<PAGE> 1
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the registrant [X]
Filed by a party other than the registrant [ ]
Check the appropriate box:
[ ] Preliminary proxy statement [ ] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive proxy statement
[ ] Definitive additional materials
[ ] Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
INTERCARGO CORPORATION
- -------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- -------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of filing fee (Check the appropriate box):
[X] $125 per Exchange Act Rule 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(j)(2)
or Item 22(a)(2) of Schedule 14A.
[ ] $500 per each party to the controversy pursuant to Exchange Act
Rule 14a-6(i)(3).
[ ] Fee computed on table below per Exchange Act Rules 14a-6(j)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing
fee is calculated and state how it was determined):
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
(5) Total fee paid:
- --------------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
- --------------------------------------------------------------------------------
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the form or schedule and the date of its filing.
(1) Amount previously paid:
- --------------------------------------------------------------------------------
(2) Form, schedule or registration statement no.:
- --------------------------------------------------------------------------------
(3) Filing party:
- --------------------------------------------------------------------------------
(4) Date filed:
- --------------------------------------------------------------------------------
<PAGE> 2
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 17, 1996
TO THE STOCKHOLDERS OF INTERCARGO CORPORATION
NOTICE IS HEREBY GIVEN that the Annual Meeting of the Stockholders of
Intercargo Corporation will be held at its corporate offices, 1450 East
American Lane, Conference Room B, Schaumburg, Illinois, 60173, on Friday, May
17, 1996 at 10:00 a.m. Central Daylight Savings Time, for the purpose of
considering and acting upon the following matters:
1. To elect three Class 3 directors;
2. To transact such other business as may properly come before the meeting.
Stockholders of record at the close of business on March 29, 1996 will be
entitled to vote, either in person or by proxy. Stockholders who do not expect
to attend in person are urged to execute and return the accompanying proxy in
the envelope enclosed.
The annual report of the Company for the year 1995 is being mailed to all
stockholders of record.
BY ORDER OF THE BOARD OF DIRECTORS.
Lawrence P. Goecking
Secretary
April 19, 1996
Intercargo Corporation
1450 East American Lane, 20th Floor
Schaumburg, IL 60173
<PAGE> 3
PROXY STATEMENT
INTERCARGO CORPORATION
1450 EAST AMERICAN LANE, 20TH FLOOR
SCHAUMBURG, ILLINOIS 60173
(847) 517-2990
ANNUAL MEETING OF STOCKHOLDERS
MAY 17, 1996
This proxy statement is being furnished to the stockholders of Intercargo
Corporation, a Delaware corporation (the "Company"), 1450 East American Lane,
20th Floor, Schaumburg, Illinois, 60173, in connection with the solicitation of
proxies by its Board of Directors for use at the annual meeting of stockholders
to be held on May 17, 1996 and any adjournments thereof. The approximate date
on which this proxy statement and the accompanying proxy are first being sent
to the stockholders is April 19, 1996.
The proxy is revocable at any time before it is voted by written
notification to the persons named therein as proxies, which may be mailed or
delivered to the Company at the above address, or in person upon oral or
written request at the annual meeting. All shares represented by effective
proxies will be voted at the meeting and at any adjournments thereof.
If the enclosed proxy is properly executed and returned in time for voting
with a choice specified thereon, the shares represented thereby will be voted
as indicated thereon. If no specification is made, the proxy will be voted by
the persons named therein as proxies FOR the election as directors of the
nominees named herein (or substitutes therefor if any nominees are not
available to serve), and in their discretion upon such matters not presently
known or determined which may properly come before the meeting.
The Company has one class of $1.00 par value per share common stock
("Common Stock"). Stockholders of record as of the close of business on March
29, 1996 are entitled to notice of and to vote at the meeting. As of March 29,
1996, there were 7,640,981 shares of Common Stock issued and outstanding, each
share being entitled to one vote. There are no cumulative voting rights with
respect to the election of directors.
Presence in person or by proxy of holders of a majority of the outstanding
shares of Common Stock will constitute a quorum at the meeting. Assuming a
quorum is present, the affirmative vote by the holders of a plurality of the
shares represented and entitled to vote will be required to act on the election
of directors. The affirmative vote of the holders of a majority of the shares
present in person or by proxy and entitled to vote is required for approval on
all other matters to come before the meeting. A broker non-vote is not counted
in determining voting results. If a stockholder, present in person or by
proxy, abstains on any matter, the stockholder's shares will be treated as
present and entitled to vote and will thus have the same legal effect as a vote
"AGAINST" the matter.
1
<PAGE> 4
PRINCIPAL HOLDERS OF SECURITIES
The following table shows with respect to (i) each person who is known to
be the beneficial owner of more than 5% of the Common Stock of the Company;
(ii) each director and nominee of the Company; (iii) each Named Executive (as
such term is defined in "Executive Compensation"); and (iv) all executive
officers and directors as a group: (a) the total number of shares of Common
Stock beneficially owned as of April 10, 1996; and (b) the percent of the class
so owned as of the same date:
<TABLE>
<CAPTION>
NUMBER OF SHARES
NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED(1) PERCENTAGE OF CLASS(1)
- ------------------------ ---------------------- -----------------------
<S> <C> <C>
Orion Capital Corporation(2) ........ 1,584,309 20.73%
9 Farm Springs Drive
Farmington, Connecticut 06032
Fenimore Asset Management, Inc.(3) .. 777,650 10.18%
118 North Grand Street
P.O. Box 310
Cobleskill, New York 12043
Quest Advisory Corp.(4) ............. 407,200 5.33%
1414 Avenue of the Americas
New York, New York 10019
Arthur J. Fritz, Jr.(5)(6) .......... 253,332 3.30%
James R. Zuhlke(5)(7) ............... 338,849 4.43%
Kenneth A. Bodenstein(5)(8) ......... 20,000 *
Arthur L. Litman(5) ................. 42,666 *
Albert J. Gallegos(5)(9) ............ 2,900 *
William G. Star(5)(10) .............. 67,000 *
Robert S. Kielbas(5)(11) ............ 52,732 *
Robert B. Sanborn(5)(12) ............ 1,584,309 20.73%
Michael L. Sklar(5) ................. 1,500 *
Brian D. Freund(5)(13) .............. 262,149 3.43%
Lawrence P. Goecking(5) ............. -0- 0%
Gary C. Bhojwani(5)(14) ............. 32,400 *
All Directors and Executive Officers
as a group(15) (12 persons) ......... 2,657,837 34.50%
</TABLE>
* Less than 1% of Common Stock outstanding.
