SOVEREIGN CREDIT FINANCE I INC, S-1/A, 1996-10-09

SOVEREIGN CREDIT FINANCE I INC
S-1/A, 1996-10-09
SHORT-TERM BUSINESS CREDIT INSTITUTIONS

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As filed with the Securities and Exchange Commission on October 9, 1996

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

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

AMENDMENT NO. 1
-----------------
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.)

4015 BELTLINE ROAD A. STARKE TAYLOR, III
BUILDING B 4015 BELTLINE ROAD
DALLAS, TEXAS 75244 BUILDING B
(214) 960-0196 DALLAS, TEXAS 75244
(Address, including zip code, and (972) 960-5500
telephone number, including area (Name, address, including zip code,
code, of registrant's principal and telephone number, including area
executive offices) code, of agent for service)

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>

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<S> <C> <C> <C> <C>
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
- ----------------------------------------------------------------------------------------
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.
- -------------------------------------------------------------------------------

<PAGE>

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 October 9, 1996

INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF
ANY SUCH STATE.

<PAGE>

$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 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 only significant assets will be the Contracts.
No other party will insure or guarantee payment of the Notes. Noteholders
may look only to the Contracts and related motor vehicle collateral 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.

- -------------------------------------------------------------------------------
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
- -------------------------------------------------------------------------------
(1) Payable by the Company to participating licensed broker-dealers. See
"Plan of Distribution".
(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

<PAGE>

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 December 31, 1996, 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.
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.

2
<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

<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"). 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. Investor
AMOUNT 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 day of
NOTEHOLDERS 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 November,
1996, such investor will receive the first interest payment
on January 15, 1997, which will be for interest accruing
through December 31, 1996.

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 lower than
YIELD their stated interest rates because each payment of interest
will be paid 15 days after the end of the month during which
it accrued.

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 pursue
BORROWING 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
Contracts that may be granted to any Additional Lender.
Such first priority of the Additional Lender in the
Contracts will result in

<PAGE>

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 the Notes specified retail
installment sales contracts and promissory notes. These
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
PROCEEDS directly by the obligors on the Contracts
("Obligors"), or deposited by SAI, to a lockbox account
maintained by SAI (the "Master Collections Account"). On at
least a weekly basis, SAI is required to transfer all
amounts in the Master 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 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

<PAGE>

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
ACCOUNT transfer 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 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

<PAGE>

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, at a cost to the
Company for each Contract equal to the Purchase
Administration Fee plus an amount determined so that the
Company'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 (such investment being the amount paid to the dealer
by the purchaser), assuming in both cases that the Contract
was paid in full in accordance with its scheduled
installments. 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. See "Purchase and
Collection of Contracts".

REDEMPTION The Company may elect on any Payment Date to redeem the
OF NOTES 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

<PAGE>

Notes within 45 days following such date.
See "Description of the Notes--Redemption".

GUARANTY BY Sovereign Credit Corporation, a wholly-owned subsidiary of
SOVEREIGN Sovereign Credit Holdings, Inc., the parent of the Company,
has executed a Guaranty Agreement in favor of the Trustee,
pursuant to which Sovereign Credit Corporation guarantees
payment of up to $250,000 of the principal of the Notes when
due.

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, 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.

<PAGE>

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.
See "Certain Federal income Tax Considerations". A
subsequent purchaser of an outstanding Note may have to
recognize as ordinary income (rather than as capital gain)
any "market discount" on the Note upon its resale by the
purchaser. Market discount for a Note generally means the
excess of its face amount over the subsequent purchaser's
tax basis in such Note. However, if a subsequent purchaser
of an outstanding Note has a tax basis in the Note that
exceeds the face amount of the Note, such purchaser may
elect to deduct such excess over the term of the Note. The
Company has obtained an opinion of counsel as to the tax
status of the Notes. See "Certain Federal Income Tax
Considerations--Market Discount", and "--Amortizable Bond
Premium".

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 this Prospectus. See "Use of
Proceeds".

DENOMINATIONS The Notes will be issued in fully registered form,

<PAGE>

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.

* 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.

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

12
<PAGE>

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 December 31, 1996, 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. 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.
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.

UNSECURED NATURE OF NOTES

The Notes are unsecured obligations of the Company. Upon the

13
<PAGE>

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.

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.

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

<PAGE>

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.

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 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

<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.

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.

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

<PAGE>

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--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

<PAGE>

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."

COMMINGLING OF COLLECTION PROCEEDS. All installments and other proceeds
from the Contracts will be initially deposited in a lockbox account
maintained by SAI and commingled with the collection proceeds from other
retail installment contracts and notes serviced by SAI. If this commingling
should continue as to specific contract proceeds, the risk exists that the
proceeds from Contracts owned by the Company may be subject to claims of
creditors of SAI, which could adversely affect Noteholders. See "Description
of the Notes--The Contract Proceeds and Operating Account".

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

<PAGE>

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.

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.

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. The terms of the Servicing Agreement were not
negotiated at arm's length but were determined unilaterally by the management
of SAI.

LACK OF DAMAGE INSURANCE

The owners of the Financed Vehicles may fail to maintain physical damage
insurance. As a consequence, in the event any

<PAGE>

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 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 equalling 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".

<PAGE>

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 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 EQUIT $ 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. 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".

<PAGE>

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 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

<PAGE>

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. 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 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

<PAGE>

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 Master Collections
Account maintained by SAI for all of the various motor vehicle retail
installment contracts and notes that it services (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 Master
Collections Account. SAI has agreed to deposit all installments and other
proceeds, including proceeds from sales of repossessed vehicles, into the
Master Collections Account. The Indenture requires SAI to transfer to the
Company's Operating Account all amounts in the Master Collections Account
attributable to the Contracts on at least a weekly basis. (Indenture,
Section 12.2) Because the Master Collections Account will contain proceeds
from other motor vehicle retail installment contracts and notes serviced by
SAI and that are not owned by the Company, SAI will provide a monthly
accounting of the proceeds deposited in this account, by Contract, to the
Trustee. (Indenture, Section 12.10) See "Risk Factors--Certain Legal
Matters Relating to the Contracts--Commingling of Collection Proceeds".

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,

<PAGE>

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 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.

GUARANTY BY SOVEREIGN

<PAGE>

Sovereign Credit Corporation ("Sovereign"), a wholly-owned subsidiary of
Sovereign Credit Holdings, Inc., the parent of the Company, has executed a
Guaranty Agreement in favor of the Trustee, pursuant to which Sovereign
Credit Corporation guarantees payment of up to $250,000 of the principal of
the Notes when due. As of June 30, 1996, Sovereign had, on a consolidated,
unaudited basis, $152,684 in cash, total assets of $844,656, total
liabilities of $249,600, and stockholders' equity of $595,056.

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 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 master lockbox account (the "Master Collections
Account") in the name of SAI and for the benefit of SAI, the Company and
other entities for which SAI services motor vehicle retail installment
contracts and notes. The collection proceeds from the Contracts (including
all portions thereof deemed to be principal or interest for tax or financial
accounting purposes) and other motor vehicle retail installment contracts and
notes serviced by SAI will be commingled in the Master Collections Account;
however, such funds will be accounted for by SAI to the Trustee and the
Company separately using code numbers assigned to individual contracts and
notes and separate entities to ensure proper tracing of funds.

All payments made on or with respect to the Contracts will be deposited
in the Master Collections Account. The Master 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

<PAGE>

the financial institution as agent for SAI. All Obligors will be requested,
through correspondence and delivery of payment books, to remit payments under
their Contracts directly to the Master Collections Account. SAI has also
agreed to deposit in the Master 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 Master 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)

SAI, as a party to the Indenture, has acknowledged that any collections
or other proceeds from the Contracts in the Master Collections Account, or
otherwise in its possession or control, are the Company's property. In
holding such collections and proceeds, SAI has agreed to act as custodian and
bailee of the Company and the Additional Lender, if any. (Indenture, Section
12.3) See "Risk Factors--Certain Legal Matters Relating to the
Contracts--Commingling of Collection Proceeds".

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, 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

<PAGE>

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 a
share of such charges and fees incurred by SAI for the Master Collections
Account), expenses of repossessing, repairing and liquidating motor vehicle
collateral (as to each vehicle, not to exceed the liquidation 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".

SUMMARY OF ESTIMATED ALLOWED EXPENSES

ALLOWED EXPENSES ESTIMATED AMOUNT
- ---------------- ----------------
Servicing Fees $20 per month per Contract not assigned for
Contract Servicing Fee repossession, paid to

<PAGE>

SAI
Purchase Administration the lesser of $500 per Contract purchased, or
Fee 5% of the total amount of installments due
under the Contract as of the date of purchase,
paid monthly to SAI

Investor Administration 1/12th of 0.5% of the aggregate outstanding
Fee 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
Master Collections Account $3,000 to $4,000 (varies with 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

<PAGE>

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

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
generally 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.

The following chart illustrates the flow of Contract proceeds from the
Obligors through the Master 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>
<S> <C> <C> <C> <C> <C> <C>
MASTER
INSTALLMENTS COLLECTIONS WEEKLY OPERATING MONTHLY
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

<PAGE>

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 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

<PAGE>

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 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

<PAGE>

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 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

<PAGE>

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 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.

<PAGE>

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.

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

<PAGE>

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, 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, 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

<PAGE>

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.

LITIGATION

SAI, A. Starke Taylor, III, and certain Securitization Subsidiaries are
parties to a lawsuit styled SOVEREIGN ASSOCIATES, INC. ET AL VS. DANNY A.
HERMAN ET AL, Case No. 94-9865-F, in the 116th District Court of Dallas
County, Texas. The lawsuit was originally filed by SAI against its former
purchasing agent, Danny A. Herman, for breach of contract. Mr. Herman has
filed a counterclaim against SAI and a third party action against Mr. Taylor
and the Securitization Subsidiaries alleging usury, intentional infliction of
emotional distress, breach of employment contract, and wrongful termination,
pursuant to which Mr. Herman requests actual damages against Mr. Taylor in
the amount of $3,000,000 and punitive damages in the amount of $6,000,000,
against Mr. Taylor and SAI in the amount of $4,011,900, and against Mr.
Taylor, SAI and the Securitization Subsidiaries each for $192,000. SAI, Mr.
Taylor and the Securitization Subsidiaries believe that the counterclaims and
third party claims are without merit, and intend to vigorously defend
themselves. In addition, SAI intends to vigorously pursue its original
claims against Mr. Herman.

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,

<PAGE>

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 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

<PAGE>

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 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. Generally, 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. With respect
to the credit information to be

<PAGE>

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 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, 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

<PAGE>

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)

The Servicer is obligated to instruct all Obligors under the Contracts
to make all payments to the Servicer's Master 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

<PAGE>

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 Master 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 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

<PAGE>

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 Company's pro rata share of the lockbox fees,
account fees and bank service charges relating to the Master Collections
Account, based on the relative amounts of funds attributable to the Contracts
as compared to the funds attributable to all other motor vehicle retail
installment contracts serviced by the Servicer. See "Description of the
Notes--The Contract Proceeds and Operating 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,

43
<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) 2,261 57.2% $15,035,606 58.1%
31 - 60 (2) 644 16.3% $ 4,171,001 16.1%
61 - 90 (2) 341 8.6% $ 2,184,974 8.4%
over 91 (3) 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>
<CAPTION>
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)

47
<PAGE>

(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.

