As filed with the Securities and Exchange Commission on June 6, 2019

File No. 001-38580

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

Amendment No. 5
To
Form 10

GENERAL FORM FOR REGISTRATION OF SECURITIES
Pursuant to Section 12(b) or (g) of the Securities Exchange Act of 1934

IAA Spinco Inc.
(Exact name of Registrant as specified in its charter)

Delaware
83-1030538
(State or other jurisdiction of incorporation or organization)
(I.R.S. employer identification number)
   
 
Two Westbrook Corporate Center, Suite 500
Westchester, Illinois
60154
(Address of principal executive offices)
(Zip code)

(708) 492-7000
(Registrant’s telephone number, including area code)

Securities to be registered pursuant to Section 12(b) of the Act:

Title of each class to be so registered
Name of each exchange on
which each class is to be registered
Common Stock, par value $0.01 per share
New York Stock Exchange

Securities to be registered pursuant to Section 12(g) of the Act: None

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer
  o
 
Smaller reporting company
  o
Accelerated filer
  o
 
Emerging growth company
  o
 
 
 
 
 
Non-accelerated filer
☒
 
 
 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.   o

IAA SPINCO INC.
INFORMATION REQUIRED IN REGISTRATION STATEMENT
CROSS-REFERENCE SHEET BETWEEN INFORMATION STATEMENT
AND ITEMS OF FORM 10

Certain information required to be included in this Form 10 is incorporated by reference to specifically identified portions of the body of the information statement filed herewith as Exhibit 99.1. None of the information contained in the information statement shall be incorporated by reference herein or deemed to be a part hereof unless such information is specifically incorporated by reference.

Item 1. Business.

The information required by this item is contained under the sections of the information statement entitled “ Information Statement Summary ,” “ Risk Factors ,” “ Cautionary Statement Concerning Forward-Looking Statements ,” “ U.S. Federal Income Tax Consequences ,” “ Capitalization ,” “ Business ,” “ Management’s Discussion and Analysis of Financial Condition and Results of Operations ,” “ Certain Relationships and Related Person Transactions ,” “ Description of Indebtedness ” and “ Where You Can Find More Information .” Those sections are incorporated herein by reference.

Item 1A. Risk Factors.

The information required by this item is contained under the section of the information statement entitled “ Risk Factors .” That section is incorporated herein by reference.

Item 2. Financial Information.

The information required by this item is contained under the sections of the information statement entitled “ Selected Historical Consolidated Financial Data,” “ Unaudited Pro Forma Consolidated Financial Statements ” and “ Management’s Discussion and Analysis of Financial Condition and Results of Operations .” Those sections are incorporated herein by reference.

Item 3. Properties.

The information required by this item is contained under the section of the information statement entitled “ Business—Properties .” That section is incorporated herein by reference.

Item 4. Security Ownership of Certain Beneficial Owners and Management.

The information required by this item is contained under the section of the information statement entitled “ Security Ownership of Certain Beneficial Owners and Management .” That section is incorporated herein by reference.

Item 5. Directors and Executive Officers.

The information required by this item is contained under the sections of the information statement entitled “ Management .” That section is incorporated herein by reference.

Item 6. Executive Compensation.

The information required by this item is contained under the sections of the information statement entitled “ Compensation Discussion and Analysis ” and “ Executive Compensation .” Those sections are incorporated herein by reference.

Item 7. Certain Relationships and Related Transactions, and Director Independence.

The information required by this item is contained under the sections of the information statement entitled “ Management ” and “ Certain Relationships and Related Person Transactions .” Those sections are incorporated herein by reference.

Item 8. Legal Proceedings.

The information required by this item is contained under the section of the information statement entitled “ Business—Legal Proceedings .” That section is incorporated herein by reference.

Item 9. Market Price of, and Dividends on, the Registrant’s Common Equity and Related Stockholder Matters.

The information required by this item is contained under the sections of the information statement entitled “ The Separation and Distribution ,” “ Dividend Policy ,” “ Capitalization ” and “ Description of Capital Stock .” Those sections are incorporated herein by reference.

Item 10. Recent Sales of Unregistered Securities.

The information required by this item is contained under the section of the information statement entitled “ Description of Capital Stock—Sale of Unregistered Securities .” That section is incorporated herein by reference.

Item 11. Description of Registrant’s Securities to be Registered.

The information required by this item is contained under the sections of the information statement entitled “ The Separation and Distribution,” “Risk Factors ,” “ Dividend Policy ” and “ Description of Capital Stock .” Those sections are incorporated herein by reference.

Item 12. Indemnification of Directors and Officers.

The information required by this item is contained under the section of the information statement entitled “ Description of Capital Stock—Limitations on Liability, Indemnification of Officers and Directors and Insurance .” That section is incorporated herein by reference.

Item 13. Financial Statements and Supplementary Data.

The information required by this item is contained under the section of the information statement entitled “ Index to Financial Statements ” and the financial statements referenced therein. That section is incorporated herein by reference.

Item 14. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

None.

Item 15. Financial Statements and Exhibits.
(a) Financial Statements

The information required by this item is contained under the section of the information statement entitled “ Index to Financial Statements ” and the financial statements referenced therein. That section is incorporated herein by reference. All other schedules for which provision is made in the applicable regulation of the Securities and Exchange Commission are not required under the related instructions or are inapplicable and therefore have been omitted.

(b) Exhibits

See below.

The following documents are filed as exhibits hereto:

Exhibit
Number
Exhibit Description
2.1
Form of Separation and Distribution Agreement between KAR Auction Services, Inc. and IAA Spinco Inc.**†
   
 
3.1
Form of Amended and Restated Certificate of Incorporation of IAA Spinco Inc.**

Exhibit
Number
Exhibit Description
3.2
Form of Amended and Restated By-Laws of IAA Spinco Inc.**
   
 
10.1
Form of Transition Services Agreement between KAR Auction Services, Inc. and IAA Spinco Inc.**
   
 
10.2
Form of Tax Matters Agreement between KAR Auction Services, Inc. and IAA Spinco Inc.**
   
 
10.3
Form of Employee Matters Agreement between KAR Auction Services, Inc. and IAA Spinco Inc.**
   
 
10.4
Form of IAA, Inc. 2019 Omnibus Stock and Incentive Plan**
   
 
21.1
List of Subsidiaries**
   
 
99.1
Information Statement of IAA Spinco Inc., preliminary and subject to completion, dated June 6, 2019**
   
 
99.2
Form of Notice Regarding the Internet Availability of Information Statement Materials**
** Filed herewith.
† Certain information has been excluded from this exhibit because it is not material and would likely cause competitive harm to the registrant if publicly disclosed.

SIGNATURES

Pursuant to the requirements of Section 12 of the Securities Exchange Act of 1934, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized.

 
IAA SPINCO INC.
 
 
 
 
 
By:
/s/ Eric M. Loughmiller
 
 
Name:
Eric M. Loughmiller
 
 
Title:
Treasurer

Date: June 6, 2019

Exhibit 2.1


CERTAIN INFORMATION HAS BEEN EXCLUDED FROM THIS EXHIBIT BECAUSE IT IS NOT MATERIAL
AND WOULD LIKELY CAUSE COMPETITIVE HARM TO THE REGISTRANT IF PUBLICLY DISCLOSED.
[***] INDICATES THAT INFORMATION HAS BEEN REDACTED.

SEPARATION AND DISTRIBUTION AGREEMENT

BY AND BETWEEN

KAR AUCTION SERVICES, INC.

AND

IAA SPINCO INC.

DATED AS OF [●], 2019



TABLE OF CONTENTS
Page

Article I

DEFINITIONS

Article II

THE SEPARATION

2.1
General
17
2.2
Internal Restructuring; Transfer of Assets and Assumption of Liabilities.
17
2.3
SpinCo Assets; KAR Assets
19
2.4
SpinCo Liabilities; KAR Liabilities
22
2.5
Approvals and Notifications
23
2.6
Novation of Liabilities
26
2.7
Release of Guarantees
27
2.8
Termination of Agreements
28
2.9
Treatment of Shared Contracts
29
2.10
Bank Accounts; Cash Balances
30
2.11
Ancillary Agreements
31
2.12
Disclaimer of Representations and Warranties
31
2.13
Financing Arrangements
32
2.14
Solvency and Liquidity
32
2.15
SpinCo Contribution
32

Article III

THE DISTRIBUTION


3.1
Sole and Absolute Discretion; Cooperation
33
3.2
Actions Prior to the Distribution
33
3.3
Conditions to the Distribution
34
3.4
The Distribution
36

Article IV

MUTUAL RELEASES; INDEMNIFICATION

4.1
Release of Pre-Distribution Claims
37
4.2
Indemnification by SpinCo
39
4.3
Indemnification by KAR
40
4.4
Indemnification Obligations Net of Insurance Proceeds and Other Amounts
41
4.5
Procedures for Indemnification of Third-Party Claims
42
4.6
Additional Matters
44
4.7
Right of Contribution
45
4.8
Covenant Not to Sue
46
4.9
Remedies Cumulative
46
4.10
Survival of Indemnities
46
4.11
Tax Matters Agreement Governs
46
4.12
Employee Matters Agreement Governs
46

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Article V

CERTAIN OTHER MATTERS

5.1
Insurance Matters
46
5.2
Continuation of Director and Officer Insurance
49
5.3
Late Payments
49
5.4
Treatment of Payments for Tax Purposes
49
5.5
Inducement
49
5.6
Post-Effective Time Conduct
49
5.7
Restricted Businesses
50

Article VI

EXCHANGE OF INFORMATION; CONFIDENTIALITY

6.1
Agreement for Exchange of Information
50
6.2
Ownership of Information
51
6.3
Compensation for Providing Information
51
6.4
Record Retention
51
6.5
Limitations of Liability
52
6.6
Other Agreements Providing for Exchange of Information
52
6.7
Production of Witnesses; Records; Cooperation
53
6.8
Privileged Matters
54
6.9
Confidentiality
56
6.10
Protective Arrangements
57


Article VII

DISPUTE RESOLUTION

7.1
Good-Faith Officer Negotiation
58
7.2
Good-Faith CEO Negotiation
58
7.3
Resolution by Delaware Courts.
58
7.4
Conduct During Dispute Resolution Process
59


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Article VIII

FURTHER ASSURANCES AND ADDITIONAL COVENANTS

8.1
Further Assurances
59
8.2
KAR Names
60


Article IX

TERMINATION

9.1
Termination
60
9.2
Effect of Termination
61

Article X

MISCELLANEOUS

10.1
Counterparts; Entire Agreement; Corporate Power
61
10.2
Governing Law
62
10.3
Assignability
62
10.4
Third-Party Beneficiaries
62
10.5
Notices
62
10.6
Severability

 63
10.7
Force Majeure

 64
10.8
No Set-Off

 64
10.9
Publicity

 64
10.10
Expenses

 64
10.11
Headings

 65
10.12
Survival of Covenants

 65
10.13
Waivers of Default

 65
10.14
Specific Performance

 65
10.15
Amendments

 65
10.16
Interpretation

 65
10.17
Limitations of Liability

 66
10.18
Performance

 66
10.19
Mutual Drafting

 66

EXHIBITS

Exhibit A
SpinCo Certificate of Incorporation
Exhibit B
SpinCo Bylaws
Exhibit C
Restricted Businesses


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SCHEDULES

Schedule 1.1
KAR Marks
Schedule 1.2
SpinCo Discontinued or Divested Businesses
Schedule 1.3
SpinCo Contracts
Schedule 1.4
SpinCo Intellectual Property
Schedule 1.5(i)
Owned Real Property
Schedule 1.5(ii)
Leased Real Property
Schedule 1.6
SpinCo Technology
Schedule 1.7
Transferred Entities
Schedule 2.1
Internal Restructuring
Schedule 2.3(a)(xi)
SpinCo Assets
Schedule 2.3(b)(vii)
KAR Intellectual Property
Schedule 2.3(b)(x)
KAR Assets
Schedule 2.4(a)(vi)
SpinCo Liabilities
Schedule 2.4(b)
KAR Liabilities
Schedule 2.8(b)(ii)
Intercompany Agreements
Schedule 2.9(b)
Shared Contracts to be Assigned to SpinCo
Schedule 4.3(f)
Specified KAR Information















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SEPARATION AND DISTRIBUTION AGREEMENT

This SEPARATION AND DISTRIBUTION AGREEMENT, dated as of [●], 2019 (this “ Agreement ”), is made and entered into by and between KAR Auction Services, Inc., a Delaware corporation (“ KAR ”), and IAA Spinco Inc., a Delaware corporation and wholly owned subsidiary of KAR (“ SpinCo ”). Capitalized terms used herein and not otherwise defined shall have the respective meanings ascribed to such terms in Article I .

R E C I T A L S

WHEREAS, the board of directors of KAR (the “ KAR Board ”) has determined that it is advisable and in the best interests of KAR and KAR’s stockholders to separate KAR’s salvage auction businesses from its whole car auction businesses, creating two independent publicly traded companies;

WHEREAS, in furtherance of the foregoing, (a) KAR will cause the applicable members of the KAR Group to assign, transfer, convey and deliver to SpinCo or the applicable SpinCo Designee all right, title and interest of the KAR Group in and to the SpinCo Assets, (b) SpinCo and the applicable SpinCo Designees will accept, assume and agree faithfully to perform, discharge and fulfill the SpinCo Liabilities (the transactions described in clauses (a) and (b) herein being referred to collectively as the “ SpinCo Contribution ”), (c) SpinCo will cause the applicable members of the SpinCo Group to assign, transfer, convey and deliver to KAR or the applicable KAR Designee all right, title and interest of the SpinCo Group in and to the KAR Assets, and (d) KAR and the applicable KAR Designees will accept, assume and agree faithfully to perform, discharge and fulfill the KAR Liabilities (the transactions described in this recital, including the assignment, transfer, conveyance and delivery of the SpinCo Assets and KAR Assets, and the acceptance, assumption and agreement to perform the SpinCo Liabilities and KAR Liabilities, being referred to collectively as the “ Separation ”);

WHEREAS, in order to effect the Separation, KAR shall undertake the Internal Restructuring, effect the SpinCo Contribution and, in exchange for the SpinCo Contribution, SpinCo shall (i) issue to KAR certain SpinCo Shares (as defined herein) and (ii) distribute to KAR cash in the aggregate amount of $ 1,250.0 million (the “ Cash Distribution ”);

WHEREAS, following the completion of the Internal Restructuring and the Separation, KAR shall distribute all of the issued and outstanding SpinCo Shares to holders of KAR Shares on the Record Date, on a pro rata basis (the “ Distribution ”);

WHEREAS, SpinCo has been incorporated solely for the purposes described herein and has not engaged in activities except in connection with the Separation, the SpinCo Contribution and the Distribution;

WHEREAS, for U.S. federal income tax purposes, the Separation and the Distribution, taken together, are intended to qualify as a transaction that is tax-free under Sections 368(a)(1)(D) and 355 of the Code;
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WHEREAS, this Agreement is intended to be, and is hereby adopted as, a “plan of reorganization” within the meanings of Treasury Regulations Section 1.368-2(g);

WHEREAS, KAR has received the IRS Ruling;

WHEREAS, KAR expects to receive an opinion of outside legal counsel regarding the qualification of the Separation and the Distribution, taken together, under Sections 368(a)(1)(D) and 355 of the Code;

WHEREAS, SpinCo and KAR have prepared, and SpinCo has filed with the SEC, the Form 10, which includes the Information Statement, and which sets forth information concerning SpinCo, the Separation and the Distribution;

WHEREAS, KAR and SpinCo desire to set forth the principal corporate transactions required to effect the Separation and the Distribution and certain other agreements governing various matters relating to the Separation and the Distribution and the relationship of KAR, SpinCo and the members of their respective Groups following the Distribution; and

WHEREAS, KAR and SpinCo acknowledge that this Agreement and the Ancillary Agreements represent the integrated agreement of KAR and SpinCo relating to the Internal Restructuring, the Separation and the Distribution, are being entered into together and would not have been entered into independently.

NOW, THEREFORE, in consideration of the mutual agreements, provisions and covenants contained in this Agreement, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties, intending to be legally bound, hereby agree as follows:

ARTICLE I

DEFINITIONS

For purposes of this Agreement, the following terms shall have the following meanings:

“ Action ” shall mean any demand, action, claim, dispute, suit, countersuit, arbitration, inquiry, subpoena, proceeding or investigation of any nature (whether criminal, civil, legislative, administrative, regulatory, prosecutorial or otherwise) by or before any Governmental Authority.

“ Affiliate ” shall mean, when used with respect to a specified Person, a Person that, directly or indirectly, through one or more intermediaries, controls, is controlled by or is under common control with such specified Person. For purposes of this definition, “ control ” (including with correlative meanings, “ controlled by ” and “ under common control with ”), when used with respect to any specified Person shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities or other interests, by contract, agreement, obligation, indenture, instrument, lease, promise, arrangement, release, warranty, commitment, undertaking or otherwise. It is expressly agreed that, prior to, at and after the Effective Time, for purposes of this Agreement and the Ancillary Agreements, (a) no member of the SpinCo Group shall be deemed to be an Affiliate of any member of the KAR Group and (b) no member of the KAR Group shall be deemed to be an Affiliate of any member of the SpinCo Group.
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“ Agent ” shall mean the trust company or bank duly appointed by KAR to act as distribution agent, transfer agent and registrar for the SpinCo Shares in connection with the Distribution.

“ Agreement ” shall have the meaning set forth in the Preamble.

“ Ancillary Agreements ” shall mean any and all agreements (other than this Agreement) entered into by the Parties or the members of their respective Groups (but as to which no Third Party is a party) in connection with the Internal Restructuring, the Separation, the Distribution, or the other transactions contemplated by this Agreement, including the Transition Services Agreement, the Tax Matters Agreement, the Employee Matters Agreement, the Transfer Documents and all other agreements listed on Schedule [●].

“ Approvals or Notifications ” shall mean any and all consents, waivers, approvals, permits or authorizations that KAR determines are required to be obtained from, and any notices, registrations or reports that KAR determines are required to be submitted to, or other filings that KAR determines are required to be made with, any Third Party, including any Governmental Authority, in connection with the Internal Restructuring, the Separation, the Distribution or the consummation of the transactions contemplated hereby.

“ Assets ” shall mean, with respect to any Person, the assets, properties, claims and rights (including goodwill) of such Person, wherever located (including in the possession of vendors or other Third Parties or elsewhere), of every kind, character and description, whether real, personal or mixed, tangible, intangible or contingent, in each case whether or not recorded or reflected or required to be recorded or reflected on the books and records or financial statements of such Person, including rights and benefits pursuant to any contract, license, permit, indenture, note, bond, mortgage, agreement, concession, franchise, instrument, undertaking, commitment, understanding or other arrangement.

“ Cash Distribution ” shall have the meaning set forth in the Recitals.

“ CEO Notice ” shall have the meaning set forth in Section 7.2 .

“ Change of Control ” shall mean, with respect to a Person, directly or indirectly,  (i) any consolidation, merger or similar business combination involving such Person in which the holders of voting securities of such Person immediately prior thereto are not the holders of a majority in interest of the voting securities of the surviving Person in such transaction, (ii) any sale, lease, license, disposition or conveyance to a third party of all or substantially all of the consolidated assets of such Person in one transaction or a series of related transactions;  or (iii) any acquisition  by any third party or group (within the meaning of the Exchange Act and the rules of the SEC thereunder as in effect on the date hereof) of at least 50% of the aggregate ownership interests, directly or indirectly, beneficially or of record, of such Person, having by their terms ordinary voting power to elect a majority of the board of directors or other persons performing similar functions of such Person, in one transaction or a series of related transactions.
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“ Code ” shall mean the Internal Revenue Code of 1986, as amended.

“ Delayed KAR Asset ” shall have the meaning set forth in Section 2.5(h) .

“ Delayed KAR Liability ” shall have the meaning set forth in Section 2.5(h) .

“ Delayed SpinCo Asset ” shall have the meaning set forth in Section 2.5(c) .

“ Delayed SpinCo Liability ” shall have the meaning set forth in Section 2.5(c) .

“ Disclosure Document ” shall mean any registration statement (including the Form 10) filed with the SEC by or on behalf of any Party or any member of such Party’s Group, and also includes any information statement (including the Information Statement), prospectus, offering memorandum, offering circular, periodic report or similar disclosure document, whether or not filed with the SEC or any other Governmental Authority, in each case, that describes the Separation, the Distribution or the SpinCo Group or primarily relates to the transactions contemplated hereby.

“ Dispute ” shall have the meaning set forth in Section 7.1 .

“ Distribution ” shall have the meaning set forth in the Recitals.

“ Distribution Date ” shall mean the date of the consummation of the Distribution, which shall be determined by the KAR Board in its sole and absolute discretion.

“ Effective Time ” shall mean 12:01 a.m., New York City time, on the Distribution Date.

“ Employee Matters Agreement ” shall mean the Employee Matters Agreement to be entered into by and between KAR and SpinCo and/or one or more members of their respective Groups in connection with the Separation, the Distribution and the other transactions contemplated by this Agreement.

“ Environmental Law ” shall mean any Law relating to pollution, protection or restoration of or prevention of harm to the environment or natural resources, or protection of human health, including the use, handling, transportation, treatment, storage, disposal, Release or discharge of Hazardous Materials or the protection of or prevention of harm to human health and safety.

“ Environmental Liabilities ” shall mean all Liabilities relating to, arising out of or resulting from any Hazardous Materials, Environmental Law or contract or agreement relating to environmental, health or safety matters (including all removal, remediation or cleanup costs, investigatory costs, response costs, natural resources damages, property damages, personal injury damages, costs of compliance with any product take back requirements or with any settlement, judgment or other determination of Liability and indemnity, contribution or similar obligations) and all costs and expenses, interest, fines, penalties or other monetary sanctions in connection therewith.

“ Exchange Act ” shall mean the U.S. Securities Exchange Act of 1934, as amended, together with the rules and regulations promulgated thereunder.
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“ Existing KAR Credit Facility ” shall mean the Amendment and Restatement Agreement, dated as of March 11, 2014 (including the Amended and Restated Credit Agreement and the Amended and Restated Guarantee and Collateral Agreement included as exhibits thereto), as amended, among KAR Auction Services, Inc., as borrower, certain of KAR Auction Services, Inc.’s subsidiaries, as guarantors, and JPMorgan Chase Bank, N.A., as administrative agent, issuing lender and swingline lender.

“ Final Determination ” shall have the meaning set forth in the Tax Matters Agreement.

“ Force Majeure ” shall mean, with respect to a Party, an event beyond the control of such Party (or any Person acting on such Party’s behalf), which event (a) does not arise or result from the fault or negligence of such Party (or any Person acting on such Party’s behalf) and (b) by its nature would not reasonably have been foreseen by such Party (or any Person acting on such Party’s behalf), or, if it would reasonably have been foreseen, was unavoidable, and includes acts of God, acts of civil or military authority, embargoes, epidemics, war, riots, insurrections, fires, explosions, earthquakes, floods, unusually severe weather conditions, labor problems or unavailability of parts, or, in the case of computer systems, any failure in electrical or air conditioning equipment. Notwithstanding the foregoing, the receipt by a Party of an unsolicited takeover offer or other acquisition proposal, even if unforeseen or unavoidable, and such Party’s response thereto shall not be deemed an event of Force Majeure.

“ Form 10 ” shall mean the registration statement on Form 10 filed by SpinCo with the SEC to effect the registration of SpinCo Shares pursuant to the Exchange Act in connection with the Distribution, as such registration statement may be amended or supplemented from time to time prior to the Distribution.

“ Governmental Approvals ” shall mean any and all Approvals or Notifications that KAR determines are required to be made to, or obtained from, any Governmental Authority.

“ Governmental Authority ” shall mean any nation or government, any state, municipality or other political subdivision thereof, and any body, agency, commission, department, board, bureau, court, tribunal or other instrumentality, whether federal, state, local, domestic, foreign or multinational, exercising executive, legislative, judicial, regulatory, administrative or other similar functions of, or pertaining to, government and any executive official thereof.

“ Group ” shall mean either the SpinCo Group or the KAR Group, as the context requires.

“ Hazardous Materials ” shall mean any chemical, material, substance, waste, pollutant, emission, discharge, release or contaminant that could result in Liability under, or that is prohibited, limited or regulated by or pursuant to, any Environmental Law, and any natural or artificial substance (whether solid, liquid or gas, noise, ion, vapor or electromagnetic) that could cause harm to human health or the environment, including petroleum, petroleum products and byproducts, asbestos and asbestos-containing materials, urea formaldehyde foam insulation, electronic, medical or infectious wastes, polychlorinated biphenyls, radon gas, radioactive substances, chlorofluorocarbons and all other ozone-depleting substances.

“ Indemnifying Party ” shall have the meaning set forth in Section 4.4(a) .
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“ Indemnitee ” shall have the meaning set forth in Section 4.4(a) .

“ Indemnity Payment ” shall have the meaning set forth in Section 4.4(a) .

“ Information ” shall mean information, whether or not patentable or copyrightable, in written, oral, electronic or other tangible or intangible forms, stored in any medium, including studies, reports, records, books, contracts, instruments, surveys, discoveries, ideas, concepts, know-how, techniques, designs, specifications, drawings, blueprints, diagrams, models, prototypes, samples, flow charts, data, computer data, disks, diskettes, tapes, computer programs or other software, marketing plans, customer names, communications by or to attorneys (including attorney-client privileged communications), memos and other materials prepared by attorneys or under their direction (including attorney work product), and other technical, financial, employee or business information or data; provided that “Information” shall not include Registrable IP.

“ Information Statement ” shall mean the information statement to be sent to the holders of KAR Shares in connection with the Distribution, as such information statement may be amended or supplemented from time to time prior to the Distribution.

“ Initial Notice ” shall have the meaning set forth in Section 7.1 .

“ Insurance Proceeds ” shall mean those monies (i) received by an insured from an insurance carrier, or (ii) paid by an insurance carrier on behalf of the insured, in any such case net of any applicable premium adjustments (including reserves and retrospectively rated premium adjustments) and net of any costs or expenses incurred in the collection thereof.

“ Intellectual Property ” shall mean all of the following whether arising under the Laws of the United States or of any other foreign or multinational jurisdiction: (a) patents, patent applications (including patents issued thereon) and statutory invention registrations, including reissues, divisions, continuations, continuations in part, substitutions, renewals, extensions and reexaminations of any of the foregoing, and all rights in any of the foregoing provided by international treaties or conventions, (b) trademarks, service marks, trade names, service names, trade dress, logos and other source or business identifiers, including all goodwill associated with any of the foregoing, and any and all common law rights in and to any of the foregoing, registrations and applications for registration of any of the foregoing, all rights in and to any of the foregoing provided by international treaties or conventions, and all reissues, extensions and renewals of any of the foregoing, (c) Internet domain names, registrations and related rights, (d) copyrightable works, copyrights, moral rights, mask work rights, database rights and design rights, in each case, other than Software, whether or not registered, and all registrations and applications for registration of any of the foregoing, and all rights in and to any of the foregoing provided by international treaties or conventions, (e) confidential and proprietary information, including trade secrets, invention disclosures, processes and know-how, in each case, other than Software, and (f) intellectual property rights arising from or in respect of any Technology.

“ Internal Restructuring ” shall mean the transactions and arrangements set forth in Schedule 2.1 , as may be amended from time to time by KAR in its sole discretion.

“ IRS ” shall mean the United States Internal Revenue Service.
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“ IRS Ruling ” shall mean a private letter ruling from the IRS addressing the tax consequences of certain aspects of the Separation and the Distribution.

“ KAR ” shall have the meaning set forth in the Preamble.

“ KAR Accounts ” shall have the meaning set forth in Section 2.10(a) .

“ KAR Assets ” shall have the meaning set forth in Section 2.3(b) .

“ KAR Board ” shall have the meaning set forth in the Recitals.

“ KAR Business ” shall mean all businesses, operations and activities (whether or not such businesses, operations or activities are or have been terminated, divested or discontinued) conducted at any time prior to the Effective Time by either Party or any member of its Group, other than the SpinCo Business.

“ KAR Designees ” shall mean any and all entities (including corporations, general or limited partnerships, trusts, joint ventures, unincorporated organizations, limited liability entities or other entities) designated by KAR that will be members of the KAR Group as of immediately after the Effective Time.

“ KAR Group ” shall mean KAR and each Person that is a Subsidiary of KAR (other than SpinCo and any other member of the SpinCo Group).

“ KAR Indemnitees ” shall have the meaning set forth in Section 4.2 .

“ KAR Liabilities ” shall have the meaning set forth in Section 2.4(b) .

“ KAR Marks ” shall mean the trademarks, trade names, service names, trade dress, logos and other source or business identifiers comprising or containing “KAR”, “ADESA”, “AFC” or any other term or element listed on Schedule 1.1 , either alone or in combination with other terms or elements, and all allocated logos and trade dress, and all names, marks, domain names, social media accounts and handles and other source or business identifiers confusingly similar to or embodying any of the foregoing either alone or in combination with other terms or elements, and any registrations or applications for any of the foregoing, together with the goodwill associated with any of the foregoing.

“ KAR Shares ” shall mean the shares of common stock, par value $0.01 per share, of KAR.

“ Law ” shall mean any national, supranational, federal, state, provincial, local or similar law (including common law), statute, code, order, ordinance, rule, regulation, treaty (including any income tax treaty), license, permit, authorization, approval, consent, decree, injunction, binding judicial or administrative interpretation or other requirement, in each case, enacted, promulgated, issued or entered by a Governmental Authority.

“ Leased Real Property ” shall mean the real property in which either Party or any of the members of its Group hold valid leasehold or subleasehold interests and any other rights to use or occupy any land, buildings, structures, improvements, fixtures or other interests in real property held by either Party or any of the members of its Group as of the Effective Time under the Real Property Leases.
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“ Liabilities ” shall mean all debts, guarantees, assurances, commitments, liabilities, responsibilities, Losses, remediation, deficiencies, settlements, sanctions, interest and obligations of any nature or kind, whether accrued or fixed, absolute or contingent, matured or unmatured, accrued or not accrued, asserted or unasserted, liquidated or unliquidated, foreseen or unforeseen, known or unknown, reserved or unreserved, or determined or determinable, including those arising under any Law, Action, or order, writ, judgment, injunction, decree, stipulation, determination or award entered by or with any Governmental Authority or arbitration tribunal, and those arising under any contract, agreement, obligation, indenture, instrument, lease, promise, arrangement, release, warranty, commitment or undertaking, or any equitable relief that is imposed, in each case, including all costs and expenses relating thereto. Except as otherwise specifically set forth herein or in the Tax Matters Agreement, the rights and obligations of the Parties with respect to Taxes shall be governed by the Tax Matters Agreement and, therefore, Taxes shall not be treated as Liabilities for purposes of this Agreement.

“ Linked ” shall have the meaning set forth in Section 2.10(a) .

“ Losses ” shall mean actual losses, costs, damages, fines, penalties and expenses (including legal and accounting fees and expenses and costs of investigation and litigation), whether or not involving a Third-Party Claim.

“ NYSE ” shall mean the New York Stock Exchange.

“ Other IP ” shall mean all Intellectual Property, other than Registrable IP, that is owned by either Party or any member of its Group as of the Effective Time.

“ Owned Real Property ” shall mean the real property that is owned by either Party or any of the members of such Party’s Group as of the Effective Time, together with all buildings, improvements and structures thereon.

“ Parties ” shall mean the parties to this Agreement.

“ Permits ” means permits, approvals, authorizations, consents, licenses or certificates issued by any Governmental Authority.

“ Person ” shall mean an individual, a corporation, a general or limited partnership, a trust, a joint venture, an unincorporated organization, a limited liability entity, any other entity and any Governmental Authority.

“ Prime Rate ” shall mean the rate that Bloomberg (or any successor thereto) displays as “Prime Rate by Country United States” at https://www.bloomberg.com/quote/PRIME:IND or on a Bloomberg terminal at PRIMBB Index.

“ Privileged Information ” means any information, in written, oral, electronic or other tangible or intangible form, including any communications by or to attorneys (including attorney-client privileged communications), memoranda and other materials prepared by attorneys or under their direction (including attorney work product), as to which a Party or any member of such Party’s Group would be entitled to assert or has asserted a privilege, including the attorney-client and attorney work product privileges.
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“ Real Property Leases ” shall mean the real property leases, subleases, licenses or other agreements, including all amendments, modifications, supplements, extensions, renewals, guaranties or other agreements with respect thereto, pursuant to which either Party or any of the members of its Group as of the Effective Time is a party.

“ Record Date ” shall mean the close of business on the date to be determined by the KAR Board as the record date for determining holders of KAR Shares entitled to receive SpinCo Shares pursuant to the Distribution.

“ Record Holders ” shall mean the holders of record of KAR Shares as of the Record Date.

“ Registrable IP ” shall mean all patents, patent applications, statutory invention registrations, trademark and service mark registrations and applications, registered Internet domain names and copyright registrations and applications.

“ Release ” shall mean any release, spill, emission, discharge, leaking, pumping, pouring, dumping, injection, deposit, disposal, dispersal, leaching or migration of Hazardous Materials into the environment (including, ambient air, surface water, groundwater and surface or subsurface strata).

“ Representatives ” shall mean, with respect to any Person, any of such Person’s directors, officers, employees, agents, consultants, advisors, accountants, attorneys or other representatives.

“ SEC ” shall mean the U.S. Securities and Exchange Commission.

“ Security Interest ” shall mean any mortgage, security interest, pledge, lien, charge, claim, option, right to acquire, voting or other restriction, right-of-way, covenant, condition, easement, encroachment, restriction on transfer, or other encumbrance of any nature whatsoever.

“ Separation ” shall have the meaning set forth in the Recitals.

“ Shared Contract ” shall have the meaning set forth in Section 2.9(a) .

“ Software ” shall mean any and all (a) computer programs, including any and all software implementation of algorithms, models and methodologies, whether in source code, object code, human readable form or other form, (b) databases and compilations, including any and all data and collections of data, whether machine readable or otherwise, (c) descriptions, flow charts and other work products used to design, plan, organize and develop any of the foregoing, (d) screens, user interfaces, report formats, firmware, development tools, templates, menus, buttons and icons and (e) documentation, including user manuals and other training documentation, relating to any of the foregoing.

“ SpinCo ” shall have the meaning set forth in the Preamble.
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“ SpinCo Accounts ” shall have the meaning set forth in Section 2.10(a) .

“ SpinCo Assets ” shall have the meaning set forth in Section 2.3(a) .

“ SpinCo Balance Sheet ” shall mean the pro forma combined balance sheet of the SpinCo Business, including any notes thereto, as of [●], 2019, as presented in the Information Statement mailed to the Record Holders.

“ SpinCo Business ” shall mean (a) the business, operations and activities of the IAA segment of KAR, as disclosed in KAR’s Form 10-K for the year ended December 31, 2018, filed with the SEC on February 21, 2019, conducted at any time prior to the Effective Time by either Party or any of their current or former Subsidiaries and (b) any terminated, divested or discontinued businesses, operations and activities that, at the time of termination, divestiture or discontinuation, primarily related to (i) the business, operations or activities described in clause (a) as then conducted or (ii) any other business operations or activities previously conducted as part of the salvage auction businesses of KAR and its Subsidiaries, including those set forth on Schedule 1.2 .

“ SpinCo Bylaws ” shall mean the Amended and Restated Bylaws of SpinCo, substantially in the form of Exhibit B .

“ SpinCo Certificate of Incorporation ” shall mean the Amended and Restated Certificate of Incorporation of SpinCo, substantially in the form of Exhibit A .

“ SpinCo Contracts ” shall mean all contracts and agreements set forth on Schedule 1.3 , and any other contracts or agreements to which either Party or any member of its Group is a party or by which it or any member of its Group or any of their respective Assets is bound, whether or not in writing, as of the Effective Time that relate exclusively to the SpinCo Business, including the following:

(a)            any customer, distribution, supply or vendor contract or agreement that relates exclusively to the SpinCo Business;

(b)            any contract or agreement in the nature of a guarantee, indemnity or other Liability of either Party or any member of its Group in respect of any other SpinCo Contract, any SpinCo Liability or the SpinCo Business;

(c)            any Real Property Lease that relates exclusively to the SpinCo Business;

(d)            any lease (including any capital lease), agreement to lease, option to lease, license, right to use, installment or conditional sale agreement pertaining to the leasing or use of any equipment or other tangible property that relates exclusively to the SpinCo Business;

(e)            any contract or agreement licensing or otherwise granting rights to Intellectual Property that relates exclusively to the SpinCo Business; and
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(f)            any other contract or agreement that is otherwise expressly contemplated pursuant to this Agreement or any of the Ancillary Agreements to be allocated or assigned to SpinCo or any member of the SpinCo Group.

 Notwithstanding the foregoing, except with respect to any such contract or agreements that are expressly set forth on Schedule 1.3 , SpinCo Contracts shall not include any contract or agreement that is contemplated to be retained by KAR or any member of the KAR Group from and after the Effective Time pursuant to any provision of this Agreement or any Ancillary Agreement.

“ SpinCo Contribution ” shall have the meaning set forth in the Recitals.

“ SpinCo Credit Facility ” shall mean the Credit Agreement to be entered into by and among SpinCo, as borrower, certain subsidiaries of SpinCo, identified therein, as guarantors, a nationally recognized banking institution, and the lenders party thereto.

“ SpinCo Designees ” shall mean any and all entities (including corporations, general or limited partnerships, trusts, joint ventures, unincorporated organizations, limited liability entities or other entities) designated by SpinCo that will be members of the SpinCo Group as of immediately after the Effective Time.

“ SpinCo FF&E ” shall have the meaning set forth in Section 2.3(a)(vi) .

“ SpinCo Group ” shall mean (a) prior to the Effective Time, SpinCo and each Person that will be a Subsidiary of SpinCo as of immediately after the Effective Time, including the Transferred Entities, even if, prior to the Effective Time, such Person is not a Subsidiary of SpinCo; and (b) on and after the Effective Time, SpinCo and each Person that is a Subsidiary of SpinCo.

“ SpinCo Indemnitees ” shall have the meaning set forth in Section 4.3 .

“ SpinCo Intellectual Property ” shall mean (a) the Registrable IP set forth on Schedule 1.4   and (b) all Other IP owned by either Party or any member of its Group as of the Effective Time exclusively used or exclusively held for use in the SpinCo Business, including any Other IP set forth on Schedule 1.4 .

“ SpinCo Liabilities ” shall have the meaning set forth in Section 2.4(a) .

“ SpinCo Notes ” shall mean the 5.500 % Senior Notes due 20 27 issued by SpinCo.

“ SpinCo Permits ” shall mean all Permits in the possession of either Party or member of its Group exclusively used or exclusively held for use in the SpinCo Business as of the Effective Time.

“ SpinCo Real Property ” shall mean (i) the Owned Real Property set forth on Schedule 1.5(i) , and (ii) the Leased Real Property set forth on Schedule 1.5(ii) .
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“ SpinCo Shares ” shall mean the shares of common stock, par value $0.01 per share, of SpinCo.

“ SpinCo Software ” shall mean all Software owned by either Party or any member of such Party’s Group exclusively used or exclusively held for use in the SpinCo Business as of the Effective Time.

“ SpinCo Technology ” shall mean all Technology owned by either Party or any member of its Group exclusively used or exclusively held for use in the SpinCo Business as of the Effective Time, including the Technology set forth on Schedule 1.6 .

“ Subsidiary ” shall mean, with respect to any Person, any corporation, general or limited partnership, trust, joint venture, unincorporated organization, limited liability company or other entity of which such Person (a) beneficially owns, either directly or indirectly, more than fifty percent (50%) of (i) the total combined voting power of all classes of voting securities, (ii) the total combined equity interests or (iii) in the case of a partnership, is a general partner, or (b) otherwise has the power to vote, either directly or indirectly, sufficient securities to elect a majority of the board of directors or similar governing body.

“ Tangible Information ” means information that is contained in written, electronic or other tangible forms.

“ Tax ” shall have the meaning set forth in the Tax Matters Agreement.

“ Tax Matters Agreement ” shall mean the Tax Matters Agreement to be entered into by and between KAR and SpinCo and/or one or more members of their respective Groups in connection with the Separation, the Distribution or the other transactions contemplated by this Agreement.

“ Tax Return ” shall have the meaning set forth in the Tax Matters Agreement.

“ Technology ” shall mean all technology, designs, formulae, algorithms, procedures, methods, discoveries, processes, techniques, ideas, know-how, research and development, technical data, tools, materials, specifications, processes, inventions (whether patentable or unpatentable and whether or not reduced to practice), apparatus, creations, improvements, works of authorship in any media, confidential, proprietary or nonpublic information, and other similar materials, and all recordings, graphs, drawings, reports, analyses and other writings, and other tangible embodiments of the foregoing in any form whether or not listed herein, in each case, other than Software.

“ Third Party ” means any Person other than the Parties or any members of their respective Groups.

“ Third-Party Claim ” shall have the meaning set forth in Section 4.5(a) .

“ Transfer Documents ” shall have the meaning set forth in Section 2.2(c) .

“ Transferred Entities ” shall mean the entities set forth on Schedule 1.7 .
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“ Transition Services Agreement ” shall mean the Transition Services Agreement to be entered into by and between KAR and SpinCo and/or any members of their respective Groups in connection with the Separation, the Distribution or the other transactions contemplated by this Agreement.

“ Treasury Regulations ” shall mean the tax regulations issued by the IRS.

“ Unreleased SpinCo Liability ” shall have the meaning set forth in Section 2.6(a)(ii) .

“ Unreleased KAR Liability ” shall have the meaning set forth in Section 2.6(b)(ii) .

ARTICLE II

THE SEPARATION

     
        2.1      General .  Subject to the terms and conditions of this Agreement, the Parties shall use, and shall cause their respective Affiliates to use, their respective commercially reasonable efforts to consummate the transactions contemplated hereby, a portion of which may have been implemented prior to the date hereof, including the completion of the Internal Restructuring.

2.2             Internal Restructuring; Transfer of Assets and Assumption of Liabilities .

(a)            Internal Restructuring . At or prior to the Effective Time, the Parties shall complete the Internal Restructuring, except for such steps (if any) as KAR in its sole discretion shall have determined need not be completed or may be completed after the Effective Time.

(b)            Transfer of Assets and Assumption of Liabilities . At or prior to the Effective Time, pursuant to the Transfer Documents and in connection with the SpinCo Contribution:

(i)            Transfer and Assignment of SpinCo Assets . KAR shall, or shall cause the applicable members of the KAR Group to, contribute, assign, transfer, convey and deliver to SpinCo, or the applicable SpinCo Designees, and SpinCo or such SpinCo Designees shall accept from KAR or the applicable members of the KAR Group, all of KAR’s or such KAR Group members’ respective direct or indirect right, title and interest in and to all of the SpinCo Assets held by KAR or such KAR Group members, including, for the avoidance of doubt, all of the outstanding shares of capital stock or other ownership interest in the Transferred Entities (it being understood that if any SpinCo Asset shall be held by a Transferred Entity or a wholly owned Subsidiary of a Transferred Entity, such SpinCo Asset shall be deemed assigned, transferred, conveyed and delivered to SpinCo as a result of the transfer of all of the equity interests in such Transferred Entity from KAR or the applicable members of the KAR Group to SpinCo or the applicable SpinCo Designee);

(ii)            Acceptance and Assumption of SpinCo Liabilities . SpinCo and the applicable SpinCo Designees shall accept, assume and agree faithfully to perform, discharge and fulfill all of the SpinCo Liabilities in accordance with their respective terms. SpinCo and such SpinCo Designees shall be responsible for all of the SpinCo Liabilities, regardless of when or where such SpinCo Liabilities arose or arise, or whether the facts on which they are based occurred prior to or subsequent to the Effective Time, regardless of where or against whom such SpinCo Liabilities are asserted or determined (including any SpinCo Liabilities arising out of claims made by SpinCo’s respective directors, officers, employees, agents, Subsidiaries or Affiliates against any member of the KAR Group or the SpinCo Group) or whether asserted or determined prior to the date hereof, and regardless of whether arising from or alleged to arise from negligence, recklessness, violation of Law, fraud or misrepresentation by any member of the KAR Group or the SpinCo Group, or any of their respective directors, officers, employees, agents, Subsidiaries or Affiliates (it being understood that if any SpinCo Liability shall be a Liability of a Transferred Entity or a wholly owned Subsidiary of a Transferred Entity, such SpinCo Liability shall become liabilities of the applicable member of the SpinCo Group as a result of the transfer of all of the equity interests in such Transferred Entity from KAR or the applicable members of the KAR Group to SpinCo or the applicable SpinCo Designee);
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(iii)            Transfer and Assignment of KAR Assets . KAR and SpinCo shall cause SpinCo and/or the applicable SpinCo Designees to contribute, assign, transfer, convey and deliver to KAR and/or one or more members of the KAR Group designated by KAR, and KAR or such other members of the KAR Group shall accept from SpinCo and the SpinCo Designees, all of SpinCo’s and such SpinCo Designees’ respective direct or indirect right, title and interest in and to all KAR Assets held by SpinCo or such SpinCo Designees; and

(iv)            Acceptance and Assumption of KAR Liabilities . KAR and one or more members of the KAR Group designated by KAR shall accept and assume and agree faithfully to perform, discharge and fulfill all of the KAR Liabilities in accordance with their respective terms.  KAR and the applicable members of the KAR Group shall be responsible for all KAR Liabilities, regardless of when or where such KAR Liabilities arose or arise, whether the facts on which they are based occurred prior to or subsequent to the Effective Time, where or against whom such KAR Liabilities are asserted or determined (including any such KAR Liabilities arising out of claims made by KAR’s or SpinCo’s respective directors, officers, employees, agents, Subsidiaries or Affiliates against any member of the KAR Group or the SpinCo Group) or whether asserted or determined prior to the date hereof, and regardless of whether arising from or alleged to arise from negligence, recklessness, violation of Law, fraud or misrepresentation by any member of the KAR Group or the SpinCo Group, or any of their respective directors, officers, employees, agents, Subsidiaries or Affiliates.

(c)            Transfer Documents . In furtherance of the contribution, assignment, transfer, conveyance and delivery of the Assets and the assumption of the Liabilities in accordance with Section 2.2(b) , each Party shall execute and deliver, and shall cause the applicable members of such Party’s Group to execute and deliver, (i) such bills of sale, quitclaim deeds, stock powers, certificates of title, assignments of contracts and other instruments of transfer, conveyance and assignment as and to the extent necessary to evidence the transfer, conveyance and assignment of all of such Party’s and the applicable members of such Party’s Group’s right, title and interest in and to such Assets to the other Party and/or the applicable members of its Group in accordance with Section 2.2(b) , and (ii) such assumptions of contracts and other instruments of assumption as and to the extent necessary to evidence the valid and effective assumption of the Liabilities by such Party and/or the applicable members of its Group in accordance with Section 2.2(b) . All of the foregoing documents contemplated by this Section 2.2(c) shall be referred to collectively herein as the “ Transfer Documents .”
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(d)            Misallocations . In the event that at any time or from time to time (whether prior to, at or after the Effective Time), one Party (or any member of such Party’s Group) shall receive or otherwise possess any Asset that is allocated to the other Party (or any member of such Party’s Group) pursuant to this Agreement or any Ancillary Agreement, such Party shall promptly transfer, or cause to be transferred, such Asset to the Party so entitled thereto (or to any member of such Party’s Group), and such Party (or member of such Party’s Group) shall accept such Asset. Prior to any such transfer, the Person receiving or possessing such Asset shall hold such Asset in trust for any such other Person. In the event that at any time or from time to time (whether prior to, at or after the Effective Time), one Party hereto (or any member of such Party’s Group) shall receive or otherwise assume any Liability that is allocated to the other Party (or any member of such Party’s Group) pursuant to this Agreement or any Ancillary Agreement, such Party shall promptly transfer, or cause to be transferred, such Liability to the Party responsible therefor (or to any member of such Party’s Group), and such Party (or member of such Party’s Group) shall accept, assume and agree to faithfully perform such Liability.

(e)            Waiver of Bulk-Sale and Bulk-Transfer Laws . SpinCo hereby waives compliance by each and every member of the KAR Group with the requirements and provisions of any “bulk-sale” or “bulk-transfer” Laws of any jurisdiction that may otherwise be applicable with respect to the transfer or sale of any or all of the SpinCo Assets to any member of the SpinCo Group. KAR hereby waives compliance by each and every member of the SpinCo Group with the requirements and provisions of any “bulk-sale” or “bulk-transfer” Laws of any jurisdiction that may otherwise be applicable with respect to the transfer or sale of any or all of the KAR Assets to any member of the KAR Group.

2.3 SpinCo Assets; KAR Assets

(a)            SpinCo Assets . Except as otherwise provided in the Tax Matters Agreement, for purposes of this Agreement, “ SpinCo Assets ” shall mean, as of the date of determination, all Assets of either Party or the members of such Party’s Group that relate primarily to the SpinCo Business, including without limitation:

(i)            all issued and outstanding capital stock or other equity interests of the Transferred Entities that are owned by either Party or any members of such Party’s Group;

(ii)            all Assets of either Party or any of the members of such Party’s Group included or reflected as assets of the SpinCo Group on the SpinCo Balance Sheet, subject to any dispositions of such Assets subsequent to the date of the SpinCo Balance Sheet; provided , however , that the amounts set forth on the SpinCo Balance Sheet with respect to any Assets shall not be treated as minimum amounts or limitations on the amount of such Assets that are included in the definition of SpinCo Assets pursuant to this subclause (ii);
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(iii)            all Assets of either Party or any of the members of such Party’s Group that are of a nature or type that would have resulted in such Assets being included as Assets of SpinCo or members of the SpinCo Group on a pro forma combined balance sheet of the SpinCo Group or any notes thereto (were such balance sheet and notes to be prepared on a basis consistent with the determination of the Assets included on the SpinCo Balance Sheet), it being understood that (x) the SpinCo Balance Sheet shall be used to determine the types of, and methodologies used to determine, those Assets that are included in the definition of SpinCo Assets pursuant to this subclause (iii); and (y) the amounts set forth on the SpinCo Balance Sheet with respect to any Assets shall not be treated as minimum amounts or limitations on the amount of such Assets that are included in the definition of SpinCo Assets pursuant to this subclause (iii);

(iv)            all Assets that are expressly contemplated by this Agreement or any Ancillary Agreement (or the Schedules hereto or thereto) as Assets to be transferred to SpinCo or any other member of the SpinCo Group;

(v)            all SpinCo Real Property and all rights, interests or claims of either Party or any of the members of such Party’s Group thereunder;

(vi)            all office equipment, trade fixtures and furnishings located at (x) SpinCo Real Property, but excluding the items listed on Schedule 2.3(a)(vi) , and (y) Owned Real Property or Leased Real Property (other than the SpinCo Real Property) and listed on Schedule 2.3(a)(vi) (in each case excluding any office equipment, trade fixtures and furnishings owned by Persons other than KAR and its subsidiaries) (the “ SpinCo FF&E ”);

(vii)            all SpinCo Contracts and all rights, interests or claims of either Party or any of the members of such Party’s Group thereunder;

(viii)            the rights and benefits under the Shared Contracts to the extent allocated or assigned to any member of the SpinCo Group pursuant to Section 2.9 (including pursuant to any pass-through or alternative arrangement entered into by the Parties thereunder); and

(ix)            all SpinCo Intellectual Property, SpinCo Software and SpinCo Technology and all rights, interests or claims of either Party or any of the members of such Party’s Group thereunder;

(x)            all SpinCo Permits, and all rights, interests or claims of either Party or any of the members of such Party’s Group thereunder;

(xi)            subject to Article VI and the provisions of the applicable Ancillary Agreements, all rights, interests and claims of either Party or any of the members of such Party’s Group with respect to Information that is primarily related to the SpinCo Assets, the SpinCo Liabilities, the SpinCo Business or the Transferred Entities;
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(xii)            all Assets set forth on Schedule 2.3(a)(xi) ; and

(xiii)            all other Assets of either Party or any of the members of such Party’s Group that are primarily related to the SpinCo Business.

Notwithstanding the foregoing, the SpinCo Assets shall not in any event include any KAR Asset.

(b)            KAR Assets . Except as otherwise provided in the Tax Matters Agreement, for purposes of this Agreement, “ KAR Assets ” shall mean, as of the date of determination, all Assets of either Party or the members of such Party’s Group, other than the SpinCo Assets, it being understood that the KAR Assets shall include:

(i)            all issued and outstanding capital stock or other equity interests of KAR’s Subsidiaries other than the Transferred Entities;

(ii)            all office equipment, trade fixtures and furnishings located at any Owned Real Property or Leased Real Property (other than SpinCo FF&E or any office equipment, trade fixtures or furnishings owned by Persons other than KAR and its Subsidiaries);

(iii)            all Owned Real Property and Leased Real Property (other than the SpinCo Real Property);

(iv)            all Assets that are expressly contemplated by this Agreement or any Ancillary Agreement (or the Schedules hereto or thereto) as Assets to be retained by KAR or any other member of the KAR Group;

(v)            all contracts of either Party or any of the members of such Party’s Group (other than the SpinCo Contracts);

(vi)            the rights and benefits under the Shared Contracts to the extent not allocated or assigned to any member of the SpinCo Group pursuant to Section 2.9 (including pursuant to any pass-through or alternative arrangement entered into by the Parties thereunder);

(vii)            all Intellectual Property of either Party or any of the members of such Party’s Group (other than the SpinCo Intellectual Property), including the KAR Marks and the Intellectual Property set forth on Schedule 2.3(b)(vii) ;

(viii)            all Permits of either Party or any of the members of such Party’s Group (other than the SpinCo Permits);

(ix)            all rights, interests and claims of either Party or any of the members of such Party’s Group with respect to Information that does not relate primarily to the SpinCo Assets, the SpinCo Liabilities, the SpinCo Business or the Transferred Entities;

(x)            all Assets set forth on Schedule 2.3(b)(x) ; and
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(xi)            all other Assets of either Party or any of the members of such Party’s Group that relate primarily to the KAR Business.

Notwithstanding the foregoing, the KAR Assets shall not in any event include any SpinCo Asset.

2.4     SpinCo Liabilities; KAR Liabilities.

(a)            SpinCo Liabilities . For purposes of this Agreement, “ SpinCo Liabilities ” shall mean, as of the date of determination, all Liabilities of either Party or any of the members of such Party’s Group that relate primarily to the SpinCo Business, including without limitation:

(i)            all Liabilities included or reflected as liabilities or obligations of SpinCo or the members of the SpinCo Group on the SpinCo Balance Sheet, subject to any discharge of such Liabilities subsequent to the date of the SpinCo Balance Sheet; provided , however , that the amounts set forth on the SpinCo Balance Sheet with respect to any Liabilities shall not be treated as minimum amounts or limitations on the amount of such Liabilities that are included in the definition of SpinCo Liabilities pursuant to this subclause (i);

(ii)            all Liabilities that are of a nature or type that would have resulted in such Liabilities being included or reflected as liabilities or obligations of SpinCo or the members of the SpinCo Group on a pro forma combined balance sheet of the SpinCo Group or any notes thereto (were such balance sheet and notes to be prepared on a basis consistent with the determination of the Liabilities included on the SpinCo Balance Sheet ), it being understood that (x) the SpinCo Balance Sheet shall be used to determine the types of, and methodologies used to determine, those Liabilities that are included in the definition of SpinCo Liabilities pursuant to this subclause (ii); and (y) the amounts set forth on the SpinCo Balance Sheet with respect to any Liabilities shall not be treated as minimum amounts or limitations on the amount of such Liabilities that are included in the definition of SpinCo Liabilities pursuant to this subclause (ii);

(iii)            all Liabilities, including any Environmental Liabilities, relating to, arising out of or resulting from the actions, inactions, events, conduct, omissions, conditions, occurrences, facts or circumstances occurring or existing prior to the Effective Time (whether or not such Liabilities cease being contingent, mature, become known, are asserted or foreseen, or accrue, in each case before, at or after the Effective Time), in each case to the extent that such Liabilities relate to, arise out of or result from the SpinCo Business or any SpinCo Asset;

(iv)            all Liabilities that are expressly provided by this Agreement or any Ancillary Agreement (or the Schedules hereto or thereto) as Liabilities to be assumed by SpinCo or any other member of the SpinCo Group, and all agreements, obligations and Liabilities of any member of the SpinCo Group under this Agreement or any of the Ancillary Agreements;
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(v)            all Liabilities relating to, arising out of or resulting from the SpinCo Contracts, the SpinCo Intellectual Property, the SpinCo Software, the SpinCo Technology, the SpinCo Permits or the SpinCo Credit Facility;

(vi)            all Liabilities set forth on Schedule 2.4(a)(vi) ;

(vii)            all Liabilities arising out of claims made by any Third Party (including KAR’s or SpinCo’s respective directors, officers, stockholders, employees and agents) against any member of the KAR Group or the SpinCo Group to the extent relating to, arising out of or resulting from the SpinCo Business or the SpinCo Assets or the other business, operations, activities or Liabilities referred to in subclauses (i) through (vi) above; and

(viii)            all other Liabilities of either Party or any of the members of such Party’s Group that relate primarily to the SpinCo Business.

(b)            KAR Liabilities . For purposes of this Agreement, “ KAR Liabilities ” shall mean, as of the date of determination, (i) all Liabilities relating to, arising out of or resulting from actions, inactions, events, conduct, omissions, conditions, occurrences, facts or circumstances occurring or existing as of the Effective Time (whether or not such Liabilities cease being contingent, mature, become known, are asserted or foreseen, or accrue, in each case before, at or after the Effective Time), of any member of the KAR Group and any member of the SpinCo Group, in each case that are not SpinCo Liabilities, including any and all Liabilities set forth on Schedule 2.4(b) and (iii) all Liabilities arising out of claims made by any Third Party (including KAR’s or SpinCo’s respective directors, officers, stockholders, employees and agents) against any member of the KAR Group or the SpinCo Group to the extent relating to, arising out of or resulting from the KAR Business or the KAR Assets.

      2.5     Approvals and Notifications

(a)            Approvals and Notifications for SpinCo Assets . The Parties shall use their respective commercially reasonable efforts to obtain or make all Approvals or Notifications required to implement the transfer of SpinCo Assets to the SpinCo Group as set forth in Section 2.2(b)(i) as soon as reasonably practicable; provided , however , that, except to the extent expressly provided in this Agreement or any of the Ancillary Agreements or as otherwise agreed between KAR and SpinCo, neither KAR nor SpinCo shall be obligated to contribute capital or pay any consideration in any form (including providing any letter of credit, guaranty or other financial accommodation) to any Person in order to obtain or make any such Approvals or Notifications.

(b)            Delayed SpinCo Transfers . If and to the extent that the valid, complete and perfected transfer or assignment to the SpinCo Group of any SpinCo Asset or assumption by the SpinCo Group of any SpinCo Liability would be a violation of applicable Law or require any Approvals or Notifications in connection with the Separation or the Distribution that have not been obtained or made by the Effective Time, then, unless the Parties mutually shall otherwise determine, the transfer or assignment to the SpinCo Group of such SpinCo Assets or the assumption by the SpinCo Group of such SpinCo Liabilities, as the case may be, shall be automatically deemed deferred and any such purported transfer, assignment or assumption shall be null and void until such time as all legal impediments are removed or such Approvals or Notifications have been obtained or made. Notwithstanding the foregoing, any such SpinCo Assets or SpinCo Liabilities shall continue to constitute SpinCo Assets and SpinCo Liabilities for all other purposes of this Agreement.
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(c)            Treatment of Delayed SpinCo Assets and Delayed SpinCo Liabilities . If any transfer or assignment of any SpinCo Asset or any assumption of any SpinCo Liability intended to be transferred, assigned or assumed hereunder, as the case may be, is not consummated on or prior to the Effective Time, whether as a result of the provisions of Section 2.5(b) or for any other reason (any such SpinCo Asset, a “ Delayed SpinCo Asset ” and any such SpinCo Liability, a “ Delayed SpinCo Liability ”), then, insofar as reasonably practicable and subject to applicable Law, the member of the KAR Group retaining such Delayed SpinCo Asset or such Delayed SpinCo Liability, as the case may be, shall thereafter hold such Delayed SpinCo Asset or Delayed SpinCo Liability, as the case may be, for the use and benefit of the member of the SpinCo Group entitled thereto (at the expense of the member of the SpinCo Group entitled thereto). In addition, the member of the KAR Group retaining such Delayed SpinCo Asset or such Delayed SpinCo Liability shall, insofar as reasonably practicable and to the extent permitted by applicable Law, treat such Delayed SpinCo Asset or Delayed SpinCo Liability in the ordinary course of business in accordance with past practice and take such other actions as may be reasonably requested by the member of the SpinCo Group to whom such Delayed SpinCo Asset is to be transferred or assigned, or which will assume such Delayed SpinCo Liability, as the case may be, in order to place such member of the SpinCo Group in a substantially similar position as if such Delayed SpinCo Asset or Delayed SpinCo Liability had been transferred, assigned or assumed as contemplated hereby and so that all the benefits and burdens relating to such Delayed SpinCo Asset or Delayed SpinCo Liability, as the case may be, including use, risk of loss, potential for gain, and dominion, control and command over such Delayed SpinCo Asset or Delayed SpinCo Liability, as the case may be, and all costs and expenses related thereto, shall inure from and after the Effective Time, to the SpinCo Group.

(d)            Transfer of Delayed SpinCo Assets and Delayed SpinCo Liabilities . If and when the Approvals or Notifications, the absence of which caused the deferral of transfer or assignment of any Delayed SpinCo Asset or the deferral of assumption of any Delayed SpinCo Liability pursuant to Section 2.5(b) , are obtained or made, and, if and when any other legal impediments for the transfer or assignment of any Delayed SpinCo Asset or the assumption of any Delayed SpinCo Liability have been removed, the transfer or assignment of the applicable Delayed SpinCo Asset or the assumption of the applicable Delayed SpinCo Liability, as the case may be, shall be effected in accordance with the terms of this Agreement and/or the applicable Ancillary Agreement.

(e)            Costs for Delayed SpinCo Assets and Delayed SpinCo Liabilities . Any member of the KAR Group retaining a Delayed SpinCo Asset or Delayed SpinCo Liability due to the deferral of the transfer or assignment of such Delayed SpinCo Asset or the deferral of the assumption of such Delayed SpinCo Liability, as the case may be, shall not be obligated, in connection with the foregoing, to expend any money unless the necessary funds are advanced (or otherwise made available) by SpinCo or the member of the SpinCo Group entitled to the Delayed SpinCo Asset or Delayed SpinCo Liability, other than reasonable out-of-pocket expenses, attorneys’ fees and recording or similar fees, all of which shall be promptly reimbursed by SpinCo or the member of the SpinCo Group entitled to such Delayed SpinCo Asset or Delayed SpinCo Liability.
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(f)            Approvals and Notifications for KAR Assets . The Parties shall use their commercially reasonable efforts to obtain or make all Approvals or Notifications required to implement the transfer of KAR Assets to the KAR Group as set forth in Section 2.2(b)(iii) as soon as reasonably practicable; provided , however , that, except to the extent expressly provided in this Agreement or any of the Ancillary Agreements or as otherwise agreed between KAR and SpinCo, neither KAR nor SpinCo shall be obligated to contribute capital or pay any consideration in any form (including providing any letter of credit, guaranty or other financial accommodation) to any Person in order to obtain or make any such Approvals or Notifications.

(g)            Delayed KAR Transfers . If and to the extent that the valid, complete and perfected transfer or assignment to the KAR Group of any KAR Asset or assumption by the KAR Group of any KAR Liability would be a violation of applicable Law or require any Approval or Notification that has not been obtained or made by the Effective Time, then, unless the Parties mutually shall otherwise determine, the transfer or assignment to the KAR Group of such KAR Assets or the assumption by the KAR Group of such KAR Liabilities, as the case may be, shall be automatically deemed deferred and any such purported transfer, assignment or assumption shall be null and void until such time as all legal impediments are removed or such Approval or Notification has been obtained or made. Notwithstanding the foregoing, any such KAR Assets or KAR Liabilities shall continue to constitute KAR Assets and KAR Liabilities for all other purposes of this Agreement.

(h)            Treatment of Delayed KAR Assets and Delayed KAR Liabilities . If any transfer or assignment of any KAR Asset or any assumption of any KAR Liability intended to be transferred, assigned or assumed hereunder, as the case may be, is not consummated on or prior to the Effective Time, whether as a result of the provisions of this Section 2.5(h) or for any other reason (any such KAR Asset, a “ Delayed KAR Asset ” and any such KAR Liability, a “ Delayed KAR Liability ”), then, insofar as reasonably practicable, the member of the SpinCo Group retaining such Delayed KAR Asset or such Delayed KAR Liability, as the case may be, shall thereafter hold such Delayed KAR Asset or Delayed KAR Liability, as the case may be, for the use and benefit of the member of the KAR Group entitled thereto (at the expense of the member of the KAR Group entitled thereto). In addition, the member of the SpinCo Group retaining such Delayed KAR Asset or such Delayed KAR Liability shall, insofar as reasonably practicable and to the extent permitted by applicable Law, treat such Delayed KAR Asset or Delayed KAR Liability in the ordinary course of business in accordance with past practice. Such member of the SpinCo Group shall also take such other actions as may be reasonably requested by the member of the KAR Group to which such Delayed KAR Asset is to be transferred or assigned, or which will assume such Delayed KAR Liability, as the case may be, in order to place such member of the KAR Group in a substantially similar position as if such Delayed KAR Asset or Delayed KAR Liability had been transferred, assigned or assumed and so that all the benefits and burdens relating to such Delayed KAR Asset or Delayed KAR Liability, and all costs and expenses related thereto, shall inure from and after the Effective Time to the KAR Group.
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(i)            Transfer of Delayed KAR Assets and Delayed KAR Liabilities . If and when the Approvals or Notifications, the absence of which caused the deferral of transfer or assignment of any Delayed KAR Asset or the deferral of assumption of any Delayed KAR Liability, are obtained or made, and, if and when any other legal impediments for the transfer or assignment of any Delayed KAR Asset or the assumption of any Delayed KAR Liability have been removed, the transfer or assignment of the applicable Delayed KAR Asset or the assumption of the applicable Delayed KAR Liability, as the case may be, shall be effected in accordance with the terms of this Agreement and/or the applicable Ancillary Agreement.

(j)            Costs for Delayed KAR Assets and Delayed KAR Liabilities . Any member of the SpinCo Group retaining an Delayed KAR Asset or Delayed KAR Liability due to the deferral of the transfer or assignment of such Delayed KAR Asset or the deferral of the assumption of such Delayed KAR Liability, as the case may be, shall not be obligated, in connection with the foregoing, to expend any money unless the necessary funds are advanced (or otherwise made available) by KAR or the member of the KAR Group entitled to the Delayed KAR Asset or Delayed KAR Liability, other than reasonable out-of-pocket expenses, attorneys’ fees and recording or similar fees, all of which shall be promptly reimbursed by KAR or the member of the KAR Group entitled to such Delayed KAR Asset or Delayed KAR Liability.

2.6   Novation of Liabilities.

(a)            Novation of SpinCo Liabilities .

(i)            Each of KAR and SpinCo, at the request of the other, shall use its respective commercially reasonable efforts to obtain, or to cause to be obtained, as soon as reasonably practicable, any consent, substitution, approval or amendment required to novate or assign all SpinCo Liabilities and obtain in writing the unconditional release of each member of the KAR Group that is a party to any such arrangements, so that, in any such case, the members of the SpinCo Group shall be solely responsible for such SpinCo Liabilities; provided , however , that, except as otherwise expressly provided in this Agreement or any of the Ancillary Agreements, neither KAR nor SpinCo shall be obligated to contribute any capital or pay any consideration in any form (including providing any letter of credit, guaranty or other financial accommodation) to any Third Party from whom any such consent, substitution, approval, amendment or release is requested.

(ii)            If KAR or SpinCo is unable to obtain, or to cause to be obtained, any such required consent, substitution, approval, amendment or release and the applicable member of the KAR Group continues to be bound by such agreement, lease, license or other obligation or Liability (each, an “ Unreleased SpinCo Liability ”), SpinCo shall, to the extent not prohibited by Law, as indemnitor, guarantor, agent or subcontractor for such member of the KAR Group, as the case may be, (A) pay, perform and discharge fully all the obligations or other Liabilities of such member of the KAR Group that constitute Unreleased KAR Liabilities from and after the Effective Time and (B) use its commercially reasonable efforts to effect such payment, performance or discharge prior to any demand for such payment, performance or discharge is permitted to be made by the obligee thereunder on any member of the KAR Group. If and when any such consent, substitution, approval, amendment or release shall be obtained or the Unreleased SpinCo Liabilities shall otherwise become assignable or able to be novated, KAR shall promptly assign, or cause to be assigned, and SpinCo or the applicable SpinCo Group member shall assume, such Unreleased SpinCo Liabilities without exchange of further consideration.
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(b)            Novation of KAR Liabilities .

(i)            Each of KAR and SpinCo, at the request of the other, shall use its commercially reasonable efforts to obtain, or to cause to be obtained, as soon as reasonably practicable, any consent, substitution, approval or amendment required to novate or assign all KAR Liabilities and obtain in writing the unconditional release of each member of the SpinCo Group that is a party to any such arrangements, so that, in any such case, the members of the KAR Group shall be solely responsible for such KAR Liabilities; provided , however , that, except as otherwise expressly provided in this Agreement or any of the Ancillary Agreements, neither KAR nor SpinCo shall be obligated to contribute any capital or pay any consideration in any form (including providing any letter of credit, guaranty or other financial accommodation) to any Third Party from whom any such consent, substitution, approval, amendment or release is requested.

(ii)            If KAR or SpinCo is unable to obtain, or to cause to be obtained, any such required consent, substitution, approval, amendment or release and the applicable member of the SpinCo Group continues to be bound by such agreement, lease, license or other obligation or Liability (each, an “ Unreleased KAR Liability ”), KAR shall, to the extent not prohibited by Law, as indemnitor, guarantor, agent or subcontractor for such member of the SpinCo Group, as the case may be, (A) pay, perform and discharge fully all the obligations or other Liabilities of such member of the SpinCo Group that constitute Unreleased KAR Liabilities from and after the Effective Time and (B) use its commercially reasonable efforts to effect such payment, performance or discharge prior to any demand for such payment, performance or discharge is permitted to be made by the obligee thereunder on any member of the SpinCo Group. If and when any such consent, substitution, approval, amendment or release shall be obtained or the Unreleased KAR Liabilities shall otherwise become assignable or able to be novated, SpinCo shall promptly assign, or cause to be assigned, and KAR or the applicable KAR Group member shall assume, such Unreleased KAR Liabilities without exchange of further consideration.

        2.7     Release of Guarantees In furtherance of, and not in limitation of, the obligations set forth in Section 2.6 :

(a)            On or prior to the Effective Time or as soon as practicable thereafter, each of KAR and SpinCo shall, at the request of the other Party and with the reasonable cooperation of such other Party and the applicable member(s) of such Party’s Group, use commercially reasonable efforts to (i) have any member(s) of the KAR Group removed as guarantor of or obligor for any SpinCo Liability to the extent that they relate to SpinCo Liabilities, including the removal of any Security Interest on or in any KAR Asset that may serve as collateral or security for any such SpinCo Liability; and (ii) have any member(s) of the SpinCo Group removed as guarantor of or obligor for any KAR Liability to the extent that they relate to KAR Liabilities, including the removal of any Security Interest on or in any SpinCo Asset that may serve as collateral or security for any such KAR Liability.
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(b)            To the extent required to obtain a release from a guarantee of:

(i)            any member of the KAR Group, SpinCo shall execute a guarantee agreement in the form of the existing guarantee or such other form as is agreed to by the relevant parties to such guarantee agreement, which agreement shall include the removal of any Security Interest on or in any KAR Asset that may serve as collateral or security for any such KAR Liability, except to the extent that such existing guarantee contains representations, covenants or other terms or provisions either (A) with which SpinCo would be reasonably unable to comply or (B) which SpinCo would not reasonably be able to avoid breaching; and

(ii)            any member of the SpinCo Group, KAR shall execute a guarantee agreement in the form of the existing guarantee or such other form as is agreed to by the relevant parties to such guarantee agreement, which agreement shall include the removal of any Security Interest on or in any SpinCo Asset that may serve as collateral or security for any such SpinCo Liability, except to the extent that such existing guarantee contains representations, covenants or other terms or provisions either (A) with which KAR would be reasonably unable to comply or (B) which KAR would not reasonably be able to avoid breaching.

(c)            If KAR or SpinCo is unable to obtain, or to cause to be obtained, any such required removal or release as set forth in subclauses (a) and (b) of this Section 2.7 , (i) the Party or the relevant member of such Party’s Group that has assumed the Liability with respect to such guarantee shall indemnify, defend and hold harmless the guarantor or obligor against or from any Liability arising from or relating thereto in accordance with the provisions of Article IV and shall, as agent or subcontractor for such guarantor or obligor, pay, perform and discharge fully all the obligations or other Liabilities of such guarantor or obligor thereunder; and (ii) each of KAR and SpinCo, on behalf of itself and the other members of their respective Group, agree not to renew or extend the term of, increase any obligations under, or transfer to a Third Party, any loan, guarantee, lease, contract or other obligation for which the other Party or a member of such Party’s Group is or may be liable unless all obligations of such other Party and the members of such other Party’s Group with respect thereto are thereupon terminated by documentation satisfactory in form and substance to such other Party.

        2.8     Termination of Agreements

(a)            Except as set forth in Section 2.8(b) , in furtherance of the releases and other provisions of Section 4.1 , SpinCo and each member of the SpinCo Group, on the one hand, and KAR and each member of the KAR Group, on the other hand, hereby terminate any and all agreements, arrangements, commitments or understandings, whether or not in writing, between SpinCo and/or any member of the SpinCo Group, on the one hand, and KAR and/or any member of the KAR Group, on the other hand, effective as of the Effective Time. No such terminated agreement, arrangement, commitment or understanding (including any provision thereof which purports to survive termination) shall be of any further force or effect after the Effective Time. Each Party shall, at the reasonable request of the other Party, take, or cause to be taken, such other actions as may be necessary to effect the foregoing.
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(b)            The provisions of Section 2.8(a) shall not apply to any of the following agreements, arrangements, commitments or understandings (or to any of the provisions thereof): i) this Agreement and the Ancillary Agreements (and each other agreement or instrument expressly contemplated by this Agreement or any Ancillary Agreement to be entered into by any of the Parties or any of the members of their respective Groups or to be continued from and after the Effective Time); ii) any agreements, arrangements, commitments or understandings listed or described on Schedule 2.8(b)(ii) ; iii) any agreements, arrangements, commitments or understandings to which any Third Party is also a party thereto; (iv) any intercompany accounts payable or accounts receivable accrued as of the Effective Time that are reflected in the books and records of the Parties or otherwise documented in writing in accordance with past practices, which shall be settled in the manner contemplated by Section 2.8(c) ; (v) any agreements, arrangements, commitments or understandings to which any non-wholly owned Subsidiary of KAR or SpinCo, as the case may be, is a party (it being understood that directors’ qualifying shares or similar interests will be disregarded for purposes of determining whether a Subsidiary is wholly owned); and (vi) any Shared Contracts.

(c)            All of the intercompany accounts receivable and accounts payable between any member of the KAR Group, on the one hand, and any member of the SpinCo Group, on the other hand, outstanding as of the Effective Time shall, as promptly as practicable after the Effective Time, be repaid, settled or otherwise eliminated by means of cash payments, a dividend, capital contribution, a combination of the foregoing, or otherwise as determined by KAR in its sole and absolute discretion.

        2.9     Treatment of Shared Contracts .

(a)            Subject to applicable Law and without limiting the generality of the obligations set forth in Section 2.1 , unless the Parties otherwise agree or the benefits of any contract, agreement, arrangement, commitment or understanding described in this Section 2.9   are expressly conveyed to the applicable Party pursuant to this Agreement or an Ancillary Agreement, any contract or agreement, a portion of which is a SpinCo Contract, but the remainder of which is a KAR Asset (any such contract or agreement, a “ Shared Contract ”), shall as of the Effective Time be retained by or assigned to, as applicable, KAR or another member of the KAR Group, as determined in KAR’s sole discretion, and the Parties shall agree to mutually satisfactory allocation of the rights, benefits and Liabilities under such Shared Contracts under the Transition Services Agreement or another agreement or arrangement, as applicable; provided , however , that (i) in no event shall any member of either Group be required to assign (or amend) any Shared Contract that is not assignable (or cannot be amended) by its terms (including any terms imposing consents or conditions on an assignment where such consents or conditions have not been obtained or fulfilled) and (ii) if any Shared Contract cannot be so assigned by its terms or otherwise, or cannot be amended or if such assignment or amendment would impair the benefit the parties thereto derive from such Shared Contract, then the Parties shall, and shall cause each of the members of their respective Groups to, take such other reasonable and permissible actions (including by providing prompt notice to the other Party with respect to any relevant claim of Liability or other relevant matters arising in connection with a Shared Contract so as to allow such other Party the ability to exercise any applicable rights under such Shared Contract) to cause a member of the KAR Group to receive the rights and benefits of each Shared Contract, as if such Shared Contract had been assigned to (or amended to allow) a member of the KAR Group pursuant to this Section 2.9 , and to bear the burden of the corresponding Liabilities (including any Liabilities that may arise by reason of such arrangement), as if such Liabilities had been assumed by a member of the KAR Group pursuant to this Section 2.9 .
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(b)            Notwithstanding the foregoing, each of the Shared Contracts set forth on Schedule 2.9(b) shall be assigned in whole or in part to SpinCo.

(c)            Each of KAR and SpinCo shall, and shall cause the members of each such Party’s Group to, (i) treat for all Tax purposes the portion of each Shared Contract inuring to its respective businesses as Assets owned by, and/or Liabilities of, as applicable, such Party, or the members of such Party’s Group, as applicable, not later than the Effective Time, and (ii) neither report nor take any Tax position (on a Tax Return or otherwise) inconsistent with such treatment (unless required by applicable Law).

(d)            Nothing in this Section 2.9 shall require any member of either Group to make any non- de minimis payment (except to the extent advanced, assumed or agreed in advance to be reimbursed by any member of the other Group), incur any non- de minimis obligation or grant any non- de minimis concession for the benefit of any member of the other Group in order to effect any transaction contemplated by this Section 2.9 .

        2.10     Bank Accounts; Cash Balances

(a)            Each Party agrees to take, or cause the members of such Party’s Group to take, at the Effective Time (or such earlier time as the Parties may agree), all actions necessary to amend all contracts or agreements governing each bank and brokerage account owned by SpinCo or any other member of the SpinCo Group (collectively, the “ SpinCo Accounts ”) and all contracts or agreements governing each bank or brokerage account owned by KAR or any other member of the KAR Group (collectively, the “ KAR Accounts ”) so that each such SpinCo Account and KAR Account, if currently linked (whether by automatic withdrawal, automatic deposit or any other authorization to transfer funds from or to, hereinafter “ Linked ”) to any KAR Account or SpinCo Account, respectively, is no longer Linked to such KAR Account or SpinCo Account, respectively.

(b)            With respect to any outstanding checks or drafts issued or wire transfers or other payments initiated by KAR, SpinCo, or any of the members of their respective Groups prior to the Effective Time, such outstanding checks, drafts, wire transfers and other payments shall be honored following the Effective Time by the Person or Group owning the account on which the check or draft is drawn or from which the wire transfer or other payment was initiated, respectively.
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(c)            As between KAR and SpinCo (and the members of their respective Groups), all payments made and reimbursements received after the Effective Time by either Party (or member of such Party’s Group) that relate to a business, Asset or Liability of the other Party (or member of such Party’s Group), shall be held by such Party in trust for the use and benefit of the Party entitled thereto and, promptly following receipt by such Party of any such payment or reimbursement, such Party shall pay over, or shall cause the applicable member of such Party’s Group to pay over to the other Party the amount of such payment or reimbursement without right of set-off.

2.11     Ancillary Agreements . Effective on or prior to the Effective Time, each of KAR and SpinCo will, or will cause the applicable members of such Party’s Group to, execute and deliver all Ancillary Agreements to which it is a party.

2.12         Disclaimer of Representations and Warranties  . EACH OF KAR (ON BEHALF OF ITSELF AND EACH MEMBER OF THE KAR GROUP) AND SPINCO (ON BEHALF OF ITSELF AND EACH MEMBER OF THE SPINCO GROUP) UNDERSTANDS AND AGREES THAT, EXCEPT AS EXPRESSLY SET FORTH HEREIN OR IN ANY ANCILLARY AGREEMENT, NO PARTY TO THIS AGREEMENT, ANY ANCILLARY AGREEMENT OR ANY OTHER AGREEMENT OR DOCUMENT CONTEMPLATED BY THIS AGREEMENT, ANY ANCILLARY AGREEMENT OR OTHERWISE, IS REPRESENTING OR WARRANTING IN ANY WAY AS TO THE ASSETS, BUSINESSES OR LIABILITIES TRANSFERRED OR ASSUMED AS CONTEMPLATED HEREBY OR THEREBY, AS TO ANY CONSENTS OR APPROVALS REQUIRED IN CONNECTION HEREWITH OR THEREWITH, AS TO THE VALUE OR FREEDOM FROM ANY SECURITY INTERESTS OF, OR ANY OTHER MATTER CONCERNING, ANY ASSETS OF SUCH PARTY, OR AS TO THE ABSENCE OF ANY DEFENSES OR RIGHT OF SETOFF OR FREEDOM FROM COUNTERCLAIM WITH RESPECT TO ANY CLAIM OR OTHER ASSET, INCLUDING ANY ACCOUNTS RECEIVABLE, OF ANY PARTY, OR AS TO THE LEGAL SUFFICIENCY OF ANY ASSIGNMENT, DOCUMENT OR INSTRUMENT DELIVERED HEREUNDER OR THEREUNDER TO CONVEY TITLE TO ANY ASSET OR THING OF VALUE UPON THE EXECUTION, DELIVERY AND FILING HEREOF OR THEREOF. EXCEPT AS MAY EXPRESSLY BE SET FORTH HEREIN OR IN ANY ANCILLARY AGREEMENT, ALL SUCH ASSETS ARE BEING TRANSFERRED ON AN “AS IS,” “WHERE IS” BASIS (AND, IN THE CASE OF ANY REAL PROPERTY, BY MEANS OF A QUITCLAIM OR SIMILAR FORM OF DEED OR CONVEYANCE) AND THE RESPECTIVE TRANSFEREES SHALL BEAR THE ECONOMIC AND LEGAL RISKS THAT (I) ANY CONVEYANCE WILL PROVE TO BE INSUFFICIENT TO VEST IN THE TRANSFEREE GOOD AND MARKETABLE TITLE, FREE AND CLEAR OF ANY SECURITY INTEREST, AND (II) ANY NECESSARY APPROVALS OR NOTIFICATIONS ARE NOT OBTAINED OR MADE OR THAT ANY REQUIREMENTS OF LAWS OR JUDGMENTS ARE NOT COMPLIED WITH.
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        2.13   Financing Arrangements

(a)            Prior to or at the Effective Time, SpinCo shall enter into the SpinCo Credit Facility and issue the SpinCo Notes.  SpinCo shall borrow a principal amount of $ 800.0 million Dollars under the SpinCo Credit Facility and issue SpinCo Notes in an aggregate principal amount of $500.0 million Dollars and, subject to the availability of sufficient surplus and satisfaction of all other requirements under Delaware law, prior to the Effective Time, SpinCo shall use a portion of the proceeds from the SpinCo Credit Facility and the SpinCo Notes to make the Cash Distribution.  Each of KAR and SpinCo shall cooperate in the preparation of all materials as may be necessary or advisable to effect the SpinCo Credit Facility and the SpinCo Notes.

(b)            Upon receipt by KAR of the Cash Distribution, KAR shall use the proceeds of the Cash Distribution to repay $1,250.0 Dollars of the outstanding indebtedness under the Existing KAR Credit Facility.

(c)            The Parties agree that SpinCo or another member of the SpinCo Group, as the case may be, shall be responsible for all costs and expenses associated with the SpinCo Credit Facility.

(d)            The Parties agree to take all necessary actions to assure the (i) full release and discharge of SpinCo and the other members of the SpinCo Group from any and all obligations pursuant to the Existing KAR Credit Facility and the release of all liens and encumbrances against the Assets of SpinCo and the other members of the SpinCo Group previously securing such Existing KAR Credit Facility and (ii) full release and discharge of KAR and the other members of the KAR Group from any and all obligations pursuant to the SpinCo Credit Facility and the release of all liens and encumbrances against the Assets of KAR and the other members of the KAR Group previously securing such SpinCo Credit Facility, if applicable.

        2.1 5   Solvency and Liquidity .  Prior to the Distribution, the Parties shall take all actions as KAR may determine to be reasonably necessary and desirable to provide for the liquidity and solvency of the KAR Group and the SpinCo Group as of immediately after the Distribution, including, without limitation, the transfer of sufficient cash, cash equivalents or other Assets to enable SpinCo and the SpinCo Group to be reasonably capitalized for the operation of their respective businesses and to pay their respective liabilities, including contingent and other liabilities, as they mature.

        2.1 6   SpinCo Contribution . In connection with the Separation and in exchange for the SpinCo Contribution, SpinCo shall (i) issue to KAR additional SpinCo Shares such that the number of SpinCo Shares outstanding after such issuance shall be equal to the number of SpinCo Shares necessary to effect the Distribution and (ii) make the Cash Distribution.


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ARTICLE III

THE DISTRIBUTION

        3.1     Sole and Absolute Discretion; Cooperation

(a)            KAR shall, in its sole and absolute discretion, determine the terms of the Distribution, including the form, structure and terms of any transaction(s) and/or offering(s) to effect the Distribution and the timing and conditions to the consummation of the Distribution. In addition, KAR may, at any time and from time to time until the consummation of the Distribution, modify or change the terms of the Distribution, including by accelerating or delaying the timing of the consummation of all or part of the Distribution. Nothing shall in any way limit KAR’s right to terminate this Agreement or the Distribution as set forth in Article IX or alter the consequences of any such termination from those specified in Article IX .

(b)            SpinCo shall cooperate with KAR to accomplish the Distribution and shall, at KAR’s direction, promptly take any and all actions that KAR or SpinCo determines to be necessary or desirable to effect the Distribution, including in respect of the registration under the Exchange Act of SpinCo Shares on the Form 10. KAR shall select any investment bank or manager in connection with the Distribution, as well as any financial printer, solicitation and/or distribution agent and financial, legal, accounting and other advisors for KAR. SpinCo and KAR, as the case may be, will provide to the Agent any information required in order to complete the Distribution.

        3.2     Actions Prior to the Distribution . Prior to the Effective Time and subject to the terms and conditions set forth herein, the Parties shall take, or cause to be taken, the following actions in connection with the Distribution:

(a)            Notice to NYSE . KAR shall, to the extent practicable, give the NYSE not less than ten (10) days’ advance notice of the Record Date in compliance with Rule 10b-17 under the Exchange Act.

(b)            SpinCo Certificate of Incorporation and SpinCo Bylaws . On or prior to the Distribution Date, KAR and SpinCo shall take all necessary actions so that, as of the Effective Time, the SpinCo Certificate of Incorporation and the SpinCo Bylaws shall become the certificate of incorporation and bylaws, respectively, of SpinCo.

(c)            SpinCo Directors and Officers . On or prior to the Distribution Date, KAR and SpinCo shall take all necessary actions so that as of the Effective Time: (i) the directors and executive officers of SpinCo shall be those set forth in the Information Statement mailed to the Record Holders prior to the Distribution Date, unless otherwise agreed by the Parties; (ii) except those individuals who will continue to serve as members of the KAR Board after the Effective Time, as set forth in the Information Statement mailed to the Record Holders prior to the Distribution Date, each individual referred to in clause (i) shall have resigned from his or her position, if any, as a member of the KAR Board, as an executive officer of KAR and as a member of the board of directors or other governing body or as an executive officer of any other member of the KAR Group, as applicable; and (iii) SpinCo shall have such other officers as SpinCo shall appoint.
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(d)            NYSE Listing . SpinCo shall prepare and file, and shall use its reasonable best efforts to have approved, an application for the listing of the SpinCo Shares to be distributed in the Distribution on the NYSE.

(e)            Securities Law Matters . SpinCo shall file any amendments or supplements to the Form 10 as may be necessary or advisable in order to cause the Form 10 to become and remain effective as required by the SEC or federal, state or other applicable securities Laws. KAR and SpinCo shall cooperate in preparing, filing with the SEC and causing to become effective registration statements or amendments thereof which are required to reflect the establishment of, or amendments to, any employee benefit and other plans necessary or advisable in connection with the transactions contemplated by this Agreement and the Ancillary Agreements. KAR and SpinCo shall prepare, and SpinCo shall, to the extent required under applicable Law, file with the SEC any such documentation and any requisite no-action letters which KAR determines are necessary or desirable to effectuate the Distribution, and KAR and SpinCo shall each use its reasonable best efforts to obtain all necessary approvals from the SEC with respect thereto as soon as practicable. KAR and SpinCo shall take all such action as may be necessary or appropriate under the securities or blue sky laws of the United States (and any comparable Laws under any foreign jurisdiction) in connection with the Distribution.

(f)            Mailing of Information Statement . KAR shall, as soon as is reasonably practicable after the Form 10 is declared effective under the Exchange Act and the KAR Board has approved the Distribution, cause the Information Statement to be mailed to the Record Holders.

(g)            The Distribution Agent . KAR shall enter into a distribution agent agreement with the Agent or otherwise provide instructions to the Agent regarding the Distribution.

3.3     Conditions to the Distribution.

(a)            The consummation of the Distribution shall be subject to the satisfaction, or, to the extent permitted by applicable Law, waiver by KAR in its sole and absolute discretion, of the following conditions:

(i)            The SEC shall have declared effective the Form 10, no order suspending the effectiveness of the Form 10 shall be in effect, and no proceedings for such purposes shall have been instituted or threatened by the SEC.

(ii)            The Information Statement shall have been mailed to Record Holders.

(iii)            KAR shall have received an opinion from its outside counsel to the effect that the Separation and the Distribution, taken together, will qualify as a transaction that is described in Sections 368(a)(1)(D) and 355 of the Code.
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(iv)            The KAR Board shall have obtained an opinion from a nationally recognized appraisal, valuation and investment banking firm, in form and substance satisfactory to the KAR Board, substantially to the effect that, immediately after and giving effect to the Separation and Distribution and on a pro forma basis: (a) each of the fair value and present fair saleable value of the assets of KAR and SpinCo on a consolidated basis would exceed the stated liabilities and identified contingent liabilities of KAR and SpinCo, respectively, on a consolidated basis; (b) each of KAR and SpinCo should be able to pay its debts as they become absolute and mature; and (c) each of KAR and SpinCo should not have unreasonably small capital for the business in which each such entity is engaged.

(v)            The Internal Restructuring shall have been effectuated, except for such steps (if any) as KAR in its sole discretion shall have determined need not be completed or may be completed after the Distribution Date.

(vi)            The Separation (other than the transfer of Delayed KAR Assets, Delayed KAR Liabilities, Delayed SpinCo Assets and Delayed SpinCo Liabilities, if any) shall have been effectuated as contemplated by Section 2.2(b) .

(vii)            The actions and filings necessary or appropriate under applicable U.S. federal, U.S. state and other securities Laws or blue sky Laws and the rules and regulations thereunder shall have been taken or made, and, where applicable, have become effective or been accepted.

(viii)            Each of the Ancillary Agreements shall have been duly executed and delivered by the applicable parties thereto.

(ix)            No order, injunction or decree issued by any Governmental Authority of competent jurisdiction or other legal restraint or prohibition preventing the consummation of the Separation, the Distribution or any of the transactions related thereto shall be threatened or in effect.

(x)            The SpinCo Shares to be distributed to the KAR stockholders in the Distribution shall have been accepted for listing on the NYSE, subject to official notice of distribution.

(xi)            KAR shall have received the SpinCo Shares and the Cash Distribution, and shall be satisfied in its sole and absolute discretion that, as of the Effective Time, it shall have no further liability under the SpinCo Credit Facility.

(xii)            No other events or developments shall exist or shall have occurred that, in the judgment of the KAR Board, in its sole and absolute discretion, makes it inadvisable to effect the Separation, the Distribution or the transactions contemplated by this Agreement or any Ancillary Agreement.

(b)            The foregoing conditions are for the sole benefit of KAR and shall not give rise to or create any duty on the part of KAR or the KAR Board to waive or not waive any such condition or in any way limit KAR’s right to terminate this Agreement as set forth in Article IX or alter the consequences of any such termination from those specified in Article IX . Any determination made by the KAR Board prior to the Distribution concerning the satisfaction or waiver of any or all of the conditions set forth in Section 3.3(a) shall be conclusive and binding on the Parties. If KAR waives any material condition, it shall promptly issue a press release disclosing such fact and file a Current Report on Form 8-K with the SEC describing such waiver.
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3.4     The Distribution.

(a)            Subject to Section 3.3 , on or prior to the Effective Time, SpinCo will deliver to the Agent, for the benefit of the Record Holders, book-entry transfer authorizations for such number of SpinCo Shares as is necessary to effect the Distribution, and shall cause the transfer agent for the KAR Shares to instruct the Agent to distribute at the Effective Time the appropriate number of SpinCo Shares to each such holder or designated transferee or transferees of such holder by way of direct registration in book-entry form. SpinCo will not issue paper stock certificates in respect of the SpinCo Shares. The Distribution shall be effective at the Effective Time.

(b)            Subject to Section 3.3 , each Record Holder will be entitled to receive in the Distribution one (1) SpinCo Share for every KAR Share held by such Record Holder on the Record Date.

(c)            No fractional shares shall be distributed or credited to book-entry accounts in connection with the Distribution, and any such fractional share interests to which a Record Holder would otherwise be entitled shall not entitle such Record Holder to vote or to any other rights as a stockholder of SpinCo. In lieu of any such fractional shares, each Record Holder who, but for the provisions of this Section 3.4(c) , would be entitled to receive a fractional share interest of a SpinCo Share pursuant to the Distribution, shall be paid cash, without any interest thereon, as hereinafter provided. As soon as practicable after the Effective Time, KAR shall direct the Agent to determine the number of whole and fractional SpinCo Shares allocable to each Record Holder, to aggregate all such fractional shares into whole shares, and to sell the whole shares obtained thereby in the open market at the then-prevailing prices on behalf of each Record Holder who otherwise would be entitled to receive fractional share interests (with the Agent, in its sole and absolute discretion, determining when, how and through which broker-dealer and at what price to make such sales), and to cause to be distributed to each such Record Holder, in lieu of any fractional share, such Record Holder’s or owner’s ratable share of the total proceeds of such sale, after deducting any Taxes required to be withheld and applicable transfer Taxes, and after deducting the costs and expenses of such sale and distribution, including brokers fees and commissions. None of KAR, SpinCo or the Agent shall be required to guarantee any minimum sale price for the fractional SpinCo Shares sold in accordance with this Section 3.4(c) . Neither KAR nor SpinCo shall be required to pay any interest on the proceeds from the sale of fractional shares. Neither the Agent nor the broker-dealers through which the aggregated fractional shares are sold shall be Affiliates of KAR or SpinCo. Solely for purposes of computing fractional share interests pursuant to this Section 3.4(c) and Section 3.4(d) , the beneficial owner of KAR Shares held of record in the name of a nominee in any nominee account shall be treated as the Record Holder with respect to such shares.
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(d)            Any SpinCo Shares or cash in lieu of fractional shares with respect to SpinCo Shares that remain unclaimed by any Record Holder one hundred and eighty (180) days after the Distribution Date shall be delivered to SpinCo, and SpinCo or its transfer agent shall hold such SpinCo Shares for the account of such Record Holder, and the Parties agree that all obligations to provide such SpinCo Shares and cash, if any, in lieu of fractional share interests shall be obligations of SpinCo, subject in each case to applicable escheat or other abandoned property Laws, and KAR shall have no Liability with respect thereto.

(e)            Until the SpinCo Shares are duly transferred in accordance with this Section 3.4 and applicable Law, from and after the Effective Time, SpinCo will regard the Persons entitled to receive such SpinCo Shares as record holders of SpinCo Shares in accordance with the terms of the Distribution without requiring any action on the part of such Persons. SpinCo agrees that, subject to any transfers of such shares, from and after the Effective Time, (i) each such holder will be entitled to receive all dividends, if any, payable on, and exercise voting rights and all other rights and privileges with respect to, the SpinCo Shares then held by such holder, and (ii) each such holder will be entitled, without any action on the part of such holder, to receive evidence of ownership of the SpinCo Shares then held by such holder.

ARTICLE IV

MUTUAL RELEASES; INDEMNIFICATION

        4.1     Release of Pre-Distribution Claims

(a)            SpinCo Release of KAR. Except as provided in Section 4.1(c) , effective as of the Effective Time, SpinCo does hereby, for itself and each other member of the SpinCo Group, and their respective successors and assigns, and, to the extent permitted by Law, all Persons who at any time prior to the Effective Time have been stockholders, directors, officers, agents or employees of any member of the SpinCo Group (in each case, in their respective capacities as such), remise, release and forever discharge (i) KAR and the members of the KAR Group, and their respective successors and assigns, (ii) all Persons who at any time prior to the Effective Time have been stockholders, directors, officers, agents or employees of any member of the KAR Group (in each case, in their respective capacities as such), and their respective heirs, executors, administrators, successors and assigns, and (iii) all Persons who at any time prior to the Effective Time are or have been stockholders, directors, officers, agents or employees of a Transferred Entity and who are not, as of immediately following the Effective Time, directors, officers or employees of SpinCo or a member of the SpinCo Group, in each case from: (A) all SpinCo Liabilities, (B) all Liabilities arising from or in connection with the transactions contemplated by this Agreement and all other activities undertaken to implement the Internal Restructuring, Separation and the Distribution and (C) all Liabilities arising from or in connection with actions, inactions, events, omissions, conditions, facts or circumstances occurring or existing prior to the Effective Time (whether or not such Liabilities cease being contingent, mature, become known, are asserted or foreseen, or accrue, in each case before, at or after the Effective Time), in each case to the extent relating to, arising out of or resulting from the SpinCo Business, the SpinCo Assets or the SpinCo Liabilities.
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(b)            KAR Release of SpinCo. Except as provided in Section 4.1(c) , effective as of the Effective Time, KAR does hereby, for itself and each other member of the KAR Group and their respective successors and assigns, and, to the extent permitted by Law, all Persons who at any time prior to the Effective Time have been stockholders, directors, officers, agents or employees of any member of the KAR Group (in each case, in their respective capacities as such), remise, release and forever discharge (i) SpinCo and the members of the SpinCo Group and their respective successors and assigns, (ii) all Persons who at any time prior to the Effective Time have been stockholders, directors, officers, agents or employees of any member of the SpinCo Group (in each case, in their respective capacities as such), and their respective heirs, executors, administrators, successors and assigns, and (iii) all Persons who at any time prior to the Effective Time are or have been directors, officers, agents or employees of a Transferred Entity and who are not, as of immediately following the Effective Time, directors, officers or employees of KAR or a member of the KAR Group, in each case from: (A) all KAR Liabilities, (B) all Liabilities arising from or in connection with the transactions contemplated by this Agreement and all other activities undertaken to implement the Internal Restructuring, Separation and the Distribution and (C) all Liabilities arising from or in connection with actions, inactions, events, omissions, conditions, facts or circumstances occurring or existing prior to the Effective Time (whether or not such Liabilities cease being contingent, mature, become known, are asserted or foreseen, or accrue, in each case before, at or after the Effective Time), in each case to the extent relating to, arising out of or resulting from the KAR Business, the KAR Assets or the KAR Liabilities.

(c)            Obligations Not Affected . Nothing contained in Section 4.1(a) or 4.1(b)   shall impair any right of any Person to enforce this Agreement, any Ancillary Agreement or any agreements, arrangements, commitments or understandings that are specified in Section 2.8(b)   or the applicable Schedules thereto as not terminating as of the Effective Time, in each case in accordance with its terms. In furtherance of the foregoing, nothing contained in Section 4.1(a) or 4.1(b) shall release any Person from:

(i)            any Liability provided in or resulting from any agreement among any members of the KAR Group or the SpinCo Group that is specified in Section 2.8(b) or the applicable Schedules thereto as not terminating as of the Effective Time, or any other Liability specified in Section 2.8(b) as not to terminate as of the Effective Time;

(ii)            any Liability, contingent or otherwise, assumed, transferred, assigned or allocated to the Group of which such Person is a member in accordance with, or any other Liability of any member of either Group under, this Agreement or any Ancillary Agreement;

(iii)            any Liability for the sale, lease, construction or receipt of goods, property or services purchased, obtained or used in the ordinary course of business by a member of one Group from a member of the other Group prior to the Effective Time;

(iv)            any Liability that the Parties may have pursuant to this Agreement or any Ancillary Agreement, including with respect to indemnification or contribution pursuant to this Agreement, any Ancillary Agreement or otherwise for claims brought against the Parties by Third Parties, which Liability shall be governed by the provisions of this Article IV and Article V and, if applicable, the appropriate provisions of the Ancillary Agreements; or
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(v)            any Liability the release of which would result in the release of any Person other than a Person released pursuant to this Section 4.1 .

In addition, nothing contained in Section 4.1(a) and Section 4.1(b) shall release any member of the KAR Group or the SpinCo Group from honoring its existing obligations to indemnify any director, officer, employee or agent of SpinCo who was a director, officer, employee or agent of any member of the KAR Group on or prior to the Effective Time, to the extent such director, officer or employee becomes a named defendant in any Action with respect to which such director, officer or employee was entitled to such indemnification pursuant to such existing obligations; it being understood that, if the underlying obligation giving rise to such Action is an SpinCo Liability, SpinCo shall indemnify KAR for such Liability (including KAR’s costs to indemnify the director, officer or employee) in accordance with the provisions set forth in this Article IV .

(d)            No Claims . SpinCo shall not make, and shall not permit any member of the SpinCo Group to make, any claim or demand, or commence any Action asserting any claim or demand, including any claim of contribution or any indemnification, against KAR or any other member of the KAR Group, or any other Person released pursuant to Section 4.1(a) , with respect to any Liabilities released pursuant to Section 4.1(a) . KAR shall not make, and shall not permit any other member of the KAR Group to make, any claim or demand, or commence any Action asserting any claim or demand, including any claim of contribution or any indemnification against SpinCo or any other member of the SpinCo Group, or any other Person released pursuant to Section 4.1(b) , with respect to any Liabilities released pursuant to Section 4.1(b) .

(e)            Execution of Further Releases . At any time at or after the Effective Time, at the request of either Party, the other Party shall cause each member of such Party’s respective Group to execute and deliver releases reflecting the provisions of this Section 4.1 .

        4.2     Indemnification by SpinCo . Except as otherwise specifically set forth in this Agreement or in any Ancillary Agreement, to the fullest extent permitted by Law, SpinCo shall, and shall cause the other members of the SpinCo Group to, indemnify, defend and hold harmless KAR, each member of the KAR Group and each of their respective past, present and future directors, officers, employees and agents, in each case, in their respective capacities as such, and each of the heirs, executors, successors and assigns of any of the foregoing (collectively, the “ KAR Indemnitees ”), from and against any and all Liabilities of the KAR Indemnitees relating to, arising out of or resulting from, directly or indirectly, any of the following items (without duplication):

(a)            any SpinCo Liability;

(b)            any failure of SpinCo, any other member of the SpinCo Group or any other Person to pay, perform or otherwise promptly discharge any SpinCo Liabilities in accordance with their terms, whether prior to, on or after the Effective Time;
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(c)            any breach by SpinCo or any other member of the SpinCo Group of this Agreement or any of the Ancillary Agreements;

(d)            except to the extent it relates to a KAR Liability, any guarantee, indemnification or contribution obligation, surety bond or other credit support agreement, arrangement, commitment or understanding for the benefit of any member of the SpinCo Group by any member of the KAR Group that survives following the Distribution;

(e)            the ownership or operation of the SpinCo Business from and after the Effective Time; and

(f)            any untrue statement or alleged untrue statement of a material fact or omission or alleged omission to state a material fact required to be stated therein or necessary to make the statements therein not misleading, with respect to all information contained in the Form 10, the Information Statement (as amended or supplemented if SpinCo shall have furnished any amendments or supplements thereto) or any other Disclosure Document, other than the matters described in subclause (f) of Section 4.3 .

        4.3     Indemnification by KAR . Except as otherwise specifically set forth in this Agreement or in any Ancillary Agreement, to the fullest extent permitted by Law, KAR shall, and shall cause the other members of the KAR Group to, indemnify, defend and hold harmless SpinCo, each member of the SpinCo Group and each of their respective past, present and future directors, officers, employees or agents, in each case in their respective capacities as such, and each of the heirs, executors, successors and assigns of any of the foregoing (collectively, the “ SpinCo Indemnitees ”), from and against any and all Liabilities of the SpinCo Indemnitees relating to, arising out of or resulting from, directly or indirectly, any of the following items (without duplication):

(a)            any KAR Liability;

(b)            any failure of KAR, any other member of the KAR Group or any other Person to pay, perform or otherwise promptly discharge any KAR Liabilities in accordance with their terms, whether prior to, on or after the Effective Time;

(c)            any breach by KAR or any other member of the KAR Group of this Agreement or any of the Ancillary Agreements;

(d)            except to the extent it relates to an SpinCo Liability, any guarantee, indemnification or contribution obligation, surety bond or other credit support agreement, arrangement, commitment or understanding for the benefit of any member of the KAR Group by any member of the SpinCo Group that survives following the Distribution;

(e)            the ownership or operation of the KAR Business from and after the Effective Time; and

(f)            any untrue statement or alleged untrue statement of a material fact or omission or alleged omission to state a material fact required to be stated therein or necessary to make the statements therein not misleading, with respect to statements made explicitly in KAR’s name in the Form 10, the Information Statement (as amended or supplemented if SpinCo shall have furnished any amendments or supplements thereto) or any other Disclosure Document; it being agreed that the statements set forth on Schedule 4.3(f)   shall be the only statements made explicitly in KAR’s name in the Form 10, the Information Statement or any other Disclosure Document, and all other information contained in the Form 10, the Information Statement or any other Disclosure Document shall be deemed to be information supplied by SpinCo.
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        4.4 Indemnification Obligations Net of Insurance Proceeds and Other Amounts

(a)            The Parties intend that the indemnification, contribution or reimbursement with respect to any Liability pursuant to this Article IV or Article V shall be net of Insurance Proceeds and other amounts actually recovered (net of any out-of-pocket costs or expenses incurred in the collection thereof, including increased premiums) from any Person by or on behalf of the Indemnitee in respect of any indemnifiable Liability. Accordingly, the amount which either Party (an “ Indemnifying Party ”) is required to pay to any Person entitled to indemnification, contribution or reimbursement hereunder (an “ Indemnitee ”) shall be reduced by any Insurance Proceeds and other amounts actually recovered (net of any out-of-pocket costs or expenses incurred in the collection thereof, including increased premiums) from any Person by or on behalf of the Indemnitee in respect of the related Liability. For avoidance of doubt and to illustrate the operation of this Section 4.4 , if SpinCo should be responsible to indemnify KAR for an insured Liability, and the claim for that Liability to an insurer results in a deductible or loss reimbursement and a retrospectively rated premium adjustment, SpinCo shall be responsible for the deductible or loss reimbursement and the retrospectively rated premium adjustment. If an Indemnitee receives an indemnification, contribution or reimbursement payment (an “ Indemnity Payment ”) required by this Agreement from an Indemnifying Party in respect of any Liability and subsequently receives Insurance Proceeds or any other amounts in respect of the related Liability, then the Indemnitee shall pay to the Indemnifying Party an amount equal to the excess of the Indemnity Payment received over the amount of the Indemnity Payment that would have been due if the Insurance Proceeds or such other amounts (net of any out-of-pocket costs or expenses incurred in the collection thereof, including increased premiums) had been received, realized or recovered before the Indemnity Payment was made.

(b)            The Parties agree that an insurer that would otherwise be obligated to pay any claim shall not be relieved of the responsibility with respect thereto or, solely by virtue of any provision contained in this Agreement or any Ancillary Agreement, have any subrogation rights with respect thereto, it being understood that no insurer or any other Third Party shall be entitled to a “windfall” (i.e., a benefit they would not be entitled to receive in the absence of the indemnification provisions) by virtue of the indemnification, contribution and reimbursement provisions hereof. Each Party shall, and shall cause the members of such Party’s Group to, use commercially reasonable efforts (taking into account the probability of success on the merits and the cost of expending such efforts, including attorneys’ fees and expenses) to collect or recover any Insurance Proceeds that may be collectible or recoverable respecting the Liabilities for which indemnification, contribution or reimbursement may be available under this Article IV . Notwithstanding the foregoing, an Indemnifying Party may not delay making any indemnification payment required under the terms of this Agreement, or otherwise satisfying any indemnification obligation, pending the outcome of any Action to collect or recover Insurance Proceeds, and an Indemnitee need not attempt to collect any Insurance Proceeds prior to making a claim for indemnification, contribution or reimbursement, or receiving any Indemnity Payment otherwise owed to it under this Agreement or any Ancillary Agreement.
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        4.5 Procedures for Indemnification of Third-Party Claims .

(a)            Notice of Claims . If, at or following the date of this Agreement, an Indemnitee shall receive notice or otherwise learn of the assertion by a Person (including any Governmental Authority) that is not a member of the KAR Group or the SpinCo Group of any claim or of the commencement by any such Person of any Action (collectively, a “ Third-Party Claim ”) with respect to which an Indemnifying Party may be obligated to provide indemnification to such Indemnitee pursuant to Section 4.2 or 4.3 , or any other Section of this Agreement or any Ancillary Agreement, such Indemnitee shall give such Indemnifying Party written notice thereof as soon as practicable, but in any event within fourteen (14) days (or sooner if the nature of the Third-Party Claim so requires) after becoming aware of such Third-Party Claim. Any such notice shall describe the Third-Party Claim in reasonable detail, including the facts and circumstances giving rise to such claim for indemnification, and include copies of all notices and documents (including court papers) received by the Indemnitee relating to the Third-Party Claim. Notwithstanding the foregoing, the failure of an Indemnitee to provide notice in accordance with this Section 4.5(a) shall not relieve an Indemnifying Party of its indemnification obligations under this Agreement, except to the extent to which the Indemnifying Party is actually prejudiced in some material respect by the Indemnitee’s failure to provide notice in accordance with this Section 4.5(a) .

(b)            Control of Defense. An Indemnifying Party may elect to defend (and seek to settle or compromise), at its own expense and with its own counsel, any Third-Party Claim; provided that, prior to the Indemnifying Party assuming and controlling defense of such Third-Party Claim, it shall first confirm to the Indemnitee in writing that, assuming the facts presented to the Indemnifying Party by the Indemnitee being true, the Indemnifying Party shall indemnify the Indemnitee for any such Liabilities to the extent resulting from, or arising out of, such Third-Party Claim. Notwithstanding the foregoing, if the Indemnifying Party assumes such defense and, in the course of defending such Third-Party Claim, (i) the Indemnifying Party discovers that the facts presented at the time the Indemnifying Party acknowledged its indemnification obligation in respect of such Third-Party Claim were not true in all material respects and (ii) such untruth provides a reasonable basis for asserting that the Indemnifying Party does not have an indemnification obligation in respect of such Third-Party Claim, then (A) the Indemnifying Party shall not be bound by such acknowledgment, (B) the Indemnifying Party shall promptly thereafter provide the Indemnitee written notice of its assertion that it does not have an indemnification obligation in respect of such Third-Party Claim and (C) the Indemnitee shall have the right to assume the defense of such Third-Party Claim. Within thirty (30) days after the receipt of a notice from an Indemnitee in accordance with Section 4.5(a) (or sooner, if the nature of the Third-Party Claim so requires), the Indemnifying Party shall provide written notice to the Indemnitee indicating whether the Indemnifying Party shall assume responsibility for defending the Third-Party Claim and specifying any reservations or exceptions to its defense. If an Indemnifying Party elects not to assume responsibility for defending any Third-Party Claim or fails to notify an Indemnitee of its election within thirty (30) days after receipt of the notice from an Indemnitee as provided in Section 4.5(a) , then the Indemnitee that is the subject of such Third-Party Claim shall be entitled to continue to conduct and control the defense of such Third-Party Claim.
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(c)            Allocation of Defense Costs . If an Indemnifying Party has elected to assume the defense of a Third-Party Claim, whether with or without any reservations or exceptions with respect to such defense, then such Indemnifying Party shall be solely liable for all fees and expenses incurred by it in connection with the defense of such Third-Party Claim and shall not be entitled to seek any indemnification, contribution or reimbursement from the Indemnitee for any such fees or expenses incurred by the Indemnifying Party during the course of the defense of such Third-Party Claim by such Indemnifying Party, regardless of any subsequent decision by the Indemnifying Party to reject or otherwise abandon its assumption of such defense. If an Indemnifying Party elects not to assume responsibility for defending any Third-Party Claim or fails to notify an Indemnitee of its election within thirty (30) days after receipt of a notice from an Indemnitee as provided in Section 4.5(a) , and the Indemnitee conducts and controls the defense of such Third-Party Claim and the Indemnifying Party has an indemnification obligation with respect to such Third-Party Claim, then the Indemnifying Party shall be liable for all reasonable fees and expenses incurred by the Indemnitee in connection with the defense of such Third-Party Claim.

(d)            Right to Monitor and Participate. An Indemnitee that does not conduct and control the defense of any Third-Party Claim, or an Indemnifying Party that has failed to elect to defend any Third-Party Claim as contemplated hereby, nevertheless shall have the right to employ separate counsel (including local counsel as necessary) of its own choosing to monitor and participate in (but not control) the defense of any Third-Party Claim for which it is a potential Indemnitee or Indemnifying Party, as applicable, but the fees and expenses of such counsel shall be at the expense of such Indemnitee or Indemnifying Party, as the case may be, and the provisions of Section 4.5(c) shall not apply to such fees and expenses. Notwithstanding the foregoing, but subject to Sections 6.7 and 6.8 , such Party shall cooperate with the Party entitled to conduct and control the defense of such Third-Party Claim in such defense and make available to the controlling Party, at the non-controlling Party’s expense, all witnesses, information and materials in such Party’s possession or under such Party’s control relating thereto as are reasonably required by the controlling Party. In addition to the foregoing, if any Indemnitee shall in good faith determine that such Indemnitee and the Indemnifying Party have actual or potential differing defenses or conflicts of interest between them that make joint representation in connection with a Third-Party Claim inappropriate, then the Indemnitee shall have the right to employ separate counsel (including local counsel as necessary) and to participate in (but not control) the defense, compromise, or settlement thereof, and the Indemnifying Party shall bear the reasonable fees and expenses of such counsel for all Indemnitees.

(e)            No Settlement. Neither Party may settle or compromise any Third-Party Claim for which either Party is seeking to be indemnified hereunder without the prior written consent of the other Party, which consent may not be unreasonably withheld, unless such settlement or compromise is solely for monetary damages that are fully payable by the settling or compromising Party, does not involve any admission, finding or determination of wrongdoing or violation of Law by the other Party and provides for a full, unconditional and irrevocable release of the other Party from all Liability in connection with the Third-Party Claim.
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        4.6 Additional Matters

(a)            Timing of Payments. Indemnification or contribution payments in respect of any Liabilities for which an Indemnitee is entitled to indemnification, contribution or reimbursement under this Article IV shall be paid reasonably promptly (but in any event within thirty (30) days of the final determination of the amount that the Indemnitee is entitled to indemnification, contribution or reimbursement under this Article IV ) by the Indemnifying Party to the Indemnitee as such Liabilities are incurred upon demand by the Indemnitee, including reasonably satisfactory documentation setting forth the basis for the amount of such indemnification, contribution or reimbursement payment, including documentation with respect to calculations made and consideration of any Insurance Proceeds that actually reduce the amount of such Liabilities. The indemnification, contribution and reimbursement provisions contained in this Article IV shall remain operative and in full force and effect, regardless of (i) any investigation made by or on behalf of any Indemnitee, and (ii) the knowledge by the Indemnitee of Liabilities for which it might be entitled to indemnification hereunder.

(b)            Notice of Direct Claims . Any claim for indemnification, contribution or reimbursement under this Agreement or any Ancillary Agreement that does not result from a Third-Party Claim shall be asserted by written notice given by the Indemnitee to the applicable Indemnifying Party; provided , that the failure by an Indemnitee to so assert any such claim shall not prejudice the ability of the Indemnitee to do so at a later time except to the extent (if any) that the Indemnifying Party is prejudiced in some material respect thereby. Such Indemnifying Party shall have a period of thirty (30) days after the receipt of such notice within which to respond thereto. If such Indemnifying Party does not respond within such thirty (30)-day period, such specified claim shall be conclusively deemed a Liability of the Indemnifying Party under this Section 4.6(b) or, in the case of any written notice in which the amount of the claim (or any portion thereof) is estimated, on such later date when the amount of the claim (or such portion thereof) becomes finally determined. If such Indemnifying Party does not respond within such thirty (30)-day period or rejects such claim in whole or in part, such Indemnitee shall, subject to the provisions of Article VII , be free to pursue such remedies as may be available to such party as contemplated by this Agreement and the Ancillary Agreements, as applicable, without prejudice to its continuing rights to pursue indemnification or contribution hereunder.

(c)            Pursuit of Claims Against Third Parties. If (i) a Party incurs any Liability arising out of this Agreement or any Ancillary Agreement, (ii) an adequate legal or equitable remedy is not available for any reason against the other Party to satisfy the Liability incurred by the incurring Party, and (iii) a legal or equitable remedy may be available to the other Party against a Third Party for such Liability, then the other Party shall use its commercially reasonable efforts to cooperate with the incurring Party, at the incurring Party’s expense, to permit the incurring Party to obtain the benefits of such legal or equitable remedy against the Third Party.

(d)            Subrogation . In the event of payment by or on behalf of any Indemnifying Party to any Indemnitee in connection with any Third-Party Claim, such Indemnifying Party shall be subrogated to and shall stand in the place of such Indemnitee as to any events or circumstances in respect of which such Indemnitee may have any right, defense or claim relating to such Third-Party Claim against any claimant or plaintiff asserting such Third-Party Claim or against any other Person. Such Indemnitee shall cooperate with such Indemnifying Party in a reasonable manner, and at the cost and expense of such Indemnifying Party, in prosecuting any subrogated right, defense or claim.
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(e)            Substitution . In the event of an Action in which the Indemnifying Party is not a named defendant, if either the Indemnitee or Indemnifying Party shall so request, the Parties shall endeavor to substitute the Indemnifying Party for the named defendant. If such substitution or addition cannot be achieved for any reason or is not requested, the named defendant shall allow the Indemnifying Party to manage the Action as set forth in Section 4.5 and this Section 4.6 , and the Indemnifying Party shall fully indemnify the named defendant against all costs of defending the Action (including court costs, sanctions imposed by a court, attorneys’ fees, experts fees and all other external expenses), the costs of any judgment or settlement and the cost of any interest or penalties relating to any judgment or settlement.

