Document:

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                                                                       EXHIBIT A
                                                           NON-EMPLOYEE DIRECTOR

                          INSURANCE AUTO AUCTIONS, INC.
                             STOCK OPTION AGREEMENT

RECITALS

          A.  The Corporation's Board of Directors (the "Board") has adopted the
Corporation's 1991 Stock Option Plan (the "Plan") for the purpose of attracting
and retaining the services of key employees (including officers and directors),
non-employee Board members and consultants and other independent contractors of
the Corporation or its subsidiaries.

          B.  Optionee is a non-employee member of the Board who is entitled to
receive an option to acquire shares of the Corporation's Common Stock pursuant
to the automatic option grant program implemented for non-employee Board members
under the provisions of the Plan. This Agreement is executed pursuant to, and is
intended to carry out the purposes of, the Plan in connection with the automatic
option grant made to Optionee thereunder.

          C.  The granted option is not intended to be an incentive stock option
("Incentive Option") within the meaning of Section 422 of the Internal Revenue
Code.

          NOW, THEREFORE, it is hereby agreed as follows:

          1.  GRANT OF OPTION. Subject to and upon the terms and conditions set
forth in this Agreement, Corporation hereby grants to Optionee, as of the grant
date (the "Grant Date") specified in the accompanying Notice of Grant of Stock
Option (the "Grant Notice"), a stock option to purchase up to that number of
shares of the Corporation's Common Stock (the "Option Shares") as is specified
in the Grant Notice. Such Option Shares shall be purchasable from time to time
during the option term at the option price (the "Option Price") specified in the
Grant Notice.

          2.  OPTION TERM. This option shall have a maximum term of ten (10)
years measured from the Grant Date and shall accordingly expire at the close of
business on the expiration date (the "Expiration Date") specified in the Grant
Notice, unless sooner terminated in accordance with Paragraph 5 or 7.

          3.  NON-TRANSFERABILITY. This option shall not be transferable or
assignable by Optionee other than by will or by the laws of descent and
distribution following Optionee's death and may be exercised, during Optionee's
lifetime, only by Optionee.

          4.  DATES OF EXERCISE. Provided Optionee continues to serve as a Board
member, the Option shall become exercisable for twenty-five percent (25%) of the
Option Shares on the last business day of the Corporation's fiscal quarter
immediately following the fiscal quarter in which the Grant Date occurs and
shall become exercisable for an additional twenty-

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five percent (25%) of the Option Shares on the last business day of each of the
next three (3) succeeding fiscal quarters thereafter. In no event shall this
option become exercisable for any Option Shares following the date Optionee
ceases for any reason to serve as a Board member.

          Optionee may from time to time during the specified term of this
option purchase any or all of the Option Shares for which this option is at the
time exercisable in accordance with the provisions of this Agreement.

          5.  CESSATION OF BOARD MEMBERSHIP. The option term specified in
Paragraph 2 shall terminate (and this option shall cease to be outstanding)
prior to the Expiration Date in accordance with the following provisions:

                    (i) This option shall immediately terminate and cease to be
     outstanding for any Option Shares for which it is not exercisable at the
     time Optionee ceases to serve as a Board member.

                    (ii) Should Optionee cease to serve as a Board member for
     any reason other than death or permanent disability while this option
     remains outstanding, then Optionee shall have a three (3)-month period
     measured from the date of such cessation of Board service in which to
     exercise this option for any or all of the Option Shares for which this
     option is exercisable at the time of such cessation of Board service. In no
     event, however, may this option be exercised at any time after the
     specified Expiration Date of the option term. Upon the expiration of such
     three (3)-month period or (if earlier) upon the specified Expiration Date
     of the option term, this option shall terminate and cease to be
     outstanding.

                    (iii) Should Optionee die while serving as a Board member,
     then the personal representative of Optionee's estate or the person or
     persons to whom this option is transferred pursuant to Optionee's will or
     in accordance with the laws of descent and distribution shall have the
     right to exercise the option for any or all of the Option Shares for which
     this option is exercisable at the time of Optionee's cessation of Board
     service (less any Option Shares subsequently purchased by Optionee prior to
     death). Such right shall lapse, and this option shall terminate and cease
     to remain outstanding, upon the earlier of (A) the expiration of the twelve
     (12)-month period measured from the date of Optionee's death or (B) the
     Expiration Date.

                    (iv) Should Optionee become permanently disabled and cease
     by reason thereof to serve as a Board member at any time during the option
     term, then Optionee shall have a twelve (12)-month period commencing with
     the date of such cessation of Board service in which to exercise this
     option for any or all of the Option Shares for which this option is
     exercisable at the time of such cessation of Board service. In no event,
     however, may this option be exercised at any time after the Expiration
     Date. Upon the expiration of such limited period of

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     exercisability or (if earlier) upon the Expiration Date, this option shall
     terminate and cease to be outstanding.

                    (v) During the limited post-Service period of exercisability
     determined pursuant to subparagraphs (ii) through (iv) above, this option
     may not be exercised in the aggregate for more than the number of Option
     Shares (if any) for which this option is, at the time of Optionee's
     cessation of Board service, exercisable in accordance with either the
     normal exercise provisions specified in Paragraph 4 or the special
     acceleration provisions of Paragraph 7.

                    (vi) For purposes of this Agreement, Optionee shall be
     deemed to be PERMANENTLY DISABLED and to have incurred a PERMANENT
     DISABILITY if Optionee is unable to engage in any substantial gainful
     activity by reason of any medically-determinable physical or mental
     impairment expected to result in death or to be of continuous duration of
     not less than twelve (12) months.

