10-K/A 1 c76618a1e10vkza.txt AMENDMENT TO ANNUAL REPORT ================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K AMENDMENT NO. 1 [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 29, 2002 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 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 of (I.R.S. Employer incorporation or organization) Identification Number) 850 EAST ALGONQUIN ROAD, SUITE 100 SCHAUMBURG, ILLINOIS 60173 (847) 839-3939 (Address, including zip code, and telephone number, including area code, of Registrant's principal executive offices) ---------- Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock, $0.001 par value Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes No X ----- ----- The aggregate market value of voting stock (based on the closing price as reported by the Nasdaq Stock Market(R)) held by non-affiliates of the Registrant as of June 28, 2002 was approximately $49,549,169. For purposes of this disclosure, shares of Common Stock known to be held by persons who own 5% or more of the shares of outstanding common stock and shares of common stock held by each officer and director have been excluded in that such persons may be deemed to be "affiliates" as that term is defined under the Rules and Regulations of the Act. This determination of affiliate status is not necessarily conclusive. As of March 15, 2003, the Registrant had outstanding 11,548,719 shares of Common Stock, $0.001 par value. DOCUMENTS INCORPORATED BY REFERENCE None. ================================================================================ INTRODUCTORY NOTE The Annual Report on form 10-K for Insurance Auto Auctions, Inc. (the "Company") filed on March 27, 2003 (the "10-K") is hereby amended to include Items 10, 11, 12, and 13, which were not part of the original filing. No other changes have been made to the 10-K. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY. DIRECTORS OF THE COMPANY Set forth below is information regarding the Directors of the Company, including information furnished by them as to principal occupations, certain other directorships held by them, any arrangements pursuant to which they were or are selected as Directors and their ages as of March 31, 2003: YEAR FIRST ELECTED OR DIRECTORS AGE APPOINTED DIRECTOR --------- --- --------------------- Thomas C. O'Brien........................ 49 2000 Joseph F. Mazzella....................... 51 1999 Maurice A. Cocca (1)(2)(3).............. 59 1997 Susan B. Gould(2)........................ 65 1991 Peter H. Kamin(1)........................ 41 1999 Philip B. Livingston..................... 46 2003 Melvin R. Martin......................... 72 1992 Jeffrey W. Ubben (2)(3).................. 41 2001 John K. Wilcox (1)....................... 67 1998 ---------- (1) Member of Audit Committee (2) Member of Compensation Committee (3) Member of Governance Committee THOMAS C. O'BRIEN became President and Chief Executive Officer in November 2000. As President and Chief Executive Officer, Mr. O'Brien oversees the Company's overall corporate administration as well as strategic planning. Prior to joining the Company, Mr. O'Brien served as President of Thomas O'Brien & Associates from 1999 to 2000, Executive Vice President of Safelite Glass Corporation from 1998 to 1999, Executive Vice President of Vistar, Inc. from 1996 to 1997 and President of U.S.A. Glass, Inc. from 1992 to 1996. JOSEPH F. MAZZELLA was appointed Chairman in February 2001 and has been a Director of the Company since January 1999. In March 2000, Mr. Mazzella joined Nutter McClennen & Fish, LLC, a law firm in Boston, Massachusetts as a partner. From 1980 until March 2000, Mr. Mazzella was a partner of Lane, Altman & Owens, a law firm in Boston, Massachusetts. MAURICE A. COCCA has been a Director of the Company since February 1997. From November 1993 to November 1995, Mr. Cocca was Managing Director of The Fisons Laboratory Supplies Division of Fisons PLC. This Division is a distributor of laboratory supplies that was later acquired by Fisher Scientific. Mr. Cocca served as Vice Chairman of J & W Scientific Holdings from April 1996 through April 2000. SUSAN B. GOULD has been a Director of the Company since October 1991. Ms. Gould is the founder, and since 1988 has been President, of Gould & Associates, a human resources consulting firm specializing in outplacement and organizational team building. PETER H. KAMIN became a Director of the Company again in February 2001. Mr. Kamin had previously served as a director from January 1999 through October 2000. In July 2000, Mr. Kamin joined, as a founding partner, 2 ValueAct Capital Partners, L.P. From January 1992 to July 2000, Mr. Kamin was a Partner of Peak Investment, L.P. Mr. Kamin is also a director of LeCroy, Inc. and One Source Information Services, Inc. PHILIP B. LIVINGSTON became a Director of the Company in March 2003. Also in March 2003, Mr. Livingston became Chief Financial Officer and a member of the Board of Directors of World Wrestling Entertainment, Inc. World Wrestling Entertainment, Inc. is an integrated media and entertainment company. Mr. Livingston served as President and Chief Executive Officer of Financial Executives International (FEI) from January 1999 to April 2003. From 1995 to 1998 Mr. Livingston served as Senior Vice President and Chief Financial Officer of Catalina Marketing Corporation. MELVIN R. MARTIN has been a Director of the Company since January 1992. Since December 1992, Mr. Martin has been a General Partner of MRM Investments Limited Partnership, owners and operators of rental properties. JEFFREY W. UBBEN became a Director of the Company in February 2001. Mr. Ubben is the founder and Managing Partner of ValueAct Capital Partners, L.P., an investment partnership focused primarily on making a limited number of investments in small capitalization public companies. From 1995 to 2000, Mr. Ubben was Managing Partner of Blum Capital Partners. Mr. Ubben also serves on the Board of Martha Stewart Living Omni-media. JOHN K. WILCOX has been a Director of the Company since February 1998. From November 1994 until November 1997, Mr. Wilcox was Group Vice President, personal lines finance and planning of Allstate Insurance Company. EXECUTIVE OFFICERS OF THE COMPANY The following table sets forth the names, ages and offices of all of the executive officers of the Company as of March 15, 2003:
Name Age Office Held ---- --- ----------- Thomas C. O'Brien 49 President and Chief Executive Officer Peter B. Doder 42 Vice President, Business Development Edward N. Fares 54 Senior Vice President and Chief Information Officer Donald J. Hermanek 54 Senior Vice President, Sales and Marketing Sidney L. Kerley 28 Vice President, Corporate Counsel and Assistant Secretary David R. Montgomery 46 Senior Vice President and Chief Operating Officer Scott P. Pettit 40 Senior Vice President, Chief Financial Officer and Secretary
