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 Section 240.14a-11(c) or Section 240.14a-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] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(I)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(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
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[ ] 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:
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<PAGE>
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 15, 1998
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
15, 1998 at 10:00 a.m. Chicago Time, for the purpose of considering and acting
upon the following matters:
1. To elect two Class 2 directors;
2. To ratify the selection of Ernst & Young LLP as auditors for fiscal
1998;
3. To transact such other business as may properly come before the
meeting.
Stockholders of record at the close of business on March 27, 1997 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 1997 is being mailed to all
stockholders of record.
BY ORDER OF THE BOARD OF DIRECTORS.
/s/ Michael L. Rybak
- --------------------
Michael L. Rybak
Secretary
April 20, 1998
Intercargo Corporation
1450 East American Lane
20th Floor
Schaumburg, IL 60173
<PAGE>
PROXY STATEMENT
INTERCARGO CORPORATION
1450 EAST AMERICAN LANE
20TH FLOOR
SCHAUMBURG, ILLINOIS 60173
(847) 517-2990
ANNUAL MEETING OF STOCKHOLDERS
MAY 15, 1998
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 15, 1998 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 20, 1998.
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), FOR the ratification of Ernst & Young LLP as auditors for
fiscal 1998, 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 stock issued and outstanding: common
stock, $1.00 par value per share ("Common Stock"). Stockholders of record as
of the close of business on March 27, 1998 are entitled to notice of and to
vote at the meeting. As of March 27, 1998, there were 7,699,981 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 ratification of selection of the auditors and for approval on any
other matters that may properly come before the meeting. A broker non-vote on
a matter is counted as not present and not entitled to vote on the particular
matter, and therefore, 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>
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 1997 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 March 27, 1998; 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) 1,899,223 24.67%
600 Fifth Avenue
New York, New York 10020
Royce & Associates, Inc. (3) 498,800 6.49%
1414 Avenue of the Americas
New York, New York 10019
Fenimore Asset Management, Inc. (4) 498,150 6.47%
118 North Grand Street
Post Office Box 310
Cobleskill, New York 12043
Stanley A. Galanski (5) 500 *
Arthur J. Fritz, Jr. (5)(6) 250,000 3.25%
Kenneth A. Bodenstein (5)(7) 20,000 *
Arthur L. Litman (5) 42,666 *
Albert J. Gallegos (5)(8) 2,900 *
Robert S. Kielbas (5)(9) 57,582 *
Robert B. Sanborn (2)(5) 1,899,223 24.67%
Michael L. Sklar (5) 3,000 *
George Weise (5) 0 *
Michael Rybak (5) 0 *
James R. Zuhlke (5) 136,649 17.75%
Gary Bhojwani (5) 0 *
All Directors and Executive Officers
as a group (10) (10 persons) 2,412,520 31.30%
</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 27, 1998, the total number of the Company's
outstanding shares was 7,699,981.
2
<PAGE>
(2) As reported in Orion Capital Corporation's Schedule 13D, as amended
through August 14, 1997. These shares are held by Security Insurance
Company of Hartford, a Connecticut corporation, wholly-owned by Orion
Capital Corporation. These shares are deemed to be beneficially owned
by Robert B. 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 Royce & Associates, Inc. Schedule 13G dated February 5,
1998
(4) As reported in Fenimore Asset Management Inc.'s Schedule 13G dated
February 17, 1998.
(5) Messrs. Galanski, Kielbas, Rybak, Gallegos, Litman, Bodenstein, Fritz,
Sklar, Sanborn and Weise are directors and/or executive officers of
the Company. See "Election of Directors" and "Executive Officers."
Mr. Zuhlke was Chief Executive Officer and a Director of the Company
until August 8, 1997 and Mr. Bhojwani was President of International
Advisory Services, Inc. until January 5, 1998.
(6) Includes 12,000 shares held by a family limited partnership in which
Mr. Fritz is one of the general partners.
(7) Includes 6,000 shares held by a charitable foundation as to which
Mr. Bodenstein exercises voting power.
