EXHIBIT 10.2


                              EMPLOYMENT AGREEMENT

                   ___________________________________________

                            Effective August 1, 2002

                               Douglas E. Starkey
                   ___________________________________________


     This  Agreement,  is made and dated as of  August  1, 2002 (the  "Effective
Date"),  by and between UNION  ACCEPTANCE  CORPORATION,  an Indiana  corporation
("Employer"), and Douglas E. Starkey, a resident of Indiana ("Employee").

                               W I T N E S S E T H

     WHEREAS,  Employee has  heretofore  been employed by Employer as one of its
senior executive officers;

     WHEREAS,   Employer   desires  to  encourage   Employee  to  make  valuable
contributions  to  Employer's  business  operations  and not to  seek or  accept
employment elsewhere;

     WHEREAS,  Employee  desires to be assured of a secure minimum  compensation
from Employer for his services over a defined term;

     WHEREAS,  Employer  desires  to provide  fair and  reasonable  benefits  to
Employee on the terms and subject to the conditions set forth in this Agreement;
and

     WHEREAS,   Employer  desires  reasonable  protection  of  its  confidential
business  and  customer  information  which it has  developed  over the years at
substantial  expense and assurance  that Employee will not compete with Employer
for a  reasonable  period  of time  after  termination  of his  employment  with
Employer, except as otherwise provided herein.

     NOW,  THEREFORE,  in consideration of these premises,  the mutual covenants
and undertakings  herein  contained and the continued  employment of Employee by
Employer,  Employer and Employee,  each intending to be legally bound,  covenant
and agree as follows:

     1.  Upon  the  terms  and  subject  to the  conditions  set  forth  in this
Agreement,  Employer  employs  Employee as Employer's  Senior Vice President and
General Counsel (or a position of substantially  equivalent  responsibility  and
authority) and Employee  accepts such  employment.  Employee  agrees to serve in
such  capacity and to perform such duties in that office as may be prescribed by
Employer's  Bylaws and as may reasonably be assigned to him by Employer's  Chief
Executive Officer or President,  or its Board of Directors,  and those generally
associated with the office held by Employee as determined by the Chief Executive
Officer from time to time.  Employer shall not,  without the written  consent of
Employee,  relocate  or transfer  Employee  to a location  more than thirty (30)
miles from his  Indianapolis  employment  location.  While employed by Employer,
Employee  shall  devote  substantially  all his  business  time and  efforts  to
Employer's business and the business of its subsidiaries.

     2. The term of this Agreement shall be for an initial term of two (2) years
commencing on the  Effective  Date,  and  terminating  July 31, 2004;  provided,
however,  that such term shall be extended  automatically  for an additional one
year on July 31, 2004 and each July 31  thereafter,  unless  either party hereto
gives written  notice to the other party not to so extend before the date ninety
(90) days prior to the next termination date, in which case no further extension
shall occur and the term of this Agreement  shall end on the July 31 termination
date next  following  such notice (such term,  including any  extension  thereof
shall herein be referred to as the "Term").

     3.   Employee   shall   receive  an  annual   salary  of  $150,000   ("Base
Compensation"),  payable at regular  intervals  in  accordance  with  Employer's
normal payroll  practices now or hereafter in effect.  Employer may consider and
declare from time to time  increases in the salary it pays  Employee and thereby
increase the Base Compensation.  In addition,  Employer shall pay Employee bonus
compensation of not less than $35,000 on January 29, 2003.

     4. So long as Employee is employed by Employer  pursuant to this Agreement,
he shall be eligible to participate in all present and future employee  benefit,
retirement, and compensation plans generally available to employees of Employer,
consistent with his Base Compensation and his position with Employer, including,
without  limitation,  any 401(k) plan,  stock  incentive  plan,  employee  stock
purchase plan,  executive  bonus plan, and group life insurance  plans.  Without
limiting or duplicating the foregoing,

     (a)  Employer  shall provide  Employee with an automobile  for business use
          and pay or reimburse Employee for associated fuel expenses; and

     (b)  Employer shall provide Employee with a cellular phone for business use
          and pay or reimburse Employee for associated expenses.

