Insurance Auto Auctions/Inc · PRER14A · On 4/25/05

Filed On 4/25/05 8:33pm ET   ·   SEC File 0-19594   ·   Accession Number 950137-5-4858

Revised Preliminary Proxy Solicitation Material   ·   Schedule 14A
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: PRER14A     Preliminary Revised Proxy Statement                  119    660K 

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 UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

SCHEDULE 14A

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:                                                      

[X] Preliminary Proxy Statement.                                                
[ ] Confidential, for Use of The Commission Only                                
(As Permitted By Rule 14a-6(e)(2)).                                     
[ ] Definitive Proxy Statement.                                                 
[ ] Definitive Additional Materials.                                            
[ ] Soliciting Material Pursuant to Section 240.14a-12                          

 INSURANCE AUTO AUCTIONS, INC.
------------------------------------------------
(Name of Registrant as Specified In Its Charter)

 N/A
------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

PAYMENT OF FILING FEE (CHECK THE APPROPRIATE BOX):                              

[ ] No fee required.                                                            

[X] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.    

(1) Title of each class of securities to which transaction applies: Common      
Stock, no par value, of Insurance Auto Auctions, Inc ("IAAI").                  

(2) Aggregate number of securities to which transaction applies: 13,555,052     
shares (except to the extent such number may be increased under IAAI's Employee 
Stock Purchase Plan) of IAAI common stock which includes 1,701,068 shares of    
IAAI common stock underlying stock options that have an exercise price per share
less than $28.25 that may be cashed out in connection with the merger.          

(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): $28.25, which represents the price 
per share of IAAI common stock to be paid in the merger.                        

(4) Proposed maximum aggregate value of transaction:  $360,000,000.             

(5) Total fee paid: $42,372.                                                    

[ ] Fee paid previously with preliminary materials.                             

[X] 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: $39,414.80                                          

(2) Form, Schedule or Registration Statement No.: Form PREM14A                  

(3) Filing Party: Insurance Auto Auctions, Inc.                                 

(4) Date Filed: March 17, 2005                                                  

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(INSURANCE AUTO AUCTIONS LOGO)
2 Westbrook Corporate Center, 
Suite 500 
Westchester, Illinois 60154 

April 26, 2005

Dear Shareholder:                                                               

You are cordially invited to attend a special meeting of shareholders,
including any adjournment or postponement of the special meeting, of Insurance  
Auto Auctions, Inc., an Illinois corporation, or IAAI, to be held on May 25,    
2005, at 10:30 a.m., local time, at 2 Westbrook Corporate Center, Westchester,  
Illinois.                                                                       

     At the special meeting you will be asked to vote upon a proposal to approve
and adopt an Agreement and Plan of Merger, dated as of February 22, 2005,       
pursuant to which an affiliate of Kelso and Company, L.P., a New York-based     
private investment firm that specializes in acquisition transactions, has agreed
to acquire IAAI. If IAAI's shareholders approve and adopt the merger agreement  
and the merger is completed, each of your shares of IAAI common stock will be   
automatically canceled and converted into the right to receive $28.25 in cash,  
without interest.                                                               

   IAAI's board of directors (other than the recused member) has unanimously
determined that the merger agreement is advisable, fair to, and in the best     
interests of, IAAI and its shareholders and IAAI's board of directors has       
approved the merger agreement and recommends that IAAI shareholders vote "FOR"  
approval and adoption of the merger agreement and the transactions contemplated 
by the merger agreement, including the merger. The accompanying proxy statement 
provides you with detailed information about the merger agreement, the proposed 
merger and the special meeting. Please give this material, including the        
appendices, your careful attention. You may also obtain more information about  
IAAI from documents it has filed with the Securities and Exchange Commission.   

  IAAI common stock is listed on the NASDAQ Stock Market under the trading
symbol "IAAI". On the close of trading April 22, 2005, the price of IAAI common 
stock was $27.71 per share.                                                     

  YOUR VOTE IS IMPORTANT REGARDLESS OF THE NUMBER OF SHARES OF IAAI COMMON
STOCK YOU OWN. BECAUSE APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND THE    
MERGER REQUIRES THE AFFIRMATIVE VOTE BY THE HOLDERS OF AT LEAST TWO-THIRDS (2/3)
OF IAAI'S ISSUED AND OUTSTANDING SHARES OF COMMON STOCK AS OF THE RECORD DATE, A
FAILURE TO VOTE WILL COUNT AS A VOTE AGAINST THE MERGER. ACCORDINGLY, YOU ARE   
REQUESTED TO PROMPTLY VOTE YOUR SHARES BY COMPLETING, SIGNING AND DATING THE    
ENCLOSED PROXY CARD AND RETURNING IT IN THE ENVELOPE PROVIDED, WHETHER OR NOT   
YOU PLAN TO ATTEND THE SPECIAL MEETING. Voting in this manner will not prevent  
you from voting your shares in person if you subsequently choose to attend the  
special meeting.                                                                

On behalf of your board of directors, I thank you for your support and
appreciate your consideration of this matter.                                   

        Sincerely,

                   /s/ Thomas C. O'Brien
                                       -----------------------------------------
               Thomas C. O'Brien
                                   President and Chief Executive Office,
      Director

   This proxy statement is dated April 26, 2005 and is first being mailed to
shareholders on or about April 26, 2005.                                        

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THIS PROXY STATEMENT IS DATED APRIL 26, 2005 AND IS FIRST BEING MAILED TO       
SHAREHOLDERS ON OR ABOUT APRIL 26, 2005.                                        

--------------------- 

(INSURANCE AUTO ACTIONS LOGO) 

--------------------- 

NOTICE OF SPECIAL MEETING OF SHAREHOLDERS 

TO BE HELD ON MAY 25, 2005

To the Shareholders of INSURANCE AUTO AUCTIONS, INC.                            

  NOTICE IS HEREBY GIVEN that a special meeting of shareholders of Insurance
Auto Auctions, Inc., an Illinois corporation, or IAAI, will be held on May 25,  
2005, at 10.30 a.m., local time, at 2 Westbrook Corporate Center, Westchester,  
Illinois, for the following purposes:                                           

      1. To vote upon a proposal to approve and adopt the Agreement and Plan
   of Merger, dated as of February 22, 2005, by and among IAAI, Axle Holdings,
Inc., a Delaware corporation and Axle Merger Sub, Inc., an Illinois     
corporation and a wholly-owned subsidiary of Axle Holdings, and the     
transactions contemplated by the merger agreement, including the related
merger, pursuant to which, among other things, (a) Axle Merger Sub will 
    merge with and into IAAI, with IAAI being the surviving corporation, and (b)
   each outstanding share of IAAI common stock (other than shares held by IAAI
    or its subsidiaries or shares held by any shareholders who properly exercise
   their dissenters' rights under Illinois Law) will be automatically canceled
 and converted into the right to receive $28.25 in cash, without interest.
 The Buyer Parent and the Buyer are affiliates of Kelso & Company, L.P., a
New York based private investment firm that specializes in acquisition  
transactions.                                                           

       2. To vote to adjourn the Special Meeting to solicit additional proxies
   in the event that the number of proxies sufficient to approve and adopt the
  merger agreement has not been received by the date of the Special Meeting.

  3. To transact such other business as may properly come before the
special meeting or any adjournment or postponement of the meeting.      

  Only shareholders of record at the close of business on April 22, 2005 are
entitled to vote at the special meeting and at any adjournment or postponement  
of the special meeting. All shareholders of record at such time are cordially   
invited to attend the special meeting in person. However, to assure your        
representation at the meeting in case you cannot attend, you are urged to vote  
your shares by completing, signing, dating and returning the enclosed proxy card
as promptly as possible in the pre-addressed, pre-paid envelope enclosed for    
that purpose. If you attend the special meeting, you may vote in person even if 
you have previously completed and returned a proxy card.                        

IAAI shareholders have the right to dissent from the merger and obtain  
payment in cash of the fair value of their shares of common stock under         
applicable provisions of Illinois Law. In order to perfect and exercise         
dissenters' rights, shareholders must, in addition to other procedural          
requirements, give a written demand for payment for their shares before the vote
on the merger is taken at the special meeting, and must not vote in favor of the
merger. A copy of the applicable Illinois statutory provisions is included as   
Appendix C to the enclosed proxy statement.                                     

  The approval and adoption of the merger agreement requires the affirmative
vote by the holders of at least two-thirds (2/3) of the issued and outstanding  
shares of IAAI common stock as of the record date. In the event that there are  
not sufficient votes to approve the proposed merger at the time of the special  
meeting, the special meeting may be adjourned or postponed in order to permit   
further solicitation by IAAI. YOUR VOTE IS IMPORTANT. WHETHER OR NOT YOU PLAN TO
ATTEND THE SPECIAL MEETING IN PERSON AND REGARDLESS OF THE NUMBER OF SHARES YOU 
OWN, PLEASE COMPLETE, SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD PROMPTLY IN 
THE ENCLOSED PRE-ADDRESSED, PRE-PAID ENVELOPE. NO POSTAGE IS REQUIRED IF MAILED 
IN THE UNITED STATES. YOU MAY, OF COURSE, ATTEND THE SPECIAL MEETING, REVOKE    
YOUR PROXY AND VOTE IN PERSON EVEN IF YOU HAVE ALREADY RETURNED YOUR PROXY CARD.

Please do not send your stock certificates at this time. If the merger  
agreement is approved and adopted, you will be sent instructions regarding the  
surrender of your stock certificates.                                           

                                    BY ORDER OF THE BOARD OF DIRECTORS

                       /s/ Thomas C. O'Brien
                                         ---------------------------------------
                   Thomas C. O'Brien
                                        President and Chief Executive Officer,
          Director

April 26, 2005                                                                  

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TABLE OF CONTENTS 

                                                                · Download Table

                                                              PAGE
                                                              ----
                                                                  
QUESTIONS AND ANSWERS ABOUT THE MERGER......................    1 
SUMMARY.....................................................    6 
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING                   
  INFORMATION...............................................   12 
THE SPECIAL MEETING OF IAAI SHAREHOLDERS....................   13 
     Date, Time, Place and Purpose of the Special Meeting...   13 
     Who Can Vote at the Special Meeting....................   13 
     Vote Required for Approval of Merger...................   13 
     Voting By Proxy........................................   14 
     Solicitation...........................................   14 
THE PARTIES TO THE MERGER...................................   14 
     Insurance Auto Auctions, Inc. .........................   14 
     Axle Holdings, Inc. ...................................   14 
     Axle Merger Sub, Inc. .................................   15 
THE MERGER..................................................   15 
     General Description of the Merger......................   15 
     Background of the Merger...............................   16 
     Reasons for the Merger and Recommendation of the Board       
      of Directors..........................................   18 
     The Board of Directors' Recommendation.................   20 
     Opinion of IAAI Financial Advisor......................   20 
     Financing of the Merger................................   26 
     Stock Options..........................................   27 
     Employee Stock Purchase Plan...........................   27 
     Material United States Federal Income Tax                    
      Consequences..........................................   28 
     Accounting Treatment of the Merger.....................   28 
     Regulatory Filings and Approvals.......................   29 
     Dissenters' Rights of Appraisal........................   29 
     Delisting of IAAI Common Stock after the Merger........   30 
INTERESTS OF CERTAIN PERSONS IN THE MERGER..................   30 
     Employment Agreements..................................   31 
     Stock Options and Employee Stock Purchase Plan.........   31 
     2005 Shareholder Value Incentive Plan..................   33 
     Management Option Rollover.............................   34 
     Profits Interests in the LLC; LLC Agreement............   34 
     New Stock Incentive Plan...............................   36 
     Indemnification and Insurance..........................   37 
CERTAIN PROJECTIONS.........................................   37 
THE MERGER AGREEMENT........................................   38 
     Conditions to Consummation of the Merger...............   38 
     Exchange Procedures and Option Payment.................   39 
     Representations and Warranties.........................   40 
     Material Adverse Effect................................   42 
     Conduct of Business Pending the Merger.................   42 
     No Solicitation........................................   44 
     Reasonable Efforts.....................................   45 
     Financing Covenants....................................   45 
     Termination of Merger Agreement........................   47 
     Termination Fees and Other Fees........................   47 
     Completion and Effectiveness of the Merger.............   49 
     Amendments and Waivers.................................   49 
     Articles of Incorporation and By-laws..................   49 
     Board of Director and Officers.........................   49 

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                                                              PAGE
                                                              ----
                                                                  
THE VOTING AGREEMENT........................................   49 
RECENT MARKET PRICES OF, AND DIVIDENDS ON, IAAI COMMON            
  STOCK.....................................................   50 
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND               
  MANAGEMENT................................................   51 
OTHER MATTERS...............................................   53 
WHERE YOU CAN FIND MORE INFORMATION.........................   53 
APPENDICES:                                                       
APPENDIX A--AGREEMENT AND PLAN OF MERGER                          
APPENDIX B--OPINION OF IAAI'S FINANCIAL ADVISOR                   
APPENDIX C--TEXT OF SECTIONS 11.65 AND 11.70 OF THE ILLINOIS      
  BUSINESS CORPORATION ACT                                        
APPENDIX D--THE VOTING AGREEMENT                                  

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QUESTIONS AND ANSWERS ABOUT THE MERGER

Q:    WHAT AM I BEING ASKED TO VOTE ON?                                         

A:    You are being asked to vote to approve and adopt the merger agreement and 
     related merger by which Axle Merger Sub, Inc., or the "Buyer," will merge
   with and into Insurance Auto Auctions, Inc., or "IAAI," and pursuant to
which Axle Holdings, Inc., or the "Buyer Parent," will acquire IAAI.

Q:    WHAT WILL I RECEIVE IN THE MERGER?                                        

A:    You will receive $28.25 in cash, without interest, in exchange for each   
share of IAAI common stock that you own at the effective time of the
    merger, unless you are a dissenting shareholder and you properly perfect
your dissenters' rights under Illinois Law.                         

Q:    WHAT WILL HAPPEN IN THE MERGER?                                           

A:    Under the terms of the merger agreement, the Buyer, a wholly-owned        
   subsidiary of the Buyer Parent, will be merged with and into IAAI, with
    IAAI emerging as the surviving corporation and a wholly-owned subsidiary
  of the Buyer Parent. After the merger is completed IAAI's common stock
will cease to be traded on the NASDAQ Stock Market, or "NASDAQ."    

Q:    WITH WHOM IS IAAI MERGING?                                                

A     IAAI is merging with Axle Merger Sub, Inc., an Illinois corporation that  
was incorporated for the sole purpose of entering into the merger   
agreement and consummating the transactions contemplated thereby,   
      including the merger. The Buyer is a subsidiary of the Buyer Parent, which
was incorporated for the sole purpose of entering into the merger   
agreement and consummating the transactions contemplated thereby,   
including the merger. Each of the Buyer Parent and the Buyer are    
     affiliates of Kelso & Company, L.P., or "Kelso," a New York-based private
investment firm that specializes in acquisition transactions.       

Q:    WILL I RECEIVE ANY STOCK AS A RESULT OF THE MERGER?                       

A:    No. You will not have any further ownership of IAAI, and you will not     
receive any IAAI stock, if the merger is consummated.               

Q:    WHAT VOTE IS REQUIRED TO APPROVE AND ADOPT THE MERGER AGREEMENT           
AND THE MERGER?                                                     

A:    Under Illinois Law, the merger agreement and the merger must be approved  
     and adopted by the affirmative vote of the holders of at least two-thirds
( 2/3) of the outstanding shares of common stock of IAAI.           

Q:    WHAT SHOULD I DO NOW IN ORDER TO VOTE ON THE MERGER?                      

A:    After carefully reading this document, please indicate on your proxy card 
    how you want to vote, then sign and mail your proxy card in the enclosed
     pre-addressed, pre-paid return envelope as soon as possible, so that your
shares may be represented at the special meeting.                   

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Q:    WHAT HAPPENS IF I DO NOT VOTE?                                            

A:    Because the affirmative vote by the holders of at least two-thirds ( 2/3) 
     of the outstanding shares of IAAI common stock is required to approve and
 adopt the merger agreement and the transactions contemplated thereby,
      including the merger, if you fail to vote, it will have the same effect as
    if you voted "AGAINST" the approval and adoption of the merger agreement
and the transactions contemplated thereby, including the merger.    

Q:    IF MY BROKER HOLDS MY SHARES IN "STREET NAME", WILL MY BROKER VOTE MY     
SHARES FOR ME?                                                      

A:    Your broker will vote your shares only if you direct him or her to do so. 

Q:    WHAT IF I RECEIVE MORE THAN ONE PROXY CARD FOR THE SPECIAL MEETING?       

A:    This may mean that your shares of IAAI common stock are registered in     
 different ways or are in more than one account. Please provide voting
   instructions for all proxy cards you receive to ensure that all of your
shares of IAAI common stock are voted at the special meeting.       

Q:    HOW WILL THE BUYER PARENT FINANCE THE MERGER?                             

A:    The merger consideration, repayment of IAAI's existing indebtedness and   
      related fees and expenses are expected to be funded from new borrowings by
  IAAI and an equity investment by affiliates and designees of Kelso and
    possibly an equity investment by certain other investors and IAAI's cash
  on hand. To provide the necessary debt financing for the merger, Bear,
   Stearns & Co. Inc. and Deutsche Bank Securities, Inc. have committed to
     provide (subject to certain conditions) $165 million under senior secured
      credit facilities comprised of a $50 million Revolving Credit facility and
  a $115 million Term Loan B facility. As part of the debt financing, on
     April 1, 2005, IAAI Finance Corp., a newly formed wholly owned subsidiary
    of the Buyer Parent, completed a private offering of $150 million of 11%
    senior notes due 2013. The proceeds of this offering have been placed in
      escrow with the trustee under the indenture governing the notes. IAAI will
receive such proceeds at the time it assumes IAAI Finance Corp.'s   
    obligations under the notes upon the closing of the merger. In addition,
     the Buyer Parent has received a commitment from Kelso to provide (subject
   to certain conditions) up to $148.7 million in equity financing for the
      merger. As part of the equity financing, Kelso has reached an agreement in
   principle with a third party investor that will permit such investor to
      invest $15 million in the transaction alongside affiliates of Kelso at the
   same purchase price (which, if such third party investment occurs, will
     result in the equity contribution of affiliates and designees of Kelso in
the transaction being correspondingly reduced).                     

Q:    DOES THE BOARD OF DIRECTORS OF IAAI RECOMMEND ADOPTION OF THE             
MERGER AGREEMENT?                                                   

A:    Yes. After careful consideration of a number of factors including the     
    opinion as to fairness from a financial point of view of William Blair &
  Company, L.L.C., its financial advisor, the board of directors of IAAI
(other than the recused member) unanimously recommends that the     
 shareholders vote in favor of approval and the adoption of the merger
      agreement and the transactions contemplated thereby, including the merger.

Q:    HOW WILL THE MERGER AFFECT HOLDERS OF OPTIONS TO ACQUIRE IAAI             
COMMON STOCK?                                                                   

A:    Except with respect to options being exchanged by certain officers of IAAI
   as of the effective time of the merger, the Buyer Parent will cause the
   paying agent to distribute cash to holders of outstanding stock options
with exercise prices less than $28.25. The amount of cash will be   
 determined by reference to the spread between $28.25 and the exercise
     price of such options. Information about the process with respect to such
   distributions will be provided to option holders prior to the effective
time of the merger.                                                 

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Q:    HOW WILL THE MERGER AFFECT THE EMPLOYEE STOCK PURCHASE PLAN AND ITS       
PARTICIPANTS?                                                       

A:    Contributions by employees of IAAI to IAAI's Employee Stock Purchase Plan,
     or the "ESPP," were frozen as of February 23, 2005. So long as the merger
   is effective on or before June 30, 2005, the ESPP will be cashed out in
     conjunction with the merger. Participants will receive an amount equal to
  $28.25 for each share to which they would have been entitled under the
ESPP. If the merger is effective on or after July 1, 2005, then ESPP
     participants will receive shares under normal operation of the ESPP as of
  June 30, 2005, and will be treated as shareholders as of the effective
time of the merger.                                                 

Q:    HAVE ANY SHAREHOLDERS AGREED TO VOTE IN FAVOR OF THE MERGER               
AGREEMENT AND THE MERGER?                                                       

A:    Yes. ValueAct Capital Partners, L.P., IAAI's largest shareholder, and     
    certain of its affiliates, have agreed to vote all of its shares of IAAI
common stock (representing approximately 28.6% of IAAI's outstanding
      shares), in favor of the approval and adoption of the merger agreement and
the merger.                                                         

Q:    WHAT HAPPENS IF THE MERGER IS NOT COMPLETED?                              

A:    If the merger is not completed, IAAI's board of directors expects to      
continue to operate IAAI as an independent company substantially as 
      presently operated. IAAI's board of directors would reassess the strategic
   alternatives available to IAAI to enhance shareholder value, including,
 among others, the possibility of a sale of IAAI and alternatives that
would keep IAAI independent and publicly owned.                     

   However, failure to complete the merger could have a negative impact on
     the market price of IAAI's common stock and on its business. The price of
 IAAI's common stock may decline to the extent that the current market
    price reflects a market assumption that the merger will be completed. In
     addition, IAAI's business and operations may be harmed to the extent that
      customers, suppliers and others believe that we cannot compete effectively
   in the marketplace without the merger. Because we are unable to predict
    with certainty IAAI's future prospects or the market price of its common
     stock, we cannot assure you that the merger will provide greater value to
you than you would have if IAAI continues as an independent public  
company.                                                            

      IAAI will be required to pay significant costs incurred in connection with
     the merger, whether or not the merger is completed. In addition, IAAI may
  also be required to pay to the Buyer Parent a termination fee, certain
     escrow costs and fees related to its debt financing and the out-of-pocket
    expenses of the Buyer Parent in connection with the merger if the merger
is not completed for certain reasons.                               

Q:    WHEN DO YOU EXPECT TO COMPLETE THE MERGER?                                

A:    We are working toward completing the merger as quickly as possible after  
    the IAAI special shareholders meeting. We hope to complete the merger no
  later than May 27, 2005, although we cannot assure you that we will be
  able to do so. The merger cannot be completed until certain conditions
have been satisfied or waived.                                      

Q:    WHAT DO I DO IF I WANT TO CHANGE MY VOTE AFTER I HAVE MAILED MY SIGNED    
PROXY CARD?                                                         

A:    You may revoke or change your proxy at any time prior to its use at the   
     special meeting by giving IAAI a new proxy, giving a written direction to
the Secretary of IAAI to revoke your proxy, or attending the special
meeting and voting in person.                                       

Q:    HOW DO I GET THE CASH IN EXCHANGE FOR MY SHARES OF IAAI COMMON STOCK?     

A:    After the merger is completed, IAAI, as the surviving corporation, will   
    cause the paying agent to send IAAI shareholders a letter of transmittal
     with written instructions for surrendering their shares. If you hold IAAI
  shares in physical form, please do not send in your stock certificates
now.                                                                

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Q:    DO ANY OF THE OFFICERS, DIRECTORS OR SIGNIFICANT SHAREHOLDERS OF IAAI     
      HAVE INTEREST IN CONNECTION WITH THE MERGER THAT MAY BE DIFFERENT FROM THE
INTERESTS OF IAAI SHAREHOLDERS GENERALLY?                           

A:    Yes. Certain of our executive officers and directors may have interests   
      that may be different from or in addition to those interests of other IAAI
shareholders. Certain of our executive officers, or the "Rollover   
    Shareholders," are expected to exchange some of their IAAI stock options
 for stock options of the Buyer Parent on substantially similar terms,
 including vesting and exercise price (which are expected to represent
 approximately 4.7% of the common stock of the Buyer Parent on a fully
diluted basis following the merger). Additionally certain executive 
     officers of IAAI are parties to employment agreements with IAAI that will
    entitle them to severance payments if they are terminated other than due
    to death, disability or for cause within two years following the merger.
     Concurrent with approving the merger agreement, IAAI's board of directors
    approved the 2005 Shareholder Value Incentive Plan, dated as of February
   22, 2005, or the "2005 SVI Plan," which grants an aggregate transaction
   bonus of $875,086 to certain executive officers upon the closing of the
     merger. If the merger does not become effective on or before December 31,
     2005, the 2005 SVI Plan will, by its terms, expire without payment of any
 amounts. It is currently anticipated that, in exchange for forfeiting
rights to any cash payments, if payable, under the 2005 SVI Plan, at
     closing certain Rollover Shareholders will be issued shares of restricted
   stock in the Buyer Parent in amounts having a valuation (on a per share
basis equal to the valuation of Kelso affiliates' indirect equity   
    contribution in the Buyer Parent) equivalent to their applicable portion
  of the $875,086. It is also anticipated that each Rollover Shareholder
   will acquire limited common interests in Axle Holdings, II, LLC, or the
      "LLC" (which in turn will own the Buyer Parent), by virtue of limited cash
   equity contributions to the LLC and that the Rollover Shareholders (and
   possibly others having senior management responsibilities) will also be
awarded certain profit interests in the LLC that, as currently      
      contemplated, may entitle such persons to a portion of any appreciation in
the value of the assets of the LLC following the consummation of the
 merger. The Rollover Shareholders are also expected to be eligible to
participate in options granted under any new stock incentive plan   
     implemented by the Buyer Parent following the consummation of the merger.

Q:    WILL I GET DISSENTERS' RIGHTS IN THE MERGER?                              

A:    Yes. Under the Illinois Business Corporation Act, or "Illinois Law," IAAI 
    shareholders who do not wish to vote in favor of the merger are entitled
    to pursue dissenters' rights in connection with the merger to obtain the
     statutorily determined "fair value" of their shares. Any IAAI shareholder
who wishes to exercise dissenters' rights must comply with several  
     procedural requirements under Illinois Law, including not voting in favor
    of the merger agreement. We have described the procedures for exercising
dissenters' rights in this proxy statement and have attached the    
    provisions of Illinois Law that govern dissenters' rights as Appendix C.

Q:    WHO CAN ANSWER MY QUESTIONS?                                              

A:    You can find more information about IAAI from various sources described   
    under "Where You Can Find More Information." If you have questions about
the special meeting, where to send your proxy or other matters with 
     respect to voting after reading this proxy statement, you should contact:

Morrow & Co., Inc,                                            
445 Park Avenue, 5th Floor                                    
New York, NY 10022                                            
Telephone: (800) 607-0088                                     

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If you have additional questions about the merger, you should contact:

Insurance Auto Auctions, Inc.                                 
2 Westbrook Corporate Center, Suite 500                       
Westchester, Illinois 60154                                   
Attn: Secretary                                               
Telephone: (708) 492-7000                                     

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SUMMARY 

    The following summary briefly describes the material terms of the proposed
merger. This summary does not contain all of the information that may be        
important to you when evaluating the merger. We encourage you to read this proxy
statement and the documents we have incorporated herein by reference before     
voting. We have included section references to direct you to a more complete    
description of the topics described in this summary.                            

- THE PARTIES.                                                        

     - IAAI.  Insurance Auto Auctions, Inc., an Illinois corporation ("IAAI"),
    is the second largest provider of salvage vehicle auction and claims
        management services to insurance companies and other suppliers. IAAI has
       78 facilities located in 32 states, maintaining a presence in 60 of the
   top 75 metropolitan markets. IAAI's principal executive offices are
located at 2 Westbrook Corporate Center, Suite 500, Westchester,
Illinois 60154.                                                 

- The Buyer Parent and the Buyer.  Axle Holdings, Inc. (the "Buyer  
 Parent") is a Delaware corporation and Axle Merger Sub, Inc. (the
        "Buyer") is an Illinois corporation and a wholly-owned subsidiary of the
       Buyer Parent. Each of the Buyer Parent and the Buyer is an affiliate of
    Kelso & Company, L.P., a New York-based private investment firm that
       specializes in acquisition transactions ("Kelso"). The Buyer Parent and
      the Buyer were established solely for the purpose of entering into the
        merger agreement and acquiring shares of IAAI common stock in connection
with the merger.                                                

     Please read the discussion under the heading "The Parties to the Merger."

 - MERGER.  IAAI has entered into an Agreement and Plan of Merger, dated
   February 22, 2005, by and among IAAI, the Buyer Parent and the Buyer.
      Pursuant to the terms of the merger agreement, the Buyer will merge with
and into IAAI. Following the merger, IAAI will be the surviving   
  corporation and become a direct wholly-owned subsidiary of the Buyer
    Parent, which will be owned by the Axle Holdings II, LLC, or the "LLC"
      (which will be controlled by affiliates of Kelso). The IAAI shareholders
      will no longer have any equity interest in IAAI other than the interests
     held by the Rollover Shareholders in the form of options and restricted
  stock in Buyer Parent (which in turn will own all of the outstanding
    shares of common stock of IAAI) and an indirect interest in additional
      shares of the Buyer Parent through common interests and possible profits
     interests in the LLC. IAAI common stock will no longer be listed on the
      NASDAQ Stock Market ("NASDAQ") and the registration of IAAI common stock
   under the Exchange Act will be terminated. Please read the discussion
under the heading "The Merger--General Description of the Merger."

   - IAAI STOCK PRICE.  Shares of IAAI are listed on NASDAQ under the symbol
 "IAAI." On February 22, 2005, the last full trading day immediately
     preceding the public announcement of the proposed merger, IAAI's common
     stock closed at $22.41 per share. On April 22, 2005 which is the latest
     practicable date prior to the date of this proxy statement, IAAI common
stock closed at $27.71 per share.                                 

- REASONS FOR THE MERGER.  The principal reasons for the merger are to
       provide the shareholders with an opportunity to receive an immediate cash
      payment for their shares of IAAI common stock at a price that represents
    a premium over recent market prices and to enable the Buyer Parent, an
     affiliate of Kelso, to acquire, in accordance with Illinois Law, all of
       the issued and outstanding shares of common stock of IAAI at the close of
the merger.                                                       

     - Aggregate Merger Consideration.  The aggregate merger consideration to be
       paid to IAAI shareholders, holders of IAAI stock options and participants
      in the Employee Stock Purchase Plan is expected to be approximately $360
    million, consisting of approximately $335.1 million in cash to be paid
    for shares of IAAI common stock (based on the number of shares of IAAI
    common stock issued and outstanding on the record date), approximately
     $24.9 million in cash to be paid to holders of IAAI stock options whose
       exercise price is less than $28.25, and, assuming the merger is effective
on or prior to June 30,                                           

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2005, approximately $39,275 in cash to be paid to participants in the Employee  
Stock Purchase Plan. Please read the discussion under the heading "The          
Merger--General Description of the Merger," and "Financing of the               
Merger--Requirements."                                              

- MERGER CONSIDERATION.  If the merger is completed, each share of IAAI common  
  stock (other than shares held by IAAI or its subsidiaries or those shares held
by any shareholders who properly exercise their dissenters' rights under    
Illinois Law) will be converted into the right to receive $28.25 in cash,   
without interest. Please read the discussion under the heading "The         
Merger--General Description of the Merger."                                 

 - STOCK OPTIONS.  Except for those stock options being exchanged by the
Rollover Shareholders, all unvested IAAI stock options issued and 
    outstanding under the IAAI stock option plans will vest at the time of
    the merger. If the exercise price of an IAAI stock option is less than
   $28.25 and such holder confirms his or her termination or exercise of
 such option, then promptly after the merger, IAAI, as the surviving
      corporation, will cause the paying agent to pay such holder an amount of
    cash equal to the product of (x) the difference between $28.25 and the
      per share exercise price of such option, and (y) the number of shares of
   IAAI common stock covered by such option, less applicable withholding
     taxes. Simultaneously with the completion of the merger, the IAAI stock
      option plans and each outstanding IAAI stock option under the IAAI stock
   option plans will be terminated. Please read the discussion under the
heading "The Merger--Stock Options."                              

- EMPLOYEE STOCK PURCHASE PLAN.  Contributions by IAAI's employees to 
IAAI's Employee Stock Purchase Plan (the "ESPP") were frozen as of
     February 23, 2005. So long as the merger is effective on or before June
   30, 2005, the ESPP will be cashed out in conjunction with the merger.
   Participants will receive an amount equal to $28.25 for each share of
      IAAI common stock to which they would have been entitled under the ESPP.
If the merger is effective on or after July 1, 2005, then ESPP    
participants will receive shares of IAAI common stock under normal
operation of the ESPP as of June 30, 2005, and will be treated as 
  shareholders as of the effective time of the merger. Please read the
      discussion under the heading "The Merger--Employee Stock Purchase Plan."

  - SOURCE OF FUNDS.  The consummation of the merger is conditioned on the
  Buyer Parent obtaining financing for payment of the aggregate merger
    consideration and related fees and expenses. The merger consideration,
     repayment of IAAI's existing indebtedness and related fees and expenses
is expected to be funded from new borrowings by IAAI, an equity   
    investment by affiliates and designees of Kelso and possibly an equity
       investment by certain other investors and IAAI's cash on hand. To provide
       the necessary debt financing for the merger, Bear, Stearns & Co. Inc. and
  Deutsche Bank Securities, Inc. have committed to provide (subject to
     certain conditions) $165 million under senior secured credit facilities
     comprised of a $50 million Revolving Credit facility and a $115 million
   Term Loan B facility. As part of the debt financing, on April 1, 2005
     IAAI Finance Corp., a newly formed wholly owned subsidiary of the Buyer
      Parent, completed a private offering of $150 million of 11% senior notes
     due 2013. The proceeds of this offering have been placed in escrow with
    the trustee under the indenture governing the notes. IAAI will receive
   such proceeds at the time it assumes IAAI Finance Corp.'s obligations
    under the notes upon the closing of the merger. In addition, the Buyer
Parent has received a commitment from Kelso to provide (subject to
  certain conditions) up to $148.7 million in equity financing for the
     merger. As part of the equity financing, Kelso has reached an agreement
     in principle with a third party investor that will permit such investor
       to invest $15 million in the transaction alongside affiliates of Kelso at
    the same purchase price (which, if such third party investment occurs,
   will result in the equity contribution of affiliates and designees of
      Kelso in the transaction being correspondingly reduced). Please read the
discussion under the heading "The Merger--Financing the Merger."  

   - RECOMMENDATION OF IAAI BOARD OF DIRECTORS.  The IAAI board of directors
 (other than the recused member) has unanimously determined that the
    merger agreement and the merger are fair to, and in the best interests
of, IAAI and its shareholders, and recommend that the shareholders
      approve and adopt the merger agreement and the transactions contemplated
thereby, including the merger. Please                             

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       read the discussion under the heading "The Merger--Reasons for the Merger
and Recommendation of the Board of Directors."                    

- OPINION OF THE FINANCIAL ADVISOR.  The board of directors of IAAI   
     received an opinion from William Blair & Company, L.L.C., its financial
   advisor, which states that as of February 22, 2005 and subject to the
       assumptions, limitations and qualifications set forth in the opinion, the
 cash merger consideration of $28.25 per share to be received in the
       merger by the shareholders of IAAI is fair from a financial point of view
       to such shareholders (other than the Buyer Parent, its affiliates and the
   Rollover Shareholders) as more fully described below. Please read the
 discussion under the heading "The Merger--Opinion of IAAI Financial
Advisor."                                                         

    - SPECIAL MEETING AND RECORD DATE.  A special meeting of IAAI shareholders
      will be held at 10:30 a.m., local time, at 2 Westbrook Corporate Center,
Westchester, Illinois, on May 25, 2005, to vote on the proposal to
approve and adopt the merger agreement and the merger. Only IAAI  
     shareholders of record on April 22, 2005 are entitled to receive notice
     of and vote at the special meeting. On that date, there were 11,862,344
      shares of IAAI common stock outstanding held by approximately 610 record
  holders. Please read the discussions under the headings "The Special
Meeting of IAAI Shareholders--Date, Time, Place and Purpose of the
     Special Meeting" and "The Special Meeting of IAAI Shareholders--Who Can
Vote at the Special Meeting."                                     

     - VOTE REQUIRED.  The approval and adoption of the merger agreement and the
      transactions contemplated by the merger agreement, including the merger,
 requires the affirmative vote by the holders of at least two-thirds
     ( 2/3) of the shares of IAAI common stock issued and outstanding on the
   record date. Each share of common stock is entitled to one vote. IAAI
     shareholders should vote by filling out their proxy card and sending it
 to IAAI (which vote may be rescinded at any time before the special
      meeting of shareholders or in person at the Special Meeting). Please see
the discussions under the headings "The Special Meeting of IAAI   
  Shareholders--Vote Required for Approval of Merger" and "The Special
Meeting of IAAI Shareholders--Voting by Proxy."                   

