-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, HS0LuwgJWBSxJx+fADHorR3CQfzmJPUR0/XcxPVfO7HXC+jZrbfzdY1DnQK9RZsn JJjRUunlfS8Y7Kac71KNRQ== 0000950137-01-501643.txt : 20010517 0000950137-01-501643.hdr.sgml : 20010517 ACCESSION NUMBER: 0000950137-01-501643 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 20010401 FILED AS OF DATE: 20010516 FILER: COMPANY DATA: COMPANY CONFORMED NAME: INSURANCE AUTO AUCTIONS INC /CA CENTRAL INDEX KEY: 0000880026 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-MOTOR VEHICLES & MOTOR VEHICLE PARTS & SUPPLIES [5010] IRS NUMBER: 953790111 STATE OF INCORPORATION: IL FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-19594 FILM NUMBER: 1641527 BUSINESS ADDRESS: STREET 1: 850 E ALGONQUIN RD STREET 2: STE 100 CITY: SCHAUMGURG STATE: IL ZIP: 60173 BUSINESS PHONE: 8478393939 MAIL ADDRESS: STREET 1: 850 E ALGONQUIN RD STREET 2: STE 100 CITY: SCHAUMGURG STATE: IL ZIP: 60173 10-Q 1 c62638e10-q.txt QUARTERLY REPORT 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended April 1, 2001 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _____________________ to ________________________ Commission File Number: 0-19594 INSURANCE AUTO AUCTIONS, INC. ------------------------------------------------------ (Exact name of registrant as specified in its charter) Illinois 95-3790111 - -------------------------------------------------------------------------------- (State or other jurisdiction (I.R.S. Employer Identification No.) of incorporation or organization) 850 East Algonquin Road, Suite 100, Schaumburg, Illinois 60173-3855 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) (847) 839-3939 - -------------------------------------------------------------------------------- (Registrant's telephone number, including area code) 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. [X] Yes [ ] No APPLICABLE ONLY TO CORPORATE ISSUERS Number of shares outstanding of each of the issuer's classes of common stock, as of April 30, 2001: Class Outstanding April 30, 2001 ----- -------------------------- Common Stock, $0.001 Par Value 11,732,935 shares 2 INDEX INSURANCE AUTO AUCTIONS, INC.
PAGE NUMBER ----------- PART I. FINANCIAL INFORMATION.............................................................. 3 Item 1. Financial Statements (Unaudited)................................................... 3 Condensed Consolidated Balance Sheets as of April 1, 2001 and December 31, 2000..................................... 3 Condensed Consolidated Statements of Operations for the Three Month Periods ended April 1, 2001 and March 31, 2000.................... 4 Condensed Consolidated Statements of Cash Flows for the Three Month Periods ended April 1, 2001 and March 31, 2000.................... 5 Notes to Condensed Consolidated Financial Statements............................... 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations..................................................... 7 Item 3. Quantitative and Qualitative Disclosures about Market Risk......................... 13 PART II. OTHER INFORMATION................................................................. 13 Item 1. Legal Proceedings.................................................................. 13 Item 2. Changes in Securities.............................................................. 13 Item 3. Defaults upon Senior Securities.................................................... 13 Item 4. Submission of Matters to a Vote of Security Holders................................ 13 Item 5. Other Information.................................................................. 13 Item 6. Exhibits and Reports on Form 8-K................................................... 13 SIGNATURES .......................................................................... 14
2 3 INSURANCE AUTO AUCTIONS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands of dollars except share and per share) APRIL 1, DECEMBER 31, 2001 2000 -------- ------------ ASSETS (UNAUDITED) Current assets: Cash and cash equivalents $ 28,384 $ 30,938 Short-term investments 12,810 4,859 Accounts receivable, net 49,551 48,091 Inventories 14,274 10,588 Other current assets 5,506 3,112 -------- -------- Total current assets 110,525 97,588 -------- -------- Property and equipment, net 33,236 30,492 Other investments 1,115 2,240 Deferred income taxes 5,206 5,123 Intangible assets, principally goodwill, net 129,248 130,264 -------- -------- $279,330 $265,707 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Current installments of long-term debt $ 37 $ 37 Accounts payable 47,458 38,176 Accrued liabilities 6,393 6,171 Accrued restructuring charges 4,437 -- -------- -------- Total current liabilities 58,325 44,384 -------- -------- Long-term debt, excluding current installments 20,131 20,141 Other liabilities 3,859 3,001 Deferred income taxes 10,814 10,440 -------- -------- Total liabilities 93,129 77,966 -------- -------- Shareholders' equity: Preferred stock, par value of $.001 per share Authorized 5,000,000 shares; none issued -- -- Common stock, par value of $.001 per share Authorized 20,000,000 shares; issued and outstanding 11,732,935 and 11,715,936 shares as of April 1, 2001 and December 31, 2000, respectively 12 12 Additional paid-in capital 137,069 136,962 Retained earnings 49,120 50,767 -------- -------- Total shareholders' equity 186,201 187,741 -------- -------- $279,330 $265,707 ======== ======== See accompanying notes to condensed consolidated financial statements. 3 4 INSURANCE AUTO AUCTIONS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands except per share amounts) THREE MONTH PERIODS ENDED ------------------------- APRIL 1, MARCH 31, 2001 2000 ------------------------- (UNAUDITED) Net revenues: Vehicle sales $ 40,217 $ 54,964 Fee income 37,627 31,996 -------- -------- 77,844 86,960 Cost and expenses: Cost of sales 55,025 63,855 Direct operating expenses 18,467 15,018 Amortization of intangible assets 1,006 948 Special charges 6,047 -- -------- -------- Earnings (loss) from operations (2,701) 7,139 Other (income) expense: Interest expense 456 464 Interest income (368) (411) -------- -------- Earnings (loss) before income taxes (2,789) 7,086 Provision (benefit) for income taxes (1,144) 2,905 -------- -------- Net earnings (loss) $ (1,645) $ 4,181 ======== ======== Net earnings (loss) per share: Basic $ (.14) $ .36 ======== ======== Diluted $ (.14) $ .35 ======== ======== Weighted average shares outstanding: Basic 11,730 11,586 Effect of dilutive securities -stock options 116 200 -------- -------- Diluted 11,846 11,786 ======== ======== See accompanying notes to condensed consolidated financial statements. 4 5 INSURANCE AUTO AUCTIONS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands of dollars)
THREE MONTH PERIODS ENDED ------------------------- APRIL 1, MARCH 31, 2001 2000 ------------------------- (unaudited) Cash flows from operating activities: Net earnings (loss) $ (1,645) $ 4,181 Adjustments to reconcile net earnings (loss) to net cash provided by operating activities: Depreciation and amortization 2,335 2,384 Gain on disposal of fixed assets (407) (13) Special charges 6,047 -- Change in assets and liabilities (net of effects of acquired companies): (Increase) decrease in: Investments, net (6,826) (2,251) Accounts receivable, net (1,397) (1,020) Inventories (3,686) (109) Other current assets (2,394) (403) Other assets 36 111 Increase (decrease) in: Accounts payable 9,228 (1,894) Accrued liabilities (540) 504 Deferred income taxes 291 2,792 -------- -------- Total adjustments 2,687 101 -------- -------- Net cash provided by operating activities 1,042 4,282 -------- -------- Cash flows from investing activities: Capital expenditures (4,928) (3,032) Proceeds from disposal of fixed assets 1,340 21 Acquisitions of businesses, net of cash acquired (105) (6,000) -------- -------- Net cash used in investing activities (3,693) (9,011) -------- -------- Cash flows from financing activities: Proceeds from issuance of common stock 107 173 Principal payments of long-term debt (10) (151) -------- -------- Net cash used in financing activities 97 22 -------- -------- Net decrease in cash (2,554) (4,707) Cash and cash equivalents at beginning of period 30,938 27,186 -------- -------- Cash and cash equivalents at end of period $ 28,384 $ 22,479 ======== ======== Supplemental disclosures of cash flow information: Cash paid during the period for: Interest $ 870 $ 860 ======== ======== Income taxes $ -- $ 112 ======== ========
See accompanying notes to condensed consolidated financial statements. 5 6 INSURANCE AUTO AUCTIONS, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. GENERAL The unaudited condensed consolidated financial statements of Insurance Auto Auctions, Inc. and its subsidiaries (collectively, the "Company") have been prepared on the same basis as the annual audited consolidated financial statements and, in the opinion of the Company, reflect all adjustments (consisting of normal recurring adjustments, except as otherwise described in Note 2) necessary for a fair presentation for each of the periods presented. The results of operations for interim periods are not necessarily indicative of results for full fiscal years. As contemplated by the Securities and Exchange Commission ("SEC") under Rule 10-01 of Regulation S-X, the accompanying consolidated financial statements and related notes have been condensed and do not contain certain information that is included in the Company's annual consolidated financial statements and notes thereto. For further information, refer to the consolidated financial statements and notes thereto included in the Company's annual report on Form 10-K for the year ended December 31, 2000. Effective January 1, 2001, the Company adopted a fiscal year ending on the last Sunday in December of each year. Fiscal year 2001 will consist of 52 weeks and will end on December 30, 2001. 2. SPECIAL CHARGES In March 2001, the Company announced an organizational realignment. During the first quarter of 2001, the Company recorded pretax restructuring charges of $6.0 million. As part of this plan, the Company offered involuntary severance packages to approximately 30 staff employees primarily located at its headquarters and recognized $2.4 million in employee termination benefits associated with this workforce reduction. The Company also recorded approximately $1.7 million related to the abandonment of certain facilities including cancellation of a planned expansion at its headquarters building. The remaining balance includes amounts related to repositioning the Company's towing operations and other restructuring charges. The Company expects to substantially complete these restructuring activities by the end of 2001. The restructuring charges were determined based upon formal plans approved by the Company's management. The amounts the Company ultimately incurs may change as the full reorganization is executed. The activity affecting the accrual for restructuring charges, which is included in accrued restructuring charges and other non-current liabilities, for the three months ended April 1, 2001 is as follows: (000's) Workforce Facility Towing Reduction Closing and Other Total --------- ------- --------- ------ Balance at December 31, 2000 $ -- $ -- $ -- $ -- Charges to operations 2,376 1,739 1,932 6,047 Utilization of accrual (213) -- (497) (710) ------- ------- ------- ------- Balance at April 1, 2001 $ 2,163 $ 1,739 $ 1,435 $ 5,337 ======= ======= ======= ======= 6 7 3. INCOME TAXES Income taxes were computed using the effective tax rate estimated to be applicable for the full fiscal year, which is subject to ongoing review and evaluation by the Company. 4. ACQUISITION In February 2001, the Company acquired Pittsburgh Auto Salvage Service for $105,000 in cash. This acquisition was accounted for as a purchase, and the results of operations are included in the Company's consolidated financial statements from the date of acquisition. 5. NEW ACCOUNTING PRONOUNCEMENTS In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities", which addresses the accounting for derivative instruments. SFAS No. 133, as amended by SFAS No. 137 and SFAS No. 138, is effective beginning January 1, 2001. The Company does not have any derivative instruments or engage in hedging activities that are subject to the provisions of SFAS No. 133 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. The discussion in this section contains forward-looking information that is subject to certain risks, trends and uncertainties that could cause actual results to differ materially from those projected, expressed, or implied by such forward-looking information. In some cases, you can identify forward-looking statements by our use of words such as "may, will, should, anticipates, believes, expects, plans, future, intends, could, estimate, predict, targeting, potential or contingent," the negative of these terms or other similar expressions. The Company's actual results could differ materially from those discussed or implied herein. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in "Factors That May Affect Future Results" below and the Company's annual report on Form 10-K for the fiscal year ended December 31, 2000. Among these risks are: conducting business pursuant to the purchase agreement method of sale; changes in the market value of salvage; fluctuations in the actual cash value of salvage vehicles; the ability to successfully renegotiate existing purchase agreement contracts; the quality and quantity of inventory available from suppliers; competition; the ability to pass through increased towing costs; dependence on key insurance company suppliers; delays or changes in state title processing; general weather conditions; legislative or regulatory acts; that vehicle processing time will improve; the availability of suitable acquisition candidates; the ability to bring new facilities to expected earnings targets; that the Company's towing business will reach forecasted levels of profitability and the level of energy and labor costs. OVERVIEW The Company offers insurance companies and other vehicle suppliers cost-effective salvage processing solutions through a variety of different methods of sale, including percentage of sale consignment, fixed fee consignment, and purchase agreement. Under the percentage of sale consignment and fixed fee sales methods, the vehicle is not owned by the Company and only the fees associated with the processing and sale of the vehicle are recorded in net sales. The percentage of sale consignment method offers potentially increased profits over fixed fee consignment by providing incentives to both the Company and the salvage provider to invest in vehicle enhancements thereby maximizing vehicle selling prices. Under the purchase agreement sales method, the vehicle is owned by the Company and the sales price of the vehicle is recorded in revenue. By assuming some of the risk inherent in owning the salvage vehicle instead of selling on a consignment basis, the Company is potentially able to increase profits by improving the value of the salvage vehicle prior to the sale. Under the purchase agreement method, IAA generally pays the insurance company a pre-determined percentage of the Actual Cash Value ("ACV") to purchase the vehicle. ACVs are the estimated 7 8 pre-accident fair value of a vehicle, adjusted for additional equipment, mileage and other factors. Because the Company's purchase price is fixed by contract, changes in ACVs or in the market or auction prices for salvage vehicles have an impact on the profitability of the sale of vehicles under the purchase agreement method. However, if increases in used car prices and ACVs are not associated with a corresponding increase in prices at salvage auctions, there can be a negative impact on the profitability of purchase agreement sales. To mitigate these risks, the Company has adjustment and risk-sharing clauses in its standard purchase agreement contracts designed to provide some protection to the Company and its customers from certain unexpected, significant changes in the ACV/salvage price relationship. Since its initial public offering, the Company has grown primarily through a series of acquisitions to now include 58 locations as of April 1, 2001. The Company's operating results are subject to fluctuations, including quarterly fluctuations, that can result from a number of factors, some of which are more significant for sales under the purchase agreement method. See "Factors That May Affect Future Results" below for a further discussion of some of the factors that affect or could affect the Company's business, operating results and financial condition. RESULTS OF OPERATIONS Three Months Ended April 1, 2001 Compared to the Three Months Ended March 31, 2000 Net revenues of the Company decreased to $77.8 million for the three months ended April 1, 2001, from $87.0 million for the same three month period in 2000, a 10% decrease. The decline in net revenues is consistent with a planned strategic shift away from vehicles sold under the purchase agreement method. Under the purchase agreement method, the entire purchase price of the vehicle is recorded as revenue compared to only recording the fees collected on the sale of a car under the lower risk consignment fee based arrangements. This change in contract mix also contributed to the significant increase in fee income for the quarter. Fee income in the first quarter increased 18% to $37.6 million versus $32.0 million in the first quarter of last year. This increase is the result of both increased volume and pricing changes. Gross profit decreased 1% to $22.8 million for the three months ended April 1, 2001, from $23.1 million for the comparable period in 2000. The decline in profitability reflects continued poor performance of certain purchase agreement contracts during their phase-out period as well as inventory write-downs on certain purchase agreement cars still in inventory. Direct operating expenses increased to $18.5 million for the three months ended April 1, 2001, from $15.0 million for the comparable period in 2000. The increase is primarily the result of acquisitions and greenfields that were completed in 2000. Interest expense decreased slightly to $456,000 for the three months ended April 1, 2001, from $464,000 for the comparable period in 2000. Interest income decreased to $368,000 for the 2001 first quarter versus $411,000 for the 2000 first quarter. The Company's effective income tax rate was 41% in both 2000 and 2001. FINANCIAL CONDITION AND LIQUIDITY At April 1, 2001, the Company had current assets of $110.5 million, including $28.4 million of cash and cash equivalents and $12.8 million of short-term investments. Current liabilities were $58.3 million. The Company had working capital of $52.2 million at April 1, 2001, a $1.0 million decrease from December 31, 2000. At April 1, 2001, the Company's indebtedness consisted mostly of 8.6% Senior Notes of $20.0 million that mature in 2002 and other debt aggregating $168,000, which bears interest at 8.0%. Other long-term liabilities include a post-retirement benefits liability that relates to the acquisition in 1994 of Underwriters Salvage Company. The amount recorded at April 1, 2001 for the post-retirement benefits 8 9 liability is approximately $2.9 million. The remaining balance within other long-term liabilities represents expenditures related to the restructuring charge that will be made more than one year beyond April 1, 2001. Capital expenditures were approximately $4.9 million for the three months ended April 1, 2001. These capital expenditures primarily included upgrading and expanding the Company's facilities including the purchase of land at its new facility in Albuquerque, New Mexico and the opening of its new Los Angeles, California facility. This facility consolidates and replaces two previous sites within the Los Angeles area. The Company currently leases most of its facilities and other properties. In February 2001, the Company acquired Pittsburgh Auto Salvage Service for $105,000 in cash. This acquisition was accounted for as a purchase, and the results of operations are included in the Company's consolidated financial statements from the date of acquisition. In September 2000, the Company's Board of Directors authorized the purchase of up to 1,500,000 shares of its common stock. Purchases may be made from time to time in the open market, subject to the requirements of applicable laws, and, if made will be financed with existing cash and cash equivalents, marketable securities, and cash from operations. As of April 1, 2001, the Company had not purchased any shares pursuant to this authorization. The Company believes that cash generated from operations will be sufficient to fund capital expenditures and provide adequate working capital for operations for the next twelve months. Part of the Company's plan is continued growth possibly through new facility start-ups, acquisitions, and the development of new claims processing services. At some time in the future, the Company may require additional financing. There can be no assurance that additional financing, if required, will be available on favorable terms. The Company's operating results have not historically been materially affected by inflation. OTHER On February 16, 2000, an Emery Worldwide DC-8 cargo jet crashed in to the Company's facility in Rancho Cordova, California. The three Emery crew members who were on board died, but there were no fatalities on the ground. Although no buildings were affected, approximately 850 vehicles at the branch were either destroyed or damaged by the crash and the ensuing fire ("Inventory Damage"). The crash and fire also caused the release of hazardous substances at the branch, necessitating certain environmental remediation and property restoration activities, which have now been completed. The Company filed three claims with its insurance carrier: first, an Inventory Damage claim; second, a "business interruption" claim because the branch was closed for a brief period as a result of the crash; and third, a property damage claim principally to the parking surfaces of the branch. At April 1, 2001, IAA had received approximately $1.0 million from its insurance carrier related to the Inventory Damage. Additionally, as of April 1, 2001, the Company had incurred approximately $1.8 million of expenses from the environmental property remediation related to the crash. The Company's insurance policy is limited for environmental property remediation expenses and is likely not sufficient to cover all costs. Pursuant to the terms of the Company's lease at this facility, IAA believes that it has a claim which entitles it to recover one-half the cost of environmental property remediation from the property's landlord. The Company's insurance policy also limits "business interruption" recovery based on a co-insurance provision in the policy. The Company's former insurance broker is negotiating a modification of the impact of this provision with the insurance carrier. The Company intends to vigorously pursue any and all claims under applicable law against Emery Worldwide and other potentially responsible parties for the crash, including environmental costs incurred 9 10 by the Company. The Company concluded, during the fourth quarter of 2000, that it was probable that not all expenses incurred related to this crash would be reimbursed. As such, the Company's accrued clean-up costs of approximately $1.2 million were included within the Company's special charge for the fourth quarter of 2000. FACTORS THAT MAY AFFECT FUTURE RESULTS The Company operates in a changing environment that involves a number of risks, some of which are beyond the Company's control. The following discussion highlights some of these risks. Quarterly Fluctuations. The Company's operating results have in the past and may in the future fluctuate significantly depending on a number of factors, some of which are more significant for sales under the purchase agreement method. These factors include: fluctuations in ACVs of salvage vehicles, changes in the market value of salvage vehicles, delays or changes in state title processing, general weather conditions, changes in regulations governing the processing of salvage vehicles, the availability and quality of salvage vehicles and attendance at salvage auctions. The Company is also dependent upon receiving a sufficient number of total loss vehicles as well as recovered theft vehicles to sustain its profit margins. Factors which can effect the number of vehicles received include: reduction of policy writing by insurance providers which would affect the number of claims over a period of time, and changes in direct repair procedures that would reduce the number of newer less damaged total loss vehicles that tend to have the higher salvage values. Additionally in the last few years there has been a declining trend in theft occurrences. As a result, the Company believes that period-to-period comparisons of its results of operations are not necessarily meaningful and should not be relied upon as any indication of future performance. In addition, revenues for any future quarter are not predictable with any significant degree of accuracy, while the Company's expense levels are relatively fixed. If revenue levels are below expectations, operating results are likely to be adversely affected. Due to all of the foregoing factors, it is likely that in some future quarters the Company's operating results will be below the expectations of public market analysts and investors. Quality and Quantity of Inventory Available from Suppliers. The Company is dependent upon receiving a sufficient number of total loss vehicles as well as recovered theft vehicles to sustain its profit margins. Factors which can effect the number of salvage vehicles received include the reduction of policy writing by insurance providers which would affect the number of claims over a period of time, and changes in direct repair procedures that would reduce the number of newer less-damaged total loss vehicles that tend to have higher salvage values. The decreases in the quality and quantity of inventory, and in particular the availability of newer and less-damaged vehicles, are further aggravated under the purchase agreement method of salvage and can have a material adverse effect on the operating results and financial condition of the Company. Competition. Historically, the automotive salvage industry has been highly fragmented. As a result, the Company faces intense competition for the supply of salvage vehicles from vehicle suppliers, as well as competition from processors of vehicles from other regional salvage pools. These regional salvage pools generally process vehicles under the fixed fee consignment method and generally do not offer the full range of services provided by the Company. The salvage industry has recently experienced consolidation, however, and the Company believes its principal publicly-held competitor is Copart, Inc. ("Copart"). Copart has completed a number of acquisitions of regional salvage pools and competes with IAA in most of IAA's geographic markets. Due to the limited number of vehicle suppliers, competition is intense for salvage vehicles from Copart and regional suppliers. It is also possible that the Company may encounter further competition from existing competitors and new market entrants that are significantly larger and have greater financial and marketing resources. Other potential competitors could include used car auction companies, providers of claims software to insurance companies, certain salvage buyer groups and insurance companies, some of which presently supply auto salvage to IAA. While most insurance companies have abandoned or reduced efforts to sell salvage without the use of service providers such as the Company, they may in the future decide to dispose of their salvage directly to end users. There can be no assurance that the Company will be able to compete successfully against current or future competitors or that competitive pressures faced by the Company will not have a material adverse effect on its operating results and financial condition. 10 11 Dependence on Key Insurance Company Suppliers. Historically, a limited number of insurance companies has accounted for a substantial portion of the Company's revenues. For example, in 2000, vehicles supplied by the Company's three largest suppliers accounted for approximately 40% of the Company's unit sales. The largest suppliers, State Farm Insurance, Farmers Insurance, and Allstate, each accounted for approximately 14%, 14%, and 12%, respectively, of the Company's unit sales. A loss or reduction in the number of vehicles from any of these suppliers, or adverse changes in the agreements that such suppliers have with the Company, could have a material adverse effect on the Company's operating results and financial condition. Purchase Agreement Method of Sale. Under the purchase agreement method of sale, the Company is required to purchase, and the insurance company and other non-insurance company suppliers are required to sell to the Company, virtually all total loss and recovered theft vehicles generated by the supplier in a designated geographic area. The agreements are customized to each supplier's needs, but typically require the Company to pay a specified percentage of a vehicle's ACV, depending on the vehicle's age and certain other conditions including whether the vehicle is a total loss or recovered theft vehicle. IAA assumes the risk of market price variation for vehicles sold under a purchase agreement and therefore works to enhance the value of purchased vehicles in the selling process. Because the Company's purchase price is fixed by contract, changes in ACVs or in the market or auction prices for salvage vehicles have an impact on the profitability of the sale of vehicles under the purchase agreement method. If increases in used car prices and ACVs are not associated with a corresponding increase in prices at salvage auctions, there can be a negative impact on the profitability of purchase agreement sales. Revenue recorded from the sale of a purchase agreement vehicle is the actual selling price of the vehicle. From 1993 to 1996, increased ACVs reduced the profitability that the Company realized on purchase agreement contracts. Beginning late in the second quarter of 2000 and continuing into early 2001, purchase agreement profitability was impaired by a combination of rising ACVs and flat to lower sale prices at auction in certain parts of the country. Further increases in ACVs or declines in the market or auction prices for salvage vehicles could have a material adverse effect on the Company's operating results and financial condition. The Company has included adjustment and risk-sharing clauses in certain of its purchase agreement contracts to provide some protection to the Company and its customers from unexpected, significant changes in ACVs that are not accompanied by a comparable increase in sales prices. In addition, the Company has renegotiated certain purchase agreements, converting them to either the Percent of Sale or Fixed Fee Consignment method of sale. In 2000 and 1999 respectively, approximately 26% and 28% of the units processed by IAA were processed through the purchase agreement method of sale. The Company expects that approximately 20% of total units sold in 2001 will be sold under the purchase agreement method of sale. Governmental Regulation. The Company's operations are subject to regulation, supervision and licensing under various federal, state and local statutes, ordinances and regulations. The acquisition and sale of totaled and recovered theft vehicles is regulated by state motor vehicle departments in each of the locations in which the Company operates. Changes in law or governmental regulations or interpretations of existing law or regulations can result in increased costs, reduced salvage vehicle prices and decreased profitability for the Company. In addition to the regulation of sales and acquisitions of vehicles, the Company is also subject to various local zoning requirements with regard to the location of its auction and storage facilities. These zoning requirements vary from location to location. Failure to comply with present or future regulations or changes in existing regulations could have a material adverse effect of the Company's operating results and financial condition. Provision of Services as a National or Regional Supplier. The provision of services to insurance company suppliers on a national or regional basis requires that the Company expend resources and dedicate management to a small number of individual accounts, resulting in a significant amount of fixed costs. The development of a referral based national network service, in particular, has required the devotion of financial resources without immediate reimbursement of such expenses by the insurance company suppliers. 