KPMG Peat Marwick LLP

                                  Proposal to:


                       [UGLY DUCKLING CORPORATION LOGO]



                 Year 2000 Renovation Project Services Proposal


                           Submitted: November 2, 1998



        This proposal, in its entirety, is valid until November 15, 1998.

























The KPMG Peat Marwick LLP (KPMG) information contained in this proposal shall be
kept confidential by Ugly Duckling  Corporation and used only for the purpose of
evaluation, selection, and contract negotiation. Ugly Duckling Corporation shall
not disclose to any person,  firm,  or entity any  proprietary  or  confidential
information  of KPMG  contained in this  proposal  without the express,  written
permission of KPMG.



<PAGE>




November 2, 1998



Mr. Steve Geary                                       Mr. Delano Mayhall
M.I.S. Manager / Year 2000 Coordinator                M.I.S. Manager
Ugly Duckling Corporation                             Ugly Duckling Corporation
2525 East Camelback Road                              600 N. Pearl St Suite 2000
Suite 250                                             Dallas, Texas 75221
Phoenix, Arizona  85016

Dear Mr. Geary and Mr. Mayhall:

KPMG Consulting's Global Year 2000sm practice is pleased to present this revised
proposal to Ugly Duckling Corporation (Ugly Duckling) to describe our assistance
with Ugly  Duckling's  Year  2000  Renovation  project.  This  letter  serves to
document our  understanding of the project,  define roles and  responsibilities,
and describe our business arrangement.

Greg Martin of our Midwest Global Year 2000sm practice spoke with Delano Mayhall
and Ed Everitt of Ugly Duckling on August 3, 1998. Further discussions  occurred
on October 20 leading to the changes  incorporated in this proposal.  Members of
the Midwest Global Year 2000sm practice inventoried the AS/400 source files sent
on tape. Our review  determined that the code is of manageable  size,  averaging
about 435 lines per RPG program,  with 34 RPG programs larger than 2000 lines of
code.

Other discussions focused on Ugly Duckling's  management  structure for the Year
2000 project, configuration management, testing approach, and capacity.

From information provided by you, we understand that Ugly Duckling is addressing
its Year 2000 challenge on several fronts, namely:

 .  Business  Applications in two main areas: AS/400 based applications and
   non-AS/400 applications and components
 .  Technology Infrastructure
 .  Non-Technical Infrastructure

















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From our discussions with Ugly Duckling, we discovered several key issues:

 .    A considerable  number of queries exist.  Query/400 and SQL/400 are used to
     query the AS/400  database,  with some of the data being  downloaded  to PC
     spreadsheets.

 .    The RPG code is a mix of RPG II, RPG III and some ILE RPG.

 .    Some RPG programs are using internally  described  database files or report
     files.


From these  discussions,  we also understand that Ugly Duckling does not have in
place a formal  Quality  Assurance  group for  application  testing and lacks an
extensive  test bed of data  for use in  acceptance/integration  testing  of the
renovated  applications.   Consequently,  Ugly  Duckling  would  like  the  code
renovation and  unit-testing to be performed  off-site to delay any requirements
for upgrades to data center capacity.

Our proposal  focuses on creating a teaming  arrangement  with Ugly  Duckling to
bring the necessary skills,  resources,  and technology from KPMG to assist Ugly
Duckling in addressing the renovation of your Car Loan  Accounting and Servicing
System (CLASS) application residing on the IBM AS/400 Model 640 system.

Our proposal to Ugly Duckling is presented in four sections:

 .    Scope of the Ugly Duckling Year 2000 Renovation Project

 .    Methodology and Project Approach

 .    Roles and Responsibilities

 .    Estimates and Professional Fees

A discussion of each of these sections follows.



















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<PAGE>



            SCOPE OF THE UGLY DUCKLING YEAR 2000 RENOVATION PROJECT

The scope of this project is limited to the renovation of the CLASS  application
(identified  in  Appendix  A)  which  consists  of 1509  RPG  programs,  1249 CL
programs,  and its related  components  (i.e.  database  files,  display  files,
printer files etc.). The CLASS application consists of the following subsystems:

 .      Loan Processing
 .      Collections
 .      General Ledger
 .      Accounts Payable
 .      Accounts Receivables
 .      Document Tracking
 .      Cash Entry
 .      Point of Sales
 .      Inventory

The  renovation of the CLASS  application  will consist of expanding date fields
into the application  source code to allow the application to be able to process
dates after December 31, 1999.

KPMG will renovate the programs in the RPG versions received.  Correction of any
renovation-related errors that are identified within 30 days of being moved into
production will be the responsibility of KPMG.

Date expansion will be required in some DB2/400 physical tables.  Identification
of expanded fields and the associated  creation and testing of data bridges will
be the  responsibility  of KPMG.  Population of the expanded  fields on the test
AS/400 will be the responsibility  KPMG with assistance from Ugly Duckling where
necessary.