THOMAS C. O'BRIEN became President and Chief Executive Officer in November 2000. As President and Chief Executive Officer, Mr. O'Brien oversees the Company's overall corporate administration as well as strategic planning. Prior to joining the Company, Mr. O'Brien served as President of Thomas O'Brien & Associates from 1999 to 2000, Executive Vice President of Safelite Glass Corporation from 1998 to 1999, Executive Vice President of Vistar, Inc. from 1996 to 1997 and President of U.S.A. Glass, Inc. from 1992 to 1996. PETER B. DODER became Vice President of Business Development in March 2001. Mr. Doder is responsible for the Company's acquisitions, start-ups, re-facilitation projects, and strategic growth initiatives. Prior to that, Mr. Doder was Vice President of the Western Division from February 1997 to March 2001. From February 1996 to February 1997, Mr. Doder was Vice President, Financial Planning & Analysis of the Company. From June 1992 through February 1996, Mr. Doder held various positions with the Company, including Regional Sales Manager, Manager of Marketing Support & Analysis and Director of Marketing. EDWARD N. FARES became Senior Vice President and Chief Information Officer in January 2002. Mr. Fares is responsible for information services functions, including software application acquisition and development, computer operations and telecommunications. Prior to joining the Company, Mr. Fares served as Senior Vice President, Chief Technology Officer of eTrak Corporation from July 2000 to January 2002. From 1997 to 2000, he 3 served as Senior Vice President, Chief Information Officer at GE Financial Assurance Partnership Marketing Group and from 1994 to 1997 he served as Senior Vice President, Information Technology at Acxiom Corporation. DONALD J. HERMANEK joined the Company in August 2000 as Senior Vice President of Sales and Marketing. Mr. Hermanek is responsible for the sales and marketing functions, including field sales and the corporate accounts group. Prior to joining the Company, Mr. Hermanek served as Vice President of Business Development for Consolidated Services Corp. from 1997 to 2000. Prior to that he served as Vice President - National Sales for Safelite Glass Corp. from 1992 to 1997. SIDNEY L. KERLEY joined the Company in April 2001 as Corporate Counsel. In April 2002 he was named Vice President, Corporate Counsel. He is responsible for the general legal affairs of the Company including SEC compliance and filings, mergers and acquisitions, corporate finance and litigation. Prior to joining the Company, Mr. Kerley served as an attorney for Fairbank & Vincent. DAVID R. MONTGOMERY joined the Company in April 2001 as Senior Vice President and Chief Operating Officer. Mr. Montgomery is responsible for Company operations including the National Network and specialty salvage business. Prior to joining the Company, Mr. Montgomery served as Chief Executive Officer of Greenleaf Acquisitions, LLC, a subsidiary of Ford Motor Company from 1999 to April 2001. From 1996 to 1999 he served as Area Vice President of Safelite/Vistar Autoglass. From 1988 to 1996 he served in various management capacities at Windshields America, Inc., one of the two entities combined to form Vistar, Inc. SCOTT P. PETTIT joined the Company in April 2001 as Senior Vice President, Chief Financial Officer and Secretary. Mr. Pettit is responsible for financial functions, including legal, real estate and investor relations. Prior to joining the Company, Mr. Pettit served as Senior Vice President and Chief Financial Officer at Corsolutions Medical Inc. from 1998 to April 2001. From 1996 to 1998 he served as Vice President Finance and Chief Financial Officer of Vistar, Inc. From 1994 to 1996 he served as Senior Vice President and Chief Financial Officer with Globe Glass & Mirror Co., one of the two entities combined to form Vistar, Inc. Officers are appointed to serve, at the discretion of the Board of Directors, until their successors are appointed. SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the Company's Directors and Executive Officers, and persons who own more than ten percent of a registered class of the Company's equity securities, to file with the Securities and Exchange Commission initial reports of ownership and reports of changes in ownership of Common Stock and other equity securities of the Company. Officers, Directors and greater than ten percent shareholders are required by Securities and Exchange Commission regulation to furnish the Company with copies of all Section 16(a) reports they file. Based solely upon a review of the copies of such reports furnished to the Company and written representations from such Officers, Directors and greater than ten percent shareholders, all Section 16(a) filing requirements applicable to the Company's Directors, Executive Officers and greater than ten percent shareholders have been met, except Messrs, Doder, Kerley, Fares, Montgomery and O'Brien were late on one occasion in filing their Form 4 "Statement of Changes in Beneficial Ownership". ITEM 11. EXECUTIVE COMPENSATION. DIRECTORS' COMPENSATION Effective in 2003, Non-employee Directors are entitled to receive an annual retainer fee of $22,000, a $1,000 fee for each regularly scheduled Board meeting attended in person, a $500 fee for each committee meeting attended in person; a $250 fee for each board and committee meeting attended by phone, an annual fee of $3,000 if such non-employee Director served as the Chairperson of the Compensation or Governance Committee and an annual fee of 4 $10,000 if such non-employee Director served as the Chairperson of the Audit Committee. Non-employee Directors are also reimbursed for expenses incurred in attending such meetings. Employee directors are not compensated for their services as directors of the Company. Each non-employee Director is also eligible to receive periodic option grants for shares of the Company's Common Stock pursuant to the automatic option grant program in effect under the Company's 1991 Stock Option Plan as amended and restated. Under this automatic option grant program, each individual who becomes a non-employee Board member is granted an option to purchase 10,000 shares of Common Stock on the date such individual joins the Board. In addition, each non-employee Director is also entitled to receive an automatic option to purchase 5,000 shares of Common Stock on the last business day of the second quarter of each fiscal year during which such individual continues to serve on the Board. Each automatic option grant becomes exercisable in four successive quarterly installments with the first such installment to become exercisable on the last day of the fiscal quarter immediately following the date of grant, provided the non-employee Director continues to serve on the Board. However, each option will become immediately exercisable for all of the option shares in the event of a change of control of the Company. Mr. Martin and the Company are parties to an agreement for services pursuant to which Mr. Martin is compensated on a daily basis for consulting