SOVEREIGN CREDIT FINANCE I INC, POS AM, 1997-07-25

SOVEREIGN CREDIT FINANCE I INC
POS AM, 1997-07-25
SHORT-TERM BUSINESS CREDIT INSTITUTIONS

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As filed with the Securities and Exchange Commission on July 25, 1997

SECURITIES ACT OF 1933
FILE NO. 333-04072
- -------------------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

POST-EFFECTIVE 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.)

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

COPY TO:

FREDERICK C. SUMMERS, III
A PROFESSIONAL CORPORATION
1400 ST. PAUL PLACE
750 NORTH ST. PAUL 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. [ ]

<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

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(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

(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>

SUPPLEMENT TO PROSPECTUS
OF
SOVEREIGN CREDIT FINANCE I, INC.

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

The date of this Supplement is July __, 1997.

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

THE FOLLOWING IS INTENDED TO SUPPLEMENT THAT WHICH IS INCLUDED IN THE PROSPECTUS
UNDER THE HEADING "MANAGEMENT", BEGINNING AT PAGE 39:

William Burmeister has resigned his positions as Vice President and
Controller of SAI. B.A. Breeding, age 56, now serves in those positions and
as Vice President and Controller of Sovereign. Mr. Breeding is responsible
for the financial accounting, banking and the day-to-day financial duties of
such companies. He has been with the companies since April 1997. From 1989
to January 1995, he was employed by Lomas Financial Group, a real estate
finance, investment, and servicing company, in a financial management
capacity. Mr. Breeding began a private accounting practice in 1996, where
he continued until joining the Sovereign companies.

THE FOLLOWING IS INTENDED TO SUPPLEMENT THAT WHICH IS INCLUDED IN THE PROSPECTUS
AT PAGE 49 UNDER THE HEADING "PLAN OF DISTRIBUTION":

As described in the Prospectus, the Notes are being offered by
participating broker-dealers which are members of the National Association of
Securities Dealers, Inc. Such broker-dealers will solicit subscriptions for the
Notes on a "best efforts" basis under selling agreements with the Company.
American Investment Services, Inc. and IMS Securities, Inc. have entered into
such selling agreements with the Company, and as of the date of this Supplement
have each sold over 5% of the total offering amount.

The minimum of $500,000 in principal amount of the Notes has been sold.
Consequently, investor subscriptions are no longer subject to the escrow
requirement set forth in the Prospectus.

Minimum suitability requirements have been established for residents of
certain states. The following are the requirements set forth by states in
addition to those set forth in the Prospectus. Arkansas 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. Indiana subscribers must represent
that they have either (a) an annual gross income of at least $40,000, and a net
worth of at least $40,000, 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. Iowa 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. Michigan 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. New Mexico 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. Oklahoma 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.

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$20,000,000 (MAXIMUM) $500,000 (MINIMUM)

SOVEREIGN CREDIT FINANCE I, INC.

11% NOTES DUE FEBRUARY 15, 2001

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 February 15, 2001 (the "Notes"). The Notes bear interest,
payable monthly, at a stated annual rate of 11%. The effective yield of the
Notes will be 10.95%. The principal thereof will be repaid in six equal monthly
installments beginning September 15, 2000.

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

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

The offering will terminate on January 31, 1998, 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 10 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.

<TABLE>
<CAPTION>
PRICE TO BROKERS COMMISSIONS PROCEEDS TO
PUBLIC AND EXPENSES (1) COMPANY (2)
Per Note................................... 100% 8% 92%
<S> <C> <C> <C>
Total Minimum.............................. $500,000 $40,000 $460,000
Total Maximum.............................. $20,000,000 $1,600,000 $18,400,000
</TABLE>

(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
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 April 30, 1997,
the offering will be terminated and the escrowed funds, plus any interest earned
thereon, will be promptly returned to the investors by the escrow agent. Upon
the subscription by investors for the minimum amount of Notes, the escrowed
funds (less interest thereon which will be paid to investors) will be released
to the Company. Affiliates of the Company will not purchase Notes in the
offering. Interest will not accrue on the Notes until the escrowed funds are
released to the Company.
<PAGE>
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 JANUARY 31, 1997.
<PAGE>
AVAILABLE INFORMATION

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

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

REPORTS TO NOTEHOLDERS

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

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

MINIMUM SUITABILITY STANDARDS

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

2
<PAGE>
SUMMARY

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

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

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

NOTES............................. 11% Notes due February 15, 2001 (the "Notes") to be
issued subject to the terms of a trust indenture
agreement (the "Indenture") between the Company and the
Trustee.

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

INTEREST PAYMENTS TO
NOTEHOLDERS..................... Each Note will bear interest at 11% per annum on its
outstanding principal, payable monthly on the 15th day
of each month during the term of the Note (for interest
accruing through the last day of the prior month)
beginning with the second full calendar month following
the calendar month in which the Note is issued (the
"Payment Dates"). For example, if a Note is issued to an
investor in March, 1997, such investor will receive the
first interest payment on May 15, 1997, which will be
for interest accruing through April 30, 1997.

Interest will not accrue on the Notes, nor will the
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.
</TABLE>

3
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<S> <C>
EFFECTIVE YIELD................... The effective interest rates of the Notes will be
10.95%. This is lower than the stated interest rates of
the Notes because each payment of interest will be paid
15 days after the end of the month during which it
accrued, and because interest is computed on the basis
of a 360-day year, comprised of twelve 30-day periods.

PRINCIPAL PAYMENTS................ Principal on the Notes will be repaid in six equal
installments commencing on September 15, 2000, and on
each of the five Payment Dates thereafter. The Notes
will mature on February 15, 2001, at which time all
outstanding and accrued principal and interest will be
finally due and payable.

MATURITY.......................... February 15, 2001

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

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

4
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<TABLE>
<S> <C>
THE CONTRACT PROCEEDS............. All proceeds from the Contracts will be paid directly by
the obligors on the Contracts ("Obligors"), or deposited
by SAI, to a lockbox account maintained by SAI in the
Company's name (the "Collections Account"). On at least
a weekly basis, the Company is required to transfer all
amounts in the Collections Account attributable to the
Contracts to a commercial bank account maintained by the
Company (the "Operating Account"). So long as no Event
of Default exists and subject to the receipt by the
Trustee of any required certificates, and subject
further to any restrictions imposed by any Additional
Lender, the Company will have the right to cause the
funds contained in the Operating Account to be withdrawn
or applied for the following purposes in the following
priority: first, to the payment of any interest and
principal due to any Additional Lender; second, to the
payment of any interest due on the outstanding Notes on
each Payment Date; third, to any amounts due the Trustee
for its fees and expenses; fourth, except during an
Event of Default, to the payment of any other allowed
expenses ("Allowed Expenses"), as certified by the
Company; fifth, to the deposit into the trust account
established in the name of the Trustee (the "Trust
Account") for payment of principal owing on the Notes on
any Payment Date occurring on or after September 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 ACCOUNT................. On or before each Payment Date, the Company will
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 September 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 CONTRACTS............. The Company will purchase additional Contracts using (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,
</TABLE>

5
<PAGE>

<TABLE>
<S> <C>
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 Fee") to SAI for
its purchase administration services.

Although direct purchases from dealers are expected to
be the norm, the Company may also purchase Contracts
that SAI or its affiliates has previously purchased. In
order to determine the cost to the Company for each such
Contract, SAI will first determine the original
purchaser's initial internal rate of return on its
investment in the Contract as of its purchase from the
dealer, assuming that the Contract was paid in full in
accordance with its scheduled installments. The cost to
the Company will then be (i) an amount determined so
that it will experience the same internal rate of return
on its investment in the Contract, assuming that the
Contract is paid in full in accordance with its
scheduled installments, plus (ii) the Purchase
Administration Fee paid by the original purchaser with
respect to such Contract. Contracts purchased from
affiliates will be limited to those for which payments
are no more than 30 days past due.

