<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
_____________________
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
X For the quarterly period ended September 30, 1996
- ---
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
- ---
Commission File Number 0-16748
------------------------------
INTERCARGO CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 36-3414667
(State or other jurisdiction (IRS Employer
of incorporation) Identification No.)
1450 East American Lane, 20th Floor, Schaumburg, Illinois 60173
(Address of principal executive office and zip code)
Registrant's telephone number, including area code: (847) 517-2510
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
Class Outstanding at November 14, 1996
- -------------------------- --------------------------------
Common Stock, $1 par value 7,648,981 shares
<PAGE> 2
INTERCARGO CORPORATION
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 1996
INDEX
<TABLE>
PAGE
PART I. FINANCIAL INFORMATION NUMBER
<S> <C> <C>
Item 1. Financial Statements
Consolidated Balance Sheets at September 30, 1996
(unaudited) and December 31, 1995 3
Consolidated Statements of Income for the three month
and nine month periods ended September 30, 1996 (unaudited)
and September 30, 1995 (unaudited) 4
Consolidated Statements of Stockholders' Equity
for the nine months ended September 30, 1996 (unaudited)
and September 30, 1995 (unaudited) 5
Consolidated Statements of Cash Flows for the nine
months ended September 30, 1996 (unaudited) and
September 30, 1995 (unaudited) 6
Notes to Consolidated Financial Statements (unaudited) 7
Summary Statements of Income of Kingsway Financial Services,
Inc. for the three month and nine month periods ended September 30, 1996
(unaudited) and September 30, 1995 (unaudited) 8
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Position 9
PART II. OTHER INFORMATION 12
SIGNATURES 13
EXHIBITS 14
</TABLE>
2
<PAGE> 3
INTERCARGO CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
------------- ------------
(unaudited)
<S> <C> <C>
ASSETS
Investments
Fixed maturities at fair value $ 48,798 $ 44,769
Equity securities at fair value 1,804 3,474
Investee at cost plus cumulative undistributed earnings 14,067 11,898
-------- --------
Total investments 64,669 60,141
Cash and cash equivalents 10,600 16,478
Premiums receivable 21,630 14,920
Accrued investment income 804 804
Deferred policy acquisition costs 4,643 4,898
Reinsurance recoverable on loss and loss expense:
Paid claims 3,354 1,192
Unpaid claims 3,504 2,964
Prepaid reinsurance premiums 2,921 2,089
Notes receivable 252 349
Income tax recoverable 385 1,092
Deferred income tax 1,625 822
Equipment, at cost less accumulated depreciation 2,419 1,738
Goodwill 2,303 2,468
Other assets 5,720 6,211
-------- --------
Total assets $124,829 $116,166
======== ========
LIABILITIES
Losses and loss adjustment expenses $ 38,103 $ 36,293
Unearned premiums 19,505 17,691
Funds held by Company 588 748
Supplemental duty deposits 2,372 2,669
Accrued expenses and other liabilities 9,581 5,409
Notes payable 9.735 9,735
-------- --------
Total liabilities 79,884 72,545
-------- --------
Commitments and Contingencies -- --
STOCKHOLDERS' EQUITY
Common stock--$1 par value; authorized 20,000,000 shares; issued and
outstanding, 7,648,981 shares in 1996 and 7,640,981 shares in 1995 7,649 7,641
Additional paid-in capital 24,136 24,104
Net unrealized loss on foreign currency translation (1,156) (1,179)
Net unrealized gain (loss) on available-for-sale securities (337) 567
Retained earnings 14,653 12,488
-------- --------
Total stockholders' equity 44,945 43,621
-------- --------
Total liabilities and stockholders' equity $124,829 $116,166
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE> 4
INTERCARGO CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
Three months ended September 30, Nine months ended September 30,
-------------------------------- -------------------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
REVENUES
Insurance premium income $13,365 $20,908 $44,696 $64,526
Net investment income 797 1,453 2,784 4,501
Commission income 133 95 519 336
Other income 39 647 134 1,033
------- ------- ------- -------
Total 14,334 23,103 48,133 70,396
LOSSES AND EXPENSES
Losses and loss adjustment expenses 7,062 11,936 23,114 35,143
Policy acquisition costs 4,342 4,989 13,039 14,958
Other underwriting expenses 3,106 3,783 10,001 11,315
Interest expense 161 291 503 705
------- ------- ------- -------
Total 14,671 20,999 46,657 62,121
------- ------- ------- -------
Operating income (337) 2,104 1,476 8,275
Income tax expense (199) 476 404 2,497
------- ------- ------- -------
Net income before equity in net income of investee (138) 1,628 1,072 5,778
Equity in net income of investee 809 - 2,469 -
------- ------- ------- -------
NET INCOME $ 671 $ 1,628 $ 3,541 $ 5,778