(1) Calculated pursuant to Rule 13d-3 of the Securities Exchange Act of 1934.
Unless otherwise stated herein, each such person has sole voting and
investment power with respect to all such shares. Under Rule 13d-3(d),
shares not outstanding which are subject to options, warrants, rights or
conversion privileges exercisable within 60 days are deemed outstanding
for the purpose of calculating the number and percentage owned by such
person, but are not deemed outstanding for the purpose of calculating the
percentage owned by each other person listed. As of March 29, 1996, the
total number of the Company's outstanding shares was 7,640,981.
(2) As reported in Orion Capital Corporation's Form 4 dated April 1, 1996.
These shares are held by Security Insurance Company of Hartford, a
Connecticut corporation, wholly-owned by Orion Capital Corporation. These
shares may be deemed to be beneficially owned by Robert B.
2
<PAGE> 5
Sanborn, a director of the Company, who as Senior Executive Consultant and
a director of Orion Capital Corporation, may be deemed to have shared power
to vote and dispose of these shares.
(3) As reported in Fenimore Asset Management Inc.'s Schedule 13G dated
January 31, 1996.
(4) As reported in Quest Advisory Corp's Schedule 13G dated February 14,
1995. Charles M. Royce may be deemed to be a controlling person of Quest
Advisory Corp. and as such may be deemed to beneficially own the shares of
the Company beneficially owned by Quest. Mr. Royce does not own any
shares outside of Quest and disclaims beneficial ownership of the
Company's shares held by Quest.
(5) Messrs. Zuhlke, Star, Kielbas, Gallegos, Litman, Bodenstein, Fritz,
Sklar, Sanborn, Goecking and Bhojwani are directors and/or executive
officers of the Company. Mr. Freund was considered an executive officer
until August 1995. See "Election of Directors" and "Executive Officers."
(6) Includes 12,000 shares held by a family limited partnership in which Mr.
Fritz is one of the general partners.
(7) Includes options to purchase 27,500 shares exercisable within sixty days.
(8) Includes 6,000 shares held by a charitable foundation as to which Mr.
Bodenstein exercises voting power.
(9) Held in the name of Mr. Gallegos' wife.
(10) These shares are held by Belgate Investments Limited, an Ontario
corporation wholly-owned by Mr. Star.
(11) Includes 74 shares of Common Stock held in Mr. Kielbas' wife's name and
options to purchase 4,125 shares of Common Stock exercisable within sixty
days.
(12) These shares are held by Security Insurance Company of Hartford,
Connecticut, a wholly-owned subsidiary of Orion Capital Corporation. See
footnote (2) above.
(13) Includes options to purchase 2,500 shares of Common Stock exercisable
within sixty days.
(14) Includes 30,000 stock appreciation rights exercisable within sixty days.
(15) See footnotes (1) - (14) above.
3
<PAGE> 6
ELECTION OF DIRECTORS
The following table lists all nominees and continuing directors of the
Company. Three Class 3 directors are to be elected to hold office for a term
of three years or until their successors are elected and qualified. The
nominees are Robert B. Sanborn, Arthur J. Fritz, Jr. and Arthur J. Litman. It
is intended that, in the absence of contrary specifications, votes will be cast
pursuant to the enclosed proxies for the election of such nominees. Should any
of the nominees become unable or unwilling to accept nomination or election, it
is intended, in the absence of contrary specification, that the proxies will be
voted for the other nominees named and for a substitute nominee or nominees.
However, the Company now knows of no reason to anticipate such an occurrence.
The nominees have consented to be named as nominees and to serve as directors
if elected.
<TABLE>
<CAPTION>
POSITION WITH COMPANY, BUSINESS EXPERIENCE
NAME AGE AND OTHER DIRECTORSHIPS
- ---- --- ------------------------------------------
<S> <C> <C>
NOMINEES FOR ELECTION
CLASS 3 (Term expires in 1996)
Robert B. Sanborn 67 Mr. Sanborn was elected by the Board of
Directors in February 1994 to fill a
vacancy. From 1987 through 1994, Mr.
Sanborn served as the President and Chief
Operating Officer of Orion Capital
Corporation, a property and casualty
insurance company. Mr. Sanborn is
currently Senior Executive Consultant to
Orion Capital Corporation. Prior to
joining Orion, he was President of
American International Group's ("AIG") New
Hampshire Insurance Group and Executive
Vice President - Agency and a Director of
AIG. Mr. Sanborn is also a director of
Orion Capital Corporation, Guaranty
National Corporation, Nobel Insurance
Limited and HCG Lloyd's Investment Trust,
and is a member of many professional
associations within the insurance
industry.
Arthur J. Fritz, Jr. 55 Director of the Company since December
1985. From 1972 to 1988, Mr. Fritz served
as President of the Fritz Companies, a
company engaged in the business of customs
brokerage and freight forwarding. Mr.
Fritz is a former President of the
National Customs Brokers & Forwarders
Association of America. Mr. Fritz is
currently the Chairman of Logicorp Inc.,
and is a director of Arkansas Best
Corporation and Landstar, Inc.