        4.7 Right of Contribution

(a)            Contribution . If any right of indemnification contained in Section 4.2 or Section 4.3 is held unenforceable or is unavailable for any reason, or is insufficient to hold harmless an Indemnitee in respect of any Liability for which such Indemnitee is entitled to indemnification hereunder, then the Indemnifying Party shall contribute to the amounts paid or payable by the Indemnitees as a result of such Liability (or actions in respect thereof) in such proportion as is appropriate to reflect the relative fault of the Indemnifying Party and the members of the Indemnifying Party’s Group, on the one hand, and the Indemnitees entitled to contribution, on the other hand, as well as any other relevant equitable considerations.

(b)            Allocation of Relative Fault . Solely for purposes of determining relative fault pursuant to this Section 4.7 : (i) any fault associated with the business conducted with the Delayed SpinCo Assets or Delayed SpinCo Liabilities (except for the gross negligence or intentional misconduct of a member of the KAR Group) or with the ownership, operation or activities of the SpinCo Business prior to the Effective Time shall be deemed to be the fault of SpinCo and the other members of the SpinCo Group, and no such fault shall be deemed to be the fault of KAR or any other member of the KAR Group; (ii) any fault associated with the business conducted with Delayed KAR Assets or Delayed KAR Liabilities (except for the gross negligence or intentional misconduct of a member of the SpinCo Group) shall be deemed to be the fault of KAR and the other members of the KAR Group, and no such fault shall be deemed to be the fault of SpinCo or any other member of the SpinCo Group; and (iii) any fault associated with the ownership, operation or activities of the KAR Business prior to the Effective Time shall be deemed to be the fault of KAR and the other members of the KAR Group, and no such fault shall be deemed to be the fault of SpinCo or any other member of the SpinCo Group.

4.8 Covenant Not to Sue  . Each Party hereby covenants and agrees that none of it, the members of such Party’s Group or any Person claiming through it shall bring suit or otherwise assert any claim against any Indemnitee, or assert a defense against any claim asserted by any Indemnitee, before any court, arbitrator, mediator or administrative agency anywhere in the world, alleging that: (a) the assumption of any SpinCo Liabilities by SpinCo or a member of the SpinCo Group on the terms and conditions set forth in this Agreement and the Ancillary Agreements is void or unenforceable for any reason; (b) the retention of any KAR Liabilities by KAR or a member of the KAR Group on the terms and conditions set forth in this Agreement and the Ancillary Agreements is void or unenforceable for any reason, or (c) the provisions of this Article IV are void or unenforceable for any reason.
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4.9     Remedies Cumulative . The remedies provided in this Article IV shall be cumulative and, subject to the provisions of Article VIII , shall not preclude assertion by any Indemnitee of any other rights or the seeking of any and all other remedies against any Indemnifying Party.

4.10 Survival of Indemnities .  The rights and obligations of each of KAR and SpinCo and their respective Indemnitees under this Article IV shall survive (a) the sale or other transfer by either Party or any member of such Party’s Group of any assets or businesses or the assignment by it of any liabilities, or (b) any merger, consolidation, business combination, sale of all or substantially all of its Assets, restructuring, recapitalization, reorganization or similar transaction involving either Party or any of the members of such Party’s Group.

4.11 Tax Matters Agreement Governs . The above provisions of this Article IV do not apply to Taxes (it being understood and agreed that Taxes and Tax Matters shall be governed by the Tax Matters Agreement). In the case of any conflict between this Agreement and the Tax Matters Agreement in relation to any matters addressed by the Tax Matters Agreement, the Tax Matters Agreement shall govern.

        4.12 Employee Matters Agreement Governs. The above provisions of Article II and this Article IV do not apply to employee matters (it being understood and agreed that employee matters shall be governed by the Employee Matters Agreement). In the case of any conflict between this Agreement and the Employee Matters Agreement in relation to any matters addressed by the Employee Matters Agreement, the Employee Matters Agreement shall govern.

ARTICLE V

CERTAIN OTHER MATTERS

        5.1 Insurance Matters

(a)            KAR and SpinCo agree to cooperate in good faith to provide for an orderly transition of insurance coverage from the date hereof through the Effective Time. In no event shall KAR, any other member of the KAR Group or any KAR Indemnitee have any Liability or obligation whatsoever to any member of the SpinCo Group in the event that any insurance policy or other contract or policy of insurance shall be terminated or otherwise cease to be in effect for any reason, shall be unavailable or inadequate to cover any Liability of any member of the SpinCo Group for any reason whatsoever or shall not be renewed or extended beyond the current expiration date.

(b)            From and after the Effective Time, with respect to any losses, damages and Liability incurred by any member of the SpinCo Group, or arising out of facts, events or circumstances occurring, prior to the Effective Time, KAR will provide SpinCo with access to, and SpinCo may, upon ten (10) days’ prior written notice to KAR, make claims under, KAR’s third-party insurance policies in place immediately prior to the Effective Time and KAR’s historical third-party policies of insurance, but solely to the extent that such policies provided coverage for SpinCo Liabilities or Liabilities arising from or in connection with actions, inactions, events, omissions, conditions, facts or circumstances occurring or existing prior to the Effective Time, in each case relating to, arising out of or resulting from the SpinCo Business, the SpinCo Assets or the SpinCo Liabilities; provided that such access to, and the right to make claims under, such insurance policies shall be subject to the terms and conditions of such insurance policies, including any limits on coverage or scope, any deductibles, self-insured retentions, loss reimbursements and other fees and expenses, and any retrospectively rated or other premium adjustments, resulting from such losses, damages or Liability. Any deductible, loss reimbursement, other fee or expense, or retrospectively rated or other premium adjustment, resulting from such losses, damages or Liability shall be SpinCo’s sole responsibility. SpinCo’s access shall be subject to the following additional conditions:
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(i)            SpinCo shall report any claim to KAR, as promptly as practicable, and in any event in sufficient time so that such claim may be made in accordance with KAR’s claim reporting procedures in effect immediately prior to the Effective Time (or in accordance with any modifications to such procedures after the Effective Time communicated by KAR to SpinCo in writing);

(ii)            SpinCo may, in its sole discretion, report such claim to the insurers on its and/or SpinCo’s behalf with a request that the insurers defend and indemnify it and/or SpinCo;

(iii)            SpinCo and the members of the SpinCo Group shall indemnify, hold harmless and reimburse KAR and the members of the KAR Group for any fees and expenses incurred by KAR or any members of the KAR Group to the extent resulting from any access to, any claims made by SpinCo or any other members of the SpinCo Group under, any insurance provided pursuant to this Section 5.1(b) , including any indemnity payments, settlements, judgments, legal fees and allocated claim or loss adjusting expenses and claim handling fees, whether such claims are made by SpinCo, its employees or Third Parties; and

(iv)            SpinCo shall exclusively bear (and neither KAR nor any members of the KAR Group shall have any obligation to repay or reimburse SpinCo or any member of the SpinCo Group for) and shall be liable for all uninsured, uncovered, unavailable or uncollectible amounts of all such claims made by SpinCo or any member of the SpinCo Group under the policies as provided for in this Section 5.1(b) .

In the event that any member of the KAR Group incurs any losses, damages or Liability prior to or in respect of the period prior to the Effective Time for which such member of the KAR Group is entitled to coverage under SpinCo’s third-party insurance policies, the same process pursuant to this Section 5.1(b) shall apply, substituting “KAR” for “SpinCo” and “SpinCo” for “KAR.”

(c)            Except as provided in Section 5.1(b) , from and after the Effective Time, neither SpinCo nor any member of the SpinCo Group shall have any rights to or under any of the insurance policies of KAR or any other member of the KAR Group. At the Effective Time, SpinCo shall have in effect all insurance programs required to comply with SpinCo’s contractual obligations and such other insurance policies required by Law or as reasonably necessary or appropriate for companies operating a business similar to SpinCo’s. Such insurance programs may include general liability, commercial auto liability, workers’ compensation, employer’s liability, cyber security, product liability, professional services liability, property, open lot, employment practices liability, employee dishonesty/crime, directors and officers liability and fiduciary liability.
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(d)            Neither SpinCo nor any member of the SpinCo Group, in connection with making a claim under any insurance policy of KAR or any member of the KAR Group pursuant to this Section 5.1 , shall take any action that would be reasonably likely to (i) have an adverse impact on the then-current relationship between KAR or any member of the KAR Group, on the one hand, and the applicable insurance company, on the other hand, (ii) result in the applicable insurance company terminating or materially reducing coverage, or materially increasing the amount of any premium owed by KAR or any member of the KAR Group under the applicable insurance policy, or (iii) otherwise compromise, jeopardize or interfere with the rights of KAR or any member of the KAR Group under the applicable insurance policy.

(e)            All payments and reimbursements by SpinCo pursuant to this Section 5.1 will be made within fifteen (15) days after SpinCo’s receipt of an invoice therefor from KAR. If KAR incurs costs to enforce SpinCo’s obligations herein, SpinCo agrees to indemnify and hold harmless KAR for such enforcement costs, including reasonable attorneys’ fees pursuant to Section 4.6 . KAR shall retain the exclusive right to control its insurance policies and programs, including the right under the policies or applicable law to settle the policies to which losses or claim expenses are allocated, to exhaust, settle, release, commute, buy-back or otherwise resolve disputes with respect to any of its insurance policies and programs and to amend, modify or waive any rights under any such insurance policies and programs, notwithstanding whether any such policies or programs apply to any SpinCo Liabilities and/or claims SpinCo has made or could make in the future, and no member of the SpinCo Group shall allocate losses or claims or loss adjusting expenses to, or erode, exhaust, settle, release, commute, buy-back or otherwise resolve disputes with KAR’s insurers with respect to any of KAR’s insurance policies and programs, or amend, modify or waive any rights under any such insurance policies and programs. SpinCo shall cooperate with KAR and share such information as is reasonably necessary to permit KAR to manage and conduct its insurance matters as it deems appropriate. KAR shall share such information with SpinCo as is reasonable necessary to enable SpinCo so to cooperate with KAR. Except as otherwise expressly provided in this Agreement, neither KAR nor any of the members of the KAR Group shall have any obligation to secure extended reporting for any claims under any liability policies of KAR or any member of the KAR Group for any acts or omissions by any member of the SpinCo Group incurred prior to the Effective Time.

(f)            This Agreement shall not be considered as a contract of insurance and shall not be construed to waive any right or remedy of any member of the KAR Group in respect of any insurance policy or any other contract or policy of insurance.

(g)            SpinCo does hereby, for itself and each other member of the SpinCo Group, agree that no member of the KAR Group shall have any Liability whatsoever as a result of the insurance policies and practices of KAR and the members of the KAR Group as in effect at any time, including as a result of the level or scope of any such insurance, the creditworthiness of any insurance carrier, the terms and conditions of any policy, the adequacy or timeliness of any notice to any insurance carrier with respect to any claim or potential claim or otherwise.
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        5.2 Continuation of Director and Officer Insurance .  For a period of not less than six (6) years from and after the Distribution Date, KAR shall, and shall cause the KAR Group to, maintain directors and officers liability insurance covering the persons who are presently covered by KAR’s and its Subsidiaries’ directors and officers liability insurance policies with respect to actions and omissions occurring prior to the Distribution Date, providing coverage not less favorable than provided by such insurance in effect on the date hereof.

        5.3 Late Payments . Except as expressly provided to the contrary in this Agreement or in any Ancillary Agreement, any amount not paid when due pursuant to this Agreement or any Ancillary Agreement (and any amounts billed or otherwise invoiced or demanded and properly payable that are not paid within thirty (30) days of such bill, invoice or other demand) shall accrue interest at a rate per annum equal to Prime Rate plus one percent (1%).

        5.4 Treatment of Payments for Tax Purposes . Unless otherwise required by a Final Determination, this Agreement or the Tax Matters Agreement, the Parties agree that any payment made pursuant to this Agreement (other than payments with respect to interest accruing after the Effective Time) by: (i) SpinCo to KAR shall be treated for all tax purposes as a distribution by SpinCo to KAR with respect to SpinCo Shares occurring immediately before the Distribution; (ii) KAR to SpinCo shall be treated for all tax purposes as a tax-free contribution by KAR to SpinCo with respect to its stock occurring immediately before the Distribution; and (iii) any payment of interest shall be treated as taxable or deductible, as the case may be, to the Party entitled under this Agreement to retain such payment or required under this Agreement to make such payment. No Party shall take any position inconsistent with this Section 5.4 , and, in the event that a Governmental Authority asserts that a Party’s treatment of a payment pursuant to this Agreement should be other than as set forth in this Section 5.4 , such Party shall use its commercially reasonable efforts to contest such challenge.

5.5 Inducement.   SpinCo acknowledges and agrees that KAR’s willingness to cause, effect and consummate the Separation and the Distribution has been conditioned upon and induced by SpinCo’s covenants and agreements in this Agreement and the Ancillary Agreements, including SpinCo’s assumption of the SpinCo Liabilities pursuant to the Separation and the provisions of this Agreement and SpinCo’s covenants and agreements contained in Article IV .

5.6 Post-Effective Time Conduct . The Parties acknowledge that, after the Effective Time, each Party shall be independent of the other Party, with responsibility for its own actions and inactions and its own Liabilities relating to, arising out of or resulting from the conduct of its business, operations and activities following the Effective Time, except as may otherwise be provided in any Ancillary Agreement, and each Party shall (except as otherwise provided in Article IV ) use commercially reasonable efforts to prevent such Liabilities from being inappropriately borne by the other Party.
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        5.7 Restricted Businesses . Each Party hereby agrees that from and after the Effective Time such Party shall, and shall cause the members of its respective Group and its respective Affiliates to, act in accordance with the provisions prescribed by the restricted businesses covenant, attached hereto as Exhibit C .

ARTICLE VI

EXCHANGE OF INFORMATION; CONFIDENTIALITY

        6.1 Agreement for Exchange of Information

(a)            Each of KAR and SpinCo acknowledge and agree that certain books, records and other tangible Information is and, as of the Effective Time, will be stored in locations that will be allocated, assigned, transferred, conveyed and delivered to the KAR Group or the SpinCo Group, as the case may be, and that from and after the Effective Time, such tangible books and records may remain at the current locations thereof, subject to the terms and conditions of this Article VI.  From and after the Effective Time, (i) each member of the SpinCo Group shall be permitted to obtain from the KAR Group, and KAR shall cause each member of the KAR Group to cooperate to provide and deliver to SpinCo or the applicable member of the SpinCo Group, the originals of all books, records and other tangible Information that constitutes SpinCo Assets, subject to the terms and conditions of this Article VI , and (ii) each member of the KAR Group shall be permitted to obtain from the SpinCo Group, and SpinCo shall cause each member of the SpinCo Group to cooperate to provide and deliver to KAR or the applicable member of the KAR Group, the originals of all books, records and other tangible Information that constitutes KAR Assets, subject to the terms and conditions of this Article VI .  For the avoidance of any doubt, (i) each member of the KAR Group shall be permitted to deliver any books, records or other tangible Information that constitutes SpinCo Assets to SpinCo (or such location as may be designated by SpinCo), (ii) each member of the SpinCo Group shall be permitted to deliver any books, records or other tangible Information that constitutes KAR Assets to KAR (or such location as may be designated by KAR), and (iii) subject to Section 6.4 , neither Party nor any member of its Group shall be required to store or maintain any books, records or other tangible Information for the benefit of the other Party or its Group.

(b)            Subject to Section 6.9 and any other applicable confidentiality obligations, each of KAR and SpinCo, on behalf of itself and each member of such Party’s Group, agrees to use commercially reasonable efforts to provide or make available, or cause to be provided or made available, to the other Party and the members of such other Party’s Group, at any time before, on or after the Effective Time, as soon as reasonably practicable after written request therefor, any information (or a copy thereof) in the possession or under the control of such Party or such Party’s Group which the requesting Party or such Party’s Group to the extent that (i) such information relates to the SpinCo Business, or any SpinCo Asset or SpinCo Liability, if SpinCo is the requesting Party, or to the KAR Business, or any KAR Asset or KAR Liability, if KAR is the requesting Party, (ii) such information is required by the requesting Party to comply with its obligations under this Agreement or any Ancillary Agreement or (iii) such information is required by the requesting Party to comply with any obligation imposed by any Governmental Authority; provided , however , that, in the event that the Party to whom the request has been made determines that any such provision of information could be detrimental in any material respect to the Party providing the information, violate any Law or agreement, or waive any privilege available under applicable Law, including any attorney-client privilege, then the Parties shall use commercially reasonable efforts to permit compliance with such obligations to the extent and in a manner that avoids any such harm or consequence. The Party providing information pursuant to this Section 6.1 shall only be obligated to provide such information in the form, condition and format in which it then exists, and in no event shall such Party be required to perform any improvement, modification, conversion, updating or reformatting of any such information, and nothing in this Section 6.1 shall expand the obligations of a Party under Section 6.4 .
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(c)            Without limiting the generality of the foregoing, until the first SpinCo fiscal year end occurring after the Effective Time (and for a reasonable period of time afterwards as required for each Party to prepare consolidated financial statements or complete a financial statement audit for the fiscal year during which the Distribution Date occurs), each Party shall use its commercially reasonable efforts to cooperate with the other Party’s information requests to enable (i) the other Party to meet its timetable for dissemination of its earnings releases, financial statements and management’s assessment of the effectiveness of its disclosure controls and procedures and its internal control over financial reporting in accordance with Items 307 and 308, respectively, of Regulation S-K promulgated under the Exchange Act, and (ii) the other Party’s accountants to timely complete their review of the quarterly financial statements and audit of the annual financial statements, including, to the extent applicable to such Party, its auditor’s audit of its internal control over financial reporting and management’s assessment thereof in accordance with Section 404 of the Sarbanes-Oxley Act of 2002, the SEC’s and Public Company Accounting Oversight Board’s rules and auditing standards thereunder and any other applicable Laws.

 6.2   6.2     Ownership of Information . The provision of any information pursuant to Section 6.1 or Section 6.7 shall not affect the ownership of such information (which shall be determined solely in accordance with the terms of this Agreement and the Ancillary Agreements), or constitute a grant of rights in or to any such information.

6.3            Compensation for Providing Information . The Party requesting information shall not be required to pay or reimburse the other Party for the cost of creating, gathering, copying, transporting and otherwise complying with a request with respect to such information (including those expenses incurred in any review of information for purposes of protecting the Privileged Information of the providing Party or in connection with the restoration of backup media for purposes of providing the requested information); provided , however , that the Party requesting information shall be required to pay or reimburse the other Party for such costs in connection with any request resulting in a significant burden on the other Party, involving an unusually high volume of requested information, or otherwise arising outside the ordinary course of such requests.

6.4            Compensation for Providing Information . To facilitate the possible exchange of information pursuant to this Article VI and other provisions of this Agreement after the Effective Time, the Parties agree to use their respective commercially reasonable efforts, which shall be no less rigorous than those used for retention of such Party’s own information, to retain all information in their respective possession or control on the Effective Time in accordance with the policies of KAR as in effect on the Effective Time or such other policies as may be adopted by KAR after the Effective Time ( provided , in the case of SpinCo, that KAR notifies SpinCo of any such change); provided , however , that in the case of any information relating to Taxes, such retention period shall be extended to the expiration of the applicable statute of limitations (giving effect to any extensions thereof). Notwithstanding the foregoing, the Tax Matters Agreement will govern the retention of Tax related records, and the Employee Matters Agreement will govern the retention of employment and benefits related records.  Without limiting the foregoing retention obligations of the Parties, before destroying or disposing of any books, records or other tangible Information relating to the business, Assets or Liabilities of the other Party’s Group, (i) the Party proposing to dispose of or destroy such tangible Information shall use commercially reasonable efforts to provide no less than ninety (90) days prior written notice to the other Party, specifying the books, records or other tangible Information proposed to be destroyed or disposed of and (ii) if, before the scheduled date for such destruction or disposal, the other Party requests in writing that any of the books, records or other tangible Information proposed to be destroyed or disposed of be delivered or made available to such other Party, then the Party proposing to destroy or dispose of the books, records or other tangible Information will promptly arrange for the delivery or making available of the requested books, records or other tangible Information to or at a location specified by, and at the sole cost and expense of, the requesting Party.  Notwithstanding the foregoing, each Party may destroy or dispose of any books, records or other tangible Information that the other Party has previously received copies of, without any obligation to notify the other Party thereof.
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 6.5   6.5     Limitations of Liability . Neither Party shall have any Liability to the other Party in the event that any information exchanged or provided pursuant to this Agreement is found to be inaccurate in the absence of gross negligence or willful misconduct by the Party providing such information. Neither Party shall have any Liability to any other Party if any information is destroyed after commercially reasonable efforts by such Party to comply with the provisions of Section 6.4 .

      6.6     Other Agreements Providing for Exchange of Information .

(a)            The rights and obligations granted under this Article VI are subject to any specific limitations, qualifications or additional provisions on the sharing, exchange, retention or confidential treatment of information set forth in any Ancillary Agreement.

(b)            Any party that receives, pursuant to a request for information in accordance with this Article VI , Tangible Information that is not relevant to its request shall (i) return such Tangible Information to the providing Party or, at the providing Party’s request, destroy such Tangible Information, and (ii) deliver to the providing Party written confirmation that such Tangible Information was returned or destroyed, as the case may be, which confirmation shall be signed by an authorized representative of the requesting Party.

(c)            Notwithstanding Section 7.1 , in the event of any Dispute between or among one or more members of the SpinCo Group and one or more members of the KAR Group relating to the rights and obligations of the Parties with respect to the exchange, access and retention of Information hereunder, the Parties shall attempt in good faith to negotiate a resolution of the Dispute through the Parties’ respective record administrators, in the first instance and, if the records administrators cannot resolve the Dispute, then the Dispute may be resolved pursuant to the terms and procedures set forth in Article VII .
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        6.7     Production of Witnesses; Records; Cooperation

(a)            After the Effective Time, except in the case of an adversarial Action or Dispute between KAR and SpinCo, or any members of their respective Groups, each Party shall use its commercially reasonable efforts to make available to the other Party, upon written request, the former, current and future directors, officers, employees, other personnel and agents of the members of such Party’s respective Group as witnesses and any books, records or other documents within its control or which it otherwise has the ability to make available without undue burden, to the extent that any such person (giving consideration to business demands of such directors, officers, employees, other personnel and agents) or books, records or other documents may reasonably be required in connection with any Action in which the requesting Party (or member of such Party’s Group) may from time to time be involved, regardless of whether such Action is a matter with respect to which indemnification may be sought hereunder. The requesting Party shall bear all costs and expenses in connection therewith.

(b)            If an Indemnifying Party chooses to defend or to seek to compromise or settle any Third-Party Claim, the other Party shall make available to such Indemnifying Party, upon written request, the former, current and future directors, officers, employees, other personnel and agents of the members of such Party’s respective Group as witnesses and any books, records or other documents within its control or which it otherwise has the ability to make available without undue burden, to the extent that any such person (giving consideration to business demands of such directors, officers, employees, other personnel and agents) or books, records or other documents may reasonably be required in connection with such defense, settlement or compromise, or such prosecution, evaluation or pursuit, as the case may be, and shall otherwise cooperate in such defense, settlement or compromise, or such prosecution, evaluation or pursuit, as the case may be.

(c)            Without limiting the foregoing, the Parties shall cooperate and consult to the extent reasonably necessary with respect to any Actions.

(d)            Without limiting any provision of this Section 6.7 , each of the Parties agrees to cooperate, and to cause each member of its respective Group to cooperate, with each other in the defense of any infringement or similar claim with respect any Intellectual Property and shall not claim to acknowledge, or permit any member of such Party’s respective Group to claim to acknowledge, the validity or infringing use of any Intellectual Property of a Third Party in a manner that would hamper or undermine the defense of such infringement or similar claim.

(e)            The obligation of the Parties to provide witnesses pursuant to this Section 6.7 is intended to be interpreted in a manner so as to facilitate cooperation and shall include the obligation to provide as witnesses without regard to whether the witness or the employer of the witness could assert a possible business conflict (subject to the exception set forth in the first sentence of Section 6.7(a) ).
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        6.8     Privileged Matters

(a)            The Parties recognize that legal and other professional services that have been and will be provided prior to the Effective Time have been and will be rendered for the collective benefit of each of the members of the KAR Group and the SpinCo Group, and that each of the members of the KAR Group and the SpinCo Group should be deemed to be the client with respect to such services for the purposes of asserting all privileges and immunities which may be asserted under applicable Law in connection therewith. The Parties recognize that legal and other professional services will be provided following the Effective Time, which services will be rendered solely for the benefit of the KAR Group or the SpinCo Group, as the case may be.

(b)            The Parties agree as follows:

(i)            KAR shall be entitled, in perpetuity, to control the assertion or waiver of all privileges and immunities in connection with any Privileged Information that relates solely to the KAR Business and not to the SpinCo Business, whether or not the Privileged Information is in the possession or under the control of any member of the KAR Group or any member of the SpinCo Group. KAR shall also be entitled, in perpetuity, to control the assertion or waiver of all privileges and immunities in connection with any Privileged Information that relates solely to any KAR Liabilities resulting from any Actions that are now pending or may be asserted in the future, whether or not the Privileged Information is in the possession or under the control of any member of the KAR Group or any member of the SpinCo Group; and

(ii)            SpinCo shall be entitled, in perpetuity, to control the assertion or waiver of all privileges and immunities in connection with any Privileged Information that relates solely to the SpinCo Business and not to the KAR Business, whether or not the Privileged Information is in the possession or under the control of any member of the SpinCo Group or any member of the KAR Group. SpinCo shall also be entitled, in perpetuity, to control the assertion or waiver of all privileges and immunities in connection with any Privileged Information that relates solely to any SpinCo Liabilities resulting from any Actions that are now pending or may be asserted in the future, whether or not the Privileged Information is in the possession or under the control of any member of the SpinCo Group or any member of the KAR Group.

(iii)            If the Parties do not agree as to whether certain information is Privileged Information, then such information shall be treated as Privileged Information, and the Party that believes that such information is Privileged Information shall be entitled to control the assertion or waiver of all privileges and immunities in connection with any such information unless the Parties otherwise agree. The Parties shall use the procedures set forth in Article VII to resolve any disputes as to whether any information relates solely to the KAR Business, solely to the SpinCo Business, or to both the KAR Business and the SpinCo Business.

(c)            Subject to the remaining provisions of this Section 6.8 , the Parties agree that they shall have a shared privilege or immunity with respect to all privileges and immunities not allocated pursuant to Section 6.8(b) and all privileges and immunities relating to any Actions or other matters that involve both Parties (or one or more members of their respective Groups) and in respect of which both Parties have Liabilities under this Agreement, and that no such shared privilege or immunity may be waived by either Party without the consent of the other Party.
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(d)            If any Dispute arises between the Parties or any members of their respective Group regarding whether a privilege or immunity should be waived to protect or advance the interests of either Party and/or any member of their respective Group, each Party agrees that it shall (i) negotiate with the other Party in good faith, (ii) endeavor to minimize any prejudice to the rights of the other Party, and (iii) not unreasonably withhold consent to any request for waiver by the other Party. Further, each Party specifically agrees that it shall not withhold its consent to the waiver of a privilege or immunity for any purpose except in good faith to protect its own legitimate interests.

(e)            In the event of any adversarial Action or Dispute between KAR and SpinCo, or any members of their respective Groups, either Party may waive a privilege in which the other Party or member of such other Party’s Group has a shared privilege, without obtaining consent pursuant to Section 6.8(c) ; provided that such waiver of a shared privilege shall be effective only as to the use of information with respect to the Action between the Parties and/or the applicable members of their respective Groups, and shall not operate as a waiver of the shared privilege with respect to any Third Party.

(f)            Upon receipt by either Party, or by any member of such Party’s respective Group, of any subpoena, discovery or other request that may reasonably be expected to result in the production or disclosure of Privileged Information subject to a shared privilege or immunity or as to which another Party has the sole right hereunder to assert a privilege or immunity, or if either Party obtains knowledge that any of its, or any member of such Party’s respective Group’s, current or former directors, officers, agents or employees has received any subpoena, discovery or other request that may reasonably be expected to result in the production or disclosure of such Privileged Information, such Party shall promptly notify the other Party of the existence of the request (which notice shall be delivered to such other Party no later than five (5) business days following the receipt of any such subpoena, discovery or other request) and shall provide the other Party a reasonable opportunity to review the Privileged Information and to assert any rights it or they may have under this Section 6.8 or otherwise, to prevent the production or disclosure of such Privileged Information.

(g)            Any furnishing of, or access or transfer of, any information pursuant to this Agreement is made in reliance on the covenants and agreements of KAR and SpinCo set forth in this Section 6.8 and in Section 6.9 to maintain the confidentiality of Privileged Information and to assert and maintain all applicable privileges and immunities. The Parties agree that (i) their respective rights to any access to information, witnesses and other Persons, the furnishing of notices and documents and other cooperative efforts between the Parties contemplated by this Agreement, and the transfer of Privileged Information between the Parties and members of their respective Groups pursuant to this Agreement, shall not be deemed a waiver of any privilege or immunity that has been or may be asserted under this Agreement or otherwise and (ii) in the event of any transfer by one Party to the other Party of any Privileged Information that should not have been transferred pursuant to the terms of this Article VI , the Party receiving such Privileged Information shall promptly return such Privileged Information to and at the request of the Party that has the right to assert the privilege or immunity and without prejudice to any longer period that may be provided for in any of the Ancillary Agreements.
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(h)            In connection with any matter contemplated by Section 6.7 or this Section 6.8 , the Parties agree to, and to cause the applicable members of their Group to, use commercially reasonable efforts to maintain their respective separate and joint privileges and immunities, including by executing joint defense and/or common interest agreements where necessary or useful for this purpose.

        6.9     Confidentiality .            (a)           (a) Confidentiality. Subject to Section 6.10 , from and after the Effective Time until the five-year anniversary of the Distribution Date, each of KAR and SpinCo, on behalf of itself and each member of such Party’s respective Group, agrees to hold, and to cause its respective Representatives to hold, in strict confidence, with at least the same degree of care that applies to KAR’s confidential and proprietary information pursuant to policies in effect as of the Effective Time, all confidential and proprietary information concerning the other Party or any member of the other Party’s Group or their respective businesses that is either in its possession (including confidential and proprietary information in its possession prior to the date hereof) or furnished by any such other Party or any member of such Party’s Group or their respective Representatives at any time pursuant to this Agreement, any Ancillary Agreement or otherwise, and shall not use any such confidential and proprietary information other than for such purposes as shall be expressly permitted hereunder or thereunder, except, in each case, to the extent that such confidential and proprietary information has been (i) in the public domain or generally available to the public, other than as a result of a disclosure by such Party or any member of such Party’s Group or any of their respective Representatives in violation of this Agreement, (ii) later lawfully acquired from other sources by such Party (or any member of such Party’s Group) which sources are not themselves bound by a confidentiality obligation or other contractual, legal or fiduciary obligation of confidentiality with respect to such confidential and proprietary information, or (iii) independently developed or generated without reference to or use of any proprietary or confidential information of the other Party or any member of such Party’s Group. If any confidential and proprietary information of one Party or any member of such Party’s Group is disclosed to the other Party or any member of such other Party’s Group in connection with providing services to such first Party or any member of such first Party’s Group under this Agreement or any Ancillary Agreement, then such disclosed confidential and proprietary information shall be used only as required to perform such services.

(b)            No Release; Return or Destruction . Each Party agrees not to release or disclose, or permit to be released or disclosed, any information addressed in Section 6.9(a) to any other Person, except its Representatives who need to know such information in their capacities as such (who shall be advised of their obligations hereunder with respect to such information), and except in compliance with Section 6.10 . Without limiting the foregoing, when any such information is no longer needed for the purposes contemplated by this Agreement or any Ancillary Agreement, each Party will promptly after request of the other Party either return to the other Party all such information in a tangible form (including all copies thereof and all notes, extracts or summaries based thereon) or notify the other Party in writing that it has destroyed such information (and such copies thereof and such notes, extracts or summaries based thereon); provided , that the Parties may retain electronic back-up versions of such information maintained on routine computer system backup tapes, disks or other backup storage devices; provided   further , that any such information so retained shall remain subject to the confidentiality provisions of this Agreement or any Ancillary Agreement.
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(c)            Third-Party Information; Privacy or Data Protection Laws . Each Party acknowledges that it and members of such Party’s Group may presently have and, following the Effective Time, may gain access to or possession of confidential or proprietary information of, or personal information relating to, Third Parties (i) that was received under confidentiality or non-disclosure agreements entered into between such Third Parties, on the one hand, and the other Party or members of such Party’s Group, on the other hand, prior to the Effective Time, or (ii) that, as between the two Parties, was originally collected by the other Party or members of such Party’s Group and that may be subject to and protected by privacy, data protection or other applicable Laws. Each Party agrees that it shall hold, protect and use, and shall cause the members of such Party’s Group and its and their respective Representatives to hold, protect and use, in strict confidence the confidential and proprietary information of, or personal information relating to, Third Parties in accordance with privacy, data protection or other applicable Laws and the terms of any agreements that were either entered into before the Effective Time or affirmative commitments or representations that were made before the Effective Time by, between or among the other Party or members of the other Party’s Group, on the one hand, and such Third Parties, on the other hand.

6.10            Protective Arrangements . In the event that a Party or any member of such Party’s Group either determines on the advice of its counsel that it is required to disclose any information pursuant to applicable Law or receives any request or demand under lawful process or from any Governmental Authority to disclose or provide information of the other Party (or any member of the other Party’s Group) that is subject to the confidentiality provisions hereof, such Party shall notify the other Party (to the extent legally permitted) as promptly as practicable under the circumstances prior to disclosing or providing such information and shall cooperate, at the expense of the other Party, in seeking any appropriate protective order requested by the other Party. In the event that such other Party fails to receive such appropriate protective order in a timely manner and the Party receiving the request or demand reasonably determines that its failure to disclose or provide such information shall actually prejudice the Party receiving the request or demand, then the Party that received such request or demand may thereafter disclose or provide information to the extent required by such Law (as so advised by its counsel) or by lawful process or such Governmental Authority, and the disclosing Party shall promptly provide the other Party with a copy of the information so disclosed, in the same form and format so disclosed, together with a list of all Persons to whom such information was disclosed, in each case to the extent legally permitted.
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ARTICLE VII

DISPUTE RESOLUTION

        7.1     Good-Faith Officer Negotiation .  Either Party seeking resolution of any dispute, controversy or claim arising out of or relating to this Agreement or, except as otherwise provided therein, any Ancillary Agreement (including regarding whether any Assets are SpinCo Assets, any Liabilities are SpinCo Liabilities or the validity, interpretation, breach or termination of this Agreement or, except as otherwise provided therein, any Ancillary Agreement) (a “ Dispute ”) may provide written notice thereof to the other Party (the “ Initial Notice ”), and the Parties shall thereafter attempt in good faith to negotiate a resolution of the Dispute. The negotiations shall be conducted by executives of each Party who hold, at a minimum, the title of vice president and who have authority to settle the Dispute. All such negotiations shall be confidential and shall be treated as compromise and settlement negotiations for purposes of applicable rules of evidence.

        7.2     Good-Faith CEO Negotiation . In the event that a Dispute has not been resolved pursuant to Section 7.1 within sixty (60) days after receipt by a Party of the Initial Notice, or within such longer period as the Parties may agree to in writing, the Party that delivered the Initial Notice shall provide written notice of such Dispute to the Chief Executive Officer of each Party (the “ CEO Notice ”). As soon as reasonably practicable following receipt of the CEO Notice, the Chief Executive Officers of the Parties shall begin conducting good-faith negotiations with respect to such Dispute. All such negotiations shall be confidential and shall be treated as compromise and settlement negotiations for purposes of applicable rules of evidence.

7.3     Resolution by Delaware Courts .   In the event that a Dispute has not been resolved pursuant to Section 7.2 within sixty (60) days after receipt by a Party of the CEO Notice, or within such longer period as the Parties may agree to in writing, then each party hereby agrees and consents to be subject to the jurisdiction of the Court of Chancery of the State of Delaware in and for New Castle County, or if the Court of Chancery lacks jurisdiction over such dispute, in any state or federal court having jurisdiction over the matter situated in New Castle County, Delaware, to resolve any such unresolved Dispute in any suit, action or proceeding seeking to enforce any provision of, or based on any other matter arising out of or in connection with, this Agreement or the transactions contemplated hereby.  Notwithstanding the foregoing, nothing contained herein is intended to or shall be construed to prevent any Party from applying to any court of competent jurisdiction for injunctive or other similar equitable relief in connection with the subject matter of any Dispute, including in connection with the Parties’ rights and obligations pursuant to Section 5.7 and Exhibit C , to prevent irreparable harm prior to the expiration of the relevant notice and negotiation time periods provided under this Article VII .  Each party hereby irrevocably consents to the service of any and all process in any such suit, action or proceeding by the delivery of such process to such party at the address and in the manner provided in Section 10.5 hereof.  Each of the parties hereto irrevocably and unconditionally waives any objection to the laying of venue of any action, suit or proceeding arising out of this Agreement or the transactions contemplated hereby in the Court of Chancery of the State of Delaware in and for New Castle County, or if the Court of Chancery lacks jurisdiction over such dispute, in any state or federal court having jurisdiction over the matter situated in New Castle County, Delaware, and hereby further irrevocably and unconditionally waives and agrees not to plead or claim in any such court that any such action, suit or proceeding brought in any such court has been brought in an inconvenient forum.
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(b)            EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY WHICH MAY ARISE UNDER THIS AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES, AND THEREFORE EACH PARTY HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT SUCH PARTY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT, OR THE BREACH, TERMINATION OR VALIDITY OF THIS AGREEMENT, OR THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT.  EACH PARTY CERTIFIES AND ACKNOWLEDGES THAT (i) NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER, (ii) EACH SUCH PARTY UNDERSTANDS AND HAS CONSIDERED THE IMPLICATIONS OF THIS WAIVER, (iii) EACH SUCH PARTY MAKES THIS WAIVER VOLUNTARILY AND (iv) EACH SUCH PARTY HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 7.2(b) .

        7.9     Conduct During Dispute Resolution Process . Unless otherwise agreed in writing, the Parties shall, and shall cause their respective members of their Group to, continue to honor all commitments under this Agreement and each Ancillary Agreement to the extent required by such agreements during the course of dispute resolution pursuant to the provisions of this Article VII , unless such commitments are the specific subject of the Dispute at issue.

ARTICLE VIII

FURTHER ASSURANCES AND ADDITIONAL COVENANTS

        8.1     Further Assurances .

(a)            In addition to the actions specifically provided for elsewhere in this Agreement, each of the Parties shall use its reasonable best efforts, prior to, on and after the Effective Time, to take, or cause to be taken, all actions, and to do, or cause to be done, all things, reasonably necessary, proper or advisable under applicable Laws, regulations and agreements to consummate and make effective the transactions contemplated by this Agreement and the Ancillary Agreements.

(b)            Without limiting the foregoing, prior to, on and after the Effective Time, each Party shall cooperate with the other Party, and without any further consideration, but at the expense of the requesting Party, to execute and deliver, or use its reasonable best efforts to cause to be executed and delivered, all instruments, including instruments of conveyance, assignment and transfer, and to make all filings with, and to obtain all Approvals or Notifications of, any Governmental Authority or any other Person under any permit, license, agreement, indenture or other instrument (including any consents or Governmental Approvals), and to take all such other actions as such Party may reasonably be requested to take by the other Party from time to time, consistent with the terms of this Agreement and the Ancillary Agreements, in order to effectuate the provisions and purposes of this Agreement and the Ancillary Agreements and the transfers of the SpinCo Assets and the KAR Assets and the assignment and assumption of the SpinCo Liabilities and the KAR Liabilities and the other transactions contemplated hereby and thereby. Without limiting the foregoing, each Party will, at the reasonable request, cost and expense of the other Party, take such other actions as may be reasonably necessary to vest in such other Party good and marketable title to the Assets allocated to such Party under this Agreement or any of the Ancillary Agreements, free and clear of any Security Interest, if and to the extent it is practicable to do so.
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(c)            On or prior to the Effective Time, KAR and SpinCo in their respective capacities as direct and indirect stockholders of the members of their Groups, shall each ratify any actions which are reasonably necessary or desirable to be taken by KAR, SpinCo or any of the members of their respective Groups, as the case may be, to effectuate the transactions contemplated by this Agreement and the Ancillary Agreements.

(d)            KAR and SpinCo, and each of the members of their respective Groups, waive (and agree not to assert against any of the others) any claim or demand that any of them may have against any of the others for any Liabilities or other claims relating to or arising out of (i) the failure of SpinCo or any other member of the SpinCo Group, on the one hand, or of KAR or any other member of the KAR Group, on the other hand, to provide any notification or disclosure required under any state Environmental Law in connection with the Separation or the other transactions contemplated by this Agreement, including the transfer by any member of either Group to any member of the other Group of ownership or operational control of any Assets not previously owned or operated by such transferee, or (ii) any inadequate, incorrect or incomplete notification or disclosure under any such state Environmental Law by the applicable transferor. To the extent any Liability to any Governmental Authority or any Third Party arises out of any action or inaction described in clause (i) or (ii) above, the transferee of the applicable Asset hereby assumes and agrees to pay any such Liability.

        8.2     KAR Names . SpinCo shall, and shall cause the other members of the SpinCo Group to, within ninety (90) days after the Distribution Date, file all such documents with Governmental Authorities and otherwise take such steps as are necessary, to cause the members of the SpinCo Group to change their names (including any corporate name, assumed name, d/b/a or the like), as applicable, to names that do not include the KAR Marks or any name that is a derivation thereof or confusingly similar thereto.  In addition, as promptly as practicable following the Effective Time, but in no event later than ninety (90) days after the Distribution Date, SpinCo shall not use, and shall cause the members of the SpinCo Group to cease using, the KAR Marks and any name or mark that is a derivation thereof or confusingly similar thereto. Any use of the KAR Marks by the SpinCo Group prior to such cessation shall be in a manner consistent with such use as of the Effective Time.

ARTICLE IX

TERMINATION

9.1            Termination . This Agreement and all Ancillary Agreements may be terminated and the Distribution may be amended, modified or abandoned at any time prior to the Effective Time by KAR, in its sole and absolute discretion, without the approval or consent of any other Person, including SpinCo and the stockholders of KAR. After the Effective Time, this Agreement may not be terminated except by an agreement in writing signed by a duly authorized officer of each of the Parties.
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9.2             Effect of Terminatio n. In the event of any termination of this Agreement prior to the Effective Time, no Party (nor any of its directors, officers or employees) shall have any Liability or further obligation to the other Party by reason of this Agreement.

ARTICLE X

MISCELLANEOUS

        10.1     Counterparts; Entire Agreement; Corporate Power .           

                (a)           This Agreement and each Ancillary Agreement may be executed in one or more counterparts, all of which shall be considered one and the same agreement, and shall become effective when one or more counterparts have been signed by each of the Parties and delivered to the other Party.

(b)            This Agreement, the Ancillary Agreements and the Exhibits, Schedules and appendices hereto and thereto contain the entire agreement between the Parties with respect to the subject matter hereof, supersede all previous agreements, negotiations, discussions, writings, understandings, commitments and conversations with respect to such subject matter, and there are no agreements or understandings between the Parties other than those set forth or referred to herein or therein.

(c)            KAR represents on behalf of itself and each other member of the KAR Group, and SpinCo represents on behalf of itself and each other member of the SpinCo Group, as follows:

(i)            each such Person has the requisite corporate or other power and authority and has taken all corporate or other action necessary in order to execute, deliver and perform this Agreement and each Ancillary Agreement to which it is a party and to consummate the transactions contemplated hereby and thereby; and

(ii)            this Agreement and each Ancillary Agreement to which it is a party has been duly executed and delivered by it and constitutes a valid and binding agreement of it enforceable in accordance with the terms thereof.

(d)            Each Party acknowledges that it and each other Party is executing certain of the Ancillary Agreements by facsimile, stamp or mechanical signature, and that delivery of an executed counterpart of a signature page to this Agreement or any Ancillary Agreement (whether executed by manual, stamp or mechanical signature) by facsimile or by email in portable document format (PDF) shall be effective as delivery of such executed counterpart of this Agreement or any Ancillary Agreement. Each Party expressly adopts and confirms each such facsimile, stamp or mechanical signature (regardless of whether delivered in person, by mail, by courier, by facsimile or by email in portable document format (PDF)) made in its respective name as if it were a manual signature delivered in person, agrees that it will not assert that any such signature or delivery is not adequate to bind such Party to the same extent as if it were signed manually and delivered in person and agrees that, at the reasonable request of the other Party at any time, it will as promptly as reasonably practicable cause each such Ancillary Agreement to be manually executed (any such execution to be as of the date of the initial date thereof) and delivered in person, by mail or by courier.
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10.2            Governing Law . This Agreement and, unless expressly provided therein, each Ancillary Agreement (and any claims or disputes arising out of or related hereto or thereto or to the transactions contemplated hereby and thereby or to the inducement of any party to enter herein and therein, whether for breach of contract, tortious conduct or otherwise and whether predicated on common law, statute or otherwise) shall be governed by and construed and interpreted in accordance with the Laws of the State of Delaware irrespective of the choice of laws principles of the State of Delaware including all matters of validity, construction, effect, enforceability, performance and remedies.

10.3            Assignability . Except as set forth in any Ancillary Agreement, this Agreement and each Ancillary Agreement shall be binding upon and inure to the benefit of the Parties and the parties thereto, respectively, and their respective successors and permitted assigns; provided , however , that neither Party nor any such party thereto may assign its rights or delegate its obligations under this Agreement or any Ancillary Agreement without the express prior written consent of the other Party hereto or other parties thereto, as applicable. Notwithstanding the foregoing, no such consent shall be required for the assignment of a party’s rights and obligations under this Agreement and the Ancillary Agreements (except as may be otherwise provided in any such Ancillary Agreement) in whole (i.e., the assignment of a party’s rights and obligations under this Agreement and all Ancillary Agreements all at the same time) in connection with a Change of Control of a Party so long as the resulting, surviving or transferee Person assumes all the obligations of the relevant party thereto by operation of Law or pursuant to an agreement in form and substance reasonably satisfactory to the other Party. Nothing herein is intended to, or shall be construed to, prohibit either Party or any member of its Group from being party to or undertaking a Change of Control; provided , that nothing in this Section 10.3 shall limit the terms of Section 5.7(b) .

10.4            Third-Party Beneficiaries . Except for the indemnification rights under this Agreement of any KAR Indemnitee or SpinCo Indemnitee in their respective capacities as such, and except as set forth in Section 5.2 , (a) the provisions of this Agreement and each Ancillary Agreement are solely for the benefit of the Parties and are not intended to confer upon any Person except the Parties any rights or remedies hereunder, and (b) there are no third-party beneficiaries of this Agreement or any Ancillary Agreement and neither this Agreement nor any Ancillary Agreement shall provide any Third Party with any remedy, claim, Liability, reimbursement, claim of action or other right in excess of those existing without reference to this Agreement or any Ancillary Agreement.

10.5            Notices . All notices, requests, claims, demands or other communications under this Agreement and, to the extent, applicable and unless otherwise provided therein, under each of the Ancillary Agreements shall be in writing and shall be given or made (and shall be deemed to have been duly given or made upon receipt) by delivery in person, by electronic mail (for which a confirmation email is obtained), or sent by overnight courier (providing proof of delivery) to the respective Parties at the following addresses (or at such other address for a Party as shall be specified in a notice given in accordance with this Section 10.5 ):
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If to KAR, to:
       
   
KAR Auction Services, Inc.
   
13085 Hamilton Crossing Boulevard
   
Carmel, Indiana 46032
   
Email:
becca.polak@karauctionservices.com
   
Attention:
Chief Legal Officer
       
 
with a copy (prior to the Effective Time) to:
       
   
Skadden, Arps, Slate, Meagher & Flom LLP
   
Four Times Square
   
New York, New York 10036
   
Email:
Sean.Doyle@skadden.com
     
Gregory.Fernicola@skadden.com
     
Dwight.Yoo@skadden.com
   
Attention:
Sean C. Doyle
     
Gregory A. Fernicola
     
Dwight S. Yoo
       
 
If to SpinCo, to:
       
   
Insurance Auto Auctions, Inc.
   
Two Westbrook Corporate Center, Suite 500
   
Westchester, Illinois 60154
   
Email:
jkett@iaai.com
     
skerley@iaai.com
   
Attention:
John Kett
     
Sidney Peryar
       
 
with a copy (prior to the Effective Time) to:
     
   
Skadden, Arps, Slate, Meagher & Flom LLP
   
Four Times Square
   
New York, New York 10036
   
Email:
Sean.Doyle@skadden.com
     
Gregory.Fernicola@skadden.com
     
Dwight.Yoo@skadden.com
   
Attention:
Sean C. Doyle
     
Gregory A. Fernicola
     
Dwight S. Yoo
       

A Party may, by notice to the other Party, change the address to which such notices are to be given.

10.6            Severability . If any provision of this Agreement or any Ancillary Agreement or the application thereof to any Person or circumstance is determined by a court of competent jurisdiction to be invalid, void or unenforceable, the remaining provisions hereof or thereof, or the application of such provision to Persons or circumstances or in jurisdictions other than those as to which it has been held invalid or unenforceable, shall remain in full force and effect and shall in no way be affected, impaired or invalidated thereby. Upon such determination, the Parties shall negotiate in good faith in an effort to agree upon such a suitable and equitable provision to effect the original intent of the Parties.
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        10.7            Force Majeure . No Party shall be deemed in default of this Agreement or, unless otherwise expressly provided therein, any Ancillary Agreement for any delay or failure to fulfill any obligation (other than a payment obligation) hereunder or thereunder so long as and to the extent to which any delay or failure in the fulfillment of such obligation is prevented, frustrated, hindered or delayed as a consequence of circumstances of Force Majeure. In the event of any such excused delay, the time for performance of such obligations (other than a payment obligation) shall be extended for a period equal to the time lost by reason of the delay unless this Agreement has previously been terminated under Article IX . A Party claiming the benefit of this provision shall, as soon as reasonably practicable after the occurrence of any such event, (a) provide written notice to the other Party of the nature and extent of any such Force Majeure condition, and (b) use commercially reasonable efforts to remove any such causes and resume performance under this Agreement and the Ancillary Agreements, as applicable, as soon as reasonably practicable.

10.8            No Set-Off . Except as set forth in any Ancillary Agreement or as otherwise mutually agreed to in writing by the Parties, neither Party nor any member of such Party’s Group shall have any right of set-off or other similar rights with respect to (a) any amounts received pursuant to this Agreement or any Ancillary Agreement, or (b) any other amounts claimed to be owed to the other Party or any member of its Group arising out of this Agreement or any Ancillary Agreement.

10.9            Publicity . Prior to the Effective Time, KAR shall be responsible for issuing any press releases or otherwise making public statements with respect to the Separation, the Distribution or any of the other transactions contemplated hereby or under any Ancillary Agreement and prior to making any filings with any Governmental Authority with respect thereto. From and after the Effective Time, for a period of 1 year, SpinCo shall consult with KAR prior to issuing any press releases or otherwise making public statements with respect to the Separation, the Distribution or any of the other transactions contemplated hereby or under any Ancillary Agreement and prior to making any filings with any Governmental Authority with respect thereto.

10.10            Expenses . Except as otherwise expressly set forth in this Agreement or any Ancillary Agreement, or as otherwise agreed to in writing by the Parties, all costs and expenses in connection with the preparation, execution, delivery and implementation of this Agreement and any Ancillary Agreement, the Separation, the Form 10 and the consummation of the transactions contemplated hereby and thereby incurred (i) on or prior to the Effective Time will be borne by KAR and (ii) after the Effective Time will be borne by the Party or its applicable Subsidiary incurring such costs or expenses.
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10.11            Headings . The article, section and paragraph headings contained in this Agreement and in the Ancillary Agreements are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement or any Ancillary Agreement.

10.12            Survival of Covenants . Except as expressly set forth in this Agreement or any Ancillary Agreement, the covenants, representations and warranties contained in this Agreement and each Ancillary Agreement, and Liability for the breach of any obligations contained herein, shall survive the Separation and the Distribution and shall remain in full force and effect.

10.13            Waivers of Default . Waiver by a Party of any default by the other Party of any provision of this Agreement or any Ancillary Agreement shall be in writing and shall not be deemed a waiver by the waiving Party of any subsequent or other default, nor shall it prejudice the rights of the other Party. No failure or delay by a Party in exercising any right, power or privilege under this Agreement or any Ancillary Agreement shall operate as a waiver thereof, nor shall a single or partial exercise thereof prejudice any other or further exercise thereof or the exercise of any other right, power or privilege.

10.14            Specific Performance . From and after the Distribution, subject to the provisions of Article VII (including, for the avoidance of doubt, after compliance with all notice and negotiation provisions provided herein), in the event of any actual or threatened default in, or breach of, any of the terms, conditions and provisions of this Agreement or any Ancillary Agreement, the Party or Parties who are, or are to be, thereby aggrieved shall have the right to specific performance and injunctive or other equitable relief in respect of its or their respective rights under this Agreement or such Ancillary Agreement, as applicable, in addition to any and all other rights and remedies at law or in equity, and all such rights and remedies shall be cumulative. The Parties agree that, from and after the Distribution, the remedies at law for any breach or threatened breach, including monetary damages, are inadequate compensation for any loss and that any defense in any action for specific performance that a remedy at law would be adequate is waived. Any requirements for the securing or posting of any bond with such remedy are waived by each of the Parties.

10.15            Amendments . No provisions of this Agreement or any Ancillary Agreement shall be deemed waived, amended, supplemented or modified by a Party, unless such waiver, amendment, supplement or modification is in writing and signed by the authorized representative of the Party against whom it is sought to enforce such waiver, amendment, supplement or modification.

10.16            Interpretation . In this Agreement and any Ancillary Agreement, (a) words in the singular shall be deemed to include the plural and vice versa and words of one gender shall be deemed to include the other genders as the context requires, (b) the terms “hereof,” “herein,” and “herewith” and words of similar import shall, unless otherwise stated, be construed to refer to this Agreement (or the applicable Ancillary Agreement) as a whole (including all of the Schedules, Exhibits and Appendices hereto and thereto) and not to any particular provision of this Agreement (or such Ancillary Agreement), (c) Article, Section, Schedule, Exhibit and Appendix references are to the Articles, Sections, Schedules, Exhibits and Appendices to this Agreement (or the applicable Ancillary Agreement) unless otherwise specified, (d) unless otherwise stated, all references to any agreement (including this Agreement and any Ancillary Agreement) shall be deemed to include the exhibits, schedules and annexes (including all Schedules, Exhibits and Appendices) to such agreement, (e) the word “including” and words of similar import when used in this Agreement (or the applicable Ancillary Agreement) shall mean “including, without limitation,” unless otherwise specified, (f) the word “or” shall not be exclusive, (g) unless otherwise specified in a particular case, the word “days” refers to calendar days, (h) references to “business day” shall mean any day other than a Saturday, a Sunday or a day on which banking institutions are generally authorized or required by law to close in the United States or New York, New York, (i) references herein to this Agreement or any other agreement contemplated herein shall be deemed to refer to this Agreement or such other agreement as of the date on which it is executed and as it may be amended, modified or supplemented thereafter, unless otherwise specified, and (j) unless expressly stated to the contrary in this Agreement or in any Ancillary Agreement, all references to “the date hereof,” “the date of this Agreement,” “hereby” and “hereupon” and words of similar import shall all be references to [●], 2019.
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10.17            Limitations of Liability . Notwithstanding anything in this Agreement to the contrary, neither SpinCo or any member of the SpinCo Group, on the one hand, nor KAR or any member of the KAR Group, on the other hand, shall be liable under this Agreement to the other for any indirect, punitive, exemplary, remote, speculative or similar damages in excess of compensatory damages of the other arising in connection with the transactions contemplated hereby (other than any such Liability with respect to a Third-Party Claim).

10.18            Performance . KAR will cause to be performed, and hereby guarantees the performance of, all actions, agreements and obligations set forth in this Agreement or in any Ancillary Agreement to be performed by any member of the KAR Group. SpinCo will cause to be performed, and hereby guarantees the performance of, all actions, agreements and obligations set forth in this Agreement or in any Ancillary Agreement to be performed by any member of the SpinCo Group. Each Party (including such Party’s permitted successors and assigns) further agrees that it will (a) give timely notice of the terms, conditions and continuing obligations contained in this Agreement and any applicable Ancillary Agreement to all of the other members of such Party’s Group and (b) cause all of the other members of such Party’s Group not to take any action or fail to take any such action inconsistent with such Party’s obligations under this Agreement, any Ancillary Agreement or the transactions contemplated hereby or thereby.

10.19            Mutual Drafting . This Agreement and the Ancillary Agreements shall be deemed to be the joint work product of the Parties and any rule of construction that a document shall be interpreted or construed against a drafter of such document shall not be applicable.

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IN WITNESS WHEREOF, the Parties have caused this Separation and Distribution Agreement to be executed by their duly authorized representatives as of the date first written above.


 
KAR AUCTION SERVICES, INC.
     
     
 
By:
 
   
Name:
   
Title:
     
 
IAA SPINCO INC.
     
     
 
By:
 
   
Name:
   
Title:















[Signature Page to Separation and Distribution Agreement]

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EXHIBIT C

Restricted Business

This Exhibit C to the Separation and Distribution Agreement, dated as of [●], 2019 (the “ Agreement ”), made and entered into by and between KAR Auction Services, Inc., a Delaware corporation (“ KAR ”), and IAA Spinco Inc., a Delaware corporation and wholly owned subsidiary of KAR (“ SpinCo ”) shall be read in conjunction with, and form an integral part of, the Agreement. Capitalized terms used herein and not otherwise defined shall have the respective meanings ascribed to such terms in the Agreement.

(a)            KAR’s and SpinCo’s auction businesses have operated as a unified part of KAR, and management, assets, intellectual property and know-how, customers, suppliers, and systems are shared between such businesses. As a result, the provisions of this Exhibit C are necessary to (i) allow each Party to operate its respective businesses effectively and competitively and (ii) protect each Party, in light of the substantial investment of time and financial resources in such businesses and each Party’s knowledge of the other Party’s customers, markets, strategy, technology, intellectual property and know-how, suppliers and personnel, against potential damage from the wrongful use of such knowledge.

(b)            The Parties hereby agree that from and after the Distribution Date for a period of five (5) years SpinCo shall not, and shall cause other members of the SpinCo Group and its and their Affiliates not to, directly or indirectly, engage in the Restricted Business (as defined herein) anywhere in [***] . “ Restricted Business ” shall include each of the following ( provided , however , that the Restricted Business shall exclude KAR’s salvage auction businesses as conducted immediately prior to the Distribution Date):

(i)          KAR’s businesses other than its salvage auction businesses as conducted immediately prior to the Distribution Date, including without limitation [***] ;

(ii)         operation of any electronic, mobile, mobile-app, digital or physical auction business selling whole car vehicles;

(iii)        [***];
(iv)        floorplan financing business (including, for the avoidance of doubt, all operations included under the AFC business segment, as disclosed in KAR’s Form 10-K for the year ended December 31, 2018, filed with the SEC on February 21, 2019), including without limitation [***] ; and

(v)         solicitation or provision of services to any original equipment manufacturer or original equipment manufacturer captive finance company by the SpinCo Group, except for services performed by the SpinCo Group with respect to the facilitation of loan pay-offs in connection with total loss transactions.

(c)            Notwithstanding the foregoing, none of the following shall constitute a breach of Section (b) of this Exhibit C (except to the extent set forth in the provisos to this Section (c) ):

(i)          acceptance of non-salvage vehicles that are charity donations by the SpinCo Group and sales of such vehicles by the SpinCo Group ;

(ii)         purchases of non-salvage vehicles from the public by the SpinCo Group; provided that the average purchase price of such vehicles purchased in each Annual Period (as defined herein) is less than [***] , and such purchases in each Annual Period represent less than [***] of the SpinCo Group’s consolidated annual sold volume for the applicable Annual Period ;

(iii)        sales of non-salvage vehicles by the SpinCo Group for : [***]

(iv)        sales by the SpinCo Group of non-salvage vehicles for [***] for the avoidance of doubt, any sales pursuant to this clause (iv) shall not count toward the thresholds set forth in clause (iii) of this Section (c) );

(v)         purchase or ownership by the SpinCo Group of a Person or business that derives less than [***]% of its total annual revenues from Restricted Business, measured for the fiscal year ended immediately prior to the date of purchase or commencement of ownership;
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(vi)        direct or indirect ownership by the SpinCo Group of publicly traded interests in or securities of any Person engaged in Restricted Business, to the extent that such investment does not, directly or indirectly, confer on the SpinCo Group more than 5% of the voting power of such Person, or the investment in any fund in which the SpinCo Group has no discretion with respect to the investment strategy of such fund;

(vii)       any equity interest in any Person through any employment benefits plan of any member of the SpinCo Group; and

(viii)      purchases of vehicles by [***] in a manner consistent with purchases made by [***] immediately prior to the Distribution Date.

For purposes of this Section (c), “Annual Period” means each of the following: (1) annual period beginning on July 1, 2019 and ending on June 30, 2020; (2) annual period beginning on July 1, 2020 and ending on June 30, 2021; (3) annual period beginning on July 1, 2021 and ending on June 30, 2022; (4) annual period beginning on July 1, 2022 and ending on June 30, 2023; and (5) annual period beginning on July 1, 2023 and ending on June 30, 2024. [***].

(d)            Each party hereby agrees that from and after the Distribution Date for a period of twelve (12) months, such Party shall not hire or solicit for employment, or solicit and enter into any contractual arrangement for consulting or other professional services with, any individual who is a KAR Group Employee (as defined in the Employee Matters Agreement), in the case of SpinCo, or a SpinCo Group Employee (as defined in the Employee Matters Agreement), in the case of KAR; provided , however , that, without limiting the generality of the foregoing prohibition on soliciting and hiring  Employees (as defined in the Employee Matters Agreement) of the other Party, this Section (d) shall not prohibit (i) generalized solicitations that are not directed to specific Persons or Employees of the other Party, (ii) the solicitation and hiring of a Person whose employment was involuntarily terminated by the other Party, or (iii) the solicitation and hiring of a Person after receipt by the soliciting Party (in advance of any solicitation or, in the case of a response to a general solicitation as permitted under clause (i) above, in advance of any subsequent solicitation in connection with the recruiting process) of the express written consent of the senior Human Resources executive of the Party that employs the Person who is to be solicited and/or hired.  Except as provided in clause (ii) above, with respect to involuntary terminations, without regard to the use of the term “Employee” or “employs,” the restrictions under this Section (d) shall be applicable to (1) KAR Group Employees whose employment terminates sixty (60) days prior to the Distribution Date or after the Distribution Date, and (2) SpinCo Group Employees whose employment terminates sixty (60) days prior to the Distribution Date or after the Distribution Date, in each case,  until the date that is six months after such employee’s last date of employment with KAR or SpinCo, as applicable.

(e)            SpinCo shall, or shall cause another member of the SpinCo Group to, provide notice to all members of the SpinCo Group and its and their Affiliates of the agreements and covenants set forth in this Exhibit C , including SpinCo’s obligations and KAR’s enforcement rights.

(f)            From and after the Distribution Date, each member of the KAR Group shall be permitted to obtain from the SpinCo Group, and SpinCo shall cause each member of the SpinCo Group to cooperate to provide and deliver to KAR or the applicable member of the KAR Group, copies of all books, records and other Tangible Information to allow KAR to determine whether SpinCo or another member of the SpinCo Group has complied with its obligations under this Exhibit C , so long as KAR or another member of the KAR Group shall have provided no less than thirty (30) days prior written notice to SpinCo.
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(g)           [***].

(h)            If the final judgment of a court of competent jurisdiction declares any term or provision of this Exhibit C invalid or unenforceable, the Parties hereto agree that the court making the determination of invalidity or unenforceability shall have the power to and shall reform this Exhibit C to reduce the time, geographic area and/or scope of activity, to delete specific words or phrases, and/or to replace any invalid or unenforceable term or provision with a term or provision that is valid and enforceable and that comes closest to expressing the intention of the invalid or unenforceable term or provision, and the Agreement shall be enforceable as so modified.

(i)            Each Party acknowledges and agrees that the agreements and covenants set forth in this Exhibit C are (i) necessary to protect the legitimate business interests of the other Party, (ii) reasonable as to time, geographic area and scope of activity and do not impose a greater restraint on the activities of such Party than is reasonably necessary to protect such legitimate interests of the other Party, and (iii) reasonable in light of the consideration and other value provided, directly or indirectly, to such Party by the other Party pursuant to the Agreement and the Separation. Each Party hereby waives any and all rights to contest the validity of the agreements and covenants set forth in this Exhibit C on the ground of the reasonableness of the length of their term or the breadth of their geographic area or scope of activity.

(j)            Each Party acknowledges and agrees that (i) remedies at law, including monetary damages, would not be a sufficient remedy for any breach or threatened breach of the agreements and covenants set forth in this Exhibit C , (ii) the non-breaching Party would be irreparably harmed in the case of any such breach or threatened breach, and (iii) the non-breaching Party shall be entitled to specific performance and injunctive or other equitable relief without proof of actual damages or posting of a bond as a remedy for any such breach or threatened breach.  Such remedies shall not be deemed to be the exclusive remedies for a breach or threatened breach of the agreements and covenants set forth in this Exhibit C but shall be in addition to all other remedies available at law or equity to the non-breaching Party. In any suit, action or claim to enforce the agreements and covenants set forth in this Exhibit C or for breach of the agreements and covenants set forth in this Exhibit C , the non-Breaching party shall be entitled (for the avoidance of doubt, in addition to any remedies at law or equity) to recover its reasonable, out-of-pocket expenses, including reasonable attorneys’ fees. Notwithstanding the foregoing, all liabilities incurred in connection with the agreements and covenants set forth in this Exhibit C shall exclude indirect, consequential and punitive damages, except to the extent arising out of a willful and material breach of the agreements and covenants set forth in this Exhibit C .

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Exhibit 3.1

AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
IAA, INC.

IAA, Inc. (the “Corporation”), a corporation organized and existing under the General Corporation Law of the State of Delaware (the “GCL”), does hereby certify as follows:

(1)
The name of the Corporation is IAA, Inc. The Corporation was originally incorporated under the name IAA Spinco Inc. and the original certificate of incorporation of the Corporation was filed with the Secretary of State of the State of Delaware on June 19, 2018.

(2)
This Amended and Restated Certificate of Incorporation was duly adopted by the Board of Directors of the Corporation (the “Board of Directors”) in accordance with Sections 242 and 245 of the GCL and by the sole stockholder of the Corporation in accordance with Section 228 of the GCL.

(3)
This Amended and Restated Certificate of Incorporation further amends and restates the Certificate of Incorporation.

(4)
The text of the Certificate of Incorporation is hereby amended and restated to read in its entirety, as follows:

FIRST :  The name of the Corporation is IAA, Inc.

SECOND : The registered office of the Corporation in the State of Delaware is located at 160 Greentree Drive, Suite 101, in the City of Dover, County of Kent. The name of the registered agent at such address upon whom process against this Corporation may be served is The Corporation Service Company.

THIRD : The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware as set forth in Title 8 of the Delaware Code (the “GCL”).

FOURTH :

(a)            Authorized Capital Stock. The total number of shares of stock which the Corporation shall have authority to issue is 900,000,000 of which the Corporation shall have authority to issue 750,000,000 shares of common stock, each having a par value of one cent per share ($0.01) (the “Common Stock”), and 150,000,000 shares of preferred stock, each having a par value of one cent per share ($0.01) (the “Preferred Stock”). The number of authorized shares of Common Stock or Preferred Stock may be increased or decreased (but not below the number of shares thereof then outstanding) by the affirmative vote of the holders of a majority in voting power of the stock of the Corporation entitled to vote thereon irrespective of the provisions of Section 242(b)(2) of the GCL (or any successor provision thereto), and no vote of the holders of any of the Common Stock or the Preferred Stock voting separately as a class shall be required therefor.

(b)            Common Stock. The powers, preferences and rights, and the qualifications, limitations and restrictions, of the Common Stock are as follows:

(1) Each holder of record of shares of Common Stock shall be entitled to one vote for each share of Common Stock held on all matters submitted to a vote of stockholders of the Corporation on which holders of Common Stock are entitled to vote.

(2) The holders of shares of Common Stock shall not have cumulative voting rights (as defined in Section 214 of the GCL).

(3) Subject to the rights of the holders of Preferred Stock, and subject to any other provisions of this Amended and Restated Certificate of Incorporation, as it may be amended from time to time, holders of shares of Common Stock shall be entitled to receive such dividends and other distributions in cash, stock or property of the Corporation if, as and when declared thereon by the Board of Directors from time to time out of assets or funds of the Corporation legally available therefor.

(4)  In the event of any liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary, after payment or provision for the payment of the debt and liabilities of the Corporation and subject to the prior payment in full of the preferential amounts, if any, to which any series of Preferred Stock may be entitled, the holders of shares of Common Stock shall be entitled to receive the assets and funds of the Corporation remaining for distribution in proportion to the number of shares held by them, respectively.

(5) No holder of shares of Common Stock shall be entitled to preemptive or subscription rights.

(c)            Preferred Stock. The Board of Directors is expressly authorized to provide for the issuance of all or any shares of the Preferred Stock in one or more classes or series, and to fix for each such class or series such voting powers, full or limited, or no voting powers, and such distinctive designations, preferences and relative, participating, optional or other special rights and such  qualifications, limitations or restrictions thereof, as shall be stated and expressed in the resolution or resolutions adopted by the Board of Directors providing for the issuance of such class or series and as may be permitted by the GCL, including, without limitation, the authority to provide that any such class or series may be (i) subject to redemption at such time or times and at such price or prices; (ii) entitled to receive dividends (which may be cumulative or non-cumulative) at such rates, on such conditions, and at such times, and payable in preference to, or in such relation to, the dividends payable on any other class or classes or any other series; (iii) entitled to such rights upon the dissolution of, or upon any distribution of the assets of, the Corporation; or (iv) convertible into, or exchangeable for, shares of any other class or classes of stock, or of any other series of the same or any other class or classes of stock, of the Corporation at such price or prices or at such rates of exchange and with such adjustments; all as may be stated in such resolution or resolutions.

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(d)            Power to Sell and Purchase Shares. Subject to the requirements of applicable law, the Corporation shall have the power to issue and sell all or any part of any shares of any class of stock herein or hereafter authorized to such persons, and for such consideration, as the Board of Directors shall from time to time, in its discretion, determine, whether or not greater consideration could be received upon the issue or sale of the same number of shares of another class, and as otherwise permitted by law. Subject to the requirements of applicable law, the Corporation shall have the power to purchase any shares of any class of stock herein or hereafter authorized from such persons, and for such consideration, as the Board of Directors shall from time to time, in its discretion, determine, whether or not less consideration could be paid upon the purchase of the same number of shares of another class, and as otherwise permitted by law.

FIFTH :  The following provisions are inserted for the management of the business and the conduct of the affairs of the Corporation, and for further definition, limitation and regulation of the powers of the Corporation and of its directors and stockholders:

(a)            The business and affairs of the Corporation shall be managed by, or under the direction of, the Board of Directors. In addition to the powers and authority expressly conferred upon the Board of Directors by applicable law, this Amended and Restated Certificate of Incorporation or the By-Laws of the Corporation, the directors are hereby empowered to exercise all such powers and do all such acts and things as may be exercised or done by the Corporation, subject to the provisions of the GCL and this Amended and Restated Certificate of Incorporation.

(b)            The Board of Directors shall consist of not less than two or more than fifteen members, the exact number of which shall be fixed from time to time by resolution adopted by the affirmative vote of a majority of the entire Board of Directors .

(c)            Until the Corporation’s annual meeting of stockholders in 2023 (each annual meeting of stockholders an “Annual Meeting”), the Board of Directors shall be classified pursuant to Section 141(d) of the DGCL and the directors serving thereon shall be divided into three classes, designated Class I, Class II and Class III. Following the 2023 Annual Meeting, all directors shall stand for election annually. Each class of directors serving on the Board of Directors shall consist, as nearly as may be possible, of one-third of the total number of directors constituting the entire Board of Directors. The initial division of the Board of Directors into classes shall be made by the decision of the affirmative vote of a majority of the entire Board of Directors. The initial term of the Class I directors shall terminate on the date of the 2020 Annual Meeting; the initial term of the Class II directors shall terminate on the date of the 2021 Annual Meeting; and the initial term of the Class III directors shall terminate on the date of the 2022 Annual Meeting. At the 2020 Annual Meeting, the successors to the class of directors whose term expires at that meeting shall be elected to hold office for a three-year term expiring at the 2023 Annual Meeting; at the 2021 Annual Meeting, the successors to the class of directors whose term expires at that meeting shall be elected to hold office for a one-year term expiring at the 2022 Annual Meeting; at the 2022 Annual Meeting, the successors to the classes of directors whose terms expire at that meeting shall be elected in the applicable class to hold office for a one-year term expiring at the 2023 Annual Meeting; and at the 2023 Annual Meeting and each Annual Meeting thereafter, all directors shall be elected for a one-year term expiring at the next Annual Meeting. From and after the 2023 Annual Meeting, the Board of Directors shall no longer be classified under Section 141(d) of the DGCL and directors shall no longer be divided into classes.

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(d)            Until the date of the 2023 Annual Meeting, if the number of directors is changed, any increase or decrease shall be apportioned among the classes so as to maintain the number of directors in each class as nearly equal as possible, and any additional director of any class elected to fill a vacancy resulting from an increase in such class shall hold office for a term that shall coincide with the remaining term of that class, but in no case will a decrease in the number of directors shorten the term of any incumbent director.

(e)            A director shall hold office until the Annual Meeting for the year in which his or her term expires and until his or her successor shall be elected and shall qualify, subject, however, to prior death, resignation, retirement, disqualification or removal from office.

(f)            Subject to the terms of any one or more classes or series of Preferred Stock, any vacancy on the Board of Directors that results from an increase in the number of directors may be filled by a majority of the Board of Directors then in office, provided that a quorum is present, and any other vacancy occurring on the Board of Directors may be filled by a majority of the Board of Directors then in office, even if less than a quorum, or by a sole remaining director. The right of stockholders to fill vacancies on the Board of Directors is hereby specifically denied. During the period in which the Board of Directors is classified pursuant to Section 141(d) of the DGCL and the terms of this Amended and Restated Certificate of Incorporation, any director of any class elected to fill a vacancy resulting from an increase in the number of directors of such class shall hold office for a term that shall coincide with the remaining term of that class. Any director elected to fill a vacancy not resulting from an increase in the number of directors shall have the same remaining term as that of his or her predecessor.

(g)            Subject to the rights, if any, of the holders of shares of Preferred Stock then outstanding, any director or the entire Board of Directors may be removed from office at any time by the affirmative vote of the holders of at least a majority in voting power of the issued and outstanding capital stock of the Corporation entitled to vote in the election of directors; provided , however that until such time as the Board of Directors is no longer classified pursuant to Section 141(d) of the DGCL, directors may be removed from office only for cause in accordance with Section 141(k) of the DGCL, following which directors may be removed from office with or without cause .

(h)            Notwithstanding the foregoing, the election, term, removal and filling of vacancies with respect to directors, if any, elected separately by the holders of one or more series of Preferred Stock shall not be governed by this Article FIFTH, but rather shall be as  provided for in the resolutions adopted by the Board of Directors creating and establishing such series of Preferred Stock, and such directors so elected shall not be divided into classes pursuant to this Article FIFTH unless expressly provided by such terms .

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(i)            In addition to the powers and authority hereinbefore or by statute expressly conferred upon them, the directors are hereby empowered to exercise all such powers and do all such acts and things as may be exercised or done by the Corporation, subject, nevertheless, to the provisions of the GCL and this Amended and Restated Certificate of Incorporation.

SIXTH :  No director shall be personally liable to the Corporation or any of its stockholders for monetary damages for breach of fiduciary duty as a director, except to the extent such exemption from liability or limitation thereof is not permitted under the GCL as the same exists or may hereafter be amended. If the GCL is amended hereafter to authorize the further elimination or limitation of the liability of directors, then the liability of a director of the Corporation shall be eliminated or limited to the fullest extent authorized by the GCL, as so amended. Any repeal or modification of this Article SIXTH shall not adversely affect any right or protection of a director of the Corporation existing at the time of such repeal or modification with respect to acts or omissions occurring prior to such repeal or modification.

SEVENTH : The Corporation shall indemnify its directors and officers to the fullest extent authorized or permitted by law, as now or hereafter in effect, and such right to indemnification shall continue as to a person who has ceased to be a director or officer of the Corporation and shall inure to the benefit of his or her heirs, executors and personal and legal representatives; provided, however, that, except for proceedings to enforce rights to indemnification, the Corporation shall not be obligated to indemnify any director or officer (or his or her heirs, executors or personal or legal representatives) in connection with a proceeding (or part thereof) initiated by such person unless such proceeding (or part thereof) was authorized or consented to by the Board of Directors. The right to indemnification conferred by this Article SEVENTH shall include the right to be paid by the Corporation the expenses incurred in defending or otherwise participating in any proceeding in advance of its final disposition.

The Corporation may, to the extent authorized from time to time by the Board of Directors, provide rights to indemnification and to the advancement of expenses to employees and agents of the Corporation similar to those conferred in this Article SEVENTH to directors and officers of the Corporation.

The rights to indemnification and to the advance of expenses conferred in this Article SEVENTH shall not be exclusive of any other right which any person may have or hereafter acquire under this Amended and Restated Certificate of Incorporation, the By-Laws of the Corporation, any statute or other law, by agreement, vote of stockholders or approval of the directors of the Corporation or otherwise.

Any repeal or modification of this Article SEVENTH shall not adversely affect any rights to indemnification and to the advancement of expenses of a director or officer of the Corporation existing at the time of such repeal or modification with respect to any acts or omissions occurring prior to such repeal or modification.

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EIGHTH : Unless the Corporation consents in writing to the selection of an alternative forum (an “Alternative Forum Consent”), the Court of Chancery of the State of Delaware shall be the sole and exclusive forum for (i) any derivative action or proceeding brought on behalf of the Corporation, (ii) any action asserting a claim of breach of a fiduciary duty owed by any director, officer, stockholder, employee or agent of the Corporation to the Corporation or the Corporation’s stockholders, (iii) any action asserting a claim against the Corporation or any director, officer, stockholder, employee or agent of the Corporation arising out of or relating to any provision of the GCL, this Amended and Restated Certificate of Incorporation or the By-Laws of the Corporation, or (iv) any action asserting a claim against the Corporation or any director, officer, stockholder, employee or agent of the Corporation governed by the internal affairs doctrine of the State of Delaware; provided, however, that, in the event that the Court of Chancery of the State of Delaware lacks subject matter jurisdiction over any such action or proceeding, the sole and exclusive forum for such action or proceeding shall be another state or federal court located within the State of Delaware, in each such case, unless the Court of Chancery (or such other state or federal court located within the State of Delaware, as applicable) has dismissed a prior action by the same plaintiff asserting the same claims because such court lacked personal jurisdiction over an indispensable party named as a defendant therein; provided, further, that this exclusive choice of forum provision will not apply to suits brought to enforce any liability or duty created by the Securities Exchange Act of 1934, as amended, or the Securities Act of 1933, as amended. Failure to enforce the foregoing provisions would cause the Corporation irreparable harm and the Corporation shall be entitled to equitable relief, including injunctive relief and specific performance, to enforce the foregoing provisions. Any person or entity purchasing or otherwise acquiring any interest in shares of capital stock of the Corporation shall be deemed to have notice of and consented to the provisions of this Article EIGHTH. The existence of any prior Alternative Forum Consent shall not act as a waiver of the Corporation’s ongoing consent right as set forth above in this Article EIGHTH with respect to any current or future actions or claims.

NINTH : Any action required or permitted to be taken by the stockholders of the Corporation may be effected only at a duly called Annual Meeting or special meeting of the stockholders of the Corporation (each, a “Special Meeting”). The ability of stockholders of the Corporation to consent in writing to the taking of any action is hereby specifically denied.

TENTH : Meetings of stockholders may be held within or without the State of Delaware, as the By-Laws of the Corporation may provide. The books of the Corporation may be kept (subject to any provision contained in the GCL) outside the State of Delaware at such place or places as may be designated from time to time by the Board of Directors or in the By-Laws of the Corporation.

ELEVENTH : The Corporation expressly elects not to be governed by Section 203 of the GCL.

TWELFTH : Except as otherwise required by law, Special Meetings for any purpose or purposes may be called at any time only by (i) the President or the Chief Executive Officer of the Corporation or (ii) the Board of Directors pursuant to a resolution duly adopted by a majority of the total number of authorized directors then in office which states the purpose or purposes thereof. Any power of the stockholders to call a Special Meeting is hereby specifically denied. No business other than that stated in the notice of such meeting (or any supplement thereto) shall be transacted at any Special Meeting.

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THIRTEENTH : In furtherance and not in limitation of the powers conferred upon it by the laws of the State of Delaware, the Board of Directors shall have the power without the assent or vote of the stockholders to adopt, amend, alter or repeal the By-Laws of the Corporation. The affirmative vote of at least a majority of the entire Board of Directors shall be required to adopt, amend, alter or repeal the By-Laws of the Corporation.

FOURTEENTH : If any provision or provisions of this Amended and Restated Certificate of Incorporation shall be held to be invalid, illegal or unenforceable as applied to any circumstance for any reason whatsoever: (i) the validity, legality and enforceability of such provisions in any other circumstance and of the remaining provisions of this Amended and Restated Certificate of Incorporation (including, without limitation, each portion of any paragraph of this Amended and Restated Certificate of Incorporation containing any such provision held to be invalid, illegal or unenforceable that is not itself held to be invalid, illegal or unenforceable) shall not in any way be affected or impaired thereby and (ii) to the fullest extent possible, the provisions of this Amended and Restated Certificate of Incorporation (including, without limitation, each such portion of any paragraph of this Amended and Restated Certificate of Incorporation containing any such provision held to be invalid, illegal or unenforceable) shall be construed so as to permit the Corporation to protect its directors, officers, employees and agents from personal liability in respect of their good faith service to or for the benefit of the Corporation to the fullest extent permitted by law).

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IN WITNESS WHEREOF, IAA, Inc. has caused this Amended and Restated Certificate to be executed on its behalf this 27 th day of June, 2019 .

 
IAA, INC.
     
 
By:
 
 
Name:
 
 
Title:
 


Exhibit 3.2

AMENDED AND RESTATED BY-LAWS

OF

IAA, INC.

A Delaware Corporation

Effective June 27, 2019

TABLE OF CONTENTS

ARTICLE I
   
OFFICES
 
Section 1. Registered Office
1
Section 2. Other Offices
1
ARTICLE II
   
MEETINGS OF STOCKHOLDERS
   
Section 1. Place of Meetings
1
Section 2. Annual Meetings
1
Section 3. Special Meetings
1
Section 4. Nature of Business at Meetings of Stockholders
1
Section 5. Nomination of Directors
3
Section 6. Notice
5
Section 7. Adjournments
6
Section 8. Quorum
6
Section 9. Voting
6
Section 10. Proxies
7
Section 11. No Action by Written Consent
8
Section 12. List of Stockholders Entitled to Vote
8
Section 13. Record Date
8
Section 14. Stock Ledger
8
Section 15. Conduct of Meetings
9
Section 16. Inspectors of Election
9
   
ARTICLE III
   
DIRECTORS
   
Section 1. Number and Election of Directors
9
Section 2. Vacancies
9
Section 3. Duties and Powers
10
Section 4. Meetings
10
Section 5. Organization
10
Section 6. Resignations and Removals of Directors
10
Section 7. Quorum
11
Section 8. Actions of the Board by Written Consent
11
Section 9. Meetings by Means of Conference Telephone
11
Section 10. Committees
11
Section 11. Compensation
12
Section 12. Interested Directors
12

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ARTICLE IV
   
OFFICERS
   
Section 1. General
12
Section 2. Election
12
Section 3. Voting Securities Owned by the Corporation
13
Section 4. Chairman of the Board of Directors
13
Section 5. President.
13
Section 6. Vice Presidents
14
Section 7. Secretary
14
Section 8. Treasurer
14
Section 9. Assistant Secretaries
14
Section 10. Assistant Treasurers
15
Section 11. Other Officers
15
   
ARTICLE V
   
STOCK
   
Section 1. Form of Certificates
15
Section 2. Signatures
15
Section 3. Lost Certificates
15
Section 4. Transfers
16
Section 5. Dividend Record Date
16
Section 6. Record Owners
16
Section 7. Transfer and Registry Agents
16
   
ARTICLE VI
   
NOTICES
   
Section 1. Notices
17
Section 2. Waivers of Notice
17
   
ARTICLE VII
   
GENERAL PROVISIONS
   
Section 1. Dividends
17
Section 2. Disbursements
18
Section 3. Fiscal Year
18
Section 4. Corporate Seal
18

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ARTICLE VIII
   
INDEMNIFICATION
   
Section 1. Power to Indemnify in Actions, Suits or Proceedings other than Those by or in the Right of the Corporation
18
Section 2. Power to Indemnify in Actions, Suits or Proceedings by or in the Right of the Corporation
18
Section 3. Authorization of Indemnification
19
Section 4. Good Faith Defined
19
Section 5. Indemnification by a Court
19
Section 6. Expenses Payable in Advance
20
Section 7. Nonexclusivity of Indemnification and Advancement of Expenses
20
Section 8. Insurance
20
Section 9. Certain Definitions
21
Section 10. Survival of Indemnification and Advancement of Expenses
21
Section 11. Limitation on Indemnification
21
Section 12. Indemnification of Employees and Agents
21
   
ARTICLE IX
   
Section 1. Forum for Adjudication of Certain Disputes
22
   
ARTICLE X
   
AMENDMENTS
   
Section 1. Amendments
22
Section 2. Entire Board of Directors
22

iii
AMENDED AND RESTATED BY-LAWS

OF

IAA, INC.

(hereinafter called the “Corporation”)

ARTICLE I

OFFICES

Section 1. Registered Office . The registered office of the Corporation shall be in the City of Dover, County of Kent, State of Delaware.

Section 2. Other Offices . The Corporation may also have offices at such other places, both within and without the State of Delaware, as the Board of Directors may from time to time determine.
ARTICLE II

MEETINGS OF STOCKHOLDERS

Section 1. Place of Meetings . Meetings of the stockholders for the election of directors or for any other purpose shall be held at such time and place, either within or without the State of Delaware, as shall be designated from time to time by the Board of Directors. The Board of Directors may, in its sole discretion, determine that a meeting of the stockholders shall not be held at any place, but may instead be held solely by means of remote communication in the manner authorized by the General Corporation Law of the State of Delaware (the “DGCL”).

Section 2. Annual Meetings . The Annual Meeting of Stockholders for the election of directors shall be held on such date and at such time as shall be designated from time to time by the Board of Directors. Any other proper business may be transacted at the Annual Meeting of Stockholders.

Section 3. Special Meetings . Unless otherwise required by law, Special Meetings of Stockholders, for any purpose or purposes, shall be called in the manner provided by the Amended and Restated Certificate of Incorporation of the Corporation, as may be amended and restated from time to time (the “Certificate of Incorporation”). At a Special Meeting of Stockholders, only such business shall be conducted as shall be specified in the notice of meeting (or any supplement thereto).

Section 4. Nature of Business at Meetings of Stockholders . Only such business (other than nominations for election to the Board of Directors, which must comply with the provisions of Section 5 of this Article II) may be transacted at an Annual Meeting of Stockholders as is either (a) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board of Directors (or any duly authorized committee thereof), (b) otherwise properly brought before the Annual Meeting by or at the direction of the Board of Directors (or any duly authorized committee thereof), or (c) otherwise properly brought before the Annual Meeting by any stockholder of the Corporation (i) who is a stockholder of record on the date of the giving of the notice provided for in this Section 4 of this Article II and on the record date for the determination of stockholders entitled to notice of and to vote at such Annual Meeting and (ii) who complies with the notice procedures set forth in this Section 4 of this Article II.

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In addition to any other applicable requirements, for business to be properly brought before an Annual Meeting by a stockholder, such stockholder must have given timely notice thereof in proper written form to the Secretary of the Corporation.

To be timely, a stockholder’s notice to the Secretary must be delivered to or be mailed and received at the principal executive offices of the Corporation not less than ninety (90) days nor more than one hundred twenty (120) days prior to the anniversary date of the immediately preceding Annual Meeting of Stockholders; provided, however, that in the event that the Annual Meeting is called for a date that is not within twenty-five (25) days before or after such anniversary date, notice by the stockholder in order to be timely must be so received not later than the close of business on the tenth (10th) day following the day on which such notice of the date of the Annual Meeting was mailed or such public disclosure of the date of the Annual Meeting was made, whichever first occurs. In no event shall the adjournment or postponement of an Annual Meeting, or the public announcement of such an adjournment or postponement, commence a new time period (or extend any time period) for the giving of a stockholder’s notice as described above.

To be in proper written form, a stockholder’s notice to the Secretary must set forth the following information: (a) as to each matter such stockholder proposes to bring before the Annual Meeting, a brief description of the business desired to be brought before the Annual Meeting and the reasons for conducting such business at the Annual Meeting, and (b) as to the stockholder giving notice and the beneficial owner, if any, on whose behalf the proposal is being made, (i) the name and address of such person, (ii) (A) the class or series and number of all shares of stock of the Corporation which are owned beneficially or of record by such person and any affiliates or associates of such person, (B) the name of each nominee holder of shares of all stock of the Corporation owned beneficially but not of record by such person or any affiliates or associates of such person, and the number of such shares of stock of the Corporation held by each such nominee holder, (C) whether and the extent to which any derivative instrument, swap, option, warrant, short interest, hedge or profit interest or other transaction has been entered into by or on behalf of such person, or any affiliates or associates of such person, with respect to stock of the Corporation and (D) whether and the extent to which any other transaction, agreement, arrangement or understanding (including any short position or any borrowing or lending of shares of stock of the Corporation) has been made by or on behalf of such person, or any affiliates or associates of such person, the effect or intent of any of the foregoing being to mitigate loss to, or to manage risk or benefit of stock price changes for, such person, or any affiliates or associates of such person, or to increase or decrease the voting power or pecuniary or economic interest of such person, or any affiliates or associates of such person, with respect to stock of the Corporation; (iii) a description of all agreements, arrangements, or understandings (whether written or oral) between or among such person, or any affiliates or associates of such person, and any other person or persons (including their names) in connection with the proposal of such business and any material interest of such person or any affiliates or associates of such person, in such business, including any anticipated benefit therefrom to such person, or any affiliates or associates of such person, (iv) a representation that the stockholder giving notice intends to appear in person or by proxy at the Annual Meeting to bring such business before the meeting; and (v) any other information relating to such person that would be required to be disclosed in a proxy statement or other filing required to be made in connection with the solicitation of proxies by such person with respect to the proposed business to be brought by such person before the Annual Meeting pursuant to Section 14 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the rules and regulations promulgated thereunder.

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A stockholder providing notice of business proposed to be brought before an Annual Meeting shall further update and supplement such notice, if necessary, so that the information provided or required to be provided in such notice pursuant to this Section 4 of this Article II shall be true and correct as of the record date for determining the stockholders entitled to receive notice of the Annual Meeting and such update and supplement shall be delivered to or be mailed and received by the Secretary at the principal executive offices of the Corporation not later than five (5) business days after the record date for determining the stockholders entitled to receive notice of the Annual Meeting.

No business shall be conducted at the Annual Meeting of Stockholders except business brought before the Annual Meeting in accordance with the procedures set forth in this Section 4 of this Article II; provided, however, that, once business has been properly brought before the Annual Meeting in accordance with such procedures, nothing in this Section 4 of this Article II shall be deemed to preclude discussion by any stockholder of any such business. If the chairman of an Annual Meeting determines that business was not properly brought before the Annual Meeting in accordance with the foregoing procedures, the chairman shall declare to the meeting that the business was not properly brought before the meeting and such business shall not be transacted.

Nothing contained in this Section 4 of this Article II shall be deemed to affect any rights of stockholders to request inclusion of proposals in the Corporation’s proxy statement pursuant to Rule 14a-8 under the Exchange Act (or any successor provision of law).

Section 5. Nomination of Directors . Only persons who are nominated in accordance with the following procedures shall be eligible for election as directors of the Corporation, except as may be otherwise provided in the Certificate of Incorporation with respect to the right of holders of preferred stock of the Corporation to nominate and elect a specified number of directors in certain circumstances. Nominations of persons for election to the Board of Directors may be made at any Annual Meeting of Stockholders, or at any Special Meeting of Stockholders called for the purpose of electing directors, in either case, (a) by or at the direction of the Board of Directors (or any duly authorized committee thereof) or (b) by any stockholder of the Corporation (i) who is a stockholder of record on the date of the giving of the notice provided for in this Section 5 of this Article II and on the record date for the determination of stockholders entitled to notice of and to vote at such Annual Meeting or Special Meeting and (ii) who complies with the notice procedures set forth in this Section 5 of this Article II.

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In addition to any other applicable requirements, for a nomination to be made by a stockholder, such stockholder must have given timely notice thereof in proper written form to the Secretary of the Corporation.

To be timely, a stockholder’s notice to the Secretary must be delivered to or be mailed and received at the principal executive offices of the Corporation (a) in the case of an Annual Meeting, not less than ninety (90) days nor more than one hundred twenty (120) days prior to the anniversary date of the immediately preceding Annual Meeting of Stockholders; provided, however, that in the event that the Annual Meeting is called for a date that is not within twenty-five (25) days before or after such anniversary date, notice by the stockholder in order to be timely must be so received not later than the close of business on the tenth (10th) day following the day on which such notice of the date of the Annual Meeting was mailed or such public disclosure of the date of the Annual Meeting was made, whichever first occurs; and (b) in the case of a Special Meeting of Stockholders called for the purpose of electing directors, not later than the close of business on the tenth (10th) day following the day on which notice of the date of the Special Meeting was mailed or public disclosure of the date of the Special Meeting was made, whichever first occurs. In no event shall the adjournment or postponement of an Annual Meeting or a Special Meeting called for the purpose of electing directors, or the public announcement of such an adjournment or postponement, commence a new time period (or extend any time period) for the giving of a stockholder’s notice as described above.

To be in proper written form, a stockholder’s notice to the Secretary must set forth the following information: (a) as to each person whom the stockholder proposes to nominate for election as a director (i) the name, age, business address and residence address of such person, (ii) the principal occupation or employment of such person, (iii) such person’s answers to a written questionnaire with respect to the background and qualification of such person and the background of any other person or entity on whose behalf the nomination is being made (which questionnaire shall be provided by the Secretary upon written request, (iv) (A) the class or series and number of all shares of stock of the Corporation which are owned beneficially or of record by such person and any affiliates or associates of such person, (B) the name of each nominee holder of shares of all stock of the Corporation owned beneficially but not of record by such person or any affiliates or associates of such person, and the number of such shares of stock of the Corporation held by each such nominee holder, (C) whether and the extent to which any derivative instrument, swap, option, warrant, short interest, hedge or profit interest or other transaction has been entered into by or on behalf of such person, or any affiliates or associates of such person, with respect to stock of the Corporation and (D) whether and the extent to which any other transaction, agreement, arrangement or understanding (including any short position or any borrowing or lending of shares of stock of the Corporation) has been made by or on behalf of such person, or any affiliates or associates of such person, the effect or intent of any of the foregoing being to mitigate loss to, or to manage risk or benefit of stock price changes for, such person, or any affiliates or associates of such person, or to increase or decrease the voting power or pecuniary or economic interest of such person, or any affiliates or associates of such person, with respect to stock of the Corporation; and (v) any other information relating to such person that would be required to be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies for election of directors pursuant to Section 14 of the Exchange Act, and the rules and regulations promulgated thereunder; and (b) as to the stockholder giving the notice, and the beneficial owner, if any, on whose behalf the nomination is being made, (i) the name and record address of such person; (ii) (A) the class or series and number of all shares of stock of the Corporation which are owned beneficially or of record by such person and any affiliates or associates of such person, (B) the name of each nominee holder of shares of the Corporation owned beneficially but not of record by such person or any affiliates or associates of such person, and the number of shares of stock of the Corporation held by each such nominee holder, (C) whether and the extent to which any derivative instrument, swap, option, warrant, short interest, hedge or profit interest or other transaction has been entered into by or on behalf of such person, or any affiliates or associates of such person, with respect to stock of the Corporation and (D) whether and the extent to which any other transaction, agreement, arrangement or understanding (including any short position or any borrowing or lending of shares of stock of the Corporation) has been made by or on behalf of such person, or any affiliates or associates of such person, the effect or intent of any of the foregoing being to mitigate loss to, or to manage risk or benefit of stock price changes for, such person, or any affiliates or associates of such person, or to increase or decrease the voting power or pecuniary or economic interest of such person, or any affiliates or associates of such person, with respect to stock of the Corporation; (iii) a description of all agreements, arrangements, or understandings (whether written or oral) between such person, or any affiliates or associates of such person, and any proposed nominee or any other person or persons (including their names) pursuant to which the nomination(s) are being made by such person, and any material interest of such person, or any affiliates or associates of such person, in such nomination, including any anticipated benefit therefrom to such person, or any affiliates or associates of such person; (iv) a representation that the stockholder giving notice intends to appear in person or by proxy at the Annual Meeting or Special Meeting to nominate the persons named in its notice; and (v) any other information relating to such person that would be required to be disclosed in a proxy statement or other filings required to be made in connection with the solicitation of proxies for election of directors pursuant to Section 14 of the Exchange Act and the rules and regulations promulgated thereunder. Such notice must be accompanied by a written consent of each proposed nominee to being named as a nominee and to serve as a director if elected.

4
A stockholder providing notice of any nomination proposed to be made at an Annual Meeting or Special Meeting shall further update and supplement such notice, if necessary, so that the information provided or required to be provided in such notice pursuant to this Section 5 of this Article II shall be true and correct as of the record date for determining the stockholders entitled to receive notice of the Annual Meeting or Special Meeting, and such update and supplement shall be delivered to or be mailed and received by the Secretary at the principal executive offices of the Corporation not later than five (5) business days after the record date for determining the stockholders entitled to receive notice of such Annual Meeting or Special Meeting.

No person shall be eligible for election as a director of the Corporation unless nominated in accordance with the procedures set forth in this Section 5 of this Article II. If the Chairman of the meeting determines that a nomination was not made in accordance with the foregoing procedures, the Chairman shall declare to the meeting that the nomination was defective and such defective nomination shall be disregarded.

Section 6. Notice . Whenever stockholders are required or permitted to take any action at a meeting, a written notice of the meeting shall be given which shall state the place, if any, date and hour of the meeting, the means of remote communications, if any, by which stockholders and proxyholders may be deemed to be present in person and vote at such meeting, and, in the case of a Special Meeting, the purpose or purposes for which the meeting is called. Unless otherwise required by law, written notice of any meeting shall be given not less than ten (10) nor more than sixty (60) days before the date of the meeting to each stockholder entitled to notice of and to vote at such meeting.

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Section 7. Adjournments . Any meeting of the stockholders may be adjourned from time to time to reconvene at the same or some other place, and notice need not be given of any such adjourned meeting if the time and place, if any, thereof and the means of remote communications, if any, by which stockholders and proxyholders may be deemed to be present in person and vote at such adjourned meeting are announced at the meeting at which the adjournment is taken. At the adjourned meeting, the Corporation may transact any business which might have been transacted at the original meeting. If the adjournment is for more than thirty (30) days, or if after the adjournment a new record date is fixed for the adjourned meeting, notice of the adjourned meeting in accordance with the requirements of Section 6 hereof shall be given to each stockholder of record entitled to notice of and to vote at the meeting.

Section 8. Quorum . Unless otherwise required by applicable law or the Certificate of Incorporation, the holders of a majority of the Corporation’s capital stock issued and outstanding and entitled to vote thereat, present in person or represented by proxy, shall constitute a quorum at all meetings of the stockholders for the transaction of business. A quorum, once established, shall not be broken by the withdrawal of enough votes to leave less than a quorum. If, however, such quorum shall not be present or represented at any meeting of the stockholders, the stockholders entitled to vote thereat, present in person or represented by proxy, shall have power to adjourn the meeting from time to time, in the manner provided in Section 7 hereof, until a quorum shall be present or represented.

Section 9. Voting . Unless otherwise required by law, the Certificate of Incorporation or these By-Laws, or permitted by the rules of any stock exchange on which the Corporation’s shares are listed and traded, any question brought before any meeting of the stockholders shall be decided by the vote of the holders of a majority of the total number of votes of the Corporation’s capital stock represented at the meeting and entitled to vote on such question, voting as a single class.

Each director shall be elected by the vote of a majority of votes cast with respect to that director’s election at any meeting for the election of directors at which a quorum is present, provided that if, as of the tenth (10th) day preceding the date the Corporation first provides notice of such meeting in accordance with Section 6 of this Article II, the number of nominees exceeds the number of directors to be elected (a “Contested Election”), the directors shall be elected by the vote of a plurality of the votes cast. For purposes of this Section 9 of this Article II, a “majority of votes cast” shall mean that the number of votes cast “for” a director’s election exceeds the number of votes cast “against” that director’s election (with “abstentions” and “broker non-votes” not counted as votes cast either “for” or “against” that director’s election). In the event an incumbent director fails to receive a majority of votes cast in an election that is not a Contested Election, such incumbent director shall immediately tender his or her resignation in accordance with the procedures established by the Nominating and Corporate Governance Committee. The Board of Directors shall determine whether to accept the resignation or take other action, through a process managed by the Nominating and Corporate Governance Committee and following a recommendation of that committee. If such director’s resignation is not accepted by the Board of Directors, such director shall continue to serve until his successor is duly elected, or until his subsequent death, retirement, removal or resignation in accordance with its terms.

6
Unless otherwise provided in the Certificate of Incorporation, and subject to Section 13(a) of this Article II, each stockholder represented at a meeting of the stockholders shall be entitled to cast one (1) vote for each share of the capital stock entitled to vote thereat held by such stockholder. Such votes may be cast in person or by proxy as provided in Section 10 of this Article II. The Board of Directors, in its discretion, or the officer of the Corporation presiding at a meeting of the stockholders, in such officer’s discretion, may require that any votes cast at such meeting shall be cast by written ballot.

Section 10. Proxies . Each stockholder entitled to vote at a meeting of the stockholders may authorize another person or persons to act for such stockholder as proxy, but no such proxy shall be voted upon after three years from its date, unless such proxy provides for a longer period. Except as otherwise provided by law, a proxy shall be irrevocable only if it states that it is irrevocable and if, and only as long as, it is coupled with an interest sufficient in law to support an irrevocable power. A stockholder may revoke any proxy which is not irrevocable by attending the meeting and voting in person or by delivering to the Secretary of the Corporation a revocation of the proxy or a new proxy bearing a later date. Without limiting the manner in which a stockholder may authorize another person or persons to act for such stockholder as proxy, the following shall constitute a valid means by which a stockholder may grant such authority:

(i) A stockholder may execute a writing authorizing another person or persons to act for such stockholder as proxy. Execution may be accomplished by the stockholder or such stockholder’s authorized officer, director, employee or agent signing such writing or causing such person’s signature to be affixed to such writing by any reasonable means, including, but not limited to, by facsimile signature.

(ii) A stockholder may authorize another person or persons to act for such stockholder as proxy by transmitting or authorizing the transmission of a telegram, cablegram, electronic mail or other means of electronic transmission to the person who will be the holder of the proxy or to a proxy solicitation firm, proxy support service organization or like agent duly authorized by the person who will be the holder of the proxy to receive such transmission, provided that any such telegram, cablegram, electronic mail or other means of electronic transmission must either set forth or be submitted with information from which it can be determined that the telegram, cablegram or other electronic transmission was authorized by the stockholder. If it is determined that such telegrams, cablegrams or other electronic transmissions are valid, the inspectors or, if there are no inspectors, such other persons making that determination shall specify the information on which they relied.

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Any copy, facsimile telecommunication or other reliable reproduction of the writing or transmission authorizing another person or persons to act as proxy for a stockholder may be substituted or used in lieu of the original writing or transmission for any and all purposes for which the original writing or transmission could be used; provided, however, that such copy, facsimile telecommunication or other reproduction shall be a complete reproduction of the entire original writing or transmission.

Section 11. No Action by Written Consent . Any action required or permitted to be taken at any Annual or Special Meeting of the stockholders of the Corporation may be taken only upon the vote of the stockholders at an Annual or Special Meeting duly called and may not be taken by written consent of the stockholders.

Section 12. List of Stockholders Entitled to Vote . The officer of the Corporation who has charge of the stock ledger of the Corporation shall prepare and make, at least ten (10) days before every meeting of the stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten (10) days prior to the meeting (i) on a reasonably accessible electronic network, provided that the information required to gain access to such list is provided with the notice of the meeting, or (ii) during ordinary business hours, at the principal place of business of the Corporation. In the event that the Corporation determines to make the list available on an electronic network, the Corporation may take reasonable steps to ensure that such information is available only to stockholders of the Corporation.  If the meeting is to be held at a place, then the list shall be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. If the meeting is to be held solely by means of remote communication, then the list shall also be open to the examination of any stockholder during the whole time of the meeting on a reasonably accessible electronic network, and the information required to access such list shall be provided with the notice of the meeting.

Section 13. Record Date . In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of the stockholders or any adjournment thereof, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and which record date shall not be more than sixty (60) nor less than ten (10) days before the date of such meeting. If no record date is fixed by the Board of Directors, the record date for determining stockholders entitled to notice of or to vote at a meeting of the stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held. A determination of stockholders of record entitled to notice of or to vote at a meeting of the stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting.

Section 14. Stock Ledger . The stock ledger of the Corporation shall be the only evidence as to who are the stockholders entitled to examine the stock ledger, the list required by Section 12 of this Article II or the books of the Corporation, or to vote in person or by proxy at any meeting of the stockholders.

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Section 15. Conduct of Meetings . The Board of Directors of the Corporation may adopt by resolution such rules and regulations for the conduct of any meeting of the stockholders as it shall deem appropriate. Except to the extent inconsistent with such rules and regulations as adopted by the Board of Directors, the chairman of any meeting of the stockholders shall have the right and authority to prescribe such rules, regulations and procedures and to do all such acts as, in the judgment of such chairman, are appropriate for the proper conduct of the meeting. Such rules, regulations or procedures, whether adopted by the Board of Directors or prescribed by the chairman of the meeting, may include, without limitation, the following: (i) the establishment of an agenda or order of business for the meeting; (ii) the determination of when the polls shall open and close for any given matter to be voted on at the meeting; (iii) rules and procedures for maintaining order at the meeting and the safety of those present; (iv) limitations on attendance at or participation in the meeting to stockholders of record of the Corporation, their duly authorized and constituted proxies or such other persons as the chairman of the meeting shall determine; (v) restrictions on entry to the meeting after the time fixed for the commencement thereof; and (vi) limitations on the time allotted to questions or comments by participants.

Section 16. Inspectors of Election . In advance of any meeting of the stockholders, the Board of Directors, by resolution, the Chairman or the President shall appoint one or more inspectors to act at the meeting and make a written report thereof. One or more other persons may be designated as alternate inspectors to replace any inspector who fails to act. If no inspector or alternate is able to act at a meeting of the stockholders, the chairman of the meeting shall appoint one or more inspectors to act at the meeting. Unless otherwise required by applicable law, inspectors may be officers, employees or agents of the Corporation. Each inspector, before entering upon the discharge of the duties of inspector, shall take and sign an oath faithfully to execute the duties of inspector with strict impartiality and according to the best of such inspector’s ability. The inspector shall have the duties prescribed by law and shall take charge of the polls and, when the vote is completed, shall make a certificate of the result of the vote taken and of such other facts as may be required by applicable law.

ARTICLE III

DIRECTORS

Section 1. Number and Election of Directors . The Board of Directors shall consist of the number of directors as set forth in, or as determined pursuant to, the Certificate of Incorporation. Until the 2023 Annual Meeting of Stockholders, the Board of Directors shall be classified pursuant to Section 141(d) of the DGCL and in accordance with the Certificate of Incorporation. Each director elected in accordance with the Certificate of Incorporation shall hold office until such director’s successor is duly elected and qualified, or until such director’s earlier death, resignation or removal. Directors need not be stockholders.

Section 2. Vacancies . Any vacancy in the Board of Directors, however resulting, may be filled in the manner provided in and to the extent permitted under the Certificate of Incorporation.

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Section 3. Duties and Powers . The business and affairs of the Corporation shall be managed by or under the direction of the Board of Directors which may exercise all such powers of the Corporation and do all such lawful acts and things as are not by statute or by the Certificate of Incorporation required to be exercised or done by the stockholders.

Section 4. Meetings . The Board of Directors and any committee thereof may hold meetings, both regular and special, either within or without the State of Delaware. Regular meetings of the Board of Directors or any committee thereof may be held without notice at such time and at such place as may from time to time be determined by the Board of Directors or such committee, respectively. Special meetings of the Board of Directors may be called by the Chairman, if there be one, the President, or a majority of directors then in office. Special meetings of any committee of the Board of Directors may be called by the chairman of such committee, if there be one, the President, or a majority of the directors serving on such committee. Notice thereof stating the place, date and hour of the meeting shall be given to each director (or, in the case of a committee, to each member of such committee) either by mail not less than forty-eight (48) hours before the date of the meeting, by telephone, telegram or electronic means on twenty-four (24) hours’ notice, or on such shorter notice as the person or persons calling such meeting may deem necessary or appropriate in the circumstances.

Section 5. Organization . At each meeting of the Board of Directors or any committee thereof, the Chairman of the Board of Directors or the chairman of such committee, as the case may be, or, in his or her absence or if there be none, a director chosen by a majority of the directors present, shall act as chairman. Except as provided below, the Secretary of the Corporation shall act as secretary at each meeting of the Board of Directors and of each committee thereof. In case the Secretary shall be absent from any meeting of the Board of Directors or of any committee thereof, an Assistant Secretary shall perform the duties of secretary at such meeting; and in the absence from any such meeting of the Secretary and all the Assistant Secretaries, the chairman of the meeting may appoint any person to act as secretary of the meeting. Notwithstanding the foregoing, the members of each committee of the Board of Directors may appoint any person to act as secretary of any meeting of such committee and the Secretary or any Assistant Secretary of the Corporation may, but need not if such committee so elects, serve in such capacity.

Section 6. Resignations and Removals of Directors . Any director of the Corporation may resign from the Board of Directors or any committee thereof at any time, by giving notice in writing or by electronic transmission to the Chairman of the Board of Directors, if there be one, the President or the Secretary of the Corporation and, in the case of a committee, to the chairman of such committee, if there be one. Such resignation shall take effect at the time therein specified or, if no time is specified, immediately; and, unless otherwise specified in such notice, the acceptance of such resignation shall not be necessary to make it effective. Any director may be removed only in the manner provided in, and only to the extent permitted under, the Certificate of Incorporation. Any director serving on a committee of the Board of Directors may be removed from such committee at any time by the Board of Directors.

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Section 7. Quorum . Except as otherwise required by law, or the Certificate of Incorporation or the rules and regulations of any securities exchange or quotation system on which the Corporation’s securities are listed or quoted for trading, at all meetings of the Board of Directors or any committee thereof, a majority of the entire Board of Directors or a majority of the directors constituting such committee, as the case may be, shall constitute a quorum for the transaction of business and the act of a majority of the directors or committee members present at any meeting at which there is a quorum shall be the act of the Board of Directors or such committee, as applicable. If a quorum shall not be present at any meeting of the Board of Directors or any committee thereof, the directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting of the time and place of the adjourned meeting, until a quorum shall be present.

Section 8. Actions of the Board by Written Consent . Unless otherwise provided in the Certificate of Incorporation or these By-Laws, any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a meeting, if all the members of the Board of Directors or such committee, as the case may be, consent thereto in writing or by electronic transmission, and the writing or writings or electronic transmission or transmissions are filed with the minutes of proceedings of the Board of Directors or such committee. Such filing shall be in paper form if the minutes are maintained in paper form and shall be in electronic form if the minutes are maintained in electronic form.

Section 9. Meetings by Means of Conference Telephone . Unless otherwise provided in the Certificate of Incorporation or these By-Laws, members of the Board of Directors of the Corporation, or any committee thereof, may participate in a meeting of the Board of Directors or such committee by means of a conference telephone or other communications equipment by means of which all persons participating in the meeting can hear each other, and participation in a meeting pursuant to this Section 9 of this Article III shall constitute presence in person at such meeting.

Section 10. Committees . The Board of Directors may designate one or more committees, each committee to consist of one or more of the directors of the Corporation. Each member of a committee must meet the requirements for membership, if any, imposed by applicable law and the rules and regulations of any securities exchange or quotation system on which the securities of the Corporation are listed or quoted for trading. The Board of Directors may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of any such committee. Subject to the rules and regulations of any securities exchange or quotation system on which the securities of the Corporation are listed or quoted for trading, in the absence or disqualification of a member of a committee, and in the absence of a designation by the Board of Directors of an alternate member to replace the absent or disqualified member, the member or members thereof present at any meeting and not disqualified from voting, whether or not such member or members constitute a quorum, may unanimously appoint another qualified member of the Board of Directors to act at the meeting in the place of any absent or disqualified member. Any committee, to the extent permitted by law and provided in the resolution establishing such committee, shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the Corporation, and may authorize the seal of the Corporation to be affixed to all papers which may require it. Each committee shall keep regular minutes and report to the Board of Directors when required. Notwithstanding anything to the contrary contained in this Article III, the resolution of the Board of Directors establishing any committee of the Board of Directors and/or the charter of any such committee may establish requirements or procedures relating to the governance and/or operation of such committee that are different from, or in addition to, those set forth in these By-Laws and, to the extent that there is any inconsistency between these By-Laws and any such resolution or charter, the terms of such resolution or charter shall be controlling.

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Section 11. Compensation . The directors shall be paid their expenses, if any, of attendance at each meeting of the Board of Directors and may be paid a fixed sum for attendance at each meeting of the Board of Directors or a stated salary for service as director, payable in cash or securities. No such payment shall preclude any director from serving the Corporation in any other capacity and receiving compensation therefor. Members of special or standing committees may be allowed like compensation for service as committee members.

Section 12. Interested Directors . No contract or transaction between the Corporation and one or more of its directors or officers, or between the Corporation and any other corporation, partnership, association or other organization in which one or more of its directors or officers are directors or officers or have a financial interest, shall be void or voidable solely for this reason, or solely because the director or officer is present at or participates in the meeting of the Board of Directors or committee thereof which authorizes the contract or transaction, or solely because any such director’s or officer’s vote is counted for such purpose if: (i) the material facts as to the director’s or officer’s relationship or interest and as to the contract or transaction are disclosed or are known to the Board of Directors or the committee, and the Board of Directors or committee in good faith authorizes the contract or transaction by the affirmative votes of a majority of the disinterested directors, even though the disinterested directors be less than a quorum; or (ii) the material facts as to the director’s or officer’s relationship or interest and as to the contract or transaction are disclosed or are known to the stockholders entitled to vote thereon, and the contract or transaction is specifically approved in good faith by vote of the stockholders; or (iii) the contract or transaction is fair as to the Corporation as of the time it is authorized, approved or ratified by the Board of Directors, a committee thereof or the stockholders. Common or interested directors may be counted in determining the presence of a quorum at a meeting of the Board of Directors or of a committee which authorizes the contract or transaction.

ARTICLE IV

OFFICERS

Section 1. General . The officers of the Corporation shall be chosen by the Board of Directors and shall be a  President, a Secretary and a Treasurer. The Board of Directors, in its discretion, also may choose a Chairman of the Board of Directors (who must be a director) and one or more Vice Presidents, Assistant Secretaries, Assistant Treasurers and other officers. Any number of offices may be held by the same person, unless otherwise prohibited by law, the Certificate of Incorporation or these By-Laws. The officers of the Corporation need not be stockholders of the Corporation nor, except in the case of the Chairman of the Board of Directors, need such officers be directors of the Corporation.

Section 2. Election . The Board of Directors, at its first meeting held after each Annual Meeting of Stockholders, shall elect the officers of the Corporation who shall hold such titles, and their offices for such terms and shall exercise such powers and perform such duties as shall be determined from time to time by the Board of Directors; and each officer of the Corporation shall hold office until such officer’s successor is elected and qualified, or until such officer’s earlier death, resignation or removal. Any officer elected by the Board of Directors may be removed at any time by the Board of Directors. Any vacancy occurring in any office of the Corporation shall be filled by the Board of Directors. The salaries of all officers of the Corporation shall be fixed by the Board of Directors.

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Section 3. Voting Securities Owned by the Corporation . Powers of attorney, proxies, waivers of notice of meeting, consents and other instruments relating to securities owned by the Corporation may be executed in the name of and on behalf of the Corporation by the President or any Vice President or any other officer authorized to do so by the Board of Directors and any such officer may, in the name of and on behalf of the Corporation, take all such action as any such officer may deem advisable to vote in person or by proxy at any meeting of security holders of any corporation in which the Corporation may own securities and at any such meeting shall possess and may exercise any and all rights and power incident to the ownership of such securities and which, as the owner thereof, the Corporation might have exercised and possessed if present. The Board of Directors may, by resolution, from time to time confer like powers upon any other person or persons.

Section 4. Chairman of the Board of Directors . The Chairman of the Board of Directors, if there be one, shall preside at all meetings of the stockholders and of the Board of Directors. The Chairman of the Board of Directors shall be the Chief Executive Officer of the Corporation, unless the Board of Directors designates the President to serve as the Chief Executive Officer, and, except where by law the signature of the President is required, the Chairman of the Board of Directors shall possess the same power as the President to sign all contracts, certificates and other instruments of the Corporation which may be authorized by the Board of Directors. During the absence or disability of the President, the Chairman of the Board of Directors shall exercise all the powers and discharge all the duties of the President. The Chairman of the Board of Directors shall also perform such other duties and may exercise such other powers as may from time to time be assigned by these By-Laws or by the Board of Directors.