services, primarily in the areas of acquisitions and real estate. In 2002, Mr. Martin received no compensation pursuant to the agreement. EXECUTIVE COMPENSATION The following Summary Compensation Table provides certain summary information concerning the compensation earned, for services rendered in all capacities to the Company and its subsidiaries during each of the last three years, by the Company's Chief Executive Officer and each of the Company's other four most highly compensated executive officers in 2002. The individuals whose compensation is disclosed in the following tables are hereafter referred to as the "Named Officers." SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION AWARDS ANNUAL COMPENSATION ------------ ------------------------------------------------- SECURITIES NAME AND PRINCIPAL OTHER ANNUAL UNDERLYING ALL OTHER POSITION YEAR SALARY($)(1) BONUS($) COMPENSATION($) OPTIONS(#) COMPENSATION($) ------------------------ ------------ ------------ ------------ ----------------- ------------- ---------------- Thomas C. O'Brien ............. 2002 350,000 -- 18,000(2) 60,000(3) 8,000(4) President and Chief 2001 343,000(5) -- 18,000(2) -- 4,000(4) Executive Officer 2000 4,000(6) -- 2,000(2) 300,000(7) -- Edward N. Fares ............... 2002 170,000(8) -- 18,000(2) 60,000(3)(9) 6,000(4) Sr. Vice President, Chief 2001 -- -- -- -- -- Information Officer 2000 -- -- -- -- -- Donald J. Hermanek ........... 2002 200,000 -- 18,000(2) 30,000(3) 7,000(4) Sr. Vice President - Sales 2001 191,000(5) -- 18,000(2) 40,000 3,000(4) and Marketing 2000 59,000 35,000 4,000(2) 25,000 -- David R. Montgomery ........... 2002 232,000 -- 18,000(2) 30,000(3) 7,000(4) Sr. Vice President and 2001 156,000 25,000 13,000(2) 100,000(10) 3,000(4) Chief Operating Officer 2000 -- -- -- -- -- Scott P. Pettit ............... 2002 205,000 -- 18,000(2) 30,000(3) 7,000(4) Sr. Vice President, Chief 2001 135,000 35,000 13,000(2) 100,000(11) 3,000(4) Financial Officer & Secretary 2000 -- -- -- -- --
--------- 1. Includes salary deferred under the Company's 401(k) Plan and Section 125 Plan. All amounts are rounded to the nearest thousand. 5 2. Automobile allowance. 3. Grants for options to purchase shares of common stock at a price of $15.50 per share pursuant to a resolution adopted by the Board of Directors on December 4, 2002. 4. Represents matching contributions that the Company made to its 401(k) Plan on behalf of the Named Officer. 5. Payroll period changed from pay-to-date to one week in arrears in July 2001, resulting in the loss of one week's worth of compensation in 2001 for personnel who were employed for the full year. This compensation will be made up when the employee leaves the Company. 6. Mr. O'Brien became an employee on November 28, 2000. The salary paid to Mr. O'Brien for the 2000 fiscal year was based on his employment agreement dated November 17, 2000. 7. Mr. O'Brien received a grant for options to purchase 300,000 shares of common stock at a price of $10.81 per share pursuant to his employment agreement dated November 17, 2000 8. Mr. Fares became an employee on January 7, 2002. The salary paid to Mr. Fares for the 2002 fiscal year was based on his employment agreement dated November 17, 2002. 9. Mr. Fares received a grant for options to purchase 30,000 shares of common stock at a price of $15.51 per share pursuant to his employment agreement dated December 11, 2001. Mr. Fares also received a grant for options to purchase 30,000 shares of common stock at a price of $15.50 per share pursuant to a resolution adopted by the Board of Directors on December 4, 2002. 10. Mr. Montgomery received a grant for options to purchase 100,000 shares of common stock at a price of $12.44 per share pursuant to his employment agreement dated April 2, 2001. 11. Mr. Pettit received a grant for options to purchase 100,000 shares of common stock at a price of $12.44 per share pursuant to his employment agreement dated April 2, 2001. 6 STOCK OPTIONS The following table sets forth information with respect to the Named Officers concerning grants of stock options made during 2002.
OPTION GRANTS IN LAST FISCAL YEAR POTENTIAL REALIZABLE VALUE AT ASSUMED ANNUAL RATES OF STOCK INDIVIDUAL GRANTS PRICE APPRECIATION FOR OPTION TERM --------------------------------------------------------------- -------------------------------- NUMBER OF SECURITIES % OF TOTAL UNDERLYING OPTIONS GRANTED OPTIONS TO EMPLOYEES IN EXERCISE NAME GRANTED FISCAL PRICE EXPIRATION (#) (1) YEAR (2) ($/SH) (3) DATE 5%($)(4) 10%($)(4) --------------- ----------------- ------------ ------------- ------------ ----------- Thomas C. O'Brien 60,000 16.1 $15.50 12/16/2012 $584,872 $1,482,180 Edward N. Fares 30,000 8.0 15.50 12/16/2012 292,436 741,090 30,000 8.0 15.51 01/07/2012 292,625 741,568 Donald J. Hermanek 30,000 8.0 15.50 12/16/2012 292,436 741,090 David R. Montgomery 30,000 8.0 15.50 12/16/2012 292,436 741,090 Scott P. Pettit 30,000 8.0 15.50 12/16/2012 292,436 741,090
(1) Each option was granted under the Company's 1991 Stock Option Plan as amended and restated. The option becomes exercisable in four equal annual installments with the first such installment exercisable upon the optionee's completion of one year of service. Each option will become immediately exercisable for all the option shares in the event of a change of control of the Company. Each option has a maximum term of 10 years, subject to earlier termination in the event that the optionee ceases to provide services to the Company. (2) Based upon options to purchase an aggregate of 372,650 shares granted to employees in 2002. (3) The exercise price may be paid in cash, in shares of the Company's Common Stock valued at fair market value on the exercise date or through a cashless exercise procedure involving a same-day sale of the purchased shares. (4) The 5% and 10% assumed annual rates of compounded stock price appreciation from the date of grant are mandated by the Securities and Exchange Commission. There is no assurance provided to any executive officer or any other holder of the Company's Common Stock that the actual stock price appreciation over the option term will be at the assumed 5% or 10% levels or at any other specific level. No gain will in fact be realized by the optionees unless the stock price appreciates over the option term, which will also benefit all shareholders of the Company. 7 The following table sets forth information with respect to unexercised options held as of the end of the 2002 fiscal year by the Named Officers. No stock appreciation rights were outstanding at the end of 2002. AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
NUMBER OF SECURITIES VALUE OF UNEXERCISED UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT OPTIONS AT FISCAL YEAR-END(#) FISCAL YEAR-END ($)(1)(2) ----------------------------- ------------------------- NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE ---- ----------- ------------- ----------- ------------- Thomas C. O'Brien.......... 150,000 210,000 $790,050 $824,850 Edward N. Fares........... -- 60,000 -- 34,500 Donald J. Hermanek...... 22,500 72,500 22,420 82,660 David R. Montgomery.... 25,000 105,000 91,050 290,550 Scott P. Pettit............... 25,000 105,000 91,050 290,550
