<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the registrant [X]
Filed by a party other than the registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[ ] Preliminary proxy statement [ ] Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[X] Definitive proxy statement
[ ] Definitive additional materials
[ ] Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
</TABLE>
INSURANCE AUTO AUCTIONS, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of filing fee (Check the appropriate box):
[X] No Fee Required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the form or schedule and the date of its filing.
(1) Amount previously paid:
(2) Form, schedule or registration statement no.:
(3) Filing party:
(4) Date filed:
<PAGE> 2
[LOGO INSURANCE AUTO AUCTIONS]
INSURANCE AUTO AUCTIONS, INC.
850 EAST ALGONQUIN ROAD
SUITE 100
SCHAUMBURG, IL 60173
April 28, 2000
Dear Shareholder:
You are cordially invited to attend the 2000 Annual Meeting of Shareholders
of Insurance Auto Auctions, Inc. (the "Company") to be held on June 21, 2000 at
9:30 a.m. at the Sheraton Arlington Park, 3400 W. Euclid Avenue, Arlington
Heights, IL 60005. The formal Notice of Annual Meeting of Shareholders and Proxy
Statement accompanying this letter describe the business to be acted upon.
It is important that your shares be represented and voted at the meeting.
WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING, PLEASE COMPLETE, SIGN,
DATE AND PROMPTLY RETURN THE ACCOMPANYING PROXY IN THE ENCLOSED POSTAGE-PAID
ENVELOPE. YOU MAY ALSO SUBMIT YOUR PROXY BY TELEPHONE OR OVER THE INTERNET. If
you decide to attend the meeting, you may still vote in person even if you have
previously submitted a proxy.
On behalf of the Board of Directors, I would like to express our
appreciation for your continued interest in the affairs of the Company. We look
forward to seeing you at the Annual Meeting.
Sincerely,
CHRISTOPHER G. KNOWLES
Christopher G. Knowles
Chief Executive Officer
2
<PAGE> 3
INSURANCE AUTO AUCTIONS, INC.
850 EAST ALGONQUIN ROAD
SUITE 100
SCHAUMBURG, ILLINOIS 60173
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON JUNE 21, 2000
The 2000 Annual Meeting of Shareholders (the "Annual Meeting") of Insurance
Auto Auctions, Inc. (the "Company") will be held on June 21, 2000 at 9:30 a.m.
at the Sheraton Arlington Park, 3400 W. Euclid Avenue, Arlington Heights, IL
60005, for the following purposes:
1. To elect eight Directors of the Company to serve until the next
annual meeting or until their successors have been elected and qualified;
2. To approve the adoption of an amendment to the Company's 1991 Stock
Option Plan increasing the number of shares of common stock reserved for
issuance thereunder by 1,000,000 shares.
3. To ratify the appointment of KPMG LLP as the Company's independent
auditors for the fiscal year ending December 31, 2000; and
4. To transact such other business as may properly come before the
meeting or any adjournments or postponements thereof.
The Board of Directors has fixed the close of business on April 21, 2000 as
the record date for determining shareholders entitled to notice of, and to vote
at, the Annual Meeting and at any adjournment or postponement thereof. A list of
shareholders entitled to vote at the Annual Meeting will be available for
inspection at Illinois Corporation Service Co., 700 S. 2nd Street, Springfield,
IL 62704 and at the Company's headquarters at 850 East Algonquin Road, Suite
100, Schaumburg, IL 60173, during regular business hours until the Annual
Meeting.
Please read carefully the following Proxy Statement, which describes the
matters to be voted upon at the Annual Meeting, and then complete, sign and
return your proxy as promptly as possible. You may also submit your proxy by
telephone or over the Internet. Should you receive more than one proxy because
your shares are registered in different names, each proxy should be submitted to
assure that all your shares will be voted. If you attend the Annual Meeting and
vote by ballot, your proxy will be revoked automatically and only your vote at
the Annual Meeting will be counted.
BY ORDER OF THE BOARD OF DIRECTORS
CHRISTOPHER G. KNOWLES
Christopher G. Knowles
Chief Executive Officer
Schaumburg, Illinois
April 28, 2000
YOUR VOTE IS IMPORTANT
SO THAT YOUR COMMON STOCK WILL BE REPRESENTED AT THE ANNUAL MEETING IN THE EVENT
YOU ARE NOT PERSONALLY PRESENT, PLEASE COMPLETE, SIGN, DATE AND PROMPTLY RETURN
THE ENCLOSED PROXY IN THE ENVELOPE PROVIDED. EXECUTION OF THE PROXY WILL NOT
AFFECT YOUR RIGHT TO VOTE IN PERSON IF YOU ARE PRESENT AT THE MEETING.
<PAGE> 4
INSURANCE AUTO AUCTIONS, INC.
850 EAST ALGONQUIN ROAD
SUITE 100
SCHAUMBURG, ILLINOIS 60173
PROXY STATEMENT
FOR THE ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON JUNE 21, 2000
GENERAL
The enclosed proxy is solicited on behalf of the Board of Directors of
Insurance Auto Auctions, Inc., an Illinois corporation (the "Company"), for use
at the 2000 Annual Meeting of Shareholders (the "Annual Meeting"). The Annual
Meeting will be held on June 21, 2000 at 9:30 a.m. at the Sheraton Arlington
Park, 3400 W. Euclid Avenue, Arlington Heights, IL 60005. Shareholders of record
on April 21, 2000 will be entitled to notice of and to vote at the Annual
Meeting.
This Proxy Statement and accompanying proxy and Notice of Annual Meeting
are first being mailed to shareholders on or about May 12, 2000.
PURPOSE OF MEETING
The specific proposals to be considered and acted upon at the Annual
Meeting are summarized in the accompanying Notice of Annual Meeting of
Shareholders. Each proposal is described in more detail in this Proxy Statement.
RECORD DATE, VOTING AND SHARE OWNERSHIP
On April 21, 2000, the record date for determination of shareholders
entitled to vote at the Annual Meeting, there were 11,591,246 shares of Common
Stock outstanding. No shares of the Company's Preferred Stock are outstanding.
Each shareholder is entitled to one vote for each share of Common Stock held by
such shareholder. A majority of the outstanding shares entitled to vote on a
matter, represented in person or by proxy, shall constitute a quorum for
consideration of such matter at the Annual Meeting. The eight candidates for
election as directors receiving the highest number of votes (and who each
receive the affirmative vote of a majority of the shares represented and
entitled to vote at the Annual Meeting) will be elected directors of the
Company. The other matters submitted for shareholder approval at this Annual
Meeting will be decided by the affirmative vote of a majority of the shares
represented and entitled to vote on each such matter. Abstentions with respect
to any matter are treated as shares represented and entitled to vote on that
matter and thus have the same effect as negative votes. If shares are not voted
by the broker who is the record holder of the shares, or if shares are not voted
in other circumstances in which proxy authority is defective or has been
withheld with respect to any matter, these non-voted shares are not deemed to be
present or represented for purposes of determining whether shareholder approval
of that matter has been obtained.
PROXIES
Shareholders may submit their proxies in writing or by telephone or over
the Internet. The telephone and Internet voting procedures are designed to
authenticate votes cast by use of a personal identification number. These
procedures allow shareholders to appoint a proxy to vote their shares and to
confirm that their instructions have been properly recorded. Instructions for
voting by telephone and over the Internet are presented on the proxy card. When
properly completed and returned to the Company or properly submitted by
telephone or over the Internet, the proxy will be voted as marked on the proxy
or as submitted by telephone or over the Internet. If no instructions are given,
all the shares represented by this proxy will be voted FOR the election of each
of the nominees as directors and FOR ratification of the appointment of the
Company's independent auditors.
<PAGE> 5
Any person giving a proxy has the power to revoke it at any time before its
exercise. It may be revoked by filing with the Vice President, Finance of the
Company at the Company's headquarters at 850 East Algonquin Road, Suite 100,
Schaumburg, IL 60173, a notice of revocation or another signed proxy with a
later date. A proxy may be revoked by attending the Annual Meeting and voting in
person.
SOLICITATION OF PROXIES
The Company will bear the entire cost of this solicitation, including the
preparation, assembly, printing and mailing of this Proxy Statement, the proxy
and any additional soliciting materials furnished to shareholders. Copies of
solicitation materials will be furnished to brokerage houses, fiduciaries and
custodians holding shares in their names that are beneficially owned by others
so that they may forward this solicitation material to such beneficial owners.
In addition, the Company may reimburse such persons for their costs in
forwarding the solicitation materials to such beneficial owners. The original
solicitation of proxies by mail may be supplemented by solicitation by
telephone, telegram, personal interview or other means by directors, officers,
employees or agents of the Company. No additional compensation will be paid to
directors, officers, or employees of the Company for any such services. Also,
the Company has retained Beacon Hill Partners, Inc. to assist in soliciting
proxies. The Company will pay Beacon Hill a fee of approximately $5,000, plus
expenses for their services.
DEADLINE FOR RECEIPT OF SHAREHOLDER PROPOSALS
Proposals of shareholders of the Company pursuant to Rule 14a-8 that are
intended to be presented by such shareholders at the Company's 2001 Annual
Meeting must be received by the Company at its principal executive offices no
later than December 29, 2000 in order that they may be included in the Proxy
Statement and form of proxy relating to that meeting. In addition, shareholders
wishing to bring a proposal before the Annual Meeting in 2001 (but not include
it in the Proxy Statement) must provide notice of the proposal to the Company on
or before March 21, 2001. The Company may exercise discretionary authority with
respect to any Shareholder proposals received by the Company after March 21,
2001.
