Document:

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                                                                    EXHIBIT 10.2

                              EMPLOYMENT AGREEMENT

         THIS EMPLOYMENT AGREEMENT (this "Agreement") is entered into as of the
2nd day of April 2001 by and between DAVID MONTGOMERY ("Montgomery") and
INSURANCE AUTO AUCTIONS, INC., an Illinois corporation ("Company").

                                    RECITALS

         WHEREAS, the Company desires to employ Montgomery and Montgomery
desires to be employed by the Company upon the terms and conditions set forth
below.

         NOW, THEREFORE, in consideration of the foregoing and for other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, it is hereby agreed that:

         1.   EMPLOYMENT. The Company hereby employs Montgomery, and Montgomery
hereby accepts employment with the Company, as Chief Operating Officer, whose
duties include overseeing the day to day operations of the Company and its
affiliated companies. Montgomery shall be an executive of the Company and shall
be subject to the direction and control of the President and Chief Executive
Officer of the Company and the Board of Directors of the Company (the "Board").
Montgomery shall devote all of his business time and services to the business
and affairs of the Company. Montgomery shall also perform such other
executive-level duties consistent with his position as Chief Operating Officer
as may be assigned to him from time to time by the Chief Executive Officer,
including serving as an officer and/or director of the Company's operating
subsidiaries. The duties and services to be performed by Montgomery hereunder
shall be substantially rendered at the Company's principal offices as determined
by the Board, except for reasonable travel on the Company's business incident to
the performance of Montgomery's duties.

         2.   COMPENSATION. As compensation for Montgomery's services provided
hereunder, the Company agrees to provide the following compensation:

         2.1. BASE SALARY. While this Agreement is in effect, the Company agrees
to pay to Montgomery a base salary at the rate of $225,000 per annum commencing
on the date hereof ("Base Salary"). The Base Salary shall be subject to annual
review by the Board and any committee thereof ("Committee") or the Compensation
Committee and may be increased by the Board in their sole and absolute
discretion but may not be decreased. Such salary shall be payable to Montgomery
in such equal periodic payments as the Company generally pays its employees, but
in no event less frequently than monthly.

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         2.2. INCENTIVES. As additional compensation for performance of the
services rendered by Montgomery during the term of this Agreement, the Company
will pay to Montgomery, in cash, a performance bonus equal to forty percent
(40%) of Montgomery's annual salary based upon the achievement of objectively
quantifiable and measurable goals and objectives which shall be determined, in
advance, by the Compensation Committee of the Board with respect to each fiscal
year of the Company. This amount is hereinafter referred to as "Incentive
Compensation." As additional compensation for accepting employment with the
Company, the Company will pay to Montgomery, in cash, a signing bonus of
$25,000. This signing bonus shall be paid in one lump payment payable as of the
date of this agreement.

         2.3. OPTIONS. The Company shall cause the Committee delegated by the
Board to administer the Option Plan (as defined below) to grant to Montgomery an
option to purchase 100,000 shares of the Company's common stock (the "Option").
The Option shall be granted under the Company's 1991 Stock Option Plan, as
amended (the "Option Plan"). The exercise price of the Option granted pursuant
to this Section 2.3 shall be equal to 100% of the fair market value of the
common stock on the close of business on the day before the day that Montgomery
becomes employed by the Company subject to the vesting and termination
provisions as described below. The Option shall become exercisable in four equal
annual installments beginning on the first anniversary of the grant date, and,
except as provided below, shall be subject to the usual terms and conditions of
options issued pursuant to and in accordance with the Option Plan.

         2.4. BENEFITS. During the term of his employment or for such time as
otherwise provided in this Agreement, Montgomery shall be entitled to
participate in such vacation, auto allowance, benefit plans, fringe benefits,
life insurance, medical and dental plans (beginning on the first day of
employment), retirement plans and other programs as are offered from time to
time by the Company and are described in the Company's employee benefit
handbooks. Montgomery shall be entitled to four weeks of paid vacation each
calendar year, subject to any limitations on carryover of unused vacation
generally applicable to employees. Montgomery shall be authorized to incur
necessary and reasonable travel, entertainment and other business expenses in
connection with his duties hereunder. In connection with expenses pursuant to
this Section 2.4, the Company shall reimburse Montgomery for such expenses upon
presentation of an itemized account and appropriate supporting documentation,
all in accordance with the Company's generally applicable policies.

         2.5. INDEMNIFICATION. The Company shall indemnify Montgomery in
accordance with the terms of the Company's standard form of Indemnification
Agreement.

         3.   TERMINATION.

         3.1. AT WILL NATURE OF EMPLOYMENT. Employment with the Company is not
for a specific term and can be terminated by Montgomery or the Company at any
time for any reason, with or without cause. Any contrary representations that
may have been made or that may be made to Montgomery are superseded by this
Agreement. In addition, this Agreement shall terminate by reason of Montgomery's
death or the substantial inability of Montgomery, by

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reason of physical or mental illness or accident, to perform his regular
responsibilities hereunder indefinitely or for a period of one hundred eighty
(180) days (a "Disability").

         3.2. COMPANY'S OBLIGATIONS ON TERMINATION APART FROM A CHANGE OF
CONTROL.

              (a) NO OBLIGATIONS OTHER THAN AS REQUIRED BY LAW FOR VOLUNTARY
TERMINATION OR CAUSE. The Company shall have no obligations to pay Montgomery
any severance payments or continue to cover Montgomery and/or his beneficiaries
under the Company's health plan (other than as required by law) if this
Agreement is terminated for any of the following reasons:

                  (i)  VOLUNTARY TERMINATION. Montgomery voluntarily terminates
              this Agreement; or

                  (ii) CAUSE. The Company terminates Montgomery's employment at
              any time during the term of this Agreement for Cause. For purposes
              of this Agreement, "Cause" shall mean:

                       (A) the willful and continued failure of Montgomery to
                  perform substantially his duties with the Company or one of
                  its affiliates (other than any such failure resulting from
                  incapacity due to medically documented illness or injury), 30
                  days after a written demand for substantial performance is
                  delivered to Montgomery by the Board which specifically
                  identifies the manner in which the Board believes that
                  Montgomery has not substantially performed his duties; or

                       (B) the willful engaging by Montgomery in illegal conduct
                  or misconduct which is injurious to the Company,

              in each case as determined in the good faith opinion of the Board.

              (b) DEATH AND DISABILITY OBLIGATIONS. If this Agreement is
terminated due to death or Disability, the Company shall pay to Montgomery (or
his legal representatives as the case may be) the specific obligations as set
forth below:

                  (i) DEATH. Montgomery's employment shall terminate
              automatically upon Montgomery's death. If Montgomery's employment
              under this Agreement is terminated by reason of his death, the
              Company's sole obligation to Montgomery's legal representatives
              shall be to pay or cause to be paid, within thirty (30) days of
              the Date of Termination (as hereinafter defined), to such person
              or persons as Montgomery shall have designated for that purpose in
              a notice filed with the Company, or, if no such person shall have
              been so designated, to his estate, the amount of Montgomery's
              Accrued Obligations (as hereinafter defined). Any amounts payable
              under this Section 3.2(b)(i) shall be exclusive of and in addition
              to any payments or benefits which Montgomery's widow,
              beneficiaries

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              or estate may be entitled to receive pursuant to any pension plan,
              profit sharing plan, any employee benefit plan, equity incentive
              plan or life insurance policy maintained by the Company.

