SENIOR SECURED LOAN AGREEMENT
Dated as of January 11, 2001
by and among
UGLY DUCKLING CORPORATION,
a Delaware corporation
("Borrower")
THE LENDERS FROM TIME TO TIME PARTY HERETO
and
BNY MIDWEST TRUST COMPANY,
as Collateral Agent
$35,000,000 Senior Secured Loan

<PAGE>

<TABLE>
<CAPTION>
<S>        <C>                                                                                                   <C>
ARTICLE I. DEFINITIONS     1
           1.1      Defined Terms.................................................................................1
           1.2      Other Interpretive Provisions................................................................17
           1.3      Accounting Principles........................................................................18
           1.4      Times........................................................................................19

ARTICLE II. THE LOAN  19
           2.1      The Loan.....................................................................................19
           2.2      Payment Upon Collection; Monthly Amortization................................................19
           2.3      Payment Upon Maturity........................................................................19
           2.4      Interest.....................................................................................19
           2.5      Voluntary Prepayments; Deposits to Collateral Account........................................20
           2.6      Application of Payments......................................................................21
           2.7      Prepayment...................................................................................22
           2.8      Fees.........................................................................................22
           2.9      Fees and Interest............................................................................22
           2.10     Payments by Borrower; Payments by Collateral Agent...........................................22
           2.11     Taxes........................................................................................23
           2.12     Sharing of Payments, Etc.....................................................................24
           2.13     Suspension of LIBOR..........................................................................25
           2.14     Increased Costs, Etc.........................................................................25
           2.15     Promissory Notes.............................................................................26

ARTICLE III. SECURITY AGREEMENT AND COLLATERAL...................................................................26
           3.1      Security for Obligations.....................................................................26
           3.2      Security Documents...........................................................................27
           3.3      Duties Regarding Collateral..................................................................27
           3.4      Borrower's Duties Regarding Collateral.......................................................27
           3.5      Power of Attorney............................................................................28
           3.6      Collateral Inspections.......................................................................28

ARTICLE IV. CONDITIONS PRECEDENT; TERM OF AGREEMENT..............................................................28
           4.1      Conditions Precedent.........................................................................29
           4.2      Receipt of Documents.........................................................................29
           4.3      Term.........................................................................................30
           4.4      Effect of Termination........................................................................31

ARTICLE V. REPRESENTATIONS AND WARRANTIES........................................................................31
           5.1      No Encumbrances..............................................................................31
           5.2      Location of Chief Executive Office; FEIN.....................................................31
           5.3      Due Organization and Qualification; Subsidiaries.............................................31
           5.4      Due Authorization:  No Conflict..............................................................32
           5.5      Litigation...................................................................................33
           5.6      Financial Statements; No Material Adverse Change.............................................33
           5.7      Securitization Documents.....................................................................33
           5.8      ERISA........................................................................................33
           5.9      Environmental and Safety Matters.............................................................34
           5.10     Tax Matters..................................................................................34
           5.11     [Reserved]...................................................................................34
           5.12     Ownership of Properties......................................................................34
           5.13     Investment Company Status....................................................................34
           5.14     Solvency.....................................................................................34

ARTICLE VI. AFFIRMATIVE COVENANTS................................................................................35
           6.1      Financial Statements and Other Documents.....................................................35
           6.2      Inspection of Property.......................................................................36
           6.3      Default Disclosure...........................................................................36
           6.4      Notices to Lenders and the Collateral Agent..................................................36
           6.5      Books and Records............................................................................37
           6.6      Compliance and Preservation..................................................................37
           6.7      Perfection of Liens..........................................................................37
           6.8      Cooperation..................................................................................37
           6.9      Use of Proceeds..............................................................................37
           6.10     Securitizations..............................................................................37
           6.11     Compliance with Covenants....................................................................38
           6.12     Payment of Indebtedness......................................................................38
           6.13     Tangible Net Worth...........................................................................38
           6.14     Consolidated EBITDA to Consolidated Interest Expense.........................................38
           6.15     Consolidated Senior Debt to Consolidated Total Capitalization................................38
           6.16     Minimum Residual Certificate Cash Flows......................................................38
           6.17     Minimum Capital Base.........................................................................39
           6.18     Minimum Other Interest Coverage..............................................................39
           6.19     Cash Collateral..............................................................................39
           6.20     Collateral Account...........................................................................39
           6.21     Back-up Servicer.............................................................................39
           6.22     Maintenance of Properties....................................................................39
           6.23     Maintenance of Insurance.....................................................................39
           6.24     Approved Replacement Warehouse Agreement.....................................................39
           6.25     Designated Senior Indebtedness...............................................................40

ARTICLE VII. NEGATIVE COVENANTS..................................................................................40
           7.1      Liens........................................................................................40
           7.2      Indebtedness.................................................................................40
           7.3      Restrictions on Fundamental Changes..........................................................40
           7.4      Disposal of Collateral, Residual Certificates, Additional Residual Certificates..............40
           7.5      Change Name..................................................................................41
           7.6      Amendments...................................................................................41
           7.7      Change of Control............................................................................41
           7.8      Distributions; Prepayments of Subordinated Debt..............................................41
           7.9      Standing Dividend Resolutions................................................................41
           7.10     Change in Location of Chief Executive Office.................................................41
           7.11     No Prohibited Transactions Under ERISA.......................................................41
           7.12     Changes in Nature of Business................................................................42
           7.13     Transactions with Affiliates.................................................................42

ARTICLE VIII. EVENTS OF DEFAULT/REMEDIES.........................................................................42
           8.1      Event of Default.............................................................................42
           8.2      Rights and Remedies..........................................................................44

ARTICLE IX. THE COLLATERAL AGENT.................................................................................45
           9.1      Authorization and Action.....................................................................45
           9.2      Collateral Agent's Reliance, Etc.............................................................46
           9.3      BNY Midwest Trust Company and Affiliates.....................................................46
           9.4      Lender Credit Decision.......................................................................46
           9.5      Indemnification..............................................................................47
           9.6      Successor Collateral Agents..................................................................47
           9.7      Monthly Verification Duties of Collateral Agent..............................................47

ARTICLE X. MISCELLANEOUS.........................................................................................48
           10.1     Amendments and Waivers.......................................................................48
           10.2     Notices......................................................................................48
           10.3     No Waiver:  Cumulative Remedies..............................................................49
           10.4     Costs and Expenses...........................................................................50
           10.5     Indemnity....................................................................................50
           10.6     Marshaling:  Payments Set Aside..............................................................51
           10.7     Successors and Assigns.......................................................................51
           10.8     Set-off......................................................................................51
           10.9     Counterparts.................................................................................52
           10.10    Severability.................................................................................52
           10.11    No Third Parties Benefited...................................................................52
           10.12    Time.........................................................................................52
           10.13    Governing Law and Jurisdiction...............................................................52
           10.14    Entire Agreement.............................................................................53
           10.15    Interpretation...............................................................................53
           10.16    Assignment; Register.........................................................................54
           10.17    Revival and Reinstatement of Obligations.....................................................54
           10.18    Survival.....................................................................................55
           10.19    Confidentiality..............................................................................55
           10.20    Actions by Portfolio Advisor.................................................................55

</TABLE>
<PAGE>

SCHEDULES AND EXHIBITS

Schedule A            Borrower's Subsidiaries

Schedule B            Warrants, Options, etc.

Schedule C            Litigation

Schedule D            Exceptions to Financial Statements

Schedule E            Permitted Liens

Schedule F            Residual Certificates

Schedule G            Subordinated Indebtedness

Schedule H            Collateral Agent Fees

Schedule I            Administrative Forms

Exhibit A             UDRC II and UDRC III Securitization Documents

Exhibit B             Form of Collateral Account Agreement

Exhibit C             Form of Assignment and Acceptance

Exhibit D             Form of Promissory Note

Exhibit E             Form of Guaranty

<PAGE>

                         SENIOR SECURED LOAN AGREEMENT


This SENIOR  SECURED LOAN  AGREEMENT  (the  "Agreement"),  is entered into as of
January  11,  2001,  among UGLY  DUCKLING  CORPORATION,  a Delaware  corporation
("Borrower"),  with a place of  business  located at 2525 East  Camelback  Road,
Suite 500, Phoenix, Arizona 85016, the Lenders party hereto (together with their
respective successors and assigns,  "Lenders") and BNY MIDWEST TRUST COMPANY, as
Collateral  Agent  (together  with its  successors and assigns in such capacity,
"Collateral Agent").

Lenders have agreed to make to Borrower a senior  secured loan (the "Loan") upon
the terms and conditions set forth in this Agreement.

NOW,  THEREFORE,  in  consideration  of the mutual  agreements,  provisions  and
covenants contained herein, the parties agree as follows:

ARTICLE I.
DEFINITIONS

1.1 Defined Terms. In addition to the terms defined elsewhere in this Agreement,
the following terms have the following meanings:

     "Additional  Residual  Certificates"  shall mean all Class B Notes, Class C
Certificates (other than Excluded Class C Certificates) and Class D Certificates
or similar  interests  which both (i) are  issued by a  Securitization  Trust or
other  similar  entity  with  respect  to which  UDRC II,  UDRC III or any other
Affiliate  of UDC or UDCC is the  seller or  issuer  (or  equivalent),  and (ii)
represent the securitization of Ugly Duckling Collateral.

     "Administrative Form" means an administrative details form delivered by the
Collateral  Agent and any Lender to Collateral  Agent and Borrower.  The initial
Administrative Forms are attached hereto as Schedule I. The Collateral Agent and
each Lender may change its  Administrative  Form at any time by delivering a new
Administrative Form to the Collateral Agent and Borrower.

     "Affiliate"  means, as to any Person,  any other Person which,  directly or
indirectly, is in control of, is controlled by, or is under common control with,
such  Person.  A  Person  shall be  deemed  to  control  another  Person  if the
controlling  Person  possesses,  directly or indirectly,  the power to direct or
cause the direction of the management and policies of the other Person,  whether
through the ownership of voting  securities,  by contract or otherwise.  Without
limitation,  any  director,  executive  officer  or  beneficial  owner of twenty
percent  (20%) or more of the equity of a Person  shall for the purposes of this
Agreement,  be deemed to control the other Person.  In no event shall any Lender
be deemed an "Affiliate" of Borrower.

     "Agreement"   means  this  Senior  Secured  Loan  Agreement,   as  amended,
supplemented or modified from time to time in accordance with the terms hereof.

     "Approved  Replacement  Warehouse  Agreement"  means one or more  warehouse
financing  agreements providing  replacement  financing for the indebtedness and
commitments outstanding under the GECC Agreement (and in any event providing for
financing  in an amount  not less  than  $75,000,000)  on terms  and  conditions
satisfactory to the Required Lenders.

     "Assignment  and   Acceptance"   means  an  assignment  and  acceptance  in
substantially the form of Exhibit C.

     "Attorney  Costs" means and includes all fees and  disbursements of any law
firm or other external or internal counsel.

     "Base Rate" means a fluctuating interest rate per annum in effect from time
to time, which rate per annum shall at all times be equal to the highest of: (a)
either (1) the "prime rate"  published in the "Money Rates"  section of the Wall
Street  Journal,  as such "prime  rate" may change from time to time or, if such
rate ceases to be published,  (2) the rate of interest announced publicly by The
Bank of New York from time to time as The Bank of New York's prime rate; and (b)
1/2 of one percent per annum above the Federal Funds Rate.

     "Bankruptcy Code" means the United States Bankruptcy Code (11 U.S.C.ss. 101
et seq.), as amended, and any successor statute.

     "Bond  Insurance  Policy"  shall mean a  financial  guaranty  or  financial
insurance  policy issued by MBIA or any of its Affiliates or any other financial
guarantor  in respect of one or more classes of investor  certificates  or other
interests issued by a Securitization Trust.

     "Borrower Taxes" means any federal,  state, local or foreign income,  gross
receipts,  license, payroll,  employment,  excise, severance, stamp, occupation,
premium,  windfall  profits,  environmental,  customs,  duties,  capital  stock,
franchise,  profits,  withholding,  social security (or similar),  unemployment,
disability,  real property,  personal property,  intangible,  ad valorem, sales,
use,  transfer,  registration,  value  added,  alternative  or  add-on  minimum,
estimated  or other tax or other  governmental  charge  of any kind  whatsoever,
including any interest, penalty or additions thereto.

     "Borrower's  Books" means all of  Borrower's  books and records  including:
ledgers, records indicating,  summarizing or evidencing Borrower's properties or
assets (including the Collateral and the assets of any Subsidiaries of Borrower)
or liabilities;  all information  relating to Borrower's  business operations or
financial condition;  and all computer programs,  disk or tape files, printouts,
runs or other computer prepared information.

     "Borrowing  Base" means,  as of any date of  determination,  the sum of the
products obtained by multiplying the Residual Certificate Value of each Residual
Certificate as of the most recent  Calculation  Date by the Advance Rate (as set
forth below)  applicable to such  Residual  Certificate  as of such  Calculation
Date:
<TABLE>
<CAPTION>
<S>     <C>                                                            <C>
        Complete Months of Seasoning
        Since Securitization Cut-Off Date                              Advance Rate
        --------------------------------------------------------       ------------
        0 - 3 months                                                   15%
        4 - 5 months                                                   30%
        6 - 9 months                                                   35%
        10 - 12 months                                                 40%
        13 - 18 months                                                 45%
        19 - 23 months                                                 55%
        Greater than or equal to 24 months                             60%
</TABLE>

     Notwithstanding the foregoing or any other provision hereof or of any other
Loan Document to the contrary,  (i) no Additional Residual Certificates shall be
included  in  the  calculation  of the  Borrowing  Base  unless  and  until  the
provisions  of  Section  3.1  have  been  complied  with  with  respect  to such
Additional Residual Certificates, (ii) Lenders shall be entitled to exclude from
the Borrowing Base any Residual Certificate (or any portion thereof) as to which
(A)  Required  Lenders  determine  that  the  Collateral  Agent  does not have a
perfected first priority, valid and enforceable security interest either in such
Residual  Certificate  directly or in 100% of the capital stock of the holder of
such Residual Certificate,  or (B) a Securitization  Default exists and (iii) to
the extent that the Residual Certificates under any 3 Securitizations  represent
in excess of 50% of the  Borrowing  Base,  the  amount of such  excess  shall be
excluded from the Borrowing Base.

     "Business  Day" means a day of the year on which banks are not  required or
authorized by law to close in Los Angeles,  California or Chicago, Illinois and,
if the applicable Business Day relates to any Eurodollar Rate Advances, on which
dealings are carried on in the London interbank market.

     "Calculation  Date" means the second  Business Day prior to the 15th day of
each month.

     "Capital  Base"  means,  at  any  time  of  determination,  the  sum of (i)
Borrower's  Tangible Net Worth at such time plus (ii) the aggregate  outstanding
principal  amount of all  Subordinated  Debt of Borrower and its Subsidiaries at
such time  (other than any such  Subordinated  Debt that is due within 12 months
from such date of determination).

     "Cash  Collateral  Release  Date" means the first date on or after July 25,
2001 on which each of the following conditions is simultaneously  satisfied: (i)
the Borrower has pre-tax income in excess of $7,000,000 in the aggregate for the
period  commencing  January 1, 2001 and ending June 30, 2001;  (ii) the Borrower
has entered into an Approved Replacement Warehouse Agreement; (iii) the Borrower
has completed two  securitizations  of Ugly Duckling  Collateral  after the date
hereof and prior to December 31, 2001,  each of which results in the creation of
Additional Residual  Certificates;  (iv) Ernest C. Garcia shall have executed in
favor of  Collateral  Agent and the  Lenders a guaranty,  in form and  substance
reasonably  satisfactory  to the  Required  Lenders,  guaranteeing  payment of a
principal  amount of the Loan  equal to 33% of the  aggregate  principal  amount
outstanding on the Cash Collateral Release Date; (v) Ernest C. Garcia shall have
provided  evidence  satisfactory to the Required Lenders of a personal net worth
of at least $20,000,000 and liquid assets of not less than $7,000,000;  and (vi)
no Material  Adverse Change has occurred or could, in the reasonable  discretion
of the Required Lenders, be expected to occur.

     "CERCLA" shall mean the Comprehensive Environmental Response,  Compensation
and Liability Act (49 U.S.C. Section 9601, et seq.).

     "Change of Control"  shall be deemed to have occurred at such time as (i) a
"person" or "group"  (within the meaning of Sections  13(d) and  14(d)(2) of the
Securities Exchange Act of 1934) other than Ernest C. Garcia (or an entity under
the control of Ernest C. Garcia) becomes, after the date of this Agreement,  the
"beneficial  owner" (as defined in Rule 13(d)(3) under the  Securities  Exchange
Act of 1934), directly or indirectly, of more than 25% of the total voting power
of all classes of stock then  outstanding  of  Borrower  entitled to vote in the
election of  directors  or (ii) Ernest C. Garcia (or an entity under the control
of Ernest C.  Garcia)  shall cease to be the record and  beneficial  owner of at
least  15% of the  capital  stock  of  Borrower,  entitled,  in the  absence  of
contingencies  (whether or not any of such contingencies has occurred),  to vote
in the election of directors of Borrower or (iii) Borrower ceases to own 100% of
the capital  stock of UDCSFC,  or (iv) UDCSFC  ceases to own 100% of the capital
stock of UDRC II and UDRC III. An entity shall be deemed to be under the control
of Ernest C. Garcia if Ernest C. Garcia possesses,  directly or indirectly,  the
power to direct or cause the  direction of the  management  and policies of such
entity,  whether  through the  ownership  of voting  securities,  by contract or
otherwise.

     "Closing Date" means the date on which all  conditions  precedent set forth
in Section  4.1 are either  satisfied  or waived by each  Lender and each Lender
makes its ratable portion of the Loan.

     "Code"  means  the  Internal  Revenue  Code of 1986,  as  amended,  and any
regulations promulgated thereunder.

     "Collateral"  means all "Collateral"  referred to in the Security Documents
and all other  property  that is subject to any Lien in favor of the  Collateral
Agent or any Lender.

     "Collateral  Account" means the collateral account or accounts  established
and maintained  pursuant to Section 6.20 or pursuant to the  Collateral  Account
Agreement.

     "Collateral  Account Agreement" means the cash collateral account agreement
in substantially the form of Exhibit B.

     "Collateral  Agent"  has the  meaning  set  forth in the  preamble  to this
Agreement.

     "Collateral  Servicing  Report" means a report of the Borrower with respect
to  the  Residual  Certificate  Values,  Residual  Certificate  Cash  Flows  and
Borrowing  Base and such other  information  as Required  Lenders may request in
form and detail acceptable to Required Lenders.

     "Collections"  means all proceeds of,  payments or other  distributions  of
principal,  interest or other  amounts on, and other  amounts  received by or on
behalf  of  Borrower  or  any of  its  Affiliates  in  respect  of any  Residual
Certificate or any Collateral, including all amounts paid to Collateral Agent or
any Lender pursuant to any Dividend Direction Letter.

     "Consolidated"  refers to the  consolidation of accounts in accordance with
GAAP.

     "Consolidated  EBITDA" means for any period, net income (or net loss) plus,
to the extent deducted in determining  such net income (or net loss), the sum of
(a) interest expense,  (b) income tax expense,  (c) depreciation expense and (d)
amortization  expense,  in  each  case  determined  for  the  Borrower  and  its
Subsidiaries on a Consolidated basis for such period in conformity with GAAP.

     "Consolidated  Interest  Expense"  means,  for any period,  total  interest
expense (including the interest component of capitalized leases) of the Borrower
and its Subsidiaries on a Consolidated  basis for such period in conformity with
GAAP, including,  without limitation, all commissions,  discounts and other fees
and charges  owed with  respect to any  financings  or letters of credit and net
costs under hedge agreements.

     "Consolidated  Net Worth"  means the excess of (i) the total  assets of the
Borrower and its Subsidiaries  determined on a Consolidated  basis in conformity
with  GAAP,  over (ii) all  liabilities  of the  Borrower  and its  Subsidiaries
determined on a Consolidated basis in conformity with GAAP.

     "Consolidated   Senior   Debt"  means,   at  any  time  of   determination,
Consolidated Total Debt minus Subordinated Debt and Non-Recourse Debt.

     "Consolidated  Total  Capitalization"  means, at any time of determination,
the sum of (i) Consolidated Total Debt, and (ii) Consolidated Net Worth, in each
case, as of such time.

     "Consolidated  Total  Debt"  means,  at  any  time  of  determination,  all
indebtedness for borrowed money (including  capitalized leases), in each case of
the Borrower and its  Subsidiaries  at such time  determined  on a  Consolidated
basis.

     "Debt" or  "Indebtedness"  means (i) indebtedness for borrowed money,  (ii)
obligations  evidenced  by  bonds,   debentures,   notes,  matured  reimbursable
obligations  under  letters  of  credit  or  other  similar  instruments,  (iii)
obligations  to pay the deferred  purchase  price of property or services  other
than  trade  payables  incurred  in  the  ordinary  course  of  business,   (iv)
obligations  as lessee  under  leases  that  shall  have  been or should  be, in
accordance with GAAP recorded as capital leases, (v) obligations under direct or
indirect guaranties in respect of, and obligations  (contingent or otherwise) to
purchase or otherwise acquire, or otherwise to assure a creditor against loss in
respect of,  indebtedness  or  obligations of others of the kinds referred to in
clauses (i) through (iv),  and (vi)  liabilities  in respect of unfunded  vested
benefits under Pension Plans covered by Title IV of ERISA.