     5. So long as Employee is employed by Employer  pursuant to this Agreement,
Employee shall receive  reimbursement from Employer for all reasonable  business
expenses  incurred in the course of his employment by Employer,  upon submission
to Employer of written  vouchers and  statements for  reimbursement.  So long as
Employee  is  employed  by  Employer  pursuant  to the terms of this  Agreement,
Employee shall be entitled to three weeks of paid vacation  during each calendar
year.

     6.  Employee's  employment  with  Employer may be  terminated  prior to the
expiration of the Term as follows:

     (A)  Employer may immediately  upon written notice  terminate  Employee for
          Cause.   "Cause"  means   termination   of  employment   for  personal
          dishonesty,  gross  incompetence,  willful  misconduct,  breach  of  a
          fiduciary  duty  involving  personal  profit,  intentional  failure to
          perform  stated  duties,   willful  violation  of  any  law,  rule  or
          regulation  (other than  traffic  violations  or similar  offenses) or
          violation  of  this  Agreement,  or a  final  cease-and-desist  order,
          conviction of a crime involving moral  turpitude,  unethical  business
          practices in connection with Employer's business,  misappropriation of
          Employer's  assets  (determined on a reasonable basis) or those of its
          subsidiaries.  Employer  shall have no further  liability  to Employee
          under this Agreement for any period  subsequent to the termination for
          Cause.

     (B)  Either  party may  terminate  this  Agreement  during the Term without
          Cause,  upon sixty (60) days prior written  notice to the other party.
          Subject to Subsection  6(C), if Employer  terminates  Employee without
          Cause (as defined above), or if Employee terminates his employment for
          Good Reason (as defined below):

          (i)  Compensation  provided for herein  (including Base  Compensation)
               shall  continue  to be  paid,  and  Employee  shall  continue  to
               participate in the employee benefit, retirement, and compensation
               plans and other  perquisites  as  provided  in  Sections  4 and 5
               hereof,  through the date of termination  specified in the notice
               of termination; and any benefits payable under insurance, health,
               retirement   and   bonus   plans  as  a  result   of   Employee's
               participation  in such plans through such date shall be paid when
               due under those plans.

          (ii) In  addition,   Employer  shall  continue  to  pay  Employee,  as
               severance compensation, Employee's Base Compensation in effect at
               the date of termination  in accordance  with  Employee's  regular
               payroll  practices  for a period of six (6) months  following the
               date of termination.

          (iii)In addition, for six (6) months following termination,  Employer,
               at its own  expense,  will  maintain in full force and effect for
               the  continued  benefit  of  Employee  and  his  dependents  each
               employee  medical and life  benefit plan (as such term is defined
               in Employee  Retirement  Income  Security Act of 1974, as amended
               ("ERISA"))  in  which   Employee  was  entitled  to   participate
               immediately  prior  to the  date of his  termination,  unless  an
               essentially equivalent benefit is provided to Employee by another
               source.  If the terms of any  employee  medical and life  benefit
               plan of  Employer  or  applicable  laws do not  permit  continued
               participation  by Employee,  Employer  will arrange to provide to
               Employee  a  benefit   substantially  similar  to,  and  no  less
               favorable than, the benefit he was entitled to receive under such
               plan at the end of the period of coverage.  The right of Employee
               to  continued  coverage  under the health and  medical  insurance
               plans of  Employer  pursuant  to  Section  4980B of the  Internal
               Revenue Code of 1986, as amended (the "Code") shall commence upon
               the  expiration of such period.  Notwithstanding  the  foregoing,
               Employer  shall  not be  obligated  to  continue  life  insurance
               benefits if the insurer does not consent to such continuation and
               no disability  insurance  benefit shall continue past  Employee's
               date of termination of employment.

