SOVEREIGN CREDIT FINANCE II INC, SB-2, 1997-11-14

SOVEREIGN CREDIT FINANCE II INC
SB-2, 1997-11-14

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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 14, 1997

SECURITIES ACT OF 1933 FILE NO. 333-
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SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549
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FORM SB-2

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

SOVEREIGN CREDIT FINANCE II, INC.

(Name of small business issuer in charter)

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<S> <C> <C>
TEXAS 6153 75-2728381
(State of other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code No.) Identification No.)

A. STARKE TAYLOR, III
4015 BELTLINE ROAD 4015 BELTLINE ROAD 4015 BELTLINE ROAD
BUILDING B BUILDING B BUILDING B
DALLAS, TEXAS 75244 DALLAS, TEXAS 75244 DALLAS, TEXAS 75244
(972) 960-5500 (972) 960-5500 (972) 960-5500
(Address and telephone number of (Address of principal place of (Name, address and telephone number
principal executive offices) business of agent for service)
or intended principal place of
business)
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Approximate date of proposed sale to the 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 this Form is a post-effective amendment filed pursuant to Rule 462(d) 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. / /

CALCULATION OF REGISTRATION FEE

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PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED UNIT PRICE REGISTRATION FEE
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11% Notes Due February 15, 2002..... $10,000,000 100% $10,000,000 $3,031
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.

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SOVEREIGN CREDIT FINANCE II, INC.
CROSS REFERENCE SHEET BETWEEN ITEMS
REQUIRED BY PART I OF THE
FORM SB-2 AND THE PROSPECTUS

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ITEM CAPTION OR
NO. ITEM LOCATION IN PROSPECTUS
- --------- ---------------------------------------------------- ----------------------------------------------------
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1. Front of Registration Statement and Outside Front
Cover of Prospectus............................... Facing Page and Front Cover Page
2. Inside Front and Outside Back Cover
Pages of Prospectus............................... Inside Front and Outside Back Cover Pages
3. Summary Information and Risk Factors................ 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. Legal Proceedings................................... The Company--Litigation
10. Directors, Executive Officers, Promoters and Control
Persons........................................... Management
11. Security Ownership of Certain Beneficial Owners and
Management........................................ Security Ownership of Certain Beneficial Owners and
Management
12. Description of the Securities....................... Description of Notes
13. Interest of Named Experts and Counsel............... None--Omitted
14. Disclosure of Commission Position on Indemnification
for Securities Act
Liabilities....................................... Commission Position on Indemnification for
Securities Act Liabilities
15. Organization Within Last Five Years................. The Company; Purchase and Collection of Contracts
16. Description of Business............................. The Company; Purchase and Collection of Contracts
17. Management's Discussion and Analysis or Plan of
Operation......................................... Management's Discussion and Analysis of Financial
Condition
18. Description of Property............................. None--Omitted
19. Certain Relationships and Related Transactions...... Management
20. Market for Common Equity and Related Stockholder
Matters........................................... Not Applicable
21. Executive Compensation.............................. Management
22. Financial Statements................................ Index to Financial Statements
23. Changes In and Disagreements With Accountants on
Accounting and Financial Disclosure............... Not Applicable
</TABLE>
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SUBJECT TO COMPLETION DATED NOVEMBER 14, 1997
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OR AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
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$10,000,000 (MAXIMUM) $500,000 (MINIMUM)

SOVEREIGN CREDIT FINANCE II, INC.

11% NOTES DUE FEBRUARY 15, 2002

Sovereign Credit Finance II, Inc., a Texas corporation (the "Company"), a
newly organized, single purpose subsidiary of Sovereign Credit Holdings, Inc., a
Texas corporation ("SCH"), is hereby offering up to $10,000,000 in principal
amount of its 11% notes due February 15, 2002 (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 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 SCH, will administer and manage the
ongoing operations of the Company. The Company has contracted with Sovereign
Associates, Inc. ("SAI"), also a subsidiary of SCH, to provide necessary
purchasing and collecting services. The Contracts will be originated by
automobile dealers ("Dealers"). The Company anticipates that it will purchase
its Contracts primarily from Fiesta Motors, a Dealer owned and operated by
Fiesta Motors, LLC, a Texas limited liability company ("Fiesta Motors"). Fiesta
Motors is an affiliate of SCH. 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, 1999, 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 9 OF THIS PROSPECTUS. DEBT SECURITIES OFFERED WITH HIGH
INTEREST OR YIELD GENERALLY INVOLVE MORE RISK THAN MANY OTHER MEDIUM TERM DEBT
INSTRUMENTS WITH LOWER INTEREST OR YIELD.

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PRICE TO BROKERS COMMISSIONS PROCEEDS TO
PUBLIC AND EXPENSES(1) COMPANY(2)
<S> <C> <C> <C>
Per Note.............................................. 100% 8% 92%
Total Minimum......................................... $500,000 $40,000 $460,000
Total Maximum......................................... $10,000,000 $800,000 $9,200,000
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(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 Overton Bank and Trust, N.A.
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, 1998,
the offering will be terminated and the escrowed funds, plus any interest earned
thereon, will be promptly returned to the investors by the escrow agent. Upon
the subscription by investors for the minimum amount of Notes, the escrowed
funds (less interest thereon which will be paid to investors) will be released
to the Company. Affiliates of the Company will not purchase Notes in the
offering. Interest will not accrue on the Notes until the escrowed funds are
released to the Company. Any subsequent sales proceeds from Notes will be
immediately available for use by the Company. All subscriptions are subject to
the right of the Company to reject any subscription in whole or in part.

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

This Prospectus is dated , 1998.
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The Company has filed a Form SB-2 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.

The Company became a reporting company as of the date of this Prospectus.
The reports and other information filed by the Company may be inspected and
copied at the public reference facilities of the Commission in Washington D.C.,
and at the above Regional Offices, and copies of such material can be obtained
from the Public Reference Section of the Commission in Washington D.C. at
prescribed rates. The Commission maintains a Web site that contains reports,
proxy and information statements and other information regarding issuers that
file electronically with the Commission. The address of such site is
http://www.sec.gov.

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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.

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MINIMUM SUITABILITY STANDARDS

Minimum suitability requirements have been established for residents of
certain states. Arizona, Arkansas, Missouri, New Mexico, Oklahoma, Texas, and
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. California, Iowa, Michigan, and 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. 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. 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
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SUMMARY

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

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Company............... Sovereign Credit Finance II, 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. ("SCH").
Sovereign Credit Corporation ("Sovereign"), which serves as manager
of the Company, and Sovereign Associates, Inc. ("SAI"), which
provides purchasing and collecting services on behalf of the
Company, are also subsidiaries of SCH. See "The Company".

