UNION ACCEPTANCE CORP
EMPLOYMENT LETTER OF MICHAEL STOUT
<DOCUMENT>
<TYPE>EX-10.5
<SEQUENCE>6
<FILENAME>ex10_5.txt
<DESCRIPTION>EMPLOYMENT LETTER OF MICHAEL STOUT
<TEXT>

                                                                    Exhibit 10.5
                                                                    ------------


                                                                  March 2, 2001



Mr. Michael G. Stout
609 Hampshire Court
Carmel, IN 46032-9485

Dear Mike:

         This letter is intended  to  document  the terms  pursuant to which you
have agreed to serve as Chairman of UAC.

         Your employment is effective February 23, 2001. You have been appointed
Chairman  of UAC as of such  date.  You  will  devote  substantially  your  full
business time and attention to the  management and affairs of UAC. While we have
a mutual  understanding  that this  arrangement  will be in effect for two years
from such date,  your  employment  is at will and may be  terminated at any time
with or without cause by the Board of Directors.

         While you are employed by UAC,  for the two years  ending  February 23,
2003, you will be entitled to an annual salary of $225,000.  You have requested,
and UAC has  agreed,  that  payment of such  salary  (while it will  accrue from
February  23,  2001)  shall be deferred  until the earlier of (i) a  significant
equity  capital  raising  transaction  by UAC,  (ii)  change of  control  of the
Company, or (iii) January 2, 2002. The accrued amount will be paid in a lump sum
at that time,  subject to applicable  withholding  amounts,  and thereafter your
salary will be paid in accordance with UAC's regular payroll practices.

         You have been awarded stock options for 300,000 shares under UAC's 1999
Incentive  Stock Plan.  This award is  represented  by a separate  stock  option
agreement. You understand that the exercisability of some or all of such options
will be subject to  shareholder  approval of the plan  amendment  increasing the
shares authorized for issuance  thereunder.  The board of directors has directed
that  such  amendment  be  presented  for  shareholder   approval  at  the  next
shareholders' meeting. Richard D. Waterfield has informed UAC that he intends to
support approval of such amendment.

         During your  employment,  you will be eligible to  participate  in such
benefit plans and  arrangements as UAC makes  available to its senior  executive
officers generally;  provided, that you will not participate in the Annual Bonus
and Deferral Plan for Senior Officers.

         This letter  agreement  is  effective  as of  February  23,  2001,  but
executed as of the date  written  above.  It is governed  by Indiana  law.  Your
rights and  obligations  hereunder  are personal to you and are not  assignable.

         Mike, if this letter accurately sets forth our agreement regarding your
employment, please sign below to acknowledge that fact.


                                                Union Acceptance Corporation


                                                By: /s/ John M. Stainbrook
                                                   -----------------------------
                                                   John M. Stainbrook, President

AGREED:

/s/ Michael G. Stout
--------------------------
Michael G. Stout
</TEXT>
</DOCUMENT>