48
<PAGE>

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth information, as of October 4, 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: Sovereign
and SAI

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

<PAGE>

significantly from those of the Company. Many of these 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,

<PAGE>

Mr. Glass left Cornerstone and became a Vice President of 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 Sovereign and 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 sates. 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, Sovereign and 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.

<PAGE>

Frattaroli is married to the daughter of A. Starke Taylor, III and has one
child.

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

<PAGE>

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.

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

<PAGE>
seller by the Company from the price paid by such seller to the Dealer.

SAI will temporarily possess the proceeds from the Contracts in its
Master Collections Account. The Allowed Expenses payable by the Company will
include a pro rata share of the lockbox fees, account fees and bank service
charges relating to the Master Collections Account, based on the relative
amounts of funds therein attributable to the Contracts as compared to any
other motor vehicle retail installment contracts and notes serviced by SAI.

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

<PAGE>

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 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.

<PAGE>

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 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.

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.

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.

<PAGE>

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 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.

<PAGE>

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 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

<PAGE>

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 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

<PAGE>

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 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

<PAGE>

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
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 CONSIDERATIONSS COPE 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
prepared by Frederick C. Summers, III, a Professional Corporation, counsel to
the Company. Such counsel has rendered an opinion on all material tax
consequences of an investment in the Notes. 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 Internal Revenue Code of 1986, as amended (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 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.

<PAGE>

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.

DISPOSITION

In general, upon the sale, redemption or other disposition of a Note,
the holder will recognize (i) ordinary interest income to the extent of any
interest that has accrued while the holder held the Note but has not yet been
taken into income by the holder and (ii) gain or loss equal to the difference
between the amount realized from such disposition (exclusive of any amounts
treated as ordinary interest income under clause (i)) and the holder's tax
basis in the Note. Except as provided under "Market Discount" below, the
gain or loss described in clause (ii) of the preceding sentence will be
capital gain or loss, if held for investment, and will be long term if the
Note was held for more than one year.

MARKET DISCOUNT

If an investor purchases a Note after its issuance, there will be a
market discount equal to the excess, if any, of the stated redemption price
at maturity of the Note over the holder's tax basis in the Note at the time
of acquisition, unless such excess qualifies for a DE MINIMUS exception.
Under the market discount rules, any gain recognized by a holder upon the
sale or other disposition of a Note with market discount will be taxable as
ordinary interest income to the extent of the portion of the market

<PAGE>

discount that accrued on a straight-line basis (or, at the election of the
holder, on a constant yield to maturity basis) while the holder held the
Note. Market discount income may be recognized on a gift of a Note as if the
Note had been sold for its fair market value. A holder of a Note with market
discount may be required to defer deductions for a portion of such holder's
interest expense on any indebtedness incurred or maintained to purchase or
carry the Note.

AMORTIZABLE BOND PREMIUM

If a holder purchases a Note after its issuance and the holder's tax
basis in the Note as of the date of purchase exceeds the face amount of the
Note, the holder may be entitled to elect to treat such excess as bond
premium. The holder of a Note having bond premium will be entitled to
amortize such premium over the term of the Note in accordance with a constant
yield to maturity method that takes into account the compounding of interest.
An election to amortize bond premium applies to all debt obligations acquired
by the taxpayer in the taxable year of the election and all subsequent years,
unless revoked with the consent of the Service. The amount of amortizable
bond premium with respect to a Note generally will be treated as a reduction
in the holder's interest income on the Note, reducing the holder's tax basis
in the Note.

BACKUP WITHHOLDING

A holder of a Note may be subject to backup withholding of federal
income tax at the rate of 31% on interest paid with respect to the Note and
on the proceeds of a sale or redemption of the Note. Backup withholding will
not apply, however, if the holder (i) provides a taxpayer identification
number under penalty of perjury and otherwise complies with the requirements
of the backup withholding rules, or (ii) is an exempt recipient and
demonstrates his qualifications, as requested by the Company, for such
exemption.

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

<PAGE>

Company will indemnify the broker-dealers against certain 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 December 31, 1996 (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.

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 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

<PAGE>

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".

67
<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. . . . . . . . . . . . . . . . . . . 35
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 . . . . . . . . . . . . . . 65
Experts. . . . . . . . . . . . . . . . . . . . . 67
Legal Matters. . . . . . . . . . . . . . . . . . 67
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.*

II-1

<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 Guaranty Agreement

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

II-2

<PAGE>

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 indemnification against such liabilities (other than the payment by

II-3

<PAGE>

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.

II-4

<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 October 7, 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
--------- ----- ----

President,
(principal execu-
tive officer)
/s/ A. STARKE TAYLOR, III and
- ----------------------------- director October 7, 1996
A. Starke Taylor, III

/s/ WILLIAM P. GLASS director October 7, 1996
- -----------------------------
William P. Glass

/s/ CHRISTOPHER R. FRATTAROLI Treasurer October 7, 1996
- ----------------------------- (principal financial
Christopher R. Frattaroli officer and principal
accounting officer) and
director

II-5
<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 Guaranty Agreement

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

ii
<PAGE>
PAGE
HEADING NUMBER
- ------- ------

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

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

iv
<PAGE>
PAGE
HEADING NUMBER
- ------- ------

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 4547 Lake Shore Drive, 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 Master 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.

"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 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)).

3
<PAGE>

"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
$20,000,000, (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 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;

4
<PAGE>

(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 Master 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 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

<PAGE>

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 Master 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 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

<PAGE>

more than 50% of the aggregate principal amount of Notes which are then
Outstanding Notes.

"Master Collections Account" means the lockbox account created and
maintained by the Servicer and designated as such pursuant to Section 12.2.

"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).

9
<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.

10
<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 Unites 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.

11
<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

12
<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"),

13
<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

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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.

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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.

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<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 Master
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 Master Collections Account.

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The Company shall likewise deposit or cause to be deposited in the Master
Collections Account within two Business Days of receipt all Liquidation
Proceeds and Insurance Proceeds. 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 Master
Collections Account that are attributable to the Contracts.

(c) The Company shall cause the Servicer to maintain detailed accounting
books and records adequate to determine the respective share of the funds
(including all income earned thereon as determined by any allocation method
deemed reasonable by the Servicer) deposited or contained in the Master
Collections Account attributable to each motor vehicle retail installment
contract (or other obligation), including each Contract, serviced by the
Servicer.

(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);

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<PAGE>

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.

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
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

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<PAGE>

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 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

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<PAGE>

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.

(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

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<PAGE>

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

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

<PAGE>

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 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

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<PAGE>

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 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

<PAGE>

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.

Section 5.6 Compliance Certificates.

(a) Commencing with fiscal year ending December 31, 1996, 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 need not comply with Section 11.4.

(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, 1996, the Company
shall file with the Trustee copies of any annual reports

29
<PAGE>

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 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.

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<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,
1996, 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.

41
<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
4547 Lake Shore Drive
Waco, Texas 76710
Attn: 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.

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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 Master Collections Account.

(a) The Servicer shall maintain, in its name, at a depository
institution (which may be the Trustee), a lock box account (the "Master
Collections Account"). The Master Collections Account shall be an Eligible
Account. The Company, the Trustee and each Holder acknowledges that the
proceeds from the Contracts deposited into the Master Collections Account may
be commingled with the proceeds of other motor vehicle retail installment
contracts and obligations serviced by the Servicer. The Servicer shall give
the Trustee and the Company at least five Business Days' written notice of
any change in the location of the Master 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 Master 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 Master
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 Master Collections Account. The Servicer
shall likewise deposit in the Master 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 Master Collections Account that are attributable to
the Contracts.

(c) The Servicer shall maintain detailed accounting books and records
adequate to determine the respective shares of the funds deposited to the
Master Collections Account (and any income earned thereon as determined by
any allocation method deemed reasonable by the Servicer) attributable to each
motor vehicle retail installment contract or obligation, including each
Contract, serviced by the Servicer.

Section 12.3 Servicer Acting as Custodian.

The Servicer acknowledges that any collections or proceeds from the
Contracts in the Master 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.

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<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

54
<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

55
<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

56
<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 Master Collections Account;

(b) A confirmation that all funds that were deposited into the Master
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

57
<PAGE>

during such Collection Period and deposited in the Master Collections 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

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enter into and perform its obligations under this Indenture.

(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

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substantially all the assets of the Servicer as an entirety is an entity
organized and existing under the laws of the United States 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

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Agreement and this Indenture.

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.

61
<PAGE>

(e) Each dealer from whom the Contract is purchased shall be required to
represent and warrant that each Contract and the sale 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.

62
<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 Master 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

63
<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.

64
<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.

65
<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

66
<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

67
<PAGE>

THE STATE OF TEXAS )
)
COUNTY OF MCLENNAN )

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 )
)
COUNTY OF DALLAS )

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:_____________

68
<PAGE>

THE STATE OF TEXAS )
)
COUNTY OF DALLAS )

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 )
)
COUNTY OF DALLAS )

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:_____________

69
<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 Master Collections
Account;

2. All funds that were deposited into the Master 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 Master
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)

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: $
-----

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 5.1

OPINION OF FREDERICK C. SUMMERS, III
A PROFESSIONAL CORPORATION

<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

October 7, 1996

Sovereign Credit Finance I, Inc.
4015 Beltline Road, Building B
Dallas, Texas 75244

Re: 11% Notes Due October 15, 2000

Gentlemen:

We refer to the Form S-l Registration Statement of Sovereign Credit
Finance I, Inc., a Texas corporation (the "Company"), filed with the
Securities and Exchange Commission under file number 333-4072 for the purpose
of registering under the Securities Act of 1933, as amended, the Company's
11% Notes Due October 15, 2000 in the aggregate principal amount of
$20,000,000 (the "Notes"), the Prospectus contained therein (the
"Prospectus"), and the form of Indenture (the "Indenture") relating to the
Notes attached as Exhibit 4.1 to the Registration Statement.

We have examined copies, certified or otherwise identified to our
satisfaction, of the Articles of Incorporation and Bylaws of the Company, as
amended to date, and minutes of applicable meetings of the shareholders and
the Board of Directors of the Company, together with such other corporate
records and certificates of public officials and of officers of the Company
as we have deemed relevant for the purposes of this opinion. Based upon the
foregoing, and having regard to the legal considerations which we deem
relevant, it is our opinion that:

1. The Company has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the State of Texas.

2. Upon issuance of the Notes in accordance with the provisions of the
Indenture and for the consideration and in the manner set forth in
the Prospectus, the Notes will be legally issued and binding
obligations of the Company.