Notes................. 11% Notes due February 15, 2002 (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 $10,000,000 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,
1998, such investor will receive the first interest payment on May
15, 1998, which will be for interest accruing through April 30,
1998.

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.

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.
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Principal Payments.... The Notes will mature on February 15, 2002, at which time all
outstanding and accrued principal and interest will be finally due
and payable.

Maturity.............. February 15, 2002

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 sources 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
anticipates that it will purchase its Contracts primarily from
Fiesta Motors, a Dealer owned and operated by Fiesta Motors, LLC, a
Texas limited liability company ("Fiesta Motors"). Fiesta Motors is
an affiliate of SCH. The Company may also purchase Contracts which
are lease agreements for Financed Vehicles.

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
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4
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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 the maturity date; 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. On or before the
maturity date of the Notes, 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 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, 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 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 60 days past due.
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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 the average retail value
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. Fiesta Motors meets all
of these criteria. SAI does not specifically limit the number of
Contracts originated by any one Dealer, including Fiesta Motors,
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".

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 SCH, 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
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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, 1997 is approximately 20 months and approximately
$4,700, respectively. Such Contracts were originated primarily from
Dealers unaffiliated with Sovereign, SAI, or SCH. For Contracts
originated by Fiesta Motors, the average term remaining, and the
average principal amount, in SAI's servicing portfolio at September
30, 1997 is approximately 34 months and approximately $9,923,
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 25% to 35% of
such contracts, and (b) the average purchase price payable to
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 SCH, will administer and manage the
ongoing operations of the Company. Sovereign will pay all general
and administrative overhead expenses incurred by the Company, other
than Allowed Expenses. Sovereign will also pay offering and
organization expenses of the Company (other than commissions to
broker-dealers) to the extent such expenses exceed 2% of the gross
proceeds from the sale of the Notes. For such services, the Company
will pay Sovereign a fee equal to 5.5% of the gross proceeds from
the sale of the Notes (5.0% of the gross proceeds in excess of
$9,000,000). See "Use of Proceeds".

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

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

Use of 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.
</TABLE>

7
<PAGE>

<TABLE>
<S> <C>
Risk Factors.......... An investment in the Notes entails certain risks, including the
following:

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

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

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

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

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

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

* There may be conflicts of interest among the Company, SAI,
Sovereign and other note purchasing entities which have contracted
with SAI for Contract purchasing and servicing services 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,
1998, 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, 1999, unless sooner terminated by the Company for
certain reasons. See "Plan of Distribution".
</TABLE>

8
<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, including Fiesta Motors.
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.

9
<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 "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 principal amount, for Contracts in SAI's
servicing portfolio at September 30, 1997 is approximately 20 months and
approximately $4,700, respectively. Such Contracts were originated primarily
from Dealers unaffiliated with Sovereign, SAI, or SCH. For Contracts originated
by Fiesta Motors, the average term remaining, and the average principal amount,
in SAI's servicing portfolio at September 30, 1997 is approximately 34 months
and approximately $9,923, respectively.

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, the Company's ability to make the

10
<PAGE>
required payments on the Notes could be adversely affected. The Company's
expectations of performance are based on the historical performance of similar
Contracts purchased and serviced by SAI, which Contracts were originated
primarily from Dealers unaffiliated with Sovereign, SAI, or SCH.

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, 2002, 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.

11
<PAGE>
BANKRUPTCIES AND DEFICIENCY JUDGMENTS. Certain statutory provisions,
including federal and state bankruptcy and insolvency laws, may limit or delay
the ability of SAI to repossess and resell Financed Vehicles or enforce a
deficiency judgment. In addition, SAI may determine in its discretion that a
deficiency judgment is not an appropriate or economically viable remedy, or may
settle at a significant discount any deficiency judgment that it does obtain. In
the event that deficiency judgments are not obtained, are not satisfied, are
satisfied at a discount or are discharged, in whole or in part, in bankruptcy
proceedings, the loss will be borne by the Company and may adversely affect the
ability of the Company to repay the Notes. See "Certain Legal Aspects of the
Contracts--Deficiency Judgments and Excess Proceeds."

CONSUMER PROTECTION LAWS. Numerous federal and state consumer protection
laws impose requirements upon the origination and collection of retail
installment contracts and notes. State laws impose finance charge ceilings and
other restrictions on consumer transactions and may require certain contract
disclosures in 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

The Company is a subsidiary of SCH. In addition, Sovereign, which will
administer and manage the ongoing operations of the Company, and SAI, with which
the Company has entered into an agreement to govern the purchasing and servicing
of Contracts, are both subsidiaries of SCH.

The Contracts will be purchased primarily from Fiesta Motors, an automobile
dealer owned by Fiesta Motors, LLC, which is affiliated with SCH by virtue of
common ownership. Consequently, the terms of such purchases, including without
limitation the purchase price or discount and the quality of the Contracts, will
not be determined on an arm's length basis.

Sovereign has sponsored 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 SAI as the Contract purchaser
servicer on behalf of the Company and by

12
<PAGE>
SAI in that same role on behalf 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.

Sovereign or its affiliates provides floor plan or similar financing for
various automobile dealers, including Fiesta Motors. "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. In addition, Reliance Service
Corporation, which is owned by A. Starke Taylor, III, offers and sells
mechanical service agreements to purchasers of automobiles from Fiesta Motors.

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 Fiesta Motors. 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.

13
<PAGE>
SALE OF SMALL AMOUNT OF NOTES

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

LACK OF PARTICIPATING BROKER/DEALERS

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

14
<PAGE>
CAPITALIZATION

The following table sets forth the capitalization of the Company as of
October 9, 1997, and as adjusted to reflect the sale of the Notes offered
hereby.

<TABLE>
<CAPTION>
AS OF OCTOBER 9, 1997
------------------------------------
AS ADJUSTED
-------------------------
ACTUAL MINIMUM MAXIMUM
--------- ---------- -------------
<S> <C> <C> <C>
LIABILITIES
Notes Due February 15, 2002................................................ -- $ 500,000 $ 10,000,000
SHAREHOLDER'S EQUITY
Common stock, $.01 par value, authorized 50,000 shares, 1,000 shares issued
and outstanding.......................................................... $ 10 $ 10 $ 10
Additional paid-in capital................................................. $ 990 $ 990 $ 990
--------- ---------- -------------
TOTAL SHAREHOLDER'S EQUITY................................................... $ 1,000 $ 1,000 $ 1,000
--------- ---------- -------------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY................................... $ 1,000 $ 500,000 $ 10,000,000
--------- ---------- -------------
--------- ---------- -------------
</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,
1997, Sovereign had, on a consolidated, unaudited basis, $46,440 in cash, total
assets of $664,378, total liabilities of $538,628, and stockholders' equity of
$125,750.