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

6
<PAGE>

<TABLE>
<S> <C>
The average term remaining, and the average principal
amount, for Contracts in SAI's servicing portfolio at
September 30, 1996 is approximately 28 months and
approximately $8,000, respectively. Contracts purchased
on behalf of the Company may vary from these averages.

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

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

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

ADMINISTRATOR..................... Sovereign Credit Corporation ("Sovereign"), a Texas
corporation and a wholly-owned subsidiary of Sovereign
Credit Holdings, Inc., will administer and manage the
ongoing
</TABLE>

7
<PAGE>

<TABLE>
<S> <C>
operations of the Company. Sovereign will pay all
general and administrative overhead expenses incurred by
the Company, other than Allowed Expenses. Sovereign will
also pay offering and organization expenses of the
Company (other than commissions to broker-dealers) to
the extent such expenses exceed 2% of the gross proceeds
from the sale of the Notes. For such services, the
Company will pay Sovereign a fee equal to 5.5% of the
gross proceeds from the sale of the Notes (5.0% of the
gross proceeds in excess of $9,000,000). See "Use of
Proceeds".

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

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

USE OF PROCEEDS................... The Company will use at least 84.5% of the proceeds from
the 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,
without any minimum denominations, but subject to a
minimum purchase by each investor of at least $4,000 (or
$2,000 for Individual Retirement Accounts).

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

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

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

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

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

8
<PAGE>

<TABLE>
<S> <C>
- 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".

PLAN OF DISTRIBUTION.............. The Notes will be sold on a "best efforts" basis by
licensed 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 April 30, 1997, the
offering will be terminated and the escrowed funds, plus
any interest thereon, will be promptly returned to the
subscribing investors by the escrow agent. Upon
subscription of the minimum amount of Notes, the
escrowed funds will be released to the Company. See
"Plan of Distribution".

OFFERING TERMINATION DATE......... January 31, 1998, unless sooner terminated by the
Company for certain reasons. See "Plan of Distribution".
</TABLE>

9
<PAGE>
RISK FACTORS

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

LIMITED ASSETS; SINGLE PURPOSE NATURE

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

UNSECURED NATURE OF NOTES

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

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

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

PURCHASING AND SERVICING OF CONTRACTS DEPENDENT ON SAI

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

10
<PAGE>
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 from which the Company will purchase
Contracts base their used automobile financing decisions primarily upon the
value of the underlying automobile collateral. The Contracts which the Company
will purchase are generally entered into by Dealers with customers who generally
cannot obtain a loan from a local financial institution or from the credit
facilities of a major automobile manufacturer. Often, such customers have had
credit problems in the past. Although SAI has established certain purchasing
criteria in order to reduce the risk of default, there is no assurance that such
customers will be creditworthy or that loans will ultimately be repaid. In
addition, there is no assurance that the collateral could be sold for sufficient
net proceeds to recoup the Company's investment in the Contracts. Generally, the
"creditworthiness grade" of the Obligors on the Contracts will be "C" and "D".

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

DEFAULTS ON CONTRACTS AND REPOSSESSIONS

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

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

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

11
<PAGE>
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
February 15, 2001, 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 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

12
<PAGE>
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 addition to those required under federal law. These requirements
impose specific statutory liabilities upon creditors who fail to comply with
their provisions. A risk exists that this liability could affect the ability of
the Company, as an assignee of the Contracts, to enforce the Contracts. In
addition, certain of these laws make an assignee of such a contract liable to
the obligor thereon for any violation by the assignor. Accordingly, the Company,
as holder of the Contracts, may be subject to liability to an obligor under one
or more of the Contracts. See "Certain Legal Aspects of the Contracts--Consumer
Protection Laws."

POTENTIAL CONFLICTS OF INTEREST

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

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

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

13
<PAGE>
Sovereign provides floor plan financing for various automobile dealers.
"Floor plan financing" refers to assistance provided to dealers in financing
their purchases of inventories of automobiles held for sale to customers. The
Company may purchase Contracts from time to time from such dealers.

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

LACK OF DAMAGE INSURANCE

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

REDEMPTION OF NOTES; YIELD CONSIDERATIONS

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

COMPETITION

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

SALE OF SMALL AMOUNT OF NOTES

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

14
<PAGE>
to repay a small amount of Notes may be adversely affected. See "Description of
the Notes--The Contract Proceeds and Operating Account".

LACK OF PARTICIPATING BROKER/DEALERS

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

OTHER SECURITIES OFFERINGS

The Securitization Subsidiaries have previously sold securities to
investors. The offering and sale of securities is subject to the requirement
that the securities be registered under federal securities laws, unless an
exemption therefrom is available. The securities offerings of the Securitization
Subsidiaries were conducted pursuant to the Regulation D exemption. The
Securitization Subsidiaries were all sponsored by Sovereign, and Sovereign
believes that it fully complied with all the requirements of the Regulation D
exemption. However, it is possible that investors in the Securitization
Subsidiaries, in the event they were ever unsatisfied with their investments,
would bring legal actions arguing that the offerings constituted one single
offering and that the Regulation D exemption was unavailable on the grounds that
the Securitization Subsidiaries are under common control, the Regulation D
offerings were conducted in close proximity to one another, and collections from
the Contracts of the various Securitization Subsidiaries are deposited by SAI in
a single gross collections account (albeit under separate trust agreements with
each Securitization Subsidiary). If such investors were successful in court with
such argument, they would be entitled to the rescission of their investments
(subject to available legal offsets). However, even if such investors were
successful with such argument, the Company believes that most and possibly all
claims would be barred by the applicable statute of limitations. It is unknown
as of the date of this Prospectus whether any such litigation, if it were ever
to occur, would have a material adverse effect on Sovereign's operations,
financial condition, or its ability to act as manager of the Company.

15
<PAGE>
CAPITALIZATION

The following table sets forth the capitalization of the Company as of
September 30, 1996, and as adjusted to reflect the sale of the Notes offered
hereby.

<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1996
-------------------------------------
AS ADJUSTED
--------------------------
ACTUAL MINIMUM MAXIMUM
--------- ---------- --------------
<S> <C> <C> <C>
LIABILITIES
Notes Due February 15, 2001............................................... -- $ 500,000 $ 20,000,000

SHAREHOLDER'S EQUITY
Common stock, $.01 par value, authorized 50,000 shares, issued and
outstanding, 1,000 shares............................................... $ 10 10 10
Additional paid-in capital................................................ 990 990 990
Retained deficit.......................................................... (121) (121) (121)
--------- ---------- --------------
TOTAL SHAREHOLDER'S EQUITY.............................................. $ 879 $ 879 $ 879
--------- ---------- --------------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY.................................. $ 879 $ 500,879 $ 20,000,879
--------- ---------- --------------
--------- ---------- --------------
</TABLE>

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

Sovereign Credit Corporation ("Sovereign"), a wholly-owned subsidiary of
Sovereign Credit Holdings, Inc., the parent of the Company, has issued its
unsecured promissory note to the Company, payable on demand, in the principal
amount of $250,000. The note bears interest at the rate of 10% per annum,
payable at maturity. Such note constitutes an asset of the Company, and is
enforceable by the Company in accordance with its terms. As of September 30,
1996, Sovereign had, on a consolidated, unaudited basis, $188,446 in cash, total
assets of $924,504, total liabilities of $384,405, and stockholders' equity of
$540,099.