                  (ii) DISABILITY. If the Disability of Montgomery occurs, the
              Company may give to Montgomery written notice in accordance with
              Section 6.1 of this Agreement of its intention to terminate
              Montgomery's employment. In such event, Montgomery's employment
              with the Company shall terminate effective on the 30th day after
              receipt of such notice by Montgomery (the "Disability Effective
              Date"), unless within the 30-day period after such receipt,
              Montgomery returns to full-time performance of his duties. The
              Company's sole obligation to Montgomery shall be payment of
              Accrued Obligations (as hereinafter defined) and the timely
              payment or provision of other benefits, including disability and
              other benefits provided by the Company to disabled executives
              and/or their families in accordance with such Company plans,
              programs, practices and policies relating to disability, if any.

              (c) OBLIGATIONS FOR ALL OTHER TERMINATION REASONS. For any other
reason, upon the termination of this Agreement and Montgomery's employment
hereunder apart from a Change of Control, the Company shall pay to Montgomery an
amount equal to the sum of (i) Montgomery's annual base salary at the time
Montgomery's employment is terminated; plus (ii) Montgomery's average annual
bonus received over the eight (8) fiscal quarters of the Company immediately
preceding Company's fiscal quarter during which Montgomery's employment is
terminated, without exceeding Montgomery's target bonus for Company's fiscal
year during which Montgomery's employment is terminated, provided, however, that
Montgomery shall receive his target bonus if he is terminated within his first
eight (8) fiscal quarters with the Company; plus (iii) Montgomery's auto
allowance for the Company's fiscal year during which Montgomery's employment is
terminated. In addition, the Company shall provide, at Company's expense,
continued coverage for Montgomery and his beneficiaries for a period extending
through the earlier of the date Montgomery begins any subsequent full-time
employment for pay and the date that is one (1) year after Montgomery's
termination of employment, under the Company's health plan covering Montgomery
and Montgomery's beneficiaries, provided that Montgomery properly elects
coverage pursuant to Title I, Part 6 of the Employee Retirement Income Security
Act of 1974, as amended ("COBRA").

         3.3. COMPANY'S OBLIGATIONS ON TERMINATION DUE TO A CHANGE OF CONTROL.

              (a) DEFINITIONS.

                  (i)  For purposes of this Agreement, a "Change of Control"
                       shall mean:

                       (A) the acquisition by any individual, entity or group
                  (within the meaning of Section 13(d)(3) or 14(d)(2) of the
                  Securities Exchange Act of 1934, as amended (the "Exchange
                  Act")) (for the purposes of this

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                  Section 3.3, a "Person") of beneficial ownership (within the
                  meaning of Rule 13d-3 promulgated under the Exchange Act) of
                  50% or more of the voting power of the then outstanding voting
                  securities of the Company entitled to vote generally in the
                  election of directors (the "Outstanding Company Voting
                  Securities"); provided, however, that for purposes of this
                  subsection (a), any acquisition by any employee benefit plan
                  (or related trust) sponsored or maintained by the Company or
                  any corporation controlled by the Company shall not constitute
                  a Change of Control; or

                       (B) individuals who, as of the date hereof, constitute
                  the Board (the "Incumbent Board") cease for any reason to
                  constitute at least a majority of the Board; provided,
                  however, that any individual (other than an individual whose
                  initial assumption of office occurs as a result of an actual
                  or threatened solicitation of proxies or consents by or on
                  behalf of a Person other than the Board) who becomes a
                  director subsequent to the date hereof whose election or
                  nomination for election was approved by a vote of at least a
                  majority of the directors then comprising the Incumbent Board
                  shall be considered as though such individual were a member of
                  the Incumbent Board; or

                       (C) consummation of a reorganization, merger or
                  consolidation or sale or other disposition of all or
                  substantially all of the assets of the Company (a "Business
                  Combination") unless, following such Business Combination, (i)
                  all or substantially all of the individuals and entities who
                  were the beneficial owners of the Outstanding Company Voting
                  Securities immediately prior to such Business Combination
                  beneficially own, directly or indirectly, more than 50% of the
                  voting power of the then outstanding voting securities
                  entitled to vote generally in the election of directors, as
                  the case may be, of the corporation resulting from such
                  Business Combination (including, without limitation, a
                  corporation which as a result of such transaction owns the
                  Company or all or substantially all of the Company's assets
                  either directly or through one or more subsidiaries) in
                  substantially the same proportions as their ownership,
                  immediately prior to such Business Combination of the
                  Outstanding Company Voting Securities and (ii) at least a
                  majority of the members of the board of directors of the
                  corporation resulting from such Business Combination were
                  members of the Incumbent Board at the time of the execution of
                  the initial agreement, or of the action of the Board,
                  providing for such Business Combination; or

                       (D) approval by the shareholders of the Company of a
                  complete liquidation or dissolution of the Company.

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                       (ii) For purposes of this Agreement, "affiliated
                  companies" shall include any company controlled by,
                  controlling or under common control with the Company.

                       (iii) For purposes of this Agreement, "Involuntary
                  Termination" shall mean Montgomery's voluntary termination
                  following (A) a change in Montgomery's position with the
                  Company which materially reduces Montgomery's level of
                  responsibility, (B) a reduction in Montgomery's Base Salary,
                  or (C) a change in Montgomery's place of employment, which is
                  more than seventy-five (75) miles from Montgomery's place of
                  employment prior to the change, provided and only if such
                  change or reduction is effected without Montgomery's written
                  concurrence.

                       (iv) For purposes of this Agreement, "Date of
                  Termination" shall mean (A) if Montgomery's employment is
                  terminated by the Company for Cause, or by Montgomery, the
                  date of receipt of the Notice of Termination or any later date
                  specified therein, as the case may be, (B) if Montgomery's
                  employment is terminated by the Company for other than for
                  Cause or Disability, the date on which the Company notifies
                  Montgomery of such termination and (C) if Montgomery's
                  employment is terminated by reason of death or Disability, the
                  date of death of Montgomery or the Disability Effective Date,
                  as the case may be.

                       (v) For purposes of this Agreement, "Accrued Obligations"
                  shall mean the sum of (A) Montgomery's Base Salary through the
                  Date of Termination to the extent not theretofore paid, (B)the
                  greater of (I) the product of (x) any Incentive Compensation
                  paid to or deferred by Montgomery for the fiscal year
                  preceding the fiscal year in which Montgomery's Date of
                  Termination occurs (annualized in the event that Montgomery
                  was not employed by the Company for the whole of such fiscal
                  year) and (y) a fraction, the numerator of which is the number
                  of days in the current fiscal year through the Date of
                  Termination, and the denominator of which is 365 and (II) the
                  average of the past three (3) years' annual bonuses, provided,
                  however, that Montgomery shall receive his target bonus if he
                  is terminated within his first eight (8) fiscal quarters with
                  the Company (such greater amount being the "Highest Annual
                  Bonus") and (C) any compensation previously deferred by
                  Montgomery (together with any accrued interest or earnings
                  thereon) and any accrued vacation pay, in each case to the
                  extent not theretofore paid. Notwithstanding the foregoing, in
                  no event will Montgomery be entitled to a duplication of any
                  Incentive Compensation payments.

