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                                                                    Exhibit 4.8


                            UGLY DUCKLING CORPORATION

                                WARRANT AGREEMENT

      THIS WARRANT AGREEMENT (the "Agreement"), dated as of December 15, 1997,
is between UGLY DUCKLING CORPORATION, a Delaware corporation (the "Company"),
and HARRIS TRUST COMPANY OF CALIFORNIA, as warrant agent (the "Warrant Agent").

      WHEREAS, the Company has entered into a Put and Call Agreement dated as of
November 12, 1997 (the "Put and Call Agreement"), by and among the Company and
the Sellers (as defined in the Put and Call Agreement), pursuant to which the
Company has agreed to purchase certain claims and loans of the Sellers with
respect to loans previously made by the Sellers to First Merchants Acceptance
Corporation and the Sellers have agreed to sell such loans and claims, all as
set forth in, and subject to the terms and conditions of, the Put and Call
Agreement; and

      WHEREAS, as a condition precedent to the execution and delivery of the Put
and Call Agreement, the Company has agreed to issue to the Sellers warrants (the
"Warrants") to purchase up to an aggregate of 110,200 shares of common stock,
$.001 par value per share ("Common Stock"), of the Company, subject to the terms
and conditions of this Agreement; and

      WHEREAS, the Company desires the Warrant Agent to act on behalf of the
Company, and the Warrant Agent is willing so to act, in connection with the
issuance, registration, transfer, exchange, exercise, and redemption of the
Warrants.

      NOW, THEREFORE, in consideration of the promises and the mutual agreements
herein set forth, the parties agree as follows:

      Section 1. APPOINTMENT OF WARRANT AGENT. The Company hereby appoints the
Warrant Agent to act as agent of the Company in accordance with the terms and
conditions set forth in this Agreement, and the Warrant Agent hereby accepts
such appointment.

      Section 2.  ISSUANCE OF WARRANTS AND FORM OF WARRANTS.

      (a) Subject to the terms and conditions hereof, at the Closing (as defined
in the Put and Call Agreement), the Company shall issue to the Sellers and the
Sellers shall accept from the Company, Warrants substantially in the form
attached hereto as Exhibit A. Each Seller will be entitled to receive Warrants
to purchase that number of shares of Common Stock of the Company set forth
opposite such Seller's name on Exhibit B hereto.

      (b) Each Warrant shall entitle the registered holder of the certificate
representing such Warrant to purchase upon the exercise thereof one share of
Common Stock, subject to the adjustments provided for in Section 9 hereof, at
any time until 5:00 p.m., New York City time, on February 20, 2000, unless
earlier redeemed pursuant to Section 11 hereof.


                                        
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      (c) The Warrant certificates shall be in registered form only. Each
Warrant certificate shall be dated by the Warrant Agent as of the date of
issuance thereof (whether upon initial issuance or upon transfer or exchange),
and shall be executed on behalf of the Company by the manual or facsimile
signature of its President or a Vice President, and attested to by the manual or
facsimile signature of its Secretary or an Assistant Secretary. In case any
officer of the Company who shall have signed any Warrant certificate shall cease
to be such officer of the Company before such Warrant Certificate has been
countersigned by the Warrant Agent or prior to the issuance thereof, such
Warrant certificate may nevertheless be issued and delivered with the same force
and effect as though the person who signed the same had not ceased to be such
officer of the Company.

      Section 3. EXERCISE OF WARRANTS, DURATION AND WARRANT PRICE. Subject to
the provisions of this Agreement, each registered holder of one or more Warrant
certificates shall have the right, which may be exercised as provided in such
Warrant certificates, to purchase from the Company (and the Company shall issue
and sell to such registered holder) the number of shares of Common Stock or
other securities to which the Warrants represented by such certificates are at
the time entitled hereunder.

      (a) Each Warrant not exercised by its expiration date shall become void,
and all rights thereunder and all rights in respect thereof under this Agreement
shall cease on such date.

      (b) A Warrant may be exercised by the surrender of the certificate
representing such Warrant to the Company, at the office of the Warrant Agent, or
at the office of a successor to the Warrant Agent, with the subscription form
set forth on the reverse thereof duly executed and properly endorsed with the
signatures properly guaranteed, and upon payment in full to the Warrant Agent
for the account of the Company of the Warrant Price (as hereinafter defined) for
the number of shares of Common Stock or other securities as to which the Warrant
is exercised. Such Warrant Price shall be paid in full in cash, or by certified
check or bank draft payable in United States currency to the order of the
Warrant Agent.

      (c) The price per share of Common Stock at which each Warrant may be
exercised (the "Warrant Price") shall be $20 (subject to adjustment in
accordance with Section 9 hereof).

      (d) Subject to the further provisions of this Section 3 and of Section 6
hereof, upon surrender of Warrant certificates and payment of the Warrant Price,
the Company shall issue and cause to be delivered, as promptly as practicable to
or upon the written order of the registered holder of such Warrants and in such
name or names as such registered holder may designate, subject to applicable
securities laws, a certificate or certificates for the number of securities so
purchased upon the exercise of such Warrants, together with cash, as provided in
Section 10 of this Agreement, in respect of any fraction of a share or security
otherwise issuable upon such surrender. All shares of Common Stock or other such
securities issued upon the exercise of a Warrant shall be duly authorized,
validly issued, fully paid and nonassessable and free and clear of all liens and
other encumbrances.


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      (e) Certificates representing such securities shall be deemed to have been
issued and any person so designated to be named therein shall be deemed to have
become a holder of record of such securities as of the date of the surrender of
such Warrants and payment of the Warrant Price; provided, however, that if, at
the date of surrender of such Warrants and payment of such Warrant Price, the
transfer books for the Common Stock or other securities purchasable upon the
exercise of such Warrants shall be closed, the certificates for the securities
in respect of which such Warrants are then exercised shall be issuable as of the
date on which such books shall next be opened and until such date the Company
shall be under no duty to deliver any certificate for such securities and the
person to whom such securities are issuable shall not be deemed to have became a
holder of record of such securities. The rights of purchase represented by each
Warrant certificate shall be exercisable, at the election of the registered
holder thereof, either as an entirety or from time to time for part of the
number of securities specified therein and, in the event that any Warrant
certificate is exercised in respect of less than all of the securities specified
therein at any time prior to the expiration date of the Warrant certificate, a
new Warrant certificate or certificates will be issued to such registered holder
for the remaining number of securities specified in the Warrant certificate so
surrendered.

      Section 4.  COUNTERSIGNATURE AND REGISTRATION.

      (a) The Warrant Agent shall maintain books (the "Warrant Register") for
the registration and the registration of transfer of the Warrants. Upon the
initial issuance of the Warrants, the Warrant Agent shall issue and register the
Warrants in the names of the Sellers in accordance with Section 2 hereof. The
Warrant certificates shall be countersigned manually or by facsimile by the
Warrant Agent (or by any successor to the Warrant Agent then acting as such
under this Agreement) and shall not be valid for any purpose unless so
countersigned. Warrant certificates may be so countersigned, however, by the
Warrant Agent and delivered by the Warrant Agent, notwithstanding that the
persons whose manual or facsimile signatures appear thereon as proper officers
of the Company shall have ceased to be such officers at the time of such
countersignature or delivery.

      (b) Prior to due presentment for registration of transfer of any Warrant
certificate, the Company and the Warrant Agent may deem and treat the person in
whose name such Warrant certificate shall be registered upon the Warrant
Register (the "registered holder") as the absolute owner of such Warrant
certificate and of each Warrant represented thereby (notwithstanding any
notation of ownership or other writing on the Warrant certificate made by anyone
other than the Company or the Warrant Agent), for the purpose of any exercise
thereof, of any distribution or notice to the holder thereof, and for all other
purposes, and neither the Company nor the Warrant Agent shall be affected by any
notice to the contrary.