Section 5. President. The President shall, subject to the control of the Board of Directors and, if there be one, the Chairman of the Board of Directors, have general supervision of the business of the Corporation and shall see that all orders and resolutions of the Board of Directors are carried into effect. The President shall execute all bonds, mortgages, contracts and other instruments of the Corporation requiring a seal, under the seal of the Corporation, except where required or permitted by law to be otherwise signed and executed and except that the other officers of the Corporation may sign and execute documents when so authorized by these By-Laws, the Board of Directors or the President. In the absence or disability of the Chairman of the Board of Directors, or if there be none, the President shall preside at all meetings of the stockholders and, provided the President is also a director, the Board of Directors. If there be no Chairman of the Board of Directors, or if the Board of Directors shall otherwise designate, the President shall be the Chief Executive Officer of the Corporation. The President shall also perform such other duties and may exercise such other powers as may from time to time be assigned to such officer by these By-Laws or by the Board of Directors.

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Section 6. Vice Presidents . At the request of the President or in the President’s absence or in the event of the President’s inability or refusal to act (and if there be no Chairman of the Board of Directors), the Vice President, or the Vice Presidents if there are more than one (in the order designated by the Board of Directors), shall perform the duties of the President, and when so acting, shall have all the powers of and be subject to all the restrictions upon the President. Each Vice President shall perform such other duties and have such other powers as the Board of Directors from time to time may prescribe. If there be no Chairman of the Board of Directors and no Vice President, the Board of Directors shall designate the officer of the Corporation who, in the absence of the President or in the event of the inability or refusal of the President to act, shall perform the duties of the President, and when so acting, shall have all the powers of and be subject to all the restrictions upon the President.

Section 7. Secretary . The Secretary shall attend all meetings of the Board of Directors and all meetings of the stockholders and record all the proceedings thereat in a book or books to be kept for that purpose; the Secretary shall also perform like duties for committees of the Board of Directors when required. The Secretary shall give, or cause to be given, notice of all meetings of the stockholders and special meetings of the Board of Directors, and shall perform such other duties as may be prescribed by the Board of Directors, the Chairman of the Board of Directors or the President, under whose supervision the Secretary shall be. If the Secretary shall be unable or shall refuse to cause to be given notice of all meetings of the stockholders and special meetings of the Board of Directors, and if there be no Assistant Secretary, then either the Board of Directors or the President may choose another officer to cause such notice to be given. The Secretary shall have custody of the seal of the Corporation and the Secretary or any Assistant Secretary, if there be one, shall have authority to affix the same to any instrument requiring it and when so affixed, it may be attested by the signature of the Secretary or by the signature of any such Assistant Secretary. The Board of Directors may give general authority to any other officer to affix the seal of the Corporation and to attest to the affixing by such officer’s signature. The Secretary shall see that all books, reports, statements, certificates and other documents and records required by law to be kept or filed are properly kept or filed, as the case may be.

Section 8. Treasurer . The Treasurer shall have the custody of the corporate funds and securities and shall keep full and accurate accounts of receipts and disbursements in books belonging to the Corporation and shall deposit all moneys and other valuable effects in the name and to the credit of the Corporation in such depositories as may be designated by the Board of Directors. The Treasurer shall disburse the funds of the Corporation as may be ordered by the Board of Directors, taking proper vouchers for such disbursements, and shall render to the President and the Board of Directors, at its regular meetings, or when the Board of Directors so requires, an account of all transactions as Treasurer and of the financial condition of the Corporation. If required by the Board of Directors, the Treasurer shall give the Corporation a bond in such sum and with such surety or sureties as shall be satisfactory to the Board of Directors for the faithful performance of the duties of the office of the Treasurer and for the restoration to the Corporation, in case of the Treasurer’s death, resignation, retirement or removal from office, of all books, papers, vouchers, money and other property of whatever kind in the Treasurer’s possession or under the Treasurer’s control belonging to the Corporation.

Section 9. Assistant Secretaries . Assistant Secretaries, if there be any, shall perform such duties and have such powers as from time to time may be assigned to them by the Board of Directors, the President, any Vice President, if there be one, or the Secretary, and in the absence of the Secretary or in the event of the Secretary’s inability or refusal to act, shall perform the duties of the Secretary, and when so acting, shall have all the powers of and be subject to all the restrictions upon the Secretary.

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Section 10. Assistant Treasurers . Assistant Treasurers, if there be any, shall perform such duties and have such powers as from time to time may be assigned to them by the Board of Directors, the President, any Vice President, if there be one, or the Treasurer, and in the absence of the Treasurer or in the event of the Treasurer’s inability or refusal to act, shall perform the duties of the Treasurer, and when so acting, shall have all the powers of and be subject to all the restrictions upon the Treasurer. If required by the Board of Directors, an Assistant Treasurer shall give the Corporation a bond in such sum and with such surety or sureties as shall be satisfactory to the Board of Directors for the faithful performance of the duties of the office of Assistant Treasurer and for the restoration to the Corporation, in case of the Assistant Treasurer’s death, resignation, retirement or removal from office, of all books, papers, vouchers, money and other property of whatever kind in the Assistant Treasurer’s possession or under the Assistant Treasurer’s control belonging to the Corporation.

Section 11. Other Officers . Such other officers as the Board of Directors may choose shall perform such duties and have such powers as from time to time may be assigned to them by the Board of Directors. The Board of Directors may delegate to any other officer of the Corporation the power to choose such other officers and to prescribe their respective duties and powers.

ARTICLE V

STOCK

Section 1. Form of Certificates . Except as otherwise provided in a resolution approved by the Board of Directors, all shares of capital stock of the Corporation issued shall be uncertificated shares.

Section 2. Signatures . Any or all of the signatures on a certificate may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if such person were such officer, transfer agent or registrar at the date of issue.

Section 3. Lost Certificates . The Board of Directors may direct a new certificate or uncertificated shares be issued in place of any certificate theretofore issued by the Corporation alleged to have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost, stolen or destroyed. When authorizing such issuance of a new certificate or uncertificated shares, the Board of Directors may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyed certificate, or such owner’s legal representative, to advertise the same in such manner as the Board of Directors shall require and/or to give the Corporation a bond in such sum as it may direct as indemnity against any claim that may be made against the Corporation on account of the alleged loss, theft or destruction of such certificate or the issuance of such new certificate or uncertificated shares.

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Section 4. Transfers . Stock of the Corporation shall be transferable in the manner prescribed by applicable law and in these By-Laws. Transfers of stock shall be made on the books of the Corporation, and in the case of certificated shares of stock, only by the person named in the certificate or by such person’s attorney lawfully constituted in writing and upon the surrender of the certificate therefor, properly endorsed for transfer and payment of all necessary transfer taxes; or, in the case of uncertificated shares of stock, upon receipt of proper transfer instructions from the registered holder of the shares or by such person’s attorney lawfully constituted in writing, and upon payment of all necessary transfer taxes and compliance with appropriate procedures for transferring shares in uncertificated form; provided, however, that such surrender and endorsement, compliance or payment of taxes shall not be required in any case in which the officers of the Corporation shall determine to waive such requirement. With respect to certificated shares of stock, every certificate exchanged, returned or surrendered to the Corporation shall be marked “Cancelled,” with the date of cancellation, by the Secretary or Assistant Secretary of the Corporation or the transfer agent thereof. No transfer of stock shall be valid as against the Corporation for any purpose until it shall have been entered in the stock records of the Corporation by an entry showing from and to whom transferred.

Section 5. Dividend Record Date . In order that the Corporation may determine the stockholders entitled to receive payment of any dividend or other distribution or allotment of any rights or the stockholders entitled to exercise any rights in respect of any change, conversion or exchange of stock, or for the purpose of any other lawful action, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted, and which record date shall be not more than sixty (60) days prior to such action. If no record date is fixed, the record date for determining stockholders for any such purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto.

Section 6. Record Owners . The Corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends, and to vote as such owner, and to hold liable for calls and assessments a person registered on its books as the owner of shares, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise required by law.

Section 7. Transfer and Registry Agents . The Corporation may from time to time maintain one or more transfer offices or agencies and registry offices or agencies at such place or places as may be determined from time to time by the Board of Directors.

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ARTICLE VI

NOTICES

Section 1. Notices . Whenever written notice is required by law, the Certificate of Incorporation or these By-Laws, to be given to any director, member of a committee or stockholder, such notice may be given by mail, addressed to such director, member of a committee or stockholder, at such person’s address as it appears on the records of the Corporation, with postage thereon prepaid, and such notice shall be deemed to be given at the time when the same shall be deposited in the United States mail. Without limiting the manner by which notice otherwise may be given effectively to stockholders, any notice to stockholders given by the Corporation under applicable law, the Certificate of Incorporation or these By-Laws shall be effective if given by a form of electronic transmission if consented to by the stockholder to whom the notice is given. Any such consent shall be revocable by the stockholder by written notice to the Corporation. Any such consent shall be deemed to be revoked if (i) the Corporation is unable to deliver by electronic transmission two (2) consecutive notices by the Corporation in accordance with such consent and (ii) such inability becomes known to the Secretary or Assistant Secretary of the Corporation or to the transfer agent, or other person responsible for the giving of notice; provided, however, that the inadvertent failure to treat such inability as a revocation shall not invalidate any meeting or other action. Notice given by electronic transmission, as described above, shall be deemed given: (i) if by facsimile telecommunication, when directed to a number at which the stockholder has consented to receive notice; (ii) if by electronic mail, when directed to an electronic mail address at which the stockholder has consented to receive notice; (iii) if by a posting on an electronic network, together with separate notice to the stockholder of such specific posting, upon the later of (A) such posting and (B) the giving of such separate notice; and (iv) if by any other form of electronic transmission, when directed to the stockholder. Notice to directors or committee members may be given personally or by telegram, telex, cable or by means of electronic transmission.

Section 2. Waivers of Notice . Whenever any notice is required by applicable law, the Certificate of Incorporation or these By-Laws, to be given to any director, member of a committee or stockholder, a waiver thereof in writing, signed by the person or persons entitled to notice, or a waiver by electronic transmission by the person or persons entitled to notice, whether before or after the time stated therein, shall be deemed equivalent thereto. Attendance of a person at a meeting, present in person or represented by proxy, shall constitute a waiver of notice of such meeting, except where the person attends the meeting for the express purpose of objecting at the beginning of the meeting to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any Annual or Special Meeting of Stockholders or any regular or special meeting of the directors or members of a committee of directors need be specified in any written waiver of notice unless so required by law, the Certificate of Incorporation or these By-Laws.

ARTICLE VII

GENERAL PROVISIONS

Section 1. Dividends . Dividends upon the capital stock of the Corporation, subject to the requirements of the DGCL and the provisions of the Certificate of Incorporation, if any, may be declared by the Board of Directors at any regular or special meeting of the Board of Directors (or any action by written consent in lieu thereof in accordance with Section 8 of Article III hereof), and may be paid in cash, in property, or in shares of the Corporation’s capital stock. Before payment of any dividend, there may be set aside out of any funds of the Corporation available for dividends such sum or sums as the Board of Directors from time to time, in its absolute discretion, deems proper as a reserve or reserves to meet contingencies, or for purchasing any of the shares of capital stock, warrants, rights, options, bonds, debentures, notes, scrip or other securities or evidences of indebtedness of the Corporation, or for equalizing dividends, or for repairing or maintaining any property of the Corporation, or for any proper purpose, and the Board of Directors may modify or abolish any such reserve.

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Section 2. Disbursements . All checks or demands for money and notes of the Corporation shall be signed by such officer or officers or such other person or persons as the Board of Directors may from time to time designate.

Section 3. Fiscal Year . The fiscal year of the Corporation shall be fixed by resolution of the Board of Directors.

Section 4. Corporate Seal . The corporate seal shall have inscribed thereon the name of the Corporation, the year of its organization and the words “Corporate Seal, Delaware”. The seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced or otherwise.

ARTICLE VIII

INDEMNIFICATION

Section 1. Power to Indemnify in Actions, Suits or Proceedings other than Those by or in the Right of the Corporation . Subject to Section 3 of this Article VIII, the Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Corporation), by reason of the fact that such person is or was a director or officer of the Corporation, or is or was a director or officer of the Corporation serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit or proceeding if such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe such person’s conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which such person reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, had reasonable cause to believe that such person’s conduct was unlawful.

Section 2. Power to Indemnify in Actions, Suits or Proceedings by or in the Right of the Corporation . Subject to Section 3 of this Article VIII, the Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the Corporation to procure a judgment in its favor by reason of the fact that such person is or was a director or officer of the Corporation, or is or was a director or officer of the Corporation serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys’ fees) actually and reasonably incurred by such person in connection with the defense or settlement of such action or suit if such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the Corporation; except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the Corporation unless and only to the extent that the Court of Chancery of the State of Delaware or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery or such other court shall deem proper.

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Section 3. Authorization of Indemnification . Any indemnification under this Article VIII (unless ordered by a court) shall be made by the Corporation only as authorized in the specific case upon a determination that indemnification of the present or former director or officer is proper in the circumstances because such person has met the applicable standard of conduct set forth in Section 1 or Section 2 of this Article VIII, as the case may be. Such determination shall be made, with respect to a person who is a director or officer at the time of such determination, (i) by a majority vote of the directors who are not parties to such action, suit or proceeding, even though less than a quorum, or (ii) by a committee of such directors designated by a majority vote of such directors, even though less than a quorum, or (iii) if there are no such directors, or if such directors so direct, by independent legal counsel in a written opinion or (iv) by the stockholders. Such determination shall be made, with respect to former directors and officers, by any person or persons having the authority to act on the matter on behalf of the Corporation. To the extent, however, that a present or former director or officer of the Corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding described above, or in defense of any claim, issue or matter therein, such person shall be indemnified against expenses (including attorneys’ fees) actually and reasonably incurred by such person in connection therewith, without the necessity of authorization in the specific case.

Section 4. Good Faith Defined . For purposes of any determination under Section 3 of this Article VIII, a person shall be deemed to have acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the Corporation, or, with respect to any criminal action or proceeding, to have had no reasonable cause to believe such person’s conduct was unlawful, if such person’s action is based on the records or books of account of the Corporation or another enterprise, or on information supplied to such person by the officers of the Corporation or another enterprise in the course of their duties, or on the advice of legal counsel for the Corporation or another enterprise or on information or records given or reports made to the Corporation or another enterprise by an independent certified public accountant or by an appraiser or other expert selected with reasonable care by the Corporation or another enterprise. The provisions of this Section 4 shall not be deemed to be exclusive or to limit in any way the circumstances in which a person may be deemed to have met the applicable standard of conduct set forth in Section 1 or Section 2 of this Article VIII, as the case may be.

Section 5. Indemnification by a Court . Notwithstanding any contrary determination in the specific case under Section 3 of this Article VIII, and notwithstanding the absence of any determination thereunder, any director or officer may apply to the Court of Chancery of the State of Delaware or any other court of competent jurisdiction in the State of Delaware for indemnification to the extent otherwise permissible under Section 1 or Section 2 of this Article VIII. The basis of such indemnification by a court shall be a determination by such court that indemnification of the director or officer is proper in the circumstances because such person has met the applicable standard of conduct set forth in Section 1 or Section 2 of this Article VIII, as the case may be. Neither a contrary determination in the specific case under Section 3 of this Article VIII nor the absence of any determination thereunder shall be a defense to such application or create a presumption that the director or officer seeking indemnification has not met any applicable standard of conduct. Notice of any application for indemnification pursuant to this Section 5 shall be given to the Corporation promptly upon the filing of such application. If successful, in whole or in part, the director or officer seeking indemnification shall also be entitled to be paid the expense of prosecuting such application.

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Section 6. Expenses Payable in Advance . Expenses (including attorneys’ fees) incurred by a director or officer in defending any civil, criminal, administrative or investigative action, suit or proceeding shall be paid by the Corporation in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of such director or officer to repay such amount if it shall ultimately be determined that such person is not entitled to be indemnified by the Corporation as authorized in this Article VIII. Such expenses (including attorneys’ fees) incurred by former directors and officers or other employees and agents may be so paid upon such terms and conditions, if any, as the Corporation deems appropriate.

Section 7. Nonexclusivity of Indemnification and Advancement of Expenses . The indemnification and advancement of expenses provided by, or granted pursuant to, this Article VIII shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under the Certificate of Incorporation, these By-Laws, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in such person’s official capacity and as to action in another capacity while holding such office, it being the policy of the Corporation that indemnification of the persons specified in Section 1 and Section 2 of this Article VIII shall be made to the fullest extent permitted by law. The provisions of this Article VIII shall not be deemed to preclude the indemnification of any person who is not specified in Section 1 or Section 2 of this Article VIII but whom the Corporation has the power or obligation to indemnify under the provisions of the DGCL, or otherwise.

Section 8. Insurance . The Corporation may purchase and maintain insurance on behalf of any person who is or was a director or officer of the Corporation, or is or was a director or officer of the Corporation serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against such person and incurred by such person in any such capacity, or arising out of such person’s status as such, whether or not the Corporation would have the power or the obligation to indemnify such person against such liability under the provisions of this Article VIII.

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Section 9. Certain Definitions . For purposes of this Article VIII, references to “the Corporation” shall include, in addition to the resulting corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors or officers, so that any person who is or was a director or officer of such constituent corporation, or is or was a director or officer of such constituent corporation serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, shall stand in the same position under the provisions of this Article VIII with respect to the resulting or surviving corporation as such person would have with respect to such constituent corporation if its separate existence had continued. The term “another enterprise” as used in this Article VIII shall mean any other corporation or any partnership, joint venture, trust, employee benefit plan or other enterprise of which such person is or was serving at the request of the Corporation as a director, officer, employee or agent. For purposes of this Article VIII, references to “fines” shall include any excise taxes assessed on a person with respect to an employee benefit plan; and references to “serving at the request of the Corporation” shall include any service as a director, officer, employee or agent of the Corporation which imposes duties on, or involves services by, such director or officer with respect to an employee benefit plan, its participants or beneficiaries; and a person who acted in good faith and in a manner such person reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in a manner “not opposed to the best interests of the Corporation” as referred to in this Article VIII.

Section 10. Survival of Indemnification and Advancement of Expenses . The indemnification and advancement of expenses provided by, or granted pursuant to, this Article VIII shall, unless otherwise provided when authorized or ratified, continue as to a person who has ceased to be a director or officer and shall inure to the benefit of the heirs, executors and administrators of such a person.

Section 11. Limitation on Indemnification . Notwithstanding anything contained in this Article VIII to the contrary, except for proceedings to enforce rights to indemnification (which shall be governed by Section 5 of this Article VIII), the Corporation shall not be obligated to indemnify any director or officer (or his or her heirs, executors or personal or legal representatives) or advance expenses in connection with a proceeding (or part thereof) initiated by such person unless such proceeding (or part thereof) was authorized or consented to by the Board of Directors of the Corporation.

Section 12. Indemnification of Employees and Agents . The Corporation may, to the extent authorized from time to time by the Board of Directors, provide rights to indemnification and to the advancement of expenses to employees and agents of the Corporation similar to those conferred in this Article VIII to directors and officers of the Corporation.

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ARTICLE IX

FORUM FOR ADJUDICATION OF CERTAIN DISPUTES

Section 1. Forum for Adjudication of Certain Disputes . Unless the Corporation consents in writing to the selection of an alternative forum (an “Alternative Forum Consent”), the Court of Chancery of the State of Delaware shall be the sole and exclusive forum for (i) any derivative action or proceeding brought on behalf of the Corporation, (ii) any action asserting a claim of breach of a fiduciary duty owed by any director, officer, stockholder, employee or agent of the Corporation to the Corporation or the Corporation’s stockholders, (iii) any action asserting a claim against the Corporation or any director, officer, stockholder, employee or agent of the Corporation arising out of or relating to any provision of the DGCL, the Certificate of Incorporation or these By-laws, or (iv) any action asserting a claim against the Corporation or any director, officer, stockholder, employee or agent of the Corporation governed by the internal affairs doctrine of the State of Delaware; provided, however, that, in the event that the Court of Chancery of the State of Delaware lacks subject matter jurisdiction over any such action or proceeding, the sole and exclusive forum for such action or proceeding shall be another state or federal court located within the State of Delaware, in each such case, unless the Court of Chancery (or such other state or federal court located within the State of Delaware, as applicable) has dismissed a prior action by the same plaintiff asserting the same claims because such court lacked personal jurisdiction over an indispensable party named as a defendant therein; provided, further, that this exclusive choice of forum provision will not apply to suits brought to enforce any liability or duty created by the Securities Exchange Act of 1934, as amended, or the Securities Act of 1933, as amended. Failure to enforce the foregoing provisions would cause the Corporation irreparable harm and the Corporation shall be entitled to equitable relief, including injunctive relief and specific performance, to enforce the foregoing provisions.  Any person or entity purchasing or otherwise acquiring any interest in shares of capital stock of the Corporation shall be deemed to have notice of and consented to the provisions of this Section 1 of this Article IX.  The existence of any prior Alternative Forum Consent shall not act as a waiver of the Corporation’s ongoing consent right as set forth above in this Section 1 of this Article IX with respect to any current or future actions or claims.

ARTICLE X

AMENDMENTS

Section 1. Amendments . These By-Laws may be altered, amended or repealed, in whole or in part, or new By-Laws may be adopted by the stockholders or by the Board of Directors; provided, however, that notice of such alteration, amendment, repeal or adoption of new By-Laws be contained in the notice of such meeting of the stockholders or Board of Directors, as the case may be. All such amendments must be approved by either the holders of a majority of the outstanding capital stock entitled to vote thereon or by a majority of the entire Board of Directors then in office. Notwithstanding anything to the contrary contained in these By-Laws, any repeal or modification of Article VIII of these By-Laws shall not adversely affect any rights to indemnification and to the advancement of expenses of a director or officer of the Corporation existing at the time of such repeal or modification with respect to any acts or omissions occurring prior to such repeal or modification.

Section 2. Entire Board of Directors . As used in this Article IX and in these By-Laws generally, the term “entire Board of Directors” means the total number of directors which the Corporation would have if there were no vacancies.

* * *
Adopted as of: June 27, 2019


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Exhibit 10.1

TRANSITION SERVICES AGREEMENT

This TRANSITION SERVICES AGREEMENT, dated as of [●], 2019 (this “ Agreement ”), is made and entered into by and between KAR Auction Services, Inc., a Delaware corporation (“ KAR ”), and IAA Spinco Inc., a Delaware corporation and wholly owned subsidiary of KAR (“ SpinCo ”, and together with KAR, the “ Parties ”).  For purposes of this Agreement, capitalized terms used herein and not otherwise defined shall have the respective meanings ascribed to such terms in the Separation and Distribution Agreement.

RECITALS:

WHEREAS, the board of directors of KAR (the “ KAR Board ”) has determined that it is advisable and in the best interests of KAR to separate KAR’s salvage auction businesses from its whole car auction businesses, creating two independent publicly traded companies;

WHEREAS, in furtherance of the foregoing, (a) KAR will cause the applicable members of the KAR Group to assign, transfer, convey and deliver to SpinCo or the applicable SpinCo Designee all right, title and interest of the KAR Group in and to the SpinCo Assets, (b) SpinCo and the applicable SpinCo Designees will accept, assume and agree faithfully to perform, discharge and fulfill the SpinCo Liabilities (the transactions described in clauses (a) and (b) herein being referred to collectively as the “ SpinCo Contribution ”), [(c) SpinCo will cause the applicable members of the SpinCo Group to assign, transfer, convey and deliver to KAR or the applicable KAR Designee all right, title and interest of the SpinCo Group in and to the KAR Assets, and (d) KAR and the applicable KAR Designees will accept, assume and agree faithfully to perform, discharge and fulfill the KAR Liabilities] (the transactions described in this recital, including the assignment, transfer, conveyance and delivery of the SpinCo Assets and KAR Assets, and the acceptance, assumption and agreement to perform the SpinCo Liabilities and the KAR Liabilities, being referred to collectively as the “ Separation ”);

WHEREAS, to effectuate the Separation and the Distribution, KAR and SpinCo have entered into a Separation and Distribution Agreement, dated as of [●], 2019 (the “ Separation and Distribution Agreement ”); and

WHEREAS, to facilitate and provide for an orderly transition in connection with the Separation, the Parties desire to enter into this Agreement to set forth the terms pursuant to which each of the Parties shall provide Services to the other Party for a transitional period.

NOW, THEREFORE, in consideration of the mutual agreements, provisions and covenants contained in this Agreement, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties, intending to be legally bound, hereby agree as follows:

ARTICLE I

SERVICES

Section 1.01            Services .

(a)            With respect to each applicable service set forth on Schedule 1 hereto (the “ Services ”), the Party identified on Schedule 1   hereto as the “ Provider ” of such Service agrees to provide, or to cause one or more members of its Group to provide, such Service to the other Party (the “ Recipient ”), or any members of the Recipient’s Group, in each case for the period commencing on the Effective Date and ending on the earlier of (i) the date that a Party terminates the provision of such Service pursuant to Section 4.02 and (ii) the date set forth on Schedule 1 with respect to such Service (the “ Service Period ”).

(b)            At any time during the term of this Agreement, either Party may request that the other Party provide or cause its Group to provide additional services hereunder (the “ Additional Services ”) by providing written notice of such request, it being understood that the Party that receives such request may in its sole discretion decline to provide such requested Additional Services. If a Provider agrees to undertake to provide the Additional Services, upon the mutual written agreement as to the nature, cost, duration and scope of such Additional Services, KAR and SpinCo shall supplement in writing the Services set forth on Schedule 1 to include such Additional Services. Except where the context otherwise indicates or requires, any such Additional Services specified on Schedule 1 or so agreed upon in writing by the Parties shall be deemed to be “ Services ” under this Agreement.

Section 1.02            Performance of Services .

(a)            Except for Services identified as “ New Service ” in Schedule 1 hereto (“ New Services ”), which New Services the Provider shall use commercially reasonable efforts to provide, the Provider shall perform, or shall cause one or more members of its Group to perform, all Services to be provided by the Provider in a manner that is based on its past practice and that is substantially similar in all material respects to such Services (or analogous services) provided by or on behalf of KAR or any of its Subsidiaries with respect to the SpinCo Business or KAR Business, as applicable, during the twelve (12) months prior to the Effective Date (collectively referred to as the “ Level of Service ”).

(b)            Nothing in this Agreement shall require the Provider to perform or cause to be performed any Service to the extent that the manner of such performance would constitute a violation of any applicable Law or any existing contract or agreement with a Third Party. As between the Parties, the Provider shall be the party that determines, in its sole discretion,  whether to communicate with and shall be the party that communicates with Third Parties in connection with any necessary Third Party consents required under any existing contract or agreement with a Third Party to allow the Provider to perform, or cause to be performed, Services to be provided to the Recipient hereunder, with any such communications to be in the sole discretion of Provider. Unless otherwise agreed in writing by the Parties, all reasonable and documented out-of-pocket costs and expenses (if any) incurred by any Party or any member of its Group in connection with obtaining any Third Party consent that is required to allow the Provider to perform or cause to be performed any Services hereunder shall be paid for by the Recipient. If, with respect to a Service, a required Third Party consent has not been obtained, or the performance of a Service by or on behalf of the Provider would constitute a violation of any applicable Law, the Provider shall have no obligation to perform or cause to be performed such Service.
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(c)            Except for New Services, which New Services the Provider shall not be required to perform or cause to be performed other than in a manner that is commercially reasonable to Provider, the Provider shall not be obligated to perform or to cause to be performed any Service in a manner that is materially more burdensome (with respect to service quality, service quantity, or allocation of personnel or resources) than such services (or analogous services) provided by or on behalf of KAR or any of its Subsidiaries with respect to the SpinCo Business or KAR Business, as applicable, during the 12-month period prior to the Effective Date. Without limiting the generality of the foregoing, the Provider shall not be required to maintain the employment of any specific employee(s), hire additional employees or third-party service providers or purchase, or purchase, lease or license any additional equipment, software or other assets or properties in order the provide the Services hereunder. If the Recipient requests that the Provider perform or cause to be performed any Service in a manner that exceeds the Level of Service, then the Parties shall reasonably cooperate and act in good faith to determine whether the Provider will be required to provide such requested higher Level of Service. If the Parties determine that the Provider shall provide the requested higher Level of Service, then such higher Level of Service shall be documented in a written agreement signed by the Parties, which may be an amendment or addendum to this Agreement.

(d)            i)   Neither the Provider nor any member of its Group shall be required to perform or to cause to be performed any of the Services for the benefit of any Third Party or any other Person other than the Recipient and the members of its Group, and (ii) EXCEPT AS EXPRESSLY PROVIDED IN THIS Section 1.02 OR Section 6.04 , EACH PARTY ACKNOWLEDGES AND AGREES THAT ALL SERVICES ARE PROVIDED ON AN “AS-IS” BASIS, THAT THE RECIPIENT ASSUMES ALL RISK AND LIABILITY ARISING FROM OR RELATING TO ITS USE OF AND RELIANCE UPON THE SERVICES, AND THAT THE PROVIDER MAKES NO OTHER REPRESENTATIONS OR GRANTS ANY WARRANTIES, EXPRESS OR IMPLIED, EITHER IN FACT OR BY OPERATION OF LAW, BY STATUTE OR OTHERWISE, WITH RESPECT TO THE SERVICES. EACH PARTY SPECIFICALLY DISCLAIMS ANY OTHER WARRANTIES, WHETHER WRITTEN OR ORAL, OR EXPRESS OR IMPLIED, INCLUDING ANY WARRANTY OF QUALITY, MERCHANTABILITY, OR FITNESS FOR A PARTICULAR USE OR PURPOSE OR THE NON-INFRINGEMENT OF ANY INTELLECTUAL PROPERTY RIGHTS OF THIRD PARTIES.
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(e)            Each Party shall be responsible for its own compliance with any and all Laws applicable to its performance under this Agreement. No Party shall knowingly take any action in violation of any such applicable Law.

        Section 1.03          C harges for Services . The Recipient shall pay the Provider of the Services a fee for such Services (or category of Services, as applicable) (each fee constituting a “ Charge ” and, collectively, “ Charges ”), which Charges are set forth in Schedule 2 hereto. During the term of this Agreement, the amount of a Charge for any Service may be(a) any decrease as determined by the Provider in its sole discretion, and (b) increased to reflect any increase in the rates or charges imposed by any Third Party provider that is providing Services (proportional to the respective use of such Services by each Party) (“ Additional Charges ”). Together with any invoice for Charges, the Provider shall provide the Recipient with reasonable documentation, including any additional documentation reasonably requested by the Recipient to the extent that such documentation is in the Provider’s or its Group’s possession or control, to confirm the calculation of any applicable Additional Charges.

        Section 1.04          Changes in the Performance of Services . Subject to the performance Level of Service, the Provider may make changes from time to time in the manner of performing the Services if the Provider is making similar changes in performing analogous services for itself or its Group and if the Provider furnishes to the Recipient reasonable prior written notice of such changes. No such change shall materially adversely affect the timeliness or quality of the applicable Service.

        Section 1.05          Transitional Nature of Services . The Parties acknowledge the transitional nature of the Services and agree to reasonably cooperate and to use commercially reasonable efforts to effectuate a smooth transition of the Services from the Provider to the Recipient (or its designee).

        Section 1.05          Subcontracting . A Provider may hire or engage one or more Third Parties to perform any or all of its obligations under this Agreement; provided , however , that (a) such Provider shall use the same degree of care (but at least reasonable care) in selecting each such Third Party as it would if such Third Party was being retained to provide similar services to the Provider or its Group and (b) such Provider shall in all cases remain primarily responsible for all of its obligations under this Agreement with respect to the Services.
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ARTICLE II

OTHER ARRANGEMENTS

Section 2.01            Access .  The Recipient shall, and shall cause the members of its Group to, allow the Provider and the members of its Group and their respective Representatives reasonable access to the facilities of the Recipient and the members of its Group that is necessary for the Provider to fulfill its obligations under this Agreement. In addition to the foregoing right of access, the Recipient shall, and shall cause the members of its Group to, afford the Provider and the members of its Group and their respective Representatives, upon reasonable advance written notice, reasonable access during normal business hours to the facilities, Information, systems, infrastructure and personnel of the Recipient and the members of its Group as reasonably necessary for the Provider to verify the adequacy of internal controls over information technology, reporting of financial data and related processes employed in connection with the Services being provided by the Provider or the members of the Provider Group, including in connection with verifying compliance with Section 404 of the Sarbanes-Oxley Act of 2002; provided that (i) such access shall not unreasonably interfere with any of the business or operations of the Recipient or any member of its Group and (ii) in the event that the Recipient determines that providing such access could be commercially detrimental, violate any applicable Law or agreement or waive any attorney-client privilege, then the Parties shall use commercially reasonable efforts to permit such access in a manner that avoids such harm and consequence. The Provider agrees that all of its and its Group’s employees shall, and that it shall use commercially reasonable efforts to cause its Representatives’ employees to, when on the property of the Recipient or a member of the Recipient’s Group, or when given access to any facilities, Information, systems, infrastructure or personnel of the Recipient or a member of the Recipient’s Group, conform to the policies and procedures of the Recipient and the members of the Recipient’s Group, as applicable, concerning health, safety, conduct and security which are made known or provided to the Provider from time to time.

Section 2.02          Audit Assistance .  Each of the Parties and the members of their respective Groups are or may be subject to regulation and audit by a Governmental Authority (including a Taxing Authority)  or parties to contracts with such Parties or the members of their Groups. If such a Third Party exercises its right to examine or audit such Party’s or a member of its Group’s books, records, documents or accounting practices and procedures pursuant to such applicable Law or contract provisions, and such examination or audit relates to the Services, then the other Party shall provide, at the sole cost and expense of the requesting Party (except if related to the Recipient's receipt of Services, in which case such cost and expense shall be the Recipient's responsibility), all assistance reasonably requested by the Party that is subject to the examination or audit in responding to such examination or audits or requests for Information, to the extent that such assistance or Information is within the reasonable control of the cooperating Party and is related to the Services.  The requesting Party shall consult and cooperate with the cooperating Party to limit the scope of any such examination or audit to the extent reasonably possible.
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Section 2.04          Title to Intellectual Property .  Except as otherwise expressly provided for under this Agreement, the Separation and Distribution Agreement, the Trademark License Agreement or the Transition Trademark License Agreement, the Recipient acknowledges that it shall acquire no right, title or interest (including any license rights or rights of use) in any intellectual property which is owned or licensed by the Provider, by reason of the provision of the Services hereunder (other than the receipt and use of the Services by the Recipient during the term of this Agreement as contemplated hereunder). The Recipient shall not remove or alter any copyright, trademark, confidentiality or other proprietary notices that appear on any intellectual property owned or licensed by the Provider, and the Recipient shall reproduce any such notices on any and all copies thereof. The Recipient shall not attempt to decompile, translate, reverse engineer or make excessive copies of any intellectual property owned or licensed by the Provider, and the Recipient shall promptly notify the Provider of any such attempt, regardless of whether by the Recipient or any Third Party, of which the Recipient becomes aware.

ARTICLE III

BILLING; TAXES

        Section 3.01          Procedure . Charges for the Services as well as any Covered Taxes due and owing in accordance with Section 3.03 hereof, shall be charged to and payable by the Recipient. Amounts payable pursuant to this Agreement shall be paid by wire transfer (or such other method of payment as may be agreed between the Parties from time to time) to the Provider (as directed by the Provider), on a monthly basis, which amounts shall be due within thirty (30) days after the Recipient’s receipt of each such invoice, including reasonable documentation pursuant to Section 1.03 . All amounts due and payable hereunder shall be invoiced and paid in U.S. dollars.

        Section 3.02          Late Payments .  Charges not paid when due pursuant to this Agreement (and any amounts billed or otherwise invoiced or demanded and properly payable that are not paid within thirty (30) days of the receipt of such bill, invoice or other demand) shall accrue interest at a rate per annum equal to the Prime Rate plus one percent (1%) or the maximum rate under applicable Law, whichever is lower (the “ Interest Payment ”).

        Section 3.03          Taxes .

(a)            Without limiting any provisions of this Agreement, the Charges shall be exclusive of all sales, use, value-added, goods and services, services, excise, consumption, transfer or similar taxes, and any related penalties and interest, arising from the payment of such Charges to the Provider under this Agreement (other than any taxes measured by or imposed on the Provider’s gross or net income, or franchise or other similar taxes of the Provider) (“ Covered Taxes ”).
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(b)            The Recipient shall pay, or reimburse the Provider for, any and all Covered Taxes.

(c)            Where required by applicable Law, the Recipient shall pay any Covered Taxes directly to the relevant Governmental Authority in compliance with applicable Law. If any Covered Taxes are assessed on the receipt of Charges by the  Provider under this Agreement, the Provider shall notify the Recipient, pay such Covered Taxes directly to the applicable Governmental Authority and promptly provide the Recipient with an official receipt showing such payment, and the Recipient shall (without duplication) reimburse the Provider for such Covered Taxes.

(d)            In the event that applicable Law requires any Covered Taxes to be withheld from a payment of Charges by a Recipient to a Provider under this Agreement, the Recipient shall make such required withholding, pay such withheld amounts over to the applicable Governmental Authority in compliance with applicable Law, and increase the amount payable to the Provider as necessary so that, after the Recipient has withheld such amounts, the Provider receives an amount equal to the amount the Provider would have received had no such withholding been required.

(e)            The Recipient and the Provider shall use reasonable efforts, and shall cooperate with each other in good faith, to secure (and to enable the Recipient to claim) any exemption from, or otherwise to minimize, any Covered Taxes or to claim a tax refund therefor or tax credit in respect thereof, and the Recipient shall not be responsible for any Covered Taxes to the extent that such Covered Taxes would not have been imposed if (i) the Provider was eligible to claim an exemption from or reduction of such Covered Taxes, (ii) the Recipient used commercially reasonable efforts to notify the Provider of such eligibility reasonably in advance and (iii) the Provider failed to claim such exemption or reduction. If the Provider receives a refund with respect to any Covered Taxes paid or borne by the Recipient under this Agreement, the Provider shall promptly pay such refund to the Recipient net of costs and expenses (including any additional taxes) incurred by the Provider in connection with the receipt of such refund or the payment of such refund to the Recipient net of costs and expenses (including any additional taxes) incurred by the Provider in connection with the receipt of such refund or the payment of such refund to the Recipient.

        Section 3.04          No Set-Off .  Except as mutually agreed to in writing by KAR and SpinCo, no Party or any member of its Group shall have any right of set-off or other similar rights with respect to (a) any amounts received pursuant to this Agreement or (b) any other amounts claimed to be owed to the other Party or any of member of its Group arising out of this Agreement.
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ARTICLE IV

TERM AND TERMINATION

        Section 4.01          Term . This Agreement shall commence upon the Effective Date and shall terminate upon the earlier to occur of: (a) the last date on which either Party is obligated to provide any Service to the other Party in accordance with the terms of this Agreement; (b) the mutual written agreement of the Parties to terminate this Agreement in its entirety; and (c) 11:59 p.m., New York City time on [●]. Unless otherwise terminated pursuant to Section 4.02 , this Agreement shall terminate with respect to each Service as of the close of business on the last day of the Service Period for such Service.

Section 4.02            Early Termination .

(a)            Without prejudice to the Recipient’s rights with respect to Force Majeure, the Recipient may from time to time terminate this Agreement with respect to the entirety of any individual Service:

(i)            for any reason or no reason, at least thirty (30) days following written request to the Provider to terminate such Service, if the Provider agrees in writing to such termination; provided , however , that any such termination (x) may only be effective as of the date agreed to in writing by the Parties, (y) shall not result in a reduction of Charges with respect to calendar year 2019, and (z) shall result in a reduction of Charges following calendar year 2019 only if and to the extent expressly set forth in Schedule 2 ; or

(ii)            if the Provider of such Service has failed to perform any of its material obligations under this Agreement with respect to such Service, and such failure shall continue to be uncured for a period of  thirty (30) days (or ninety (90) days if Provider is using good-faith efforts to so cure during such thirty (30) day period and thereafter) after receipt by the Provider of written notice of such failure from the Recipient; provided , however , that any such termination may only be effective as of the last day of a month; provided , further , that the Recipient shall not be entitled to terminate this Agreement with respect to the applicable Service if, as of the end of such period, there remains a good-faith Dispute between the Parties (undertaken in accordance with the terms of Section 7.12 ) as to whether the Provider has cured the applicable breach.

(b)            The Provider may terminate this Agreement with respect to any individual Service, but not a portion thereof, at any time upon prior written notice to the Recipient if the Recipient has failed to perform any of its material obligations under this Agreement relating to such Service, including making payment of Charges for such Service when due, and such failure shall continue to be uncured for a period of thirty (30) days (or ninety (90) days if Recipient is using good-faith efforts to so cure during such thirty (30) day period and thereafter) after receipt by the Recipient of a written notice of such failure from the Provider; provided , however , that any such termination may only be effective as of the last day of a month; provided , further , that the Provider shall not be entitled to terminate this Agreement with respect to the applicable Service if, as of the end of such period, there remains a good-faith Dispute between the Parties (undertaken in accordance with the terms of Section 7.12 ) as to whether the Recipient has cured the applicable breach.
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        Section 4.03          Interdependencies .  The Parties acknowledge and agree that: (a) there may be interdependencies among the Services being provided under this Agreement; (b) upon the request of either Party, the Parties shall cooperate and act in good faith to determine whether (i) any such interdependencies exist with respect to the particular Service that a Party is seeking to terminate pursuant to Section 4.02 and (ii) in the case of such termination, the Provider’s ability to provide a particular Service in accordance with this Agreement would be materially and adversely affected by such termination of another Service; and (c) in the event that the Parties have determined that such interdependencies exist (and, in the case of such termination that the Provider’s ability to provide a particular Service in accordance with this Agreement would be materially and adversely affected by such termination), the Parties shall negotiate in good faith to amend Schedule 1 with respect to such termination of such impacted Service, which amendment shall be consistent with the terms of comparable Services.  To the extent that the Provider’s ability to provide a Service is dependent on the continuation of a specified Service, the Provider’s obligation to provide such dependent Service shall terminate automatically with the termination of such supporting Service.

        Section 4.04          Effect of Termination .  Upon the termination of any Service pursuant to this Agreement, the Provider of the terminated Service shall have no further obligation to provide the terminated Service.

        Section 4.05          Information Transmission .  The Provider, on behalf of itself and the members of its Group, shall use commercially reasonable efforts to provide or make available, or cause to be provided or made available, to the Recipient, in accordance with Section 6.1 of the Separation and Distribution Agreement, any Information received or computed by the Provider for the benefit of the Recipient concerning the relevant Service during the Service Period; provided , however , that, except as otherwise agreed to in writing by the Parties (a) the Provider shall not have any obligation to provide, or cause to be provided, Information in any nonstandard format, (b) the Provider and the members of its Group shall be reimbursed for their reasonable costs in accordance with Section 6.3 of the Separation and Distribution Agreement for creating, gathering, copying, transporting and otherwise providing such Information, and (c) the Provider shall use commercially reasonable efforts to maintain any such Information in accordance with Section 6.4 of the Separation and Distribution Agreement.
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ARTICLE V

CONFIDENTIALITY; PROTECTIVE ARRANGEMENTS

        Section 5.01          KAR and SpinCo Obligations . Subject to Section 5.04 , until the five (5)-year anniversary of the Effective Date, each of KAR and SpinCo, on behalf of itself and each member of its Group, agrees to hold, and to cause its respective Representatives to hold, in confidence, with at least the same degree of care that applies to KAR’s Confidential Information pursuant to policies in effect as of the Effective Date, all Confidential Information concerning the other Party or the members of its Group or their respective businesses that is either in its possession (including Confidential Information in its possession prior to the Effective Date) or furnished by such other Party or such other Party’s Group members or their respective Representatives at any time pursuant to this Agreement, and shall not use any such Confidential Information other than for such purposes as may be expressly permitted hereunder, except, in each case, to the extent that such Confidential Information has been (a) in the public domain or generally available to the public, other than as a result of a disclosure by such Party or any member of its Group or any of their respective Representatives in violation of this Agreement; (b) later lawfully acquired from other sources by such Party or any of member of its Group, which sources are not themselves bound by a confidentiality obligation or other contractual, legal or fiduciary obligation of confidentiality with respect to such Confidential Information; or (c) independently developed or generated without reference to or use of the Confidential Information of the other Party or any member of its Group. If any Confidential Information of a Party or any member of its Group is disclosed to the other Party or any member of its Group in connection with providing the Services, then such disclosed Confidential Information shall be used only as required to perform such Services.

        Section 5.02          No Release; Return or Destruction .  Each Party agrees (a) not to release or disclose, or permit to be released or disclosed, any Confidential Information of the other Party addressed in Section 5.01 to any other Person, except its Representatives who need to know such Confidential Information in their capacities as such (whom shall be advised of their obligations hereunder with respect to such Confidential Information) and except in compliance with Section 5.04 , and (b) to use commercially reasonable efforts to maintain such Confidential Information in accordance with Section 6.4 of the Separation and Distribution Agreement. Without limiting the foregoing, when any such Confidential Information is no longer needed for the purposes contemplated by the Separation and Distribution Agreement, this Agreement or any other Ancillary Agreements, each Party will promptly after request of the other Party either return to the other Party all such Confidential Information in a tangible form (including all copies thereof and all notes, extracts or summaries based thereon) or notify the other Party in writing that it has destroyed such information (and such copies thereof and such notes, extracts or summaries based thereon).
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        Section 5.03          Privacy and Data Protection Laws .  Each Party shall comply with all applicable state, federal and foreign privacy and data protection Laws that are or that may in the future be applicable to the provision of the Services under this Agreement.

        Section 5.04          Protective Arrangements . In the event that a Party or any member of its Group either determines on the advice of its counsel that it is required to disclose any information pursuant to applicable Law or receives any request or demand under lawful process or from any Governmental Authority to disclose or provide information of the other Party (or any member of its Group) that is subject to the confidentiality provisions hereof, such Party shall notify the other Party (to the extent legally permitted) as promptly as practicable under the circumstances prior to disclosing or providing such information and shall reasonably cooperate, at the expense of the other Party, in seeking any appropriate protective order requested by the other Party. In the event that such other Party fails to receive such appropriate protective order in a timely manner and the Party receiving the request or demand reasonably determines that its failure to disclose or provide such information shall actually prejudice the Party receiving the request or demand, then the Party that received such request or demand may thereafter disclose or provide information to the extent required by such Law (as so advised by its counsel) or by lawful process or such Governmental Authority, and the disclosing Party shall promptly provide the other Party with a copy of the information so disclosed, in the same form and format so disclosed, together with a list of all Persons to whom such information was disclosed, in each case to the extent legally permitted.

ARTICLE VI

LIMITED LIABILITY AND INDEMNIFICATION

Section 6.01            Limitations on Liability .

(a)            THE LIABILITIES OF THE PROVIDER AND ITS GROUP MEMBERS AND THEIR RESPECTIVE REPRESENTATIVES, COLLECTIVELY, UNDER THIS AGREEMENT FOR ANY AND ALL ACTS OR FAILURES TO ACT IN CONNECTION HEREWITH (INCLUDING THE PERFORMANCE OR BREACH OF THIS AGREEMENT), OR FROM THE SALE, DELIVERY, PROVISION OR USE OF ANY AND ALL SERVICES PROVIDED UNDER OR CONTEMPLATED BY THIS AGREEMENT, WHETHER IN CONTRACT, TORT (INCLUDING NEGLIGENCE AND STRICT LIABILITY) OR OTHERWISE, SHALL NOT IN THE AGGREGATE EXCEED FIFTY (50%) PERCENT OF THE CHARGES PAID AND PAYABLE TO PROVIDER BY THE RECIPIENT PURSUANT TO THIS AGREEMENT.

(b)            IN NO EVENT SHALL EITHER PARTY, THE MEMBERS OF ITS GROUP OR THEIR RESPECTIVE REPRESENTATIVES BE LIABLE TO THE OTHER PARTY FOR ANY INDIRECT, PUNITIVE, EXEMPLARY, REMOTE, SPECULATIVE OR SIMILAR DAMAGES IN EXCESS OF COMPENSATORY DAMAGES OF THE OTHER PARTY IN CONNECTION WITH THE PERFORMANCE OF THIS AGREEMENT (OTHER THAN ANY SUCH LIABILITY TO THE EXTENT PAYABLE BY A PARTY OR A MEMBER OF ITS GROUP TO A THIRD PARTY WITH RESPECT TO A THIRD-PARTY CLAIM), AND EACH PARTY HEREBY WAIVES ON BEHALF OF ITSELF, THE MEMBERS OF ITS GROUP AND ITS REPRESENTATIVES ANY CLAIM FOR SUCH DAMAGES, WHETHER ARISING IN CONTRACT, TORT OR OTHERWISE.
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(c)            The limitations in Section 6.01(a) and Section 6.01(b) shall not apply in respect of any Liability to the extent arising out of or in connection with the gross negligence, willful misconduct or fraud of or by the Party (or a member of its Group) to be charged.

        Section 6.02          Obligation to Re-Perform .  In the event of any breach of this Agreement by the Provider with respect to the provision of any Services which the Provider can reasonably be expected to re-perform in a commercially reasonable manner, the Provider shall promptly correct in all material respects such error, defect or breach or re-perform in all material respects such Services at the request of the Recipient and at the sole cost and expense of the Provider. Any request for re-performance in accordance with this Section 6.02 by the Recipient must be in writing and specify in reasonable detail the particular error, defect or breach, and such request must be made no more than one month from the later of (x) the date on which such breach occurred and (y) the date on which such breach was reasonably discovered by the Recipient.

        Section 6.03          Recipient Indemnity . In addition to (but not in duplication of) its other indemnification obligations (if any) under the Separation and Distribution Agreement, this Agreement or any other Ancillary Agreement, but subject to the limitations set forth in Section 6.01 of this Agreement, the Recipient shall indemnify, defend and hold harmless the Provider, the members of the Provider’s Group and each of their respective Representatives, and each of the successors and assigns of any of the foregoing (collectively, the “ Provider Indemnitees ”), from and against any and all claims of Third Parties to the extent relating to, arising out of or resulting from the Provider’s furnishing or failing to furnish the Services provided for in this Agreement, other than Third Party Claims to the extent arising out of the gross negligence, willful misconduct or fraud of Provider or a member of Provider’s Group.

        Section 6.04          Provider Indemnity .  In addition to (but not in duplication of) its other indemnification obligations (if any) under the Separation and Distribution Agreement, this Agreement or any other Ancillary Agreement, but subject to the limitations set forth in Section 6.01 of this Agreement, the Provider shall indemnify, defend and hold harmless the Recipient, the members of the Recipient’s Group and each of their respective Representatives, and each of the successors and assigns of any of the foregoing (collectively, the “ Recipient Indemnitees ”), from and against any and all Liabilities to the extent relating to, arising out of or resulting from the sale, delivery, provision or use of any Services provided by such Provider hereunder, but only to the extent that such Liability relates to, arises out of or results from the gross negligence, willful misconduct or fraud of Provider or a member of Provider’s Group.
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        Section 6.05           Indemnification Procedures .  The procedures for indemnification set forth in Sections 4.4, 4.5 and 4.6 of the Separation and Distribution Agreement shall govern claims for indemnification under this Agreement, mutatis   mutandis .

ARTICLE VII

MISCELLANEOUS

        Section 7.01          Independent Contractors .  The Parties each acknowledge and agree that they are separate entities, each of which has entered into this Agreement for independent business reasons. The relationships of the Parties hereunder are those of independent contractors and nothing contained herein shall be deemed to create a joint venture, partnership or any other relationship between the Parties or the respective members of its Group. Employees performing Services hereunder do so on behalf of, under the direction of, and as employees of, the Provider, and the Recipient shall have no right, power or authority to direct such employees.

Section 7.02            Counterparts; Entire Agreement; Corporate Power .

(a)            This Agreement may be executed in one or more counterparts, all of which shall be considered one and the same agreement, and shall become effective when one or more counterparts have been signed by each of the Parties and delivered to the other Party.

(b)            This Agreement, the Separation and Distribution Agreement and the Ancillary Agreements and the Exhibits, Schedules and appendices hereto and thereto contain the entire agreement between the Parties with respect to the subject matter hereof, supersede all previous agreements, negotiations, discussions, writings, understandings, commitments and conversations with respect to such subject matter, and there are no agreements or understandings between the Parties other than those set forth or referred to herein or therein.

(c)            KAR represents on behalf of itself and, to the extent applicable, each of the members of the KAR Group, and SpinCo represents on behalf of itself and, to the extent applicable, each of the members of the SpinCo Group, as follows:

(i)            each such Person has the requisite corporate or other power and authority and has taken all corporate or other action necessary in order to execute, deliver and perform this Agreement and to consummate the transactions contemplated hereby; and
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(ii)            this Agreement has been duly executed and delivered by it and constitutes a valid and binding agreement of it enforceable in accordance with the terms hereof.

(d)            Each Party acknowledges and agrees that delivery of an executed counterpart of a signature page to this Agreement (whether executed by manual, stamp or mechanical signature) by email in portable document format (PDF) shall be effective as delivery of such executed counterpart of this Agreement. Each Party expressly adopts and confirms each such stamp or mechanical signature (regardless of whether delivered in person, by mail, by courier, by facsimile or by email in portable document format (PDF)) made in its respective name as if it were a manual signature delivered in person, agrees that it will not assert that any such signature or delivery is not adequate to bind such Party to the same extent as if it were signed manually and delivered in person and agrees that, at the reasonable request of the other Party at any time, it will as promptly as reasonably practicable cause this Agreement to be manually executed (any such execution to be as of the date of the initial date thereof) and delivered in person, by mail or by courier.

        Section 7.03          Governing Law .  This Agreement (and any claims or disputes arising out of or related hereto or to the transactions contemplated hereby or to the inducement of any Party to enter herein, whether for breach of contract, tortious conduct or otherwise and whether predicated on common law, statute or otherwise) shall be governed by and construed and interpreted in accordance with the Laws of the State of Delaware, irrespective of the choice of Laws principles of the State of Delaware, including all matters of validity, construction, effect, enforceability, performance and remedies.

        Section 7.04          Assignability .  This Agreement shall be binding upon and inure to the benefit of the Parties and their respective successors and permitted assigns; provided , however , that SpinCo may not assign its rights or obligations under this Agreement without the express prior written consent of KAR, which consent shall not be unreasonably withheld, conditioned or delayed.

        Section 7.05           Third-Party Beneficiaries .  Except as provided in Article VI with respect to the Provider Indemnitees and Recipient Indemnitees in their capacities as such, (a) the provisions of this Agreement are solely for the benefit of the Parties and are not intended to confer upon any other Person except the Parties any rights or remedies hereunder; and (b) there are no other third-party beneficiaries of this Agreement and this Agreement shall not provide any other Third Party with any remedy, claim, Liability, reimbursement, claim of action or other right in excess of those existing without reference to this Agreement.

        Section 7.06          Notices .  All notices, requests, claims, demands or other communications under this Agreement shall be in writing and shall be given or made (and shall be deemed to have been duly given or made upon receipt) by delivery in person, , by electronic mail (for which a confirmation email is obtained), or sent by overnight courier (providing proof of delivery) to the respective Parties at the following addresses (or at such other address for a Party as shall be specified in a notice given in accordance with this Section):
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If to KAR, to:
     
   
KAR Auction Services, Inc.
   
13085 Hamilton Crossing Boulevard
   
Carmel, Indiana 46032
   
Email:
becca.polak@karauctionservices.com
   
Attention:
Chief Legal Officer
       
 
If to SpinCo, to:
     
   
Insurance Auto Auctions, Inc.
   
Two Westbrook Corporate Center, Suite 500
   
Westchester, Illinois 60154
   
Email:
jkett@iaai.com
      skerley@iaai.com
   
Attention:
John Kett
      Sidney Peryar

A Party may, by notice to the other Party, change the address to which such notices are to be given.

        Section 7.07          Severability .  If any provision of this Agreement or the application thereof to any Person or circumstance is determined by a court of competent jurisdiction to be invalid, void or unenforceable, the remaining provisions hereof, or the application of such provision to Persons or circumstances or in jurisdictions other than those as to which it has been held invalid or unenforceable, shall remain in full force and effect and shall in no way be affected, impaired or invalidated thereby. Upon such determination, the Parties shall negotiate in good faith in an effort to agree upon such a suitable and equitable provision to effect the original intent of the Parties.

        Section 7.08          Force Majeure.   No Party shall be deemed in default of this Agreement for any delay or failure to fulfill any obligation (other than a payment obligation) hereunder so long as and to the extent to which any delay or failure in the fulfillment of such obligations is prevented, frustrated, hindered or delayed as a consequence of circumstances of Force Majeure. In the event of any such excused delay, the time for performance (other than a payment obligation hereunder) shall be extended for a period equal to the time lost by reason of the delay unless this Agreement has previously been terminated under Article IV or under this Section 7.08 . A Party claiming the benefit of this provision shall, as soon as reasonably practicable after the occurrence of any such event, (a) provide written notice to the other Party of the nature and extent of any such Force Majeure condition; and (b) use commercially reasonable efforts to remove any such causes and resume performance under this Agreement as soon as reasonably practicable (and in no event later than the date that the affected Party resumes providing analogous services to, or otherwise resumes analogous performance under any other agreement for, itself, its Affiliates or any Third Party) unless this Agreement has previously been terminated under Article IV or this Section 7.08 .
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        Section 7.09          Headings .  The Article, Section and Paragraph headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement.

        Section 7.10          Survival of Covenants .  Except as expressly set forth in this Agreement, the covenants, representations and warranties contained in this Agreement, and Liability for the breach of any obligations contained herein, shall survive the Effective Date and shall remain in full force and effect thereafter.

        Section 7.11          Waivers of Default . Waiver by a Party of any default by the other Party of any provision of this Agreement shall not be deemed a waiver by the waiving Party of any subsequent or other default, nor shall it prejudice the rights of the other Party. No failure or delay by a Party in exercising any right, power or privilege under this Agreement shall operate as a waiver thereof, nor shall a single or partial exercise thereof prejudice any other or further exercise thereof or the exercise of any other right, power or privilege.

        Section 7.12          Dispute Resolution .  In the event of any controversy, dispute or claim (a “ Dispute ”) arising out of or relating to any Party’s rights or obligations under this Agreement (whether arising in contract, tort or otherwise), calculation or allocation of the costs of any Service or otherwise arising out of or relating in any way to this Agreement (including the interpretation or validity of this Agreement), such Dispute shall be resolved in accordance with the dispute resolution process referred to in Article VII of the Separation and Distribution Agreement.

        Section 7.13          Amendments . No provisions of this Agreement or any Ancillary Agreement shall be deemed waived, amended, supplemented or modified by a Party, unless such waiver, amendment, supplement or modification is in writing and signed by the authorized representative of the Party against whom it is sought to enforce such waiver, amendment, supplement or modification.

        Section 7.14          Interpretation .  In this Agreement, (a) words in the singular shall be deemed to include the plural and vice versa and words of one gender shall be deemed to include the other genders as the context requires; (b) the terms “hereof,” “herein,” and “herewith” and words of similar import shall, unless otherwise stated, be construed to refer to this Agreement as a whole (including all of the Schedules, Annexes and Exhibits hereto) and not to any particular provision of this Agreement; (c) Article, Section, Exhibit, Annex and Schedule references are to the Articles, Sections, Exhibits, Annexes and Schedules to this Agreement unless otherwise specified; (d) unless otherwise stated, all references to any agreement shall be deemed to include the exhibits, schedules and annexes to such agreement; (e) the word “including” and words of similar import when used in this Agreement shall mean “including, without limitation,” unless otherwise specified; (f) the word “or” shall not be exclusive; (g) unless otherwise specified in a particular case, the word “days” refers to calendar days; (h) references to “business day” shall mean any day other than a Saturday, a Sunday or a day on which banking institutions are generally authorized or required by law to close in the United States or New York, New York; (i) references herein to this Agreement or any other agreement contemplated herein shall be deemed to refer to this Agreement or such other agreement as of the date on which it is executed and as it may be amended, modified or supplemented thereafter, unless otherwise specified; and (j) unless expressly stated to the contrary in this Agreement, all references to “the date hereof,” “the date of this Agreement,” “hereby” and “hereupon” and words of similar import shall all be references to [●], 2019.
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        Section 7.15           Mutual Drafting .  This Agreement shall be deemed to be the joint work product of the Parties and any rule of construction that a document shall be interpreted or construed against a drafter of such document shall not be applicable to this Agreement.

[Signature page follows]
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IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed by their duly authorized representatives.

      
KAR AUCTION SERVICES, INC.
     

           
         
    
By:
      
      
       
Name:
      
       
Title:
        
        
        
       
IAA SPINCO INC.
        
       
       
       
By:
        
        
       
Name:
      
        
Title:
      
        
         

[Signature Page to Transition Services Agreement]
Schedule 1

Transition Services
See attached
Schedule 2

Charges

[TO COME]
Exhibit 10.2

TAX MATTERS AGREEMENT

by and between

KAR AUCTION SERVICES, INC.

and

IAA SPINCO INC.

Dated as of [●], 2019



TABLE OF CONTENTS

ARTICLE I

DEFINITIONS

Section 1.1
General
2
     
ARTICLE II
     
CERTAIN ALLOCATIONS
     
Section 2.1
General Rule
9
Section 2.2
Federal Income Tax Relating to Joint Returns
10
Section 2.3
Federal Income Tax Relating to Separate Returns
10
Section 2.4
State Tax Relating to Joint Returns
10
Section 2.5
State Tax Relating to Separate Returns
11
Section 2.6
Non-U.S. Tax Relating to Joint Returns
11
Section 2.7
Non-U.S. Tax Relating to Separate Returns
11
Section 2.8
Non-Income Taxes
11
Section 2.9
Internal Restructuring Taxes.
12
Section 2.10
Separation Taxes
12
Section 2.11
Determination of Tax Attributable to a Particular Entity
12
Section 2.12
Allocation of Employment Taxes and Equity Award Deductions
13
Section 2.13
Estimated Taxes.
13
Section 2.14
Transaction-Related Losses
13
Section 2.15
Straddle Periods
13
Section 2.16
Tax Refunds
13
Section 2.17
Prior Agreements
14
     
ARTICLE III
     
PREPARATION AND FILING OF TAX RETURNS
     
Section 3.1
KAR’ Responsibility
14
Section 3.2
Spinco’s Responsibility
14
Section 3.3
Right To Review Tax Returns
14
Section 3.4
Cooperation
15
Section 3.5
Tax Reporting Practices
15
Section 3.6
Reporting of Transactions
15
Section 3.7
Payment of Taxes
17
Section 3.8
Amended Returns and Carrybacks
18
Section 3.9
Tax Benefits
18
Section 3.10
Tax Attributes
18


     
ARTICLE IV
     
TAX-FREE STATUS OF THE DISTRIBUTION
     
Section 4.1
Representations and Warranties
19
Section 4.2
Restrictions on KAR
20
Section 4.3
Restrictions on Spinco
20
     
ARTICLE V
     
INDEMNITY OBLIGATIONS
     
Section 5.1
Indemnity Obligations
22
Section 5.2
Indemnification Payments
23
Section 5.3
Payment Mechanics
23
Section 5.4
Treatment of Payments
24
     
ARTICLE VI
     
TAX CONTESTS
     
Section 6.1
Notice
24
Section 6.2
Separate Returns
24
Section 6.3
Joint Returns
24
Section 6.4
Other Tax Contests
25
Section 6.5
Obligation of Continued Notice
25
Section 6.6
Settlement Rights
25
Section 6.7
Tax Contest Costs and Expenses.
26
     
ARTICLE VII
     
COOPERATION
     
Section 7.1
General
26
Section 7.2
Consistent Treatment
27
     
ARTICLE VIII
     
RETENTION OF RECORDS; ACCESS
     
Section 8.1
Retention of Records
27
Section 8.2
Access to Tax Records
27
     
ARTICLE IX
     
DISPUTE RESOLUTION
     
Section 9.1
Dispute Resolution Mechanics
28
     

ii

ARTICLE X
     
MISCELLANEOUS PROVISIONS
     
Section 10.1
Conflicting Agreements
28
Section 10.2
Termination
28
Section 10.3
Interest on Late Payments
28
Section 10.4
Specific Performance
28
Section 10.5
Successors
29
Section 10.6
Application to Present and Future Subsidiaries
29
Section 10.7
Assignability
29
Section 10.8
No Fiduciary Relationship
29
Section 10.9
No Duplication; No Double Recovery.
29
Section 10.10
Further Assurances
29
Section 10.11
Survival
30
Section 10.12
Notices
30
Section 10.13
Effective Date
31
     
   EXHIBITS  
 
Exhibit A
Separation Plan
 


         




iii
TAX MATTERS AGREEMENT

This TAX MATTERS AGREEMENT (this “ Agreement ”), is entered into as of [_____], between KAR Auction Services, Inc. (“ KAR ”), a Delaware corporation, and IAA Spinco Inc. (“ Spinco ” and, together with KAR, the “ Parties ”), a Delaware corporation and a wholly owned subsidiary of KAR.  Capitalized terms used in this Agreement and not otherwise defined herein shall have the meanings ascribed to such terms in the Separation and Distribution Agreement, dated as of the date hereof, between the Parties (the “ Separation and Distribution Agreement ”).

R E C I T A L S

WHEREAS, the board of directors of KAR (the “ Board ”) has determined that it is in the best interests of KAR and its stockholders to separate KAR into two separate, publicly traded companies, one for each of (i) the KAR Business, which shall be owned and conducted, directly or indirectly, by KAR and its Subsidiaries and (ii) the Spinco Business, which shall be owned and conducted, directly or indirectly, by Spinco and its Subsidiaries;

WHEREAS, in order to effect the Separation , the Board has determined that it is appropriate, desirable and in the best interests of KAR and its stockholders for KAR to undertake the Internal Restructuring and, in connection therewith, effect the Spinco Contribution which, in exchange therefor, Spinco shall: (i) issue to KAR the Spinco Shares and (ii) distribute to KAR the Cash Distribution;

WHEREAS, following the completion of the Internal Restructuring and the Separation , KAR shall distribute all of the issued and outstanding Spinco Shares to holders of the KAR Shares on the Record Date, on a pro rata basis (the “ Distribution ” and, together with the Internal Restructuring and the Separation , the “ Transactions ”);

WHEREAS, Spinco has been incorporated for these purposes and has not engaged in activities except those incidental to its formation and in preparation for the Transactions;

WHEREAS, as of the date hereof, KAR is the common parent of an affiliated group of domestic corporations that has elected to file consolidated U.S. federal income Tax Returns and, as a result of the Distribution, neither Spinco nor any of its Affiliates will be a member of such group after the close of the Distribution Date;

WHEREAS, for U.S. federal income tax purposes, it is the intention of the Parties that the Separation and the Distribution, taken together, will qualify as a transaction that will qualify under Section 355 and Section 368(a)(1)(D) of the Internal Revenue Code of 1986, as amended (the “ Code ”);

 WHEREAS, KAR has received the IRS Ruling and the Canadian Tax Ruling; and

WHEREAS, the Parties desire to (a) provide for the payment of Tax liabilities and entitlement to refunds thereof, allocate responsibility for, and cooperation in, the filing of Tax Returns, and provide for certain other matters relating to Taxes and (b) set forth certain covenants and indemnities relating to the preservation of the Intended Tax Treatment of the Transactions.
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NOW, THEREFORE, in consideration of the mutual agreements, provisions and covenants contained in this Agreement, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties, intending to be legally bound, hereby agree as follows:

ARTICLE I

DEFINITIONS

              Section 1.1   General . As used in this Agreement, the following terms shall have the following meanings:

“ Adjustment ” shall mean an adjustment of any item of income, gain, loss, deduction, credit or any other item affecting Taxes of a taxpayer pursuant to a Final Determination.

“ Affiliate ” shall mean, with respect to a Person, any other Person that directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with, the specified Person. For this purpose, “control” of a Person means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such Person, whether through ownership of voting securities, by contract or otherwise.

“ Agreement ” shall have the meaning set forth in the preamble hereto.

“ Canadian Spinco ” shall mean 1206397 B.C. Unlimited Liability Company, an unlimited liability company incorporated under the laws of the Province of British Columbia.

“ Canadian Tax Ruling ” shall mean an advance income tax ruling from the Canada Revenue Agency addressing the tax Canadian tax consequences of certain aspects of the Transactions.

“ Canadian Tax Ruling Request ” shall mean any letter filed by KAR with the Canada Revenue Agency requesting an advance income tax ruling regarding certain Canadian tax consequences of the Transactions and any amendment or supplement to such Canadian Tax Ruling Request letter.

“ Controlling Party ” shall mean, with respect to a Tax Contest, the Party entitled to control such Tax Contest pursuant to Section 6.2 , Section 6.3 or Section 6.4 of this Agreement.

“ Code ” shall mean the Internal Revenue Code of 1986, as amended.

“ Dispute ” shall have the meaning set forth in Section 9.1 of this Agreement.

“ Dispute Date ” shall have the meaning set forth in Section 9.1 of this Agreement.

“ Distribution ” shall have the meaning set forth in the recitals.
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“ Distribution Date ” shall have the meaning set forth in the Separation and Distribution Agreement.

“ Employee Matters Agreement ” shall have the meaning set forth in the Separation and Distribution Agreement.

“ Employment Taxes ” shall mean those Liabilities (as defined in the Separation and Distribution Agreement) for Taxes which are allocable pursuant to the provisions of the Employee Matters Agreement.

“ Equity Award Deduction ” shall have the meaning set forth in the Employee Matters Agreement.

“ Federal Income Tax ” shall mean any Tax imposed by Subtitle A of the Code other than an Employment Tax.

“ Final Determination ” shall mean the final resolution of liability for any Tax for any taxable period, by or as a result of (a) a final decision, judgment, decree or other order by any court of competent jurisdiction that can no longer be appealed, (b) a final settlement with the IRS, a closing agreement or accepted offer in compromise under Sections 7121 or 7122 of the Code, or a comparable agreement under the Laws of other jurisdictions, which resolves the entire Tax liability for any taxable period, (c) any allowance of a refund or credit in respect of an overpayment of Tax, but only after the expiration of all periods during which such refund or credit may be recovered by the jurisdiction imposing the Tax, or (d) any other final resolution, including by reason of the expiration of the applicable statute of limitations or the execution of a pre-filing agreement with the IRS or other Taxing Authority.

“ Group ” shall mean either the Spinco Group or the KAR Group, as the context requires.

“ Income Tax ” shall mean any federal, state, local or Non-U.S. Tax determined by reference to income, gains, net worth, gross receipts, or any Taxes imposed in lieu of such a Tax.

“ Incremental Section 336(e) Tax ” shall mean the amount of Taxes, if any, incurred by KAR as a result of making a Section 336(e) Election in excess of the amount of Taxes that would have been incurred by KAR had no such Section 336(e) Election been made and the Distribution had been treated as a taxable stock distribution for U.S. federal income tax purposes.

“ Indemnifying Party ” shall have the meaning set forth in Section 5.2 of this Agreement.

“ Indemnitee ” shall have the meaning set forth in Section 5.2 of this Agreement.

“ Intended Tax Treatment ” shall mean the qualification of the Transactions for the intended tax treatment, including as set forth in the IRS Ruling, Canadian Tax Ruling, any Tax Opinion or the Separation Plan.
3


“ Internal Restructuring ” shall have the meaning set forth in the Separation and Distribution Agreement.

“ Internal Restructuring Taxes ” shall mean those Taxes triggered by, or arising or otherwise incurred as a result of, the Internal Restructuring, except for (i) any Tax resulting from a breach by any Party of any covenant in this Agreement, and (ii) any Tax attributable to any action set out in Section 4.2 or Section 4.3 .

“ IRS ” shall mean the United States Internal Revenue Service.

“ IRS Ruling ” shall mean a private letter ruling from the IRS addressing the tax consequences of certain aspects of the Transactions.

“ IRS Ruling Request ” shall mean any letter filed by KAR with the IRS requesting a ruling regarding certain tax consequences of the Transactions and any amendment or supplement to such IRS Ruling Request letter.

“ Joint Return ” shall mean (i) any Tax Return that actually includes, by election or otherwise, one or more members of the KAR Group together with one or more members of the Spinco Group or (ii) any Tax Return that includes Tax Items attributable to both the KAR Business and the Spinco Business.

“ KAR ” shall have the meaning set forth in the preamble hereto.

“ KAR Affiliated Group ” shall mean an affiliated group (as that term is defined in Section 1504 of the Code and the Treasury Regulations thereunder) of which KAR is the common parent.

“ KAR Business ” shall have the meaning set forth in the Separation  and Distribution Agreement.

“ KAR Federal Consolidated Income Tax Return ” shall mean any United States federal consolidated income Tax Return for a KAR Affiliated Group.

“ KAR Group ” shall mean KAR and each Person that is a Subsidiary of KAR (other than Spinco and any other member of the Spinco Group).

“ KAR Separate Return ” shall mean any Tax Return of or including any member of the KAR Group (including any consolidated, combined or unitary return) that does not include any member of the Spinco Group.

“ KAR Shares ” shall have the meaning set forth in the Separation and Distribution Agreement.

“ Law ” shall have the meaning set forth in the Separation and Distribution Agreement.
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“ Non-Controlling Party ” shall mean, with respect to a Tax Contest, the Party that is not entitled to control such Tax Contest pursuant to Section 6.2 ,  Section 6.3 or Section 6.4 of this Agreement.

“ Non-Income Tax ” shall mean any Tax that is not an Income Tax.

“ Non-U.S. Tax ” shall mean any Tax imposed by any foreign country or any possession of the United States, or by any political subdivision of any foreign country or United States possession.

“ Parties ” shall mean the parties to this Agreement.

“ Past Practices ” shall have the meaning set forth in Section 3.5 of this Agreement.

“ Person ” shall have the meaning set forth in the Separation and Distribution Agreement.

“ Post-Distribution Period ” shall mean any taxable period (or portion thereof) beginning after the Distribution Date, including for the avoidance of doubt, the portion of any Straddle Period beginning after the Distribution Date.

“ Pre-Distribution Period ” shall mean any taxable period (or portion thereof) ending on or before the Distribution Date, including for the avoidance of doubt, the portion of any Straddle Period ending at the end of the day on the Distribution Date.

“ Preparing Party ” shall mean, with respect to a Tax Return, the Party that is required to prepare and file any such Tax Return pursuant to Section 3.1 or Section 3.2 of this Agreement, as applicable.

“ Proposed Acquisition Transaction ” shall mean a transaction or series of transactions (or any agreement, understanding or arrangement, within the meaning of Section 355(e) of the Code and Treasury Regulation Section 1.355-7, or any other Treasury Regulations promulgated thereunder, to enter into a transaction or series of transactions), whether such transaction is supported by Spinco management or shareholders, is a hostile acquisition, or otherwise, as a result of which Spinco (or any successor thereto) would merge or consolidate with any other Person or as a result of which one or more Persons would (directly or indirectly) acquire, or have the right to acquire, from Spinco (or any successor thereto) and/or one or more holders of Spinco Shares, respectively, any amount of stock of Spinco, that would, when combined with any other direct or indirect changes in ownership of the stock of Spinco pertinent for purposes of Section 355(e) of the Code and the Treasury Regulations promulgated thereunder, comprise forty (40) percent or more of (i) the value of all outstanding shares of Spinco as of the date of such transaction, or in the case of a series of transactions, the date of the last transaction of such series, or (ii) the total combined voting power of all outstanding shares of voting stock of Spinco as of the date of the such transaction, or in the case of a series of transactions, the date of the last transaction of such series.  Notwithstanding the foregoing, a Proposed Acquisition Transaction shall not include (i) the adoption by Spinco of a shareholder rights plan or (ii) issuances by Spinco that satisfy Safe Harbor VIII (relating to acquisitions in connection with a person’s performance of services) or Safe Harbor IX (relating to acquisitions by a retirement plan of an employer) of Treasury Regulation Section 1.355-7(d).  For purposes of determining whether a transaction constitutes an indirect acquisition, (i) any recapitalization or other transaction resulting in a shift of voting power shall be treated as an indirect acquisition of shares of stock by the shareholders experiencing an increase in voting power as a result of such recapitalization or other transaction and (ii) any redemption of shares of stock shall be treated as an indirect acquisition of shares of stock by the non-exchanging shareholders. This definition and the application thereof is intended to monitor compliance with Section 355(e) of the Code and the Treasury Regulations promulgated thereunder and shall be interpreted accordingly. Any clarification of, or change in, the statute or Treasury Regulations promulgated under Section 355(e) of the Code shall be incorporated in this definition and its interpretation.
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“ Protective Section 336(e) Election ” shall have the meaning set forth in Section 3.6(b) of this Agreement.

“ Reasonable Basis ” shall mean reasonable basis within the meaning of Section 6662(d)(2)(B)(ii)(II) of the Code and the Treasury Regulations promulgated thereunder (or such other level of confidence required by the Code at that time to avoid the imposition of penalties).

“ Record Date ” shall have the meaning set forth in the Separation and Distribution Agreement.

“ Refund ” shall mean any refund, reimbursement, offset, credit, or other similar benefit in respect of Taxes (including any overpayment of Taxes that can be refunded or, alternatively, applied against other Taxes payable), including any interest paid on or with respect to such refund of Taxes; provided , however , that the amount of any refund of Taxes shall be net of any Taxes imposed by any Taxing Authority on, related to, or attributable to, the receipt of or accrual of such refund, including any Taxes imposed by way of withholding or offset.

“ Restricted Period ” shall mean the period which begins with the Distribution Date and ends two (2) years thereafter.

“ Reviewing Party ” shall mean, with respect to a Tax Return, the Party that is not the Preparing Party.

“ Section 336(e) Allocation Statement ” shall have the meaning set forth in Section 3.6(b) of this Agreement.

“ Section 336(e) Benefit Amount ” shall have the meaning set forth in Section 3.6(b) of this Agreement.

“ Section 336(e) Tax Basis Increase ” shall have the meaning set forth in Section 3.6(b) of this Agreement.

“ Separate Return ” shall mean a KAR Separate Return or an Spinco Separate Return, as the case may be.

“ Separation ” shall have the meaning set forth in the Separation and Distribution Agreement.

“ Separation and Distribution Agreement ” shall have the meaning set forth in the preamble hereto.
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“ Separation Plan ” shall mean the step plan attached hereto as Exhibit A .

“ Separation Taxes ” shall mean those Taxes triggered by, or arising or otherwise incurred as a result of, the Transactions, except for (i) any Tax resulting from a breach by any Party of any covenant in this Agreement, (ii) any Internal Restructuring Taxes and (iii) any Tax attributable to any action set out in Section 4.2 or Section 4.3 .

“ Spinco Actual Estimated Tax Liability ” shall mean the actual amount of Taxes shown as due and payable after the Distribution, as determined by Past Practices, with respect to which any Spinco Estimated Tax Amount was paid by Spinco to KAR.

“ Spinco Business ” shall have the meaning set forth in the Separation and Distribution Agreement.

“ Spinco Contribution ” shall have the meaning set forth in the Separation and Distribution Agreement.

“ Spinco’s Direct Subsidiary ” shall mean IAA Holdings, Inc., a Delaware corporation.

“ Spinco Estimated Tax Amount ” shall mean the amount of estimated Taxes paid by Spinco to KAR with respect to Taxes not yet due and payable prior to the Distribution that would be included on any (i) U.S. consolidated Federal Income Tax Return of KAR or (ii) unitary, combined or other consolidated State Tax Return of KAR, in each case, that are attributable to the Spinco Business or any member of the Spinco Group for a Pre-Distribution Period, as determined by Past Practices.

“ Spinco Group ” shall mean Spinco and each Person that will be a Subsidiary of Spinco as of immediately after the Effective Time.

“ Spinco Separate Return ” shall mean any Tax Return of or including any member of the Spinco Group (including any consolidated, combined or unitary return) that does not include any member of the KAR Group.

“ Spinco Shares ” shall have the meaning set forth in the Separation and Distribution Agreement.

“ State Tax ” means any Tax imposed by any State of the United States or by any political subdivision of any such State, and any interest, penalties, additions to tax, or additional amounts in respect of the foregoing.

“ Straddle Period ” shall mean any taxable year or other taxable period that begins on or before the Distribution Date and ends after the Distribution Date.

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“ Subsidiary ” shall have the meaning set forth in the Separation and Distribution Agreement.

“ Tax ” or “ Taxes ” shall mean (i) all taxes, charges, fees, duties, levies, imposts, rates or other assessments or governmental charges of any kind imposed by any U.S. federal, state, local or non-U.S. Taxing Authority, including, without limitation, income, gross receipts, employment, excise, severance, stamp, occupation, premium, windfall profits, environmental, custom duties, property, sales, use, license, capital stock, transfer, franchise, registration, payroll, withholding, social security, unemployment, disability, value added, alternative or add-on minimum or other taxes, whether disputed or not, and including any interest, penalties, charges or additions attributable thereto, (ii) liability for the payment of any amount of the type described in clause (i) above arising as a result of being (or having been) a member of any group or being (or having been) included or required to be included in any Tax Return related thereto, and (iii) liability for the payment of any amount of the type described in clauses (i) or (ii) above as a result of any express or implied obligation to indemnify or otherwise assume or succeed to the liability of any other Person.

“ Tax Attribute ” shall mean net operating losses; capital losses; research and development deductions, credits and carryovers; general business credits and carryovers; investment tax credit carryovers; earnings and profits; foreign tax credit carryovers; overall foreign losses; previously taxed income; separate limitation losses; and any other losses, deductions, credits or other comparable items that could affect a Tax liability for a past or future taxable period.

“ Taxing Authority ” shall mean any Taxing Authority or any subdivision, agency, commission or entity thereof or any quasi-governmental or private body having jurisdiction over the assessment, determination, collection or imposition of any Tax (including the IRS).

“ Tax Certificates ” shall mean any certificates of officers of KAR and Spinco, provided to PricewaterhouseCoopers, Skadden, Arps, Slate, Meagher & Flom LLP, or any other law or accounting firm in connection with any Tax Opinion, the IRS Ruling or the Canadian Tax Ruling.

“ Tax Contest ” shall have the meaning set forth in Section 6.1 of this Agreement.

“ Tax Expert ” shall mean independent Tax counsel of recognized national standing or a nationally recognized independent public accounting firm, in either case, with experience in the tax area(s) involved or at issue.

“ Tax Item ” shall mean any item of income, gain, loss, deduction, or credit.

“ Tax Law ” shall mean the law of any Taxing Authority or political subdivision thereof relating to any Tax.

“ Tax Materials ” shall have the meaning set forth in Section 4.1(a) of this Agreement.
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“ Tax Opinion ” shall mean any written opinion of PricewaterhouseCoopers, Skadden, Arps, Slate, Meagher & Flom LLP or any other law or accounting firm, regarding certain tax consequences of certain transactions executed as part of the Transactions.

“ Tax Records ” shall have the meaning set forth in Section 8.1 of this Agreement.

“ Tax-Related Losses ” shall mean (i) all Taxes (including interest and penalties thereon) imposed pursuant to any settlement, Final Determination, judgment or otherwise, (ii) all accounting, legal and other professional fees, and court costs incurred in connection with Taxes or Tax Contests, as well as any other out-of-pocket costs incurred in connection with Taxes or Tax Contests; and (iii) all costs, expenses and damages associated with stockholder litigation or controversies and any amount paid by KAR (or any of its Affiliates) or Spinco (or any of its Affiliates) in respect of the liability of shareholders, whether paid to shareholders or to the IRS or any other Taxing Authority, in each case, resulting from the failure of any transaction to have the Intended Tax Treatment.

“ Tax Return ” shall mean any return, report, certificate, election, form or similar statement or document (including any related supporting information or schedule attached thereto and any information return, amended tax return, claim for refund or declaration of estimated tax) supplied to or filed with, or required to be supplied to or filed with, a Taxing Authority, or any bill for or notice related to ad valorem or other similar Taxes received from a Taxing Authority, in each case, in connection with the determination, assessment or collection of any Tax or the administration of any laws, regulations or administrative requirements relating to any Tax.

“ Transactions ” shall have the meaning set forth in the recitals.

“ Treasury Regulations ” shall mean the regulations promulgated from time to time under the Code as in effect for the relevant tax period.

“ Unqualified Tax Opinion ” shall mean a “will” opinion, without substantive qualifications, of a nationally recognized law or accounting firm, to the effect that a transaction will not affect the Intended Tax Treatment of the Transactions.  Any such opinion must assume that the Transactions would have qualified for the Intended Tax Treatment if the transaction in question did not occur.

ARTICLE II

CERTAIN ALLOCATIONS

                Section 2.1 General Rule .

(a)            Spinco Liability . Spinco shall be liable for, and shall indemnify and hold harmless the KAR Group from and against any liability for, Taxes which are allocated to Spinco under this Agreement.
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(b)            KAR Liability .  KAR shall be liable for, and shall indemnify and hold harmless the Spinco Group from and against any liability for, Taxes which are allocated to KAR under this Agreement.

                Section 2.3   Federal Income Tax Relating to Joint Returns .

(a)            Spinco shall pay and be responsible for any and all Federal Income Taxes due with respect to or required to be reported on any Joint Return (including any increase in such Tax as a result of a Final Determination) which Taxes are attributable to the Spinco Business for all Pre-Distribution Periods.

(b)            KAR shall pay and be responsible for any and all Federal Income Taxes due with respect to or required to be reported on any Joint Return (including any increase in such Tax as a result of a Final Determination) other than those Federal Income Taxes described in Section 2.2(a) for all Pre-Distribution Periods.

                Section 2.3   Federal Income Tax Relating to Separate Returns .

(a)            Spinco shall pay and be responsible for any and all Federal Income Taxes due with respect to or required to be reported on any Spinco Separate Return (including any increase in such Tax as a result of a Final Determination) for all Tax Periods.

(b)            KAR shall pay and be responsible for any and all Federal Income Taxes due with respect to or required to be reported on any KAR Separate Return (including any increase in such Tax as a result of a Final Determination) for all Tax Periods.

                Section 2.4   State Tax Relating to Joint Returns .

(a)            Spinco shall pay and be responsible for any and all State Taxes due with respect to or required to be reported on any Joint Return (including any increase in such Tax as a result of a Final Determination) which Taxes are attributable to the Spinco Business for all Pre-Distribution Periods.

(b)            KAR shall pay and be responsible for any and all State Taxes due with respect to or required to be reported on any Joint Return (including any increase in such Tax as a result of a Final Determination) other than those State Taxes described in Section 2.4(a) for all Pre-Distribution Periods.

(c)            Spinco shall pay and be responsible for any and all State Taxes due with respect to or required to be reported on any Joint Return (including any increase in such Tax as a result of a Final Determination) which Taxes are attributable to the Spinco Business for all Post-Distribution Periods.

(d)            KAR shall pay and be responsible for any and all State Taxes due with respect to or required to be reported on any Joint Return (including any increase in such Tax as a result of a Final Determination) other than those State Taxes described in Section 2.4(c) for all Post-Distribution Periods.
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                Section 2.5   State Tax Relating to Separate Returns .

(a)            Spinco shall pay and be responsible for any and all State Taxes due with respect to or required to be reported on any Spinco Separate Return (including any increase in such Tax as a result of a Final Determination) for all Tax Periods.

(b)            KAR shall pay and be responsible for any and all State Taxes due with respect to or required to be reported on any KAR Separate Return (including any increase in such Tax as a result of a Final Determination) for all Tax Periods.

                Section 2.6   Non-U.S. Tax Relating to Joint Returns .

(a)            Spinco shall pay and be responsible for any and all Non-U.S. Taxes due with respect to or required to be reported on any Joint Return (including any increase in such Tax as a result of a Final Determination) which Taxes are attributable to the Spinco Business for all Pre-Distribution Periods.

(b)            KAR shall pay and be responsible for any and all Non-U.S. Taxes due with respect to or required to be reported on any Joint Return (including any increase in such Tax as a result of a Final Determination) other than those Non-U.S. Taxes described in Section 2.6(a) for all Pre-Distribution Periods.

(c)            Spinco shall pay and be responsible for any and all Non-U.S. Taxes due with respect to or required to be reported on any Joint Return (including any increase in such Tax as a result of a Final Determination) which Taxes are attributable to Spinco Business for all Post-Distribution Periods.

(d)            KAR shall pay and be responsible for any and all Non-U.S. Taxes due with respect to or required to be reported on any Joint Return (including any increase in such Tax as a result of a Final Determination) other than those Non-U.S. Taxes described in Section 2.6(c) for all Post-Distribution Periods.

                Section 2.7   Non-U.S. Tax Relating to Separate Returns .

(a)            Spinco shall pay and be responsible for any and all Non-U.S. Taxes due with respect to or required to be reported on any Spinco Separate Return (including any increase in such Tax as a result of a Final Determination) for all Tax Periods.

(b)            KAR shall pay and be responsible for any and all Non-U.S. Taxes due with respect to or required to be reported on any KAR Separate Return (including any increase in such Tax as a result of a Final Determination) for all Tax Periods.

                Section 2.8   Non-Income Taxes .

To the extent not otherwise allocated under this Article II , Non-Income Taxes shall be allocated as follows:
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(a)            Spinco shall pay and be responsible for any and all Non-Income Taxes that are attributable to the Spinco Business for all Pre-Distribution Periods.

(b)            KAR shall pay and be responsible for any and all Non-Income Taxes other than those Non-Income Taxes described in Section 2.8(a) for all Pre-Distribution Periods.

(c)            Spinco shall pay and be responsible for any and all Non-Income Taxes that are imposed on or attributable to the Spinco Business or Spinco Group for all Post-Distribution Periods.

(d)            KAR shall pay and be responsible for any and all Non-Income Taxes that are imposed on or attributable to the KAR Business or KAR Group for all Post-Distribution Periods.

                Section 2.9   Internal Restructuring Taxes . Notwithstanding anything in this Agreement to the contrary, Spinco shall pay and be responsible for any and all Internal Restructuring Taxes.

                Section 2.10     Separation Taxes . Notwithstanding anything in this Agreement to the contrary, each of KAR and Spinco shall pay and be responsible for fifty (50) percent of any and all Separation Taxes.

                Section 2.11     Determination of Tax Attributable to a Particular Entity .

(a)            For purposes of this Agreement, the amount of Taxes attributable to a particular entity shall be determined by KAR in a manner consistent with the Past Practices of the KAR Group with respect to the relevant Tax Return (including any past accounting methods, elections and conventions).  Without limiting the generality of the foregoing, the following principles shall apply for purposes of determining the amount of Tax attributable to a particular entity:

(i)            including only Tax Items of the relevant entity that were included in the relevant Tax Return (i.e., as though the relevant entity prepared such Tax Return on a stand-alone basis);

(ii)            except as provided in Section 2.11(a)(iv) hereof, using all elections, accounting methods and conventions used on the relevant Tax Return for such period;

(iii)            applying the highest statutory marginal corporate income Tax rate in effect for such taxable period;

(iv)            assuming that the relevant entity elects not to carry back any net operating losses.

(b)            In the event a Non-Income Tax is attributable or traceable to a specific asset, then such Tax shall be attributable to the entity that owns the relevant asset.
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                Section 2.12     Allocation of Employment Taxes and Equity Award Deductions .   Liability for Employment Taxes and the allocation or apportionment of Equity Award Deductions shall be governed by the Employee Matters Agreement.

Section 2.13      Estimated Taxes .

(a)            With respect to any Spinco Estimated Tax Amount that Spinco has paid to KAR:

(i)            If the Spinco Estimated Tax Amount is less than the Spinco Actual Estimated Tax Liability, Spinco shall pay KAR the amount of such excess pursuant to the terms of Section 3.7 (b); and

(ii)            If the Spinco Estimated Tax Amount is greater than the Spin co Actual Estimated Tax Liability, KAR shall pay to Spinco the amount of such excess no later than fifteen (15) Business Days after the due date (taking into account any applicable extensions) for the Tax Return with respect to which the Spinco Actual Estimated Tax Liability pertains.

                Section 2.14     Transaction-Related Losses .

Notwithstanding anything in this Agreement to the contrary:

(a)            Spinco shall be responsible for (i) any and all Tax-Related Losses for which Spinco is responsible pursuant to Section 5.1(b) of this Agreement and (ii) any and all Tax-Related Losses arising out of, based upon, or relating or attributable to any breach of or inaccuracy in, or failure to perform, as applicable, any representation, covenant, or obligation of any member of the Spinco Group pursuant to this Agreement.

(b)            KAR shall be responsible for (i) any and all Tax-Related Losses for which KAR is responsible pursuant to Section 5.1(a) of this Agreement and (ii) any and all Tax-Related Losses arising out of, based upon, or relating or attributable to any breach of or inaccuracy in, or failure to perform, as applicable, any representation, covenant, or obligation of any member of the KAR Group pursuant to this Agreement.

                Section 2.15     Straddle Periods . If the taxable year or other taxable period of KAR or any member of the KAR Group or Spinco or any member of the Spinco Group does not close on the Distribution Date, then the allocation or apportionment of any Tax Items attributable to the portion of the Straddle Period ending on, or beginning after, the Distribution Date shall be deemed equal to the amount that would have been so attributable if such taxable year had closed on the Distribution Date; provided that (i) exemptions, allowances, or deductions that are calculated on an annual or periodic basis, and (ii) property Taxes or other Non-Income Taxes that are calculated on an annual or periodic basis and not assessed with respect to a transaction or series of transactions, shall be allocated between such portions in proportion to the number of days in each such portion. Notwithstanding the foregoing, the allocation or apportionment of Equity Award Deductions shall be governed by the Employee Matters Agreement.

Section 2.16     Tax Refunds .
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(a)            KAR shall be entitled to all Refunds for Taxes for which KAR is responsible pursuant to this Agreement, and Spinco shall be entitled to all Refunds for Taxes for which Spinco is responsible pursuant to this Agreement.

(b)            A Party receiving a Refund to which the other Party is entitled pursuant to this Agreement shall pay the amount to which such other Party is entitled within fifteen (15) Business Days after the receipt of the Refund.  For purposes of this Section 2.16(b) , any Refund that arises as a result of an offset, credit, or other similar benefit in respect of Taxes other than a receipt of cash shall be deemed to be received on the earlier of (i) the date on which a Tax Return is filed claiming such offset, credit, or other similar benefit and (ii) the date on which payment of the Tax which would have otherwise been paid absent such offset, credit, or other similar benefit is due (determined without taking into account any applicable extensions).

(c)            In the event that one Party receives a Refund to which the other Party is entitled, the amount of Refund the Party receiving such Refund shall be required to pay to the Party entitled to such Refund shall be net of any and all Tax-Related Losses or other costs and expenses incurred by the Party receiving the Refund (or any of such Party’s Affiliates) in connection with the receipt of such Refund or the payment of such Refund to the other Party.

                Section 2.17     Prior Agreements . Except as set forth in this Agreement and in consideration of the mutual indemnities and other obligations of this Agreement, any and all prior Tax sharing or allocation agreements or practices between any member of the KAR Group and any member of the Spinco Group shall be terminated with respect to the Spinco Group and the KAR Group as of the Distribution Date.  No member of either the Spinco Group or the KAR Group shall have any continuing rights or obligations under any such agreement.

ARTICLE III

PREPARATION AND FILING OF TAX RETURNS

                Section 3.1   KAR’ Responsibility .  KAR shall prepare and file when due (taking into account any applicable extensions), or shall cause to be prepared and filed, all Joint Returns and all KAR Separate Returns.

                Section 3.2   Spinco’s Responsibility .  Spinco shall prepare and file when due (taking into account any applicable extensions), or shall cause to be prepared and filed, all Tax Returns required to be filed by or with respect to members of the Spinco Group other than those Tax Returns which KAR is required to prepare and file under Section 3.1 . The Tax Returns required to be prepared and filed by Spinco under this Section 3.2 shall include any Spinco Separate Returns.

                Section 3.3   Right To Review Tax Returns . To the extent that the positions taken on any Tax Return (i) directly relate to matters for which the Reviewing Party may have an indemnification obligation to the Preparing Party, or that may give rise to a refund to which the Reviewing Party would be entitled under this Agreement or (ii) would reasonably be expected to materially adversely affect the Tax position of the Reviewing Party, the Preparing Party shall prepare the portions of such Tax Return that relates to the business of the Reviewing Party (the KAR Business or the Spinco Business, as the case may be), shall provide a draft of such portion of such Tax Return to the Reviewing Party for its review and comment at least ten (10) Business Days prior to the due date for such Tax Return (taking into account any applicable extensions). The Reviewing Party shall thereafter have five (5) Business Days to review such portion of such Tax Return and provide reasonable comments, if any, on such portion of such Tax Return to the Preparing Party, provided , however , that the Reviewing Party shall provide any reasonable comments it may have to the Preparing Party no later than two (2) Business Days prior to the due date for such Tax Return (taking into account any applicable extensions). The Preparing Party shall use commercially reasonable efforts to modify such portion of such Tax Return before filing such Tax Return to include the Reviewing Party’s reasonable comments, provided , however , that nothing herein shall prevent the Preparing Party from timely filing any such Tax Return and, provided , further , that KAR shall be entitled to resolve any issues arising out of the review of any such portion of a Tax Return in its sole discretion.
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              Section 3.4   Cooperation .  The Parties shall provide, and shall cause their Affiliates to provide, assistance and cooperation to one another in accordance with Article VII with respect to the preparation and filing of Tax Returns, including providing information required to be provided in Article VIII .

                Section 3.5   T ax Reporting Practices .  Except as provided in Section 3.6 , with respect to any Tax Return for any taxable period that begins on or before the second anniversary of the Distribution Date with respect to which Spinco is the Preparing Party, such Tax Return shall be prepared in a manner (i) consistent with past practices, accounting methods, elections and conventions (“ Past Practices ”) used by KAR in preparing similar Tax Returns (unless there is no Reasonable Basis for the use of such Past Practices), and to the extent any items are not covered by Past Practices (or in the event that there is no Reasonable Basis for the use of such Past Practices), in accordance with reasonable Tax accounting practices selected by Spinco; and (ii) that, to the extent consistent with clause (i), minimizes the overall amount of Taxes due and payable on such Tax Return for all of the Parties by cooperating in making such elections or applications for group or other relief or allowances available in the taxing jurisdiction in which such Tax Return is filed. Spinco shall not take any action inconsistent with the assumptions (including items of income, gain, deduction, loss and credit) made in determining all estimated or advance payments of Taxes on or prior to the Distribution Date. In addition, Spinco shall not be permitted, and shall not permit any member of the Spinco Group, to make a change in any of its methods of accounting for Tax purposes until all applicable statutes of limitations for all Pre-Distribution Periods and Straddle Periods have expired, unless otherwise required by applicable Tax Law.

                Section 3.6   Reporting of Transactions .

(a)            KAR and Spinco shall timely file any appropriate information and statements (including as required by Section 6045B of the Code and Section 1.355-5 of the Treasury Regulations and, to the extent applicable, Section 1.368-3 of the Treasury Regulations) to report each step of the Transactions in accordance with the Intended Tax Treatment.  The Tax treatment of any step in or portion of the Transactions shall be reported on each applicable Tax Return consistently with the treatment thereof in any Tax Opinion, taking into account the jurisdiction in which such Tax Returns are filed, unless there is no Reasonable Basis for such Tax treatment.  In the event that a Party shall determine that there is no Reasonable Basis for such Tax treatment, such Party shall notify the other Party no later than twenty (20) Business Days prior to filing the relevant Tax Return and the Parties shall attempt in good faith to agree on the manner in which the relevant portion of the Transactions shall be reported.
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(b)            After the date hereof, the Parties shall cooperate in good faith to analyze the impact of a protective election under Section 336(e) of the Code and the Treasury Regulations issued thereunder for Spinco and each member of the Spinco Group with respect to the Distribution (a “ Protective Section 336(e) Election ”).  Solely in the event that KAR determines, in its sole discretion, to make a Protective Section 336(e) Election:

(i)            KAR and Spinco shall cooperate in making a timely protective election under Section 336(e) of the Code and Section 1.336-2(j) of the Treasury Regulations (and any similar provision of applicable state or local Tax Law) for each member of the Spinco Group that KAR determines for U.S. federal income tax purposes with respect to the Distribution in accordance with Section 1.336-2(h) of the Treasury Regulations and filing any statements, amending any Tax Returns or taking such other action reasonably necessary to carry out the Protective Section 336(e) Election. For the avoidance of doubt, it is intended that the Protective Section 336(e) Election, if made, will have no effect unless, pursuant to a Final Determination, the Distribution is treated as a “qualified stock disposition” within the meaning of Section 1.336-1(b)(6) of the Treasury Regulations.

(ii)            In the event that a Protective Section 336(e) Election is made and becomes effective, KAR shall determine, in its sole discretion, the “Aggregate Deemed Asset Disposition Price” and the “Adjusted Grossed-Up Basis” (each as defined under applicable Treasury Regulations) and the allocation of such Aggregate Deemed Asset Disposition Price and Adjusted Grossed-Up Basis among the disposition date assets of Spinco and its Subsidiaries, each in accordance with the applicable provisions of Section 336(e) of the Code and applicable Treasury Regulations (the “ Section 336(e) Allocation Statement ”), and shall provide a copy of such Section 336(e) Allocation Statement to Spinco.  To the extent the Protective Section 336(e) Election is made and becomes effective, each Party agrees not to take any position (and to cause each of its Affiliates not to take any position) that is inconsistent with the Protective Section 336(e) Election, including the Section 336(e) Allocation Statement, on any Tax Return, in connection with any Tax Contest or for any other Tax purposes (in each case, excluding any position taken for financial accounting purposes), except as may be required by a Final Determination.

(iii)            In the event that a Protective Section 336(e) Election is made and becomes effective and Spinco or any member of the Spinco Group realizes an increase in Tax basis as a result of such Protective Section 336(e) Election (the “ Section 336(e) Tax Basis Increase ”), then the cash Tax savings actually realized by Spinco or any member of the Spinco Group as a result of the Section 336(e) Tax Basis Increase if, as and when realized by Spinco or such member of the Spinco Group arising from the Section 336(e) Tax Basis Increase (including, for the avoidance of doubt, any such additional Section 336(e) Tax Basis Increase attributable to payments made pursuant to this Section 3.6(b) ) resulting from the Protective Section 336(e) Election, determined on a “with and without” basis (treating any deductions or amortization attributable to the step up in Tax basis resulting from the Protective 336(e) Election, or any other recovery of such step up, as the last items claimed for any taxable year, including after the utilization of any available net operating loss carryforwards) (the “ Section 336(e) Benefit Amount ”) shall be allocated as follows: (x) first, to KAR in the amount of the Incremental Section 336(e) Tax and (y) thereafter, shared between KAR and Spinco in the same proportion as the Taxes imposed on the Transactions giving rise to the Section 336(e) Tax Basis Increase were borne by KAR and Spinco (after giving effect to the indemnification obligations in this Agreement).
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(iv)            Within fifteen (15) Business Days of actually realizing any Section 336(e) Benefit Amount, the Party realizing the Section 336(e) Benefit Amount (including through the realization of such Section 336(e) Benefit Amount by such Party’s Affiliates) shall (i) notify the other Party of any such Section 336(e) Benefit Amount, including by providing such other Party with reasonable documentation of such Section 336(e) Benefit Amount and (ii) pay the other Party the amount of any such Section 336(e) Benefit Amount to which such other Party is entitled pursuant to Section 3.6(b)(iii) ; provided , however , that the amount of any such payment shall be net of any and all Tax-Related Losses or other costs and expenses incurred by the Party realizing the Section 336(e) Benefit Amount in connection with the realization of such Section 336(e) Benefit Amount or the payment of such Section 336(e) Benefit Amount to other Party.

(v)            For purposes of this Section 3.6(b) , a Party shall be deemed to have realized a Section 336(e) Benefit Amount on the earlier of: (i) the date on which a Tax Return is filed (taking into account any applicable extensions) that reflects actual cash tax savings as a result of any Section 336(e) Benefit Amount and (ii) the date on which payment of the relevant Tax which would have been due and payable absent any such Section 336(e) Tax Benefit Amount (determined without taking into account any applicable extensions).

                Section 3.7   Payment of Taxes .
(a)            With respect to any Tax Return required to be filed pursuant to this Agreement, the Preparing Party shall remit or cause to be remitted to the applicable Taxing Authority in a timely manner any Taxes due in respect of any such Tax Return. The obligation to make payments pursuant to this Section 3.7(a) shall not affect a Party’s right, if any, to receive payments under Article V or otherwise be indemnified with respect to that Tax liability.

(b)            The Preparing Party shall, no later than five (5) Business Days before the due date (taking into account any applicable extensions) of any Tax Return described in Section 3.1 or Section 3.2 , notify the other Party of any amount (or any portion of any such amount) shown as due on that Tax Return for which the other Party must indemnify the Preparing Party under this Agreement. The other Party shall pay such amount to the Preparing Party no later than the due date (taking into account any applicable extensions) of the relevant Tax Return. A failure by an Indemnitee to give notice as provided in this Section 3.7(b) shall not relieve the Indemnifying Party’s indemnification obligations under this Agreement, except to the extent that the Indemnifying Party has been actually prejudiced by such failure.
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                Section 3.8   Amended Returns and Carrybacks .

(a)            Spinco shall not, and shall not permit any member of the Spinco Group to, file or allow to be filed any amended Tax Return or request for an Adjustment for any Pre-Distribution Period or Straddle Period without the prior written consent of KAR, such consent to be exercised in KAR’s sole and absolute discretion.

(b)            Spinco shall, and shall cause each member of the Spinco Group to, make any available elections to waive the right to carry back any Tax Attribute from a taxable period or portion thereof ending after the Distribution Date to a taxable period or portion thereof ending on or before the Distribution Date.

(c)            Spinco shall not, and shall cause each member of the Spinco Group not to, make any affirmative election to carry back any Tax Attribute from a taxable period or portion thereof ending after the Distribution Date to a taxable period or portion thereof ending on or before the Distribution Date, without the prior written consent of KAR, such consent to be exercised in KAR’s sole and absolute discretion.

(d)            Receipt of consent by Spinco or a member of the Spinco Group from KAR pursuant to the provisions of this Section 3.8 shall not limit or modify Spinco’s continuing indemnification obligation pursuant to Article V .

                Section 3.9   Tax Benefits .  Except as otherwise provided in Section 3.6(b) , if (a) one Party is responsible for a Tax pursuant to this Agreement or under applicable Tax Law and (b) the other Party is entitled to a deduction, credit or other Tax benefit relating to such Tax, then the Party entitled to such deduction, credit or other Tax benefit shall pay to the Party responsible for such Tax the amount of any cash Tax savings realized by the entitled Party as a result of such deduction, credit or other Tax benefit, net of any Taxes imposed by any Taxing Authority on, related to, or attributable to, the receipt of or accrual of such Tax benefit, including any Taxes imposed by way of withholding or offset or any Tax-Related Losses or other costs and expenses incurred by the Party receiving the Tax benefit (or any of such Party’s Affiliates) in connection with the receipt of such Tax benefit or the payment of such Tax benefit to the other Party. To the extent that the amount of any Tax benefit in respect of which a payment was made under this Section 3.9 is later reduced by a Taxing Authority or in a Tax Contest, the Party that received such payment shall refund such payment to the Party that made such payment to the extent of such reduction.  The Parties shall cooperate in good faith to determine the existence of and size of any such Tax benefit; provided , however , that if the Parties cannot agree on such determination, KAR shall be entitled to make a final determination of the existence and size of any such Tax benefit in its sole discretion exercised in good faith.

                Section 3.10     Tax Attributes .
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(a)            KAR shall reasonably and in good faith advise Spinco in writing of the amount, if any, of any Tax Attributes arising in a Pre-Distribution Period that shall be allocated or apportioned to the Spinco Group under applicable Law; provided , however , that with respect to the determination of Tax basis of assets transferred to Spinco, KAR shall make such determination reasonably and in good faith and consistent with the books and records of KAR and its Subsidiaries.  KAR, all members of the KAR Group, Spinco and all members of the Spinco Group shall prepare all Tax Returns in accordance with such written notice unless there is not a Reasonable Basis for such determination or otherwise required by a Final Determination.  For the avoidance of doubt, KAR shall not be required to create or cause to be created any books and records or reports or other documents based thereon that are of the type customarily prepared by outside legal, financial or accounting advisors (including, without limitation, “earnings & profits studies,” “basis studies” or similar determinations) in order to comply with this Section 3.10 .

(b)            To the extent that the amount of any Tax Attribute is later reduced or increased by a Taxing Authority or Tax Contest, such reduction or increase shall be allocated to the Party to which such Tax Attribute was allocated pursuant to Section 3.10(a) .

(c)            Notwithstanding the foregoing in this Section 3.10 , the allocation or apportionment of Equity Award Deductions shall be governed by the Employee Matters Agreement.

ARTICLE IV

TAX-FREE STATUS OF THE DISTRIBUTION

                Section 4.1   Representations and Warranties .

(a)            KAR, on behalf of itself and all other members of the KAR Group, hereby represents and warrants that (i) it has examined the IRS Ruling, each submission to the IRS in connection with the IRS Ruling, including the IRS Ruling Request, the Canadian Tax Ruling, each submission to the Canada Revenue Agency in connection with the Canadian Tax Ruling, including the Canadian Tax Ruling Request, the Tax Opinions, the Separation Plan, the Tax Certificates and any other materials delivered or deliverable in connection with the rendering of the Tax Opinions and the creation of the Separation Plan (collectively, the “ Tax Materials ”) and (ii) the facts presented and representations made therein, to the extent descriptive of or otherwise relating to KAR or any member of the KAR Group or the KAR Business, were, at the time presented or represented and from such time until and including the Distribution Date, true, correct, and complete in all material respects. KAR, on behalf of itself and all other members of the KAR Group, hereby confirms and agrees to comply with any and all covenants and agreements in the Tax Materials applicable to KAR or any member of the KAR Group or the KAR Business.

(b)            Spinco, on behalf of itself and all other members of the Spinco Group, hereby represents and warrants that (i) it has examined the Tax Materials and (ii) the facts presented and representations made therein, to the extent descriptive of or otherwise relating to Spinco or any member of the Spinco Group or the Spinco Business, were, at the time presented or represented and from such time until and including the Distribution Date, true, correct, and complete in all material respects. Spinco, on behalf of itself and all other members of the Spinco Group, hereby confirms and agrees to comply with any and all covenants and agreements in the Tax Materials applicable to Spinco or any member of the Spinco Group or the Spinco Business.
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(c)            Each of KAR, on behalf of it itself and all other members of the KAR Group, and Spinco, on behalf of itself and all other members of the Spinco Group represents and warrants that it knows of no fact (after due inquiry) that may cause the Transactions not to qualify for the Intended Tax Treatment.

(d)            Each of KAR, on behalf of it itself and all other members of the KAR Group, and Spinco, on behalf of itself and all other members of the Spinco Group represents and warrants that it has no plan or intent to take any action which is inconsistent with any statements or representations made in the Tax Materials.

                Section 4.2   Restrictions on KAR .

(a)            KAR, on behalf of itself and all other members of the KAR Group, hereby covenants and agrees that no member of the KAR Group will take, fail to take, or to permit to be taken: (i) any action where such action or failure to act would be inconsistent with or cause to be untrue any statement, information, covenant or representation in the Tax Materials, or (ii) any action which adversely affects or could reasonably be expected to adversely affect the Intended Tax Treatment of the Transactions.

                Section 4.3   Restrictions on Spinco .

(a)            Spinco, on behalf of itself and all other members of the Spinco Group, hereby covenants and agrees that no member of the Spinco Group will take, fail to take, or to permit to be taken: (i) any action where such action or failure to act would be inconsistent with or cause to be untrue any statement, information, covenant or representation in the Tax Materials, or (ii) any action which adversely affects or could reasonably be expected to adversely affect the Intended Tax Treatment of the Transactions.

(b)            During the Restricted Period, Spinco:

(i)            shall continue and cause to be continued the active conduct of the Spinco Business for purposes of Section 355(b)(2) of the Code, taking into account Section 355(b)(3) of the Code, as conducted immediately prior to the Distribution,

(ii)            shall not voluntarily dissolve or liquidate itself or any of its Affiliates (including any action that is a liquidation for U.S. federal income tax purposes),

(iii)            shall not (and shall not cause or permit any of its Affiliates to) (1) enter into any Proposed Acquisition Transaction or, to the extent Spinco has the right to prohibit any Proposed Acquisition Transaction, permit any Proposed Acquisition Transaction to occur, (2) redeem or otherwise repurchase (directly or through an Affiliate) any Spinco stock, or rights to acquire Spinco stock, other than through stock purchases meeting the requirements of section 4.05(1)(b) of Revenue Procedure 96-30, 1996-1 C.B. 696, (3) amend its certificate of incorporation (or other organizational documents), or take any other action, whether through a stockholder vote or otherwise, affecting the relative voting rights of its capital stock (including through the conversion of any capital stock into another class of capital stock), (4) merge or consolidate with any other Person or (5) take any other action or actions (including any action or transaction that would be reasonably likely to be inconsistent with any representation made in the Tax Certificates) which in the aggregate would, when combined with any other direct or indirect changes in ownership of Spinco capital stock pertinent for purposes of Section 355(e) of the Code, have the effect of causing or permitting one or more Persons (whether or not acting in concert) to acquire directly or indirectly stock representing a fifty-percent or greater interest in Spinco or would reasonably be expected to result in a failure to preserve the Intended Tax Treatment of the Transactions; and
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(iv)            shall not and shall not permit any member of the Spinco Group, to sell, transfer, or otherwise dispose of or agree to, sell, transfer or otherwise dispose (including in any transaction treated for federal income tax purposes as a sale, transfer or disposition) of assets (including, any shares of capital stock of a Subsidiary) that, in the aggregate, constitute more than 20 percent of the consolidated gross assets of Spinco or the Spinco Group.  The foregoing sentence shall not apply to (1) sales, transfers, or dispositions of assets in the ordinary course of business, (2) any cash paid to acquire assets from an unrelated Person in an arm’s-length transaction, (3) any assets transferred to a Person that is disregarded as an entity separate from the transferor for federal income tax purposes or (4) any mandatory or optional repayment (or pre-payment) of any indebtedness of Spinco or any member of the Spinco Group.  The percentages of gross assets or consolidated gross assets of Spinco or the Spinco Group, as the case may be, sold, transferred, or otherwise disposed of, shall be based on the fair market value of the gross assets of Spinco and the members of the Spinco Group as of the Distribution Date.  For purposes of this Section 4.3(b)(iv) , a merger of Spinco or one of its Subsidiaries with and into any Person that is not a wholly owned Subsidiary of Spinco shall constitute a disposition of all of the assets of Spinco or such Subsidiary.

(c)            During the period which begins with the Distribution Date and ends three (3) years thereafter, Spinco:

(i)            shall not (and shall not cause or permit any of its Affiliates to) (1) cease to control Canadian Spinco or Spinco’s Direct Subsidiary or (2) dispose of any shares of Canadian Spinco or Spinco’s Direct Subsidiary that were held at the time of the Distribution by Spinco or any of its Affiliates; and

(ii)            shall not (and shall not cause or permit any of its Affiliates to) sell, transfer, or otherwise dispose of any assets, or otherwise take any action that would result in the shares of Canadian Spinco having a value greater than ten (10) percent of the total value of the shares of either (1) Spinco or (2) Spinco’s Direct Subsidiary.
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(d)            Notwithstanding the restrictions imposed by Section 4.3(a) , Error! Reference source not found. , or  (b) , Spinco or a member of the Spinco Group may take any of the actions or transactions described therein if Spinco either (i) obtains an Unqualified Tax Opinion in form and substance reasonably satisfactory to KAR or (ii) obtains the prior written consent of KAR waiving the requirement that Spinco obtain an Unqualified Tax Opinion, such waiver to be provided in KAR’s sole and absolute discretion.  KAR’s evaluation of an Unqualified Tax Opinion may consider, among other factors, the appropriateness of any underlying assumptions, representations, and covenants made in connection with such opinion.  Spinco shall bear all costs and expenses of securing any such Unqualified Tax Opinion and shall reimburse KAR for all reasonable out-of-pocket expenses that KAR or any of its Affiliates may incur in good faith in seeking to obtain or evaluate any such Unqualified Tax Opinion.  Neither the delivery of an Unqualified Tax Opinion nor KAR’s waiver of Spinco’s obligation to deliver an Unqualified Tax Opinion shall limit or modify Spinco’s continuing indemnification obligation pursuant to Article V .

ARTICLE V

INDEMNITY OBLIGATIONS

                Section 5.1   I ndemnity Obligations .

(a)            KAR shall indemnify and hold harmless Spinco from and against, and will reimburse Spinco for, (i) all liability for Taxes allocated to KAR pursuant to this Agreement, (ii) all Tax-Related Losses arising out of, based upon, or relating or attributable to any breach of or inaccuracy in, or failure to perform, as applicable, any representation, covenant, or obligation of any member of the KAR Group pursuant to this Agreement (including but not limited to any of the foregoing contained in Section 4.1 or Section 4.2 ) or any Tax Materials, (iii) any other Tax-Related Loss resulting (for the avoidance of doubt, in whole or in part) from an acquisition after the Distribution of any stock or assets of KAR (or any KAR Affiliate) by any means whatsoever by any Person, and (iv) any other amounts KAR is required to pay to Spinco pursuant to the terms of this Agreement.

(b)            Without regard to whether an Unqualified Tax Opinion may have been provided or whether any action is permitted or consented to hereunder and notwithstanding anything else to the contrary contained herein, Spinco shall indemnify and hold harmless KAR from and against, and will reimburse KAR for, (i) all liability for Taxes allocated to Spinco pursuant to this Agreement, (ii) all Tax-Related Losses arising out of, based upon, or relating or attributable to any breach of or inaccuracy in, or failure to perform, as applicable, any representation, covenant, or obligation of any member of the Spinco Group pursuant to this Agreement (including but not limited to any of the foregoing contained Section 4.1 or Section 4.2 ) or any Tax Materials, (iii) any other Tax-Related Loss resulting (for the avoidance of doubt, in whole or in part) from an acquisition after the Distribution of any stock or assets of Spinco (or any Spinco Affiliate) by any means whatsoever by any Person, (iv) the amount of any Refund received by any member of the Spinco Group that is allocated to KAR pursuant to Section 2.16(a) , and (v) any other amounts Spinco is required to pay to KAR pursuant to the terms of this Agreement (including, but not limited to, any amounts Spinco is required to pay KAR pursuant to Section 3.6(b) ).
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(c)            To the extent that any Tax-Related Loss is subject to indemnity pursuant to both Section 5.1(a) and Section 5.1(b) , each of KAR and Spinco shall pay and be responsible for fifty (50) percent of such Tax-Related Loss.