          6.  ADJUSTMENT IN OPTION SHARES.

              (a)   In the event any change is made to the Common Stock issuable
under the Plan by reason of any stock split, stock dividend, recapitalization,
combination of shares, exchange of shares or other change affecting the
outstanding Common Stock as a class effected without the Corporation's receipt
of consideration, the Plan Administrator shall make appropriate adjustments to
(i) the total number of Option Shares subject to this option and the (ii) Option
Price payable per share in order to prevent any dilution or enlargement of
benefits hereunder. The adjustments determined by the Plan Administrator shall
be final, binding and conclusive.

              (b)   If this option is to be assumed in connection with any
Corporate Transaction under Paragraph 7 or is otherwise to remain outstanding,
then this option shall, immediately after the Corporate Transaction, be
appropriately adjusted to apply and pertain to the number and class of
securities which would have been issued to Optionee in the consummation of such
Corporate Transaction had the option been exercised immediately prior to such
Corporate Transaction. Appropriate adjustments shall also be made to the Option
Price payable per share, provided the aggregate Option Price payable hereunder
shall remain the same.

          7.  CORPORATE TRANSACTION.

              (a)   In the event of any of the following shareholder-approved
transactions (a "Corporate Transaction"):

                    (i) a merger or acquisition in which the Corporation is not
     the surviving entity, except for a transaction the principal purpose of
     which is to change the State of the Corporation's incorporation,

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                    (ii) the sale, transfer or other disposition of all or
     substantially all of the assets or outstanding capital stock of the
     Corporation, or

                    (iii) any reverse merger in which the Corporation is the
     surviving entity but in which all of the Corporation's outstanding voting
     stock is transferred to the acquiring entity or its wholly-owned
     subsidiary,

                    this option, to the extent outstanding at such time but not
otherwise fully exercisable, shall automatically accelerate so that such option
shall, immediately prior to the specified effective date for the Corporate
Transaction, become fully exercisable for all the Option Shares at the time
subject to this option and may be exercised for all or any portion of such
shares.

              (b)   This option, to the extent not previously exercised, shall
terminate upon the consummation of such Corporate Transaction and cease to be
outstanding, unless it is expressly assumed by the successor corporation or
parent thereof.

          8.  PRIVILEGE OF STOCK OWNERSHIP. The holder of this option shall not
have any of the rights of a shareholder with respect to the Option Shares until
such individual shall have exercised the option and paid the Option Price.

          9.  MANNER OF EXERCISING OPTION.

              (a)   In order to exercise this option with respect to all or any
part of the Option Shares for which this option is at the time exercisable,
Optionee (or in the case of exercise after Optionee's death, Optionee's
executor, administrator, heir or legatee, as the case may be) must take the
following actions:

                    (i) Deliver to the Corporate Secretary an executed notice of
     exercise in substantially the form of Exhibit I to this Agreement (the
     "Exercise Notice") in which there is specified the number of Option Shares
     to be purchased under the exercised option.

                    (ii) Pay the aggregate Option Price for the purchased shares
     through one or more of the following alternatives:

          -   full payment in cash or by check payable to the Corporation;

          -   full payment in shares of Common Stock held for the requisite
     period necessary to avoid a charge to the Corporation's earnings for
     financial reporting purposes and valued at Fair Market Value on the
     Exercise Date (as such terms are defined below);

          -   full payment in a combination of shares of Common Stock held for
     the requisite period necessary to avoid a charge to the Corporation's
     reported

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     earnings and valued at Fair Market Value on the Exercise Date and cash or
     check payable to the Corporation's order; or

          -   full payment effected through a sale and remittance procedure
     pursuant to which Optionee shall concurrently provide irrevocable written
     instructions (I) to a designated brokerage firm to effect the immediate
     sale of the purchased shares and remit to the Corporation, out of the sale
     proceeds available on the settlement date, sufficient funds to cover the
     aggregate Option Price payable for the purchased shares and (II) to the
     Corporation to deliver the certificates for the purchased shares directly
     to such brokerage firm in order to complete the sale transaction.

                    (iii) Furnish to the Corporation appropriate documentation
     that the person or persons exercising the option (if other than Optionee)
     have the right to exercise this option.

              (b)   For purposes of this Agreement, the Exercise Date shall be
the date on which the executed Exercise Notice shall have been delivered to the
Corporate Secretary. Except to the extent the sale and remittance procedure
specified above is utilized in connection with the option exercise, payment of
the Option Price for the purchased shares must accompany such Exercise Notice.
For all valuation purposes under this Agreement, the Fair Market Value per share
of Common Stock on any relevant date shall be determined in accordance with
subparagraphs (i) and (ii) below:

                    (i) If the Common Stock is not at the time listed or
     admitted to trading on any stock exchange but is traded on the Nasdaq
     National Market, the Fair Market Value shall be the closing selling price
     per share of Common Stock on the trading day immediately preceding the date
     in question, as such price is reported by the National Association of
     Securities Dealers through the Nasdaq National Market or any successor
     system. If there is no closing selling price for the Common Stock on such
     date, then the Fair Market Value shall be the closing selling price on the
     last preceding date for which such quotation exists.

                    (ii) If the Common Stock is on the date in question listed
     or admitted to trading on any national stock exchange, then the Fair Market
     Value shall be the closing selling price per share of Common Stock on the
     trading day immediately preceding the date in question on the stock
     exchange serving as the primary market for the Common Stock, as such price
     is officially quoted in the composite tape of transactions on such
     exchange. If there is no closing selling price for the Common Stock on the
     date in question, then the Fair Market Value shall be the closing selling
     price on the last preceding date for which such quotation exists.

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              (c)   As soon as practical after receipt of the Exercise Notice,
the Corporation shall mail or deliver to or on behalf of Optionee (or any other
person or persons exercising this option) a certificate or certificates
representing the purchased Option Shares.