The scope of this project does not cover infrastructure upgrades (i.e. operating
system, databases etc.).  Infrastructure upgrades are the responsibility of Ugly
Duckling. It is imperative that the system software  infrastructure  upgrades be
completed  by Ugly  Duckling  on or before  December  7, 1998 in order to meet a
completion date of March 31, 1999.



















                                    Page - 4
<PAGE>



                        METHODOLOGY AND PROJECT APPROACH

The overall project will be divided into three phases:

--------- ----------------------------------------------------------------
Phase 1   Project initiation and work plan development
--------- ----------------------------------------------------------------
--------- ----------------------------------------------------------------
Phase 2   Application renovation and unit testing in KPMG Year 2000 compliant
          environment
--------- ----------------------------------------------------------------
--------- ----------------------------------------------------------------------
Phase 3   Regression, Year 2000, acceptance testing, in the leased AS/400 
          environment and implementation in Ugly Duckling's environment
--------- ----------------------------------------------------------------------


Proposed Project Timeline

(CHART)

In Phase 1,  detailed  work  plans  will be  developed.  These  work  plans will
describe the applications to be renovated;  identify the "chunks" into which the
applications will be grouped for both renovation and unit testing;  and identify
the resource allocations needed to successfully  complete the project. A "chunk"
is  defined  as  a  logical   grouping  of   applications   that  share   common
functionality,  interface points,  and data. In order to complete the project on
schedule  and  within  the  approved  budget,  the  largest  and  most  critical
applications,  Loan  Processing and  Collections,  will be renovated  first.  To
expedite this project,  KPMG will make a best effort to complete the  renovation
of the Loan  Processing and  Collections  applications  by January 1, 1999. KPMG
will make a best effort to complete renovation on the remaining "chunks" between
January 1, 1999 and  February  12,  1999.  The exact timing for delivery of each
"chunk" will be finalized in phase 1 of the project.

In  addition,  a detailed,  code-level  analysis  will be performed on the CLASS
application  (and its 1509 RPG  programs  and 1249 CL  programs)  identified  in
Appendix A and their related  components.  This will provide the level of detail
necessary to accurately  locate and correct all Year 2000 failure  points within
the application.

Finally, the test environment configurations will be jointly confirmed. Baseline
testing and post renovation  regression and acceptance testing will be performed
on the leased AS/400  environment.  Unit testing will be performed by KPMG. Ugly
Duckling must ensure that the necessary resources (computers,  IT personnel, and
key end users) are available to the project when they are scheduled in order for
KPMG to maintain the project schedule.








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<PAGE>




In Phase 2, KPMG will assist Ugly Duckling in stabilizing the AS/400 application
detailed  in  Appendix A, using the "field  expansion"  technique.  Applications
renovated in this fashion will remain viable after the Year 2000.  The code that
will be renovated  falls into four date usage  categories  that could cause Year
2000 application failures:

 .      Dates used in calculations
 .      Dates used in Boolean operations
 .      Dates used as sort fields or sequence by fields
 .      Dates used as key fields

Any programs that have already been  renovated will be reviewed and corrected as
necessary.

DATES DISPLAYED ON HARDCOPY REPORTS OR ON-LINE SCREENS WILL NOT BE EXPANDED TO 4
DIGITS.

If a bridging  strategy becomes  necessary,  due to physical file expansion,  it
will be developed jointly by KPMG and Ugly Duckling.  The building of bridges to
any  applications  that reside outside of CLASS are not included in the scope of
work presented in this proposal.

Ugly  Duckling  has  represented  that all source  code for the  application  is
present and  accessible in the format  required by KPMG. The  reconciliation  of
production to development libraries is the responsibility of Ugly Duckling. This
reconciliation  will validate  that the code being  renovated is the same as the
code in production and that all required pieces are present. KPMG will work with
Ugly  Duckling to analyze  the  reconciliation  and develop a schedule  for Ugly
Duckling to provide any  required  missing  pieces.  Any modules  that cannot be
reconciled must be provided by Ugly Duckling prior to commencement of renovation
for the chunk in which that module resides. As part of the reconciliation,  KPMG
and Ugly  Duckling  will  jointly  develop a point of  contact  matrix  for each
application that includes not only the technical resources, but also the primary
and secondary users of the application.

In addition to receiving code and related  components  from Ugly Duckling,  KPMG
will also request sample data for each "chunk." This is necessary for conducting
the detailed  analysis in identifying  date fields and for unit testing  changed
programs.

Renovation  will be achieved  through the use of both automated tools and manual
processes.  Based on our Renovation Methodology,  the method to be used for each
program will be identified during Phase 1 of the project.

The licensing cost of any automated tools used by KPMG will be borne by KPMG and
will remain the property of KPMG.