<PAGE>

We hereby consent to the reference to us under the caption "Legal
Matters" in the Prospectus which constitutes a part of the Registration
Statement referred to above. We also consent to the inclusion in the
Registration Statement of this opinion as Exhibit 5.1 thereto.

Very truly yours,

FREDERICK C. SUMMERS, III
A PROFESSIONAL CORPORATION

By: /S/ FREDERICK C. SUMMERS, III
--------------------------------
Frederick C. Summers, III

<PAGE>

EXHIBIT 10.1

FORM OF MASTER CONTRACT PURCHASE AGREEMENT BETWEEN SOVEREIGN
ASSOCIATES, fINC. AND SOVEREIGN CREDIT FINANCE I, INC.

<PAGE>
MASTER CONTRACT PURCHASE AGREEMENT

This Master Contract Purchase Agreement (this "Agreement") effective
as of this _____ day of _________, 1996, is entered into by and between
Sovereign Associates, Inc, a Texas corporation ("Purchasing Agent"), and
Sovereign Credit Finance I, Inc., a Texas corporation ("Buyer").

BACKGROUND STATEMENT

This Agreement, under which from time to time Purchasing Agent will
purchase on behalf of Buyer, and Buyer will agree to buy, retail installment
contracts and other installment obligations issued for the purchase of used
motor vehicles and liens on such vehicles securing the obligations, shall
govern the purchase and transfer of the obligations for the benefit of Buyer
and the servicing and other incidents thereof, and each shall be subject to
the warranties, representations and agreements herein.

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 Purchasing Agent agree as follows:

1. DEFINITIONS. Unless the contract requires otherwise, the following
terms shall for all purposes of this Agreement have the meanings hereinafter
specified:

(a) "Certificate of Title" shall mean a certificate of title under
the Certificate of Title Act, as amended (Article 6687-1, Vernon's Texas
Civil Statutes), or a certificate of title under a statute of another
jurisdiction under the law of which indication of a security interest on the
certificate is required as a condition of perfection.

(b) "Dealer" shall mean the Purchasing Agent-approved dealer who
sold a Financed Vehicle and who originated, sold and assigned the related
Contract to the Purchasing Agent or the Buyer.

(c) "Financed Vehicle" shall mean an automobile or light truck,
together with all accessories thereto, securing an Obligor's obligations
under the related Contract.

(d) "Contract" shall mean a valid and enforceable motor vehicle
retail installment contract or other evidence of an installment obligation of
an Obligor which is secured by a lien on a Financed Vehicle.

(e) "Obligor" shall mean the purchaser or co-purchasers of the
Financed Vehicle or any other person who owes payments under the Contract.

<PAGE>

(f) "Purchased Contracts" shall mean all Qualified Contracts
purchased by Buyer from or through the Purchasing Agent in accordance with
the terms and conditions of this Agreement, including those within a
Purchased Contract Pool.

(g) "Purchased Contract Pool" shall mean all Qualified Contract
Pools which Buyer determines to purchase from Dealers through the Purchasing
Agent in accordance with the terms and conditions of this Agreement.

(h) "Contract Documents" shall mean all documents and proof of
delivery evidencing and relating to the Qualified Contracts as Buyer may
reasonably request.

(i) "Qualified Contract" and "Qualified Contract Pools" shall mean
Contracts that mean the purchasing criteria set forth on EXHIBIT A attached
hereto.

(j) "Servicing Agreement" shall mean the Servicing Agreement duly
executed by Purchasing Agent and Buyer and dated of even date herewith.

(k) "Sovereign" shall mean, collectively, Sovereign Credit
Holdings, Inc., a Texas corporation, and its wholly owned subsidiary,
Sovereign Credit Corporation, a Texas corporation, of which the Purchasing
Agent is a wholly-owned subsidiary.

(l) "Credit Enhancements" shall mean any arrangements that are
intended generally to improve the collection rates on the Purchased Contracts
including, without limitation, any vehicle value insurance or warranty repair
service contracts that may be purchased.

2. PROCEDURE FOR PURCHASE. At any time and from time to time until the
termination of this Agreement, the Buyer may request the Purchasing Agent (i)
to solicit from Dealers offers to sell to Buyer Qualified Contracts and
Qualified Contract Pools, or (ii) to offer to sell to Buyer Qualified
Contract and Qualified Contract Pools, from the portfolio of Contracts owned
by Purchasing Agent, which portfolio may include Contracts purchased by
Purchasing Agent from affiliates of Sovereign. Purchasing Agent shall be
obligated to use reasonable efforts to solicit from Dealers offers to sell to
Buyer Qualified Contracts and Qualified Contract Pools as soon as practicable
following any such request by the Company. In addition, in deciding whether
to offer to sell Qualified Contracts to the Buyer or any other purchaser who
is affiliated or not affiliated with the Purchasing Agent and for whom
Purchasing Agent is also purchasing Contracts, the Purchasing Agent shall
select such Contracts from the Qualified Contracts that are or become
available for purchase, such selection to be based upon the respective
periods of time the purchasing entities have been in existence, the cost of
the available Contracts, the amount of their

<PAGE>

unexpended funds and the need to diversify their holdings; provided, however,
that Purchasing Agent shall give priority to purchases on behalf of the
limited purpose, securitization subsidiaries of Sovereign (whether of
Sovereign Credit Corporation or its parent, Sovereign Credit Holdings, Inc.),
including Buyer, over purchases on behalf of Sovereign or Purchasing Agent.
Purchasing Agent reserves the right to offer to sell Qualified Contract Pools
to the parties for which it purchases Contracts on any other basis that it
deems to be equitable. The Buyer shall be obligated to purchase from Dealers
through the Purchasing Agent or from the Purchasing Agent or Sovereign
affiliates any Contracts properly offered for sale to it, in accordance with
the terms of this Agreement, up to a maximum aggregate Purchase Price that
may be specified by the Buyer in its request, if such Contracts constitute
Qualified Contracts and/or Qualified Contract Pools.

Payment of the purchase price by Buyer shall be made at the time of the
sale to Buyer from Purchasing Agent or Dealer or the purchase by Purchasing
Agent on Buyer's behalf of each Purchased Contract. At all times during the
term of this Agreement, Buyer shall retain the right to audit any or all
Purchased Contracts and/or Purchased Contract Pools for adherence to the
terms and conditions of this Agreement. Purchasing Agent shall cooperate in
all material respects with the audit of such Purchased Contracts and/or
Purchased Contract Pools. Buyer shall reimburse Purchasing Agent for all
third-party audit costs related hereto. Buyer shall at all times have the
right to sell to Purchasing Agent, and receive a repurchase price equal to
the product of remaining unpaid installments on the Contract, times the ratio
of the Buyer's original Purchase Price to the aggregate unpaid installments
on the date of Buyer's original purchase, any and all Purchased Contracts
that are sold to Buyer that do not meet the terms and conditions set forth in
this Agreement.

3. PURCHASE PRICE; COMPENSATION. (a) The Purchase Price (herein so
called) payable by the Buyer for each Purchased Contract and Purchased
Contract Pool shall never exceed that amount which a Dealer shall receive
from bank draft upon the delivery of all Contract Documents and the maximum
limits set by the purchasing criteria set forth in EXHIBIT A. With respect
to any Purchased Contract offered by Purchasing Agent from Purchasing Agent's
portfolio of Contracts, the Purchase Price for each Purchased Contract
payable by Buyer to Purchasing Agent shall be determined to provide Buyer a
rate of return on its investment in the Purchased Contract from the remaining
unpaid installments equal to the Purchasing Agent's (or the affiliates, in
the case of a Contract purchased by Purchasing Agent from an affiliate of
Sovereign) original rate of return on its investment in the Purchased
Contract, as of its purchase by Purchasing Agent (or the affiliate, as the
case may be) from the originating Dealer, assuming in both cases that the
Purchased Contract was paid in full in accordance with its scheduled
installments. In addition, no

<PAGE>

Purchased Contract from the Purchasing Agent's portfolio may be in default at
the time of purchase by Buyer or have violated the purchasing criteria set
forth in EXHIBIT A (with all references to Buyer deemed to refer to the
Servicer) at the time of its purchase by Purchasing Agent (or affiliate, as
the case may be).

As partial compensation and reimbursement for the costs of its services
provided hereunder, Buyer shall pay to Purchasing Agent a monthly fee,
payable on or before the 15th day of each month, of the lesser of $500, or 5%
of the total amount of installments due under the Contract as of the date of
purchase, for each Contract purchased by Buyer from or through Purchasing
Agent under this Agreement during the prior calendar month. Buyer shall also
reimburse Purchasing Agent for its out-of-pocket costs paid to effect any
Credit Enhancements with respect to the Purchased Contracts, although
Purchasing Agent shall not, by virtue of this Agreement, be required to
provide or effect Credit Enhancements.

Purchasing Agent will charge a processing fee to the various dealers from
which it purchases Contracts on behalf of the Buyer, which fee is currently
$275 per Contract purchased. Purchasing Agent 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. Purchasing
Agent reserves the right to increase the amount of the processing fee which
it charges from time to time, and to increase or decrease the amount of the
finder's fee.

4. TERM. This Agreement shall commence as of the date first written
above and shall continue until terminated upon 30 days written notice from
either party to the other.

5. OTHER DOCUMENTS. Purchasing Agent or Buyer shall execute and
deliver any and all other documents, opinions, certificates, and evidence of
the Purchased Contracts as may be reasonably requested by Buyer in connection
with the transactions contemplated by this Agreement.

6. REPRESENTATIONS AND WARRANTIES OF THE PURCHASING AGENT. The
Purchasing Agent represents and warrants to Buyer as follows:

(a) ORGANIZATION AND GOOD STANDING. Purchasing Agent 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 Purchasing Agent is duly qualified and
has registered as a foreign corporation in each state where such
qualification is required in order to perform its

<PAGE>

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 Purchasing Agent by all
necessary corporate action on the part of the Purchasing Agent.

(d) BINDING OBLIGATION. This Agreement constitutes a legal, valid
and binding obligation of the Purchasing Agent, 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 Purchasing Agent, and the performance of the transactions contemplated by
this Agreement and the fulfillment of the terms hereof applicable to the
Purchasing Agent, 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 Purchasing Agent or any indenture, contract, agreement,
mortgage, deed of trust or other installment to which the Purchasing Agent is
a party or by which it is bound.

7. REPRESENTATIONS, WARRANTIES AND COVENANTS OF PURCHASING AGENT
REGARDING CONTRACTS. The Purchasing Agent further represents and warrants
to, and covenants with Buyer as follows:

(a) Each Qualified Contract will conform with, and in acting with
respect to the Qualified Contract, Purchasing Agent will have complied in all
material respects with, all applicable federal, state and local laws,
regulations and official rulings.