              (d)   In no event may this option be exercised for any fractional
shares.

          10. GOVERNING LAW. The interpretation, performance, and enforcement of
this Agreement shall be governed by the laws of the State of California without
resort to that State's conflict-of-laws rules.

          11. COMPLIANCE WITH LAWS AND REGULATIONS.

              (a)   The exercise of this option and the issuance of Option
Shares upon such exercise shall be subject to compliance by the Corporation and
Optionee with all applicable requirements of law relating thereto and with all
applicable regulations of any stock exchange on which shares of the
Corporation's Common Stock may be listed at the time of such exercise and
issuance.

              (b)   In connection with the exercise of this option, Optionee
shall execute and deliver to the Corporation such representations in writing as
may be requested by the Corporation in order for it to comply with the
applicable requirements of Federal and State securities laws.

          12. SUCCESSORS AND ASSIGNS. Except as otherwise expressly set forth in
this Agreement, the provisions of this Agreement shall inure to the benefit of,
and be binding upon, the succeeding administrators, heirs, and legal
representatives of Optionee and the successors and assigns of the Corporation.

          13. LIABILITY OF CORPORATION. The inability of Corporation to obtain
approval from any regulatory body having authority deemed by the Corporation to
be necessary to the lawful issuance and sale of any Common Stock pursuant to
this option shall relieve the Corporation of any liability with respect to the
non-issuance or sale of the Common Stock as to which such approval shall not
have been obtained. The Corporation, however, shall use its best efforts to
obtain all such approvals.

          14. NO IMPAIRMENT OF RIGHTS. This Agreement shall not in any way
affect the right of the Corporation to adjust, reclassify, reorganize or
otherwise make changes in its capital or business structure or to merge,
consolidate, dissolve, liquidate or sell or transfer all or any part of its
business or assets. Nor shall this Agreement in any way be construed or
interpreted so as to affect adversely or otherwise impair the right of the
Corporation or the shareholders to remove Optionee from the Board at any time in
accordance with the provisions of applicable law.

          15. NOTICES. Any notice required to be given or delivered to the
Corporation under the terms of this Agreement shall be in writing and addressed
to the Corporation in care of its Corporate Secretary at the Corporation
principal offices at 7245 Laurel Canyon Boulevard, North Hollywood, California
91605. Any notice required to be given or delivered to Optionee

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shall be in writing and addressed to Optionee at the address indicated on the
Grant Notice. All notices shall be deemed to have been given or delivered upon
personal delivery or upon deposit in the U.S. mail, by registered or certified
mail, postage prepaid and properly addressed to the party to be notified.

          16. CONSTRUCTION. This Agreement and the option evidenced hereby are
made and granted pursuant to the automatic grant provisions in effect under the
Plan for non-employee Board members and are in all respects limited by and
subject to the express provisions of the Plan applicable to such automatic
grants.

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                                    EXHIBIT I

                       NOTICE OF EXERCISE OF STOCK OPTION

          I hereby notify Insurance Auto Auctions, Inc. (the "Corporation") that
I elect to purchase _______ shares of Common Stock of the Corporation (the
"Purchased Shares") at an option price of $_______ per share (the "Option
Price") pursuant to option grant number _______ (the "Option") granted to me on
__________, 19_.

          Concurrently with the delivery of this Exercise Notice to the
Corporate Secretary, I shall hereby pay to the Corporation the Option Price for
the Purchased Shares in accordance with the provisions of my agreement with the
Corporation evidencing the Option and shall deliver whatever additional
documents may be required by such agreement as a condition for exercise.
Alternatively, I may utilize the special sale and remittance procedure specified
in my agreement to effect the payment of the Option Price for the Purchased
Shares.

____________________                    _______________________________
Date                                    Optionee

                               Address: _______________________________

                                        _______________________________

Print name in exact manner
it is to appear on the
stock certificate:                      _______________________________

Address to which certificate
is to be sent, if different
from address above:                     _______________________________

                                        _______________________________

                                        _______________________________

Social Security Number:                 _______________________________

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                          INSURANCE AUTO AUCTIONS, INC.
                         NOTICE OF GRANT OF STOCK OPTION
                     UNDER THE INSURANCE AUTO AUCTIONS, INC.
                             1991 STOCK OPTION PLAN

                  NON-EMPLOYEE DIRECTOR AUTOMATIC OPTION GRANT

          Notice is hereby given to the following stock option grant (the
"Option") to purchase shares of the Common Stock of Insurance Auto Auctions,
Inc. (the "Corporation"):

          Optionee:

          Grant Date:

          Option Price:

          Number of Option Shares:

          Expiration Date:

          Type of Option:               Non-Qualified Stock Option

          Exercise Schedule: The Option shall vest in four (4) installments with
          the first such installment to become exercisable on the last business
          day of the fiscal quarter immediately following the date of grant and
          as to an additional twenty-five (25%) of the option shares on the last
          business day of each of the next three (3) fiscal quarters thereafter,
          provided the optionee continues to serve as a Board Member

          Optionee understands and agrees that the Option is granted subject to
and in accordance with the express terms and conditions of the Insurance Auto
Auctions, Inc. 1991 Stock Option Plan (the "Plan") governing Automatic Option
Grants to non-employee directors. Optionee further agrees to be bound by the
terms and conditions of the Plan and the terms and conditions of the Option as
set forth in the Stock Option Agreement attached hereto as Exhibit A. Optionee
also acknowledges receipt of a copy of the official prospectus for the Plan
attached hereto as Exhibit B.

Date: __________________, 2000          INSURANCE AUTO AUCTIONS, INC.