- VOTING AGREEMENT.  Value Act Capital Partners, L.P., IAAI's largest 
    shareholder, and certain of its affiliates, have agreed to vote all of
    their shares of IAAI common stock (representing approximately 28.6% of
      IAAI's outstanding shares of common stock), in favor of the approval and
adoption of the merger agreement and the merger. Please read the  
    discussion under the heading "The Merger Agreement--Voting Agreement."

 - DISSENTERS' RIGHTS.  Under Illinois Law, IAAI shareholders who do not
    wish to vote in favor of the merger are entitled to pursue dissenters'
       rights in connection with the merger to obtain the statutorily determined
       "fair value" of their shares. Any IAAI shareholder who wishes to exercise
       dissenters' rights must comply with several procedural requirements under
  Illinois Law, including not voting in favor of the merger agreement.
Please read the discussion under the heading "Interests of Certain
Persons in the Merger--Dissenters' Rights of Appraisal."          

- TAX CONSEQUENCES.  The merger will be a taxable transaction to IAAI 
  shareholders. Please read the discussion under the heading "Material
United States Federal Income Tax Consequences."                   

   - ACCOUNTING TREATMENT.  The merger will be accounted for as a "Purchase"
    under U.S. generally accepted accounting principles for accounting and
financial purposes.                                               

  - REGULATORY APPROVAL.  Other than compliance with the Hart-Scott-Rodino
   Antitrust Improvements Act of 1976, as amended, there are no material
regulatory approvals required to complete the merger.             

  - INTERESTS OF CERTAIN PERSONS IN THE MERGER.  In considering whether to
    vote in favor of the approval and adoption of the merger agreement and
  the merger, you should be aware that a number of IAAI's officers and
     directors may have an interest in the merger that are different from or
      in addition to the interests of other IAAI shareholders. These interests
include, among others, the following:                             

      - Employment Agreements.  IAAI entered into Employment Agreements with the
     following executive officers: Thomas C. O'Brien, David R. Montgomery,
Scott P. Pettit, Donald J. Hermanek, John                       
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     W. Kett, Sidney L. Kerley and John R. Nordin. Under these agreements,
      these executive officers are entitled to certain severance payments if
    within two years after a "change of control" of IAAI the executive's
employment is terminated (1) for any reason other than death,   
  disability, or "cause", or (2) for "good reason" by the executive.
 Please read the discussion under the heading "Interest of Certain
Persons in the Merger--Employment Agreements."                  

  - Management Option Rollover.  Certain executive officers of IAAI (the
       "Rollover Shareholders") are expected to exchange stock options of IAAI
       with an aggregate spread value of approximately $3.3 million into stock
     options of the Buyer Parent on substantially similar terms, including
vesting and exercise price (which are expected to represent     
     approximately 4.7% of the common stock of the Buyer Parent on a fully
        diluted basis following the merger). Each Rollover Shareholder will sell
 or "cash out" the remainder of its equity interest in IAAI in the
  merger. The Rollover Shareholders are: Thomas C. O'Brien, Scott P.
      Pettit, David R. Montgomery, Donald J. Hermanek, John W. Kett, John R.
       Nordin and Sidney L. Kerley. Such Rollover Shareholders are expected to
      exchange, in the aggregate, 250,184 stock options in IAAI for an equal
       number of stock options in the Buyer Parent. Please read the discussion
under the heading "Interest of Certain Persons in the Merger--  
Management Option Rollover."                                    

    - Stock Options.  Excluding the 250,184 stock options of IAAI which will
   be exchanged for stock options in the Buyer Parent (see "Management
     Option Rollover" immediately above), the following executive officers
        and directors have an aggregate number of 719,816 stock options in IAAI,
  all at an exercise price below $28.25: Thomas C. O'Brien, David R.
        Montgomery, Scott P. Pettit, Donald J. Hermanek, John W. Kett, Sidney L.
   Kerley, John R. Nordin, Peter H. Kamin, Todd F. Bourell, Maurice A.
   Cocca, John K. Wilcox and Philip B. Livingston. Any such IAAI stock
     options which are unvested will vest at the time of the merger. After
     the merger, IAAI, as the surviving corporation, will cause the paying
       agent to pay such executive officer or director an amount of cash equal
     to the product of (x) the difference between $28.25 and the per share
   exercise price of such option, and (y) the number of shares of IAAI
       common stock covered by such option, less applicable withholding taxes.
  Please read the discussion under the heading "Interests of Certain
Persons in the Merger--Stock Options."                          

  - Employee Stock Purchase Plan.  If the merger becomes effective on or
       before June 30, 2005, the following executive officers shall receive in
  the aggregate, an additional amount of $6,152 as consideration for
     shares that would have been issued under the ESPP: Thomas C. O'Brien,
      Scott P. Pettit, David R. Montgomery, Donald J. Hermanek, John W. Kett
        and John R. Nordin. However, if the merger is effective on or after July
        1, 2005, then such executive officers will receive shares of IAAI common
      stock under normal operation of the ESPP as of June 30, 2005, and will
       be treated as owning such additional shares as of the effective time of
      the merger. Please read the discussion under the heading "Interests of
       Certain Person in the Merger--Stock Options and Employee Stock Purchase
Plan."                                                          

   - 2005 Shareholder Value Incentive Plan; Restricted Stock.  On February
22, 2005, the board of directors approved and adopted the 2005  
        Shareholder Value Incentive Plan (the "2005 Plan"). The 2005 Plan grants
 an aggregate transaction bonus of approximately $875,086 upon the
    closing of the merger to the following executive officers, who would
       share such amount in unequal parts: Thomas C. O'Brien, Scott P. Pettit,
     David R. Montgomery, Donald J. Hermanek, John W. Kett, John R. Nordin
   and Sidney L. Kerley. If the merger does not become effective on or
  before December 31, 2005, the 2005 Plan will, by its terms, expire
    without payment of any amounts. It is currently anticipated that, in
       exchange for forfeiting their rights to any cash payments that would be
     payable to them under the 2005 Plan, Thomas C. O'Brien, Scott Pettit,
        David Montgomery, Don Hermanek and John Nordin will be issued at closing
       shares of restricted stock in the Buyer Parent, subject to the terms of
      the applicable grant award agreements and the Buyer Parent's new stock
   incentive plan, in amounts having a valuation (on a per share basis
        equal to the valuation of Kelso affiliates' indirect equity contribution
in the Buyer Parent) equivalent to their applicable portion of  

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       the $875,086. Please read the discussion under the heading "Interest of
      Certain Persons in the Merger--2005 Shareholder Value Incentive Plan."

    - LLC Agreement; Profits Interest.  Affiliates of Kelso and the Rollover
        Shareholders intend to enter into, and certain third party investors, if
  investing, are expected to enter into, a limited liability company
     agreement relating to the formation of the LLC, which will own all of
        shares of common stock of the Buyer Parent (which, in turn, will own all
of the shares of common stock of IAAI following the merger). In 
     addition, the Rollover Shareholders are expected to make limited cash
       equity contributions to the LLC in exchange for common interests in the
    LLC. As a result, it is expected that the Kelso affiliates, together
  with any third party investors will own approximately 99.9% of the
       common interests in the LLC and the Rollover Shareholders will own less
    than 0.1% of the common interests in the LLC. The LLC agreement will
      also provide that the Rollover Shareholders and possibly others having
        senior management and/or strategic planning-type responsibilities may be
        awarded profit interests in the LLC that, as currently contemplated, may
     entitle such persons to a portion of any appreciation in the value of
     the assets of the LLC (including the shares of IAAI common stock held
   through the Buyer Parent) following the consummation of the merger.

    - New Stock Incentive Plan.  The Buyer Parent is expected to adopt a new
       stock incentive plan effective upon completion of the transactions. The
incentive plan is expected to provide two types of options:     
        service-related options, which will vest in equal quarterly installments
  over three years, and performance-related exit options, which will
    generally become exercisable based on Kelso's achievement of certain
        multiples on its original indirect equity investment in the Buyer Parent
       subject to an internal rate of return minimum with all vesting criteria
      subject to continued employment with the LLC or affiliates thereof. It
       is expected that one-third of the options under the incentive plan will
       be service options, and the remaining options will be exit options. The
   combined economic interest in the appreciation in the equity of the
Buyer Parent granted to employees of IAAI through the new stock 
     incentive plan and to the Rollover Shareholders and other persons, if
        any, through profit interests in the LLC is expected to be approximately
13.0% on a fully diluted basis, in the aggregate. The Rollover  
  Shareholders are expected to be eligible to participate in options
     granted under such stock incentive plan. The Buyer Parent's new stock
    incentive plan will also cover grants of restricted stock (including
       restricted stock granted at closing to certain Rollover Shareholders in
  lieu of payments under the 2005 shareholder value incentive plan).

    - CONDITIONS TO CONSUMMATE MERGER.  The merger will be consummated only if
      certain conditions and obligations have been satisfied or waived such as
     approval by IAAI shareholders, regulatory approval, and satisfaction of
    other conditions and obligations contained in the merger agreement. If
  law permits, either IAAI or the Buyer Parent could choose to waive a
 condition to its obligation to complete the merger even though that
   condition has not been satisfied. Please see the discussion under the
       heading "The Merger Agreement--Conditions to Consummation of the Merger."

    - NO SOLICITATION.  IAAI has agreed with the Buyer Parent that it will not
   solicit, initiate, encourage or facilitate any "acquisition proposal"
       from a party other than the Buyer Parent or the Buyer. Nevertheless, IAAI
can, in response to an unsolicited bona fide acquisition proposal 
      received prior to obtaining approval from its shareholders, which in the
       reasonable judgment of the board of directors of IAAI (after consultation
       with its financial and legal advisors) would, if consummated, result in a
  "superior proposal," furnish information with respect to IAAI to any
       person making the acquisition proposal, and participate in discussions or
negotiations regarding such acquisition proposal. Please see the  
   discussion under the heading "The Merger Agreement--No Solicitation."

- TERMINATION.                                                        

      - IAAI and the Buyer Parent may agree to terminate the merger agreement by
   mutual written consent at any time before completing the merger. In
    addition, either party may terminate the merger agreement (1) if the
merger is not completed by August 22, 2005, provided that the   
      terminating party is not in material breach or material default of the
merger agreement, (2) if IAAI's                                 
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       shareholders do not approve the merger agreement at the special meeting
     (or any adjournment or postponement thereof), or (3) in certain other
circumstances.                                                  

     - The Buyer Parent may terminate the merger agreement upon certain events
       relating to a competing "acquisition proposal" (including, in the event
     the board of directors of IAAI (1) amends, withholds or withdraws its
      recommendation of the merger as set forth in this proxy statement, (2)
determines to enter into a letter of intent or similar agreement
      relating to a "superior proposal," or (3) fails to recommend against a
       publicly announced "acquisition proposal"), or if any of the conditions
     described in the merger agreement (including there having occurred no
event or development that could reasonably be expected to have a
      material adverse effect on IAAI) becomes impossible of being fulfilled
prior to August 22, 2005; and                                   

- IAAI may terminate the merger agreement in order to enter into a  
     definitive acquisition agreement providing for a superior proposal if
      IAAI's board of directors determines in good faith, after consultation
       with its financial and legal counsel, that the superior proposal is (1)
      more favorable from a financial point of view to the IAAI shareholders
than the merger and the transactions contemplated by the merger 
agreement, and (2) is reasonably capable of being completed and 
       completed on a timely basis. However, IAAI may not terminate the merger
       agreement in this circumstance if IAAI has not complied in all material
  respects with the provisions described above under the heading "No
      Solicitation", or if the Buyer Parent has (within 5 days from the date
        the board of directors of IAAI delivered notice to the Buyer Parent that
     it intends to terminate the merger agreement in order to enter into a
        definitive acquisition agreement providing for a superior proposal) made
     an offer that the board of directors of IAAI determines in good faith
(after consultation with its outside legal counsel and financial
    advisor) to be at least as favorable to the IAAI shareholders as the
       terms of such superior proposal. IAAI is obligated to cooperate in good
     faith with the Buyer Parent to make such adjustments to the terms and
        conditions of the merger agreement with a view toward causing such terms
  to be at least as favorable to IAAI's shareholders as any superior
proposal received.                                              

   Please see the discussion under the heading "The Merger--Termination of
Merger Agreement."                                                              

 - TERMINATION FEE.  If the merger agreement is terminated under certain
    circumstances, IAAI will be required to (1) pay the Buyer Parent a $12
million termination fee, (2) reimburse the Buyer Parent for its   
   out-of-pocket expenses incurred in connection with the merger up to a
       maximum amount of $4 million, and (3) pay to the Buyer Parent any amounts
      they have been paid or payable by the Buyer Parent (or its designees) in
 connection with the escrow of the debt financing, which amounts may
include a portion of accrued interest and any repayment premium   
      applicable to such termination. The maximum amount IAAI will have to pay
the Buyer Parent under subparagraph 3 is an amount equal to (x) $3
      million plus (y) the positive difference, if any, between $4 million and
       any out of pocket expenses reimbursed to the Buyer Parent in subparagraph
2 above. Please read the discussion under the heading "The Merger 
   Agreement--Termination Fees, Out-of-Pocket Expenses and Escrow Fees."

     - CLOSING.  The closing of the merger will take place on or after the later
to occur of May 2, 2005 or three business days after all closing  
  conditions have been satisfied or waived. Please read the discussion
      under the heading "The Merger Agreement--Completion and Effectiveness of
the Merger."                                                      

  - EFFECTIVE TIME.  On the date of the closing of the merger, the parties
  will file articles of merger and such other appropriate documents as
    provided under Illinois Law. The merger will become effective when the
  articles of merger have been accepted for filing by the Secretary of
      State of the State of Illinois or at such later time as may be stated in
       the articles of merger. Please read the discussion under the heading "The
Merger Agreement--Completion and Effectiveness of the Merger."    

   - EXCHANGE OF CERTIFICATES.  Before the effective time of the merger, the
 Buyer, with the consent of IAAI, will designate an entity to act as
    paying agent to handle the exchange of IAAI stock certificates for the
    payment of the merger consideration. As soon as reasonably practicable
  after the effective time of the merger, the paying agent will send a
letter of transmittal and instructions for use in exchanging      

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  IAAI stock certificates for the payment of cash, to each former IAAI
     shareholder. You should not return certificates with the enclosed proxy
card.                                                             

     - OPTION PAYMENTS.  No less than 20 days prior to the effective time of the
       merger, IAAI will notify each holder of an IAAI stock option of the terms
    of the merger and that all such options shall be immediately and fully
     vested and exercisable, and that except for certain options held by the
      Rollover Shareholders which are being exchanged for options of the Buyer
     Parent, (1) all outstanding unexercised stock options granted under the
    Insurance Auto Auctions, Inc. 1991 Stock Option Plan and the Insurance
    Auto Auctions, Inc. Supplemental Option Plan shall terminate as of the
       effective time of the merger, unless validly exercised prior thereto, and
       (2) all outstanding unexercised stock options granted under the Insurance
       Auto Auctions, Inc. 2003 Stock Incentive Plan shall be canceled as of the
    effective time of the merger, in exchange for a cash payment equal to,
   with respect to each such stock option, the excess, if any, of $28.25
over the exercise price of each such option (the "Option Payment  
 Amount"). Any shareholders who have elected to exercise their stock
   options prior to the expiration date thereof shall have the option to
      either (a) deliver the exercise price for each such option to the paying
     agent, or (b) receive an amount equal to the Option Payment Amount from
the paying agent for each stock option.                           

CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING INFORMATION 

   This proxy statement, and the documents to which you are referred in this
proxy statement, contain forward-looking statements based on estimates and      
assumptions. Forward-looking statements include information concerning possible 
or assumed future results of operations of each of the Buyer Parent and IAAI as 
well as information relating to the merger. There are forward-looking statements
throughout this proxy statement, including, among others, under the headings    
"Summary," "The Merger" and "Opinion of IAAI's Financial Advisor," and in       
statements containing the words "believes," "expects," "anticipates," "intends,"
"estimates" or other similar expressions. For each of these statements, IAAI    
claims the protection of the safe harbor for forward-looking statements         
contained in the Private Securities Litigation Reform Act of 1995.              

You should be aware that forward-looking statements involve known and 
unknown risks and uncertainties. Although we believe that the expectations      
reflected in these forward-looking statements are reasonable, we cannot assure  
you that the actual results or developments we anticipate will be realized, or  
even if realized, that they will have the expected effects on the business or   
operations of each of IAAI and the Buyer Parent. These forward-looking          
statements speak only as of the date on which the statements were made.         

    In addition to other factors and matters contained or incorporated in this
document, we believe the following factors could cause actual results to differ 
materially from those discussed in the forward-looking statements:              

   - the possibility that the merger may not be completed in a timely manner
or at all, which may adversely effect IAAI's business;            

     - uncertainties relating to general economic, industry, business and social
conditions;                                                       

- changes in customer confidence in IAAI and its services;            

- the timing of, and legal, regulatory and other conditions associated
with, the completion of the merger;                               

- competitive pressures in the markets in which IAAI competes;        

- the loss of key employees; and                                      

- the loss of key customers and suppliers.                            

You should not place undue reliance on any forward-looking statement. 
Except as expressly required by the federal securities laws, IAAI undertakes no 
obligation to publicly update or revise any forward-looking statement, whether  
as a result of new information, future events, changed circumstances or any     
other reason after the date of this proxy statement.                            

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THE SPECIAL MEETING OF IAAI SHAREHOLDERS

DATE, TIME, PLACE AND PURPOSE OF THE SPECIAL MEETING                            

    The special meeting will be held at 10:30 a.m., local time, at 2 Westbrook
Corporate Center, Westchester, Illinois on May 25, 2005. The purpose of the     
special meeting is (1) to vote upon the proposal to approve and adopt the merger
agreement and the merger, pursuant to which (a) the Buyer will be merged with   
and into IAAI, with IAAI being the surviving corporation and becoming a         
wholly-owned subsidiary of the Buyer Parent; and (b) each share of IAAI common  
stock outstanding at the effective time (other than shares held by IAAI or its  
subsidiaries or shares held by shareholders who properly perfect their          
dissenters' rights under the Illinois Law) will be converted into the right to  
receive $28.25 in cash, without interest; (2) to vote to adjourn the Special    
Meeting to solicit additional proxies in the event that the number of proxies   
sufficient to approve and adopt the merger agreement has not been received by   
the date of the Special Meeting; and (3) to transact such other business as may 
properly come before the special meeting or any adjournment or postponement of  
the meeting.                                                                    

   IAAI's board of directors (other than the recused member) has unanimously
determined that the merger agreement is advisable, fair to, and in the best     
interests of, IAAI and its shareholders and IAAI's board of directors has       
approved the merger agreement and recommends that IAAI shareholders vote "FOR"  
approval and adoption of the merger agreement and the transactions contemplated 
by the merger agreement, including the merger.                                  

WHO CAN VOTE AT THE SPECIAL MEETING                                             

   The holders of record of IAAI common stock as of the close of business on
April 22, 2005, which is the record date for the special meeting, are entitled  
to receive notice of, and to vote at, the special meeting. If you own shares    
that are registered in someone else's name, such as a broker or nominee, you    
need to direct that person to vote those shares or obtain an authorization from 
them to vote the shares yourself at the special meeting. On April 22, 2005,     
there were 11,862,344 shares of IAAI common stock outstanding held by           
approximately 610 holders of record.                                            

VOTE REQUIRED FOR APPROVAL OF MERGER                                            

   The approval and adoption of the merger agreement and the merger requires
the affirmative vote by the holders of at least two-thirds ( 2/3) of the shares 
of IAAI common stock issued and outstanding on the record date. Each share of   
IAAI common stock is entitled to one vote. Failure to return a properly executed
proxy card or to vote in person will have the same effect as a vote "AGAINST"   
approval and adoption of the merger agreement and the merger.                   

Under the rules of the NASDAQ Stock Market, brokers who hold shares in
street name for customers have the authority to vote on "routine" proposals when
they have not received instructions from beneficial owners. However, brokers are
precluded from exercising their voting discretion with respect to the approval  
of non-routine matters such as the approval and adoption of the merger agreement
and the merger. As a result, without specific instructions from the beneficial  
owner of shares they hold in street name, brokers are not empowered to vote     
those shares (referred to generally as "broker non-votes"). Abstentions and     
broker non-votes will be treated as shares that are present and entitled to vote
at the special meeting for purposes of determining whether a quorum exists and  
will have the same effect as votes "AGAINST" approval and adoption of the merger
agreement and the merger.                                                       

 The holders of a majority of the shares of IAAI common stock issued and
outstanding on the record date, represented in person or by proxy, will         
constitute a quorum for purposes of the special meeting. A quorum is necessary  
to hold the special meeting. Once a share is represented at the special meeting,
it will be counted for the purpose of determining a quorum and any adjournment  
of the special meeting, unless the holder is present solely to object to the    
special meeting. However, if a new record date is set for an adjourned meeting, 
then a new quorum will have to be established.                                  

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VOTING BY PROXY                                                                 

This proxy statement is being sent to you on behalf of IAAI's board of
directors for the purpose of requesting that you allow your shares of IAAI      
common stock to be represented at the special meeting by the persons named in   
the enclosed proxy card. All shares of IAAI common stock represented at the     
meeting by properly executed proxy cards will be voted in accordance with the   
instructions indicated on that proxy. If you sign and return a proxy card       
without giving voting instructions, your shares will be voted "FOR" approval and
adoption of the merger agreement and the merger.                                

The persons named in the proxy card will use their own judgment to    
determine how to vote your shares regarding any matters not described in this   
proxy statement that are properly presented at the special meeting. IAAI does   
not know of any matter to be presented at the meeting other than the proposal to
approve and adopt the merger agreement. Adjournments may be made for the purpose
of, among other things, soliciting additional proxies. An adjournment may be    
made from time to time by approval of the holders of shares representing a      
majority of the votes present in person or by proxy at the special meeting,     
whether or not a quorum exists, without further notice other than by an         
announcement made at the special meeting. IAAI does not currently intend to seek
an adjournment of the IAAI special meeting.                                     

You may revoke your proxy at any time before the vote is taken at the 
meeting. To revoke your proxy, you must either advise the Secretary of IAAI in  
writing, deliver a proxy dated after the date of the proxy you wish to revoke or
attend the meeting and vote your shares in person. Merely attending the special 
meeting will not constitute revocation of your proxy.                           

SOLICITATION                                                                    

  IAAI will bear all expenses of the solicitation of proxies in connection
with this proxy statement, including the cost of preparing and mailing this     
proxy statement. IAAI will reimburse brokers, fiduciaries, custodians and other 
nominees for reasonable out-of-pocket expenses incurred in sending this proxy   
statement and other proxy materials to, and obtaining instructions relating to  
such materials from, beneficial owners of IAAI common stock. IAAI shareholder   
proxies may be solicited by directors, officers and employees of IAAI in person 
or by telephone, facsimile or by other means of communication. IAAI has retained
Morrow & Co., Inc. to assist in the solicitation of proxies for the special     
meeting at an estimated cost of approximately $15,000 plus reimbursement of     
reasonable fees and expenses.                                                   

THE PARTIES TO THE MERGER 

IAAI                                                                            

Insurance Auto Auctions, Inc.                                                   
2 Westbrook Corporate Center, Suite 500                                         
Westchester, Illinois 60154                                                     

IAAI is an Illinois corporation and is the second largest provider of 
salvage vehicle auction and claims management services to insurance companies   
and other suppliers. IAAI has 78 facilities located in 32 states, maintaining a 
presence in 60 of the top 75 metropolitan markets. Its principal executive      
offices are located at 2 Westbrook Corporate Center, Suite 500, Westchester,    
Illinois 60154.                                                                 

THE BUYER PARENT                                                                

Axle Holdings, Inc.                                                             
c/o Kelso & Company, L.P.                                                       
320 Park Avenue, 24th Floor                                                     
New York, New York 10022                                                        

    The Buyer Parent is a Delaware corporation that was established solely for
the purpose of entering into the merger agreement and acquiring shares of IAAI  
in connection with the merger. At the closing of the                            

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merger, all of the outstanding shares of common stock of the Buyer Parent will  
be owned by Axle Holdings II, LLC, or the "LLC," and the Rollover Shareholders  
will hold options to acquire shares of common stock of the Buyer Parent. All of 
the outstanding equity interests of the LLC will be owned by affiliates of Kelso
& Company, L.P., or "Kelso," the Rollover Shareholders and certain third party  
investors, if any. Kelso is a New York-based private investment firm founded in 
1971 that specializes in acquisition transactions.                              

THE BUYER                                                                       

Axle Merger Sub, Inc.                                                           
c/o Kelso & Company, L.P.                                                       
320 Park Avenue, 24th Floor                                                     
New York, New York 10022                                                        

   The Buyer is an Illinois corporation and a wholly-owned subsidiary of the
Buyer Parent. The Buyer was formed solely for the purpose of entering into the  
merger agreement and merging with and into IAAI.                                

THE MERGER

GENERAL DESCRIPTION OF THE MERGER                                               

     If the merger is approved by the IAAI shareholders and the other conditions
to the closing of the merger are either satisfied or waived, the Buyer will be  
merged with and into IAAI, with IAAI being the surviving corporation. After the 
merger, the Buyer Parent will own all of the outstanding shares of common stock 
of IAAI, and the Buyer Parent will be controlled by the LLC (which will be      
controlled by affiliates of Kelso).                                             

  When the merger is completed, each share of IAAI common stock issued and
outstanding immediately prior to the effective time of the merger (other than   
the shares of IAAI common stock owned by IAAI or any subsidiary of IAAI and the 
shares of IAAI common stock held by any shareholders who properly exercise their
dissenters' rights under Illinois Law) will be automatically canceled and       
converted into the right to receive $28.25 in cash, without interest.           

     Except for stock options of IAAI exchanged by the Rollover Shareholders for
stock options in the Buyer Parent, each option granted by IAAI under the IAAI   
stock option plans (including the Insurance Auto Auctions, Inc. 1991 Stock      
Option Plan, as amended and restated, the Insurance Auto Auctions, Inc.         
Supplemental Stock Option Plan and the Insurance Auto Auctions, Inc. 2003 Stock 
Incentive Plan) to acquire IAAI common stock that is outstanding immediately    
prior to the closing of the merger will be canceled in exchange for a single    
lump sum cash payment (less any applicable income or employment tax withholding)
equal to the product of (x) the number of shares of IAAI common stock subject to
the option, and (y) the excess, if any, of $28.25 over the option exercise      
price. Simultaneously with the completion of the merger, the IAAI stock option  
plans and each outstanding IAAI stock options under the IAAI stock option plans 
will be terminated.                                                             

 Contributions by IAAI's employees to the ESPP were frozen by IAAI as of
February 23, 2005. If the merger is effective on or before June 30, 2005, the   
ESPP will be cashed out in conjunction with the merger and participants will    
receive an amount equal to $28.25 for each share of IAAI common stock to which  
they would have been entitled under the ESPP. If the merger is effective on or  
after July 1, 2005, then ESPP participants will receive shares of IAAI common   
stock under normal operation of the ESPP as of June 30, 2005, and will be       
treated as shareholders as of the effective time of the merger.                 

 Concurrently with the merger, the Rollover Shareholders are expected to
exchange stock options of IAAI with an aggregate spread value of approximately  
$3.3 million into stock options of the Buyer Parent on substantially similar    
terms, including vesting and exercise price (which are expected to represent    
approximately 4.7% of the common stock of the Buyer Parent on a fully diluted   
basis following the merger). These Rollover Shareholders will sell or "cash-out"
the remainder of their current equity interests in IAAI in the merger. Each of  
their shares of IAAI common stock, including the shares underlying their IAAI   
stock options being cashed out, will be valued at $28.25 per share. The Rollover
Shareholders are: Thomas C. O'Brien,                                            
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Scott P. Pettit, David R. Montgomery, Donald J. Hermanek, John W. Kett, John R. 
Nordin and Sidney L. Kerley. In addition, it is anticipated that the Rollover   
Shareholders will purchase limited common interests in the LLC and, following   
the closing, will also be awarded certain profit interests in the LLC that, as  
currently contemplated, may entitle them to a portion of any appreciation in the
value of the assets of the LLC following the consummation of the merger.        

    As a result of the merger, IAAI will be a privately held company and there
will be no public market for IAAI common stock. Upon the completion of the      
merger, IAAI common stock will cease to be listed on the NASDAQ. In addition,   
the registration of IAAI common stock under the Exchange Act will be terminated.

BACKGROUND OF THE MERGER                                                        

  In August 2004, IAAI's chairman of the board of directors and certain of
its executive officers interviewed several investment banking firms in search of
a firm that could help the board explore various strategies to maximize         
shareholder value, including the possible sale of IAAI. On August 20, 2004, IAAI
retained William Blair & Company, L.L.C. ("William Blair") as IAAI's financial  
advisor due to William Blair's reputation and experience as an investment       
banking firm. Soon thereafter the IAAI board of directors met with William Blair
and representatives of Katten Muchin Zavis Rosenman ("KMZR"), IAAI's outside    
legal counsel, to determine if IAAI could succeed in increasing shareholder     
value through a sale of the company and on what basis such a sale would take    
place.                                                                          

After conferring with its financial and legal advisors, the board of  
directors determined to explore, with the assistance of William Blair, the      
potential sale of IAAI.                                                         

 Accordingly, the board of directors of IAAI authorized William Blair to
contact potential strategic and financial acquirers for IAAI in order to explore
their interest in a possible transaction with IAAI. During the months of        
September and October 2004, IAAI's management team, with the assistance of      
William Blair and KMZR, prepared a confidential memorandum and an executive     
summary describing IAAI. In November 2004, the confidential memorandum was      
finalized and William Blair, on behalf of and in consultation with IAAI and its 
board of directors, began contacting prospective strategic and financial        
acquirers in mid-November 2004. In total, 86 parties were contacted to solicit  
their interest in a possible transaction with IAAI. IAAI ultimately entered into
confidentiality agreements with 33 strategic and financial parties to whom the  
confidential memorandum was distributed during November and early December of   
2004. On behalf of IAAI, William Blair informed each of these 33 parties that   
IAAI had requested that initial indications of interest in a possible           
transaction with IAAI be submitted by December 23, 2004.                        

On December 23, 2004, IAAI received preliminary proposals from nine   
parties, ranging from a low range of $20.00 to $24.00 per share to a high range 
of $26.00 to $30.00 per share. Kelso's initial proposal indicated a range of    
$23.00 to $25.50 per share. At a December 24, 2004 meeting, the IAAI board of   
directors reviewed the nine proposals with William Blair. The IAAI board of     
directors instructed William Blair to invite the six highest bidders, which     
included Kelso, to continue with the process by commencing due diligence and    
receiving a presentation from the IAAI management team during the month of      
January 2005. Meetings with each of the six parties, consisting of one strategic
and five financial parties, were held between January 14, 2005 and January 21,  
2005 at which the IAAI management team delivered a presentation regarding IAAI's
business and financial results. Furthermore, in order to allow potential        
acquirers to commence preliminary due diligence, IAAI, in consultation with     
William Blair and KMZR, prepared a due diligence data room where potential      
bidders, including Kelso, were allowed to conduct a due diligence review of IAAI
beginning January 19, 2005 and ending February 15, 2005.                        

    During the week of January 24, 2005, each of the bidders performed varying
levels of due diligence in addition to the review of the data room materials,   
including an examination of IAAI's auditor's work papers, visits to specific    
branch sites, and discussions with members of the IAAI management team regarding
a variety of diligence topics such as finance, accounting, sales, operations,   
legal, and environmental.                                                       

     At a January 27, 2005 meeting of the IAAI board of directors, William Blair
updated the board concerning the management presentations to potential acquirers
and the status of the potential acquirers' due                                  

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diligence investigations. IAAI's outside legal counsel made a presentation      
regarding the board's fiduciary duties in the context of the proposed           
transaction.                                                                    

On January 31, 2005, a draft merger agreement prepared by KMZR was    
distributed to the six remaining interested parties, along with a letter stating
that definitive proposals were due on February 15, 2005. In the letter, IAAI    
requested that interested parties submit detailed markups of the proposed merger
agreement as part of the definitive proposal package. IAAI also emphasized that 
bidders would be expected to have substantially completed all due diligence and 
have firm financing in place by February 15, 2005. During the first two weeks of
February 2005, each of the potential purchasers were afforded access to due     
diligence regarding IAAI, including meetings with management and visits to      
specific branch sites.                                                          

 On February 15, 2005, four potential acquirers, each a financial party,
submitted non-binding bids ranging from $21.50 per share to $27.56 per share. At
an IAAI board of directors meeting held that same day, the board, with the      
assistance of William Blair, reviewed and discussed the characteristics of each 
of the four bids submitted by the respective bidders, including financing and   
other contingencies impacting the quality of the respective bids. The two       
highest bidders, including Kelso with a bid of $27.00 per share, had provided   
detailed markups of the proposed merger agreement. In addition, both parties    
stated that they had substantially completed their due diligence review of IAAI 
and provided firm financing commitment letters. The IAAI board also took into   
consideration that the two other bidders had not only submitted bids that were  
inferior in terms of price, but that were also not likely to present a          
competitive proposal given that they were both subject to substantial due       
diligence, did not include a markup of the merger agreement, and were based on  
less certain financing proposals. The IAAI board of directors instructed William
Blair and KMZR to contact the two highest bidders, including Kelso, and clarify 
certain aspects of their proposals, including additional detail regarding their 
financing, certain contract terms, and the status of their due diligence        
investigation.                                                                  

Due to the fact that each of the remaining potential acquirers was a  
financial party who might desire to retain Thomas C. O'Brien as an officer of   
IAAI following the acquisition, the IAAI board, acting on the advice of KMZR,   
acted to recuse Mr. O'Brien from the negotiation process by forming a           
negotiating committee of five independent directors authorized to negotiate a   
final bid proposal to the IAAI shareholders that was in the best interests of   
and advisable to the IAAI shareholders and IAAI. With the assistance of KMZR and
William Blair, the negotiating committee, chaired by Peter H. Kamin, negotiated 
the terms and conditions of the merger agreement with potential purchasers.     

     On February 16, 2005, pursuant to the IAAI's board's request, William Blair
and KMZR contacted each of the two highest bidders, including Kelso, to discuss 
the respective bids in more detail. After reviewing the result of those         
discussions at a meeting on February 17, 2005 the IAAI board of directors       
instructed William Blair to request "best and final bids" from each of the two  
highest bidders based on a number of factors, including the per share value of  
their bids, the fact that they had completed substantially all of their due     
diligence, the fact that both proposals included financing commitments, and the 
fact that both of these bidders had submitted full markups of the merger        
agreement as requested. Both bidders' respective legal advisors continued to    
negotiate the proposed merger agreement with KMZR on February 16, 2005 and      
February 17, 2005. Later in the day on February 17, 2005 and pursuant to the    
IAAI board's instructions, William Blair contacted Kelso and the other high     
bidder and requested that each party submit its "best and final bid" by the     
morning of February, 18, 2005. William Blair requested that both bidders address
as part of their final bid the IAAI board's concerns about a number of issues,  
including the termination provision and termination fee, the non-solicitation   
provision, and the treatment of other legal provisions in the merger agreement. 