(b) Each Qualified Contract (i) shall have been originated in the United
States of America by a Dealer for the retail sale 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 Purchasing Agent, a Sovereign affiliate, or to Buyer in
accordance with its terms, (ii) shall have created or shall create a valid,
subsisting, and enforceable first priority security interest in the Financed
Vehicle in favor of the owner of the Qualified Contract, (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 and
of the benefits of the security, (iv) shall provide for, in the event that
such Qualified

<PAGE>

Contract is prepaid, a prepayment that fully pays the principal balance, (v)
shall meet 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 (vi) shall have been validly assigned by Purchasing Agent or
Sovereign affiliate to Buyer if the Qualified Contract was assigned by the
Dealer to the Purchasing Agent or Sovereign affiliate and has been purchased
by Buyer.

(c) Purchasing Agent shall require each Dealer from which a Qualified
Contract is purchased to represent and warrant that such Qualified Contract
and the sale of the related Financed Vehicle complied, at the time the
Contract was originated or made, 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, 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.

(d) Each Qualified 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 creditors' rights generally.

(e) (i) The Certificate of Title for such Financed Vehicle shows (or if
a new or replacement Certificate of Title is applied for with respect to such
Financed Vehicle, the official receipt from the responsible state or local
governmental authority shall indicate that an application has been made and
that the Certificate of Title, when issued, will show within 120 days) the
Purchasing Agent or the Buyer 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 Certificate of
Title for such Financed Vehicle will show the Buyer as the holder of a first
priority security interest in such Financed Vehicle, and (iii) the Buyer,
upon delivery of the transfer to it, will have a valid and enforceable
security interest in the Financed Vehicle to the same extent as the security
interest of the person or entity named as the original secured party under
the related Contract.

(f) To the knowledge of Purchasing Agent, at the time of its purchase
for the Buyer, no provision of a Qualified Contract shall have been waived,
without the express written consent of the Buyer.

(g) To the knowledge of Purchasing Agent, at the time of its

<PAGE>

purchase by the Buyer, no right of rescission, setoff, counterclaim, or
defense shall have been asserted or threatened with respect to any Qualified
Contract.

(h) It is the intention of the Purchasing Agent that the transfer and
assignment herein contemplated constitute a sale of the Purchased Contract or
Purchased Contract Pool to Buyer and that the beneficial interest in and
title to the Purchased Contracts and Purchased Contract Pools not be part of
Purchasing Agent's estate in the event of the filing of a bankruptcy petition
by or against Purchasing Agent under applicable bankruptcy law. Immediately
prior to the transfer and assignment to Buyer herein contemplated, Dealer or
Purchasing Agent had good and marketable title to each Qualified Contract
free and clear of all liens, encumbrances, security interests, and rights of
others and, immediately upon the transfer thereof, Buyer shall have good and
marketable title to each Qualified Contract, free and clear of all liens,
encumbrances, security interests, and rights of others.

8. REPRESENTATIONS AND WARRANTIES OF THE BUYER. The Buyer represents
and warrants to Purchasing Agent 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 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

<PAGE>

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.

9. SERVICING AGREEMENT; COLLECTION OF PURCHASED RECEIVABLES.
Concurrently with the execution of this Agreement, Purchasing Agent and Buyer
shall enter into the Servicing Agreement whereby Purchasing Agent, as an
independent contractor, will collect, in accordance with the terms and
conditions set forth therein, for the account of Buyer, payments under all
Purchased Contract and Purchased Contract Pools.

10. NO ASSUMPTION. The Purchasing Agent does not, and shall not be
deemed to, assume any obligations of the Buyer relating to the transactions
contemplated herein. Buyer does not, and shall not be deemed to assume any
obligations of Purchasing Agent relating to the Purchased Contracts or the
transactions giving rise to the Purchased Contracts. To the extent that
Purchasing Agent has not completed performance of any Contract pursuant to
which a Purchased Contract was generated, Purchasing Agent hereby covenants
and agrees to complete such Contract in order that the Obligor will continue
not to have any rights to setoff, counterclaim or dispute. Accordingly,
Purchasing Agent hereby indemnifies and holds harmless Buyer, its successors
and assigns, and their respective officers, directors, 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 Buyer, its successors and assigns, or their respective officers,
directors, agents and attorneys due to (i) any breach by Purchasing Agent of
its representations, warranties or covenants provided for in this Agreement
or in the Servicing Agreement, or (ii) any action or inaction of Purchasing
Agent in any way relating to, or arising out of this Agreement or any of the
transactions contemplated herein or the creation or collection or enforcement
of any of the Purchased Contracts. Purchasing Agent, however, does not
assume the risk of uncollectibility and does not indemnify Buyer, its
successors and assigns, or their respective officers, directors, agents and
attorneys, against, the uncollectibility of all or any part of the Purchased
Contracts as against the Obligor thereof, except for uncollectibility
resulting from a breach by Purchasing Agent of any warranty, representation,
or covenant contained herein. The indemnities contained in this Section
shall survive any termination of this Agreement.

11. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their

<PAGE>

respective successors and assigns. Purchasing Agent may contract with others
for the performance of any or all of its obligations hereunder. Any such
contract, however, shall not relieve Purchasing Agent from liability for its
obligations hereunder.

12. 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.

13. 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 Purchasing Agent: Sovereign Associates, Inc.
4015 Beltline Road
Building B
Dallas, Texas 75244
Attn: A. Starke Taylor, III, President

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.

14. AMENDMENT. This Agreement may be amended, supplemented or modified
only with the written consent of each of the parties hereto.

15. CHOICE OR 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.

<PAGE>

16. 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.

17. ENTIRE AGREEMENT. This instrument embodies the entire agreement
between the patties relating to the subject matter hereof and supersedes all
prior agreements and understandings, if any, relating to the subject matter
hereof.

18. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which for all purposes is to be deemed an original.

19. 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.

IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first hereinabove written.

PURCHASING AGENT:

SOVEREIGN ASSOCIATES, INC.

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

BUYER:

SOVEREIGN CREDIT FINANCE I, INC.

By: _____________________________
A. Starke Taylor, III,
President

<PAGE>

MASTER CONTRACT PURCHASE AGREEMENT

EXHIBIT A

QUALIFIED CONTRACT CRITERIA

The following purchasing criteria shall govern all purchases of Contracts
by Buyer and no Contract shall be purchased that does not meet the following
criteria without specific written permission of Purchasing Agent and Buyer.

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 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

III. CONTRACT TERMS

B. No Contract may violate any applicable usury laws of any

A-1

<PAGE>
state or of the United States.

IV. CREDIT CRITERIA

Obligors on all Contracts purchased by Buyer must have supplied the
following credit information and meet the following requirements, and
Purchasing Agent shall perform verification procedures in an
industry-standard manner observing due care and procedure:

A. Personal reference with address and telephone number.

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 Purchasing Agent'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
Buyer, Purchasing Agent may purchase such Contracts.

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) December 31, 1996
(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
<PAGE>

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 10.4

FORM OF BROKER-DEALER SELLING AGREEMENT

<PAGE>

$20,000,000

SOVEREIGN CREDIT FINANCE I, INC., COMPANY

11% NOTES DUE OCTOBER 15, 2000

____________________

BROKER-DEALER SELLING AGREEMENT

______________, 1996

________________________
________________________
________________________

Dear Sirs:

Sovereign Credit Finance I, Inc., a Texas corporation (the
"Company"), has duly authorized the issuance of $20,000,000 aggregate
principal amount of its 11% Notes due October 15, 2000 (the "Notes"). The
Notes are to be issued pursuant to an Indenture (the "Indenture") dated as of
__________, 1996, between the Company, Sterling Trust Company, as Trustee
(the "Trustee"), and Sovereign Associates, Inc., a Texas corporation ("SAI").
A pool of used motor vehicle retail installment sale contracts secured by
the vehicles financed thereby (the "Receivables") will be purchased with the
net proceeds from sales of the Notes and collections on Receivables. The
Receivables will be purchased by the Company through the purchasing services
provided by SAI, pursuant to the Master Contract Purchase Agreement dated as
of _____________, 1996 (the "Purchase Agreement") by and between the Company
and SAI, and will be serviced on behalf of the Company by SAI pursuant to the
Servicing Agreement dated as of ___________, 1996 (the "Servicing Agreement")
by and between the Company and SAI.

The Company has prepared a Registration Statement (as defined
below) with respect to the Notes and intends to sell the Notes to certain
investors (each, a "Purchaser") pursuant to subscription agreements to be
executed and delivered by each such investor, substantially in the form set
forth in EXHIBIT 10.5 to the Registration Statement (each, a "Subscription
Agreement").

The Company has requested that you assist the Company as a
broker-dealer in the public offering of the Notes, and you have indicated
your willingness to do so, subject to the terms and conditions set forth
below.

<PAGE>

1. APPOINTMENT OF BROKER-DEALER; SALE OF NOTES

(a) The Company hereby appoints you (the "Broker- Dealer") as a
broker-dealer in connection with the public offering of the Notes for the
period (the "Offering Period") commencing on the date hereof and terminating
on the Offering Termination Date (as defined below), unless sooner terminated
pursuant to the terms hereof. Subject to the performance by the Company of
its obligations to be performed hereunder, and to the completeness and
accuracy of all of the representations and warranties of the Company
contained or incorporated herein, you hereby accept such appointment and
agree on the terms and conditions herein set forth to use your best efforts
during the Offering Period to identify Purchasers of the Notes. By
acceptance of such appointment, you also agree to comply with the provisions
of Section 24 of Article III of the Rules of Fair Practice of the NASD.

(b) To be effective and binding on the Company, any Subscription
Agreement submitted by a Purchaser must be accepted by the Company. The
Subscription Agreement may be executed on the Purchaser's behalf by the
Purchaser's registered representative, in which event the registered
representative must confirm the accuracy, completeness and binding effect of
the information, representations, warranties and agreements set forth in the
Subscription Agreement with respect to the Purchaser. The Company reserves
the right to reject subscriptions from any Purchasers for any reason;
provided, however, the Company shall have no right to reject subscriptions
and later accept new subscriptions directly from the same Purchasers in order
to circumvent any payment of fee to the Broker-Dealer. With respect to any
outstanding, unaccepted Subscription Agreements on or about the Offering
Termination Date, the Company may limit the principal amount of the Notes to
be purchased under such Subscription Agreements to the extent necessary to
limit the aggregate principal amount of the Notes to be sold by the Company
in the offering to $20,000,000. The Company shall also have the right to
limit the dollar amount of Subscription Agreements that it is willing to
accept during any month of the Offering in the manner set forth in the
Prospectus under the caption "Plan of Distribution".

(c) Except as otherwise provided herein, your appointment hereunder
shall terminate at the close of business on the earlier of (i) _________,
1997 (unless sooner terminated by the Company in accordance with and for any
of the reasons set forth in the Prospectus under the caption Plan of
Distribution) or (ii) the day that the Company has received subscriptions in
an amount necessary to satisfy the sale of $20,000,000 in aggregate principal
amount of the Notes. The date on which such appointment is terminated is
herein referred to as the "Offering Termination Date".