          For  purposes  of  this  Agreement,  "Good  Reason"  for  Employee  to
          terminate  his  employment  with  Employer  means:  (i) a  substantial
          reduction  in  Employee's   responsibility   and  authority  over  the
          management and affairs of Employer without Employee's consent; or (ii)
          breach of any material  term,  condition or covenant of Employer under
          this  Agreement;  or (iii)  the  requirement  that  Employee  move his
          personal residence, or perform his principal executive functions, more
          than thirty (30) miles from his primary  office as of the later of the
          Effective Date and the most recent voluntary relocation by Employee.

     (C)  Notwithstanding   Subsection  6(B),  above,  if  Employer   terminates
          Employee  without Cause (as defined above) In Connection With a Change
          of Control (as defined below) then  subparagraph  6(B) shall not apply
          and, instead the following shall apply:

          (i)  Compensation  provided for herein  (including Base  Compensation)
               shall  continue  to be  paid,  and  Employee  shall  continue  to
               participate in the employee benefit, retirement, and compensation
               plans and other  perquisites  as  provided  in  Sections  4 and 5
               hereof,  through the date of termination  specified in the notice
               of termination; and any benefits payable under insurance, health,
               retirement   and   bonus   plans  as  a  result   of   Employee's
               participation  in such plans through such date shall be paid when
               due under those plans.

          (ii) In  addition,  Employer  shall pay  Employee a severance  payment
               ("Severance Payment") in an amount equal to 200% times the sum of
               (a) the Employee's Base  Compensation  for the fiscal year during
               which  termination  occurs  plus (b) the  total  amount  of bonus
               compensation  paid by Employer  to Employee  during the 12 months
               ending on the date of termination.  Such Severance  Payment shall
               be payable in a lump sum on the date fifteen (15)  calendar  days
               following  the date on  which  Employee's  employment  terminates
               under this Subsection 6(C).

          (iii)In addition, for 90 days following termination,  Employer, at its
               own  expense,  will  maintain  in full  force and  effect for the
               continued  benefit of Employee and his  dependents  each employee
               medical and life  benefit plan (as such term is defined in ERISA)
               in which Employee was entitled to participate  immediately  prior
               to the date of his termination,  unless an essentially equivalent
               benefit is provided to Employee by another  source.  If the terms
               of any  employee  medical  and life  benefit  plan of Employer or
               applicable  laws  do  not  permit   continued   participation  by
               Employee,  Employer will arrange to provide to Employee a benefit
               substantially similar to, and no less favorable than, the benefit
               he was  entitled  to  receive  under  such plan at the end of the
               period of coverage.  The right of Employee to continued  coverage
               under the health and medical insurance plans of Employer pursuant
               to Section 4980B of the Code shall  commence upon the  expiration
               of such period. Notwithstanding the foregoing, Employer shall not
               be obligated to continue life  insurance  benefits if the insurer
               does not consent to such continuation and no disability insurance
               benefit shall  continue past  Employee's  date of  termination of
               employment.

          (iv) "Change  of  Control"  shall  mean the  occurrence  of any of the
               following:  (i) the sale,  lease,  transfer,  conveyance or other
               disposition  (other than by way of merger or  consolidation),  in
               one or a series of related transactions,  of all or substantially
               all of the assets of the Employer and its Subsidiaries taken as a
               whole,  outside the ordinary course of business,  to any "person"
               (as such term is used in Section  13(d)(3) of the Exchange  Act),
               (ii)  the  adoption  of a plan  relating  to the  liquidation  or
               dissolution  of  the  Employer,  (iii)  the  consummation  of any
               transaction  (including,  without limitation,  any acquisition of
               shares by any person,  recapitalization,  merger or consolidation
               or charter amendment) after which any "person" (as defined above)
               becomes the  "beneficial  owner" (as such term is defined in Rule
               13d-3  and Rule  13d-5  under  the  Exchange  Act),  directly  or
               indirectly,  of  shares  of  Employer  representing  the power to
               exercise more than fifty percent (50%) of the voting power of all
               issued and outstanding voting stock of the Employer;  or (iv) the
               first  day on which a  majority  of the  members  of the Board of
               Directors of the Employer are not Continuing Directors.

