UGLY DUCKLING CORPORATION

                                WARRANT AGREEMENT

         THIS WARRANT AGREEMENT (the "Agreement"), dated as of April 1, 1998, is
between UGLY DUCKLING CORPORATION,  a Delaware corporation (the "Company"),  and
HARRIS TRUST COMPANY OF CALIFORNIA, as warrant agent (the "Warrant Agent").

         WHEREAS, on July 11, 1997, First Merchants  Acceptance  Corporation,  a
Delaware corporation ("FMAC"),  filed a Chapter 11 petition under the provisions
of Title 11, United States Code, as amended, in the United States District Court
for the District of Delaware and such petition is currently  pending as Case No.
97-1500 (JJF) (the "Bankruptcy Case");

         WHEREAS,  the Company has entered  into a Binding  Agreement to Propose
and Support  Modified Plan Agreement  dated as of December 15, 1997 (the "Letter
Agreement"),  by and among the  Company,  FMAC,  and The  Official  Committee of
Unsecured  Creditors of First Merchants  Acceptance  Corporation,  in connection
with the  Bankruptcy  Case,  pursuant  to which the  parties  agreed to  jointly
support a plan of reorganization of FMAC in compliance with the Letter Agreement
(the "Plan");

         WHEREAS,  pursuant to the Letter  Agreement,  the Company has agreed to
issue to FMAC  warrants  (the  "Warrants")  to  purchase up to an  aggregate  of
325,000 shares of common stock,  $.001 par value per share ("Common Stock"),  of
the Company, subject to the terms and conditions of this Agreement;

         WHEREAS,  FMAC may, but is under no  obligation  to,  redistribute  the
Warrants, to its creditors or interest holders in the manner provided for in the
Plan; and

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

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

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

         Section 2.        Issuance of Warrants and Form of Warrants.

         (a) Subject to the terms and conditions hereof, the Company shall issue
to FMAC and FMAC shall accept from the Company,  325,000 Warrants  substantially
in the form attached hereto as Exhibit A.


                                    PAGE - 1
<PAGE>
         (b) Each Warrant shall entitle the registered holder of the certificate
representing  such Warrant to purchase  upon the  exercise  thereof one share of
Common Stock,  subject to the adjustments  provided for in Section 9 hereof,  at
any time until 5:00 p.m.,  New York City time, on April 1, 2001,  unless earlier
redeemed pursuant to Section 11 hereof.

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

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

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

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

         (c) The price per share of Common  Stock at which each  Warrant  may be
exercised  (the "Warrant  Price") shall be Twenty Dollars  ($20.00)  (subject to
adjustment in accordance with Section 9 hereof).

         (d) Subject to the further  provisions of this Section 3 and of Section
6 hereof,  upon  surrender  of Warrant  certificates  and payment of the Warrant
Price,  the  Company  shall  issue and cause to be  delivered,  as  promptly  as
practicable  to or upon the  written  order  of the  registered  holder  of such
Warrants  and in such name or names as such  registered  holder  may  designate,
subject to applicable  securities  laws, a certificate or  certificates  for the
number of securities so purchased upon the exercise of such  Warrants,  together


                                    PAGE - 2
<PAGE>

with  a  current  prospectus  meeting  the  requirements  of  Section  10 of the
Securities Act of 1933 and cash, as provided in Section 10 of this Agreement, in
respect of any  fraction of a share or  security  otherwise  issuable  upon such
surrender.  All shares of Common Stock or other such securities  issued upon the
exercise of a Warrant shall be duly authorized,  validly issued,  fully paid and
nonassessable and free and clear of all liens and other encumbrances.

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

         Section 4.        Countersignature and Registration.

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

         (b)  Prior to due  presentment  for  registration  of  transfer  of any
Warrant  certificate,  the Company and the Warrant  Agent may deem and treat the
person in whose  name such  Warrant  certificate  shall be  registered  upon the
Warrant Register (the "registered holder") as the absolute owner of such Warrant
certificate  and  of  each  Warrant  represented  thereby  (notwithstanding  any
notation of ownership or other writing on the Warrant certificate made by anyone
other than the Company or the Warrant  Agent),  for the purpose of any  exercise


                                    PAGE - 3
<PAGE>

thereof, of any distribution or notice to the holder thereof,  and for all other
purposes, and neither the Company nor the Warrant Agent shall be affected by any
notice to the contrary.

         Section 5.        Transfer and Exchange of Warrants.