2
<PAGE>

(d) The Broker-Dealer shall not, in fulfilling its obligations
hereunder, act as underwriter for the Notes and in no way is obligated,
directly or indirectly, to advance its own funds to purchase any Notes.

2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants to, and agrees with the Broker-Dealer as follows:

(a) A registration statement on Form S-1 (No. 333-4072) under the
Securities Act of 1933, as amended (the Act"), with respect to the Notes,
including a form of prospectus subject to completion, has been prepared by
the Company in conformity with the requirements of the Act and the rules and
regulations of the Securities and Exchange Commission (the "SEC") thereunder
(the "Rules and Regulations"). Such registration statement has been filed
with the SEC under the Act, and one or more amendments to such registration
statement may also have been so filed. As used in this Agreement, the term
"Registration Statement" means such registration statement, as amended at the
time when it was or is declared effective, including all financial schedules
and exhibits thereto; the Registration Statement shall be deemed to include
any information omitted therefrom pursuant to Rule 430A under the Act and
included in the Prospectus (as hereinafter defined); the term "Preliminary
Prospectus" means each prospectus subject to completion contained in such
registration statement or any amendment thereto (including the prospectus
subject to completion, if any, included in the Registration Statement or any
amendment thereto or filed pursuant to Rule 424(a) under the Act at the time
it was or is declared effective); and the term "Prospectus" means the
prospectus first filed with the SEC pursuant to Rule 424(b) under the Act or,
if no prospectus is required to be filed pursuant to said Rule 424(b), such
term means the prospectus included in the Registration Statement. Reference
made herein to any Preliminary Prospectus or the Prospectus shall be deemed
to include all documents and information incorporated by reference therein.

(b) The SEC has not issued any order preventing or suspending the
use of any Preliminary Prospectus and has not instituted or threatened to
institute any proceedings with respect to such an order. When any
Preliminary Prospectus was filed with the SEC it (A) complied in all material
respects with the requirements of the Act and the Rules and Regulations and
(B) did not include any untrue statement of a material fact or omit to state
any material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading. When
the Registration Statement or any amendment thereto was or is declared
effective, it (A) complied or will comply in all material respects with the
requirements of the Act and the Rules and Regulations and (B) did not or will
not include any untrue statement of a material fact or omit to state any
material fact necessary to make the statements therein not

<PAGE>

misleading. When the Prospectus and when any amendment or supplement thereto
is filed with the SEC pursuant to Rule 424(b) (or, if the Prospectus or such
amendment or supplement is not required to be so filed, when the Registration
Statement and when any amendment thereto containing such amendment or
supplement to the Prospectus was or is declared effective) and at all times
subsequent thereto up to and including the Offering Termination Date, the
Prospectus, as amended or supplemented at any such time, (A) complied or will
comply in all material respects with the requirements of the Act and the
Rules and Regulations and (B) did not or will not include any untrue
statement of a material fact or omit to state any material fact necessary in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading. The foregoing provisions of this
paragraph shall not apply to statements or omissions made in any Preliminary
Prospectus, the Registration Statement or any amendment thereto or the
Prospectus or any amendment or supplement thereto in reliance upon, and in
conformity with, information furnished in writing to the Company by the
Broker-Dealer expressly for use therein.

(c) The Company is a duly incorporated and validly existing
corporation in good standing under the laws of its jurisdiction of
incorporation, with full power and authority (corporate and other) to
execute, deliver and perform its obligations under each of the Basic
Documents to which it is a party. "Basic Documents" means, collectively,
this Agreement, the Purchase Agreement, the Servicing Agreement, the
Indenture, the Notes, and the Subscription Escrow Agreement dated as of
______________, 1996 (the "Escrow Agreement") by and between the Company and
River Oaks Trust Company.

(d) This Agreement has been duly and validly authorized, executed
and delivered by the Company and constitutes the legal, valid and binding
obligation of the Company, enforceable against the Company in accordance with
its terms, subject to applicable bankruptcy, insolvency, reorganization,
moratorium and other similar laws relating to or affecting creditors' rights
generally, general equity principles and to the proviso that rights to
indemnification and contribution under this Agreement may be limited by
public policy under federal or state securities laws; and each of the Basic
Documents other than this Agreement to which the Company is a party, when
duly executed and delivered by the parties thereto, will constitute its
legal, valid and binding obligation, enforceable against it in accordance
with its terms, subject to applicable bankruptcy, insolvency, reorganization,
moratorium and other similar laws relating to or affecting creditors' rights
generally and general equity principles.

(e) None of the Company's execution or delivery of the Basic
Documents to which it is or will be a party, its performance thereunder, or
its consummation of the transactions contemplated

<PAGE>

therein, conflicts or will conflict with or results or will result in any
breach or violation of any of the terms or provisions of, or constitutes or
will constitute a default under, causes or will cause (or permits or will
permit) the maturation or acceleration of any liability or obligation or the
termination of any right under, or result in the creation or imposition of
any lien, charge, or encumbrance upon, any of its properties or assets
pursuant to the terms of (A) its charter or by-laws, (B) any indenture,
mortgage, deed of trust, voting trust agreement, shareholders' agreement,
note agreement or other agreement or instrument to which it is a party or by
which it is or may be bound or to which its property is or may be subject or
(C) any statute, judgment, decree, order, rule or regulation applicable to it
of any government, arbitrator, court, regulatory body or administrative
agency or other governmental agency or body, domestic or foreign, having
jurisdiction over it or any of its activities or properties.

(f) Except as disclosed in the Registration Statement, there has
not been any material adverse change, or any development involving a
prospective material adverse change, in or affecting the financial position,
stockholder's equity or results of operations of the Company.

(g) The Company is not an "investment company" as such term is
defined in the Investment Company Act of 1940, as amended.

(h) The financial statements and the related notes thereto included
in the Registration Statement and the Prospectus (or, if the Prospectus is
not in existence, the most recent Preliminary Prospectus) fairly present the
financial condition of the Company at the dates and for the periods specified
therein. Such financial statements and the related notes thereto have been
prepared in accordance with generally accepted accounting principles
consistently applied throughout the periods involved (except as otherwise
noted therein) and such financial statements as are audited have been
examined by Kinder & Wyman, P.C., who are independent public accountants
within the meaning of the Act and the Rules and Regulations, as indicated in
their reports filed therewith.

(i) The Indenture has been duly qualified under the Trust Indenture
Act of 1939, as amended.

(j) The Notes have been duly authorized, and when the Indenture has
been duly executed and delivered by the Company, SAI and the Trustee, and the
Notes have been duly executed by the Company and authenticated by the Trustee
and the purchase price paid therefor, (i) the Notes will constitute valid and
legally binding obligations of the Company enforceable against the Company in
accordance with their terms and (ii) the Notes will conform to the
description thereof contained in the Prospectus.

<PAGE>

(k) Neither the Company nor any of its director, officers or
controlling persons has taken, directly or indirectly, any action intended,
or which might reasonably be expected, to cause or result, under the Act or
otherwise, in, or which has constituted, stabilization or manipulation of the
price of any security of the Company to facilitate the sale or resale of the
Notes.

3. CERTAIN AGREEMENTS OF THE COMPANY. The Company hereby covenants and
agrees with the Broker-Dealer as follows:

(a) The Company will use its best efforts to cause the Registration
Statement, if not effective at the time of execution of this Agreement, and
any amendments thereto, to become effective as promptly as practicable. If
required, the Company will file the Prospectus and any amendment or
supplement thereto with the SEC in the manner and within the time period
required by Rule 424(b) under the Act. During any time when a prospectus
relating to the Notes is required to be delivered under the Act, the Company
will comply with all requirements imposed upon it by the Act and the Rules
and Regulations to the extent necessary to permit the continuance of sales of
or dealings in the Notes in accordance with the provisions hereof and of the
Prospectus, as then amended or supplemented.

(b) As soon as the Company is advised or obtains knowledge thereof,
the Company will advise the Broker-Dealer (A) when the Registration
Statement, as amended, has become effective; if the provisions of Rule 430A
promulgated under the Act will be relied upon, when the Prospectus has been
filed in accordance with said Rule 430A and when any post-effective amendment
to the Registration Statement becomes effective; (B) of any request made by
the SEC for amending the Registration Statement, for supplementing any
Preliminary Prospectus or the Prospectus or for additional information; or
(C) of the issuance by the SEC of any stop order suspending the effectiveness
of the Registration Statement or any post-effective amendment thereto or any
order preventing or suspending the use of any Preliminary Prospectus or the
Prospectus or any amendment or supplement thereto or the institution or
threat of any investigation or proceeding for that purpose, and will use its
best efforts to prevent the issuance of any such order and, if issued, to
obtain the lifting thereof as soon as possible.

(c) The Company will (A) take or cause to be taken all such actions
and furnish all such information as may be reasonably required in order to
qualify, where practicable, the Notes for offer and sale under the state
securities or blue sky laws of such jurisdictions as the Company may agree,
(B) continue such qualifications in effect for as long as may be necessary to
complete the distribution of the Notes, (C) cause its counsel to provide a
blue sky memorandum and regular supplements thereto ("Blue Sky Memorandum"),
and (D) make such applications, file such

<PAGE>

documents and furnish such information as may be required for the purposes
set forth in clauses (A) and (B); PROVIDED, HOWEVER, that the Company shall
not be required to qualify as a foreign corporation or file a general or
unlimited consent to service of process in any such jurisdiction. The
Broker-Dealer acknowledges and agrees that the Company may impose special
minimum suitability standards on Purchasers in some jurisdictions in order to
obtain qualifications therein and that Broker-Dealer must comply therewith in
soliciting subscriptions from Purchasers. The Company agrees to promptly
notify the Broker-Dealer of any such special standards.

(d) The Company consents to the use of the Prospectus (and any
amendment or supplement thereto) by the Broker-Dealer, in connection with the
offering or sale of the Notes and for such period of time thereafter as the
Prospectus is required by law to be delivered in connection therewith. If,
at any time when a prospectus relating to the Notes is required to be
delivered under the Act, any event occurs as a result of which the
Prospectus, as then amended or supplemented, would include any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements therein not misleading, or if it becomes necessary at any
time to amend or supplement the Prospectus to comply with the Act or the
Rules and Regulations, the Company promptly will so notify the Broker-Dealer
and, subject to Section 3(a) hereof, will prepare and file with the SEC an
amendment to the Registration Statement or an amendment or supplement to the
Prospectus which will correct such statement or omission or effect such
compliance.

(e) The Company will furnish, without charge, to the Broker-Dealer
or on such Broker-Dealer's order, at such places as such Broker-Dealer may
designate, copies of each Preliminary Prospectus, the Registration Statement
and any pre-effective or post-effective amendments thereto and the
Prospectus, and all amendments and supplements thereto, in each case as soon
as available and in such quantities as the Broker-Dealer may reasonably
request.