          (v)  "Continuing   Directors"   shall   mean,   as  of  any   date  of
               determination,  any  member  of the  Board  of  Directors  of the
               Employer  who (i) was a  member  of such  Board of  Directors  on
               August 1, 2002,  or (ii) was nominated for election or elected to
               such Board of  Directors  with the  approval of a majority of the
               Continuing  Directors  who were members of such Board at the time
               of such  nomination  (or a  nominating  committee  consisting  of
               Continuing Directors at the time of such approval).

          (vi) Termination  of  employment  shall be deemed to have occurred "In
               Connection With" a Change of Control if termination occurs within
               the  period  commencing  90  days  before  and  ending  one  year
               following a Change of Control.

     (D)  Employee's  employment  with Employer shall  terminate in the event of
          Employee's  death or  disability.  For purposes  hereof,  "disability"
          shall be defined as Employee's inability by reason of illness or other
          physical or mental  incapacity  to perform the duties  required by his
          employment for any consecutive  ninety-one  (91) day period,  provided
          that  notice of any  termination  by  Employer  because of  Employee's
          "disability"  shall  have  been  given to  Employee  prior to the full
          resumption by him of the performance of such duties.

     7. In order to  induce  Employer  to enter  into this  Agreement,  Employee
hereby agrees as follows:

     (A)  During Employer's  employment and following  termination of employment
          for  any  reason,  (i)  unless  otherwise  required  to do so by  law,
          including the order of a court or governmental agency,  Employee shall
          not divulge or furnish any trade  secrets (as defined in IND.  CODEss.
          24-2-3-2) of Employer or any confidential  information acquired by him
          while employed by Employer concerning the policies,  plans, procedures
          or customers  of Employer to any person,  firm or  corporation,  other
          than  Employer  or upon its  written  request,  or use any such  trade
          secrets  or  confidential   information  directly  or  indirectly  for
          Employee's  own  benefit  or for the  benefit of any  person,  firm or
          corporation  other  than  Employer,  because  such trade  secrets  and
          confidential  information  are  confidential  and  shall at all  times
          remain the property of Employer.

     (B)  During the  Protection  Period  (defined  below) after  termination of
          Employee's employment with Employer for any reason, Employee shall not
          (a) compete,  directly or  indirectly,  with the consumer auto finance
          business of Employer as conducted during the term of this Agreement or
          have any interest  (including any interest or  association,  including
          but not limited to, that of owner, part owner,  partner,  shareholder,
          director, officer, employee, agent, consultant,  lender or advisor) in
          any  person,  firm or  entity  which  competes  with  Employer  in the
          consumer auto finance  business  (each such person,  firm or entity is
          referred to as "Competitor"); (b) solicit or accept business for or on
          behalf of any  Competitor;  or (c)  solicit,  induce or  persuade,  or
          attempt  to  solicit,  induce or  persuade,  any person to work for or
          provide   services  to  or  provide   financial   assistance  to,  any
          Competitor.  Nothing contained in this Section 7(B) shall be deemed to
          prevent or limit  Employee's right either to be a mere customer of any
          Competitor,  or to invest in the capital stock or other  securities of
          any business solely as a passive or minority  investor,  provided that
          his  holdings  do not  exceed  five  percent  (5%) of the  issued  and
          outstanding  capital stock of such  business.  The foregoing  covenant
          shall not prohibit Employee from engaging in competitive activities or
          from  investing  in, or providing  services  for a Competitor  if such
          activities  (or the  competitive  activities of such  Competitor)  are
          conducted  solely  outside the U.S. or within the U.S. in states other
          than Indiana,  Ohio,  Texas,  California  and any other state in which
          Employer  acquired  at least $1 million in  receivables  within the 12
          months prior to Employee's  termination date. The "Protection  Period"
          means one (1) year, provided, that if termination occurs under Section
          6(B), the "Protection Period" shall be six months.