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<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:

<TABLE>
<CAPTION>
MINIMUM OFFERING MAXIMUM OFFERING
----------------------- --------------------------
USE OF PROCEEDS AMOUNT PERCENT AMOUNT PERCENT
- ------------------------------------------------------- ---------- ----------- ------------- -----------
<S> <C> <C> <C> <C>
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%
---------- ----- ------------- -----
---------- ----- ------------- -----
</TABLE>

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

(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
SAI; Potential Conflicts of Interest".

17
<PAGE>
DESCRIPTION OF THE NOTES

GENERAL

The Notes will be issued pursuant to an Indenture dated as of January 31,
1997 (the "Indenture") between the Company and Sterling Trust Company, as
trustee (the "Trustee"), a copy of which has been filed as an exhibit to the
Registration Statement of which this Prospectus is a part. The following
summaries of certain provisions of the Indenture do not purport to be complete
and are subject to, and qualified in their entirety by reference to, the
provisions of the Indenture. However, all material terms of the Notes and the
Indenture are described in this Prospectus.

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

ISSUANCE OF NOTES; TRANSFERS

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

MATURITY OF THE NOTES

The Notes will mature on February 15, 2001 (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
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 September 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.

18
<PAGE>
SOURCES OF FUNDS FOR PAYMENT; ACCOUNTS

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

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

19
<PAGE>
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 September
15, 2000 and on each of the next five Payment Dates thereafter. Funds in the
Trust Account may be invested in Eligible Investments, as directed by the
Company, and, during the continuance of an Event of Default, as determined by
the Trustee, within the restrictions established in the Indenture. (Indenture,
Sections 4.1 and 4.2)

THE CONTRACT PROCEEDS AND OPERATING ACCOUNT

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

Subject to the requirement to pay interest and principal to any Additional
Lender, and provided that no Event of Default exists, the Company will have the
right to cause the funds contained in the Operating Account to be withdrawn or
applied for the following purposes in the following priority; first, through a
direct transfer to the Trust Account, to the payment of any interest due on the
outstanding Notes on each Payment Date; second, to any amounts due the Trustee
for its fees and expenses; third, to the payment of any other Allowed Expenses;
fourth, to the deposit to the Trust Account for payment of any principal due on
the outstanding Notes on any Payment Date occurring on or after September 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 Date. Commencing on or prior to the business day immediately preceding
September 15, 2000, and on or prior to the business day immediately preceding
each of the next five Payment Dates

20
<PAGE>
occurring thereafter, the Company shall cause to be transferred from the
Operating Account to the Trust Account an amount which, together with any funds
then held in the Trust Account, is sufficient to pay the accrued interest due,
and principal owing, on the Notes on such Payment Date. See "Sources of Funds
for Payment; Accounts" above.

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

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

21
<PAGE>
SUMMARY OF ESTIMATED ALLOWED EXPENSES

<TABLE>
<CAPTION>
ALLOWED EXPENSES ESTIMATED AMOUNT
- ------------------------------------------ ---------------------------------------------------------------------

<S> <C>
Servicing Fees (paid to SAI, an affiliate
of the Company)
Contract Servicing Fee.................. $20 per month per Contract not assigned for repossession, paid to SAI
Purchase Administration Fee............. the lesser of $500 per Contract purchased, or 5% of the total amount
of installments due under the Contract as of the date of purchase,
paid monthly to SAI
Investor Administration Fee (paid to
Sovereign, an affiliate of the
Company)................................ 1/12th of 0.5% of the aggregate outstanding principal amount of the
Notes, paid monthly to Sovereign ($83.33 or $8,333.33 per month if
minimum or maximum amount, respectively, of Notes is sold)
Trustee Fees
Acceptance Fee (payable upon execution
of Indenture.......................... $7,000
Annual Administration Fee (billed
quarterly)............................ $7,500
Paying Agent/Registrar Services......... $4 per year per Note
Note Register Revisions, Transfers,
Exchanges and Replacement Notes
(chargeable to Noteholders)........... $10 each
Out-of-Pocket Costs..................... Estimated to be minimal
Expedited Delivery (per delivery, in
addition to out-of-pocket)............ $10 each
Bank Fees.................................
Collections Account..................... $3,000 to $4,000 (varies with 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 Liquidation
Expenses................................ $125 per Financed Vehicle paid to SAI, plus expenses estimated to
average from $1000 to $1500 for each repossessed vehicle, but limited
to the related liquidation or insurance proceeds
Vehicle Warranty Repair Service
Contract................................ Average of $550 per Contract (purchased at Obligor's option and
usually financed through Contract)
Federal Income Taxes...................... Varies with taxable income
Texas Franchise Taxes..................... 4.5% of taxable income allocated to Texas
</TABLE>

22
<PAGE>
To the extent collected funds are not needed to fund the payments on the
Notes or the Additional Borrowing, if any, the purchase of additional Contracts,
or the payment of Allowed Expenses of the Company, such funds will remain in the
Company's Operating Account.

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

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

FLOW OF CONTRACT PROCEEDS AND PRIORITY OF APPLICATIONS

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

(1) PRIORITY OF MONTHLY PROCEEDS APPLICATIONS

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

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

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

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

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

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

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

ADDITIONAL INDENTURE PROVISIONS

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

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

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

23
<PAGE>
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 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 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

24
<PAGE>
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 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,

25
<PAGE>
however, that SAI will continue to be obligated to transfer funds of the Company
to the Operating Account.

POSSIBLE ADDITIONAL BORROWING

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

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

26
<PAGE>
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 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 (except as set forth under
"Capitalization"), operating history or pending legal proceedings. The Company
and SAI intend to obtain any licenses that

27
<PAGE>
may be required in any state where it purchases and collects Contracts. SAI has
registered, and the Company will register, with the Texas Consumer Credit
Commissioner as a holder of motor vehicle retail installment contracts.

BUSINESS OF SOVEREIGN, SAI AND THE SECURITIZATION SUBSIDIARIES

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

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

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

LITIGATION

SAI has filed an arbitration claim with the American Arbitration Association
against Lipshy Motorcars, Inc., a used automobile dealer, claiming that Lipshy
is in breach of contract under the terms of various Contract purchase
agreements. Pursuant to such agreements, SAI, on behalf of an affiliated entity,
purchased Contracts from Lipshy for 50% to 60% of the then outstanding principal
balance of the Contracts, with additional payments to be made as the Contracts
were collected by SAI. The agreements further provided that Lipshy would
repurchase any Contract that had amounts past due for a period of 60 days or
more. A large number of Contracts that were so purchased by SAI became more than
60 days past due, but Lipshy refused to honor its repurchase obligation. SAI's
claim alleges breach of contract, conversion, fraud, and tortious interference
with contract, and requests actual damages of $1,694,960 plus punitive damages.
Lipshy has filed a counterclaim against SAI, alleging that the agreements were
actually Contract servicing agreements, and alleges fraud, negligent
misrepresentation, negligence, breach of contract, and violation of the Texas
Deceptive Trade Practices--Consumer Protection Act. In its counterclaim, Lipshy
requests unspecified damages, which it states are in excess of $1 million. SAI
believes that Lipshy's counterclaim is without merit, and is nothing more than
an attempt to circumvent Lipshy's obligations to repurchase a large amount of
Contracts which were uncollectible, and intends to vigorously defend itself
against the counterclaim. Additionally, SAI intends to vigorously pursue its
claims against Lipshy. It is unknown as of the date of this Prospectus whether
an adverse decision with respect to the counterclaim asserted by Lipshy would
have a material adverse effect on SAI's operations, financial condition, or
ability to act as Servicer on behalf of the Company. Consequently, it unknown as
of the date of this Prospectus whether such an adverse decision would adversely
affect the Noteholders.