Arthur L. Litman 52 Director of the Company since December
1985. From 1984 to 1991, Mr. Litman
served as President of Castelazo &
Associates, Inc., a company engaged in the
business of customs brokerage and freight
forwarding. This firm was acquired by
Tower Group International, Inc. in 1991,
and from 1991 to March 1996 Mr. Litman was
Vice President for the Western Region for
that firm. Mr. Litman is currently Vice
President for Regulatory Affairs and
Compliance
</TABLE>
4
<PAGE> 7
<TABLE>
<S> <C> <C>
Services for Tower Group. Mr. Litman is a
past President and senior counselor for
the board of the National Customs Brokers
& Forwarders Association of America.
CONTINUING MEMBERS
CLASS 1 (Term expires in 1997)
Albert J. Gallegos 54 Director of the Company since January
1988. Since 1986, Mr. Gallegos has been
an independent consultant to the insurance
industry. From 1983 to 1986, Mr. Gallegos
served as the Director of the Risk
Management Division for the State of New
Mexico. From 1960 to 1983, Mr. Gallegos
was employed by the New Mexico Department
of Insurance and served as its Deputy
Superintendent from 1979 to 1983.
Kenneth A. Bodenstein 59 Director of the Company since September
1987. Mr. Bodenstein has served as Senior
Vice President and Managing Director of
Duff & Phelps Financial Consulting Co., a
financial services company, for more than
the past five years.
CLASS 2 (Term expires in 1998)
James R. Zuhlke 49 Mr. Zuhlke was elected Chairman of the
Board on November 11, 1993. Mr. Zuhlke
has been a Director, President and Chief
Executive Officer since 1985. From 1980
to 1985, Mr. Zuhlke served as an officer
and Director of the Company's
subsidiaries. Prior to 1980, Mr. Zuhlke
was President of Washington International
Insurance Company.
Michael L. Sklar 57 Director of the company since May 1995.
Mr. Sklar was a partner in the law firm of
Lurie, Sklar & Simon from 1969 to 1987; of
Neal, Gerber & Eisenberg from 1987 to
1989; and of Keck, Mahin & Cate from 1989
through March 1996. Mr. Sklar is
presently a partner in the law firm of
Rudnick & Wolfe, Chicago, Illinois. In
1995, Keck, Mahin & Cate served as
principal outside legal counsel to the
Company.
</TABLE>
5
<PAGE> 8
EXECUTIVE OFFICERS
The following table lists all non-director executive officers of the
Company. Officers are elected to serve until their successors are duly elected
and qualified.
<TABLE>
<CAPTION>
POSITION WITH COMPANY, BUSINESS EXPERIENCE AND OTHER
NAME AGE DIRECTORSHIPS
- -------------------- --- ----------------------------------------------------
<S> <C> <C>
Robert S. Kielbas 45 Mr. Kielbas is currently the Chief Executive Officer
of the Company's recently acquired Hong Kong
subsidiary. Since 1994, Mr. Kielbas has also served
as Director of International Operations for
Intercargo Insurance Company, the Company's primary
U.S. subsidiary ("IIC"), and until April 1, 1996 was
the Managing Director for the U.K. branch office,
opened in April 1994 in London. From 1987 to 1994
Mr. Kielbas served as the Vice President-Marine of
IIC with responsibility for developing marine
business with direct shippers and alternative agency
arrangements. From 1980 to October 1987, Mr.
Kielbas served as Regional Vice President for
International Advisory Services, Inc., the Company's
insurance agency subsidiary ("IAS"), and was
responsible for sales and marketing.
William G. Star 60 Mr. Star has been the Chairman and President of
Kingsway General Insurance Company since 1986 and of
Kingsway Financial Services, Inc. since 1989.
Kingsway General and Kingsway Financial are the
Company's Canadian subsidiaries.
Brian D. Freund 45 From January 1994 to August 1995, Mr. Freund served
as President of IAS. From 1980 to 1993, Mr. Freund
was Executive Vice President of IAS. From 1987 to
August 1995, Mr. Freund also served as Vice
President of Marketing of Intercargo Corporation.
Lawrence P. Goecking 43 Mr. Goecking has served as Chief Financial Officer,
Secretary, and Treasurer since December 1993. From
1990 to 1993, Mr. Goecking was the Treasurer of
Merit Insurance Company. Prior to 1990, Mr.
Goecking was a Senior Manager with KPMG Peat Marwick
LLP.
Gary C. Bhojwani 28 Mr. Bhojwani has been with the Company since June
1990. Since August 1995, Mr. Bhojwani has served as
President of IAS and Vice President of Marketing for
Intercargo Corporation. From January 1994 to August
1995, Mr. Bhojwani served as Vice President National
Accounts for IAS. From January 1992 to January
1994, he served as Manager National Accounts for
IAS. From June 1990 to January 1992, Mr. Bhojwani
held marketing or sales
</TABLE>
6
<PAGE> 9
positions with IAS. Mr. Bhojwani received his
MBA in Finance and Marketing from the
University of Chicago in August 1995. Mr.
Bhojwani received his BS in Actuarial Science
from the University of Illinois in May 1990.
7
<PAGE> 10
THE BOARD OF DIRECTORS AND ITS STANDING COMMITTEES
The Company's Board of Directors has the responsibility to review the
overall operations and proposed plans and business objectives of the Company.
The Board meets regularly four times each year, once each quarter. During
1995, the Board met four times. All directors attended at least 75% of the
aggregate of the total number of meetings of the Board of Directors and
meetings held by each committee of the Board on which such directors served.
The Board has a standing Audit Committee and Compensation and Stock Option
Committee.
