<PAGE> 1
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
------------------------
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Filed by registrant [X]
Filed by a party other than registrant [ ]
<TABLE>
<S> <C>
Check the appropriate box:
[ ] Preliminary proxy statement [ ] Confidential, for Use of the Commission
[X] Definitive proxy statement Only (as permitted by Rule 14a-6(e)(2))
[ ] Definitive additional materials
[ ] Soliciting material pursuant to Rule
14a-11(c) or Rule 14a-12
</TABLE>
THE NAVIGATORS GROUP, INC.
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
NOT APPLICABLE
(NAME OF PERSON(S) FILING PROXY STATEMENT, IF OTHER THAN THE 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)(1) and 0-11.
(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 the filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
------------------------
It is anticipated that this Proxy Statement and a related form of proxy
will first be delivered to security holders on or around May 3, 1999.
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<PAGE> 2
THE NAVIGATORS GROUP, INC.
123 WILLIAM STREET
NEW YORK, NEW YORK 10038
------------------------
ANNUAL MEETING -- MAY 27, 1999
------------------------
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 27, 1999 at the India House, One Hanover
Square, New York, New York 10004.
A report of the Company's current affairs will be presented at the Meeting
and Stockholders will have an opportunity for questions and comments.
You are requested to 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, 1999
<PAGE> 3
THE NAVIGATORS GROUP, INC.
123 WILLIAM STREET
NEW YORK, NEW YORK 10038
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
MAY 27, 1999
------------------------
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 India House, One Hanover Square, New York, New York, on Thursday, May 27,
1999, at 11:00 a.m., E.S.T., for the following purposes:
(1) To elect seven (7) directors to serve until the year 2000 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
LLP as the independent auditors of the Company to examine and report on
the financial statements for 1999; 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, 1999, 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, 1999
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 May 3, 1999.
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, 1999, the record date, consisted of
8,424,070 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, 1999, are entitled to vote at the
Meeting. The closing price of the Common Stock on April 22, 1999 was $14.13.
A copy of the Company's Annual Report for the year ended December 31, 1998,
is being mailed to Stockholders simultaneously herewith. The financial
statements of the Company for the year ended December 31, 1998, 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>
POSITION WITH THE FIRST BECAME
NAME AGE COMPANY A DIRECTOR
- ---- --- ------------------- --------------
<S> <C> <C> <C>
Terence N. Deeks................................... 59 Chairman, President 1982
and CEO
Robert M. DeMichele................................ 54 Director 1983
Leandro S. Galban, Jr.............................. 64 Director 1983
Marc M. Tract...................................... 39 Director 1991
William D. Warren.................................. 63 Director 1996
Robert F. Wright................................... 73 Director 1993
Howard M. Zelikow.................................. 65 Director 1999
</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 including Navigators Insurance Company ("Navigators Insurance") and
NIC Insurance Company ("NIC"). 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 1995. Mr. DeMichele has been
Chairman of the Board and Chief Executive Officer of Lexington Management
Corporation ("LMC") since 1981. From 1985 to 1995, Mr. DeMichele served as
President of The Insurance Corporation of New York ("ICNY"). ICNY is a
Stockholder of the Company and is a wholly owned subsidiary of Chartwell Re
Corporation ("Chartwell"). Mr. DeMichele is a director of Chartwell, Lexington
Global Asset Managers, Inc. 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.*
Marc M. Tract has been a partner of the law firm of Rosenman & Colin LLP
since 1994. Mr. Tract was a partner of the law firm of Kroll & Tract from 1990
to 1994. Rosenman & Colin has been counsel to the Company since 1994.*+
William D. Warren had been Vice Chairman of General Reinsurance Corporation
during 1997 until his retirement that same year. From 1989 until December 1996,
Mr. Warren served as Chairman, President and Chief Executive Officer of National
Re Corporation.*
Robert F. Wright has been President and CEO 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 is a director of Deotexas Inc.,
Hanover Direct, Quadlogic Controls Corp., U.S. Timberlands Company L.P. and
Universal American Financial Corp.*+
Howard M. Zelikow has been Managing Director of Kayne Anderson Investment
Management, Inc. since 1988. Mr. Zelikow is a director of Financial Security
Assurance Holdings Ltd., Queensway Financial Holdings Limited and The Right
Start, Inc.
- ---------------
* Member of the Compensation Committee.