11 12 Expansion and Integration of Facilities. The Company seeks to increase sales and profitability through acquisition of other salvage auction facilities, new site expansion and the increase of salvage vehicle volume at existing facilities. There can be no assurance that the Company will continue to acquire new facilities on terms economical to the Company or that the Company will be able to add additional facilities on terms economical to the Company or that the Company will be able to increase revenues at newly acquired facilities above levels realized prior to acquisition. The Company's ability to achieve these objectives is dependent, among other things, on the integration of new facilities, and their information systems, into its existing operations, the identification and lease of suitable premises and the availability of capital. There can be no assurance that this integration will occur, that suitable premises will be identified or that additional capital will be available to fund expansion and integration of the Company's business. Any delays or obstacles in this integration process could have a material adverse effect on the Company's operating results and financial condition. Furthermore, the Company has limited sources of additional capital available for acquisitions, expansions and start-ups. The Company's ability to integrate and expand its facilities will depend on its ability to identify and obtain additional sources of capital to finance such integration and expansion. In the future, the Company will be required to continue to improve its financial and management controls, reporting systems and procedures on a timely basis and expand, train and manage its employee work force. The failure to improve these systems on a timely basis and to successfully expand and train the Company's work force could have a material adverse effect on the Company's operating results and financial condition. Volatility of Stock Price. The market price of the Company's common stock has been and could continue to be subject to significant fluctuations in response to various factors and events, including variations in the Company's operating results, the timing and size of acquisitions and facility openings, the loss of vehicle suppliers or buyers, the announcement of new vehicle supply agreements by the Company or its competitors, changes in regulations governing the Company's operations or its vehicle suppliers, environmental problems or litigation. Environmental Regulation. The Company's operations are subject to federal, state and local laws and regulations regarding the protection of the environment. In the salvage vehicle auction industry, large numbers of wrecked vehicles are stored at auction facilities for short periods of time. Minor spills of gasoline, motor oils and other fluids may occur from time to time at the Company's facilities and may result in soil, surface water or groundwater contamination. Petroleum products and other hazardous materials are contained in aboveground or underground storage tanks located at certain of the Company's facilities. Waste materials such as waste solvents or used oils are generated at some of the Company's facilities and are disposed of as nonhazardous or hazardous wastes. The Company believes that it is in compliance in all-material respects with applicable environmental regulations and does not anticipate any material capital expenditure for environmental compliance or remediation. Environmental laws and regulations, however, could become more stringent over time and there can be no assurance that the Company or its operations will not be subject to significant compliance costs in the future. To date, the Company has not incurred expenditures for preventive or remedial action with respect to contamination or the use of hazardous materials that have had a material adverse effect on the Company's operating results or financial condition. The contamination that could occur at the Company's facilities and the potential contamination by previous users of certain acquired facilities create the risk, however, that the Company could incur substantial expenditures for preventive or remedial action, as well as potential liability arising as a consequence of hazardous material contamination, which could have a material adverse effect on the Company's operating results and financial condition. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. The Company had approximately $13.9 million of investments as of April 1, 2001. These investments largely consisted of state government obligations and had either variable rates of interest or stated interest rates ranging from 3.55% to 6.55%. The Company's investments are exposed to certain market risks inherent with such assets. This risk is mitigated by the Company's policy of investing in securities with high credit ratings and investing through major financial institutions with high credit ratings. 12 13 The Company has senior notes payable of $20 million at an interest rate of 8.6%. The terms of the note agreement are such that pre-payment of such debt may not be advantageous to the Company in the event that funds may be available to the Company at a lower rate of interest. PART II. OTHER INFORMATION. ITEM 1. LEGAL PROCEEDINGS. INAPPLICABLE ITEM 2. CHANGES IN SECURITIES. INAPPLICABLE ITEM 3. DEFAULTS UPON SENIOR SECURITIES. INAPPLICABLE ITEM 4. SUBMISSION OF MATTERS TO A VOTE ON SECURITY HOLDERS. INAPPLICABLE ITEM 5. OTHER INFORMATION. INAPPLICABLE ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) EXHIBITS. 3.1 Bylaws of the Registrant, as amended as of March 21, 2001. 10.1 Amended and Restated Employment Agreement dated April 2, 2001 by and between the Company and Thomas C. O'Brien. 10.2 Employment Agreement dated April 2, 2001 by and between the Company and David Montgomery. 10.3 Employment Agreement dated April 2, 2001 by and between the Company and Scott Pettit. 10.4 Separation Agreement dated March 31, 2001 by and between the Company and Gaspare G. Ruggirello. 10.5 Separation Agreement dated April 9, 2001 by and between the Company and Donald J. Comis. 10.6 Separation Agreement dated April 9, 2001 by and between the Company and Gerald C. Comis. 10.7 Separation Agreement dated April 9, 2001 by and between the Company and Patrick T. Walsh. 10.8 Separation Agreement dated March 9, 2001 by and between the Company and Stephen L. Green. (b) REPORTS ON FORM 8-K. The Company filed a current report on Form 8-K on February 16, 2001 to report a Shareholder Agreement among the Company, ValueAct Capital Partners, L.P., Value Act Capital Partners II, L. P., VA Partners, LLC, Jeffrey W. Ubben, Peter H. Kamin and George F. Hamel, Jr. 13 14 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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. INSURANCE AUTO AUCTIONS, INC. Date: May 16, 2001 By: /s/ Scott P. Pettit ------------ --------------------------------- Name: Scott P. Pettit Title: Senior Vice President and Chief Financial Officer (Duly Authorized Officer and Principal Financial Officer) 14 15 EXHIBIT INDEX EXHIBIT NO. - ----------- 3.1 Bylaws of the Registrant, as amended as of March 21, 2001. 10.1 Amended and Restated Employment Agreement dated April 2, 2001 by and between the Company and Thomas C. O'Brien. 10.2 Employment Agreement dated April 2, 2001 by and between the Company and David Montgomery. 10.3 Employment Agreement dated April 2, 2001 by and between the Company and Scott Pettit. 10.4 Separation Agreement dated March 31, 2001 by and between the Company and Gaspare G. Ruggirello. 10.5 Separation Agreement dated April 9, 2001 by and between the Company and Donald J. Comis. 10.6 Separation Agreement dated April 9, 2001 by and between the Company and Gerald C. Comis. 10.7 Separation Agreement dated April 9, 2001 by and between the Company and Patrick T. Walsh. 10.8 Separation Agreement dated March 9, 2001 by and between the Company and Stephen L. Green. 15 EX-3.1 2 c62638ex3-1.txt BYLAWS OF THE REGISTRANT 1 Exhibit 3.1 AS AMENDED MARCH 21, 2001 BY-LAWS OF INSURANCE AUTO AUCTIONS (ILLINOIS), INC. ARTICLE 1 OFFICES; REGISTERED AGENT ss. 1.1 REGISTERED OFFICE AND AGENT. The corporation shall maintain in the State of Illinois a registered office and a registered agent whose business office is the registered office. ss. 1.2 PRINCIPAL BUSINESS OFFICE. The corporation shall have its principal business office at such location within or without the State of Illinois as the board of directors may from time to time determine. ARTICLE 2 SHAREHOLDERS ss. 2.1 ANNUAL MEETING. The annual meeting of the shareholders shall be held for the purpose of electing directors and for the transaction of such other business as may come before the meeting on the third Wednesday of June each year, or, if this date in any year shall be a legal holiday, then the meeting shall be held on the next succeeding business day; provided, however, that the board of directors may, by resolution adopted before notice of the meeting is given to the shareholders, fix a different date and/or time for holding any annual meeting. ss. 2.2 SPECIAL MEETINGS. Special meetings of the shareholders may be called by the president, by the board of directors or by the holders of not less than one-fifth of all the outstanding shares of the corporation entitled to vote on the matter for which the meeting is called. ss. 2.3 PLACE OF MEETING. The board of directors may designate any place, either within or without the State of Illinois, as the place for any annual meeting or for any special meeting called by the board of directors, but if no designation is made, or if a special meeting be otherwise called, the place of meeting shall be the principal business office of the corporation; provided, however, that for any meeting of the shareholders for which a waiver of notice designating a place is signed by all of the shareholders, then that shall be the place for the holding of such meeting. 2 ss. 2.4 NOTICE OF MEETINGS. Written notice stating the place, date and hour of the meeting of the shareholders and, in the case of a special meeting, the purpose or purposes for which the meeting is called either shall be delivered personally or mailed to each shareholder of record entitled to vote at the meeting, not less than 10 nor more than 60 days before the date of the meeting, or, in the case of a meeting called for the purpose of acting upon a merger, consolidation, share exchange, dissolution or sale, lease or exchange of assets, not less than 20 nor more than 60 days before the meeting, by or at the direction of the president, the secretary, or other persons calling the meeting. If mailed, such notice shall be deemed to be given when deposited in the United States mail addressed to the shareholder at his or her address as it appears on the records of the corporation, with postage thereon prepaid. ss. 2.5 WAIVER OF NOTICE. A waiver of notice in writing signed by a shareholder entitled to such notice, whether before or after the time stated therein, shall be deemed equivalent to giving notice to such shareholder. Attendance at any meeting shall constitute waiver of notice thereof unless the person so attending objects to the holding of the meeting because proper notice was not given. ss. 2.6 FIXING OF RECORD DATE. For the purpose of determining shareholders entitled to notice of or to vote at any meeting of the shareholders or to receive payment of any dividend or other distribution or allotment of any rights, or in order to make a determination of shareholders for any other proper purpose, the board of directors may fix in advance a record date for any such determination of shareholders, which shall be not more than 60 days and, for a meeting of shareholders, not less than 10 days, or in the case of a meeting called for the purpose of acting upon a merger, consolidation, share exchange, dissolution or sale, lease or exchange of assets, not less than 20 days, before the date of the event for which the determination is required. If no record date is fixed as aforesaid, the record date for the determination of shareholders entitled to notice of or to vote at a meeting of shareholders shall be the date on which notice of the meeting is mailed and the record date for the determination of shareholders for any other purpose shall be the date on which the board of directors adopts resolution(s) relating thereto. A determination of shareholders entitled to vote at any meeting of the shareholders shall apply to any adjournment of the meeting. ss. 2.7 VOTING LISTS. The officer or agent having charge of the share transfer books of the corporation shall make, within 20 days after the record date for a meeting of shareholders or 10 days before such meeting, whichever is earlier, a complete list of the shareholders entitled to vote at such meeting, arranged in alphabetical order, showing the address of and the number of shares held by each, which list shall be kept on file at the registered office of the corporation and shall be subject to inspection by any shareholder, and to copying at the shareholder's expense, at any time during usual business hours for a period of 10 days prior to each meeting of the shareholders. Such list shall also be produced and kept open at the time and place of the meeting and shall be subject to inspection by any shareholder during the whole time of the meeting. The original share ledger or transfer books, or a duplicate thereof kept in the State of Illinois, shall be prima facie evidence as to who are the shareholders entitled to examine such list or share ledger or transfer books or to vote at any meeting of the shareholders. ss. 2.8 QUORUM AND VOTE REQUIRED FOR ACTION. The holders of outstanding shares having a majority of the total votes which all of the outstanding shares of the 2 3 corporation would be entitled to cast on a matter at the meeting, present in person or by proxy, shall constitute a quorum for consideration of such matter at any meeting of the shareholders; provided that if a quorum is not present at said meeting, then the holders who are present in person or by proxy may by majority vote adjourn the meeting from time to time without further notice. If a quorum is present at any meeting of the shareholders, the affirmative vote of the majority of the votes entitled to be cast on a matter by holders of shares who are present in person or by proxy shall be the act of the shareholders, unless the Illinois Business Corporation Act of 1983 as amended or the articles of incorporation of the corporation require a different number of votes. At any adjourned meeting at which a quorum is present, any business may be transacted which might have been transacted at the original meeting. Withdrawal of shareholders from any meeting shall not cause failure of a duly constituted quorum at that meeting. ss. 2.9 PROXIES. Each shareholder entitled to vote at a meeting of the shareholders may appoint a proxy to vote or otherwise act for him or her by delivering a valid appointment form to the person so appointed or to a proxy solicitation firm, proxy support service organization or like agent duly authorized by the person or persons to receive the transmission. A shareholder may make such an appointment by signing an appointment form, by transmission of a telegram, cablegram or other electronic transmission (provided that such transmission either sets forth or is submitted with information from which it can be determined that the telegram, cablegram or other electronic transmission was authorized by the shareholder), or any other means permitted under the Illinois Business Corporation Act of 1983, as amended. No proxy shall be valid after the expiration of 11 months from the date thereof unless otherwise provided in the proxy. ss. 2.10 VOTING OF SHARES. Each outstanding Common Share, regardless of class and subject to the terms of any series of Preferred Shares, shall be entitled to one vote upon each matter submitted to a vote of the shareholders. ss. 2.11 VOTING OF SHARES BY CERTAIN HOLDERS. (a) Shares registered in the name of another corporation, domestic or foreign, may be voted by any officer, agent, proxy or other legal representative authorized to vote such shares under the law of incorporation of such corporation. The corporation may treat the president or other person holding the position of chief executive officer of such other corporation as authorized to vote such shares, together with any other person indicated and any other holder of an office indicated by the corporate shareholder to the corporation as a person or an office authorized to vote such shares. Such persons and offices indicated shall be registered by the corporation on the transfer books for shares and included in any voting list prepared in accordance with these by-laws. (b) Shares registered in the name of a deceased person, a minor ward or a person under legal disability may be voted by his or her administrator, executor or court appointed guardian, either in person or by proxy without a transfer of such shares into the name of such administrator, executor or court appointed guardian. Shares registered in the name of a trustee may be voted by him or her, either in person or by proxy. 3 4 (c) Shares registered in the name of a receiver may be voted by such receiver, and shares held by or under the control of a receiver may be voted by such receiver without the transfer thereof into his or her name if authority so to do be contained in an appropriate order of the court by which such receiver was appointed. (d) A shareholder whose shares are pledged shall be entitled to vote such shares until the shares have been transferred into the name of the pledgee, and thereafter the pledgee shall be entitled to vote the shares so transferred. (e) Shares of the corporation belonging to the corporation shall not be voted, directly or indirectly, at any meeting and shall not be counted in determining the total number of outstanding shares entitled to vote at any given time, but shares of the corporation held by the corporation in a fiduciary capacity may be voted and shall be counted in determining the total number of outstanding shares entitled to vote at any given time. ss. 2.12 INSPECTORS. At any meeting of the shareholders, the presiding officer may, or upon the request of any shareholder shall, appoint one or more persons as inspectors for such meeting. Such inspectors shall ascertain and report the number of shares represented at the meeting, based upon their determination of the validity and effect of proxies; count all votes and report the results; and do such other acts as are proper to conduct the election and voting with impartiality and fairness to all the shareholders. Each report of an inspector shall be in writing and signed by him or her or a majority of them if there is more than one inspector acting at such meeting. If there is more than one inspector, the report of a majority shall be the report of the inspectors. The report of the inspector or inspectors on the number of shares represented at the meeting and the results of the voting shall be prima facie evidence thereof. ss. 2.13 VOTING BY BALLOT. Voting on any question shall be by ballot when so requested by any shareholder or directed by the presiding officer. ARTICLE 3 DIRECTORS ss. 3.1 GENERAL POWERS. The business and affairs of the corporation shall be managed by or under the direction of the board of directors. ss. 3.2 NUMBER, TENURE AND QUALIFICATIONS. The number of directors of the corporation shall range between five and nine. The term of office of each director shall be until the next annual election of the shareholders or until his or her successor shall have been elected and qualified. Directors need not be residents of the State of Illinois or shareholders of the corporation. ss. 3.3 REGULAR MEETINGS. A regular meeting of the board of directors shall be held, without other notice than this by-law, immediately after, and at the same place as, 4 5 the annual meeting of the shareholders. The board of directors may provide, by resolution, the time and place, either within or without the State of Illinois, for the holding of additional regular meetings without other notice than such resolution. ss. 3.4 SPECIAL MEETINGS. Special meetings of the board of directors may be called by or at the request of the president or any two directors. The person or persons authorized to call special meetings of the board of directors may fix any place, either within or without the State of Illinois, as the place for holding any special meeting of the board of directors called by them. ss. 3.5 NOTICE AND WAIVER. Notice of any special meeting shall be given at least 2 days prior thereto by written notice to each director at his or her business address or such other address as he or she may have advised the secretary of the corporation to use for such purpose. If delivered, such notice shall be deemed to be given when delivered. If mailed, such notice shall be deemed to be given two business days after deposit in the United States mail so addressed, with postage thereon prepaid, and if given by telegraph such notice shall be deemed to be given the next business day following the day the telegram is given to the telegraph company. A waiver of notice in writing signed by the director entitled to such notice, whether before or after the time stated therein, shall be deemed equivalent to the giving of such notice. Attendance at any meeting shall constitute waiver of notice thereof unless the person attends the meeting for the express purpose of objecting to the transacting of business at the meeting because proper notice was not given. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the board of directors need be specified in the notice or waiver of notice of such meeting. ss. 3.6 QUORUM. A majority of the number of directors in office at a given time shall constitute a quorum for the transaction of business at any meeting of the board of directors, unless a greater number is specified by the articles of incorporation of the corporation or these by-laws; provided, that if a quorum is not present, then a majority of the directors present at said meeting may adjourn the meeting from time to time without further notice than announcement at the meeting. ss. 3.7 MANNER OF ACTING. The act of a majority of the directors present at a meeting at which a quorum is present shall be the act of the board of directors unless the act of a greater number is required by the articles of incorporation of the corporation or these by-laws. ss. 3.8 ATTENDANCE BY CONFERENCE TELEPHONE. Members of the board of directors may participate in and act at any meeting of such board through use of a conference telephone or other communications equipment by means of which all persons participating in the meeting can hear each other. Participation in such meeting by such means shall constitute attendance and presence in person at the meeting of the person or persons so participating for all purposes including fulfilling the requirements of sections 3.6 and 3.7. ss. 3.9 VACANCIES. Any vacancy occurring in the board of directors, and any directorship to be filled by reason of an increase in the number of directors, may be filled by election at an annual meeting or at a special meeting of shareholders called for that purpose; 5 6 provided, however, that the board of directors may fill vacancies arising between meetings of shareholders for any reason, including vacancies due to an increase in the number of directors. ss. 3.10 INFORMAL ACTION BY DIRECTORS. Any action required to be taken at a meeting of the board of directors, or any other action which may be taken at a meeting of the board of directors, may be taken without a meeting if a consent in writing, setting forth the action so taken, shall be signed by all of the directors. Any consent may be signed in counterparts with the same force and effect as if all directors had signed the same copy. All signed copies of any such written consent shall be delivered to the secretary to be filed in the corporate records. The action taken shall be effective when all the directors shall have signed the consent unless the consent specifies a different effective date. Any such consent signed by all of the directors shall have the same effect as a unanimous vote. ss. 3.11 COMPENSATION. The board of directors, by the affirmative vote of a majority of directors then in office, and irrespective of any personal interest of any of its members, shall have authority to establish reasonable compensation of all directors for services to the corporation as directors, officers or otherwise, and to authorize the payment of the directors' expenses, if any, of attendance at each meeting of the board in addition to such compensation. ss. 3.12 PRESUMPTION OF ASSENT. A director who is present at a meeting of the board of directors at which action on any corporate matter is taken shall be conclusively presumed to have assented to the action taken unless his or her dissent shall be entered in the minutes of the meeting or unless he or she shall file his or her written dissent to such action with the person acting as the secretary of the meeting before the adjournment thereof or shall forward such dissent by registered or certified mail to the secretary of the corporation immediately after the adjournment of the meeting. Such right to dissent shall not apply to a director who voted in favor of such action. ss. 3.13 COMMITTEES. A majority of the directors may create one or more committees and appoint members of the board to serve on the committee or committees. Each committee shall have two or more members, who serve at the pleasure of the board of directors. Members of any committee of the board of directors may participate in and act at any meeting of such committee through the use of a conference telephone or other communications equipment by means of which all persons participating in the meeting can hear each other. Participation in such meeting by such means shall constitute attendance and presence in person at the meeting of the person or persons so participating for all purposes. Unless in its appointment the board of directors decides otherwise, a majority of any committee shall constitute a quorum and a majority of a quorum shall be necessary for committee action. A committee may act by unanimous consent in writing without a meeting, and shall decide the time and place of its meetings and the notice therefor, unless the board of directors decides otherwise. To the extent specified by the board of directors, a committee may exercise the power of the board, subject to such limitations as may be provided by law. 6 7 ARTICLE 4 OFFICERS ss. 4.1 NUMBER, AUTHORITY AND DUTIES. The executive officers of the corporation shall be a president who shall be the chief executive officer, a chief operating officer, a chief financial officer, a chief accounting officer and a secretary. The corporation may also have one or more vice presidents, assistant secretaries and other officers as may be elected by the board of directors. Two or more offices may be held by the same person. All officers and agents of the corporation, as between themselves and the corporation, shall have such express authority and perform such duties in the management of the property and affairs of the corporation as is provided in these by-laws, or, to the extent not provided, as may be determined by resolution of the board of directors not inconsistent with these by-laws. All officers and agents of the corporation shall also have such implied authority as recognized by the common law from time to time. ss. 4.2 ELECTION AND TERM OF OFFICE. The officers of the corporation shall be elected annually by the board of directors at the first meeting of the board of directors held after each annual meeting of the shareholders. If the election of officers shall not be held at such meeting, such election shall be held as soon thereafter as conveniently may be. Vacancies may be filled or new offices created and filled at any meeting of the board of directors. Each officer shall hold office until his or her successor shall have been duly elected and shall have qualified, until his or her death or resignation or until he or she shall have been removed in the manner hereinafter provided, whichever first occurs. ss. 4.3 REMOVAL. Any officer may be removed by the board of directors whenever in its judgment the best interests of the corporation would be served thereby, but such removal shall be without prejudice to the contract rights, if any, of the person so removed. Election of an officer shall not of itself create contract rights. ss. 4.4 PRESIDENT. The president shall be the chief executive officer of the corporation and, subject to the direction and control of the board of directors, he or she shall be in charge of the business of the corporation. In general, he or she shall discharge all duties incident to the chief executive office of the corporation and such other duties as may be prescribed by the board of directors from time to time. Without limiting the generality of the foregoing, the president shall see that the resolutions and directions of the board of directors are carried into effect except in those instances in which that responsibility is specifically assigned to some other person by the board of directors; he or she shall preside at all meetings of the shareholders; and, except in those instances in which the authority to execute is expressly delegated to another officer or agent of the corporation or a different mode of execution is expressly prescribed by the board of directors, he or she may execute for the corporation certificates for its shares (the issue of which shall have been authorized by the board of directors), and any contracts, deeds, mortgages, bonds or other instruments which the board of directors has authorized, and he or she may (without previous authorization by the board of directors) execute such contracts and other instruments as the conduct of the corporation's business in its ordinary course requires, and he or she may accomplish such execution in each case either individually or with the secretary, any assistant secretary, or any other officer 7 8 thereunto authorized by the board of directors, according to the requirements of the form of the instrument. Also, the president may vote all securities which the corporation is entitled to vote except as and to the extent such authority shall be vested in a different officer or agent of the corporation by the board of directors. ss. 4.4(a). THE CHIEF OPERATING OFFICER. The chief operating officer shall manage the day to day affairs of the corporation, and shall be the executive officer next in authority to the president. He shall assist the president in the management of the business of the corporation, and, in the absence or disability of the president he shall exercise the powers and perform the duties of the president or designate the executive officers of the corporation by whom such powers shall be exercised and duties performed; and he shall have such other powers and duties as the board of directors may from time to time prescribe. ss. 4.5 THE VICE PRESIDENTS. The vice president (and, in the event that there is more than one vice president, each of the vice presidents) shall assist the president in the discharge of his or her duties as the president may direct and shall perform such other duties as from time to time may be assigned to him or her by the president or by the board of directors. In the absence of the president or in the event of his or her inability or refusal to act, the vice president (or in the event there be more than one vice president, the vice presidents in the order designated by the board of directors, or by the president if the board of directors has not made such a designation, or in the absence of any designation, then in the order of seniority of tenure as vice president) shall perform the duties of the president, and when so acting, shall have all the powers of and be subject to all the restrictions upon the president. Except in those instances in which the authority to execute is expressly delegated to another officer or agent of the corporation or a different mode of execution is expressly prescribed by the board of directors or these by-laws, the vice president (or each of them if there are more than one) may execute for the corporation certificates for its shares (the issue of which shall have been authorized by the board of directors), and any contracts, deeds, mortgages, bonds or other instruments which the board of directors has authorized, and he or she may (without previous authorization by the board of directors) execute such contracts and other instruments as the conduct of the corporation's business in its ordinary course requires, and he or she may accomplish such execution in each case either individually or with the secretary, any assistant secretary or any other officer thereunto authorized by the board of directors, according to the requirements of the form of the instrument. ss. 4.6 THE CHIEF FINANCIAL OFFICER. The chief financial officer shall be the principal financial officer of the corporation and shall perform all of the duties incident to the office of chief financial officer and such other duties as from time to time may be assigned to him or her by the board of directors or the president. Without limiting the generality of the foregoing, he or she shall have charge and custody of all funds and securities of the corporation, and be responsible therefor and for the receipt and disbursement thereof. If required by the board of directors, the chief financial officer shall give a bond for the faithful discharge of his or her duties in such sum and with such surety or sureties as the board of directors may determine. ss. 4.6(a). THE CHIEF ACCOUNTING OFFICER. The chief accounting officer shall be the principal accounting officer of the corporation and shall perform all of the 8 9 duties incident to the office of chief accounting officer and such other duties as from time to time may be assigned to him or her by the board of directors or the president. Without limiting the generality of the foregoing, he or she shall have charge of and be responsible for the maintenance of adequate books of account for the corporation. If required by the board of directors, the chief accounting officer shall give a bond for the faithful discharge of his or her duties in such sum and with such surety or sureties as the board of directors may determine. ss. 4.7 THE SECRETARY. The secretary shall perform all duties incident to the office of secretary and such other duties as from time to time may be assigned to him or her by the board of directors or president. Without limiting the generality of the foregoing, he or she shall (a) record the minutes of the meetings of the shareholders and the board of directors and will record or keep the minutes of all committees in one or more books provided for that purpose and shall include in such books the actions by written consent of the shareholders and the board of directors; (b) see that all notices are duly given in accordance with the provisions of these by-laws or as required by law; (c) be the custodian of the corporate records and the seal of the corporation (if a seal has been authorized by the board of directors) and certify the by-laws, resolutions of the shareholders and board of directors and any committees of the board of directors and other documents of the corporation as being true and correct copies thereof; (d) keep a register of the post-office address of each shareholder which shall be furnished to the secretary by such shareholder; (e) sign with the president, or a vice president, or any other officer thereunto authorized by the board of directors, certificates for shares of the corporation, the issue of which shall have been authorized by the board of directors, and any contracts, deeds, mortgages, bonds or other instruments which the board of directors has authorized, and he or she may (without previous authorization by the board of directors) sign with such other officers as aforesaid such contracts and other instruments as the conduct of the corporation's business in its ordinary course requires, in each case according to the requirements of the form of the instrument, except when a different mode of execution is expressly prescribed by the board of directors or these by-laws; and (f) have general charge of the stock transfer books of the corporation. ss. 4.8 ASSISTANT TREASURERS AND ASSISTANT SECRETARIES. The assistant treasurers and assistant secretaries shall perform such duties as shall be assigned to them by the treasurer, in the case of assistant treasurers, or the secretary, in the case of assistant secretaries, or by the president or the board of directors in either case. Each assistant secretary may sign with the president, or a vice president, or any other officer thereunto authorized by the board of directors, certificates for shares of the corporation, the issue of which shall have been authorized by the board of directors, and any contracts, deeds, mortgages, bonds or other instruments which the board of directors has authorized, and may (without previous authorization by the board of directors) sign with such other officers as aforesaid such contracts and other instruments as the conduct of the corporation's business in its ordinary course requires, in each case according to the requirements of the form of the instrument, except when a different mode of execution is expressly prescribed by the board of directors. The assistant treasurers shall, if required by the board of directors, give bonds for the faithful discharge of their duties in such sums and with such sureties as the board of directors shall determine. 