SOVEREIGN CREDIT FINANCE I INC, S-1/A, 1996-11-27

SOVEREIGN CREDIT FINANCE I INC
S-1/A, 1996-11-27
SHORT-TERM BUSINESS CREDIT INSTITUTIONS

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As filed with the Securites and Exchange Commission on November 27, 1996

SECURITIES ACT OF 1933
FILE NO. 333-4072
- ------------------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

SOVEREIGN CREDIT FINANCE I, INC.
(Exact name of registrant as specified in charter)

TEXAS 6153 75-2645150
(State of other jurisdiction (Primary Industrial (I.R.S. Employer
of incorporation or organization) Classification Code No.) Identification No.)
<TABLE>
<S> <C>
A. STARKE TAYLOR, III
4015 BELTLINE ROAD 4015 BELTLINE ROAD
BUILDING B BUILDING B
DALLAS, TEXAS 75244 DALLAS, TEXAS 75244
(214) 960-0196 (972) 960-5500
(Address, including zip code, and telephone (Name, address, including zip code, and
number, including area code, of registrant's telephone number, including area code, of
principal executive offices) agent for service)
</TABLE>

COPY TO:

FREDERICK C. SUMMERS, III
A PROFESSIONAL CORPORATION
3700 BANK ONE CENTER
1717 MAIN STREET
DALLAS, TEXAS 75201

- ----------------------
Approximate date of commencement of proposed sale to public: As soon as
practicable after the effective date of this Registration Statement.

If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933 check the following box. [X]

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ] ____

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
----

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]

<TABLE>
- ----------------------------------------------------------------------------------------
TITLE OF EACH AMOUNT PROPOSED MAXIMUM PROPOSED AMOUNT OF
CLASS OF SECURITIES TO BE OFFERING PRICE MAXIMUM AGGREGATE REGISTRATION
TO BE REGISTERED REGISTERED PER UNIT OFFERING PRICE FEE
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
11% Notes $20,000,000 100% $20,000,000 $6,897
Due October 15, 2000
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</TABLE>

The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, as amended, or until this Registration Statement
shall become effective on such date as the Commission, acting pursuant to
Section 8(a), may determine.
- -------------------------------------------------------------------------------

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SOVEREIGN CREDIT FINANCE I, INC.

Cross Reference Sheet Pursuant to
Item 501(b) of Regulation S-K between
Items in Part I of the Registration
Statement (Form S-1) and the Prospectus

ITEM CAPTION OR
NO. ITEM LOCATION IN PROSPECTUS
- ---- ---- ----------------------

1. Forepart of the Registration
Statement and Outside Cover
Page of Prospectus . . . . . . . . . . . . . . . Facing Page and Front
Cover Page

2. Inside Front and Outside Back
Cover Pages of the
Prospectus . . . . . . . . . . . . . . . . . .Inside Front and Outside
Back Cover Pages

3. Summary Information, Risk Factors
and Ratio of Earnings to
Fixed Charges. . . . . . . . . . . . . . . . . . Summary; The Company;
Risk Factors

4. Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . Use of Proceeds

5. Determination of Offering Price . . . . . . . . . . . . . . .Not Applicable

6. Dilution. . . . . . . . . . . . . . . . . . . . . . . . . . .Not Applicable

7. Selling Security Holders. . . . . . . . . . . . . . . . . . .Not Applicable

8. Plan of Distribution. . . . . . . . . . . . . . . . . .Plan of Distribution

9. Description of the Securities
to be Registered . . . . . . . . . . . . . . . . .Description of Notes

10. Interest of Named Experts and Counsel . . . . . . . . . . . None -- Omitted

11. Information with Respect to the Registrant

(a) Description of Business. . . . . . . . . . . The Company; Purchase and
Collection of Contracts

(b) Description of Property. . . . . . . . . . . . . . . . None -- Omitted

(d) Market Price of and Dividends
on the Registrant's Common
Equity and Related Stockholder
Matters . . . . . . . . . . . . . . . . . . . . . .Not Applicable
(e) Financial Statements . . . . . . . . . . Index to Financial Statements

(f) Selected Financial Data. . . . . . . . . . . . . . . . .Not Applicable

<PAGE>

(g) Supplementary Financial Information. . . . . . . . . . .Not Applicable

(h) Management's Discussion and
Analysis of Financial
Condition and Results
of Operations . . . . . . . . . . . . . . Management's Discussion
and Analysis of
Financial Condition

(i) Changes in and Disagreements with
Accountants and Financial
Disclosure. . . . . . . . . . . . . . . . . . . . .Not Applicable

(j) Directors and Executive Officers . . . . . . . . . . . . . .Management

(k) Executive Compensation . . . . . . . . . . . . . . . . . . .Management

(l) Security Ownership of Certain
Beneficial Owners and
Management. . . . . . . . . . . . . Security Ownership of Certain
Beneficial Owners and Management

(m) Certain Relationships and
Related Transactions. . . . . . . . . . . . . . . . . .Management

12. Disclosure of Commission Position
on Indemnification for
Securities Act Liabilities . . . . . . . . . . . . . . .Not Applicable

<PAGE>

Subject to Completion - Dated November 27, 1996

$20,000,000 (MAXIMUM) $500,000 (MINIMUM)
SOVEREIGN CREDIT FINANCE I, INC.
11% NOTES DUE OCTOBER 15, 2000

Sovereign Credit Finance I, Inc., a Texas corporation (the "Company"), a
newly organized, single purpose subsidiary of Sovereign Credit Holdings, Inc., a
Texas corporation, is hereby offering up to $20,000,000 in principal amount of
its 11% notes due October 15, 2000 (the "Notes"). The Notes bear interest,
payable monthly, at a stated annual rate of 11%. The effective yield of the
Notes will be 10.95%. The principal thereof will be repaid in six equal monthly
installments beginning May 15, 2000.

The Company will purchase, at a discount, retail installment sales
contracts (the "Contracts") and notes secured by used automobiles and light
trucks (the "Financed Vehicles") using (a) the net proceeds from the sale of the
Notes offered hereby, (b) possible additional borrowing (as described herein),
and (c) as long as no Event of Default (as defined under "Description of the
Notes - Additional Indenture Provisions--Events of Default") exists, the net
collection proceeds from previously purchased Contracts. The Notes are subject
to redemption at any time at the option of the Company at a redemption price of
100% of the outstanding principal amount thereof, together with accrued
interest, without any premium or penalty. Sovereign Credit Corporation
("Sovereign"), which is also a subsidiary of Sovereign Credit Holdings, Inc.,
will administer and manage the ongoing operations of the Company. The Company
has contracted with Sovereign Associates, Inc. ("SAI"), a subsidiary of
Sovereign, to provide necessary purchasing and collecting services. At least
84.5% of the gross proceeds of the offering will be available for the purchase
of Contracts.

The Company's only business will be the purchase and collection of the
Contracts, and the Company's most significant assets will be the Contracts and
related motor vehicle collateral. No other party will insure or guarantee
payment of the Notes. Noteholders may look only to the Company's assets as a
source of payment on the Notes. The Notes will be unsecured, and Noteholders'
rights in the Contracts will be junior to the rights of any senior lending
source (the "Additional Lender").

The offering will terminate on ___________, 1997, unless sooner terminated
by the Company for certain reasons. See "Plan of Distribution". The Notes are
offered in minimum subscription amounts of $4,000 ($2,000 for Individual
Retirement Accounts) for each investor, and will be issued without any minimum
denominations.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.

NO PUBLIC MARKET IS EXPECTED TO DEVELOP FOR THESE SECURITIES. INVESTORS
SHOULD EXPECT TO RETAIN OWNERSHIP OF THE NOTES AND BEAR THE ECONOMIC RISKS OF
THEIR INVESTMENT FOR THE ENTIRE TERM OF THE NOTES.

THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK, INCLUDING
RISKS OF DEFAULT ON THE CONTRACTS. THESE ARE SPECULATIVE SECURITIES. SEE "RISK
FACTORS" AT PAGE __ OF THIS PROSPECTUS. DEBT SECURITIES OFFERED WITH HIGH
INTEREST OR YIELD GENERALLY INVOLVE MORE RISK THAN MANY OTHER MEDIUM TERM DEBT
INSTRUMENTS WITH LOWER INTEREST OR YIELD.

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PRICE TO BROKERS PROCEEDS TO
PUBLIC COMMISSIONS COMPANY (2)
AND EXPENSES (1)
- -------------------------------------------------------------------------------
Per Note................. 100% 8% 92%
Total Minimum ........... $ 500,000 $ 40,000 $ 460,000
Total Maximum............ $20,000,000 $1,600,000 $18,400,000
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(1) Payable by the Company to participating licensed broker-dealers. See "Plan
of Distribution".

<PAGE>

(2) Before deduction of up to 2% of the offering proceeds for the payment of
offering and organizational expenses incurred by the Company, and the
administration fee payable by the Company to Sovereign for its services in
administering and managing the ongoing operations of the Company equal to
5.5% of the gross proceeds from the sale of the Notes (5.0% of the gross
proceeds in excess of $9,000,000). See "The Company - General".

The Notes are being sold on a "best efforts" basis on behalf of the Company
by one or more licensed broker-dealers that are members of the National
Association of Securities Dealers, Inc. that may hereafter be engaged by the
Company. As of the date of this Prospectus, the Company has not identified any
broker/dealers who have agreed to participate in this offering of the Notes.
Investor funds will be held in an escrow account at River Oaks Trust Company
until a minimum of $500,000 in principal amount of the Notes are sold. In the
event the minimum amount of Notes is not subscribed on or before March 31, 1997,
the offering will be terminated and the escrowed funds, plus any interest earned
thereon, will be promptly returned to the investors by the escrow agent. Upon
the subscription by investors for the minimum amount of Notes, the escrowed
funds (less interest thereon which will be paid to investors) will be released
to the Company. Affiliates of the Company will not purchase Notes in the
offering. Interest will not accrue on the Notes until the escrowed funds are
released to the Company. Any subsequent sales proceeds from Notes will be
immediately available for use by the Company. All subscriptions are subject to
the right of the Company to reject any subscription in whole or in part.

---------------------------
This Prospectus is dated _______, 1996.

<PAGE>

AVAILABLE INFORMATION

The Company has filed a Form S-1 Registration Statement under the
Securities Act of 1933, as amended, with the Securities and Exchange Commission
(the "Commission") with respect to the Notes offered pursuant to this
Prospectus. This Prospectus, which forms a part of the Registration Statement,
does not contain all of the information included in the Registration Statement
and the exhibits thereto. For further information, reference is made to the
Registration Statement and amendments thereof and to the exhibits thereto, which
are available for inspection without charge at the office of the Commission at
450 Fifth Street, N.W., Washington, D.C. 20549, and at the regional offices of
the Commission at Seven World Trade Center, 12th Floor, New York, New York
10048, and at 500 West Madison Street, Suite 1400, Chicago, IL 60661, and copies
of which may be obtained from the Commission at prescribed rates.

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

REPORTS TO NOTEHOLDERS

The Company will furnish to the Noteholders annual reports of the Company
containing audited financial statements. The Company will also furnish to the
Noteholders quarterly unaudited summary information regarding the Contracts. An
IRS Form 1099 will be mailed to each Noteholder by January 31 of each year for
interest paid during the previous year.

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

MINIMUM SUITABILITY STANDARDS

Minimum suitability requirements have been established for residents of
certain states. Arizona subscribers must represent that they have either (a) an
annual gross income of at least $45,000 and a net worth of at least $45,000
exclusive of the subscriber's principal residence and its furnishings and
personal use automobiles; or (b) a net worth of at least $150,000, exclusive of
the subscriber's principal residence and its furnishings and personal use
automobiles. California subscribers must represent that they have either (a) an
annual gross income of at least $60,000 and a net worth of at least $60,000
exclusive of the subscriber's principal residence and its furnishings and
personal use automobiles; or (b) a net worth of at least $225,000, exclusive of
the subscriber's principal residence and its furnishings and personal use
automobiles. North Carolina subscribers must represent that they have either
(a) an annual gross income of at least $60,000 and a net worth of at least
$60,000 exclusive of the subscriber's principal residence and its furnishings
and personal use automobiles; or (b) a net worth of at least $225,000, exclusive
of the subscriber's principal residence and its furnishings and personal use
automobiles. Texas subscribers must represent that

<PAGE>

they have either (a) an annual gross income of at least $45,000 and a net
worth of at least $45,000 exclusive of the subscriber's principal residence
and its furnishings and personal use automobiles; or (b) a net worth of at
least $150,000, exclusive of the subscriber's principal residence and its
furnishings and personal use automobiles. Wisconsin subscribers must
represent that they have either (a) an annual gross income of at least
$45,000 and a net worth of at least $45,000 exclusive of the subscriber's
principal residence and its furnishings and personal use automobiles; or (b)
a net worth of at least $150,000, exclusive of the subscriber's principal
residence and its furnishings and personal use automobiles. In the case of
sales to a subscriber which is a fiduciary account, the foregoing standards
must be met by the beneficiary, the fiduciary account, or by the donor or
grantor who directly or indirectly supplies the funds to purchase the
securities if the donor or grantor is the fiduciary.

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

The mailing address of the Company's principal executive offices is 4015
Beltline Road, Building B, Dallas, Texas 75244, and its telephone number is
(972) 960-5500.

<PAGE>

SUMMARY

The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere in this Prospectus.

COMPANY Sovereign Credit Finance I, Inc. (the "Company") has been formed
for the purpose of purchasing, collecting and servicing retail
installment sales contracts and notes secured by motor vehicles
(the "Contracts"). Except as set forth under "Capitalization",
it does not have, and does not expect to have in the future, any
significant assets other than the Contracts and proceeds thereof.

The Company's principal executive offices are located at 4015
Beltline Road, Building B, Dallas, Texas 75244 and its telephone
number is (972) 960-5500. The Company is a newly organized,
single purpose subsidiary of Sovereign Credit Holdings, Inc.
Sovereign Credit Corporation ("Sovereign"), which serves as
manager of the Company, is also a subsidiary of Sovereign Credit
Holdings, Inc., and Sovereign Associates, Inc. ("SAI"), which
provides purchasing and collecting services on behalf of the
Company, is a subsidiary of Sovereign. See "The Company".

NOTES 11% Notes due October 15, 2000 (the "Notes") to be issued subject
to the terms of a trust indenture agreement (the "Indenture")
between the Company and the Trustee.

OFFERING Up to $20,000,000 in principal amount of the Notes.
AMOUNT Investor funds will be held in escrow until subscriptions for a
minimum amount of $500,000 in principal amount of the Notes have
been received.

INTEREST Each Note will bear interest at 11% per annum on its
PAYMENTS TO outstanding principal, payable monthly on the 15th
NOTEHOLDERS day of each month during the term of the Note (for
interest accruing through the last day of the prior month)
beginning with the second full calendar month following the
calendar month in which the Note is issued (the "Payment Dates").
For example, if a Note is issued to an investor in January, 1997,
such investor will receive the first interest payment on March
15, 1997, which will be for interest accruing through February
28, 1997.

Interest will not accrue on the Notes, nor will the

<PAGE>

Notes be issued, until release of escrowed subscription funds to
the Company, which will not occur until the minimum of $500,000
of the Notes is sold. Investors in this offering will receive an
IRS Form 1099 following the end of each calendar year which will
state the amount of interest on which to calculate income taxes.

The record date for each payment of interest on the Notes is the
close of business on the first day of the month of the Payment
Date for that payment. At all times while the Notes remain
outstanding, the monthly interest payments on the Notes must be
fully satisfied before the collection proceeds from the Contracts
may be used to purchase additional Contracts.

EFFECTIVE The effective interest rates of the Notes will be
YIELD 10.95%. This is lower than the stated interest rates of the
Notes because each payment of interest will be paid 15 days after
the end of the month during which it accrued, and because
interest is computed on the basis of a 360-day year, comprised of
twelve 30-day periods.

PRINCIPAL Principal on the Notes will be repaid in six equal
PAYMENTS installments commencing on May 15, 2000, and on each of the five
Payment Dates thereafter. The Notes will mature on October 15,
2000, at which time all outstanding and accrued principal and
interest will be finally due and payable.

MATURITY October 15, 2000

ADDITIONAL In addition to the Notes, the Company intends to
BORROWING pursue an additional lending source (the "Additional Lender") to
borrow funds (the "Additional Borrowing") with which to purchase
additional Contracts. The Additional Lender may be a bank or an
institutional lender such as an insurance company. The Company
anticipates that any borrowings from the Additional Lender will
be secured by first priority security interests in all the
Contracts owned by the Company. The Additional Borrowings will
be utilized to purchase additional Contracts. As of the date of
this Prospectus, the Company has not obtained a commitment for
Additional Borrowing from an Additional Lender, and no assurance
can be made that any Additional Borrowing will be obtained. The
Notes are unsecured, and will be subject to any first priority
security interests in the Company's

<PAGE>

Contracts that may be granted to any Additional Lender. Such
first priority of the Additional Lender in the Contracts will
result in the Noteholders being placed in a junior position
with respect to the Contracts. Subject to the first priority
of the Additional Lender, the Noteholders may look to any
Contracts purchased from the proceeds of the Additional
Borrowing, in addition to other Contracts purchased by the
Company, as services of payment on the Notes.

THE CONTRACTS The Contracts will consist of retail installment sales contracts
and promissory notes. The Contracts will be secured by liens on
used automobiles and light trucks (the "Financed Vehicles") and
will be purchased by the Company, at a discount, using (i) the
net proceeds from the sale of Notes, and (ii) possible Additional
Borrowing from the Additional Lender and (iii) so long as no
Event of Default exists, any remaining net collection proceeds
from previously purchased Contracts. The Contracts will be
purchased and serviced, on behalf of the Company, under the terms
of a Master Contract Purchasing Agreement and a Servicing
Agreement (collectively, the "Servicing Agreement") between the
Company and SAI. The Contracts will be originated by automobile
dealers ("Dealers"). The Company may also purchase Contracts
which are lease agreements for Financed Vehicles.

THE CONTRACT All proceeds from the Contracts will be paid directly by the
PROCEEDS the obligors on the Contracts ("Obligors"), or deposited by SAI,
to a lockbox account maintained by SAI in the Company's name
(the "Collections Account"). On at least a weekly basis, the
Company is required to transfer all amounts in the Collections
Account attributable to the Contracts to a commercial bank
account maintained by the Company (the "Operating Account").
So long as no Event of Default exists and subject to the receipt
by the Trustee of any required certificates, and subject further
to any restrictions imposed by any Additional Lender, the Company
will have the right to cause the funds contained in the Operating
Account to be withdrawn or applied for the following purposes in
the following priority: first, to the payment of any interest
and principal due to any Additional Lender; second, to the
payment of any interest due on the outstanding Notes on each
Payment Date; third, to any amounts due the Trustee for its fees

<PAGE>

and expenses; fourth, except during an Event of Default, to the
payment of any other allowed expenses ("Allowed Expenses"), as
certified by the Company; fifth, to the deposit into the trust
account established in the name of the Trustee (the "Trust
Account") for payment of principal owing on the Notes on any
Payment Date occurring on or after May 15, 2000; and, sixth,
except during an Event of Default, to the purchase of additional
eligible Contracts, as certified by the Company and SAI.
Otherwise, the Company is prohibited from withdrawing any funds
from the Operating Account. The Trustee will be provided
regular reports by which the use of such funds may be monitored
and will have the right to make any required transfers of funds.
Allowed Expenses include servicing, trustee, bank, legal and
accounting fees, taxes, repossession, repair and liquidation
expenses, insurance premiums and vehicle warranty service
contract charges. See "Description of the Notes--The Contract
Proceeds and Operating Account".

THE TRUST On or before each Payment Date, the Company will transfer
ACCOUNT funds from the Operating Account to the Trust Account in an
amount sufficient to pay all interest on the Notes due on such
date. Commencing May 15, 2000 and on each of the five Payment
Dates thereafter, the Company will transfer funds from the
Operating Account to the Trust Account in an amount sufficient to
pay the principal of the Notes due on such date. There is no
schedule of minimum payments required to be made into the Trust
Account. All transfers to the Trust Account will be subject to
the priority rights of the Additional Lender, if any.

PURCHASE OF The Company will purchase additional Contracts using
CONTRACTS (i) the net proceeds from the sale of Notes, (ii) possible
Additional Borrowings from the Additional Lender, and (iii) so
long as no Event of Default exists, any remaining net collection
proceeds from previously purchased Contracts, after deduction for
payments of interest and Allowed Expenses. On a monthly basis,
the Company and SAI will certify to the Trustee, among other
things, that the Contracts satisfy certain purchasing criteria
established by the Indenture and the Servicing Agreement. See
"Purchase and Collection of Contracts--Contract Purchase
Criteria". The Company's cost for each Contract will equal the
purchase price payable to the motor vehicle dealer for the
Contract. The Company must also pay a fee per purchased Contract

<PAGE>

equal to the lesser of $500, or 5% of the total amount of
installments due under the Contract as of the date of purchase
(the "Purchase Administration Fee") to SAI for its purchase
administration services.

Although direct purchases from dealers are expected to be the
norm, the Company may also purchase Contracts that SAI or its
affiliates has previously purchased. In order to determine the
cost to the Company for each such Contract, SAI will first
determine the original purchaser's initial internal rate of
return on its investment in the Contract as of its purchase from
the dealer, assuming that the Contract was paid in full in
accordance with its scheduled installments. The cost to the
Company will then be an amount determined so that it will
experience the same internal rate of return on its investment in
the Contract, assuming that the Contract is paid in full in
accordance with its scheduled installments. In addition, the
Company will pay the Purchase Administration Fee with respect to
each such Contract.

Through application of the purchasing criteria, the Company will
endeavor to purchase Contracts from dealers (i) at prices
involving an initial payment to the dealer (A) of no more than
90% of principal plus accrued interest (pay-off balance) of such
Contract at the time of purchase, and (B) limited to 140% of the
average trade-in price (wholesale value) plus tax, title, license
and warranty (or, in the case of certain popular models, 140% of
the dealer's cost plus tax, title, license and warranty), (ii)
having maturities that are less than the remaining useful lives
of the Financed Vehicles, and (iii) under which down payments (in
cash or trade-in vehicle) of at least approximately 10% of the
dealer's cost (excluding sale preparation expenses) have been
paid by the Obligors. In addition, SAI has established certain
criteria with respect to Dealers from which Contracts will
generally be purchased. SAI does not specifically limit the
number of Contracts originated by any one Dealer that may be
included in the Contracts inventory at any one time. The Company
may purchase Contracts from dealers subject to the requirement
that the selling dealer repurchase any Contract that becomes
overdue for more than 60 days, although the terms of any such
requirement for any particular dealer or group of Contracts
purchased will be determined by SAI and

<PAGE>

such dealer. See "Purchase and Collection of Contracts".

REDEMPTION OF The Company may elect on any Payment Date to redeem
NOTES the Notes in whole or in part, thus reducing the term of the
Notes. The redemption price for the Notes is 100% of the
outstanding principal amount of the Notes, together with accrued
interest through the date of redemption, without any premium or
penalty. In the event that prior to 180 days following the
termination date of the offering the Company has been unable to
invest the net proceeds from the sale of the Notes in suitable
Contracts, the uninvested net proceeds at such date will be
utilized for a mandatory partial redemption of the Notes within
45 days following such date. See "Description of the Notes--
Redemption".

SERVICER Sovereign Associates, Inc. ("SAI"), a Texas corporation and a
wholly-owned subsidiary of Sovereign, whose principal offices are
located at 4015 Beltline Road, Building B, Dallas, Texas 75244.
SAI is obligated pursuant to the Servicing Agreement, subject to
the limitations set forth therein, to provide services for the
purchasing and collecting of the Contracts on behalf of the
Company, and to repurchase certain of the Contracts under certain
circumstances. For its services with regards to the collection
of the Contracts, SAI will be entitled to a monthly servicing fee
of $20 for each Contract that is not assigned for repossession
(the "Contract Servicing Fee") and a fee of $125 for each
Financed Vehicle assigned for repossession. See "Purchase and
Collection of Contracts".

SAI provides purchasing and collecting services on behalf of a
number of affiliated entities (the "Securitization Subsidiaries")
which have issued notes to investors and used the net proceeds
thereof to purchase consumer contracts and notes created by the
retail sale and financing of used automobiles and light trucks.
The average term remaining, and the average principal amount, for
contracts in SAI's servicing portfolio at June 30,

<PAGE>

1996 is approximately 28 months and approximately $8,000,
respectively. SAI expects that (a) its repossession rate, over
the life of the portfolio of all Contracts purchased on behalf
of the Company through its services, will be in the range of
15% to 20% of such contracts, and (b) the average purchase price
payable to motor vehicle dealers will be no more than 66% of the
original total future installments payable under the Contracts.
See "Information Regarding Contracts Purchased and Serviced
by SAI".

TRUSTEE Sterling Trust Company, Waco, Texas.

ADMINISTRATOR Sovereign Credit Corporation ("Sovereign"), a Texas corporation
and a wholly-owned subsidiary of Sovereign Credit Holdings, Inc.,
will administer and manage the ongoing operations of the Company.
Sovereign will pay all general and administrative overhead
expenses incurred by the Company, other than Allowed Expenses.
Sovereign will also pay offering and organization expenses of the
Company (other than commissions to broker-dealers) to the extent
such expenses exceed 2% of the gross proceeds from the sale of
the Notes. For such services, the Company will pay Sovereign a
fee equal to 5.5% of the gross proceeds from the sale of the
Notes (5.0% of the gross proceeds in excess of $9,000,000). See
"Use of Proceeds".

In addition, Sovereign will administer Noteholder payments,
communications and relations. For such services, the Company
will pay Sovereign a monthly fee equal to 1/12 of 0.5% of the
outstanding principal amount of the Notes (the "Investor
Administration Fee"), payable on or before the 15th day of each
month. See "Management--Certain Relationships and Related
Transactions".

TAX STATUS The Notes will be taxable obligations under the Internal Revenue
Code of 1986 as amended, and interest paid or accrued will be
taxable to non-exempt holders of the Notes. Frederick C.
Summers, III, a Professional Corporation, has delivered its
opinion to the Company as to the tax status of the Notes. See
"Certain Federal Income Tax Considerations".

USE OF The Company will use at least 84.5% of the proceeds from the
PROCEEDS sale of the Notes for the purchase of Contracts and no more
than 15.5% of such proceeds for commissions, fees and expenses
as stated in

<PAGE>

this Prospectus. See "Use of Proceeds".

DENOMINATIONS The Notes will be issued in fully registered form, without any
minimum denominations, but subject to a minimum purchase by each
investor of at least $4,000 (or $2,000 for Individual Retirement
Accounts).

NO RATING The Company has not sought, and is not required by the Indenture
or any other document, to obtain a rating of the Notes by a
rating agency.

RISK FACTORS An investment in the Notes entails certain risks, including the
following:

- The Company is a single purpose entity and is not expected
to have any significant assets other than the Contracts,
except as set forth under "Capitalization".

- The Notes are unsecured, and will be subject to any and all
security interests granted to Additional Lender with respect
to the Contracts and the proceeds thereof.

- Obligors under the Contracts are anticipated to be somewhat
less credit-worthy than typical purchasers of automobiles
from new car dealers.

- The Company anticipates that a portion of the Contracts will
become delinquent and require repossession and resale of the
related vehicle.

- No public market for the Notes presently exists and none is
expected to result from this offering.

- The Company will have numerous competitors engaged in the
business of buying new and used motor vehicle retail
installment contracts and notes at a discount, including
companies with greater financial resources than either the
Company or SAI.

- There may be conflicts of interest among the Company, SAI,
Sovereign and other note purchasing entities managed by
Sovereign with respect to allocation of management time,
services, overhead expenses and functions.

<PAGE>

For a more complete discussion of the risks involved, see "Risk
Factors".

PLAN OF The Notes will be sold on a "best efforts" basis by licensed
DISTRIBUTION broker-dealers who are members of the National Association of
Securities Dealers, Inc. Investor funds will be held in a
subscription escrow account until the minimum of $500,000 in
principal amount of the Notes are sold. If subscriptions for
the minimum amount of Notes are not received on or before
March 31, 1997, the offering will be terminated and the escrowed
funds, plus any interest thereon, will be promptly returned to
the subscribing investors by the escrow agent. Upon subscription
of the minimum amount of Notes, the escrowed funds will be
released to the Company. See "Plan of Distribution".

OFFERING ____________________, 1997, unless sooner terminated by the
TERMINATION Company for certain reasons. See "Plan of Distribution".
DATE
RISK FACTORS

An investment in the Notes involves certain risks. In considering a
purchase of these securities, prospective investors should carefully consider
the risks involved, including the following:

LIMITED ASSETS; SINGLE PURPOSE NATURE

The Company had no operating history prior to the date of this Prospectus.
The Company has been formed for the sole purpose of purchasing and collecting
retail installment sales contracts and obligations secured by used automobiles
and light trucks. The Company does not have, and is not expected to have, any
significant assets other than the Contracts, except as set forth under
"Capitalization". No other party, including either Sovereign or SAI, will
insure or guarantee the Company's obligations under the Notes or will be
obligated to make capital contributions to the Company at any time for the
purpose of paying any delinquencies on the Notes. If an Event of Default under
the Indenture occurs, the holders of the Notes will have no recourse against
Sovereign or SAI for payment of the Notes. Consequently, Noteholders must rely
upon payments made on or in respect of the Contracts for the payment of interest
on and principal of the Notes. If such payments are insufficient to make the
payments of interest or principal on the Notes when due, the Company will have
no other significant assets to apply to payment of the deficiency, except as set
forth under "Capitalization". There can be no assurance that any or all of the
Contracts will perform as anticipated, or that there will not be greater than
anticipated defaults on such Contracts.

<PAGE>

UNSECURED NATURE OF NOTES

The Notes are unsecured obligations of the Company. Upon the occurrence of
an Event of Default with respect to the Notes, the Trustee will not have the
rights of a secured creditor with respect to the Company's assets, but must
first obtain a judgment against the Company before proceeding to execute against
the Company's assets.

POSSIBLE USE OF LEVERAGE; NOTES TO BE JUNIOR TO ANY ADDITIONAL BORROWINGS

In addition to the proceeds of this offering, the Company may borrow funds
from an Additional Lender, and in conjunction therewith will pledge Contracts
and the proceeds thereof to secure all Additional Borrowings. There is no limit
on the Additional Borrowings. There can be no assurance that the Company will
be able to borrow funds for such purpose. The Notes will be subject to any and
all security interests granted to any Additional Lender with respect to the
Contracts and the proceeds thereof. A default by the Company with respect to
any Additional Borrowings would have a material adverse effect on the interests
of the Noteholders, since the Additional Lender would then have the right to
foreclose on the pledged Contracts. In the event of default by the Company on
any secured debt, the Company may lose its interest in Contracts or the proceeds
thereof which would otherwise be available for payments on the Notes. In
addition, the Additional Lender, as a secured lender, will have priority over
the Noteholders in the event of bankruptcy or dissolution of the Company. Any
such Additional Lender will be unaffiliated with the Company.

PURCHASING AND SERVICING OF CONTRACTS DEPENDENT ON SAI

The Company's ability to purchase Contracts is dependent on SAI for
purchasing services and SAI's established network of motor vehicle dealers (the
"Dealers") from which the Contracts will be purchased. In addition, the
Company's ability to purchase Contracts is dependent on the availability of
Contracts which satisfy the purchasing criteria employed by the Company, of
which there can be no assurance. In the event SAI is unable to effectively
service the Contracts owned by the Company, the Company will need to engage the
services of another servicing company, and there can be no assurance that a
qualified servicer could be located or what such servicer would charge the
Company for its services.

Although SAI has been engaged almost exclusively in the purchase and
collection of used automobile notes since June, 1993, SAI has no prior
experience in purchasing and servicing automobile leases.

<PAGE>

NATURE OF CONTRACTS

The Contracts represent Dealer financing for the sale of used motor
vehicles. Unlike companies financing the sale of new automobiles, which are
primarily credit-based lenders, the Dealers from which the Company will purchase
Contracts base their used automobile financing decisions primarily upon the
value of the underlying automobile collateral. The Contracts which the Company
will purchase are generally entered into by Dealers with customers who generally
cannot obtain a loan from a local financial institution or from the credit
facilities of a major automobile manufacturer. Often, such customers have had
credit problems in the past. Although SAI has established certain purchasing
criteria in order to reduce the risk of default, there is no assurance that such
customers will be creditworthy or that loans will ultimately be repaid. In
addition, there is no assurance that the collateral could be sold for sufficient
net proceeds to recoup the Company's investment in the Contracts. Generally,
the "creditworthiness grade" of the Obligors on the Contracts will be "C" and
"D".

SAI does not specifically limit the number of Contracts originated by any
one Dealer that may be included in the Contracts inventory at any one time. The
average term remaining, and the average length of time outstanding, for
Contracts in SAI's servicing portfolio at June 30, 1996 is approximately 28
months and 23 months, respectively. Contracts purchased on behalf of the
Company may vary from these averages.

DEFAULTS ON CONTRACTS AND REPOSSESSIONS

The Company anticipates that a portion of the Contracts will become
delinquent and require repossession and resale of the related vehicle. See
"Information Regarding Contracts Purchased and Serviced by SAI." There can be
no assurance that the repossession and collection rates anticipated by SAI will
in fact be met, since actual repossession rates and collection rates on the
Contracts are impossible to predict precisely.

If an Obligor defaults under a Contract, and SAI must repossess and
liquidate the Financed Vehicle to recover installments due thereon and costs
associated with the repossession and resale, certain factors may limit the
ability of the Company to realize net proceeds sufficient to recover the cost of
the Contract. These factors include, without limitation, the value of the
repossessed Financed Vehicles, the costs of seeking and collecting a deficiency
judgment and limitations imposed by bankruptcy laws or other Federal or state
laws. In general, SAI is required to commence repossession of a Financed
Vehicle if the Obligor is delinquent on at least two monthly installments and
has made no payments for a period of 45 days. Nevertheless, SAI may grant
extensions or modifications to Obligors or accept partial payments from Obligors
in lieu of commencement or repossession

<PAGE>

activities. If a substantial number of such Obligors make no further
payments on their Contracts, the delay in the repossession of the Financed
Vehicles could result in a decrease in repossession proceeds received by the
Company and could have an adverse impact on the Company's ability to pay the
Notes.

Although the Company believes that the net collection proceeds from the
Contracts, after deduction of Allowed Expenses, together with any proceeds from
the sale or refinancing of the Contracts, will be sufficient to make the
required payments on the Company's debts, the actual collection rates on the
Contracts are impossible to predict precisely and adverse changes in
collectibility rates caused by changes in economic conditions, including
particularly in the Company's primary markets, or other factors beyond the
Company's control could adversely affect the Company's ability to collect on the
Contracts. If the Contracts do not collectively perform as expected by the
Company, which expectations are based on the historical performance of similar
contracts purchased and serviced by SAI, the Company's ability to make the
required payments on the Notes could be adversely affected.

RIGHT TO AMEND PURCHASING CRITERIA WITHOUT CONSENT OF NOTEHOLDERS

The Company and SAI have the right to amend, without obtaining the consent
of any Noteholder, the purchasing criteria and the purchasing and servicing
obligations of SAI under the Servicing Agreement to permit the institution by
SAI of new programs to improve the collection rates on the Contracts that it
purchases and services. Nevertheless, the actual benefits received by the
Company following the institution of any such program may be less than
anticipated and the actual costs and detriments to the Company may be more than
anticipated. Consequently, the Company's financial performance may be adversely
affected.

POSSIBLE INSUFFICIENT AMOUNT IN THE TRUST ACCOUNT

The Company and SAI are required to transfer to the Trust Account, on or
before each Payment Date, all amounts necessary to pay interest and principal
due on the Notes on such Payment Date. The net collection proceeds from the
Contracts may be insufficient to pay all principal outstanding on the Notes on
October 15, 2000, after payment of all interest, and some refinancing or sale of
the remaining Contracts may be necessary for full repayment of the Notes on that
date, which refinancing or sale cannot be assured. In that event, unless the
Company is able to refinance the Notes through other financing sources, the
Company will be in default under the Indenture, and there can be no assurance
that the proceeds, if any, received by the Trustee as a result of the exercise
of its default remedies will be sufficient to repay the Notes in full or of the
timing of any such payments.

<PAGE>

LACK OF MARKET FOR NOTES

No public market for the Notes presently exists and none is expected to
result from this offering. Noteholders have no right to require redemption of
the Notes and may not be able to liquidate their investment in the Notes in the
event of an emergency or for any other reason, and the Notes may not be readily
accepted as collateral for loans. Accordingly, the Notes should be purchased
only by persons who have no need for liquidity in their investment.

DELAYS IN CONTRACT PURCHASES

To maximize its investment yields, the Company expects to purchase
Contracts using the net proceeds from the sale of Notes as soon as practicable
following receipt of such proceeds. However, the timing of expenditure of the
net proceeds will be based partly on availability of Contract purchases, and
cannot be predicted with certainty. In addition, it is expected that the
Company will purchase Contracts on a volume basis, thereby potentially further
delaying expenditures of the net proceeds. If unforeseen delays occur in the
investment of the net proceeds from the sale of Notes in the purchase of
Contracts, the Company's overall profitability and ability to repay the Notes
could be adversely affected because the yields of its short-term investment
alternatives for such funds are expected to be less than the yields anticipated
to be received by the Company from the Contracts.

CERTAIN LEGAL MATTERS RELATING TO THE CONTRACTS

PRIORITY LIENS IN FINANCED VEHICLES. Statutory liens for repairs or unpaid
taxes may have priority over a perfected security interest in the Financed
Vehicles, and certain state and federal laws permit the confiscation of motor
vehicles used in unlawful activity which may result in the loss of a secured
party's perfected security interest in a confiscated motor vehicle. Liens for
repairs or taxes, or the confiscation of a Financed Vehicle, could arise or
occur at any time during the term of a Contract. Notice may not necessarily be
given to the Company or SAI in the event such a lien arises or confiscation
occurs.

BANKRUPTCIES AND DEFICIENCY JUDGMENTS. Certain statutory provisions,
including federal and state bankruptcy and insolvency laws, may limit or delay
the ability of SAI to repossess and resell Financed Vehicles or enforce a
deficiency judgment. In addition, SAI may determine in its discretion that a
deficiency judgment is not an appropriate or economically viable remedy, or may
settle at a significant discount any deficiency judgment that it does obtain.
In the event that deficiency judgments are not obtained, are not satisfied, are
satisfied at a discount or are discharged, in whole or in part, in bankruptcy
proceedings, the loss will be borne by the Company and may adversely affect the
ability of the Company to repay the Notes. See "Certain Legal Aspects of the
Contracts--

<PAGE>

Deficiency Judgments and Excess Proceeds."

CONSUMER PROTECTION LAWS. Numerous federal and state consumer protection
laws impose requirements upon the origination and collection of retail
installment contracts and notes. State laws impose finance charge ceilings and
other restrictions on consumer transactions and may require certain contract
disclosures in addition to those required under federal law. These requirements
impose specific statutory liabilities upon creditors who fail to comply with
their provisions. A risk exists that this liability could affect the ability
of the Company, as an assignee of the Contracts, to enforce the Contracts. In
addition, certain of these laws make an assignee of such a contract liable to
the obligor thereon for any violation by the assignor. Accordingly, the
Company, as holder of the Contracts, may be subject to liability to an obligor
under one or more of the Contracts. See "Certain Legal Aspects of the
Contracts--Consumer Protection Laws."

POTENTIAL CONFLICTS OF INTEREST

Both the Company and Sovereign are subsidiaries of Sovereign Credit
Holdings, Inc. In addition, SAI, with which the Company has entered into an
agreement with SAI to govern the purchasing and servicing of Contracts, is a
subsidiary of Sovereign.

Sovereign manages a number of other note purchasing entities (the
"Securitization Subsidiaries"), including entities whose business purposes are
or will be, or may include, the purchase and servicing of used motor vehicle
retail installment contracts and notes. Purchasing and servicing for such
entities will be conducted by SAI. Consequently, there may be conflicts of
interest among the Company, SAI, Sovereign and the Securitization Subsidiaries
with respect to allocation of management time, services, overhead expenses and
functions. Furthermore the management of Sovereign and SAI are involved in
other business enterprises independent of the Company. The management of
Sovereign, SAI, the Company and the Securitization Subsidiaries intend to
resolve any such conflicts in a manner that is fair and equitable to the
Company, but there can be no assurance that any particular conflict will be
resolved in a manner that does not adversely affect Noteholders.

A situation could arise in which the Company and the Securitization
Subsidiaries contemporaneously have funds available to invest in Contract
packages that SAI deems appropriate to be purchased by more than one of such
entities. The determination of which entity will purchase or invest in a
particular Contract package and what portion, if any, of such Contract package
will be purchased for such entity will be based upon the respective periods of
time the purchasing entities have been in existence, the cost of the available
Contract package, the amount of their unexpended funds and the need to diversify
their holdings. In such event, SAI

<PAGE>

intends to exercise good faith and to deal fairly with the respective
entities in deciding which entity, if any, is to purchase or invest in a
particular Contract package.

In addition, the Company may purchase Contracts from or sell Contracts to
the Securitization Subsidiaries, as determined by Sovereign as the owner of the
Company and the controlling owner of the Securitization Subsidiaries. The
primary purpose for any such transaction will be to provide for liquidity to the
selling entity for the payment of principal and/or interest of notes issued by
such entity, including the Notes in the case of the Company. The purchase price
for any such Contract to the purchasing entity (including the Company) will be
the Purchase Administration Fee plus an amount determined so that the purchasing
entity's internal rate of return on its investment in the Contract from the
remaining unpaid installments equals the original purchaser's initial internal
rate of return on its investment in the Contract, as of its purchase from the
dealer, assuming in both cases that the Contract was paid in full in accordance
with its scheduled installments.

Sovereign provides floor plan financing for various automobile dealers.
"Floor plan financing" refers to assistance provided to dealers in financing
their purchases of inventories of automobiles held for sale to customers. The
Company may purchase Contracts from time to time from such dealers.

Sales of repossessed Financed Vehicles through retail networks may be
conducted by placing the vehicle on the dealer's lot for sale, or on a lot owned
by an affiliate of SAI. In either case, the Company will pay all expenses
associated with the resale of the repossessed Financed Vehicles. In the case of
resales from a lot owned by an affiliate of SAI, such expenses will include an
allocable portion of the costs of operating the lot, although such expenses will
generally be comparable in amount to that which would be charged to the Company
for resales through unaffiliated lots.

LACK OF DAMAGE INSURANCE

The owners of the Financed Vehicles may fail to maintain physical damage
insurance. As a consequence, in the event any theft or physical damage to a
Financed Vehicle occurs and no such insurance exists, the Company may suffer a
loss unless the owner is otherwise able to pay for repairs or replacement or its
obligations under the related Contract. If the Company incurs significant

<PAGE>

losses from uninsured Financed Vehicles, its ability to repay the Notes may be
adversely affected.

REDEMPTION OF NOTES; YIELD CONSIDERATIONS

The Company may elect on any Payment Date to redeem the Notes in whole or
in part, thus reducing the term of the Notes. See "Description of the Notes--
Redemption". Since prevailing interest rates are subject to fluctuation, there
can be no assurance that investors in the Notes will be able to reinvest
payments thereon at yields equaling or exceeding the yields on the Notes. It is
possible that yields on any such reinvestments will be lower, and may be
significantly lower, than the yields on the Notes.

COMPETITION

The Company will have numerous competitors engaged in the business of
buying new and used motor vehicle retail installment contracts and notes at a
discount, including affiliates of the Company. In addition, the Company
competes to some extent with providers of alternative financing services such as
floor plan lines of credit from financial institutions, lease financing and
dealer self-financing. National and regional rental car companies, auction
houses, dealer groups or other firms with greater financial resources than the
Company could elect to compete with the Company in its market. These
competitive factors could have a material adverse effect upon the operations of
the Company.