     "Default" means any event or circumstance which, with the giving of notice,
the  lapse of  time,  or  both,  would  (if not  cured  or  otherwise  remedied)
constitute an Event of Default.

     "Dividend  Direction  Letter"  means  (i) the  UDRC II  Dividend  Direction
Letter,  (ii) the UDRC III  Dividend  Direction  Letter,  and (iii) each  letter
agreement or other agreement  entered into after the date hereof with respect to
any Additional Residual  Certificates  providing for payment of distributions in
respect of such Additional Residual  Certificates (or payments and distributions
in  respect  of the  stock or  other  equity  interests  of the  holder  of such
Additional Residual  Certificates) to be made directly to the Collateral Account
for application to the Obligations and/or release to Borrower in accordance with
the Collateral Account Agreement and Section 2.6.

     "Dollars," "dollars" and "$" each mean lawful money of the United States.

     "Environmental  and Safety Laws" means all  Federal,  state and local laws,
regulations and ordinances,  relating to the discharge, handling, disposition or
treatment of Hazardous  Materials and other  substances or the protection of the
environment or of employee health and safety,  including  CERCLA,  the Hazardous
Materials  Transportation  Act (49 U.S.C.  Section 1801, et seq.),  the Resource
Conservation  and Recovery Act (42 U.S.C.  Section 7401, et seq.), the Clean Air
Act (42 U.S.C.  Section 7401,  et seq.),  the Toxic  Substances  Control Act (15
U.S.C. Section 2601, et seq.), the Occupational Safety and Health Act (29 U.S.C.
Section 651, et seq.) and the Emergency Planning and Community Right-To-Know Act
(42  U.S.C.  Section  11001,  et  seq.),  each as the  same may be  amended  and
supplemented.

     "Environmental  Liabilities  and  Costs"  means,  as  to  any  Person,  all
liabilities, obligations,  responsibilities,  remedial actions, losses, damages,
punitive damages,  consequential  damages,  treble damages,  contribution,  cost
recovery,  costs and expenses (including all fees, disbursements and expenses of
counsel,  expert and consulting fees, and costs of investigation and feasibility
studies),  fines, penalties,  sanctions and interest incurred as a result of any
claim or demand,  by any Person,  whether  based in contract,  tort,  implied or
express warranty, strict liability,  criminal or civil statute, permit, order or
agreement  with any  Federal,  state or local  governmental  authority  or other
Person, arising from environmental,  health or safety conditions, or the release
or threatened release of a contaminant, pollutant or Hazardous Material into the
environment,  resulting from the operations of such Person or its  subsidiaries,
or breach of any  Environmental  and Safety Law or for which such  Person or its
subsidiaries is otherwise liable or responsible.

     "Equity  Interests"  means,  with  respect to a Person,  any common  stock,
preferred stock,  partnership interest (whether general or limited),  membership
interest or other equity or participating interest in such Person.

     "ERISA"  means the Employee  Retirement  Income  Security  Act of 1974,  as
amended from time to time, and regulations promulgated thereunder.

     "ERISA Affiliate" of any Person means any other Person that for purposes of
Title IV of ERISA is a member of such Person's controlled group, or under common
control  with such  Person,  within the meaning of Section  414 of the  Internal
Revenue Code.

     "ERISA  Event" with  respect to any Person  means (a) the  occurrence  of a
reportable  event,  within the meaning of Section 4043 of ERISA, with respect to
any Plan of such Person or any of its ERISA Affiliates  unless the 30-day notice
requirement  with  respect  to such event has been  waived by the PBGC;  (b) the
provision  by the  administrator  of any Plan of such Person or any of its ERISA
Affiliates  of a notice of intent to  terminate  such Plan,  pursuant to Section
4041(a)(2) of ERISA  (including any such notice with respect to a plan amendment
referred to in Section  4041(e) of ERISA);  (c) the cessation of operations at a
facility  of such  Person or any of its ERISA  Affiliates  in the  circumstances
described in Section 4062(e) of ERISA;  (d) the withdrawal by such Person or any
of its ERISA  Affiliates  from a Multiple  Employer  Plan during a plan year for
which it was a substantial  employer, as defined in Section 4001(a)(2) of ERISA;
(e) the failure by such Person or any of its ERISA  Affiliates to make a payment
to a Plan  required  under  Section  302(f)(1) of ERISA;  (f) the adoption of an
amendment to a Plan of such Person or any of its ERISA Affiliates  requiring the
provision of security to such Plan, pursuant to Section 307 of ERISA; or (g) the
institution by the PBGC of proceedings to terminate a Plan of such Person or any
of its ERISA Affiliates, pursuant to Section 4042 of ERISA, or the occurrence of
any event or condition  described in Section 4042 of ERISA that could constitute
grounds for the  termination  of, or the appointment of a trustee to administer,
such Plan.

     "Event of Default"  means any of the events or  circumstances  specified in
Section 8.1.

     "Excluded Class C Certificate" means Class C Certificates issued to UDFC in
connection with any  securitization of Ugly Duckling  Collateral but only to the
extent  the value of such  Class C  Certificates  does not exceed 2% of the face
amount of all notes and  certificates  issued  with  respect  to the  applicable
securitization.

     "Existing Loan Agreement"  means the Senior Secured Loan Agreement dated as
of May 14, 1999 by and among the Borrower, the Collateral Agent (as successor to
Harris Trust and Savings  Bank) and the Lenders  party thereto as amended to the
date hereof.

     "Federal Funds Rate" means, for any period, a fluctuating interest rate per
annum equal for each day during such period to the weighted average of the rates
on overnight  Federal  funds  transactions  with members of the Federal  Reserve
System arranged by Federal funds brokers, as published for such day (or, if such
day is not a Business Day, for the next  preceding  Business Day) by the Federal
Reserve BNY Midwest Trust Company,  or, if such rate is not so published for any
day that is a Business Day, the average of the  quotations for such day for such
transactions  received by  Collateral  Agent from three Federal funds brokers of
recognized standing selected by it.

     "FEIN" means Federal Employer Identification Number.

     "Financing  Statements"  means  the  Financing  Statements  on  Form  UCC-1
relating  to and  filed  in  connection  with  the  Collateral  and  naming  the
Collateral Agent as secured party.

     "Fiscal Quarter" means a fiscal quarter of Borrower.

     "Fiscal Year" means a fiscal year of Borrower.

     "GAAP" means generally accepted  accounting  principles set forth from time
to time in the opinions and  pronouncements  of the Accounting  Principles Board
and the American  Institute of Certified  Public  Accountants and statements and
pronouncements  of the Financial  Accounting  Standards  Board (or agencies with
similar  functions of  comparable  stature and authority  within the  accounting
profession),  or in such  other  statements  by such  other  entity as may be in
general use by significant segments of the U.S. accounting profession, which are
applicable to the circumstances as of the date of determination.

     "GECC" means General Electric Capital Corporation,  a New York corporation.

     "GECC  Agreement"  shall  mean  the  Amended  and  Restated  Motor  Vehicle
Installment  Contract Loan and Security Agreement,  dated as of August 15, 1997,
by and  between  Borrower,  GECC and  certain  other  parties  thereto,  as such
agreement may be amended from time to time.

     "Governing   Documents"  means,   with  respect  to  Borrower,   Borrower's
certificate of incorporation and bylaws.

     "Governmental Authority" means any nation or government, any state or other
political  subdivision  thereof,  any  central  bank  (or  similar  monetary  or
regulatory authority) thereof, any entity, body, authority,  bureau,  department
or instrumentality exercising executive,  legislative,  judicial,  regulatory or
administrative functions of or pertaining to government,  and any corporation or
other  entity  owned or  controlled,  through  stock  or  capital  ownership  or
otherwise, by any of the foregoing.

     "Guaranty"  means the  guaranty  executed  by UDCSFC on the date  hereof in
substantially the form of Exhibit E.

     "Guarantor" means (i) UDCSFC and (ii) each other Subsidiary of the Borrower
that, after the date hereof, becomes a party to the Guaranty.

     "Hazardous  Materials"  means (a) any material or  substance  defined as or
included  in the  definition  of  "hazardous  substances,"  "hazardous  wastes,"
"hazardous  materials," "toxic substances" or any other formulations intended to
define, list or classify  substances by reason of their deleterious  properties,
(b) any  oil,  petroleum  or  petroleum  derived  substance,  (c) any  flammable
substances or explosives,  (d) any  radioactive  materials,  (e) asbestos in any
form,  (f)  electrical  equipment  that  contains  any oil or  dielectric  fluid
containing  levels of  polychlorinated  biphenyls  in excess of fifty  parts per
million,  (g)  pesticides  or (h) any other  chemical,  material  or  substance,
exposure to which is prohibited, limited or regulated by any governmental agency
or  authority  or which may or could  pose a hazard to the  health and safety of
persons in the vicinity thereof.

     "Indebtedness" see "Debt".

     "Indemnified Liabilities" has the meaning specified in Section 10.5.

     "Indemnified Person" has the meaning specified in Section 10.5.

     "Initial  Funding  Amount"  means the amount of Thirty Four Million  Thirty
Seven Thousand Five Hundred Dollars ($34,037,500).

     "Initial  Principal Amount" means the amount of Thirty Five Million Dollars
($35,000,000).

     "Interest  Accrual  Period"  shall  mean  the  one-month  period  from  and
including a Payment Date to the close of business on the day  preceding the next
Payment Date,  except that the first  Interest  Accrual Period shall commence on
the  Closing  Date and end at the close of  business  on the day  preceding  the
Payment Date.

     "Lender  Costs" or  "Lender  Expenses"  means  all:  (a) costs or  expenses
(including taxes and insurance  premiums)  required to be paid by Borrower under
any of the Loan  Documents  that are paid or incurred by Collateral  Agent,  any
Lender or any of their respective affiliates;  (b) reasonable out-of-pocket fees
or charges paid or incurred by Collateral Agent or any Lender in connection with
Lenders'   transactions   with   Borrower,   including,   fees  or  charges  for
photocopying, notarization, couriers and messengers,  telecommunication,  public
record searches  (including tax lien,  litigation and UCC searches and including
searches  with the patent and  trademark  office,  the  copyright  office or the
department of motor vehicles), filing, recording,  publication,  appraisals, due
diligence,  actual out-of-pocket costs and expenses incurred by Collateral Agent
or any Lender in the  disbursement  of funds to  Borrower  (by wire  transfer or
otherwise);  (c) actual  out-of-pocket  charges  paid or incurred by  Collateral
Agent or any  Lender  resulting  from the  dishonor  of checks;  (d)  reasonable
out-of-pocket  costs and expenses  paid or incurred by  Collateral  Agent or any
Lender to correct any default or enforce any provision of the Loan Documents, or
in gaining possession of, maintaining,  handling, preserving, storing, shipping,
selling,  preparing  for sale, or  advertising  to sell the  Collateral,  or any
portion thereof,  irrespective of whether a sale is consummated;  (e) reasonable
costs  and  expenses  paid or  incurred  by  Collateral  Agent or any  Lender in
examining  Borrower's  Books; (f) reasonable out-of pocket costs and expenses of
third party claims or any other suit paid or incurred by Collateral Agent or any
Lender in enforcing or defending the Loan  Documents or in  connection  with the
transactions  contemplated  by the Loan  Documents  or  Collateral  Agent or any
Lender's relationship with Borrower; and (g) Collateral Agent's, any Lender's or
any of their  respective  Affiliate's  reasonable  Attorney  Costs  incurred  in
advising,   structuring,   drafting,   reviewing,    administering,    amending,
terminating,   enforcing,   defending,   or  concerning   the  Loan   Documents,
irrespective  of whether suit is brought  (including,  without  limitation,  any
negotiations in the nature of a work-out). For purposes of this definition,  the
term  "Lender"  shall  include  any  portfolio  advisor  or  collateral  manager
(including,  without limitation,  SunAmerica Investment Advisor, Inc.) acting on
behalf of any Lender or in connection with such Lender's Loan hereunder.

     "LIBOR" shall mean, with respect to an Interest  Accrual  Period,  the rate
per annum equal to the rate  appearing at page 3750 of the  Telerate  Screen two
LIBOR Business Days prior to the beginning of such Interest Accrual Period,  for
the one-month term  corresponding  to such Interest  Accrual Period,  or if such
rate shall not be so quoted then the  applicable  rate appearing on Bloomberg on
the day two LIBOR Business Days prior to the beginning of such Interest  Accrual
Period,  or if  neither  such rate  shall be so quoted,  the  "London  Interbank
Offered Rates (LIBOR)" (one month) published in the "Money Rates" section of the
Wall  Street  Journal two LIBOR  Business  Days prior to the  beginning  of such
Interest Accrual Period.

     "LIBOR  Business  Day" shall mean any day which is a Business Day and which
is also a day on which  dealings  in U.S.  Dollars  are carried on in the London
interbank market.

     "Lien or Encumbrance" or "Liens and Encumbrances" means any mortgage,  deed
of trust,  pledge,  hypothecation,  assignment,  charge or deposit  arrangement,
encumbrance, lien (statutory or other) or preference, priority or other security
interest or preferential arrangement of any kind or nature whatsoever (including
those created by,  arising under or evidenced by any  conditional  sale or other
title  retention  agreement,  the  interest  of a lessor  under a capital  lease
obligation, any financing lease having substantially the same economic effect as
any of the foregoing,  or the filing of any financing statement naming the owner
of the  asset to  which  such  lien  relates  as  debtor,  under  the UCC or any
comparable  law) and any  contingent  or other  agreement  to provide any of the
foregoing.

     "Loan  Documents"  means this  Agreement,  each  Note,  the  Guaranty,  the
Security  Documents,   the  Stock  Pledge  Agreement,   the  Collateral  Account
Agreement,  each Dividend  Direction Letter, the Financing  Statements,  and all
documents delivered to Collateral Agent or any Lender in connection therewith.

     "Loan Party" means  Borrower,  UDCSFC and each other  Affiliate of Borrower
that is a party to any Loan Document.

     "Material  Adverse  Change" or "Material  Adverse  Effect" means a material
adverse change in, or a material adverse effect upon, any of (a) the operations,
performance,   business,  properties,  condition  (financial  or  otherwise)  or
prospects  of any Loan  Party or of  Borrower  and its  Subsidiaries  taken as a
whole,  (b) the ability of Borrower or any other Loan Party to perform under any
Loan  Document and avoid any Event of Default,  or (c) the  legality,  validity,
binding  effect or  enforceability  of any Loan  Document or the  perfection  or
priority of any Lien created or purported to be created thereunder.

     "Maturity Date" shall mean February 11, 2003.

     "MBIA" shall mean MBIA Insurance Corporation.

     "Monthly Amortization Amount" means:

     (i)  with respect to any Payment Date occurring  prior to October 15, 2002,
          the greater of (A) $1,000,000.00, and (B) the amount, if any, by which
          the  then  Outstanding  Principal  Amount  of  the  Loan  exceeds  the
          Borrowing  Base  as of  such  date  as set  forth  in  the  Collateral
          Servicing Report required to be delivered with respect to such Payment
          Date; and

     (ii) with  respect to any Payment Date  occurring  on or after  October 15,
          2002,  the  greatest  of (A)  $3,000,000,  (B)  50%  of the  aggregate
          Residual  Certificate  Cash  Flows  for the then most  recently  ended
          monthly  period  as set  forth  in  the  Collateral  Servicing  Report
          required to be delivered  with respect to such Payment  Date,  and (C)
          the amount, if any, by which the then Outstanding  Principal Amount of
          the Loan  exceeds the  Borrowing  Base as of such date as set forth in
          the Collateral  Servicing Report required to be delivered with respect
          to such Payment Date.

     "Multiemployer  Plan" of any Person means a multiemployer  plan, as defined
in  Section  4001(a)(3)  of  ERISA,  to which  such  Person  or any of its ERISA
Affiliates  is making or accruing an obligation  to make  contributions,  or has
within any of the preceding six plan years made or accrued an obligation to make
contributions.

     "Multiple  Employer  Plan" of any Person means a single  employer  plan, as
defined in Section 4001(a)(15) of ERISA, that (a) is maintained for employees of
such Person or any of its ERISA  Affiliates  and at least one Person  other than
such Person and its ERISA  Affiliates or (b) was so maintained and in respect of
which such  Person or any of its ERISA  Affiliates  could have  liability  under
Section  4064 or 4069 of ERISA  in the  event  such  plan has been or were to be
terminated.

     "Non-Recourse Debt" means (i) the Securitizations  identified on Exhibit A,
(ii)  Debt  under  one or more  warehouse  facilities  or  securitizations  of a
Subsidiary  of Borrower  that is a bankruptcy  remote or other  similar  special
purpose   entity  so  long  as  such  Debt   satisfies  each  of  the  following
requirements:  (a) the  sole  collateral  for such  Debt  are  loan  receivables
purchased by such  bankruptcy  remote or other  special  purpose  entity and the
recourse  of the  lenders  under  such  warehouse  facility  is  limited to such
collateral, (b) no Loan Party (1) provides credit support of any kind (including
any  undertaking,  agreement or instrument that would  constitute  Debt), (2) is
directly or indirectly  liable as a guarantor or otherwise,  or (3)  constitutes
the lender  (provided  that a Loan Party may be the  Servicer of the  collateral
securing  such  warehouse  facility or  securitization  and in such capacity may
provide customary indemnification or incur customary repurchase obligations with
respect to breach of representations regarding such collateral); (b) the lenders
with respect to such Debt have been notified,  and have  acknowledged in writing
or pursuant to the terms of the instruments and agreements  governing such Debt,
in each case prior to the  incurrence of such Debt,  that they will not have any
recourse  to the stock or assets of any Loan  Party,  and (c) the  Lenders  have
received  notice of the  amount  and  principal  terms of such Debt prior to its
incurrence,   and  (iii)  other  Debt  approved  by  the  Required   Lenders  as
Non-Recourse Debt.

     "Note"  means a  promissory  note of the  Borrower  in favor of a Lender in
substantially  the form of Exhibit D evidencing  the  Borrower's  obligations to
such Lender in respect of the principal  amount of the Loan made by or otherwise
owing to such Lender.

     "Obligations" means all Debt, advances,  debts,  liabilities,  obligations,
covenants and duties owing by Borrower to Collateral Agent or any Lender, of any
kind or  nature,  present  or  future,  whether  or not  evidenced  by any note,
guaranty or other  instrument,  arising under this Agreement,  any Note or under
any other Loan  Document,  absolute or  contingent,  due or to become  due,  now
existing or hereafter arising and however acquired.

     "Outstanding Principal Amount" means the Initial Principal Amount minus all
amounts applied to the repayment of the Loan pursuant to Section 2.6(d).

     "Payment  Date"  shall mean the 15th day of each  month  during the term of
this Agreement commencing on April 15, 2001.

     "PBGC" means the Pension Benefit Guaranty Corporation.

     "Permitted  Liens" means (a) Liens held by  Collateral  Agent or any Lender
and (b) each lien  existing  at or prior to the date of this  Agreement  that is
identified on Schedule E to this Agreement.

     "Permitted  Subsidiary  Indebtedness"  means (a)  Indebtedness  outstanding
under the  Principal  Warehouse  Agreement  as such  agreements  may be amended,
supplemented  or  modified  from time to time but  without  any  increase in the
aggregate commitments or Indebtedness  available to be borrowed (or other credit
available  to  be  extended)  thereunder,   (b)  Non-Recourse  Debt,  (c)  other
Indebtedness in an aggregate  principal amount not to exceed  $15,000,000 at any
time outstanding and (d) indebtedness to finance the purchase of inventory in an
aggregate  principal amount not to exceed  $35,000,000 at any time  outstanding.
For purposes of calculating  the amount of  Indebtedness  outstanding  under the
foregoing clause (c), obligations in respect of capitalized leases (as described
in clause (iv) of the  definition of "Debt") shall be excluded to the extent the
aggregate  principal  amount of all such  obligations  (determined in accordance
with GAAP) does not exceed $4,000,000.

     "Person" means a natural person, partnership,  corporation, business trust,
joint  stock  company,  trust,  unincorporated  association,  limited  liability
company, joint venture or Governmental Authority.

     "Plan" means a Single Employer Plan or a Multiple Employer Plan.

     "Principal  Warehouse Agreement" means (i) the GECC Agreement and (ii) each
Approved Replacement Warehouse Agreement.

     "Required Cash Collateral Amount" means (i) as of any date of determination
on or  prior  to  May  15,  2001,  $7,000,000,  and  (ii)  as  of  any  date  of
determination  after May 15, 2001,  $7,000,000 minus the product of (A) 0.20 and
(B) the sum of (1) all  Monthly  Amortization  Amounts  (but only to the  extent
actually  paid) for each Payment Date occurring on or after May 15, 2001 and (2)
all prepayments made pursuant to Section 2.5(a); provided that the Required Cash
Collateral Amount shall remain at $7,000,000 if there is a default in payment of
the Monthly  Amortization  Amount due with respect to the Payment Date occurring
on April 15, 2001.

     "Ratings  Completion  Date" means the first date on which the Lenders  have
received  written  confirmation  from (i) Fitch IBCA,  Inc. that the obligations
hereunder  shall  be rated by them no lower  than  B+,  (ii)  Standard  & Poor's
Ratings Services that the obligations  hereunder shall be rated by them no lower
than B- and (iii) Moody's Investors Service, Inc. that the obligations hereunder
shall be rated by them no lower than B3.  "Repayment  Date" means the earlier of
(i) the Maturity Date or (ii) the date that the Outstanding  Principal Amount of
the Loan  outstanding  hereunder,  together with all accrued interest in respect
thereof and all other Obligations, has been reduced to zero.