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

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

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

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

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

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

                                    PAGE - 4
<PAGE>

         Section 7.  Mutilated or Missing  Warrants.  In case any of the Warrant
certificates  shall be mutilated,  lost,  stolen or  destroyed,  the Company may
issue,  and the Warrant  Agent  shall  countersign  and deliver in exchange  and
substitution for and upon cancellation of the mutilated Warrant certificate,  or
in  lieu of and  substitution  for  the  Warrant  certificate  lost,  stolen  or
destroyed,  a new Warrant certificate  representing an equal aggregate number of
Warrants,  but only upon receipt of evidence satisfactory to the Company and the
Warrant Agent of such loss, theft or destruction of such Warrant certificate and
reasonable  indemnity,  if requested,  also satisfactory to them. Applicants for
such  substitute  Warrant   certificates  shall  also  comply  with  such  other
reasonable  conditions  and pay such  reasonable  charges as the  Company or the
Warrant Agent may prescribe.

         Section 8.        Reservation of Common Stock.

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

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

         Section 9.  Adjustment  of Warrant Price and Number of shares of Common
Stock.  The number and kind of securities  purchasable  upon the exercise of the
Warrants and the Warrant Price shall be subject to adjustment  from time to time
upon the happening of certain events, as follows:

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

                                    PAGE - 5
<PAGE>

                  (a) If the  Company  (i) pays a  dividend  in Common  Stock or
makes a distribution in Common Stock,  (ii)  subdivides its  outstanding  Common
Stock into a greater  number of shares,  (iii) combines its  outstanding  Common
Stock into a smaller number of shares,  or (iv) issues, by  reclassification  of
its Common Stock,  other securities of the Company,  then the number and kind of
shares  of Common  Stock or other  securities  purchasable  upon  exercise  of a
Warrant  immediately  prior  thereto  will be  adjusted  so that the holder of a
Warrant  will be  entitled  to  receive  the kind and number of shares of Common
Stock or other  securities  of the Company that such holder would have owned and
would have been  entitled to receive  immediately  after the happening of any of
the events described above, had the Warrant been exercised  immediately prior to
the  happening  of such  event or any  record  date with  respect  thereto.  Any
adjustment  made  pursuant  to this  subsection  9.1(a)  will  become  effective
immediately  after the effective  date of such event  retroactive  to the record
date, if any, for such event.

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

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

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

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


                                    PAGE - 6
<PAGE>

purchasable  upon exercise of the Warrants  shall be subject to adjustment  from
time to time in a manner and on terms as nearly equivalent as practicable to the
provisions with respect to the shares contained in this Section 9.

         9.2 No Adjustment for Dividends.  Except as provided in subsection 9.1,
no adjustment in respect of any dividends or distributions  shall be made during
the term of the Warrants or upon the exercise of the Warrants.

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

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

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

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

         9.7 Statement on Warrant Certificates.  Irrespective of any adjustments
in the  Warrant  Price or the number of  securities  issuable  upon  exercise of
Warrants,  Warrant certificates theretofore or thereafter issued may continue to
express  the same price and number of  securities  as are stated in the  similar


                                    PAGE - 7
<PAGE>

Warrant certificates initially issuable pursuant to this Agreement. However, the
Company may, at any time in its sole  discretion  (which  shall be  conclusive),
make any change in the form of Warrant  certificate that it may deem appropriate
and that does not affect the  substance  thereof;  and any  Warrant  certificate
thereafter issued,  whether upon registration of, transfer of, or in exchange or
substitution  for, an  outstanding  Warrant  certificate,  may be in the form so
changed.

         9.8 No Rights as  Stockholder;  Notices to Holders of Warrants.  If, at
any time prior to the expiration of a Warrant and prior to its exercise, any one
or more of the following events shall occur:

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

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

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


                                    PAGE - 8
<PAGE>

bid price  referred to in said clause  shall be the lowest bid price as reported
on the  OTC  Bulletin  Board  or in the  "pink  sheets"  published  by  National
Quotation Bureau, Incorporated.

         Section 11.       Redemption.