SALE OF SMALL AMOUNT OF NOTES

The offering may be consummated by the Company with the sale of as little
as $500,000 in principal amount of the Notes. In the event The Company sells
only a small portion of Notes, fewer individual Contracts will be purchased by
the Company, and the performance of such smaller pool of Contracts will have a
greater effect on the ability of the Company to pay the Notes than if a large
portion of the offered Notes are sold. In addition, although most of the
Allowed Expenses of the Company will generally vary with the amount of Contracts
or Notes, certain fixed fees and expenses payable to the Trustee and for on-
going banking, accounting and legal services may not vary in proportion with the
amount of Contracts and may be relatively higher if only a small portion of the
Notes is sold than if a larger portion of the Notes is sold. Moreover, in the
event the fixed Allowed Expenses are higher than expected, the Company's ability
to repay a small amount of Notes may be adversely affected. See "Description of
the Notes--The Contract Proceeds and Operating Account".

LACK OF PARTICIPATING BROKER/DEALERS

The Company has not identified any broker/dealers who have agreed to
participate in this offering of the Notes. The failure

<PAGE>

of the Company to obtain the agreements of a significant number of
broker/dealers to participate in this offering may increase the likelihood
that less than all of the Notes will be sold. The sale of only a small
amount of the Notes may adversely affect Noteholders. See "Sale of Small
Amount of Notes" above.

CAPITALIZATION

The following table sets forth the capitalization of the Company as of July
31, 1996, and as adjusted to reflect the sale of the Notes offered hereby.

As of July 31, 1996
-----------------------------------
ACTUAL AS ADJUSTED
------ -----------------------

Minimum Maximum
LIABILITIES

Notes Due October 15, 2000 __ $500,000 $20,000,000

SHAREHOLDER'S EQUITY

Common stock, $.01 par value,
authorized 50,000 shares,
issued and outstanding
1,000 shares $ 10 10 10

Additional paid-in capital 990 990 990
Retained deficit (121) (121) (121)
----- -------- -----------
TOTAL SHAREHOLDER'S EQUITY $ 879 $ 879 $ 879
----- -------- -----------
TOTAL LIABILITIES AND
SHAREHOLDER'S EQUITY $ 879 $500,879 $20,000,879
----- -------- -----------
----- -------- -----------

The capitalization of the Company reflects its asset based security
structure. The Company's only significant assets will be the Contracts, except
as set forth below. The costs of the Company's ongoing operations during the
term of the Notes will be borne by Sovereign and will be reimbursed to Sovereign
through the Company's payment of monthly administration fees which are more
fully described under "Purchase and Collection of Contracts--Servicing Fees and
Sovereign Compensation".

Sovereign Credit Corporation ("Sovereign"), a wholly-owned subsidiary of
Sovereign Credit Holdings, Inc., the parent of the Company, has issued its
unsecured promissory note to the Company, payable on demand, in the principal
amount of $250,000. The note bears interest at the rate of 10% per annum,
payable at maturity. Such note constitutes an asset of the Company, and is
enforceable by the Company in accordance with its terms. As of June 30, 1996,
Sovereign had, on a consolidated, unaudited basis, $152,684 in

<PAGE>

cash, total assets of $844,656, total liabilities of $249,600, and
stockholders' equity of $595,056.

USE OF PROCEEDS

The following table sets forth the estimated application by the Company of
the anticipated proceeds of the sale of the Notes:

Minimum Offering Maximum Offering
-------------------- -----------------------
Use of Proceeds Amount Percent Amount Percent
- --------------- ------- ------- ---------- -------
Sales Commissions to
Broker-Dealers (1) $40,000 8% $1,600,000 8%

Offering and
Organization
Expenses (2) 10,000 2% 400,000 2%

Administration
and Management
Fee (3) 27,500 5.5% 1,045,000 5.2%

Purchase of Contracts
(including the Purchase
Administration Fee) 422,500 84.5% 16,955,000 85%
-------- ---- ----------- ---

Total $500,000 100% $20,000,000 100%
-------- ---- ----------- ---
-------- ---- ----------- ---

(1) The Company will pay to each participating broker-dealer sales commissions
of 8% of the principal amount of the Notes sold by such broker-dealer.

(2) The Company will use up to 2% of the gross proceeds from the sale of the
Notes to pay offering and organization expenses, including filing and
registration fees, legal fees of the Company's counsel, accounting fees,
trustee's fees, escrow agent's fees, "blue sky" expenses and printing expenses.
Sovereign has agreed to pay such expenses to the extent they exceed 2% of the
gross proceeds from the sale of the Notes.

(3) The Company will pay to Sovereign a fee equal to 5.5% of the gross proceeds
from the sale of the Notes (5.0% of the gross proceeds in excess of $9,000,000)
for administering and managing the ongoing operations of the Company.

Other than the foregoing expenses of the Company and the Purchase
Administration Fee payable to SAI, no other fee, remuneration or reimbursement
of expenses will be paid by the Company to Sovereign or SAI from the proceeds of
this offering.

Each of the Contracts will be a retail installment sales contract or note
originated by a used motor vehicle dealer and purchased by the Company through
SAI and will be secured by a used automobile or light-duty truck (a "Financed
Vehicle"). The Contracts will be purchased by the Company using (i) the net
proceeds from the sale of Notes, (ii) possible Additional Borrowing from the
Additional Lender, and (iii) so long as no Event of Default exists, any
remaining net collection proceeds from any previously purchased Contracts.
Although direct purchases from

<PAGE>

dealers are expected to be the norm, the Company may also purchase Contracts
that SAI or a Securitization Subsidiary has previously purchased. See "Risk
Factors--Common Ownership of the Company and SAI; Potential Conflicts of
Interest".

DESCRIPTION OF THE NOTES

GENERAL

The Notes will be issued pursuant to an Indenture dated as of ______, 1996
(the "Indenture") between the Company and Sterling Trust Company, as trustee
(the "Trustee"), a copy of which has been filed as an exhibit to the
Registration Statement of which this Prospectus is a part. The following
summaries of certain provisions of the Indenture do not purport to be complete
and are subject to, and qualified in their entirety by reference to, the
provisions of the Indenture. However, all material terms of the Notes and the
Indenture are described in this Prospectus.

The Notes are general unsecured obligations of the Company and the holders
of the Notes will have recourse against the assets of the Company for payment of
the Notes, subject to any and all security interests granted to the Additional
Lender, if any. Substantially all of the Company's assets will be the
Contracts, except as set forth under "Capitalization". The Company has not
sought, and is not required by the Indenture or any other document to obtain a
rating of the Notes by a rating agency. No person or entity will guarantee
payment of the Notes, and the holders of the Notes will have no contractual
recourse against Sovereign or SAI for payment of the Notes. The Trustee will
initially act as the Paying Agent and Registrar.

ISSUANCE OF NOTES; TRANSFERS

The Notes will be issued in an aggregate principal amount of up to
$20,000,000 in fully registered form without any minimum denominations.
(Indenture, Section 2.3) The minimum subscription amount for each investor is
$4,000 (or $2,000 for Individual Retirement Accounts). The Company may charge a
reasonable fee for any transfer or exchange of a Note, except in certain limited
circumstances, or for any change of address. (Indenture, Section 2.7)

MATURITY OF THE NOTES

The Notes will mature on October 15, 2000 (the "Maturity Date"), at which
time all outstanding and accrued principal and interest will be fully due and
payable.

PAYMENTS OF INTEREST

Each Note will accrue interest on its outstanding principal

<PAGE>

balance from the date of issuance at the rate of 11% per annum (computed on
the basis of a 360-day year, comprised of twelve 30-day periods). The
Company will be required to make monthly payments of interest, paid in
arrears. Payments of interest will be due and payable on the 15th day of
each successive calendar month during the term of the Note (for interest
accruing through the last day of the prior month) commencing with the second
full calendar month following the month during which the Note was issued (the
"Payment Date") and upon the Maturity Date. Any installment of interest
which is not paid when and as due will accrue interest at the lesser of (i)
11% per annum or (ii) the highest lawful rate of interest from the date due
to the date of payment, but only to the extent payment of such interest is
lawful and enforceable. The effective interest rate of the Notes will be
lower than their stated interest rate because each payment of interest will
be paid 15 days after the month over which it accrued.

PAYMENTS OF PRINCIPAL

Six equal installments of principal on the Notes will be due and payable
commencing on May 15, 2000, and thereafter on each of the next five Payment
Dates. Any unpaid principal balance of the Notes will be due and payable on the
Maturity Date.

SOURCES OF FUNDS FOR PAYMENT; ACCOUNTS

The Company expects to use the amounts collected under the Contracts to
make the required payments under the Notes. All installments and other proceeds
from the Contracts will be deposited in the Collections Account maintained by
SAI in the Company's name (as described under "The Contract Proceeds and
Operating Account" below). (Indenture, Sections 4.1 and 12.2) SAI will cause
to be issued to each Obligor on a Contract a payment book together with
instructions to mail remittances directly to the Collections Account. SAI has
agreed to deposit all installments and other proceeds, including proceeds from
sales of repossessed vehicles, into the Collections Account. The Indenture
requires SAI to transfer to the Company's Operating Account all amounts in the
Collections Account attributable to the Contracts on at least a weekly basis.
(Indenture, Section 12.2)

Payments of interest on the Notes will be made on each Payment Date by the
Trustee or the Paying Agent of the Company out of funds in the Trust Account
controlled by the Trustee (as described under "The Trust Account" below).
(Indenture, Section 4.1) On or prior to the Business Day immediately preceding
each Payment Date occurring prior to May 15, 2000, the Company will transfer to
the Trust Account from the Company's Operating Account an amount which, together
with any funds in the Trust Account, is sufficient to pay the accrued interest
due on the outstanding Notes on such Payment Date. Such transfer must be made
before any remaining funds in the Operating Account may be applied by the
Company to any other

<PAGE>

purpose, other than principal and interest payments on Additional Borrowing,
if any. (Indenture, Section 4.1)

Commencing on or prior to the business day next preceding May 15, 2000, and
on or prior to the business day next preceding each of the next five Payment
Dates occurring thereafter, the Company shall cause to be transferred from the
Operating Account to the Trust Account an amount which, together with any funds
then held in the Trust Account, is sufficient to pay the accrued interest due,
and principal owing, on the Notes on such Payment Date. (Indenture, Section
4.1)

RECORD DATES

All principal and interest payments will be made by check mailed by the
Trustee or Paying Agent to Noteholders registered as of the close of business on
the first day of the month of the Payment Date (the "Record Dates") at their
addresses appearing on the Note Register, except that the final payment of
principal and interest on each Note will be made only upon presentation and
surrender of such Note at the office of the Paying Agent. (Indenture, Section
5.1)

REDEMPTION

On any Payment Date, the Company may exercise its right to redeem the
Notes, in whole or in part, in accordance with the Indenture. (Indenture,
Section 3.1) Any redemption of a Note will be at 100% of the outstanding
principal amount thereof, together with interest accrued to the date of
redemption, without any premium or penalty. Notice will be given to the
Noteholders by first class mail, postage prepaid, mailed not less than 30 days
prior to the redemption date. The notice will set forth the redemption date,
the redemption price and the name and address of the Paying Agent and will state
that the Notes must be delivered to the Paying Agent and that interest on the
Notes ceases to accrue on and after the redemption date. (Indenture, Section
3.1)

In the event that prior to 180 days following the termination date of the
offering the Company has been unable to invest the total net proceeds from the
sale of the Notes in suitable Contracts, the uninvested net proceeds at such
date will be utilized for a mandatory partial redemption of the Notes within 45
days following such date. In such a case, Notes will be redeemed on a random
basis, by lot.

THE TRUST ACCOUNT

The Company has established, in the name of the Trustee, a trust account at
Sterling Trust Company (the "Trust Account") into which it will deposit interest
and principal payments on the Notes. The Trust Account will relate solely to
the Notes. Funds in the

<PAGE>

Trust Account will not be commingled with any other monies of SAI or the
Company. All moneys deposited from time to time in the Trust Account will be
held for the benefit of the Trustee. Withdrawals of any funds from the Trust
Account will be controlled by the Trustee. All payments of amounts due and
payable with respect to the Notes which are to be made from amounts withdrawn
from the Trust Account will be made on behalf of the Company by the Trustee
or by a Paying Agent, and no amounts so withdrawn from the Trust Account will
be paid over to the Company. The funds in the Trust Account will be employed
by the Trustee or the Paying Agent to pay interest on the Notes on each
Payment Date and to make principal payments on the Notes commencing May 15,
2000 and on each of the next five Payment Dates thereafter. Funds in the
Trust Account may be invested in Eligible Investments, as directed by the
Company, and, during the continuance of an Event of Default, as determined by
the Trustee, within the restrictions established in the Indenture.
(Indenture, Sections 4.1 and 4.2)

THE CONTRACT PROCEEDS AND OPERATING ACCOUNT

SAI has established a lockbox account (the "Collections Account") in the
name of the Company and for the sole benefit of the Company. All payments made
on or with respect to the Contracts will be deposited in the Collections
Account. The Collections Account is a "lock-box" account at a financial
institution where all remittance checks, drafts and other instruments for the
Contracts will be deposited for collection by the financial institution as agent
for the Company. All Obligors will be requested, through correspondence and
delivery of payment books, to remit payments under their Contracts directly to
the Collections Account. SAI has also agreed to deposit in the Collections
Account any payment proceeds received directly by SAI, including any proceeds
from resales of returned or repossessed Financed Vehicles and any recoveries
from insurance claims on Financed Vehicles. The Indenture requires the transfer
of all of the Company's funds from the Collections Account into a commercial
bank account maintained by the Company (the "Operating Account") in its own name
for use in holding the Company's funds and in paying the Company's expenditures
to occur on at least a weekly basis. Any funds in the Operating Account may be
invested daily by the Company in Eligible Investments, subject to the Indenture.
(Indenture, Section 4.1)

Subject to the requirement to pay interest and principal to any Additional
Lender, and provided that no Event of Default exists, the Company will have the
right to cause the funds contained in the Operating Account to be withdrawn or
applied for the following purposes in the following priority; first, through a
direct transfer to the Trust Account, to the payment of any interest due on the
outstanding Notes on each Payment Date; second, to any amounts due the Trustee
for its fees and expenses; third, to the payment of any other Allowed Expenses;
fourth, to the deposit to the Trust Account for payment of any principal due on
the outstanding Notes on any Payment Date occurring on or after May 15,

<PAGE>

2000; and, fifth, to the purchase of eligible Contracts, as certified by the
Company and SAI. The Contract proceeds must be sufficient to satisfy fully
any application having higher priority before they may be applied to a use
having a lower priority. (Indenture, Section 4.1) The Company and SAI will
provide monthly reports to the Trustee certifying to the Trustee as to
purchasing and servicing activities in relation to the Contracts, the amounts
of Allowed Expenses paid from the Operating Account and a reconciliation of
deposits and withdrawals from the Operating Account. (Indenture, Section
4.1, 12.9 and 12.10)

On or before the business day immediately preceding each Payment Date, the
Company will cause to be transferred directly from the Operating Account to the
Trust Account an amount which, together with any funds in the Trust Account, is
sufficient to make all interest payments on the Notes outstanding on such
Payment Date. Commencing on or prior to the business day immediately preceding
May 15, 2000, and on or prior to the business day immediately preceding each of
the next five Payment Dates occurring thereafter, the Company shall cause to be
transferred from the Operating Account to the Trust Account an amount which,
together with any funds then held in the Trust Account, is sufficient to pay the
accrued interest due, and principal owing, on the Notes on such Payment Date.
See "Sources of Funds for Payment; Accounts" above.

The Company may disburse funds from the Operating Account for purposes of
payment of Allowed Expenses (including fees payable to SAI) except during an
Event of Default, in which event only the payment of the fees and expenses of
the Trustee will be permitted. On a monthly basis, the Company must provide a
report in which it itemizes the Allowed Expenses and certifies that any payments
from the Operating Account conform with the Indenture. (Indenture, Section 4.1)

The "Allowed Expenses" of the Company will be limited to the expenses and
fees of the Trustee under the Indenture, fees charged by SAI under the Servicing
Agreement (including the Contract Servicing Fee, the Purchase Administration Fee
and all repossession fees)(the "Servicing Fees"), the Investor Administration
Fee charged by Sovereign, title transfer fees, federal, state and local taxes
(including corporate franchise taxes and any payment to any of its affiliates as
reimbursements for tax payments made by such affiliate on the Company's behalf
or benefits accruing from tax losses of such affiliate that are used to offset
the taxable income of the Company), legal and accounting fees and printing
expenses for reports, compliance certificates and opinions required by the
Indenture, premiums for vehicle value insurance, charges for vehicle warranty
service contracts (including fees paid to Dealers), bank service charges and
account fees (including such charges and fees incurred by SAI for the
Collections Account), expenses of repossessing, repairing and liquidating motor
vehicle collateral (as to each vehicle, not to exceed the liquidation

<PAGE>

proceeds from the vehicle), and any insurance proceeds applied to vehicle
repairs or required to be refunded to Obligors (collectively the "Allowed
Expenses"). See "Management--Certain Relationships and Related
Transactions". Sovereign will pay all other general administrative and
overhead expenses incurred by the Company. The following table summarizes
the Company's estimates of its anticipated Allowed Expenses. See "Purchase
and Collection of Contracts--Collection Payments".

<TABLE>
Summary of Estimated Allowed Expenses
-------------------------------------
Allowed Expenses Estimated Amount
- ---------------- ----------------
<S> <C>
Servicing Fees (paid to SAI,
an affiliate of the Company)
Contract Servicing Fee $20 per month per Contract not assigned for
repossession, paid to SAI
Purchase Administration Fee the lesser of $500 per Contract purchased, or 5%
of the total amount of installments due under the
Contract as of the date of purchase, paid monthly
to SAI
Investor Administration Fee
(paid to Sovereign, an
affiliate of the Company) 1/12th of 0.5% of the aggregate outstanding
principal amount of the Notes, paid monthly to
Sovereign ($83.33 or $8,333.33 per month if
minimum or maximum amount, respectively, of Notes
is sold)

Trustee Fees
Acceptance Fee (payable
upon execution of
Indenture $7,000
Annual Administration Fee
(billed quarterly) $7,500
Paying Agent/Registrar
Services $4 per year per Note
Note Register Revisions,
Transfers, Exchanges
and Replacement Notes
(chargeable to
Noteholders) $10 each
Out-of-Pocket Costs Estimated to be minimal
Expedited Delivery (per
delivery, in addition
to out-of-pocket) $10 each

Bank Fees
Collections Account $3,000 to $4,000 (varies with

<PAGE>

volume) per month
Operating Account $2,000 per year (varies with number of
transactions)
Subscription Escrow Account $5,000

Accounting Fees
Annual Audit $20,000
Annual Tax Return $3,500
Annual Compliance
Certificate $3,500
Printing & Mailing $2,500

Repossession, Repair and $125 per Financed Vehicle paid to Liquidation
Expenses SAI, plus expenses estimated to average from
$1000 to $1500 for each repossessed vehicle,
but limited to the related liquidation
or insurance proceeds

Vehicle Warranty Repair Average of $550 per Contract
Service Contract (purchased at Obligor's option and usually
financed through Contract)

Federal Income Taxes Varies with taxable income

Texas Franchise Taxes 4.5% of taxable income allocated to Texas
</TABLE>

To the extent collected funds are not needed to fund the payments on the
Notes or the Additional Borrowing, if any, the purchase of additional Contracts,
or the payment of Allowed Expenses of the Company, such funds will remain in the
Company's Operating Account.

Prepayments by Obligors on the Contracts will be treated in the same manner
as collection proceeds on the Contracts. Consequently, such prepayments may be
used to purchase additional Contracts and will not be required to be passed
through to Noteholders as principal payments. See "Risk Factors--Collections
and Repossessions; Performance of Contracts". The Company and, consequently,
Noteholders will benefit from any prepayments because the loss of the interest
portion of any prepaid installments should be more than offset by the
substantial discounts off of principal at which the Contracts were purchased.

<PAGE>

The following chart illustrates the flow of Contract proceeds from the
Obligors through the Collections Account and Operating Account to the
applications thereof and the priority of the various applications of such
proceeds.

FLOW OF CONTRACT PROCEEDS AND PRIORITY OF APPLICATIONS

<TABLE>
Installments Collections Weekly Operating Monthly
<S> <C> <C> <C> <C> <C>
Contract Account Account Proceeds
Obligors (SAI) (Company) Applications(1)
</TABLE>

(1) PRIORITY OF MONTHLY PROCEEDS APPLICATIONS

1. Interest and principal on the Notes are paid by Company to Trust
Account from Operating Account on or before the business day
immediately preceding each Payment Date.

2. Interest and principal on the Notes are paid by Trustee to Noteholders
from transfers to Trust Account.

3. Trustee's fees and expenses are paid by Company from Operating
Account.

4.* Other Allowed Expenses are paid by Company from Operating Account.

5.* Any remaining proceeds are used to purchase additional eligible
Contracts.

- --------------------------------
* Applications described in 4 and 5 above are prohibited during an Event of
Default.

ADDITIONAL INDENTURE PROVISIONS

MODIFICATION OF INDENTURE. With the consent of the holders of at least a
majority of the aggregate principal amount of the outstanding Notes, the Trustee
and the Company may amend or supplement the Indenture or the Notes, except as
provided below. Notice of any such amendment of the Indenture or the Notes will
be mailed to all holders of the Notes by the Company promptly after the
effectiveness thereof. Without the additional consent of the holder of each
Outstanding Note affected, however, no supplemental indenture will, among other
things, (a) reduce the amount of Notes whose holders must consent to an
amendment, supplement or waiver, (b) reduce the rate of or extend the time for
payment of interest on any Note, (c) reduce or extend the maturity of the
principal of any Note, or (d) make any Note payable in money other than that
stated in the Note. (Indenture, Section 9.2) For the purpose of consents of
Noteholders, the term "Outstanding" excludes Notes held by the Company or its
Affiliates. (Indenture, Section 1.1)

The Company and the Trustee may also amend or supplement the Indenture or
the Notes, without obtaining the consent of Noteholders, to cure ambiguities or
make minor corrections and, among other things, to make any change that does not
materially adversely affect the interests of the Noteholders. (Indenture,
Section 9.1)

EVENTS OF DEFAULT. An event of default ("Event of Default") with respect
to the Notes is defined in the Indenture as being: (a) a failure by the Company
to make any interest payment on the Notes within 30 days after it becomes due;
(b) a failure by the Company to make any principal payment on the Notes at
maturity or

<PAGE>

otherwise within 30 days after it becomes due; (c) the impairment of the
validity or effectiveness of the Indenture, the improper amendment or
termination of the Indenture, or the failure of the Company to comply with
any of the covenants of the Company in the Indenture, and the continuance of
any such default for a period of 30 days after notice to the Company by the
Trustee or to the Company and the Trustee by the registered holders of Notes
representing at least 25% of the aggregate principal amount of the
outstanding Notes; (d) the incorrectness in any material respect of a
representation or warranty of the Company in the Indenture (exclusive of
representations and warranties as to individual Contracts that the Servicer
is obligated to, and does, repurchase from the Company) and the failure to
cure such circumstances or condition within 30 days of notice thereof to the
Company by the Trustee or the registered holders of Notes representing at
least 25% of the aggregate principal amount of the outstanding Notes; or (e)
certain events of bankruptcy of the Company. (Indenture, Section 6.1)

RIGHTS UPON EVENT OF DEFAULT. In case an Event of Default should occur and
be continuing, the Trustee may, or at the direction of the registered holders of
Notes representing at least 25% of the principal amount of the outstanding Notes
will, declare the Notes due and payable. Upon such declaration, the Notes will
immediately become due and payable in an amount equal to their remaining
principal amount plus accrued interest at such time. Such declaration may under
certain circumstances be rescinded by the registered holders of a majority of
the aggregate principal amount of the outstanding Notes. (Indenture, Section
6.2)

If, following an Event of Default, the Notes have been declared due and
payable, the Trustee may exercise one or more of its remedies including, in its
discretion, the right to make demand and institute judicial proceedings in
equity or law for the collection of all amounts then payable on the Notes, or
under the Indenture, whether by declaration or otherwise, enforce all judgments
obtained, and collect from the Company moneys adjudged due. (Indenture, Section
6.3)

The registered holders of a majority of the aggregate principal amount of
the outstanding Notes will have the right to direct the time, method, and place
of conducting any proceedings for any remedy available to the Trustee or
exercising any trust or power conferred on the Trustee. The Trustee may refuse,
however, to follow any such direction that conflicts with law or the Indenture,
that is unduly prejudicial to the rights of Noteholders not joining in such
direction or that would involve the Trustee in personal liability. (Indenture,
Section 6.5) The registered holders of a majority of the aggregate principal
amount of the outstanding Notes may also waive any default, except a default in
respect of a covenant or provision of the Indenture which cannot be modified
without the waiver or consent of each holder of Notes

<PAGE>

affected. (Indenture, Section 6.4)

No holder of Notes will have the right to pursue any remedy with respect to
the Indenture or the Notes, unless (a) such holder gives to the Trustee written
notice of a continuing Event of Default, (b) the registered holders of a
majority of the aggregate principal amount of the outstanding Notes have made a
written request to the Trustee to pursue such remedy, and have offered the
Trustee indemnity satisfactory to the Trustee against loss, liability or
expense, (c) the Trustee does not comply with the request within 60 days, and
(d) the Trustee has received no contrary direction during such 60-day period
from the registered holders of Notes representing a majority of the principal
amount of the outstanding Notes. (Indenture, Section 6.6)

RESTRICTIONS ON BUSINESS ACTIVITIES AND ADDITIONAL INDEBTEDNESS. The
Company has made certain covenants in the Indenture that restrict its business
activities and prohibit certain transactions by the Company. The Company has
agreed, among other things, that, without the consent of the registered holders
of a majority of the aggregate principal amount of the Notes then outstanding,
it will not (i) engage in any business or activity other than or in connection
with the purchase, collection and servicing of the Contracts, the repossession
and resale of the Financed Vehicles and the raising of debt and equity capital,
and any other incidental businesses or activities or (ii) create, incur, assume
or in any manner become liable in respect of any indebtedness other than the
Notes, any Allowed Expenses, and Additional Borrowing and any other amounts
incurred in the ordinary course of the Company's business. In addition, the
Company has agreed not to dissolve or liquidate in whole or in part or to merge
or to consolidate with any corporation, partnership or other entity other than
another direct or indirect wholly-owned subsidiary of an affiliate of the
Company or the Servicer whose business is restricted in the same manner as the
Company's business under clause (i) above. (Indenture, Section 5.9)

COMPLIANCE STATEMENTS AND ANNUAL ACCOUNTANTS' REPORTS. The Company will be
required to file quarterly with the Trustee an officer's certificate as to
fulfillment of its obligations under the Indenture. (Indenture, Section 5.6)
In addition, the Servicer and the Company annually must file with the Trustee a
report of a firm of independent public accountants as to their examination of
the financial statements of the Company and the Servicer and the documents and
records relating to the Contracts and deliver a certificate with respect to the
compliance by the Company and the Servicer, in all material respects, with their
respective obligations arising under the Indenture. (Indenture, Sections 5.6
and 12.11)

TRUSTEE'S ANNUAL REPORT. The Trust Indenture Act of 1939 requires the
Trustee to mail annually to all holders of Notes a

<PAGE>

brief report if any of certain events occur. These events include any change
in the Trustee's eligibility and qualifications to continue as the Trustee
under the Indenture, any amounts advanced by it under the Indenture, the
amount, interest rate and maturity date of certain indebtedness, if any,
owing by the Company to the Trustee in its individual capacity, and any
action taken by it which materially affects the Notes and which has not been
previously reported. (Indenture, Section 7.6)

SATISFACTION AND DISCHARGE OF THE INDENTURE. The Indenture will be
discharged, with certain limitations, upon deposit with the Trustee of funds
sufficient for the payment or redemption of all of the Notes. The duties of the
Company to the holders of Notes will cease upon such deposit. (Indenture,
Section 8.1)

DUTIES OF TRUSTEE. If an Event of Default has occurred and is continuing,
the Trustee is obligated, under the Indenture, to exercise such of its rights
and powers and to use the same degree of care and skill in the exercise of such
rights and powers as a prudent man would exercise or use under the circumstances
in his own affairs. Except during an Event of Default known to the Trustee, the
Trustee may rely, in the absence of bad faith, on certificates and opinions
furnished to it. Generally, the Trustee is not relieved from liability for its
own negligence or willful misconduct except that it is not liable (i) if it
acted in good faith in accordance with a direction from the Holders of not less
than a majority in principal amount of the Notes, or (ii) for any error in
judgment made in good faith and without negligence in ascertaining the pertinent
facts. The Trustee may refuse to perform any duty or exercise any right or
power unless it receives indemnity satisfactory to it against any loss,
liability or expense. (Indenture, Section 7.1) The Trustee may refuse to
exercise any right or power at the request or direction of the holders of Notes,
unless such holders offer to the Trustee reasonable security or indemnity
against the costs, expenses or liabilities that might be incurred by it in
compliance with such request or direction. (Indenture, Section 7.2)

THE TRUSTEE. Sterling Trust Company, a trust company organized and
existing under the laws of the State of Texas, is the Trustee under the
Indenture for the Notes. The Company is obligated to pay the fees and expenses
of the Trustee relating to the Notes. (Indenture, Section 7.7)

THE SERVICING AGREEMENT

The Company anticipates that it will grant to the Additional Lender, if
any, a security interest in all of its rights under the Servicing Agreement. In
addition, the Company anticipates that, in the event of the occurrence and
continuation of a default under the Servicing Agreement by SAI, the Additional
Lender may direct the Company to, and the Company will, terminate all of the
rights and

<PAGE>

powers of SAI under the Servicing Agreement. Upon such termination, all
rights, powers, duties, obligations and responsibilities of SAI with respect
to the related Contracts (except for any obligation of SAI to indemnify the
Company) will vest in and be assumed by the Company or any servicing agent
that the Company may designate; provided, however, that SAI will continue to
be obligated to transfer funds of the Company to the Operating Account.

POSSIBLE ADDITIONAL BORROWING

In addition to the Notes, the Company intends to pursue another lending
source (the "Additional Lender") to borrow funds (the "Additional Borrowing")
with which to purchase additional Contracts. The Additional Lender may be a
bank or an institutional lender such as an insurance company. The Company
anticipates that any borrowings from the Additional Lender will be secured by
first priority security interests in all the Contracts owned by the Company, and
that both interest on and principal of such borrowings will be repaid from
collection proceeds of such Contracts. As of the date of this Prospectus, the
Company has not obtained a commitment for Additional Borrowing from an
Additional Lender, and no assurance can be made that any Additional Borrowing
will be obtained.

To secure the Additional Borrowing, the Company will grant a security
interest or lien in collateral which may consist of the Company's right, title
and interest in any or all of the following: (a) the Contracts (including
Contracts purchased with the net proceeds of this offering), together with all
payments and instruments received with respect thereto, (b) the Servicing
Agreement, (c) the Operating Account and all funds (including investments)
therein, (d) all repossessed or returned Financed Vehicles, and (e) all proceeds
of the conversion, voluntary or involuntary, of any of the foregoing into cash
or other liquid property. The security interest granted to the Additional
Lender in the Contracts will be perfected by delivery of such Contracts and
related title documents to the Additional Lender, or other financial institution
appointed by the Additional Lender to act as custodian and bailee of the
Contracts and related title documents for the benefit of the Additional Lender.

THE COMPANY

GENERAL

Sovereign Credit Finance I, Inc. (the "Company") was incorporated in the
state of Texas on March 19, 1996. The Company is a subsidiary of Sovereign
Credit Holdings, Inc., a Texas corporation. The principal offices of the
Company are located at 4015 Beltline Road, Building B, Dallas, Texas 75244.
The telephone number is (972) 960-5500.

<PAGE>

Sovereign will administer and manage the ongoing operations of the Company.
Other than the Allowed Expenses, Sovereign will pay all general administrative
and overhead expenses incurred by the Company. The Company will pay to
Sovereign a fee equal to 5.5% of the gross proceeds from the sale of the Notes
(5.0% of the gross proceeds in excess of $9,000,000) for its services to the
Company.

THE BUSINESS OF THE COMPANY

The Company was established for the sole purposes of purchasing, collecting
and servicing motor vehicle retail sales installment contracts and obligations,
obtaining capital through borrowings or through sale of debt or equity
securities in order to invest in such contracts and obligations, and all related
business activities. The motor vehicle retail installment contracts and notes
to be purchased by the Company and pledged to secure the Notes (the "Contracts")
will be purchased at discounts ranging generally from 25% to 45% of the
aggregate remaining unpaid installments thereof and will be secured by used
automobiles and light trucks (the "Financed Vehicles"). The Contracts will be
purchased from a network of motor vehicle dealers organized by SAI (the
"Dealers") and currently located primarily in metropolitan areas in Texas and in
Tennessee. The Company will not participate in or directly finance the retail
sales by the Dealers of the Financed Vehicles from which the Contracts will
arise. The Dealers generate the Contracts and offer them for sale on a non-
exclusive basis to the Company. The Dealers forego some profit on each Contract
sold to the Company in exchange for an immediate return of their invested
capital.

The funds necessary to purchase the Contracts will initially be provided
from the sale of the Notes offered hereby. Subject to the prior payment of
interest and principal due upon the Notes and the Additional Borrowing, if any,
and Allowed Expenses, the collection proceeds from the Contracts will be used to
purchase additional Contracts so long as no Event of Default exists. Upon the
payment in full of all principal and interest on the Notes, the Indenture will
terminate. While the Notes remain outstanding, the Company will be prohibited
from engaging in any business other than the purchase, collection and servicing
of the Contracts (including repossession and resale of the vehicle collateral)
and from incurring any additional indebtedness other than the Additional
Borrowing, Allowed Expenses and any other amounts incurred in the ordinary
course of its business.

The Contracts purchased by the Company will relate primarily to Financed
Vehicles in the middle range of the market for used automobiles and light-duty
trucks, where consumer retail prices range from $5,000 to $10,000. The Company
believes that banks and other traditional financing institutions are not well
equipped to finance small independent used motor vehicle dealers, due to the
large number of relatively small notes or installment contracts,

<PAGE>

the institutions' lack of due diligence and collection capability with
respect to used motor vehicles and the inability of such institutions to
approve or evaluate contracts on a timely, cost-effective basis. Consumer
used motor vehicle receivables are management and collection intensive and
require constant supervision, review and knowledge of repossession and resale
services. The Company believes that SAI, and its contractors, will provide
this industry expertise at a low marginal cost. The Company also believes
that the quality and performance of the Contracts will be enhanced through
the consistent application by SAI of predetermined purchasing and collection
criteria established in the Indenture and the Servicing Agreement.

The Company has no material properties, assets (except as set forth under
"Capitalization"), operating history or pending legal proceedings. The Company
and SAI intend to obtain any licenses that may be required in any state where it
purchases and collects Contracts. SAI has registered, and the Company will
register, with the Texas Consumer Credit Commissioner as a holder of motor
vehicle retail installment contracts.

BUSINESS OF SOVEREIGN, SAI AND THE SECURITIZATION SUBSIDIARIES

Sovereign was formed as a Texas corporation in January 1991. Since its
formation, Sovereign (formerly known as Sovereign Asset Management, Inc.),
through limited partnerships which it has sponsored and of which it serves as
the general partner, has engaged in the business of acquiring notes, accounts
receivable and other evidences of indebtedness from the RTC, the FDIC, credit
unions, lending institutions and other sources. Since October 1993, Sovereign
has sponsored a number of entities (the "Securitization Subsidiaries") which
have issued notes to investors and used the net proceeds thereof to purchase
consumer contracts and notes created by the retail sale and financing of used
automobiles and light trucks. See "Information Regarding the Securitization
Subsidiaries." As used herein, the term "Securitization Subsidiaries" does not
include the Company.

SAI was formed as a Texas corporation in January 1991 for the purpose of
purchasing, servicing and collecting various financial notes on behalf of
Sovereign and the entities sponsored by Sovereign. SAI is a wholly-owned
subsidiary of Sovereign. Sovereign and the Securitization Subsidiaries are the
only parties for which SAI purchases and services motor vehicle retail
installment contracts and notes as of the date of this Prospectus.

Sovereign and SAI both maintain their offices at 4015 Belt Line Road,
Building B, Dallas, Texas 75244. The telephone number is (972) 960-5500.

<PAGE>

LITIGATION

Lipshy Motorcars, Inc., a used automobile dealer, has filed a lawsuit
against SAI in connection with a dispute over the terms of various Contract
purchase agreements. Pursuant to such agreements, SAI, on behalf of an
affiliated entity, purchased Contracts from Lipshy for 50% to 60% of the then
outstanding principal balance of the Contracts, with additional payments to be
made as the Contracts were collected by SAI. The agreements further provided
that Lipshy would repurchase any Contract that had amounts past due for a period
of 60 days or more. A large number of Contracts that were so purchased by SAI
became more than 60 days past due, but Lipshy refused to honor its repurchase
obligation. Lipshy alleges that the agreements were actually Contract servicing
agreements, and alleges fraud, negligence, breach of contract, and violation of
the Texas Deceptive Trade Practices--Consumer Protection Act, and requests
unspecified actual and punitive damages. Because the agreements require
resolution of all disputes through binding arbitration, the Court has ordered
Lipshy to submit its claims to arbitration. On the same day the lawsuit was
filed, SAI filed a demand for arbitration against Lipshy with the American
Arbitration Association, alleging breach of contract, conversion, fraud, and
tortious interference with contract, and requests actual damages of $1,694,960
plus punitive damages. SAI believes that Lipshy's claims are without merit, and
are nothing more than an attempt to circumvent Lipshy's obligations to
repurchase a large amount of Contracts which were uncollectible, and intends to
vigorously defend itself against the claims in the event they are asserted by
Lipshy in the arbitration. Additionally, SAI intends to vigorously pursue its
claims against Lipshy. Because Lipshy has not stated the amount of its alleged
actual and punitive damages with respect to its claims, it is unknown as of the
date of this Prospectus whether an adverse decision with respect to the claims
asserted by Lipshy would have a material adverse effect on SAI's operations,
financial condition, or ability to act as Servicer on behalf of the Company.
Consequently, it unknown as of the date of this Prospectus whether such an
adverse decision would adversely affect the Noteholders.

The Company is not a party to any litigation.

PURCHASE AND COLLECTION OF CONTRACTS

The Contracts will be purchased and serviced on behalf of the Company by
SAI under the Master Contract Purchase Agreement and the Servicing Agreement,
each dated as of ________, 1996 (collectively, the "Servicing Agreement"),
between the Company and SAI. A copy of each of the documents constituting the
Servicing Agreement has been filed as an exhibit to the Registration Statement
of which this Prospectus is a part. In addition, SAI has joined in the
execution of the Indenture for the purpose of making certain agreements and
representations regarding the purchasing and servicing of the

<PAGE>

Contracts with the Trustee for the benefit of Noteholders. The following
summaries do not purport to be complete and are subject to and qualified in
their entirety by reference to, the provisions of the Servicing Agreement and
the Indenture, and where particular provisions or terms used in the Servicing
Agreement or the Indenture are referred to, the actual provisions (including
definitions of terms) are incorporated by reference as part of such
summaries. References herein to the "Servicer" are to SAI and any successor
or permitted assignee of SAI performing the duties of the Servicer under the
Servicing Agreement.

GENERAL

Pursuant to the Servicing Agreement, the Company may request the Servicer
to solicit from Dealers offers to sell to the Company eligible Contracts, and
the Servicer is obligated to use reasonable efforts to solicit from Dealers
offers to sell to the Company eligible Contracts upon receiving any such
request. The Company will be obligated to purchase all Contracts offered for
sale by Dealers through the Servicer up to the dollar amount specified in the
Company's request if the offered Contracts satisfy the purchasing criteria set
forth in the Servicing Agreement. The Company's cost for each Contract will
equal the purchase price payable to the Dealer for the Contract, including any
incentives paid to the Dealer on a per Contract basis such as a volume bonus.

The Servicing Agreement and the Indenture establish certain criteria to
govern Contract purchases. (Master Contract Purchase Agreement, Exhibit B;
Indenture, Exhibit A) The Servicing Agreement also establishes criteria to
govern Contract servicing, including the performance of certain collection and
collateral management activities. If the Servicer fails to comply with these
criteria, the Company may terminate the Servicing Agreement and may appoint
another servicer. (Servicing Agreement, Exhibit A and Section 9) The Servicing
Agreement allows the Servicer to contract with industry-qualified third parties
to perform its obligations thereunder. The performance by any third party will
not relieve the Servicer from liability for its obligations under the Servicing
Agreement. (Servicing Agreement, Section 1)

CONTRACT PURCHASE CRITERIA

SAI has designed certain criteria as to the price, purchase discount, term,
down payment, installments and interest rate for the Contracts and the price,
cost to the dealer, average wholesale value, age, mileage and make of the
Financed Vehicles to qualify for purchase by the Company under the Servicing
Agreement and the Indenture. The Company believes that the most significant of
these criteria, in general, are as follows:

a) The purchase price for each Contract must involve an initial payment
to the Dealer (i) of no more than 90% of principal

<PAGE>

plus accrued interest (pay-off balance) of such Contract at the time of
purchase, and (ii) which does not exceed 140% of the average trade-in price
(wholesale value) for the related Financed Vehicle plus tax, title, license
and warranty (or, in the case of certain popular models, 140% of the Dealer's
cost plus tax, title, license and warranty).

b) The Contracts generally will have original terms that are 36 months or
less, although 48 month terms will be permitted where the Financed Vehicle is a
1993 or later model, or where lower depreciation or stronger credit history
justifies a 48 month term. The Contracts will equally amortize their principal
balance over their respective terms.

c) The age of each Financed Vehicle will generally be seven years or less
for automobiles or eight years or less for trucks, although SAI may purchase
Contracts secured by Financed Vehicles which are older, if in its judgement the
economics justify such a purchase.

d) The mileage of each Financed Vehicle may not generally exceed 100,000
miles for automobiles or 125,000 miles for trucks, regardless of the year model.
The mileage limit will be less for later year models. In the event mileage of a
Financed Vehicle exceeds such limits, the Dealer is typically required to
guarantee payments under the applicable Contract.

e) The Obligors on the Contracts are generally required to make a down
payment in cash plus net trade-in allowance of at least approximately 10% of the
Dealers' costs (excluding sale preparation expenses) in the Financed Vehicles,
although there are no express minimum ratios of unpaid installments under the
Contracts at the time of their origination by the Dealers to the retail sale
price or the wholesale value of the Financed Vehicles.

f) The interest rate on the Contracts must not violate any applicable
usury laws.

g) The Obligors on the Contracts must have supplied certain credit
information, and credit verification procedures must have been performed by the
Servicer in a manner commensurate with standard industry practice.

Contracts may be purchased which do not meet the criteria specified in (a)
through (e) above if in the Servicer's good faith judgment, purchasing such
Contracts would be in the best interests of the Company. The Company may pay a
higher purchase price for seasoned Contracts. The Company will not decline to
purchase Contracts offered by the Servicer that do not meet the criteria because
the relationship is not arm's length. Generally, the "creditworthiness grade"
of the Obligors on the Contracts will be "C".

<PAGE>

With respect to the credit information to be supplied by the Obligors on
the Contracts, the Company has established certain credit criteria to be
satisfied by each Obligor. In order to satisfy these criteria, an Obligor,
among other things, must be able to provide verifiable personal references, must
have a valid driver's license, must have been a resident of the local area of
origination for a minimum of six months, and must be at least 18 years of age.
In order to verify the foregoing information in accordance with the Company's
expectations of standard industry practice, the Servicer will be required to
obtain from the Dealer a copy of the credit application executed by the Obligor
which contains the necessary information, to verify by telephone or otherwise
the Obligors' addresses, employment and personal references and to obtain a
credit report from a credit reporting agency.

The Company may purchase Contracts from dealers subject to the requirement
that the selling Dealer repurchase any Contract that becomes overdue for more
than 60 days, although the terms of any such requirement for any particular
Dealer or group of Contracts purchased will be determined by SAI and such
Dealer.

The Company may also purchase Contracts which are lease agreements for
Financed Vehicles. SAI has not previously purchased lease agreements, and has
not established purchase guidelines therefor.