9 10 ss. 4.9 COMPENSATION. The officers' compensation shall be fixed from time to time by the board of directors, and no officer shall be prevented from receiving such compensation by reason of the fact that he or she is also a director of the corporation. ARTICLE 5 INDEMNIFICATION ss. 5.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS. The corporation shall, to the fullest extent to which it is empowered to do so by the Illinois Business Corporation Act of 1983, as amended, or any other applicable laws as may from time to time be in effect, indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that he or she is or was a director or officer of the corporation, or is or was serving at the request of the corporation as a director or officer of another corporation, partnership, joint venture, trust or other enterprise, against all expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit or proceeding, if such person acted in good faith and in a manner he or she reasonably believed to be in, or not opposed to, the best interests of the corporation and with respect to any criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful. The corporation may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that he or she is or was an employee or agent of the corporation, or is or was serving at the request of the corporation as an employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against all expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit or proceeding, if such person acted in good faith and in a manner he or she reasonably believed to be in, or not opposed to, the best interests of the corporation and with respect to any criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement or conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he or she reasonably believed to be in or not opposed to the best interests of the corporation or, with respect to any criminal action or proceeding, that the person had reasonable cause to believe that his or her conduct was unlawful. ss. 5.2 CONTRACT WITH THE CORPORATION. The provisions of this Article 5 shall be deemed to be a contract between the corporation and each director or officer who serves in any such capacity at any time while this Article is in effect, and any repeal or modification of this Article 5 shall not affect any rights or obligations hereunder with respect to any state of facts then or theretofore existing or any action, suit or proceeding theretofore or thereafter brought or threatened based in whole or in part upon any such state of facts. 10 11 ss. 5.3 INDEMNIFICATION OF EMPLOYEES AND AGENTS. Persons who are not covered by the foregoing provisions of this Article 5 and who are or were employees or agents of the corporation, or who are or were serving at the request of the corporation as employees or agents of another corporation, partnership, joint venture, trust or other enterprise, may be indemnified to the extent authorized at any time or from time to time by the board of directors; provided, however, that to the extent that such employee or agent has been successful, on the merits or otherwise, in the defense of any action, suit or proceeding to which he or she was made a party by reason of the fact that he or she is or was an employee or agent acting in the above-described capacity, or in defense of any claim, issue or matter therein, the corporation shall indemnify such employee or agent against expenses (including attorneys' fees) actually and reasonably incurred by him or her in connection therewith. ss. 5.4 ADVANCEMENT OF EXPENSES. The corporation shall pay expenses incurred by any officer or director, and may pay expenses incurred by any employee or agent, in defending a civil or criminal action, suit or proceeding in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of the director, officer, employee or agent to repay such amount if it shall ultimately be determined that he or she is not entitled to be indemnified by the corporation as authorized by these by-laws or by the Illinois Business Corporation Act of 1983 as amended. ss. 5.5 OTHER RIGHTS OF INDEMNIFICATION. The indemnification or advancement of expenses provided or permitted by this Article 5 shall not be deemed exclusive of any other rights to which those indemnified may be entitled by law or otherwise, and shall continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such person. ARTICLE 6 CONTRACTS, LOANS, CHECKS AND DEPOSITS ss. 6.1 CONTRACTS. The board of directors may authorize any officer or officers, agent or agents, to enter into any contract or execute and deliver any instrument in the name of and on behalf of the corporation, and such authority may be general or confined to specific instances; provided, however, that this Section 6.1 shall not be a limitation on the powers of office granted under Article 4 of these by-laws. ss. 6.2 LOANS. No loans shall be contracted on behalf of the corporation and no evidences of indebtedness shall be issued in its name unless authorized by the board of directors or a duly authorized committee thereof. Such authority may be general or confined to specific instances. ss. 6.3 CHECKS, DRAFTS, ETC. All checks, drafts or other orders for the payment of money, notes or other evidences of indebtedness issued in the name of the corporation shall be signed by such officer or officers, agent or agents of the corporation and in 11 12 such manner as shall from time to time be determined by the board of directors or by an officer or officers of the corporation designated by the board of directors to make such determination. ss. 6.4 DEPOSITS. All funds of the corporation not otherwise employed shall be deposited from time to time to the credit of the corporation in such banks, trust companies or other depositaries as the board of directors or such officer or officers designated by the board of directors may select. ARTICLE 7 CERTIFICATES FOR SHARES AND THEIR TRANSFER ss. 7.1 CERTIFICATES FOR SHARES. Certificates representing shares of the corporation shall be signed by the president or a vice president and by the treasurer or an assistant treasurer or the secretary or an assistant secretary and, if the corporation has a corporate seal, may be sealed with such seal or a facsimile thereof. All certificates for shares shall be consecutively numbered or otherwise identified and shall state the name of the person to whom the shares represented thereby are issued, the number and class of shares, with designation of series, if any, the date of issue, the fact that the corporation is organized under Illinois law, and such other information or statement as may be required by law. The name and address of each shareholder, the number of shares held and the date on which the certificates for the shares were issued shall be entered on the stock transfer books of the corporation. The person in whose name shares are registered on the books of the corporation shall be deemed the owner thereof for all purposes as regards the corporation. ss. 7.2 TRANSFERS OF SHARES; LOST CERTIFICATES. Upon surrender to the corporation or the transfer agent of the corporation of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignment, or other authority to transfer, it shall be the duty of the corporation to issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction upon its books, provided that the corporation or a transfer agent of the corporation shall not have received a notification of adverse interest and that the requirements of the new reference system of the Illinois Revised Statutes has been met. No new certificate shall be issued until the former certificate for a like number of shares shall have been surrendered and canceled, except that in case of a lost or destroyed certificate, or one so mutilated that it cannot be identified, a new one may be issued therefor upon such terms and indemnity to the corporation as the board of directors may prescribe. ARTICLE 8 FISCAL YEAR The fiscal year of the corporation shall be as fixed from time to time by resolution of the board of directors. 12 13 ARTICLE 9 DIVIDENDS The board of directors may from time to time declare, and the corporation may pay, dividends on its outstanding shares in the manner and upon the terms and conditions provided by law and the articles of incorporation of the corporation. ARTICLE 10 SEAL The board of directors may provide a corporate seal which shall be in the form of a circle and shall have inscribed thereon the name of the corporation and the words "Corporate Seal, Illinois." The corporate seal may be used by causing it or a facsimile thereof to be impressed, affixed or in any manner reproduced. ARTICLE 11 AMENDMENTS These by-laws may be altered, amended or repealed and new by-laws may be adopted by the board of directors of the corporation or by the shareholders of the corporation entitled to vote thereon, provided that no by-law adopted by the shareholders may be altered, amended or repealed by the board of directors. 13 EX-10.1 3 c62638ex10-1.txt AMENDED AND RESTATED EMPLOYMENT AGREEMENT 1 Exhibit 10.1 AMENDED AND RESTATED EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT (this "Agreement") was originally entered into as of this 17th day of November, 2000 and was amended and restated on April 2, 2001 by and between THOMAS C. O'BRIEN ("O'Brien") and INSURANCE AUTO AUCTIONS, INC., an Illinois corporation ("Company"). RECITALS WHEREAS, the Company desires to employ O'Brien and O'Brien desires to be employed by the Company upon the terms and conditions set forth below. NOW, THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, it is hereby agreed that: 1. EMPLOYMENT. The Company hereby employs O'Brien, and O'Brien hereby accepts employment with the Company, as President and Chief Executive Officer, with authority over the day to day operations of the Company and its operating subsidiaries. The Company agrees to take all action necessary to nominate and elect O'Brien as a director of the Company as soon as possible following his commencement of employment. O'Brien shall be the highest ranking executive of the Company and shall be subject to the direction and control of the Board of Directors of the Company (the "Board"). O'Brien shall devote all of his business time and services to the business and affairs of the Company. O'Brien shall also perform such other executive-level duties consistent with his position as President and Chief Executive Officer as may be assigned to him from time to time by the Board, including, without limitation, serving as a member of any Board Committee if the Board shall elect O'Brien to such positions, and serving as an officer and/or director of the Company's operating subsidiaries. The duties and services to be performed by O'Brien hereunder shall be substantially rendered at the Company's principal offices as determined by the Board, except for reasonable travel on the Company's business incident to the performance of O'Brien's duties. 2. COMPENSATION. As compensation for O'Brien's services provided hereunder, the Company agrees to provide the following compensation: 2.1. BASE SALARY. While this Agreement is in effect, the Company agrees to pay to O'Brien a base salary at the rate of $350,000 per annum commencing on the date hereof ("Base Salary"). The Base Salary shall be subject to annual review by the Board and may be increased by the Board in their sole and absolute discretion but may not be decreased. Such salary shall be payable to O'Brien in such equal periodic payments as the Company generally pays its employees, but in no event less frequently than monthly. 2.2. PERFORMANCE INCENTIVE. As additional compensation for performance of the services rendered by O'Brien during the term of this Agreement, the Company will pay to O'Brien, in cash, a performance incentive amount equal to at least 40% of O'Brien's annual salary based upon the achievement of objectively quantifiable and measurable goals and 2 objectives which shall be determined, in advance, by the Board with respect to each fiscal year of the Company. O'Brien may receive in excess of 40% of his annual salary as a performance incentive if his performance exceeds the goals and objectives determined by the Board. Amounts paid to O'Brien pursuant to this Section 2.2 are hereinafter referred to as "Incentive Compensation." 2.3. OPTIONS. The Company shall cause the Committee delegated by the Board to administer the Option Plan (as defined below) to grant to O'Brien an option to purchase 300,000 shares of the Company's common stock (the "Option"). The Option shall be granted under the Company's 1991 Stock Option Plan, as amended (the "Option Plan"). The exercise price of the Option granted pursuant to this Section 2.3 shall be equal to 100% of the fair market value of the common stock on the close of business on the day before the day that O'Brien becomes employed by the Company subject to the vesting and termination provisions described below. The Option shall become exercisable in four equal annual installments beginning on the first anniversary of the grant date, and shall be subject to the usual terms and conditions of options issued pursuant to and in accordance with the Option Plan. 2.4. BENEFITS. During the term of his employment or for such time as otherwise provided in this Agreement, O'Brien shall be entitled to participate in such vacation, auto allowance, benefit plans, fringe benefits, life insurance, medical and dental plans (beginning on the first day of employment), retirement plans and other programs as are offered from time to time by the Company and are described in the Company's employee benefit handbooks. O'Brien shall be entitled to four weeks of paid vacation each calendar year, subject to any limitations on carryover of unused vacation generally applicable to employees. The Company will pay for the non-equity portion of a membership in and reimburse reasonable dues for a golf club membership in a golf club to be mutually agreed upon by the Company and O'Brien. O'Brien shall be authorized to incur necessary and reasonable travel, entertainment and other business expenses in connection with his duties hereunder. In connection with expenses pursuant to this Section 2.4, the Company shall reimburse O'Brien for such expenses upon presentation of an itemized account and appropriate supporting documentation, all in accordance with the Company's generally applicable policies. 2.5. INDEMNIFICATION. The Company shall indemnify O'Brien in accordance with the terms of the Company's standard form of Indemnification Agreement. 3. TERMINATION. 3.1. AT WILL NATURE OF EMPLOYMENT. Employment with the Company is not for a specific term and can be terminated by O'Brien or the Company at any time for any reason, with or without cause. Any contrary representations that may have been made or that may be made to O'Brien are superseded by this Agreement. In addition, this Agreement shall terminate by reason of O'Brien's death or the substantial inability of O'Brien, by reason of physical or mental illness or accident, to perform his regular responsibilities hereunder indefinitely or for a period of one hundred eighty (180) days (a "Disability"). 2 3 3.2. COMPANY'S OBLIGATIONS ON TERMINATION APART FROM A CHANGE OF CONTROL. (a) NO OBLIGATIONS OTHER THAN AS REQUIRED BY LAW FOR VOLUNTARY TERMINATION OR CAUSE. The Company shall have no obligations to pay O'Brien any severance payments or continue to cover O'Brien and/or his beneficiaries under the Company's health plan (other than as required by law) if this Agreement is terminated for any of the following reasons: (i) VOLUNTARY TERMINATION. O'Brien voluntarily terminates this Agreement for any reason; or (ii) CAUSE. The Company terminates O'Brien's employment at any time during the term of this Agreement for Cause. For purposes of this Agreement, "Cause" shall mean: (A) the willful and continued failure of O'Brien to perform substantially his duties with the Company or one of its affiliates (other than any such failure resulting from incapacity due to medically-documented illness or injury), 30 days after a written demand for substantial performance is delivered to O'Brien by the Board which specifically identifies the manner in which the Board believes that O'Brien has not substantially performed his duties; or (B) the engaging by O'Brien in illegal conduct or gross misconduct which is demonstrably injurious to the Company, in each case as determined in the good faith opinion of the Board. (b) DEATH AND DISABILITY OBLIGATIONS. If this Agreement is terminated due to death or Disability, the Company shall pay to O'Brien (or his legal representatives as the case may be) the specific obligations as set forth below: (i) DEATH. O'Brien's employment shall terminate automatically upon O'Brien's death. If O'Brien's employment under this Agreement is terminated by reason of his death, the Company's sole obligation to O'Brien's legal representatives shall be to pay or cause to be paid, within thirty (30) days of the Date of Termination (as hereinafter defined), to such person or persons as O'Brien shall have designated for that purpose in a notice filed with the Company, or, if no such person shall have been so designated, to his estate, the amount of O'Brien's Accrued Obligations (as hereinafter defined). Any amounts payable under this Section 3.2(b)(i) shall be exclusive of and in addition to any payments or benefits which O'Brien's widow, beneficiaries or estate may be entitled to receive pursuant to any pension plan, profit sharing plan, any employee benefit plan, equity incentive plan or life insurance policy maintained by the Company. (ii) DISABILITY. If the Disability of O'Brien occurs, the Company may give to O'Brien written notice in accordance with Section 6.1 of this Agreement of its intention to terminate O'Brien's employment. In such event, O'Brien's employment with the Company shall terminate effective on the 30th day after receipt of such notice by O'Brien (the "Disability Effective Date"), unless within 3 4 the 30-day period after such receipt, O'Brien returns to full-time performance of his duties. The Company's sole obligation to O'Brien shall be payment of Accrued Obligations (as hereinafter defined) and the timely payment or provision of other benefits, including disability and other benefits provided by the Company to disabled executives and/or their families in accordance with such Company plans, programs, practices and policies relating to disability, if any. (c) OBLIGATIONS FOR ALL OTHER TERMINATION REASONS. For any other reason, upon the termination of this Agreement and O'Brien's employment hereunder apart from a Change of Control, the Company shall pay to O'Brien an amount equal to the sum of (i) O'Brien's annual base salary at the time O'Brien's employment is terminated; plus (ii) O'Brien's average annual bonus received over the eight (8) fiscal quarters of the Company immediately preceding Company's fiscal quarter during which O'Brien's employment is terminated, without exceeding O'Brien's target bonus for Company's fiscal year during which O'Brien's employment is terminated, provided, however, that O'Brien shall receive his target bonus if he is terminated within his first eight (8) fiscal quarters with the Company; plus (iii) O'Brien's auto allowance for the Company's fiscal year during which O'Brien's employment is terminated. In addition, the Company shall provide, at Company's expense, continued coverage for O'Brien and his beneficiaries for a period extending through the earlier of the date O'Brien begins any subsequent full-time employment for pay and the date that is one (1) year after O'Brien's termination of employment, under the Company's health plan covering O'Brien and O'Brien's beneficiaries, provided that O'Brien properly elects coverage pursuant to Title I, Part 6 of the Employee Retirement Income Security Act of 1974, as amended ("COBRA"). 3.3. COMPANY'S OBLIGATIONS ON TERMINATION DUE TO A CHANGE OF CONTROL. (a) DEFINITIONS. (i) For purposes of this Agreement, a "Change of Control" shall mean: (A) the acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) (for the purposes of this Section 3.3, a "Person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 50% or more of the voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the "Outstanding Company Voting Securities"); provided, however, that for purposes of this subsection (a), any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company shall not constitute a Change of Control; or (B) individuals who, as of the date hereof, constitute the Board (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board; provided, however, that any individual (other than an individual whose initial assumption of office occurs as a result of an 4 5 actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board) who becomes a director subsequent to the date hereof whose election or nomination for election by the Company's shareholders was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board; or (C) consummation of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of the Company (a "Business Combination") unless, following such Business Combination, (i) all or substantially all of the individuals and entities who were the beneficial owners of the Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 50% of the voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Combination (including, without limitation, a corporation which as a result of such transaction owns the Company or all or substantially all of the Company's assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination of the Outstanding Company Voting Securities and (ii) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board, providing for such Business Combination; or (D) approval by the shareholders of the Company of a complete liquidation or dissolution of the Company. (ii) For purposes of this Agreement, "affiliated companies" shall include any company controlled by, controlling or under common control with the Company. (iii) For purposes of this Agreement, "Involuntary Termination" shall mean O'Brien's voluntary termination following (A) a change in O'Brien's position with the Company which materially reduces O'Brien's level of responsibility, (B) a reduction in O'Brien's level of compensation (including Base Salary and targeted Incentive Compensation), (C) a change in O'Brien's place of employment, which is more than seventy-five (75) miles from O'Brien's place of employment prior to the change, provided and only if such change or reduction is effected without O'Brien's written concurrence or (D) following a Change of Control (or following the last of a series of related Changes of Control including, but not limited to, an acquisition described in Section 3.3(i)(a)(A) followed by a Business Combination) or following a Corporate Transaction (as defined in the Option Plan), O'Brien's failure to receive within 60 days of such date a stock option grant or similar incentives (the "New Option") which provides him with at 5 6 least an aggregate of 2.5% (at the time of such grant) of the common stock of the successor to the Company (after giving effect to all management options and similar incentives granted in conjunction with the New Option). This 2.5% aggregate amount shall be determined after adding back in any other outstanding options or similar incentives of the Company or the successor to the Company granted to O'Brien. The New Option shall have a per share exercise price equal to the per share price paid by the acquirer in such Change of Control (or series of related Changes of Control), or Corporate Transaction. (iv) For purposes of this Agreement, "Date of Termination" shall mean (A) if O'Brien's employment is terminated by the Company for Cause, or by O'Brien, the date of receipt of the Notice of Termination or any later date specified therein, as the case may be, (B) if O'Brien's employment is terminated by the Company for other than for Cause or Disability, the date on which the Company notifies O'Brien of such termination and (C) if O'Brien's employment is terminated by reason of death or Disability, the date of death of O'Brien or the Disability Effective Date, as the case may be. (v) For proposes of this Agreement, "Accrued Obligations" shall mean the sum of (A) O'Brien's Base Salary through the date of Termination to the extent not theretofore paid, (B) the greater of (I) the product of (x) any Incentive Compensation paid to or deferred by O'Brien for the fiscal year preceding the fiscal year in which O'Brien's Date of Termination occurs (annualized in the event that O'Brien was not employed by the Company for the whole of such fiscal year) and (y) a fraction, the numerator of which is the number of days in the current fiscal year through the Date of Termination, and the denominator of which is 365 and (II) average of the past three (3) years' annual bonuses, provided, however, that O'Brien shall receive his target bonus if he is terminated within his first eight (8) fiscal quarters with the Company (such greater amount being the "Highest Annual Bonus") and (C) any compensation previously deferred by O'Brien (together with any accrued interest or earnings thereon) and any accrued vacation pay, in each case to the extent not theretofore paid. Notwithstanding the foregoing, in no event will O'Brien be entitled to a duplication of any Incentive Compensation payments. (b) SEVERANCE BENEFITS FOR TERMINATION WITHIN TWO (2) YEARS OF A CHANGE OF CONTROL. If O'Brien's employment with the Company terminates by reason of O'Brien's Involuntary Termination (as defined in Section 3.3(a)(iii) above) or termination by the Company without Cause (as defined in Section 3.2(a)(iii) above) within two (2) years of the effective date of the Change of Control, O'Brien shall be entitled to receive the following: (i) Company must pay O'Brien an amount equal to 150% of the sum of (A) O'Brien's Base Salary and (B) his Highest Annual Bonus; (ii) Company shall also pay O'Brien any Accrued Obligations; and 6 7 (iii) Company shall provide, at its expense, continued coverage of O'Brien and O'Brien's beneficiaries for eighteen (18) months after the Date of Termination or until O'Brien commences any full-time employment, whichever comes first, under the Company's health plan covering O'Brien and O'Brien's beneficiaries, provided, however, that O'Brien properly elects coverage pursuant to COBRA. (c) SEVERANCE BENEFITS FOR TERMINATION AFTER THE SECOND YEAR FOLLOWING A CHANGE OF CONTROL. If O'Brien is terminated after the second year following a Change of Control, the Company's obligations shall be as set forth in Section 3.2 of this Agreement. (d) STOCK OPTIONS AFTER A CHANGE OF CONTROL. All of O'Brien's outstanding stock options to purchase Company common stock shall accelerate and become fully exercisable upon a Change of Control or Corporate Transaction (as defined in the Option Plan). 3.4. CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY; EXCISE TAX GROSS-UP. A "Gross-Up Payment" (as defined below) shall be made to O'Brien when payments of compensation payable to O'Brien on termination of employment in connection with a Change of Control, including, without limitation, the vesting of an option or other non-cash benefit or property, whether pursuant to the terms of any applicable plan, arrangement or agreement with the Company or any of its affiliated companies (the "Total Payments'") would trigger a tax imposed on O'Brien under Section 4999 of the Internal Revenue Code of 1986, as amended (the "Excise Tax"). For purposes hereof, the Gross-Up Payment shall mean a payment to O'Brien in such amount as is necessary to ensure that the net amount retained by O'Brien, after reduction for any Excise Tax (including any penalties or interest thereon) on the Total Payments and any federal, state and local income or employment tax and Excise Tax on the Gross-Up Payment provided for by this Section 3.4, but before reduction for any federal, state or local income or employment tax on the Total Payments, shall be equal to the Total Payments. 3.5. EXCLUSIVE BENEFITS. If more than one benefit due to termination becomes payable under Sections 3.2 or 3.3, the greatest of such benefits shall become payable to the exclusion of all other such benefits and shall be in lieu of any other severance or similar benefits that would otherwise be payable under any other agreement, plan, program or policy of the Company. Notwithstanding anything in the prior sentence to the contrary, O'Brien shall be entitled to benefits and incentives under all benefit plans and equity incentive plans, policies and programs (except as expressly excluded herein, including, without limitation, Section 2.3 of this Agreement) according to the terms of such benefit plans and equity incentive plans, policies and programs as in effect from time to time, including any acceleration of vesting provisions in the Company's option plans, provided, however, that O'Brien is not and shall not become a "Participant" as that term is defined in the Company's Executive Severance Plan for Officers, effective as of August 9, 2000 and therefore shall not be eligible for any benefits under the Executive Severance Plan for Officers. 4. INVENTIONS AND CREATIONS. O'Brien agrees that all inventions, discoveries, improvements, ideas and other contributions (herein called collectively "Inventions") whether or 7 8 not copyrighted or copyrightable, patented or patentable, or otherwise protectable in law, which are conceived, made, developed or acquired by O'Brien, either individually or jointly, during his employment with the Company or any of its subsidiaries, and which relate in any manner to the business of the Company or any of its subsidiaries, shall belong to the Company and O'Brien does hereby assign and transfer to the Company his entire right, title and interest in the Inventions. O'Brien agrees to promptly and fully disclose the Inventions to the Company, in writing if requested by the Company, and to execute and deliver any and all lawful application, assignment and other documents which the Company requests for protecting the Inventions in the United States or any other country. The Company shall have the full and sole power to prosecute such applications and to take all other action concerning the Inventions, and O'Brien will cooperate fully within a lawful manner, at the expense of the Company, in the preparation and prosecution of all such applications and in any legal actions and proceedings concerning the Inventions. The provisions of this Section 4 shall survive the termination of this Agreement. 5. NON-COMPETITION; NON-SOLICITATION; CONFIDENTIAL INFORMATION. 5.1. NON-COMPETITION AGREEMENT. O'Brien hereby acknowledges and agrees that the Company actively engages in its business throughout all of North America. Accordingly, O'Brien agrees that during the Non-Competition Period (as defined below), O'Brien will not, directly or indirectly, whether as a partner, officer, stockholder, advisor, employee or otherwise, promote, participate, become employed by, or engage in any activity or other business similar to the Company's business or any entity engaged in a business competitive with the Company's business in any state within the United States as well as in Canada or Mexico. If O'Brien fails to comply with the provisions of this Section 5.1, the Company may, in addition to pursuing all other remedies available to the Company under law or in equity as a result of such breach, cease payment of all severance benefits under Section 3. For purposes hereof, "Non-Competition period" shall mean the period commencing on the date hereof and ending eighteen (18) months after the later of the termination of O'Brien's employment hereunder (including the expiration of this Agreement) or O'Brien's submission of his resignation, or removal of O'Brien as Chief Executive Officer of the Company and the Company's payment and provision of Change of Control severance benefits pursuant to Section 3.3. 5.2. NON-SOLICITATION AGREEMENT. During the term of this Agreement and for a period of eighteen (18) months thereafter, O'Brien shall not, directly or indirectly, individually or on behalf of any Person (as defined below) solicit, aid or induce (a) any then current employee of the Company to leave the Company in order to accept employment with or render services for O'Brien or such Person or (b) any customer, client, vendor, lender, supplier or sales representative of the Company or similar persons engaged in business with the Company to discontinue the relationship or reduce the amount of business done with the Company. "Person" means any individual, a partnership, a corporation, an association, a limited liability company, a joint stock company, a trust, a joint venture, an unincorporated organization, a governmental entity, or any department, agency or political subdivision thereof, or an accrediting body. 5.3. CONFIDENTIAL INFORMATION. O'Brien acknowledges and agrees that he is in possession of and will be exposed to during the course of, and incident to, his employment by and affiliations with the Company, Confidential Information (as defined herein) relating to the Company and its affiliated companies. For purposes hereof, "Confidential Information" shall 8 9 mean all proprietary or confidential information concerning the business, finances, financial statements, curricula, properties and operations of the Company and its affiliated companies, including, without limitation, all customer and prospective customer and supplier lists, knowhow, trade secrets, business and marketing plans, techniques, forecasts, projections, budgets, unpublished financial statements, price lists, costs, computer programs, source and object codes, algorithms, data, and other original works of authorship, along with all information received from third parties and held in confidence by the Company and its affiliated companies (including, without limitation, personnel files and employee records). During the Non-Competition Period and at all times thereafter, O'Brien will hold the Confidential Information in the strictest confidence and will not disclose or make use of (directly or indirectly) the Confidential Information or any portion thereof to or on behalf of himself or any third party except (a) as required in the performance of his duties as an employee, director or stockholder of the Company, (b) as required by the order of any court or similar tribunal or any other governmental body or agency of appropriate jurisdiction; provided, that O'Brien shall, to the extent practicable, give the Company prior written notice of any such disclosure and shall cooperate with the Company in obtaining a protective order or such similar protection as the Company may deem appropriate to preserve the confidential nature of such information. The foregoing obligations to maintain the Confidential Information shall not apply to any Confidential Information which is or, without any action by O'Brien, becomes generally available to the public. Upon termination of any employment or consulting relationship between the Company and O'Brien, O'Brien shall promptly return to the Company all physical embodiments of the Confidential Information (regardless of form or medium) in the possession of or under the control of O'Brien. 