                                        By:________________________________

                                        Title:_____________________________

                                        ___________________________________
                                                   , Optionee

                                        Address:___________________________

                                                ___________________________

Exhibit A: Stock Option Agreement
Exhibit B: Plan Prospectus<PAGE>   1

                                                                       EXHIBIT A
                                                                        EMPLOYEE

                          INSURANCE AUTO AUCTIONS, INC.
                             STOCK OPTION AGREEMENT
                                    UNDER THE
                          INSURANCE AUTO AUCTIONS, INC.
                             1991 STOCK OPTION PLAN

RECITALS

         A.  The Corporation's Board of Directors (the "Board") has adopted the
Corporation's 1991 Stock Option Plan (the "Plan") for the purpose of attracting
and retaining the services of key employees (including officers and directors),
non-employee Board members and consultants and other independent contractors of
the Corporation or its subsidiaries.

         B.  Optionee is an individual who is to render valuable services to the
Corporation or one or more subsidiaries, and this Agreement is executed pursuant
to, and is intended to carry out the purposes of, the Plan in connection with
the Corporation's grant of a stock option to Optionee.

         NOW, THEREFORE, it is hereby agreed as follows:

         1.  GRANT OF OPTION. Subject to and upon the terms and conditions set
forth in this Agreement, the Corporation hereby grants to Optionee, as of the
grant date (the "Grant Date") specified in the accompanying Notice of Grant of
Stock Option (the "Grant Notice"), a stock option to purchase up to that number
of shares of the Corporation's Common Stock (the "Option Shares") as is
specified in the Grant Notice. Such Option Shares shall be purchasable from time
to time during the option term at the option price (the "Option Price")
specified in the Grant Notice.

         2.  OPTION TERM. This option shall have a maximum term of ten (10)
years measured from the Grant Date and shall accordingly expire at the close of
business on the expiration date (the "Expiration Date") specified in the Grant
Notice, unless sooner terminated in accordance with Paragraph 5 or 6.

         3.  LIMITED TRANSFERABILITY. This option, together with the limited
stock appreciation right granted pursuant to Paragraph 20, shall not be
transferable or assignable by Optionee other than by will or by the laws of
descent and distribution following Optionee's death and may be exercised, during
Optionee's lifetime, only by Optionee.

         4.  DATES OF EXERCISE. This option shall become exercisable for the
Option Shares in one or more installments as specified in the Grant Notice. As
the option becomes exercisable for one or more installments, those installments
shall accumulate, and the option shall remain exercisable for the accumulated
installments until the Expiration Date or sooner termination of the option term
under Paragraph 5 or 6. In no event shall this option become exercisable for any
additional Option Shares following Optionee's cessation of Service.

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         5.  CESSATION OF SERVICE. The option term specified in Paragraph 2
shall terminate (and this option shall cease to be outstanding) prior to the
Expiration Date in accordance with the following provisions:

             (i)   This option shall immediately terminate and cease to be
     outstanding for any Option Shares for which it is not exercisable at the
     time of Optionee's cessation of Service.

             (ii)  Should Optionee cease to remain in Service for any reason
     other than death or permanent disability while this option is outstanding,
     then Optionee shall have a three (3)-month period measured from the date of
     such cessation of Service in which to exercise this option for any or all
     of the Option Shares for which this option is exercisable at the time of
     such cessation of Service. In no event, however, may this option be
     exercised at any time after the specified Expiration Date of the option
     term. Upon the expiration of such three (3)-month period or (if earlier)
     upon the Expiration Date, this option shall terminate and cease to be
     outstanding.

             (iii) Should Optionee die while this option is outstanding, then
     the personal representative of Optionee's estate or the person or persons
     to whom this option is transferred pursuant to Optionee's will or in
     accordance with the laws of descent and distribution shall have the right
     to exercise this option for any or all of the Option Shares for which this
     option is exercisable at the time of Optionee's cessation of Service. Such
     right shall lapse, and this option shall terminate and cease to remain
     outstanding, upon the earlier of (A) the expiration of the twelve
     (12)-month period measured from the date of Optionee's death or (B) the
     Expiration Date.

             (iv)  Should Optionee become permanently disabled and cease by
     reason thereof to remain in Service at any time during the option term,
     then Optionee shall have a twelve (12)-month period commencing with the
     date of such cessation of Service in which to exercise this option for any
     or all of the Option Shares for which this option is exercisable at the
     time of such cessation of Service. In no event, however, may this option be
     exercised at any time after the Expiration Date. Upon the expiration of
     such limited period of exercisability or (if earlier) upon the Expiration
     Date, this option shall terminate and cease to be outstanding.

             (v)   Should (A) Optionee's Service be terminated for misconduct
     (including, but not limited to, any act of dishonesty, willful misconduct,
     fraud or embezzlement) or (B) Optionee make any unauthorized use or
     disclosure of confidential information or trade secrets of the Corporation
     or any parent or subsidiary, then in any such event this option shall
     terminate immediately and cease to be outstanding.

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             (vi)  During the limited post-Service period of exercisability
     determined pursuant to subparagraphs (ii) through (iv) above, this option
     may not be exercised in the aggregate for more than the number of Option
     Shares (if any) for which this option is, at the time of the Optionee's
     cessation of Service, exercisable in accordance with either the normal
     exercise provisions specified in the Grant Notice or the special
     acceleration provisions of Paragraph 6.

             (vii) For purposes of this Agreement, the following definitional
     provisions shall be in effect:

                   (A)  Optionee shall be deemed to remain in service for so
     long as such individual renders services on a periodic basis to the
     Corporation (or any parent or subsidiary) in the capacity of an Employee, a
     non-employee member of the board of directors or a consultant or
     independent contractor.