Although most state laws mandate that owners maintain liability insurance
for damages arising from their use of a motor vehicle, the owners of the
Financed Vehicles may fail to maintain physical damage insurance and the
Servicing Agreement does not require that the Obligors on the Contracts maintain
such insurance as a criterion for Contract purchase. In many cases, the
Servicer or the Company will be named as a loss payee under the Obligor's
automobile insurance policy. The Company may suffer a loss upon any theft or
physical damage of any Financed Vehicles if the Obligor does not maintain
physical damage insurance and is otherwise unable to pay for repairs or
replacement or its obligations under the related Contract. In addition, the
Company may not require verification of physical damage insurance coverage for
Financed Vehicles in connection with certain Contract packages it purchases, and
may purchase some packages knowing that some or all of the related Financed
Vehicles are without physical damage insurance coverage. See "Risk Factors -
Lack of Damage Insurance."

The Servicer represents and warrants in the Servicing Agreement and the
Indenture, among other things, that (i) each Contract met at the time of its
purchase from the originating dealer in all material respects all purchasing
criteria set forth on Exhibit A of the Master Contract Purchase Agreement;
(ii) at the date of purchase, the Contracts are free and clear of all security
interests, liens, charges and encumbrances and no offsets,

<PAGE>

defenses, or counterclaims against the Company or dealers have been asserted
or threatened; (iii) at the date of purchase, each of the Contracts is or
will be secured by a first security interest in the Financed Vehicle which
serves as collateral for the Contract; and (iv) each dealer from which the
Company purchases Contracts will be required to represent and warrant to the
Company that each Contract, at the time it was originated, complied, and at
the date of purchase of the Contract, complies in all material respects with
applicable federal and state laws, including consumer credit, truth in
lending, equal credit opportunity and disclosure laws. (Master Contract
Purchase Agreement, Section 7; Indenture, Section 12.16) If the Company, the
Servicer or the Trustee discovers that any of such representations or
warranties was incorrect in any material respect with respect to a Contract,
the Servicer is required to cure the defect or purchase the Contract from the
Company. (Indenture, Section 12.17) The Servicer also covenants in the
Indenture that it will take all actions necessary or desirable to maintain
perfection and priority of the security interest granted under the Contract
in the Financed Vehicle. (Indenture, Section 12.1)

DEALER CRITERIA

Contracts will generally be purchased from Dealers who meet the following
criteria:

* A net worth, exclusive of goodwill or other intangible values, of at least
$100,000, or a parent, affiliate or predecessor which meets the net worth
criterion;

* A minimum of one year of successful operation as an automobile dealer, as
evidenced by financial statements or prior tax returns;

* Experienced contract loss rates during the immediately preceding year
acceptable to SAI; and

* Verifiable banking references.

SAI does not specifically limit the number of Contracts originated by any
one Dealer that may be included in the Contracts inventory at any one time.

COLLECTION OF PAYMENTS

Under the Servicing Agreement, the Servicer is obligated to exercise
discretionary powers involved in the management, administration and collection
of the Contracts and to bear all costs and expenses incurred in connection
therewith. The Servicer is obligated to use the same care and apply the same
policies that it would exercise if it owned the Contracts. (Servicing
Agreement, Section 1)

<PAGE>

The Servicer is obligated to instruct all Obligors under the Contracts to
make all payments to the Collections Account. (Servicing Agreement, Section 6)
Any material extensions, modifications, or acceptances of partial payments by
Obligors, and any related necessary Contract amendments or default waivers by
the Servicer, must be approved by the chief credit officer or president of the
Servicer. (Servicing Agreement, Exhibit A) Under the Indenture and the
Servicing Agreement, the Servicer is required to pursue repossession, subject to
compliance with all state and federal laws relating thereto, of the Financed
Vehicle securing any Contract whose Obligor (i) is past due by at least three
scheduled installments in the case of bi-weekly or semi-monthly installments or
two scheduled installments in the case of monthly installments, and (ii) has
failed for 30 days, in the case of bi-weekly or semi-monthly installments, or 45
days, in the case of monthly installments, to remit any sums against the
obligations under the Contract. (Indenture, Section 12.7; Servicing Agreement,
Exhibit A) The Servicer may commence repossession sooner if it deems such
activity to be prudent and in the best interests of the Company and the
Servicer. The Servicer is also required to document the reasons for each
chargeoff of any material unpaid amount from an Obligor under any Contract.
(Servicing Agreement, Exhibit A) As indicated by the foregoing repossession
requirements, to maximize its return, the Company prefers to continue collecting
installments on the Contract despite a missed installment by the Obligor in lieu
of repossession of the vehicle. See "Risk Factors--Collections and
Repossessions; Performance of Contracts".

The Servicer is required to deliver monthly to the Company a report
certifying that all Contracts managed by the Servicer were serviced in material
accordance with the Servicing Agreement and that the Servicer is not in default
under the Servicing Agreement. The report also will contain collection
information on each Contract since the date of the last such report and a
reconciliation of the deposits into and withdrawals from the Operating Account.
(Indenture, Exhibit B) If the Servicer fails to remit collections on the
Contracts to the Collections Account when due, and continues such failure for
five business days, or to service and collect amounts due from the Obligors in
accordance with the servicing criteria established by the Servicing Agreement,
or if certain bankruptcy or insolvency proceedings occur, the Company has the
right to terminate all rights and obligations of the Servicer under the
Servicing Agreement and to transfer servicing rights to a successor servicer.
(Servicing Agreement, Section 10)

SERVICING FEES AND SAI COMPENSATION

The Servicer is entitled under the Servicing Agreement to receive a fee
(the "Contract Servicing Fee") of $20 per month per outstanding Contract that
has not been assigned for repossession, plus all late fees. (Servicing
Agreement, Section 3) Such fee

<PAGE>

will also be paid to SAI with respect to Contracts serviced or collected by
third parties with which SAI has contracted. The Contract Servicing Fee is
intended to compensate and reimburse SAI for administering the collection of
the Contracts, including collecting and posting all payments, responding to
inquiries of Obligors on the Contracts, investigating delinquencies, sending
payment coupons to Obligors, reporting any required tax information to
Obligors, paying costs of collections and policing the Financed Vehicles.
The Contract Servicing Fee will also compensate the Servicer for furnishing
monthly and annual statements to the Company and the Trustee with respect to
expenditures and receipts, and generating information necessary for the
Company to prepare all required federal and state income tax returns. The
Company will reimburse SAI for all direct charges incurred in connection with
servicing the Contracts, perfecting the Company's security interest in
collateral securing the Contracts and protecting the interests of the Company
in the event of default on any of the Contracts, including without limitation,
amounts required to pay prior liens that must be paid, local, state or federal
taxes pertaining to the collateral, the costs of maintaining, perfecting and
obtaining liens and/or foreclosing thereon, and attorneys fees in connection
with the foregoing.

Under the Indenture, the Servicer will also be entitled to reimbursement,
as an Allowed Expense, of its expenses incurred in the repossession, repair and
sale of any Financed Vehicle to the extent of the related proceeds from its sale
or from any recovery on a related insurance policy. (Indenture, Section 12.7)
In addition, subject to prior payment of any amounts owing on the Notes or to
the Trustee, the Servicer will be paid, as an Allowed Expense, the lockbox fees,
account fees and bank service charges relating to the Collections Account.

The Servicer will receive a monthly fee (the "Purchase Administration Fee")
from the Company equal to the lesser of $500, or 5% of the total amount of
installments due under the Contract as of the date of purchase for the Company,
for each Contract purchased during the preceding calendar month period. The
Purchase Administration Fee is intended to compensate and reimburse the Servicer
for administrating the purchase of the Contracts, including receipt and approval
of dealer drafts and Contract transfer documents, monitoring compliance with
purchase criteria, creation of Contract files, communications with selling
Dealers, and other related activities.

SAI charges a processing fee to the various dealers from which it purchases
Contracts on behalf of the Company, which fee is currently $275 per Contract
purchased. SAI may pay a portion of such fee, in the amount of $50 per Contract
purchased, to one or more third parties as a finder's fee in connection with the
purchase of each Contract. SAI reserves the right to increase the amount of the
processing fee which it charges from time to time,

<PAGE>

and to increase or decrease the amount of the finder's fee.

In some cases, SAI may contract with third parties, including the Dealers
which originated the Contracts, to perform certain servicing and/or collection
services with respect to some Contracts. SAI may also maintain offices for
collection and servicing purposes at the premises of Dealers from which the
Company purchases Contracts.

SAI will make reasonable efforts to collect all payments due with respect
to the Contracts in a manner consistent with the Servicing Agreement.
Consistent with its normal procedures, SAI may, in its discretion, arrange with
the Obligor on a Contract to defer or modify the payment schedule. When SAI
determines that eventual payment in full of a Contract is unlikely, it will
follow its normal practices and procedures to realize upon the Contract,
including the repossession and disposition of the Financed Vehicle securing the
Contract at a public or private sale, or the taking of any other action
permitted by applicable law. In this regard, the Company will pay SAI a fee
equal to $125 for each repossession of a Financed Vehicle.

DEALERS

The Dealers will originate the motor vehicle retail installment contracts
and notes to be purchased by the Company. The economic incentive motivating a
Dealer to sell Contracts to the Company is maximization of return on the
Dealer's invested capital. Although the Dealer may make less profit per
transaction, because the cost of the automobile to the Dealer is recouped
immediately upon sale of the contract or note, and the Dealer does not have to
wait for future installment payments on the contract or note, the Dealer can
purchase and sell more automobiles and increase net profit through increased
inventory turnover.

During 1995, SAI purchased Contracts from 37 Dealers although SAI was only
actively purchasing Contracts from 20 Dealers. The Company believes that the
current Dealers with which SAI conducts business should generate sufficient
eligible Contracts for purchase by the Company, based on the rate of purchases
by SAI from the Dealers. The Company believes that SAI will be able to
adequately handle the servicing of all Contracts purchased by the Company with
the net proceeds from the sale of the Notes.

THE SERVICER

SAI, an affiliate of the Company, is the Servicer under the Servicing
Agreement. Sovereign owns 100% of the outstanding stock of Sovereign Credit
Corporation, which in turn owns 100% of the outstanding stock of SAI. See
"Management--Certain Relationships and Related Transactions". SAI was
incorporated in January, 1991 and commenced purchasing and servicing of motor
vehicle retail

<PAGE>

installment contracts in June, 1993. Since incorporation, SAI has been a
direct subsidiary of Sovereign or a commonly controlled corporation with
Sovereign.

INFORMATION REGARDING
CONTRACTS PURCHASED AND SERVICED BY SAI

DELINQUENCY, REPOSSESSION AND COLLECTIONS

The following tables set forth certain information regarding the motor
vehicle retail installment sales contracts serviced by SAI on behalf of the
Securitization Subsidiaries sponsored by Sovereign, from June 1, 1993 (the date
SAI began servicing motor vehicle retail installment sales contracts) through
June 30, 1996. There can be no assurance that the future performance of the
Contracts purchased by the Company, including future delinquency and loss
experience, will be similar to that set forth in the following tables.

DELINQUENCIES OF ALL MOTOR VEHICLES
RETAIL INSTALLMENT SALES CONTRACTS
AS OF JUNE 30, 1996
---------------------------------------------------------
TOTAL
DAYS PAST NUMBER OF PERCENT UNPAID PERCENT
DUE(1) ACTIVE CONTRACTS OF TOTAL INSTALLMENTS(2) OF TOTAL
- -------- ---------------- -------- ----------- --------

0 - 30 2,261 57.2% $15,035,606 58.1%
31 - 60 644 16.3% $ 4,171,001 16.1%
61 - 90 341 8.6% $ 2,184,974 8.4%
over 91 708 17.9% $ 4,497,471 17.4%
----- ---- ----------- ----
All Active
Contracts 3,954 100% $25,889,052 100%
----- ---- ----------- ----
----- ---- ----------- ----

- ---------------------
(1) It is SAI's general policy to initiate repossession efforts after
obligors (i) are past due by at least three scheduled installments in
the case of bi-weekly or semi-monthly installments or two scheduled
installments in the case of monthly installments, and (ii) have failed
for 30 days, in the case of bi-weekly or semi-monthly installments, or
60 days, in the case of monthly installments, to remit any sums
against the obligations under the contract. Accordingly, some
contracts are shown as active even though repossession efforts have
commenced.

(2) Includes principal and remaining finance charges.

<PAGE>

ADDITIONAL SELECTED DATA FOR ALL MOTOR VEHICLE
RETAIL INSTALLMENT SALES CONTRACTS FROM
JUNE 1, 1993 THROUGH JUNE 30, 1996

PERCENT PERCENT
NUMBER OF TOTAL AMOUNT OF TOTAL
------ -------- ------ --------

Writeoffs(1) 1,014 18.4% $ 7,600,943 24.9%
Repossessions(2)(3) 1,315 23.9% $ 9,024,095 29.6%
Proceeds from Repossessions(2)(4) 924 16.8% $ 2,460,697 8.1%
Inventory of Repossessions(2)(5) 391 7.1% $ 2,713,026 8.9%
Total Contracts Purchased 5,510 $30,467,916

- ---------------------
(1) "Writeoffs" are those contracts which have been written off as
uncollectible as bad debts, and include (i) those which are subject to
Chapter 13 Bankruptcy proceedings (ii) those for which the vehicle
serving as collateral has been destroyed, and (iii) those where the
obligor has "skipped" (i.e., neither the obligor nor the vehicle
serving as collateral can be found). "Amount" represents the payoff
balance of the contracts at the time they are classified as
"Writeoffs".

(2) "Repossessions" includes both actual repossessions and defaulted
contracts repurchased by Dealers in accordance with the requirements
of the original contract purchase agreements.

(3) "Amount" represents the contract payoff balance at the time of
repossession plus repossession and reconditioning fees and expenses.

(4) "Amount" represents proceeds from sales of repossessed vehicles and
any insurance proceeds, if applicable, before deduction for
repossession and reconditioning fees and expenses.

(5) "Inventory of Repossessions" are repossessed vehicles in inventory
awaiting resale. "Amount" represents the contract payoff balance at
the time of repossession plus repossession and reconditioning fees and
expenses.

The average term remaining, and the average principal amount, for Contracts
in SAI's servicing portfolio at June 30, 1996 is approximately 28 months and
approximately $8,000, respectively. SAI expects that (a) its repossession rate,
over the life of the portfolio of all Contracts purchased on behalf of the
Company through its services, will be in the range of 15% to 20% of such
contracts, and (b) the average purchase price payable to motor vehicle dealers
will be no more than 66% of the original total future installments payable under
the Contracts.

<PAGE>

INFORMATION REGARDING THE SECURITIZATION SUBSIDIARIES

Since October 1993, Sovereign has sponsored a number of entities (the
"Securitization Subsidiaries") which have issued notes to investors and used the
net proceeds thereof to purchase consumer contracts and notes created by the
retail sale and financing of used automobiles and light trucks. As used herein,
the term "Securitization Subsidiaries" does not include the Company. The
following table sets forth certain information regarding the Securitization
Subsidiaries sponsored by Sovereign from June 1, 1993 (the date SAI began
servicing motor vehicle retail installment sales contracts) through May 31,
1996. There can be no assurance that the future performance of the Contracts
purchased by the Company will be similar to that set forth in the following
table.

<TABLE>
Funds Cash Maturity Payoff
From Collected Value of Balance of
Investors From Active Active Total
as of Due 1/1/96 Contracts Contracts Assets
Name of Program(1) 5/31/96 Date(2) to 5/31/96 as of 5/31/96(3) as of 5/31/96(4) as of 5/31/96(5)
- ----------------- ------- ------- ---------- ---------------- ---------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
SAM 94-1 $558,275 07/15/97 $104,749 $ 479,524 $381,277 $ 439,873
SAM 94-3 $823,142 03/31/98 $141,064 $ 743,568 $579,263 $ 652,954
SAM 95-1 $657,436 10/15/98 $126,407 $ 658,099 $506,075 $ 572,040
SAM 95-2 $871,075 03/15/99 $ 95,981 $1,036,858 $815,454 $1,056,946
Sovereign Acceptance I $615,000 05/15/97 $150,503 $ 510,103 $405,160 $ 462,669
Sovereign Acceptance II $602,000 07/15/97 $109,599 $ 351,646 $284,164 $ 318,733
Sovereign Acceptance III $598,517 08/15/97 $151,298 $ 551,561 $444,643 $ 471,309
Sovereign Acceptance IV $685,320 09/15/97 $155,625 $ 572,570 $461,873 $ 497,521
Sovereign Acceptance V $614,537 09/30/97 $168,699 $ 605,366 $489,167 $ 538,843
Sovereign Acceptance VI $587,000 10/15/97 $115,418 $ 441,418 $357,046 $ 404,461
Sovereign Acceptance VII $610,500 11/15/97 $176,383 $ 566,581 $455,454 $ 481,542
Sovereign Acceptance VIII $694,100 12/31/97 $152,292 $ 524,483 $418,383 $ 462,708
Sovereign Acceptance IX $567,140 01/31/98 $119,833 $ 538,618 $440,455 $ 463,501
Sovereign Acceptance X $662,000 01/31/98 $160,934 $ 568,228 $461,507 $ 494,135
Sovereign Acceptance XI $579,000 02/28/98 $115,633 $ 450,635 $372,179 $ 429,975
Sovereign Acceptance XII $575,000 02/28/98 $125,354 $ 492,968 $399,695 $ 476,355
Sovereign Acceptance XIII $650,000 03/31/98 $208,185 $ 741,464 $581,277 $ 610,075
Sovereign Acceptance XIV $576,000 03/31/98 $105,181 $ 490,068 $391,346 $ 402,644
Sovereign Acceptance XV $612,000 04/30/98 $152,790 $ 548,321 $434,212 $ 474,016
Sovereign Acceptance XVI $563,000 04/30/98 $ 79,325 $ 367,404 $298,387 $ 333,369
Sovereign Acceptance XVII $746,000 05/31/98 $179,301 $ 665,592 $525,286 $ 585,433
Sovereign Acceptance XVIII $733,053 05/31/98 $152,968 $ 632,160 $506,790 $ 578,001
Sovereign Acceptance XIX $523,000 06/30/98 $ 80,906 $ 420,860 $336,415 $ 375,596
Sovereign Acceptance XX $640,250 06/30/98 $163,086 $ 619,489 $494,001 $ 546,468
Sovereign Acceptance XXI $606,000 09/15/98 $ 80,167 $ 502,641 $390,727 $ 449,632
Sovereign Acceptance XXII $465,000 09/15/98 $ 67,640 $ 390,761 $305,903 $ 340,899
Sovereign Acceptance XXIII $509,000 10/15/98 $ 71,815 $ 451,558 $356,855 $ 408,503
Sovereign Acceptance XXIV $615,000 10/15/98 $131,817 $ 628,786 $483,251 $ 529,423
Sovereign Acceptance XXV $531,000 11/15/98 $103,157 $ 515,412 $392,946 $ 454,595
Sovereign Credit I $992,000 12/15/98 $175,646 $ 908,789 $708,932 $ 801,218
Sovereign Credit II $767,350 03/15/99 $365,621 $1,045,321 $807,384 $ 904,369
Sovereign Credit III $933,121 03/15/99 $163,587 $ 812,017 $708,871 $ 884,733
Sovereign Credit IV $ 69,000 04/15/99 $0 $0 $0 $ 50,403
</TABLE>

(Continued on next page)

<PAGE>
<TABLE>
Funds Cash Maturity Payoff
From Collected Value of Balance of
Investors From Active Active Total
as of Due 1/1/96 Contracts Contracts Assets
Name of Program(1) 5/31/96 Date(2) to 5/31/96 as of 5/31/96(3) as of 5/31/96(4) as of 5/31/96(5)
- ----------------- ------- ------- ---------- ---------------- ---------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Sovereign Credit V $851,051 05/15/99 $216,654 $1,448,392 $1,200,690 $1,258,154
Sovereign Credit VI $ 64,448 06/15/99 $0 $0 $0 $ 48,293
Sovereign Credit VII $637,640 06/15/99 $ 20,557 $ 812,598 $ 651,114 $ 791,672
Sovereign Credit VIII $946,875 07/15/99 $ 88,566 $1,280,700 $1,032,467 $1,107,171
Sovereign Credit IX $573,000 11/15/99 $0 $0 $0 $ 457,104
Sovereign Credit X $170,000 12/31/99 $0 $0 $0 $ 141,740
Sovereign Credit XI $ 15,000 12/31/99 $0 $0 $0 $ 12,896
Sovereign Credit
Acceptance I $833,000 01/15/99 $185,706 $ 838,652 $ 660,372 $ 808,072
Sovereign Credit
Acceptance II $550,000 03/15/99 $227,282 $ 762,698 $ 659,698 $ 752,176
Sovereign Credit
Acceptance III $439,500 05/15/99 $0 $0 $0 $ 405,155
</TABLE>

(1) Each program is a limited liability company with the exception of Sovereign
Acceptance I, which is a limited partnership.

(2) Principal on the notes issued by each program is required to be repaid in
six equal monthly installments ending on the due date.

(3) Maturity Value of Active Contracts represents the sum of all future
installments of principal and interest, less amounts owed to dealers at
maturity of the contracts.

(4) Payoff Balance of Active Contracts represents the payoff balance of the
contracts as of the date shown.

(5) Total Assets represents the sum of cash on hand, plus Payoff Balance of
Active Contracts, plus repossessed vehicles in inventory awaiting resale,
valued at dealers' wholesale.

<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth information, as of November 22, 1996
relating to the beneficial ownership of the Company's Common Stock by any person
or "group", as that term is used in Section 13(d)(3) of the Securities and
Exchange Act of 1934 (the "Exchange Act"), known to the Company to own
beneficially 5% or more of the outstanding shares of Common Stock, and known to
the Company to be owned by each director of the Company and by all officers and
directors of the Company as a group. Except as otherwise indicated, each of the
persons named below is believed by the Company to possess sole voting and
investment power with respect to the shares of Common Stock beneficially owned
by such person.

Amount and Nature of Beneficial Ownership(1)
Name of Director or --------------------------------------------
Name and Address of Percentage of Class
Beneficial Owner Number of Shares Outstanding
- --------------- ---------------- -------------------
Sovereign Credit Holdings, Inc.(2) 1,000 100%
4015 Beltline Road
Building B
Dallas, Texas 75244

A. Starke Taylor, III 0(2) --

William P. Glass 0(2) --

Christopher R. Frattaroli 0(2) --

Diane D. Taylor, Trustee 0(3) --
4015 Beltline Road
Building B
Dallas, Texas 75244

All officers and directors as
a group (3 persons) 0(4) --

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

(1) The information as to beneficial ownership of Common Stock has been
furnished by the respective shareholders, directors and officers of the Company.

(2) The directors of Sovereign Credit Holdings, Inc. ("SCH") could be deemed to
share voting and investment powers over the shares owned of record by SCH. The
directors of SCH are A. Starke Taylor, III, William P. Glass and Christopher R.
Frattaroli. Mr. Taylor owns 30% of SCH's common stock. Mr. Glass owns 10% of
SCH's common stock. The business address for Mr. Taylor, Mr. Glass, and Mr.
Frattaroli is SCH's address.

(3) Diane D. Taylor, the wife of Mr. A. Starke Taylor, III, serves as trustee
of the Austin S. Taylor, III Investment Trust No. 2, which owns 43.92% of SCH's
common stock and of which Mr. A. Starke Taylor, III is the beneficiary, and of
five trusts which each owns 3% of SCH's common stock and of which her and A.
Starke Taylor, III's children (including Mr. Frattaroli's wife) are the
beneficiaries. The business address for Ms. Taylor and each of the foregoing
trusts is SCH's address.

(4) This amount excludes shares owned directly by SCH.

<PAGE>

MANAGEMENT

BUSINESS BACKGROUND AND EXPERIENCE

The names, ages, backgrounds and principal occupations of the directors and
executive officers of the Company, Sovereign Credit Holdings, Inc. ("SCH"),
Sovereign Credit Corporation ("Sovereign") and Sovereign Associates, Inc.
("SAI") are set forth below:

Name Position
---- --------

A. Starke Taylor, III President and Director: the Company, SCH,
Sovereign and SAI

William P. Glass Vice President and Director of the Company and
SCH; Vice President of Marketing and Director:
Sovereign

William Burmeister Vice President and Controller: SAI

Christopher R. Frattaroli Treasurer and Director: the Company, SCH and
Sovereign; Treasurer: SAI

A. STARKE (TRACY) TAYLOR, III, age 53, has been President and a director of
the Company, SCH, Sovereign and SAI since the formation of such companies. Mr.
Taylor is a Dallas native. He graduated from Southern Methodist University in
1966 with a B.B.B. degree and thereafter began a career in professional
investment services. From approximately 1970 to 1971 Mr. Taylor was the Head of
the Benefits Department of Marsh and McClennan's Dallas office, where he
specialized in employee benefits.

Mr. Taylor used his experience in the pension investment field as a
springboard into a diversified financial career. As a principal of the Watson
and Taylor Companies, he was involved in the development and management of self
storage facilities, business centers, shopping centers, real estate holdings
nationwide and real estate notes. He is a co-general partner in partnerships
holding approximately four and one-half million square feet of self storage
facilities.

Mr. Taylor was a partner in Lyco Acquisitions Number One, a company which
purchased all of the oil and gas properties of Bethlehem Steel. Later, he was a
principal in Tex-Feld Petroleum Company, which operated a significant drilling
program in the Southwest.

Mr. Taylor has been a general partner in over 100 limited partnerships
which involved real estate or oil and gas investments, with total original
investor contributions of approximately $150 million. The investment objectives
of these partnerships differed significantly from those of the Company. Many of
these

<PAGE>

partnerships have experienced adverse business developments and conditions.
Real estate revenues have been adversely affected by the overall decline in
the economy. Many of these partnerships utilized a significant amount of
leverage and have experienced significant operating deficits. The properties
owned by various of the partnerships were acquired by their lenders through
foreclosure proceedings.

Mr. Taylor has also served as a general partner or chief executive officer
for 35 partnerships formed to acquire financial notes.

Clearlake, Ltd., of which Mr. Taylor was an individual general partner,
filed a voluntary petition under Chapter 11 of the Federal bankruptcy laws in
September 1992. The plan of reorganization was confirmed by the court, and all
creditors were paid in full by April 1994.

Mr. Taylor is a past Chairman of the Board of Priority One, an
international missionary organization, is on the Board of Trustees of the Dallas
Theological Seminary, is a past member of the Dallas County Advisory Board of
the Salvation Army, is a board member of the Northeast Texas Regional Board of
Young Life, and was the founding Chairman of the Board of the Park Central
Athletic Association. He is past President of the Dallas Fire Fighters
Association, past President of the North Dallas Chamber of Commerce and a past
member of the Board of Directors of the MBank Lincoln Center and MBank Preston.
Mr. Taylor was recognized in 1983 by D Magazine as one of Dallas' ten most
outstanding young business leaders.

Mr. Taylor is married and has five children.

WILLIAM P. GLASS, age 39, has been Vice President of Marketing and a
director of Sovereign since April, 1990 and Vice President and a director of the
Company and SCH since the formation of such companies. Mr. Glass is responsible
for all marketing and investor relations activities for the company. He
attended Baylor University, and was drafted by the Cincinnati Bengals of the
National Football League in 1980. Mr. Glass began his business career in 1981
with Hank Dickerson & Co. Realtors. In his position as a Sales Associate he led
the Office Division in sales for two of the three years he was employed with
Hank Dickerson & Co.

In 1983, Mr. Glass formed BGI Commercial Real Estate Inc., specializing in
commercial real estate brokerage and the syndication and real estate properties.
Mr. Glass was Venture Manager in over 30 general partnerships. In 1989, Mr.
Glass sold BGI Commercial Real Estate and joined Cornerstone Commercial Real
Estate, Ltd., as Senior Vice President. Cornerstone is a sister company to the
Trammel Crow Development Company. In April, 1990, Mr. Glass left Cornerstone
and became a Vice President of

<PAGE>

Sovereign.

Mr. Glass is on the Executive Committee of the Board of Directors of his
father's prison ministry, the Bill Glass Evangelistic Association. He is former
board member of Young Life of Southwest Dallas County. He is a member of Hope
Community Church in Cedar Hill. He is a member of Oak Cliff Country Club in
Dallas. Mr. Glass resides in DeSoto, Texas, with his wife and three children.

WILLIAM P. BURMEISTER, age 42, is Controller of SAI. Mr. Burmeister is
responsible for the financial accounting, banking and the day-to-day financial
duties of the companies. He has been with the companies since December, 1994.
From September 1978 to September 1983, he was employed by Harvest States
Cooperatives, a commodity marketing company. While with Harvest States
Cooperatives, he lead the design, development and implementation of an "MIS"
project involving over 1.5 million lines of codes serving major operations in
seven states. From January 1984 to April 1989, he was employed by VARO, a night
vision manufacturer. While with VARO, he developed a "TQM" system which allowed
the company to be awarded a $500 million defense contract, the largest ever
awarded at that time. Later involvement with DalTex from April 1991 to April
1992, BSM from April 1992 to June 1993, and Clouds from August 1993 to September
1994, dealt with start-up operations, marketing, production and personnel
responsibilities as well as controllership responsibilities with companies,
public and private, ranging in annual sales from $1 million to $4 billion.

CHRISTOPHER R. FRATTAROLI, age 30, is Treasurer and a director of the
Company, SCH and Sovereign, and is Treasurer of SAI. He has been with the
Company and SCH since their formations, and with Sovereign and SAI since
December, 1994. Mr. Frattaroli is responsible for marketing to potential
institutional investors. Mr. Frattaroli graduated from Duke University in 1988
with a Bachelor of Arts degree in Art History.

In May, 1988, Mr. Frattaroli joined Intermarket Management, Inc., at which
he attained the office of Vice President and enjoyed a minority interest in the
company. The company's primary business focus was index arbitrage of equity,
currency and commodity markets. Mr. Frattaroli left the company in February,
1992.

In March, 1992, Mr. Frattaroli joined American International Group Trading,
Inc. as a trader/market maker in the foreign exchange market. Mr. Frattaroli
left the company in December, 1994. Mr. Frattaroli traded in the spot market
as well as arbitraging with the futures exchanges.

Mr. Frattaroli joined Sovereign in December of 1994. Mr. Frattaroli is
married to the daughter of A. Starke Taylor, III and has two children.

<PAGE>

The directors and executive officers of the Company have served in their
respective offices since the organization of the Company. No director or
executive officer of the Company has received any compensation from the Company
since its formation, nor will they receive any compensation from the Company
prior to satisfaction in full of the Notes. See "Description of the Notes--The
Contract Proceeds and Operating Account". However, see "Certain Relationships
and Related Transactions" below for a description of certain transactions
between Sovereign, SAI and the Company from which such persons may indirectly
benefit through indirect ownership and/or compensation from Sovereign.

Except as stated above, there are no family relationships among the
directors and any of the executive officers of the Company. None of the
Company's directors holds any directorship in any company with a class of
securities registered pursuant to Section 12 of the Exchange Act or subject to
the requirements of Section 15(d) of the Exchange Act or any company registered
as an investment company under the Investment Company Act of 1940.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Both the Company and Sovereign are subsidiaries of Sovereign Credit
Holdings, Inc. ("SCH"). In addition, SAI is a subsidiary of Sovereign.
Sovereign or SCH also beneficially own from 50% to 100% of the outstanding
equity of the Securitization Subsidiaries. Sovereign manages all of the
Securitization Subsidiaries. Management of the Company will devote as much of
their time to the business of the Company as in their judgment is reasonably
required. The Company, SAI, Sovereign, the Securitization Subsidiaries and any
of their respective affiliated entities may have conflicts of interest in
allocating management time, services, overhead and functions among the Company,
SAI, Sovereign, the Securitization Subsidiaries and their affiliated entities.
Management of Sovereign, SAI, the Company and the Securitization Subsidiaries
intend to resolve any such conflicts in a manner that is fair and equitable to
the Company, but there can be no assurance that any particular conflict may be
resolved in a manner that does not adversely affect Noteholders. Neither the
Company nor SAI has guaranteed or is otherwise liable for the debts and
liabilities of Sovereign or any of its other subsidiaries, including the
Securitization Subsidiaries.

The terms of the Servicing Agreement were not negotiated at arm's length
but were determined unilaterally by the management of SAI. Under the terms of
the Servicing Agreement, SAI will be paid the Servicing Fees and a $125 per
vehicle repossession fee, and will be entitled to reimbursement for its expenses
incurred in connection with the repossession and resale of Financed Vehicles out
of the proceeds from such resales. SAI will retain the Purchase Administration
Fee as compensation and reimbursement for its services in administering the
purchase of Contracts.

<PAGE>

The Company will pay Sovereign a monthly fee (the "Investor Administration
Fee") equal to 1/12th of 0.5% of the aggregate outstanding principal amount of
the Notes, which fee shall reimburse Sovereign for expenses incurred in the
administration of Noteholder payments, communications and relations for the
Company.

SAI has agreed, and may agree in the future, to purchase and service motor
vehicle retail sales installment contracts and obligations for itself, its
affiliates and other unrelated parties. The Company has the right to purchase
additional Contracts through SAI from the net collection proceeds on its
existing Contracts except during the continuance of an Event of Default.
Management of SAI will have a conflict of interest in determining whether to
purchase any retail sales installment contracts and notes on behalf of the
Company or one or more other parties for whom it purchases contracts and notes
or to retain the contracts and notes for its own benefit. The determination of
which entity will purchase or invest in a particular Contract package and what
portion, if any, of such Contract package will be purchased for such entity will
be based upon the respective periods of time the purchasing entities have been
in existence, the cost of the available Contract package, the amount of their
unexpended funds and the need to diversify their holdings. In such event, SAI
intends to exercise good faith and to deal fairly with the respective entities
in deciding which entity, if any, is to purchase or invest in a particular
Contract package. SAI will give priority to purchases on behalf of the
Securitization Subsidiaries and the Company over purchases on behalf of
Sovereign or SAI. The Company expects that SAI will not knowingly retain lower
risk contracts and notes for Sovereign, itself or its other customers and sell
higher risk contracts and notes to the Company to serve as collateral for the
Notes.

The Company may purchase Contracts from Sovereign, SAI or their affiliates,
including affiliates that are Dealers, but only if such Contracts are not in
default and satisfied the purchasing criteria established in the Indenture and
the Servicing Agreement at the time of their purchase from the originating
Dealer. Any qualifying Contracts will be sold by Sovereign, SAI or its
affiliate to the Company at a price for each Contract determined to provide the
Company an internal rate of return on its investment in the Contract from the
remaining unpaid installments equal to the original purchaser's initial internal
rate of return on its investment in the Contract, as of its purchase from the
Dealer, assuming in both cases that the Contract was paid in full in accordance
with its scheduled installments. Such seller will retain any installments
received by it prior to the purchase by the Company and any profits resulting
from the difference between such installments and the reduction in the purchase
price paid to such seller by the Company from the price paid by such seller to
the Dealer.

The Company will use up to 2% of the gross proceeds from the

<PAGE>

sale of the Notes to pay offering and organizational expenses. Sovereign has
agreed to pay any such expenses to the extent they exceed 2% of the gross
proceeds from the sale of the Notes. The Company will also pay to Sovereign
a fee equal to 5.5% of the gross proceeds from the sale of the Notes (5.0% of
the gross proceeds in excess of $9,000,000) for administering and managing
the ongoing operations of the Company.

The Company's Board of Directors has adopted a resolution to the effect
that all transactions with officers, directors and affiliates must be on terms
which would be reasonable and appropriate with unaffiliated parties.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

GENERAL

As of the date of this Prospectus, the Company has had no operating
history. The net proceeds of the sale of the Notes will be employed to purchase
the initial Contracts. See "Use of Proceeds". While the Notes remain
outstanding, the Company will be prohibited from engaging in any business other
than the purchase, collection and servicing of the Contracts (including
repossession and resale of the vehicle collateral) and from incurring any
additional indebtedness other than the Additional Borrowing, if any, Allowed
Expenses and any other amounts incurred in the ordinary course of its business.

The Company's use of the net collection proceeds from the Contracts will be
restricted to payments on the Notes and the Additional Borrowing, if any, and,
so long as there is no Event of Default, to payments of Allowed Expenses and to
purchase of additional eligible Contracts. See "Description of the Notes--The
Contract Proceeds and Operating Account".

CAPITAL RESOURCES AND LIQUIDITY

The Company's primary sources of funds for repayment of the Notes will be
proceeds from the Contracts, any income on the reinvestment of such proceeds and
any proceeds from sale or refinancing of the remaining Contracts at the maturity
of the Notes. The Company does not have, nor is it expected to have in

<PAGE>

the future, any significant source of capital for payment of the Notes and
the expenses incurred by it other than such sources. Payment of the
principal or interest on the Notes is not guaranteed by any other person or
entity. See "Risk Factors--Limited Assets; Single Purpose Nature". Although
management of the Company believes that the Company will realize sufficient
proceeds from the foregoing sources to pay all installments of interest when
due on the Notes and to repay the principal amount of the Notes in full prior
to or at maturity, there can be no assurance that such sources will be
sufficient to repay the Notes in full. See "Risk Factors--Nature of
Contracts", --Defaults and Repossession" and --Possible Insufficient Amount
in the Trust Fund".

The Company anticipates that a portion of the Contracts will become
delinquent and require repossession and resale of the related vehicle. Based on
the experience of SAI and its employees with respect to similar contracts, the
Company and SAI expect that (i) the Company's portfolio of Contracts will
experience a repossession rate, over the life of the portfolio, of approximately
18% of such Contracts and (ii) aggregate gross collections from all Contracts
will be in the range of approximately 80% to 90% of the original total future
installments for the Contracts at the time of their purchase, including sales
proceeds from repossessed vehicles, but without taking into account costs
associated with the resale of such repossessed vehicles. However, there can be
no assurance that these expectations will in fact be met, since actual
repossession rates and collection rates on the Contracts are impossible to
predict precisely.

The actual collection rates on the Contracts are impossible to predict
precisely and adverse changes in collectibility rates caused by changes in
economic conditions, including particularly in the Company's primary markets, or
other factors beyond the

<PAGE>

Company's control could adversely affect the Company's ability to collect on
the Contracts. If the Contracts do not collectively perform as expected by
the Company, which expectations are based on the historical performance of
similar contracts purchased and serviced by SAI, the Company's ability to
make the required payments on the Notes could be adversely affected.

CERTAIN LEGAL ASPECTS OF THE CONTRACTS

SECURITY INTERESTS IN FINANCED VEHICLES

Under the UCC as adopted in most states, retail installment sale contracts
and notes such as the Contracts constitute security agreements for personal
property and contain grants of security interests in the Financed Vehicles.

Perfection of security interests in the Financed Vehicles is generally
governed by the motor vehicle registration laws of the state in which the
vehicle is located. In most states, a security interest in a motor vehicle is
perfected by notation of the secured party's lien on the vehicle's certificate
of title.

Upon the purchase of the Contracts, pursuant to the Servicing Agreement,
the originating dealers will assign the Contracts (and the security interests
arising thereunder in the Financed Vehicles) to the Company. The originating
dealers will also provide evidence that proper applications for certificates of
title have been made to ensure that the Company will be named as the lienholder
on the certificates of title relating to the Financed Vehicles. SAI will
deliver possession of the Contracts and related title documents to the Company
or, in the event there is an Additional Lender, then to the Additional Lender or
other financial institution appointed by the Company and the Additional Lender
to act as custodian and bailee for the Additional Lender and the Company. For
any Contracts (and the security interest arising thereunder in the Financed
Vehicles) purchased by the Company from SAI, SAI will assign the Contracts to
the Company and will amend any certificates of title showing SAI as lienholder
to identify the Company as the new lienholder.

Under the laws of most states, liens for repairs performed on a motor
vehicle and liens for certain unpaid taxes take priority over even a perfected
security interest in a vehicle. The Internal Revenue Code of 1986 also grants
priority to certain federal tax liens over the lien of a secured party. Certain
state and federal laws permit the confiscation of motor vehicles under certain
circumstances if used in unlawful activities which may result in the loss of a
secured party's perfected security interest in the confiscated motor vehicle.
Upon the purchase of each Contract by the Company, the selling dealer will
warrant that the Contract creates a valid, subsisting and enforceable first
priority security interest in the Financed Vehicle. However, liens for repairs
or

<PAGE>

taxes, or the confiscation of a Financed Vehicle, could arise or occur at any
time during the term of a Contract. In addition, SAI will have a lien for
repair expenses it may incur in order to put repossessed Financed Vehicles
into marketable condition. No notice will be given to the Company in the
event any such lien arises or confiscation occurs.

If the owner of a Financed Vehicle relocates to another state, under the
laws of most states the perfected security interest in the Financed Vehicle
would continue for four months after such relocation and thereafter, in most
instances, until the owner re-registers the Financed Vehicle in such state.
Almost all states generally require surrender of a certificate of title to re-
register a titled vehicle. Therefore, the Company must surrender possession, if
it holds the certificate of title to such Financed Vehicle, before the Financed
Vehicle owner may effect the re-registration. In addition, the Company should
receive, absent clerical errors or fraud, notice of surrender of the certificate
of title because the Company will be listed as lienholder on its face.
Accordingly, the Company will have notice and the opportunity to re-perfect its
security interest in the Financed Vehicle in the state of relocation. If the
Financed Vehicle owner moves to one of the few states which does not require
surrender of a certificate of title for registration of a motor vehicle, re-
registration could defeat perfection. In the ordinary course of servicing the
Contracts, SAI takes steps to effect such re-perfection upon receipt of notice
of re-registration or other information from the Obligor as to relocation.
Similarly, when an Obligor under a Contract sells a Financed Vehicle, the
Company must surrender possession of the certificate of title or the Company
will receive notice as a result of its lien noted thereon. Accordingly, the
Company will have an opportunity to require satisfaction of the related Contact
before release of the lien. See "Transfers of Vehicles" below. Under the
Servicing Agreement and the Indenture, SAI is obligated to maintain the
continuous perfection of the security interest represented by each Contract in
the related Financed Vehicle.

REPOSSESSION

In the event of default by an Obligor on a Contract, the holder of the
Contract has all the remedies of a secured party under the UCC. The UCC
remedies of a secured party include the right to repossession by self-help
means, unless such means would constitute a breach of the peace. Unless the
Obligor under a Contract voluntarily surrenders a vehicle, self-help
repossession, by an individual independent repossession specialist engaged by
SAI, is the method usually employed by SAI when an Obligor defaults. Self-help
repossession is accomplished by retaking possession of the Financed Vehicle. If
a breach of the peace is likely to occur, or if applicable state law so
requires, SAI must obtain a court order from the appropriate state court and
repossess

<PAGE>

the vehicle in accordance with that order.

Pursuant to the Agreement, the Company will pay SAI a fee equal to $125 for
each repossession of a Financed Vehicle. Repossessed vehicles are generally
resold by SAI through retail automobile networks. Such resales may also be
conducted by utilizing wholesale automobile networks, or auctions which are
attended principally by dealers. In many cases, when a repossessed Financed
Vehicle is sold from a dealer's lot, the balance due under the related Contract
is not repaid in cash but is replaced with a new Contract executed by the
purchaser of the Financed Vehicle.

NOTICE OF SALE; REDEMPTION RIGHTS

In the event of default by the Obligor, some jurisdictions require that the
Obligor be notified of the default and be given a time period within which the
Obligor may cure the default prior to repossession. Generally, this right of
reinstatement may be exercised on a limited number of occasions in any one-year
period.

In most jurisdictions, the UCC and other state laws require the secured
party to provide the Obligor with reasonable notice of the date, time, and place
of any public sale or the date after which any private sale of the collateral
may be held. Unless the Obligor waives his rights after default, the Obligor
has the right to redeem the collateral prior to actual sale by paying the
secured party the unpaid installments (less any required discount for
prepayment) of the Contract plus reasonable expenses for repossessing, holding,
and preparing the collateral for disposition and arranging for its sale, plus in
some jurisdictions, reasonable attorneys' fees, or, in some states, by payment
of delinquent installments.

DEFICIENCY JUDGMENTS AND EXCESS PROCEEDS

SAI generally will apply the proceeds of resale of the repossessed vehicles
first to reimburse itself for its expenses of resale and repossession, together
with any expenses incurred for repairs, if necessary, to put the vehicle into
marketable condition and any commissions paid to dealers for the resale of the
vehicle, and then to the satisfaction of the obligations of the Obligor on the
Contract. While some states impose prohibitions or limitations

<PAGE>

on deficiency judgments if the net proceeds from resale do not cover the full
amount of the Contract obligations, most states allow a deficiency judgment
to be sought. A deficiency judgment is a personal judgment against the
Obligor for the difference between the amount of the obligations of the
Obligor under the Contract and the net proceeds from resale of the
collateral. A defaulting Obligor on a Contract typically lacks capital or
income following the repossession of the Obligor's Financed Vehicle.
Therefore, SAI may determine in its discretion that pursuit of a deficiency
judgment is not an appropriate or economically viable remedy or may settle at
a significant discount any deficiency judgment that it does obtain.