On February 18, 2005, IAAI received final bids from the two remaining 
bidders. In addition to Kelso's final bid of $28.25 per share, IAAI received a  
final bid of $28.06 per share from the other party. At an IAAI board of         
directors meeting held that same day, the board, with the assistance of William 
Blair, reviewed and discussed each bid in detail, including price per share, the
bidders' proposed financing structure and other conditions, including further   
revisions to the respective bidders' merger agreement markup. The $28.25 per    
share bid submitted by Kelso, which was backed by total debt and equity         
financing commitments of approximately $414 million, had a higher price per     
share, provided greater certainty of closing based on fund                      

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resources and financing approach in the opinion of the IAAI board, and had      
certain conditions that, when compared to the conditions of the competing bid,  
were more favorable to IAAI shareholders in the judgment of the board. As a     
result, on February 18, 2005, the negotiating committee recommended to the board
of directors, and the board of directors authorized, (1) the chairman of the    
negotiating committee, with the assistance of IAAI's outside legal counsel and  
financial advisor to pursue the Kelso proposal, and (2) IAAI to enter into an   
exclusivity arrangement with Kelso to negotiate a final and binding merger      
agreement pending board approval.                                               

    IAAI and Kelso entered into an exclusivity arrangement, dated February 18,
2005, which provided that IAAI would pay Kelso a $1,000,000 fee (plus expenses  
up to a maximum of $1,000,000) if IAAI (a) solicited or encouraged (or had      
discussions or negotiations with respect to, or provided any information in     
connection with) any third party acquisition proposal after execution of the    
exclusivity agreement and on or before February 25, 2005, (b) did not enter into
a definitive agreement with affiliates of Kelso on or before February 22, 2005  
and (c) entered into a definitive agreement with the relevant third party prior 
to May 31, 2005. By its terms, the exclusivity agreement would become null and  
void if IAAI and affiliates of Kelso did not enter into a definitive acquisition
agreement at a price of at least $28.25 per share by February 22, 2005, unless  
IAAI received a third party proposal or it or its representatives solicited (or 
had discussions with respect to, or provided any information in connection with)
any third party proposal prior to such time.                                    

  Over the next several days, from February 18, 2005 to February 22, 2005,
the parties negotiated the merger agreement and the voting agreement. At a      
February 22, 2005 meeting of the IAAI board of directors, outside legal counsel 
made a presentation regarding the Board's fiduciary duties in the context of the
proposed transaction and then reviewed with the board the terms of the proposed 
Merger Agreement with Kelso and the related transaction documents. William Blair
reviewed with the board its financial analysis of the merger consideration and  
rendered to the Board an opinion, subsequently confirmed in writing and dated   
February 22, 2005, to the effect that based upon and subject to various         
assumptions, limitations and qualifications set forth in such opinion, as of the
date of the opinion, the consideration to be received by holders of IAAI common 
stock (other than the Buyer Parent, its affiliates and the Rollover             
Shareholders) in the merger was fair, from a financial point of view, to such   
holders of IAAI common stock.                                                   

     The board of directors then engaged in a general discussion with respect to
the proposed transaction. After thorough discussion, the board determined that  
the transaction proposed by Kelso was advisable, fair to, and in the best       
interests of, IAAI and its shareholders and the board approved and authorized   
the merger agreement. The merger agreement was executed by IAAI, Axle Holdings, 
Inc. and Axle Merger Sub, Inc. on the evening of February 22, 2005 and publicly 
announced the following morning.                                                

     Shortly following execution of the merger agreement, the other final bidder
in the auction, Parthenon Capital LLC, approached Kelso and requested the       
ability to invest in the transaction. After discussions, such bidder and Kelso  
have reached an agreement in principle that will permit such party to make a $15
million equity investment in the transaction alongside affiliates of Kelso at   
the same purchase price.                                                        

REASONS FOR THE MERGER AND RECOMMENDATION OF THE BOARD OF DIRECTORS             

   In reaching its decision to approve the merger agreement and to recommend
that its shareholders vote to approve the merger, the board of directors        
considered a number of factors, including the following:                        

    - the consideration to be received by IAAI shareholders, namely $28.25 per
share, which represented a 26.1% premium over the $22.41 per share
  closing price of IAAI stock on February 22, 2005, the day before the
       execution of the merger agreement was announced, and a 40% premium to the
average close of the past six months;                             

- presentations by management regarding, IAAI's business, operations, 
  financial condition, earnings and business prospects (as well as the
risks involved in achieving those prospects);                     

    - IAAI board of directors' knowledge of the current state of the business,
operations, assets, financial condition, results of operation and 
  business prospects of IAAI, including the alternative of remaining a
stand-alone, independent company;                                 
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   - the presentation and opinion of William Blair, dated February 22, 2005,
    delivered to the board, to the effect that, as of that date, and based
upon and subject to the assumptions, conditions, limitations and  
      qualifications set forth in the opinion, the consideration of $28.25 per
      share to be received by the holders of IAAI common stock pursuant to the
       merger agreement is fair from a financial point of view to the holders of
    IAAI common stock (other than the Buyer Parent, its affiliates and the
    Rollover Shareholders) as more fully described below under "Opinion of
IAAI's Financial Advisor";                                        

     - the fact that the merger consideration is all cash, which creates greater
     certainty of value to the IAAI shareholders than would a transaction in
which IAAI shareholders would receive stock, and the fact that the
     financing for the transaction has been committed subject to a financing
condition customary for a financial sponsor;                      

- the terms of the merger agreement, as reviewed by the board with its
     legal advisors, including consideration of several specific provisions,
   among others, of the merger agreement, such as (1) the definitions of
       "material adverse effect" and "superior proposal", and (2) the ability of
the board to terminate the merger agreement in the exercise of its
     fiduciary duties under specified circumstances, which would trigger the
      payment of a termination fee in specified circumstances (recognizing the
       possible effect that a termination fee has on competing transactions, but
   believing that the fee is reasonable for this size of a transaction);

- the fact that IAAI with the assistance of William Blair, conducted a
broad sales process contacting 86 potential buyers (including both
      strategic and financial parties) and the terms, merger consideration and
    timetable of the Merger in light of the bidding process conducted; and

   - the likelihood that the merger will be completed timely in light of the
experience and reputation of Kelso.                               

IAAI's board of directors also were aware of the possible negative    
consequences, or factors not supportive, of entering into the merger agreement, 
including the following:                                                        

- that IAAI will no longer exist as an independent company, and its   
       shareholders will no longer benefit from any future increase in the value
of IAAI;                                                          

- the fact that the all-cash price would be taxable to shareholders;  

   - the fact that IAAI's officers have certain interests in the merger that
    are in addition to their interests as IAAI shareholders, which had the
   potential to influence their views and actions in connection with the
   merger proposal (see "--Interests of Certain Persons in the Merger");

- the restrictions on the conduct of IAAI's business prior to the     
consummation of the merger, requiring IAAI to conduct its business
subject to specific limitations;                                  

- the possibility that the $12 million termination fee, the $4 million
      expense reimbursement payable to Kelso under specified circumstances and
    the $3 million payable to the Buyer Parent in connection with breakage
  expenses related to the repayment of escrowed debt financing for the
transaction, may discourage a competing acquisition proposal;     

  - the fact that Kelso required certain shareholders owning approximately
       28.6% of IAAI's outstanding common stock to enter into a voting agreement
      which requires them to vote in favor of the merger so long as the merger
agreement is in effect and has not been terminated;               

  - the potential disruption of IAAI's business that could result from the
  announcement and pendency of the merger, including potential loss of
 customers, inability to retain key management, strategic, sales and
marketing personnel;                                              

  - that if the merger does not close, IAAI and its directors and officers
 will have (1) expended extensive efforts in the bidding process, in
negotiating the merger agreement and in attempting to complete the
  transaction, (2) experienced significant distraction from their work
during the pendency of the                                        

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    transaction, and (3) incurred substantial transaction costs that could
negatively impact IAAI's operating results.                       

The foregoing discussion of the information and factors considered by 
IAAI's board of directors in determining that the merger agreement and the      
transactions contemplated by the merger agreement, including the merger, are    
fair to, and in the best interests of, IAAI and its shareholders is not intended
to be exhaustive, but is believed to include the material factors the IAAI board
of directors considered in connection with its evaluation of the transaction. In
view of the wide variety of factors considered and the complexity of such       
matters, IAAI's board of directors did not attempt to quantify, rank or         
otherwise assign relative weights to the specific factors it considered in      
reaching its decision and considered all of the aforementioned factors in       
reaching its conclusion that the merger agreement and the transactions          
contemplated by the merger agreement, including the merger, are fair to, and in 
the best interests of, IAAI and its shareholders. IAAI's board of directors     
determined that the reasons supporting recommendation of the merger agreement   
and the transactions contemplated by the merger agreement, including the merger,
significantly outweighed the potential negative consequences of entering into   
and recommending adoption and approval of the merger agreement.                 

THE BOARD OF DIRECTORS' RECOMMENDATION                                          

The board of directors (other than the recused member), after careful 
consideration of a number of factors, including the opinion as to fairness from 
a financial point of view of William Blair, its financial advisor, has          
unanimously approved the merger agreement and the transactions contemplated by  
the merger agreement, including the Merger. The board believes that the merger  
consideration to be received by the IAAI shareholders is fair to, and in the    
best interests of, IAAI and the IAAI shareholders.                              

OPINION OF IAAI FINANCIAL ADVISOR                                               

William Blair was retained to act as the financial advisor to IAAI to 
render certain investment banking services, including in connection with a      
potential business combination. As part of its engagement, IAAI requested       
William Blair to render an opinion as to whether the $28.25 per share merger    
consideration to be received by the holders of the outstanding shares of common 
stock of IAAI (other than the Buyer Parent, its affiliates and the Rollover     
Shareholders) was fair to such holders from a financial point of view. On       
February 22, 2005, William Blair delivered its oral opinion to the board of     
directors of IAAI and subsequently confirmed in writing that, as of that date   
and based upon and subject to the assumptions, conditions, limitations and      
qualifications stated in its opinion, the consideration of $28.25 in cash per   
share of common stock of IAAI was fair, from a financial point of view, to those
holders (other than the Buyer Parent, its affiliates and the Rollover           
Shareholders).                                                                  

    William Blair provided the opinion described above for the information and
assistance of the board of directors of IAAI in connection with its             
consideration of the merger. The terms of the merger agreement and the amount   
and form of the merger consideration, however, were determined through          
negotiations between IAAI and Kelso, and were approved by the board of directors
IAAI.                                                                           

    THE FULL TEXT OF WILLIAM BLAIR'S WRITTEN OPINION, DATED FEBRUARY 22, 2005,
IS ATTACHED AS APPENDIX B TO THIS PROXY STATEMENT AND INCORPORATED INTO THIS    
DOCUMENT BY REFERENCE. YOU ARE URGED TO READ THE ENTIRE OPINION CAREFULLY TO    
LEARN ABOUT THE ASSUMPTIONS MADE, PROCEDURES FOLLOWED, MATTERS CONSIDERED AND   
LIMITS ON THE SCOPE OF THE REVIEW UNDERTAKEN BY WILLIAM BLAIR IN RENDERING ITS  
OPINION. WILLIAM BLAIR'S OPINION RELATES ONLY TO THE FAIRNESS, FROM A FINANCIAL 
POINT OF VIEW, OF THE CONSIDERATION TO BE RECEIVED BY THE HOLDERS OF THE        
OUTSTANDING SHARES OF COMMON STOCK OF IAAI (OTHER THAN THE BUYER PARENT, ITS    
AFFILIATES AND THE ROLLOVER SHAREHOLDERS) IN THE MERGER PURSUANT TO THE MERGER  
AGREEMENT, DOES NOT ADDRESS ANY OTHER ASPECT OF THE PROPOSED MERGER OR ANY      
RELATED TRANSACTION, AND DOES NOT CONSTITUTE A RECOMMENDATION TO ANY SHAREHOLDER
AS TO HOW THAT                                                                  

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SHAREHOLDER SHOULD VOTE WITH RESPECT TO THE MERGER AGREEMENT OR THE MERGER. A   
COPY OF THIS OPINION LETTER (WHICH IS ATTACHED AS APPENDIX B TO THIS PROXY      
STATEMENT) WILL BE MADE AVAILABLE FOR INSPECTION AND COPYING AT THE PRINCIPAL   
EXECUTIVE OFFICES OF IAAI DURING REGULAR BUSINESS HOURS BY ANY INTERESTED       
SHAREHOLDER OR OTHER PERSON DESIGNATED IN WRITING AS A REPRESENTATIVE OF SUCH   
SHAREHOLDER. WILLIAM BLAIR DID NOT ADDRESS THE MERITS OF THE UNDERLYING DECISION
BY IAAI TO ENGAGE IN THE MERGER. THE FOLLOWING SUMMARY OF WILLIAM BLAIR'S       
OPINION IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF THE       
OPINION. WILLIAM BLAIR'S OPINION WAS DIRECTED TO THE BOARD OF DIRECTORS OF IAAI 
FOR ITS BENEFIT AND USE IN EVALUATING THE FAIRNESS OF THE COMMON STOCK MERGER   
CONSIDERATION. WE URGE YOU TO READ THE OPINION CAREFULLY AND IN ITS ENTIRETY.   

    In connection with its opinion, William Blair examined or discussed, among
other things:                                                                   

 - drafts dated February 22, 2005 of the Merger Agreement and the Voting
Agreement (as defined in the Merger Agreement);                   

  - drafts dated February 15, 2005 of the Financing Letters (as defined in
the Merger Agreement);                                            

 - certain audited historical financial statements of IAAI for the three
fiscal years ended December 28, 2003;                             

    - the unaudited financial statements of IAAI for the three fiscal quarters
     ended September 26, 2004 and certain unaudited financial information of
IAAI for the fiscal year ended December 26, 2004;                 

- certain internal business, operating and financial information and  
    forecasts of IAAI for fiscal years 2005 and 2006 (including an updated
     forecast solely for fiscal year 2005) prepared by the senior management
of IAAI (the "Forecasts");                                        

     - information regarding publicly available financial terms of certain other
business combinations William Blair deemed relevant;              

    - the financial position and operating results of IAAI compared with those
       of certain other publicly traded companies William Blair deemed relevant;

  - current and historical market prices and trading volumes of the common
stock of IAAI; and                                                

     - certain other publicly available information on IAAI William Blair deemed
relevant.                                                         

   William Blair also held discussions with members of the senior management
of IAAI to discuss the foregoing. William Blair also considered other matters   
which it deemed relevant to its inquiry, and took into account the accepted     
financial and investment banking procedures and considerations that it deemed   
relevant. In connection with its engagement, William Blair was requested to     
approach, and held discussions with, third parties to solicit indications of    
interest in a possible acquisition of IAAI.                                     

In rendering its opinion, William Blair assumed and relied, without   
independent verification, upon the accuracy and completeness of all the         
information examined by or otherwise reviewed or discussed with William Blair   
for purposes of its opinion, including without limitation the forecasts provided
by the senior management of IAAI. William Blair did not make or obtain an       
independent valuation or appraisal of the assets, liabilities or solvency of    
IAAI or the Buyer Parent (or any of its affiliates). William Blair was advised  
by the senior management of IAAI that the Forecasts examined by William Blair   
were reasonably prepared on bases reflecting the best estimates then available  
and judgments of the senior management of IAAI. In that regard, William Blair   
assumed, with the consent of IAAI's board of directors, that (1) the Forecasts  
would be achieved in the amounts and at the times contemplated thereby and (2)  
all material assets and liabilities (contingent or otherwise) of IAAI were as   
set forth in IAAI's financial statements or other information made available to 
William Blair. William Blair expressed no opinion with respect to the Forecasts 
or the estimates and judgments on which they were based. William Blair was not  
provided with nor did it otherwise review any forecasts of IAAI for periods     
after fiscal year 2006, and IAAI provided updated forecasts solely as to fiscal 
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2005 and not for any period thereafter. William Blair also assumed that the     
definitive merger agreement would not differ in any material respects from the  
draft thereof dated February 22, 2005 furnished to William Blair.               

   William Blair's opinion did not address the relative merits of the merger
as compared to any alternative business strategies that might exist for IAAI or 
the effect of other transactions in which IAAI might engage. William Blair's    
opinion was based upon economic, market, financial and other conditions existing
on, and other information disclosed to William Blair as of, February 22, 2005.  
Although subsequent developments may affect its opinion, William Blair does not 
have any obligation to update, revise or reaffirm its opinion. William Blair    
relied as to all legal, accounting and tax matters on advice of advisors to     
IAAI, and assumed that the executed merger agreement would substantially conform
to, and the merger would be consummated on, the terms described in the draft    
merger agreement reviewed by it, without any amendment or waiver of any material
terms or conditions.                                                            

William Blair did not express any opinion as to the price at which the
common stock of IAAI will trade at any future time or as to the effect of the   
announcement of the merger on the trading price of the common stock of IAAI.    
William Blair noted that the trading price may be affected by a number of       
factors, including but not limited to:                                          

- changes in the prevailing interest rates and other factors which    
generally influence the price of securities;                      

     - adverse changes in the capital markets from the date on which the opinion
was delivered;                                                    

   - the occurrence of adverse changes in the financial condition, business,
       assets, results of operations or prospects of IAAI or in the salvage auto
auction market;                                                   

- any necessary actions by or restrictions of federal, state or other 
governmental agencies or regulatory authorities; and              

- timely completion of the Merger on the terms and conditions that are
acceptable to all parties at interest.                            

In addition, William Blair did not express any opinion as to the      
consideration to be received in the merger by the Buyer Parent, its affiliates  
or the Rollover Shareholders.                                                   

     The following is a summary of the material financial analyses performed and
material factors considered by William Blair to arrive at its opinion. William  
Blair performed certain procedures, including each of the financial analyses    
described below, and reviewed with IAAI's board of directors the assumptions    
upon which such analyses were based, as well as other factors. Although the     
summary does not purport to describe all of the analyses performed or factors   
considered by William Blair in this regard, it does set forth those considered  
by William Blair to be material in arriving at its opinion.                     

SELECTED PUBLIC COMPANY ANALYSIS.  William Blair reviewed and compared
certain financial information relating to IAAI to corresponding financial       
information, ratios and public market multiples for its two primary competitors 
in the salvage vehicle auction industry, Copart, Inc. and ADESA, Inc., as well  
as for certain publicly traded companies that William Blair deemed relevant with
a market capitalization between $100 million and $1 billion and with operations 
in the remanufactured and aftermarket auto parts industry. The companies        
selected by William Blair were:                                                 

- ADESA, Inc.;                                                        

- Copart, Inc.;                                                       

- CSK Auto Corporation;                                               

- Keystone Automotive Industries, Inc.                                

- LKQ Corporation; and                                                

- The Pep Boys--Manny, Moe & Jack.                                    

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Among the information William Blair considered were earnings before   
interest, taxes, depreciation and amortization (commonly referred to as         
"EBITDA"), earnings before interest and taxes (commonly referred to as "EBIT")  
and earnings per share (commonly referred to as "EPS"). William Blair considered
the enterprise value as a multiple of EBITDA and EBIT for each company for the  
last twelve months for which results were publicly available (commonly referred 
to as "LTM") and the stock price of equity as a multiple of EPS for each company
for the LTM and for the respective calendar year EPS estimates for 2004 (to the 
extent publicly reported results were not yet available) and 2005. The operating
results and the corresponding derived multiples for IAAI and each of the        
selected companies were based on each company's most recent available publicly  
disclosed financial information, closing share prices as of February 18, 2005   
and consensus Wall Street analysts' EPS estimates for calendar years 2004 and   
2005 where appropriate. In the case of IAAI, the most recent available publicly 
disclosed financial information was for the quarter ending September 26, 2004.  
William Blair also considered IAAI's unaudited internal financial estimates of  
its EBITDA, EBIT and EPS for the fiscal year ended December 26, 2004 and its    
internal updated forecast for fiscal year 2005 earnings per share. William Blair
noted that it did not have access to internal forecasts for any of the selected 
public companies. The implied enterprise value of the transaction is based on   
the equity value implied by the purchase price plus the total debt, less any    
excess cash and cash equivalents assumed to be included in the Merger.          

   William Blair then compared the implied transaction multiples for IAAI to
the range of trading multiples for the selected companies. Information regarding
the multiples from William Blair's analysis of selected publicly traded         
companies is set forth in the following table.                                  

                                                        · Enlarge/Download Table

                                                             SELECTED PUBLIC COMPANY    
                                                               VALUATION MULTIPLES      
                                          IAAI AT $28.25  ------------------------------
MULTIPLE                                    PER SHARE      MIN     MAX    MEDIAN   MEAN 
--------                                  --------------  -----   -----   ------   -----
                                                                                        
Enterprise Value/LTM EBITDA..............      13.8x        7.5x   11.6x    9.3x    9.4x
Enterprise Value/2004E EBITDA............      11.3x                                    
Enterprise Value/LTM EBIT................      25.7x        9.7x   14.4x   12.0x   12.0x
Enterprise Value/2004E EBIT..............      18.3x                                    
LTM P/E..................................      38.9x       14.3x   25.6x   20.2x   19.6x
2004 P/E--Consensus Estimate.............      30.1x       14.3x   24.8x   20.2x   19.8x
2004 P/E--Internal Estimate..............      26.2x                                    
2005E P/E--Consensus Estimate............      25.8x       12.3x   21.5x   16.4x   17.2x
2005E P/E--Internal Estimate.............      14.0x                                    

 William Blair noted that the implied transaction multiples based on the
terms of the Merger were within, and in several instances above, the range of   
multiples of the selected public companies.                                     

Although William Blair compared the trading multiples of the selected 
companies at the date of its opinion to IAAI, none of the selected companies is 
identical to IAAI. Accordingly, any analysis of the selected publicly traded    
companies necessarily involved complex considerations and judgments concerning  
the differences in financial and operating characteristics and other factors    
that would necessarily affect the analysis of trading multiples of the selected 
publicly traded companies.                                                      

     SELECTED M&A TRANSACTIONS ANALYSIS.  William Blair performed an analysis of
selected recent business combinations consisting of transactions announced and  
closed subsequent to January 1, 1995 and focused primarily on the salvage and   
wholesale vehicle auction industry as well as the remanufactured and aftermarket
auto parts industry. William Blair's analysis was based solely on publicly      
available information regarding such transactions. The selected transactions    
were not intended to be representative of the entire range of possible          
transactions in the respective industries. The ten transactions examined were   
(target/acquirer):                                                              

- Keystone Automotive Operations, Inc./Bain Capital, LLC;             

- Pick-N-Pull Auto Dismantling, Inc./Norprop Inc.;                    

- Discount Auto Parts, Inc./Advance Auto Parts, Inc.;                 

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- Manheim Auctions, Inc. (sale of 9 facilities)/ADESA Corporation;    

- ADT Automotive Holdings, Inc./Manheim Auctions, Inc.;               

   - Al's and Grand Auto Supply, Inc. (formerly PACCAR Automotive, Inc.)/CSK
Auto Corporation;                                                 

- Republic Auto Parts, Inc./Keystone Automotive Industries, Inc.;     

- Hi-Lo Automotive, Inc./ O'Reilly Automotive, Inc.;                  

- NER Auction Group/Copart, Inc.; and                                 

- ADESA Corporation/Minnesota Power & Light Company.                  

    William Blair reviewed the consideration paid in the selected transactions
in terms of the enterprise value of such transactions as a multiple of EBITDA   
and EBIT of the target for the latest twelve months prior to the announcement of
these transactions. William Blair compared the resulting range of transaction   
multiples of EBITDA and EBIT for the selected transactions to the implied       
transaction multiples for IAAI. William Blair also considered the estimated     
EBITDA and EBIT for the fiscal year ended December 26, 2004 ("2004E EBITDA" and 
"2004E EBIT," respectively) for IAAI and compared them to the respective range  
of transaction multiples of LTM EBITDA and EBIT for the selected transactions.  
Information regarding the multiples from William Blair's analysis of selected   
transactions is set forth in the following table:                               

                                                        · Enlarge/Download Table

                                                              SELECTED TRANSACTION     
                                                               VALUATION MULTIPLES     
                                          IAAI AT $28.25  -----------------------------
MULTIPLE                                    PER SHARE     MIN     MAX    MEDIAN   MEAN 
--------                                  --------------  ----   -----   ------   -----
                                                                                       
Enterprise Value/LTM EBITDA..............     13.8x        6.8x   11.6x    8.4x    8.6x
Enterprise Value/2004E EBITDA............     11.3x                                    
Enterprise Value/LTM EBIT................     25.7x        8.6x   19.7x   10.6x   11.9x
Enterprise Value/2004E EBIT..............     18.3x                                    

 William Blair noted that the implied transaction multiples based on the
terms of the Merger were within, and in several instances above, the range of   
multiples of the selected transactions.                                         

Although William Blair analyzed the multiples implied by the selected 
transactions and compared them to the implied transaction multiples of IAAI,    
none of these transactions or associated companies is identical to the Merger or
IAAI. Accordingly, any analysis of the selected transactions necessarily        
involved complex considerations and judgments concerning the differences in     
financial and operating characteristics, parties involved and terms of their    
transactions and other factors that would necessarily affect the implied value  
of IAAI versus the values of the companies in the selected transactions.        

    PREMIUMS PAID ANALYSIS.  William Blair reviewed data from 288 acquisitions
of publicly traded domestic companies, in which 100% of the target was acquired,
occurring since January 1, 2002 and with transaction equity values between $100 
million and $1 billion. Specifically, William Blair analyzed the acquisition    
price per share as a premium to the closing share price one day, one week, one  
month and 180 days prior to the announcement of the transaction, for all 288    
transactions. William Blair compared the range of resulting per share stock     
price premiums for the reviewed transactions to the premiums implied by the     
merger based on IAAI's stock prices one day, one week, one month and 180 days   
prior to an assumed announcement on February 22, 2005. Information regarding the
premiums from William Blair's analysis of selected transactions is set forth in 
the following table:                                                            

                                                        · Enlarge/Download Table

                                                                     PREMIUM PAID DATA  
                                                                         PERCENTILE     
                                                     IAAI AT $28.25  ------------------ 
PREMIUM PERIOD BEFORE ANNOUNCEMENT                     PER SHARE     25TH   50TH   75TH 
----------------------------------                   --------------  ----   ----   ---- 
                                                                                        
1 Day...............................................      24.4%       8.5%  20.9%  36.7%
1 Week..............................................      24.4%       9.7%  23.1%  38.5%
1 Month.............................................      27.6%      13.7%  27.2%  44.7%
180 Days............................................      61.4%      21.1%  42.5%  73.9%

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   William Blair noted that the premiums implied by the transaction exceeded
the median of the premiums paid for the referenced transaction group for each of
the one day, one week, one month and 180 day time periods.                      

   TAKE PRIVATE PREMIUMS PAID ANALYSIS.  William Blair reviewed data from 17
acquisitions of publicly traded companies, in which 100% of the target was      
acquired in a take private transaction involving a financial sponsor acquirer,  
occurring since January 1, 2002 and with transaction equity values between $100 
million and $1 billion. Specifically, William Blair analyzed the acquisition    
price per share as a premium to the closing share price one day, one week, one  
month and 180 days prior to the announcement of the transaction, for all 17     
transactions. William Blair compared the range of resulting per share stock     
price premiums for the reviewed transactions to the premiums implied by the     
merger based on IAAI's stock prices one day, one week, one month and 180 days   
prior to an assumed announcement on February 22, 2005. Information regarding the
premiums from William Blair's analysis of selected transactions is set forth in 
the following table:                                                            

                                                        · Enlarge/Download Table

                                                                     PREMIUM PAID DATA  
                                                                        PERCENTILE      
PREMIUM PERIOD                                      IAAI AT $28.25  ------------------- 
BEFORE ANNOUNCEMENT                                   PER SHARE     25TH   50TH    75TH 
-------------------                                 --------------  ----   ----    ---- 
                                                                                        
1 Day..............................................      24.4%       0.9%  11.7%   43.9%
1 Week.............................................      24.4%       6.9%  28.5%   44.9%
1 Month............................................      27.6%       6.3%  28.5%   42.5%
180 Days...........................................      61.4%      19.0%  57.5%   90.7%

William Blair noted that the premiums implied by the transaction were 
between the 25th and 75th percentile of the premiums paid for the referenced    
take private transaction group for each of the one day, one week, one month and 
180 day time periods.                                                           

GENERAL.  This summary is not a complete description of the analysis  
performed by William Blair but contains the material elements of the analysis.  
The preparation of an opinion regarding fairness is a complex process involving 
various determinations as to the most appropriate and relevant methods of       
financial analysis and the application of those methods to the particular       
circumstances, and, therefore, such an opinion is not readily susceptible to    
partial analysis or summary description. The preparation of an opinion regarding
fairness does not involve a mathematical evaluation or weighing of the results  
of the individual analyses performed, but requires William Blair to exercise its
professional judgment, based on its experience and expertise, in considering a  
wide variety of analyses taken as a whole. Each of the analyses conducted by    
William Blair was carried out in order to provide a different perspective on the
financial terms of the proposed merger and add to the total mix of information  
available. The analyses were prepared solely for the purpose of William Blair   
providing its opinion and do not purport to be appraisals or necessarily reflect
the prices at which securities actually may be sold. William Blair did not form 
a conclusion as to whether any individual analysis, considered in isolation,    
supported or failed to support an opinion about the fairness of the             
consideration to be received by the holders of the common stock of IAAI. Rather,
in reaching its conclusion, William Blair considered the results of the analyses
in light of each other and ultimately reached its opinion based on the results  
of all analyses taken as a whole and in consideration of the process undertaken 
by IAAI, including the extensive solicitation of potential bidders. William     
Blair did not place particular reliance or weight on any particular analysis,   
but instead concluded that its analyses, taken as a whole, supported its        
determination. Accordingly, notwithstanding the separate factors summarized     
above, William Blair believes that its analyses must be considered as a whole   
and that selecting portions of its analyses and the factors considered by it,   
without considering all analyses and factors, may create an incomplete view of  
the evaluation process underlying its opinion. No company or transaction used in
the above analyses as a comparison is directly comparable to IAAI or the merger.
In performing its analyses, William Blair made numerous assumptions with respect
to industry performance, business and economic conditions and other matters. The
analyses performed by William Blair are not necessarily indicative of future    
actual values and future results, which may be significantly more or less       
favorable than suggested by such analyses.                                      

William Blair is a nationally recognized firm and, as part of its     
investment banking activities, is regularly engaged in the valuation of         
businesses and their securities in connection with merger transactions and other

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types of strategic combinations and acquisitions. William Blair is familiar with
IAAI, having provided certain investment banking services to IAAI and its board 
of directors from time to time, including having acted as a financial advisor to
IAAI in connection with, and having participated in certain of the negotiations 
leading to, the Merger Agreement. Furthermore, in the ordinary course of its    
business, William Blair and its affiliates may beneficially own or actively     
trade common shares and other securities of IAAI for its own account and for the
accounts of customers, and, accordingly, may at any time hold a long or short   
position in these securities.                                                   

IAAI hired William Blair based on its qualifications and expertise in 
providing financial advice to companies and its reputation as a nationally      
recognized investment banking firm. Pursuant to a letter agreement dated August 
20, 2004, William Blair was paid a retainer fee of $75,000 for its role as      
financial advisor and an additional $250,000 upon the delivery of its opinion,  
dated February 22, 2005, as to the fairness, from a financial point of view, of 
the merger consideration to be paid to the shareholders (other than the Buyer   
Parent, its affiliates or the Rollover Shareholders) of IAAI. In addition, under
the terms of the August 20, 2004 letter agreement, William Blair will be        
entitled to receive an additional fee of approximately $7.4 million, less the   
retainer fee of $75,000 and the $250,000 fee paid upon the delivery of the      
fairness opinion, upon consummation of the merger. In addition, IAAI has agreed 
to reimburse William Blair for certain of its out-of-pocket expenses (including 
fees and expenses of its counsel) reasonably incurred by it in connection with  
its services and will indemnify William Blair against potential liabilities     
arising out of its engagement, including certain liabilities under the U.S.     
federal securities laws.                                                        

FINANCING OF THE MERGER                                                         

REQUIREMENTS.  Completion of the merger (including the repayment of   
existing indebtedness and the assumption of certain indebtedness) and payment of
related fees and expenses will require an aggregate amount of funds of          
approximately $413.7 million for the following uses:                            

- The aggregate merger consideration to be paid to IAAI shareholders, 
       holders of IAAI stock options and participants in the ESPP is expected to
       be approximately $360 million, consisting of approximately $335.1 million
     in cash to be paid for shares of IAAI common stock (based on the number
 of shares of IAAI common stock issued and outstanding on the record
      date), approximately $24.9 million in cash to be paid to holders of IAAI
       stock options whose exercise price is less than $28.25, and, assuming the
     merger is effective on or prior to June 30, 2005, approximately $39,275
in cash to be paid to participants in the ESPP.                   

   - the payment of fees and expenses related to the merger of approximately
      $29.1 million, including, without limitation, legal and accounting fees;

  - the repayment of existing indebtedness of approximately $22.9 million;

    - the Rollover Shareholders are expected to exchange stock options of IAAI
     with an aggregate spread value of approximately $3.3 million into stock
options of the Buyer Parent with an equivalent spread value; and  

- indebtedness in an approximate amount of $1.8 million (representing 
capitalized leases) will be assumed in connection with the merger.

 SOURCE OF FINANCING.  The Buyer Parent currently expects that the total
funds necessary to finance the merger and pay related fees and expenses will be 
obtained from new borrowings by IAAI, an equity investment by affiliates and    
designees of Kelso and possibly an equity investment by certain other investors 
and IAAI's cash on hand.                                                        

     SENIOR SECURED CREDIT FACILITIES.  In connection with the transactions, the
Buyer has received commitment letters from Bear, Stearns & Co. Inc. ("Bear      
Stearns") and Deutsche Bank Securities, Inc. ("Deutsche Bank") pursuant to which
Bear Stearns and Deutsche Bank commit to provide (subject to certain conditions)
$165 million under senior secured credit facilities comprised of a $50 million  
Revolving Credit facility and a $115 million Term Loan B facility.              