15
<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 8.00% $ 800,000 8.00%
Offering and Organization Expenses (2)..................... $ 10,000 2.00% $ 200,000 2.00%
Administration and Management Fee (3)...................... $ 27,500 5.50% $ 545,000 5.45%
Purchase of Contracts (including the Purchase
Administration Fee)....................................... $ 422,500 84.50% $ 8,455,000 84.5%
---------- ----------- ------------- -----------
Total...................................................... $ 500,000 100.00% $ 10,000,000 100.00%
---------- ----------- ------------- -----------
---------- ----------- ------------- -----------
</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 ("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".

16
<PAGE>
DESCRIPTION OF THE NOTES

GENERAL

The Notes will be issued pursuant to an Indenture dated as of January 31,
1998 (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
$10,000,000 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, 2002 (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.

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

17
<PAGE>
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 February 15, 2002, 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)

On or prior to the business day next preceding February 15, 2002 (the
Maturity Date of the Notes), the Company shall cause to be transferred from the
Operating Account to the Trust Account an amount which, together with any funds
then held in the Trust Account, is sufficient to pay the accrued interest due,
and principal owing, on the Notes on such Payment Date. (Indenture, Section 4.1)

RECORD DATES

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

REDEMPTION

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

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

THE TRUST ACCOUNT

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

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<PAGE>
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 on February 15, 2002 (the Maturity Date of the Notes).
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 February 15, 2002 (the Maturity Date of the Notes);
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. On or prior to the business day immediately preceding February 15,
2002 (the Maturity Date of the Notes), 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)

19
<PAGE>
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 (excluding offering and organization expenses, but including those
otherwise incurred to comply with reporting and other requirements under Federal
and state securities laws and 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 for
the subscription escrow account established for the receipt of the proceeds from
the offering and sale of the Notes, and 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".

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
</TABLE>

20
<PAGE>
<TABLE>
<CAPTION>
ALLOWED EXPENSES ESTIMATED AMOUNT
- ------------------------------------------ ----------------------------------------------------------------------
Bank Fees
<S> <C>
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>

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.

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

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

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

ADDITIONAL INDENTURE PROVISIONS

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

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

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

22
<PAGE>
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 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

23
<PAGE>
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, 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.

24
<PAGE>
THE COMPANY

GENERAL

Sovereign Credit Finance II, Inc. (the "Company") was incorporated in the
state of Texas on October 9, 1997. 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.

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 (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 originated by automobile dealers ("Dealers").
The Company anticipates that it will purchase its Contracts primarily from
Fiesta Motors, a Dealer owned and operated by Fiesta Motors, LLC, a Texas
limited liability company ("Fiesta Motors"). Fiesta Motors is an affiliate of
SCH, of which the Company is a wholly-owned subsidiary. The Contracts may also
be purchased from a network of other Dealers organized by SAI 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 $18,500. 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.

25
<PAGE>
The Company has no material properties, assets (except as set forth under
"Capitalization"), operating history or pending legal proceedings. The Company
and SAI intend to obtain any licenses that may be required in any state where it
purchases and collects Contracts. SAI has registered, and the Company will
register, with the Texas Consumer Credit Commissioner as a holder of motor
vehicle retail installment contracts.

BUSINESS OF SOVEREIGN, SAI AND THE SECURITIZATION SUBSIDIARIES

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

SAI was formed as a Texas corporation in January 1991 for the purpose of
purchasing, servicing and collecting various financial notes on behalf of
Sovereign and the entities sponsored by Sovereign. SAI is a wholly-owned
subsidiary of SCH. 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.

26
<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, 1998 (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 the average retail value for the related Financed Vehicle plus tax,
title, license and warranty.

b) The Contracts generally will have original terms that are 44 months or
less, although 54 month terms will be permitted where the Financed Vehicle is a
1991 or later model, or where lower depreciation or stronger credit history
justifies a 54 month term. The Contracts will equally amortize their principal
balance over their respective terms.

27
<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 110,000
miles for automobiles or 135,000 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 "D".

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

28
<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.

The Company anticipates that it will purchase its Contracts primarily from
Fiesta Motors, an affiliate of SCH. Fiesta Motors meets each of the above
criteria.

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

29
<PAGE>
installments, and (ii) has failed for 30 days, in the case of bi-weekly or
semi-monthly installments, or 45 days, in the case of monthly installments, to
remit any sums against the obligations under the Contract. (Indenture, Section
12.7; Servicing Agreement, Exhibit A) The Servicer may commence repossession
sooner if it deems such activity to be prudent and in the best interests of the
Company and the Servicer. The Servicer is also required to document the reasons
for each chargeoff of any material unpaid amount from an Obligor under any
Contract. (Servicing Agreement, Exhibit A) As indicated by the foregoing
repossession requirements, to maximize its return, the Company prefers to
continue collecting installments on the Contract despite a missed installment by
the Obligor in lieu of repossession of the vehicle. See "Risk
Factors--Collections and Repossessions; Performance of Contracts".

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

SERVICING FEES AND SAI COMPENSATION

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

30
<PAGE>
purchase of the Contracts, including receipt and approval of dealer drafts and
Contract transfer documents, monitoring compliance with purchase criteria,
creation of Contract files, communications with selling Dealers, and other
related activities.

SAI charges a processing fee to the various Dealers, including Fiesta
Motors, 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.

The Company anticipates that it will purchase its Contracts primarily from
Fiesta Motors, a Dealer owned and operated by Fiesta Motors, LLC, a Texas
limited liability company. Fiesta Motors is an affiliate of SCH.

The Company believes that Fiesta Motors, together with other Dealers with
which SAI presently conducts business, should generate sufficient eligible
Contracts for purchase by the Company. 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. SAI is a wholly-owned subsidiary of SCH. 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.

31
<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, 1997. There can be no assurance that the future performance of the
Contracts purchased by the Company, including future delinquency and loss
experience, will be similar to that set forth in the following tables.

DELINQUENCIES OF ALL MOTOR VEHICLES
RETAIL INSTALLMENT SALES CONTRACTS
AS OF SEPTEMBER 30, 1997 (1)

<TABLE>
<CAPTION>
NUMBER OF UNPAID
ACTIVE PERCENT INSTALLMENTS PERCENT
TOTAL DAYS PAST DUE (2) CONTRACTS OF TOTAL (3) OF TOTAL
- ---------------------------------------------- ----------- --------- --------------- ---------
<S> <C> <C> <C> <C>
0 - 30........................................ 3,859 57.60% $ 23,207,793 59.12%
31 - 60....................................... 941 14.04% $ 5,632,423 14.35%
61 - 90....................................... 516 7.70% $ 3,104,858 7.91%
over 91....................................... 1,384 20.66% $ 7,308,722 18.62%
----- --------- --------------- ---------
All Active Contracts.......................... 6,700 100.00% $ 39,253,797 100.00%
----- --------- --------------- ---------
----- --------- --------------- ---------
</TABLE>

(1) The information shown is for Contracts purchased primarily from Dealers
unaffiliated with Sovereign, SAI, or SCH.