Certain statutory provisions, including federal and state bankruptcy and
insolvency laws, may limit or delay the ability of SAI to repossess and resell
the Financed Vehicles or enforce a deficiency judgment. In the event that
deficiency judgments are not obtained, are not satisfied, are satisfied at a
discount or are discharged, in whole or in part, in bankruptcy proceedings,
including bankruptcy proceedings under Chapter 13 of the Bankruptcy Reform Act
of 1978, as amended, the loss will be borne by the Company and may adversely
affect the ability of the Company to repay the Notes.

Occasionally, after resale of a vehicle and payment of all expenses and
obligations, there is a surplus of funds. In that case, the UCC requires the
secured party to remit the surplus to the former Obligor.

CONSUMER PROTECTION LAWS

Numerous federal and state consumer protection laws and related regulations
impose substantial requirements upon lenders and servicers involved in consumer
finance. These laws include, but are not limited to, the Truth-in-Lending Act,
the Equal Credit Opportunity Act, the Federal Trade Commission Act, the Fair
Credit Billing Act, the Fair Credit Reporting Act, the Fair Debt Collection
Practices Act, the Magnuson-Moss Warranty Act, the Federal Reserve Board's
Regulations B and Z, state adaptations of the National Consumer Act and of the
Uniform Consumer Credit Code, state motor vehicle retail installment sales acts,
retail installment sales acts, and other similar laws. Also, state laws impose
finance charge ceilings and other restrictions on consumer transactions and
require contract disclosures in addition to those required under federal law.
These requirements impose specific statutory liabilities upon creditors who fail
to comply with their provisions. In some cases, this liability could affect an
assignee's ability to enforce consumer finance contracts such as the Contracts.

The so-called "Holder-in-Due-Course" Rule of the Federal Trade Commission
(the "FTC Rule"), the provisions of which are generally

<PAGE>

duplicated by the Uniform Consumer Credit Code, other state statutes, or the
common law in certain states, is intended to defeat the ability of the
transferor of a consumer credit contract (such as the Contracts), which
transferor is the seller of the goods that gave rise to the transaction, to
transfer such contract free of notice of claims by the debtor thereunder.
The effect of this rule is to subject the assignee of such a contract to all
claims and defenses which the Obligor under the contract could assert against
the seller of the goods. Most of the Contracts will be subject to the
requirements of the FTC Rule. Accordingly, the Company, as holder of the
Contracts, may be subject to any claims or defenses that the purchaser of the
Financed Vehicle may assert against the seller of the Financed Vehicle.
Such claims are limited to a maximum liability equal to the amounts paid by
the Obligor on the Contract. The Obligor, however, may also assert the rule
to offset remaining amounts due on the Contract as a defense against any
claim brought by the Company against such Obligor.

Under most state motor vehicle dealer licensing laws, sellers of motor
vehicles are required to be licensed to sell motor vehicles at retail sale.
Furthermore, federal odometer regulations promulgated under the Motor Vehicle
Information and Cost Savings Act require that all sellers of new and used
vehicles furnish a written statement signed by the seller certifying the
accuracy of the odometer reading. If a seller is not properly licensed or if an
odometer disclosure statement was not provided to the purchaser of a Financed
Vehicle, the Obligor may be able to assert a defense against the seller of the
vehicle.

Courts have imposed general equitable principles on secured parties
pursuing repossession of collateral or litigation involving deficiency balances.
These equitable principles may have the effect of relieving an Obligor from some
or all of the legal consequences of a default.

In several cases, obligors have asserted that the self-help remedies of
secured parties under the UCC and related laws violate the due process
protection provided under the 14th Amendment to the Constitution of the United
States. Courts have generally upheld the notice provisions of the UCC and
related laws as reasonable or have found that the repossession and resale by the
creditors do not involve sufficient state action to afford constitutional
protection to consumers.

The selling dealers will warrant that each Contract, at the time of its
purchase by the Company, complies with all requirements of law in all material
respects. Accordingly, if an Obligor has a claim or defense against the Company
for violation of any law and such claim or defense materially and adversely
affects the Company's interest in a Contract, such violation would constitute a
breach of warranty under the purchase agreements and would create an obligation
of the dealer to repurchase or replace the Contract

<PAGE>

unless the breach is cured.

OTHER LIMITATIONS

In addition to the laws limiting or prohibiting deficiency judgments,
numerous other statutory provisions, including federal bankruptcy laws and
related state laws, may interfere with or affect the ability of a secured party
to realize upon collateral or enforce a deficiency judgment. For example, in a
Chapter 13 proceeding under the federal bankruptcy law, a court may prevent a
lender from repossessing a motor vehicle, and, as part of the rehabilitation
plan, reduce the amount of the secured indebtedness to the market value of the
motor vehicle at the time of bankruptcy (as determined by the court), leaving
the party providing financing a general unsecured creditor for the remainder of
the indebtedness. A bankruptcy court may also reduce the monthly payments due
under a Contract or change the rate of interest and time of repayment of the
indebtedness.

TRANSFERS OF VEHICLES

The terms of each Contract prohibit the sale or transfer of the Financed
Vehicle securing the Contract without the secured party's consent and allow for
the acceleration of the maturity of the Contract upon a sale or transfer without
its consent. In most circumstances, SAI will not consent to a sale or transfer
of a Financed Vehicle by an Obligor unless the Obligor prepays the Contract.
Because the transfer may be sought by the Obligor as a result of Obligor's
inability to make the scheduled payments, such failure to consent may result in
a default by the Obligor and force SAI to initiate default procedures.

<PAGE>

CERTAIN FEDERAL INCOME TAX CONSIDERATIONS

SCOPE AND LIMITATIONS

The following discussion is a general summary of the federal income tax
matters of general application relating to an investment in the Notes.
Frederick C. Summers, III, a Professional Corporation, has delivered its opinion
to the Company as to all material tax consequences of an investment in the
Notes. These material tax consequences are as follows:

(i) The Notes will be taxable obligations under the Internal Revenue Code
of 1986 as amended (the "Code"), and interest paid or accrued will be taxable to
non-exempt holders of the Notes.

(ii) Interest on the Notes will be excluded from the definition of
unrelated business taxable income.

There can be no assurance that the Internal Revenue Service (the "Service")
will take a similar view as to any of the tax consequences described below. The
discussion is based upon current provisions of the Code, existing Treasury
regulations promulgated thereunder and administrative and judicial
interpretations thereof, all of which are subject to change.

The discussion does not purport to describe all aspects of federal income
taxation that may be relevant to an investor in the Notes in light of the
investor's particular tax status and other income, deductions and credits and
does not discuss any state, local or foreign tax matters. Moreover, certain
investors (including insurance companies and foreign persons) may be subject to
special rules not discussed below. EACH POTENTIAL INVESTOR IN THE NOTES SHOULD
CONSULT THE INVESTOR'S OWN TAX ADVISOR AS TO THE PARTICULAR CONSEQUENCES OF AN
INVESTMENT IN THE NOTES.

STATED INTEREST

A Noteholder must report stated interest earned on a Note as ordinary
income in accordance with such Noteholder's method of tax accounting.
Noteholders reporting their income on a cash basis must include such interest in
their gross income in the taxable year in which it is received, either actually
or constructively, whereas accrual basis Noteholders must include such interest
in their gross income in the taxable year in which it is earned.

PURCHASE OF NOTES BY EXEMPT PLANS AND OTHER EXEMPT ORGANIZATIONS

Generally, organizations described in Section 401(a) of the Code (trusts
forming part of a stock bonus, pension or profit sharing plan) and Section
501(c) of the Code, individual retirement accounts and individual retirement
trusts are exempt from federal income tax (collectively, "Exempt
Organizations"). However, this

<PAGE>

exemption does not apply where "unrelated business taxable income" is derived
by the Exempt Organizations from the conduct of any trade or business which
is not substantially related to the exempt function of the entity. If an
Exempt Organization receives unrelated business taxable income, the Exempt
Organization will be subject to a tax imposed by Section 511 of the Code as
well as alternative minimum tax on the unrelated business taxable income
portion of its income.

Generally, interest, dividends, royalties and certain other income are
excluded from the definition of unrelated business taxable income ("Excluded
Income"). Thus, generally, an Exempt Organization which invests in the Notes
will not be taxed on amounts received as interest or prepayment of principal as
a result of its investment.

However, if Excluded Income constitutes "unrelated debt-financed income"
then such income would not be excluded from the computation of unrelated
business taxable income. For this purpose, a percentage of the gross income
attributable to property with "acquisition indebtedness" will be treated as
unrelated business taxable income, generally, in proportion to the ratio of such
indebtedness to the basis of the property. Generally, "acquisition
indebtedness" is indebtedness incurred to acquire property. Therefore, if an
Exempt Organization borrows funds to acquire or hold the Notes, the interest
received on such Notes may be reclassified as unrelated business taxable income.
However, as described above, if an Exempt Organization does not borrow money to
acquire or hold the Notes, it should not realize unrelated business taxable
income by virtue of its investment in the Notes.

This summary does not address any rules or regulations enacted or
promulgated by the Department of Labor under "ERISA". Any investor subject to
ERISA or Department of Labor regulations relating to benefit plans should make
certain that it is eligible to purchase the Notes.

PLAN OF DISTRIBUTION

The Company is offering up to $20,000,000 in aggregate principal amount of
the Notes. The Notes are being offered by participating broker-dealers which
are members of the National Association of Securities Dealers, Inc. ("NASD").
Under selling agreements with the Company, such broker-dealers will solicit
subscriptions for the Notes on a "best efforts" basis, meaning that they will
make no legal commitment to sell to investors, or to buy as dealer, any specific
amount of the Notes. The Company will pay to each soliciting broker-dealer, in
consideration for its services, a sales commission of 8% of the principal amount
of all Notes sold through their efforts. Of that amount, a portion may
constitute an unallocated due diligence and marketing fee. The Company will
indemnify the broker-dealers against certain

<PAGE>

liabilities, including liabilities under applicable securities laws. As of
the date of this Prospectus, the Company has not identified any
broker/dealers who have agreed to participate in this offering of the Notes.

Investor funds will be held in a subscription escrow account with River
Oaks Trust Company, as escrow agent, until a minimum of $500,000 in principal
amount of the Notes are sold. In the event that the minimum amount of Notes is
not subscribed for before March 31, 1997 (or any earlier termination of the
offering ), the offering will be terminated and the escrowed funds, plus any
interest thereon, will be promptly returned to the subscribing investors by the
escrow agent. Upon the subscription of the minimum amount of Notes, the
escrowed funds will be released to the Company. Interest on the Notes will not
accrue until the excrowed funds are released to the Company. Any subsequent
sales proceeds from the sale of additional Notes will be immediately available
for use by the Company to purchase additional Contracts. All subscriptions are
subject to the right of the Company to reject any subscription in whole or in
part.

<PAGE>

personal use automobiles. Wisconsin subscribers must represent that they
have either (a) an annual gross income of at least $45,000 and a net worth of
at least $45,000 exclusive of the subscriber's principal residence and its
furnishings and personal use automobiles; or (b) a net worth of at least
$150,000, exclusive of the subscriber's principal residence and its
furnishings and personal use automobiles. In the case of sales to a
subscriber which is a fiduciary account, the foregoing standards must be met
by the beneficiary, the fiduciary account, or by the donor or grantor who
directly or indirectly supplies the funds to purchase the securities if the
donor or grantor is the fiduciary.

The offering will terminate on ________, 1997, unless sooner terminated by
the Company upon the failure to achieve the minimum subscription amount, upon
the sale of all of the Notes or if the Company believes that suitable Contracts
will not be available for purchase by the Company or that additional selling
efforts will be unsuccessful. Early termination of the offering may result in
the Company selling less than $20 million in aggregate principal amount of the
Notes and may expose prior purchasers of Notes to certain risks. See "Risk
Factors--Sale of Small Amount of Notes".

The Company intends to accept in the order received properly completed
subscriptions and payments for subscription amounts from qualified investors
meeting the applicable suitability standards. The Company may elect to treat as
accepted subscriptions from certain otherwise qualified investors (for example,
IRA's) whose subscription funds are being paid by a trustee or other institution
which has confirmed to the Company that the funds will be paid. Upon
achievement of the maximum subscription amount ($20,000,000) for the Notes, any
subsequently received subscription will not be accepted by the Company and will
be promptly returned.

EXPERTS

The financial statements of the Company included in this Prospectus have
been audited by Kinder & Wyman, P.C., independent certified public accountants,
whose report thereon appears elsewhere herein, and have been so included in
reliance upon the report and authority of such firm as experts in auditing and
accounting.

LEGAL MATTERS

Certain matters with respect to the validity of the Notes have been passed
upon for the Company by Frederick C. Summers, III, a Professional Corporation,
Dallas, Texas. Frederick C. Summers, III, a Professional Corporation, has also
delivered its opinion to the Company as to the federal income tax matters
discussed under "Certain Federal Income Tax Considerations".

<PAGE>

INDEX TO FINANCIAL STATEMENTS

Page

Independent Auditor's Report . . . . . . . . . . . . . . . . . . . . . . . . F-2

Balance Sheet of the Company as of July 31, 1996 . . . . . . . . . . . . . . F-3

Statement of Operations of the Company for the period
March 20, 1996 (inception) to July 31, 1996 . . . . . . . . . . . . . . F-4

Statement of Cash Flows of the Company for the period
March 20, 1996 (inception) to July 31, 1996 . . . . . . . . . . . . . . F-5

Statement of Changes in Stockholder's Equity of the
Company for the period March 20, 1996 (inception)
to July 31, 1996. . . . . . . . . . . . . . . . . . . . . . . . . . . . F-6

Notes to Financial Statement . . . . . . . . . . . . . . . . . . . . . . . . F-7

F-1

<PAGE>

[LETTERHEAD]

INDEPENDENT AUDITOR'S REPORT

Board of Directors
Sovereign Credit Finance I, Inc.

We have audited the accompanying balance sheet of Sovereign Credit Finance
I, Inc. (a wholly owned subsidiary of Sovereign Credit Holdings, Inc.) as of
July 31, 1996 and the related statements of operations, changes in
stockholder's equity and cash flows for the period March 20, 1996 (inception)
through July 31, 1996. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audit.

We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Sovereign Credit Finance I,
Inc. as of July 31, 1996, and the results of their operations and their cash
flows for the period then ended in conformity with generally accepted
accounting principles.

/s/ KINDER & WYMAN, P.C.

KINDER & WYMAN, P.C.

Irving, Texas
September 9, 1996

F-2

<PAGE>

SOVEREIGN CREDIT FINANCE I, INC.
BALANCE SHEET
JULY 31, 1996

ASSETS

Current Asset - Cash $ 879
-----
-----
STOCKHOLDER'S EQUITY

Common stock - $.01 par value; 50,000 shares authorized;
1,000 shares issued and outstanding $ 10

Additional paid-in capital 990

Retained deficit (121)
-----

Total Stockholder's Equity $ 879
-----
-----

The accompanying notes are an integral part of these financial statements.

F-3
<PAGE>

SOVEREIGN CREDIT FINANCE I, INC.
STATEMENT OF OPERATIONS
FOR THE PERIOD MARCH 20, 1996 (INCEPTION) TO JULY 31, 1996

REVENUE $ -
-----
EXPENSES

Service Charges 121
-----
NET LOSS $(121)
-----
-----

The accompanying notes are an integral part of these financial statements.

F-4
<PAGE>

SOVEREIGN CREDIT FINANCE I, INC.
STATEMENT OF CASH FLOWS
FOR THE PERIOD MARCH 20, 1996 (INCEPTION) TO JULY 31, 1996

Cash flows from operating activities:
Net loss $ (121)
------
Cash flows from investing activities:
Issuance of common shares 1,000
------
Net increase in cash 879
Cash at beginning of period 0
------
Cash at end of period $ 879
------
------

Supplemental Disclosures of Cash Flow Information:

Cash paid during the period for:

Interest $ -
------
------

Income taxes $ -
------
------
The accompanying notes are an integral part of these financial statements.

F-5
<PAGE>

SOVEREIGN CREDIT FINANCE I, INC.
STATEMENT OF CHANGES IN STOCKHOLDER'S EQUITY
FOR THE PERIOD MARCH 20, 1996 (INCEPTION) TO JULY 31, 1996

Additional
Common Common Paid-in Retained
Shares Stock Capital Deficit Total
------ ------ ------- -------- -----
Balances at
March 20, 1996 - $ - $ - $ - $ -

Issuance of common
shares 1,000 10 990 - 1,000

Net loss - - - (121) (121)

------ --- ----- ----- ------
Balances at
July 31, 1996 1,000 $10 $990 $(121) $ 879
------ --- ----- ----- ------
------ --- ----- ----- ------

The accompanying notes are an integral part of these financial statements.

F-6
<PAGE>

SOVEREIGN CREDIT FINANCE I, INC.
NOTES TO FINANCIAL STATEMENTS
JULY 31, 1996

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NATURE OF OPERATIONS

Sovereign Credit Finance I, Inc. (Company) was incorporated in
March of 1996 as a Texas Corporation. The Company is a single
purpose subsidiary of Sovereign Credit Holdings, Inc. (Parent).
The Company was formed for the purpose of purchasing, collecting
and servicing retail installment sales and lease contracts and
notes secured by motor vehicles (Contracts). The Company does
not expect to have in the future any significant assets other
that the Contracts and proceeds thereof.

Sovereign Credit Corporation (Sovereign), which is also a
subsidiary of the Company's parent, will administer and manage
the ongoing operations of the Company. The Company intends to
contract with Sovereign Associates, Inc. (SAI), a subsidiary of
Sovereign, to provide necessary purchasing and collecting
services.

NOTE 2 - AUTOMOBILE CONTRACT NOTES OFFERING

The Company is offering on a "best efforts" basis up to
$20,000,000 in principal Amount of 11% Notes (Note(s)) due
October 15, 2000. The principal is required to be repaid in six
equal monthly installments beginning May 15, 2000. Interest
begins to accrue on the Notes upon release of escrowed
subscription funds to the Company, which will not occur until the
minimum of $500,000 of the Notes are sold. All unpaid principal
and accrued interest are payable at maturity on October 15, 2000.
The Notes are being offered through licensed broker-dealers who
will receive sales commissions of 8% of the principal amount of
the Notes sold by such broker-dealers. The Company will also pay
up to 2% of the gross proceeds from the sale of the Notes to pay
offering and organizational expenses, including filing and
registration fees, legal, accounting, printing, trustee fees,
escrow fees and other fees and expenses. Some of these expenses
will be advanced by Sovereign. Sovereign has agreed to pay such
expenses to the extent they exceed 2% of the gross proceeds from
the sale of the Notes. The Company will also pay to Sovereign an
additional 5.5% of the gross proceeds from the sale of Notes
(5.0% of the gross proceeds in excess of $9,000,000) for its
services in administering and managing the ongoing operations of
the Company. Sovereign will also administer Noteholder payments,
communications and relations. For such services, the

F-7

<PAGE>

SOVEREIGN CREDIT FINANCE I, INC.
NOTES TO FINANCIAL STATEMENTS
JULY 31, 1996

NOTE 2 - AUTOMOBILE CONTRACT NOTES OFFERING (CONTINUED)

Company will pay Sovereign a monthly fee equal to 1/12 of 0.5% of
the outstanding principal amount of the Notes. These payments to
Sovereign are contingent on the successful completion of the
Company's public offering. If the offering is not successful,
the Company is not obligated to reimburse Sovereign for any
expenses incurred. The remainder of proceeds from the sale of
Notes (84.5% of the gross proceeds) is to be used to acquire
Contracts. No more than 15.5% of such proceeds is to be used for
the foregoing commissions, fees and expenses. Proceeds from the
sale of Notes received will be held in escrow by a third-party
escrow agent and not be available to the Company until
subscriptions for $500,000 in principal amount of the Notes have
been received.

The Company intends to enter into a note purchasing and servicing
agreement with SAI. The contracts will be initiated by a network
of automobile dealers which finance the sale of motor vehicles,
some of whom may be affiliate entities of the Company. SAI will
initially be entitled to a monthly servicing fee of $20 for each
Contract that is not assigned for repossession for administering
the collection of payments due under the Contracts. SAI will
also receive a fee of $125 for each Financed Vehicle assigned for
repossession for overseeing the repossession and resale of the
vehicle securing any Contract in default. SAI will also receive a
purchase administration fee for each Contract purchased, equal to
the lesser of $500, or 5% of the total amount of installments due
under the Contract as of the date of purchase.

In addition, the Company intends to enter into an Indenture
agreement between the Company and a trust company, which will
govern collection of the Contract proceeds and repayment of the
Notes.

F-8

<PAGE>

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

NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION ON OR TO MAKE ANY
REPRESENTATIONS ABOUT THE COMPANY, THE NOTES OR ANY OTHER MATTER REFERRED TO
HEREIN, OTHER THAN THE INFORMATION AND REPRESENTATIONS CONTAINED IN THIS
PROSPECTUS AND ANY SUPPLEMENTS OR AMENDMENTS THERETO. IF ANY OTHER
INFORMATION OR REPRESENTATION IS GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MAY NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR THE
SOLICITATION OF ANY OFFER TO BUY, THE SECURITIES OFFERED HEREBY IN ANY STATE
IN WHICH, OR TO ANY PERSON TO WHOM, SUCH AN OFFER WOULD BE UNLAWFUL.

TABLE OF CONTENTS

PAGE
----
Summary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Use of Proceeds. . . . . . . . . . . . . . . . . . . . . . . . . . 22
Description of Notes . . . . . . . . . . . . . . . . . . . . . . . 23
The Company. . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Purchase and Collection of
Contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Information Regarding Contracts Purchased and Serviced by SAI . . 45
Information Regarding the Securitization Subsidiaries . . . . . . 47
Security Ownership of Certain Beneficial Owners and
Management . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Management's Discussion and Analysis
of Financial Condition. . . . . . . . . . . . . . . . . . . . . . 55
Certain Legal Aspects of the Contracts . . . . . . . . . . . . . . 57
Certain Federal Income Tax Considerations. . . . . . . . . . . . . 63
Plan of Distribution . . . . . . . . . . . . . . . . . . . . . . . 64
Experts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
Legal Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . 66
Index to Financial Statements. . . . . . . . . . . . . . . . . . . F-1

UNTIL _______, 1996, ALL DEALERS EFFECTING TRANSACTIONS IN THE
REGISTERED SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY
BE REQUIRED TO DELIVERY A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION
OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH
RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.

SOVEREIGN CREDIT
FINANCE I, INC.

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

$20,000,000

11% NOTES
DUE OCTOBER 15, 2000

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

PROSPECTUS

, 1996
-------------

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

<PAGE>

PART II.

INFORMATION NOT REQUIRED IN PROSPECTUS

Item 13. Other Expenses of Issuance and Distribution.

Registration Fee . . . . . . . . . . . . . . . . . . . . . . . $6,897
NASD Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . .2,500
Escrow Agent Fees. . . . . . . . . . . . . . . . . . . . . . . .5,000
Printing Expenses. . . . . . . . . . . . . . . . . . . . . . . .9,240*
Blue Sky Fees and Expenses . . . . . . . . . . . . . . . . . . 27,735*
Legal Fees and Expenses. . . . . . . . . . . . . . . . . . . . 67,500*
Accountants' Fees and Expenses . . . . . . . . . . . . . . . . .4,000*
Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . . .2,500*
-------
TOTAL . . . . . . . . . . . . . . . . . . . . . . . . . .125,372*

- -----------------
* All items except Registration Fee and NASD Fee are estimates.

Item 14. Indemnification of Directors and Officers.

Section 7(b) of the Broker-Dealer Selling Agreement (Exhibit 10.4) provides
generally that each broker-dealer will indemnify and hold harmless the
registrant and its control persons against any loses, liabilities, claims,
damages or expenses they may become subject, under the Securities Act of 1933,
the Securities Exchange Act of 1934 or otherwise, insofar as such losses,
liabilities, claims, damages or expenses (or actions in respect thereof) arise
out of or are based upon untrue statements of material facts in connection with
the public offering of the Notes or the omission to state a material fact in
connection with the public offering of the Notes. Article XI of the Articles of
Incorporation of registrant provides generally that no director shall be liable
to the registrant or its shareholders for monetary damages for an act or
omission in such director's capacity as a director. Article VII of the By-Laws
of registrant and Section 2.02-1 of the Texas Business Corporation Act provide
generally that the registrant will indemnify each director and officer in
connection with any legal proceeding in which he is a respondent or defendant by
reason of his serving or having served in such capacity.

Item 15. Recent Sales of Unregistered Securities.

None

Item 16. Financial Statements and Exhibits.

(a) Exhibits:

3.1 Articles of Incorporation of Sovereign Credit Finance I, Inc.*

3.2 Bylaws of Sovereign Credit Finance I, Inc.*

<PAGE>

4.1 Indenture between Sovereign Credit Finance I, Inc. and Sterling
Trust Company, as Trustee

4.2 Form of 11% Note Due October 15, 2000 (included in Article Two of
Indenture filed as Exhibit 4.1)

5.1 Opinion of Frederick C. Summers, III, P.C.*

8.1 Opinion of Frederick C. Summers, III, P.C., regarding tax matters

10.1 Master Contract Purchase Agreement between Sovereign Credit
Finance I, Inc. and Sovereign Associates, Inc.*

10.2 Servicing Agreement between Sovereign Credit Finance I, Inc. and
Sovereign Associates, Inc.

10.3 Subscription Escrow Agreement between Sovereign Credit Finance I,
Inc. and River Oaks Trust Company as Escrow Agent

10.4 Form of Broker-Dealer Selling Agreement*

10.5 Form of Subscription Agreement*

10.6 Form of Promissory Note of Sovereign Credit
Corporation

23.1 Consent of Kinder & Wyman, P.C.

23.2 Consent of Frederick C. Summers, III, P.C. (included in its
opinions as Exhibits 5.1 and 8.1 herein)

26.1 Form T-1: Statement of eligibility of Sterling Trust Company
(bound separately from other exhibits)*

* previously filed

(b) Financial Statements:

Independent Auditor's Report

Balance Sheet of the Company as of July 31, 1996

Statement of Operations of the Company for the period March 20, 1996
(inception) to July 31, 1996

Statement of Cash Flows of the Company for the period March 20, 1996
(inception) to July 31, 1996

Statement of Changes in Stockholder's Equity of the

<PAGE>

Company for the period March 20, 1996 (inception) to July 31, 1996

Notes to Financial Statement

Item 17. Undertakings.

The undersigned registrant hereby undertakes:

(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:

(i) To include any prospectus required by Section 10(a)(3) of
the Securities Act of 1933;

(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or
the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental
change in the information set forth in the registration
statement; and

(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement;

(2) That, for the purpose of determining any liability under the
Securities Act of 1933, as amended, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof;

(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering; and

(4) To file an application for the purpose of determining the eligibility
of the trustee to act under subsection (a) of section 310 of the Trust Indenture
Act ("Act") in accordance with the rules and regulations prescribed by the
Commission under section 305(b)(2) of the Act.

Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for

<PAGE>

indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act
and will be governed by the final adjudication of such issue.

<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this amended registration statement to be signed on its behalf
by the undersigned, thereunto duly authorized, in the city of Dallas, State of
Texas on November 25, 1996.

SOVEREIGN CREDIT FINANCE I, INC.

By: /s/ A. Starke Taylor, III
----------------------------------------
A. Starke Taylor, III, President

Pursuant to the requirements of the Securities Act of 1933, this amended
registration statement has been signed below by the following persons in the
capacities and on the dates indicated.

Signature Title Date
--------- ----- ----

/s/ A. Starke Taylor, III President,
- ----------------------------- (principal execu-
A. Starke Taylor, III tive officer) and
director November 25, 1996

/s/ William P. Glass
- ----------------------------- director November 25, 1996
William P. Glass

/s/ Christopher R. Frattaroli Treasurer November 25, 1996
- ----------------------------- (principal financial
Christopher R. Frattaroli officer and principal
accounting officer) and
director
<PAGE>

EXHIBIT INDEX PURSUANT TO ITEM 601 OF REGULATION S-K

PAGE NUMBER IN
SEQUENTIAL
SYSTEM
(REQUIRED IN
MANUALLY EXHIBIT
SIGNED
NUMBER DESCRIPTION COPY ONLY)
- ------ ----------- ----------------

3.1 Articles of Incorporation of Sovereign
Credit Finance I, Inc.*

3.2 Bylaws of Sovereign Credit Finance I, Inc.*

4.1 Indenture between Sovereign Credit
Finance I, Inc. and Sterling Trust Company,
as Trustee

4.2 Form of 11% Note Due October 15, 2000
(included in Article Two of Indenture
filed as Exhibit 4.1)

5.1 Opinion of Frederick C. Summers, III, P.C.*

8.1 Opinion of Frederick C. Summers, III, P.C.,
regarding tax matters

10.1 Master Contract Purchase Agreement between
Sovereign Credit Finance I, Inc. and
Sovereign Associates, Inc.*

10.2 Servicing Agreement between Sovereign
Credit Finance I, Inc. and Sovereign
Associates, Inc.

10.3 Subscription Escrow Agreement between
Sovereign Credit Finance I, Inc. and
River Oaks Trust Company as Escrow Agent

10.4 Form of Broker-Dealer Selling Agreement*

10.5 Form of Subscription Agreement*

10.6 Form of Promissory Note of Sovereign Credit
Corporation

23.1 Consent of Kinder & Wyman, P.C.

23.2 Consent of Frederick C. Summers, III, P.C.
(included in its opinions as Exhibits 5.1
and 8.1 herein)

26.1 Form T-1: Statement of eligibility of
Sterling Trust Company (bound separately
from other exhibits)*

* previously filed

<PAGE>

EXHIBIT 4.1

INDENTURE BETWEEN SOVEREIGN CREDIT
FINANCE I, INC. AND STERLING TRUST COMPANY,
AS TRUSTEE

<PAGE>

SOVEREIGN CREDIT FINANCE I, INC.

AND

STERLING TRUST COMPANY,
TRUSTEE

NOTES
DUE OCTOBER 15, 2000

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

INDENTURE

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

DATED AS OF _________, 1996

<PAGE>
CROSS-REFERENCE TABLE

TRUST INDENTURE
ACT SECTION INDENTURE SECTION
--------------- -----------------
310 (a)(1) 7.10
(a)(2) 7.10
(a)(3) N/A
(a)(4) N/A
(a)(5) 7.10
(b) 7.8; 7.10; 11.2
(c) N/A
311 (a) 7.11
(b) 7.11
(c) N/A
312 (a) 2.6
(b) 11.3
(c) 11.3
313 (a) 7.6
(b) 7.6
(c) 11.2
(d) 7.6
314 (a) 5.7; 11.2
(b) N/A
(c)(1) 11.4
(c)(2) 11.4
(c)(3) N/A
(d) N/A
(e) 11.4
(f) N/A
315 (a) 7.1(b)
(b) 7.5; 11.2
(c) 7.1(a)
(d) 7.1(c)
(e) 6.11
316 (a)(1)(A) 6.5
(a)(1)(B) 6.4
(a)(2) N/A
(a)(last sentence) 1.1(Defn. of
"Outstanding
Notes")
(b) 6.7
(c) N/A
317 (a)(1) 6.8
(a)(2) 6.9
(b) 5.2
318 (a) 11.1

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

"N/A" means Not Applicable

<PAGE>
TABLE OF CONTENTS

<TABLE>
PAGE
HEADING NUMBER
- ------- ------
<S> <C>
RECITALS OF THE COMPANY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1

ARTICLE ONE - DEFINITIONS AND INCORPORATION BY REFERENCE

Section 1.1 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . .1
Section 1.2 Incorporation by Reference of Trust
Indenture Act . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 1.3 Rules of Construction . . . . . . . . . . . . . . . . . . . . . 12

ARTICLE TWO - THE SECURITIES

Section 2.1 Forms Generally . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 2.2 Form of Note. . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 2.3 Denominations . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 2.4 Execution and Authentication. . . . . . . . . . . . . . . . . . 17
Section 2.5 Registrar and Paying Agent. . . . . . . . . . . . . . . . . . . 17
Section 2.6 Holder Lists. . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 2.7 Transfer and Exchange . . . . . . . . . . . . . . . . . . . . . 18
Section 2.8 Replacement Notes . . . . . . . . . . . . . . . . . . . . . . . 18
Section 2.9 Temporary Notes . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 2.10 Cancellation. . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 2.11 Defaulted Interest. . . . . . . . . . . . . . . . . . . . . . . 19
Section 2.12 Persons Deemed Owners . . . . . . . . . . . . . . . . . . . . . 19

ARTICLE THREE - REDEMPTION

Section 3.1 General . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 3.2 Notice of Redemption. . . . . . . . . . . . . . . . . . . . . . 20
Section 3.3 Effect of Notice of Redemption. . . . . . . . . . . . . . . . . 21
Section 3.4 Deposit of Redemption Amount. . . . . . . . . . . . . . . . . . 21

ARTICLE FOUR - ACCOUNTS, DISBURSEMENTS AND RELEASES

Section 4.1 Trust Account; Operating Account. . . . . . . . . . . . . . . . 21
Section 4.2 General Provisions Regarding Trust
Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 4.3 Reports by Trustee. . . . . . . . . . . . . . . . . . . . . . . 25

<PAGE>

PAGE
HEADING NUMBER
- ------- ------
<S> <C>
ARTICLE FIVE - COVENANTS

Section 5.1 Payment of Principal and Interest . . . . . . . . . . . . . . . 26
Section 5.2 Money for Note Payments to be Held
in Trust. . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 5.3 Payment of Taxes and Other Claims . . . . . . . . . . . . . . . 28
Section 5.4 Maintenance of Properties . . . . . . . . . . . . . . . . . . . 28
Section 5.5 Limitation on Investment Activities . . . . . . . . . . . . . . 29
Section 5.6 Compliance Certificates . . . . . . . . . . . . . . . . . . . . 29
Section 5.7 Reporting . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Section 5.8 Performance of Obligations; Servicing
Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 5.9 Negative Covenants. . . . . . . . . . . . . . . . . . . . . . . 31

ARTICLE SIX - DEFAULTS AND REMEDIES

Section 6.1 Events of Default . . . . . . . . . . . . . . . . . . . . . . . 32
Section 6.2 Acceleration. . . . . . . . . . . . . . . . . . . . . . . . . . 34
Section 6.3 Remedies. . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Section 6.4 Waiver of Past Defaults . . . . . . . . . . . . . . . . . . . . 34
Section 6.5 Control by Majority . . . . . . . . . . . . . . . . . . . . . . 34
Section 6.6 Limitation on Suits . . . . . . . . . . . . . . . . . . . . . . 35
Section 6.7 Rights of Holders to Receive Payment. . . . . . . . . . . . . . 35
Section 6.8 Collection Suit by Trustee. . . . . . . . . . . . . . . . . . . 35
Section 6.9 Trustee may File Proofs of Claim. . . . . . . . . . . . . . . . 35
Section 6.10 Priorities. . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Section 6.11 Undertaking for Costs . . . . . . . . . . . . . . . . . . . . . 36
Section 6.12 Stay, Extension or Usury Laws . . . . . . . . . . . . . . . . . 36

ARTICLE SEVEN - TRUSTEE

Section 7.1 Duties of Trustee . . . . . . . . . . . . . . . . . . . . . . . 37
Section 7.2 Rights of Trustee . . . . . . . . . . . . . . . . . . . . . . . 38
Section 7.3 Individual Rights of Trustee. . . . . . . . . . . . . . . . . . 39
Section 7.4 Trustee's Disclaimer. . . . . . . . . . . . . . . . . . . . . . 39
Section 7.5 Notice of Default . . . . . . . . . . . . . . . . . . . . . . . 39
Section 7.6 Reports by Trustee to Holders . . . . . . . . . . . . . . . . . 39
Section 7.7 Compensation and Indemnity. . . . . . . . . . . . . . . . . . . 40
Section 7.8 Replacement of Trustee. . . . . . . . . . . . . . . . . . . . . 41
Section 7.9 Successor Trustee by Merger, etc. . . . . . . . . . . . . . . . 41
Section 7.10 Eligibility; Disqualification . . . . . . . . . . . . . . . . . 41
Section 7.11 Preferential Collection of Claims
Against Company . . . . . . . . . . . . . . . . . . . . . . . . 42
Section 7.12 Withholding Taxes . . . . . . . . . . . . . . . . . . . . . . . 42

iii

<PAGE>

PAGE
HEADING NUMBER
- ------- ------
<S> <C>
ARTICLE EIGHT - DISCHARGE OF INDENTURE

Section 8.1 Satisfaction and Discharge of Indenture . . . . . . . . . . . . 42
Section 8.2 Application of Trust Money. . . . . . . . . . . . . . . . . . . 43
Section 8.3 Repayment to Company. . . . . . . . . . . . . . . . . . . . . . 43

ARTICLE NINE - AMENDMENTS, SUPPLEMENTS AND WAIVERS

Section 9.1 Without Consent of Holders. . . . . . . . . . . . . . . . . . . 44
Section 9.2 With Consent of Holders . . . . . . . . . . . . . . . . . . . . 44
Section 9.3 Compliance with Trust Indenture Act . . . . . . . . . . . . . . 45
Section 9.4 Revocation and Effect of Consents . . . . . . . . . . . . . . . 45
Section 9.5 Notation on or Exchange of Notes. . . . . . . . . . . . . . . . 45
Section 9.6 Trustee to Sign Amendments, etc.. . . . . . . . . . . . . . . . 45

ARTICLE TEN - MEETINGS OF HOLDERS

Section 10.1 Purposes for Which Meetings may be
Called. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Section 10.2 Manner of Calling Meetings. . . . . . . . . . . . . . . . . . . 46
Section 10.3 Call of Meetings by Company or Holders. . . . . . . . . . . . . 46
Section 10.4 Who may Attend and Vote at Meetings . . . . . . . . . . . . . . 47
Section 10.5 Regulations may be Made by Trustee;
Conduct of the Meeting; Voting Rights . . . . . . . . . . . . . 47
Section 10.6 Exercise of Rights of Trustee or
Holders may not be Hindered or Delayed
by Call of Meeting. . . . . . . . . . . . . . . . . . . . . . . 47
Section 10.7 Evidence of Actions by Holders. . . . . . . . . . . . . . . . . 47

ARTICLE ELEVEN - MISCELLANEOUS

Section 11.1 Trust Indenture Act Controls. . . . . . . . . . . . . . . . . . 48
Section 11.2 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Section 11.3 Communication by Holders with Other
Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Section 11.4 Certificate and Opinion as to Conditions
Precedent . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Section 11.5 Rules by Paying Agent and Registrar . . . . . . . . . . . . . . 49
Section 11.6 Legal Holidays. . . . . . . . . . . . . . . . . . . . . . . . . 49
Section 11.7 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . 50
Section 11.8 No Adverse Interpretation of Other
Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Section 11.9 No Recourse Against Others. . . . . . . . . . . . . . . . . . . 50
Section 11.10 Successors. . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Section 11.11 Duplicate Originals . . . . . . . . . . . . . . . . . . . . . . 50
Section 11.12 Severability. . . . . . . . . . . . . . . . . . . . . . . . . . 50
Section 11.13 Headings. . . . . . . . . . . . . . . . . . . . . . . . . . . . 51

<PAGE>

PAGE
HEADING NUMBER
- ------- ------
<S> <C>
ARTICLE TWELVE - AGREEMENTS OF SERVICER

Section 12.1 General . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Section 12.2 Master Collections Account. . . . . . . . . . . . . . . . . . . 51
Section 12.3 Servicer Acting as Custodian. . . . . . . . . . . . . . . . . . 52
Section 12.4 Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Section 12.5 Payment of Fees and Expenses of Trustee . . . . . . . . . . . . 53
Section 12.6 Servicing Compensation. . . . . . . . . . . . . . . . . . . . . 53
Section 12.7 Realization upon Defaulted Contracts. . . . . . . . . . . . . . 53
Section 12.8 Appointment of Custodian for Contract
Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Section 12.09 Purchase of Eligible Contracts. . . . . . . . . . . . . . . . . 55
Section 12.10 Reporting by the Servicer . . . . . . . . . . . . . . . . . . . 57
Section 12.11 Annual Accountants' Reports . . . . . . . . . . . . . . . . . . 58
Section 12.12 Representations and Warranties
Concerning the Servicer . . . . . . . . . . . . . . . . . . . . 58
Section 12.13 Corporate Existence; Status as
Servicer; Merger. . . . . . . . . . . . . . . . . . . . . . . . 59
Section 12.14 Performance of Obligations. . . . . . . . . . . . . . . . . . . 59
Section 12.15 The Servicer Not to Resign; Assignment. . . . . . . . . . . . . 60
Section 12.16 Representations and Warranties
as to the Contracts . . . . . . . . . . . . . . . . . . . . . . 60
Section 12.17 Purchase of Certain Contracts . . . . . . . . . . . . . . . . . 62
Section 12.18 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . 63
Section 12.19 Termination . . . . . . . . . . . . . . . . . . . . . . . . . . 64
Section 12.20 Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
Section 12.21 Inspection and Audit Rights . . . . . . . . . . . . . . . . . . 64

ARTICLE THIRTEEN - ADDITIONAL LENDER

Section 13.1 Indenture Subject to Terms of
Additional Borrowing. . . . . . . . . . . . . . . . . . . . . . 65

EXHIBIT A - CONTRACT PURCHASE CRITERIA . . . . . . . . . . . . . . . . . . . . . .A-1

EXHIBIT B - MONTHLY REPORT CERTIFICATE . . . . . . . . . . . . . . . . . . . . . .B-1

EXHIBIT C - TRUSTEE'S FEE. . . . . . . . . . . . . . . . . . . . . . . . . . . . .C-1

</TABLE>

<PAGE>

THIS INDENTURE, dated as of ___________, 1996 is between SOVEREIGN CREDIT
FINANCE I, INC., a Texas corporation (the "Company"), having its principal
office at 4015 Beltline Road, Building B, Dallas, Texas 75244 and Sterling
Trust Company, as Trustee (the "Trustee"), a trust company organized and
existing under the laws of the State of Texas and having its principal office at
7901 Fish Pond Road, Waco, Texas 76710.

RECITALS OF THE COMPANY

The Company has duly authorized the execution and delivery of this
Indenture and the issuance of its Notes Due October 15, 2000 in the maximum
aggregate principal amount of $20,000,000 (the "Notes").

All acts necessary to make the Notes, when executed by the Company,
authenticated and delivered hereunder and duly issued by the Company, the valid
obligations of the Company and to make this Indenture a valid agreement of the
Company, in accordance with their and its terms, have been accomplished.

Therefore, for and in consideration of the premises and the purchase or
acceptance of the Notes by the Holders (as herein defined) thereof, it is
mutually covenanted and agreed, for the equal and proportionate benefit of all
Holders, as follows:

ARTICLE ONE

DEFINITIONS AND INCORPORATION BY REFERENCE

Section 1.1 Definitions.

"Accounts" means the Trust Account and the Operating Account established by
the Company under the provisions of Section 4.1.

"Additional Lender" means the Additional Lender as defined by the final
prospectus filed with the SEC pursuant to which the Notes are offered and sold
on behalf of the Company.

"Additional Borrowing" means any one or more loans, and the proceeds
thereof, made by the Additional Lender to the Company and subject to any
restrictions set forth in the final prospectus filed with the SEC pursuant to
which the Notes are offered and sold on behalf of the Company.

"Affiliate" means, as to any Person, any other Person which directly or
indirectly controls, or is under common control with, or is controlled by, such
Person. As used in this definition "control" (including, with its correlative
meanings, "controlled by" and "under common control with") means possession,
directly or indirectly, of power to direct or cause the direction of management

<PAGE>

or policies (whether through ownership of capital stock, partnership interests,
by contract or otherwise), provided that, in any event, any Person which owns
directly or indirectly 10% or more of the securities having ordinary voting
power for the election of directors or other governing body of a corporation or
10% or more of the partnership or other ownership interests of any other Person
(other than as a limited partner of such other Person) will be deemed to control
such other Person for the purposes of this definition; and provided further that
no individual shall be an Affiliate of a corporation or partnership solely by
reason of his being an officer, director or partner of such entity.