5.4. SCOPE OF RESTRICTION. The parties have attempted to limit the scope of the covenants set forth in Section 5 to the extent necessary. The parties recognize, however, that reasonable people may differ in making such determination. Consequently, the parties hereby agree that if the scope and duration of such covenants would, but for this provision, be deemed by a court of competent authority to be unreasonable or otherwise unenforceable, such court may modify such covenants to the extent that such court determines to be necessary in order to grant enforcement thereof as so modified. 5.5. REMEDIES. The parties hereto recognize that the Company will suffer irreparable injury in the event of a breach of the terms of Section 5 by O'Brien. In the event of a breach of the terms of Section 5 the Company shall be entitled, in addition to any other remedies and damages available and without proof of monetary or immediate damage, to a temporary and/or permanent injunction, without bond, to restrain the violation of Section 5 by O'Brien or any Persons acting for or in concert with him. Such remedy, however, shall be cumulative and nonexclusive and shall be in addition to any other remedy which the parties may have. 5.6. COMMON LAW OF TORTS OR TRADE SECRETS. The parties agree that nothing in this Agreement shall be construed to limit or negate the common law of torts or trade secrets where it provides the Company with broader protection than that provided herein. 5.7. SURVIVAL OF SECTION 5. The provisions of Section 5 shall survive the termination of O'Brien's employment and the termination of this Agreement. 9 10 6. GENERAL PROVISIONS. 6.1. NOTICES. All notices, demands or other communications to be given or delivered under or by reason of the provisions of this Agreement shall be in writing and shall be deemed to have been given when delivered personally to the recipient, sent to the recipient by reputable express courier service (charges prepaid), sent by facsimile or mailed to the recipient by certified or registered mail, return receipt requested and postage prepaid. Such notices, demands and other communications shall be sent to the Company and to O'Brien at the addresses indicated below: If to the Company: Insurance Auto Auctions, Inc. 850 East Algonquin Road, Suite 100 Schaumburg, Illinois 60173 Phone: 847-839-3939 Fax: 847-839-3999 Attention: Gaspare G. Ruggirello, Esq. With copies to: Katten Muchin Zavis 525 West Monroe Street, Suite 1600 Chicago, Illinois 60661 Phone: 312-902-5564 Fax: 312-577-8648 Attention: David J. Kaufman, Esq. If to O'Brien: Thomas C. O'Brien 536 S. Blackstone Ave. Lagrange, IL 60525 Phone: 708-579-1237 Fax: 708-579-9437 With copies to: Paul Julian Esq. 1038 N. LaSalle Chicago, IL 60601 Phone: 312-266-1500 Fax: 312-337-1972 or to such other address or to the attention of such other person as the recipient party has specified by prior written notice to the sending party. 6.2. ENTIRE AGREEMENT. Except as otherwise expressly set forth herein, this Agreement embodies the complete agreement and understanding among the parties and supersede and preempt any prior understandings, agreements or representations by or among the parties, written or oral, which may have related to the subject matter hereof in any way. 6.3. SUCCESSORS AND ASSIGNS. All covenants and agreements contained in this Agreement by or on behalf of either party hereto shall bind such party and its heirs, legal 10 11 representatives, successors and assigns and inure to the benefit of the other party hereto and their heirs, legal representatives, successors and assigns. 6.4. GOVERNING LAW. This Agreement shall be construed and enforced in accordance with, and all questions concerning the construction, validity, interpretation and performance of this Agreement shall be governed by the laws of the State of Illinois without giving effect to the provisions thereof regarding conflict of laws. 6.5. RESOLUTION OF DISPUTES; ARBITRATION. Should a dispute arise concerning this Agreement, its interpretation or termination, or O'Brien's employment with the Company, either party may request a conference with the other party to this Agreement and the parties shall meet to attempt to resolve the dispute. Failing such resolution within thirty (30) days of either party's request for a conference, the Company and O'Brien shall endeavor to select an arbitrator who shall hear the dispute. In the event the parties are unable to agree on an arbitrator, O'Brien and Company shall request the American Arbitration Association ("AAA") to submit a list of nine (9) names of persons who could serve as an arbitrator. The Company and O'Brien shall alternately remove names from this list (beginning with the party which wins a flip of a coin) until one person remains and this person shall serve as the impartial arbitrator. The arbitration shall be conducted in accordance with the National Rules for the Resolution of Employment Disputes as promulgated by the AAA. The decision of the arbitrator shall be final and binding on both parties. Each party shall bear equally all costs of the arbitrator. The arbitrator shall only have authority to interpret, apply or determine compliance with the provisions set forth in this Agreement, but shall not have the authority to add to, detract from or otherwise alter the language of this Agreement, 6.6. REPRESENTATIONS OF O'BRIEN. O'Brien hereby represents and warrants to the Company that his execution, delivery and performance of this agreement will not violate or result in any breach of any agreement, contract, understanding or written policy to which O'Brien is subject as a result of any prior employment, any investment or otherwise. O'Brien is not subject to any agreement, contract or understanding which in any way restricts or limits his ability to accept employment with the Company or perform the services contemplated herein. 6.7. DESCRIPTIVE HEADINGS; INTERPRETATION. The descriptive headings of this Agreement are inserted for convenience only and do not constitute a part of this Agreement. 6.8. COUNTERPARTS. This Agreement may be executed simultaneously in two or more counterparts, any one of which need not contain the signatures of more than one party, but all such counterparts taken together shall constitute one and the same Agreement. 6.9. AMENDMENTS AND WAIVERS. No modification, amendment or waiver of any provisions of this Agreement shall be effective unless approved in writing by each of the parties hereto. The Company's failure at any time to enforce any of the provisions of this Agreement shall in no way be construed as a waiver of such provisions and will not affect the right of the Company to enforce each and every provision hereof in accordance with its terms. 6.10. NON-ASSIGNMENT. This Agreement shall not be assigned by O'Brien. 11 12 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first written above. INSURANCE AUTO AUCTIONS, INC. By: /s/ Joseph F. Mazzella ----------------------------------------- Name: Joseph F. Mazzella Title: Chairman of the Board /s/ Thomas C. O'Brien ------------------------------------ THOMAS C. O'BRIEN 12 EX-10.2 4 c62638ex10-2.txt EMPLOYMENT AGREEMENT 1 EXHIBIT 10.2 EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT (this "Agreement") is entered into as of the 2nd day of April 2001 by and between DAVID MONTGOMERY ("Montgomery") and INSURANCE AUTO AUCTIONS, INC., an Illinois corporation ("Company"). RECITALS WHEREAS, the Company desires to employ Montgomery and Montgomery desires to be employed by the Company upon the terms and conditions set forth below. NOW, THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, it is hereby agreed that: 1. EMPLOYMENT. The Company hereby employs Montgomery, and Montgomery hereby accepts employment with the Company, as Chief Operating Officer, whose duties include overseeing the day to day operations of the Company and its affiliated companies. Montgomery shall be an executive of the Company and shall be subject to the direction and control of the President and Chief Executive Officer of the Company and the Board of Directors of the Company (the "Board"). Montgomery shall devote all of his business time and services to the business and affairs of the Company. Montgomery shall also perform such other executive-level duties consistent with his position as Chief Operating Officer as may be assigned to him from time to time by the Chief Executive Officer, including serving as an officer and/or director of the Company's operating subsidiaries. The duties and services to be performed by Montgomery hereunder shall be substantially rendered at the Company's principal offices as determined by the Board, except for reasonable travel on the Company's business incident to the performance of Montgomery's duties. 2. COMPENSATION. As compensation for Montgomery's services provided hereunder, the Company agrees to provide the following compensation: 2.1. BASE SALARY. While this Agreement is in effect, the Company agrees to pay to Montgomery a base salary at the rate of $225,000 per annum commencing on the date hereof ("Base Salary"). The Base Salary shall be subject to annual review by the Board and any committee thereof ("Committee") or the Compensation Committee and may be increased by the Board in their sole and absolute discretion but may not be decreased. Such salary shall be payable to Montgomery in such equal periodic payments as the Company generally pays its employees, but in no event less frequently than monthly. 2 2 2.2. INCENTIVES. As additional compensation for performance of the services rendered by Montgomery during the term of this Agreement, the Company will pay to Montgomery, in cash, a performance bonus equal to forty percent (40%) of Montgomery's annual salary based upon the achievement of objectively quantifiable and measurable goals and objectives which shall be determined, in advance, by the Compensation Committee of the Board with respect to each fiscal year of the Company. This amount is hereinafter referred to as "Incentive Compensation." As additional compensation for accepting employment with the Company, the Company will pay to Montgomery, in cash, a signing bonus of $25,000. This signing bonus shall be paid in one lump payment payable as of the date of this agreement. 2.3. OPTIONS. The Company shall cause the Committee delegated by the Board to administer the Option Plan (as defined below) to grant to Montgomery an option to purchase 100,000 shares of the Company's common stock (the "Option"). The Option shall be granted under the Company's 1991 Stock Option Plan, as amended (the "Option Plan"). The exercise price of the Option granted pursuant to this Section 2.3 shall be equal to 100% of the fair market value of the common stock on the close of business on the day before the day that Montgomery becomes employed by the Company subject to the vesting and termination provisions as described below. The Option shall become exercisable in four equal annual installments beginning on the first anniversary of the grant date, and, except as provided below, shall be subject to the usual terms and conditions of options issued pursuant to and in accordance with the Option Plan. 2.4. BENEFITS. During the term of his employment or for such time as otherwise provided in this Agreement, Montgomery shall be entitled to participate in such vacation, auto allowance, benefit plans, fringe benefits, life insurance, medical and dental plans (beginning on the first day of employment), retirement plans and other programs as are offered from time to time by the Company and are described in the Company's employee benefit handbooks. Montgomery shall be entitled to four weeks of paid vacation each calendar year, subject to any limitations on carryover of unused vacation generally applicable to employees. Montgomery shall be authorized to incur necessary and reasonable travel, entertainment and other business expenses in connection with his duties hereunder. In connection with expenses pursuant to this Section 2.4, the Company shall reimburse Montgomery for such expenses upon presentation of an itemized account and appropriate supporting documentation, all in accordance with the Company's generally applicable policies. 2.5. INDEMNIFICATION. The Company shall indemnify Montgomery in accordance with the terms of the Company's standard form of Indemnification Agreement. 3. TERMINATION. 3.1. AT WILL NATURE OF EMPLOYMENT. Employment with the Company is not for a specific term and can be terminated by Montgomery or the Company at any time for any reason, with or without cause. Any contrary representations that may have been made or that may be made to Montgomery are superseded by this Agreement. In addition, this Agreement shall terminate by reason of Montgomery's death or the substantial inability of Montgomery, by 2 3 reason of physical or mental illness or accident, to perform his regular responsibilities hereunder indefinitely or for a period of one hundred eighty (180) days (a "Disability"). 3.2. COMPANY'S OBLIGATIONS ON TERMINATION APART FROM A CHANGE OF CONTROL. (a) NO OBLIGATIONS OTHER THAN AS REQUIRED BY LAW FOR VOLUNTARY TERMINATION OR CAUSE. The Company shall have no obligations to pay Montgomery any severance payments or continue to cover Montgomery and/or his beneficiaries under the Company's health plan (other than as required by law) if this Agreement is terminated for any of the following reasons: (i) VOLUNTARY TERMINATION. Montgomery voluntarily terminates this Agreement; or (ii) CAUSE. The Company terminates Montgomery's employment at any time during the term of this Agreement for Cause. For purposes of this Agreement, "Cause" shall mean: (A) the willful and continued failure of Montgomery to perform substantially his duties with the Company or one of its affiliates (other than any such failure resulting from incapacity due to medically documented illness or injury), 30 days after a written demand for substantial performance is delivered to Montgomery by the Board which specifically identifies the manner in which the Board believes that Montgomery has not substantially performed his duties; or (B) the willful engaging by Montgomery in illegal conduct or misconduct which is injurious to the Company, in each case as determined in the good faith opinion of the Board. (b) DEATH AND DISABILITY OBLIGATIONS. If this Agreement is terminated due to death or Disability, the Company shall pay to Montgomery (or his legal representatives as the case may be) the specific obligations as set forth below: (i) DEATH. Montgomery's employment shall terminate automatically upon Montgomery's death. If Montgomery's employment under this Agreement is terminated by reason of his death, the Company's sole obligation to Montgomery's legal representatives shall be to pay or cause to be paid, within thirty (30) days of the Date of Termination (as hereinafter defined), to such person or persons as Montgomery shall have designated for that purpose in a notice filed with the Company, or, if no such person shall have been so designated, to his estate, the amount of Montgomery's Accrued Obligations (as hereinafter defined). Any amounts payable under this Section 3.2(b)(i) shall be exclusive of and in addition to any payments or benefits which Montgomery's widow, beneficiaries 3 4 or estate may be entitled to receive pursuant to any pension plan, profit sharing plan, any employee benefit plan, equity incentive plan or life insurance policy maintained by the Company. (ii) DISABILITY. If the Disability of Montgomery occurs, the Company may give to Montgomery written notice in accordance with Section 6.1 of this Agreement of its intention to terminate Montgomery's employment. In such event, Montgomery's employment with the Company shall terminate effective on the 30th day after receipt of such notice by Montgomery (the "Disability Effective Date"), unless within the 30-day period after such receipt, Montgomery returns to full-time performance of his duties. The Company's sole obligation to Montgomery shall be payment of Accrued Obligations (as hereinafter defined) and the timely payment or provision of other benefits, including disability and other benefits provided by the Company to disabled executives and/or their families in accordance with such Company plans, programs, practices and policies relating to disability, if any. (c) OBLIGATIONS FOR ALL OTHER TERMINATION REASONS. For any other reason, upon the termination of this Agreement and Montgomery's employment hereunder apart from a Change of Control, the Company shall pay to Montgomery an amount equal to the sum of (i) Montgomery's annual base salary at the time Montgomery's employment is terminated; plus (ii) Montgomery's average annual bonus received over the eight (8) fiscal quarters of the Company immediately preceding Company's fiscal quarter during which Montgomery's employment is terminated, without exceeding Montgomery's target bonus for Company's fiscal year during which Montgomery's employment is terminated, provided, however, that Montgomery shall receive his target bonus if he is terminated within his first eight (8) fiscal quarters with the Company; plus (iii) Montgomery's auto allowance for the Company's fiscal year during which Montgomery's employment is terminated. In addition, the Company shall provide, at Company's expense, continued coverage for Montgomery and his beneficiaries for a period extending through the earlier of the date Montgomery begins any subsequent full-time employment for pay and the date that is one (1) year after Montgomery's termination of employment, under the Company's health plan covering Montgomery and Montgomery's beneficiaries, provided that Montgomery properly elects coverage pursuant to Title I, Part 6 of the Employee Retirement Income Security Act of 1974, as amended ("COBRA"). 3.3. COMPANY'S OBLIGATIONS ON TERMINATION DUE TO A CHANGE OF CONTROL. (a) DEFINITIONS. (i) For purposes of this Agreement, a "Change of Control" shall mean: (A) the acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) (for the purposes of this 4 5 Section 3.3, a "Person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 50% or more of the voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the "Outstanding Company Voting Securities"); provided, however, that for purposes of this subsection (a), any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company shall not constitute a Change of Control; or (B) individuals who, as of the date hereof, constitute the Board (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board; provided, however, that any individual (other than an individual whose initial assumption of office occurs as a result of an actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board) who becomes a director subsequent to the date hereof whose election or nomination for election was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board; or (C) consummation of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of the Company (a "Business Combination") unless, following such Business Combination, (i) all or substantially all of the individuals and entities who were the beneficial owners of the Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 50% of the voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Combination (including, without limitation, a corporation which as a result of such transaction owns the Company or all or substantially all of the Company's assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination of the Outstanding Company Voting Securities and (ii) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board, providing for such Business Combination; or (D) approval by the shareholders of the Company of a complete liquidation or dissolution of the Company. 5 6 (ii) For purposes of this Agreement, "affiliated companies" shall include any company controlled by, controlling or under common control with the Company. (iii) For purposes of this Agreement, "Involuntary Termination" shall mean Montgomery's voluntary termination following (A) a change in Montgomery's position with the Company which materially reduces Montgomery's level of responsibility, (B) a reduction in Montgomery's Base Salary, or (C) a change in Montgomery's place of employment, which is more than seventy-five (75) miles from Montgomery's place of employment prior to the change, provided and only if such change or reduction is effected without Montgomery's written concurrence. (iv) For purposes of this Agreement, "Date of Termination" shall mean (A) if Montgomery's employment is terminated by the Company for Cause, or by Montgomery, the date of receipt of the Notice of Termination or any later date specified therein, as the case may be, (B) if Montgomery's employment is terminated by the Company for other than for Cause or Disability, the date on which the Company notifies Montgomery of such termination and (C) if Montgomery's employment is terminated by reason of death or Disability, the date of death of Montgomery or the Disability Effective Date, as the case may be. (v) For purposes of this Agreement, "Accrued Obligations" shall mean the sum of (A) Montgomery's Base Salary through the Date of Termination to the extent not theretofore paid, (B)the greater of (I) the product of (x) any Incentive Compensation paid to or deferred by Montgomery for the fiscal year preceding the fiscal year in which Montgomery's Date of Termination occurs (annualized in the event that Montgomery was not employed by the Company for the whole of such fiscal year) and (y) a fraction, the numerator of which is the number of days in the current fiscal year through the Date of Termination, and the denominator of which is 365 and (II) the average of the past three (3) years' annual bonuses, provided, however, that Montgomery shall receive his target bonus if he is terminated within his first eight (8) fiscal quarters with the Company (such greater amount being the "Highest Annual Bonus") and (C) any compensation previously deferred by Montgomery (together with any accrued interest or earnings thereon) and any accrued vacation pay, in each case to the extent not theretofore paid. Notwithstanding the foregoing, in no event will Montgomery be entitled to a duplication of any Incentive Compensation payments. (b) SEVERANCE BENEFITS FOR TERMINATION WITHIN TWO (2) YEARS OF A CHANGE OF CONTROL. If Montgomery's employment with the Company terminates by reason of Montgomery's Involuntary Termination (as defined in Section 3.3(a)(iii) above) or termination by the Company without Cause (as defined in Section 3.2(a)(ii)) above) within two (2) years of the effective date of the Change of Control, Montgomery shall be entitled to receive the following: 6 7 (i) Company shall continue to pay Montgomery an amount equal to 150% of the sum of (A) Montgomery's Base Salary and (B) his Highest Annual Bonus; (ii) Company shall pay Montgomery any Accrued Obligations; and (iii) Company shall also provide, at its expense, continued coverage of Montgomery and Montgomery's beneficiaries for eighteen (18) months after the Date of Termination or until Montgomery commences any full-time employment, whichever comes first, under the Company's health plan covering Montgomery and Montgomery's beneficiaries, provided, however, that Montgomery properly elects coverage pursuant to COBRA. (c) SEVERANCE BENEFITS FOR TERMINATION AFTER THE SECOND YEAR FOLLOWING A CHANGE OF CONTROL. If Montgomery is terminated after the second year following a Change of Control, the Company's obligations are as set forth in Section 3.2 of this Agreement. (d) STOCK OPTIONS AFTER A CHANGE OF CONTROL. Subject to Section 2.3 of this Agreement, all Montgomery's outstanding stock options to purchase Company common stock shall accelerate and become fully exercisable. 3.4. CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY; EXCISE TAX GROSS-UP. A "Gross-Up Payment" (as defined below) shall be made to Montgomery when payments of compensation payable to Montgomery on termination of employment in connection with a Change of Control, including, without limitation, the vesting of an option or other non-cash benefit or property, whether pursuant to the terms of any applicable plan, arrangement or agreement with the Company or any of its affiliated companies (the "Total Payments") would trigger a tax imposed on Montgomery under Section 4999 of the Internal Revenue Code of 1986, as amended (the "Excise Tax"). For purposes hereof, the Gross-Up Payment shall mean a payment to Montgomery in such amount as is necessary to ensure that the net amount retained by Montgomery, after reduction for any Excise Tax (including any penalties or interest thereon) on the Total Payments and any federal, state and local income or employment tax and Excise Tax on the Gross-Up Payment provided for by this Section 3.4, but before reduction for any federal, state or local income or employment tax on the Total Payments, shall be equal to the Total Payments. 3.5. EXCLUSIVE BENEFITS. If more than one benefit due to termination becomes payable under Sections 3.2 or 3.3, the greatest of such benefits shall become payable to the exclusion of all other such benefits and shall be in lieu of any other severance or similar benefits that would otherwise be payable under any other agreement, plan, program or policy of the Company. Notwithstanding anything in the prior sentence to the contrary, Montgomery shall be entitled to benefits and incentives under all benefit plans and equity incentive plans, policies and programs (except as expressly excluded herein, including, without limitation, Section 2.3 of this Agreement) according to the terms of such benefit plans and equity incentive plans, policies and 7 8 programs as in effect from time to time, including any acceleration of vesting provisions in the Company's option plans, including any benefits under the Executive Severance Plan for Officers. 4. INVENTIONS AND CREATIONS. Montgomery agrees that all inventions, discoveries, improvements, ideas and other contributions (collectively "Inventions") whether or not copyrighted or copyrightable, patented or patentable, or otherwise protectable in law, which are conceived, made, developed or acquired by Montgomery, either individually or jointly, during his employment with the Company or any of its subsidiaries, and which relate in any manner to the business of the Company or any of its subsidiaries, shall belong to the Company and Montgomery does hereby assign and transfer to the Company his entire right, title and interest in the Inventions. Montgomery agrees to promptly and fully disclose the Inventions to the Company, in writing if requested by the Company, and to execute and deliver any and all lawful application, assignment and other documents which the Company requests for protecting the Inventions in the United States or any other country. The Company shall have the full and sole power to prosecute such applications and to take all other action concerning the Inventions, and Montgomery will cooperate fully within a lawful manner, at the expense of the Company, in the preparation and prosecution of all such applications and in any legal actions and proceedings concerning the Inventions. The provisions of this Section 4 shall survive the termination of this Agreement. 5. NON-COMPETITION; NON-SOLICITATION; CONFIDENTIAL INFORMATION. 5.1. NON-COMPETITION AGREEMENT. Montgomery hereby acknowledges and agrees that the Company actively engages in its business throughout all of North America. Accordingly, Montgomery agrees that during the Non-Competition Period (as defined below), Montgomery will not, directly or indirectly, whether as a partner, officer, shareholder, advisor, employee or otherwise, promote, participate, become employed by, or engage in any activity or other business similar to the Company's business or any entity engaged in a business competitive with the Company's business in any state within the United States as well as in Canada or Mexico. If Montgomery fails to comply with the provisions of this Section 5.1, the Company may, in addition to pursuing all other remedies available to the Company under law or in equity as a result of such breach, cease payment of all severance benefits under Section 3. For purposes hereof, "Non-Competition Period" shall mean the period commencing on the date hereof and ending eighteen (18) months after the later of the termination of Montgomery's employment hereunder or Montgomery's submission of his resignation, or removal of Montgomery as Chief Operating Officer of the Company and the Company's payment and provision of Change of Control severance benefits pursuant to Section 3.3. 5.2. NON-SOLICITATION AGREEMENT. During the term of this Agreement and for a period of eighteen (18) months thereafter, Montgomery shall not, directly or indirectly, individually or on behalf of any Person (as defined below) solicit, aid or induce (a) any then current employee of the Company to leave the Company in order to accept employment with or render services for Montgomery or such Person or (b) any customer, client, vendor, lender, supplier or sales representative of the Company or similar persons engaged in business with the Company to discontinue the relationship or reduce the amount of business done with the 8 9 Company. "Person" means any individual, a partnership, a corporation, an association, a limited liability company, a joint stock company, a trust, a joint venture, an unincorporated organization, a governmental entity, or any department, agency or political subdivision thereof, or an accrediting body. 5.3. CONFIDENTIAL INFORMATION. Montgomery acknowledges and agrees that he is in possession of and will be exposed to during the course of, and incident to, his employment by and affiliations with the Company, Confidential Information (as defined herein) relating to the Company and its affiliated companies. For purposes hereof, "Confidential Information" shall mean all proprietary or confidential information concerning the business, finances, financial statements, properties and operations of the Company and its affiliated companies, including, without limitation, all customer and prospective customer and supplier lists, know-how, trade secrets, business and marketing plans, techniques, forecasts, projections, budgets, unpublished financial statements, price lists, costs, computer programs, source and object codes, algorithms, data, and other original works of authorship, along with all information received from third parties and held in confidence by the Company and its affiliated companies (including, without limitation, personnel files and employee records). During the Non-Competition Period and at all times thereafter, Montgomery will hold the Confidential Information in the strictest confidence and will not disclose or make use of (directly or indirectly) the Confidential Information or any portion thereof to or on behalf of himself or any third party except (a) as required in the performance of his duties as an employee, director or shareholder of the Company, (b) as required by the order of any court or similar tribunal or any other governmental body or agency of appropriate jurisdiction; provided, that Montgomery shall, to the extent practicable, give the Company prior written notice of any such disclosure and shall cooperate with the Company in obtaining a protective order or such similar protection as the Company may deem appropriate to preserve the confidential nature of such information. The foregoing obligations to maintain the Confidential Information shall not apply to any Confidential Information which is or, without any action by Montgomery, becomes generally available to the public. Upon termination of any employment or consulting relationship between the Company and Montgomery, Montgomery shall promptly return to the Company all physical embodiments of the Confidential Information (regardless of form or medium) in the possession of or under the control of Montgomery. 5.4. SCOPE OF RESTRICTION. The parties have attempted to limit the scope of the covenants set forth in Section 5 to the extent necessary. The parties recognize, however, that reasonable people may differ in making such determination. Consequently, the parties hereby agree that if the scope and duration of such covenants would, but for this provision, be deemed by a court of competent authority to be unreasonable or otherwise unenforceable, such court may modify such covenants to the extent that such court determines to be necessary in order to grant enforcement thereof as so modified. 5.5. REMEDIES. The parties hereto recognize that the Company will suffer irreparable injury in the event of a breach of the terms of Section 5 by Montgomery. In the event of a breach of the terms of Section 5, the Company shall be entitled, in addition to any other remedies and damages available and without proof of monetary or immediate damage, to a temporary and/or permanent injunction, without the necessity of posting a bond, to restrain the violation of Section 9 10 5 by Montgomery or any Persons acting for or in concert with him. Such remedy, however, shall be cumulative and nonexclusive and shall be in addition to any other remedy which the parties may have. 5.6. COMMON LAW OF TORTS OR TRADE SECRETS. The parties agree that nothing in this Agreement shall be construed to limit or negate the common law of torts or trade secrets where it provides the Company with broader protection than that provided herein. 5.7. SURVIVAL OF SECTION 5. The provisions of Section 5 shall survive the termination of Montgomery's employment and the termination of this Agreement. 6. GENERAL PROVISIONS. 