The Audit Committee recommends to the Board the appointment of the
independent certified public accountants for the following year. The Audit
Committee reviews with the accountants: (i) the scope of the Company's annual
audit, (ii) the annual financial statements of the Company and the auditors
report with respect thereto, (iii) corporate and accounting practices and
policies, and (iv) overall accounting and financial controls. In addition, the
Audit Committee is available to the independent auditors during the year for
consultation purposes. The Committee, which reports directly to the Board, is
comprised of three non-employee directors, Messrs. Sklar, Litman and
Bodenstein. The Audit Committee met two times during 1995.
The Compensation and Stock Option Committee reviews recommendations
regarding overall salaries and compensation of Company officers and certain key
employees and is responsible for the selection of those officers and key
employees who are eligible to receive options and determines the number of
options to be awarded and the period during which the options may be exercised
under the terms of the Company's 1987 Non-Qualified and Incentive Stock Option
Plan. This Committee also reviews the President's performance pursuant to the
Executive Incentive Compensation Plan. The Compensation and Stock Option
Committee reports directly to the Board and is comprised of three non-employee
directors, Messrs. Litman, Fritz and Sklar. The Compensation and Stock Option
Committee met two times during l995.
All directors whose terms are not expiring serve as the ad hoc Nominating
Committee of the Board for the purpose of considering nominees to the Board of
Directors. The Company's by-laws set forth the required procedure for
considering nominees recommended by stockholders. Director nominations by
stockholders for the annual meeting must be delivered to the Company's
Secretary either by personal delivery or certified mail, postage prepaid,
return receipt requested, 90 days in advance of the annual meeting. Each such
notice must set forth: (a) the name and address of the stockholder who intends
to make the nomination; (b) the person or persons to be nominated; (c) a
representation that the stockholder is a holder of record of stock of the
Company entitled to vote at such meeting and intends to appear in person or by
proxy at the meeting to nominate the person or persons specified in the notice;
(d) a description of all arrangements or understandings between the stockholder
and each nominee and any other person or persons (naming such person or
persons) pursuant to which the nomination or nominations are to be made by the
stockholder; (e) such other information regarding each nominee proposed by such
stockholder which would be required to be included in a proxy or information
statement filed with the Securities and Exchange Commission pursuant to the
proxy rules promulgated under the Securities Exchange Act of 1934, as amended,
or any successor statutes thereto, had the nominee been nominated or intended
to be nominated by the Board; and (f) the manually signed consent of each
nominee to serve as a Director of the Company if elected. The presiding
officer of the meeting of the Stockholders may refuse to acknowledge the
nomination of any person not made in compliance with the foregoing procedures.
8
<PAGE> 11
DIRECTORS' COMPENSATION
The Company pays directors fees in the amount of $2,000 per meeting of the
Board and $750 for any committee meeting. During 1995, all committee meetings
were held in conjunction with Board meetings.
EXECUTIVE COMPENSATION
The Summary Compensation Table below includes, for each of the fiscal
years ended December 31, 1995, 1994 and 1993, individual compensation for
services to the Company and its subsidiaries paid to: (i) the Chief Executive
Officer; (ii) the four other most highly paid executive officers of the
Company, and (iii) an additional individual, Brian D. Freund, who was President
of IAS from January 1994 to August 1995, and whose compensation otherwise would
have required disclosure in the table (the "Named Executives").
9
<PAGE> 12
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION ALL OTHER
ANNUAL COMPENSATION (AWARDS) COMPENSATION
------------------------------------ ------------ ------------
SECURITIES
UNDERLYING
NAME & PRINCIPAL POSITION(S) YEAR SALARY(1) BONUS(1) OTHER OPTIONS/SARs
- ---------------------------- ---- ---------- --------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
JAMES R. ZUHLKE 1995 $270,000 -0- $12,000(2) 10,000 $17,508(3)(4)
Chairman, President and 1994 $245,000 $12,250 $12,000(2) 20,000 $11,496(3)(4)(5)
Chief Executive Officer 1993 $245,000 -0- $12,000(2) -0- $11,000(3)(4)
ROBERT S. KIELBAS 1995 $185,000 -0- $106,086(2)(6) 5,000 $ 1,300(7)
Director, International 1994 $175,000 $ 8,750 $78,909(2)(6) -0- $ 865(7)
Business Development 1993 $147,500 -0- (2) -0- -0-
of the Company and
Vice President-Marine of
Intercargo Insurance Company
WILLIAM G. STAR 1995 $182,632 $79,183 (2) -0- $ 8,758(4)
Chairman and President 1994 $146,500 $71,700 (2) -0- $ 3,300(4)
of Kingsway Financial 1993 $153,000 $ 7,800 (2) -0- $ 3,500(4)
Services, Inc.
LAWRENCE P. GOECKING 1995 $115,000 -0- $ 6,000(2) 10,000 $ 2,875(8)
Chief Financial Officer, 1994 $100,000 $ 5,000 (2) 5,000 $ 1,731(8)
Secretary and Treasurer 1993 -0- -0- (2) -0- -0-
GARY J. BHOJWANI(9) 1995 $134,615 $64,241 (2) 25,000(10) $ 1,601(11)
President of International
Advisory Services, Inc.
BRIAN D. FREUND(9) 1995 $183,751 -0- $ 7,846(2) -0- $ 8,758(4)
1994 $245,000 $12,250 $ 6,000(2) -0- $ 2,200(4)
1993 $245,000 -0- (2) -0- -0-
</TABLE>
1. See "Board Compensation Committee Report on Executive Compensation" for
more detailed information regarding the determination of compensation for
the Named Executives.
2. Mr. Zuhlke received a cash car allowance of $12,000 in each of 1995, 1994
and 1993. Mr. Goecking received a cash car allowance of $6,000 in 1995.