---------- (1) "In-the-money" options are options whose exercise price was less than the market price of the Common Stock on December 29, 2002, the last day of the 2002 fiscal year. (2) Based upon the market price of $16.08 per share, which was the closing price per share of the Company's Common Stock on the Nasdaq National Market(R) on December 27, 2002, less the exercise price payable per share. EMPLOYMENT CONTRACTS The following is a description of the employment or consulting agreements in effect between the Company and the Named Officers. The compensation paid to Thomas C. O'Brien, President and Chief Executive Officer of the Company, for the 2002 fiscal year was based on a November 17, 2000 employment agreement (the "O'Brien Agreement"). Under the O'Brien Agreement, Mr. O'Brien is entitled to an annual base salary of $350,000 and a performance incentive bonus of 40% of his annual salary based upon the achievement of target performance goals. Mr. O'Brien will be entitled to 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. Also, pursuant to the O'Brien Agreement, the Company granted Mr. O'Brien an option to purchase 300,000 shares of the Company's Common Stock. The option becomes exercisable in four equal annual installments with the first such installment exercisable upon Mr. O'Brien's completion of one year of service. The compensation paid to Edward N. Fares, Sr. Vice President and Chief Information Officer, for the 2002 fiscal year was based on a December 11, 2001 employment agreement (the "Fares Agreement"). Under the Fares Agreement, Mr. Fares is entitled to an annual base salary of $170,000 and a performance incentive bonus of 30% of his annual salary based upon the achievement of objectively quantifiable and measurable goals. Also, pursuant to the Fares Agreement, the Company granted Mr. Fares an option to purchase 30,000 shares of the Company's Common Stock. The option becomes exercisable in four equal annual installments with the first such installment exercisable upon Mr. Fares' completion of one year of service. The compensation paid to Donald J. Hermanek, Sr. Vice President, Sales and Marketing, was based on an arrangement between Mr. Hermanek and the Company at the time of his employment on September 5, 2000. Mr. Hermanek entered into a Change of Control and Employment Agreement ("the "Hermanek Agreement") at that time, however, the Hermanek Agreement did not specify an annual base salary amount. Mr. Hermanek received no options to purchase shares of the Company's common stock pursuant to this agreement. 8 The compensation paid to David R. Montgomery, Sr. Vice President and Chief Operating Officer, for the 2002 fiscal year was based on an April 2, 2001 employment agreement (the "Montgomery Agreement"). Under the Montgomery Agreement, Mr. Montgomery is entitled to an annual base salary of $225,000 and a performance incentive bonus of 40% of his annual salary based upon the achievement of target performance goals. Pursuant to the Montgomery Agreement, the Company paid Mr. Montgomery a signing bonus of $25,000. Also, pursuant to the Montgomery Agreement, the Company granted Mr. Montgomery an option to purchase 100,000 shares of the Company's Common Stock. The option becomes exercisable in four equal annual installments with the first such installment exercisable upon Mr. Montgomery's completion of one year of service. The compensation paid to Scott P. Pettit, Sr. Vice President and Chief Financial Officer, for the 2002 fiscal year was based on an April 2, 2001 employment agreement (the "Pettit Agreement"). Under the Pettit Agreement, Mr. Pettit is entitled to an annual base salary of $195,000 and a performance incentive bonus of 40% of his annual salary based upon the achievement of target performance goals. Pursuant to the Pettit Agreement, the Company paid Mr. Pettit a signing bonus of $35,000. Also, pursuant to the Pettit Agreement, the Company granted Mr. Pettit an option to purchase 100,000 shares of the Company's Common Stock. The option becomes exercisable in four equal annual installments with the first such installment exercisable upon Mr. Pettit's completion of one year of service. Additionally, each of the agreements for the above Named Officers has a Change of Control provision that provides that in the event that the Named Officer's employment with the Company is terminated involuntarily or without cause within two (2) years of the effective date of a change in control, the above Named Officer shall be entitled to receive 18 months worth of Base Salary, accrued obligations, plus continued coverage for the Named Officer and his beneficiaries under the Company's health benefit plans for up to 18 months unless the Named Officer first obtains full time employment elsewhere and provided, however, that the Named Officer properly elects coverage pursuant to COBRA. EXECUTIVE SEVERANCE PLAN Effective August 9, 2000, the Company entered into an Executive Severance Plan for Officers with each of the Executive Officers. A general description of the terms and conditions of the Executive Severance Plan follows. Unless otherwise increased by the Company in its sole discretion, if the Company terminates the Named Officer's employment for any reason other than for "Cause" or if the "Executive Officer" voluntarily terminates employment with the Company and all of its Affiliates for "Good Reason", the Executive Officer shall receive, in exchange for providing the Company with a duly executed "Waiver and Release Agreement" a benefit, generally representing one-month of severance pay for each year of service with a minimum severance pay of six (6) months and a maximum severance pay of twelve (12) months, in an amount equal to the product of (i) times (ii), where: (i) represents the sum of: (A) the Executive Officer's annualized base salary at the time the Executive Officer's employment is terminated, plus (B) the Executive's average annual bonus received over the eight fiscal quarters of the Company immediately preceding the Company's fiscal quarter during which the Participant's employment is terminated, without exceeding the Executive Officer's target bonus for the Company's fiscal year during which the Executive Officer's employment is terminated, plus (C) the Executive Officer's auto allowance for the Company's fiscal year during which the Executive Officer's employment is terminated; and (ii) represents a fraction the numerator of which is the number of whole completed years of employment with the Company, but not less than six (6) nor more than twelve (12), and the denominator of which is twelve (12); provided, however, that in the event that the Executive Officer's termination of employment occurs within one (1) year following the date on which a new chief executive officer is hired by the Company, the Executive Officer shall receive twelve (12) months of severance pay generally calculated on the basis of the amounts set forth; provided, however, that the amount taken into account as the Executive Officer's bonus shall be equal to the Executive Officer's target bonus for the Company's fiscal year during which the Executive Officer's employment is terminated. 