                Section 5.2   Indemnification Payments .

(a)            Except as otherwise provided in this Agreement, if either Party (the “ Indemnitee ”) is required to pay to a Taxing Authority a Tax or to another Person a payment in respect of a Tax that the other Party (the “ Indemnifying Party ”) is liable for under this Agreement, including as the result of a Final Determination, the Indemnitee shall notify the Indemnifying Party, in writing, of its obligation to pay such Tax and, in reasonably sufficient detail, its calculation of the amount due by such Indemnifying Party to the Indemnitee, including any other Tax-Related Losses attributable thereto.  The Indemnifying Party shall pay such amount, including any other Tax-Related Losses attributable thereto, to the Indemnitee no later than the later of (i) five (5) Business Days prior to the date on which such payment is due to the applicable Taxing Authority or (ii) fifteen (15) Business Days after the receipt of notice from the other Party.

(b)            If, as a result of any change or redetermination made with respect to Article II , any amount previously allocated to and borne by one Party pursuant to the provisions of Article II   is thereafter allocated to the other Party, then, no later than fifteen (15) Business Days after such change or redetermination, such other Party shall pay to such Party the amount previously borne by such Party which is allocated to such other Party as a result of such change or redetermination.

                Section 5.3   Payment Mechanics .

(a)            Subject to Section 10.7 , all payments under this Agreement shall be made by KAR directly to Spinco and by Spinco directly to KAR; provided , however , that if the Parties mutually agree with respect to any such indemnification payment, any member of the KAR Group, on the one hand, may make such indemnification payment to any member of the Spinco Group, on the other hand, and vice versa.  All indemnification payments shall be treated in the manner described in Section 5.4 .

(b)            In the case of any payment of Taxes made by a Preparing Party or Indemnitee pursuant to this Agreement for which such Preparing Party or Indemnitee, as the case may be, has received a payment from the other Party, such Preparing Party or Indemnitee shall provide to the other Party a copy of any official government receipt received with respect to the payment of such Taxes to the applicable Taxing Authority (or, if no such official governmental receipts are available, executed bank payment forms or other reasonable evidence of payment).
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                Section 5.4   Treatment of Payments .  The Parties agree that any payment made among the Parties pursuant to this Agreement shall be treated, to the extent permitted by law, for all U.S. federal income tax purposes as either (i) a non-taxable contribution by KAR to Spinco, or (ii) a distribution by Spinco to KAR, in each case, made immediately prior to the Distribution.  Any Tax indemnity payment made by a Party under this Agreement shall be increased as necessary so that after making all payments in respect to Taxes imposed on or attributable to such indemnity payment, the recipient Party receives an amount equal to the sum it would have received had no such Taxes been imposed.

ARTICLE VI

TAX CONTESTS

                Section 6.1   Notice .  Each Party shall notify the other Party in writing within ten (10) Business Days after receipt by such Party or any member of its Group of a written communication from any Taxing Authority with respect to any pending or threatened audit, claim, dispute, suit, action, proposed assessment or other proceeding (a “ Tax Contest ”) concerning any Taxes for which the other Party may be liable pursuant to this Agreement, and thereafter shall promptly forward or make available to such Party copies of notices and communications relating to such Tax Contest.  A failure by an Indemnitee to give notice as provided in this Section 6.1 (or to promptly forward any such notices or communications) shall not relieve the Indemnifying Party’s indemnification obligations under this Agreement, except to the extent that the Indemnifying Party shall have been actually prejudiced by such failure.

                Section 6.2   Separate Returns . In the case of any Tax Contest with respect to any Separate Return, the Party having the liability for the Tax pursuant to this Agreement shall have the sole responsibility and right to control the prosecution of such Tax Contest, including the exclusive right to communicate with agents of the applicable Taxing Authority and to control, resolve, settle, or agree to any deficiency, claim, or adjustment proposed, asserted, or assessed in connection with or as a result of such Tax Contest; provided , however , that the Controlling Party of such Tax Contest shall not take any action that could reasonably result in the increased liability for Taxes of the Non-Controlling Party or a member of the Non-Controlling Party’s Group without the prior written consent of the Non-Controlling Party, such consent not to be unreasonably withheld, conditioned or delayed.

                Section 6.3   Joint Returns . In the case of any Tax Contest with respect to any Joint Return, KAR shall have the sole responsibility and right to control the prosecution of such Tax Contest, including the exclusive right to communicate with agents of the applicable Taxing Authority and to control, resolve, settle, or agree to any deficiency, claim, or adjustment proposed, asserted, or assessed in connection with or as a result of such Tax Contest; provided , however , that to the extent that such Tax Contest relates to Taxes for which Spinco has an indemnification obligation pursuant to this Agreement, KAR shall (a) defend such Tax Contest diligently and in good faith, (b) keep Spinco informed in a timely manner of all actions proposed to be taken by KAR with respect to such Tax Contest (or, to the extent practicable, the portion of such Tax Contest that relates to Taxes for which Spinco is responsible pursuant to this Agreement) and (c) not settle any such Tax Contest without the prior written consent of Spinco, which shall not be unreasonably withheld, conditioned or delayed, to the extent such settlement relates to a material indemnification obligation of Spinco pursuant to this Agreement.
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                Section 6.4   Other Tax Contests . KAR shall have the sole responsibility and right to control the prosecution of any Tax Contest not covered under Section 6.2 or Section 6.3 , including the exclusive right to communicate with agents of the applicable Taxing Authority and to control, resolve, settle, or agree to any deficiency, claim, or adjustment proposed, asserted, or assessed in connection with or as a result of such Tax Contest; provided , however , that to the extent that such Tax Contest relates to Taxes for which Spinco has an indemnification obligation pursuant to this Agreement, KAR shall (a) defend such Tax Contest diligently and in good faith, (b) keep Spinco informed in a timely manner of all actions proposed to be taken by KAR with respect to such Tax Contest (or, to the extent practicable, the portion of such Tax Contest that relates to Taxes for which Spinco is responsible pursuant to this Agreement) and (c) not settle any such Tax Contest without the prior written consent of Spinco, which shall not be unreasonably withheld, conditioned or delayed, to the extent such settlement relates to a material indemnification obligation of Spinco pursuant to this Agreement.

                Section 6.5   Obligation of Continued Notice .  During the pendency of any Tax Contest or threatened Tax Contest, each of the Parties shall provide prompt notice to the other Party of any written communication received by it or a member of its respective Group from a Taxing Authority regarding any Tax Contest for which it is indemnified by the other Party hereunder or for which it may be required to indemnify the other Party hereunder.  Such notice shall include copies of the pertinent portion of any written communication from a Taxing Authority and contain factual information (to the extent known) describing any asserted Tax liability in reasonable detail and shall be accompanied by copies of any notice and other documents received from any Taxing Authority in respect of any such matters.  Such notice shall be provided in a timely fashion; provided , however , that in the event that timely notice is not provided, a Party shall be relieved of its obligation to indemnify the other Party only to the extent that such delay results in actual increased costs or actual prejudice to such other Party.

                Section 6.5   Settlement Rights .  Unless waived by the Parties in writing, in connection with any potential adjustment  or settlement in a Tax Contest as a result of which adjustment or settlement the Non-Controlling Party may reasonably be expected to become liable to make any indemnification payment to the Controlling Party under this Agreement: (i) the Controlling Party shall keep the Non-Controlling Party informed in a timely manner of all actions taken or proposed to be taken by the Controlling Party with respect to such potential adjustment or settlement in such Tax Contest; (ii) the Controlling Party shall timely provide the Non-Controlling Party with copies of any correspondence or filings submitted to any Tax Authority or judicial authority in connection with such potential adjustment or settlement in such Tax Contest; and (iii) the Controlling Party shall defend such Tax Contest diligently and in good faith. The failure of the Controlling Party to take any action specified in the preceding sentence with respect to the Non-Controlling Party shall not relieve the Non-Controlling Party of any liability and/or obligation which it may have to the Controlling Party under this Agreement, and in no event shall such failure relieve the Non-Controlling Party from any other liability or obligation which it may have to the Controlling Party.
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Section 6.7         Tax Contest Costs and Expenses . In the event that a Tax Contest could reasonably impact the amount of Taxes, Tax Attributes, Refunds or other Tax benefits of both the Controlling Party and the Non-Controlling Party (taking into account the terms of this Agreement), the Non-Controlling Party shall reimburse the Controlling Party for its allocable share of costs and expenses (including employee compensation, court costs, filing fees and accounting, legal and other professional fees) based on the proportion that the amount of Taxes, Tax Attributes, Refunds, or other Tax benefits of the Non-Controlling Party that could reasonably be impacted by such Tax Contest bear to the whole amount that could be impacted by such Tax Contest.

ARTICLE VII

COOPERATION

                Section 7.1   General .

(a)            Each Party shall fully cooperate, and shall cause all members of such Party’s Group to fully cooperate, with all reasonable requests in writing from the other Party, or from an agent, representative or advisor to such Party, in connection with the preparation and filing of any Tax Return, claims for Refunds, the conduct of any Tax Contest, and calculations of amounts required to be paid pursuant to this Agreement, in each case, related or attributable to or arising in connection with Taxes of either Party or any member of either Party’s Group covered by this Agreement and the establishment of any reserve required in connection with any financial reporting (a “ Tax Matter ”). Such cooperation shall include the provision of any information reasonably necessary or helpful in connection with a Tax Matter and shall include, without limitation, at each Party’s own cost:

(i)            the provision of any Tax Returns of either Party or any member of either Party’s Group, books, records (including information regarding ownership and Tax basis of property), documentation and other information relating to such Tax Returns, including accompanying schedules, related work papers, and documents relating to rulings or other determinations by Taxing Authorities;

(ii)            the execution of any document (including any power of attorney) in connection with any Tax Contest of either Party or any member of either Party’s Group, or the filing of a Tax Return or a Refund claim of either Party or any member of either Party’s Group;

(iii)            the use of the Party’s reasonable best efforts to obtain any documentation in connection with a Tax Matter; and

(iv)            the use of the Party’s reasonable best efforts to obtain any Tax Returns (including accompanying schedules, related work papers, and documents), documents, books, records or other information in connection with the filing of any Tax Returns of either Party or any member of either Party’s Group.
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Each Party shall make its employees and facilities available, without charge, on a mutually convenient basis to facilitate such cooperation.

                Section 7.2   Consistent Treatment .  Unless and until there has been a Final Determination to the contrary, each Party agrees not to take any position on any Tax Return, in connection with any Tax Contest or otherwise, that is inconsistent with (a) the treatment of payments between the KAR Group and the Spinco Group as set forth in Section 5.4 , or (b) the Intended Tax Treatment.

ARTICLE VIII

RETENTION OF RECORDS; ACCESS

                Section 8.1   Retention of Records .  For so long as the contents thereof may become material in the administration of any matter under applicable Tax Law, but in any event until the later of (i) sixty (60) days after the expiration of any applicable statutes of limitation (including any waivers or extensions thereof) and (ii) seven years after the Distribution Date, the Parties shall retain records, documents, accounting data and other information (including computer data) necessary for the preparation and filing of all Tax Returns (collectively, “ Tax Records ”) in respect of Taxes of any member of either the KAR Group or the Spinco Group for any Pre-Distribution Period, Straddle Period, or Post-Distribution Period or for any Tax Contests relating to such Tax Returns.  At any time after the Distribution Date that the KAR Group proposes to destroy such records or documents, it shall first notify the Spinco Group in writing and the Spinco Group shall be entitled to receive such records or documents proposed to be destroyed. At any time after the Distribution Date that the Spinco Group proposes to destroy such records or documents, it shall first notify the KAR Group in writing and the KAR Group shall be entitled to receive such records or documents proposed to be destroyed. The Parties shall notify each other in writing of any waivers or extensions of the applicable statute of limitations that may affect the period for which the foregoing records or other documents must be retained.

                Section 8.2   Access to Tax Records .  The Parties and their respective Affiliates shall make available to each other for inspection and copying during normal business hours upon reasonable notice all Tax Records (and, for the avoidance of doubt, any pertinent underlying data accessed or stored on any computer program or information technology system) in their possession and shall permit the other Party and its Affiliates, authorized agents and representatives and any representative of a Taxing Authority or other Tax auditor direct access, during normal business hours upon reasonable notice, to any computer program or information technology system used to access or store any Tax Records, in each case to the extent reasonably required by the other Party in connection with the preparation of Tax Returns or financial accounting statements, audits, litigation, or the resolution of items pursuant to this Agreement.  The Party seeking access to the records of the other Party shall bear all costs and expenses associated with such access, including any professional fees; provided , however , that if the access to Tax Records pursuant to this Section 8.2 results in a Refund, Tax benefit or other reduction in Taxes to the Party providing such access, the Party providing access shall reimburse the Party seeking access for the providing Party’s allocable portion of the costs and expenses of the Party seeking access, based on the amount of Refund, Tax benefit or other reduction in Taxes realized by the Party providing access.
27
ARTICLE IX

DISPUTE RESOLUTION

                Section 9.1   Dispute Resolution Mechanics . The Parties shall attempt in good faith to resolve any disagreement arising with respect to this Agreement, including any dispute in connection with a claim by a third party (a “ Dispute ”). Either Party may give the other Party written notice of any Dispute not resolved in the normal course of business. If the Parties cannot agree within thirty (30) Business Days following the date on which one Party gives such notice (the “ Dispute Date ”), then the Dispute shall be referred to a Tax Expert acceptable to each of the Parties to act as an arbitrator in order to resolve the Dispute. If the Parties are unable to agree upon a Tax Expert within ten (10) Business Days, the Tax Expert selected by KAR and the Tax Expert selected by Spinco shall jointly select a Tax Expert that will resolve the Dispute. Such Tax Expert shall be empowered to resolve the Dispute, including by engaging nationally recognized lar firms, accountants and other experts. The Tax Expert chosen to resolve the Dispute shall furnish written notice to the Parties of its resolution of such Dispute as soon as practicable, but in no event later than forty-five (45) Business Days after its acceptance of the matter for resolution. Any such resolution by the Tax Expert shall be conclusive and binding on the Parties. The fees and expenses of the Tax Expert shall be allocated between the Parties in the same proportion that the aggregate amount of disputed items that were determined in favor of the other Party (as finally determined by the Tax Expert) bears to the total amount of disputed items submitted by the Parties.

ARTICLE X

MISCELLANEOUS PROVISIONS

                Section 10.1     Conflicting Agreements .  In the event and to the extent that there shall be a conflict between the provisions of this Agreement and the provisions of the Separation and Distribution Agreement, this Agreement shall control with respect to the subject matter thereof.

                Section 10.2     Termination . This Agreement will terminate without further action at any time before the Distribution upon termination of the Separation and Distribution Agreement. If terminated, no Party will have any liability of any kind to the other Party or any other Person on account of this Agreement, except as provided in the Separation and Distribution Agreement.

                Section 10.3     Interest on Late Payments .  With respect to any payment between the Parties pursuant to this Agreement not made by the due date set forth in this Agreement for such payment, the outstanding amount will accrue interest at a rate per annum equal to the rate in effect for underpayments under Section 6621 of the Code from such due date to and including the payment date.

                Section 10.4     Specific Performance . In the event of any actual or threatened default in, or breach of, any of the terms, conditions and provisions of this Agreement, KAR shall have the right to specific performance and injunctive or other equitable relief of its rights under this Agreement, in addition to any and all other rights and remedies at law or in equity, and all such rights and remedies shall be cumulative. Spinco shall not oppose the granting of such relief on the basis that money damages are an adequate remedy. The Parties agree that the remedies at law for any breach or threatened breach hereof, including monetary damages, are inadequate compensation for any loss and that any defense in any action for specific performance that a remedy at law would be adequate is waived. Any requirements for the securing or posting of any bond with such remedy are waived. The Parties acknowledge and agree that the right of specific enforcement is an integral part of this Agreement and without that right, neither KAR nor Spinco would have entered into this Agreement.
28
                Section 10.5     Successors .  This Agreement shall be binding on and inure to the benefit of any successor by merger, acquisition of assets, or otherwise, to any of the parties hereto, to the same extent as if such successor had been an original party to this Agreement.

                Section 10.6     Application to Present and Future Subsidiaries .  This Agreement is being entered into by KAR and Spinco on behalf of themselves and the members of their respective Group. This Agreement shall constitute a direct obligation of each such Party and shall be deemed to have been readopted and affirmed on behalf of any entity that becomes a Subsidiary of KAR or Spinco in the future.

                Section 10.7     Assig nability .  This Agreement shall not be assignable, in whole or in part, directly or indirectly, by any party hereto without the prior written consent of the other Party (not to be unreasonably withheld or delayed), and any attempt to assign any rights or obligations arising under this Agreement without such consent shall be void. Notwithstanding the foregoing, this Agreement shall be assignable to (i) with respect to KAR, an Affiliate of KAR, or (ii) a bona fide third party in connection with a merger, reorganization, consolidation or the sale of all or substantially all the assets of a Party hereto so long as the resulting, surviving or transferee entity assumes all the obligations of the relevant Party hereto by operation of law or pursuant to an agreement in form and substance reasonably satisfactory to the other Party to this Agreement. No assignment permitted by this Section 10.7 shall release the assigning Party from liability for the full performance of its obligations under this Agreement.

                Section 10.8     No Fiduciary Relationship .  The duties and obligations of the Parties, and their respective successors and permitted assigns, contained herein are the extent of the duties and obligations contemplated by this Agreement; nothing in this Agreement is intended to create a fiduciary relationship between the Parties hereto, or any of their successors and permitted assigns, or create any relationship or obligations other than those explicitly described.

Section 10.9      No Duplication; No Double Recovery . Nothing in this Agreement, the Separation and Distribution Agreement or any Ancillary Agreement is intended to confer to or impose upon any Party a duplicative right, entitlement, benefit, reduction, obligation or recovery with respect to any matter arising out of the same facts and circumstances.

                Section 10.10   Further Assurances .  Subject to the provisions hereof, the Parties hereto shall make, execute, acknowledge and deliver such other instruments and documents, and take all such other actions, as may be reasonably required in order to effectuate the purposes of this Agreement and to consummate the transactions contemplated hereby.
29
                Section 10.11   Survival .  Notwithstanding any other provision of this Agreement to the contrary, all representations, covenants and obligations contained in this Agreement shall survive until the expiration of the applicable statute of limitations with respect to any such matter (including extensions thereof).

                Section 10.12   Notices .  All notices, requests, claims, demands or other communications under this Agreement shall be in writing and shall be given or made (and shall be deemed to have been duly given or made upon receipt) by delivery in person, by overnight courier service, by facsimile or electronic transmission with receipt confirmed (followed by delivery of an original via overnight courier service) or by registered or certified mail (postage prepaid, return receipt requested) to the respective Parties at the following addresses (or at such other address for a Party as shall be specified in a notice given in accordance with this Section 10.12 ):

 
If to KAR, to:
     
   
KAR Auction Services, Inc.
   
13085 Hamilton Crossing Boulevard
   
Carmel, Indiana 46032
   
Email:
becca.polak@karauctionservices.com
   
Attention:
Chief Legal Officer
   
 
with a copy (prior to the Effective Time) to:
     
   
Skadden, Arps, Slate, Meagher & Flom LLP
   
Four Times Square
   
New York, New York 10036
   
Email:
Sean.Doyle@skadden.com
     
Gregory.Fernicola@skadden.com
     
Dwight.Yoo@skadden.com
   
Attention:
Sean C. Doyle
     
Gregory A. Fernicola
     
Dwight S. Yoo
   
 
If to SpinCo, to:
     
   
Insurance Auto Auctions, Inc.
   
Two Westbrook Corporate Center, Suite 500
   
Westchester, Illinois 60154
   
Email:
jkett@iaai.com
     
skerley@iaai.com
   
Attention:
John Kett
     
Sidney Peryar
   
 
with a copy (prior to the Effective Time) to:
     
   
Skadden, Arps, Slate, Meagher & Flom LLP
   
Four Times Square
   
New York, New York 10036
   
Email:
Sean.Doyle@skadden.com
     
Gregory.Fernicola@skadden.com
     
Dwight.Yoo@skadden.com
   
Attention:
Sean C. Doyle
     
Gregory A. Fernicola
     
Dwight S. Yoo

30
                Section 10.13   Effective Date .  This Agreement shall become effective only upon the occurrence of the Distribution.

*            *           *

[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
31


IN WITNESS WHEREOF, the Parties hereto have duly executed this Agreement as of the day and year first above written.

 
KAR Auction Services, Inc..
     
 
By:
 
   
Name:
   
Title:
     
 
IAA Spinco Inc.
     
 
By:
 
   
Name:
   
Title:

32
EXHIBIT A

[Separation Plan]

33

Exhibit 10.3











EMPLOYEE MATTERS AGREEMENT

BY AND BETWEEN

KAR AUCTION SERVICES, INC.

AND

IAA SPINCO INC.

DATED AS OF [●]









TABLE OF CONTENTS
     
   
Page
     
Article I
     
DEFINITIONS
     
Section 1.01
Definitions
1
Section 1.02
Interpretation
3
     
Article II
     
GENERAL PRINCIPLES FOR ALLOCATION OF LIABILITIES
     
Section 2.01
General Principles
4
Section 2.02
Service Credit
5
Section 2.03
Benefit Plans
5
Section 2.04
Individual Agreements
6
Section 2.05
Non-U.S. Jurisdictions
6
Section 2.06
Assignment and Assumption of Assets and Liabilities
6
     
Article III
     
ASSIGNMENT OF EMPLOYEES
     
Section 3.01
Active Employees
7
     
Article IV
     
EQUITY, INCENTIVE AND EXECUTIVE COMPENSATION
     
Section 4.01
Generally
8
Section 4.02
Equity Incentive Awards
8
Section 4.03
Non-Equity Incentive Plans
11
Section 4.04
Director Compensation
11
     
Article V
     
U.S. QUALIFIED RETIREMENT PLANS
     
Section 5.01
SpinCo U.S. Savings Plan
12
     
Article VI
     
Director Deferred Compensation Plan
     
Section 6.01
KAR
13
Section 6.02
SpinCo.
13
     
Article VII
     
WELFARE BENEFIT PLANS
     
Section 7.01
Welfare Plans
14
Section 7.02
U.S. COBRA and HIPAA
14
Section 7.03
Vacation, Holidays and Leaves of Absence
15
Section 7.04
Severance and Unemployment Compensation
15
Section 7.05
Workers’ Compensation
15
Section 7.06
Insurance Contracts
15
Section 7.07
Third-Party Vendors
15
Section 7.08
SpinCo Retained Welfare Plans
15

i

     
Article VIII
     
NON-U.S. EMPLOYEES
     
Section 8.01
General
16
     
Article IX
     
MISCELLANEOUS
     
Section 9.01
Employee Records
16
Section 9.02
Preservation of Rights to Amend
16
Section 9.03
Fiduciary Matters
17
Section 9.04
Further Assurances
17
Section 9.05
Counterparts; Entire Agreement; Corporate Power
17
Section 9.06
Governing Law
17
Section 9.07
Assignability
17
Section 9.08
Third-Party Beneficiaries
18
Section 9.09
Notices
18
Section 9.10
Severability
18
Section 9.11
Force Majeure
19
Section 9.12
Headings
19
Section 9.13
Survival of Covenants
19
Section 9.14
Waivers of Default
19
Section 9.15
Dispute Resolution
19
Section 9.16
Specific Performance
19
Section 9.17
Amendments
19
Section 9.18
Interpretation
19
Section 9.19
Limitations of Liability
19
Section 9.20
Mutual Drafting
19

ii

EMPLOYEE MATTERS AGREEMENT

This EMPLOYEE MATTERS AGREEMENT, dated as of [●] (this “ Agreement ”), is by and between KAR Auction Services, Inc., a Delaware corporation (“ KAR ”), and IAA Spinco Inc., a Delaware corporation and wholly owned subsidiary of KAR (“ SpinCo ”).

WHEREAS, as contemplated by the Separation and Distribution Agreement between KAR and SpinCo dated [●], KAR and SpinCo desire to enter into this Agreement to provide for the allocation of Assets, Liabilities, and responsibilities with respect to certain matters relating to employees and other individual service providers (including employee compensation and benefit plans and programs) between them.

NOW, THEREFORE, in consideration of the mutual agreements, provisions and covenants contained in this Agreement, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties, intending to be legally bound, hereby agree as follows:

ARTICLE I

DEFINITIONS

Section 1.01             Definitions .  For purposes of this Agreement, the following terms shall have the meanings set forth below.  Capitalized terms used in this Agreement but not otherwise defined herein shall have the meanings ascribed to them in the Separation and Distribution Agreement.

“ 17/18 KAR PRSU ” shall have the meaning set forth in Section 4.02(b)(i) .

“ 19 KAR PRSU ” shall have the meaning set forth in Section 4.02(b)(ii) .

“ 19 SpinCo PRSU ” shall have the meaning set forth in Section 4.02(b)(ii) .

“ Action ” shall have the meaning set forth in the Separation and Distribution Agreement.

“ Affiliate ” shall have the meaning set forth in the Separation and Distribution Agreement.

“ Agreement ” shall have the meaning set forth in the preamble to this Agreement and shall include all Schedules hereto and all amendments, modifications, and changes hereto entered into pursuant to Section 9.17 .

“ Ancillary Agreement ” shall have the meaning set forth in the Separation and Distribution Agreement.

“ Assets ” shall have the meaning set forth in the Separation and Distribution Agreement.

“ Benefit Plan ” shall mean any contract, agreement, policy, practice, program, plan, trust, commitment or arrangement providing for benefits, perquisites or compensation of any nature from an employer to any Employee, or to any family member, dependent, or beneficiary of any such Employee, including pension plans, savings plans, thrift plans, supplemental pension plans and Welfare Plans, and contracts, agreements, policies, practices, programs, plans, trusts, commitments and arrangements providing for terms of employment, fringe benefits, severance benefits, change in control protections or benefits, travel and accident, life, accidental death and dismemberment, disability and accident insurance, tuition reimbursement, travel reimbursement, vacation, sick, personal or bereavement days, leaves of absences and holidays; provided , however , the term “Benefit Plan” does not include any government-sponsored benefits, such as workers’ compensation, unemployment or any similar plans, programs or policies.

“ Closing KAR Stock Price ” shall have the meaning set forth in Section 4.02(a)(i)(B) .

“ COBRA ” shall mean the U.S. Consolidated Omnibus Budget Reconciliation Act of 1985, as codified at Section 601 et seq . of ERISA and at Section 4980B of the Code.

“ Covered Participants ” shall have the meaning set forth in Section 6.02(a) .

“ Effective Time ” shall mean the Distribution Effective Time as defined in the Separation and Distribution Agreement.

“ Employee ” shall mean any KAR Group Employee or SpinCo Group Employee.

“ Employment Taxes ” shall mean any federal, state, local or foreign Taxes, charges, fees, duties, levies, imposts, rates, social security contributions or other assessments or obligations, in each case in the nature of a Tax, imposed on, due or asserted to be due from (i) Employees or Former Employees or (ii) the KAR Group or the SpinCo Group as employers or former employers of such Employees or Former Employees including employers’ and employees’ portions of Federal Insurance Contributions Act Taxes, employers’ Federal Unemployment Tax Act taxes and state and local unemployment insurance taxes, and employers’ withholding, reporting and remitting obligations with respect to any such Taxes or employees’ federal, state and local income taxes that are imposed on or due from Employees or Former Employees.

“ Equity Award Deduction ” shall mean any Tax deduction that may be taken pursuant to applicable Law with respect to any KAR Award or any SpinCo Award held by any Employee or any Former Employee.

“ ERISA ” shall mean the U.S. Employee Retirement Income Security Act of 1974, as amended, and the regulations promulgated thereunder.

“ Former Employees ” shall mean Former KAR Group Employees and Former SpinCo Group Employees.

“ Former KAR Group Employee ” shall mean any individual who is a former employee of KAR or any of its Subsidiaries as of the Effective Time and who is not a Former SpinCo Group Employee.

“ Former SpinCo Group Employee ” shall mean any individual who is a former employee of KAR or any of its Subsidiaries as of the Effective Time and who, during the final twelve (12) months of his or her employment, was primarily in the service of the SpinCo Business.

“ General Continuation Period ” shall mean a period of time commencing as of the Distribution Date and ending on December 31, 2019.

“ HIPAA ” shall mean the U.S. Health Insurance Portability and Accountability Act of 1996, as amended, and the regulations promulgated thereunder.

“ Individual Agreement ” shall mean any individual (i) employment contract, (ii) retention, severance or change of control agreement, (iii) expatriate (including any international assignee) contract or agreement (including agreements and obligations regarding repatriation, relocation, equalization of taxes and living standards in the host country), or (iv) other agreement containing restrictive covenants (including confidentiality, non-competition and non-solicitation provisions) between a member of the KAR Group and a SpinCo Group Employee, as in effect immediately prior to the Effective Time.

“ IRS ” shall mean the United States Department of Treasury Internal Revenue Service.

“ KAR ” shall have the meaning set forth in the preamble to this Agreement.

“ KAR Award ” means the adjusted KAR Options, the KAR RSUs, KAR Restricted Stock Awards, and the KAR PRSUs, collectively.

“ KAR Benefit Plan ” shall mean any Benefit Plan established, sponsored or maintained by KAR or any of its Subsidiaries immediately prior to the Effective Time, excluding any SpinCo Benefit Plan.

“ KAR Change of Control ” shall have the meaning set forth in Section 4.02(h) .

“ KAR Compensation Committee ” shall mean the Compensation Committee of the KAR Board.

“ KAR Director Plan ” shall have the meaning set forth in Section 6.01 .

“ KAR Equity-Based Plans ” means the Stock Incentive Plan and the 2009 Omnibus Stock and Incentive Plan, each as amended from time to time.

“ KAR ESPP ” shall have the meaning set forth in Section 4.02(m)(i) .

“ KAR Group Employee ” shall mean each individual who is employed by the KAR Group as of the Effective Time and who is not a SpinCo Group Employee (including any such individual who is not actively working as of the Effective Time as a result of illness, injury, vacation or other leave of absence).

“ KAR Savings Plan ” shall mean the KAR Auction Services, Inc. 401(k) Plan.

“ KAR Service Provider ” shall mean each KAR Group Employee and each individual who is a member of the KAR Board as of the Effective Time and is not a Transferred Director.

“ KAR Welfare Plan ” shall mean any Welfare Plan established, sponsored, maintained or contributed to by KAR or any of its Subsidiaries for the benefit of Employees or Former Employees, including but not limited to each Welfare Plan listed on Schedule 1.01(c) but excluding any SpinCo Welfare Plan.

“ Opening KAR Stock Price ” shall have the meaning set forth in Section 4.02(a)(i)(B) .

“ Opening SpinCo Stock Price ” shall have the meaning set forth in Section 4.02(a)(i)(B) .

“ Option ,” when immediately preceded by “KAR,” means an option (either nonqualified or an incentive stock option) to purchase KAR Shares granted by KAR prior to the Effective Time pursuant to a KAR Equity-Based Plan and, when immediately preceded by “SpinCo,” means an option to purchase SpinCo Shares, which option is granted pursuant to the SpinCo Long Term Incentive Plan as part of the adjustment to KAR Options as set forth in Section 4.02 .

“ Party ” shall mean a party to this Agreement.

“ Providing Party ” shall have the meaning set forth in Section 2.02(b) .

“ PRSU ,” when immediately preceded by “KAR,” means a performance-based RSU granted by KAR prior to the Effective Time pursuant to a KAR Equity-Based Plan and when immediately preceded by “SpinCo,” means a performance-based RSU granted by SpinCo granted pursuant to the SpinCo Long Term Incentive Plan as part of the adjustment to KAR PRSUs as set forth in Section 4.02 .
2

“ Requesting Party ” shall have the meaning set forth in Section 2.02(b) .

“ Restricted Stock Award ,” when immediately preceded by “KAR,” means a KAR Share granted by KAR prior to the Effective Time pursuant to a KAR Equity-Based Plan which is subject to vesting and forfeiture restrictions and when immediately preceded by “SpinCo,” means a SpinCo Share, which is granted pursuant to the SpinCo Long Term Incentive Plan as part of the adjustment to KAR Restricted Stock Awards as set forth in Section 4.02 which is subject to vesting and forfeiture restrictions.

“ RSU ,” when immediately preceded by “KAR,” means a restricted stock unit granted by KAR prior to the Effective Time pursuant to a KAR Equity-Based Plan representing a general unsecured promise by KAR to deliver a KAR Share or an amount in cash equal to the value of a KAR Share and when immediately preceded by “SpinCo,” means a restricted stock unit granted by SpinCo representing a general unsecured promise by SpinCo to deliver a SpinCo Share or an amount in cash equal to the value of a SpinCo Share, which unit is granted pursuant to the SpinCo Long Term Incentive Plan as part of the adjustment to KAR RSUs as set forth in Section 4.02 .

“ Securities Act ” shall mean the U.S. Securities Act of 1933, as amended, together with the rules and regulations promulgated thereunder.

“ Separation and Distribution Agreement ” shall have the meaning set forth in the recitals to this Agreement.

“ SpinCo ” shall have the meaning set forth in the preamble to this Agreement.

“ SpinCo Award ” means the SpinCo Options, the SpinCo RSUs, the SpinCo Restricted Stock Awards, and the SpinCo PRSUs, collectively.

“ SpinCo Benefit Plan ” shall mean any Benefit Plan established, sponsored, maintained or contributed to by a member of the SpinCo Group as of or after the Effective Time.

“ SpinCo Board ” shall mean the Board of Directors of SpinCo.

“ SpinCo Change of Control ” shall have the meaning set forth in Section 4.02(h) .

“ SpinCo Director Plan ” shall have the meaning set forth in Section 6.02(a) .

“ SpinCo Group Employee ” shall mean those individuals employed by the SpinCo Group as of the Effective Time and those individuals set forth in Schedule 1.01(b) (including any such individual who is not actively working as of the Effective Time as a result of illness, injury, vacation or other leave of absence).

“ SpinCo Long Term Incentive Plan ” means the SpinCo Omnibus Stock and Incentive Plan adopted by SpinCo prior to the Effective Time.

“ SpinCo Retained Welfare Plans ” shall have the meaning set forth in Section 7.08 .

“ SpinCo Savings Plan ” shall mean the [●].

“ SpinCo Service Provider ” shall mean each SpinCo Group Employee and each individual who is a member of the SpinCo Board as of the Effective Time, including the Transferred Directors.

“ SpinCo Welfare Plans ” shall mean the Welfare Plans established, sponsored, maintained or contributed to by any member of the SpinCo Group for the benefit of SpinCo Group Employees and Former SpinCo Group Employees.

“ Transferred Director ” shall have the meaning set forth in Section 4.04(a) .

“ U.S. ” shall mean the United States of America.

“ Welfare Plan ” shall mean any “welfare plan” (as defined in Section 3(1) of ERISA) or a “cafeteria plan” under Section 125 of the Code, and any benefits offered thereunder, and any other plan offering health benefits (including medical, prescription drug, dental, vision, mental health, substance abuse and retiree health), disability benefits, or life, accidental death and dismemberment, and business travel insurance, pre-tax premium conversion benefits, dependent care assistance programs, employee assistance programs, paid time-off programs, contribution funding toward a health savings account, flexible spending accounts or cashable credits.

Section 1.02             Interpretation . Section 10.16 of the Separation and Distribution Agreement is hereby incorporated by reference.
3

ARTICLE II

GENERAL PRINCIPLES FOR ALLOCATION OF LIABILITIES

Section 2.01             General Principles .

(a)             Acceptance and Assumption of SpinCo Liabilities .  On or prior to the Effective Time, but in any case prior to the Distribution, SpinCo and the applicable SpinCo Designees shall accept, assume and agree to faithfully perform, discharge and fulfill all of the following Liabilities in accordance with their respective terms (each of which shall be treated as a SpinCo Liability), regardless of when or where such Liabilities arose or arise, or whether the facts on which they are based occurred prior to or subsequent to the Effective Time, regardless of where or against whom such Liabilities are asserted or determined (including any Liabilities arising out of claims made by KAR’s or SpinCo’s respective directors, officers, Employees, Former Employees, agents, Subsidiaries or Affiliates against any member of the KAR Group or the SpinCo Group) or whether asserted or determined prior to the date hereof, and regardless of whether arising from or alleged to arise from negligence, recklessness, violation of Law, fraud or misrepresentation by any member of the KAR Group or the SpinCo Group, or any of their respective directors, officers, Employees, Former Employees, agents, Subsidiaries or Affiliates:

(i)              any and all wages, salaries, incentive compensation (as the same may be modified by this Agreement), equity compensation (as the same may be modified by this Agreement), commissions, bonuses and any other employee compensation or benefits payable to or on behalf of any SpinCo Group Employees and Former SpinCo Group Employees after the Effective Time, without regard to when such wages, salaries, incentive compensation, equity compensation, commissions, bonuses or other employee compensation or benefits are or may have been awarded or earned;

(ii)              any and all Liabilities whatsoever with respect to claims made by or with respect to any SpinCo Group Employees or Former SpinCo Group Employees in connection with any Benefit Plan not retained or assumed by any member of the KAR Group pursuant to this Agreement, the Separation and Distribution Agreement or any Ancillary Agreement;

(iii)              any and all Employment Taxes with respect to SpinCo Group Employees and Former SpinCo Group Employees;

(iv)              any and all other employment or service-related Liabilities with respect to SpinCo Group Employees and Former SpinCo Group Employees; and

(v)              any and all Liabilities expressly assumed or retained by any member of the SpinCo Group pursuant to this Agreement or Schedule 2.4(a) of the Separation and Distribution Agreement.

(b)             Acceptance and Assumption of KAR Liabilities .  On or prior to the Effective Time, but in any case prior to the Distribution, KAR and certain members of the KAR Group designated by KAR shall accept, assume and agree to faithfully perform, discharge and fulfill all of the following Liabilities held by SpinCo or any SpinCo Designee and KAR and the applicable members of the KAR Group shall be responsible for such Liabilities in accordance with their respective terms (each of which shall be treated as a KAR Liability), regardless of when or where such Liabilities arose or arise, or whether the facts on which they are based occurred prior to or subsequent to the Effective Time, regardless of where or against whom such Liabilities are asserted or determined (including any Liabilities arising out of claims made by KAR’s or SpinCo’s respective directors, officers, Employees, Former Employees, agents, Subsidiaries or Affiliates against any member of the KAR Group or the SpinCo Group) or whether asserted or determined prior to the date hereof, and regardless of whether arising from or alleged to arise from negligence, recklessness, violation of Law, fraud or misrepresentation by any member of the KAR Group or the SpinCo Group, or any of their respective directors, officers, Employees, Former Employees, agents, Subsidiaries or Affiliates:

(i)              any and all wages, salaries, incentive compensation (as the same may be modified by this Agreement), equity compensation (as the same may be modified by this Agreement), commissions, bonuses and any other employee compensation or benefits payable to or on behalf of any KAR Group Employees and Former KAR Group Employees after the Effective Time, without regard to when such wages, salaries, incentive compensation, equity compensation, commissions, bonuses or other employee compensation or benefits are or may have been awarded or earned;

(ii)              any and all Liabilities whatsoever with respect to claims made by or with respect to any KAR Group Employees or Former KAR Group Employees in connection with any Benefit Plan not retained or assumed by any member of the SpinCo Group pursuant to this Agreement, the Separation and Distribution Agreement or any Ancillary Agreement;

(iii)              any and all Employment Taxes with respect to KAR Group Employees and Former KAR Group Employees;

(iv)              any and all other employment or service-related Liabilities with respect to KAR Group Employees and Former KAR Group Employees; and

(v)              any and all Liabilities expressly assumed or retained by any member of the KAR Group pursuant to this Agreement or Schedule 2.4(b) of the Separation and Distribution Agreement.

(c) Unaddressed Liabilities .   To the extent that this Agreement does not address particular Liabilities under any Benefit Plan and the Parties later determine that they should be allocated in connection with the Distribution, the Parties shall agree in good faith on the allocation, taking into account the handling of comparable Liabilities under this Agreement.
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Section 2.02             Service Credit .

(a)             Service for Eligibility, Vesting and Benefit Purposes .  The SpinCo Benefit Plans shall, and SpinCo shall cause each member of the SpinCo Group to, recognize each SpinCo Group Employee’s and each Former SpinCo Group Employee’s full service with KAR or any of its Subsidiaries or predecessor entities at or before the Effective Time, to the same extent that such service was credited by KAR for similar purposes prior to the Effective Time as if such full service had been performed for a member of the SpinCo Group, for purposes of eligibility, vesting and determination of level of benefits under any such SpinCo Benefit Plan.

(b)             Evidence of Prior Service .  Notwithstanding anything in this Agreement to the contrary, but subject to Section 3.02 and applicable Law, upon reasonable request by either Party (the “ Requesting Party ”), the other Party (the “ Providing Party ”) will provide to the Requesting Party copies of any records available to the Providing Party to document the service, plan participation and membership of Former Employees of the Providing Party who are then Employees of the Requesting Party, and will cooperate with the Requesting Party to resolve any discrepancies or obtain any missing data for purposes of determining benefit eligibility, participation, vesting and calculation of benefits with respect to any such Employee.

Section 2.03             Benefit Plans .

(a)              Establishment of Plans .  Before the Effective Time, SpinCo shall, or shall cause an applicable member of the SpinCo Group to, adopt Benefit Plans (and related trusts, if applicable), with terms comparable (or such other standard as is specified in this Agreement with respect to any particular Benefit Plan) to those of the corresponding KAR Benefit Plans.  The U.S. KAR Benefit Plans are listed on Schedule 2.03(a)(i) and the Canadian KAR Benefit Plans are listed on Schedule 2.03(a)(ii). SpinCo may limit participation in any such SpinCo Benefit Plan to SpinCo Group Employees and Former SpinCo Group Employees who participated in the corresponding KAR Benefit Plan immediately prior to the Effective Time. SpinCo shall, or shall cause an applicable member of the SpinCo Group to, adopt such other Benefit Plans as specified in this Agreement.

(b)              Information and Operation .  KAR shall provide SpinCo with information describing each KAR Benefit Plan election made by a SpinCo Group Employee or Former SpinCo Group Employee that may have application to SpinCo Benefit Plans from and after the Effective Time, and SpinCo shall use its commercially reasonable efforts to administer the SpinCo Benefit Plans using those elections. Each Party shall, upon reasonable request, and subject to any applicable privacy laws, provide the other Party and the other Party’s respective Affiliates, agents, and vendors all information reasonably necessary to the other Party’s operation or administration of its Benefit Plans.

(c)              No Diminution of Benefits .  Except as provided herein, during the General Continuation Period, SpinCo shall provide to each SpinCo Group Employee and Former SpinCo Group Employee employee benefits under SpinCo Benefit Plans that, in the aggregate, are substantially similar to the employee benefits provided to such employees immediately prior to the Effective Time. Notwithstanding the foregoing, during such period, SpinCo may make such changes, modifications or amendments to the applicable SpinCo Benefit Plan as may be required by applicable Law or as are necessary and appropriate to reflect the Separation.

(d)              No Duplication or Acceleration of Benefits.   Notwithstanding anything to the contrary in this Agreement, the Separation and Distribution Agreement or any Ancillary Agreement, no participant in any SpinCo Benefit Plan shall receive service credit or benefits to the extent that receipt of such service credit or benefits would result in duplication of benefits provided to such participant by the corresponding KAR Benefit Plan or any other plan, program or arrangement sponsored or maintained by a member of the KAR Group. Furthermore, unless expressly provided for in this Agreement, the Separation and Distribution Agreement or in any Ancillary Agreement or required by applicable Law, no provision in this Agreement shall be construed to create any right to accelerate vesting or entitlements under any compensation or Benefit Plan, program or arrangement sponsored or maintained by a member of the KAR Group or member of the SpinCo Group on the part of any Employee or Former Employee.

(e)              No Expansion of Participation .  Unless otherwise expressly provided in this Agreement, as otherwise determined or agreed to by KAR and SpinCo, as required by applicable Law, or as explicitly set forth in a SpinCo Benefit Plan, a SpinCo Group Employee or Former SpinCo Group Employee shall be entitled to participate in the SpinCo Benefit Plans at the Effective Time only to the extent that such SpinCo Group Employee or Former SpinCo Group Employee was entitled to participate in the corresponding KAR Benefit Plan as in effect immediately prior to the Effective Time (to the extent that such SpinCo Group Employee or Former SpinCo Group Employee does not participate in the respective SpinCo Benefit Plan immediately prior to the Effective Time), it being understood that this Agreement does not expand (i) the number of SpinCo Group Employees or Former SpinCo Group Employees entitled to participate in any SpinCo Benefit Plan or (ii) the participation rights of SpinCo Group Employees or Former SpinCo Group Employees in any SpinCo Benefit Plans beyond the rights of such SpinCo Group Employees or Former SpinCo Group Employees under the corresponding KAR Benefit Plans, in each case, after the Effective Time.

(f)              Transition Services .  The Parties acknowledge that the KAR Group or the SpinCo Group may provide administrative services for certain of the other Party’s compensation and benefit programs for a transitional period under the terms of the Transition Services Agreement. The Parties agree to enter into a business associate agreement (if required by HIPAA or other applicable health information privacy Laws) in connection with such Transition Services Agreement. To the extent that any services that are required to be provided by a Party under this Agreement are instead provided by the other Party under the Transition Services Agreement, the obligation of the relevant Party to provide such services under this Agreement shall commence at the expiration of the transitional period for such services under the Transition Services Agreement.
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(g)              Beneficiaries .  References to KAR Group Employees, Former KAR Group Employees, SpinCo Group Employees, Former SpinCo Group Employees, and non-employee directors of either KAR or SpinCo (including Transferred Directors), shall be deemed to refer to their beneficiaries, dependents, survivors and alternate payees, as applicable.

Section 2.04            Individual Agreements .

(a)              Assignment by KAR .  To the extent permissible by the terms of any Individual Agreement and by applicable Law, KAR shall assign, or cause an applicable member of the KAR Group to assign, to SpinCo or another member of the SpinCo Group, as designated by SpinCo, all Individual Agreements, with such assignment to be effective as of the Effective Time.

(b)              Assumption by SpinCo.   To the extent permissible by the terms of any Individual Agreement and by applicable Law, SpinCo shall assume and honor, or cause a member of the SpinCo Group to assume and honor,  any Individual Agreement effective as of the Effective Time.

(c)              Enforcement Rights .

(i)              To the extent that assignment of any such Individual Agreement is not permitted by the terms of such agreement or by applicable Law, effective as of the Effective Time, each member of the SpinCo Group shall be considered, to the extent permitted by the terms of such Individual Agreement and applicable Law, to be a successor to each member of the KAR Group for purposes of, and a third−party beneficiary with respect to, such Individual Agreement, such that each member of the SpinCo Group shall enjoy all of the rights and benefits under such agreement (including rights and benefits as a third-party beneficiary), with respect to the business operations of the SpinCo Group; provided , however , that in no event shall KAR be permitted to enforce any Individual Agreement (including any restrictive covenants contained therein) against a SpinCo Group Employee or Former SpinCo Group Employee for action taken in such individual’s capacity as a SpinCo Group Employee or Former SpinCo Group Employee; and provided , further , that KAR shall only be permitted to enforce any Individual Agreement (including any restrictive covenants contained therein) on KAR’s own behalf for twenty-four (24) months following the Effective Time.

(ii)              To the extent that any such Individual Agreement is assigned to SpinCo or another member of the SpinCo Group, then each member of the KAR Group shall be considered, to the extent permitted by the terms of such Individual Agreement and applicable Law, to be a third-party beneficiary with respect to such Individual Agreement, such that each member of the KAR Group shall enjoy all of the rights and benefits under such agreement (including rights and benefits as a third-party beneficiary), with respect to the business operations of the KAR Group; provided , however , that in no event shall KAR be permitted to enforce any Individual Agreement (including any restrictive covenants contained therein) against a SpinCo Group Employee or Former SpinCo Group Employee for action taken in such individual’s capacity as a SpinCo Group Employee or Former SpinCo Group Employee; and provided , further , that KAR shall only be considered a third-party beneficiary with respect to any such Individual Agreement (including with respect to any restrictive covenants contained therein) for twenty-four (24) months following the Effective Time.

(d)             Notice .  SpinCo shall, or shall cause another member of the SpinCo Group to, provide notice to all SpinCo Employees whose Individual Agreement is assigned pursuant to this Section 2.04 to SpinCo or another member of the SpinCo Group of such assignment and of the KAR Group’s continued enforcement rights.

Section 2.05            Non-U.S. Jurisdictions .  Except as expressly set forth herein, the provisions of this Agreement shall apply in respect of all jurisdictions wherever situated; provided , however , that to the extent an Ancillary Agreement or an appendix attached hereto or a separation agreement between the Parties addresses employment, compensation and employee benefit matters, the terms of such Ancillary Agreement, appendix or separation agreement shall govern in respect of matters relating to employees employed in the applicable jurisdiction. KAR shall have the authority to adjust the treatment described in this Agreement (including any appendix attached hereto) or an Ancillary Agreement with respect to SpinCo Group Employees who are located outside of the United States in order to address different plans or benefits not addressed herein or to address applicable plans and benefits in a manner appropriate to the jurisdiction; ensure compliance with the applicable laws or regulations of countries outside of the United States; or to preserve the tax benefits provided under local tax law or regulation before the Distribution.

Section 2.06            Assignment and Assumption of Assets and Liabilities .

(a)             Effective as of the Distribution Date, KAR assigns all of KAR’s or any member of the KAR Group’s rights and obligations under any arrangements (and all Assets and Liabilities related thereto) that transfer to SpinCo in accordance with the terms of this Agreement, subject to the terms and conditions thereof, to SpinCo or, if applicable, the appropriate member of the SpinCo Group, and SpinCo or any such member of the SpinCo Group accepts such assignment and assumes such arrangements, and agrees to be bound by the terms and provisions contained therein.

(b)             Effective as of the Distribution Date, SpinCo assigns all of SpinCo’s or any member of the SpinCo Group’s rights and obligations under any arrangements (and all Assets and Liabilities related thereto) that transfer to KAR in accordance with the terms of this Agreement, subject to the terms and conditions thereof, to KAR or, if applicable, the appropriate member of the KAR Group, and KAR or any such member of the KAR Group accepts such assignment and assumes such arrangements, and agrees to be bound by the terms and provisions contained therein.

(c)             Each of the Parties shall execute and deliver such additional documents, instruments, conveyances and assurances, and take such further actions as may be reasonably required to carry out the provisions of this Section 2.06.

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ARTICLE III

ASSIGNMENT OF EMPLOYEES

Section 3.01            Active Employees .

(a)              Assignment and Transfer of Employees.   Immediately prior to the Effective Time, (i) the SpinCo Group and the applicable member of the KAR Group shall take such actions as are necessary to ensure that each SpinCo Group Employee employed by a member of the KAR Group is employed by a member of the SpinCo Group as of the Effective Time, and (ii) the KAR Group and the applicable member of the SpinCo Group shall take such actions as are necessary to ensure that each KAR Group Employee employed by a member of the SpinCo Group is employed by a member of the KAR Group as of the Effective Time.

(b)              At-Will Status.   Nothing in this Agreement shall create any obligation on the part of any member of the KAR Group or any member of the SpinCo Group to (i) continue the employment of any Employee or permit the return from a leave of absence for any period after the date of this Agreement (except as required by applicable Law) or (ii) change the employment status of any Employee from “at-will,” to the extent that such Employee is an “at-will” employee under applicable Law.

(c)              Severance.   The Parties acknowledge and agree that the Distribution and the assignment, transfer or continuation of the employment of Employees as contemplated by this Section 3.01 shall not be deemed an involuntary termination of employment entitling any SpinCo Group Employee or KAR Group Employee to severance payments or benefits, subject to the requirement of applicable Laws.

(d)              Not a Change of Control/Change in Control .  The Parties acknowledge and agree that neither the consummation of the Distribution nor any transaction contemplated by this Agreement, the Separation and Distribution Agreement or any other Ancillary Agreement shall be deemed a “change of control,” “change in control,” or term of similar import for purposes of any Benefit Plan sponsored or maintained by any member of the KAR Group or member of the SpinCo Group.
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ARTICLE IV

EQUITY, INCENTIVE AND EXECUTIVE COMPENSATION

Section 4.01            Generally .  Each KAR Award granted that is outstanding as of immediately prior to the Effective Time shall be adjusted as described below; provided , however , that, effective immediately prior to the Effective Time, the KAR Compensation Committee may provide for different adjustments with respect to some or all KAR Awards to the extent that the KAR Compensation Committee deems such adjustments necessary and appropriate.  Any adjustments made by the KAR Compensation Committee pursuant to the foregoing sentence shall be deemed incorporated by reference herein as if fully set forth below and shall be binding on the Parties and their respective Affiliates.  Before the Effective Time, the SpinCo Long Term Incentive Plan shall be established, with such terms as are necessary to permit the implementation of the provisions of Section 4.02 . The adjustment or conversion of any KAR Award shall be effectuated in a manner that is intended to avoid the imposition of any penalty or other taxes on the holders thereof pursuant to Code Section 409A and, with respect to holders of KAR Awards who are Canadian taxpayers, in a manner consistent with the applicable conversion provisions of the Income Tax Act (Canada).

Section 4.02             Equity Incentive Awards .

(a)              Stock Options .

(i)              Conversion .  Each KAR Option which is outstanding immediately prior to the Effective Time will be converted or disposed of (collectively referred to as a conversion herein) immediately prior to the Effective Time into (or in exchange for) two separate options, an adjusted KAR Option and a SpinCo Option, as set forth below.  Conversion of any KAR Option which constitutes an incentive stock option shall be effected in a manner which complies with the requirements of Section 424 of the Code. The only consideration a holder of a KAR Option will receive for the conversion of any KAR Option is the adjusted KAR Option and the SpinCo Option, with the conversion subject to this Section 4.02 .

(A)              Number of Shares Subject to Options . The number   of KAR Shares subject to each of the adjusted KAR Options will be equal to the number of KAR Shares subject to the KAR Option immediately prior to the Effective Time.  The number of SpinCo Shares subject to the SpinCo Option will be equal to the number of KAR Shares subject to the KAR Option immediately prior to the Effective Time.

(B)              Exercise Price .  Unless otherwise determined by the KAR Compensation Committee prior to the Effective Time, the per share exercise price of the adjusted KAR Option shall be equal to the product of (1) the per share exercise price of the KAR Option immediately prior to the Effective Time multiplied by (2) a fraction, the numerator of which shall be the Opening KAR Stock Price (as defined below) and the denominator of which shall be the Closing KAR Stock Price (as defined below), which product shall be rounded up to the nearest whole cent.  The per share exercise price of the SpinCo Option shall be equal to the product of (1) the per share exercise price of the KAR Option immediately prior to the Effective Time multiplied by (2) a fraction, the numerator of which shall be the Opening SpinCo Stock Price (as defined below) and the denominator of which shall be the Closing KAR Stock Price, which product shall be rounded up to the nearest whole cent.  The “ Opening KAR Stock Price ” shall mean the per share closing trading price of KAR Shares, as traded on an ex-distribution basis on the last trading day immediately preceding the Distribution Date.  The “ Opening SpinCo Stock Price ” shall mean the per share closing “when-issued” trading price of SpinCo Shares on the last trading day immediately preceding the Distribution Date.  The “ Closing KAR Stock Price ” shall be the per share closing trading price of KAR Shares trading on the “regular way” basis on the last trading day immediately prior to the Distribution Date.

(C)              The Parties agree that the conversion of each KAR Option held by a Canadian taxpayer as described in this Section 4.02(a) is intended to occur on a tax-deferred basis under subsection 7(1.4) of the Income Tax Act (Canada) and the Parties shall make such adjustment to the foregoing as is required to qualify for such treatment, including, if it is determined in good faith that the aggregate “in the money amount” of any adjusted KAR Option and SpinCo Option immediately after the conversion would otherwise exceed the “in the money amount” of the KAR Option immediately prior to the conversion, but only to the extent necessary and in a manner that does not otherwise adversely affect the holder of the KAR Option.

(ii)              Option Terms .

(A)              Terms and Conditions .  Each adjusted KAR Option shall be subject to the same terms and conditions regarding term, vesting, and other provisions regarding exercise as set forth in the original KAR Option, except as set forth below.  Each SpinCo Option issued pursuant to this Section 4.02(a) shall be subject to the same terms and conditions regarding term, vesting, and other provisions regarding exercise as set forth in the related KAR Option before the Effective Time, except as set forth below.

(B)              Exercise; Withholding .  Upon the exercise of a SpinCo Option, whether by a KAR Group Employee or a SpinCo Group Employee, the exercise price shall be paid to (or otherwise satisfied to the satisfaction of) SpinCo in accordance with the terms of the option, and SpinCo shall be solely responsible for the issuance of SpinCo Shares in respect of such exercise, for ensuring the withholding of all applicable Employment Tax on behalf of the employing entity of such holder, and for ensuring the remittance of such Employment Taxes to the employing entity of such holder.  Upon the exercise of a KAR Option, whether by a KAR Group Employee or a SpinCo Group Employee, the exercise price shall be paid to (or otherwise satisfied to the satisfaction of) KAR in accordance with the terms of the KAR Option, and KAR shall be solely responsible for the issuance of KAR Shares, for ensuring the withholding of all applicable Employment Tax on behalf of the employing entity of such holder and for ensuring the remittance of such Employment Taxes to the employing entity of such holder.
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(b)              PRSUs .

(i)              17/18 KAR PRSU Conversion .  Each KAR PRSU granted in 2017 and 2018 (the “ 17/18 KAR PRSU ”) which is outstanding immediately prior to the E ff ective Time will be converted immediately prior to the E ff ective Time to a time-vested KAR RSU and as of the Effective Time shall be treated in accordance with Section 4.02(c) below.  The number of KAR Shares subject to such KAR RSU immediately prior to the Effective Time shall be equal to the target number of KAR Shares underlying the applicable KAR PRSU. Following the E ff ective Time, the KAR RSUs resulting from the conversion of the 17/18 KAR PRSUs shall remain subject to substantially the same terms and conditions as applicable to the 17/18 KAR PRSU prior to the E ff ective Time; provided , however that from and after the E ff ective Time no further performance-based vesting shall apply and the vesting of such KAR RSU shall be determined based solely upon the holder’s continued services with KAR or SpinCo, as applicable, through the third anniversary of the grant date of the applicable award, with such additional terms and conditions as may be determined by the applicable Compensation Committee .

(ii)              19 KAR PRSU Conversion .  Each KAR PRSU granted in 2019 which is outstanding immediately prior to the E ff ective Time will be converted upon the Effective Time into two separate performance restricted stock units, an adjusted KAR PRSU (the “ 19 KAR PRSU ”) relating to KAR Shares and an adjusted SpinCo PRSU (the “ 19 SpinCo PRSU ”) relating to SpinCo Shares, as set forth below.

(A)              19 KAR PRSU Terms and Conditions .  The number of KAR Shares subject to each 19 KAR PRSU will be equal to the number of KAR Shares subject to the KAR PRSU.  The 19 KAR PRSU shall be subject to the same terms and conditions as were applicable to the KAR PRSU immediately prior to the Effective Time, except that the performance-based vesting criteria shall be adjusted as determined by the SpinCo Compensation Committee and shall apply to the 2019 performance year only, with only service-based vesting to be applicable through the third anniversary of the grant date of the applicable award, with such additional terms and conditions as may be determined by the KAR Compensation Committee .

(B)              19 SpinCo PRSU Terms and Conditions .  The number of SpinCo Shares subject to each 19 SpinCo PRSU will be equal to the number of KAR Shares subject to the corresponding 19 KAR PRSU.  Each SpinCo PRSU shall be subject to the same terms and conditions as were applicable to the KAR PRSU immediately prior to the Effective Time, except that the performance-based vesting criteria shall be adjusted as determined by the KAR Compensation Committee and shall apply to the 2019 performance year only, with only service-based vesting to be applicable through the third anniversary of the grant date of the applicable award, with such additional terms and conditions as may be determined by the SpinCo Compensation Committee .

(c)              RSUs .

(i)              Conversion . Upon the Effective Time, each holder of a KAR RSU which is outstanding immediately prior to the E ff ective Time (including (1) KAR RSUs resulting from the conversion of 17/18 KAR PRSUs described in Section 4.02(b)(i) hereof and (2) KAR RSUs held pursuant to the KAR Director Plan) will continue to hold such KAR RSU and will, in addition thereto, receive a SpinCo RSU with respect to a number of SpinCo Shares equal to the number of KAR Shares subject to the corresponding KAR RSU immediately prior to the Effective Time.

(ii)              RSU Terms and Conditions .  Each KAR RSU shall be subject to the same terms and conditions as set forth in the original KAR RSU, except as set forth below.  Each SpinCo RSU issued pursuant to this Section 4.02(c) shall be subject to the same terms and conditions as set forth in the related KAR RSU before the Effective Time, except as set forth below.

(d)              Director Restricted Stock.

(i)              Conversion .  Upon the Effective Time, each holder of a KAR Restricted Stock Award which is outstanding immediately prior to the E ff ective Time will continue to hold such KAR Restricted Stock Award and will, in addition thereto, receive a SpinCo Restricted Stock Award with respect to a number of SpinCo Shares equal to the number of KAR Shares subject to the corresponding KAR Restricted Stock Award immediately prior to the Effective Time.

(ii)              Restricted Stock Terms and Conditions .  Each KAR Restricted Stock Award shall be subject to the same terms and conditions as set forth in the original KAR Restricted Stock Award, except as set forth below.  Each SpinCo Restricted Stock Award issued pursuant to this Section 4.02(d) shall be subject to the same terms and conditions as set forth in the related KAR Restricted Stock Award before the Effective Time, except as set forth below.
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(e)              PRSU/RSU/Restricted Stock Delivery; Withholding .  SpinCo shall be solely responsible for the issuance of SpinCo Shares in respect of SpinCo RSUs and SpinCo Restricted Stock Awards and SpinCo PRSUs (in each case, regardless of the holder thereof), for ensuring the withholding of all applicable Employment Tax on behalf of the employing or service entity of such holder, and for ensuring the remittance of such Employment Taxes (if applicable) to the employing or service entity of such holder.  KAR shall be solely responsible for the issuance of KAR Shares in respect of KAR RSUs and KAR Restricted Stock Awards and KAR PRSUs (in each case, regardless of the holder thereof), for ensuring the withholding of all applicable Employment Tax on behalf of the employing or service entity of such holder, and for ensuring the remittance of such Employment Taxes (if applicable) to the employing or service entity of such holder.  SpinCo shall be solely responsible for the payment of cash in respect of KAR RSUs, KAR Restricted Stock Awards, KAR PRSUs, SpinCo RSUs, SpinCo Restricted Stock Awards, and SpinCo PRSUs held by SpinCo Service Providers, for ensuring the withholding of all applicable Employment Tax, and for ensuring the remittance of such Employment Taxes to the applicable governmental authority.  KAR shall be solely responsible for the payment of cash in respect of KAR RSUs, KAR Restricted Stock Awards, KAR PRSUs, SpinCo RSUs, SpinCo Restricted Stock Awards, and SpinCo PRSUs held by KAR Service Providers, for ensuring the withholding of all applicable Employment Tax, and for ensuring the remittance of such Employment Taxes to the applicable governmental authority.  Any forfeited SpinCo RSUs, SpinCo Restricted Stock Awards or SpinCo PRSUs will be forfeited to SpinCo and any forfeited KAR RSUs, KAR Restricted Stock Awards or KAR PRSUs will be forfeited to KAR (regardless of the employer of the holder thereof).

(f)              PRSU/RSU Dividend Equivalents .  Holders of SpinCo RSUs and SpinCo PRSUs who have a right to receive dividend equivalents with respect to SpinCo Shares underlying such award, will accrue such dividend equivalents and be paid by SpinCo to holders who are SpinCo Group Employees or KAR Group Employees, in each case on the payment date of the related SpinCo RSUs or SpinCo PRSUs (subject to the award vesting on such date); provided , however , that any interest payments that are payable with respect to such dividend equivalents will be sole responsibility of SpinCo for holders who are SpinCo Group Employees and KAR for holders who are KAR Group Employees.  Holders of KAR RSUs and KAR PRSUs who have a right to receive dividend equivalents with respect to KAR Shares underlying such award, will accrue such dividend equivalents and be paid by KAR to holders who are SpinCo Group Employees or KAR Group Employees, in each case on the payment date of the related KAR RSUs or KAR PRSUs (subject to the award vesting on such date); provided , however , that any interest payments that are payable with respect to such dividend equivalents will be sole responsibility of SpinCo for holders who are SpinCo Group Employees and KAR for holders who are KAR Group Employees.   Notwithstanding the foregoing, if the terms of the applicable awards provide that dividend equivalent rights shall increase the amount of shares subject to the award by the fair market value of any dividend, then KAR shall issue such additional shares with respect to KAR RSUs and KAR PRSUs and SpinCo shall issue such additional shares with respect to SpinCo RSUs and SpinCo PRSUs, in each case without regard to whether such awards are held by KAR Group Employees or SpinCo Group Employees.

(g)              Service .  Notwithstanding the foregoing, KAR will take such action as is necessary to ensure that with respect to KAR Awards that are held by SpinCo Service Providers as of and following the Effective Time, such individuals will not incur a termination of employment or service as a result of the Distribution for purposes of the KAR Awards.  SpinCo will take such action as is necessary to ensure that with respect to the SpinCo Awards that are held by KAR Service Providers as of and following the Effective Time, such individuals will not incur a termination of employment or service as a result of the Distribution for purposes of the SpinCo Awards.  For purposes of the vesting and termination provisions of the KAR Awards and the SpinCo Awards, continued service with a KAR Group member or a SpinCo Group member, as the case may be, shall be considered to be continued service for purposes of such award.

(h)              Change in Control .  Following the Distribution Date, for any award under this Section 4.02 , any reference to a “change in control,” “change of control” or similar definition in an award agreement, employment agreement or KAR Equity-Based Plans applicable to such award (i) with respect to KAR Awards, shall be deemed to refer to a “change in control,” “change of control” or similar definition as set forth in the applicable award agreement, employment agreement or KAR Equity-Based Plans (a “ KAR Change of Control ”), and (ii) with respect to SpinCo Awards, shall be deemed to refer to a “Change in Control” as defined in the SpinCo Long Term Incentive Plan (a “ SpinCo Change of Control ”).  Without limiting the foregoing, with respect to provisions related to vesting of awards, a KAR Change of Control shall be treated as a SpinCo Change of Control for purposes of SpinCo Awards held by KAR Service Providers, and a SpinCo Change of Control shall be treated as a KAR Change of Control for purposes of KAR Awards held by SpinCo Service Providers.

(i)              Allocation of Tax Deduction .  The Equity Award Deduction in respect of equity based awards held by KAR Service Providers (whether with respect to KAR Shares or SpinCo Shares) will be allocated to KAR.  The Equity Award Deduction in respect of equity based awards held by SpinCo Service Providers as a result of the operation of this Section 4.02 (whether with respect to KAR Shares or SpinCo Shares) will be allocated to SpinCo.

(j)              Partial Interests in Shares .   Except with respect to any fractional interest in a Restricted Stock Award, which shall be treated in accordance with Section 3.4 of the SDA, each interest in a fractional KAR Share with respect to any KAR Award that is held by a KAR Service Provider or a SpinCo Service Provider and that is outstanding immediately prior to the Effective Time shall remain outstanding and, to the extent administratively practicable, shall be subject to the adjustment set forth in this Section 4.02 in the same manner as a whole KAR Share .

(k)              Administration .  Each of KAR and SpinCo shall establish an appropriate administration system in order to handle exercises and delivery of shares in an orderly manner and provide reasonable levels of service for equity award holders.

(l)              No Effect on Subsequent Awards .  The provisions of this Section 4.02 shall have no effect on the terms and conditions of equity and equity-based awards granted following the Effective Time by KAR or SpinCo.
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(m)              Employee Stock Purchase Plan .

(i)              The administrator of the KAR Group Employee Stock Purchase Plan (the “ KAR ESPP ”) shall take all actions necessary and appropriate to provide that: (1) the Option Period (as defined in the KAR ESPP) during which the Record Date is to occur shall end at a reasonable time before the Record Date to allow participants to purchase KAR Shares under the KAR ESPP prior to the Record Date; (2) participant payroll deductions and other contributions by SpinCo Group Service Providers under the KAR ESPP shall cease on or before the Record Date described in clause (1) of this paragraph; (3) SpinCo Group Employees in the KAR ESPP shall not be eligible to participate in any future Option Periods that begin following the Record Date; (4) any cash remaining in the KAR ESPP account of any SpinCo Group Employee described in clause (3) shall be refunded to such SpinCo Group Employee without interest as soon as administratively practicable; and (5) the next following Option Period shall be established by the administrator of the KAR ESPP in its sole discretion.

(ii)              Unless otherwise determined by the SpinCo Board, effective as of or before the Distribution Date, SpinCo shall establish the SpinCo Group Employee Stock Purchase Plan, with terms substantially similar to those of the KAR ESPP as of the Distribution Date.

(n)              Registration and Other Regulatory Requirements .  SpinCo agrees to file applicable registration statements with respect to, and to cause to be registered pursuant to the Securities Act, the SpinCo Shares authorized for issuance under the SpinCo Long Term Incentive Plan, as required pursuant to the Securities Act, before the date of issuance of any SpinCo Shares pursuant to the SpinCo Long Term Incentive Plan.  The Parties shall take such additional actions as are deemed necessary or advisable to effectuate the foregoing provisions of this Section 4.02(n) , including compliance with securities Laws and other legal requirements associated with equity compensation awards in affected non-U.S. jurisdictions.

Section 4.03            Non-Equity Incentive Plans .

(a)              Allocation of Liabilities.  The KAR Group shall be solely responsible for funding, paying and discharging all obligations relating to the 2019 annual incentive bonus awards under the applicable KAR Benefit Plans in which short−term incentive compensation is provided with respect to payments earned before, as of or after the Effective Time by KAR Group Employees or Former KAR Group Employees, and no member of the SpinCo Group shall have any obligations with respect thereto.  The SpinCo Group shall be solely responsible for funding, paying and discharging all obligations relating to the 2019 annual incentive bonus awards under the applicable KAR Benefit Plans in which short−term incentive compensation is provided with respect to payments earned before, as of or after the Effective Time by SpinCo Group Employees or Former SpinCo Group Employees, and no member of the KAR Group shall have any obligations with respect thereto.

(b)              Transfer of Accruals .  As soon as practicable following the Distribution, KAR shall transfer to SpinCo the applicable KAR Benefit Plan accruals in respect of SpinCo Group Employees and Former SpinCo Group Employees for the portion of the 2019 performance period that occurs prior to the Distribution, based on the level of accrual as of the Effective Time.

Section 4.04            Director Compensation .

(a)              Establishment of SpinCo Outside Directors’ Compensation Plan .  Before the Effective Time, SpinCo shall, as it deems appropriate, establish an outside directors’ compensation program for each SpinCo non−employee director as of the Effective Time who served on the KAR Board immediately prior to the Effective Time but who will no longer serve on the KAR Board following the Effective Time (a “ Transferred Director ”).  As of the Effective Time, KAR shall cease to have any Liability to any such Transferred Director under the KAR outside directors’ compensation program.

(b)              Other Liabilities .  Except as provided in Section 4.04(a) , KAR shall retain all other Liabilities and Assets relating to KAR non-employee director compensation.

(c)              Director Compensation.  KAR shall be responsible for the payment of any fees for service on the KAR Board that are earned at, before, or after the Effective Time, and SpinCo shall not have any responsibility for any such payments.  With respect to any SpinCo non-employee director, SpinCo shall be responsible for the payment of any fees for service on the SpinCo Board that are earned at any time after the Effective Time and KAR shall not have any responsibility for any such payments.  Notwithstanding the foregoing, SpinCo shall commence paying quarterly cash retainers to SpinCo non-employee directors in respect of the quarter in which the Effective Time occurs; provided that (i) if KAR has already paid such quarter’s cash retainers to KAR non-employee directors prior to the Effective Time, then within 30 days after the Distribution Date, SpinCo will pay KAR an amount equal to the portion of such payment that is attributable to Transferred Directors’ service to SpinCo after the Distribution Date, and (ii) if KAR has not yet paid such quarter’s cash retainers to KAR non-employee directors prior to the Effective Time, then within 30 days after the Distribution Date, KAR will pay SpinCo an amount equal to the portion of such payment that is attributable to Transferred Directors’ service to KAR on and prior to the Distribution Date.  KAR Awards held by non-employee directors as of immediately prior to the Effective Time shall be treated as described in Section 4.02 .
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ARTICLE V

U.S. QUALIFIED RETIREMENT PLANS

Section 5.01            SpinCo U.S. Savings Plan .

(a)              Establishment of Plan.   Before the Effective Time, SpinCo shall provide KAR with (i) a copy of the SpinCo Savings Plan and (ii) a copy of certified resolutions of the SpinCo Board (or its authorized committee or other delegate) evidencing adoption of the SpinCo Savings Plan and the related trust(s) and the assumption by the SpinCo Savings Plan of the liabilities described in Section 5.01(b) .

(b)              Transfer of Account Balances .  Not later than 30 days following the Distribution Date (or such later time as mutually agreed by the Parties), KAR shall cause the trustee of the KAR Savings Plan to transfer from the trust(s) which forms a part of the KAR Savings Plan to the trust(s) which forms a part of the SpinCo Savings Plan the account balances of the SpinCo Group Employees and Former SpinCo Group Employees under the KAR Savings Plan, determined as of the date of the transfer. Such transfers shall be made in kind, including promissory notes evidencing the transfer of outstanding loans.  Any asset and liability transfers pursuant to this Section 5.01(b) shall comply in all respects with Sections 414(l) and 411(d)(6) of the Code.

(c)              SpinCo Savings Plan Provisions .  The SpinCo Savings Plan shall provide that:

(i)              SpinCo Group Employees and Former SpinCo Group Employees shall (A) be eligible to participate in the SpinCo Savings Plan as of the Effective Time to the extent that they were eligible to participate in the KAR Savings Plan as of immediately prior to the Effective Time, and (B) receive credit for purposes of eligibility and vesting for all service credited for those purposes under the KAR Savings Plan as of immediately prior to the Distribution Date as if that service had been rendered to SpinCo; and

(ii)              the account balance of each SpinCo Group Employee and Former SpinCo Group Employee under the KAR Savings Plan as of the date of the transfer of assets from the KAR Savings Plan (including any outstanding promissory notes) shall be credited to such individual’s account balance under the SpinCo Savings Plan.

(d)              KAR Savings Plan after Effective Time .  From and after the Effective Time, (i) the KAR Savings Plan shall continue to be responsible for liabilities in respect of KAR Group Employees and Former KAR Group Employees, and (ii) no SpinCo Group Employees or Former SpinCo Group Employees shall accrue any benefits under the KAR Savings Plan.  Without limiting the generality of the foregoing, SpinCo Group Employees and Former SpinCo Group Employees shall cease to be participants in the KAR Savings Plan effective as of the Effective Time.

(e)              Plan Fiduciaries .  For all periods after the Effective Time, the Parties agree that the applicable fiduciaries of each of the KAR Savings Plan and the SpinCo Savings Plan, respectively, shall have the authority with respect to the KAR Savings Plan and the SpinCo Savings Plan, respectively, to determine the investment alternatives, the terms and conditions with respect to those investment alternatives and such other matters as are within the scope of their duties under ERISA and the terms of the applicable plan documents.

(f)              No Loss of Unvested Benefits; No Distributions .  The transfer of any SpinCo Group Employee’s employment to the SpinCo Group will not result in loss of that SpinCo Group Employee’s unvested benefits (if any) under the KAR Savings Plan, which benefit liability will be assumed under the SpinCo Savings Plan as provided herein.  No SpinCo Group Employee shall be entitled to a distribution of his or her benefit under the KAR Savings Plan or SpinCo Savings Plan as a result of such transfer of employment.
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ARTICLE VI

DIRECTOR DEFERRED COMPENSATION PLAN

Section 6.01            KAR . As of the Effective Time, KAR shall retain, and remain the sponsor of, the KAR Directors Deferred Compensation Plan (the “ KAR Director Plan ”).

Section 6.02            SpinCo .

(a)              As of the Effective Time, SpinCo shall adopt a new nonqualified deferred compensation plan (the “ SpinCo Director Plan ”). All Transferred Directors who participated in the KAR Director Plan immediately prior to the Effective Time shall be eligible to participate in the SpinCo Director Plan to the same extent that such Transferred Director participated in the KAR Director Plan prior to the Effective Time (the “ Covered Participants ”). The SpinCo Director Plan shall assume the obligations of the KAR Director Plan with respect to the Covered Participants whether such benefits accrued before, on or after the Effective Time.

(b)              Transfer of  Liabilities . KAR shall cause the actuary of the KAR Director Plan to determine the proportional share of Liabilities relating to the Covered Participants to be transferred to the SpinCo Director Plan, respectively.

(c)              Identified Errors . If any error with respect to a transfer of Liabilities required under this Section 6.02 is identified after the date on which the transfer was to occur, the Parties shall cooperate to effect the transfer as of the date when the transfer was to occur.

(d)              Obligations and Liabilities .

(i)              At and after the Effective Time, SpinCo shall be solely and exclusively responsible for all obligations and Liabilities with respect to, or in any way related to, the SpinCo Director Plan, whether accrued before, at or after the Effective Time.

(ii)              At and after the Effective Time, KAR shall be solely and exclusively responsible for all obligations and Liabilities in respect of participants who are not Covered Participants with respect to, or in any way related to, the KAR Director Plan, whether accrued before, at or after the Effective Time.
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ARTICLE VII

WELFARE BENEFIT PLANS

Section 7.01            Welfare Plans .

(a)              Waiver of Conditions; Benefit Maximums .  SpinCo shall use commercially reasonable efforts to cause the SpinCo Welfare Plans to:

(i)              with respect to initial enrollment as of the Effective Time, waive (A) all limitations as to preexisting conditions, exclusions, and service conditions with respect to participation and coverage requirements applicable to any SpinCo Group Employee or Former SpinCo Group Employee, other than limitations that were in effect with respect to the SpinCo Group Employee or Former SpinCo Group Employee under the applicable KAR Welfare Plan as of immediately prior to the Effective Time, and (B) any waiting period limitation or evidence of insurability requirement applicable to a SpinCo Group Employee or Former SpinCo Group Employee other than limitations or requirements that were in effect with respect to such SpinCo Group Employee or Former SpinCo Group Employee under the applicable KAR Welfare Plans as of immediately prior to the Effective Time; and

(ii)              take into account (A) with respect to aggregate annual, lifetime, or similar maximum benefits available under the SpinCo Welfare Plans, a SpinCo Group Employee’s or Former SpinCo Group Employee’s prior claim experience under the KAR Welfare Plans and any Benefit Plan that provides leave benefits; and (B) any eligible expenses incurred by a SpinCo Group Employee or Former SpinCo Group Employee and his or her covered dependents during the portion of the plan year of the applicable KAR Welfare Plan ending as of the Effective Time to be taken into account under such SpinCo Welfare Plan for purposes of satisfying all deductible, coinsurance, and maximum out-of-pocket requirements applicable to such SpinCo Group Employee or Former SpinCo Group Employee and his or her covered dependents for the applicable plan year to the same extent as such expenses were taken into account by KAR for similar purposes prior to the Effective Time as if such amounts had been paid in accordance with such SpinCo Welfare Plan.

(b)              U.S. Health Savings Accounts .  Prior to January 1, 2020, SpinCo shall, or shall cause a member of the SpinCo Group to, establish a SpinCo Welfare Plan that will provide health savings account benefits to SpinCo Group Employees on and after January 1, 2020.

(c)              U.S. Flexible Spending Accounts . Prior to January 1, 2020, SpinCo shall, or shall cause a member of the SpinCo Group to, establish a SpinCo Welfare Plan that will provide health or dependent care flexible spending account benefits to SpinCo Group Employees on and after January 1, 2020.

(d)              Allocation of Welfare Assets and Liabilities .  Effective as of the Effective Time, the SpinCo Group shall assume all Liabilities relating to, arising out of or resulting from health and welfare coverage or claims incurred by or on behalf of SpinCo Group Employees or Former SpinCo Group Employees or their covered dependents under the KAR Welfare Plans or SpinCo Welfare Plans before, at, or after the Effective Time. No KAR Welfare Plan shall provide coverage to any SpinCo Group Employee or Former SpinCo Group Employee after the Effective Time, except as may be agreed between the Parties to address Employees who are on approved leaves of absence immediately prior to the Effective Time.

Section 7.02             U.S. COBRA and HIPAA .  The KAR Group shall continue to be responsible for complying with, and providing coverage pursuant to, the health care continuation requirements of COBRA, the certificate of creditable coverage requirements of HIPAA, and the corresponding provisions of the KAR Welfare Plans with respect to any KAR Group Employees and any Former KAR Group Employees (and their covered dependents) who incur a qualifying event under COBRA before, as of, or after the Effective Time.  Effective as of the Effective Time, the SpinCo Group shall assume responsibility for complying with, and providing coverage pursuant to, the health care continuation requirements of COBRA, the certificate of creditable coverage requirements of HIPAA, and the corresponding provisions of the SpinCo Welfare Plans with respect to any SpinCo Group Employees or Former SpinCo Group Employees (and their covered dependents) who incur a qualifying event or loss of coverage under the KAR Welfare Plans and/or the SpinCo Welfare Plans before, as of, or after the Effective Time.  The Parties agree that the consummation of the transactions contemplated by the Separation and Distribution Agreement shall not constitute a COBRA qualifying event for any purpose of COBRA.
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Section 7.03            Vacation, Holidays and Leaves of Absence .  Effective as of the Effective Time, the SpinCo Group shall assume all Liabilities of the KAR Group with respect to vacation, holiday, annual leave or other leave of absence, and required payments related thereto, for each SpinCo Group Employee. The KAR Group shall retain all Liabilities with respect to vacation, holiday, annual leave or other leave of absence, and required payments related thereto, for each KAR Group Employee.

Section 7.04             Severance and Unemployment Compensation .  Effective as of the Effective Time, the SpinCo Group shall assume any and all Liabilities to, or relating to, SpinCo Group Employees and Former SpinCo Group Employees in respect of severance and unemployment compensation, regardless of whether the event giving rise to the Liability occurred before, at or after the Effective Time.  The KAR Group shall be responsible for any and all Liabilities to, or relating to, KAR Group Employees and Former KAR Group Employees in respect of severance and unemployment compensation, regardless of whether the event giving rise to the Liability occurred before, at or after the Effective Time.

Section 7.05             Workers’ Compensation .  With respect to claims for workers’ compensation, (a) the SpinCo Group shall be responsible for all claims and Liabilities in respect of SpinCo Group Employees and Former SpinCo Group Employees, whether occurring before, at or after the Effective Time and the SpinCo Group shall be fully responsible for the administration, management and payment of all such claims and for the satisfaction of all such Liabilities, and (b) the KAR Group shall be responsible for all claims and Liabilities in respect of KAR Group Employees and Former KAR Group Employees, whether occurring before, at or after the Effective Time and the KAR Group shall be fully responsible for the administration, management and payment of all such claims and for the satisfaction of all such Liabilities.  Notwithstanding the foregoing, if the SpinCo Group is unable to assume any such Liability or the administration, management or payment of any such claim solely because of the operation of applicable Law, the KAR Group shall retain such Liabilities and the SpinCo Group shall reimburse and otherwise fully indemnify the KAR Group for all such Liabilities, including the costs of administering the plans, programs or arrangements under which any such Liabilities have accrued or otherwise arisen.

Section 7.06            Insurance Contracts .  To the extent that any KAR Welfare Plan is funded through the purchase of an insurance contract or is subject to any stop loss contract, the Parties will cooperate and use their commercially reasonable efforts to replicate such insurance contracts for SpinCo (except to the extent that changes are required under applicable state insurance Laws or filings by the respective insurers) and to maintain any pricing discounts or other preferential terms for both KAR and SpinCo for a reasonable term.  Neither Party shall be liable for failure to obtain such insurance contracts, pricing discounts, or other preferential terms for the other Party.  Each Party shall be responsible for any additional premiums, charges, or administrative fees that such Party may incur pursuant to this Section 7.06 .

Section 7.07            Third-Party Vendors .  To the extent that any KAR Welfare Plan is administered by a third-party vendor, the Parties will cooperate and use their commercially reasonable efforts to replicate any contract with such third-party vendor for SpinCo and to maintain any pricing discounts or other preferential terms for both KAR and SpinCo for a reasonable term. Neither Party shall be liable for failure to obtain such pricing discounts or other preferential terms for the other Party. Each Party shall be responsible for any additional premiums, charges, or administrative fees that such Party may incur pursuant to this Section 7.07 .

Section 7.08            SpinCo Retained Welfare Plans .  As of the Effective Time, the SpinCo Group shall retain sponsorship of the Welfare Plans listed on Schedule 7.08 (the “ SpinCo Retained Welfare Plans ”), and, from and after the Effective Time, all Liabilities under the SpinCo Retained Welfare Plans shall be Liabilities of the SpinCo Group.
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ARTICLE VIII

NON-U.S. EMPLOYEES

Section 8.01            General . Notwithstanding anything in this Agreement to the contrary, all actions taken with respect to non-U.S. Employees or U.S. Employees working in non-U.S. jurisdictions shall be subject to and accomplished in accordance with applicable Law in the custom of the applicable jurisdictions.

ARTICLE IX

MISCELLANEOUS

Section 9.01            Employee Records .

(a)              Sharing of Information.   Subject to any limitations imposed by applicable Law, KAR and SpinCo (acting directly or through members of the KAR Group or the SpinCo Group, respectively) shall provide to the other and their respective authorized agents and vendors all information necessary for the Parties to perform their respective duties under this Agreement.

(b)              Transfer of Personnel Records and Authorization .  Subject to any limitation imposed by applicable Law and to the extent that it has not done so before the Effective Time, KAR shall transfer to SpinCo any and all employment records (including any Form I-9, Form W-2 or other IRS forms) with respect to SpinCo Group Employees and Former SpinCo Group Employees and other records reasonably required by SpinCo to enable SpinCo properly to carry out its obligations under this Agreement.  Such transfer of records generally shall occur as soon as administratively practicable at or after the Effective Time.  Each Party will permit the other Party reasonable access to Employee records, to the extent reasonably necessary for such accessing Party to carry out its obligations hereunder.

(c)              Access to Records.   To the extent not inconsistent with this Agreement, the Separation and Distribution Agreement or any applicable privacy protection Laws or regulations, reasonable access to Employee-related records after the Effective Time will be provided to members of the KAR Group and members of the SpinCo Group pursuant to the terms and conditions of Article VI of the Separation and Distribution Agreement.

(d)              Maintenance of Records.  With respect to retaining, destroying, transferring, sharing, copying and permitting access to all Employee-related information, KAR and SpinCo shall comply with all applicable Laws, regulations and internal policies, and shall indemnify and hold harmless each other from and against any and all Liability, claims, actions, and damages that arise from a failure (by the indemnifying Party or its Subsidiaries or their respective agents) to so comply with all applicable Laws, regulations and internal policies applicable to such information.

(e)              Cooperation.   Each Party shall use commercially reasonable efforts to cooperate and work together to unify, consolidate and share (to the extent permissible under applicable privacy/data protection laws) all relevant documents, resolutions, government filings, data, payroll, employment and benefit plan information on regular timetables and cooperate as needed with respect to (i) any litigation with respect to any employee benefit plan, policy or arrangement contemplated by this Agreement (except to the extent such other Party is an opposing party in such litigation), (ii) efforts to seek a determination letter, private letter ruling or advisory opinion from the IRS or U.S. Department of Labor or any other Governmental Authority on behalf of any employee benefit plan, policy or arrangement contemplated by this Agreement, and (iii) any filings that are required to be made or supplemented to the IRS, U.S. Pension Benefit Guaranty Corporation, U.S. Department of Labor or any other Governmental Authority; provided , however , that requests for cooperation must be reasonable and not interfere with daily business operations.

(f)              Confidentiality.   Notwithstanding anything in this Agreement to the contrary, all confidential records and data relating to Employees to be shared or transferred pursuant to this Agreement shall be subject to Section 6.9 of the Separation and Distribution Agreement and the requirements of applicable Law.

Section 9.02             Preservation of Rights to Amend .  The rights of each member of the KAR Group and each member of the SpinCo Group to amend, waive, or terminate any plan, arrangement, agreement, program, or policy referred to herein shall not be limited in any way by this Agreement.
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Section 9.03            Fiduciary Matters .  KAR and SpinCo each acknowledges that actions required to be taken pursuant to this Agreement may be subject to fiduciary duties or standards of conduct under ERISA or other applicable Law, and no Party shall be deemed to be in violation of this Agreement if it fails to comply with any provisions hereof based upon its good-faith determination (as supported by advice from counsel experienced in such matters) that to do so would violate such a fiduciary duty or standard.  Each Party shall be responsible for taking such actions as are deemed necessary and appropriate to comply with its own fiduciary responsibilities and shall fully release and indemnify the other Party for any Liabilities caused by the failure to satisfy any such responsibility.

Section 9.04            Further Assurances .  Each Party hereto shall take, or cause to be taken, any and all reasonable actions, including the execution, acknowledgment, filing and delivery of any and all documents and instruments that any other Party hereto may reasonably request in order to effect the intent and purpose of this Agreement and the transactions contemplated hereby.

Section 9.05            Counterparts; Entire Agreement; Corporate Power .

(a)              This Agreement may be executed in one or more counterparts, all of which shall be considered one and the same agreement, and shall become effective when one or more counterparts have been signed by each of the Parties and delivered to the other Party.

(b)              This Agreement and the Schedules and appendices hereto contain the entire agreement between the Parties with respect to the subject matter hereof, supersede all previous agreements, negotiations, discussions, writings, understandings, commitments and conversations with respect to such subject matter, and there are no agreements or understandings between the Parties other than those set forth or referred to herein or therein.

(c)              KAR represents on behalf of itself and, to the extent applicable, each of its Subsidiaries, and SpinCo represents on behalf of itself and, to the extent applicable, each of its Subsidiaries, as follows:

(i)              each such Person has the requisite corporate or other power and authority and has taken all corporate or other action necessary in order to execute, deliver and perform this Agreement and to consummate the transactions contemplated hereby; and

(ii)              this Agreement has been duly executed and delivered by it and constitutes a valid and binding agreement of it enforceable in accordance with the terms hereof.

(d)              Each Party acknowledges that it and each other Party is executing this Agreement by facsimile, stamp or mechanical signature, and that delivery of an executed counterpart of a signature page to this Agreement (whether executed by manual, stamp or mechanical signature) by facsimile or by email in portable document format (PDF) shall be effective as delivery of such executed counterpart of this Agreement.  Each Party expressly adopts and confirms each such facsimile, stamp or mechanical signature (regardless of whether delivered in person, by mail, by courier, by facsimile or by email in portable document format (PDF)) made in its respective name as if it were a manual signature delivered in person, agrees that it will not assert that any such signature or delivery is not adequate to bind such Party to the same extent as if it were signed manually and delivered in person and agrees that, at the reasonable request of the other Party at any time, it will as promptly as reasonably practicable cause this Agreement to be manually executed (any such execution to be as of the date of the initial date thereof) and delivered in person, by mail or by courier.

Section 9.06            Governing Law .  This Agreement (and any claims or disputes arising out of or related hereto or to the transactions contemplated hereby or to the inducement of any Party to enter herein, whether for breach of contract, tortious conduct or otherwise and whether predicated on common law, statute or otherwise) shall be governed by and construed and interpreted in accordance with the Laws of the State of Delaware, irrespective of the choice of Laws principles of the State of Delaware, including all matters of validity, construction, effect, enforceability, performance and remedies.

Section 9.07            Assignability .  The assignability provisions set forth in Section 10.3 of the Separation and Distribution Agreement shall apply to this Agreement.
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Section 9.08            Third-Party Beneficiaries .  The provisions of this Agreement are solely for the benefit of the Parties and are not intended to confer upon any other Person except the Parties any rights or remedies hereunder.  There are no other third-party beneficiaries of this Agreement and this Agreement shall not provide any third party with any remedy, claim, Liability, reimbursement, claim of action or other right in excess of those existing without reference to this Agreement.  Nothing in this Agreement is intended to amend any employee benefit plan or affect KAR’s, SpinCo’s or the applicable plan sponsor’s right to amend or terminate any employee benefit plan pursuant to the terms of such plan.  The provisions of this Agreement are solely for the benefit of the Parties, and no Employee or Former Employee, officer, director, or independent contractor or any other individual associated therewith shall be regarded for any purpose as a third-party beneficiary of this Agreement.

Section 9.09            Notices .  All notices, requests, claims, demands or other communications under this Agreement shall be in writing and shall be given or made (and shall be deemed to have been duly given or made upon receipt) by delivery in person, by electronic mail (for which a confirmation email is obtained), or sent by overnight courier (providing proof of delivery) to the respective Parties at the following addresses (or at such other address for a Party as shall be specified in a notice given in accordance with this Section 9.09 ):

 
If to KAR, to:
     
   
KAR Auction Services, Inc.
   
13085 Hamilton Crossing Boulevard
   
Carmel, Indiana 46032
   
Email:
becca.polak@karauctionservices.com
   
Attention:
Chief Legal Officer
   
 
with a copy (prior to the Effective Time) to:
     
   
Skadden, Arps, Slate, Meagher & Flom LLP
   
Four Times Square
   
New York, New York 10036
   
Email:
Sean.Doyle@skadden.com
     
Gregory.Fernicola@skadden.com
     
Dwight.Yoo@skadden.com
   
Attention:
Sean C. Doyle
     
Gregory A. Fernicola
     
Dwight S. Yoo
   
 
If to SpinCo, to:
     
   
Insurance Auto Auctions, Inc.
   
Two Westbrook Corporate Center, Suite 500
   
Westchester, Illinois 60154
   
Email:
jkett@iaai.com
     
skerley@iaai.com
   
Attention:
John Kett
     
Sidney Peryar
   
 
with a copy (prior to the Effective Time) to:
     
   
Skadden, Arps, Slate, Meagher & Flom LLP
   
Four Times Square
   
New York, New York 10036
   
Email:
Sean.Doyle@skadden.com
     
Gregory.Fernicola@skadden.com
     
Dwight.Yoo@skadden.com
   
Attention:
Sean C. Doyle
     
Gregory A. Fernicola
     
Dwight S. Yoo

Any Party may, by notice to the other Party, change the address to which such notices are to be given.

Section 9.10            Severability .  If any provision of this Agreement or the application thereof to any Person or circumstance is determined by a court of competent jurisdiction to be invalid, void or unenforceable, the remaining provisions hereof, or the application of any such provision to Persons or circumstances or in jurisdictions other than those as to which it has been held invalid or unenforceable, shall remain in full force and effect and shall in no way be affected, impaired or invalidated thereby.  Upon such determination, the Parties shall negotiate in good faith in an effort to agree upon such a suitable and equitable provision to effect the original intent of the Parties.
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Section 9.11             Force Majeure .  The Force Majeure provision set forth in Section 10.7 of the Separation and Distribution Agreement shall apply to this Agreement.

Section 9.12             Headings .  The article, section and paragraph headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement.

Section 9.13            Survival of Covenants .  Except as expressly set forth in this Agreement, the covenants, representations and warranties and other agreements contained in this Agreement, and Liability for the breach of any obligations contained herein, shall survive the Separation and the Distribution and shall remain in full force and effect thereafter.

Section 9.14            Waivers of Default .  Waiver by any Party of any default by the other Party of any provision of this Agreement shall not be deemed a waiver by the waiving Party of any subsequent or other default, nor shall it prejudice the rights of the waiving Party. No failure or delay by any Party in exercising any right, power or privilege under this Agreement shall operate as a waiver thereof, nor shall a single or partial exercise thereof prejudice any other or further exercise thereof or the exercise of any other right, power or privilege.

Section 9.15            Dispute Resolution .  The dispute resolution procedures set forth in Article VII of the Separation and Distribution Agreement shall apply to any dispute, controversy or claim arising out of or relating to this Agreement.

Section 9.16            Specific Performance .  Subject to Article VII of the Separation and Distribution Agreement, in the event of any actual or threatened default in, or breach of, any of the terms, conditions and provisions of this Agreement, the Party or Parties who are, or are to be, thereby aggrieved shall have the right to specific performance and injunctive or other equitable relief (on an interim or permanent basis) in respect of its rights or their rights under this Agreement, in addition to any and all other rights and remedies at Law or in equity, and all such rights and remedies shall be cumulative.  The Parties agree that the remedies at law for any breach or threatened breach, including monetary damages, may be inadequate compensation for any loss and that any defense in any Action for specific performance that a remedy at law would be adequate is waived.  Any requirements for the securing or posting of any bond with such remedy are hereby waived by each of the Parties.

Section 9.17            Amendments .  No provisions of this Agreement shall be deemed waived, amended, supplemented or modified by a Party, unless such waiver, amendment, supplement or modification is in writing and signed by the authorized representative of the Party against whom it is sought to enforce such waiver, amendment, supplement or modification.

Section 9.18            Interpretation .  In this Agreement, (a) words in the singular shall be deemed to include the plural and vice versa and words of one gender shall be deemed to include the other genders as the context requires; (b) the terms “hereof,” “herein,” and “herewith” and words of similar import shall, unless otherwise stated, be construed to refer to this Agreement as a whole (including all of the Schedules hereto and thereto) and not to any particular provision of this Agreement; (c) Article, Section and Schedule references are to the Articles, Sections and Schedules to this Agreement unless otherwise specified; (d) unless otherwise stated, all references to any agreement shall be deemed to include the exhibits, schedules and annexes to such agreement; (e) the word “including” and words of similar import when used in this Agreement shall mean “including, without limitation,” unless otherwise specified; (f) the word “or” shall not be exclusive; (g) unless otherwise specified in a particular case, the word “days” refers to calendar days; (h) references to “business day” shall mean any day other than a Saturday, a Sunday or a day on which banking institutions are generally authorized or required by law to close in the United States or New York, New York; (i) references herein to this Agreement or any other agreement contemplated herein shall be deemed to refer to this Agreement or such other agreement as of the date on which it is executed and as it may be amended, modified or supplemented thereafter, unless otherwise specified; and (j) unless expressly stated to the contrary in this Agreement, all references to “the date hereof,” “the date of this Agreement,” “hereby” and “hereupon” and words of similar import shall all be references to [●].

Section 9.19            Limitations of Liability .  Notwithstanding anything in this Agreement to the contrary, neither SpinCo or any member of the SpinCo Group, on the one hand, nor KAR or any member of the KAR Group, on the other hand, shall be liable under this Agreement to the other for any indirect, punitive, exemplary, remote, speculative or similar damages in excess of compensatory damages of the other arising in connection with the transactions contemplated hereby (other than any such Liability with respect to a Third-Party Claim).

Section 9.20            Mutual Drafting .  This Agreement shall be deemed to be the joint work product of the Parties and any rule of construction that a document shall be interpreted or construed against a drafter of such document shall not be applicable to this Agreement.

[ Remainder of page intentionally left blank ]
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IN WITNESS WHEREOF, the Parties have caused this Employee Matters Agreement to be executed by their duly authorized representatives.

 
KAR AUCTION SERVICES, INC.
       
 
By:

   
Name:
 
   
Title:

       
 
IAA SPINCO INC.

 
By:
  
   
Name:
 
   
Title:
 


Exhibit 10.4
IAA, INC.

2019 OMNIBUS STOCK AND INCENTIVE PLAN

Section 1.                            Purpose of Plan.

The name of the Plan is the IAA, Inc. 2019 Omnibus Stock and Incentive Plan (the “ Plan ”). The purpose of the Plan is to provide an additional incentive to selected management employees, directors, independent contractors, and consultants of the Company or its Affiliates (as hereinafter defined) whose contributions are essential to the growth and success of the Company’s business, in order to strengthen the commitment of such persons to the Company and its Subsidiaries, motivate such persons to faithfully and diligently perform their responsibilities and attract and retain competent and dedicated persons whose efforts will result in the long-term growth and profitability of the Company. To accomplish such purposes, the Plan provides that the Company may grant Options, Share Appreciation Rights, Restricted Shares, Other Share-Based Awards, Other Cash-Based Awards or any combination of the foregoing.

Section 2.                            Definitions.

For purposes of the Plan, the following terms shall be defined as set forth below:

(a)              “ Administrator ” means the Board, or, if and to the extent the Board does not administer the Plan, the Committee in accordance with Section 3 hereof.

(b)              “ Affiliate ” means a Person that directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, the Person specified. An entity shall be deemed an Affiliate of the Company for purposes of this definition only for such periods as the requisite ownership or control relationship is maintained.

(c)              “ Award ” means any Option, Share Appreciation Right, Restricted Share, Other Share-Based Award or Other Cash-Based Award granted under the Plan.

(d)              “ Award Agreement ” means any written agreement, contract or other instrument or document evidencing an Award, including through electronic medium, which shall contain such terms and conditions with respect to an Award as the Administrator shall determine, consistent with the Plan.

(e)              “ Bylaws ” mean the amended and restated bylaws of the Company, as may be amended and/or restated from time to time.

(f)              “ Beneficial Owner ” (or any variant thereof) has the meaning defined in Rule 13d-3 under the Exchange Act.

(g)              “ Board ” means the Board of Directors of the Company.

(h)              “ Cause ” shall have the meaning assigned to such term in any individual employment or severance agreement or Award Agreement with the Participant or, if no such agreement exists or the agreement does not define “Cause,” then “Cause” shall mean (i) the refusal or neglect of the Participant to perform substantially his or her employment-related duties, (ii) the Participant’s personal dishonesty, incompetence, willful misconduct or breach of fiduciary duty, (iii) the Participant’s indictment for, conviction of or entering a plea of guilty or nolo contendere to a crime constituting a felony or his or her willful violation of any applicable law (other than a traffic violation or other offense or violation outside of the course of employment which in no way adversely affects the Company and its Subsidiaries or their reputation or the ability of the Participant to perform his or her employment-related duties or to represent the Company or any Subsidiary of the Company that employs such Participant), (iv) the Participant’s failure to reasonably cooperate, following a request to do so by the Company, in any internal or governmental investigation of the Company or any of its Subsidiaries,(v) any other act or conduct that would constitute cause for the termination of the Participant’s employment under applicable law as interpreted by the courts of the jurisdiction in which the Participant is employed from time to time, or (vi) the Participant’s material breach of any written covenant or agreement with the Company or any of its Subsidiaries not to disclose any information pertaining to the Company or such Subsidiary or not to compete or interfere with the Company or such Subsidiary.

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(i)              “ Change in Capitalization ” means any (i) merger, consolidation, reclassification, recapitalization, spin-off, spin-out, repurchase or other reorganization or corporate transaction or event, (ii) dividend (whether in the form of cash, Common Stock or other property), stock split or reverse stock split, (iii) combination or exchange of shares, (iv) other change in corporate structure or (v) declaration of a special dividend (including a cash dividend) or other distribution, which, in any such case, the Administrator determines, in its sole discretion, affects the Shares such that an adjustment pursuant to Section 5 hereof is appropriate.

(j)              “ Change in Control ” shall be deemed to have occurred if an event set forth in any one of the following paragraphs occurs following the Effective Date:

(1)              any Person is or becomes the Beneficial Owner, directly or indirectly, of securities of the Company (not including in the securities beneficially owned by such Person any securities acquired directly from the Company or any Affiliate thereof) representing fifty percent (50%) or more of the combined voting power of the Company’s then outstanding securities; or

(2)              the following individuals cease for any reason to constitute a majority of the number of directors then serving on the Board: individuals who, on the date hereof, constitute the Board and any new director (other than a director whose initial assumption of office is in connection with an actual or threatened election contest, including, but not limited to, a consent solicitation, relating to the election of directors of the Company) whose appointment or election by the Board or nomination for election by the Company’s shareholders was approved or recommended by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors on the date hereof or whose appointment, election or nomination for election was previously so approved or recommended; or

(3)              there is consummated a merger or consolidation of the Company or any Subsidiary thereof with any other corporation, other than a merger or consolidation immediately following which the individuals who comprise the Board immediately prior thereto constitute at least a majority of the Board of the entity surviving such merger or consolidation or, if the Company or the entity surviving such merger is then a subsidiary, the ultimate parent thereof; or

(4)              the shareholders of the Company approve a plan of complete liquidation or dissolution of the Company or there is consummated an agreement for the sale or disposition by the Company of all or substantially all of the Company’s assets, other than (A) a sale or disposition by the Company of all or substantially all of the Company’s assets to an entity, at least fifty percent (50%) of the combined voting power of the voting securities of which are owned by shareholders of the Company following the completion of such transaction in substantially the same proportions as their ownership of the Company immediately prior to such sale or (B) a sale or disposition of all or substantially all of the Company’s assets immediately following which the individuals who comprise the Board immediately prior thereto constitute at least a majority of the board of directors of the entity to which such assets are sold or disposed or, if such entity is a subsidiary, the ultimate parent thereof.

For each Award that constitutes deferred compensation under Code Section 409A, to the extent required to avoid accelerated taxation and/or tax penalties under Code Section 409A, a Change in Control shall be deemed to have occurred under the Plan with respect to such Award only if a change in the ownership or effective control of the Company or a change in ownership of a substantial portion of the assets of the Company shall also be deemed to have occurred under Code Section 409A.

Notwithstanding the foregoing, a “Change in Control” shall not be deemed to have occurred by virtue of the consummation of any transaction or series of integrated transactions immediately following which the holders of Common Stock immediately prior to such transaction or series of transactions continue to have substantially the same proportionate ownership in an entity which owns all or substantially all of the assets of the Company immediately following such transaction or series of transactions.

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(k)              “ Code ” means the Internal Revenue Code of 1986, as amended from time to time, or any successor thereto.

(l)              “ Committee ” means any committee or subcommittee the Board may appoint to administer the Plan. Subject to the discretion of the Board, the Committee shall be composed entirely of individuals who meet the qualifications of a “non-employee director” within the meaning of Rule 16b-3 under the Exchange Act and any other qualifications required by the applicable stock exchange on which the Common Stock is traded. If at any time or to any extent the Board shall not administer the Plan, then the functions of the Administrator specified in the Plan shall be exercised by the Committee. Except as otherwise provided in the Articles of Incorporation or Bylaws, any action of the Committee with respect to the administration of the Plan shall be taken by a majority vote at a meeting at which a quorum is duly constituted or unanimous written consent of the Committee’s members.

(m)              “ Common Stock ” means the common stock of the Company, having a par value $.01 per share.

(n)              “ Company ” means IAA, Inc. (f/k/a IAA Spinco Inc.), a Delaware corporation (or any successor corporation, except as the term “Company” is used in the definition of “Change in Control” above).

(o)              “ Disability ” shall have the meaning assigned to such term in any individual employment or severance agreement or Award Agreement with the Participant or, if no such agreement exists or the agreement does not define “Disability,” Disability means, with respect to any Participant, that such Participant (i) as determined by the Administrator in its sole discretion, is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than six (6) months, or (ii) is, by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than six (6) months, receiving income replacement benefits for a period of not less than three (3) months under an accident and health plan covering employees of the Company or an Affiliate thereof.

(p)              “ Effective Date ” shall have the meaning set forth in Article 17 of the Plan.

(q)              “ Eligible Recipient ” means an employee, director, independent contractor or consultant of the Company or any Affiliate of the Company who has been selected as an eligible participant by the Administrator; provided, however, to the extent required to avoid the imposition of additional taxes under Code Section 409A, an Eligible Recipient means an employee, director, independent contractor or consultant of the Company or any Subsidiary of the Company who has been selected as an eligible participant by the Administrator.

(r)              “ Exchange Act ” shall mean the Securities Exchange Act of 1934, as amended from time to time.

(s)              “ Exercise Price ” means, with respect to any Award under which the holder may purchase Shares, the price per share at which a holder of such Award granted hereunder may purchase Shares issuable upon exercise of such Award.

(t)              “ Fair Market Value ” as of a particular date shall mean the fair market value of a share of Common Stock as determined by the Administrator in its sole discretion; provided , however , that (i) if the Common Stock is admitted to trading on a national securities exchange, the fair market value of a share of Common Stock on any date shall be the closing sale price reported for such share on such exchange on such date or, if no sale was reported on such date, on the last day preceding such date on which a sale was reported, or (ii) if the shares of Common Stock are not then listed on the New York Stock Exchange, the average of the highest reported bid and lowest reported asked prices for the shares of Common Stock as reported by the National Association of Securities Dealers, Inc. Automated Quotations System for the last preceding date on which there was a sale of such stock in such market, or (3) if the shares of Common Stock are not then listed on a national securities exchange or traded in an over-the-counter market or the value of such shares is not otherwise determinable, such value as determined by the Committee in good faith and in accordance with Code Section 409A.

(u)              “ Option ” means an option to purchase shares of Common Stock granted pursuant to Section 7 hereof.

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(v)              “ Other Cash-Based Award ” means a cash Award granted to a Participant under Section 10 hereof, including cash awarded as a bonus or upon the attainment of Performance Goals or otherwise as permitted under the Plan.

(w)              “ Other Share-Based Award ” means a right or other interest granted to a Participant under the Plan that may be denominated or payable in, valued in whole or in part by reference to, or otherwise based on or related to, Common Stock, including, but not limited to, unrestricted Shares, restricted stock units, dividend equivalents or performance units, each of which may be subject to the attainment of Performance Goals or a period of continued employment or other terms or conditions as permitted under the Plan.

(x)              “ Participant ” means any Eligible Recipient selected by the Administrator, pursuant to the Administrator’s authority provided for in Section 3 below, to receive grants of Options, Share Appreciation Rights, Restricted Shares, Other Share-Based Awards, Other Cash-Based Awards or any combination of the foregoing, and, upon his or her death, his or her successors, heirs, executors and administrators, as the case may be.

(y)              “ Performance Goals ” means performance goals based on one or more of the following criteria: (i) earnings, including one or more of operating income, earnings before or after taxes, earnings before or after interest, depreciation, amortization, adjusted EBITDA, economic earnings, or extraordinary or special items or book value per share (which may exclude nonrecurring items); (ii) pre-tax income or after-tax income; (iii) earnings per Share (basic or diluted); (iv) operating profit; (v) revenue, revenue growth or rate of revenue growth; (vi) return on assets (gross or net), return on investment, return on capital, or return on equity; (vii) returns on sales or revenues; (viii) operating expenses; (ix) stock price appreciation (including total stockholder return, on an absolute basis or relative to a peer group or other index selected by the Committee); (x) cash flow, free cash flow, cash flow return on investment (discounted or otherwise), net cash provided by operations, or cash flow in excess of cost of capital; (xi) implementation or completion of critical projects or processes; (xii) cumulative earnings per share growth; (xiii) operating margin or profit margin; (xiv) cost targets, reductions and savings, productivity and efficiencies; (xv) strategic business criteria, consisting of one or more objectively determinable objectives based on meeting specified market penetration, geographic business expansion, customer satisfaction, employee satisfaction, human resources management, supervision of litigation, information technology, and goals relating to acquisitions, divestitures, joint ventures and similar transactions, and budget comparisons; (xvi) personal professional objectives, including any of the foregoing performance goals, the implementation of policies and plans, the negotiation of transactions, the development of long term business goals, formation of joint ventures, research or development collaborations, and the completion of other corporate transactions; and (xvii) any combination of, or a specified increase in, any of the foregoing. Where applicable, the Performance Goals may be expressed in terms of attaining a specified level of the particular criteria or the attainment of a percentage increase or decrease in the particular criteria, and may be applied to one or more of the Company or Affiliate thereof, or a division or strategic business unit of the Company, or may be applied to the performance of the Company relative to a market index, a group of other companies or a combination thereof, all as determined by the Committee. The Performance Goals may include a threshold level of performance below which no payment shall be made (or no vesting shall occur), levels of performance at which specified payments shall be made (or specified vesting shall occur), and a maximum level of performance above which no additional payment shall be made (or at which full vesting shall occur). Performance Goals may be equitably adjusted in recognition of unusual or non-recurring events affecting the Company or any Affiliate thereof or the financial statements of the Company or any Affiliate thereof, in response to changes in applicable laws or regulations, or to account for items of gain, loss or expense determined to be extraordinary or unusual in nature or infrequent in occurrence or related to the disposal of a segment of a business or related to a change in accounting principles or any other reason.

(z)              “ Person ” shall have the meaning given in Section 3(a)(9) of the Exchange Act, as modified and used in Sections 13(d) and 14(d) thereof, except that such term shall not include (i) the Company or any Subsidiary thereof, (ii) a trustee or other fiduciary holding securities under an employee benefit plan of the Company or any Subsidiary thereof, (iii) an underwriter temporarily holding securities pursuant to an offering of such securities, or (iv) a corporation owned, directly or indirectly, by the shareholders of the Company in substantially the same proportions as their ownership of stock of the Company.

(aa)              “ Restricted Shares ” means Shares granted pursuant to Section 9 below subject to certain restrictions that lapse at the end of a specified period or periods.

(bb)              “ Retirement ” means a termination of a Participant’s employment, other than for Cause, on or after the attainment of age 65.

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(cc)              “ Shares ” means shares of Common Stock reserved for issuance under the Plan, as adjusted pursuant to the Plan, and any successor (pursuant to a merger, consolidation or other reorganization) security.

(dd)              “ Share Appreciation Right ” means the right pursuant to an Award granted under Section 8 below to receive an amount equal to the excess, if any, of (i) the aggregate Fair Market Value, as of the date such Award or portion thereof is surrendered, of the Shares covered by such Award or such portion thereof, over (ii) the aggregate Exercise Price of such Award or such portion thereof.

(ee)              “ Subsidiary ” means, with respect to any Person, as of any date of determination, any other Person as to which such first Person owns or otherwise controls, directly or indirectly, more than 50% of the voting shares or other similar interests or a sole general partner interest or managing member or similar interest of such other Person. An entity shall be deemed a Subsidiary of the Company for purposes of this definition only for such periods as the requisite ownership or control relationship is maintained.

Section 3.                            Administration.

(a)              The Plan shall be administered by the Administrator and shall be administered, to the extent applicable, in accordance with Rule 16b-3 under the Exchange Act. The Plan is intended to comply, and shall be administered in a manner that is intended to comply, with Code Section 409A and shall be construed and interpreted in accordance with such intent. To the extent that an Award, issuance and/or payment is subject to Code Section 409A, it shall be awarded and/or issued or paid in a manner that will comply with Code Section 409A, including any applicable regulations or guidance issued by the Secretary of the Treasury and the Internal Revenue Service with respect thereto.

(b)              Pursuant to the terms of the Plan, the Administrator, subject, in the case of any Committee, to any restrictions on the authority delegated to it by the Board, shall have the power and authority, without limitation:

(1)              to select those Eligible Recipients who shall be Participants;

(2)              to determine whether and to what extent Options, Share Appreciation Rights, Restricted Shares, Other Share-Based Awards, Other Cash-Based Awards or a combination of any of the foregoing, are to be granted hereunder to Participants;

(3)              to determine the number of Shares to be covered by each Award granted hereunder;

(4)              to determine the terms and conditions, not inconsistent with the terms of the Plan, of each Award granted hereunder (including, but not limited to, (i) the restrictions applicable to Restricted Shares and the conditions under which restrictions applicable to such Restricted Shares shall lapse, (ii) the Performance Goals and periods applicable to Awards (if any), (iii) the Exercise Price of each Award, (iv) the vesting schedule and terms applicable to each Award, (v) the number of Shares subject to each Award and (vi) subject to the requirements of Code Section 409A (to the extent applicable), any amendments to the terms and conditions of outstanding Awards, including, but not limited to, extending the exercise period of such Awards and accelerating the vesting schedule of such Awards;

(5)              to determine the terms and conditions, not inconsistent with the terms of the Plan, which shall govern all written instruments evidencing Options, Share Appreciation Rights, Restricted Shares or Other Share-Based Awards, Other Cash-Based Awards or any combination of the foregoing granted hereunder;

(6)              to determine the Fair Market Value;

(7)              to determine the duration and purpose of leaves of absence which may be granted to a Participant without constituting termination of the Participant’s employment for purposes of Awards granted under the Plan;

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(8)              to adopt, alter and repeal such administrative rules, guidelines and practices governing the Plan as it shall from time to time deem advisable; and

(9)              to construe and interpret the terms and provisions of the Plan and any Award issued under the Plan (and any Award Agreement relating thereto), and to otherwise supervise the administration of the Plan and to exercise all powers and authorities either specifically granted under the Plan or necessary and advisable in the administration of the Plan.

(c)              All decisions made by the Administrator pursuant to the provisions of the Plan shall be final, conclusive and binding on all persons, including the Company and the Participants. No member of the Board or the Committee, nor any officer or employee of the Company or any Subsidiary thereof acting on behalf of the Board or the Committee, shall be personally liable for any action, omission, determination, or interpretation taken or made in good faith with respect to the Plan, and all members of the Board or the Committee and each and any officer or employee of the Company and of any Subsidiary thereof acting on their behalf shall, to the maximum extent permitted by law, be fully indemnified and protected by the Company in respect of any such action, omission, determination or interpretation.

Section 4.                            Shares Reserved for Issuance Under the Plan.

(a)              Subject to Section 5 hereof, the number of shares of Common Stock that are reserved and available for issuance pursuant to Awards granted under the Plan is [                 ] shares. The aggregate Awards granted during any calendar year to any single individual shall not exceed, subject to adjustment as provided in Section 5 herein: (i) [                ] shares subject to Options or Share Appreciation Rights, (ii) [            ] shares subject to Restricted Shares or Other Share-Based Awards (other than Stock Appreciation Rights) and (iii) [             ] with respect to Other Cash-Based Awards. [Notwithstanding the foregoing, no Participant who is a non-employee director of the Company shall be granted Awards during any calendar year that, when aggregated with such non-employee director’s cash fees with respect to such calendar year, exceed $[________] in total value (calculating the value of any such Awards based on the grant date fair value of such Awards for the Company’s financial reporting purposes).]