      Section 5.  TRANSFER AND EXCHANGE OF WARRANTS.

      (a) The Warrant Agent shall register the transfer, from time to time, of
any outstanding Warrant or portion thereof upon the Warrant Register, upon
surrender of the certificate evidencing such Warrant for transfer, properly
endorsed with signatures properly guaranteed and accompanied


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by appropriate instructions for transfer. Upon any such transfer, a new Warrant
certificate representing an equal aggregate number of Warrants so transferred
shall be issued to the transferee and the surrendered Warrant certificate shall
be canceled by the Warrant Agent. In the event that only a portion of a Warrant
is transferred at any time, a new Warrant certificate representing the remaining
portion of the Warrant will also be issued to the transferring holder. The
Warrant certificates so canceled shall be delivered by the Warrant Agent to the
Company from time to time upon request. Notwithstanding the foregoing, no
transfer or exchange may be made except in compliance with applicable securities
laws and Section 14 hereof.

      (b) Warrant certificates may be surrendered to the Warrant Agent, together
with a written request for exchange, and thereupon the Warrant Agent shall issue
in exchange therefor one or more new Warrant certificates as requested by the
registered holder of the Warrant certificate or certificates so surrendered,
representing an equal aggregate number of Warrants.

      (c) The Warrant Agent shall not be required to effect any registration of
transfer or exchange which will result in the issuance of a Warrant certificate
for a fraction of a Warrant.

      (d) No service charge shall be made for any exchange or registration of
transfer of Warrant certificates.

      (e) The Warrant Agent is hereby authorized to countersign and to deliver,
in accordance with the terms of this Agreement, the new Warrant certificates
required to be issued pursuant to the provisions hereof, and the Company,
whenever required by the Warrant Agent, will supply the Warrant Agent with
certificates duly executed on behalf of the Company for such purpose.

      Section 6. PAYMENT OF TAXES. The Company will pay any documentary stamp
taxes attributable to the initial issuance or delivery of the shares of Common
Stock or other securities issuable upon the exercise of Warrants; provided,
however, the Company shall not be required to pay any tax or taxes which may be
payable in respect of any transfer of the Warrants or involved in the issuance
or delivery of any Warrant certificate or certificates for shares of Common
Stock in a name other than registered holder of Warrants in respect of which
such shares are issued, and in such case neither the Company nor the Warrant
Agent shall be required to issue or deliver any certificate for shares of Common
Stock or any Warrant certificate until the person requesting the same has paid
to the Company the amount of such tax or has established to the Company's
satisfaction that such tax has been paid.

      Section 7. MUTILATED OR MISSING WARRANTS. In case any of the Warrant
certificates shall be mutilated, lost, stolen or destroyed, the Company may
issue, and the Warrant Agent shall countersign and deliver in exchange and
substitution for and upon cancellation of the mutilated Warrant certificate, or
in lieu of and substitution for the Warrant certificate lost, stolen or
destroyed, a new Warrant certificate representing an equal aggregate number of
Warrants, but only upon receipt of evidence satisfactory to the Company and the
Warrant Agent of such loss, theft or destruction of such Warrant certificate and
reasonable indemnity, if requested, also satisfactory to them.


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Applicants for such substitute Warrant certificates shall also comply with such
other reasonable conditions and pay such reasonable charges as the Company or
the Warrant Agent may prescribe.

      Section 8.  RESERVATION OF COMMON STOCK.

      (a) There have been reserved, and the Company shall at all times keep
reserved, out of its authorized and unissued shares of Common Stock, a number of
shares sufficient to provide for the exercise of the rights of purchase
represented by the Warrants then outstanding or issuable upon exercise, and the
transfer agent for the Common Stock and every subsequent transfer agent for any
shares of the Company's capital stock issuable upon the exercise of any of the
rights of purchase aforesaid are hereby irrevocably authorized and directed at
all times to reserve such number of authorized and unissued shares as shall be
requisite for such purpose. The Company will keep a copy of this Agreement on
file with the transfer agent for the Common Stock and with every subsequent
transfer agent for any shares of the Company's capital stock issuable upon the
exercise of the rights of purchase represented by the Warrants.

      (b) The Warrant Agent is hereby irrevocably authorized to requisition from
time to time from such transfer agent stock certificates required to honor
outstanding Warrants. The Company will supply such transfer agent with duly
executed certificates for such purpose and will itself provide or otherwise make
available any cash as provided in Section 10 of this Agreement. All Warrant
certificates surrendered in the exercise of the rights thereby evidenced shall
be canceled by the Warrant Agent and shall thereafter be delivered to the
Company. Promptly after the expiration date of the Warrants, the Warrant Agent
shall certify to the Company the aggregate number of such Warrants which expired
unexercised, and after the expiration date of the Warrants, no shares of Common
Stock shall be subject to reservation in respect of such Warrants.

      Section 9. ADJUSTMENT OF WARRANT PRICE AND NUMBER OF SHARES OF COMMON
STOCK. The number and kind of securities purchasable upon the exercise of the
Warrants and the Warrant Price shall be subject to adjustment from time to time
upon the happening of certain events, as follows:

      9.1 ADJUSTMENTS. The number of shares of Common Stock or other securities
purchasable upon the exercise of each Warrant and the Warrant Price shall be
subject to adjustment as follows:

            (a) If the Company (i) pays a dividend in Common Stock or makes a
distribution in Common Stock, (ii) subdivides its outstanding Common Stock into
a greater number of shares, (iii) combines its outstanding Common Stock into a
smaller number of shares, or (iv) issues, by reclassification of its Common
Stock, other securities of the Company, then the number and kind of shares of
Common Stock or other securities purchasable upon exercise of a Warrant
immediately prior thereto will be adjusted so that the holder of a Warrant will
be entitled to receive the kind and number of shares of Common Stock or other
securities of the Company that such holder would have owned and would have been
entitled to receive immediately after the happening of any of the events


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described above, had the Warrant been exercised immediately prior to the
happening of such event or any record date with respect thereto. Any adjustment
made pursuant to this subsection 9.1(a) will become effective immediately after
the effective date of such event retroactive to the record date, if any, for
such event.

            (b) No adjustment in the number of shares or securities purchasable
pursuant to the Warrants shall be required unless such adjustment would require
an increase or decrease of at least one percent in the number of shares or
securities then purchasable upon the exercise of the Warrants.

            (c) Whenever the number of shares or securities purchasable upon the
exercise of the Warrants is adjusted, as herein provided, the Warrant Price for
shares payable upon exercise of the Warrants shall be adjusted by multiplying
such Warrant Price immediately prior to such adjustment by a fraction, the
numerator of which shall be the number of shares purchasable upon the exercise
of the Warrant immediately prior to such adjustment, and the denominator of
which shall be the number of shares so purchasable immediately thereafter.

            (d) Whenever the number of shares or securities purchasable upon the
exercise of the Warrants and/or the Warrant Price is adjusted as herein
provided, the Company shall cause to be promptly mailed to the Warrant Agent and
each registered holder of a Warrant by first class mail, postage prepaid, notice
of such adjustment and a certificate of the chief financial officer of the
Company setting forth the number of shares or securities purchasable upon the
exercise of the Warrants after such adjustment, the Warrant Price as adjusted, a
brief statement of the facts requiring such adjustment and the computation by
which such adjustment was made. The Warrant Agent shall be fully protected in
relying on any such certificate and any adjustment therein contained, and shall
not be obligated or responsible for calculating any adjustment nor shall it be
deemed to have knowledge of such an adjustment unless and until it shall have
received such certificate.

