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

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The Navigators Group, Inc.

(Name of Registrant as Specified In Its Charter)

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

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THE NAVIGATORS GROUP, INC.

6 International Drive

Rye Brook, New York 10573

ANNUAL MEETING — May 23, 2013

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 Thursday, May 23, 2013 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 12, 2013

THE NAVIGATORS GROUP, INC.

6 International Drive

Rye Brook, New York 10573

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

May 23, 2013

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 Thursday, May 23, 2013, at 10:00 a.m. At the meeting, stockholders will be asked to:

(1) Elect ten (10) directors to serve until the 2014 Annual Meeting of Stockholders or until their respective successors have been duly elected and qualified;

(2) Pass an advisory resolution on executive compensation;

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

(4) Approve Amendment No. 1 to The Navigators Group, Inc. Employee Stock Purchase Plan;

(5) Ratify the appointment of KPMG LLP as the independent auditors of the Company to examine and report on the December 31, 2013 financial statements; and

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

The close of business on March 27, 2013 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

Bruce J. Byrnes

Secretary

Rye Brook, New York

April 12, 2013

YOUR VOTE IS IMPORTANT.

WHETHER OR NOT YOU INTEND TO BE PRESENT AT THE MEETING, TO ASSURE THAT YOUR SHARES ARE REPRESENTED AT THE MEETING, PLEASE MARK, SIGN AND DATE THE ENCLOSED PROXY AND RETURN IT IN THE ENCLOSED PREPAID ENVELOPE OR, IF YOU PREFER, SUBMIT YOUR PROXY BY USING THE INTERNET FOLLOWING THE INSTRUCTIONS ON THE PROXY CARD. IF YOU ATTEND THE MEETING, YOU MAY VOTE IN PERSON IF YOU WISH TO DO SO, EVEN IF YOU HAVE PREVIOUSLY SUBMITTED YOUR PROXY.

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 12, 2013. 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 ten (10) nominees as directors (Proposal 1), for the approval of the compensation of our named executive officers (Proposal 2), in favor of the approval of The Navigators Group, Inc. Second Amended and Restated 2005 Stock Incentive Plan (Proposal 3), in favor of the approval of the amendment to our employee stock purchase plan (Proposal 4) and in favor of the appointment of KPMG LLP as the independent auditors of the Company for fiscal year 2013(Proposal 5). 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 March 27, 2013, the record date, consisted of 14,128,529 shares of Common Stock, with each share of Common Stock entitled to one vote. Only Stockholders of record at the close of business on March 27, 2013 are entitled to vote at the Annual Meeting. The closing price of the Common Stock on March 27, 2013 was $58.43. A copy of the Company’s Annual Report for the year ended December 31, 2012 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.

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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 ten 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 other than David M. Platter is currently a director of the Company. Saul L. Basch was appointed as a director by the Board of Directors on August 2, 2012 and is standing for election by stockholders for the first time. All other directors named below are standing for re-election by stockholders. Marjorie D. Raines, who has served on the Board of Directors since 2010, 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.

Name	Age		Position with the Company	First Became a Director
Saul L. Basch		66	Director		2012
H. J. Mervyn Blakeney		75	Director		2004
Terence N. Deeks		73	Chairman		1982
Stanley A. Galanski		54	Director, President & CEO		2001
Geoffrey E. Johnson		65	Director		2011
John F. Kirby		66	Director		2004
Robert V. Mendelsohn		66	Director		2010
David M. Platter		53	Director		—
Janice C. Tomlinson		62	Director		2011
Marc M. Tract		53	Director		1991

Saul L. Basch began his career at Coopers & Lybrand with a concentration on insurance industry clients, ultimately acting as the Industry Leader and Senior Partner of the company’s Metropolitan New York Insurance Practice. He joined HSB Group, Inc. in 1995, ultimately serving as Vice Chairman, Chief Financial Officer and Treasurer. Mr. Basch retired from active employment with HSB Group, Inc. in 2012. Mr. Basch is a Certified Public Accountant.

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 was a non-executive director of Navigators Underwriting Agency Ltd., a wholly-owned United Kingdom subsidiary of the Company, until December 2010 and until February 2010 was the non-executive Chairman of that board.

Terence N. Deeks is our founder. Mr. Deeks 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 served as an Executive Chairman of the Board from his retirement as Chief Executive Officer until May 26, 2010. As of such date, Mr. Deeks retired as an executive of the Company, and has continued to serve as the non-executive Chairman of the Board. Mr. Deeks has informed the Board of his intention to retire as Chairman upon the conclusion of the Annual Meeting. Mr. Deeks will remain a director and Chairman Emeritus of the Company.

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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 chairman of Navigators Insurance Company.

Geoffrey E. Johnson retired from PricewaterhouseCoopers (“PwC”) in 2010, where he had worked since 1969 in both London and New York, having served major clients and held senior management positions in the U.K., Europe and globally. Most recently, from 2002 — 2010, he served as the Chief Executive Officer of PwC’s Bermuda-based professional indemnity captive insurance company. Prior thereto, from 1998 — 2002, he was the Global Chief Financial Officer/Operations Leader for PwC. He is Chairman of the Board of Professional Asset Indemnity Limited. In August 2012, as part of the acquisition by Canopius Group Limited of Omega Insurance Holdings Limited (“Omega”), Mr. Johnson resigned as a Director of Omega where he was Senior Independent Director and Chairman of the Audit Committee.

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.

Robert V. Mendelsohn most recently served as Chief Executive of Royal & Sun Alliance Insurance Group, PLC from 1997 — 2002, prior to which he was Chief Executive Officer of Royal Insurance Group from 1993 — 1997. Before joining Royal, Mr. Mendelsohn worked for W.R. Berkley Corporation for 20 years, ultimately serving as President and Chief Operating Officer. Mr. Mendelsohn has also served in a number of industry organizations in capacities including Chairman of the American Insurance Association, Trustee of the Society of Chartered Property Casualty Underwriters and a Director of the International Insurance Society and the Geneva Association.

David M. Platter joined Coller Capital Inc., a global investor in private equity secondaries, as an investment partner in January 2013. From 2006 to 2012, Mr. Platter worked for Credit Suisse in the Investment Banking Department’s Financial Institutions Group in the Americas, joining as a Managing Director and Group Head and ultimately serving as Vice Chairman and Senior Advisor. Mr. Platter began his investment banking career at Morgan Stanley in 1985. In 1994, he joined Donaldson, Lufkin & Jenrette. In 2000, he became Senior Managing Director and Head of Financial Institutions Investment Banking at Bear Stearns. In 2004, he was a founding member of Sagent Advisors, LLC, an investment banking advisory boutique.

Marjorie D. Raines, 66, 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. Ms. Raines is a non-executive director of Vardana Fund Ltd. Ms. Raines, who has served on the Board since 2010, is retiring from the Board effective upon the conclusion of the Annual Meeting and will not stand for re-election.

Janice C. Tomlinson worked at the Chubb Group of Insurance Companies for over 36 years, serving in various executive management roles, most recently as Executive Vice President of International Field Operations, until her retirement in December 2009. She has been actively involved in the community through her service on numerous non-profit boards. Ms. Tomlinson also serves on the boards of multiple subsidiaries of Firstcan Management Inc.

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.

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Non-Director Executive Officers

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

Name	Age		Position
Ciro M. DeFalco		58	Senior Vice President and Chief Financial Officer
Richard P. Bardwell		55	Active Underwriter, Navigators Underwriting Agency Ltd.
H. Clay Bassett, Jr.		47	Senior Vice President and Chief Underwriting Officer
Bruce J. Byrnes		45	Senior Vice President, General Counsel and Secretary
Stephen R. Coward		59	President, Navigators Technical Risk
R. Scott Eisdorfer		49	Senior Vice President and Chief Administrative Officer
Paul V. Hennessy		65	President, Navigators Holdings (UK) Ltd.
LoriAnn Lowery-Biggers		46	Chief Marketing Officer, Navigators Management Company, Inc.
Denise M. Lowsley		42	Senior Vice President and Global Human Resources Officer
Vincent C. Tizzio		47	President and Chief Executive Officer, Navigators Management Company, Inc.

Ciro M. DeFalco has been our Senior Vice President and Chief Financial Officer since December 2011 and has been with the Company since September 2011. Prior to joining the Company, Mr. DeFalco was Senior Vice President and Group Planning Officer of White Mountains Re Group, the reinsurance subsidiary of White Mountains Insurance Group, from 2007 to 2011 and Senior Vice President, Corporate Finance from 2002 to 2007. Prior thereto, Mr. DeFalco performed consulting services from 2000 to 2002 and worked in various financial positions for Marsh & McLennan Companies from 1988 to 2000.

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. Mr. Bardwell has been with the Company and its predecessor companies since 1980. Mr. Bardwell has held various positions with the Company.

H. Clay Bassett, Jr. has been our Senior Vice President and Chief Underwriting Officer since April 2008. 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 International Group, Inc. from 1990 to 1997. Mr. Bassett began his career at National Reinsurance Corp. in 1987.

Bruce J. Byrnes has been our Senior Vice President, General Counsel and Secretary 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.

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 Navigators Underwriting Agency Ltd. and prior to joining the Company, Mr. Coward held senior underwriting management positions at SCOR UK and Copenhagen Reinsurance Co. Ltd.

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.

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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 Navigators Underwriting Agency Ltd. 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 spent 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.

LoriAnn Lowery-Biggers joined the Company in 2009 as a Senior Vice President of Navigators Management Company, Inc., a wholly-owned subsidiary of the Company (“Navigators Management Company”). In 2012, Ms. Lowery-Biggers assumed the position of Chief Marketing Officer for the Company’s global operations. Prior thereto, Ms. Lowery-Biggers oversaw Field Operations for Navigators Management 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 from 2008 to 2009. Prior thereto, she held executive positions at Wells Fargo Insurance Services USA, Inc. and worked as a Managing Director at Marsh & McLennan Companies, Inc.

Denise M. Lowsley has been a Senior Vice President of the Company since February 2013, prior to which she was a Senior Vice President of Navigators Management Company. Since joining the Company in 2009, Ms. Lowsley has been the head of the Company’s Global Human Resources department. Prior to joining the Company, Ms. Lowsley was International Vice President of Compensation and Benefits at New York Life Insurance Company from 2007 to 2009, Global Human Resource Manager at Liberty Mutual Insurance Group from 2004 to 2007 and served in various other human resource management positions at Liberty since 1997.

Vincent C. Tizzio joined the Company in July 2012 as President and Chief Executive Officer of Navigators Management Company, in charge of the Company’s U.S. underwriting operations. Prior to joining the Company, Mr. Tizzio was Executive Vice President of Zurich North America from 2008 to 2012. Mr. Tizzio was President of AIG Small Business at American International Group from 2001 to 2008, having served in various underwriting and management positions with American International Group since 1995.

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Ownership of Voting Securities By Certain Beneficial Owners and Management

The following table sets forth the beneficial ownership, reported to the Company as of March 27, 2013, 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.

Name and Address of Beneficial Owner	Amount and Nature of Beneficial Ownership		Percent of Outstanding Shares
Terence N. Deeks(1)		2,343,140		16.6
6 International Drive
Rye Brook, NY 10573
Dimensional Fund Advisors LP(2)		1,178,231		8.3
Palisades West, Bldg. 1
6300 Bee Cave Road
Austin, TX 78746
Lord, Abbett & Co. LLC(3)		1,151,481		8.2
90 Hudson Street
Jersey City, NJ 07302
BlackRock, Inc.(4)		860,570		6.1
40 East 52nd Street
New York, NY 10022
Marc M. Tract(5)		920,300		6.5
Lord Abbett Research Fund, Inc. — Small-Cap Value Series(6)		727,200		5.1
90 Hudson Street
Jersey City, NJ 07302
H. Clay Bassett, Jr(7)		9,700		*
Saul L. Basch		490		*
H. J. Mervyn Blakeney		5,229		*
Stephen R. Coward(8)		12,710		*
Ciro M. DeFalco(9)		1,130		*
Stanley A. Galanski(10)		145,657		1.0
Geoffrey E. Johnson		1,452		*
John F. Kirby		6,062		*
Robert V. Mendelsohn		2,908		*
Marjorie D. Raines		3,206		*
Vincent C. Tizzio(11)		—		*
Janice C. Tomlinson		1,610		*
All current directors and executive officers as a group (19 persons) (1)(5)(7)(8)(9)(10)(11)(12)(13)		3,499,280		24.8

 * Less than 1%.

(1) Includes 1,117,143, 817,144 and 311,031 shares which may be deemed to be beneficially owned by Mr. Deeks as Settlor of the Terence N. Deeks 2013 Qualified Three Year Annuity Trust, the Terence N. Deeks 2012 Qualified Three Year Annuity Trust and the Terence N. Deeks 2011 Qualified Three Year Annuity Trust, respectively, 13,500 shares owned by the Deeks Family Foundation, 5,654 shares owned through Mr. Deeks’ Roth IRA, 67,342 shares owned jointly with his wife and 16,326 shares of which Mr. Deeks is the sole owner. Excludes 908,272 shares which are held under certain instruments of trust for the benefit of Mr. Deeks’ children and grandchildren, of which Mr. Deeks disclaims beneficial ownership.

(2) Based on Schedule 13G filed with the Securities and Exchange Commission (the “SEC”) on February 11, 2013 by Dimensional Fund Advisors LP, representing that Dimensional Fund Advisors LP has sole voting power over 1,160,808 shares and sole dispositive power over 1,178,231 shares.

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(3) Based on Schedule 13G filed with the SEC on February 14, 2013 by Lord, Abbett & Co. LLC, representing that Lord, Abbett & Co. LLC has sole voting power over 1,039,181 shares and sole dispositive power over 1,151,481 shares.

(4) Based on Schedule 13G filed with the SEC on February 5, 2013 by BlackRock, Inc., representing that BlackRock, Inc. has sole voting power and sole dispositive power over 860,570 shares.

(5) Includes 908,272 shares held as trustee under certain instruments of trust for the benefit of Mr. Deeks’ children and grandchildren, of which Mr. Tract disclaims beneficial ownership, and 12,028 shares held directly.

(6) Based on Schedule 13G filed with the SEC on February 14, 2013 by Lord Abbett Research Fund, Inc. — Small-Cap Value Series, representing that Lord Abbett Research Fund, Inc. — Small-Cap Value Series has sole voting power and sole dispositive power over 727,200 shares.

(7) Excludes 22,500 unvested shares from Mr. Bassett’s stock grants.

(8) Includes vested options to purchase 500 shares at an exercise price of $29.11 per share. Excludes 18,666 unvested shares from Mr. Coward’s stock grants.

(9) Excludes 17,250 unvested shares from Mr. DeFalco’s stock grants.

(10) Includes vested options to purchase 30,000 shares at an exercise price of $29.11 per share. Excludes 99,840 unvested shares from Mr. Galanski’s stock grants.

(11) Excludes 25,000 unvested shares from Mr. Tizzio’s stock grants.

(12) Includes Mr. Bardwell’s 9,700 shares and excludes his 14,167 unvested stock grant shares; includes Mr. Byrnes’ 1,207 shares and excludes his 17,625 unvested stock grant shares; includes Mr. Eisdorfer’s 29,344 shares, which include vested options to purchase 5,000 shares at an exercise price of $29.11, and excludes 16,667 unvested stock grant shares; includes Mr. Hennessy’s 2,438 shares and excludes his 14,000 unvested stock grant shares; includes Ms. Lowsley’s 753 shares and excludes her 11,000 unvested stock share grants and includes Ms. Lowery-Bigger’s 2,758 shares and excludes her 15,250 unvested stock share grants.

(13) No current directors or executive officers have pledged shares of the Company’s stock.

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

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opinion, would interfere with the exercise of his independent judgment in carrying out the responsibilities of a director. During 2012, 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 from the Company for such services in approximately the amount of $27,363 in 2012. In addition, one of the Company’s wholly-owned insurance company subsidiaries paid Katten Muchin Rosenman LLP approximately $821,067 in 2012 on behalf of certain insureds that selected the firm as their counsel, which amount was payable pursuant to the terms of insurance policies issued by such subsidiary. Mr. Tract is a member of the Finance Committee of the Board of Directors.

Geoffrey E. Johnson served as a non-executive director of NUAL in 2012 received £40,000, or $64,800 based on a conversion rate as of December 31, 2012 of £1 = $1.62, for his service on the NUAL board. Mr. Johnson is Chairman of the Audit Committee and a member of the Finance Committee of the Board of Directors.

Board of Directors and Committees

Board Leadership Structure

As of March 27, 2013, the Board of Directors of the Company had ten members, including eight 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 current non-executive Chairman of the Board of Directors, and Mr. Galanski is the Company’s current President and Chief Executive Officer. Mr. Deeks, who has served as Chairman of the Board of Directors since the Company’s formation in 1982, has informed the Board that he intends to retire from the position of Chairman upon the conclusion of the Annual Meeting. Mr. Deeks will continue as a member of the Board of Directors. It is anticipated that upon the conclusion of the Annual Meeting, Mr. Mendelsohn will be appointed by the Board to serve as Chairman as the successor to Mr. Deeks.

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) 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. 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 Underwriting Officer, Chief Administrative Officer, General Counsel & Chief Compliance Officer, Chief Actuary, 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

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and oversight of Finance & Credit Risk, Operational Risk, Underwriting & Claims Risk and Compliance & Governance Risk. The Chief Risk Officer reports directly to the Corporate Governance and Nominating Committee on a regular basis and the Audit Committee on at least an annual basis, and more frequently as needed.

In addition, the Board has an active role in risk oversight, both as a whole and also at the committee level. The Board and its committees receive periodic updates from members of senior management on areas of material risk to the Company, including operational, financial, strategic, competitive, reputational, legal and regulatory risks. While the Corporate Governance and Nominating Committee has been charged with broad and regular oversight of the risk management process, in addition to their considerations of issues associated with the independence of our Board, corporate governance and potential conflicts of interest, each of the other committees also plays a role in risk management. For instance, our Audit Committee regularly reviews our financial statements, financial and other internal controls, and remediation of material weaknesses and significant deficiencies in internal controls, if any. Our Compensation Committee regularly reviews our executive compensation policies and practices and the risks associated with each. Our Finance Committee considers business risks relating to the Company’s strategic capital-related decisions as well as investment strategies. Our Underwriting Advisory Committee regularly assesses risks relating to the Company’s insurance and reinsurance operations. While each committee is responsible for evaluating certain risks and risk oversight, the entire Board of Directors is regularly informed of risks relevant to the Company’s business, as described above.

The Company’s Internal Audit department provides another level of risk oversight by independently assessing the effectiveness of various of the Company’s processes, practices and controls and by providing timely feedback on their effectiveness. The Director of Internal Audit reports directly to the Audit Committee. In addition, our independent outside auditors regularly identify and discuss with our Audit Committee risks and related mitigation measures that may arise during their regular reviews of the Company’s financial statements, audit work and executive compensation policies and practices, as applicable.

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.

• Mr. Basch’s experience as the chief financial officer of a large specialty insurance company and as a certified public accountant can be leveraged by the Company for valuable advice regarding the Company’s finances, investments and other matters facing management or specialty insurers generally.

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• Mr. Blakeney’s knowledge of the U.K. insurance market as well as his experience in senior management of a large company is a valuable resource for the Board as the Company’s U.K. operations continue to grow.

• Mr. Deeks, as the Company’s founder and former President and Chief Executive Officer, provides extensive knowledge of the Company’s industry as well as an historical perspective of the Company. Mr. Deeks has experience both in the U.K. and the U.S. insurance markets, providing broad insight on the Company’s varied operations.

• Mr. Galanski provides the Board of Directors with broad perspective on the Company’s strategies, challenges and opportunities through his role as the President and Chief Executive Officer of the Company and his day to day oversight of the Company’s operations.

• Mr. Johnson brings in-depth knowledge of the public accounting and insurance fields, allowing for insightful advice and counsel on financial strategies, internal audit practices and the impact of major regulatory changes, together with a thorough understanding of the Company’s balance sheet.

• Mr. Kirby provides a depth of experience in respect of the Company’s activities as a result of his nearly 40 years of experience in the property and casualty insurance industry, including senior positions in the areas of underwriting, reinsurance and management.

• Mr. Mendelsohn brings in-depth knowledge and experience from his many years of service as the head of well-known companies within the insurance industry. His knowledge regarding the industry and the underwriting process, as well the opportunities and challenges in the overall management of an insurance company, is a valuable resource for management.

• Mr. Platter has had a twenty-seven year career as an investment banker, throughout which he has provided mergers and acquisitions, capital raising and strategic advisory services to numerous insurance and healthcare companies, banks, thrifts, asset managers and other financial institutions. His extensive experience will provide the Company with valuable insight to the markets as it strives to maintain solid financial footing and continues to looks for opportunities for growth.

• Ms. Tomlinson brings many years of experience in executive management of international insurance operations and close familiarity with the human resources aspect of the business, especially useful to a growing company.

• Mr. Tract has worked for 25 years as a corporate attorney concentrating on representation of the insurance industry and as a result he brings deep knowledge of the insurance regulatory and governance landscape to the Board of Directors.

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.

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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 five meetings in 2012 and met in executive session without management present at four of those meetings. During 2012, 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 2012 Annual Meeting 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 and Compensation Committees are also independent under the applicable SEC and NASDAQ listing 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 AND MEETINGS OF BOARD COMMITTEES

	Committee Name
Director Name	Audit	Compensation	Corporate Governance and Nominating	Finance	Underwriting Advisory
Saul L. Basch	X			X
H.J. Mervyn Blakeney		X	X	X
Terence N. Deeks					X
Stanley A. Galanski					X
Geoffrey E. Johnson	Chair			X
John F. Kirby		X	X		Chair
Robert V. Mendelsohn	X		Chair		X
Marjorie D. Raines	X			Chair
Janice C. Tomlinson		Chair			X
Marc M. Tract				X
Total 2012 Meetings	7	5	5	4	4

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

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member has sufficient knowledge in financial and auditing matters to serve on the Audit Committee. Messrs. Basch, Johnson and Mendelsohn and Ms. Raines have each been designated as a financial expert to serve on the Audit Committee. The Audit Committee operates under a charter which is reviewed annually and updated as necessary. The charter is available on the Company’s 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; and (v) approving grants of stock options and stock awards to officers and employees of the Company under its stock incentive plan. 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 regularly reports and consults with the independent members of the Board of Directors on executive compensation matters. The Compensation Committee is also responsible for managing risks associated with executive retention and compensation or stock incentive initiatives. 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 the Company’s 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 Compensation Committee may engage compensation consultants or other advisors at its discretion and may form and delegate to subcommittees when appropriate. In 2012, the Compensation Committee engaged Towers Watson & Co. (“Towers Watson”) as an independent compensation consultant to advise on the compensation levels of various management positions and on the Company’s annual and long term incentive plans. An affiliate of Towers Watson from time to time provides brokerage services in the ordinary course of business to the insurance company subsidiaries of the Company. In 2012, such subsidiaries paid commission in the amount of $484,131 to the Towers Watson affiliate for these services. In addition, certain reinsurers of the insurance company subsidiaries of the Company may pay commission to the Towers Watson affiliate in respect of reinsurance policies purchased by the Company’s subsidiaries from such reinsurers. The Compensation Committee paid $60,000 to Towers Watson for their consultant services.

The Corporate Governance and Nominating Committee is responsible for ensuring that the Board of Directors and its committees are appropriately constituted to meet their legal obligations to our Stockholders and the Company. To this end, the Committee is responsible for (i) identifying and recommending to the Board individuals qualified to become Board and Committee members; (ii) maintaining that a majority of the Board members are independent and that members of the Audit, Compensation, and Corporate Governance & Nominating Committees are independent as required; (iii) recommending to the Board the Insider Trading Policy and Procedure for the Company; (iv) developing and recommending to the Board a set of corporate governance principles applicable to the Company; (v) reviewing and providing oversight of the Company’s enterprise risk management program; and (vi) generally to address corporate governance issues for the Board. 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 the Company’s 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

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strategy, guidelines, transactions and performance and for assessing the capital and financial resources of the Company. The Finance Committee also oversees the management of the Company’s investment and credit-related risks. The specific responsibilities and functions of the Finance Committee are set forth in the Finance Committee Charter which is available on the Company’s website at www.navg.com under the Corporate Governance link. The Finance Committee Charter is reviewed annually and updated as necessary.

The Underwriting Advisory Committee is responsible for the oversight of our insurance underwriting strategy, guidelines and practices. The Underwriting Advisory Committee oversees the Company’s risks associated with its underwriting practices. The specific responsibilities and functions of the Underwriting Advisory Committee are set forth in the Underwriting Advisory Committee Charter which is available on our website at www.navg.com under the Corporate Governance link. The Underwriting Advisory Committee Charter is reviewed annually and updated as necessary.

Compensation Discussion and Analysis

This section describes the compensation programs for our Chief Executive Officer and our current Chief Financial Officer in fiscal year 2012 as well as each of our three most highly compensated executive officers employed at the end of fiscal year 2012, all of whom we refer to collectively as our Named Executive Officers or NEOs. Our Named Executive Officers for fiscal year 2012 are:

• Stanley A. Galanski, President and Chief Executive Officer

• Ciro M. DeFalco, Senior Vice President and Chief Financial Officer

• H. Clay Bassett, Jr., Senior Vice President and Chief Underwriting Officer

• Stephen R. Coward, President, Navigators Technical Risk (“NavTech”), a division of the Company encompassing the global technical risk underwriting business

• Vincent C. Tizzio, President & Chief Executive Officer, Navigators Management Company, Inc., a wholly-owned subsidiary of the Company

Executive Summary

The Company’s compensation program is shaped by our pay-for-performance philosophy that is intended to align our executive officers’ interests with those of our stockholders by rewarding performance that meets or exceeds the goals the Compensation Committee establishes with the objective of increasing stockholder value. In line with this philosophy, the total compensation received by the Named Executive Officers varies based on individual and corporate performance, as well as the performance of a particular underwriting division, if any, for which such Named Executive Officer has responsibility, measured against relevant annual and long-term performance goals. The Named Executive Officers’ total compensation is comprised of a mix of base salary, annual bonus and long-term incentive awards.

The annual incentive compensation awards and long term performance-based equity incentive grants comprise a significant part of our Named Executive Officers’ total compensation and are awarded based largely on the Company’s achievement of book value per share and net income per share as compared to pre-established targets, as described below. Despite a challenging economic environment, the Company has continued to grow book value per share and after a decline in net income per share in 2011 in a year over year comparison to 2010, in 2012, net income per share increased not only in a year over year comparison to 2011 but also increased 5% as compared to 2010. See “Management’s Discussion and Analysis of Financial Conditions and Results of Operations” in our Annual Report on Form 10-K for a more detailed description of our 2012 financial results.