(8) Held in the name of Mr. Gallegos' wife.
(9) Includes 74 shares of Common Stock held in Mr. Kielbas' wife's name
and options to purchase 8,875 shares of Common Stock exercisable
within 60 days.
(10) See footnote (1) and footnotes (6) - (9) above.
3
<PAGE>
ELECTION OF DIRECTORS
The following table lists all nominees and continuing directors of the
Company. At the Annual Meeting, two Class 2 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 Michael L. Sklar and George J. Weise. 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
either 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 nominee 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.
POSITION WITH COMPANY, BUSINESS
NAME AGE EXPERIENCE AND OTHER DIRECTORSHIPS
- ---- --- ----------------------------------
NOMINEES FOR ELECTION
CLASS 2 (TERM EXPIRES IN 1998):
George J. Weise 49 Mr. Weise was elected by the Board of
Directors in October 1997 to fill a
vacancy. Mr. Weise has been a partner in
the firm of Washington Counsel, P.C. since
August 1997. From 1993 through August 2,
1997, Mr. Weise was a U.S. Customs
Commissioner.
Michael L. Sklar 59 Director of the Company since May 1995.
Mr. Sklar has practiced law in Chicago,
Illinois for more than 25 years. Mr.
Sklar is currently, and since 1996 has
been, a partner of the law firm of Rudnick
& Wolfe. From 1989 through March 1996,
Mr. Sklar was a partner in the law firm of
Keck, Mahin & Cate. In 1997, Rudnick &
Wolfe served as principal outside legal
counsel to the Company.
4
<PAGE>
CONTINUING MEMBERS
CLASS 3 (TERM EXPIRES IN 1999):
Robert B. Sanborn 69 Director of Company since February 1994.
Mr. Sanborn is, and since 1994 has been,
Senior Executive Consultant to Orion
Capital Corporation ("Orion"), a property
and casualty insurance company. From 1987
through 1994, Mr. Sanborn served as the
President and Chief Operating Officer of
Orion. Mr. Sanborn is also a director of
Orion, Guaranty National Corporation,
Nobel Insurance Limited, and HOG Lloyd's
Investment Trust, and is a member of many
professional associations within the
insurance industry.
Arthur J. Fritz, Jr. 57 Director of the Company since December
1985. 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 54 Director of the Company since December
1985. Mr. Litman is currently Vice
President for Regulatory Affairs and
Compliance Services for Tower Group
International, Inc. ("Tower Group"), a
position he has held since March 1996.
From 1991 to March 1996 Mr. Litman was
Vice President for the Western Region for
Tower Group. Mr. Litman is a past
President and senior counselor for the
board of the National Customs Brokers &
Forwarders Association of America.
CLASS 1 (TERM EXPIRES IN 2000):
Albert J. Gallegos 56 Director of the Company since January
1988. Since 1986, Mr. Gallegos has been an
independent consultant to the insurance
industry.
5
<PAGE>
Kenneth A. Bodenstein 61 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.
Stanley A. Galanski 39 Mr. Galanski was elected President and
Chief Executive Officer and appointed a
director of the Company on July 7, 1998 to
fill a vacancy. From February 1995 to
June 1997, Mr. Galanski was President of
New Hampshire Insurance Company, a
property and casualty insurer. From July
1980 to January 1995 Mr. Galanski served
in various capacities with the Chubb Group
of Insurance Companies.
6
<PAGE>
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
1997, the Board met 4 times, and on 2 occasions there were unanimous consents
to action. 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 Executive Committee, Audit Committee,
Compensation and Stock Option Committee and Investment Committee.
The Executive Committee was formed in December 1996, to review and
monitor ongoing activity as deemed appropriate between quarterly meetings of
the Board of Directors. The Executive Committee reports directly to the Board
and is comprised of Mr. Galanski and three non-employee directors, Messrs.
Sanborn, Fritz and Sklar. There were five meetings of the Executive Committee
in 1997.