            (e) For the purpose of this subsection 9.1, the term "Common Stock"
shall mean (i) the class of stock designated as the voting Common Stock of the
Company at the date of this Agreement, or (ii) any other class of stock or
securities resulting from successive changes or reclassifications of such Common
Stock consisting solely of changes in par value, or from par value to no par
value, or from no par value to par value. In the event that at any time, as a
result of an adjustment made pursuant to this Section 9, a registered holder
shall become entitled to purchase any securities of the Company other than
shares of Common Stock, thereafter the number of such other securities so
purchasable upon exercise of the Warrants shall be subject to adjustment from
time to time in a manner and on terms as nearly equivalent as practicable to the
provisions with respect to the shares contained in this Section 9.

      9.2 NO ADJUSTMENT FOR DIVIDENDS. Except as provided in subsection 9.1, no
adjustment in respect of any dividends or distributions shall be made during the
term of the Warrants or upon the exercise of the Warrants.


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      9.3 NO ADJUSTMENT IN CERTAIN CASES. No adjustments are required to be made
pursuant to Section 9 hereof in connection with the issuance of shares of Common
Stock or the Warrants (or the underlying shares of Common Stock) in the
transactions contemplated by this Agreement.

      9.4 PRESERVATION OF PURCHASE RIGHTS UPON RECLASSIFICATION, CONSOLIDATION,
ETC. In case of any consolidation of the Company with or merger of the Company
into another corporation or in case of any sale or conveyance to another
corporation of the property, assets or business of the Company as an entirety or
substantially as an entirety, the Company or such successor or purchasing
corporation, as the case may be, shall execute with the Warrant Agent an
agreement that the registered holders of the Warrants shall have the right
thereafter, upon payment of the Warrant Price in effect immediately prior to
such action, to purchase, upon exercise of each Warrant, the kind and amount of
shares and other securities and property which it would have owned or have been
entitled to receive after the happening of such consolidation, merger, sale or
conveyance had each Warrant been exercised immediately prior to such action. Any
such agreements referred to in this subsection 9.4 shall provide for
adjustments, which shall be as nearly equivalent as may be practicable to the
adjustments provided for in Section 9 hereof. The provisions of this subsection
9.4 shall similarly apply to successive consolidations, mergers, sales, or
conveyances.

      9.5 PAR VALUE OF SHARES OF COMMON STOCK. Before taking any action that
would cause an adjustment reducing the Warrant Price below the then par value of
the Common Stock issuable upon exercise of the Warrants, the Company will take
any corporate action which may, in the opinion of its counsel, be necessary in
order that the Company may validly and legally issue fully paid and
nonassessable Common Stock at such adjusted Warrant Price.

      9.6 INDEPENDENT PUBLIC ACCOUNTANTS. The Company may but shall not be
required to retain a firm of independent public accountants of recognized
regional or national standing (which may be any such firm regularly employed by
the Company) to make any computation required under this Section 9, and a
certificate signed by such firm shall be conclusive evidence of the correctness
of any computation made under this Section 9 and the Company shall cause to be
promptly mailed to the Warrant Agent and each registered holder of a Warrant by
first class mail, postage prepaid, a copy of such certificate.

      9.7 STATEMENT ON WARRANT CERTIFICATES. Irrespective of any adjustments in
the Warrant Price or the number of securities issuable upon exercise of
Warrants, Warrant certificates theretofore or thereafter issued may continue to
express the same price and number of securities as are stated in the similar
Warrant certificates initially issuable pursuant to this Agreement. However, the
Company may, at any time in its sole discretion (which shall be conclusive),
make any change in the form of Warrant certificate that it may deem appropriate
and that does not affect the substance thereof; and any Warrant certificate
thereafter issued, whether upon registration of, transfer of, or in exchange or
substitution for, an outstanding Warrant certificate, may be in the form so
changed.


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      9.8 NO RIGHTS AS STOCKHOLDER; NOTICES TO HOLDERS OF WARRANTS. If, at any
time prior to the expiration of a Warrant and prior to its exercise, any one or
more of the following events shall occur:

            (a) any action that would require an adjustment pursuant to
subsection 9.1 or 9.4 hereof; or

            (b) a dissolution, liquidation or winding up of the Company (other
than in connection with a consolidation, merger or sale of its property, assets
and business as an entirety or substantially as an entirety) shall be proposed;
then the Company must give notice in writing of such event to the registered
holders of the Warrants, as provided in Section 21 hereof, at least 20 days to
the extent practicable, prior to the date fixed as a record date or the date of
closing the transfer books for the determination of the stockholders entitled to
any relevant dividend, distribution, subscription rights or other rights or for
the determination of stockholders entitled to vote on such proposed dissolution,
liquidation or winding up. Such notice must specify such record date or the date
of closing the transfer books, as the case may be. Failure to mail or receive
such notice or any defect therein will not affect the validity of any action
taken with respect thereto.

      Section 10. FRACTIONAL INTERESTS. The Company is not required to issue
fractional shares of Common Stock on the exercise of a Warrant. If any fraction
of a share of Common Stock would, except for the provisions of this Section 10,
be issuable on the exercise of a Warrant (or specified portion thereof), the
Company will in lieu thereof pay an amount in cash equal to the then Current
Market Price multiplied by such fraction. For purposes of this Agreement, the
term "Current Market Price" means (i) if the Common Stock is listed for
quotation on the Nasdaq National Market or the Nasdaq SmallCap Market or on a
national securities exchange, the average for the 10 consecutive trading days
immediately preceding the date in question of the daily per share closing prices
of the Common Stock as quoted by the Nasdaq National Market or the Nasdaq
SmallCap Market or on the principal stock exchange on which it is listed, as the
case may be, whichever is the higher, or (ii) if the Common Stock is traded in
the over-the-counter market and is not listed for quotation on the Nasdaq
National Market or the Nasdaq SmallCap Market nor on any national securities
exchange, the average of the per share closing bid prices of the Common Stock on
the 10 consecutive trading days immediately preceding the date in question, as
reported by Nasdaq or an equivalent generally accepted reporting service. The
closing price referred to in clause (i) above shall be the last reported sale
price or, in case no such reported sale takes place on such day, the average of
the reported closing bid and asked prices, in either case as quoted by the
Nasdaq National Market or the Nasdaq SmallCap Market or on the national
securities exchange on which the Common Stock is then listed. For purposes of
clause (ii) above, if trading in the Common Stock is not reported by Nasdaq, the
bid price referred to in said clause shall be the lowest bid price as reported
on the OTC Bulletin Board or in the "pink sheets" published by National
Quotation Bureau, Incorporated.


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      Section 11. REDEMPTION.

      (a) The then outstanding Warrants may be redeemed, at the option of the
Company, at $.10 per share of Common Stock purchasable upon exercise of such
Warrants, at any time after the average Daily Market Price per share of the
Common Stock for a period of at least 5 consecutive trading days ending not more
than fifteen days prior to the date of the notice given pursuant to Section
11(b) hereof has equaled or exceeded $27.00, and prior to expiration of the
Warrants. The Daily Market Price of the Common Stock will be determined by the
Company in the manner set forth in Section 11(e) as of the end of each trading
day (or, if no trading in the Common Stock occurred on such day, as of the end
of the immediately preceding trading day in which trading occurred) and verified
to the Warrant Agent before the Company may give notice of redemption. All
outstanding Warrants must be redeemed if any are redeemed, and any right to
exercise an outstanding Warrant shall terminate at 5:00 p.m. (New York City
time) on the date fixed for redemption. Trading day means a day in which trading
of securities occurred on the Nasdaq National Market.

      (b) The Company may exercise its right to redeem the Warrants only by
giving the notice set forth in the following sentence. If the Company exercises
its right to redeem, it shall give notice to the Warrant Agent and the
registered holders of the outstanding Warrants by mailing or causing the Warrant
Agent to mail to such registered holders a notice of redemption, first class,
postage prepaid, at their addresses as they shall appear on the records of the
Warrant Agent. Any notice mailed in the manner provided herein will be
conclusively presumed to have been duly given whether or not the registered
holder actually receives such notice.