MATTERS TO BE CONSIDERED AT ANNUAL MEETING
PROPOSAL NO. 1: ELECTION OF DIRECTORS
The Board of Directors has nominated the eight nominees listed below (the
"Nominees") for election as directors to hold office until the next annual
meeting or until their respective successors are duly elected and qualified.
Each of the eight Nominees are presently directors of the Company. As of the
date of this Proxy Statement, each person nominated for election has agreed to
serve if elected and the Board of Directors has no reason to believe that any
Nominee will be unavailable to serve. In the event that any Nominee should
become unavailable for election, the Board of Directors may designate a
substitute nominee, in which event the shares represented by proxies at the
meeting will be voted for such substitute nominee, unless an instruction to the
contrary is indicated on the proxy. Unless otherwise instructed in the proxy,
the proxy holders will vote the proxies received by them FOR each of the
Nominees. The eight Nominees receiving the highest number of votes at the Annual
Meeting (and who each receive the affirmative vote of a majority of the shares
represented and entitled to vote) will be elected directors of the Company.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE
ELECTION OF EACH OF THE FOLLOWING NOMINEES TO SERVE AS DIRECTORS OF THE COMPANY
UNTIL THE NEXT ANNUAL MEETING OR UNTIL THEIR SUCCESSORS ARE DULY ELECTED AND
QUALIFIED.
2
<PAGE> 6
NOMINEES
Set forth below is information regarding the Nominees, 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, 2000:
<TABLE>
<CAPTION>
YEAR FIRST
ELECTED OR
NOMINEE AGE APPOINTED DIRECTOR
- ------- --- ------------------
<S> <C> <C>
Thomas J. O'Malia (1)....................................... 56 1993
Christopher G. Knowles...................................... 57 1994
Maurice A. Cocca (1)(2)(3).................................. 56 1997
Susan B. Gould (2).......................................... 62 1991
Peter H. Kamin.............................................. 38 1999
Melvin R. Martin (3)........................................ 69 1992
Joseph F. Mazzella.......................................... 48 1999
John K. Wilcox (1).......................................... 64 1998
</TABLE>
- ---------------
(1) Member of Audit Committee
(2) Member of Compensation Committee
(3) Member of Governance Committee
THOMAS J. O'MALIA became Chairman of the Board of the Company in December
1998. Mr. O'Malia has been a director of the Company since September 1993. Since
July 1995, Mr. O'Malia has been a Professor of Clinical Entrepreneurship and
Director of the Entrepreneur Program at the University of Southern California.
From April 1994 to July 1995, Mr. O'Malia was General Manager, Manufacturing
Systems Division of Kronos, Incorporated ("Kronos"), a software company. From
1985 to April 1994, Mr. O'Malia was Chief Executive Officer of ShopTrac Data
Collection Systems, Inc., a software company that he founded and that was merged
into Kronos in April 1994.
CHRISTOPHER G. KNOWLES became Chief Executive Officer of the Company in
December 1998 and was President and Chief Operating Officer of the Company from
April 1994 to March 1996. Mr. Knowles previously served as Senior Vice
President, Operations East of the Company from January 1994 to April 1994. Prior
to joining the Company, Mr. Knowles was Chairman and Chief Executive Officer
from 1980 to 1994 of Underwriters Salvage Company, a multi-location salvage
operation that the Company acquired in January 1994. Mr. Knowles has been a
director of the Company since June 1994. Mr. Knowles is also a director of Zebra
Technologies Corporation, a manufacturer of bar code printers and supplies.
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 also served on the Board of Directors of Fisons PLC from November 1993
to November 1995. From November 1993 to November 1995, Mr. Cocca served as
Chairman of Curtin Matheson Scientific, a division of Fisons PLC and a supplier
of diagnostic instruments, tests and related products. From 1977 to November
1995, Mr. Cocca was President of Curtin Matheson Scientific.
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 has been a director of the Company since January 1999. Since
January 1992, Mr. Kamin has been a Partner of Peak Investment, L.P. Mr. Kamin is
also a director of Data Transmission Network Systems, Inc. and TFC Enterprises,
Inc.
MELVIN R. MARTIN has been a director of the Company since January 1992.
From June 1947 to January 1992, Mr. Martin was President and Chief Executive
Officer of M&M Auto Storage Pool, Inc., which he founded and which sold
substantially all of its assets to the Company in January 1992.
3
<PAGE> 7
JOSEPH F. MAZZELLA has been a director of the Company since January 1999.
In March 2000, Mr. Mazzella became a partner of Nutter McClennen & Fish, LLC, a
law firm in Boston, Massachusetts. From 1980 until March 2000, Mr. Mazzella was
a partner of Lane, Altman & Owens, a law firm in Boston, Massachusetts. He is a
director of Alliant Techsystems, Inc. and Data Transmission Network Systems,
Inc.
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. From April 1990 to
October 1994, Mr. Wilcox was Vice President, Finance, of Allstate Insurance
Company. In connection with the Company's acquisition of the Reclamation
Division of Tech-Cor, Inc. ("Tech-Cor"), a wholly-owned subsidiary of Allstate,
in 1993, the Company, Tech-Cor, and certain shareholders of the Company entered
into a stockholder agreement (the "Allstate Stockholder Agreement") pursuant to
which such shareholders agreed to vote their shares of the Company's Common
Stock to elect to the Board of Directors a representative chosen by Tech-Cor.
Mr. Wilcox was appointed as a member of the Board of Directors pursuant to the
Allstate Stockholder Agreement.
Family relationships among executive officers or directors of the Company
are as follows: Marcia A. McAllister, the Company's Vice President, Government
Affairs, is the wife of Mr. Knowles, and Donald J. Comis, the Company's Vice
President, Eastern Division, is the brother of Gerald C. Comis, the Company's
Vice President, Customer Service and Industry Relations.
BOARD COMMITTEES AND MEETINGS
During the fiscal year ended December 31, 1999, the Board of Directors held
twenty-four meetings, seventeen of which were special meetings. As of December
31, 1999, the Board of Directors had a standing Audit Committee, Compensation
Committee and Governance Committee.
The Audit Committee is primarily responsible for, among other things,
approving the services performed by the Company's independent auditors,
reviewing financial statements of the Company, determining the adequacy of the
Company's accounting practices and determining the effectiveness of the
Company's systems of internal accounting controls. The Audit Committee consists
of Mr. Wilcox, its Chairman, Mr. O'Malia and Mr. Cocca. The Audit Committee held
three meetings during 1999.
The Compensation Committee is primarily responsible for, among other
things, reviewing and approving the Company's compensation policies and setting
the compensation levels for those executive officers and employees reporting
directly to the Company's Chief Executive Officer. The Compensation Committee is
also responsible for the administration of the Company's stock option plans and
Employee Stock Purchase Plan. The Compensation Committee currently consists of
Ms. Gould, its Chairperson and Mr. Cocca. The Compensation Committee held nine
meetings during 1999.
The Governance Committee is primarily responsible for, among other things,
the CEO performance evaluation process, conducting searches for new directors
and general board governance matters. The Governance Committee consists of Mr.
Cocca, its Chairperson and Mr. Martin. The Governance Committee held no meetings
during 1999. There is no formal Committee procedure for consideration of
shareholder recommendations of nominees for Board membership.
During 1999, no director, except for Mr. Glen Tullman, who resigned as a
director of the Company on November 8, 1999, attended fewer than 75% of the
aggregate number of (i) the total number of meetings of the Board of Directors
and (ii) the total number of meetings of Committees of the Board of Directors on
which he or she served that were held during the period or which he or she was a
Board or Committee member.
COMPENSATION OF DIRECTORS
For 1999, each non-employee director (except Mr. O'Malia) was entitled to
receive an annual retainer fee of $18,000, a $1,000 fee for each Board meeting
attended, a $500 fee for each committee meeting attended (other than on the date
of a regularly scheduled Board meeting), and an annual fee of $3,000 if such
non-employee Director served as a Chairperson of a Committee. As substantially
more board meetings were held
4
<PAGE> 8
in 1999 than in previous years, a $5,000 fee was paid to each Board member
(other than Mr. O'Malia or Mr. Knowles) in December 1999. Except for this $5,000
payment, Mr. Wilcox waived all rights to receive all other Director fees.
Non-employee Directors are also reimbursed for expenses incurred in attending
such meetings.
Each non-employee director (except Mr. O'Malia) 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. 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 2,000 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.
The Company also has certain consulting and on-going business arrangements
with Messrs. O'Malia and Martin which are described more fully under the
sections "Employment Contracts and Change-in-Control Arrangements" and "Certain
Relationships and Related Transactions."
5
<PAGE> 9
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. The individuals whose
compensation is disclosed in the following tables are hereafter referred to as
the "Named Officers."