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The Company’s corporate performance was a key factor in the compensation decisions affecting the Named Executive Officers for 2012. It also significantly affected the payout of long term incentive awards previously granted to the Named Executive Officers. Examples are as follows:

• The annual bonus incentive compensation payable to our President and Chief Executive Officer for 2012 was determined based on net income per share and growth in book value per share. Additionally, the ultimate value of the long term equity grant made to the CEO in 2012 and vesting in 2015 will be determined by performance, with only 50% of the grant vesting in full based on his continued employment with the Company while the other 50% of the grant will vest on the basis of the compound growth in book value per share over the 2012 to 2014 performance period.

• Performance-based restricted stock unit awards make up a significant portion of our President and Chief Executive Officer’s overall compensation. Such awards previously granted to him have vested below their target amount on account of the Company’s failure to achieve pre-established targets for return on equity. For instance, performance shares vesting in August 2011 vested at 40% of their target amount and performance shares vesting in August 2012 were forfeited in their entirety.

• Net income per share and growth in book value per share were key metrics for measuring the Company’s corporate performance for purposes of awards under the Company’s Annual Incentive Plan. For 2012, these metrics were calculated excluding certain significant realized gains for the President and Chief Executive Officer and the Senior Vice President and Chief Financial Officer and all realized and unrealized gains for each other Named Executive Officer. In addition, the Compensation Committee adjusted the overall bonus pool downwards based on adjusted net income. On account of each of these factors, the annual incentive bonus payment made to each of the Named Executive Officers was significantly below their respective target percentages.

• Named Executive Officers as well as other key members of management are eligible for an annual performance-based long-term incentive equity award under the Company’s Admirals Program. Each Admirals Program grant consists of restricted stock units vesting in full in three years from the date of grant, with 50% of the restricted stock units vesting in full subject only to continued employment and 50% of the restricted stock units vesting based on the Company’s financial performance over the three year vesting period.

• Long-term equity incentives make up a significant portion of each of the Named Executive Officer’s compensation and the value of certain of their equity awards is directly linked to the Company’s financial performance over multi-year measurement periods. For example, performance shares that vested in February 2011 vested at 55% of their target amount and performance shares that vested in 2012 and 2013 were forfeited in their entirety because the Company failed to achieve the targeted financial results for the relevant three year performance period.

The Company’s compensation program builds upon the Company’s pay-for-performance philosophy, as exemplified by:

• The ultimate value of the annual long term performance-based equity awards, including the award for the President and Chief Executive Officer, being tied to the performance of the Company over a three year period, encouraging management to make decisions that align the Company’s long-term goals with stockholder interests.

• The Compensation Committee’s engagement of its own independent consultant in 2012, which assisted the Committee with an analysis of executive compensation and the design of awards granted under the Company’s Annual Incentive Plan and other long term incentive awards going forward in relation to the Company’s pay-for-performance and retention goals.

Compensation Objectives and Philosophy

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,

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(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 balance rewards to employees based upon the annual performance of the Company and their individual roles in achieving that level of corporate performance and long term incentive awards whose value is tied to corporate performance. The Company’s Board of Directors and its senior management believe that compensation decisions for each Named Executive Officer 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.

Setting Executive Compensation

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, taking into account any recommendations of the Named Executive Officer’s direct supervisor if such Named Executive Officer does not report directly to the President and Chief Executive Officer, and 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 — Chief Executive Officer Compensation” 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 2012 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. The peer companies considered in 2012 were Allied World Assurance Company Holdings, AG, Alterra Capital Holdings Ltd., AmTrust Financial Holdings, Inc., Argo Group International Holdings, Ltd., W. R. Berkley Corp., Erie Indemnity Company, HCC Insurance Holdings, Inc., Markel Corp., OneBeacon Insurance Group, Ltd., RLI Corp. and Tower Group, Inc.

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Executive Compensation Components

The components of the Company’s executive compensation program for the year ended December 31, 2012 are set forth in the table below. Each of the components and why the Company pays each element of compensation, how the Company arrived at the amount of each element for the Named Executive Officers, and how each element fits into the Company’s overall compensation objectives are more fully described in the sections following the table.

Compensation Component	Objectives	Key Features
Base Salary	To provide a fixed level of cash compensation to reward demonstrated experience, skills and competencies relative to the market value of the job and impact of the individual on the organization.	Adjustments are considered, but are not guaranteed, periodically, based on individual performance, level of pay relative to the market and internal pay equity.
Annual Incentive Awards	To reward individual, corporate and, where applicable, business unit performance on an annual basis. Retains Named Executive Officers by providing market-competitive compensation.	Awards were based on financial targets, including net income per share and growth in book value per share, as well as, for those with responsibility for a business unit, the relevant gross written premium, loss ratio and operating expense ratio as compared to plan.
Long Term Incentive Awards	To align the interests of executives with the performance of the Company on a long-term basis. Aligns Named Executive Officer interests with those of our Stockholders by promoting strong results over time.	The Admirals Program provides for stock awards to certain key underwriters and other employees that will vest in three years. Fifty percent of such award will vest based only on the employee’s continued employment and fifty percent will vest in an amount ranging from 0 to 150% based on the Company’s compound growth in book value per share over the vesting period.
Retirement Plans	Plans to assist in saving for retirement in order to provide a level of anticipated retirement income.	Includes the 401(k) Plan and the Retirement Savings Account for U.S. employees and the U.K. pension scheme for U.K. employees, each of which 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.

Chief Executive Officer Compensation.    In 2012, the compensation of our President and Chief Executive Officer, Mr. Galanski, included base salary, a cash bonus and a performance-based long-term incentive grant of restricted stock units (the “Long Term Incentive Grant”). Each element of Mr. Galanski’s compensation is discussed separately below. In respect of Mr. Galanski’s 2012 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 on equity to stockholders since Mr. Galanski joined the Company in 2001, (iii) Mr. Galanski’s significant contributions to the growth of the Company during his tenure, (iv) the importance of Mr. Galanski to the continued growth, success and future of the Company, and (v) the need to provide him with a significant incentive as well as to motivate him and retain his services as President and Chief Executive

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Officer. In addition to these factors, Mr. Galanski’s compensation package 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 increased from $0.84 to $4.45, its book value per share has increased from $17.05 to $62.61, and its share price has increased from $13.31 to $58.43 as of March 27, 2013. (Except as noted, all figures are as of December 31, 2000 and December 31, 2012, respectively.)

Mr. Galanski’s compensation package provides for an annual incentive award to be paid pursuant to the Company’s Amended and Restated 2005 Stock Incentive Plan (the “2005 Stock Incentive Plan”) in an amount 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 executive compensation. The annual incentive payments are administered by the Compensation Committee, which selects the performance targets each year. In 2012, two-thirds of his annual incentive award was paid to Mr. Galanski in cash and one-third was paid in restricted stock units that vest in equal portions on the first, second, third and fourth anniversary of the grant date. For more information, see “Compensation Discussion & Analysis — Amended and Restated 2005 Stock Incentive Plan — Annual Incentive Awards.”

Mr. Galanski’s annual bonus target is 100% of his base salary, with a range from 0 to 150% of his base salary based on relative achievement against the selected performance measures. Two-thirds of the annual bonus is payable in cash and one-third is paid in the form of restricted stock units issued under the 2005 Stock Incentive Plan that vest in equal installments over a four year period. For 2012, the bonus award payable to Mr. Galanski was determined by the degree to which the Company achieved corporate performance targets (the “Basic Bonus Targets”) based on its budget plan with respect to net income per share and year over year growth in book value per share. For 2012, the Basic Bonus Targets consisted of net income per share of $4.23 and growth in book value per share of 6.7%, with net income per share weighted at 35% of the bonus calculation and growth in book value per share weighted at 65%. Achievement of 100% of the Basic Bonus Targets would entitle Mr. Galanski to receive the full bonus award of 100% of his base salary. Achievement of 50% of the Basic Bonus Targets (net income per share of $3.33 and growth in book value per share of 4%) would entitle Mr. Galanski to receive 50% of his base salary as his bonus award. Achievement of 150% of the Basic Bonus Targets (net income per share of $6.10 and growth in book value per share of 12%) would entitle Mr. Galanski to receive the maximum of 150% of his base salary for his bonus award. Achievement of between 50% and 150% of the Basic Bonus Targets would entitle Mr. Galanski to receive a corresponding bonus award of between 50% and 150% of his base salary, and achievement below 50% of the Basic Bonus Targets would mean that no bonus would be awarded to Mr. Galanski. For 2012, the Compensation Committee elected to calculate net income per share excluding the effects of significant realized gains recognized by the Company in the fourth quarter on account of certain investment decisions made to react to then current events. Calculated as such, the Company achieved net income per share of $3.18 and growth in book value per share of 8.8%. These metrics resulted in a bonus for Mr. Galanski equal to 76.9% of the Basic Bonus Targets; therefore, Mr. Galanski was granted a bonus payment of 76.9% of his base salary, or $558,000, with $372,000 payable in cash and $186,000 payable in restricted stock unit awards.

The Long Term Incentive Grant is an annual grant made under the 2005 Stock Incentive Plan, which for 2012 was equal to 200% of his base salary as of the date of the grant. Each Long Term Incentive Grant will cliff vest upon the third anniversary of the grant, provided that 50% of the award will vest based on Mr. Galanski’s continued employment while the other 50% will vary based on the Company’s rate of compound growth in book value per share during the three year performance period. For the grant issued in 2012, if the rate of compound growth in book value per share for the performance period is 8%, the 50% of the award that is performance based will vest at 100% of its target. However, if the rate of compound growth in book value per share is 12%, that portion of the award will vest at 150% of its target; if the rate of compound growth in book value per share is 6.5%, that portion will vest at 50% of its target; and if the rate of compound growth in book value per share is 5%, that portion will vest at 25% of its target. Achievement of between 5% and 12% of compound growth in book value per shares for the performance period would cause the performance based portion of the Long Term Incentive Grant to vest at the corresponding value between 25% and 150% of the target. If the rate of compound

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growth in book value per share for the performance period is below 5%, none of the restricted stock units of the portion that is performance based will vest.

The Compensation Committee reviewed Mr. Galanski’s base salary relative to the salaries of chief executive officers of peer companies, taking into consideration the performance of the Company relative to its peers. As a result of this review, the Committee made no change to Mr. Galanski’s base salary in 2012.

The Compensation Committee believes that performance targets for Mr. Galanski’s annual bonuses as well as for the performance based portion of his Long Term Incentive Grants have been set at levels that can be achieved only with significant effort on the part of Mr. Galanski and that payment of the maximum award amounts in either case would reflect results substantially in excess of expectations. The Compensation Committee has no discretion 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. Mr. Galanski’s compensation package supports the Company’s retention compensation objectives by enabling the Company to provide him with fair, adequate and competitive compensation and appropriate incentives to enhance the profitability and growth of the Company.

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 2012, Mr. Bassett’s base salary was increased from $375,000 to $425,000. Base salaries were not increased for any other Named Executive Officer in 2012. 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.

Annual Incentive Award.    Mr. DeFalco’s annual incentive award, paid pursuant to the 2005 Stock Incentive Plan, is measured on the same metrics as Mr. Galanski’s, as described above. The Compensation Committee elected to provide incentive awards to the Chief Executive Officer and Chief Financial Officer based on the same performance measures in order to align the executives and directly connect their compensation to the Company’s performance. Unlike Mr. Galanski, Mr. DeFalco’s annual incentive award is paid fully in cash.

Mr. DeFalco’s annual bonus target is 60% of his base salary, with a range from 0 to 150% of his base salary based on relative achievement against the selected performance measures. For 2012, the bonus award payable to Mr. DeFalco was determined by the degree to which the Company achieved the Basic Bonus Targets as described above, based on its budget plan with respect to net income per share and year over year growth in book value per share. Namely, for 2012, the Basic Bonus Targets consisted of net income per share of $4.23 and growth in book value per share of 6.7%, with net income per share weighted at 35% of the bonus calculation and growth in book value per share weighted at 65%. Achievement of 100% of the Basic Bonus Targets would entitle Mr. DeFalco to receive the full bonus award of 60% of his base salary. Achievement of 50% of the Basic Bonus Targets (net income per share of $3.33 and growth in book value per share of 4%) would entitle Mr. DeFalco to receive 30% of his base salary as his bonus award. Achievement of 150% of the Basic Bonus Targets (net income per share of $6.10 and growth in book value per share of 12%) would entitle Mr. DeFalco to receive the maximum of 90% of his base salary for his bonus award. Achievement of between 50% and 150% of the Basic Bonus Targets would entitle Mr. DeFalco to receive a corresponding bonus award of between 30% and 90% of his base salary, and achievement below 50% of the Basic Bonus Targets would mean that no bonus would be awarded to Mr. DeFalco. As with Mr. Galanski’s incentive award, for 2012, the Compensation Committee elected to calculate net income per share excluding the effects of significant realized gains recognized by the Company in the fourth quarter on account of certain investment decisions made to react to then current events.

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Calculated as such, the Company achieved net income per share of $3.18 and growth in book value per share of 8.8%. These metrics resulted in a bonus for Mr. DeFalco equal to 76.9% of the Basic Bonus Targets; therefore, Mr. DeFalco was granted a cash bonus payment of 46.1% of his base salary, or $177,694.

Annual Incentive Plan.    The Company’s Annual Incentive Plan, in which all employees of the Company other than the President and Chief Executive Officer and Senior Vice President and Chief Financial Officer participated in 2012, provides for the payment of annual cash bonuses.

Awards under the Annual Incentive Plan are based on corporate performance, divisional underwriting performance and individual performance within the overall guidelines of the Annual Incentive Plan. 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 Annual Incentive Plan bonus awards, as well as the various elements of corporate performance and divisional performance, each year.

The Annual Incentive Plan supports the Company’s recruitment objectives by enabling the Company to attract qualified new employees. The Annual Incentive Plan 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 participating Named Executive Officer who has responsibility for one of the Company’s various business divisions, the divisional component of the Annual Incentive Plan enables the Company to directly tailor the amount of his incentive compensation to the performance of his division.

The Committee believes that performance targets for annual bonuses under the Annual Incentive Plan 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 Annual Incentive Plan, and that payment of the maximum award amounts under the Annual Incentive Plan would reflect results substantially in excess of expectations. The Compensation Committee has discretion to amend individual awards, subject to the maximum award amounts permitted under the Annual Incentive Plan, to assure that such awards reflect the contributions of participating executives.

The Annual Incentive Plan categorizes 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 for 2012 ranged from 5% to 60% among the different groups. Under the Annual Incentive Plan, 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, Annual Incentive Plan participants are entitled to receive 100% of their target percentages under the Annual Incentive Plan. For achievement of less than 100% of such corporate, individual and, where applicable, divisional targets, Annual Incentive Plan 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, Annual Incentive Plan participants are entitled to receive correspondingly more than 100% of their target percentages under the Annual Incentive Plan, up to a maximum of 150% of their target percentages. Regardless of the ultimate achievement, payout of Annual Incentive Plan awards is subject to the total funding made available for the annual bonus pool, which for 2012 was determined by the Compensation Committee to be set between 7.5% and 15% of adjusted net income, as described below.

In 2012, the targets for the corporate performance component of the Annual Incentive Plan bonus award were based on the extent to which the Company achieved its 2012 budget plan with respect to net income per share and growth in book value per share, with these two elements being weighted at 35% and 65%, respectively, of corporate performance. The targets for the divisional performance component of the Annual Incentive Plan bonus award were based on the extent to which the applicable business division achieved its 2012 divisional

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budget plan with respect to gross written premium, operating expense ratio, calendar year loss ratio and accident year loss ratio. To enforce the Company’s responsible underwriting culture, missed targets for operating expense ratio and both loss ratios count more heavily than missed targets for gross written premium. Each of these elements is then weighted at 25% of the divisional performance component.

For 2012, with respect to the corporate performance, the targets for net income per share of $4.23 and growth in book value per share of 6.7% would have resulted in 100% of the target corporate performance component, while $6.10 net income per share and 12% growth in book value per share would have earned 150% of the target corporate performance component, and the minimum targets of $3.30 net income per share and 4% growth in book value per share would have resulted in 50% of the target corporate performance component. Any amount below the minimum targets would have resulted in a zero for such target. For 2012, the Compensation Committee elected to exclude the fiscal year realized and unrealized investment gains from the calculations of net income per share and growth in book value per share. Calculated as such, the adjusted net income per share was $2.63, resulting in a zero degree of achievement for such target, and 4.7% growth in book value per share, resulting in 62.4% degree of achievement for such target. Together, these converted to a 40.5% achievement relevant to the corporate performance component of the Annual Incentive Plan.

Where divisional performance targets are applicable, for employees at relatively senior levels, divisional performance is weighted 50% of the Annual Incentive Plan bonus award calculation, and corporate and individual performance are each weighted 25%. Where divisional performance targets are not applicable, corporate and individual performance are each weighted at 50% for such employees. In addition, the Compensation Committee determined that the amount of funding available for the annual bonus pool would be set between 7.5% and 15% of adjusted net income. For 2012, the Compensation Committee elected to fund the bonus pool at 13% of adjusted net income, which were calculated excluding bonus compensation and the impact of a one time 2012 settlement in a dispute regarding payments under certain reinsurance contracts. This level of funding resulted in reducing the available bonus pool by over 40% from the amount that would have been available based on the performance targets described above.

The relative weight of the corporate, divisional and individual performance components used to determine the Annual Incentive Plan bonus awards for the Named Executive Officers varied as indicated above. For Mr. Coward, who had management responsibility for the Company’s NavTech division, 25% of his overall Annual Incentive Plan bonus award is determined by the Company’s corporate performance, 50% by the underwriting performance of the business for which he has responsibility, and 25% by his individual performance. For 2012, the targets for the business for which Mr. Coward had responsibility were an 8.8% increase in gross written premium relative to the prior year, a 19.7% expense ratio and loss ratios of 50.7% and 47.8% for the calendar year and accident year, respectively. For Mr. Bassett, who does not have management responsibility for a business division, 50% of his overall Annual Incentive Plan bonus award is determined by the Company’s corporate performance and 50% by his individual performance. Mr. Tizzio was paid a previously agreed-upon Annual Incentive Plan bonus award for 2012 as a condition of his hiring during 2012. The individual performance component of the Annual Incentive Plan bonus awards for Messrs. Bassett and Coward was determined by Mr. Galanski, based upon his reasoned, subjective evaluation of the individual performance of each such Named Executive Officer. The Annual Incentive Plan bonus award for each participating Named Executive Officer was reviewed and approved by the Compensation Committee.

The Annual Incentive Plan bonus awards paid to Mr. Bassett was $100,000 and to Mr. Coward was $153,900 (based on a conversion rate on December 31, 2012 of £1=$1.62), respectively. Mr. Tizzio was paid an Annual Incentive Plan bonus award in the amount of $300,000.

Admirals Program.    In 2006, the Compensation Committee, working with senior management of the Company, established the Admirals Program, which provides for special restricted stock unit award grants under the Company’s 2005 Stock Incentive Plan for certain key underwriters and other employees of the Company (“Admirals Awards”). Only employees who are highly significant contributors to the Company and participate at relatively high levels in the Annual Incentive Plan generally receive Admirals Awards.

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The Admirals Program is primarily designed to align the interests of management and stockholders, as well as to retain qualified employees and facilitate continuity of management by providing significant long term incentive stock awards to key employees. 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 Admirals 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 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 long term retention mechanism targeted toward a small number of highly significant and valued contributors.

Starting with grants made in 2011, the Compensation Committee decided to introduce a revised structure of the Admirals Program in order to balance the Company’s pay-for-performance culture with the Company’s retention objectives. Under the prior structure, the Compensation Committee felt that the retention objectives were not being fully realized, as the performance of the Company during the relevant performance period dictates that the more recent awards granted under the Admirals Program have vested or will vest at substantially less than the target amount, including many at zero shares, on account of the soft market conditions that existed in the insurance markets. As a result, the Committee felt that the structure was undercutting the Company’s long-term retention goals as the value of unvested equity under such awards was substantially reduced, making the Company more vulnerable to competitors seeking to recruit our key executives.

For awards granted in 2011 and 2012 under the Admirals Program, such awards will cliff vest upon the third anniversary of the grant date, at which time 50% of the restricted stock unit award will be fixed and vest subject only to continued employment on the vesting date while the remaining 50% will be performance-based and the actual number of restricted stock units vesting may vary from 0% to 150% subject to the Company meeting a compound annual growth in book value per share target during the three year performance period, as set by the Compensation Committee. The chart below lists, for Admirals Awards issued in 2012, the target compound growth in book value per share over the three-year vesting period for a recipient to receive the maximum, target, middle and threshold amount of shares under an Admirals Award. For Admirals Awards granted in 2012, the Compensation Committee set the target growth in book value per share at 8%. Typically, recipients of Admirals Awards are considered for, but not guaranteed, an award each year.

Compound Growth in Book Value Per Share		% of Target Shares Received
Maximum	12%		150	%
Target	8%		100	%
Middle	6.5%		50	%
Threshold	5%		25	%

For a growth in book value per share between 5% and 12% for the three-year vesting period, the employee will receive a corresponding percentage of the target shares ranging between 25% and 150% of target. For growth in book value per share below 5%, the employee is not entitled to any shares.

For Admirals Awards granted in 2010 and prior (“Five Year Admirals Awards”), 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 Five Year Admirals Award was fixed at the time of grant. For subsequent Five Year Admirals Awards to that employee, the Compensation Committee set a target number of shares for each vesting date and the actual number of shares that employee receives on a vesting date varies 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 Five

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Year Admirals Award on March 1, 2010, the Company’s return on equity for the 2010-2012 time period would determine how many shares that employee receives when the first installment of that Five Year Admirals Award vests. The chart below lists, for any vesting date of a Five Year Admirals Award (other than an initial award), the three-year return on equity of the Company amounts for a recipient to receive the maximum, target and threshold amount of shares under a Five Year Admirals Award.

3-Year Return on Equity		% of Target Shares Received
Maximum	15%		150	%
Target	13%		100	%
Threshold	7%		25	%

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. For return on equity below 7%, the employee is not entitled to any shares. Based on these metrics, due to the performance of the Company, variable Five Year Admirals Awards vesting in 2011 vested at 55% of target and Five Year Admirals Awards vesting in 2012 and 2013 were forfeited entirely.

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 2012, the Compensation Committee approved an award under the Admirals Program to Messrs. DeFalco, Bassett and Coward, at the target amounts of 7,000, 10,000 and 7,000, respectively, 50% of which will vest three years from the date of grant based only on the employee’s continued employment with the Company and the other 50% of which will vary with the Company’s growth in book value per shares as described above. The amount of these grants and the decision to authorize them reflect the Compensation Committee’s consideration of each of their importance to the Company, the importance of the functions they oversee to the Company’s success, and the need to provide each of them with long term incentive and to retain their services.

While Mr. Tizzio did not receive an Admirals Program grant in 2012, the Compensation Committee did award restricted stock units to Mr. Tizzio in 2012 pursuant to the 2005 Stock Incentive Plan as a condition to his hiring. Mr. Tizzio’s award consisted of (i) 15,000 restricted stock units that will vest on December 31, 2015 subject only to Mr. Tizzio’s continued employment with the Company and (ii) up to an additional 15,000 restricted stock units subject to performance vesting criteria based the Company’s three year average accident year and three year average annual premium growth of its U.S. insurance operations. The amount of this grant and the decision to authorize it reflects the Compensation Committee’s consideration of the knowledge and experience that Mr. Tizzio brings to the Company and the need to provide him with long term incentive to retain his services and align his interests closely with the success of the operations that he oversees.

Retirement Income Plans.     The Company’s retirement income plans include the 401(k) Plan, which includes a Retirement Savings Account, and the U.K. Plan. All U.S. employees are eligible to participate in the Company’s 401(k) Plan, a defined contribution 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 and Annual Incentive Plan award for such year, 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 2012, the Compensation Committee elected not to make additional contributions under the 401(k) Plan. The Company’s 401(k) Plan matching contributions and, for employees hired prior to January 1, 2012, the discretionary contributions, vest immediately. For employees hired on or after January 1, 2012, the discretionary contributions 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.

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In addition, as part of the 401(k) Plan, the Company’s sponsors a Retirement Savings Account that provides 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. All U.S. employees hired prior to January 1, 2012 were eligible to participate in the Retirement Savings Account as of the January 1st immediately following their date of hire. All U.S. employees hired on or after January 1, 2012 become eligible to participate in the Retirement Savings Account as of the first day of the next calendar year quarter following the one year anniversary of their employment with the Company. The Company’s contributions to an employee’s Retirement Savings Account 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.

The Company’s U.K. employees participate in the U.K. Plan rather than in the 401(k) Plan and the Retirement Savings Account. The U.K. Plan, like the 401(k) 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. 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 401(k) Plan, the Retirement Savings Account 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 Retirement Savings Account 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 401(k) Plan, the Retirement Savings Account 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.

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.

Employment Agreements.     The Company has entered into an employment agreement with Messrs. Galanski and Coward, both of which are still in effect. None of the other named executive officers has an employment agreement with the Company. For a discussion of the agreement with Mr. Galanski, 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 $3.625 million and Mr. DeFalco of $1.4 million, representing 70,982 and 27,414 common shares, respectively, based on

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the closing price of $51.07 per common share as of December 31, 2012. 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 stockholders, which furthers our goal to provide attractive long-term returns for our stockholders. As of the date hereof, Mr. Galanski has achieved his target ownership level. While Mr. DeFalco has not yet met his target ownership level, pursuant to the stock ownership guidelines, Mr. DeFalco has five years from the date he was promoted to Chief Financial Officer, or until December 12, 2016, to meet his target. 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 2005 Stock 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 the Company’s 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 or growth in book value per share 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 2013 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 2013 Proxy Statement.

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The Compensation Committee:

H. J. Mervyn Blakeney

John F. Kirby

Janice C. Tomlinson (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.