(f) Neither the Company nor any of its officers or directors, nor
its affiliates (within the meaning of the Rules and Regulations), will take,
directly or indirectly, any action designed to, or which might in the future
reasonably be expected to cause or result in, stabilization or manipulation
of the price of any securities of the Company.

(g) The Company shall furnish, or cause to be furnished, or make
available, or cause to be made available, to the Broker-Dealer during the
Offering Period such additional documents and information regarding the
Company and its affairs as the Broker-Dealer may from time to time reasonably
request, including any and all documentation reasonably requested regarding
information in the Registration Statement and the Prospectus and in order to
evidence

7
<PAGE>

the accuracy or completeness of any of the conditions contained in this
Agreement.

4. COMPENSATION: PAYMENT OF EXPENSES.

(a) The Company hereby agrees to pay to the Broker-Dealer a fee
(the "Sales Fee") in an amount equal to 8.0% of the principal amount of each
Note sold by the Company during the Offering Period to a Purchaser who has
executed a Subscription Agreement furnished to it by or on behalf of the
Broker-Dealer or who has otherwise been identified to the Company by or on
behalf of the Broker-Dealer (each, an "Identified Purchaser"). The Sales Fee
with respect to any Note shall be payable to the Broker-Dealer within five
(5) days after the date such Note is sold to an Identified Purchaser.
Payment by the Company of the Sales Fee shall be made via wire transfer in
same day funds to an account previously designated by the Broker-Dealer, or
as otherwise agreed by the Broker-Dealer and the Company. For purposes of
this Section 4(a), a "sale" shall be deemed to occur, initially, on the date
that subscriptions for the minimum amount of the offering of the Notes set
forth on the cover page of the Prospectus are released from escrow to the
Company in accordance with the terms of the Escrow Agreement (the "Escrow
Release Date") and, thereafter, on each date that the Company receives
available funds from subscriptions for Notes. Notwithstanding the foregoing,
the Broker-Dealer acknowledges that the Company has entered into agreements
with broker-dealers other than the Broker-Dealer with respect to the payment
by the Company of a Sales Fee in connection with the sale of the Notes by
such broker-dealers and that the Company shall only be obligated to pay one
Sales Fee to a single broker-dealer with respect to the sale of any Note.

(b) The Company will pay or cause to be paid all fees and expenses
incident to the performance of the obligations of the Company under this
Agreement, including without limitation: (i) the fees, disbursement and
expenses of the Company's counsel and accountants and all other expenses in
connection with the preparation, duplication, printing, filing, delivery and
shipping of copies of the Registration Statement and any pre-effective or
post-effective amendments thereto, any Prospectus and any amendments or
supplements thereto; (ii) the Company's cost of printing, producing or
reproducing each of the Basic Documents and any other documents in connection
with the offering, purchase, sale and delivery of the Notes; (iii) all fees
and expenses in connection with the qualification of the Notes for offering
and sale under state securities and blue sky laws, including the cost of
preparing and mailing the blue sky memorandum and all supplement thereto and
filing fees and disbursements and fees of the Company's counsel and other
related expenses, if any, in connection therewith; (iv) filing fees of the
SEC and the National Association of Securities Dealers, Inc.; (v) all legal
and other costs in connection with the preparation of all filings with the
National

<PAGE>

Association of Securities Dealers, Inc.; (vi) the fees and expenses of the
Trustee and any agent of the Trustee in connection with the Indenture and the
Notes; and (vii) all other costs and expenses of the Company incident to the
performance of the Company's obligations under the Basic Documents which are
not otherwise specifically provided for in this Section 4 except to the
extent provided in this Section 4 and in Section 5. In no event shall the
Broker-Dealer have any obligation with respect to any of the fees or expenses
of the Company or the Trustee.

(c) The Broker-Dealer agrees to bear the cost of its own expenses
incurred in the performance of its obligations under this Agreement.

5. UNAUTHORIZED INFORMATION AND REPRESENTATIONS. Neither you nor any
other person is authorized by the Company to give any information or make any
representations in connection with the public offering of the Notes other
than those contained in the Prospectus (on or after the effective date of the
Registration Statement) or any Preliminary Prospectus (before the effective
date of the Registration Statement) and other authorized solicitation
material furnished by the Company. Without limiting the generality of the
foregoing, you agree not to publish, circulate or otherwise use any other
advertisement or solicitation material without the prior approval of the
Company. In soliciting purchases of the Notes, you agree to comply with any
applicable requirements of the 1933 Act, the Securities Exchange Act of 1934,
as amended (the "1934 Act"), the rules and regulations under both such Acts,
and all applicable state laws, rules and regulations.

6. BLUE SKY AND SECURITIES LAWS. In effecting offers or sales of the
Notes in any jurisdiction, you will comply with all special conditions and
limitations imposed by (a) such jurisdiction in connection with the Offering
and (b) any Blue Sky Memorandum furnished by the Company to you. Under no
circumstances will you engage in any activities in connection with the public
offering of the Notes in any jurisdiction in which you may not lawfully so
engage.

7. INDEMNIFICATION AND CONTRIBUTION.

(a) The Company agrees to indemnify and hold harmless the
Broker-Dealer, its affiliates and each person (if any) who controls the
Broker-Dealer within the meaning of Section 15 of the Act or Section 20(a) of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), against
any losses, liabilities, claims, damages and expenses (including but not
limited to attorneys' fees and any and all expenses whatsoever incurred in
investigating, preparing or defending against any litigation, commenced or
threatened, or any claim whatsoever, and any and all amounts paid in
settlement of any claim or litigation), to which the Broker-Dealer or any
such control person may become subject,

<PAGE>

under the Act, the Exchange Act or otherwise, insofar as such losses,
liabilities, claims, damages or expenses (or actions in respect thereof)
arise out of or are based upon (i) any of the transactions contemplated by
the Registration Statement or the Prospectus or any Preliminary Prospectus,
or any amendment or supplement thereto, or any blue sky application or other
document executed by the Company specially for the purpose of qualifying, or
based upon written information furnished by the Company filed in any state or
other jurisdiction in order to qualify any or all of the Notes under the
Securities or blue sky laws thereof (any such application, document or
information being hereinafter called a "Blue Sky Application") or any act or
omission by the Broker-Dealer in connection with its acceptance or
performance or non-performance of its obligations hereunder; or (ii) any
untrue statement or alleged untrue statement of a material fact contained in
the Registration Statement or the Prospectus or any Preliminary Prospectus,
or any amendment or supplement thereto, or any Blue Sky Application, or
arising out of or based upon the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make
the statements therein not misleading; PROVIDED, HOWEVER, that (A) the
Company will not be liable for any indemnification obligation pursuant to
clause (i) of this Section 7(a) to the extent but only to the extent that any
portion of such loss, liability, claim, damage or expense is found in a final
judgment by a court of competent jurisdiction from which no appeal can be or
is taken to have resulted solely from the gross negligence or willful
misconduct of the Broker-Dealer (it being understood, however, that the
Broker-Dealer shall be responsible for and shall pay any attorneys' fees and
any expenses incurred in investigating, preparing or defending against any
litigation, commenced or threatened, or any claim whatsoever resulting from
or based upon the gross negligence or willful conduct of the Broker-Dealer)
and (B) the Company will not be liable for any indemnification obligation
pursuant to clause (ii) of this Section 7(a) to the extent but only to the
extent that any such loss, liability, claim, damage or expense arises out of
or is based upon an untrue statement or alleged untrue statement or omission
or alleged omission made in the Registration Statement or the Prospectus or
any Preliminary Prospectus, or any such amendment or supplement thereto, or
any Blue Sky Application, in reliance upon and in conformity with written
information furnished to the Company by the Broker-Dealer expressly for use
therein and such indemnity with respect to any Preliminary Prospectus shall
not inure to the benefit of the Broker-Dealer or any person controlling the
Broker-Dealer from whom the person asserting any such loss, claim, damage or
liability purchased the Notes which are the subject thereof if such person
did not receive a copy of the Prospectus (or, in the event it is amended or
supplemented, such Prospectus as amended or supplemented) at or prior to the
confirmation of the sale of such Note to such person and the untrue statement
or omission of a material fact contained in any Preliminary Prospectus was
corrected in the Prospectus (or the Prospectus as amended or supplemented).

<PAGE>

This indemnity will be in addition to any liability which the Company may
otherwise have, including under this Agreement.

(b) If a registered representative of the Broker-Dealer executed
a Subscription Agreement on behalf of a purchaser, the Broker-Dealer agrees
to indemnify and hold harmless the Company and each person (if any) who
controls the Company within the meaning of Section 15 of the Act or Section
20(a) of the Exchange Act against any loses, liabilities, claims, damages or
expenses (including but not limited to reasonable attorneys' fees and any and
all expenses whatsoever incurred in investigating, preparing or defending
against any litigation, commenced or threatened, or any claim whatsoever, and
any and all amounts paid in settlement of any claim or litigation), to which
the Company or any such control person may become subject, under the Act, the
Exchange Act or otherwise, insofar as such losses, liabilities, claims,
damages or expenses (or actions in respect thereof) arise out of or are based
upon (i) the failure or alleged failure by Broker-Dealer to perform fully and
to act in compliance with, or the inaccuracy of any statements or
representations of Broker-Dealer contained in, the provisions of this
Agreement; (ii) an untrue statement or alleged untrue statement of a material
fact in connection with the public offering of the Notes or the omission or
alleged omission to state in connection with the public offering of the Notes
a material fact required to be stated or necessary to make the statements
otherwise made not misleading where such untrue statement or alleged untrue
statement, or such omission or alleged omission, resulted from facts or
information furnished or omitted, as the case may be, by Broker-Dealer; or
(iii) any misrepresentation or untrue statement contained in the Subscription
Agreement with respect to the identity, address or other information
furnished for the Purchaser, the Purchaser's satisfaction of the applicable
minimum suitability standards, or any representations, warranties,
acknowledgments or agreements made on behalf of the Purchaser.

(c) Promptly after receipt by an indemnified party under
subsections (a) or (b) above of notice of the commencement of any action or
the assertion of any claim, such indemnified party shall, if a claim in
respect thereof is to be made against the indemnifying party under such
subsection, notify the indemnifying party in writing of the commencement
thereof (but the failure so to notify the indemnifying party shall not
relieve it from any liability which it may have under this Section 7 except
to the extent that it has been prejudiced in any material respect by such
failure or from any liability which it may have otherwise). In case any such
action shall be brought against any indemnified party and it notifies the
indemnifying party of the commencement thereof, the indemnifying party shall
be entitled to participate therein and, to the extent that it may elect by
written notice delivered to the indemnified party promptly after receiving
the aforesaid notice from such indemnified party, to assume the defense
thereof, with counsel satisfactory to such indemnified party.
Notwithstanding

<PAGE>

the foregoing, the indemnified party or parties shall have the right to
employ its or their own counsel in any such case, but the fees and expenses
of such counsel shall be at the expense of such indemnified party or parties
unless (i) the employment of such counsel shall have been authorized in
writing by one of the indemnifying parties in connection with the defense of
such action, (ii) the indemnifying parties shall not have employed counsel to
have charge of the defense of such action within a reasonable time after
notice of commencement of the action, or (iii) such indemnified party or
parties shall have reasonably concluded that there may be defense available
to it or them which are different from or additional to those available to
one or all of the indemnifying parties (in which case the indemnifying
parties shall not have the right to direct the defense of such action on
behalf of the indemnified party or parties), in any of which events such fees
and expenses shall be borne by the indemnifying parties. Anything in this
subsection to the contrary notwithstanding, an indemnifying party shall not
be liable for any settlement of any claim or action effected without its
written consent; PROVIDED, HOWEVER, that such consent was not unreasonably
withheld.

