdallah Agreement") providing for his employment. In general, the
Abdallah Agreement provides for continuous employment, along with certain other
benefits, subject to six months prior notice of termination. Generally, no
notice will be given prior to January 1, 1999. In addition, pursuant to the
terms of the Abdallah Agreement, the Company has agreed to reimburse Mr.
Abdallah for certain relocation costs should his employment with the Company
terminate.
The Company has entered into an agreement with Bradley D. Wiley (the
"Wiley Agreement"). The Wiley Agreement generally provides that if the Company
terminates Mr. Wiley's employment following a change in control for reasons
other than cause, including certain circumstances in the event of a
7
<PAGE> 11
constructive discharge, Mr. Wiley will be entitled to receive an amount equal to
150% of his base salary as well as a pro-rated bonus along with certain other
benefits.
STOCK OPTIONS
The following table contains information concerning the grant of options
under the Company's stock option plans to each of the Named Executive Officers
during the year ended December 31, 1997. For a description of the Company's
stock option plans, see "Stock Option Plans" included herein.
OPTION/SAR GRANTS IN 1997
<TABLE>
<CAPTION>
Individual Grants Potential Realizable
Value at Assumed Annual
Number of Percent of Total Rates of Stock Price
Securities Options/SARs Granted to Appreciation
Underlying Employees in Exercise for Option/SAR Term
Name Options/SARs Fiscal Year Price Expiration 5%($) 10%($)
granted (#) ($/Share) Date
- ---- ------------ ----------------------- --------- ---------- ------------------------
<S> <C> <C> <C> <C> <C> <C>
Terence N. Deeks -- -- -- -- -- --
Michael J. Abdallah -- -- -- -- -- --
Bradley D. Wiley 20,000 40% 17.00 1/1/07 213,800 541,800
Francis V. Bigley, Jr. -- -- -- -- -- --
Robert A. Rogers -- -- -- -- -- --
</TABLE>
The following table sets forth information for each of the Named Executive
Officers with respect to the value of options/SARs exercised during the year
ended December 31, 1997 and the value of outstanding and unexercised
options/SARs held as of December 31, 1997, based upon the market value of the
Common Stock of $18.78 per share on December 31, 1997.
8
<PAGE> 12
AGGREGATED OPTION/SAR EXERCISES IN 1997
AND DECEMBER 31, 1997 OPTION/SAR VALUES
<TABLE>
<CAPTION>
Number of Securities Underlying
unexercised Options/SARs at Value of unexercised
December 31, 1997 in-the-money Options/SARs at
December 31, 1997
(#) ($)
------------------------------- ------------------------------
Name Shares Acquired Value Realized
on Exercise (#) ($) Exercisable Unexercisable Exercisable Unexercisable
--------------- -------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Terence N. Deeks 15,000 120,000 58,500 12,500 202,069 53,516
Michael J. Abdallah -- -- 12,500 37,500 22,266 66,797
Bradley D. Wiley -- -- 12,500 37,500 22,266 66,797
Francis V. Bigley, Jr. 30,950 144,594 40,300 -- 122,353 --
Robert A. Rogers 31,250 134,362 25,625 20,625 76,582 76,582
</TABLE>
COMPENSATION OF DIRECTORS
Directors of the Company who are not also officers or employees of
the Company or any of its subsidiaries, are paid a retainer of $2,000 per
quarter, an additional $1,000 for attending each of four quarterly meetings of
the Board, and the number of shares of unregistered Common Stock that is
equivalent to a cash payment of $12,000 based on the market price of the stock
at the end of the year.
STOCK OPTION PLANS
The Company has adopted two stock option plans which allow for the
grant to key employees of the Company, its subsidiaries and affiliates, options
to purchase an aggregate of 900,000 shares of Common Stock. The Company filed a
Form S-8/S-3 Registration Statement relating to the aggregate of the 900,000
shares of Common Stock which may be issued upon the exercise of options granted
or that may be granted under these two plans, an incentive stock option plan
(the "Stock Option Plan") and a non-qualified stock option plan (the
"Non-Qualified Stock Option Plan").
The Stock Option Plan is administered by the Compensation Committee
of the Company's Board of Directors, which consists of Marc M. Tract, William D.