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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

Name and Principal Position (a)	Year (b)		Salary ($) (c)		Bonus(1) ($) (d)		Stock Awards(2) ($) (e)		Option Awards ($) (f)		Non- Equity Incentive Plan Compen- sation ($) (g)		Change in Pension Value and Non Qualified Deferred Compen- sation Earnings ($) (h)		All  Other Compen- sation(3) ($) (i)		Total ($) (j)
Stanley A. Galanski President & Chief Executive Officer		2012 2011 2010		725,000 725,000 725,000		372,000 248,715 698,335		1,574,396 1,051,254 1,051,244		— — —		— — —		— — —		43,552 43,950 41,505		2,714,948 2,068,919 2,516,084
Ciro M. DeFalco(4) SVP & Chief Financial Officer		2012 2011		380,000 78,077		177,694 150,000		335,090 299,950		— —		— —		— —		111,719 7,635		1,004,503 535,662
H. Clay Bassett, Jr. SVP & Chief Underwriting Officer		2012 2011 2010		416,667 375,000 341,667		100,000 130,000 180,000		478,700 254,900 —		— — —		— — —		— — —		33,040 31,185 28,821		1,028,407 791,085 550,488
Stephen R. Coward(5) President, NavTech		2012 2011 2010		319,950 304,188 296,400		153,900 124,000 192,965		335,090 203,920 148,880		— — —		— — —		— — —		47,993 45,628 44,460		856,933 677,736 682,705
Vincent C. Tizzio(6) President & Chief Executive Officer, NMC		2012		252,083		300,000		1,300,500		—		—		—		1,930		1,854,513

(1) The Bonus amounts reflect the cash bonus paid for 2012 to each Named Executive Officer. Information on the 2011 and 2010 Bonus amounts paid to Named Executive Officers can be found in the Company’s 2012 and 2011 Proxy Statements, respectively.

(2) The amounts shown in the “Stock Awards” column equal the estimate of aggregate compensation cost to be recognized over time with respect to incentive stock awards including performance-based awards granted in such year determined as of the grant date under Financial Accounting Standards Board Accounting Standards Codification (ASC) Topic 718, Stock Compensation (“FASB ASC Topic 718”) and excluding the effect of estimated forfeitures. The following portion of the value shown in the “Stock Awards” column represents the grant date value of performance-based awards based upon the probable outcome as of the grant date of such performance criteria: for 2012, $724,991 for Mr. Galanski, $167,545 for Mr. DeFalco, $209,350 for Mr. Bassett and $167,545 for Mr. Coward (in each case based on the closing stock price on the date of grant of $47.87) and $520,200 for Mr. Tizzio (based on the closing stock price on the date of grant of $52.02); for 2011, $1,051,254 for Mr. Galanski, $127,450 for Mr. Bassett and $101,960 for Mr. Coward (in each case based on the closing stock price on the date of grant of $50.98); and for 2010, $1,051,244 for Mr. Galanski (based on the closing stock price on the date of grant of $39.47), and $148,880 for Mr. Coward (based on the closing stock price on the date of grant of $37.22). The performance-based awards granted in 2012 and 2011 vest three years from the date of grant in accordance with the terms of the Admirals Program commencing in 2011, other than the performance-based awards granted to Mr. Galanski in such years, which vest three years from the date of grant in accordance with the terms of his Long-Term Incentive Grant. The performance-based award granted in 2010 to Mr. Coward vest in

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three equal installments on the third, fourth and fifth anniversaries of their grant date in accordance with the terms of variable Five Year Admirals Awards and the performance-based award granted to Mr. Galanski in 2010 vested in full on March 1, 2013 at 59% of its target amount. Assuming the highest level of performance, the grant date fair value of the performance-based award granted in 2012 to Mr. Galanski would equal $1,087,487, to Mr. DeFalco would equal $251,318, to Mr. Bassett would equal $251,318, to Mr. Coward would equal $251,318 and to Mr. Tizzio would equal $780,300. The remaining amounts reflected in the “Stock Awards” column represent the grant date fair value of incentive stock awards that are not subject to performance vesting conditions. These include awards given to Messrs. DeFalco, Bassett and Coward in 2012 and Messrs. Bassett and Coward in 2011 as the fixed portion of their award granted under the Admirals Program, one award granted in 2012 to Mr. Galanski as part of his Annual Incentive Award that vests in four equal installments on the first, second, third and fourth anniversaries of its grant date and another as the fixed portion of his Long Term Incentive Grant that vests on February 15, 2015, and stock grants made to Messrs. DeFalco and Tizzio in 2011 and 2012, respectively, as consideration for each of them joining the Company. Mr. DeFalco’s stock grant vests in four equal installments on the first, second, third and fourth anniversaries of its grant date and Mr. Tizzio’s stock grant cliff vests on December 31, 2015. No option or SARs awards were granted in 2012, 2011 or 2010.

(3) See the All Other Compensation table for additional information.

(4) Mr. DeFalco was hired by the Company in 2011. As such, compensation information prior to 2011 has been excluded.

(5) All amounts reported for Mr. Coward are paid to him in British pounds. The dollar value of the amounts paid to him in 2012, 2011 and 2010 is calculated based on the conversion rates as of December 31, 2012 of £1=$1.62, December 31, 2011 of £1=$1.55 and December 31, 2010 of £1=$1.56.

(6) Mr. Tizzio was hired by the Company in 2012. As such, compensation information prior to 2012 has been excluded.

The following table describes each component of the All Other Compensation column in the Summary Compensation Table above.

ALL OTHER COMPENSATION TABLE

Name	Year		Car Allowance ($)		401(k) Match ($)		Retirement Savings Account Contribution (2) ($)		U.K. Pension Plan Contribution ($)		Group Term Life Insurance Premium ($)		Health Club Dues ($)		Executive Physical Exam ($)		Relocation Expenses ($)		Total ($)
Stanley A. Galanski		2012 2011 2010		12,000 12,000 12,000		10,000 9,800 9,800		18,750 18,375 18,375		— — —		2,622 690 690		180 160 640		— 2,925 —		— — —		43,552 43,950 41,505
Ciro M. DeFalco		2012 2011		— —		10,000 1,450		— —		— —		4,874 310		100 —		— —		96,745 5,875		111,719 7,635
H. Clay Bassett, Jr.		2012 2011 2010		— — —		10,000 9,800 9,800		18,750 18,375 18,375		— — —		1,710 450 406		180 160 240		2,400 2,400 —		— — —		33,040 31,185 28,821
Stephen R. Coward(1)		2012 2011 2010		— — —		— — —		— — —		47,993 45,628 44,460		— — —		— — —		— — —		— — —		47,993 45,628 44,460
Vincent C. Tizzio		2012		—		1,146		—		—		784		—		—		—		1,930

(1) All amounts reported for Mr. Coward are paid to him in British pounds. The dollar value of the amounts paid to him in 2012, 2011 and 2010 is calculated based on the conversion rates as of December 31, 2012 of £1=$1.62, December 31, 2011 of £1=$1.55 and December 31, 2010 of £1=$1.56.

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(2) For 2012, these amounts were contributed to the employee’s Retirement Savings Account. For 2011 and 2010, these amounts were contributed to the employee under the Company’s Money Purchase Plan then in effect. The Money Purchase Plan was discontinued effective January 1, 2012. All amounts contributed to an employee under the Company’s Money Purchase Plan prior thereto were transferred to such employee’s Retirement Savings Account on January 1, 2012.

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, 2012.

GRANTS OF PLAN-BASED AWARDS

			Estimated Future Payouts Under Non-Equity Incentive Plan Awards			Estimated Future Payouts Under Equity Incentive Plan Awards							All Other Stock Awards: Number of Shares of Stock Units (#) (i)			All Other Awards: Number of Securities Underlying Options (#) (j)	Exercise or Base Price of Option Awards $/Share (k)	Grant Date Fair Value of Stock and Options Awards(6) ($) (l)
Name (a)	Grant Date (b)		Threshold ($) (c)	Target ($) (d)	Maxi- mum ($) (e)	Threshold (#) (f)		Target (#) (g)		Maxi- mum (#) (h)
Stanley A. Galanski		2/15/12					3,787		15,145		22,718	(1)		17,744	(2)				1,574,396
Ciro M. DeFalco		2/15/12					875		3,500		5,250	(3)		3,500	(4)				335,090
H. Clay Bassett, Jr.		2/15/12					1,250		5,000		7,500	(3)		5,000	(4)				478,700
Stephen R. Coward		2/15/12					875		3,500		5,250	(3)		3,500	(4)				335,090
Vincent C. Tizzio		7/16/12					0		10,000		15,000	(5)		15,000	(5)				1,300,500

(1) These restricted stock units were issued under the 2005 Stock Incentive Plan and vest on February 15, 2015 in accordance with the performance metrics for the Chief Executive Officer’s Long Term Incentive Grant as described above under “Compensation Discussion and Analysis — Chief Executive Officer Compensation.” If the minimum performance metrics are not met, these shares will be forfeited entirely.

(2) Represents 15,146 restricted stock units that were issued under the 2005 Stock Incentive Plan and vest on February 15, 2015 as the fixed portion of Mr. Galanski’s Long Term Incentive Grant and 2,598 restricted stock units that were issued under the 2005 Stock Incentive Plan as part of Mr. Galanski’s annual incentive award paid in 2012 in respect of 2011 performance and vests in equal installments on the first, second, third and fourth anniversaries of the grant date. For further information on Mr. Galanski’s Long Term Incentive Grant and annual incentive award, see “Compensation Discussion and Analysis — Chief Executive Officer Compensation.”

(3) These restricted stock units were issued pursuant to the Admirals Program and vest on February 15, 2015 in accordance with the performance terms of Admirals Awards described above under “Compensation Discussion and Analysis — Admirals Program.” If the minimum performance metrics are not met, these shares will be forfeited entirely.

(4) These restricted stock units were issued pursuant to the Admirals Program and vest on February 15, 2015 based upon the employee’s continued employment with the Company. For further discussion of the Admirals Program, please see “Compensation Discussion and Analysis — Admirals Program” above.

(5) These restricted stock units were issued under the Company’s 2005 Stock Incentive Plan as a condition to Mr. Tizzio’s employment. A minimum of 15,000 shares will vest on December 31, 2015 based on the Company’s average accident year combined ratio and average annual premium growth for its U.S. insurance operations based on a measurement period from October 1, 2012 through September 30, 2015, with a maximum vesting of 30,000 shares.

(6) Grant Date Fair Value has been calculated as of the date of the grant under FASB ASC Topic 718, excluding the effect of estimated forfeitures, based on the closing price of the Company’s common stock on the date of grant.

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

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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 non-solicitation 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 2012 for a one-year period through March 2014.

Effective December 9, 2010, Navigators Underwriting Agency Ltd. (“NUAL”), a wholly-owned subsidiary of the Company and the managing agency of the Company’s Lloyd’s of London Syndicate 1221, 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. The agreement provides that NUAL may require that Mr. Coward not have dealings with suppliers, customers, employees, agents or representatives of NUAL or its affiliates or work for any other employer during the six-month notice period. The agreement does not include provisions regarding change of control or acceleration of outstanding stock grants.

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

Amended and Restated 2005 Stock Incentive Plan

The purposes of the Amended and Restated 2005 Stock Incentive Plan (the “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 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. The Board of Directors believes that the ability to grant options (both non-qualified and incentive), stock appreciation rights (“SARs”), restricted stock, restricted stock units, performance units, annual incentive awards, dividend equivalents and substitute awards (each, an “Award”) under the 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 authorizes the issuance of 1,500,000 shares of Common Stock pursuant to Awards. As discussed below under Proposal 3, the Board of Directors is recommending that the Stockholders approve the Second Amended and Restated 2005 Stock Incentive Plan, increasing the available number of shares of Common Stock available for issuance pursuant to Awards to 2,000,000 and making certain other non-material clarifying changes.

The 2005 Stock Incentive Plan was originally approved by Stockholders at the May 20, 2005 Annual Meeting of Stockholders and most recently the Stockholders approved an amended and restated plan at the May 26, 2010 Annual Meeting of Stockholders 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. Employees, non-employee directors, and independent consultants to the Company and its subsidiaries are eligible to participate in the 2005 Stock Incentive Plan. The

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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 2005 Stock Incentive Plan in connection with the Company’s Annual Incentive Plan and Admirals Program, please see “Compensation Discussion and Analysis — Annual Incentive Plan” and “Compensation Discussion and Analysis — Admirals Program”.

The 2005 Stock Incentive Plan is administered by the Compensation Committee (unless the Board of Directors determines otherwise), which interprets the 2005 Stock Incentive 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.

Upon a 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 the 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 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, unless the applicable award agreement provides otherwise, 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 all unvested shares of such participant’s restricted stock units will immediately vest. In the event of a participant’s termination of employment or service for cause, such participant’s outstanding stock options, SARs and unvested restricted stock units 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).

Unless terminated sooner, the 2005 Stock Incentive Plan will terminate on May 26, 2020. The Board of Directors may, at any time, amend the 2005 Stock Incentive 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.

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 2005 Stock Incentive 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 2005 Stock Incentive 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 2005 Stock Incentive Plan prohibits the repricing of stock options.

The term of all stock options granted under the 2005 Stock Incentive 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%

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of our voting stock). 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.

Stock Appreciation Rights or SARs.    All SARs must be granted on a stand-alone basis (i.e., not in conjunction with stock options) 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 2005 Stock Incentive 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 2005 Stock Incentive Plan prohibits the repricing of SARs.

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. 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 2005 Stock Incentive 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 2005 Stock Incentive 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

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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.

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 2005 Stock Incentive Plan, and are included in the 2005 Stock Incentive Plan to comply with the requirements for deductibility of awards subject to Section 162(m).

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.

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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, 2012.

OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END

	Option Awards										Stock Awards
Name (a)	Number of Securities Underlying Unexercised Options (#) Exercisable (b)		Number of Securities Underlying Unexercised Options (#) Unexercisable (c)		Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#) (d)		Option Exercise Price ($) (e)		Option Expiration Date (f)		Number of Shares or Units of Stock That Have Not Vested (#) (g)			Market Value of Shares or Units of Stock That Have Not Vested(1) ($) (h)		Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#) (i)			Equity Incentive Plan  Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested(1) ($) (j)
Stanley A. Galanski		30,000		—		—		29.11		2/25/14		17,744	(2)		906,186		16,667	(3)		851,184
																	62,897	(4)		3,212,150
Ciro M. DeFalco		—		—		—		—		—		8,750	(5)		446,863		3,500	(6)		178,745
H. Clay Bassett, Jr.		—		—		—		—		—		7,837	(7)		400,236		7,500	(8)		383,025
Stephen R. Coward		500		—		—		29.11		2/26/14		5,895	(9)		301,058		12,167	(10)		621,369
Vincent C. Tizzio		—		—		—		—		—		15,000	(11)		766,050		10,000	(12)		510,700

(1) Market Value based on December 31, 2012 closing price of the Company’s common stock of $51.07.

(2) Includes 650 restricted stock units that vested on 2/15/13 and 1,948 restricted stock units that will vest in three equal installments on 2/15/14, 2/15/15 and 2/15/16, as well as 15,146 restricted stock units that will vest on February 15, 2015.

(3) Restricted stock units that vest in two equal installments on 8/6/13 and 8/6/14 in accordance with the terms of variable Five Year Admirals Awards. For further discussion of the Admirals Program, please see “Compensation Discussion and Analysis — Admirals Program” above.

(4) Includes 15,714 shares that vested on 3/1/13 and 10,920 shares that were forfeited on the same date due to a failure to meet corporate performance targets, as well as 21,118 shares that will vest on 3/24/14 and 15,145 shares that will vest on 2/15/15, in each case subject to meeting corporate performance targets. For further discussion, please see “Compensation Discussion and Analysis — Chief Executive Officer Compensation” above.

(5) Includes 5,250 shares of stock that vest in three equal installments on 9/26/13, 9/26/14 and 9/26/15 and 3,500 shares that will vest on 2/15/15.

(6) Shares of stock that will vest on 2/15/15 in accordance with the terms of the Admirals Program. For further discussion of the Admirals Program, please see “Compensation Discussion and Analysis — Admirals Program” above.

(7) Includes 337 shares that vested on 2/25/13, 2,500 shares that will vest on 2/16/14 and 5,000 shares that will vest on 2/15/15.

(8) Includes 2,500 shares of stock that will vest on 2/16/14 and 5,000 shares that will vest on 2/15/15, in each case in accordance with the terms of the Admirals Program. For further discussion of the Admirals Program, please see “Compensation Discussion and Analysis — Admirals Program” above.

(9) Includes 395 shares that vested on 2/25/13, 2,000 shares that will vest on 2/16/14 and 3,500 shares that will vest on 2/15/15.

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(10) Includes 2,667 shares that were forfeited on 2/11/13 and 1,333 shares that were forfeited on 3/1/13, in each case due to a failure to meet corporate performance targets; 2,667 shares of stock that will vest in two equal installments on 3/1/14 and 3/1/15 in accordance with the terms of variable Five Year Admirals Awards; and 2,000 shares of stock that will vest on 2/16/14 and 3,500 shares that will vest on 2/15/15, in each case in accordance with the terms of the Admirals Program . For further discussion of the Admirals Program, including the Five Year Admirals Awards, please see “Compensation Discussion and Analysis — Admirals Program” above.

(11) Shares of stock that will vest on 12/31/15.

(12) Shares of stock that will vest on 12/31/15 based on the three year average accident year combined ratio and three year average annual premium growth of the Company’s U.S. insurance operations.

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, 2012.

OPTIONS EXERCISED AND STOCK VESTED

	Option Awards				Stock Awards
Name (a)	Number of Shares Acquired on Exercise (#) (b)		Value Realized  on Exercise ($) (c)		Number of Shares Acquired on Vesting (#) (d)		Value Realized  on Vesting(1) ($) (e)
Stanley A. Galanski		—		—		—		—
Ciro M. DeFalco		—		—		1,750		86,800
H. Clay Bassett, Jr.		—		—		3,086		146,542
Stephen R. Coward		—		—		940		45,065
Vincent C. Tizzio		—		—		—		—

(1) Calculated based on the product of the number of shares acquired on vesting of the stock award multiplied by the closing stock price on the NASDAQ National Market on the vesting date.

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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, 2012.

POTENTIAL PAYMENTS UPON TERMINATION OF EMPLOYMENT

	Cash Severance Payment $			Continuation of Medical/Welfare Benefit (present value) $		Acceleration and Continuation of Equity Awards $			Total Termination Benefits $
Stanley A. Galanski
• Voluntary Retirement		725,000	(1)		—		5,628,320	(2)		6,353,320
• Voluntary Termination		725,000	(1)		—		557,100	(3)		1,383,800
• Involuntary Termination for Cause		—			—		—			—
• Involuntary Termination Without Cause		725,000	(1)		—		557,100	(3)		1,383,800
• Involuntary or Good Reason Termination after Change in Control		725,000	(1)		—		5,628,320	(4)		6,353,320
• Termination on Death or Disability		—			—		5,628,320	(5)		5,628,320
Ciro M. DeFalco
• Voluntary Retirement		—			—		625,608	(2)		625,608
• Voluntary Termination		—			—		—			—
• Involuntary Termination for Cause		—			—		—			—
• Involuntary Termination Without Cause		—			—		—			—
• Involuntary or Good Reason Termination after Change in Control		—			—		625,608	(4)		625,608
• Termination on Death or Disability		—			—		625,608	(5)		625,608
H. Clay Bassett, Jr.
• Voluntary Retirement		—			—		783,261	(2)		783,261
• Voluntary Termination		—			—		—			—
• Involuntary Termination for Cause		—			—		—			—
• Involuntary Termination Without Cause		—			—		—			—
• Involuntary or Good Reason Termination after Change in Control		—			—		783,261	(4)		783,261
• Termination on Death or Disability		—			—		783,261	(5)		783,261
Stephen R. Coward
• Voluntary Retirement		—			—		933,407	(2)		933,407
• Voluntary Termination		—			—		10,980	(3)		10,980
• Involuntary Termination for Cause		—			—		—			—
• Involuntary Termination Without Cause		—			—		10,980	(3)		10,980
• Involuntary or Good Reason Termination after Change in Control		—			—		933,407	(4)		933,407
• Termination on Death or Disability		—			—		933,407	(5)		933,407
Vincent C. Tizzio
• Voluntary Retirement		—			—		766,050	(2)		766,050
• Voluntary Termination		—			—		—			—
• Involuntary Termination for Cause		—			—		—			—
• Involuntary Termination Without Cause		—			—		1,276,750	(6)		1,276,750
• Involuntary or Good Reason Termination after Change in Control		—			—		1,276,750	(6)		1,276,750
• Termination on Death or Disability		—			—		766,050	(5)		766,050

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(1) This cash severance payment, as provided in Mr. Galanski’s employment agreement with the Company and based upon Mr. Galanski’s annual base salary of $725,000 as of December 31, 2012, assumes that notice of termination of employment is given as of such date and that the Company elects to enforce the restrictive covenants included in such employment agreement with respect to noncompetition and nonsolicitation of employees. This cash severance payment would be paid to Mr. Galanski in accordance with the Company’s regular payroll schedule during the one-year period beginning as of such termination date. For a discussion of the terms of Mr. Galanski’s employment agreement, please see “Employment Agreements” above.

(2) Assumes that the Voluntary Retirement meets the definition of “Retirement” under the 2005 Stock Incentive Plan. Under this assumption, the 2005 Stock Incentive Plan provides for immediate vesting of all outstanding restricted stock units and option awards. Also assumes the exercise of all outstanding vested options within 90 days of the date of termination pursuant to the 2005 Stock Incentive Plan and 2002 Stock Incentive Plans, as relevant. Also assumes that performance shares will vest at the target amount. Amounts are based on the December 31, 2012 closing price of the Company’s common stock of $51.07.

(3) Assumes the exercise of all outstanding vested options within 90 days of the date of termination pursuant to the 2005 Stock Incentive Plan and 2002 Stock Incentive Plan, based on the December 31, 2012 closing price of the Company’s common stock of $51.07.

(4) Assumes both a change of control as of December 31, 2012 and termination of employment with the Company within one year thereafter. Under these assumptions, the 2005 Stock Incentive Plan provides for immediate vesting of all outstanding restricted stock and option awards, with performance shares vesting at 100% of their target amount. Also assumes the exercise of all outstanding vested options within 90 days of the date of termination pursuant to the Company’s 2002 Stock Incentive Plan. Amounts are based on the December 31, 2012 closing price of the Company’s common stock of $51.07.

(5) Assumes death or an employee’s inability to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than 12 months. Under these assumptions, the 2005 Stock Incentive Plan provides for immediate vesting of all outstanding restricted stock and option awards, with performance shares vesting at 100% of their target amount. Also assumes the exercise of all outstanding vested options within 90 days of the date of termination pursuant to the Company’s 2002 Stock Incentive Plan. Amounts are based on the December 31, 2012 closing price of the Company’s common stock of $51.07.

(6) In accordance with Mr. Tizzio’s offer letter, in the event of termination of his employment other than for cause prior to December 31, 2015, a pro rata portion of Mr. Tizzio’s stock award granted as a condition of his employment will vest based on actual results at the time of his separation. This amount assumes Mr. Tizzio has earned 100% of his target amount of performance shares. Amounts are based on the December 31, 2012 closing price of the Company’s common stock of $51.07.

Compensation of Directors

In August 2012, after consideration of the Company’s compensation structure in relation to peer companies, the Compensation Committee and Corporate Governance and Nominating Committee recommended that the Company increase the annual fees paid to each director who was not an officer or employee of the Company, other than the Chairman, to $75,000 in cash, payable in quarterly installments and $50,000 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). The Board approved the recommendation and the new payment structure became effective in August 2012. Prior thereto, each director who was not an officer or employee of the Company, other than the Chairman, received an annual payment consisting of $45,000 in cash, payable in quarterly installments and $30,000 in restricted shares of the Company’s Common Stock. In addition, members of the Audit Committee of the Board were paid an additional annual retainer of $10,000. The chairmen of the Audit Committee and the Compensation Committee were paid annual retainers of $30,000 and $20,000, respectively. Chairmen of other Board committees did not receive annual retainers for their services as chairmen. These committee fees were not changed in 2012.

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Mr. Deeks, our Chairman, retired as Executive Chairman and left the employ of the Company in May 2010. At that time, the Compensation Committee determined to pay Mr. Deeks an annual retainer of $325,000 per annum, payable in cash, to provide Mr. Deeks with supplemental retiree medical coverage and to reimburse Mr. Deeks for the cost of any premiums paid to Medicare.

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 received payment in 2012 of $30,000 in fully vested restricted shares of the Company’s Common Stock as part of the annual compensation for service on the Board in 2011. Starting in 2013, each director is to receive payment of $50,000 in fully vested restricted shares of the Company’s Common Stock as part of the annual compensation for service on the Board in the prior year. Directors are 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.

Shown below is a table that sets forth the total compensation paid to each independent Board member in 2012.

DIRECTOR COMPENSATION

Name	Fees Earned or Paid in Cash ($)(1)		Stock Awards ($)(2)		Option Awards ($)		Non-Equity Incentive Plan Compensation ($)		Change in Pension Value and Nonqualified Deferred Compensation Earnings ($)		All Other Compensation ($)			Total ($)
Saul L. Basch		42,500		—		—		—		—		—			42,500
H. J. Mervyn Blakeney		60,000		30,038		—		—		—		—			90,038
Terence N. Deeks		325,000		—		—		—		—		46,262	(3)		371,262
Geoffrey E. Johnson		80,000		22,505		—		—		—		64,800	(4)		167,305
John F. Kirby		70,000		30,038		—		—		—		—			100,038
Robert V. Mendelsohn		65,000		30,038		—		—		—		—			95,038
Marjorie D. Raines		70,000		30,038		—		—		—		—			100,038
Janice C. Tomlinson		70,000		30,038		—		—		—		—			100,038
Marc M. Tract		60,000		30,038		—		—		—		—			95,038

(1) Includes an annual cash retainer of $45,000, which was increased to $75,000 in August 2012 as discussed above, paid quarterly to each director other than Mr. Deeks for 2012 Board service in addition to annual retainer fees for the Audit Committee chairman and members and the Compensation Committee chairman. As Chairman of the Board, Mr. Deeks receives an annual cash retainer of $325,000 paid quarterly.

(2) The amounts shown in the “Stock Awards” column equal the estimate of aggregate compensation costs recognized with respect to stock awards granted in 2012 for 2011 Board service, determined as of the grant date under FASB ASC Topic 718, and excluding the effect of estimated forfeitures. The fair value has been calculated using the closing price of the common stock on December 31, 2011 ($47.68 per share).

(3) Other Compensation paid to Mr. Deeks in 2012 includes payment by the Company of an annual physical examination for Mr. Deeks in the amount of $3,125, a reimbursement for Medicare benefits payable by Mr. Deeks in the amount of $9,842 and $33,295 in imputed interest related to split dollar life insurance policy premiums that were advanced by the Company for the years 1992 – 2002 and that are repayable upon the earlier of the termination of such policy or the payment of benefits thereunder.

(4) The amount under All Other Compensation was paid to Mr. Johnson as compensation for his service in 2012 on NUAL’s board of directors. For a discussion of this compensation, please see “Related Party Transactions” above.