"Allowed Expenses" means any amounts due the Trustee under Section 7.7, any
Servicing Fees, any fees payable for the transfer of the lien reflected in the
Title Documents into and out of the Company's name, any federal, state and local
taxes and assessments incurred by the Company (including corporate franchise
taxes and any payments by the Company to any of its Affiliates as reimbursements
for tax payments made by such Affiliate for the Company's benefit or the benefit
obtained by the Company from use of tax losses employed by such Affiliate to
offset taxable income of the Company), any bank service charges and account fees
relating to the Accounts and the subscription escrow account established for the
receipt of the proceeds from the offering and sale of the Notes, the Company's
pro rata share (based on the relative amounts of funds attributable to the
Contracts as compared to the retail installment contracts and consumer
obligations of all other Persons serviced by the Servicer) of the lockbox fees,
account fees and bank service charges relating to the Collections Account, any
legal and accounting fees and printing expenses for reports, certificates and
opinions required under this Indenture, premiums for vehicle value insurance,
charges for vehicle warranty repair service contracts (including fees paid to
vehicle dealers), any Liquidation Expenses (as to each Financed Vehicle, limited
to the related Liquidation Proceeds), any Insurance Expenses (as to each
Financed Vehicle, limited to the related Insurance Proceeds), and any other
Allowed Expenses as described in or defined by the prospectus which offers the
Notes for sale.

"Assignment" means the original instrument of assignment of a Contract and
all other documents securing such Contract made by the Servicer to the Company
(or in the case of any Contract acquired by the Company from another Person,
from such other Person to the Company), which is in a form sufficient under the
laws of the jurisdiction under which the security interest in the related
Financed Vehicle arises to permit the assignee to exercise all rights granted by
the Obligor under such Contract and such other documents to the obligee and to
exercise all rights available under applicable law under such Contract and
which may, to the extent permitted by the laws of such jurisdiction, be an
assignment constituting a part of the form of the Contract itself or a blanket
instrument of assignment covering other Contracts as well.

<PAGE>

"Bankruptcy Law" shall have the meaning provided in Section 6.1.

"Business Day" means each Monday, Tuesday, Wednesday, Thursday and Friday
which is not a Legal Holiday.

"Collection Period" means with respect to any Payment Date or Report Date,
the calendar month immediately preceding the Payment Date or Report Date.

"Collections Account" means the lockbox account created and maintained by
the Servicer in the Company's name and designated as such pursuant to Section
12.2.

"Company" means the Person named as the "Company" in the first paragraph of
this instrument until a successor Person replaces it pursuant to the applicable
provisions of this Indenture, and thereafter "Company" means such successor
Person.

"Company Order" or "Company Request" means a written order or request
signed in the name of the Company by its Chairman, President or a Vice
President, Treasurer, Assistant Treasurer, Controller, Assistant Controller,
Secretary or an Assistant Secretary, and delivered to the Trustee.

"Contract" means each retail installment sales or lease contract (or other
obligation) and security agreement which has been executed by an Obligor and
pursuant to which such Obligor purchased or leased the Financed Vehicle
described therein, agreed to pay the remaining unpaid portion of the purchase
price or the lease payments, as therein provided in connection with such
purchase or lease, granted a security interest in such Financed Vehicle, and
undertook to perform certain other obligations as specified in such Contract and
which is granted to the Trustee pursuant to this Indenture as security for the
Notes.

"Contract Documents" means with respect to each Contract, (i) the original
Contract; (ii) either the original Title Document for the related Financed
Vehicle showing the Obligor (or the originating dealer, in the case of a lease)
as the owner and the Servicer or the Company as first lienholder or an official
receipt from the responsible state or local governmental authority showing that
an application has been made (and the required fees have been paid) for
registration of the Title Documents for such Financed Vehicle in the names of
the Obligor (or the originating dealer, in the case of a lease) as owner and the
Servicer or the Company as first lienholder (or such other evidence of
perfection of the security interest in the related Financed Vehicle granted by
such Contract, as determined by the Company to be permitted or required to
perfect such security interest under the laws of the applicable jurisdiction, or
a guarantee from the dealer selling such Financed Vehicle that the Title
Document for such Financed Vehicle showing

<PAGE>

the Servicer or the Company as first lienholder has been applied for);
(iii) the related Assignment; and (iv) any agreement(s) modifying the Contract
(including, without limitation, any extension agreement(s)).

"Defaulted Contract" means with respect to any Collection Period, a
Contract (a) whose Obligor, at the end of such Collection Period, (i) in the
case of Contracts requiring biweekly or semi-monthly installments, is past due
with respect to at least three consecutive scheduled installments and has failed
for 30 days to remit any sums against the obligations under the Contract, or
(ii) in the case of Contracts requiring monthly installments, is past due with
respect to two scheduled installments and has failed for 60 days to remit any
sums against the obligations under the Contract, or (b) with respect to which
the related Financed Vehicle has been repossessed and, in the case of either (a)
or (b), in respect of which Liquidation Proceeds, which, in the Servicer's
judgment, would constitute the final amounts recoverable in respect of such
Contract, have not yet been collected as of the end of such Collection Period.

"Due Date" means as to any installment payable by an Obligor on a Contract,
the date upon which such installment is due.

"Eligible Account" means an account that is either (i) maintained with a
depository institution subject to supervision or examination by federal or state
authority and having a combined capital and surplus of at least $15,000,000,
(ii) an account or accounts the deposits in which are fully insured by the
Federal Deposit Insurance Corporation, or (iii) maintained with the Trustee or
its successor.

"Eligible Contract" means a Contract hereafter acquired by the Company
that, as of the date of such acquisition, satisfies the representations and
warranties contained in Section 12.16 of this Indenture.

"Eligible Investments" means any one or more of the following obligations
or securities:

(i) United States Obligations;

(ii) demand and time deposits in, certificates of deposit of, banker's
acceptances issued by, or federal funds sold by any depository institution
or trust company (including the Trustee) incorporated under the laws of the
United States of America or any state thereof and subject to supervision
and examination by federal and/or state banking authorities, so long as
such institution or company has a combined capital and surplus of at least
$20,000,000;

(iii) repurchase obligations with respect to any security

<PAGE>

described in clause (i) entered into with a depository institution or trust
company (including the Trustee), acting as principal, whose obligations
having the same maturity as that of the repurchase agreement and would be
Eligible Investments under clause (ii) above;

(iv) securities bearing interest or sold at a discount issued by any
corporation incorporated under the laws of the United States of America or
any state thereof which at the time of such investment have long-term,
unsecured debt rated by Standard & Poor's as "AA-" or better; provided,
however, that securities issued by any particular corporation will not be
Eligible Investments to the extent that investment therein will cause the
then outstanding principal amount of securities issued by such corporation
to exceed 10% of the aggregate outstanding balances and amounts of all
Contracts and Eligible Investments;

(v) commercial paper given the highest rating by Standard & Poor's at
the time of such investment; and

(vi) pooled or common trust funds of the Trustee or of any publicly
traded money market mutual fund that are invested in the above-mentioned
Eligible Investments.

"Event of Default" shall have the meaning provided in Section 6.1.

"Exchange Act" means the Securities Exchange Act of 1934, as amended.

"Financed Vehicle" means as to any Contract, the automobile or light-duty
truck that constitutes security for the obligations of the Obligor thereunder.

"Full Prepayment" means any of the following: (i) payment to the Servicer
of 100% of the outstanding installments of a Contract (exclusive of any Contract
referred to in clause (ii) or (iii) of the definition of the term "Liquidated
Contract"), less any discount on such installments to which the Obligor shall be
entitled under the terms of such Contract and applicable law by virtue of early
payment of any installment, or (ii) payment by the Servicer into the Collections
Account of the purchase price of a Contract in connection with the purchase by
Servicer of a Contract pursuant to Section 12.17.

"Holder" means a Person in whose name a Note is registered on the
Registrar's books.

"Indenture" means this instrument as originally executed or as it may from
time to time be supplemented or amended by one or more indentures supplemental
hereto entered into pursuant to the

<PAGE>

applicable provisions hereof.

"Independent" means with respect to any specified Person, that such Person
(i) is in fact independent, (ii) does not have any direct financial interest or
any material indirect financial interest in the Company or in any other obligor
upon the Notes or in any Affiliate of the Company or of such other obligor, and
(iii) is not connected with the Company or such other obligor as an officer,
employee, promoter, underwriter, trustee, partner, director or Person performing
similar functions. Whenever it is herein provided that any Independent Person's
opinion or certificate shall be furnished to the Trustee, such Person shall be
appointed by a Company Order and approved by the Trustee in the exercise of
reasonable care and such opinion or certificate shall state that the signer is
Independent within the meaning hereof.

"Insurance Expenses" means, with respect to a Financed Vehicle, any
expenses incurred by the Servicer and recoverable out of the Insurance Proceeds
from the related insurance policy and any portion of such Insurance Proceeds
applied to the repair of such Financed Vehicle or required to be released to the
related Obligor.

"Insurance Proceeds" means the proceeds paid by any insurer pursuant to any
Physical Damage Insurance Policy, any credit or life insurance policy covering
payments owing under any Contract, or any other insurance policy for damage or
repair of a Financed Vehicle or for liability for confiscated, converted or
"skipped" Financed Vehicles.

"Legal Holiday" shall have the meaning provided in Section 11.6.

"Liquidated Contract" means a Contract which (i) has been the subject of a
Full Prepayment, (ii) was a Defaulted Contract and with respect to which
Liquidation Proceeds which, in the Servicer's judgment, constitute the final
amounts recoverable in respect of such Contract have been realized and deposited
in the Collections Account, or (iii) has been paid in full on or after its
Maturity Date.

"Liquidation Expenses" means the reasonable out-of-pocket expenses incurred
by the Servicer in connection with the liquidation of any Contract (including
the attempted liquidation of a Contract which is brought current and is no
longer in default during such attempted liquidation), the repossession, holding
and repair of any Financed Vehicle related thereto and the sale of any
repossessed or returned Financed Vehicle related thereto, which expenses may
include Insurance Expenses.

"Liquidation Proceeds" means the amounts received by the Servicer (before
reimbursement for Liquidation Expenses) in connection with the liquidation of
any Defaulted Contract and the

<PAGE>

sale of any repossessed or returned Financed Vehicle related thereto, whether
through repurchase by the motor vehicle dealer who originated the Contract,
receipt of Insurance Proceeds, repossession, sale or otherwise.

"Majority Holders" means the Holders of Notes representing more than 50% of
the aggregate principal amount of Notes which are then Outstanding Notes.

"Maturity Date" means with respect to any Contract, the date on which the
last scheduled installment of such Contract shall be due and payable (after
giving effect to all prepayments received prior to the date of determination).

"Monthly Report" means a combined Officer's Certificate of the Company and
the Servicer relating to the purchasing and servicing of the Contracts, interest
payments on the Notes and disbursements from the Operating Account and required
to be delivered to the Trustee under this Indenture. The Monthly Report shall
be substantially in the form of Exhibit B attached hereto, as amended from time
to time, and shall have attached or included all lists, data and information
required to be attached or included hereunder.

"Net Insurance Proceeds" means the amount derived by subtracting from the
Insurance Proceeds of a Financed Vehicle the related Insurance Expenses.

"Net Liquidation Proceeds" means the amount derived by subtracting from the
Liquidation Proceeds of a Contract the related Liquidation Expenses.

"Note Register" means the register for the Notes maintained by the
Registrar pursuant to Section 2.5.

"Notes" means the Notes Due October 15, 2000, as amended or supplemented
from time to time, that are issued under this Indenture.

"Obligor" means each Person who is indebted under a Contract or who has
acquired or leased a Financed Vehicle subject to a Contract.

"Offering Amount" shall mean the $20,000,000 in aggregate principal amount
of the Notes that may be issued under this Indenture.

"Offering Expenses" shall mean the fees, commissions and expenses that the
Company will pay from the proceeds of the sale of the Notes, as disclosed in the
final prospectus relating to the offering of the Notes filed with the SEC
pursuant to which the Notes are offered and sold on behalf of the Company.

<PAGE>

"Officer" means the Chairman of the Board, the President, any Vice
President, the Treasurer, the Secretary or the Controller of any Person.

"Officer's Certificate" when used with respect to any Person, means a
certificate signed by the Chairman of the Board, President, any Vice President,
the Treasurer, any Assistant Treasurer, the Secretary or any Assistant Secretary
of such Person, or any other officer of such Person customarily performing
functions similar to those performed by any of the above designated officers.

"Operating Account" means the commercial bank account created and
maintained by the Company and denominated as such pursuant to Section 4.1.

"Opinion of Counsel" means a written opinion from legal counsel who is
reasonably acceptable to the Trustee. The counsel may be an employee of or
counsel to the Company or the Trustee.

"Outstanding Contracts" as of any date means all Contracts other than
Liquidated Contracts.

"Outstanding Notes" means, with respect to the Notes, as of the date of
determination, all the Notes theretofore authenticated and delivered under this
Indenture except:

(i) the Notes theretofore cancelled by the Trustee or delivered to
the Trustee for cancellation;

(ii) the Notes or portions thereof for whose payment or redemption
money in the necessary amount has been theretofore deposited with the
Trustee or any Paying Agent in trust for the Holders of such Notes;
provided that, if such Notes or portions thereof are to be redeemed, notice
of such redemption has been duly given pursuant to this Indenture or
provision therefor satisfactory to the Trustee has been made; and

(iii) Notes in exchange for or in lieu of which other Notes have been
authenticated and delivered pursuant to this Indenture unless proof
satisfactory to the Trustee is presented that any such Notes are held by a
holder in due course;

provided, however, that in determining whether the Holders of the requisite
principal amount of the Outstanding Notes have given any request, demand,
authorization, direction, notice, consent or waiver hereunder, Notes owned by
the Company or any Affiliates of the Company shall be disregarded and deemed not
to be Outstanding Notes, except that, in determining whether the Trustee shall
be protected in relying upon any such request, demand, authorization, direction,
notice, consent or waiver, only Notes with respect to which the Trustee has
received written notice of such ownership or

<PAGE>

otherwise has actual knowledge of such ownership shall be so disregarded. Notes
so owned which have been pledged in good faith may be regarded as Outstanding
Notes if the pledgee establishes to the satisfaction of the Trustee the
pledgee's right so to act with respect to such Notes and that the pledgee is
not the Company or any other obligor upon the Notes or any Affiliates of the
Company or such other obligor.

"Paying Agent" means the Trustee or any other Person that meets the
eligibility standards for the Trustee specified in Section 7.10 and is
authorized by the Company to pay the principal or any interest which may become
payable on any Notes on behalf of the Company.

"Payment Date", with respect to any Note, means the (i) 15th day of each
calendar month (unless such day is not a Business Day in which event the next
succeeding Business Day) commencing with the second calendar month following the
month in which the Note is issued, and (ii) the Stated Maturity.

"Person" means any individual, any corporation, partnership, joint venture,
trust or other entity, any unincorporated organization or any government or
agency or political subdivision thereof.

"Physical Damage Insurance Policy" means with respect to a Financed
Vehicle, any policy of physical damage, comprehensive or collision insurance
covering the Financed Vehicle pursuant to which the Servicer may obtain
recoveries for loss or damage to the Financed Vehicle.

"Price/Payments Ratio" means with respect to any Contract, the ratio of the
original purchase price paid by the Company for the purchase of a Contract to
the aggregate unpaid installments on the Contract, as of the date of the
purchase by the Company.

"Principal Repayment Commencement Date" means May 15, 2000, which is the
fifth Payment Date prior to the Stated Maturity.

"Purchase Date" means the date on which the Company remits funds from the
Operating Account to pay the purchase price for an Eligible Contract.

"Record Date" for the interest and any principal payable on any Payment
Date means the first day (whether or not a Business Day) of the month in which
such Payment Date occurs.

"Redemption Date" has the meaning set forth in Section 3.1(a).

"Redemption Price" has the meaning set forth in Section 3.1(a).

<PAGE>

"Registrar" means the office or agency of the Company or its designee where
the Notes may be presented for registration of transfer or exchange, as
established under Section 2.5.

"Registrar of Titles" means the agency, department or office having the
responsibility for maintaining records of titles to motor vehicles and issuing
documents evidencing such titles in the jurisdiction in which a particular
Financed Vehicle is registered.

"Report Date" means the 20th day (or the Business Day next succeeding such
day if such day is not a Business Day) of each month during the existence of
this Indenture.

"Responsible Officer" when used with respect to the Trustee means the
Chairman or Vice Chairman of the Board of Directors or Trustees, the Chairman or
Vice Chairman of the Executive Committee of the Board of Directors or Trustees,
the President, any Vice President, any Assistant Vice President, any Trust
Officer or Assistant Trust Officer, the Secretary, any Assistant Secretary, the
Treasurer, any Assistant Treasurer, or any other officer of the Trustee
customarily performing functions similar to those performed by any of the above
designated officers and also means, with respect to a particular corporate trust
matter, any other officer to whom such matter is referred because of his or her
knowledge of an familiarity with the particular subject.

"SCH" means Sovereign Credit Holdings, Inc., of which the Company is a
wholly-owned subsidiary.

"SEC" means the Securities and Exchange Commission.

"Servicer" means Sovereign Associates, Inc. as servicer under the Servicing
Agreement, and its permitted successors and assigns.

"Servicer Request" means a written request signed in the name of the
Servicer by a Servicing Officer and delivered to the Trustee.

"Servicing Agreement" means the Master Contract Purchase Agreement and the
Servicing Agreement, each dated as of ________, 1996, by and between the Company
and the Servicer, providing among other things, for the purchasing, collecting
and servicing of the Contracts, as said agreements may be amended or
supplemented from time to time as permitted hereby and thereby. Such term shall
also include any purchasing and servicing agreements entered into with a
successor servicer and any separate servicing agreement for the servicing of
Contracts.

"Servicing Fee" means the servicing, purchasing, investor administration
and repossession fees and other fees payable by the Company to the Servicer
under the Servicing Agreement.

<PAGE>

"Servicing Officer" means any officer of the Servicer involved in, or
responsible for, the administration and servicing of the Contracts whose name
appears on a list of Servicing Officers furnished to the Company and the Trustee
by the Servicer, as such list may be amended or supplemented from time to time.

"Special Record Date" means the date determined pursuant to Section 2.11.

"Stated Maturity" means October 15, 2000.

"TIA" means the Trust Indenture Act of 1939, as amended.

"Title Document" means with respect to any Financed Vehicle, the
certificate of title for, or other evidence of ownership of, such Financed
Vehicle issued by the Registrar of Titles in the jurisdiction in which such
Financed Vehicle is registered.

"Trust Account" means the trust account controlled by the Trustee and
designated as such pursuant to Section 4.1.

"Trust Officer" means any Responsible Officer assigned by the Trustee to
administer its corporate trust matters.

"Trustee" means the party named as such in this Indenture until a successor
replaces it and thereafter means the successor.

"UCC" means the Uniform Commercial Code as in effect in the relevant
jurisdiction.

"United States Obligations" means direct obligations of the United States
of America or any agency or instrumentality of the United States of America, or
other obligations the principal of and interest on which are unconditionally
guaranteed or insured by United States of America.

Section 1.2 Incorporation by Reference of Trust Indenture Act.

Whenever this Indenture refers to a provision of the TIA, such provision is
incorporated by reference in and made a part of this Indenture. If this
Indenture is qualified under the TIA, any provision that is required by the TIA
to be incorporated herein shall be so incorporated and shall supersede any
conflicting provision hereof. The following TIA terms have the following
meanings in this Indenture:

"Commission" means the SEC.

"indenture securities" means the Notes.

"indenture securityholder" means a Holder.

<PAGE>

"indenture to be qualified" means this Indenture.

"indenture trustee" or institutional trustee" means the Trustee.

"obligor" on the indenture securities means the Company (or any other
obligor on the Notes).

All other TIA terms used in this Indenture that are defined by the TIA, defined
by TIA reference to another statute or defined by SEC rule have the meanings
assigned to them.

Section 1.3 Rules of Construction.

Unless the context otherwise requires:

(1) a term has the meaning assigned to it;

(2) an accounting term not otherwise defined has the meaning assigned to
it in accordance with generally accepted accounting principals as of the date of
this Indenture;

(3) "or" is not exclusive; and

(4) words in the singular include the plural, and in the plural include
the singular.

ARTICLE TWO

THE SECURITIES

Section 2.1 Forms Generally.

The Notes and the Trustee's certificate of authentication shall be in
substantially the forms set forth in this Article, with such appropriate
insertions, omissions, substitutions and other variations as are required by
this Indenture, and may have such letters, numbers or other marks of
identification and such legends or endorsements placed thereon as may be
required to comply with the rules of any securities exchange on which the Notes
may be listed, or as may, consistently herewith, be determined by the officers
executing such Notes, as evidenced by their execution thereof. Any portion of
the text of any Note may be set forth on the reverse thereof, in which case the
following reference to the portion of the text appearing on the reverse of the
Notes shall be inserted on the face of the Notes, immediately prior to the
paragraph stating that the certificate of authentication on the Note must be
executed by manual signature of the Trustee as a condition to the validity of
such Note:

"Reference is hereby made to the further provisions of this Note set
forth on the reverse hereof which provisions

<PAGE>

shall for all purposes have the same effect as if set forth at this place."

The definitive Notes shall be printed, lithographed or engraved or produced by
any commercially reasonable manner, all as determined by the officers executing
such Notes, as evidenced by their execution thereof.

Section 2.2 Form of Note.

(a) The form of Note is as follows:

SOVEREIGN CREDIT FINANCE I, INC.

NOTES DUE OCTOBER 15, 2000

$_______________ No._____________

Sovereign Credit Finance I, Inc., a corporation duly organized and existing
under the laws of the State of Texas (herein referred to as the "Company"), for
value received, hereby promises to pay to _____________________________ or
registered assigns, the principal sum of _____________________________ dollars,
and to pay interest (computed on the basis of a 360-day year consisting of 12
months of 30 days each) on the unpaid portion of said principal sum outstanding
from time to time from the date of issue, until the principal amount of this
Note is paid in full, at the rate of eleven percent (11.0%) per annum, which
interest shall be due and payable upon the 15th day of each calendar month (for
such interest accruing through the last day of the prior calendar month) during
the term of this Note commencing with the second calendar month following the
calendar month in which this Note is issued (each a "Payment Date"). The
principal sum hereof shall be due and payable in six equal consecutive monthly
installments commencing on the Principal Repayment Commencement Date (as
hereafter defined) and thereafter on every Payment Date, until October 15, 2000
(the "Stated Maturity"), at which time all then unpaid principal and accrued
interest hereunder shall be due and payable. The Principal Repayment
Commencement Date is May 15, 2000.

The principal of and interest on this Note are payable in such coin or
currency of the United States of America as at the time of payment is legal
tender for payment of public and private debts. All payments made by the
Company with respect to this Note shall be applied first to interest due and
payable on this Note as provided above and then to the unpaid principal of this
Note. This Note represents a general obligation of the Company.

This Note is one of a duly authorized issue of Notes of the Company,
designated as its Notes Due October 15, 2000 (herein called the "Notes"), all
issued and to be issued under an Indenture dated as of ___________, 1996 (herein
called the "Indenture"),

<PAGE>

between the Company and Sterling Trust Company (the "Trustee", which term
includes any successor Trustee under the Indenture), to which Indenture and
all indentures supplemental thereto reference is hereby made for a statement
of the respective rights thereunder of the Company, the Trustee and the
Holders of the Notes, and the terms upon which the Notes are, and are to be,
authenticated and delivered. All capitalized terms used in this Note which
are defined in the Indenture shall have the meanings assigned to them in the
Indenture.

Payment of the outstanding principal of and accrued interest on this Note
at the Stated Maturity or of the Redemption Price payable on any Redemption Date
as of which this Note has been called for redemption shall be made upon
presentation of this Note to the Paying Agent appointed by the Company for such
purpose. Payments of all installments of interest and principal due and payable
on any Payment Date (other than the Stated Maturity) shall be made by check
mailed to the Person whose name appears as the Holder of this Note on the Note
Register as of the first day of the month in which such Payment Date occurs (the
"Record Date") without requiring that this Note be submitted for notation of
payment. Checks returned undelivered will be held for payment to the Person
entitled thereto, subject to the terms of the Indenture, at the office or agency
in the United States of America designated by the Company for such purpose
pursuant to the Indenture.

If an Event of Default shall occur and be continuing with respect to the
Notes, the Notes, and all principal and unpaid accrued interest, may be declared
due and payable in the manner and with the effect provided in the Indenture.

The Notes are redeemable, at any time, at the option of the Company on any
Payment Date, in whole or in part, at 100% of the unpaid principal amount
thereof, together with accrued interest thereon; provided, however, that the
Paying Agent shall be required to redeem the Notes at such time only to the
extent that the Company has theretofore deposited with the Paying Agent money
sufficient to effect such redemption. At least ten days prior to the Redemption
Date, the Company is required to mail a notice of redemption to the registered
owner of this Note specifying the Redemption Date, the Redemption Price, the
name and address of the Paying Agent, that this Note must be delivered to the
Paying Agent and that interest on this Note ceases to accrue on and after the
Redemption Date.

If provision is made for the redemption and payment of this Note in
accordance with the Indenture, this Note shall thereupon cease to bear interest
from and after the Redemption Date.

As provided in the Indenture and subject to certain limitations therein set
forth, the transfer of this Note may be registered on the Note Register of the
Company, upon surrender of

<PAGE>

this Note for registration of transfer at the office or agency designated by
the Company pursuant to the Indenture, duly endorsed by, or accompanied by a
written instrument of transfer in form satisfactory to the Company and the
Trustee duly executed by, the Holder hereof or such Holder's attorney duly
authorized in writing, and thereupon one or more new Notes of authorized
denominations and for the same aggregate principal amount will be issued to
the designated transferee or transferees. The Company may charge a
reasonable fee for the registration of such transfer, or for any change of
address of a Holder (or of any other Person to whom the Holder directs that
payments under this Note are to be made).

Prior to the due presentment for registration of transfer of this Note, the
Company, the Trustee and any agent of the Company or the Trustee may treat the
Person in whose name this Note is registered as the owner hereof for all
purposes, whether or not this Note be overdue, and neither the Company, the
Trustee nor any such agent shall be affected by notice to the contrary.

The Indenture permits, with certain exceptions as therein provided, the
amendment thereof and the modification of the rights and obligations of the
Company and the rights of the Holders of the Notes under the Indenture at any
time by the Company with the consent of the Majority Holders. The Indenture
also contains provisions permitting the Majority Holders, on behalf of the
Holders of all the Notes, to waive compliance by the Company with certain
provisions of the Indenture and certain past defaults under the Indenture and
their consequences. Any such consent or waiver by the Holder of this Note shall
be conclusive and binding upon such Holder and upon all future holders of this
Note and of any Note issued upon the registration of transfer hereof or in
exchange hereof or in lieu hereof whether or not notation of such consent or
waiver is made upon this Note. The Indenture also permits the Trustee to amend
or waive certain terms and conditions set forth in the Indenture without the
consent of Holders of the Note issued thereunder.

The Notes are issuable only in registered form in denominations as provided
in the Indenture and subject to certain limitations therein set forth. The
Notes are exchangeable for a like aggregate principal amount of a different
authorized denomination, as requested by the Holder surrendering same. The
Company may charge a reasonable fee for such exchange.

This Note and the Indenture shall be construed in accordance with, and
governed by, the laws of the State of Texas applicable to agreements made and to
be performed therein.

The Indenture and this Note are hereby expressly limited so that in no
contingency or event, whether by reason of acceleration of the maturity of this
Note or otherwise, shall the amount paid, or agreed to be paid by the Company
for the use, forbearance, or

<PAGE>

detention of the money loaned under this Note or otherwise or for the payment
or performance of any covenant or obligation contained herein or the
Indenture or in any other document evidencing, securing or pertaining hereto,
exceed the maximum amount permissible under applicable law, as now or as
hereafter amended. If from any circumstances whatsoever fulfillment of any
provision hereof or any of such other documents, at the time performance of
such provision shall be due, shall involve transcending the limit of validity
prescribed by law, then IPSO FACTO, the obligation to be fulfilled shall be
reduced to the limit of such validity, and if from any such circumstances the
Holder of this Note shall ever receive interest or anything which might be
deemed interest under applicable law which should exceed the highest lawful
rate, such amount which would be excessive interest shall be applied to the
reduction of the principal of this Note and not to the payment of interest,
or if such excessive interest exceeds the unpaid balance of principal of this
Note such excess shall be refunded to the Company. All sums paid or agreed
to be paid to the Holder of this Note for the use, forbearance or detention
of the indebtedness of the Company to the Holder of this Note shall, to the
extent permitted by applicable law, be amortized, prorated, allocated and
spread throughout the full term of such indebtedness until payment in full so
that the actual rate of interest on account of such indebtedness is uniform,
or does not exceed the maximum rate permitted by applicable law as now or
hereafter amended, throughout the term thereof. The terms and provisions of
this paragraph shall control and supersede every other provision of this Note
and the Indenture. The Company hereby waives, to the extent permitted by
applicable law, all of its rights or protections afforded by any applicable
usury or interest limitation law.

Unless the certificate of authentication hereon has been executed by the
Trustee by manual signature, this Note shall not be entitled to any benefit
under the Indenture, or be valid or obligatory for any purpose.

IN WITNESS WHEREOF, Sovereign Credit Finance I, Inc. has caused this
instrument to be duly executed under its corporate seal.

Dated:
---------------------------

SOVEREIGN CREDIT FINANCE I, INC.

By:
---------------------------------
[SEAL] (Authorized Officer)

Attest:

- -----------------------------------
(Authorized Officer)

<PAGE>

(b) The form of the Trustee's certificate of authentication is as follows:

This is one of the Notes referred to in the withinmentioned Indenture.

STERLING TRUST COMPANY, as Trustee, Paying Agent and
Registrar

By:
---------------------------------
Authorized Signatory

Section 2.3 Denominations.

The Notes shall be issuable only in registered form. The Notes shall be
issuable in any denomination, with no minimum denomination.

Section 2.4 Execution and Authentication.

(a) The Notes shall be executed on behalf of the Company by its Chairman
of the Board, President or any Vice President of the Company and attested to by
an Officer of the Company other than an Officer who has executed the Notes. The
signature of any of such individuals on the Notes may be manual or facsimile.

(b) Notes bearing the manual or facsimile signatures of individuals who at
any time held one or more of the offices set forth in subsection (a) above shall
bind the Company, notwithstanding that such individuals or any of them have
ceased to be such prior to the authentication and delivery of such Notes.

(c) A Note shall not be valid until an authorized signatory of the Trustee
manually signs the certificate of authentication on the Note on behalf of the
Trustee. The signature shall be conclusive evidence that the Note has been
authenticated under this Indenture.

(d) The Trustee shall authenticate Notes from time to time for original
issue up to the aggregate Offering Amount upon a Company Order; provided,
however, Trustee shall not be required to so authenticate more often than once
in a calendar month.

Section 2.5 Registrar and Paying Agent.

(a) The Company shall maintain or cause to be maintained an office or
agency where Notes may be presented for registration of transfer or for exchange
(the "Registrar"). The Registrar shall keep a register of the Notes and of
their transfer and exchange (the "Note Register"). The Company may have one or
more co-registrars.

<PAGE>

(b) Subject to the provisions of Section 5.2, the Company may designate
one or more Paying Agents, within the United States of America, at which Notes
may be presented or surrendered for payment or which may make payments of
accrued interest on the Notes on behalf of the Company with funds withdrawn from
the Sinking Fund Account.

(c) The Company shall notify the Trustee of the name and address of any
such Registrar or Paying Agent and may appoint successors thereof.

(d) The Company initially appoints the Trustee as Registrar and Paying
Agent.

Section 2.6 Holder Lists.

The Trustee shall preserve a list of the names and addresses of Holders in
as current a form as is reasonably practicable. If the Trustee is not the
Registrar, the Company shall cause the Registrar to furnish to the Trustee on or
before June 30 and December 31 of each year during the term of the Notes and at
such other times as the Trustee may request in writing a list in such form and
as of such date as the Trustee may reasonably require of the names and addresses
of Holders. The Company may charge its expenses for any changes to the Note
register requested by Noteholders.

Section 2.7 Transfer and Exchange.

Where a Note is presented to the Company or the Registrar with a request to
register a transfer of such Note, the Company shall cause the Registrar to
register the transfer as requested if the requirements for a transfer pursuant
to the Uniform Commercial Code, as enacted in the State of Texas, are met.
Where a Note is presented to the Company or the Registrar with a request to
exchange it for an equal principal amount of Notes of other denominations, the
Company shall cause the Registrar to make the exchange as requested if the same
requirements are met. To permit transfers and exchanges, the Trustee shall
authenticate Notes upon Company Request or upon request of the Registrar. The
Company may charge its expenses to the Holder for any transfer or exchange other
than an exchange pursuant to Section 2.9 or 9.5, and may charge a reasonable fee
to the Holder for any change of address.

Section 2.8 Replacement Notes.

If a Holder claims that a Note has been lost, destroyed or wrongfully
taken, the Company shall issue and the Trustee shall authenticate a replacement
Note if the requirements for the issuance of replacement securities pursuant to
the Uniform Commercial Code, as enacted in the State of Texas, are met. An
indemnity bond must be sufficient in the judgment of the Company

<PAGE>

and the Trustee to protect the Company, the Trustee, the Paying Agent and the
Registrar from any loss which any of them may suffer if a Note is replaced.
The Company may charge for its expenses in replacing a Note.

Section 2.9 Temporary Notes.

Until definitive Notes are ready for delivery, the Company may prepare and
the Trustee shall authenticate temporary Notes. Temporary Notes shall be
substantially in the form of definitive Notes but may have variations that the
Company considers appropriate for temporary Notes. Without unreasonable delay,
the Company shall prepare and the Trustee shall authenticate definitive Notes in
exchange for temporary Notes.

Section 2.10 Cancellation.

The Company at any time may deliver Notes to the Trustee for cancellation.
The Registrar, the Paying Agent and the Company shall forward to the Trustee any
Notes surrendered to them for transfer, exchange or payment. The Trustee and no
one else shall cancel all Notes surrendered for transfer, exchange, payment or
cancellation and shall dispose of cancelled Notes as the Company directs. The
Company may not issue new Notes to replace Notes it has paid or delivered to the
Trustee for cancellation.

Section 2.11 Defaulted Interest.

If the Company defaults in a payment of interest on the Notes, it shall pay
the defaulted interest and, to the extent permitted by law, interest on
defaulted interest at the rate of 11% per annum. Such interest shall be paid to
Holders of record as of a subsequent date designated as a "Special Record Date"
for such payment. The Trustee shall establish the Special Record Date if and
when funds for the payment of such interest have been received by the Paying
Agent from the Company. At least 15 days before the Special Record Date, the
Trustee shall mail to each Holder a notice that states the Special Record Date,
the payment date for such interest, and the amount of such interest (including
any permitted interest thereon) to be paid.

Section 2.12 Persons Deemed Owners.

Prior to due presentment for registration of transfer of any Note, the
Company, the Trustee, and Paying Agent, the Registrar and any agent of the
Company or of the Trustee may treat the Person in whose name a Note is
registered on the Note Register as the owner of such Note for the purpose of
receiving payments of the principal of and interest on such Note and for all
other purposes whatsoever, whether or not such Note be in default, and neither
the Company, the Trustee, nor any agent of the Company shall be affected by
notice to the contrary.

<PAGE>

ARTICLE THREE

REDEMPTION

Section 3.1 General.

(a) On any Payment Date, the Notes may be called for redemption, in whole
or in part, at the option of the Company at a price equal to 100% of the unpaid
principal amount of such Notes together with accrued and unpaid interest on the
unpaid principal amount thereof to the applicable Redemption Date (the
"Redemption Price") for such Notes. If the Company elects to redeem the Notes,
it shall, not later than 30 days prior to the Payment Date selected for
redemption (the "Redemption Date"), deliver notice of such election to the
Trustee, together with a Company Order directing the Trustee to effect such
redemption. Any such redemption shall be without premium or penalty.

(b) If the Company wishes to credit Notes it has not previously delivered
to the Trustee for cancellation against the principal amount of Notes to be
redeemed, it shall so notify the Trustee and it shall deliver the Notes duly
endorsed with the notice.

Section 3.2 Notice of Redemption.

(a) At least ten days but not more than 60 days before the Redemption
Date, the Company shall mail a notice of redemption by first-class mail to each
Holder of Notes, with a copy thereof to the Trustee.

(b) The notice shall identify the Notes to be redeemed and shall state:

(i) the Redemption Date;

(ii) the Redemption Price;

(iii) the name and address of the Paying Agent;

(iv) that the Notes must be delivered to the Paying Agent at the
address stated in the notice for the Holder to receive the
Redemption Price; and

(v) that interest on the Notes ceases to accrue on and after the
Redemption Date.

(c) At the Company's request, the Trustee shall give the notice of
redemption in the Company's name and at the Company's expense. Failure to give
notice of redemption, or any defect therein, to any Holder shall not impair or
affect the validity of the redemption of any Note.

<PAGE>

Section 3.3 Effect of Notice of Redemption.

Once notice of redemption has been given, the Notes shall be redeemed on
the designated Redemption Date. Upon surrender to the Paying Agent, such Notes
shall be paid at the Redemption Price. Unless the Company shall fail to deposit
the Redemption Price as provided in Section 3.4, no interest shall accrue on the
Notes for any period after the Redemption Date.

Section 3.4 Deposit of Redemption Amount.

Prior to the Redemption Date, the Company shall deposit with the Paying
Agent money sufficient to pay the Redemption Price on the Notes on that date.
Such moneys shall be segregated by the Paying Agent for the purpose of
application to such redemption on the Redemption Date. If such deposit shall be
made, the amount payable on the Notes shall be limited to the Redemption Price
therefor, without any premium or penalty, and no interest shall accrue on the
Notes to be redeemed or the Redemption Price thereof for any period after the
Redemption Date.

ARTICLE FOUR

ACCOUNTS, DISBURSEMENTS AND RELEASES

Section 4.1 Trust Account; Operating Account.

(a) Prior to the initial authentication and delivery of any Notes, the
Company shall open, at one or more depository institutions (which may be the
Trustee), a trust account denominated "Trust Account--Sterling Trust Company, as
trustee in respect of Notes Due October 15, 2000" (the "Trust Account"). The
Trust Account shall be an Eligible Account and relate solely to the Notes and to
the Contracts and Eligible Investments securing the Notes, and funds in the
Trust Account shall not be commingled with any other moneys. The Company shall
also open, at one or more depository institutions, an account in its own name
for use in holding the Company's funds and in paying the Company's expenditures
(the "Operating Account"). The Trust Account and the Operating Account are
sometimes collectively referred to as the "Accounts" or individually as an
"Account". The Company shall give the Trustee at least five Business Days'
written notice of any change in the location of the Operating Account and any
related account identification information.

(b) The Company shall direct or cause to be directed all Obligors to remit
all collections and payments on the Contracts directly to the Collections
Account maintained by the Servicer under Section 12.2. The Company agrees that
all cash, money orders, checks, notes, drafts and other items which it otherwise
receives and which are attributable to the Contracts shall be promptly deposited
into the Collections Account. The Company shall

<PAGE>

likewise deposit or cause to be deposited in the Collections Account within
two Business Days of receipt all Liquidation Proceeds and Insurance Proceeds.

(c) The Company shall cause the Servicer to transfer to the Operating
Account, at least weekly, all funds (except any minimum sum necessary to avoid
bank service charges) in the Collections Account that are attributable to the
Contracts.

(d) The Company agrees that it shall not draw any funds from the Operating
Account except for an investment, transfer or payment of such funds in
accordance with the provisions of this Section 4.1 and Section 12.9.

(e) Except as otherwise permitted by this Indenture with respect to
purchases of Contracts and payments of Allowed Expenses and Offering Expenses,
the Company may invest the funds in the Operating Account but only in Eligible
Investments and only if sufficient funds are available in the Operating Account,
through maturations of Eligible Investments or otherwise, on the Business Day
next preceding the next Payment Date to pay the interest to be paid on such
Payment Date on the Notes.

(f) Subject to the requirement to pay interest and principal to any
Additional Lender, and provided that the Notes have not been declared due and
payable pursuant to Section 6.2, the Company shall have the right to cause the
funds in the Operating Account to be withdrawn or applied, to the extent
necessary and in the amounts required, for the following purposes in the
following order of priority:

FIRST, to the transfer to the Trust Account of the amount that,
together with any amounts held in the Trust Account, is sufficient for the
payment, PRO RATA, of all interest due on the Outstanding Notes on each
Payment Date;

SECOND, to the payment to the Trustee of any unpaid amount due the
Trustee pursuant to Section 7.7;

THIRD, to the payment of any unpaid Allowed Expenses, except that
during the continuance of an Event of Default, no such payments of unpaid
Allowed Expenses shall be made (except for payments of amounts due to the
Trustee under Section 7.7);

FOURTH, to the transfer to the Trust Account for the PRO RATA payment
of principal owing on the Notes on any Payment Date occurring on or after
the Principal Repayment Commencement Date; and

FIFTH, except during the continuance of an Event of Default, to the
purchase of Eligible Contracts in accordance with Section 12.9.

<PAGE>

All of the foregoing applications of the funds in the Operating Account that
have higher priority must be fully satisfied before any of the foregoing
applications having lower priority may be satisfied with such funds.

(g) On or prior to the Business Day next preceding each Payment Date
occurring prior to the Principal Repayment Commencement Date, the Company shall
cause to be transferred from the Operating Account to the Trust Account in
immediatly available funds an amount which, together with any funds then held in
the Trust Account, is sufficient to pay the accrued interest due on the
Outstanding Notes on such Payment Date. Commencing on or prior to the Business
Day next preceding the Principal Repayment Commencement Date, and on or prior to
the Business Day next preceding each Payment Date occurring thereafter, the
Company shall cause to be transferred from the Operating Account to the Trust
Account an amount which, together with any funds then held in the Trust Account,
is sufficient to pay the accrued interest due, and principal owing, on the
Outstanding Notes on such Payment Date.

(h) On or prior to each Report Date, the Company agrees to provide to the
Trustee the Monthly Report which shall set forth the following information:

(A) the amounts by category of any Allowed Expenses paid through
draws from the Operating Account during the preceding calendar month;

(B) a reconciliation of the deposits and withdrawals to and from the
Operating Account during the preceding calendar month together with
beginning and ending balances for the Operating Account; and

(C) attached to the Monthly Report shall be a copy of the bank
statement for the Operating Account for the preceding calendar month and
supporting documentation for the Allowed Expenses paid by the Company
during the preceding month.

(i) During the continuance of an Event of Default, no draws from the
Operating Account to pay any Allowed Expenses, other than amounts due to the
Trustee under Section 7.7, may be made. Subject to the foregoing, and subject
to subsection (f) above, the Company agrees to pay promptly any Allowed Expenses
for which sums are available in the Operating Account by check or wire transfer
drawn on the Operating Account.

(j) Subject to the requirements of any Additional Lender, during the
continuance of an Event of Default, upon the written request of a Trust Officer
from time to time but in any event not less often than the Business Day next
preceding each Payment Date, the Company shall cause to be transferred from the
Operating Account to the Trust Account all of the funds in the Operating

<PAGE>

Account, less any amounts due the Trustee under Section 7.7.

(k) All payments of principal or accrued interest with respect to the
Notes shall be made from amounts held in the Trust Account. All payments to be
made from time to time to the Holders of Notes out of funds in the Trust Account
pursuant to this Indenture shall be made by the Trustee as the Paying Agent of
the Company or by any other Paying Agent appointed by the Company, subject to
Section 5.2. No amounts contained in the Trust Account shall be paid over to or
at the direction of the Company, except as otherwise provided by the provisions
of this Indenture.

(l) So long as no Event of Default shall have occurred and be continuing,
any funds in the Trust Account shall be invested and reinvested by the Trustee
at the Company's direction in one or more Eligible Investments. All income or
other gain from investment of moneys deposited in the Trust Account shall be
deposited therein immediately upon receipt, and any loss resulting from such
investment shall be charged to such Account.