Mr. Freund received a cash car allowance of $7,846 in 1995 and $6,000 in
1994. The total amount of perquisites and other non-cash personal
benefits did not exceed the lesser of $50,000 or 10% of total annual
salary and bonus for any of the Named Executives for any year shown.
3. Includes directors fees paid to Mr. Zuhlke by the Company in the
following amounts: $8,000 in 1995, $6,000 in 1994, and $7,500 in 1993.
Mr. Zuhlke also received $750 in 1995 and $500 in 1994 for his services as
a member of the Investment Committee.
4. Includes directors fees paid to each of Mr. Zuhlke and Mr. Star by
Kingsway in the following amounts: $8,758 in 1995, $3,300 in 1994, and
$3,500 in 1993 (in U.S. $). Directors fees of $8,758 and $2,200 were paid
by Kingsway to Mr. Freund in 1995 and 1994, respectively (in U.S. $).
5. Includes the Company's matching contribution for Mr. Zuhlke to the
Company's 401(K) Savings Plan in the amount of $1,696 in 1994.
6. Amount shown for 1995 includes $100,825 paid to Mr. Kielbas for cost of
living and tax equalization adjustments in connection with his overseas
posting to the Company's London branch office and a cash car allowance of
$5,261. Amount shown for 1994 includes $70,090 paid to Mr. Kielbas for
such cost of living and tax equalization adjustments and $8,819 for a
leased automobile.
7. Amounts shown represent the Company's matching contribution for Mr.
Kielbas to the Company's 401(K) Savings Plan in the amount of $1,300 in
1995 and $865 in 1994.
8. Amounts shown represent the Company's matching contribution for Mr.
Goecking to the Company's 401(K) Savings Plan in the amount of $2,875 in
1995 and $1,731 in 1994.
9. Mr. Bhojwani became President of IAS in August 1995, and Mr. Freund
resigned that position at that time.
10
<PAGE> 13
10. Includes options to purchase 5,000 shares granted on November 10, 1995
and stock appreciation rights exercisable for cash granted on January 1 and
November 20, 1995 with respect to 15,000 and 5,000 shares, respectively.
11. Amount shown represents the Company's matching contribution for Mr.
Bhojwani to the Company's 401(k) Savings Plan in the amount of $1,601 in
1995.
11
<PAGE> 14
STOCK OPTIONS
Shown below is information on grants of non-qualified stock options and
stock appreciation rights ("SARs") during the fiscal year ended December 31,
1995 to the Named Executives which are reflected in the Summary Compensation
Table.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Potential Realizeable Value at Assumed
Annual Rates of Stock Price Appreciation
Individual Grants for 7-Year Option/SAR Term
----------------------------- ----------------------------------------
Number of % of Total
Securities Options/SARs Exercise 5% 10%
Underlying Granted to or Base ------------------ -------------------
Options/SARs Employees in Price Expiration Stock Dollar Stock Dollar
Name Granted(#) Fiscal year(1) ($/sh)(2) Date Price(3) Gains Price(3) Gains
- --------- ----------- -------------- -------- ---------- -------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Zuhlke 10,000(4) 17.9% $13.25 11/10/02 $18.64 $53,900 $25.82 $125,700
Kielbas 5,000(4) 8.9% $13.25 11/10/02 $18.64 $26,950 $25.82 $ 62,850
Star -- -- -- -- -- -- -- --
Goecking 10,000(4) 17.9% $13.25 11/10/02 $18.64 $53,900 $25.82 $125,700
Bhojwani 5,000(4) 8.9% $13.25 11/10/02 $18.64 $26,950 $25.82 $ 62,850
15,000(5) 26.8% $ 8.25 01/01/99 $10.03 $26,700 $12.08 $ 57,450
5,000(5) 8.9% $ 9.25 11/20/99 $11.24 $ 9,950 $13.54 $ 21,450
Freund -- -- -- -- -- -- -- --
</TABLE>
(1) Based on 36,000 options and 20,000 SARs granted to all employees.
(2) Fair market value on the date of grant.
(3) The stock price represents the price of the Common Stock if the assumed
annual rates of stock price appreciation are achieved throughout the term
of the option or SAR.
(4) These Non-Qualified Stock Options ("NSO's") were issued pursuant to the
Company's 1987 Non-Qualified and Incentive Stock Option Plan (the "Option
Plan") and may not be exercised until they vest. These NSO's vest
twenty-five percent after three years, and twenty-five percent per year
thereafter. The exercise price may not be less than the fair market value
of the shares subject to the option on the date of grant.
(5) 15,000 SARs were issued pursuant to a Stock Appreciation Rights Agreement
dated January 1, 1995. 5,000 SARs were issued pursuant to a Stock
Appreciation Rights Agreement dated November 20, 1995. The SARs under
both agreements became exercisable January 1, 1996. These SARs represent
the right to receive in cash the difference between the base price and the
current market price on the date of exercise.
Shown below is information with respect to options and SARs exercised in
the last fiscal year and unexercised options to purchase the Company's Common
Stock and SARs at year end 1995.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION/SAR VALUES
<TABLE>
<CAPTION>
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Options/SARs Options/SARs
at 12/31/95 at 12/31/95(1)
Shares Acquired Value Exercisable/ Exercisable/
Name on Exercise(#) Realized($) Unexercisable(#) Unexercisable($)
- ---- ------------------ ------------ ----------------- -----------------
<S> <C> <C> <C> <C>
Zuhlke -- -- 27,500/42,500 $100,000/$40,000
Star -- -- -/- -/-
Kielbas -- -- 4,125/10,375 -/-
Goecking -- -- -/15,000 -/$10,000
Bhojwani -- -- 30,000/5,000 $47,500/-
Freund -- -- 2,500/2,500 -/-
</TABLE>
(1) Based on the closing sale price of $10.00 as quoted on the Nasdaq National
Market on December 29, 1995.