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
----------------------------------------- ------------
SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($)(1) BONUS($) COMPENSATION($) OPTIONS(#) COMPENSATION($)
- --------------------------- ---- ------------ -------- --------------- ------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
Christopher G. Knowles 1999 284,000 146,000 10,000(2) 100,000(3) --
Chief Executive Officer 1998 18,000(4) -- -- 42,000(5) 24,000(6)
1997 -- -- -- 2,000 24,000(6)
Gerald C. Comis............... 1999 155,000 60,000 18,000(2) -- 6,000(7)
Vice President, Customer 1998 153,000 33,000 18,000(2) 38,000 6,000(7)
Service and Industry Relations 1997 152,000 9,000 16,000(2) -- 3,000(7)
Marcia A. McAllister.......... 1999 152,000 59,000 18,000(2) -- 6,000(7)
Vice President, Government 1998 150,000 33,000 18,000(2) 38,000 6,000(7)
Affairs 1997 149,000 9,000 18,000(2) -- 6,000(7)
Patrick T. Walsh.............. 1999 148,000 57,000 18,000(2) -- 6,000(7)
Vice President 1998 143,000 15,000 18,000(2) 38,000 6,000(7)
Business Development 1997 144,000 9,000 9,000(2) -- 6,000(7)
Stephen L. Green.............. 1999 146,000 57,000 18,000(2) -- 6,000(7)
Vice President-Finance and 1998 121,000 27,000 18,000(2) 38,000 5,000(7)
Chief Financial Officer 1997 104,000 6,000 16,000(2) 5,000 --
Linda C. Larrabee............. 1999 80,000(8) 24,000 8,000(2) -- 229,000(9)
Senior Vice President and 1998 169,000 44,000 20,000(2) 50,000 6,000(7)
Chief Financial Officer 1997 170,000 12,000 38,000(2) -- 6,000(7)
</TABLE>
- ---------------
(1) Includes salary deferred under the Company's 401(k) Plan and Section 125
Plan, and all amounts are rounded to the nearest thousand.
(2) Automobile allowance.
(3) Mr. Knowles received a stock option grant for 100,000 shares pursuant to his
employment agreement dated June 3, 1999.
(4) Mr. Knowles, a director of the Company since 1994, became Chief Executive
Officer of the Company in December 1998.
(5) Mr. Knowles received a stock option grant for 40,000 shares at the time he
became Chief Executive Officer. In June 1998, Mr. Knowles received an
automatic option grant for 2,000 shares for serving as a director of the
Company.
(6) Director's fees paid to Mr. Knowles prior to becoming Chief Executive
Officer.
(7) Represents matching contributions that the Company made to its 401(k) Plan
on behalf of the Named Officer.
(8) Ms. Larrabee resigned as Senior Vice President and Chief Financial Officer
effective May 21, 1999.
(9) Represents a payment of $225,500 made to Ms. Larrabee in connection with her
resignation and a $3,000 contribution that the Company made on Ms.
Larrabee's behalf to its 401(k) Plan.
6
<PAGE> 10
STOCK OPTIONS
The following table sets forth information with respect to the Named
Officers concerning grants of stock options made during 1999.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT
INDIVIDUAL GRANTS ASSUMED ANNUAL RATES
---------------------------------------------------------------------------- OF STOCK
NUMBER OF SECURITIES % OF TOTAL OPTIONS PRICE APPRECIATION FOR
UNDERLYING OPTIONS GRANTED TO OPTION TERM
GRANTED EMPLOYEES IN EXERCISE PRICE ----------------------
NAME (#)(1) FISCAL YEAR(2) ($/SH)(3) EXPIRATION DATE 5% ($)(4) 10% ($)(4)
- ---- -------------------- ------------------ -------------- --------------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Christopher G.
Knowles............. 100,000(5) 74.6 $ 12.75 06/03/06 $519,053 $1,209,614
Gerald C. Comis....... -- -- -- -- -- --
Marcia A.
McAllister.......... -- -- -- -- -- --
Patrick T. Walsh...... -- -- -- -- -- --
Stephen L. Green...... -- -- -- -- -- --
Linda C. Larrabee..... -- -- -- -- -- --
</TABLE>
- ---------------
(1) Each option was granted under the Company's 1991 Stock Option Plan. 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 7 or 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 133,991 shares granted to
employees in 1999.
(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. The
Company may, at its discretion, also loan the optionee sufficient funds to
pay the exercise price for the purchased shares and the federal and state
income tax liability incurred by the optionee in connection with such
exercise.
(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 7-year 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.
(5) The option becomes exercisable in six successive quarterly installments with
the first such installment exercisable on the last business day of the third
fiscal quarter of 1999. Should Mr. Knowles' service as Chief Executive
Officer be terminated prior to December 31, 2000, the option will become
fully vested and exercisable as of the date of such termination.
The following table sets forth information with respect to unexercised
options held as of the end of the 1999 fiscal year by the Named Officers. No
stock options were exercised during the 1999 fiscal year by the Named Officers.
No stock appreciation rights were outstanding at the end of 1999.
7
<PAGE> 11
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT FISCAL YEAR- IN-THE-MONEY OPTIONS AT
END(#) FISCAL YEAR-END($)(1)(2)
---------------------------- ----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Christopher G. Knowles..................... 117,334 66,666 343,752 199,998
Gerald C. Comis............................ 42,625 16,875 181,131 72,769
Marcia A. McAllister....................... 30,625 16,875 181,131 72,769
Patrick T. Walsh........................... 41,625 16,875 165,881 72,769
Stephen L. Green........................... 23,125 19,375 111,756 90,894
Linda C. Larrabee.......................... 80,000 -- 316,555 --
</TABLE>
- ---------------
(1) "In-the-money" options are options whose exercise price was less than the
market price of the Common Stock on December 31, 1999, the last day of the
1999 fiscal year.
(2) Based upon the market price of $15.750 per share, which was the closing
price per share of the Company's Common Stock on the Nasdaq Stock Market(R)
on December 31, 1999, less the exercise price payable per share.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
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.
COMPENSATION ARRANGEMENTS. The compensation paid to Christopher G. Knowles,
Chief Executive Officer of the Company, for the 1999 fiscal year was based on a
June 3, 1999 employment agreement (the "Knowles Agreement"). Under the Knowles
Agreement, Mr. Knowles is entitled to an annual base salary of $310,000 and a
performance incentive bonus of up to 40% of his annual salary based upon the
achievement of target performance goals. Mr. Knowles shall be entitled to
receive additional incentive amounts to the extent target performance goals are
exceeded, all in accordance with the provisions of the Company's incentive
program for officers. The Knowles Agreement expires on December 31, 2000. Also,
pursuant to the Knowles Agreement, the Company granted Mr. Knowles an option to
purchase 100,000 shares of the Company's Common Stock. The option becomes
exercisable in six successive quarterly installments with the first such
installment exercisable on the last business day of the third fiscal quarter of
1999. Should Mr. Knowles' service as Chief Executive Officer be terminated prior
to December 31, 2000, the option will become fully vested and exercisable as of
the date of such termination. In the event of a termination of Mr. Knowles'
employment for any reason (other than his resignation from the Company, his
termination for cause, as such term is defined in the Knowles Agreement, or his
termination in connection with a change in control), the Company shall provide
Mr. Knowles (i) an amount equal to sixty percent of his monthly salary at the
rate in effect at the time of such termination through December 31, 2000, and
(ii) continued coverage of Mr. Knowles and his beneficiaries under the Company's
health and dental plan through December 31, 2000, provided that Mr. Knowles will
be charged for such coverage in an amount equal to the amount that he would have
been charged had he remained employed by the Company.
In connection with her resignation as Senior Vice President and Chief
Financial Officer, Ms. Larrabee entered into an Agreement dated as of June 14,
1999. In consideration for Ms. Larrabee's resignation from all positions with
the Company and its subsidiaries, the Company agreed to pay Ms. Larrabee a lump
sum payment of $225,500. In addition, the Company accelerated the vesting of
80,000 previously granted options and extended the exercisability of all of Ms.
Larrabee's outstanding vested options until May 31, 2000. Ms. Larrabee released
the Company from any and all claims arising from or relating to her employment
with the Company (except for indemnification claims under any applicable law or
the Company's standard form of Indemnification Agreement).
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<PAGE> 12
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 officer's compensation package consists of: (i) base salary (ii)
annual incentive compensation and (iii) long-term stock-based incentive
compensation.
BASE SALARY. In 1999, the Compensation Committee determined not to increase
officer base salaries so that a larger portion of total compensation would be
contingent upon the Company's financial performance. However, certain executives
officers of the Company, including certain of the Named Officers, received base
salary increases in recognition of their undertaking additional
responsibilities. The Company also provides its executive officers with
perquisites, such as automobile allowances and relocation expenses, which are
designed to match the fringe benefits provided to executive officers of
similarly-sized or comparable companies with which the Company competes for
executive talent.
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. Pursuant to the Company's incentive program, Mr. Knowles received a
bonus of $146,000 for 1999 and the Named Officers received bonuses averaging 38
percent of base salary.
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.
In June 1999, the Company granted Mr. Knowles a stock option for 100,000
shares in connection with the Knowles Agreement. None of the other Named
Officers were granted stock options in 1999.
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.
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 2000 will exceed the $1 million limit
per officer. In addition, the Company's 1991 Stock Option Plan 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.
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COMPENSATION COMMITTEE
Susan B. Gould Maurice A. Cocca
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The current members of the Compensation Committee are Ms. Gould and Mr.