(m) Notwithstanding any other provision of this Indenture, the Company may
elect, in its sole discretion, to deposit the proceeds from the sale of Notes
into the Operating Account. In that event, the Company may, without the consent
of the Trustee or any Holder, withdraw from the Operating Account the funds
necessary to pay (i) the Offering Expenses, but not to exceed the limits set
forth in the Company's final prospectus filed with the SEC pursuant to which the
Notes are offered and sold on behalf of the Company, and (ii) the administration
fee payable to Sovereign Credit Corporation as described in such prospectus,
equal to 5.5% of the gross proceeds from the sale of the Notes (5.0% of the
gross proceeds in excess of $9,000,000).

Section 4.2 General Provisions Regarding Trust Account.

(a) The Company shall not direct the Trustee to make any investment of any
funds in the Trust Account or to sell any investment held in the Trust Account
except under the following terms and conditions: (i)(A) each such investment
shall be made in the name of the Trustee (in its capacity as such) or its
nominee (or, if applicable law provides for perfection of pledges of an
investment not evidenced by a certificate or other instrument through
registration of such pledge on books maintained by or on behalf of the issuer of
such investment, such pledge may be so registered), (B) the Trustee shall have
sole investment control over such investment, the income thereon and the
proceeds thereof, and (C) any instrument evidencing such investment shall be
delivered directly to the Trustee or its agent; and (ii) the proceeds of each
sale of such investment shall be remitted by the purchaser thereof directly to
the Trustee for deposit in the Trust Account.

<PAGE>

(b) If any amounts are needed for disbursement from the Trust Account and
sufficient uninvested funds are not available to make such disbursement, in the
absence of a Company Order for the liquidation of investments in an amount
sufficient to provide the required funds, the Trustee may cause to be sold or
otherwise converted to cash a sufficient amount of the investments in the Trust
Account.

(c) The Trustee shall not in any way be held liable by reason of any
insufficiency in the Trust Account resulting from any loss on any Eligible
Investment included therein except that Trustee shall remain liable on Eligible
Investments which are obligations of the Trustee in its commercial capacity.

(d) All investments of funds in the Trust Account and all sales of
Eligible Investments held in the Trust Account shall, except as otherwise
expressly provided in this Indenture, be made by the Trustee in accordance with
a Company Order. Such Company Order may specify actions (including, without
limitation, that such funds shall not be invested, in which case such funds
shall remain deposited in the Trust Account) or may be a general, standing order
authorizing the Trustee to act within certain general parameters or to act on
written, telegraphic or telephonic instructions of specified personnel or agents
of the Company. In order to insure that the Trustee can invest funds in the
Trust Account or sell any investment in the Trust Account, the Company Order
with respect thereto must be received by the Trustee no later than 9:00 a.m. on
the date specified in the Company Order for effecting such transaction.

(e) In the event that the Company shall have failed to give investment
directions to the Trustee by 9:00 a.m. Dallas, Texas Time on any Business Day
authorizing the Trustee to invest the funds then in the Trust Account, the
Trustee may invest and reinvest the funds then in the Trust Account to the
fullest extent practicable, in such manner as the Trustee shall from time to
time determine, but only in one or more Eligible Investments. All investments
made pursuant to this subsection shall mature on the next Business Day following
the date of such investment.

Section 4.3 Reports by Trustee.

The Trustee shall report and account to the Company with respect to the
Trust Account and the identity of the investments included therein on a monthly
basis and more frequently as the Company may from time to time reasonably
request, including accountings of deposits into and payments from the Trust
Account.

ARTICLE FIVE

COVENANTS

<PAGE>

Section 5.1 Payment of Principal and Interest.

(a) Interest and any principal payable on any Note shall be paid to the
Person in whose name such Note (or one or more predecessor Notes) is registered
at the close of business on the Record Date for the applicable Payment Date by
check mailed to such Person's address as it appears in the Note Register on such
Record Date, except for the final payment of principal of and interest on a
Note, which shall be payable only upon presentation and surrender as provided in
subsection (b) of this Section 5.1. For payments made on any Note prior to the
final payment of principal and interest, such Note need not be submitted for
notation of payment. Checks returned undelivered will be held by the Paying
Agent for payment to the Person entitled thereto, subject to the terms of
Section 5.2. Payments made on any Payment Date shall be binding upon all future
Holders of such Notes and of any Notes issued upon the registration of transfer
thereof or in exchange therefor or in lieu thereof, whether or not noted
thereon.

(b) Each installment of interest on the Notes is due and payable as
specified on the form of Note set forth in Section 2.2. Any installment of
interest which is not paid when and as due shall bear interest at the rate of
11% per annum from the date due to the date of payment thereof. Unless such
Note becomes due and payable at an earlier date by declaration of acceleration,
call for redemption or otherwise, the principal of each Note shall be due and
payable in six equal monthly installments commencing on the Principal Repayment
Commencement Date and thereafter on each of the succeeding four Payment Dates,
and any remaining unpaid principal shall be due and payable at the Stated
Maturity; provided, however, the final payment of principal of and interest on
each Note (or the Redemption Price thereof if the Notes called for redemption)
shall be payable only upon presentation and surrender thereof to the Paying
Agent. The Trustee shall notify the Person in whose name a Note is registered
at the Record Date for the Payment Date next preceding the Payment Date on which
the Company expects that the final payment of principal and interest on such
Note will be paid. Such notice shall be mailed no earlier than the 60th day,
and no later than the 20th day, prior to such Payment Date and shall specify
that such final payment will be payable only upon presentation and surrender of
such Notes and shall specify the name and address of the Paying Agent where such
Notes may be presented and surrendered for payment of such final payment.
Notices in connection with redemptions of Notes shall be mailed to Holders as
provided in Section 3.2.

(c) All computations of interest due with respect to any Notes shall be
based on a 360-day year consisting of 12 months of 30 days each and on the
amount of principal outstanding on the Notes from time to time.

(d) On or prior to each Report Date, the Company shall

<PAGE>

transmit to the Trustee the Monthly Report which shall set forth, with
respect to the next three succeeding Payment Dates, the amount of interest
and any principal payable on such Payment Dates on each Outstanding Note.
Each Monthly Report shall state that the computations of interest were made
in conformity with the requirements of this Indenture. Notwithstanding the
foregoing, the Trustee may rely on its own calculations for purposes of
paying interest on the Notes.

(e) The Company at any time may terminate, by written notice to the
Trustee, its obligation to pay an installment of interest if it deposits with
the Trustee, or the Trustee holds in the Trust Account as of the related Payment
Date, money sufficient to pay the installment when due.

(f) Subject to the foregoing provisions of this Section 5.1, each Note
delivered under this Indenture upon registration of transfer of or in exchange
for or in lieu of any other Note shall carry the rights to unpaid principal and
interest, if any, that were carried by such other Note.

Section 5.2 Money for Note Payments to be Held in Trust.

(a) Whenever the Company shall have a Paying Agent other than the Trustee,
it will, by Company Order delivered on or before the Business Day next preceding
each Payment Date, direct the Trustee to deposit with such Paying Agent on or
before such Payment Date a sum sufficient to pay the amounts then becoming due,
and the Trustee shall, to the extent it has received such amount from the
Company, deposit such amount with the Paying Agent as directed. Such sum shall
be held in trust for the benefit of the Persons entitled to such payments.

(b) The Company will cause each Paying Agent other than the Trustee to
execute and deliver to the Trustee an instrument in which such Paying Agent
shall agree with the Trustee, subject to the provisions of this Section, that
such Paying Agent, in acting as Paying Agent, will:

(i) hold all sums held by it for the payment of amounts due with
respect to the Notes in trust for the benefit of the Persons entitled
thereto until such sums shall be paid to such Persons or otherwise disposed
of as herein provided, and pay such sums to such Persons as herein
provided;

(ii) give the Trustee notice of any default by the Company (or any
other obligor upon the Notes) in the making of any payment required to be
made with respect to the Notes; and

(iii) at any time during the continuance of any such default, upon the
written request of the Trustee, forthwith pay to the Trustee all sums so
held in trust by such Paying

<PAGE>

Agent.

(c) For the purpose of obtaining the satisfaction and discharge of this
Indenture or for any other purpose, the Company may at any time direct by
Company Order any Paying Agent to pay to the Trustee all sums held in trust by
such Paying Agent, such sums to be held by the Trustee upon the same trusts as
those upon which such sums were held by such Paying Agent; and, upon such
payment by any Paying Agent to the Trustee, such Paying Agent shall be released
from all further liability with respect to such money.

Section 5.3 Payment of Taxes and Other Claims.

The Company will pay or discharge or cause to be paid or discharged before
the same shall become delinquent (1) all taxes, assessments and governmental
charges levied or imposed upon the Company, and (2) all lawful claims for labor,
materials and supplies which, if unpaid, might by law become a lien upon the
property of the Company; provided, however, that the Company shall not be
required to pay or discharge or cause to be paid or discharged any such tax,
assessment, charge or claim whose amount, applicability or validity is being
contested in good faith by appropriate proceedings; and provided further, that
the Company shall not be required to cause to be paid or discharged any such
tax, assessment, charge or claim if the Company shall determine such payment is
not advantageous to the conduct of the business of the Company and that the
failure so to pay or discharge is not disadvantageous in any material respect to
the Holders.

Section 5.4 Maintenance of Properties.

The Company will cause all properties used or useful in the conduct of its
business to be maintained and kept in good condition, repair and working order
and will cause to be made all necessary repairs, renewals, replacements,
betterment and improvements thereof, all as in the judgment of the Company may
be necessary, so that the business carried on in connection therewith may be
properly and advantageously conducted at all times; provided, however, that
nothing in this Section shall prevent the Company from discontinuing the
operation or maintenance of any of such properties, or disposing of any of them,
if such discontinuance or disposal is, in the judgment of the Company, desirable
in the conduct of the business of the Company and not disadvantageous in any
material respect to the Holders.

Section 5.5 Limitation on Investment Activities.

The Company will not register as, or conduct its business or take any
action which shall cause it to become, or to be deemed to be, an "investment
company" as defined under the provisions of and subject to registration under
the Investment Company Act of 1940, as amended.

<PAGE>

Section 5.6 Compliance Certificates.

(a) Commencing with fiscal year ending December 31, 1997, the Company
shall deliver to the Trustee within 120 days after the end of each fiscal year
of the Company a certificate of a firm of independent accountants with respect
to the compliance by the Company and the Servicer, in all material respects,
with their respective obligations arising under this Indenture. If such
accountant knows of a default, the certificate shall describe the default.

(b) Commencing with the fiscal quarter ending September 30, 1996, on or
before 45 days after the end of each fiscal quarter of the Company, the Company
shall deliver an Officers' Certificate to the Trustee to the effect that a
review of the activities of the Company during the Company's preceding fiscal
quarter has been made under the supervision of the officers executing such
Officers' Certificate with a view to determining whether during such period the
Company and the Servicer have performed and observed all of their obligations
under this Indenture, and either (A) stating that to the best of their knowledge
no default by the Company or the Servicer under this Indenture has occurred and
is continuing, or (B) if such a default has occurred and is continuing,
specifying such default and the nature and status thereof.

(c) The Company will deliver to the Trustee an Officer's Certificate
stating whether or not the signee knows of any default by the Company in
performing its covenants under this Indenture within 15 days of a written
request by the Trustee. The Company will perform, execute, acknowledge and
deliver all such further acts, instruments, and assurances in this regard as may
reasonably be requested by the Trustee. The certificates required under this
Section shall comply with Section 11.4(b).

(d) The Company will deliver to the Trustee within 15 days after the
occurrence thereof written notice of the occurrence of any Event of Default.

Section 5.7 Reporting.

(a) Commencing with fiscal year ending December 31, 1997, the Company
shall file with the Trustee copies of any annual reports and other information,
documents, and statements (or copies of such portions of any of the foregoing as
the SEC may by rules and regulations prescribe) which the Company may be
required to file with the SEC pursuant to Section 13 or 15(d) of the Securities
Exchange Act, which filing shall be made within 15 days after the Company makes
such filing with the SEC. The Company also shall comply with the other
provisions of TIA Section 314(a).

(b) If the Company is not subject to Section 13 or 15(d) of the Exchange
Act, then the Company shall file with the Trustee such

<PAGE>

of the supplementary and periodic information, documents and reports which
would be required under Section 13 of the Exchange Act if the Notes were
listed or registered on a national securities exchange, which filing shall be
made within 15 days after the Company would otherwise have been required to
make such filing with the SEC.

(c) To the extent reasonably requested by the Trustee, the Company shall
provide to the Trustee information in the Company's possession to assist the
Trustee in complying with its reporting duties specified in Section 7.6.

Section 5.8 Performance of Obligations; Servicing Agreement.

(a) The Company will punctually perform and observe all of its obligations
and agreements contained in the Servicing Agreement.

(b) The Company will not take any action or permit any action to be taken
by others which would release any Person from any of such Person's covenants or
obligations under any of the Contract Documents, or which would result in the
amendment, hypothecation, subordination, termination or discharge of, or impair
the validity or effectiveness of, any of the Contract Documents or any such
instrument, except as expressly provided in this Indenture, the Servicing
Agreement or such Contract Document or other instrument.

(c) If the Company shall have knowledge of the occurrence of a default by
the Servicer of any of its material obligations under the Servicing Agreement or
Article Twelve hereof, the Company shall promptly notify the Trustee thereof,
and shall specify in such notice the action, if any, the Company is taking in
respect of such default. If such default arises from the failure of the
Servicer to perform any of its obligations under the Servicing Agreement or
Article Twelve hereof with respect to the Contracts, the Company may remedy such
failure. Unless directed or permitted by the Trustee or the Majority Holders,
the Company may not waive any such default under the Servicing Agreement or
Article Twelve hereof or terminate the rights and powers of the Servicer under
the Servicing Agreement and Article Twelve hereof.

<PAGE>

Section 5.9 Negative Covenants.

The Company will not:

(i) engage in any business or activity other than in connection with
the purchase, collection and servicing of retail installment sales or lease
contracts and consumer obligations secured by motor vehicles, the
repossession and resale of motor vehicles, the dealing in all respects with
such Contracts and obligations and their motor vehicle collateral, and the
raising of capital, both debt and equity, and any other incidental
businesses or activities, without the consent of the Majority Holders;

(ii) without the consent of the Majority Holders create, incur, assume
or in any manner become liable in respect of any indebtedness other than
(1) the Notes, (2) any Allowed Expenses, (3) the Additional Borrowing, and
(4) any other amounts incurred in the ordinary course of the Company's
business;

(iii) dissolve or liquidate in whole or in part;

(iv) merge or consolidate with any corporation, partnership or other
entity other than an Affiliate of the Company or the Servicer. Any such
merger or consolidation with an Affiliate of the Company or the Servicer
shall be subject to the following conditions:

(1) the surviving or resulting entity shall be a corporation
organized under the laws of the United States or any state thereof
whose business and activities shall be limited as set forth in
paragraph (i) above,

(2) the surviving or resulting corporation (if other than the
Company) shall expressly assume by an indenture supplemental hereto
all of the Company's obligations hereunder,

(3) the surviving or resulting corporation shall have the same
fiscal year as the Company, and

(4) immediately after consummation of the merger or
consolidation no Event of Default shall exist with respect the Notes;

(v) (to the extent that it may lawfully so covenant and to the extent
that such covenant is lawfully enforceable) institute any bankruptcy,
insolvency or receivership proceedings with respect to itself or its
properties;

<PAGE>

(vi) permit the validity or effectiveness of this Indenture to be
impaired, or permit any Person to be released from any covenants or
obligations under this Indenture, except as may be expressly permitted
hereby; or

(vii) originate or acquire any Contract of an Obligor located in
any jurisdiction unless at the time of such origination or acquisition of
such Contract by the Company or the Servicer, both the Company and the
Servicer shall have obtained all licenses, permits and governmental
approvals, if any (1) necessary to comply with the laws of such
jurisdiction with respect to their respective operations and businesses,
(2) necessary to perform their respective obligations as contemplated by
this Indenture and the Servicing Agreement with respect to such Contract,
(3) necessary to maintain the enforceability of such Contract and the
security interest in the related Financed Vehicle and to prevent such
Contract or any portion thereof from becoming void or voidable by the
Obligor or any other person, and (4) if such Contract has been assigned to
the Company, necessary for such assignment to be a lawful and binding
assignment on the assignor and the Obligor.

ARTICLE SIX

DEFAULTS AND REMEDIES

Section 6.1 Events of Default.

An "Event of Default" shall occur if:

(1) the Company defaults in the payment of interest on any Note when the
same becomes due and payable and the default continues for a period of
30 days;

(2) the Company defaults in the payment of the principal of any Note when
the same becomes due and payable and the default continues for a
period of 30 days;

(3) the Company fails to comply with any of its other agreements in the
Notes or this Indenture (other than a covenant or warranty, a default
in the observance of which is elsewhere in this section specifically
dealt with) and the default continues for a period of 30 days after
receipt by the Company of written notice of such default from the
Trustee specifying such default and requiring it to be remedied and
stating that such notice is a "Notice of Default" hereunder or after
receipt by the Company and the Trustee of such notice from the Holders
of Notes representing at least 25% of the aggregate principal amount
of the Notes which are then Outstanding Notes;

<PAGE>

(4) if any representation or warranty of the Company made in this
Indenture or in any certificate or other writing delivered pursuant
hereto or in connection herewith shall prove to be incorrect in any
material respect as of the time when the same shall have been made
(excluding, however, any representation or warranty to which Section
12.16 shall be applicable so long as the Servicer shall be in
compliance with Section 12.17(a)) and, within 30 days after receipt by
the Company of written notice from the Trustee specifying such
inaccuracy and requiring it to be remedied and stating that such
notice is a "Notice of Default" hereunder or after receipt by the
Company and the Trustee of such notice from the Holders of Notes
representing at least 25% of the aggregate principal amount of the
Notes which are then Outstanding Notes, the circumstance or condition
in respect of which such representation or warranty was incorrect
shall not have been eliminated or otherwise cured;

(5) if the validity or effectiveness of this Indenture shall be impaired,
or this Indenture shall be amended, hypothecated, subordinated,
terminated or discharged, or any Person shall be released from any
covenants or obligations under this Indenture or the Servicing
Agreement, in each case except as may be expressly permitted hereby
and thereby;

(6) the Company, pursuant to or within the meaning of title 11, U.S. Code
or any similar Federal or State law for the relief of debtors (the
"Bankruptcy Law"):

(A) commences a voluntary case;

(B) consents to the entry of an order for relief against it in an
involuntary case;

(C) consents to the appointment of a receiver, trustee, assignee,
liquidator or similar official of it or for all or substantially
all of its property; or

(D) makes a general assignment for the benefit of its creditors; or

(7) a court of competent jurisdiction enters an order or decree, which
remains unstayed and in effect for 60 days, under any Bankruptcy Law
against the Company:

(A) for relief in an involuntary case;

(B) appointing a receiver, trustee, assignee, liquidator or similar
official for all or substantially all of its property; or

<PAGE>

Section 6.2 Acceleration.

If an Event of Default occurs and is continuing, the Trustee may, and at
the direction of the Holders of Notes representing at least 25% of the aggregate
principal amount of Notes which are then Outstanding Notes shall, by written
notice to the Company, declare the principal amount of all the Notes together
with accrued interest thereon to be due and payable immediately. The Majority
Holders may, by written notice to the Trustee, rescind an acceleration and its
consequences.

Section 6.3 Remedies.

(a) If an Event of Default shall have occurred and be continuing, the
Trustee may, subject to Section 6.2, make demand and institute judicial
proceedings in equity or law for the collection of all amounts then payable on
the Notes, or under this Indenture, whether by declaration or otherwise, enforce
all judgments obtained, and collect from the Company moneys adjudged due.

(b) The Trustee may maintain a proceeding even if it does not possess any
of the Notes or does not produce any of them in the proceedings. A delay or
omission by the Trustee or any Holder in exercising any right or remedy accruing
upon an Event of Default shall not impair the right or remedy or constitute a
waiver of or an acquiescence in the Event of Default. No remedy is exclusive of
any other remedy. All available remedies are cumulative.

(c) Upon the institution of legal proceedings by the Trustee pursuant to
subsection (a) above, then, in addition to any and all other amounts due
hereunder, the Company shall be liable for any and all costs and expenses of
collection, including the reasonable expenses, disbursements and advances of the
Trustee, its agents and counsel.

Section 6.4 Waiver of Past Defaults.

Subject to Section 9.2, the Majority Holders may, by written notice to the
Trustee, waive a continuing Event of Default and its consequences. When an
Event of Default is waived in accordance herewith, it is cured and shall no
longer be considered continuing.

Section 6.5 Control by Majority.

The Majority Holders may direct the time, method and place of conducting
any proceeding for any remedy available to the Trustee or exercising any trust
or power conferred on it. However, the Trustee may refuse to follow any
direction that conflicts with law or this Indenture, that is unduly prejudicial
to the rights of

<PAGE>

Holders not joining in such direction, or that would involve the Trustee in
personal liability.

Section 6.6 Limitation on Suits.

(a) A Holder may not pursue any remedy with respect to this Indenture or
the Notes unless:

(i) an Event of Default has occurred and is continuing, and the
Holder gives to the Trustee written notice of such continuing Event of
Default;

(ii) the Majority Holders have made a written request to the Trustee
to pursue the remedy;

(iii)such Holder or Holders offer to the Trustee indemnity
satisfactory to the Trustee against any loss, liability or expenses;

(iv) the Trustee does not comply with the request within 60 days after
receipt of the request;

(v) the Event of Default has not been waived or cured; and

(vi) the Trustee has received no contrary direction from the Majority
Holders during such 60-day period.

(b) A Holder may not use this Indenture to prejudice the rights of another
Holder or to obtain a preference or priority over another Holder.

Section 6.7 Rights of Holders to Receive Payment.

Notwithstanding any other provision of this Indenture, the right of any
Holder of a Note to receive payment of principal and interest on the Note, on or
after the respective due dates, or to bring suit for the enforcement of any such
payment on or after such respective dates, shall not be impaired or affected
without the consent of the Holder.

Section 6.8 Collection Suit by Trustee.

If an Event of Default specified in Section 6.1(1) or (2) occurs and is
continuing, the Trustee may recover judgment in its own name and as trustee of
an express trust against the Company for the whole amount of principal and
interest remaining unpaid.

Section 6.9 Trustee may File Proofs of Claim.

(a) The Trustee may file such proofs of claim and other papers or
documents as may be necessary or advisable in order to

<PAGE>

have the claims of the Trustee and the Holders allowed in any judicial
proceedings relative to the Company, its creditors or its property.

(b) Nothing herein contained shall be deemed to authorize the Trustee to
authorize or consent to or accept or adopt on behalf of any Holder any plan of
reorganization, arrangement, adjustment or composition affecting the Notes or
the rights of any Holder thereof, or to authorize the Trustee to vote in respect
of the claim of any Holder in any such proceeding.

Section 6.10 Priorities.

If the Trustee collects any money pursuant to this Article, it shall pay
out the money in the following order:

FIRST, to the Trustee for the amounts due under Section 7.7;

SECOND, to Holders for amounts due and unpaid on the Notes for
principal and interest, ratably, without preference or priority of any
kind, according to the amounts due and payable on the Notes for principal
and interest, respectively;

THIRD, to the Servicer for any unpaid Allowed Expenses owed to or
incurred by it with respect to the Contracts; and

FOURTH, to the Company.

The Trustee may fix a record date and payment date for any payment to Holders.

Section 6.11 Undertaking for Costs.

In any suit for the enforcement of any right or remedy under this Indenture
or in any suit against the Trustee for any action taken or omitted by it as
Trustee, a court in its discretion may require the filing by any party litigant
in the suit of an undertaking to pay the costs of the suit, and the court in its
discretion may assess reasonable costs, including reasonable attorneys' fees,
against any party litigant in the suit, having due regard to the merits and good
faith of the claims or defenses made by the party litigant. This Section does
not apply to a suit by the Trustee, or a suit by the Majority Holders.

Section 6.12 Stay, Extension or Usury Laws.

The Company agrees (to the extent that it may lawfully do so) that it will
not at any time insist upon, or plead, or in any manner whatsoever claim, and
will resist any and all efforts to be compelled to take the benefits or
advantage of any stay or extension law or any usury or other law, wherever
enacted, now or

<PAGE>

at any time hereafter in force, which would prohibit or forgive the Company
from paying all or any portion of the principal of and/or interest on the
Notes as contemplated herein, or which may affect the covenants or
performance of this Indenture, and the Company (to the extent that it may
lawfully do so) hereby expressly waives all benefit or advantage of any such
law and agrees that it will not hinder, delay or impede the execution of any
power herein granted to the Trustee, but will suffer and permit the execution
of any such power as though no such law has been enacted.

ARTICLE SEVEN

TRUSTEE

Section 7.1 Duties of Trustee.

(a) If an Event of Default has occurred and is continuing, the Trustee
shall exercise such of the rights and powers vested in it by this Indenture and
use the same degree of care and skill in the exercise of such rights and powers
as a prudent man would exercise or use under the circumstances in the conduct of
his own affairs.

(b) Except during the continuance of an Event of Default known to the
Trustee:

(i) the Trustee need perform only those duties that are specifically
set forth in this Indenture and no implied covenants or obligations shall
be read into this Indenture against the Trustee; and

(ii) in the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the correctness of
the opinions expressed therein, upon certificates or opinions furnished to
the Trustee and conforming to the requirements of this Indenture. However,
the Trustee shall examine the certificates and opinions to determine
whether or not they conform to the requirements of this Indenture.

(c) The Trustee may not be relieved from liability for its own negligent
action, its own negligent failure to act, or its own willful misconduct, except
that:

(i) this paragraph does not limit the effect of paragraph (b) of this
Section;

(ii) the Trustee shall not be liable for any error of judgment made in
good faith by a Trust Officer, unless it is proved that the Trustee was
negligent in ascertaining the pertinent facts;

<PAGE>

(iii) the Trustee shall not be liable with respect to any action it
takes or omits to take in good faith in accordance with a written direction
received by it from the Majority Holders relating to the time, method, and
place of conducting any proceeding for any remedy available to the Trustee,
or exercising any trust or power conferred upon the Trustee, under this
Indenture; and

(iv) the Trustee shall not be required 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 any of its rights or powers, if it
shall have reasonable grounds for believing that repayment of such funds or
adequate indemnity against such risk or liability is not reasonably assured
to it.

(d) Each provision of this Indenture that in any way relates to the
Trustee is subject to paragraphs (a), (b) and (c) of this Section.

(e) The Trustee shall not be liable for interest on any money received by
it except as the Trustee may agree with the Company. Money held in trust by the
Trustee need not be segregated from other funds except to the extent required by
law.

(f) The Trustee shall not be liable for any action or omission taken by or
not taken by the Servicer of any kind or nature.

Section 7.2 Rights of Trustee.

(a) The Trustee may rely and shall be protected in acting or refraining
from acting upon any document reasonably believed by it to be genuine and to
have been signed or presented by the proper Person. The Trustee need not
investigate any fact or matter stated in the document.

(b) Before the Trustee acts or refrains from acting, it may require an
Officer's Certificate or an Opinion of Counsel or both. The Trustee shall not
be liable for any action it takes or omits to take in reliance on such
Certificate or Opinion, in the absence of bad faith on its part.

(c) The Trustee may act through agents and shall not be responsible for
the misconduct or negligence of any agent appointed with due care.

(d) The Trustee shall be under no obligation to exercise any of the rights
or powers vested in it by this Indenture at the request or direction of any of
the Holders of Notes, unless such Holders shall have offered to the Trustee
reasonable security or indemnity against the costs, expenses and liabilities
that might be

<PAGE>

incurred by it in compliance with such request or direction.

(e) The Trustee shall not be bound to make any investigation into the
facts or matters stated in any resolution, certificate, statement, instrument,
opinion, report, notice, request, direction, consent, order, bond, debenture,
note, other evidence of indebtedness or other paper or document, but the
Trustee, in its discretion, may make such further inquiry or investigation into
such facts or matters at it may see fit.

(f) The permissive right of the Trustee to do things enumerated in this
Indenture shall not be construed as a duty.

Section 7.3 Individual Rights of Trustee.

The Trustee in its individual or any other capacity may become the owner or
pledgee of Notes and may otherwise deal with the Company or its Affiliates with
the same rights it would have if it were not Trustee. Any Paying Agent,
Registrar or co-registrar may do the same with like rights. However, the
Trustee must comply with Sections 7.10 and 7.11.

Section 7.4 Trustee's Disclaimer.

The Trustee shall not be responsible for and makes no representation as to
the validity or adequacy of this Indenture or the Notes. It shall not be
accountable for the Company's use of the proceeds from the sale of the Notes and
shall not be responsible for any statement (i) in the Notes, other than its
certificate of authentication, or (ii) in any prospectus used in the sale of the
Notes, other than statements provided in writing by the Trustee for use in such
prospectus.

Section 7.5 Notice of Default.

If an Event of Default occurs and is continuing and if it is known to the
Trustee, the Trustee shall mail to each Holder notice of the Event of Default
within 90 days after it obtains actual knowledge thereof. Except in the case of
an Event of Default resulting from the failure to pay principal or interest on
any Note, the Trustee may withhold the notice if and so long as the Board of
Directors, the executive committee or a trust committee of the directors and/or
Responsible Officers of the Trustee in good faith determines that withholding
notice is in the interests of Holders.

Section 7.6 Reports by Trustee to Holders.

(a) Within 60 days after each December 31 beginning with December 31,
1997, the Trustee shall, to the extent required by TIA Section 313(a), mail to
each Holder a brief report dated as of such December 31 that complies with TIA
Section 313(a). The Trustee shall

<PAGE>

also, to the extent required by TIA Section 313(b), comply with TIA Section
313(b)(1) and (2).

(b) If this Indenture is qualified with the SEC under the TIA, a copy of
each report at the time of its mailing to the Holders shall be filed with the
SEC and each national securities exchange on which the Notes are listed, to the
extent required by the TIA. The Company shall notify the Trustee if and when
the Notes are listed on any national securities exchange (as defined in the
Exchange Act) or quoted on the National Association of Securities Dealers
Automated Quotation system.

Section 7.7 Compensation and Indemnity.

(a) (i) The Company shall pay to the Trustee from time to time as
compensation for its services the amounts set forth on the Trustee's Fee
Schedule attached hereto as EXHIBIT C, as may be agreed upon from time to
time by the Trustee and the Company. In addition, the Company shall
reimburse the Trustee upon request for all reasonable out-of-pocket
expenses incurred by it, as set forth in Exhibit C. Such expenses may
include the reasonable compensation and expenses of the Trustee's agents
and counsel.

(ii) The Company and SCH shall indemnify and hold harmless the Trustee
and its successors and their respective officers, directors, employees,
agents and attorneys against any and all liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, claims, costs (including the
costs and expenses of defending itself), expenses and disbursements of any
kind or nature whatsoever which may be imposed on, incurred by or asserted
against the Trustee and such other Persons, in connection with the
performance by the Trustee of its duties hereunder. The Trustee and such
other Persons shall notify the Company and SCH promptly of any claim for
which it or they may seek indemnity, but failure to so notify the Company
and SCH shall not relieve the Company or SCH of their obligations
hereunder. Neither the Company nor SCH shall be required to pay for any
settlement made without their consents, such consents not to be
unreasonably withheld. Neither the Company nor SCH shall be required to
reimburse any expense or indemnify against any loss or liability incurred
by the Trustee or any such other Person through the Trustee's or such other
Person's gross negligence or bad faith.

(b) The obligations set forth in this Section 7.7 shall survive the
satisfaction and discharge of this Indenture.

(c) When the Trustee incurs expenses or renders services after the
occurrence of an Event of Default specified in Section 6.1(6) or (7), the
expenses and the compensation for the services are intended to constitute
expenses of administration under any

<PAGE>

Bankruptcy Law.

Section 7.8 Replacement of Trustee.

(a) The Trustee may resign at any time upon 30 days prior written notice
to the Company. The Majority Holders may remove the Trustee at any time upon 30
days prior written notice to the removed Trustee and may appoint a successor
Trustee with the Company's consent. The Company shall remove the Trustee if:

(i) the Trustee fails to comply with Section 7.10;

(ii) the Trustee is adjudged a bankrupt or an insolvent; or

(iii) a receiver or other public officer takes charge of the Trustee or
its property.

(b) If the Trustee resigns or is removed or if a vacancy exists in the
office of Trustee for any reason, the Company shall promptly appoint a
successor Trustee. The resignation or removal of the Trustee shall not be
effective until a successor Trustee has been appointed and has assumed the
responsibilities of Trustee hereunder.

(c) A successor Trustee shall deliver a written acceptance of this
appointment to the retiring Trustee and to the Company. Immediately thereafter,
the retiring Trustee shall transfer all property held by it as Trustee to the
successor Trustee. Upon delivery of such written acceptance, the resignation or
removal of the retiring Trustee shall become effective and the retiring Trustee
shall cease to be Trustee hereunder and shall be discharged from any
responsibility or obligations for actions taken by any successor Trustee. The
successor Trustee shall have all the rights, powers and duties of the Trustee
under this Indenture. A successor Trustee shall mail notice of its succession
to each Holder.

(d) If a successor Trustee does not take office within 60 days after the
retiring Trustee resigns or is removed, the retiring Trustee, the Company or the
Majority Holders may petition any court of competent jurisdiction for the
appointment of a successor Trustee.

(e) If the Trustee fails to comply with Section 7.10, any Holder who has
been a bona fide Holder for at least six months may petition any court of
competent jurisdiction for the removal of the Trustee and the appointment of a
successor Trustee.

<PAGE>

Section 7.9 Successor Trustee by Merger, etc.

If the Trustee consolidates with, merges or converts into, or transfers all
or substantially all of its corporate trust assets to, another Person, the
resulting, surviving or transferee Person without any further act shall be the
successor Trustee.

Section 7.10 Eligibility; Disqualification.

This Indenture shall always have a Trustee who satisfies the requirements
of TIA Section 310(a)(1) and (5). The Trustee shall have a combined capital and
surplus of at least $1 million as set forth in its most recent published annual
report of condition. The Trustee shall comply with TIA Section 310(b).

Section 7.11 Preferential Collection of Claims Against Company.

The Trustee shall comply with TIA Section 311(a), excluding any creditor
relationship listed in TIA Section 311(b). A Trustee who has resigned or been
removed shall be subject to TIA Section 311(a) to the extent indicated.

Section 7.12 Withholding Taxes.

Whenever it is acting as a Paying Agent for the Notes, the Trustee shall
comply with all requirements of the Internal Revenue Code of 1986, as amended
(or any successor or amendatory statutes), and all regulations thereunder, with
respect to the withholding from any payments made on such Notes of any
withholding taxes imposed thereon and with respect to any reporting requirements
in connection therewith.

ARTICLE EIGHT

DISCHARGE OF INDENTURE

Section 8.1 Satisfaction and Discharge of Indenture.

This Indenture shall cease to be of further effect, except as to surviving
rights of transfer or exchange of Notes herein expressly provided for, and the
Trustee, on demand of and at the expense of the Company, shall execute proper
instruments acknowledging satisfaction and discharge of this Indenture, when

(1) either

(A) all Notes theretofore authenticated and delivered (other than
Notes which have been destroyed, lost or stolen and which have been
replaced or paid as provided in Section 2.8) have been delivered to the
Trustee for cancellation; or

<PAGE>

(B) all such Notes not theretofore delivered to the Trustee for
cancellation

(i) have become due and payable, or

(ii) will become due and payable at their Stated Maturity within
one year, or

(iii)are to be called for redemption within one year under
arrangements satisfactory to the Trustee for the giving of notice of
redemption by the Trustee in the name, and at the expense, of the
Company,

and the Company, in the case of (i), (ii) or (iii) above, has deposited or
caused to be deposited with the Trustee as trust funds in trust for such
purpose an amount sufficient to pay and discharge the entire indebtedness
on such Notes not theretofore delivered to the Trustee for cancellation,
the principal at Stated Maturity of such Notes, or the applicable
Redemption Price with respect thereto upon redemption;

(2) the Company has paid or caused to be paid all other sums payable
hereunder by the Company; and

(3) the Company has delivered to the Trustee an Officer's Certificate and
an Opinion of Counsel, each stating that all conditions precedent herein
provided for relating to the satisfaction and discharge of this Indenture have
been complied with.

Notwithstanding the satisfaction and discharge of this Indenture, the
obligations of the Company under Sections 7.7 and 8.3 shall survive.

Section 8.2 Application of Trust Money.

All money deposited with the Trustee pursuant to Section 8.1 shall be held
in trust and applied by it, in accordance with the provisions of the Notes and
this Indenture, to the payment, either directly or through any Paying Agent as
the Trustee shall be directed by Company Order, to the Persons entitled thereto,
of the principal at Stated Maturity, or the Redemption Price, of the Notes for
whose payment such money has been deposited with the Trustee; but such money
need not be segregated from other funds except to the extent required by law.

Section 8.3 Repayment to Company.

The Trustee and the Paying Agent shall promptly pay to the Company upon
request any money or securities held by them at any time in excess of the
amounts needed to pay and discharge the Notes in full. The Trustee and the
Paying Agent shall pay the Company

<PAGE>

upon request for any money or securities held by them for the payment of
principal or interest that remains unclaimed for two years. After such
payment to the Company, Holders entitled to such funds must look to the
Company for the payment of such unclaimed principal or interest.

ARTICLE NINE

AMENDMENTS, SUPPLEMENTS AND WAIVERS

Section 9.1 Without Consent of Holders.

(a) The Company and the Trustee may amend or supplement this Indenture or
the Notes without notice to or consent of any Holder:

(i) to cure any ambiguity, defect or inconsistency in this Indenture
or the Notes;

(ii) to effect a merger or consolidation in conformance with Section
5.9(iv);

(iii)to provide for uncertificated Notes in addition to or in place of
certificated Notes;

(iv) to make any change that does not materially adversely affect the
rights of any Holder; or

(v) to modify or add to the provisions of this Indenture to the
extent necessary to qualify it under the TIA or under any similar federal
statute hereafter enacted.

(b) The Trustee may waive compliance by the Company with any provisions of
this Indenture or the Notes without notice to or consent of any Holder if the
waiver does not materially adversely affect the rights of any Holder.

Section 9.2 With Consent of Holders.

(a) The Company and the Trustee may amend or supplement this Indenture or
the Notes without notice to any Holder but with the written consent of the
Majority Holders. The Majority Holders may waive compliance by the Company with
any provision of this Indenture or the Notes without notice to any Holder.
However, without the consent of each Holder adversely affected, an amendment,
supplement or waiver, including a waiver pursuant to Section 6.4, may not:

(i) reduce the amount of Notes whose Holders must consent to an
amendment, supplement or waiver;

(ii) reduce the rate of or extend the time for payment of interest on
any Note;

<PAGE>

(iii) reduce the principal of or extend the Stated Maturity of any
Note; or

(iv) make any Note payable in money other than that stated in the
Note.

(b) After an amendment under this Section becomes effective, the Company
shall mail to Holders a notice briefly describing the amendment. The Trustee
may in its discretion determine whether or not any Notes would be adversely
affected, materially or otherwise, by any supplemental indenture and any such
determination shall be conclusive upon the Holders of all Notes, whether
theretofore or thereafter authenticated and delivered hereunder. The Trustee
shall not be liable for any such determination made in good faith.

Section 9.3 Compliance with Trust Indenture Act.

Every amendment to or supplement of this Indenture or the Notes shall
comply with the TIA as then in effect so long as this Indenture shall then be
qualified under the TIA.

Section 9.4 Revocation and Effect of Consents.

(a) A consent to an amendment, supplement or waiver by a Holder shall bind
the Holder and every subsequent Holder of a Note or portion of a Note that
evidences the same debt as the consenting Holder's Note, even if notation of the
consent is not made on any Note. However, any such Holder or subsequent Holder
may revoke the consent as to such Holder's Note or portion of a Note. The
Trustee must receive the notice of revocation before the date the amendment,
supplement or waiver becomes effective.

(b) After an amendment, supplement or waiver becomes effective, it shall
bind every Holder unless it makes a change described in clause (ii), (iii), (iv)
or (v) of Section 9.2(a). In that case the amendment, supplement or waiver
shall bind each Holder who has consented to it and every subsequent Holder of a
Note or portion of a Note that evidences the same debt as the consenting
Holder's Note.

Section 9.5 Notation on or Exchange of Notes.

If an amendment, supplement or waiver changes the terms of a Note, the
Trustee may require the Holder to deliver it to the Trustee. The Trustee may
place an appropriate notation on the Note concerning the changed terms and
return it to the Holder. Alternatively, if the Company or the Trustee so
determines, the Company in exchange for the Note shall issue, and the Trustee
shall authenticate, a new Note that reflects the changed terms.

<PAGE>

Section 9.6 Trustee to Sign Amendments, etc.

The Trustee shall sign any amendment, supplement or waiver authorized
pursuant to this Article if the amendment, supplement or waiver does not
adversely affect the rights of the Trustee. If it does, the Trustee may but
need not sign it. The Company may not sign an amendment or supplement until
such amendment or supplement is approved by the Chairman of the Board, President
or any Vice President of the Company or any other officer of the Company
customarily performing functions similar to those performed by any of the above
designated officers, and such approval shall evidence the Company's
determination that such amendment, supplement or waiver is authorized pursuant
to this Article.

ARTICLE TEN

MEETINGS OF HOLDERS

Section 10.1 Purposes for Which Meetings may be Called.

A meeting of Holders may be called for the following purposes:

(a) to give any notice to the Company or to the Trustee, or to give any
direction to the Trustee, or to waive or to consent to the waiving of any Event
of Default hereunder and its consequences;

(b) to remove the Trustee, appoint a successor Trustee or apply to a court
for a successor Trustee;

(d) to take any other action (i) authorized to be taken by or on behalf of
the Holders of any specified aggregate principal amount of the Notes under this
Indenture, or authorized or permitted by law, or (ii) which the Trustee deems
necessary or appropriate in connection with the administration of the Indenture.

Section 10.2 Manner of Calling Meetings.

(a) The Trustee may call a meeting of Holders to take any action specified
in Section 10.1. Notice setting forth the time and place of, and the action
proposed to be taken at, such meeting shall be mailed by the Trustee to the
Company and to the Holders not less than ten or more than 60 days prior to the
date fixed for the meeting.

(b) Any meeting shall be valid without notice if the Holders of all Notes
are present in person or by proxy, or if notice is waived before or after the
meeting by the Holders of all Notes, and if the Company and the Trustee are
either present and not objected to holding the meeting without notice or have,
before or after the

<PAGE>

meeting, waived notice.

Section 10.3 Call of Meetings by Company or Holders.

In case at any time the Company or the Holders of not less than 10% in
aggregate principal amount of the Outstanding Notes shall have requested in
writing that the Trustee call a meeting of Holders to take any action specified
in Section 10.1, and the Trustee shall not have mailed the notice of such
meeting within 20 days after receipt of such request, then the Company or the
Holders of Notes in the amount above specified may determine the time and place
for such meeting and may call such meeting by mailing notice thereof.

Section 10.4 Who may Attend and Vote at Meetings.

To be entitled to vote at any meetings of Holders, a person shall (a) be a
Holder, or (b) be a person appointed by an instrument in writing as proxy for a
Holder. The only persons who shall be entitled to be present or to speak at any
meeting of Holders shall be the persons entitled to vote at such meeting and
their counsel and any representatives of the Trustee and the Company and their
counsel.

Section 10.5 Regulations may be Made by Trustee; Conduct of the Meeting;
Voting Rights.

(a) The Trustee may make such reasonable regulations as it may deem
advisable for any meeting of Holders, to prove the registered holding of Notes,
the appointment of proxies, and other evidence of the right to vote, to fix a
record date and to provide for such other matters concerning the conduct of the
meeting as it shall deem appropriate.

(b) At any meeting each Holder or proxy thereof shall be entitled to one
vote for each $1,000 principal amount of Notes registered in such Holder's name;
provided, however, that the Company shall not be entitled to vote with respect
to any Notes held of record by it. At any meeting of Holders, the presence of
persons holding or representing any number of Notes shall be sufficient for a
quorum.

Section 10.6 Exercise of Rights of Trustee or Holders may not be Hindered or
Delayed by Call of Meeting.