======= ======= ======= =======
Average number of shares of common stock
outstanding 7,658 7,673 7,658 7,666
Net income per share $ 0.09 $ 0.21 $ 0.46 $ 0.75
======= ======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE> 5
INTERCARGO CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Net
Unrealized
(Loss)
Additional On Foreign
Number of Common Paid-in Currency
Shares Stock Capital Translation
-----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at December 31, 1995 7,641 $7,641 $24,104 $(1,179)
Net Income -- -- -- --
Change in foreign currency translation -- -- -- 23
Change in unrealized gain (loss) on equity securities -- -- -- --
Stock Options Exercised 8 8 32 --
Dividends paid to stockholders -- -- -- --
------ ------ ------- --------
Balance at September 30, 1996 7,649 $7,649 $24,136 $(1,156)
====== ====== ======= ========
Balance at December 31, 1994 7,641 $7,641 $24,104 $(2,002)
Net income -- -- -- --
Change in foreign currency translation -- -- -- 642
Change in unrealized gain (loss) on marketable securities -- -- -- --
Dividends paid to stockholders -- -- -- --
------ ------ ------- --------
Balance at September 30, 1995 7,641 $7,641 $24,104 $(1,360)
====== ====== ======= ========
<CAPTION>
Net
Unrealized
Gain (Loss)
on Retained Stockholders'
Investments Earnings Equity
--------------------------------------------------
<S> <C> <C> <C>
Balance at December 31, 1995 $ 567 $12,488 $43,621
Net Income -- 3,541 3,541
Change in foreign currency translation -- -- 23
Change in unrealized gain (loss) on equity securities (904) -- (904)
Stock Options Exercised -- -- 40
Dividends paid to stockholders -- (1,376) (1,376)
------- ------- -------
Balance at September 30, 1996 $ (337) $14,653 $44,945
======= ======= =======
Balance at December 31, 1994 $(1,546) $11,724 $39,921
Net income -- 5,778 5,778
Change in foreign currency translation -- -- 642
Change in unrealized gain (loss) on marketable securities 1,415 -- 1,415
Dividends paid to stockholders -- (1,376) (1,376)
------- ------- -------
Balance at September 30, 1995 $ (131) $16,126 $46,380
======== ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE> 6
INTERCARGO CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
(unaudited)
<TABLE>
<CAPTION>
Nine months ended September 30,
-------------------------------------
1996 1995
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 3,541 $ 5,778
Adjustments to reconcile net income to net cash provided from
operating activities:
Realized Gains (30) (140)
Depreciation and amortization 1,052 815
Amortization of premiums (discounts) on investments 73 (867)
Undistributed earnings of affiliate (2,469) -
Increase in premiums receivable (6,710) (5,764)
Increase in deferred policy acquisition costs 255 (1,694)
Increase in reinsurance recoverables (3,533) (762)
Change in income tax accounts 707 (156)
Increase in liability for losses and loss
adjustment expenses 1,810 7,537
Increase in unearned premiums 1,814 6,086
Increase (decrease) in funds held (160) 311
Decrease in supplemental duty deposits (297) (383)
Increase (decrease) in accrued expenses and other liabilities 4,173 (2,172)
Other, net 135 (1,891)
-------- -------
Net cash provided from (used in) operating activities 361 6,698
CASH FLOWS FROM INVESTING ACTIVITIES:
Fixed maturities:
Purchases (21,983) (15,640)
Sales 12,730 8,693
Maturities and calls 3,443 5,779
Equity securities:
Purchases (100) (2,179)
Sales 1,745 4,776
Net sales (purchases) of short-term investments 510 (1,371)
Sale of Kingsway common stock 412 -
Purchase of property and equipment, net (1,660) (1,463)
-------- -------
Net cash used in investing activities (4,903) (1,405)
CASH FLOWS USED IN FINANCING ACTIVITIES:
Proceeds from notes payable - 1,099
Proceeds from exercise of stock options 40 -
Dividends paid to stockholders (1,376) (1,375)
-------- -------
Net cash used in financing activities (1,336) (276)
-------- -------
Net increase (decrease) in cash and cash equivalents (5,878) 5,017
Cash and cash equivalents:
Beginning of the period 16,478 19,011
-------- -------
End of the period $ 10,600 $24,028
======== =======
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE> 7
INTERCARGO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. Basis of Presentation
The consolidated financial statements of the Company have been prepared
pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and note disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. The Company believes
that the accompanying consolidated financial statements contain all
adjustments (consisting of normal recurring accruals) necessary to present
fairly the Company's consolidated financial position as of September 30,
1996, and December 31, 1995, and the consolidated results of operations and
the consolidated cash flows for the nine month periods ended September 30,
1996, and 1995.