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Equity Compensation Plan Information

The following chart includes information as of December 31, 2012 with respect to equity compensation plans where equity securities of the Company may be issued:

	A			B		C
Plan Category	Number of securities to be issued upon exercise of outstanding stock options, warrants and rights			Weighted- average exercise price of outstanding stock options		Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column A)
Equity compensation plans approved by security holders(1)		90,250	(2)	$	29.94		274,195
Equity compensation plans not approved by security holders		—					—
Total		90,250					274,195

(1) Consists of the Amended and Restated 2005 Stock Incentive Plan and the 2002 Stock Incentive Plan. For a description of each of these plans, please see disclosure above.

(2) The total weighted average term of the outstanding stock options is 1.36 years.

Compensation Committee Interlocks and Insider Participation

None of Ms. Tomlinson or Messrs. Blakeney 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 2012 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, 2012 financial statements. The Audit Committee also discussed with the independent auditors the matters required by Statement on Auditing Standards No. 61, Communication with Audit Committees, as amended and 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.

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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, 2012, filed with the SEC.

The Audit Committee:

Saul L. Basch

Geoffrey E. Johnson (Chairman)

Robert V. Mendelsohn

Marjorie D. Raines

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PROPOSAL 2

ADVISORY VOTE ON EXECUTIVE COMPENSATION

The recently enacted Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, or the Dodd-Frank Act, enables our stockholders to vote to approve, on an advisory (nonbinding) basis, the compensation of our named executive officers as disclosed in this Proxy Statement in accordance with the SEC’s rules.

As described in detail under the heading “Compensation Discussion and Analysis,” our executive compensation programs are designed to attract, motivate, and retain our named executive officers, who are critical to our success. Under these programs, our named executive officers are rewarded for the achievement of specific annual and long-term corporate performance targets that promote the realization of increased stockholder value. Please read the “Compensation Discussion and Analysis” included elsewhere in this Proxy Statement for additional details about our executive compensation programs, including information about the fiscal year 2012 compensation of our named executive officers.

We are asking our stockholders to indicate their support for our named executive officer compensation as described in this Proxy Statement. This proposal, commonly known as a “say-on-pay” proposal, gives our stockholders the opportunity to express their views on our named executive officers’ compensation. This vote is not intended to address any specific item of compensation, but rather the overall compensation of our named executive officers and the philosophy, policies and practices described in this proxy statement. Accordingly, we will ask our stockholders to vote “FOR” the following resolution at the Annual Meeting:

“RESOLVED, that the Company’s stockholders approve, on an advisory basis, the compensation of the named executive officers, as disclosed in the Company’s Proxy Statement for the 2013 Annual Meeting of Stockholders pursuant to the compensation disclosure rules of the Securities and Exchange Commission, including the Compensation Discussion and Analysis, the 2012 Summary Compensation Table and the other related tables and disclosure.”

The say-on-pay vote is advisory, and therefore not binding on the Company, the Compensation Committee or our Board of Directors, nor will it create or imply any change in the fiduciary duties of, or impose any additional fiduciary duty on, the Company, the Compensation Committee or the Board. However, the Compensation Committee will take into account the outcome of the vote when considering future executive compensation decisions.

THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS THAT STOCKHOLDERS VOTE TO APPROVE THE OVERALL COMPENSATION OF THE COMPANY’S NAMED EXECUTIVE OFFICERS BY VOTING “FOR” THIS RESOLUTION.

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PROPOSAL 3

APPROVAL OF THE NAVIGATORS GROUP, INC.

SECOND AMENDED AND RESTATED 2005 STOCK INCENTIVE PLAN

The Board recommends a vote “FOR” Proposal 3. 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. Second Amended and Restated 2005 Stock Incentive Plan (the “Restated Plan”). On March 21, 2013, 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 23, 2013), and it will replace the Amended and Restated 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 Restated Plan will increase the number of shares available for issuance under the Plan from 1,500,000 to 2,000,000 shares. In addition, the Restated Plan makes certain non-material clarifying changes to the Prior Plan. The approval of the Restated Plan is important primarily so that the Company can continue to grant its employees with stock based awards that will help to align the interests of employees with those of Stockholders and keep its compensation packages fair, adequate and competitive.

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, 2012, the Company had 568 employees and eleven non-employee directors of the Company and its subsidiary, Navigators Underwriting Agency Ltd. There were also two independent contractors eligible for participation in the Restated Plan.

Shares Authorized for Issuance

Under the Restated Plan, 2,000,000 shares of Common Stock will be authorized for issuance. As of March 27, 2013, there were approximately 1,361,706 shares subject to awards made under the Prior Plan. This means 638,294 shares will be available for issuance under the Restated 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.

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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:

• options (both non-qualified and incentive stock options),

• stock appreciation rights, also called SARs,

• restricted stock,

• restricted stock units,

• performance units,

• annual incentive awards,

• dividend equivalents, and

• substitute 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

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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. No dividends or dividend equivalents will be payable in respect of outstanding unearned awards subject to performance conditions.

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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:

• earnings before any or all of interest, tax, depreciation or amortization (actual and adjusted and either in the aggregate or on a per-share basis),

• earnings (either in the aggregate or on a per-share basis),

• net income or loss (either in the aggregate or on a per-share basis),

• operating profit,

• cash flow (either in the aggregate or on a per-share basis),

• free cash flow (either in the aggregate or on a per-share basis),

• costs,

• gross or net revenues,

• reductions in expense levels,

• operating and maintenance cost management and employee productivity,

• share price or total shareholder return (including growth measures and total stockholder return or attainment by the shares of a specified value for a specified period of time),

• net economic value,

• economic value added,

• return on shareholders’ equity,

• book value per share,

• aggregate product unit and pricing targets,

• strategic business criteria, consisting of one or more objectives based on meeting specified revenue, market share, market penetration, geographic business expansion goals, objectively identified project milestones, production volume levels, cost targets, and goals relating to acquisitions or divestitures,

• achievement of objectives relating to diversity, employee turnover or other human capital measures,

• results of customer satisfaction surveys, and/or

• debt ratings, debt leverage and debt service.

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

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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.

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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) May 26, 2020. 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.

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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

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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.

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PROPOSAL 4

APPROVAL OF AMENDMENT NO. 1 TO

THE NAVIGATORS GROUP, INC. EMPLOYEE STOCK PURCHASE PLAN

On March 21, 2013, the Board of Directors adopted, subject to stockholder approval, Amendment No. 1 (the “Amendment”) to The Navigators Group, Inc. Employee Stock Purchase Plan (the “Plan”). The Plan was previously approved by the Company’s Stockholders on May 2, 2008. The Amendment extends the term of the Plan by an additional five years, through July 1, 2018, and increases the number of shares of stock to be reserved for sale under the Plan from 200,000 to 400,000.

The following summary of certain features of the Plan is qualified in its entirety by reference to the full text of the Plan, as amended by Amendment No. 1, which is included in this Proxy Statement as Appendix B. All capitalized terms used but not defined herein have the respective meanings ascribed to them in the Plan.

Nature and Purpose of the Plan

The purpose of the Plan is to provide employees of the Company and its subsidiaries with an opportunity to purchase shares of the Company’s Common Stock through payroll deductions. The Company intends that the Plan qualify as an “employee stock purchase plan” under Section 423 of the Internal Revenue Code of 1986, as amended (the “Code”). Accordingly, the provisions of the Plan are to be construed so as to extend and limit participation in a manner consistent with the requirements of Code Section 423.

Duration and Modification

The Plan, which became effective July 1, 2008, will continue in effect until July 1, 2018, unless sooner terminated by the Board which may at any time and for any reason terminate or amend the Plan as it may deem advisable. However, the Company shall obtain stockholder approval of any amendment to the Plan to the extent that such approval shall be necessary to comply with Code Section 423.

Administration of the Plan

The Plan is administered by the Board or a committee appointed by the Board.

Offering Periods

In general, participants under the Plan purchase shares of Common Stock (“Common Shares”) in consecutive six-month offering periods, with a new offering period commencing on each January 1 and July 1, unless otherwise determined by the Plan Administrator.

Securities Subject to the Plan; Market Price

Pursuant to Amendment No. 1, the number of Common Shares reserved for sale under the Plan is 400,000, of which 160,419 Common Shares have already been issued. If the total number of shares which would otherwise be subject to purchase under the Plan exceeds the number of shares then available under the Plan, the Plan Administrator is required to make a pro rata allocation of the shares available for grant in as uniform and equitable a manner as is practicable. In such event, the Plan Administrator is required to give written notice of such reduction in the number of shares subject to issuance to each participant affected thereby.

Eligibility

Each employee of the Company and its eligible subsidiaries who is customarily employed for at least 20 hours per week is eligible to participate under the Plan, subject to certain additional limitations imposed by Code Section 423(b).

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Participation

An employee may become a participant in the Plan by completing a subscription agreement authorizing payroll deductions on the form provided by the Plan Administrator at least 15 days prior to the first day of the offering period with respect to which it is to be effective. Payroll deductions will be equal to the whole percentage of compensation (at least 1%, but not to exceed 10%) specified by the participant. As of December 31, 2012, 568 employees were eligible to participate in the Plan, and the closing price of the Company’s Common Stock was $51.07.

Purchase Price

The purchase price per share at which Common Shares are to be sold under the Plan is the lesser of (i) 90% of the fair market value of a Common Share at the offering date (the first business day of the offering period) and (ii) 90% of the fair market value of a Common Share on the last business day of the offering period. The fair market value of a Common Share on any offering date shall mean the closing price of a Common Share on the NASDAQ National Market on the last business day immediately preceding such date or if there is no sale of a Common Share on such business day, the average of the bid and asked prices at the close of the market on that day.

Purchase of Shares

The maximum number of Common Shares a participant may purchase during each calendar year shall not exceed 1,000 shares or an aggregate fair market value of $25,000, subject to certain limitations set forth in the Code and availability of shares under the Plan.

Unless a participant withdraws from the offering period (as described below), his or her direction to purchase shares will be exercised automatically at each exercise date (the last business day of the offering period), and the maximum number of full shares will be purchased at the applicable price with the payroll deductions credited to his or her account. The shares purchased shall be issued to the participant as promptly as practicable after the exercise date. A participant’s direction to purchase shares under the Plan may be exercised only by the participant.

Voting Rights

Participants shall not have any interest or voting rights in shares until the shares shall have been issued.

Adjustments

The number of Common Shares available for grant or granted under the Plan may be adjusted, as determined by the Plan Administrator, in the event of a stock dividend, reorganization, recapitalization, stock split-up, combination of shares, sale of assets, merger or consolidation in which the Company is the surviving corporation or, as may be determined by the Plan Administrator, in the event of any other change affecting the number or kind of outstanding Common Shares. In the event of the dissolution or liquidation of the Company, the Board may, in its discretion, accelerate the exercise of all participant subscription agreements and/or terminate the same within a reasonable time thereafter.

Withdrawal; Termination of Employment

A participant may withdraw all, but not less than all, the payroll deductions credited to his or her account under the Plan at any time prior to an exercise date by giving written notice to the Plan Administrator on a form provided for such purpose. If the participant withdraws from the offering period, all of the participant’s payroll deductions credited to his or her account will be paid to the participant (without interest) as soon as practicable

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after receipt of the notice of withdrawal and his or her direction for the current offering period will be automatically canceled, and no further payroll deductions for the purchase of shares will be made during such offering period. Participation may be resumed for subsequent offering periods pursuant to a new subscription agreement filed in accordance with the Plan.

Upon termination of the participant’s continuous status as an employee prior to an exercise date of an offering period for any reason, including retirement or death, he or she will be deemed to have elected to withdraw from the Plan, the payroll deductions credited to his or her account will be returned to him or her as soon as practicable after such termination or, in the case of death, to the person or persons entitled thereto under the Plan, and the participant’s subscription agreement will be automatically canceled.

A participant’s withdrawal from an offering period will not have any effect upon his or her eligibility to participate in a succeeding offering period or in any similar plan that may hereafter be adopted by the Company.

Participant accounts under the Plan are unfunded and maintained solely for recordkeeping purposes. All payroll deductions credited to participant accounts under the Plan may be used by the Company for any corporate purpose, and neither the Company nor the Plan Administrator shall be obligated to segregate such payroll deductions.

Federal Income Tax Consequences

The following is a brief and general summary of the material United States federal income tax consequences applicable to the Plan. The summary does not address any provisions of the income tax laws of any state, local or foreign taxing jurisdiction.

The summary is based on interpretations of the Code, regulations issued thereunder, and rulings and decisions currently in effect, all of which are subject to change. Any such change may be applied retroactively and may adversely affect the federal income tax consequences described herein.

The Plan, and the right of participants to make purchases thereunder, is intended to qualify under the provisions of Code Sections 421 and 423. Under these provisions, a participant recognizes no income or loss upon the purchase of Common Shares under the Plan (“Plan Shares”). If a participant sells Plan Shares after the date that is the later of (a) two years from the beginning of the offering period during which the Plan Shares were purchased and (b) one year from the date the Plan Shares were purchased (the “Plan Holding Period”), then any recognized gain is treated as ordinary income in an amount equal to the lesser of (a) the excess of the fair market value of the Plan Shares at the time of such disposition over the purchase price and (b) 10% of the fair market value of the Plan Shares on the first day of the offering period, and any remaining gain will be taxed as long-term capital gain. If a participant recognizes a loss on a sale of Plan Shares after the Plan Holding Period, then the loss is treated as a long-term capital loss. If a participant sells or otherwise disposes of Plan Shares before the end of the Plan Holding Period, the excess of the fair market value of the Plan Shares on the exercise date over the purchase price will be treated as ordinary income. Any additional gain or loss recognized on the disposition of the stock will be short- or long-term capital gain or loss, depending on the length of time the employee held the stock after exercise of the purchase right.

The Company is not entitled to a deduction with respect to the purchase or disposition of Plan Shares, except to the extent that a participant recognizes ordinary income upon the disposition of Plan Shares prior to the Plan Holding Period. The Company does not have an obligation to withhold on any income resulting from the disposition of Plan Shares.

Each participant should consult his or her tax advisor as to the federal, state, local and other tax consequences of the purchase, ownership and disposition of Plan Shares as well as any tax consequences arising under the laws of any other taxing jurisdiction to which he or she may be subject.

The Board recommends a vote “FOR” Proposal 4. Proxies will be so voted unless Stockholders specify otherwise in their proxies.

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PROPOSAL 5

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, 2013 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 2012 and 2011, and fees billed for other services rendered by KPMG LLP related to those periods.

	2012		2011
Audit Fees(1)	$	1,577,471	$	1,575,101
Audit Related Fees(2)		7,500		—
Tax Fees(3)		196,594		147,415
Other Fees(4)		1,650		1,650
Total	$	1,783,215	$	1,724,166

(1) Audit fees consisted primarily of fees for the annual audit of the Company’s financial statements and internal control over financial reporting including the requirements of Section 404 of the Sarbanes-Oxley Act, as well as quarterly reviews and statutory audits.

(2) Fees related to the preparation of a consent required in connection with the Company’s Form S-3 filed with the SEC on June 1, 2012.

(3) Tax fees consisted primarily of fees for tax compliance and advisory services.

(4) Other fees relate to the Company’s subscription to an online research tool provided by KPMG LLP.

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.

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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. Stockholders are entitled to one vote per share on all matters submitted for consideration at the Annual Meeting. If you own shares through a bank or broker in street name, you may instruct your bank or broker how to vote your shares. A “broker non-vote” occurs when you fail to provide your bank or broker with voting instructions and the bank or broker does not have the discretionary authority to vote your shares on a particular proposal because the proposal is not a routine matter under the applicable rules. Proposals 1 and 2 are not considered routine matters under applicable rules, so your bank or broker will not have discretionary authority to vote your shares held in street name on those items. Abstentions and broker non-votes count for quorum purposes, but not for the voting of these proposals. A broker non-vote may also occur if your broker fails to vote your shares for any reason. Proposal 3 (ratification of the appointment of our independent registered public accounting firm) is considered a routine matter, so your bank or broker will have discretionary authority to vote your shares held in street name on that item. Inspectors of election appointed for the annual meeting will tabulate all votes cast in person or by proxy at the annual meeting. In the event a quorum is not present at the annual meeting, we expect that the annual meeting will be adjourned or postponed to solicit additional proxies.

The following table indicates the vote required for approval of each item to be presented to the stockholders at the annual meeting and the effect of “withhold” votes, abstentions, and broker non-votes.

Item	Required Vote	Effect of “Withhold” Votes, Abstentions, Broker Non-Votes
Item 1— Election of Directors	Affirmative vote of a plurality of the shares of common stock present and voting.	•   “Withhold” votes will have no effect on the voting for the election of directors. •   Broker non-votes will have no effect on the voting for the election of directors.
Item 2 — Advisory Vote on Executive Compensation	Affirmative vote of a majority of the shares of common stock present and voting.	•   Abstentions will have the effect of a vote AGAINST this proposal. •   Broker non-votes will have no effect on the voting for this item.
Item 3 — Approval of the Second Amended and Restated 2005 Stock Incentive Plan	Affirmative vote of a majority of the shares of common stock present and voting.	•   Abstentions will have the effect of a vote AGAINST ratification. •   Broker non-votes will have no effect on the voting for this item.

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Item	Required Vote	Effect of “Withhold” Votes, Abstentions, Broker Non-Votes
Item 4 — Approval of Amendment No. 1 to the Employee Stock Purchase Plan	Affirmative vote of a majority of the shares of common stock present and voting.	• Abstentions will have the effect of a vote AGAINST ratification. • Broker non-votes will have no effect on the voting for this item.
Item 5 — Ratification of the appointment of KPMG LLP as the Company’s independent registered public accounting firm for fiscal year 2013	Affirmative vote of a majority of the shares of common stock present and voting.	• Abstentions will have the effect of a vote AGAINST ratification. • Broker non-votes will have no effect on the voting for this item.

If you sign and return your proxy card or complete the Internet or telephone voting procedures, but do not specify how you want to vote your shares, we will vote them as follows:

• FOR each of the director nominees (Proposal 1);

• FOR the approval, on an advisory basis, of the compensation of our named executive officers (Proposal 2);

• FOR the approval of The Navigators Group, Inc. Second Amended and Restated 2005 Stock Incentive Plan (Proposal 3);

• FOR the approval of Amendment No. 1 to The Navigators Group, Inc. Employee Stock Purchase Plan (Proposal 4); and

• FOR ratification of the Board’s appointment of KPMG LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2013 (Proposal 5).

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 further reports were required, all of our directors, executive officers and 10% Stockholders made all required filings on time in 2012.

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.

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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 2014 Annual Meeting of Stockholders must be received by the Company at its principal administrative office no later than December 12, 2013 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 2011 WHICH IS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION, INCLUDING THE FINANCIAL STATEMENTS AND SCHEDULES THERETO. The Form 10-K Annual Report for 2012 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: 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.

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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

Bruce J. Byrnes

Secretary

Rye Brook, New York

April 12, 2013

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Appendix A

The Navigators Group, Inc.

Second Amended and Restated 2005 Stock Incentive Plan

Table of Contents

		Page
SECTION 1. Establishment, Purpose and Duration			A-1
1.1	Effective Date and Purpose		A-1
1.2	Duration of the Plan		A-1
SECTION 2. Definitions			A-1
2.1	“Annual Incentive Award”		A-1
2.2	“Award”		A-1
2.3	“Award Agreement”		A-1
2.4	“Beneficiary”		A-1
2.5	“Board”		A-1
2.6	“Bonus Opportunity”		A-1
2.7	“Cause”		A-2
2.8	“Change in Control”		A-2
2.9	“Code”		A-3
2.10	“Committee”		A-3
2.11	“Common Stock”		A-3
2.12	“Company”		A-3
2.13	“Covered Employee”		A-3
2.14	“Deferred Compensation Award”		A-3
2.15	“Disability”		A-3
2.16	“Dividend Equivalent”		A-3
2.17	“Effective Date”		A-3
2.18	“Eligible Person”		A-3
2.19	“Employer”		A-3
2.20	“Exchange Act”		A-3
2.21	“Exercise Date”		A-3
2.22	“Fair Market Value”		A-4
2.23	“Good Reason”		A-4
2.24	“Grant Date”		A-4
2.25	“Grantee”		A-4
2.26	“Incentive Stock Option”		A-4
2.27	“including” or “includes”		A-4
2.28	“Non-Qualified Stock Option”		A-4
2.29	“Option”		A-4
2.30	“Option Price”		A-4
2.31	“Performance-Based Exception”		A-4
2.32	“Performance Goal”		A-5
2.33	“Performance Measures”		A-5
2.34	“Performance Period”		A-5
2.35	“Performance Unit”		A-5
2.36	“Person”		A-5
2.37	“Plan”		A-5
2.38	“Restricted Stock”		A-5

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		Page
2.39	“Restricted Stock Unit”		A-5
2.40	“Restrictions”		A-5
2.41	“Retirement”		A-5
2.42	“Rule 16b-3”		A-5
2.43	“SEC”		A-6
2.44	“Section 16 Non-Employee Director”		A-6
2.45	“Section 16 Person”		A-6
2.46	“Settlement Date”		A-6
2.47	“Share”		A-6
2.48	“Stock Appreciation Right” or “SAR”		A-6
2.49	“Strike Price”		A-6
2.50	“Subsidiary”		A-6
2.51	“Substitute Award”		A-6
2.52	“Term”		A-6
2.53	“Termination of Service”		A-6
2.54	“Year”		A-6
SECTION 3. Administration			A-6
3.1	Committee.		A-6
3.2	Powers of the Committee		A-7
SECTION 4. Shares Subject to the Plan and Adjustments			A-8
4.1	Number of Shares Available for Grants.		A-8
4.2	Adjustments in Authorized Shares and Awards.		A-9
4.3	Compliance With Section 162(m) of the Code.		A-9
4.4	Performance Based Exception Under Section 162(m).		A-10
SECTION 5. Eligibility and General Conditions of Awards			A-11
5.1	Eligibility		A-11
5.2	Award Agreement		A-11
5.3	General Terms and Termination of Service		A-11
5.4	Nontransferability of Awards.		A-13
5.5	Cancellation and Rescission of Awards		A-13
5.6	Substitute Awards		A-13
5.7	Exercise by Non-Grantee		A-13
5.8	No Cash Consideration for Awards		A-13
SECTION 6. Stock Options			A-13
6.1	Grant of Options		A-13
6.2	Award Agreement		A-14
6.3	Option Price		A-14
6.4	Vesting		A-14
6.5	Grant of Incentive Stock Options		A-14
6.6	Exercise and Payment.		A-15
SECTION 7. Stock Appreciation Rights			A-16
7.1	Grant of SARs		A-16
7.2	Award Agreements		A-16

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		Page
7.3	Strike Price		A-16
7.4	Vesting		A-16
7.5	Exercise and Payment.		A-16
7.6	Grant Limitations		A-16
SECTION 8. Restricted Stock			A-16
8.1	Grant of Restricted Stock		A-16
8.2	Award Agreement		A-17
8.3	Vesting		A-17
8.4	Effect of Forfeiture		A-17
8.5	Escrow; Legends		A-17
8.6	Stockholder Rights in Restricted Stock		A-17
SECTION 9. Restricted Stock Units			A-18
9.1	Grant of Restricted Stock Units		A-18
9.2	Award Agreement		A-18
9.3	Crediting Restricted Stock Units		A-18
SECTION 10. Performance Units			A-19
10.1	Grant of Performance Units		A-19
10.2	Value/Performance Goals		A-19
10.3	Earning of Performance Units		A-19
10.4	Adjustment on Change of Position		A-19
10.5	Dividend Rights		A-19
SECTION 11. Annual Incentive Awards			A-19
11.1	Annual Incentive Awards		A-19
11.2	Determination of Amount of Annual Incentive Awards.		A-20
11.3	Time of Payment of Annual Incentive Awards		A-20
11.4	Form of Payment of Annual Incentive Awards		A-20
SECTION 12. Change in Control			A-20
12.1	Acceleration of Vesting		A-20
12.2	Special Treatment In the Event of a Change in Control		A-20
SECTION 13. Dividend Equivalents			A-21
SECTION 14. Amendments and Termination			A-21
14.1	Amendment and Termination		A-21
14.2	Previously Granted Awards		A-21
SECTION 15. Beneficiary Designation			A-22
SECTION 16. Withholding			A-22
16.1	Required Withholding.		A-22
16.2	Notification under Section 83(b) of the Code		A-22
SECTION 17. General Provisions			A-23
17.1	Governing Law		A-23
17.2	Severability		A-23
17.3	Successors		A-23
17.4	Requirements of Law		A-23
17.5	Securities Law Compliance		A-23

A-iii

		Page
17.6	Section 409A		A-23
17.7	No Rights as a Stockholder		A-24
17.8	Awards Not Taken Into Account for Other Benefits		A-24
17.9	Employment Agreement Supersedes Award Agreement		A-24
17.10	Non-Exclusivity of Plan		A-24
17.11	No Trust or Fund Created		A-24
17.12	No Right to Continued Employment or Awards		A-25
17.13	Military Service		A-25
17.14	Construction		A-25
17.15	No Fractional Shares		A-25
17.16	Plan Document Controls		A-25

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THE NAVIGATORS GROUP, INC.

SECOND AMENDED AND RESTATED 2005 STOCK INCENTIVE PLAN

SECTION 1.    Establishment, Purpose and Duration

1.1    Effective Date and Purpose.    The Navigators Group, Inc., a Delaware corporation (the “Company”), hereby amends and restates The Navigators Group, Inc. Amended and Restated 2005 Stock Incentive Plan into The Navigators Group, Inc. Second Amended and Restated 2005 Stock Incentive Plan (the “Plan”). All awards issued under the prior version of this Plan shall be treated as issued under this Plan and subject to the terms of this Plan, and all Awards issued on or after the effective date of this Plan shall be governed by this Plan. The Plan is intended to attract and retain exceptionally qualified employees, consultants and directors upon whom, in large measure, the sustained progress, growth and profitability of the Company depend. By encouraging employees, consultants and directors of the Company and its subsidiaries to acquire a proprietary interest in the Company’s growth and performance, the Company intends to motivate employees, consultants and directors to achieve long-term Company goals and to more closely align such persons’ interests with those of the Company’s other stockholders. The Plan was recommended to the Board by the Committee and the Board approved the Plan on February 13, 2013, subject to approval by the Company’s stockholders, and will become effective upon the date that approval by the Company’s stockholders is obtained (the “Effective Date”).