(2) 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.

(3) Includes principal and remaining finance charges.

DELINQUENCIES OF MOTOR VEHICLES
RETAIL INSTALLMENT SALES CONTRACTS
AS OF SEPTEMBER 30, 1997 (1)

<TABLE>
<CAPTION>
UNPAID
INSTALLMENTS PERCENT
TOTAL DAYS PAST DUE (2) (3) OF TOTAL
- -------------------------------------------------------------------- --------------- ---------
<S> <C> <C>
0 - 30.............................................................. $ 7,959,653 71.46%
31 - 60............................................................. $ 1,585,953 14.24%
61 - 90............................................................. $ 864,615 7.76%
over 91............................................................. $ 728,366 6.54%
--------------- ---------
All Active Contracts................................................ $ 11,138,587 100.00%
--------------- ---------
--------------- ---------
</TABLE>

(1) The information shown is derived from the above table, and is for Contracts
purchased from Fiesta Motors.

32
<PAGE>
ADDITIONAL SELECTED DATA FOR ALL MOTOR VEHICLE
RETAIL INSTALLMENT SALES CONTRACTS FROM
JUNE 1, 1993 THROUGH SEPTEMBER 30, 1997 (1)

<TABLE>
<CAPTION>
PERCENT OF PERCENT OF
NUMBER TOTAL AMOUNT TOTAL
----------- ----------- -------------- -----------
<S> <C> <C> <C> <C>
Writeoffs (2)................................... 1,978 14.55% $ 15,721,002 14.23%
Repossessions (3)............................... 2,113 15.54% $ 16,793,973 15.20%
Proceeds from Repossessions (4)................. 1,835 13.50% $ 10,404,471 9.42%
Inventory of Repossessions (5).................. 278 2.04% $ 616,645 0.56%
Total Contracts Purchased (6)................... 13,596 $ 110,466,204
</TABLE>

(1) The information shown is for Contracts purchased primarily from Dealers
unaffiliated with Sovereign, SAI, or SCH.

(2) "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".

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

(4) "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.

(5) "Inventory of Repossessions" are repossessed vehicles in inventory awaiting
resale as of September 30, 1997. "Amount" represents wholesale values of
repossessed vehicles at the time of repossession plus repossession and
reconditioning fees and expenses.

(6) "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, 1997 is approximately 20 months
and approximately $4,700, respectively. Such Contracts were originated primarily
from Dealers unaffiliated with Sovereign, SAI, or SCH. For Contracts originated
by Fiesta Motors, the average term remaining, and the average principal amount,
in SAI's servicing portfolio at September 30, 1997 is approximately 34 months
and approximately $9,923, 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 25% to 35% 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.

33
<PAGE>
INFORMATION REGARDING THE SECURITIZATION SUBSIDIARIES

Since October 1993, Sovereign has sponsored a number of entities (the
"Securitization Subsidiaries") which have issued notes to investors and used the
net proceeds thereof to purchase consumer contracts and notes created by the
retail sale and financing of used automobiles and light trucks. As used herein,
the term "Securitization Subsidiaries" does not include the Company. The
following table sets forth certain information regarding the Securitization
Subsidiaries sponsored by Sovereign from June 1, 1993 (the date SAI began
servicing motor vehicle retail installment sales contracts) through September
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>
<CAPTION>
MATURITY VALUE PAYOFF BALANCE
PRINCIPAL CASH COLLECTED OF ACTIVE OF ACTIVE
DUE INVESTORS FROM CONTRACTS CONTRACTS
NAME OF SECURITIZATION AS OF 9/30/97 7/1/97 TO AS OF 9/30/97 AS OF 9/30/97
SUBSIDIARY (1) (2) DUE DATE (3) 9/30/97 (4) (5)
- ------------------------------- --------------- ------------ --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
SAM 94-1....................... $ 363,850 07/15/97 $ 10,331 $ 52,010 $ 47,099
SAM 94-3....................... $ 728,142 03/31/98 $ 79,022 $ 235,474 $ 200,466
SAM 95-1....................... $ 603,036 10/15/98 $ 91,847 $ 271,913 $ 225,456
SAM 95-2....................... $ 874,959 03/15/99 $ 248,666 $ 950,390 $ 819,083
Sovereign Acceptance I......... $ 217,167 05/15/97 $ 13,527 $ 21,705 $ 16,577
Sovereign Acceptance II........ $ 401,333 07/15/97 $ 767 $ 20,603 $ 15,332
Sovereign Acceptance III....... $ 500,431 08/15/97 $ 29,827 $ 128,049 $ 115,122
Sovereign Acceptance IV........ $ 672,260 09/15/97 $ 50,012 $ 205,134 $ 173,795
Sovereign Acceptance V......... $ 614,537 09/30/97 $ 98,400 $ 357,377 $ 284,559
Sovereign Acceptance VI........ $ 587,000 10/15/97 $ 47,383 $ 209,616 $ 175,186
Sovereign Acceptance VII....... $ 606,276 11/15/97 $ 65,872 $ 299,483 $ 247,364
Sovereign Acceptance VIII...... $ 704,100 12/31/97 $ 73,519 $ 300,356 $ 242,694
Sovereign Acceptance IX........ $ 536,245 01/31/98 $ 74,483 $ 289,229 $ 247,767
Sovereign Acceptance X......... $ 594,000 01/31/98 $ 76,020 $ 322,720 $ 266,910
Sovereign Acceptance XI........ $ 579,000 02/28/98 $ 58,595 $ 288,403 $ 236,113
Sovereign Acceptance XII....... $ 625,000 02/28/98 $ 61,516 $ 330,188 $ 267,736
Sovereign Acceptance XIII...... $ 600,000 03/31/98 $ 83,374 $ 340,433 $ 292,039
Sovereign Acceptance XIV....... $ 544,143 03/31/98 $ 40,388 $ 165,673 $ 147,103
Sovereign Acceptance XV........ $ 612,000 04/30/98 $ 57,249 $ 268,278 $ 218,712
Sovereign Acceptance XVI....... $ 563,000 04/30/98 $ 38,361 $ 136,068 $ 117,737
Sovereign Acceptance XVII...... $ 746,000 05/31/98 $ 67,758 $ 325,946 $ 270,726
Sovereign Acceptance XVIII..... $ 733,053 05/31/98 $ 69,741 $ 291,518 $ 244,586
Sovereign Acceptance XIX....... $ 523,000 06/30/98 $ 21,907 $ 66,274 $ 56,653
Sovereign Acceptance XX........ $ 619,635 06/30/98 $ 60,523 $ 297,643 $ 246,100
Sovereign Acceptance XXI....... $ 606,000 09/15/98 $ 19,157 $ 134,558 $ 121,754
Sovereign Acceptance XXII...... $ 465,000 09/15/98 $ 19,316 $ 78,766 $ 65,686
Sovereign Acceptance XXIII..... $ 498,000 10/15/98 $ 29,848 $ 208,970 $ 172,208
Sovereign Acceptance XXIV...... $ 615,000 10/15/98 $ 42,644 $ 345,179 $ 285,411
Sovereign Acceptance XXV....... $ 531,000 11/15/98 $ 58,195 $ 227,884 $ 180,609
Sovereign Credit I............. $ 992,000 12/15/98 $ 128,268 $ 450,582 $ 386,811
Sovereign Credit II............ $ 767,350 03/15/99 $ 108,926 $ 486,206 $ 401,169
Sovereign Credit III........... $ 944,915 03/15/99 $ 224,166 $ 905,178 $ 763,359
Sovereign Credit IV............ $ 79,000 04/15/99 $ 15,360 $ 53,169 $ 41,916
Sovereign Credit V............. $ 1,450,636 05/15/99 $ 326,050 $ 1,577,036 $ 1,394,501
Sovereign Credit VI............ $ 1,018,047 06/15/99 $ 185,587 $ 1,070,506 $ 967,267
Sovereign Credit VII........... $ 1,189,140 06/15/99 $ 199,265 $ 885,547 $ 845,518
Sovereign Credit VIII.......... $ 925,875 07/15/99 $ 162,886 $ 554,515 $ 502,922
Sovereign Credit IX............ $ 662,500 11/15/99 $ 132,882 $ 851,937 $ 731,011
Sovereign Credit X............. $ 766,888 12/31/99 $ 159,443 $ 829,806 $ 780,498
Sovereign Credit XI............ $ 741,000 12/31/99 $ 159,495 $ 724,146 $ 664,985
Sovereign Credit XII........... $ 752,000 03/31/00 $ 177,285 $ 871,745 $ 781,046
Sovereign Credit XIV........... $ 1,040,312 03/31/00 $ 209,915 $ 1,161,381 $ 1,032,481
Sovereign Credit XV............ $ 649,449 04/30/00 $ 115,218 $ 668,448 $ 621,103
Sovereign Credit XVI........... $ 1,348,889 04/30/00 $ 299,811 $ 1,484,354 $ 1,245,033
</TABLE>