(b)              Shares issued under the Plan may, in whole or in part, be authorized but unissued Shares or Shares that shall have been or may be reacquired by the Company in the open market, in private transactions or otherwise. Any Shares subject to an Award under the Plan that, after the Effective Date, are forfeited, canceled, settled or otherwise terminated without a distribution of Shares to a Participant will thereafter be deemed to be available for Awards. In applying the immediately preceding sentence, if (i) Shares otherwise issuable or issued in respect of, or as part of, any Award other than Options and Share Appreciation Rights are withheld to cover taxes, such Shares shall not be treated as having been issued under the Plan and shall again be available for issuance under the Plan, (ii) Shares otherwise issuable or issued in respect of, or as part of, any Award of Options or Share Appreciation Rights are withheld to cover taxes or the Exercise Price, such Shares shall be treated as having been issued under the Plan and shall not be available for issuance under the Plan, and (iii) any Share-settled Share Appreciation Rights are exercised, the aggregate number of Shares subject to such Share Appreciation Rights shall be deemed issued under the Plan and shall not be available for issuance under the Plan. In addition, Shares tendered to exercise outstanding Options or other Awards or to cover applicable taxes on Awards of Options and Share Appreciation Rights shall not be available for issuance under the Plan, but Shares tendered to cover applicable taxes on Awards other than Options and Share Appreciation Rights shall be available for issuance under the Plan.

Section 5.                            Equitable Adjustments.

(a)              In the event of any Change in Capitalization (including a Change of Control), an equitable substitution or proportionate adjustment shall be made, in each case, as may be determined by the Administrator, in its sole discretion, in (i) the aggregate number of shares of Common Stock reserved for issuance under the Plan, (ii) the kind and number of securities subject to, and the Exercise Price of any outstanding Options and Stock Appreciation Rights granted under the Plan, (iii) the kind, number and purchase price of shares of Common Stock, or the amount of cash or amount or type of other property, subject to outstanding Restricted Stock, Restricted Stock Units, Stock Bonuses and Other Stock-Based Awards granted under the Plan or (iv) the Performance Goals and performance periods applicable to any Awards granted under the Plan; provided , however , that any fractional shares resulting from the adjustment shall be eliminated.  Such other equitable substitutions or adjustments shall be made as may be determined by the Administrator, in its sole discretion.

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(b)              Without limiting the generality of the foregoing, in connection with a Change in Capitalization (including a Change of Control), the Administrator may provide, in its sole discretion, but subject in all events to the requirements of Section 409A of the Code, for the cancellation of any outstanding Award in exchange for payment in cash or other property having an aggregate Fair Market Value equal to the Fair Market Value of the shares of Common Stock, cash or other property covered by such Award, reduced by the aggregate Exercise Price thereof, if any; provided , however , that if the Exercise Price of any outstanding Award is equal to or greater than the Fair Market Value of the shares of Common Stock, cash or other property covered by such Award, the Board may cancel such Award without the payment of any consideration to the Participant.

The determinations made by the Administrator or the Board, as applicable, pursuant to this Section 5 shall be final, binding and conclusive.

Section 6.                            Eligibility.

The Participants under the Plan shall be selected from time to time by the Administrator, in its sole discretion, from among Eligible Recipients.

Section 7.                            Options.

(a)              General .  Each Participant who is granted an Option shall enter into an Award Agreement with the Company, containing such terms and conditions as the Administrator shall determine, in its sole discretion, which Award Agreement shall set forth, among other things, the Exercise Price of the Option, the term of the Option and provisions regarding exercisability of the Option granted thereunder. The provisions of each Option need not be the same with respect to each Participant. More than one Option may be granted to the same Participant and be outstanding concurrently hereunder. Options granted under the Plan shall be subject to the terms and conditions set forth in this Section 7 and shall contain such additional terms and conditions, not inconsistent with the terms of the Plan, as the Administrator shall deem desirable and set forth in the applicable Award Agreement. Each Option granted hereunder is intended to be a non-qualified Option and is not intended to qualify as an “incentive stock option” within the meaning of Code Section 422.

(b)              Exercise Price .  The Exercise Price of Shares purchasable under an Option shall be determined by the Administrator in its sole discretion at the time of grant, but in no event shall the Exercise Price of an Option be less than one hundred percent (100%) of the Fair Market Value of the Common Stock on the date of grant.

(c)              Option Term .  The maximum term of each Option shall be fixed by the Administrator, but no Option shall be exercisable more than ten (10) years after the date such Option is granted. Each Option’s term is subject to earlier expiration pursuant to the applicable provisions in the Plan and the Award Agreement. Notwithstanding the foregoing, the Administrator shall have the authority to accelerate the exercisability of any outstanding Option at such time and under such circumstances as the Administrator, in its sole discretion, deems appropriate.

(d)              Exercisability .  Each Option shall be exercisable at such time or times and subject to such terms and conditions, including the attainment of preestablished Performance Goals, as shall be determined by the Administrator in the applicable Award Agreement. The Administrator may also provide that any Option shall be exercisable only in installments, and the Administrator may waive such installment exercise provisions at any time, in whole or in part, based on such factors as the Administrator may determine in its sole discretion. Notwithstanding anything to the contrary contained herein, an Option may not be exercised for a fraction of a share.

(e)              Method of Exercise .  Options may be exercised in whole or in part by giving written notice of exercise to the Company specifying the number of Shares to be purchased, accompanied by payment in full of the aggregate Exercise Price of the Shares so purchased in cash or its equivalent, as determined by the Administrator. As determined by the Administrator, in its sole discretion, with respect to any Option or category of Options, payment in whole or in part may also be made (i) by means of consideration received under any cashless exercise procedure approved by the Administrator (including the withholding of Shares otherwise issuable upon exercise), (ii) in the form of unrestricted Shares already owned by the Participant which have a Fair Market Value on the date of surrender equal to the aggregate Exercise Price of the Shares as to which such Option shall be exercised, (iii) any other form of consideration approved by the Administrator and permitted by applicable law or (iv) any combination of the foregoing.

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(f)              Rights as Shareholder .  A Participant shall have no rights to dividends or any other rights of a shareholder with respect to the Shares subject to an Option until the Participant has given written notice of the exercise thereof, has paid in full for such Shares and has satisfied the requirements of Section 14 hereof.

(g)              Termination of Employment or Service . In the event of the termination of employment or service with the Company and all Affiliates thereof of a Participant who has been granted one or more Options, such Options shall be exercisable at such time or times and subject to such terms and conditions as set forth in the Award Agreement.

(h)              Other Change in Employment Status .  An Option shall be affected, both with regard to vesting schedule and termination, by leaves of absence, changes from full-time to part-time employment, partial disability or other changes in the employment status of an Participant, in the discretion of the Administrator.

Section 8.                            Share Appreciation Rights.

(a)              General .  Share Appreciation Rights may be granted either alone (“ Free Standing Rights ”) or in conjunction with all or part of any Option granted under the Plan (“ Related Rights ”). Related Rights may be granted either at or after the time of the grant of such Option. The Administrator shall determine the Eligible Recipients to whom, and the time or times at which, grants of Share Appreciation Rights shall be made, the number of Shares to be awarded, the price per Share, and all other conditions of Share Appreciation Rights. Notwithstanding the foregoing, no Related Right may be granted for more Shares than are subject to the Option to which it relates and any Share Appreciation Right must be granted with an Exercise Price not less than the Fair Market Value of Common Stock on the date of grant. The provisions of Share Appreciation Rights need not be the same with respect to each Participant. Share Appreciation Rights granted under the Plan shall be subject to the following terms and conditions set forth in this Section 8 and shall contain such additional terms and conditions, not inconsistent with the terms of the Plan, as the Administrator shall deem desirable, as set forth in the applicable Award Agreement.

(b)              Exercise Price . The Exercise Price of Shares purchasable under a Share Appreciation Right shall be determined by the Administrator in its sole discretion at the time of grant, but in no event shall the exercise price of a Share Appreciation Rights be less than one hundred percent (100%) of the Fair Market Value of a share of Common Stock on the date of grant.

(c)              Awards; Rights as Shareholder .  The prospective recipient of a Share Appreciation Right shall not have any rights with respect to such Award, unless and until such recipient has executed an Award Agreement and delivered a fully executed copy thereof to the Company, within a period of sixty (60) days (or such other period as the Administrator may specify) after the award date. Participants who are granted Share Appreciation Rights shall have no rights as shareholders of the Company with respect to the grant or exercise of such rights.

(d)              Exercisability .

(1)              Share Appreciation Rights that are Free Standing Rights shall be exercisable at such time or times and subject to such terms and conditions as shall be determined by the Administrator in the applicable Award Agreement.

(2)              Share Appreciation Rights that are Related Rights shall be exercisable only at such time or times and to the extent that the Options to which they relate shall be exercisable in accordance with the provisions of Section 7 above and this Section 8 of the Plan.

(e)              Payment Upon Exercise .

(1)              Upon the exercise of a Free Standing Right, the Participant shall be entitled to receive up to, but not more than, that number of Shares equal in value to the excess of the Fair Market Value as of the date of exercise over the price per share specified in the Free Standing Right multiplied by the number of Shares in respect of which the Free Standing Right is being exercised, with the Administrator having the right to determine the form of payment.

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(2)              A Related Right may be exercised by a Participant by surrendering the applicable portion of the related Option. Upon such exercise and surrender, the Participant shall be entitled to receive up to, but not more than, that number of Shares equal in value to the excess of the Fair Market Value as of the date of exercise over the Exercise Price specified in the related Option multiplied by the number of Shares in respect of which the Related Right is being exercised, with the Administrator having the right to determine the form of payment. Options which have been so surrendered, in whole or in part, shall no longer be exercisable to the extent the Related Rights have been so exercised.

(3)              Notwithstanding the foregoing, the Administrator may determine to settle the exercise of a Share Appreciation Right in cash (or in any combination of Shares and cash).

(f)              Termination of Employment or Service .

(1)              In the event of the  termination of employment or service with the Company and all Affiliates thereof of a Participant who has been granted one or more Free Standing Rights, such rights shall be exercisable at such time or times and subject to such terms and conditions as shall be determined by the Administrator in the applicable Award Agreement.

(2)              In the event of the termination of employment or service with the Company and all Affiliates thereof of a Participant who has been granted one or more Related Rights, such rights shall be exercisable at such time or times and subject to such terms and conditions as set forth in the related Options.

(g)              Term .

(1)              The term of each Free Standing Right shall be fixed by the Administrator, but no Free Standing Right shall be exercisable more than ten (10) years after the date such right is granted.

(2)              The term of each Related Right shall be the term of the Option to which it relates, but no Related Right shall be exercisable more than ten (10) years after the date such right is granted.

Section 9.                            Restricted Shares.

(a)              General .  Restricted Shares may be issued either alone or in addition to other Awards granted under the Plan. The Administrator shall determine the Eligible Recipients to whom, and the time or times at which, Restricted Shares shall be made; the number of Shares to be awarded; the price, if any, to be paid by the Participant for the acquisition of Restricted Shares; the Restricted Period (as defined in paragraph (c) of this Section 9), if any, applicable to Restricted Shares; the Performance Goals (if any) applicable to Restricted Shares; and all other conditions of the Restricted Shares. If the restrictions, Performance Goals and/or conditions established by the Administrator are not attained, a Participant shall forfeit his or her Restricted Shares in accordance with the terms of the grant. The provisions of the Restricted Shares need not be the same with respect to each Participant.

(b)              Awards and Certificates .  The prospective recipient of Restricted Shares shall not have any rights with respect to any such Award, unless and until such recipient has executed an Award Agreement and delivered a fully executed copy thereof to the Company, within a period of sixty (60) days (or such other period as the Administrator may specify) after the award date. Except as otherwise provided below in Section 9(c), (i) each Participant who is granted an award of Restricted Shares may, in the Company’s sole discretion, be issued a stock certificate in respect of such Restricted Shares; and (ii) any such certificate so issued shall be registered in the name of the Participant, and shall bear an appropriate legend referring to the terms, conditions, and restrictions applicable to any such Award. The Company may require that the stock certificates, if any, evidencing Restricted Shares granted hereunder be held in the custody of the Company until the restrictions thereon shall have lapsed, and that, as a condition of any award of Restricted Shares, the Participant shall have delivered a stock power, endorsed in blank, relating to the Shares covered by such Award. Notwithstanding anything in the Plan to the contrary, any Restricted Shares (whether before or after any vesting conditions have been satisfied) may, in the Company’s sole discretion, be issued in uncertificated form pursuant to the customary arrangements for issuing shares in such form.

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(c)              Restrictions and Conditions . The Restricted Shares granted pursuant to this Section 9 shall be subject to the following restrictions and conditions and any additional restrictions or conditions as determined by the Administrator at the time of grant or, subject to Code Section 409A, thereafter:

(1)              The Administrator may, in its sole discretion, provide for the lapse of restrictions in installments and may accelerate or waive such restrictions in whole or in part based on such factors and such circumstances as the Administrator may determine, in its sole discretion, including, but not limited to, the attainment of certain Performance Goals, the Participant’s termination of employment or service as a director, independent contractor or consultant to the Company or any Affiliate thereof, or the Participant’s death or Disability. Notwithstanding the foregoing, upon a Change in Control, the outstanding Awards shall be subject to Section 11 hereof.

(2)              Except as provided in Section 15 or in the Award Agreement, the Participant shall generally have the rights of a shareholder of the Company with respect to Restricted Shares during the Restricted Period, including the right to vote such shares and to receive any dividends declared with respect to such shares; provided , however , that except as provided in the applicable Award Agreement, any dividends declared during the Restricted Period with respect to such Restricted Shares shall only become payable if (and to the extent) the underlying Restricted Shares vest. Certificates for Shares of unrestricted Common Stock may, in the Company’s sole discretion, be delivered to the Participant only after the Restricted Period has expired without forfeiture in respect of such Restricted Shares, except as the Administrator, in its sole discretion, shall otherwise determine.

(3)              The rights of Participants granted Restricted Shares upon termination of employment or service as a director, independent contractor, or consultant to the Company or to any Affiliate thereof terminates for any reason during the Restricted Period shall be set forth in the Award Agreement.

Section 10.                            Other Share-Based or Cash-Based Awards.

The Administrator is authorized to grant Awards to Participants in the form of Other Share-Based Awards or Other Cash-Based Awards, as deemed by the Administrator to be consistent with the purposes of the Plan and as evidenced by an Award Agreement. The Administrator shall determine the terms and conditions of such Awards, consistent with the terms of the Plan, at the date of grant or thereafter, including any Performance Goals and performance periods. Except as provided in the applicable Award Agreement, any dividend or dividend equivalent awarded hereunder shall be subject to the same restrictions, conditions and risks of forfeiture as the underlying Awards and shall only become payable if (and to the extent) the underlying Awards vest. Common Stock or other securities or property delivered pursuant to an Award in the nature of a purchase right granted under this Section 10 shall be purchased for such consideration, paid for at such times, by such methods, and in such forms, including, without limitation, Shares, other Awards, notes or other property, as the Administrator shall determine, subject to any required corporate action.

Section 11.                            Vesting In Connection With a Change in Control.

(a)              Unless otherwise determined by the Administrator or as evidenced in an Award Agreement and except as provided in Section 11(b) below, in the event of the occurrence of a Change in Control, any unvested and outstanding Awards may be assumed or replaced by the Company or its successor with a substantially similar equity or cash incentive award and the same vesting terms as such unvested Award. Except as would otherwise result in adverse tax consequences under Section 409A of the Code, if (i) any unvested and outstanding Awards held by a Participant are assumed or replaced in such a Change in Control and such Participant’s employment with the Company or its successor is terminated without Cause or by the Participant for Good Reason (as defined in the Participant’s employment agreement with the Company, to the extent applicable) prior to the second anniversary of the Change in Control or (ii) any unvested and outstanding Awards are not assumed or replaced by the Company or its successor upon such Change in Control, then (1) any unvested or unexercisable portion of any Award carrying a right to exercise shall become fully vested and exercisable and (2) the restrictions, deferral limitations, payment conditions and forfeiture conditions applicable to an Award granted under the Plan shall lapse and such Awards shall be deemed fully vested and any performance conditions imposed with respect to such Awards shall be deemed to be fully achieved at the target level of performance.

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(b)              Notwithstanding anything to the contrary contained herein, unless otherwise determined by the Administrator or as evidenced in an Award Agreement or other agreement between the Company and a Participant, with respect to each Other Cash-Based Award granted to a Participant pursuant to the Company’s annual incentive plan or program, in the event that a Change in Control occurs during an annual performance period, each Participant shall be entitled to receive on the date of the Change in Control a payment with respect to such annual incentive award calculated based on the actual performance of the applicable Performance Goals through the date of the Change in Control, as determined by the Administrator in its discretion, pro-rated based on the number of days of the annual performance period that have elapsed prior to and including the date of the Change in Control.

Section 12.                            Amendment and Termination.

The Board or the Committee may amend, alter or terminate the Plan at any time, but no amendment, alteration, or termination shall be made that would impair the rights of a Participant under any Award theretofore granted without such Participant’s consent. Approval of the Company’s shareholders shall be obtained for any amendment that would require such approval in order to satisfy the requirements of any rules of the stock exchange on which the Common Stock is traded or other applicable law.

Subject to the terms and conditions of the Plan, the Administrator may modify, extend or renew outstanding Awards under the Plan, or accept the surrender of outstanding Awards (to the extent not already exercised) and grant new Awards in substitution of them (to the extent not already exercised). Except as provided in Section 5, the Administrator will not, however, modify any outstanding Option or Share Appreciation Right so as to specify a lower Exercise Price or grant price (and will not cancel an Option or Share Appreciation Right and substitute for it an Option or Share Appreciation Right with a lower Exercise Price or grant price), without the approval of the Company’s shareholders. In addition, except as provided in Section 5, the Administrator may not cancel an outstanding Option or Share Appreciation Right whose Exercise Price or grant price is equal to or greater than the current Fair Market Value of a Share and substitute for it another Award or cash payment without the prior approval of the Company’s shareholders. Notwithstanding the foregoing, no alteration, modification or termination of an Award will, without the prior written consent of the Participant, adversely alter or impair any rights or obligations under any Award already granted under the Plan.

Section 13.                            Unfunded Status of Plan.

The Plan is intended to constitute an “unfunded” plan for incentive compensation. With respect to any payments not yet made to a Participant by the Company, nothing contained herein shall give any such Participant any rights that are greater than those of a general creditor of the Company.

Section 14.                            Withholding Taxes.

Each Participant shall, no later than the date as of which the value of an Award first becomes includible in the gross income of such Participant for federal and/or state income tax purposes, pay to the Company, or make arrangements satisfactory to the Administrator regarding payment of, any federal, state, or local taxes of any kind required by law to be withheld with respect to the Award. The obligations of the Company under the Plan shall be conditional on the making of such payments or arrangements, and the Company shall, to the extent permitted by law, have the right to deduct any such taxes from any payment of any kind otherwise due to such Participant. Whenever cash is to be paid pursuant to an Award granted hereunder, the Company shall have the right to deduct therefrom an amount sufficient to satisfy any federal, state and local withholding tax requirements related thereto. Whenever Shares are to be delivered pursuant to an Award, the Company shall have the right to require the Participant to remit to the Company in cash an amount sufficient to satisfy any related federal, state and local taxes to be withheld and applied to the tax obligations. With the approval of the Administrator, a Participant may satisfy the foregoing requirement by electing to have the Company withhold from delivery of Shares or by delivering already owned unrestricted shares of Common Stock, in each case, having a value not exceeding the federal, state and local taxes to be withheld and applied to the tax obligations. Such Shares shall be valued at their Fair Market Value on the date of which the amount of tax to be withheld is determined. Fractional share amounts shall be settled in cash. Such an election may be made with respect to all or any portion of the Shares to be delivered pursuant to an Award. The Company may also use any other method of obtaining the necessary payment or proceeds, as permitted by law, to satisfy its withholding obligation with respect to any Option or other Award.

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Section 15.                            Transfer of Awards.

Until such time as the Awards are fully vested and/or exercisable in accordance with the Plan or an Award Agreement, no purported sale, assignment, mortgage, hypothecation, transfer, charge, pledge, encumbrance, gift, transfer in trust (voting or other) or other disposition of, or creation of a security interest in or lien on, any Award or any agreement or commitment to do any of the foregoing (each, a “ Transfer ”) by any holder thereof in violation of the provisions of the Plan or an Award Agreement will be valid, except with the prior written consent of the Administrator, which consent may be granted or withheld in the sole discretion of the Administrator. Any purported Transfer of an Award or any economic benefit or interest therein in violation of the Plan or an Award Agreement shall be null and void ab initio , and shall not create any obligation or liability of the Company, and any person purportedly acquiring any Award or any economic benefit or interest therein transferred in violation of the Plan or an Award Agreement shall not be entitled to be recognized as a holder of such Shares. Unless otherwise determined by the Administrator in accordance with the provisions of the immediately preceding sentence, an Option may be exercised, during the lifetime of the Participant, only by the Participant or, during any period during which the Participant is under a legal disability, by the Participant’s guardian or legal representative.

Section 16.                            Continued Employment.

The adoption of the Plan shall not confer upon any Eligible Recipient any right to continued employment or service with the Company or any Affiliate thereof, as the case may be, nor shall it interfere in any way with the right of the Company or any Affiliate thereof to terminate the employment or service of any of its Eligible Recipients at any time.

Section 17.                            Effective Date.

The Effective Date of the Plan is [              ], 2019.

Section 18.                            Term of Plan.

No Award shall be granted pursuant to the Plan on or after the tenth anniversary of the Effective Date, but Awards theretofore granted may remain outstanding beyond that date.

Section 19.                            Code Section 409A.

The Plan as well as payments and benefits under the Plan are intended to be exempt from, or to the extent subject thereto, to comply with Code Section 409A, and, accordingly, to the maximum extent permitted, the Plan shall be interpreted in accordance therewith. Notwithstanding anything contained herein to the contrary, to the extent required in order to avoid accelerated taxation and/or tax penalties under Code Section 409A, the Participant shall not be considered to have terminated employment or service with the Company for purposes of the Plan and no payment shall be due to the Participant under the Plan or any Award until the Participant would be considered to have incurred a “separation from service” from the Company and its Affiliates within the meaning of Code Section 409A. Any payments described in the Plan that are due within the “short term deferral period” as defined in Code Section 409A shall not be treated as deferred compensation unless applicable law requires otherwise. Notwithstanding anything to the contrary in the Plan, to the extent that any Awards (or any other amounts payable under any plan, program or arrangement of the Company or any of its Affiliates) are payable upon a separation from service and such payment would result in the imposition of any individual tax and penalty interest charges imposed under Code Section 409A, the settlement and payment of such awards (or other amounts) shall instead be made on the first business day after the date that is six (6) months following such separation from service (or upon the Participant’s death, if earlier). Each amount to be paid or benefit to be provided under this Plan shall be construed as a separate identified payment for purposes of Code Section 409A.  The Company makes no representation that any or all of the payments or benefits described in this Plan will be exempt from or comply with Code Section 409A and makes no undertaking to preclude Code Section 409A from applying to any such payment. The Participant shall be solely responsible for the payment of any taxes and penalties incurred under Code Section 409A.

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Section 20.                            Erroneously Awarded Compensation.

The Plan and all Awards issued hereunder shall be subject to any compensation recovery policy adopted by the Company to comply with applicable law, including, without limitation, the Dodd-Frank Wall Street Reform and Consumer Protection Act, or to comport with good corporate governances practices, as such policy may be amended from time to time.

Section 21.                            Governing Law.

The Plan shall be governed by and construed in accordance with the laws of the State of Delaware, without giving effect to principles of conflicts of law of such state.

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Exhibit 21.1

IAA SPINCO INC. SUBSIDIARIES*

Name
Domicile
Axle Holdings Acquisition Company LLC
Delaware
Axle Holdings, Inc.
Delaware
IAA Acquisition Corp
Delaware
IAA Holdings, Inc. 
Delaware
Insurance Auto Auctions Corp.
Delaware
Insurance Auto Auctions of Georgia, LLC
Georgia
IAA Services, Inc.
Illinois
Insurance Auto Auctions, Inc.
Illinois
Automotive Recovery Services, Inc.
Indiana
Auto Disposal Systems, Inc.
Ohio
Insurance Auto Auctions Tennessee LLC
Tennessee
ADESA Impact Texas, LLC
Texas
1206397 B.C. Unlimited Liability Company British Columbia
Impact Auto Auctions Ltd.
Ontario
Impact Auto Auctions Sadbury Ltd.
Ontario
Suburban Auto Paris Inc.
Ontario
Gilbert Mitchell Holdings Limited United Kingdom
Gilbert Mitchell Limited
United Kingdom
HBC Vehicle Services Limited
United Kingdom
KAR International Holdings Limited
United Kingdom
KAR UK Holdings Limited
United Kingdom
1 st Interactive Design Limited
United Kingdom

* After giving effect to the internal reorganization transactions described in IAA Spinco’s information statement filed herewith as Exhibit 99.1.  IAA Spinco expects that the names of these subsidiaries may change after the distribution occurs.

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Exhibit 99.1

               , 2019

Dear KAR Stockholder:

In February 2018, KAR Auction Services, Inc. (“KAR”) announced plans to separate its salvage auction businesses. The separation will occur by means of a spin-off of a newly formed company named IAA Spinco Inc. (to be renamed IAA, Inc.) (“IAA”), which will contain the pre-separation salvage auction businesses of KAR, currently operated by KAR’s subsidiaries, including, but not limited to, Insurance Auto Auctions, Inc. in the United States, Impact Auto Auctions Ltd. in Canada and HBC Vehicle Services Limited in the United Kingdom. KAR, the existing publicly traded company, will continue to operate its remaining businesses, including its whole car auction business and financing, logistics and other ancillary and related services. As two distinct publicly traded companies, KAR and IAA will be better positioned to focus resources on their respective businesses and strategic priorities.

We believe that separating our salvage auction and whole car auction businesses will create two strong companies that will be leaders in their respective markets and that will benefit from enhanced strategic focus, streamlined operating structures and optimized capital allocation. Each public company will offer investors a distinct and compelling investment opportunity based on different operating and financial models, end-market business cycles and strategic growth opportunities.

The separation will provide current KAR stockholders with equity ownership in both KAR and IAA. The separation will be effected by means of a pro rata distribution of 100% of the outstanding shares of IAA common stock to holders of KAR common stock. Each KAR stockholder will receive one share of IAA common stock for every one share of KAR common stock held as of the close of business on June 18, 2019, the record date for the distribution. No vote of KAR stockholders is required for the separation or the distribution. You do not need to take any action to receive shares of IAA common stock to which you are entitled as a KAR stockholder, and you do not need to pay any consideration, surrender or exchange your KAR common stock.

The distribution is intended to be tax-free to KAR and KAR stockholders for U.S. federal income tax purposes, except for cash received in lieu of fractional shares.

I encourage you to read the attached information statement, which is being provided to all KAR stockholders who held common stock on the record date for the distribution. The information statement describes the separation in detail and contains important business and financial information about IAA.

I believe the time is right for this separation as these two businesses are well-positioned to deliver value as independent companies. We appreciate your continued support of KAR, and look forward to your future support of both companies.

Sincerely,

Jim Hallett
Chairman of the Board and Chief Executive Officer
KAR Auction Services, Inc.

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               , 2019

Dear Future IAA Spinco Inc. Stockholder:

I am pleased to welcome you as a future stockholder of IAA Spinco Inc. (“IAA”), which we anticipate renaming as IAA, Inc. upon completion of the spin-off, the common stock of which we intend to list on the New York Stock Exchange under the symbol “IAA.” Although we are a newly formed company, we will assume the salvage auction businesses of KAR Auction Services, Inc. (“KAR”), comprised of Insurance Auto Auctions, Inc. in the United States, Impact Auto Auctions Ltd. in Canada and HBC Vehicle Services Limited in the United Kingdom. Through those businesses, we have been a leading provider of total loss claims solutions and damaged and salvage vehicle auctions in North America and the United Kingdom. We facilitate an efficient marketplace by providing auction services for sellers of damaged and total loss vehicles through our 179 sites across the United States and Canada, 14 sites in the United Kingdom, and multiple proprietary digital venues. In fiscal year 2018, KAR’s subsidiary, Insurance Auto Auctions, Inc., facilitated the sale of approximately 2.5 million salvage vehicles and generated approximately $1.3 billion of revenue as part of KAR.

As explained in the attached information statement, we believe that IAA, as a standalone publicly traded company, will be a strong organization that is a leader in its industry and that will benefit from an enhanced strategic focus and a streamlined operating structure. We plan to create long term stockholder value by continuing to improve our industry-leading position and maximizing our strategic growth opportunities.

We invite you to learn more about IAA and our strategic initiatives by reading the attached information statement. We thank you in advance for your support as a future stockholder of IAA.

Sincerely,

John Kett
President and Chief Executive Officer
IAA Spinco Inc. (to be renamed IAA, Inc.)

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Information contained herein is subject to completion or amendment. A registration statement on Form 10 relating to these securities has been filed with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended.

PRELIMINARY AND SUBJECT TO COMPLETION, DATED JUNE 6 , 2019

INFORMATION STATEMENT

IAA Spinco Inc.

(to be renamed IAA, Inc.)

This information statement is being furnished in connection with the distribution by KAR Auction Services, Inc. (“KAR”) to its stockholders of all of the issued and outstanding shares of common stock of IAA Spinco Inc. (to be renmaed IAA, Inc.) (“IAA”), a wholly owned subsidiary of KAR that will hold, directly or indirectly, the assets and liabilities related to KAR’s salvage auction businesses, which are currently held through KAR’s subsidiaries, Insurance Auto Auctions, Inc. in the United States, Impact Auto Auctions Ltd. in Canada and HBC Vehicle Services Limited in the United Kingdom. To implement the distribution, KAR will distribute all of the shares of IAA common stock on a pro rata basis to KAR stockholders.

For each share of KAR common stock you hold of record as of the close of business on June 18, 2019, the record date for the distribution, you will receive one share of IAA common stock. IAA expects the shares of IAA common stock to be distributed to you at 12:01 a.m., Eastern Daylight Time (“EDT”), on June 28, 2019. IAA refers to the date of the distribution of the IAA common stock as the “distribution date.”

The distribution is intended to be tax-free to KAR stockholders for U.S. federal income tax purposes, except for cash received in lieu of fractional shares.

No vote of KAR stockholders is required for the separation or the distribution. Therefore, you are not being asked for a proxy, and you are requested not to send KAR a proxy, in connection with the separation or the distribution. You do not need to pay any consideration, exchange or surrender your existing KAR common stock or take any other action to receive your shares of IAA common stock.

There is no current trading market for IAA common stock, although IAA expects that a limited market, commonly known as a “when-issued” trading market, will develop on or shortly before the record date for the distribution, and IAA expects “regular-way” trading of IAA common stock to begin on the first trading day following the completion of the distribution. IAA has applied to have its common stock authorized for listing on the New York Stock Exchange (the “NYSE”) under the symbol “IAA.” Following the separation and distribution, KAR will continue to trade on the NYSE under the symbol “KAR.”

In reviewing this information statement, you should carefully consider the matters described under the caption “ Risk Factors ” beginning on page 19 .

Neither the Securities and Exchange Commission (the “SEC”) nor any state securities commission has approved or disapproved these securities or determined if this information statement is truthful or complete. Any representation to the contrary is a criminal offense.

This information statement does not constitute an offer to sell or the solicitation of an offer to buy any securities.

The date of this information statement is          .

This information statement was first mailed to KAR stockholders on or about          .

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Page
QUESTIONS AND ANSWERS ABOUT THE SEPARATION AND DISTRIBUTION
 
1
 
INFORMATION STATEMENT SUMMARY
 
8
 
RISK FACTORS
 
19
 
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
 
37
 
THE SEPARATION AND DISTRIBUTION
 
39
 
U.S. FEDERAL INCOME TAX CONSEQUENCES
 
45
 
DIVIDEND POLICY
 
48
 
CAPITALIZATION
 
49
 
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
 
50
 
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
 
52
 
BUSINESS
 
57
 
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
70
 
MANAGEMENT
 
82
 
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
 
87
 
COMPENSATION DISCUSSION AND ANALYSIS
 
88
 
EXECUTIVE COMPENSATION
 
98
 
DIRECTOR COMPENSATION
 
108
 
CERTAIN RELATIONSHIPS AND RELATED PERSON TRANSACTIONS
 
109
 
DESCRIPTION OF INDEBTEDNESS
 
114
 
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
 
116
 
DESCRIPTION OF CAPITAL STOCK
 
117
 
WHERE YOU CAN FIND MORE INFORMATION
 
121
 
INDEX TO FINANCIAL STATEMENTS
 
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QUESTIONS AND ANSWERS ABOUT THE SEPARATION AND DISTRIBUTION

What is IAA and why is KAR separating IAA’s business and distributing IAA stock?
IAA, a wholly owned subsidiary of KAR, was formed to own and operate the pre-separation salvage auction businesses of KAR, currently operated by KAR’s subsidiaries, including, but not limited to, Insurance Auto Auctions, Inc. in the United States, Impact Auto Auctions Ltd. in Canada and HBC Vehicle Services Limited in the United Kingdom. The separation of IAA from KAR and the distribution of IAA common stock are intended to provide you with equity ownership in two separate, publicly traded companies that will be able to focus exclusively on each of their respective businesses. KAR and IAA expect that the separation will result in enhanced long-term performance of each business for the reasons discussed in the section entitled “ The Separation and Distribution— Rationale for the Separation .”
 
 
 
Why am I receiving this document?
KAR is delivering this document to you because you are a holder of KAR common stock. If you are a holder of KAR common stock as of the close of business on June 18, 2019, the record date of the distribution, you will be entitled to receive one share of IAA common stock for every one share of KAR common stock that you held at the close of business on such date. This document will help you understand how the separation and distribution will affect your post-separation ownership in KAR and IAA, respectively.
 
 
 
How will the separation of IAA from KAR work?
IAA is currently a wholly owned subsidiary of KAR. In connection with the separation, KAR will transfer to IAA all employees, operations, assets and liabilities associated with KAR’s salvage auction businesses. Prior to the distribution, KAR will undertake a series of internal reorganization transactions (referred to herein as the “internal restructuring”) to facilitate the transfers of entities and the related assets and liabilities from KAR to IAA.
 
 
 
 
After the completion of the internal restructuring, KAR will distribute all of the outstanding shares of IAA common stock to KAR stockholders on a pro rata basis as a distribution intended to be tax-free for U.S. federal income tax purposes, except to the extent of any cash received in lieu of fractional shares of IAA common stock. For additional information on the separation, see “ The Separation and Distribution .”
 
 
 
Why is the separation of IAA structured as a distribution?
KAR believes that the separation and distribution is an efficient way to separate its salvage auction businesses in a manner that will achieve the corporate business purposes as set forth herein in the section titled “ Rationale for the Separation and Distribution .”
 
 
 
What is the record date for the distribution?
The record date for the distribution will be 5:00 p.m. EDT (which we refer to herein as “the close of business”) June 18, 2019.
 
 
 
When will the distribution occur?
It is expected that all of the shares of IAA common stock will be distributed by KAR at 12:01 a.m., EDT, on June 28, 2019 to holders of record of KAR common stock at the close of business on June 18, 2019, the record date for the distribution.

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What do stockholders need to do to participate in the distribution?
Stockholders of KAR as of the record date for the distribution will not be required to take any action to receive IAA common stock in the distribution, but you are urged to read this entire information statement carefully. No stockholder approval of the separation and distribution is required. You are not being asked for a proxy. You do not need to pay any consideration, exchange or surrender your existing KAR common stock or take any other action to receive your shares of IAA common stock. Please do not send in your KAR stock certificates. The distribution will not affect the number of outstanding shares of KAR common stock or any rights of KAR stockholders, although it will affect the market value of each outstanding share of KAR common stock.
 
 
 
How will shares of IAA common stock be issued?
You will receive shares of IAA common stock through the same channels that you currently use to hold or trade KAR common stock, whether through a brokerage account or other channel. Receipt of shares of IAA common stock will be documented for you in the same manner that you typically receive stockholder updates, such as monthly broker statements.
 
 
 
 
If you own KAR common stock as of the close of business on the record date for the distribution, including shares owned in certificated form, KAR, with the assistance of American Stock Transfer & Trust Company, LLC (“AST”), the distribution agent, will electronically distribute shares of IAA common stock to you or to your brokerage firm on your behalf in book-entry form. AST will mail you a book-entry account statement that reflects your shares of IAA common stock, or your bank or brokerage firm will credit your account for the common stock.
 
 
 
How many shares of IAA common stock will I receive in the distribution?
KAR will distribute to you one share of IAA common stock for every one share of KAR common stock you held as of the close of business on the record date for the distribution. Based on approximately 133,422,472 shares of KAR common stock outstanding as of June 5, 2019, a total of approximately 133,422,472 shares of IAA common stock will be distributed. For additional information on the distribution, see “ The Separation and Distribution .”
 
 
 
Will IAA issue fractional shares of its common stock in the distribution?
No. IAA will not issue fractional shares of its common stock in the distribution. Fractional shares that KAR stockholders would otherwise have been entitled to receive will be aggregated and sold in the public market by the distribution agent. The aggregate net cash proceeds of these sales will be distributed pro rata (based on the fractional shares such holder would otherwise have been entitled to receive) to those stockholders who would otherwise have been entitled to receive fractional shares. Recipients of cash in lieu of fractional shares will not be entitled to any interest on the amounts of payments made in lieu of fractional shares. The receipt of cash in lieu of fractional shares generally will be taxable, for U.S. federal income tax purposes, to the recipient KAR stockholders. See “ U.S. Federal Income Tax Consequences ” for further information.

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What are the conditions to the distribution?
The distribution is subject to the satisfaction (or waiver by KAR in its sole and absolute discretion) of the following conditions:
 
 
 
 
•
the SEC shall have declared effective the registration statement of which this information statement forms a part, and this information statement shall have been mailed to the KAR stockholders;
 
 
 
 
•
KAR shall have received an opinion from its U.S. tax counsel, Skadden, Arps, Slate, Meagher & Flom LLP, to the effect that the separation and the distribution, taken together, will qualify as a transaction that is described in Sections 368(a)(1)(D) and 355 of the Internal Revenue Code of 1986, as amended (the “Code”);
 
 
 
 
•
KAR shall have received an opinion from a nationally recognized appraisal, valuation and investment banking firm, in form and substance satisfactory to the board of directors of KAR, confirming the solvency and financial viability of each of KAR and IAA after the distribution;
 
 
 
 
•
the internal restructuring shall have been effectuated, in accordance with the plan of restructuring contemplated by the separation and distribution agreement;
 
 
 
 
•
the separation shall have been effectuated as contemplated by the separation and distribution agreement;
 
 
 
 
•
the actions and filings necessary or appropriate under applicable U.S. federal, U.S. state and other securities laws or blue sky laws and the rules and regulations thereunder shall have been taken or made, and, where applicable, have become effective or been accepted;
 
 
 
 
•
the ancillary agreements relating to the separation shall have been duly executed and delivered by the applicable parties thereto;
 
 
 
 
•
no order, injunction or decree issued by any governmental authority of competent jurisdiction or other legal restraint or prohibition preventing the consummation of the separation, the distribution or any of the transactions related thereto shall be threatened or in effect;
 
 
 
 
•
the shares of IAA common stock to be distributed shall have been accepted for listing on the NYSE, subject to official notice of distribution;
 
 
 
 
•
KAR shall have received the shares of IAA common stock and the cash distribution of approximately $1,250.0 million, and shall be satisfied in its sole and absolute discretion that it shall have no further liability under the Credit Agreement (as defined below); and

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•
no other events or developments shall exist or shall have occurred that, in the judgment of the board of directors of KAR, in its sole and absolute discretion, make it inadvisable to effect the separation, the distribution or the transactions contemplated by the separation and distribution agreement or any ancillary agreement.
 
 
 
 
KAR and IAA cannot assure you that any or all of these conditions will be met and may also waive any of the conditions to the distribution. In addition, KAR can choose at any time not to go forward with the separation and distribution for any reason or no reason. For a complete discussion of all of the conditions to the distribution, see “ The Separation and Distribution—Conditions to the Distribution .”
 
 
 
What is the expected date of completion of the separation and distribution?
The completion and timing of the separation and distribution depend on a number of conditions. It is expected that the shares of IAA common stock will be distributed by KAR at 12:01 a.m., EDT, on June 28, 2019 to the holders of record of KAR common stock at the close of business on June 18, 2019, the record date for the distribution. However, no assurance can be provided as to the timing of the separation or that all conditions to the distribution will be met.
 
 
 
Can KAR decide to cancel the distribution of IAA common stock even if all the conditions have been met?
Yes. Until the distribution has occurred, KAR has the right to terminate the distribution, even if all of the conditions are satisfied. See “ The Separation and Distribution—Conditions to the Distribution .”
 
 
 
What if I want to sell my KAR common stock or my IAA common stock?
You should consult with your financial advisors, such as your stockbroker, bank or tax advisor.
 
 
 
What is “regular-way” and “ex-distribution” trading of KAR common stock?
Beginning on or shortly before the record date for the distribution and continuing up to and through the distribution date, it is expected that there will be two markets in KAR common stock: a “regular-way” market and an “ex-distribution” market. KAR common stock that trades in the “regular-way” market will trade with an entitlement to shares of IAA common stock distributed pursuant to the distribution. Shares that trade in the “ex-distribution” market will trade without an entitlement to shares of IAA common stock to be distributed in the distribution. If you decide to sell any KAR common stock before the distribution date, you should make sure your stockbroker, bank or other nominee understands whether you want to sell your KAR common stock with or without your entitlement to IAA common stock to be issued in the distribution.
 
 
 
Where will I be able to trade shares of IAA common stock?
IAA has applied to list its common stock on the NYSE under the symbol “IAA.” IAA anticipates that trading in shares of its common stock will begin on a “when-issued” basis on or shortly before the record date for the distribution and will continue up to and through the distribution date and that “regular-way” trading in IAA common stock will begin on the first trading day following the completion of the separation. If trading begins on a “when-issued” basis, you may purchase or sell IAA common stock up to and through the

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distribution date, but your transaction will not settle until after the distribution date. IAA cannot predict the trading prices for its common stock before, on or after the distribution date.
 
 
 
What will happen to the listing of KAR common stock?
KAR common stock will continue to trade on the NYSE after the distribution under the symbol “KAR.”
 
 
 
Will the number of KAR common stock that I own change as a result of the distribution?
No. The number of KAR common stock that you own will not change as a result of the distribution.
 
 
 
Will the distribution affect the market price of my KAR common stock?
Yes. As a result of the distribution, KAR expects the trading price of KAR common stock immediately following the distribution to be lower than the “regular-way” trading price of such common stock immediately prior to the distribution because the trading price will no longer reflect the value of salvage auction businesses. There can be no assurance that the aggregate market value of the KAR common stock and the IAA common stock following the separation will be higher or lower than the market value of KAR common stock before the separation. This means, for example, that the combined trading prices of one share of KAR common stock and one share of IAA common stock after the distribution may be equal to, greater than or less than the trading price of one share of KAR common stock before the distribution.
 
 
 
What are the U.S. federal income tax consequences of the separation and the distribution?
KAR has received a private letter ruling (the “IRS Ruling”) from the Internal Revenue Service (the “IRS”) on certain issues relevant to the qualification of the separation and distribution as tax-free under Sections 368(a)(1)(D) and 355 of the Code, based on certain facts and representations set forth in such request. The IRS Ruling does not address all of the requirements for tax-free treatment of the separation and distribution, and the distribution is conditioned upon, among other things, KAR’s receipt of an opinion from its U.S. tax counsel, Skadden, Arps, Slate, Meagher & Flom LLP, in form and substance satisfactory to KAR, regarding the qualification of the separation and distribution as a transaction that generally is tax-free to KAR and KAR’s stockholders, for U.S. federal income tax purposes, under Sections 355 and 368(a)(1)(D) of the Code. Assuming that the separation and distribution so qualifies, KAR stockholders generally should not be required, for U.S. federal income tax purposes, to recognize any gain or loss or to include any amount in their income upon their receipt of IAA common stock in the distribution (other than with respect to cash received in lieu of fractional shares). See “ U.S. Federal Income Tax Consequences ” for further information regarding the potential tax consequences of the separation and distribution to you.
 
 
 
How will I determine my tax basis in the IAA common stock I receive in the distribution?
For U.S. federal income tax purposes, your aggregate basis in the common stock that you hold in KAR and the new IAA common stock received in the distribution will equal the aggregate basis in the KAR common stock held by you immediately before the distribution, allocated between your KAR common stock and the IAA common stock you receive in the distribution (including any fractional share interest in IAA common stock for which cash is received) in

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proportion to the relative fair market value of each on the distribution date. You should consult your tax advisor about the particular consequences of the separation and distribution to you, including the application of the tax basis allocation rules and the application of federal, state, local and non-U.S. tax laws.
 
 
 
What will IAA’s relationship be with KAR following the separation?
IAA will enter into a separation and distribution agreement with KAR to effect the separation and provide a framework for IAA’s relationship with KAR after the separation and will enter into certain ancillary agreements, such as transition services agreements, a tax matters agreement and an employee matters agreement (referred to herein as the “ancillary agreements”). These agreements will provide for the separation and allocation between IAA and KAR of the assets, employees, liabilities and obligations of KAR and its subsidiaries attributable to periods prior to, at and after IAA’s separation from KAR and will govern the relationship between IAA and KAR subsequent to the completion of the separation and distribution. For additional information regarding the separation and distribution agreement, ancillary agreements and other transaction agreements, see “ The Separation and Distribution ,” “ Risk Factors—Risks Related to the Separation ” and “ Certain Relationships and Related Person Transactions .”
 
 
 
Who will manage IAA after the separation?
IAA will benefit from a management team with an extensive background in the salvage auction businesses. Led by John Kett, who will be IAA’s President and Chief Executive Officer after the separation, IAA’s management team will possess a diverse set of relevant skills as well as experience in its industry. For more information regarding IAA’s management, see “ Management .”
 
 
 
Are there risks associated with owning IAA common stock?
Yes. Ownership of IAA common stock is subject to both general and specific risks relating to IAA’s business, the industry in which it operates, its ongoing contractual relationships with KAR and its status as a separate, publicly traded company. Ownership of IAA common stock is also subject to risks relating to the separation. These risks are described in the “ Risk Factors ” section of this information statement beginning on page 19 . You are encouraged to read that section carefully.
 
 
 
Does IAA plan to pay dividends?
The timing, declaration, amount of and payment of any dividends following the separation and distribution by IAA is within the discretion of its Board of Directors (the “Board”) and will depend upon many factors, including IAA’s financial condition and prospects, capital requirements and access to capital markets, covenants associated with certain of its debt obligations, legal requirements and other factors that the Board may deem relevant. Moreover, if IAA determines to pay any dividend in the future, there can be no assurance that it will continue to pay such dividends or the amount of such dividends. See “ Dividend Policy .”
 
 
 
Will IAA incur any indebtedness prior to or at the time of the distribution?
Yes. IAA anticipates having approximately $1,300.0 million of indebtedness upon completion of the separation. See “ Description of Indebtedness” and “Risk Factors. ”

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Who will be the distribution agent, transfer agent, registrar and information agent for the IAA common stock?
The distribution agent, transfer agent and registrar for the IAA common stock will be AST. For questions relating to the mechanics of the distribution or matters relating to the subsequent transfer of IAA common stock, you should contact AST at (800) 937-5449 or email help@astfinancial.com. If your shares are held by a bank, broker or other nominee, please contact them directly.
 
 
 
Where can I find more information about KAR and IAA?
Before the distribution, if you have any questions relating to KAR’s business performance, you should contact:
 
 
 
 
KAR Auction Services, Inc.
13085 Hamilton Crossing Boulevard
Carmel, Indiana 46032
(317) 249-4559
Attn: Investor Relations
 
 
 
 
After the distribution, IAA stockholders who have any questions relating to IAA’s business performance should contact IAA at:
 
 
 
 
IAA, Inc.
Two Westbrook Corporate Center, Suite 500
Westchester, Illinois 60154
(708) 492-7000
Attn: Investor Relations
 
 
 
 
The IAA investor website (www.iaai.com) is expected to be operational as of the effective time of the distribution.

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INFORMATION STATEMENT SUMMARY

This summary highlights selected information from this information statement relating to our company. For a more complete understanding of our business, the separation and the distribution, you should carefully read this entire information statement, including the “Risk Factors” section and our consolidated historical and pro forma financial statements and notes to those statements appearing elsewhere in this information statement.

Unless otherwise indicated or unless the context otherwise requires, the information included in this information statement assumes the completion of the separation of IAA Spinco Inc. from KAR (the “separation”) and the distribution of IAA Spinco Inc.’s common stock to KAR’s stockholders (the “distribution”). References in this information statement to “IAA,” “we,” “us,” “our” and “ the company” refer to IAA Spinco Inc. and its consolidated subsidiaries, unless the context requires otherwise. We anticipate renaming IAA Spinco Inc. as IAA, Inc. upon completion of the spin-off. References in this information statement to “KAR” refer to KAR Auction Services, Inc. and its consolidated subsidiaries, unless the context requires otherwise. References to IAA’s historical business and operations refer to the business and operations of KAR Auction Services, Inc.’s salvage auction businesses that will be allocated, assigned, assumed or transferred to or by IAA in connection with the separation and distribution, including those held through its subsidiaries, Insurance Auto Auctions, Inc., Impact Auto Auctions Ltd. and HBC Vehicle Services Limited. References to the “fiscal year ended December 30, 2018 ” or “fiscal year 2018 ” refer to the 52-week period that began on January 1, 2018 and ended on December 30, 2018. References to the “fiscal year ended December 31, 2017” or “fiscal year 2017” refer to the 52-week period that began on January 2, 2017 and ended on December 31, 2017. References to the “fiscal year ended January 1, 2017” or “fiscal year 2016” refer to the 53-week period that began on December 28, 2015 and ended on January 1, 2017. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Notes to Consolidated Financial Statements December 30 , 2018, December 31, 2017 and January 1, 2017 —Note 2—Summary of Significant Accounting Policies—Fiscal Periods.”

Overview

We are a leading provider of auction solutions for total loss, damaged and low-value vehicles. We focus on creating trusted marketplaces for buyers and sellers, supported by industry-leading solutions and technology-driven capabilities. With a longstanding operating history of over 35 years, our solutions are focused on maximizing the value of vehicles sold through our marketplaces, lowering administrative costs, shortening the selling cycle and increasing the predictability of return to vehicle sellers. We believe that our comprehensive suite of logistics and vehicle-selling solutions, as well as our data analytics capabilities, will allow us to continue our track record of strong and consistent cash flows, revenue and earnings growth for the foreseeable future.

We facilitate the sale of total loss, damaged and low-value vehicles for a full spectrum of sellers, including insurance companies, dealerships, rental car companies, fleet lease companies and charitable organizations. Our solutions, which are focused on a diverse set of global customers, provide buyers with the vehicles they need to fulfill their vehicle rebuild requirements, replacement part inventory or scrap demand. Fees for our solutions are earned from both sellers and buyers of vehicles. In return for agreed-upon fees, vehicles are sold on behalf of our sellers, who continue to own the vehicle until it is sold to buyers through our marketplaces. Over 80% of volume that passes through our marketplaces is associated with insurance total loss vehicles, including vehicles from catastrophic events like hurricanes, floods and hail damage, and the remaining volume is associated with noninsurance customers such as dealers, vehicle leasing and rental car companies, charitable organizations and the general public.

Our unique omnichannel marketplace, combining physical and online marketplaces, is a key differentiator of our service offering and helps customers in achieving the highest selling price on a given vehicle. For the fiscal year ended December 30, 2018, greater than 60% of the vehicles sold by KAR’s subsidiary, Insurance Auto Auctions, Inc., were sold via our digital marketplaces.

We are one of the two largest providers of marketplaces for total loss, damaged and low-value vehicles in North America with approximately 40% market share. We currently operate 179 sites across the United States and Canada, and 14 sites in the United Kingdom, representing total acreage of approximately 7,500 gross acres.

During the fiscal year ended December 30, 2018 and for the three months ended March 31, 2019, we generated revenue of $1,326.8 million and $357.2 million, Adjusted EBITDA of $388.0 million (29.2% margin) and $107.9 million (30.2% margin) and Adjusted EBITDA less capital expenditures of $321.3 million (24.2% margin)

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and $86.3 million (24.2% margin), respectively. See “ Selected Historical Consolidated Financial Data ” for our definition of Adjusted EBITDA and reconciliation of Adjusted EBITDA to reported net income, which we believe is the most directly comparable financial measure calculated in accordance with GAAP.

Our Industry

The salvage vehicle auction industry provides a venue for sellers, primarily automobile insurance companies, to dispose or liquidate total loss, damaged or low-value vehicles to either domestic and international dismantlers, rebuilders, scrap dealers or qualified public buyers.

While over five million vehicles are sold annually in salvage vehicle marketplaces in North America, this represents less than 2% of total vehicles in operation (approximately 300 million). We believe that global volumes in the salvage vehicle auction industry will grow 5% to 7% annually for the foreseeable future, as the number of total loss vehicles increases.

We estimate that IAA and Copart, Inc. together represent over 80% of the North American market.

The industry currently benefits from several thematic tailwinds, including (i) Growing and Aging Automotive Car Parc (as defined below), (ii) increasing vehicle complexity and total loss frequency, (iii) increasing accident frequency and (iv) increasing utilization of recycled and alternative automotive parts.

Growing and Aging Automotive Car Parc

In North America, the salvage vehicle marketplace has benefited from a growing number of vehicles on the road (“Car Parc”), increasing average age of vehicles and a rising amount of annual miles driven. Over the last five years, the U.S. Car Parc has increased by approximately 27 million vehicles, representing 10.8% growth in the number of vehicles in operation. Additionally, the number of miles driven in the United States per year has grown by 230 billion miles. Both of these trends contribute to a rising number of automotive accidents, which supports increased volumes through our marketplaces.

Meanwhile, vehicle owners continue to drive the same vehicle for longer periods of time, reflected by a 2.6% increase in the average age of vehicles on the road since 2013. As vehicles become older and their residual values decline, it becomes more likely that these vehicles will surpass the total loss threshold when involved in an accident and be sold on behalf of insurers through our marketplaces.

 

1. Source: Hedges and Company .
2. Source: U.S. Department of Transportation .
3. Source: Autocare Association .

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Increasing Vehicle Complexity and Total Loss Frequency

Vehicle design has become increasingly complex in recent years, as automotive manufacturers seek to differentiate themselves from competitors by incorporating new and more complex technologies and other enhancements into their designs to reduce weight and improve fuel efficiency. This has resulted in higher repair and part replacement costs following an accident, making insurance companies more likely to declare a damaged vehicle a total loss. The percentage of claims resulting in total losses has steadily increased over the last five years. When a vehicle is deemed a total loss, insurers typically auction the vehicle through a salvage vehicle marketplace.

 

Source : CCC Information Services.

Increasing Accident Frequency

The salvage vehicle marketplace is directly impacted by accident rates. In the United States, accident rates have been increasing in recent years due to previously mentioned automotive industry factors, such as rising vehicles in operation and miles driven, and an increasing number of distractions for drivers is also contributing to this trend. According to the National Highway Traffic Safety Administration, the number of reported crashes in the United States grew by 12.1% from 2012 to 2015. As more accidents occur on the road, the likelihood of increased volumes through our salvage auction sites increases.

Increasing Utilization of Recycled and Alternative Automotive Parts

As insurance companies continue to identify ways to reduce their claim costs, the utilization and acceptance rates continue to increase for recycled parts from total loss vehicles and aftermarket replacement parts (combined “alternative parts”). Alternative part utilization in insurance claims has grown at a compounded annual growth rate (“CAGR”) of 6% since 2012, outpacing original equipment manufacturer (“OEM”) parts which grew at a 2% CAGR over the same time period. This trend is relevant for IAA as it is helping increase revenue for our buyer base, which in turn increases demand for our marketplaces.

Alternative part utilization continues to grow as insurance companies seek solutions to the rising cost of claims and increasing frequency of claims. According to the Insurance Information Institute, from 2012 to 2017, collision claims frequencies increased approximately 10% while claim severity, representing the size of the loss to the insurance company, increased nearly 16%. These compounding factors have led insurance companies to seek alternatives to lower costs per claim.

Rationale for the Separation

The KAR board of directors believes that separation of the salvage auction businesses from the remainder of KAR is in both companies’ best interest for a number of reasons, including the following:

Enhanced Strategic Focus and Flexibility

We believe that the separation will create two independent companies with distinct strengths, well-positioned for continued market leadership and growth. We believe both businesses will be able to better focus on their unique opportunities for long-term growth and profitability and to allocate resources in a manner that focuses on achieving their own operating priorities and financial objectives.

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We believe that the separation will further enhance the ability of both companies to focus investments and innovation on serving their customers and strengthening their respective competitive positioning in the global marketplace. Further, we expect that each of IAA and KAR will be better equipped to address needs of their unique customers and respond to changing markets and competitive conditions.

Optimize Capital Allocation

We believe that the separation will enable each of IAA and KAR to create independent capital structures and allow independent decisions on investments, acquisitions and capital expenditures to advance their respective strategic priorities. A standalone IAA may allow for greater focus on international expansion and potential acquisitions. We believe that IAA will also be able to better align incentive compensation to the performance of IAA and specific business units.

Distinct Investment Identities

The separation is intended to create two distinct and compelling investment opportunities for investors based on individually unique operating models and associated track records of successful performance. It also provides investors with enhanced insight into each company’s distinct value drivers and simplified financial reporting to more accurately assess and value performance of each individual business.

Our Strengths

We believe we distinguish ourselves through the following competitive strengths, which we expect to continue to enhance as a standalone company:

Market Leadership and Expertise in the Salvage Vehicle Auction Industry

We are one of the two largest providers of total loss, damaged and low-value vehicle auction services in North America with approximately 40% market share. We estimate that IAA and Copart, Inc. together represent over 80% of the North American market. We have been operating in our market in North America since 1982 and have sold approximately 20 million vehicles since 2007 through our marketplaces and benefit from longstanding insight and expertise in the space. We are also the clear market leader in the Canadian market, with a long track record of growth, operating under the Impact Auto Auctions brand.

Significant Presence Through Our Unique Omnichannel Marketplace

Vehicles are marketed to bidders through IAA’s omnichannel marketplace that includes both physical and online marketplaces. We currently operate 179 sites across the United States and Canada and 14 sites in the United Kingdom, representing total acreage of approximately 7,500 gross acres. Although every vehicle that we offer is available online, we maintain and run live physical marketplaces simultaneously with our online marketplaces. We believe maintaining live, in-person physical marketplaces is a key differentiator in achieving the highest selling price on any given vehicle. A physical presence also improves pick-up, storage, titling and other ancillary services for our customers.

Our online marketplaces allow prospective bidders to preview, bid and potentially buy vehicles prior to the live auction event. Online inventory browsing and digital alerts (via email or through our buyer app) reduce the time required to acquire vehicles. North American online sales volumes for IAA for the fiscal year ended December 30, 2018 represented over 60% of the total vehicles sold by IAA.

Industry-Leading Technology and Data Analytic s Capabilities

We have made substantial investments into technology throughout our history to ensure that we are providing market-leading solutions for our customers. Our technology and analytics capabilities have translated into strong and deeply embedded customer relationships with both sellers and buyers.

Our current online solutions include (i) iBid LIVE TM – a proprietary live online bidding platform, (ii) IAA Buy Now TM – a complementary product to our live and live online platforms, allowing for buying of vehicles between auction dates, (iii) CSAToday ® – our industry-leading seller portal where consignors can manage vehicle assignment, release and sale, as well as a suite of data and analytics reporting tools, (iv) Automated Salvage

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Auction Processing – a proprietary web-based application which streamlines all aspects of our operations, and is the source for our 24/7 access that consignors enjoy through CSAToday ® and (v) IAA Timed Auctions TM – our latest offering to our omnichannel marketplace, which allows for bidding and buying of vehicles for a fixed time period before a scheduled live auction.

IAA Total Loss Solutions ®

We have pioneered and developed a leading and highly differentiated set of solutions for the total loss claims process that demonstrate our focus on comprehensive customer service beyond the traditional auction. We believe our solutions are valued by our customers, which enhances our customer relationships and overall customer satisfaction.

Total Loss Solutions ® is a comprehensive suite of services with products designed to help process total loss vehicle claims efficiently beginning with the loss event all the way through to asset liquidation. The suite was built with an eye toward workforce efficiency and customer service. Total Loss Solutions ® includes services spanning from first notice of loss to vehicle sale at auction including: IAA Loss Advisor™, IAA Inspection Services ® , IAA Title Services ® , Title Procurement Dashboard, IAA Loan Payoff™ (in pilot), MyVehicleClaim.com and IAA Active Inventory Management.

Long- S tanding and Diversified Relationship with Major National Insurers

We have established and maintain deep relationships with over 80 of the top 100 major national insurers, with over 80% of our volume sourced through our extensive insurer network. We expect that these relationships will continue to provide competitive differentiation and will make it difficult for new entrants and existing competitors to gain traction in the market.

Extensive International Buyer Network

We have a large, diverse and global buyer base that purchases vehicles through our marketplaces. Our active database of thousands of buyers improves the efficiency and efficacy of our marketplaces, ultimately benefiting both buyers and sellers.

Our buyer network is diversified. The largest buyer accounts for approximately 3% of total revenue, while no other buyer accounts for more than 1.5% of total revenue.

Attractive Profitability and Margin Profile Driving Long-Term Operating Leverage

We benefit from attractive profitability and margins due to substantial operating leverage. Over the past three years, we have consistently achieved an Adjusted EBITDA margin of approximately 26% maintained through our culture and focus on operational efficiency.

At IAA, we also lease a significant portion of our properties, which not only impacts our expenses but also results in lower capital intensity relative to our competitors.

Flexible and Efficient Financial Model

Our low maintenance capital expenditures and working capital requirements enable the business to generate strong cash flows. In fiscal year 2018, capital expenditures represented only 17% of Adjusted EBITDA. We expect our low capital intensity model to allow us to produce strong cash flow from operations, providing us great strategic and financial flexibility.

From an inventory perspective, we do not take title to or bear the risk of loss for a vast majority of vehicles sold through our marketplaces. Furthermore, buyers do not receive title or possession of vehicles after purchase until payment in full is received. These practices contribute to limited inventory and accounts receivable exposure.

While we currently lease our physical auction sites, the separation will provide management with the opportunity to further evaluate the strategic and financial merit of owning additional real estate, which would positively impact our profitability margins.

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Experienced Management Team with a Strong Track Record

We are led by a senior management team with extensive industry experience. Our President and CEO, John Kett, has served in various executive leadership roles at IAA for 17 years, including CFO, President and CEO since 2014.

We benefit from our team’s industry knowledge and track record of market leadership, successful product innovation and financial performance. Additionally, our senior management team has experience executing and integrating acquisitions.

Our Business Strategy

We maintain a long history of strong and consistent execution that has led to growth in the business over several decades in periods under both private and public ownership. We also hold a strong track record of acquiring and integrating independent auction operations and improving profitability.

We seek to grow our business through the execution of the following strategies, among others:

Continue Organic Growth

By maintaining alignment with the largest, fastest-growing insurance companies and increasing our penetration of smaller carriers, we expect to generate long-term organic global volume growth of 5% to 7% per year. Additionally, we provide an alternative venue for damaged and lower-value vehicles and, as a result, non-insurance sellers have contributed to our growth.

Broaden Our Service Offering with IAA Total Loss Solutions ®

Our market-leading Total Loss Solutions ® provides insurance companies with end-to-end outsourced solutions for the portion of the claims process prior to total loss determination and assignment to a salvage vehicle auction and helps insurance companies reduce cycle time and cost, while improving employee engagement and customer service, ultimately increasing policyholder retention. We continue to add additional services and capabilities and have multiple pilots underway.

Continue to Develop International Buyer Network

We are a leader in developing international buyer networks through our unique approach of combining on-site, in-person recruiting with a state-of-the-art digital platform to attract and retain buyers. We have customized our marketing approaches to cater to local cultures and ways of doing business, and have invested significant resources in developing a deep understanding of the unique needs of each international market. Expanding the base of international buyers brings more bidders to our platform and yields better outcomes for sellers in our marketplaces.

In fiscal year 2018, approximately 16% of our U.S. volume was sold to buyers registered outside of the United States. Our success is evident in the number of international buyers on our U.S. marketplace growing by over 50% since 2015. Our further commitment to our international buyers is demonstrated by our buyer portal, which is available online in six languages and our call center which currently supports 12 languages.

Continue to Improve Operating Efficiencies

We are focused on reducing costs without diminishing our level of customer service. We are shortening the time it takes a vehicle to move through the auction process, which will further improve the service we provide our customers, reduce depreciation on vehicle values, and also improve our operating margins by making our real estate usage more efficient. Over the last five years, we have shortened the auction process through the deployment of a variety of initiatives. We also continuously analyze how we store cars to optimize our real estate usage and process more volume without incurring incremental costs. We have further deployed digital tools to our yard operations to speed up and improve the vehicle check-in, title, inventory and sale processes.

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Expand Internationally in Attractive Markets

For the three months ended March 31, 2019, approximately 12% of our revenues were generated outside of the United States, and we are in the process of establishing or continuing to build operations around the world in key geographic markets. In Canada, we plan to continue increasing our presence organically through Impact Auto Auctions Ltd. and in the United Kingdom, we plan to continue increasing our presence organically through HBC Vehicle Services Limited.

We also intend to strategically enter new markets by pursuing strategic acquisitions, partnerships or greenfield opportunities in high priority regions globally.

Expand Breadth of Solution Suite and Continue to Develop Data Analytic s Capabilities

Our solutions deliver enhanced economic benefits to our customers by increasing transparency and reducing cycle time and friction throughout the process. We plan to continue to broaden our product portfolio by investing in the development of innovative solutions that further improve our customers’ results.

We intend to capitalize on our long-term commitment to gathering data on the buying and selling behavior which produces our auction and sales results. Using our data analytics expertise, we can provide better tools for both sellers and buyers to be better informed and make better, more confident decisions to improve their results and satisfaction.

Employ Disciplined Capital Allocation Strategy

We generate strong cash flows as a result of our attractive gross margins, the ability to leverage our corporate infrastructure across our multiple auction locations, low maintenance capital expenditures and limited working capital requirements. We are committed to adopting a balanced and disciplined capital allocation policy that will enable us to deliver attractive long-term stockholder value. Our long-term goal is to drive growth, both organic and through acquisitions, while also strengthening our balance sheet through debt reduction and returning capital to stockholders. In the near term, we aim to utilize a significant portion of excess cash generated by the business for debt reduction.

The Separation

On February 27, 2018, KAR announced that it would pursue a plan to separate its salvage auction businesses from its whole car auction business. The separation will be effected by allocating the assets and liabilities related primarily to the salvage auction businesses, which are currently held through KAR’s subsidiaries, including, but not limited to, Insurance Auto Auctions, Inc. in the United States, Impact Auto Auctions Ltd. in Canada and HBC Vehicle Services Limited in the United Kingdom, to IAA and then distributing 100% of the common stock of IAA to KAR’s stockholders on a pro rata basis. The separation and distribution will result in KAR and IAA becoming two independent, publicly traded companies, with IAA owning and operating KAR’s pre-separation salvage auction businesses and KAR continuing to own and operate its remaining businesses, including its whole car auction business and financing, logistics and other ancillary and related services.

Conditions to the Distribution

The consummation of the distribution and separation are subject to the satisfaction or, to the extent permitted by applicable law, waiver by KAR of several conditions, including:

• the SEC shall have declared effective the registration statement of which this information statement forms a part, and this information statement shall have been mailed to the KAR stockholders;
• KAR shall have received an opinion from its U.S. tax counsel, Skadden, Arps, Slate, Meagher & Flom LLP, to the effect that the separation and the distribution, taken together, will qualify as a transaction that is described in Sections 368(a)(1)(D) and 355 of the Code;
• KAR shall have received an opinion from a nationally recognized appraisal, valuation and investment banking firm, in form and substance satisfactory to the board of directors of KAR, confirming the solvency and financial viability of each of KAR and IAA after the distribution;

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• the internal restructuring shall have been effectuated, in accordance with the plan of restructuring contemplated by the separation and distribution agreement;
• the separation shall have been effectuated as contemplated by the separation and distribution agreement;
• the actions and filings necessary or appropriate under applicable U.S. federal, U.S. state and other securities laws or blue sky laws and the rules and regulations thereunder shall have been taken or made, and, where applicable, have become effective or been accepted;
• the ancillary agreements relating to the separation shall have been duly executed and delivered by the applicable parties thereto;
• no order, injunction or decree issued by any governmental authority of competent jurisdiction or other legal restraint or prohibition preventing the consummation of the separation, the distribution or any of the transactions related thereto shall be threatened or in effect;
• the shares of IAA common stock to be distributed shall have been accepted for listing on the NYSE, subject to official notice of distribution;
• KAR shall have received the shares of IAA common stock and the cash distribution of approximately $1,250.0 million, and shall be satisfied in its sole and absolute discretion that it shall have no further liability under the Credit Agreement; and
• no other events or developments shall exist or shall have occurred that, in the judgment of the board of directors of KAR, in its sole and absolute discretion, make it inadvisable to effect the separation, the distribution or the transactions contemplated by the separation and distribution agreement or any ancillary agreement.

KAR will have the sole and absolute discretion to determine (and change) the terms of, and whether to proceed with, the separation and, to the extent it determines to proceed, to determine the record date for the distribution and the distribution date and the distribution ratio. For a complete discussion of all of the conditions to the distribution, see “ The Separation and Distribution—Conditions to the Distribution .”

Agreements with KAR

Following the separation and distribution, IAA and KAR will operate separately, each as an independent publicly traded company. IAA will enter into a separation and distribution agreement with KAR. In connection with the separation, IAA also intends to enter into various ancillary agreements to effect the separation and provide a framework for its relationship with KAR after the separation, such as transition services agreements, a tax matters agreement and an employee matters agreement. These agreements will provide for the allocation between IAA and KAR of KAR’s assets, employees, liabilities and obligations attributable to periods prior to, at and after IAA’s separation from KAR and will govern certain relationships between IAA and KAR after the separation. Forms of the agreements listed above are filed as exhibits to the registration statement on Form 10 of which this information statement forms a part.

Summary Risk Factors

There are risks associated with IAA’s business, the separation of IAA from KAR and an investment in IAA’s common stock, including:

Risks Related to IAA’s Business

• Our business and operating results would be adversely affected if we lose one or more significant customers.
• We may be unable to meet or exceed our customers’ expectations, which could result in poor customer retention and adversely affect our operating results and financial condition.
• If we are not successful in competing with our known competitors, customers and/or disruptive new entrants, then our market position or competitive advantage could be threatened, as well as our business and results of operations.

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• If our facilities lack the capacity to accept additional vehicles, then our relationships with insurance companies or other vehicle suppliers could be adversely affected.
• Significant disruptions of information technology systems or breaches of information technology systems, infrastructure and business information could adversely affect our business and reputation.
• If we are unable to protect our intellectual property, the value of our brand and other intangible assets may be diminished, and our business may be adversely affected.
• We may not be successful in the implementation of our business strategy or we may improperly align new strategies with our vision, which could lead to the misapplication of our resources.
• We may not properly leverage or make the appropriate investment in technology advancements, which could result in the loss of any sustainable competitive advantage in products, services and processes.
• If we acquire businesses that: are not aligned with our strategy; lack the proper research and preparation; create unnecessary risks; improperly value and price a target; have poor integration execution; and/or do not achieve the desired outcomes, then our operating results, financial condition and growth prospects could be adversely affected.
• Fluctuations in the supply of and demand for damaged and total loss vehicles impact auction sales volumes, which may adversely affect our revenues and profitability.
• Declining values for damaged and total loss vehicles purchased could adversely affect our profitability.
• A reduction in used-vehicle prices reduces the proceeds from the sale of damaged and total loss vehicles and lowers revenue per vehicle.
• Increases in fuel prices could lead to a reduction in miles driven and may have an adverse effect on our revenues and operating results, as well as our earnings growth rates.
• We have a substantial amount of debt, which could impair our financial condition and adversely affect our ability to react to changes in our business.
• A portion of our net income is derived from our international operations, primarily Canada, which exposes us to foreign exchange risks that may impact our financial statements. In addition, increases in the value of the U.S. dollar relative to certain foreign currencies may negatively impact foreign buyer participation at our marketplaces.
• We assume the settlement risk for vehicles sold through our marketplaces.
• We are partially self-insured for certain losses.
• We have a material amount of goodwill which, if it becomes impaired, would result in a reduction in our net income.
• If we fail to attract and retain key personnel, or have inadequate succession planning, we may not be able to execute our business strategies and our financial results could be negatively affected.
• We are dependent on the continued and uninterrupted service from our workforce.
• Changes in laws affecting the importation of damaged and total loss vehicles may have an adverse effect on our business and financial condition.
• We are subject to certain governmental regulations, including vehicle brokerage and auction laws and currency reporting obligations. Our business is subject to risks related to litigation and regulatory actions.
• New accounting pronouncements or new interpretations of existing standards could require us to make adjustments to accounting policies that could adversely affect the financial statements.
• We may be subject to patent or other intellectual property infringement claims, which could have an impact on our business or operating results due to a disruption in our business operations, the incurrence of significant costs and other factors.

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• Environmental, health and safety risks could adversely affect our operating results and financial condition.
• Weather-related and other events beyond our control may adversely impact operations.

Risks Related to the Separation and Distribution

• We may not achieve some or all of the expected benefits of the separation, and the separation may adversely affect our business.
• The separation may result in disruptions to, and negatively impact our relationships with, our customers and other business partners and the relationships with the customers and other business partners of KAR.
• If the separation and distribution fail to qualify as a tax-free transaction for U.S. federal income tax purposes, then IAA, KAR and KAR’s stockholders could be subject to significant tax liability or tax indemnity obligations.
• The combined post-separation value of KAR and IAA common stock may not equal or exceed the pre-separation value of KAR common stock.
• We have no history of operating as an independent company, and our historical and pro forma financial information is not necessarily representative of the results that we would have achieved as a separate, publicly traded company and may not be a reliable indicator of our future results.
• Until the separation occurs, KAR has sole discretion to change the terms of the separation in ways that may be unfavorable to us.
• The separation and distribution agreement that we will enter into with KAR may limit our ability to compete in certain markets for a period of time following the separation.
• We may have received better terms from unaffiliated third parties than the terms we receive in our agreements with KAR.
• We may not be able to engage in certain corporate transactions after the separation.
• We may fail to perform under various transaction agreements that will be executed as part of the separation or we may fail to have necessary systems and services in place when certain of the transaction agreements expire.
• We will be required to satisfy certain indemnification obligations to KAR or we may not be able to collect on indemnification rights from KAR.
• Challenges in the commercial and credit environments may materially adversely affect our ability to complete the separation and our future access to capital.

Risks Related to IAA’s Common Stock

• We cannot be certain that an active trading market for our common stock will develop or be sustained after the separation, and following the separation, our stock price may fluctuate significantly.
• Substantial sales of our common stock may occur in connection with this distribution, which could cause our stock price to be volatile and to decline.
• We cannot guarantee the timing, amount or payment of dividends on our common stock in the future.
• Your percentage of ownership in IAA may be diluted in the future.
• No vote of the KAR stockholders is required in connection with the separation and distribution. As a result, if you do not want to receive our common stock in the distribution, your sole recourse will be to divest yourself of your KAR common stock prior to or on the distribution date.
• Provisions in our amended and restated certificate of incorporation and by-laws, and of Delaware law, may prevent or delay an acquisition of us, which could decrease the trading price of our common stock.

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• IAA’s amended and restated certificate of incorporation and by-laws will contain exclusive forum provisions that could limit an IAA stockholder’s ability to choose a judicial forum that it finds favorable for certain disputes with IAA or its directors, officers, stockholders, employees or agents, and may discourage lawsuits with respect to such claims.

Neither IAA nor KAR can assure you that, following the separation, any of the benefits described in this summary or otherwise will be realized to the extent anticipated or at all.

Corporate Information

IAA was incorporated in Delaware for the purpose of holding KAR’s salvage auction businesses in connection with the separation and distribution described in this information statement. Prior to the separation, IAA will have no operations.

The address of IAA’s principal executive offices is Two Westbrook Corporate Center, Suite 500, Westchester, Illinois 60154. IAA’s telephone number is (708) 492-7000. IAA maintains a website at https://www.iaai.com. IAA’s website and the information contained therein or connected thereto shall not be deemed to be incorporated herein, and you should not rely on any such information in making an investment decision.

Reason for Furnishing this Information Statement

This information statement is being furnished solely to provide information to stockholders of KAR who will receive shares of IAA common stock in the distribution. It is not and is not to be construed as an inducement or encouragement to buy or sell any of IAA’s securities. The information contained in this information statement is believed by IAA to be accurate as of the date set forth on its cover. Changes may occur after that date and neither IAA nor KAR will update the information except in the normal course of their respective disclosure obligations and practices.

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RISK FACTORS

You should carefully consider the following risks and other information in this information statement in evaluating IAA and IAA’s common stock. The occurrence of any of the following risks could materially and adversely affect IAA’s business, financial condition, prospects, results of operations and cash flows. In such case, the trading price of IAA’s common stock could decline and you could lose all or part of your investment. The risk factors generally have been separated into three groups: risks related to IAA’s business, risks related to the separation and risks related to IAA’s common stock. However, these risks are not the only ones we face. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also materially affect our business, financial condition, results of operations and prospects.

Risks Related to IAA’s Business

Our business and operating results would be adversely affected if we lose one or more significant customers.

Loss of business from, or changes in the consignment patterns of, our key customers could have a material adverse effect on our business and operating results. Generally, institutional and dealer customers make no binding long-term commitments to us regarding consignment volumes. Any such customer could reduce its overall supply of vehicles for our marketplaces or otherwise seek to materially change the terms of its business relationship with us at any time. Any such change could harm our business and operating results. The loss of, or material reduction in business from, our key customers could have a material adverse effect on our business and operating results.

Approximately 80% of our revenues derive from insurance company customers and a small number of these customers account for a large share of our revenues. In fiscal year 2018, approximately 40% of our revenues were associated with the fees generated from the auction of salvage vehicles, including buyer fees, from our three largest insurance customers, each of which accounted for over 10% of our revenue. If one or more of our large customers were to significantly reduce consignments for any reason or favor competitors or new entrants, we may not be successful in replacing such business and our profitability and operating results would be materially adversely affected.

We may be unable to meet or exceed our customers’ expectations, which could result in poor customer retention and adversely affect our operating results and financial condition.

We believe our future success depends in part on our ability to respond to changes in customer requirements and our ability to meet regulatory requirements for our customers. Our customers include insurance companies, used-vehicle dealers, auto lenders, vehicle leasing and rental companies, non-profit organizations, automotive body shops, rebuilders, automotive wholesalers, exporters, dismantlers, recyclers, brokers, and the general public. We have established long-term relationships with virtually all of the major automobile insurance companies. We work to develop strong relationships and interactive dialogue with our customers to better understand current trends and customer needs. If we are not successful in meeting our customers’ expectations, our customer relationships could be negatively affected and result in a loss of future business, which would adversely affect our operating results and financial condition.

Our agreements with our largest institutional suppliers of damaged and total loss vehicles are generally subject to cancellation by either party upon 30 to 90 days’ notice. In addition, it is common that institutional suppliers regularly review their relationships with salvage auctions through written requests for proposals. Such suppliers may from time to time require us to make changes to the way we do business as part of the request for proposal process. There can be no assurance that our existing agreements will not be canceled or that we will be able to enter into future agreements with these or other suppliers that disrupt our supplier base on similar terms, or at all, and our ability to grow and sustain profitability could be impaired.

If we are not successful in competing with our known competitors, customers and/or disruptive new entrants, then our market position or competitive advantage could be threatened, as well as our business and results of operations.

We face significant competition for the supply of damaged and total loss vehicles and the buyers of those vehicles. Our principal sources of competition historically have come from (1) direct competitors (e.g., Copart and Total Resource Auctions, a subsidiary of Cox Enterprises, Inc.), (2) new entrants, including new vehicle remarketing venues, and (3) existing alternative vehicle remarketing venues. Due to the increasing use of the

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Internet and other technology as marketing and distribution channels, we also face increasing competition from online wholesale and retail marketplaces (generally without any meaningful physical presence) and from our own customers when they sell directly to end users through such platforms rather than remarket vehicles through our marketplaces. Increased competition could result in price reductions, reduced margins or loss of market share.

Our future success also depends on our ability to respond to evolving industry trends, changes in customer requirements and new technologies.

Some of our competitors may have greater financial and marketing resources than we do, may be able to respond more quickly to evolving industry dynamics and changes in customer requirements, or may be able to devote greater resources to the development, promotion and sale of new or emerging services and technologies. Our ability to successfully grow through investments in the area of emerging opportunities depends on many factors, including advancements in technology, regulatory changes and other factors that are difficult to predict, or that may significantly affect the future of electrification, autonomy, and mobility. If we are unable to compete successfully or to successfully adapt to industry changes, our business, revenues and profitability could be materially adversely affected.

Our potential competitors include used-vehicle auctions, providers of claims software to insurance companies, and certain salvage buyer groups and automobile insurance companies, some of which currently supply damaged and total loss vehicles to us. Insurance companies may in the future decide to dispose of their damaged and total loss vehicles directly to end users, which would negatively affect our volumes, revenue and profitability. After the separation, we may also face competition from ADESA, Inc., a wholly-owned subsidiary of KAR (“ADESA”), for some of the services that we provide, and the separation and distribution agreement may limit our ability to compete in certain markets for a period of time. See “— The separation and distribution agreement that we will enter into with KAR may limit our ability to compete in certain markets for a period of time following the separation .”

If our facilities lack the capacity to accept additional vehicles, then our relationships with insurance companies or other vehicle suppliers could be adversely affected.

We regularly evaluate our capacity in all our markets and, where appropriate, seek to increase capacity through the acquisition of additional land and facilities. Capacity at our facilities varies from period to period and by region as a result of various factors, including natural disasters. We may not be able to reach agreements to purchase or lease storage facilities in markets where we have limited excess capacity, and zoning restrictions or difficulties obtaining use permits may limit our ability to expand our capacity through acquisitions of new land. In addition, we may not be able to renew or enter into new leases at commercially reasonable rates. If we fail to have sufficient capacity at one or more of our facilities, our relationships with insurance companies or other vehicle suppliers could be adversely affected, which could adversely affect our operating results and financial condition.

Significant disruptions of information technology systems or breaches of information technology systems, infrastructure and business information could adversely affect our business and reputation.

We rely on information technology systems, some of which are managed by third parties, to process, transmit and store electronic information, and to manage or support a variety of our business processes and activities. The secure operation of these systems, and the processing and maintenance of the information processed by these systems, is critical to our business operations and strategy. Information technology risks (including the confidentiality, integrity and availability of digital assets) for companies have significantly increased in recent years in part because of the proliferation of new technologies, the use of the Internet and telecommunications technologies to conduct financial transactions and the increased sophistication and activities of organized crime, hackers, terrorists and other external parties. These threats may derive from fraud or malice on the part of our employees or third parties, or may result from human error or accidental technological failure. Our customers and other parties in the payments value chain rely on our digital online products as well as other information technologies, computers, software and networks to conduct their operations. In addition, to access our online products and services, our customers increasingly use personal smartphones, tablet PCs and other mobile devices that may be beyond our control.

We are subject to cyber threats and our information technology has been subject to cyber-attacks and we believe we will continue to be a potential target of such threats and attacks. Continuous cyber-attacks or a sustained

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attack could lead to service interruptions, malfunctions or other failures in the information technology that supports our business and customers (such as the lack of availability of our value-added systems), as well as the operations of our customers or other third parties. Continuous cyber-attacks could also lead to damage to our reputation with our customers and other parties and the market, additional costs (such as repairing systems, adding new personnel or protection technologies, or compliance costs), regulatory penalties, financial losses to both us and our customers and partners and the loss of customers and business opportunities. If such attacks are not detected in a timely manner, their effects could be compounded.

Despite security measures and business continuity plans, our systems may be vulnerable to damage, disruptions or shutdowns caused by hackers, computer viruses, or breaches due to errors or malfeasance by employees, third parties and others who have access to these systems. If our information technology is compromised, becomes inoperable for extended periods of time or ceases to function properly, we may have to make a significant investment to fix or replace the information technology and our ability to provide many of our electronic and online solutions to our customers may be impaired, which would have a material adverse effect on our consolidated operating results and financial position. In addition, as cyber threats continue to evolve, we may be required to expend significant additional resources to continue to modify or enhance our protective measures or to investigate and remediate any information security vulnerabilities. Any of the risks described above could disrupt our business, damage our reputation and materially adversely affect our consolidated financial position and results of operations.

In addition, aspects of our operations and business are subject to privacy regulation in the United States and elsewhere, including the California Consumer Privacy Act. We collect and store sensitive data, including the intellectual property, proprietary business information, proprietary business information of our customers, as well as personally identifiable information of our customers and employees, in data centers and on information technology networks. Many U.S. states have enacted data-breach regulations and laws requiring varying levels of consumer notification in the event of a security breach. Increased regulation and enforcement activity throughout the world in the areas of data privacy and data security/breach may materially increase our costs, which could have a material adverse effect on our operating results. Our failure to comply with the privacy and data security/breach laws to which we are subject could also result in fines, sanctions and damage to our reputation and tradenames or the loss of significant customers.

If we are unable to protect our intellectual property, the value of our brand and other intangible assets may be diminished, and our business may be adversely affected.

We rely and expect to continue to rely on a combination of confidentiality and license agreements with our employees, consultants and third parties with whom we have relationships, as well as trademark, copyright, patent, trade secret, and domain name protection laws, to protect our proprietary rights. In the United States and internationally, we have filed various applications for protection of certain aspects of our intellectual property. However, third parties may knowingly or unknowingly infringe our proprietary rights, third parties may challenge proprietary rights held by us, and pending and future trademark and patent applications may not be approved. In addition, effective intellectual property protection may not be available in every country in which we operate or intend to operate our business. In any or all of these cases, we may be required to expend significant time and expense in order to prevent infringement or to enforce our rights. Although we have taken measures to protect our proprietary rights, there can be no assurance that others will not offer products or concepts that are substantially similar to ours and compete with our business. If the protection of our proprietary rights is inadequate to prevent unauthorized use or appropriation by third parties, the value of our brand and other intangible assets may be diminished and competitors may be able to more effectively mimic our service and methods of operations. Any of these events could have an adverse effect on our business and financial results.

We may not be successful in the implementation of our business strategy or we may improperly align new strategies with our vision, which could lead to the misapplication of our resources.

Our strategy is to provide the best remarketing venue and analytical evidence for every vehicle. To execute our strategy, we are pursuing strategic initiatives that management considers critical to our long-term success, including but not limited to developing alternative marketplaces, expanding our international footprint, establishing exceptional analytics capabilities, leveraging the Company’s unique remarketing portfolio and data, and growing the Company’s buyer base. There are significant risks involved with the execution of these initiatives, including significant business, economic and competitive uncertainties, many of which are outside of

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our control. Accordingly, we cannot predict whether we will succeed in implementing these strategic initiatives. For example, if we are unsuccessful in generating significant cash provided by operations, we may be unable to reinvest in our business, return capital to stockholders or reduce our outstanding indebtedness, which could negatively affect our financial position and results of operations and our ability to execute our other strategies. It could take several years to realize any direct financial benefits from these initiatives, if any direct financial benefits from these initiatives are achieved at all. Additionally, our business strategy may change from time to time, which could delay our ability to implement initiatives that we believe are important to our business.

We may not properly leverage or make the appropriate investment in technology advancements, which could result in the loss of any sustainable competitive advantage in products, services and processes.

Our business is dependent on information technology. Robust information technology systems, platforms and products are critical to our operating environment, digital online products and competitive position. Understanding technology innovation is necessary to remain at the forefront of our industry. We may not be successful in structuring our information technology or developing, acquiring or implementing information systems that are competitive and responsive to the needs of our customers. We might lack sufficient resources to continue to make the significant investments in information technology to compete with our competitors. Certain information technology initiatives that management considers important to our long-term success will require capital investment, have significant risks associated with their execution, and could take several years to implement. We may not be able to develop/implement these initiatives in a cost-effective, timely manner or at all.

If we acquire businesses that: are not aligned with our strategy; lack the proper research and preparation; create unnecessary risks; improperly value and price a target; have poor integration execution; and/or do not achieve the desired outcomes, then our operating results, financial condition and growth prospects could be adversely affected.

Acquisitions are a significant part of our growth strategy and have enabled us to further broaden and diversify our service offerings. Our strategy generally involves acquisitions of companies, products, services and technologies to expand our online, digital and mobile capabilities and the acquisition and integration of additional auction sites and personnel. Acquisition of businesses requires substantial time and attention of management personnel and may also require additional equity or debt financings. Further, integration of newly established or acquired businesses is often disruptive. Since we have acquired or in the future may acquire one or more businesses, there can be no assurance that we will identify appropriate targets, will acquire such businesses on favorable terms, or will be able to successfully integrate such organizations into our business. Because these new ventures are inherently risky, no assurance can be given that such strategies and offerings will be successful and they could materially adversely affect our business, financial condition and results of operations. Acquisitions may also have unanticipated tax, legal, regulatory and accounting ramifications, including as a result of recording goodwill and non-amortizable intangible assets that are subject to impairment testing on a regular basis and potential periodic impairment charges. In addition, we expect to compete against other auction groups or new industry consolidators for suitable acquisitions. If we are able to consummate acquisitions, such acquisitions could be dilutive to earnings, and we could overpay for such acquisitions.

In pursuing a strategy of acquiring other businesses, we face other risks including, but not limited to:

• incurring significantly higher capital expenditures, operating expenses and operating losses of the business acquired;
• entering new markets with which we are unfamiliar;
• incurring potential undiscovered liabilities at acquired businesses;
• failing to maintain uniform standards, controls and policies;
• incorporating acquired technology and rights into our offerings and unanticipated expenses related to such integration;
• impairing relationships with employees and customers as a result of management changes; and
• increasing expenses for accounting and computer systems, as well as integration difficulties.

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Acquisitions and other strategies to expand our operations beyond North America subject us to significant risks and uncertainties. As a result, we may not be successful in realizing anticipated synergies or we may experience unanticipated integration expenses. As we continue to explore opportunities to expand our business internationally, we will need to develop policies and procedures to manage our business on a global scale. There can be no assurance that we will identify appropriate international targets, acquire such businesses on favorable terms, or be able to successfully grow and integrate such organizations into our business. Operationally, acquired businesses typically depend on key relationships and our failure to maintain those relationships could have an adverse effect on our operating results and financial condition.

In addition, we anticipate that our non-U.S.-based operations will continue to subject us to risks associated with operating on an international basis, including:

• exposure to foreign currency exchange rate risk, which may have an adverse impact on our revenues and profitability;
• restrictions on our ability to repatriate funds, as well as repatriation of funds currently held in foreign jurisdictions, which may result in higher effective tax rates;
• tariffs and trade barriers and other regulatory or contractual limitations on our ability to operate in certain foreign markets;
• compliance with the Foreign Corrupt Practices Act;
• compliance with the various privacy regulations, including General Data Protection Regulation;
• dealing with unfamiliar regulatory agencies and laws favoring local competitors;
• dealing with political and/or economic instability;
• the difficulty of managing and staffing foreign offices, as well as the increased travel, infrastructure, legal and compliance costs associated with international operations;
• localizing our product offerings; and
• adapting to different business cultures and market structures.

As we continue to explore opportunities to expand globally, our success will depend on our ability to anticipate and effectively manage these and other risks associated with operating on an international basis. Our failure to manage these risks could have an adverse effect on our operating results and financial condition.

Fluctuations in the supply of and demand for damaged and total loss vehicles impact auction sales volumes, which may adversely affect our revenues and profitability.

We depend on receiving a sufficient number of total loss vehicles to sustain profit margins. Factors that can adversely affect the number of vehicles received include, but are not limited to, a decrease in the number of vehicles in operation or miles driven, mild weather conditions that cause fewer traffic accidents, reduction of policy writing by insurance providers that would affect the number of claims over a period of time, changes in vehicle technology and autonomous vehicles, a decrease in the percentage of claims resulting in a total loss or elimination of automotive collision coverage by consumers, delays or changes in state title processing, government regulations on the standards for producing vehicles and changes in direct repair procedures that would reduce the number of newer, less damaged total loss vehicles, which tend to have higher salvage values. In addition, our business depends on a limited number of automobile insurance companies to supply the damaged and total loss vehicles we sell at auction. Our agreements with these insurance company suppliers are generally subject to cancellation by either party upon 30 to 90 days’ notice. There can be no assurance that our existing agreements will not be canceled or that we will be able to enter into future agreements with these suppliers. Future decreases in the quality and quantity of vehicle inventory, and in particular the availability of newer and less damaged vehicles, could have a material adverse effect on our operating results and financial condition. If the supply or value of damaged and total loss vehicles coming to auction declines significantly, our revenues and profitability may be adversely affected. In addition, decreases in commodity prices, such as steel and platinum, may negatively affect vehicle values and demand at salvage auctions.

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Declining values for damaged and total loss vehicles purchased could adversely affect our profitability.

In the United Kingdom, the salvage market typically operates on a principal basis, in which a vehicle is purchased and then resold, rather than on an agent basis, in which the auction acts as a sales agent for the owner of the vehicle. Operating on a principal basis exposes us to inventory risks, including losses from theft, damage and obsolescence. Furthermore, in periods when the supply of vehicles from the insurance sector in North America declines, salvage operators have acquired and in the future may acquire vehicles on their own. If we purchase vehicles, the increased costs associated with acquiring the vehicles could have a material adverse effect on our gross profit and operating results. Vehicles sold under purchase agreements or purchased from individual sellers were approximately 4% of total damaged and total loss vehicles sold for the three months ended March 31, 2019. In addition, when vehicles are purchased, we are subject to changes in vehicle values, such as those caused by changes in commodity prices for steel and platinum. Decreases in commodity prices may negatively affect vehicle values and demand at salvage auctions.

A reduction in used-vehicle prices reduces the proceeds from the sale of damaged and total loss vehicles and lowers revenue per vehicle.

The volume of new vehicle production, accuracy of lease residual estimates, interest rate fluctuations, customer demand and changes in regulations, among other things, all potentially affect the pricing of used vehicles. When used-vehicle prices are high, used-vehicle dealers may retail more of their trade-in vehicles on their own rather than selling them at auction. A sustained reduction in used-vehicle pricing could result in lower proceeds from the sale of damaged and total loss vehicles and a related reduction in revenue per vehicle, a potential loss of consignors and decreased profitability. Furthermore, when vehicles are purchased, we are subject to changes in vehicle values, such as those caused by changes in commodity prices for steel and platinum. Decreases in commodity prices may negatively affect vehicle values and demand at salvage auctions.

Increases in fuel prices could lead to a reduction in miles driven and may have an adverse effect on our revenues and operating results, as well as our earnings growth rates.

Increased fuel prices could lead to a reduction in the miles driven per vehicle, which may reduce accident rates. Increases in fuel prices may also disproportionately affect the demand for sports cars, luxury vehicles, sport utility and full-sized vehicles, which are generally not as fuel-efficient as smaller vehicles. Retail sales and accident rates are factors that affect the number of damaged and total loss vehicles sold at auction and wholesale prices of those vehicles. Additionally, higher fuel costs increase the cost of transportation and towing of vehicles and we may not be able to pass on such higher costs to our customers.

We have a substantial amount of debt, which could impair our financial condition and adversely affect our ability to react to changes in our business.

As of March 31, 2019, on a pro forma basis after giving effect to the separation and distribution, our total corporate debt was approximately $1,300.0 million.

Our indebtedness could have important consequences including:

• limiting our ability to borrow additional amounts to fund working capital, capital expenditures, debt-service requirements, execution of our business strategy, acquisitions and other purposes;
• requiring us to dedicate a substantial portion of our cash flow from operations to pay principal and interest on debt, which would reduce the funds available for other purposes, including funding future expansion;
• making us more vulnerable to adverse changes in general economic, industry and competitive conditions, in government regulation and in our business by limiting our flexibility in planning for, and making it more difficult to react quickly to, changing conditions; and
• exposing us to risks inherent in interest rate fluctuations because the majority of our indebtedness is at variable rates of interest, which could result in higher interest expenses in the event of increases in interest rates.

In addition, if we are unable to generate sufficient cash from operations to service our debt and meet other cash needs, we may be forced to reduce or delay capital expenditures, suspend or eliminate dividends, sell assets or

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operations, seek additional capital or restructure or refinance our indebtedness. We may not be able to refinance our debt or sell additional debt or equity securities or our assets on favorable terms, if at all, particularly because of our high levels of debt and the restrictions imposed by the agreements governing our indebtedness. If we must sell certain of our assets, it may negatively affect our ability to generate revenue. The inability to obtain additional financing could have a material adverse effect on our financial condition.

If we cannot make scheduled payments on our debt, we would be in default and, as a result:

• our debt holders could declare all outstanding principal and interest to be due and payable;
• the lenders under our Senior Secured Credit Facilities (as defined below) could terminate their commitments to lend us money and foreclose against the assets securing their borrowings; and
• we could be forced into bankruptcy or liquidation.

A portion of our net income is derived from our international operations, primarily Canada, which exposes us to foreign exchange risks that may impact our financial statements. In addition, increases in the value of the U.S. dollar relative to certain foreign currencies may negatively impact foreign buyer participation at our marketplaces.

Fluctuations between U.S. and foreign currency values may adversely affect our results of operations and financial position, particularly fluctuations with Canadian currency values. In addition, there may be tax inefficiencies in repatriating cash from Canada. Approximately 10% of our revenues were attributable to our Canadian operations for the three months ended March 31, 2019. A decrease in the value of the Canadian currency relative to the U.S. dollar would reduce our profits from Canadian operations and the value of the net assets of our Canadian operations when reported in U.S. dollars in our financial statements. This could have a material adverse effect on our business, financial condition or results of operations as reported in U.S. dollars. A 1% decrease in the average Canadian exchange rate for the three months ended March 31, 2019 would have impacted net income by approximately $0.1 million.

In addition, fluctuations in exchange rates may make it more difficult to perform period-to-period comparisons of our reported results of operations. For purposes of accounting, the assets and liabilities of our Canadian operations are translated using period-end exchange rates; such translation gains and losses are reported in “Accumulated other comprehensive income/loss” as a component of stockholders’ equity. The revenues and expenses of our Canadian operations are translated using average exchange rates during each period.

Likewise, we have a significant number of non-U.S.-based buyers who participate in our marketplaces. Increases in the value of the U.S. dollar relative to these buyers’ local currencies may reduce the prices they are willing to pay at auction, which may negatively affect our revenues.

We assume the settlement risk for vehicles sold through our marketplaces.

Typically, following the sale of a vehicle, we do not release the vehicle to a buyer until such time as we have received full payment for the vehicle. We may be obligated, however, to remit payment to a seller before receiving payment from a buyer and in those circumstances, we may not have recourse against sellers for any buyer’s failure to satisfy its payment obligations. Because we retain possession of the vehicle, we can resell the vehicle to mitigate any potential losses. Since revenue for most vehicles does not include the gross sales proceeds, failure to collect the receivables in full may result in a net loss up to the gross sales proceeds on a per vehicle basis in addition to any expenses incurred to collect the receivables and to provide the services associated with the vehicle. If we are unable to collect payments on a large number of vehicles and we are unable to resell them and recover our costs, the resulting payment obligations to the seller and decreased fee revenues may have a material adverse effect on our results of operations and financial condition.

We are partially self-insured for certain losses.

We self-insure a portion of employee medical benefits under the terms of our employee health insurance program, as well as a portion of our automobile, general liability and workers’ compensation claims. We record an accrual for the claims expense related to our employee medical benefits, automobile, general liability and

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workers’ compensation claims based upon the expected amount of all such claims. If actual trends, including the severity of claims and medical cost inflation above expectations were to occur, our self-insured costs would increase, which could have an adverse impact on the operating results in that period.

We have a material amount of goodwill which, if it becomes impaired, would result in a reduction in our net income.

Goodwill represents the amount by which the cost of an acquisition accounted for using the purchase method exceeds the fair value of the net assets acquired. Current accounting standards require that goodwill no longer be amortized but instead be periodically evaluated for impairment based on the fair value of the reporting unit. A significant percentage of our total assets represents goodwill. Declines in our profitability or the value of comparable companies may impact the fair value of our reporting units, which could result in a write-down of goodwill and a reduction in net income.

If we fail to attract and retain key personnel, or have inadequate succession planning, we may not be able to execute our business strategies and our financial results could be negatively affected.

Our success depends in large part on the performance of our senior executive team and other key employees, including key field and information technology personnel. If we lose the services of one or more of our executive officers or key employees, or if one or more of them decides to join a competitor or otherwise compete with us, we may not be able to effectively implement our business strategies, our business could suffer and the value of our common stock could be materially adversely affected. Our auction business is directly impacted by the business relationships our employees have established with customers and suppliers and, as a result, if we lose key personnel, we may have difficulty in retaining and attracting customers, developing new services, negotiating favorable agreements with customers and providing acceptable levels of customer service. Leadership changes will occur from time to time and we cannot predict whether significant resignations will occur or whether we will be able to recruit additional qualified personnel. We do not have nor do we currently expect to obtain key person insurance on any of our executive officers.

We depend on the continued and uninterrupted service from our workforce.

There are currently no collective bargaining agreements in effect. However, if a collective bargaining agreement were to be negotiated, we could be subject to a substantial increase in labor and benefits expenses that we may be unable to pass through to customers for some period of time, if at all.

Changes in laws affecting the importation of damaged and total loss vehicles may have an adverse effect on our business and financial condition.

Our Internet-based auction services have allowed us to offer our products and services to international markets and have increased our international buyer base. As a result, foreign buyers of damaged and total loss vehicles now represent a significant part of our total buyer base. Changes in laws and regulations that restrict the importation of damaged and total loss vehicles into foreign countries may reduce the demand for damaged and total loss vehicles and impact our ability to maintain or increase our international buyer base. The adoption of such laws or regulations in other jurisdictions that have the effect of reducing or curtailing our activities abroad could have a material adverse effect on our results of operations and financial condition by reducing the demand for our products and services.

We are subject to certain governmental regulations, including vehicle brokerage and auction laws and currency reporting obligations. Our business is subject to risks related to litigation and regulatory actions.

Our operations are subject to regulation, supervision and licensing under various federal, state, provincial and local authorities, agencies, statutes and ordinances, which, among other things, require us to obtain and maintain certain licenses, permits and qualifications and provide certain disclosures and notices. The regulations and laws that impact our company include, without limitation, the following:

• The acquisition and sale of totaled and recovered theft vehicles are regulated by state or other local motor vehicle departments in each of the locations in which we operate.
• Some of the transport vehicles used at our marketplaces are regulated by the U.S. Department of Transportation or similar regulatory agencies in the other countries in which we operate.

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• In many states and provinces, regulations require that a damaged and total loss vehicle be forever “branded” with a salvage notice in order to notify prospective purchasers of the vehicle’s previous salvage status.
• Some state, provincial and local regulations limit who can purchase damaged and total loss vehicles, as well as determine whether a damaged and total loss vehicle can be sold as rebuildable or must be sold for parts or scrap only.
• We are subject to various local zoning requirements with regard to the location of our auction and storage facilities, which requirements vary from location to location.
• We are indirectly subject to the regulations of the Consumer Financial Protection Act of 2010 due to our vendor relationships with financial institutions.
• We deal with significant amounts of cash in our operations and are subject to various reporting and anti-money laundering regulations.

Changes in law or governmental regulations or interpretations of existing law or regulations could result in increased costs, reduced vehicle prices and decreased profitability for us. In addition, failure to comply with present or future laws and regulations or changes in existing laws or regulations or in their interpretation could have a material adverse effect on our operating results and financial condition.

We are also subject from time to time to a variety of legal actions relating to our current and past business operations, including litigation relating to employment-related issues, the environment and personal injury claims. There is no guarantee that we will be successful in defending ourselves in legal and administrative actions or in asserting our rights under various laws. In addition, we could incur substantial costs in defending ourselves or in asserting our rights in such actions. The costs and other effects of pending litigation and administrative actions against us cannot be determined with certainty. Although we currently believe that no such proceedings will have a material adverse effect, there can be no assurance that the outcome of such proceedings will be as expected.

New accounting pronouncements or new interpretations of existing standards could require us to make adjustments to accounting policies that could adversely affect the financial statements.

The Financial Accounting Standards Board, the Public Company Accounting Oversight Board, the SEC, and other accounting organizations or governmental entities from time to time issue new pronouncements or new interpretations of existing accounting and auditing standards that require changes to our accounting policies and procedures and could cause us to incur additional costs. To date, we do not believe any new pronouncements or interpretations have had a material adverse effect on our financial condition or results of operations, but future pronouncements or interpretations could require the change of policies or procedures.

We may be subject to patent or other intellectual property infringement claims, which could have an impact on our business or operating results due to a disruption in our business operations, the incurrence of significant costs and other factors.

From time to time, we may receive notices from others claiming that we infringed or otherwise violated their patent or intellectual property rights, and the number of these claims could increase in the future. Claims of intellectual property infringement or other intellectual property violations could require us to enter into licensing agreements on unfavorable terms, incur substantial monetary liability or be enjoined preliminarily or permanently from further use of the intellectual property in question, which could require us to change business practices and limit our ability to compete effectively. Even if we believe that the claims are without merit, the claims can be time-consuming and costly to defend and may divert management’s attention and resources away from our businesses. If we are required to take any of these actions, it could have an adverse impact on our business and operating results.

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Environmental, health and safety risks could adversely affect our operating results and financial condition.

Our operations are subject to various foreign, federal, state and local environmental, health and safety laws and regulations, including those governing the emission or discharge of pollutants into the air or water, the generation, treatment, storage and release of hazardous materials and wastes and the investigation and remediation of contamination. Our failure to comply with current or future environmental, health or safety laws or to obtain and comply with permits required under such laws, could subject us to significant liability or require costly investigative, remedial or corrective actions.

We have incurred and may in the future incur expenditures relating to releases of hazardous materials, investigative, remedial or corrective actions, claims by third parties and other environmental issues, and such expenditures, individually or in the aggregate, could be significant. Federal and state environmental authorities are currently investigating our role in contributing to contamination at the Lower Duwamish Waterway Superfund Site in Seattle, Washington. Our potential liability at this site cannot be estimated at this time. See “ Business—Legal Proceedings . ”

Weather-related and other events beyond our control may adversely impact operations.

Extreme weather or other events, such as hurricanes, tornadoes, earthquakes, forest fires, floods, terrorist attacks or war, may adversely affect the overall economic environment, the markets in which we compete, and our operations and profitability. These events may impact our physical auction facilities, causing a material increase in costs, or delays or cancellation of auction sales, which could have a material adverse impact on our revenues and profitability. In some instances, for example with the severe storm in October 2012 known as “Superstorm Sandy,” these events may result in a sharp influx in the available supply of damaged and total loss vehicles and there can be no assurance that our business will have sufficient resources to handle such extreme increases in supply. Our failure to meet our customers’ demands in such situations could negatively affect our relationships with such customers and result in a loss of future business, which would adversely affect our operating results and financial condition. In addition, revenues generated as a result of the total loss of vehicles associated with such a catastrophe are typically recognized subsequent to the incurrence of incremental costs and such revenues may not be sufficient to offset the costs incurred.

Mild weather conditions tend to result in a decrease in the available supply of damaged and total loss vehicles because traffic accidents decrease and fewer vehicles are damaged. Accordingly, mild weather can have an adverse effect on our damaged and total loss vehicle inventories, which would be expected to have an adverse effect on our revenue and operating results and related growth rates.

Risks Related to the Separation and Distribution

We may not achieve some or all of the expected benefits of the separation, and the separation may adversely affect our business.

We may not be able to achieve the full strategic, financial, operational or other benefits expected to result from the separation, or such benefits may be delayed or not occur at all. The separation and distribution is expected to provide the following benefits, among others:

• the separation will create two independent companies with distinct strengths, well-positioned for market leadership and continued growth;
• the separation will enable each company to create independent capital structures and allow independent decisions on investments, acquisitions and capital expenditures to advance its respective strategic priorities;
• the separation will enhance KAR’s and our ability to address the needs of unique customers and respond to changing markets and competitive conditions;
• the separation will simplify financial reporting and allow investors to more accurately assess and value KAR and us based on KAR’s and our performance as individual businesses; and
• the separation will create distinct and compelling investment opportunities based on track records of successful performance and streamlined operating models.

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We may not achieve these and other anticipated benefits for a variety of reasons, including, among others:

• the separation will require significant amounts of management’s time and effort, which may divert management’s attention from operating and growing our business;
• following the separation, we may be more susceptible to market fluctuations and other adverse events than if we were still a part of KAR;
• following the separation, our business will be less diversified than KAR’s business prior to the separation; and
• the other actions required to separate our and KAR’s respective businesses could disrupt our and KAR’s operations.

As independent publicly traded companies, KAR and IAA will be smaller, less diversified companies with a narrower business focus and may be more vulnerable to changing market conditions, which could materially and adversely affect their respective business, financial condition and results of operations.

Further, there can be no assurance that the combined value of the common stock of the two publicly traded companies will be equal to or greater than what the value of our common stock would have been had the separation not occurred. See “— The combined post-separation value of KAR and IAA common stock may not equal or exceed the pre-separation value of KAR common stock .”

The separation may result in disruptions to, and negatively impact our relationships with, our customers and other business partners and the relationships with the customers and other business partners of KAR.

Uncertainty related to the separation may lead customers and other parties with which KAR currently does business or with which we may do business in the future to terminate or attempt to negotiate changes in existing business relationships, or consider entering into business relationships with parties other than us or KAR. These disruptions could have a material and adverse effect on our or KAR’s businesses, financial condition, results of operations and prospects. The effect of such disruptions could be exacerbated by any delays in the completion of the separation.

If the separation and distribution fail to qualify as a tax-free transaction for U.S. federal income tax purposes, then IAA, KAR and KAR’s stockholders could be subject to significant tax liability or tax indemnity obligations.

KAR has received an IRS Ruling on certain issues relevant to the qualification of the separation and distribution as tax-free under Sections 368(a)(1)(D) and 355 of the Code, based on certain facts and representations. The IRS Ruling does not address all of the requirements for tax-free treatment of the separation and distribution.

It is a condition to the distribution that KAR receive an opinion from its U.S. tax counsel, Skadden, Arps, Slate, Meagher & Flom LLP, on the basis of certain facts, representations, covenants and assumptions set forth in such opinion, substantially to the effect that, for U.S. federal income tax purposes, the separation and distribution will qualify as a transaction that generally is tax-free to KAR and KAR’s stockholders, for U.S. federal income tax purposes, under Sections 355 and 368(a)(1)(D) of the Code. Notwithstanding the tax opinion, the IRS could determine on audit that the distribution should be treated as a taxable transaction if it determines that any of the facts, assumptions, representations or covenants set forth in the tax opinion is not correct or has been violated, or that the distribution should be taxable for other reasons, including as a result of a significant change in stock or asset ownership after the distribution, or if the IRS were to disagree with the conclusions of the tax opinion. If the distribution is ultimately determined to be taxable, the distribution could be treated as a taxable dividend to you for U.S. federal income tax purposes, and you could incur significant U.S. federal income tax liability. In addition, KAR and/or we could incur significant U.S. federal income tax liabilities or tax indemnification obligations, whether under applicable law or the tax matters agreement that we intend to enter into with KAR, if it is ultimately determined that certain related transactions were undertaken in anticipation of the distribution.

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The combined post-separation value of KAR and IAA common stock may not equal or exceed the pre-separation value of KAR common stock.

As a result of the distribution, KAR expects the trading price of KAR common stock immediately following the distribution to be lower than the “regular-way” trading price of such stock immediately prior to the distribution because the trading price will no longer reflect the value of the salvage auction businesses held by us. There can be no assurance that the aggregate market value of the KAR common stock and the IAA common stock following the separation will be higher or lower than the market value of KAR common stock if the separation did not occur.

We have no history of operating as an independent company, and our historical and pro forma financial information is not necessarily representative of the results that we would have achieved as a separate, publicly traded company and may not be a reliable indicator of our future results.

The historical information about us in this information statement refers to our business as operated by and integrated with KAR. Our historical and pro forma financial information included in this information statement is derived from the consolidated financial statements and accounting records of KAR. Accordingly, the historical and pro forma financial information included in this information statement does not necessarily reflect the financial condition, results of operations or cash flows that IAA would have achieved as a separate, publicly traded company during the periods presented, or those that we will achieve in the future, primarily as a result of the factors described below:

• Prior to the separation, our business has been operated by KAR as part of its broader corporate organization, rather than as an independent company. KAR or one of its affiliates performed various corporate functions for us, such as accounting, treasury, tax, internal audit, risk management, human resources, safety and security and information technology risk. Our historical and pro forma financial results reflect allocations of corporate expenses from KAR for such functions and are likely to be less than the expenses we would have incurred had we operated as a separate publicly traded company. Following the separation, our cost related to such functions previously performed by KAR may therefore increase.
• Currently, our business is integrated with the other businesses of KAR. Historically, we have shared economies of scope and scale in costs, employees, vendor relationships and customer relationships. Although we will enter into transition agreements with KAR, these arrangements may not fully capture the benefits that we have enjoyed as a result of being integrated with KAR and may result in us paying higher charges than in the past for these services. This could have an adverse effect on our results of operations and financial condition following the completion of the separation.
• Generally, our working capital requirements and capital for our general corporate purposes, including acquisitions and capital expenditures, have historically been satisfied as part of the corporate-wide cash management policies of KAR. Following the completion of the separation, we may need to obtain additional financing from banks, through public offerings or private placements of debt or equity securities, strategic relationships, or other arrangements, which may or may not be available and may be more costly.
• After the completion of the separation, the cost of capital for our business may be higher than KAR’s cost of capital prior to the separation.
• Our historical financial information does not reflect the debt or the associated interest expense that we expect to incur as part of the separation and distribution.

Other significant changes may occur in our cost structure, management, financing and business operations as a result of operating as a company separate from KAR. For additional information about the past financial performance of our business and the basis of presentation of the historical consolidated financial statements and the unaudited pro forma consolidated financial statements of our business, see “ Unaudited Pro Forma Consolidated Financial Statements ,” “ Selected Historical Consolidated Financial Data ,” “ Management’s Discussion and Analysis of Financial Condition and Results of Operations ” and the historical financial statements and accompanying notes included elsewhere in this information statement.

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Until the separation occurs, KAR has sole discretion to change the terms of the separation in ways that may be unfavorable to us.

Until the separation occurs, we will be a wholly owned subsidiary of KAR. Accordingly, KAR will effectively have the sole and absolute discretion to determine and change the terms of the separation, including the establishment of the record date for the distribution and the distribution date. These changes could be unfavorable to us.

In addition, KAR may decide at any time not to proceed with the separation and distribution if at any time the board of directors of KAR determines, in its sole and absolute discretion, that the distribution of our common stock or the terms thereof are not in the best interests of KAR and its stockholders or that legal, market or regulatory conditions or other circumstances are such that the separation and distribution are no longer advisable at that time. If KAR’s board of directors determines to cancel the separation and distribution, stockholders of KAR will not receive any distribution of our common stock and KAR will be under no obligation whatsoever to its stockholders to distribute such shares.

The separation and distribution agreement that we will enter into with KAR may limit our ability to compete in certain markets for a period of time following the separation.

The separation and distribution agreement will include non-compete provisions pursuant to which we will generally agree to not compete with KAR in certain non-salvage business for a period of time from the distribution date. Such restrictions will be subject to certain exceptions set forth in the separation and distribution agreement, including an exception for KAR’s salvage auction businesses as conducted immediately prior to the distribution close. See “ Certain Relationships and Related Person Transactions—Separation and Distribution Agreement—Non-Compete and Non-Solicit . ” These restrictions may limit our ability to compete in certain markets and could materially and adversely affect our business, financial condition and results of operations.

We may have received better terms from unaffiliated third parties than the terms we receive in our agreements with KAR.

The agreements we will enter into with KAR in connection with the separation and distribution, including the separation and distribution agreement and the ancillary agreements, were prepared in the context of IAA’s separation from KAR while IAA was still a wholly owned subsidiary of KAR. Accordingly, during the period in which the terms of those agreements were prepared, IAA did not have an independent board of directors or a management team that was independent of KAR. As a result, the terms of those agreements may not reflect terms that would have resulted from arm’s length negotiations between unaffiliated third parties. We may have received better terms from third parties because, among other things, third parties may have competed with each other to win our business. For more information, see “ Certain Relationships and Related Person Transactions .”

We may not be able to engage in certain corporate transactions after the separation.

To preserve the tax-free treatment to KAR of the separation and the distribution, under the tax matters agreement that we intend to enter into with KAR, which is discussed in more detail below under “ Certain Relationships and Related Person Transactions—Tax Matters Agreement, ” we will be restricted from taking certain actions that would prevent the distribution and related transactions from being tax-free for U.S. federal income tax purposes. Such restrictions would be applicable to us during the two-year period following the distribution and may prohibit us, except in certain circumstances, from, among other things:

• entering into any transaction resulting in the acquisition of a significant portion of our stock or substantially all of our assets, whether by merger or otherwise;
• merging, consolidating, or liquidating;
• issuing equity securities beyond certain thresholds;
• repurchasing certain amounts of our capital stock; or
• ceasing to actively conduct our business.

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These restrictions may limit our ability to pursue certain strategic transactions or other transactions that we may believe to be in the best interests of our stockholders or that might increase the value of our business. In addition, under the tax matters agreement, we would be required to indemnify KAR against liabilities resulting from certain actions taken after the distribution that cause the distribution to be taxable for U.S. federal income tax purposes.

We may fail to perform under various transaction agreements that will be executed as part of the separation or we may fail to have necessary systems and services in place when certain of the transaction agreements expire.

The separation and distribution agreement and other agreements to be entered into in connection with the separation will determine the allocation of assets and liabilities between the companies following the separation for those respective areas and will include any necessary indemnifications related to liabilities and obligations. The transition services agreement will provide for the performance of certain services by each company for the benefit of the other for a period of time after the separation. We will rely on KAR to satisfy its performance and payment obligations under these agreements. If KAR is unable to satisfy its obligations under these agreements, including its indemnification obligations, we could incur operational difficulties or losses. If we do not have our own systems and services in place, or if we do not have agreements with other providers of these services once certain transaction agreements expire, we may not be able to operate our business effectively and our profitability may decline. We are in the process of creating our own, or engaging third parties to provide, systems and services to replace many of the systems and services that KAR currently provides to us. We, however, may not be successful in implementing these systems and services or in transitioning data from KAR’s systems to our own.

We will be required to satisfy certain indemnification obligations to KAR or we may not be able to collect on indemnification rights from KAR.