The Company is not a party to any litigation.

28
<PAGE>
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 January 31, 1997 (collectively, the "Servicing Agreement"), between
the Company and SAI. A copy of each of the documents constituting the Servicing
Agreement has been filed as an exhibit to the Registration Statement of which
this Prospectus is a part. In addition, SAI has joined in the execution of the
Indenture for the purpose of making certain agreements and representations
regarding the purchasing and servicing of the Contracts with the Trustee for the
benefit of Noteholders. The following summaries do not purport to be complete
and are subject to and qualified in their entirety by reference to, the
provisions of the Servicing Agreement and the Indenture, and where particular
provisions or terms used in the Servicing Agreement or the Indenture are
referred to, the actual provisions (including definitions of terms) are
incorporated by reference as part of such summaries. References herein to the
"Servicer" are to SAI and any successor or permitted assignee of SAI performing
the duties of the Servicer under the Servicing Agreement.

GENERAL

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

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

CONTRACT PURCHASE CRITERIA

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

(a) The purchase price for each Contract must involve an initial payment
to the Dealer (i) of no more than 90% of principal plus accrued interest
(pay-off balance) of such Contract at the time of purchase, and (ii) which
does not exceed 140% of the average trade-in price (wholesale value) for the
related Financed Vehicle plus tax, title, license and warranty (or, in the
case of certain popular models, 140% of the Dealer's cost plus tax, title,
license and warranty).

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

29
<PAGE>
(c) The age of each Financed Vehicle will generally be seven years or
less for automobiles or eight years or less for trucks, although SAI may
purchase Contracts secured by Financed Vehicles which are older, if in its
judgement the economics justify such a purchase.

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

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

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

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

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

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

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

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

Although most state laws mandate that owners maintain liability insurance
for damages arising from their use of a motor vehicle, the owners of the
Financed Vehicles may fail to maintain physical damage insurance and the
Servicing Agreement does not require that the Obligors on the Contracts maintain
such insurance as a criterion for Contract purchase. In many cases, the Servicer
or the Company will be named as a loss payee under the Obligor's automobile
insurance policy. The Company may suffer a loss upon any theft or physical
damage of any Financed Vehicles if the Obligor does not maintain physical damage
insurance and is otherwise unable to pay for repairs or replacement or its
obligations under the related Contract. In addition, the Company may not require
verification of physical damage insurance coverage for Financed Vehicles in
connection with certain Contract packages it purchases, and may purchase some

30
<PAGE>
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 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 Collections Account. (Servicing Agreement, Section 6)
Any material extensions, modifications, or acceptances of partial payments by
Obligors, and any related necessary Contract amendments or default waivers by
the Servicer, must be approved by the chief credit officer or president of the
Servicer. (Servicing Agreement, Exhibit A) Under the Indenture and the Servicing
Agreement, the Servicer is required to pursue repossession, subject to
compliance with all state and federal laws relating thereto, of the Financed
Vehicle securing any Contract whose Obligor (i) is past due by at least three
scheduled installments in the case of bi-weekly or semi-monthly installments or
two scheduled installments in the case of monthly installments, and (ii) has
failed for 30 days, in the case of bi-weekly or semi-monthly installments, or 45
days, in the case of monthly installments, to remit any sums against the
obligations under the Contract.

31
<PAGE>
(Indenture, Section 12.7; Servicing Agreement, Exhibit A) The Servicer may
commence repossession sooner if it deems such activity to be prudent and in the
best interests of the Company and the Servicer. The Servicer is also required to
document the reasons for each chargeoff of any material unpaid amount from an
Obligor under any Contract. (Servicing Agreement, Exhibit A) As indicated by the
foregoing repossession requirements, to maximize its return, the Company prefers
to continue collecting installments on the Contract despite a missed installment
by the Obligor in lieu of repossession of the vehicle. See "Risk
Factors--Collections and Repossessions; Performance of Contracts".

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

SERVICING FEES AND SAI COMPENSATION

The Servicer is entitled under the Servicing Agreement to receive a fee (the
"Contract Servicing Fee") of $20 per month per outstanding Contract that has not
been assigned for repossession, plus all late fees. (Servicing Agreement,
Section 3) Such fee will also be paid to SAI with respect to Contracts serviced
or collected by third parties with which SAI has contracted. The Contract
Servicing Fee is intended to compensate and reimburse SAI for administering the
collection of the Contracts, including collecting and posting all payments,
responding to inquiries of Obligors on the Contracts, investigating
delinquencies, sending payment coupons to Obligors, reporting any required tax
information to Obligors, paying costs of collections and policing the Financed
Vehicles. The Contract Servicing Fee will also compensate the Servicer for
furnishing monthly and annual statements to the Company and the Trustee with
respect to expenditures and receipts, and generating information necessary for
the Company to prepare all required federal and state income tax returns. The
Company will reimburse SAI for all direct charges incurred in connection with
servicing the Contracts, perfecting the Company's security interest in
collateral securing the Contracts and protecting the interests of the Company in
the event of default on any of the Contracts, including without limitation,
amounts required to pay prior liens that must be paid, local, state or federal
taxes pertaining to the collateral, the costs of maintaining, perfecting and
obtaining liens and/or foreclosing thereon, and attorneys fees in connection
with the foregoing.

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

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

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

33
<PAGE>
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
September 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.

<TABLE>
<CAPTION>
DELINQUENCIES OF ALL MOTOR VEHICLES
RETAIL INSTALLMENT SALES CONTRACTS
AS OF SEPTEMBER 30, 1996
-----------------------------------------------------
NUMBER OF
ACTIVE PERCENT OF TOTAL UNPAID PERCENT OF
DAYS PAST DUE(1) CONTRACTS TOTAL INSTALLMENTS(2) TOTAL
- -------------------------------------------- ----------- ----------- -------------- -----------
<S> <C> <C> <C> <C>
0-30........................................ 3,208 61.1% $ 19,446,043 61.5%
31-60....................................... 727 13.8% $ 4,323,526 13.6%
61-90....................................... 371 7.1% $ 2,172,711 6.9%
over 91..................................... 942 18.0% $ 5,700,574 18.0%
----- ----- -------------- -----
All Active Contracts........................ 5,248 100.0% $ 31,642,855 100.0%
----- ----- -------------- -----
----- ----- -------------- -----
</TABLE>

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

(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.

34
<PAGE>
ADDITIONAL SELECTED DATA FOR ALL MOTOR VEHICLE
RETAIL INSTALLMENT SALES CONTRACTS FROM
JUNE 1, 1993 THROUGH SEPTEMBER 30, 1996

<TABLE>
<CAPTION>
PERCENT OF PERCENT OF
NUMBER TOTAL AMOUNT TOTAL
----------- ----------- ------------- -----------
<S> <C> <C> <C> <C>
Writeoffs(1).......................................................... 316 3.9% $ 3,141,820 4.8%
Repossessions(2)...................................................... 1,079 13.3% $ 10,497,128 16.0%
Proceeds from Repossessions(3)........................................ 773 9.6% $ 5,671,554 8.6%
Inventory of Repossessions(4)......................................... 306 3.8% $ 818,775 1.2%
Total Contracts Purchased(5).......................................... 8,091 $ 65,761,877
</TABLE>

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

(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 total unpaid installments of the
Contracts at the time they are classified as "Writeoffs".

(2) "Amount" represents the total unpaid installments of the related Contracts
at the time of repossession plus repossession and reconditioning fees and
expenses.

(3) "Amount" represents total unpaid installments of Contracts originated from
sales of repossessed vehicles and any insurance proceeds, if applicable,
before deduction for repossession and reconditioning fees and expenses.