+ Member of the Audit Committee.
2
<PAGE> 6
The current non-director executive officers of the Company named in the
Summary Compensation Table below, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------------------------------------
<S> <C> <C>
Bradley D. Wiley.................................. 45 Senior Vice President, Chief Financial
Officer and Secretary
Salvatore A. Margarella........................... 49 Vice President and Treasurer
</TABLE>
Bradley D. Wiley has been Senior Vice President, Chief Financial Officer
and Secretary of the Company since December 1996 and of its insurance
subsidiaries since 1997. 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 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.
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, 1999, 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>
NUMBER PERCENTAGE
OF OWNERSHIP OF
NAME AND ADDRESS OF BENEFICIAL OWNER SHARES COMMON STOCK
- ------------------------------------ --------- ------------
<S> <C> <C>
Terence N. Deeks(1)......................................... 3,884,836 45.8%
123 William Street
New York, New York 10038
Marc M. Tract(2)............................................ 987,296 11.7%
575 Madison Avenue
New York, New York 10022
The Insurance Corporation of New York(3).................... 814,700 9.7%
Four Stamford Plaza
P.O. Box 120043
Stamford, Connecticut 06912-0043
Brian R. Deans (4).......................................... 10,000 *
Robert M. DeMichele(5)...................................... 47,410 *
Leandro S. Galban, Jr.(6)................................... 20,610 *
Russell J. Johnson (4)...................................... 23,000 *
William D. Warren........................................... 2,070 *
Bradley D. Wiley(7)......................................... 15,125 *
Robert F. Wright............................................ 6,070 *
Howard M. Zelikow(8)........................................ 9,198 *
All current directors and officers as a
group(1)(2)(4)(5)(6)(7)(8)................................ 4,431,709 51.8%
</TABLE>
- ---------------
* Less than 1%.
(1) Includes options to purchase 66,250 shares of Common Stock at exercise
prices between $14.50 and $28.00 per share. Also includes 590,836 shares
considered beneficially owned by Mr. Deeks which are held under several
instruments of trust for the benefit of Mr. Deeks' minor children. Excludes
393,490 shares which are held under certain other instruments of trust for
the benefit of Mr. Deeks' non-minor
3
<PAGE> 7
children. Mr. Deeks disclaims beneficial ownership of all shares held in
trust for the benefit of his children.
(2) Includes 984,326 shares held as trustee under several instruments of trust
for the benefit of Mr. Deeks' children of which 590,836 shares are included
in Mr. Deeks' shares listed above.
(3) 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.
(4) Consists of options to purchase shares of Common Stock at exercise prices
between $14.25 and $34.00.
(5) Excludes 165,000 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.
(6) Includes 1,350 shares held by Mr. Galban's son and 150 shares held by Mr.
Galban's wife.
(7) Includes options to purchase 1,875 shares of common stock at an exercise
price of $17.00 per share.
(8) Includes 1,300 shares held by Mr. Zelikow's wife and 1,398 shares held as
trustee pursuant to a trust for the benefit of certain family members.
Excludes 277,839 shares held by managed accounts of a registered investment
advisor affiliate of Kayne Anderson Investment Management, Inc.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company has a consulting agreement with Robert F. Wright Associates,
Inc., of which Mr. Wright, a director of the Company, is the President. The
consulting agreement provides for an annual consultation fee of $26,000 to be
paid to Robert F. Wright Associates, Inc. for certain consulting services
provided by Mr. Wright in conjunction with his director's responsibilities. Mr.
Wright is a member of the Audit, Compensation, Finance and Nominating
Committees.
The Company also has a consulting agreement with William D. Warren,
pursuant to which Mr. Warren provides certain consulting services to the Company
in conjunction with his director's responsibilities. Mr. Warren's 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 a member of his family own in the aggregate 97% of
Somerset Insurance Limited, a Bermuda corporation ("Somerset Bermuda"), with the
remaining 3% being owned by various investors. Somerset Bermuda reinsures a
member 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 Mr. Deeks' children. Mr. Tract is a member of the
Audit, Compensation and Nominating Committees.
4
<PAGE> 8
BOARD OF DIRECTORS
The Board of Directors of the Company held four meetings in 1998. 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 1998, except that
Mr. Tract attended 50% of the Audit Committee meetings.
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 1998, the Compensation Committee held one meeting.