Cocca. Neither of these individuals was at any time during the fiscal year ended
December 31, 1999 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, 1994 through December 31, 1999. This graph assumes the
investment of $100 on December 31, 1994 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.
[PERFORMANCE GRAPH]
<TABLE>
<CAPTION>
TOTAL RETURN INDEX FOR: 12/31/94 12/29/95 12/31/96 12/31/97 12/31/98 12/31/99
----------------------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Insurance Auto Auctions, Inc........... 100.0 35.2 31.1 37.6 38.9 51.5
Nasdaq Stock Market.................... 100.0 141.3 173.9 213.1 300.2 545.7
Peer Groups............................ 100.0 115.8 119.7 123.9 121.4 137.1
</TABLE>
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<PAGE> 14
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.
EMPLOYMENT CONTRACTS AND CHANGE-IN-CONTROL ARRANGEMENTS
The following is a description of the employment or consulting agreements
in effect between the Company and certain of its directors and the Named
Officers.
The compensation paid to Christopher G. Knowles, Chief Executive Officer of
the Company, for the 1999 fiscal year was based on a June 3, 1999 employment
agreement (the "Knowles Agreement"). Under the Knowles Agreement, Mr. Knowles is
entitled to an annual base salary of $310,000 and a performance incentive bonus
of up to 40% of his annual salary based upon the achievement of target
performance goals. Mr. Knowles shall be entitled to receive additional incentive
amounts to the extent target performance goals are exceeded, all in accordance
with the provisions of the Company's incentive program for officers. The Knowles
Agreement expires on December 31, 2000. Also, pursuant to the Knowles Agreement,
the Company granted Mr. Knowles an option to purchase 100,000 shares of the
Company's Common Stock. The option becomes exercisable in six successive
quarterly installments with the first such installment exercisable on the last
business day of the third fiscal quarter of 1999. Should Mr. Knowles' service as
Chief Executive Officer be terminated prior to December 31, 2000, the option
will become fully vested and exercisable as of the date of such termination. In
the event of a termination of Mr. Knowles' employment for any reason (other than
his resignation from the Company, his termination for cause, as such term is
defined in the Knowles Agreement, or his termination in connection with a change
in control), the Company shall provide Mr. Knowles (i) an amount equal to sixty
percent of his monthly salary at the rate in effect at the time of such
termination through December 31, 2000, and (ii) continued coverage of Mr.
Knowles and his beneficiaries under the Company's health and dental plan through
December 31, 2000, provided that Mr. Knowles will be charged for such coverage
in an amount equal to the amount that he would have been charged had he remained
employed by the Company.
The Company and Mr. O'Malia entered into a Consulting Agreement dated
December 1, 1998 and an Amendment dated November 18, 1999 in connection with Mr.
O'Malia's appointment as Chairman of the Board of Directors. Pursuant to the
Agreement, Mr. O'Malia agreed to perform certain services on behalf of the
Company. In consideration for such services, the Company agreed to pay Mr.
O'Malia $75,000 per year in 1999 and agreed to pay Mr. O'Malia $100,000 per year
for each succeeding year, payable quarterly, in equal installments at the end of
each quarter. Such cash compensation is in lieu of any fees otherwise payable to
Mr. O'Malia during the term of the Consulting Agreement for services as a
director of the Company (including annual retainer fees, fees for Board meeting
attendance, fees for committee meeting attendance and fees for serving as a
chairperson of a Board committee). In addition, in December 1998, the Company
granted to Mr. O'Malia an option to purchase 40,000 shares of the Company's
common stock under the Company's 1991 Stock Option Plan and in 1999 granted Mr.
O'Malia an option to purchase 10,000 shares of the Company's common stock. The
options will become vested and exercisable in four quarterly installments
beginning three months after the date of the grant. Such option grants to Mr.
O'Malia will be in lieu of any automatic grants of options that would otherwise
be made to Mr. O'Malia for service as a director pursuant to the Company's 1991
Stock Option Plan. The Consulting Agreement may be terminated by either party by
not less than 24 hour's prior written notice.
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 1999, Mr.
Martin received no compensation pursuant to the agreement.
In connection with her resignation as Senior Vice President and Chief
Financial Officer, Ms. Larrabee entered into an Agreement dated as of June 14,
1999. In consideration for Ms. Larrabee's resignation from all positions with
the Company and its subsidiaries, the Company agreed to pay Ms. Larrabee a lump
sum
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<PAGE> 15
payment of $225,500. In addition, the Company accelerated the vesting of 80,000
previously granted options and extended the exercisability of all of Ms.
Larrabee's outstanding vested options until May 31, 2000. Ms. Larrabee released
the Company from any and all claims arising from or relating to her employment
with the Company (except for indemnification claims under any applicable law or
the Company's standard form of Indemnification Agreement).
The Company has entered into a Change of Control Employment Agreement (the
"Employment Agreement") with each of the Named Officers, except for Mr. Knowles.
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.
CERTAIN RELATIONSHIP AND RELATED TRANSACTIONS
Tech-Cor Acquisition. In December 1993, the Company purchased certain
assets from and assumed certain specified obligations and liabilities of the
Reclamation Division of Tech-Cor, Inc. ("Tech-Cor"), a subsidiary of Allstate
(the "Tech-Cor Acquisition"). The consideration for the Tech-Cor Acquisition was
1,667,000 shares of the Company's Common Stock, which shares were subsequently
transferred by Tech-Cor to Allstate. The Company also entered into a lease with
respect to certain real property owned by Allstate located in Wheeling,
Illinois. The Company is required to pay rent of $18,333 per month to Allstate
during the term of such lease, which expires in December 2003. The Company,
Tech-Cor and certain shareholders of the Company also entered into a stockholder
agreement pursuant to which such shareholders agreed to vote their shares of the
Company's Common Stock to elect to the Board of Directors a representative
chosen by Tech-Cor and the Company agreed to facilitate such shareholders'
actions. The Company and Tech-Cor also entered into a Registration Agreement
pursuant to which the Company is obligated under certain circumstances to
register with the Securities and Exchange Commission shares of the Company's
Common Stock held by Tech-Cor or Allstate. In addition, Allstate agreed not to
purchase shares of the Company's voting stock that would result in ownership by
Allstate and its affiliates of more than 20%, in the aggregate, of the Company's
voting stock.
Allstate Business. In its normal course of business, the Company purchases
vehicles from Allstate and advances funds for intermediary towing and storage
fees ("Advanced Charges") on behalf of Allstate. Additionally, depending on the
type of sales agreement in effect at a Company location, Allstate may owe the
Company for various fees. Upon settlement, the Advanced Charges and the related
amounts owed to Allstate
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<PAGE> 16
for the purchase of the vehicle and the amount owed by Allstate to the Company
for various fees are netted. During the years ended December 31, 1999 and 1998,
the Company recorded fee income of $5,438,000 and $4,700,000, respectively,
related to the consignment sale of Allstate-insured vehicles, and recorded sales
of $35,053,000 and $35,700,000, respectively, and cost of sales of $31,643,000
and $32,500,000, respectively, related to the purchase of Allstate-insured
vehicles under the purchase-agreement method.
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 a
10-year option to purchase 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 ten-year term of the lease relating to the real property owned by Mr.
Martin. In 1999, the Company paid $406,718 pursuant to the lease. The Company
believes the terms of the lease are no less favorable than those available from
unaffiliated third party lessors.
Service Agreement. 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
1999, 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 1999, the
Company paid $453,676 in rent under this lease.
PROPOSAL NO. 2: APPROVAL OF AMENDMENT TO 1991 STOCK OPTION PLAN
INTRODUCTION
The shareholders are being asked to vote on a proposal to approve an
amendment to the Company's 1991 Stock Option Plan (the "Option Plan") that will,
among other things, increase the number of shares of Common Stock available for
issuance pursuant to the Option Plan by 1,000,000 shares. The principal changes
to the Option Plan are as follows:
(1) Shares. Subject to adjustment under Article IV(c), the maximum
number of shares of Stock issuable under the Plan is 2,350,000 shares.
However, not more than 2,266,319 shares may be issued from and after March
31, 1996, subject to periodic adjustment under Section IV(c).
(2) Cancellation and New Grant of Options. The Committee will have the
authority to effect, at any time and from time to time, with the consent of
the affected option holders, the cancellation of any or all outstanding
options under the Plan (other than options granted under the automatic
Option Grant provision by this Plan) and to grant in substitution therefor
new options under the Plan covering the same or different numbers of
shares, but with an option price per share not less than eighty-five
percent (85%) of the Fair Market Value of the option shares on the new
grant date or, in the case of an Incentive Option, one hundred percent
(100%) of such Fair Market Value on the new grant date (or, in the case of
an Incentive Option granted to a 10% Shareholder, one hundred ten percent
(110%) of such Fair Market Value). The Committee shall not effect a
cancellation and substitution grant as described in the foregoing sentence
without the prior approval of the shareholders of the Corporation.
(3) Term. Unless sooner terminated in accordance with Section X(a) of
the Plan, the Plan will terminate upon the earlier of (i) September 26,
2006 or (ii) the date on which all shares available for issuance under the
Plan shall have been issued or cancelled pursuant to the exercise,
surrender or cash-out of options granted under the Plan. If the date of
termination is determined under clause (i) above, then options outstanding
on such date will thereafter continue to have force and effect in
accordance with the provisions of the instruments evidencing such options.