     "Required  Lenders" means Lenders  holding greater than fifty percent (50%)
of the aggregate principal amount of the Loan.

     "Requirement  of  Law"  means,  as to any  Person,  any law  (statutory  or
common),  treaty,  rule or regulation or  determination of an arbitrator or of a
Governmental Authority, in each case applicable to or binding upon the Person or
any of its property or to which the Person or any of its property is subject.

     "Residual  Certificate" means the UDRC II Residual  Certificates,  the UDRC
III Residual Certificates and all Additional Residual Certificates.

     "Residual   Certificate  Cash  Flows"  means,  for  any  period,  all  cash
distributions  with  respect  to a Residual  Certificate  and  Excluded  Class C
Certificates  together  with all  related  spread  account  or  reserve  account
distributions,  in each case to the extent received by the Collateral  Agent and
deposited to the Collateral Account, during such period; provided, however, upon
termination  of a  Securitization  Trust  at  recapture  or the  exercise  of an
optional  repurchase  right,  the  Residual  Certificate  Cash  Flows  for  such
Securitization  Trust in the month of such termination shall be (i) the Residual
Certificate  Value  of such  Securitization  Trust  as of the  Calculation  Date
immediately  preceding  the date of  termination  multiplied by (ii) the Advance
Rate (as set forth in the  definition  of "Borrowing  Base")  applicable to such
Securitization Trust on such preceding Calculation Date.

     "Residual  Certificate  Value" means, as of any date of determination  with
respect to the Residual  Certificates  for a  securitization,  the amount of the
entire cash balance in the spread  account or reserve  account  relating to such
Residual  Certificates plus the difference between (a) the outstanding principal
balance of auto loans in the pool of collateral securing such securitization and
(b) the outstanding principal balance of all certificates and other interests or
rights to payment in respect of such  securitization  senior in priority to such
Residual  Certificates,  in each  case as set  forth in the then  most  recently
delivered   Collateral   Servicing   Report  (subject  to  confirmation  of  the
calculations  set forth in such  Collateral  Servicing  Report by the Collateral
Agent).

     "Responsible Officer" means the chief executive officer or the president of
Borrower,  or any other  officer  having  substantially  the same  authority and
responsibility  or,  with  respect to  financial  matters,  the chief  financial
officer or the treasurer of Borrower,  or any other officer having substantially
the same authority and responsibility.

     "SAI" means SAI Investment  Advisor,  Inc., and its successors and assigns.

     "Security  Documents"  means the  writings  described in Article III hereof
(including,  without  limitation,  the Stock Pledge  Agreement,  the  Collateral
Account Agreement and each other document,  agreement or instrument creating, or
purporting to create a security interest in favor of the Collateral Agent in any
Residual  Certificate or any other Collateral or proceeds thereof),  as they may
hereafter be amended,  modified and/or supplemented,  and all other writings now
or hereafter  executed to create,  evidence and/or perfect any Lien(s) to secure
the Loan or any portion(s) thereof.

     "Securitization  Default" means any termination event,  default or event of
default, or event or occurrence which, with the passage of time or the giving of
notice or both,  would become a termination  event,  default or event of default
under  any  Securitization  Document,  which  has  not  been  cured  within  any
applicable period thereunder.

     "Securitization  Documents"  shall  mean  (i) each  UDRC II  Securitization
Document,  (ii) each  UDRC III  Securitization  Document,  (iii)  each  purchase
agreement  and/or  pooling and  servicing  agreement  (or  comparable  document)
entered  into or  acknowledged  by  Borrower,  UDCC,  UDRC  II,  UDRC III or any
Affiliate  of any of them after the date hereof with  respect to any  Additional
Residual Certificates, and (iv) the other agreements, instruments,  certificates
and documents  entered into or acknowledged by Borrower,  UDCC, or any Affiliate
of any of them or by a Securitization Trust (or comparable vehicle) with respect
to any Additional Residual Certificates.

     "Securitization Trust" shall mean any trust formed pursuant to a purchasing
agreement or a pooling and servicing  agreement specified on Exhibit A hereto or
contemplated in clause iii of the definition of Securitization Documents.

     "Single  Employer  Plan" of any Person  means a single  employer  plan,  as
defined in Section 4001(a)(15) of ERISA, that (a) is maintained for employees of
such Person or any of its ERISA  Affiliates and no Person other than such Person
and its ERISA  Affiliates or (b) was so maintained  and in respect of which such
Person or any of its ERISA Affiliates could have liability under Section 4069 of
ERISA in the event such plan has been or were to be terminated.

     "Standing  Dividend  Resolutions"  shall  mean  (i) the  UDRC  II  Standing
Dividend  Resolution,  (ii) the UDRC III Standing Dividend  Resolution and (iii)
all other  resolutions  adopted by the board of  directors of Borrower or any of
its  Affiliates  or  Subsidiaries  to the effect  that any  amounts  received as
distributions  on any Additional  Residual  Certificates or in respect of spread
accounts (or the like) will be promptly  distributed to Collateral Agent for the
ratable account of the Lenders.

     "Stock Pledge Agreement" means that certain Stock Pledge  Agreement,  dated
as of the date hereof,  among UDCSFC as Pledgor,  Borrower and Collateral Agent,
pursuant to which UDCSFC grants to Collateral  Agent a security  interest in one
hundred  percent (100%) of the issued and  outstanding  capital stock of each of
UDRC II and UDRC III.

     "Subordinated  Debt"  shall  mean the Debt set forth on  Schedule G and any
Debt  incurred  after the date hereof as to which the repayment of principal and
interest is  subordinated  to  repayment of the Loan  pursuant to  subordination
provisions that have been approved in writing by Required Lenders.

     "Subsidiary"  of  a  Person  means  a  corporation,   partnership,  limited
liability  partnership,  limited liability company or other entity in which that
Person  directly or  indirectly  owns or  controls  the shares of stock or other
ownership  interests  having  ordinary  voting  power to elect a majority of the
board of directors (or appoint other comparable  managers) of such  corporation,
partnership,  limited liability partnership,  limited liability company or other
entity.

     "Tangible Net Worth" of Borrower shall mean the total of Borrower's and its
consolidated  Subsidiaries'   shareholders'  equity  (including  capital  stock,
additional paid-in capital and retained earnings),  less (i) the total amount of
all  Indebtedness   owing  to  Borrower  from  its  consolidated   Subsidiaries,
Affiliates,  shareholders,  officers or employees,  and (ii) the total amount of
any intangible assets of Borrower and its consolidated  Subsidiaries,  including
unamortized discounts, deferred charges and goodwill. For purposes of clause (i)
in the immediately  preceding  sentence,  the  $12,000,000  promissory note from
Cygnet Capital  Corporation ("CCC") payable to Ugly Duckling Finance Corporation
in connection  with the sale of 100% of the  outstanding  common stock of Cygnet
Dealer  Finance,  Inc. to CCC,  shall not be  considered  Indebtedness  owing to
Borrower from Affiliates,  shareholders, officers or employees, and shall not be
deducted in determining Tangible Net Worth.

     "Trustee" means BNY Midwest Trust Company, in its capacity as trustee under
the Securitization Documents and its successors and assigns in such capacity.

     "UCC" means the Uniform  Commercial  Code as in effect from time to time in
the State of New York, and in any and all other states in which Borrower  and/or
any of its Subsidiaries conduct, or are authorized to conduct business.

     "UDCC" means Ugly Duckling  Credit Corp., an Arizona  corporation  formerly
known as Champion Acceptance Corporation.

     "UDCSFC" means Ugly Duckling Car Sales and Finance Corporation,  an Arizona
corporation formerly known as Duck Ventures, Inc.

     "UDRC II"  shall  mean  Ugly  Duckling  Receivables  Corp.  II, a  Delaware
corporation.

     "UDFC" means Ugly Duckling Finance Corporation an Arizona corporation.

     "UDRC III"  shall  mean Ugly  Duckling  Receivables  Corp.  III, a Delaware
corporation.

     "UDRC II  Residual  Certificates"  shall  mean  the  currently  issued  and
outstanding,  and all further issued and then outstanding,  Class B Certificates
or with respect to any securitization occurring after August 1, 1999, the issued
and  outstanding  Class B Notes,  Class C Certificates  (other than the Excluded
Class C Certificates) and the Class D Certificates issued by each Securitization
Trust with  respect to which UDRC II or an owner trust is the seller,  including
those set forth on  Schedule  F, which  constitute  all of the UDRC II  Residual
Certificates in existence on the Closing Date.

     "UDRC III  Residual  Certificates"  shall  mean the  currently  issued  and
outstanding,  and all  further  issued  and then  outstanding,  the  issued  and
outstanding Class B Notes, Class C Certificates (other than the Excluded Class C
Certificates) and the Class D Certificates issued by each  Securitization  Trust
with respect to which UDRC III or an owner trust is the seller,  including those
set  forth  on  Schedule  F,  which  constitute  all of the  UDRC  III  Residual
Certificates in existence on the Closing Date.

     "UDRC II Dividend Direction Letter" means the letter dated January 11, 2001
in which Collateral Agent,  Lender, UDRC II, UDCC and Trustee agree that Trustee
shall pay all distributions in respect of the UDRC II Residual  Certificates and
Excluded Class C Certificates directly to the Collateral Account for application
to the Obligations  and/or release to Borrower in accordance with the Collateral
Account Agreement and Section 2.6.

     "UDRC III Dividend  Direction  Letter"  means the letter dated  January 11,
2001 in which Collateral  Agent,  Lender,  UDRC III, UDCC and Trustee agree that
Trustee  shall  pay all  distributions  in  respect  of the  UDRC  III  Residual
Certificates  and  Excluded  Class C  Certificates  directly  to the  Collateral
Account  for  application  to the  Obligations  and/or  release to  Borrower  in
accordance with the Collateral Account Agreement and Section 2.6.

     "UDRC II  Securitization  Documents"  shall  mean each of (i) the  purchase
agreements  listed on Exhibit A hereto,  (ii) the pooling and  servicing or sale
and  servicing  agreements  listed  on  Exhibit  A  hereto,  and (iii) the other
agreements, instruments, certificates and documents entered into or acknowledged
by  Borrower,  UDCC,  UDRC  II  or  any  Affiliate  of  any  of  them  or  by  a
Securitization Trust.

     "UDRC III  Securitization  Documents"  shall mean each of (i) the  purchase
agreements  listed on Exhibit A hereto,  (ii) the pooling and  servicing or sale
and  servicing  agreements  listed  on  Exhibit  A  hereto,  and (iii) the other
agreements, instruments, certificates and documents entered into or acknowledged
by  Borrower,  UDCC,  UDRC  III  or  any  Affiliate  of  any  of  them  or  by a
Securitization Trust.

     "UDRC II Standing Dividend Resolution" shall mean the resolution adopted on
September  30,  1999 by the board of  directors  of UDRC II  (formerly  Champion
Receivables  Corp. II) to the effect that any amounts  received as distributions
on the UDRC II Residual  Certificates  should be  distributed  as  dividends  to
UDCSFC or any other holder or assignee of the Common Stock of UDRC II.

     "UDRC III Standing Dividend  Resolution" shall mean the resolution  adopted
on December  18, 2000 by the board of  directors  of UDRC III to the effect that
any amounts  received as  distributions  on the UDRC III  Residual  Certificates
should be  distributed as dividends to UDCSFC or any other holder or assignee of
the Common Stock of UDRC III.

     "Ugly  Duckling  Collateral"  shall  mean  any  installment   contracts  or
conditional sales contracts, with any amendments thereto, originated by Borrower
or its Subsidiaries  pursuant to which a person has: (i) purchased a new or used
motor vehicle,  (ii) granted a security interest in the motor vehicle, and (iii)
agreed  to pay the  unpaid  purchase  price and a  finance  charge  in  periodic
installments.

     "United  States"  and  "U.S."  each  means the  United  States of  America.

     "Verde Loan  Agreement"  means the Loan  Agreement  dated as of January 11,
2001 between Borrower and Verde Investments,  Inc., as amended,  supplemented or
modified from time to time.

     "Verde Stock Pledge Agreement" means the Stock Pledge Agreement dated as of
January 11, 2001 among UDCSF, UDRC II, UDRC III and Verde Investments,  Inc., as
amended supplemented or modified from time to time.

     "Verde  Subordinated  Debt Documents"  means the Verde Loan Agreement,  the
Verde  Subordinated  Note, the Verde  Subordination  Agreement,  the Verde Stock
Pledge Agreement and all other instruments and agreements relating thereto.

     "Verde  Subordination  Agreement"  means the  Subordination  and Standstill
Agreement dated as of January 11, 2001 among Borrower, UDCSF, Verde Investments,
Inc., and Collateral  Agent,  as amended,  supplemented or modified from time to
time.

     "Verde  Subordinated Note" means the Subordinated  Promissory Note dated as
of January  11, 2001 issued by the  Borrower to Verde  Investments,  Inc. in the
original principal amount of $7,000,000.

     "Voidable Transfer" has the meaning set forth in Section 10.17.

1.2  Other Interpretive Provisions.

     (a) Defined Terms. Unless otherwise specified herein or therein,  all terms
defined in this  Agreement  shall  have the  defined  meanings  when used in any
certificate or other document made or delivered  pursuant hereto. The meaning of
defined  terms shall be equally  applicable  to the singular and plural forms of
the defined terms. Terms (including  uncapitalized  terms) not otherwise defined
herein,  and  that are  defined  in the UCC  shall  have  the  meanings  therein
described.

     (b) The Agreement.  The words "hereof," "herein,"  "hereunder" and words of
similar  import when used in this  Agreement  shall refer to this Agreement as a
whole  and not to any  particular  provision  of this  Agreement;  and  section,
schedule  and  exhibit   references  are  to  this  Agreement  unless  otherwise
specified.

     (c) Certain Common Terms.

          (i)  The term "documents" includes any and all instruments, documents,
               agreements, certificates, indentures, notices and other writings,
               however evidenced.

          (ii) The term "including" is not limiting and means "including without
               limitation."

          (iii)The  term  "or"  has,  except  where  otherwise  indicated,   the
               inclusive meaning represented by the phrase "and/or."

     (d) Performance;  Time.  Whenever any performance  obligation  hereunder or
under any Note  (other than a payment  obligation)  shall be stated to be due or
required to be satisfied on a day other than a Business  Day,  such  performance
shall  be  made  or  satisfied  on the  next  succeeding  Business  Day.  In the
computation of periods of time from a specified date to a later  specified date,
the word "from" means "from and including"; the words "to" and "until" each mean
"to but  excluding";  and the word  "through"  means "to and  including." If any
provision  of this  Agreement  refers to any action  taken or to be taken by any
Person, or which such Person is prohibited from taking,  such provision shall be
interpreted to encompass any and all means,  direct or indirect,  of taking,  or
not taking, such action.

     (e) Contracts.  Unless otherwise  expressly provided herein,  references to
agreements  and other  contractual  instruments  shall be deemed to include  all
subsequent  amendments and other modifications  thereto,  but only to the extent
such amendments and other  modifications  are not prohibited by the terms of any
Loan Document.

     (f) Laws.  References to any statute or  regulation  are to be construed as
including all  statutory  and  regulatory  provisions  consolidating,  amending,
replacing, supplementing or interpreting the statute or regulation.

     (g)  Captions.  The  captions  and  headings  of  this  Agreement  are  for
convenience  of  reference  only and shall not affect the  construction  of this
Agreement.

     (h) Independence of Provisions. The parties acknowledge that this Agreement
and  other  Loan  Documents  may use  several  different  limitations,  tests or
measurements to regulate the same or similar matters, and that such limitations,
tests and  measurements  are  cumulative  and must each be performed,  except as
expressly stated to the contrary in this Agreement.

1.3  Accounting Principles.

     (a) Unless the context otherwise clearly requires, all accounting terms not
expressly  defined  herein shall be construed,  and all  financial  computations
required  under  this  Agreement   shall  be  made,  in  accordance  with  GAAP,
consistently  applied.  In the event that GAAP  changes  during the term of this
Agreement  such  that the  covenants  contained  in  Article  VI  would  then be
calculated in a different manner or with different components,  (i) Borrower and
Lenders  agree to amend this  Agreement  in such  respects as are  necessary  to
conform  those  covenants  as  criteria  for  evaluating   Borrower's  financial
condition to  substantially  the same criteria as were  effective  prior to such
change in GAAP and (ii) Borrower  shall be deemed to be in  compliance  with the
covenants  contained in Article VI  following  any such change in GAAP if and to
the  extent  that  Borrower  would  have  been  (and  would  continue  to be) in
compliance therewith under GAAP as in effect immediately prior to such change.

     (b) References  herein to "fiscal year" and "fiscal  quarter" refer to such
fiscal periods of Borrower.

1.4  Times. All times of the day herein are Los Angeles, California time.

ARTICLE II.
THE LOAN

2.1 The Loan. Each Lender, on the terms and conditions hereinafter set forth and
subject to the conditions  precedent  pursuant to Section 4.1 of this Agreement,
severally  agrees to make the Loan to  Borrower  in the  ratable  portion of the
Initial  Funding  Amount set forth  opposite such Lender's name on the signature
pages hereto. The Borrower acknowledges and agrees that the Loan is being funded
on a discounted basis and that immediately  following the funding of the Initial
Funding Amount,  the Loan shall be  outstanding,  and payable in accordance with
the terms hereof, in the full principal amount of the Initial Principal Amount.

2.2 Payment Upon Collection;  Monthly Amortization.  Upon receipt by Borrower or
any of its  Affiliates of any  Collections,  Borrower shall promptly (and in any
event within one (1) Business Day) pay (or cause to be paid) such Collections to
Collateral Agent for deposit in the Collateral Account.  Subject to Section 2.6,
Borrower shall, on each Payment Date, repay the Outstanding  Principal Amount in
an amount equal to the Monthly  Amortization  Amount for such Payment Date. Each
Lender shall, upon receipt of any such  Collections,  apply such Collections and
any  Collections  paid  directly  to Lender by  Trustee or  Collateral  Agent in
accordance  with the procedures set forth in Section 2.6 (but subject to Section
2.12).

2.3 Payment Upon  Maturity.  On the  Maturity  Date,  Borrower  will pay to each
Lender  an amount  equal to the  Outstanding  Principal  Amount of the Loan then
owing to such  Lender,  together  with all accrued  and unpaid  interest on such
Outstanding  Principal Amount and any other accrued and unpaid  Obligations then
owing to such Lender.

2.4  Interest.

     (a)  Interest  Rate.  Interest  shall accrue on the  Outstanding  Principal
Amount of the Loan during each Interest Accrual Period at a rate per annum equal
to LIBOR for such  Interest  Accrual  Period  plus (i) at all times prior to the
Ratings  Completion Date, nine hundred (900) basis points, and (ii) at all times
on and after the Ratings  Completion  Date,  six hundred (600) basis points.  In
addition,  after the  occurrence of and during the  continuance  of any Event of
Default under Section 8.1 of this Agreement, the Outstanding Principal Amount of
the Loan together with all accrued and unpaid interest on the Loan and any other
accrued and unpaid  Obligations  due and payable to Lender under this  Agreement
shall bear  interest  during each  Interest  Accrual  Period at a rate per annum
equal to (I) LIBOR for such Interest  Accrual Period plus (i) at all times prior
to the Ratings  Completion  Date, one thousand four hundred (1400) basis points,
and (ii) at all times on and after the Ratings  Completion Date one thousand one
hundred  (1,100)  basis  points  or (II) if LIBOR  pricing  has  been  suspended
pursuant  to Section  2.13(a),  the Base Rate plus (i) at all times prior to the
Ratings  Completion  Date, one thousand  three hundred (1300) basis points,  and
(ii) at all times on and after the Ratings  Completion Date, one thousand (1000)
basis points.  Upon  determining  LIBOR for each Interest  Accrual  Period,  the
Collateral   Agent  shall   notify  the  Lenders  and  Borrower  of  such  LIBOR
determination and the rate thereof.

     (b) Limitation on Interest Rate. The obligations of Borrower  hereunder and
under the Notes shall be subject to the limitation  that payments of interest to
any Lender,  plus any other amounts paid to such Lender in  connection  herewith
and  therewith,  shall not be  required,  to the extent (but only to the extent)
that  contracting for or receiving such payment by such Lender would be contrary
to the provisions of any law applicable to such Lender limiting the highest rate
of interest which may be lawfully  contracted  for,  charged or received by such
Lender,  and in such event  Borrower  shall pay such Lender  interest  and other
amounts at the highest rate permitted by applicable law.

2.5  Voluntary Prepayments; Deposits to Collateral Account.

     (a) Voluntary Prepayments. Borrower shall have the right, at its option, to
prepay  its  obligations  under  the  Loan in whole or in part at any time (in a
minimum amount of $100,000 and an integral  multiple of $10,000,  or such lesser
amount as is then outstanding);  provided, however, that (i) each such voluntary
prepayment  shall be applied  ratably among the Lenders and shall be accompanied
by payment of any  amounts  owing under  Section  10.4(d)  with  respect to such
prepayment,  (ii) except as set forth in the following  clause  (iii),  any such
voluntary  prepayment on or prior to January 11, 2002 shall be  accompanied by a
prepayment  premium in the amount of 1.0% of the  amount  prepaid,  and (iii) no
prepayment  premium under the  foregoing  clause (ii) shall be required (a) with
respect to the first $15,000,000 of principal prepayments or (b) in the event of
a  prepayment  in full of the  Obligations  within 30 days  after  the  Required
Lenders  have  refused  to consent  (after a  reasonable  period for  review) to
additional  Indebtedness  of a  Subsidiary  of the  Borrower (to the extent such
consent is required  under  Section  7.2(b)) in respect of a bona fide  proposal
from a non-affiliated  third party financial  institution to provide  additional
Indebtedness  that is otherwise  permitted  hereunder (and the proceeds of which
would not be used  directly  or  indirectly  to  refinance  amounts  outstanding
hereunder) or in the event amounts  outstanding  hereunder are refinanced by the
Lenders.  After January 11, 2002 there shall be no prepayment premium.  Borrower
shall give each Lender at least ten Business  Days prior notice of its intention
to prepay,  specifying the date of payment,  the total amount and portion of the
Loan of such  Lender to be paid on such date and the  amount of  interest  to be
paid with such prepayment.