Renovation  of  the  application  code  will  be  performed  by  KPMG  at a KPMG
Renovation Facility or by selected subcontractors under KPMG direction.





                                    Page - 6
<PAGE>

Applications will be packaged as chunks that will be identified during Phase One
of the project. Renovation will occur at the chunk level and source code will be
provided to KPMG at the chunk level. Similarly,  turnover of renovated code back
to Ugly Duckling will occur at the chunk level.

During  renovation,  only  limited  new  development  will occur to any  program
contained  in the chunk.  Emergency  code fixes are the  responsibility  of Ugly
Duckling,  as is the  inclusion and merging of these fixes into the turned over,
renovated code.

In PHASE 3, regression,  Year 2000, and acceptance testing needs to be performed
on all applications that KPMG renovates,  as identified in Appendix A. KPMG will
assist Ugly  Duckling in this phase of work by  providing a manager to assist in
planning and the  development of a testing plan. KPMG will also augment the Ugly
Duckling  staff with three (3) resources to assist in the testing  effort.  With
each returned  "chunk" of renovated code, KPMG will provide Ugly Duckling with a
suggested  testing  workplan and a testing matrix that details which  components
will most likely require testing.

It is our  understanding  that a full  test  environment  does not exist at Ugly
Duckling and that KPMG as part of this proposal will lease an AS/400 to use as a
testing  machine.  The costs associated with leasing and operating a test AS/400
are included in the total costs associated with this project..  Additionally,  a
formal set of test scripts and testing  scenarios do not exist.  Among the first
steps  of the  project  will be to  execute  a  regression  test  for the  CLASS
application  to  establish  a  "baseline"  of  expected  results.  KPMG and Ugly
Duckling will jointly organize, perform these tests, and document the results at
the chunk level.

Compliance testing will occur on the test AS/400 machine. Tests scripts and test
cases will be  executed  on the test  AS/400  machine as well as the  conversion
programs that will expand the DB/2 tables.

Any missing  pre-renovation  baseline test components  must be created,  and may
affect the project timetable,  requiring a revision to the fee schedule.  The CL
and  databases  used  for  this  initial   baseline  test  will  be  frozen  for
post-renovation regression and acceptance testing.

After code renovation,  KPMG will unit test every renovated  program.  Following
turnover of the code to Ugly Duckling, post renovation regression and acceptance
testing will be performed at Ugly Duckling by the KPMG and Ugly Duckling testing
team,  using the  identical CL and  database  used for  pre-renovation  baseline
testing. Any errors resulting from KPMG code renovation will be returned to KPMG
for repair using procedures that will be developed in Phase 1 of the project.

The KPMG and Ugly  Duckling  testing team will begin testing  renovated  code on
January 4, 1999 or within a business  day  following  receipt of the first chunk
returned.  Ugly Duckling is targeting to complete all  regression and acceptance
testing by March 31, 1999.  KPMG and Ugly Duckling  will be jointly  responsible
for  developing a test schedule  based on the  estimated  effort  required,  the
target completion date and the availability of testing resources. Any renovation






                                    Page - 7
<PAGE>

errors  detected  prior to 30 days after the  renovated  program is  returned to
production will be corrected by KPMG as part of this project.  Problems detected
after this time will become the  responsibility  of Ugly Duckling.  All programs
will be moved into production by Ugly Duckling  within 30 days after  completion
of the regression and acceptance  testing of the last chunk.  Exceptions to this
procedure  will be handled on a case-by-case  basis and will be mutually  agreed
upon by Ugly  Duckling  and KPMG.  Ugly  Duckling  will  notify  KPMG in writing
concerning  a defect.  KPMG will respond  within 48 hours.  Ugly  Duckling  will
provide any test data needed to recreate the error. Time related to discovery of
non-renovation  related  errors  will be billed  at an hourly  rate of $190 plus
out-of-pocket expenses.

For  each  phase  of  the   project,   there   will  be  project   deliverables.
Representative  samples of Phase 1 and Phase 2 deliverables are attached to this
engagement letter and serve to illustrate the information and contents that will
be provided. Phase 1 deliverables also include a finalized project workplan that
defines the chunking  approach,  a detailed code  analysis and a finalized  test
environment  configuration.  Phase 2 deliverables include an application contact
matrix and the renovated code for each "chunk".  The phase 3 deliverable will be
a testing  strategy  and plan  document  and  specific  test plans,  scripts and
testing matrices. The phase 3 deliverables will cover baseline,  regression, and
acceptance testing.