Beginning in December 1995, the Company sold 660,000 shares of Kingsway
Financial Services Inc. stock to raise capital for planned expansion. As a
result, Kingsway is no longer a majority owned subsidiary and is accounted
for using the equity method. Accordingly, its results of operations and
financial position are not consolidated with Intercargo at September 30,
1996. Amounts at September 30, 1995 have not been restated and include
Kingsway on a consolidated basis.
The results of operations for the nine month period ended September 30,
1996 are not necessarily indicative of the results to be expected for the
full year.
These consolidated unaudited interim financial statements should be read in
conjunction with the financial statements and notes thereto contained in
the December 31, 1995 Form 10-K filed by the Company.
2. Earnings per Share
Earnings per share are computed based on the weighted average number of
shares outstanding which includes common stock equivalents (if dilutive)
relating to outstanding options.
The Company's common stock at September 30, 1996 consists of approximately
7.7 million shares outstanding $1.00 par value per share. The Company also
has outstanding stock options to purchase in the aggregate 174 thousand
shares of common stock.
3. Long Term Debt
The Company's bank line of credit has been increased from $10 million at
December 31, 1995 to $15 million at September 30, 1996 in conjunction with
changing to a LIBOR based interest rate structure. The amount outstanding
under the bank line of credit was approximately $9.7 million at September
30, 1996 and December 31, 1995.
7
<PAGE> 8
Kingsway Financial Services, Inc.
Summary Statements of Income
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Three months ended September 30, Nine months ended September 30,
---------------------------------- ----------------------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
REVENUES:
Net premiums earned $22,654 $8,544 $54,158 $24,230
Other revenues 1,665 1,155 4,309 2,739
------- ------ ------- -------
Total revenues 24,319 9,699 58,467 26,969
EXPENSES:
Claims incurred 14,650 5,863 34,316 16,098
Other expenses 6,439 2,827 15,838 7,499
------- ------ ------- -------
Total expenses 21,089 8,690 50,154 23,597
Income before income taxes 3,230 1,009 8,313 3,372
Income taxes 1,433 454 2,995 1,513
------- ------ ------- -------
NET INCOME $1,797 $ 555 $ 5,318 $1,859
======= ====== ======= =======
</TABLE>
8
<PAGE> 9
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
FINANCIAL CONDITION
Total assets of the Company increased to $124.8 million at September 30, 1996
from $116.1 million at December 31, 1995. Total investments increased to $64.7
million from $60.1 million. Stockholders' equity increased to $44.9 million at
September 30, 1996 from $43.6 million at December 31, 1995. This increase was
the result of net income of $3.5 million, less unrealized market value changes
in investments and dividends paid. On September 16 a dividend of $.09 per share
was paid, totaling $688,408. On March 15 another dividend of $.09 was paid
totaling $687,688.
Cash flow from operating activities for the nine months ended September 30, 1996
was $361,000, as compared to $6,698,000 for the comparable period in 1995. The
company has in place a bank line of credit for up to $15 million to supplement
existing working capital. Currently, $9.7 million of this line is being
utilized.
RESULTS OF OPERATIONS
In December 1995, Kingsway Financial Services, Inc. undertook an initial public
offering on the Toronto Stock Exchange to raise capital for planned growth.
Intercargo participated in the offering by selling 660,000 shares to fund
expansion of its U.S. operations and entry into Hong Kong. As a result,
Kingsway is no longer a majority owned subsidiary and is accounted for using the
equity method. Accordingly, its results of operations and financial position
are not consolidated at September 30, 1996. Amounts at September 30, 1995 have
not been restated and include Kingsway on a consolidated basis. However, the
following discussion compares the revenues and expenses of the Company exclusive
of Kingsway, except as specifically noted.
Earned premium for the first nine months of 1996 increased approximately $4.5
million or 11% over the comparable period of 1995 excluding $24.2 million of
Kingsway premiums. Earned premium for the current quarter increased
approximately $1 million or 8% over the third quarter of 1995 after excluding
$8.5 million of Kingsway premiums. Included in the current quarter's earned
premium is a reduction of $1.4 million as a result of retrospective reinsurance
premiums.
Net investment income for the nine months ended September 30, 1996 was
$2,784,000. Excluding investment income of Kingsway for the first nine months
of 1995, this is an increase of $217,000 or 8.5% over the comparable period in
1995. Net investment income for the current quarter of $797,000 was a decrease
of $44,000 or 5% as compared to the third quarter of 1995 after excluding
Kingsway.
Excluding other income of Kingsway of $834,000 in the first nine months of
`1995, other income of $134,000 in the first nine months is down approximately
$65,000 in 1996 from the comparable 1995 period. Excluding other income of
Kingsway of $543,000 for the third quarter of 1995, other income of $39,000 in
the current quarter is also down approximately $65,000.