                   (B)  Optionee shall be considered to be an EMPLOYEE for so
     long as such individual remains in the employ of the Corporation or any
     parent or subsidiary, subject to the control and direction of the employer
     entity both as to the work to be performed and the manner and method of
     performance.

                   (C)  Optionee shall be deemed to be PERMANENTLY DISABLED and
     to have incurred a PERMANENT DISABILITY if Optionee is unable to engage in
     any substantial gainful activity by reason of any medically-determinable
     physical or mental impairment expected to result in death or to be of
     continuous duration of not less than twelve (12) months,

                   (D)  A corporation shall be considered to be a SUBSIDIARY of
     the Corporation if it is a member of an unbroken chain of corporations
     beginning with the Corporation, provided each such corporation in the chain
     (other than the last corporation) owns, at the time of determination, stock
     possessing fifty percent (50%) or more of the total combined voting power
     of all classes of stock in one of the other corporations in such chain.

                   (E)  A corporation shall be considered to be a PARENT of the
     Corporation if it is a member of an unbroken chain ending with the
     Corporation, provided each such corporation in the chain (other than the
     Corporation) owns, at the time of determination, stock possessing fifty
     percent (50%) or more of the total combined voting power of all classes of
     stock in one of the other corporations in such chain.

         6.  CORPORATE TRANSACTION.

         (a) In the event of any of the following shareholder-approved
transactions (a "Corporate Transaction"):

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             (i)   a merger or acquisition in which the Corporation is not the
     surviving entity, except for a transaction the principal purpose of which
     is to change the State of the Corporation's incorporation,

             (ii)  the sale, transfer or other disposition of all or
     substantially all of the assets or outstanding capital stock of the
     Corporation, or

             (iii) any reverse merger in which the Corporation is the surviving
     entity but in which all of the Corporation's outstanding voting stock is
     transferred to the acquiring entity or its wholly-owned subsidiary,

             this option, to the extent outstanding at such time but not
otherwise fully exercisable, shall automatically accelerate so that such option
shall, immediately prior to the specified effective date for the Corporate
Transaction, become fully exercisable for all the Option Shares at the time
subject to such option and may be exercised for all or any portion of such
shares.

         (b) All or any portion of this option accelerated upon the Corporate
Transaction shall be exercisable as an incentive stock option under the Federal
tax laws (if designated as such in the Grant Notice) only to the extent the
applicable dollar limitation of Paragraph 18 is not exceeded.

         (c) This option, to the extent not previously exercised, shall
terminate upon the consummation of such Corporate Transaction and cease to be
outstanding, unless it is expressly assumed by the successor corporation or
parent thereof.

         (d) This Agreement shall not in any way affect the right of the
Corporation to adjust, reclassify, reorganize or otherwise make changes in its
capital or business structure or to merge, consolidate, dissolve, liquidate or
sell or transfer all or any part of its business or assets.

         7.  ADJUSTMENT IN OPTION SHARES.

         (a) In the event any change is made to the Common Stock issuable under
the Plan by reason of any stock split, stock dividend, recapitalization,
combination of shares, exchange of shares or other change affecting the
outstanding Common Stock as a class effected without the Corporation's receipt
of consideration, the Committee shall make appropriate adjustments to (i) the
number and/or class of securities subject to this option and (ii) the Option
Price payable per share in order to prevent any dilution or enlargement of
benefits hereunder. Such adjustments shall be final, binding and conclusive.

         (b) If this option is to be assumed in connection with any Corporate
Transaction under Paragraph 6 or is otherwise to remain outstanding, then this
option shall, immediately after such Corporate Transaction, be appropriately
adjusted to apply and pertain to the number and class of securities which would
have been issued to Optionee in the consummation of such Corporate Transaction
had the option been exercised immediately prior to

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such Corporate Transaction. Appropriate adjustments shall also be made to the
Option Price payable per share, provided the aggregate Option Price payable
hereunder shall remain the same.

         8.  PRIVILEGE OF STOCK OWNERSHIP. The holder of this option shall not
have any of the rights of a shareholder with respect to the Option Shares until
such individual shall have exercised the option and paid the Option Price for
the purchased Option Shares.

         9.  MANNER OF EXERCISING OPTION.

         (a) In order to exercise this option with respect to all or any part of
the Option Shares for which this option is at the time exercisable, Optionee (or
in the case of exercise after Optionee's death, Optionee's executor,
administrator, heir or legatee, as the case may be) must take the following
actions:

             (i)   Deliver to the Chief Financial Officer of the Corporation an
     executed notice of exercise in substantially the form of Exhibit I to this
     Agreement (the "Exercise Notice") in which there is specified the number of
     Option Shares to be purchased under the exercised option.

             (ii)  Pay the aggregate Option Price for the purchased shares
     through one or more of the following alternatives:

                   - full payment in cash or by check payable to the
Corporation;

                   - full payment in shares of Common Stock held for the
     requisite period necessary to avoid a charge to the Corporation's earnings
     for financial reporting purposes and valued at Fair Market Value on the
     Exercise Date (as such terms are defined below);

                   - full payment in a combination of shares of Common Stock
     held for the requisite period necessary to avoid a charge to the
     Corporation's reported earnings and valued at Fair Market Value on the
     Exercise Date and cash or check payable to the Corporation's order; or

                   - full payment effected through a sale and remittance
     procedure pursuant to which Optionee shall concurrently provide irrevocable
     written instructions (I) to a designated brokerage firm to effect the
     immediate sale of the purchased shares and remit to the Corporation, out of
     the sale proceeds available on the settlement date, sufficient funds to
     cover the aggregate Option Price payable for the purchased shares plus all
     applicable Federal, State and local income taxes and employment taxes
     required to be withheld in connection with such purchase and (II) to the
     Corporation to deliver the certificates for the purchased shares directly
     to such brokerage firm in order to complete the sale transaction; or

                                       5
<PAGE>   6

                   - any other form which the Committee may, in its discretion,
     approve at the time of exercise in accordance with the provisions of
     Paragraph 14.(1)

             (iii) Furnish to the Corporation appropriate documentation that the
     person or persons exercising the option (if other than Optionee) have the
     right to exercise this option.