     (b) Deposits to Collateral Account. In the event the Outstanding  Principal
Amount  shall at any time exceed the sum of the  Borrowing  Base plus the amount
then on  deposit in the  Collateral  Account,  the  Borrower  shall  immediately
deposit cash in the amount of such excess to the Collateral Account.

2.6 Application of Payments. All payments on the Loan shall be applied,  without
duplication, in the following order:

     (a)  First,  to  Collateral  Agent  and  each  Lender  for any and all sums
advanced by Collateral Agent or such Lender as are reasonably necessary in order
to preserve the  Collateral or the security  interests in the Collateral and all
reasonable expenses of taking, holding,  preparing for sale or lease, selling or
otherwise  disposing  of or realizing  on the  Collateral  or of any exercise by
Collateral Agent or any Lender (or any portfolio  advisor for any Lender) of its
rights under this Agreement or any other Loan Document, together with reasonable
Attorney Costs and unpaid fees and expenses; and

     (b) Second,  ratably to each Lender for application to overdue  interest on
the Obligations;

     (c) Third,  ratably to each Lender for  application to accrued  interest on
the Obligations;

     (d)  Fourth,  ratably to each  Lender for  application  to the  Outstanding
Principal  Amount in an amount  equal to such  Lender's  ratable  portion of any
Monthly Amortization Amount then due and payable;

     (e) Fifth,  ratably to each  Lender in  payment  of all other  accrued  and
unpaid Obligations owing to such Lender.

     Any provision hereof or of the Collateral Account Agreement to the contrary
notwithstanding, any amounts held by Collateral Agent pursuant to the Collateral
Account  Agreement and not otherwise  required to be applied to the  Obligations
shall,  at the written  direction of Borrower,  be applied to repay  Obligations
hereunder  (to be applied as set forth in this Section 2.6) or, if the Borrowing
Base plus such amount on deposit in the  Collateral  Account  exceeds the sum of
(i) the  Outstanding  Principal  Amount plus (ii) the Required  Cash  Collateral
Amount at such time and no Default has occurred and is continuing,  such amounts
held in the  Collateral  Account  shall,  upon  written  request by  Borrower to
Collateral  Agent,  be released  to  Borrower  up to the amount of such  excess;
provided, however, that (a) any release to Borrower of amounts on deposit in the
Collateral  Account  shall only be made on a Payment  Date and only after giving
effect to the  payment of all  amounts  due  hereunder  and under the other Loan
Documents on such Payment Date, and (b) no release shall result in the amount on
deposit in the Collateral  Account being less than the Required Cash  Collateral
Amount at such time.

2.7  Prepayment.  Upon any  prepayment of the Loan,  Borrower  shall pay to each
Lender  such  Lender's  ratable  share of the  principal  amount to be  prepaid,
together  with all  accrued  and unpaid  interest  thereon  through  the date of
prepayment and any applicable premium payable pursuant to Section 2.5. Notice of
prepayment  having  been  given in  accordance  with  Section  2.5,  the  amount
specified to be prepaid  shall become due and payable on the date  specified for
prepayment.

2.8  Fees.

     (a) Reserved.

     (b) Collateral Agent Fees.  Borrower shall pay to the Collateral  Agent, as
and when due, the non-refundable fees set forth on Schedule H.

2.9  Fees  and  Interest.  All  computations  of fees and  interest  under  this
Agreement  shall be made on the basis of a 360-day year and actual days elapsed,
which  results in more  interest  being paid than if  computed on the basis of a
365-day year. Interest and fees shall accrue during each Interest Accrual Period
during which  interest or such fees are  computed  from the first day thereof to
the last day  thereof.  Borrower  shall pay to Lenders  all  accrued  and unpaid
interest on February 15, 2001,  March 15, 2001 and  thereafter,  on each Payment
Date.

2.10 Payments    by    Borrower;     Payments    by     Collateral     Agent.

     (a) All  payments  (including  prepayments)  to be made by or on  behalf of
Borrower on account of  principal,  interest,  fees and other  amounts  required
hereunder or under any Note shall be made without set-off, deduction, recoupment
or counterclaim and shall,  except as otherwise  expressly  provided herein,  be
made to  Collateral  Agent at  Collateral  Agent's  office  as set  forth on its
Administrative Form or as otherwise directed in writing by the Collateral Agent,
in dollars and in immediately  available  funds, no later than 11:00 a.m. on the
date specified  herein.  Any payment which is received by Collateral Agent later
than  11:00  a.m.  shall be  deemed  to have been  received  on the  immediately
succeeding  Business Day and any  applicable  interest or fee shall  continue to
accrue.  The Collateral  Agent will promptly after receipt of each payment cause
to be  distributed  like funds relating to the payment of principal and interest
ratably to each  Lender,  and like funds  relating  to the  payment of any other
amount  payable  to any  Lender to such  Lender,  in each case to be  applied in
accordance  with,  and  subject  to,  the  terms  of this  Agreement.  Upon  its
acceptance  of an Assignment  and  Acceptance  and recording of the  information
contained  therein in the Register pursuant to Section 10.16, from and after the
effective date specified in such Assignment and Acceptance, the Collateral Agent
shall  make all  payments  hereunder,  under any Note and  under any other  Loan
Document  in respect of the  interest  assigned  thereby to the Lender  assignee
thereunder,  and the parties to such  Assignment and  Acceptance  shall make all
appropriate  adjustments  in such payments for periods  prior to such  effective
date directly between themselves.

     (b) Whenever any payment  hereunder or under any Note shall be stated to be
due on a day,  other than a Business Day, such payment shall be made on the next
succeeding  Business  Day,  and such  extension  of time  shall in such  case be
included in the computation of interest or fees, as the case may be.

2.11 Taxes.

     (a) Withholding  Taxes. Any and all payments by the Borrower  hereunder and
under any Note shall be made free and clear of and without deduction for any and
all  present  or  future  taxes,  levies,   imposts,   deductions,   charges  or
withholdings,  and all liabilities with respect thereto,  excluding, in the case
of each Lender and the  Collateral  Agent,  net income taxes that are imposed by
the United States and  franchise  taxes and net income taxes that are imposed on
such Lender or the Collateral Agent by the state or foreign  jurisdiction  under
the laws of which such  Lender or the  Collateral  Agent (as the case may be) is
organized or any political  subdivision thereof and, in the case of each Lender,
franchise  taxes and net  income  taxes that are  imposed on such  Lender by the
state or foreign  jurisdiction of such Lender's Applicable Lending Office or any
political  subdivision  thereof (all such non-excluded taxes,  levies,  imposts,
deductions,  charges, withholdings and liabilities being hereinafter referred to
as "Taxes").  If the Borrower  shall be required by law to deduct any Taxes from
or in respect of any sum payable  hereunder (or under any Note) to any Lender or
the Collateral Agent, (i) the sum payable shall be increased as may be necessary
so that after making all required deductions (including deductions applicable to
additional  sums payable  under this Section  2.11(a))  such Lender Party or the
Collateral  Agent (as the case may be)  receives  an amount  equal to the sum it
would have received had no such  deductions  been made,  (ii) the Borrower shall
make such  deductions and (iii) the Borrower shall pay the full amount  deducted
to the  relevant  taxation  authority  or other  authority  in  accordance  with
applicable law.

     (b) Other Taxes. In addition,  the Borrower shall pay any present or future
stamp,  documentary,  excise,  property or similar taxes, charges or levies that
arise from any payment made  hereunder or under any Note or from the  execution,
delivery or registration of, or otherwise with respect to, this Agreement or any
other Loan Document (hereinafter referred to as "Other Taxes").

     (c)  Indemnification.  The  Borrower  shall  indemnify  each Lender and the
Collateral  Agent for the full amount of Taxes and Other Taxes, and for the full
amount of taxes  imposed  by any  jurisdiction  on  amounts  payable  under this
Section  2.11 paid by such Lender or the  Collateral  Agent (as the case may be)
and any liability (including penalties, additions to tax, interest and expenses)
arising therefrom or with respect thereto.  This  indemnification  shall be made
within 30 days from the date such  Lender or the  Collateral  Agent (as the case
may be) makes written demand therefor.

     (d)  Evidence of  Payment.  Within 30 days after the date of any payment of
Taxes,  the Borrower  shall  furnish to the each Lender the original  receipt of
payment thereof or a certified copy of such receipt.  In the case of any payment
hereunder or under any Note by the Borrower through an account or branch outside
the United  States or on behalf of the  Borrower by a payor that is not a United
States person,  if the Borrower  determines that no Taxes are payable in respect
thereof,  the Borrower shall furnish,  or shall cause such payor to furnish,  to
each Lender an opinion of counsel  acceptable  to such Lender  stating that such
payment is exempt from Taxes. For purposes of this subsection (d) and subsection
(e),  the terms  "United  States"  and  "United  States  person"  shall have the
meanings specified in Section 7701 of the Internal Revenue Code.

     (e) Foreign Lenders and Issuing Banks. Each Lender organized under the laws
of a jurisdiction outside the United States shall, on or prior to the date of it
becomes a party to this  Agreement,  and from time to time  thereafter  upon the
reasonable  request in writing by the Borrower or the Collateral Agent (but only
so long thereafter as such Lender remains  lawfully able to do so),  provide the
Collateral  Agent and the Borrower  with Internal  Revenue  Service Form 1001 or
4224  (or  other  appropriate  form),  as  appropriate,  or any  successor  form
prescribed  by the  Internal  Revenue  Service,  certifying  that such Lender is
exempt from or is entitled to a reduced rate of United States withholding tax on
payments under this Agreement. If the form provided by a Lender at the time such
Lender  first  becomes  a party to this  Agreement  indicates  a  United  States
interest  withholding  tax rate in excess of zero,  withholding tax at such rate
shall be considered  excluded  from Taxes unless and until such Lender  provides
the  appropriate   form  certifying  that  a  lesser  rate  applies,   whereupon
withholding tax at such lesser rate only shall be considered excluded from Taxes
for periods governed by such form;  provided,  however,  that, if at the date of
the  assignment  pursuant  to which a Lender  assignee  becomes  a party to this
Agreement,  the Lender assignor was entitled to payments under subsection (a) in
respect of United States  withholding  tax with respect to interest paid at such
date,  then,  to such  extent,  the term Taxes  shall  include  (in  addition to
withholding  taxes that may be imposed in the future or other amounts  otherwise
includable in Taxes)  United States  withholding  tax, if any,  applicable  with
respect to the Lender assignee on such date.

     (f) Failure to Provide Forms. For any period with respect to which a Lender
has failed to provide  the  Borrower  with the  appropriate  form  described  in
Section  2.11(e) (other than if such failure is due to a change in law occurring
after the date on which a form originally was required to be provided or if such
form otherwise is not required under Section  2.11(e)),  such Lender Party shall
not be entitled to indemnification under Section 2.11(a) or Section 2.11(c) with
respect to Taxes imposed by the United States; provided,  however, that should a
Lender become subject to Taxes because of its failure to deliver a form required
hereunder,  the Borrower  shall take such steps as such Lender shall  reasonably
request to assist such Lender to recover such Taxes.

2.12  Sharing of  Payments,  Etc..  If any Lender  shall  obtain at any time any
payment (whether  voluntary,  involuntary,  through the exercise of any right of
set-off,  or otherwise)  (a) on account of  Obligations  due and payable to such
Lender  hereunder or under any Note at such time in excess of its ratable  share
(according  to the  proportion  of (i) the  amount of such  Obligations  due and
payable  to such  Lender  at  such  time to (ii)  the  aggregate  amount  of the
Obligations due and payable to all Lenders hereunder and under the Notes at such
time) of payments on account of the  Obligations  due and payable to all Lenders
hereunder  and under the Notes at such time  obtained by all the Lenders at such
time or (b) on account of  Obligations  owing (but not due and  payable) to such
Lender  hereunder or under any Note at such time in excess of its ratable  share
(according to the proportion of (i) the amount of such Obligations owing to such
Lender at such time to (ii) the aggregate  amount of the Obligations  owing (but
not due and payable) to all Lenders  hereunder and under the Notes at such time)
of payments on account of the Obligations owing (but not due and payable) to all
Lenders  hereunder  and under the Notes at such time obtained by all the Lenders
at such time, such Lender shall  forthwith  purchase from the other Lenders such
participations  in the Obligations due and payable or owing to them, as the case
may be,  as shall be  necessary  to cause  such  purchasing  Lender to share the
excess payment ratably with each of them; provided,  however, that if all or any
portion of such excess  payment is  thereafter  recovered  from such  purchasing
Lender,  such  purchase from each other Lender shall be rescinded and such other
Lender shall repay to the purchasing  Lender the purchase price to the extent of
such other  Lender's  ratable  share  (according  to the  proportion  of (i) the
purchase price paid to such Lender to (ii) the aggregate  purchase price paid to
all Lenders) of such  recovery  together  with an amount equal to such  Lender's
ratable  share  (according  to the  proportion  of (i) the  amount of such other
Lender's  required  repayment  to (ii) the total  amount so  recovered  from the
purchasing  Lender)  of any  interest  or other  amount  paid or  payable by the
purchasing  Lender in respect of the total  amount so  recovered.  The  Borrower
agrees  that any  Lender so  purchasing  a  participation  from  another  Lender
pursuant  to this  Section  2.12 may, to the fullest  extent  permitted  by law,
exercise all its rights of payment (including the right of set-off) with respect
to such participation as fully as if such Lender were the direct creditor of the
Borrower in the amount of such participation.

2.13 Suspension of LIBOR.

     (a) Illegality.  Notwithstanding any other provision of this Agreement,  if
the  introduction  of or any  change in or in the  interpretation  of any law or
regulation  shall make it unlawful,  or any central  bank or other  governmental
authority  shall  assert  that it is  unlawful,  for any Lender to  perform  its
obligations  hereunder  to make,  fund or maintain  its portion of the Loan as a
LIBOR based  obligation,  then,  on notice  thereof and demand  therefor by such
Lender to the  Borrower,  the interest  rate  applicable to the Loan pursuant to
Section 2.4 shall thereafter be the Base Rate plus (i) at all times prior to the
Ratings Completion Date, eight hundred (800) basis points, and (ii) at all times
on and after the Ratings  Completion Date, five hundred (500) basis points until
such Lender shall notify the Borrower that such Lender has  determined  that the
circumstances causing such suspension no longer exist.

     (b) Other Circumstances. If any Lender shall determine in good faith (which
determination  shall be  conclusive)  that (A)  LIBOR  cannot be  determined  in
accordance with the definition  thereof,  or (B) LIBOR for any Interest  Accrual
Period will not adequately reflect the cost to such Lender of making, funding or
maintaining  such Lender's ratable portion of the Loan for such Interest Period,
such  Lender  shall  forthwith  so notify the  Borrower  and the other  Lenders,
whereupon the interest  rate  applicable to the Loan pursuant to Section 2.4 for
such Lender shall thereafter be the Base Rate plus 5.0%.

2.14 Increased Costs, Etc..

     (a)  Increased  Costs.  If,  due to either (i) the  introduction  of or any
change  in or in  the  interpretation  of any  law or  regulation  or  (ii)  the
compliance  with  any  guideline  or  request  from  any  central  bank or other
governmental  authority (whether or not having the force of law), there shall be
any increase in the cost to any Lender of agreeing to make or of making, funding
or maintaining  its portion of the Loan based on LIBOR,  then the Borrower shall
from time to time,  upon  demand by such  Lender pay to such  Lender  additional
amounts  sufficient  to  compensate  such  Lender  for  such  increased  cost  A
certificate as to the amount of such increased  cost,  submitted to the Borrower
by such  Lender,  shall be  conclusive  and  binding  for all  purposes,  absent
manifest error.

     (b) Capital Requirements.  If, due to either (i) the introduction of or any
change  in or in  the  interpretation  of any  law or  regulation  or  (ii)  the
compliance  with  any  guideline  or  request  from  any  central  bank or other
governmental  authority (whether or not having the force of law), there shall be
any increase in the amount of capital  required or expected to be  maintained by
such Lender or any corporation  controlling  such Lender as a result of or based
upon the existence of such Lender's  commitment to lend  hereunder,  then,  upon
demand by such Lender, the Borrower shall pay to such Lender,  from time to time
as specified by such Lender,  additional  amounts  sufficient to compensate such
Lender in the  light of such  circumstances,  to the  extent  that  such  Lender
reasonably  determines such increase in capital to be allocable to the existence
of such Lender's commitment to lend hereunder.  A certificate as to such amounts
submitted to the Borrower by such Lender,  shall be  conclusive  and binding for
all purposes, absent manifest error.

2.15 Promissory Notes. The Borrower hereby agrees that if, in the opinion of any
Lender, a promissory note or other evidence of debt is required,  appropriate or
desirable to reflect or enforce the indebtedness of the Borrower  resulting from
the Loan made by or otherwise  owing to such  Lender,  then upon request of such
Lender,  the Borrower shall (in the case of any such request by a Lender that is
not an initial party hereto,  in accordance with Section 10.16) promptly execute
and deliver to such  Lender,  a  promissory  note  substantially  in the form of
Exhibit  D,  payable  to the  order of such  Lender  in an  amount  equal to the
principal amount of the Loan made by or otherwise owing to such Lender.

ARTICLE III.
SECURITY AGREEMENT AND COLLATERAL

3.1 Security for Obligations. As security for the payment and performance of the
Obligations  under this  Agreement  and the other Loan  Documents  and all other
present and future debts,  obligations and liabilities of any nature  whatsoever
of Borrower to Collateral  Agent or any Lender in respect of this  Agreement and
the other Loan Documents,  and all  modifications,  renewals,  replacements  and
extensions thereof,  UDCSFC shall grant Collateral Agent (for Collateral Agent's
benefit  and the  ratable  benefit of the  Lenders) a security  interest  in the
Collateral  pursuant  to the Stock  Pledge  Agreement,  the  Collateral  Account
Agreement  and such other  agreements,  documents  and  instruments  as Required
Lenders may  reasonably  require.  Borrower  shall  cause  UDCSFC to execute and
deliver the Stock Pledge  Agreement and to perform its  obligations  thereunder.
Borrower will,  prior to the creation of any Additional  Residual  Certificates,
take and cause its Affiliates and Subsidiaries to take, such actions and execute
such  agreements,  documents  and  instruments  (and  deliver  such  opinions of
counsel) as may be  necessary  or as  Collateral  Agent or Required  Lenders may
reasonably  request  in order to  create a  perfected  first  priority  security
interest  securing the Obligations in favor of Collateral  Agent (for Collateral
Agent's  benefit and the  ratable  benefit of the  Lenders)  in such  Additional
Residual  Certificates or in 100% of the capital stock or other equity interests
of the entity owning such Additional Residual Certificates,  including,  without
limitation, compliance with Section 7(c) of the Stock Pledge Agreement. Borrower
will  execute,  and shall  cause  UDCSFC and  Borrower's  other  Affiliates  and
Subsidiaries,  to execute,  any  security  agreements,  collateral  assignments,
financing  statements  for filing  and/or  recording  and any other  agreements,
documents or  instruments  reasonably  required by Collateral  Agent or Required
Lenders to evidence and perfect the Liens and security  interests of  Collateral
Agent. A carbon,  photographic or other reproduced copy of this Agreement and/or
any financing  statement  relating  hereto shall be sufficient for filing and/or
recording as a financing statement.

3.2 Security  Documents.  The Financing  Statements  shall remain on file in the
appropriate  jurisdictions  and Borrower shall  promptly  execute or cause to be
executed any other financing statements and notices as are necessary to properly
perfect Collateral Agent's security interest in the Collateral.

3.3 Duties Regarding  Collateral.  Neither  Collateral Agent nor any Lender (nor
any  portfolio  advisor for any  Lender)  shall have any duty or  obligation  to
protect, insure, collect or realize upon the Collateral or preserve rights in it
against prior parties.  Borrower releases  Collateral Agent and each Lender (and
each  portfolio  advisor) from, and shall  indemnify  Collateral  Agent and each
Lender  (and each  portfolio  advisor)  against,  any  liability  for any act or
omission relating to the Collateral,  except with respect to any such Person for
any liability  directly resulting from such Person's gross negligence or willful
misconduct.

3.4 Borrower's Duties Regarding Collateral. Borrower agrees as follows:

     (a)  General  Maintenance  of  Collateral.  Borrower:  (i)  shall  keep the
Collateral  free from all Liens  (other  than the Liens of ad  valorem  property
taxes which are not delinquent, any statutory landlords' liens which are covered
by lien waivers  satisfactory to Required Lenders,  mechanic's liens,  Permitted
Liens,  and any  Liens in favor  of  Collateral  Agent  for the  benefit  of the
Lenders);  (ii)  shall  defend  the  Collateral  against  all  claims  and legal
proceedings by persons other than Collateral Agent and Lenders;  (iii) shall pay
and discharge when due all taxes,  levies and other charges upon the Collateral;
(iv) shall cause UDCSFC and Borrower's  other Affiliates and Subsidiaries not to
sell, lease or otherwise dispose of the Collateral; and (v) shall not permit the
Collateral  to be used in violation of any  Requirement  of Law or any policy of
insurance.