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SENIOR NOTES.  As contemplated by the merger agreement (as more fully 
described below under "The Merger Agreement--Financing Covenants"), on April 1, 
2005, IAAI Finance Corp., a newly formed corporation and wholly-owned subsidiary
of the Buyer Parent, or "EscrowCo.," completed a private offering of 11% senior 
notes due 2013. The proceeds from the offering were approximately $150 million  
before deducting commissions and expenses. At or immediately prior to the       
effective time of the merger and subject to the completion of the merger, IAAI  
will assume EscrowCo.'s obligations under the notes and all of IAAI's domestic  
subsidiaries will guarantee the notes on an unsecured senior basis. Upon        
completion of the merger, it is expected that IAAI Finance Corp. will merge with
and into IAAI, as the surviving corporation in the merger between IAAI and the  
Buyer. Upon the issuance of the notes, the Buyer Parent (or an affiliate of the 
Buyer Parent) and IAAI each paid to EscrowCo. one-half of an amount, referred to
as the escrow breakage amount, sufficient to cover accrued interest on the      
escrowed debt from the date of the escrow closing to and including September 29,
2005, net of income anticipated to be earned from investing the proceeds in     
permitted investments.                                                          

     If the merger agreement is terminated or the merger is not completed by the
date specified by the terms of the escrowed debt, the escrowed debt (plus any   
applicable repayment premium) will be repaid in full by EscrowCo. and any amount
held by EscrowCo. after that repayment will be distributed in equal parts to the
Buyer Parent (or an affiliate of the Buyer Parent) and IAAI; provided that first
the excess, if any, of the escrow breakage amount over $4 million will be       
distributed solely to the Buyer Parent. If the proceeds of the debt financing   
(together with the escrow breakage amount) plus the income earned thereon are   
not enough to repay in full the escrowed debt (plus any applicable repayment    
premium), IAAI and the Buyer Parent will each pay one-half of the shortfall to  
EscrowCo. to enable it to repay such amount to the applicable debtholders,      
subject to any applicable termination fee obligations of the parties to the     
merger agreement.                                                               

    EQUITY.  The Buyer Parent has received a commitment from Kelso, to provide
(subject to certain conditions) up to $148.7 million in equity financing for the
merger. The commitment of Kelso to provide equity financing of up to $148.7     
million is conditioned upon the following: (1) satisfaction or waiver of the    
Buyer Parent conditions to closing set forth in the merger agreement, and (2)   
the conditions set forth in the senior credit facility and note financings      
commitment letters from Bear Stearns and Deutsche Bank. The equity contribution 
of Kelso affiliates and designees may be reduced in the event that IAAI at the  
time of consummation of the merger has cash in excess of amounts set forth on   
its December 26, 2004 year end balance sheet or its indebtedness to be repaid in
the transaction is less than $22.9 million. In addition, the other final bidder 
in the auction process, as described under the heading "Background of the       
Merger", has reached an agreement in principle with Kelso to invest $15 million 
in the transaction alongside affiliates of Kelso at the same purchase price     
(which, if such investment occurs, will result in the equity contribution of    
affiliates and designees of Kelso in the transaction also being correspondingly 
reduced). The terms, and definitive documentation with respect to, such third   
party's investment have not been finalized however and, as a result, there can  
be no assurance that such agreement will be reached or that such investment will
actually occur. Equity financing required for the transactions may include      
investments in the LLC by one or more other third party investors and/or        
designees of Kelso.                                                             

STOCK OPTIONS                                                                   

    Except for stock options being exchanged by the Rollover Shareholders, all
unvested IAAI stock options issued and outstanding under the IAAI stock option  
plans (which includes the Insurance Auto Auctions, Inc. 1991 Stock Option Plan, 
as amended and restated, the Insurance Auto Auctions, Inc. Supplemental Stock   
Option Plan and the Insurance Auto Auctions, Inc. 2003 Stock Incentive Plan)    
will vest at the time of the merger. If the exercise price of an IAAI stock     
option is less than $28.25 and such holder confirms his or her termination or   
exercise of such option, then promptly after the merger, IAAI, as the surviving 
corporation, will cause the paying agent to pay such holder an amount of cash   
equal to the product of (x) the difference between $28.25 and the per share     
exercise price of such option, and (y) the number of shares of IAAI common stock
covered by such option, less applicable withholding taxes. Simultaneously with  
the completion of the merger, the IAAI stock option plans and each outstanding  
IAAI stock option under the IAAI stock option plans will be terminated.         

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EMPLOYEE STOCK PURCHASE PLAN                                                    

  Contributions by IAAI's employees to IAAI's Employee Stock Purchase Plan
(the "ESPP") were frozen as of February 23, 2005. So long as the merger is      
effective on or before June 30, 2005, the ESPP will be cashed out in conjunction
with the merger. Participants will receive an amount equal to $28.25 for each   
share to which they would have been entitled under the ESPP. If the merger is   
effective on or after July 1, 2005, then ESPP participants will receive shares  
under normal operation of the ESPP as of June 30, 2005, and will be treated as  
shareholders as of the effective time of the merger.                            

MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES                          

     The following is a summary of United States federal income tax consequences
of the merger relevant to beneficial holders of IAAI common stock, including    
beneficial holders that exercise their dissenters' rights. The discussion does  
not purport to consider all aspects of federal income taxation that might be    
relevant to beneficial holders of IAAI common stock. The discussion is based on 
current provisions of the Internal Revenue Code of 1986, as amended, existing,  
proposed and temporary regulations promulgated thereunder, rulings,             
administrative pronouncements and judicial decisions, changes to which could    
materially affect the tax consequences described herein and could be made on a  
retroactive basis. The discussion applies only to beneficial holders of IAAI    
common stock in whose hands shares are capital assets and may not apply to      
beneficial holders who acquired their shares pursuant to the exercise of        
employee stock options or other compensation arrangements with IAAI or hold     
their shares as part of a hedge, straddle or conversion transaction or who are  
subject to special tax treatment under the Code (such as dealers in securities, 
insurance companies, other financial institutions, regulated investment         
companies, tax-exempt entities, S corporations and taxpayers subject to the     
alternative minimum tax). In addition, this discussion does not discuss the     
federal income tax consequences to a beneficial holder of IAAI common stock who,
for United States federal income tax purposes, is a non-resident alien          
individual, a foreign corporation, a foreign partnership or a foreign estate or 
trust, nor does it consider the effect of any state, local or foreign tax laws. 

     The receipt of cash for IAAI common stock pursuant to the merger, including
as a result of the exercise of dissenters' rights, will be a taxable transaction
for United States federal income tax purposes. In general, a beneficial holder  
who receives cash in exchange for shares pursuant to the merger will recognize  
gain or loss for federal income tax purposes equal to the difference, if any,   
between the amount of cash received and the beneficial holder's adjusted tax    
basis in the shares surrendered for cash pursuant to the merger. Gain or loss   
will be determined separately for each block of shares (i.e., shares acquired at
the same cost in a single transaction) surrendered for cash pursuant to the     
merger. Such gain or loss will be capital gain or loss, and will be long-term   
capital gain or loss if the beneficial holder's holding period for such shares  
is more than one year at the time of consummation of the merger.                

     Backup federal withholding at a 25% rate plus any state and local taxes may
apply to cash payments a beneficial holder of shares receives pursuant to the   
merger. Backup withholding generally will apply only if the beneficial holder   
fails to furnish a correct taxpayer identification number, or otherwise fails to
comply with applicable backup withholding rules and certification requirements. 
Each beneficial holder should complete and sign the substitute Form W-9 that    
will be part of the letter of transmittal to be returned to the exchange agent  
in order to provide the information and certification necessary to avoid backup 
withholding, unless an applicable exemption exists and is otherwise proved in a 
manner acceptable to the exchange agent. Backup withholding is not an additional
tax. Any amounts withheld under the backup withholding rules will be allowable  
as a refund or credit against a beneficial holder's United States federal income
tax liability provided the required information is furnished to the Internal    
Revenue Service.                                                                

Because individual circumstances may differ, each beneficial holder of
shares is urged to consult such beneficial holder's own tax advisor as to the   
particular tax consequences to such beneficial holder of the merger, including  
the application and effect of state, local, foreign and other tax laws.         

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ACCOUNTING TREATMENT OF THE MERGER                                              

The merger will be accounted for as a "purchase", as such term is used
under GAAP, for accounting and financial reporting purposes. Accordingly, a     
determination of the fair value of IAAI's assets and liabilities will be made in
order to allocate the purchase price to the assets acquired and the liabilities 
assumed.                                                                        

REGULATORY FILINGS AND APPROVALS                                                

   Under the Hart-Scott-Rodino Antitrust Improvement Act of 1976, as amended
(the "HSR Act"), and the rules promulgated thereunder by the Federal Trade      
Commission, certain acquisition transactions, including the merger, may not be  
consummated until specified notification requirements have been satisfied and   
waiting periods have been terminated or expired. On April 1, 2005, the          
Notification and Report Forms required pursuant to the HSR Act were filed by    
IAAI and the Buyer Parent with the federal antitrust agencies for review in     
connection with the merger. Early termination of the applicable waiting period  
under the HSR Act was granted effective April 14, 2005. Even though the HSR Act 
waiting period has been terminated, the federal antitrust agencies could take   
such actions under the antitrust laws as they deem necessary or desirable in the
public interest, including seeking divestiture of substantial assets of IAAI or 
the Buyer Parent. In certain cases, state antitrust regulators or other persons 
may also have the right to challenge the merger under applicable antitrust laws.
The parties do not believe that consummation of the merger will result in a     
violation of any applicable antitrust laws. However, there can be no assurances 
that a challenge to the merger on antitrust grounds will not be made or, if such
a challenge is made, of the result of any challenge.                            

DISSENTERS' RIGHTS OF APPRAISAL                                                 

    Under Illinois Law, if you do not wish to accept the cash payment provided
for in the merger agreement, you have the right to dissent from the merger and  
to receive payment in cash for the fair value of your IAAI common stock. IAAI   
shareholders electing to exercise dissenters' rights must comply with the       
provisions of Sections 11.65 and 11.70 of Illinois Law in order to perfect their
rights. IAAI will require strict compliance with the statutory procedures. A    
copy of Section 11.65 and 11.70 are attached as Appendix C to this proxy        
statement.                                                                      

    The following is intended as a brief summary of the material provisions of
the Illinois statutory procedures required to be followed by a shareholder in   
order to dissent from the merger and perfect dissenters' rights. This summary,  
however, is not a complete statement of all applicable requirements and is      
qualified in its entirety by reference to Sections 11.65 and 11.70 of the       
Illinois Law. If you wish to consider exercising your dissenters' rights, you   
should carefully review the text of Sections 11.65 and 11.70 contained in       
Appendix C since failure to timely and properly comply with the requirements of 
Sections 11.65 and 11.70 will result in the loss of your dissenters' rights     
under Illinois law.                                                             

A dissenting shareholder of IAAI who desires to pursue his, her or its
rights to demand payment must:                                                  

  - before the vote with respect to the merger is taken, deliver to IAAI a
      written demand for payment for your shares if the merger is consummated.
   This written demand for appraisal must be in addition to and separate
   from any proxy or vote abstaining from or voting against approval and
     adoption of the merger agreement. Voting against or failing to vote for
approval and adoption of the merger agreement by itself does not  
    constitute a demand for appraisal within the meaning of Section 11.70;
and                                                               

- not vote in favor of approval and adoption of the merger agreement. 

 If you fail to comply with either of these conditions and the merger is
completed, you will be entitled to receive the cash payment for your shares of  
IAAI common stock in the amount of $28.25 per share, without interest, as       
provided for in the merger agreement.                                           

Dissenting shareholders of IAAI should deliver any written demand for 
payment to the Secretary at Insurance Auto Auctions, Inc., 2 Westbrook Corporate
Center, Suite 500, Westchester, Illinois 60154, before the vote on the merger is
taken at the special meeting. It is recommended that this written demand for    
payment be sent by registered or certified mail, return receipt requested.      

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    A dissenting IAAI shareholder who delivers the required written demand for
payment with IAAI prior to the shareholder vote need not vote against the       
merger, but a vote in favor of the merger will constitute a waiver of that      
shareholder's statutory dissenter's rights. IAAI shareholders should note that  
returning a properly signed proxy card that does not indicate a vote or an      
abstention on approval of the merger will constitute a vote in favor of the     
merger. A vote against the merger does not, alone, constitute a demand for      
payment.                                                                        

     If the merger is approved by the IAAI shareholders, IAAI will send to those
shareholders timely delivering written demands for payment a statement of its   
estimate of the fair value of the IAAI shares within the later of (1) 10 days   
after the effective date of the merger or (2) 30 days after such shareholder    
delivers a written demand for payment to IAAI. Financial information about IAAI 
required to be provided under Section 11.70 of Illinois Law will accompany this 
statement. IAAI will also send such shareholders a commitment to pay for their  
shares at their estimated fair value upon transmittal to IAAI of the            
certificates representing, or other evidence of ownership of, such shares. If   
the merger occurs, IAAI will pay to each dissenter who transmits to IAAI his,   
her or its certificate or other evidence of ownership the amount IAAI estimates 
to be the fair value of such dissenter's shares, plus accrued interest from the 
date of the closing through such payment date, accompanied by a written         
explanation of how the interest was calculated.                                 

    A shareholder who does not agree with IAAI's estimate of fair value or the
amount of interest due must notify IAAI in writing of the shareholder's estimate
of the shares' fair value and the amount of interest due and demand payment for 
the difference and the interest due within 30 days from the delivery of IAAI's  
statement of its estimate of fair value. Shareholders who fail to notify IAAI of
their estimate of fair value or the amount of interest due within this period   
will lose their rights to dispute the amounts estimated and determined by IAAI. 

If a shareholder and IAAI are unable to agree on the fair value of the
shares and accrued interest within 60 days from delivery to IAAI of the         
shareholder's estimate of fair value and accrued interest from the date of the  
closing through such payment date, IAAI will either pay the difference in value 
that the shareholder demanded with interest from the date of the closing through
such payment date or file a petition in the Circuit Court of Cook County, State 
of Illinois, requesting the court to determine the fair value of the shares and 
the interest due. IAAI will make all dissenters, whether or not residents of    
Illinois, whose demands remain unsettled, parties to any such proceeding and all
parties will be served with a copy of the petition. Shareholders who do not live
in Illinois may be served by registered or certified mail or by publication as  
provided by law.                                                                

 If the court's determination of fair value and interest due exceeds the
amount paid by IAAI, then each dissenting shareholder made a party to the       
proceeding is entitled to judgment for the difference plus interest. The court  
may appoint one or more persons as appraisers to receive evidence and to        
determine the fair value. The court will determine all costs of the proceeding, 
including the reasonable compensation and expenses of the appraisers. Fees and  
expenses of counsel and experts for any party are excluded. If the fair value of
the shares as determined by the court materially exceeds the amount of IAAI's   
estimate, or if no estimate was made, then all or any part of such expenses may 
be assessed against IAAI. However, if a shareholder's estimated fair value      
materially exceeds the fair value that the court determines, then all or any    
part of such expenses may be assessed against the shareholder. Under certain    
circumstances, the court may also assess the fees and expenses of counsel and   
experts to a shareholder or to IAAI.                                            

  In view of the complexity of Sections 11.65 and 11.70, IAAI shareholders
who may wish to dissent from the merger and pursue appraisal rights should      
consult their legal advisors. In addition, you are urged to consult with your   
own tax advisor with respect to the particular tax consequences of a dissent,   
including the treatment of any expenses incurred, the effect of any differences 
in the timing of receipts, and the effect of any state, local or foreign tax    
laws, and of changes in applicable tax laws.                                    

DELISTING OF IAAI COMMON STOCK AFTER THE MERGER                                 

 If the merger is completed, IAAI common stock will be delisted from the
NASDAQ Stock Market and the registration of IAAI common stock under the         
Securities Exchange Act of 1934 will be terminated.                             

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INTERESTS OF CERTAIN PERSONS IN THE MERGER

In considering the merger, IAAI shareholders should be aware that the 
directors, officers and certain members of management of IAAI have interests in 
the merger in addition to their interests solely as shareholders of IAAI, as    
described below.                                                                

EMPLOYMENT AGREEMENTS                                                           

IAAI executed Employment Agreements with Thomas C. O'Brien, Donald J. 
Hermanek, Sidney L. Kerley, David R. Montgomery, Scott P. Pettit, John R. Nordin
and John W. Kett.                                                               

  These agreements provide that if within two years following a "change of
control" (as defined below) of IAAI, (1) the executive's employment is          
terminated for any reason other than death, disability, or "cause" or (2) the   
executive's employment is terminated by the executive for "good reason", the    
executive shall be entitled to receive a lump sum cash payment in an amount     
equal to one and one-half times the executive's annual base salary and "highest 
annual bonus" (as defined below). In addition, the executive is entitled to     
continued employee welfare benefits for 18 months after termination of          
employment.                                                                     

Under the Employment Agreements,                                      

   "change of control" means (1) the acquisition by an individual, entity or
group of fifty percent (50%) or more of the voting power of the then  
 outstanding voting securities of IAAI entitled to vote generally in the
election of directors, (2) a change in the majority of the board of   
 directors, (3) a major corporate transaction, such as a reorganization,
merger or consolidation, or sale or other disposition of all or       
    substantially all of IAAI's assets, or (4) a liquidation or dissolution of
IAAI.                                                                 

     "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
IAAI.                                                                 

"good reason" means the diminution of responsibilities, assignment to 
inappropriate duties, failure of IAAI 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    
agreement by IAAI other than in accordance with the change of control 
   employment agreement, or failure of IAAI to require any successor to IAAI
to comply with the change of control employment agreement.            

    "highest annual bonus" means the greater of (1) the previous year's annual
  bonus multiplied by the number of days worked in the year of termination
     divided by 365 and (2) the average of the past three years' annual bonuses.

The following table illustrates the respective severance benefits that
Messrs. O'Brien, Hermanek, Montgomery, Pettit, Kett, Kerley and Nordin would be 
entitled to if, within two years following a change of control of IAAI, (1) the 
executive's employment is terminated for any reason other than death,           
disability, or "cause", or (2) the executive's employment is terminated by the  
executive for "good reason".                                                    

                                                        · Enlarge/Download Table

                                                   ONE AND ONE-HALF                               
                                ONE AND ONE-HALF    TIMES "HIGHEST                                
NAME                            TIMES BASE SALARY  ANNUAL BONUS"(1)   CAR ALLOWANCE  TOTAL PAYMENT
----                            -----------------  -----------------  -------------  -------------
                                                                                                  
Thomas C. O'Brien..............     $652,500           $870,000          $27,000      $1,549,500  
David R. Montgomery............     $420,000           $419,232          $27,000      $  866,232  
Scott P. Pettit................     $375,000           $375,187          $27,000      $  777,187  
John W. Kett...................     $277,500           $154,153          $27,000      $  458,653  
Sidney L. Kerley...............     $202,500           $ 91,350          $27,000      $  320,850  
John R. Nordin.................     $288,000           $195,750          $27,000      $  510,750  
Donald J. Hermanek.............     $352,500           $358,875          $27,000      $  738,375  

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STOCK OPTIONS AND EMPLOYEE STOCK PURCHASE PLAN                                  

    All unvested IAAI stock options issued to the following executive officers
and directors under the IAAI stock option plans (which includes the Insurance   
Auto Auctions, Inc. 1991 Stock Option Plan, the Insurance Auto Auctions, Inc.   
Supplemental Stock Option Plan and the Insurance Auto Auctions, Inc. 2003 Stock 
Incentive Plan) (other than those stock options being exchanged by the Rollover 
Shareholders for options exercisable into common stock of the Buyer Parent) and 
outstanding at the effective time of the merger will vest at such time: Thomas  
C. O'Brien, David R. Montgomery, Scott P. Pettit, Donald J. Hermanek, John W.   
Kett, Sidney L. Kerley, John R. Nordin, Peter H. Kamin, Todd F. Bourell, Maurice
A. Cocca, John K. Wilcox and Philip B. Livingston. With respect to each         
executive officer and director, IAAI, as the surviving corporation, will cause  
the paying agent to pay such holder an amount of cash equal to the product of   
(x) the difference between $28.25 and the per share exercise price of such      
option, and (y) the number of shares of IAAI common stock covered by such       
option, less applicable withholding taxes. Simultaneously with the completion of
the merger, the IAAI stock option plans and each outstanding IAAI stock option  
under the IAAI stock option plans will be terminated.                           

    Pursuant to the merger, contributions by employees to the ESPP were frozen
as of February 23, 2005. The following executive officers are participants in   
the ESPP as of February 23, 2005: Thomas C. O'Brien, David R. Montgomery, Scott 
P. Pettit, Donald J. Hermanek, John W. Kett and John R. Nordin. If the merger is
effective on or before June 30, 2005, these executive officers will be cashed   
out in conjunction with the merger. Such executive officers will receive an     
amount equal to $28.25 for each share to which they would have been entitled    
under ESPP. However, if the merger is effective on or after July 1, 2005, then  
these executive officers will receive shares under normal operation of the ESPP 
as of June 30, 2005, and will be treated as shareholders as of the effective    
time of the merger.                                                             

   Executive officers and directors of IAAI hold common stock, stock options
to purchase the following number of shares of IAAI common stock, accumulated the
following amount of cash from their payroll in participation of the ESPP and    
will receive the following amounts of cash as a result of the merger:           

                                                        · Enlarge/Download Table

                                         NUMBER OF                                                                             
                                          OPTIONS                                                                              
                                        (EXCLUDING                                     CASH       NUMBER OF                    
                                          OPTIONS        NET CASH      AMOUNT OF     AMOUNT TO    SHARES OF     CASH AMOUNT TO 
                                         EXCHANGED        AMOUNT        PAYROLL     BE RECEIVED    COMMON       BE RECEIVED FOR
                                         FOR STOCK     RECEIVED FOR  CONTRIBUTIONS  UNDER ESPP   STOCK OWNED       SHARES OF   
                                        OPTIONS IN      OPTIONS IN    ACCUMULATED     IN THE     (EXCLUDING      COMMON STOCK  
NAME OF EXECUTIVE OFFICER OR DIRECTOR  BUYER PARENT)    THE MERGER    UNDER ESPP     MERGER(1)    OPTIONS)       IN THE MERGER 
-------------------------------------  -------------   ------------  -------------  -----------  -----------    ---------------
                                                                                                                               
Thomas C. O'Brien................         303,540       $5,282,970      $2,676        $1,385         47,442       $ 1,340,236  
David R. Montgomery..............         118,301       $1,844,535      $2,153        $1,114         25,041       $   707,408  
Scott P. Pettit..................         118,301       $1,844,535      $4,230        $2,189         28,483       $   804,644  
Donald J. Hermanek...............          93,476       $1,303,725      $1,084        $  561         23,243       $   656,614  
John R. Nordin...................          24,000       $  340,800      $  886        $  458         22,149       $   625,709  
John W. Kett.....................          35,568       $  460,305      $  853        $  441         16,836       $   475,617  
Sidney L. Kerley.................          26,630       $  325,997      $    0        $    0          2,927       $    82,687  
Peter H. Kamin...................          49,000(2)    $  713,750      $    0        $    0      3,445,857(3)    $97,345,460  
Todd F. Bourell..................          15,000(2)    $  197,650      $    0        $    0              0       $         0  
Maurice A. Cocca.................          32,000       $  478,250      $    0        $    0         40,000       $ 1,130,000  
John K. Wilcox...................          20,000       $  242,750      $    0        $    0         15,000       $   423,750  
Philip B. Livingston.............          15,000       $  239,250      $    0        $    0          5,700       $   161,025  



                                         AGGREGATE                                                                             
                                        CASH AMOUNT                                                                            
                                       TO BE RECEIVED                                                                          
                                         FOR COMMON                                                                            
                                       STOCK, OPTIONS                                                                          
                                         AND UNDER                                                                             
NAME OF EXECUTIVE OFFICER OR DIRECTOR       ESPP                                                                               
-------------------------------------  --------------                                                                          
                                                                                                                               
Thomas C. O'Brien................       $ 6,624,592                                                                            
David R. Montgomery..............       $ 2,553,058                                                                            
Scott P. Pettit..................       $ 2,651,369                                                                            
Donald J. Hermanek...............       $ 1,960,901                                                                            
John R. Nordin...................       $   966,967                                                                            
John W. Kett.....................       $   936,363                                                                            
Sidney L. Kerley.................       $   408,684                                                                            
Peter H. Kamin...................       $98,059,210                                                                            
Todd F. Bourell..................       $   197,650                                                                            
Maurice A. Cocca.................       $ 1,608,250                                                                            
John K. Wilcox...................       $   666,500                                                                            
Philip B. Livingston.............       $   400,275                                                                            

---------------                                                                 

(1) Assumes closing of the merger on or before June 30, 2005. If closing occurs 
    after June 30, 2005, then shares will be issued to the executive officers at
   a rate equal to the lower of either $18.615 or 85% of the fair market value
on June 30, 2005. Such shares would then participate in the merger. The 
amounts listed in this column reflect additional amounts that executive 
officers would receive in the merger. As such, payroll contributions are
excluded.                                                               

---------------                                                                 

(1) Assuming termination of employment at the end of the current fiscal year for
purposes of calculating the 'highest annual bonus'.                     
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(2) This amount reflects options granted to Mr. Peter H. Kamin to purchase      
    49,000 shares of common stock that are exercisable on March 1, 2005, or will
become exercisable within sixty (60) days of March 1, 2005, and excludes
  19,000 options granted to Mr. Jeffrey W. Ubben, and 15,000 options granted
to Mr. Todd F. Bourell. Under an agreement with ValueAct Capital Master 
Fund, L.P., Mr. Kamin, Mr. Ubben and Mr. Bourell are deemed to hold the 
    options for the benefit of ValueAct Capital Partners, L.P., ValueAct Capital
  Partners II, L.P., ValueAct Capital Master Fund, L.P. and ValueAct Capital
   Partners Co-Investors, L.P., and indirectly for VA Partners, LLC as general
 partner of ValueAct Capital Partners, L.P., ValueAct Capital Partners II,
L.P., ValueAct Capital Master Fund, L.P. and ValueAct Capital Partners  
Co-Investors, L.P.                                                      

(3) This information is based on the Amended Schedule 13D filed with the SEC    
  jointly by ValueAct Capital Partners, L.P. ("ValueAct Partners"), ValueAct
Capital Partners II, L.P. ("ValueAct Partners II"), ValueAct Capital    
International, Ltd. ("ValueAct International"), ValueAct Capital Master 
    Fund, L.P. ("ValueAct Master Fund"), ValueAct Capital Partners Co-Investors,
    L.P. ("ValueAct Co-Investors"), VA Partners, L.L.C. ("VA Partners"), Jeffrey
    W. Ubben, George F. Hamel, Jr. and Peter H. Kamin on March 15, 2005. Messrs.
Ubben, Hamel and Kamin are each managing members, principal owners and  
controlling persons of VA Partners and directors and principal executive
officers of ValueAct International. Shares beneficially owned by each of
  ValueAct Partners, ValueAct Partners II, ValueAct Master Fund and ValueAct
Co-Investors, are reported as beneficially owned by VA Partners, as     
investment manager or general partner of each of such investment        
partnerships, and by the managing members as controlling persons of the 
general partner. VA Partners and the managing members also, directly or 
   indirectly, may own interests in one or both of such partnerships from time
to time. By reason of such relationships, each of the partnerships is   
 reported as having shared power to vote or to direct the vote, and shared
  power to dispose or direct the disposition of, such shares of common stock
with VA Partners and the managing members. ValueAct Partners is the     
beneficial owner of 1,550,310 shares of IAAI common stock, representing 
    approximately 13.1% of IAAI's outstanding common stock. ValueAct Partners II
    is the beneficial owner of 219,692 shares of IAAI common stock, representing
1.9% of IAAI's outstanding common stock. ValueAct International is the  
  beneficial owner of 0 shares of IAAI common stock. ValueAct Master Fund is
   the beneficial owner of 3,427,261 shares of IAAI common stock, representing
28.9% of IAAI's outstanding common stock. ValueAct Co-Investors is the  
    beneficial owner of 43,139 shares of IAAI common stock, representing 0.4% of
IAAI's outstanding common stock. VA Partners and each of the Managing   
Members may be deemed the beneficial owner of an aggregate of 3,470,400 
shares of IAAI common stock, representing approximately 29.3% of IAAI's 
    outstanding common stock. In addition to the 3,470,400 shares of IAAI common
stock which Mr. Kamin may be deemed to beneficially own by reason of his
being a Managing Member, Mr. Kamin also personally owns 58,457 shares of
IAAI common stock (or, when combined with the 3,470,400 shares of IAAI  
  common stock he may be deemed to beneficially own by reason of his being a
Managing Member, 29.8% of IAAI's common stock).                         

2005 SHAREHOLDER VALUE INCENTIVE PLAN; RESTRICTED STOCK                         

The 2005 shareholder value incentive plan, which was adopted by IAAI's
board of directors on February 22, 2005, grants an aggregate transaction bonus  
of approximately $875,086 upon the closing of the merger to the following       
executive officers: Thomas C. O'Brien, Scott P. Pettit, David R. Montgomery,    
Donald J. Hermanek, John W. Kett, John R. Nordin and Sidney L. Kerley. Such     
executive officers will receive the amounts set forth below. If the merger does 
not become effective on or before December 31, 2005, such plan will, by its     
terms, expire without payment of any amounts.                                   

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   Pursuant to the 2005 shareholder value incentive plan, executive officers
and directors of IAAI would have the right to receive the following amounts of  
cash if the merger is consummated on or before December 31, 2005:               

                                                                · Download Table

                                                               AMOUNT OF 
                                                              TRANSACTION
NAME OF EXECUTIVE OFFICER                                        BONUS   
-------------------------                                     -----------
                                                                         
Thomas O'Brien..............................................    $192,500 
David R. Montgomery.........................................    $145,862 
Scott P. Pettit.............................................    $145,862 
Donald J. Hermanek..........................................    $145,862 
John R. Nordin..............................................    $ 87,500 
John W. Kett................................................    $ 87,500 
Sidney L. Kerley............................................    $ 70,000 
Aggregate Total.............................................    $875,086 

   It is currently anticipated that, in exchange for forfeiting their rights
to any such cash payments that would be payable to them under the 2005          
shareholder value incentive plan, Thomas C. O'Brien, Scott Pettit, David        
Montgomery, Don Hermanek and John Nordin are to be issued at closing shares of  
restricted stock in the Buyer Parent, subject to the terms of the applicable    
grant award agreements and the Buyer Parent's new stock incentive plan, in      
amounts having a valuation (on a per share basis equal to the valuation of Kelso
affiliates' indirect equity contribution in the Buyer Parent) equivalent to the 
applicable bonus payment as set forth above. John Kett and Sidney Kerley will   
receive the amounts set forth above in cash if the merger is consummated on or  
before December 31, 2005.                                                       

MANAGEMENT OPTION ROLLOVER                                                      

 The following executive officers of IAAI are expected to exchange stock
options of IAAI with an aggregate spread value of approximately $3.3 million    
into stock options of the Buyer Parent: Thomas C. O'Brien, Scott P. Pettit,     
David R. Montgomery, Donald J. Hermanek, John W. Kett, John R. Nordin and Sidney
L. Kerley. The new stock options in the Buyer Parent will have substantially    
similar terms to those that were exchanged, including the same vesting          
provisions and exercise prices. Each Rollover Shareholder will sell or "cash    
out" the remainder of its equity interest in IAAI in the merger. The Buyer      
Parent options received in exchange for IAAI options by the Rollover            
Shareholders are expected to represent approximately 4.7% of the common stock of
the Buyer Parent on a fully diluted basis following the merger.                 

    The Rollover Shareholders are expected to have those certain stock options
as listed below substituted for options to acquire common stock in the Buyer    
Parent.                                                                         

                                                        · Enlarge/Download Table

                                                           % OF PRE-TAX                          
                                  TOTAL OPTIONS            SPREAD VALUE                          
                                  AS OF APRIL 1,  OPTIONS   OF OPTIONS   IN THE MONEY  ROLL OVER 
                                       2005       ROLLED      OWNED         VALUE        AMOUNT  
                                  --------------  -------  ------------  ------------  ----------
                                                                                                 
Thomas C. O'Brien................    420,000      116,460       23%      $ 6,861,000   $1,578,030
Scott P. Pettit..................    160,000       41,699       23%      $ 2,395,500   $  550,965
David R. Montgomery..............    160,000       41,699       23%      $ 2,395,500   $  550,965
Donald J. Hermanek...............    125,000       31,524       23%      $ 1,693,150   $  389,425
John W. Kett.....................     45,000        9,432       20%      $   575,375   $  115,070
John R. Nordin...................     30,000        6,000       20%      $   426,000   $   85,200
Sidney L. Kerley.................     30,000        3,370       10%      $   362,225   $   36,228
                                                                         -----------   ----------
Total............................    970,000      250,184       22%      $14,708,750   $3,305,883
                                                                         -----------   ----------

PROFITS INTERESTS IN THE LLC; LLC AGREEMENT                                     

     Affiliates of Kelso and the Rollover Shareholders intend to enter into, and
certain third party investors, if investing, are expected to enter into, a      
limited liability company agreement relating to the formation of the            

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LLC, which will own all of the shares of common stock of the Buyer Parent       
(which, in turn, will own all of the outstanding shares of common stock of IAAI 
following the merger). In addition, the Rollover Shareholders are expected to   
make limited cash contributions in exchange for common interests. As a result,  
it is expected that the Kelso affiliates, together with any third party         
investors, will own approximately 99.9% of the common interests in the LLC and  
the Rollover Shareholders will own less than 0.1% of the common interests in the
LLC. The LLC agreement is expected to provide that the Rollover Shareholders and
possibly others having senior management and/or strategic planning-type         
responsibilities may be awarded profit interests in the LLC that, as currently  
contemplated, may entitle such persons to a portion of any appreciation in the  
value of the assets of the LLC (including the shares of IAAI common stock held  
through the Buyer Parent) following the consummation of the merger. It is       
generally anticipated that one-third of the profit interests will be service-   
related and will vest in equal quarterly installments over three years, and the 
remaining profit interests will be performance-related and will vest based on   
Kelso's achievement of certain multiples on its original indirect equity        
investment in the Buyer Parent subject to an internal rate of return minimum    
with all vesting criteria subject to such Rollover Shareholder's continued      
employment with the LLC or any affiliate. The combined economic interest in the 
appreciation in the equity of the Buyer Parent granted to the Rollover          
Shareholders and other persons, if any, through profit interests and to         
employees of IAAI through the new stock incentive plan of the Buyer Parent is   
expected to be approximately 13.0% on a fully diluted basis, in the aggregate.  
The expected terms of the LLC agreement include those described below:          

     - Kelso affiliates will have the right to designate all of the directors on
      the board of directors of the LLC and its subsidiaries (with one of such
 directors expected to be a representative of a third party investor
investing in the transaction alongside Kelso, subject to reaching 
agreement with such third party on its investment).               

  - The Rollover Shareholders (and any third party investors) may transfer
   common interests in the LLC only under certain limited circumstances,
 such as transfers by the Rollover Shareholders (and any third party
 investors) in connection with estate planning purposes, and certain
involuntary transfers in connection with a default, foreclosure,  
forfeiture, divorce, court order or otherwise than by a voluntary 
      decision of the Rollover Shareholders (so long as the LLC has been given
   the opportunity to purchase the interests subject to such involuntary
transfer).                                                        

   - The Rollover Shareholders (and any third party investors) will have pro
rata "tag-along" rights on certain significant sales by the Kelso 
  affiliates to third parties. The Kelso affiliates will also have the
right to "drag along", on a pro rata basis, each of the Rollover  
       Shareholders (and any third party investors) on certain significant sales
by the Kelso affiliates to third parties.                         

 - The Rollover Shareholders will be subject to "put" and "call" rights,
     which entitle these persons to require the LLC to purchase their common
   interests, and which entitle the LLC to require these persons to sell
       their common interests to the LLC, under certain specified circumstances.

  - The LLC will be dissolved and its affairs wound up upon the occurrence
      of: (i) the vote of the board of directors and members or (ii) any event
which under applicable law would cause the dissolution of the LLC.

SHAREHOLDERS AGREEMENT                                                          

  The Buyer Parent, the LLC, and the Rollover Shareholders intend to enter
into a shareholders agreement and related agreements that will govern the terms 
of their relationship as shareholders of the Buyer Parent                       

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following the completion of the merger. The expected terms of the shareholders  
agreement include those described below:                                        

 - The Rollover Shareholders (and other shareholders, that are or become
      parties to the agreement) may transfer shares and options (including any
   shares into which any options have been exercised) only under certain
    limited circumstances, such as transfers for estate planning purposes,
    certain pledges and certain involuntary transfers in connection with a
      default, foreclosure, forfeiture, divorce, court order or otherwise than
      by a voluntary decision of the Rollover Shareholder or employee (so long
       as the Buyer Parent has been given the opportunity to purchase the common
stock subject to such involuntary transfer).                      