1.2    Duration of the Plan.    The Plan shall commence on the Effective Date and shall remain in effect, subject to the right of the Board of Directors of the Company to amend or terminate the Plan at any time pursuant to Section 14 hereof, until the earlier to occur of (a) the date all Shares subject to the Plan shall have been purchased or acquired and the Restrictions on all Restricted Stock granted under the Plan shall have lapsed, according to the Plan’s provisions, and (b) 10 years from the Effective Date of the Plan. The termination of the Plan shall not adversely affect any Awards outstanding on the date of such termination.

SECTION 2.    Definitions

As used in the Plan, in addition to terms elsewhere defined in the Plan, the following terms shall have the meanings set forth below:

2.1    “Annual Incentive Award” means a performance bonus determined under Section 11.

2.2    “Award” means any Option (including a Non-Qualified Stock Option and an Incentive Stock Option), Stock Appreciation Right, Restricted Stock, Restricted Stock Unit, Performance Unit, Substitute Award, Dividend Equivalent or Annual Incentive Award.

2.3    “Award Agreement” means either (a) a written agreement either (a) a written agreement entered into by the Company and a Grantee setting forth the terms and conditions applicable to an Award granted under this Plan, or (b) a written or electronic statement issued by the Company to a Grantee describing the terms and conditions of such Award, including any amendment or modification thereof. The Committee may provide for the use of electronic, internet, intranet or other non-paper Award Agreement, and the use of electronic, internet, intranet or other non-paper means the acceptance thereof and actions thereunder by a Grantee.

2.4    “Beneficiary” means the Person designated to receive Plan benefits, if any, following the Grantee’s death in accordance with Section 15.

2.5    “Board” means the Board of Directors of the Company.

2.6    “Bonus Opportunity” means a Grantee’s threshold, target and maximum bonus opportunity for a Year, provided that such bonus opportunity shall be either (a) to the extent that the Grantee has entered into an employment agreement with the Company, the threshold, target and maximum bonus levels, if any, specified in the employment agreement for such Year based on the Grantee’s base salary in effect on March 31 of such Year, or (b) if there is no employment agreement in effect between the Company and the Grantee as of the first day of such Year or if the employment agreement does not specify such bonus levels, the percentage of such Grantee’s base salary in effect on the first day of such Year (or such later date as such person is designated as a Grantee) as determined by the Committee in its sole discretion within the first 90 days of such Year (or before such later date as such person is designated as a Grantee).

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2.7    “Cause” means, as determined by the Committee, the occurrence of any one of the following: (a) any act of dishonesty, willful misconduct, gross negligence, intentional or conscious abandonment or neglect of duty; (b) a violation of any lawful policy or rule of an Employer, including any applicable code of conduct or ethics; (c) commission of a criminal activity, fraud, embezzlement or any act of moral turpitude; (d) a failure to reasonably cooperate in any investigation or proceeding concerning the Company; (e) any unauthorized disclosure or use of confidential information or trade secrets; or (f) any violation of any restrictive covenant, such as a non-compete, non-solicit or non-disclosure agreement, between an Eligible Person and any Employer; provided, however, that in the event a Grantee is party to an employment agreement with the Company or a Subsidiary that contains a different definition of Cause, the definition of Cause contained in such employment agreement shall be controlling.

2.8    “Change in Control” means the occurrence of one or more of the following:

(a)  A Change in the Ownership of the Company. A change in ownership of the Company shall occur on the date that any one Person, or more than one Person acting as a “Group” (as defined below), acquires ownership of stock of the Company that, together with stock held by such Person or Group, constitutes more than 50% of the total fair market value or total voting power of the stock of the Company; provided, however, that, if any one Person, or more than one Person acting as a Group, is considered to own more than 50% of the total fair market value or total voting power of the stock of the Company, the acquisition of additional stock by the same Person or Persons is not considered to cause a change in the ownership of the Company.

(b)  A Change in the Effective Control of the Company. A change in the effective control of the Company occurs on the date that either:

(i)  any one Person, or more than one Person acting as a Group, acquires (or has acquired during the 12-month period ending on the date of the most recent acquisition by such Person or Persons) ownership of stock of the Company possessing 35% or more of the total voting power of the stock of the Company; provided, however, that, if any one Person, or more than one Person acting as a Group, is considered to effectively control the Company, the acquisition of additional control of the Company by the same Person or Persons is not considered a change in the effective control of the Company; or

(ii)  a majority of the members of the Company’s Board is replaced during any 12-month period by directors whose appointment or election is not endorsed by a majority of the members of the Company’s Board prior to the date of the appointment or election; provided, however, that, if one Person, or more than one Person acting as a Group, is considered to effectively control the Company, the acquisition of additional control of the Company by the same Person or Persons is not considered a change in the effective control of the Company.

(c)  A Change in the Ownership of a Substantial Portion of the Company’s Assets. A change in the ownership of a substantial portion of the Company’s assets occurs on the date that any one Person, or more than one Person acting as a Group, acquires (or has acquired during the 12-month period ending on the date of the most recent acquisition by such Person or Persons) assets from the Company that have a total Gross Fair Market Value (as defined below) equal to all or substantially all of the total Gross Fair Market Value of all of the assets of the Company immediately prior to such acquisition or acquisitions; provided, however, that, a transfer of assets by the Company is not treated as a change in the ownership of such assets if the assets are transferred to:

(i)  a stockholder of the Company (immediately before the asset transfer) in exchange for or with respect to its stock;

(ii)  an entity, 50% or more of the total Fair Market Value or voting power of which is owned, directly or indirectly, by the Company;

(iii)  a Person, or more than one Person acting as a Group, that owns, directly or indirectly, 50% or more of the total Fair Market Value or voting power of all the outstanding stock of the Company; or

(iv)  an entity, at least 50% of the total Fair Market Value or voting power of which is owned, directly or indirectly, by a Person described in clause (iii) of this Section 2.8(c).

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For purposes of this definition, “Gross Fair Market Value” means the value of the assets of the Company, or the value of the assets being disposed of, determined without regard to any liabilities associated with such assets.

For purposes of this definition, “Group” has the meaning ascribed to such term in Treas. Reg. Section 1.409A-3(i)(5)(v)(B), (vi)(D) or (vii)(C), as applicable.

With respect to Deferred Compensation Awards, stock ownership shall be determined under Section 409A of the Code. For purposes of this definition, any interpretation or determination by the Committee regarding the payment of Deferred Compensation Awards in connection with a Change in Control shall take into account any applicable guidance and regulations in effect under Section 409A of the Code.

2.9    “Code” means the Internal Revenue Code of 1986 (and any successor thereto), as amended from time to time. References to a particular section of the Code include references to regulations and rulings in effect thereunder and to successor provisions.

2.10    “Committee” has the meaning set forth in Section 3.1(a).

2.11    “Common Stock” means common stock, par value $0.10 per share, of the Company.

2.12     “Company” has the meaning set forth in Section 1.1.

2.13    “Covered Employee” means a Grantee who, as of the last day of the fiscal year in which the value of an Award is includable in income for federal income tax purposes, is one of the group of “covered employees,” within the meaning of Section 162(m) of the Code, with respect to the Company.

2.14    “Deferred Compensation Award” means an Award that could be subject to liability under Section 409A of the Code and does not qualify for an exemption from the provisions of Section 409A of the Code.

2.15    “Disability” means, as determined by the Committee, a mental or physical illness that entitles the Grantee to receive benefits under the long-term disability plan of an Employer, or if the Grantee is not covered by such a plan or the Grantee is not an employee of an Employer, a mental or physical illness that renders a Grantee totally and permanently incapable of performing the Grantee’s duties for the Company or a Subsidiary. Notwithstanding the foregoing, with respect to any Deferred Compensation Award, Disability shall mean a Grantee’s inability to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than 12 months, as determined by the Committee. Notwithstanding anything to the contrary in this Section 2.15, a Disability shall not qualify under this Plan if it is the result of (a) a willfully self-inflicted injury or willfully self-induced sickness; or (b) an injury or disease contracted, suffered, or incurred while participating in a felony criminal offense.

2.16    “Dividend Equivalent” means any right to receive payments equal to dividends or property, if and when paid or distributed, on Shares or Restricted Stock Units.

2.17    “Effective Date” has the meaning set forth in Section 1.1.

2.18    “Eligible Person” means any (a) employee of an Employer, (b) non-employee director of an Employer, (c) employees of a corporation that has been acquired by an Employer, whether by way of exchange or purchase of stock, purchase of assets, merger or reverse merger, or otherwise who hold options with respect to the stock of such corporation that the Company has agreed to assume, and (d) independent contractors or consultants who render services to an Employer.

2.19    “Employer” means the Company or any Subsidiary.

2.20    “Exchange Act” means the Securities and Exchange Act of 1934, as amended, or any successors thereto, and the rules and regulations in effect thereunder, all as shall be amended from time to time.

2.21    “Exercise Date” means the date the holder of an Award that is subject to exercise delivers notice of such exercise to the Company, accompanied by such payment, attestations, representations and warranties or

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other documentation as required hereunder, under the applicable Award Agreement or as the Committee may otherwise specify.

2.22    “Fair Market Value” means, as of any applicable date, (a) the closing sales price for one Share on such date as reported on NASDAQ or, if the foregoing does not apply, on such other market system or stock exchange on which the Company’s Common Stock is then listed or admitted to trading, or on the last previous day on which a sale was reported if no sale of a Share was reported on such date, or (b) if the foregoing subsection (a) does not apply, the fair market value of a Share as reasonably determined in good faith by the Board in accordance with Section 409A of the Code. For purposes of subsection (b), the determination of such Fair Market Value by the Board will be made no less frequently than every 12 months and will either (x) use one of the safe harbor methodologies permitted under Treas. Reg. Section 1.409A-1(b)(5)(iv)(B)(2) (or such other similar regulation provision as may be provided) or (y) include, as applicable, the value of tangible and intangible assets of the Company, the present value of future cash flows of the Company, the market value of stock or other equity interests in similar corporations and other entities engaged in trades or businesses substantially similar to those engaged in by the Company, the value of which can be readily determined through objective means (such as through trading prices or an established securities market or an amount paid in an arms’ length private transaction), and other relevant factors such as control premiums or discounts for lack of marketability and whether the valuation method is used for other purposes that have a material economic effect on the Company, its stockholders or its creditors.

2.23    “Good Reason” has the meaning set forth in the employment agreement by and between the applicable Employer and the Grantee, or, if no such agreement exists or such agreement does not define “good reason” or any term of similar import, “Good Reason” means any of the following acts by an Employer, without the consent of the Grantee (in each case, other than an isolated, insubstantial and inadvertent action not taken in bad faith and which is remedied by the Employer promptly after receipt of notice thereof given by the Grantee): (a) a material diminution in the Grantee’s position, authority, duties or responsibilities as in effect immediately prior to the Change in Control, (b) a material reduction in the Grantee’s base salary from his or her highest base salary in effect at any time within 12 months preceding a Change in Control, (c) failure to continue the Grantee’s participation in any compensation plan in which he or she participated immediately prior to the Change in Control (or in a substitute or alternative plan) on a basis not materially less favorable, both in terms of the amount of benefits provided and the level of the Grantee’s participation relative to similarly situated employees, or (d) requiring the Grantee to be based at any office or location more than 50 miles from the location at which the Grantee was stationed immediately prior to the Change in Control.

2.24    “Grant Date” means the date on which an Award is granted, which date may be specified in advance by the Committee.

2.25    “Grantee” means an Eligible Person who has been granted an Award.

2.26    “Incentive Stock Option” means an Option granted under Section 6 that is intended to meet the requirements of Section 422 of the Code.

2.27    “including” or “includes” means “including, but not limited to,” or “includes, but is not limited to,” respectively.

2.28    “Non-Qualified Stock Option” means an Option granted under Section 6 that is not intended to be an Incentive Stock Option.

2.29    “Option” means an Incentive Stock Option or Non-Qualified Stock Option.

2.30    “Option Price” means the price at which a Share may be purchased by a Grantee pursuant to an Option.

2.31    “Performance-Based Exception” means the performance-based exception from the tax deductibility limitations of Section 162(m) of the Code contained in Section 162(m)(4)(C) of the Code (including, to the extent applicable, the special provision for options thereunder).

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2.32    “Performance Goal” means the objective or subjective criteria determined by the Committee, the degree of attainment of which will affect (a) in the case of an Award other than an Annual Incentive Award, the amount of the Award the Grantee is entitled to receive or retain, and (b) in the case of an Annual Incentive Award, the portion of the individual’s Bonus Opportunity potentially payable as an Annual Incentive Award. Performance Goals may contain threshold, target and maximum levels of achievement and, to the extent the Committee intends an Award (including an Annual Incentive Award) to comply with the Performance-Based Exception, the Performance Goals shall be chosen from among the Performance Measures set forth in Section 4.4(a).

2.33    “Performance Measures” has the meaning set forth in Section 4.4(a).

2.34    “Performance Period” means that period established by the Committee at the time any Performance Unit is granted or at any time thereafter during which any performance goals specified by the Committee with respect to such Award are to be measured.

2.35    “Performance Unit” means any grant pursuant to Section 10 of (i) a bonus consisting of cash or other property, including Shares, the amount or value of which, and/or the entitlement to which, is conditioned upon the attainment of any performance goals specified by the Committee, or (ii) a unit valued by reference to a designated amount of property other than Shares.

2.36    “Person” means any individual, sole proprietorship, corporation, partnership, joint venture, limited liability company, association, joint-stock company, trust, unincorporated organization, institution, public benefit corporation, entity or government instrumentality, division, agency, body or department.

2.37    “Plan” has the meaning set forth in Section 1.1 of this Plan, and also includes any appendices hereto.

2.38    “Restricted Stock” means any Share issued as an Award under the Plan that is subject to Restrictions.

2.39    “Restricted Stock Unit” means the right granted as an Award under the Plan to receive a Share, conditioned on the satisfaction of Restrictions imposed by the Committee, which Restrictions may be time-based, performance-based or based upon the occurrence of one or more events or conditions.

2.40    “Restrictions” means any restriction on a Grantee’s free enjoyment of the Shares or other rights underlying Awards, including (a) that the Grantee or other holder may not sell, transfer, pledge, or assign a Share or right, and (b) such other restrictions as the Committee may impose in the Award Agreement (including any restriction on the right to vote such Share and the right to receive any dividends). Restrictions may be based upon the passage of time or the satisfaction of performance criteria or the occurrence of one or more events or conditions, and shall lapse separately or in combination upon such conditions and at such time or times, in installments or otherwise, as the Committee shall specify. Awards subject to a Restriction shall be forfeited if the Restriction does not lapse prior to such date or the occurrence of such event or the satisfaction of such other criteria as the Committee shall determine.

2.41    “Retirement” means (a) for an employee, the Termination of Service, other than for Cause or by reason of his or her death or Disability, on or after the earlier to occur of (i) the first day of the calendar month in which his or her 65th birthday occurs and (ii) the date on which he or she has both attained age 55 and completed 10 years of service with an Employer, as determined pursuant to the service rules described in The Navigators Group, Inc. Money Purchase Plan or (b) for a non-employee director, the Termination of Service, other than for Cause or by reason of his or her death, on or after the first day of the calendar month in which his or her 65th birthday occurs. Notwithstanding the foregoing: (i) with respect to any Grantee, who prior to the Effective Date met the definition of “Retirement” under The Navigators Group, Inc. Amended and Restated 2005 Stock Incentive Plan, shall continue to meet the definition of “Retirement” under this Plan; and (ii) with respect to any Award other than a Deferred Compensation Award, for a Grantee to satisfy the definition of “Retirement” under this Plan, the Committee must approve the treatment of a Termination of Service as a retirement.

2.42    “Rule 16b-3” means Rule 16b-3 promulgated by the SEC under the Exchange Act, as amended from time to time, together with any successor rule.

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2.43    “SEC” means the United States Securities and Exchange Commission, or any successor thereto.

2.44    “Section 16 Non-Employee Director” means a member of the Board who satisfies the requirements to qualify as a “non-employee director” under Rule 16b-3.

2.45    “Section 16 Person” means a person who is subject to potential liability under Section 16(b) of the Exchange Act with respect to transactions involving equity securities of the Company.

2.46    “Settlement Date” means the payment date for Restricted Stock Units, as set forth in Section 9.3(b) or 17.6, as applicable.

2.47    “Share” means a share of the Common Stock.

2.48    “Stock Appreciation Right” or “SAR” means a right granted as an Award under the Plan to receive, as of the date specified in the Award Agreement, an amount equal to the number of Shares with respect to which the SAR is exercised, multiplied by the excess of (a) the Fair Market Value of one Share on the Exercise Date over (b) the Strike Price.

2.49    “Strike Price” means the per Share price used as the baseline measure for the value of a SAR, as specified in the applicable Award Agreement.

2.50    “Subsidiary” means any Person that directly, or through one or more intermediaries, is controlled by the Company and that would be treated as part of a single controlled group of corporations with the Company under Sections 414(b) and 414(c) of the Code if the language “at least 50 percent” is used instead of “at least 80 percent” each place it appears in Sections 1563(a)(1), (2) and (3) of the Code and Treas. Reg. Section 1.414(c)-2.

2.51    “Substitute Award” has the meaning set forth in Section 5.6.

2.52    “Term” means the period beginning on the Grant Date of an Option or SAR and ending on the date such Option or SAR expires, terminates or is cancelled.

2.53    “Termination of Service” occurs (a) on the first day on which an individual is for any reason no longer providing services to an Employer in the capacity of an employee, director, independent contractor or consultant or (b) with respect to an individual who is an employee, independent contractor or consultant to a Subsidiary, the first day on which such entity ceases to be a Subsidiary of the Company and such individual is no longer providing services to the Company or another Subsidiary; provided, however, that the Committee shall have the discretion to determine when a Grantee, who terminates services as an employee, but continues to provide services in the capacity of a consultant or independent contractor immediately following such termination, has incurred a Termination of Service. Notwithstanding the foregoing, in the case of a Deferred Compensation Award, Termination of Service shall mean a “separation from service” within the meaning of Treas. Reg. Section 1.409A-1(h) or as permitted under Section 409A of the Code.

2.54    “Year” means a calendar year.

SECTION 3.    Administration

3.1    Committee.

(a)  Subject to Section 3.2, the Plan shall be administered by the Compensation Committee of the Board unless otherwise determined by the Board (the “Committee”). The members of the Committee shall be appointed by the Board from time to time and may be removed by the Board from time to time. To the extent the Board considers it desirable to comply with Rule 16b-3 or meet the Performance-Based Exception, the Committee shall consist of two or more directors of the Company, all of whom qualify as “outside directors” within the meaning of Section 162(m) of the Code and Section 16 Non-Employee Directors. The number of members of the Committee shall from time to time be increased or decreased, and shall be subject to such conditions, in each case if and to the extent the Board deems it appropriate to permit transactions in Shares pursuant to the Plan to satisfy such conditions of Rule 16b-3 and the Performance-Based Exception as then in effect.

(b)  Subject to Section 4.4(c), the Committee may delegate, to the fullest extent permitted under Delaware General Corporation Law, to the Chief Executive Officer or Chief Financial Officer of the Company any or all of

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the authority of the Committee with respect to the grant of Awards to Grantees, other than Grantees who are executive officers, or are (or are expected to be) Covered Employees and/or are Section 16 Persons at the time any such delegated authority is exercised.

3.2    Powers of the Committee.    Subject to and consistent with the provisions of the Plan (including, without limitation, Section 14 hereof), the Committee shall have full power and authority and sole discretion as follows:

(a)  to determine when, to whom (i.e., what Eligible Persons) and in what types and amounts Awards should be granted;

(b)  to grant Awards to Eligible Persons in any number, and to determine the terms and conditions applicable to each Award (including conditions intended to comply with Section 409A of the Code, the number of Shares or the amount of cash or other property to which an Award will relate, any Option Price or Strike Price, grant price or purchase price, any limitation or Restriction, any schedule for or performance conditions relating to the earning of the Award or the lapse of limitations, forfeiture restrictions, restrictive covenants, restrictions on exercisability or transferability, any performance goals, including those relating to the Company and/or a Subsidiary and/or any division thereof and/or an individual, and/or vesting based on the passage of time, based in each case on such considerations as the Committee shall determine);

(c)  to determine the benefit (including any Bonus Opportunity) payable under any Award and to determine whether any performance or vesting conditions, including Performance Measures or Performance Goals, have been satisfied;

(d)  to determine whether or not specific Awards shall be granted in connection with other specific Awards;

(e)  to determine the Term, as applicable;

(f)  to determine the amount, if any, that a Grantee shall pay for Restricted Stock, whether to permit or require the payment of cash dividends thereon to be deferred and the terms related thereto, when Restricted Stock (including Restricted Stock acquired upon the exercise of an Option) shall be forfeited and whether such Shares shall be held in escrow or other custodial arrangement;

(g)  to determine whether, to what extent and under what circumstances an Award may be settled in, or the exercise price of an Award may be paid in, cash, Shares, other Awards or other property, or an Award may be accelerated, vested, canceled, forfeited or surrendered or any terms of the Award may be waived, and to accelerate the exercisability of, and to accelerate or waive any or all of the terms and conditions applicable to, any Award or any group of Awards for any reason and at any time or to extend the period subsequent to the Termination of Service within which an Award may be exercised;

(h)  to determine with respect to Awards granted to Eligible Persons, whether, to what extent and under what circumstances cash, Shares, other Awards, other property and other amounts payable with respect to an Award will be deferred, either at the election of the Grantee or if and to the extent specified in the Award Agreement automatically or at the election of the Committee (for purposes of limiting loss of deductions pursuant to Section 162(m) of the Code or otherwise) and to provide for the payment of interest or other rate of return determined with reference to a predetermined actual investment or independently set interest rate, or with respect to other bases permitted under Section 162(m) or 409A of the Code, for the period between the date of exercise and the date of payment or settlement of the Award;

(i)  to make such adjustments or modifications to Awards to Grantees who are working outside the United States as are advisable to fulfill the purposes of the Plan or to comply with applicable local law and to establish sub-plans for an Eligible Person outside the United States with such provisions as are consistent with the Plan as may be suitable in other jurisdictions;

(j)  to determine whether a Grantee has a Disability or a Retirement;

(k)  to determine whether and under what circumstances a Grantee has incurred a Termination of Service (e.g., whether Termination of Service was for Cause);

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(l)  to make, amend, suspend, waive and rescind rules and regulations relating to the Plan;

(m)  without the consent of the Grantee, to make adjustments in the terms and conditions of, and the criteria in, Awards in recognition of unusual or nonrecurring events (including events described in Section 4.2) affecting an Employer or the financial statements of an Employer, or in response to changes in applicable laws, regulations or accounting principles; provided, however, that in no event shall such adjustment increase the value of an Award for a person expected to be a Covered Employee for whom the Committee desires to have the Performance-Based Exception apply;

(n)  to appoint such agents as the Committee may deem necessary or advisable to administer the Plan;

(o)  to determine the terms and conditions of all Award Agreements applicable to Eligible Persons (which need not be identical) and, with the consent of the Grantee (except as provided in this Section 3.2(o) and Sections 5.5 and 14.2), to amend any such Award Agreement at any time; provided, however, that the consent of the Grantee shall not be required for any amendment (i) that does not adversely affect the rights of the Grantee, or (ii) that is necessary or advisable (as determined by the Committee) to carry out the purpose of the Award as a result of any new applicable law or regulation or change in an existing applicable law or regulation or interpretation thereof, or (iii) to the extent the Award Agreement specifically permits amendment without consent;

(p)  to impose such additional terms and conditions upon the grant, exercise or retention of Awards as the Committee may, before or concurrently with the grant thereof, deem appropriate, including limiting the percentage of Awards which may from time to time be exercised by a Grantee, and including requiring the Grantee to enter into restrictive covenants;

(q)  to correct any defect or supply any omission or reconcile any inconsistency, and to construe and interpret the Plan, the rules and regulations, and Award Agreement or any other instrument entered into or relating to an Award under the Plan; and

(r)  to take any other action with respect to any matters relating to the Plan for which it is responsible and to make all other decisions and determinations, including factual determinations, as may be required under the terms of the Plan or as the Committee may deem necessary or advisable for the administration of the Plan.

Any action of the Committee with respect to the Plan shall be final, conclusive and binding on all Persons, including the Company, its Subsidiaries, any Grantee, any Eligible Person, any Person claiming any rights under the Plan from or through any Grantee, and stockholders, except to the extent the Committee may subsequently modify, or take further action not consistent with, its prior action. If not specified in the Plan, the time at which the Committee must or may make any determination shall be determined by the Committee, and any such determination may thereafter be modified by the Committee. The express grant of any specific power to the Committee, and the taking of any action by the Committee, shall not be construed as limiting any power or authority of the Committee.

All determinations of the Committee shall be made by a majority of its members; provided, however, that any determination affecting any Awards made or to be made to a member of the Committee may, at the Board’s election, be made by the Board.

SECTION 4.    Shares Subject to the Plan and Adjustments

4.1    Number of Shares Available for Grants.

(a)  Subject to adjustment as provided in Section 4.2, the aggregate number of Shares which may be delivered under the Plan shall be 2,000,000 Shares (the “Available Shares”). For purposes of this Section 4.1(a), each Share delivered pursuant to the Plan shall reduce the Available Shares by one (1) Share. If any Shares subject to an Award granted hereunder are forfeited or such Award otherwise terminates without the delivery of such Shares, the Shares subject to such Award, to the extent of any such forfeiture or termination, shall again be or become available for grant under the Plan. If any Award is settled in cash, the Shares subject to such Award that are not delivered shall be again or become available for grants under the Plan.

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(b)  The Committee shall from time to time determine the appropriate methodology for calculating the number of Shares that have been delivered pursuant to the Plan. Shares delivered pursuant to the Plan may be, in whole or in part, authorized and unissued Shares, or treasury Shares, including Shares repurchased by the Company for purposes of the Plan.

(c)  The maximum number of shares of Common Stock that may be issued under the Plan in this Section 4.1 shall not be affected by (i) the payment in cash of dividends or Dividend Equivalents in connection with outstanding Awards or (ii) any Shares required to satisfy Substitute Awards.