KPMG will assign an Engagement  Manager and a Project Manager.  KPMG will submit
deliverables to Ugly Duckling for review and acceptance. Ugly Duckling will have
the right to reject a deliverable  if it does not  substantially  conform to the
specifications  set forth in this agreement.  Except for the process  previously
defined agreement related to code renovation  errors, if Ugly Duckling rejects a
deliverable, KPMG will have 30 days to re-submit the deliverable for acceptance.
If Ugly Duckling does not reject a deliverable  within 30 days, the  deliverable
will be deemed  accepted.  KPMG does not warrant  that the  renovated  code will
operate error free.  Errors  discovered by Ugly Duckling after final  acceptance
and after 30 days of migration to production will be repaired at Ugly Duckling's
request  on  a  time  and  material  basis  at  an  hourly  rate  of  $190  plus
out-of-pocket  expenses.  Ugly Duckling  will move all "chunks" into  production
within 30 days after completion of the regression and acceptance  testing of the
last "chunk."

                           ROLES AND RESPONSIBILITIES

Mr Vince Neton, the Partner-in-charge of KPMG's Midwest Year 2000 Practice, will
serve as the  Engagement  Partner to ensure the work is performed in  accordance
with KPMG standards and this engagement letter.

 .    ENGAGEMENT  MANAGEMENT.  KPMG will assign Greg Martin as Engagement Manager
     to the Year 2000  Renovation  engagement.  Mr. Martin,  a Manager in KPMG's
     Midwest  Year  2000  Practice,  has  extensive  experience  in  large-scale
     conversion and Year 2000 renovation projects.

 .    Project  Management.  KPMG will assign  Robert Robe as the Project and Test







                                    Page - 8
<PAGE>

     Manager  to the Year 2000  Renovation  engagement.  Mr Robe,  a Manager  in
     KPMG's Midwest Year 2000 Practice,  has extensive experience in large-scale
     implementation and Year 2000 projects.

 .    UGLY DUCKLING MANAGEMENT.  Ugly Duckling will assign a project liaison. The
     Ugly  Duckling  liaison is  responsible  for working  with the KPMG Project
     Manager to schedule Ugly Duckling resources and ensure timely completion of
     any tasks assigned to Ugly Duckling personnel.

 .    EXECUTIVE  SPONSOR.  Ugly Duckling  will  designate an executive to sponsor
     this project who will interface with KPMG's Engagement  Partner as often as
     mutually agreed.


Proposed  staff may change  subject to the timing of acceptance of this proposal
and availability.

Resumes are attached in Appendix B.

It is assumed that  appropriate  workspace  will be available  for the KPMG team
whenever  they are at Ugly  Duckling.  This space would  minimally  consist of a
cubicle  with a  phone  and  an  analog  phone  line  for  remote  data  access.
Recognizing Ugly Duckling's machine capacity and office space  constraints,  the
renovation work will be performed at KPMG's facilities.  The bulk of the testing
work will be performed at Ugly Duckling's office in Dallas.

As part of KPMG's  internal  professional  practice  oversight,  we have adopted
standard language related to warranties, liability, and remedies as they pertain
to Year 2000 engagements. This standard language is provided in Appendix C.

                        ESTIMATES AND PROFESSIONAL FEES

KPMG  extends a fixed fee of  $1,200,000  for this  project.  This fee  includes
out-of-pocket  expenses and the costs  associated  with leasing the test AS/400.
KPMG will assign Robert Robe as the full time Manager to work with Ugly Duckling
from the  inception of the project to March 31,  1999.  Mr. Robe will manage the
renovation  effort as well as assist Ugly Duckling in high level test  strategy,
planning,  and test execution and will coordinate with Ugly Duckling and KPMG to
test the CLASS system.

Included  in the  fixed fee  amount  are any  costs  associated  with the use of
automated  tools.  The duration of the project will be  approximately  23 weeks,
with a  tentative  target  date of  February  12,  1999  for the  completion  of
renovation and unit testing.  Baseline testing,  regression  testing,  Year 2000
testing,  and  acceptance  testing  will  overlap  remediation  as each chunk is
completed and will continue through March 31, 1999.

KPMG will augment Ugly  Duckling's  testing staff.  KPMG will include as part of
the fixed  fee,  three (3)  testing  resources  to  execute  test cases and test
scripts and will work under the  direction of Ugly Duckling and the KPMG testing







                                    Page - 9
<PAGE>

Manager.  The testers will consist of one (1) Senior Consultant for a four month
period  beginning  December  1, 1998 and two (2)  Consultants  for a three month
period beginning  January 1, 1999. In the event that renovation work is delayed,
the  schedule  for testing  assistance  will be  adjusted  such that the overall
testing time  commitment  by KPMG to Ugly  Duckling will be extended to the same
extent that the renovation work is delayed.

Additional  testing  time spent on the  project by KPMG  personnel  beyond  that
described  above  will be billed  on a time and  materials  basis  using the fee
structure  in the table  below.  In this case,  in addition to the  professional
fees, we are  reimbursed for reasonable  expenses such as travel,  lodging,  and
meals. We estimate these costs to be approximately 15% of the professional fees.