12
<PAGE> 15
EMPLOYMENT CONTRACTS
In connection with the acquisition of its affiliated agency, International
Advisory Services, Inc. ("IAS") in August 1993, the Company entered into
Employment Agreements (the "Agreements") with Messrs. Kielbas and Freund (the
"Officers"). Each of the Agreements commenced on August 25, 1993 for a period
of one year and provided for automatic renewals for successive one year periods
unless terminated by written notice by the Company or the Officer prior to the
expiration of the initial term or any renewal period. The Agreements also
provided for termination on the last day of the month in which the Company's
operations cease in the event that the Company (or any successor to its assets)
discontinues its operations.
Pursuant to Mr. Freund's Agreement, which terminated in August 1995, he
served as President of IAS for an annual salary of $245,000. Pursuant to Mr.
Kielbas' Agreement, which terminated in January 1994, he served as Vice
President - Marine and Director of International Business Development of
Intercargo Insurance Company for an annual salary of $147,500. The Agreements
also provided that the Officers be eligible to receive bonuses pursuant to the
Company's Executive Incentive Compensation Plan, reimbursement for reasonable
expenses incurred in connection with the execution of their duties,
professional dues, vacation and certain employee benefits adopted by the
Company. The Agreements required the Company to pay for the cost of life
insurance on the lives of Messrs. Freund and Kielbas in the face amount of
$200,000 and $100,000, respectively. Each of the Officers also agreed to
certain restrictive covenants and a non-competition covenant for the term of
the Agreements and for a period of one year thereafter.
On January 31, 1994, the Company entered into two new employment
agreements with Mr. Kielbas, one under which IIC employs him in the U.S. (the
"U.S. Agreement") and one under which the U.K. branch of IIC employed him in
the U.K. (the "U.K. Agreement") as Director of International Operations. The
U.S. Agreement is for a two-year term with automatic renewals for additional
one-year terms, and provides for a base salary of $50,000 per year. It
provides for certain benefits, including life insurance and eligibility for
bonuses under the Executive Incentive Compensation Plan. It also contains
restrictive covenants and non-competition provisions for a period of one year
after termination.
The U.K. Agreement, which terminated March 31, 1996, was for a two-year
term and provided for a base salary of L.141,000 (approximately $213,500 U.S.),
subject to adjustment for certain U.K. tax liabilities. It also provided for
25 vacation days per year and return air fares from the U.S. twice per year for
Mr. Kielbas and his family. IIC also guaranteed Mr. Kielbas' obligations under
a loan used to purchase his U.K. residence to the extent that upon sale of the
residence the sale price was less than the amount of the loan.
Effective April 1, 1996, the U.K. Agreement was superseded by an agreement
with Intercargo Insurance Company H.K. Limited, the Company's Hong Kong
subsidiary, (the "H.K. Agreement") under which Mr. Kielbas currently serves as
Chief Executive Officer and President of the Hong Kong subsidiary. The H.K.
Agreement is for a term of two years and provides for a base salary to be paid
in Hong Kong dollars at the rate of HK $1,500,000 per year (approximately
$193,950 U.S.). It does not provide for reimbursement to Mr. Kielbas for Hong
Kong taxes, but does provide for a furnished apartment. Mr. Kielbas is to pay
the cost of the apartment in excess of HK $60,000 (approximately $7,758 U.S.)
per month. The H.K. Agreement also provides for 25 vacation days per year and
return air fares from the U.S. twice per year for Mr. Kielbas and his family.
13
<PAGE> 16
In addition, the Company entered into an employment agreement (the
"Employment Agreement") with its Chief Financial Officer, Lawrence P. Goecking.
The Employment Agreement commenced on January 1, 1994 for a period of one year
and continues on a semi-annual basis unless otherwise terminated due to Mr.
Goecking's death or disability or by the Company for "cause," as defined in the
Employment Agreement. The Employment Agreement provides for a base salary of
$100,000, subject to increases during subsequent renewal terms. Mr. Goecking
is also eligible to receive bonuses pursuant to the Company's Executive
Incentive Compensation Plan, vacations with pay in accordance with the
Company's regular vacation policy, and reimbursement for reasonable expenses
incurred in the performance of his duties. Additionally, Mr. Goecking is
entitled to participate in all employee benefit plans maintained by the Company
and has agreed to certain restrictive covenants and to a non-competition
covenant during the term of the Employment Agreement and for a period of two
years thereafter.
OFFICER LOANS
IAS has provided loans to certain of its officers which loans are
evidenced by promissory notes dated August 25, 1993 bearing interest at a rate
equal to the prime lending rate plus 1%, as determined from time to time.
Notes issued by the Named Executives were in the following principal amounts:
Mr. Zuhlke, $96,110 and Mr. Freund, $111,110. The approximate outstanding
balances of these loans as of March 29, 1996 are as follows: Mr. Zuhlke,
$38,444 and Mr. Freund, $58,555.
14
<PAGE> 17
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Mr. Sklar, a member of the Compensation Committee, is a former partner of
Keck, Mahin & Cate, the principal law firm engaged by the Company in 1995. Mr.
Zuhlke, who is Chairman of the Board, President and Chief Executive Officer of
the Company, administers the determination of the bonuses for the other Named
Executives under the Executive Incentive Compensation Plan.
BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee is comprised of three non-employee directors:
Messrs. Litman, Fritz and Sklar. At the time that performance goals and other
compensation criteria were set relating to 1995 compensation for executive
officers, Mr. Sklar was not a member of the Compensation Committee. At the
request of the Compensation Committee, Mr. Sanborn participated in the
compensation deliberations for 1995, and Mr. Zuhlke participated in such
deliberations with respect to officers other than himself. The 1995
compensation for the executive officers (including the Named Executives other
than Messrs. Star, Bhojwani and Freund) is comprised of the following
components:
- Base Salary;
- Annual incentive compensation (i.e. bonus) based on individual
performance and Company performance pursuant to the Executive
Incentive Compensation Plan (the "Incentive Plan"); and
- Long term incentive compensation in the form of stock options granted
pursuant to the 1987 Non-Qualified Incentive Stock Option Plan (the
"Option Plan").
Mr. Star's salary was set by the board of directors of Kingsway Financial
Services, Inc., the Company's Canadian subsidiary, and was approved by the
Board of Directors of the Company. For 1995, Kingsway adopted an incentive
bonus plan similar to the Incentive Plan with the formula tied to the
operations of Kingsway. The bonus paid to Mr. Star for 1995 was determined by
the Kingsway board of directors pursuant to such plan.
The amount of Mr. Freund's 1995 compensation was determined pursuant to
his employment agreement. The amount of Mr. Bhojwani's 1995 compensation was
determined by IAS. The bonus paid to Mr. Bhojwani for 1995 was determined
based upon sales of the National Accounts unit of IAS, for which he served as
Vice President from 1994 to August 1995. Stock appreciation rights were
granted to Mr. Bhojwani based upon his obtaining certain targeted accounts.
Based on recommendations of the President, the Compensation Committee set
the 1995 base salaries of all officers (other than the President and Messrs.
Star, Bhojwani and Freund). The Compensation Committee set the 1995 base
salary of the President. Factors considered in the setting of salaries include
historical salary levels and salary levels at comparable companies contained in
the Firemark Insurance Executive 1994 Compensation Study (the "Firemark
Study"). After approval by the Compensation Committee, salaries are approved
by the Board of Directors.
With respect to the President, the Compensation Committee determined that
the President's base salary for 1995 should be set at $270,000, based primarily
on the Firemark Study.
Bonuses for all officers are determined pursuant to the Incentive Plan,
which directly links executive compensation with Company performance. The
Incentive Plan creates a bonus fund based on a percentage of the aggregate base
salaries of all eligible employees. The percentage is determined pursuant to a
sliding scale based on the return on equity ("ROE") of the Company and is
measured against the equity at the beginning of the bonus year.
15
<PAGE> 18
The Incentive Plan provides a formula for the determination of bonus
amounts which in all cases includes ROE as one measurement. Other measurements
include departmental goals (for underwriters and salespeople) and intangible or
qualitative objectives. The weight given to each measurement varies with the
position of the individual.
ROE is assigned a 70% weight factor for the President, a 30% weight factor
for insurance underwriters and salespeople, and a 50% weight factor for the
Chief Financial Officer. Intangibles are assigned a 30% weight factor for the
President, a 20% factor for insurance underwriters and salespeople, and a 50%
weight factor for the Chief Financial Officer. Departmental goals are assigned
a 50% weight factor and only apply to insurance underwriters and salespeople.
The weight factors which apply to intangibles and departmental goals are
further multiplied by a performance factor which reflects the level of
achievement of pre-set goals. Intangible goals, as well as what constitutes
their fulfillment, are set each year by the President and the individual
officer. Departmental goals are set by the President. The goals of the
President are set by the Compensation Committee, and the Committee determines
the degree to which the President has fulfilled those goals.
The available bonus fund is allocated among the eligible employees
according to the attainment of specific performance goals and application of
the ROE factor. Each individual's bonus is subject to a limit equal to the
percentage of base salary established by the ROE factor. Accordingly, the
total bonus of each Named Executive is limited to his base salary multiplied by
the maximum bonus percentage established by the ROE.
The 1987 Non-Qualified Incentive Stock Option Plan (the "Option Plan")
also links individual compensation to Company performance. As the exercise
price of the options granted under the Option Plan may not be less than fair
market value at the date of the grant, the Named Executives have incentive to
enhance Company performance as measured by the price of the Company's Common
Stock. In granting options to Named Executives, the Compensation Committee
considers the recommendations of the President as well as the number of options
already held by each person. With respect to all grantees and in view of the
relatively low Common Stock price levels, the Compensation Committee felt that
it was important to provide an incentive for future performance. With respect
to options granted to the President, the Compensation Committee considered the
number of options held by the President as well as the overall purpose to
provide a performance incentive.
Effective January 1, 1994, the allowable deduction for federal income tax
purposes of compensation paid by the Company to the Named Executives is
$1,000,000 per executive per year. This limitation does not apply to
compensation that is based upon the attainment of performance goals or paid
pursuant to a written contract that was in effect on February 17, 1993. These
limitations have not affected the Company's ability to deduct all taxable
compensation paid to its Named Executives and is not expected to affect these
deductions in the foreseeable future.
Based on the parameters of the Incentive Plan and at the discretion of the
Committee, no bonuses were awarded for 1995 performance pursuant to the
Incentive Plan. Accordingly, no bonuses were paid for 1995 to Messrs. Zuhlke,
Kielbas or Goecking.
Arthur J. Fritz, Jr.
Arthur L. Litman
Michael L. Sklar
16
<PAGE> 19
TOTAL RETURN COMPARISON
The following graph sets forth a five-year comparison of cumulative total
returns for: (i) the Company; (ii) the Center for Research in Securities Prices
("CRSP") Total Return Index for the Nasdaq Stock Market (U.S. Companies); and
(iii) a Peer Group selected by the Company (the "Peer Group").
All returns were calculated assuming dividend reinvestment. The returns
of each company in the Peer Group have been weighted according to market
capitalization.
The Peer Group consists of the following companies: AmWest Insurance
Group, Inc.; Avemco Corp.; NYMAGIC, Inc.; HCC Insurance Holdings, Inc.; and
Navigators Group, Inc.