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 auditors: (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 four non-employee directors, Messrs. Sklar, Litman,
Sanborn and Fritz. The Audit Committee met three times during 1997.
The Compensation and Stock Option Committee reviews recommendations
regarding overall salaries and compensation of Company officers and certain
key employees and is responsible for awarding stock options to those officers
and key employees under, and administering, 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 four non-employee directors, Messrs. Litman, Bodenstein, Sanborn
and Gallegos. The Compensation and Stock Option Committee met two times
during 1997.
The Investment Committee develops investment policies for the Company
and reviews performance of the investment portfolio and management thereof.
The Investment Committee reports directly to the Board and is comprised of the
Mr. Galanski and four non-employee directors, Messrs. Gallegos, Sklar,
Bodenstein and Fritz. The Investment Committee met once during 1997.
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
7
<PAGE>
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>
DIRECTORS' COMPENSATION
The Company pays directors fees in the amount of $2,000 per meeting of
the Board and $750 for any committee meeting other than the Executive
committee, for which fees are $1,250 per meeting. During 1997, all committee
meetings were held in conjunction with Board meetings, except those of the
Executive Committee.
Each director who is not an employee of the Company is entitled to
receive annually non-qualified options to purchase 1,000 shares of Common
Stock on the date of the Board meeting first following the date of the Annual
Meeting of Stockholders. The exercise price of such options is the fair
market value of a share of Common Stock on the date of grant of the option.
Options granted under this program vest in four equal annual installments
beginning the third anniversary of the date of grant. On August 7, 1997 each
of Messrs. Sanborn, Fritz, Litman, Gallegos, Bodenstein and Sklar were granted
options under this program.
EXECUTIVE OFFICERS
The following table lists all current non-director executive officers
of the Company. Executive Officers are elected to serve until their successors
are duly elected and qualified.
POSITION WITH COMPANY, BUSINESS
NAME AGE EXPERIENCE AND OTHER DIRECTORSHIPS
- ---- --- ----------------------------------
Robert S. Kielbas 47 Mr. Kielbas is currently the President of
the Company's International Advisory
Services, Inc. subsidiary. From April 1,
1996 to September 1, 1997 Mr. Kielbas was
the Chief Executive Officer of the
company's Hong King 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. 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.
Robert M. Lynyak 55 Mr. Lynyak was appointed Senior Vice
President of the Company on February 9,
1998. For over thirty three years prior
to joining the Company, he served in
various capacities at the Chubb Group of
Insurance Companies, most recently as
Deputy Chief Underwriting Officer and
Managing Director of Chubb & Son, Inc.
Michael L. Rybak 45 Mr. Rybak has served as Chief Financial
Officer, Secretary and Treasurer of the
Company since August, 1996. From 1987 to
1996 Mr. Rybak was the Vice President,
Chief Financial Officer of United Chambers
Administrators.