The two (2) Consultants will be from the pool of renovators that participated in
the Ugly  Duckling  code  renovation.  Ugly  Duckling  may  conduct a  telephone
interview  with the two testing  candidates  prior to KPMG assigning them to the
project.  The testing work will be covered by the standard  terms and conditions
included in this  proposal.  If  additional  testers  beyond the first three (3)
testers are needed,  the  following  hourly rates will be in effect from October
1998 to June 30,  1999.  These  fees are  over and  above  the fees for the code
renovation


              -------------------------- ------------
                        Level                Fee
              -------------------------- ------------
                       Manager               225
              -------------------------- ------------
              -------------------------- ------------
                  Senior Consultant          175
              -------------------------- ------------
              -------------------------- ------------
                     Consultant              125
              -------------------------- ------------

We understand that Ugly Duckling may not have the necessary resources to execute
the baseline and  compliance  test of the  renovated  applications  due to other
commitments of the programming staff. Although, this proposal includes three (3)
KPMG resources to augment the Ugly Duckling  testing staff, at this time we have
insufficient  information to provide an accurate cost estimate and determination
of the  appropriate  size of the testing staff. To complete all testing by March
31, 1999,  additional resources may need to be applied. At the completion of our
unit testing of renovated code, we will have sufficient information to provide a
more accurate cost estimate and determine a workable strategy that is beneficial
to Ugly Duckling in terms of resources, and costs.












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<PAGE>

The costs of leasing an AS/400 for testing will be the  responsibility  of KPMG.
KPMG will procure and manage the test AS/400.  Where  necessary,  Ugly  Duckling
will assist KPMG in setting up the test AS/400 making it ready for testing.  The
test AS/400 will have the following configuration:

          Model 9406-S20
          250 MB Memory 
          40GB DASD 
          8 MM tape 
          Modem 
          OS/400 4.2



Fees for this project will be billed as follows with payment  expected within 30
days of receipt of invoice:

   ------------------------------ -------------------
                                      FIXED FEE
           FEE SCHEDULE               RENOVATION
                                       PROJECT*     
   ------------------------------ -------------------
   ------------------------------ -------------------
   Project Initiation                       $240,000
   ------------------------------ -------------------
   ------------------------------ -------------------
   December 1, 1998                          240,000
   ------------------------------ -------------------
   ------------------------------ -------------------
   January 1, 1999                           240,000
   ------------------------------ -------------------
   ------------------------------ -------------------
   February 1, 1999                          240,000
   ------------------------------ -------------------
   ------------------------------ -------------------
   March 1, 1999                             240,000
   ------------------------------ -------------------
   ------------------------------ -------------------
   Total                                  $1,200,000
   ------------------------------ -------------------


This proposal is based  entirely upon the inventory  gathered from the tape sent
by Ugly Duckling on August 10, 1998. In the event that a significant  amount (5%
or more) of  additional  lines of code are found beyond those listed in Appendix
A, an additional fee of $1.50 per line of code will be charged.

                                      * * *



----------
*    Fixed fee includes three (3) testers and costs  associated with leasing the
     testing AS/400



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<PAGE>



We look  forward  to  working  with  you and  your  staff  on this  project.  We
appreciate the opportunity to demonstrate KPMG's experience and capabilities. If
the terms of this  engagement  letter are  acceptable,  please sign the enclosed
duplicate  and  return it to my  attention.  Should  you have any  questions  or
concerns, please do not hesitate to contact Greg Martin at 312-665-5111 or me at
312-665-5283.

Very truly yours,

KPMG Peat Marwick LLP


Vincent A. Neton
Midwest Partner-in-Charge
Global Year 2000


cc:      Greg C. Martin III, KPMG - Chicago





































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<PAGE>

                             ENGAGEMENT ACCEPTANCE


To  confirm  your  acceptance  on behalf of Ugly  Duckling  Corporation  of this
engagement  letter for Year 2000 Renovation  Services,  please sign in the space
provided  and  return  the  original  to  me.  Your  signature   indicates  your
authorization to proceed with the project.




Name:            /s/ Steven A. Tesdahl
                 --------------------------------------------------------


Title:           Senior V.P. and Chief Information Officer
                 --------------------------------------------------------


Date:            11/2/98
                 --------------------------------------------------------




































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            APPENDIX A & B ARE OMITTED BECAUSE THEY ARE NOT RELEVANT























































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<PAGE>

                                   APPENDIX C

GENERAL BUSINESS TERMS

1. SERVICES. It is understood and agreed that KPMG's services may include advice
and recommendations;  but all decisions in connection with the implementation of
such advice and  recommendations  shall be the  responsibility  of, and made by,
Client.