Under the terms of the separation and distribution, we will indemnify KAR from and after the separation and distribution with respect to (i) all debts, liabilities and obligations allocated or transferred to us in connection with the separation and distribution (including our failure to pay, perform or otherwise promptly discharge any such debts, liabilities or obligations after the separation and distribution), (ii) any breach by us of the separation and distribution agreement or any of the ancillary agreements, and (iii) any misstatement or omission of a material fact in this Information Statement or any other disclosure document. We are not aware of any existing indemnification obligations at this time, but any such indemnification obligations that may arise could be significant. Under the terms of the separation and distribution agreement, KAR will indemnify us from and after the separation and distribution with respect to (i) all debts, liabilities and obligations allocated to KAR after the separation and distribution (including its failure to pay, perform or otherwise promptly discharge any such debts, liabilities or obligations after the separation and distribution) and (ii) any breach by KAR of the separation and distribution agreement or any of the ancillary agreements. Our and KAR’s ability to satisfy these indemnities, if called upon to do so, will depend respectively upon our and KAR’s future financial strength. If we are required to indemnify KAR, or if we are not able to collect on indemnification rights from KAR, our financial condition, liquidity or results of operations could be materially and adversely affected. We cannot determine whether we will have to indemnify KAR, or if KAR will have to indemnify us, for any substantial obligations after the distribution.

Certain contracts that will need to be assigned from KAR or its affiliates to us in connection with the separation require the consent of the counterparty to such an assignment, and failure to obtain these consents could increase our expenses or otherwise reduce our profitability.

The separation and distribution agreement will provide that, in connection with our separation and distribution, a number of contracts are to be assigned from KAR or its affiliates to us or our affiliates. However, certain of these contracts require the contractual counterparty’s consent to such an assignment. It is possible that some parties may use the consent requirement to seek more favorable contractual terms from us. If we are unable to obtain these consents, we may be unable to obtain some of the benefits, assets and contractual commitments that are intended to be allocated to IAA as part of the separation and distribution. If we are unable to obtain these consents, the loss of these contracts could increase our expenses or otherwise reduce our profitability.

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Challenges in the commercial and credit environments may materially adversely affect our ability to complete the separation and our future access to capital.

Our ability to service our existing debt, access additional financing or refinance our existing indebtedness on favorable terms or at all could be materially adversely affected if there is a material decline in the demand for our products or in the solvency of our customers or suppliers or if other significantly unfavorable changes in economic conditions occur. Volatility in the world financial markets could increase borrowing costs or affect our ability to gain access to the capital markets, which could have a material adverse effect on our competitive position, business, financial condition, results of operations and cash flows, as well as our ability to complete the separation. If such economic weakness exists, it may also affect our cash flow from operations and results of operations, which may affect our ability to service payment obligations on our debt or to comply with our debt covenants.

Additionally, any market deterioration could increase the risk of the failure of counterparties with which we do business to honor their obligations to us. Our ability to replace any such obligations on the same or similar terms may be limited if challenging credit and general economic conditions exist.

Risks Related to IAA’s Common Stock

We cannot be certain that an active trading market for our common stock will develop or be sustained after the separation, and following the separation, our stock price may fluctuate significantly.

A public market for our common stock does not currently exist. We anticipate that on or prior to the record date for the distribution, trading of shares of our common stock will begin on a “when-issued” basis and will continue through the distribution date. However, we cannot guarantee that an active trading market will develop or be sustained for our common stock after the separation. If an active trading market does not develop, you may have difficulty selling your shares of common stock at an attractive price, or at all. In addition, we cannot predict the prices at which shares of our common stock may trade after the separation.

Similarly, we cannot predict the effect of the separation on the trading prices of our common stock. After the distribution, KAR’s common stock will continue to be listed and traded on the NYSE under the symbol “KAR.” Subject to the consummation of the separation, we expect our common stock to be listed and traded on the NYSE under the symbol “IAA.” The combined trading prices of the shares of our common stock and KAR common stock after the separation, as adjusted for any changes in the combined capitalization of these companies, may not be equal to or greater than the trading prices of KAR’s common stock prior to the separation. Until the market has fully evaluated the business of KAR without our business, and fully evaluated us, the price at which KAR’s or our common stock trades may fluctuate significantly.

Many factors could cause the market price of our common stock to rise and fall, including the following:

• our business profile and market capitalization may not fit the investment objectives of KAR’s current stockholders, causing a shift in our investor base, and our common stock may not be included in some indices in which KAR’s common stock is included, causing certain holders to sell their common stock;
• our announcements or our competitors’ announcements regarding new products or services, enhancements, significant contracts, acquisitions or strategic investments;
• fluctuations in our quarterly or annual financial results or the quarterly or annual financial results of companies perceived to be similar to us;
• the failure of securities analysts to cover our common stock after the separation;
• actual or anticipated fluctuations in our operating results;
• changes in earnings estimates or recommendations by securities analysts or our ability to meet those estimates;
• the operating and stock price performance of other comparable companies;
• investors’ general perception of us and our industry;
• changes to the regulatory and legal environment under which we operate;
• changes in general economic and market conditions;

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• changes in industry conditions;
• changes in regulatory and other dynamics; and
• the other factors described in this “ Risk Factors ” section and elsewhere in this information statement.

In addition, if the market for stocks in our industry, or the stock market in general, experiences a loss of investor confidence, the trading price of our common stock could decline for reasons unrelated to our business, financial condition or results of operations. If any of the foregoing occurs, it could cause our stock price to fall and may expose us to lawsuits that, even if successfully defended, could be costly to defend and a distraction to management.

Substantial sales of our common stock may occur in connection with this distribution, which could cause our stock price to be volatile and to decline.

Any sales of substantial amounts of our common stock in the public market, or the perception that these sales may occur, in connection with the distribution or otherwise, could cause the market price of our common stock to decline. These sales also could impede our ability to raise future capital. Upon completion of the distribution, we expect that we will have an aggregate of approximately 133,422,472 shares of our common stock issued and outstanding on June 28, 2019. These shares will be freely tradable without restriction or further registration under the Securities Act of 1933, as amended (the “Securities Act”), unless the shares are owned by one of our “affiliates,” as that term is defined in Rule 405 under the Securities Act. We cannot predict the size of future sales of shares of our common stock in the open market following the distribution or the effect, if any, that such future sales, or the perception that such sales may occur, would have on the market price of our common stock. We are also unable to predict whether a sufficient number of buyers would be in the market at that time.

We cannot guarantee the timing, amount or payment of dividends on our common stock in the future.

The payment and amount of any future dividend will be subject to the sole discretion of our post-distribution, independent Board and will depend upon many factors, including our financial condition and prospects, our capital requirements and access to capital markets, covenants associated with certain of our debt obligations, legal requirements and other factors that our Board may deem relevant, and there can be no assurance that we will continue to pay a dividend in the future. See “ Divide n d Policy . ”

Your percentage of ownership in IAA may be diluted in the future.

In the future, your percentage ownership in IAA may be diluted because of equity issuances for acquisitions, capital market transactions or otherwise, including equity awards that we may be granting to our directors, officers and employees. Such awards may have a dilutive effect on our earnings per share, which could adversely affect the market price of our common stock. From time to time, we will issue additional options or other stock-based awards to our employees under our employee benefits plans.

In addition, our amended and restated certificate of incorporation will authorize us to issue, without the approval of our stockholders, one or more classes or series of preferred stock having such designation, powers, preferences and relative, participating, optional and other special rights, including preferences over our common stock respecting dividends and distributions, as our Board generally may determine. The terms of one or more classes or series of preferred stock could dilute the voting power or reduce the value of our common stock. For example, we could grant the holders of preferred stock the right to elect some number of our directors in all events or on the happening of specified events or the right to veto specified transactions. Similarly, the repurchase or redemption rights or liquidation preferences we could assign to holders of preferred stock could affect the residual value of the common stock. See “ Description of Capital Stock .”

No vote of the KAR stockholders is required in connection with the separation and distribution. As a result, if you do not want to receive our common stock in the distribution, your sole recourse will be to divest yourself of your KAR common stock prior to or on the distribution date.

No vote of our stockholders is required in connection with the distribution. Accordingly, if you do not want to receive our ordinary stock in the distribution, your only recourse will be to divest yourself of your KAR common stock prior to or on the distribution date.

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Provisions in our amended and restated certificate of incorporation and by-laws, and of Delaware law, may prevent or delay an acquisition of us, which could decrease the trading price of our common stock.

Our amended and restated certificate of incorporation and by-laws will contain, and Delaware law contains, provisions that may be considered to have an anti-takeover effect and may delay or prevent a tender offer or other corporate transaction that a stockholder might consider to be in its best interest, including those transactions that might result in payment of a premium over the market price for our stock.

These provisions include:

• rules regarding how stockholders may present proposals or nominate directors for election at stockholder meetings;
• permitting our Board to issue preferred stock without stockholder approval;
• granting to the Board, and not the stockholders, the sole power to set the number of directors;
• the initial division of our Board into three classes of directors, with each class serving a staggered term;
• a provision that directors serving on a classified Board may be removed by stockholders only for cause;
• authorizing vacancies on our Board to be filled only by a vote of the majority of the directors then in office and specifically denying our stockholders the right to fill vacancies in the Board; and
• prohibiting stockholder action by written consent.

These provisions apply even if an offer may be considered beneficial by some stockholders.

Following the distribution, we will not be subject to the provisions of Section 203 of the General Corporation Law of the State of Delaware (the “DGCL”). Section 203 of the DGCL provides that, subject to limited exceptions, persons that acquire, or are affiliated with a person that acquires, more than 15% of the outstanding voting stock of a Delaware corporation shall not engage in any business combination with that corporation, including by merger, consolidation or acquisitions of additional shares, for a three-year period following the date on which that person or its affiliates becomes the holder of more than 15% of the corporation’s outstanding voting stock. Accordingly, we will not be subject to any anti-takeover effects of Section 203.

Certain other provisions of our amended and restated certificate of incorporation and by-laws may be considered to have an anti-takeover effect and may delay or prevent a tender offer or other corporate transaction that a stockholder might consider to be in its best interest, including those transactions that might result in payment of a premium over the market price for our shares. We believe these provisions will protect our stockholders from coercive or otherwise unfair takeover tactics. These provisions are not intended to make us immune from takeovers. However, these provisions will apply even if the offer may be considered beneficial by some stockholders and the provisions could delay or prevent an acquisition that our Board determines is not in the best interests of us and our stockholders. These provisions may also prevent or discourage attempts to remove and replace incumbent directors.

In addition, an acquisition or further issuance of our stock could trigger the application of Section 355(e) of the Code. For a discussion of Section 355(e), see “ U.S. Federal Income Tax Consequences. ” Under the tax matters agreement, we would be required to indemnify KAR for the resulting tax, and this indemnity obligation might discourage, delay or prevent a change of control that you may consider favorable.

IAA's amended and restated certificate of incorporation and by-laws will contain exclusive forum provisions that could limit an IAA stockholder’s ability to choose a judicial forum that it finds favorable for certain disputes with IAA or its directors, officers, stockholders, employees or agents, and may discourage lawsuits with respect to such claims.

IAA’s amended and restated certificate of incorporation will provide that unless the Board otherwise determines, the Court of Chancery of the State of Delaware will be the sole and exclusive forum for (i) any derivative action or proceeding brought on behalf of IAA, (ii) any action asserting a claim of breach of a fiduciary duty owed by any director, officer, stockholder, employee or agent of IAA to IAA or IAA’s stockholders, (iii) any action asserting a claim against IAA or any director, officer, stockholder, employee or agent of IAA arising out of or

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relating to any provision of the DGCL or IAA’s amended and restated certificate of incorporation or by-laws, or (iv) any action asserting a claim against IAA or any director, officer, stockholder, employee or agent of IAA governed by the internal affairs doctrine, in all cases subject to the court having subject matter jurisdiction and personal jurisdiction over an indispensable party named as a defendant. The exclusive forum provision does not apply to any actions arising under the Securities Act or the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These exclusive forum provisions may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for such disputes and may discourage these types of lawsuits. Alternatively, if a court were to find the exclusive forum provisions inapplicable to, or unenforceable in respect of, one or more of the specified types of actions or proceedings, IAA may incur additional costs associated with resolving such matters in other jurisdictions.

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CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS

This information statement and other materials that IAA has filed or will file with the SEC contain, or will contain, forward-looking statements regarding business strategies, market potential, future financial performance and other matters. In particular, statements made in this information statement that are not historical facts (including, but not limited to, expectations, estimates, assumptions and projections regarding the industry, business, future operating results, potential acquisitions and anticipated cash requirements) may be forward-looking statements. Words such as “should,” “may,” “will,” “anticipates,” “expects,” “intends,” “plans,” “believes,” “seeks,” “estimates” and similar expressions identify forward-looking statements. Such statements, including statements regarding our future growth; anticipated cost savings, revenue increases, credit losses and capital expenditures; dividend declarations and payments; common stock repurchases; tax rates and assumptions; strategic initiatives and acquisitions; our competitive position and retention of customers; and our continued investment in information technology, are not guarantees of future performance and are subject to risks and uncertainties that could cause actual results to differ materially from the results projected, expressed or implied by these forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in the section of the information statement entitled “ Risk Factors .” Some of these factors include:

• fluctuations in consumer demand for and in the supply of damaged and total loss vehicles and the resulting impact on auction sales volumes;
• our ability to meet or exceed customers’ expectations, as well as develop and implement information systems responsive to customer needs;
• significant current competition and the introduction of new competitors;
• competitive pricing pressures;
• the ability of consumers to lease or finance the purchase of new and/or used vehicles;
• our ability to obtain land or renew/enter into new leases at commercially reasonable rates;
• our ability to effectively maintain or update information and technology systems;
• our ability to implement and maintain measures to protect against cyber-attacks;
• our ability to maintain our brand and protect our intellectual property;
• our ability to successfully implement our business strategies or realize expected cost savings and revenue enhancements;
• business development activities, including acquisitions and integration of acquired businesses;
• costs associated with the acquisition of businesses or technologies;
• trends in the vehicle remarketing industry;
• changes in the volume of vehicle production, including capacity reductions at the major original equipment manufacturers;
• changes in the market value of vehicles auctioned, including changes in the actual cash value of damaged and total loss vehicles;
• economic conditions, including fuel prices, commodity prices, foreign exchange rates and interest rate fluctuations;
• trends in new- and used-vehicle sales and incentives;
• general business conditions;
• our substantial amount of debt;
• our assumption of the settlement risk for vehicles sold;
• our self-insurance for certain risks;
• any impairment to our goodwill or other intangible assets;

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• any losses of key personnel;
• interruptions to service from our workforce;
• laws, regulations and industry standards, including changes in regulations governing the processing of damaged and total loss vehicles;
• litigation developments;
• changes to accounting standards;
• the costs of environmental compliance and/or the imposition of liabilities under environmental laws and regulations;
• weather, including increased expenses as a result of catastrophic events;
• our ability to achieve some or all of the expected benefits of the separation;
• the taxable nature of the separation and distribution;
• KAR’s ability to change the terms of the separation in ways that may be unfavorable to us;
• our ability to recover or collect from delinquent or bankrupt customers; and
• other risks described from time to time in our filings with the SEC.

Many of these risk factors are outside of our control, and as such, they involve risks which are not currently known that could cause actual results to differ materially from those discussed or implied herein. The forward-looking statements in this document are made as of the date on which they are made, and we do not undertake to update our forward-looking statements.

Our future growth depends on a variety of factors, including our ability to increase vehicle-sold volumes, expand our product and service offerings, including information systems development, acquire and integrate additional business entities, manage expansion, control costs in our operations, introduce fee increases, and retain our executive officers and key employees. We cannot predict whether our growth strategy will be successful. In addition, we cannot predict what portion of overall sales will be conducted through online marketplaces or other remarketing methods in the future and what impact this may have on our auction business.

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THE SEPARATION AND DISTRIBUTION

Overview

On February 27, 2018, KAR announced that it would pursue a plan to separate its salvage auction businesses from its whole car auction business. The separation will be effected by allocating the assets and liabilities related primarily to the salvage auction businesses, which are currently held through KAR’s subsidiaries, including, but not limited to, Insurance Auto Auctions, Inc. in the United States, Impact Auto Auctions Ltd. in Canada and HBC Vehicle Services Limited in the United Kingdom, to IAA and then distributing 100% of the outstanding common stock of IAA to KAR’s stockholders on a pro rata basis. The separation and distribution will result in KAR and IAA becoming two independent, publicly traded companies, with IAA owning and operating KAR’s pre-separation salvage auction businesses and KAR continuing to own and operate its remaining businesses, including its whole car auction business and financing, logistics and other ancillary and related services.

At 12:01 a.m., EDT, on June 28, 2019, the distribution date, each KAR stockholder will receive one share of IAA common stock for every one share of KAR common stock held at the close of business on the record date for the distribution, as described below. You will not be required to make any payment, surrender or exchange your KAR common stock or take any other action to receive your shares of IAA’s common stock in the distribution. The distribution of IAA’s common stock as described in this information statement is subject to the satisfaction or waiver of certain conditions. For a more detailed description of these conditions, see “ —Conditions to the Distribution .”

Rationale for the Separation

The KAR board of directors believes that separation of the salvage auction businesses from the remainder of KAR is in both companies’ best interest for a number of reasons, including the following:

Enhanced Strategic Focus and Flexibility

We believe that the separation will create two independent companies with distinct strengths, well-positioned for continued market leadership and growth. We believe both businesses will be able to better focus on their unique opportunities for long-term growth and profitability and to allocate resources in a manner that focuses on achieving their own operating priorities and financial objectives.

We believe that the separation will further enhance the ability of both companies to focus investments and innovation on serving their customers and strengthening their respective competitive positioning in the global marketplace. Further, we expect that each of IAA and KAR will be better equipped to address needs of their unique customers and respond to changing markets and competitive conditions.

Optimize Capital Allocation

We believe that the separation will enable each of IAA and KAR to create independent capital structures and allow independent decisions on investments, acquisitions and capital expenditures to advance their respective strategic priorities. A standalone IAA may allow for greater focus on international expansion and potential acquisitions. We believe that IAA will also be able to better align incentive compensation to the performance of IAA and specific business units.

Distinct Investment Identities

The separation is intended to create two distinct and compelling investment opportunities for investors based on individually unique operating models and associated track records of successful performance. It also provides investors with enhanced insight into each company’s distinct value drivers and simplified financial reporting to more accurately assess and value performance of each individual business.

Formation of IAA

IAA was formed in Delaware on June 19, 2018, for the purpose of holding KAR’s salvage auction businesses. Prior to the separation, IAA will have no operations. As a result of the certain internal restructuring transactions, and prior to the distribution, IAA will succeed to the assets and liabilities that are related primarily to KAR’s salvage auction businesses.

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When and How You Will Receive the Distribution

With the assistance of AST, KAR expects to distribute IAA common stock at 12:01 a.m., EDT, on June 28, 2019, the distribution date, to all holders of outstanding KAR common stock as of the close of business on June 18, 2019, the record date for the distribution. AST will serve as the distribution agent in connection with the distribution, and the transfer agent and registrar for IAA common stock.

If you own KAR common stock as of the close of business on the record date for the distribution, the shares of IAA common stock that you are entitled to receive in the distribution will be issued electronically, as of the distribution date, to you in direct registration form or to your bank or brokerage firm on your behalf. If you are a registered holder, AST will then mail you a direct registration account statement that reflects your shares of IAA common stock. If you hold your shares through a bank or brokerage firm, your bank or brokerage firm will credit your account for the shares. Direct registration form refers to a method of recording share ownership when no physical share certificates are issued to stockholders, as is the case in this distribution. If you sell KAR common stock in the “regular-way” market up to and including the distribution date, you will be selling your right to receive shares of IAA common stock in the distribution.

Commencing on or shortly after the distribution date, if you hold physical share certificates that represent your KAR common stock and you are the registered holder of the shares represented by those certificates, the distribution agent will mail to you an account statement that indicates the number of shares of IAA’s common stock that have been registered in book-entry form in your name.

Most KAR stockholders hold their common stock through a bank or brokerage firm. In such cases, the bank or brokerage firm would be said to hold the shares in “street name,” and ownership would be recorded on the bank or brokerage firm’s books. If you hold your KAR common stock through a bank or brokerage firm, your bank or brokerage firm will credit your account for the IAA common stock that you are entitled to receive in the distribution. If you have any questions concerning the mechanics of having shares held in “street name,” please contact your bank or brokerage firm.

Transferability of Shares You Receive

Shares of IAA common stock distributed to holders in connection with the distribution will be transferable without registration under the Securities Act, except for shares received by persons who may be deemed to be IAA affiliates. Persons who may be deemed to be IAA affiliates after the distribution generally include individuals or entities that control, are controlled by or are under common control with IAA, which may include certain IAA executive officers, directors or principal stockholders. Securities held by IAA affiliates will be subject to resale restrictions under the Securities Act. IAA affiliates will be permitted to sell shares of IAA common stock only pursuant to an effective registration statement or an exemption from the registration requirements of the Securities Act, such as the exemption afforded by Rule 144 under the Securities Act.

Number of Shares of IAA Common Stock You Will Receive

For every one share of KAR common stock that you own at the close of business on June 18, 2019, the record date for the distribution, you will receive one share of IAA common stock on the distribution date. IAA will not issue fractional shares of its common stock in the distribution. Fractional shares that you and other KAR stockholders would otherwise have been entitled to receive will be aggregated and sold in the public market by the distribution agent. The aggregate net cash proceeds of these sales will be distributed pro rata (based on the fractional shares such holder would otherwise have been entitled to receive) to those stockholders who would otherwise have been entitled to receive fractional shares. Recipients of cash in lieu of fractional shares will not be entitled to any interest on the amounts of payments made in lieu of fractional shares. The receipt of cash in lieu of fractional shares generally will be taxable, for U.S. federal income tax purposes, to the recipient KAR stockholders.

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Treatment of Equity Based Compensation

The employee matters agreement will provide for the treatment of outstanding equity awards of KAR in connection with the separation. It is expected that all outstanding KAR equity awards held by KAR employees and non-employee directors and IAA employees and non-employee directors will be converted into adjusted awards of both KAR and IAA, with the IAA awards issued pursuant to an equity incentive plan that we will establish. The awards will be adjusted based on the following principles:

• For each award recipient, the intent is to maintain the economic value of those awards before and after the separation date; and
• Other than certain performance restricted stock units (“PRSUs”), treatment of which is described in more detail in the table below, the terms of the equity awards, such as the vesting schedule, will generally continue unchanged.

The following table provides additional information regarding each type of KAR equity award:

Type of Award
Treatment at Separation
Stock Option s
KAR stock options will be converted into two separate options, an adjusted option to purchase KAR common stock and an option to purchase IAA common stock, with the number and exercise prices of both options adjusted to maintain economic value.
Time-Based Restricted Stock Units (“RSUs”)
Holders of outstanding KAR RSUs will retain such KAR RSUs and also receive an RSU relating to IAA common stock in respect of each KAR RSU held.
PRSUs
KAR PRSUs granted in 2017 and 2018 will be converted into time-based RSUs relating to KAR common stock, and each holder will retain such KAR RSUs and receive a corresponding RSU relating to IAA common stock for each KAR RSU held.
   
KAR PRSUs granted in 2019 will be subject to adjusted performance criteria. Each holder of 2019 KAR PRSU will retain such 2019 KAR PRSU and will receive a PRSU relating to IAA common stock in respect of each 2019 KAR PRSU held.
Restricted Stock Awards
Non-employee directors holding KAR restricted stock awards as of the distribution date will retain such KAR restricted stock and receive a share of IAA restricted stock in respect of each share of KAR restricted stock held.

Results of the Distribution

After its separation from KAR, IAA will be an independent, publicly traded company. The actual number of shares to be distributed will be determined at the close of business on June 18, 2019, the record date for the distribution, and will reflect any exercise of KAR options between the date KAR’s board of directors declares the distribution and the record date for the distribution. The distribution will not affect the number of outstanding shares of KAR common stock or any rights of KAR stockholders.

IAA will enter into a separation and distribution agreement and other related agreements with KAR before the distribution to effect the separation and provide a framework for IAA’s relationship with KAR after the separation. These agreements will provide for the allocation between KAR and IAA of KAR’s assets, employees, liabilities and obligations attributable to periods prior to IAA’s separation from KAR and will govern the relationship between KAR and IAA after the separation. For a more detailed description of these agreements, see “ Certain Relationships and Related Person Transactions .”

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Market for IAA ’s Common Stock

There is currently no public trading market for IAA’s common stock. IAA has applied to list its common stock on the NYSE under the symbol “IAA.” IAA has not and will not set the initial price of its common stock. The initial price will be established by the public markets.

IAA cannot predict the price at which its common stock will trade after the distribution. In fact, the combined trading prices, after the separation, of the shares of IAA common stock that each KAR stockholder will receive in the distribution and the KAR common stock held at the record date for the distribution may not equal the “regular-way” trading price of a KAR share immediately prior to the separation. The price at which IAA common stock trades may fluctuate significantly, particularly until an orderly public market develops. Trading prices for IAA common stock will be determined in the public markets and may be influenced by many factors. Many factors could cause the market price of our common stock to rise and fall, including the following:

• our business profile and market capitalization may not fit the investment objectives of KAR’s current stockholders, causing a shift in our investor base, and our common stock may not be included in some indices in which KAR’s common stock is included, causing certain holders to sell their common stock;
• our announcements or our competitors’ announcements regarding new products or services, enhancements, significant contracts, acquisitions or strategic investments;
• fluctuations in our quarterly or annual financial results or the quarterly or annual financial results of companies perceived to be similar to us;
• the failure of securities analysts to cover our common stock after the separation;
• actual or anticipated fluctuations in our operating results;
• changes in earnings estimates or recommendations by securities analysts or our ability to meet those estimates;
• the operating and stock price performance of other comparable companies;
• investors’ general perception of us and our industry;
• changes to the regulatory and legal environment under which we operate;
• changes in general economic and market conditions;
• changes in industry conditions;
• changes in regulatory and other dynamics; and
• the other factors described in this “ Risk Factors ” section and elsewhere in this information statement.

In addition, if the market for stocks in our industry, or the stock market in general, experiences a loss of investor confidence, the trading price of our common stock could decline for reasons unrelated to our business, financial condition or results of operations. If any of the foregoing occurs, it could cause our stock price to fall and may expose us to lawsuits that, even if successfully defended, could be costly to defend and a distraction to management. See “ Risk Factors—Risks Related to IAA’s Common Stock .”

Incurrence of Debt

IAA anticipates having approximately $1,300.0 million of indebtedness upon completion of the separation, including borrowings of $800.0 million under the Credit Agreement. For more information on IAA’s debt financing, see “ Description of Indebtedness .”

Trading Between the Record Date and Distribution Date

Beginning on or shortly before the record date for the distribution and continuing up to and including through the distribution date, KAR expects that there will be two markets in KAR common stock: a “regular-way” market and an “ex-distribution” market. KAR common stock that trades on the “regular-way” market will trade with an entitlement to IAA common stock distributed pursuant to the separation. KAR common stock that trades on the “ex-distribution” market will trade without an entitlement to IAA common stock distributed pursuant to the distribution. Therefore, if you sell KAR common stock in the “regular-way” market up to and including

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through the distribution date, you will be selling your right to receive IAA common stock in the distribution. If you own KAR common stock at the close of business on the record date and sell those shares on the “ex-distribution” market up to and including through the distribution date, you will receive the shares of IAA common stock that you are entitled to receive pursuant to your ownership as of the record date of the KAR common stock.

Furthermore, beginning on or shortly before the record date for the distribution and continuing up to and including the distribution date, IAA expects that there will be a “when-issued” market in its common stock. “When-issued” trading refers to a sale or purchase made conditionally because the security has been authorized but not yet issued. The “when-issued” trading market will be a market for IAA common stock that will be distributed to holders of KAR common stock on the distribution date. If you owned KAR common stock at the close of business on the record date for the distribution, you would be entitled to IAA common stock distributed pursuant to the distribution. You may trade this entitlement to shares of IAA common stock, without the KAR common stock you own, on the “when-issued” market. On the first trading day following the distribution date, “when-issued” trading with respect to IAA common stock will end, and “regular-way” trading will begin.

Conditions to the Distribution

The distribution is subject to the satisfaction (or waiver by KAR in its sole discretion) of the following conditions:

• the SEC shall have declared effective the registration statement of which this information statement forms a part, and this information statement shall have been mailed to the KAR stockholders;
• KAR shall have received an opinion from its U.S. tax counsel, Skadden, Arps, Slate, Meagher & Flom LLP, to the effect that the separation and the distribution, taken together, will qualify as a transaction that is described in Sections 368(a)(1)(D) and 355 of the Code;
• KAR shall have received an opinion from a nationally recognized appraisal, valuation and investment banking firm, in form and substance satisfactory to the board of directors of KAR, confirming the solvency and financial viability of each of KAR and IAA after the distribution;
• the internal restructuring shall have been effectuated, in accordance with the plan of restructuring contemplated by the separation and distribution agreement;
• the separation shall have been effectuated as contemplated by the separation and distribution agreement;
• the actions and filings necessary or appropriate under applicable U.S. federal, U.S. state and other securities laws or blue sky laws and the rules and regulations thereunder shall have been taken or made, and, where applicable, have become effective or been accepted;
• the ancillary agreements relating to the separation shall have been duly executed and delivered by the applicable parties thereto;
• no order, injunction or decree issued by any governmental authority of competent jurisdiction or other legal restraint or prohibition preventing the consummation of the separation, the distribution or any of the transactions related thereto shall be threatened or in effect;
• the shares of IAA common stock to be distributed shall have been accepted for listing on the NYSE, subject to official notice of distribution;
• KAR shall have received the shares of IAA common stock and the cash distribution of approximately $1,250.0 million, and shall be satisfied in its sole and absolute discretion that it shall have no further liability under the Credit Agreement; and
• no other events or developments shall exist or shall have occurred that, in the judgment of the board of directors of KAR, in its sole and absolute discretion, make it inadvisable to effect the separation, the distribution or the transactions contemplated by the separation and distribution agreement or any ancillary agreement.

KAR will have the sole and absolute discretion to determine (and change) the terms of, and whether to proceed with, the distribution and, to the extent it determines to so proceed, to determine the record date for the distribution and the distribution date and the distribution ratio. KAR will also have sole discretion to waive any

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of the conditions to the distribution. KAR does not intend to notify its stockholders of any modifications to the terms of the separation that, in the judgment of its board of directors, are not material. For example, KAR’s board of directors might consider material such matters as significant changes to the distribution ratio or the allocation of the assets and liabilities of KAR in the separation. To the extent that KAR’s board of directors determines that any modifications by KAR materially change the material terms of the distribution, KAR will notify KAR’s stockholders in a manner reasonably calculated to inform them about the modification as may be required by law, by, for example, publishing a press release, filing a current report on Form 8-K or circulating a supplement to this information statement.

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U.S. FEDERAL INCOME TAX CONSEQUENCES

The following summary is a discussion of the U.S. federal income tax consequences to KAR and to the holders of KAR common stock in connection with the separation and distribution. This summary is based on the Code, the United States Treasury Regulations (the “Treasury Regulations”) promulgated thereunder and judicial and administrative interpretations thereof, in each case as in effect on the date of this information statement, all of which are subject to change at any time, possibly with retroactive effect. Any such change could affect the tax consequences described below. This summary is limited to holders of KAR common stock that are U.S. Holders (as defined below).

For purposes of this summary, a U.S. Holder is a beneficial owner of KAR common stock who or that is, for U.S. federal income tax purposes:

• an individual who is a citizen or resident of the U.S.;
• a corporation, or other entity taxable as a corporation for U.S. federal income tax purposes, created or organized under the laws of the U.S. or any state or political subdivision thereof;
• an estate, the income of which is subject to U.S. federal income taxation regardless of its source; or
• a trust if (i) a court within the U.S. is able to exercise primary jurisdiction over its administration and one or more U.S. persons have authority to control all of its substantial decisions, or (ii) it has a valid election in place under applicable Treasury Regulations to be treated as a U.S. person.

This summary does not discuss all tax considerations that may be relevant to KAR stockholders in light of their particular circumstances, nor does it address the consequences to KAR stockholders subject to special treatment under the U.S. federal income tax laws, such as:

• dealers or traders in securities;
• tax-exempt entities;
• banks, financial institutions or insurance companies;
• real estate investment trusts, regulated investment companies or grantor trusts;
• persons who acquired KAR common stock pursuant to the exercise of employee stock options or otherwise as compensation;
• persons owning KAR common stock as part of a position in a straddle or as part of a hedging, conversion or other risk reduction transaction for U.S. federal income tax purposes;
• certain former citizens or long-term residents of the United States;
• persons who are subject to the alternative minimum tax;
• U.S. Holders whose functional currency is not the U.S. dollar;
• a partnership or any other entity or arrangement treated as a partnership for U.S. federal income tax purposes;
• persons who own KAR common stock through a partnership or any other entity or arrangement treated as a partnership for U.S. federal income tax purposes; or
• persons who hold KAR common stock through a tax-qualified retirement plan.

This summary does not address the U.S. federal income tax consequences to KAR stockholders who do not hold KAR common stock as capital assets within the meaning of the Code (generally, as assets held for investment). Moreover, this summary does not address any state, local or non-U.S. tax consequences, the Medicare tax on net investment income or any federal estate, gift or other federal non-income tax consequences.

If a partnership (or any entity or arrangement treated as a partnership for U.S. federal income tax purposes) holds KAR common stock, the tax treatment of a partner in that partnership generally will depend on the status of the partner and the activities of the partnership. Such a partner or partnership should consult its own tax advisor as to the tax consequences of the separation and distribution.

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ALL HOLDERS OF KAR COMMON STOCK SHOULD CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THE SPECIFIC U.S. FEDERAL, STATE AND LOCAL AND NON-U.S. TAX CONSEQUENCES OF THE SEPARATION AND DISTRIBUTION TO THEM IN LIGHT OF THEIR PARTICULAR CIRCUMSTANCES.

KAR has received an IRS Ruling from the IRS regarding the separation and distribution and certain specific issues relevant to the qualification of the separation and distribution as tax-free under Sections 368(a)(1)(D) and 355 of the Code, based on certain facts and representations. In addition, the IRS Ruling, does not address all of the requirements for tax-free treatment of the separation and distribution. Although a private letter ruling from the IRS is generally binding on the IRS, the IRS Ruling is based on certain facts and representations and undertakings from KAR and us that certain necessary conditions to obtain tax-free treatment under the Code have been satisfied.

In addition to the IRS Ruling, KAR expects to receive a tax opinion from its U.S. tax counsel, Skadden, Arps, Slate, Meagher & Flom LLP, substantially to the effect that, for U.S. federal income tax purposes, the separation and distribution will qualify as a transaction that is tax-free to KAR, and KAR’s stockholders (except to the extent of cash received in lieu of fractional shares), under Sections 355 and 368(a)(1)(D) of the Code. It is a condition to the closing of the separation and distribution that KAR receives such opinion. The tax opinion will rely on the IRS Ruling as to matters covered by such ruling. The tax opinion will be based on, among other things, current law and certain assumptions and representations as to factual matters made by KAR and us. Any change in currently applicable law, which may or may not be retroactive, or the failure of any factual representation or assumption to be true, correct and complete in all material respects, could adversely affect the conclusions reached in such tax opinion. The tax opinion will not be binding on the IRS or the courts, and the IRS or the courts may not agree with the opinion. The tax opinion will be expressed as of the date issued and will not cover subsequent periods. As a result, the tax opinion is not expected to be issued until after the date of this information statement. An opinion of counsel represents counsel’s best legal judgment based on current law and is not binding on the IRS or any court. We cannot assure you that the IRS will agree with the conclusions expected to be set forth in the tax opinion, and it is possible that the IRS or another tax authority could adopt a position contrary to one or all of those conclusions and that a court could sustain that contrary position.

If any of the facts, representations, assumptions, or undertakings described or made in connection with the IRS Ruling or the tax opinion are not correct, are incomplete or have been violated, the IRS Ruling could be revoked retroactively or modified by the IRS, and our ability to rely on the tax opinion could be jeopardized. We are not aware of any facts or circumstances, however, that would cause these facts, representations or assumptions to be untrue or incomplete, or that would cause any of these undertakings to fail to be complied with, in any material respect.

Assuming that the distribution qualifies under Sections 355 and 368(a)(1)(D) of the Code, for U.S. federal income tax purposes:

• no gain or loss should be recognized by KAR on the distribution;
• no gain or loss should be recognized by, or be includible in the income of, a holder of KAR common stock upon receipt of IAA Spinco Inc. common stock in the distribution, except with respect to any cash received in lieu of fractional shares of IAA Spinco Inc. common stock (as described below);
• each KAR stockholder’s basis in the KAR common stock and the IAA Spinco Inc. common stock following the distribution (including any fractional share interest in IAA Spinco Inc. common stock for which cash is received) should equal the aggregate basis of the KAR common stock that such holder held immediately before the distribution, allocated between the KAR common stock and the IAA Spinco Inc. common stock (including any fractional share interest in IAA Spinco Inc. common stock for which cash is received) in proportion to their relative fair market values at the time of the distribution;
• each KAR stockholder’s holding period in the IAA Spinco Inc. common stock received in the distribution (including any fractional share interest in IAA Spinco Inc. common stock for which cash is received) should include the holding period of the KAR common stock with respect to which the distribution is made, provided that such holder holds such KAR common stock as a capital asset on the date of the distribution; and

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• each KAR stockholder who receives cash in lieu of a fractional share of IAA Spinco Inc. common stock in the distribution should be treated as having sold such fractional share for cash, and should recognize capital gain or loss in an amount equal to the difference between the amount of cash received and the KAR stockholder’s adjusted tax basis in the fractional share, which should be long-term capital gain or loss if the stockholder’s holding period for its KAR common stock exceeds one year at the time of the distribution.

If, notwithstanding the conclusions included in the IRS Ruling and the tax opinion, it is ultimately determined that the separation and distribution do not qualify as tax-free under Sections 355 and 368(a)(1)(D) of the Code, as applicable, KAR or we could incur significant U.S. federal income tax liabilities attributable to the separation and distribution. In addition, if the separation and distribution were not to qualify as a tax-free transaction for U.S. federal income tax purposes under Sections 355 and 368(a)(1)(D) of the Code, except to the extent of cash received in lieu of fractional shares, each KAR stockholder that receives IAA Spinco Inc. common stock in the distribution could be treated as receiving a taxable distribution in an amount equal to the fair market value of IAA Spinco Inc. common stock that was distributed to the stockholder, which generally would be taxed as a dividend to the extent of the stockholder’s pro rata share of KAR’s current and accumulated earnings and profits, then treated as a non-taxable return of capital to the extent of the stockholder’s basis in its KAR common stock and finally treated as capital gain from the sale or exchange of its KAR common stock.

Even if the separation and distribution otherwise qualify for tax-free treatment to KAR under Sections 355 and/or 368(a)(1)(D) of the Code, corporate-level taxable gain under Section 355(e) of the Code may result if fifty percent or more, by vote or value, of our common stock or KAR common stock is treated as acquired or issued as part of a plan or series of related transactions that include the distribution. The process for determining whether an acquisition or issuance triggering these provisions has occurred is complex, inherently factual and subject to interpretation of the facts and circumstances of a particular case. For this purpose, any acquisitions or issuances of KAR common stock within two years before the distribution, and any acquisitions or issuances of our common stock or KAR common stock within two years after the distribution, generally are presumed to be part of such a plan, although we or KAR, as applicable, may be able to rebut that presumption. We are not aware of any acquisitions or issuances of KAR common stock within the two years before the distribution that would trigger the application of Section 355(e) of the Code. If an acquisition or issuance of our common stock or KAR common stock triggers the application of Section 355(e) of the Code, KAR or we could incur significant U.S. federal income tax liabilities attributable to the separation and distribution.

Treasury Regulations require holders of KAR common stock who receive IAA Spinco Inc. common stock in the distribution who, immediately prior to the distribution, own (i) at least 5% of the total outstanding stock of KAR, or (ii) securities of KAR with an aggregate tax basis of $1 million or more, to attach a statement setting forth certain information related to the distribution to their U.S. federal income tax returns for the year in which the distribution occurs.

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DIVIDEND POLICY

IAA has not yet determined the extent to which it will pay dividends on its common stock. The payment of any dividends in the future, and the timing and amount thereof, to IAA’s stockholders will fall within the sole discretion of the Board and will depend on many factors, including IAA’s financial condition and prospects, capital requirements and access to capital markets, covenants associated with certain of its debt obligations, legal requirements and other factors that the Board may deem relevant. IAA’s ability to pay dividends will depend on its ongoing ability to generate cash from operations and on our access to the capital markets. IAA cannot guarantee that it will pay a dividend in the future or continue to pay any dividends if it commences paying dividends.

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CAPITALIZATION

The following sets forth IAA’s cash and cash equivalents and capitalization as of March 31, 2019, on (i) an actual unaudited historical basis and (ii) an unaudited pro forma basis as adjusted to give effect to the separation and the transactions related to the separation as if they had occurred on March 31, 2019. The information below is not necessarily indicative of what IAA’s capitalization would have been had the separation, distribution and related financing transactions been completed as of March 31, 2019. In addition, it is not indicative of IAA’s future capitalization. This table should be read in conjunction with “ Unaudited Pro Forma Consolidated Financial Statements ,” “ Notes to Unaudited Pro Forma Consolidated Financial Statements ,” “ Selected Historical Consolidated Financial Data ,” “ Management’s Discussion and Analysis of Financial Condition and Results of Operations ” and IAA’s consolidated financial statements and notes included in the “ Index to Financial Statements ” section of this information statement.

 
As of March 31, 2019
 
Actual
As adjusted
 
(in millions)
Cash and cash equivalents
$
66.2
 
$
25.0
 
Intercompany debt
 
456.6
 
 
—
 
Long-term debt:
 
 
 
 
 
 
Senior Secured Credit Facilities:
 
 
 
 
 
 
Term Loan Facility
 
—
 
 
800.0
 
Revolving Credit Facility
 
—
 
 
—
 
Capital leases
 
22.9
 
 
22.9
 
5.500% Senior Notes due 2027
 
—
 
 
500.0
 
Total debt
 
479.5
 
 
1,322.9
 
Unamortized debt issuance costs
 
—
 
 
(25.0
)
Total debt, net of unamortized debt issuance costs
 
479.5
 
 
1,297.9
 
Equity:
 
 
 
 
 
 
Common stock, par value $0.01 per share
 
—
 
 
1.3
 
Accumulated deficit
 
—
 
 
(231.5
)
Net Parent Investment
 
629.4
 
 
—
 
Accumulated other comprehensive income (loss)
 
(10.5
)
 
(10.5
)
Total equity
 
618.9
 
 
(240.7
)
Total capitalization
$
1,098.4
 
$
1,057.2
 
* Reflects the issuance of $1,300.0 million of debt, of which it is anticipated that $8.0 million will be current and $1,267.0 million will be long-term, net of $25.0 million of estimated debt issuance costs and discounts. See “ Description of O ther Indebtedness .”

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SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA

The following table presents IAA’s selected historical consolidated financial data. The selected historical consolidated financial data as of December 30, 2018 and December 31, 2017, and for the fiscal years ended December 30, 2018, December 31, 2017 and January 1, 2017, are derived from the consolidated audited information of KAR’s pre-spin salvage auction operations (for purposes of this section, “Insurance Auto Auctions, Inc.”) included elsewhere in this information statement (the “Audited Financial Statements”). The selected historical consolidated financial data as of January 1, 2017 and December 27, 2015, and for the fiscal year ended December 27, 2015, are derived from audited information of Insurance Auto Auctions, Inc. not included in this information statement. The selected historical consolidated financial data as of and for the fiscal year ended December 28, 2014 is derived from Insurance Auto Auctions, Inc.’s unaudited consolidated financial statements that are not included in this information statement.

The selected historical consolidated financial data as of March 31, 2019, and for the three months ended March 31, 2019, and April 1, 2018, are derived from Insurance Auto Auctions, Inc.’s unaudited interim consolidated financial statements included elsewhere in this information statement. In management’s opinion, the unaudited interim consolidated financial statements as of March 31, 2019, and for the three months ended March 31, 2019 and April 1, 2018 have been prepared on the same basis as the audited information in the Audited Financial Statements and include all adjustments, consisting only of normal recurring adjustments and allocations necessary for a fair presentation of the information for the periods presented.

The selected historical consolidated financial data includes certain expenses of KAR that were allocated to IAA for certain corporate functions including accounting, treasury, tax, internal audit, risk management, human resources, safety, and security, and information technology risk. These costs may not be representative of the future costs IAA will incur as an independent, publicly traded company. In addition, Insurance Auto Auctions, Inc.’s historical financial information does not reflect changes that IAA expects to experience in the future as a result of IAA’s separation from KAR, including changes in IAA’s cost structure, personnel needs, tax structure, capital structure, financing and business operations. The consolidated financial statements also do not reflect the assignment of certain assets and liabilities between KAR and IAA. Consequently, the financial information included here may not necessarily reflect IAA’s financial position, results of operations and cash flows in the future or what IAA’s financial position, results of operations and cash flows would have been had IAA been an independent, publicly traded company during the periods presented.

For a better understanding, this section should be read in conjunction with the discussion in “ Management’s Discussion and Analysis of Financial Condition and Results of Operations ” and the “ Unaudited Pro Forma Consolidated Financial Statements ” and corresponding notes and the Audited Consolidated Financial Statements and corresponding notes and the Unaudited Consolidated Financial Statements and corresponding notes included elsewhere in this information statement.

 
Three Months Ended
Fiscal Years Ended
(amounts in millions,
except per share data)
March 31, 2019
(Unaudited)
April 1, 2018
(Unaudited)
December 30,
2018
December 31,
2017
January 1,
2017
December 27,
2015
December 28,
2014
(Unaudited)
Statement of income data
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating revenues
$
357.2
 
$
337.3
 
$
1,326.8
 
$
1,219.2
 
$
1,098.0
 
$
994.3
 
$
895.9
 
Net income
 
54.5
 
 
48.3
 
 
183.7
 
 
161.4
 
 
94.9
 
 
89.9
 
 
78.2
 
Net income per share
 
—
 
 
—
 
 
—
 
 
—
 
 
—
 
 
—
 
 
—
 
Balance sheet data (end of period)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total assets
$
2,016.6
 
$
1,460.3
 
$
1,500.2
 
$
1,434.4
 
$
1,352.8
 
$
1,285.1
 
$
1,232.1
 
Long-term debt (current)
 
456.6
 
 
456.6
 
 
456.6
 
 
456.6
 
 
456.6
 
 
456.6
 
 
456.6
 
Other Financial Data
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
EBITDA (1)
 
105.1
 
 
98.0
 
 
382.3
 
 
328.7
 
 
279.8
 
 
261.8
 
 
240.5
 
Adjusted EBITDA (1)
$
107.9
 
$
100.0
 
$
388.0
 
$
333.3
 
$
282.6
 
$
263.2
 
$
245.7
 
(1) EBITDA is defined as net income (loss), plus interest expense net of interest income, income tax provision (benefit), depreciation and amortization. Adjusted EBITDA is EBITDA adjusted for the items of income and expense and expected incremental revenue and cost savings set forth below. See “ Management’s Discussion and Analysis of Financial Condition and Results of Operations—EBITDA and Adjusted EBITDA .”

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The following tables reconcile EBITDA and Adjusted EBITDA to net income for the periods presented:

 
Three Months Ended
Fiscal Years Ended
(amounts in millions,
except per share data)
March 31, 2019
( Unaudited)
April 1, 2018
(Unaudited)
December 30,
2018
December 31,
2017
January 1,
2017
December 27,
2015
December 28,
2014
(Unaudited)
Statement of income data
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income
$
54.5
 
$
48.3
 
$
183.7
 
$
161.4
 
$
94.9
 
$
89.9
 
$
78.2
 
Add back:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Income taxes
 
19.1
 
 
16.0
 
 
62.5
 
 
35.6
 
 
58.4
 
 
52.5
 
 
47.5
 
Interest expense, net of interest income
 
0.3
 
 
0.2
 
 
0.8
 
 
0.8
 
 
0.8
 
 
0.8
 
 
0.8
 
Depreciation and amortization
 
21.8
 
 
24.1
 
 
97.4
 
 
93.1
 
 
87.9
 
 
80.8
 
 
76.2
 
Intercompany interest
 
9.4
 
 
9.4
 
 
37.9
 
 
37.8
 
 
37.8
 
 
37.8
 
 
37.8
 
Other Financial Data
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
EBITDA
 
105.1
 
 
98.0
 
 
382.3
 
 
328.7
 
 
279.8
 
 
261.8
 
 
240.5
 
Intercompany charges
 
0.6
 
 
—
 
 
—
 
 
—
 
 
0.3
 
 
0.7
 
 
0.8
 
Non-cash stock-based compensation
 
1.1
 
 
1.0
 
 
3.9
 
 
3.9
 
 
2.6
 
 
1.1
 
 
4.2
 
Minority interest
 
—
 
 
—
 
 
—
 
 
—
 
 
—
 
 
(1.4
)
 
—
 
Separation costs
 
—
 
 
0.4
 
 
2.0
 
 
—
 
 
—
 
 
—
 
 
—
 
Other
 
1.1
 
 
0.6
 
 
(0.2
)
 
0.7
 
 
(0.1
)
 
1.0
 
 
0.2
 
Total addbacks
 
2.8
 
 
2.0
 
 
5.7
 
 
4.6
 
 
2.8
 
 
1.4
 
 
5.2
 
Adjusted EBITDA
$
107.9
 
$
100.0
 
$
388.0
 
$
333.3
 
$
282.6
 
$
263.2
 
$
245.7
 

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UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS

The Unaudited Pro Forma Consolidated Financial Data of IAA consists of Unaudited Pro Forma Consolidated Statements of Income for the fiscal year ended December 30, 2018 and for the three months ended March 31, 2019, and an Unaudited Pro Forma Consolidated Balance Sheet as of March 31, 2019. The Unaudited Pro Forma Consolidated Financial Data reported below should be read in conjunction with “ Management’s Discussion and Analysis of Financial Condition and Results of Operations ” and “ Selected Historical Consolidated Financial Data ” and the consolidated financial statements and corresponding notes included elsewhere in this information statement which have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”).

The following Unaudited Pro Forma Consolidated Financial Data is subject to assumptions and adjustments described in the accompanying notes. IAA management believes these assumptions and adjustments are reasonable under the circumstances, given the information available at this time. However, these adjustments are subject to change as KAR and IAA finalize the terms of the separation, including the separation and distribution agreement and related transaction agreements. The Unaudited Pro Forma Consolidated Financial Data do not purport to represent what IAA’s financial position, and results of operations actually would have been had the separation occurred on the dates indicated, or to project IAA’s financial performance for any future period following the separation.

The Unaudited Pro Forma Consolidated Financial Data does not reflect all of the costs of operating as a standalone company, including possible higher information technology, finance, legal, insurance, compliance, human resources and other similar expenses associated with operating as a standalone company. Other costs that management has determined to be factually supportable and recurring are included as pro forma adjustments.

The Unaudited Pro Forma Consolidated Statement of Income for the fiscal year ended December 30, 2018 and the three months ended March 31, 2019 assumes the separation occurred on January 1, 2018, the first day of the last fiscal year. The Unaudited Pro Forma Consolidated Balance Sheet as of March 31, 2019 gives effect to the separation as if it had occurred on March 31, 2019, the latest balance sheet date. These Unaudited Pro Forma Consolidated Financial Data include adjustments to reflect the following:

• the impact of assets, liabilities and related expenses that IAA expects to assume from KAR that were not included in IAA’s historical financial statements;
• the estimated increase in interest expense and amortization of debt issuance costs/discounts in connection with debt IAA expects to assume at the time of separation;
• the tax effects of the pro forma adjustments at the applicable statutory income tax rates; and net cash proceeds from the issuance of $1,300.0 million of debt and repayment of existing intercompany debt.

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IAA Spinco Inc.
Unaudited Pro Forma Consolidated Statement of Income
For the Fiscal Year Ended December 30, 2018
(amounts in millions, except per share data)

 
Historical
Pro Forma
Adjustments (A)
Pro Forma
Operating revenues
$
1,326.8
 
$
—
 
$
1,326.8
 
Operating expenses
 
 
 
 
 
 
 
 
 
Cost of services (exclusive of depreciation and amortization)
 
821.2
 
 
—
 
 
821.2
 
Selling, general and administrative
 
123.8
 
 
—
(J)  
 
123.8
 
Depreciation and amortization
 
97.4
 
 
—
 
 
97.4
 
Total operating expenses
 
1,042.4
 
 
—
 
 
1,042.4
 
Operating profit
 
284.4
 
 
—
 
 
284.4
 
Interest expense
 
38.7
 
 
31.5
(B)
 
70.2
 
Other income, net
 
(0.5
)
 
—
 
 
(0.5
)
Income before income taxes
 
246.2
 
 
(31.5
)
 
214.7
 
Income taxes
 
62.5
 
 
(7.6
) (C)
 
54.9
 
Net income
$
183.7
 
$
(23.9
)
$
159.8
 
Net income per share
 
 
 
 
 
 
 
 
 
Basic
 
 
 
 
 
 
$
1.19
 
Diluted
 
 
 
 
 
 
$
1.18
 
Average number of common shares outstanding
 
 
 
 
 
 
 
 
 
Basic
 
 
 
 
 
 
 
134.3
(D)  
Diluted
 
 
 
 
 
 
 
135.7
(E)  

See accompanying notes to unaudited pro forma consolidated financial statements beginning on page 56 .

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IAA Spinco Inc.
Unaudited Pro Forma Consolidated Statement of Income
For the Three Months Ended March 31, 2019
(amounts in millions, except per share data)

 
Historical
Pro Forma
Adjustments (A)
Pro Forma
Operating revenues
$
357.2
 
$
—
 
$
357.2
 
Operating expenses
 
 
 
 
 
 
 
 
 
Cost of services (exclusive of depreciation and amortization)
 
218.4
 
 
—
 
 
218.4
 
Selling, general and administrative
 
33.6
 
 
—
(J)  
 
33.6
 
Depreciation and amortization
 
21.8
 
 
—
 
 
21.8
 
Total operating expenses
 
273.8
 
 
—
 
 
273.8
 
Operating profit
 
83.4
 
 
—
 
 
83.4
 
Interest expense
 
9.7
 
 
8.6
(B)
 
18.3
 
Other expense, net
 
0.1
 
 
—
 
 
0.1
 
Income before income taxes
 
73.6
 
 
(8.6
)
 
65.0
 
Income taxes
 
19.1
 
 
(2.1
) (C)
 
17.0
 
Net income
$
54.5
 
$
(6.5
)
$
48.0
 
 
 
 
 
 
 
 
 
 
 
Net income per share
 
 
 
 
 
 
 
 
 
Basic
 
 
 
 
 
 
$
0.36
(D)
Diluted
 
 
 
 
 
 
$
0.36
(E)
Average number of common shares outstanding
 
 
 
 
 
 
 
 
 
Basic
 
 
 
 
 
 
 
133.1
 
Diluted
 
 
 
 
 
 
 
133.8
 

See accompanying notes to unaudited pro forma consolidated financial statements beginning on page 56 .

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IAA Spinco Inc.
Unaudited Pro Forma Consolidated Balance Sheets
As of March 31, 2019
(amounts in millions, except per share data)

 
Historical
Pro Forma
Adjustments (A)
Pro Forma
Assets
 
 
 
 
 
 
 
 
 
Current assets
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
66.2
 
$
(41.2
) (F)
$
25.0
 
Trade receivables, net
 
337.9
 
 
—
 
 
337.9
 
Prepaid consigned vehicle charges
 
51.1
 
 
—
 
 
51.1
 
Other current assets
 
38.7
 
 
—
 
 
38.7
 
Total current assets
 
493.9
 
 
(41.2
)
 
452.7
 
Other assets
 
 
 
 
 
 
 
 
 
Goodwill
 
531.1
 
 
—
 
 
531.1
 
Customer relationships, net
 
68.6
 
 
—
 
 
68.6
 
Other intangible assets, net
 
86.6
 
 
—
 
 
86.6
 
Operating lease right-of-use assets
 
625.7
 
 
—
 
 
625.7
 
Other assets
 
12.2
 
 
—
 
 
12.2
 
Total other assets
 
1,324.2
 
 
—
 
 
1,324.2
 
Property and equipment, net
 
198.5
 
 
—
 
 
198.5
 
Total assets
$
2,016.6
 
$
(41.2
)
$
1,975.4
 
 
 
 
 
 
 
 
 
 
 
Liabilities and Equity
 
 
 
 
 
 
 
 
 
Current liabilities
 
 
 
 
 
 
 
 
 
Accounts payable
$
123.3
 
$
—
 
$
123.3
 
Accrued employee benefits and compensation expenses
 
19.1
 
 
—
 
 
19.1
 
Other accrued expenses
 
51.3
 
 
—
 
 
51.3
 
Income taxes payable
 
0.6
 
 
—
(C)  
 
0.6
 
Short-term right-of-use operating lease liability
 
62.5
 
 
—
 
 
62.5
 
Intercompany debt
 
456.6
 
 
(456.6
) (F)
 
—
 
Current maturities of long-term debt
 
—
 
 
8.0
(G)
 
8.0
 
Total current liabilities
 
713.4
 
 
(448.6
)
 
264.8
 
Noncurrent liabilities
 
 
 
 
 
 
 
 
 
Long-term debt
 
—
 
 
1,267.0
(G)
 
1,267.0
 
Deferred income tax liabilities
 
63.6
 
 
—
(C)  
 
63.6
 
Long-term right-of-use operating lease liability
 
607.2
 
 
—
 
 
607.2
 
Other liabilities
 
13.5
 
 
—
 
 
13.5
 
Total noncurrent liabilities
 
684.3
 
 
1,267.0
 
 
1,951.3
 
Commitments and contingencies
 
 
 
 
 
 
 
 
 
Parent Equity
 
 
 
 
 
 
 
 
 
Net parent investment
 
629.4
 
 
(629.4
) (H)(I)
 
—
 
Common Stock, $0.01 par value
 
—
 
 
1.3
(H)  
 
1.3
 
Accumulated deficit
 
—
 
 
(231.5
) (H)(I)
 
(231.5
)
Accumulated other comprehensive income (loss)
 
(10.5
)
 
—
 
 
(10.5
)
Total parent equity
 
618.9
 
 
(859.6
) (F)
 
(240.7
)
Total liabilities and equity
$
2,016.6
 
$
(41.2
)
$
1,975.4
 

See accompanying notes to unaudited pro forma consolidated financial statements beginning on page 56 .

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IAA Spinco Inc.
Notes to Unaudited Pro Forma Consolidated Financial Statements

(A)   Reflects the impact of assets, liabilities and related expenses that IAA expects to assume from KAR that were not included in IAA’s historical financial statements. There may be additional assets, liabilities or related expenses transferred to IAA in the separation for which the transfer has not been finalized.

(B)   Reflects the estimated increase in interest expense and amortization of debt issuance costs/discounts in connection with debt IAA expects to assume at the time of separation compared to the historical intercompany debt interest as described in Note (G). The pro forma impact was primarily based on the issuance of $1,300.0 million of debt at a weighted average interest rate of 4.99% and 5.17% for the fiscal year ended December 30, 2018 and for the three months ended March 31, 2019, respectively.

(C)   Reflects the tax effects of the pro forma adjustments at the applicable statutory income tax rates. The effective tax rate of IAA could be different (either higher or lower) depending on activities subsequent to the separation. The impact of pro forma adjustments on long-term deferred tax assets and liabilities was offset against existing long-term deferred tax assets and liabilities reflected in IAA’s historical consolidated balance sheet based on jurisdiction.

(D)   The number of shares of IAA common stock used to compute basic earnings per share is based on (a) the number of shares of IAA common stock assumed to be outstanding on the distribution date and (b) the number of shares of KAR common stock outstanding on December 30, 2018 and March 31, 2019, as applicable, assuming a distribution ratio of one share of IAA common stock for every one share of KAR common stock.

(E)   The number of shares used to compute diluted earnings per share is based on the number of common shares of IAA as described in Note (D), plus incremental shares assuming exercise of dilutive outstanding options and restricted stock awards. This calculation may not be indicative of the dilutive effect that will actually result from IAA stock-based awards issued in connection with the adjustment of outstanding KAR stock-based awards or the grant of new stock-based awards. The number of dilutive common stock underlying IAA stock-based awards issued in connection with the adjustment of outstanding KAR stock-based awards will not be determined until the distribution date or shortly thereafter.

(F)   Primarily reflects the repayment of existing intercompany debt, the adjustment to cash and cash equivalents to $25.0 million and distributions to KAR from the net proceeds of the issuance of debt.

(G)   Reflects the issuance of $1,300.0 million of debt from the issuance of the Notes and borrowings under the Senior Secured Credit Facilities, of which it is anticipated that $8.0 million will be current and $1,267.0 million will be long-term, net of $25.0 million of estimated debt issuance costs and discounts.

(H)    Reflects the pro forma recapitalization of IAA’s equity. As of the distribution date, KAR’s net investment in IAA will be exchanged to reflect the distribution of shares of IAA common stock to KAR stockholders at a distribution ratio of one share of IAA common stock for one share of KAR common stock. The distribution of common stock will be at a par value of $0.01 per share.

(I)   The elimination of IAA’s Net KAR investment and adjustments to accumulated deficit reflect the following:

Elimination of Net Parent Investment and adjustment to accumulated deficit:
 
 
 
Reclassification of Net Parent Investment
 
629.4
 
Distribution to KAR
 
(859.6
)
Assumption of net assets and liabilities described in Note (A)
 
—
 
Total Net Parent Investment
 
(230.2
)
IAA ordinary shares described in Note (D)
 
1.3
 
Total accumulated deficit
$
(231.5
)

(J)   It is currently estimated that the ongoing costs to be incurred after the spin-off related to the transition to becoming an independent standalone publicly traded company will range from approximately $8 million to $10 million. Due to the scope and complexity of these activities, the amount of these costs could increase or decrease materially and, therefore, are not included within the Unaudited Pro Forma Consolidated Financial Data.

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BUSINESS

IAA is a corporation that was incorporated in Delaware on June 19, 2018. Although we are a newly formed company, we will assume the salvage auction businesses of KAR, comprised of Insurance Auto Auctions, Inc. in the United States, Impact Auto Auctions Ltd. in Canada and HBC Vehicle Services Limited in the United Kingdom, which has been a leading provider of damaged, total loss claim solutions and salvage vehicle auctions in North America and the United Kingdom. We serve our customer base through salvage auction locations throughout North America. Through HBC Vehicle Services Limited, or HBC, we also operate from 14 locations in the United Kingdom. We facilitate the remarketing of vehicles for a variety of sellers, including insurance companies, dealerships, rental car companies, fleet lease companies and charitable organizations.

On February 27, 2018, KAR announced that it would pursue a plan to separate its salvage auction businesses from its whole car auction business. The separation will be effected by allocating the assets and liabilities related primarily to the salvage auction businesses to IAA and then distributing the common stock of IAA to KAR’s stockholders. The separation and distribution will result in KAR and IAA becoming two independent, publicly traded companies, with IAA owning and operating KAR’s pre-separation salvage auction businesses and KAR continuing to own and operate its remaining businesses, including its whole car auction business and financing, logistics and other ancillary and related services.

Our Industry

Our marketplaces act as hubs for bringing together professional buyers and sellers of salvage vehicles. The salvage vehicle auction industry provides a venue for sellers, primarily automobile insurance companies, to dispose or liquidate total loss, damaged or low-value vehicles to either domestic and international dismantlers, rebuilders, scrap dealers or qualified public buyers.

While over five million vehicles are sold annually in salvage vehicle marketplaces in North America, this represents less than 2% of total vehicles in operation (approximately 300 million). We believe that global volumes in the salvage vehicle auction industry will grow 5% to 7% annually for the foreseeable future, as the number of total loss vehicles increases.

We estimate that IAA and Copart, Inc. together represent over 80% of the North American market.

The industry currently benefits from several thematic tailwinds, including (i) Growing and Aging Automotive Car Parc, (ii) increasing vehicle complexity and total loss frequency, (iii) increasing accident frequency and (iv) increasing utilization of recycled and alternative automotive parts.

Growing and Aging Automotive Car Parc

In North America, the salvage vehicle marketplace has benefited from a growing Car Parc, increasing average age of vehicles and a rising amount of annual miles driven. Over the last five years, the U.S. Car Parc has increased by approximately 27 million vehicles, representing 10.8% growth in the number of vehicles in operation. Additionally, the number of miles driven in the United States per year has grown by 230 billion miles. Both of these trends contribute to a rising number of automotive accidents, which supports increased volumes through our marketplaces.

Meanwhile, vehicle owners continue to drive the same vehicle for longer periods of time, reflected by a 2.6% increase in the average age of vehicles on the road since 2013. As vehicles become older and their residual values decline, it becomes more likely that these vehicles will surpass the total loss threshold when involved in an accident and be sold on behalf of insurers through our marketplaces.

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1. Source : Hedges and Company .
2. Source : U.S. Department of Transportation .
3. Source : Autocare Association .

Increasing Vehicle Complexity and Total Loss Frequency

Vehicle design has become increasingly complex in recent years, as automotive manufacturers seek to differentiate themselves from competitors by incorporating new and more complex technologies and other enhancements into their designs to reduce weight and improve fuel efficiency. This has resulted in higher repair and part replacement costs following an accident, making insurance companies more likely to declare a damaged vehicle a total loss. The percentage of claims resulting in total losses has steadily increased over the last five years. When a vehicle is deemed a total loss, insurers typically auction the vehicle through a salvage vehicle marketplace.

 

Source : CCC Information Services.

Increasing Accident Frequency

The salvage vehicle marketplace is directly impacted by accident rates. In the United States, accident rates have been increasing in recent years due to previously mentioned automotive industry factors, such as rising vehicles in operation and miles driven, and an increasing number of distractions for drivers is also contributing to this trend. According to the National Highway Traffic Safety Administration, the number of reported crashes in the United States grew by 12.1% from 2012 to 2015. As more accidents occur on the road, the likelihood of increased volumes through our salvage auction sites increases.

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Increasing Utilization of Recycled and Alternative Automotive Parts

As insurance companies continue to identify ways to reduce their claim costs, the utilization and acceptance rates continue to increase for recycled parts from total loss vehicles and aftermarket replacement parts (combined “alternative parts”). Alternative part utilization in insurance claims has grown at a compounded annual growth rate (“CAGR”) of 6% since 2012, outpacing OEM parts which grew at a 2% CAGR over the same time period. This trend is relevant for IAA as it is helping increase revenue for our buyer base, which in turn increases demand for our marketplaces.

Alternative part utilization continues to grow as insurance companies seek solutions to the rising cost of claims and increasing frequency of claims. According to the Insurance Information Institute, from 2012 to 2017, collision claims frequencies increased approximately 10% while claim severity, representing the size of the loss to the insurance company, increased nearly 16%. These compounding factors have led insurance companies to seek alternatives to lower costs per claim.

Rationale for the Separation

The KAR board of directors believes that separation of the salvage auction businesses from the remainder of KAR is in both companies’ best interest for a number of reasons, including the following:

Enhanced Strategic Focus and Flexibility

We believe that the separation will create two independent companies with distinct strengths, well-positioned for continued market leadership and growth. We believe both businesses will be able to better focus on their unique opportunities for long-term growth and profitability and to allocate resources in a manner that focuses on achieving their own operating priorities and financial objectives.

We believe that the separation will further enhance the ability of both companies to focus investments and innovation on serving their customers and strengthening their respective competitive positioning in the global marketplace. Further, we expect that each of IAA and KAR will be better equipped to address needs of their unique customers and respond to changing markets and competitive conditions.

Optimize Capital Allocation

We believe that the separation will enable each of IAA and KAR to create independent capital structures and allow independent decisions on investments, acquisitions and capital expenditures to advance their respective strategic priorities. A standalone IAA may allow for greater focus on international expansion and potential acquisitions. We believe that IAA will also be able to better align incentive compensation to the performance of IAA and specific business units.

Distinct Investment Identities

The separation is intended to create two distinct and compelling investment opportunities for investors based on individually unique operating models and associated track records of successful performance. It also provides investors with enhanced insight into each company’s distinct value drivers and simplified financial reporting to more accurately assess and value performance of each individual business.

Our Strengths

We believe we distinguish ourselves through the following competitive strengths, which we expect to continue to enhance as a standalone company:

Market Leadership and Expertise in the Salvage Vehicle Auction Industry

We are one of the two largest providers of total loss, damaged and low-value vehicle auction services in North America with approximately 40% market share. We estimate that IAA and Copart, Inc. together represent over 80% of the North American market. We have been operating in our market in North America since 1982 and have sold approximately 20 million vehicles since 2007 through our marketplaces and benefit from longstanding insight and expertise in the space. We are also the clear market leader in the Canadian market, with a long track record of growth, operating under the Impact Auto Auctions brand.

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Significant Presence Through Our Unique Omnichannel Marketplace

Vehicles are marketed to bidders through IAA’s omnichannel marketplace that includes both physical and online marketplaces. We currently operate 179 sites across the United States and Canada and 14 sites in the United Kingdom, representing total acreage of approximately 7,500 gross acres. Although every vehicle that we offer is available online, we maintain and run live physical marketplaces simultaneously with our online marketplaces. We believe maintaining live, in-person physical marketplaces is a key differentiator in achieving the highest selling price on any given vehicle. A physical presence also improves pick-up, storage, titling and other ancillary services for our customers.

Our online marketplaces allow prospective bidders to preview, bid and potentially buy vehicles prior to the live auction event. Online inventory browsing and digital alerts (via email or through our buyer app) reduce the time required to acquire vehicles. North American online sales volumes for IAA for the fiscal year ended December 30, 2018 represented over 60% of the total vehicles sold by IAA.

Industry-Leading Technology and Data Analytic s Capabilities

We have made substantial investments into technology throughout our history to ensure that we are providing market-leading solutions for our customers. Our technology and analytics capabilities have translated into strong and deeply embedded customer relationships with both sellers and buyers.

Our current online solutions include (i) iBid LIVE TM – a proprietary live online bidding platform, (ii) IAA Buy Now TM – a complementary product to our live and live online platforms, allowing for buying of vehicles between auction dates, (iii) CSAToday ® – our industry-leading seller portal where consignors can manage vehicle assignment, release and sale, as well as a suite of data and analytics reporting tools, (iv) Automated Salvage Auction Processing – a proprietary web-based application which streamlines all aspects of our operations, and is the source for our 24/7 access that consignors enjoy through CSAToday ® and (v) IAA Timed Auctions TM – our latest offering to our omnichannel marketplace, which allows for bidding and buying of vehicles for a fixed time period before a scheduled live auction.

IAA Total Loss Solutions ®

We have pioneered and developed a leading and highly differentiated set of solutions for the total loss claims process that demonstrate our focus on comprehensive customer service beyond the traditional auction. We believe our solutions are valued by our customers, which enhances our customer relationships and overall customer satisfaction.

Total Loss Solutions ® is a comprehensive suite of services with products designed to help process total loss vehicle claims efficiently beginning with the loss event all the way through to asset liquidation. The suite was built with an eye toward workforce efficiency and customer service. Total Loss Solutions ® includes services spanning from first notice of loss to vehicle sale at auction including: IAA Loss Advisor™, IAA Inspection Services ® , IAA Title Services ® , Title Procurement Dashboard, IAA Loan Payoff™ (in pilot), MyVehicleClaim.com and IAA Active Inventory Management.

Long- S tanding and Diversified Relationship with Major National Insurers

We have established and maintain deep relationships with over 80 of the top 100 major national insurers, with over 80% of our volume sourced through our extensive insurer network. We expect that these relationships will continue to provide competitive differentiation and will make it difficult for new entrants and existing competitors to gain traction in the market.

Extensive International Buyer Network

We have a large, diverse and global buyer base that purchases vehicles through our marketplaces. Our active database of thousands of buyers improves the efficiency and efficacy of our marketplaces, ultimately benefiting both buyers and sellers.

Our buyer network is diversified. The largest buyer accounts for approximately 3% of total revenue, while no other buyer accounts for more than 1.5% of total revenue.

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Attractive Profitability and Margin Profile Driving Long-Term Operating Leverage

We benefit from attractive profitability and margins due to substantial operating leverage. Over the past three years, we have consistently achieved an Adjusted EBITDA margin of approximately 26% maintained through our culture and focus on operational efficiency.

At IAA, we also lease a significant portion of our properties, which not only impacts our expenses but also results in lower capital intensity relative to our competitors.

Flexible and Efficient Financial Model

Our low maintenance capital expenditures and working capital requirements enable the business to generate strong cash flows. In fiscal year 2018, capital expenditures represented only 17% of Adjusted EBITDA. We expect our low capital intensity model to allow us to produce strong cash flow from operations, providing us great strategic and financial flexibility.

From an inventory perspective, we do not take title to or bear the risk of loss for a vast majority of vehicles sold through our marketplaces. Furthermore, buyers do not receive title or possession of vehicles after purchase until payment in full is received. These practices contribute to limited inventory and accounts receivable exposure.

While we currently lease our physical auction sites, the separation will provide management with the opportunity to further evaluate the strategic and financial merit of owning additional real estate, which would positively impact our profitability margins.

Experienced Management Team with a Strong Track Record

We are led by a senior management team with extensive industry experience. Our President and CEO, John Kett, has served in various executive leadership roles at IAA for 17 years, including CFO, President and CEO since 2014.

We benefit from our team’s industry knowledge and track record of market leadership, successful product innovation and financial performance. Additionally, our senior management team has experience executing and integrating acquisitions.

Our Business Strategy

We maintain a long history of strong and consistent execution that has led to growth in the business over several decades in periods under both private and public ownership. We also hold a strong track record of acquiring and integrating independent auction operations and improving profitability.

We seek to grow our business through the execution of the following strategies, among others:

Continue Organic Growth

By maintaining alignment with the largest, fastest-growing insurance companies and increasing our penetration of smaller carriers, we expect to generate long-term organic global volume growth of 5% to 7% per year. Additionally, we provide an alternative venue for damaged and lower-value vehicles and, as a result, non-insurance sellers have contributed to our growth.

Broaden Our Service Offering with IAA Total Loss Solutions ®

Our market-leading Total Loss Solutions ® provides insurance companies with end-to-end outsourced solutions for the portion of the claims process prior to total loss determination and assignment to a salvage vehicle auction and helps insurance companies reduce cycle time and cost, while improving employee engagement and customer service, ultimately increasing policyholder retention. We continue to add additional services and capabilities and have multiple pilots underway.

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Continue to Develop International Buyer Network

We are a leader in developing international buyer networks through our unique approach of combining on-site, in-person recruiting with a state-of-the-art digital platform to attract and retain buyers. We have customized our marketing approaches to cater to local cultures and ways of doing business, and have invested significant resources in developing a deep understanding of the unique needs of each international market. Expanding the base of international buyers brings more bidders to our platform and yields better outcomes for sellers in our marketplaces.

In fiscal year 2018, approximately 16% of our U.S. volume was sold to buyers registered outside of the United States. Our success is evident in the number of international buyers on our U.S. marketplace growing by over 50% since 2015. Our further commitment to our international buyers is demonstrated by our buyer portal, which is available online in six languages and our call center which currently supports 12 languages.

Continue to Improve Operating Efficiencies

We are focused on reducing costs without diminishing our level of customer service. We are shortening the time it takes a vehicle to move through the auction process, which will further improve the service we provide our customers, reduce depreciation on vehicle values, and also improve our operating margins by making our real estate usage more efficient. Over the last five years, we have shortened the auction process through the deployment of a variety of initiatives. We also continuously analyze how we store cars to optimize our real estate usage and process more volume without incurring incremental costs. We have further deployed digital tools to our yard operations to speed up and improve the vehicle check-in, title, inventory and sale processes.

Expand Internationally in Attractive Markets

For the three months ended March 31, 2019, approximately 12% of our revenues were generated outside of the United States, and we are in the process of establishing or continuing to build operations around the world in key geographic markets. In Canada, we plan to continue increasing our presence organically through Impact Auto Auctions Ltd. and in the United Kingdom, we plan to continue increasing our presence organically through HBC Vehicle Services Limited.

We also intend to strategically enter new markets by pursuing strategic acquisitions, partnerships or greenfield opportunities in high priority regions globally.

Expand Breadth of Solution Suite and Continue to Develop Data Analytic s Capabilities

Our solutions deliver enhanced economic benefits to our customers by increasing transparency and reducing cycle time and friction throughout the process. We plan to continue to broaden our product portfolio by investing in the development of innovative solutions that further improve our customers’ results.

We intend to capitalize on our long-term commitment to gathering data on the buying and selling behavior which produces our auction and sales results. Using our data analytics expertise, we can provide better tools for both sellers and buyers to be better informed and make better, more confident decisions to improve their results and satisfaction.

Employ Disciplined Capital Allocation Strategy

We generate strong cash flows as a result of our attractive gross margins, the ability to leverage our corporate infrastructure across our multiple auction locations, low maintenance capital expenditures and limited working capital requirements. We are committed to adopting a balanced and disciplined capital allocation policy that will enable us to deliver attractive long-term stockholder value. Our long-term goal is to drive growth, both organic and through acquisitions, while also strengthening our balance sheet through debt reduction and returning capital to stockholders. In the near term, we aim to utilize a significant portion of excess cash generated by the business for debt reduction.

Neither IAA nor KAR can assure you that, following the separation, any of the benefits described above or otherwise will be realized to the extent anticipated or at all.

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Our Business

Overview

As one of the leading providers of damaged and total loss claim solutions and salvage vehicle auctions, we operate as IAA in the United States, Impact Auto Auctions Ltd. in Canada and HBC Vehicle Services Limited in the United Kingdom and serve our customer base through locations throughout North America and the United Kingdom. We facilitate the marketing of vehicles for a variety of sellers, including insurance companies, used-vehicle dealers, rental car and fleet lease companies, auto lenders and charitable organizations. Our marketplaces provide buyers from around the globe with the damaged and total loss vehicles they need to fulfill their scrap demands, replacement part inventory demands or vehicle rebuild requirements. Fees for our services are earned from both sellers and buyers vehicles sold through our channels.

In exchange for agreed-upon processing and service fees, we sell damaged and total loss vehicles on behalf of vehicle sellers primarily on a consignment basis, meaning that our sellers continue to own their vehicles until they are sold to buyers through one of our marketplaces. We also offer our vehicle sellers a number of other services for which fees may be charged, including but not limited to total loss claims solutions (as described below), inspection services, and marketing and other administrative services. In addition to the fees we collect from our vehicle sellers, we also charge service fees to our buyers for each vehicle purchased based on a tiered structure that increases with the sales price of the vehicle. We likewise offer our buyers additional services for which we also charge service fees.

Vehicles are marketed to prospective buyers through our many marketplaces, 24 hours per day and seven days per week. Auctions are typically held weekly at most locations and are simulcast in a manner that allows bidders to participate both physically at the auction, and online via a desktop internet browser or through our proprietary mobile device applications. Certain vehicles are also offered for sale online via Timed Auctions, where bidders may bid on those vehicles for a fixed duration of time and via Buy Now where vehicles are offered for sale at a fixed price. All vehicles which are ready for sale are listed and available online on IAA’s Auction Center, allowing prospective bidders to preview and bid on vehicles prior to the live auction event. IAA’s Auction Center includes an “Advanced Search” function that allows for filtering to quickly locate specific vehicles and offers buyers additional services such as Enhanced Vehicle Details that includes VIN details and Hollander Interchange parts data to help buyers make informed purchasing decisions. IAA’s Auction Center provides online buyers with an open, competitive bidding environment that reflects the dynamics of a live physical auction. Our mobile and online capabilities provide buyers the greatest flexibility in their purchasing options, exposing vehicles to bidders from around the globe and allowing bidders to participate in a greater number of auctions. Online inventory browsing and digital alerts (via email or through buyer app) reduce the time required to acquire vehicles and the broader market exposure and increased competitive bidding generally drive higher selling prices. We believe the capabilities of our auction models maximize auction proceeds and returns to our vehicle sellers.

Tools and services focused on total loss claims have been developed to assist insurance sellers in improving policy holder satisfaction and more effectively managing costs during the total loss claims process. IAA Total Loss Solutions ® includes IAA Inspection Services ® , IAA Title Services ® and additional service offerings within the suite of products. These products and services help to reduce total loss claims cycle time, provide transparency for the insured, and more deeply integrate sellers within IAA’s flagship salvage management tool, CSAToday ® .

HBC is a salvage auction services business operating in the United Kingdom. HBC provides salvage collection and disposal services for the U.K.’s top insurance, fleet and accident management companies, and conducts business using a variety of digital sales channels. HBC’s business model differs from that of IAA, as more of HBC’s vehicles are sold under purchase contracts as opposed to consignment based arrangements. See “ Management’s Discussion and Analysis of Financial Condition and Results of Operations ” for additional financial information about geographic areas.

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Services

IAA offers a comprehensive suite of auction, logistics and vehicle-selling services aimed at maximizing the value of vehicles sold through our marketplaces, lowering administrative costs, shortening the selling cycle and increasing the predictability of returns to vehicle sellers. This is achieved while expanding IAA’s ability to handle an increasing proportion of the vehicle-processing function as a “one-stop shop” for sellers. Some of the services provided by IAA include:

Services
Description
CSAToday ®
IAA’s online reporting and analysis tool that gives seller customers the ability to manage their vehicle assets. It also provides a detailed overview of salvage performance and identifies factors influencing timeline efficiency and net returns.
   
 
IAA Market Value ™
A solution for seller customers looking to estimate the values of their vehicles. Part of the CSAToday app on iOS and Android devices, this tool utilizes user-provided information and our historical auction data to deliver results to their smartphones.
 
 
 
Mobile Vehicle Assignment
Gives customers the ability to assign a vehicle from their iOS or Android device through the CSAToday app. Simplifies the desktop assignment process to a five-swipe workflow that uses smartphone technology to minimize manual input.
 
 
 
BidFast ®
A salvage valuation solution that comprehensively analyzes a vehicle to determine its value and provides a guaranteed bid for 60 days. Intended to be used for partial-loss conversions, denied coverage, subrogation file closure and owner-retained salvage.
   
 
Catastrophe (CAT) Services
To better service our insurance carrier partners, we track storm patterns and have response teams ready when disaster strikes. In the event of a catastrophe, IAA draws from an established network of partners to secure towing services and storage space. A mobile CAT Command Center as well as dedicated IAA staff serve as an on-the-go, centralized point of crisis management. When the vehicles are ready for sale, we promote them to our global buyer base with targeted marketing efforts for efficient sale and file closure.
 
 
 
IAA Total Loss Solutions ®
Provides insurance carrier customers with a comprehensive platform to process auto insurance claims efficiently, from the loss event to asset liquidation. Solutions include:
 
 
 
 
-
IAA Loss Advisor™
 
 
 
 
-
IAA Inspection Services ®
 
 
 
 
-
IAA Title Services ®
 
 
 
 
-
Title Procurement
 
 
 
 
-
IAA Loan Payoff™
   
 
 
-
MyVehicleClaim.com
 
 
 
 
-
IAA Active Inventory Management

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Services
Description
Multi-Channel Auction Model
Vehicles are offered simultaneously through a variety of channels to live and online buyers in a live auction format utilizing i-Bid LIVE SM and other web technology. We believe this exposes the vehicles to the maximum number of potential buyers.
 
 
 
Vehicle Inspection Centers
We maintain vehicle inspection centers (“VIC”) at many of our facilities. A VIC is a temporary storage and inspection facility located at our sites operated by our insurance customers. Some of these sites are formalized through temporary license agreements with the insurance companies that supply the vehicles. A VIC is designed to minimize vehicle storage charges incurred by insurance company suppliers at the temporary storage facility or repair shop and to improve service time for the policyholder.
 
 
 
Transportation and Towing
Inbound logistics administration with actual services typically provided by third-party carriers.
 
 
 
Non-Insurance Market
Focuses on low-end, high mileage and damaged vehicles, from rental sellers, fleet and leasing companies, banks and dealer trade-in inventory.
 
 
 
Donation Market
Processes vehicles for a variety of charitable organizations across the United States and Canada, assisting them in turning donated vehicles into cash to support their respective cause.

IAA also offers solutions focused on a diverse set of global buyer customers to provide the vehicles they need to fulfill their vehicle rebuild requirements, replacement part inventory or scrap demand. Some of the services provided by IAA include:

Services
Description
i-Bid LIVE SM
Our live auction Internet bidding solution, i-Bid LIVE, operates in concert with our physical auctions and provides registered buyers with the opportunity to participate in live auctions. Potential buyers bid online in real time along with the live local bidders and other Internet bidders via a simple, web-based interface. In addition, i-Bid LIVE provides real-time streaming audio from the live auction and images of damaged and total loss vehicles and other data. Buyers inspect and evaluate the damaged and total loss vehicle and listen to the auction while it is underway.
   
 
IAA Buy Now ™
Provides a unit for sale for a specific price using analytical data. This model allows units to get exposure and sell between scheduled auctions.
   
 
IAA Timed Auctions ™
Offering a unit for sale for a specified period of time. This model allows for competitive bidding and sale prior to our scheduled IAA Live and Online Auctions.
   
 
IAA Online Exclusive ™
Offers units for sale via a live online auction. Using a live auctioneer simulcast over the internet, this model is designed to sell a specific segment of vehicles, such as recreational vehicles or boats.
   
 
IAA Screen Sale ™
This method offers units for sale via a screen at one of our IAA branches. This method uses a live auctioneer selling vehicles to both live in-person and online bidders. This method is intended for buyers when units are off-site, such as located at a CAT yard.

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Services
Description
IAA Live & Online ™
This auction model is IAA’s traditional method of selling vehicles. This model is used by our 179 branches allowing both live and online bidders to interact with a live auctioneer.
   
 
IAA Run & Drive ®
As part of the live auction, operable vehicles run and drive through a dedicated lane to showcase sellers’ inventory and give buyers the chance to determine an item’s full value.
   
 
IAA High-Resolution Images ™
Provides high-resolution images designed to improve buyer confidence to bid, while ensuring sellers’ inventory receives maximum exposure.
   
 
Vehicle Parts Search
Integrates Hollander Interchange™ Part Numbers into the search functionality of IAAI.com and helps buyer customers search IAA nationwide inventory for specific vehicle components.
   
 
IAA Fast Search
Enhanced vehicle search and filter options providing what we believe is the most comprehensive search tool in the industry.
   
 
IAA Cost Calculator ™
Provides buyers with an estimate of total cost to make more informed bidding and buying decisions.
   
 
I-Pay ®
A convenient, secure tool that allows buyers to make payments via the internet directly from any bank account in the United States. Available through the Auction Center and the IAA Buyer app.
   
 
IAA Transport ™
An integrated shipping solution allowing buyers to schedule shipment of vehicles during the checkout process.

Customers

We obtain our supply of vehicles from insurance companies, used-vehicle dealers, rental car and fleet leasing companies, auto lenders, non-profit organizations, and the general public. We have established long-term relationships with virtually all of the major automobile insurance companies. The vast majority of the vehicles we process are on a consignment basis. The buyers of damaged and total loss vehicles include automotive body shops, rebuilders, used car dealers, automotive wholesalers, exporters, dismantlers, recyclers, brokers, and where allowed, non-licensed (public) buyers. In fiscal year 2018, approximately 40% of our revenues were associated with the fees generated from the auction of salvage vehicles, including buyer fees, from our three largest insurance customers, each of which accounted for over 10% of our revenue.

Sales and Marketing

IAA deploys representatives that solicit and manage relationships with prospective vehicle sellers and buyers at the national, regional and local levels. We also participate in a number of local, regional and national trade show events that further promote the benefits of our products and services.

In addition to providing sellers with a means of processing and selling vehicles, IAA offers a comprehensive suite of services to help maximize returns and shorten the selling and processing time. We help establish workflow integration within our sellers’ processes, and view such mutually beneficial relationships as an essential component of our effort to attract and retain suppliers.

By analyzing industry data, we provide sellers with a detailed analysis of their current selling prices and returns, and a proposal detailing methods to improve selling prices and returns, reduce administrative costs and provide proprietary turn-key selling and processing services.

Our broad and industry-leading geographic coverage allows us to service sellers on a national basis.

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Internal Online Operating Solution

Our current IAA internal online operating solution includes:

IAA Technology
Description
Automated Salvage Auction Processing (ASAP)
We have developed and maintained a proprietary state of the art web-based information system, Automated Salvage Auction Processing system, or ASAP, to streamline all aspects of our operations and centralize operational data collection. The system provides sellers with 24-hour online access to powerful tools to manage the salvage disposition process, including inventory management, sales price analysis and electronic data interchange of titling information.
   
 
 
Our other information systems, including i-Bid LIVE and CSAToday systems, are integrated with our ASAP product, facilitating auction processes and information flow with internal operational systems.

Competition

In the salvage sector, the competition includes Copart; Total Resource Auctions, a subsidiary of Cox Enterprises, Inc.; independent auctions and a limited number of used-vehicle auctions that regularly remarket damaged and total loss vehicles. Additionally, some dismantlers of damaged and total loss vehicles such as LKQ Corporation and Internet-based companies have entered the market, thus providing alternate avenues for sellers to remarket vehicles. While most insurance companies have abandoned or reduced efforts to sell damaged and total loss vehicles without the use of service providers such as us, they may in the future decide to dispose of their vehicles directly to end users.

Seasonality

The volume of vehicles sold through our marketplaces generally fluctuates from quarter to quarter. This seasonality is caused by several factors, including weather, the timing of damaged and total loss vehicles available for sale from selling customers, the availability and quality of damaged and total loss vehicles, holidays, and the seasonality of the retail market for damaged and total loss vehicles, which affects the demand side of the auction industry. Salvage vehicle auction volumes tend to decline during prolonged periods of winter weather conditions. In addition, mild weather conditions and decreases in traffic volume can each lead to a decline in the available supply of damaged and total loss vehicles because fewer traffic accidents occur, resulting in fewer damaged vehicles overall. As a result, revenues and operating expenses related to volume will fluctuate accordingly on a quarterly basis. The fourth calendar quarter typically experiences lower salvage vehicle volume as well as additional costs associated with the holidays and winter weather.

Vehicle Regulation

Our operations are subject to regulation, supervision and licensing under various federal, state, provincial and local authorities, agencies, statutes and ordinances, which, among other things, require us to obtain and maintain certain licenses, permits and qualifications and provide certain disclosures and notices. Some examples of the regulations and laws that impact our company are included in the section entitled “ Risk Factors ” under the risk: “We are subject to certain governmental regulations, including vehicle brokerage and auction laws and currency reporting obligations. Our business is subject to risks related to litigation and regulatory actions.”

Environmental Regulation

Our operations are subject to various foreign, federal, state and local environmental, health and safety laws and regulations, including those governing the emission or discharge of pollutants into the air or water, the generation, treatment, storage and release of hazardous materials and wastes and the investigation and remediation of contamination. Our failure to comply with current or future environmental, health or safety laws or to obtain and comply with permits required under such laws, could subject us to significant liability or require costly investigative, remedial or corrective actions.

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In the used-vehicle remarketing industry, large numbers of vehicles, including damaged vehicles at salvage auctions, are stored and/or refurbished at auction facilities and during that time minor releases of fuel, motor oil and other materials may occur. We have investigated or remediated, or are currently investigating or remediating, contamination resulting from various sources, including gasoline, fuel additives (such as methyl tertiary butyl ether, or MTBE), motor oil, petroleum products and other hazardous materials released from aboveground or underground storage tanks or in connection with current or former operations conducted at our facilities. We have incurred, and may in the future incur, expenditures relating to releases of hazardous materials, investigative, remedial or corrective actions, claims by third parties and other environmental issues, and such expenditures, individually or in the aggregate, could be significant.

Federal and state environmental authorities are currently investigating IAA’s role, if any, in contributing to contamination at the Lower Duwamish Waterway Superfund Site in Seattle, Washington. IAA’s potential liability, if any, at this site cannot be estimated at this time. See “ Business—Legal Proceedings ” below for a further discussion of this matter.

Management considers the likelihood of loss or the incurrence of a liability, as well as the ability to reasonably estimate the amount of loss, in determining loss contingencies. We accrue an estimated loss contingency when it is probable that a liability has been incurred and the amount of loss (or range of possible losses) can be reasonably estimated. Management regularly evaluates current information available to determine whether accrual amounts should be adjusted. Accruals for contingencies, including environmental matters, are included in “Other accrued expenses” at undiscounted amounts and exclude claims for recoveries from insurance or other third parties. These accruals are adjusted periodically as assessment and remediation efforts progress, or as additional technical or legal information becomes available. If the amount of an actual loss is greater than the amount accrued, this could have an adverse impact on our operating results in that period.

Employees

At March 31, 2019, we had a total of approximately 3,600 employees, of which approximately 3,200 were located in the United States and approximately 400 were located in Canada and the United Kingdom. Approximately 98% of our workforce consists of full-time employees.

In addition to the employee workforce, we also utilize temporary labor services to assist in handling the vehicles consigned to us and to provide certain other services. Nearly all of our auctioneers are independent contractors. Some of the services we provide are outsourced to third party providers that perform the services either on-site or off-site. The use of third party providers depends upon the resources available at each auction facility as well as peaks in the volume of vehicles offered at auction.

Legal Proceedings

We are involved in litigation and disputes arising in the ordinary course of business, such as actions related to injuries; property damage; handling, storage or disposal of vehicles; environmental laws and regulations; and other litigation incidental to the business, such as employment matters and dealer disputes. Such litigation is generally not, in the opinion of management, likely to have a material adverse effect on our financial condition, results of operations or cash flows. Legal proceedings which could be material are discussed below.

IAA—Lower Duwamish Waterway

Since June 2004, IAA has operated a branch on property it leases in Tukwila, Washington just south of Seattle. The property is located adjacent to a Superfund site known as the Lower Duwamish Waterway Superfund Site (“LDW Site”). The LDW Site had been designated a Superfund site in 2001, three years prior to IAA’s tenancy. On March 25, 2008, the United States Environmental Protection Agency, or the “EPA,” issued IAA a General Notice of Potential Liability, or “General Notice,” pursuant to Section 107(a), and a Request for Information pursuant to Section 104(e) of the Comprehensive Environmental Response, Compensation, and Liability Act, or “CERCLA,” related to the LDW Site. On November 7, 2012, the EPA issued IAA a Second General Notice of Potential Liability, or “Second General Notice,” for the LDW Site. The EPA’s website indicates that the EPA has issued general notice letters to approximately 116 entities, and has issued Section 104(e) Requests to more than 300 entities related to the LDW Site. In the General Notice and Second General Notice, the EPA informed IAA that the EPA believed IAA may be a Potentially Responsible Party, or “PRP,” but the EPA did not specify the factual basis for this assertion. At this time, the EPA still has not specified the factual basis for this assertion and

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has not demanded that IAA pay any funds or take any action apart from responding to the Section 104(e) Information Request. Four PRPs, The Boeing Company, the City of Seattle, the Port of Seattle and King County - the Lower Duwamish Waterway Group (“LDWG”), have funded a remedial investigation and feasibility study related to the cleanup of the LDW Site. In December 2014, the EPA issued a Record of Decision (“ROD”), detailing the final cleanup plan for the LDW Site. The ROD estimated the cost of cleanup to be $342 million, with the plan involving dredging of 105 acres, capping 24 acres, and enhanced natural recovery of 48 acres. The estimated length of the cleanup was 17 years, including 7 years of active remediation, and 10 years of monitored natural recovery. IAA is aware that certain authorities may bring natural resource damage claims against PRPs. On February 11, 2016, IAA received a Notice of Intent letter from the United States National Oceanic and Atmospheric Administration informing IAA that the Elliott Bay Trustee Council were beginning to conduct an injury assessment for natural resource damages in the LDW. The Notice of Intent indicated that the decision of the trustees to proceed with this natural resources injury assessment followed a pre-assessment screen performed by the trustees. Shortly thereafter, in a letter dated August 16, 2016, EPA issued a status update to the PRPs at the LDW Site. The letter stated that EPA expected the bulk of the pre-remedial design work currently being performed by the LDWG to be completed by the beginning of 2018, with the Remedial Design/Remedial Action (“RD/RA”) phase to follow. The EPA previously anticipated that the pre-design work would be completed sometime during 2018, and the Company is not aware of any further information regarding that schedule. Accordingly, RD/RA negotiations with all PRPs may begin sometime in 2019. At this time, the Company has not received any further notices from the EPA and does not have adequate information to determine IAA’s responsibility, if any, for contamination at this site, or to estimate IAA’s loss as a result of this potential liability.

In addition, the Washington State Department of Ecology (“Ecology”) is working with the EPA in relation to the LDW Site, primarily to investigate and address sources of potential contamination contributing to the LDW Site. In 2007, IAA installed a stormwater capture and filtration system designed to treat sources of potential contamination before discharge to the LDW Site. The immediate-past property owner, the former property owner and IAA have had discussions with Ecology concerning possible source control measures, including an investigation of the water and soils entering the stormwater system, an analysis of the source of contamination identified within the system, if any, and possible repairs and upgrades to the stormwater system if required. Additional source control measures, if any, are not expected to have a material adverse effect on future recurring operating costs.

Properties

IAA is headquartered in Westchester, Illinois, with office space being leased through 2027. At March 31, 2019, properties utilized by IAA included 179 salvage vehicle auction facilities in the United States and Canada, most of which are leased. IAA also includes HBC, which operates from 14 locations in the United Kingdom. The IAA North American properties are used primarily for auction and storage purposes consisting on average of approximately 30 acres of land per site.

We regularly evaluate our capacity in all our markets and where appropriate, seek to increase capacity through the acquisition of additional land and facilities. Capacity at our facilities varies from period to period and by region as a result of various factors, including natural disasters.

Available Information

Our web address is www.iaai.com. Our electronic filings with the SEC (including all Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and if applicable, amendments to those reports) will be available free of charge on the website as soon as reasonably practicable after they are electronically filed with, or furnished to, the SEC. The information posted on our website is not incorporated into this document.

The SEC maintains a website that contains reports, proxy statements and other information about issuers, like us, that file electronically with the SEC. The address of that site is www.sec.gov.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

As used in this section, references to the “fiscal year ended December 30, 2018 ” or “fi scal year 2018 ” refer to the 52-week period that began on January 1, 2018 and ended on December 30, 2018 . References to the “fiscal year ended December 31, 2017” or “fiscal year 2017” refer to the 52-week period that began on January 2, 2017 and ended on December 31, 2017. References to the “fiscal year ended January 1, 2017” or “fiscal year 2016” refer to the 53-week period that began on December 28, 2015 and ended on January 1, 2017. The additional week in fiscal year 2016 occurred in the fourth quarter. 53-week years may cause revenues, expenses, and other results of operations to be higher due to the additional week of operations.

Overview

We are a leading provider of auction solutions for total loss, damaged and low-value vehicles. We operate in one reportable segment. We facilitate the sale of total loss, damaged and low-value vehicles for a full spectrum of sellers, including insurance companies, dealerships, rental car companies, fleet lease companies and charitable organizations. Our solutions, which are focused on a diverse set of global customers, provide buyers with the vehicles they need to fulfill their vehicle rebuild requirements, replacement part inventory or scrap demand. Fees for our solutions are earned from both sellers and buyers of vehicles. In return for agreed-upon fees, vehicles are sold on behalf of our sellers, who continue to own the vehicle until it is sold to buyers through our marketplaces. Over 80% of volume that passes through our marketplaces is associated with insurance total loss vehicles, including vehicles from catastrophic events like hurricanes, floods and hail damage, and the remaining volume is associated with noninsurance customers such as dealers, vehicle leasing and rental car companies and the general public.

At March 31, 2019, properties utilized by IAA included 179 salvage vehicle auction facilities in the United States and Canada, most of which are leased. IAA also includes HBC, which operated from 14 locations in the United Kingdom at March 31, 2019. The IAA North American properties are used primarily for auction and storage purposes consisting on average of approximately 30 acres of land per site.

The Separation

On February 27, 2018, KAR announced that it would pursue a plan to separate its salvage auction businesses from its whole car auction business. The separation will be effected by allocating the assets and liabilities related primarily to the salvage auction businesses, which are currently held through KAR’s subsidiaries, including, but not limited to, Insurance Auto Auctions, Inc. in the United States, Impact Auto Auctions Ltd. in Canada and HBC Vehicle Services Limited in the United Kingdom, to IAA and then distributing the common stock of IAA to KAR’s stockholders. The separation and distribution will result in KAR and IAA becoming two independent, publicly traded companies, with IAA owning and operating KAR’s pre-separation salvage auction businesses and KAR continuing to own and operate its remaining businesses, including its whole car auction business and financing, logistics and other ancillary and related services.

Industry Trends

Vehicles deemed a total loss by automobile insurance companies represent the largest category of vehicles sold in the salvage vehicle auction industry. Based on data from CCC Information Services, the percentage of claims resulting in total losses has steadily increased over the last five years. There is no central reporting system for the salvage vehicle auction industry that tracks the number of salvage vehicle auction volumes in any given year, which makes estimating industry volumes difficult. We believe that salvage auction industry global volumes will grow 5% to 7% annually for the foreseeable future.

Fluctuations in damaged and total loss vehicle and commodity pricing (aluminum, steel, etc.) have an impact on proceeds received in the salvage vehicle auction industry. In times of rising prices, revenue and gross profit are positively impacted. If damaged and total loss vehicle and commodity prices decrease, proceeds, revenue and gross profit at salvage auctions may be negatively impacted, which could adversely affect the level of profitability. During the first three months of 2019, the price per ton of crushed auto bodies in North America ranged from $177 to $179 and finished March 2019 at $178. In comparison, for the fiscal year ended December 30, 2018, the price per ton of crushed auto bodies in North America ranged from $187 to $215.

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Seasonality

The volume of vehicles sold through our marketplaces generally fluctuates from quarter to quarter. This seasonality is caused by several factors, including weather, the timing of damaged and total loss vehicles available for sale from selling customers, the availability and quality of damaged and total loss vehicles, holidays, and the seasonality of the retail market for damaged and total loss vehicles, which affects the demand side of the auction industry. Salvage vehicle auction volumes tend to decline during prolonged periods of winter weather conditions. In addition, mild weather conditions and decreases in traffic volume can each lead to a decline in the available supply of damaged and total loss vehicles because fewer traffic accidents occur, resulting in fewer damaged vehicles overall. As a result, revenues and operating expenses related to volume will fluctuate accordingly on a quarterly basis. The fourth calendar quarter typically experiences lower salvage vehicle volume as well as additional costs associated with the holidays and winter weather.

Sources of Revenues and Expenses

A significant portion of our revenue is derived from auction fees and related services associated with our salvage auctions. Approximately two-thirds of our revenue is earned from buyers and represents fees charged based on a tiered structure that increases with the sales price of the vehicle as well as service fees for additional services. In addition, approximately one-third of our revenue is earned from sellers and represents the combination of the inbound tow, processing, storage, titling, enhancing and auctioning of the vehicle. Although auction revenues primarily include the auction services and related fees, our related receivables and payables include the gross value of the vehicles sold.

Our operating expenses consist of cost of services, selling, general and administrative and depreciation and amortization. Cost of services is comprised of payroll and related costs, subcontract services, the cost of vehicles purchased, supplies, insurance, property taxes, utilities, service contract claims, maintenance and lease expense related to the auction sites. Cost of services excludes depreciation and amortization. Selling, general and administrative expenses are comprised of payroll and related costs, sales and marketing, information technology services and professional fees.

Results of Operations

Overview of Results of Insurance Auto Auctions, Inc. for the Fiscal Years ended December 30, 2018 and December 31, 2017:

(Dollars in millions)
Fiscal Year
ended
December 30,
2018
Fiscal Year
ended
December 31,
2017
Operating revenues
$
1,326.8
 
$
1,219.2
 
Cost of services *
 
821.2
 
 
778.1
 
Gross profit *
 
505.6
 
 
441.1
 
Selling, general and administrative
 
123.8
 
 
113.3
 
Depreciation and amortization
 
97.4
 
 
93.1
 
Operating profit
 
284.4
 
 
234.7
 
Interest expense
 
38.7
 
 
38.6
 
Other income, net
 
(0.5
)
 
(0.9
)
Income before income taxes
 
246.2
 
 
197.0
 
Income taxes
 
62.5
 
 
35.6
 
Net income
$
183.7
 
$
161.4
 
Vehicles sold
 
2,480,000
 
 
2,369,000
 
* Exclusive of depreciation and amortization

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Revenue

Revenue from IAA increased $107.6 million, or 9%, to $1,326.8 million for the fiscal year ended December 30, 2018, compared with $1,219.2 million for the fiscal year ended December 31, 2017. The increase in revenue was a result of an increase in vehicles sold of approximately 5% for the fiscal year ended December 30, 2018. Revenue per vehicle sold increased 4% for the fiscal year ended December 30, 2018 compared with the fiscal year ended December 31, 2017, partially offset by a decrease of $5.2 million from HBC, which included an increase in revenue of $1.3 million due to fluctuations in the U.K. exchange rate. IAA's North American same-store total loss vehicle inventory increased approximately 1% at December 30, 2018, as compared to December 31, 2017. North American online sales volumes for IAA for the fiscal years ended December 30, 2018 and December 31, 2017 each represented over 60% of the total vehicles sold. The balance of North American vehicles were sold to buyers present at a physical IAA auction.

Most of the vehicles that are sold through our auctions are consigned to IAA by insurance companies and held at IAA’s facilities. IAA does not take title to these consigned vehicles and recognizes revenue when a service is performed as requested by the owner of the vehicle. IAA does not record the gross selling price of the consigned vehicles sold at auction as revenue. Conversely, IAA does record the gross selling price of purchased vehicles sold at auction as revenue. Vehicles sold under purchase agreements were approximately 4% and 5% of total salvage vehicles sold for the fiscal years ended December 30, 2018 and 2017, respectively.

Gross Profit

For the fiscal year ended December 30, 2018, gross profit at IAA increased to $505.6 million, or 38.1% of revenue, compared with $441.1 million, or 36.2% of revenue, for the fiscal year ended December 31, 2017. The increase in gross profit was mainly attributable to a 9% increase in revenue, partially offset by a 6% increase in cost of services, which included costs associated with purchase contract vehicles and organic volume growth.

Excluding HBC, IAA's gross profit margin was 38.6% and 36.9% for the fiscal years ended December 30, 2018 and December 31, 2017, respectively. For the fiscal years ended December 30, 2018 and December 31, 2017, HBC had revenue of approximately $32.7 million and $37.9 million, respectively, and cost of services of approximately $26.6 million and $32.2 million, respectively, as fewer of HBC's vehicles were sold under purchase contracts. The entire selling and purchase price of the vehicle is recorded as revenue and cost of services for purchase contracts.

IAA experienced a reduction in gross profit of $6.8 million and $0.3 million for the fiscal years ended December 30, 2018 and December 31, 2017, respectively, related to catastrophic events. Excluding these events (and HBC as noted above), IAA's gross profit margin was 39.5% and 38.3% for the fiscal years ended December 30, 2018 and December 31, 2017, respectively.

Selling, General and Administrative

Selling, general and administrative expenses at IAA increased $10.5 million, or 9%, to $123.8 million for the fiscal year ended December 30, 2018, compared with $113.3 million for the fiscal year ended December 31, 2017. The increase in selling, general and administrative expenses was primarily attributable to increases in compensation expense of $3.5 million, professional fees related to the potential spin-off of $2.8 million, bad debt expense of $1.6 million, incentive-based compensation expense of $1.0 million, supply expenses of $0.8 million, information technology costs of $0.7 and other miscellaneous expenses aggregating $2.4 million, partially offset by decreases in telecom costs of $1.2 million and other professional fees of $1.1 million.

Depreciation and Amortization

Depreciation and amortization increased $4.3 million, or 5%, to $97.4 million for fiscal year ended December 30, 2018, compared with $93.1 million for the fiscal year ended December 31, 2017. The increase in depreciation and amortization was primarily the result of certain assets placed in service over the last twelve months.

Income Taxes

We had an effective tax rate of 25.4% for the fiscal year ended December 30, 2018, compared with an effective tax rate of 18.1% for the fiscal year ended December 31, 2017. Our effective tax rate was higher for the fiscal year ended December 30, 2018, compared with the fiscal year ended December 31, 2017, primarily as a result of the enactment of the Tax Cuts and Jobs Act of 2017 (the “TCJA”) in the fourth quarter of 2017. As a result, in

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2017, we recognized a tax benefit of $37.0 million related to the remeasurement of deferred tax assets and liabilities and $2.2 million of expense associated with a one-time deemed repatriation transition tax on the accumulated unrepatriated and untaxed earnings of our foreign subsidiaries.

Overview of Results of Insurance Auto Auctions, Inc. for the Fiscal Y ears ended December 31, 2017 and January 1, 2017:

(Dollars in millions)
Fiscal Year
ended
December 31,
2017
Fiscal Year
ended
January 1,
2017
Operating revenues
$
1,219.2
 
$
1,098.0
 
Cost of services *
 
778.1
 
 
708.3
 
Gross profit *
 
441.1
 
 
389.7
 
Selling, general and administrative
 
113.3
 
 
110.5
 
Depreciation and amortization
 
93.1
 
 
87.9
 
Operating profit
 
234.7
 
 
191.3
 
Interest expense
 
38.6
 
 
38.6
 
Other income, net
 
(0.9
)
 
(0.6
)
Income before income taxes
 
197.0
 
 
153.3
 
Income taxes
 
35.6
 
 
58.4
 
Net income
$
161.4
 
$
94.9
 
Vehicles sold
 
2,369,000
 
 
2,184,000
 
* Exclusive of depreciation and amortization

Revenue

Revenue from IAA increased $121.2 million, or 11%, to $1,219.2 million for the fiscal year ended December 31, 2017, compared with $1,098.0 million for the fiscal year ended January 1, 2017. The increase in revenue was a result of an increase in vehicles sold of approximately 8% for the fiscal year ended December 31, 2017. Revenue per vehicle sold increased 2% for the fiscal year ended December 31, 2017 compared with the fiscal year ended January 1, 2017, and included an increase in revenue of $1.7 million due to fluctuations in the Canadian exchange rate, partially offset by a decrease of $13.7 million from HBC including a decrease in revenue of $2.0 million due to fluctuations in the U.K. exchange rate. IAA’s North American same-store total loss vehicle inventory increased approximately 3% at December 31, 2017, as compared to January 1, 2017, in part related to the timing of catastrophic events. North American online sales volumes for IAA for the fiscal years ended December 31, 2017 and January 1, 2017 represented approximately 60% of the total vehicles sold. The balance of North American vehicles were sold to buyers present at a physical IAA auction.

Most of the vehicles that are sold through our auctions are consigned to IAA by insurance companies and held at IAA’s facilities. IAA does not take title to these consigned vehicles and recognizes revenue when a service is performed as requested by the owner of the vehicle. IAA does not record the gross selling price of the consigned vehicles sold at auction as revenue. Conversely, IAA does record the gross selling price of purchased vehicles sold at auction as revenue. Vehicles sold under purchase agreements or purchased from individual sellers were approximately 5% and 7% of total damaged and total loss vehicles sold for the fiscal years ended December 31, 2017 and January 1, 2017, respectively.

Gross Profit

For the fiscal year ended December 31, 2017, gross profit at IAA increased to $441.1 million, or 36.2% of revenue, compared with $389.7 million, or 35.5% of revenue, for the fiscal year ended January 1, 2017. The increase in gross profit was mainly attributable to an 11% increase in revenue, partially offset by a 10% increase in cost of services, which included costs incurred to store and process vehicles for Hurricanes Harvey and Irma and organic volume growth.

Excluding HBC, IAA’s gross profit margin was 36.9% and 36.7% for the fiscal years ended December 31, 2017 and January 1, 2017, respectively. For the fiscal years ended December 31, 2017 and January 1, 2017, HBC had revenue

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of approximately $37.9 million and $51.6 million, respectively, and cost of services of approximately $32.2 million and $45.8 million, respectively, as fewer of HBC’s vehicles were sold under purchase contracts. The entire selling and purchase price of the vehicle is recorded as revenue and cost of services for purchase contracts.

IAA sold over 65,000 vehicles and recorded approximately $45.1 million of revenue and a $0.3 million gross loss for the fiscal year ended December 31, 2017 related to catastrophic events in Texas and Florida. Excluding these events (and HBC as noted above), IAA’s gross profit margin was 38.3% for the fiscal year ended December 31, 2017. IAA incurred significant costs in Texas and Florida in response to Hurricanes Harvey and Irma. Costs were incurred for real estate, security, lot operations and related support. These costs were incurred in advance of revenue. IAA recovered these excess costs incurred as vehicles were sold in fiscal year 2017 and in the first quarter of 2018.

Selling, General and Administrative

Selling, general and administrative expenses at IAA increased $2.8 million, or 3%, to $113.3 million for the fiscal year ended December 31, 2017, compared with $110.5 million for the fiscal year ended January 1, 2017. The increase in selling, general and administrative expenses was primarily attributable to an increase in compensation expense of $3.2 million, incentive-based compensation expense of $2.1 million and stock-based compensation expense of $1.3 million, partially offset by decreases in employee related expenses of $1.5 million, bad debt expense of $0.9 million and other miscellaneous expenses aggregating $1.4 million.

Depreciation and Amortization

Depreciation and amortization increased $5.2 million, or 6%, to $93.1 million for the fiscal year ended December 31, 2017, compared with $87.9 million for the fiscal year ended January 1, 2017. The increase in depreciation and amortization was primarily the result of certain assets placed in service over the last twelve months.

Income Taxes

We had an effective tax rate of 18.1% for the fiscal year ended December 31, 2017, compared with an effective tax rate of 38.1% for the fiscal year ended January 1, 2017. Our effective tax rate was lower for the fiscal year ended December 31, 2017, compared with the fiscal year ended January 1, 2017, primarily as a result of the enactment of the TCJA in the fourth quarter of 2017. As a result, we recognized a tax benefit of $37.0 million relating to re-measurement of deferred tax assets and liabilities and $2.2 million of expense associated with a one-time deemed repatriation transition tax on the accumulated unrepatriated and untaxed earnings of our foreign subsidiaries. We also recognized $1.9 million of excess tax benefits from employee stock-based compensation as a discrete item in our income tax expense for the fiscal year ended December 31, 2017.

Overview of Results of Insurance Auto Auctions, Inc. for the Three Months Ended March 31, 2019 and April 1, 2018:

(Dollars in millions)
Three Months
ended March 31,
2019
Three Months
ended April 1,
2018
Operating revenues
$
357.2
 
$
337.3
 
Cost of services*
 
218.4
 
 
206.7
 
Gross profit*
 
138.8
 
 
130.6
 
Selling, general and administrative
 
33.6
 
 
32.6
 
Depreciation and amortization
 
21.8
 
 
24.1
 
Operating profit
 
83.4
 
 
73.9
 
Interest expense
 
9.7
 
 
9.6
 
Other expense, net
 
0.1
 
 
—
 
Income before income taxes
 
73.6
 
 
64.3
 
Income taxes
 
19.1
 
 
16.0
 
Net income
$
54.5
 
$
48.3
 
Vehicles sold
 
6 49 ,000
 
 
643,000
 
* Exclusive of depreciation and amortization

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Revenue

Revenue from IAA increased $19.9 million, or 6%, to $357.2 million for the three months ended March 31, 2019, compared with $337.3 million for the three months ended April 1, 2018. The increase in revenue was a result of an increase in vehicles sold of approximately 1% for the three months ended March 31, 2019. Revenue per vehicle sold increased 5% for the three months ended March 31, 2019 compared with the three months ended April 1, 2018 and included a decrease in revenue of $1.8 million due to fluctuations in the Canadian exchange rate, as well as a decrease in revenue of $1.5 million from HBC, which included a decrease in revenue of $0.6 million due to fluctuations in the U.K. exchange rate. IAA's North American same-store total loss vehicle inventory increased approximately 10% at March 31, 2019, as compared to April 1, 2018. North American online sales volumes for IAA for the three months ended March 31, 2019 and April 1, 2018 each represented over 60% of the total vehicles sold. The balance of North American vehicles were sold to buyers present at a physical IAA auction.

Most of the vehicles that are sold through our auctions are consigned to IAA by insurance companies and held at IAA’s facilities. IAA does not take title to these consigned vehicles and recognizes revenue when a service is performed as requested by the owner of the vehicle. IAA does not record the gross selling price of the consigned vehicles sold at auction as revenue. Conversely, IAA does record the gross selling price of purchased vehicles sold at auction as revenue. Vehicles sold under purchase agreements were approximately 4% of total salvage vehicles sold for the three months ended March 31, 2019 and April 1, 2018.

Gross Profit

For the three months ended March 31, 2019, gross profit at IAA increased to $138.8 million, or 38.9% of revenue, compared with $130.6 million, or 38.7% of revenue, for the three months ended April 1, 2018. The increase in gross profit was mainly attributable to a 6% increase in revenue, partially offset by a 6% increase in cost of services, which included costs associated with purchase contract vehicles, additional lease expense related to lease agreements previously impacting depreciation expense and organic volume growth.

Excluding HBC, IAA's gross profit margin was 39.3% and 39.2% for the three months ended March 31, 2019 and April 1, 2018, respectively. For the three months ended March 31, 2019 and April 1, 2018, HBC had revenue of approximately $8.2 million and $9.7 million, respectively, and cost of services of approximately $6.5 million and $7.6 million, respectively, as fewer of HBC's vehicles were sold under purchase contracts. The entire selling and purchase price of the vehicle is recorded as revenue and cost of services for purchase contracts.

Selling, General and Administrative

Selling, general and administrative expenses at IAA increased $1.0 million, or 3%, to $33.6 million for the three months ended March 31, 2019, compared with $32.6 million for the three months ended April 1, 2018. The increase in selling, general and administrative expenses was primarily attributable to increases in compensation expense of $0.9 million, bad debt expense of $0.7 million and other miscellaneous expenses aggregating $0.6 million, partially offset by decreases in incentive-based compensation expense of $0.6 million and professional fees related to the potential spin-off of $0.6 million.

Depreciation and Amortization

Depreciation and amortization decreased $2.3 million, or 10%, to $21.8 million for three months ended March 31, 2019, compared with $24.1 million for the three months ended April 1, 2018. The decrease in depreciation and amortization was primarily the result of an approximately $2 million decrease resulting from the derecognition of fixed assets associated with certain sale leaseback transactions associated with the adoption of Topic 842.

Income Taxes

We had an effective tax rate of 26.0% for the three months ended March 31, 2019, compared with an effective tax rate of 24.9% for the three months ended April 1, 2018.

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Liquidity and Capital Resources

We believe that the significant indicators of liquidity for our business are cash on hand, cash flow from operations and working capital. Historically, cash flow provided by operations has been transferred to KAR to support its overall cash management strategy. Cash is transferred daily, based on IAA’s balances, to centralized accounts maintained by KAR. As cash is disbursed or received by KAR, it is accounted for by IAA through Net Parent Investment on our balance sheet, statement of cash flow and statement of parent equity. Our principal source of liquidity consists of cash generated by operations.