     (b)  Perfection  and  Priority.  Borrower  shall pay all Lender's  Expenses
necessary to, take all actions necessary to, and, upon Collateral Agent's or any
Lender's request,  execute all writings and take and cause Borrower's Affiliates
and  Subsidiaries  to take all other  actions  reasonably  deemed  advisable  by
Collateral Agent or any Lender to, preserve the Collateral or to establish,  and
determine  priority of, perfection,  continued  perfection or enforce Collateral
Agent's interest in the Collateral.

     (c) Records and Inspections. Upon reasonable notice to Borrower, any Lender
may examine and conduct  audits of the  Collateral,  and Borrower's and UDCSFC's
and  Borrower's  other  Affiliates'  and  Subsidiaries'  records  concerning it,
wherever  located,  and make copies of such  records,  at any time during normal
business  hours,  and Borrower  shall  assist such Lender in so doing.  Borrower
shall keep accurate,  complete and current records respecting the Collateral. In
addition to the specific requirements of Section 6.1, Borrower shall, within ten
(10)  Business  Days of any  request by any  Lender,  furnish  to such  Lender a
detailed statement,  certified as being substantially  accurate by a Responsible
Officer,  setting  forth the current  status,  value and  location of all or any
portion of the Collateral.

3.5  Power  of  Attorney.   Borrower  hereby  makes,  constitutes  and  appoints
Collateral  Agent and each Lender and its portfolio  advisor the true and lawful
attorney-in-fact  of  Borrower,  in the name,  place and stead of  Borrower,  or
otherwise,  upon the  occurrence of any Event of Default  which remains  uncured
following the receipt of a notice pursuant to Section 10.2:

     (a) To take all actions and to execute, acknowledge, obtain and deliver any
and all writings  necessary  or deemed  advisable  by  Collateral  Agent or such
Lender  in  order to  exercise  any  rights  of  Borrower  with  respect  to the
Collateral or to receive and enforce any payment or performance  due to Borrower
with respect to the Collateral;

     (b) To give any notices, instructions or other communications to any person
or entity in connection with the Collateral;

     (c) To demand and receive all performances due under or with respect to the
Collateral  and to take all lawful  steps to enforce  such  performances  and to
compromise  and settle any claim or cause of action of Borrower  arising from or
related to the Collateral and give  acquittances and other  discharges  relating
thereto; and

     (d) To file any claim or  proceeding  or to take any other  action,  in the
name of  Collateral  Agent or such  Lender,  Borrower or  otherwise,  to enforce
performances  due under or related to the  Collateral or to protect and preserve
the right, title and interest of Collateral Agent or such Lender thereunder.

     The  foregoing  power of attorney is a power  coupled  with an interest and
shall be  irrevocable  and unaffected by the disability of the principal so long
as any portion of the Obligations remains contingent,  unmatured,  unliquidated,
unpaid or  unperformed.  Lender shall have no  obligation to exercise any of the
foregoing rights and powers in any event.

3.6  Collateral  Inspections.  Collateral  Agent and each Lender  shall have the
right (but not the  obligation)  to do a  physical  on-site  examination  of the
Collateral.  All costs and expenses  associated  therewith  shall be included in
Lender Expenses.

ARTICLE IV.
CONDITIONS PRECEDENT; TERM OF AGREEMENT

4.1  Conditions  Precedent.  No Lender  shall be required to make the Loan to be
made by it hereunder if Borrower has not fulfilled to the  satisfaction  of such
Lender  and its  counsel,  each of the  following  conditions  on or before  the
Closing  Date;  provided,  however,  that each Lender,  in its sole and absolute
discretion, may waive any of the following conditions.

4.2 Receipt of Documents.  Each Lender shall have received each of the following
documents,  duly  executed,  and each such  document  shall be in full force and
effect:

     (a) This Agreement executed by Borrower, Collateral Agent and each Lender;

     (b) The Notes duly  executed,  the Guaranty duly  executed,  the Collateral
Account  Agreement  duly executed and the Stock Pledge  Agreement  duly executed
together with the certificates representing 100% of the capital stock of UDRC II
and UDRC III and undated stock powers relating thereto duly endorsed in blank;

     (c) the Lenders shall have received (i) evidence  satisfactory to them that
Borrower  has  received  not less  than  $7,000,000  in  proceeds  of the  Verde
Subordinated  Note, and (ii) a certified copy of the Verde Subordinated Note and
all documents and instruments relating thereto,  each of which shall be on terms
and conditions satisfactory to the Lenders;

     (d) The UDRC II Dividend Direction Letter;

     (e) the UDRC III Dividend Direction Letter;

     (f)  The  UDRC II  Standing  Dividend  Resolution  certified  by UDRC  II's
Secretary;

     (g) the UDRC III  Standing  Dividend  Resolution  certified  by UDRC  III's
Secretary;

     (h) A consent and  subordination  from GECC  consenting  to the  execution,
delivery  and  performance  by  Borrower  and UDCSFC of the Loan  Documents  and
subordinating  to  Collateral  Agent  GECC's  Lien  on any  assets  constituting
Collateral;

     (i) A consent by MBIA to the pledge of the Collateral to Collateral Agent;

     (j)  Certified  copies  of the  resolutions  of the board of  directors  of
Borrower  approving and authorizing  the execution,  delivery and performance by
Borrower  of this  Agreement  and  the  other  Loan  Documents  to be  delivered
hereunder,  and  authorizing  the Loan,  certified as of the Closing Date by the
Secretary or an Assistant Secretary of Borrower;

     (k) A  certificate  of the  Secretary  or  Assistant  Secretary of Borrower
certifying the names and true signatures of the officers of Borrower  authorized
to execute, deliver and perform, as applicable, this Agreement, the Stock Pledge
Agreement and all other Loan Documents to be delivered hereunder;

     (l) Certified copies of the resolutions of the board of directors of UDCSFC
approving and authorizing  the execution,  delivery and performance by UDCSFC of
the  applicable  Loan Documents to be delivered  hereunder,  certified as of the
Closing Date by the Secretary or an Assistant Secretary of UDCSFC;

     (m) A  certificate  of the  Secretary  or  Assistant  Secretary  of  UDCSFC
certifying the names and true signatures of the officers of UDCSFC authorized to
execute, deliver and perform the Stock Pledge Agreement and all other applicable
Loan Documents to be delivered hereunder;

     (n)  Copies  of each of  Borrower's,  UDCSFC's,  UDRC  II's and UDRC  III's
certificate  of  incorporation  certified by the Secretary of the State of their
respective   jurisdictions  of  incorporation  and  bylaws  certified  by  their
respective Secretaries or Assistant Secretaries;

     (o) Good standing  certificates for the  jurisdiction of incorporation  and
the  jurisdiction  in which the chief  executive  office is located  for each of
Borrower, UDCSFC, UDRC II and UDRC III;

     (p) A copy  of  lien  searches,  completed  as of a  recent  date,  against
Borrower  and UDCSFC,  UDRC II and UDRC III, in such  jurisdictions  as shall be
satisfactory to Lenders and its counsel;

     (q)  Legal   opinions  from  counsel  for  Borrower  with  respect  to  the
transactions contemplated by the Loan Documents, which opinions shall be in form
and substance  satisfactory to Lenders and from counsel satisfactory to Lenders;
and

     (r) The  obligations  hereunder  shall  have  been  rated "B" or above by a
rating agency acceptable to the Required Lenders.

     (s) There shall have occurred since December 31, 1999, no Material  Adverse
Change.  For purposes of this Section  4.2(r),  the requirement to refinance the
GECC Agreement shall not constitute a Material Adverse Change.

     (t) Lenders shall have received Borrower's audited financial statements for
the fiscal year ended December 31, 1999 and unaudited  financial  statements for
the 9 month period ended September 30, 2000.

     (u) Officers  Certificate as to no default and truth of representations and
warranties.

     (v)  Completion  of  December  2000 MBIA - wrapped  securitization  of Ugly
Duckling Collateral.

4.3 Term. This Agreement shall become  effective upon the execution and delivery
hereof by  Borrower,  Collateral  Agent and Lenders  and shall  continue in full
force and effect for a term ending on the earliest of (a) the Repayment Date, or
(b) the date of termination of this Agreement in accordance with its terms after
the occurrence and during the continuation of an Event of Default.

4.4 Effect of Termination.  Upon termination of this Agreement,  all Obligations
shall  become  due  and  payable   immediately  without  notice  or  demand.  No
termination of this Agreement,  however,  shall relieve or discharge Borrower of
Borrower's duties,  Obligations,  or covenants hereunder, and Collateral Agent's
continuing  security interest in the Collateral shall remain in effect until all
Obligations have been fully and finally discharged.

ARTICLE V.
REPRESENTATIONS AND WARRANTIES

In order to  induce  Lenders  to enter  into this  Agreement  and make the Loan,
Borrower makes the following representations and warranties which shall be true,
correct,  and complete in all respects as of the date hereof, and shall be true,
correct,  and  complete in all  respects as of the Closing  Date  (except to the
extent that such  representations  and  warranties  relate  solely to an earlier
date) and such  representations  and warranties  shall survive the execution and
delivery of this Agreement:

5.1 No Encumbrances.  UDCSFC has good and indefeasible  title to the Collateral,
free and clear of Liens except for Permitted Liens.

5.2 Location of Chief  Executive  Office;  FEIN. The chief  executive  office of
Borrower is located at the address  indicated in the preamble to this  Agreement
and  Borrower's  FEIN is  86-0721358.  The chief  executive  office of UDCSFC is
located at the address of Borrower  indicated in the preamble to this  Agreement
and UDCSFC's FEIN is 86-0657074.

5.3 Due Organization and Qualification; Subsidiaries.

     (a)  Each  Loan  Party  is duly  organized,  validly  existing  and in good
standing under the laws of the jurisdiction of its  incorporation  and qualified
and  licensed to do business  in, and in good  standing  in, any state where the
failure to be so licensed or  qualified  reasonably  could be expected to have a
Material Adverse Effect.

     (b) Set forth on Schedule A is a complete and accurate  list of  Borrower's
direct  and  indirect  Subsidiaries,  showing:  (i) the  jurisdiction  of  their
incorporation;  (ii) the  number  of shares  of each  class of Equity  Interests
authorized  for  each  of  such  Subsidiaries;  and  (iii)  the  number  and the
percentage  of the  outstanding  shares of each such  class  owned  directly  or
indirectly by Borrower.  All of the  outstanding  Equity  Interests of each such
Subsidiary have been validly issued and are fully paid and non-assessable.

     (c)  Except  as set  forth  on  Schedule  B, no  Equity  Interests  (or any
securities,  instruments,  warrants,  options,  purchase  rights,  conversion or
exchange rights, calls,  commitments or claims of any character convertible into
or  exercisable  for Equity  Interests) of any direct or indirect  Subsidiary of
Borrower  is subject  to the  issuance  of any  security,  instrument,  warrant,
option,  purchase right, conversion or exchange right, call, commitment or claim
of any right, title, or interest therein or thereto.

5.4 Due Authorization: No Conflict.

     (a) The execution,  delivery, and performance by each Loan Party of each of
the Loan  Documents  to which it is a party  have  been duly  authorized  by all
necessary corporate action.

     (b) The execution,  delivery, and performance by each Loan Party of each of
the Loan  Documents  to which it is a party do not and will not (i)  violate any
provision of federal,  state, or local law or regulation (including  Regulations
T, U, and X of the Federal  Reserve  Board)  applicable to such Loan Party,  the
Governing Documents of such Loan Party, or any order, judgment, or decree of any
court or other  Governmental  Authority binding on any Loan Party, (ii) conflict
with,  result in a breach of, or constitute (with due notice or lapse of time or
both) a default under any material  contractual  obligation or material lease of
any Loan Party,  (iii)  result in or require the creation or  imposition  of any
Lien of any nature  whatsoever  upon any properties or assets of any Loan Party,
other than pursuant to the Security  Documents,  or (iv) require any approval of
stockholders  or any  approval  or  consent  of any  Person  under any  material
contractual  obligation  of  any  Loan  Party.  No  Loan  Party  or  any  of its
Subsidiaries  is in  violation  of  any  law,  rule,  regulation,  order,  writ,
judgment,  injunction,  decree,  determination or award or in breach of any such
contract,  loan agreement,  indenture,  mortgage,  deed of trust, lease or other
instrument,  the  violation  or breach of which  could have a  Material  Adverse
Effect.

     (c) Other than the taking of any other action expressly required under this
Agreement  or any of the other Loan  Documents,  the  execution,  delivery,  and
performance by each Loan Party of this Agreement and the other Loan Documents to
which such Loan Party is a party do not and will not  require  any  registration
with,  consent,  or approval  of, or notice to, or other  action with or by, any
federal, state, foreign, or other Governmental Authority or other Person.

     (d) This  Agreement,  the other  Loan  Documents  and all  other  documents
contemplated  hereby and thereby,  when executed and delivered by any Loan Party
party  thereto,  will be the legally valid and binding  obligations of such Loan
Party,  enforceable  against such Loan Party in accordance with their respective
terms,  except as  enforcement  may be limited  by  equitable  principles  or by
bankruptcy, insolvency, reorganization,  moratorium, or similar laws relating to
or limiting creditors' rights generally.

     (e) The Stock Pledge Agreement and the stock powers delivered in connection
therewith,  and the Collateral  Account Agreement when executed and delivered by
UDCSFC and UDC, will be the legally valid and binding  obligations of UDCSFC and
UDC,  enforceable  against  each of  UDCSFC  and UDC in  accordance  with  their
respective terms,  except as enforcement may be limited by equitable  principles
or by  bankruptcy,  insolvency,  reorganization,  moratorium,  or  similar  laws
relating to or limiting creditors' rights generally.

     (f) The Lien  granted  by  UDCSFC  and UDC on the  Collateral  is a validly
created and perfected  first  priority Lien, and the Collateral is subject to no
other Liens other than Liens in favor of Collateral Agent and the Liens referred
to in item 1 on Schedule E.

5.5  Litigation.  Except as set forth in  Schedule  C,  there are no  actions or
proceedings  pending by or against  Borrower before any court or  administrative
agency  and  Borrower  does  not  have  knowledge  or  belief  of  any  pending,
threatened,  or imminent  litigation,  governmental  investigations,  or claims,
complaints, actions, or prosecutions involving Borrower, except for: (a) ongoing
collection  matters in which  Borrower is the  plaintiff,  (b) matters  that, if
decided adversely to Borrower,  would not have a Material Adverse Effect and (c)
matters as to which Borrower has provided  notice to the Lenders and which could
not reasonably be expected to be decided adversely to Borrower.

5.6 Financial  Statements;  No Material Adverse Change. All financial statements
relating to Borrower,  UDRC II and UDRC III that have been delivered by Borrower
to Lenders have been  prepared in accordance  with GAAP (except,  in the case of
unaudited financial  statements,  for the lack of footnotes and being subject to
year-end audit adjustments) and fairly present the financial condition as of the
date  thereof  and the  results  of  operations  for the  period  then ended for
Borrower and its consolidated  Subsidiaries,  except as disclosed on Schedule D.
No information,  exhibit or report furnished by Borrower or any other Loan Party
to the Collateral  Agent or any Lender in connection with the negotiation of the
Loan  Documents  or pursuant to the terms of the Loan  Documents  contained  any
untrue  statement  of a  material  fact or  omitted  to  state a  material  fact
necessary to make the statements made therein not misleading. There has not been
a Material  Adverse Change with respect to Borrower since December 31, 1999. For
purposes of this  Section 5.6, so long as Borrower has not failed to comply with
Section 6.24 hereof,  the  requirement to refinance the GECC Agreement shall not
constitute a Material Adverse Change.

5.7 Securitization  Documents.  Borrower, UDRC II and UDRC III and each of their
Affiliates are in full compliance with their  respective  obligations  under the
Securitization Documents, and no Securitization Default exists.

5.8 ERISA. No accumulated funding deficiency (as defined in Section 302 of ERISA
and Section 412 of the Code), whether or not waived,  exists with respect to any
plan (other than a  multiemployer  plan).  No liability  to the Pension  Benefit
Guaranty  Corporation  has been or is expected  by Borrower to be incurred  with
respect to any plan (other than a  multiemployer  plan) by Borrower  which is or
would have a Material  Adverse  Effect.  Borrower  has not incurred and does not
presently expect to incur any withdrawal  liability under Title IV of ERISA with
respect to any  multiemployer  plan which is or would be  materially  adverse to
Borrower.  The  execution  and  delivery  of this  Agreement  and the other Loan
Documents will not involve any transaction  which is subject to the prohibitions
of  Section  406 of ERISA or in  connection  with  which a tax could be  imposed
pursuant to section  4975 of the Code.  For the purpose of this Section 5.8, the
term "plan" shall mean an "employee pension benefit plan" (as defined in section
3 of  ERISA)  which  is or has  been  established  or  maintained,  or to  which
contributions  are or have been made,  by Borrower or by any trade or  business,
whether or not  incorporated,  which,  together with  Borrower,  is under common
control,  as  described  in  Section  414(b)  or (c) of the  Code;  and the term
"multiemployer  plan"  shall mean any plan which is a  "multiemployer  plan" (as
such term is defined in Section  4001(a)(3) of ERISA). No plan providing welfare
benefits to retired  former  employees  of Borrower has been  established  or is
maintained for which the present value of future benefits payable,  in excess of
irrevocably  designated  funds for such  purpose,  is or would  have a  Material
Adverse Effect.

5.9 Environmental and Safety Matters.  Borrower (a) has complied in all material
respects  with all  applicable  material  Environmental  and  Safety  Laws,  and
Borrower has not received (i) notice of any material failure so to comply,  (ii)
any letter or request for information  under Section 104 of CERCLA or comparable
state laws or (iii) any information that would lead it to believe that it is the
subject  of any  Federal or state  investigation  concerning  Environmental  and
Safety Laws;  (b) does not manage,  generate,  discharge or store any  Hazardous
Materials in material  violation of any material  Environmental and Safety Laws;
(c) does not own,  operate or maintain any underground  storage tanks or surface
impoundments;  and (d) except as  disclosed  to Lenders in writing  prior to the
date hereof, is not aware of any conditions or circumstances associated with its
currently or previously  owned or leased  properties or operations  (or those of
its  tenants)  which may give rise to any  Environmental  Liabilities  and Costs
which could have a Material Adverse Effect.

5.10 Tax  Matters.  Each of  Borrower  and its  Subsidiaries  has  filed all tax
returns  that it was  required to file.  All such tax returns  were  correct and
complete in all material  respects.  All Borrower  Taxes owed by any of Borrower
and its Subsidiaries have been paid.

5.11 [Reserved].

5.12 Ownership of  Properties.  Each Loan Party and its  Subsidiaries  has good,
marketable and insurable title in fee simple to, or a valid  leasehold  interest
in, all its real property,  and good title to, or a valid leasehold interest in,
all its other Property.

5.13  Investment  Company  Status.  Neither  any  Loan  Party  nor  any  of  its
Subsidiaries  is an  "investment  company,"  or an  "affiliated  person"  of, or
"promoter"  or "principal  underwriter"  for, an  "investment  company," as such
terms are defined in the Investment Company Act of 1940, as amended. Neither the
making of the Loan nor the  application of the proceeds or repayment  thereof by
Borrower,  nor the consummation of the other transactions  contemplated  hereby,
will violate any  provision of such Act or any rule,  regulation or order of the
Securities and Exchange Commission thereunder.

5.14  Solvency.   Each  Loan  Party  is,  individually  and  together  with  its
Subsidiaries,  Solvent.  For purposes  hereof,  the term "Solvent"  means,  with
respect to any Person on a particular date, that on such date (a) the fair value
of the property of such Person is greater than the total amount of  liabilities,
including,  without limitation,  contingent liabilities, of such Person, (b) the
present  fair  salable  value of the assets of such  Person is not less than the
amount that will be required to pay the probable liability of such Person on its
debts as they become  absolute and matured,  (c) such Person does not intend to,
and does not  believe  that it will,  incur  debts or  liabilities  beyond  such
Person's ability to pay as such debts and liabilities mature and (d) such Person
is not  engaged  in  business  or a  transaction,  and is not about to engage in
business or a transaction,  for which such Person's property would constitute an
unreasonably  small  capital.  The amount of contingent  liabilities at any time
shall  be  computed  as the  amount  that,  in the  light of all the  facts  and
circumstances  existing at such time,  represents the amount that can reasonably
be expected to become an actual or matured liability.