Warren and Robert F. Wright. The Compensation Committee determines, in its
discretion, and recommends to the Board of Directors the persons to receive
options, option prices, dates of grant and vesting periods, although no option
may extend longer than ten years. Options may be granted either alone or with an
attached stock appreciation right. The Stock Option Plan requires that all
options granted shall be at exercise prices not less than the fair market value
of the Common Stock on the date of the grant, as such value is determined by the
Compensation Committee. Unless otherwise provided, an option is exercisable in
installments after the first anniversary of its grant to the extent of 25% of
the number of shares originally covered by the option (subject to adjustment in
the event of changes in the capitalization of the Company), multiplied by the
number of full years elapsed since the grant of the option and less any amounts
theretofore exercised up to the maximum number of shares covered by the option.
The Compensation Committee also administers the Non-Qualified Stock
Option Plan and selects the officers and key employees (collectively, the "key
employees") who will receive grants of options and stock appreciation rights and
the number of shares that will be subject thereto. Options may be granted to a
key employee either alone or with an attached stock appreciation right. The
number of shares and other terms of grant are fixed by the Compensation
Committee and set forth in an option agreement (subject to adjustment in the
event of changes in the capitalization of the Company). An option shall become
100% vested at the earliest of (i) the optionee's normal retirement date, (ii)
the optionee's death or disability, or (iii) four years from the date of grant.
Prior to becoming 100% vested, each option becomes exercisable at a rate of
one-quarter of the number of shares covered by such option after each of the
first four anniversaries of the date of grant, unless the Compensation Committee
accelerates such schedule.
9
<PAGE> 13
The Company has adopted a phantom stock appreciation rights plan
(the "SAR Plan") which allows for the grant to key employees of the Company and
its affiliates of up to 300,000 stock appreciation rights. The Compensation
Committee administers the SAR Plan and selects the key employees who will
receive grants of the rights. The SAR Plan includes a vesting schedule similar
to that of the Stock Option Plan, with the rights generally becoming 100% vested
four years from the date of the grant. 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 percent of the fair
market value of the Common Stock at the date of grant).
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee consists of Messrs. Tract, Warren and
Wright. Please refer to "Certain Relationships and Related Transactions"
contained herein as such section relates to the members of the Compensation
Committee.
BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Board's Compensation Committee is charged, among other things,
to make periodic reviews of the Company's compensation arrangements and to make
recommendations to the Board of Directors with respect to such arrangements. The
Committee was organized in July 1994 and first met formally in December 1994.
For Mr. Deeks, compensation arrangements for the three year period commencing
June 30, 1994, with the exception of the determination of annual incentive
payments and grants of stock options, were adopted prior to the Committee's
formation and reflected in the Employment Agreement with Mr.
Deeks. The arrangement has been reviewed and ratified by the Committee.
The principal objectives of the Committee's compensation policies
are to attract and retain qualified executives and to provide incentives for
such executives to enhance the profitability and growth of the Company and thus
enhance Stockholder value. The executive compensation program consists
principally of base salaries, an annual incentive plan, two stock option plans
and a phantom stock appreciation rights plan. The following describes components
of the Company's executive compensation program for the fiscal year ended
December 31, 1997 and the related factors considered by the Committee in
determining compensation.
Base Salaries. Base salaries were determined after evaluating a
number of factors, including local market conditions, job performance and
amounts paid to executives with comparable experience, qualifications and
responsibilities at other insurance companies and underwriting management
companies.
Annual Incentive Plan. The Company's annual incentive plan consisted
principally of bonus payments based on the following factors, subject to a
maximum bonus amount for each officer or key employee specified as a percentage
of his or her base salary: (i) return on capital; (ii) underwriting results; and
(iii) subjective evaluation. Officers and key employees are grouped into three
categories for the purposes of annual incentive awards, with compensation of the
executive officers of the Company tied exclusively to return on capital and
subjective evaluation. The portion of the officer or key employee's maximum
bonus amount attributable to the return on capital factor is determined by
reference to an incremental scale, with such officer or key employee becoming
eligible for the maximum bonus amount if a 20% return on capital is achieved.
The amount of the bonus for officers and key employees with underwriting
responsibilities was primarily based on a formula tied to their individual
underwriting results. The factors to be considered in determining the maximum
bonus amounts and the relative weighting of such factors are subject to
revision.