2. PAYMENT OF INVOICES.  Properly  submitted  invoices upon which payment is not
received  within thirty (30) days of the invoice date shall accrue a late charge
of the lesser of (i) 1 1/2% per month or (ii) the highest rate allowable by law,
in each case compounded monthly to the extent allowable by law. Without limiting
its rights or remedies,  KPMG shall have the right to halt or terminate entirely
its services until payment is received on past due invoices.

3. TERM.  Unless terminated sooner in accordance with its terms, this engagement
shall terminate on the completion of KPMG's services hereunder.  This engagement
may be  terminated by either party at any time by giving  written  notice to the
other  party  not less  than 30  calendar  days  before  the  effective  date of
termination.

4. OWNERSHIP.

     a) KPMG Technology . KPMG has created, acquired or otherwise has rights in,
and may, in  connection  with the  performance  of services  hereunder,  employ,
provide,  modify,  create,  acquire  or  otherwise  obtain  rights  in,  various
concepts, ideas, methods,  methodologies,  procedures,  processes, know-how, and
techniques; models (including, without limitation, function, process, system and
data models); templates; the generalized features of the structure, sequence and
organization of software,  user  interfaces and screen designs;  general purpose
consulting and software tools,  utilities and routines; and logic, coherence and
methods of operation of systems) (collectively, the "KPMG Technology").

     b) Ownership of Deliverables. Except as provided below, upon full and final
payment to KPMG hereunder,  the tangible items specified as deliverables or work
product in the  engagement  letter or proposal to which these terms are attached
(the  "Deliverables") will become the property of Client. To the extent that any
KPMG  Technology  is contained in any of the  Deliverables,  KPMG hereby  grants
Client, upon full and final payment to KPMG hereunder, a royalty-free,  paid-up,
worldwide,  non-exclusive license to use such KPMG Technology in connection with
the Deliverables.

     c) Ownership of KPMG Property.  To the extent that KPMG utilizes any of its
property (including,  without limitation, the KPMG Technology or any hardware or
software of KPMG) in connection with the performance of services hereunder, such
property shall remain the property of KPMG and, except for the license expressly
granted in the preceding paragraph, Client shall acquire no right or interest in
such  property.  Nothing in this  Agreement  shall be construed as precluding or
limiting in any way the right of KPMG to provide consulting or other services of








                                   Page - 15
<PAGE>


any kind or  nature  whatsoever  to any  person  or  entity  as KPMG in its sole
discretion deems appropriate.  In addition, and notwithstanding anything in this
Agreement to the contrary,  the parties acknowledge and agree that (a) KPMG will
own all right, title, and interest,  including,  without limitation,  all rights
under all copyright,  patent and other intellectual property laws, in and to the
KPMG Technology and (b) KPMG may employ, modify, disclose, and otherwise exploit
the KPMG  Technology  (including,  without  limitation,  providing  services  or
creating programming or materials for other clients).

5.       WARRANTIES; LIMITATION ON WARRANTIES.

     (a) Warranty of Services.  This is a services engagement.  KPMG warrants to
client that (i) in performing  the services under the  Engagement  Letter,  KPMG
shall  provide  sufficient  qualified  personnel  to perform  the  services in a
competent  and  workmanlike  manner  in  accordance  with  applicable   industry
standards and (ii) KPMG's  performance of the services,  to its knowledge,  does
not and shall not violate any applicable law, rule or regulation.

     (b)  Warranty  of  Software.  KPMG  warrants  that for a period  of 30 days
following migration to production , any Client or third-party  software modified
by KPMG and any software developed by KPMG for Client will operate substantially
in  accordance  with the  applicable  specifications.  Client  agrees to migrate
remediated code into  production  within 30 days of the completion of acceptance
testing.  If any errors occur during the warranty period that materially affects
the  performance  of such  software,  KPMG will use all  reasonable  efforts  to
correct the error. KPMG does not warrant that Client or any third-party software
modified  by  KPMG or  software  developed  by  KPMG  for  Client  will  operate
error-free.

     (c)  WARRANTY  DISCLAIMER.  KPMG  DISCLAIMS  ALL OTHER  WARRANTIES,  EITHER
EXPRESS OR IMPLIED, INCLUDING, WITHOUT LIMITATION, WARRANTIES OF MERCHANTABILITY
AND FITNESS FOR A PARTICULAR PURPOSE.


6. Limitation on Damages. Client agrees that KPMG, its partners, principals, and
employees  shall  not be  liable to Client  for any  actions,  damages,  claims,
liabilities,  costs expenses, or losses in any way arising out of or relating to
the services  performed  hereunder for an aggregate amount in excess of the fees
paid by Client to KPMG under this  engagement.  In no event shall either  party,
its  partners,  principals,  directors,  officers  or  employees  be liable  for
consequential,  special,  indirect,  incidental,  punitive or exemplary damages,
costs,  expenses,  or losses (including,  without  limitation,  lost profits and
opportunity  costs).  Further,  KPMG will not be  responsible  for obtaining any
permissions  necessary to modify any third-party  software and KPMG will have no
liability to Client if the  modifications  made to a third party's software have
an  adverse  effect on  Client's  rights  and  obligations  in  respect  of such
software. The provisions of this Paragraph shall apply regardless of the form of
action, damage, claim,  liability,  cost, expense, or loss, whether in contract,
statute, tort (including, without limitation, negligence), or otherwise.