- The Rollover Shareholders will have "tag-along" rights to sell their
     shares on a pro rata basis with the LLC in significant sales by the LLC
       to third parties. The LLC will also have "drag along" rights to cause the
       other parties to the shareholders agreement to sell their shares on a pro
      rata basis with the LLC on certain significant sales by the LLC to third
parties.                                                          

 - The Rollover Shareholders will be subject to "put" and "call" rights,
       which entitle these persons to require the Buyer Parent to purchase their
    shares or options, and which entitle the Buyer Parent to require these
       persons to sell their shares or options to the Buyer Parent, upon certain
       terminations of the shareholder's employment with the Buyer Parent or its
      affiliates, at differing prices, depending upon the circumstances of the
termination.                                                      

REGISTRATION RIGHTS AGREEMENTS                                                  

The Buyer Parent and the LLC have entered into, and the Rollover      
Shareholders are expected to become parties to, a registration rights agreement 
providing the LLC with the right to make an unlimited number of requests that   
the Buyer Parent use its best efforts to register shares under the Securities   
Act. In any demand registration, or if the Buyer Parent proposes to register any
shares (subject to certain exceptions, such as benefit plan registrations), all 
of the parties to the shareholders agreement (including the Rollover            
Shareholders) are expected to have the right to participate on a pro rata basis,
subject to certain conditions. All registration expenses are paid by the Buyer  
Parent.                                                                         

NEW STOCK INCENTIVE PLAN                                                        

    The Buyer Parent is expected to adopt a new stock incentive plan effective
upon completion of the transactions. The incentive plan is expected to provide  
two types of options: service-related options, which will vest in equal         
quarterly installments over three years, and performance-related exit options,  
which will generally become exercisable based on Kelso's indirect equity        
investment in the Buyer Parent of certain multiples of its original investment  
subject to an internal rate of return minimum with all vesting criteria subject 
to continued employment with the Buyer Parent or affiliates thereof. It is      
expected that one-third of the options under the incentive plan will be service 
options, and the remaining options will be exit options. The combined economic  
interest in the appreciation in the equity of the Buyer Parent granted to       
employees of IAAI through the new stock incentive plan and to the Rollover      
Shareholders and other persons, if any, through profit interests in the LLC is  
expected to be approximately 13.0% on a fully diluted basis, in the aggregate.  
Rollover Shareholders are expected to be eligible to participate in options     
granted under the new stock incentive plan. The Buyer Parent's new stock        
incentive plan will also cover grants of restricted stock (including restricted 
stock granted at Closing to certain Rollover Shareholders in lieu of payments   
under the 2005 shareholder value incentive plan).                               

CONVERSION AGREEMENT                                                            

    Each Rollover Shareholder and the Buyer Parent intend to enter into, prior
to closing, a separate conversion agreement under which the applicable Rollover 
Shareholder will agree (i) to the option rollover with respect to such Rollover 
Shareholder as described in this section under "Management Option Rollover",    
(ii) to provide any relevant consents with respect to the treatment of such     
Rollover Shareholder's other options in the merger and (iii) if applicable, the 
forfeiture of cash payments under the 2005 shareholder                          

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value incentive plan in exchange for a grant of restricted stock as described in
this section under "2005 Shareholder Value Incentive Plan; Restricted Stock".   

INDEMNIFICATION AND INSURANCE                                                   

     The merger agreement provides for continuing indemnification of present and
former directors and officers of IAAI from and after the effective time of the  
merger, and the Buyer Parent will cause IAAI, as the surviving corporation, to  
fulfill and honor in all respects IAAI's obligations to indemnify the current or
former directors and officers of IAAI in connection with any actual or          
threatened claim, action, suit, proceeding or investigation, whether civil,     
criminal or administrative arising out of or relating to any action or omission 
occurring or alleged to occur prior to the effective time of the merger to the  
extent that those obligations of IAAI exist on the date of the merger agreement,
whether pursuant to IAAI's articles of incorporation and by-laws, each as       
amended to the date of the merger agreement, individual indemnity or other      
agreements, and such obligations will survive the merger. The articles of       
incorporation and by-laws of IAAI, as the surviving corporation, will contain   
provisions substantially similar with respect to indemnification and exculpation
of present and former directors and officers of IAAI than are presently set     
forth in IAAI's articles of incorporation and bylaws.                           

  For six years after the merger, the Buyer Parent has agreed that it will
cause IAAI, as the surviving corporation, to maintain director and officer      
liability insurance coverage for each person who was an officer and director of 
IAAI or any of its subsidiaries prior to the closing of the merger that is      
comparable to the policy or policies maintained by IAAI or the applicable       
subsidiary, and with comparable insurance companies, for the benefit of such    
covered individuals. Prior to the effective time, IAAI will purchase the        
extended reporting period coverage option as provided under certain of its      
existing fiduciary liability insurance policy and one of its existing directors'
and officers' liability insurance policies, in each case providing coverage for 
a period of six years commencing from the effective time. The total cost of     
insurance coverage extensions shall not exceed $1,150,000.                      

CERTAIN PROJECTIONS 

   During the course of the sales process, IAAI provided interested parties,
including Kelso, with certain non-public financial projections for IAAI for     
2004, 2005, and 2006, which were subsequently updated to reflect further IAAI   
financial results. These projections were prepared on the assumption that IAAI  
would continue its business and operations as currently conducted. In addition, 
the projections were not prepared with a view towards public disclosure or      
compliance with published guidelines of the Securities and Exchange Commission, 
the guidelines established by the American Institute of Certified Public        
Accounts for Prospective Financial Information or the United States generally   
accepted accounting principles, consistently applied, and are included in this  
proxy statement only because they were provided to interested parties during the
process, including Kelso.                                                       

 The projections are also forward-looking statements that are subject to
other assumptions, risks and uncertainties that could cause actual results to   
differ materially from those statements, and otherwise requires that they be    
read with caution. They are subjective in many respects and thus susceptible to 
interpretations and periodic revisions based on actual experience and recent    
developments. While presented with numerical specificity, the projections were  
not prepared by IAAI in the ordinary course and are based upon a variety of     
estimates and hypothetical assumptions made by IAAI's management with respect   
to, among other things, industry performance, general economic, market, interest
rate and financial conditions, operating and other revenues and expenses,       
effective income tax rates, capital expenditures and working capital, and other 
matters. For these reasons, as well as the bases and assumptions on which the   
projections were compiled, IAAI shareholders are cautioned that the projections 
might not be an accurate indication of the future results of IAAI if the merger 
is not completed. Except as required by applicable securities laws, IAAI does   
not intend to update or otherwise revise the projections to reflect             
circumstances existing after the date when made or to reflect the occurrences of
future events even in the event that any or all of the assumptions are shown to 
be in error.                                                                    

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  The financial projections provided by IAAI to Kelso and other interested
parties as updated in 2005 are as follows:                                      

PROJECTED OPERATING RESULTS 

                                                                · Download Table

                                                              FOR THE YEAR ENDING   
                                                              DECEMBER 26, 25, 31,  
                                                                  RESPECTIVELY      
                                                            ------------------------
                                                             2004     2005     2006 
                                                            ------   ------   ------
                                                             (DOLLARS IN MILLIONS)  
                                                                                    
Net Revenue(1)............................................. $213.5   $236.6   $252.0
EBITDA..................................................... $ 33.2   $ 51.6   $ 63.1
EBIT....................................................... $ 20.2   $ 39.6   $ 50.2

---------------                                                                 

(1) Reported Revenue less vehicle cost                                          

THE MERGER AGREEMENT

  The following is a summary of the material terms of the merger agreement
and is qualified in its entirety by reference to the merger agreement. A copy of
the merger agreement is attached as Appendix A to this proxy statement and is   
incorporated herein by reference. You should read the merger agreement in its   
entirety because it, and not this proxy statement, is the legal document that   
governs the merger.                                                             

CONDITIONS TO CONSUMMATION OF THE MERGER                                        

 IAAI, THE BUYER PARENT AND THE BUYER.  The obligation of the parties to
consummate the merger is subject to the satisfaction at or before the time the  
merger becomes effective, of all of the following conditions, any of which may, 
if legally permissible, be waived in writing by all parties:                    

 - the holders of at least two-thirds (2/3) of the outstanding shares of
 IAAI common stock have voted in favor of approving and adopting the
merger agreement and the merger;                                  

- no statute, rule, regulation, ruling, consent, decree, judgment,    
     injunction (whether temporary, permanent or preliminary) or order is in
 effect or has been enacted, promulgated, entered or enforced by any
     governmental entity that has the effect of preventing the completion of
the merger;                                                       

- no party to the merger agreement shall be prohibited by any order,  
 ruling, consent, decree, judgment or injunction (whether temporary,
     permanent or preliminary) of a court or regulatory agency that prevents
the completion of the merger; and                                 

     - the waiting periods (and any extensions of the waiting period) applicable
     to the merger under the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended, must have expired or been terminated.           

  THE BUYER PARENT AND THE BUYER.  The obligations of the Buyer Parent and
the Buyer to consummate the merger are further subject to the satisfaction, at  
or before the time the merger becomes effective, of all of the following        
conditions, any of which may be waived in writing by the Buyer Parent or the    
Buyer:                                                                          

  - (A) the representations and warranties of IAAI set forth in the merger
agreement must be true and correct (without giving effect to any  
     "materiality" or material adverse effect qualifiers) as of the date the
    merger agreement was executed and as of the closing date with the same
       force and effect as though made on and as of the closing date (other than
    those representations and warranties that address matters only as of a
      particular date or only with respect to a specific period of time, which
    need only be accurate as of such date or with respect to such period),
      except where the failure of such representations and warranties to be so
      true and correct would not, individually or in the aggregate, reasonably
be expected to have a material adverse effect on IAAI, and (B) the
   representations and warranties relating to due authorization to enter
into the merger agreement, due organization of IAAI               

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and its subsidiaries, capitalization, absence of material adverse 
    changes, payment of broker and financial advisor fees must be true and
       correct in all respects as of the closing, as though such representations
and warranties were made on and as of such time (except for those 
       representations and warranties which expressly relate to an earlier date,
      which need only to have been true and correct in all respects as of such
earlier date).                                                    

     - IAAI must have performed and complied with, in all material respects, all
   obligations required to be performed or complied with by it under the
merger agreement at or prior to the closing of the merger;        

     - from the date the merger agreement was executed, there must not have been
   any change, event, occurrence, state of facts or development that has
  had, or would reasonably be expected to have, individually or in the
aggregate, a material adverse effect on IAAI;                     

   - the Buyer Parent shall have received the proceeds of the debt financing
on the terms and conditions set forth in its commitment letters or
      proceeds from any substitute debt financing or alternative financing, if
applicable;                                                       

    - IAAI shall have received all specified consents, including consents from
      holders of stock options under the 2003 plan, consents in an agreed upon
   form from the Rollover Shareholders and certain specified contractual
consents;                                                         

- holders of not more than fifteen percent (15%) of the issued and    
       outstanding shares of common stock of IAAI as of the effective time shall
      not have properly exercised their dissenters' rights under Illinois Law;

- IAAI shall have delivered updated financial statements to the Buyer 
       Parent no later than the later to occur of March 11, 2005 or any extended
 filing deadline pursuant to the Exchange Act with respect to IAAI's
  filing of its form 10-K for the fiscal year ended December 26, 2004,
    accompanied by an unqualified opinion from IAAI's independent auditors
      and the updated financial statements shall be in substantial conformance
 to the draft financial statements previously delivered to the Buyer
Parent; and                                                       

   - IAAI has delivered to the Buyer Parent a duly executed certificate in a
     form and manner that complies with Section 1445 of the Internal Revenue
Code of 1986, as amended, and the treasury regulations promulgated
thereunder.                                                       

     IAAI.  The obligations of IAAI to consummate the merger are further subject
to the satisfaction, at or before the time the merger becomes effective, of all 
of the following conditions, any of which may be waived in writing by IAAI:     

    - the representations and warranties of the Buyer Parent and the Buyer set
     forth in the merger agreement shall be true and correct (without giving
  effect to any "materiality" qualifiers) as of the date of the merger
     agreement and as of the closing date, with the same force and effect as
though made on and as of the closing date (other than those       
representations and warranties that address matters only as of a  
      particular date or only with respect to a specific period of time, which
    need only be accurate as of such date of with respect to such period),
      except where the failure of such representations and warranties to be so
      true and correct would not, individually or in the aggregate, reasonably
       be expected to have a material adverse effect on the ability of the Buyer
    and the Buyer Parent to perform their respective obligations under the
merger agreement; and                                             

    - the Buyer Parent and the Buyer must have performed and complied with, in
all material respects, all obligations required to be performed or
complied by them on or prior to the closing of the merger.        

EXCHANGE PROCEDURES AND OPTION PAYMENT                                          

   Prior to the effective time of the merger, the Buyer, with the consent of
IAAI, will engage an entity to act as a paying agent for the purpose of         
exchanging certificates representing shares of IAAI common stock for the cash   
merger consideration. The Buyer Parent will deposit with the paying agent the   
funds sufficient to pay the aggregate merger consideration to the IAAI          
shareholders.                                                                   

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 As soon as practicable after the consummation of the merger, the paying
agent will mail to each former holder of record of IAAI common stock a letter of
transmittal with instructions on how to exchange stock certificates for the cash
merger consideration. In addition, if the merger occurs on or before June 30,   
2005, the paying agent will issue a similar letter related to consideration to  
be received by participants in IAAI's Employee Stock Purchase Plan.             

    Please do not send in your stock certificates until you receive the letter
of transmittal and instructions from the paying agent. Do not return your IAAI  
stock certificates with the enclosed proxy card. If your shares of IAAI common  
stock are held through a broker, your broker will surrender your shares for     
cancellation.                                                                   

  After you mail the letter of transmittal, duly executed and completed in
accordance with its instructions, and your stock certificates (if applicable) to
the paying agent, the paying agent will mail a check to you. The stock          
certificates you surrender will be canceled. After the completion of the merger,
there will be no further transfers of IAAI common stock, and stock certificates 
presented for transfer after the completion of the merger will be canceled and  
exchanged for the cash merger consideration. If payment is to be made to a      
person other than the registered holder of the shares of IAAI common stock, the 
certificate surrendered must be properly endorsed or otherwise in proper form   
for transfer and any transfer or other taxes must be paid by the person         
requesting the payment or that person must establish to the paying agent's      
satisfaction that such tax has been paid or is not due and owing.               

   If your IAAI stock certificates have been lost, stolen or destroyed, upon
making an affidavit of that fact, and if required by IAAI, as the surviving     
corporation, posting a bond as indemnity against any claim with respect to the  
certificates, the paying agent will issue the cash merger consideration in      
exchange for your lost, stolen, or destroyed stock certificates.                

   In addition to the foregoing, no less than 20 days prior to the effective
time of the Merger, IAAI will notify each holder of an IAAI stock option of the 
terms of the merger and that all such options shall be immediately and fully    
vested and exercisable, and that except for certain options held by the Rollover
Shareholders which are being exchanged for options of the Buyer Parent, (1) all 
outstanding unexercised stock options granted under the Insurance Auto Auctions,
Inc. 1991 Stock Option Plan and the Insurance Auto Auctions, Inc. Supplemental  
Option Plan shall terminate as of the effective time of the merger, unless      
validly exercised prior thereto, and (2) all outstanding unexercised stock      
options granted under the Insurance Auto Auctions, Inc. 2003 Stock Incentive    
Plan shall be canceled as of the effective time of the merger in exchange for a 
cash payment equal to, with respect to each such stock option, the excess, if   
any of $28.25 over the exercise price of each such option (the "Option Payment  
Amount"). Any shareholders who have elected to exercise their stock options     
prior to the expiration date thereof shall have the option to either (a) deliver
the exercise price to the paying agent, or (b) receive an amount equal to the   
Option Payment Amount from the paying agent for each stock option.              

REPRESENTATIONS AND WARRANTIES                                                  

     The merger agreement contains customary representations and warranties made
by IAAI to the Buyer Parent and the Buyer relating to, among other things:      

- corporate organization, good standing and qualification;            

- corporate authorization, execution, delivery, performance and       
enforceability of the merger agreement;                           

    - required shareholder approvals and approval of IAAI's board of directors
    with respect to the merger agreement and the transactions contemplated
thereby, including the merger;                                    

    - inapplicability of state takeover statutes' to IAAI and IAAI's taking of
    all actions necessary so that applicable provisions of Illinois law do
not apply to the execution, delivery or performance of the merger 
 agreement, the voting agreement or the transactions contemplated by
either;                                                           

     - delivery of complete copies of IAAI's and its subsidiaries organizational
documents;                                                        

- capital structure and IAAI and its subsidiaries;                    

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- outstanding options or other rights with respect to capital stock;  

- accuracy of information contained in documents, including financial 
    statements, filed with the SEC and absence of undisclosed liabilities;

- sufficiency of accounting system and internal controls;             

- accuracy of information in this proxy statement;                    

- tax matters with respect to IAAI;                                   

- existence, enforceability and validity of material contracts;       

- real estate;                                                        

- litigation;                                                         

- compliance with applicable laws;                                    

    - entering into the transaction by IAAI is not in conflict or violation of
     any law, court order, judgment, decree or injunction or in violation or
breach of its organizational documents or other contracts;        

- consents or filings with government entities;                       

- IAAI's intellectual property;                                       

- conduct of business in the ordinary course and no material adverse  
effect;                                                           

- IAAI's insurance policies;                                          

    - ownership of all licenses and permits to conduct business and compliance
with applicable licenses and permits;                             

  - matters relating to the employee benefit and compensation arrangements
with respect to IAAI;                                             

- environmental matters;                                              

    - labor disputes or union organizing activities or violation of labor laws
with respect to IAAI;                                             

- the receipt of a fairness opinion by IAAI's board of directors from 
William Blair; and                                                

     - IAAI's engagement of, and payment of fees to, brokers, investment bankers
      and financial advisors, and amounts of fees payable to other advisors by
IAAI in connection with the merger agreement and the merger.      

     The merger agreement contains customary representations and warranties made
by each of the Buyer Parent and the Buyer to IAAI relating to, among other      
things:                                                                         

- corporate organization and good standing;                           

- corporate authorization, execution, delivery, performance and       
enforceability of the merger agreement;                           

     - entering into the transaction by the Buyer Parent and the Buyer is not in
conflict or violation of any law, court order, judgment, decree or
     injunction or in violation or breach of its organizational documents or
other contracts;                                                  

- financing and financing commitments;                                

- litigation;                                                         

- filings with the SEC and other government entities; and             

    - the Buyer Parent's or the Buyer's engagement of, and payment of fees to,
     brokers, investment bankers and financial advisors, and amounts of fees
       payable to other advisors by the Buyer Parent and the Buyer in connection
with the merger agreement and the merger;                         

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     The representations and warranties contained in the merger agreement do not
survive beyond the completion of the merger or termination of the merger        
agreement.                                                                      

MATERIAL ADVERSE EFFECT                                                         

  Several of IAAI's representations and warranties contained in the merger
agreement are qualified by a "material adverse effect" standard. Conditions to  
the Buyer Parent being obligated to consummate the merger include (1) that the  
representations and warranties of IAAI must be true and correct in all respects,
disregarding any materiality qualifiers, except as it would not have a material 
adverse effect on IAAI and (2) that no change, effect, event, occurrence, state 
of facts or development has occurred that could reasonably be expected to have a
material adverse effect on IAAI. The merger agreement provides that a "material 
adverse effect" means any change, effect, event, occurrence, state of facts or  
development that, individually or in the aggregate with other changes, effects, 
events, occurrences, states of facts or developments, is, or is reasonably      
expected to be, directly or indirectly, materially adverse to the business,     
assets, financial condition or results of operations of IAAI and its            
subsidiaries taken as a whole; provided, however, that none of the following    
shall be deemed in itself, or in any combination, to constitute, and none of the
following shall be taken into account in determining whether there has been or  
will be, a material adverse effect:                                             

- any adverse change, effect, event, occurrence, state of facts or    
    development attributable to conditions affecting the industry in which
   IAAI and its subsidiaries participate, the United States economy as a
    whole or the capital markets in general (provided that such changes do
     not disproportionately affect IAAI and its subsidiaries relative to the
other participants in its industry);                              

- any adverse change, effect, event, occurrence, state of facts or    
     development attributable to changes in law, rules, regulations, orders,
  or other binding directives issued by any governmental authority; or

- any adverse change, effect, event, occurrence, state of facts or    
       development arising from or relating to the commencement, continuation or
escalation of a war, material armed hostilities or other material 
international or national calamity or act of terrorism directly or
indirectly involving the United States of America.                

CONDUCT OF BUSINESS PENDING THE MERGER                                          

Pursuant to the merger agreement, IAAI has agreed that, except as     
specifically permitted by the merger agreement or as otherwise consented to by  
the Buyer or the Buyer Parent in writing, during the period from the date of the
merger agreement through the completion of the merger:                          

   - except for salary increases or the introduction of new or modifications
 to employee benefit arrangements in the ordinary course of business
    consistent with past practices, neither IAAI nor its subsidiaries will
    (1) increase in any manner the base compensation of, or enter into any
new bonus or incentive agreement or arrangement with, any of its  
     employees, (2) enter into any new employment, severance, consulting, or
  other compensation agreement with any of its existing employees, (3)
    amend or enter into a new employee benefit plan (except as required by
     law), (4) make or agree to make any bonus or profit sharing payments to
any employee, (5) pay any severance or termination pay other than 
      severance or termination pay that is required to be paid pursuant to the
      terms of an existing employee benefit plan, or (6) make any contribution
       to any employee benefit plan other than regularly scheduled contributions
       and contributions required pursuant to the terms of such employee benefit
plan;                                                             

- IAAI and its subsidiaries will use reasonable efforts to retain the 
     services of its present employees and preserve the goodwill, reputation
  and present relationships of its business with suppliers, customers,
licensors and others having business relations with them;         

 - IAAI and its subsidiaries will conduct their business in all material
   respects in the ordinary course of business in substantially the same
manner as currently conducted, consistent with past practices;    

- IAAI and its subsidiaries will not issue, deliver, pledge, transfer,
       encumber or sell, or authorize or propose the issuance, delivery, pledge,
transfer, encumbrance or sale of (1) any equity interests,        

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    (2) any securities convertible into or exchangeable or exercisable for
    equity interests, or (3) any rights, warrants, calls, subscriptions or
options to acquire equity interests;                              

- IAAI and its subsidiaries will not (1) amend any of their respective
    organizational documents, (2) reclassify, combine, split, subdivide or
      amend the terms of any of their capital stock, or (3) amend any material
term of any outstanding security issued by any of them;           

    - IAAI and its subsidiaries will not (1) sell, lease, license, encumber or
 otherwise dispose of, or agree to sell, lease, license, encumber or
    otherwise dispose of, any of its material assets, properties or rights
other than in the ordinary course of business consistent with past
     practices, or (2) acquire, or agree to acquire, any business, person or
  entity or any assets, stock or operations of any business, person or
   entity, other than in the ordinary course of business consistent with
past practices;                                                   

- IAAI and its subsidiaries will not incur any indebtedness (including
      letters of credit, capitalized leases and earnout obligations) except in
   the ordinary course of business in an amount not to exceed $2,000,000
       (exclusive of letters of credit in connection with workmen's compensation
       arrangements and indebtedness incurred to pay expenses in connection with
      the Buyer Parent's obligations relating to escrow expenses in connection
      with the debt financing). In no event will the aggregate indebtedness of
 IAAI and its subsidiaries (including letters of credit, capitalized
leases and earnout obligations) exceed the amount of aggregate    
     indebtedness as set forth on a disclosure schedule and disclosed to the
      Buyer Parent on the date the merger agreement was executed, and IAAI and
   its subsidiaries will not guarantee any such indebtedness or issue or
sell any debt securities or warrants or rights to acquire any debt
     securities of such party or guarantee any debt securities of others. In
     addition, IAAI and its subsidiaries will not make any loans or advances
     to any person except in the ordinary course of business in an aggregate
principal amount not to exceed $100,000 at any time outstanding;  

    - IAAI and its subsidiaries will not create, assume or otherwise incur any
     material lien, mortgage, pledge, claim, security interest, encumbrance,
   interest, option or other restriction on any asset or property, other
than certain permitted liens;                                     

- IAAI and its subsidiaries will not (1) relinquish, waive, release or
   permit to lapse (other than by its terms) any material contractual or
     other material right or claim, or (2) settle or compromise any material
suit, action, proceeding, investigation, claim or order;          

   - IAAI and its subsidiaries will not make or change any election relating
      to taxes, change any accounting method relating to taxes unless required
   by U.S. generally accepted accounting principles, file an amended tax
    return, enter into any closing agreement relating to taxes, settle any
      claim or assessment relating to taxes or waive any statute of limitation
for any such claim or assessment;                                 

 - IAAI and its subsidiaries will not enter into, terminate or amend any
    material contract except in the ordinary course of business consistent
with past practices;                                              

  - IAAI and its subsidiaries will not adopt a plan of complete or partial
liquidation or resolutions providing for or authorizing such a    
liquidation or a dissolution, consolidation, recapitalization or  
bankruptcy reorganization;                                        

   - IAAI and its subsidiaries will not (1) other than as contemplated under
      any option agreement, redeem, purchase or otherwise acquire, directly or
     indirectly, any capital stock or other securities of IAAI or any of its
  subsidiaries, or (2) declare, set aside, make or pay any dividend or
  other distribution or stock split with respect to any of its capital
stock;                                                            

     - IAAI and its subsidiaries will not make capital expenditures in excess of
      the applicable amounts set forth in IAAI's quarterly budget with respect
to any monthly or quarterly capex;                                

   - IAAI and its subsidiaries will not take, or agree to or commit to take,
      any action that is intended or would reasonably be expected to result in
     any of the conditions to the closing of the merger not being satisfied;
and                                                               

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 - IAAI and its subsidiaries will not agree, propose, authorize or enter
into any commitment to take any of the foregoing actions.         

NO SOLICITATION                                                                 

IAAI has agreed that it will not, and will not permit, any of its     
directors, officers, investment bankers, attorneys, and accountants and will use
reasonable efforts to cause its employees, affiliates, representatives and other
agents not to, directly or indirectly:                                          

     - solicit, initiate, facilitate or encourage any inquiries or the making or
     submission of any proposal that constitutes or that could reasonably be
expected to lead to an "acquisition proposal" (as defined below); 

- engage in negotiations or discussions concerning, or provide any    
   non-public information (or otherwise afford access to the properties,
       books and records of IAAI or its subsidiaries) to any person or entity in
connection with any acquisition proposal;                         

- agree to, enter into any letter of intent or similar agreement in   
   principle with respect to, approve, recommend or otherwise endorse or
support any acquisition proposal; or                              

    - grant any waiver or release under any standstill or similar agreement to
    which IAAI is a party to any person or entity who has made, or who has
       disclosed to IAAI that it is considering making, an acquisition proposal.

  In addition, upon execution of the merger agreement, IAAI agreed that it
would and would cause its subsidiaries and their respective representatives and 
agents to cease immediately and cause to be terminated any and all existing     
discussions, conversations, negotiations and other communications with any      
person or entity conducted prior to the execution of the merger agreement with  
respect to, or that could reasonably be expected to lead to, an acquisition     
proposal.                                                                       

Subject to certain conditions described below, the merger agreement   
provides that at any time before the IAAI shareholders approve and adopt the    
merger agreement and the merger at a special meeting:                           

    - IAAI may furnish non-public information to, or enter into discussions or
       negotiations with, any person or entity that has made an unsolicited bona
fide acquisition proposal; and                                    

     - the IAAI board of directors may recommend a superior proposal to the IAAI
    shareholders and may amend, withhold or withdraw its recommendation of
the merger as a result of such superior proposal.                 

     IAAI and the IAAI board of directors may take the above actions if and only
to the extent that before taking any such action:                               

   - in the case of each of the two above actions, IAAI's board of directors
    believes (after consultation with its outside legal counsel), that the
      failure to take such action presents a reasonable risk of constituting a
breach of their fiduciary duties under applicable law;            

 - in the case of IAAI furnishing non-public information to, or entering
       into discussions or negotiations with, any person or entity that has made
an unsolicited bona fide acquisition proposal:                    

     - the acquisition proposal submitted by such third party, would result in
 a transaction that, in the reasonable judgment of IAAI's board of
directors, would be a "superior proposal" (as defined below) if 
consummated;                                                    

 - IAAI has provided the Buyer Parent two business days notice of that
       IAAI's board of directors has determined that such acquisition proposal
  would result in a transaction that would be a superior proposal if
consummated and that the failure to take such actions presents a
    reasonable risk of constituting a breach of its fiduciary duties, in
each case, as further described above; and                      

     - IAAI and such third party have entered into a confidentiality agreement
with terms no less favorable to IAAI than the terms of the      
confidentiality agreement entered into between IAAI and Kelso.  

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The merger agreement provides that IAAI will promptly notify the Buyer
Parent if it receives any acquisition proposal or any inquiry that could        
reasonably be expected to lead to an acquisition proposal. Such notice to the   
Buyer Parent must include the identity of such third party and the material     
terms and conditions of any such acquisition proposal or inquiry. IAAI must     
thereafter promptly inform the Buyer Parent of any changes to the terms and     
conditions of any acquisition proposal and will keep the Buyer Parent updated as
to the general status of any ongoing discussions or negotiations regarding or   
relating to any acquisition proposal.                                           

    "acquisition proposal" means any offer or proposal (other than an offer or
proposal from the Buyer Parent or the Buyer), whether or not in writing,        
contemplating or otherwise relating to any "acquisition transaction" (as defined
below).                                                                         

"acquisition transaction" means (1) any transaction or series of      
transactions involving any merger, consolidation, recapitalization, share       
exchange, liquidation, dissolution or similar transaction involving IAAI or any 
of its subsidiaries, (2) any transaction pursuant to which any third party or   
group acquires or would acquire (whether through sale, lease or other           
disposition), directly or indirectly, by merger, consolidation, share exchange  
or otherwise, any assets of IAAI or any of its subsidiaries representing, in the
aggregate, thirty percent (30%) or more of the assets of IAAI on a consolidated 
basis, (3) any issuance, sale or other disposition of (including by way of      
merger, consolidation, share exchange or any similar transaction) securities (or
options, rights or warrants to purchase or securities convertible into, such    
securities) representing fifteen percent (15%) or more of the votes attached to 
the outstanding securities of IAAI, (4) any tender offer or exchange offer that,
if consummated, would result in any third party or group beneficially owning    
fifteen percent (15%) or more of any class of equity securities of IAAI or any  
of its subsidiaries, or (5) any transaction which is similar in form, substance 
or purpose to any of the foregoing transactions, or any combination of the      
foregoing.                                                                      

   "superior proposal" means any bona fide proposal made by a third party to
enter into an acquisition transaction (provided, that for purposes of this      
definition, the applicable percentages in clauses (2), (3) and (4) of the       
definition of acquisition transaction shall be 50% as opposed to 30% or 15%, as 
applicable) that, in the reasonable good faith judgment of the IAAI board of    
directors (after consultation with its outside legal counsel and William Blair &
Company, L.L.C. or another financial advisor of nationally recognized           
reputation, and taking into account all of the terms of conditions of the       
proposal and the merger agreement) (1) would, if consummated, result in a       
transaction that is more favorable from a financial point of view to the IAAI   
shareholders than the merger and the transactions contemplated by the merger    
agreement and (2) is reasonably capable of being completed and completed on a   
timely basis.                                                                   

Nothing in the merger agreement prohibits IAAI or the IAAI board of   
directors from taking and disclosing to IAAI's shareholders a position with     
respect to a tender or exchange offer by a third party pursuant to Rule 14d-9 or
Rule 14e-2 promulgated under the Exchange Act or from taking any other action or
making any disclosures as required by applicable law.                           

REASONABLE EFFORTS                                                              

    IAAI and the Buyer Parent have agreed to use good faith reasonable efforts
to take all actions and do all things advisable, proper or necessary under the  
merger agreement and applicable laws to consummate the merger and make          
effective, as soon as reasonably practicable, the transactions contemplated by  
the merger agreement. Without limitation, this includes making the appropriate  
filing pursuant to the Hart-Scott-Rodino Antitrust Improvement Act of 1976 and  
obtaining all consents of all third parties, including governmental authorities.

FINANCING COVENANTS                                                             

The merger agreement provides that:                                   

    - The Buyer Parent and the Buyer will use good faith reasonable efforts to
      obtain the financing set forth in (1) the senior debt commitment letters
      from each of Bear, Stearns & Co. Inc. ("Bear Stearns") and Deutsche Bank
   Securities, Inc. ("Deutsche Bank") by which Bear Stearns and Deutsche
Bank have                                                         

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committed to provide (subject to certain conditions) (a) $165 million under     
senior secured credit facilities comprised of a $50 million revolving credit    
facility and $115 million Term Loan B facility and (b) $150 million in cash     
     proceeds from the issuance of senior unsecured notes of IAAI in a private
   placement; and (2) the written commitment letter from Kelso, to provide
    (subject to certain conditions) up to $148.7 million in equity financing
for the merger.                                                     

- The Buyer Parent will provide prompt written notice to IAAI of Bear 
       Stearns' or Deutsche Bank's refusal or stated intent to refuse to provide
the financing described in the senior debt commitment letters; and

   - IAAI will provide all necessary cooperation reasonably requested by the
       Buyer Parent in connection with the arrangement of the financing (and any
    substitutions, replacements or refinancing thereof), including but not
   limited to causing officer and employees to be available to meet with
   prospective lenders and investors in presentations, meetings and road
       shows and assisting with the preparation of related disclosure documents.

 The merger agreement additionally provides that, at any time before the
closing of the merger, the proceeds of the debt financing contemplated by the   
commitment letters from Bear Stearns and Deutsche Bank in connection with the   
merger may be closed into escrow pending the closing of the merger such that    
such cash proceeds are received by a newly formed corporation which is an       
affiliate of the Buyer Parent ("EscrowCo."). At the effective time of the merger
and subject to the completion of the merger, IAAI will assume the indebtedness  
of EscrowCo., plus any accrued and unpaid interest, and receive the proceeds of 
the offering of such indebtedness held by EscrowCo., and EscrowCo. will be      
released from all obligations under the escrowed debt.                          

 With respect to an escrow closing, at or immediately prior to an escrow
closing as described above, the Buyer Parent (or an affiliate of the Buyer      
Parent) and IAAI will each pay to EscrowCo. one-half of an amount (which we     
refer to as the "Escrow Breakage Amount") sufficient to cover:                  

     - accrued interest on the escrowed debt from the date of the escrow closing
  to and including September 29, 2005, net of income anticipated to be
earned from investing the proceeds in permitted investments; and  

   - any repayment premium applicable to the escrowed debt in the event that
      the merger agreement is terminated or the merger is not completed by the
date specified by the terms of the escrowed debt.                 

     If the merger agreement is terminated or the merger is not completed by the
date specified by the terms of the escrowed debt, any escrowed debt (plus any   
applicable repayment premium) will be repaid in full by EscrowCo. and any amount
held by EscrowCo. after that repayment will be distributed in equal parts to the
Buyer Parent (or an affiliate of the Buyer Parent) and IAAI; provided that first
the excess, if any, of the Escrow Breakage Amount over $4 million will be       
distributed solely to the Buyer Parent. The merger agreement provides that (1)  
any repayment premium will not exceed 1% of the principal amount of the escrowed
debt, (2) placement agent fees or discounts or commitments will be payable on   
the escrowed debt only at the effective time of the merger, and (3) EscrowCo.   
will invest the proceeds only in specified permitted investments. If the        
proceeds of the debt financing (together with the Escrow Breakage Amount) plus  
the income earned thereon are not enough to repay in full the escrowed debt     
(plus any applicable repayment premium), IAAI and the Buyer Parent will each pay
one-half of the shortfall to EscrowCo. to enable it to repay such amount to the 
applicable debtholders, subject to any applicable termination fee obligations of
the parties. In no event will IAAI's payments to EscrowCo. exceed in the        
aggregate an amount equal to (x) $3 million, plus (y) the positive difference,  
if any, between $4 million and the amount of the Buyer Parent's reasonable and  
documented out-of-pocket expenses incurred in connection with the Merger        
reimbursed to the Buyer Parent upon termination of the merger agreement in      
specified circumstances, the foregoing being referred to herein as the "Escrow  
Breakage Cap."                                                                  

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TERMINATION OF MERGER AGREEMENT                                                 

    IAAI and the Buyer Parent can terminate the merger agreement under certain
circumstances including:                                                        

- by mutual written consent of IAAI and the Buyer Parent;             

- by either the Buyer Parent or IAAI if:                              

   - the merger has not been consummated by August 22, 2005 (provided that
      the terminating party is not in material breach or material default of
the merger agreement);                                          

 - the shareholders of IAAI vote on the a proposal to adopt the merger
       agreement at a duly convened shareholder meeting (or at any adjournment
      or postponement of such meeting) and approval was not obtained at such
     meeting (or at any adjournments or postponements of such meeting); or

    - any the conditions precedent to such party's obligations to consummate
    the transactions contemplated by the merger agreement, including the
        merger, is or becomes impossible (other than as a result of a failure of
     the terminating party to comply with its obligations under the merger
agreement).                                                     

- by the Buyer Parent or the Buyer if:                                

     - the IAAI board of directors (or any committee thereof) has (1) amended,
  withheld or withdrew its recommendation of the merger or failed to
 solicit proxies in favor of adoption of the merger agreement, (2)
     approved or recommended an acquisition proposal or determined that an
  acquisition proposal constitutes a superior proposal, (3) provided
 notice to the Buyer Parent that IAAI is entering into a letter of
       intent, agreement in principle, acquisition agreement or other contract
 related to a superior proposal, (4) failed to recommend against a
   publicly announced acquisition proposal or any acquisition proposal
communicated to IAAI which is the subject of public rumor or    
speculation, in either case, within five business days of being 
       requested to do so by the Buyer Parent or (5) resolved, or announced an
intention, to take any of the actions described above.          

