After searching for Karg for a month to get a werewolf cloak, I can add some details that most people seem to miss...
Karg's known loot is the Cloak of the Ice Bear (same as the Martar drop) and either a rusty 2 handed sword or a plain 2 hander. Karg has reportedly not dropped the Gigantic Zweihander in a while, or if he has, nobody admits to it. Yet he is killed for it most every time he spawns. Too bad Verant's policy is to withold useful information... : (
Karg is a Quest NPC. He makes 3 items:
1) Polar Bear Cloak - requires a polar bear pelt and 5pp
2) Lupine Claw Gauntlets - requires werewolf claws and 75pp
3) Werewolf Skin Cloak - requires werewolf pelt and 100pp
He also despawns after making werewolf items, but not the PBCloaks.
Karg has no set spawn point. Just like Martar, he may spawn in front of permafrost, the east tower, near the ruins on the river, between the ruins and Megan's, at Megan's, and I think near Starn Bearjumper (barb vendor).
Karg follows EXACTLY the same route as his brother. So do polar bear cubs, polar bears, and ice goblin whelps. I believe these to be place holders for Martar (not Karg). Can't figure out what a polar bear cub would be doing in front of permafrost otherwise...
Karg can spawn in as little as 8 hours 40 minutes. I witnessed this personally. I also have reports of him not spawning for a week...
When I finally did get the chance to complete my quest (no rangers looking for werewolf cloaks), Karg spawned as I was following Martar around the Tundra. Martar had just crossed the river near the south tower when I received word that Karg had spawned. Could it be that Martar's trip triggers Karg's spawn?
As far as what to say to get the cloak...You say 'Hail Karg Icebear'. Then you con him. If he is at least indifferent, just give him the stuff. Most quests work that way...
My advice: Sit in front of Megan's tower facing the river and you will see Karg, Martar, and any PHs walk by (if they live that long) and kill the PHs as they walk by. If you want him for the werewolf items, offer a reward for Karg's being hailed (75pp worked for me), and make a few PB cloaks for the lower levels. They'll thank you for it.
I Hope this info helps.
Grrumble, 42 Enchanter
Tholuxe Paells
You say, 'Hail Karg IceBear'
Karg IceBear says 'Hail, traveler! I am Karg of Clan IceBear, lone hunter of the Everfrost Peaks. Have you seen any polar bears about?
Karg IceBear says 'OK! Now, where is the rest?
Karg IceBear says 'It has been a long time since I crafted items from werewolves. I hope this aids you in your journeys. Farewell, friend, until we meet again.
You gain experience!!