The Board of Directors believes it is necessary to increase the number of
shares available for issuance under the Option Plan in order to allow the
Company to use equity incentives to attract and retain the services of key
employees, including the Company's executive officers, essential to the
Company's long-term success.
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<PAGE> 17
The Board of Directors approved the amendment to the Option Plan on April
24, 2000, subject to shareholder approval at the Annual Meeting. The affirmative
vote of a majority of the shares of Common Stock represented and entitled to
vote on this Proposal No. 2 is required for approval of the amendment to the
Option Plan.
OPTION PLAN BACKGROUND
The Option Plan was originally adopted by the Board and approved by the
shareholders on September 27, 1991. The Option Plan has been amended on numerous
occasions, including amendments on October 27, 1992 and March 9, 1993 to, among
other things, increase the number of shares of Common Stock authorized for
issuance under the Option Plan by an additional 350,000 shares and increase the
number of shares for which automatic option grants pursuant to the Automatic
Option Grant Program may be made under the Option Plan. These amendments were
approved by the shareholders on June 8, 1993. On February 22, 1994, the Board
amended the Option Plan to, among other things, (i) increase the number of
shares of Common Stock available for issuance pursuant to the Option Plan by
500,000 shares, (ii) limit to 500,000 shares the maximum number of shares of
Common Stock for which any one participant in the Option Plan may be granted
stock options and separately exercisable stock appreciation rights and (iii)
increase the number of shares of Common Stock for which option grants are to be
made under the Automatic Grant Program to each newly elected non-employee Board
member from 5,000 shares to 10,000 shares. These amendments were approved by the
shareholders on June 21, 1994. On March 11, 1996, the Board amended the Option
Plan which increased the number of shares of Common Stock issuable by an
additional 250,000 shares. This amendment was approved by the shareholders on
June 19, 1996.
The following is a summary of the principal features of the Option Plan as
most recently amended. The summary, however, does not purport to be a complete
description of all the provisions of the Option Plan. Any shareholder who wishes
to obtain a copy of the actual plan document may do so by written request to the
Secretary of the Company.
STRUCTURE OF THE OPTION PLAN
The Option Plan is divided into two separate components: the Discretionary
Option Grant Program and the Automatic Option Grant Program. Under the
Discretionary Option Grant Program, options may be issued to key employees
(including officers and directors), consultants and independent contractors of
the Company (or its subsidiary companies) who contribute to the management,
growth and financial success of the Company (or its subsidiary companies).
Non-employee members of the Board are only eligible to receive periodic option
grants under the Automatic Option Grant Program.
As of March 31, 2000, approximately 689 employees (including 8 executive
officers) were eligible to participate in the Discretionary Option Grant
Program, and seven non-employee Board members were eligible to receive grants
under the Automatic Option Grant Program.
Under the Discretionary Option Grant Program, both options which qualify
for favorable tax treatment as incentive stock options ("Incentive Options")
under Section 422 of the Internal Revenue Code and non-statutory options not
entitled to such treatment may be granted. All grants under the Automatic Option
Grant Program and to any individuals who are not employees will be non-statutory
options,
SECURITIES SUBJECT TO PLAN
Assuming shareholder approval of this Proposal No. 2, 2,350,000 shares of
the Company's Common Stock will be authorized for issuance over the term of the
Option Plan. However, not more than 2,266,319 shares of Common Stock may be
issued after March 31, 1996. The shares will be made available either from the
Company's authorized but unissued Common Stock or from Common Stock reacquired
by the Company.
In no event may any one individual participating in the Option Plan be
granted stock options or separately-exercisable stock appreciation rights for
more than 500,000 shares of Common Stock in the
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<PAGE> 18
aggregate over the remaining term of the Option Plan. For purposes of such
limitation, any stock options or stock appreciation rights granted prior to
January 1, 1994 will not be taken into account.
Should an option terminate for any reason prior to exercise in full
(including options cancelled in accordance with the cancellation-regrant
provisions described in the "Cancellation and New Grant of Options" section
below), the shares subject to the portion of the option not so exercised will be
available for subsequent grant. Shares subject to any option or portion thereof
surrendered or cancelled in accordance with the stock appreciation right
provisions of the Option Plan summarized below will not be available for
subsequent grants.
ADMINISTRATION
The Option Plan is administered by the Compensation Committee of the Board.
No Board member is eligible to serve on the Compensation Committee if such
individual has, within the twelve-month period immediately preceding the date he
or she is to be appointed, received any option grant or stock issuance under the
Option Plan or any other stock plan of the Company (or any subsidiary
corporation), other than pursuant to the Automatic Option Grant Program.
The Compensation Committee as Plan Administrator has full authority with
respect to the Discretionary Option Grant Program to determine which eligible
individuals are to receive option grants and/or stock appreciation rights under
the Option Plan, the type of option (Incentive Option or non-statutory) to be
granted, the number of shares to be subject to each granted option or stock
appreciation right, the date or dates on which the option or right is to become
exercisable, and the maximum term for which the option or right is to remain
outstanding.
Option grants under the Automatic Option Grant Program will be made in
strict compliance with the express provisions of that program, and the Plan
Administrator will have no discretionary authority with respect to those option
grants.
DISCRETIONARY OPTION GRANT PROGRAM
EXERCISE PRICE AND EXERCISABILITY
The exercise price per share of a non-statutory option issued under the
Discretionary Option Grant Program may not be less than 85% of the fair market
value of the Company 's Common Stock on the grant date. If the granted option is
intended to be an Incentive Option, the exercise price must not be less than
100% of such fair market value.
The exercise price may be paid in cash or in shares of Common Stock.
Outstanding options may also be exercised through a broker-dealer sale and
remittance procedure pursuant to which a designated brokerage firm is to effect
an immediate sale of the shares purchased under the option and pay over to the
Company, out of the sale proceeds available on the settlement date, sufficient
funds to cover the exercise price for the purchased shares plus all applicable
withholding taxes. The Plan Administrator may also assist any optionee
(including an officer) in the exercise of outstanding options under the
Discretionary Option Grant Program by authorizing a loan from the Company. The
terms and conditions of any such loan will be established by the Plan
Administrator in its sole discretion, but in no event may the maximum credit
extended to the optionee exceed the aggregate exercise price payable for the
purchased shares plus any Federal and state income or employment taxes incurred
in connection with the purchase. No option may be outstanding for more than a
ten-year term. Options issued under the Discretionary Option Grant Program may
be immediately exercisable for vested or unvested shares or may become
exercisable in one or more installments over a period of months or years as
determined by the Plan Administrator.
TERMINATION OF SERVICE
The Plan Administrator has complete discretion to establish the period of
time for which any option is to remain exercisable following the optionee's
cessation of service with the Company. In the event of the optionee's death, the
option may be exercised during such post-service period by the personal
representative of
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the optionee's estate or by the person inheriting the option. Under no
circumstances may an option be exercised after the specified expiration date of
the option term.
Each outstanding option under the Discretionary Option Grant Program will
normally, during the post-service exercise period, be exercisable only for the
number of shares for which such option is exercisable at the time of the
optionee's cessation of service with the Company. However, the Plan
Administrator has complete discretion to accelerate the exercisability of such
option in whole or in part and/or to extend the post-service exercise period of
that option and may exercise that discretion at any time while the option
remains outstanding, whether before or after the optionee's cessation of
service.
CORPORATE TRANSACTION
Each outstanding option under the Discretionary Option Grant Program will
become immediately exercisable for all of the shares of Common Stock at the time
subject to that option in the event of a Corporate Transaction. A Corporate
Transaction includes one or more of the following shareholder-approved
transactions: (i) a merger or acquisition in which the Company is not the
surviving entity (other than a transaction the principal propose of which is to
change the state of the Company's incorporation), (ii) the sale, transfer or
other disposition of all or substantially all of the Company's assets or
outstanding capital stock, or (iii) any reverse merger in which the Company is
the surviving entity but in which all of the Company's outstanding voting stock
is transferred to the acquiring entity or its wholly owned subsidiary.
Immediately following the consummation of the Corporate Transaction, all
outstanding options will, to the extent not previously exercised by the
optionees, terminate and cease to be exercisable, unless assumed by the
acquiring entity or its parent company. The acceleration of options in the event
of a Corporate Transaction may be seen as an anti-takeover provision and may
have the effect of discouraging a merger proposal, a takeover attempt or other
efforts to gain control of the Company.
STOCK APPRECIATION RIGHTS
One or more officers of the Company subject to the short-swing profit
restrictions of the Federal securities laws may, in the Plan Administrator's
discretion, be granted limited stock appreciation rights with respect to their
outstanding options under the Discretionary Option Grant Program. Any option
with such a limited right in effect for at least six (6) months will
automatically be cancelled upon the occurrence of a Hostile Take-Over (as
defined below), and the optionee will in return be entitled to a cash
distribution from the Company in an amount equal to the excess of (i) the
Take-Over Price (as defined below) of the shares of Common Stock at the time
subject to the cancelled option (whether or not the option is otherwise at the
time exercisable for such shares) over (ii) the aggregate exercise price payable
for such shares.