(4) "Inventory of Repossessions" are repossessed vehicles in inventory awaiting
resale as of September 30, 1996. "Amount" represents wholesale values of
repossessed vehicles at the time of repossession plus repossession and
reconditioning fees and expenses.

(5) "Amount" represents the total unpaid installments of the Contracts at the
time of purchase.

The average term remaining, and the average principal amount, for Contracts
in SAI's servicing portfolio at September 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.

35
<PAGE>

SUPPLEMENT TO PROSPECTUS
OF
SOVEREIGN CREDIT FINANCE I, INC.

Sovereign Credit Finance I, Inc., a Texas corporation (the "Company"), is
hereby supplementing its Prospectus dated January 31, 1997 which offers the
Company's 11% notes due February 15, 2001 (the "Notes"). The information
contained herein is intended to supplement that which is included in the
Prospectus at pages 36 and 37 under the heading "INFORMATION REGARDING THE
SECURITIZATION SUBSIDIARIES". Terms used and not defined herein have the same
meanings as in the Prospectus. The date of this Supplement is July 16, 1997.

____________________________________

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 April 30,
1997. 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>
Principal Cash Maturity Value Payoff Balance Total
Due Collected for of Active of Active Assets
Name of Investors as Due Quarter ended Contracts as Contracts as as of
Program(1) of 4/30/97 Date(2) 4/30/97 of 4/30/97(3) of 4/30/97(4) 4/30/97(5)
- ---------- ------------ -------- ------------- -------------- -------------- ----------
<S> <C> <C> <C> <C> <C> <C>
SAM 94-1 $ 363,850 07/15/97 $ 14,717 $ 104,606 $ 91,797 $ 87,745
SAM 94-3 $ 710,142 03/31/98 $ 55,905 $ 530,067 $ 433,401 $ 441,392
SAM 95-1 $ 588,036 10/15/98 $ 53,360 $ 495,265 $ 418,902 $ 435,207
SAM 95-2 $ 889,959 03/15/99 $143,586 $1,283,692 $1,041,868 $1,072,168
SA I $ 217,167 05/15/97 $ 884 $ 34,477 $ 25,846 $ 26,564
SA II $ 401,333 07/15/97 $ 9,840 $ 9,315 $ 6,886 $ (25,254)
SA III $ 498,765 08/15/97 $ 46,106 $ 253,000 $ 215,832 $ 219,399
SA IV $ 680,320 09/15/97 $ 56,494 $ 402,950 $ 333,261 $ 329,437
SA V $ 614,537 09/30/97 $ 47,381 $ 431,277 $ 353,723 $ 355,650
SA VI $ 587,000 10/15/97 $ 37,562 $ 341,179 $ 284,665 $ 214,164
SA VII $ 610,500 11/15/97 $ 54,861 $ 458,107 $ 466,738 $ 368,146
SA VIII $ 704,100 12/31/97 $ 54,052 $ 395,701 $ 326,588 $ 326,445
SA IX $ 567,140 01/31/98 $ 61,658 $ 432,785 $ 358,796 $ 367,197
SA X $ 662,000 01/31/98 $ 68,125 $ 511,579 $ 415,270 $ 416,106
SA XI $ 579,000 02/28/98 $ 62,032 $ 400,123 $ 332,618 $ 345,866
SA XII $ 625,000 02/28/98 $ 56,508 $ 415,494 $ 340,493 $ 359,306
SA XIII $ 600,000 03/31/98 $ 54,452 $ 481,228 $ 401,815 $ 609,123
SA XIV $ 526,000 03/31/98 $ 41,459 $ 324,265 $ 278,066 $ 267,800
SA XV $ 612,000 04/30/98 $ 47,538 $ 391,659 $ 319,031 $ 329,384
SA XVI $ 563,000 04/30/98 $ 35,815 $ 219,645 $ 187,247 $ 196,132
SA XVII $ 746,000 05/31/98 $ 45,800 $ 463,011 $ 377,030 $ 391,768
SA XVIII $ 733,053 05/31/98 $ 54,438 $ 557,668 $ 455,612 $ 453,009
SA XIX $ 523,000 06/30/98 $ 24,973 $ 183,131 $ 149,831 $ 149,441
SA XX $ 610,250 06/30/98 $ 53,049 $ 454,489 $ 375,946 $ 377,274
SA XXI $ 606,000 09/15/98 $ 24,613 $ 305,124 $ 248,331 $ 258,162
SA XXII $ 465,000 09/15/98 $ 17,438 $ 214,128 $ 175,277 $ 174,670
SA XXIII $ 509,000 10/15/98 $ 33,385 $ 356,522 $ 295,379 $ 291,797
SA XXIV $ 615,000 10/15/98 $ 55,856 $ 533,367 $ 430,467 $ 429,028
</TABLE>

36
<PAGE>

<TABLE>
Principal Cash Maturity Value Payoff Balance Total
Due Collected for of Active of Active Assets
Name of Investors as Due Quarter ended Contracts as Contracts as as of
Program(1) of 4/30/97 Date(2) 4/30/97 of 4/30/97(3) of 4/30/97(4) 4/30/97(5)
- ---------- ------------ -------- ------------- -------------- -------------- ----------
<S> <C> <C> <C> <C> <C> <C>
SA XXV $ 531,000 11/15/98 $ 38,366 $ 405,383 $ 324,808 $ 332,896
SC I $ 992,000 12/15/98 $ 70,963 $ 690,502 $ 561,833 $ 596,939
SC II $ 767,350 03/15/99 $ 65,215 $ 740,422 $ 610,413 $ 627,052
SC III $ 944,915 03/15/99 $149,790 $1,132,576 $ 920,207 $ 932,790
SC IV $ 79,000 04/15/99 $ 4,076 $ 83,248 $ 65,124 $ 65,344
SC V $1,526,051 05/15/99 $172,918 $2,301,628 $1,580,259 $1,740,625
SC VI $1,018,047 06/15/99 $137,377 $1,324,003 $1,055,173 $1,101,952
SC VII $1,189,140 06/15/99 $183,878 $1,566,239 $1,287,721 $1,319,207
SC VIII $ 925,875 07/15/99 $135,158 $1,125,422 $ 947,298 $ 981,623
SC IX $ 642,500 11/15/99 $103,443 $1,054,331 $ 819,244 $ 860,468
SC X $ 766,888 12/31/99 $109,860 $ 948,155 $ 746,737 $ 833,526
SC XI $ 761,000 12/31/99 $157,063 $1,065,395 $ 861,676 $ 887,599
SC XII $ 751,000 03/31/00 $121,393 $1,047,544 $ 846,581 $ 867,123
SC XIV $1,041,312 03/31/00 $172,043 $1,298,870 $1,058,018 $1,119,968
SC XV $ 649,449 04/30/00 $ 96,446 $1,025,483 $ 803,147 $ 803,900
SC XVI $1,348,890 04/30/00 $210,400 $1,820,412 $1,465,110 $1,502,099
SC XVII $ 601,000 05/31/00 $ 98,080 $ 910,459 $ 700,505 $ 709,440
SC XVIII $1,323,921 06/30/00 $211,020 $2,081,343 $1,491,877 $1,392,803
SC XIX $1,104,829 06/30/00 $151,121 $1,550,986 $1,248,946 $1,266,809
SCXX $1,302,002 08/31/00 $192,742 $2,141,116 $1,644,627 $1,667,284
SCA I $ 833,000 01/15/99 $ 79,810 $ 887,102 $ 753,438 $ 761,617
SCA II $ 540,000 03/15/99 $107,874 $ 736,856 $ 605,673 $ 624,069
SCA III $ 481,000 05/15/99 $ 59,593 $ 619,581 $ 501,491 $ 519,777
</TABLE>