9
<PAGE>
EXECUTIVE COMPENSATION
The Summary Compensation Table below includes, for each of the fiscal years
ended December 31, 1997, 1996 and 1995, individual compensation for services
to the Company and its subsidiaries paid to: (i) the Chief Executive Officer;
and (ii) the other former and continuing executive officers of the Company
(the "1997 Named Executives"). No other executive officer of the Company
received annual compensation in excess of $100,000 in fiscal 1996.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
--------------------------
LONG TERM
COMPENSATION ALL OTHER
ANNUAL COMPENSATION AWARDS COMPENSATION
- ----------------------------------------------------------------------------------------------------------------------------
SECURITIES
UNDERLYING
NAME & PRINCIPAL POSITION YEAR SALARY (1) BONUS (1) OTHER OPTIONS/SARS
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
STANLEY A. GALANSKI (4) 1997 $147,340 (4) - (2) 20,000 -
Chief Executive Officer and
President
- ----------------------------------------------------------------------------------------------------------------------------
JAMES R. ZUHLKE 1997 $303,797 $ 31,500 $ 12,000 (2) 0 $69,384 (3)
Former Chief Executive Officer 1996 $300,000 $ 31,500 $ 12,000 (2) 0 $10,000 (3)
1995 $270,000 0 $ 12,000 (2) 10,000 $17,518 (8)
- ----------------------------------------------------------------------------------------------------------------------------
ROBERT S. KIELBAS 1997 $233,173 0 (2) 0 $74,755 (5)(6)
Senior Vice President 1996 $202,000 $ 64,620 (2)(5) 0 $ 1,394 (6)
International Business 1995 $185,000 $106,086 (2)(6) 5,000 $ 1,300 (6)
Development of the Company and
Vice President-Marine of
Intercargo Insurance Company
- ----------------------------------------------------------------------------------------------------------------------------
GARY J. BHOJWANI 1997 $200,000 $156,250 0 $ 1,673 (8)
Former President of IAS 1996 $200,000 $ 50,071 (9) (2) 0 $ 1,538 (8)
1995 $134,615 $ 64,241 (2) 25,000 (7) $ 1,601 (8)
- ----------------------------------------------------------------------------------------------------------------------------
MICHAEL RYBAK 1997 $120,000 $ 3,100 (2) 4,000 $10,961 (10)
Vice President, Chief Financial 1996 $ 47,630 (2)
Officer, Treasurer & Secretary
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
10
<PAGE>
(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 1997,
1996 and 1995. 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 of: $ 8,000 in 1997,
$10,000 in 1996 and $8,000 in 1995; committee fees paid by the Company
to Mr. Zuhlke of $0.00 in 1997, $0.00 in 1996 and $760 in 1995; and
director's fees paid to Mr. Zuhlke by Kingsway Financial Services,
Inc. of: $9,807 in 1997, $11,680 in 1996 and $8,758 in 1995; insurnace
premiums of $3,410 and $48,167 of airline passes in 1997.
(4) Mr. Galanski was elected President and Chief Executive Officer of the
Company in July, 1997. The 1997 salary listed above is the amount of
a $260,000 annual salary payable to Mr. Galanski under his Employment
Agreement actually paid in 1997.
(5) Amounts show for 1997 and 1996 include $61,968 and $55,620,
respectively, paid to Mr. Kielbas for cost of living and tax
equalization adjustment in connection with his overseas posting to the
Company's Hong Kong operations and a cash car allowance of $9,000 and
$9,000, respectively. 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.
(6) Amounts shown represent the Company's matching contribution for Mr.
Kielbas to the Company's 401(K) Savings Plan in the amount of $1,669
in 1997, $1,394 in 1996 and $1,300 in 1995 and officers life insurance
premium of $2,118 in 1997.
(7) 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.
(8) Amount shown represents the Company's matching contribution for Mr.
Bhojwani to the Company's 401(k) Savings Plan in the amount of $1,673
in 1997, $1,538 in 1996 and $1,601 in 1995.
(9) Amount shown represents bonus related to 1995 performance and paid in
1996.
(10) Amount shown represents Kingsway directors fees paid to Mr. Rybak of
$9,807 in 1997 and $1,154 in matching contribution for the Company's
401(k) Savings Plan.
11
<PAGE>
STOCK OPTIONS
OPTION GRANTS IN FISCAL YEAR 1997
The following table sets forth information with respect to stock
options granted during the fiscal year ended December 31, 1997 held by the
1997 Named Executives.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
- ------------------------------------------------------------------------------------------------------------------------
NO. OF POTENTIAL REALIZABLE $ VALUE
SECURITIES % OF TOTAL ASSUMING ANNUAL RATES OF
UNDERLYING OPTIONS EXERCISE EXPIRATION STOCK PRICE
NAME GRANT GRANTED PRICE$/SH DATE APPRECIATION FOR OPTION TERM
- ------------------------------------------------------------------------------------------------------------------------
5% 10%
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Mr. Stanley A. Galanski 20,000 45.0% 11.625 07/07/04 94,650 220,576
- ------------------------------------------------------------------------------------------------------------------------
Mr. Robert Kielbas 0
- ------------------------------------------------------------------------------------------------------------------------
Mr. Michael Rybak 4,000 9.0% 9.125 02/25/04 14,859 34,628
- ------------------------------------------------------------------------------------------------------------------------
Mr. James Zuhlke 0
- ------------------------------------------------------------------------------------------------------------------------
Mr. Gary Bhojwani 0
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
Shown below is information for the 1997 Named Executives with respect
to options and SARs exercised during fiscal year 1997 and unexercised options
to purchase the Company's Common Stock and SARs held at December 31, 1997.