                  (b) SEVERANCE BENEFITS FOR TERMINATION WITHIN TWO (2) YEARS OF
A CHANGE OF CONTROL. If Montgomery's employment with the Company terminates by
reason of Montgomery's Involuntary Termination (as defined in Section
3.3(a)(iii) above) or termination by the Company without Cause (as defined in
Section 3.2(a)(ii)) above) within two (2) years of the effective date of the
Change of Control, Montgomery shall be entitled to receive the following:

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                       (i) Company shall continue to pay Montgomery an amount
                  equal to 150% of the sum of (A) Montgomery's Base Salary and
                  (B) his Highest Annual Bonus;

                       (ii) Company shall pay Montgomery any Accrued
                  Obligations; and

                       (iii) Company shall also provide, at its expense,
                  continued coverage of Montgomery and Montgomery's
                  beneficiaries for eighteen (18) months after the Date of
                  Termination or until Montgomery commences any full-time
                  employment, whichever comes first, under the Company's health
                  plan covering Montgomery and Montgomery's beneficiaries,
                  provided, however, that Montgomery properly elects coverage
                  pursuant to COBRA.

                  (c) SEVERANCE BENEFITS FOR TERMINATION AFTER THE SECOND YEAR
FOLLOWING A CHANGE OF CONTROL. If Montgomery is terminated after the second year
following a Change of Control, the Company's obligations are as set forth in
Section 3.2 of this Agreement.

                  (d) STOCK OPTIONS AFTER A CHANGE OF CONTROL. Subject to
Section 2.3 of this Agreement, all Montgomery's outstanding stock options to
purchase Company common stock shall accelerate and become fully exercisable.

         3.4. CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY; EXCISE TAX GROSS-UP. A
"Gross-Up Payment" (as defined below) shall be made to Montgomery when payments
of compensation payable to Montgomery on termination of employment in connection
with a Change of Control, including, without limitation, the vesting of an
option or other non-cash benefit or property, whether pursuant to the terms of
any applicable plan, arrangement or agreement with the Company or any of its
affiliated companies (the "Total Payments") would trigger a tax imposed on
Montgomery under Section 4999 of the Internal Revenue Code of 1986, as amended
(the "Excise Tax").

         For purposes hereof, the Gross-Up Payment shall mean a payment to
Montgomery in such amount as is necessary to ensure that the net amount retained
by Montgomery, after reduction for any Excise Tax (including any penalties or
interest thereon) on the Total Payments and any federal, state and local income
or employment tax and Excise Tax on the Gross-Up Payment provided for by this
Section 3.4, but before reduction for any federal, state or local income or
employment tax on the Total Payments, shall be equal to the Total Payments.

         3.5. EXCLUSIVE BENEFITS. If more than one benefit due to termination
becomes payable under Sections 3.2 or 3.3, the greatest of such benefits shall
become payable to the exclusion of all other such benefits and shall be in lieu
of any other severance or similar benefits that would otherwise be payable under
any other agreement, plan, program or policy of the Company. Notwithstanding
anything in the prior sentence to the contrary, Montgomery shall be entitled to
benefits and incentives under all benefit plans and equity incentive plans,
policies and programs (except as expressly excluded herein, including, without
limitation, Section 2.3 of this Agreement) according to the terms of such
benefit plans and equity incentive plans, policies and

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programs as in effect from time to time, including any acceleration of vesting
provisions in the Company's option plans, including any benefits under the
Executive Severance Plan for Officers.

         4.   INVENTIONS AND CREATIONS. Montgomery agrees that all inventions,
discoveries, improvements, ideas and other contributions (collectively
"Inventions") whether or not copyrighted or copyrightable, patented or
patentable, or otherwise protectable in law, which are conceived, made,
developed or acquired by Montgomery, either individually or jointly, during his
employment with the Company or any of its subsidiaries, and which relate in any
manner to the business of the Company or any of its subsidiaries, shall belong
to the Company and Montgomery does hereby assign and transfer to the Company his
entire right, title and interest in the Inventions. Montgomery agrees to
promptly and fully disclose the Inventions to the Company, in writing if
requested by the Company, and to execute and deliver any and all lawful
application, assignment and other documents which the Company requests for
protecting the Inventions in the United States or any other country. The Company
shall have the full and sole power to prosecute such applications and to take
all other action concerning the Inventions, and Montgomery will cooperate fully
within a lawful manner, at the expense of the Company, in the preparation and
prosecution of all such applications and in any legal actions and proceedings
concerning the Inventions. The provisions of this Section 4 shall survive the
termination of this Agreement.

         5.   NON-COMPETITION; NON-SOLICITATION; CONFIDENTIAL INFORMATION.

         5.1. NON-COMPETITION AGREEMENT. Montgomery hereby acknowledges and
agrees that the Company actively engages in its business throughout all of North
America. Accordingly, Montgomery agrees that during the Non-Competition Period
(as defined below), Montgomery will not, directly or indirectly, whether as a
partner, officer, shareholder, advisor, employee or otherwise, promote,
participate, become employed by, or engage in any activity or other business
similar to the Company's business or any entity engaged in a business
competitive with the Company's business in any state within the United States as
well as in Canada or Mexico. If Montgomery fails to comply with the provisions
of this Section 5.1, the Company may, in addition to pursuing all other remedies
available to the Company under law or in equity as a result of such breach,
cease payment of all severance benefits under Section 3. For purposes hereof,
"Non-Competition Period" shall mean the period commencing on the date hereof and
ending eighteen (18) months after the later of the termination of Montgomery's
employment hereunder or Montgomery's submission of his resignation, or removal
of Montgomery as Chief Operating Officer of the Company and the Company's
payment and provision of Change of Control severance benefits pursuant to
Section 3.3.

         5.2. NON-SOLICITATION AGREEMENT. During the term of this Agreement and
for a period of eighteen (18) months thereafter, Montgomery shall not, directly
or indirectly, individually or on behalf of any Person (as defined below)
solicit, aid or induce (a) any then current employee of the Company to leave the
Company in order to accept employment with or render services for Montgomery or
such Person or (b) any customer, client, vendor, lender, supplier or sales
representative of the Company or similar persons engaged in business with the
Company to discontinue the relationship or reduce the amount of business done
with the

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Company. "Person" means any individual, a partnership, a corporation, an
association, a limited liability company, a joint stock company, a trust, a
joint venture, an unincorporated organization, a governmental entity, or any
department, agency or political subdivision thereof, or an accrediting body.

         5.3. CONFIDENTIAL INFORMATION. Montgomery acknowledges and agrees that
he is in possession of and will be exposed to during the course of, and incident
to, his employment by and affiliations with the Company, Confidential
Information (as defined herein) relating to the Company and its affiliated
companies. For purposes hereof, "Confidential Information" shall mean all
proprietary or confidential information concerning the business, finances,
financial statements, properties and operations of the Company and its
affiliated companies, including, without limitation, all customer and
prospective customer and supplier lists, know-how, trade secrets, business and
marketing plans, techniques, forecasts, projections, budgets, unpublished
financial statements, price lists, costs, computer programs, source and object
codes, algorithms, data, and other original works of authorship, along with all
information received from third parties and held in confidence by the Company
and its affiliated companies (including, without limitation, personnel files and
employee records). During the Non-Competition Period and at all times
thereafter, Montgomery will hold the Confidential Information in the strictest
confidence and will not disclose or make use of (directly or indirectly) the
Confidential Information or any portion thereof to or on behalf of himself or
any third party except (a) as required in the performance of his duties as an
employee, director or shareholder of the Company, (b) as required by the order
of any court or similar tribunal or any other governmental body or agency of
appropriate jurisdiction; provided, that Montgomery shall, to the extent
practicable, give the Company prior written notice of any such disclosure and
shall cooperate with the Company in obtaining a protective order or such similar
protection as the Company may deem appropriate to preserve the confidential
nature of such information. The foregoing obligations to maintain the
Confidential Information shall not apply to any Confidential Information which
is or, without any action by Montgomery, becomes generally available to the
public. Upon termination of any employment or consulting relationship between
the Company and Montgomery, Montgomery shall promptly return to the Company all
physical embodiments of the Confidential Information (regardless of form or
medium) in the possession of or under the control of Montgomery.