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<PAGE> 20
For purposes of such option cancellation provisions, the following
definitions are in effect under the Option Plan:
Hostile Take-Over: the acquisition by any person or related group of
persons (other than the Company or its affiliates) of securities possessing more
than 50% of the total combined voting power of the Company's outstanding
securities pursuant to a tender or exchange offer made directly to the Company's
shareholders which the Board does not recommend that such shareholders accept,
provided more than 50% of the securities so acquired in such tender or exchange
offer are obtained from shareholders other than the Company officers and
directors subject to the short-swing profit restrictions of the Federal
securities laws.
Take-Over Price: the greater of (A) the fair market value of the shares of
Common Stock subject to the cancelled option, measured on the cancellation date
in accordance with the valuation provisions of the Option Plan described below,
or (B) the highest reported price per share of Common Stock paid by the tender
offer or in effecting the Hostile Take-Over.
CANCELLATION AND NEW GRANT OF OPTIONS
The Plan Administrator has the authority to effect, with the consent of the
affected optionees, the cancellation of any or all options outstanding under the
Discretionary Option Grant Program and to grant in substitution therefor new
options covering the same or different numbers of shares of Common Stock but
with an exercise price per share not less than 85% of the fair market value per
share of Common Stock on the new grant date (or 100% of such fair market value
if the new option is to be an Incentive Option). It is anticipated that the
exercise price in effect under the new grant will in all instances be less than
the exercise price in effect under the cancelled option. The Plan Administrator
shall not effect such a cancellation and substitution grant without obtaining
the prior approval of the shareholders of the Company.
SPECIAL TAX ELECTION
The Plan Administrator may provide one or more holders of non-statutory
options under the Discretionary Option Grant Program with the right to have the
Company withhold a portion of the shares of Common Stock otherwise issuable to
such individuals upon the exercise of those options in order to satisfy the
Federal and state income and employment tax withholding liability incurred by
such individuals in connection with such exercise. Alternatively, the Plan
Administrator may allow such individuals to deliver already existing shares of
the Company's Common Stock in payment of such tax liability.
AUTOMATIC OPTION GRANT PROGRAM
Under the Automatic Option Grant Program, each individual who is first
elected or appointed as a non-employee Board member at the Annual Meeting or at
anytime thereafter will automatically be granted, at the time of such initial
election or appointment, a non-statutory option to purchase 10,000 shares of
Common Stock. Additional option grants will be made at periodic intervals to the
individuals who continue to serve as non-employee Board members. Accordingly, on
the last business day of the second quarter of each fiscal year of the Company
beginning after October 28, 1992, each individual who is at the time serving as
a non-employee Board member (other than an individual who received his or her
initial automatic option grant in that fiscal year) will be automatically
granted on such date a non-statutory stock option to purchase an additional
2,000 shares of Common Stock.
Each option grant under the Automatic Option Grant Program will be
subject to the following terms and conditions:
(i) The exercise price per share of each grant will be equal to
100% of the fair market value per share of Common Stock on the automatic
grant date, and each option will have a maximum term of ten years
measured from the grant date.
(ii) Each option will become exercisable for the option shares in
four (4) equal and successive quarterly installments on the last day of
each fiscal quarter commencing with the fiscal quarter in which the
grant is made, provided the non-employee Board member continues to serve
on the Board.
17
<PAGE> 21
(iii) The option will remain exercisable for a three (3)-month
period following the optionee's cessation of Board service for any
reason other than disability or death. Should the optionee become
disabled or die while serving as a Board member, then such option will
remain exercisable for a twelve (12)-month period following such
cessation of service. In the case of the optionee 's death, the option
may be exercised by the personal representative of the optionee's estate
or the person to whom the grant is transferred by the optionee's will or
the laws of inheritance. In no event, however, may the option be
exercised after the expiration date of the option term. During the
applicable postservice exercise period, the option may not be exercised
for more than the number of shares (if any) for which it is exercisable
at the time of the optionee's cessation of Board service.
(iv) The option will become immediately exercisable for all the
shares of Common Stock at the time subject to such option in the event
of a Corporate Transaction (as defined in the "Corporate Transactions"
section above). Immediately following the consummation of the Corporate
Transaction, all automatic option grants will terminate and cease to be
outstanding.
The remaining terms and conditions of the option will in general conform to
the terms described above for option grants made under the Discretionary Option
Grant Program and will be incorporated into the option agreement evidencing the
automatic grant.
OPTION PLAN BENEFITS
It is not possible to determine the number of shares of Common Stock that
will in the future be purchased under the Option Plan by any particular
individual. It is anticipated that between six and twelve individuals will be
deemed Key Employees by the Committee.
FEDERAL TAX CONSEQUENCES
Options granted under the Option Plan may be either Incentive Options which
satisfy the requirements of Section 422 of the Internal Revenue Code or
non-statutory options which are not intended to satisfy such requirements. The
Federal income tax treatment for the two types of options differs as follows:
Incentive Options. No taxable income is recognized by the optionee at the
time of the option grant, and no taxable income is generally recognized at the
time the option is exercised. The optionee will, however, recognize taxable
income in the year in which the purchased shares are sold or otherwise made the
subject of disposition.
For Federal income tax purposes, dispositions are divided into two
categories: (i) qualifying and (ii) disqualifying. The optionee will make a
qualifying disposition of the purchased shares if the sale or disposition is
made more than two (2) years after the grant date of the option and more than
one (1) year after the exercise date. If the optionee fails to satisfy either of
these two holding periods prior to the sale or disposition, then a disqualifying
disposition of the purchased shares will result.
Upon a qualifying disposition, the optionee will recognize capital gain (or
loss) equal to the difference between the sale price and the exercise price. If
there is a disqualifying disposition of the shares, then, in general, the
optionee will have taxable ordinary income in the year in which the transfer
occurs in an amount equal to the excess of the fair market value on the date of
exercise over the exercise price. However, if the sale price is less than the
fair market value of such shares on the date of exercise, the ordinary income
will be not more than the difference between the sale price and the exercise
price. The optionee will have long-term or short-term capital gain (or loss) in
an amount equal to the amount by which the amount received for such shares
exceeds (is less than) the optionee's tax basis in the shares as increased by
the amount of any ordinary income recognized as a result of the disqualifying
disposition, if any.
The Company is not entitled to a tax deduction upon grant, exercise or
subsequent transfer of shares of stock acquired upon exercise of an incentive
stock option, provided the optionee effects a qualifying disposition. If the
optionee makes a disqualifying disposition of the purchased sales, the Company
generally is entitled to a deduction at the time the optionee recognizes
ordinary income in an amount equal to the amount of ordinary income recognized
by such optionee as a result of such transfer. The Company anticipates that any
18
<PAGE> 22
compensation deemed paid by the Company upon one or more disqualifying
dispositions of incentive stock option shares will be deductible by the Company
and will not have to be taken into account for purposes of the $1 million
limitation per covered individual on the deductibility of the compensation paid
to certain executive officers of the Company.
Non-statutory Options. No taxable income is recognized by an optionee upon
the grant of a non-statutory option. The optionee will in general recognize
ordinary income in the year in which the option is exercised equal to the excess
of the fair market value of the purchased shares on the exercise date over the
exercise price, and the optionee will be required to satisfy the tax withholding
requirements applicable to such income.
Special provisions of the Internal Revenue Code apply to the acquisition of
shares under a non-statutory option if the purchased shares are subject to a
substantial risk of forfeiture (such as the Company's right to repurchase
unvested shares at the original exercise price paid per share, upon the
optionee's cessation of service prior to vesting in those shares.) These special
provisions may be summarized as follows:
(a) The optionee will not recognize any taxable income at the time
the option is exercised for such unvested shares but will have to report
as ordinary income, as and when the shares vest, an amount equal to the
excess of (i) the fair market value of the shares on the vesting date
over (ii) the exercise price paid for the shares.
(b) The optionee may, however, elect under Section 83(b) of the
Internal Revenue Code to include as ordinary income, in the year of
exercise, an amount equal to the difference between the fair market
value of the purchased shares on the date of exercise (determined as if
the unvested shares were not subject to the Company's repurchase right)
and the exercise price paid for the shares. If the Section 83(b)
election is made, the optionee will not recognize any additional income
as and when the shares vest.
The Company will be entitled to an income tax deduction equal to the amount
of ordinary income recognized by the optionee in connection with the exercise of
the non-statutory option. The deduction will in general be allowed for the
taxable year of the Company in which such ordinary income is recognized by the
optionee. The Company anticipates that the compensation deemed paid by the
Company upon the exercise of non-statutory options will be deductible by the
Company and will not have to be taken into account for purposes of the $1
million limitation per covered individual on the deductibility of the
compensation paid to certain executive officers of the Company.
Stock Appreciation Rights. If an option granted with a tandem stock
appreciation right is surrendered for an appreciation distribution, or if an
option granted with a limited stock appreciation right is cancelled for an
appreciation distribution, the recipient will generally realize ordinary income
on the surrender or cancellation date, equal in amount to the appreciation
distribution. The Company will be entitled to a deduction equal to the amount of
such ordinary income.
ACCOUNTING TREATMENT
Under the accounting principles currently in effect for employee stock
plans such as the Option Plan, option grants with exercise prices equal to the
fair market value of the underlying shares on the grant date will not result in
any compensation expense to the Company for financial reporting purposes. To the
extent the exercise price is less than such fair market value, a compensation
expense will arise as of the date of grant which will have to be recognized over
the vesting period in effect for the option grant. In addition, outstanding
options will in all events be taken into account in the calculation of earnings
per share on a fully-diluted basis.