         (b) For purposes of this Agreement, the Exercise Date shall be the date
on which the executed Exercise Notice shall have been delivered to the
Corporation. Except to the extent the sale and remittance procedure specified
above is utilized in connection with the option exercise, payment of the Option
Price for the purchased shares must accompany such Exercise Notice. For all
valuation purposes under this Agreement, the Fair Market Value per share of
Common Stock on any relevant date shall be determined in accordance with
subparagraphs (i) and (ii) below:

             (i)   If the Common Stock is not at the time listed or admitted to
     trading on any stock exchange but is traded on the Nasdaq National Market
     System, the Fair Market Value shall be the closing selling price per share
     of Common Stock on the trading day preceding the date in question, as such
     price is reported by the National Association of Securities Dealers through
     the Nasdaq National Market System or any successor system. If there is no
     closing selling price for the Common Stock on such date, then the Fair
     Market Value shall be the closing selling price on the last preceding date
     for which such quotation exists.

             (ii)  If the Common Stock is on the date in question listed or
     admitted to trading on any national stock exchange, then the Fair Market
     Value shall be the closing selling price per share of Common Stock on the
     trading day preceding the date in question on the stock exchange determined
     by the Committee to be the primary market for the Common Stock, as such
     price is officially quoted in the composite tape of transactions on such
     exchange. If there is no closing selling price for the Common Stock on the
     date in question, then the Fair Market Value shall be the closing selling
     price on the last preceding date for which such quotation exists.

         (c) As soon as practical after receipt of the Exercise Notice, the
Corporation shall mail or deliver to or on behalf of Optionee (or any other
person or persons exercising this option) a certificate or certificates
representing the purchased Option Shares.

         (d) In no event may this option be exercised for any fractional shares.

--------
(1)    Authorization of a loan under such provisions may, under currently
proposed Treasury Regulations, result in the loss of incentive stock option
treatment under the Federal tax laws.

                                       6
<PAGE>   7

         10. GOVERNING LAW. The interpretation, performance, and enforcement of
this Agreement shall be governed by the laws of the State of California without
resort to that State's conflict-of-laws rules.

         11. COMPLIANCE WITH LAWS AND REGULATIONS.

         (a) The exercise of this option and the issuance of Option Shares upon
such exercise shall be subject to compliance by the Corporation and Optionee
with all applicable requirements of law relating thereto and with all applicable
regulations of any stock exchange on which shares of the Corporation's Common
Stock may be listed at the time of such exercise and issuance.

(b) In connection with the exercise of this option, Optionee shall execute and
deliver to the Corporation such representations in writing as may be requested
by the Corporation in order for it to comply with the applicable requirements of
Federal and State securities laws.

         12. SUCCESSORS AND ASSIGNS. Except to the extent otherwise provided in
Paragraph 3 or 6, the provisions of this Agreement shall inure to the benefit
of, and be binding upon, the successors, administrators, heirs and legal
representatives of Optionee and the successors and assigns of the Corporation.

         13. LIABILITY OF CORPORATION.

         (a) If the Option Shares covered by this Agreement exceed, as of the
Grant Date, the number of shares which may without shareholder approval be
issued under the Plan, then this option shall be void with respect to such
excess shares unless shareholder approval of an amendment sufficiently
increasing the number of shares issuable under the Plan is obtained in
accordance with the provisions of Section XIII(e) of the Plan.

         (b) The inability of the Corporation to obtain approval from any
regulatory body having authority deemed by the Corporation to be necessary to
the lawful issuance and sale of any Common Stock pursuant to this option shall
relieve the Corporation of any liability with respect to the non-issuance or
sale of the Common Stock as to which such approval shall not have been obtained.
The Corporation, however, shall use its best efforts to obtain all such
approvals.

         14. LOANS OR INSTALLMENT PAYMENTS. The Committee may, in its absolute
discretion and without any obligation to do so, assist Optionee in the exercise
of this option by (i) authorizing the extension of a loan to Optionee from the
Corporation or (ii) permitting Optionee to pay the Option Price for the
purchased Common Stock in installments over a period of years. The terms of any
loan or installment method of payment (including the interest rate, the
collateral requirements and the terms of repayment) shall be established by the
Committee in its sole discretion.

         15. NO EMPLOYMENT/SERVICE CONTRACT. Nothing in this Agreement or in the
Plan shall confer upon Optionee any right to continue in the Service of the
Corporation (or any

                                       7
<PAGE>   8

parent or subsidiary employing or retaining Optionee) for any period of specific
duration or interfere with or otherwise restrict in any way the rights of the
Corporation (or any such parent or subsidiary) or Optionee, which rights are
hereby expressly reserved by each party, to terminate Optionee's Service at any
time for any reason whatsoever, with or without cause.

         16. NOTICES. Any notice required to be given or delivered to the
Corporation under the terms of this Agreement shall be in writing and addressed
to the Corporation in care of its Chief Financial Officer at the corporate
offices at 850 East Algonquin Road, Suite 100, Schaumburg, IL 60173. Any notice
required to be given or delivered to Optionee shall be in writing and addressed
to Optionee at the address indicated on the Grant Notice. All notices shall be
deemed to have been given or delivered upon personal delivery or upon deposit in
the U.S. mail, by registered or certified mail, postage prepaid and properly
addressed to the party to be notified.