         5.4. SCOPE OF RESTRICTION. The parties have attempted to limit the
scope of the covenants set forth in Section 5 to the extent necessary. The
parties recognize, however, that reasonable people may differ in making such
determination. Consequently, the parties hereby agree that if the scope and
duration of such covenants would, but for this provision, be deemed by a court
of competent authority to be unreasonable or otherwise unenforceable, such court
may modify such covenants to the extent that such court determines to be
necessary in order to grant enforcement thereof as so modified.

         5.5. REMEDIES. The parties hereto recognize that the Company will
suffer irreparable injury in the event of a breach of the terms of Section 5 by
Montgomery. In the event of a breach of the terms of Section 5, the Company
shall be entitled, in addition to any other remedies and damages available and
without proof of monetary or immediate damage, to a temporary and/or permanent
injunction, without the necessity of posting a bond, to restrain the violation
of Section

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5 by Montgomery or any Persons acting for or in concert with him. Such remedy,
however, shall be cumulative and nonexclusive and shall be in addition to any
other remedy which the parties may have.

         5.6. COMMON LAW OF TORTS OR TRADE SECRETS. The parties agree that
nothing in this Agreement shall be construed to limit or negate the common law
of torts or trade secrets where it provides the Company with broader protection
than that provided herein.

         5.7. SURVIVAL OF SECTION 5. The provisions of Section 5 shall survive
the termination of Montgomery's employment and the termination of this
Agreement.

         6.   GENERAL PROVISIONS.

         6.1. NOTICES. All notices, demands or other communications to be given
or delivered under or by reason of the provisions of this Agreement shall be in
writing and shall be deemed to have been given when delivered personally to the
recipient, sent to the recipient by reputable express courier service (charges
prepaid), sent by facsimile (with copy sent via another method approved herein),
or mailed to the recipient by certified or registered mail, return receipt
requested and postage prepaid. Such notices, demands and other communications
shall be sent to the Company and to Montgomery at the addresses indicated below:

         If to the Company:                 Insurance Auto Auctions, Inc.
                                            850 East Algonquin Road, Suite 100
                                            Schaumburg, Illinois 60173
                                            Phone:   847-839-3939
                                            Fax:     847-839-3999
                                            Attention: General Counsel

         With copies to:                    Katten Muchin Zavis
                                            525 West Monroe Street, Suite 1600
                                            Chicago, Illinois 60661
                                            Phone:   312-902-5564
                                            Fax:     312-577-8648
                                            Attention: David J. Kaufman, Esq.

         If to Montgomery:                  David Montgomery
                                            850 E. Algonquin Rd., Suite 100
                                            Schaumburg, IL  60173

         With copies to:
                                            ------------------------------------

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

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

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

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or to such other address or to the attention of such other person as the
recipient party has specified by prior written notice to the sending party.

         6.2. ENTIRE AGREEMENT. Except as otherwise expressly set forth herein,
this Agreement embodies the complete agreement and understanding among the
parties and supersede and preempt any prior understandings, agreements or
representations by or among the parties, written or oral, which may have related
to the subject matter hereof in any way.

         6.3. SUCCESSORS AND ASSIGNS. All covenants and agreements contained in
this Agreement by or on behalf of either party hereto shall bind such party and
its heirs, legal representatives, successors and assigns and inure to the
benefit of the other party hereto and their heirs, legal representatives,
successors and assigns.

         6.4. GOVERNING LAW. This Agreement shall be construed and enforced in
accordance with, and all questions concerning the construction, validity,
interpretation and performance of this Agreement shall be governed by the laws
of the State of Illinois without giving effect to the provisions thereof
regarding conflict of laws.

         6.5. RESOLUTION OF DISPUTES; ARBITRATION. Should a dispute arise
concerning this Agreement, its interpretation or termination, or Montgomery's
employment with the Company, either party may request a conference with the
other party to this Agreement and the parties shall meet to attempt to resolve
the dispute. Failing such resolution within thirty (30) days of ether party's
request for a conference, the Company and Montgomery shall endeavor to select an
arbitrator who shall hear the dispute. In the event the parties are unable to
agree on an arbitrator, Montgomery and Company shall request the American
Arbitration Association ("AAA") to submit a list of nine (9) names of persons
who could serve as an arbitrator. The Company and Montgomery shall alternately
remove names from this list (beginning with the party which wins a flip of a
coin) until one person remains and this person shall serve as the impartial
arbitrator. The arbitration shall be conducted in accordance with the National
Rules for the Resolution of Employment Disputes as promulgated by the AAA. The
decision of the arbitrator shall be final and binding on both parties. Each
party shall bear equally all costs of the arbitrator.

         The arbitrator shall only have authority to interpret, apply or
determine compliance with the provisions set forth in this Agreement, but shall
not have the authority to add to, detract from or otherwise alter the language
of this Agreement.

         6.6. REPRESENTATIONS OF MONTGOMERY. Montgomery hereby represents and
warrants to the Company that his execution, delivery and performance of this
agreement will not violate or result in any breach of any agreement, contract,
understanding or written policy to which Montgomery is subject as a result of
any prior employment, any investment or otherwise. Montgomery is not subject to
any agreement, contract or understanding which in any way restricts or limits
his ability to accept employment with the Company or perform the services
contemplated herein.

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         6.7. DESCRIPTIVE HEADINGS; INTERPRETATION. The descriptive headings of
this Agreement are inserted for convenience only and do not constitute a part of
this Agreement.

         6.8. COUNTERPARTS. This Agreement may be executed simultaneously in two
or more counterparts, any one of which need not contain the signatures of more
than one party, but all such counterparts taken together shall constitute one
and the same Agreement.

         6.9. AMENDMENTS AND WAIVERS. No modification, amendment or waiver of
any provisions of this Agreement shall be effective unless approved in writing
by each of the parties hereto. The Company's failure at any time to enforce any
of the provisions of this Agreement shall in no way be construed as a waiver of
such provisions and will not affect the right of the Company to enforce each and
every provision hereof in accordance with its terms.

         6.10. NON-ASSIGNMENT.  This Agreement shall not be assigned by
Montgomery.

                             SIGNATURE PAGE FOLLOWS.

                                       12
<PAGE>   13

         IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first written above.

                                            INSURANCE AUTO AUCTIONS, INC.