[PERFORMANCE GRAPH APPEARS HERE]
<TABLE>
CRSP TOTAL RETURNS INDEX: 12/31/90 12/31/91 12/31/92 12/31/93 12/30/94 12/29/95
- ------------------------ ----------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INTERCARGO CORPORATION 100.000 315.789 275.547 252.279 180.999 223.525
NASDAQ STOCK MARKET 100.000 160.546 186.849 214.491 209.663 296.564
Peer Group 100.000 147.286 125.274 122.944 91.983 118.025
</TABLE>
17
<PAGE> 20
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES AND EXCHANGE ACT OF 1934
Section 16(a) of the Securities and Exchange Act of 1934 requires the
Company's directors, executive officers and persons who beneficially own more
than 10% of the Company's Common Stock, to file with the Securities and
Exchange Commission initial reports of beneficial ownership of the Common Stock
and reports of changes in such ownership.
Specific due dates for these reports have been established and the Company
is required to disclose in this proxy statement any failure to file by these
dates during 1995. To the Company's knowledge, based solely upon a review of
copies of such reports furnished to the Company and written representations
that no other reports were required during the fiscal year ended December 31,
1995, all of these filings were satisfied except that Messrs. Gary C. Bhojwani
and Michael L. Sklar each filed one late Form 3 reporting their initial
beneficial ownership of shares, and Messrs. Kenneth A. Bodenstein and Arthur L.
Litman each filed one late Form 5 reporting the grant of stock options to
purchase 1,000 shares each in August 1995.
RELATIONSHIP WITH INDEPENDENT PUBLIC ACCOUNTANTS
The Company's consolidated financial statements for the year ended
December 31, 1995 were examined by KPMG Peat Marwick LLP, independent certified
public accountants. The independent public accountants are normally selected
at the fourth quarter meeting of the Board of Directors. KPMG Peat Marwick LLP
was selected as independent certified public accountants for the Company for
fiscal 1995 at the fourth quarter 1995 meeting of the Board of Directors. A
representative of KPMG Peat Marwick LLP is expected to attend the annual
meeting with an opportunity to make an appropriate statement if he desires to
do so and will be available to respond to appropriate questions.
STOCKHOLDER PROPOSALS FOR 1997 ANNUAL MEETING
In order for a proposal by a stockholder of the Company to be included in
the Company's proxy statement and form of proxy for the 1997 Annual Meeting of
Stockholders, the proposal must be received by the Company no later than
December 20, 1996. No stockholder proposals have been received in connection
with the 1995 Annual Meeting of Stockholders.
OTHER MATTERS
The Company knows of no matters, other than those referred to herein,
which will be presented at the meeting. If, however, any other appropriate
business should properly be presented at the meeting, the proxies named in the
enclosed form of proxy will vote the proxies in accordance with their best
judgment.
18
<PAGE> 21
EXPENSES OF SOLICITATION
All expenses incident to the solicitation of proxies by the Company will
be paid by the Company. The Company intends to reimburse brokerage houses and
other custodians, nominees and fiduciaries for reasonable out-of-pocket
expenses incurred in forwarding copies of solicitation material to beneficial
owners of Common Stock held of record by such persons. In a limited number of
instances, regular employees of the Company may solicit proxies in person or by
telegraph or telephone (but will not be specifically compensated therefore).
By order of the Board of Directors.
Lawrence P. Goecking
Secretary
Schaumburg, Illinois
April 19, 1996
19
<PAGE> 22
PROXY INTERCARGO CORPORATION PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF STOCKHOLDERS -- MAY 17, 1996
The undersigned hereby acknowledges receipt of Notice of Annual Meeting of
Stockholders to be held May 17, 1996 and hereby appoints James R. Zuhlke and
Lawrence P. Goecking, or either of them (with power of substitution in each) the
proxy or proxies of the undersigned to vote as designated below, all shares of
Intercargo Corporation Common Stock held of record by the undersigned on March
29, 1996 at the annual meeting to be held at 1450 East American Lane, Conference
Room B, Schaumburg, Illinois, 60173 on May 17, 1996 at 10:00 a.m. Central
Daylight Saving Time, or at any adjournment thereof.
THIS PROXY SHALL BE VOTED IN ACCORDANCE WITH THE INSTRUCTIONS GIVEN AND IN
THE ABSENCE OF SUCH INSTRUCTIONS SHALL BE VOTED FOR ALL OF THE DIRECTOR NOMINEES
DESCRIBED IN PROPOSAL 1. IF OTHER BUSINESS IS PRESENTED AT THE MEETING, THIS
PROXY SHALL BE VOTED IN ACCORDANCE WITH THE BEST JUDGMENT OF THE PROXIES ON
THOSE MATTERS.
PLEASE MARK, SIGN, DATE AND MAIL THE PROXY CARD PROMPTLY
USING THE ENCLOSED ENVELOPE.
(Continued and to be signed on reverse side.)
<TABLE>
<S><C>
INTERCARGO CORPORATION
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY. /X/
[ ]
FOR WITHHOLD FOR ALL Except Nominee(s) written below
1. ELECTION OF CLASS 3 DIRECTORS-- / / / / / /
Nominees: Robert B. Sanborn, Arthur J. Fritz, Jr., ________________________________________________
and Arthur L. Litman
2. In their discretion, the Proxies are authorized
to vote upon such other business as may
properly come before the meeting.
Dated:________________________, 1996
Signature(s)_____________________________________
_________________________________________________
Please sign exactly as your name(s) appears
hereon. Joint owners should each sign personally.
If signing in fiduciary or representative
capacity, give full title as such. If a
corporation, please sign in full corporate name
by president or other authorized officer. If a
partnership, please sign in partnership name by
authorized person.
</TABLE>