6.1. NOTICES. All notices, demands or other communications to be given or delivered under or by reason of the provisions of this Agreement shall be in writing and shall be deemed to have been given when delivered personally to the recipient, sent to the recipient by reputable express courier service (charges prepaid), sent by facsimile (with copy sent via another method approved herein), or mailed to the recipient by certified or registered mail, return receipt requested and postage prepaid. Such notices, demands and other communications shall be sent to the Company and to Montgomery at the addresses indicated below: If to the Company: Insurance Auto Auctions, Inc. 850 East Algonquin Road, Suite 100 Schaumburg, Illinois 60173 Phone: 847-839-3939 Fax: 847-839-3999 Attention: General Counsel With copies to: Katten Muchin Zavis 525 West Monroe Street, Suite 1600 Chicago, Illinois 60661 Phone: 312-902-5564 Fax: 312-577-8648 Attention: David J. Kaufman, Esq. If to Montgomery: David Montgomery 850 E. Algonquin Rd., Suite 100 Schaumburg, IL 60173 With copies to: ------------------------------------ ------------------------------------ ------------------------------------ ------------------------------------ 10 11 or to such other address or to the attention of such other person as the recipient party has specified by prior written notice to the sending party. 6.2. ENTIRE AGREEMENT. Except as otherwise expressly set forth herein, this Agreement embodies the complete agreement and understanding among the parties and supersede and preempt any prior understandings, agreements or representations by or among the parties, written or oral, which may have related to the subject matter hereof in any way. 6.3. SUCCESSORS AND ASSIGNS. All covenants and agreements contained in this Agreement by or on behalf of either party hereto shall bind such party and its heirs, legal representatives, successors and assigns and inure to the benefit of the other party hereto and their heirs, legal representatives, successors and assigns. 6.4. GOVERNING LAW. This Agreement shall be construed and enforced in accordance with, and all questions concerning the construction, validity, interpretation and performance of this Agreement shall be governed by the laws of the State of Illinois without giving effect to the provisions thereof regarding conflict of laws. 6.5. RESOLUTION OF DISPUTES; ARBITRATION. Should a dispute arise concerning this Agreement, its interpretation or termination, or Montgomery's employment with the Company, either party may request a conference with the other party to this Agreement and the parties shall meet to attempt to resolve the dispute. Failing such resolution within thirty (30) days of ether party's request for a conference, the Company and Montgomery shall endeavor to select an arbitrator who shall hear the dispute. In the event the parties are unable to agree on an arbitrator, Montgomery and Company shall request the American Arbitration Association ("AAA") to submit a list of nine (9) names of persons who could serve as an arbitrator. The Company and Montgomery shall alternately remove names from this list (beginning with the party which wins a flip of a coin) until one person remains and this person shall serve as the impartial arbitrator. The arbitration shall be conducted in accordance with the National Rules for the Resolution of Employment Disputes as promulgated by the AAA. The decision of the arbitrator shall be final and binding on both parties. Each party shall bear equally all costs of the arbitrator. The arbitrator shall only have authority to interpret, apply or determine compliance with the provisions set forth in this Agreement, but shall not have the authority to add to, detract from or otherwise alter the language of this Agreement. 6.6. REPRESENTATIONS OF MONTGOMERY. Montgomery hereby represents and warrants to the Company that his execution, delivery and performance of this agreement will not violate or result in any breach of any agreement, contract, understanding or written policy to which Montgomery is subject as a result of any prior employment, any investment or otherwise. Montgomery is not subject to any agreement, contract or understanding which in any way restricts or limits his ability to accept employment with the Company or perform the services contemplated herein. 11 12 6.7. DESCRIPTIVE HEADINGS; INTERPRETATION. The descriptive headings of this Agreement are inserted for convenience only and do not constitute a part of this Agreement. 6.8. COUNTERPARTS. This Agreement may be executed simultaneously in two or more counterparts, any one of which need not contain the signatures of more than one party, but all such counterparts taken together shall constitute one and the same Agreement. 6.9. AMENDMENTS AND WAIVERS. No modification, amendment or waiver of any provisions of this Agreement shall be effective unless approved in writing by each of the parties hereto. The Company's failure at any time to enforce any of the provisions of this Agreement shall in no way be construed as a waiver of such provisions and will not affect the right of the Company to enforce each and every provision hereof in accordance with its terms. 6.10. NON-ASSIGNMENT. This Agreement shall not be assigned by Montgomery. SIGNATURE PAGE FOLLOWS. 12 13 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first written above. INSURANCE AUTO AUCTIONS, INC. By: /s/ Thomas C. O'Brien --------------------------------- Name: Thomas C. O'Brien Title: President and Chief Executive Officer /s/ David R. Montgomery -------------------------------- DAVID MONTGOMERY 13 EX-10.3 5 c62638ex10-3.txt EMPLOYMENT AGREEMENT 1 Exhibit 10.3 EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT (this "Agreement") is entered into as of the 2nd day of April 2001 by and between SCOTT PETTIT ("Pettit") and INSURANCE AUTO AUCTIONS, INC., an Illinois corporation ("Company"). RECITALS WHEREAS, the Company desires to employ Pettit and Pettit desires to be employed by the Company upon the terms and conditions set forth below. NOW, THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, it is hereby agreed that: 1. EMPLOYMENT. The Company hereby employs Pettit, and Pettit hereby accepts employment with the Company, as Chief Financial Officer, whose duties include overseeing the financial and accounting aspects of the Company and its affiliated companies. Pettit shall be an executive of the Company and shall be subject to the direction and control of the President and Chief Executive Officer of the Company and the Board of Directors of the Company (the "Board"). Pettit shall devote all of his business time and services to the business and affairs of the Company. Pettit shall also perform such other executive-level duties consistent with his position as Chief Financial Officer as may be assigned to him from time to time by the Chief Executive Officer, including serving as an officer and/or director of the Company's operating subsidiaries. The duties and services to be performed by Pettit hereunder shall be substantially rendered at the Company's principal offices as determined by the Board, except for reasonable travel on the Company's business incident to the performance of Pettit's duties. 2. COMPENSATION. As compensation for Pettit's services provided hereunder, the Company agrees to provide the following compensation: 2.1. BASE SALARY. While this Agreement is in effect, the Company agrees to pay to Pettit a base salary at the rate of $195,000 per annum commencing on the date hereof ("Base Salary"). The Base Salary shall be subject to annual review by the Board and any committee thereof ("Committee") or the Compensation Committee and may be increased by the Board in their sole and absolute discretion but may not be decreased. Such salary shall be payable to Pettit in such equal periodic payments as the Company generally pays its employees, but in no event less frequently than monthly. 2 2.2. INCENTIVES. As additional compensation for performance of the services rendered by Pettit during the term of this Agreement, the Company will pay to Pettit, in cash, a performance bonus equal to forty percent (40%) of Pettit's annual salary based upon the achievement of objectively quantifiable and measurable goals and objectives which shall be determined, in advance, by the Compensation Committee of the Board with respect to each fiscal year of the Company. This amount is hereinafter referred to as "Incentive Compensation." As additional compensation for accepting employment with the Company, the Company will pay to Pettit, in cash, a signing bonus of $35,000. This signing bonus shall be paid in one lump payment payable as of the date of this agreement. 2.3. OPTIONS. The Company shall cause the Committee delegated by the Board to administer the Option Plan (as defined below) to grant to Pettit an option to purchase 100,000 shares of the Company's common stock (the "Option"). The Option shall be granted under the Company's 1991 Stock Option Plan, as amended (the "Option Plan"). The exercise price of the Option granted pursuant to this Section 2.3 shall be equal to 100% of the fair market value of the common stock on the close of business on the day before the day that Pettit becomes employed by the Company subject to the vesting and termination provisions as described below. The Option shall become exercisable in four equal annual installments beginning on the first anniversary of the grant date, and, except as provided below, shall be subject to the usual terms and conditions of options issued pursuant to and in accordance with the Option Plan. 2.4. BENEFITS. During the term of his employment or for such time as otherwise provided in this Agreement, Pettit shall be entitled to participate in such vacation, auto allowance, benefit plans, fringe benefits, life insurance, medical and dental plans (beginning on the first day of employment), retirement plans and other programs as are offered from time to time by the Company and are described in the Company's employee benefit handbooks. Pettit shall be entitled to four weeks of paid vacation each calendar year, subject to any limitations on carryover of unused vacation generally applicable to employees. Pettit shall be authorized to incur necessary and reasonable travel, entertainment and other business expenses in connection with his duties hereunder. In connection with expenses pursuant to this Section 2.4, the Company shall reimburse Pettit for such expenses upon presentation of an itemized account and appropriate supporting documentation, all in accordance with the Company's generally applicable policies. 2.5. INDEMNIFICATION. The Company shall indemnify Pettit in accordance with the terms of the Company's standard form of Indemnification Agreement. 3. TERMINATION. 3.1. AT WILL NATURE OF EMPLOYMENT. Employment with the Company is not for a specific term and can be terminated by Pettit or the Company at any time for any reason, with or without cause. Any contrary representations that may have been made or that may be made to Pettit are superseded by this Agreement. In addition, this Agreement shall terminate by reason of Pettit's death or the substantial inability of Pettit, by reason of physical or mental illness or 2 3 accident, to perform his regular responsibilities hereunder indefinitely or for a period of one hundred eighty (180) days (a "Disability"). 3.2. COMPANY'S OBLIGATIONS ON TERMINATION APART FROM A CHANGE OF CONTROL. (a) NO OBLIGATIONS OTHER THAN AS REQUIRED BY LAW FOR VOLUNTARY TERMINATION OR CAUSE. The Company shall have no obligations to pay Pettit any severance payments or continue to cover Pettit and/or his beneficiaries under the Company's health plan (other than as required by law) if this Agreement is terminated for any of the following reasons: (i) VOLUNTARY TERMINATION. Pettit voluntarily terminates this Agreement; or (ii) CAUSE. The Company terminates Pettit's employment at any time during the term of this Agreement for Cause. For purposes of this Agreement, "Cause" shall mean: (A) the willful and continued failure of Pettit to perform substantially his duties with the Company or one of its affiliates (other than any such failure resulting from incapacity due to medically documented illness or injury), 30 days after a written demand for substantial performance is delivered to Pettit by the Board which specifically identifies the manner in which the Board believes that Pettit has not substantially performed his duties; or (B) the willful engaging by Pettit in illegal conduct or misconduct which is injurious to the Company, in each case as determined in the good faith opinion of the Board. (b) DEATH AND DISABILITY OBLIGATIONS. If this Agreement is terminated due to death or Disability, the Company shall pay to Pettit (or his legal representatives as the case may be) the specific obligations as set forth below: (i) DEATH. Pettit's employment shall terminate automatically upon Pettit's death. If Pettit's employment under this Agreement is terminated by reason of his death, the Company's sole obligation to Pettit's legal representatives shall be to pay or cause to be paid, within thirty (30) days of the Date of Termination (as hereinafter defined), to such person or persons as Pettit shall have designated for that purpose in a notice filed with the Company, or, if no such person shall have been so designated, to his estate, the amount of Pettit's Accrued Obligations (as hereinafter defined). Any amounts payable under this Section 3.2(b)(i) shall be exclusive of and in addition to any payments or benefits which Pettit's widow, beneficiaries or estate may be entitled to receive pursuant to any 3 4 pension plan, profit sharing plan, any employee benefit plan, equity incentive plan or life insurance policy maintained by the Company. (ii) DISABILITY. If the Disability of Pettit occurs, the Company may give to Pettit written notice in accordance with Section 6.1 of this Agreement of its intention to terminate Pettit's employment. In such event, Pettit's employment with the Company shall terminate effective on the 30th day after receipt of such notice by Pettit (the "Disability Effective Date"), unless within the 30-day period after such receipt, Pettit returns to full-time performance of his duties. The Company's sole obligation to Pettit shall be payment of Accrued Obligations (as hereinafter defined) and the timely payment or provision of other benefits, including disability and other benefits provided by the Company to disabled executives and/or their families in accordance with such Company plans, programs, practices and policies relating to disability, if any. (c) OBLIGATIONS FOR ALL OTHER TERMINATION REASONS. For any other reason, upon the termination of this Agreement and Pettit's employment hereunder apart from a Change of Control, the Company shall pay to Pettit an amount equal to the sum of (i) Pettit's annual base salary at the time Pettit's employment is terminated; plus (ii) Pettit's average annual bonus received over the eight (8) fiscal quarters of the Company immediately preceding Company's fiscal quarter during which Pettit's employment is terminated, without exceeding Pettit's target bonus for Company's fiscal year during which Pettit's employment is terminated, provided, however, that Pettit shall receive his target bonus if he is terminated within his first eight (8) fiscal quarters with the Company; plus (iii) Pettit's auto allowance for the Company's fiscal year during which Pettit's employment is terminated. In addition, the Company shall provide, at Company's expense, continued coverage for Pettit and his beneficiaries for a period extending through the earlier of the date Pettit begins any subsequent full-time employment for pay and the date that is one (1) year after Pettit's termination of employment, under the Company's health plan covering Pettit and Pettit's beneficiaries, provided that Pettit properly elects coverage pursuant to Title I, Part 6 of the Employee Retirement Income Security Act of 1974, as amended ("COBRA"). 3.3. COMPANY'S OBLIGATIONS ON TERMINATION DUE TO A CHANGE OF CONTROL. (a) DEFINITIONS. (i) For purposes of this Agreement, a "Change of Control" shall mean: (A) the acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) (for the purposes of this Section 3.3, a "Person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 50% or more of the voting power of the then outstanding voting securities of the Company 4 5 entitled to vote generally in the election of directors (the "Outstanding Company Voting Securities"); provided, however, that for purposes of this subsection (a), any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company shall not constitute a Change of Control; or (B) individuals who, as of the date hereof, constitute the Board (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board; provided, however, that any individual (other than an individual whose initial assumption of office occurs as a result of an actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board) who becomes a director subsequent to the date hereof whose election or nomination for election was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board; or (C) consummation of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of the Company (a "Business Combination") unless, following such Business Combination, (i) all or substantially all of the individuals and entities who were the beneficial owners of the Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 50% of the voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Combination (including, without limitation, a corporation which as a result of such transaction owns the Company or all or substantially all of the Company's assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination of the Outstanding Company Voting Securities and (ii) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board, providing for such Business Combination; or (D) approval by the shareholders of the Company of a complete liquidation or dissolution of the Company. (ii) For purposes of this Agreement, "affiliated companies" shall include any company controlled by, controlling or under common control with the Company. 5 6 (iii) For purposes of this Agreement, "Involuntary Termination" shall mean Pettit's voluntary termination following (A) a change in Pettit's position with the Company which materially reduces Pettit's level of responsibility, (B) a reduction in Pettit's Base Salary, or (C) a change in Pettit's place of employment, which is more than seventy-five (75) miles from Pettit's place of employment prior to the change, provided and only if such change or reduction is effected without Pettit's written concurrence. (iv) For purposes of this Agreement, "Date of Termination" shall mean (A) if Pettit's employment is terminated by the Company for Cause, or by Pettit, the date of receipt of the Notice of Termination or any later date specified therein, as the case may be, (B) if Pettit's employment is terminated by the Company for other than for Cause or Disability, the date on which the Company notifies Pettit of such termination and (C) if Pettit's employment is terminated by reason of death or Disability, the date of death of Pettit or the Disability Effective Date, as the case may be. (v) For purposes of this Agreement, "Accrued Obligations" shall mean the sum of (A) Pettit's Base Salary through the Date of Termination to the extent not theretofore paid, (B) the greater of (I) the product of (x) any Incentive Compensation paid to or deferred by Pettit for the fiscal year preceding the fiscal year in which Pettit's Date of Termination occurs (annualized in the event that Pettit was not employed by the Company for the whole of such fiscal year) and (y) a fraction, the numerator of which is the number of days in the current fiscal year through the Date of Termination, and the denominator of which is 365 and (II) the average of the past three (3) years' annual bonuses, provided, however, that Pettit shall receive his target bonus if he is terminated within his first eight (8) fiscal quarters with the Company (such greater amount being the "Highest Annual Bonus") and (C) any compensation previously deferred by Pettit (together with any accrued interest or earnings thereon) and any accrued vacation pay, in each case to the extent not theretofore paid. Notwithstanding the foregoing, in no event will Pettit be entitled to a duplication of any Incentive Compensation payments. (b) SEVERANCE BENEFITS FOR TERMINATION WITHIN TWO (2) YEARS OF A CHANGE OF CONTROL. If Pettit's employment with the Company terminates by reason of Pettit's Involuntary Termination (as defined in Section 3.3(a)(iii) above) or termination by the Company without Cause (as defined in Section 3.2(a)(ii)) above) within two (2) years of the effective date of the Change of Control, Pettit shall be entitled to receive the following: (i) Company must pay Pettit an amount equal to 150% of the sum of (A) Pettit's Base Salary and (B) his Highest Annual Bonus; (ii) Company shall also pay Pettit any Accrued Obligations; and (iii) Company shall provide, at its expense, continued coverage of Pettit and Pettit's beneficiaries for eighteen (18) months after the Date of Termination or until Pettit commences any full-time employment, whichever comes first, 6 7 under the Company's health plan covering Pettit and Pettit's beneficiaries, provided, however, that Pettit properly elects coverage pursuant to COBRA. (c) SEVERANCE BENEFITS FOR TERMINATION AFTER THE SECOND YEAR FOLLOWING A CHANGE OF CONTROL. If Pettit is terminated after the second year following a Change of Control, the Company's obligations are as set forth in Section 3.2 of this Agreement. (d) STOCK OPTIONS AFTER A CHANGE OF CONTROL. Subject to Section 2.3 of this Agreement, all Pettit's outstanding stock options to purchase Company common stock shall accelerate and become fully exercisable. 3.4. CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY; EXCISE TAX GROSS-UP. A "Gross-Up Payment" (as defined below) shall be made to Pettit when payments of compensation payable to Pettit on termination of employment in connection with a Change of Control, including, without limitation, the vesting of an option or other non-cash benefit or property, whether pursuant to the terms of any applicable plan, arrangement or agreement with the Company or any of its affiliated companies (the "Total Payments") would trigger a tax imposed on Pettit under Section 4999 of the Internal Revenue Code of 1986, as amended (the "Excise Tax"). For purposes hereof, the Gross-Up Payment shall mean a payment to Pettit in such amount as is necessary to ensure that the net amount retained by Pettit, after reduction for any Excise Tax (including any penalties or interest thereon) on the Total Payments and any federal, state and local income or employment tax and Excise Tax on the Gross-Up Payment provided for by this Section 3.4, but before reduction for any federal, state or local income or employment tax on the Total Payments, shall be equal to the Total Payments. 3.5. EXCLUSIVE BENEFITS. If more than one benefit due to termination becomes payable under Sections 3.2 or 3.3, the greatest of such benefits shall become payable to the exclusion of all other such benefits and shall be in lieu of any other severance or similar benefits that would otherwise be payable under any other agreement, plan, program or policy of the Company. Notwithstanding anything in the prior sentence to the contrary, Pettit shall be entitled to benefits and incentives under all benefit plans and equity incentive plans, policies and programs (except as expressly excluded herein, including, without limitation, Section 2.3 of this Agreement) according to the terms of such benefit plans and equity incentive plans, policies and programs as in effect from time to time, including any acceleration of vesting provisions in the Company's option plans, including any benefits under the Executive Severance Plan for Officers. 4. INVENTIONS AND CREATIONS. Pettit agrees that all inventions, discoveries, improvements, ideas and other contributions (collectively "Inventions") whether or not copyrighted or copyrightable, patented or patentable, or otherwise protectable in law, which are conceived, made, developed or acquired by Pettit, either individually or jointly, during his employment with the Company or any of its subsidiaries, and which relate in any manner to the business of the Company or any of its subsidiaries, shall belong to the Company and Pettit does 7 8 hereby assign and transfer to the Company his entire right, title and interest in the Inventions. Pettit agrees to promptly and fully disclose the Inventions to the Company, in writing if requested by the Company, and to execute and deliver any and all lawful application, assignment and other documents which the Company requests for protecting the Inventions in the United States or any other country. The Company shall have the full and sole power to prosecute such applications and to take all other action concerning the Inventions, and Pettit will cooperate fully within a lawful manner, at the expense of the Company, in the preparation and prosecution of all such applications and in any legal actions and proceedings concerning the Inventions. The provisions of this Section 4 shall survive the termination of this Agreement. 5. NON-COMPETITION; NON-SOLICITATION; CONFIDENTIAL INFORMATION. 5.1. NON-COMPETITION AGREEMENT. Pettit hereby acknowledges and agrees that the Company actively engages in its business throughout all of North America. Accordingly, Pettit agrees that during the Non-Competition Period (as defined below), Pettit will not, directly or indirectly, whether as a partner, officer, shareholder, advisor, employee or otherwise, promote, participate, become employed by, or engage in any activity or other business similar to the Company's business or any entity engaged in a business competitive with the Company's business in any state within the United States as well as in Canada or Mexico. If Pettit fails to comply with the provisions of this Section 5.1, the Company may, in addition to pursuing all other remedies available to the Company under law or in equity as a result of such breach, cease payment of all severance benefits under Section 3. For purposes hereof, "Non-Competition Period" shall mean the period commencing on the date hereof and ending eighteen (18) months after the later of the termination of Pettit's employment hereunder or Pettit's submission of his resignation, or removal of Pettit as Chief Financial Officer of the Company and the Company's payment and provision of Change of Control severance benefits pursuant to Section 3.3. 5.2. NON-SOLICITATION AGREEMENT. During the term of this Agreement and for a period of eighteen (18) months thereafter, Pettit shall not, directly or indirectly, individually or on behalf of any Person (as defined below) solicit, aid or induce (a) any then current employee of the Company to leave the Company in order to accept employment with or render services for Pettit or such Person or (b) any customer, client, vendor, lender, supplier or sales representative of the Company or similar persons engaged in business with the Company to discontinue the relationship or reduce the amount of business done with the Company. "Person" means any individual, a partnership, a corporation, an association, a limited liability company, a joint stock company, a trust, a joint venture, an unincorporated organization, a governmental entity, or any department, agency or political subdivision thereof, or an accrediting body. 5.3. CONFIDENTIAL INFORMATION. Pettit acknowledges and agrees that he is in possession of and will be exposed to during the course of, and incident to, his employment by and affiliations with the Company, Confidential Information (as defined herein) relating to the Company and its affiliated companies. For purposes hereof, "Confidential Information" shall mean all proprietary or confidential information concerning the business, finances, financial statements, properties and operations of the Company and its affiliated companies, including, 8 9 without limitation, all customer and prospective customer and supplier lists, know-how, trade secrets, business and marketing plans, techniques, forecasts, projections, budgets, unpublished financial statements, price lists, costs, computer programs, source and object codes, algorithms, data, and other original works of authorship, along with all information received from third parties and held in confidence by the Company and its affiliated companies (including, without limitation, personnel files and employee records). During the Non-Competition Period and at all times thereafter, Pettit will hold the Confidential Information in the strictest confidence and will not disclose or make use of (directly or indirectly) the Confidential Information or any portion thereof to or on behalf of himself or any third party except (a) as required in the performance of his duties as an employee, director or shareholder of the Company, (b) as required by the order of any court or similar tribunal or any other governmental body or agency of appropriate jurisdiction; provided, that Pettit shall, to the extent practicable, give the Company prior written notice of any such disclosure and shall cooperate with the Company in obtaining a protective order or such similar protection as the Company may deem appropriate to preserve the confidential nature of such information. The foregoing obligations to maintain the Confidential Information shall not apply to any Confidential Information which is or, without any action by Pettit, becomes generally available to the public. Upon termination of any employment or consulting relationship between the Company and Pettit, Pettit shall promptly return to the Company all physical embodiments of the Confidential Information (regardless of form or medium) in the possession of or under the control of Pettit. 5.4. SCOPE OF RESTRICTION. The parties have attempted to limit the scope of the covenants set forth in Section 5 to the extent necessary. The parties recognize, however, that reasonable people may differ in making such determination. Consequently, the parties hereby agree that if the scope and duration of such covenants would, but for this provision, be deemed by a court of competent authority to be unreasonable or otherwise unenforceable, such court may modify such covenants to the extent that such court determines to be necessary in order to grant enforcement thereof as so modified. 5.5. REMEDIES. The parties hereto recognize that the Company will suffer irreparable injury in the event of a breach of the terms of Section 5 by Pettit. In the event of a breach of the terms of Section 5, the Company shall be entitled, in addition to any other remedies and damages available and without proof of monetary or immediate damage, to a temporary and/or permanent injunction, without the necessity of posting a bond, to restrain the violation of Section 5 by Pettit or any Persons acting for or in concert with him. Such remedy, however, shall be cumulative and nonexclusive and shall be in addition to any other remedy which the parties may have. 5.6. COMMON LAW OF TORTS OR TRADE SECRETS. The parties agree that nothing in this Agreement shall be construed to limit or negate the common law of torts or trade secrets where it provides the Company with broader protection than that provided herein. 5.7. SURVIVAL OF SECTION 5. The provisions of Section 5 shall survive the termination of Pettit's employment and the termination of this Agreement. 9 10 6. GENERAL PROVISIONS. 6.1. NOTICES. All notices, demands or other communications to be given or delivered under or by reason of the provisions of this Agreement shall be in writing and shall be deemed to have been given when delivered personally to the recipient, sent to the recipient by reputable express courier service (charges prepaid), sent by facsimile (with a copy sent via another method approved herein), or mailed to the recipient by certified or registered mail, return receipt requested and postage prepaid. Such notices, demands and other communications shall be sent to the Company and to Pettit at the addresses indicated below: If to the Company: Insurance Auto Auctions, Inc. 850 East Algonquin Road, Suite 100 Schaumburg, Illinois 60173 Phone: 847-839-3939 Fax: 847-839-3999 Attention: General Counsel With copies to: Katten Muchin Zavis 525 West Monroe Street, Suite 1600 Chicago, Illinois 60661 Phone: 312-902-5564 Fax: 312-577-8648 Attention: David J. Kaufman, Esq. If to Pettit: Scott Pettit 1435 Semar Court ------------------------------------ Mt. Prospect, IL 60056 ------------------------------------ ------------------------------------ With copies to: ------------------------------------ ------------------------------------ ------------------------------------ ------------------------------------ or to such other address or to the attention of such other person as the recipient party has specified by prior written notice to the sending party. 6.2. ENTIRE AGREEMENT. Except as otherwise expressly set forth herein, this Agreement embodies the complete agreement and understanding among the parties and supersede and preempt any prior understandings, agreements or representations by or among the parties, written or oral, which may have related to the subject matter hereof in any way. 6.3. SUCCESSORS AND ASSIGNS. All covenants and agreements contained in this Agreement by or on behalf of either party hereto shall bind such party and its heirs, 10 11 legal representatives, successors and assigns and inure to the benefit of the other party hereto and their heirs, legal representatives, successors and assigns. 6.4. GOVERNING LAW. This Agreement shall be construed and enforced in accordance with, and all questions concerning the construction, validity, interpretation and performance of this Agreement shall be governed by the laws of the State of Illinois without giving effect to the provisions thereof regarding conflict of laws. 6.5. RESOLUTION OF DISPUTES; ARBITRATION. Should a dispute arise concerning this Agreement, its interpretation or termination, or Pettit's employment with the Company, either party may request a conference with the other party to this Agreement and the parties shall meet to attempt to resolve the dispute. Failing such resolution within thirty (30) days of ether party's request for a conference, the Company and Pettit shall endeavor to select an arbitrator who shall hear the dispute. In the event the parties are unable to agree on an arbitrator, Pettit and Company shall request the American Arbitration Association ("AAA") to submit a list of nine (9) names of persons who could serve as an arbitrator. The Company and Pettit shall alternately remove names from this list (beginning with the party which wins a flip of a coin) until one person remains and this person shall serve as the impartial arbitrator. The arbitration shall be conducted in accordance with the National Rules for the Resolution of Employment Disputes as promulgated by the AAA. The decision of the arbitrator shall be final and binding on both parties. Each party shall bear equally all costs of the arbitrator. The arbitrator shall only have authority to interpret, apply or determine compliance with the provisions set forth in this Agreement, but shall not have the authority to add to, detract from or otherwise alter the language of this Agreement. 