Losses and loss adjustment expenses for the first nine months of 1996 were
approximately $4.1 million or 21.3% higher than the first nine months of 1995
after excluding the 1995 results of Kingsway. For the current quarter, such
costs are $990,000 or 16.2% higher than the third quarter of 1995 excluding the
results of Kingsway. During the current quarter professional liability reserves
were strengthened by $350,000 to recognize the development of prior years at
levels exceeding expectations. As reported in the second quarter,
9
<PAGE> 10
marine reserves were strengthened by $1.0 million for similar reasons. The
remainder of the increase is due to premium volume increases as well as the use
of more conservative reserve development factors over all lines of business.
Policy acquisitions costs for the first nine months of 1996 increased
approximately $2.6 million or 25% over the same period of 1995 after excluding
$4.5 million of such costs attributable to Kingsway. During the current quarter
policy acquisition costs increased approximately $1.1 million or 33% over the
third quarter of 1995 excluding Kingsway. The increase is due in part to the
increase in premium volume and to a lower rate of deferral as a consequence of
using more conservative reserve development factors.
Other underwriting expenses for the first nine months of 1996 increased about
$1.5 million or 18% as compared to the same period of 1995 after excluding $2.9
million of such expenses attributable to Kingsway. For the current three months
these costs increased about $394,000 or 14% as compared to the same period of
1995 after excluding approximately $1.1 million of expenses attributable to
Kingsway. Approximately $750,000 of the year-to-date increase and $151,000 of
the current quarter's increase is due to the expanding operations in Hong Kong.
The remaining increase is due primarily to increased premium volume.
During the first nine months of 1996 the equity in net income of investee
was $2.5 million which is the result of the investment in Kingsway.
During the first nine months of 1995 the effect of Kingsway's operations
on net income was a gain of approximately $1.9 million after income taxes.
During the third quarter of 1996 the equity in net income of investee was
about $800,000. For the third quarter of 1995 the effect of Kingsway's
operations on net income was a gain of $555,000 after income taxes.
10
<PAGE> 11
RESULTS BY LINE
The following table illustrates the premium earned (dollars in thousands) for
each major line of business for the nine month periods ended September 30, 1996
and 1995. It also sets forth the percentage of total premium for each period
as well as the combined ratios by line and in the aggregate for the Company.
U.S. AND U.K. OPERATIONS
<TABLE>
<CAPTION>
BOND MARINE
--------------------- ----------------------
Earned Combined Earned Combined
Premium Ratio Premium Ratio
------- -------- ------- --------
<S> <C> <C> <C> <C>
Nine months ended
September 30,
1996 $19,708 79.5 $19,422 113.9
1995 18,384 84.5 14,887 105.0
Year ended December 31,
1995 $24,700 83.5 $20,808 124.7
1994 23,019 80.4 14,996 114.2
1993 19,739 104.4 12,154 90.8
1992 17,720 102.3 10,773 80.9
1991 15,415 92.2 8,062 92.2
- ----------------------- ------- -------- ------- ------
<CAPTION>
OTHER
E&O PROPERTY & CASUALTY
--------------------- ----------------------
Earned Combined Earned Combined
Premium Ratio Premium Ratio
------- -------- ------- --------
<S> <C> <C> <C> <C>
Nine months ended
September 30,
1996 (1)$1,505 (1)177.7 $4,009 141.4
1995 2,956 88.6 4,069 113.0
Year ended December 31,
1995 $3,069 160.3 $5,498 146.8
1994 2,377 195.4 3,362 106.3
1993 1,681 169.8 772 141.5
1992 2,090 126.8 566 163.7
1991 2,284 161.2 117 44.4
- ----------------------- ------ ----- ------- --------
<CAPTION>
TOTAL
---------------------
Earned Combined
Premium Ratio
------- --------
<S> <C> <C>
Nine months ended
September 30,
1996 $44,645 103.3
1995 40,296 95.3
Year ended December 31,
1995 $54,075 110.2
1994 43,754 100.2
1993 34,346 103.6
1992 31,149 97.7
1991 25,878 98.1
- ----------------------- ------- --------
</TABLE>
Net earned premium on the Company's U.S. and U.K. operations for the first nine
months of 1996 has increased $4.4 million or 10.9% over the comparable period in
1995. Hong Kong operations began in 1996 and to date the premium earned is only
$50,000. The Marine line has grown $4.5 million or 31% in the first nine months
of 1996 versus 1995. Bond earned premiums grew $1.3 million or 7.2%. Property
and casualty remained flat. Professional liability premiums declined $1.4
million due primarily to retrospective reinsurance premium adjustments during
the third quarter of 1996.