The members of the Compensation Committee are Leandro S. Galban, Jr., 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 1998, the Audit Committee held two meetings. The members
of the Audit Committee are John F. Knight (retired from the Board and Audit
Committee in April 1999), Marc M. Tract and Robert F. Wright.
The Board's Nominating Committee recommends nominees for election to the
Company's Board of Directors. The Nominating Committee met once during 1998. The
members of the Nominating Committee are Marc M. Tract and Robert F. Wright.
5
<PAGE> 9
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,
1998 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").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION ---------------------
------------------- SECURITIES UNDERLYING ALL OTHER
SALARY BONUS OPTIONS/SARS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) ($) (#) ($)
- --------------------------- ---- -------- ------- --------------------- ------------
<S> <C> <C> <C> <C> <C>
Terence N. Deeks............... 1998 $358,348 $ -- 5,000 $69,542(1)
Chairman, President and 1997 400,000 30,000 -- 69,144(1)
Chief Executive Officer 1996 400,000 327,357 -- 69,252(1)
Michael J. Abdallah............ 1998 290,008 -- 7,500 66,906(2)
Senior Vice President 1997 250,000 100,000 -- 95,960(2)
(resigned February 1999) 1996 92,951 227,322 50,000 --
Bradley D. Wiley............... 1998 206,250 40,000 7,500 --
Senior Vice President, CFO 1997 197,500 50,000 20,000 --
and Secretary 1996 28,817 -- 30,000 --
Russell J. Johnson............. 1998 150,210 40,000 -- --
Senior Vice President 1997 130,700 40,000 10,000 --
of Somerset Marine, Inc. 1996 108,500 28,000 -- --
Brian R. Deans................. 1998 144,494 20,000 -- --
President of Somerset 1997 132,667 30,000 -- --
Insurance Services of 1996 128,500 27,174 -- --
California, Inc.
</TABLE>
- ---------------
(1) Represents the life insurance premiums paid by the Company for the benefit
of Mr. Deeks.
(2) Represents reimbursement primarily for relocation expenses and taxes.
EMPLOYMENT AGREEMENTS
The Company had entered into an agreement with Michael J. Abdallah
providing for his employment. Mr. Abdallah left the Company in February 1999.
The Company has entered into an agreement with Bradley D. Wiley. Mr.
Wiley's 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 constructive discharge, Mr. Wiley will
be entitled to receive an amount equal to 150% of his base salary along with
certain other benefits.
The Company has entered into an agreement with Salvatore A. Margarella
providing for his employment. In general, Mr. Margarella's agreement provides
for the continuation of his base salary for one year if he were terminated by
the Company without cause.
6
<PAGE> 10
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, 1998. For a description of the Company's
stock option plans, see "Stock Option Plans" included herein.
OPTION/SAR GRANTS IN 1998
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE AT ASSUMED
----------------------------------------------------------- ANNUAL
NUMBER OF PERCENT OF TOTAL RATES OF STOCK PRICE
SECURITIES OPTIONS/SARS APPRECIATION
UNDERLYING GRANTED TO EXERCISE FOR OPTION/SAR TERM
OPTIONS/SARS EMPLOYEES IN PRICE EXPIRATION ---------------------
NAME GRANTED (#) FISCAL YEAR ($/SHARE) DATE 5%($) 10%($)
- ---- ------------ ---------------- --------- ---------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Terence N. Deeks...... 5,000 6% 17.00 3/1/08 53,450 135,450
Michael J. Abdallah... 7,500 9% 17.00 3/1/08 80,175 203,175
Bradley D. Wiley...... 7,500 9% 17.00 3/1/08 80,175 203,175
Russell J. Johnson.... -- -- -- -- -- --
Brian R. Deans........ -- -- -- -- -- --
</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, 1998 and the value of outstanding and unexercised
options/SARs held as of December 31, 1998, based upon the market value of the
Common Stock of $15.50 per share on December 31, 1998.