6.6. REPRESENTATIONS OF PETTIT. Pettit hereby represents and warrants to the Company that his execution, delivery and performance of this agreement will not violate or result in any breach of any agreement, contract, understanding or written policy to which Pettit is subject as a result of any prior employment, any investment or otherwise. Pettit is not subject to any agreement, contract or understanding which in any way restricts or limits his ability to accept employment with the Company or perform the services contemplated herein. 6.7. DESCRIPTIVE HEADINGS; INTERPRETATION. The descriptive headings of this Agreement are inserted for convenience only and do not constitute a part of this Agreement. 6.8. COUNTERPARTS. This Agreement may be executed simultaneously in two or more counterparts, any one of which need not contain the signatures of more than one party, but all such counterparts taken together shall constitute one and the same Agreement. 6.9. AMENDMENTS AND WAIVERS. No modification, amendment or waiver of any provisions of this Agreement shall be effective unless approved in writing by each of the parties hereto. The Company's failure at any time to enforce any of the provisions of this Agreement 11 12 shall in no way be construed as a waiver of such provisions and will not affect the right of the Company to enforce each and every provision hereof in accordance with its terms. 6.10. NON-ASSIGNMENT. This Agreement shall not be assigned by Pettit. SIGNATURE PAGE FOLLOWS. 12 13 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first written above. INSURANCE AUTO AUCTIONS, INC. By: /s/ Thomas C. O'Brien ---------------------------- Name: Thomas C. O'Brien Title: President and Chief Executive Officer /s/ Scott P. Pettit -------------------------------- SCOTT PETTIT EX-10.4 6 c62638ex10-4.txt SEPARATION AGREEMENT 1 Exhibit 10.4 SEPARATION AGREEMENT AND GENERAL RELEASE This Separation Agreement ("Agreement") is entered into by and between Gaspare G. Ruggirello ("Employee") and Insurance Auto Auctions, Inc. (the "Company") to set forth the terms, conditions, and obligations of each party with respect to the termination of the employment relationship between Employee and the Company. Whereas, the parties acknowledge that the Company has requested that the Employee terminate his employment relationship with the Company; Whereas, the parties mutually agree that their joint interest would be furthered by an amicable separation; Now therefore, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties agree as follows: 1. Termination of Employment. Termination of the employment relationship between Employee and the Company shall be effective as of March 31, 2001 (the "Termination Date"). Employee shall resign from his position as an officer and employee of the Company and any of its subsidiaries effective as of the Termination Date. 2. Consideration. As consideration for Employee's entering into this Agreement, the Company agrees: a) Employee shall receive from the Company a lump sum cash payment equal to the sum of (i), (ii) and (iii) below, payable on the next regular payday following expiration of the revocation period described in paragraph 11 below: (i) 52 weeks of pay, computed at the Employee's regular weekly base salary in effect on the Termination Date (such gross amount equal to $145,000); (ii) a bonus payment equal to 30% of Employee's annual base salary (such gross amount equal to $43,500); (iii) an automobile allowance equal to 12.21% of Employee's annual base salary in effect on the Termination Date (such gross amount equal to $17,700); and b) (i) From the Termination Date until March 31, 2002 (the end of the final month covered by Employee's severance pay (the "Severance Period")), the Company shall continue to provide life, medical, dental and long-term disability benefits (the "Company Plans") as previously selected by Employee, for Employee and such of Employee's dependents for whom the Company provided such benefits on the Termination Date; provided 2 Employee shall be responsible for the Employee's share of the cost of coverage and benefits on the same basis as prior to the Termination Date. Such benefits will be continued only to the extent permissible under the terms of such Company Plans. Notwithstanding anything contained in this Section 2b(i) to the contrary, with respect to long-term disability, the Employee must timely apply for conversion insurance and benefits payable thereunder shall not exceed a maximum monthly benefit of $3,000. (ii) If any of the Company Plans do not permit continued participation by the Employee and the Employee's family after termination of employment, then, during the Severance Period, the Company will reimburse the Employee for the cost of obtaining comparable coverage from a third-party insurer, provided, however, that the amount of such reimbursement will not exceed the amount that would have been paid by the Company for coverage under the Company Plans during the Severance Period had the Employee's employment not been terminated. If during the Severance Period, and subject to (iii) below, the Employee is reemployed by another employer, the rights of the Employee and the Employee's family to receive benefits under any Company Plan, or reimbursement for any third-party coverage, will terminate on the date the Employee and Employee's family become eligible to receive comparable benefits from such employer. (iii) If, at the termination of the Severance Period, the Employee is receiving medical and/or dental benefits from a Company Plan, the Company will continue to provide such medical and/or dental benefits to the Employee and/or the Employee's family pursuant to COBRA. For such purpose, the termination of the Severance Period will be considered the date of the "qualifying event" as such term is defined by COBRA and the cost of continued coverage during the COBRA period will be determined pursuant to COBRA and paid entirely by the Employee. (iv) If the Company's Plans do not provide for continued medical and/or dental benefit coverage during the Severance Period, then the Termination Date will be considered the date of the qualifying event for COBRA purposes. In such case, the Employee may either elect to continue such coverage pursuant to COBRA or obtain comparable third-party coverage as described in Section 2(b)(ii). If the Employee elects COBRA coverage, then during the Severance Period, the Employee will be charged the amount that such Employee would have paid for such coverage had such Employee remained employed by the Company, and after the end of such Severance Period and for the remainder of the COBRA period, the cost of such coverage will be determined pursuant to COBRA and paid entirely by the Employee. 2 3 (v) The Employee's active participation in all other employee benefits plans and programs maintained by the Employer, including the Insurance Auto Auctions, Inc. 401(k) Plan and the Insurance Auto Auctions, Inc. Employee Stock Purchase Plan, shall be determined in accordance with the terms of such plans and programs. c) All outstanding stock options granted to Employee as set forth on Attachment A hereto (to the extent not already vested) shall become 100% vested and exercisable on the day after the expiration of the revocation period described in Section 11 below. Such vested stock options will continue to be exercisable until the earlier of such stock options' expiration date or June 30, 2002. Stock options not exercised by June 30, 2002, shall expire and be of no further force or effect. The options shall continue to be governed by the terms and conditions of their respective Notices of Grant of Stock Option and Stock Option Agreements, as amended by this subsection 2(c). d) Employee shall receive accrued but unused vacation pay through the Termination Date, to be paid on or before the Company's next regularly scheduled pay date following the Termination Date. e) Amounts paid to Employee pursuant to this Section 2 shall be subject to applicable withholding taxes as may be required pursuant to federal, state or local law, or by agreement with or consent of Employee. 3. Confidentiality. Employee remains bound by all terms and conditions of the Confidentiality Agreement dated as of July 17, 1997 and attached hereto as Attachment B. Employee also agrees that except as may be specifically required by law, Employee will not in any manner disclose or communicate any part of this Agreement to any other person except Employee's current spouse, Employee's accountant or financial advisor to the limited extent needed for that person to prepare Employee's tax returns, or Employee's attorney. Before any such authorized disclosure, Employee will inform each such person to whom disclosure is to be made that every term of this Agreement is confidential and obtain such person's agreement to maintain the confidentiality of the entire Agreement. 4. Return of Company Property. By signing this Agreement, Employee affirms that he has returned to the Company all of its property that was or is in his possession, custody or control, including but not limited to all keys, company credit cards, access cards, equipment, computers, hardware, software, programs diskettes, data, notes, papers, books, files, documents, records, policies, client and customer information and lists, marketing information, design information, pricing information, blueprints, specifications plans, data base information, mailing lists, and any other property or information that Employee had relating to the Company and/or its customers, employees, plans, strategies, inventions, policies, or practices (whether those materials are in paper or computer-stored form). Employee affirms that he has not retained any such property or information in any form, and that he will not give copies of such property information or disclose their 3 4 contents to any other person. Notwithstanding the above, Employee shall be allowed to retain the Palm Pilot organizer (Palm VII) he is currently using. 5. Restricted Activities. Except for the Permitted Activity (defined below), for a period commencing on the date hereof and terminating at the end of the Severance Period (the "Restricted Period"), the Employee, unless acting in accordance with the Company's prior written consent (which consent may be given by any duly authorized officer of the Company) shall not, anywhere in the United States ("Restricted Territory") directly or indirectly, own, manage, operate, control, finance or participate in the ownership, management, operation, control or financing of, or be connected as an officer, director, employee, principal, agent, representative, consultant, investor, owner, partner, manager, joint venturer or similar affiliation with, any business or enterprise principally engaged in, or with a material portion of its business comprised of the Business; provided, however, the Employee may own, directly or indirectly, securities of any person having a class of securities (a) registered under the Securities Exchange Act of 1934 and (b) publicly traded, if the Employee is not a controlling person of, or a member of a group which controls, such person and the Employee does not, directly or indirectly own more than two percent (2%) of any class of securities of such person (the "Permitted Activity"). "Business" shall mean the business of towing, processing, appraising, auctioning and selling, and processing claims with respect to damaged, abandoned, repossessed, total loss, used and recovered theft automobiles, trucks, motorcycles, boats, trailers, motor houses and other types of vehicles. 6. Employees. During the Restricted Period, Employee shall not, directly or indirectly, (i) solicit for employment and/or hire or offer employment to any individual who is or was an employee of the Company within 90 days of the date of this Agreement and who becomes an employee of the Company or its subsidiaries at any time during the Restricted Period, or (ii) encourage any Company employee to terminate his or her relationship with the Company or its subsidiaries. 7. Customers. During the Restricted Period, the Employee shall not solicit any person who is or was a customer or client of the Company, or its subsidiaries and who becomes a customer or client of the Company or its subsidiaries at any time during the Restricted Period, for the purpose of (i) engaging in, or assisting any person or entity in engaging in, the Business, or (ii) soliciting or encouraging any customer, client of the Company, or its subsidiaries to terminate or otherwise alter his, hers or its relationship or prospective relationship with the Company or its subsidiaries. 8. Release of Claims And Agreement Not To Sue. (a) As consideration for the obligations undertaken by the Company pursuant to this Agreement, Employee, for himself, his successors, administrators, heirs or assigns, hereby fully releases, waives and fully discharges the Released Parties (defined to include the Company, its subsidiaries and affiliates, predecessors, successors, and assigns, and their respective officers, directors, agents and employees, whether past, present or future) from any and all claims, causes of action, suits, demands, damages, judgements or liabilities, of any nature, including attorney's fees and costs, known or unknown, absolute or contingent, arising from or relating to Employee's employment or separation from employment. This release 4 5 includes, without limitation, any and all claims for breach of contract (including the Change in Control and Employment Agreement between the Company and Employee dated February 23, 1998), wrongful discharge or impairment of economic opportunity, any claims under common law or at equity, claims of defamation or intentional infliction of emotional harm, claims of any tort, claims for reimbursements or commissions, and any and all rights and discrimination claims Employee may have arising under the Age Discrimination in Employment Act, Title VII of the Civil Rights Act of 1964, the Americans with Disabilities Act, and any and all other federal, state or local laws or regulations. Employee agrees not to sue or to file any claims or actions against the Released Parties with respect to claims covered by this release and affirms that no such claims or actions are currently pending. Notwithstanding the above, this waiver and release shall not apply to claims for indemnification and/or the advancement of expenses pursuant to Article 7 of the Company's Articles of Incorporation, Article 5 of the Company's Bylaws and any indemnification agreement with the Company. (b) As consideration for the obligations undertaken by the Employee pursuant to this Agreement, the Company, for itself, its successors and assigns, hereby fully releases, waives and fully discharges the Employee from any and all claims, causes of action, suits, demands, damages, judgements or liabilities, of any nature, including attorney's fees and costs, known or unknown, absolute or contingent, arising from or relating to Employee's employment or separation from employment unless such claims, causes of action, suits, demands, damages, judgments or liabilities resulted from Employee's acts or omissions which were (i) grossly negligent, (ii) fraudulent or (iii) intentionally harmful. 9. No Disparagement or Encouragement. Each party agrees not to do anything, and not to make any oral, electronic or written statement to any person (including without limitation any employee, client, customer, supplier, vendor of the Company or the press), that disparages or places in a false or negative light the other party (and in the case of the Company, any of its past or present officers, employees, business, products, services or its relationships); provided, however, that nothing herein shall limit or prohibit either party from cooperating in any truthful manner with any governmental authority or agency or responding truthfully under oath in a legal proceeding. Employee will not encourage any person to file a lawsuit, charge, claim, or complaint against any of the Released Parties. Employee will not assist any person who has filed a lawsuit, charge, claim, or complaint against any of the Released Parties unless Employee is required to render such assistance pursuant to a lawful subpoena or other legal obligation. If Employee is served with any such legal subpoena or becomes subject to any such legal obligation, Employee will provide prompt written notice to the General Counsel of the Company in which Employee shall enclose a copy of the subpoena and any other documents describing the legal obligation. 10. No Reinstatement or Reemployment. Employee agrees not to apply for employment or otherwise seek to be hired, rehired, employed, reemployed, or reinstated by the Company, its affiliates and subsidiaries. 5 6 11. Revocation Period. Employee has the right to revoke this Agreement for up to seven (7) days after Employee signs it. In order to revoke this Agreement, Employee must sign and send a written notice of the decision to do so, addressed to Chief Executive Officer, Insurance Auto Auctions, 850 East Algonquin Road, Suite 100, Schaumburg, IL 60173, and that written notice must be received by Employer no later than the eighth day after Employee signs this Agreement. If Employee revokes this Agreement, the Employee will not be entitled to any of the consideration from the Company described in Sections 2(a), 2(b), and 2(c) above. 12. No Admission. This Agreement does not constitute an admission by any of the Released Parties, and the Company specifically denies that any action or failure to act by any of the Released Parties was wrongful, unlawful, or susceptible of causing any damages or injury to Employee. This Agreement does not constitute an admission by the Employee, and the Employee specifically denies that any action or failure to act by the Employee was wrongful, unlawful, or susceptible of causing any damages or injury to the Company. 13. Severability. The Employee acknowledges and agrees that the Restrictive Covenants (as defined below) are reasonable, necessary and valid in duration and geographical scope and in all other respects. If any court determines that any of the Restrictive Covenants, or any part thereof, is invalid or unenforceable, the remainder of the Restrictive Covenants shall not be affected thereby and shall be given full effect without regard to the invalid portions. Provided, however, that if Employee brings a lawsuit, claim, charge, or complaint against the Company, and a court of competent jurisdiction finds that a release or waiver of claims or rights by Employee in Section 8 above is illegal, void or unenforceable, Employee agrees that upon request by the Company, Employee will promptly sign a release or waiver that is legal and enforceable. 14. Rights and Remedies Upon Breach. If the Employee breaches, or threatens to commit a breach of, any of the covenants set forth in Sections 5, 6 or 7 of this Agreement (the "Restrictive Covenants"), the Company shall have the right and remedy to have the Restrictive Covenants specifically enforced by any court of competent jurisdiction, including immediate temporary injunctive relief without bond and without the necessity of showing actual monetary damages, it being agreed that any breach or threatened breach of the Restrictive Covenants would cause irreparable injury to the Company and that money damages would not provide an adequate remedy to the Company, which right and remedy is in addition to, and not in lieu of, any other rights and remedies available to the Company under law or in equity. The Restricted Period shall be extended by any period that the Employee is in breach of the Restrictive Covenants, unless such breach is not willful and does not materially damage the Company. 15. Agreement Inadmissible as Evidence. This Agreement, its execution, and its implementation may not be used as evidence, and shall not be admissible in any proceeding except one claiming a violation of this Agreement. 16. Entire Agreement. This Agreement sets forth the full understanding and agreement of the parties and supersedes any and all other understandings or agreements, written or oral; 6 7 provided, however, that Employee shall continue to be bound by the Confidentiality Agreement described in Section 3. 17. Governing Law and Jurisdiction. This Agreement shall be governed by and construed in accordance with laws and judicial decisions of the State of Illinois, without regard to its principles of conflicts of laws. 18. Knowing and Voluntary Waiver. Employee specifically agrees as follows: a) Employee is knowingly and voluntarily entering into this Agreement; b) Employee acknowledges that the Company is providing benefits in the form of payments and compensation, to which Employee would not otherwise be entitled, as part of the consideration for Employee's entering into this Agreement; c) Employee acknowledges receiving from the Company the informational disclosures attached to this Agreement as Exhibit A at the same time Employee received this Agreement; d) Employee is hereby advised by the Company to consult with an attorney before signing this Agreement; e) Employee understands that he has a period of forty-five (45) days from the date a copy of this Agreement is provided to Employee in which to consider and sign the Agreement (during which the offer will remain open), and that the Employee has an additional seven (7) days after signing this Agreement within which to revoke acceptance of the Agreement; and, f) If during the seven (7) day revocation period Employee should revoke acceptance of the Agreement, then this Agreement shall be void. 19. Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed to be an original, but all of which together shall constitute one and the same instrument. INSURANCE AUTO AUCTIONS, INC. GASPARE G. RUGGIRELLO By: /s/ Thomas C. O'Brien /s/ Gaspare G. Ruggirello -------------------------------- ---------------------------------- Its: CEO ------------------------------- Dated: 2-23-01 ---------------------------- Dated: 2-23-01 ----------------------------- 7 8 Attachment A Stock Options of Employee Number Grant Date Number Exercise Price ------ ---------- ------ -------------- IA0313 8/5/97 5,000 $9.4375 IA0323 1/2/98 12,500 11.688 IA0449 12/15/98 10,000 11.125 IA0450 12/15/98 15,000 11.125 9 Exhibit A INFORMATIONAL DISCLOSURES The following disclosures are intended to inform you about which job positions at Insurance Auto Auctions, Inc. were selected to participate in the employment termination program, which job positions were not selected to participate in the employment termination program, and the ages of the employees holding those positions. You are being given this information to assist you in making an informed decision about signing the accompanying Separation Agreement and General Release. You have 45 days from the date of receiving these disclosures to sign the Separation Agreement and General Release, if you so chose. If you sign the Agreement, you have 7 days from the date of signature to revoke the Agreement. If you revoke, you will not be entitled to any consideration under the Agreement. The following employees were selected to participate in the employment termination program: TITLE AGE(S) - ----- ------ Vice President, Chief Financial Officer and Assistant 45 Secretary Vice President, General Counsel and Secretary 43 The following employees were not selected to participate in the employment termination program: TITLE AGE(S) - ----- ------ Vice President, Eastern Division 42 Vice President, Industry and Customer Relations 52 Vice-President, Western Division 41 Vice-President, Business Development 38 Senior Vice-President, Sales & Marketing 52 Vice-President, Information Technology & CIO 42 Vice-President, Public Affairs 49 EX-10.5 7 c62638ex10-5.txt SEPARATION AGREEMENT 1 Exhibit 10.5 SEPARATION AGREEMENT AND GENERAL RELEASE This Separation Agreement ("Agreement") is entered into by and between Donald J. Comis ("Employee") and Insurance Auto Auctions, Inc. (the "Company") to set forth the terms, conditions, and obligations of each party with respect to the termination of the employment relationship between Employee and the Company. Whereas, the parties acknowledge that the Company has requested that the Employee terminate his employment relationship with the Company; Whereas, the parties mutually agree that their joint interest would be furthered by an amicable separation; Now therefore, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties agree as follows: 1. Termination of Employment. Termination of the employment relationship between Employee and the Company shall be effective as of April 9, 2001 (the "Termination Date"). Employee shall resign from his position as an officer and employee of the Company and any of its subsidiaries effective as of the Termination Date. 2. Consideration. As consideration for Employee's entering into this Agreement, the Company agrees: a) Employee shall receive from the Company a lump sum cash payment equal to the sum of (i), (ii) and (iii) below, payable on the next regular payday following expiration of the revocation period described in paragraph 11 below: (i) 52 weeks of pay, computed at the Employee's regular weekly base salary in effect on the Termination Date (such gross amount equal to $145,000.00); (ii) a bonus payment equal to Employee's target bonus for the Company's fiscal year during which Employee's employment is terminated (such gross amount equal to $43,500.00); (iii) Employee's auto allowance for the Company's fiscal year during which the Employee's employment is terminated (such gross amount equal to $1,466.99 per month or $17,603.88); and b) (i) From the Termination Date until April 9, 2002 (the end of the final month covered by Employee's severance pay (the "Severance Period")), the Company shall continue to provide life, medical, dental and long-term disability benefits (the "Company Plans") as previously selected by 2 Employee, for Employee and such of Employee's dependents for whom the Company provided such benefits on the Termination Date; provided Employee shall be responsible for the Employee's share of the cost of coverage and benefits on the same basis as prior to the Termination Date. Such benefits will be continued only to the extent permissible under the terms of such Company Plans. Notwithstanding anything contained in this Section 2b(i) to the contrary, with respect to long-term disability, the Employee must timely apply for conversion insurance and benefits payable thereunder shall not exceed a maximum monthly benefit of $3,000. (ii) If any of the Company Plans do not permit continued participation by the Employee and the Employee's family after termination of employment, then, during the Severance Period, the Company will reimburse the Employee for the cost of obtaining comparable coverage from a third-party insurer, provided, however, that the amount of such reimbursement will not exceed the amount that would have been paid by the Company for coverage under the Company Plans during the Severance Period had the Employee's employment not been terminated. If during the Severance Period, and subject to (iii) below, the Employee is reemployed by another employer, the rights of the Employee and the Employee's family to receive benefits under any Company Plan, or reimbursement for any third-party coverage, will terminate on the date the Employee and Employee's family become eligible to receive comparable benefits from such employer. (iii) If, at the termination of the Severance Period, the Employee is receiving medical and/or dental benefits from a Company Plan, the Company will continue to provide such medical and/or dental benefits to the Employee and/or the Employee's family pursuant to COBRA. For such purpose, the termination of the Severance Period will be considered the date of the "qualifying event" as such term is defined by COBRA and the cost of continued coverage during the COBRA period will be determined pursuant to COBRA and paid entirely by the Employee. (iv) If the Company's Plans do not provide for continued medical and/or dental benefit coverage during the Severance Period, then the Termination Date will be considered the date of the qualifying event for COBRA purposes. In such case, the Employee may either elect to continue such coverage pursuant to COBRA or obtain comparable third-party coverage as described in Section 2(b)(ii). If the Employee elects COBRA coverage, then during the Severance Period, the Employee will be charged the amount that such Employee would have paid for such coverage had such Employee remained employed by the Company, and after the end of such Severance Period and for the remainder of the COBRA period, the cost of 2 3 such coverage will be determined pursuant to COBRA and paid entirely by the Employee. (v) The Employee's active participation in all other employee benefits plans and programs maintained by the Employer, including the Insurance Auto Auctions, Inc. 401(k) Plan and the Insurance Auto Auctions, Inc. Employee Stock Purchase Plan, shall be determined in accordance with the terms of such plans and programs. c) All outstanding stock options granted to Employee as set forth on Attachment A hereto (to the extent not already vested) shall become 100% vested and exercisable on the day after the expiration of the revocation period described in Section 11 below. Such vested stock options will continue to be exercisable until the earlier of such stock options' expiration date or July 9, 2002. Stock options not exercised by July 9, 2002, shall expire and be of no further force or effect. The options shall continue to be governed by the terms and conditions of their respective Notices of Grant of Stock Option and Stock Option Agreements, as amended by this subsection 2(c). d) Employee shall receive accrued but unused vacation pay through the Termination Date, to be paid on or before the Company's next regularly scheduled pay date following the Termination Date. e) Amounts paid to Employee pursuant to this Section 2 shall be subject to applicable withholding taxes as may be required pursuant to federal, state or local law, or by agreement with or consent of Employee. 3. Confidentiality. Employee remains bound by all terms and conditions of the Confidentiality Agreement dated as of March 25, 1994 and attached hereto as Attachment B. Employee also agrees that except as may be specifically required by law, Employee will not in any manner disclose or communicate any part of this Agreement to any other person except Employee's current spouse, Employee's accountant or financial advisor to the limited extent needed for that person to prepare Employee's tax returns, or Employee's attorney. Before any such authorized disclosure, Employee will inform each such person to whom disclosure is to be made that every term of this Agreement is confidential and obtain such person's agreement to maintain the confidentiality of the entire Agreement. 4. Return of Company Property. By signing this Agreement, Employee affirms that he has returned to the Company all of its property that was or is in his possession, custody or control, including but not limited to all keys, company credit cards, access cards, equipment, computers, hardware, software, programs diskettes, data, notes, papers, books, files, documents, records, policies, client and customer information and lists, marketing information, design information, pricing information, blueprints, specifications plans, data base information, mailing lists, and any other property or information that Employee had relating to the Company and/or its customers, employees, plans, strategies, inventions, policies, or practices (whether those materials are in paper or computer-stored 3 4 form). Employee affirms that he has not retained any such property or information in any form, and that he will not give copies of such property information or disclose their contents to any other person. Notwithstanding the above, if Employee was provided with a Palm Pilot organizer, Employee shall be allowed to retain the Palm Pilot organizer (Palm VII) he is currently using. 5. Omitted. 6. Omitted. 7. Omitted. 8. Release of Claims And Agreement Not To Sue. (a) As consideration for the obligations undertaken by the Company pursuant to this Agreement, Employee, for himself, his successors, administrators, heirs or assigns, hereby fully releases, waives and fully discharges the Released Parties (defined to include the Company, its subsidiaries and affiliates, predecessors, successors, and assigns, and their respective officers, directors, agents and employees, whether past, present or future) from any and all claims, causes of action, suits, demands, damages, judgements or liabilities, of any nature, including attorney's fees and costs, known or unknown, absolute or contingent, arising from or relating to Employee's employment or separation from employment. This release includes, without limitation, any and all claims for breach of contract (including the Change in Control and Employment Agreement between the Company and Employee dated February 23, 1998), wrongful discharge or impairment of economic opportunity, any claims under common law or at equity, claims of defamation or intentional infliction of emotional harm, claims of any tort, claims for reimbursements or commissions, and any and all rights and discrimination claims Employee may have arising under the Age Discrimination in Employment Act, Title VII of the Civil Rights Act of 1964, the Americans with Disabilities Act, and any and all other federal, state or local laws or regulations. Employee agrees not to sue or to file any claims or actions against the Released Parties with respect to claims covered by this release and affirms that no such claims or actions are currently pending. Notwithstanding the above, this waiver and release shall not apply to claims for indemnification and/or the advancement of expenses pursuant to Article 7 of the Company's Articles of Incorporation, Article 5 of the Company's Bylaws and any indemnification agreement with the Company. (b) As consideration for the obligations undertaken by the Employee pursuant to this Agreement, the Company, for itself, its successors and assigns, hereby fully releases, waives and fully discharges the Employee from any and all claims, causes of action, suits, demands, damages, judgements or liabilities, of any nature, including attorney's fees and costs, known or unknown, absolute or contingent, arising from or relating to Employee's employment or separation from employment unless such claims, causes of action, suits, demands, damages, judgments or liabilities resulted from Employee's acts or omissions which were (i) grossly negligent, (ii) fraudulent or (iii) intentionally harmful. 