- by IAAI if:                                                         

- (1) if the IAAI board of directors determines that an "acquisition
        proposal" constitutes a superior proposal and determines to enter into a
     definitive agreement with respect to such superior proposal, (2) IAAI
has complied in all material respects with the no solicitation  
       provisions in the merger agreement, (3) IAAI has given the Buyer Parent
      five business days' prior written notice of its intention to terminate
   the merger agreement, it being understood that any amendment to the
    financial or other material terms of such superior proposal prior to
       such termination shall require a new five business day period to afford
     the Buyer Parent the opportunity to negotiate with IAAI, (4) IAAI and
     the board of directors of IAAI have cooperated in good faith with the
        Buyer Parent to make such adjustments in the terms and conditions of the
        merger agreement with a view toward causing such terms to be at least as
   favorable to the shareholders of IAAI as the terms of such superior
        proposal, and (5) the Buyer Parent has not, within five business days of
      its receipt of the termination notice, made an offer that the board of
       directors of IAAI determines in good faith (after consultation with its
        outside legal counsel and financial advisor) to be at least as favorable
   to the shareholders of IAAI as the terms of such superior proposal.

TERMINATION FEES AND OTHER FEES                                                 

TERMINATION FEE, OUT OF POCKET EXPENSES AND ESCROW FEES PAYABLE TO THE
BUYER PARENT.  The merger agreement requires that IAAI pay the Buyer Parent, in 
certain circumstances in which the merger agreement is terminated, (1) a        
termination fee of $12 million, or the "termination fee," (2) reasonable and    
documented out-of-pocket expenses incurred by the Buyer Parent, the Buyer or    
their respective affiliates in connection with the merger agreement and the     
financing thereof (up to a maximum amount of $4 million), or the "transaction   
expenses," and/or (3) breakage expenses related to the repayment of escrowed    
debt financing for the transaction (including applicable pre-funded amounts of  
the "Escrow Breakage Amount" as described above)                                

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paid or payable by the Buyer Parent (up to the "Escrow Breakage Cap"), or the   
"escrow breakage expenses", including as follows:                               

 - If (a) the IAAI board of directors terminates the merger agreement in
   order to enter into a definitive agreement with respect to a superior
      proposal in accordance with IAAI's termination rights described above or
 (b) the Buyer Parent terminates the merger agreement as a result of
 IAAI's board of directors having amended, withheld or withdrawn its
    recommendation of the merger or having taken certain other actions (or
      failed to take certain actions) with respect to acquisition proposals as
       more fully described in the termination rights described above, then IAAI
       shall pay to the Buyer Parent (1) the transaction expenses and the escrow
   breakage expenses upon termination of the merger agreement and (2) if
within 12 months of such termination of the merger agreement IAAI 
consummates an acquisition transaction, the termination fee upon  
consummation;                                                     

  - If the Buyer Parent terminates the merger agreement due to any closing
 condition becoming impossible to be satisfied as a result of IAAI's
 material breach of its obligations in the merger agreement that are
summarized in the "No Solicitation" section above, then IAAI shall
       promptly pay to the Buyer Parent (1) a fee of $2 million upon termination
  of the merger agreement, (2) the transaction expenses and the escrow
   breakage expenses upon termination of the merger agreement and (2) if
within 12 months of such termination of the merger agreement, IAAI
     consummates an acquisition transaction, an additional fee in the amount
of $10 million;                                                   

  - If the Buyer Parent terminates the merger agreement due to any closing
   condition (other than with respect to obtaining shareholder approval)
      becoming impossible to be satisfied and any time following the execution
  of the merger agreement and prior to such termination an acquisition
     proposal was publicly announced, disclosed or otherwise communicated to
  IAAI's board of directors, then IAAI shall promptly pay to the Buyer
   Parent (1) the transaction expenses and escrow breakage expenses upon
     termination of the merger agreement and (2) if within 12 months of such
 termination of the merger agreement IAAI consummates an acquisition
transaction, the termination fee upon consummation; and           

   - If the Buyer Parent or IAAI terminates the merger agreement as a result
    of the failure to obtain shareholder approval of merger at a duly held
      meeting of the shareholders of IAAI, then IAAI shall promptly pay to the
    Buyer Parent the transaction expenses and the escrow breakage expenses
upon termination of the merger agreement.                         

     Furthermore, if (a) the Buyer Parent terminates the merger agreement due to
the impossibility of the condition that IAAI's covenants be performed or its    
representations and warranties be true and correct or that no change or         
development has occurred that would reasonably be expected to have material     
adverse effect on IAAI or (b) either the Buyer Parent or IAAI terminates the    
merger agreement on August 22, 2005, or the "outside date," and IAAI failed to  
perform its covenants or satisfy its representations and warranties prior to    
such time or a change or development has occurred that would reasonably be      
expected to have material adverse effect on IAAI, then IAAI shall be required to
reimburse the Buyer Parent for the escrow breakage expenses, upon termination of
the merger agreement.                                                           

     If (a) IAAI terminates the merger agreement due to the impossibility of the
condition that the Buyer's and the Buyer Parent's covenants be performed or     
their representations and warranties be true and correct or (b) either IAAI or  
the Buyer Parent terminates the merger agreement at the outside date and the    
Buyer Parent is in material breach of the merger agreement at such time, then   
the Buyer Parent shall reimburse IAAI for IAAI's out-of-pocket expenses incurred
in connection with the merger, up to a maximum amount of $2,000,000, and the    
breakage expenses related to the repayment of escrowed debt financing for the   
transaction (including applicable pre-funded amounts of the "Escrow Breakage    
Amount") paid or payable by IAAI, upon termination of the merger agreement.     

 The merger agreement provides that no fee shall be payable to the Buyer
Parent or the Buyer pursuant to the first two items described under the heading 
"Termination Fee, Out of Pocket Expenses and Escrow Fees Payable to the Buyer   
Parent" described above, if at the time of termination of the merger agreement, 
any                                                                             

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lender that was committed to provide debt financing has refused or stated its   
intention to refuse to provide the debt financing described under the senior    
secured credit facilities commitment or, unless the escrow closing with respect 
to the senior unsecured notes has occurred, the senior unsecured notes          
commitment, provided, that in each case, the foregoing limitations will not     
apply if commitment letters with respect to alternative debt financing has been 
obtained prior to such termination of the merger agreement.                     

COMPLETION AND EFFECTIVENESS OF THE MERGER                                      

IAAI is working to complete the Merger as soon as possible. IAAI      
anticipates completing the Merger immediately following the special meeting or  
any adjournment or postponement thereof, subject to receipt of shareholder      
approval and adoption and satisfaction or waiver of the conditions set forth in 
the merger agreement, but in any event no later than the later to occur of May  
2, 2005 or three business days after all of the closing conditions have been    
satisfied or waived. The effective time will be upon acceptance of the filing of
articles of merger with the Secretary of State of the State of Illinois in      
accordance with Illinois Law.                                                   

AMENDMENTS AND WAIVERS                                                          

Prior to obtaining shareholder approval for the merger and the merger 
agreement, the merger agreement may be amended by the parties at any time, by   
written agreement duly executed and delivered by duly authorized officers of the
respective parties; provided, however, after obtaining shareholder approval no  
amendments may be made which by law requires further approval by the IAAI       
shareholders without first obtaining such further approval.                     

ARTICLES OF INCORPORATION AND BY-LAWS                                           

   The articles of incorporation and by-laws of the Buyer, each as in effect
immediately prior to the effective time of the merger, will be the articles of  
incorporation and by-laws of IAAI, as the surviving corporation.                

BOARD OF DIRECTOR AND OFFICERS                                                  

   The board of directors and officers of the Buyer immediately prior to the
effective time shall be the initial board of directors of IAAI, as the surviving
corporation, and the officers of IAAI immediately prior to the effective time   
shall be the initial officers of IAAI, as the surviving corporation, in each    
case until their respective successors are duly elected or appointed and        
qualified.                                                                      

THE VOTING AGREEMENT

   The following is a summary of the material terms of the voting agreement,
which is attached as Appendix D to this proxy statement and is incorporated by  
reference herein. The rights and obligations of the parties to the voting       
agreement are governed by the express terms and conditions of the voting        
agreement and not this summary or any other information contained in this proxy 
statement.                                                                      

   On February 22, 2005, ValueAct Capital Partners, L.P., a Delaware limited
partnership ("ValueAct CP"), ValueAct Capital Partners II, L.P., a Delaware     
limited partnership ("ValueAct CP II"), ValueAct Capital Master Fund, L.P., a   
British Virgin Islands limited partnership ("ValueAct Master") and ValueAct     
Capital Partners Co-Investors, L.P., a Delaware limited partnership ("ValueAct  
Co-Investors", and together with ValueAct CP, ValueAct CP II and ValueAct       
Master, collectively, the "ValueAct Parties") entered into a voting agreement   
with the Buyer Parent (the "Voting Agreement") under which each ValueAct Party  
has agreed to vote (or cause to be voted) all of their respective shares of IAAI
common stock (representing approximately 28.6% of the outstanding shares of IAAI
common stock entitled to vote at the meeting) at any annual, special or other   
meeting of IAAI shareholders:                                                   

- in favor of the approval of the merger agreement, the merger and the
 other transactions contemplated thereby and any actions required in
furtherance thereof;                                              

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- against any action or agreement that would reasonably be expected to
result in a breach in any material respect of any covenant,       
  representation or warranty or any other obligation of IAAI under the
voting agreement, the merger agreement or any other agreement     
contemplated by the voting agreement or the merger agreement;     

 - against any "acquisition proposal" and against any other proposal for
       action or agreement that is intended, or would reasonably be expected, to
    impede, interfere with, delay, frustrate, postpone or adversely affect
the consummation of the transactions contemplated by the merger   
agreement;                                                        

     - against any change in the composition of IAAI's board of directors, other
than as contemplated by the merger agreement; and                 

- against any amendment to the articles of incorporation or by-laws of
IAAI, other than as contemplated by the merger agreement.         

     Under the voting agreement, the ValueAct Parties have agreed to irrevocably
grant to, and appoint, the Buyer Parent and any of the Buyer Parent's designees 
and each of the Buyer Parent's officers, as a ValueAct Party attorney, agent and
proxy, with full power of substitution, to vote and otherwise act with respect  
to all of the shares of IAAI common stock beneficially owned by such ValueAct   
Party, on the matters and in the manner described above. The voting agreement   
will terminate on the earliest to occur of (1) the termination of the merger    
agreement in accordance with its terms, (2) a mutual written agreement of the   
Buyer Parent and the respective ValueAct Party, or (3) the consummation of the  
transactions contemplated by the merger agreement. A copy of the voting         
agreement is attached as Appendix D to this proxy statement.                    

Under the Voting Agreement, each ValueAct Party agreed not to sell,   
transfer, pledge, assign or otherwise dispose of any shares of IAAI common stock
(or enter into a contract with respect to the foregoing), grant any proxies or  
enter into any voting agreement with respect to such shares, deposit its shares 
in any voting trust or knowingly take any action that would interfere with the  
performance of its obligations under the Voting Agreement. Each ValueAct Party  
has also agreed not to solicit, initiate, facilitate or encourage the making of 
any acquisition proposals with respect to IAAI or engage in any negotiations or 
discussions concerning any acquisition proposal.                                

RECENT MARKET PRICES OF, AND DIVIDENDS ON, IAAI COMMON STOCK

  Insurance Auto Auctions, Inc.'s shares are traded on the NASDAQ National
Market under the trading symbol "IAAI.". The following table sets forth the     
closing high and low prices for the common stock as reported on the NASDAQ      
National Market for the indicated periods.                                      

                                                                · Download Table

                                                               HIGH     LOW  
                                                              ------   ------
                                                                             
FISCAL YEAR ENDING DECEMBER 25, 2005                                         
First Quarter...............................................  $27.96   $21.32
FISCAL YEAR ENDED DECEMBER 26, 2004                                          
First Quarter...............................................  $15.37   $13.05
Second Quarter..............................................   16.56    13.64
Third Quarter...............................................   17.79    15.18
Fourth Quarter..............................................   22.78    17.00
FISCAL YEAR ENDED DECEMBER 28, 2003                                          
First Quarter...............................................  $17.05   $ 8.64
Second Quarter..............................................   14.85    10.94
Third Quarter...............................................   14.80    10.70
Fourth Quarter..............................................   14.85    10.95

    The closing price per share on NASDAQ of IAAI common stock on February 22,
2005, which was the last full trading day immediately preceding the public      
announcement of the proposed merger, was $22.41. On April 22, 2005, which is the
latest practicable date prior to the date of this proxy statement, the closing  
price for IAAI common stock on NASDAQ was $27.71.                               

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As of March 1, 2005, there were 11,853,123 shares of IAAI common stock
outstanding held by approximately 594 holders of record, with approximately     
1,537 underlying beneficial owners.                                             

IAAI has never paid cash dividends on its common stock and intends to 
retain all earnings, if any, for use in its business.                           

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

    The following table sets forth certain information known to IAAI regarding
the ownership of common stock as of March 1, 2005 (except as otherwise          
indicated) with respect to the beneficial ownership of shares of IAAI common    
stock by (1) each director of IAAI, (2) each of the Chief Executive Officer and 
the other four most highly compensated executive officers of IAAI for fiscal    
2004 (the "Named Executive Officers"), (3) all directors and executive officers 
of IAAI as a group, and (4) each person, who, to the best of IAAI's knowledge,  
beneficially owns more than 5% of the IAAI common stock.                        

                                                        · Enlarge/Download Table

                                                             NUMBER OF    PERCENT OF TOTAL   
NAME AND ADDRESS                                              SHARES    SHARES OUTSTANDING(1)
----------------                                             ---------  ---------------------
                                                                                             
VA Partners, L.L.C.(2)(3)................................... 3,470,400          29.3%        
  435 Pacific Avenue, Fourth Floor                                                           
  San Francisco, CA 94133                                                                    
Dimensional Fund Advisors(4)................................   970,559           8.2%        
  1299 Ocean Ave., 11th Fl.                                                                  
  Santa Monica, CA 90401                                                                     
Gabelli Asset Management(5).................................   830,060           7.0%        
  One Corporate Center                                                                       
  Rye, New York 10580-1435                                                                   
Peter H. Kamin(2)(3)........................................ 3,528,857          29.8%        
Todd F. Bourell(3)..........................................    15,000             *         
Thomas C. O'Brien(6)........................................   467,442           3.9%        
Scott P. Pettit(6)..........................................   188,483           1.6%        
David R. Montgomery(6)......................................   185,041           1.6%        
Donald J. Hermanek(6).......................................   148,243           1.3%        
Maurice A. Cocca(6).........................................    72,000             *         
John W. Kett(6).............................................    61,836             *         
John R. Nordin(6)...........................................    52,149             *         
John K. Wilcox(6)...........................................    35,000             *         
Sidney L. Kerley(6).........................................    32,927             *         
Philip B. Livingston(6).....................................    20,700             *         
All officers (including Named Executive Officers) and        4,807,678          40.6%        
  Directors as a group (12 persons)(7)......................                                 

---------------                                                                 

*  Less than one percent of the outstanding shares of IAAI common stock.      

(1) Percentage of beneficial ownership is calculated assuming 11,853,123 shares 
of IAAI common stock were outstanding on March 1, 2005. This percentage 
   includes any shares of IAAI common stock of which such individual or entity
has the right to acquire beneficial ownership of within sixty (60) days 
after March 1, 2005, including, but not limited to, the exercise of an  
option; however, such shares of IAAI common stock shall not be deemed   
  outstanding for the purpose of computing the percentage beneficially owned
by any other individual or entity.                                      

(2) This information is based on the Amended Schedule 13D filed with the SEC    
  jointly by ValueAct Capital Partners, L.P. ("ValueAct Partners"), ValueAct
Capital Partners II, L.P. ("ValueAct Partners II"), ValueAct Capital    
International, Ltd. ("ValueAct International"), ValueAct Capital Master 
    Fund, L.P. ("ValueAct Master Fund"), ValueAct Capital Partners Co-Investors,
    L.P. ("ValueAct Co-Investors"), VA Partners, L.L.C. ("VA Partners"), Jeffrey
W. Ubben, George F. Hamel, Jr. and Peter H. Kamin on                    

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 March 15, 2005. Messrs. Ubben, Hamel and Kamin are each managing members,
 principal owners and controlling persons of VA Partners and directors and
   principal executive officers of ValueAct International. Shares beneficially
 owned by each of ValueAct Partners, ValueAct Partners II, ValueAct Master
Fund and ValueAct Co-Investors, are reported as beneficially owned by VA
Partners, as investment manager or general partner of each of such      
   investment partnerships, and by the managing members as controlling persons
   of the general partner. VA Partners and the managing members also, directly
 or indirectly, may own interests in one or both of such partnerships from
  time to time. By reason of such relationships, each of the partnerships is
 reported as having shared power to vote or to direct the vote, and shared
  power to dispose or direct the disposition of, such shares of common stock
with VA Partners and the managing members. ValueAct Partners is the     
beneficial owner of 1,550,310 shares of IAAI common stock, representing 
    approximately 13.1% of IAAI's outstanding common stock. ValueAct Partners II
    is the beneficial owner of 219,692 shares of IAAI common stock, representing
1.9% of IAAI's outstanding common stock. ValueAct International is the  
  beneficial owner of 0 shares of IAAI common stock. ValueAct Master Fund is
   the beneficial owner of 3,427,261 shares of IAAI common stock, representing
28.9% of IAAI's outstanding common stock. ValueAct Co-Investors is the  
    beneficial owner of 43,139 shares of IAAI common stock, representing 0.4% of
IAAI's outstanding common stock. VA Partners and each of the Managing   
Members may be deemed the beneficial owner of an aggregate of 3,470,400 
shares of IAAI common stock, representing approximately 29.3% of IAAI's 
    outstanding common stock. In addition to the 3,470,400 shares of IAAI common
stock which Mr. Kamin may be deemed to beneficially own by reason of his
being a Managing Member, Mr. Kamin also personally owns 58,457 shares of
IAAI common stock (or, when combined with the 3,470,400 shares of IAAI  
  common stock he may be deemed to beneficially own by reason of his being a
Managing Member, 29.8% of IAAI's common stock).                         

(3) This amount includes options to purchase 83,000 shares of common stock that 
 are exercisable within sixty (60) days of March 1, 2005 consisting of (a)
49,000 options granted to Mr. Kamin, (b) 19,000 options granted to Mr.  
Ubben, and (c) 15,000 options granted to Mr. Bourell. Under an agreement
with ValueAct Capital Master Fund, L.P., Mr. Kamin, Mr. Ubben and Mr.   
  Bourell are deemed to hold the options for the benefit of ValueAct Capital
   Partners, L.P., ValueAct Capital Partners II, L.P., ValueAct Capital Master
   Fund, L.P. and ValueAct Capital Partners Co-Investors, L.P., and indirectly
   for VA Partners, LLC as general partner of ValueAct Capital Partners, L.P.,
  ValueAct Capital Partners II, L.P., ValueAct Capital Master Fund, L.P. and
ValueAct Capital Partners Co-Investors, L.P.                            

(4) This information is based on a Schedule 13G filed by the Dimensional Fund   
    Advisors, Inc. ("Dimensional") with the SEC on February 9, 2005 and reflects
   shares of IAAI common stock held as of December 31, 2004. According to such
    Schedule 13G, Dimensional has sole voting and dispositive power with respect
to all the shares.                                                      

(5) This information is based on a Schedule 13D filed with the SEC on March 14, 
2005 by Mario J. Gabelli ("Mario Gabelli") and various entities which he
directly or indirectly controls or for which he acts as chief investment
 officer, including Gabelli Funds, LLC ("Gabelli Funds"), GAMCO Investors,
    Inc. ("GAMCO"), Gabelli Securities, Inc. ("GSI"), MJG Associates, Inc. ("MJG
Associates"), Gabelli Group Capital Partners Inc., and Gabelli Asset    
  Management Inc. Gabelli Funds is the beneficial owner of 167,120 shares of
IAAI common stock, representing approximately 1.4% of IAAI's outstanding
    common stock. GAMCO is the beneficial owner of 493,786 shares of IAAI common
  stock, representing approximately 4.2% of IAAI's outstanding common stock.
GSI is the beneficial owner of 161,654 shares of IAAI common stock,     
representing approximately 1.4% of IAAI's outstanding common stock. MJG 
Associates is the beneficial owner of 7,500 shares of IAAI common stock,
representing approximately .1% of IAAI's outstanding common stock.      

(6) Includes that portion of options to purchase shares of IAAI common stock    
  granted under the Insurance Auto Auctions, Inc. 1991 Stock Option Plan and
    Insurance Auto Auctions, Inc. 2003 Stock Incentive Plan that are exercisable
 within sixty (60) days of March 1, 2005: Mr. O'Brien--420,000 shares; Mr.
Pettit--160,000 shares; Mr. Montgomery--160,000 shares; Mr.             
    Hermanek--125,000 shares; Mr. Kett--45,000 shares; Mr. Cocca--32,000 shares;
Mr. Kerley--30,000 shares; Mr. Nordin--30,000 shares; Mr. Wilcox--20,000
shares and Mr. Livingston--15,000 shares.                               

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(7) Includes options to purchase shares of IAAI common stock granted under the  
Insurance Auto Auctions, Inc. 1991 Stock Option Plan and Insurance Auto 
 Auctions, Inc. 2003 Stock Incentive Plan that are exercisable on February
22, 2005.                                                               

OTHER MATTERS 

   You should rely only on the information contained in this proxy statement
to vote your shares at the special meeting. We have not authorized anyone to    
provide you with information that is different from what is contained in this   
proxy statement. This proxy statement is dated April 26, 2005. The information  
contained in this proxy statement is accurate as of the date of the proxy       
statement. If any statements set forth in this proxy statement become materially
inaccurate before the date of the special meeting, IAAI will update these proxy 
materials through filings of additional definitive materials with the SEC, which
will be sent to shareholders or otherwise made available to them as set forth   
below in the section entitled "Where You Can Find More Information."            

    IAAI's 2005 Annual Meeting of Shareholders will be held only if the Merger
is not completed. As set forth in the proxy statement for the IAAI 2004 Annual  
Meeting of Shareholders filed April 23, 2004, proposals for inclusion in IAAI's 
proxy statement for the 2005 Annual Meeting of Shareholders (if held), must have
been forwarded to Insurance Auto Auctions, Inc., at 2 Westbrook Corporate       
Center, Suite 500, Westchester, Illinois 60154, Attention: Secretary, so that   
they were received no later than December 31, 2004. In addition, proxies        
solicited by management may confer discretionary authority to vote on matters   
which are not included in the proxy statement but which are raised at the annual
meeting by shareholders, unless IAAI received written notice of the matter by   
March 31, 2005, at the above address. If the proposal was submitted before that 
deadline, IAAI's management will retain their discretion to vote proxies        
received as long as IAAI includes in its proxy statement for the annual meeting 
information on the nature of the proposal and how such management intends to    
exercise their voting discretion, and the proponent of the matter does not issue
a proxy statement. In the event that IAAI does hold its 2005 Annual Meeting of  
Shareholders and such meeting is held more than 60 days after April 26, 2005, in
IAAI's public announcement setting the new meeting date, IAAI will indicate new 
dates by which shareholder proposals must be received as set forth in its       
by-laws.                                                                        

IAAI's board of directors does not intend to bring before the special 
meeting of shareholders any matters other than those set forth in this proxy    
statement, and has no present knowledge that any other matters will or may be   
brought before the special meeting of shareholders by others. If, however, any  
other matters properly come before the special meeting of shareholders, it is   
the intention of the persons named in the enclosed form of proxy to vote the    
proxies in accordance with their judgment.                                      

WHERE YOU CAN FIND MORE INFORMATION 

IAAI files annual, quarterly and current reports, proxy statements and
other information with the SEC. You may read and copy this information at the   
following location of the SEC:                                                  

Public Reference Room 
450 Fifth Street, N.W.
Room 1024 
Washington, D.C. 20549

     Please call the SEC at 1-800-SEC-0330 for further information on the public
reference rooms. You may also obtain copies of this information by mail from the
Public Reference Section of the SEC, 450 Fifth Street, N.W., Room 1024,         
Washington, D.C. 20549, at prescribed rates. IAAI's public filings are also     
available to the public from document retrieval services, and IAAI's public     
filings are also available to the public at the Internet website maintained by  
the SEC at http://www.sec.gov.                                                  

The Securities and Exchange Commission allows IAAI to "incorporate by 
reference" information into this proxy statement, which means that we can       
disclose important information by referring you to another document filed       
separately with the Securities and Exchange Commission. The following documents 
are                                                                             

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incorporated by reference into this proxy statement and are deemed to be a part 
of this proxy statement, except for any information superseded by information   
contained directly in this proxy statement:                                     

                                                                · Download Table

IAAI SEC FILINGS                                   PERIOD OR DATE COVERED      
----------------                                   ----------------------      
                                                                               
Annual Report on Form 10-K                         Year ended December 26, 2004
Current Report on Form 8-K                         March 15, 2005              
Proxy Statement on Schedule 14A                    April 23, 2004              

     All documents filed by us pursuant to Sections 13(a), 13(c), 14 or 15(d) of
the Securities Exchange Act of 1934, as amended, subsequent to the date hereof  
and prior to the special meeting shall be deemed to be incorporated by reference
into this proxy statement.                                                      

     You may obtain the above-mentioned documents, without charge, by requesting
them in writing or by telephone from the appropriate part at the following      
address:                                                                        

Insurance Auto Auctions, Inc. 
2 Westbrook Corporate Center, Suite 500 
Westchester, Illinois 60154 
Attention: Secretary
Telephone: (708) 492-7000 

                                      BY ORDER OF THE BOARD OF DIRECTORS

                         /s/ Thomas C. O'Brien
                                          --------------------------------------
                     Thomas C. O'Brien
                                          President and Chief Executive Officer,
            Director

April 26, 2005                                                                  

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APPENDIX A

EXECUTION COPY
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
INSURANCE AUTO AUCTIONS, INC. 
AXLE HOLDINGS, INC. 
AND 
AXLE MERGER SUB, INC. 
DATED AS OF FEBRUARY 22, 2005 

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TABLE OF CONTENTS 

                                                                · Download Table

                                                                          PAGE
                                                                          ----
                                                                              
                                 ARTICLE I                                    
                                The Merger                                    
1.1          The Merger..................................................   1 
1.2          Closing; Effective Time: Filing of Articles of Merger.......   1 
1.3          Effect of the Merger........................................   2 
1.4          Additional Actions..........................................   2 

                                ARTICLE II                                    
                         The Surviving Corporation                            
2.1          Name of Surviving Corporation...............................   2 
2.2          Articles of Incorporation...................................   2 
2.3          By-Laws.....................................................   2 
2.4          Directors and Officers......................................   2 

                                ARTICLE III                                   
      Conversion and Cancellation of Securities; Merger Consideration         
3.1          Conversion of Axle Common Stock.............................   3 
3.2          Payment for the Axle Common Stock...........................   3 
3.3          Stock Transfer Books........................................   4 
3.4          Dissenting Shares...........................................   4 
3.5          Disposition of Axle Options and ESPP Purchase Rights........   4 
3.6          Escheatment of Funds........................................   5 

                                ARTICLE IV                                    
                  Representations and Warranties of Axle                      
4.1          Organization and Qualification..............................   5 
4.2          Authorization; Enforceability...............................   5 
4.3          Required Vote of Axle Shareholders..........................   6 
4.4          State Takeover Statutes.....................................   6 
4.5          Organizational Documents....................................   6 
4.6          Capitalization; Subsidiaries................................   6 
4.7          Options.....................................................   7 
4.8          SEC Filings; Financial Statements...........................   7 
4.9          Proxy Statement.............................................   9 
4.10         Taxes.......................................................   9 
4.11         Material Contracts..........................................   9 
4.12         Real Property...............................................  10 
4.13         Litigation..................................................  11 
4.14         Compliance with Applicable Laws.............................  11 
4.15         No Violation................................................  11 
4.16         Intellectual Property.......................................  12 
4.17         Absence of Certain Changes..................................  12 
4.18         Insurance Policies..........................................  12 
4.19         Licenses and Permits........................................  13 
4.20         Employee Benefit Plans......................................  13 

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                                                                · Download Table

                                                                           PAGE
                                                                           ----
                                                                               
4.21          Environmental, Health and Safety Matters....................  14 
4.22          Labor Matters...............................................  14 
4.23          Opinion of Financial Advisor................................  14 
4.24          Brokers.....................................................  14 

                                  ARTICLE V                                    
      Representations and Warranties of the Buyer and the Buyer Parent         
5.1           Organization and Standing...................................  15 
5.2           Authorization; Enforceability...............................  15 
5.3           No Violation................................................  15 
5.4           Financing...................................................  15 
5.5           Litigation..................................................  16 
5.6           Governmental Approvals and Filings..........................  16 
5.7           Brokers.....................................................  16 

                                 ARTICLE VI                                    
                              Covenants of Axle                                
6.1           Conduct of Business.........................................  16 
6.2           Proxy Statement.............................................  18 
6.3           Axle Shareholders' Meeting..................................  18 
6.4           Filings; Consents; Etc. ....................................  18 
6.5           No Solicitation.............................................  18 
6.6           Schedules Update; Certain Notices...........................  19 
6.7           Financial Statements........................................  20 
6.8           Regulatory Filings..........................................  20 
6.9           Certain Real Estate Matters.................................  20 
6.10          Financing Cooperation.......................................  20 
6.11          Access to Information.......................................  21 

                                 ARTICLE VII                                   
                 Covenants of the Buyer and the Buyer Parent                   
7.1           Filings; Consents; Etc. ....................................  21 
7.2           Director and Officer Liability and Indemnification..........  21 
7.3           Regulatory Filing...........................................  22 
7.4           Financing...................................................  22 

                                ARTICLE VIII                                   
                     Conditions Precedent to the Closing                       
8.1           Conditions Precedent to Each Party's Obligations............  23 
8.2           Conditions Precedent to Obligations of the Buyer and the      24 
              Buyer Parent................................................     
8.3           Conditions Precedent to Obligations of Axle.................  25 

                                 ARTICLE IX                                    
                                   Closing                                     
9.1           Deliveries by Axle..........................................  25 
9.2           Deliveries by the Buyer and the Buyer Parent................  25 

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                           ARTICLE X                                    
                          Termination                                   
10.1   Termination.................................................  26 
10.2   Effect of Termination.......................................  27 
10.3   Termination Payments........................................  27 

                          ARTICLE XI                                    
                         Miscellaneous                                  
11.1   Notices, Consents, etc. ....................................  28 
11.2   Severability................................................  29 
11.3   Assignment; Successors......................................  29 
11.4   Counterparts; Facsimile Signatures..........................  29 
11.5   Expenses; Transfer Taxes....................................  29 
11.6   Governing Law...............................................  30 
11.7   Table of Contents and Headings..............................  30 
11.8   Definitions.................................................  30 
11.9   Entire Agreement............................................  34 
11.10  No Survival of Representations, Warranties, Covenants and     34 
       Agreements..................................................     
11.11  Third Parties...............................................  34 
11.12  Disclosure Generally........................................  34 
11.13  Acknowledgment by the Buyer and the Buyer Parent............  34 
11.14  Interpretive Matters........................................  35 
11.15  Amendments, Modification and Waiver.........................  35 
11.16  Submission to Jurisdiction..................................  35 
11.17  Waiver of Jury Trial........................................  35 
11.18  Specific Performance........................................  36 
11.19  Public Announcements........................................  36 

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GLOSSARY OF DEFINED TERMS 

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                                                               ----
                                                                   
1991 Plan...................................................     5 
2003 Plan...................................................     5 
Acquired Companies..........................................    39 
Acquired Companies' Knowledge...............................    39 
Acquisition Proposal........................................    40 
Acquisition Transaction.....................................    40 
Actions.....................................................    14 
Affiliate...................................................    40 
Aggregate ESPP Redemption Amount............................    40 
Aggregate Merger Consideration..............................    40 
Agreement...................................................     1 
Announcement Date...........................................    40 
Articles of Merger..........................................     2 
Axle........................................................     1 
Axle Board..................................................     1 
Axle Common Stock...........................................    40 
Axle Indemnified Parties....................................    28 
Axle Option.................................................     5 
Axle Preferred Stock........................................    40 
Axle SEC Documents..........................................     9 
Axle Shareholder Approval...................................     8 
Axle Shareholders...........................................    40 
Axle Shareholders' Meeting..................................    11 
Axle Subsidiaries...........................................    40 
Business....................................................    41 
Business Day................................................    41 
Buyer.......................................................     1 
Buyer Parent................................................     1 
Buyer Parent Common Stock...................................     6 
Buyer's Representatives.....................................    27 
Certificates................................................     4 
Change in Recommendation....................................    25 
Closing.....................................................     2 
Closing Date................................................     2 
Code........................................................    41 
Company Licensed Intellectual Property......................    15 
Company Owned Intellectual Property.........................    15 
Confidentiality Agreement...................................    41 
Consent.....................................................    41 
Contract....................................................    41 
Disclosure Schedule.........................................     7 
Dissenting Shares...........................................     5 

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Draft Financial Statements..................................    11 
Effective Time..............................................     2 
Employee Plan...............................................    41 
Environmental Claim.........................................    41 
Environmental Health and Safety Requirements................    41 
Equity Commitment Letter....................................    20 
ERISA.......................................................    42 
Escrow Breakage Amount......................................    30 
Escrow Breakage Cap.........................................    42 
Escrow Closing..............................................    30 
EscrowCo....................................................    30 
EscrowCo Debt...............................................    30 
ESPP........................................................     6 
ESPP Notice.................................................     6 
ESPP Purchase Period........................................    42 
ESPP Purchase Price.........................................    42 
ESPP Purchase Right.........................................    42 
ESPP Redemption Amount......................................    42 
Exchange Act................................................    42 
Expiration Date.............................................    42 
Financing...................................................    20 
Financing Letters...........................................    20 
First Person................................................    44 
FTC.........................................................    26 
GAAP........................................................    42 
Governmental Authority......................................    42 
Governmental Order..........................................    42 
HSR Act.....................................................    42 
Illinois Law................................................    42 
Indebtedness Commitment Letters.............................    20 
Insurance Policies..........................................    16 
Intellectual Property.......................................    43 
Last ESPP Issuance Date.....................................     9 
Law.........................................................    43 
Lease.......................................................    14 
Leased Property.............................................    14 
Lenders.....................................................    20 
Letter of Transmittal.......................................     4 
Liability...................................................    43 
Licenses and Permits........................................    43 
Lien........................................................    43 
Material Adverse Effect.....................................    43 
Material Contracts..........................................    12 
Material of Environmental Concern...........................    43 

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Merger......................................................     1 
Merger Consideration........................................     3 
Option Amount...............................................    44 
Option Consent..............................................     6 
Option Notice...............................................     5 
Option Payment Amount.......................................    44 
Option Price................................................    44 
Organizational Documents....................................    44 
Outside Date................................................    34 
Owned Property..............................................    13 
Parties.....................................................     1 
Party.......................................................     1 
Paying Agent................................................     4 
PBGC........................................................    18 
Permitted Liens.............................................    44 
Person......................................................    44 
Plan Affiliate..............................................    44 
Proxy Statement.............................................    11 
Real Property...............................................    14 
Reasonable Efforts..........................................    44 
Required Cash Amount........................................    20 
SEC.........................................................    44 
Securities Act..............................................    44 
Senior Debt Letter..........................................    20 
Stock Option Plan...........................................     5 
Subordinated Debt Letter....................................    20 
Substitute Debt Financing...................................    29 
Superior Proposal...........................................    44 
Supplemental Plan...........................................     5 
Surviving Corporation.......................................     2 
Tax Return..................................................    45 
Taxes.......................................................    45 
Threatened..................................................    45 
Title IV Plan...............................................    17 
Transaction Expenses........................................    45 
Updated Financial Statements................................    26 
Voting Agreement............................................     1 
Voting Group................................................     1 

EXHIBITS

EXHIBITS:                                                                       

Exhibit 1.2 -- Articles of Merger                                               

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AGREEMENT AND PLAN OF MERGER

  THIS AGREEMENT AND PLAN OF MERGER (this "Agreement") is made and entered
into as of February 22, 2005, by and among Axle Holdings, Inc., a Delaware      
corporation (the "Buyer Parent"), Axle Merger Sub, Inc., an Illinois corporation
and wholly owned subsidiary of the Buyer Parent (the "Buyer") and Insurance Auto
Auctions, Inc., an Illinois corporation ("Axle"). Each of the parties named     
above may be referred to as a "Party" and collectively as the "Parties."        
Capitalized terms used, but not otherwise defined, herein shall have the        
meanings set forth in Section 11.8.                                             

RECITALS

   A. The Parties hereto desire to enter into this Agreement and, subject to
the conditions hereof and in accordance with the provisions of Illinois Law,    
consummate the transactions contemplated hereby pursuant to which the Buyer     
Parent will acquire all of the capital stock of Axle through a merger of the    
Buyer with and into Axle (the "Merger"), following which Axle shall continue as 
the surviving corporation.                                                      

B. The Board of Directors of Axle (the "Axle Board") has approved and 
adopted the terms and conditions of this Agreement and the consummation of the  
transactions contemplated hereby, including the Merger, and has determined to   
submit the execution and delivery of this Agreement, and the consummation of the
transactions contemplated hereby to the Axle Shareholders for their approval and
adoption by the consents required under Illinois Law and Axle's Articles of     
Incorporation.                                                                  

C. The Axle Board has determined that the terms and conditions of this
Agreement and the consummation of the transactions contemplated hereby,         
including the Merger, are fair to and in the best interests of, and are         
advisable to, Axle and the Axle Shareholders, and the Axle Board recommends that
the Axle Shareholders vote to approve and adopt the execution and delivery of   
this Agreement and the consummation of the transactions contemplated hereby.    