                                            By: /s/ Thomas C. O'Brien
                                               ---------------------------------
                                            Name:   Thomas C. O'Brien
                                            Title:  President and Chief
                                                    Executive Officer

                                                /s/ David R. Montgomery
                                                --------------------------------
                                                DAVID MONTGOMERY

                                       13<PAGE>   1
                                                                    Exhibit 10.3

                              EMPLOYMENT AGREEMENT

         THIS EMPLOYMENT AGREEMENT (this "Agreement") is entered into as of the
2nd day of April 2001 by and between SCOTT PETTIT ("Pettit") and INSURANCE AUTO
AUCTIONS, INC., an Illinois corporation ("Company").

                                    RECITALS

         WHEREAS, the Company desires to employ Pettit and Pettit desires to be
employed by the Company upon the terms and conditions set forth below.

         NOW, THEREFORE, in consideration of the foregoing and for other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, it is hereby agreed that:

           1. EMPLOYMENT. The Company hereby employs Pettit, and Pettit hereby
accepts employment with the Company, as Chief Financial Officer, whose duties
include overseeing the financial and accounting aspects of the Company and its
affiliated companies. Pettit shall be an executive of the Company and shall be
subject to the direction and control of the President and Chief Executive
Officer of the Company and the Board of Directors of the Company (the "Board").
Pettit shall devote all of his business time and services to the business and
affairs of the Company. Pettit shall also perform such other executive-level
duties consistent with his position as Chief Financial Officer as may be
assigned to him from time to time by the Chief Executive Officer, including
serving as an officer and/or director of the Company's operating subsidiaries.
The duties and services to be performed by Pettit hereunder shall be
substantially rendered at the Company's principal offices as determined by the
Board, except for reasonable travel on the Company's business incident to the
performance of Pettit's duties.

           2. COMPENSATION. As compensation for Pettit's services provided
hereunder, the Company agrees to provide the following compensation:

         2.1. BASE SALARY. While this Agreement is in effect, the Company agrees
to pay to Pettit a base salary at the rate of $195,000 per annum commencing on
the date hereof ("Base Salary"). The Base Salary shall be subject to annual
review by the Board and any committee thereof ("Committee") or the Compensation
Committee and may be increased by the Board in their sole and absolute
discretion but may not be decreased. Such salary shall be payable to Pettit in
such equal periodic payments as the Company generally pays its employees, but in
no event less frequently than monthly.

<PAGE>   2

         2.2. INCENTIVES. As additional compensation for performance of the
services rendered by Pettit during the term of this Agreement, the Company will
pay to Pettit, in cash, a performance bonus equal to forty percent (40%) of
Pettit's annual salary based upon the achievement of objectively quantifiable
and measurable goals and objectives which shall be determined, in advance, by
the Compensation Committee of the Board with respect to each fiscal year of the
Company. This amount is hereinafter referred to as "Incentive Compensation." As
additional compensation for accepting employment with the Company, the Company
will pay to Pettit, in cash, a signing bonus of $35,000. This signing bonus
shall be paid in one lump payment payable as of the date of this agreement.

         2.3. OPTIONS. The Company shall cause the Committee delegated by the
Board to administer the Option Plan (as defined below) to grant to Pettit an
option to purchase 100,000 shares of the Company's common stock (the "Option").
The Option shall be granted under the Company's 1991 Stock Option Plan, as
amended (the "Option Plan"). The exercise price of the Option granted pursuant
to this Section 2.3 shall be equal to 100% of the fair market value of the
common stock on the close of business on the day before the day that Pettit
becomes employed by the Company subject to the vesting and termination
provisions as described below. The Option shall become exercisable in four equal
annual installments beginning on the first anniversary of the grant date, and,
except as provided below, shall be subject to the usual terms and conditions of
options issued pursuant to and in accordance with the Option Plan.

         2.4. BENEFITS. During the term of his employment or for such time as
otherwise provided in this Agreement, Pettit shall be entitled to participate in
such vacation, auto allowance, benefit plans, fringe benefits, life insurance,
medical and dental plans (beginning on the first day of employment), retirement
plans and other programs as are offered from time to time by the Company and are
described in the Company's employee benefit handbooks. Pettit shall be entitled
to four weeks of paid vacation each calendar year, subject to any limitations on
carryover of unused vacation generally applicable to employees. Pettit shall be
authorized to incur necessary and reasonable travel, entertainment and other
business expenses in connection with his duties hereunder. In connection with
expenses pursuant to this Section 2.4, the Company shall reimburse Pettit for
such expenses upon presentation of an itemized account and appropriate
supporting documentation, all in accordance with the Company's generally
applicable policies.

         2.5. INDEMNIFICATION. The Company shall indemnify Pettit in accordance
with the terms of the Company's standard form of Indemnification Agreement.

           3. TERMINATION.

         3.1. AT WILL NATURE OF EMPLOYMENT. Employment with the Company is not
for a specific term and can be terminated by Pettit or the Company at any time
for any reason, with or without cause. Any contrary representations that may
have been made or that may be made to Pettit are superseded by this Agreement.
In addition, this Agreement shall terminate by reason of Pettit's death or the
substantial inability of Pettit, by reason of physical or mental illness or

                                       2
<PAGE>   3

accident, to perform his regular responsibilities hereunder indefinitely or for
a period of one hundred eighty (180) days (a "Disability").

         3.2. COMPANY'S OBLIGATIONS ON TERMINATION APART FROM A CHANGE OF
CONTROL.

              (a) NO OBLIGATIONS OTHER THAN AS REQUIRED BY LAW FOR VOLUNTARY
TERMINATION OR CAUSE. The Company shall have no obligations to pay Pettit any
severance payments or continue to cover Pettit and/or his beneficiaries under
the Company's health plan (other than as required by law) if this Agreement is
terminated for any of the following reasons:

                  (i) VOLUNTARY TERMINATION. Pettit voluntarily terminates this
              Agreement; or

                  (ii) CAUSE. The Company terminates Pettit's employment at any
              time during the term of this Agreement for Cause. For purposes of
              this Agreement, "Cause" shall mean:

                         (A) the willful and continued failure of Pettit to
                    perform substantially his duties with the Company or one of
                    its affiliates (other than any such failure resulting from
                    incapacity due to medically documented illness or injury),
                    30 days after a written demand for substantial performance
                    is delivered to Pettit by the Board which specifically
                    identifies the manner in which the Board believes that
                    Pettit has not substantially performed his duties; or

                         (B) the willful engaging by Pettit in illegal conduct
                    or misconduct which is injurious to the Company,

              in each case as determined in the good faith opinion of the Board.

              (b) DEATH AND DISABILITY OBLIGATIONS. If this Agreement is
terminated due to death or Disability, the Company shall pay to Pettit (or his
legal representatives as the case may be) the specific obligations  as set forth
below:

                  (i) DEATH. Pettit's employment shall terminate automatically
              upon Pettit's death. If Pettit's employment under this Agreement
              is terminated by reason of his death, the Company's sole
              obligation to Pettit's legal representatives shall be to pay or
              cause to be paid, within thirty (30) days of the Date of
              Termination (as hereinafter defined), to such person or persons
              as Pettit shall have designated for that purpose in a notice
              filed with the Company, or, if no such person shall have been so
              designated, to his estate, the amount of Pettit's Accrued
              Obligations (as hereinafter defined). Any amounts payable under
              this Section 3.2(b)(i) shall be exclusive of and in addition to
              any payments or benefits which Pettit's widow, beneficiaries or
              estate may be entitled to receive pursuant to any

                                       3
<PAGE>   4

              pension plan, profit sharing plan, any employee benefit plan,
              equity incentive plan or life insurance policy maintained by the
              Company.