Nothing in this Article shall be deemed or construed to authorize or
permit, by reason of any call of a meeting of Holders or any rights expressly or
impliedly conferred hereunder to make such call, any hindrance or delay in the
exercise of any rights conferred upon or reserved to the Trustee or to the
Holders by this Indenture or the Notes.

<PAGE>

Section 10.7 Evidence of Actions by Holders.

Whenever the Holders of a specified percentage in aggregate principal
amount of the Notes may take any action, the fact that the Holders of such
percentage have acted may be evidenced by (a) instruments of similar tenor
executed by Holders in person or by attorney or written proxy, or (b) the
Holders voting in favor thereof at any meeting of Holders called and held in
accordance with the provisions of this Article, or (c) by a combination thereof.
The Trustee may require proof of any matter concerning the execution of any
instrument by a Holder or the Holder's attorney or proxy as it shall deem
necessary.

ARTICLE ELEVEN

MISCELLANEOUS

Section 11.1 Trust Indenture Act Controls.

If any provision of this Indenture limits, qualifies, or conflicts with the
duties imposed on any Person by Sections 310 through 317, inclusive, of the TIA,
the duties imposed under such Sections of the TIA shall control.

Section 11.2 Notices.

(a) Any notice or communication shall be sufficiently given if in writing
and delivered in person or mailed by first class mail addressed as follows:

if to the Company: Sovereign Credit Finance I, Inc.
4015 Beltline Road, Building B
Dallas, Texas 75244
Attn: A. Starke Taylor, III, President

if to SCH: Sovereign Credit Holdings, Inc.
4015 Beltline Road, Building B
Dallas, Texas 75244
Attn: A. Starke Taylor, III, President

if to the Trustee: Sterling Trust Company
7901 Fish Pond Road
Waco, Texas 76710
Attn: Paul E. Skretny, President

if to the Servicer: Sovereign Associates, Inc.
4015 Beltline Road, Building B
Dallas, Texas 75244
Attn: A. Starke Taylor, III, President

(b) The Company or the Trustee by notice to the other may designate
additional or different addresses for subsequent notices

<PAGE>

or communications.

(c) Any notice or communication mailed to a Holder shall be mailed first
class, postage prepaid to such Person at such Person's address as it appears on
the Note Register of the Registrar and shall be sufficiently given to such
Person if so mailed within the time prescribed. If the Company mails a notice
or communication to Holders, it shall mail a copy to the Trustee at the same
time.

(d) Failure to mail a notice or communication to a Holder or any defect in
it shall not affect its sufficiency with respect to other Holders. If a notice
or communication is mailed in the manner provided above, it is duly given,
whether or not the addressee receives it.

Section 11.3 Communication by Holders with Other Holders.

Holders may communicate pursuant to TIA Section 312(b) with other Holders
with respect to their rights under this Indenture or the Notes. The Company,
the Trustee, the Registrar and anyone else shall have the protection of TIA
Section 312(c).

Section 11.4 Certificate and Opinion as to Conditions Precedent.

(a) Upon any request or application by the Company to the Trustee to take
any action under this Indenture, the Company shall furnish to the Trustee:

(i) an Officer's Certificate stating that, in the opinion of the
signers, all conditions precedent, if any, provided for in this Indenture
relating to the proposed action have been complied with; and

(ii) an Opinion of Counsel stating that, in the opinion of such
counsel, all such conditions precedent have been complied with.

(b) Each certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture shall include (i) a
statement that the person making such certificate or opinion has read such
covenant or condition; (ii) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions contained in
such certificate or opinion are based; (iii) a statement that, in the opinion of
such person, he has made such examination or investigation as is necessary to
enable him to express an informed opinion as to whether or not such covenant or
condition has been complied with; and (iv) a statement as to whether or not, in
the opinion of such person, such condition or covenant has been complied with.

<PAGE>

Section 11.5 Rules by Paying Agent and Registrar.

The Paying Agent or Registrar may make reasonable rules for its functions.

Section 11.6 Legal Holidays.

A "Legal Holiday" is a Saturday, a Sunday, or a day on which banking
institutions are not required to be open in the State of Texas. If a Payment
Date is a Legal Holiday at a place of payment, payment may be made at that place
on the next succeeding day that is not a Legal Holiday.

Section 11.7 Governing Law.

The laws of the State of Texas shall govern this Indenture and the Notes.

Section 11.8 No Adverse Interpretation of Other Agreements.

This Indenture may not be used to interpret another indenture, loan or debt
agreement of the Company or an Affiliate of the Company. Any such indenture,
loan or debt agreement may not be used to interpret this Indenture.

Section 11.9 No Recourse Against Others.

No recourse may be taken, directly or indirectly, against any incorporator,
subscriber to the capital stock, stockholder, officer, director, agent or
employee of the Company or the Servicer or of any predecessor or successor of
the Company or the Servicer with respect to the obligations of the Company or
the Servicer with respect to the Notes or under this Indenture or any
certificate or other writing delivered in connection herewith or therewith, and
all such liability is waived and released by the Trustee and all Holders.

Section 11.10 Successors.

All agreements of the Company and the Servicer in this Indenture and the
Notes shall bind their respective successors. All agreements of the Trustee in
this Indenture shall bind its successor.

Section 11.11 Duplicate Originals.

The parties may sign any number of copies of this Indenture. Each signed
copy shall be an original, but all of them together represent the same
agreement.

<PAGE>

Section 11.12 Severability.

If any provision of this Indenture is held to be illegal, invalid, or
unenforceable under the present or future laws effective during the term of this
Indenture, such provision shall be fully severable; this Indenture shall be
construed and enforced as if such illegal, invalid, or unenforceable provision
had never comprised a part of this Indenture; and the remaining provisions of
this Indenture shall remain in full force and effect and shall not be affected
by the illegal, invalid, or unenforceable provision or by its severance from
this Indenture. Furthermore, in lieu of such illegal, invalid, or unenforceable
provision, there shall be added automatically as a part of this Indenture a
provision as similar in terms to such illegal, invalid, or unenforceable
provision as may be possible and still be legal, valid, and enforceable.

Section 11.13 Headings.

The headings contained herein are for purposes of convenience only, and
shall not be deemed to constitute a part of this Indenture or to affect the
meaning or interpretation of this Indenture in any way.

ARTICLE TWELVE

AGREEMENTS OF SERVICER

Section 12.1 General.

(a) The Servicer agrees that all covenants, representations and warranties
made by the Servicer in the Servicing Agreement with respect to the Contracts
shall also be for the benefit of the Trustee and the Holders.

(b) In carrying out its servicing obligations with respect to the
Contracts, the Servicer agrees that it will use its customary and usual
procedures in servicing motor vehicle retail installment contracts and
obligations and, to the extent more exacting, the procedures used by the
Servicer in respect of such contracts serviced by it for its own account. After
the execution and delivery of this Indenture, the Servicer shall deliver to the
Company and the Trustee a list of officers of the Servicer involved in, or
responsible for, the administration and servicing of the Contracts, which list
shall from time to time be updated by the Servicer on request of the Trustee or
the Company. The Servicer shall take all actions that are necessary or
desirable to maintain continuous perfection and priority of the security
interests granted by the Obligors in the Financed Vehicles, including, but not
limited to, obtaining the execution by the Obligors on, and the filing of, all
security agreements, financing statements, continuation statements or other
instruments as are necessary to maintain the security interests granted by the
Obligors under the

<PAGE>

respective Contracts.

Section 12.2 Collections Account.

(a) The Servicer shall maintain, in the Company's name, at a depository
institution (which may be the Trustee), a lock box account (the "Collections
Account"). The Collections Account shall be an Eligible Account. The Servicer
shall give the Trustee and the Company at least five Business Days' written
notice of any change in the location of the Collections Account and any related
account identification information.

(b) The Servicer agrees to direct all Obligors to remit all collections
and payments directly to, or otherwise cause all payments on the Contracts to be
deposited in, the Collections Account. The Servicer agrees and covenants to
provide payment books to all Obligors with remittance instructions directing all
payments to be remitted directly to the Collections Account and that all cash,
checks, notes, drafts and other items which it otherwise receives and which are
attributable to the Contracts shall be promptly deposited into the Collections
Account. The Servicer shall likewise deposit in the Collections Account within
two Business Days of receipt all Liquidation Proceeds and Insurance Proceeds.
The Servicer shall cause to be transferred to the Operating Account, at least
weekly, all funds in the Collections Account that are attributable to the
Contracts.

Section 12.3 Servicer Acting as Custodian.

The Servicer acknowledges that any collections or proceeds from the
Contracts in the Collections Account, or otherwise in the possession or control
of the Servicer, are the Company's property. In holding such proceeds and
collections, the Servicer agrees to act as custodian and bailee of the Company
and the Additional Lender, if any, at all times.

<PAGE>

Section 12.4 Records.

The Servicer shall retain all data (including, without limitation,
computerized records) relating directly to or maintained in connection with the
servicing of the Contracts at its office in Dallas, Texas, or at the office of
any party with whom the Servicer may subcontract for the performance of its
duties and obligations arising under the Servicing Agreement and this Indenture.
Within 15 days after the change in the servicing office where such data is
located, the Servicer shall give the Trustee notice of the location of the new
servicing office of the Servicer or its subcontractor. The Servicer shall give
the Trustee access to all data (including, without limitation, computerized
records) at all reasonable times.

Section 12.5 Payment of Fees and Expenses of Trustee.

(a) The Servicer shall, if the Company does not so pay, pay the fees and
expenses of the Trustee under the Indenture as such fees and expenses become
payable from time to time pursuant to Section 7.7 of this Indenture. The
Servicer shall be entitled to seek reimbursement for such fees and expenses from
any funds of the Company.

(b) Prior to the termination of this Indenture, the obligations of the
Servicer under this Indenture shall not be subject to any defense, counterclaim
or right of offset which Servicer has or may have against the Company or the
Trustee, whether in respect of this Indenture, any Contract, or otherwise.

Section 12.6 Servicing Compensation.

As compensation for the performance of its obligations under the Servicing
Agreement and subject to the terms of this Section, the Servicer shall be
entitled to receive payment of the Servicing Fees from the Company, out of
amounts available for that purpose in the Operating Account. Payment of such
Servicing Fees shall be conditioned upon the availability in the Operating
Account of amounts intended for such purpose after satisfaction of all higher
priority applications of such funds under Section 4.1(f), any deficiency being
carried over and not payable (without accountability for interest) until
sufficient amounts become available for that purpose in the Operating Account.
The Servicer shall pay all expenses incurred by it in connection with its
servicing activities under the Servicing Agreement and shall not be entitled to
reimbursement of such expenses except to the extent they constitute Liquidation
Expenses and can be reimbursed out of related Liquidation Proceeds.

<PAGE>

Section 12.7 Realization upon Defaulted Contracts.

In accordance with the servicing procedures specified in the Servicing
Agreement, the Servicer shall repossess, or otherwise comparably convert the
ownership of, any Financed Vehicle securing a Defaulted Contract and as to which
no satisfactory arrangements can be made for collection of delinquent payments
pursuant to the Servicing Agreement. In connection with such repossession or
other conversion, the Servicer shall follow such practices and procedures as it
shall deem necessary or advisable and as shall be normal and usual for
responsible holders of retail installment sales contracts and obligations and as
shall be in compliance with all applicable laws, and, in connection with the
repossession of any Financed Vehicle or other proceedings with respect to any
Defaulted Contract, may commence and prosecute any judicial proceedings in
respect of such Contract in its own name, or if the Servicer deems it necessary,
in the name of the Company, on behalf of the Company. The Servicer's
obligations under this Section are subject to the provision that, in the case of
damage to a Financed Vehicle from an uninsured cause, the Servicer shall not be
required to expend its own funds in repairing such motor vehicle unless it shall
determine (i) that such restoration will increase the Liquidation Proceeds of
the related Contract, after reimbursement to itself for such expenses, and (ii)
that such expenses will be recoverable by it either as Liquidation Expenses or
as expenses recoverable under an applicable insurance policy. The Servicer
shall be responsible for all other costs and expenses incurred by it in
connection with any action taken in respect of a Defaulted Contract, provided,
however, that it shall be entitled to reimbursement of such costs and expenses
to the extent they constitute Liquidation Expenses or expenses recoverable under
an applicable insurance policy.

Section 12.8 Collecting Title Documents Not Delivered at the Closing Date.

(a) If the Title Document for a Financed Vehicle does not reflect the
Company as lienholder at the time of the Company's purchase direct from a Dealer
of the related Contract, the Servicer shall confirm, prior to the Company's
purchase, that an appropriate application has been made to transfer the lien on
the Title Document to the Company. If the Title Document for a Financed Vehicle
reflects the Servicer as lienholder at the time of the Company's purchase of the
related Contract, the Servicer shall, in connection with the Company's purchase,
make an appropriate application to transfer the lien on the Title Document to
the Company.

(b) In the case of any Contract in respect of which the Title Document for
the related Financed Vehicle showing the Servicer as first lienholder has been
applied for in connection with the purchase of the Contract, the Servicer shall
use reasonable efforts to obtain such Title Document and promptly upon receipt
thereof to

<PAGE>

make application for the transfer of the lien noted thereon to the Company.
In the case of any Contract in respect of which the Title Document for the
related Financed Vehicle showing the Company as first lienholder has been
applied for in connection with the purchase of the Contract or thereafter,
the Servicer shall use reasonable efforts to obtain such Title Document and
to deliver it to the Company (or other Person appointed as custodian for the
Contract Documents) as promptly as possible. If such Title Document showing
the Company as first lienholder is not received by the Company (or custodian)
within 120 days after the Purchase Date, then the representation and warranty
in Section 12.16 in respect of such Contract shall be deemed to have been
incorrect in a manner that materially and adversely affects the Holders.

(c) The Servicer shall deliver to the Trustee on a monthly basis a listing
of Contracts which as of the date prior to such delivery do not show the
Servicer or the Company as first lienholder on the Title Documents for such
Contracts.

(d) Any fees charged for the transfer of liens on the Title Documents for
the Financed Vehicles into or out of the Company's name shall be paid by the
Company as an Allowed Expense.

Section 12.9 Purchase of Eligible Contracts.

(a) Eligible Contracts shall be purchased on behalf of the Company by the
Servicer (or its subcontractors) pursuant to the terms of the Servicing
Agreement and this Indenture. In carrying out its purchase obligations, the
Servicer agrees that it will use its customary and usual procedures in
purchasing motor vehicle retail installment contracts (and obligations) and, to
the extent more exacting, the procedures used by the Servicer in respect of such
contracts (and obligations) purchased by it for its own account. The Company
and the Servicer shall agree from time to time as to which Eligible Contracts
are to be purchased by the Company from or through Servicer. The purchase
prices for any such purchases shall be payable from the funds in the Operating
Account. On or prior to each Report Date, the Company and the Servicer shall
deliver to the Trustee the Monthly Report of the Company and the Servicer which
shall set forth the following:

(i) information regarding the terms and conditions of each Eligible
Contract (and the related Financed Vehicle) for which the purchase price
was paid by the Company during the month covered by the Monthly Report,
including at least the following: the number assigned to such Contract by
the Servicer, the name of the Obligor, the purchase price paid by the
Company for such Contract, the dealer's sales price for the Financed
Vehicle (in the case of a vehicle sale), the vehicle identification number
for the Financed Vehicle, the date on which the Contract was originated by
the motor vehicle dealer selling or leasing the Financed Vehicle, the
number of

<PAGE>

unpaid installments (or term), and the aggregate unpaid installments
(including lease payments) in dollar amount;

(ii) a confirmation of the accuracy of the representations and
warranties set forth in Section 12.16 of this Indenture with respect to
such Contracts;

(iii) a confirmation that the Servicer has performed all of its
obligations under the Servicing Agreement with respect to such Contracts,
that there is no Event of Default under this Indenture and that such
Contracts conform to the purchasing criteria set forth in the Servicing
Agreement and in EXHIBIT A attached hereto;

(iv) a confirmation that the fair value of the Contracts purchased
during the month covered by the Monthly Report is at least equal to the
purchase price paid therefor by the Company;

(v) a confirmation of the month-ending balance in the Operating
Account and that the funds remaining in the Operating Account will be
sufficient to pay the interest owing on the Notes on the next Payment Date
and any anticipated Allowed Expenses during the current month;

(vi) a confirmation that the provisions of Section 5.9(vii) of this
Indenture requiring the Company and the Servicer to obtain all necessary
licenses, permits and governmental approvals in any jurisdiction related to
the Eligible Contracts covered by the Monthly Report have been satisfied;
and

(vii) such other information reasonably requested by the Trustee.

(b) The Company acknowledges that the Servicer also purchases motor
vehicle retail installment contracts (or obligations) on behalf of various other
parties. Servicer agrees that any motor vehicle retail installment contracts
(or obligations) purchased by it shall be assigned to the various parties for
which the Servicer purchases such contracts, including the Company, on a basis
which takes into account the respective periods of time the purchasing parties
have been in existence, the cost of the available contract package, the amount
of their unexpended funds, and the need to diversify their holdings.

(c) The purchase price payable by the Company for each Contract shall
equal the actual out-of-pocket price payable by the Servicer for the purchase of
the Contract (inclusive of any incentives paid to dealers on a per Contract
basis, such as a volume bonus). Notwithstanding the foregoing, with respect to
any Contract which has been purchased by the Company from the Servicer

<PAGE>

or any of its Affiliates and for which the Servicer or such Affiliate has
received one or more installments from the Obligor prior to the purchase of
the Contract by the Company and is retaining such installments for its own
account rather than transferring them to the Company's account, the purchase
price payable by the Company shall be determined to provide the Company an
internal rate of return on its investment in the Contract from the remaining
unpaid installments equal to the original purchaser's initial internal rate
of return on its investment in the Contract, as of its purchase from the
originating dealer, assuming in both cases that the Contract was paid in full
in accordance with its scheduled installments. In addition, no Contract
purchased by the Company from the portfolio of the Servicer or any of its
Affiliates may be in default at the time of purchase by the Company or have
violated the purchasing criteria set forth in EXHIBIT A attached hereto (with
all references to the Company deemed to refer to the Servicer or such
Affiliate) or in the Servicing Agreement at the time of its purchase by the
Servicer or such Affiliate.

(d) Servicer and the Company may amend the purchasing criteria set forth
in the Servicing Agreement with the exception of the purchasing criteria set
forth on EXHIBIT A to this Indenture, for which the prior written consent of the
Trustee or the Majority Holders must be obtained.

(e) Without the prior consent of the Trustee, neither the Servicer nor the
Company shall make any payments or withdrawals from funds in the Operating
Account for the purchase of any Contracts during the continuance of an Event of
Default.

Section 12.10 Reporting by the Servicer.

On or prior to each Report Date, the Servicer shall render to the Trustee
the Monthly Report in respect of the immediately preceding Collection Period,
which shall set forth the following:

(a) A confirmation that all proceeds (including all written installments,
Full Prepayments, Net Liquidation Proceeds or Net Insurance Proceeds) received
by Servicer during such Collection Period and attributable to the Contracts (and
any related Financed Vehicles) owned by the Company have been deposited into the
Collections Account;

(b) A confirmation that all funds that were deposited into the Collections
Account during such Collection Period and that were attributable to the
Contracts and related Financed Vehicles owned by the Company have been
transferred to the Operating Account;

(c) Attached to the Monthly Report should be detailed collection,
receivables and delinquency reports listing, by Contract, the proceeds received
and applied for each Contract during such Collection Period and deposited in the
Collections

<PAGE>

Account (including any Net Liquidation Proceeds and Net Insurance Proceeds
and any prepayments by Obligors) and the unpaid installment balance and the
past due installments as of the end of the Collection Period for each
Contract;

(d) Attached to the Monthly Report should be a detailed repossession,
liquidation and loss report listing, by Contract, Contracts assigned for
repossession, the repossessions of Financed Vehicles, the sales of repossessed
Financed Vehicles and resulting proceeds, any Net Insurance Proceeds and any
other Net Liquidation Proceeds during the Collection Period; and

(e) Any other information relating to the Contracts reasonably requested
by the Trustee.

Section 12.11 Annual Accountants' Reports.

On or before 120 days after the end of each fiscal year of the Servicer,
the Servicer and the Company shall deliver to the Trustee separate reports,
prepared by a firm of independent accountants selected by the Servicer and the
Company, that (i) they have examined the balance sheets of the Servicer and the
Company as of the last day of said fiscal year and the related statements of
operations, retained earnings and changes in financial position for such fiscal
year and have issued an opinion thereon, specifying the date thereof, (ii) they
have also examined certain documents and records relating to the Contracts,
(iii) their examination as described under clauses (i) and (ii) above was made
in accordance with generally accepted auditing standards and accordingly
included such tests of the accounting records and such other auditing procedures
as they considered necessary in the circumstances, and (iv) their examinations
described under clause (i) and (ii) above disclosed no exceptions which, in
their opinion, were material, relating to such Contracts, or, if any such
exceptions were disclosed thereby, setting forth such exceptions which, in their
opinion, were material.

Section 12.12 Representations and Warranties Concerning the Servicer.

The Servicer represents and warrants to the Company and the Trustee as
follows:

(a) The Servicer (i) has been duly organized and is validly existing and
in good standing as a corporation organized and existing under the laws of the
State of Texas, (ii) has qualified to do business as a foreign corporation and
is in good standing in each jurisdiction where the character of its properties
or the nature of its activities makes such qualification necessary, and (iii)
has full power, authority and legal right to own its property, to carry on its
business as presently conducted, and to enter into and perform its obligations
under this Indenture.

<PAGE>

(b) The execution and delivery by the Servicer of this Indenture are
within the corporate power of the Servicer and have been duly authorized by all
necessary corporate action on the part of the Servicer. Neither the execution
and delivery of this Indenture, nor the consummation of the transactions herein
contemplated, nor compliance with the provisions hereof, will conflict with or
result in a breach of, or constitute a default under, any of the provisions of
any law, governmental rule, regulation, judgment, decree or order binding on the
Servicer or its properties or the charter or bylaws of the Servicer, or any of
the provisions of any indenture, mortgage, contract or other instrument to which
the Servicer is a party or by which it is bound or result in the creation or
imposition of any lien, charge or encumbrance upon any of its property pursuant
to the terms of any such indenture, mortgage, contract or other instrument.

(c) The Servicer is not required to obtain the consent of any other party
or consent, license, approval or authorization of, or registration or
declaration with, any governmental authority, bureau or agency in connection
with the execution, delivery, performance, validity or enforceability of this
Indenture.

(d) This Indenture has been duly executed and delivered by the Servicer
and the provisions of Article Twelve hereof constitute legal, valid and binding
covenants enforceable against the Servicer in accordance with their terms
(subject to applicable bankruptcy and insolvency laws and other similar laws
affecting the enforcement of creditors' rights generally).

(e) There are no actions, suits or proceedings pending or, to the
knowledge of the Servicer, threatened against or affecting the Servicer, before
or by any court, administrative agency, arbitrator or governmental body with
respect to any of the transactions contemplated by the Servicing Agreement or
this Indenture.

Section 12.13 Corporate Existence; Status as Servicer; Merger.

(a) The Servicer shall keep in full effect its existence, rights and
franchises as a corporation under the laws of the State of Texas, and will
obtain and preserve its qualification to do business as a foreign corporation in
each jurisdiction in which such qualification is or shall be necessary to
protect the validity and enforceability of the Contract Documents, this
Indenture and the Servicing Agreement.

(b) The Servicer shall not consolidate with or merge into any other
corporation or convey, transfer or lease substantially all of its assets as an
entirety to any person unless the corporation formed by such consolidation or
into which the Servicer has merged or the person which acquires by conveyance,
transfer or lease substantially all the assets of the Servicer as an entirety is
an entity organized and existing under the laws of the United States

<PAGE>

or any state or the District of Columbia and executes and delivers to the
Company and the Trustee an agreement in form and substance reasonably
satisfactory to the Company and the Trustee, which contains an assumption by
such successor entity of the due and punctual performance and observance of
each covenant and condition to be performed or observed by the Servicer under
this Indenture and the Servicing Agreement.

Section 12.14 Performance of Obligations.

(a) The Servicer shall punctually perform and observe all of its
obligations and agreements contained in this Indenture and the Servicing
Agreement.

(b) The Servicer shall not take any action, or permit any action to be
taken by others, which would excuse any person from any of its covenants or
obligations under any of the Contract Documents, or which would result in the
amendment, hypothecation, subordination, termination or discharge of, or impair
the validity or effectiveness of, any of the Contract Documents or any such
instrument, except as expressly provided herein and therein.

Section 12.15 The Servicer Not to Resign; Assignment.

(a) The Servicer shall not resign from the duties and obligations hereby
imposed on it unless, by reason of change in applicable legal requirements, the
continued performance by the Servicer of its duties under this Indenture would
cause it to be in violation of such legal requirements in a manner which would
result in a material adverse effect on the Servicer or its financial condition.
No such resignation shall become effective unless and until a new industry
qualified servicer acceptable to the Company is willing to service the Contracts
and enters into a servicing agreement with the Company in form and substance
substantially similar to the Servicing Agreement and assumes, pursuant to a
written instrument reasonably satisfactory to the Trustee, the obligations and
duties of the Servicer arising under this Indenture. No such resignation shall
affect the obligation of the Servicer to repurchase any Contract pursuant to
Section 12.17.

(b) The Servicer may not assign this Indenture or the Servicing Agreement
or any of its rights, powers, duties or obligations hereunder, provided that the
Servicer may assign this Indenture and the Servicing Agreement in connection
with a consolidation, merger, conveyance, transfer or lease made in compliance
with Section 12.13(b), and provided further that the Servicer may contract with
industry qualified third parties for the performance of its duties under the
Servicing Agreement and this Indenture, except that any such contract shall not
relieve the Servicer from liability for its obligations under the Servicing
Agreement and this Indenture.

<PAGE>

Section 12.16 Representations and Warranties as to the Contracts.

With respect to each Contract, the Servicer represents and warrants to the
Company, effective as of the Purchase Date for such Contract, which
representations and warranties shall be reaffirmed by delivery of the Assignment
for such Contract signed by the Servicer, as follows:

(a) All of the representations and warranties with respect to the Servicer
set forth in Section 12.12 continue to be true and correct;

(b) In acting with respect to each Contract, Servicer shall comply in all
material respects with, all applicable Federal, state and local laws,
regulations and official rulings;

(c) Each Contract (i) shall have been originated in the United States of
America by a dealer for the retail sale or lease of a Financed Vehicle in the
ordinary course of such dealer's business, shall have been fully and properly
executed by the parties thereto and shall have been validly assigned by such
dealer to Servicer in accordance with its terms, (ii) shall have created or
shall create a valid, subsisting, and enforceable first priority security
interest in favor of Servicer or the Company in the Financed Vehicle, (iii)
shall contain customary and enforceable provisions such that the rights and
remedies of the holder thereof shall be adequate for realization against the
collateral of the benefits of the security, (iv) shall provide for, in the event
that such Contract is prepaid, a prepayment that fully pays the principal
balance, (v) met at the time of its purchase from the originating dealer in all
material respects all purchasing criteria set forth on EXHIBIT A attached hereto
and in the Servicing Agreement, and (vi) shall not be a Defaulted Contract.

(d) (i) The Title Document for the related Financed Vehicle shows (or if
a new or replacement Title Document is applied for with respect to such Financed
Vehicle, the official receipt from the responsible state or local governmental
authority indicating that an application has been made and that the Title
Document, when issued, will show) the Servicer or the Company as the holder of a
first priority security interest in such Financed Vehicle, (ii) within 120 days
after the Purchase Date for the Contract relating to the Financed Vehicle, the
Title Document for such Financed Vehicle will show the Company as the holder of
a first priority security interest in such Financed Vehicle, and (iii) the
Company, upon delivery of the Assignment, will have a valid and enforceable
security interest in the Financed Vehicle to the same extent as the security
interest of the Person named as the original secured party under the related
Contract.

(e) Each dealer from whom the Contract is purchased shall be required to
represent and warrant that each Contract and the sale

<PAGE>

or lease of the Financed Vehicle shall have complied at the time it was
originated in all material respects with all requirements of applicable
federal, state, and local laws, and regulations thereunder, including without
limitation, usury laws, the Federal Truth-In-Lending Act, the Equal Credit
Opportunity Act, the Fair Credit Reporting Act, the Fair Debt Collection
Practices Act, the Federal Trade Commission Act, the Federal Reserve Board's
Regulations B and Z, and state adaptations of the National Consumer Act and
of the Uniform Consumer Credit Code, and other consumer laws and equal credit
opportunity and disclosure laws.

(f) Each Contract shall represent the genuine, legal, valid, and binding
payment obligation in writing of the Obligor, enforceable by the holder thereof
in accordance with its terms subject to the effect of bankruptcy, insolvency,
reorganization, or other similar laws affecting the enforcement of creditor's
rights generally.

(g) No provision of a Contract shall have been waived, amended or
modified, except as disclosed in writing by Servicer.

(h) No right of rescission, set off, counterclaim, or defense shall have
been asserted or threatened with respect to any Contracts.

(i) The Assignment constitutes an enforceable sale and transfer of the
Contract from the Servicer (or other Person from whom the Contract is purchased)
to the Company and it is the intention of the Servicer that the beneficial
interest in and title to the Contracts not be part of Servicer's estate in the
event of the filing of a bankruptcy petition by or against Servicer under
bankruptcy law.

(j) Immediately prior to the Assignment herein contemplated, Servicer (or
other Person from whom such Contract is purchased by the Company) had good and
marketable title to each Contract free and clear of all liens, encumbrances,
security interests, and rights of others and, immediately upon the transfer
thereof pursuant to the Assignment, the Company shall have good and marketable
title to each Contract, free and clear of all liens, encumbrances, security
interest, and right of others.

(k) No Contract shall have been originated in, or shall be subject to the
laws of, any jurisdiction under which the sale, transfer, and assignment of such
Contract to the Company or the Trustee would be unlawful, void, or voidable.

<PAGE>

Section 12.17 Purchase of Certain Contracts.

(a) The representations and warranties of the Servicer set forth in
Section 12.16 with respect to each Contract shall survive delivery of the
Contract Documents to the Company and shall continue so long as such Contract
remains outstanding. Upon discovery by the Company, the Servicer or the Trustee
that any of such representations or warranties was incorrect as of the time made
or that any of the Contract Documents relating to any such Contract has not been
properly executed by the Obligor or the Servicer or contains a material defect
or has not been received by the Company, the party making such discovery shall
give prompt notice to the Trustee (other than in cases where the Trustee has
given notice thereof) and to the other party (or parties in cases where the
Trustee has given notice thereof). If any such defect, incorrectness or
omission materially and adversely affects the interest of the Holders in and to
the related Contracts, the Servicer shall, within 90 days after discovery
thereof or receipt of notice thereof, cure the defect or eliminate or otherwise
cure the circumstances or condition in respect of which the representation or
warranty was incorrect as of the time made. If the Servicer is unable to do so,
it shall purchase such Contract from the Company through a deposit into the
Collections Account no later than the end of the calendar month after which such
90-day period expired of an amount equal to the product of (x) the
Price/Payments Ratio multiplied by (y) the aggregate unpaid installments on the
Contract. Upon any such purchase, the Company shall execute and deliver such
instruments of transfer or assignment, in each case without recourse, as shall
be necessary to vest in the Servicer any Contract purchased hereunder.

(b) It is understood that, without limiting the meaning of the term
"materially and adversely affects", the interest of the Holders shall be deemed
materially and adversely affected if (i) the Company, the Trustee or any of such
Holders are put under any obligation to pay any other Person any sum of money as
a result of a defect or misrepresentation described in subsection (a) above, or
(ii) the Trustee or the Majority Holders, acting reasonably, determine, by
written notice to the Company, that such defect or misrepresentation materially
and adversely affects the interests of the Holders in and to a Contract.

Section 12.18 Indemnification.

Servicer hereby indemnifies and holds harmless Trustee and its successors
and their respective officers, directors, employees, agents and attorneys
against any and all liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, claims, costs, expenses and disbursements of any kind
or nature whatsoever which may be imposed on, incurred by or asserted against
Trustee or its successors, or their respective officers, directors, employees,
agents or attorneys, due to (i) any breach by Servicer of its

<PAGE>

representations, warranties or covenants provided for in the Servicing
Agreement or this Indenture, or (ii) any action or inaction of Servicer, or
through Servicer, in any way relating to, or arising out of, the Servicing
Agreement or this Indenture, any and all transfers or assignments of the
Contracts, or any of the transactions contemplated herein or therein or the
creation or collection or enforcement of any of the Contracts. Servicer,
however, does not assume the risk of uncollectibility and does not indemnify
Trustee and/or its successors, or their officers, directors, employees,
agents or attorneys, against the uncollectibility of all or any part of the
Contracts as against the Obligor thereof, except for uncollectibility
resulting from a breach by Servicer of any warranty, representation or
covenant contained herein. The indemnities contained in this Section shall
survive any termination of this Indenture or the Servicing Agreement.

Section 12.19 Termination.

The respective duties and obligations of the Servicer under this Article
Twelve shall terminate upon the earlier of (i) the satisfaction and discharge of
this Indenture pursuant to Article Eight, or (ii) the latest to occur of (A) the
final payment or other liquidation of the last Outstanding Contract owned by the
Company, and (B) the disposition of all property acquired upon repossession or
comparable conversion of any Financed Vehicle securing a Contract.

Section 12.20 Amendment.

(a) The provisions of this Article Twelve may be amended from time to time
by the Company, the Servicer and the Trustee, without the consent of any Holder,
provided that such action shall not adversely affect in any material respect the
interests of any Holder.

(b) The provisions of this Article Twelve may also be amended from time to
time by the Company, the Servicer and the Trustee, with the consent of the
Majority Holders for the purpose of adding any provisions to or changing in any
manner or eliminating any of the provisions of this Article, provided, however,
that no such amendment shall, without consent of each Holder, (i) alter the
priorities with which any allocation of funds shall be made under this Article;
(ii) deprive any such Holder of the benefit of this Indenture; or (iii) modify
this Section.

(c) Promptly after the execution of any amendment pursuant to Section
12.20(b), the Company shall cause to be sent to each Holder a notice setting
forth in general terms the substance of such amendment. Any failure to do so
shall not affect the validity of such amendment.

<PAGE>

(d) It shall not be necessary, in any consent of Holders under this
Section, to approve the particular form of any proposed amendment, but it shall
be sufficient if such consent shall approve the substance thereof. The manner
of obtaining such consents and of evidencing the authorization of the execution
thereof by Holders shall be subject to such reasonable regulations as the
Trustee may prescribe.

(e) Any amendment or modification effected contrary to the provisions of
this Section shall be void.

Section 12.21 Inspection and Audit Rights.

The Servicer agrees that, upon reasonable prior notice, it will permit any
representative of the Trustee, during the Servicer's normal business hours, to
examine all of the books of account, records, reports and other papers of the
Servicer relating to the Contracts, to make copies and extracts therefrom, to
cause such books to be audited by independent accountants selected by the
Trustee, and to discuss the affairs, finances and accounts relating to the
Contracts with the Servicer's officers, employees and independent accountants
(and by this provision the Servicer hereby authorizes said accountants to
discuss with such representatives such affairs, finances and accounts), all at
such reasonable times and as often as may be reasonably requested. Any expense
incident to the reasonable exercise by the Trustee of any right under this
Section shall be borne by the Trustee and reimbursed to it by the Company under
Section 7.7.

ARTICLE THIRTEEN

ADDITIONAL LENDER

Section 13.1 Indenture Subject to Terms of Additional Borrowing.

In addition to the Notes, the Company intends to pursue an Additional
Lender to borrow funds with which to purchase additional Contracts. The Company
anticipates that any Additional Borrowings from the Additional Lender will be
secured by first priority security interests in all the Contracts owned by the
Company and all other assets of the Company. The provisions of this Indenture,
and the rights and duties of the Company, the Servicer and the Trustee
hereunder, shall at all times, anything else herein to the contrary
notwithstanding, be subject to the terms and provisions of the Additional
Borrowing.

<PAGE>

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

STERLING TRUST COMPANY,
as Trustee

By:
-----------------------------------
---------------, President

Attest:

- ---------------------------------
- ----------------------, Secretary

SOVEREIGN CREDIT FINANCE I, INC.

By:
-----------------------------------
A. Starke Taylor, III, President
Attest:

- ---------------------------------
- ----------------------, Secretary

<PAGE>

The undersigned Sovereign Associates, Inc. joins in this Indenture for the
sole purpose of evidencing its agreement to the covenants, representations and
warranties pertaining to it that are set forth in Article Twelve of this
Indenture and not for the purpose of guarantying or otherwise covenanting to pay
the Notes or to perform any of the Company's obligations.

SOVEREIGN ASSOCIATES, INC.

By:
-----------------------------------
A. Starke Taylor, III, President

Attest:

- ---------------------------------
- ----------------------, Secretary

The undersigned Sovereign Credit Holdings, Inc. joins in this Indenture for
the sole purpose of evidencing its agreement to the indemnity and hold harmless
provisions pertaining to it that are set forth in Section 7.7(a)(ii) of this
Indenture and not for the purpose of guarantying or otherwise covenanting to pay
the Notes or to perform any of the Company's obligations.

SOVEREIGN CREDIT HOLDINGS, INC.

By:
-----------------------------------
A. Starke Taylor, III, President

Attest:

- ---------------------------------
- ----------------------, Secretary

<PAGE>

THE STATE OF TEXAS Section
Section
COUNTY OF MCLENNAN Section

BEFORE ME, the undersigned authority, on this day personally appeared
_____________________, President of Sterling Trust Company, a Texas corporation,
known to me to be the person and officer whose name is subscribed to the
foregoing instrument, and acknowledged to me that he or she executed the same
for the purposes and consideration therein expressed, in the capacity therein
stated and as the act and deed of said corporation.

GIVEN UNDER MY HAND AND SEAL OF OFFICE, this the ____ day of
______________________, 1996.

[SEAL] -----------------------------------
Notary Public in and for the
State of Texas
Print Name:
------------------------
My Commission Expires:
-------------

THE STATE OF TEXAS Section
Section
COUNTY OF DALLAS Section

BEFORE ME, the undersigned authority, on this day personally appeared A.
Starke Taylor, III, President of Sovereign Credit Finance I, Inc., a Texas
corporation, known to me to be the person and officer whose name is subscribed
to the foregoing instrument, and acknowledged to me that he executed the same
for the purposes and consideration therein expressed, in the capacity therein
stated and as the act and deed of said corporation.

GIVEN UNDER MY HAND AND SEAL OF OFFICE, this the ____ day of
______________________, 1996.

[SEAL] -----------------------------------
Notary Public in and for the
State of Texas
Print Name:
------------------------
My Commission Expires:
-------------

<PAGE>

THE STATE OF TEXAS Section
Section
COUNTY OF DALLAS Section

BEFORE ME, the undersigned authority, on this day personally appeared A.
Starke Taylor, III, President of Sovereign Associates, Inc., a Texas
corporation, known to me to be the person and officer whose name is subscribed
to the foregoing instrument, and acknowledged to me that he executed the same
for the purposes and consideration therein expressed, in the capacity therein
stated and as the act and deed of said corporation.

GIVEN UNDER MY HAND AND SEAL OF OFFICE, this the ____ day of
______________________, 1996.

[SEAL] -----------------------------------
Notary Public in and for the
State of Texas
Print Name:
------------------------
My Commission Expires:
-------------

THE STATE OF TEXAS Section
Section
COUNTY OF DALLAS Section

BEFORE ME, the undersigned authority, on this day personally appeared A.
Starke Taylor, III, President of Sovereign Credit Holdings, Inc., a Texas
corporation, known to me to be the person and officer whose name is subscribed
to the foregoing instrument, and acknowledged to me that he executed the same
for the purposes and consideration therein expressed, in the capacity therein
stated and as the act and deed of said corporation.

GIVEN UNDER MY HAND AND SEAL OF OFFICE, this the ____ day of
______________________, 1996.

[SEAL] -----------------------------------
Notary Public in and for the
State of Texas
Print Name:
------------------------
My Commission Expires:
-------------

<PAGE>

EXHIBIT A

CONTRACT PURCHASE CRITERIA

SOVEREIGN CREDIT FINANCE I, INC.

The following purchasing criteria shall govern all purchases of Eligible
Contracts by the Company and no Contract shall be purchased that does not
materially meet such criteria.

I. PURCHASE PRICE AND COLLATERAL RATIOS

A. The purchase price for a Contract must involve an initial payment to
the Dealer which does not exceed 140% of the average wholesale value of a
Financed Vehicle plus tax, title, license and warranty (or, in the case of
certain popular models, 140% of the Dealer's Cost plus tax, title, license and
warranty). Average wholesale value shall be measured by the MANNHEIM GOLD BOOK,
NATIONAL AUTO RESEARCH BLACK BOOK or the NATIONAL AUTOMOBILE DEALERS USED CAR
GUIDE used car market guides, or other nationally published used car market
guides. If measured by the MANNHEIM GOLD BOOK, the wholesale value of a
Financed Vehicle shall be adjusted upward to reflect the generally lower values
provided by this publication when compared to other publications.

B. The purchase price for a Contract must involve an initial payment to
the Dealer of no more than 90% of the principal plus accrued interest (pay-off
balance) of such Contract.

C. The age of each Financed Vehicle must be 7 years or less for
automobiles or 8 years or less for trucks.

D. Miles may not exceed 100,000 for automobiles or 125,000 for trucks,
unless the Dealer guarantees payments under the applicable Contract.

II. DOWN PAYMENT RATIO

A. Obligors on all Contracts must be required to have made a down payment
(cash plus net trade-in allowance) of at least 10% of the Dealer's cost
(excluding sale preparation expenses) in the Financed Vehicle.

III. CONTRACT TERMS

A. All Contracts must have an original term of 36 months or less although
48 month terms will be permitted where the Financed Vehicle is a 1993 or later
model, or where lower depreciation or stronger credit history justifies a 48
month term.

B. No Contract may violate any applicable usury laws of any state or of
the United States.

A-1

<PAGE>

C. Each Contract shall be in the form of industry-standard consumer
automobile retail installment contracts or notes issued by the Texas Independent
Automobile Dealers Association if the Contract originated in Texas or by any
similar association of dealers in any other state in which the Contract
originated.

IV. CREDIT CRITERIA

Obligors on all Contracts purchased by Company must have supplied the
following credit information and meet the following requirements, and Servicer
shall perform verification procedures in an industry-standard manner observing
due care and procedure:

A. Personal reference with address and telephone number.

B. Copy of credit application executed by Obligor which contains the
necessary information to verify by telephone or otherwise the Obligor's address,
employment and personal references and to obtain a credit report from a credit
reporting agency.

C. Obligor must have a valid driver's license.

D. No cosigners, except immediate family members.

E. Obligor must be at least 18 years old.

To the extent that, in the Servicer's good faith judgement, Contracts which
do not satisfy the criteria specified in I(A) through III(A) above may be
purchased for a purchase price which would be beneficial to the Company,
Servicer may purchase such Contracts.

A-2

<PAGE>

EXHIBIT B

MONTHLY REPORT CERTIFICATE

For Month: _________, 199__ (the "Collection Period")

Company: Sovereign Credit Finance I, Inc.

Servicer: Sovereign Associates, Inc.

Indenture: Dated as of _________, 1996

Trustee: Sterling Trust Company

I. PURCHASING ACTIVITIES (INDENTURE, SECTION 12.9)

A. EXHIBIT I hereto lists each Contract for which the purchase price was
paid by Company during the Collection Period and includes for each Contract (and
related Financed Vehicle) at least the following information:

1. Contract number
2. Name of Obligor
3. Purchase price paid by Company
4. Dealer's sales price for Financed Vehicle
5. Vehicle identification number (VIN) for Financed Vehicle
6. Origination date
7. Number of unpaid installments in dollar amount
8. Aggregate unpaid installments in dollar amount

B. Servicer and Company confirm with respect to such Contracts that:

1. The representations and warranties set forth in Section 12.16 of
the Indenture are accurate;

2. The aggregate fair value of such Contracts is at least their
aggregate purchase price paid by Company;

3. Servicer has performed all of its obligations under the Servicing
Agreement; there is no Event of Default under the Indenture; and the
purchased contracts conform to the purchasing criteria set forth in the
Servicing Agreement and Exhibit A to the Indenture; and

4. The provisions of Section 5.9(vii) of the Indenture requiring
Company and Servicer to obtain all necessary licenses, permits and
governmental approvals in any required jurisdiction have been satisfied.