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

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

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

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

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

Noteholders in certain of the Securitization Subsidiaries have been or will
be asked to reduce interest rates on such notes from 15% to 12% per annum, and
to extend the due dates of their notes for three years in order to provide the
particular Securitization Subsidiary which issued their note more time to repay
principal. Such modifications to those notes were and will be requested due to
the fact that the total assets of those Securitization Subsidiaries are less
than necessary to make all note payments as originally scheduled. In fact, some
of these Securitization Subsidiaries have already failed to make scheduled
payments of principal. In addition, some of these Securitization Subsidiaries
have been unable to make scheduled payments of interest, and Sovereign Credit
Corporation has caused such payments to be made from its own funds, but has not
committed to continue to provide such payments on behalf of these or any other
Securitization Subsidiaries. As of the date of this Supplement, the note
modifications have been requested for Securitization Subsidiaries with notes due
during 1997, and it is anticipated that such note modifications will be
requested for at least some Securitization Subsidiaries with notes due during
1998. In the event noteholders in certain of these Securitization Subsidiaries
do not elect to modify their notes as requested, such Securitization
Subsidiaries may of necessity go into default as to those notes. In order to
induce the holders of such notes to agree to such modifications, Sovereign has
agreed to place its profits interest, if any, after all debt repayment, in other
Securitization Subsidiaries into a pool to be applied towards repayment of such
notes (to the extent the assets of the Securitization Subsidiaries that issued
the notes cannot otherwise repay them in full according to the extended terms).
The proceeds of such pool, to the extent available, will be applied on a pro
rata basis to all such notes. Such proceeds will not be available to
Noteholders purchasing Notes pursuant to this offering.

<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth information, as of January 15, 1997 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.

<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
BENEFICIAL OWNERSHIP(1)
-----------------------------
NAME OF DIRECTOR OR NUMBER OF
NAME AND ADDRESS OF SHARES PERCENTAGE OF
BENEFICIAL OWNER OUTSTANDING CLASS
- -------------------------------------------------------------------- -------------- -------------
<S> <C> <C>
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) --
</TABLE>

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

(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.

38
<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:

<TABLE>
<CAPTION>
NAME POSITION
- ---------------------------- ----------------------------------------------------------------
<S> <C>
A. Starke Taylor, III President and Director: the Company, SCH, Sovereign and SAI

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

William Burmeister Vice President and Controller: SAI

Christopher R. Frattaroli Treasurer and Director: the Company, SCH and Sovereign;
Treasurer: SAI
</TABLE>

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

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

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

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

39
<PAGE>
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
Trammell Crow Development Company. In April, 1990, 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 SAI. Mr. Burmeister is
responsible for the financial accounting, banking and the day-to-day financial
duties of the companies. He has been with the companies since December, 1994.
From September 1978 to September 1983, he was employed by Harvest States
Cooperatives, a commodity marketing company. While with Harvest States
Cooperatives, he lead the design, development and implementation of an "MIS"
project involving over 1.5 million lines of codes serving major operations in
seven states. From January 1984 to April 1989, he was employed by VARO, a night
vision manufacturer. While with VARO, he developed a "TQM" system which allowed
the company to be awarded a $500 million defense contract, the largest ever
awarded at that time. Later involvement with DalTex from April 1991 to April
1992, BSM from April 1992 to June 1993, and Clouds from August 1993 to September
1994, dealt with start-up operations, marketing, production and personnel
responsibilities as well as controllership responsibilities with companies,
public and private, ranging in annual sales from $1 million to $4 billion.

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

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

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

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

40
<PAGE>
The directors and executive officers of the Company have served in their
respective offices since the organization of the Company. No director or
executive officer of the Company has received any compensation from the Company
since its formation, nor will they receive any compensation from the Company
prior to satisfaction in full of the Notes. See "Description of the Notes--The
Contract Proceeds and Operating Account". However, see "Certain Relationships
and Related Transactions" below for a description of certain transactions
between Sovereign, SAI and the Company from which such persons may indirectly
benefit through indirect ownership and/or compensation from Sovereign.

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

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

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

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

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

41
<PAGE>
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 equal to the Purchase Administration
Fee paid by the original purchaser plus an amount determined to provide the
Company an internal rate of return on its investment in the Contract from the
remaining unpaid installments equal to the original purchaser's initial internal
rate of return on its investment in the Contract, as of its purchase from the
Dealer, assuming in both cases that the Contract was paid in full in accordance
with its scheduled installments. Such seller will retain any installments
received by it prior to the purchase by the Company and any profits resulting
from the difference between such installments and the reduction in the purchase
price paid to such seller by the Company from the price paid by such seller to
the Dealer.

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

42
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

GENERAL

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

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

CAPITAL RESOURCES AND LIQUIDITY

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

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

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

43
<PAGE>
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.

SAI is a party to an arbitration proceeding in which the other party has
filed a counterclaim against SAI requesting unspecified damages, but which are
stated in the counterclaim to be in excess of $1 million. See "The
Company--Litigation". SAI believes that the counterclaim is without merit, and
intends to vigorously defend itself against the counterclaim. Additionally, SAI
intends to vigorously pursue its claims in the arbitration proceeding. It is
unknown as of the date of this Prospectus whether an adverse decision with
respect to the counterclaim would have a material adverse effect on SAI's
operations, financial condition, or ability to act as Servicer on behalf of the
Company. Consequently, it unknown as of the date of this Prospectus whether such
an adverse decision would adversely affect the Noteholders. See "Risk
Factors--Purchasing and Servicing of Contracts Dependant on SAI".

CERTAIN LEGAL ASPECTS OF THE CONTRACTS

SECURITY INTERESTS IN FINANCED VEHICLES

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

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

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

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

44
<PAGE>
and thereafter, in most instances, until the owner re-registers the Financed
Vehicle in such state. Almost all states generally require surrender of a
certificate of title to re-register a titled vehicle. Therefore, the Company
must surrender possession, if it holds the certificate of title to such Financed
Vehicle, before the Financed Vehicle owner may effect the re-registration. In
addition, the Company should receive, absent clerical errors or fraud, notice of
surrender of the certificate of title because the Company will be listed as
lienholder on its face. Accordingly, the Company will have notice and the
opportunity to re-perfect its security interest in the Financed Vehicle in the
state of relocation. If the Financed Vehicle owner moves to one of the few
states which does not require surrender of a certificate of title for
registration of a motor vehicle, re-registration could defeat perfection. In the
ordinary course of servicing the Contracts, SAI takes steps to effect such
re-perfection upon receipt of notice of re-registration or other information
from the Obligor as to relocation. Similarly, when an Obligor under a Contract
sells a Financed Vehicle, the Company must surrender possession of the
certificate of title or the Company will receive notice as a result of its lien
noted thereon. Accordingly, the Company will have an opportunity to require
satisfaction of the related Contact before release of the lien. See "Transfers
of Vehicles" below. Under the Servicing Agreement and the Indenture, SAI is
obligated to maintain the continuous perfection of the security interest
represented by each Contract in the related Financed Vehicle.

REPOSSESSION

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

45
<PAGE>
any required discount for prepayment) of the Contract plus reasonable expenses
for repossessing, holding, and preparing the collateral for disposition and
arranging for its sale, plus in some jurisdictions, reasonable attorneys' fees,
or, in some states, by payment of delinquent installments.