         (a) The then outstanding Warrants may be redeemed, at the option of the
Company,  at $.10 per share of Common Stock  purchasable  upon  exercise of such
Warrants,  at any time after the  average  Daily  Market  Price per share of the
Common  Stock for a period of at least 10  consecutive  trading  days ending not
more than fifteen days prior to the date of the notice given pursuant to Section
11(b)  hereof has equaled or exceeded  $28.50,  and prior to  expiration  of the
Warrants.  The Daily Market Price of the Common Stock will be  determined by the
Company in the manner set forth in Section  11(e) as of the end of each  trading
day (or, if no trading in the Common  Stock  occurred on such day, as of the end
of the immediately preceding trading day in which trading occurred) and verified
to the Warrant  Agent  before the Company  may give  notice of  redemption.  All
outstanding  Warrants  must be  redeemed if any are  redeemed,  and any right to
exercise an  outstanding  Warrant  shall  terminate at 5:00 p.m.  (New York City
time) on the date fixed for redemption. Trading day means a day in which trading
of securities occurred on the Nasdaq National Market.

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

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

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

         (e) For purposes of this Agreement, the term "Daily Market Price" means
(i) if the Common  Stock is quoted on the Nasdaq  National  Market or the Nasdaq
SmallCap  Market  or on a  national  securities  exchange,  the  daily per share
closing price of the Common Stock as quoted on the Nasdaq National Market or the
Nasdaq  SmallCap Market or on the principal stock exchange on which it is listed
on the trading day in question,  as the case may be, whichever is the higher, or
(ii) if the Common Stock is traded in the over-the-counter market and not quoted
on the Nasdaq  National Market or the Nasdaq SmallCap Market nor on any national
securities  exchange,  the closing bid price of the Common  Stock on the trading


                                    PAGE - 9
<PAGE>

day in  question,  as reported  by Nasdaq or an  equivalent  generally  accepted
reporting  service.  The closing price  referred to in clause (i) above shall be
the last  reported  sale price or, in case no such  reported sale takes place on
such day, the average of the reported  closing bid and asked  prices,  in either
case on the  Nasdaq  National  Market or the  Nasdaq  SmallCap  Market or on the
national  securities  exchange  on which the Common  Stock is then  listed.  For
purposes of clause (ii) above, if trading in the Common Stock is not reported by
Nasdaq,  the bid price  referred to in said clause shall be the lowest bid price
as quoted on the OTC Bulletin  Board or reported in the "pink sheets"  published
by National Quotation Bureau, Incorporated.

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

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

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

         Section 14.       Registration of Warrants.

         (a) The  Company  has  registered  the  Warrants  and the Common  Stock
issuable  upon  exercise of the Warrants  under the  Securities  Act of 1933, as
amended (the  "Securities  Act").  The Company agrees to use its best efforts to
maintain  such  registration  for the  period  during  which  the  Warrants  are
exercisable.  If at any time during the  continuance of such  registration,  the
Company shall determine that the applicable  registration  statement contains an
untrue  statement of a material  fact or omits to state a material fact required
to be stated therein or necessary to make the statements  therein not misleading
in light of the  circumstances  then  existing,  or if for any  other  reason as
required  by law  it is  necessary  to  amend  or  supplement  the  registration
statement or to discontinue trading in or exercise of the Warrants,  the Company
may  request  the  Warrant  Agent  in  writing  to  discontinue   effecting  the


                                   PAGE - 10
<PAGE>

registration of transfer and/or exercise of the Warrants, as appropriate,  until
such time as the Company  subsequently advises the Warrant Agent in writing that
trading and/or exercises, as applicable,  of the Warrants may be continued.  The
Company will use best efforts to promptly amend or supplement  its  registration
statement to permit trading and exercise.

         (b) All fees,  disbursements,  and  out-of-pocket  expenses incurred in
connection  with the filing of any  registration  statement  under Section 14(a)
hereof and in complying  with  applicable  securities and Blue Sky laws shall be
borne by the Company, provided, however, that any expenses of the holders of the
Warrants or the Shares,  including  but not  limited to their  attorneys'  fees,
shall be borne by such holders.

         (c) Until sold by FMAC pursuant to the applicable  prospectus  included
within the  registration  statement filed by the Company and in effect from time
to time as contemplated in Section 14(a) above, the certificates  evidencing the
Warrants and shares issuable upon exercise of the Warrants will bear a legend in
substantially the following form:

                  THE SECURITIES  REPRESENTED BY THIS  CERTIFICATE HAVE NOT BEEN
                  REGISTERED  UNDER  THE  SECURITIES  ACT OF 1933  OR ANY  STATE
                  SECURITIES LAWS AND MAY NOT BE SOLD,  EXCHANGED,  HYPOTHECATED
                  OR OTHERWISE  TRANSFERRED  IN ANY MANNER  EXCEPT IN COMPLIANCE
                  WITH SECTION 14 OF THE WARRANT  AGREEMENT DATED AS OF APRIL 1,
                  1998,  BETWEEN  UGLY  DUCKLING  CORPORATION  AND HARRIS  TRUST
                  COMPANY OF CALIFORNIA,  AS WARRANT  AGENT,  AS THE SAME MAY BE
                  AMENDED FROM TIME TO TIME.