      (c) The notice of redemption must specify the redemption price, the date
fixed for redemption (which must be at least 30 days after the date such notice
is mailed), the place where the Warrant certificates must be delivered and the
redemption price paid, and that the right to exercise the Warrant will terminate
at 5:00 P.M. (New York City time) on the date fixed for redemption.

      (d) Appropriate adjustment shall be made to the redemption price and to
the minimum Daily Market Price prerequisite to redemption set forth in Section
11(a) hereof, in each case on the same basis as provided in Section 9 hereof
with respect to adjustment of the Warrant Price.

      (e) For purposes of this Agreement, the term "Daily Market Price" means
(i) if the Common Stock is quoted on the Nasdaq National Market or the Nasdaq
SmallCap Market or on a national securities exchange, the daily per share
closing price of the Common Stock as quoted on the Nasdaq National Market or the
Nasdaq SmallCap Market or on the principal stock exchange on which it is listed
on the trading day in question, as the case may be, whichever is the higher, or
(ii) if the Common Stock is traded in the over-the-counter market and not quoted
on the Nasdaq National Market or the Nasdaq SmallCap Market nor on any national
securities exchange, the closing bid price of the Common Stock on the trading
day in question, as reported by Nasdaq or an equivalent generally accepted
reporting service. The closing price referred to in clause (i) above shall be
the last reported sale price or, in case no such reported sale takes place on
such day, the average of the


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reported closing bid and asked prices, in either case on the Nasdaq National
Market or the Nasdaq SmallCap Market or on the national securities exchange on
which the Common Stock is then listed. For purposes of clause (ii) above, if
trading in the Common Stock is not reported by Nasdaq, the bid price referred to
in said clause shall be the lowest bid price as quoted on the OTC Bulletin Board
or reported in the "pink sheets" published by National Quotation Bureau,
Incorporated.

      (f) On the redemption date, each Warrant will be automatically converted
into the right to receive the redemption price and the Warrant Agent will no
longer honor any purported exercise of a Warrant. On or before the redemption
date, the Company will deposit with the Warrant Agent sufficient funds for the
purpose of redeeming all of the outstanding unexercised Warrants. All such funds
shall be maintained by the Warrant Agent in an interest-bearing, segregated
account for payment to holders of Warrants upon surrender of Warrant
Certificates in exchange for the redemption price therefor. Funds remaining in
such account on the date three years from the redemption date will be returned
to the Company. Any Warrants thereafter submitted to the Warrant Agent for
redemption will be forwarded for redemption by the Warrant Agent to the Company,
and the Warrant Agent will have no further responsibility with respect thereto.

      Section 12. RIGHTS AS WARRANTHOLDERS. Nothing contained in this Agreement
or in any of the Warrants shall be construed as conferring upon the holders
thereof, as such, any of the rights of stockholders of the Company, including,
without limitation, the right to receive dividends or other distributions, to
exercise any preemptive rights, to vote or to consent or to receive notice as
stockholders in respect of the meetings of stockholders or the election of
directors of the Company or any other matter.

      Section 13. DISPOSITION OF PROCEEDS ON EXERCISE OF WARRANTS. The Warrant
Agent must account promptly to the Company with respect to Warrants exercised,
and must promptly pay to the Company all monies received by it upon the exercise
of such Warrants, and agrees to keep copies of this Agreement available for
inspection by holders of Warrants during normal business hours.

      Section 14. RESTRICTIONS ON TRANSFER; REGISTRATION RIGHTS.

      (a) Each holder of a Warrant agrees that prior to making any disposition
or transfer of the Warrants or shares issuable upon exercise of the Warrants
("Shares"), unless a registration statement under the Securities Act of 1933, as
amended (the "Securities Act"), is in effect with regard thereto and the
disposition may be effected in accordance therewith and with applicable state
securities laws, the holder shall give written notice to the reasonable Company
describing briefly the manner in which any such proposed disposition or transfer
is to be made; and no such disposition shall be made except pursuant to an
exemption from the registration requirements of all applicable federal and state
securities laws, which exemption shall be proved to the reasonable satisfaction
of the Company and its counsel prior to the effectuation of any such disposition
or transfer.

      (b) Each certificate evidencing the Warrants and Shares issuable upon
exercise of the Warrants shall bear a legend in substantially the following
form, until such time as such Warrants


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or such Shares have been sold pursuant to a registration statement contemplated
in subsection (c) below or unless, in the opinion of legal counsel to the
Company, such legend is not required in order to establish compliance with any
provisions of applicable security laws:

                  THE SECURITIES REPRESENTED BY THIS
                  CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
                  THE SECURITIES ACT OF 1933 OR ANY STATE
                  SECURITIES LAWS AND MAY NOT BE SOLD,
                  EXCHANGED, HYPOTHECATED OR OTHERWISE
                  TRANSFERRED IN ANY MANNER EXCEPT IN
                  COMPLIANCE WITH SECTION 14 OF THE WARRANT
                  AGREEMENT DATED AS OF DECEMBER 15, 1997,
                  BETWEEN UGLY DUCKLING CORPORATION AND
                  HARRIS TRUST COMPANY OF CALIFORNIA, AS
                  WARRANT AGENT, AS THE SAME MAY BE AMENDED
                  FROM TIME TO TIME.

      (c) Subject to the next sentence below, whenever during the one-year
period beginning on the date of issuance of the Warrants hereunder the Company
proposes to file with the Commission a registration statement with respect to
equity securities of the Company (other than as to securities issued pursuant to
an employee benefit plan or as to a transaction subject to Rule 145 promulgated
under the Securities Act or for which a Form S-4 Registration Statement could be
used), it shall, at least 30 days prior to such filing, give written notice of
such proposed filing to the holders of Warrants and Shares which bear a legend
as contemplated in Section 14(b) above and which shall not have previously been
included in a registration statement filed under this Section 14(c), at their
respective addresses as they appear on the records of the Warrant Agent or the
Company, and shall offer to include and shall include, subject to the provisions
of this Section 14(c), in such filing any proposed disposition of such Warrants
and Shares upon receipt by the Company, not less than 10 days prior to the
proposed filing date, of a request therefor setting forth the facts with respect
to such proposed disposition and all other information with respect to the
holders of such Warrants or Shares requested to be included in such filing as
shall be reasonably necessary to be included in such Registration Statement.
Notwithstanding the above, after such time as the holders shall have been given
two opportunities to include their Warrants and underlying Shares in a
Registration Statement of the Company pursuant to the immediately preceding
sentence, and all securities of holders who shall have requested such inclusion
in accordance herewith and who have not withdrawn such request prior to the
filing of such Registration Statement have been included in such a Registration
Statement which shall have become effective and such securities shall have been
effectively registered under the Securities Act, the Company will have no
further obligation to the holders under this Section 14(c) and the holders of
Warrants and Shares that have not been included previously in a Registration
Statement under this Section 14(c) will have no further registration rights
under this Agreement. In the event that (i) the managing underwriter for any
such offering advises the Company in writing that the inclusion of such
securities in the offering would be detrimental to the offering or (ii) in the
event that there is no managing underwriter, if, in the good faith judgment of
the Board of Directors of the Company, inclusion of the Warrants and/or the
Shares in the registration would be seriously detrimental to the Company, then,
such securities shall


                                       11
<PAGE>   12
not be included in the Registration Statement. In the event that securities
requested to be included in an offering are not included in accordance with the
immediately preceding sentence, any notice given to holders of Warrants and
Shares hereunder with respect to such offering shall not be counted against the
limitation provided for in the second sentence of this Section 14(c).