34
<PAGE>
<TABLE>
<CAPTION>
MATURITY VALUE PAYOFF BALANCE
PRINCIPAL CASH COLLECTED OF ACTIVE OF ACTIVE
DUE INVESTORS FROM CONTRACTS CONTRACTS
NAME OF SECURITIZATION AS OF 9/30/97 7/1/97 TO AS OF 9/30/97 AS OF 9/30/97
SUBSIDIARY (1) (2) DUE DATE (3) 9/30/97 (4) (5)
- ------------------------------- --------------- ------------ --------------- --------------- ---------------
Sovereign Credit XVII.......... $ 601,000 05/31/00 $ 125,960 $ 735,438 $ 628,282
<S> <C> <C> <C> <C> <C>
Sovereign Credit XVIII......... $ 1,118,492 06/30/00 $ 318,078 $ 1,241,767 $ 1,086,854
Sovereign Credit XIX........... $ 1,466,965 06/30/00 $ 257,748 $ 1,878,031 $ 1,618,896
Sovereign Credit XX............ $ 1,335,092 08/31/00 $ 279,077 $ 1,647,923 $ 1,463,621
Sovereign Credit Acceptance I.. $ 813,000 01/15/99 $ 83,905 $ 405,245 $ 374,149
Sovereign Credit Acceptance
II........................... $ 515,000 03/15/99 $ 125,075 $ 359,794 $ 310,703
Sovereign Credit Acceptance
III.......................... $ 456,000 05/15/99 $ 138,990 $ 574,771 $ 501,557
Greenbriar Credit I............ $ 897,167 10/31/00 $ 155,075 $ 1,090,457 $ 823,997
Greenbriar Credit II........... $ 477,500 11/30/00 $ 24,217 $ 632,571 $ 447,016
Sovereign Credit Finance I..... $ 5,157,282 02/15/01 $ 660,052 $ 8,300,106 $ 6,798,091
</TABLE>

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

(1) Each Securitization Subsidiary is a limited liability company with the
exception of Sovereign Acceptance I, which is a limited partnership, and
Greenbriar Credit I and Sovereign Credit Finance I, which are both
corporations. Of all the Securitization Subsidiaries listed, Sovereign
Credit Finance I, which publicly offered its notes to investors until
January 31, 1998, is structured most similarly to the Company. The
information shown is for Contracts purchased primarily from Dealers
unaffiliated with Sovereign, SAI, or SCH, with the exception of Greenbriar
Credit I and II, both of which purchase Contracts primarily from Fiesta
Motors.

(2) The amount shown includes institutional debt in the amount of $599,585 for
Sovereign Credit V, $209,414 for Sovereign Credit XVIII, and $358,136 for
Sovereign Credit XIX.

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

(4) 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.

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

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 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.

In order to induce the holders of such notes to agree to such modifications,
Sovereign has assigned its interest in all the Securitization Subsidiaries
(other than Sovereign Credit V, L.C., which cannot be assigned without the
permission of its senior lender, and Sovereign Credit Finance I, Inc.) into a
special purpose entity, and directed that all net proceeds from the Contracts of
each such Securitization Subsidiary, after repayment of its debts (including
amounts owed to both noteholders and senior lenders, if any), be applied towards
the repayment of the notes of the Securitization Subsidiaries that would
otherwise be in default. The net proceeds of such Contracts, to the extent
available for such purpose, will be applied on a pro rata basis. Such net
proceeds will not be available to Noteholders purchasing Notes pursuant to this
offering. There can be no assurance that the net proceeds of such Contracts will
be sufficient to repay all notes of the Securitization Subsidiaries.