         17. CONSTRUCTION. This Agreement and the option evidenced hereby are
made and granted pursuant to the Plan and are in all respects limited by and
subject to the express terms and provisions of the Plan. All decisions of the
Committee with respect to any question or issue arising under the Plan or this
Agreement shall be conclusive and binding on all persons having an interest in
this option.

         18. ADDITIONAL TERMS APPLICABLE TO AN INCENTIVE STOCK OPTION. In the
event this option is designated an incentive stock option in the Grant Notice,
the following terms and conditions shall also apply to the grant:

(a) This option shall cease to qualify for favorable tax treatment as an
incentive stock option under the Federal tax laws if (and to the extent) this
option is exercised for one or more Option Shares: (i) more than three (3)
months after the date Optionee ceases to be an Employee for any reason other
than death or permanent disability (as defined in Paragraph 5) or (ii) more than
one (1) year after the date Optionee ceases to be an Employee by reason of
permanent disability.

         (b) Should this option be designated as immediately exercisable in the
Grant Notice, then this option shall not become exercisable in the calendar year
in which granted if (and to the extent) the aggregate Fair Market Value
(determined at the Grant Date) of the Common Stock for which this option would
otherwise first become exercisable in such calendar year would, when added to
the aggregate value (determined as of the respective date or dates of grant) of
the Common Stock and any other securities for which this option or one or more
other incentive stock options granted to Optionee prior to the Grant Date
(whether under the Plan or any other option plan of the Corporation or any
parent or subsidiary) first become exercisable during the same calendar year,
exceed One Hundred Thousand Dollars ($100,000) in the aggregate. To the extent
the exercisability of this option is deferred by reason of the foregoing
limitation, the deferred portion will first become exercisable in the first
calendar year or years thereafter in which the One Hundred Thousand Dollar
($100,000) limitation of this Paragraph 18(b) would not be contravened, but such
deferral shall in all events end immediately prior to the

                                       8
<PAGE>   9

effective date of a Corporate Transaction, whereupon the option shall become
exercisable as a non-statutory option for the balance of the Option Shares.

         (c) If this option is to become exercisable in a series of installments
as indicated in the Grant Notice, no such installment shall qualify for
favorable tax treatment as an incentive stock option under the Federal tax laws
if (and to the extent) the aggregate Fair Market Value (determined at the Grant
Date) of the Corporation's Common Stock for which such installment first becomes
exercisable hereunder will, when added to the aggregate value (determined as of
the respective date or dates of grant) of the Common Stock or other securities
for which this option or one or more other incentive stock options granted to
Optionee prior to the Grant Date (whether under the Plan or any other option
plan of the Corporation or any parent or subsidiary) first become exercisable
during the same calendar year, exceed One Hundred Thousand Dollars ($100,000) in
the aggregate. Should the number of shares of Common Stock for which this option
first becomes exercisable in any calendar year exceed the applicable One Hundred
Thousand Dollar ($100,000) limitation, the option may nevertheless be exercised
for those excess shares in such calendar year as a non-statutory option.

         (d) Should the exercisability of this option be accelerated upon a
Corporate Transaction in accordance with Paragraph 6, then this option shall
qualify for favorable tax treatment as an incentive stock option under the
Federal tax laws only to the extent the aggregate Fair Market Value (determined
at the Grant Date) of the Corporation's Common Stock for which this option first
becomes exercisable in the calendar year in which the Corporate Transaction
occurs does not, when added to the aggregate value (determined as of the
respective date or dates of grant) of the Common Stock or other securities for
which this option or one or more other incentive stock options granted to
Optionee prior to the Grant Date (whether under the Plan or any other option
plan of the Corporation or any parent or subsidiary) first become exercisable
during the same calendar year, exceed One Hundred Thousand Dollars ($100,000) in
the aggregate. Should the number of shares of Common Stock for which this option
first becomes exercisable in the calendar year of such Corporate Transaction
exceed the applicable One Hundred Thousand Dollar ($100,000) limitation, the
option may nevertheless be exercised for the excess shares in such calendar year
as a non-statutory option.

         (e) Should the Optionee hold, in addition to this option, one or more
other options to purchase Common Stock which become exercisable for the first
time in the same calendar year as this option, then the foregoing limitations on
the exercisability of such options as incentive stock options under the Federal
tax laws shall be applied on the basis of the order in which such options are
granted.

         (f) To the extent this option should fail to qualify as an incentive
stock option under the Federal tax laws, Optionee will recognize compensation
income in connection with the acquisition of one or more Option Shares
hereunder, and Optionee must make appropriate arrangements for the satisfaction
of all Federal, State or local income and employment tax withholding
requirements applicable to such compensation income.

                                       9
<PAGE>   10

         19. ADDITIONAL TERMS APPLICABLE TO A NON-STATUTORY STOCK OPTION. In the
event this option is designated a non-statutory stock option in the Grant
Notice, Optionee shall make appropriate arrangements with the Corporation or any
parent or subsidiary employing Optionee for the satisfaction of all Federal,
State or local income tax and employment tax withholding requirements applicable
to the exercise of this option.

         20. LIMITED STOCK APPRECIATION RIGHT. Optionee is hereby granted a
limited stock appreciation right in tandem with this option, exercisable upon
the terms and conditions set forth below:

         (a) The stock appreciation right shall under no circumstances become
exercisable until such right has been outstanding for a period of at least six
(6) months measured from the Grant Date of this option.