Upon completion of the spin-off, our capital structure and sources of liquidity will change significantly from our historical capital structure. Our businesses will no longer participate in cash management and funding arrangements with KAR. Our internally generated cash flow will be used to invest in new products and services, fund capital expenditures and fund working capital requirements, and is expected to be adequate to service any future debt, pay any future dividends, fund any stock repurchases and fund future acquisitions, if any. Our ability to fund these capital needs will depend on our ongoing ability to generate cash from operations and to access our borrowing facilities and capital markets. We believe that our future cash from operations, together with our access to cash and cash equivalents, and cash expected to be available through borrowing facilities and capital markets, will provide adequate resources to fund our operating and financing needs for at least the next twelve months.

On or prior to completion of the separation and distribution, we expect to issue the Notes and enter into the Senior Secured Credit Facilities. As of March 31, 2019, after giving effect to the Transactions, our total corporate debt would have been approximately $1,300 million, and we would have had $225 million of borrowing capacity under the Senior Secured Credit Facilities. There is no assurance that we will issue the Notes or enter into the Senior Secured Credit Facilities on the terms described herein or at all. There may be changes to the expected principal amount, interest rate and other terms of the Senior Secured Credit Facilities, some of which may be material. See “ Description of Other Indebtedness .”

(Dollars in millions)
March 31,
2019
April 1,
2018
December 30,
2018
December 31,
2017
Cash and cash equivalents
 
66.2
 
$
36.8
 
$
60.0
 
$
33.1
 
Cash flow from operations for the three months/fiscal year ended
 
35.2
 
 
41.3
 
 
289.9
 
 
201.3
 

Working Capital

A substantial amount of our working capital is generated from the payments received for services provided. The majority of our working capital needs are short-term in nature, usually less than three months in duration. Due to the decentralized nature of the business, payments for most vehicles purchased are received at each auction and branch. Most of the financial institutions place a temporary hold on the availability of the funds deposited that generally can range up to two business days, resulting in cash in our accounts and on our balance sheet that is unavailable for use until it is made available by the various financial institutions. There are outstanding checks (book overdrafts) to sellers and vendors included in current liabilities. Because a portion of these outstanding checks for operations in the United States are drawn upon bank accounts at financial institutions other than the financial institutions that hold the cash, we cannot offset all the cash and the outstanding checks on our balance sheet. Changes in working capital vary from quarter-to-quarter as a result of the timing of collections and disbursements of funds to consignors from auctions held near period end.

If funds held by our foreign subsidiaries were to be repatriated, state and local income tax expense and foreign withholding tax expense would need to be recognized, net of any applicable foreign tax credits.

Promissory Notes

IAA has intercompany debt with KAR totaling $456.6 million. This debt is comprised of three promissory notes, payable on demand, with a weighted average interest rate of 8.27%.

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EBITDA and Adjusted EBITDA

EBITDA and Adjusted EBITDA, as presented herein, are supplemental measures of our performance that are not required by, or presented in accordance with, generally accepted accounting principles in the United States, or GAAP. They are not measurements of our financial performance under GAAP and should not be considered substitutes for net income (loss) or any other performance measures derived in accordance with GAAP.

EBITDA is defined as net income (loss), plus interest expense net of interest income, income tax provision (benefit), depreciation and amortization. As used in this information statement, Adjusted EBITDA is EBITDA adjusted for certain items of income and expense and expected incremental revenue and cost savings, including intercompany charges, non-cash stock-based compensation, minority interest, separation costs and certain other items.

Management believes that the inclusion of supplementary adjustments to EBITDA applied in presenting Adjusted EBITDA is appropriate to provide additional information to investors about one of the principal measures of performance used by creditors. In addition, management uses EBITDA and Adjusted EBITDA to evaluate our performance. EBITDA and Adjusted EBITDA have limitations as analytical tools, and should not be considered in isolation of or as a substitute for analysis of the results as reported under GAAP. These measures may not be comparable to similarly titled measures reported by other companies.

The following tables reconcile EBITDA and Adjusted EBITDA to net income for the periods presented:

(Dollars in millions)
Three Months
ended
March 31,
2019
Three Months
ended
April 1,
2018
Fiscal Year
ended
December 30 ,
2018
Fiscal Year
ended
December 31,
2017
Fiscal Year
ended
January 1,
2017
Net income
$
54.5
 
$
48.3
 
$
183.7
 
$
161.4
 
$
94.9
 
Add back:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Income taxes
 
19.1
 
 
16.0
 
 
62.5
 
 
35.6
 
 
58.4
 
Interest expense, net of interest income
 
0.3
 
 
0.2
 
 
0.8
 
 
0.8
 
 
0.8
 
Depreciation and amortization
 
21.8
 
 
24.1
 
 
97.4
 
 
93.1
 
 
87.9
 
Intercompany interest
 
9.4
 
 
9.4
 
 
37.9
 
 
37.8
 
 
37.8
 
EBITDA
 
105.1
 
 
98.0
 
 
382.3
 
 
328.7
 
 
279.8
 
Intercompany charges
 
0.6
 
 
—
 
 
—
 
 
—
 
 
0.3
 
Non-cash stock-based compensation
 
1.1
 
 
1.0
 
 
3.9
 
 
3.9
 
 
2.6
 
Minority interest
 
—
 
 
—
 
 
—
 
 
—
 
 
—
 
Separation costs
 
—
 
 
0.4
 
 
2.0
 
 
—
 
 
—
 
Other
 
1.1
 
 
0.6
 
 
(0.2
)
 
0.7
 
 
(0.1
)
Total addbacks
 
2.8
 
 
2.0
 
 
5.7
 
 
4.6
 
 
2.8
 
Adjusted EBITDA
$
107.9
 
$
100.0
 
$
388.0
 
$
333.3
 
$
282.6
 

Summary of Cash Flows

(Dollars in millions)
Three Months
ended
March 31,
2019
Three Months
ended
April 1,
2018
Fiscal Year
ended
December 30 ,
2018
Fiscal Year
ended
December 31,
2017
Net cash provided by (used by):
 
 
 
 
 
 
 
 
 
 
 
 
Operating activities
$
35.2
 
$
41.3
 
$
289.9
 
$
201.3
 
Investing activities
 
(21.6
)
 
(16.1
)
 
(66.1
)
 
(55.1
)
Financing activities
 
(8.0
)
 
(21.9
)
 
(195.1
)
 
(155.8
)
Effect of exchange rate on cash
 
0.6
 
 
0.4
 
 
(1.8
)
 
0.9
 
Net increase (decrease) in cash and cash equivalents
$
6.2
 
$
3.7
 
$
26.9
 
$
(8.7
)

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Cash flow from operating activities was $35.2 million for the three months ended March 31, 2019, compared with $41.3 million for the three months ended April 1, 2018. The decrease in operating cash flow was primarily attributable to changes in operating assets and liabilities as a result of the timing of collections and the disbursement of funds to consignors for auctions held near period-ends, partially offset by increased profitability adjusted for non-cash items.

Cash flow from operating activities was $289.9 million for the fiscal year ended December 30, 2018, compared with $201.3 million for the fiscal year ended December 31, 2017. The increase in operating cash flow was primarily attributable to increased profitability adjusted for non-cash items and changes in operating assets and liabilities as a result of the timing of collections and the disbursement of funds to consignors for auctions held near period-ends.

Net cash used by investing activities was $21.6 million for the three months ended March 31, 2019, compared with $16.1 million for the three months ended April 1, 2018. The increase in net cash used by investing activities was primarily attributable to an increase in cash used for capital expenditures.

Net cash used by investing activities was $66.1 million for the fiscal year ended December 30, 2018, compared with $55.1 million for the fiscal year ended December 31, 2017. The increase in net cash used by investing activities was primarily attributable to an increase in cash used for capital expenditures.

Net cash used by financing activities was $8.0 million for the three months ended March 31, 2019, compared with $21.9 million for the three months ended April 1, 2018. The decrease in net cash used by financing activities was primarily attributable to a decrease in cash deemed to be remitted to KAR (parent), partially offset by the net change in book overdrafts and increased payments on capital leases.

Net cash used by financing activities was $195.1 million for the fiscal year ended December 30, 2018, compared with $155.8 million for the fiscal year ended December 31, 2017. The increase in net cash used by financing activities was primarily attributable to an increase in cash deemed to be remitted to KAR (parent).

Capital Expenditures

Capital expenditures for the fiscal years ended December 30, 2018 and December 31, 2017 were $66.7 million and $54.9 million, respectively. Capital expenditures in fiscal year 2018 included $25.5 million for the purchase of IAA property in Florida for use during catastrophic events. Capital expenditures for the three months ended March 31, 2019 and April 1, 2018 were $21.6 million and $16.2 million, respectively. Capital expenditures were funded primarily from internally generated funds. We continue to invest in our core information technology capabilities and capacity expansion. Capital expenditures are expected to be approximately $46 million for fiscal year 2019. Approximately half of the 2019 capital expenditures are expected to relate to technology-based investments, including improvements in information technology systems and infrastructure. Other anticipated capital expenditures are primarily attributable to improvements and expansion at the Company’s facilities. Future capital expenditures could vary substantially based on capital project timing, the opening of new auction facilities, capital expenditures related to acquired businesses and the initiation of new information systems projects to support our business strategies.

Acquisition

In December 2017, IAA acquired the assets of POIS, Inc. for approximately $0.9 million. POIS provides loan payoff and lien release technology with a focus on helping insurance companies settle liens faster to improve cycle time/inventory turns. The purchased assets included software, which is being amortized over its expected useful life. Financial results for the acquisition have been included in our consolidated financial statements from the date of acquisition. The financial impact of this acquisition, including pro forma financial results, was immaterial to IAA’s consolidated results for the fiscal year ended December 31, 2017.

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Contractual Obligations

The table below sets forth a summary of our contractual debt and lease obligations as of December 30, 2018. Some of the figures included in this table are based on management’s estimates and assumptions about these obligations, including their duration, the possibility of renewal and other factors. Because these estimates and assumptions are necessarily subjective, the obligations we may actually pay in future periods could vary from those reflected in the table. The following summarizes our contractual cash obligations as of December 30, 2018 ( in millions ):

 
Payments Due by Period
Contractual Obligations
Total
Less than
1 Year
1 - 3 Years
4 - 5 Years
More than
5 Years
Intercompany debt (a)
$
456.6
 
$
456.6
 
$
—
 
$
—
 
$
—
 
Capital lease obligations (b)
 
29.3
 
 
15.2
 
 
14.1
 
 
—
 
 
—
 
Interest payments on debt (a)
 
37.8
 
 
37.8
 
 
—
 
 
—
 
 
—
 
Operating leases (c)
 
930.3
 
 
97.2
 
 
168.2
 
 
138.0
 
 
526.9
 
Total contractual cash obligations
$
1,454.0
 
$
606.8
 
$
182.3
 
$
138.0
 
$
526.9
 
(a) The intercompany debt with KAR is comprised of three promissory notes which are payable on demand. The notes have a weighted average interest rate of 8.27%. Interest payments have been included in the table for a period of one year.
(b) We have entered into capital leases for furniture, fixtures, equipment and software. The amounts include the interest portion of the capital leases. Future capital lease obligations would change if we entered into additional capital lease agreements.
(c) Operating leases are entered into in the normal course of business. We lease most of our auction facilities, as well as other property and equipment under operating leases. Some lease agreements contain options to renew the lease or purchase the leased property. Future operating lease obligations would change if the renewal options were exercised and/or if we entered into additional operating lease agreements.

Since December 30, 2018, there have been no material changes to the contractual obligations, except for operating lease obligations which change in the ordinary course of business.

Critical Accounting Estimates

In preparing the financial statements in accordance with U.S. generally accepted accounting principles, management must often make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses and related disclosures at the date of the financial statements and during the reporting period. Some of those judgments can be subjective and complex. Consequently, actual results could differ from those estimates. Accounting measurements that management believes are most critical to the reported results of our operations and financial condition include: (1) business combinations; (2) goodwill and other intangible assets; and (3) legal proceedings and other loss contingencies.

In addition to the critical accounting estimates, there are other items used in the preparation of the consolidated financial statements that require estimation, but are not deemed critical. Changes in estimates used in these and other items could have a material impact on our financial statements.

We continually evaluate the accounting policies and estimates used to prepare the consolidated financial statements. In cases where management estimates are used, they are based on historical experience, information from third-party professionals, and various other assumptions believed to be reasonable. In addition, our most significant accounting policies are discussed in Note 2 and elsewhere in the Notes to Consolidated Financial Statements for the fiscal year ended December 30, 2018, which are included elsewhere in this information statement.

Business Combinations

When we acquire businesses, we estimate and recognize the fair values of tangible assets acquired, liabilities assumed and identifiable intangible assets acquired. The excess of the purchase consideration over the fair values of identifiable assets and liabilities is recorded as goodwill. The purchase accounting process requires management to make significant estimates and assumptions in determining the fair values of assets acquired and liabilities assumed, especially with respect to intangible assets and contingent consideration.

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Critical estimates are often developed using valuation models that are based on historical experience and information obtained from the management of the acquired companies. These estimates can include, but are not limited to, the cash flows that an asset is expected to generate in the future, growth rates, the appropriate weighted-average cost of capital and the cost savings expected to be derived from acquiring an asset. These estimates are inherently uncertain and unpredictable. In addition, unanticipated events and circumstances may occur which could affect the accuracy or validity of such estimates. Depending on the facts and circumstances, we may engage an independent valuation expert to assist in valuing significant assets and liabilities.

Goodwill and Other Intangible Assets

We assess goodwill for impairment annually during the second quarter or whenever events or changes in circumstances indicate that impairment may exist. Important factors that could trigger an impairment review include significant under-performance relative to historical or projected future operating results; significant negative industry or economic trends; and our market valuation relative to our book value. When evaluating goodwill for impairment, we may first perform a qualitative assessment to determine whether it is more likely than not that a reporting unit is impaired. If we do not perform a qualitative assessment, or if we determine that a reporting unit’s fair value is not more likely than not greater than its carrying value, then we calculate the estimated fair value of the reporting unit using discounted cash flows and market approaches.

When assessing goodwill for impairment, our decision to perform a qualitative impairment assessment for a reporting unit in a given year is influenced by a number of factors, including the size of the reporting unit’s goodwill, the significance of the excess of the reporting unit’s estimated fair value over carrying value at the last quantitative assessment date, the amount of time in between quantitative fair value assessments and the date of acquisition. If we perform a quantitative assessment of a reporting unit’s goodwill, our impairment calculations contain uncertainties because they require management to make assumptions and apply judgment when estimating future cash flows and earnings, including projected revenue growth and operating expenses related to existing businesses, as well as utilizing valuation multiples of similar publicly traded companies and selecting an appropriate discount rate based on the estimated cost of capital that reflects the risk profile of the related business. Estimates of revenue growth and operating expenses are based on internal projections considering the reporting unit’s past performance and forecasted growth, strategic initiatives and changes in economic conditions. These estimates, as well as the selection of comparable companies and valuation multiples used in the market approach are highly subjective, and our ability to realize the future cash flows used in our fair value calculations is affected by factors, such as the success of strategic initiatives, changes in economic conditions, changes in our operating performance and changes in our business strategies. In fiscal year 2018, we performed a quantitative impairment assessment for our reporting units. Based on our goodwill assessments, the Company has not identified a reporting unit for which the goodwill was impaired in fiscal years 2018, 2017 or 2016.

As with goodwill, we assess indefinite-lived tradenames for impairment annually during the second quarter or whenever events or changes in circumstances indicate that impairment may exist. When assessing indefinite-lived tradenames for impairment using a qualitative assessment, we evaluate if changes in events or circumstances have occurred that indicate that impairment may exist. If we do not perform a qualitative impairment assessment or if changes in events and circumstances indicate that a quantitative assessment should be performed, management is required to calculate the fair value of the tradename asset group. The fair value calculation includes estimates of revenue growth, which are based on past performance and internal projections for the tradename asset group’s forecasted growth, and royalty rates, which are adjusted for our particular facts and circumstances. The discount rate is selected based on the estimated cost of capital that reflects the risk profile of the related business. These estimates are highly subjective, and our ability to achieve the forecasted cash flows used in our fair value calculations is affected by factors, such as the success of strategic initiatives, changes in economic conditions, changes in our operating performance and changes in our business strategies.

We review other intangible assets for possible impairment whenever circumstances indicate that their carrying amount may not be recoverable. If it is determined that the carrying amount of any other intangible asset exceeds the total amount of the estimated undiscounted future cash flows from that asset, we would recognize a loss to the extent that the carrying amount exceeds the fair value of the asset. Management judgment is involved in both deciding if testing for recovery is necessary and in estimating undiscounted cash flows. Our impairment analysis is based on the current business strategy, expected growth rates and estimated future economic conditions.

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Legal Proceedings and Other Loss Contingencies

We are subject to the possibility of various legal proceedings and other loss contingencies, many involving litigation incidental to the business and a variety of environmental laws and regulations. Litigation and other loss contingencies are subject to inherent uncertainties and the outcomes of such matters are often very difficult to predict and generally are resolved over long periods of time. We consider the likelihood of loss or the incurrence of a liability, as well as the ability to reasonably estimate the amount of loss, in determining loss contingencies. Estimating probable losses requires the analysis of multiple possible outcomes that often are dependent on the judgment about potential actions by third parties. Contingencies are recorded in the consolidated financial statements, or otherwise disclosed, in accordance with ASC 450, Contingencies . We accrue for an estimated loss contingency when it is probable that a liability has been incurred and the amount of loss can be reasonably estimated. Management regularly evaluates current information available to determine whether accrual amounts should be adjusted. If the amount of an actual loss is greater than the amount accrued, this could have an adverse impact on our operating results in that period.

Off-Balance Sheet Arrangements

As of March 31, 2019, we had no off-balance sheet arrangements pursuant to Item 303(a)(4) of Regulation S-K under the Exchange Act.

New Accounting Standards

For a description of new accounting standards that could affect the Company, reference the “New Accounting Standards” section of Note 2 to the Notes to Consolidated Financial Statements, included elsewhere in this information statement.

Quantitative and Qualitative Disclosures About Market Risk

Foreign Currency

Our foreign currency exposure is limited and arises from transactions denominated in foreign currencies, particularly intercompany loans, as well as from translation of the results of operations from our Canadian and, to a much lesser extent, United Kingdom subsidiaries. However, fluctuations between U.S. and non-U.S. currency values may adversely affect our results of operations and financial position. We have not entered into any foreign exchange contracts to hedge changes in the Canadian dollar or British pound. Canadian currency translation negatively affected net income by approximately $0.3 million for the three months ended March 31, 2019. A 1% decrease in the average Canadian exchange rate for the three months ended March 31, 2019 would have impacted net income by approximately $0.1 million. Currency exposure of our U.K. operations is not material to the results of operations.

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MANAGEMENT

Executive Officers Following the Distribution

The following table sets forth information as of June 6, 2019 regarding the individuals who are expected to serve as IAA’s executive officers following the distribution. While some of IAA’s executive officers are currently officers and employees of KAR, after the distribution, none of the individuals will continue to be employees or executive officers of KAR.

Name
Age
Position
John W. Kett
55
President and Chief Executive Officer
Tim O’Day
56
President, U.S. Operations
Vance C. Johnston
50
Executive Vice President, Chief Financial Officer and Treasurer
Sidney Peryar
44
Executive Vice President, Chief Legal Officer and Secretary
Maju P. Abraham
43
Senior Vice President and Chief Information Officer

John W. Kett is expected to serve as President and Chief Executive Officer (“CEO”) of IAA. Mr. Kett has been Chief Executive Officer and President of IAA since May 2014. Mr. Kett joined IAA in 2001 as Vice-President, Field Support before being promoted to Senior Vice President of Planning and Business Development and later to Chief Financial Officer and then President. Prior to joining IAA, Mr. Kett served in a variety of senior financial and operational roles for Central Steel and Wire Co., Safelite Glass Corporation (formerly Vistar, Inc.), Newark Electronics and Deloitte LLP. Mr. Kett holds a master’s degree in finance from Northwestern University and a bachelor’s degree in accounting from Northern Illinois University.

Tim O’Day is expected to serve as President of U.S. Operations of IAA. Mr. O’Day has been Chief Operating Officer of IAA since February 2017. Mr. O’Day joined IAA in September 2015 as Senior Vice President of Finance. Prior to joining IAA, Mr. O’Day was Chief Operating Officer and Chief Financial Officer of MedSpeed, a national healthcare transportation and logistics provider, from 2007 to 2015. He was founder and president of Coast to Coast Copiers, a B2B internet technology company, from 2003 to 2006. He also served as President of Braun Events, a regional special event company, from 2000 to 2003, Financial Officer of RentalMax, an equipment rental chain, from 1998 to 2000 and Director of Finance of Vistar Autoglass, a national auto glass company, from 1994 to 1997. Mr. O’Day served in various financial managerial positions at Abbott Laboratories from 1985 to 1994. Mr. O’Day holds a bachelor’s degree in business from Indiana University.

Vance C. Johnston is expected to serve as Executive Vice President, Chief Financial Officer and Treasurer of IAA and may eventually assume other business and operations responsibilities. Mr. Johnston served as Executive Vice President, Chief Financial Officer and Treasurer of SP Plus Corporation from March 2014 to April 2019. Mr. Johnston also held various positions with Furniture Brands International, Inc. between March 2010 and December 2013, including Chief Financial Officer from May 2012 to December 2013. He was Chief Financial Officer of Furniture Brands International, Inc. when it filed for protection under Chapter 11 of the bankruptcy code on September 9, 2013. Prior to that, he was Chief Financial Officer of Miami Jewish Health Systems from March 2009 to March 2010 and Vice President, Corporate Strategy of Royal Caribbean Cruises, Ltd. from December 2005 to August 2009. He also held various positions in strategy, finance and operations at OfficeMax from 2002 to 2005 and Burger King Corp. from 2001 to 2002. Mr. Johnston holds an MBA from the University of Chicago’s Booth School of Management and a bachelor’s degree in business administration and management from University of San Diego.

Sidney Peryar is expected to serve as Executive Vice President, Chief Legal Officer and Secretary of IAA and may eventually assume other business and operations responsibilities. Mr. Peryar has been Senior Vice President, General Counsel and Secretary of IAA since February 2017. Mr. Peryar first joined IAA in April 2001 as Corporate Counsel. In 2002, Mr. Peryar became an executive officer of IAA, serving as Vice-President, Corporate Counsel and Secretary, a position he held until October 2004. From October 2004 through February 2017, Mr. Peryar served as Vice-President, General Counsel and Secretary of IAA. Mr. Peryar has contributed extensively to the general oversight and management of the company’s operations, strategy and business development as a member of the executive management team. Prior to joining IAA, Mr. Peryar served as an attorney at Fairbank & Vincent. Mr. Peryar holds an MBA from Northwestern University’s Kellogg Graduate School of Management, a J.D. from Vanderbilt University School of Law and a bachelor’s degree from Auburn University.

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Maju P. Abraham is expected to serve as Senior Vice President and Chief Information Officer of IAA. Mr. Abraham has been the Vice President of Business Technology of IAA since September 2014. From December 2010 through September 2014, Mr. Abraham served as Director of Business Technology at IAA and prior to that, held various other technology roles at IAA from July 2005 to December 2010. Mr. Abraham also worked at Accubyte Inc. from August 2002 to July 2005 and Diamond InfoTech from 1996 to 2002. Mr. Abraham holds a bachelor’s degree in economics from Mahatma Gandhi University.

Board Following the Distribution

The following table sets forth information as of June 6, 2019 regarding those persons who are expected to serve on the Board following the distribution. All of the nominees will be presented to IAA’s sole stockholder, KAR, for election before the distribution. Some of the persons who are expected to serve as IAA’s directors are currently directors of KAR.

Name
Age
Position
John P. Larson
56
Chairman
Brian Bales
56
Director
Bill Breslin
69
Director
Sue Gove
60
Director
Lynn Jolliffe
67
Director
Peter Kamin
57
Director
Olaf Kastner
64
Director
John W. Kett
55
Director

John P. Larson is expected to serve as the chairman of the Board. Mr. Larson served as Independent Director of KAR Auction Services since June 2014. Mr. Larson has served as Chief Executive Officer of Bestop, Inc., a leading manufacturer of soft tops and accessories for Jeep vehicles, since August 2015. Mr. Larson also served as Chief Executive Officer of Escort Inc., an automotive electronics manufacturer, from January 2008 to January 2014 and prior to that as President and Chief Operating Officer from June 2007 to January 2008. He served in a number of capacities at General Motors Company from 1986 to 2007, most recently serving as General Manager overseeing operations for the Buick, Pontiac and GMC Divisions from January 2005 to May 2007 and as General Director of Finance (CFO) for U.S. Sales, Service and Marketing Operations from 2001 to 2004. Mr. Larson led General Motors Company’s used car remarketing activity from 1999 to 2000. Mr. Larson holds a master’s degree in management from Purdue University and a bachelor’s degree in finance from Northern Illinois University. Mr. Larson brings to the Board senior executive leadership capabilities and experience, as well as extensive knowledge of IAA’s business and industry.

Brian Bales is expected to serve as a member of the Board. Mr. Bales has served as Executive Vice President and Chief Development Officer of Republic Services, Inc. since February 2015. Mr. Bales served as Executive Vice President of Business Development of Republic Services, Inc. from December 2008 to February 2015 and Vice President of Corporate Development from December 1998 to December 2008. From April 1993 to December 1998, Mr. Bales served in roles of increasing responsibility at Ryder System, Inc. including Director, Financial Planning and Analysis. Mr. Bales is a certified public accountant (inactive) and holds a bachelor’s degree in business administration majoring in accounting from the University of Tennessee. Mr. Bales’ significant management experience provides the Board with additional perspective on the Company’s operations.

Bill Breslin is expected to serve as a member of the Board. Mr. Breslin is Founder and Chief Executive Officer of Wenonah Consulting. Mr. Breslin specializes in delivering service, expense, and loss management solutions to claims operations across the insurance industry. Mr. Breslin was President of Vericlaim Repair Solutions from June 2016 to April 2017. He also served as Senior Vice President of Claims for USAA from November 1999 to January 2008. He was Senior Vice President of Claims at GE Financial Assurance from June 1996 to November 1999. Mr. Breslin also served as Executive Vice President and Chief Operating Officer at TriServ Alliance from February 2008 to October 2009. He served as an advisor to Pronto Insurance from October 2014 to June 2018 and ABRA Auto Body & Glass from December 2011 to February 2019. He has served as a director for Insight Service Group since January 2014. Mr. Breslin completed continuing education and executive training at both the

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University of Virginia’s Darden School of Business and University of Pennsylvania’s Wharton School and holds a bachelor’s degree in education from St. Bernard College. Mr. Breslin’s senior executive leadership and board of directors experience offers the Board a seasoned corporate governance perspective.

Sue Gove is expected to serve as a member of the Board. Ms. Gove is President of Excelsior Advisors, LLC, a retail consulting and advisory firm. Prior to founding Excelsior Advisors in August 2014, she was the President and Chief Executive Officer of Golfsmith International Holdings, Inc. from October 2012 to April 2014 and President from February 2012 to April 2014. Ms. Gove also served Golfsmith as Chief Operating Officer from September 2008 to October 2012, as Chief Financial Officer from March 2009 to July 2012 and as Executive Vice President from September 2008 to February 2012. In addition, Ms. Gove spent 25 years at Zale Corporation where she served in senior financial, operating and strategic roles, including serving as Chief Financial Officer from July 1998 to March 2003, and culminating in the EVP and Chief Operating Officer role from August 2002 to March 2006. She was a director of AutoZone Inc. from July 2005 until December 2017, where she served as chair of the nominating and corporate governance committee and a member of the audit committee, of Logitech International SA from September 2015 until September 2018, where she served as a member of the audit committee, and of Iconix Brand Group from October 2014 to May 2019, where she was a member of the compensation committee and the chair of the audit committee. Ms. Gove has served as a director of Bed Bath & Beyond Inc. since May 2019 and is a member of the Nominating and Corporate Governance Committee. Ms. Gove holds a BBA in accounting from The University of Texas at Austin. Ms. Gove offers the Board valuable expertise in best practices for a public company on a global scale as well as financial management given her background as a chief financial officer.

Lynn Jolliffe is expected to serve as a member of the Board. Ms. Jolliffe served as Independent Director of KAR Auction Services since June 2014. Ms. Jolliffe has served as the Chief Executive Officer of Jolliffe Solutions, Inc., providing consulting in human capital and talent management since June 2015. Ms. Jolliffe also served as Executive Vice President, Global Human Resources of Ingram Micro Inc., a technology distribution company, from June 2007 to June 2015, as Vice President, Human Resources for the North America region from October 2006 to May 2007, and as Regional Vice President, Human Resources and Services for Ingram Micro European Coordination Center from August 1999 to October 2006. She served in various capacities, including Vice President and Chief Financial Officer with responsibility for human resources, at two Canadian retailers, including Holt Renfrew, from 1985 to 1999. Ms. Jolliffe holds an MBA from University of Toronto and a bachelor’s degree in sociology from Queens University. Ms. Jolliffe’s senior executive leadership and chief financial officer experience offers the Board a seasoned corporate governance and financial management perspective.

Peter Kamin is expected to serve as a member of the Board. Mr. Kamin is the Founder and Managing Partner of 3K Limited Partnership. Mr. Kamin was a Founding Member of ValueAct Capital and served as a Managing Partner of ValueAct Capital from 2000 to 2011. He also founded Peak Investment L.P. which he managed from January 1992 until July 2000. Mr. Kamin has served as the chairman of Tile Shop Holdings’ board of directors since August 2016 and as a director at MAM Software Limited since May 2012. He also serves on the board of directors of several public and privately held companies, including Insurance Auto Auctions, Inc., Auto Dealers Exchange of Memphis, LLC, ADESA Corporation, LLC, ADESA Ohio, LLC and Adesa Indianapolis, Inc., Aldila Inc., Calloway’s Nursery Inc., Rand Worldwide, Inc., Exterran Energy LLC, Data Transmission Network Corp., MAM Software Group, Inc., Abatix Corp., Tile Shop Holdings, Inc., Seitel Inc., at N360x, L.L.C., Seitel Solutions, DDD Energy Inc. (now Vision Energy, Inc.), Seitel Data Corp. and Seitel Delaware, Inc. Mr. Kamin holds an MBA from Harvard’s Graduate School of Business and a bachelor’s degree, magna cum laude, in economics from Tufts University. Mr. Kamin’s service on the boards of other significant companies and his years of experience in the automotive industry brings an in-depth understanding of IAA’s business to the Board.

Olaf Kastner is expected to serve as a member of the Board. Mr. Kastner served as President and CEO of BMW Group Region China from November 2015 until February 2018 and of BMW Brilliance Automotive in China from June 2009 to October 2015. From June 2006 to May 2009 he served as Director, Finance of BMW UK in the United Kingdom and from September 1998 to June 2006 he served as Managing Director, Insurance, for BMW Bavaria Wirtschaftsagentur, BMW Group Financial Services in Germany. Mr. Kastner also served as Director, Industrial Business of Nordstern and Colonia Versicherungen in Germany from January 1995 to August 1998. From January 1990 to December 1994 he served as Managing Director of Associate Insurance

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Management in Ireland. Mr. Kastner also served as a director of the German Chamber of Commerce in China from March 2016 to March 2018. Mr. Kastner holds a Diplom-Kaufmann (Master of Business Administration) from University of Hamburg, Germany. Mr. Kastner brings to the Board decades of experience and leadership in the international insurance and automotive industry.

The biography of John W. Kett is set forth under “Executive Officers Following the Distribution” above. As a result of his past employment by IAA and his significant management experience, Mr. Kett brings to the Board significant knowledge and understanding of IAA’s services, operations and business environment.

Each director will hold office until the annual meeting of stockholders for the year in which his or her term expires and until his or her successor is duly elected or appointed and qualified or until his or her earlier death, retirement, disqualification, resignation or removal.

Our amended and restated certificate of incorporation that will become effective contemporaneously with the distribution will provide that our Board shall consist of not less than two and not more than fifteen directors as the Board may from time to time determine. We expect that our Board will initially consist of eight directors. Upon completion of the separation, the Board will initially be divided into three classes. The directors designated as Class I directors will have terms expiring at the first annual meeting of stockholders following the distribution, which IAA expects to hold in 2020. The directors designated as Class II directors will have terms expiring at the 2021 annual meeting of stockholders, and the directors designated as Class III directors will have terms expiring at the 2022 annual meeting of stockholders. Commencing with the 2020 annual meeting of stockholders, directors for each class will be elected at the annual meeting of stockholders held in the year in which the term for that class expires. Class I directors will be elected to three-year terms at the 2020 annual meeting of stockholders, Class II directors will be elected to one-year terms at the 2021 annual meeting of stockholders, and Class III directors will be elected to one-year terms at the 2022 annual meeting of stockholders. Commencing with the 2023 annual meeting of stockholders, the Board will no longer be classified, and directors will no longer be divided into classes.

Director Independence

Upon completion of the distribution, we expect to have eight directors, seven of whom we believe will be determined to be independent, as defined under the NYSE listing requirements. We intend to appoint an independent director as chairman of the Board. Under the NYSE listing standards, a director qualifies as independent if our Board affirmatively determines that the director has no material relationship with us. While the focus of the inquiry is independence from management, our Board is required to broadly consider all relevant facts and circumstances in making an independence determination. Our Board will assess on a regular basis, and at least annually, the independence of directors and, based on the recommendation of the Nominating and Corporate Governance Committee, will make a determination as to which members are independent.

Role of the Board

The Board will oversee the Company’s CEO and other senior management in the competent and ethical operation of the Company and assure that the long-term interests of the stockholders are being served. The Board is expected to adopt a set of Corporate Governance Guidelines in connection with the separation to assist it in guiding our governance practices.

Committees of the Board

Effective upon the completion of the distribution, our Board will have the following standing committees: the Audit Committee, the Compensation Committee, the Nominating and Corporate Governance Committee and the Risk Committee. The Board may form additional committees in the future.

Audit Committee . Ms. Gove and Messrs. Bales and Kamin are expected to be the members of the Board’s Audit Committee. Ms. Gove is expected to be the Audit Committee Chairman. Our Board is expected to determine that at least one member of the Audit Committee is an “audit committee financial expert” for purposes of the rules of the SEC. In addition, the Board is expected to determine that each member is financially literate as required by NYSE rules. In addition, IAA expects that the Board will determine that each member of the Audit Committee meets the standards of “independence” established by the NYSE and is “independent” under the independence standards for audit committee members adopted by the SEC. The Audit Committee will assist the

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Board in its oversight of the integrity of IAA’s financial statements, IAA’s independent registered public accounting firm’s qualifications and independence and the performance of IAA’s independent registered public accounting firm. The Audit Committee will review the audit plans and findings of IAA’s independent registered public accounting firm and IAA’s internal audit team and track management’s corrective action plans where necessary; review IAA’s financial statements, including any significant financial items and changes in accounting policies or practices, with its senior management and independent registered public accounting firm; review IAA’s financial risk and control procedures, compliance programs and significant tax, legal and regulatory matters; and have the sole discretion to appoint annually IAA’s independent registered public accounting firm, evaluate its independence and performance and set clear hiring policies for employees or former employees of the independent registered public accounting firm.

Compensation Committee. Ms. Jolliffe and Messrs. Breslin and Kastner are expected to be the members of the Board’s Compensation Committee. Ms. Jolliffe is expected to be the Compensation Committee Chairman. The Board is expected to determine that all of the members of the Compensation Committee are independent under the NYSE rules (including the enhanced independence requirements for compensation committee members). The Compensation Committee will review and recommend policies relating to compensation and benefits of our officers and employees. The Compensation Committee will review and approve corporate goals and objectives relevant to the compensation of our CEO and other executive officers, evaluate the performance of these officers in light of those goals and objectives, and approve the compensation of these officers based on such evaluations. The Compensation Committee will also administer the issuance of equity and other awards under our equity plans.

Nominating and Corporate Governance Committee. Messrs. Kamin and Breslin and Ms. Jolliffe are expected to be the members of the Board’s Nominating and Governance Committee. Mr. Kamin is expected to be the Nominating and Governance Committee Chairman. The Board is expected to determine that all of the members of the Nominating and Corporate Governance Committee are independent under the NYSE rules. The Nominating and Corporate Governance Committee will be responsible for making recommendations to the Board regarding candidates for directorships and the size and composition of the Board. The Nominating and Corporate Governance Committee will also review non-employee director compensation on an annual basis and make recommendations to the Board. In addition, the Nominating and Corporate Governance Committee will be responsible for overseeing our Corporate Governance Guidelines and reporting and making recommendations to the Board concerning governance matters.

Risk Committee . Messrs. Bales and Kastner and Ms. Gove are expected to be the members of the Board’s Risk Committee. Mr. Bales is expected to be the Risk Committee Chairman. The Board is expected to determine that all of the members of the Risk Committee are independent under the NYSE rules. The Risk Committee will assist the Board in its oversight of (i) the principal business, financial, technology and operational risks, and other material risks and exposures of the Company and (ii) the actions, activities and initiatives of the Company to mitigate such risks and exposures. The Risk Committee will also provide oversight for matters specifically relating to cyber security and other risks related to information technology systems and procedures. The Risk Committee will also oversee the Company’s enterprise risk management (“ERM”) program and has direct oversight over certain risks within the ERM framework.

The Board is expected to adopt a written charter for each of the Audit Committee, the Compensation Committee, the Nominating and Corporate Governance Committee and the Risk Committee. These charters will be posted on IAA’s website in connection with the separation.

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COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

During the Company's fiscal year ended December 31, 2018, IAA was not an independent company, and did not have a Compensation Committee or any other committee serving a similar function.

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COMPENSATION DISCUSSION AND ANALYSIS

Introduction

Prior to the distribution, we have been a wholly owned subsidiary of KAR. Until the distribution, our compensation decisions will be made by KAR’s senior management and the Compensation Committee of KAR’s board of directors. We expect that our executive compensation program following the distribution will generally include elements that are the same as or similar to KAR’s executive compensation program. The following sets forth how our future compensation programs, objectives and design framework are expected to operate. Our Compensation Committee will review all aspects of compensation and may make adjustments that it believes are appropriate in structuring our executive compensation arrangements.

For purposes of this prospectus, our executive officers whose compensation is discussed in this Compensation Discussion and Analysis and whom we refer to as our named executive officers, or “NEOs”, are Mr. John W. Kett, who is expected to be our President and Chief Executive Officer; Mr. Vance C. Johnston, who is expected to be our Executive Vice President, Chief Financial Officer and Treasurer; Mr. Tim O’Day, who is expected to be our President of U.S. Operations; Sidney Peryar, who is expected to be our Executive Vice President, Chief Legal Officer & Secretary and Mr. Maju P. Abraham, who is expected to be our Senior Vice President and Chief Information Officer. Mr. Johnston joined IAA in 2019 and was not an executive officer during the Company’s fiscal year ended December 31, 2018.

Compensation Philosophy and Objectives

KAR Compensation Practice

The compensation philosophy of KAR and its Compensation Committee is described below. Following the distribution, our Compensation Committee will review and consider this philosophy and may make adjustments as appropriate.

KAR has designed and administered its executive pay programs to help ensure the compensation of its named executive officers is (i) closely aligned with KAR's performance on both a short-term and long-term basis; (ii) linked to specific, measurable results intended to create value for stockholders; and (iii) competitive in attracting and retaining key executive talent into the vehicle remarketing and auto finance industry. Each of the compensation programs that KAR has developed and implemented is intended to satisfy one or more of the following specific objectives:

• align the interests of KAR's executive officers with the interests of KAR stockholders so that executive officers manage from the perspective of owners with an equity stake in KAR;
• motivate and focus KAR's executive officers through incentive compensation programs directly tied to KAR's financial results;
• support a one-company culture and encourage synergies among all business units by aligning rewards with long-term, overall KAR performance and stockholder value;
• provide a significant percentage of total compensation through variable pay based on pre-established, measurable goals and objectives;
• provide competitive upside opportunity without encouraging excessive risk-taking;
• enhance KAR's ability to attract and retain skilled and experienced executive officers; and
• provide rewards commensurate with performance and with competitive market practices.

While KAR does not target any specific percentile positioning versus the market, the market median is used as a reference point but is not the sole determinant when making compensation decisions. Compensation decisions are made considering a number of factors including experience, tenure, sustained performance, specific requirements of roles relative to the market and individual and KAR performance.

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Going Forward

Our executive compensation objectives and framework will initially be similar to KAR's. Following the distribution, our Compensation Committee will review these objectives and framework to ensure they meet our business needs and strategic objectives.

The Role of the Compensation Committee and the Executive Officers in Determining Executive Compensation

KAR Practice

Role of the Compensation Committee . The KAR Compensation Committee has primary responsibility for all compensation decisions relating to KAR's named executive officers. The KAR Compensation Committee reviews the aggregate level of KAR's executive compensation, as well as the mix of elements used to compensate KAR's named executive officers on an annual basis.

Compensation Committee's Use of Market and Survey Data . Although KAR is comprised of a unique mix of businesses and lacks directly comparable public companies, the KAR Compensation Committee understands that most companies consider pay levels at comparably-sized, peer companies when setting named executive officer compensation levels. With assistance from its independent compensation consultant, ClearBridge Compensation Group LLC (“ClearBridge”), the KAR Compensation Committee has developed a meaningful comparator group for KAR.

In order to confirm competitiveness of compensation, the KAR Compensation Committee uses a combination of (i) survey data (cuts from the Aon Hewitt and Mercer general industry and service industry surveys); and (ii) proxy compensation data of a “proxy comparator group” in setting and adjusting compensation levels. In light of the lack of directly comparable companies for KAR Auction Services' business, as noted above, companies in the proxy comparator group were selected based on (i) a focus on service-oriented industries; (ii) similarly-sized revenue and market capitalization levels; (iii) comparable growth, profitability and/or market valuation profiles; and (iv) companies with which KAR competes for executive talent. Where possible, the KAR Compensation Committee included companies that are in related or similar industries to KAR.

Based on the recommendation of ClearBridge, the KAR Compensation Committee used a proxy comparator group consisting of the following 17 companies in making 2018 compensation decisions:

2018 Proxy Comparator Group

 
 
 
Allison Transmission Holdings, Inc.
GATX Corp.
Stericycle, Inc.
Cintas Corporation
LKQ Corp.
Total System Services, Inc.
Copart, Inc.
MSC Industrial Direct Co. Inc.
Werner Enterprises, Inc.
CDK Global, Inc.
Old Dominion Freight Line Inc.
Westinghouse Air Brake Technologies Corporation
eBay Inc.
Pitney Bowes Inc.
Worldpay, Inc. (formerly known as Vantiv, Inc.)
Equifax Inc.
Sotheby's
 

The KAR Compensation Committee viewed the proxy comparator group and market data as an important guide, but not as the sole determinant in making its decisions regarding 2018 compensation levels. The KAR Compensation Committee also considered experience, tenure, sustained performance, specific requirements of roles relative to market and individual and KAR performance.

Role of the Independent Compensation Consultant . The KAR Compensation Committee used ClearBridge as its independent compensation consultant in 2018. ClearBridge provided (i) advice to the KAR Compensation Committee with respect to the assessment of KAR's executive compensation practices; (ii) advice regarding the evaluation of long-term incentive compensation practices; (iii) advice and guidance regarding the design of new long-term equity awards; (iv) advice regarding related compensation matters; (v) advice to the KAR Compensation Committee with respect to annual and long-term incentive plan design; and (vi) guidance on the competitiveness of the executive officers' elements of compensation.

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ClearBridge regularly attends KAR Compensation Committee meetings and attends executive sessions as requested by the Chairman of the KAR Compensation Committee. The KAR Compensation Committee has reviewed the independence of ClearBridge in light of SEC rules and NYSE listing standards regarding compensation consultants and has concluded that the work of ClearBridge for the KAR Compensation Committee does not raise any conflict of interest. All work performed by ClearBridge is and was subject to review and approval of the KAR Compensation Committee.

Role of the Executive Officers . Mr. Jim Hallett (KAR's Chairman of the Board and Chief Executive Officer) regularly participates in meetings of the KAR Compensation Committee at which compensation actions involving named executive officers are discussed. Mr. Hallett assists the KAR Compensation Committee by making recommendations regarding compensation actions for the executive officers other than himself. Mr. Hallett recuses himself and does not participate in any portion of any meeting of the KAR Compensation Committee at which his compensation is discussed.

Going Forward

The KAR Compensation Committee has engaged ClearBridge to review IAA’s executive compensation practices. We expect that our Compensation Committee will continue to engage an independent compensation consultant following the distribution, and that the roles of such consultant and of our management in connection with the executive compensation process will be similar to KAR’s approach.

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Elements Used to Achieve Compensation Philosophy and Objectives

KAR Practice

Elements of Executive Compensation Program Design . The following table lists the elements of compensation for KAR's 2018 executive compensation program. The program uses a mix of fixed and variable compensation elements and provides alignment with both short- and long-term business goals through annual and long-term incentives. KAR's incentives are designed to drive overall corporate performance and business unit strategies that correlate to stockholder value and align with KAR’s strategic vision. In order to confirm competitiveness of compensation, the KAR Compensation Committee reviews survey data and proxy compensation data of KAR’s proxy comparator group.

 
Element
Key Characteristics
Why KAR Pays This Element
How KAR Determines Amount
2018 Decisions
Fixed
Base salary
Fixed compensation component payable in cash.
Reviewed annually and adjusted when appropriate.
Reward the named executive officers for their past performance and facilitate the attraction and retention of a skilled and experienced executive management team.
KAR performance, individual performance, experience, job scope, tenure, review of competitive pay practices and base salary as a percentage of total compensation.
Three KAR named executive officers received a salary increase in 2018.
Variable
Annual cash incentive awards
Variable compensation component payable in cash based on performance against annually established targets.
Motivate and reward the successful achievement of pre-determined financial objectives at KAR.
Award opportunities are based on individual performance, experience, job scope and review of competitive pay practices.
Actual award payouts were based on achievement of 2018 Adjusted EBITDA and a Management by Objectives (“MBO”) modifier relating to certain pre-established departmental, strategic or operational initiatives and objectives for each executive.
KAR's performance resulted in 92.83% of the target award for certain named executive officers of KAR and ADESA's performance resulted in 0% of the target award for the remaining named executive officer based on Adjusted EBITDA performance in 2018. The application of the MBO modifier resulted in varying increases in the total payout for each KAR named executive officer based on her/her respective performance.
Performance-based restricted stock units (PRSUs)
PRSUs vest at the end of a three-year performance period.
Motivate and reward executives for performance on key long-term measures.
Align the interests of executives with long-term stockholder value and serve to retain executive talent.
Award opportunities are based on individual's ability to impact future results, job scope, individual performance and review of competitive pay practices.
2018 PRSU awards earned based on 3-year Cumulative Operating Adjusted Net Income Per Share performance through December 31, 2020.
   
PRSU awards made up 75% of the value of the aggregate long-term incentives granted to the KAR named executive officers in 2018.
The KAR Compensation Committee granted PRSUs to all of the KAR named executive officers in 2018.
Restricted stock units (RSUs)
RSUs vest ratably on each of the first three anniversaries of the grant date subject to the KAR named executive officer's continued employment with KAR.
Align the interests of executives with long-term stockholder value and serve to retain executive talent.
Awards based on individual's ability to impact future results, job scope, individual performance and review of competitive pay practices.
RSU awards made up 25% of the value of the aggregate long-term incentives granted to the KAR named executive officers in 2018.
The KAR Compensation Committee granted RSUs to all of the KAR named executive officers in 2018.

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Compensation Structure and Goal Setting . KAR's executive compensation program is designed to deliver compensation in accordance with corporate and business unit performance with a large percentage of compensation at risk through long-term equity awards and annual cash incentive awards. These awards are linked to actual performance, consistent with KAR's belief that a significant amount of executive compensation should be in the form of equity and that a greater percentage of compensation should be tied to performance for executives who bear higher levels of responsibility for KAR's performance. Approximately 84% of KAR's CEO's total compensation, and approximately 72% of the average total compensation of KAR's other named executive officers, is at-risk, consisting of PRSUs, restricted stock units (“RSUs”) and other performance-based incentives.

Going Forward

The primary elements of our executive compensation program, and mix thereof, will initially be similar to KAR's, though the type of full-value awards to be used in the program has not been determined. Following the distribution, our Compensation Committee will review the primary elements of our executive compensation program, and mix thereof, to ensure they meet our business needs and strategic objectives. This will include a review of base salary as well as short-term and long-term incentive programs and other compensation.

Base Salary

KAR Practice

Annual salary levels for KAR's named executive officers are based upon various factors, including the amount and relative percentage of total compensation that is derived from base salary when setting the compensation of KAR's executive officers, KAR performance, individual performance, experience, job scope and tenure. In view of the wide variety of factors considered by the KAR Compensation Committee in connection with determining the base salary of each of KAR's named executive officers, the KAR Compensation Committee has not attempted to rank or otherwise assign relative weights to the factors that it considers.

Going Forward

Following the distribution, we expect that our Compensation Committee will set base salary levels for executive officers taking into account base salary levels for positions with similar roles and scope of responsibilities within our proxy comparator group, as well as personal performance.

Immediately following the distribution, our NEOs will have the following base salaries:

Name
Base Salary
John W. Kett
$
700,000
 
Vance C. Johnston
$
520,000
 
Tim O’Day
$
500,000
 
Sidney Peryar
$
400,000
 
Maju Abraham
$
300,000
 

Annual Cash Incentive Program

KAR Practice

General . Named executive officers with greater job responsibilities have a significant proportion of their annual cash compensation tied to KAR performance through their annual incentive opportunity.

The KAR Auction Services, Inc. Annual Incentive Program . Under the KAR Auction Services, Inc. Annual Incentive Program (the “Annual Incentive Program”), which is part of the KAR Auction Services, Inc. 2009 Omnibus Stock and Incentive Plan, as amended (the “Omnibus Plan”), the grant of cash-based awards to eligible participants is contingent upon the achievement of certain pre-established corporate performance goals as determined by the KAR Compensation Committee.

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Use of 2018 Adjusted EBITDA . In 2018, the KAR Compensation Committee used “2018 Adjusted EBITDA” for KAR Auction Services, as the relevant metric for determining awards under the Annual Incentive Program. “Adjusted EBITDA” is equal to EBITDA (earnings before interest expense, income taxes, depreciation and amortization) adjusted to exclude, among other things:

• gains and losses from asset sales;
• unrealized foreign currency translation gains and losses in respect of indebtedness;
• certain non-recurring gains and losses;
• stock based compensation expense;
• certain other non-cash amounts included in the determination of net income;
• charges and revenue reductions resulting from purchase accounting;
• minority interest;
• expenses associated with the consolidation of salvage operations;
• consulting expenses incurred for cost reduction, operating restructuring and business improvement efforts;
• expenses realized upon the termination of employees and the termination or cancellation of leases, software licenses or other contracts
• in connection with the operational restructuring and business improvement efforts;
• expenses incurred in connection with permitted acquisitions;
• any impairment charges or write-offs of intangibles; and
• any extraordinary, unusual or non-recurring charges, expenses or losses

Going Forward

Following the distribution, our Compensation Committee will develop a short-term incentive plan focused on near-term operational and financial goals that support our long-term business objectives, while also allowing for meaningful pay differentiation tied to performance of individuals and groups.

Immediately following the distribution, our NEOs will have the following annual incentive opportunities:

 
 
Bonus Opportunity
Name
Base Salary
Threshold
% of Base
Salary
Target % of
Base Salary
Superior %
of Base
Salary
John W. Kett
$
700,000
 
 
50
 
 
100
 
 
150
 
Vance C. Johnston
$
520,000
 
 
38
 
 
75
 
 
113
 
Tim O’Day
$
500,000
 
 
38
 
 
75
 
 
113
 
Sidney Peryar
$
400,000
 
 
30
 
 
60
 
 
90
 
Maju Abraham
$
300,000
 
 
30
 
 
60
 
 
90
 

Long-Term Incentive Opportunities

KAR Practice

Long-Term Incentive Awards . KAR provides long-term incentive compensation opportunities in the form of PRSUs and RSUs. Although KAR has granted stock options in the past, stock options are not currently part of KAR’s long-term incentive program. The aggregate target award value for each named executive officer was allocated such that 75% of the value was in the form of PRSUs and 25% of the value was in the form of RSUs.

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2018 Performance-Based RSU Awards

The PRSUs will vest if and to the extent that certain performance goals relating to KAR are met or exceeded over the three-year measurement period beginning on January 1, 2018 and ending on December 31, 2020. The amount of the target PRSUs actually earned and paid in shares of common stock in a lump sum following the performance period will be: 0% for below threshold performance, 50% for threshold performance, 100% for target performance and up to 200% for achieving the maximum performance level or higher. Linear interpolation will be used to calculate the percentage of PRSUs earned and paid if performance falls between the levels described above.

2018 Time-Based RSU Awards

The RSUs will vest and convert into shares of common stock of KAR on each of the first three anniversaries of the grant date, subject to the KAR named executive officer's continued employment with KAR through each such anniversary.

Going Forward

We anticipate that our long-term incentive compensation grant practices initially will be comparable to those of KAR. Following the distribution, our Compensation Committee and management will review such practices to ensure they meet our business and strategic needs and the objectives of our executive compensation program.

Summary of the 2019 Incentive Plan   

General . Prior to the distribution, KAR’s board of directors is expected to approve the IAA, Inc. 2019 Omnibus Stock and Incentive Plan (as amended, the “2019 OSIP”), as IAA’s sole stockholder. A general description of the expected key terms of the 2019 OSIP is set forth below. A form of the 2019 OSIP, which will qualify in its entirety the general description of the 2019 OSIP, has been filed as an exhibit to the registration statement on Form 10 of which this information statement forms a part.

Purposes . The purpose of the 2019 OSIP is to provide an additional incentive to selected management employees, directors, independent contractors, and consultants of IAA whose contributions are essential to the growth and success of the Company’s business, in order to strengthen the commitment of such persons, motivate such persons to faithfully and diligently perform their responsibilities and attract and retain competent and dedicated persons whose efforts will result in the long-term growth and profitability of IAA.

Administration . The 2019 OSIP will be administered and interpreted by the IAA Board or a committee appointed by the Board (the “Committee”), who will have the power and authority, without limitation, to establish such rules and regulations as it deems necessary for the proper administration of the 2019 OSIP, including the ability to construe and interpret the terms and provisions of the 2019 OSIP and any award issued thereunder and to otherwise supervise the administration of the 2019 OSIP and to exercise all powers and authorities necessary and advisable in the administration of the 2019 OSIP.

2019 OSIP Participants . Participants will consist of any employee, director, independent contractor or consultant of IAA or any affiliate of IAA selected by the Committee to receive awards under the 2019 OSIP, and, upon his or her death, his or her successors, heirs, executors and administrators, as the case may be. As of        , if selected by the administrator, there would be approximately (i)        officers of the Company and its affiliates who would be eligible to participate in the 2019 OSIP, (ii)        non-officer employees of the Company and its affiliates who would be eligible to participate in the 2019 OSIP, (iii)        non-employee directors of the Company and its affiliates who would be eligible to participate in the 2019 OSIP, and (iv)        independent contractors and consultants of the Company and its affiliates who would be eligible to participate in the 2019 OSIP.

Description of Awards . Benefits granted under the 2019 OSIP may be granted in any one or a combination of (i) options; (ii) share appreciation rights (“SARs”), (iii) restricted shares, (vi) other share-based award; or (v) other cash-based awards. Options, restricted shares and other share-based awards or cash awards may, as determined by the Committee in its discretion, constitute performance-based awards, which are described in greater detail below.

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Performance-Based Awards . As determined by the Committee in its sole discretion, the granting or vesting of any performance-based awards will be based on achievement of performance objectives that are based on one or more of the business criteria described below, with respect to one or more business units or IAA and its subsidiaries as a whole: (i) earnings, including one or more of operating income, amortization, adjusted EBITDA, economic earnings, or extraordinary or special items or book value per share; (ii) pre-tax income or after-tax income; (iii) earnings per share; (iv) operating profit; (v) revenue, revenue growth or rate of revenue growth; (vi) return on assets , return on investment, return on capital or return on equity; (vii) returns on sales or revenues; (viii) operating expenses; (ix) stock price appreciation (including total stockholder return, on an absolute basis or relative to a peer group or other index selected by the Committee); (x) cash flow, free cash flow, cash flow return on investment, net cash provided by operations or cash flow in excess of cost of capital; (xi) implementation or completion of critical projects or processes; (xii) cumulative earnings per share growth; (xiii) operating margin or profit margin; (xiv) cost targets, reductions and savings, productivity and efficiencies; (xv) strategic business criteria; (xvi) personal professional objectives, including any of the foregoing performance goals, the implementation of policies and plans, the negotiation of transactions, the development of long term business goals, formation of joint ventures, research or development collaborations, and the completion of other corporate transactions; and (xvii) any combination of, or a specified increase in, any of the foregoing. Such business criteria may be adjusted to account for unusual or infrequently occurring items or changes in accounting.

Shares Reserved for Awards . The number of common shares reserved and available for awards under the 2019 OSIP will be        shares, subject to adjustment made in accordance with the 2019 OSIP. Upon the occurrence of certain corporate events that affect the common stock, including but not limited to extraordinary cash dividend, stock split, reorganization or other relevant changes in capitalization, the Committee will, in its sole discretion, make appropriate adjustments with respect to the number of shares available for grants under the 2019 OSIP, the number of shares covered by outstanding awards and the maximum number of shares that may be granted to any participant.

Individual Participant Limitations . The aggregate awards granted during any fiscal year to any single individual will not exceed: (i)        shares subject to options or SARs, (ii)        shares subject to restricted shares or other share-based awards and (iii)        with respect to any cash-based award.

Annual Director Limits . A non-employee director of IAA may not be granted awards under the 2019 OSIP during any calendar year that, when aggregated with such non-employee director’s cash fees received with respect to such calendar year, exceed        in total value.

Change in Control . Unless the Committee determines otherwise, if there is a change in control, any unvested and outstanding awards may be assumed or replaced by the Company or its successor with a substantially similar equity or cash incentive award and the same vesting terms as the unvested award. Except as would otherwise result in adverse tax consequences under Section 409A of the Internal Revenue Code, if: (i) any unvested and outstanding awards held by a participant are assumed or replaced in a change in control and the participant’s employment with the Company or its successor is terminated without cause or by the participant for good reason (if applicable) prior to the second anniversary of the change in control, or (ii) any unvested and outstanding awards are not assumed or replaced by the Company or its successor upon the change in control, then any unvested or unexercisable portion of any award carrying a right to exercise will become fully vested and exercisable and the restrictions, deferral limitations, payment conditions and forfeiture conditions applicable to an award granted under the 2019 OSIP will lapse and the awards will be deemed fully vested and any performance conditions imposed with respect to such Awards will be deemed to be fully achieved at the target level of performance.

Amendment and Termination . The Board or the Committee may amend, alter or terminate the 2019 OSIP at any time, but no amendment, alteration, or termination shall be made that would impair the rights of a participant under any award theretofore granted without such participant’s consent. approval of the Company’s shareholders shall be obtained for any amendment that would require such approval in order to satisfy the requirements of any rules of the stock exchange on which the common stock is traded or other applicable law. Subject to the terms and conditions of the 2019 OSIP, the Board or the Committee may modify, extend or renew outstanding awards under the 2019 OSIP, or accept the surrender of outstanding awards (to the extent not already exercised) and

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grant new awards in substitution of them (to the extent not already exercised). No alteration, modification or termination of an award will, without the prior written consent of the participant, adversely alter or impair any rights or obligations under any award already granted under the 2019 OSIP.

Retirement, Health and Welfare Benefits and Certain Perquisites

KAR Practice

Retirement, Health and Welfare Benefits . KAR offers a variety of health and welfare and retirement programs to all eligible employees, including KAR's named executive officers. As with all KAR employees, KAR's named executive officers are eligible to receive 401(k) employer matching contributions equal to 100% of the first 4% of compensation contributed by the KAR named executive officer. The health and welfare programs are intended to protect employees against catastrophic loss and encourage a healthy lifestyle. KAR's health and welfare programs include medical, dental, vision, pharmacy, life, disability and accidental death and disability insurance. KAR also provides travel insurance to all employees who travel for business purposes.

Perquisites. KAR provides the KAR named executive officers a limited number of perquisites that the KAR Compensation Committee believes are reasonable and consistent with the objective of attracting and retaining highly qualified executive officers. The perquisites which are currently available to KAR's named executive officers include an automobile allowance or use of a KAR-owned automobile, an allowance for executive physicals, KAR-paid group term life insurance premiums and relocation benefits under KAR’s mobility program.

Going Forward

Our retirement programs and benefits will generally be similar to those of KAR's immediately prior to the distribution. Our Compensation Committee will review these programs and benefits and may make changes to align them with our business needs and strategic priorities. In addition, we anticipate that our Compensation Committee will approve for our NEOs perquisites comparable to those offered by our peers, and will adopt a policy prohibiting any tax reimbursement or gross-up provisions in our executive compensation program (except under a policy applicable to management employees generally such as a relocation policy).

Employment and Severance Agreements

KAR Practice

The KAR Compensation Committee recognizes that, from time to time, it is appropriate to enter into agreements with KAR’s executive officers to ensure that KAR continues to retain their services and to promote stability and continuity within KAR. While we were a wholly owned subsidiary of KAR, each of our named executive officers entered into an employment agreement with KAR or its subsidiaries. A description of these agreements can be found in the section titled “Potential Payments Upon Termination or Change in Control-Employment Agreements with Named Executive Officers.”

Going Forward

We intend to assume or keep in effect employment agreements entered into with our named executive officers. Our Compensation Committee will review the terms of the employment agreements shortly following the distribution to ensure that they align with industry best practice and continue to serve their purpose of retaining the services of our named executive officers and promoting stability and continuity within the Company.

Insider Trading Policy

KAR Practice

KAR's insider trading policy expressly prohibits:

• ownership of margin securities;
• trading in options, warrants, puts and calls or similar instruments on KAR's securities; and
• selling KAR's securities “short.”

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KAR also prohibits officers, directors and employees from:

• pledging KAR's securities as collateral for loans; and
• purchasing or selling KAR's securities while in possession of material, non-public information, or otherwise using such information for their personal benefit.

KAR executives and directors are permitted to enter into trading plans that are intended to comply with the requirements of Rule 10b5-1 of the Exchange Act so that they can prudently diversify their asset portfolios and exercise their stock options before their scheduled expiration dates.

Going Forward

Following the distribution, our Compensation Committee is expected to adopt insider trading policies similar to KAR.

Anti-Hedging Policy

KAR Practice

In addition to KAR’s existing anti-pledging of KAR stock policy, KAR adopted a formal anti-hedging of KAR stock policy, which prohibits officers and directors from engaging in certain forms of hedging or monetization transactions with respect to KAR's stock, such as prepaid variable forward contracts, equity swaps, collars and exchange funds.

Going Forward

Following the distribution, our Compensation Committee is expected to adopt anti-hedging policies similar to KAR.

Stock Ownership Guidelines and Stock Holding Requirement

KAR Practice

The Compensation Committee adopted the following stock ownership guidelines which are applicable to KAR's named executive officers:

Title
Stock Ownership Guideline
CEO
5 times annual base salary
Other Named Executive Officers
3 times annual base salary

The KAR named executive officers must hold 60% of the vested shares, net of taxes, of KAR stock received under awards granted on or after January 1, 2015, until the applicable ownership guideline is met.

Going Forward

We expect to adopt similar stock ownership requirements following the distribution.

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EXECUTIVE COMPENSATION

2018 Summary Compensation Table

The table below contains information concerning the compensation of the individuals who are expected to be our NEOs, consisting of the individuals who are expected to be (i) our chief executive officer and (ii) each of the other most highly compensated executive officers who were serving as executive officers as of December 31, 2018. Mr. Johnston, who is expected to be Executive Vice President, Chief Financial Officer and Treasurer, is omitted from the following tables as he joined IAA in 2019 and did not receive any compensation from KAR or the Company during the fiscal year ended December 31, 2018.

Name and
Principal Position
Year
Salary
Stock
Awards (1)
Non-Equity
Incentive Plan
Compensation (2)
All Other
Compensation (3)
Total
John W. Kett
President and Chief Executive Officer
2018
$
501,275
 
$
626,593
 
$
619,172
 
$
32,870
 
$
1,779,910
 
Tim O’Day
President of U.S. Operations
2018
$
333,638
 
$
130,296
 
$
234,374
 
$
32,186
 
$
730,494
 
Sidney Peryar
Executive Vice President, Chief Legal Officer & Secretary
2018
$
262,654
 
$
77,270
 
$
153,757
 
$
26,377
 
$
520,058
 
Maju Abraham
Senior Vice President and Chief Information Officer
2018
$
230,798
 
$
42,746
 
$
114,744
 
$
24,671
 
$
412,959
 
(1) The amounts reported in this column for 2018 represent the grant date fair value of PRSUs and RSUs granted on March 2, 2018, computed in accordance with ASC 718. See Note 4 of the Insurance Auto Auctions, Inc. consolidated financial statements regarding the assumptions made in determining the grant date fair value.

The maximum award that can be earned at the end of the performance period (excluding dividends) if maximum performance is achieved with respect to the 2018 PRSU awards, based on the grant date value of KAR’s common stock, is as follows: Mr. Kett – $939,891; Mr. O’Day – $130,297; Mr. Peryar – $77,269; and Mr. Abraham – $42,747.

(2) The amount reported is equal to the amount paid to the named executive officer under KAR’s Annual Incentive Program, which is governed by KAR’s 2009 Omnibus Stock and Incentive Plan (the “KAR Omnibus Plan”).
(3) The amounts reported for 2018 consisted of the following:
• Automobile allowance: Mr. Kett – $18,000; Mr. O’Day – $18,000; Mr. Peryar – $18,000; and Mr. Abraham – $15,600.
• 401(k) matching contributions: Mr. Kett – $11,000; Mr. O’Day – $11,000; Mr. Peryar – $7,806; and Mr. Abraham – $8,576.
• KAR-paid group term life insurance premiums: Mr. Kett – $3,870; Mr. O’Day – $3,186; Mr. Peryar – $571; and Mr. Abraham – $495.

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Grants of Plan-Based Awards for Fiscal 2018

The following table summarizes the payouts which our named executive officers could or may have received upon the achievement of certain performance objectives under KAR’s Annual Incentive Program and the grants of PRSUs and RSUs made under the KAR Omnibus Plan in 2018.

 
 
Estimated Possible Payouts Under Non-
Equity Incentive Plan Awards (1)
Estimated Future Payouts
Under Equity Incentive
Plan Awards (2)
Number of
Securities
Underlying
Restricted
Stock Units
(#) (i) (3)
Grant Date
Fair Value
Of Stock
Awards
($) (j) (4)
Name
(a)
Grant
Date
(b)
Threshold
($) (c) (1)
Target
($) (d) (1)
Maximum
($) (e) (1)
Threshold
(#) (f) (2)
Target
(#) (g) (2)
Maximum
(#) (h) (2)
John W. Kett
—
$
250,638
 
$
501,275
 
$
751,913
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
3/2/2018
 
 
 
 
 
 
 
 
 
 
4,343
 
 
8,685
 
 
17,370
 
 
 
 
$
469,945
 
3/2/2018
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2,895
 
$
156,648
 
Tim O’Day
—
$
100,092
 
$
200,183
 
$
300,275
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
3/2/2018
 
 
 
 
 
 
 
 
 
 
602
 
 
1,204
 
 
2,408
 
 
 
 
$
65,148
 
3/2/2018
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
1,204
 
$
65,148
 
Sidney Peryar
—
$
65,664
 
$
131,327
 
$
196,991
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
3/2/2018
 
 
 
 
 
 
 
 
 
 
357
 
 
714
 
 
1,428
 
 
 
 
$
38,635
 
3/2/2018
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
714
 
$
38,635
 
Maju Abraham
—
$
46,160
 
$
92,319
 
$
138,479
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
3/2/2018
 
 
 
 
 
 
 
 
 
 
198
 
 
395
 
 
790
 
 
 
 
$
21,373
 
3/2/2018
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
395
 
$
21,373
 
(1) Columns (c), (d) and (e) include the potential awards for performance at the threshold, target and maximum (“superior”) levels, respectively, under KAR’s Annual Incentive Program, and for Mr. Kett excludes application of the MBO modifier which may cause an increase or decrease in his annual incentive award by up to plus or minus 10%. See “Compensation Discussion and Analysis—Elements Used to Achieve Compensation Philosophy and Objectives—Annual Cash Incentive Program” for further information on the terms of KAR’s Annual Incentive Program.
(2) Columns (f), (g) and (h) include the potential number of PRSUs which may be earned for performance at the threshold, target and maximum levels, respectively. These awards vest if and to the extent that the sum of KAR’s Cumulative Operating Adjusted Net Income Per Share exceeds certain levels over the three-year period beginning on January 1, 2018 and ending on December 31, 2020.
(3) Column (i) includes the number of RSUs granted in 2018. These awards vest ratably on each of the first three anniversaries of the grant date subject to the executive’s continued employment through each such anniversary.
(4) The amounts reported in this column represent the grant date fair value of awards granted on March 2, 2018, computed in accordance with ASC 718 (for PRSUs, grant date fair market value is based on target awards). See Note 4 of the Insurance Auto Auctions, Inc. consolidated financial statements regarding the assumptions made in determining the grant date fair value.

Additional information concerning KAR’s cash and equity incentive awards and plans may be found in the sections titled “Compensation Discussion and Analysis—Elements Used to Achieve Compensation Philosophy and Objectives—Annual Cash Incentive Program” and “Long-Term Incentive Opportunities,” respectively.

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Outstanding Equity Awards at Fiscal Year-End 2018

The following table shows information regarding unvested RSU and PRSU awards held by each of our NEOs as of December 31, 2018:

 
 
Stock Awards
Name
(a)
Grant Date
Number of
Shares or
Units of Stock
That Have
Not Vested
(#)(g)
Market Value
of Shares or
Units of Stock
That Have
Not Vested
($)(h)
Equity Incentive
Plan Awards:
Number of
Unearned
Shares, Units or
Other Rights
That Have
Not Vested
(#)(i)
Equity Incentive
Plan Awards:
Market or
Payout Value
of Unearned
Shares, Units or
Other Rights
That Have
Not Vested
($)(j)
John W. Kett
 
2/22/2016
 
 
1,166
(1)
$
60,061
(1)
 
13,350
(2)
$
637,062
(2)
 
 
2/24/2017
 
 
2,182
(3)
$
109,522
(3)
 
20,739
(4)
$
989,665
(4)
 
 
3/2/2018
 
 
2,895
(5)
$
141,267
(5)
 
8,913
(6)
$
425,328
(6)
Tim O’Day
 
2/22/2016
 
 
584
(1)
$
27,868
(1)
 
2,073
(2)
$
98,924
(2)
 
 
2/24/2017
 
 
949
(3)
$
45,286
(3)
 
2,872
(4)
$
137,052
(4)
 
 
3/2/2018
 
 
1,226
(5)
$
58,505
(5)
 
1,235
(6)
$
58,934
(6)
Sidney Peryar
 
2/22/2016
 
 
376
(1)
$
17,943
(1)
 
1,337
(2)
$
63,802
(2)
 
 
2/24/2017
 
 
573
(3)
$
27,344
(3)
 
1,738
(4)
$
82,937
(4)
 
 
3/2/2018
 
 
727
(5)
$
34,692
(5)
 
732
(6)
$
34,931
(6)
Maju Abraham
 
2/22/2016
 
 
183
(1)
$
8,733
(1)
 
653
(2)
$
31,161
(2)
 
 
2/24/2017
 
 
302
(3)
$
14,411
(3)
 
916
(4)
$
43,712
(4)
 
 
3/2/2018
 
 
402
(5)
$
19,183
(5)
 
405
(6)
$
19,327
(6)
(1) The total amounts and values in columns (g) and (h) equal the total number of RSUs granted on February 22, 2016 that vest ratably on each of the first three anniversaries of the grant date during the named executive officer’s continued employment through each such anniversary, multiplied by the market price of KAR’s common stock at the close of the last trading day in 2018, which was $47.72 per share. The total amount in column (h) for Mr. Kett includes accrued and unpaid cash dividend equivalents in the amount of $4,420.
(2) The total amounts and values in columns (i) and (j) equal the total number of PRSUs granted on February 22, 2016 that may be earned and vest based on KAR’s Cumulative Operating Adjusted Net Income Per Share performance over a three-year period, at the actual performance level, held by each named executive officer multiplied by the market price of KAR’s common stock at the close of the last trading day in 2018, which was $47.72 per share, including reinvested dividends on such PRSUs. Because the performance period for these PRSUs was completed as of the end of 2018, we have reported these PRSUs at the level actually earned.
(3) The total amounts and values in columns (g) and (h) equal the total number of RSUs granted on February 24, 2017 that vest ratably on each of the first three anniversaries of the grant date during the named executive officer’s continued employment through each such anniversary, multiplied by the market price of KAR’s common stock at the close of the last trading day in 2018, which was $47.72 per share. The total amount in column (h) for Mr. Kett includes accrued and unpaid cash dividend equivalents in the amount of $5,397.
(4) The total amounts and values in columns (i) and (j) equal the total number of PRSUs granted on February 24, 2017 that may be earned and vest based on KAR’s Cumulative Operating Adjusted Net Income Per Share performance over a three-year period, at the maximum level, held by each named executive officer multiplied by the market price of KAR’s common stock at the close of the last trading day in 2018, which was $47.72 per share, including reinvested dividends on such PRSUs. In calculating the number of PRSUs and their value, we are required by SEC rules to compare our performance through 2018 under the PRSU grants against the threshold, target and maximum performance levels for the grant and report in these columns the applicable potential share number and payout amount. If the performance is between levels, we are required to report the potential payout at the next highest level. Through December 31, 2018, KAR exceeded target levels of Cumulative Operating Adjusted Net Income Per Share performance and have accordingly reported the PRSUs at the maximum award level.

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(5) The total amounts and values in columns (g) and (h) equal the total number of RSUs granted on March 2, 2018 that vest ratably on each of the first three anniversaries of the grant date during the named executive officer’s continued employment through each such anniversary, multiplied by the market price of KAR’s common stock at the close of the last trading day in 2018, which was $47.72 per share. The total amount in column (h) for Mr. Kett includes accrued and unpaid cash dividend equivalents in the amount of $3,118.
(6) The total amounts and values in columns (i) and (j) equal the total number of PRSUs granted on March 2, 2018 that may be earned and vest based on KAR’s Cumulative Operating Adjusted Net Income Per Share performance over a three-year period, at the target level, held by each named executive officer multiplied by the market price of KAR’s common stock at the close of the last trading day in 2018, which was $47.72 per share, including reinvested dividends on such PRSUs. In calculating the number of PRSUs and their value, we are required by SEC rules to compare our performance through 2018 under the PRSU grants against the threshold, target and maximum performance levels for the grant and report in these columns the applicable potential share number and payout amount. If the performance is between levels, we are required to report the potential payout at the next highest level. Through December 31, 2018, KAR exceeded threshold levels of Cumulative Operating Adjusted Net Income Per Share performance and have accordingly reported the PRSUs at the target award level.

Stock Vested During Fiscal 2018

The following table summarizes the vesting of RSU and PRSU awards with respect to each of our NEOs in 2018.

Name
Stock Awards
Number of Shares
Acquired on Vesting (#)
Value Realized
on Vesting ($)
John W. Kett
 
17,372
(1)
$
894,823
(2)
Tim O’Day
 
2,967
(1)
$
154,153
 
Sidney Peryar
 
2,359
(1)
$
120,263
 
Maju Abraham
 
685
(1)
$
34,794
 
(1) For each NEO, amount includes one-third of the 2015 RSUs, one-third of the 2016 RSUs and one-third of the 2017 RSUs. For Messrs. Kett, O’Day and Peryar, amount also includes shares vested with respect to the full amount of the 2015 PRSUs at 133.5% of target.
(2) This amount includes accumulated dividend equivalents paid in cash with respect to the vested 2015, 2016 and 2017 RSUs.

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Potential Payments Upon Termination or Change in Control

The amounts in the table below assume that the termination and/or change in control, as applicable, was effective as of December 31, 2018, the last business day of the prior fiscal year, and that the respective named executive officers received cash in exchange for vested PRSUs and RSUs at such time. The table is merely an illustrative example of the impact of a hypothetical termination of employment or change in control. The amounts that would actually be paid upon a termination of employment can only be determined at the time of such termination, based on the facts and circumstances then prevailing.

Named Executive Officer and Triggering Event
Cash
Severance
Non-
Equity
Incentive
Pay (1)
PRSUs (2)
RSUs (3)
Life
Insurance ( 4 )
Total
John W. Kett
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
• Death
$
20,149
(7)
$
619,172
 
$
1,557,273
 
$
310,850
 
$
800,000
 
$
3,307,444
 
• Disability (5)
$
20,149
(7)
$
619,172
 
$
1,557,273
 
$
310,850
 
 
 
 
$
2,507,444
 
• Retirement (6)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
• Voluntary / for Cause
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
• Termination w/o Cause or for Good Reason
$
1,022,699
(8)
$
619,172
 
$
1,108,760
 
 
 
 
 
 
 
$
2,750,631
 
• CIC (single trigger)
 
 
 
$
619,172
 
$
544,050
 
$
60,062
 
 
 
 
$
1,223,284
 
• Termination after CIC (double trigger)
$
1,022,699
(8)
$
619,172
 
$
1,464,241
 
$
310,850
 
 
 
 
$
3,416,962
 
Tim O’Day
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
• Death
 
 
 
$
234,374
 
$
226,477
 
$
131,659
 
$
683,550
 
$
1,276,060
 
• Disability (5)
 
 
 
$
234,374
 
$
226,477
 
$
131,659
 
 
 
 
$
592,510
 
• Retirement (6)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
• Voluntary / for Cause
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
• Termination w/o Cause or for Good Reason
$
365,896
(8)
$
234,374
 
$
164,317
 
 
 
 
 
 
 
$
764,587
 
• CIC (single trigger)
 
 
 
$
234,374
 
$
84,514
 
$
27,868
 
 
 
 
$
346,756
 
• Termination after CIC (double trigger)
$
365,896
(8)
$
234,374
 
$
212,026
 
$
131,659
 
 
 
 
$
943,955
 

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Named Executive Officer and Triggering Event
Cash
Severance
Non-
Equity
Incentive
Pay (1)
PRSUs (2)
RSUs (3)
Life
Insurance ( 4 )
Total
Sidney Peryar
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
• Death
 
 
 
$
153,757
 
$
140,259
 
$
79,979
 
$
535,607
 
$
909,602
 
• Disability (5)
 
 
 
$
153,757
 
$
140,259
 
$
79,979
 
 
 
 
$
373,995
 
• Retirement (6)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
• Voluntary / for Cause
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
• Termination w/o Cause or for Good Reason
$
425,197
(8)
$
153,757
 
$
103,121
 
 
 
 
 
 
 
$
682,075
 
• CIC (single trigger)
 
 
 
$
153,757
 
$
54,493
 
$
17,943
 
 
 
 
$
226,193
 
• Termination after CIC (double trigger)
$
644,442
(8)
$
153,757
 
$
130,941
 
$
79,979
 
 
 
 
$
1,009,119
 
Maju Abraham
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
• Death
 
 
 
$
114,744
 
$
72,426
 
$
42,327
 
$
502,259
 
$
731,756
 
• Disability (5)
 
 
 
$
114,744
 
$
72,426
 
$
42,327
 
 
 
 
$
229,497
 
• Retirement (6)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
• Voluntary / for Cause
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
• Termination w/o Cause or for Good Reason
$
188,347
(8)
$
114,744
 
$
52,238
 
 
 
 
 
 
 
$
355,329
 
• CIC (single trigger)
 
 
 
$
114,744
 
$
26,650
 
$
8,733
 
 
 
 
$
150,127
 
• Termination after CIC (double trigger)
$
188,347
(8)
$
114,744
 
$
67,869
 
$
42,327
 
 
 
 
$
413,287
 
(1) The amounts reported are equal to the full amount of the named executive officer’s 2018 annual bonus (a December 31, 2018 termination results in a 100% payout, whereas a termination on any other date would result in a prorated amount, assuming payment upon a change in control), payable under the terms of such officer’s employment agreement or the KAR Omnibus Plan, as applicable.
(2) The amounts reported assume a KAR common stock price of $47.72, which was the closing price on December 31, 2018. In the event that a named executive officer is terminated without Cause or resigns for Good Reason (each as defined in the applicable employment agreement), or such officer terminates employment due to his death or Disability (each as defined in the KAR Omnibus Plan), prior to a Change in Control (as defined in the KAR Omnibus Plan), he would be entitled to receive, at the same time as active KAR employees, all or a prorated portion of the 2016, 2017 and 2018 PRSUs based on the KAR’s actual performance during each performance period and the number of full months he was employed during each such performance period. Assuming a termination as a result of the named executive officer’s death or Disability prior to a Change in Control and as of December 31, 2018 and a full year of vesting, each of the named executive officers would be entitled to (i) all of the 2016 PRSUs, (ii) all of the 2017 PRSUs and (iii) all of the 2018 PRSUs in the case of death or Disability; in each case, based on actual performance. Assuming a termination without Cause or a resignation for Good Reason prior to a Change in Control, each of the named executive officers would be entitled to (i) all of the 2016 PRSUs, (ii) 24/36ths of the 2017

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PRSUs and (iii) 12/36ths of the 2018 PRSUs; in each case, based on actual performance. With respect to the events described above, the amounts disclosed in the table for the 2016 PRSUs reflect actual performance and the amounts disclosed in the table for the 2017 and 2018 PRSUs assume performance at the target level.

If a Change in Control occurs prior to the termination of such officer’s employment, assuming a Change in Control date of December 31, 2018, he would be entitled to receive immediate vesting and payout of the target number of 2016 PRSUs, without proration. If such officer’s employment is terminated following a Change in Control as a result of a termination without Cause or a resignation for Good Reason, assuming a Change in Control date of December 31, 2018, he would be entitled to receive immediate vesting of the target number of 2017 PRSUs and 2018 PRSUs as of his termination date, without proration, with respect to any 2017 PRSUs or 2018 PRSUs that are assumed or replaced in the Change in Control. If a 2017 PRSU or 2018 PRSU is not assumed or replaced in the Change in Control, assuming a Change in Control date of December 31, 2018, such officer would be entitled to receive immediate vesting of the target number of 2017 PRSUs and 2018 PRSUs as of the Change in Control date, without proration. With respect to a Change in Control, the amounts disclosed in the “CIC (single trigger)” rows in the table assume that the 2017 PRSUs and 2018 PRSUs are assumed or replaced in the Change in Control.

(3) The amounts reported assume a KAR common stock price of $47.72, which was the closing price on December 31, 2018. In the event a named executive officer’s employment is terminated prior to a Change in Control as a result of a termination with or without Cause or a voluntary termination (with or without Good Reason), he would forfeit the unvested portion of his 2016, 2017 and 2018 RSUs. In the event a named executive officer’s employment is terminated prior to a Change in Control due to his death or Disability, he would be entitled to receive immediate vesting of the unvested portion of his 2016, 2017 and 2018 RSUs.

If a Change in Control occurs prior to the termination of such officer’s employment, assuming a Change in Control date of December 31, 2018, he would be entitled to receive immediate vesting of the unvested portion of his 2016 RSU award and any 2017 and 2018 RSU awards that are not assumed or replaced in the Change in Control, each, as of the Change in Control date. If such officer’s employment is terminated following a Change in Control as a result of a termination without Cause or a resignation for Good Reason, assuming a Change in Control date of December 31, 2018, he would be entitled to receive immediate vesting of any 2017 and 2018 RSU awards that is assumed or replaced in the Change in Control, as of his termination date. With respect to a Change in Control, the amounts disclosed in the “CIC (single trigger)” rows in the table assume that the 2017 and 2018 RSUs are assumed or replaced in the Change in Control.

(4) Under the Group Term Life Policy, each named executive officer’s designated beneficiary is entitled to a payment in an amount equal to two times his annual salary, not exceeding $800,000.
(5) Long-term disability is a KAR-paid benefit for all employees and therefore is not included in this table. The long-term disability benefit is only paid after six months on short-term disability and is 66.67% of base pay capped at $15,000 per month.
(6) Messrs. Kett, O’Day, Peryar and Abraham had not satisfied the Retirement requirements under the KAR Omnibus Plan and the applicable award agreements as of December 31, 2018 (i.e., none had reached the age of 60 and met the applicable age and service requirements), and thus, they would not have been entitled to a prorated payout of their annual bonuses or accelerated vesting of their equity for a Retirement as of such date.
(7) Under the terms of Mr. Kett’s employment agreement, he (or his estate) would be entitled to COBRA premium payments for 12 months in the event of his death or Disability.
(8) These amounts are equal to:
a. For Mr. Kett, (a) the sum of his annual base salary ($501,275) and 2018 target bonus amount; and (b) COBRA premium payments for 12 months.
b. For Mr. O’Day, (a) his annual base salary ($341,775); and (b) COBRA premium payments for 12 months.
c. Mr. Peryar’s cash severance for a termination without Cause or for Good Reason prior to a Change in Control consists of: (a) the sum of his annual base salary ($267,803) and his average annual bonus over the last eight fiscal quarters (not exceeding his target bonus); (b) COBRA premium payments for 12 months; and (c) annual auto allowance in effect at the time of termination.

Mr. Peryar’s cash severance for a termination within two years following a Change in Control (double trigger) consists of (a) 150% of his annual base salary ($267,803); (b) 150% of the greater of (i) the annual bonus he received for the fiscal year preceding the year of termination, prorated based upon the portion of the year during which Mr. Peryar was employed by us during the year of termination and (ii) the average of the last three annual bonus he has received, without proration; and (c) COBRA premium payments for 18 months.

d. For Mr. Abraham, 3 weeks of his annual base salary ($251,129) for each year of his service with us, not to exceed one year of his annual base salary.

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Employment Agreements With Named Executive Officers

Each of our named executive officers has an employment agreement with the Company or one of our subsidiaries. A summary of each of the agreements is provided below.

EMPLOYMENT AGREEMENT WITH JOHN W. KETT

Mr. Kett’s employment agreement, which became effective as of May 1, 2014, and was amended July 18, 2017, and February 18, 2018, provides for the following termination payments:

Termination Due to Mr. Kett’s Death or Disability. If Mr. Kett’s employment is terminated as a result of his death or disability, we will pay Mr. Kett, or in the case of his death, Mr. Kett’s estate or beneficiaries, an amount equal to the sum of (i) any accrued but unpaid base salary and accrued but unused vacation days; (ii) any earned and vested benefits and payments pursuant to the terms of any benefit plan (collectively, the amounts described in (i)and (ii) above are, the “Accrued Obligations”); and (iii) subject to Mr. Kett or his estate executing a general release of any claims that he may have against the Company (the “Release”), any annual bonus for a prior completed calendar year that has not yet been calculated or paid to Mr. Kett (the “Earned but Unpaid Bonus”).

In addition, if Mr. Kett is participating in the health plans of the Company at the time of his termination, we will pay him, or in the case of his death, his estate or beneficiaries, his or their premiums attributable to maintaining insurance coverage under COBRA for the shorter of (i) 12 months; or (ii) until Mr. Kett becomes eligible for comparable coverage under the health plans of another employer (the “Continued Benefits”). Subject to receipt and effectiveness of the Release, we also will pay Mr. Kett, or his estate or beneficiaries, a prorated bonus based upon the portion of the year during which Mr. Kett was employed by us (the “Prorated Bonus”).

Termination by the Company for Cause. Following a majority vote of the Board (excluding Mr. Kett or any other employee of the Company), we may terminate Mr. Kett’s employment at any time for “Cause” (as defined in his employment agreement). In such event, our only obligation to Mr. Kett would be the payment of Mr. Kett’s Accrued Obligations.

Termination by the Company Without Cause or by Mr. Kett for Good Reason. Mr. Kett’s employment may be terminated without Cause at any time and Mr. Kett may terminate his employment for “Good Reason” (as described below) within 90 days following the occurrence of an event giving rise to Good Reason, if such event remains uncured for a period of 30 days following notice of the event by Mr. Kett to the Company. In the event of a termination without Cause or by Mr. Kett for Good Reason, subject to receipt and effectiveness of the Release, we will pay Mr. Kett the following “Severance Benefits”: (i) the sum of Mr. Kett’s (a) annual base salary and (b) target bonus for the year in which termination occurs; and (ii) the Continued Benefits. In addition to the Severance Benefits described above, we will also pay Mr. Kett the Accrued Obligations and any Earned but Unpaid Bonus.

“Good Reason” is defined in the employment agreement and includes the occurrence of any of the following:

• Any material failure by us to comply with any of the terms and conditions of his agreement;
• Any failure to timely pay or provide Mr. Kett with his annual base salary, or any reduction in his annual base, excluding any reduction made in connection with across the board salary reductions;
• The requirement that Mr. Kett relocate his principal business location to a location more than fifty (50) miles from his principal base of operation; or
• The failure of the Company to cause its successor in a change in control to assume or reaffirm Mr. Kett’s obligations under his employment agreement without change.

Termination by Mr. Kett without Good Reason . Mr. Kett may terminate his employment under the employment agreement at any time without Good Reason upon 30 days’ prior written notice. In such event, we will pay Mr. Kett a lump sum amount equal to the Accrued Obligations.

Requirements With Respect to Non-Competition and Non-Solicitation. Upon a termination of employment for any reason, Mr. Kett is subject to the following one year post-termination restrictive covenants: (i) non-competition restrictions; and (ii) non-solicitation of our employees and customers.

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EMPLOYMENT AGREEMENT FOR VANCE JOHNSTON

Mr. Johnston’s employment agreement, which became effective as of April 22, 2019, provides for the following termination payments:

Termination Due to Mr. Johnston’s Death or Disability. If Mr. Johnston’s employment is terminated as a result of his death or disability, we will pay Mr. Johnston or in the case of his death, Mr. Johnston’s estate or beneficiaries, an amount equal to the sum of (i) the Accrued Obligations; (ii) the Continued Benefits; and (iii) subject to receipt and effectiveness of the Release, a Prorated Bonus and any Earned but Unpaid Bonus.

Termination by the Company for Cause. Following a majority vote of the Board, we may terminate Mr. Johnston’s employment at any time for “Cause” (as defined in his employment agreement). In such event, our only obligation to Mr. Johnston would be the payment, in a lump sum, of the executive’s Accrued Obligations.

Termination by the Company Without Cause or by Mr. Johnston for Good Reason. Mr. Johnston’s employment may be terminated without Cause at any time and Mr. Johnston may terminate his employment for “Good Reason” (as described below) within 90 days following the occurrence of an event giving rise to Good Reason, if such event remains uncured for a period of 30 days following notice of the event by Mr. Johnston to the Company. In the event of a termination by the Company without Cause or by Mr. Johnston for Good Reason, subject to receipt and effectiveness of the Release, we will pay Mr. Johnston the following “Severance Benefits”: (i) the sum of Mr. Johnston's (a) annual base salary and (b) target bonus for the year in which termination occurs, and (ii) the Continued Benefits. In addition to the Severance Benefits described above, we will also pay Mr. Johnston the Accrued Obligations and any the Earned but Unpaid Bonus.

“Good Reason” is defined in the employment agreement to include the occurrence of any of the following:

• Any material reduction of Mr. Johnston’s authority, duties and responsibilities;
• Any material failure by us to comply with any of the terms and conditions of his employment agreement;
• Any failure to timely pay or provide Mr. Johnston his annual base salary, or any reduction in his annual base salary, excluding any reduction made in connection with across the board salary reductions;
• The requirement that Mr. Johnston relocate his principal business location to a location more than fifty (50) miles from his principal base of operation; or
• The failure of the Company to cause its successor in a change in control to assume or reaffirm Mr. Kett’s obligations under his employment agreement without change.

Termination by Mr. Johnston without Good Reason . Mr. Johnston may terminate his employment under the employment agreement at any time without Good Reason upon 30 days’ prior written notice. In such event, we will pay Mr. Kett a lump sum amount equal to the Accrued Obligations.

Requirements With Respect to Non-Competition and Non-Solicitation. Upon a termination of employment for any reason, Mr. Johnston is subject to the following one year post-termination restrictive covenants: (i) non-competition restrictions; and (ii) non-solicitation of Company employees and customers.

EMPLOYMENT AGREEMENTS FOR MAJU ABRAHAM AND TIM O’DAY

We have entered into substantially similar employment agreements with Messrs. Abraham and O’Day, effective as of October 15, 2015 and July 31, 2015, respectively, providing the following termination payments:

Termination Due to the NEO’s Death or Disability. If the NEO’s employment is terminated as a result of his death or disability, we will have no obligation to pay the NEO any severance payments.

Resignation or Termination by the Company for Cause . Upon Mr. O’Day’s or Mr. Abraham’s resignation (without “Good Reason” (as described below) in the case of Mr. O’Day) or a termination of each NEO’s employment by us for “Cause” (as defined in each NEO’s employment agreement) we will have no obligation to pay the NEO any severance payments.

Termination by the Company Without Cause or by Mr. O’Day for Good Reason. Mr. O’Day or Mr. Abraham’s employment may be terminated without Cause at any time or Mr. O’Day may terminate his employment for

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“Good Reason” within 15 days following the occurrence of an event giving rise to Good Reason, if such event remains uncured for a period of 30 days following notice of the event by Mr. O’Day to the Company. In the event of a termination by the Company without Cause or by Mr. O’Day for Good Reason, subject to receipt and effectiveness of the Release, the we will pay the following:

• For Mr. O’Day, an amount equal to twelve months of his annual base salary and (ii) the Continued Benefits.
• For Mr. Abraham, an amount equal to three weeks of his annual base salary for each year of his service with us, not to exceed one year of his annual base salary.

“Good Reason” is defined in Mr. O’Day’s employment agreement to mean a relocation of his employment by more than 150 miles from the current address of the headquarters of Insurance Auto Auctions, Inc., a subsidiary of the Company.

Requirements With Respect to Non-Competition, Non-Solicitation, and Non-Disparagement. Upon a termination of employment for any reason, the executives are subject to the following one year post-termination restrictive covenants: (i) non-competition restrictions; and (ii) non-solicitation of Company employees and customers, as well as an ongoing non-disparagement restriction.

EMPLOYMENT AGREEMENT FOR SIDNEY PERYAR

Mr. Peryar’s employment agreement, which became effective as of October 6, 2004, and was amended December 1, 2008, provides for the following termination payments:

Termination Due to Mr. Peryar’s Death or Disability. If Mr. Peryar’s employment is terminated as a result of his death or disability, we will pay Mr. Peryar or in the case of his death, Mr. Peryar’s estate or beneficiaries, an amount equal to the sum of (i) his Accrued Obligations, and (ii) the greater of (a) the annual bonus he received for the fiscal year preceding the year of termination, prorated based upon the portion of the year during which Mr. Peryar was employed by us during the year of termination and (b) the average of the last three annual bonuses he has received, without proration (the “Highest Annual Bonus”).

Voluntary Termination or Termination by the Company for Cause . Upon Mr. Peryar’s voluntary termination or a termination of Mr. Peryar’s employment by us for “Cause” (as defined in the his employment agreement) we will have no obligation to pay him any severance payments.

Termination by the Company Without Cause. Mr. Peryar’s employment may be terminated without Cause at any time with 30 days prior notice. In the event of a termination of employment without Cause, we will pay Mr. Peryar the following: (i) the sum of Mr. Peryar’s (a) annual base salary and (b) average annual bonus over the last eight fiscal quarters (not exceeding his target bonus) and (c) his annual auto allowance in effect at the time of termination; and (ii) the Continued Benefits. In addition to the Severance Benefits described above, we will also pay Mr. Peryar the Accrued Obligations.

Termination by the Company upon a Change in Control. If, within two years following a Change in Control, Mr. Peryar’s employment is terminated without Cause or he terminates his employment by reason of an “Involuntary Termination” (as described below) within 90 days following the occurrence of an event giving rise to an Involuntary Termination, if such event remains uncured for a period of 30 days following notice of the event by Mr. Peryar to the Company, he will receive an amount equal to (i) 150% of the sum of his (A) annual base salary and (B) Highest Annual Bonus; and (ii) payment of the Continued Benefits for a period of 18 months.

“Involuntary Termination” is defined in the employment agreement to include the occurrence of any of the following:

• A change in position which materially reduces Mr. Peryar’s level of responsibility,
• A reduction in Mr. Peryar’s annual base salary;
• A change in Mr. Peryar’s place of employment, without his written consent, which is more than seventy-five (75) miles from his place of employment prior to the change.

Requirements With Respect to Non-Competition and Non-Solicitation. Upon a termination of employment for any reason, Mr. Peryar is subject to the following 18 month post-termination restrictive covenants: (i) non-competition restrictions; and (ii) non-solicitation of our employees and customers.

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DIRECTOR COMPENSATION

KAR Practice

KAR uses a combination of cash and stock based incentive compensation to attract and retain independent, qualified candidates to serve on its Board. The Board makes all director compensation determinations for KAR after considering the recommendations of the KAR Nominating and Corporate Governance Committee. The Nominating and Corporate Governance Committee reviews director compensation annually, assisted periodically by an independent compensation consultant (most recently by ClearBridge in October 2018). Based in part on the independent compensation consultant's most recent review of KAR's director compensation program and those of the 17 companies in KAR's proxy comparator group (also used in executive compensation benchmarking), KAR's Nominating and Corporate Governance Committee recommended, and the Board approved, the following changes to KAR's director compensation program to better align it with market practices: (i) annual stock retainer increased to $130,000, effective June 2019 (and will vest after one year as opposed to one-fourth vesting quarterly); (ii) Audit Committee chair fee increased to $25,000, effective February 2019; and (iii) Audit Committee membership fee of $7,500 implemented, effective February 2019. There previously had been no increases in compensation paid to KAR directors since 2016. In setting director compensation, KAR considered various factors including market comparison studies and trends (such as the most recent review in October 2018), the responsibilities of directors generally, including committee chairs, and the significant amount of time that directors expend in fulfilling their duties. In establishing the non-employee director compensation recommendations, the KAR Nominating and Corporate Governance Committee utilized a balance of cash and equity, with the majority of the compensation delivered through equity grants. Directors who also serve as employees of KAR do not receive payment for service as directors.

Directors Deferred Compensation Plan. KAR's Board adopted the KAR Auction Services, Inc. Directors Deferred Compensation Plan (the “Director Deferred Compensation Plan”) in December 2009. Pursuant to the terms of the Director Deferred Compensation Plan, each non-employee director may elect to defer the receipt of his or her cash director fees into a pre-tax interest-bearing deferred compensation account, which account accrues interest as described in the Director Deferred Compensation Plan. Amounts under the Director Deferred Compensation Plan may also be invested in the same investment choices as are available under KAR's 401(k) plan. Nonemployee directors also may choose to receive all or a portion of their annual stock retainer in the form of a deferred share account. The Director Deferred Compensation Plan provides that the amount of cash in a director's deferred cash account, plus the number of shares of our common stock equal to the number of shares in the director's deferred share account, will be delivered to a director in installments over a specified period or within 60 days following the date of the director's departure from KAR's Board, with cash being paid in lieu of any fractional shares.

Director Stock Ownership And Holding Guidelines. KAR's non-employee directors are subject to KAR's director stock ownership and holding guidelines. The stock holding guideline requires each non-employee director to hold any shares of KAR’s common stock granted by KAR for at least three years post-vesting while serving as a director, subject to certain exceptions approved by KAR's Nominating and Corporate Governance Committee. KAR's stock ownership guideline requires each non-employee director to own a minimum of five times his or her annual cash retainer amount in shares of KAR stock.

Going Forward

We expect to use a combination of cash and equity-based compensation to attract and retain qualified candidates to serve on our Board. In setting director compensation, our Board and Nominating and Governance Committee expect to be guided by similar principles as KAR. Our Board is also expected to adopt stock ownership requirements for non-management directors as well as a director deferred compensation plan that largely resembles KAR's Director Deferred Compensation Plan.

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CERTAIN RELATIONSHIPS AND RELATED PERSON TRANSACTIONS

Agreements with KAR

Following the separation and distribution, IAA and KAR will operate separately, each as an independent publicly traded company. IAA will enter into a separation and distribution agreement with KAR. In connection with the separation, IAA also intends to enter into various ancillary agreements to effect the separation and provide a framework for its relationship with KAR after the separation, such as transition services agreements, a tax matters agreement and an employee matters agreement. These agreements will provide for the allocation between IAA and KAR of KAR’s assets, employees, liabilities and obligations attributable to periods prior to, at and after IAA’s separation from KAR and will govern certain relationships between IAA and KAR after the separation. Forms of the agreements listed above have been filed as exhibits to the registration statement on Form 10 of which this information statement forms a part.

The summaries of each of the agreements listed above are qualified in their entireties by reference to the full text of the applicable agreements, which will be incorporated by reference into this information statement when filed.

Separation and Distribution Agreement

IAA and KAR intend to enter into a separation and distribution agreement prior to the distribution of IAA’s common stock to KAR stockholders. The separation and distribution agreement will set forth, among other things, the agreements between IAA and KAR regarding the principal actions to be taken in connection with the separation and distribution. It will also set forth other agreements that govern certain aspects of the relationship between IAA and KAR following the separation and distribution.

Allocation of Assets and Liabilities

The separation and distribution agreement that will be adopted by KAR’s board of directors, together with an internal restructuring plan, will identify the assets and the liabilities to be allocated, assigned, assumed or transferred to KAR and IAA as part of the separation of KAR into two companies, and it will provide for when and how these transfers, assumptions and assignments will occur. To accomplish the separation, KAR will engage in the contribution, in which the assets and liabilities of KAR and its affiliates related primarily to KAR’s salvage auction businesses will be allocated to IAA or its affiliates.

In particular, the separation and distribution agreement, together with the internal restructuring plan, will provide, among other things, that subject to the terms and conditions contained therein, certain assets related primarily to KAR’s salvage auction businesses will be allocated, assigned, assumed or transferred to IAA or its affiliates, including:

• equity interests in certain KAR affiliates that hold assets relating to KAR’s salvage auction businesses;
• rights and assets expressly allocated to IAA pursuant to the terms of the separation and distribution agreement or certain other agreements entered into in connection with the separation;
• office space, auction and storage facilities and other properties described in the section of this information statement captioned “ Business— Properties ” as well as office equipment, trade fixtures and furnishings at such properties;
• contracts (or portions thereof) that relate to KAR’s salvage auction businesses;
• information technology, software and intellectual property exclusively related to KAR’s salvage auction businesses;
• permits that exclusively relate to KAR’s salvage auction businesses; and
• other assets that are included in the IAA pro forma balance sheet, which appears in the section entitled “ Unaudited Pro Forma Consolidated Financial Statements .”

The separation and distribution agreement, together with the internal restructuring plan, will also provide that certain liabilities related to KAR’s salvage auction businesses, or to the assets listed above, will be allocated to, assumed by or transferred to IAA or its affiliates, and that all of the assets and liabilities of KAR (including whether accrued, contingent, or otherwise) other than those listed above will be retained by KAR or its affiliates.

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Except as expressly set forth in the separation and distribution agreement or any ancillary agreement, neither IAA nor KAR will make any representation or warranty as to the assets, business or liabilities allocated, assigned, assumed or transferred as part of the separation, as to any approvals or notifications required in connection with the transfers, as to the value of or the freedom from any security interests of any of the assets allocated, assigned, assumed or transferred, as to the absence or presence of any defenses or right of setoff or freedom from counterclaim with respect to any claim or other asset of either IAA or KAR, or as to the legal sufficiency of any assignment, document or instrument delivered to convey title to any asset or thing of value to be transferred in connection with the separation. All assets will be allocated, assigned, assumed or transferred on an “as is,” “where is” basis and the respective party to which those assets will be allocated, assigned, assumed or transferred will bear the economic and legal risks that any conveyance will prove to be insufficient to vest in such party good and marketable title, free and clear of all security interests, and that any necessary consents or governmental approval are not obtained or that any requirements of laws, agreements, security interests, or judgments are not complied with.

Information in this information statement with respect to the assets and liabilities of the parties following the distribution is presented based on the allocation of such assets and liabilities pursuant to the separation and distribution agreement and the related internal restructuring plan, unless the context otherwise requires. The separation and distribution agreement will provide that, in the event that the transfer or assignment of certain assets and liabilities to IAA or KAR, as applicable, does not occur prior to the distribution date, then until such assets or liabilities are able to be transferred or assigned, IAA or KAR, as applicable, will hold such assets on behalf and for the benefit of the other party and will pay, perform, and discharge such liabilities, for which the other party will reimburse IAA or KAR, as applicable, for all commercially reasonable payments made in connection with the performance and discharge of such liabilities.

Cash Distribution

The separation and distribution agreement will provide that, prior to the distribution, IAA will make a cash distribution of approximately $1,250.0 million to KAR, funded primarily by the issuance of the Notes and borrowings under the Credit Agreement. For information relating to IAA’s debt financings, see “ Description of Other Indebtedness .” The completion of the cash distribution will be a condition to the consummation of the distribution under the separation and distribution agreement.

The Distribution

The separation and distribution agreement will also govern the rights and obligations of the parties regarding the distribution following the completion of the separation. On the distribution date, KAR will distribute to its stockholders that hold shares of KAR common stock as of the record date for the distribution all of the issued and outstanding shares of IAA’s common stock on a pro rata basis.

Conditions to the Distribution

The separation and distribution agreement will provide that the distribution will be subject to the satisfaction (or waiver by KAR) of certain conditions. These conditions are described under “ The Separation and Distribution—Conditions to the Distribution .” KAR has the sole and absolute discretion to determine (and change) the terms of, and to determine whether to proceed with, the distribution and, to the extent it determines to so proceed, to determine the record date for the distribution, the distribution date and the distribution ratio.

Non-Compete and Non-Solicit

The separation and distribution agreement will contain a covenant not to compete, prohibiting IAA and its affiliates from engaging in certain non-salvage activities in competition with KAR’s business for a period of five years following the distribution date in certain jurisdictions, subject to certain exceptions permitting IAA to conduct certain non-salvage business subject to specified volume limitations and a revenue sharing mechanic for business conducted by IAA in excess of specified thresholds. We are also able to continue to conduct KAR’s salvage auction business as conducted immediately prior to the distribution date. The separation and distribution agreement will also contain a covenant not to solicit, prohibiting either party from hiring or otherwise soliciting for employment, consulting or similar professional services certain individuals that are employees or consultants of the other party for a period of twelve months following the distribution date.

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Claims

In general, each party to the separation and distribution agreement will be allocated or assume liability for all pending, threatened and unasserted legal matters related to its own business or its allocated, assumed or retained liabilities and will indemnify the other party for any liability to the extent arising out of or resulting from such allocated, assumed or retained legal matters.

Releases

The separation and distribution agreement will provide that IAA and its affiliates will release and discharge KAR and its affiliates from all liabilities allocated to or assumed by IAA and its affiliates as part of the separation, from all acts and events occurring or failing to occur, and all conditions existing, on or before the distribution date relating to KAR’s salvage auction businesses, and from all liabilities existing or arising in connection with the implementation of the separation, except as expressly set forth in the separation and distribution agreement. KAR and its affiliates will release and discharge IAA and its affiliates from all liabilities allocated to or retained by KAR and its affiliates as part of the separation, from all acts and events occurring or failing to occur, and all conditions existing, on or before the distribution date relating to KAR’s businesses other than KAR’s salvage auction businesses, and from all liabilities existing or arising in connection with the implementation of the separation, except as expressly set forth in the separation and distribution agreement.

These releases will not extend to obligations or liabilities under any agreements between the parties that remain in effect following the distribution date, which agreements include, but are not limited to, the separation and distribution agreement, the transition services agreements, the tax matters agreement, the employee matters agreement and certain other agreements.

Indemnification

In the separation and distribution agreement, IAA will agree to indemnify, defend and hold harmless KAR, each of its affiliates and each of their respective directors, officers, employees and agents, from and against all liabilities relating to, arising out of or resulting from:

• the liabilities and obligations expressly allocated to or assumed by IAA under the separation and distribution agreement or the internal restructuring plan, including any failure of IAA or any other person to pay, perform or otherwise promptly discharge any such liability or obligation in accordance with their respective terms, whether prior to, at or after the distribution;
• any breach by IAA or its affiliates of the separation and distribution agreement or any of the ancillary agreements;
• except to the extent expressly allocated to or retained or assumed by KAR, any guarantee, indemnification or contribution obligation for the benefit of IAA or its affiliates by KAR or its affiliates that survives the distribution;
• the ownership or operation of IAA’s business from and after the completion of the separation and distribution; or
• any untrue statement or alleged untrue statement or omission or alleged omission of material fact in the registration statement of which this information statement forms a part, or in this information statement (as amended or supplemented).

In the separation and distribution agreement, KAR will agree to indemnify, defend and hold harmless IAA, each of its affiliates and each of its respective directors, officers, employees and agents from and against all liabilities relating to, arising out of or resulting from:

• the liabilities and obligations expressly allocated to or retained or assumed by KAR under the separation and distribution agreement or the internal restructuring plan, including any failure of KAR or any other person to pay, perform, or otherwise promptly discharge any such liability or obligation in accordance with their respective terms whether prior to, at, or after the distribution;
• any breach by KAR or its affiliates of the separation and distribution agreement or any of the ancillary agreements;

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• except to the extent expressly allocated to or assumed by IAA, any guarantee, indemnification or contribution obligation for the benefit of KAR or its affiliates by IAA or its affiliates that survives the distribution;
• the ownership or operation of KAR’s business from and after the completion of the separation and distribution; or
• any untrue statement or alleged untrue statement or omission or alleged omission of a material fact made explicitly in KAR’s name in the registration statement of which this information statement forms a part, or in this information statement (as amended or supplemented).

The separation and distribution agreement will also establish procedures with respect to claims subject to indemnification and related matters.

Insurance

The separation and distribution agreement will provide for the allocation between the parties of rights and obligations under existing insurance policies with respect to occurrences prior to the distribution and sets forth procedures for the administration of insured claims.

Further Assurances

In addition to the actions specifically provided for in the separation and distribution agreement, except as otherwise set forth therein or in any ancillary agreement, both IAA and KAR will agree in the separation and distribution agreement to use reasonable best efforts, prior to, on and after the distribution date, to take, or cause to be taken, all actions, and to do, or cause to be done, all things necessary, proper or advisable under applicable laws, regulations and agreements to consummate and make effective the transactions contemplated by the separation and distribution agreement and the ancillary agreements.

Dispute Resolution

The separation and distribution agreement will also contain provisions that will govern, except as otherwise provided in any ancillary agreement, the resolution of disputes, controversies or claims that may arise between IAA and KAR related to the separation or distribution.

Expenses

Except as expressly set forth in the separation and distribution agreement or in any ancillary agreement, all costs and expenses incurred in connection with the separation and distribution, including costs and expenses relating to legal and tax counsel, financial advisors and accounting advisory work related to the separation and distribution, incurred (i) on or prior to the distribution date will be paid by KAR and (ii) after the distribution date will be borne by the party incurring such costs and expenses.

Other Matters

Other matters governed by the separation and distribution agreement will include access to financial and other information, confidentiality and access to and provision of records.

Termination

The separation and distribution agreement will provide that it may be terminated, and the distribution may be modified or abandoned, at any time prior to the distribution date in the sole and absolute discretion of KAR without the approval of any person, including IAA and KAR’s stockholders. In the event of a termination of the separation and distribution agreement, no party, nor any of its directors, officers, or employees, will have any liability of any kind to the other party. After the distribution date, the separation and distribution agreement may not be terminated except by an agreement in writing signed by both KAR and IAA.

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Transition Services Agreements

KAR and IAA will enter into one or more transition services agreements prior to the distribution pursuant to which KAR and its subsidiaries and IAA and its subsidiaries will provide, on an interim, transitional basis, various services to each other. The services to be provided will include information technology, accounts payable, payroll, and other financial functions and administrative services.

Tax Matters Agreement

IAA and KAR intend to enter into a tax matters agreement prior to the distribution that will generally govern IAA and KAR’s respective rights, responsibilities and obligations with respect to taxes (including taxes arising in the ordinary course of business and taxes, if any, incurred as a result of any failure of the separation, the distribution or certain related transactions to qualify as tax-free for U.S. federal income tax purposes), tax attributes, the preparation and filing of tax returns, the control of audits and other tax proceedings and other matters regarding taxes for any tax period ending on or before the distribution date, as well as tax periods beginning after the distribution date.

In addition, the tax matters agreement will impose certain restrictions on us and our subsidiaries (including restrictions on share issuances, business combinations, sales of assets and similar transactions) designed to preserve the tax-free status of the separation, the distribution and certain related transactions. The tax matters agreement will also provide special rules that allocate tax liabilities in the event the separation, the distribution, or certain related transactions fail to qualify as tax-free for U.S. federal income tax purposes.

Employee Matters Agreement

KAR and IAA will enter into an employee matters agreement prior to the separation to allocate liabilities and responsibilities relating to employment matters, employee compensation and benefits plans and programs and other related matters. The employee matters agreement will govern certain compensation and employee benefit obligations with respect to the current and former employees and non-employee directors of each company.

The employee matters agreement will provide that, unless otherwise specified, KAR will be responsible for liabilities associated with employees who will be employed by KAR following the separation, former employees whose last employment was with the KAR businesses and certain specified current and former corporate employees, and IAA will be responsible for liabilities associated with employees who will be employed by IAA following the separation, former employees whose last employment was with the IAA businesses and certain specified current and former corporate employees.

Procedures for Approval of Transactions with Related Persons

Our Board is expected to adopt a written related person transactions policy, pursuant to which the Company will review relationships and transactions in which the Company, or one of its business units, and its directors and executive officers or their immediate family members are participants to determine whether such persons have a direct or indirect material interest.

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DESCRIPTION OF OTHER INDEBTEDNESS

The following summary sets forth information based on our current expectations about the debt financing arrangements anticipated to be entered into prior to the separation. However, we have not yet entered into commitments for the entirety of the financing necessary to consummate the separation and the terms of such financing are subject to negotiation; accordingly, the final terms of such debt financing arrangements have not yet been determined, remain under discussion and are subject to change, including as a result of market conditions.

Senior Secured Credit Facilities

In connection with the separation and distribution, we intend to enter into a credit agreement (the “Credit Agreement”) providing for (i) a $800 million seven-year term loan facility (the “Term Loan Facility”) and (ii) a $225 million five-year revolving credit facility (the “Revolving Credit Facility” and, together with the Term Loan Facility, the “Senior Secured Credit Facilities”). The Term Loan Facility is expected to be repayable in quarterly installments equal to 0.25% of the original aggregate principal amount.

The interest rates applicable to the loans under the Senior Secured Credit Facilities are expected to be based on a fluctuating rate of interest measured by reference to either, at our option, (i) an adjusted London inter-bank offered rate, plus an interest rate margin or (ii) an alternate base rate, plus an interest rate margin. A commitment fee on the unused portion of the Revolving Credit Facility is expected to be payable quarterly in arrears.

Our obligations under the Senior Secured Credit Facilities are expected to be guaranteed by certain of our wholly owned domestic subsidiaries (the “Guarantors”) and are expected to be secured by substantially all of our and the Guarantors’ assets, subject to certain exceptions.

The Senior Secured Credit Facilities are expected to be subject to mandatory prepayments in an amount equal to the net proceeds of certain debt offerings and certain asset sales and insurance recovery events (subject to customary exceptions and reinvestment rights).

The Credit Agreement is expected to contain affirmative covenants that we believe are usual and customary for financings of this type. The Credit Agreement is also expected to contain negative covenants that we believe are usual and customary for financings of this type, including covenants that restrict, among other things, our ability to incur indebtedness, grant liens, make acquisitions and other investments, dispose of assets, pay dividends, prepay certain junior debt and engage in certain transactions with affiliates, in each case, subject to exceptions and baskets to be mutually agreed. In addition, the Credit Agreement is expected to include a financial covenant requiring us to maintain a certain consolidated senior secured leverage ratio as of the last day of each fiscal quarter when any revolving loans are outstanding.

The Senior Credit Facilities are expected to include customary events of default, including non-payment, cross-default and change of control, in each case, subject to customary grace periods.

Notes

Prior to the consummation of the separation, we will issue $500.0 million aggregate principal amount of 5.500% Senior Notes due 2027 (the “Notes”) in a private offering exempt from the registration requirements of the Securities Act. The Notes will mature on June 15, 2027. The gross proceeds of the offering of the Notes will be deposited into an escrow account until released upon satisfaction of the escrow release conditions, including consummation of the separation and distribution, or, if the escrow release conditions are not satisfied prior to September 30, 2019, the proceeds will be used to redeem the Notes at 100% of the initial issue price of the Notes plus accrued and unpaid interest to, but not including, the redemption date.

The Notes will bear interest at a rate of 5.500% per annum, payable semiannually.

We anticipate that the Notes will be guaranteed on a senior unsecured basis by the Guarantors that will also guarantee our Senior Secured Credit Facilities. The Notes will be senior unsecured obligations and will rank equally in right of payment with any other unsubordinated debt. The Senior Secured Credit Facilities will be secured and lenders under the Credit Agreement and any other secured debt will have a priority claim on the assets that secure the secured debt. The Notes are expected to contain covenants that, among other things, restrict our and our restricted subsidiaries’ ability to pay dividends on or make other distributions in respect of equity

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interests or make other restricted payments, make certain investments, incur or guarantee additional indebtedness, create liens on certain assets to secure debt, sell certain assets, consummate certain mergers or consolidations or sell all or substantially all assets, or designate subsidiaries as unrestricted.

The Notes are also expected to contain customary provisions regarding optional redemption and events of default, which events of default may include, among others, non-payment of principal, interest or premium, failure to comply with covenants, and certain bankruptcy or insolvency events.

Nothing in this information statement should be construed as an offer to sell, or the solicitation of an offer to buy, the Notes or any other securities. The foregoing description and the other information in this information statement regarding the potential offering of Notes is included in this information statement solely for informational purposes.

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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Before the distribution, all of the outstanding shares of IAA’s common stock will be owned beneficially and of record by KAR. Following the distribution, IAA expects to have outstanding an aggregate of approximately 133,422,472 shares of common stock based upon approximately 133,422,472 shares of KAR common stock outstanding on June 5, 2019, excluding treasury shares and assuming no exercise of KAR options.