As of the date of this Prospectus, the note modifications have been
requested for Securitization Subsidiaries with notes due during 1997 and early
1998, and it is anticipated that such note modifications will be requested for
at least some additional Securitization Subsidiaries with notes due during 1998.
The

35
<PAGE>
notes issued by each of these Securitization Subsidiaries provide that default
on the notes only occurs upon 30 days prior written notice of nonpayment to the
Securitization Subsidiary by the holders of at least 25% of the aggregate
principal amount of the outstanding notes issued by such Securitization
Subsidiary. In addition, such notes provide that any declaration of default by
the minimum number of noteholders may be rescinded by the holders of a majority
of the aggregate principal amount of the outstanding notes. Thus, in the event
more than 75% in principal amount of the noteholders of any Securitization
Subsidiary accept the modification offer, such acceptance will effectively
preclude any noteholders of such Securitization Subsidiary from declaring a
default during the three year extension period. As of the date of this
Prospectus, all Securitization Subsidiaries for which note modifications have
been requested have exceeded this 75% threshold.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth information, as of October 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 PERCENTAGE OF CLASS
NAME AND ADDRESS OF BENEFICIAL OWNER NUMBER OF SHARES OUTSTANDING
- ----------------------------------------------------------------- ------------------ ---------------------
<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) --

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

All officers and directors as a group (2 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 and William P. Glass. Mr.
Taylor owns 30% of SCH's common stock. Mr. Glass owns 10% of SCH's common
stock. The business address for Mr. Taylor and Mr. Glass 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 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.

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<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
B. A. Breeding..................................... Vice President and Controller: SAI and Sovereign
</TABLE>

A. STARKE (TRACY) TAYLOR, III, age 54, 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.

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

Mr. Taylor is married and has five children.

37
<PAGE>
WILLIAM P. GLASS, age 39, has been Vice President of Marketing and a
director of Sovereign since April, 1990 and Vice President and a director of the
Company and SCH since the formation of such companies. Mr. Glass is responsible
for all marketing and investor relations activities for the company. He attended
Baylor University, and was drafted by the Cincinnati Bengals of the National
Football League in 1980. Mr. Glass began his business career in 1981 with Hank
Dickerson & Co. Realtors. In his position as a Sales Associate he led the Office
Division in sales for two of the three years he was employed with Hank Dickerson
& Co.

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

B. A. BREEDING, age 56, serves 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 directors and executive officers of the Company have served in their
respective offices since the organization of the Company. All directors hold
office until the next annual meeting of stockholders or the election and
qualification of their successors. 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

The Company, Sovereign, and SAI are all subsidiaries of Sovereign Credit
Holdings, Inc. ("SCH"). All Contract purchasing and servicing on behalf of the
Securitization Subsidiaries is conducted by SAI. 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.

38
<PAGE>
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 1/2th of 0.5% of the aggregate outstanding principal amount of
the Notes, which fee shall reimburse Sovereign for expenses incurred in the
administration of Noteholder payments, communications and relations for the
Company.

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

The Contracts will be purchased primarily from Fiesta Motors ("Fiesta
Motors"), an automobile dealer which finances the sale of used automobiles and
light trucks. Fiesta Motors is owned by Fiesta Motors, LLC. Fiesta Motors, LLC,
a Texas limited liability company, was formed on February 2, 1995. A. Starke
Taylor, III, individually, and his wife, Diane D. Taylor, both individually and
as a trustee of several trusts for the benefit of their children, are the owners
of all the membership interests, and thus voting rights, in Fiesta Motors, LLC.
Mr. Taylor serves as the sole manager of Fiesta Motors, LLC. The officers of
Fiesta Motors, LLC are Diane D. Taylor, President; and A. Starke Taylor, III,
Chairman.

Contracts may also be purchased from unaffiliated Dealers. The economic
incentive motivating any Dealer, including Fiesta Motors, to sell Contracts to
the Company is maximization of return to the Dealer. Although the Dealer may
make less profit on the sale of an automobile by selling the related Contract,
the Dealer can purchase and sell more automobiles and increase net profit
through increased inventory turnover because the cost of the automobile to the
Dealer is recouped immediately upon sale of the Contract and the Dealer does not
have to wait for future installment payments on the Contract.

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

39
<PAGE>
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.

40
<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, in the range of
25% to 35% of such Contracts and (ii) aggregate gross collections from all
Contracts will be in the range of approximately 75% to 85% 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

41
<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

42
<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.

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 Fiesta Motors. 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 Fiesta Motors, 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.

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

43
<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

44
<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.

45
<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

46
<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 $10,000,000 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 Overton
Bank and Trust, N.A., 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, 1998 (or any earlier termination of the
offering ), the offering will be terminated and the escrowed funds, plus any
interest thereon, will be promptly returned to the subscribing investors by the
escrow agent. Upon the subscription of the minimum amount of Notes, the escrowed
funds will be released to the Company. Interest on the Notes will not accrue
until the excrowed funds are released to the Company. Any subsequent sales
proceeds from the sale of additional Notes will be immediately available for use
by the Company to purchase additional Contracts. All subscriptions are subject
to the right of the Company to reject any subscription in whole or in part.

The offering will terminate on January 31, 1999, 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

47
<PAGE>
$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 ($10,000,000) for the Notes, any subsequently
received subscription will not be accepted by the Company and will be promptly
returned.

COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES ACT LIABILITIES

Section 7(b) of the form of broker-dealer selling agreement to be used by
the Company provides generally that each broker-dealer will indemnify and hold
harmless the Company and its control persons against any loses, liabilities,
claims, damages or expenses they may become subject, under the Securities Act of
1933 (the "Act") , 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 the Company provides generally that no director
shall be liable to the Company 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 the Company and Section 2.02-1 of the Texas Business Corporation Act
provide generally that the Company 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.

Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the Company pursuant
to the foregoing provisions, or otherwise, the Company 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 Company of expenses incurred or paid by a director,
officer or controlling person of the Company 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 Company 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.

EXPERTS

The financial statements of the Company included in this Prospectus have
been audited by Belew Averitt LLP, 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".

48
<PAGE>
INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Independent Auditor's Report............................................................................... F-2
Balance Sheet of the Company as of October 9, 1997......................................................... F-3
Notes to Financial Statement............................................................................... F-4
</TABLE>

F-1
<PAGE>
BELEW AVERITT LLP
CERTIFIED PUBLIC ACCOUNTANTS
AND CONSULTANTS

A MEMBER OF HORWATH INTERNATIONAL

2020 PLAZA OF THE AMERICAS NORTH
DALLAS, TEXAS 75201-2867

TEL: 214-969-7007 - FAX: 214-953-0722

INDEPENDENT AUDITOR'S REPORT

Board of Directors
Sovereign Credit Finance II, Inc.