         (b) Provided (i) Optionee is at the time an officer or director of the
Corporation subject to the short-swing profit restrictions of the Federal
securities laws and (ii) the Corporation's outstanding Common Stock is at the
time registered under Section 12(g) of the Securities Exchange Act of 1934 (the
"1934 Act"), then this option shall automatically be canceled upon the effective
date of a Hostile Take-Over. Optionee shall in return be entitled to a cash
distribution from the Corporation in an amount equal to the excess of (i) the
Take-Over Price of the shares of Common Stock at the time subject to the
canceled option (whether or not the option is otherwise at the time exercisable
for such shares) over (ii) the aggregate Option Price payable for such shares.
The cash distribution shall be made within five (5) days following the effective
date of the Hostile Take-Over, and neither the approval of the Committee nor the
consent of the Corporation's Board shall be required in connection with such
cancellation and distribution.

         (c) For purposes of such distribution, the following definitions shall
be in effect:

             (i)   A Hostile Take-Over shall be deemed to occur in the event (a)
     any person or related group of persons (other than the Corporation or a
     person that directly or indirectly controls, is controlled by, or is under
     common control with, the Corporation) directly or indirectly acquires
     beneficial ownership (within the meaning of Rule 13d-3 of the 1934 Act) of
     securities possessing more than fifty percent (50%) of the total combined
     voting power of the Corporation's outstanding securities pursuant to a
     tender or exchange offer made directly to the Corporation's shareholders
     which the Board does not recommend such shareholders to accept and (b) more
     than fifty percent (50%) of the securities so acquired in such tender ---
     or exchange offer are accepted from holders other than officers and
     directors of the Corporation subject to Section 16(b) of the 1934 Act.

             (ii)  The Take-Over Price per share of Common Stock shall be deemed
     to be equal to the greater of (a) the Fair Market Value per share of Common
     Stock on the date of the option cancellation or (b) the highest reported
     price per share paid by the tender offeror in effecting the Hostile
     Take-Over.

                                       10
<PAGE>   11

     However, to the extent the canceled option is designated an incentive stock
     option in the Grant Notice, the Take-Over Price of the shares subject to
     the canceled option shall not exceed the value per share determined under
     clause (a) above.

         (d) The stock appreciation right shall not be assignable or
transferable and shall only be in effect while the Optionee is the holder of the
Option.

                                       11
<PAGE>   12

                                    EXHIBIT I

                       NOTICE OF EXERCISE OF STOCK OPTION

         I hereby notify Insurance Auto Auctions, Inc. (the "Corporation") that
I elect to purchase _______ shares of the Corporation's Common Stock (the
"Purchased Shares") at an option price of $_____ per share (the "Option Price")
pursuant to that certain option (the "Option") granted to me under the
Corporation's 1991 Stock Option Plan on _______________, 199__.

         Concurrently with the delivery of this Exercise Notice to the Chief
Financial Officer of the Corporation, I shall hereby pay to the Corporation the
Option Price for the Purchased Shares in accordance with the provisions of my
agreement with the Corporation evidencing the Option and shall deliver whatever
additional documents may be required by such agreement as a condition for
exercise. Alternatively, I may utilize the special sale and remittance procedure
specified in my agreement to effect the payment of the Option Price for the
Purchased Shares.

-----------------------------------
Date

                                           Optionee

                                           Address:
                                                    ---------------------------

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

Print name in exact manner
it is to appear on the stock
certificate:
                                                    ---------------------------

Address to which certificate is to be
sent, if different from address above:
                                                    ---------------------------

Social Security Number:
                                                    ---------------------------

Employee Number:
                                                    ---------------------------

<PAGE>   13

                          INSURANCE AUTO AUCTIONS, INC.
                         NOTICE OF GRANT OF STOCK OPTION
                     UNDER THE INSURANCE AUTO AUCTIONS, INC.
                             1991 STOCK OPTION PLAN

                              EMPLOYEE OPTION GRANT

          Notice is hereby given to the following stock option grant (the
"Option") to purchase shares of the Common Stock of Insurance Auto Auctions,
Inc. (the "Corporation"):

          Optionee:

          Grant Date:

          Vesting Commencement Date:

          Option Price:

          Number of Option Shares:

          Expiration Date:

          Type of Option:               Non-Qualified Stock Option

          Exercise Schedule: The Option shall become exercisable in a series of
          four (4) equal and successive annual installments over Optionee's
          period of continued Service (as defined in the attached Stock Option
          Agreement), with the first such installment to become exercisable upon
          Optionee's completion of one year of Service measured from the Vesting
          Commencement Date. In no event shall the Option become exercisable for
          any additional Option shares following Optionee's cessation of
          Service.

          Optionee understands and agrees that the Option is granted subject to
and in accordance with the express terms and conditions of the Insurance Auto
Auctions, Inc. 1991 Stock Option Plan (the "Plan"). Optionee further agrees to
be bound by the terms and conditions of the Plan and the terms and conditions of
the Option as set forth in the Stock Option Agreement attached hereto as Exhibit
A. Optionee also acknowledges receipt of a copy of the official prospectus for
the Plan attached hereto as Exhibit B.

          No Employment or Service Contract: Nothing in this Agreement or in the
Plan shall confer upon Optionee any right to continue in Service for any period
of specific duration or interfere with or otherwise restrict in any way the
rights of the Corporation (or any parent or subsidiary employing Optionee) or
Optionee, which rights are hereby expressly reserved by each, to terminate
Optionee's Service at any time for any reason whatsoever, with or without cause.

Date:____________________, 2000         INSURANCE AUTO AUCTIONS, INC.

                                        By:__________________________________

                                        Title:_______________________________

                                        _____________________________________
                                                    ,Optionee

                                        Address:_____________________________

                                                _____________________________

Exhibit A: Stock Option Agreement
Exhibit B: Plan Prospectus

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