      (d) All fees, disbursements, and out-of-pocket expenses incurred in
connection with the filing of any Registration Statement under Section 14(c)
hereof and in complying with applicable securities and Blue Sky laws shall be
borne by the Company, provided, however, that any expenses of the holders of the
Warrants or the Shares, including but not limited to attorneys' fees and
discounts and commissions, shall be borne by such holders. The Company at its
expense will supply the holders of the Warrants and Shares included in a
Registration Statement with copies of such Registration Statement and the
prospectus or offering circular included therein in such quantities as may be
reasonably requested by such holders.

      (e) Each holder of a Warrant or Shares to be included in a Registration
Statement pursuant to this Section 14 agrees to reasonably cooperate with the
Company and to provide the Company on its request with all information
concerning such holder and such Warrants and Shares that may reasonably be
requested by the Company in order for the Company to perform its obligation
under this Section 14.

      Section 15. INDEMNIFICATION.

      (a) In the event of the filing of any Registration Statement with respect
to the Warrants or the Shares pursuant to Section 14 above, the Company agrees
to indemnify and hold harmless the holders of such Warrants or Shares (for
purposes of this Section 15, references to any holder of Shares shall refer only
to such holders who have agreed to be bound by this Section 15), and each person
who controls such holders within the meaning of the Securities Act and such
holders' officers, directors, managers, members, partners, and principle equity
holders (collectively, "Indemnitees") against all losses, claims, damages,
expenses and liabilities, joint or several (which shall, for all purposes of
this Agreement, include, but not be limited to, all costs of defense and
investigation and all attorneys' fees and expenses), to which such Indemnitees
may become subject, under the Securities Act or otherwise, insofar as such
losses, claims, damages, expenses or liabilities (or actions in respect thereof)
arise out of or are based upon any untrue statement or alleged untrue statement
of any material fact contained in any such Registration Statement, or any
related preliminary prospectus, final prospectus, offering circular,
notification or amendment or supplement thereto, or arise out of or are based
upon the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein, in the light
of the circumstances in which they were made, not misleading; provided, however,
that the Company will not be liable in any such case to the extent that any such
loss, claim, damage, expenses, or liability arises out of or is based upon an
untrue statement or alleged untrue statement or omission or alleged omission
made in such Registration Statement, preliminary prospectus, final prospectus,
offering circular, notification or amendment or supplement thereto in reliance
upon, and in conformity with, written information furnished to the Company by
any such holder specifically for use in the


                                       12
<PAGE>   13
preparation thereof and, provided further, that the indemnity agreement provided
in this Section 15(a) with respect to any preliminary prospectus shall not inure
to the benefit of any holder of Warrants or Shares from whom the person
asserting any losses, claims, damages, liabilities or actions based upon any
untrue statement or alleged untrue statement of material fact or omission or
alleged omission to state therein a material fact purchased Warrants or Shares,
if a copy of the prospectus in which such untrue statement or alleged untrue
statement or omission or alleged omission was corrected had not been sent or
given to such person within the time required by the Securities Act and the
rules and regulations thereunder, unless such failure is the result of
non-compliance by the Company with the last sentence of Section 14(d) hereof.
This indemnity will be in addition to any liability which the Company may
otherwise have.

      (b) Each holder of a Warrant and each holder of a Share agrees that he
will indemnify and hold harmless the Company, each other person referred to in
subparts (1), (2) and (3) of Section 11(a) of the Securities Act in respect of
the Registration Statement, each officer of the Company, and each person who
controls the Company within the meaning of the Securities Act, against any
losses, claims, damages or liabilities (which shall, for all purposes of this
Agreement, include, but not be limited to, all costs of defense and
investigation and all attorneys' fees) to which the Company or any such
director, officer or controlling person may become subject under the Securities
Act or otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon any untrue statement
or alleged untrue statement of any material fact contained in any such
Registration Statement, or any related preliminary prospectus, final prospectus,
offering circular, notification or amendment or supplement thereto, or arise out
of or are based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, but in each case only to the extent that such untrue
statement or alleged untrue statement or omission or alleged omission was made
in such Registration Statement, preliminary prospectus, final prospectus,
offering circular, notification or amendment or supplement thereto in reliance
upon, and in conformity with, written information furnished to the Company by
such holder specifically for use in the preparation thereof. This indemnity will
be in addition to any liability which the holder may otherwise have.

      (c) Promptly after receipt by an indemnified party under this Section 15
of notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against the indemnifying party under this
Section 15, notify the indemnifying party of the commencement thereof. No
indemnification provided for in this Section 15 shall be available to any party
who shall fail to give the notice to the extent the party to whom such notice
was not given was materially prejudiced by the failure to give the notice, but
the omission so to notify the indemnifying party will not relieve the
indemnifying party or parties from any liability which it may have to any
indemnified party for contribution otherwise than as to the particular item as
to which indemnification is then being sought solely pursuant to this Section
15. In case any such action is brought against any indemnified party, and it
notifies the indemnifying party of the commencement thereof, the indemnifying
party will be entitled to participate in, and, to the extent that it may wish,
jointly with any other indemnifying party similarly notified, reasonably assume
the defense thereof, subject to the provisions herein stated and after notice
from the indemnifying party to such


                                       13
<PAGE>   14
indemnified party of its election so to assume the defense thereof, the
indemnifying party will not be liable to such indemnified party under this
Section 15 for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof other than reasonable
costs of investigation unless the indemnifying party shall not pursue the action
to its final conclusion. The indemnified party shall have the right to employ
separate counsel in any such action and to participate in the defense thereof,
but the fees and expenses of such counsel shall not be at the expense of the
indemnifying party. No settlement of any action against an indemnified party
shall be made without the consent of the indemnifying party, which shall not be
unreasonably withheld in light of all factors of importance to such indemnified
party.

      Section 16. MERGER OR CONSOLIDATION OR CHANGE OF NAME OF WARRANT AGENT.

      (a) Any corporation into which the Warrant Agent may be merged or with
which it may be consolidated, or any corporation resulting from any merger or
consolidation to which the Warrant Agent shall be a party, or any corporation
succeeding to the corporate trust business of the Warrant Agent, shall be the
successor to the Warrant Agent hereunder without the execution or filing of any
paper or any further act on the part of any of the parties hereto, provided that
such corporation would be eligible for appointment as a successor Warrant Agent
under the provisions of Section 19 of this Agreement. In case at the time such
successor to the Warrant Agent shall succeed to the agency created by this
Agreement and any of the Warrant certificates shall have been countersigned but
not delivered, any such successor to the Warrant Agent may adopt the
countersignature of the original Warrant Agent and deliver such Warrant
certificates so countersigned; and in case at that time any of the Warrant
certificates shall not have been countersigned, any successor to the Warrant
Agent may countersign such Warrant certificates either in the name of the
predecessor Warrant Agent or in the name of the successor Warrant Agent, and in
all such cases the Warrants represented by such Warrant certificates shall have
the full force provided in the Warrant certificates and in this Agreement. Any
such successor Warrant Agent shall promptly give notice of its succession as
Warrant Agent to the Company and to the registered holder of each Warrant
certificate.

      (b) If at any time the name of the Warrant Agent is changed and at such
time any of the Warrant certificates have been countersigned but not delivered,
the Warrant Agent may adopt the countersignature under its prior name and
deliver Warrant certificates so countersigned; and if at that time any of the
Warrant certificates have not been countersigned, the Warrant Agent may
countersign such Warrant certificates either in its prior name or in its changed
name; and in all such cases the Warrants represented by such Warrant
certificates will have the full force provided in the Warrant certificates and
in this Agreement.