9 An Executive Officer is not entitled to any benefit if the Company terminates such Executive Officer's employment for Cause, if the Executive Officer voluntarily terminates employment with the Company for any reason other than Good Reason, or if the Executive Officer's employment is terminated as a result of death or disability. "Cause" shall mean an Executive Officer's: (A) felony conviction in a court of law under applicable federal or state laws which results in material damage to the Company or impairs the value of the Executive Officer's services to the Company, or (B) engaging in one or more acts, or omitting to act, in a manner so as to violate a significant Company policy or fiduciary duty owed by the Executive Officer to the Company which results in material damage to the Company. "Good Reason" means a (i) significant diminution of the duties and responsibilities assigned to the Executive Officer, (ii) any material diminution in the Executive Officer's compensation or benefits previously provided to the Executive Officer, or (iii) a relocation, without the consent of the Executive Officer, of the Executive Officer's office at the Company or any of its Affiliates more than 75 miles from its current location. CHANGE OF CONTROL EMPLOYMENT AGREEMENTS The Company has entered into a Change of Control Employment Agreement (the "Employment Agreement") with each of the Executive Officers. Below is a general description of certain terms and conditions of the Employment Agreement. In the event of a "Change of Control" of the Company followed within two years by (1) the termination of the executive's employment for any reason other than death, disability, or "Cause" or (2) the termination of the executive's employment by the executive for "Good Reason", the Employment Agreement provides that the executive shall be paid a lump sum cash amount equal to one and one-half times the executive's annual base salary and "Highest Annual Bonus" as defined in the Employment Agreement. In addition, the executive is entitled to continued employee welfare benefits for 18 months after termination of employment. "Change of Control" means (a) the acquisition by an individual, entity or group (within the meaning of Section 13(d) (3) or 14(d) (2) of the Securities Exchange Act of 1934) 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, (b) a change in the majority of the board of directors, (c) a major corporate transaction, such as a reorganization, merger or consolidation, or sale or other disposition of all or substantially all of the Company's assets, or (d) a liquidation or dissolution of the Company. "Cause" means the willful and continued failure of the executive to perform substantially the executive's duties or the willful engaging by the executive in illegal conduct or gross misconduct materially injurious to the Company. "Good Reason" means the diminution of responsibilities, assignment to inappropriate duties, failure of the Company to comply with compensation or benefit provisions, transfer to a new work location more than 75 miles from the executive's previous work location, a purported termination of the Employment Agreement by the Company other than in accordance with the Employment Agreement, or failure of the Company to require any successor to the Company to comply with the Employment Agreement. REPORT OF COMPENSATION COMMITTEE The Compensation Committee of the Board of Directors has general responsibility for establishing the compensation payable to the Company's executive officers, including the Chief Executive Officer, and has the sole and exclusive authority to administer the Company's stock option plans. GENERAL COMPENSATION POLICY. The Committee's fundamental policy is to offer the Company's executive officers competitive compensation opportunities based upon overall Company performance, their individual contribution to the financial success of the Company and their personal performance. Accordingly, each executive 10 officer's compensation package consists of: (i) base salary (ii) annual incentive compensation and (iii) long-term stock-based incentive compensation. BASE SALARY. The Compensation Committee strives to set base salaries at levels competitive to those provided to executives with similar responsibilities in businesses comparable to the Company. In determining base salaries of the Company's executive officers, the Compensation Committee considered the performance of each executive, the nature of their responsibilities and the Company's general compensation practices. While several executives have employment agreements that set certain base salary levels, we believe that the 2002 salaries reflect the foregoing. Pursuant to the terms of his employment agreement, Mr. O'Brien was paid a salary of $350,000 for 2002. ANNUAL INCENTIVE COMPENSATION. Annual bonuses are payable to Executive Officers of the Company based upon the achievement of objectively quantifiable and measurable goals and objectives determined in advance by the Compensation Committee. Mr. O'Brien did not receive an annual bonus in 2002. None of the other Named Officers received an annual bonus in 2002. LONG-TERM STOCK-BASED INCENTIVE COMPENSATION. The Company makes stock option grants that in general are designed to align the interests of the executive officers with those of the shareholders and provide each officer with a significant incentive to manage the Company from the perspective of an owner with an equity stake in the business. Option grants are typically made at the initial employment of the executive and reviewed periodically thereafter. The number of shares underlying the options are based upon the level of the officer's responsibilities and internal comparability considerations. Option grants allow the officer to acquire shares of Common Stock at a fixed price per share (the closing price on the date preceding the grant date) over a specified period of time (up to 10 years). The options typically vest in periodic installments over a one-year or four-year period, contingent upon the executive officer's continued service relationship with the Company. Accordingly, the option will typically provide a return to the executive officer only if he or she remains a service provider to the Company, and then only if the market price of the Company's Common Stock appreciates over the option term. Mr. O'Brien was granted an option to purchase 60,000 shares of Company common stock in 2002 at an exercise price of $15.50 per share. The option will vest in equal annual installments over the next four years and will