4.2    Adjustments in Authorized Shares and Awards.

(a)  In the event that the Committee determines that any dividend or other distribution (whether in the form of cash, Shares, or other securities or property), stock split or combination, forward or reverse merger, reorganization, subdivision, consolidation or reduction of capital, recapitalization, consolidation, scheme of arrangement, split-up, spin-off or combination involving the Company or repurchase or exchange of Shares, issuance of warrants or other rights to purchase Shares or other securities of the Company, or other similar corporate transaction or event affects the Shares such that an adjustment is determined by the Committee to be appropriate in order to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under the Plan, then the Committee shall, in such manner as it may deem equitable, adjust any or all of: (i) the number and type of Shares (or other securities or property) with respect to which Awards may be granted, (ii) the number and type of Shares (or other securities or property) subject to outstanding Awards, (iii) the grant or exercise price with respect to any Award or, if deemed appropriate, make provision for a cash payment to the holder of an outstanding Award, (iv) the number and kind of Shares of outstanding Restricted Stock or relating to any other outstanding Award in connection with which Shares are subject, and (v) the number of Shares with respect to which Awards may be granted to a Grantee; provided, however, in each case, that with respect to Awards of Incentive Stock Options intended to continue to qualify as Incentive Stock Options after such adjustment, no such adjustment shall be authorized to the extent that such adjustment would cause the Incentive Stock Option to fail to continue to qualify under Section 424(a) of the Code; provided further that the number of Shares subject to any Award denominated in Shares shall always be a whole number.

(b)  Notwithstanding Section 4.2(a), any adjustments made pursuant to Section 4.2(a) shall be made in such a manner as to ensure that after such adjustment, the Awards continue not to be deferred compensation subject to Section 409A of the Code (or if such Awards are already subject to Code Section 409A, so as not to give rise to adverse tax consequences under Section 409A of the Code).

4.3    Compliance With Section 162(m) of the Code.

(a)  Section 162(m) Compliance.    To the extent the Committee determines that compliance with the Performance-Based Exception is desirable with respect to an Award, Sections 4.3 and 4.4 shall apply. In the event that changes are made to Section 162(m) of the Code to permit flexibility with respect to any Awards available under the Plan, the Committee may, subject to this Sections 4.3, make any adjustments to such Awards as it deems appropriate.

(b)  Annual Individual Limitations.    No Grantee may be granted Awards for Options, or SARs with respect to a number of Shares in any one calendar year exceeding 500,000 Shares. No Grantee 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) with respect to a number of Shares in any one calendar year exceeding 250,000 Shares. If an Award denominated in Shares is cancelled, the Shares subject to the cancelled Award continue to count against the maximum number of Shares which may be granted to a Grantee in any calendar year. All Shares specified in this Section 4.3(b) shall be adjusted to the extent necessary to reflect adjustments to Shares required by Section 4.2. No Grantee may be granted a cash Award, the maximum payout for which would exceed $3,000,000 during any calendar year. No Grantee may be granted a cash Award for a Performance Period of more than one Year, the maximum payout for which would exceed $5,000,000.

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4.4    Performance Based Exception Under Section 162(m).

(a)  Performance Measures.    Subject to Section 4.4(d), unless and until the Committee proposes for stockholder vote and stockholders approve a change in the general Performance Measures set forth in this Section 4.4(a), for Awards (other than Options and SARs) designed to qualify for the Performance-Based Exception, the objective performance criteria shall be based upon one or more of the following (each a “Performance Measure”):

(i)  Earnings before any or all of interest, tax, depreciation or amortization (actual and adjusted and either in the aggregate or on a per-Share basis),

(ii)  Earnings (either in the aggregate or on a per-Share basis),

(iii)  Net income or loss (either in the aggregate or on a per-Share basis),

(iv)  Operating profit,

(v)  Cash flow (either in the aggregate or on a per-Share basis),

(vi)  Free cash flow (either in the aggregate on a per-Share basis),

(vii)  Costs,

(viii)  Gross or net revenues,

(ix)  Reductions in expense levels,

(x)  Operating and maintenance cost management and employee productivity,

(xi)  Share price or total shareholder return (including growth measures and total stockholder return or attainment by the Shares of a specified value for a specified period of time),

(xii)  Net economic value,

(xiii)  Economic value added,

(xiv)  Return on shareholders’ equity,

(xv)  Book value per share,

(xvi)  Aggregate product unit and pricing targets,

(xvii)  Strategic business criteria, consisting of one or more objectives based on meeting specified revenue, market share, market penetration, geographic business expansion goals, objectively identified project milestones, production volume levels, cost targets, and goals relating to acquisitions or divestitures,

(xviii)  Achievement of objectives relating to diversity, employee turnover or other human capital metrics,

(xix)  Results of customer satisfaction surveys, and/or

(xx)  Debt ratings, debt leverage and debt service;

Provided, however, that applicable Performance Measures may be applied on a pre- or post-tax basis; provided further that the Committee may, on the Grant Date of an Award intended to comply with the Performance-Based Exception, and in the case of other Awards, at any time, provide that the formula for such Award may include or exclude items to measure specific objectives, such as losses from discontinued operations, extraordinary gains or losses, the cumulative effect of accounting changes, acquisitions or divestitures, foreign exchange impacts and any unusual, nonrecurring gain or loss.

(b)  Flexibility in Setting Performance Measures.    For Awards intended to comply with the Performance-Based Exception, the Committee shall set the Performance Measures within the time period prescribed by Section 162(m) of the Code. The levels of performance required with respect to Performance Measures may be expressed in absolute or relative levels and may be based upon a set increase, set positive result, maintenance of

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the status quo, set decrease or set negative result. Performance Measures may differ for Awards to different Grantees. The Committee shall specify the weighting (which may be the same or different for multiple objectives) to be given to each performance objective for purposes of determining the final amount payable with respect to any such Award. Any one or more of the Performance Measures may apply to the Grantee, a department, unit, division or function within the Company or any one or more Subsidiaries; and may apply either alone or relative to the performance of other companies (including groups of companies), businesses or individuals (including industry or general market indices).

(c)  Adjustments.    The Committee shall have the discretion to adjust the determinations of the degree of attainment of the pre-established performance goals; provided, however, that Awards which are designed to qualify for the Performance-Based Exception may not (unless the Committee determines to amend the Award so that it no longer qualified for the Performance-Based Exception) be adjusted upward (the Committee shall retain the discretion to adjust such Awards downward). The Committee may not, unless the Committee determines to amend the Award so that it no longer qualifies for the Performance-Based Exception, delegate any responsibility with respect to Awards intended to qualify for the Performance-Based Exception. All determinations by the Committee as to the achievement of the Performance Measure(s) shall be in writing prior to payment of the Award.

(d)  Changes to Performance Measures.    In the event that applicable laws, rules or regulations change to permit Committee discretion to alter the governing Performance Measures without obtaining stockholder approval of such changes, and still qualify for the Performance-Based Exception, the Committee shall have sole discretion to make such changes without obtaining stockholder approval.

SECTION 5.    Eligibility and General Conditions of Awards

5.1    Eligibility.    The Committee may in its discretion grant Awards to any Eligible Person, whether or not he or she has previously received an Award.

5.2    Award Agreement.    To the extent not set forth in the Plan, the terms and conditions of each Award shall be set forth in an Award Agreement.

5.3    General Terms and Termination of Service.    Except as provided in an Award Agreement or as otherwise provided below in this Section 5.3, all Options or SARs that have not been exercised, or any other Awards that remain subject to Restrictions or which are not otherwise vested or exercisable, at the time of a Termination of Service shall be cancelled and forfeited to the Company. Any Restricted Stock that is forfeited by the Grantee upon Termination of Service shall be reacquired by the Company, and the Grantee shall sign any document and take any other action required to assign such Shares back to the Company.

(a)  Options and SARS.    Except as otherwise provided in an Award Agreement or in Section 12:

(i)  If the Grantee, who is an employee or director of an Employer, incurs a Termination of Service due to his or her Disability or Retirement, such Grantee’s outstanding and unvested Options and SARs will become fully vested and exercisable at the time of such Termination of Service, and all of such Grantee’s outstanding Options and SARs will remain exercisable for a period of six (6) months from the date of such Termination of Service (but not beyond the original Term). To the extent the Options or SARs are not exercised at the end of such period, the Options or SARs will be immediately cancelled and forfeited to the Company.

(ii)  If the Grantee incurs a Termination of Service due to his or her death, such Grantee’s outstanding and unvested Options and SARs will become fully vested and exercisable at the time of such Termination of Service, and all of such Grantee’s outstanding Options and SARs will remain exercisable for a period of six months (but not beyond the original Term) after the date of the qualification of a representative of his or her estate. To the extent the Options or SARs are not exercised at the end of such period, the Options or SARs shall be immediately cancelled and forfeited to the Company.

(iii)  If the Grantee incurs a Termination of Service for Cause, all of such Grantee’s Options and SARs, whether vested or unvested, will be immediately canceled and forfeited to the Company.

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(iv)  If the Grantee incurs a Termination of Service for any reason other than as described in Sections 5.3(a)(i) through (iii) or in Section 12, the Grantee’s outstanding Options and SARs may thereafter be exercised, to the extent they were vested and exercisable at the time of such Termination of Service, for a period of 90 days from the date of such Termination of Service (but not beyond the original Term). To the extent the Options or SARs are not exercised at the end of such 90 day period, the Options or SARs shall be immediately cancelled and forfeited to the Company. To the extent the Options and SARs are not vested and exercisable at the date of such Termination of Service, they shall be immediately cancelled and forfeited to the Company.

(b)  Restricted Stock.    Except as otherwise provided in an Award Agreement or in Section 12:

(i)  If Termination of Service by a director or employee occurs by reason of the Grantee’s Disability or Retirement, such Grantee’s Restricted Stock shall become immediately vested and no longer subject to the applicable Restrictions.

(ii)  If the Grantee incurs a Termination of Service by reason of death, such Grantee’s Restricted Stock shall become immediately vested and no longer subject to the applicable Restrictions.

(iii)  If the Grantee incurs a Termination of Service for any reason other than as described in Section 5.3(b)(i) or (ii) while the Grantee’s Restricted Stock is subject to a Restriction(s), all of such Grantee’s Restricted Stock that is unvested or still subject to Restrictions shall be forfeited by the Grantee and must be immediately delivered to the Company.

(c)  Dividend Equivalents.    If Dividend Equivalents have been credited (but not yet paid to the Grantee) with respect to any Award and such Award (in whole or in part) is forfeited, all Dividend Equivalents credited in connection with such forfeited Award (or portion of an Award) shall also be forfeited to the Company.

(d)  Performance Awards.    The Committee may provide in an Award Agreement that the Grantee’s Performance Awards vest upon a Termination of Service; provided that the accelerated vesting of any Award intended to meet the Performance-Based Exception shall be limited to an acceleration described in Section 12.1 and a Termination of Service because of the Grantee’s death or Disability.

(e)  Restricted Stock Units.    Unless otherwise provided in an Award Agreement, Restricted Stock Units will vest pursuant to Section 9.2(b) and the Grantee will forfeit any Award of Restricted Stock Units that are unvested at the Grantee’s Termination of Service date. The Committee has the discretion to provide, in the Award Agreement at the time of Grant, that Restricted Stock Units will vest upon a Termination of Service, subject to the following:

(i)  Vesting acceleration that does not create a Deferred Compensation Award.    If the Award Agreement limits the Termination of Service events that cause the Restricted Stock Units to become fully vested to those that do not create a Deferred Compensation Award, then the Restricted Stock Units will be paid pursuant to Section 9.3.

(ii)  Vesting acceleration that creates a Deferred Compensation Award.    If the Award Agreement provides that vesting may be accelerated by any event that causes the Restricted Stock Units to be a Deferred Compensation Award (e.g., full vesting at Retirement), then the Award Agreement must specify each event that may result in the payment of the Award and the timing of each such payment, as described in Section 17.6(c).

(f)  Waiver by Committee.    Notwithstanding the foregoing provisions of this Section 5.3, the Committee may in its sole discretion as to all or part of any Award as to any Grantee, at the time the Award is granted or thereafter, determine that Awards shall become exercisable or vested upon a Termination of Service, determine that Awards shall continue to become exercisable or vested in full or in installments after Termination of Service, extend the period for exercise of Options or SARs following Termination of Service (but not beyond the original Term), or provide that any Award shall in whole or in part not be forfeited upon such Termination of Service. Notwithstanding the preceding sentence, the Committee shall not have the authority under this Section 5.3(e) to take any action with respect to an Award to the extent that such action would cause an Award that is not intended

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to be deferred compensation subject to Section 409A of the Code to be subject thereto (or if such Awards are already subject to Section 409A of the Code, so as not to give rise to liability under Section 409A of the Code), unless the Grantee consents to such application of Section 409A of the Code.

5.4    Nontransferability of Awards.

(a)  Each Award and each right under any Award shall be exercisable only by the Grantee during the Grantee’s lifetime, or, if permissible under applicable law, by the Grantee’s guardian or legal representative.

(b)  No Award (prior to the time, if applicable, Shares are delivered in respect of such Award), and no right under any Award, may be assigned, alienated, pledged, attached, sold or otherwise transferred or encumbered by a Grantee other than by will or by the laws of descent and distribution, and any such purported assignment, alienation, pledge, attachment, sale, transfer or encumbrance shall be void and unenforceable against any Employer; provided, however, that the designation of a Beneficiary to receive benefits in the event of the Grantee’s death or the transfer of Restricted Stock by the Grantee to the Company shall not constitute an assignment, alienation, pledge, attachment, sale, transfer or encumbrance for purposes of this Section 5.4(b). If so determined by the Committee, a Grantee may, in the manner established by the Committee, designate a Beneficiary or Beneficiaries to exercise the rights of the Grantee, and to receive any distribution with respect to any Award upon the death of the Grantee. A transferee, Beneficiary, guardian, legal representative or other person claiming any rights under the Plan from or through any Grantee shall be subject to the provisions of the Plan and any applicable Award Agreement, except to the extent the Plan and Award Agreement otherwise provide with respect to such persons, and to any additional restrictions or limitations deemed necessary or appropriate by the Committee.

(c)  Nothing herein shall be construed as requiring the Committee to honor the order of a domestic relations court regarding an Award, except to the extent required under applicable law.

5.5    Cancellation and Rescission of Awards.    Unless the Award Agreement specifies otherwise, the Committee may cancel, rescind, suspend, withhold, or otherwise limit or restrict any unexercised or unsettled Award at any time if the Grantee is not in compliance with all applicable provisions of the Award Agreement and the Plan or is in violation of any restrictive covenant or other agreement with an Employer.

5.6    Substitute Awards.    The Committee may, in its discretion and on such terms and conditions as the Committee considers appropriate in the circumstances, grant Substitute Awards under the Plan. For purposes of this Section 5.6, “Substitute Award” means an Award granted under the Plan in substitution for stock and stock-based awards (“Acquired Entity Awards”) held by current and former employees or non-employee directors of, or consultants to, another corporation or entity who become Eligible Persons as the result of a merger, consolidation or combination of the employing corporation or other entity (the “Acquired Entity”) with the Company or a Subsidiary or the acquisition by the Company or a Subsidiary of property or stock of the Acquired Entity immediately prior to such merger, consolidation, acquisition or combination (“Acquisition Date”) in order to preserve for the Grantee the economic value of all or a portion of such Acquired Entity Award at such price as the Committee determines necessary to achieve preservation of economic value.

5.7    Exercise by Non-Grantee.    If any Award is exercised as permitted by the Plan by any Person other than the Grantee, the exercise notice shall be accompanied by such documentation as may reasonably be required by the Committee, including, without limitation, evidence of authority of such Person or Persons to exercise the Award and, if the Committee so specifies, evidence satisfactory to the Company that any death taxes payable with respect to such Shares have been paid or provided for.

5.8    No Cash Consideration for Awards.    Awards may be granted for no cash consideration or for such minimal cash consideration as may be required by applicable law.

SECTION 6.    Stock Options

6.1    Grant of Options.    Subject to and consistent with the provisions of the Plan, Options may be granted to any Eligible Person in such number, and upon such terms, and at any time and from time to time as shall be determined by the Committee.

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6.2    Award Agreement.    Each Option grant shall be evidenced by an Award Agreement in such form as the Committee may approve that shall specify the Grant Date, the Option Price, the Term (which shall not exceed 10 years from its Grant Date unless the Committee otherwise specifies in the Award Agreement), the number of Shares to which the Option pertains, the time or times at which such Option shall be exercisable and such other provisions (including Restrictions) not inconsistent with the provisions of the Plan as the Committee shall determine.

6.3    Option Price.    The purchase price per Share purchasable under an Option shall be determined by the Committee; provided, however, that such purchase price shall not be less than 100% of the Fair Market Value of a Share on the Grant Date.

6.4    Vesting.    Unless otherwise specified in the applicable Award Agreement, in Section 5.3(a) or in Section 12, Options will become vested and exercisable as follows

(i)  On the first anniversary of the Grant Date, 25% of the Options awarded to the Grantee in the applicable Award Agreement;

(ii)  On the second anniversary of the Grant Date, an additional 25% of the Options awarded to the Grantee in the applicable Award Agreement;

(iii)  On the third anniversary of the Grant Date, an additional 25% of the Options awarded to the Grantee in the applicable Award Agreement; and

(iv)  On the fourth anniversary of the Grant Date, the remaining 25% of the Options awarded to the Grantee in the applicable Award Agreement.

6.5    Grant of Incentive Stock Options.    At the time of the grant of any Option, the Committee may in its discretion designate that such Option shall be made subject to additional restrictions to permit it to qualify as an Incentive Stock Option. Any Option designated as an Incentive Stock Option:

(a)  shall be granted only to an employee of the Company or a Subsidiary Corporation (as defined below);

(b)  shall have an Option Price of not less than 100% of the Fair Market Value of a Share on the Grant Date, and, if granted to a person who owns capital stock (including stock treated as owned under Section 424(d) of the Code) possessing more than 10% of the total combined voting power of all classes of capital stock of the Company or any Subsidiary Corporation (a “10% Owner”), have an Option Price not less than 110% of the Fair Market Value of a Share on its Grant Date;

(c)  shall have a Term of not more than 10 years (five years if the Grantee is a 10% Owner) from its Grant Date, and shall be subject to earlier termination as provided herein or in the applicable Award Agreement;

(d)  shall not have an aggregate Fair Market Value (as of the Grant Date) of the Shares with respect to which Incentive Stock Options (whether granted under the Plan or any other equity incentive plan of the Grantee’s employer or any parent or Subsidiary Corporation (“Other Plans”)) are exercisable for the first time by such Grantee during any calendar year (“Current Grant”), determined in accordance with the provisions of Section 422 of the Code, which exceeds $100,000 (the “$100,000 Limit”);

(e)  shall, if the aggregate Fair Market Value of the Shares (determined on the Grant Date) with respect to the Current Grant and all Incentive Stock Options previously granted under the Plan and any Other Plans which are exercisable for the first time during a calendar year (“Prior Grants”) would exceed the $100,000 Limit, be, as to the portion in excess of the $100,000 Limit, exercisable as a separate option that is not an Incentive Stock Option at such date or dates as are provided in the Current Grant;

(f)  shall require the Grantee to notify the Committee of any disposition of any Shares delivered pursuant to the exercise of the Incentive Stock Option under the circumstances described in Section 421(b) of the Code (relating to holding periods and certain disqualifying dispositions) (“Disqualifying Disposition”), within 10 days of such a Disqualifying Disposition;

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(g)  shall by its terms not be assignable or transferable other than by will or the laws of descent and distribution and may be exercised, during the Grantee’s lifetime, only by the Grantee; provided, however, that the Grantee may, to the extent provided in the Plan in any manner specified by the Committee, designate in writing a Beneficiary to exercise his or her Incentive Stock Option after the Grantee’s death; and

(h)  shall, if such Option nevertheless fails to meet the foregoing requirements, or otherwise fails to meet the requirements of Section 422 of the Code for an Incentive Stock Option, be treated for all purposes of this Plan, except as otherwise provided in subsections (d) and (e) above, as an Option that is not an Incentive Stock Option.

For purposes of this Section 6.5, “Subsidiary Corporation” means a corporation other than the Company in an unbroken chain of corporations beginning with the Company if, at the time of granting the Option, each of the corporations other than the last corporation in the unbroken chain owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. Notwithstanding the foregoing and Sections 3.2(o) and 14.2, the Committee may, without the consent of the Grantee, at any time before the exercise of an Option (whether or not an Incentive Stock Option), take any action necessary to prevent such Option from being treated as an Incentive Stock Option.

6.6    Exercise and Payment.

(a)  Except as may otherwise be provided by the Committee in an Award Agreement, Options shall be exercised by the delivery of a written notice (“Notice”) to the Company setting forth the number of Shares to be exercised, accompanied by full payment (including any applicable tax withholding) for the Shares made by any one or more of the following means on the Exercise Date (or such other date as may be permitted in writing by the Secretary of the Company):

(i)  cash, personal check or wire transfer; or

(ii)  subject to applicable law, through the sale of the Shares acquired on exercise of the Option through a broker-dealer to whom the Grantee has submitted an irrevocable notice of exercise and irrevocable instructions to deliver promptly to the Company the amount of sale or loan proceeds sufficient to pay for such Shares, together with, if requested by the Company, the amount of applicable withholding taxes payable by Grantee by reason of such exercise.

(b)  Except as otherwise set forth and as otherwise determined by the Committee at the time of grant, an Option may be exercised either in whole or with respect to not less than 500 Shares at any one time. Notwithstanding the foregoing, in the event that the vested portion of a Grantee’s Option pursuant to Section 6.4 is with respect to less than 500 Shares, such Grantee may exercise the entire vested amount.

(c)  At the discretion of the Committee and subject to applicable law, the Company may loan a Grantee all or any portion of the amount payable by the Grantee to the Company upon exercise of the Option on such terms and conditions as the Committee may determine.

(d)  If the Option is exercised as permitted by the Plan by any Person other than the Grantee, the Notice shall be accompanied by documentation as may reasonably be required by the Company, including, evidence of authority of such Person or Persons to exercise the Option.

(e)  At the time a Grantee exercises an Option or to the extent provided by the Committee in the applicable Award Agreement, in lieu of accepting payment of the Option Price of the Option and delivering the number of Shares of Common Stock for which the Option is being exercised, the Committee may direct that the Company either (i) pay the Grantee a cash amount, or (ii) issue a lesser number of Shares of Common Stock, in any such case, having a Fair Market Value on the Exercise Date equal to the amount, if any, by which the aggregate Fair Market Value (or such other amount as may be specified in the applicable Award Agreement, in the case of an exercise occurring concurrent with a Change in Control) of the Shares of Common Stock as to which the Option is being exercised exceeds the aggregate Option Price for such Shares, based on such terms and conditions as the Committee shall establish.

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SECTION 7.    Stock Appreciation Rights

7.1    Grant of SARs.    Subject to and consistent with the provisions of the Plan, the Committee, at any time and from time to time, may grant SARs to any Eligible Person on a standalone basis only (i.e., not in tandem with an Option). The Committee may impose such conditions or restrictions on the exercise of any SAR as it shall deem appropriate.

7.2    Award Agreements.    Each SAR shall be evidenced by an Award Agreement in such form as the Committee may approve, which shall contain such terms and conditions not inconsistent with the provisions of the Plan as shall be determined from time to time by the Committee. Unless a shorter Term is provided in the Award Agreement, a SAR grant shall have a Term 10 years from the date of grant of the SAR.

7.3    Strike Price.    The Strike Price of a SAR shall be determined by the Committee in its sole discretion; provided, however, that the Strike Price shall not be less than 100% of the Fair Market Value of a Share on the Grant Date of the SAR.

7.4    Vesting.    Unless otherwise provided in the Award Agreement, Section 5.3(a) or Section 12 awarding the SARs, Shares subject to a SAR shall become vested and exercisable as follows:

(i)  On the first anniversary of the Grant Date, 25% of the SARs awarded to the Grantee in the applicable Award Agreement;

(ii)  On the second anniversary of the Grant Date, an additional 25% of the SARs awarded to the Grantee in the applicable Award Agreement;

(iii)  On the third anniversary of the Grant Date, an additional 25% of the SARs awarded to the Grantee in the applicable Award Agreement; and

(iv)  On the fourth anniversary of the Grant Date, the remaining 25% of the SARs awarded to the Grantee in the applicable Award Agreement.

7.5    Exercise and Payment.

(a)  Except as may otherwise be provided by the Committee in an Award Agreement, SARs shall be exercised by the delivery of a written notice to the Company, setting forth the number of Shares with respect to which the SAR is to be exercised.

(b)  Upon exercise of a SAR, a Grantee shall be entitled to receive the number of Shares, rounded down to the nearest whole Share, the fair market value of which, in the aggregate, equals the Fair Market Value of the number of Shares representing the SARs exercised less the Strike Price of such SARs.

(c)  Except as otherwise set forth and as otherwise determined by the Committee at the time of grant, a SAR may be exercised either in whole or with respect to the appreciation of not less than 500 Shares at any one time. Notwithstanding the foregoing, in the event that the vested portion of a Grantee’s SAR pursuant to Section 7.4 is with respect to less than 500 Shares, such Grantee may exercise the entire vested amount.

(d)  No payment of a SAR shall be made unless applicable tax withholding requirements have been satisfied in accordance with Section 16.1 or otherwise. Any payment by the Company in respect of a SAR may be made in cash, Shares, other property, or any combination thereof, as the Committee, in its sole discretion, shall determine.

7.6    Grant Limitations.    The Committee may at any time impose any other limitations or Restrictions upon the exercise of SARs which it deems necessary or desirable in order to achieve desirable tax results for the Grantee or the Company.

SECTION 8.    Restricted Stock

8.1    Grant of Restricted Stock.    Subject to and consistent with the provisions of the Plan, the Committee, at any time and from time to time, may grant Restricted Stock to any Eligible Person in such amounts as the Committee shall determine.

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8.2    Award Agreement.    Each grant of Restricted Stock shall be evidenced by an Award Agreement that shall specify the Restrictions, the number of Shares subject to the Restricted Stock Award, and such other provisions not inconsistent with the provisions of this Plan as the Committee shall determine. The Committee may impose such Restrictions on any Award of Restricted Stock as it deems appropriate, including time-based Restrictions, Restrictions based upon the achievement of specific performance goals, Restrictions based on the occurrence of a specified event, and/or Restrictions under applicable securities laws.

8.3    Vesting.    Except as otherwise provided in the Award Agreement, Section 5.3(b) or Section 12, Shares subject to a Restricted Stock Award shall become vested as specified herein (thereafter being referred to as “Unrestricted Stock”):

(i)  On the first anniversary of the Grant Date, 25% of the Restricted Stock awarded to the Grantee in the applicable Award Agreement;

(ii)  On the second anniversary of the Grant Date, an additional 25% of the Restricted Stock awarded to the Grantee in the applicable Award Agreement;

(iii)  On the third anniversary of the Grant Date, an additional 25% of the Restricted Stock awarded to the Grantee in the applicable Award Agreement; and

(iv)  On the fourth anniversary of the Grant Date, the remaining 25% of the Restricted Stock awarded to the Grantee in the applicable Award Agreement.