4 5 9. No Disparagement or Encouragement. Each party agrees not to do anything, and not to make any oral, electronic or written statement to any person (including without limitation any employee, client, customer, supplier, vendor of the Company or the press), that disparages or places in a false or negative light the other party (and in the case of the Company, any of its past or present officers, employees, business, products, services or its relationships); provided, however, that nothing herein shall limit or prohibit either party from cooperating in any truthful manner with any governmental authority or agency or responding truthfully under oath in a legal proceeding. Employee will not encourage any person to file a lawsuit, charge, claim, or complaint against any of the Released Parties. Employee will not assist any person who has filed a lawsuit, charge, claim, or complaint against any of the Released Parties unless Employee is required to render such assistance pursuant to a lawful subpoena or other legal obligation. If Employee is served with any such legal subpoena or becomes subject to any such legal obligation, Employee will provide prompt written notice to the General Counsel of the Company in which Employee shall enclose a copy of the subpoena and any other documents describing the legal obligation. 10. No Reinstatement or Reemployment. Employee agrees not to apply for employment or otherwise seek to be hired, rehired, employed, reemployed, or reinstated by the Company, its affiliates and subsidiaries. 11. Revocation Period. Employee has the right to revoke this Agreement for up to seven (7) days after Employee signs it. In order to revoke this Agreement, Employee must sign and send a written notice of the decision to do so, addressed to Chief Executive Officer, Insurance Auto Auctions, 850 East Algonquin Road, Suite 100, Schaumburg, IL 60173, and that written notice must be received by Employer no later than the eighth day after Employee signs this Agreement. If Employee revokes this Agreement, the Employee will not be entitled to any of the consideration from the Company described in Sections 2(a), 2(b), and 2(c) above. 12. No Admission. This Agreement does not constitute an admission by any of the Released Parties, and the Company specifically denies that any action or failure to act by any of the Released Parties was wrongful, unlawful, or susceptible of causing any damages or injury to Employee. This Agreement does not constitute an admission by the Employee, and the Employee specifically denies that any action or failure to act by the Employee was wrongful, unlawful, or susceptible of causing any damages or injury to the Company. 13. Severability. The Employee acknowledges and agrees that the Restrictive Covenants (as defined below) are reasonable, necessary and valid in duration and geographical scope and in all other respects. If any court determines that any of the Restrictive Covenants, or any part thereof, is invalid or unenforceable, the remainder of the Restrictive Covenants shall not be affected thereby and shall be given full effect without regard to the invalid portions. Provided, however, that if Employee brings a lawsuit, claim, charge, or complaint against the Company, and a court of competent jurisdiction finds that a release or waiver of claims or rights by Employee in Section 8 above is illegal, void or unenforceable, Employee agrees that upon request by the Company, Employee will promptly sign a release or waiver that is legal and enforceable. 5 6 14. Rights and Remedies Upon Breach. If the Employee breaches, or threatens to commit a breach of, any of the covenants set forth in Sections 5, 6 or 7 of this Agreement (the "Restrictive Covenants"), the Company shall have the right and remedy to have the Restrictive Covenants specifically enforced by any court of competent jurisdiction, including immediate temporary injunctive relief without bond and without the necessity of showing actual monetary damages, it being agreed that any breach or threatened breach of the Restrictive Covenants would cause irreparable injury to the Company and that money damages would not provide an adequate remedy to the Company, which right and remedy is in addition to, and not in lieu of, any other rights and remedies available to the Company under law or in equity. The Restricted Period shall be extended by any period that the Employee is in breach of the Restrictive Covenants, unless such breach is not willful and does not materially damage the Company. 15. Agreement Inadmissible as Evidence. This Agreement, its execution, and its implementation may not be used as evidence, and shall not be admissible in any proceeding except one claiming a violation of this Agreement. 16. Entire Agreement. This Agreement sets forth the full understanding and agreement of the parties and supersedes any and all other understandings or agreements, written or oral; provided, however, that Employee shall continue to be bound by the Confidentiality Agreement described in Section 3. 17. Governing Law and Jurisdiction. This Agreement shall be governed by and construed in accordance with laws and judicial decisions of the State of Illinois, without regard to its principles of conflicts of laws. 18. Knowing and Voluntary Waiver. Employee specifically agrees as follows: a) Employee is knowingly and voluntarily entering into this Agreement; b) Employee acknowledges that the Company is providing benefits in the form of payments and compensation, to which Employee would not otherwise be entitled, as part of the consideration for Employee's entering into this Agreement; c) Employee acknowledges receiving from the Company the informational disclosures attached to this Agreement as Exhibit A at the same time Employee received this Agreement; d) Employee is hereby advised by the Company to consult with an attorney before signing this Agreement; e) Employee understands that he has a period of forty-five (45) days from the date a copy of this Agreement is provided to Employee in which to consider and sign the Agreement (during which the offer will remain open), and that the Employee has an additional seven (7) days after signing this Agreement within which to revoke acceptance of the Agreement; and, 6 7 f) If during the seven (7) day revocation period Employee should revoke acceptance of the Agreement, then this Agreement shall be void. 19. Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed to be an original, but all of which together shall constitute one and the same instrument. INSURANCE AUTO AUCTIONS, INC. DONALD J. COMIS By: /s/ Thomas C. O'Brien /s/ Donald J. Comis ------------------------------------- ---------------------------- Name: Thomas C. O'Brien Dated: 4-12-01 ---------------------- Its: President and CEO Dated: 4-12-01 ---------------------------------- 7 8 Attachment A Stock Options of Employee Number Grant Date Amount Exercise Price - ------ ---------- ------ -------------- IA0129 06/21/94 4,000 $31.50 IA0196 11/08/95 2,500 $ 7.00 IA0317 01/02/98 12,500 $11.688 IA0455 12/15/98 10,000 $11.125 IA0456 12/15/98 15,000 $11.125 9 Exhibit A INFORMATIONAL DISCLOSURES The following disclosures are intended to inform you about which job positions at Insurance Auto Auctions, Inc. were selected to participate in the employment termination program, which job positions were not selected to participate in the employment termination program, and the ages of the employees holding those positions. You are being given this information to assist you in making an informed decision about signing the accompanying Separation Agreement and General Release. You have 45 days from the date of receiving these disclosures to sign the Separation Agreement and General Release, if you so chose. If you sign the Agreement, you have 7 days from the date of signature to revoke the Agreement. If you revoke, you will not be entitled to any consideration under the Agreement. The following employees were selected to be terminated: TITLE AGE(S) - ----- ------ Vice President, Eastern Division 42 Vice President, Business Development 38 Vice President, Chief Financial Officer and Assistant 45 Secretary Vice President, General Counsel and Secretary 43 The following employees were not selected to be terminated: TITLE AGE(S) - ----- ------ Vice President, Industry and Customer Relations 52 Vice President, Western Division 41 Senior Vice President, Sales & Marketing 52 Vice President, Information Technology & CIO 42 Vice President, Public Affairs 49 EX-10.6 8 c62638ex10-6.txt SEPARATION AGREEMENT 1 Exhibit 10.6 SEPARATION AGREEMENT AND GENERAL RELEASE This Separation Agreement ("Agreement") is entered into by and between Gerald C. Comis ("Employee") and Insurance Auto Auctions, Inc. (the "Company") to set forth the terms, conditions, and obligations of each party with respect to the termination of the employment relationship between Employee and the Company. Whereas, the parties acknowledge that the Company has requested that the Employee terminate his employment relationship with the Company; Whereas, the parties mutually agree that their joint interest would be furthered by an amicable separation; Now therefore, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties agree as follows: 1. Termination of Employment. Termination of the employment relationship between Employee and the Company shall be effective as of April 9, 2001 (the "Termination Date"). Employee shall resign from his position as an officer and employee of the Company and any of its subsidiaries effective as of the Termination Date. 2. Consideration. As consideration for Employee's entering into this Agreement, the Company agrees: a) Employee shall receive from the Company a lump sum cash payment equal to the sum of (i), (ii) and (iii) below, payable on the next regular payday following expiration of the revocation period described in paragraph 11 below: (i) 52 weeks of pay, computed at the Employee's regular weekly base salary in effect on the Termination Date (such gross amount equal to $155,000.00); (ii) a bonus payment equal to Employee's target bonus for the Company's fiscal year during which Employee's employment is terminated (such gross amount equal to $46,500.00); (iii) Employee's auto allowance for the Company's fiscal year during which the Employee's employment is terminated (such gross amount equal to $1,466.99 per month or $17,603.88); and b) (i) From the Termination Date until April 9, 2002 (the end of the final month covered by Employee's severance pay (the "Severance Period")), the Company shall continue to provide life, medical, dental and long-term disability benefits (the "Company Plans") as previously selected by 2 Employee, for Employee and such of Employee's dependents for whom the Company provided such benefits on the Termination Date; provided Employee shall be responsible for the Employee's share of the cost of coverage and benefits on the same basis as prior to the Termination Date. Such benefits will be continued only to the extent permissible under the terms of such Company Plans. Notwithstanding anything contained in this Section 2b(i) to the contrary, with respect to long-term disability, the Employee must timely apply for conversion insurance and benefits payable thereunder shall not exceed a maximum monthly benefit of $3,000. (ii) If any of the Company Plans do not permit continued participation by the Employee and the Employee's family after termination of employment, then, during the Severance Period, the Company will reimburse the Employee for the cost of obtaining comparable coverage from a third-party insurer, provided, however, that the amount of such reimbursement will not exceed the amount that would have been paid by the Company for coverage under the Company Plans during the Severance Period had the Employee's employment not been terminated. If during the Severance Period, and subject to (iii) below, the Employee is reemployed by another employer, the rights of the Employee and the Employee's family to receive benefits under any Company Plan, or reimbursement for any third-party coverage, will terminate on the date the Employee and Employee's family become eligible to receive comparable benefits from such employer. (iii) If, at the termination of the Severance Period, the Employee is receiving medical and/or dental benefits from a Company Plan, the Company will continue to provide such medical and/or dental benefits to the Employee and/or the Employee's family pursuant to COBRA. For such purpose, the termination of the Severance Period will be considered the date of the "qualifying event" as such term is defined by COBRA and the cost of continued coverage during the COBRA period will be determined pursuant to COBRA and paid entirely by the Employee. (iv) If the Company's Plans do not provide for continued medical and/or dental benefit coverage during the Severance Period, then the Termination Date will be considered the date of the qualifying event for COBRA purposes. In such case, the Employee may either elect to continue such coverage pursuant to COBRA or obtain comparable third-party coverage as described in Section 2(b)(ii). If the Employee elects COBRA coverage, then during the Severance Period, the Employee will be charged the amount that such Employee would have paid for such coverage had such Employee remained employed by the Company, and after the end of such Severance Period and for the remainder of the COBRA period, the cost of 2 3 such coverage will be determined pursuant to COBRA and paid entirely by the Employee. (v) The Employee's active participation in all other employee benefits plans and programs maintained by the Employer, including the Insurance Auto Auctions, Inc. 401(k) Plan and the Insurance Auto Auctions, Inc. Employee Stock Purchase Plan, shall be determined in accordance with the terms of such plans and programs. c) All outstanding stock options granted to Employee as set forth on Attachment A hereto (to the extent not already vested) shall become 100% vested and exercisable on the day after the expiration of the revocation period described in Section 11 below. Such vested stock options will continue to be exercisable until the earlier of such stock options' expiration date or July 9, 2002. Stock options not exercised by July 9, 2002, shall expire and be of no further force or effect. The options shall continue to be governed by the terms and conditions of their respective Notices of Grant of Stock Option and Stock Option Agreements, as amended by this subsection 2(c). d) Employee shall receive accrued but unused vacation pay through the Termination Date, to be paid on or before the Company's next regularly scheduled pay date following the Termination Date. e) Amounts paid to Employee pursuant to this Section 2 shall be subject to applicable withholding taxes as may be required pursuant to federal, state or local law, or by agreement with or consent of Employee. 3. Confidentiality. Employee remains bound by all terms and conditions of the Confidentiality Agreement dated as of March 28, 1994 and attached hereto as Attachment B. Employee also agrees that except as may be specifically required by law, Employee will not in any manner disclose or communicate any part of this Agreement to any other person except Employee's current spouse, Employee's accountant or financial advisor to the limited extent needed for that person to prepare Employee's tax returns, or Employee's attorney. Before any such authorized disclosure, Employee will inform each such person to whom disclosure is to be made that every term of this Agreement is confidential and obtain such person's agreement to maintain the confidentiality of the entire Agreement. 4. Return of Company Property. By signing this Agreement, Employee affirms that he has returned to the Company all of its property that was or is in his possession, custody or control, including but not limited to all keys, company credit cards, access cards, equipment, computers, hardware, software, programs diskettes, data, notes, papers, books, files, documents, records, policies, client and customer information and lists, marketing information, design information, pricing information, blueprints, specifications plans, data base information, mailing lists, and any other property or information that Employee had relating to the Company and/or its customers, employees, plans, strategies, inventions, policies, or practices (whether those materials are in paper or computer-stored 3 4 form). Employee affirms that he has not retained any such property or information in any form, and that he will not give copies of such property information or disclose their contents to any other person. Notwithstanding the above, if Employee was provided with a Palm Pilot organizer, Employee shall be allowed to retain the Palm Pilot organizer (Palm VII) he is currently using. 5. Omitted. 6. Omitted. 7. Omitted. 8. Release of Claims And Agreement Not To Sue. (a) As consideration for the obligations undertaken by the Company pursuant to this Agreement, Employee, for himself, his successors, administrators, heirs or assigns, hereby fully releases, waives and fully discharges the Released Parties (defined to include the Company, its subsidiaries and affiliates, predecessors, successors, and assigns, and their respective officers, directors, agents and employees, whether past, present or future) from any and all claims, causes of action, suits, demands, damages, judgements or liabilities, of any nature, including attorney's fees and costs, known or unknown, absolute or contingent, arising from or relating to Employee's employment or separation from employment. This release includes, without limitation, any and all claims for breach of contract (including the Change in Control and Employment Agreement between the Company and Employee dated February 23, 1998), wrongful discharge or impairment of economic opportunity, any claims under common law or at equity, claims of defamation or intentional infliction of emotional harm, claims of any tort, claims for reimbursements or commissions, and any and all rights and discrimination claims Employee may have arising under the Age Discrimination in Employment Act, Title VII of the Civil Rights Act of 1964, the Americans with Disabilities Act, and any and all other federal, state or local laws or regulations. Employee agrees not to sue or to file any claims or actions against the Released Parties with respect to claims covered by this release and affirms that no such claims or actions are currently pending. Notwithstanding the above, this waiver and release shall not apply to claims for indemnification and/or the advancement of expenses pursuant to Article 7 of the Company's Articles of Incorporation, Article 5 of the Company's Bylaws and any indemnification agreement with the Company. (b) As consideration for the obligations undertaken by the Employee pursuant to this Agreement, the Company, for itself, its successors and assigns, hereby fully releases, waives and fully discharges the Employee from any and all claims, causes of action, suits, demands, damages, judgements or liabilities, of any nature, including attorney's fees and costs, known or unknown, absolute or contingent, arising from or relating to Employee's employment or separation from employment unless such claims, causes of action, suits, demands, damages, judgments or liabilities resulted from Employee's acts or omissions which were (i) grossly negligent, (ii) fraudulent or (iii) intentionally harmful. 4 5 9. No Disparagement or Encouragement. Each party agrees not to do anything, and not to make any oral, electronic or written statement to any person (including without limitation any employee, client, customer, supplier, vendor of the Company or the press), that disparages or places in a false or negative light the other party (and in the case of the Company, any of its past or present officers, employees, business, products, services or its relationships); provided, however, that nothing herein shall limit or prohibit either party from cooperating in any truthful manner with any governmental authority or agency or responding truthfully under oath in a legal proceeding. Employee will not encourage any person to file a lawsuit, charge, claim, or complaint against any of the Released Parties. Employee will not assist any person who has filed a lawsuit, charge, claim, or complaint against any of the Released Parties unless Employee is required to render such assistance pursuant to a lawful subpoena or other legal obligation. If Employee is served with any such legal subpoena or becomes subject to any such legal obligation, Employee will provide prompt written notice to the General Counsel of the Company in which Employee shall enclose a copy of the subpoena and any other documents describing the legal obligation. 10. No Reinstatement or Reemployment. Employee agrees not to apply for employment or otherwise seek to be hired, rehired, employed, reemployed, or reinstated by the Company, its affiliates and subsidiaries. 11. Revocation Period. Employee has the right to revoke this Agreement for up to seven (7) days after Employee signs it. In order to revoke this Agreement, Employee must sign and send a written notice of the decision to do so, addressed to Chief Executive Officer, Insurance Auto Auctions, 850 East Algonquin Road, Suite 100, Schaumburg, IL 60173, and that written notice must be received by Employer no later than the eighth day after Employee signs this Agreement. If Employee revokes this Agreement, the Employee will not be entitled to any of the consideration from the Company described in Sections 2(a), 2(b), and 2(c) above. 12. No Admission. This Agreement does not constitute an admission by any of the Released Parties, and the Company specifically denies that any action or failure to act by any of the Released Parties was wrongful, unlawful, or susceptible of causing any damages or injury to Employee. This Agreement does not constitute an admission by the Employee, and the Employee specifically denies that any action or failure to act by the Employee was wrongful, unlawful, or susceptible of causing any damages or injury to the Company. 13. Severability. The Employee acknowledges and agrees that the Restrictive Covenants (as defined below) are reasonable, necessary and valid in duration and geographical scope and in all other respects. If any court determines that any of the Restrictive Covenants, or any part thereof, is invalid or unenforceable, the remainder of the Restrictive Covenants shall not be affected thereby and shall be given full effect without regard to the invalid portions. Provided, however, that if Employee brings a lawsuit, claim, charge, or complaint against the Company, and a court of competent jurisdiction finds that a release or waiver of claims or rights by Employee in Section 8 above is illegal, void or unenforceable, Employee agrees that upon request by the Company, Employee will promptly sign a release or waiver that is legal and enforceable. 5 6 14. Rights and Remedies Upon Breach. If the Employee breaches, or threatens to commit a breach of, any of the covenants set forth in Sections 5, 6 or 7 of this Agreement (the "Restrictive Covenants"), the Company shall have the right and remedy to have the Restrictive Covenants specifically enforced by any court of competent jurisdiction, including immediate temporary injunctive relief without bond and without the necessity of showing actual monetary damages, it being agreed that any breach or threatened breach of the Restrictive Covenants would cause irreparable injury to the Company and that money damages would not provide an adequate remedy to the Company, which right and remedy is in addition to, and not in lieu of, any other rights and remedies available to the Company under law or in equity. The Restricted Period shall be extended by any period that the Employee is in breach of the Restrictive Covenants, unless such breach is not willful and does not materially damage the Company. 15. Agreement Inadmissible as Evidence. This Agreement, its execution, and its implementation may not be used as evidence, and shall not be admissible in any proceeding except one claiming a violation of this Agreement. 16. Entire Agreement. This Agreement sets forth the full understanding and agreement of the parties and supersedes any and all other understandings or agreements, written or oral; provided, however, that Employee shall continue to be bound by the Confidentiality Agreement described in Section 3. 17. Governing Law and Jurisdiction. This Agreement shall be governed by and construed in accordance with laws and judicial decisions of the State of Illinois, without regard to its principles of conflicts of laws. 18. Knowing and Voluntary Waiver. Employee specifically agrees as follows: a) Employee is knowingly and voluntarily entering into this Agreement; b) Employee acknowledges that the Company is providing benefits in the form of payments and compensation, to which Employee would not otherwise be entitled, as part of the consideration for Employee's entering into this Agreement; c) Employee acknowledges receiving from the Company the informational disclosures attached to this Agreement as Exhibit A at the same time Employee received this Agreement; d) Employee is hereby advised by the Company to consult with an attorney before signing this Agreement; e) Employee understands that he has a period of forty-five (45) days from the date a copy of this Agreement is provided to Employee in which to consider and sign the Agreement (during which the offer will remain open), and that the Employee has an additional seven (7) days after signing this Agreement within which to revoke acceptance of the Agreement; and, 6 7 f) If during the seven (7) day revocation period Employee should revoke acceptance of the Agreement, then this Agreement shall be void. 19. Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed to be an original, but all of which together shall constitute one and the same instrument. INSURANCE AUTO AUCTIONS, INC. GERALD C. COMIS By: /s/ Thomas C. O'Brien /s/ Gerald C. Comis -------------------------------- -------------------------------- Name: Thomas C. O'Brien Dated: 4/20/01 Its: President and CEO -------------------------- Dated: ------------------------------- 7 8 Attachment A Stock Options of Employee Number Grant Date Amount Exercise Price ------ ---------- ------ -------------- IA0138 06/21/94 1200 $ 31.50 IA0266 11/08/95 4,855 $ 7.00 IA0267 11/08/95 5,145 $ 7.00 IA0318 01/02/98 12,500 $11.688 IA0457 12/15/98 10,000 $11.125 IA0458 12/15/98 15,000 $11.125 9 Exhibit A INFORMATIONAL DISCLOSURES The following disclosures are intended to inform you about which job positions at Insurance Auto Auctions, Inc. were selected to participate in the employment termination program, which job positions were not selected to participate in the employment termination program, and the ages of the employees holding those positions. You are being given this information to assist you in making an informed decision about signing the accompanying Separation Agreement and General Release. You have 45 days from the date of receiving these disclosures to sign the Separation Agreement and General Release, if you so chose. If you sign the Agreement, you have 7 days from the date of signature to revoke the Agreement. If you revoke, you will not be entitled to any consideration under the Agreement. The following employees were selected to be terminated: TITLE AGE(S) - ----- ------ Vice President, Eastern Division 42 Vice President, Business Development 38 Vice President, Industry and Customer Relations 52 Vice President, Chief Financial Officer and Assistant 45 Secretary Vice President, General Counsel and Secretary 43 The following employees were not selected to be terminated: TITLE AGE(S) - ----- ------ Vice President, Western Division 41 Senior Vice President, Sales & Marketing 52 Vice President, Information Technology & CIO 42 Vice President, Public Affairs 49 EX-10.7 9 c62638ex10-7.txt SEPARATION AGREEMENT 1 Exhibit 10.7 SEPARATION AGREEMENT AND GENERAL RELEASE This Separation Agreement ("Agreement") is entered into by and between Patrick T. Walsh ("Employee") and Insurance Auto Auctions, Inc. (the "Company") to set forth the terms, conditions, and obligations of each party with respect to the termination of the employment relationship between Employee and the Company. Whereas, the parties acknowledge that the Company has requested that the Employee terminate his employment relationship with the Company; Whereas, the parties mutually agree that their joint interest would be furthered by an amicable separation; Now therefore, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties agree as follows: 1. Termination of Employment. Termination of the employment relationship between Employee and the Company shall be effective as of April 9, 2001 (the "Termination Date"). Employee shall resign from his position as an officer and employee of the Company and any of its subsidiaries effective as of the Termination Date. 2. Consideration. As consideration for Employee's entering into this Agreement, the Company agrees: a) Employee shall receive from the Company a lump sum cash payment equal to the sum of (i), (ii) and (iii) below, payable on the next regular payday following expiration of the revocation period described in paragraph 11 below: (i) 52 weeks of pay, computed at the Employee's regular weekly base salary in effect on the Termination Date (such gross amount equal to $148,304.00); (ii) a bonus payment equal to the Employee's target bonus for the Company's fiscal year during which Employee's employment is terminated (such gross amount equal to $44,491); (iii) Employee's auto allowance for the Company's fiscal year during which the Employee's employment is terminated (such gross amount equal to $1,466.99 per month or $17,603.88); and b) (i) From the Termination Date until April 9, 2002 (the end of the final month covered by Employee's severance pay (the "Severance Period")), the Company shall continue to provide life, medical, dental and long-term disability benefits (the "Company Plans") as previously selected by 2 Employee, for Employee and such of Employee's dependents for whom the Company provided such benefits on the Termination Date; provided Employee shall be responsible for the Employee's share of the cost of coverage and benefits on the same basis as prior to the Termination Date. Such benefits will be continued only to the extent permissible under the terms of such Company Plans. Notwithstanding anything contained in this Section 2b(i) to the contrary, with respect to long-term disability, the Employee must timely apply for conversion insurance and benefits payable thereunder shall not exceed a maximum monthly benefit of $3,000. (ii) If any of the Company Plans do not permit continued participation by the Employee and the Employee's family after termination of employment, then, during the Severance Period, the Company will reimburse the Employee for the cost of obtaining comparable coverage from a third-party insurer, provided, however, that the amount of such reimbursement will not exceed the amount that would have been paid by the Company for coverage under the Company Plans during the Severance Period had the Employee's employment not been terminated. If during the Severance Period, and subject to (iii) below, the Employee is reemployed by another employer, the rights of the Employee and the Employee's family to receive benefits under any Company Plan, or reimbursement for any third-party coverage, will terminate on the date the Employee and Employee's family become eligible to receive comparable benefits from such employer. (iii) If, at the termination of the Severance Period, the Employee is receiving medical and/or dental benefits from a Company Plan, the Company will continue to provide such medical and/or dental benefits to the Employee and/or the Employee's family pursuant to COBRA. For such purpose, the termination of the Severance Period will be considered the date of the "qualifying event" as such term is defined by COBRA and the cost of continued coverage during the COBRA period will be determined pursuant to COBRA and paid entirely by the Employee. (iv) If the Company's Plans do not provide for continued medical and/or dental benefit coverage during the Severance Period, then the Termination Date will be considered the date of the qualifying event for COBRA purposes. In such case, the Employee may either elect to continue such coverage pursuant to COBRA or obtain comparable third-party coverage as described in Section 2(b)(ii). If the Employee elects COBRA coverage, then during the Severance Period, the Employee will be charged the amount that such Employee would have paid for such coverage had such Employee remained employed by the Company, and after the end of such Severance Period and for the remainder of the COBRA period, the cost of 2 3 such coverage will be determined pursuant to COBRA and paid entirely by the Employee. (v) The Employee's active participation in all other employee benefits plans and programs maintained by the Employer, including the Insurance Auto Auctions, Inc. 401(k) Plan and the Insurance Auto Auctions, Inc. Employee Stock Purchase Plan, shall be determined in accordance with the terms of such plans and programs. c) All outstanding stock options granted to Employee as set forth on Attachment A hereto (to the extent not already vested) shall become 100% vested and exercisable on the day after the expiration of the revocation period described in Section 11 below. Such vested stock options will continue to be exercisable until the earlier of such stock options' expiration date or July 9, 2002. Stock options not exercised by July 9, 2002, shall expire and be of no further force or effect. The options shall continue to be governed by the terms and conditions of their respective Notices of Grant of Stock Option and Stock Option Agreements, as amended by this subsection 2(c). d) Employee shall receive accrued but unused vacation pay through the Termination Date, to be paid on or before the Company's next regularly scheduled pay date following the Termination Date. e) Amounts paid to Employee pursuant to this Section 2 shall be subject to applicable withholding taxes as may be required pursuant to federal, state or local law, or by agreement with or consent of Employee. 