expire on December 16, 2012 unless otherwise exercised, canceled, terminated or extended. LONG TERM INCENTIVE PLAN. In 2001, the Board adopted the 2001 Long Term Incentive plan (the "LTI"). The LTI is designed to provide incentives for certain of the company's key executives to achieve certain earnings and profitability targets by the end of the calendar year 2003. Provided that the participants, as defined therein, should attain at least 90% of the predetermined targets, cash payments will be made to each participant in scheduled amounts up to 110% of the expected payouts. In the event a participant's employment ceases with the Company by reason of death or disability, that participant or his beneficiaries, shall be entitled to receive the payout amount if the overall performance targets are reached and payouts are earned. In the event of a change in control, the LTI shall automatically terminate and all payments shall be made to each participant in accordance with the LTI's payout schedule. TAX LIMITATION. Section 162(m) of the Internal Revenue Code, enacted in 1993, generally disallows a tax deduction to publicly-held corporations for compensation exceeding $1 million paid to certain of the Company's executive officers. It is not expected that the cash compensation to be paid to the Company's executive officers for fiscal 2002 will exceed the $1 million limit per officer. In addition, the Company's 1991 Stock Option Plan as amended and restated limits the maximum number of shares of common stock for which any one participant may be granted stock options over the remaining term of the plan so that any compensation deemed paid to an executive officer when he or she exercises an outstanding option under that Plan will qualify as performance-based compensation which will not be subject to the $1 million limitation. COMPENSATION COMMITTEE Maurice A. Cocca Susan B. Gould Jeffrey W. Ubben 11 COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION The current members of the Compensation Committee are Mr. Cocca, Ms. Gould and Mr. Ubben. Neither of these individuals was at any time during the fiscal year ended December 29, 2002 or at any other time an officer or employee of the Company. No executive officer of the Company serves as a member of the Board of Directors or Compensation Committee of any entity which has one or more executive officers serving as a member of the Company's Board of Directors or Compensation Committee. PERFORMANCE GRAPH The graph set forth below compares the cumulative total shareholder return on the Company's Common Stock with the cumulative total return of (i) the Nasdaq Stock Market-US Companies Index and (ii) the Nasdaq Stock Market SIC Peer Group 5000-5099 Index (which includes companies listed on Nasdaq that are primarily engaged in the wholesale distribution of durable goods) for the five-year period from December 31, 1997 through December 31, 2002. This graph assumes the investment of $100 on December 31, 1997 in the Company's Common Stock, the Nasdaq Stock Market Index and the Nasdaq SIC Peer Group index and assumes the reinvestment of dividends, if any. The comparisons shown in the graph below are based upon historical data and the Company cautions that the stock price performance shown in the graph below is not indicative of, nor intended to forecast, the potential future performance of the Company's Common Stock. COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN AMONG NASDAQ STOCK MARKET - US COMPANIES, NASDAQ STOCK MARKET SIC PEER GROUP 5000 - 5099 AND INSURANCE AUTO AUCTIONS, INC.
Total Return Index for: ---------------------- 12/31/97 12/31/98 12/31/99 12/31/00 12/31/01 12/31/02 -------- -------- -------- -------- -------- -------- Insurance Auto Auctions, Inc. 100.0 103.3 137.0 104.3 126.2 139.8 Nasdaq Stock Market 100.0 141.0 261.5 157.8 125.2 87.4 Peer Groups 100.0 96.4 109.5 78.6 100.0 69.7
12 Notwithstanding anything to the contrary set forth in any of the Company's previous or future filings under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, that might incorporate future filings made by the Company under those statutes, the Compensation Committee Report on Executive Compensation and Performance Graph are not to be incorporated by reference into any of those prior or future filings made by the Company under those statutes. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. OWNERSHIP OF SECURITIES The following table sets forth certain information known to the Company regarding the ownership of the Company's Common Stock as of March 31, 2003 for (i) each Director, (ii) all persons who are beneficial owners of five percent or more of the Company's Common Stock, (iii) any other Named Officer and (iv) all officers and Directors of the Company as a group. Unless otherwise indicated, each of the shareholders has sole voting and investment power with respect to the shares beneficially owned, subject to community property laws where applicable.
NUMBER OF PERCENT OF TOTAL NAME AND ADDRESS SHARES SHARES OUTSTANDING(1) ------------------------------------------------ ---------- -------------------- ValueAct Capital Partners. L.P.(2)(10)(11) ..... 2,243,057 19.4% One Financial Center, Suite 1600 Boston, MA 02111 Farallon Capital Management, L.L.C.(3) ......... 1,827,300 15.8% One Maritime Plaza, Suite 1325 San Francisco, CA 94111 Wallace R. Weitz & Co. (4) ..................... 881,800 7.6% 1125 S. 103rd St., Ste 600 Omaha, NE 68124-6008 Dimensional Fund Advisors (5) .................. 831,400 7.2% 1299 Ocean Ave., 11th Fl .................... Santa Monica, CA 90401 Frist Capital Management(6) .................... 650,000 5.6% 3100 West End Avenue, Suite 500 Nashville, TN 37203 Liberty Wanger Asset Management, L.P. (9) ...... 619,000 5.4% 227 West Monroe Street, Suite 3000 Chicago, Illinois 60606 Peter H. Kamin(2)(10) .......................... 2,256,557 19.5% Jeffrey W. Ubben (2)(11) ....................... 2,198,100 19.0% Thomas C. O'Brien(12) .......................... 150,767 1.3% Peter B. Doder(12) ............................. 60,000 * Marcia A. McAllister (12) ...................... 45,000 * Joseph F. Mazzella (12) ........................ 44,500 * Melvin R. Martin (12) .......................... 40,125 * Maurice A. Cocca (12) .......................... 61,500 * Susan B. Gould (12) ............................ 31,402 * David R. Montgomery(12) ........................ 50,859 * Scott P. Pettit(12) ............................ 51,485 * John K. Wilcox (12) ........................... 24,500 * Donald J. Hermanek(12) ......................... 32,647 * Edward N. Fares(12) ............................ 7,680 * Sidney L. Kerley(12) ........................... 2,500 * All officers (including Named Officers) and Directors as a group (15 persons)(13) ....... 2,828,022 23.5%