For purposes of calculating the number of Shares of Restricted Stock that become Unrestricted Stock as set forth above, Share amounts shall be rounded to the nearest whole Share amount.

8.4    Effect of Forfeiture.    If Restricted Stock is forfeited, such Restricted Stock shall cease to be outstanding, and shall no longer confer on the Grantee thereof any rights as a stockholder of the Company, from and after the date of the event causing the forfeiture, whether or not the Grantee accepts the Company’s tender of payment for such Restricted Stock.

8.5    Escrow; Legends.    The Committee may provide that the certificates for any Restricted Stock (a) shall be held (together with a stock power executed in blank by the Grantee) in escrow by the Secretary of the Company until such Restricted Stock becomes nonforfeitable or is forfeited and/or (b) shall bear a legend restricting the transfer of such Restricted Stock under the Plan, as follows, unless modified by the Committee:

THIS CERTIFICATE AND THE SHARES OF STOCK REPRESENTED HEREBY ARE SUBJECT TO THE TERMS AND CONDITIONS CONTAINED IN THE NAVIGATORS GROUP INC., INCENTIVE COMPENSATION PLAN (THE “PLAN”) APPLICABLE TO RESTRICTED SHARES AND TO THE RESTRICTED SHARE AGREEMENT DATED                     (THE “AGREEMENT”), AND MAY NOT BE SOLD, PLEDGED, TRANSFERRED, ASSIGNED, HYPOTHECATED, OR OTHERWISE DISPOSED OF OR ENCUMBERED IN ANY MANNER DURING THE RESTRICTED PERIOD SPECIFIED IN SUCH AGREEMENT. COPIES OF SUCH PLAN AND AGREEMENT ARE ON FILE WITH THE SECRETARY OF THE NAVIGATORS GROUP INC.

If any Restricted Stock becomes nonforfeitable, the Company shall cause certificates for such Shares to be delivered without such legend or shall cause a release of restrictions on a book entry account maintained by the Company’s transfer agent.

8.6    Stockholder Rights in Restricted Stock.    Restricted Stock, whether held by a Grantee or in escrow or other custodial arrangement by the Secretary of the Company, shall confer on the Grantee all rights of a stockholder of the Company, except as otherwise provided in the Plan or Award Agreement. At the time of a grant of Restricted Stock, the Committee may require the payment of cash dividends thereon to be deferred and, if the Committee so determines, reinvested in additional Shares of Restricted Stock. Stock dividends and deferred cash dividends issued with respect to Restricted Stock shall be subject to the same restrictions and other terms as apply to the Shares of Restricted Stock with respect to which such dividends are issued. The Committee may in its discretion provide for payment of interest on deferred cash dividends.

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SECTION 9.    Restricted Stock Units

9.1    Grant of Restricted Stock Units.    Subject to and consistent with the provisions of the Plan and applicable requirements of Sections 409A(2), (3) and (4) of the Code, the Committee, at any time and from time to time, may grant Restricted Stock Units to any Eligible Person, in such amount and upon such terms as the Committee shall determine. A Grantee shall have no voting rights in Restricted Stock Units.

9.2    Award Agreement.    Each grant of Restricted Stock Units shall be evidenced by an Award Agreement that shall specify the Restrictions, the number of Shares subject to the Restricted Stock Units granted, and such other provisions as the Committee shall determine in accordance with the Plan and Section 409A of the Code.

(a)  The Committee may impose such Restrictions on Restricted Stock Units, including Restrictions based on the passage of time, achievement of specific performance goals, time-based Restrictions following the achievement of specific performance goals, Restrictions based on the occurrence of a specified event, and/or Restrictions under applicable securities laws.

(b)  Except as otherwise provided in the Award Agreement, Section 5.3(e) or Section 12, Restricted Stock Units shall become vested as specified herein:

(i)  On the first anniversary of the Grant Date, 25% of the Restricted Stock Units awarded to the Grantee in the applicable Award Agreement;

(ii)  On the second anniversary of the Grant Date, an additional 25% of the Restricted Stock Units awarded to the Grantee in the applicable Award Agreement;

(iii)  On the third anniversary of the Grant Date, an additional 25% of the Restricted Stock Units awarded to the Grantee in the applicable Award Agreement; and

(iv)  On the fourth anniversary of the Grant Date, the remaining 25% of the Restricted Stock Units awarded to the Grantee in the applicable Award Agreement.

9.3    Crediting Restricted Stock Units.    The Company shall establish an account (“RSU Account”) on its books for each Eligible Person who receives a grant of Restricted Stock Units. Restricted Stock Units shall be credited to the Grantee’s RSU Account as of the Grant Date of such Restricted Stock Units. RSU Accounts shall be maintained for recordkeeping purposes only and the Company shall not be obligated to segregate or set aside assets representing securities or other amounts credited to RSU Accounts. The obligation to make distributions of securities or other amounts credited to RSU Accounts shall be an unfunded, unsecured obligation of the Company.

(a)  Crediting of Dividend Equivalents.    The Committee may, in its discretion, pay dividends or otherwise make distributions with respect to Shares. Any such Dividend Equivalents shall be credited to RSU Accounts on all Restricted Stock Units credited thereto as of the record date for such dividend or distribution. Such Dividend Equivalents shall be credited to the RSU Account in the form of additional Restricted Stock Units in a number determined by dividing the aggregate value of such Dividend Equivalents by the Fair Market Value of a Share at the payment date of such dividend or distribution. The Restrictions on the Restricted Stock Units represented by such Dividend Equivalents shall lapse simultaneously with the Restrictions on the Restricted Stock Units on which such Dividend Equivalents were paid.

(b)  Settlement of RSU Accounts.    The Company shall settle an RSU Account by delivering to the holder thereof (which may be the Grantee or his or her Beneficiary, as applicable) a number of Shares equal to the whole number of Shares underlying the Restricted Stock Units then credited to the Grantee’s RSU Account (or a specified portion in the event of any partial settlement); provided, however, that any fractional Shares underlying Restricted Stock Units remaining in the RSU Account on the Settlement Date shall be distributed in cash in an amount equal to the Fair Market Value of a Share as of the Settlement Date multiplied by the remaining fractional Restricted Stock Unit. Unless otherwise provided in an Award Agreement, the Settlement Date for all Restricted Stock Units credited to a Grantee’s RSU Account shall be the as soon as administratively practical following when Restrictions applicable to an Award of Restricted Stock Units have lapsed, but in no event shall

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such Settlement Date be later than March 15 of the calendar year following the calendar year in which the Restrictions applicable to an Award of Restricted Stock Units have lapsed.

SECTION 10.    Performance Units

10.1    Grant of Performance Units.    Subject to and consistent with the provisions of the Plan, Performance Units may be granted to any Eligible Person in such number and upon such terms, and at any time and from time to time, as shall be determined by the Committee. Performance Units shall be evidenced by an Award Agreement in such form as the Committee may approve, which shall contain such terms and conditions not inconsistent with the provisions of the Plan as shall be determined from time to time by the Committee.

10.2    Value/Performance Goals.    The Committee shall set performance goals in its discretion which, depending on the extent to which they are met during a Performance Period, will determine the number or value of Performance Units that will be paid to the Grantee at the end of the Performance Period. Each Performance Unit shall have an initial value that is established by the Committee at the time of grant. The performance goals for Awards of Performance Units shall be set by the Committee at threshold, target and maximum performance levels with the number or value of the Performance Units payable tied to the degree of attainment of the various performance levels during the Performance Period. No payment shall be made with respect to a Performance Unit Award if the threshold performance level is not satisfied. If performance goals are attained between the threshold and target performance levels or between the target and maximum performance levels, the number or value of Performance Units under such Award shall be determined by linear interpolation, unless otherwise provided in an Award Agreement. With respect to Covered Employees and to the extent the Committee deems it appropriate to comply with Section 162(m) of the Code, all performance goals shall be based on objective Performance Measures satisfying the requirements for the Performance-Based Exception, and shall be set by the Committee within the time period prescribed by Section 162(m) of the Code and related regulations.

10.3    Earning of Performance Units.    Except as provided in Section 12, after the applicable Performance Period has ended, the holder of Performance Units shall be entitled to payment based on the level of achievement of performance goals set by the Committee and as described in Section 10.2. If the Performance Unit is intended to comply with the Performance-Based Exception, the Committee shall certify the level of achievement of the performance goals in writing before the Award is settled. At the discretion of the Committee, the Award Agreement may specify that an Award of Performance Units is payable in cash, Shares, Restricted Stock or Restricted Stock Units.

10.4    Adjustment on Change of Position.    If a Grantee is promoted, demoted or transferred to a different business unit of the Company during a Performance Period, then, to the extent the Committee determines that the Award, the performance goals, or the Performance Period are no longer appropriate, the Committee may adjust, change, eliminate or cancel the Award, the performance goals, or the applicable Performance Period, as it deems appropriate in order to make them appropriate and comparable to the initial Award, the performance goals, or the Performance Period.

10.5    Dividend Rights.    At the discretion of the Committee, a Grantee may be entitled to receive any dividends or Dividend Equivalents declared with respect to Shares deliverable in connection with grants of Performance Units that have been earned, but not yet delivered to the Grantee.

SECTION 11.    Annual Incentive Awards

11.1    Annual Incentive Awards.    Subject to and consistent with the provisions of the Plan, Annual Incentive Awards may be granted to any Eligible Person in accordance with the provisions of this Section 11. The Committee shall designate the individuals eligible to be granted an Annual Incentive Award for a Year. In the case of an Annual Incentive Award intended to qualify for the Performance-Based Exception, such designation shall occur within the first 90 days of such year. The Committee may designate an Eligible Person as eligible for a full Year or for a period of less than a full Year. The opportunity to be granted an Annual Incentive Award shall be evidenced by an Award Agreement or in such form as the Committee may approve, which shall specify the individual’s Bonus Opportunity, the Performance Goals, and such other terms not inconsistent with the Plan as the Committee shall determine.

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11.2    Determination of Amount of Annual Incentive Awards.

(a)  Aggregate Maximum.    The Committee may establish guidelines as to the maximum amount of Annual Incentive Awards payable for any Year.

(b)  Establishment of Performance Goals and Bonus Opportunities.    The Committee shall establish Performance Goals for the Year (which may be the same or different for some or all Eligible Persons) and shall establish the threshold, target and maximum Bonus Opportunity for each Grantee for the attainment of specified threshold, target and maximum Performance Goals. In the case of an Annual Incentive Award intended to qualify for the Performance-Based Exception, such designation shall occur within the first 90 days of the Year. Performance Goals and Bonus Opportunities may be weighted for different factors and measures as the Committee shall determine.

(c)  Committee Certification and Determination of Amount of Annual Incentive Award.    The Committee shall determine and certify in writing the degree of attainment of Performance Goals as soon as administratively practicable after the end of each Year but not later than 60 days after the end of such Year. The Committee shall determine an individual’s maximum Annual Incentive Award based on the level of attainment of the Performance Goals (as certified by the Committee) and the individual’s Bonus Opportunity. The Committee reserves the discretion to reduce (but not below zero) the amount of an individual’s Annual Incentive Award below the maximum Annual Incentive Award. The determination of the Committee to reduce (or not pay) an individual’s Annual Incentive Award for a Year shall not affect the maximum Annual Incentive Award payable to any other individual. No Annual Incentive Award intended to qualify for the Performance-Based Exception shall be payable to an individual unless at least the threshold Performance Goal is attained.

(d)  Termination of Service.    If a Grantee has a Termination of Service during the Year, the Committee may, in its absolute discretion and under such rules as the Committee may from time to time prescribe, authorize the payment of an Annual Incentive Award to such Grantee in accordance with the foregoing provisions of this Section 11.2 and in the absence of such determination by the Committee the Grantee shall receive no Annual Incentive Award for such Year.

11.3    Time of Payment of Annual Incentive Awards.    Annual Incentive Awards shall be paid as soon as administratively practicable after the Committee determines the amount of the Award payable under Section 11 but not later than two and one-half months after the end of such Year.

11.4    Form of Payment of Annual Incentive Awards.    An individual’s Annual Incentive Award for a Year shall be paid in cash, Shares, Restricted Stock, Options or any other form of an Award or any combination thereof as provided in the Award Agreement or in such form as the Committee may approve.

SECTION 12.    Change in Control

12.1    Acceleration of Vesting.    Unless otherwise provided in the applicable Award Agreement, upon the occurrence of (a) an event satisfying the definition of “Change in Control” with respect to a particular Award, and (b) during the one year period immediately following such event, a Grantee’s involuntary Termination of Service without Cause or a Termination of Service for Good Reason by a Grantee, such Grantee’s outstanding and unvested Awards shall become vested, all Restrictions shall lapse and all Performance Goals shall be deemed to be met, as applicable; provided, however, that no payment of an Award shall be accelerated to the extent such payment would cause such Award to be subject to the adverse consequences described in Section 409A of the Code. The Committee may, in its discretion, include such further provisions and limitations in any Award Agreement as it may deem desirable.

12.2    Special Treatment In the Event of a Change in Control.    To maintain the Grantee’s rights upon the occurrence of any event satisfying the definition of “Change in Control” with respect to an Award, the Committee, as constituted before such event, may, in its sole discretion, as to any such Award, either at the time the Award is made hereunder or any time thereafter, take any one or more of the following actions: (i) make such adjustment to any such Award then outstanding as the Committee deems appropriate to reflect such Change in Control; or (ii) cause any such Award then outstanding to be assumed, or new rights substituted therefore, by the

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acquiring or surviving entity after such Change in Control. Additionally, in the event of any Change in Control with respect to Options and SARs, the Committee, as constituted before such Change in Control, may, in its sole discretion (except as may be otherwise provided in the Award Agreement): (a) cancel any outstanding unexercised Options or SARs (whether or not vested) that have a per Share Option Price or Strike Price (as applicable) that is greater than the Change in Control Price; or (b) cancel any outstanding unexercised Options or SARs (whether or not vested) that have a per Share Option Price or Strike Price (as applicable) that is less than or equal to the Change in Control Price in exchange for a cash payment of an amount equal to (x) the difference between the Change in Control Price and the Option Price or Strike Price, multiplied by (y) the total number of Shares underlying such Option or SAR that are vested and exercisable at the time of the Change in Control. The Committee may, in its discretion, include such further provisions and limits in any Award Agreement as it may deem desirable. The “Change in Control Price” means the lower of (i) the per Share Fair Market Value as of the date of the Change in Control, or (ii) the price paid per Share as part of the transaction which constitutes the Change in Control.

SECTION 13.    Dividends and Dividend Equivalents

13.1    The Committee is authorized to grant Awards of Dividend Equivalents alone or in conjunction with other Awards (other than Options and SARs) on such terms and conditions as the Committee shall determine in accordance with Section 409A of the Code. Unless otherwise provided in the Award Agreement or in Section 9, Dividend Equivalents shall be paid immediately when vested and, in no event, later than March 15 of the calendar year following the calendar year in which such Dividend Equivalents vest. Unless otherwise provided in the Award Agreement or in Section 9, if the Grantee incurs a Termination of Service prior to the date such Dividend Equivalents vest, the Grantee’s right to such Dividend Equivalents shall be immediately forfeited.

13.2    Notwithstanding the foregoing, no dividends or Dividend Equivalents shall be payable in respect of outstanding unearned Performance Units or other unearned Awards subject to performance conditions (although dividends and Dividend Equivalents may be accumulated in respect of unearned Awards and paid within 15 days after such Awards are earned and become payable or distributable).

SECTION 14.    Amendments and Termination

14.1    Amendment and Termination.    Subject to Section 14.2, the Board may at any time amend, alter, suspend, discontinue or terminate the Plan in whole or in part without the approval of the Company’s stockholders, provided that (a) any amendment shall be subject to the approval of the Company’s stockholders if such approval is required by any federal or state law or regulation or any stock exchange or automated quotation system on which the Shares may then be listed or quoted, and (b) any Plan amendment or termination will not accelerate the timing of any payments that constitute deferred compensation under Section 409A of the Code unless such acceleration of payment is permitted by Section 409A of the Code. Subject to the foregoing, the Committee may amend the Plan at any time provided that (i) no amendment shall impair the rights of any Grantee under any Award theretofore granted without such Grantee’s consent, and (ii) any amendment shall be subject to approval or rejection of the Board. The Committee may amend the terms of any Award, prospectively or retroactively, but no such amendment shall impair the rights of any Grantee without such Grantee’s consent, nor shall any such amendment reduce an Option Price or the period of Restrictions. Notwithstanding the foregoing, the Board shall have the authority to amend the Plan and outstanding Awards to take into account changes in law and tax and accounting rules, as well as other developments, and to grant Awards which qualify for beneficial treatment under such rules without a Grantee’s consent and without stockholder approval.

14.2    Previously Granted Awards.    Except as otherwise specifically provided in the Plan (including Sections 3.2(o), 5.5, 14.1) or in an Award Agreement, no termination, amendment or modification of the Plan shall adversely affect in any material way any Award previously granted under the Plan without the written consent of the Grantee of such Award.

14.3    No Repricing.    Notwithstanding anything contained in the Plan to the contrary, without the approval of shareholders, neither the Committee nor the Board will amend or replace previously granted Options or SARs in a transaction that constitutes “repricing,” which for this purpose means any of the following or any action that

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has the same effect: (a) lowering the exercise price of an Option or SAR after it is granted; (b) any other action that is treated as a repricing under generally accepted accounting principles; (c) cancelling an Option or SAR at a time when its exercise prices exceeds the Fair Market Value of the underlying Stock, in exchange for another Option or SAR, Restricted Stock, other equity, cash or other property; provided, however, that the foregoing transactions shall not be deemed a repricing if done pursuant to an adjustment authorized under Section 4.2.

SECTION 15.    Beneficiary Designation

Each Grantee under the Plan may, from time to time, name any Beneficiary or Beneficiaries (who may be named contingently or successfully) to whom any benefit under the Plan is to be paid in case of his or her death before he or she receives any or all of such benefit. Each such designation shall revoke all prior designations by the same Grantee, shall be in a form prescribed by the Company, and will be effective only when filed by the Grantee in writing with the Company during the Grantee’s lifetime. In the absence of any such designation, benefits remaining unpaid at the Grantee’s death shall be paid to the Grantee’s estate.

SECTION 16.    Withholding

16.1    Required Withholding.

(a)  The Committee in its sole discretion may provide that when taxes are to be withheld in connection with the exercise of an Option or a SAR or upon the lapse of Restrictions on an Award or upon payment of any benefit or right under this Plan (the Exercise Date, the date such Restrictions lapse or such payment of any other benefit or right occurs hereinafter referred to as the “Tax Date”), the Grantee may be required or may be permitted to elect to make payment for the withholding of federal, state and local taxes, including Social Security and Medicare (“FICA”) taxes, by one or a combination of the following methods:

(i)  payment of an amount in cash equal to the amount to be withheld;

(ii)  requesting the Company to withhold from those Shares that would otherwise be received upon exercise of the Option or a SAR or upon the lapse of Restrictions on, or upon settlement of, any other Award, a number of Shares having a Fair Market Value on the Tax Date equal to the amount to be withheld; or

(iii)  withholding from any compensation otherwise due to the Grantee.

The Committee in its sole discretion may provide that the maximum amount of tax withholding upon exercise of an Option or a SAR or in connection with the settlement of any other Award to be satisfied by withholding Shares pursuant to clause (iii) above shall not exceed the minimum amount of taxes, including FICA taxes, required to be withheld under federal, state and local law. An election by Grantee under this subsection is irrevocable. Any fractional share amount and any additional withholding not paid by the withholding or surrender of Shares must be paid in cash. If no timely election is made, the Grantee must deliver cash to satisfy all tax withholding requirements, unless otherwise provided in the Award Agreement.

(b)  Any Grantee who makes a Disqualifying Disposition (as defined in Section 6.5(f)) or an election under Section 83(b) of the Code shall remit to the Company an amount sufficient to satisfy all resulting tax withholding requirements in the same manner as set forth in subsection (a).

(c)  No Award shall be settled, whether in cash or in Shares, unless the applicable tax withholding requirements have been met to the satisfaction of the Committee.

16.2    Notification under Section 83(b) of the Code.    If the Grantee makes the election permitted under Section 83(b) of the Code to include in such Grantee’s gross income in the year of transfer the amounts specified in Section 83(b) of the Code, then such Grantee shall notify the Company of such election within 10 days of filing the notice of the election with the Internal Revenue Service, in addition to any filing and notification required pursuant to regulations issued under Section 83(b) of the Code. The Committee may, in connection with the grant of an Award or at any time thereafter, prohibit a Grantee from making the election described above.

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SECTION 17.    General Provisions

17.1    Governing Law.    The validity, construction, and effect of the Plan and any rules and regulations relating to the Plan shall be determined in accordance with the laws of the State of Delaware, other than its law respecting choice of laws and applicable federal law.

17.2    Severability.    If any provision of this Plan or any Award is or becomes or is deemed to be invalid, illegal or unenforceable in any jurisdiction, or as to any Person or Award, or would disqualify the Plan or any Award under any law deemed applicable by the Committee, such provision shall be construed or deemed amended to conform to applicable laws, or if it cannot be construed or deemed amended without, in the determination of the Committee, materially altering the intent of the Plan or the Award, it shall be stricken and the remainder of the Plan and any such Award shall remain in full force and effect.

17.3    Successors.    All obligations of the Company under the Plan with respect to Awards granted hereunder shall be binding on any successor to the Company, whether the existence of such successor is the result of a direct or indirect purchase, merger, consolidation, or otherwise, of all or substantially all of the business and/or assets of the Company.

17.4    Requirements of Law.    The granting of Awards and the delivery of Shares under the Plan shall be subject to all applicable laws, rules, and regulations, and to such approvals by any governmental agencies or national securities exchanges or markets as may be required. Notwithstanding any provision of the Plan or any Award, Grantees shall not be entitled to exercise, or receive benefits under, any Award, and the Company (or any Subsidiary) shall not be obligated to deliver any Shares or deliver benefits to a Grantee, if such exercise or delivery would constitute a violation by the Grantee, the Company or a Subsidiary of any applicable law or regulation.

17.5    Securities Law Compliance.    If the Committee deems it necessary to comply with any applicable securities law, or the requirements of any securities exchange or market upon which Shares may be listed, the Committee may impose any restriction on Awards or Shares acquired pursuant to Awards under the Plan as it may deem advisable. All evidence of Share ownership delivered pursuant to any Award or the exercise thereof shall be subject to such stop transfer orders and other restrictions as the Committee may deem advisable under the rules, regulations or other requirements of the SEC, any securities exchange or market upon which Shares are then listed, and any applicable securities law. If so requested by the Company, the Grantee shall make a written representation and warranty to the Company that he or she will not sell or offer to sell any Shares unless a registration statement shall be in effect with respect to such Shares under the Securities Act of 1933, as amended, and any applicable state securities law or unless he or she shall have furnished to the Company an opinion of counsel, in form and substance satisfactory to the Company, that such registration is not required.

If the Committee determines that the exercise or nonforfeitability of, or delivery of benefits pursuant to, any Award would violate any applicable provision of securities laws or the listing requirements of any national securities exchange or national market system on which are listed any of the Company’s equity securities, then the Committee may postpone any such exercise, nonforfeitability or delivery to comply with all such provisions at the earliest practicable date.

17.6    Section 409A.

(a)  To the extent applicable and notwithstanding any other provision of this Plan, this Plan and Awards hereunder shall be administered, operated and interpreted in accordance with Section 409A of the Code and Department of Treasury regulations and other interpretive guidance in effect thereunder, including without limitation, any such regulations or other guidance that may be issued after the date on which the Board approves the Plan; provided, however, in the event that the Committee determines that any amounts payable hereunder may be taxable to a Grantee under Section 409A of the Code and related Department of Treasury guidance prior to the payment and/or delivery to such Grantee of such amount, the Company may (i) adopt such amendments to the Plan and related Award, and appropriate policies and procedures, including amendments and policies with retroactive effect, that the Committee determines necessary or appropriate to preserve the intended tax treatment of the benefits provided by the Plan and Awards hereunder and/or (ii) take such other actions as the Committee

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determines necessary or appropriate to comply with or exempt the Plan and/or Awards from the requirements of Section 409A of the Code and related Department of Treasury guidance, including such Department of Treasury guidance and other interpretive materials as may be issued after the date on which the Board approves the Plan.

(b)  The Company and its Subsidiaries make no guarantees to any Person regarding the tax treatment of Awards or payments made under the Plan, and, notwithstanding the above provisions and any agreement or understanding to the contrary, if any Award, payments or other amounts due to a Grantee (or his or her beneficiaries, as applicable) results in, or causes in any manner, the application of an accelerated or additional tax, fine or penalty under Section 409A of the Code or otherwise to be imposed, then the Grantee (or his or her beneficiaries, as applicable) shall be solely liable for the payment of, and the Company and its Subsidiaries shall have no obligation or liability to pay or reimburse (either directly or otherwise) the Grantee (or his or her beneficiaries, as applicable) for, any such additional taxes, fines or penalties.

(c)  In the case of any Deferred Compensation Award, as may be permitted by the Committee in its discretion and as specified in the Award Agreement, the following permitted events that pay cause the payment of such Award: (i) a specified date (as contemplated by applicable guidance under Section 409A of the Code), (ii) a Change in Control, (iii) the Grantee’s “separation from service” as provided in Section 409A(2)(A)(i) of the Code, (iv) the Grantee’s death, (v) the Grantee’s Disability or (vi) an “unforeseeable emergency” of the Grantee as provided in Section 409A(2)(A)(vi). Any payment due to a “separation from service” by a “specified employee” (as that term is defined in Treas. Reg. Section 1.409A-1(i)) shall be delayed for a period of six months from the Grantee’s Termination of Service date. All payments that would have been made to such Grantee under the Award Agreement but for the required six-month delay described herein will be paid to the Grantee in a lump sum on the six month anniversary of such separation from service date.

17.7    No Rights as a Stockholder.    No Grantee shall have any rights as a stockholder of the Company with respect to the Shares (except as provided in Section 8.6 with respect to Restricted Stock) which may be deliverable upon exercise or payment of such Award until such Shares have been delivered to him or her.

17.8    Awards Not Taken Into Account for Other Benefits.    Awards shall be special incentive payments to the Grantee and shall not be taken into account in computing the amount of salary or compensation of the Grantee for purposes of determining any pension, retirement, death or other benefit under (a) any pension, retirement, profit-sharing, bonus, insurance or other employee benefit plan of an Employer, except as such plan shall otherwise expressly provide, or (b) any agreement between an Employer and the Grantee, except as such agreement shall otherwise expressly provide.