    D. Axle, on the one hand, and the Buyer and the Buyer Parent, on the other
hand, desire to make certain representations, warranties, covenants and         
agreements in connection with the Merger and also prescribe various conditions  
to the Merger.                                                                  

E. Concurrently with the execution of this Agreement, ValueAct Capital
Partners, L.P. and certain of its affiliated entities (collectively, the "Voting
Group") are entering into a Voting Agreement (the "Voting Agreement") with the  
Buyer Parent providing, among other things, that, subject to the terms and      
conditions thereof, each of the members of the Voting Group will vote its shares
of Axle Common Stock (as hereinafter defined) in favor of the Merger and the    
approval and adoption of this Agreement.                                        

AGREEMENT 

In consideration of the foregoing and the respective representations, 
warranties, covenants and agreements set forth herein, and other good and       
valuable consideration, the receipt and sufficiency of which are hereby         
acknowledged, the Parties hereby agree as follows:                              

ARTICLE I 

THE MERGER

 1.1  The Merger.  Upon the terms and subject to the satisfaction of the
conditions set forth in this Agreement and in accordance with Illinois Law, at  
the Effective Time (as defined below), the Buyer shall be merged with and into  
Axle and as a result of the Merger, the separate corporate existence of the     
Buyer shall cease and Axle shall continue as the surviving corporation (in such 
capacity, the "Surviving Corporation") of the Merger.                           

     1.2  Closing; Effective Time: Filing of Articles of Merger.  Subject to the
fulfillment or waiver of each of the conditions contained in Article VIII, as   
soon as it is reasonably practicable on or after the later of May 2,            

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2005 or three (3) Business Days following the satisfaction or waiver of all of  
the conditions contained in Article VIII, other than those conditions which by  
their terms are to be satisfied or waived at Closing (but subject to the        
satisfaction or waiver of such conditions), a closing (the "Closing") shall take
place at the offices of Skadden, Arps, Slate, Meagher & Flom LLP, 4 Times       
Square, New York, New York (or such other place as the Parties may agree). The  
"Closing Date" shall be the date on which the Closing shall actually occur.     
Subject to the terms of this Agreement, the Parties shall, on the Closing Date, 
cause the Merger to be consummated by filing a properly executed articles of    
merger, in the form attached hereto as Exhibit 1.2, or other appropriate        
documents (the "Articles of Merger"), with the Secretary of State of the State  
of Illinois in accordance with the provisions of Illinois Law. When used herein,
the term "Effective Time" shall mean the date and time when the Articles of     
Merger have been accepted for filing by the Secretary of the State of Illinois  
or on such date and time as otherwise specified in the Articles of Merger.      

     1.3  Effect of the Merger.  At the Effective Time, the effect of the Merger
shall be as provided in the Articles of Merger and as provided by the applicable
provisions of Illinois Law. Without limiting the generality of the foregoing,   
and subject thereto, upon and following consummation of the Merger, all of the  
property, rights, privileges, powers and franchises of Axle and the Buyer shall 
vest in the Surviving Corporation, and all of the debts, liabilities,           
obligations, restrictions and duties of Axle and the Buyer shall become the     
debts, liabilities, obligations, restrictions and duties of the Surviving       
Corporation.                                                                    

 1.4  Additional Actions.  If, at any time after the Effective Time, the
Surviving Corporation shall consider or be advised that consistent with the     
terms of this Agreement any further assignments or assurances in Law or any     
other acts are necessary or desirable (a) to vest, perfect or confirm, of record
or otherwise, in the Surviving Corporation, title to and possession of any      
property or right of either of Axle or the Buyer acquired or to be acquired by  
reason of, or as a result of, the Merger, or (b) otherwise to carry out the     
purposes of this Agreement, then, subject to the terms and conditions of this   
Agreement, each of Axle or the Buyer and its officers and directors shall be    
deemed to have granted to the Surviving Corporation an irrevocable power of     
attorney to execute and deliver all such deeds, assignments and assurances in   
Law and to do all acts necessary or proper to vest, perfect or confirm title to 
and possession of such property or rights in the Surviving Corporation and      
otherwise to carry out the purposes of this Agreement; and the officers and     
directors of the Surviving Corporation are fully authorized in the name of      
either of Axle or the Buyer to take any and all such action.                    

ARTICLE II

THE SURVIVING CORPORATION 

    2.1  Name of Surviving Corporation.  The name of the Surviving Corporation
shall be Insurance Auto Auctions, Inc.                                          

    2.2  Articles of Incorporation.  The Articles of Merger shall include such
amendments, schedules or supplements as may be required under Illinois Law to   
provide that the Articles of Incorporation of the Surviving Corporation from and
after the Effective Time shall be, or be the same as, the Articles of           
Incorporation of the Buyer as in effect immediately prior to the Effective Time,
until thereafter changed or amended as provided therein or by applicable Law.   

   2.3  By-Laws.  The By-Laws of the Buyer as in effect immediately prior to
the Effective Time shall be the By-Laws of the Surviving Corporation from and   
after the Effective Time, until thereafter changed or amended as provided       
therein or by applicable Law.                                                   

2.4  Directors and Officers.  The board of directors of the Buyer     
immediately prior to the Effective Time shall be the initial board of directors 
of the Surviving Corporation, and the officers of Axle immediately prior to the 
Effective Time shall be the initial officers of the Surviving Corporation, in   
each case until their respective successors are duly elected or appointed and   
qualified. If, at the Effective Time, a vacancy shall exist on the board of     
directors of the Surviving Corporation or in any office of the Surviving        
Corporation, such vacancy may thereafter be filled in the manner provided by    
Law.                                                                            

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ARTICLE III 

CONVERSION AND CANCELLATION OF SECURITIES; MERGER CONSIDERATION 

    3.1  Conversion of Axle Common Stock.  As of the Effective Time, by virtue
of the Merger and without any action on the part of the Parties:                

          (a) Each share of Axle Common Stock issued and outstanding immediately
prior to the Effective Time shall be cancelled and extinguished and   
   converted into the right to receive an amount of cash equal to $28.25 per
Share (the "Merger Consideration").                                   

      (b) Each issued and outstanding share of Axle Common Stock that is
held in Axle's treasury or in the treasury of any subsidiary of Axle  
 immediately prior to the Effective Time, if any, shall be cancelled and
extinguished without the payment of any consideration therefor.       

       (c) Each share of capital stock of the Buyer issued and outstanding
    immediately prior to the Effective Time shall be converted into and become
  one validly issued, fully paid and non-assessable share of common stock,
par value $.01, of the Surviving Corporation.                         

3.2  Payment for the Axle Common Stock.                               

(a) The Buyer, with the consent of Axle (which consent shall not be   
unreasonably withheld), shall select an entity to act as paying agent (the      
"Paying Agent") in effecting the payment of the Aggregate Merger Consideration  
in respect of (i) stock certificates (the "Certificates") that, prior to the    
Effective Time, represented Axle Common Stock and exercised Axle Options, and   
(ii) ESPP Purchase Rights remaining in effect as of the Effective Time, entitled
to payment of the Aggregate Merger Consideration. At the Effective Time, the    
Buyer Parent shall deposit, or cause to be deposited, with the Paying Agent the 
Aggregate Merger Consideration. The expenses of and any indemnification         
obligations to the Paying Agent shall be the sole responsibility of the Buyer   
Parent and the Surviving Corporation. On or simultaneously with the Closing     
Date, Axle, the Buyer, the Buyer Parent and the Paying Agent shall enter into a 
paying agent agreement, on terms and conditions that are reasonably satisfactory
to the parties thereto.                                                         

(b) Within a reasonable period prior to the Effective Time, Axle shall
provide to the Paying Agent a form of letter of transmittal in a customary form 
mutually agreed upon by the Parties (the "Letter of Transmittal") which shall,  
among other things, specify that delivery shall be effected, and risk of loss   
and title to the Certificates shall pass, only upon proper delivery of the      
Certificates to the Paying Agent, and instructions for surrendering such        
Certificates and receiving the Merger Consideration in respect thereof. The     
Surviving Corporation shall cause the Paying Agent to mail, as soon as          
reasonably practicable after the Effective Time, the Letter of Transmittal to   
each Axle Shareholder of record at the Effective Time. Upon the surrender of    
each such Certificate for cancellation, together with such Letter of            
Transmittal, duly completed and validly executed, the Paying Agent shall, as    
promptly as practicable, (x) pay to the holder of such Certificate an aggregate 
amount equal to (i) the Merger Consideration multiplied by (ii) the number of   
shares of Axle Common Stock formerly represented by such Certificate, in        
consideration therefor, and such Certificate representing the Axle Common Stock 
shall forthwith be cancelled. Until so surrendered, each such Certificate (other
than Certificates representing Axle Common Stock held by Axle or held in the    
treasury of Axle) shall represent solely the right to receive the Merger        
Consideration multiplied by the number of shares of Axle Common Stock           
represented thereby. No interest or dividends shall be paid or accrued on the   
Merger Consideration. If the Merger Consideration (or any portion thereof) is to
be delivered to any Person other than the Person in whose name the Certificate  
formerly representing Axle Common Stock surrendered thereof is registered, it   
shall be a condition to such right to receive payment of such Merger            
Consideration that the Certificate so surrendered shall be properly endorsed or 
otherwise be in proper form for transfer and that the Person requesting such    
payment shall pay to the Paying Agent the transfer or other similar Taxes       
required by reason of payment of the Merger Consideration to a Person other than
the registered holder of the Certificate so surrendered, or shall establish to  
the satisfaction of the Paying Agent that such Tax has been paid or is not      
applicable. The Paying Agent shall withhold or deduct for Taxes as required     
under applicable Law.                                                           

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(c) In the event that any Certificate shall have been lost, stolen or 
destroyed, upon the making of an affidavit of that fact by the Person claiming  
such Certificate to be lost, stolen or destroyed and, if required by the        
Surviving Corporation, the posting by such Person of a bond, in such reasonable 
amount, and otherwise in such substance and form, as the Surviving Corporation  
may reasonably direct, as indemnity against any claim that may be made against  
the Surviving Corporation, the Buyer Parent and the Paying Agent with respect to
such Certificate, the Paying Agent will issue in exchange for such lost, stolen 
or destroyed Certificate the Merger Consideration to which such Person is       
entitled pursuant to this Article III.                                          

 3.3  Stock Transfer Books.  After the Effective Time, there shall be no
transfers on the stock transfer books of the Surviving Corporation of any shares
of Axle Common Stock which were outstanding immediately prior to the Effective  
Time. If, after the Effective Time, Certificates formerly representing shares of
Axle Common Stock are presented to the Surviving Corporation or the Paying      
Agent, they shall be surrendered and cancelled in return for the payment of the 
Merger Consideration.                                                           

     3.4  Dissenting Shares.  Notwithstanding any provision of this Agreement to
the contrary, shares of Axle Common Stock that are outstanding immediately prior
to the Effective Time and which are held by Axle Shareholders who shall not have
voted in favor of the Merger or consented thereto in writing and who shall have 
properly exercised dissenters' rights or rights of appraisal for such shares of 
Axle Common Stock in accordance with Illinois Law and who, as of the Effective  
Time, have not effectively withdrawn or lost such dissenters' rights            
(collectively, the "Dissenting Shares"), shall not be converted into or         
represent the right to receive any portion of the amounts to be paid pursuant to
Section 3.1, but the holders thereof shall only be entitled to such rights as   
are granted by Illinois Law. All Dissenting Shares held by Axle Shareholders who
shall have failed to perfect or who effectively shall have withdrawn or lost    
their dissenters' rights shall thereupon be deemed to have been converted into, 
and to have become exchangeable for, as of the later of the Effective Time or   
the occurrence of such event, the right to receive the Merger Consideration to  
be paid pursuant to this Article III, without any interest thereon, upon        
surrender, in the manner provided in Section 3.2, for the Certificates that     
formerly evidenced such shares. Axle shall not take any action relating to the  
Dissenting Shares prior to the Effective Time without the consent of the Buyer  
Parent, which consent shall not be unreasonably withheld or delayed.            

3.5  Disposition of Axle Options and ESPP Purchase Rights.            

(a) Except as set forth below, the Buyer Parent shall not assume any  
options to purchase shares of Axle Common Stock (except for any ESPP Purchase   
Right, each an "Axle Option") issued under Axle's 1991 Stock Option Plan, as    
amended (the "1991 Plan"), Axle's Supplemental Stock Option Plan, as amended    
(the "Supplemental Plan"), and Axle's 2003 Stock Incentive Plan, as amended (the
"2003 Plan," and together with the 1991 Plan and the Supplemental Plan,         
collectively, the "Stock Option Plan"), or any other options, warrants or other 
rights to acquire Axle Common Stock and as of the Effective Time all outstanding
Axle Options shall terminate, unless validly exercised prior thereto. Except as 
set forth below, no less than twenty (20) days prior to the Effective Time, Axle
shall notify each holder of an Axle Option in writing (the "Option Notice") of  
the terms of the Merger and that all Axle Options shall be immediately and fully
vested and exercisable, and that (i) all outstanding unexercised Axle Options   
granted under the 1991 Plan and the Supplemental Plan shall terminate as of the 
Effective Time, unless validly exercised prior thereto, and (ii) all outstanding
unexercised Axle Options granted under the 2003 Plan shall be cancelled as of   
the Effective Time in exchange for a cash payment equal to, with respect to each
such Axle Option, the excess of the Merger Consideration, if any, over the      
Option Price. The Axle Shareholders who have elected to exercise their Axle     
Options prior to the Expiration Date shall have the option to either (i) deliver
the Option Amount to the Paying Agent pursuant to the terms of the Option       
Notice, or (ii) receive an amount equal to the Option Payment Amount from the   
Paying Agent, so long as the Merger Consideration is greater than the Option    
Price. Notwithstanding the foregoing, upon the Merger, each Axle Option set     
forth on Schedule 3.5(a) of the Disclosure Schedule shall be converted into an  
option to acquire common stock, par value $0.01 per share of the Buyer Parent   
("Buyer Parent Common Stock") upon substantially the same terms and conditions  
(including per share exercise price) as were in effect immediately prior to the 
Merger, provided such option holder executes a Consent to such conversion (the  
"Option Consent") in a form satisfactory to the Buyer Parent.                   
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     (b) As of the Announcement Date, the Axle Board shall cause Axle's Employee
Stock Purchase Plan, as amended and restated as of June 16, 2004 (the "ESPP"),  
to be amended to provide that no future contributions to the ESPP shall be      
allowed following such date. At such time, Axle shall cause contributions to the
ESPP to be discontinued and shall notify each participant in the ESPP of such   
discontinuation. To the extent any ESPP Purchase Right exists for any           
participant in the ESPP as of the Effective Time, then, in lieu of such         
participant receiving Axle Common Stock pursuant to the exercise of an ESPP     
Purchase Right, such ESPP Purchase Right shall be purchased from such           
participant (through a payment from the Paying Agent) in an amount equal to the 
ESPP Redemption Amount. Within a reasonable period prior to the Effective Time, 
Axle shall provide to the Paying Agent a form of letter of transmittal in a     
customary form mutually agreed upon by the Parties (the "ESPP Notice") which    
shall, among other things, notify each participant who has an ESPP Purchase     
Right of the terms of the Merger, and of such participant's ESPP Redemption     
Amount. The Buyer Parent shall cause the Paying Agent to mail on or immediately 
following the Effective Time the ESPP Notice and the ESPP Redemption Amount to  
each participant who has an ESPP Purchase Right. As of the Effective Time, the  
ESPP shall be terminated by the Surviving Corporation. Notwithstanding anything 
to the contrary in this Section 3.5(b), to the extent this Agreement is         
terminated and the Merger is not consummated pursuant to the terms set forth    
herein, Axle, shall have the right, in its sole discretion, to reinstate or     
terminate the ESPP.                                                             

    (c) Axle shall use Reasonable Efforts to obtain all Consents required from
any third party or option holder and take, or cause to be done, all things      
necessary and proper or advisable in compliance with the terms and conditions of
the Stock Option Plan and the ESPP (including obtaining the Option Consents     
referred to in Section 3.5(a) and the Consents of holders of Axle Options under 
the 2003 Plan to the treatment described in Section 3.5(a)) to consummate and   
make effective, as soon as practicable, the transactions contemplated by        
Sections 3.5(a) and 3.5(b) hereof.                                              

    3.6  Escheatment of Funds.  None of the Parties nor any other Person shall
be liable to any former Axle Shareholder for any amount properly delivered to a 
public official pursuant to applicable abandoned property, escheat or similar   
Laws. Any such amounts remaining unclaimed by any Axle Shareholder immediately  
prior to such time when such amounts would otherwise escheat to or become the   
property of any Governmental Authority, shall, to the extent permitted by       
applicable Laws, become the property of the Buyer Parent, free and clear of all 
claims or interest of any Person previously entitled thereto.                   

ARTICLE IV

REPRESENTATIONS AND WARRANTIES OF AXLE

Except as set forth in the corresponding numbered sections of Axle's  
disclosure schedule delivered concurrently with the delivery of this Agreement, 
after giving effect to Section 11.12 (the "Disclosure Schedule"), Axle hereby   
represents and warrants to the Buyer and the Buyer Parent with respect to the   
matters specified in this Article IV as follows:                                

    4.1  Organization and Qualification.  Each of the Acquired Companies is an
entity duly organized, validly existing and in good standing under the Laws of  
its jurisdiction of formation. Each of the Acquired Companies has the requisite 
entity power and authority to carry on its business as it is now being          
conducted. Each of the Acquired Companies is duly qualified to conduct business 
as a foreign entity and is in good standing under the Laws of each jurisdiction 
where the nature of its business or the ownership or leasing of its property    
requires such qualification, except for such jurisdictions where the failure to 
be qualified would not, individually or in the aggregate, reasonably be expected
to have a Material Adverse Effect.                                              

4.2  Authorization; Enforceability.                                   

 (a) Axle has the requisite corporate power and authority to execute and
deliver this Agreement and to perform its obligations under this Agreement and  
to consummate the transactions contemplated by this Agreement; provided, that,  
the Axle Shareholder Approval is required for Axle to consummate the Merger. The
execution and delivery of this Agreement and the performance of Axle's          
obligations hereunder have been duly and validly authorized by all necessary    
corporate action on the part of Axle, and no other corporate                    
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proceedings on the part of Axle are necessary to authorize the execution,       
delivery and performance of this Agreement (subject to, in the case of the      
Merger, obtaining the Axle Shareholder Approval). This Agreement has been duly  
executed and delivered by Axle and, assuming the due authorization, execution   
and delivery in each case by the other Parties hereto, will constitute, upon    
such execution and delivery, legal, valid and binding obligations of Axle,      
enforceable against Axle in accordance with its terms and conditions, except as 
such enforceability may be limited by applicable bankruptcy, insolvency,        
reorganization, moratorium or other similar Laws affecting the enforcement of   
creditors rights generally, and general principles of equity (regardless of     
whether such enforceability is considered in a proceeding in Law or equity).    

     (b) The Axle Board, at a meeting duly called and held, and not rescinded or
modified in any way, has by unanimous vote of all its members (other than any   
recused members) duly (i) approved this Agreement and determined that this      
Agreement and the transactions contemplated hereby, including the Merger, are   
advisable in the best interests of, the holders of Axle Common Stock, and (ii)  
resolved to recommend that the holders of Axle Common Stock vote for approval   
and adoption of this Agreement.                                                 

4.3  Required Vote of Axle Shareholders.  The affirmative vote of     
two-thirds ( 2/3) of the votes of the shares of the Axle Common Stock entitled  
to vote thereon is the only vote of any class or series of capital stock of Axle
required by Illinois Law or Axle's Organizational Documents to adopt this       
Agreement (the "Axle Shareholder Approval").                                    

4.4  State Takeover Statutes.  The Axle Board has taken all actions   
necessary so that the restrictions contained in Section 7.85 and Section 11.75  
of the Illinois Law applicable to a business combination (as defined in Section 
11.75 thereof) will not apply to the execution, delivery or performance of this 
Agreement or the Voting Agreement, the consummation of the Merger or other      
transactions contemplated by this Agreement or the Voting Agreement. True,      
correct and complete copies of all resolutions of the Axle Board reflecting such
actions have been provided to the Buyer Parent. No other state takeover statute 
or similar statue or regulation is applicable to or purports to be applicable to
the Merger or any of the transactions contemplated by this Agreement.           

     4.5  Organizational Documents.  Axle has made available to the Buyer Parent
copies of each of the Acquired Companies respective Organizational Documents as 
currently in effect, and such copies are true and complete as of the date       
hereof.                                                                         

4.6  Capitalization; Subsidiaries.                                    

   (a) The authorized capital stock of Axle consists of 20,000,000 shares of
Axle Common Stock and 5,000,000 shares of Axle Preferred Stock. As of the close 
of business on February 18, 2005, (a) 11,850,796 shares of Axle Common Stock    
were issued and outstanding, all of which are validly issued, fully paid and    
nonassessable; (b) no shares of Axle Preferred Stock were issued or outstanding;
(c) 906,514 shares of Axle Common Stock were held in the treasury of Axle; (d)  
484,846 shares of Axle Common Stock were reserved for issuance upon the exercise
of outstanding options to purchase Axle Common Stock under the 2003 Plan; (e)   
1,216,410 shares of Axle Common Stock were reserved for issuance upon the       
exercise of outstanding options to purchase Axle Common Stock under the 1991    
Plan; (f) 7,000 shares of Axle Common Stock were reserved for issuance upon the 
exercise of outstanding options to purchase Axle Common Stock under the         
Supplemental Plan; (g) 133,007 shares of Axle Common Stock were available for   
future grant under the 2003 Plan; (h) no shares of Axle Common Stock were       
available for future grant under the 1991 Plan; (i) 39,390 shares of Axle Common
Stock were available for future grant under the Supplemental Plan; and (j)      
83,524 shares of Axle Common Stock were available for future purchase under the 
ESPP. All of the outstanding shares of Axle Common Stock are, and all of the    
shares of Axle Common Stock issuable pursuant to the exercise of outstanding    
Axle Options and ESPP Purchase Rights will be, when issued in accordance with   
the respective terms thereof, issued and granted in compliance with all         
applicable securities laws and other applicable Laws, and are, or will be, duly 
authorized, validly issued, fully paid and nonassessable and free and clear of  
any and all Liens. Except as set expressly forth in this Section 4.6(a), there  
are no other shares of common stock or equity interests or other ownership      
interests of any class of Axle or any Axle Subsidiary, or any security          
exchangeable into or exercisable for such equity securities or other ownership  
interests, issued, reserved for issuance or outstanding. Since February 18,     
2005, no shares of Axle                                                         
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Common Stock have been issued or agreed to have been issued by any Acquired     
Company, except (A) upon the exercise of Axle Options issued and outstanding as 
of the close of business on February 18, 2005 or (B) if the Effective Time      
occurs on or after July 1, 2005, as a result of the exercise of ESPP Purchase   
Rights outstanding on the Announcement Date in a manner consistent with past    
operation of the ESPP. The weighted average exercise price of all Axle Options  
set forth on Schedule 4.6 of the Disclosure Schedule is $13.5235. As of the date
hereof, $75,878.94 has been contributed to the ESPP since the last bi-annual    
date that shares of Axle Common Stock were issued pursuant to the ESPP (the     
"Last ESPP Issuance Date") and following the Last ESPP Issuance Date no funds   
remained in the ESPP with respect to contributions prior to the Last ESPP       
Issuance Date. Assuming that the fair market value of Axle Common Stock at the  
end of the ESPP purchase period in which this Agreement has been executed is    
greater than the fair market value of Axle Common Stock at the beginning of such
purchase period, no more than 4,076 shares of Axle Common Stock will be issuable
under the ESPP in respect of funds contributed to the ESPP if the Effective Time
were to occur on or after July 1, 2005, and the aggregate ESPP Redemption Amount
(with respect to all ESPP Purchase Rights), pursuant to Section 3.5(b), shall   
not exceed $39,275. Except as set forth on Schedule 4.6 of the Disclosure       
Schedule, Axle has no subsidiaries and owns no equity securities or other       
ownership interest of any other corporation, partnership or other entity. Axle  
is not a participant in any joint venture or similar arrangement. Schedule      
4.6(a)(ii) of the Disclosure Schedule is a true and complete schedule of Axle's 
outstanding indebtedness (including letters of credit, capitalized leases and   
maximum amounts payable pursuant to earnout obligations) as of the close of     
business on February 18, 2005.                                                  

   (b) Exhibit 21.1 to Axle's Annual Report on Form 10-K for the fiscal year
ended December 28, 2003 sets forth a list of all of the Axle Subsidiaries and   
their respective jurisdictions of incorporation. All of the issued and          
outstanding shares of capital stock or other equity interests of each Axle      
Subsidiary are validly issued, fully paid and non-assessable, are owned by Axle 
or one or more Axle Subsidiaries, free and clear of any and all Liens.          

4.7  Options.  Except as set forth on Schedule 4.6 of the Disclosure  
Schedule, there are no outstanding options, rights (preemptive or otherwise), or
warrants to acquire capital stock from any of the Acquired Companies, and no    
calls, convertible or exchangeable securities, commitments, subscriptions or    
other rights or any other arrangements to which any of the Acquired Companies is
a party requiring the issuance, sale or transfer of any equity securities of    
such entities, voting securities or any securities convertible directly or      
indirectly into equity securities or exchangeable for capital stock of any of   
such entities, or evidencing the right to subscribe for any equity securities of
any of the Acquired Companies, or giving any Person (other than the Buyer Parent
and the Buyer) any rights with respect to any equity securities of any of the   
Acquired Companies.                                                             

4.8  SEC Filings; Financial Statements.                               

(a) Axle has timely filed with the SEC all forms, reports, schedules, 
statements and other documents required to be filed by it since January 1, 2002 
under the Exchange Act or the Securities Act (as such documents have been       
amended since the time of their filing and all documents incorporated by        
reference therein, collectively, the "Axle SEC Documents"). No Axle Subsidiary  
is required to file any form, report, schedule, statement or other document with
the SEC. As of their respective dates and if amended prior to the date hereof,  
as of the date of the last such amendment, the Axle SEC Documents including,    
without limitation, any financial statements or schedules included therein (i)  
did not contain any untrue statement of a material fact or omit to state a      
material fact required to be stated therein or necessary in order to make the   
statements therein, in the light of the circumstances under which they were     
made, not misleading, and (ii) complied in all material respects with the       
applicable requirements of the Exchange Act and the Securities Act, as the case 
may be, at such time of filing.                                                 

     (b) Axle and each of its officers and directors are in compliance with, and
have complied, in all material respects with (i) the applicable provisions of   
the Sarbanes-Oxley Act of 2002 and the related rules and regulations promulgated
thereunder, and (ii) the applicable listing and corporate governance rules and  
regulations of NASDAQ. The management of Axle has (i) implemented disclosure    
controls and procedures (as defined in Rule 13a-15(e) of the Exchange Act) to   
ensure that material information relating to the                                

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Acquired Companies is made known to the management of Axle by others within     
those entities, and (ii) disclosed, based on its most recent evaluation, to     
Axle's outside auditors, the audit committee of the Axle Board and the Buyer    
Parent (A) all significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting (as defined in Rule      
13a-15(f) of the Exchange Act) that are reasonably likely to materially affect  
Axle's ability to record, process, summarize and report financial data, and (B) 
any fraud, whether or not material, known to management that involves management
or other employees who, in each case, have a significant role in Axle's internal
control over financial reporting. There have been no material changes since     
December 26, 2004 in Axle's internal controls or in other factors that could    
significantly affect Axle's internal controls, or any significant deficiencies  
or material weaknesses in such internal controls requiring corrective actions.  
Axle has delivered to the Buyer Parent complete and accurate copies of notices  
received from its independent auditor prior to the date hereof of any           
significant deficiencies or material weaknesses in Axle's internal control over 
financial reporting since December 28, 2003 and any other management letter or  
similar correspondence from any independent auditor of Axle or any Axle         
Subsidiary received since December 28, 2003. Axle is implementing such programs 
and is taking such steps as it believes are necessary to effect compliance (not 
later than the relevant statutory and regulatory deadline therefor) with all    
provisions of Section 404 of the Sarbanes-Oxley Act that will become applicable 
to Axle and has not received, orally or in writing, any notification that its   
independent auditor (i) believes that Axle will not be able to complete its     
assessment before the reporting deadline, or, if completed, that it will not be 
completed in sufficient time for the independent auditor to complete its        
assessment, or (ii) will not be able to issue unqualified attestation reports   
with respect thereto. As of December 26, 2004, there were not, and as of the    
date hereof there are not, any significant deficiencies or material weaknesses  
(as such terms are defined in PCAOB Audit Standard No. 2) in Axle's internal    
controls with respect to financial reporting requiring corrective action, and   
neither Axle's independent auditor nor any accounting firm, if any, which have  
reviewed Axle's internal controls have indicated to Axle that such auditor or   
firm believes any significant deficiencies or material weaknesses in internal   
controls with respect to financial reporting exist.                             

    (c) Each set of consolidated financial statements (including in each case,
any related notes thereto), contained in the Axle SEC Documents (i) was prepared
from the books and records of Axle and the Axle Subsidiaries, (ii) was prepared 
in accordance with GAAP applied on a consistent basis throughout the periods    
involved (except as may be indicated therein or in the notes thereto or, in the 
case of unaudited statements, do not contain footnotes as permitted by Form 10-Q
of the Exchange Act), (iii) complied in all material respects with all          
applicable accounting requirements and with the published rules and regulations 
of the SEC with respect thereto as in effect on the date of filing, (iv) except 
with respect to the unaudited financial statements contained in the Axle SEC    
Documents filed on form 10-Q of the Exchange Act, was accompanied by unqualified
reports from the independent auditor opining on the same as to the financial    
statements contained therein and (v) fairly presents, in all material respects, 
the consolidated financial position of Axle and the consolidated Axle           
Subsidiaries as of their respective dates and the consolidated results of their 
respective operations and cash flows for the periods indicated therein, except  
that the unaudited interim financial statements were or are subject to normal   
year end adjustments which were not or are not expected to be material in       
amount.                                                                         

(d) Prior to the date hereof, Axle has delivered to the Buyer Parent a
draft consolidated balance sheet of Axle and the Axle Subsidiaries as of        
December 26, 2004 and drafts of the consolidated income statement and statement 
of cash flows for the year ended December 26, 2004 (collectively, the "Draft    
Financial Statements"). The Draft Financial Statements were prepared from the   
books and records of Axle and the Axle Subsidiaries, and fairly present, in all 
material respects, the consolidated financial position of Axle and the          
consolidated Axle Subsidiaries as of date indicated therein and the consolidated
results of their respective operations and cash flows for the period then ended,
subject to any audit by Axle's auditor.                                         

(e) Except (i) as reserved against in the consolidated balance sheet  
(including the notes thereto) of Axle included in its Annual Report on Form 10-K
for the fiscal year ended December 28, 2003, and (ii) for Liabilities incurred  
since December 28, 2003 in the ordinary course of business consistent with past 
practice, to the Acquired Companies' Knowledge, neither Axle nor any of the Axle
Subsidiaries have any Liabilities of any nature (whether or not required by GAAP
to be reflected in the audited financial statements of Axle and                 

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the Axle Subsidiaries) except for such Liabilities which would not, individually
or in the aggregate, reasonably be expected to have a Material Adverse Effect.  

   4.9  Proxy Statement.  The proxy statement or information statement to be
sent to the Axle Shareholders in connection with the meeting of Axle            
Shareholders to consider the adoption of this Agreement, including any          
adjournment or postponement thereof (the "Axle Shareholders' Meeting") (such    
proxy statement or information statement, as amended or supplemented, is herein 
referred to as the "Proxy Statement"), on the date first mailed to the Axle     
Shareholders, at the time of any amendment or supplement thereto and at the time
of Axle Shareholders' Meeting, will not contain any untrue statement of a       
material fact or omit to state a material fact necessary in order to make the   
statements therein, in the light of the circumstances under which they were     
made, not misleading. The Proxy Statement will, when filed by Axle with the SEC,
comply in all material respects with the applicable provisions of the Exchange  
Act, and the rules and regulations thereunder. Notwithstanding the foregoing,   
Axle makes no representation or warranty with respect to information supplied by
or on behalf of the Buyer Parent or the Buyer specifically for inclusion in the 
Proxy Statement or any amendment or supplement thereto.                         