---------- * Less than 1% (1) Percentage of beneficial ownership is calculated assuming 11,548,719 shares of common stock were outstanding on March 31, 2003, reflecting the net shares outstanding after the Company's share repurchase. This percentage includes any shares of common stock of which such individual or entity had 13 the right to acquire beneficial ownership within sixty days of March 31, 2003, including but not limited to the exercise of an option; however, such common stock shall not be deemed outstanding for the purpose of computing the percentage owned by any other individual or entity. Such calculation is required by General Rule 13d-3(d)(1) under the Securities Exchange Act of 1934, as amended. (2) Such information was based on Schedule 13D filed jointly by ValueAct Capital Partners, L.P. ("ValueAct Partners"), ValueAct Capital Partners II, L.P. ("ValueAct Partners II"), ValueAct Capital International, Ltd. ("ValueAct International"), VA Partners, L.L.C ("VA Partners"), Jeffrey W. Ubben, George F. Hamel, Jr., Peter H. Kamin (collectively, the "Reporting Persons") on March 19, 2003 and reflects stock held as of March 12, 2003. Messrs. Hamel, Kamin and Ubben are each Managing Members, principal owners and controlling persons of VA Partners and directors and principal executive officers of ValueAct International. Shares beneficially owned by each of ValueAct Partners, ValueAct Partners II and ValueAct International, are reported as beneficially owned by VA Partners, as investment manager or General Partner of each of such investment partnerships, and by the Managing Members as controlling persons of the General Partner. VA Partners and the Managing Members also, directly or indirectly, may own interests in one or both of such partnerships from time to time. By reason of such relationships each of the partnerships is reported as having shared power to vote or to direct the vote, and shared power to dispose or direct the disposition of, such shares of common stock with VA Partners and the Managing Members. ValueAct Partners is the beneficial owner of 1,735,310 shares of common stock, representing approximately 14.17% of the Company's outstanding common stock. ValueAct Partners II is the beneficial owner of 165,090 shares of common stock, representing approximately 1.35% of the Company's outstanding common stock. ValueAct International is the beneficial owner of 284,000 shares of common stock, representing 2.32% of the Company's outstanding common stock. VA Partners, Mr. Ubben , Mr. Kamin and Mr. Hamel may be deemed the beneficial owner of an aggregate of 2,184,6000 shares of the Company's common stock, representing approximately 17.84% of the Company's outstanding common stock. In addition to the 1,184,600 shares of the Company's common stock which Mr. Kamin may be deemed to beneficially own by reason of his being a Managing Member, Mr. Kamin also personally owns 58,457 shares of common stock (or when combined with the 2,184,200 shares of common stock he may be deemed to beneficially own by reason of his being a Managing Member, 18.32% of the Company's common stock). Also includes 27,000 stock options to purchase shares of common stock granted under the 1991 Stock Option Plan as amended and restated that are exercisable on March 31, 2003 or will become exercisable within 60 days after that date consisting of (a) 13,500 options granted to Mr. Kamin and (b) 13,500 options granted to Mr. Ubben. These 27,000 stock options were assigned to ValueAct Partners by Messrs. Kamin and Ubben. The options are owned directly by ValueAct Partners and indirectly by ValueAct Partners II and ValueAct International, as general partners of ValueAct Partners, and indirectly by Messrs. Kamin and Ubben as managing members and controlling persons of VA Partners. In addition to the 2,184,600 shares of common stock of which VA Partners and each of the Managing Members may be deemed to be the beneficial owners, Mr. Kamin owns and has sole voting power to vote and dispose of 58,457 shares of common stock. (3) Such information is based on a Schedule 13G filed jointly by Farallon Capital Management, L.L.C. with the SEC on June 6, 2002 and reflects stock held as of May 30, 2002. According to such Schedule 13G/A, the managing members of Farallon Capital Management, L.P. and managing members of Farallon Partners, L.L.C., named therein, have shared voting and dispositive power for all the shares. (4) Such information is based on a Schedule 13G filed by Wallace R. Weitz & Co. with the SEC on January 17, 2003 and reflects stock held as of December 31, 2002 . According to such Schedule 13G, Wallace R. Weitz & Co. has sole voting and dispositive power for all the shares. (5) Such information is based on a Schedule 13G filed by the Dimensional Fund Advisors, Inc. ("Dimensional") with the SEC on February 10, 2003 and reflects stock held as of December 31, 2002. According to such Schedule 13G, Dimensional has sole voting and dispositive power over all the shares. (6) Such information is based on a Schedule 13G filed by Thomas F. Frist II with the SEC on March 21, 2003 and reflects stock held as of March 12, 2003. According to such Schedule 13G, Mr. Frist has sole voting and dispositive power over all the shares 14 (9) Such information is based on a Schedule 13G/A filed by Liberty Wanger Asset Management, L.P. and WAM Acquisition GR, Inc. (the "Reporting Persons"), with the SEC on February 14, 2003 and reflects stock held as of December 31, 2002. According to such Schedule 13G, the Reporting Persons have shared voting and dispositive power for all the shares. (10) Includes 58,457 shares of Common Stock over which Mr. Kamin has sole voting and dispositive power and 2,243,057 shares owned by ValueAct Partners over which Mr. Kamin shares voting and dispositive power. Peter H. Kamin, a director of the Company, has the sole power to vote or dispose of 58,457 shares of Common Stock by reason of his position as Partner and managing member of ValueAct Partners. Such information is based on a Schedule 13D filed with the SEC on March 19, 2003. Also includes 13,500 stock options to purchase shares of common stock granted under the 1991 Stock Option Plan as amended and restated to Mr. Kamin that are exercisable on March 31, 2003 or will become exercisable within 60 days after that date. All 13,500 options were assigned to ValueAct Partners. The options are owned directly by ValueAct Partners and indirectly by VA Partners, as general partner of ValueAct Partners, and indirectly by Mr. Kamin as a managing member and controlling person of VA Partners. Mr. Kamin disclaims beneficial ownership for these options. (11) Includes 2,243,057 shares owned by ValueAct Partners over which Mr. Ubben shares voting and dispositive power. Also includes 13,500 stock options to purchase shares of common stock granted under the 1991 Stock Option Plan as amended and restated to Mr. Ubben that are exercisable on March 31, 2002 or will become exercisable within 60 days after that date. All 13,500 options were assigned to ValueAct Partners. The options are owned directly by ValueAct Partners and indirectly by VA Partners, as general partner of ValueAct Partners, and indirectly by Mr. Ubben as a managing member and controlling person of VA Partners. Mr. Ubben disclaims beneficial ownership for the options. (12) Includes that portion of options to purchase shares of Common Stock granted under the 1991 Stock Option Plan that are exercisable on March 31, 2003 or will become exercisable within 60 days after that date: Mr. O'Brien - 150,000 shares; Mr. Doder - 60,000 shares; Mr. Mazzella - 42,500 shares; Mr. Martin - 29,500 shares; Mr. Cocca - 21,500 shares; Ms. Gould - 24,500 shares; Mr. Montgomery - 50,000 shares; Mr. Pettit - 50,000 shares; Mr. Wilcox - 19,500 shares; Mr. Hermanek - 32,647 shares; Mr. Fares - 7,500 shares and Mr. Kerley - 2,500 shares. (13) Includes options to purchase shares of Common Stock granted under the 1991 Stock Option Plan that are currently exercisable or will become exercisable within 60 days after March 31, 2003. EQUITY COMPENSATION PLAN INFORMATION YEAR ENDED DECEMBER 29, 2002