We have audited the accompanying balance sheet of Sovereign Credit Finance
II, Inc. as of October 9, 1997. This financial statement is the responsibility
of the Company's management. Our responsibility is to express an opinion on this
financial statement 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 balance sheet is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the balance sheet. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall balance sheet presentation. We
believe our audit of the balance sheet provides a reasonable basis for our
opinion.

In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of Sovereign Credit Finance II, Inc.
as of October 9, 1997 in conformity with generally accepted accounting
principles.

October 9, 1997

F-2
<PAGE>
SOVEREIGN CREDIT FINANCE II, INC.
BALANCE SHEET
OCTOBER 9, 1997

ASSETS

<TABLE>
<S> <C>
CURRENT ASSETS
Cash and cash equivalents......................................................... $ 1,000
---------
---------

LIABILITIES AND STOCKHOLDER'S EQUITY

STOCKHOLDER'S EQUITY
Common stock, $.01 par value, 50,000 shares authorized, 1,000 shares issued and
outstanding..................................................................... $ 10
Additional paid-in capital........................................................ 990
---------
$ 1,000
---------
---------
</TABLE>

See accompanying notes to balance sheet.

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

NOTES TO BALANCE SHEET

OCTOBER 9, 1997

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

ORGANIZATION

Sovereign Credit Finance II, Inc. (Company) was incorporated in Texas on
October 9, 1997. The Company is a subsidiary of Sovereign Credit Holdings, Inc.
(Parent) and was formed for the purpose of purchasing, collecting and servicing
retail installment sales, lease contracts and notes secured by motor vehicles
(Contracts). The Contracts typically involve consumers who cannot obtain loans
from local financial institutions or from the credit facilities of major
automobile manufacturers. The "creditworthiness grade" of the obligors on the
Contracts is usually "D." The Company does business primarily in the south and
southwest.

MANAGEMENT ESTIMATES

In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and assumptions
that affect the reported amounts of assets, liabilities, revenues and expenses
during the reporting period. Actual results may vary from such estimates.

CONCENTRATION OF CREDIT RISK

The Company's financial instruments exposed to concentration of credit risk
consist primarily of cash maintained in Federally insured financial institutions
which are considered by the Company to be of high credit quality. Therefore,
management considers concentration of credit risk to be limited.

2. AUTOMOBILE CONTRACT NOTES OFFERING

The Company is offering on a "best efforts" basis, up to $10,000,000 in
principal amount of 11% Notes (Notes) due February 15, 2002. Interest begins to
accrue on the Notes upon release of escrowed subscription funds to the Company,
which will not occur until a minimum of $500,000 of the Notes are sold. All
unpaid principal and accrued interest are payable at maturity. 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 use 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. Sovereign Credit Corporation (SCC), also a subsidiary
of the Company's Parent, will advance some of these expenses. SCC has agreed to
pay such expenses to the extent such expenses exceed 2% of the gross proceeds
from the sale of the Notes. The Company will also pay an additional 5.5% of the
gross proceeds from the sale of the Notes (5.0% of the gross proceeds in excess
of $9,000,000) to SCC for its services in administering and managing the ongoing
operations of the Company. SCC will also administer noteholder payments,
communications and relations. For such services, the Company will pay SCC a
monthly fee equal to 1/12 of 0.5% of the outstanding principal amount of the
Notes.

Such payments to SCC are contingent upon the successful completion of the
Company's public offering. If the offering is not successful, the Company is not
obligated to reimburse SCC for any expenses incurred. The remainder of the
proceeds from the sale of the 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 received from the sale of the
Notes will be held in escrow by a

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

NOTES TO BALANCE SHEET (CONTINUED)

OCTOBER 9, 1997

2. AUTOMOBILE CONTRACT NOTES OFFERING (CONTINUED)
third-party escrow agent and will not be available to the Company until
subscriptions for $500,000 in principal amounts of the Notes have been received.

The Company intends to enter into a note purchasing and servicing agreement
with Sovereign Associates, Inc. (SAI), a subsidiary of the Parent. The majority
of Contracts will be originated by Fiesta Motors LLC, an affiliate, which
finances the sale of motor vehicles. SAI will initially be entitled to a monthly
servicing fee of $20 for administering the collection of payments due under the
Contracts for each Contract that is not assigned for repossession. SAI will
receive a fee of $125 for each financed vehicle assigned for repossession. This
fee is paid for overseeing the repossession and resale of the vehicle securing
any Contract in default. SAI will also receive a purchase administration fee for
each Contract purchased, equal to the lesser of $500 or 5% of the total amount
of installments due under the Contract as of the date of purchase.

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

F-5
<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.............................................................. 9
Capitalization............................................................ 15
Use of Proceeds........................................................... 16
Description of Notes...................................................... 17
The Company............................................................... 25
Purchase and Collection of Contracts...................................... 27
Information Regarding Contracts Purchased and Serviced by SAI............. 32
Information Regarding the Securitization Subsidiaries..................... 34
Security Ownership of Certain Beneficial Owners and Management............ 36
Management................................................................ 37
Management's Discussion and Analysis of Financial Condition............... 41
Certain Legal Aspects of the Contracts.................................... 42
Certain Federal Income Tax Considerations................................. 46
Plan of Distribution...................................................... 47
Commission Position on Indemnification for Securities Act Liabilities..... 48
Experts................................................................... 48
Legal Matters............................................................. 48
Index to Financial Statements............................................. F-1
</TABLE>

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

UNTIL , 199 , 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 II, INC.

$10,000,000

11% NOTES
DUE FEBRUARY 15, 2002
---------------------

PROSPECTUS

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

, 1998

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II.

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 24. 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 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

<TABLE>
<S> <C>
Registration Fee.................................................. $ 3,031
NASD Fee.......................................................... 1,500
Escrow Agent Fees................................................. 5,000
Printing Expenses................................................. 25,000*
Blue Sky Fees and Expenses........................................ 20,000*
Legal Fees and Expenses........................................... 25,000*
Accountants' Fees and Expenses.................................... 2,500*
Miscellaneous..................................................... 5,000*
---------
TOTAL........................................................... $ 87,031*
---------
---------
</TABLE>

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

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

ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.

None

ITEM 27. EXHIBITS.