ARTICLE VI.
AFFIRMATIVE COVENANTS

Borrower  covenants  and agrees that, so long as any credit  hereunder  shall be
available  and until  full and final  payment  of the  Obligations,  and  unless
Required  Lenders shall otherwise  consent in writing,  Borrower shall do all of
the following:

6.1 Financial Statements and Other Documents.  Borrower shall deliver to Lenders
in form and detail satisfactory to Required Lenders:

     (a)  Within  45 days of the end of each  fiscal  quarter  (except  the last
fiscal quarter of each fiscal year), Borrower's consolidated unaudited financial
statements for such quarter, and, within 90 days of the end of Borrower's fiscal
year,  Borrower's  consolidated  audited  financial  statements for such period,
certified  by  Borrower's  Chief  Financial   Officer  or  Treasurer  as  fairly
presenting in all material  respects,  in accordance with GAAP (subject,  in the
case of  unaudited  financial  statements,  to  ordinary,  good  faith  year-end
adjustments and to the absence of footnote  disclosure),  the financial position
and  results of  operations  of  Borrower  and  together,  in each case,  with a
certificate  of the  Chief  Financial  Officer  of  Borrower  stating  that  the
representations  and  warranties  herein are true and  correct  in all  material
respects as of the date of such certificate and that no Default has occurred and
is continuing or, if a default has occurred and is continuing, a statement as to
the nature  thereof and the action that  Borrower has taken and proposes to take
with respect  thereto and setting forth in  reasonable  detail  satisfactory  to
Required  Lenders the calculations  demonstrating  compliance with Sections 6.13
through 6.16;

     (b) Promptly upon receipt  thereof,  any  financial  statements of Borrower
distributed to other lenders or financing parties;

     (c) On or prior to each  Calculation  Date, a Collateral  Servicing  Report
certified  as true and  correct by an  officer of  Borrower  and  including  the
calculation  of the Borrowing  Base as of such  Calculation  Date and certifying
such calculation as true and correct.

     (d) Promptly upon preparation thereof, a copy of each other report, if any,
submitted to Borrower by independent  accountants in connection with any annual,
interim or special audit made by them of the books of Borrower;

     (e)  Promptly  after its  submission,  copies of any other  information  or
documents  regularly provided by Borrower to any of its other lenders or holders
of Borrower's Debt;

     (f)  Promptly  upon receipt  thereof,  copies of any other  information  or
documents  received  by  Borrower  pursuant  to  any   Securitization   Document
(including,  without limitation,  monthly servicing reports with respect to each
Securitization);

     (g) With reasonable  promptness,  such other financial data and information
as any Lender may reasonably request; and

     (h)  Promptly  upon  receipt  thereof,  (i) copies of any  federal  revenue
agent's reports (so called "thirty-day letter") issued by the IRS, and copies of
any equivalent documents from state or local tax authorities; (ii) copies of any
federal notice of deficiency (so-called "ninety-day letters") issued by the IRS,
and copies of any equivalent documents from state or local tax authorities;  and
(iii) copies of any  information  requests or document  requests  received  from
federal,  state or local tax authorities  that are not in the ordinary course of
business.

6.2 Inspection of Property.  Borrower shall permit any Person  designated by any
Lender in writing,  to visit and inspect any of the  properties of Borrower,  to
examine the corporate  books and  financial  records of Borrower and make copies
thereof or extracts therefrom and to discuss the affairs,  finances and accounts
of any of such  corporations  with the  principal  officers of Borrower  and its
independent public accountants, all at such reasonable times and as often as any
Lender may reasonably request.

6.3 Default Disclosure.

     (a)  Borrower  shall  forthwith,  upon a  Responsible  Officer of  Borrower
obtaining knowledge of an Event of Default or Default,  promptly deliver to each
Lender a certificate of a Responsible  Officer  specifying the nature and period
of  existence  thereof and what action  Borrower  proposes to take with  respect
thereto.

     (b)  Borrower  shall  forthwith,  upon a  Responsible  Officer of  Borrower
obtaining  knowledge  of a  Securitization  Default,  deliver  to each  Lender a
certificate  of a  Responsible  Officer  specifying  the  nature  and  period of
existence  thereof,  what  action the  defaulting  party  proposes  to take with
respect thereto, and what action Borrower proposes to take with respect thereto.

6.4 Notices to Lenders and the Collateral Agent.  Borrower shall promptly notify
each Lender and the Collateral Agent in writing of:

     (a) Any lawsuit  over Five  Hundred  Thousand  Dollars  ($500,000)  against
Borrower or any of its Subsidiaries;

     (b) Any substantial dispute between Borrower or any of its subsidiaries and
any Governmental Authority; or

     (c) Any change in any Loan Party's name, address, or legal structure.

6.5 Books and Records.  Borrower  shall  maintain  adequate books and records in
accordance with generally accepted accounting principles.

6.6 Compliance and Preservation. Borrower shall and shall cause its Subsidiaries
to:

     (a)  Comply  with  the  laws   (including  any  fictitious  name  statute),
regulations and orders of any government body with authority over its business;

     (b) Maintain and preserve all privileges and franchises such Person now has
provided,  however,  that neither the Borrower nor any of its Subsidiaries shall
be required to preserve any  privilege or  franchise  (other than the  corporate
existence  of each  Loan  Party,  UDCC,  UDRC II and UDRC  III) if the  Board of
Directors of the Borrower shall  determine that the  preservation  thereof is no
longer  desirable  in the  conduct  of the  business  of the  Borrower  or  such
Subsidiary, as the case may be, and that the loss thereof is not disadvantageous
in any material respect to the Borrower, such Subsidiary or the Lenders; and

     (c) Make any repairs,  renewals,  or replacements  reasonably  necessary to
keep such Person's properties in good working condition.

6.7 Perfection of Liens. Borrower shall take such actions as may be necessary or
as  Collateral  Agent or any Lender may  request in order to perfect and protect
Collateral Agent's security interests and liens.

6.8  Cooperation.  Borrower  shall  take  any  reasonable  action  requested  by
Collateral Agent or any Lender to carry out the intent of this Agreement.

6.9 Use of  Proceeds.  Borrower  shall  use the  proceeds  of the  Loan  for (i)
repayment of all amounts  outstanding  under the Existing  Loan  Agreement  (and
Borrower  agrees that a net funding of the Initial Funding Amount may be used to
effect such  repayment)  and  repayment  of other  indebtedness  of the Borrower
(other than  Subordinated  Debt),  (ii) general  working  capital to  facilitate
ongoing growth in Borrower's core operations and (iii)to the extent permitted by
Section 7.8 and by the documents and instruments governing other indebtedness of
the Borrower, the repurchase of common stock of the Borrower.

6.10  Securitizations.  Any securitizations of Ugly Duckling Collateral shall be
executed  through  UDRC II,  UDRC III or a New Issuer  (as  defined in the Stock
Pledge  Agreement)  that meets the  requirements  of  Section  7(c) of the Stock
Pledge   Agreement  (and  Borrower  shall  ensure  that  Pledgor   performs  its
obligations  pursuant to the Stock  Pledge  Agreement)  or by a person or entity
otherwise  able to satisfy the  requirements  of Section 3.1 with respect to the
related  Additional  Residual  Certificates.  Borrower shall continue to execute
periodic  securitizations  (in an  amount of not less  than  $75,000,000  in any
period of six consecutive  months) of the Ugly Duckling Collateral and each such
securitization  shall  include  Residual  Certificates  constituting  Additional
Residual  Certificates  which  grant  an  affiliate  of UDCC  acceptable  to the
Required  Lenders a 100%  interest  in all  securitization  assets  (other  than
Excluded Class C  Certificates  and Class A interests sold to senior third party
investors)  and with  respect to which the  provisions  of Section 3.1 have been
complied  with.  The  Borrowing  Base shall at all times  include no less than 7
separate  securitizations.  Compliance with  Covenants.  Borrower shall perform,
keep and observe  each term,  provision,  condition  or  covenant  or  agreement
contained in each Bond Insurance Policy, the Principal  Warehouse  Agreement and
any other agreement evidencing Indebtedness.

6.11  Payment of  Indebtedness.  Borrower  shall  timely pay and shall cause its
Subsidiaries to timely pay all Indebtedness  which, if not paid, could result in
the  imposition  of a Lien on any of the  assets  of UDRC II or UDRC  III or any
holder of Additional Residual Certificates.

6.12 Tangible Net Worth.  Borrower shall  maintain a  consolidated  Tangible Net
Worth  of not  less  than  the sum of (i)  $130,000,000,  plus  (ii)  75% of the
cumulative  net earnings  (but only to the extent  positive)  after taxes of the
Borrower and its  Subsidiaries on a consolidated  basis determined in accordance
with generally accepted accounting principles for each period ending on or after
December 31, 2000 plus (iii) 60% of the  cumulative net proceeds of the issuance
of any  additional  shares of capital stock of Borrower after February 15, 2000,
and minus (iv) the cumulative  amount of payments  received by Borrower pursuant
to that  Promissory  Note,  dated  December  30,  1999  made by  Cygnet  Capital
Corporation  to Ugly  Duckling  Finance  Corporation  in the original  principal
amount of $12,000,000 through the retirement of stock in Borrower held by Ernest
C. Garcia II. As used in this Section  6.13,  "net  proceeds" of the issuance of
capital  stock  shall  mean  the  gross  cash  proceeds  of such  issuance  less
reasonable  and  customary  fees and expenses  actually  incurred in  connection
therewith, including, without limitation,  underwriting fees, investment banking
fees,  attorneys'  and  accountant's  fees,  regulatory and listing fees and due
diligence costs and expenses.

6.13 Consolidated EBITDA to Consolidated  Interest Expense.  Maintain a ratio of
Consolidated  EBITDA to Consolidated  Interest  Expense of not less than 1.25 to
1.0.

6.14 Consolidated Senior Debt to Consolidated Total  Capitalization.  Not permit
at any time  Consolidated  Senior Debt of the Borrower and its Subsidiaries on a
consolidated  basis to exceed  40% of  Consolidated  Total  Capitalization  less
Non-Recourse Debt.

6.15 Minimum Residual  Certificate  Cash Flows.  Not permit  aggregate  Residual
Certificate  Cash Flows deposited to the Collateral  Account with respect to any
month to be less than the  following  amounts  determined  as of the  applicable
Payment  Date or other  date  specified  below  (it  being  understood  that for
purposes of  determining  compliance  with this Section  6.16 the amount  deemed
deposited with respect to any Residual  Certificate  may not exceed the Residual
Certificate Cash Flow with respect to such Residual Certificate):

     (a) For the one month periods  ending  February 15, 2001 and March 15, 2001
(which  represent  Residual  Certificate  Cash Flows  with  respect to months of
January 2001 and February 2001, respectively), $900,000.

     (b) For the  Payment  Date on April 15,  2001,  and for each  Payment  Date
thereafter, $2,000,000.

6.16 Minimum  Capital Base.  Borrower  shall maintain a Capital Base of not less
than $165,000,000.

6.17 Minimum Other Interest  Coverage.  Maintain a ratio of operating  income to
"interest expense,  other" (as set forth on Borrower's  publicly filed financial
statements for each fiscal quarter) of not less than 2.50 to 1.0.

6.18 Cash  Collateral.  At all times prior to the Cash Collateral  Release Date,
the Borrower shall (i) maintain with the  Collateral  Agent pursuant to the Cash
Collateral Agreement,  or with such other institution and pursuant to such other
cash collateral  arrangements  as may be  satisfactory to the Required  Lenders,
cash collateral in an amount not less than the Required Cash  Collateral  Amount
to secure the obligations hereunder,  and (ii) cause the Lenders to have a first
priority  perfected  security interest in such cash collateral.  The approval by
the  Required  Lenders of such other cash  collateral  arrangements  will not be
unreasonably  withheld  so long as the  Lenders  continue to receive a perfected
first  priority lien in such amounts and  investments of such amounts is limited
to cash  equivalents  substantially  similar to those permitted  pursuant to the
Cash Collateral Agreement.

6.19  Collateral  Account.  Borrower  shall  establish  and maintain one or more
collateral  accounts as may be requested by the Collateral Agent or the Required
Lenders. Each such collateral account shall be free and clear of all liens other
than liens in favor of the  Collateral  Agent pursuant to the Loan Documents and
shall be on terms and conditions  satisfactory  to the Collateral  Agent and the
Required Lenders.

6.20 Back-up Servicer.  At all times on and after March 1, 2001,  Borrower shall
maintain back-up service  arrangements  with respect to each  securitization  of
Ugly Duckling Collateral,  on terms and conditions  satisfactory to the Required
Lenders,  and with OSI or another back-up servicer  satisfactory to the Required
Lenders.

6.21 Maintenance of Properties.  Borrower shall maintain and preserve, and cause
each of its  Subsidiaries  to maintain and preserve,  all of its properties that
are used or useful in the  conduct of its  business  in good  working  order and
condition,  ordinary  wear and tear excepted and  excepting  replacement  in the
ordinary course of business.

6.22  Maintenance of Insurance.  Borrower shall maintain,  and cause each of its
Subsidiaries to maintain,  insurance with  responsible  and reputable  insurance
companies or  associations in such amounts and covering such risks as is usually
carried by prudent  companies  engaged in similar  businesses and owning similar
properties  in the same general  areas in which the Borrower or such  Subsidiary
operates.

6.23 Approved Replacement  Warehouse  Agreement.  Not later than March 31, 2001,
Borrower shall have entered into a binding  commitment  with a Lender or Lenders
acceptable  to the  Required  Lenders  with  respect to an Approved  Replacement
Warehouse  Agreement and not later than April 15, 2001 such Agreement shall have
been  entered  into  and in full  force  and  effect  on  terms  and  conditions
satisfactory to the Required Lenders (including,  without limitation,  terms and
conditions relating to intercreditor and subordination provisions).

6.24 Designated  Senior  Indebtedness.  Borrower  hereby  designates the Loan as
"Designated Senior  Indebtedness"  pursuant to the Indenture,  dated October 15,
1998 (the "Indenture"), from Borrower to BNY Midwest Trust Company, as successor
in interest to Harris  Trust and Savings  Bank,  as trustee  (pursuant  to which
existing  Subordinated  Debt  described  on  Exhibit G was  issued and agrees to
maintain  such  designation  at all times.  Borrower  will  promptly  notify the
trustee under the  Indenture of such  designation  and in  connection  with each
supplemental  indenture hereafter entered into in connection with the Indenture,
Borrower  will cause such  supplemental  indenture  to provide  that the Loan is
included as "Designated Senior Indebtedness."

ARTICLE VII.
NEGATIVE COVENANTS

Borrower  covenants  and agrees that, so long as any credit  hereunder  shall be
available and until full and final payment of the Obligations, Borrower will not
do any of the following without Required Lender's prior written consent:

7.1 Liens. Create,  incur,  assume, or permit to exist,  directly or indirectly,
any lien on or with  respect  to any of the assets of UDRC II or UDRC III or any
holder of  Additional  Residual  Certificates,  including  the UDRC II  Residual
Certificates,  the UDRC III Residual  Certificates  or any  Additional  Residual
Certificates,  or any income or profits  from any of the  foregoing,  except for
Permitted  Liens  listed  on  Schedule  E or liens of  Collateral  Agent for the
benefit of Lenders.

7.2 Indebtedness.

     (a) Permit  UDRC II or  UDRC  III or any  holder  of  Additional  Residual
Certificates to incur,  assume,  or permit to exist,  directly or indirectly any
Indebtedness; or

     (b) permit any other Subsidiary of the Borrower to incur, assume, or permit
to  exist,   directly  or  indirectly  any  Indebtedness  other  than  Permitted
Subsidiary  Indebtedness  without  the prior  written  consent  of the  Required
Lenders.

7.3 Restrictions on Fundamental Changes.  Enter into any merger,  consolidation,
reorganization,  or  recapitalization,  or  reclassify  its  capital  stock,  or
liquidate,   wind  up,  or  dissolve   itself  (or  suffer  any  liquidation  or
dissolution), or convey, sell, assign, lease, transfer, or otherwise dispose of,
in one transaction or a series of  transactions,  all or any substantial part of
its property or assets or permit UDCSFC,  UDCC, UDRC II or UDRC III to do any of
the foregoing).

7.4  Disposal  of  Collateral,   Residual   Certificates,   Additional  Residual
Certificates.  Except as expressly  consented to by Required Lenders in writing,
sell, lease, assign,  transfer, or otherwise dispose of any of the Collateral or
permit any of its  Affiliates  to do any of the  foregoing  or permit UDRC II to
sell,  lease,  assign,  transfer  or  otherwise  dispose of any UDRC II Residual
Certificates,  or permit UDRC III to sell, lease, assign,  transfer or otherwise
dispose of any UDRC III  Residual  Certificates,  or permit the Person or entity
that is the  holder of any  Additional  Residual  Certificates  at the time such
Additional  Residual  Certificates  are first  included in the Borrowing Base to
sell,  lease,  assign,  transfer  or  otherwise  dispose of any such  Additional
Residual Certificates.

7.5 Change Name.  Without giving thirty (30) days prior written  notification to
Collateral  Agent and each Lender,  change  Borrower's or any other Loan Party's
name, FEIN,  corporate  structure  (within the meaning of Section 9402(7) of the
Code), or identity, or add any new fictitious name.

7.6 Amendments. Except as expressly consented to by Required Lenders in writing,
directly or indirectly,  amend, modify,  alter,  increase,  or change any of the
terms or conditions  of any  Securitization  Document or any Verde  Subordinated
Debt Document;  provided, however, the provisions of Warrant Agreement issued in
connection with the Verde Subordinated Debt Documents may be amended without the
consent of the Lenders provided that such amendment does not affect the terms of
the Verde Subordination Agreement.

7.7 Change of Control.  Cause,  permit, or suffer,  directly or indirectly,  any
Change of Control.

7.8  Distributions;  Prepayments of Subordinated  Debt. Make any distribution or
declare or pay any  dividends  (in cash or other  property,  other than  capital
stock) on, or purchase,  acquire,  redeem,  or retire any of Borrower's  capital
stock, of any class, whether now or hereafter  outstanding,  for cash or prepay,
redeem or  otherwise  retire any amount in respect of any  obligation  under the
Verde  Subordinated  Debt Documents except (i) regularly  scheduled  payments of
interest to the extent expressly permitted by the Verde Subordination Agreement,
(ii) Borrower may make payments and prepayments of principal  outstanding  under
the Verde  Subordinated  Debt Documents to the extent of, and in the same amount
as, reductions of the Required Cash Collateral Amount and corresponding releases
of cash from the Collateral  Account,  and (iii) the obligations under the Verde
Subordinated Debt Documents may be paid in full upon the Cash Collateral Release
Date.

7.9 Standing Dividend Resolutions. Permit any Standing Dividend Resolution to be
rescinded, amended, modified, revoked or altered in any manner.

7.10 Change in Location of Chief Executive Office. Relocate, or permit any other
Loan  Party to  relocate,  any Loan  Party's  chief  executive  office  to a new
location  without  providing  30 days  prior  written  notification  thereof  to
Collateral  Agent and each  Lender  and so long as, at the time of such  written
notification,  Borrower  provides any financing  statements  or fixture  filings
necessary  to  perfect  and  continue  perfected   Collateral  Agent's  security
interests and also provides to Collateral  Agent a Collateral  access  agreement
with respect to such new location.

7.11 No Prohibited Transactions Under ERISA. Directly or indirectly:

     (a)  Engage,  or permit  any  Subsidiary  of  Borrower  to  engage,  in any
prohibited  transaction  which is reasonably likely to result in a civil penalty
or excise tax described in Sections 406 of ERISA or 4975 of the Code for which a
statutory or class  exemption is not  available or a private  exemption  has not
been previously obtained from the Department of Labor;

     (b)  Permit  to exist  with  respect  to any Plan any  accumulated  funding
deficiency (as defined in Sections 302 of ERISA and 412 of the Code), whether or
not waived;

     (c) Fail,  or permit any  Subsidiary  of  Borrower  to fail,  to pay timely
required  contributions  or annual  installments  due with respect to any waived
funding deficiency to any Plan;

     (d) Terminate, or permit any Subsidiary of Borrower to terminate,  any Plan
where  such  event  would  result in any  liability  of  Borrower  or any of its
Subsidiaries under Title IV of ERISA;

     (e)  Fail,  or permit  any  Subsidiary  of  Borrower  to fail,  to make any
required contribution or payment to any Multiemployer Plan;

     (f) Fail, or permit any Subsidiary of Borrower to fail, to pay any required
installment  or any other payment  required  under Section 412 of the Code on or
before the due date for such installment or other payment;

     (g) Amend, or permit any Subsidiary of Borrower to amend, a retirement plan
resulting in an increase in current liability for the plan year such that either
of Borrower  or any  Subsidiary  of Borrower is required to provide  security to
such retirement plan under Section 401 (a)(29) of the Code; or

     (h) Withdraw,  or permit any  Subsidiary of Borrower to withdraw,  from any
Multiemployer  Plan where such withdrawal is reasonably  likely to result in any
liability of any such entity under Title IV of ERISA.

7.12 Changes in Nature of Business.  Make, or permit any of its  Subsidiaries to
make,  any  material  change in the nature of its  business as carried on at the
date hereof.

7.13  Transactions  with  Affiliates.  Not  engage,  and not  permit  any of its
Subsidiaries  to engage,  in any  transaction  with any Affiliate of Borrower or
such  Subsidiary  except  on terms  that are  fair  and  reasonable  and no less
favorable  to the  Borrower  or  such  Subsidiary  than  it  would  obtain  in a
comparable  arm's-length  transaction  with a Person not an Affiliate  (it being
understood  that the  foregoing  shall not  prohibit any  transaction  otherwise
permitted   hereunder   among  the   Borrower   and  any  of  its  wholly  owned
Subsidiaries).