7. Y2K  Disclaimer.  While KPMG agrees pursuant to the  accompanying  engagement
letter or proposal to which these terms are attached (the  "Engagement  Letter")




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<PAGE>

to assist  Client in  assessing  the  nature  and  scope of  Client's  Year 2000
compliance  requirements,  KPMG makes no  representations or warranties that any
services  performed  hereunder by KPMG or any third party  services  provided in
connection with KPMG's services or otherwise  recommended by KPMG will result in
the technical changes or fixes needed to make the computer equipment,  software,
data or other  assets of Client Year 2000  compliant.  Client  acknowledges  and
agrees that the  accomplishment  of the goals established for this engagement as
set forth in the  Engagement  Letter will require each party to fully  cooperate
with the other  party,  to fulfill  its role and perform  its  obligations  in a
timely  manner with  personnel  qualified  to perform the tasks  assigned and to
coordinate its efforts with the efforts of the other party and that all services
provided  will  be  the  result  of  the  parties'   joint  input  and  efforts.
Accordingly,  Client shall retain the right and also the  responsibility to make
decisions with respect to such services and their implementation with respect to
its business, and KPMG makes no representation or warranty with respect thereto.

8.       INDEMNIFICATION; INFRINGEMENT.

     (a)  Indemnification  of KPMG. Client agrees to indemnify,  defend and hold
harmless KPMG from and against any and all liabilities, damages, claims, losses,
costs and expenses  (including  reasonable  attorneys' fees) incurred by KPMG in
connection  with a third party claim relating to KPMG's  performance of services
hereunder except to the extent resulting from the recklessness, gross negligence
or willful  misconduct  of KPMG and except  for claims for  personal  injury and
damage to tangible property for which KPMG has an obligation to indemnify Client
as set forth below.

     (b)  Indemnification  of Client.  KPMG  hereby  agrees to  indemnify,  hold
harmless and defend  Client from and against any and all  liabilities,  damages,
claims,  losses, costs and expenses (including  reasonable  attorneys' fees) for
injury to, illness or death of, any person or persons  regardless of status, and
damage to or  destruction  of any tangible  property which Client may sustain or
incur to the extent resulting from the negligence or willful  misconduct of KPMG
in the  performance of the services under the Engagement  Letter.  

     (c)  Liability  and Remedies for  Infringement.  (i) KPMG hereby  agrees to
indemnify,  hold harmless and defend Client from and against any and all claims,
liabilities,  losses,  expenses  (including  reasonable  attorney's fees, fines,
penalties, taxes or damages incurred by or asserted against Client to the extent
resulting from a claim that any of the  Deliverables  violates any third party's
trade secret,  trademark,  copyright,  patent or other proprietary  rights.  The
foregoing  provisions shall not apply to any infringement arising out of (i) use
of the  Deliverables  other than in accordance with applicable  documentation or
instructions supplied by KPMG, (ii) any alteration,  modification or revision of
the  Deliverables  not  explicitly  authorized  by  KPMG  or  (iii)  use  of the
Deliverables other than for Client's internal business purposes.

          (ii) In case any of the Deliverables or any portion thereof is held in
     any such suit to constitute  infringement  and the use thereof is enjoined,
     KPMG shall within a reasonable  time, at its option,  either (i) secure for
     Client the right to continue the use of such  infringing  item by procuring
     for Client a license or other  permission  as will enable  Client to secure
     the suspension of any  injunction or (ii) replace,  at KPMG's sole expense,




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<PAGE>

     such item with substantially equivalent  non-infringing item or modify such
     item so that it  becomes  non-infringing.  In the  event  KPMG is unable to
     procure the aforementioned  license or permission or replace the infringing
     item as provided  herein,  KPMG shall  accept the return of the  infringing
     item and refund to Client the amount paid to KPMG for such item.


          (iii) The  provisions  of this  Paragraph  8(c)  state  KPMG's  entire
     liability and Client's sole remedy with respect to infringement.

     (d) Indemnification  Procedures. The party entitled to indemnification (the
"Indemnified  Party") shall promptly  notify the party obligated to provide such
indemnification   (the  "Indemnifying   Party")  of  any  claim  for  which  the
Indemnified  Party seeks  indemnification  hereunder and the Indemnifying  Party
shall  have the  exclusive  right  and  authority  to  conduct  the  defense  or
settlement  of any such claim at the  Indemnifying  Party's sole expense and the
Indemnified  Party shall  cooperate  with the  Indemnifying  Party in connection
therewith.