     4.10  Taxes.  Except where the failure to do so would not have or result in
a Material Adverse Effect or except as set forth on Schedule 4.10 of the        
Disclosure Schedule:                                                            

          (a) The Acquired Companies have timely filed, or have timely filed for
extensions to file, all Federal income and other material Tax Returns 
    required to be filed by them through the date hereof. Such Tax Returns are
     true, correct and complete in all material respects. The Acquired Companies
    have timely paid and discharged all Taxes due and payable by them (whether
  or not shown on such Tax Returns). The Acquired Companies have withheld,
    collected and paid over to the appropriate Governmental Authorities or are
    properly holding for such payment all Taxes required by Law to be withheld
or collected.                                                         

          (b) None of the Acquired Companies is a party to any Tax allocation or
sharing agreement.                                                    

         (c) None of the Acquired Companies is a member of an affiliated group
 within the meaning of Section 1504(a) of the Code (or any similar group
     defined under a similar provision of state, local, or foreign Law) filing a
   consolidated Federal income Tax Return or has any Liability for the Taxes
 of any Person (other than any of the Acquired Companies) under Treasury
  Regulation Section 1.1502-6 or any analogous or similar provision of Law
(other than the affiliated group of which Axle is the common parent). 

        (d) There are not being conducted or Threatened any material audits,
     examinations, investigations, litigation or other proceedings in respect of
Taxes of the Acquired Companies.                                      

         (e) No Acquired Company has consented to extend the time in which any
Tax may be assessed or collected by any taxing authority.             

4.11  Material Contracts.  Except as filed as exhibits to the Axle SEC
Documents filed prior to the date hereof or as listed or described on Schedule  
4.11 of the Disclosure Schedule, as of the date hereof, none of the Acquired    
Companies is a party to or bound by (i) any "material contract" (as such term is
defined in Item 601(b)(10) of Regulation S-K) or (ii) any Contract of the type  
described below (such Contracts of the type described in (i) and (ii), are      
herein referred to as the "Material Contracts"):                                

          (a) any consulting agreement or employment agreement that provides for
annual compensation exceeding $150,000 per year and which cannot be   
  terminated by the Acquired Companies without penalty on notice of thirty
     (30) days or less, and any collective bargaining arrangement with any labor
union and any such agreements currently in negotiation or proposed;   

         (b) any Contract for capital expenditures or the acquisition of fixed
assets in excess of $500,000;                                         

         (c) any Contract for the purchase, maintenance or acquisition, or the
     sale or furnishing of materials, supplies, merchandise, equipment, parts or
     other property or services requiring remaining aggregate future payments in
excess of $250,000;                                                   

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        (d) any Contract that restricts or purports to restrict the right of
    any Acquired Company, or, to Acquired Companies' Knowledge, any officer or
  key executive of any of the Acquired Companies, to engage in any line of
 business or in any geographic area, compete with any Person or sell any
product;                                                              

      (e) any Contract relating to the acquisition or disposition of any
material assets or Real Property;                                     

        (f) any Contract relating to the borrowing of money, or the guaranty
of another Person's borrowing of money or other obligation, including,
     without limitation, all notes, mortgages, indentures and other obligations,
  guarantees of performance, agreements and instruments for or relating to
any lending or borrowing, including assumed indebtedness;             

      (g) any Contract granting any Person a material Lien on all or any
  part of the material assets of the Acquired Companies, taken as a whole,
other than Liens which will be released at the Closing;               

          (h) any Contract between Axle and any of the Axle Subsidiaries, on the
     one hand, and any of their respective officers or directors (or Affiliates)
    on the other hand, except for such Contracts that are made in the ordinary
course of business or that are de minims in value or effect;          

     (i) any voting or other Contract governing how any shares of Axle
Common Stock shall be voted; or                                       

      (j) any Contract under which any of the Acquired Companies (i) has
   granted or received a material license or sublicense, (ii) under which it
   is obligated to pay or has the right to receive a royalty, license fee or
     similar payment in an amount in excess of $250,000, other than licenses for
commercially available prepackaged software, or (iii) restricting the 
Acquired Companies rights to use or register any intellectual property
owned or purported to be owned by the Acquired Companies.             

   The Acquired Companies have made available to the Buyer Parent a true and
complete copy of each written Material Contract. Except as set forth on Schedule
4.11 of the Disclosure Schedule, each Material Contract is in full force and    
effect, represents a valid and binding obligation of the applicable Acquired    
Company, and, to Acquired Companies' Knowledge, a valid and binding obligation  
of each other party thereto, and is enforceable against each party thereto in   
accordance with its terms, except as such enforceability may be limited by      
applicable bankruptcy, insolvency, reorganization, moratorium or other similar  
Laws affecting the enforcement of creditors rights generally, and general       
principles of equity (regardless of whether such enforceability is considered in
a proceeding in Law or equity). Each of the Acquired Companies has performed in 
all material respects all obligations required to be performed by it under each 
Material Contract, and to Acquired Companies' Knowledge, each other party to    
each Material Contract has performed in all material respects all obligations   
required to be performed by it under such Material Contract.                    

4.12  Real Property.                                                  

     (a) Schedule 4.12 of the Disclosure Schedule sets forth a true and complete
list of all real estate (i) in which any of the Acquired Companies have an      
ownership interest (such real estate owned by the Acquired Companies is herein  
referred to as the "Owned Property") and (ii) all real property leased or       
subleased by any of the Acquired Companies (such real property leased or        
subleased by any of the Acquired Companies is herein referred to as the "Leased 
Property"; the Owned Property and the Leased Property being referred to         
collectively herein as the "Real Property"). Each Acquired Company has good,    
valid and marketable fee simple title to each parcel of Owned Property owned by 
such Acquired Company, free and clear of all Liens except for Permitted Liens.  
Each Acquired Company has a valid unencumbered leasehold interest in the Leased 
Property leased or subleased by such Acquired Company, in each case free and    
clear of all Liens, except for (i) Liens listed or described on Schedule 4.12 of
the Disclosure Schedule, or (ii) Permitted Liens. Except as set forth on        
Schedule 4.12 of the Disclosure Schedule, the Real Property constitutes all real
properties currently used or occupied by the Acquired Companies in connection   
with the Business.                                                              

     (b) The Acquired Companies have made available to the Buyer Parent true and
complete copies of each underlying lease or sublease with respect to each Leased
Property (each, a "Lease") and all other material agreements pertaining to the  
Real Property. With respect to each of the Leases: (i) there are no existing    
monetary defaults or material non-monetary defaults under any Lease by any      
Acquired Company or, to                                                         
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Acquired Companies' Knowledge, the lessor thereof; (ii) to Acquired Companies'  
Knowledge, no event has occurred which (with notice, lapse of time or both)     
would constitute a monetary breach or default or material non-monetary breach or
default under any Lease by any party; (iii) each Acquired Company's possession  
and quiet enjoyment of any Leased Property under such Lease has not been        
disturbed in any material respect; and (iv) except as set forth on Schedule 4.12
of the Disclosure Schedule, no Acquired Company has assigned its interest under 
any Lease or sublet any part of the premises covered thereby or exercised any   
right or option thereunder.                                                     

4.13  Litigation.                                                     

   (a) Except as disclosed in the Axle SEC Documents filed prior to the date
hereof or as set forth on Schedule 4.13(a) of the Disclosure Schedule, (i) there
are no suits, actions, proceedings, investigations, claims or orders            
(collectively, "Actions") pending or, to Acquired Companies' Knowledge,         
Threatened, against, the Acquired Companies or any of their respective          
properties, officers or directors, or for which any of the Acquired Companies is
obligated to indemnify a third party, before any court or Governmental          
Authority, agency or official, which, if the relief request is granted, would,  
individually or in the aggregate, reasonably be expected to have a Material     
Adverse Effect, and (ii) no Acquired Company is subject to any Governmental     
Order.                                                                          

(b) Except as set forth on Schedule 4.13(b) of the Disclosure Schedule
(which shall be updated prior to Closing as required by Section 6.6(a)), there  
are no Actions pending or, to Acquired Companies' Knowledge, Threatened, against
or otherwise affecting Axle or any of the Axle Subsidiaries relating to "clean  
title" matters (including the types of claims which are the subject of dispute  
in the matter captioned Gridley v. State Farm Automobile Insurance Company) or  
any claim or Action brought under the Racketeer Influenced and Corrupt          
Organizations Act.                                                              

     4.14  Compliance with Applicable Laws.  Except as disclosed in the Axle SEC
Documents filed prior to the date hereof or as set forth or referred to on      
Schedule 4.14 of the Disclosure Schedule and except where any such violation or 
failure to comply would not, individually or in the aggregate, reasonably be    
expected to have a Material Adverse Effect, since January 1, 2002, each of the  
Acquired Companies has complied in all material respects with all Laws          
applicable to it or to the operation of the Business, or by which any property  
or asset of any of the Acquired Companies is bound or affected.                 

4.15  No Violation.                                                   

(a) Except as set forth on Schedule 4.15 of the Disclosure Schedule,  
neither the execution and delivery of this Agreement, nor the performance by    
Axle of the transactions contemplated hereby will (i) constitute a default      
under, or violate any provision of, the Organizational Documents of any of the  
Acquired Companies, (ii) result in a default (or an event which with notice or  
lapse of time or both would become a default) or breach, or give rise to any    
right of termination, cancellation or acceleration, or require any Consent      
under, or result in the creation of a Lien on any property or asset of any of   
the Acquired Companies pursuant to the terms, conditions or provisions of any   
Contract or other instrument or obligation to which an Acquired Company is a    
party, or (iii) conflict with or violate any Laws applicable to an Acquired     
Company or by which any of its respective properties or assets is bound, except 
with respect to clauses (ii) and (iii), for any such conflicts, violations,     
breaches, defaults or other occurrences which would not, individually or in the 
aggregate, reasonably be expected to (x) have a Material Adverse Effect or (y)  
prevent or materially delay the performance of this Agreement by Axle or the    
ability of Axle to take any action necessary to consummate the Merger.          

    (b) The execution and delivery of this Agreement by Axle does not, and the
performance of this Agreement by Axle will not, require any Consent or permit   
of, or filing with, or notification to, any Governmental Authority or any other 
Person (assuming the Axle Shareholder Approval is obtained), except (i) under   
the Exchange Act, the Securities Act, any applicable blue sky laws, or the rules
and regulations of NASDAQ, (ii) under the HSR Act, (iii) the filing and         
recordation of the Articles of Merger as required under Illinois Law and (iv)   
for such other Consents, filings or notifications, the failure of which to make 
or obtain, would not, individually or in the aggregate, reasonably be expected  
to (x) have a Material Adverse                                                  

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Effect or (y) prevent or materially delay the performance of this Agreement by  
Axle or the ability of Axle to take any action necessary to consummate the      
Merger.                                                                         

4.16  Intellectual Property.                                          

  (a) Schedule 4.16(a) of the Disclosure Schedule sets forth a list of all
(i) trademark and service mark registrations and pending registration           
applications, trade names, Acquired Companies names, and domain names, (ii)     
patents and pending patent applications, (iii) copyright registrations and      
registration applications, and (iv) computer software (other than commercially  
available prepackaged computer software generally available to the public       
pursuant to non-exclusive end-user licenses with an acquisition price of less   
than $10,000), which are, in each case, either (x) owned or purported to be     
owned by one or more of the Acquired Companies (the "Company Owned Intellectual 
Property") or (y) material to the operation of the Business and are owned by    
third parties and used or held for use pursuant to a valid license by one or    
more of the Acquired Companies (the "Company Licensed Intellectual Property").  
Schedule 4.16 of the Disclosure Schedule additionally sets forth a list of all  
material license agreements and arrangements with respect to any of the         
Intellectual Property to which any of the Acquired Companies is a party, whether
as licensee, licensor or otherwise (other than non-exclusive end-user licenses  
for commercially available prepackaged computer software generally available to 
the public). The Acquired Companies are the sole and exclusive owners of all    
Company Owned Intellectual Property.                                            

     (b) Except as set forth on Schedule 4.16(b) of the Disclosure Schedule, and
except as would not, individually or in the aggregate, reasonably be expected to
have a Material Adverse Effect (i) to Acquired Companies' Knowledge, none of the
Acquired Companies has infringed or misappropriated, or is now infringing or    
misappropriating, the intellectual property rights of any third parties, (ii)   
there is no, nor has there been in the past three (3) years, any claim pending  
or, to Acquired Companies' Knowledge, Threatened, against any of the Acquired   
Companies with respect to the alleged infringement or misappropriation by the   
Acquired Companies of any intellectual property rights of others, and (iii) to  
Acquired Companies' Knowledge, no third party is infringing or misappropriating 
the Intellectual Property and no claim against a third party with respect to the
alleged infringement or misappropriation of the Intellectual Property is        
currently, nor in the past three (3) years has been, pending or Threatened.     

 (c) The consummation of the transactions contemplated by this Agreement
will not result in the material loss or impairment of or payment of any         
additional material amounts with respect to, nor require the consent of any     
other Person in respect of, the Acquired Companies' right to own, use, or hold  
for use any of the Company Owned Intellectual Property or Company Licensed      
Intellectual Property.                                                          

    4.17  Absence of Certain Changes.  Since September 30, 2004, except as set
forth in the Axle SEC Documents filed prior to the date hereof, or as set forth 
on Schedule 4.17 of the Disclosure Schedule and except as specifically          
contemplated by this Agreement, (a) the Acquired Companies have conducted their 
respective operations only in the ordinary course of business consistent with   
past practices, (b) there has not been a Material Adverse Effect, and (c) none  
of the Acquired Companies has taken any action that, if taken during the period 
between the date of this Agreement through the Effective Time, would constitute 
a violation of Section 6.1.                                                     

  4.18  Insurance Policies.  The Acquired Companies have made available to
the Buyer Parent correct and complete copies of all material insurance policies,
including without limitation, general liability policies, product liability,    
comprehensive general liability and umbrella insurance policies maintained as of
the date hereof by the Acquired Companies (the "Insurance Policies"), together  
with descriptions of "self-insurance" programs. All Insurance Policies are valid
and in full force and effect and none of the Acquired Companies are in material 
default under any of the Insurance Policies. Schedule 4.18 of the Disclosure    
Schedule lists each material claim made under an Insurance Policy at any time   
during the one year period prior to the date hereof. None of the Acquired       
Companies has received written notice under any Insurance Policy denying or     
disputing any claim (or coverage with respect thereto) made by an Acquired      
Company or regarding the termination, cancellation or material amendment of, or 
material premium increase with respect to, any Insurance Policy, in each case,  
at any time during the two year period prior to the date hereof.                

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 4.19  Licenses and Permits.  The Acquired Companies possess, and at all
times since January 1, 2003 have possessed, all Licenses and Permits necessary  
for the conduct of the Business as currently conducted by the Acquired          
Companies, except where the failure to hold such Licenses and Permits,          
individually or in the aggregate, would not reasonably be expected to have or   
result in a Material Adverse Effect. The Acquired Companies are, and at all     
times since January 1, 2003, have been, in compliance with the terms and        
conditions of the Licenses and Permits, and none of the Acquired Companies has  
received written notice that any such Acquired Company is in violation of any of
the terms or conditions of the Licenses and Permits, or alleging the failure to 
hold or obtain any Licenses and Permits required to lawfully conduct the        
Business, except violations or failures that would not, individually or in the  
aggregate, reasonably be expected to have or result in a Material Adverse       
Effect. None of the Acquired Companies has received written notice that any of  
the Licenses and Permits will not be renewed, and there are no Actions pending  
to revoke or withdraw any such Licenses and Permits, except for such            
non-renewals, revocations or withdrawals as, individually or in the aggregate,  
would not reasonably be expected to have or result in a Material Adverse Effect.

4.20  Employee Benefit Plans.                                         

(a) Schedule 4.20 of the Disclosure Schedule contains a list of each  
material Employee Plan. Axle has made available to the Buyer Parent: (i) a      
complete copy of each Employee Plan and any amendments thereto (or if the       
Employee Plan is not a written Employee Plan, a description thereof) as in      
effect on the date hereof; (ii) a copy of each trust agreement or other funding 
vehicle with respect to each such plan; (iii) a copy of the most recently       
received determination letter, if any, and any and all rulings or notices issued
by a Governmental Authority, with respect to each such plan; and (iv) a copy of 
the Form 5500 Annual Report, if any, for the two most recent plan years for such
plan.                                                                           

     (b) Except as could not give rise to any material Liability, whether direct
or indirect, to the Acquired Companies, each Employee Plan (i) has been operated
and administered in compliance with its terms (except as otherwise required by  
Law) and all applicable requirements of ERISA and the Code and with any         
applicable reporting and disclosure requirements, including but not limited to  
the requirement of Part 6 of Subtitle B of Title I of ERISA and Section 4980B of
the Code; and (ii) with respect to each Employee Plan intended to be qualified  
under Section 401(a) of the Code has received a favorable determination letter  
from the Internal Revenue Service and, to the Acquired Companies' Knowledge no  
event has occurred since the date of such determination letter that would       
reasonably be expected to affect the tax qualification of such Employee Plan.   
Except as could not give rise to material Liability to the Acquired Companies,  
with respect to each Employee Plan, no Person has entered into any nonexempt    
"prohibited transaction," as such term is defined in Section 406 of ERISA or    
Section 4975 of the Code.                                                       

   (c) Except as set forth on Schedule 4.20 of the Disclosure Schedule, none
of the Acquired Companies nor any Plan Affiliate maintains or is required to    
contribute to any employee benefit plan which (i) is a "multiemployer plan"     
within the meaning of Section 3(37) of ERISA, (ii) is a "multiple employer plan"
within the meaning of Code Section 413(c), (iii) is a "multiple employer welfare
arrangement" within the meaning of Section 3(40) of ERISA, (iv) is subject to   
the funding requirements of Section 412 of the Code or Title IV of ERISA (a     
"Title IV Plan"), or (v) provides for post-retirement medical, life insurance or
other welfare-type benefits (other than as required by Part 6 of Subtitle B of  
Title I of ERISA or Section 4980B of the Code or under a similar state law).    

   (d) No Liability or contingent Liability under Title IV or Section 302 of
ERISA has been incurred by the Acquired Companies, or any Plan Affiliate        
thereof, that has not been satisfied in full, and no condition exists that      
presents a material risk to the Buyer, the Buyer Parent or any Plan Affiliate   
thereof, of incurring any such Liability or contingent Liability, other than    
Liability for premiums due the Pension Benefit Guaranty Corporation ("PBGC")    
(which premiums have been paid when due). Insofar as the representation made in 
this Section 4.20(d) applies to sections 4064, 4069 or 4204 of Title IV of      
ERISA, it is made not only with respect to each Title IV Plan but also with     
respect to any employee benefit plan, program, agreement or arrangement subject 
to Title IV of ERISA to which the Acquired Companies, or any Plan Affiliate     
thereof, made, or was required to make, contributions during the five (5)-year  
period ending on the last day of the most recent plan year ended prior to the   
Closing Date.                                                                   

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 (e) Except as set forth on Schedule 4.20 of the Disclosure Schedule, no
amounts payable under the Employee Plans will fail to be deductible for federal 
income tax purposes by virtue of section 280G of the Code.                      

  (f) Except as set forth on Schedule 4.20 of the Disclosure Schedule, the
consummation of the transactions contemplated by this Agreement will not, either
alone or in combination with another event, (i) entitle any current or former   
employee or officer of the Acquired Companies to severance pay, unemployment    
compensation or any other payment, except as expressly provided in this         
Agreement, or (ii) accelerate the time of payment or vesting, or increase the   
amount of compensation due any such employee or officer.                        

    (g) To the Acquired Companies' Knowledge, there are no pending, Threatened
or anticipated claims by or on behalf of any Employee Plan, by any employee or  
beneficiary covered under any such Employee Plan, or otherwise involving any    
such Employee Plan (other than routine claims for benefits).                    

4.21  Environmental, Health and Safety Matters.                       

 (a) The Acquired Companies are in compliance, in all material respects,
with all Environmental, Health and Safety Requirements.                         

   (b) The Acquired Companies have not, since January 1, 2002 or to Acquired
Companies' Knowledge prior thereto, received any notice of any material         
Environmental Claim or to Acquired Companies' Knowledge are the subject of any  
material investigation or inquiry arising under Environmental, Health and Safety
Requirements, including any investigatory, remedial or corrective obligation,   
relating to the Acquired Companies or the Real Property.                        

    (c) There is no material Environmental Claim pending or Threatened against
any of the Acquired Companies.                                                  

(d) There are no past or present actions, activities, circumstances,  
conditions, events or incidents, including, without limitation, the release,    
emission, discharge, presence or disposal of any Material of Environmental      
Concern that could form the basis of any material Environmental Claim against   
any of the Acquired Companies.                                                  

(e) Notwithstanding any other representations made by the Acquired    
Companies in this Agreement (other than those set forth in Section 4.8 hereof), 
this Section 4.21 constitutes the sole and exclusive representations and        
warranties of the Acquired Companies with respect to any environmental, health  
and safety matters, including without limitation any arising under              
Environmental, Health and Safety Requirements.                                  

   4.22  Labor Matters.  To Acquired Companies' Knowledge, no current senior
executive officer of any of the Acquired Companies has provided written notice  
of termination of employment with any of the Acquired Companies. Except as set  
forth on Schedule 4.22 of the Disclosure Schedule, there is no, and within the  
one year period prior to the date hereof, none of the Acquired Companies has    
experienced any material labor dispute, strike, slowdown, stoppage, lockout,    
allegation, charge, grievance or complaint of unfair labor practice, employment 
discrimination or, to Acquired Companies' Knowledge, union organizational       
activity; nor to Acquired Companies' Knowledge, is any such action Threatened   
against any of the Acquired Companies. None of the Acquired Companies is a party
to any collective bargaining agreement or similar agreement with any labor      
organization and there is no organizational effort presently being made on      
behalf of any labor union with respect to the Business.                         

  4.23  Opinion of Financial Advisor.  William Blair & Company, L.L.C. has
rendered an opinion to the Axle Board, dated the date of this Agreement, to the 
effect that, as of such date, the Merger Consideration is fair from a financial 
point of view to the Axle Shareholders.                                         

    4.24  Brokers.  Except for any fees to be paid to William Blair & Company,
L.L.C., no broker, finder, financial advisor or other intermediary or agent is  
entitled to any brokerage fees, finder's fees or other fees or                  

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commissions in connection with the transactions contemplated by this Agreement  
based upon arrangements made by or on behalf of the Acquired Companies.         

ARTICLE V 

REPRESENTATIONS AND WARRANTIES OF THE BUYER 
AND THE BUYER PARENT

     The Buyer and the Buyer Parent hereby, jointly and severally, represent and
warrant to Axle as follows:                                                     

     5.1  Organization and Standing.  The Buyer is a corporation duly organized,
validly existing and in good standing under the Laws of the State of Illinois.  
The Buyer Parent is a corporation duly organized, validly existing and in good  
standing under the Laws of the State of Delaware.                               

     5.2  Authorization; Enforceability.  Each of the Buyer and the Buyer Parent
has the requisite entity power and authority to execute and deliver this        
Agreement, to perform their respective obligations under this Agreement, and to 
consummate the transactions contemplated by this Agreement. The execution and   
delivery of this Agreement and the performance of the obligations hereunder have
been duly and validly authorized by all necessary corporate action on the part  
of the Buyer and the Buyer Parent, and no other corporate proceedings on the    
part of the Buyer and the Buyer Parent are necessary to authorize the execution,
delivery and performance of this Agreement. This Agreement has been duly and    
validly executed and delivered by each of the Buyer and the Buyer Parent, and,  
assuming the due authorization, execution and delivery by the other Parties     
hereto, will constitute, upon such execution and delivery in each case thereof, 
legal, valid and binding obligations of each of the Buyer and the Buyer Parent, 
enforceable against each of the Buyer and the Buyer Parent in accordance with   
its terms, except as such enforceability may be limited by applicable           
bankruptcy, insolvency, reorganization, moratorium or other similar Laws        
affecting the enforcement of creditors rights generally, and general principles 
of equity (regardless of whether such enforceability is considered in a         
proceeding in Law or equity).                                                   

   5.3  No Violation.  Neither the execution and delivery of this Agreement,
nor the performance by it of the transactions contemplated hereby will (a)      
constitute a default under the Organizational Documents of either of the Buyer  
or the Buyer Parent, or (b) result in a default, give rise to any right of      
termination, cancellation or acceleration, or require any Consent under any of  
the terms, conditions or provisions of any material mortgage, loan, license,    
agreement, lease or other instrument or obligation to which either the Buyer or 
the Buyer Parent is a party, or (c) conflict with or violate any Laws applicable
to the Buyer or the Buyer Parent or by which any of their respective properties 
is bound, except with respect to clauses (b) and (c), for any such defaults,    
violations, breaches, defaults or other occurrences which would not,            
individually or in the aggregate, reasonably be expected to have a material     
adverse effect on the ability of the Buyer and the Buyer Parent to perform their
respective obligations hereunder. No representation is made with respect to the 
foregoing matters insofar as they relate to, or are required by reason of, the  
legal or regulatory status of, the activities of, or facts specifically         
pertaining to, the Acquired Companies.                                          

   5.4  Financing.  The Buyer Parent and the Buyer have previously delivered
to Axle the following: (i) commitment letters from Bear, Stearns & Co. Inc. and 
Deutsche Bank Securities Inc. (collectively, the "Lenders"), providing the terms
and conditions upon which the Lenders have committed to provide the Buyer Parent
and the Buyer with senior debt financing in an aggregate amount equal to        
$165,000,000 (the commitment letter with respect to the senior debt financing,  
the "Senior Debt Letter") and subordinated debt financing in an aggregate amount
equal to $150,000,000 (the commitment letter with respect to the subordinated   
debt financing, the "Subordinated Debt Letter", and together with the Senior    
Debt Letter, the "Indebtedness Commitment Letters") and (ii) a fully executed   
letter (the "Equity Commitment Letter"), pursuant to which Kelso & Company, L.P.
has committed to provide or cause to be provided equity financing to the Buyer  
Parent and the Buyer in an aggregate amount of $148,700,000 (the Equity         
Commitment Letter, together with the Indebtedness Commitment Letters, the       
"Financing Letters"). The financing contemplated by the Financing Letters (the  
"Financing"), together with the excess Axle cash and option proceeds referred to
therein, are sufficient to pay the Aggregate Merger Consideration and pay all   
fees and expenses to be paid                                                    

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by the Buyer Parent, the Buyer or any of their respective Affiliates related to 
the transactions contemplated hereby (the sum total of the foregoing amounts,   
the "Required Cash Amount").                                                    

   5.5  Litigation.  As of the date hereof, there are no Actions pending, or
to the Buyer or the Buyer Parent's knowledge, Threatened, against either of the 
Buyer or the Buyer Parent, nor is either of the Buyer or the Buyer Parent       
subject to any judgment, order or decree of any court or Governmental Authority 
which would seek to prevent any of the transactions contemplated by this        
Agreement.                                                                      

     5.6  Governmental Approvals and Filings.  Except as required by the HSR Act
and applicable requirements, if any, of the Exchange Act, the Securities Act,   
Illinois Law, or blue sky laws, and except for filings required in connection   
with the Financing (or any Substitute Debt Financing or replacement financing)  
or with any secretary of state or related Governmental Authority in connection  
with any amendment of any organizational document of such party, no material    
Consent with, or notice to, or filing with, any Governmental Authority is       
required to be obtained or delivered by either of the Buyer or the Buyer Parent 
in connection with the execution, delivery and performance of this Agreement by 
either of the Buyer or the Buyer Parent. No representation is made with respect 
to the foregoing matters insofar as they relate to, or are required by reason   
of, the legal or regulatory status of, the activities of, or facts specifically 
pertaining to, the Acquired Companies.                                          

5.7  Brokers.  Except as set forth on Schedule 5.7 of the Disclosure  
Schedule, no broker, finder, financial advisor or other intermediary or agent is
entitled to any brokerage fees, finder's fees or other fees or commissions in   
connection with the transactions contemplated by this Agreement based upon      
arrangements made by or on behalf of either of the Buyer or the Buyer Parent.   

ARTICLE VI

COVENANTS OF AXLE 

6.1  Conduct of Business.  Except as specifically permitted by this   
Agreement, as set forth on Schedule 6.1 of the Disclosure Schedule or as        
otherwise consented to in writing by the Buyer Parent or the Buyer (which such  
consent may not be unreasonably withheld, conditioned or delayed), from the date
hereof through the Closing, Axle covenants and agrees (as to itself and it      
agrees to cause each of the Axle Subsidiaries to comply with the restrictions   
set forth in this Section 6.1) that:                                            

 (a) Except for salary increases or the introduction of new or
  modifications to employee benefit arrangements in the ordinary course of
   business consistent with past practices, the Acquired Companies shall not
    (i) increase in any manner the base compensation of, or enter into any new
 bonus or incentive agreement or arrangement with, any of its employees,
(ii) enter into any new employment, severance, consulting, or other   
   compensation agreement with any of its existing employees, (iii) amend or
  enter into a new Employee Plan (except as required by Law), (iv) make or
     agree to make any bonus or profit sharing payments to any employee, (v) pay
  any severance or termination pay other than severance or termination pay
   that is required to be paid pursuant to the terms of an existing Employee
Plan, or (vi) make any contribution to any Employee Plan other than   
  regularly scheduled contributions and contributions required pursuant to
the terms of such Employee Plan.                                      

  (b) Subject to the terms and conditions of this Agreement, the
Acquired Companies shall use Reasonable Efforts to keep available the 
     services of its present employees and preserve the goodwill, reputation and
    present relationships of the Business with suppliers, customers, licensors
and others having business relations with them.                       

         (c) The Acquired Companies shall conduct the Business in all material
    respects according to its ordinary course of business in substantially the
same manner as heretofore conducted, consistent with past practices.  

          (d) The Acquired Companies shall not issue, deliver, pledge, transfer,
   encumber or sell, or authorize or propose the issuance, delivery, pledge,
transfer, encumbrance or sale of (i) any equity                       

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interests, (ii) any securities convertible into or exchangeable or    
 exercisable for equity interests, or (iii) any rights, warrants, calls,
subscriptions or options to acquire equity interests.                 

          (e) The Acquired Companies shall not (i) amend any of their respective
 Organizational Documents, (ii) reclassify, combine, split, subdivide or
    amend the terms of any of their capital stock, or (iii) amend any material
term of any outstanding security issued by any of them.               

  (f) The Acquired Companies shall not (i) sell, lease, license,
encumber or otherwise dispose of, or agree to sell, lease, license,   
     encumber or otherwise dispose of, any of its material assets, properties or
   rights other than in the ordinary course of business consistent with past
    practices, or (ii) acquire, or agree to acquire, any business or Person or
   any assets, stock or operations of any Person, other than in the ordinary
course of business consistent with past practices.                    

   (g) The Acquired Companies shall not (i) incur any indebtedness
   (including letters of credit, capitalized leases and earnout obligations)
except in the ordinary course of business in an amount not to exceed  
 $2,000,000 (exclusive of letters of credit in connection with workmen's
compensation arrangements and indebtedness incurred to pay expenses   
   pursuant to Section 7.4(c)); provided that in no event shall the Acquired
     Companies' aggregate indebtedness (including letters of credit, capitalized
     leases and earnout obligations) exceed the amount of aggregate indebtedness
   set forth on Schedule 4.6(a)(ii) of the Disclosure Schedule, or guarantee
   any such indebtedness or issue or sell any debt securities or warrants or
   rights to acquire any debt securities of such party or guarantee any debt
securities of others; or (ii) make any loans or advances to any person
    except in the ordinary course of business in an aggregate principal amount
not to exceed $100,000 at any time outstanding.                       

          (h) The Acquired Companies shall not create, assume or otherwise incur
 any material Lien on any asset or property, other than Permitted Liens.

          (i) The Acquired Companies shall not (i) relinquish, waive, release or
     permit to lapse (other than by its terms) any material Contractual or other
   material right or claim or (ii) settle or compromise any material Action.

    (j) The Acquired Companies shall not make or change any election
  relating to Taxes, change any accounting method relating to Taxes unless
required by GAAP, file an amended Tax Return, enter into any closing  
 agreement relating to Taxes, settle any claim or assessment relating to
    Taxes or waive any statute of limitation for any such claim or assessment.

       (k) The Acquired Companies shall not enter into, terminate or amend
    any Material Contract except in the ordinary course of business consistent
with past practices.                                                  

    (l) The Acquired Companies shall not adopt a plan of complete or
partial liquidation or resolutions providing for or authorizing such a
     liquidation or a dissolution, consolidation, recapitalization or bankruptcy
reorganization.                                                       

       (m) The Acquired Companies shall not (i) other than as contemplated
     under any option agreement, redeem, purchase or otherwise acquire, directly
     or indirectly, any capital stock or other securities of itself or any other
   Acquired Company, or (ii) declare, set aside, make or pay any dividend or
     other distribution or stock split with respect to any of its capital stock.

     (n) The Acquired Companies shall not make capital expenditures in
    excess of the applicable amounts set forth in Axle's quarterly budget with
respect to any monthly or quarterly capex.                            

       (o) The Acquired Companies shall not take, or agree to or commit to
     take, any action that is intended or would reasonably be expected to result
     in any of the conditions to the Closing set forth in Article VIII not being
satisfied.                                                            

     (p) The Acquired Companies shall not agree, propose, authorize or
 enter into any commitment to take any action described in the foregoing
   subsections (a)-(o) of this Section 6.1, except as otherwise permitted by
this Agreement.                                                       

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  6.2  Proxy Statement.  As promptly as practicable after the date of this
Agreement, Axle shall prepare and file with the SEC, use all Reasonable Efforts 
to have cleared by the SEC, and promptly thereafter mail or caused to be mailed 
to the Axle Shareholders, the Proxy Statement. The Buyer Parent and the Buyer   
agree to cooperate with Axle in the preparation of the Proxy Statement and other
solicitation materials of Axle. Axle shall consult with the Buyer Parent, and   
the Buyer Parent and its counsel shall be given reasonable opportunity to review
and comment on the draft Proxy Statement each time before it is filed with the  
SEC. The Proxy Statement shall contain the recommendation of the Axle Board that
Axle's Shareholders approve and adopt this Agreement, and such recommendation   
shall not be withdrawn, modified or amended, subject to any withdrawal,         
modification or amendment permitted by Section 6.5(c) of this Agreement. Axle   
shall provide the Buyer Parent and its counsel in writing with any written      
comments (and orally, any oral comments) Axle or its counsel may receive from   
the SEC or its staff with respect to the Proxy Statement promptly after receipt 
of those comments and shall consult with the Buyer Parent and its counsel prior 
to responding to such comments and shall give due regard to any comments made by
such Persons. If at any time prior to the Axle Shareholder Meeting any event    
should occur which is required by applicable Law to be set forth in an amendment
of, or a supplement to, the Proxy Statement, Axle will prepare and mail such    
amendment or supplement as promptly as practicable; provided, however, that     
prior to such mailing, Axle shall consult with the Buyer Parent and its counsel 
with respect to such amendment or supplement and shall afford the Buyer Parent  
and its counsel reasonable opportunity to comment thereon and shall give due    
regard to any comments made by such Persons.                                    

     6.3  Axle Shareholders' Meeting.  As promptly as practicable after the date
of this Agreement and clearance by the SEC of the Proxy Statement, Axle shall   
take all action necessary in accordance with Illinois Law and its Organizational
Documents to duly call and convene the Axle Shareholders' Meeting. Axle shall,  
subject to the applicable fiduciary duties of Axle's Board, as determined by    
such directors in good faith with the advice of its outside corporate counsel,  
use Reasonable Efforts to solicit from the Axle Shareholders proxies in favor of
the adoption of this Agreement.                                                 

     6.4  Filings; Consents; Etc.  Axle shall use Reasonable Efforts to take, or
cause to be taken, all actions, and to do, or cause to be done, all things      
necessary, proper or advisable in compliance with applicable Laws to consummate 
and make effective, as soon as reasonably practicable, the transactions         
contemplated hereby. Without limiting the generality of the foregoing, Axle     
shall gi