DEFICIENCY JUDGMENTS AND EXCESS PROCEEDS

SAI generally will apply the proceeds of resale of the repossessed vehicles
first to reimburse itself for its expenses of resale and repossession, together
with any expenses incurred for repairs, if necessary, to put the vehicle into
marketable condition and any commissions paid to dealers for the resale of the
vehicle, and then to the satisfaction of the obligations of the Obligor on the
Contract. While some states impose prohibitions or limitations on deficiency
judgments if the net proceeds from resale do not cover the full amount of the
Contract obligations, most states allow a deficiency judgment to be sought. A
deficiency judgment is a personal judgment against the Obligor for the
difference between the amount of the obligations of the Obligor under the
Contract and the net proceeds from resale of the collateral. A defaulting
Obligor on a Contract typically lacks capital or income following the
repossession of the Obligor's Financed Vehicle. Therefore, SAI may determine in
its discretion that pursuit of a deficiency judgment is not an appropriate or
economically viable remedy or may settle at a significant discount any
deficiency judgment that it does obtain.

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

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

CONSUMER PROTECTION LAWS

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

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

46
<PAGE>
Obligor, however, may also assert the rule to offset remaining amounts due on
the Contract as a defense against any claim brought by the Company against such
Obligor.

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

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

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

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

47
<PAGE>
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS

SCOPE AND LIMITATIONS

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

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

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

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

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

STATED INTEREST

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

PURCHASE OF NOTES BY EXEMPT PLANS AND OTHER EXEMPT ORGANIZATIONS

Generally, organizations described in Section 401(a) of the Code (trusts
forming part of a stock bonus, pension or profit sharing plan) and Section
501(c) of the Code, individual retirement accounts and individual retirement
trusts are exempt from federal income tax (collectively, "Exempt
Organizations"). However, this exemption does not apply where "unrelated
business taxable income" is derived by the Exempt Organizations from the conduct
of any trade or business which is not substantially related to the exempt
function of the entity. If an Exempt Organization receives unrelated business
taxable income, the Exempt Organization will be subject to a tax imposed by
Section 511 of the Code as well as alternative minimum tax on the unrelated
business taxable income portion of its income.

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

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

48
<PAGE>
Notes may be reclassified as unrelated business taxable income. However, as
described above, if an Exempt Organization does not borrow money to acquire or
hold the Notes, it should not realize unrelated business taxable income by
virtue of its investment in the Notes.

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

PLAN OF DISTRIBUTION

The Company is offering up to $20,000,000 in aggregate principal amount of
the Notes. The Notes are being offered by participating broker-dealers which are
members of the National Association of Securities Dealers, Inc. ("NASD"). Under
selling agreements with the Company, such broker-dealers will solicit
subscriptions for the Notes on a "best efforts" basis, meaning that they will
make no legal commitment to sell to investors, or to buy as dealer, any specific
amount of the Notes. The Company will pay to each soliciting broker-dealer, in
consideration for its services, a sales commission of 8% of the principal amount
of all Notes sold through their efforts. Of that amount, a portion may
constitute an unallocated due diligence and marketing fee. The Company will
indemnify the broker-dealers against certain 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 April 30, 1997 (or any earlier termination of the
offering), the offering will be terminated and the escrowed funds, plus any
interest thereon, will be promptly returned to the subscribing investors by the
escrow agent. Upon the subscription of the minimum amount of Notes, the escrowed
funds will be released to the Company. Interest on the Notes will not accrue
until the escrowed 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.

49
<PAGE>
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 offering will terminate on January 31, 1998, 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".

50
<PAGE>
INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Balance Sheet of the Company as of September 30, 1996...................................................... F-2

Statement of Operations of the Company for the period March 20, 1996 (inception) to September 30, 1996..... F-3

Statement of Cash Flows of the Company for the period March, 1996 (inception) to September 30, 1996........ F-4

Statement of Changes in Stockholder's Equity of the Company for the period March 20, 1996 (inception) to
September 30, 1996....................................................................................... F-5

Notes to Financial Statement............................................................................... F-6

Independent Auditor's Report............................................................................... F-8

Balance Sheet of the Company as of July 31, 1996........................................................... F-9

Statement of Operations of the Company for the period March 20, 1996 (inception) to July 31, 1996.......... F-10

Statement of Cash Flows of the Company for the period March 20, 1996 (inception) to July 31, 1996.......... F-11

Statement of Changes in Stockholder's Equity of the Company for the period March 20, 1996 (inception) to
July 31, 1996............................................................................................ F-12

Notes to Financial Statement............................................................................... F-13
</TABLE>

F-1
<PAGE>
SOVEREIGN CREDIT FINANCE I, INC.

BALANCE SHEET

SEPTEMBER 30, 1996

<TABLE>
<S> <C>
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
---------
---------
</TABLE>

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

F-2
<PAGE>
SOVEREIGN CREDIT FINANCE I, INC.

STATEMENT OF OPERATIONS

FOR THE PERIOD MARCH 20, 1996 (INCEPTION) TO SEPTEMBER 30, 1996

<TABLE>
<S> <C>
Revenue........................................... $ --
---------

Expenses

Service Charges................................. 121
---------

NET LOSS.......................................... $ (121)
---------
---------
</TABLE>

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

F-3
<PAGE>
SOVEREIGN CREDIT FINANCE I, INC.

STATEMENT OF CASH FLOWS

FOR THE PERIOD MARCH 20, 1996 (INCEPTION) TO SEPTEMBER 30, 1996

<TABLE>
<S> <C>
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....................................................................... $ --
---------
</TABLE>

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

F-4
<PAGE>
SOVEREIGN CREDIT FINANCE 1, INC.

STATEMENT OF CHANGES IN STOCKHOLDER'S EQUITY

FOR THE PERIOD MARCH 20, 1996 (INCEPTION) TO SEPTEMBER 30, 1996

<TABLE>
<CAPTION>
ADDITIONAL
COMMON COMMON PAID-IN RETAINED
SHARES STOCK CAPITAL DEFICIT TOTAL
----------- ----------- ------------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Balances at March 20, 1996.................................. -- $ -- $ -- $ -- $ --

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

Net loss.................................................... -- -- -- (121) (121)
----- ----- ----- ----- ---------

Balances at September 30, 1996.............................. 1,000 $ 10 $ 990 $ (121) $ 879
----- ----- ----- ----- ---------
</TABLE>

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

F-5
<PAGE>
SOVEREIGN CREDIT FINANCE I, INC.

NOTES TO FINANCIAL STATEMENTS

SEPTEMBER 30, 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 than 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 February 15, 2001. The principal is
required to be repaid in six equal monthly installments beginning September 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 February 15, 2001. 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 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.

F-6
<PAGE>
SOVEREIGN CREDIT FINANCE I, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

SEPTEMBER 30, 1996

NOTE 2--AUTOMOBILE CONTRACT NOTES OFFERING (CONTINUED)
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-7
<PAGE>
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-8
<PAGE>
SOVEREIGN CREDIT FINANCE I, INC.

BALANCE SHEET

JULY 31, 1996

<TABLE>
<S> <C>
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
---------
---------
</TABLE>

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

F-9
<PAGE>
SOVEREIGN CREDIT FINANCE I, INC.

STATEMENT OF OPERATIONS

FOR THE PERIOD MARCH 20, 1996 (INCEPTION) TO JULY 31, 1996

<TABLE>
<S> <C>
REVENUE.............................................................................. $ --
---------

EXPENSES

Service Charges.................................................................... 121
---------

NET LOSS............................................................................. $ (121)
---------
---------
</TABLE>

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

F-10
<PAGE>
SOVEREIGN CREDIT FINANCE I, INC.