ARTICLE VIII.
EVENTS OF DEFAULT/REMEDIES

8.1  Event of  Default.  Any of the  following  shall  constitute  an  "Event of
Default":

     (a) If Borrower  fails to pay when due and payable or when declared due and
payable,  any portion of the Obligations (whether of principal,  interest,  fees
and charges due Collateral  Agent or any Lender,  reimbursement of Lender Costs,
or other amounts constituting Obligations) or if Borrower fails to make when due
any deposit to the Collateral Account required pursuant to Section 2.5(b);

     (b) If Borrower  fails to perform,  keep,  or observe any term,  provision,
condition,  covenant,  or agreement  contained in this Agreement,  in any of the
Loan  Documents,  or in any other  future  agreement  between  Borrower  and any
Lender;

     (c) If there is a Material Adverse Change with respect to Borrower, UDCSFC,
UDRC II or UDRC III or any  holder  of  Additional  Residual  Certificates  (the
occurrence  or  non-occurrence  of which  shall be  determined  by the  Required
Lenders in the exercise of reasonable discretion);

     (d) If Borrower is enjoined or restrained,  by court order from  continuing
to conduct all or any material part of its business  affairs,  unless such order
is stayed;

     (e) If notices of any Lien, levy, or assessment in excess of $250,000 other
than of Permitted  Liens are filed of record with  respect to any of  Borrower's
properties  or assets  which have not been cured  within ten (10) days after the
Lien has been filed;

     (f) Any judgment or order for the payment of money in excess of  $1,000,000
not covered by  insurance  as to which the insurer  has  acknowledged  liability
shall be  rendered  against any Loan Party or UDRC II or UDRC III and either (i)
enforcement  proceedings  shall have been  commenced by any  creditor  upon such
judgment or order and are not stayed or  dismissed  within 45 days or (ii) there
shall be any period of 45  consecutive  days during which such judgment  remains
unpaid or unbonded  and a stay of  enforcement  of such  judgment  or order,  by
reason of a pending appeal or otherwise, shall not be in effect;

     (g) If  Borrower  makes any  payment  on account  of  Indebtedness  that is
contractually   subordinated   in  right  of  payment  to  the  payment  of  the
Obligations,  except to the extent such payment is permitted by the terms of the
subordination provisions applicable to such Indebtedness;

     (h)  If  any  material  misstatement  or  misrepresentation  exists  now or
hereafter in any  warranty,  representation,  statement,  or report  (including,
without limitation,  any Collateral  Servicing Report) made to Collateral Agent,
any Lender by Borrower or any officer, employee, agent, or director of Borrower,
or if any such warranty or representation is withdrawn;

     (i) If any Standing  Dividend  Resolution is rescinded,  amended,  altered,
revoked or modified in any manner;

     (j) If a default or event of default  occurs under the Principal  Warehouse
Agreement or under the terms of any other Indebtedness  aggregating in excess of
$3,000,000  (with  respect  to any  particular  item of  Indebtedness  or in the
aggregate and in each case after any  applicable  cure or grace period) or there
is a  termination  event  under the terms of any Bond  Insurance  Policy (or the
policy  of  another  bond  insurer),  regardless  of  whether  such  default  or
termination event is waived or amended;

     (k) If Borrower or any of its Subsidiaries  makes a general  assignment for
the  benefit  of  creditors,   or  an  order,  judgment  or  decree  is  entered
adjudicating the Borrower or any of its Subsidiaries  bankrupt or insolvent,  or
any order for relief with respect to the Borrower or any of its  Subsidiaries is
entered  under  the  Federal   Bankruptcy  Code,  or  Borrower  or  any  of  its
Subsidiaries  petitions  or applies to any  tribunal  for the  appointment  of a
custodian,   trustee,   receiver  or  liquidator  of  Borrower  or  any  of  its
Subsidiaries or of any substantial  part of the assets of the Borrower or any of
its Subsidiaries, or commences any proceeding relating to the Borrower or any of
its Subsidiaries under any bankruptcy, reorganization,  arrangement, insolvency,
readjustment of debt, dissolution or liquidation law of any jurisdiction, or any
such  petition or  application  is filed,  or any such  proceeding  is commenced
against the Borrower or any of its Subsidiaries; or

     (l) Any ERISA Event shall have  occurred with respect to a Plan of any Loan
Party or any of its ERISA  Affiliates  and the liability of the Loan Parties and
their ERISA  Affiliates  related to such ERISA Event and any and all other ERISA
Events which shall have occurred and then exist with respect to any Plans of the
Loan Parties and their ERISA Affiliates exceeds $1,000,000; or

     (m) any  provision  of any Loan  Document  shall for any reason cease to be
valid and binding on or  enforceable  against any Loan Party party to it, or any
such Loan Party shall so state in writing; or

     (n) any Security  Document shall for any reason (other than pursuant to the
terms thereof) cease to create a valid and perfected  first priority Lien on the
Collateral purported to be covered thereby.

8.2 Rights and Remedies. Upon the occurrence, and during the continuation, of an
Event of Default,  Required Lenders may (and may direct the Collateral Agent to,
and upon such direction the Collateral Agent shall),  at their sole and absolute
discretion,  without further notice, do any one or more of the following, all of
which are authorized by Borrower:

     (a) declare all Obligations, whether evidenced by this Agreement, by any of
the other Loan  Documents,  or otherwise,  immediately due and payable (and upon
the  occurrence  of any  Event  of  Default  described  in  Section  8.1(k)  all
Obligations  shall  automatically  and without action by Collateral Agent or any
Lender be and become immediately due and payable);

     (b) terminate  this Agreement and any of the other Loan Documents as to any
future  liability  or  obligation  of each  Lender,  but without  affecting  any
Lender's  or  the  Collateral  Agent's  rights  and  security  interests  in the
Collateral and without affecting the Obligations;

     (c) without  notice to or demand upon  Borrower,  make such payments and do
such acts as Required  Lenders  consider  necessary or reasonable to protect the
security interests of the Collateral Agent in the Collateral; (d) without notice
to Borrower (such notice being  expressly  waived),  and without  constituting a
retention of any collateral in satisfaction of an obligation (within the meaning
of Section 9-505 of the UCC) (or any successor provision),  set off and apply to
the  Obligations  any and all (i) balances and deposits of Borrower  held by any
Lender,  or (ii)  indebtedness  at any time  owing to or for the  credit  or the
account of Borrower held by any Lender; or

     (e)  direct the  Collateral  Agent to  collect,  receive,  appropriate  and
realize upon the Collateral,  on such terms as Required  Lenders,  in their sole
and absolute discretion, deem appropriate without any liability for any loss due
to a decrease  in the market  value of the  Collateral  during the period  held,
without demand of performance  or other demand,  advertisement  or notice of any
kind,  except as specified  below,  to or upon Borrower or any other person (all
and each of which demands,  advertisements  and/or notices are hereby  expressly
waived to the extent  permitted  by law).  If any  notification  to  Borrower of
intended  disposition  of the  Collateral is required by law, such  notification
shall be deemed  reasonable  and properly  given if mailed to Borrower,  postage
prepaid,  at least ten (10) days  before  any such  disposition  at the  address
indicated by Borrower's signature. Any disposition of the Collateral or any part
thereof shall be free of any equity or right of  redemption  in Borrower,  which
right of equity is, to the extent  permitted by applicable law, hereby expressly
waived or released by Borrower.  Borrower further agrees that such sale or sales
made under the  foregoing  circumstances  shall be deemed to have been made in a
commercially reasonable manner. Neither Collateral Agent nor any Lender shall be
obligated  to make any sale or other  disposition  of the  Collateral  permitted
under this Loan  Agreement,  unless the terms thereof shall be  satisfactory  to
Required Lenders.

     The rights and  remedies of  Collateral  Agent and each  Lender  under this
Agreement, the Loan Documents, and all other agreements shall be cumulative.  No
exercise  by  Collateral  Agent or any  Lender of one  right or remedy  shall be
deemed an election, and no waiver by Collateral Agent or any Lender of any Event
of Default shall be deemed a continuing  waiver. No delay by Collateral Agent or
any Lender shall constitute a waiver, election, or acquiescence by it.

ARTICLE IX.
THE COLLATERAL AGENT

9.1  Authorization  and Action.  Each Lender hereby  appoints and authorizes the
Collateral Agent to take such action as agent on its behalf and to exercise such
powers under this Agreement and the other Loan Documents as are delegated to the
Collateral  Agent by the terms hereof and thereof,  together with such powers as
are reasonably  incidental thereto.  Except as specifically  provided for by the
Loan  Documents,  the  Collateral  Agent shall not be  required to exercise  any
discretion  or take any  action  under any of the Loan  Documents,  but shall be
required to act or to refrain  from acting (and shall be fully  protected  in so
acting or refraining from acting) upon the instructions of the Required Lenders,
and such instructions shall be binding upon all Lenders and the Collateral Agent
shall  not be liable to the  Borrower  or any  Lender  for any  action  taken or
omitted at the direction of the Required Lenders;  provided,  however,  that the
Collateral  Agent  shall not be  required  to take any action  that  exposes the
Collateral  Agent,  in its  sole  judgment,  to  personal  liability  or that is
contrary to this  Agreement or applicable  law. The  Collateral  Agent agrees to
give to each Lender  prompt  notice of each notice  given to it by the  Borrower
pursuant to the terms of this Agreement.

9.2 Collateral  Agent's Reliance,  Etc.. Neither the Collateral Agent nor any of
its  directors,  officers,  agents or  employees  shall be liable for any action
taken or omitted to be taken by it or them under or in connection  with the Loan
Documents,  except for its or their own gross negligence or willful  misconduct.
Without limitation of the generality of the foregoing, the Collateral Agent: (i)
may treat the Lender that made any portion of the Loan as the holder of the debt
resulting  therefrom until the Collateral Agent receives notice of an assignment
by such Lender;  (ii) may consult with legal counsel  (including counsel for any
Loan Party), independent public accountants and other experts selected by it and
shall not be liable for any action taken or omitted to be taken in good faith by
it in accordance with the advice of such counsel,  accountants or experts; (iii)
makes no warranty or  representation  to any Lender and shall not be responsible
to any Lender for any  statements,  warranties  or  representations  made by any
Person  other  than  the  Collateral  Agent  in or in  connection  with the Loan
Documents;  (iv)  shall not have any duty to  ascertain  or to inquire as to the
performance  or observance  of any of the terms,  covenants or conditions of any
Loan  Document  on the  part  of any  Loan  Party  or to  inspect  the  property
(including  the  books  and  records)  of  any  Loan  Party;  (v)  shall  not be
responsible   to  any  Lender  for  the  due  execution,   legality,   validity,
enforceability,  genuineness,  sufficiency  or value of any Loan Document or any
other  instrument or document  furnished  pursuant  hereto or thereto;  and (vi)
shall incur no liability under or in respect of any Loan Document by acting upon
any notice, consent, certificate or other instrument or writing (which may be by
telegram,  telecopy,  cable or telex) believed by it to be genuine and signed or
sent by the proper party or parties.

9.3 BNY Midwest Trust Company and Affiliates.. BNY Midwest Trust Company and its
affiliates  may accept  deposits  from,  lend  money to,  act as  trustee  under
indentures of, accept investment  banking  engagements from and generally engage
in any kind of business with, any Loan Party,  any of its  Subsidiaries  and any
Person who may do business with or own  securities of any Loan Party or any such
Subsidiary,  all as if BNY Midwest Trust Company were not the  Collateral  Agent
and without any duty to account therefor to the Lender Parties.

9.4 Lender Credit Decision.  Each Lender acknowledges that it has, independently
and without  reliance upon the Collateral Agent or any other Lender and based on
the  financial  statements  referred  to herein  and such  other  documents  and
information  as it has  deemed  appropriate,  made its own credit  analysis  and
decision to enter into this  Agreement.  Each Lender also  acknowledges  that it
will,  independently and without reliance upon the Collateral Agent or any other
Lender and based on such documents and information as it shall deem  appropriate
at the time,  continue to make its own credit  decisions in taking or not taking
action under this Agreement.

9.5  Indemnification.  Each Lender  severally agrees to indemnify the Collateral
Agent (to the extent not promptly  reimbursed by the Borrower)  from and against
such Lender's  ratable share of any and all  liabilities,  obligations,  losses,
damages, penalties,  actions, judgments, suits, costs, expenses or disbursements
of any kind or  nature  whatsoever  that may be  imposed  on,  incurred  by,  or
asserted  against the Collateral  Agent in any way relating to or arising out of
the Loan Documents or any action taken or omitted by the Collateral  Agent under
the Loan Documents;  provided,  however,  that no Lender shall be liable for any
portion of such liabilities,  obligations,  losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements resulting from the Collateral
Agent's  gross  negligence  or willful  misconduct.  Without  limitation  of the
foregoing,  each Lender agrees to reimburse the  Collateral  Agent promptly upon
demand for its ratable  share of any costs and expenses  payable by the Borrower
under  Section  10.4,  to the extent that the  Collateral  Agent is not promptly
reimbursed for such costs and expenses by the Borrower.

9.6 Successor  Collateral Agents. The Collateral Agent may resign at any time by
giving written notice thereof to the Lenders and the Borrower and may be removed
at any time with cause by the Required  Lenders.  Upon any such  resignation  or
removal,  the  Required  Lenders  shall  have the right to  appoint a  successor
Collateral Agent. If no successor  Collateral Agent shall have been so appointed
by the Required  Lenders,  and shall have accepted such  appointment,  within 30
days after the retiring  Collateral  Agent's  giving of notice of resignation or
the  Required  Lenders'  removal  of the  retiring  Collateral  Agent,  then the
retiring  Collateral  Agent  may,  on behalf of the  Lender  Parties,  appoint a
successor Collateral Agent, which shall be a commercial bank organized under the
laws of the United States or of any State thereof and having a combined  capital
and surplus of at least  $50,000,000.  Upon the acceptance of any appointment as
Collateral  Agent  hereunder  by a  successor  Collateral  Agent  and  upon  the
execution and filing or recording of such  financing  statements,  or amendments
thereto,  and  such  other  instruments  or  notices,  as  may be  necessary  or
desirable,  or as the  Required  Lenders may  request,  in order to continue the
perfection  of the liens  granted or  purported  to be  granted by the  Security
Documents,  such successor  Collateral  Agent shall succeed to and become vested
with all the rights, powers,  discretion,  privileges and duties of the retiring
Collateral Agent, and the retiring Collateral Agent shall be discharged from its
duties and obligations under the Loan Documents.  After any retiring  Collateral
Agent's  resignation or removal hereunder as Collateral Agent, the provisions of
this Article IX shall inure to its benefit as to any actions taken or omitted to
be taken by it while it was Collateral Agent under this Agreement.

9.7  Monthly  Verification  Duties of  Collateral  Agent.  Upon  receipt of each
Collateral  Servicing  Report and in no event later than the Calculation Date in
respect  thereof,  the Collateral Agent shall verify the following items in such
Collateral  Servicing Report against the monthly  servicing reports with respect
to each Securitization:

     (a)  the  outstanding  principal  balance  of  auto  loans  in the  pool of
collateral securing the related securitization;

     (b)  the  outstanding  principal  balance  of all  certificates  and  other
interests  or rights to  payment in  respect  of such  securitization  senior in
priority to such Residual Certificate;

     (c) the amount of the cash balance in the spread  account  relating to such
Residual Certificate; and

     (d) the Residual Certificate Cash Flows.

     The Collateral  Agent shall also verify the following  rates and amounts on
the Collateral Servicing Report:

     (y) LIBOR; and

     (z) the pro rata payments of interest and Monthly  Amortization Amount made
to each Lender.

ARTICLE X.
MISCELLANEOUS

10.1  Amendments  and Waivers.  No amendment or waiver of any  provision of this
Agreement  or any other  Loan  Document,  and no  consent  with  respect  to any
departure by Borrower therefrom,  shall be effective unless the same shall be in
writing and signed by Required  Lenders  and  Borrower,  and then such waiver or
consent  shall be effective  only in the specific  instance and for the specific
purpose for which given;  provided,  however,  that (a) no amendment,  waiver or
consent  shall,  unless in writing and signed by all the Lenders,  do any of the
following  at any time:  (i)  change  the  percentage  of the  aggregate  unpaid
principal  amount of the Loan that shall be  required  for the Lenders or any of
them to take  any  action  hereunder,  (ii)  permit  the  creation,  incurrence,
assumption  or  existence  of any Lien on any item of  Collateral  to secure any
obligations  other than  Obligations  owing to the Lenders and Collateral  Agent
under the Loan  Documents,  (iii) amend this  Section  10.1,  (iv)  increase the
outstanding  principal  amount of the Loan,  (v)  reduce  the  principal  of, or
interest  on, the Loan or any fees or other  amounts  payable  hereunder or (vi)
postpone  any date fixed for any payment of  principal  of, or interest  on, the
Loan or any fees or other amounts payable  hereunder;  and provided further that
no  amendment,  waiver or consent  shall,  unless in  writing  and signed by the
Collateral  Agent in addition to the Lenders required above to take such action,
affect the rights or duties of the Collateral  Agent under this Agreement or any
other Loan Document.

10.2 Notices.

     (a) All notices,  requests and other communications  provided for hereunder
shall be in writing (including, unless the context expressly otherwise provides,
by facsimile transmission,  provided,  that, any matter transmitted by facsimile
(i) shall be immediately  confirmed by a telephone  call to the  recipient,  and
(ii) shall be followed  promptly by a hard copy  original  thereof by over-night
courier to the address  set forth  below;  or to such other  address as shall be
designated by such party in a written notice to the other party, and as directed
to each other party,  at such other  address as shall be designated by Lender or
Borrower in a written notice to Borrower and Lender.

        If to Borrower:         Ugly Duckling Corporation
                                2525 East Camelback Road
                                Suite 500
                                Phoenix, Arizona 85016
                                Attn: Jon Ehlinger
                                Facsimile: (602) 852-6686

        With a copy to:         Snell & Wilmer L.L.P.
                                One Arizona Center
                                Phoenix, Arizona 85004-0001
                                Attn: David A. Sprentall
                                Facsimile: (602) 382-6070

        If to any Lender:       As set forth on the Administrative
                                Form of such Lender

        If to Collateral Agent: BNY Midwest Trust Company
                                2 North LaSalle Street
                                Suite 1020
                                Chicago, Illinois 60602
                                Attn: Megan Carmody
                                Telephone: (312) 827-8572
                                Facsimile: (312) 827-8563

     (b) All such notices,  requests and communications  shall, when transmitted
by overnight  delivery or faxed, be effective when delivered for overnight (next
day) delivery,  transmitted by facsimile machine, respectively, or if delivered,
upon delivery, except that notices pursuant to Article II shall not be effective
until actually received by each Lender.

     (c) Borrower acknowledges and agrees that any agreement of Collateral Agent
or any Lender to receive  certain  notices by telephone  and facsimile is solely
for the convenience and at the request of Borrower. Each of Collateral Agent and
each Lender shall be entitled to rely on the authority of any Person  purporting
to be a Person authorized by Borrower to give such notice and neither Collateral
Agent nor any Lender shall have any  liability to Borrower or to other Person on
account of any action  taken or not taken by  Collateral  Agent or any Lender in
reliance upon such telephonic or facsimile  notice.  The obligations of Borrower
hereunder  shall not be  affected  in any way or to any extent by any failure by
Collateral Agent or any Lender to receive written confirmation of any telephonic
or  facsimile  notice or the  receipt  by  Collateral  Agent or any  Lender of a
confirmation  which is at variance with the terms understood by Collateral Agent
or such Lender to be contained in the telephonic or facsimile notice.

10.3 No Waiver:  Cumulative  Remedies.  No failure to  exercise  and no delay in
exercising,  on the part of Collateral Agent or Lender, any right, remedy, power
or privilege hereunder,  shall operate as a waiver thereof; nor shall any single
or partial exercise of any right,  remedy, power or privilege hereunder preclude
any other or  further  exercise  thereof  or the  exercise  of any other  right,
remedy, power or privilege.

10.4  Costs  and  Expenses.  Borrower  shall,  whether  or not the  transactions
contemplated hereby shall be consummated:

     (a) pay or reimburse  Collateral  Agent and each Lender and each  portfolio
advisor within ten (10) Business Days after demand for all Lender Costs incurred
by Collateral Agent or such Lender or such portfolio  advisor in connection with
the development, preparation, delivery, administration and execution of (and any
amendment,  supplement,  waiver or  modification to (in each case whether or not
consummated)),  this Agreement,  any other Loan Document and any other documents
prepared in connection  herewith,  or  therewith,  and the  consummation  of the
transactions contemplated hereby and thereby,  including the reasonable Attorney
Costs incurred by Collateral  Agent or any Lender or any portfolio  advisor with
respect thereto;

     (b) pay or reimburse  Collateral  Agent and each Lender and each  portfolio
advisor within ten (10) Business Days after demand for all Lender Costs incurred
by Collateral Agent or such Lender or such portfolio  advisor in connection with
the  enforcement,  attempted  enforcement,  or  preservation  of any  rights  or
remedies  under  this  Agreement,  any other Loan  Document,  and any such other
documents,  including  reasonable Attorney Costs incurred by Collateral Agent or
any Lender or any portfolio advisor; and

     (c) pay or reimburse  Collateral  Agent and each Lender and each  portfolio
advisor within ten (10) Business Days after demand for all reasonable  appraisal
(including  the  allocated  cost of internal  appraisal  services),  audit,  due
diligence,  monitoring review, syndication,  environmental inspection and review
(including the allocated cost of such internal  services and the allocated costs
of services of SAI or its Affiliates and Trustee), search and filing costs, fees
and expenses,  rating agency costs, fees and expenses,  transportation costs and
other  out-of-pocket  expenses  incurred or sustained by Collateral  Agent,  any
Lender or any portfolio  advisor,  SAI or any of their respective  affiliates in
connection  with the Loan, the Loan  Documents,  any of the  Obligations and the
matters referred to under (a) and (b) of this Section 10.4.