      Section 17. CONCERNING THE WARRANT AGENT. The Company agrees to pay to the
Warrant Agent reasonable compensation for all services rendered by it hereunder
and, from time to time, on demand of the Warrant Agent, its reasonable expenses
and counsel fees and other disbursements incurred in the administration and
execution of this Agreement and the exercise and performance of its duties
hereunder. The Company also agrees to indemnify the Warrant Agent, and its
officers, agents and directors for, and to hold each of them harmless against,
any loss, liability, or expense


                                       14
<PAGE>   15
incurred without negligence or willful misconduct on the part of the Warrant
Agent, for anything done or omitted by the Warrant Agent or such indemnified
party in connection with the acceptance or administration of this Agreement or
the exercise or performance of its duties hereunder, including the costs and
expenses of defending against any claim of liability in the premises. The
indemnification provided for hereunder shall survive the expiration of the
Warrant, the termination of this Agreement and the resignation or removal of the
Warrant Agent. The costs and expenses of enforcing this right of indemnification
shall also be paid by the Company.

      The Warrant Agent may conclusively rely upon and shall be protected by the
Company and shall incur no liability for, or in respect of any action taken,
suffered or omitted by it in connection with, its administration of this
Agreement or the exercise or performance of its duties hereunder in reliance
upon any Warrant certificate or certificate for the Common stock or for other
securities of the Company, instrument of assignment or transfer, power of
attorney, endorsement, affidavit, letter, notice, direction, consent,
certificate, statement, or other paper or document believed by it to be genuine
and to be signed, executed and, where necessary, verified or acknowledged, by
the proper person or persons, or otherwise upon the advice of counsel as set
forth herein.

      Notwithstanding anything in this Agreement to the contrary, in no event
shall the Warrant Agent be liable for special, indirect or consequential loss or
damage of any kind whatsoever (including but not limited to lost profits), even
if the Warrant Agent has been advised of the likelihood of such loss or damage
and regardless of the form of the action.

      Section 18. DUTIES OF WARRANT AGENT. The Warrant Agent undertakes the
duties and obligations expressly imposed by this Agreement, and no implied
duties or obligations shall be read into this Agreement against the Warrant
Agent, upon the following terms and conditions, by all of which the Company and
the holders of Warrant certificates, by their acceptance thereof, shall be
bound:

      (a) Before the Warrant Agent acts or refrains from acting, the Warrant
Agent may consult with legal counsel (who may be legal counsel for the Company)
and the opinion of such counsel shall be full and complete authorization and
protection to the Warrant Agent as to any action taken or omitted by it in good
faith and in accordance with such opinion.

      (b) Whenever in the performance of its duties under this Agreement the
Warrant Agent shall deem it necessary or desirable that any fact or factual
matter be proved or established by the Company prior to taking or suffering any
action hereunder, such fact or matter (unless other evidence in respect thereof
be herein specifically prescribed) may be deemed to be conclusively proved and
established by a certificate signed by any person believed in good faith by the
Warrant Agent to be one of the Chairman of the Board, the Chief Executive
Officer, the President, any Vice President, the Treasurer or the Secretary of
the Company and delivered to the Warrant Agent; and such certificate shall be
full authorization to the Warrant Agent for any action taken or suffered in good
faith by it under the provisions of this Agreement in reliance upon such
certificate.


                                       15
<PAGE>   16
      (c) The Warrant Agent shall be liable hereunder to the Company and any
other Person only for its own negligence, bad faith or wilful misconduct.

      (d) The Warrant Agent shall not be liable for or by reason of any of the
statements of fact or recitals contained in this Agreement or in the Warrant
certificates (except its countersignature thereof) or be required to verify the
same, but all such statements and recitals are and shall be deemed to have been
made by the Company only.

      (e) The Warrant Agent is serving as an administrative agent and,
accordingly, shall not be under any responsibility in respect of the validity of
any provision of this Agreement or the execution and delivery hereof (except the
due execution hereof by the Warrant Agent) or in respect of the validity or
execution of any Warrant certificate (except its countersignature thereof); nor
shall it be responsible for any breach by the Company of any covenant or
condition contained in this Agreement or in any Warrant certificate; nor shall
it be responsible for any change in the exercisability of the Warrant (including
the Warrant becoming void) or any adjustment in the terms of the Warrant
(including the manner, method or amount thereof) provided for herein, or the
ascertaining of the existence of facts that would require any such change or
adjustment (except with respect to the exercise of any Warrant evidenced by a
Warrant certificate after actual notice to the Warrant Agent that such change or
adjustment is required); nor shall it by any act hereunder be deemed to make any
representation or warranty as to the authorization or reservation of any shares
of Common stock to be issued pursuant to this Agreement or any Warrant
certificate or as to whether any shares of Common stock will, when issued, be
validly authorized and issued, fully paid and nonassessable.

      (f) The Company agrees that it will perform, execute, acknowledge and
deliver or cause to be performed, executed, acknowledged and delivered all such
further and other acts, instruments and assurances as may reasonably be required
by the Warrant Agent for the carrying out or performing by the Warrant Agent of
the provisions of this Agreement.

      (g) The Warrant Agent is hereby authorized and directed to accept
instructions with respect to the performance of its duties hereunder from any
person believed in good faith by the Warrant Agent to be one of the Chairman of
the Board, the Chief Executive Officer, the President, any Vice President, the
Treasurer, or the Secretary of the Company, and to apply to such officers for
advice or instructions in connection with its duties, and it shall not be liable
for any action taken or suffered by it in good faith in accordance with
instructions of any such officer of for any delay in acting while waiting for
those instructions.

            Any application by the Warrant Agent for written instructions from
the Company may, at the option of the Warrant Agent, set forth in writing any
action proposed to be taken or omitted by the Warrant Agent under this Agreement
and the date on or after which such action shall be taken or such omission shall
be effective. The Warrant Agent shall not be liable for any action taken by, or
omission of, the Warrant Agent in accordance with a proposal included in any
such application on or after the date specified in such application (which date
shall not be less than ten


                                       16
<PAGE>   17
Business Days after the date any officer of the Company actually receives such
application, unless any such officer shall have consented in writing to an
earlier date) unless, prior to taking any such action (or the effective date in
the case of an omission), the Warrant Agent shall have received written
instructions in response to such application subject to the proposed action or
omission and/or specifying the action to be taken or omitted.

      (h) Subject to applicable law, the Warrant Agent and any stockholder,
director, officer or employee of the Warrant Agent may buy, sell or deal in any
of the Warrants or other securities of the Company or become pecuniarily
interested in any transaction in which the Company may be interested, or
contract with or lend money to the Company or otherwise act as fully and freely
as though it were not Warrant Agent under this Agreement. Nothing herein shall
preclude the Warrant Agent from acting in any other capacity for the Company or
for any other legal entity.

      (i) The Warrant Agent may execute and exercise any of the rights or powers
hereby vested in it or perform any duty hereunder either itself or by or through
its attorneys or agents, and the Warrant Agent shall not be answerable or
accountable for any act, default, neglect or misconduct of any such attorneys or
agents or for any loss to the Company resulting from any such act, default,
neglect or misconduct, provided that reasonable care was exercised in the
selection and continued employment thereof.

      (j) No provision of this Agreement shall require the Warrant Agent to
expend or risk its own funds or otherwise incur any financial liability in the
performance of any of its duties hereunder or in the exercise of its rights if
there shall be reasonable grounds for believing that repayment of such funds or
adequate indemnification against such risk or liability is not reasonably
assured to it.

      (k) The Warrant Agent shall not be required to take notice or be deemed to
have notice of any fact, event or determination (including, without limitation,
any dates or events defined in this Agreement) under this Agreement unless and
until the Warrant Agent shall be specifically notified in writing by the Company
of such fact, event or determination.