         Section 15.       [Intentionally Left Blank]

         Section 16. Merger or Consolidation or Change of Name of Warrant Agent.

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


                                   PAGE - 11
<PAGE>

predecessor  Warrant Agent or in the name of the successor Warrant Agent, and in
all such cases the Warrants  represented by such Warrant certificates shall have
the full force provided in the Warrant  certificates and in this Agreement.  Any
such  successor  Warrant Agent shall  promptly give notice of its  succession as
Warrant  Agent to the  Company  and to the  registered  holder  of each  Warrant
certificate.

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

         Section 17.  Concerning the Warrant Agent. The Company agrees to pay to
the  Warrant  Agent  reasonable  compensation  for all  services  rendered by it
hereunder and, from time to time, on demand of the Warrant Agent, its reasonable
expenses and counsel fees and other disbursements incurred in the administration
and execution of this  Agreement and the exercise and  performance of its duties
hereunder.  The Company  also agrees to  indemnify  the Warrant  Agent,  and its
officers,  agents and directors for, and to hold each of them harmless  against,
any  loss,  liability,   or  expense  incurred  without  negligence  or  willful
misconduct on the part of the Warrant Agent, for anything done or omitted by the
Warrant Agent or such  indemnified  party in connection  with the  acceptance or
administration  of this  Agreement or the exercise or  performance of its duties
hereunder,  including  the costs and expenses of defending  against any claim of
liability in the premises.  The  indemnification  provided for  hereunder  shall
survive the expiration of the Warrant, the termination of this Agreement and the
resignation or removal of the Warrant Agent. The costs and expenses of enforcing
this right of indemnification shall also be paid by the Company.

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

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

         Section 18. Duties of Warrant Agent.  The Warrant Agent  undertakes the
duties  and  obligations  expressly  imposed by this  Agreement,  and no implied
duties or  obligations  shall be read into this  Agreement  against  the Warrant


                                   PAGE - 12
<PAGE>

Agent, upon the following terms and conditions,  by all of which the Company and
the  holders of Warrant  certificates,  by their  acceptance  thereof,  shall be
bound:

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

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

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

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

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

                                   PAGE - 13
<PAGE>

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

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

                  Any application by the Warrant Agent for written  instructions
from the Company may, at the option of the Warrant  Agent,  set forth in writing
any  action  proposed  to be taken or omitted by the  Warrant  Agent  under this
Agreement  and the date on or after  which  such  action  shall be taken or such
omission  shall be  effective.  The  Warrant  Agent  shall not be liable for any
action taken by, or omission of, the Warrant Agent in accordance with a proposal
included  in any  such  application  on or  after  the  date  specified  in such
application  (which date shall not be less than ten Business Days after the date
any officer of the Company actually receives such  application,  unless any such
officer shall have  consented in writing to an earlier  date)  unless,  prior to
taking any such action (or the effective  date in the case of an omission),  the
Warrant  Agent  shall have  received  written  instructions  in response to such
application  subject to the proposed  action or omission  and/or  specifying the
action to be taken or omitted.