     (d) In addition to the  foregoing,  if any payment of principal on the Loan
is made by the Borrower to or for the account of a Lender other than on the last
day of the then  current  Interest  Accrual  Period,  as a result of a  payment,
acceleration  or for any  other  reason,  Borrower  shall,  upon  demand by such
Lender,  pay to such Lender any amounts  required to compensate  such Lender for
any  additional  losses,  costs or expenses  that it may  reasonably  incur as a
result of such payment, including, without limitation, any loss, cost or expense
incurred by reason of the liquidation or reemployment of deposits or other funds
acquired by any Lender to fund or maintain the Loan or any portion thereof.

10.5 Indemnity.  Borrower shall pay, indemnify,  and hold Collateral Agent, each
Lender,  SAI, Trustee and each of their respective  Affiliates and Subsidiaries,
and each of their respective officers, directors, employees, counsel, agents and
attorneys-in-fact  (each, an "Indemnified Person") harmless from and against any
environmental  liabilities and obligations of Borrower,  any of its Subsidiaries
or any of their properties and from and against any and all claims, liabilities,
obligations,  losses,  damages,  penalties,  actions,  judgments,  suits, costs,
charges,  expenses or  disbursements  (including  Attorney Costs) of any kind or
nature whatsoever with respect to or in connection with the execution, delivery,
enforcement, performance and administration of this Agreement and any other Loan
Documents, or the transactions contemplated hereby and thereby, and with respect
to any investigation,  litigation or proceeding related to this Agreement or the
use of the proceeds thereof or any Residual Certificate, Securitization Document
or  Securitization  Trust,  whether  or not any  Indemnified  Person  is a party
thereto  (all  the  foregoing,  collectively,  the  "Indemnified  Liabilities");
provided,   however,   Borrower  shall  have  no  obligation  hereunder  to  any
Indemnified  Person with  respect to  Indemnified  Liabilities  arising from the
gross negligence or willful  misconduct of such Indemnified Person or the breach
by such Indemnified Person of its obligations hereunder.  The agreements in this
Section 10.5 shall survive payment of all other  Obligations and the termination
of this Agreement.

10.6  Marshaling:  Payments Set Aside.  Neither  Collateral Agent nor any Lender
shall be under any  obligation to marshal any assets in favor of Borrower or any
other Person or against or in payment of any or all of the  Obligations.  To the
extent that  Borrower  makes a payment or payments  to  Collateral  Agent or any
Lender,  or to the extent  Collateral  Agent or any Lender enforces its Liens or
exercises its rights of set-off, and such payment or payments or the proceeds of
such  enforcement or set-off or any part thereof are  subsequently  invalidated,
declared to be fraudulent or preferential, set aside or required to be repaid to
a trustee,  receiver or any other party in connection  with any  bankruptcy,  or
otherwise,  then to the extent of such  recovery the  obligation or part thereof
originally intended to be satisfied shall be revived and continued in full force
and effect as if such payment had not been made or such  enforcement  or set-off
had not occurred.

10.7  Successors and Assigns.  The provisions of this Agreement shall be binding
upon and  inure to the  benefit  of the  parties  hereto  and  their  respective
successors  and assigns,  except that Borrower may not assign or transfer any of
its  rights or  delegate  obligations  under this  Agreement  or any of the Loan
Documents without the prior written consent of each Lender.

10.8 Set-off. In addition to any rights and remedies of Lenders provided by law,
if an Event of Default  exists,  each Lender is  authorized at any time and from
time to time, without prior notice to Borrower,  any such notice being waived by
Borrower to the fullest  extent  permitted  by law, to set off and apply any and
all monies or deposits at any time held by, and other  indebtedness  at any time
owing by, such  Lender to or for the credit or the  account of Borrower  against
any  and all  Obligations  owing  to such  Lender,  now or  hereafter  existing,
irrespective  of whether or not such Lender  shall have made  demand  under this
Agreement or any Loan Document and although such  Obligations  may be contingent
or unmatured.  Each Lender  agrees  promptly to notify  Borrower  after any such
set-off and  application  made by such  Lender;  provided,  however,  that,  the
failure to give such notice  shall not affect the  validity of such  set-off and
application.  The rights of each Lender  under this Section 10.8 are in addition
to the other rights and remedies  (including other rights of set-off) which such
Lender may have.

10.9 Counterparts.  This Agreement may be executed by one or more of the parties
to this Agreement in any number of separate counterparts, each of which, when so
executed,  shall be  deemed  an  original,  and all of said  counterparts  taken
together shall be deemed to constitute but one and the same instrument.

10.10 Severability.  The illegality or unenforceability of any provision of this
Agreement or any instrument or agreement required hereunder shall not in any way
affect or impair the legality or enforceability  of the remaining  provisions of
this Agreement or any instrument or agreement required hereunder.

10.11 No Third Parties  Benefited.  This  Agreement is made and entered into for
the sole  protection  and legal benefit of Borrower,  Collateral  Agent and each
Lender (and its portfolio advisor),  and their permitted successors and assigns,
and no other Person shall be a direct or indirect legal  beneficiary of, or have
any  direct  or  indirect  cause of  action or claim in  connection  with,  this
Agreement or any of the other Loan Documents.  Neither  Collateral Agent nor any
Lender shall have any  obligation to any Person not a party to this Agreement or
other Loan Documents.

10.12  Time.  Time is of the  essence  as to  each  term  or  provision  of this
Agreement and each of the other Loan Documents.

10.13 Governing Law and Jurisdiction.

     THE  VALIDITY  OF  THIS  AGREEMENT  AND  THE  OTHER  LOAN  DOCUMENTS,   THE
CONSTRUCTION, INTERPRETATION, AND ENFORCEMENT HEREOF AND THEREOF, AND THE RIGHTS
OF THE PARTIES HERETO AND THERETO WITH RESPECT TO ALL MATTERS ARISING  HEREUNDER
OR THEREUNDER OR RELATED HERETO OR THERETO SHALL BE DETERMINED  UNDER,  GOVERNED
BY, AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, IT BEING
THE INTENT OF THE PARTIES THAT THE LAW OF THE STATE OF NEW YORK SHALL GOVERN THE
RIGHTS AND DUTIES OF THE PARTIES HERETO WITHOUT REGARD TO CHOICE OR CONFLICTS OF
LAW PRINCIPLES; EXCEPT THAT THE PROVISIONS HEREIN THAT PERTAIN TO THE PERFECTION
OR THE  EFFECT OF  PERFECTION  OF  SECURITY  INTERESTS  IN  COLLATERAL  SHALL BE
GOVERNED BY THE LAWS OF SUCH STATE AS ARE SPECIFIED IN SECTION 9103 OF THE UCC.

     THE BORROWER HEREBY IRREVOCABLY AND UNCONDITIONALLY SUBMITS, FOR ITSELF AND
ITS PROPERTY,  TO THE  NONEXCLUSIVE  JURISDICTION OF ANY NEW YORK STATE COURT OR
FEDERAL COURT OF THE UNITED STATES OF AMERICA  SITTING IN NEW YORK CITY, AND ANY
APPELLATE COURT FROM ANY THEREOF,  IN ANY ACTION OR PROCEEDING ARISING OUT OF OR
RELATING TO THIS  AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS TO WHICH IT IS OR
IS TO BE A PARTY,  OR FOR  RECOGNITION OR  ENFORCEMENT OF ANY JUDGMENT,  AND THE
BORROWER  HEREBY  IRREVOCABLY  AND  UNCONDITIONALLY  AGREES  THAT ALL  CLAIMS IN
RESPECT OF ANY SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN ANY SUCH
NEW YORK STATE COURT OR, TO THE EXTENT  PERMITTED BY LAW, IN SUCH FEDERAL COURT.
THE BORROWER AGREES THAT A FINAL JUDGMENT IN ANY SUCH ACTION OR PROCEEDING SHALL
BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT
OR IN ANY OTHER MANNER  PROVIDED BY LAW.  NOTHING IN THIS AGREEMENT SHALL AFFECT
ANY RIGHT THAT ANY PARTY MAY  OTHERWISE  HAVE TO BRING ANY ACTION OR  PROCEEDING
RELATING TO THIS  AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS TO WHICH IT IS OR
IS TO BE A PARTY IN THE COURTS OF ANY JURISDICTION.

     THE BORROWER IRREVOCABLY AND UNCONDITIONALLY  WAIVES, TO THE FULLEST EXTENT
IT MAY LEGALLY AND EFFECTIVELY DO SO, ANY OBJECTION THAT IT MAY NOW OR HEREAFTER
HAVE TO THE LAYING OF VENUE OF ANY SUIT, ACTION OR PROCEEDING  ARISING OUT OF OR
RELATING TO THIS  AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS TO WHICH IT IS OR
IS TO BE A PARTY IN ANY NEW YORK STATE OR FEDERAL  COURT.  THE  BORROWER  HEREBY
IRREVOCABLY  WAIVES,  TO THE FULLEST EXTENT  PERMITTED BY LAW, THE DEFENSE OF AN
INCONVENIENT  FORUM TO THE  MAINTENANCE OF SUCH ACTION OR PROCEEDING IN ANY SUCH
COURT.

     BORROWER AND LENDER HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF
ANY  CLAIM OR CAUSE  OF  ACTION  BASED  UPON OR  ARISING  OUT OF ANY OF THE LOAN
DOCUMENTS OR ANY OF THE TRANSACTIONS  CONTEMPLATED  THEREIN,  INCLUDING CONTRACT
CLAIMS,  TORT  CLAIMS,  BREACH  OF DUTY  CLAIMS,  AND ALL  OTHER  COMMON  LAW OR
STATUTORY  CLAIMS.  BORROWER AND LENDER  REPRESENT  THAT EACH HAS REVIEWED  THIS
WAIVER AND EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING
CONSULTATION  WITH LEGAL  COUNSEL.  IN THE EVENT OF  LITIGATION,  A COPY OF THIS
AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.

10.14 Entire Agreement. This Agreement,  together with the other Loan Documents,
embodies the entire Agreement and understanding among Borrower, Collateral Agent
and  Lenders  and  supersedes  all  prior  or  contemporaneous   agreements  and
understandings  of such  Persons,  verbal or  written,  relating  to the subject
matter  hereof and thereof and any prior  arrangements  made with respect to the
payment by Borrower (or any  indemnification  for) any Lender Costs incurred (or
to be incurred) by or on behalf of Collateral Agent or any Lender.

10.15  Interpretation.  This Agreement is the result of negotiations between and
has been reviewed by counsel to Collateral  Agent,  Lenders,  Borrower and other
parties, and is the product of all parties hereto.  Accordingly,  this Agreement
and the other Loan Documents shall not be construed against  Collateral Agent or
any Lender merely  because of Lenders'  involvement  in the  preparation of such
documents and agreements.

10.16 Assignment;  Register.  Each Lender may assign,  sell participations in or
pledge its rights hereunder and under the Loan Documents  without the consent of
Borrower;  provided,  however,  that no such assignment shall be effective until
the parties  thereto shall have executed and delivered to the  Collateral  Agent
for  acceptance  and recording in the Register (as defined  below) an Assignment
and Acceptance.  Upon such execution,  delivery,  acceptance and recording, from
and after the effective date specified in such  Assignment and  Acceptance,  (x)
the assignee  thereunder  shall be a party hereto and, to the extent that rights
and  obligations  hereunder have been assigned to it pursuant to such Assignment
and Acceptance,  have the rights and  obligations of a Lender  hereunder and (y)
the Lender assignor  thereunder shall, to the extent that rights and obligations
hereunder have been assigned by it pursuant to such  Assignment and  Acceptance,
relinquish its rights and be released from its obligations  under this Agreement
(and, in the case of an Assignment and Acceptance  covering all or the remaining
portion of an assigning  Lender's rights and  obligations  under this Agreement,
such  Lender  shall  cease to be a party  hereto).  Borrower  may not  assign or
delegate any of its rights,  interest or  obligations  hereunder or under any of
the Loan Documents.

     The  Collateral  Agent,  on behalf of the Borrower,  shall  maintain at the
Collateral Agent's address referred to in Section 9.02 a copy of each Assignment
and  Acceptance  delivered  to  and  accepted  by it  and  a  register  for  the
recordation  of the names and addresses of the Lenders and the principal  amount
of the Loan owing to each Lender from time to time (the "Register"). The entries
in the  Register  shall be  conclusive  and  binding  for all  purposes,  absent
manifest error, and the Borrower, the Collateral Agent and the Lenders may treat
each Person whose name is recorded in the Register as a Lender hereunder for all
purposes of this  Agreement.  The Register  shall be available for inspection by
the  Borrower  or any Lender at any  reasonable  time and from time to time upon
reasonable prior notice.

     Upon its receipt of an Assignment and  Acceptance  executed by an assigning
Lender and an assignee,  the  Collateral  Agent shall,  if such  Assignment  and
Acceptance  has been  completed  and is in  substantially  the form of Exhibit C
hereto,  (i) accept such Assignment and Acceptance,  (ii) record the information
contained  therein in the Register and (iii) give prompt  notice  thereof to the
Borrower.  Within  five  Business  Days after its  receipt  of  written  request
therefor,  the  Borrower,  at its own expense,  shall execute and deliver to the
Collateral  Agent in exchange for any Note  surrendered  in  connection  with an
assignment hereunder, a new Note to the order of the assignee in an amount equal
to the principal  amount of the Loan assumed by it and, if the assigning  Lender
has  retained  a portion of the Loan  hereunder,  a new Note to the order of the
assigning  Lender in an amount equal to such portion  retained by it  hereunder.
Such new Note or Notes shall be in an  aggregate  principal  amount equal to the
aggregate  principal  amount  of such  surrendered  Note,  shall  be  dated  the
effective date of the applicable  Assignment and Acceptance and shall  otherwise
be in substantially the form of Exhibit D.

10.17 Revival and Reinstatement of Obligations.  If the incurrence or payment of
the  Obligations by Borrower or the transfer by Borrower to Collateral  Agent or
any  Lender of any  property  of either or both of such  parties  should for any
reason  subsequently  be  declared  to be void or  voidable  under  any state or
federal  law  relating  to  creditors'  rights,   including  provisions  of  the
Bankruptcy  Code  relating to  fraudulent  conveyances,  preferences,  and other
voidable   or   recoverable   payments  of  money  or   transfers   of  property
(collectively,  a "Voidable Transfer"), and if Collateral Agent or any Lender is
required to repay or restore,  in whole or in part, any such Voidable  Transfer,
or elects to do so upon the  reasonable  advice of its counsel,  then, as to any
such Voidable Transfer,  or the amount thereof that Lender is required or elects
to repay or restore,  and as to all  reasonable  costs,  expenses,  and Attorney
Costs of Lender related thereto,  the liability of Borrower  automatically shall
be revived,  reinstated,  and restored  and shall exist as though such  Voidable
Transfer had never been made.

10.18  Survival.  Notwithstanding  any provision of this  agreement or any other
Loan Document to the contrary,  the  provisions of Sections  2.11,  2.12,  2.13,
2.14, 9.4, 9.5, 10.4 and 10.5 shall survive payment of all other Obligations and
the termination of this Agreement.

10.19  Confidentiality.  Each  Lender and  Collateral  Agent  agrees to hold any
confidential  information  that it may receive  from  Borrower  pursuant to this
Agreement in confidence,  except for  disclosure:  (a) to other Lenders,  rating
agencies,  trustees,  reference  lenders,  portfolio  advisors,  any  direct  or
indirect  contractual  counterparty  in  swap  agreements  or  such  contractual
counterparty's  professional  advisor,  and any other  parties  relevant  to any
investment vehicle managed by SAI Investment Adviser, Inc.; (b) to legal counsel
and  accountants  for Borrower,  Collateral  Agent or any Lender or  prospective
Lender; (c) to other professional advisors to Borrower,  Collateral Agent or any
Lender or prospective  Lender; (d) to regulatory  officials;  (e) as required by
law or legal process;  and (f) to another  proposed  Lender in connection with a
proposed assignment permitted hereunder provided that the recipient has accepted
such information subject to a confidentiality agreement substantially similar to
this Section  10.19.  For purposes of the foregoing  "confidential  information"
shall mean any information  respecting Borrower,  its Subsidiaries or Affiliates
delivered  to  Lenders  and  marked  confidential,  other  than (i)  information
previously filed with any governmental  agency and available to the public, (ii)
information  previously  published in any public medium from a source other than
directly or indirectly,  that Lender, (iii) information  previously disclosed by
Borrower to any Person not associated  with Borrower  without a  confidentiality
agreement or obligation  substantially  similar to this Section 10.19,  and (iv)
any such information that is or becomes generally  available to the public other
than  as a  result  of a  breach  by  Collateral  Agent  or  any  Lender  of its
obligations  hereunder or that is or becomes  available to  Collateral  Agent or
such Lender from a source other than Borrower.

10.20 Actions by Portfolio  Advisor.  Any rights of a Lender  hereunder or under
any other Loan Document may be exercised by such Lender's  portfolio  advisor or
collateral manager upon delivery to the Collateral Agent of evidence in writing,
reasonably  satisfactory to the Collateral  Agent,  setting forth such authority
(which may be in the form of a written  confirmation  of such authority from the
applicable Lender).

                                   * * * * *

<PAGE>

                       [Signature Page to Loan Agreement]

     IN WITNESS  WHEREOF,  the parties  hereby have caused this  Agreement to be
executed as of the date first written above.

                                UGLY DUCKLING CORPORATION,
                                a Delaware corporation

                                By:
                                Name:
                                Title:

<PAGE>

                                Lenders:


                                GALAXY CLO 1999-1, LTD.

                                By: SAI Investment Advisers, Inc.
                                its Collateral Manager

                                By:
                                Name:
                                Title:

                                Portion of Initial Principal Amount :$17,000,000
                                Ratable Share: 48.571429%

                                Address for notices in respect of payment:

                                ------------------------------
                                ------------------------------
                                Los Angeles, CA 90067-6022
                                Attn: ________________________
                                Facsimile: ___________________

                                Address for all other notices:

                                ------------------------------
                                ------------------------------
                                Los Angeles, CA 90067-6022
                                Attn: ________________________
                                Facsimile: ___________________


<PAGE>

                                SUNAMERICA LIFE INSURANCE COMPANY

                                By:
                                Name:
                                Title:

                                Portion of Initial Principal Amount :$6,000,000
                                Ratable Share: 17.142857%

                                Address for notices in respect of payment:

                                SunAmerica Investments
                                1 SunAmerica Center
                                Los Angeles, CA 90067-6022
                                Attn: Investment Accounting, 36th Floor
                                Facsimile: (310) 772-6596

                                Address for all other notices:

                                SunAmerica Corporate Finance
                                1 SunAmerica Center
                                Los Angeles, CA 90067-6022
                                Attn: John Lapham
                                Facsimile: (310) 772-6078

<PAGE>

                                KZH SOLEIL-2 LLC


                                By:
                                Name:
                                Title:

                                Portion of Initial Principal Amount:$12,000,000
                                Ratable Share: 34.285714%

                                Address for Notice:

                                c/o The Chase Manhattan Bank
                                140 East 45th Street, 11th Floor
                                New York, NY 10017
                                Facsimile: (212) 622-0123
                                Attn: Virginia Conway

<PAGE>

                                Collateral Agent:


                                BNY MIDWEST TRUST COMPANY, as Collateral Agent

                                By:
                                Name:
                                Title:

<PAGE>

                                   SCHEDULE H

                           BNY MIDWEST TRUST COMPANY
                                SCHEDULE OF FEES
                                       AS
                                COLLATERAL AGENT
                                      FOR
                           UGLY DUCKLING CORPORATION
                    $38 MILLION SENIOR SECURED LOAN FACILITY

<TABLE>
<CAPTION>
<S>     <C>                     <C>     <C>                                                     <C>

1.      Acceptance Fees.........................................................................$[1,500]

        To include:             -       examination and administrative review of the Senior
                                        Secured Loan Agreement and all related documents
                                -       establishment of all appropriate accounts
                                -       participation in pre-closing and closing

2.      Annual Administration Fee...............................................................$[6,000 per annum]

        To include:             -       administration of covenants of the Senior Secured Loan Agreement and all related documents
                                -       compliance monitoring
                                -       collection and application (investment) of collected funds
                                -       payment of principal and interest to Lenders
                                -       maintenance of certificateholder records (maximum of 5 Lenders)
                                -       transfer and assignment of Lender's beneficial interest
                                        (maximum 2 transfers per life of facility)
                                -       safekeeping of pledged stock certificates

        Additional Lender - $[1,000 per annum per Lender]
        Additional Transfer - $[3,500 per transfer]

3.      Miscellaneous Fees:
        I.  Wires...............................................................................$[20.00]
        II. Investment Charges (each)...........................................................$[35.00]*

*If balances are invested in selected  mutual funds,  the above  investment fees
will be waived.
</TABLE>
<PAGE>


                           BNY MIDWEST TRUST COMPANY
                                SCHEDULE OF FEES
                                       AS
                                COLLATERAL AGENT
                                      FOR
                           UGLY DUCKLING CORPORATION
                    $38 MILLION SENIOR SECURED LOAN FACILITY
                                  (continued)



NOTE:

Additionally,  the cost of extraordinary  items that can be directly  allocated,
such as legal fees and expenses (if any), travel expenses,  etc., will be billed
separately.  The  foregoing  schedule has been  designed to apply to  collateral
agent duties requiring the usual amount of  responsibility,  time and attention.
All  fees  are  subject  to  our  review  and   acceptance   of  the   governing
documentation,  and to reasonable  adjustment as changes in laws,  procedures or
costs of doing business demand.

Fees for services not specifically  covered in this schedule will be assessed in
an amount commensurate with the services rendered.

The acceptance fee will be billed upon acceptance. The annual administration fee
will be billed annually in advance. All other activity-based fees will be billed
annually, as incurred.

December [___], 2000