      Section 19. CHANGE OF WARRANT AGENT. The Warrant Agent may resign and be
discharged from its duties under this Agreement by giving the Company at least
30 days prior notice in writing, and by mailing notice in writing to the
registered holders at the expense of the Company at their addresses appearing on
the Warrant Register, of such resignation, at least 15 days prior to the date
such resignation shall take effect and specifying a date when such resignation
shall take effect. The Warrant Agent may be removed by like notice to the
Warrant Agent from the Company and by like mailing of notice to the registered
holders of the Warrants. If the Warrant Agent resigns or is removed or otherwise
becomes incapable of acting, the Company shall appoint a successor to the
Warrant Agent. If the Company fails to make such appointment within 30 days
after such removal or after it has been notified in writing of such resignation
or incapacity by the resigning or incapacitated Warrant Agent or by the
registered holder of a Warrant (who shall, with such notice, submit his Warrant
certificate for inspection by the Company), then the registered holder of any
Warrant may apply to any court of competent jurisdiction for the appointment of
a successor to the


                                       17
<PAGE>   18
Warrant Agent. Pending appointment of a successor to the Warrant Agent, either
by the Company or such a court, the Company shall carry out the duties of the
Warrant Agent. Any successor Warrant Agent, whether appointed by the Company or
by such a court, must be registered and otherwise authorized to serve as a
transfer agent pursuant to the Securities Exchange Act of 1934, as amended. If
at any time the Warrant Agent ceases to be eligible in accordance with the
provisions of this Section 19, it will resign immediately in the manner and with
the effect specified in this Section 19. After acceptance in writing of the
appointment, the successor Warrant Agent will be vested with the same powers,
rights, duties and responsibilities as if it had been originally named as
Warrant Agent without further act or deed; but the former Warrant Agent will
deliver and transfer to the successor Warrant Agent any property at the time
held by it hereunder, and execute and deliver any further assurance, conveyance,
act or deed necessary for this purpose. Upon request of any successor Warrant
Agent, the Company will make, execute, acknowledge and deliver any and all
instruments in writing for more fully and effectually vesting in and confirming
to such successor Warrant Agent all such powers, rights, duties and
responsibilities. Failure to file or mail any notice provided in this Section
19, however, or any defect therein, will not affect the legality or validity of
the resignation or removal of the Warrant Agent or the appointment of the
successor Warrant Agent, as the case may be.

      Section 20. IDENTITY OF TRANSFER AGENT. Following the appointment of any
transfer agent for the Common Stock or of any subsequent transfer agent for
shares of the Common Stock or other shares of the Company's capital stock
issuable upon the exercise of the rights of purchase represented by the
Warrants, the Company will file with the Warrant Agent a statement setting forth
the name and address of such transfer agent.

      Section 21. NOTICES. Notices or demands authorized by this Agreement to be
given or made by the Warrant Agent or by the holder of any Warrant certificate
to or on the Company shall be sufficiently given or made if sent by registered
or certified mail, addressed (until another address is filed in writing with the
Warrant Agent) as follows (and shall be deemed given upon receipt):

                  Ugly Duckling Corporation
                  2525 East Camelback Road
                  Suite 1150
                  Phoenix, Arizona 85016
                  Attention:  Steven P. Johnson, Senior Vice President,
                              General Counsel and Secretary

                  With a copy to:

                  Steven D. Pidgeon
                  Snell & Wilmer L.L.P.
                  One Arizona Center
                  Phoenix, Arizona 85004-0001


                                       18
<PAGE>   19
Notices or demands authorized by this Agreement to be given or made by the
Company or by the holder of any Warrant certificate to or on the Warrant Agent
shall be sent by registered or certified mail, addressed (until another address
is filed in writing with the Company) as follows (and shall be deemed given upon
receipt):

                  Harris Trust Company of California
                  601 South Figueroa
                  49th Floor
                  Los Angeles, CA 90017
                  Attention: Neil Rosso, Corporate Trust

Notices or demands authorized by this Agreement to be given or made by the
Company or the Warrant Agent to the holder of any Warrant certificate shall be
sufficiently given or made if sent by first class mail, postage prepaid,
addressed to such holder at the address of such holder as shown in the Warrant
Register. The Company shall deliver a copy of any notice or demand it delivers
to the holder of any Warrant certificate to the Warrant Agent.

      Section 22. SUPPLEMENTS AND AMENDMENTS. The Company and the Warrant Agent
may from time to time supplement or amend this Agreement without the approval of
any holders of Warrants in order to cure any ambiguity or to correct or
supplement any provision contained herein which may be defective or inconsistent
with any other provision herein, or to make any other provisions in regard to
matters or questions arising hereunder which the Company and the Warrant Agent
may deem necessary or desirable and which shall not be inconsistent with the
provisions of the Warrants, or which shall not adversely affect the interests of
the holders of Warrants (including reducing the Warrant Price or extending the
redemption or expiration date). In any situation in which this Agreement cannot
be amended pursuant to the next sentence above, this Agreement may be amended by
the Company, the Warrant Agent and the holder or holders of a majority of the
outstanding Warrants representing a majority of the shares of Common Stock
underlying such Warrants; provided, however, that without the consent of each
holder of a Warrant, there can be no increase of the Warrant Price or reduction
of the exercise period for such holder's Warrants and provided, further, that no
such supplement or amendment may affect the rights or duties of the Warrant
Agent under this Agreement without the written consent of the Warrant Agent.
Notwithstanding anything in this Agreement to the contrary, no supplement or
amendment that changes the rights and duties of the Warrant Agent under this
Agreement shall be effective without the written consent of the Warrant Agent.

      Section 23. SUCCESSORS. All the covenants and provisions of this Agreement
by or for the benefit of the Company, or the Warrant Agent or the registered
holders of the Warrants will bind and inure to the benefit of their respective
successors and assigns hereunder.

      Section 24. GOVERNING LAW. This Agreement will be deemed to be a contract
made under the laws of the State of Arizona and for all purposes will be
construed in accordance with the laws of said State, except as to Sections 17,
18 and 22, which shall be governed by and construed


                                       19
<PAGE>   20
in accordance with the laws of the State of Illinois. Each holder of a Warrant
by its acceptance thereof agrees to submit to the jurisdiction of a court of
competent jurisdiction in the State of Arizona, but to the State of Illinois as
to Sections 17, 18 and 22, for the purpose of resolving any disputes arising
with respect to the rights and obligations of the Warrant Agent.

      Section 25. BENEFITS OF THIS AGREEMENT. Nothing in this Agreement will be
construed to give to any person or corporation other than the Company, the
Warrant Agent and the registered holders of the Warrants any legal or equitable
right, remedy or claim under this Agreement. This Agreement is for the sole and
exclusive benefit of the Company, the Warrant Agent and the registered holders
of the Warrants.

      Section 26. COUNTERPARTS. This Agreement may be executed in counterparts
and each of such counterparts will for all purposes be deemed to be an original,
and all such counterparts will together constitute but one and the same
instrument.

      Section 27. DESCRIPTIVE HEADINGS. The descriptive headings of the several
Sections of this Agreement are inserted for convenience only and do not control
or affect the meaning or construction of any of the provisions hereof.

      IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed, as of the day and year first above written.