The combined ratios for most lines increased during the first nine months of
1996 versus the comparable period in 1995. The combined ratio increases are due
primarily to the use of more conservative loss reserving assumptions and to
limitations on the deferral of certain acquisition costs. The Marine line nine
month results include a reserve strengthening in the second quarter of $1
million. The E&O line includes a reserve strengthening of $350,000 during the
third quarter.
- ---------------------
(1) Includes retrospective reinsurance premium ceded of $1.4 million. These
premiums apply to coverages in prior periods. Excluding this would result in
E&O premium of $2,875,000 and a combined ratio for E&O of 103.9 for the nine
months ended September 30, 1996. The total combined ratio giving effect to this
would have been 100.3.
11
<PAGE> 12
PART II - OTHER INFORMATION
Item 1. Legal Proceedings - There have been no material developments in the
legal proceedings addressed in the Company's Form 10-K or new legal
proceedings during the fiscal quarter covered by this report on
Form 10-Q.
Item 2. Changes in Securities - Not Applicable.
Item 3. Defaults Upon Senior Securities - Not Applicable.
Item 4. Submission of Matters to a Vote of Security Holders
The Company's Annual Meeting of Stockholders was held on May 17,
1996. Further information was included in the report Form 10Q dated
August 12, 1996 and is incorporated herein by reference.
Item 5. Other Information
Other information as reported in Form 10Q dated August 12, 1995 is
incorporated herein by reference.
Item 6(a) Exhibits - See Exhibit Index immediately following the signature
page.
Item 6(b) Reports on Form 8-K - Not Applicable.
12
<PAGE> 13
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: November 13, 1996
(Registrant) INTERCARGO CORPORATION
By: /s/ James R. Zuhlke
--------------------------------------
James R. Zuhlke
Chairman of the Board
President and Chief Executive Officer
By: /s/ Michael L. Rybak
--------------------------------------
Michael L. Rybak
Vice President
Chief Financial Officer, Treasurer
13
<PAGE> 14
EXHIBIT INDEX
10.1 Employment Agreement dated August 12, 1996 between the Company and
Michael L. Rybak.
11.0 Computation of Earnings per share.
14
<PAGE> 1
EXHIBIT 10.1
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made and entered into as of the 12th day August, 1996,
by and between INTERCARGO CORPORATION, a Delaware corporation ("Intercargo"),
and MICHAEL L. RYBAK, an individual residing in the State of Illinois
("Employee"). Other capitalized terms shall have the respective meanings set
forth in Section 15 and elsewhere herein.
W I T N E S S E T H
WHEREAS, Intercargo wishes to employ Employee under the terms and
conditions as set forth herein; and
WHEREAS, the Employee is willing to accept such employment on the terms
and conditions set forth herein.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
hereinafter set forth, it is hereby agreed as follows:
1. Employment. Intercargo hereby employs the Employee, and the Employee
hereby accepts employment with Intercargo, on the terms and conditions set
forth in this Agreement.
2. Employment Period. The term of Employee's employment shall be for a one
year period and shall commence as of August 12, 1996 and shall continue on a
month to month basis thereafter, unless this Agreement is terminated pursuant
to Section 14 hereof.
3. Duties. Employee shall serve as the Chief Financial Officer of
Intercargo and will, under the direction of Intercargo's Board of Directors and
President, faithfully and to the best of his ability perform the duties of a
Chief Financial Officer as assigned and revised by Intercargo's Board of
Directors and President from time to time. The Employee agrees to devote his
entire working time, energy and skills to such employment during the Employment
Period, and shall not render any services of a business, commercial or
professional nature to any person or organization other than Intercargo or be
engaged in any other business activity, without the prior written consent of
Intercargo's Board of Directors and/or the President. All duties to be rendered
hereunder shall be performed at such place or places as the President and/or
Board of Directors of Intercargo shall in good faith require.
The Employee represents and warrants that he is not a party to or bound by
any agreement or contract or subject to any restrictions, particularly, but
without limitation, in
1
<PAGE> 2
connection with any previous employment, which prevents the Employee from
entering into and performing his obligations under this Agreement.
4. Compensation. During the Employment Period, the Employee shall be
compensated for his services as follows:
(a) Base Salary. The Employee shall receive an annual base salary for
the calendar year 1996 in the amount of One Hundred Twenty Thousand and
00/100 Dollars ($120,000.00), payable in accordance with Intercargo's
payroll schedule for all employees. If the Employment Period is extended
as provided for in Section 2, this base salary will be increased, on a pro
rata basis, beginning monthly at the beginning of each month commencing as
of August 12, 1996.
(b) Employee Benefits. The Employee shall be entitled to participate in
all employee benefit plans maintained by the Company, including but not
limited to, group hospitalization, medical and disability plans, if
applicable.