     (C)  Employee  will  turn  over  immediately  thereafter  to  Employer  all
          business correspondence,  letters, papers, reports,  customers' lists,
          financial  statements,  records,  drawings,  credit  reports  or other
          confidential information or documents of Employer or its affiliates in
          the  possession or control of Employee,  all of which writings are and
          will continue to be the sole and exclusive property of Employer or its
          affiliates.

     (D)  Employee  acknowledges  that  the  covenants  of  this  Section  7 are
          reasonable  in  scope  and  duration  and  reasonably   necessary  and
          appropriate to protect the goodwill and other appropriate interests of
          Employer  following  Employee's  termination and that any violation of
          such  covenants  by  Employee  would  result  in  irreparable  harm to
          Employer, for which any remedy at law would be inadequate. In addition
          to any other  remedy to which it may be  entitled,  Employer  shall be
          entitled to equitable relief, including injunctive relief and specific
          performance, for any violation of this Section 7. Employee agrees that
          Employer's  efforts,  if any,  to  enforce  this  Section  7 shall not
          constitute an attempt to prevent Employee from obtaining employment or
          "blacklisting"   and   Employee   waives   any   rights   under   Ind.
          Codess.22-5-3-1  and 2, to the extent that enforcement of this Section
          7 may be deemed to constitute "blacklisting" or such an attempt.

     8. Anything in this Agreement to the contrary notwithstanding, in the event
that Employer's  independent  public  accountants,  in a written  determination,
conclude that any portion of the Severance  Payment would  constitute an "excess
parachute  payment" under Section 280G of the Code,  then the Severance  Payment
shall be reduced (but not below zero) to the Reduced  Amount.  In such event, if
the Severance  Payment  previously paid to Employee  exceeds the Reduced Amount,
Employee agrees to remit such excess to the Employer. The "Reduced Amount" shall
be the amount which maximizes the Severance  Payment without causing any portion
of the Severance  Payment to be  non-deductible  by Employer  because of Section
280G of the Code.

     9. Any  termination of Employee's  employment with Employer as contemplated
by Section 6 hereof,  except in the circumstances of Employee's death,  shall be
communicated by written "Notice of Termination" by the terminating  party to the
other party hereto.  Any "Notice of Termination"  pursuant to Section 6 based on
Cause or Good  Reason  shall  set  forth in  reasonable  detail  the  facts  and
circumstances  claimed  to  provide a basis for such  termination.  If a dispute
arises regarding the termination of Employee  pursuant to Section 6 hereof or as
to the  interpretation  or enforcement of this Agreement,  said dispute shall be
resolved  by  binding   arbitration  in  Indianapolis,   Indiana  determined  in
accordance   with  the   rules   of  the   American   Arbitration   Association.
Notwithstanding the foregoing,  Employer shall be entitled to seek any remedy in
a proceeding at law or in equity in any court having jurisdiction for any breach
of  Section  7. If said  dispute  arises,  whether  instituted  by formal  legal
proceedings  or otherwise,  including  any action that Employee  takes to defend
against any action taken by Employer, Employee shall be reimbursed for all costs
and expenses,  including reasonable  attorneys' fees, arising from such dispute,
proceedings  or  actions;  provided  that  Employee  obtains  either  a  written
settlement   or  a  final   judgment  by  a  court  of  competent   jurisdiction
substantially  in his favor.  Such  reimbursement  shall be paid within ten (10)
days of Employee's furnishing to Employer written evidence,  which may be in the
form,  among  other  things,  of a canceled  check or  receipt,  of any costs or
expenses incurred by Employee.