<TABLE>
<CAPTION>
AGGREGATED OPTION/SAR EXERCISES IN FISCAL YEAR 1997
AND FISCAL YEAR END OPTION/SAR VALUES
-------------------------------------
NUMBER OF SECURITIES VALUE OF UNEXERCISED
SHARES UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS/SARS
ACQUIRED ON VALUE OPTIONS/SARS AT 12/31/97 AT 12/31/97 (1)
NAME EXERCISE (#) REALIZED ($) EXERCISABLE/UNEXERCISABLE (#) EXERCISABLE/UNEXERCISABLE ($)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Mr. Galanski - - 0/20,000 -/32,500
- -------------------------------------------------------------------------------------------------------------------
Mr. Rybak - - 0/4,000 -/16,500
- -------------------------------------------------------------------------------------------------------------------
Mr. Zuhlke 40,000 $300,000 0/0 -/-
- -------------------------------------------------------------------------------------------------------------------
Mr. Kielbas - - 9,875/4,625 -/-
- -------------------------------------------------------------------------------------------------------------------
Mr. Bhojwani - - 0/5,000 -/-
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Based on the closing sale price of $13.25 as quoted on the NASDAQ
National Market on December 31, 1997.
12
<PAGE>
EMPLOYMENT CONTRACTS
On July 7, 1997 the Company entered into an employment agreement with
its President and Chief Executive Officer, Stanley A. Galanski. This
employment agreement was for a one year period and continues on a bi-weekly
basis thereafter unless otherwise terminated due to Mr. Galanski's death or
disability or by the Company for "cause", as defined in the employment
agreement. If the employment agreement is terminated other than for cause
(including a change in control) or due to death or disability, Mr. Galanski
shall be entitled to his annual salary for a period of 12 months after such
termination. The employment provides for a base salary of $260,000, subject
to increase in the sole discretion of the Board of Directors, a bonus for 1997
of $25,000, eligibility for bonuses under the Executive Incentive Compensation
Plan, an option to acquire 20,000 shares of Intercargo common stock, certain
benefits, vacation of four weeks annually and "carry over" of up to two weeks
of unused vacation days to the following year. It also contains restrictive
covenants and non-competition provisions for the period of twelve months
after termination.
On January 31, 1994, the Company entered into two 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, 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 141,000 British pounds
(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
airfares 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 served 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.
On August 12, 1996 the Company entered into an employment agreement
(the "Employment Agreement") with its Chief Financial Officer, Michael L.
Rybak. The Employment Agreement was for a one year period and continues on a
month-to-month basis thereafter unless otherwise terminated due to Mr. Rybak'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
$120,000, subject to increases during subsequent renewal terms, certain
benefits, eligibility for
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bonuses under the Executive Incentive Compensation Plan, and entrance into the
vacation entitlement schedule as if he were a five year employee. It also
contains restrictive covenants and non-competition provisions for the period
of two years after termination.
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. The
only notes issued by a 1997 Named Executive was made by James Zuhlke in the
original principal amount of $96,110. This note was paid in full in 1997.
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COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Mr. Sklar, a member of the Audit Committee, is a partner of Rudnick &
Wolfe, the principal law firm engaged by the Company in 1997. Mr. Galanski,
who is President and Chief Executive Officer of the Company, administers the
determination of the bonuses for the other executive officers under the
Executive Incentive Compensation Plan.
BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee is comprised of four non-employee directors:
Messrs. Litman, Gallegos, Sanborn and Bodenstein. The 1997 compensation for
the executive officers 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").