B-1

<PAGE>

C. Servicer hereby assigns and transfers to Company any such purchased
Contracts for which it holds title, without recourse or warranty except as
otherwise provided in the Indenture or Servicing Agreement.

D. Servicer and Company confirm that the available funds in the Operating
Account will be sufficient to pay the total interest installments due on the
Notes at the next Payment Date, which amount is $_________, and anticipated
Allowed Expenses during the current month.

II. SERVICING ACTIVITIES (INDENTURE, SECTION 12)

A. Servicer confirms that:

1. All proceeds (including all installments, Full Prepayments, Net
Liquidation Proceeds and Net Insurance Proceeds) received by it during the
Collection Period attributable to Contracts (and any related Financed
Vehicles) owned by Company have been deposited into the Collections
Account;

2. All funds that were deposited into the Collections Account during
the Collection Period and that were attributable to the Contracts (and
related Financed Vehicle) owned by Company have been transferred to the
Operating Account; and

3. A review of the activities of Servicer during the Collection
Period has been made under the supervision of the officer executing this
Certificate with a view to determining whether during such period Servicer
has performed and observed, in all material respects, its obligations under
the Indenture and the Servicing Agreement, and, to such officer's
knowledge, no default by Servicer under the Indenture or the Servicing
Agreement has occurred and is continuing.

B. EXHIBIT II hereto lists, by each Contract owned by Company, the daily
proceeds received from such Contracts and deposited in the Collections Account,
including any Net Liquidation Proceeds and Net Insurance Proceeds and any
prepayments by Obligors.

C. EXHIBIT III hereto lists, as of month end, the unpaid installment
balance and any past due installments for each Contract owned by Company.

D. EXHIBIT IV hereto lists, by each Contract owned by the Company, the
Contracts assigned for repossession, the repossessions of Financed Vehicles, the
sales of repossessed Financed Vehicles and resulting proceeds, any Insurance
Proceeds and any other Liquidation Proceeds during the month.

B-2

<PAGE>

III. DISBURSEMENT ACTIVITIES (INDENTURE, SECTION 4.1)
<TABLE>
<S> <C> <C> <C>
A. Reconciliation of Operating Account

1. Balance of beginning of month: $
------

2. Total Deposits: $
------
3. Withdrawals$_____
Offering Expenses: $
------
Interest on Notes: $
------
Allowed Expenses paid: $
------
Contracts purchased: $
------
Subtotal: $
------
4. Balance at end of month: $
------
B. Allowed Expenses paid during month from Operating Account:

1. Servicing Fees (______ Contracts x $20): $
------
2. Investor Administration Fees: $
------
3. Purchase Administration Fees
(Contracts x $500, or 5% of
installments due): $
------
4. Bank Fees: $
------
5. Accounting Fees: $
------
6. Legal Fees: $
------
7. Income Taxes: $
------
8. Corporate Franchise Taxes: $
------
9. Trustee Fees: $
------
10. Liquidation Expenses: $
------
11. Vehicle Warranty Repair Service Contracts: $
------
12. Repossession Fees (Repossessions x $125): $
------
Total: $
------
</TABLE>

B-3

<PAGE>

C. Company confirms that:

1. All withdrawals and payments from the Operating Account during
the month conformed to the requirements of the Indenture;

IV. INTEREST PAYMENTS ON NOTES (INDENTURE, SECTION 5.1)

A. EXHIBIT V hereto sets forth a listing of the interest and any
principal payable to each Holder on the next Payment Date. The Company
certifies that computation of interest has been made in conformance with the
Indenture.

All capitalized terms used herein and not otherwise herein defined shall
have the same meaning as set forth in the Indenture.

Company and Servicer certify that, to the best of their knowledge, the
foregoing and attached information is true and correct.

Dated: ___________________, 199__.

SOVEREIGN ASSOCIATES, INC.

By:
-----------------------------------
A. Starke Taylor, III, President

SOVEREIGN CREDIT FINANCE I, INC.

By:
-----------------------------------
A. Starke Taylor, III, President

B-4

<PAGE>

EXHIBITS DESCRIPTION
- -------- -----------

I Purchased Contract Information
II Daily Contract Collections Journal
III Contract Receivables Report
IV Repossession and Liquidation Report
V Holder Interest Report

B-5

<PAGE>

EXHIBIT C

TRUSTEE'S FEES

Sovereign Credit Finance I, Inc.
Notes
Due October 15, 2000

Acceptance Fee (payable upon execution
of Indenture) $ 7,000.00

Annual Administration Fee
(billed quarterly) $ 7,500.00

Paying Agent/Registrar Services $ 4.00 per year
per Note
Interest Checks $ 1.00 per month
per Note
Note Register Revisions, Transfers,
Exchanges and Replacement Notes $ 10.00 each

Expedited Deliveries (per delivery, in
addition to out-of-pocket) $ 10.00 each

All out-of-pocket expenses such as postage, overnight mail costs, etc. will be
billed at cost to the Company. The Trustee understands that the closing of the
Note issuance will be completed in Dallas and there will not be any travel
expenses charged to the Company. If Trustee's duties are modified beyond a DE
MINIMUS extent, Trustee reserves the right to reevaluate its fees.

C-1

<PAGE>

EXHIBIT 8.1

OPINION OF FREDERICK C. SUMMERS, III
A PROFESSIONAL CORPORATION

REGARDING TAX MATTERS

<PAGE>

FREDERICK C. SUMMERS, III
A PROFESSIONAL CORPORATION
ATTORNEYS AT LAW

3700 Bank One Center
1717 Main Street
Dallas, Texas 75201-4639
Frederick C. Summers, III Office (214) 653-2126
Direct: (214) 653-2125 Facsimile (214) 653-2102

November 26, 1996

Sovereign Credit Finance I, Inc.
4015 Beltline Road
Building B
Dallas, Texas 75244

Re: 11% Notes Due October 15, 2000

Gentlemen:

The purpose of this letter is to advise you that the discussion under the
caption "Certain Federal Income Tax Considerations" in the Sovereign Credit
Finance I, Inc. Prospectus relating to an offering of $20 million in 11% Notes
Due October 15, 2000 (the "Prospectus") reflects the opinion of Frederick C.
Summers, III, A Professional Corporation, as to the tax matters discussed
therein.

We hereby consent to the references to this firm under the captions
"Certain Federal Income Tax Considerations" and "Legal Matters" in the
Prospectus and the filing with the Securities and Exchange Commission of this
letter as an exhibit to the Form S-l Registration Statement related to the
Prospectus.

Very truly yours,

FREDERICK C. SUMMERS, III
A PROFESSIONAL CORPORATION

/S/ FREDERICK C. SUMMERS, III
-----------------------------
Frederick C. Summers, III

<PAGE>

EXHIBIT 10.2

FORM OF SERVICING AGREEMENT BETWEEN SOVEREIGN ASSOCIATES, INC.
AND SOVEREIGN CREDIT FINANCE I, INC.

<PAGE>

SERVICING AGREEMENT

This Servicing Agreement (this "Agreement"), effective as of
_______________, 1996, is entered into by and between Sovereign Associates,
Inc., a Texas corporation (the "Servicer"), and Sovereign Credit Finance I,
Inc., a Texas corporation ("Buyer").

BACKGROUND STATEMENT

This Agreement shall govern the collection and servicing responsibilities
with respect to any and all of the Purchased Contracts purchased by Buyer from
Servicer pursuant to that certain Master Contract Purchase Agreement (herein so
called) by and between Buyer and Servicer of even date herewith.

STATEMENT OF AGREEMENT

In consideration of the mutual covenants contained herein and for other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Buyer and Servicer agree as follows:

1. APPOINTMENT OF AND ACCEPTANCE BY THE SERVICER OF SERVICING
OBLIGATIONS.

(a) The Servicer, on behalf of Buyer, shall during the term of this
Agreement manage, administer and collect each of the Purchased Contracts (as
defined in the Master Contract Purchase Agreement), shall exercise discretionary
powers involved in such management, administration and collection, and shall
bear all costs and expenses incurred in connection therewith that may be
necessary or advisable in carrying out this Agreement. In the management,
administration and collection of the Purchased Contracts, the Servicer shall use
at least the same care and apply the same policies that it would exercise if it
owned the Purchased Contracts, including but not limited to the servicing
criteria as set forth in EXHIBIT A attached hereto.

(b) The Servicer shall have full power and authority to do those
things in connection with such servicing, administration and collection
activities which it may deem necessary or desirable in order to maximize
receipts collected from Obligors or foreclosure and sale of Financed Vehicles
underlying the Purchased Contracts. Without limiting the generality of the
foregoing, the Servicer is hereby authorized and empowered to execute and
deliver, on behalf of Buyer, instruments of satisfaction or cancellation, or of
partial or full release or discharge, and all other comparable instruments, in
order to evidence payments received with respect to the Purchased Contracts and,
after the delinquency of any Purchased Contracts and to the extent permitted
under and in compliance with applicable law and regulations, to commence
enforcement proceedings with respect to such Purchased Contracts; PROVIDED,
HOWEVER, that the Servicer shall not commence any legal action against an
Obligor in the name of Buyer without the prior written consent of the

<PAGE>

Buyer. Buyer shall furnish the Servicer with any powers of attorney and other
documents necessary or appropriate to enable the Servicer to carry out its
servicing and administrative duties hereunder.

(c) The Servicer may contract with industry-qualified third parties
to perform its obligations hereunder. The performance by any third party will
not relieve the Servicer from liability for its obligations under this
Agreement.

2. TERM. This Agreement shall commence as of the date first written
above and shall continue until terminated upon 30 days written notice by either
party to the other.

3. COMPENSATION. In exchange for the services provided to Buyer as
described and governed herein, SAI shall be paid, on or before the 15th day of
the month following a month in which such services are provided, a Contract
Servicing Fee (herein so called) equal to $20.00 times the aggregate number of
Purchased Contracts serviced by SAI during such prior month. Such aggregate
number of Purchased Contracts shall equal the sum of all Purchased Contracts
less all Purchased Contracts that have been previously paid in full by their
Obligors, and less all Purchased Contracts in which an Obligor default has
occurred and the Servicer has assigned the related Financed Vehicle for
repossession, and less any Purchased Contract that has been charged off.

Additionally, the Servicer shall be reimbursed by Buyer for any third-party
expenditures with respect to any particular Contract, which expenditures may, at
the option of the Servicer, be paid from the proceeds from collection or from
resale of the repossessed Financed Vehicle relating to that Contract.

4. REPRESENTATIONS AND WARRANTIES OF THE SERVICER. The Servicer
represents and warrants to Buyer as follows:

(a) ORGANIZATION AND GOOD STANDING. Servicer is a corporation duly
organized, validly existing and in good standing under the laws of Texas, and
has full corporate power, authority and legal right to own its properties and
conduct its business as such properties are presently owned and such business is
presently contemplated, and to execute, deliver and perform its obligations
under this Agreement.

(b) DUE QUALIFICATION. The Servicer is duly qualified and has
registered as a foreign corporation in each state where such qualification is
required in order to perform its obligations pursuant to this Agreement and has
obtained all necessary licenses, approvals or consents as are required under
applicable law to perform its duties hereunder.

<PAGE>

performance of this Agreement has been duly authorized by the Servicer by all
necessary corporate action on the part of the Servicer.

(d) BINDING OBLIGATION. This Agreement constitutes a legal, valid and
binding obligation of the Servicer, enforceable in accordance with its terms,
except as enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws now or hereinafter in effect
which affect the enforcement of creditors' rights in general, and except as such
enforceability may be limited by general principles of equity (whether
considered in a proceeding at law or in equity).

(e) NO VIOLATION. The execution and delivery of this Agreement by
the Servicer, and the performance of the transactions contemplated by this
Agreement and the fulfillment of the terms hereof applicable to the Servicer,
will not conflict with, violate, result in any breach of any of the material
terms and provisions of, or constitute (with or without notice or lapse of time
or both) a default under, any requirement of law applicable to the Servicer or
any indenture, contract, agreement, mortgage, deed of trust or other installment
to which the Servicer is a party or by which it is bound.

5. REPRESENTATIONS AND WARRANTIES OF THE BUYER. The Buyer represents
and warrants to Servicer as follows:

(a) ORGANIZATION AND GOOD STANDING. Buyer is a corporation duly
organized, validly existing and in good standing under the laws of Texas, and
has full corporate power, authority and legal right to own its properties and
conduct its business as such properties are presently owned and such business is
presently contemplated, and to execute, deliver and perform its obligations
under this Agreement.

(b) DUE QUALIFICATION. The Buyer is duly qualified and has
registered as a foreign corporation in each state where such qualification is
required in order to perform its obligations pursuant to this Agreement and has
obtained all necessary licenses, approvals or consents as are required under
applicable law to perform its duties hereunder.

(c) DUE AUTHORIZATION. The execution, delivery and performance of
this Agreement has been duly authorized by the Buyer by all necessary corporate
action on the part of the Buyer.

(d) BINDING OBLIGATION. This Agreement constitutes a legal, valid and
binding obligation of the Buyer, enforceable in accordance with its terms,
except as enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws now or hereinafter in effect
which affect the enforcement of creditors' rights in general, and except as such

<PAGE>

enforceability may be limited by general principles of equity (whether
considered in a proceeding at law or in equity).

(e) NO VIOLATION. The execution and delivery of this Agreement by
the Buyer, and the performance of the transactions contemplated by this
Agreement and the fulfillment of the terms hereof applicable to the Buyer, will
not conflict with, violate, result in any breach of any of the material terms
and provisions of, or constitute (with or without notice or lapse of time or
both) a default under, any requirement of law applicable to the Buyer or any
indenture, contract, agreement, mortgage, deed of trust or other installment to
which the Buyer is a party or by which it is bound.

6. COVENANTS OF THE SERVICER. The Servicer further warrants to and
covenants with Buyer as follows:

(a) COLLECTIONS ACCOUNT. From and after the date hereof until
such time as this Agreement terminates, Servicer shall at its own expense,
direct all Obligors on the Purchased Contracts to remit all collections and
payments directly to, or otherwise cause all payments on the Purchased Contracts
to be deposited in, a Collections Account (herein so called) in the name of the
Buyer. Servicer shall direct all Obligors to utilize payment books with
remittance instructions directing all payments to be remitted to the Collections
Account. Servicer agrees that all cash, checks, notes, drafts or other items
which it receives otherwise than through the Collections Account attributable to
the Purchased Contracts, including proceeds from resale of repossessed Financed
Vehicles and recoveries on insurance claims, shall be deposited in the
Collections Account within two business days of receipt. All collections and
payments attributable to the Purchased Contracts shall be transferred from the
Collections Account to the Buyer's operating account on at least a weekly basis.

(b) OPERATIONS. The Servicer shall collect payments from the
Purchased Contracts in an orderly and efficient manner consistent with good
business practices and in accordance with all applicable federal, state and
local laws and regulations.

(c) RECORDS. So long as Buyer has not given notice of termination
pursuant to Section 2, the Servicer shall (i) hold in trust and safely keep all
Purchased Contract closing documents and such other documents as may be required
for the enforcement of the Purchased Contracts; (ii) keep such accounts and
other records as will enable Buyer to determine the status of the Purchased
Contracts; (iii) keep such books and records at its offices identified in
Section 14 herein; and (iv) permit Buyer and its representatives at any time to
inspect, audit, check and make abstracts from Servicer's accounts, records,
correspondence and other papers pertaining to the Purchased Contracts. Servicer
shall maintain its respective records with respect to the Purchased

<PAGE>

Contracts in a manner such that the Servicer can produce a computer file
containing a listing (by Obligor) of all Purchased Contracts, together with
the account balance of such accounts and the payment history related thereto.
The Servicer shall provide Buyer with monthly reports updating the
information relating to account balances and activity and the amounts
collected on the Purchased Contracts during the proceeding month.

(d) CONTINUATION STATEMENTS. If Buyer so requests, the Servicer
shall execute and file documents which shall create a first priority security
interest in favor of Buyer in Financed Vehicles, including registration of the
Certificates of Title in the name of Buyer, and/or any other documents requested
by Buyer or which may be required by law to preserve and protect the interest of
Buyer in and to the Purchased Contracts.

(e) PRINCIPAL EXECUTIVE OFFICE. The Servicer shall not, without
providing 30 days' notice to Buyer, and without filing such amendments to any
previously filed financing statements as Buyer may require, (i) change the
county where its principal executive office, or the office where the records
relating to the Purchased Contracts are kept, is located, or (ii) change its
name, identity or corporate structure in any manner which would, could or might
make any financing statement or continuation statement filed by Buyer or the
Servicer or any provision hereof seriously misleading within the meaning of
Section 9-402(g) of any applicable enactment of the Texas Uniform Commercial
Code.

(f) NO IMPAIRMENT. The Servicer will duly fulfill all obligations on
its part to be fulfilled under or in connection with each Purchased Contract and
will do nothing to materially impair the rights of Buyer in the Purchased
Contracts.

(g) COMPLIANCE WITH LAW. The Servicer will comply in all material
respects with all acts, rules, regulations, orders, decrees and directions of
any governmental authority applicable to the Purchased Contracts or any part
thereof; PROVIDED, HOWEVER, that the Servicer may contest any act, regulation,
order, decree or direction in any reasonable manner which shall not materially
and adversely affect the rights of Buyer in the Purchased Contracts. The
Servicer will comply, in all material respects, with any obligation of a holder
of a Purchased Contract to the Obligor thereof arising under such Purchased
Contract or under applicable law.

(h) SECURITY INTEREST. Except for the transfers of Purchased
Contracts to the Buyer under the Master Contract Purchase Agreement and except
as provided in the Indenture, the Servicer will not sell, pledge, assign or
transfer to any other person, or grant, create, incur, assume or suffer to exist
any lien on any Purchased Contracts, or the books or records relating to any
Purchased Contracts, or any interest therein; the Servicer shall

<PAGE>

immediately notify Buyer of the existence of any lien on any Purchased
Contracts; the Servicer shall defend the right, title and interest of Buyer
in, to and under the Purchased Contracts, whether now existing or hereafter
transferred to Buyer, against all claims of third parties claiming through or
under the Servicer.

7. MAINTENANCE OF INTERNAL CONTROL AND PROCEDURES. Servicer shall, at
all times during the term of this Agreement, follow internal control procedures
consistent with loan servicing industry standards and, at the request of Buyer,
will supply same in written form for review purposes.

8. COMPUTER. Servicer shall, at all times during the term of this
Agreement, utilize in the operation of its business the industry standard
computer software and contract information maintenance system.

9. SERVICER EVENTS OF DEFAULT. The occurrence and continuation of any one
of the following events shall be a "Servicer Event of Default" under this
Agreement:

(a) Failure on the part of the Servicer to remit collections on the
Purchased Contracts to the Collections Account or the Buyer's operating account
when due in accordance with Section 6(a) and continuance of such failure for
five business days. For purposes of this Agreement, "business day" shall mean
any day other than a Saturday, Sunday or legal holiday; or

(b) An involuntary case is commenced or filed against the Servicer
under the federal bankruptcy laws, as now or hereafter in effect, or any other
present or future federal or state bankruptcy, insolvency or similar law, or for
the appointment of a receiver, liquidator, assignee, trustee, custodian,
sequestrator or other similar official of the Servicer or of any substantial
part of its property, or for the winding up of the affairs of, liquidation,
dissolution, or reorganization of the Servicer and the continuance of such case
or filing unstayed for a period of 30 consecutive days; or

(c) An order for relief shall be entered in a case under title 11 of
the United States Code in which the Servicer is a debtor, or the commencement by
the Servicer of a voluntary case under the federal bankruptcy laws, as now or
hereafter in effect, or any other present or future federal or state bankruptcy,
insolvency or similar law, or the consent by the Servicer to the appointment of
or taking possession by a receiver, liquidator, assignee, trustee, custodian,
sequestrator or other similar official of the Servicer or of any substantial
part of its property or the making by the Servicer of an assignment for the
benefit of creditors.

(d) Failure by Servicer to service and collect amounts

<PAGE>

due from Obligors under Purchased Contracts in accordance with the servicing
criteria described in EXHIBIT A attached hereto, and the continuance of such
failure for 30 days after written notice by Buyer of such failure.

10. REMEDIES. If a Servicer Event of Default shall have occurred and be
continuing, Buyer may, by notice given in writing to the Servicer, immediately
terminate all of the rights and obligations of the Servicer under this
Agreement. Notwithstanding any termination of the rights and obligations of the
Servicer, the Servicer shall remain responsible for any acts or omissions to act
by it as Servicer prior to such termination. In the event of such termination:

(a) Buyer is hereby authorized and empowered (upon the failure of the
Servicer to cooperate) to execute and deliver, on behalf of the Servicer as
attorney-in-fact or otherwise, all documents and other instruments upon the
failure of the Servicer to execute or deliver such documents or instruments, and
to do and accomplish all other acts or things necessary or appropriate to effect
the purposes of a transfer of servicing rights to a successor servicer;

(b) The Servicer agrees to cooperate with Buyer and any successor
servicer in effecting the termination of the responsibilities and rights of the
Servicer to conduct servicing hereunder, including, without limitation, the
transfer to such successor servicer of all authority of the Servicer to service
the Purchased Contracts provided for under this Agreement, including, without
limitation, all authority over all collections which shall on the date of
transfer be held by the Servicer for deposit or which shall thereafter be
received with respect to the Purchase Contracts; and

(c) The Servicer shall promptly transfer its records relating to the
Purchased Contracts to a successor servicer in such form as such successor
servicer may reasonably request and shall promptly transfer to such successor
servicer all other records, correspondence and documents necessary for the
continued servicing of the Purchased Contracts in the manner and at such times
as the successor servicer shall reasonably request. To the extent that
compliance with this Section shall require the Servicer to disclose to such
successor servicer information of any kind which the Servicer reasonably deems
to be confidential, such successor servicer shall be required to enter into such
customary licensing and confidentiality agreements as the Servicer shall deem
necessary to protect its interest.

11. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successor and
assigns. The Servicer may contract with others for the performance of any or
all of its obligations arising

<PAGE>

hereunder but no such contract shall relieve Servicer from liability for its
performance hereunder.

12. BUYER EVENT OF DEFAULT; SERVICER'S REMEDIES. In the event that Buyer
should fail to pay any fees or compensation due under this Agreement, within ten
(10) days of the date they are due or are submitted for payment, whichever is
less, or shall fail to perform any of its duties or to observe or perform any
other term, covenant, condition or agreement provided within this Agreement,
said failure shall constitute an event of default by the Buyer. In the event of
such default, Servicer shall have the option of immediately terminating this
Agreement by written notice to Buyer in addition to all remedies available in
equity or law.

13. MODIFICATIONS AND WAIVERS. No delay on the part of any party in
exercising any right, power or privilege hereunder shall operate as a waiver
thereof, nor shall any waiver of any right, power or privilege hereunder operate
as a waiver of any other right, power or privilege hereunder, nor shall any
single or partial exercise of any right, power or privilege hereunder preclude
any other or further exercise thereof, or the exercise of any other right, power
or privilege hereunder. All rights and remedies herein provided are cumulative
and are not exclusive of any rights or remedies which the parties hereto may
otherwise have at law or in equity. No waiver shall be valid in the absence of
the written and signed consent of the party against which enforcement of such is
sought.

14. NOTICE. Except as otherwise specifically provided herein, any notice
hereunder shall be in writing (including telecopy communication) and, if mailed,
shall be deemed to be given when sent by registered or certified mail, postage
prepaid or if telecopied when transmitted, or otherwise when delivered in person
to the addressee and a receipt given therefor, in all such instances addressed
to the respective parties as follows:

To Servicer: Sovereign Associates, Inc.
4015 Beltline Road
Building B
Dallas, Texas 75244
Attn: A. Starke Taylor, III, President

<PAGE>

To Buyer: Sovereign Credit Finance I, Inc.
4015 Beltline Road
Building B
Dallas, Texas 75244
Attn: A. Starke Taylor, III, President

or at such other address as the addressee may, by written notice received by the
other party hereto, designate as the appropriate address for purposes of notice
hereunder.

15. AMENDMENT. This Agreement may be amended, supplemented or modified
only with the written consent of each of the parties hereto.

16. CHOICE OF LAW. THIS AGREEMENT AND THE VALIDITY AND ENFORCEMENT
HEREOF, SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE SUBSTANTIVE
LAWS OF THE STATE OF TEXAS.

17. SEVERABILITY. If any provision of this Agreement is held to be
illegal, invalid or unenforceable under present or future laws effective during
the term of this Agreement, the legality, validity and enforceability of the
remaining provisions of this Agreement shall not be affected thereby, and in
lieu of each such illegal, invalid or unenforceable provision there shall be
added automatically as a part of this Agreement a provision as similar in terms
to such illegal, invalid or unenforceable provision as may be possible and be
legal, valid and enforceable.

18. ENTIRE AGREEMENT. This instrument embodies the entire agreement
between the parties relating to the subject matter hereof and supersedes all
prior agreement and understandings, if any, relating to the subject matter
hereof.

19. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which for all purposes is to be deemed an original.

20. SURVIVAL. All covenants, agreements, undertakings, indemnities,
representations and warranties made herein shall survive both the execution and
the termination hereof and shall not be affected by any investigation made by
any party.

<PAGE>

IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first hereinabove written.

BUYER:

SOVEREIGN CREDIT FINANCE I, INC

By:
----------------------------------
A. Starke Taylor, III,
President

SERVICER:

SOVEREIGN ASSOCIATES, INC.

By:
----------------------------------
A. Starke Taylor, III
President

<PAGE>

SERVICING AGREEMENT

EXHIBIT A

SERVICING CRITERIA

At all times during the term of the Servicing Agreement as set forth in
Section 2 therein, Servicer shall, in addition to its other duties under the
Servicing Agreement, observe the following covenants and criteria (referred to
as the "servicing criteria):

I. COLLECTION POLICY

1. All Obligors under related Contracts will be issued a preprinted
payment book or other\remittance advice or instructions which will specifically
request that all payments be made to the Buyer's Collections Account lockbox.

2. Servicer shall contact any Obligor on a past due Contract within ten
days after the payment due date for the purpose of pursuing collection and shall
adequately update all credit and collection file records with respect to such
activities.

3. Any material extensions or modifications of Contracts, or acceptances
of partial payments of Obligors, and any related necessary Contract amendments
and/or default waivers by Servicer, shall be approved by the chief credit
officer or president of Servicer, and all necessary third party charges and
explanations relating thereto shall be documented in the collection file
records.

II. FORECLOSURE/REPOSSESSION POLICY

1. Servicer shall define as delinquent and pursue repossession action,
subject to compliance with all state and federal laws relating thereto, against
the Financed Vehicle underlying any Contract whose Obligor (i) is three payments
past due in the case of Contracts requiring biweekly or semi-monthly payments,
and has failed for 30 days to remit any sums against payment obligations under
the respective Contract, or (ii) is two payments past due in the case of
Contracts requiring monthly payments, and has failed for 60 days to remit any
sums against payment obligations under the respective Contract. Nothing
contained in this Section shall be construed to limit Servicer from pursuing
repossession or any other collection technique, subject to related state and
federal laws, sooner than the time contemplated above if Servicer in its
discretion deems such activity to be prudent and in the best interests of
Servicer or Buyer.

A-1

<PAGE>

2. For each chargeoff of any material unpaid amount from an Obligor under
any Contract, Servicer shall document the reasons for such chargeoff and shall
maintain all third-party related documentation for such chargeoff.

A-2

<PAGE>

EXHIBIT 10.3

FORM OF SUBSCRIPTION ESCROW AGREEMENT BETWEEN
SOVEREIGN CREDIT FINANCE I, INC.
AND
RIVER OAKS TRUST COMPANY,
AS ESCROW AGENT

<PAGE>

FORM OF SUBSCRIPTION ESCROW AGREEMENT

THIS AGREEMENT made effective on _________, 1996 by and between Sovereign
Credit Finance I, Inc., a Texas corporation (the "Company") and River Oaks Trust
Company ("Agent").

WHEREAS, the Company is offering for subscription, up to $20,000,000 in
principal amount of its 11% Notes due October 15, 2000 (the "Notes") on the
terms and conditions set forth in the Prospectus (the "Prospectus") filed with
the Securities and Exchange Commission in connection with the Company's Form S-1
Registration Statement, File No. 333-4072; and

WHEREAS, the Company appoints the Agent to perform the services of
depository and escrow agent pursuant to the terms and conditions of this
Agreement with respect to subscriptions to the Company made by prospective
purchasers of the Notes (the "Investors");

NOW, THEREFORE, the parties hereto agree as follows:

1. Investor checks shall be delivered and made payable to Agent until the
earlier of (i) the date that Agent receives Investor checks aggregating at least
$500,000 (the "Minimum Subscription"), or (ii) March 31, 1997 (the "Subscription
Cut-off Date"). Participating Broker/Dealers shall transmit Investor checks and
subscription agreements to the Company by noon of the next business day
following receipt by the Broker/Dealer. The Company will then promptly forward
to Agent the Investor check together with a statement identifying such Investor
by name, address and Federal tax identification number, and Agent shall deposit
all subscription checks and other payments for the Notes by Investors which it
receives into an escrow account maintained by Agent (the "Escrow Fund").

2. The Company reserves the right to reject any subscription. The
Company shall promptly refund the subscription amount which has been rejected to
the Investor unless the subscription amount is on deposit with Agent, in which
case Agent, upon written direction of the Company, shall make such refund with
interest, if any, as soon as Agent has collected funds on such Investor's check.

3. Prior to the close of business on the Subscription Cut-Off Date, Agent
shall verify with the Company whether or not subscriptions for the Minimum
Subscription have been received.

4. If the Minimum Subscription has been received by Agent prior to the
close of business on the Subscription Cut-Off Date, the Company shall advise
Agent in writing that the subscription was successful. Agent shall then and
thereafter remit collected funds together with any interest earned thereon to
the Company at the

<PAGE>

Company's request and in the Company's sole discretion. Amounts received by
Agent in forms other than cash shall be available for transfer to the Company
or to the Investor, as the case may be, once Agent has collected funds.

5. If Agent has not received (i) Investor checks or other payments
evidencing the subscription of at least the Minimum Subscription prior to the
close of business on the Subscription Cut-Off Date, AND (ii) within a reasonable
time after the Subscription Cut-Off Date, written advice from the Company as
required by Paragraph 4 above concerning the success of the subscription, all
subscriptions and amounts paid in respect thereto shall be promptly returned to
the Investors together with any interest which has been earned thereon.

6. Agent shall have no authority or obligation to exercise discretion as
to the investment of the Escrow Fund, but will invest and reinvest the Escrow
Fund in short term debt obligations issued or guaranteed by, and bearing the
full faith and credit as to the repayment of full principal and interest of, the
United States of America, or will deposit the Escrow Fund in any time or savings
deposit of the Agent, not to exceed $100,000 at any one institution, of any
federally insured bank chartered and supervised by the United States of America
and holding FDIC (or its successor) insurance. It is understood that
subscription payments will not be invested or deposited until the later of (i)
three (3) business days after presentation of such payments to the Agent, or
(ii) the date that Agent has collected funds with respect thereto.

7. Agent shall be under no duty or responsibility to enforce collection
of any checks delivered to Agent hereunder. Agent shall promptly notify and
return to the Company any check or instrument received from the Company or
Investor upon which payment is refused, together with the related documents
which were delivered to Agent. If any check or instrument delivered to Agent
under this Agreement is uncollectible, Agent shall notify the Company and shall
deliver the returned check or instrument to the Company.

8. Agent shall provide all administrative and reporting services
contemplated by this Agreement to effect the purpose stated herein.

9. Agent is not a party to, nor is it bound by, any agreement out of
which this Agreement may arise including, but not limited to, the Prospectus.
Agent is not charged with notice of the existence of any agreement out of which
this Agreement may arise other than the Prospectus. Agent is not charged with
notice of the terms of the Prospectus (other than those recited herein).

10. The Agent may resign, for any reason, upon ten (10) days written
notice to the parties to this Agreement. Upon expiration of such ten (10) days
notice period (or as soon as practicable with

<PAGE>

respect to funds that are not collected funds at the expiration of such period),
the Agent shall deliver all cash or property in its possession under this
Agreement to any successor Agent appointed by the Company, or if no successor
Agent has been appointed, to any court of competent jurisdiction in Dallas
County, Texas. Upon either such delivery, Agent shall be released from any
and all liability under this Agreement.

11. Agent may act upon any notice, request, certificate, approval, consent
or other paper believed by it to be genuine and to be signed by the proper party
or parties. Agent shall not be required to take any action (or refrain from
taking any action) if, in the reasonable opinion of Agent, such action (or
inaction) could expose Agent to a risk of incurring costs, expenses or
liabilities against which Agent has not, in its reasonable opinion, received
adequate indemnity and security.

12. The Agent shall be entitled to compensation from the Company for
acting hereunder in accordance with the fee schedule attached as EXHIBIT A
hereto. Agent fees will be paid by the Company to the Agent in accordance with
the attached fee schedule. The Agent shall also be entitled to reimbursement of
out-of-pocket expenses incurred in connection with the performance of its
services as Agent, including reasonable fees and disbursements of legal counsel.
The Agent shall be entitled to payment of its fees and reimbursement of its
expenses out of the Escrow Fund and the rights of Investors and Company shall be
subordinate to the right of Agent to receive such payments hereunder in the
event that the funds in the Escrow Fund are insufficient to satisfy such
payments to the Agent.

13. Agent and its affiliates shall not be liable, responsible, or
accountable for damages or otherwise to the Company or any Broker/Dealer for any
act or omission under the provisions of this Agreement, unless such act or
omission constitutes gross negligence, willful misconduct, or fraud on behalf of
the Agent.

14. The Agent, its affiliates, and each of its officers, directors,
employees, agents and attorneys (collectively, the "Indemnified Parties") shall
be indemnified against and be held harmless by the Company from any and all
losses, costs, damages, expenses, claims and attorney's fees suffered or
incurred by the Indemnified Parties as a result of, in connection with or
arising from, or out of, but not limited to, the acts or omissions of any
Indemnified Party in performance of or pursuant to this Agreement, except such
acts or omissions as may result from such Indemnified Party's willful
misconduct, gross negligence or fraud.

15. The Agent shall not be responsible for the sufficiency or accuracy, or
the form, execution, validity or genuineness, of documents or securities now or
hereafter deposited or received hereunder, or of any endorsement thereon, or for
any lack of

<PAGE>

endorsement thereon, or for any description therein, nor shall it be
responsible or liable in any respect on account of the identity, authority or
rights of any person executing, depositing or delivering or purporting to
execute, deposit or deliver any such document, security or endorsement or
this Agreement, or on account of or by reason of forgeries, false
representations, or the exercise of its discretion in any particular manner,
nor shall the Agent be liable for any mistake of fact or of law or any error
of judgment, or for any act or omission, except as a result of its gross
negligence or willful malfeasance. The Agent's liability for any grossly
negligent performance or non-performance shall not exceed its fees and
charges in connection with the services provided hereunder. Under no
circumstances shall Agent be liable for any general or consequential damages
or damages caused, in whole or in part, by the action or inaction of the
Company or any of its agents or employees. Agent shall not be liable for any
damage, loss, liability or delay caused by accidents, strikes, fire, flood,
war, riot, equipment breakdown, electrical or mechanical failure, acts of God
or any cause which is reasonably unavailable or beyond its reasonable control.

16. In the event of any disagreement resulting in adverse claims or
demands being made in connection with the subject matter of this Agreement, or
in the event that the Agent is in doubt as to what action it should take
hereunder, the Agent may, at its option, refuse to comply with any claims or
demands on it, or refuse to take any other action hereunder so long as such
disagreement continues or such doubt exists, and in any such event, the Agent
shall not be or become liable in any way or to any person for its failure or
refusal to act, and the Agent shall be entitled to continue to refrain from
acting until (i) the rights of all parties have been fully and finally
adjudicated by a court of competent jurisdiction or (ii) all differences shall
have been adjudged and all doubt resolved by agreement among all of the
interested persons, and the Agent shall have been notified thereof in writing
signed by all such persons. In addition to the foregoing remedies, the Agent is
hereby authorized in the event of any doubt as to the course of action it should
take under this Agreement, to petition the District Court of Dallas County,
Texas, for instructions or to interplead the funds or assets so held into such
court. The parties agree to the jurisdiction of said court over their persons
as well as all amounts on deposit in the Escrow Fund.

17. Each party to this Agreement shall be deemed conclusively to have
given and delivered any notice, request or instruction required to be given or
delivered hereunder if the same is in writing, signed by such party and mailed
by first class mail, postage prepaid, addressed to the other party hereto, at
the address set forth below; provided, however, that the verification required
of Agent by Paragraph 3 above, shall be given orally (by telephone or in person)
by contacting the officer of the Company executing this Agreement on behalf of
the Company at (214) 960-

<PAGE>

0196, and then confirmed in writing if the Company so requests. Any written
notices required by this Agreement shall be addressed as follows:

If to Agent: River Oaks Trust Company
8080 N. Central Expressway
Dallas, Texas 75206

If to Company: Sovereign Credit Finance I, Inc.
4015 Beltline Road, Building B
Dallas, TX 75244
Attn: A. Starke Taylor, III, President

18. This Agreement expressly and exclusively sets forth the duties of
Agent with respect to any and all matters pertinent hereto and no implied duties
or obligations shall be read into this Agreement against Agent.

19. Unless and until the Escrow Fund is delivered to the Company under
Paragraph 4, it is specifically recognized and agreed that the Company shall not
have any right, title or interest in such funds; it being the intention of the
parties hereto that the Escrow Fund shall not be subject to claims against the
Company or any of its affiliates unless and until the Minimum Subscriptions are
achieved and delivery of the funds thereof is made, as aforesaid, and the escrow
account hereunder is ended.

20. THIS ESCROW AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF TEXAS, EXCEPT THAT THE PORTIONS OF THE TEXAS TRUST
CODE, SECTION 111.001, ET SEQ. OF THE PROPERTY CODE, V.A.T.S. CONCERNING
FIDUCIARY DUTIES AND LIABILITIES OF TRUSTEE SHALL NOT APPLY TO THIS AGREEMENT.
THE PARTIES EXPRESSLY WAIVE SUCH DUTIES AND LIABILITIES, IT BEING THEIR INTENT
TO CREATE SOLELY AN AGENCY RELATIONSHIP AND HOLD AGENT LIABLE ONLY IN THE EVENT
OF ITS GROSS NEGLIGENCE, WILLFUL MISCONDUCT OR IN ORDER TO OBTAIN THE LOWER FEE
SCHEDULE RATES AS SPECIFICALLY NEGOTIATED WITH AGENT. ANY LITIGATION CONCERNING
THE SUBJECT MATTER OF THIS AGREEMENT SHALL BE EXCLUSIVELY PROSECUTED IN THE
COURTS OF DALLAS COUNTY, TEXAS, AND ALL PARTIES CONSENT TO THE EXCLUSIVE
JURISDICTION AND VENUE OF THOSE COURTS. This Agreement shall inure to and be
binding upon the parties hereto, their successors and assigns. The terms of
this Agreement shall commence with the date hereof and shall continue until the
offering of the Minimum Subscriptions is achieved or fails to be achieved by the
Subscription Cut-Off Date, and the Escrow Fund is disposed of under Paragraphs 4
or 5. All protections and indemnities benefitting Agent (and any other
Indemnified Party) are cumulative of any other rights it (or they) may have by
law or otherwise, and shall survive the termination of this Agreement or the
resignation or removal of the Agent.

<PAGE>

21. Except as otherwise required by law, neither Agent nor any successor
Agent shall be required to obtain or post a bond or any other security in
connection with the performance of its services hereunder.

22. No amendment to this Agreement shall be binding unless such amendment
is in writing and signed by the Agent or any successor Agent and the Company.

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered by duly authorized representatives as of the date
first above written.

COMPANY:

SOVEREIGN CREDIT FINANCE I, INC.

By:
-----------------------------------
A. Starke Taylor, III, President

AGENT:

RIVER OAKS TRUST COMPANY

By:
----------------------------------
Name:
----------------------------------
Title:
----------------------------------

<PAGE>

EXHIBIT A

FEE SCHEDULE

ACCEPTANCE FEE. All legal instruments will be reviewed by counsel for the
River Oaks Trust Company prior to account acceptance. All legal expenses
incurred in this review and during the period of escrow will be borne by the
parties in interest.

SUBSCRIPTION ESCROW. Receiving deposits from two or more investors or
subscribers, providing investor recordkeeping, investment of funds as directed,
and disbursement of funds on initial closing; there is a $5,000 minimum per year
or for any portion of a year.

Up to $10,000,000 in aggregate deposits .060%
Next $20,000,000 in aggregate deposits .040%
Next $20,000,000 in aggregate deposits .010%
Next $20,000,000 in aggregate deposits .009%
Balance of deposits .006%

Minimum annual fee: $5,000 for any portion of the year

IN CASE OF RETURN OF SUBSCRIPTION FUNDS TO INVESTORS:

Allocation of interest, disbursements, 1099
reporting relating to return of
subscription funds $7 per participant

NOTE: This fee structure is limited to 500 participants; an additional
charge of $1.00 per participant will apply if the aggregate
escrow exceeds 500 participants.

TRANSACTION CHARGES. Normal transactions including book entries, cash
receipts and disbursements, and wire transfers will be done at no charge.
Foreign securities will be assessed transaction fees as incurred.

INSTALLATION CHARGES. Software installation in connection with on-line
services will be done for an initial set up fee of $250.00 and will include four
hours of user training. Installation and training at Company's offices will be
billed based on an hourly rate of $35 per hour.

ON-LINE ACCESS CHARGES. For accounts with on-line access capability, a time
usage fee will be assessed at the per minute rate currently in effect.

EXTRAORDINARY SERVICES AND OUT-OF-POCKET EXPENSES. For services which cannot
be presently anticipated but which may be necessary or desirable, a reasonable
fee will be charged based on nature of the work, time involved, and
responsibility involved.

<PAGE>

EXHIBIT 10.6

FORM OF PROMISSORY NOTE OF
SOVEREIGN CREDIT CORPORATION

<PAGE>

PROMISSORY NOTE

$250,000.00 Dallas, Texas , 1996
-------------

AS HEREINAFTER STATED, for value received, the undersigned, as Maker,
hereby promises to pay on demand to Sovereign Credit Finance I, Inc., as Holder,
at 4015 Beltline Road, Building B, Dallas, Texas 75244, or such other place in
the State of Texas as Holder may hereafter designate in writing, the entire
principal sum of $250,000.00, together with interest at the rate of 10% per
annum.

If at any time fulfillment of any provision hereof shall involve
transcending the limit of validity prescribed by law, then IPSO FACTO, the
obligation to be fulfilled shall be reduced to the limit of such validity and if
the Holder shall ever receive as interest or otherwise an amount which would
exceed the highest lawful rate, any excessive amount shall be used to reduce the
principal.

If this Note is placed in an attorney's hands for collection, or collected
by a suit or through a bankruptcy, or probate, or any other court or proceeding,
either before or after maturity, then in any of said events, the Holder hereof
shall have the right to recover all attorney's fees, litigation expenses, and
collection costs, necessary to recover the sums owed hereunder.

The Maker of this Note waives all demand, presentment, notice of dishonor,
diligence in collection, notice of protest, and notice of acceleration, and
agrees to all extensions and partial payments before or after maturity without
prejudice to Holder.

No delay or omission on the part of the holder in exercising any right
under this Note shall operate as a waiver of such right or of any other right
under this Note. A waiver on any one occasion shall not be construed as a bar
to or waiver of any right or remedy on any future occasion.

"Maker":

SOVEREIGN CREDIT CORPORATION

By:
---------------------------------
A. Starke Taylor, III, President

<PAGE>

EXHIBIT 23.1

CONSENT OF KINDER & WYMAN, P.C.

<PAGE>

CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

We consent to the inclusion in this amended registration statement on Form S-1
of our report dated October 7, 1996, on our audit of the financial statements of
Sovereign Credit Finance I, Inc. We also consent to the reference to our firm
in the prospectus.

/s/ KINDER & WYMAN, P.C.
------------------------
KINDER & WYMAN, P.C.

Irving, Texas
November 25, 1996