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

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

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

                                   PAGE - 14
<PAGE>

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

                  Section 19.  Change of Warrant  Agent.  The Warrant  Agent may
resign and be  discharged  from its duties  under this  Agreement  by giving the
Company  at least 30 days prior  notice in  writing,  and by  mailing  notice in
writing  to the  registered  holders  at the  expense  of the  Company  at their
addresses  appearing on the Warrant Register,  of such resignation,  at least 15
days prior to the date such resignation  shall take effect and specifying a date
when such  resignation  shall take effect.  The Warrant  Agent may be removed by
like notice to the Warrant  Agent from the Company and by like mailing of notice
to the  registered  holders of the Warrants.  If the Warrant Agent resigns or is
removed or otherwise  becomes  incapable of acting,  the Company shall appoint a
successor to the Warrant  Agent.  If the Company fails to make such  appointment
within 30 days after such  removal or after it has been  notified  in writing of
such resignation or incapacity by the resigning or  incapacitated  Warrant Agent
or by the registered  holder of a Warrant (who shall,  with such notice,  submit
his Warrant  certificate for inspection by the Company),  then the Warrant Agent
or the  registered  holder of any Warrant  may,  at the expense of the  Company,
apply to any court of competent  jurisdiction for the appointment of a successor
to the Warrant Agent.  Pending  appointment of a successor to the Warrant Agent,
either by the Company or such a court, the Company shall carry out the duties of
the Warrant Agent. Any successor Warrant Agent, whether appointed by the Company
or by such a court,  must be registered  and otherwise  authorized to serve as a
transfer agent pursuant to the Securities  Exchange Act of 1934, as amended.  If
at any time the  Warrant  Agent  ceases to be eligible  in  accordance  with the
provisions of this Section 19, it will resign immediately in the manner and with
the effect  specified  in this Section 19.  After  acceptance  in writing of the
appointment,  the  successor  Warrant Agent will be vested with the same powers,
rights,  duties  and  responsibilities  as if it had  been  originally  named as
Warrant Agent  without  further act or deed;  but the former  Warrant Agent will
deliver and  transfer to the  successor  Warrant  Agent any property at the time
held by it hereunder, and execute and deliver any further assurance, conveyance,
act or deed  necessary for this purpose.  Upon request of any successor  Warrant
Agent,  the  Company  will make,  execute,  acknowledge  and deliver any and all
instruments in writing for more fully and effectually  vesting in and confirming
to  such  successor   Warrant  Agent  all  such  powers,   rights,   duties  and
responsibilities.  Failure to file or mail any notice  provided in this  Section
19, however, or any defect therein,  will not affect the legality or validity of
the  resignation  or  removal of the  Warrant  Agent or the  appointment  of the
successor Warrant Agent, as the case may be.

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

                                   PAGE - 15
<PAGE>

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

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

                           With a copy to:

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

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

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

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

         Section 22.  Supplements  and  Amendments.  The Company and the Warrant
Agent may from time to time  supplement  or amend  this  Agreement  without  the
approval of any holders of Warrants in order to cure any ambiguity or to correct
or  supplement  any  provision  contained  herein  which  may  be  defective  or
inconsistent with any other provision herein, or to make any other provisions in
regard to matters or  questions  arising  hereunder  which the  Company  and the
Warrant  Agent  may  deem   necessary  or  desirable  and  which  shall  not  be
inconsistent  with the provisions of the Warrants,  or which shall not adversely
affect the interests of the holders of Warrants  (including reducing the Warrant


                                   PAGE - 16
<PAGE>

Price or extending the redemption or expiration date). In any situation in which
this  Agreement  cannot be amended  pursuant to the next  sentence  above,  this
Agreement  may be amended by the  Company,  the Warrant  Agent and the holder or
holders of a majority of the outstanding Warrants representing a majority of the
shares of Common Stock underlying such Warrants; provided, however, that without
the consent of each holder of a Warrant, except as otherwise provided in Section
9, there can be no  increase of the Warrant  Price,  reduction  of the number of
shares of Common Stock  purchasable or reduction of the exercise period for such
holder's  Warrants and provided,  further,  that no such supplement or amendment
may affect  the  rights or duties of the  Warrant  Agent  under  this  Agreement
without the written  consent of the Warrant Agent.  Notwithstanding  anything in
this  Agreement to the contrary,  no  supplement  or amendment  that changes the
rights and duties of the Warrant Agent under this  Agreement  shall be effective
against the Warrant Agent without the execution of such  supplement or amendment
by the Warrant Agent.

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

         Section  24.  Governing  Law.  This  Agreement  will be  deemed to be a
contract  made under the laws of the State of Arizona and for all purposes  will
be construed in  accordance  with the laws of said State,  except as to Sections
17, 18 and 22, which shall be governed by and construed in  accordance  with the
laws of the  State of  Illinois.  Each  holder of a  Warrant  by its  acceptance
thereof  agrees  to  submit  to  the   jurisdiction  of  a  court  of  competent
jurisdiction  in the  State  of  Arizona,  but to the  State of  Illinois  as to
Sections 17, 18 and 22, for the purpose of resolving  any disputes  arising with
respect to the rights and obligations of the Warrant Agent.