Based on recommendations of James Zuhlke, the then President, the
Compensation Committee set the 1997 base salaries of all officers (other than
Mr. Zuhlke). The Compensation Committee set the 1997 base salary of the
President. Factors considered in the setting of salaries include historical
salary levels and salary levels at comparable companies. After approval by
the Compensation Committee, salaries are approved by the Board of Directors.
With respect to Mr. Zuhlke, the Compensation Committee established a
base salary for 1997 at $325,000.
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<PAGE>
The Compensation Committee considered a number of factors in
negotiating the compensation program for Mr. Galanski, the President and Chief
Executive Officer of the Company, including, among other things, the salary
then being paid to Mr. Galanski at the company which he then served as
president, and the establishment of an incentive program that would reward Mr.
Galanski for improving the performance of the Company. The base annual salary
of $260,000 is subject to review annually beginning in 1998. A cash bonus of
$25,000 for fiscal 1997 was provided in recognition that his contributions to
management would not be recognized financially until 1998. Thereafter, Mr.
Galanski will participate in the Incentive Plan. The long term incentive
compensation provided to Mr. Galanski is comprised of stock options granted
under the Option Plan. In establishing the number of shares of Common Stock
subject to options granted and to be granted to Mr. Galanski, the Compensation
Committee considered the long term incentive compensation he would be
foregoing by leaving his then employer and the need to provide a reasonable
incentive to enhance the performance of the Company in a manner that would be
recognized in increases in the market price of the Company's Common Stock.
Based on these factors, the Compensation Committee awarded Mr. Galanski an
option to purchase 20,000 shares of Common Stock and agreed to award Mr.
Galanski additional options to purchase 20,000 shares of Common Stock each on
the first and second anniversary dates of his employment, subject to his
remaining in the employ of the Company.
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.
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 1997 Named Executive, other than Mr. Galanski, is limited
to his base salary multiplied by the maximum bonus percentage established by
the ROE.
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Based on the parameters of the Incentive Plan and at the discretion of
the Committee, bonuses were awarded for 1997 performance pursuant to the
Incentive Plan to Mr. Kielbas $15,250 and Mr. Rybak $11,000.
The 1987 Non-Qualified Incentive Stock Option Plan (the "Option Plan")
also links individual compensation to Company performance. Because 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 executives have incentive
to enhance Company performance as measured by the price of the Company's
Common Stock. In granting options to executives, the Compensation Committee
considers the recommendations of the President as well as the number of
options already held by each person. Taking into consideration various
factors including the number of shares subject to option and/or SAR's
previously granted, the Compensation Committee determined to grant options to
purchase 38,400 shares of Common Stock to a total of 5 officers of the Company
during fiscal year 1997.
Effective January 1, 1994, the allowable deduction for federal income
tax purposes of compensation paid by the Company to the 1997 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 1997 Named Executives and is not expected to affect
these deductions in the foreseeable future.
Respectfully submitted,
INTERCARGO CORPORATION
Compensation Committee
Arthur J. Fritz, Jr.
Arthur L. Litman
Michael L. Sklar
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TOTAL RETURN COMPARISON
The following graph sets forth a five-year comparison of cumulative
total returns for: (i) the Company; (ii) the Standard & Poor's 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.; NYMAGIC, Inc.; HCC Insurance Holdings, Inc.; and Navigators
Group, Inc.
<TABLE>
<CAPTION>
COMPARISON OF CUMULATIVE TOTAL RETURN
OF COMPANY, PEER GROUP AND BROAD MARKET
FISCAL YEAR ENDING
COMPANY 1992 1993 1994 1995 1996 1997
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INTERCARGO CORP 100 91.56 65.69 81.12 70.92 111.60
PEER GROUP 100 105.97 75.49 94.34 120.83 136.04
BROAD MARKET 100 119.95 125.94 163.35 202.99 248.30
</TABLE>
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COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities 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 1997. 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, 1997, all of these filings were satisfied except that the
Initial Statements of Beneficial Ownership of Securities of Messrs. Galanski
and Weise were not filed on a timely basis.