                  (ii) DISABILITY. If the Disability of Pettit occurs, the
              Company may give to Pettit written notice in accordance with
              Section 6.1 of this Agreement of its intention to terminate
              Pettit's employment. In such event, Pettit's employment with the
              Company shall terminate effective on the 30th day after receipt
              of such notice by Pettit (the "Disability Effective Date"),
              unless within the 30-day period after such receipt, Pettit
              returns to full-time performance of his duties. The Company's
              sole obligation to Pettit shall be payment of Accrued Obligations
              (as hereinafter defined) and the timely payment or provision of
              other benefits, including disability and other benefits provided
              by the Company to disabled executives and/or their families in
              accordance with such Company plans, programs, practices and
              policies relating to disability, if any.

              (c) OBLIGATIONS FOR ALL OTHER TERMINATION REASONS. For any other
reason, upon the termination of this Agreement and Pettit's employment hereunder
apart from a Change of Control, the Company shall pay to Pettit an amount equal
to the sum of (i) Pettit's annual base salary at the time Pettit's employment is
terminated; plus (ii) Pettit's average annual bonus received over the eight (8)
fiscal quarters of the Company immediately preceding Company's fiscal quarter
during which Pettit's employment is terminated, without exceeding Pettit's
target bonus for Company's fiscal year during which Pettit's employment is
terminated, provided, however, that Pettit shall receive his target bonus if he
is terminated within his first eight (8) fiscal quarters with the Company; plus
(iii) Pettit's auto allowance for the Company's fiscal year during which
Pettit's employment is terminated. In addition, the Company shall provide, at
Company's expense, continued coverage for Pettit and his beneficiaries for a
period extending through the earlier of the date Pettit begins any subsequent
full-time employment for pay and the date that is one (1) year after Pettit's
termination of employment, under the Company's health plan covering Pettit and
Pettit's beneficiaries, provided that Pettit properly elects coverage pursuant
to Title I, Part 6 of the Employee Retirement Income Security Act of 1974, as
amended ("COBRA").

         3.3. COMPANY'S OBLIGATIONS ON TERMINATION DUE TO A CHANGE OF CONTROL.

              (a) DEFINITIONS.

                  (i) For purposes of this Agreement, a "Change of Control"
                      shall mean:

                      (A) the acquisition by any individual, entity or group
                  (within the meaning of Section 13(d)(3) or 14(d)(2) of the
                  Securities Exchange Act of 1934, as amended (the "Exchange
                  Act")) (for the purposes of this Section 3.3, a "Person") of
                  beneficial ownership (within the meaning of Rule 13d-3
                  promulgated under the Exchange Act) of 50% or more of the
                  voting power of the then outstanding voting securities of the
                  Company

                                       4
<PAGE>   5

                  entitled to vote generally in the election of directors (the
                  "Outstanding Company Voting Securities"); provided, however,
                  that for purposes of this subsection (a), any acquisition by
                  any employee benefit plan (or related trust) sponsored or
                  maintained by the Company or any corporation controlled by the
                  Company shall not constitute a Change of Control; or

                      (B) individuals who, as of the date hereof, constitute the
                  Board (the "Incumbent Board") cease for any reason to
                  constitute at least a majority of the Board; provided,
                  however, that any individual (other than an individual whose
                  initial assumption of office occurs as a result of an actual
                  or threatened solicitation of proxies or consents by or on
                  behalf of a Person other than the Board) who becomes a
                  director subsequent to the date hereof whose election or
                  nomination for election was approved by a vote of at least a
                  majority of the directors then comprising the Incumbent Board
                  shall be considered as though such individual were a member of
                  the Incumbent Board; or

                      (C) consummation of a reorganization, merger or
                  consolidation or sale or other disposition of all or
                  substantially all of the assets of the Company (a "Business
                  Combination") unless, following such Business Combination, (i)
                  all or substantially all of the individuals and entities who
                  were the beneficial owners of the Outstanding Company Voting
                  Securities immediately prior to such Business Combination
                  beneficially own, directly or indirectly, more than 50% of the
                  voting power of the then outstanding voting securities
                  entitled to vote generally in the election of directors, as
                  the case may be, of the corporation resulting from such
                  Business Combination (including, without limitation, a
                  corporation which as a result of such transaction owns the
                  Company or all or substantially all of the Company's assets
                  either directly or through one or more subsidiaries) in
                  substantially the same proportions as their ownership,
                  immediately prior to such Business Combination of the
                  Outstanding Company Voting Securities and (ii) at least a
                  majority of the members of the board of directors of the
                  corporation resulting from such Business Combination were
                  members of the Incumbent Board at the time of the execution of
                  the initial agreement, or of the action of the Board,
                  providing for such Business Combination; or

                      (D) approval by the shareholders of the Company of a
                  complete liquidation or dissolution of the Company.

                  (ii) For purposes of this Agreement, "affiliated companies"
              shall include any company controlled by, controlling or under
              common control with the Company.

                                       5
<PAGE>   6

                  (iii) For purposes of this Agreement, "Involuntary
              Termination" shall mean Pettit's voluntary termination following
              (A) a change in Pettit's position with the Company which
              materially reduces Pettit's level of responsibility, (B) a
              reduction in Pettit's Base Salary, or (C) a change in Pettit's
              place of employment, which is more than seventy-five (75) miles
              from Pettit's place of employment prior to the change, provided
              and only if such change or reduction is effected without Pettit's
              written concurrence.

                  (iv) For purposes of this Agreement, "Date of Termination"
              shall mean (A) if Pettit's employment is terminated by the Company
              for Cause, or by Pettit, the date of receipt of the Notice of
              Termination or any later date specified therein, as the case may
              be, (B) if Pettit's employment is terminated by the Company for
              other than for Cause or Disability, the date on which the Company
              notifies Pettit of such termination and (C) if Pettit's employment
              is terminated by reason of death or Disability, the date of death
              of Pettit or the Disability Effective Date, as the case may be.

                  (v) For purposes of this Agreement, "Accrued Obligations"
              shall mean the sum of (A) Pettit's Base Salary through the Date of
              Termination to the extent not theretofore paid, (B) the greater of
              (I) the product of (x) any Incentive Compensation paid to or
              deferred by Pettit for the fiscal year preceding the fiscal year
              in which Pettit's Date of Termination occurs (annualized in the
              event that Pettit was not employed by the Company for the whole of
              such fiscal year) and (y) a fraction, the numerator of which is
              the number of days in the current fiscal year through the Date of
              Termination, and the denominator of which is 365 and (II) the
              average of the past three (3) years' annual bonuses, provided,
              however, that Pettit shall receive his target bonus if he is
              terminated within his first eight (8) fiscal quarters with the
              Company (such greater amount being the "Highest Annual Bonus") and
              (C) any compensation previously deferred by Pettit (together with
              any accrued interest or earnings thereon) and any accrued vacation
              pay, in each case to the extent not theretofore paid.
              Notwithstanding the foregoing, in no event will Pettit be entitled
              to a duplication of any Incentive Compensation payments.