(d) In order to provide for contribution in circumstances in
which the indemnification provided for in Section 7(a) hereof is for any
reason held to be unavailable from the Company in a final judgment by a court
of competent jurisdiction from which no appeal can be or is taken, the
Company, on the one hand, and the Broker-Dealer, on the other hand, shall
contribute to the aggregate losses, claims, damages, liabilities and expenses
of the nature contemplated by such indemnification provision (including any
investigation, legal and other expenses incurred in connection with, and any
amount paid in settlement of, any action, suit or proceeding or any claims
asserted, but after deducting in the case of losses, claims, damages,
liabilities and expenses suffered by the Company any contribution received by
the Company from persons, other than the Broker-Dealer, who may also be
liable for contribution) in such proportions as is appropriate to reflect the
relative benefits received by the Company on the one hand and the
Broker-Dealer on the other from the offering of the Notes. The relative
benefits received by the Company on the one hand and the Broker-Dealer on the
other shall be deemed to be in the same proportion as (x) the total proceeds
from the offering (before deducting expenses) received by the Company and (y)
the fees received by the Broker-Dealer pursuant to Section 4(a) hereof. The
Company and the Broker-Dealer agree that it would not be just and equitable
if contribution pursuant to this Section 7(d) were determined by pro rata
allocation or by any other method of allocation which does not take account
the equitable considerations referred to above. Notwithstanding the
provisions of this Section 7(d), no person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. For purposes of this Section 7(d), each

<PAGE>

affiliate of the Broker-Dealer and each person, if any, who controls the
Broker-Dealer within the meaning of Section 15 of the Act or Section 20(a) of
the Exchange Act shall have the same rights to contribution as the
Broker-Dealer, and each person, if any, who controls the Company, within the
meaning of Section 15 of the Act or Section 20(a) of the Exchange Act, shall
have the same rights to contribution, subject in each case to this Section
7(d). Any party entitled to contribution will, promptly after receipt of
notice of commencement of any action, suit or proceeding against such party
in respect of which a claim for contribution may be made against another
party or parties under this Section 7(d), notify such party or parties from
whom contribution may be sought, but the omission to so notify such party or
parties shall not relieve the party or parties from whom contribution may be
sought from any obligation it or they may have under this Section 7(d) or
otherwise. No party shall be liable for contribution with respect to any
action or claim settled without its consent; PROVIDED, HOWEVER, that such
consent was not unreasonably withheld.

8. TERMINATION BY PARTIES.

(a) Notwithstanding anything herein to the contrary, the
Broker-Dealer may terminate this Agreement and all of its obligations
hereunder for any reason upon giving ten (10) days' prior notice thereof to
the Company; PROVIDED, HOWEVER, that, in the event the Company does not
perform any obligation under this Agreement or any representation and
warranty hereunder is incomplete or inaccurate, the Broker-Dealer may
immediately terminate all of its obligations hereunder by notice thereof to
the Company. Any termination of this Agreement or of the Broker-Dealer's
obligations hereunder shall be without liability of the Broker-Dealer to any
other party.

(b) Notwithstanding anything herein to the contrary, the Company
may terminate this Agreement by giving five (5) days prior written notice to
the Broker-Dealer, in which event the Company shall be relieved of all
obligations hereunder.

(c) The obligations the Company under Section 4 for Notes sold by
the Company pursuant to Subscription Agreements received prior to the date of
termination and the obligations of each of the parties hereto under Section
7, shall survive any termination of the Agreement pursuant to this Section 8.

9. REPRESENTATIONS, WARRANTIES AND AGREEMENTS TO SURVIVE DELIVERY. All
representations, warranties and agreements contained or incorporated in this
Agreement shall remain operative and in full force and effect, regardless of
any investigation made by or on behalf of the Broker-Dealer or any
controlling person, or by or on behalf of the Company or any controlling
person, director or officer of the Company, and shall survive delivery of the
Notes to the Purchasers.

13
<PAGE>

10. SUBSCRIPTION ESCROW. Until the minimum subscription amount (as
specified in the Prospectus) is reached, Purchasers' checks shall be made
payable to the Company's escrow agent, River Oaks Trust Company (the "Escrow
Agent"), and shall be transmitted directly to the Escrow Agent by noon of the
business day following their receipt by the Broker-Dealer. After reaching
the minimum subscription amount, Purchaser monies thereafter received shall
be transmitted together with the Subscription Agreement directly to the
Company. The Company shall be responsible for depositing Purchaser funds
received by it by noon of the business day following its receipt thereof.

11. NOTICES. All statement, requests, notices and agreements hereunder
shall be in writing, and if to the Broker-Dealer shall be delivered or sent
by mail, telex or facsimile transmission to ______________________________
at its address at ______________ __________________________________ ,
Attention: ______________ and if to SAI or the Company shall be delivered or
sent by mail, telex or facsimile transmission to the Company at 4015 Beltline
Road, Building B, Dallas, Texas 75244, Attention: A. Starke Taylor, III,
President. Any such statements, requests, notices or agreements shall take
effect upon receipt thereof.

12. SUCCESSORS. This Agreement shall inure to the benefit of and be
binding upon the Broker-Dealer, the Company and their respective successors
and legal representatives. Nothing expressed or mentioned in this Agreement
is intended or shall be construed to give any person other than the persons
referred to in the preceding sentence any legal or equitable right, remedy or
claim under or in respect of this Agreement. This Agreement and all
conditions and provisions hereof are intended to be for the sole and
exclusive benefit of the parties hereto and their respective successors and
for the benefit of no other person. No Purchaser of Notes from the Company
shall be deemed to be a successor by reason merely of such purchase.

13. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
and understanding of the parties hereto with respect to the matters and
transactions contemplated hereby and supersedes all prior agreements and
understandings whatsoever relating to such matters and transactions.

14. AMENDMENT. Neither this Agreement nor any term hereof may be
changed, waived, discharged or terminated orally, but only by an instrument
in writing signed by the party against whom enforcement of the change,
waiver, discharge or termination is sought.

15. HEADINGS. The headings in this Agreement are for the purposes of
reference only and shall not limit or otherwise affect the meaning hereof.

14
<PAGE>

16. COUNTERPARTS. This Agreement may be executed in counterparts, each
of which shall constitute an original, but all of which shall together
constitute one instrument.

17. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Texas without regard to the conflict
of laws or provisions thereof.

If the foregoing is in accordance with your understanding, kindly sign
and return to us in the enclosed duplicate hereof, whereupon it will become a
binding agreement between the undersigned in accordance with its terms.

Very truly yours,

SOVEREIGN CREDIT FINANCE I, INC.

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

Accepted as of the date first above written:

- ---------------------------------
(Name of Broker-Dealer)

By:
-----------------------------
Name:
Title:

<PAGE>

EXHIBIT 10.5

FORM OF SUBSCRIPTION AGREEMENT

<PAGE>

SOVEREIGN CREDIT FINANCE I, INC. SUBSCRIPTION
11% AUTOMOBILE CONTRACT NOTES DUE OCTOBER 15, 2000

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
BY COMPLETING AND EXECUTING THIS PAGE, THE INVESTOR HEREBY ACKNOWLEDGES
READING AND UNDERSTANDING THE MATERIAL ON THE REVERSE SIDE, AND OR REPRESENTS
WARRANTS, ACKNOWLEDGES AND AGREES TO ALL PROVISIONS SET FORTH BELOW AND ON
THE REVERSE SIDE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

Amount Subscribed Check here if Subscriber
$4,000 min. purchase has previously subscribed
($2,000 FOR IRA'S) in THIS offering
---------------- ----------------
$_______________ Yes / / No / /
- --------------------------------------------------------------------------------

1. INVESTOR DATA - (Please print or type):

(1) Name (Mr./Mrs./Ms.)
--------------------------------------------------------
Social Security or Tax ID #
------------------------------------------------
U.S. Resident? Yes / / No / /
Non-Resident Alien? Yes / / No / /

(2) Name (Mr./Mrs./Ms.)

Social Security or Tax ID #
------------------------------------------------
U.S. Resident? Yes / / No / /
Non-Resident Alien? Yes / / No / /

PERSONS WHO RESIDE IN FOREIGN COUNTRIES, INCLUDING U.S. CITIZENS AND
NON-RESIDENT ALIENS, ARE NOT PERMITTED TO INVEST IN THE NOTES.

Residence Address:

- --------------------------------------------------------------------------------
Street (Please do not use P.O. Box)

- --------------------------------------------------------------------------------
City & State Zip Code

- --------------------------------------------------------------------------------
Home Phone Business Phone

- --------------------------------------------------------------------------------
Mailing Address

- --------------------------------------------------------------------------------
City & State Zip Code

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

2. PAYMENTS- Complete this to direct payment checks if to a retirement
account. Must go to custodian unless other authorization is attached hereto:

- --------------------------------------------------------------------------------
Custodian Address

- --------------------------------------------------------------------------------
City and State Zip Code

- --------------------------------------------------------------------------------
Account No. for payment to a retirement account

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

3. REGISTERED REPRESENTATIVE STATEMENT - I hereby represent on recommending the
purchase of 11% Automobile Contract Notes Due _____, 1999 that I, the Registered
Representative, have responsible grounds to believe that the investment is
suitable for the subscriber based upon information available to me as conveyed
by the subscriber or his/her agent.

- --------------------------------------------------------------------------------
Registered Representative's Signature Date

4. OWNERSHIP - CHECK ONE: (REFER TO THE SIGNATURE REQUIREMENTS AND
SUBSCRIPTION INSTRUCTIONS ON REVERSE SIDE)

/ / Individual / / Trust
/ / Joint Tenant with right
of survivorship / / IRA
/ / Tenants in Common / / Keough Plan
/ / Custodian-Uniform Gifts to Minors / / Pension or Profit
/ / Corporation / / Other
/ / General Partnership
/ / Limited Partnership

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

5. SIGNATURES

Signature must be identical to subscriber name. Subscribers must sign the
Subscription Agreement; Purchaser representatives and investment advisors may
not sign on behalf of subscriber.