3. Confidentiality. Employee remains bound by all terms and conditions of the Confidentiality Agreement dated as of February 11, 1998 and attached hereto as Attachment B. Employee also agrees that except as may be specifically required by law, Employee will not in any manner disclose or communicate any part of this Agreement to any other person except Employee's current spouse, Employee's accountant or financial advisor to the limited extent needed for that person to prepare Employee's tax returns, or Employee's attorney. Before any such authorized disclosure, Employee will inform each such person to whom disclosure is to be made that every term of this Agreement is confidential and obtain such person's agreement to maintain the confidentiality of the entire Agreement. 4. Return of Company Property. By signing this Agreement, Employee affirms that he has returned to the Company all of its property that was or is in his possession, custody or control, including but not limited to all keys, company credit cards, access cards, equipment, computers, hardware, software, programs diskettes, data, notes, papers, books, files, documents, records, policies, client and customer information and lists, marketing information, design information, pricing information, blueprints, specifications plans, data base information, mailing lists, and any other property or information that Employee had relating to the Company and/or its customers, employees, plans, strategies, inventions, policies, or practices (whether those materials are in paper or computer-stored 3 4 form). Employee affirms that he has not retained any such property or information in any form, and that he will not give copies of such property information or disclose their contents to any other person. Notwithstanding the above, if Employee was provided with a Palm Pilot organizer, Employee shall be allowed to retain the Palm Pilot organizer (Palm VII) he is currently using. 5. Omitted. 6. Employees. During the Restricted Period, Employee shall not, directly or indirectly, (i) solicit for employment and/or hire or offer employment to any individual who is or was an employee of the Company within 90 days of the date of this Agreement and who becomes an employee of the Company or its subsidiaries at any time during the Restricted Period, or (ii) encourage any Company employee to terminate his or her relationship with the Company or its subsidiaries. 7. Omitted. 8. Release of Claims And Agreement Not To Sue. (a) As consideration for the obligations undertaken by the Company pursuant to this Agreement, Employee, for himself, his successors, administrators, heirs or assigns, hereby fully releases, waives and fully discharges the Released Parties (defined to include the Company, its subsidiaries and affiliates, predecessors, successors, and assigns, and their respective officers, directors, agents and employees, whether past, present or future) from any and all claims, causes of action, suits, demands, damages, judgements or liabilities, of any nature, including attorney's fees and costs, known or unknown, absolute or contingent, arising from or relating to Employee's employment or separation from employment. This release includes, without limitation, any and all claims for breach of contract (including the Change in Control and Employment Agreement between the Company and Employee dated February 23, 1998), wrongful discharge or impairment of economic opportunity, any claims under common law or at equity, claims of defamation or intentional infliction of emotional harm, claims of any tort, claims for reimbursements or commissions, and any and all rights and discrimination claims Employee may have arising under the Age Discrimination in Employment Act, Title VII of the Civil Rights Act of 1964, the Americans with Disabilities Act, and any and all other federal, state or local laws or regulations. Employee agrees not to sue or to file any claims or actions against the Released Parties with respect to claims covered by this release and affirms that no such claims or actions are currently pending. Notwithstanding the above, this waiver and release shall not apply to claims for indemnification and/or the advancement of expenses pursuant to Article 7 of the Company's Articles of Incorporation, Article 5 of the Company's Bylaws and any indemnification agreement with the Company. (b) As consideration for the obligations undertaken by the Employee pursuant to this Agreement, the Company, for itself, its successors and assigns, hereby fully releases, waives and fully discharges the Employee from any and all claims, causes of action, suits, demands, damages, judgements or liabilities, of any nature, including attorney's fees and costs, known or unknown, absolute or contingent, arising from or relating to Employee's employment or separation from employment unless such claims, causes of 4 5 action, suits, demands, damages, judgments or liabilities resulted from Employee's acts or omissions which were (i) grossly negligent, (ii) fraudulent or (iii) intentionally harmful. 9. No Disparagement or Encouragement. Each party agrees not to do anything, and not to make any oral, electronic or written statement to any person (including without limitation any employee, client, customer, supplier, vendor of the Company or the press), that disparages or places in a false or negative light the other party (and in the case of the Company, any of its past or present officers, employees, business, products, services or its relationships); provided, however, that nothing herein shall limit or prohibit either party from cooperating in any truthful manner with any governmental authority or agency or responding truthfully under oath in a legal proceeding. Employee will not encourage any person to file a lawsuit, charge, claim, or complaint against any of the Released Parties. Employee will not assist any person who has filed a lawsuit, charge, claim, or complaint against any of the Released Parties unless Employee is required to render such assistance pursuant to a lawful subpoena or other legal obligation. If Employee is served with any such legal subpoena or becomes subject to any such legal obligation, Employee will provide prompt written notice to the General Counsel of the Company in which Employee shall enclose a copy of the subpoena and any other documents describing the legal obligation. 10. No Reinstatement or Reemployment. Employee agrees not to apply for employment or otherwise seek to be hired, rehired, employed, reemployed, or reinstated by the Company, its affiliates and subsidiaries. 11. Revocation Period. Employee has the right to revoke this Agreement for up to seven (7) days after Employee signs it. In order to revoke this Agreement, Employee must sign and send a written notice of the decision to do so, addressed to Chief Executive Officer, Insurance Auto Auctions, 850 East Algonquin Road, Suite 100, Schaumburg, IL 60173, and that written notice must be received by Employer no later than the eighth day after Employee signs this Agreement. If Employee revokes this Agreement, the Employee will not be entitled to any of the consideration from the Company described in Sections 2(a), 2(b), and 2(c) above. 12. No Admission. This Agreement does not constitute an admission by any of the Released Parties, and the Company specifically denies that any action or failure to act by any of the Released Parties was wrongful, unlawful, or susceptible of causing any damages or injury to Employee. This Agreement does not constitute an admission by the Employee, and the Employee specifically denies that any action or failure to act by the Employee was wrongful, unlawful, or susceptible of causing any damages or injury to the Company. 13. Severability. The Employee acknowledges and agrees that the Restrictive Covenants (as defined below) are reasonable, necessary and valid in duration and geographical scope and in all other respects. If any court determines that any of the Restrictive Covenants, or any part thereof, is invalid or unenforceable, the remainder of the Restrictive Covenants shall not be affected thereby and shall be given full effect without regard to the invalid portions. Provided, however, that if Employee brings a lawsuit, claim, charge, or 5 6 complaint against the Company, and a court of competent jurisdiction finds that a release or waiver of claims or rights by Employee in Section 8 above is illegal, void or unenforceable, Employee agrees that upon request by the Company, Employee will promptly sign a release or waiver that is legal and enforceable. 14. Rights and Remedies Upon Breach. If the Employee breaches, or threatens to commit a breach of, any of the covenants set forth in Sections 5, 6 or 7 of this Agreement (the "Restrictive Covenants"), the Company shall have the right and remedy to have the Restrictive Covenants specifically enforced by any court of competent jurisdiction, including immediate temporary injunctive relief without bond and without the necessity of showing actual monetary damages, it being agreed that any breach or threatened breach of the Restrictive Covenants would cause irreparable injury to the Company and that money damages would not provide an adequate remedy to the Company, which right and remedy is in addition to, and not in lieu of, any other rights and remedies available to the Company under law or in equity. The Restricted Period shall be extended by any period that the Employee is in breach of the Restrictive Covenants, unless such breach is not willful and does not materially damage the Company. 15. Agreement Inadmissible as Evidence. This Agreement, its execution, and its implementation may not be used as evidence, and shall not be admissible in any proceeding except one claiming a violation of this Agreement. 16. Entire Agreement. This Agreement sets forth the full understanding and agreement of the parties and supersedes any and all other understandings or agreements, written or oral; provided, however, that Employee shall continue to be bound by the Confidentiality Agreement described in Section 3. 17. Governing Law and Jurisdiction. This Agreement shall be governed by and construed in accordance with laws and judicial decisions of the State of Illinois, without regard to its principles of conflicts of laws. 18. Knowing and Voluntary Waiver. Employee specifically agrees as follows: a) Employee is knowingly and voluntarily entering into this Agreement; b) Employee acknowledges that the Company is providing benefits in the form of payments and compensation, to which Employee would not otherwise be entitled, as part of the consideration for Employee's entering into this Agreement; c) Employee acknowledges receiving from the Company the informational disclosures attached to this Agreement as Exhibit A at the same time Employee received this Agreement; d) Employee is hereby advised by the Company to consult with an attorney before signing this Agreement; e) Employee understands that he has a period of forty-five (45) days from the date a copy of this Agreement is provided to Employee in which to consider and sign the 6 7 Agreement (during which the offer will remain open), and that the Employee has an additional seven (7) days after signing this Agreement within which to revoke acceptance of the Agreement; and, f) If during the seven (7) day revocation period Employee should revoke acceptance of the Agreement, then this Agreement shall be void. 19. Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed to be an original, but all of which together shall constitute one and the same instrument. INSURANCE AUTO AUCTIONS, INC. PATRICK T. WALSH By: /s/ Thomas C. O'Brien /s/ P. T. Walsh ------------------------------- ------------------------------- Its: President and CEO ------------------------------ Dated: 4/12/01 ------------------------- Dated: 4-12-01 ---------------------------- 7 8 Attachment A Stock Options of Employee Number Grant Date Number Exercise Price ------ ---------- ------ -------------- IA0014 11/20/91 15,000 $ 11.00 IA0055 09/14/93 3,000 $ 32.00 IA0086 12/20/93 6,048 $ 37.50 IA0087 12/20/93 952 $ 37.50 IA0268 11/08/95 9,334 $ 7.00 IA0269 11/08/95 666 $ 7.00 IA0324 01/02/98 12,500 $11.688 IA0459 12/15/98 10,000 $11.125 IA0460 12/15/98 15,000 $11.125 9 Exhibit A INFORMATIONAL DISCLOSURES The following disclosures are intended to inform you about which job positions at Insurance Auto Auctions, Inc. were selected to participate in the employment termination program, which job positions were not selected to participate in the employment termination program, and the ages of the employees holding those positions. You are being given this information to assist you in making an informed decision about signing the accompanying Separation Agreement and General Release. You have 45 days from the date of receiving these disclosures to sign the Separation Agreement and General Release, if you so chose. If you sign the Agreement, you have 7 days from the date of signature to revoke the Agreement. If you revoke, you will not be entitled to any consideration under the Agreement. The following employees were selected to be terminated: TITLE AGE(S) - ----- ------ Vice President, Eastern Division 42 Vice President, Business Development 38 Vice President, Chief Financial Officer and Assistant 45 Secretary Vice President, General Counsel and Secretary 43 The following employees were not selected to be terminated: TITLE AGE(S) - ----- ------ Vice President, Industry and Customer Relations 52 Vice President, Western Division 41 Senior Vice President, Sales & Marketing 52 Vice President, Information Technology & CIO 42 Vice President, Public Affairs 49 EX-10.8 10 c62638ex10-8.txt SEPARATION AGREEMENT 1 Exhibit 10.8 EXECUTION COPY SEPARATION AGREEMENT AND GENERAL RELEASE This Separation Agreement ("Agreement") is entered into by and between Stephen L. Green ("Employee") and Insurance Auto Auctions, Inc. (the "Company") to set forth the terms, conditions, and obligations of each party with respect to the termination of the employment relationship between Employee and the Company. Whereas, the parties acknowledge that the Company has requested that the Employee terminate his employment relationship with the Company; Whereas, the parties mutually agree that their joint interest would be furthered by an amicable separation; Now therefore, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties agree as follows: 1. Termination of Employment. Termination of the employment relationship between Employee and the Company shall be effective as of March 9, 2001 (the "Termination Date"). Employee's duties as an officer, director and employee of the Company and any of its subsidiaries shall end effective as of the Termination Date. 2. Consideration. As consideration for Employee's entering into this Agreement, the Company agrees: a) Employee shall receive from the Company a lump sum cash payment equal to the sum of (i), (ii) and (iii) below, payable on the next regular payday following expiration of the revocation period described in paragraph 11 below: (i) 52 weeks of pay, computed at the Employee's regular weekly base salary in effect on the Termination Date (such gross amount equal to $150,000); (ii) a bonus payment equal to 38% of Employee's annual base salary (such gross amount equal to $57,000); (iii) an aggregate automobile allowance equal to $17,700; and b) (i) From the Termination Date until the last day of March 2002 (the end of the final month covered by your severance pay (the "Severance Period")), the Company shall continue to provide life, medical, dental and long-term disability benefits (the "Company Plans") as previously selected by Employee, for Employee and such of Employee's dependents for whom the Company provided such benefits on the Termination Date; provided Employee shall be responsible for the Employee's share of the cost of coverage and benefits on the same basis as prior to the Termination Date. 2 Such benefits will be continued only to the extent permissible under the terms of such Company Plans. Notwithstanding anything contained in this paragraph b(i) to the contrary, with respect to long-term disability, the Employee must timely apply for conversion insurance and benefits payable thereunder shall not exceed a maximum monthly benefit of $3,000. (ii) If any of the Company Plans do not permit continued participation by the Employee and the Employee's family after termination of employment, then, during the Severance Period, the Company will reimburse the Employee for the cost of obtaining comparable coverage from a third-party insurer, provided, however, that the amount of such reimbursement will not exceed the amount that would have been paid by the Company for coverage under the Company Plans during the Severance period had the Employee's employment not been terminated. If during the Severance Period, and subject to paragraph (iii) below, the Employee is reemployed by another employer, the rights of the Employee and the Employee's family to receive benefits under any Company Plan, or reimbursement for any third-party coverage, will terminate on the date the Employee and Employee's family become eligible to receive comparable benefits from such employer. (iii) If, at the termination of the Severance Period, the Employee is receiving medical and/or dental benefits from a Company Plan, the Company will continue to provide such medical and/or dental benefits to the Employee and/or the Employee's family pursuant to COBRA. For such purpose, the termination of the Severance Period will be considered the date of the "qualifying event" as such term is defined by COBRA and the cost of continued coverage during the COBRA period will be determined pursuant to COBRA and paid entirely by the Employee. (iv) If the Company's Plans do not provide for continued medical and/or dental benefit coverage during the Severance Period, then the Termination Date will be considered the date of the qualifying event for COBRA purposes. In such case, the Employee may either elect to continue such coverage pursuant to COBRA or obtain comparable third-party coverage as described in Section 2(b)(ii). If the Employee elects COBRA coverage, then during the Severance Period, the Employee will be charged only the amount that such Employee would have paid for such coverage had such Employee remained employed by the Company (the "Employee Premium") (and the Company paying the remainder), and after the end of such Severance Period and for the remainder of the COBRA period, the cost of such coverage will be determined pursuant to COBRA and paid entirely by the Employee. If the Employee directs the Company not to deduct the entire amount of Employee Premium for the Severance Period from the lump sum paid under Section 2(a), the Employee shall be 2 3 responsible for mailing the Employee Premium to the Company by the first day of every month during the Severance Period. (v) The Employee's active participation in all other employee benefits plans and programs maintained by the Employer, including the Insurance Auto Auctions, Inc. 401(k) Plan and the Insurance Auto Auctions, Inc. Employee Stock Purchase Plan, shall be determined in accordance with the terms of such plans and programs. c) All outstanding stock options granted to Employee as set forth on Attachment A hereto shall become 100% vested and exercisable on the day after the expiration of the revocation period described in Section 11 below. Such vested stock options will continue to be exercisable until the earlier of such stock options expiration date or June 9, 2002. Stock options not exercised by June 9, 2002 shall expire and be of no further force or effect. The options shall continue to be governed by the terms and conditions of their respective Notices of Grant of Stock Option and Stock Option Agreements, as amended by this subsection 2(c). d) Employee shall receive accrued but unused vacation pay through the Termination Date, to be paid on or before the Company's next regularly scheduled pay date following the Termination Date. e) The Company shall provide Employee with outplacement benefits from Drake Beam Morin (Executive Program) consistent with those benefits offered other Company executives terminated in March 2001. f) Amounts paid to Employee pursuant to this Section 2 shall be subject to applicable withholding taxes as may be required pursuant to federal, state or local law, or by agreement with or consent of Employee. 3. Confidentiality. Employee remains bound by all terms and conditions of the Confidentiality Agreement dated as of February 3, 1997 and attached hereto as Attachment B. Employee also agrees that except as may be specifically required by law, Employee will not in any manner disclose or communicate any part of this Agreement to any other person except Employee's current spouse, Employee's accountant or financial advisor to the limited extent needed for that person to prepare Employee's tax returns, Employee's attorney or an outplacement firm hired by Employee or the Company. Before any such authorized disclosure, Employee will inform each such person to whom disclosure is to be made that every term of this Agreement is confidential and obtain such person's agreement to maintain the confidentiality of the entire Agreement. 4. Return of Company Property. By signing this Agreement, Employee affirms that he has returned to the Company all of its property that was or is in his possession, custody or control, including but not limited to all keys, company credit cards, access cards, equipment, computers, hardware, software, programs diskettes, data, notes, papers, books, files, documents, records, policies, client and customer information and lists, marketing information, design information, pricing information, blueprints, specifications 3 4 plans, data base information, mailing lists, and any other property or information that Employee had relating to the Company and/or its customers, employees, plans, strategies, inventions, policies, or practices (whether those materials are in paper or computer-stored form). Employee affirms that he has not retained any such property or information in any form, and that he will not give copies of such property or information or disclose their contents to any other person. Notwithstanding the above, Employee shall be allowed to retain the Palm Pilot organizer (Palm VII) he was using while employed by the Company. 5. Expenses. Employee shall be reimbursed for his business expenses incurred prior to the Termination Date in accordance with the Company's expense reimbursement policies. 6. Employees. For a period commencing on the date hereof and terminating at the end of the Severance Period (the "Restricted Period"), Employee shall not, directly or indirectly, (i) solicit for employment and/or hire or offer employment to any individual who is then currently employed by the Company, or (ii) encourage any such individual to terminate his or her relationship with the Company or its subsidiaries. 7. Omitted. 8. Release of Claims And Agreement Not To Sue. As consideration for the obligations undertaken by the Company pursuant to this Agreement, Employee, for himself, his executors, administrators, heirs and assigns (the "Employee Released Parties"), hereby fully releases, waives and fully discharges the Company Released Parties (defined to include the Company, its subsidiaries and affiliates, predecessors, successors, and assigns, and their respective officers, directors, agents and employees, whether past, present or future) from any and all claims, causes of action, suits, demands, damages, judgements or liabilities, of any nature, including attorney's fees and costs, known or unknown, absolute or contingent, arising from or relating to Employee's employment or separation from employment. The Company Released Parties, as consideration for the obligations undertaken by Employee pursuant to this Agreement, hereby fully release, waive and fully discharge the Employee Released Parties from any and all claims, causes of action, suits, demands, damages, judgements or liabilities, of any nature, including attorney's fees and costs, known or unknown, absolute or contingent, arising from or relating to Employee's employment or separation from employment. The Employee's release includes, without limitation, any and all claims for breach of contract (including the Change in Control and Employment Agreement between the Company and Employee dated February 23, 1998), wrongful discharge or impairment of economic opportunity, any claims under common law or at equity, claims of defamation or intentional infliction of emotional harm, claims of any tort, claims for reimbursements or commissions, and any and all rights and discrimination claims Employee may have arising under the Age Discrimination in Employment Act, Title VII of the Civil Rights Act of 1964, the Americans with Disabilities Act, and any and all other federal, state or local laws or regulations. Employee Released Parties and Company Released Parties agree not to sue or to file any claims or actions against the other with respect to claims covered by the aforementioned mutual releases and affirm that no such claims or actions are currently pending. Notwithstanding the above, the Employee's waiver and release shall not apply 4 5 to claims for indemnification pursuant to Article 7 of the Company's Articles of Incorporation, Article 5 of the Company's Bylaws and that certain Indemnification Agreement between Employee and the Company dated February 24, 1999. Nothing herein shall preclude Employee from seeking benefits under any Company directors and officers or liability insurance policy, subject in each case to the specific terms of the policy. 9. No Disparagement or Encouragement. a) Until March 9, 2004, Employee agrees not to do anything, and not to make any oral, electronic or written statement to any person (including without limitation any employee, client, customer, supplier, vendor of the Company or the press), that disparages or places in a false or negative light the Company or any of its past or present officers, employees, business, products, services or its relationships; provided, however, that nothing herein shall limit or prohibit Employee from cooperating in any truthful manner with any governmental authority or agency or responding truthfully under oath in a legal proceeding. Employee will not encourage any person to file a lawsuit, charge, claim, or complaint against any of the Company Released Parties. Employee will not assist any person who has filed a lawsuit, charge, claim, or complaint against any of the Company Released Parties unless Employee is required to render such assistance pursuant to a lawful subpoena or other legal obligation. If Employee is served with any such legal subpoena or becomes subject to any such legal obligation, Employee will provide prompt written notice to the General Counsel of the Company in which Employee shall enclose a copy of the subpoena and any other documents describing the legal obligation. b) Until March 9, 2004, Company agrees not to do anything, and not to make any oral, electronic or written statement to any person (including without limitation the press), that disparages or places in a false or negative light the Employee; provided, however, that nothing herein shall limit or prohibit Company from cooperating in any truthful manner with any governmental authority or agency or responding truthfully under oath in a legal proceeding. Company will not encourage any person to file a lawsuit, charge, claim, or complaint against the Employee Released Parties. Company will not assist any person who has filed a lawsuit, charge, claim, or complaint against Employee Released Parties unless the Company is required to render such assistance pursuant to a lawful subpoena or becomes subject to any such legal obligation. If the Company is served with any such legal subpoena or becomes subject to any such legal obligation, the Company will provide prompt written notice to the Employee in which the Company shall enclose a copy of the subpoena and any other documents describing the legal obligation. 10. No Reinstatement or Reemployment. Employee agrees not to apply for employment or otherwise seek to be hired, rehired, employed, reemployed, or reinstated by the Company, its affiliates and subsidiaries. 5 6 11. Revocation Period. Employee has the right to revoke this Agreement for up to seven (7) days after Employee signs it. In order to revoke this Agreement, Employee must sign and send a written notice of the decision to do so, addressed to Chief Executive Officer, Insurance Auto Auctions, 850 East Algonquin Road, Suite 100, Schaumburg, IL 60173, and that written notice must be received by Employer no later than the eighth day after Employee signs this Agreement. If Employee revokes this Agreement, the Employee will not be entitled to any of the consideration from the Company described in Sections 2(a), 2(b), 2(c) and 2(e) above. 12. No Admission. This Agreement does not constitute an admission by any of the parties, and the parties specifically deny that any action or failure to act by any of the parties was wrongful, unlawful, or susceptible of causing any damages or injury to the other party. 13. Severability. The Employee acknowledges and agrees that the Restrictive Covenant (as defined below) are reasonable, necessary and valid in duration and geographical scope and in all other respects. If any court determines that any of the Restrictive Covenant, or any part thereof, is invalid or unenforceable, the remainder of the Restrictive Covenant shall not be affected thereby and shall be given full effect without regard to the invalid portions. Provided, however, that if Employee brings a lawsuit, claim, charge, or complaint against the Company, and a court of competent jurisdiction finds that a release or waiver of claims or rights by Employee in Section 8 above is illegal, void or unenforceable, Employee agrees that upon request by the Company, Employee will promptly sign a release or waiver that is legal and enforceable, provided such release or waiver is approved by such Employee's legal counsel. 14. Rights and Remedies Upon Breach. If the Employee breaches, or threatens to commit a breach of, any of the covenants set forth in Section 6 of this Agreement (the "Restrictive Covenant"), the Company shall have the right and remedy to have the Restrictive Covenant specifically enforced by any court of competent jurisdiction, including immediate temporary injunctive relief without bond and without the necessity of showing actual monetary damages, it being agreed that any breach or threatened breach of the Restrictive Covenant would cause irreparable injury to the Company and that money damages would not provide an adequate remedy to the Company, which right and remedy is in addition to, and not in lieu of, any other rights and remedies available to the Company under law or in equity. The Restricted Period shall be extended by any period that the Employee is in breach of the Restrictive Covenant, unless such breach is not willful and does not materially damage the Company. 15. Agreement Inadmissible as Evidence. This Agreement, its execution, and its implementation may not be used as evidence, and shall not be admissible in any proceeding except one claiming a violation of this Agreement. 16. Entire Agreement. This Agreement sets forth the full understanding and agreement of the parties and supersedes any and all other understandings or agreements, written or oral; provided, however, that Employee shall continue to be bound by the Confidentiality Agreement described in Section 3 and provided further the Company remains bound by the Indemnification Agreement provided in Section 8. 6 7 17. Governing Law and Jurisdiction. This Agreement shall be governed by and construed in accordance with laws and judicial decisions of the State of Illinois, without regard to its principles of conflicts of laws. 18. Knowing and Voluntary Waiver. Employee specifically agrees as follows: a) Employee is knowingly and voluntarily entering into this Agreement; b) Employee acknowledges that the Company is providing benefits in the form of payments and compensation, to which Employee would not otherwise be entitled, as part of the consideration for Employee's entering into this Agreement; c) Employee acknowledges receiving from the Company the informational disclosures attached to this Agreement as Exhibit A at the same time Employee received this Agreement; d) Employee is hereby advised by the Company to consult with an attorney before signing this Agreement; e) Employee understands that he has a period of forty-five (45) days from the date a copy of this Agreement is provided to Employee in which to consider and sign the Agreement (during which the offer will remain open), and that the Employee has an additional seven (7) days after signing this Agreement within which to revoke acceptance of the Agreement; and, f) If during the seven (7) day revocation period Employee should revoke acceptance of the Agreement, then this Agreement shall be void. 19. Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed to be an original, but all of which together shall constitute one and the same instrument. INSURANCE AUTO AUCTIONS, INC. STEPHEN L. GREEN By: /s/ Thomas O'Brien /s/ Stephen L. Green ----------------------------------- ---------------------------- Its: ---------------------------------- Dated: April 12, 2001 ---------------------- Dated: -------------------------------- 7 8 Attachment A Stock Options of Employee Number Grant Date Number Exercise Price ------ ---------- ------ -------------- IA0304 2/25/97 5,000 $ 8.50 IA0320 1/2/98 12,500 $11.688 IA0447 12/15/98 10,000 $11.125 IA0448 12/15/98 15,000 $11.125 9 Exhibit A INFORMATIONAL DISCLOSURES The following disclosures are intended to inform you about which job positions at Insurance Auto Auctions, Inc. were selected to participate in the employment termination program, which job positions were not selected to participate in the employment termination program, and the ages of the employees holding those positions. You are being given this information to assist you in making an informed decision about signing the accompanying Separation Agreement and General Release. You have 45 days from the date of receiving these disclosures to sign the Separation Agreement and General Release, if you so chose. If you sign the Agreement, you have 7 days from the date of signature to revoke the Agreement. If you revoke, you will not be entitled to any consideration under the Agreement. The following employees were selected to participate in the employment termination program: TITLE AGE(S) - ----- ------ Vice President, Chief Financial Officer and Assistant 45 Secretary Vice President, General Counsel and Secretary 43 The following employees were not selected to participate in the employment termination program: TITLE AGE(S) - ----- ------ Vice President, Eastern Division 42 Vice President, Industry and Customer Relations 52 Vice-President, Western Division 41 Vice-President, Business Development 38 Senior Vice-President, Sales & Marketing 52 Vice-President, Information Technology & CIO 42 Vice-President, Public Affairs 49 -----END PRIVACY-ENHANCED MESSAGE-----