                            UGLY DUCKLING CORPORATION

                            By: /s/ Steven P. Johnson            
                                ---------------------------------
                            Name: Steven P. Johnson              
                                  -------------------------------
                            Its: Secretary                       
                                 --------------------------------

                            HARRIS TRUST COMPANY OF CALIFORNIA

                            By: /s/ Neil Rosso                   
                                ---------------------------------
                            Name: Neil Rosso                     
                                  -------------------------------
                            Its: Assistant V.P.                  
                                 --------------------------------

                                       20
<PAGE>   21
Warrant No.  ____

                                    EXHIBIT A

              WARRANT TO PURCHASE ________ SHARES OF COMMON STOCK

                             VOID AFTER 5:00 P.M.,
                   NEW YORK CITY TIME, ON FEBRUARY 20, 2000

                           UGLY DUCKLING CORPORATION

      This certifies that, for value received ________________________, the
registered holder hereof or assigns (the "Holder"), is entitled to purchase from
UGLY DUCKLING CORPORATION, a Delaware corporation (the "Company"), at any time
before 5:00 p.m., New York City time, on February 20, 2000, at the purchase
price per share of $20 (the "Warrant Price"), the number of shares of Common
Stock, par value $0.001 per share, of the Company set forth above (the
"Shares"). The number of shares of Common Stock purchasable upon exercise of the
Warrant evidenced hereby and the Warrant Price is subject to adjustment from
time to time as set forth in the Warrant Agreement referred to below.

      This Warrant may be redeemed, at the option of the Company and as more
specifically provided in the Warrant Agreement, at $.10 per share of Common
Stock purchasable upon exercise hereof, at any time after the average Daily
Market Price (as defined in Section 11 of the Warrant Agreement) per share of
the Common Stock for a period of at least 5 consecutive trading days ending not
more than fifteen days prior to the date of the notice given pursuant to Section
11(b) thereof has equaled or exceeded $27.00, and prior to expiration of this
Warrant. The Holder's right to exercise this Warrant terminates at 5:00 p.m.
(New York City time) on the date fixed for redemption in the notice of
redemption delivered by the Company in accordance with the Warrant Agreement.

      The Warrants evidenced hereby may be exercised in whole or in part by
presentation of this Warrant certificate with the Purchase Form attached hereto
duly executed and guaranteed and simultaneous payment of the Warrant Price (as
defined in the Warrant Agreement and subject to adjustment as provided therein)
at the principal office in Los Angeles, California, of Harris Trust Company of
California (the "Warrant Agent"). Payment of such price may be made at the
option of the Holder in cash or by certified check or bank draft, all as
provided in the Warrant Agreement.

      The Warrants evidenced hereby are part of a duly authorized issue of
Warrants and are issued under and in accordance with the Warrant Agreement dated
as of _________ ___, 1997, between the Company and the Warrant Agent, and are
subject to the terms and provisions contained in such Warrant Agreement, which
Warrant Agreement is hereby incorporated by reference herein and made a part
hereof and is hereby referred to for a description of the rights, limitations,
duties and


                                       21
<PAGE>   22
indemnities thereunder of the Company and the Holder of the Warrants, and to all
of which the Holder of this Warrant certificate by acceptance hereof consents. A
copy of the Warrant Agreement may be obtained for inspection by the Holder
hereof upon written request to the Warrant Agent.

      Upon any partial exercise of the Warrants evidenced hereby, there will be
issued to the Holder a new Warrant certificate in respect of the Shares
evidenced hereby that have not been exercised. This Warrant certificate may be
exchanged at the office of the Warrant Agent by surrender of this Warrant
certificate properly endorsed either separately or in combination with one or
more other Warrants for one or more new Warrants to purchase the same aggregate
number of Shares as evidenced by the Warrant or Warrants exchanged. No
fractional Shares will be issued upon the exercise of rights to purchase
hereunder, but the Company will pay the cash value of any fraction upon the
exercise of one or more Warrants, as provided in the Warrant Agreement.

      The Warrant Price and the number of shares of Common Stock issuable upon
exercise of this Warrant is subject to adjustment as provided in Section 9 of
the Warrant Agreement. The Warrant Agreement may be amended by the holder or
holders of a majority of the outstanding Warrants representing a majority of the
shares of Common Stock underlying such Warrants; provided that without the
consent of each holder of a Warrant certain specified changes cannot be made to
such holder's Warrants and no amendment may affect the rights and duties of the
Warrant Agent without the consent of the Warrant Agent. Pursuant to the Warrant
Agreement, by acceptance of a Warrant, each holder consents to the jurisdiction
of a court of competent jurisdiction in the State of Arizona for the purpose of
resolving any disputes arising with respect to the Warrants or the Warrant
Agreement.

      The Holder hereof may be treated by the Company, the Warrant Agent and all
other persons dealing with this Warrant certificate as the absolute owner hereof
for all purposes and as the person entitled to exercise the rights represented
hereby, any notice to the contrary notwithstanding, and until any transfer is
entered on such books, the Company may treat the Holder hereof as the owner for
all purposes. Notices and demands to be given to the Company or the Warrant
Agent must be given by certified or registered mail at the addresses provided in
the Warrant Agreement.

      All terms used in the Warrant Certificate that are defined in the Warrant
Agreement shall have the respective meanings ascribed to such terms in the
Warrant Agreement.

Dated:________________                 UGLY DUCKLING CORPORATION

                                       By:_________________________________
                                             President

ATTEST:

___________________________
Secretary


                                       22
<PAGE>   23
                                       This is one of the Warrants referred
                                       to in the within mentioned Warrant
                                       Agreement.

                                       HARRIS TRUST COMPANY OF CALIFORNIA

                                By:    _______________________________________
                                       Authorized Representative


                                       23
<PAGE>   24
                           UGLY DUCKLING CORPORATION
                                 PURCHASE FORM

                               Mailing Address:
                           UGLY DUCKLING CORPORATION
                           2525 East Camelback Road
                                  Suite 1150
                            Phoenix, Arizona 85016

      The undersigned hereby irrevocably elects to exercise the right of
purchase represented by the within Warrant certificate for, and to purchase
thereunder, _____________Shares of Common Stock provided for therein, and
requests that certificates for such Shares be issued in the name of:___________
_______________________________________________________________________________
_______________________________________________________________________________
(Please Print or Type Name, Address and Social Security Number)

and that such certificates be delivered to ____________________________________
whose address is _______________________________________________________________
and, if said number of Shares shall not be all the Shares purchasable hereunder,
that a new Warrant certificate for the balance of the Shares purchasable under
the within Warrant certificate be registered in the name of the undersigned
Holder or his or her Assignee as below indicated and delivered to the address
stated below.

                                          Dated:_______________________________

Name of Holder or Assignee:

_______________________________________________________________________________
(Please Print)

Address:_______________________________________________________________________
_______________________________________________________________________________

Signature:

___________________________
NOTE: The above signature must correspond with the name as it appears upon the
face of the within Warrant certificate in every particular, without alteration
or enlargement or any change whatever, unless these Warrants have been assigned.

Signature Guaranteed:

___________________________
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION
(Banks, Stock Brokers, Savings and Loan Association, and Credit Unions) WITH
MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM PURSUANT TO
S.E.C. RULE 17Ad-15.


                                       24
<PAGE>   25
                                  ASSIGNMENT

                (To be signed only upon assignment of Warrants)

      FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto

_______________________________________________________________________________
         (Name and Address of Assignee Must Be Printed or Typewritten)


_______________________________________________________________________________

______________ Warrants, hereby irrevocably constituting and appointing _______
Attorney to transfer said Warrants on the books of the Company, with full power
of substitution in the premises.

Dated:_________________


                                      __________________________________________
                                      Signature of Registered Holder

                        Note: The signature on this assignment must correspond
                              with the name as it appears upon the face of the
                              within Warrant certificate in every particular,
                              without alteration or enlargement or any change
                              whatever.


Signature Guaranteed:


________________________
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION
(Banks, Stock Brokers, Savings and Loan Association, and Credit Unions) WITH
MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM PURSUANT TO
S.E.C. RULE 17Ad-15.


                                       25
<PAGE>   26
                                   EXHIBIT B

<TABLE>
<CAPTION>
Name and Address of Sellers               No. of Warrants
---------------------------               ---------------
<S>                                       <C>
Cerberus Partners, L.P.                   80,851

Bear Stearns Securities Corp.             29,349
</TABLE>


                                       26