Should one or more optionees be granted stock appreciation rights which
have no conditions upon exercisability other than a service or employment
requirement, then such rights will result in a compensation expense to be
charged against the Company's earnings. Accordingly, at the end of each fiscal
quarter, the amount (if any) by which the fair market value of the shares of
Common Stock subject to such outstanding stock appreciation rights has increased
from the prior quarter-end will be accrued as compensation expense, to the
extent such fair market value is in excess of the aggregate exercise price in
effect for those rights.
19
<PAGE> 23
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" (Statement No. 123), issued in October 1995 and
effective for fiscal years beginning after December 15, 1995, permits, but does
not require, a fair value based method of accounting for employee stock options
or similar equity instruments. Statement No. 123 allows an entity to elect to
continue to measure compensation cost under Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees" (APBO No. 25), but requires
pro forma disclosures of net earnings and earnings per share as if the fair
value based method of accounting had been applied. The Company adopted Statement
No. 123 on January 1, 1996 and has elected to continue to measure compensation
cost under APBO No. 25.
SHAREHOLDER APPROVAL REQUIRED
The affirmative vote of a majority of the shares represented and entitled
to vote on Proposal No. 2 is required for approval of the amendment to the
Option Plan.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THIS
PROPOSAL NO. 2 APPROVING THE AMENDMENT TO THE COMPANY'S 1991 STOCK OPTION PLAN.
PROPOSAL NO. 3: RATIFICATION OF INDEPENDENT AUDITORS
The Company is asking the shareholders to ratify the selection of KPMG LLP
as the Company's independent auditors for the fiscal year ending December 31,
2000. The affirmative vote of a majority of the shares of Common Stock
represented and entitled to vote at the Annual Meeting will be required to
ratify the selection of KPMG LLP.
In the event the shareholders fail to ratify the appointment, the Board of
Directors will reconsider its selection. Even if the selection is ratified, the
Board in its discretion may direct the appointment of a different independent
accounting firm at any time during the year if the Board feels that such a
change would be in the best interests of the Company and its shareholders.
KPMG LLP were auditors for the year ended December 31, 1999 and have been
recommended to the shareholders for ratification as auditors for the year ending
December 31, 2000. A representative of KPMG LLP is expected to be present at the
Annual Meeting, will have the opportunity to make a statement if he or she
desires to do so and will be available to respond to appropriate questions.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE
RATIFICATION OF THE SELECTION OF KPMG LLP TO SERVE AS THE COMPANY'S INDEPENDENT
AUDITORS FOR THE FISCAL YEAR ENDING DECEMBER 31, 2000.
20
<PAGE> 24
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 20, 2000 for
(i) each director and Nominee, (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.
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF TOTAL
NAME AND ADDRESS SHARES SHARES OUTSTANDING(1)
- ---------------- --------- ---------------------
<S> <C> <C>
Wallace R. Weitz & Co. (2).................................. 2,142,700 18.5%
1125 S. 103rd St., Ste 600
Omaha, NE 68124-6008
Allstate Insurance Company(3)............................... 1,667,000 14.4%
3075 Sanders Road, Suite G4B
Northbrook, Illinois 60062
Wanger Asset Management, L.P.(4)............................ 994,500 8.6%
227 West Monroe Street, Suite 3000
Chicago, Illinois 60606
State of Wisconsin Investment Board(5)...................... 975,000 8.43%
P.O. Box 7842
Madison, Wisconsin 53707
Peter H. Kamin(6)(10)....................................... 683,100 5.8%
Peak Investment Limited Partnership(7)......................
Peak Management, Inc.(8)....................................
One Financial Center, Suite 1600
Boston, MA 02111
Dimensional Fund Advisors(9)................................ 666,800 5.76%
1299 Ocean Ave., 11th Fl
Santa Monica, CA 90401
Peter H. Kamin(6)(7)(8)(10)................................. 683,100 5.8%
Christopher G. Knowles(10).................................. 229,454 2.0
Linda C. Larrabee(10)....................................... 80,000 *
Thomas J. O'Malia(10)....................................... 71,500 *
Gerald C. Comis(10)......................................... 51,810 *
Patrick T. Walsh(10)........................................ 44,887 *
Melvin R. Martin(10)........................................ 34,125 *
Marcia A. McAllister(10).................................... 33,750 *
Stephen L. Green(10)........................................ 28,247 *
Maurice A. Cocca(10)........................................ 25,500 *
Susan B. Gould(10).......................................... 24,085 *
John K. Wilcox(11).......................................... 14,500 *
Joseph F. Mazzella(10)...................................... 12,500 *
All officers (including Named Officers) and directors as a
group (17 persons)(12).................................... 1,444,160 12.5%
</TABLE>
- ---------------
* Less than 1%
21
<PAGE> 25
(1) Percentage of beneficial ownership is calculated assuming 11,586,648 shares
of common stock were outstanding on March 20, 2000. This percentage
includes any shares of common stock of which such individual or entity had
the right to acquire beneficial ownership within sixty days of March 20,
2000, 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)(i) under the Securities Exchange Act of
1934, as amended.
(2) Such information is based on a Schedule 13G/A filed by Wallace R. Weitz &
Co. with the SEC on February 4, 2000 and reflects stock held as of December
31, 1999. According to such Schedule 13G/A, Wallace R. Weitz & Co. has sole
voting and dispositive power for all the shares.
(3) Such information is based on a Schedule 13G filed by Allstate with the SEC
reflecting stock ownership as of December 31, 1995 and on subsequent
representations by Allstate to the Company. According to such Schedule 13G
and representations, Allstate has sole voting and investment power over all
the shares.
(4) Such information is based on a Schedule 13G/A filed by Wanger Asset
Management, L.P., with the SEC on February 11, 2000 and reflects stock held
as of December 31, 1999. According to such Schedule 13G/A, Wanger Asset
Management, L.P. has shared voting and dispositive power for all the
shares.
(5) Such information is based on a Schedule 13G/A filed by State of Wisconsin
Investment Board with the SEC on February 10, 2000 and reflects stock held
as of December 31, 1999. According to such Schedule 13G/A, the State of
Wisconsin Investment Board retains sole voting and dispositive power for
all the shares.
(6) Peter H. Kamin, a director of the Company, has the sole power to vote or
dispose of 190,900 shares of Common Stock, including 35,000 shares for the
benefit of his children. In addition, Mr. Kamin has sole voting and
dispositive power with respect to an aggregate of 155,000 shares of Common
Stock held in managed brokerage accounts pursuant to the terms of
investment advisory agreements. In addition, by reason of his position as
the sole director, officer and stockholder of Peak Management, Inc., which
is the sole General Partner of Peak Limited Partnership, Peter H. Kamin may
be deemed to have shared voting and dispositive power over the 481,200
shares of Common Stock beneficially owned by such partnership. Accordingly,
Mr. Kamin may be deemed the beneficial owner of an aggregate 672,100 shares
of Common Stock. Such information is based on a Schedule 13G/A filed with
the SEC on January 26, 2000.
(7) Peak Investment Limited Partnership ("Peak L.P.") is the beneficial owner
of 481,200 shares of Common Stock. Peak L.P. has the sole power to vote or
to dispose of or to direct the voting or to direct the disposition of the
Common Stock beneficially owned by it. Such voting and dispositive power
may be exercised on behalf of Peak L.P. by its General Partner, Peak
Management, Inc., of which Peter H. Kamin is the sole officer, director and
stockholder. Accordingly, Peter H. Kamin may be deemed to have shared
voting and dispositive power over the 481,200 shares of the Common Stock
beneficially owned by Peak L.P. Such information is based on a Schedule
13G/A filed with the SEC on January 26, 2000.
(8) By reason of its interest as General Partner of Peak L.P., Peak Management,
Inc. may be deemed to have shared voting and dispositive power over the
481,200 shares of Common Stock beneficially owned by such partnership. Such
information is based on a Schedule 13G/A filed with the SEC on January 26,
2000.
(9) Such information is based on a Schedule 13G filed by the Dimensional Fund
Advisors ("Dimensional") with the SEC on February 4, 2000 and reflects
stock held as of December 31, 1999. According to such Schedule 13G,
Dimensional Fund Advisors has sole voting and dispositive power over all
the shares.
(10) Includes that portion of options to purchase shares of Common Stock granted
under the 1991 Stock Option Plan that are exercisable on March 31, 2000 or
will become exercisable within 60 days after that date: Mr. Kamin, 11,500
shares; Mr. Knowles, 134,001 shares; Ms. Larrabee, 80,000 shares,
22
<PAGE> 26
Mr. O'Malia, 64,500 shares; Mr. Gerald C. Comis 45,750 shares, Mr. Walsh,
44,750, Mr. Martin, 33,500 shares; Ms. McAllister, 33,750 shares; Mr.
Green, 27,500 shares, Mr. Cocca, 15,500 shares, Ms. Gould, 18,700 shares;
Mr. Wilcox, 13,500 shares and Mr. Mazzella, 11,500 shares.
(11) Mr. Wilcox was appointed a member of the Board of Directors pursuant to the
Allstate Stockholder Agreement. Mr. Wilcox disclaims beneficial interest in
any shares owned by Allstate Insurance Company.