The objectives of the annual incentive plan in 1997 were to reward
top executives and key employees for achieving defined annual performance goals,
provide superior rewards for superior competitive performance and reward
executives and key employees based on performance measures
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<PAGE> 14
that are recognized within the industry and among investors as being key
measures of success. The Committee believes its annual incentive plan is typical
within the industry and permits management to adjust the goals annually to
reflect the competitive environment. In addition, by aligning the financial
interests of the Company's executives and key employees with those of the
Company's Stockholders, the annual incentive plan is intended to be directly
related to the creation of value for Stockholders of the Company.
Stock Option Plans and Stock Appreciation Rights Plan. The Company
has adopted two stock option plans and a stock appreciation rights plan which
allow for the grant to key employees of stock options and stock appreciation
rights which generally vest over a number of years. The number of shares of
Common Stock subject to an executive's stock option grant and stock appreciation
rights grant is determined with reference to the responsibility and experience
of the executive and competitive conditions. By aligning the financial interests
of the Company's executives with those of the Company's Stockholders, these
equity-based awards are intended to be directly related to the creation of value
for Stockholders of the Company. The deferred vesting provisions are designed to
create an incentive for an individual executive to remain with the Company.
Chairman, President and Chief Executive Officer. The Committee
reviewed the 1997 compensation levels of Terence N. Deeks, Chairman, President
and Chief Executive Officer of the Company, within the context of industry
information regarding chief executive officers with comparable experience,
qualifications and responsibilities at other insurance companies and
underwriting management companies. The Committee also considered local market
conditions and job performance, as well as the significant ownership position of
Mr. Deeks and the fact that he has received substantial compensation in the
past. For 1997, Mr. Deeks received from the Company a base salary of $400,000
per annum and annual incentive compensation payments of $30,000. Mr.
Deeks was not granted any stock options in 1997.
Under Section 162(m) ("Section 162(m)") of the Internal Revenue Code
of 1986, as amended, effective in 1994, annual compensation in excess of $1.0
million paid to the chief executive officer or any of the four other highest
compensated officers 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. No executive officer's compensation was subject to the limitation of
Section 162(m) in 1997. The Compensation Committee intends to structure the
Company's annual incentive plan and any stock-based compensation for executive
officers so that such compensation qualifies as performance-based compensation
under Section 162(m).
Submitted by the Compensation Committee:
Marc M. Tract
William D. Warren
Robert F. Wright
11
<PAGE> 15
FIVE-YEAR PERFORMANCE GRAPH
The comparison of Five-Year Cumulative Returns among the Company,
Standard & Poor's 500 Index ("S&P 500 Index") and the S&P Property & Casualty
Insurance Index ("Insurance Index") listed companies is as follows:
[GRAPHIC OMITTED]
Total Shareholder Returns
<TABLE>
<CAPTION>
Measurement Period The Navigators S&P 500 Insurance (PPTY-
(Fiscal Year Covered) Group, Inc. Index CAS)-500
<S> <C> <C> <C>
Dec-92 100.00 100.00 100.00
Dec-93 107.69 110.08 98.23
Dec-94 48.67 111.53 103.04
Dec-95 59.16 153.45 139.51
Dec-96 61.26 188.68 169.53
Dec-97 63.04 251.63 246.60
</TABLE>
The Stock Performance Graph, as presented above, which was prepared
with the aid of independent consultant Standard & Poor's Compustat, a division
of McGraw-Hill, Inc., reflects the cumulative return on the common stocks of the
Company, S&P 500 Index and the Insurance Index, respectively, assuming an
original investment in each of $100 on December 31, 1992 (the "base") and
reinvestment of dividends to the extent declared. Cumulative returns for each
fiscal year subsequent to 1992 are measured as a change from this base.
12
<PAGE> 16
PROPOSAL NO. 2
APPOINTMENT OF INDEPENDENT AUDITORS
INDEPENDENT PUBLIC ACCOUNTANTS
KPMG Peat Marwick LLP, Certified Public Accountants, have been
appointed by the Board of Directors, upon the recommendation of the Audit
Committee, as independent auditors for the Company to examine and report on its
financial statements for 1997, which appointment will be submitted to the
Stockholders for ratification at the Meeting. Representatives of KPMG Peat
Marwick LLP are expected to be present at the Meeting, with the opportunity to
make a statement if they desire to do so, and to be available to respond to
appropriate questions. The appointment of the independent auditors will be
ratified if it receives the affirmative vote of the holders of a majority of the
shares of the Company's Common Stock present at the Meeting, in person or by
proxy. Submission of the appointment of the auditors to the Stockholders for
ratification will not limit the authority of the Board of Directors 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 OF DIRECTORS RECOMMENDS A VOTE "FOR" THIS PROPOSAL.