Number of Securities Remaining Available for Number of Securities to be Weighted-Average Future Issuance Under Issued Upon Exercise of Exercise Price of Equity Compensation Plans Outstanding Options, Outstanding Options, (excluding securities Plan Category Warrants and Rights Warrants and Rights reflected in column (a)) ----------------------------------- ----------------------------- ----------------------- ----------------------------- (a) (b) (c) ----------------------------------- ----------------------------- ----------------------- ----------------------------- Equity compensation plans approved by security holders 1,509,265 $14.24 681,991 (Amended and Restated 1991 Stock Option Plan) ----------------------------------- ----------------------------- ----------------------- ----------------------------- Equity compensation plans not 41,997 $10.37 39,440 approved by security holders (1995 Supplemental Plan) ----------------------------------- ----------------------------- ----------------------- ----------------------------- Total 1,551,262 721,431 ----------------------------------- ----------------------------- ----------------------- -----------------------------
15 1995 SUPPLEMENTAL PLAN In 1995, the Board adopted the 1995 Supplemental Stock Option Plan (the "1995 Plan") which provides for grants of stock options to non-executive employees and consultants of the Company. Executives of the Company are specifically precluded from participation in the 1995 Plan. The 1995 Plan was not submitted to the shareholders for approval and shall terminate October 1, 2005. The 1995 Plan is administered by a committee of the Board of Directors, which committee is responsible for, among other things, determining the eligible participants under the plan, setting the exercise price of options granted, and amending the plan from time to time as the committee deems necessary. In the event of any Corporate Transaction, and subject to certain other restrictions, each outstanding option shall automatically accelerate so that each such option shall, immediately prior the effective date of the Corporate Transaction, become fully exercisable for all of the shares of common stock at the time subject to such option and may be exercised for any or all of those shares as fully-vested shares of common stock. A Corporate Transaction is defined as any stockholder approved transaction to which the Company is a party such as a merger or consolidation in which securities possessing more than fifty percent (50%) of the total combined voting power of the Company's outstanding securities are transferred to a person or person different from the person holding those securities immediately prior to such transaction; or the sale, transfer or other disposition of all or substantially all of the Company's assets in complete liquidation or dissolution of the Company. There were 200,000 shares initially authorized for grant in the 1995 Plan. There are now 39,440 shares available for grant. The Company has not awarded an option under the plan since April 2000. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. M & M Acquisition. In January 1992, the Company purchased the auto salvage pool operations of M & M Auto Storage Pool, Inc. ("M & M"), and acquired an option to purchase the original 35 acres of land on which M & M's operation is located. Melvin R. Martin, the founder, chief executive officer and principal shareholder of such auto salvage operation, was elected a Director of the Company in January 1992. The Company is required to pay rent to Mr. Martin during the 10-year term of the lease relating to the real property owned by Mr. Martin. In 2002, the Company paid $368,640 pursuant to the lease. The Company believes the terms of the lease are no less favorable than those available from unaffiliated third party lessors. Mr. Martin and the Company are parties to an agreement for services pursuant to which Mr. Martin is compensated on a daily basis for consulting services, primarily in the areas of acquisitions and real estate. In 2002, Mr. Martin received no compensation pursuant to the agreement. Dallas, Texas Lease. The Company leases certain property located in Dallas, Texas from a partnership in which Mr. Martin is a partner. In 2002, the Company paid $468,000 in rent under this lease. The Company believes the terms of the lease are no less favorable than those available from unaffiliated third party lessors. On February 15, 2001, the Company entered into a Shareholder Agreement (the "Shareholder Agreement") with ValueAct Capital Partners, L.P., ValueAct Capital Partners II, L.P., VA Partners, LLC, Jeffrey W. Ubben, Peter H. Kamin, and George F. Hamel (the "ValueAct Shareholders"). Pursuant to the terms of the Shareholder Agreement, Mr. Kamin and Mr. Ubben were elected as members of the Board in 2001. 16 SIGNATURES Pursuant to the requirements Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this amended report to be signed on its behalf by the undersigned, thereunto duly authorized. INSURANCE AUTO AUCTIONS, INC. By: /s/ Thomas C. O'Brien ------------------------------------ President and Chief Executive Officer Date: April 30, 2003 CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 (PURSUANT TO RULE 13A-14 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED) I, Thomas C. O'Brien, certify that: 1. I have reviewed this annual report on Form 10-K/A of Insurance Auto Auctions, Inc.; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: April 30, 2003 /s/ Thomas C. O'Brien ------------------------------------------ Thomas C. O'Brien, Chief Executive Officer 17 CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 (PURSUANT TO RULE 13A-14 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED) I, Scott P. Pettit, certify that: 1. I have reviewed this annual report on Form 10-K/A of Insurance Auto Auctions, Inc.; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date April 30, 2003 /s/ Scott P. Pettit ---------------------------------------- Scott P. Pettit, Chief Financial Officer 18