              (b) SEVERANCE BENEFITS FOR TERMINATION WITHIN TWO (2) YEARS OF A
     CHANGE OF CONTROL. If Pettit's employment with the Company terminates by
     reason of Pettit's Involuntary Termination (as defined in Section
     3.3(a)(iii) above) or termination by the Company without Cause (as defined
     in Section 3.2(a)(ii)) above) within two (2) years of the effective date of
     the Change of Control, Pettit shall be entitled to receive the following:

              (i) Company must pay Pettit an amount equal to 150% of the sum of
              (A) Pettit's Base Salary and (B) his Highest Annual Bonus; (ii)
              Company shall also pay Pettit any Accrued Obligations; and (iii)
              Company shall provide, at its expense, continued coverage of
              Pettit and Pettit's beneficiaries for eighteen (18) months after
              the Date of Termination or until Pettit commences any full-time
              employment, whichever comes first,

                                       6
<PAGE>   7

              under the Company's health plan covering Pettit and Pettit's
              beneficiaries, provided, however, that Pettit properly elects
              coverage pursuant to COBRA.

              (c) SEVERANCE BENEFITS FOR TERMINATION AFTER THE SECOND YEAR
     FOLLOWING A CHANGE OF CONTROL. If Pettit is terminated after the second
     year following a Change of Control, the Company's obligations are as set
     forth in Section 3.2 of this Agreement.

              (d) STOCK OPTIONS AFTER A CHANGE OF CONTROL. Subject to Section
     2.3 of this Agreement, all Pettit's outstanding stock options to purchase
     Company common stock shall accelerate and become fully exercisable.

         3.4. CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY; EXCISE TAX GROSS-UP. A
"Gross-Up Payment" (as defined below) shall be made to Pettit when payments of
compensation payable to Pettit on termination of employment in connection with a
Change of Control, including, without limitation, the vesting of an option or
other non-cash benefit or property, whether pursuant to the terms of any
applicable plan, arrangement or agreement with the Company or any of its
affiliated companies (the "Total Payments") would trigger a tax imposed on
Pettit under Section 4999 of the Internal Revenue Code of 1986, as amended (the
"Excise Tax").

         For purposes hereof, the Gross-Up Payment shall mean a payment to
Pettit in such amount as is necessary to ensure that the net amount retained by
Pettit, after reduction for any Excise Tax (including any penalties or interest
thereon) on the Total Payments and any federal, state and local income or
employment tax and Excise Tax on the Gross-Up Payment provided for by this
Section 3.4, but before reduction for any federal, state or local income or
employment tax on the Total Payments, shall be equal to the Total Payments.

         3.5. EXCLUSIVE BENEFITS. If more than one benefit due to termination
becomes payable under Sections 3.2 or 3.3, the greatest of such benefits shall
become payable to the exclusion of all other such benefits and shall be in lieu
of any other severance or similar benefits that would otherwise be payable under
any other agreement, plan, program or policy of the Company. Notwithstanding
anything in the prior sentence to the contrary, Pettit shall be entitled to
benefits and incentives under all benefit plans and equity incentive plans,
policies and programs (except as expressly excluded herein, including, without
limitation, Section 2.3 of this Agreement) according to the terms of such
benefit plans and equity incentive plans, policies and programs as in effect
from time to time, including any acceleration of vesting provisions in the
Company's option plans, including any benefits under the Executive Severance
Plan for Officers.

           4. INVENTIONS AND CREATIONS. Pettit agrees that all inventions,
discoveries, improvements, ideas and other contributions (collectively
"Inventions") whether or not copyrighted or copyrightable, patented or
patentable, or otherwise protectable in law, which are conceived, made,
developed or acquired by Pettit, either individually or jointly, during his
employment with the Company or any of its subsidiaries, and which relate in any
manner to the business of the Company or any of its subsidiaries, shall belong
to the Company and Pettit does

                                       7
<PAGE>   8

hereby assign and transfer to the Company his entire right, title and interest
in the Inventions. Pettit agrees to promptly and fully disclose the Inventions
to the Company, in writing if requested by the Company, and to execute and
deliver any and all lawful application, assignment and other documents which the
Company requests for protecting the Inventions in the United States or any other
country. The Company shall have the full and sole power to prosecute such
applications and to take all other action concerning the Inventions, and Pettit
will cooperate fully within a lawful manner, at the expense of the Company, in
the preparation and prosecution of all such applications and in any legal
actions and proceedings concerning the Inventions. The provisions of this
Section 4 shall survive the termination of this Agreement.

           5. NON-COMPETITION; NON-SOLICITATION; CONFIDENTIAL INFORMATION.

         5.1. NON-COMPETITION AGREEMENT. Pettit hereby acknowledges and agrees
that the Company actively engages in its business throughout all of North
America. Accordingly, Pettit agrees that during the Non-Competition Period (as
defined below), Pettit will not, directly or indirectly, whether as a partner,
officer, shareholder, advisor, employee or otherwise, promote, participate,
become employed by, or engage in any activity or other business similar to the
Company's business or any entity engaged in a business competitive with the
Company's business in any state within the United States as well as in Canada or
Mexico. If Pettit fails to comply with the provisions of this Section 5.1, the
Company may, in addition to pursuing all other remedies available to the Company
under law or in equity as a result of such breach, cease payment of all
severance benefits under Section 3. For purposes hereof, "Non-Competition
Period" shall mean the period commencing on the date hereof and ending eighteen
(18) months after the later of the termination of Pettit's employment hereunder
or Pettit's submission of his resignation, or removal of Pettit as Chief
Financial Officer of the Company and the Company's payment and provision of
Change of Control severance benefits pursuant to Section 3.3.

         5.2. NON-SOLICITATION AGREEMENT. During the term of this Agreement and
for a period of eighteen (18) months thereafter, Pettit shall not, directly or
indirectly, individually or on behalf of any Person (as defined below) solicit,
aid or induce (a) any then current employee of the Company to leave the Company
in order to accept employment with or render services for Pettit or such Person
or (b) any customer, client, vendor, lender, supplier or sales representative of
the Company or similar persons engaged in business with the Company to
discontinue the relationship or reduce the amount of business done with the
Company. "Person" means any individual, a partnership, a corporation, an
association, a limited liability company, a joint stock company, a trust, a
joint venture, an unincorporated organization, a governmental entity, or any
department, agency or political subdivision thereof, or an accrediting body.

         5.3. CONFIDENTIAL INFORMATION. Pettit acknowledges and agrees that he
is in possession of and will be exposed to during the course of, and incident
to, his employment by and affiliations with the Company, Confidential
Information (as defined herein) relating to the Company and its affiliated
companies. For purposes hereof, "Confidential Information" shall mean all
proprietary or confidential information concerning the business, finances,
financial statements, properties and operations of the Company and its
affiliated companies, including,

                                       8
<PAGE>   9

without limitation, all customer and prospective customer and supplier lists,
know-how, trade secrets, business and marketing plans, techniques, forecasts,
projections, budgets, unpublished financial statements, price lists, costs,
computer programs, source and object codes, algorithms, data, and other original
works of authorship, along with all information received from third parties and
held in confidence by the Company and its affiliated companies (including,
without limitation, personnel files and employee records). During the
Non-Competition Period and at all times thereafter, Pettit will hold the
Confidential Information in the strictest confidence and will not disclose or
make use of (directly or indirectly) the Confidential Information or any portion
thereof to or on behalf of himself or any third party except (a) as required in
the performance of his duties as an employee, director or shareholder of the
Company, (b) as required by the order of any court or similar tribunal or any
other governmental body or agency of appropriate jurisdiction; provided, that
Pettit shall, to the extent practicable, give the Company prior written notice
of any such disclosure and shall cooperate with the Company in obtaining a
protective order or such similar protection as the Company may deem appropriate
to preserve the confidential nature of such information. The foregoing
obligations to maintain the Confidential Information shall not apply to any
Confidential Information which is or, without any action by Pettit, becomes
generally available to the public. Upon termination of any employment or
consulting relationship between the Company and Pettit, Pettit shall promptly
return to the Company all physical embodiments of the Confidential Information
(regardless of form or medium) in the possession of or under the control of
Pettit.