17.9    Employment Agreement Supersedes Award Agreement.    In the event a Grantee is a party to an employment agreement with the Company or a Subsidiary that provides for vesting or extended exercisability of equity compensation Awards on terms more favorable to the Grantee than the Grantee’s Award Agreement or this Plan, the employment agreement shall be controlling; provided that (a) if the Grantee is a Section 16 Person, any terms in the employment agreement requiring Compensation Committee of the Board, Board or stockholder approval in order for an exemption from Section 16(b) of the Exchange Act to be available shall have been approved by the Compensation Committee of the Board, the Board or the stockholders, as applicable, and (b) the employment agreement shall not be controlling to the extent the Grantee and Grantee’s Employer agree it shall not be controlling, and (c) an employment agreement or modification to an employment agreement shall be deemed to modify the terms of any pre-existing Award only if the terms of the employment agreement expressly so provide.

17.10    Non-Exclusivity of Plan.    Neither the adoption of the Plan by the Board nor its submission to the stockholders of the Company for approval shall be construed as creating any limitations on the power of the Board to adopt such other compensatory arrangements for employees as it may deem desirable.

17.11    No Trust or Fund Created.    Neither the Plan nor any Award shall create or be construed to create a trust or separate fund of any kind or a fiduciary relationship between the Company or any Subsidiary and a Grantee or any other Person. To the extent that any Person acquires a right to receive payments from the Company or any Subsidiary pursuant to an Award, such right shall be no greater than the right of any unsecured general creditor of the Company or any Subsidiary.

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17.12    No Right to Continued Employment or Awards.    No employee shall have the right to be selected to receive an Award under this Plan or, having been so selected, to be selected to receive a future Award. The grant of an Award shall not be construed as giving a Grantee the right to be retained in the employ of the Company or any Subsidiary or to be retained as a director of the Company or any Subsidiary. Further, the Company or a Subsidiary may at any time terminate the employment of a Grantee free from any liability, or any claim under the Plan, unless otherwise expressly provided in the Plan or in any Award Agreement.

17.13    Military Service.    Awards shall be administered in accordance with Section 414(u) of the Code and the Uniformed Services Employment and Reemployment Rights Act of 1994.

17.14    Construction.    The following rules of construction will apply to the Plan: (a) the word “or” is disjunctive but not necessarily exclusive, and (b) words in the singular include the plural, words in the plural include the singular, and words in the neuter gender include the masculine and feminine genders and words in the masculine or feminine genders include the other neuter genders. The headings of sections and subsections are included solely for convenience of reference, and if there is any conflict between such headings and the text of this Plan, the text shall control.

17.15    No Fractional Shares.    No fractional Shares shall be issued or delivered pursuant to the Plan or any Award, and the Committee shall determine whether cash, other securities, or other property shall be paid or transferred in lieu of any fractional Shares, or whether such fractional Shares or any rights thereto shall be canceled, terminated, or otherwise eliminated.

17.16    Plan Document Controls.    This Plan and each Award Agreement constitute the entire agreement with respect to the subject matter hereof and thereof; provided that in the event of any inconsistency between this Plan and such Award Agreement, the terms and conditions of the Plan shall control.

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Appendix B

AMENDMENT NO. 1

TO

THE NAVIGATORS GROUP, INC.

EMPLOYEE STOCK PURCHASE PLAN

This Amendment No. 1 (this “Amendment”) to The Navigators Group Inc. Employee Stock Purchase Plan (the “ESPP”) is adopted effective by the Board of Directors (the “Board”) of The Navigators Group, Inc. (the “Company”) as of this 21st day of March, 2013, subject to the approval of the Company’s stockholders at the Company’s in accordance with the requirements of Section 423 of the Internal Revenue Code of 1986, as amended (“Section 423”).

WHEREAS, the Company maintains the ESPP; and

WHEREAS, pursuant to Section 16 of the ESPP, the Board may amend the ESPP, subject in certain circumstances to the approval of the Company’s stockholders if required under Section 423; and

WHEREAS, the Board deems it advisable and in the best interest of the Company to amend the ESPP to (i) extend the term of the ESPP by an additional five (5) years (i.e., through July 1, 2018), and (ii) increase the number of shares of Stock (as defined in the ESPP) to be reserved for sale under the ESPP from 200,000 shares to 400,000 shares.

NOW, THEREFORE, the ESPP is hereby amended as follows:

1.    By deleting Section 19.2 in its entirety, and replacing it with the following sentence:

19.2    The Plan shall continue in effect until July 1, 2018 unless sooner terminated under Section 16.

2.    By deleting Section 11.1 in its entirety, and replacing it with the following sentence:

11.1    The total number of shares of Stock made available for sale under the Plan is 400,000 and is subject to adjustment, at the sole discretion of the Plan Administrator, in the event of changes in the capitalization of the Company.

3.    Without limiting the foregoing, the provisions of the ESPP are and shall remain in full force and effect except as expressly amended hereby.

***

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IN WITNESS WHEREOF, the Board has caused this Amendment to be executed by its duly authorized corporate officer as of the date first set forth above.

The Navigators Group, Inc.

By:

Title:

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THE NAVIGATORS GROUP, INC. EMPLOYEE STOCK PURCHASE PLAN

SECTION 1    Purpose

The purpose of The Navigators Group, Inc. Employee Stock Purchase Plan (the “Plan”) is to provide the employees of The Navigators Group, Inc. (“the Company”) and its Subsidiaries with an opportunity to purchase shares of Stock through payroll deductions. The Plan is intended to qualify as an “employee stock purchase plan” under Section 423 of the Internal Revenue Code of 1986, as amended (the “Code”) The provisions of the Plan shall be construed so as to extend and limit participation consistent with the applicable requirements of the Code.

SECTION 2    Definitions

The following words have the following meanings unless a different meaning is plainly required by the context.

2.1    “Board” means the Board of Directors of The Navigators Group, Inc.

2.2    “Compensation” means an Employee’s gross compensation from the Company and all Subsidiaries, including, without limitation, gross base compensation, commissions, overtime, shift premiums, incentive compensation and bonuses.

2.3    “Continuous Status as an Employee” means the absence of any interruption or termination of service as an Employee. Continuous Status as an Employee shall not be considered interrupted in the case of a leave of absence agreed to in writing by the Company or a Subsidiary, provided that such leave is for a period of not more than 90 days or re-employment upon the expiration of such leave is guaranteed by contract or statute.

2.4    “Contributions” means all amounts credited to the account of a Participant pursuant to the Plan.

2.5    “Employee” means any person, including an officer, who is an employee of the Company or a Subsidiary and whose customary employment is at least twenty (20) hours per week.

2.6    “Exercise Date” means the last business day of each Offering Period of the Plan.

2.7    “Fair Market Value” means, as of any date, (i) the closing sale price of the Stock on the NASDAQ National Market on such date or (ii) if there is no sale of the Stock on the NASDAQ National Market on such date, the average of the bid and asked prices at the close of the market on such date.

2.8    “Offering Date” means the first business day of each Offering Period of the Plan.

2.9    “Offering Period” means a period of six (6) months commencing on the January 1 or July 1 of each year, except as otherwise set forth in the Plan or determined by the Plan Administrator.

2.10    “Participant” means an Employee who has elected to participate in the Plan for an Offering Period by completing a subscription agreement in accordance with Section 5.1.

2.11    “Plan Administrator” means the Board or the Committee appointed by the Board to administer the Plan, as described in Section 12.

2.12    “Stock” means the Common Stock, par value $0.10, of the Company.

2.13    “Subsidiary” means a corporation, domestic or foreign, of which not less than 50% of the voting shares are held by the Company or a Subsidiary, whether or not such corporation now exists or is hereafter organized or acquired by the Company or a Subsidiary.

SECTION 3    Eligibility

3.1    General Rule.    Any person who is an Employee on the Offering Date of a given Offering Period shall be eligible to participate in such Offering Period under the Plan, subject to the requirements of paragraph 5.1 and the limitations imposed by Section 423(b) of the Code; provided, however, that an Employee working in a country whose laws make participation in the Plan impractical and/or illegal (as determined by the Plan Administrator, in its sole discretion), shall not be eligible to participate in the Plan.

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3.2    Exceptions.    Any provisions of the Plan to the contrary notwithstanding, no Employee shall be granted an option under the Plan if (i) immediately after the grant, such Employee (or any other person whose stock ownership shall be attributed to such Employee pursuant to Section 424(d) of the Code) would own shares and/or hold outstanding options to purchase shares possessing five percent (5%) or more of the total combined voting power or value of all classes of shares of the Company or of any Subsidiary of the Company, or (ii) the rate of withholding under such option would permit the employee’s rights to purchase shares under all employee stock purchase plans (described in Section 423 of the Code) of the Company and its Subsidiaries to accrue (i.e., become exercisable) at a rate which exceeds twenty-five thousand dollars ($25,000) of fair market value of such shares (determined at the time such option is granted) for each calendar year in which such option is outstanding at any time.

SECTION 4    Offering Period

4.1    The Plan shall generally be administered with respect to consecutive Offering Periods with a new Offering Period commencing on or about each January 1 and July 1, or at such other time or times as may be determined by the Board. The first Offering Period shall be a six (6) month period commencing on July 1, 2008.

The Board shall have the power to change the duration and/or frequency of an Offering Period with respect to future offerings without shareholder approval, if such change is announced at least fifteen (15) days prior to the scheduled beginning of the first Offering Period to be affected.

SECTION 5    Participation

5.1    An Employee shall become a Participant in the Plan for an Offering Period by completing a subscription agreement provided by the Plan Administrator, which authorizes payroll deductions of an amount equal to a whole percentage, between one percent (1%) and ten percent (10%), as elected by such Employee, of such Employee’s Compensation; provided, however, that in the case of any Employee of a Subsidiary in the United Kingdom, payroll deductions with respect to any Offering Period shall not exceed the lesser of (i) 10% of such Employee’s salary during such Offering Period, or (ii) £125, multiplied by the number of months in such Offering Period. Such amount shall be withheld as a payroll deduction and paid as such Employee’s Contribution to the Plan. The subscription agreement must be submitted to the payroll office at least 15 days prior to the applicable Offering Date.

5.2    Payroll deductions begin on the first payroll date following the applicable Offering Date and end on the last payroll paid prior to the Exercise Date of the Offering Period to which the subscription agreement is applicable, unless sooner terminated by the Participant as provided in Section 10.

SECTION 6    Method of Payment of Contributions

6.1    Payroll deductions shall be made on each payday during the Offering Period in an amount between one percent (1%) and ten percent (10%) (in whole number increments), as elected by the Participant, of his or her Compensation otherwise payable on each such payday. All payroll deductions made by a Participant shall be credited as Contributions to his or her account under the Plan. Each Participant’s account under the Plan is unfunded and is maintained solely for recordkeeping purposes. A Participant may not make any payments into the account other than Contributions made through payroll deductions.

6.2    A Participant may discontinue his or her participation in the Plan as provided in Section 10, or may change the rate of his or her payroll deduction with respect to an Offering Period prior to or during such Offering Period by completing and filing with the Plan Administrator a new authorization for payroll deduction, provided that the Board may, in its sole discretion, impose reasonable and uniform restrictions on the ability of Participants to change the rate of payroll deductions. The change in rate shall be effective no later than fifteen (15) days following the Plan Administrator’s receipt of the new authorization.

6.3    Notwithstanding the foregoing, to the extent necessary to comply with Section 3.2 of the Plan, Section 423(b)(8) of the Code or other applicable law, a Participant’s payroll deductions may be automatically decreased to zero percent (0%) at any time during the Offering Period.

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6.4    No interest shall accrue on the Contributions of a Participant in the Plan.

6.5    All Contributions received or held by the Plan Administrator under the Plan may be used by the Company for any corporate purpose, and neither the Plan Administrator nor the Company shall be obligated to segregate such Contributions.

SECTION 7    Grant of Option

7.1    Each Participant in the Plan in an Offering Period shall be granted, on the Offering Date during such Offering Period, an option to purchase shares of Stock on the Exercise Date during such Offering Period with the Contributions accumulated prior to such Exercise Date.

7.2    The number of full shares of Stock that may be purchased on an Exercise Date shall be determined by dividing such Participant’s total Contributions accumulated prior to such Exercise Date and credited to the Participant’s account as of the Exercise Date by the Purchase Price (as defined in Section 7.3 below). Notwithstanding the foregoing, the maximum number of shares of Stock a Participant may purchase in any calendar year may not exceed 1,000, except as otherwise adjusted under Section 15; provided, further, that such purchase shall be subject to the limitations set forth in Sections 3.2 and 11 hereof.

7.3    The Purchase Price for each share of Stock purchased under the Plan shall be the lesser of (i) ninety percent (90%) of the Fair Market Value of a share of Stock at the Offering Date and (ii) ninety percent (90%) of the Fair Market Value of a share of Stock at the Exercise Date.

SECTION 8    Exercise of Option

8.1    Unless the Participant withdraws from the Plan as provided in Section 10, the Participant’s option for the purchase of Stock shall be exercised automatically on the Exercise Date of the Offering Period at the Purchase Price with the accumulated Contributions credited to his or her account.

8.2    The Shares purchased upon exercise of an option hereunder shall be deemed to be transferred to the Participant on the Exercise Date.

8.3    The maximum number of shares of Stock shall be determined based on the Purchase Price and the accumulated Contributions credited to the Participant’s account in accordance with Section 7. No fractional shares are permitted to be purchased under the Plan. Any Contributions for an Offering Period credited to a Participant’s account which are not sufficient to purchase a full share of Stock on the Exercise Date of such Offering Period shall be retained in the Participant’s account and applied to the purchase of shares of Stock in the next Offering Period.

8.4    The shares purchased shall be issued to the Participant as promptly as practicable after the Exercise Date of the Offering Period during which such shares were purchased.

8.5    During a Participant’s lifetime, the option to purchase shares of Stock hereunder shall be exercisable only by the Participant.

SECTION 9    Delivery

9.1    As promptly as practicable after the Exercise Date of an Offering Period, the Plan Administrator shall arrange delivery to each Participant, as appropriate, of a certificate representing the shares of Stock, if any, purchased upon exercise of his or her option for such Offering Period.

SECTION 10    Voluntary Withdrawal; Termination of Employment

10.1    A Participant may withdraw all, but not less than all, of the Contributions credited to his or her account and not yet used to exercise his or her option under the Plan at any time prior to an Exercise Date by giving written notice to the Plan Administrator of withdrawal from the Offering Period on a form provided for such purpose. If the Participant withdraws from an Offering Period, all of the Participant’s Contributions credited to his or her account shall be paid to the Participant as promptly as practicable after receipt of the notice of withdrawal, and his or her option for such Offering Period shall be automatically canceled and no further payroll deductions for the purchase of Stock shall be made for such Participant during such Offering Period.

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10.2    Upon termination of the Participant’s Continuous Status as an Employee prior to an Exercise Date of an Offering Period for any reason, including, without limitation, retirement or death, all Contributions credited to his or her account shall be returned to him or her, in cash, as promptly as practicable after such termination or, in the case of death, to the person or persons entitled thereto under Section 13, and the Participant’s option to purchase Stock shall be automatically canceled.

10.3    In the event an Employee fails to remain in Continuous Status as an Employee during an Offering Period in which the Employee is a Participant, he or she shall be deemed to have elected to withdraw from the Plan, and all Contributions credited to his or her account for such Offering Period shall be returned to the Participant in cash, and the Participant’s option to purchase Stock with respect to such Offering Period shall be automatically canceled.

10.4    A Participant’s withdrawal from an Offering Period shall not have any effect upon his or her eligibility to participate in a succeeding Offering Period or in any similar plan that may hereafter be adopted by the Company, in accordance with the applicable terms and conditions of such plan.

SECTION 11    Stock

11.1    The total number of shares of Stock made available for sale under the Plan is 200,000 and is subject to adjustment, at the sole discretion of the Plan Administrator, in the event of changes in the capitalization of the Company.

11.2    If the total number of shares subject to options granted pursuant to Section 7 exceeds the number of shares available under the Plan, the Plan Administrator shall make a pro rata allocation of the shares remaining available for option grant in a practical and equitable manner. In such event, the Plan Administrator shall give written notice to each affected Participant stating the reduction of the number of shares due to the adjustment and shall return to each affected Participant any excess Contributions credited to such Participant’s account as soon as practicable after the affected Exercise Date of such Offering Period.

11.3    A Participant shall have no interest or voting rights in shares covered by his or her option until such option has been exercised.

11.4    Shares to be delivered to a Participant under the Plan shall be registered in the name of the Participant.

11.5    Shares of Stock purchased under the Plan may, at the sole discretion of the Plan Administrator, be subject to restrictions on subsequent resale.

SECTION 12    Administration

12.1    The Plan shall be administered by the Board or a committee appointed by the Board (the “Plan Administrator”).

12.2    The Plan Administrator shall have full power to adopt, amend and rescind any rules as deemed appropriate and consistent for the administration of the Plan. The Plan Administrator shall construe and interpret the Plan in its sole and absolute discretion, and make all other determinations necessary or advisable for the administration of the Plan.

12.3    The administration, interpretation or application of the Plan by the Plan Administrator and all determinations by the Plan Administrator with respect to the Plan shall be final, conclusive and binding upon all Employees and Participants and all other persons interested or claiming an interest under the Plan.

SECTION 13    Designation of Beneficiary

13.1    A Participant may file a written designation of a beneficiary who is to receive Stock and/or cash, if any, from the Participant’s account under the Plan in the event of such Participant’s death at a time when cash or Stock are held for his or her account. Any such designation shall not be effective until filed with the Plan Administrator. Any such designation of a beneficiary may be changed by the Participant at any time by written notice filed with the Plan Administrator.

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13.2    In the event of the death of a Participant and in the absence of a valid designation of a beneficiary who is living at the time of such Participant’s death, the Plan Administrator shall deliver such Stock and/or cash to the executor or administrator of the estate of the Participant, or if no such executor or administrator has been appointed (to the knowledge of the Plan Administrator), the Plan Administrator, in its sole discretion, may deliver such Stock and/or cash to the spouse or to any one or more dependents or relatives of the Participant. If no spouse, dependent or relative is known to the Plan Administrator, the Plan Administrator, in its sole discretion, may deliver such cash and/or Stock to such other person as the Plan Administrator may reasonably designate.

SECTION 14     Transferability

14.1    Neither Contributions credited to a Participant’s account nor any rights with regard to an option to purchase shares under the Plan may be assigned, transferred, pledged or otherwise disposed of in any way (other than as provided in Section 13) by the Participant.

14.2    Any such attempt at assignment, transfer, pledge or other disposition shall be without effect, except that the Plan Administrator may treat such act as an election to withdraw in accordance with Section 10.

SECTION 15     Adjustments Upon Changes in Capitalization; Corporate Transactions

15.1    In the event that a dividend shall be declared upon the Stock payable in shares of Stock, the number of shares of Stock then subject to any option and the number of shares of Stock which may be purchased upon the exercise of options granted under the Plan but not yet covered by an option may be adjusted, at the sole discretion of the Plan Administrator, by adding to each share the number of shares which would be distributed thereon if such shares had been outstanding on the date fixed for determining the stockholders entitled to receive such Stock dividend. In the event that the outstanding shares of Stock shall be changed into or exchanged for a different number or kind of share of stock or other securities of the Company or of another corporation, whether through reorganization, recapitalization, stock split-up, combination of shares, sale of assets, merger or consolidation in which the Company is the surviving corporation, then, there shall be substituted for each share of Stock then subject to any option and for each share of Stock which may be purchased upon the exercise of options granted under the Plan but not yet covered by an option, the number and kind of shares of stock or other securities into which each outstanding share of Stock shall be so changed or for which each such share shall be exchanged, as determined by the Plan Administrator, in its sole discretion.

15.2    In the event that there shall be any change, other than as specified in the first paragraph of Section 15.1 hereof, in the number or kind of outstanding shares of Stock, or of any stock or other securities into which the Common Stock shall have been changed, or for which it shall have been exchanged, then, if the Board shall, in its sole discretion, determine that such change equitably requires an adjustment in the number or kind of shares then subject to any option and the number or kind of shares available for issuance in accordance with the provisions of the Plan but not yet covered by an option, such adjustment shall be made by the Board and shall be effective and binding for all purposes of the Plan and of each option.

15.3    In the case of any substitution or adjustment in accordance with the provisions of this Section 15, the option price in each option for all Stock covered thereby prior to such substitution or adjustment shall be the option price for all shares of stock or other securities which shall have been substituted for such Stock or to which such Stock shall have been adjusted in accordance with the provisions of this Section 15.

15.4    No adjustment or substitution provided for in this Section 15 shall require the Company to issue a fractional share under any option.

15.5    In the event of dissolution or liquidation of the Company, or a merger, reorganization or consolidation in which the Company is not the surviving corporation, the Board, in its sole discretion, may accelerate the exercise of each option and/or terminate the same.

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SECTION 16    Amendment or Termination

16.1    The Board may at any time and for any reason terminate or amend the Plan in whole or in part. Except as provided in Section 15, no such termination may affect options to purchase shares previously granted. Except as provided in Section 15, no amendment may make any change in any option theretofore granted which adversely affects the rights of any Participant. In addition, to the extent necessary, but only to such extent, to comply with Section 423 of the Code (or any successor rule or provision or any other applicable law or regulation), the Company shall obtain shareholder approval of an amendment in such a manner and to such a degree as so required.

SECTION 17    Notices

17.1    All notices or other communications by a Participant to the Plan Administrator under or in connection with the Plan shall be deemed to have been duly given when received in the form specified by the Plan Administrator at the location, or by the person, designated by the Plan Administrator for the receipt thereof.

SECTION 18    Conditions Upon Issuance of Shares

18.1    Shares of Stock shall not be issued with respect to an option to purchase, unless the exercise of such option and the issuance and delivery of such shares pursuant thereto shall comply with all applicable provisions of law, domestic or foreign, including, without limitation, the Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as amended, the rules and regulations promulgated thereunder, and the requirements of any stock exchange upon which the shares may then be listed.

18.2    As a condition to the exercise of an option, the Plan Administrator may require the Participant exercising such option to represent and warrant at the time of such exercise that the shares of Stock are being purchased only for investment and without any present intention to sell or distribute such shares if, in the opinion of counsel for the Company, such a representation is required by any of the aforementioned applicable provisions of law.

18.3    Each Participant agrees, by entering the Plan, to promptly give the Plan Administrator notice of any disposition of shares of Stock purchased under the Plan where such disposition occurs within two (2) years after the date of grant of the option pursuant to which such shares were purchased.

SECTION 19    Effective Date; Term Of Plan

19.1    The Plan shall become effective on July 1, 2008, subject to approval by the shareholders of the Company within twelve (12) months, before or after, of the date the Plan is adopted.

19.2    The Plan shall continue in effect for a term of five (5) years unless sooner terminated under Section 16.

IN WITNESS WHEREOF, The Navigators Group, Inc. has hereby adopted this Plan on this day of                     , 2008.

The Navigators Group, Inc.

By:  

Name:  

Title:  

Attest:

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	ELECTRONIC DELIVERY OF FUTURE PROXY MATERIALS
	If you would like to reduce the costs incurred by our company in mailing proxy materials, you can consent to receiving all future proxy statements, proxy cards and annual reports electronically via e-mail or the Internet. To sign up for electronic delivery, please follow the instructions above to vote using the Internet and, when prompted, indicate that you agree to receive or access proxy materials electronically in future years.
	VOTE BY PHONE - 1-800-690-6903
	Use any touch-tone telephone to transmit your voting instructions up until 11:59 P.M. Eastern Time the day before the cut-off date or meeting date. Have your proxy card in hand when you call and then follow the instructions.
	VOTE BY MAIL
	Mark, sign and date your proxy card and return it in the postage-paid envelope we have provided or return it to Vote Processing, c/o Broadridge, 51 Mercedes Way, Edgewood, NY 11717.

TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: KEEP THIS PORTION FOR YOUR RECORDS

	DETACH AND RETURN THIS PORTION ONLY
THIS    PROXY    CARD    IS    VALID    ONLY     WHEN    SIGNED    AND    DATED.

			For All	Withhold   All	For All Except		To withhold authority to vote for any individual nominee(s), mark “For All Except” and write the number(s) of the nominee(s) on the line below.
	The Board of Directors recommends you vote FOR the following:
	1.	Election of Directors	¨	¨	¨
		Nominees
	01	Saul L. Basch        02  H.J. Mervyn Blakeney             03  Terence N. Deeks         04  Stanley A. Galanski            05   Geoffrey E. Johnson
	06	John F. Kirby         07  Robert V. Mendelsohn            08  David M. Platter             09  Janice C. Tomlinson          10   Marc M. Tract
	The Board of Directors recommends you vote FOR proposals 2, 3, 4 and 5.							For	Against	Abstain
	2	Pass an advisory resolution on executive compensation.						¨	¨	¨
	3	Approve The Navigators Group, Inc. Second Amended and Restated 2005 Stock Incentive Plan.						¨	¨	¨
	4	Approve Amendment No. 1 to The Navigators Group, Inc. Employee Stock Purchase Plan.						¨	¨	¨
	5	Ratify the appointment of KPMG LLP as the independent auditors of the Company to examine and report on the December 31,  2013 financial statements.						¨	¨	¨
	NOTE: Such other business as may properly come before the meeting or any adjournment thereof.
	Please sign exactly as your name(s) appear(s) hereon. When signing as attorney, executor, administrator, or other fiduciary, please give full title as such. Joint owners should each sign personally. All holders must sign. If a corporation or partnership, please sign in full corporate or partnership name, by authorized officer.
	Signature [PLEASE SIGN WITHIN BOX]         Date					Signature (Joint Owners)                         Date

Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting: The Annual Report, Notice & Proxy Statement is/are available at www.proxyvote.com.

    THE NAVIGATORS GROUP, INC. 6 International Drive Rye Brook, New York 10573   PROXY FOR THE MAY 23, 2013 ANNUAL MEETING OF STOCKHOLDERS   Bruce J. Byrnes and Emily B. Miner, 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 10:00 a.m., Thursday, May 23, 2013, at the office of the Company at Reckson Executive Park, 6 International Drive, Rye Brook, New York 10573, and at any adjournment thereof. The proxies are to vote the shares of the undersigned as instructed on the reverse side and in accordance with their judgment on all other matters which may properly come before the Annual Meeting.   IF NOT OTHERWISE SPECIFIED, THIS PROXY WILL BE VOTED FOR THE ELECTION OF ALL DIRECTOR NOMINEES AND FOR PROPOSALS 2, 3, 4 AND 5.   Continued and to be signed on reverse side