ALL OTHER MATTERS WHICH MAY PROPERLY
COME BEFORE THE MEETING
Management does not know of any other matters to be brought before
the Meeting except those set forth in the notice thereof. If other business is
properly presented for consideration at the 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
Approval of Proposals 1 and 2 require the affirmative vote of the
holders of a majority of the total number of shares of Common Stock represented
at the Meeting. Stockholders are entitled to one vote per share on all matters
submitted for consideration at the Meeting.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's directors, executive officers and persons who own more than 10% of the
Company's Common Stock to file certain reports regarding the ownership of the
Company's Common Stock with the Securities and Exchange Commission (the
"Commission") and the Nasdaq National Market. These insiders are required by the
Commission's regulations to furnish the Company with copies of all Section 16(a)
forms they file. To the Company's knowledge, based solely on review of the
copies of such reports furnished to the Company and written representations that
no reports were required, all of its directors and executive officers made all
required filings on time.
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
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.
13
<PAGE> 17
STOCKHOLDERS' PROPOSALS
Any proposal by a Stockholder of the Company intended to be
presented at the 1998 Annual Meeting of Stockholders must be received by the
Company at its principal executive office no later than January 21, 1999 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 Securities and Exchange Commission.
FORM 10-K ANNUAL REPORT
UPON WRITTEN REQUEST BY A STOCKHOLDER, THE COMPANY WILL FURNISH THAT
PERSON, WITHOUT CHARGE, A COPY OF THE FORM 10-K ANNUAL REPORT FOR 1997 WHICH IS
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION, INCLUDING THE FINANCIAL
STATEMENTS AND SCHEDULES THERETO. The Form 10-K Annual Report for 1997 provided
to Stockholders will not include the documents listed in the exhibit index of
the Form 10-K. Upon written request, the Company will furnish to the Stockholder
copies of any exhibits for a nominal charge. Requests should be addressed to The
Navigators Group, Inc., Attn: Bradley D. Wiley, Investor Relations Department,
123 William Street, New York, New York 10038.
SOLICITATION AND EXPENSES OF SOLICITATION
Officers and employees of the Company may solicit proxies. Proxies
may be solicited by personal interview, mail, telegraph 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 said 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,
/s/ Bradley D. Wiley
------------------------------------
Bradley D. Wiley
Secretary
New York, New York
April 30, 1998
14
<PAGE> 18
[Form of Proxy]
THE NAVIGATORS GROUP, INC.
123 William Street
New York, New York 10038
PROXY FOR THE MAY 28, 1998 ANNUAL MEETING OF STOCKHOLDERS
Terence N. Deeks and Bradley D. Wiley, or any one of them, with power of
substitution, are hereby authorized as proxies to represent, and to vote the
shares of, the undersigned at the Annual Meeting of Stockholders of The
Navigators Group, Inc. to be held at 11:00 a.m., New York City time, Thursday,
May 28, 1998, at The Down Town Association, 60 Pine Street, New York, New York,
and at any adjournment thereof. The proxies are to vote the shares of the
undersigned as instructed below and on the reverse side and in accordance with
their judgement on all other matters which may properly come before the Meeting.
The Board of Directors Recommends a Vote FOR 1.
1. ELECTION OF DIRECTORS
/ / For all nominees / / Withhold Authority to
vote for all nominees
Nominees:
Terence N. Deeks, Robert M. DeMichele, Leandro S. Galban, Jr., John
F. Knight, Marc M. Tract, William D. Warren and Robert F. Wright.
INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL
NOMINEE, PLEASE PRINT THAT NOMINEE'S NAME BELOW:
--------------------------------------------------------------
The Board of Directors Recommends a Vote FOR 2.
2. Ratification of the Selection of KPMG Peat Marwick LLP as
independent certified public accountant.
/ / For / / Against / / Abstain
IF NOT OTHERWISE SPECIFIED, THIS PROXY WILL BE VOTED FOR THE ELECTION OF
NOMINEES AND PROPOSAL 2.
Please sign this Proxy Form which is SOLICITED ON BEHALF OF THE BOARD OF
DIRECTORS, and Return it Promptly in the Enclosed Postage Prepaid envelope.
Dated: __________________, 1998
___________________________________________
___________________________________________
Please sign exactly as name appears hereon.