Security Ownership of Certain Beneficial Owners

The following table reports the number of shares of IAA common stock that IAA expects will be beneficially owned, immediately following the completion of the distribution, by each person who will beneficially own more than five percent of IAA’s common stock. The table is based upon information available as of June 6, 2019 as to those persons who beneficially own more than five percent of KAR’s common stock and an assumption that, for every one KAR common stock held by such persons, they will receive one share of IAA common stock.

Name of Beneficial Owner
Shares of IAA’s Common Stock to be
Beneficially Owned Upon the Distribution
Percent of Class
The Vanguard Group (1)
 
13,295,682
 
 
9.98
%
T. Rowe Price Associates, Inc. (2)
 
8,391,117
 
 
6.30
%
BlackRock, Inc. (3)
 
7,337,570
 
 
5.51
%

* Less than one percent

(1) Based solely on information disclosed in a Schedule 13G/A filed by The Vanguard Group on March 11, 2019. According to this Schedule 13G/A, The Vanguard Group has sole voting power with respect to 73,904 shares, sole dispositive power with respect to 13,218,488 shares, shared voting power with respect to 16,581 shares and shared dispositive power with respect to 77,194 shares. The address of The Vanguard Group is 100 Vanguard Blvd., Malvern, Pennsylvania 19355.
(2) Based solely on information disclosed in a Schedule 13G/A filed by T. Rowe Price Associates, Inc. on February 14, 2019. According to this Schedule 13G/A, T. Rowe Price Associates, Inc. has sole voting power with respect to 3,132,887 shares, sole dispositive power with respect to 8,391,117 shares, and no shared voting or dispositive power. The address of T. Rowe Price Associates, Inc. is 100 E. Pratt Street, Baltimore, Maryland 21202.
(3) Based solely on information disclosed in a Schedule 13G filed by BlackRock, Inc. on February 8, 2019. According to this Schedule 13G, BlackRock, Inc. has sole voting power with respect to 6,596,193 shares, sole dispositive power with respect to 7,337,570 shares, and no shared voting or dispositive power. The address of BlackRock, Inc. is 55 East 52nd Street, New York, NY 10055.

Stock Ownership of Executive Officers and Directors

The following table sets forth information, immediately following the completion of the separation calculated as of June 6, 2019, based upon the distribution of one share of IAA common stock for every one share of KAR common stock, regarding (1) each expected director, director nominee and named executive officer of IAA and (2) all of IAA’s expected directors and executive officers as a group. The address of each director, director nominee and executive officer shown in the table below is c/o IAA Spinco Inc., Attention: General Counsel, Two Westbrook Corporate Center, Suite 500, Westchester, Illinois 60154.

Name of Beneficial Owner
Shares of IAA’s Common Stock to be
Beneficially Owned Upon the Distribution (1)
Percent of Class (2)
John W. Kett
 
—
 
 
*
Maju P. Abraham
 
—
 
 
*
Bill Breslin
 
—
 
 
*
Brian Bales
 
—
 
 
*
Sue Gove
 
—
 
 
*
Vance C. Johnston
 
—
 
 
*
Lynn Jolliffe
 
14,280
 
 
 
*
Peter Kamin
 
—
 
 
*
Olaf Kastner
 
—
 
 
*
John P. Larson
 
10,971
 
 
 
*
Tim O’Day
 
—
 
 
*
Sidney Peryar
 
—
 
 
*
Directors and executive officers as a group (12)
 
25,251
 
 
*
* Less than one percent
(1) The number of shares includes shares of our common stock subject to vesting requirements and options exercisable within 60 days of April 11, 2019.
(2) Shares subject to options exercisable within 60 days of April 11, 2019 are considered outstanding for the purpose of determining the percent of the class held by the holder of such option, but not for the purpose of computing the percentage held by others.

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DESCRIPTION OF CAPITAL STOCK

IAA’s certificate of incorporation and by-laws will be amended and restated prior to the separation. The following is a summary of the material terms of IAA’s capital stock that will be contained in the amended and restated certificate of incorporation and by-laws. The summaries and descriptions below do not purport to be complete statements of the relevant provisions of the certificate of incorporation or of the by-laws to be in effect at the time of the distribution, which you must read for complete information on IAA’s capital stock as of the time of the distribution. The amended and restated certificate of incorporation and by-laws, each in a form expected to be in effect at the time of the distribution, have been filed as exhibits to the registration statement in accordance with the rules and regulations of the SEC. IAA will include its amended and restated certificate of incorporation and by-laws, as in effect at the time of the distribution, in a current report on Form 8-K filed with the SEC. The summaries and descriptions below do not purport to be complete statements of the DGCL .

General

IAA’s authorized capital stock consists of 750,000,000 shares of common stock, par value $0.01 per share, and 150,000,000 shares of preferred stock, par value $0.01 per share, all of which shares of preferred stock are undesignated. The Board may establish the rights and preferences of the preferred stock from time to time. Immediately following the distribution, IAA expects that approximately 133,422,472 shares of its common stock will be issued and outstanding and that no shares of preferred stock will be issued and outstanding.

Common Stock

IAA will have one class of common stock. All holders of IAA’s common stock are entitled to the same rights and privileges, as described below.

Voting Rights . Each holder of IAA’s common stock will be entitled to one vote for each share on all matters submitted to a vote of the holders of IAA’s common stock, voting together as a single class, including the election of directors. IAA’s stockholders will not have cumulative voting rights in the election of directors. Directors standing for election at an annual meeting of stockholders, or any special meeting of stockholders called for the purpose of electing directors, will be elected by a majority of the votes cast in an uncontested election.

Dividends . Subject to the prior rights of holders of preferred stock, holders of IAA’s common stock will be entitled to receive dividends, if any, as may be declared from time to time by our Board.

Other Rights . Holders of IAA’s common stock will have no preemptive, subscription, redemption or conversion rights. All of IAA’s outstanding shares of common stock are, and the shares of common stock to be issued will be, fully paid and non-assessable.

Liquidation and Dissolution . Subject to the prior rights of IAA’s creditors and the satisfaction of any liquidation preference granted to the holders of any then outstanding shares of preferred stock, in the event of our liquidation, dissolution or winding up, holders of IAA’s common stock will be entitled to share ratably in the net assets legally available for distribution to stockholders.

As of the date of this information statement, there is no public market for IAA’s common stock. As of June 6, 2019, IAA had 100 shares of common stock outstanding and one holder of record of common stock, which is KAR.

Preferred Stock

Under IAA’s amended and restated certificate of incorporation, the Board will be authorized, subject to limitations prescribed by the DGCL, and by IAA’s amended and restated certificate of incorporation, to issue up to 150,000,000 shares of preferred stock, par value $0.01 per share, in one or more series. The Board will have the authority, without further action by the holders of IAA’s common stock, subject to limitations prescribed by the DGCL and by IAA’s amended and restated certificate of incorporation, to issue preferred stock and fix voting powers for each class or series of preferred stock, and to provide that any class or series may be subject to redemption, entitled to receive dividends, entitled to rights upon dissolution, or convertible into, or exchangeable for shares of any other class or classes of capital stock. The effect of issuing preferred stock could include, among other things, one or more of the following:

• restricting dividends in respect of IAA’s common stock;

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• diluting the voting power of IAA’s common stock or providing that holders of preferred stock have the right to vote on matters as a class;
• impairing the liquidation rights of IAA’s common stock; or
• delaying or preventing a change of control of IAA.

Anti-Takeover Effects of Various Provisions of Delaware Law and IAA’s Amended and Restated Certificate of Incorporation and Amended and Restated By-laws

Provisions of the DGCL and IAA’s amended and restated certificate of incorporation and by-laws could make it more difficult to acquire IAA by means of a tender offer, a proxy contest or otherwise, or to remove incumbent officers and directors. These provisions, summarized below, are expected to discourage certain types of coercive takeover practices and takeover bids that the Board may consider inadequate and to encourage persons seeking to acquire control of IAA to first negotiate with the Board. IAA believes that the benefits of increased protection of its ability to negotiate with the proponent of an unfriendly or unsolicited proposal to acquire or restructure it outweigh the disadvantages of discouraging takeover or acquisition proposals because, among other things, negotiation of these proposals could result in an improvement of their terms.

Delaware Anti-Takeover Statute . IAA will elect in its amended and restated certificate of incorporation not to be subject to Section 203 of the DGCL, an anti-takeover law. In general, Section 203 of the DGCL prohibits a publicly held Delaware corporation from engaging in a “business combination”, such as a merger, with a person or group owning 15% or more of the corporation’s voting stock for a period of three years following the date the person became an interested stockholder, unless (with certain exceptions) the business combination or the transaction in which the person became an interested stockholder is approved in a prescribed manner. Accordingly, IAA will not be subject to any anti-takeover effects of Section 203. Certain other provisions of IAA’s amended and restated certificate of incorporation and by-laws may be considered to have an anti-takeover effect and may delay or prevent a tender offer or other corporate transaction that a stockholder might consider to be in its best interest, including those transactions that might result in payment of a premium over the market price for IAA’s shares. These provisions are designed to discourage certain types of transactions that may involve an actual or threatened change of control of us without prior approval of the Board. These provisions are meant to encourage persons interested in acquiring control of IAA to first consult with the Board to negotiate terms of a potential business combination or offer. IAA believes that these provisions protect against an unsolicited proposal for a takeover of IAA that might affect the long-term value of IAA’s stock or that may be otherwise unfair to its stockholders.

Classified Board . IAA’s amended and restated certificate of incorporation and by-laws will provide that the Board will initially be divided into three approximately equal classes. The directors designated as Class I directors will have terms expiring at the first annual meeting of stockholders following the distribution, which IAA expects to hold in 2020. The directors designated as Class II directors will have terms expiring at the 2021 annual meeting of stockholders, and the directors designated as Class III directors will have terms expiring at the 2022 annual meeting. Commencing with the 2020 annual meeting of stockholders, directors for each class will be elected at the annual meeting of stockholders held in the year in which the term for that class expires. At the 2020 annual meeting of stockholders, Class I directors will be elected to three-year terms expiring at the 2023 annual meeting of stockholders. At the 2021 annual meeting of stockholders, Class II directors will be elected to one-year terms expiring at the 2022 annual meeting of stockholders. At the 2022 annual meeting of stockholders, Class III directors will be elected to one-year terms expiring at the 2023 annual meeting of stockholders. From and after the 2023 annual meeting of shareholders, the Board will no longer be classified under Section 141(d) of the DGCL and each director will stand for election annually. Members of the Board will be elected by a majority of the votes cast at each annual meeting of stockholders, except that a plurality standard applies in contested elections. The existence of a classified board provisions makes the replacement of incumbent directors more time consuming and difficult until we have phased out our classified Board. Accordingly, these provisions could discourage a third party from initiating a proxy contest, making a tender offer or otherwise attempting to gain control of IAA.

Removal of Directors . Pursuant to applicable Delaware law, directors serving on a classified Board may be removed by stockholders only for cause, unless otherwise provided in the corporation’s certificate of incorporation. IAA’s amended and restated certificate of incorporation will not include any provision allowing removal of directors without cause while the Board is classified.

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Size of Board and Vacancies . IAA’s amended and restated certificate of incorporation will provide that the number of directors on the Board will be fixed exclusively by the Board. Subject to the terms of any one or more classes or series of preferred stock, any vacancy on the Board resulting from any increase in the authorized number of directors will be filled by a majority of the Board then in office, provided that a quorum is present. Any other vacancy occurring on the Board will be filled by a majority of the Board then in office, even if less than a quorum, or by a sole remaining director. The right of stockholders to fill vacancies on the Board is specifically denied. Any director elected to fill a vacancy on the Board not resulting from an increase in the number of directors will have the same remaining term as that of his or her predecessor.

Special Stockholder Meetings . IAA’s amended and restated certificate of incorporation will provide that special meetings of IAA stockholders may be called at any time only by the chief executive officer or the Board pursuant to a Board resolution duly adopted by a majority of the total number of authorized directors then in office. Stockholders may not call special stockholder meetings.

Stockholder Action by Written Consent . IAA’s amended and restated certificate of incorporation and by-laws will expressly eliminate the right of IAA’s stockholders to act by written consent. Stockholder action must take place at an annual or a special meeting of IAA stockholders.

Requirements for Advance Notification of Stockholder Nominations and Proposals . IAA’s amended and restated by-laws will establish advance notice procedures with respect to stockholder proposals and nomination of candidates for election as directors other than nominations made by or at the direction of the Board or a committee of the Board.

No Cumulative Voting . The DGCL provides that stockholders are denied the right to cumulate votes in the election of directors unless the company’s certificate of incorporation provides otherwise. IAA’s amended and restated certificate of incorporation will not provide for cumulative voting.

Undesignated Preferred Stock . The authority that the Board will possess to issue preferred stock could potentially be used to discourage attempts by third parties to obtain control of IAA through a merger, tender offer, proxy contest or otherwise by making such attempts more difficult or more costly. The Board may be able to issue preferred stock with voting rights or conversion rights that, if exercised, could adversely affect the voting power of the holders of common stock.

Limitations on Liability, Indemnification of Officers and Directors and Insurance

The DGCL authorizes corporations to limit or eliminate the personal liability of directors to corporations and their stockholders for monetary damages for breaches of directors’ fiduciary duties as directors, and IAA’s amended and restated certificate of incorporation will include such an exculpation provision. IAA’s amended and restated certificate of incorporation and by-laws will include provisions that indemnify, to the fullest extent allowable under the DGCL, the personal liability of directors or officers for monetary damages for actions taken as a director or officer of IAA, or for serving at IAA’s request as a director or officer or another position at another corporation or enterprise, as the case may be. IAA’s amended and restated certificate of incorporation and by-laws will also provide that IAA must indemnify and advance reasonable expenses to IAA’s directors and officers, subject to IAA’s receipt of an undertaking from the indemnified party as may be required under the DGCL. IAA’s amended and restated certificate of incorporation will expressly authorize IAA to carry directors’ and officers’ insurance to protect IAA, its directors, officers and certain employees for some liabilities.

IAA’s amended and restated certificate of incorporation and amended and restated by-laws will provide that IAA’s directors will not be personally liable to IAA or its stockholders for monetary damages for breach of a fiduciary duty as a director, except for:

• any breach of the director’s duty of loyalty to IAA or its stockholders;
• intentional misconduct or a knowing violation of law;
• liability under Delaware corporate law for an unlawful payment of dividends or an unlawful stock purchase or redemption of stock; or
• any transaction from which the director derives an improper personal benefit.

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The limitation of liability and indemnification provisions that will be in IAA’s amended and restated certificate of incorporation and by-laws may discourage stockholders from bringing a lawsuit against directors for breach of their fiduciary duty. These provisions may also have the effect of reducing the likelihood of derivative litigation against IAA’s directors and officers, even though such an action, if successful, might otherwise benefit IAA and its stockholders. However, these provisions will not limit or eliminate IAA’s rights, or those of any stockholder, to seek non-monetary relief, such as an injunction or rescission in the event of a breach of a director’s duty of care. The provisions will not alter the liability of directors under the federal securities laws. In addition, your investment may be adversely affected to the extent that, in a class action or direct suit, IAA pays the costs of settlement and damage awards against directors and officers pursuant to these indemnification provisions. There is currently no pending material litigation or proceeding against any IAA directors, officers or employees for which indemnification is sought.

Exclusive Forum . IAA’s amended and restated certificate of incorporation will provide that unless the Board otherwise determines, the Court of Chancery of the State of Delaware will be the sole and exclusive forum for (i) any derivative action or proceeding brought on behalf of IAA, (ii) any action asserting a claim of breach of a fiduciary duty owed by any director, officer, stockholder, employee or agent of IAA to IAA or IAA’s stockholders, (iii) any action asserting a claim against IAA or any director, officer, stockholder, employee or agent of IAA arising out of or relating to any provision of the DGCL or IAA’s amended and restated certificate of incorporation or by-laws, or (iv) any action asserting a claim against IAA or any director, officer, stockholder, employee or agent of IAA governed by the internal affairs doctrine. However, if (and only if) the Court of Chancery of the State of Delaware dismisses any such action for lack of subject matter jurisdiction, the action may be brought in another court sitting in the State of Delaware. The exclusive forum provision does not apply to any actions arising under the Securities Act or Exchange Act.

Authorized but Unissued Shares

IAA’s authorized but unissued shares of common stock and preferred stock will be available for future issuance without your approval. IAA may use additional shares for a variety of purposes, including future public offerings to raise additional capital, to fund acquisitions and as employee compensation. The existence of authorized but unissued shares of common stock and preferred stock could render more difficult or discourage an attempt to obtain control of IAA by means of a proxy contest, tender offer, merger or otherwise.

Listing

IAA has applied to have its shares of common stock listed on the NYSE under the symbol “IAA.”

Sale of Unregistered Securities

On June 19, 2018, IAA issued 100 shares of its common stock to KAR pursuant to Section 4(a)(2) of the Securities Act. IAA did not register the issuance of the issued shares under the Securities Act because such issuances did not constitute public offerings.

Transfer Agent and Registrar

After the distribution, the transfer agent and registrar for IAA’s common stock will be AST.

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WHERE YOU CAN FIND MORE INFORMATION

IAA has filed a registration statement on Form 10 with the SEC with respect to the shares of IAA common stock being distributed as contemplated by this information statement. This information statement forms a part of, and does not contain all of the information set forth in, the registration statement and the exhibits and schedules to the registration statement. For further information with respect to IAA and its common stock, please refer to the registration statement, including its exhibits and schedules. Statements made in this information statement relating to any contract or other document filed as an exhibit to the registration statement include the material terms of such contract or other document. However, such statements are not necessarily complete, and you should refer to the exhibits attached to the registration statement for copies of the actual contract or document. You may review a copy of the registration statement, including its exhibits and schedules, on the Internet website maintained by the SEC at www.sec.gov. Information contained on any website referenced in this information statement is not incorporated by reference in this information statement.

As a result of the distribution, IAA will become subject to the information and reporting requirements of the Exchange Act and, in accordance with the Exchange Act, will file periodic reports, proxy statements and other information with the SEC.

IAA intends to furnish holders of its common stock with annual reports containing consolidated financial statements prepared in accordance with U.S. generally accepted accounting principles and audited and reported on, with an opinion expressed, by an independent registered public accounting firm.

You should rely only on the information contained in this information statement or to which this information statement has referred you. IAA has not authorized any person to provide you with different information or to make any representation not contained in this information statement.

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INDEX TO FINANCIAL STATEMENTS

 
Page
Insurance Auto Auctions, Inc. Audited Consolidated Financial Statements
 
 
 
   
 
 
 
Report of Independent Registered Public Accounting Firm
 
F-2
 
Consolidated Statements of Income for the Fiscal Years Ended December 30, 2018, December 31, 2017 and January 1, 2017
 
F-3
 
Consolidated Statements of Comprehensive Income for the Fiscal Years Ended December 30, 2018, December 31, 2017 and January 1, 2017
 
F-4
 
Consolidated Balance Sheets as of December 30, 2018 and December 31, 2017
 
F-5
 
Consolidated Statements of Parent Equity for the Fiscal Years Ended December 30, 2018, December 31, 2017 and January 1, 2017
 
F-6
 
Consolidated Statements of Cash Flows for the Fiscal Years Ended December 30, 2018, December 31, 2017 and January 1, 2017
 
F-7
 
Notes to Consolidated Financial Statements
 
F-8
 
   
 
 
 
Insurance Auto Auctions, Inc. Unaudited Consolidated Financial Stat ements
 
 
 
   
 
 
 
Consolidated Statements of Income for the Three Months ended March 31, 2019 and April 1, 2018
 
F-29
 
Consolidated Statements of Comprehensive Income for the Three Months ended March 31, 2019 and April 1, 2018
 
F-30
 
Consolidated Balance Sheets as of March 31, 2019 and December 30, 2018
 
F-31
 
Consolidated Statements of Parent Equity for the Three Months ended March 31, 2019 and April 1, 2018
 
F-32
 
Consolidated Statements of Cash Flows for the Three Months ended March 31, 2019 and April 1, 2018
 
F-33
 
Condensed Notes to Consolidated Financial Statements
 
F-34
 

All other financial statement schedules have been omitted because they are not applicable, the required matter is not present, or the required information has been otherwise supplied in the financial statements or the notes thereto.

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Report of Independent Registered Public Accounting Firm

To the Stockholders and Board of Directors
KAR Auction Services, Inc.:

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of Insurance Auto Auctions, Inc. and subsidiaries (the Company) as of December 30, 2018 and December 31, 2017, the related consolidated statements of income, comprehensive income, parent equity, and cash flows for each of the years in the three-year period ended December 30, 2018, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 30, 2018 and December 31, 2017, and the results of its operations and its cash flows for each of the years in the three-year period ended December 30, 2018, in conformity with U.S. generally accepted accounting principles.

Change in Accounting Principle

As discussed in Note 2 to the consolidated financial statements, effective January 1, 2018, the Company has changed its method of accounting for revenue from contracts with customers due to the adoption of Financial Accounting Standards Board Accounting Standard Codification Topic 606, Revenue from Contracts with Customers.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB and in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ KPMG LLP

We have served as the Company’s auditor since 2018.
Indianapolis, Indiana
March 5, 2019

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Insurance Auto Auctions, Inc.
Consolidated Statements of Income
(In millions)

 
Fiscal Year
ended
December 30 ,
2018
Fiscal Year
ended
December 31 ,
2017
Fiscal Year
ended
January 1 ,
2017
Operating revenues
$
1,326.8
 
$
1,219.2
 
$
1,098.0
 
Operating expenses
 
 
 
 
 
 
 
 
 
Cost of services (exclusive of depreciation and amortization)
 
821.2
 
 
778.1
 
 
708.3
 
Selling, general and administrative
 
123.8
 
 
113.3
 
 
110.5
 
Depreciation and amortization
 
97.4
 
 
93.1
 
 
87.9
 
Total operating expenses
 
1,042.4
 
 
984.5
 
 
906.7
 
Operating profit
 
284.4
 
 
234.7
 
 
191.3
 
Interest expense
 
38.7
 
 
38.6
 
 
38.6
 
Other income, net
 
( 0.5
)
 
(0.9
)
 
(0.6
)
Income before income taxes
 
246.2
 
 
197.0
 
 
153.3
 
Income taxes
 
62.5
 
 
35.6
 
 
58.4
 
Net income
$
183.7
 
$
161.4
 
$
94.9
 

See accompanying notes to consolidated financial statements

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Insurance Auto Auctions, Inc.
Consolidated Statements of Comprehensive Income
(In millions)

 
Fiscal Year
ended
December 30,
2018
Fiscal Year
ended
December 31,
2017
Fiscal Year
ended
January 1,
2017
Net income
$
183.7
 
$
161.4
 
$
94.9
 
Other comprehensive income (loss)
 
 
 
 
 
 
Foreign currency translation gain (loss)
 
(1.7
)
 
7.1
 
 
(2.0
)
Comprehensive income
$
182.0
 
$
168.5
 
$
92.9
 

See accompanying notes to consolidated financial statements

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Insurance Auto Auctions, Inc.
Consolidated Balance Sheets
(In millions)

 
December 30 ,
2018
December 31 ,
2017
Assets
 
 
 
 
 
 
Current assets
 
 
 
 
 
 
Cash and cash equivalents
$
60.0
 
$
33.1
 
Trade receivables, net of allowances of $3.3 and $2.1
 
311.0
 
 
302.9
 
Prepaid consigned vehicle charges
 
48.5
 
 
48.0
 
Other current assets
 
34.0
 
 
30.8
 
Total current assets
 
453.5
 
 
414.8
 
Other assets
 
 
 
 
 
 
Goodwill
 
530.2
 
 
533.6
 
Customer relationships, net of accumulated amortization of $286.7 and $262.8
 
74.8
 
 
101.6
 
Other intangible assets, net of accumulated amortization of $148.2 and $130.7
 
86.1
 
 
85.8
 
Other assets
 
10.4
 
 
8.6
 
Total other assets
 
701.5
 
 
729.6
 
Property and equipment, net of accumulated depreciation of $389.2 and $342.5
 
345.2
 
 
290.0
 
Total assets
$
1,500.2
 
$
1,434.4
 
 
 
 
 
 
 
 
Liabilities and Equity
 
 
 
 
 
 
Current liabilities
 
 
 
 
 
 
Accounts payable
$
129.0
 
$
114.3
 
Accrued employee benefits and compensation expenses
 
29.6
 
 
25.4
 
Other accrued expenses
 
53.6
 
 
39.7
 
Income taxes payable
 
2.2
 
 
0.4
 
Current maturities of long-term debt
 
456.6
 
 
456.6
 
Total current liabilities
 
671.0
 
 
636.4
 
Noncurrent liabilities
 
 
 
 
 
 
Long-term debt
 
—
 
 
—
 
Deferred income tax liabilities
 
63.1
 
 
67.2
 
Deferred rent
 
186.8
 
 
143.6
 
Other liabilities
 
16.1
 
 
15.9
 
Total noncurrent liabilities
 
266.0
 
 
226.7
 
Commitments and contingencies (Note 11)
 
 
 
 
 
 
Parent Equity
 
 
 
 
 
 
Net parent investment
 
576.2
 
 
582.6
 
Accumulated other comprehensive loss
 
( 13.0
)
 
(11.3
)
Total parent equity
 
563.2
 
 
571.3
 
Total liabilities and equity
$
1,500.2
 
$
1,434.4
 

See accompanying notes to consolidated financial statements

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Insurance Auto Auctions, Inc.
Consolidated Statements of Parent Equity
(In millions)

 
Total
Net Parent
Investment
Accumulated
Other
Comprehensive
Loss
Balance at December 27 , 2015
$
486.1
 
$
502.5
 
$
(16.4
)
Net income
 
94.9
 
 
94.9
 
 
—
 
Foreign currency translation adjustments
 
(2.0
)
 
—
 
 
(2.0
)
Stock-based compensation expense
 
2.5
 
 
2.5
 
 
—
 
Excess tax benefit from stock-based compensation
 
2.9
 
 
2.9
 
 
—
 
Net transfer to parent and affiliates
 
(36.6
)
 
(36.6
)
 
—
 
Balance at J anuary 1 , 2017
 
547.8
 
 
566.2
 
 
(18.4
)
Net income
 
161.4
 
 
161.4
 
 
—
 
Foreign currency translation adjustments
 
7.1
 
 
—
 
 
7.1
 
Stock-based compensation expense
 
3.8
 
 
3.8
 
 
—
 
Net transfer to parent and affiliates
 
(148.8
)
 
(148.8
)
 
—
 
Balance at December 31 , 2017
 
571.3
 
 
582.6
 
 
(11.3
)
Net income
 
183.7
 
 
183.7
 
 
—
 
Cumulative effect adjustment for adoption of ASC Topic 606, net of tax
 
(3.0
)
 
(3.0
)
 
—
 
Foreign currency translation adjustments
 
(1.7
)
 
—
 
 
(1.7
)
Stock-based compensation expense
 
3.8
 
 
3.8
 
 
—
 
Net transfer to parent and affiliates
 
(190.9
)
 
(190.9
)
 
—
 
Balance at December 30 , 2018
$
563.2
 
$
576.2
 
$
( 13.0
)

See accompanying notes to consolidated financial statements

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Insurance Auto Auctions, Inc.
Consolidated Statements of Cash Flows
(In millions)

 
Fiscal Year
ended
December 30 ,
2018
Fiscal Year
ended
December 31 ,
2017
Fiscal Year
ended
January 1 ,
2017
Operating activities
 
 
 
 
 
 
 
 
 
Net income
$
183.7
 
$
161.4
 
$
94.9
 
Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
 
 
 
 
 
Depreciation and amortization
 
97.4
 
 
93.1
 
 
87.9
 
Provision for credit losses
 
2.2
 
 
0.6
 
 
1.5
 
Deferred income taxes
 
( 2.9
)
 
(21.2
)
 
(2.3
)
Stock-based compensation
 
3.8
 
 
3.8
 
 
2.5
 
(Gain) loss on disposal of fixed assets
 
( 0.7
)
 
(0.5
)
 
0.1
 
Deferred rent
 
0.7
 
 
1.0
 
 
(0.6
)
Changes in operating assets and liabilities, net of acquisitions:
 
 
 
 
 
 
 
 
 
Trade receivables and other assets
 
( 9.3
)
 
(60.8
)
 
(60.7
)
Accounts payable and accrued expenses
 
15.0
 
 
23.9
 
 
(11.1
)
Net cash provided by operating activities
 
289.9
 
 
201.3
 
 
112.2
 
Investing activities
 
 
 
 
 
 
 
 
 
Acquisition of businesses (net of cash acquired)
 
—
 
 
(0.9
)
 
(1.3
)
Purchases of property, equipment and computer software
 
( 66.7
)
 
(54.9
)
 
(42.0
)
Proceeds from the sale of property and equipment
 
0.6
 
 
0.7
 
 
—
 
Net cash used by investing activities
 
( 66.1
)
 
(55.1
)
 
(43.3
)
Financing activities
 
 
 
 
 
 
 
 
 
Net increase in book overdrafts
 
11.7
 
 
9.9
 
 
0.3
 
Payments on capital leases
 
( 15.9
)
 
(16.9
)
 
(13.8
)
Net transfers to parent and affiliates
 
( 190.9
)
 
(148.8
)
 
(36.6
)
Net cash used by financing activities
 
( 195.1
)
 
(155.8
)
 
(50.1
)
Effect of exchange rate changes on cash
 
(1.8
)
 
0.9
 
 
(1.4
)
Net increase (decrease) in cash and cash equivalents
 
26.9
 
 
(8.7
)
 
17.4
 
Cash and cash equivalents at beginning of period
 
33.1
 
 
41.8
 
 
24.4
 
Cash and cash equivalents at end of period
$
60.0
 
$
33.1
 
$
41.8
 

See accompanying notes to consolidated financial statements

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Insurance Auto Auctions, Inc.
Notes to Consolidated Financial Statements
December 30, 2018, December 31, 2017 and January 1, 2017

Note 1—Basis of Presentation

On February 27, 2018, KAR Auction Services, Inc. (“KAR” or “Parent”), a Delaware corporation, announced a plan to pursue the separation of its salvage auction business into a separate public company, IAA Spinco Inc. (“IAA” or “the Company”), through a spin-off. Among other conditions, the planned spin-off is subject to approval by KAR’s Board of Directors and the effectiveness of a registration statement on Form 10 relating to the spin-off filed with the Securities and Exchange Commission. Upon completion of the spin-off, IAA will operate its business as an independent, publicly traded company.

IAA is a leading, national provider of salvage vehicle auctions and related services in North America. The salvage auctions facilitate the remarketing of damaged vehicles that are designated as total losses by insurance companies, recovered stolen vehicles for which an insurance settlement with the vehicle owner has already been made, purchased vehicles and older model vehicles donated to charity or sold by dealers in salvage auctions. The salvage auction business specializes in providing services such as inbound transportation logistics, inspections, evaluations, salvage recovery services, titling and settlement administrative services.

We currently operate 179 sites across the United States and Canada; in addition, we offer online marketplaces for salvage vehicles. IAA also includes HBC Vehicle Services Limited (“HBC”), which operates from 14 locations in the United Kingdom. Our auctions facilitate the sale of salvage vehicles through physical, online or hybrid platforms, which permit Internet buyers to participate in physical marketplaces. IAA facilitates the exchange of these vehicles through an auction marketplace, which aligns sellers and buyers. As an agent for customers, the Company generally does not take title to or ownership of vehicles sold at the auctions. Generally, fees are earned from the seller and buyer on each successful auction transaction in addition to fees earned for ancillary services.

Throughout the periods covered by these consolidated financial statements, IAA operated as a reportable segment within KAR. The accompanying consolidated financial statements have been prepared from KAR’s historical accounting records and are presented on a standalone basis as if the operations had been conducted independently from KAR. Accordingly, KAR and its subsidiaries, net investment in these operations (Parent Equity) is shown in lieu of stockholder’s equity in the consolidated financial statements. The consolidated financial statements include the historical operations, assets, and liabilities of the legal entities that are considered to comprise IAA. The historical results of operations, financial position and cash flows of IAA represented in the consolidated financial statements may not be indicative of what they would have been had IAA actually been a separate standalone entity during such periods, nor are they necessarily indicative of IAA’s future results of operations, financial position and cash flows.

IAA is comprised of certain standalone legal entities for which discrete financial information is available. The consolidated statements of income include all revenues and costs directly attributable to IAA, including costs for functions and services used by IAA. Certain shared costs have been directly charged to IAA based on specific identification or other allocation methods. The results of operations also include allocations of costs for administrative functions and services performed on behalf of IAA by centralized staff groups within KAR. As more fully described in Note 9 − Income Taxes, current and deferred income taxes and related tax expense have been determined based on the standalone results of IAA by applying Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 740, Income Taxes , to the IAA operations in each country as if it were a separate taxpayer (i.e., following the separate return methodology). Allocation methodologies were applied to certain shared costs to allocate amounts to IAA as discussed further in Note 12 − Relationship with Parent and Related Entities.

All charges and allocations of cost for functions and services performed by KAR organizations have been deemed paid by IAA to KAR, in cash, in the period in which the cost was recorded in the consolidated statements of income. Allocations to IAA of current income taxes payable are deemed to have been remitted, in cash, to KAR in the period the related tax expense was recorded. Allocations of current income taxes receivable are deemed to have been remitted to IAA, in cash, by KAR in the period to which the receivable applies only to the extent that a refund of such taxes could have been recognized by IAA on a standalone basis under the law of the relevant taxing jurisdiction.

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Insurance Auto Auctions, Inc.
Notes to Consolidated Financial Statements
December 30, 2018, December 31, 2017 and January 1, 2017

KAR uses a centralized approach to cash management and financing its operations, including the operations of IAA. Accordingly, none of KAR’s corporate cash and cash equivalents has been allocated to IAA in these consolidated financial statements. Transactions between KAR and IAA are accounted for through Net Parent Investment. See Note 12 − Relationship with Parent and Related Entities, for a further description of related party transactions between KAR and IAA.

All of the allocations and estimates in these consolidated financial statements are based on assumptions that management of KAR and IAA believe are reasonable. However, the consolidated financial statements included herein may not be indicative of the financial position, results of operations and cash flows of IAA in the future or if IAA had been a separate, standalone entity during the periods presented.

Note 2—Summary of Significant Accounting Policies

Principles of Consolidation

The consolidated financial statements include the accounts of IAA and all of its wholly owned subsidiaries. Significant intercompany transactions and balances have been eliminated. All significant intercompany transactions with KAR are deemed to have been paid in the period the cost was incurred.

Fiscal Periods

Fiscal year 2018 consisted of 52 weeks and ended on December 30, 2018. Fiscal year 2017 consisted of 52 weeks and ended on December 31, 2017. Fiscal year 2016 consisted of 53 weeks and ended on January 1, 2017. The additional week in 2016 occurred in the fourth quarter.

Use of Estimates

The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates based in part on assumptions about current, and for some estimates, future economic and market conditions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the period. Although the current estimates contemplate current conditions and expected future changes, as appropriate, it is reasonably possible that future conditions could differ from these estimates, which could materially affect our results of operations and financial position. Among other effects, such changes could result in future impairments of goodwill, intangible assets and long-lived assets, additional allowances on accounts receivable and changes in litigation and other loss contingencies.

Business Segments

Our operations are grouped into three operating segments: United States, Canada and United Kingdom. Operations are measured through detailed budgeting and monitoring of contributions to consolidated income by each operating segment. We have one reportable business segment.

Foreign Currency Translation

The local currency is the functional currency for each of our foreign entities. Revenues and expenses denominated in foreign currencies are translated into U.S. dollars at average exchange rates in effect during the year. Assets and liabilities of foreign operations are translated using the exchange rates in effect at year end. Foreign currency transaction gains and losses are included in the consolidated statements of income within “Other income, net” and resulted in a loss of $0.2 million for the fiscal year ended December 30, 2018, a gain of $0.4 million for the fiscal year ended December 31, 2017 and a loss of less than $0.1 million for the fiscal year ended January 1, 2017. Adjustments arising from the translation of net assets located outside the United States (gains and losses) are shown as a component of “Accumulated other comprehensive income.”

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Insurance Auto Auctions, Inc.
Notes to Consolidated Financial Statements
December 30, 2018, December 31, 2017 and January 1, 2017

Cash Equivalents

All highly liquid investments with an original maturity of three months or less are considered to be cash equivalents. These investments are valued at cost, which approximates fair value.

Receivables

Trade receivables include the unremitted purchase price of vehicles purchased by third parties at the auctions, fees to be collected from those buyers and amounts due for services provided by us related to certain consigned vehicles in our possession, including advance charges paid on the seller’s behalf. The amounts due with respect to the consigned vehicles are generally deducted from the sales proceeds upon the eventual auction or other disposition of the related vehicles.

Due to the nature of our business, substantially all trade receivables are due from salvage buyers and insurance companies. We have possession of vehicles or vehicle titles collateralizing a significant portion of the trade receivables.

Trade receivables are reported net of an allowance for doubtful accounts. The allowances for doubtful accounts is based on management’s evaluation of the receivables portfolio under current conditions, the volume of the portfolio, review of specific collection issues and such other factors which in management’s judgment deserve recognition in estimating losses.

Prepaid Consigned Vehicle Charges

Prepaid consigned vehicle charges include the inbound tow, titling costs and enhancement charges associated with a consigned vehicle. These prepaid charges are recorded in cost of services at the date the vehicle is sold and revenue is recognized.

Other Current Assets

Other current assets consist of inventories, prepaid expenses and taxes receivable. The inventories, which consist of vehicles, are accounted for on the specific identification method and are stated at the lower of cost or net realizable value.

Goodwill

Goodwill represents the excess of cost over fair value of identifiable net assets of businesses acquired. Goodwill is tested for impairment annually in the second quarter, or more frequently as impairment indicators arise. ASC 350, Intangibles—Goodwill and Other , permits an entity to assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount before applying the two-step goodwill impairment model. If it is determined through the qualitative assessment that a reporting unit’s fair value is more likely than not greater than its carrying value, the remaining impairment steps would be unnecessary. The qualitative assessment is optional, allowing companies to go directly to the quantitative assessment. The quantitative assessment for goodwill impairment is a two-step test. Under the first step, the fair value of each reporting unit is compared with its carrying value (including goodwill). If the fair value of the reporting unit is less than its carrying value, an indication of goodwill impairment exists for the reporting unit and we must perform step two of the impairment test (measurement). Under step two, an impairment loss is recognized for any excess of the carrying amount of the reporting unit’s goodwill over the implied fair value of that goodwill. The implied fair value of goodwill is determined by allocating the fair value of the reporting unit in a manner similar to a purchase price allocation, in accordance with ASC 805, Business Combinations . The residual fair value after this allocation is the implied fair value of the reporting unit goodwill. Fair value of the reporting unit is determined using a discounted cash flow analysis. If the fair value of the reporting unit exceeds its carrying value, step two does not need to be performed.

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Insurance Auto Auctions, Inc.
Notes to Consolidated Financial Statements
December 30, 2018, December 31, 2017 and January 1, 2017

Customer Relationships and Other Intangible Assets

Customer relationships are amortized on a straight-line basis over the life determined at the time of acquisition. Other intangible assets generally consist of tradenames, computer software and non-compete agreements, which if amortized, are amortized using the straight-line method over their estimated useful lives. Tradenames with indefinite lives are not amortized. Costs incurred related to software developed or obtained for internal use are capitalized during the application development stage of software development and amortized over their estimated useful lives. The non-compete agreements are amortized over the life of the agreements. The amortization periods of finite-lived intangible assets are re-evaluated periodically when facts and circumstances indicate that revised estimates of useful lives may be warranted. Indefinite-lived tradenames are assessed for impairment, in accordance with ASC 350, annually in the second quarter or more frequently as impairment indicators arise. At the end of each assessment, a determination is made as to whether the tradenames still have an indefinite life.

Property and Equipment

Property and equipment are stated at historical cost less accumulated depreciation. Depreciation is computed using the straight-line method at rates intended to depreciate the costs of assets over their estimated useful lives. Upon retirement or sale of property and equipment, the cost of the disposed assets and related accumulated depreciation is removed from the accounts and any resulting gain or loss is credited or charged to selling, general and administrative expenses. Expenditures for normal repairs and maintenance are charged to expense as incurred. Additions and expenditures for improving or rebuilding existing assets that extend the useful life are capitalized. Leasehold improvements made either at the inception of the lease or during the lease term are amortized over the shorter of their economic lives or the lease term including any renewals that are reasonably assured.

Other Assets

Other assets consist of below market leases, deposits and other long-term assets.

Long-Lived Assets

Management reviews our property and equipment, customer relationships and other intangible assets for impairment whenever events or changes in circumstances indicate that their carrying amount may not be recoverable. The determination includes evaluation of factors such as current market value, future asset utilization, business climate, and future cash flows expected to result from the use of the related assets. If the carrying amount of a long-lived asset exceeds the total amount of the estimated undiscounted future cash flows from that asset, a loss is recognized in the period to the extent that the carrying amount exceeds the fair value of the asset. The impairment analysis is based on our current business strategy, expected growth rates and estimated future economic and regulatory conditions.

Accounts Payable

Accounts payable include amounts due to sellers from the proceeds of the sale of their consigned vehicles less any fees, as well as trade payables and outstanding checks to sellers and vendors. Book overdrafts, representing outstanding checks in excess of funds on deposit, are recorded in “Accounts payable” and amounted to $60.4 million and $48.7 million at December 30, 2018 and December 31, 2017, respectively.

Self-Insurance Reserves

We self-insure our employee medical benefits, as well as a portion of our automobile, general liability and workers’ compensation claims. We have insurance coverage that limits the exposure on individual claims. The cost of the insurance is recognized as expense over the contract periods. Utilizing historical claims experience, we record an accrual for the claims related to our employee medical benefits, automobile, general liability and workers’ compensation claims based upon the expected amount of all such claims, which includes the cost of

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Insurance Auto Auctions, Inc.
Notes to Consolidated Financial Statements
December 30, 2018, December 31, 2017 and January 1, 2017

claims that have been incurred but not reported. Accrued medical benefits and workers’ compensation expenses are included in “Accrued employee benefits and compensation expenses” while accrued automobile and general liability expenses are included in “Other accrued expenses.”

Environmental Liabilities

Accruals for environmental matters are recorded when it is probable that a liability has been incurred and the amount of the liability can be reasonably estimated, based on current law and existing technologies. These accruals are adjusted periodically as assessment and remediation efforts progress, or as additional technical or legal information becomes available. Accruals for environmental liabilities are included in “Other accrued expenses” at undiscounted amounts and exclude claims for recoveries from insurance or other third parties.

Long-Term Debt

At December 30, 2018 and December 31, 2017, IAA’s intercompany debt with KAR was $456.6 million. This debt was comprised of three promissory notes, payable on demand, with a weighted average interest rate of 8.27%. In addition, IAA had outstanding letters of credit in the aggregate amount of $2.0 million and $2.1 million at December 30, 2018 and December 31, 2017, respectively, which reduce the amount available for borrowings under KAR’s revolving credit facility.

Revenue Recognition

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606) , which superseded the revenue recognition requirements in ASC 605, Revenue Recognition . The new guidance provides clarification on the recognition of revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Topic 606 also requires additional disclosures to help financial statement users better understand the nature, amount, timing and uncertainty of revenue that is recognized. In preparation for the adoption of Topic 606, we assessed our contracts with customers, evaluated our revenue streams and compared current accounting practices to those required under the new standard. As a result of these efforts, we identified certain impacts to the presentation and timing of revenue recognition for a contract liability (deferred revenue) related to a material right associated with certain volume-related rebates. We have implemented the appropriate changes to our processes and controls to support recognition and disclosure under Topic 606.

We adopted Topic 606 in the first quarter of 2018 using the modified retrospective transition method and recognized the cumulative effect of initially applying the new standard as a decrease of $3.0 million to the opening balance of net parent investment. Prior periods have not been retrospectively adjusted.

There were no material contract assets, contract liabilities or deferred contract costs recorded on the consolidated balance sheet as of December 30, 2018. For each of our primary revenue streams, cash flows are consistent with the timing of revenue recognition.

For the fiscal year ended December 30, 2018, revenue recognized from performance obligations related to prior periods was not material. Revenue expected to be recognized in any future year related to remaining performance obligations, excluding revenue pertaining to contracts that have an original expected duration of one year or less and contracts where revenue is recognized as invoiced, is not material.

Revenue is recognized when control of the promised goods or services are transferred to customers in an amount that reflects the consideration that the Company expects to receive in exchange for those goods or services. The Company generates its revenues from contracts with customers. In contracts with multiple performance obligations, the Company identifies each performance obligation and evaluates whether the performance obligations are distinct within the context of the contract at contract inception. Performance obligations that are not distinct at contract inception are combined. The Company allocates the transaction price to each distinct performance obligation proportionately based on the estimated standalone selling price for each performance obligation. The Company then determines how the goods or services are transferred to the customer in order to determine the timing of revenue recognition.

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TABLE OF CONTENTS

Insurance Auto Auctions, Inc.
Notes to Consolidated Financial Statements
December 30, 2018, December 31, 2017 and January 1, 2017

The performance obligation contained within the IAA auction contracts for sellers is facilitating the remarketing of salvage vehicles, including the inbound tow, processing, storage, titling, enhancing and sale at auction. The remarketing performance obligation is satisfied at the point in time the vehicle is sold through the auction process. Related costs are deferred and recognized at the time of sale.

Contracts with buyers are generally established via purchase at auction, subject to standard terms and conditions. These contracts contain a single performance obligation, which is satisfied at a point in time when the vehicle is purchased through the auction process. Buyers pay a registration fee to access the auctions for a one-year term in addition to the fees paid upon purchase of a vehicle. The performance obligation to provide access to the auctions, associated with the registration, is satisfied ratably over the one-year contractual term of the buyer agreement.

Most of the vehicles that are sold through auctions are consigned to IAA by the seller and held at IAA’s facilities. IAA does not take title to these consigned vehicles and records only its auction fees as revenue because it has no influence on the vehicle auction selling price agreed to by the seller and the buyer at the auction. Our buyer fees are typically based on a tiered structure with fees increasing with the sale price of the vehicle, while seller fees are typically fixed. IAA generally enforces its rights to payment for seller transactions through net settlement provisions following the sale of a vehicle.

Income Taxes

We file federal, state and foreign income tax returns in accordance with the applicable rules of each jurisdiction. We account for income taxes under the asset and liability method in accordance with ASC 740, Income Taxes . The provision for income taxes includes federal, foreign, state and local income taxes payable, as well as deferred taxes. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable amounts in periods in which those temporary differences are expected to be recovered or settled. If it is more likely than not that some portion or all of a deferred tax asset will not be realized, a valuation allowance is recognized.

We recognize the effect of income tax positions only if those positions are more likely than not of being sustained. Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs.

Accounting for Stock-Based Compensation

The Company accounts for stock-based compensation under ASC 718, Compensation—Stock Compensation . We recognize all stock-based compensation as expense in the financial statements over the vesting period and that cost is measured as the fair value of the award at the grant date for equity-classified awards. We also recognize the impact of forfeitures as they occur and excess tax benefits and tax deficiencies related to employee stock-based compensation within income tax expense.

Customer Concentration

The auction of each salvage vehicle includes a sell fee paid by the provider and a buy fee paid by the purchaser of the vehicle. No single provider customer or buyer customer accounted for more than 10% of consolidated revenues.

Concentrations of Credit Risk

Financial instruments that potentially subject us to credit risk consist principally of trade receivables. We maintain cash and cash equivalents with various major financial institutions. We perform periodic evaluations of the relative credit standing of these financial institutions and companies and limit the amount of credit exposure with any one institution. Cash and cash equivalents include interest-bearing investments with maturities of three

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TABLE OF CONTENTS

Insurance Auto Auctions, Inc.
Notes to Consolidated Financial Statements
December 30, 2018, December 31, 2017 and January 1, 2017

months or less. Due to the nature of our business, substantially all trade receivables are due from vehicle dealers, salvage buyers and insurance companies. We have possession of vehicles or vehicle titles collateralizing a significant portion of the trade receivables. The risk associated with this concentration is limited due to the large number of accounts and their geographic dispersion.

Financial Instruments

The carrying amounts of trade receivables, other current assets, accounts payable and accrued expenses approximate fair value because of the short-term nature of those instruments.

Parent Equity

Parent Equity on the Consolidated Balance Sheets represents KAR’s net investment in IAA and is presented as “Net Parent Investment” in lieu of stockholder’s equity. The Consolidated Statements of Parent Equity include net cash transfers and other property transfers between KAR and IAA. KAR performs cash management and other treasury related functions on a centralized basis for nearly all of its legal entities, which includes IAA. The Net Parent Investment account includes assets and liabilities incurred by KAR on behalf of IAA, such as accrued liabilities related to corporate allocations including administrative expenses for accounting, treasury, information technology risk management, safety and security, human resources and other services. Other assets and liabilities recorded by KAR, whose related income and expenses have been pushed down to IAA, are also included in Net Parent Investment.

All intercompany transactions effected through Net Parent Investment in the accompanying Consolidated Balance Sheets were considered cash receipts and payments and are reflected in financing activities in the accompanying Consolidated Statements of Cash Flows.

Earnings per share data is not presented in the accompanying consolidated financial statements because IAA does not operate as a separate legal entity with its own capital structure.

New Accounting Standards

In May 2017, the FASB issued ASU 2017-09, Compensation—Stock Compensation (Topic 718): Scope of Modification Accounting, which clarifies when changes to the terms or conditions of a share-based payment award must be accounted for as modifications. The new guidance is expected to reduce diversity in practice and result in fewer changes to the terms of an award being accounted for as modifications. Changes that do not impact the fair value, vesting conditions or classification of an award will not require modification accounting. The Company adopted ASU 2017-09 in the first quarter of 2018 and the adoption did not have a material impact on the consolidated financial statements.

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments , which provides guidance on the statement of cash flows presentation of certain transactions where diversity in practice exists. The Company adopted ASU 2016-15 in the first quarter of 2018 and the adoption did not have a material impact on the consolidated financial statements.

In August 2018, the FASB issued ASU 2018-15, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract , which aligns the requirements for capitalizing implementation costs incurred in a cloud computing arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The new guidance is effective for annual periods beginning after December 15, 2019, including interim periods within those fiscal years. The Company is currently evaluating the impact the adoption of ASU 2018-15 will have on the consolidated financial statements.

In January 2017, the FASB issued ASU 2017-04, Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment, which simplifies the test for goodwill impairment by eliminating Step 2 (implied fair value measurement). Instead goodwill impairment would be measured as the amount by which a reporting

F-14

TABLE OF CONTENTS

Insurance Auto Auctions, Inc.
Notes to Consolidated Financial Statements
December 30, 2018, December 31, 2017 and January 1, 2017

unit’s carrying amount exceeds its fair value, not to exceed the carrying amount of goodwill. The new guidance is effective for annual periods beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted. We do not expect the adoption of ASU 2017-04 will have a material impact on the consolidated financial statements.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) , which replaces existing lease guidance. The ASU is intended to provide enhanced transparency and comparability by requiring lessees to record right-of-use assets and corresponding lease liabilities on the balance sheet, with an exception for leases that meet the definition of a short-term lease. The new guidance will continue to classify leases as either finance or operating, with classification affecting the pattern of expense recognition in the statement of income. The new guidance is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. As permitted by ASU 2018-11, Leases (Topic 842): Targeted Improvements , the Company expects to apply the new standard at the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption relating to the derecognition of existing liabilities and assets associated with certain sale leaseback transactions that currently do not qualify for sale accounting. In addition, the Company currently expects to recognize additional operating liabilities of approximately $600 million with corresponding right of use assets based on the present value of the remaining minimum rental payments for existing operating leases.

Note 3—Acquisitions

2017 Acquisition

In December 2017, IAA acquired the assets of POIS, Inc. for approximately $0.9 million. POIS provides loan payoff and lien release technology with a focus on helping insurance companies settle liens faster to improve cycle time/inventory turns. The purchased assets included software, which is being amortized over its expected useful life. Financial results for the acquisition have been included in our consolidated financial statements from the date of acquisition. The financial impact of this acquisition, including pro forma financial results, was immaterial to IAA’s consolidated results for the fiscal year ended December 31, 2017.

2016 Acquisition

In August 2016, HBC Vehicle Services Limited acquired the stock of Gilbert Mitchell Ltd. (“GML”) for approximately $1.1 million. GML supplied drivers for HBC’s transportation of salvage vehicles. The acquisition resulted in goodwill of approximately $0.9 million. Financial results for the acquisition have been included in our consolidated financial statements from the date of acquisition. The financial impact of this acquisition, including pro forma financial results, was immaterial to IAA’s consolidated results for the fiscal year ended January 1, 2017.

Note 4—Stock and Stock-Based Compensation Plans

Under KAR’s long-term incentive plans, KAR common stock and restricted stock have been made available for grant, at the discretion of the Compensation Committee of KAR’s Board of Directors, to executive officers and key employees of IAA in the form of stock options, performance-based restricted stock units (“PRSUs”) and service-based restricted stock units (“RSUs”). IAA’s stock-based compensation expense has included expense associated with KAR PRSUs, RSUs, service options and exit options. We have determined that the PRSUs, RSUs, service options and exit options should be classified as equity awards.

The compensation cost that was charged against income for all stock-based compensation plans was $3.8 million, $3.8 million and $2.5 million for the fiscal years ended December 30, 2018, December 31, 2017 and January 1, 2017, respectively, and the total income tax benefit recognized in the consolidated statement of income for options, PRSUs and RSUs was approximately $0.9 million for the fiscal years ended December 30, 2018, December 31, 2017 and January 1, 2017. We did not capitalize any stock-based compensation cost in the fiscal years ended December 30, 2018, December 31, 2017 or January 1, 2017.

F-15

TABLE OF CONTENTS

Insurance Auto Auctions, Inc.
Notes to Consolidated Financial Statements
December 30, 2018, December 31, 2017 and January 1, 2017

The following table summarizes our stock-based compensation expense by type of award ( in millions ):

 
Fiscal Year
ended
December 30,
2018
Fiscal Year
ended
December 31,
2017
Fiscal Year
ended
January 1,
2017
PRSUs
$
1.2
 
$
1.3
 
$
0.7
 
RSUs
 
2.5
 
 
2.3
 
 
1.6
 
Service options
 
0.1
 
 
0.2
 
 
0.2
 
Total stock-based compensation expense
$
3.8
 
$
3.8
 
$
2.5
 

PRSUs

In 2018, KAR granted a target amount of approximately 20,000 PRSUs to certain executive officers and management of IAA. The PRSUs vest if and to the extent that KAR’s three-year cumulative operating adjusted net income per share attains certain specified goals. The weighted average grant date fair value of the PRSUs was $54.11 per share, which was determined using the closing price of KAR’s common stock on the grant dates.

In 2017, KAR granted a target amount of approximately 23,000 PRSUs to certain executive officers and management of IAA. The PRSUs vest if and to the extent that KAR’s three-year cumulative operating adjusted net income per share attains certain specified goals. The weighted average grant date fair value of the PRSUs was $44.49 per share, which was determined using the closing price of KAR’s common stock on the grant dates.

In 2016, KAR granted a target amount of approximately 28,000 PRSUs to certain executive officers and management of IAA. The PRSUs vest if and to the extent that KAR’s three-year cumulative operating adjusted net income per share attains certain specified goals. The weighted average grant date fair value of the PRSUs was $34.73 per share, which was determined using the closing price of KAR’s common stock on the grant dates.

In 2015, KAR granted a target amount of approximately 26,000 PRSUs to certain executive officers and management of IAA. The PRSUs vested in 2018 based on attainment of KAR’s three-year cumulative adjusted net income per share goals. The weighted average grant date fair value of the PRSUs was $37.02 per share, which was determined using the closing price of KAR’s common stock on the grant dates.

The fair value of PRSUs vested during the fiscal year ended December 30, 2018 was $1.1 million. There were no PRSU vestings during the fiscal years ended December 31, 2017 and January 1, 2017. As of December 30, 2018, an estimated $1.1 million of unrecognized compensation expense related to non-vested PRSUs is expected to be recognized over a weighted average term of approximately 1.7 years. Dividend equivalents accrue on the PRSUs and are subject to the same vesting and forfeiture terms as the PRSUs.

RSUs

In 2018, 2017 and 2016, approximately 54,000, 59,000 and 76,000, respectively, RSUs were granted to certain executive officers and management of IAA. The RSUs are contingent upon continued employment and generally vest in three equal annual installments. The fair value of RSUs is the value of KAR’s common stock at the date of grant and the weighted average grant date fair value of the RSUs was $54.14 per share, $44.48 per share and $34.77 per share in 2018, 2017 and 2016, respectively. Dividend equivalents accrue on the RSUs and are subject to the same vesting and forfeiture terms as the RSUs.

F-16

TABLE OF CONTENTS

Insurance Auto Auctions, Inc.
Notes to Consolidated Financial Statements
December 30, 2018, December 31, 2017 and January 1, 2017

The following table summarizes RSU activity, excluding dividend equivalents, for the fiscal year ended December 30, 2018:

Restricted Stock Units
Number
Weighted
Average Grant
Date Fair
Value
RSUs at January 1, 2018
 
123,625
 
$
39.67
 
Transfers
 
(269
)
 
N/M
 
Granted
 
54,014
 
 
54.14
 
Vested
 
(63,356
)
 
38.69
 
Forfeited
 
(3,153
)
 
43.56
 
RSUs at December 30, 2018
 
110,861
 
$
47.18
 

The fair value of RSUs vested during the fiscal years ended December 30, 2018, December 31, 2017 and January 1, 2017 was $3.4 million, $2.0 million and $0.8 million, respectively. As of December 30, 2018, there was approximately $3.0 million of unrecognized compensation expense related to non-vested RSUs which is expected to be recognized over a weighted average term of 1.8 years.

Service Options

The outstanding service options have a ten-year life and are fully vested and exercisable.

Service Options Summary

The following table summarizes service option activity for the fiscal year ended December 30, 2018:

Service Options
Number
Weighted
Average
Exercise
Price
Weighted
Average
Remaining
Contractual
Term
Average
Intrinsic
Value
(in millions)
Outstanding at January 1, 2018
 
117,235
 
$
22.77
 
 
 
 
 
 
 
Transfers
 
(710
)
 
N/M
 
 
 
 
 
 
 
Granted
 
—
 
 
N/A
 
 
 
 
 
 
 
Exercised
 
(19,758
)
 
23.97
 
 
 
 
 
 
 
Forfeited
 
(1,140
)
 
30.44
 
 
 
 
 
 
 
Canceled/Expired
 
(1,124
)
 
16.39
 
 
 
 
 
 
 
Outstanding at December 30, 2018
 
94,503
 
$
22.50
 
3.8 years
$
2.3
 
Exercisable at December 30, 2018
 
94,503
 
$
22.50
 
3.8 years
$
2.3
 

The intrinsic value presented in the table above represents the amount by which the market value of the underlying stock exceeds the exercise price of the option at December 30, 2018. The intrinsic value changes continuously based on the fair value of KAR’s stock. The market value is based on KAR’s closing stock price of $46.64 on December 28, 2018 (last trading day of fiscal 2018). The total intrinsic value of service options exercised during the fiscal years ended December 30, 2018, December 31, 2017 and January 1, 2017 was $0.6 million, $2.1 million and $1.5 million, respectively. All compensation expense related to the service options has been recognized.

Exit Options

The outstanding exit options have a ten-year life and are fully vested and exercisable.

F-17

TABLE OF CONTENTS

Insurance Auto Auctions, Inc.
Notes to Consolidated Financial Statements
December 30, 2018, December 31, 2017 and January 1, 2017

Exit Options Summary

The following table summarizes exit option activity for the fiscal year ended December 30, 2018:

Exit Options
Number
Weighted
Average
Exercise
Price
Weighted
Average
Remaining
Contractual
Term
Average
Intrinsic
Value
(in millions)
Outstanding at January 1, 2018
 
39,921
 
$
14.88
 
 
 
 
 
 
 
Transfers
 
(793
)
 
N/M
 
 
 
 
 
 
 
Granted
 
—
 
 
N/A
 
 
 
 
 
 
 
Exercised
 
(21,289
)
 
16.03
 
 
 
 
 
 
 
Forfeited
 
—
 
 
N/A
 
 
 
 
 
 
 
Canceled/Expired
 
(3,374
)
 
16.39
 
 
 
 
 
 
 
Outstanding at December 30, 2018
 
14,465
 
$
12.86
 
1.0 year
$
0.5
 
Exercisable at December 30, 2018
 
14,465
 
$
12.86
 
1.0 year
$
0.5
 

The intrinsic value presented in the table above represents the amount by which the market value of the underlying stock exceeds the exercise price of the option at December 30, 2018. The intrinsic value changes continuously based on the fair value of KAR’s stock. The market value is based on KAR’s closing stock price of $46.64 on December 28, 2018 (last trading day of fiscal 2018). The total intrinsic value of exit options exercised during the fiscal years ended December 30, 2018, December 31, 2017 and January 1, 2017 was $0.9 million, $6.6 million and $5.1 million, respectively. All compensation expense related to the exit options was recognized prior to 2015.

KAR Employee Stock Purchase Plan

Employees of IAA are eligible to participate in the KAR Employee Stock Purchase Plan (“ESPP”). A maximum of 1,000,000 shares of KAR’s common stock have been reserved for issuance under the ESPP, of which 370,738 shares remained available for future ESPP purchases as of December 30, 2018. The ESPP provides for one month offering periods with a 15% discount from the fair market value of a share on the date of purchase. A participant’s annual contribution to the ESPP may not exceed $25,000 per year. Unless terminated earlier, the ESPP will terminate on December 31, 2028. In accordance with ASC 718, Compensation—Stock Compensation , the entire 15% purchase discount is recorded as compensation expense.

Note 5—Allowance for Doubtful Accounts

The following is a summary of changes in the allowance for doubtful accounts related to trade receivables ( in millions ):

 
Fiscal Year
ended
December 30,
2018
Fiscal Year
ended
December 31,
2017
Fiscal Year
ended
January 1,
2017
Allowance for Doubtful Accounts
 
 
 
 
 
 
 
 
 
Balance at beginning of period
$
2.1
 
$
2.0
 
$
1.7
 
Provision for credit losses
 
2.2
 
 
0.6
 
 
1.5
 
Less net charge-offs
 
(1.0
)
 
(0.5
)
 
(1.2
)
Balance at end of period
$
3.3
 
$
2.1
 
$
2.0
 

Recoveries of trade receivables were netted with charge-offs, as they were not material. Changes in the Canadian exchange rate did not have a material effect on the allowance for doubtful accounts.

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TABLE OF CONTENTS

Insurance Auto Auctions, Inc.
Notes to Consolidated Financial Statements
December 30, 2018, December 31, 2017 and January 1, 2017

Note 6—Goodwill and Other Intangible Assets

Goodwill consisted of the following ( in millions ):

 
United
States
International
Total
Balance at January 1, 2017
$
486.5
 
$
43.8
 
$
530.3
 
Increase for acquisition activity
 
—
 
 
—
 
 
—
 
Other
 
—
 
 
3.3
 
 
3.3
 
Balance at December 31, 2017
$
486.5
 
$
47.1
 
$
533.6
 
Increase for acquisition activity
 
—
 
 
—
 
 
—
 
Other
 
—
 
 
(3.4
)
 
(3.4
)
Balance at December 30 , 2018
$
486.5
 
$
43.7
 
$
53 0.2
 

Goodwill represents the excess cost over fair value of identifiable net assets of businesses acquired. The changes to goodwill in 2018 and 2017 were the result of the impact of fluctuations in exchange rates.

A summary of customer relationships is as follows ( in millions ):

 
 
December 30 , 2018
December 31 , 2017
 
Useful
Lives
(in years)
Gross
Carrying
Amount
Accumulated
Amortization
Carrying
Value
Gross
Carrying
Amount
Accumulated
Amortization
Carrying
Value
Customer relationships
5 - 19
$
361.5
 
$
( 286.7
)
$
74.8
 
$
364.4
 
$
(262.8
)
$
101.6
 

The decrease in the carrying value of customer relationships in 2018 was primarily related to the amortization of existing customer relationships.

A summary of other intangibles is as follows ( in millions ):

 
 
December 30 , 2018
December 31 , 2017
 
Useful Lives
(in years)
Gross
Carrying
Amount
Accumulated
Amortization
Carrying
Value
Gross
Carrying
Amount
Accumulated
Amortization
Carrying
Value
Tradenames
2 - Indefinite
$
57.8
 
$
( 1.7
)
$
56.1
 
$
57.8
 
$
(1.4
)
$
56.4
 
Computer software & technology
3 - 13
 
161.9
 
 
( 132.0
)
 
29.9
 
 
144.0
 
 
(114.9
)
 
29.1
 
Covenants not to compete
1 - 5
 
14.6
 
 
( 14.5
)
 
0.1
 
 
14.7
 
 
(14.4
)
 
0.3
 
Total
 
$
234.3
 
$
( 148.2
)
$
86.1
 
$
216.5
 
$
(130.7
)
$
85.8
 

Other intangibles increased in 2018 primarily as a result of computer software additions, partially offset by the amortization of existing intangibles. The carrying amount of tradenames with an indefinite life was $56.0 million at December 30, 2018 and December 31, 2017.

Amortization expense for customer relationships and other intangibles was $43.6 million, $43.9 million, $43.3 million for the fiscal years ended December 30, 2018, December 31, 2017 and January 1, 2017, respectively. Estimated amortization expense on existing intangible assets for the next five years is $40.4 million for 2019, $23.7 million for 2020, $14.5 million for 2021, $10.1 million for 2022 and $8.7 million for 2023.

F-19

TABLE OF CONTENTS

Insurance Auto Auctions, Inc.
Notes to Consolidated Financial Statements
December 30, 2018, December 31, 2017 and January 1, 2017

Note 7—Property and Equipment

Property and equipment consisted of the following ( in millions ):

 
Useful
Lives
(in years)
December 30,
2018
December 31,
2017
Land
 
 
 
$
50.8
 
$
25.5
 
Building and leasehold improvements
3 - 40
 
429.6
 
 
356.7
 
Furniture, fixtures, equipment and vehicles
1 - 10
 
230.8
 
 
210.8
 
Construction in progress
 
 
23.2
 
 
39.5
 
 
 
 
734.4
 
 
632.5
 
Accumulated depreciation
 
 
(389.2
)
 
(342.5
)
Property and equipment, net
 
$
345.2
 
$
290.0
 

We have acquired furniture, fixtures and equipment by undertaking capital lease obligations. Assets held under the capital leases are depreciated in a manner consistent with our depreciation policy for owned assets. The assets included above that are held under capital leases are summarized below ( in millions ):

Classes of Property
December 30 ,
2018
December 31 ,
2017
Furniture, fixtures and equipment
$
123.9
 
$
109.8
 
Accumulated depreciation
 
( 86.0
)
 
(73.4
)
Capital lease assets
$
37.9
 
$
36.4
 

Depreciation expense for the fiscal years ended December 30, 2018, December 31, 2017 and January 1, 2017 was $53.8 million, $49.2 million and $44.6 million, respectively.

Note 8—Leasing Agreements

We lease property, computer equipment and software, automobiles, trucks and trailers, pursuant to operating lease agreements with terms expiring through 2038. Some of the leases contain renewal provisions upon the expiration of the initial lease term, as well as fair market value purchase provisions. In accordance with ASC 840, Leases , rent expense is being recognized ratably over the lease period, including those leases containing escalation clauses. The difference between the required lease payments and rent expense is recorded as “Deferred rent” on the consolidated balance sheet.

We also lease furniture, fixtures and equipment under capital leases. The economic substance of the leases is that we are financing the purchase of furniture, fixtures and equipment through leases and, accordingly, they are recorded as assets and liabilities. The capital lease liabilities are included in “Other accrued expenses” and “Other liabilities” on the consolidated balance sheet. Depreciation expense includes the amortization of assets held under capital leases.

Total future minimum lease payments for non-cancelable operating and capital leases with terms in excess of one year (excluding renewal periods) as of December 30, 2018 are as follows ( in millions ):

 
Operating
Leases
Capital
Leases
2019
$
97.2
 
$
15.2
 
2020
 
87.1
 
 
9.7
 
2021
 
81.1
 
 
4.4
 
2022
 
73.6
 
 
—
 
2023
 
64.4
 
 
—
 
Thereafter
 
526.9
 
 
—
 
 
$
930.3
 
$
29.3
 
Less: interest portion of capital leases
 
 
 
 
1.5
 
Total
 
 
 
$
27.8
 

F-20

TABLE OF CONTENTS

Insurance Auto Auctions, Inc.
Notes to Consolidated Financial Statements
December 30, 2018, December 31, 2017 and January 1, 2017

Total lease expense for the fiscal years ended December 30, 2018, December 31, 2017 and January 1, 2017 was $122.4 million, $108.6 million and $87.4 million, respectively.

Note 9—Income Taxes

IAA has historically been included in the consolidated income tax returns of KAR. IAA’s income taxes are computed and reported herein under the “separate return method” as if IAA were a separate taxpayer. Use of the separate return method requires significant judgment and may result in differences when the sum of the amounts presented in standalone tax provisions are compared with amounts presented in consolidated financial statements. In that event, the related current and deferred tax assets and liabilities could be significantly different from those presented herein. Taxes as computed under this separate taxpayer approach may not be indicative of the income tax expense or income tax to be paid had IAA operated as a standalone company.

The components of our income before income taxes and the provision for income taxes are as follows ( in millions ):

 
Fiscal Year
ended
December 30 ,
2018
Fiscal Year
ended
December 31 ,
2017
Fiscal Year
ended
January 1 ,
2017
Income before income taxes:
 
 
 
 
 
 
 
 
 
Domestic
$
218.0
 
$
175.2
 
$
134.2
 
Foreign
 
28.2
 
 
21.8
 
 
19.1
 
Total
$
246.2
 
$
197.0
 
$
153.3
 
Income tax expense (benefit):
 
 
 
 
 
 
 
 
 
Current:
 
 
 
 
 
 
 
 
 
Federal
$
45.2
 
$
43.3
 
$
47.6
 
Foreign
 
8.3
 
 
6.6
 
 
6.2
 
State
 
11.9
 
 
6.9
 
 
6.9
 
Total current provision
 
65.4
 
 
56.8
 
 
60.7
 
Deferred:
 
 
 
 
 
 
 
 
 
Federal
 
( 1.3
)
 
(22.9
)
 
(1.2
)
Foreign
 
( 0.5
)
 
(0.8
)
 
(0.9
)
State
 
(1.1
)
 
2.5
 
 
(0.2
)
Total deferred provision
 
( 2.9
)
 
(21.2
)
 
(2.3
)
Income tax expense
$
62.5
 
$
35.6
 
$
58.4
 

The provision for income taxes was different from the U.S. federal statutory rate applied to income before taxes, and is reconciled as follows:

 
Fiscal Year
ended
December 30,
2018
Fiscal Year
ended
December 31,
2017
Fiscal Year
ended
January 1,
2017
Statutory rate
 
21.0
%
 
35.0
%
 
35.0
%
State and local income taxes, net
 
3.3
%
 
2.7
%
 
2.6
%
Reserves for tax exposures
 
0.3
%
 
0.4
%
 
0.3
%
International operations
 
0.9
%
 
(1.8
)%
 
(0.2
)%
Stock-based compensation
 
(0.2
)%
 
(1.0
)%
 
—
%
Impact of law and rate change
 
—
%
 
(17.7
)%
 
—
%
Other, net
 
0.1
%
 
0.5
%
 
0.4
%
Effective rate
 
25.4
%
 
18.1
%
 
38.1
%

F-21

TABLE OF CONTENTS

Insurance Auto Auctions, Inc.
Notes to Consolidated Financial Statements
December 30, 2018, December 31, 2017 and January 1, 2017

On December 22, 2017, U.S. tax reform (“TCJA”) was enacted. The law includes significant changes to the U.S. corporate income tax system, including a Federal corporate income tax rate reduction from 35 percent to 21 percent effective for tax years beginning after December 31, 2017. As a result, for the fiscal year ended December 31, 2017, the Company recorded a deferred income tax benefit of $37.0 million related to the remeasurement of its deferred tax assets and liabilities. In addition, the law imposed a one-time deemed repatriation transition tax on the accumulated unrepatriated and untaxed earnings of our foreign subsidiaries. This resulted in the Company recording a current tax expense of $2.2 million for the fiscal year ended December 31, 2017.

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. We believe that it is more likely than not that the results of future operations will generate sufficient taxable income to realize the net deferred tax assets.

We offset all deferred tax assets and liabilities by jurisdiction, as well as any related valuation allowance, and present them as a single noncurrent deferred income tax liability. Deferred tax assets (liabilities) are comprised of the following ( in millions ):

 
December 30 ,
2018
December 31 ,
2017
Gross deferred tax assets:
 
 
 
 
 
 
Allowances for trade and finance receivables
$
0.6
 
$
0.4
 
Accruals and liabilities
 
50.1
 
 
38.6
 
Employee benefits and compensation
 
4.1
 
 
3.9
 
Other
 
1.8
 
 
1.8
 
Total deferred tax assets
 
56.6
 
 
44.7
 
Deferred tax asset valuation allowance
 
—
 
 
—
 
Total
 
56.6
 
 
44.7
 
Gross deferred tax liabilities:
 
 
 
 
 
 
Property and equipment
 
( 43.4
)
 
(33.1
)
Goodwill and intangible assets
 
( 64.8
)
 
(67.4
)
Other
 
( 11.5
)
 
(11.4
)
Total
 
( 119.7
)
 
(111.9
)
Net deferred tax liabilities
$
( 63.1
)
$
(67.2
)

Permanently reinvested undistributed earnings of our foreign subsidiaries were approximately $60.7 million at December 30, 2018. Because these amounts have been or will be permanently reinvested in properties and working capital, we have not recorded the deferred taxes associated with these earnings. If the undistributed earnings of foreign subsidiaries were to be remitted, state and local income tax expense and withholding tax expense would need to be recognized, net of any applicable foreign tax credits. It is not practical for us to determine the additional tax that would be incurred upon remittance of these earnings.

Tax payments made by KAR, related to IAA, for the fiscal years ended December 30, 2018, December 31, 2017 and January 1, 2017 were $65.4 million, $56.8 million and $60.7 million, respectively.

We apply the provisions of ASC 740, Income Taxes . ASC 740 clarifies the accounting and reporting for uncertainty in income taxes recognized in an enterprise’s financial statements. These provisions prescribe a comprehensive model for the financial statement recognition, measurement, presentation and disclosure of uncertain tax positions taken or expected to be taken on income tax returns.

F-22

TABLE OF CONTENTS

Insurance Auto Auctions, Inc.
Notes to Consolidated Financial Statements
December 30, 2018, December 31, 2017 and January 1, 2017

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows ( in millions ):

 
December 30 ,
2018
Dec ember 31 ,
2017
Balance at beginning of period
$
2.0
 
$
1.3
 
Increase in prior year tax positions
 
—
 
 
—
 
Decrease in prior year tax positions
 
—
 
 
—
 
Increase in current year tax positions
 
1.0
 
 
0.7
 
Settlements
 
—
 
 
—
 
Lapse in statute of limitations
 
—
 
 
—
 
Balance at end of period
$
3.0
 
$
2.0
 

The total amount of unrecognized tax benefits that, if recognized, would affect our effective tax rate was $2.5 million and $1.7 million at December 30, 2018 and December 31, 2017, respectively.

We record interest and penalties associated with the uncertain tax positions within our provision for income taxes on the income statement. We had reserves totaling $0.1 million at December 30, 2018 and December 31, 2017, associated with interest and penalties, net of tax.

The provision for income taxes involves management judgment regarding interpretation of relevant facts and laws in the jurisdictions in which the Company operates. Future changes in applicable laws, projected levels of taxable income and tax planning could change the effective tax rate and tax balances recorded by us. In addition, U.S. and non-U.S. tax authorities periodically review income tax returns filed by us and can raise issues regarding our filing positions, timing and amount of income or deductions and the allocation of income among the jurisdictions in which we operate. A significant period of time may elapse between the filing of an income tax return and the ultimate resolution of an issue raised by a revenue authority with respect to that return. In the normal course of business we are subject to examination by taxing authorities in the United States, Canada and United Kingdom. In general, the examination of our material tax returns is completed for the years prior to 2012.

Based on the potential outcome of the Company’s tax examinations and the expiration of the statute of limitations for specific jurisdictions, it is reasonably possible that the currently remaining unrecognized tax benefits will change within the next 12 months. The associated net tax impact on the reserve balance is estimated to be in the range of a $0 million to $0.6 million decrease.

Note 10—Employee Benefit Plans

401(k) Plan

Employees of IAA are eligible to participate in the KAR 401(k) Plan. KAR maintains a defined contribution 401(k) plan that covers substantially all U.S. employees. Participants are generally allowed to make non-forfeitable contributions up to the annual IRS limits. KAR matches 100 percent of the amounts contributed by each individual participant up to 4 percent of the participant’s compensation. Participants are 100 percent vested in the employer contributions. For the fiscal years ended December 30, 2018, December 31, 2017 and January 1, 2017 KAR contributed $4.3 million, $3.7 million and $3.3 million, respectively, related to participating employees of IAA.

Note 11—Commitments and Contingencies

We are involved in litigation and disputes arising in the ordinary course of business, such as actions related to injuries; property damage; handling, storage or disposal of vehicles; environmental laws and regulations; and other litigation incidental to the business, such as employment matters and dealer disputes. Management considers the likelihood of loss or the incurrence of a liability, as well as the ability to reasonably estimate the amount of loss, in determining loss contingencies. We accrue an estimated loss contingency when it is probable that a liability has been incurred and the amount of loss (or range of possible losses) can be reasonably estimated. Management regularly evaluates current information available to determine whether accrual amounts

F-23

TABLE OF CONTENTS

Insurance Auto Auctions, Inc.
Notes to Consolidated Financial Statements
December 30, 2018, December 31, 2017 and January 1, 2017

should be adjusted. Accruals for contingencies, including litigation and environmental matters, are included in “Other accrued expenses” at undiscounted amounts and exclude claims for recoveries from insurance or other third parties. These accruals are adjusted periodically as assessment and remediation efforts progress, or as additional technical or legal information becomes available. If the amount of an actual loss is greater than the amount accrued, this could have an adverse impact on our operating results in that period. Legal fees are expensed as incurred.

We accrue, as appropriate, for environmental remediation costs anticipated to be incurred at certain of our auction facilities. There were no liabilities for environmental matters included in “Other accrued expenses” at December 30, 2018 and December 31, 2017.

We store a significant number of vehicles owned by various customers that are consigned to us to be auctioned. We are contingently liable for each consigned vehicle until the eventual sale or other disposition, subject to certain natural disaster exceptions. Individual stop loss and aggregate insurance coverage is maintained on the consigned vehicles. These consigned vehicles are not included in the consolidated balance sheets.

In the normal course of business, we also enter into various other guarantees and indemnities in our relationships with suppliers, service providers, customers and others. These guarantees and indemnifications do not materially impact our financial condition or results of operations, but indemnifications associated with our actions generally have no dollar limitations and historically have been inconsequential.

As noted above, we are involved in litigation and disputes arising in the ordinary course of business, such as actions related to injuries; property damage; handling, storage or disposal of vehicles; environmental laws and regulations; and other litigation incidental to the business, such as employment matters and dealer disputes. Such litigation is generally not, in the opinion of management, likely to have a material adverse effect on our financial condition, results of operations or cash flows. Legal and regulatory proceedings which could be material are discussed below.

IAA—Lower Duwamish Waterway

Since June 2004, IAA has operated a branch on property it leases in Tukwila, Washington just south of Seattle. The property is located adjacent to a Superfund site known as the Lower Duwamish Waterway Superfund Site (“LDW Site”). The LDW Site had been designated a Superfund site in 2001, three years prior to IAA’s tenancy. On March 25, 2008, the United States Environmental Protection Agency, or the “EPA,” issued IAA a General Notice of Potential Liability, or “General Notice,” pursuant to Section 107(a), and a Request for Information pursuant to Section 104(e) of the Comprehensive Environmental Response, Compensation, and Liability Act, or “CERCLA,” related to the LDW Site. On November 7, 2012, the EPA issued IAA a Second General Notice of Potential Liability, or “Second General Notice,” for the LDW Site. The EPA’s website indicates that the EPA has issued general notice letters to approximately 116 entities, and has issued Section 104(e) Requests to more than 300 entities related to the LDW Site. In the General Notice and Second General Notice, the EPA informed IAA that the EPA believed IAA may be a Potentially Responsible Party, or “PRP,” but the EPA did not specify the factual basis for this assertion. At this time, the EPA still has not specified the factual basis for this assertion and has not demanded that IAA pay any funds or take any action apart from responding to the Section 104(e) Information Request. Four PRPs, The Boeing Company, the City of Seattle, the Port of Seattle and King County - the Lower Duwamish Waterway Group (“LDWG”), have funded a remedial investigation and feasibility study related to the cleanup of the LDW Site. In December 2014, the EPA issued a Record of Decision (“ROD”), detailing the final cleanup plan for the LDW Site. The ROD estimated the cost of cleanup to be $342 million, with the plan involving dredging of 105 acres, capping 24 acres, and enhanced natural recovery of 48 acres. The estimated length of the cleanup was 17 years, including 7 years of active remediation, and 10 years of monitored natural recovery. IAA is aware that certain authorities may bring natural resource damage claims against PRPs. On February 11, 2016, IAA received a Notice of Intent letter from the United States National Oceanic and Atmospheric Administration informing IAA that the Elliott Bay Trustee Council were beginning to conduct an injury assessment for natural resource damages in the LDW. The Notice of Intent indicated that the decision of the trustees to proceed with this natural resources injury assessment followed a pre-assessment screen performed by the trustees. Shortly thereafter, in a letter dated August 16, 2016, EPA issued a status update to the PRPs at

F-24

TABLE OF CONTENTS

Insurance Auto Auctions, Inc.
Notes to Consolidated Financial Statements
December 30, 2018, December 31, 2017 and January 1, 2017

the LDW Site. The letter stated that EPA expected the bulk of the pre-remedial design work currently being performed by the LDWG to be completed by the beginning of 2018, with the Remedial Design/Remedial Action (“RD/RA”) phase to follow. The EPA previously anticipated that the pre-design work would be completed sometime during 2018, and the Company is not aware of any further information regarding that schedule. Accordingly, RD/RA negotiations with all PRPs may begin sometime in 2019. At this time, the Company has not received any further notices from the EPA and does not have adequate information to determine IAA’s responsibility, if any, for contamination at this site, or to estimate IAA’s loss as a result of this potential liability.

In addition, the Washington State Department of Ecology (“Ecology”) is working with the EPA in relation to the LDW Site, primarily to investigate and address sources of potential contamination contributing to the LDW Site. In 2007, IAA installed a stormwater capture and filtration system designed to treat sources of potential contamination before discharge to the LDW Site. The immediate-past property owner, the former property owner and IAA have had discussions with Ecology concerning possible source control measures, including an investigation of the water and soils entering the stormwater system, an analysis of the source of contamination identified within the system, if any, and possible repairs and upgrades to the stormwater system if required. Additional source control measures, if any, are not expected to have a material adverse effect on future recurring operating costs.

Note 12—Relationship with Parent and Related Entities

Historically, IAA has been managed and operated in the normal course of business with other affiliates of KAR. Accordingly, certain shared costs have been allocated to IAA and reflected as expenses in the standalone consolidated financial statements. Management of KAR and IAA consider the allocation methodologies used to be reasonable and appropriate reflections of historical expenses of KAR attributable to IAA for purposes of the standalone financial statements; however, the expenses reflected in the consolidated financial statements may not be indicative of the actual expenses that would have been incurred during the periods presented if IAA historically operated as a separate, standalone entity. In addition, the expenses reflected in these consolidated financial statements may not be indicative of expenses that will be incurred in the future by IAA.

Transactions between KAR and IAA, with the exception of purchase transactions and reimbursements for payments made to third-party service providers by KAR on IAA’s behalf, are reflected in equity in the Consolidated Balance Sheets as “Net parent investment” and in the Consolidated Statements of Cash Flows as a financing activity in “Net transfers to parent and affiliates.”

Corporate Costs/Allocations

These consolidated financial statements include corporate costs incurred by KAR for services that are provided to or on behalf of IAA. These costs consist of allocated cost pools and identifiable costs. Corporate costs have been directly charged to, or allocated to, IAA using methods management believes are consistent and reasonable. IAA identifiable costs are recorded based on dedicated employee assignments. The method for allocating corporate function costs to IAA is based on various proportionate formulas involving allocation factors. The methods for allocating corporate administration costs to IAA are based on revenue, headcount or the proportion of related expenses. However, the expenses reflected in these consolidated financial statements may not be indicative of the actual expenses that would have been incurred during the periods presented if IAA historically operated as a separate, standalone entity. All corporate charges and allocations have been deemed paid by IAA to KAR in the period in which the cost was recorded in the Consolidated Statements of Income.

Allocated corporate costs included in selling, general and administrative expenses were $9.5 million, $6.2 million and $6.3 million for the fiscal years ended December 30, 2018, December 31, 2017 and January 1, 2017, respectively. The allocated corporate costs were associated with human resources, risk management, information technology and certain finance and other functions.

F-25

TABLE OF CONTENTS

Insurance Auto Auctions, Inc.
Notes to Consolidated Financial Statements
December 30, 2018, December 31, 2017 and January 1, 2017

Cash Management and Financing

KAR generally uses a centralized approach to cash management and financing its operations, including the operations of IAA. Accordingly, none of KAR’s corporate cash and cash equivalents has been allocated to IAA in these consolidated financial statements. Cash is transferred daily, based on IAA’s balances, to centralized accounts maintained by KAR. As cash is disbursed or received by KAR, it is accounted for by IAA through the Net Parent Investment.

Transactions with Other KAR Businesses

Throughout the periods covered by these consolidated financial statements, IAA purchased goods and services from KAR’s other businesses. The cost of products and services obtained from related parties was $2.3 million, $2.3 million and $1.3 million during 2018, 2017 and 2016, respectively.

Note 13—Segment Information

ASC 280, Segment Reporting , requires reporting of segment information that is consistent with the manner in which the chief operating decision maker operates and views the Company. Our operations are grouped into three operating segments: United States, Canada and United Kingdom. The operating segments represent geographic areas and reflect how the chief operating decision maker allocates resources and measures results. We have one reportable business segment: United States. Canada and United Kingdom do not meet the criteria to be considered reportable segments, but have been presented as “International” in the tables below to reconcile the amounts presented to consolidated totals.

Financial information for our reportable segment is set forth below as of and for the fiscal year ended December 30, 2018 ( in millions ):

 
United
States
International
Total
Operating revenues
$
1,185.1
 
$
141.7
 
$
1,326.8
 
Operating expenses
 
 
 
 
 
 
 
 
 
Cost of services (exclusive of depreciation and amortization)
 
726.9
 
 
94.3
 
 
821.2
 
Selling, general and administrative
 
111.9
 
 
11.9
 
 
123.8
 
Depreciation and amortization
 
90.5
 
 
6.9
 
 
97.4
 
Total operating expenses
 
929.3
 
 
113.1
 
 
1,042.4
 
Operating profit
 
255.8
 
 
28.6
 
 
284.4
 
Interest expense
 
38.6
 
 
0.1
 
 
38.7
 
Other income, net
 
(0.8
)
 
0.3
 
 
(0.5
)
Income before income taxes
 
218.0
 
 
28.2
 
 
246.2
 
Income taxes
 
54.7
 
 
7.8
 
 
62.5
 
Net income
$
163.3
 
$
20.4
 
$
183.7
 
Total assets
$
1,344.3
 
$
155.9
 
$
1,500.2
 
Capital expenditures
$
63.0
 
$
3.7
 
$
66.7
 

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TABLE OF CONTENTS

Insurance Auto Auctions, Inc.
Notes to Consolidated Financial Statements
December 30, 2018, December 31, 2017 and January 1, 2017

Financial information for our reportable segment is set forth below as of and for the fiscal year ended December 31, 2017 ( in millions ):

 
United
States
International
Total
Operating revenues
$
1,098.0
 
$
121.2
 
$
1,219.2
 
Operating expenses
 
 
 
 
 
 
 
 
 
Cost of services (exclusive of depreciation and amortization)
 
694.6
 
 
83.5
 
 
778.1
 
Selling, general and administrative
 
103.2
 
 
10.1
 
 
113.3
 
Depreciation and amortization
 
86.9
 
 
6.2
 
 
93.1
 
Total operating expenses
 
884.7
 
 
99.8
 
 
984.5
 
Operating profit
 
213.3
 
 
21.4
 
 
234.7
 
Interest expense
 
38.6
 
 
—
 
 
38.6
 
Other income, net
 
(0.5
)
 
(0.4
)
 
(0.9
)
Income before income taxes
 
175.2
 
 
21.8
 
 
197.0
 
Income taxes
 
29.8
 
 
5.8
 
 
35.6
 
Net income
$
145.4
 
$
16.0
 
$
161.4
 
Total assets
$
1,297.5
 
$
136.9
 
$
1,434.4
 
Capital expenditures
$
48.2
 
$
6.7
 
$
54.9
 

Financial information for our reportable segment is set forth below as of and for the fiscal year ended January 1, 2017 ( in millions ):

 
United
States
International
Total
Operating revenues
$
966.2
 
$
131.8
 
$
1,098.0
 
Operating expenses
 
 
 
 
 
 
 
 
 
Cost of services (exclusive of depreciation and amortization)
 
612.4
 
 
95.9
 
 
708.3
 
Selling, general and administrative
 
99.2
 
 
11.3
 
 
110.5
 
Depreciation and amortization
 
82.3
 
 
5.6
 
 
87.9
 
Total operating expenses
 
793.9
 
 
112.8
 
 
906.7
 
Operating profit
 
172.3
 
 
19.0
 
 
191.3
 
Interest expense
 
38.6
 
 
—
 
 
38.6
 
Other income, net
 
(0.5
)
 
(0.1
)
 
(0.6
)
Income before income taxes
 
134.2
 
 
19.1
 
 
153.3
 
Income taxes
 
53.1
 
 
5.3
 
 
58.4
 
Net income
$
81.1
 
$
13.8
 
$
94.9
 
Total assets
$
1,217.9
 
$
134.9
 
$
1,352.8
 
Capital expenditures
$
38.1
 
$
3.9
 
$
42.0
 

F-27

TABLE OF CONTENTS

Insurance Auto Auctions, Inc.
Notes to Consolidated Financial Statements
December 30, 2018, December 31, 2017 and January 1, 2017

Geographic Information

Our foreign operations include Canada and the United Kingdom. Most of our operations outside the United States are in Canada. Information regarding the geographic area of our long-lived assets is set forth below ( in millions ):

 
December 30 ,
2018
December 31 ,
2017
Long-lived assets
 
 
 
 
 
 
U.S.
$
1,009.4
 
$
974.0
 
Foreign
 
37.3
 
 
49.6
 
 
$
1,046.7
 
$
1,023.6
 

Note 14—Subsequent Events

These consolidated financial statements reflect management’s evaluation of subsequent events, through March 5, 2019, the date IAA’s consolidated financial statements were available to be issued.

F-28

TABLE OF CONTENTS

Insurance Auto Auctions, Inc.
Consolidated Statements of Income
(In millions)
(Unaudited)

 
Three Months
ended
March 31,
2019
Three Months
ended
April 1,
2018
Operating revenues
$
357.2
 
$
337.3
 
Operating expenses
 
 
 
 
 
 
Cost of services (exclusive of depreciation and amortization)
 
218.4
 
 
206.7
 
Selling, general and administrative
 
33.6
 
 
32.6
 
Depreciation and amortization
 
21.8
 
 
24.1
 
Total operating expenses
 
273.8
 
 
263.4
 
Operating profit
 
83.4
 
 
73.9
 
Interest expense
 
9.7
 
 
9.6
 
Other expense, net
 
0.1
 
 
—
 
Income before income taxes
 
73.6
 
 
64.3
 
Income taxes
 
19.1
 
 
16.0
 
Net income
$
54.5
 
$
48.3
 

See accompanying condensed notes to consolidated financial statements

F-29

TABLE OF CONTENTS

Insurance Auto Auctions, Inc.
Consolidated Statements of Comprehensive Income
(In millions)
(Unaudited)

 
Three Months
ended
March 31,
2019
Three Months
ended
April 1,
2018
Net income
$
54.5
 
$
48.3
 
Other comprehensive income (loss)
 
 
 
 
 
 
Foreign currency translation gain (loss)
 
2.5
 
 
(1.1
)
Comprehensive income
$
57.0
 
$
47.2
 

See accompanying condensed notes to consolidated financial statements

F-30

TABLE OF CONTENTS

Insurance Auto Auctions, Inc.
Consolidated Balance Sheets
(In millions)
(Unaudited)

 
March 31,
2019
December 30,
2018
Assets
 
 
 
 
 
 
Current assets
 
 
 
 
 
 
Cash and cash equivalents
$
66.2
 
$
60.0
 
Trade receivables, net of allowances of $4.0 and $3.3
 
337.9
 
 
311.0
 
Prepaid consigned vehicle charges
 
51.1
 
 
48.5
 
Other current assets
 
38.7
 
 
34.0
 
Total current assets
 
493.9
 
 
453.5
 
Other assets
 
 
 
 
 
 
Goodwill
 
531.1
 
 
530.2
 
Customer relationships, net of accumulated amortization of $293.6 and $286.7
 
68.6
 
 
74.8
 
Other intangible assets, net of accumulated amortization of $152.8 and $148.2
 
86.6
 
 
86.1
 
Operating lease right-of-use assets
 
625.7
 
 
—
 
Other assets
 
12.2
 
 
10.4
 
Total other assets
 
1,324.2
 
 
701.5
 
Property and equipment, net of accumulated depreciation of $341.3 and $389.2
 
198.5
 
 
345.2
 
Total assets
$
2,016.6
 
$
1,500.2
 
 
 
 
 
 
 
 
Liabilities and Equity
 
 
 
 
 
 
Current liabilities
 
 
 
 
 
 
Accounts payable
$
123.3
 
$
129.0
 
Accrued employee benefits and compensation expenses
 
19.1
 
 
29.6
 
Other accrued expenses
 
51.3
 
 
53.6
 
Income taxes payable
 
0.6
 
 
2.2
 
Short-term right-of-use operating lease liability
 
62.5
 
 
—
 
Current maturities of long-term debt
 
456.6
 
 
456.6
 
Total current liabilities
 
713.4
 
 
671.0
 
Noncurrent liabilities
 
 
 
 
 
 
Long-term debt
 
—
 
 
—
 
Deferred income tax liabilities
 
63.6
 
 
63.1
 
Deferred rent
 
—
 
 
186.8
 
Long-term right-of-use operating lease liability
 
607.2
 
 
—
 
Other liabilities
 
13.5
 
 
16.1
 
Total noncurrent liabilities
 
684.3
 
 
266.0
 
Commitments and contingencies (Note 4)
 
 
 
 
 
 
Parent Equity
 
 
 
 
 
 
Net parent investment
 
629.4
 
 
576.2
 
Accumulated other comprehensive loss
 
(10.5
)
 
(13.0
)
Total parent equity
 
618.9
 
 
563.2
 
Total liabilities and equity
$
2,016.6
 
$
1,500.2
 

See accompanying condensed notes to consolidated financial statements

F-31

TABLE OF CONTENTS

Insurance Auto Auctions, Inc.
Consolidated Statements of Parent Equity
(In millions)
(Unaudited)

 
Total
Net Parent
Investment
Accumulated
Other
Comprehensive
Loss
Balance at December 30, 2018
$
563.2
 
$
576.2
 
$
(13.0
)
Net income
 
54.5
 
 
54.5
 
 
—
 
Cumulative effect adjustment for adoption of ASC Topic 842, net of tax
 
1.1
 
 
1.1
 
 
—
 
Foreign currency translation adjustments
 
2.5
 
 
—
 
 
2.5
 
Stock-based compensation expense
 
1.0
 
 
1.0
 
 
—
 
Net transfer to parent and affiliates
 
(3.4
)
 
(3.4
)
 
—
 
Balance at March 31, 2019
$
618.9
 
$
629.4
 
$
(10.5
)
 
 
 
 
 
 
 
 
 
 
Balance at December 31, 2017
$
571.3
 
$
582.6
 
$
(11.3
)
Net income
 
48.3
 
 
48.3
 
 
—
 
Cumulative effect adjustment for adoption of ASC Topic 606, net of tax
 
(3.0
)
 
(3.0
)
 
—
 
Foreign currency translation adjustments
 
(1.1
)
 
—
 
 
(1.1
)
Stock-based compensation expense
 
0.9
 
 
0.9
 
 
—
 
Net transfer to parent and affiliates
 
(25.1
)
 
(25.1
)
 
—
 
Balance at April 1, 2018
$
591.3
 
$
603.7
 
$
(12.4
)

See accompanying condensed notes to consolidated financial statements

F-32

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Insurance Auto Auctions, Inc.
Consolidated Statements of Cash Flows
(In millions)
(Unaudited)

 
Three Months
ended
March 31,
2019
Three Months
ended
April 1,
2018
Operating activities
 
 
 
 
 
 
Net income
$
5 4.5
 
$
48.3
 
Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
 
 
Depreciation and amortization
 
21.8
 
 
24.1
 
Provision for credit losses
 
0.7
 
 
0.6
 
Deferred income taxes
 
(0.1
)
 
(0.3
)
Stock-based compensation
 
1.0
 
 
0.9
 
(Gain) loss on disposal of fixed assets
 
—
 
 
(0.1
)
Other, net
 
0.8
 
 
(0.2
)
Changes in operating assets and liabilities, net of acquisitions:
 
 
 
 
 
 
Trade receivables and other assets
 
(36.5
)
 
(20.6
)
Accounts payable and accrued expenses
 
(7.0
)
 
(11.4
)
Net cash provided by operating activities
 
35.2
 
 
41.3
 
Investing activities
 
 
 
 
 
 
Acquisition of businesses (net of cash acquired)
 
—
 
 
—
 
Purchases of property, equipment and computer software
 
(21.6
)
 
(16.2
)
Proceeds from the sale of property and equipment
 
—
 
 
0.1
 
Net cash used by investing activities
 
(21.6
)
 
(16.1
)
Financing activities
 
 
 
 
 
 
Net increase in book overdrafts
 
1.0
 
 
7.4
 
Payments on capital leases
 
(5.6
)
 
(4.2
)
Net transfers to parent and affiliates
 
(3.4
)
 
(25.1
)
Net cash used by financing activities
 
(8.0
)
 
(21.9
)
Effect of exchange rate changes on cash
 
0.6
 
 
0.4
 
Net increase (decrease) in cash and cash equivalents
 
6.2
 
 
3.7
 
Cash and cash equivalents at beginning of period
 
60.0
 
 
33.1
 
Cash and cash equivalents at end of period
$
66.2
 
$
36.8
 
 
 
 
 
 
 
 

See accompanying condensed notes to consolidated financial statements

F-33

TABLE OF CONTENTS

Insurance Auto Auctions, Inc.
Condensed Notes to Consolidated Financial Statements
March 31, 2019 and April 1, 2018 (Unaudited)

Note 1—Basis of Presentation and Nature of Operations

Potential Spin-off

On February 27, 2018, KAR Auction Services, Inc. (“KAR” or “Parent”), a Delaware corporation, announced a plan to pursue the separation of its salvage auction business into a separate public company, IAA Spinco Inc. (“IAA” or “the Company”), through a spin-off. Among other conditions, the planned spin-off is subject to approval by KAR’s Board of Directors and the effectiveness of a registration statement on Form 10 relating to the spin-off filed with the Securities and Exchange Commission. Upon completion of the spin-off, IAA will operate its business as an independent, publicly traded company.

Throughout the periods covered by these unaudited consolidated financial statements, IAA operated as a reportable segment within KAR. The accompanying unaudited consolidated financial statements and condensed notes to consolidated financial statements have been prepared from KAR’s historical accounting records and are presented on a stand-alone basis as if the operations had been conducted independently from KAR. Accordingly, KAR and its subsidiaries, net investment in these operations (Parent Equity) is shown in lieu of stockholder’s equity in the unaudited consolidated financial statements. These unaudited consolidated financial statements include the historical operations, assets, and liabilities of the legal entities that are considered to comprise IAA. The historical results of operations, financial position and cash flows of IAA represented in the financial statements may not be indicative of what they would have been had IAA actually been a separate stand-alone entity during such periods, nor are they necessarily indicative of IAA’s future results of operations, financial position and cash flows.

IAA is comprised of certain stand-alone legal entities for which discrete financial information is available. The consolidated statements of income include all revenues and costs directly attributable to IAA, including costs for functions and services used by IAA. Certain shared costs have been directly charged to IAA based on specific identification or other allocation methods. The results of operations also include allocations of costs for administrative functions and services performed on behalf of IAA by centralized staff groups within KAR. Current and deferred income taxes and related tax expense have been determined based on the stand-alone results of IAA by applying Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 740, Income Taxes , to the IAA operations in each country as if it were a separate taxpayer (i.e., following the separate return methodology). Allocation methodologies were applied to certain shared costs to allocate amounts to IAA as discussed further in Note 4 - Relationship with Parent and Related Entities.

All charges and allocations of cost for functions and services performed by KAR organizations have been deemed paid by IAA to KAR, in cash, in the period in which the cost was recorded in the consolidated statements of income. Allocations to IAA of current income taxes payable are deemed to have been remitted, in cash, to KAR in the period the related tax expense was recorded. Allocations of current income taxes receivable are deemed to have been remitted to IAA, in cash, by KAR in the period to which the receivable applies only to the extent that a refund of such taxes could have been recognized by IAA on a stand-alone basis under the law of the relevant taxing jurisdiction.

KAR uses a centralized approach to cash management and financing its operations, including the operations of IAA. Accordingly, none of KAR’s corporate cash and cash equivalents has been allocated to IAA in these unaudited consolidated financial statements. Transactions between KAR and IAA are accounted for through Net Parent Investment. See Note 4 - Relationship with Parent and Related Entities, for a further description of related party transactions between KAR and IAA.

All of the allocations and estimates in these unaudited consolidated financial statements are based on assumptions that management of KAR and IAA believe are reasonable. However, the unaudited consolidated financial statements included herein may not be indicative of the financial position, results of operations and cash flows of IAA in the future or if IAA had been a separate, stand-alone entity during the periods presented.

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TABLE OF CONTENTS

Insurance Auto Auctions, Inc.
Condensed Notes to Consolidated Financial Statements
March 31, 2019 and April 1, 2018 (Unaudited)

Business and Nature of Operations

IAA is a leading, national provider of salvage vehicle auctions and related services in North America. The salvage auctions facilitate the remarketing of damaged vehicles that are designated as total losses by insurance companies, recovered stolen vehicles for which an insurance settlement with the vehicle owner has already been made, purchased vehicles and older model vehicles donated to charity or sold by dealers in salvage auctions. The salvage auction business specializes in providing services such as inbound transportation logistics, inspections, evaluations, salvage recovery services, titling and settlement administrative services.

We currently operate 179 sites across the United States and Canada; in addition, we offer online marketplaces for salvage vehicles. IAA also includes HBC Vehicle Services Limited (“HBC”), which operates from 14 locations in the United Kingdom. Our auctions facilitate the sale of salvage vehicles through physical, online or hybrid platforms, which permit Internet buyers to participate in physical marketplaces. IAA facilitates the exchange of these vehicles through an auction marketplace, which aligns sellers and buyers. As an agent for customers, the Company generally does not take title to or ownership of vehicles sold at the auctions. Generally, fees are earned from the seller and buyer on each successful auction transaction in addition to fees earned for ancillary services.

Use of Estimates

The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates based in part on assumptions about current, and for some estimates, future economic and market conditions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the period. Although the current estimates contemplate current conditions and expected future changes, as appropriate, it is reasonably possible that future conditions could differ from these estimates, which could materially affect our results of operations and financial position. Among other effects, such changes could result in future impairments of goodwill, intangible assets and long-lived assets, additional allowances on accounts receivable and changes in litigation and other loss contingencies.

Leases

In February 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-02, Leases (Topic 842), which replaces the existing lease guidance in Topic 840. The ASU is intended to provide enhanced transparency and comparability by requiring lessees to record right-of-use (“ROU”) assets and corresponding lease liabilities on the balance sheet, with an exception for leases that meet the definition of a short-term lease. The new guidance continues to classify leases as either finance or operating, with classification affecting the pattern of expense recognition in the statement of income.

We adopted Topic 842 in the first quarter of 2019 and as permitted by ASU 2018-11, Leases (Topic 842): Targeted Improvements, we applied the new standard at the adoption date and recognized the cumulative-effect of initially applying the new standard as an increase of $1.1 million to the opening balance of net parent investment. The cumulative-effect adjustment related to the derecognition of existing fixed assets for which we were determined to be the accounting owner under Topic 840 and related liabilities associated with certain sale leaseback transactions in build-to-suit arrangements that did not qualify for sale accounting under Topic 840. Depreciation related to these fixed assets was recorded consistently with owned property and equipment in depreciation expense. In accordance with Topic 842, the lease agreements associated with the derecognized fixed assets and related liabilities generated ROU assets and lease liabilities that will be amortized to lease expense over the lease term. In addition, we recognized additional operating liabilities of approximately $684 million with related ROU assets of approximately $641 million based on the present value of the remaining minimum rental payments for existing operating leases.

We determine if an arrangement is a lease at inception. Operating leases are included in “Operating lease right-of-use assets,” “Short-term operating lease liabilities” and “Long-term operating lease liabilities” in our consolidated balance sheets. Finance leases are included in “Property and equipment, net,” “Other accrued expenses” and “Other liabilities” in our consolidated balance sheets.

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TABLE OF CONTENTS

Insurance Auto Auctions, Inc.
Condensed Notes to Consolidated Financial Statements
March 31, 2019 and April 1, 2018 (Unaudited)

ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease ROU assets and operating lease liabilities are recognized at the commencement date based on the present value of the lease payments over the lease term. As most of our leases do not provide an implicit interest rate, we use our incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments. We use the implicit rate when readily determinable. The operating lease ROU assets also include any lease payments made and exclude lease incentives and initial direct costs incurred. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease term.

We have lease agreements with lease and non-lease components, which are generally accounted for separately. For certain equipment leases, we account for the lease and non-lease components as a single lease component.

New Accounting Standards

In August 2018, the FASB issued ASU 2018-15, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract, which aligns the requirements for capitalizing implementation costs incurred in a cloud computing arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The new guidance is effective for annual periods beginning after December 15, 2019, including interim periods within those fiscal years. The Company is currently evaluating the impact the adoption of ASU 2018-15 will have on the consolidated financial statements.

In January 2017, the FASB issued ASU 2017-04, Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment, which simplifies the test for goodwill impairment by eliminating Step 2 (implied fair value measurement). Instead goodwill impairment would be measured as the amount by which a reporting unit’s carrying amount exceeds its fair value, not to exceed the carrying amount of goodwill. The new guidance is effective for annual periods beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted. We do not expect the adoption of ASU 2017-04 will have a material impact on the consolidated financial statements.

Note 2—Stock and Stock-Based Compensation Plans

Under KAR’s long-term incentive plans, KAR common stock and restricted stock have been made available for grant, at the discretion of the Compensation Committee of KAR’s Board of Directors, to executive officers and key employees of IAA in the form of stock options, performance-based restricted stock units (“PRSUs”) and service-based restricted stock units (“RSUs”). IAA’s stock-based compensation expense includes expense associated with KAR PRSUs and RSUs. We have determined that the PRSUs and RSUs should be classified as equity awards.

The following table summarizes our stock-based compensation expense by type of award (in millions) :

 
Three Months
ended
March 31,
2019
Three Months
ended
April 1,
2018
PRSUs
$
0.3
 
$
0.3
 
RSUs
 
0.7
 
 
0.6
 
Total stock-based compensation expense
$
1.0
 
$
0.9
 

F-36

TABLE OF CONTENTS

Insurance Auto Auctions, Inc.
Condensed Notes to Consolidated Financial Statements
March 31, 2019 and April 1, 2018 (Unaudited)

PRSUs and RSUs

In the three months ended March 31, 2019, KAR granted a target amount of approximately 25,000 PRSUs to certain executive officers and management of IAA. The PRSUs vest if and to the extent that KAR’s three-year cumulative operating adjusted net income per share attains certain specified goals. In addition, approximately 65,000 RSUs were granted to certain executive officers and management of IAA. The RSUs are contingent upon continued employment and generally vest in three equal annual installments. The weighted average grant date fair value of the PRSUs and the RSUs was $47.06 per share, which was determined using the closing price of KAR’s common stock on the grant dates.

Note 3—Leases

We lease property, software, automobiles, trucks and trailers pursuant to operating lease agreements. We also lease furniture, fixtures and equipment under finance leases. Our leases have varying remaining lease terms with leases expiring through 2038, some of which include options to extend the leases.

The components of lease expense were as follows ( in millions ):

 
Three Months
ended
March 31,
2019
Operating lease cost
$
27.3
 
Finance lease cost:
 
 
 
Amortization of right-of-use assets
$
3.8
 
Interest on lease liabilities
 
0.3
 
Total finance lease cost
$
4.1
 

Supplemental cash flow information related to leases was as follows ( in millions ):

 
Three Months
ended
March 31,
2019
Cash paid for amounts included in the measurement of lease liabilities:
 
 
 
Operating cash flows related to operating leases
$
26.5
 
Operating cash flows related to finance leases
 
0.3
 
Financing cash flows related to finance leases
 
5.6
 
Right-of-use assets obtained in exchange for lease obligations:
 
 
 
Operating leases
 
1.9
 
Finance leases
 
—
 

Supplemental balance sheet information related to leases was as follows ( in millions, except lease term and discount rate ):

 
Three Months
ended
March 31,
2019
Operating Leases
 
 
 
Operating lease right-of-use assets
$
625.7
 
Short-term right-of-use operating lease liability
$
62.5
 
Long-term right-of-use operating lease liability
 
607.2
 
Total operating lease liabilities
$
669.7
 

F-37

TABLE OF CONTENTS

Insurance Auto Auctions, Inc.
Condensed Notes to Consolidated Financial Statements
March 31, 2019 and April 1, 2018 (Unaudited)

 
Three Months
ended
March 31,
2019
Finance Leases
 
 
 
Property and equipment, gross
$
117.2
 
Accumulated depreciation
 
(82.9
)
Property and equipment, net
$
34.3
 
Other accrued expenses
$
11.7
 
Other liabilities
 
11.2
 
Total finance lease liabilities
$
22.9
 
Weighted Average Remaining Lease Term
 
 
 
Operating leases
 
12.3
 
Finance leases
 
2.2
 
Weighted Average Discount Rate
 
 
 
Operating leases
 
6.2
%
Finance leases
 
4.6
%

Maturities of lease liabilities as of March 31, 2019 were as follows ( in millions ):

 
Operating
Leases
Finance
Leases
2019 (excluding the three months ended March 31, 2019)
$
77.9
 
$
11.9
 
2020
 
94.4
 
 
7.8
 
2021
 
87.1
 
 
4.6
 
2022
 
78.1
 
 
—
 
2023
 
68.5
 
 
—
 
Thereafter
 
573.6
 
 
—
 
Total lease payments
 
979.6
 
 
24.3
 
Less imputed interest
 
(309.9
)
 
(1.4
)
Total
$
669.7
 
$
22.9
 

Note 4—Commitments and Contingencies

We are involved in litigation and disputes arising in the ordinary course of business, such as actions related to injuries; property damage; handling, storage or disposal of vehicles; environmental laws and regulations; and other litigation incidental to the business, such as employment matters and dealer disputes. Management considers the likelihood of loss or the incurrence of a liability, as well as the ability to reasonably estimate the amount of loss, in determining loss contingencies. We accrue an estimated loss contingency when it is probable that a liability has been incurred and the amount of loss (or range of possible losses) can be reasonably estimated. Management regularly evaluates current information available to determine whether accrual amounts should be adjusted. Accruals for contingencies, including litigation and environmental matters, are included in “Other accrued expenses” at undiscounted amounts and exclude claims for recoveries from insurance or other third parties. These accruals are adjusted periodically as assessment and remediation efforts progress, or as additional technical or legal information becomes available. If the amount of an actual loss is greater than the amount accrued, this could have an adverse impact on our operating results in that period. Such matters are generally not, in the opinion of management, likely to have a material adverse effect on our financial condition, results of operations or cash flows. Legal fees are expensed as incurred. There has been no significant change in the legal and regulatory proceedings which were disclosed in our audited consolidated financial statements for the fiscal year ended December 30, 2018.

F-38

TABLE OF CONTENTS

Insurance Auto Auctions, Inc.
Condensed Notes to Consolidated Financial Statements
March 31, 2019 and April 1, 2018 (Unaudited)

Note 5—Relationship with Parent and Related Entities

Historically, IAA has been managed and operated in the normal course of business with other affiliates of KAR. Accordingly, certain shared costs have been allocated to IAA and reflected as expenses in the stand-alone unaudited consolidated financial statements. Management of KAR and IAA consider the allocation methodologies used to be reasonable and appropriate reflections of historical expenses of KAR attributable to IAA for purposes of the stand-alone financial statements; however, the expenses reflected in the unaudited consolidated financial statements may not be indicative of the actual expenses that would have been incurred during the periods presented if IAA historically operated as a separate, stand-alone entity. In addition, the expenses reflected in these unaudited consolidated financial statements may not be indicative of expenses that will be incurred in the future by IAA.

Transactions between KAR and IAA, with the exception of purchase transactions and reimbursements for payments made to third-party service providers by KAR on IAA’s behalf, are reflected in equity in the Consolidated Balance Sheets as “Net parent investment” and in the Consolidated Statements of Cash Flows as a financing activity in “Net transfers to parent and affiliates.”

Corporate Costs/Allocations

These unaudited consolidated financial statements include corporate costs incurred by KAR for services that are provided to or on behalf of IAA. These costs consist of allocated cost pools and identifiable costs. Corporate costs have been directly charged to, or allocated to, IAA using methods management believes are consistent and reasonable. IAA identifiable costs are recorded based on dedicated employee assignments. The method for allocating corporate function costs to IAA is based on various proportionate formulas involving allocation factors. The methods for allocating corporate administration costs to IAA are based on revenue, headcount or the proportion of related expenses. However, the expenses reflected in these unaudited consolidated financial statements may not be indicative of the actual expenses that would have been incurred during the periods presented if IAA historically operated as a separate, stand-alone entity. All corporate charges and allocations have been deemed paid by IAA to KAR in the period in which the cost was recorded in the Consolidated Statements of Income.

Allocated corporate costs included in selling, general and administrative expenses were $1.7 million and $2.1 million for the three months ended March 31, 2019 and April 1, 2018, respectively. The allocated corporate costs were associated with human resources, risk management, information technology and certain finance and other functions.

Cash Management and Financing

KAR generally uses a centralized approach to cash management and financing its operations, including the operations of IAA. Accordingly, none of KAR’s corporate cash and cash equivalents has been allocated to IAA in these unaudited consolidated financial statements. Cash is transferred daily, based on IAA’s balances, to centralized accounts maintained by KAR. As cash is disbursed or received by KAR, it is accounted for by IAA through the Net Parent Investment.

Transactions with Other KAR Businesses

Throughout the periods covered by these unaudited consolidated financial statements, IAA purchased goods and services from KAR’s other businesses. The cost of products and services obtained from related parties was $0.3 million and $0.8 million for the three months ended March 31, 2019 and April 1, 2018, respectively.

Note 6—Segment Information

ASC 280, Segment Reporting , requires reporting of segment information that is consistent with the manner in which the chief operating decision maker operates and views the Company. Our operations are grouped into three operating segments: United States, Canada and United Kingdom. The operating segments represent geographic

F-39

TABLE OF CONTENTS

Insurance Auto Auctions, Inc.
Condensed Notes to Consolidated Financial Statements
March 31, 2019 and April 1, 2018 (Unaudited)

areas and reflect how the chief operating decision maker allocates resources and measures results. We have one reportable business segment: United States. Canada and United Kingdom do not meet the criteria to be considered reportable segments but have been presented as “International” in the tables below to reconcile the amounts presented to consolidated totals.

Financial information for our reportable segment is set forth below as of and for the three months ended March 31, 2019 (in millions):

 
United
States
International
Total
Operating revenues
$
314.3
 
$
42.9
 
$
357.2
 
Operating expenses
 
 
 
 
 
 
 
 
 
Cost of services (exclusive of depreciation and amortization)
 
189.1
 
 
29.3
 
 
218.4
 
Selling, general and administrative
 
30.0
 
 
3.6
 
 
33.6
 
Depreciation and amortization
 
20.0
 
 
1.8
 
 
21.8
 
Total operating expenses
 
239.1
 
 
34.7
 
 
273.8
 
Operating profit
 
75.2
 
 
8.2
 
 
83.4
 
Interest expense
 
9.7
 
 
—
 
 
9.7
 
Other expense, net
 
0.1
 
 
—
 
 
0.1
 
Income before income taxes
 
65.4
 
 
8.2
 
 
73.6
 
Income taxes
 
16.7
 
 
2.4
 
 
19.1
 
Net income
$
48.7
 
$
5.8
 
$
54.5
 
Total assets
$
1,812.5
 
$
204.1
 
$
2,016.6
 

Financial information for our reportable segment is set forth below as of and for the three months ended April 1, 2018 (in millions):

 
United
States
International
Total
Operating revenues
$
303.4
 
$
33.9
 
$
337.3
 
Operating expenses
 
 
 
 
 
 
 
 
 
Cost of services (exclusive of depreciation and amortization)
 
185.2
 
 
21.5
 
 
206.7
 
Selling, general and administrative
 
29.8
 
 
2.8
 
 
32.6
 
Depreciation and amortization
 
22.4
 
 
1.7
 
 
24.1
 
Total operating expenses
 
237.4
 
 
26.0
 
 
263.4
 
Operating profit
 
66.0
 
 
7.9
 
 
73.9
 
Interest expense
 
9.6
 
 
—
 
 
9.6
 
Other expense, net
 
—
 
 
—
 
 
—
 
Income before income taxes
 
56.4
 
 
7.9
 
 
64.3
 
Income taxes
 
13.9
 
 
2.1
 
 
16.0
 
Net income
$
42.5
 
$
5.8
 
$
48.3
 
Total assets
$
1,320.7
 
$
139.6
 
$
1,460.3
 

Note 7—Subsequent Events

These unaudited consolidated financial statements reflect management’s evaluation of subsequent events, through May 10, 2019, the date IAA’s unaudited consolidated financial statements were available to be issued.

F-40

Exhibit 99.2