- --------------------------------------------------------------------------------
Signature Date

- --------------------------------------------------------------------------------
Print Name

- --------------------------------------------------------------------------------
Signature Date

- --------------------------------------------------------------------------------
Print Name

(Fiduciary signature line below applies only to Custodians, IRA's, Keough,
pension or profit sharing plans. Fiduciary represents that the beneficiary
meets the suitability standards).

- --------------------------------------------------------------------------------
Fiduciary Signature on behalf of Beneficiary Date

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
6. BROKER-DEALER INFORMATION

- --------------------------------------------------------------------------------
Print Name of Registered Representative or Principal of Firm

- --------------------------------------------------------------------------------
Broker-Dealer Firm Name Firm Phone Number

- --------------------------------------------------------------------------------
Branch Office Name

- --------------------------------------------------------------------------------
Street Address Branch Office

- --------------------------------------------------------------------------------
City & State Zip Code

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

FOR USE OF SOVEREIGN CREDIT FINANCE I, INC.

Amount: $ Acceptance Date:
------------------------------ ------------------------

DISTRIBUTION OF COPIES
----------------------

White - Sovereign Credit Finance I, Inc.
Yellow - Broker-Dealer
Pink - Registered Representative
Gold - Investor

<PAGE>

SUBSCRIPTION AGREEMENT

The investor signatory hereto ("Subscriber") represents, warrants,
acknowledges and agrees as follows:

1. Subscriber hereby subscribes for the principal amount of 11%
Automobile Contract Notes (the "Note") issued by Sovereign Credit Finance I,
Inc. ("Issuer"), as specified on the reverse side hereof, encloses and hereby
tenders the amount set forth on the reverse side hereof ($4,000 minimum,
$2,000 for IRA's), as full payment for the Note for which he is subscribing,
and hereby agrees, subject to the Issuer's acceptance of his subscription, to
become a Noteholder in an amount equal to the amount tendered. Subscriber
agrees that he may not revoke, cancel, terminate or withdraw his subscription
or this Subscription Agreement without the prior written consent of the
Issuer, and acknowledges that the Issuer may reject his subscription for any
reason whatsoever.

2. Subscriber hereby acknowledges receipt of a copy of the current
prospectus for the offering and sale of the Notes ("Prospectus") and
understands that the Note being acquired will be governed by the terms of the
Indenture referenced in such Prospectus and such other documents as may be
referenced therein. Subscriber further understands and agrees that,
following Issuer's acceptance of his subscription, he shall receive a Note
which shall evidence his status as a Noteholder of Issuer, such Note to be in
the form specified in the Indenture. The information set forth on the
reverse side hereof is true and accurate and Subscriber has proper authority
to execute this Subscription Agreement and make this investment.

3. Subscriber hereby represents that this purchase is made for the
Subscriber's own account and not with a view toward distribution. Subscriber
understands that it is not anticipated that an active market will ever
develop for the Notes, and that accordingly it may be impossible for
Subscriber to liquidate his investment in the Note, even in the event of an
emergency. Any transfer of the Note must comply with the requirements of the
Prospectus, the Note and with any additional requirements imposed by law or
by any governmental authorities.

4. TAX REPRESENTATIONS: Under penalties of perjury, I certify that (i)
the number shown on this form is my correct taxpayer identification number,
and (ii) that I am not subject to backup withholding because (A) I have not
been notified that I am subject to backup withholding as a result of a
failure to report all interest or dividends or (B) the Internal Revenue
Service has notified me that I am no longer subject to backup withholding.
Under penalties of perjury, I certify that I am not a non-resident alien
individual, a foreign partnership, a foreign corporation, or a foreign estate
or trust, which would be a foreign person within the meaning of Sections
1441, 1446 and 7701(a) of the Internal Revenue Code of 1986, as amended, and
that I will notify the Issuer before a change in my foreign status.

5. SUITABILITY. If an Arizona subscriber, the subscriber represents
that he/she/it has 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. If a California
subscriber, the subscriber represents that he/she/it has 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. If a North Carolina subscriber, the subscriber represents that
he/she/it has 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. If a Texas subscriber, the
subscriber represents that he/she/it has 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. If a Wisconsin subscriber, the subscriber represents that
he/she/it has 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. If a subscriber is a fiduciary
account, the subscriber represents that the foregoing standards are 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 capitalized terms used have the meanings assigned to them in the
Prospectus unless the context otherwise requires.

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

SUBSCRIPTION INSTRUCTIONS

1. Complete all items and sign and date this Subscription Agreement in
the places indicated. Subscribers should use full names (not initials). If
you have previously subscribed for a Note in this offering and wish to
subscribe for an additional Note, please check the appropriate box and
complete the entire Subscription Agreement. NO SUBSCRIPTION AGREEMENT WILL
BE PROCESSED UNLESS FULLY COMPLETED AND ACCOMPANIED BY THE APPROPRIATE
PAYMENT.

2. Make your subscription check payable to "River Oaks Trust Company,
as Escrow Agent," for the amount entered under "Amount Enclosed" in the
Subscription Agreement. After the Minimum Offering has been achieved,
subscription checks should be made payable to "Sovereign Credit Finance I,
Inc." NO SUBSCRIPTION AGREEMENT WILL BE PROCESSED UNLESS FULLY COMPLETED
AND ACCOMPANIED BY THE APPROPRIATE PAYMENT.

3. Mail or deliver your signed Subscription Agreement and your check to
your Registered Representative.

4. Registered Representatives: Please forward signed Subscription
Agreements and checks to Sovereign Credit Finance I, Inc., 4015 Beltline
Road, Building B, Dallas, Texas 75244.

The following signature and other documentation requirements have been
established for the following forms of ownership of the Notes:

JOINT TENANTS AND TENANTS IN COMMON: The signatures of all joint tenants
and tenants in common investors are required unless a separate document,
signed by all parties and designating one as the agent of the other(s) for
purposes of signing the Subscription Agreement, accompanies the Subscription
Agreement.

CORPORATION: The signature(s) of an officer(s) authorized to sign on
behalf of the corporation is(are ) required.

PARTNERSHIP: Specify whether the subscriber is a general or limited
partnership. If it is a general partnership, the signatures of all partners
are required. If it is a limited partnership, the signatures of all general
partners are required.

TRUST: The Subscription Agreement must be signed by the trustee.

UNIFORM GIFTS TO MINORS ACT: The required signature is that of the
custodian, not of the parent (unless the parent has been designated as the
custodian). Only one child is permitted in each investment under the Uniform
Gifts to Minors Act. Different requirements may apply in your state. Please
consult your attorney for information regarding these requirements.

<PAGE>

EXHIBIT 10.6

FORM OF GUARANTY AGREEMENT

<PAGE>

GUARANTY

For good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the undersigned, Sovereign Credit Corporation
(the "Guarantor"), a Texas corporation, guarantees and agrees to pay at
maturity up to a maximum of $250,000 of the indebtedness, obligations and
liabilities that Sovereign Credit Finance I, Inc. ("Debtor"), a Texas
corporation, may now or at any time hereafter pursuant to those certain 11%
Promissory Notes (the "Notes") due October 15, 2000, issued or to be issued
by the Debtor to the holders of the Notes (the "Noteholders") subject to the
terms of a trust indenture agreement (the "Indenture") between the Debtor and
Sterling Trust Company, as Trustee (the "Trustee") of even date herewith
(said indebtedness, obligations and liabilities are hereinafter collectively
called the "Liabilities"). This is a continuing Guaranty, and shall apply to
and cover any Liabilities and any renewals, extensions, and refinancings,
thereof, modifications and additions thereto, and substitutions, up to a
$250,000 maximum limit of guaranty on the Notes.

Trustee, without authorization from or notice to Guarantor and without
impairing or affecting the liability of Guarantor hereunder, but subject to
the terms of the Indenture, may from time to time at its discretion and with
or without valuable consideration, before or after revocation hereof, alter,
compromise, accelerate, extend or change the time or manner for the payment
of any or all of the Liabilities, increase or reduce the rate of interest
thereon, take and surrender security, exchange collateral by way of
substitution, or in any way it deems necessary take, accept, withdraw,
subordinate, alter, amend, modify or eliminate collateral, add or release or
discharge endorsers, guarantors, or other obligors, make changes of any sort
whatever in the terms of payment of the Liabilities or of doing business with
Debtor, settle or compromise with Debtor or any other person or persons
liable on the Liabilities on such terms as it may see fit, and may apply all
monies received from Debtor or others or from any security or collateral held
(whether held under a security instrument or not) in such manner upon the
Liabilities (whether then due or not) as it may determine to be in the best
interest of the Noteholders, without in any way being required to marshal
securities or assets or to apply all of any part of such monies upon any
particular part of the Liabilities.

Guarantor absolutely and unconditionally covenants and agrees that in
the event that Debtor does not or is unable to pay the Liabilities for any
reason, including without limitation, liquidation, dissolution, receivership,
bankruptcy, assignment for the benefit of creditors, reorganization,
arrangement, composition, or readjustment of, or other similar proceedings
affecting the status, composition, identity, existence, assets or obligations
of, Debtor, or the disaffirmance or termination of any of the Liabilities in
or as a result of any such proceeding, Guarantor shall pay the Liabilities up
to the maximum limit of $250,000.

<PAGE>

Guarantor hereby represents and warrants that (a) this Guaranty is a
legal, valid and binding obligation of Guarantor, enforceable against
Guarantor in accordance with its terms; and (b) the execution, delivery, and
performance by Guarantor of this Guaranty does not and will not violate any
authority having the force of law or any indenture, agreement, or other
instrument to which Guarantor is a party or by which Guarantor or any of the
properties or assets of Guarantor are or may be bound.

Any notice, request, demand or communication required or permitted
hereunder (unless otherwise expressly provided) shall be given in writing by
delivering same in person (including by facsimile transmission or courier
delivery) to the intended addressee, or by United States first class mail,
postage prepaid, addressed to Guarantor at the address shown below Guarantor's
signature below or to Trustee at the address shown in the Indenture or in
either case to such other address or to the attention of such other person as
hereafter shall be designated in writing by the applicable party sent in
accordance herewith. Any such notice or communication shall be deemed to have
been given as of the date of first attempted delivery at the address and in the
manner provided herein. Without limiting the foregoing, all notices or other
communications required or permitted hereunder also shall be deemed to have
been given (i) on the day of transmission if sent by confirmed facsimile
transmission or (ii) on the day after delivery to Federal Express or similar
overnight courier, properly addressed for prepaid delivery the next day.

This Guaranty shall be deemed to have been made under and shall be
governed by the internal laws of the State of Texas in all respects and
without regard to conflict of law principles and shall not be waived,
altered, modified or amended as to any of its terms or provisions except in
writing duly signed by Trustee and Guarantor.

Effective as of: _________, 1996.

"Guarantor"

Sovereign Credit Corporation

By:
-----------------------------------

Its:
-----------------------------------

Address:
Sovereign Credit Corporation
4015 Beltline Road, Building B
Dallas, Texas 75244

<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
October 7, 1996