     10. Should  Employee die after  termination of his employment with Employer
while any amounts are payable to him hereunder,  this  Agreement  shall inure to
the  benefit of and be  enforceable  by  Employee's  executors,  administrators,
heirs,  distributees,  devisees and legatees and all amounts  payable  hereunder
shall be paid in  accordance  with the  terms of this  Agreement  to  Employee's
devisee,  legatee or other  designee  or, if there is no such  designee,  to his
estate.

     11. For purposes of this  Agreement,  notices and all other  communications
provided  for herein  shall be in writing and shall be deemed to have been given
when delivered or mailed by United States  registered or certified mail,  return
receipt requested, postage prepaid, addressed as follows:

         If to Employee:   Douglas E. Starkey
                           10542 Williamson Parkway
                           Carmel, IN  46033


         If to Employer:   Chief Executive Officer
                           Union Acceptance Corporation
                           250 N. Shadeland Avenue
                           Indianapolis, Indiana 46219

or to such address as either party hereto may have  furnished to the other party
in writing in  accordance  herewith,  except  that  notices of change of address
shall be effective only upon receipt.

     12. The validity,  interpretation,  and performance of this Agreement shall
be governed by the laws of the State of Indiana, regardless of the principles of
conflict of laws.

     13. Employer shall require any successor  (whether  direct or indirect,  by
purchase, merger, consolidation or otherwise) to all or substantially all of the
business or assets of Employer,  by agreement in form and  substance  reasonably
satisfactory to Employee to expressly assume and agree to perform this Agreement
in the same manner and same extent that Employer would be required to perform it
if no such  succession  had taken  place.  Failure of  Employer  to obtain  such
agreement prior to the  effectiveness  of any such succession  shall be deemed a
material breach of this Agreement.  As used in this Agreement,  "Employer" shall
mean  Employer as  hereinbefore  defined and any  successor  to its  business or
assets as aforesaid.

     14. No provision of this  Agreement  may be modified,  waived or discharged
unless such waiver,  modification or discharge is agreed to in writing signed by
Employee  and  Employer.  No waiver by  either  party  hereto at any time of any
breach by the other  party  hereto of, or  compliance  with,  any  condition  or
provision of this  Agreement to be performed by such other party shall be deemed
a waiver  of  dissimilar  provisions  or  conditions  at the  same or any  prior
subsequent time. No agreements or representation,  oral or otherwise, express or
implied,  with  respect to the  subject  matter  hereof have been made by either
party which are not set forth expressly in this Agreement.

     15. The invalidity or  unenforceability of any provisions of this Agreement
shall not affect the validity or  enforceability of any other provisions of this
Agreement,  which  shall  remain in full  force and  effect.  This is the entire
agreement between Employer and Employee concerning the subject matter hereof and
all prior employment agreements, written or oral, are superseded; provided, that
this  agreement  does not purport to modify any  existing  stock  option,  stock
appreciation  award,  split dollar or deferred  compensation  agreement to which
Employee is a party.

     16. This  Agreement  may be executed in one or more  counterparts,  each of
which shall be deemed an original but all of which together shall constitute one
and the same agreement.

     17. This  Agreement is personal in nature and neither  party hereto  shall,
without written  consent of the other,  assign or transfer this Agreement or any
rights or obligations  hereunder except as provided in Section 10 and Section 13
above. Without limiting the foregoing,  Employee's right to receive compensation
hereunder shall not be assignable or transferable,  whether by pledge,  creation
of a security interest or otherwise, other than a transfer by his will or by the
laws of descent or  distribution  as set forth in Section 10 hereof,  and in the
event of any  attempted  assignment  or  transfer  contrary  to this  paragraph,
Employer  shall have no liability to pay any amounts so attempted to be assigned
or transferred.



                            [signature page follows]

<PAGE>

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


                                "Employer"

                                UNION ACCEPTANCE CORPORATION


                                By: /s/ Lee Ervin
                                   ----------------------------------
                                Its: President and Chief Executive Officer




                                "Employee"

                                /s/ Douglas E. Starkey
                                --------------------------------------
                                Douglas E. Starkey