5. Employee Expenses. During the Employment Period, and following the
submission by Employee of the documentation necessary for deduction by
Intercargo on its Federal and State income tax returns of reasonable or
necessary expenditures incurred in the performance of Employee's duties
hereunder and the prior approval of such expenses by the President, Employee
shall be entitled to be reimbursed for such reasonable and necessary expenses,
including, but not limited to, expenses for entertainment, travel, meals, hotel
accommodations, professional seminars, and related use of the telephone.
6. Vacation. During the Employment Period, Employee shall be entitled to
vacations with pay in accordance with Intercargo's regular vacation policies
in effect from time to time.
7. No Competing Business. Employee hereby agrees that during the
Employment Period and for a period of two (2) years following termination of
the Employment Period, regardless of whether this Agreement is terminated for
Cause, or as a result of the natural termination of the Employment Period,
except as permitted by Section 10 of this Agreement, the Employee will not
directly or indirectly own, manage, operate, control, invest or acquire an
interest in, or otherwise engage or participate in (whether as a proprietor,
partner, stockholder, director, officer, employee, joint venture, investor,
sales representative or other participant in) any Competitive Business in
Intercargo's Market, without regard to (a) whether the Competitive Business has
its office or other business facilities within Intercargo's Market, (b) whether
any of the activities of the Employee referred to above itself occurs or is
performed within Intercargo's Market or (c) whether the Employee resides, or
reports to an office, within Intercargo's Market.
2
<PAGE> 3
8. No Interference with the Business.
(a) Business Relationships. Employee hereby agrees that during the
Employment Period, and for a period of two (2) years following the
expiration of the Employment Period, except as permitted by Section 10 of
this Agreement, Employee will not directly or indirectly solicit, induce or
influence any sales representative, supplier, lender, lessor or any other
person which has a business relationship with Intercargo, or which had on
the date of this Agreement a business relationship with Intercargo, to
discontinue, reduce the extent of, discourage the development of or
otherwise harm such relationship with Intercargo.
(b) Customers. Employee hereby agrees that during the Employment Period
and during the remaining term as extended pursuant to any extension options
of Intercargo of any contracts between Intercargo and any customers of
Intercargo, to the extent such contracts extend beyond the Employment
Period, that Employee will not directly or indirectly attempt to induce any
such customers to terminate such contracts or otherwise divert from
Intercargo any trade or business being conducted by such customers with
Intercargo pursuant to such contracts; and, during the Employment Period
and for two (2) years following the expiration thereof, Employee will not
directly or indirectly solicit from, or otherwise agree to provide any
services to any customer to which Intercargo has provided any services
during the two years next preceding the termination of the Employment
Period, or any party whose identity or potential as a customer was
confidential or learned by the Employee during the Employment Period.
(c) Employees. Employee hereby agrees that during the Employment Period
and for a period of two (2) years following the expiration of the
Employment Period, except as permitted by Section 10 of this Agreement,
Employee will not (i) directly or indirectly recruit, solicit or otherwise
induce or influence any employee or sales agent of Intercargo to
discontinue such sales, employment or agency relationship with Intercargo,
or (ii) employ, seek to employ or cause any Competitive Business to employ
or seek to employ as a sales representative or employee for any Competitive
Business in Intercargo's Market, any person who is then (or was at any time
within six months prior to the date the Employee or the Competitive
Business employs or seeks to employ such person) employed by Intercargo.
9. No Disclosure of Confidential Information. The Employee hereby agrees
that he will not knowingly, directly or indirectly, disclose to anyone, or use
or otherwise exploit for the Employee's own benefit or for the benefit of
anyone other than Intercargo, any Confidential Lnformation, except as permitted
by Section 10 of this Agreement.
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<PAGE> 4
10. Permitted Activities. The restrictions set forth in Sections 7, 8 and
9 of this Agreement shall not apply to Permitted Activities or to actions taken
by the Employee during the time the Employee may be employed by Intercargo to
the extent, but only to the extent, that such actions are (i) necessary in
connection with such employment, and (ii) expressly approved in writing by the
Board of Directors.
11. Inventions and Other Intellectual Property. Employee hereby agrees
that any design, invention or copyright materials made or created in the course
of his employment shall be the property of Intercargo. Employee further agrees
that at Intercargo's request and expense, he will execute any deeds or
documents necessary to transfer any such design, invention, copyright or
trademark materials to Intercargo and to cooperate with Intercargo or its
nominee in perfecting Intercargo's title (or the title of Intercargo's nominee)
in such materials. During the Employment Period, Employee shall keep Intercargo
informed of the development of all designs, inventions or copyright materials
made, conceived or reduced to practice by Employee, in whole or in part, alone
or with others, which either result from any work Employee may do for, or at
the request of Intercargo, or are related to Intercargo's present or
contemplated activities, investigations, or obligations.