AGGREGATED OPTION/SAR EXERCISES IN 1998
AND DECEMBER 31, 1998 OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS/SARS AT OPTIONS/SARS AT
DECEMBER 31, 1998(#) DECEMBER 31, 1998($)
SHARES ACQUIRED VALUE --------------------------- ---------------------------
NAME ON EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- --------------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Terence N. Deeks......... 6,000 16,500 65,000 5,000 50,000 --
Michael J. Abdallah...... -- -- 25,000 32,500 -- --
Bradley D. Wiley......... -- -- 25,000 32,500 -- --
Russell J. Johnson....... 3,750 10,781 24,875 5,625 10,000 --
Brian R. Deans........... -- -- 11,875 625 6,250 --
</TABLE>
COMPENSATION OF DIRECTORS
Directors of the Company who are not 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 and
a non-qualified stock option plan (the "Stock Option Plans").
7
<PAGE> 11
The Stock Option Plans are administered by the Compensation Committee of
the Company's Board of Directors. The Compensation Committee approves the
persons to receive options, option prices, dates of grant and vesting periods.
No option may extend longer than ten years. The Stock Option Plans require that
all options granted shall be at exercise prices not less than 90% of the fair
market value of the Common Stock on the date of the grant, as such value is
determined by the Compensation Committee. The options vest at the rate of 25%
per year.
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 approves the key employees who will
receive grants of the rights. The SAR Plan includes a vesting schedule similar
to that of the Stock Option Plans, 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. Galban, 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.
8
<PAGE> 12
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 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, 1998 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 consists
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 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 are to reward executives and
key employees based on performance measures 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 four 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 1998 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. For
1998, Mr. Deeks received from the Company a base salary of $350,000 per annum
and no annual incentive compensation payments. Mr. Deeks was granted 5,000 stock
options in 1998.
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
9
<PAGE> 13
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 1998. 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:
Leandro S. Galban, Jr.
Marc M. Tract
William D. Warren
Robert F. Wright
10
<PAGE> 14
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:
TOTAL RETURN TO SHAREHOLDERS
(DIVIDENDS REINVESTED MONTHLY)
<TABLE>
<CAPTION>
INSURANCE (PPTY-CAS)-
NAVIGATORS GROUP INC S&P 500 INDEX 500
-------------------- ------------- ---------------------
<S> <C> <C> <C>
Dec 93 100 100 100
Dec 94 45.19 101.32 104.9
Dec 95 54.94 139.4 142.02
Dec 96 56.88 171.4 172.58
Dec 97 58.54 228.59 251.04
Dec 98 48.31 293.91 233.59
</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, 1993 (the "base") and
reinvestment of dividends to the extent declared. Cumulative returns for each
fiscal year subsequent to 1993 are measured as a change from this base.
PROPOSAL NO. 2
APPOINTMENT OF INDEPENDENT AUDITORS
INDEPENDENT PUBLIC ACCOUNTANTS
KPMG 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
1999, which appointment will be submitted to the Stockholders for ratification
at
11
<PAGE> 15
the Meeting. Representatives of KPMG 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.
STOCKHOLDERS' PROPOSALS
Any proposal by a Stockholder of the Company intended to be presented at
the year 2000 Annual Meeting of Stockholders must be received by the Company at
its principal executive office no later than January 21, 2000 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 1998 WHICH IS
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION, INCLUD-
12
<PAGE> 16
ING THE FINANCIAL STATEMENTS AND SCHEDULES THERETO. The Form 10-K Annual Report
for 1998 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: Angela Conenna, 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,
Bradley D. Wiley
Secretary
New York, New York
April 30, 1999
13
<PAGE> 17
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NO. DESCRIPTION PAGE
- ------- ----------- ------------
<C> <S> <C>
99 Form of Proxy of The Group..................................
</TABLE>
<PAGE> 18
THE NAVIGATORS GROUP, INC.
123 WILLIAM STREET
NEW YORK, NEW YORK 10038
PROXY FOR THE MAY 27, 1999 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., E.S.T., Thursday, May 27, 1999,
at the India House, One Hanover Square, New York, New York 10004, 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.,
Marc M. Tract, William D. Warren, Robert F. Wright and Howard M.
Zelikow.
INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE,
PLEASE PRINT THAT NOMINEE'S NAME BELOW:
- --------------------------------------------------------------------------------
(continues other side)
<PAGE> 19
(continued from other side)
The Board of Directors Recommends a Vote FOR 2.
2. Ratification of the Selection of KPMG LLP as [ ] For [
] Against [ ] Abstain
independent certified public accountant.
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:
--------------------------------------------------------------,
1999
------------------------------------------
------------------------------------------
Please sign exactly as name appears
hereon.