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

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

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

                                   PAGE - 17
<PAGE>

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

                    UGLY DUCKLING CORPORATION

                    By:  /s/ Gregory B. Sullivan
                         -----------------------
                    Name:Gregory B. Sullivan

                    Its:  President


                    HARRIS TRUST COMPANY
                    OF CALIFORNIA, as Warrant Agent

                    By:/S/  NEIL T. ROSSO
                       ------------------
                    Name:  Neil T. Rosso

                    Its:Assistant Vice President



                                   PAGE - 18
<PAGE>



Warrant No.  ____

                                    EXHIBIT A

               WARRANT TO PURCHASE ________ SHARES OF COMMON STOCK

                              VOID AFTER 5:00 P.M.,
                    NEW YORK CITY TIME, ON _______ __, 200__

                            UGLY DUCKLING CORPORATION

         This certifies that, for value received  ________________________,  the
registered holder hereof or assigns (the "Holder"), is entitled to purchase from
UGLY DUCKLING CORPORATION,  a Delaware corporation (the "Company"),  at any time
before 5:00 p.m., New York City time, on __________  ___, 200__, at the purchase
price per share of $20 (the  "Warrant  Price"),  the  number of shares of Common
Stock,  par  value  $0.001  per  share,  of the  Company  set forth  above  (the
"Shares"). The number of shares of Common Stock purchasable upon exercise of the
Warrant  evidenced  hereby and the Warrant Price is subject to  adjustment  from
time to time as set forth in the Warrant Agreement referred to below.

         This Warrant may be redeemed,  at the option of the Company and as more
specifically  provided  in the  Warrant  Agreement,  at $.10 per share of Common
Stock  purchasable  upon  exercise  hereof,  at any time after the average Daily
Market  Price (as defined in Section 11 of the Warrant  Agreement)  per share of
the Common Stock for a period of at least 10 consecutive trading days ending not
more than fifteen days prior to the date of the notice given pursuant to Section
11(b)  thereof has equaled or exceeded  $28.50,  and prior to expiration of this
Warrant.  The Holder's  right to exercise  this Warrant  terminates at 5:00 p.m.
(New  York  City  time)  on the date  fixed  for  redemption  in the  notice  of
redemption delivered by the Company in accordance with the Warrant Agreement.

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

         The Warrants  evidenced  hereby are part of a duly authorized  issue of
Warrants and are issued under and in accordance with the Warrant Agreement dated
as of _________  __, 1998,  between the Company and the Warrant  Agent,  and are
subject to the terms and provisions  contained in such Warrant Agreement,  which
Warrant  Agreement is hereby  incorporated  by reference  herein and made a part
hereof and is hereby  referred to for a description of the rights,  limitations,
duties and indemnities thereunder of the Company and the Holder of the Warrants,


                                   PAGE - 19
<PAGE>

and to all of which the Holder of this Warrant  certificate by acceptance hereof
consents.  A copy of the Warrant Agreement may be obtained for inspection by the
Holder hereof upon written request to the Warrant Agent.

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

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

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

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

Dated:                                           UGLY DUCKLING CORPORATION

                                             By:
                                                 President

ATTEST:


Secretary

                                   PAGE - 20
<PAGE>

                                                              This is one of the
                                                              Warrants  referred
                                                              to in  the  within
                                                              mentioned  Warrant
                                                                      Agreement.

                                          HARRIS TRUST COMPANY
                                          OF CALIFORNIA

                                                       By:
                                                      Authorized Representative


                                   PAGE - 21
<PAGE>



                            UGLY DUCKLING CORPORATION
                                  PURCHASE FORM

                                Mailing Address:
                       HARRIS TRUST COMPANY OF CALIFORNIA
                               601 South Figueroa
                                   49th Floor
                              Los Angeles, CA 90017
                           Attention: Corporate Trust

         The  undersigned  hereby  irrevocably  elects to exercise  the right of
purchase  represented  by the within  Warrant  certificate  for, and to purchase
thereunder,  _____________Shares  of Common  Stock  provided  for  therein,  and
requests that certificates for such Shares be issued in the name of:


(Please Print or Type Name, Address and Social Security Number)

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

                                                              Dated:
Name of Holder or Assignee:


(Please Print)

Address:


Signature:


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

Signature Guaranteed:


THE  SIGNATURE(S)  SHOULD BE  GUARANTEED  BY AN ELIGIBLE  GUARANTOR  INSTITUTION
(Banks,  Stock Brokers,  Savings and Loan  Association,  and Credit Unions) WITH


                                   PAGE - 22
<PAGE>

MEMBERSHIP IN AN APPROVED  SIGNATURE  GUARANTEE  MEDALLION  PROGRAM  PURSUANT TO
S.E.C. RULE 17Ad-15.


                                   ASSIGNMENT

                 (To be signed only upon assignment of Warrants)

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

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

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

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

Dated:_____________



                                                  ------------------------------
                                                  Signature of Registered Holder


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

Signature Guaranteed:



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



                                   PAGE - 23