12. Reduction of Restrictions by Court Action. If the length of time, type
of activity, geographic area or other restrictions set forth in the
restrictions of Sections 7, 8 or 9 are deemed unreasonable in any court
proceeding, the parties hereto agree that the court may reduce such
restrictions to ones it deems reasonable to protect the substantial investment
of Intercargo in its business and the goodwill attached thereto.
13. Remedies. Employee understands that Intercargo will not have an
adequate remedy at law for the material breach or threatened breach by Employee
of any one or more of the covenants set forth in this Agreement and agrees that
in the event of any such material breach or threatened breach, Intercargo may,
in addition to the other remedies which may be available to it:
(a) declare forfeited any monies otherwise payable to the Employee as of
the date of such breach under the terms of Section 4 of this Agreement, and
otherwise cease all payments and obligations under this Agreement; and/or
(b) file a suit in equity to enjoin Employee from the breach or
threatened breach of such covenants.
14. Termination. The Employment Period shall terminate upon the first to
occur of:
(a) the Employee's death,
(b) the Disability of Employee,
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(c) the termination of the Agreement by the President of
Intercargo for Cause,
(d) after the first anniversary hereof upon 30 days notice.
Termination of the Employment shall not relieve the Employee of his
obligations under Sections 7, 8 and 9 hereof, notwithstanding that Employee's
compensation and this Agreement shall otherwise terminate.
In the event of the termination of Employee's employment with the Employer
for the reasons outlined in Sections (a), (b) (c) or (d), the Employee shall
receive from the Employer all accrued but unpaid compensation due under Section
4 herein.
15. Definitions. As used in this Agreement, terms defined in the preamble
and recitals of this Agreement shall have the meanings set forth therein and
the following terms shall have the meanings set forth below:
"Board of Directors" shall mean the Board of Directors of Intercargo.
"Cause" shall include, without limitation, (i) the inability of the
Employee to perform his duties due to a legal impediment such as, without
limitation, the entry against the Employee of an injunction, restraining
order or other type of judicial judgment, decree or order which would
prevent or hinder the Employee from performing his duties; (ii) a breach
of any of the restrictions or covenants set forth in Sections 7, 8, 9, 11
and 12 hereof; (iii) the failure to follow Intercargo's reasonable
instructions with respect to the performance of the Employee's duties;
(iv) failure to comply with the normal and customary methods of operation
for Intercargo as reasonably determined by the President of Intercargo,
(v) excessive absenteeism, flagrant neglect of work, serious misconduct,
conviction of a felony, fraud, disclosure of any proprietary information
of Intercargo without the consent of Intercargo, or aiding a competitor of
Intercargo to the detriment of Intercargo.
"Competitive Business" shall mean any person or entity engaged in a
business similar to Intercargo's Line of Business.
"Confidential Information" shall mean trade secrets, customer and
supplier lists, marketing arrangements, business plans, projections,
financial information, training manuals, pricing manuals, product and
service development plans, market strategies, internal performance
statistics and other competitively sensitive information belonging to and
concerning Intercargo and which is material to Intercargo and not
generally known by or available to the public, whether or not in written
or tangible form, as the
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same may exist at any time during the Employment Period or during prior
periods in which Employee was employed by Intercargo.
"Control" shall mean, with respect to any person, the power to direct
the management and policies of such person, directly or indirectly,
whether through the ownership of voting securities, by contract or
otherwise.
"Disability" shall mean any illness, disability or incapacity of such a
character as to render Employee unable to perform his duties hereunder
(which determination shall be made by the Board of Directors) for a total
period of ninety (90) days, whether or not such days are consecutive,
during any consecutive twelve (12) month period.
"Employment Period" shall mean that period of time set forth in Section
2 of this Agreement.
"Intercargo's Line of Business" shall mean and include any products or
services manufactured, developed or distributed at any time during the
Employment Period by Intercargo. For purposes of this Agreement, such
business shall be deemed to be conducted with any person, institution,
association or entity to which sales or negotiations therefor (whether or
not sales resulted) have been made, products delivered or services
performed, or to or from which advertising, solicitation or other
communications have been directed or received during the previous three
years.
"Intercargo's Market" shall mean those states or countries in which
Intercargo is doing business at any time during the Employment Period.
"Permitted Activities" shall mean (i) owning not more than 5% of the
outstanding shares of any one or more publicly-held Competitive Business
which has shares listed for trading on a securities exchange registered
with the Securities and Exchange Commission or through the automated
quotation system of a registered securities association, (ii) owning
capital stock of Intercargo, and (iii) serving as an officer, director or
employee of Intercargo.