(12) Includes options to purchase 560,951 shares of Common Stock granted under
the 1991 Stock Option Plan that are currently exercisable or will become
exercisable within 60 days after March 20, 2000.
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 Ms. Atkins was late in filing her Form 3
"Initial Statement of Beneficial Ownership of Securities" and Mr. Wilcox was
late on one occasion in filing his Form 4 "Statement of Changes in Beneficial
Ownership".
ANNUAL REPORT
A copy of the Annual Report of the Company for the fiscal year ended
December 31, 1999 has been mailed concurrently with this Proxy Statement to all
shareholders entitled to notice of and to vote at the Annual Meeting. The Annual
Report is not incorporated into this Proxy Statement and is not considered proxy
soliciting material.
ADDITIONAL INFORMATION AVAILABLE
The Company files an Annual Report on Form 10-K with the SEC. Shareholders
may obtain a separate copy of this report, without charge, by writing to the
Secretary of the Company at 850 East Algonquin Road, Suite 100, Schaumburg, IL
60173.
OTHER MATTERS
The Company knows of no other matters to be submitted to the meeting. If
any other matters properly come before the meeting, the persons named in the
enclosed form of proxy will vote the shares they represent in their discretion.
Discretionary authority with respect to such other matters is granted by the
execution of the enclosed proxy.
THE BOARD OF DIRECTORS OF
INSURANCE AUTO AUCTIONS, INC.
Dated: April 28, 2000
23
<PAGE> 27
DIRECTIONS TO THE SHERATON ARLINGTON PARK
Site of the 2000 Annual Meeting of Shareholders
SHERATON ARLINGTON PARK
3400 W. Euclid Avenue
Arlington Heights, IL 60005
Phone: (847) 394-2000
Fax: (847) 394-2095
FROM CHICAGO AND THE LOOP: TAKE THE NORTHWEST TOLLWAY (I-90) TOWARD ROCKFORD.
EXIT AT 53 NORTH, TAKE 53 FOR 2 MILES. EXIT AT EUCLID EAST.
FROM THE EAST: TAKE LAKE AVENUE WEST, WHICH BECOMES EUCLID AVENUE, AND LEADS
DIRECTLY TO THE HOTEL.
FROM THE NORTH: TAKE I-94/294 SOUTH TO WILLOW ROAD, WHICH BECOMES PALATINE ROAD.
TAKE PALATINE ROAD TO ROUTE 53. TAKE 53 SOUTH, EXIT AT EUCLID EAST.
FROM THE SOUTH: FROM I-55, I-57 (OR SOUTHEAST INCLUDING O'HARE), TAKE THE
NORTHWEST TOLLWAY (I-90) TOWARD ROCKFORD. EXIT AT 53 NORTH, TAKE 53 FOR 2 MILES.
EXIT AT EUCLID EAST.
FROM THE WEST: FROM I-80, I-88, TAKE I-355 NORTH (WHICH BECOMES ROUTE 53). EXIT
AT EUCLID EAST.
<PAGE> 28
April 27, 2000
Securities and Exchange Commission
Judiciary Plaza
450 Fifth Street, N.W.
Washington, D.C. 20549-1004
Attn: Filing Desk
RE: INSURANCE AUTO AUCTIONS, INC. (THE "COMPANY")
DEFINITIVE PROXY STATEMENT AND RELATED MATERIALS
Ladies and Gentlemen:
In connection with the Company's 2000 Annual Meeting of Shareholders and
pursuant to Regulation 14A of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), enclosed for filing is the definitive copy of the
Company's Proxy Statement and form of proxy in the form in which such materials
will be furnished to the Company's shareholders (the "Proxy Materials"). The
Company currently intends to release the Proxy Materials to shareholders by mail
on or about May 4, 2000.
Please advise the undersigned if you have any questions regarding this
filing.
Very truly yours,
By: /s/
Enclosures
<PAGE> 29
DETACH HERE
PROXY
INSURANCE AUTO AUCTIONS, INC.
ANNUAL MEETING OF SHAREHOLDERS, JUNE 21, 2000
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
INSURANCE AUTO AUCTIONS, INC.
The undersigned revokes all previous proxies, acknowledges receipt of the Notice
of Annual Meeting of Shareholders to be held on June 21, 2000 and the Proxy
Statement and appoints Christopher G. Knowles and Stephen L. Green, and each of
them, the proxy of the undersigned, with full power of substitution, to vote
all shares of Common Stock of Insurance Auto Auctions, Inc. (the "Company")
which the undersigned is entitled to vote, either on his or her own behalf or
on behalf of any entity or entities, at the Annual Meeting of Shareholders to
be held at the Sheraton Arlington Park, 3400 W. Euclid Avenue, Arlington
Heights, Illinois 60005-1052, on Wednesday, June 21, 2000 at 9:30 a.m.
local time and at any adjournment or postponement thereof (the "Annual
Meeting"), with the same force and effect as the undersigned might or could do
if personally present thereat. The shares represented by this proxy shall be
voted in the manner set forth on the reverse side.
PLEASE FOLLOW THE INSTRUCTIONS ON THE BACK OF THIS CARD TO GRANT YOUR PROXY BY
TELEPHONE OR BY INTERNET, OR RETURN THIS PROXY CARD IN THE ACCOMPANYING
ENVELOPE AFTER SIGNING AND DATING IT ON THE OTHER SIDE.
NO POSTAGE IS REQUIRED IF MAILED IN THE UNITED STATES.
- ----------- -----------
SEE REVERSE CONTINUED AND TO BE SIGNED ON REVERSE SIDE SEE REVERSE
SIDE SIDE
- ----------- -----------
<PAGE> 30
<TABLE>
<S><C>
- ----------------- ----------------
VOTE BY TELEPHONE VOTE BY INTERNET
- ----------------- ----------------
It's fast, convenient, and immediate! It's fast, convenient, and
Call Toll-Free on a Touch-Tone Phone your vote is immediately
1-877-PRX-VOTE (1-877-779-8683). confirmed and posted.
- ------------------------------------- ----------------------------------
Follow these four easy steps: Follow these four easy steps:
1. Read the accompanying Proxy 1. Read the accompanying Proxy
Statement/Prospectus and Proxy Statement/Prospectus and Proxy
Card. Card.
2. Call the toll-free number 2. Go to the Website
1-877-PRX-VOTE (1-877-779-8683). http://www.eproxyvote.com/iaai
3. Enter your 14-digit Voter Control 3. Enter your 14-digit Voter Control
Number located on your Proxy Card Number located on your Proxy Card
above your name. above your name.
4. Follow the recorded instructions. 4. Follow the instructions provided.
- ------------------------------------- ----------------------------------
YOUR VOTE IS IMPORTANT! YOUR VOTE IS IMPORTANT!
Call 1-877-PRX-VOTE anytime! Go to http://www.eproxyvote.com/iaai
anytime!
DO NOT RETURN YOUR PROXY CARD IF YOU ARE VOTING BY TELEPHONE OR INTERNET
Your vote by telephone or over the Internet authorizes the proxies named on
the front of this proxy card in the same manner as if you marked, signed, dated
and returned the proxy card. If you choose to vote your shares by either of
these electronic means, there is no need for you to mail back your proxy card.
By signing this proxy card or voting by telephone or over the Internet, you
acknowledge receipt of the Notice of Annual Meeting of Shareholders to be held
June 21, 2000 and the Proxy Statement dated April 28, 2000.
With respect to other matters that properly come before the Annual Meeting or
any adjournment of the Annual Meeting, which, as of April 28, 2000, the proxies
named above do not know are to be presented at the Annual Meeting, those proxies
are authorized to vote upon those matters in their discretion.
DETACH HERE
[X] Please mark votes
as in this example.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR EACH OF THE NOMINEES LISTED AND FOR THE OTHER PROPOSALS.
1. To elect the following as directors to serve for a FOR AGAINST ABSTAIN
term ending upon the 2001 Annual Meeting of [ ] [ ] [ ]
Shareholders or until their successors are elected 2. To approve the adoption of an
and duly qualified (except as marked to the amendment to the Company's 1991
contrary below): Stock Option Plan.
Nominees: (01) Thomas J. O'Malia 3. To ratify the appointment of KPMG [ ] [ ] [ ]
(02) Christopher G. Knowles, LLP as the Company's independent
(03) Maurice A. Cocca, (04) Susan B. Gould, auditors for the fiscal year
(05) Peter H. Kamin, (06) Melvin R. Martin, ending December 31, 2000.
(07) Joseph F. Mazzella, (08) John. K. Wilcox
4. To transact such other business as may properly come before the
FOR WITHHOLD Annual Meeting and at any adjournment or postponement thereof.
ALL [ ] [ ] AUTHORITY
NOMINEES TO VOTE FOR
ALL NOMINEES MARK HERE FOR ADDRESS CHANGE AND NOTE AT LEFT [ ]
[ ]
---------------------------------------------
INSTRUCTIONS: To withhold authority to vote for
any individual nominee, write the nominee(s) on
the line above.
If no specification is made, this proxy will be voted FOR
the election of the nominees listed above, FOR the approval
of the adoption of the amendment to the Company's 1991 Stock
Option Plan and FOR the ratification of the appointment of
KPMG LLP.
Signature: Date: Signature: Date:
------------------------------ -------------------- ------------------------------ ---------------
</TABLE>
