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EXHIBIT 10.4
June 12, 1998
Mr. Eric J. Splaver
3102 East Brookwood Court
Phoenix, Arizona 85048
Re: Terms of Employment
Dear Eric:
I am pleased that you have accepted the offer of employment made by
Cygnet Financial Corporation ("Cygnet"). Initially, Cygnet will be a wholly
owned subsidiary of Ugly Duckling Corporation but it is intended that Cygnet be
separated from Ugly Duckling Corporation in connection with the spin-off of all
non-dealership operations of Ugly Duckling Corporation (the "Spin-Off"). The
purpose of this letter is to confirm the terms and conditions under which you
will be employed by Cygnet.
POSITION: You will serve as Chief Financial Officer of Cygnet. As Chief
Financial Officer you will be responsible for all accounting and
financial reporting activities of Cygnet and its subsidiaries.
You will also manage all personnel involved in these activities.
You will report to the Chief Executive Officer of Cygnet. You
will be employed on a full-time basis and will devote all of your
working time and efforts exclusively to Cygnet. Your position is
an executive position and, therefore, you are exempt from the
minimum wage and overtime provisions of the Fair Labor Standards
Act.
LOCATION: Your office will be located at 2525 East Camelback Road, Phoenix,
Arizona 85016. The location of your office may be changed from
time to time. Also, you may be required to provide services from
time to time at other Cygnet locations. You may also be required
to travel in the performance of services.
SALARY: You will receive a salary at the rate of $120,000.00 per year.
Your salary will be reviewed annually in December and may be
adjusted at the discretion of the Board of Directors of Cygnet.
BENEFITS: Enclosed is a summary of the employee benefits of Ugly Duckling
Corporation. Cygnet is expected to have similar benefits. You
will be
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Mr. Eric J. Splaver
June 12, 1998
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entitled to the current benefits of Ugly Duckling Corporation as
an employee of Cygnet.
STOCK OPTIONS: Upon completion of the Spin-Off you will receive options to
purchase 30,000 shares of common stock of Cygnet (the "Cygnet
Stock Options"). The Cygnet Stock Options will be qualified to
the maximum extent possible. The exercise price of the Cygnet
Stock Options will be the price that Ugly Duckling Corporation
shareholders must pay to acquire common stock of Cygnet in the
Spin-Off (the "Spin-Off Price"). The Cygnet Stock Options will
vest over five years from the date of grant and be subject to
other usual and customary terms and conditions. The Cygnet Stock
Options are granted to provide you an incentive to work in a
manner that adds as much value as possible to Cygnet. However,
Cygnet makes no representations or warranties as to, and, shall
have no liability for, the value of the Cygnet Stock Options or
the price of common stock of Cygnet at any time. You acknowledge
that the issuance and/or exercise of the Cygnet Stock Options may
constitute compensation to you and you shall be responsible for
paying all income taxes assessed on said compensation. In
addition to the Cygnet Stock Options, upon the effective date of
the Spin-Off all stock options of Ugly Duckling Corporation now
held by you shall be fully vested and exercisable.
STOCK GRANT: Upon completion of the Spin-Off you will receive that number of
shares of common stock of Cygnet at the Spin-Off Price equal to
$100,000 (the "Restricted Stock"). The Restricted Stock will vest
over four years from the effective date of the Spin-Off. The
Restricted Stock is granted to induce you to bear all risk of
terminating your current employment with Ugly Duckling and
accepting employment with Cygnet under the terms of this letter.
However, Cygnet makes no representations or warranties as to,
and, shall have no liability for, the value or price of the
Restricted Stock at any time. You acknowledge that the issuance
of the Restricted Stock will constitute compensation to you and
you shall be responsible for paying all income taxes assessed on
said compensation. You authorize Cygnet to withhold from the
Restricted Stock at the time of issuance that number of shares
with a value equal to the withholdings required by applicable
law. If any withholdings are required prior to the issuance of
the Restricted Stock you authorize Cygnet to make the
withholdings from your Salary. The Restricted Stock will not be
registered under the Securities Act of 1933 and will be subject
to transfer restrictions under Rule 144 of the Securities Act of
1933.
TERM: Your employment will commence on or about the effective date of
the Spin-Off. There is no minimum term for your employment. You
are employed at will and your employment may be terminated at any
time for any lawful reason, all at the discretion and will of
Cygnet. However, if your employment is terminated by Cygnet
without cause prior to the third anniversary of the effective
date of the Spin-Off, then your Salary
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Mr. Eric J. Splaver
June 12, 1998
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and benefits will be continued for one year. If
your employment is terminated (a) by Cygnet
without cause after the third anniversary of the
effective date of the Spin-Off; (b) by Cygnet at
any time for cause; or (c) by you at any time,
then your Salary and benefits will not be
continued after the termination. The continuation
of your Salary and benefits, if required, will be
a severance benefit (the "Severance Benefit") and
the Severance Benefit will be your exclusive
benefit and remedy for the termination of your
employment by Cygnet without cause. For purposes
of this letter and the termination of your
employment by Cygnet without cause, "without
cause" shall mean termination for any reason other
than your (a) illegal conduct; (b) gross
negligence or intentional misconduct; (c) willful
failure to perform your duties after receipt of
written demand for performance of your duties; or
(d) conduct that harms or threatens to harm any
employee of Cygnet or any employee of any
organization that does business with Cygnet.
CHANGE OF CONTROL: If a change in control of Cygnet occurs at any
time during the term of your employment and your
employment by Cygnet is either (a) terminated by
you within 12 months after the change of control;
(b) terminated by Cygnet without cause within 90
days prior to the change of control; or (c)
terminated by Cygnet without cause within 12
months after the change of control, then in any
such event all Cygnet Stock Options and Restricted
Stock granted to you pursuant to this letter and
thereafter that are not yet vested shall
automatically be fully vested. For purposes of
this letter, change of control shall be defined by
the Long Term Incentive Stock Option Plan of Ugly
Duckling Corporation but shall include the removal
and/or resignation of Ernest C. Garcia II as the
Chairman of the Board of Directors of Cygnet.
OTHER TERMS: There are no material terms and conditions
of your employment other than as stated in this
letter and any personnel policies of Cygnet that
may be adopted and revised by Cygnet from time to
time (the "Personnel Policies"). This letter, but
not the Personnel Policies, constitutes a legally
binding and enforceable contract under Arizona
law. You acknowledge that you have received, or
had the opportunity to receive, the advice of
independent legal counsel prior to signing this
letter.
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Mr. Eric J. Splaver
June 12, 1998
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If these terms and conditions of employment are acceptable to you, then
please acknowledge your acceptance by signing this letter and returning it to
me. If you have any questions or comments regarding these terms and conditions
of your employment, please contact me.
I look forward to working with you.
Cordially,
/s/ ERNEST C. GARCIA, II
Ernest C. Garcia, II
ECG:ag
Accepted this 16 day of June, 1998.
/s/ ERIC J. SPLAVER
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Eric J. Splaver