         5.4. SCOPE OF RESTRICTION. The parties have attempted to limit the
scope of the covenants set forth in Section 5 to the extent necessary. The
parties recognize, however, that reasonable people may differ in making such
determination. Consequently, the parties hereby agree that if the scope and
duration of such covenants would, but for this provision, be deemed by a court
of competent authority to be unreasonable or otherwise unenforceable, such court
may modify such covenants to the extent that such court determines to be
necessary in order to grant enforcement thereof as so modified.

         5.5. REMEDIES. The parties hereto recognize that the Company will
suffer irreparable injury in the event of a breach of the terms of Section 5 by
Pettit. In the event of a breach of the terms of Section 5, the Company shall be
entitled, in addition to any other remedies and damages available and without
proof of monetary or immediate damage, to a temporary and/or permanent
injunction, without the necessity of posting a bond, to restrain the violation
of Section 5 by Pettit or any Persons acting for or in concert with him. Such
remedy, however, shall be cumulative and nonexclusive and shall be in addition
to any other remedy which the parties may have.

         5.6. COMMON LAW OF TORTS OR TRADE SECRETS. The parties agree that
nothing in this Agreement shall be construed to limit or negate the common law
of torts or trade secrets where it provides the Company with broader protection
than that provided herein.

         5.7. SURVIVAL OF SECTION 5. The provisions of Section 5 shall survive
the termination of Pettit's employment and the termination of this Agreement.

                                       9
<PAGE>   10

           6. GENERAL PROVISIONS.

         6.1. NOTICES. All notices, demands or other communications to be given
or delivered under or by reason of the provisions of this Agreement shall be in
writing and shall be deemed to have been given when delivered personally to the
recipient, sent to the recipient by reputable express courier service (charges
prepaid), sent by facsimile (with a copy sent via another method approved
herein), or mailed to the recipient by certified or registered mail, return
receipt requested and postage prepaid. Such notices, demands and other
communications shall be sent to the Company and to Pettit at the addresses
indicated below:

         If to the Company:                 Insurance Auto Auctions, Inc.
                                            850 East Algonquin Road, Suite 100
                                            Schaumburg, Illinois 60173
                                            Phone:   847-839-3939
                                            Fax:     847-839-3999
                                            Attention:        General Counsel

         With copies to:                    Katten Muchin Zavis
                                            525 West Monroe Street, Suite 1600
                                            Chicago, Illinois 60661
                                            Phone:   312-902-5564
                                            Fax:     312-577-8648
                                            Attention:    David J. Kaufman, Esq.

         If to Pettit:                      Scott Pettit
                                            1435 Semar Court
                                            ------------------------------------
                                            Mt. Prospect, IL  60056
                                            ------------------------------------
                                            ------------------------------------

         With copies to:                    ------------------------------------
                                            ------------------------------------
                                            ------------------------------------
                                            ------------------------------------

or to such other address or to the attention of such other person as the
recipient party has specified by prior written notice to the sending party.

         6.2. ENTIRE AGREEMENT. Except as otherwise expressly set forth herein,
this Agreement embodies the complete agreement and understanding among the
parties and supersede and preempt any prior understandings, agreements or
representations by or among the parties, written or oral, which may have related
to the subject matter hereof in any way.

         6.3. SUCCESSORS AND ASSIGNS. All covenants and agreements contained in
this Agreement by or on behalf of either party hereto shall bind such party and
its heirs,

                                       10
<PAGE>   11

legal representatives, successors and assigns and inure to the benefit of the
other party hereto and their heirs, legal representatives, successors and
assigns.

         6.4. GOVERNING LAW. This Agreement shall be construed and enforced in
accordance with, and all questions concerning the construction, validity,
interpretation and performance of this Agreement shall be governed by the laws
of the State of Illinois without giving effect to the provisions thereof
regarding conflict of laws.

         6.5. RESOLUTION OF DISPUTES; ARBITRATION. Should a dispute arise
concerning this Agreement, its interpretation or termination, or Pettit's
employment with the Company, either party may request a conference with the
other party to this Agreement and the parties shall meet to attempt to resolve
the dispute. Failing such resolution within thirty (30) days of ether party's
request for a conference, the Company and Pettit shall endeavor to select an
arbitrator who shall hear the dispute. In the event the parties are unable to
agree on an arbitrator, Pettit and Company shall request the American
Arbitration Association ("AAA") to submit a list of nine (9) names of persons
who could serve as an arbitrator. The Company and Pettit shall alternately
remove names from this list (beginning with the party which wins a flip of a
coin) until one person remains and this person shall serve as the impartial
arbitrator. The arbitration shall be conducted in accordance with the National
Rules for the Resolution of Employment Disputes as promulgated by the AAA. The
decision of the arbitrator shall be final and binding on both parties. Each
party shall bear equally all costs of the arbitrator.

         The arbitrator shall only have authority to interpret, apply or
determine compliance with the provisions set forth in this Agreement, but shall
not have the authority to add to, detract from or otherwise alter the language
of this Agreement.

         6.6. REPRESENTATIONS OF PETTIT. Pettit hereby represents and warrants
to the Company that his execution, delivery and performance of this agreement
will not violate or result in any breach of any agreement, contract,
understanding or written policy to which Pettit is subject as a result of any
prior employment, any investment or otherwise. Pettit is not subject to any
agreement, contract or understanding which in any way restricts or limits his
ability to accept employment with the Company or perform the services
contemplated herein.

         6.7. DESCRIPTIVE HEADINGS; INTERPRETATION. The descriptive headings of
this Agreement are inserted for convenience only and do not constitute a part of
this Agreement.

         6.8. COUNTERPARTS. This Agreement may be executed simultaneously in two
or more counterparts, any one of which need not contain the signatures of more
than one party, but all such counterparts taken together shall constitute one
and the same Agreement.

         6.9. AMENDMENTS AND WAIVERS. No modification, amendment or waiver of
any provisions of this Agreement shall be effective unless approved in writing
by each of the parties hereto. The Company's failure at any time to enforce any
of the provisions of this Agreement

                                       11
<PAGE>   12

shall in no way be construed as a waiver of such provisions and will not affect
the right of the Company to enforce each and every provision hereof in
accordance with its terms.

        6.10. NON-ASSIGNMENT.  This Agreement shall not be assigned by Pettit.

                             SIGNATURE PAGE FOLLOWS.

                                       12
<PAGE>   13

         IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first written above.

                                                INSURANCE AUTO AUCTIONS, INC.

                                                By: /s/ Thomas C. O'Brien
                                                    ----------------------------
                                                Name:    Thomas C. O'Brien
                                                Title:   President and Chief
                                                         Executive Officer

                                                /s/ Scott P. Pettit
                                                --------------------------------
                                                    SCOTT PETTIT

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