9.  COOPERATION.  Client shall cooperate with KPMG in the performance by KPMG of
its services  hereunder,  including,  without  limitation,  providing  KPMG with
reasonable  facilities and timely access to data,  information  and personnel of
Client.  Client shall be  responsible  for the  performance of its employees and
agents  and for the  accuracy  and  completeness  of all  data  and  information
provided to KPMG for purposes of the performance by KPMG of its services.

10. FORCE MAJEURE.  Neither party shall be liable for any delays  resulting from
circumstances  or causes  beyond  its  reasonable  control,  including,  without
limitation,  fire or other casualty, act of God, strike or labor dispute, are or
other violence,  or any law, order or requirement of any governmental  agency or
authority.

11.  LIMITATION  ON ACTIONS.  No action,  regardless  of form,  arising under or
relating to this  engagement,  may be brought by either party more than one year
after the cause of action has accrued, except that an action for non-payment may
be  brought by a party not later  than one year  following  the date of the last
payment due to such party hereunder.

12. INDEPENDENT CONTRACTOR. It is understood and agreed that each of the parties
hereto is an  independent  contractor  and that  neither  party is, nor shall be
considered to be, an agent,  distributor or representative of the other. Neither
party shall act or represent itself, directly or by implication,  as an agent of
the other or in any manner assume or create any  obligation on behalf of , or in
the name of, the other.

13. Confidentiality.  Client and KPMG acknowledge and agree that all information
communicated  to either Client or KPMG by the other party in connection with the
performance  by a party under this  Agreement  shall be received in  confidence,
shall be used only for  purposes  of this  Agreement,  and no such  confidential
information  shall be  disclosed  by the  respective  parties or their agents or
personnel  without the prior written  consent of the other party.  Except to the
extent  otherwise  required by applicable  law or  professional  standards,  the
parties' obligations under this section do not apply to information that: (a) is
or  becomes  generally  available  to the  public  other  than  as a  result  of
disclosure by Client or KPMG, (b) was known to either Client or KPMG or had been


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<PAGE>

previously possessed by Client or KPMG without restriction against disclosure at
the time of receipt thereof by Client or KPMG, (c) was  independently  developed
by Client or KPMG  without  violation  of this  Agreement or (d) Client and KPMG
agree from time to time to disclose.  Each party shall be deemed to have met its
nondisclosure  obligations under this Paragraph as long as it exercises the same
level of care to protect the other's  information as it exercises to protect its
own  confidential  information,  except to the  extent  that  applicable  law or
professional standards impose a higher requirement.  KPMG may retain, subject to
the  terms  of this  Paragraph,  copies  of  Client's  confidential  information
required  for  compliance  with  applicable  professional  standards or internal
policies.   If  either  party  receives  a  subpoena  or  other  validly  issued
administrative  or judicial  demand  requiring it to disclose the other  party's
confidential information,  such party shall provide prompt written notice to the
other party of such  demand in order to permit  such party to seek a  protective
order.  So long as the  notifying  party gives  notice as provided  herein,  the
notifying  party shall  thereafter be entitled to comply with such demand to the
extent  permitted by law,  subject to any protective  order or the like that may
have been entered in the matter.

14. SURVIVAL.  The provisions of Paragraphs 1, 2, 4, 5, 6, 7, 8, 11, 12, 13, 14,
15 and 17 hereof shall survive the expiration or termination of this engagement.

15. ASSIGNMENT.  Except as provided below, neither party may assign, transfer or
delegate any of the rights or  obligations  hereunder  without the prior written
consent of the other party. KPMG may assign its rights and obligations hereunder
to any affiliate that is a successor in interest to all or substantially  all of
the assets or business  of KPMG's  consulting  practice,  without the consent of
Client.

16. ENTIRE  AGREEMENT.  These terms,  and the Proposal or  Engagement  Letter to
which  these  terms are  appended,  including  Exhibits,  constitute  the entire
agreement  between KPMG and Client with respect to the subject matter hereof and
supersede  all  other  oral  and  written   representation,   understandings  or
agreements relating to the subject matter hereof.

17.  USE  OF  NAME.  In the  event  that  Client  desires  to  make  any  public
announcement or issue any other release to third parties  regarding the services
provided by KPMG in connection with this  engagement,  Client will obtain KPMG's
prior written approval of any such public  announcement or other release.  In no
event shall such  announcement or other release refer to KPMG by name, except as
otherwise  required  by law In the event  that KPMG  desires  to make any public
announcement or issue any other release to third parties  regarding the services
performed at Ugly Duckling by KPMG in connection with this engagement, KPMG will
obtain Client's prior written approval of any such public  announcement or other
release.


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