RATIFICATION OF SELECTION OF INDEPENDENT PUBLIC ACCOUNTANTS
Upon the recommendation of the Audit Committee, the Board of Directors
has selected the independent public accounting firm of Ernst & Young LLP to
audit the Company's financial statements for the year 1998, and is submitting
its choice for ratification by stockholders.
If the selection is not ratified, the Board of Directors will consider
selecting another independent public accounting firm as the auditors for
fiscal year 1998.
The Board of Directors recommends a vote FOR the ratification of Ernst
& Young LLP as auditors for the Company for the year 1998.
The Company's consolidated financial statements for the year ended
December 31, 1996 and 1995 were examined by KPMG Peat Marwick LLP, independent
public accountants. The independent public accountants are normally selected
at the fourth quarter meeting of the Board of Directors.
On February 26, 1997, the Board, upon the advice of its Audit
Committee, elected to not retain KPMG Peat Marwick LLP as its independent
public accountant for fiscal year 1997. The decision to change accountants
was based upon a cost analysis of services provided. There were no
disagreements between management of the Company and the former accountants on
any matters of accounting principles or practices, financial statement
disclosures, or auditing scopes or procedures during fiscal years 1996 and
1995 and any subsequent interim period preceding the dismissal. The
accountant's reports on the financial statements of the Company in the 1996
and 1995 fiscal years were unqualified, not modified as to uncertainty, audit
scope or accounting principles, and did not express any adverse opinion or
disclaimer of opinion. KPMG Peat Marwick LLP issued a letter dated February
21, 1997 to the Board of Directors of the Company describing a material
weakness in internal control as detail accounts receivable and intercompany
receivables and payables were not properly reconciled on a regular basis.
In addition, on February 26, 1997, the Audit Committee recommended,
and the Board of Directors approved, the appointment of Ernst & Young LLP as
the Company's new independent accountants, effective for fiscal 1997, but
subject to stockholder ratification of the selection. The selection of Ernst
& Young LLP was through a request for proposal process with no consideration
19
<PAGE>
requested or made on the application of accounting principles, the type of
audit opinion that might be rendered on the financial statements, or any other
factor for reaching a decision as to accounting, auditing or financial
reporting issues.
Representatives of Ernst & Young LLP are expected to attend the annual
meeting with an opportunity to make an appropriate statement if they desire to
do so, and will be available to respond to appropriate questions.
STOCKHOLDER PROPOSALS FOR 1999 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 1999 Annual Meeting
of Stockholders, the proposal must be received by the Company no later than
December 31, 1998. No stockholder proposals have been received in connection
with the 1998 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.
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.
/s/ Michael L. Rybak
- --------------------
Michael L. Rybak
Secretary
Schaumburg, Illinois
April 20, 1998
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<PAGE>
PROXY INTERCARGO CORPORATION PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF STOCKHOLDERS -- MAY 15, 1998
The undersigned hereby acknowledges receipt of Notice of Annual
Meeting of Stockholders to be held May 15, 1998 and hereby appoints Stanley A.
Galanski and Michael L. Rybak, 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 27, 1998 at the annual meeting to be held at 1450 East
American Lane, Conference Room B, Schaumburg, Illinois, 60173 on May 15, 1998
at 10:00 am. Chicago, Illinois 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 and FOR ratification of the selection of
Ernst & Young LLP as independent auditors for fiscal year 1998. 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.)
<PAGE>
1. Election of Class 2 Directors - For Withheld
Nominees: Michael L. Sklar, ___ ___
George J. Weise FOR all nominees EXCEPT those
whose names are inserted on the
line below.
__________________________________
2. Ratification of selection of For Withheld Abstain
Ernst & Young LLP as auditors ___ ___ ___
for fiscal year 1998.
3. In their discretion, the Proxies are authorized to vote upon such
other business as may properly come before the meeting.
Dated:_______________, 1998
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.