STATEMENT OF CASH FLOWS

FOR THE PERIOD MARCH 20, 1996 (INCEPTION) TO JULY 31, 1996

<TABLE>
<S> <C>
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..................................................................... $ --
---------
---------
</TABLE>

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

F-11
<PAGE>
SOVEREIGN CREDIT FINANCE I, INC.

STATEMENT OF CHANGES IN STOCKHOLDER'S EQUITY

FOR THE PERIOD MARCH 20, 1996 (INCEPTION) TO JULY 31, 1996

<TABLE>
<CAPTION>
ADDITIONAL
COMMON COMMON PAID-IN RETAINED
SHARES STOCK CAPITAL DEFICIT TOTAL
----------- ----------- ------------- ----------- ---------
<S> <C> <C> <C> <C> <C>

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
----- ----- ----- ----- ---------
----- ----- ----- ----- ---------
</TABLE>

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

F-12
<PAGE>
SOVEREIGN CREDIT FINANCE I, INC.

NOTES TO FINANCIAL STATEMENTS

JULY 31, 1996

NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NATURE OF OPERATIONS

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 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.

F-13
<PAGE>
SOVEREIGN CREDIT FINANCE I, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

JULY 31, 1996

F-14
<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

<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Summary........................................ 3
Risk Factors................................... 10
Capitalization................................. 16
Use of Proceeds................................ 17
Description of Notes........................... 18
The Company.................................... 27
Purchase and Collection of Contracts........... 29
Information Regarding Contracts Purchased and
Serviced by SAI.............................. 34
Information Regarding the Securitization
Subsidiaries................................. 36
Security Ownership of Certain Beneficial Owners
and Management............................... 38
Management..................................... 39
Management's Discussion and Analysis of
Financial Condition.......................... 43
Certain Legal Aspects of the Contracts......... 44
Certain Federal Income Tax Considerations...... 48
Plan of Distribution........................... 49
Experts........................................ 50
Legal Matters.................................. 50
Index to Financial Statements.................. F-1
</TABLE>

UNTIL MAY 1, 1997, ALL DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED
SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED
TO DELIVER 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 FEBRUARY 15, 2001
---------------------

PROSPECTUS

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

JANUARY 31, 1997

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

<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.*

II-1

<PAGE>

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 February 15, 2001 (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*

10.41 Broker-dealer Selling Agreement Between Sovereign Credit
Finance I, Inc. and American Investment Services, Inc.

10.42 Broker-dealer Selling Agreement Between Sovereign Credit
Finance I, Inc. and IMS Securities, Inc.

10.5 Form of Subscription Agreement*

10.6 Form of Promissory Note of Sovereign Credit Corporation*

23.1 Consent of Kinder & Wyman, P.C.

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

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

* previously filed

II-2

<PAGE>

(b) Financial Statements:

Balance Sheet of the Company as of September 30, 1996

Statement of Operations of the Company for the period March 20, 1996
(inception) to September 30, 1996

Statement of Cash Flows of the Company for the period March, 1996
(inception) to September 30, 1996

Statement of Changes in Stockholder's Equity of the Company for the
period March 20, 1996 (inception) to September 30, 1996

Notes to Financial Statement

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 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,

II-3

<PAGE>

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
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 July 25, 1997.

SOVEREIGN CREDIT FINANCE I, INC.

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

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

SIGNATURE TITLE DATE
--------- ----- ----

/s/ A. Starke Taylor, III President, July 25, 1997
- ----------------------------- (principal execu-
A. Starke Taylor, III tive officer) and
director

/s/ William P. Glass director July 25, 1997
- -----------------------------
William P. Glass

/s/ Christopher R. Frattaroli Treasurer July 25, 1997
- ----------------------------- (principal financial
Christopher R. Frattaroli officer and principal
accounting officer) and
director

II-5

<PAGE>

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

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

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

EXHIBITS

POST-EFFECTIVE AMENDMENT NO. 1

FORM S-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

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

SOVEREIGN CREDIT FINANCE I, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

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

<PAGE>

EXHIBIT INDEX PURSUANT TO ITEM 601 OF REGULATION S-K

NUMBER DESCRIPTION
- ------ -----------

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 February 15, 2001
(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*

10.41 Broker-dealer Selling Agreement Between Sovereign Credit Finance I,
Inc. and American Investment Services, Inc.

10.42 Broker-dealer Selling Agreement Between Sovereign Credit Finance I,
Inc. and

<PAGE>

IMS Securities, Inc.

10.5 Form of Subscription Agreement*

10.6 Form of Promissory Note of Sovereign Credit
Corporation*

23.1 Consent of Kinder & Wyman, P.C.

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

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

* previously filed

<PAGE>

$20,000,000

SOVEREIGN CREDIT FINANCE I, INC., COMPANY

11% NOTES DUE FEBRUARY 15, 2001

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

BROKER-DEALER SELLING AGREEMENT

February 4, 1997

American Investment Services, Inc.
600 High Point Lane, Suite B
East Peoria, IL 61611

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 February 15, 2001 (the "Notes"). The Notes are to be
issued pursuant to an Indenture (the "Indenture") dated as of January 31,
1997, 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 January 31, 1997 (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 January 31, 1997 (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.

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

<PAGE>

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) January 31, 1998
(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".

(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 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

2
<PAGE>

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 January 31, 1997 (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 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.

<PAGE>

(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.

(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 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

4
<PAGE>

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 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 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.

5
<PAGE>

(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, 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

6
<PAGE>

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). 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 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

7
<PAGE>

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
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.

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.

8
<PAGE>

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 American Investment Services, Inc. at
its address at 600 High Point Lane, Ste B, East Peoria, IL 61611, Attention:
David Patchen 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.

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: /s/ A. STARKE TAYLOR, III
------------------------------------
A. Starke Taylor, III, President

Accepted as of the date first above written:

AMERICAN INVESTMENT SERVICES, INC.
(Name of Broker-Dealer)

By: /s/ DAVID PATCHEN
-------------------------------
Name: David Patchen
Title: Chief Operating Officer

<PAGE>

$20,000,000

SOVEREIGN CREDIT FINANCE I, INC., COMPANY

11% NOTES DUE FEBRUARY 15, 2001

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

BROKER-DEALER SELLING AGREEMENT

February 4, 1997

IMS Securities, Inc.
6363 Woodway, Suite 405
Houston, TX 77057

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 February 15, 2001 (the "Notes"). The
Notes are to be issued pursuant to an Indenture (the "Indenture") dated as of
January 31, 1997, 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 January 31, 1997 (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 January 31, 1997 (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.

1. APPOINTMENT OF BROKER-DEALER; SALE OF NOTES

(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

1
<PAGE>

(c) Except as otherwise provided herein, your appointment hereunder
shall terminate at the close of business on the earlier of (i) January 31,
1998 (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".

(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 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

2
<PAGE>

(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 January 31, 1997 (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 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.

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(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.

(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 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

4
<PAGE>

(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.

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

4. COMPENSATION: PAYMENT OF EXPENSES.

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<PAGE>

(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, 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

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<PAGE>

(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
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

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<PAGE>

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.

(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.

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.

8
<PAGE>

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 IMS Securities, Inc. at its
address at 6363 Woodway, Suite 405, Houston, TX 77057, Attention: J.
Wadsworth 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.

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.

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: /s/ A. STARKE TAYLOR, III
---------------------------------
A. Starke Taylor, III, President

Accepted as of the date first above written:

IMS SECURITIES, INC.
(Name of Broker-Dealer)

By: /s/ J. WADSWORTH
-------------------
Name: J. Wadsworth
Title: President

<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 September 9, 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/ Brad A. Kinder
--------------------------
KINDER & WYMAN, P.C.

Irving, Texas
July 25, 1997