16. Notices. All notices, demands or other communications required or
provided hereunder shall be in writing and shall be deemed to have been given
and received when delivered in person or transmitted by facsimile transmission
(telecopy), cable, or telex to the respective parties, or seven (7) days after
dispatch by registered or certified mail, postage prepaid, addressed to the
parties at the addresses set forth below or at such other addresses as such
parties may designate by notice to the other parties:
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If to Intercargo: Intercargo Corporation
Attn: James R. Zuhlke
1450 East American Lane
20th Floor
Schaumburg, lL 60173
with a copy to: Michael Sklar
Rudnick & Wolfe
203 North LaSalle Street
Suite 1800
Chicago, lL 60601-1293
If to Employee: Michael Rybak
c/o Intercargo Corporation
1450 East American Lane
20th Floor
Schaumburg, IL 60173
17. Assignment. Neither party to this Agreement may assign or delegate any
of its rights or obligations hereunder without first obtaining the written
consent of the other party. However, this Agreement shall be binding upon and
inure to the benefit of any successor of Intercargo and any such successor
shall be deemed substituted for Intercargo under the terms of this Agreement.
As used in this Agreement, the term "successor" shall include any person,
persons, firm, partnership, corporation, or company which at any time, whether
by merger, purchase, or otherwise, acquires all or substantially all of the
assets or business of Intercargo and assumes Intercargo's obligations
hereunder.
18. Amendment and Modification. No amendment or modification of the terms
of this Agreement shall be binding upon either party unless reduced to writing
and signed by Employee and a duly appointed officer of Intercargo.
19. Governing Law. The provisions of this Agreement shall be construed in
accordance with the internal laws and not the choice of laws provisions of the
State of Illinois.
20. Counterparts. This Agreement may be executed in two or more
counterparts, any one of which shall be deemed the original without reference
to the others.
21. Severability. In the event that any provision or portion of this
Agreement shall be determined to be invalid or unenforceable for any reason,
the remaining provisions and portions of this Agreement shall be unaffected
thereby and shall remain in full force and effect to the fullest extent
permitted by law.
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22. Waiver. The failure of either party to insist, in any one or more
instances, upon performance of the terms or conditions of this Agreement shall
not be construed as a waiver or relinquishment of any right granted hereunder
or of the future performance of any such term, covenant or condition.
23. Headings. Headings of the paragraphs in this Agreement are for
reference purposes only and shall not be deemed to have any substantive effect.
IN WITNESS WHEREOF, the parties hereto have executed this Employment
Agreement as of the day and year first above written.
Michael L. Rybak
---------------------------------
Michael L. Rybak
INTERCARGO CORPORATION
By:
------------------------------
Its: President
-----------------------------
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RIDER TO EMPLOYEMENT AGREEMENT
THIS RIDER is made this 12th day of August, 1996 by and between Intercargo
Corporation ("Employer") and Michael L. Rybak ("Employee").
RECITALS
A. The Employer and Employee entered into an employment agreement dated
August 12, 1996 relative to the Employee's employment at Intercargo
Corporation.
B. The Employer and Employee wish to amend the terms of the Employment
Agreement pursuant to the terms of this Rider as follows:
1. It is agreed that Michael Rybak shall start with three weeks vacation
and enter the vacation entitlement schedule as if he were a five
year employee.
All other terms of the Employment Agreement shall remain the same. Where the
terms of this Rider conflict with the terms of the Employment Agreement, this
Rider shall govern.
Michael L. Rybak
----------------------------
Michael L. Rybak
INTERCARGO CORPORATION
By:
-------------------------
Its: President
------------------------
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<PAGE> 1
EXHIBIT 11.0
INTERCARGO CORPORATION AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER COMMON SHARE
(in thousands, except for per share data)
<TABLE>
<CAPTION>
For the nine months
ended September 30,
1996 1995
---------- ----------
<S> <C> <C>
Primary
Net income $3,541 $5,778
====== ======
Shares
Weighted average number of common shares outstanding 7,649 7,641
Additional dilutive effect of outstanding warrant and options
(as determined by the application of the treasury stock method) 9 25
------ ------
Weighted average number of common shares outstanding as adjusted 7,658 7,666
====== ======
Primary earnings per share $ 0.46 $ 0.75
====== ======
Fully diluted
Net income $3,541 $5,778
====== ======
Shares
Weighted average number of common shares outstanding 7,649 7,641
Additional dilutive effect of outstanding warrant and options
(as determined by the application of the treasury stock method) 9 38
------ ------
Weighted average number of common shares outstanding as adjusted 7,658 7,679
====== ======
Fully diluted earnings per share $ 0.46 $ 0.75
====== ======
</TABLE>