<TABLE>
<C> <S>
3.1 Articles of Incorporation of Sovereign Credit Finance II, Inc.
3.2 Bylaws of Sovereign Credit Finance II, Inc.
4.1 Indenture between Sovereign Credit Finance II, Inc. and Sterling Trust Company, as
Trustee
4.2 Form of 11% Note Due February 15, 2002 (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 II, Inc. and
Sovereign Associates, Inc.
10.2 Servicing Agreement between Sovereign Credit Finance II, Inc. and Sovereign
Associates, Inc.
10.3 Subscription Escrow Agreement between Sovereign Credit Finance II, Inc. and Overton
Bank and Trust, N.A. as Escrow Agent
10.4 Form of Broker-Dealer Selling Agreement
</TABLE>

II-1
<PAGE>
<TABLE>
<C> <S>
10.5 Form of Subscription Agreement
10.6 Form of Promissory Note of Sovereign Credit Corporation
23.1 Consent of Belew Averitt LLP
23.2 Consent of Frederick C. Summers, III, P.C. (included in its opinions as Exhibits 5.1
and 8.1 herein)
25.1 Form T-1: Statement of eligibility of Sterling Trust Company (submitted separately
from other exhibits)
27 Financial Data Schedule
</TABLE>

ITEM 28. UNDERTAKINGS.

The undersigned registrant will:

(1) File, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement to:

(i) Include any prospectus required by section 10(a)(3) of the
Securities Act;

(ii) Reflect in the prospectus any facts or events which, individually
or together, represent a fundamental change in the information in the
registration statement; and notwithstanding the forgoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in the volume and
price represent no more than a 20% change in the maximum aggregate offering
price set forth in the "Calculation of Registration Fee" table in the
effective registration statement.

(iii) Include any additional or changed material information on the plan
of distribution.

(2) For determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial bona
fide offering.

(3) File a post-effective amendment to remove from registration any of the
securities that remain unsold at the end of the offering.

II-2
<PAGE>
SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of Dallas, State of Texas on
November 14, 1997.

<TABLE>
<S> <C> <C>
SOVEREIGN CREDIT FINANCE II, INC.

By: /s/ A. STARKE TAYLOR, III
-----------------------------------------
A. Starke Taylor, III
PRESIDENT
</TABLE>

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

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

President, (principal
executive officer,
/s/ A. STARKE TAYLOR, III principal financial
- ------------------------------ officer and principal November 14, 1997
A. Starke Taylor, III accounting officer) and
director

/s/ WILLIAM P. GLASS
- ------------------------------ Director November 14, 1997
William P. Glass

II-3
<PAGE>

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

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

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

EXHIBITS

FORM SB-2

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

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

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

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

<PAGE>

EXHIBIT INDEX

Number Description
- ------ -----------

3.1 Articles of Incorporation of Sovereign
Credit Finance II, Inc.

3.2 Bylaws of Sovereign Credit Finance II, Inc.

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

4.2 Form of 11% Note Due February 15, 2002 (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 II,
Inc. and Sovereign Associates, Inc.

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

10.3 Subscription Escrow Agreement between Sovereign Credit Finance II, Inc.
and Overton Bank and Trust, N.A. as Escrow Agent

10.4 Form of Broker-Dealer Selling Agreement

10.5 Form of Subscription Agreement

10.6 Form of Promissory Note of Sovereign Credit Corporation

23.1 Consent of Belew Averitt LLP

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

25.1 Form T-1: Statement of eligibility of Sterling Trust Company
(submitted separately from other exhibits)

27. Financial Data Schedule

<PAGE>

ARTICLES OF INCORPORATION
OF
SOVEREIGN CREDIT FINANCE II, INC.

I, the undersigned, a natural person of the age of eighteen (18) years
or more, acting as Incorporator of a corporation under the Texas Business
Corporation Act, do hereby adopt the following Articles of Incorporation for
such corporation:

ARTICLE I

The name of the corporation is Sovereign Credit Finance II, Inc.

ARTICLE II

The period of its duration is perpetual.

ARTICLE III

The purpose for which the corporation is organized is the transaction of
any or all lawful business for which corporations may be incorporated under
the Texas Business Corporation Act.

ARTICLE IV

The shares which the corporation shall have authority to issue shall be
of one class, which shall be Common Stock, $.01 par value per share. The
aggregate number of shares of such class which the corporation shall have
authority to issue is 50,000.

ARTICLE V

The corporation will not commence business until it has received for the
issuance of its shares consideration of the value of at least One Thousand
Dollars ($1,000.00), consisting of money, labor done, or property actually
received.

ARTICLE VI

Cumulative voting by any shareholder is hereby expressly prohibited.

ARTICLE VII

No shareholder of the corporation shall have a preemptive right to
acquire additional, unissued or treasury shares of the corporation, or
securities of the corporation convertible into or carrying a right to
subscribe to or acquire shares.

1
<PAGE>

ARTICLE VIII

The street address of the initial registered office of the corporation
is 4015 Beltline Road, Building B, Dallas, Texas 75244 and the name of its
initial registered agent at such address is A. Starke Taylor, III.

ARTICLE IX

The number of directors shall be as fixed in the manner provided in the
By-laws. The number of directors constituting the initial Board of Directors
is one (1), and the name and address of the person who is to serve as
director until the first annual meeting of the shareholders or until his
successor(s) is elected and qualified is:

A. Starke Taylor, III
4015 Beltline Road, Building B
Dallas, Texas 75244

ARTICLE X

The name and address of the Incorporator is:

Frederick C. Summers, III
1400 St. Paul Place
750 North St. Paul Street
Dallas, Texas 75201

ARTICLE XI

To the fullest extent permitted by applicable law, no director of the
corporation shall be liable to the corporation or its shareholders for
monetary damages for an act or omission in such director's capacity as a
director of the corporation, except that this Article does not eliminate or
limit the liability of a director of the corporation for:

1. a breach of such director's duty of loyalty to the corporation or its
shareholders;

2. an act or omission not in good faith that constitutes a breach of
duty of the director to the corporation or an act or omission that involves
intentional misconduct or a knowing violation of the law;

3. a transaction from which such director received an improper
benefit, whether or not the benefit resulted from an action taken within the
scope of such director's office; or

2
<PAGE>

4. an act or omission for which the liability of such director is
expressly provided for by an applicable statute.

Any repeal or amendment of this Article by the shareholders of the
corporation shall be prospective only, and shall not adversely affect any
limitation on the personal liability of a director of the corporation
existing at the time of such repeal or amendment. In addition to the
circumstances in which a director of the corporation is not personally liable
as set forth in the foregoing provisions of this Article, a director shall
not be liable to the fullest extent permitted by any Amendment to the Texas
Miscellaneous Corporation Laws Act or the Texas Business Corporation Act
hereafter enacted that further limits the liability of a director.

ARTICLE XII

Any action required by the Texas Business Corporation Act to be taken at
any annual or special meeting of shareholders, or any action which may be
taken at any annual or special meeting of shareholders, may be taken without
a meeting, without prior notice, and without a vote, if consent or consents
in writing, setting forth the action so taken, shall be signed by the holder
or holders of shares having not less than the minimum number of votes that
would be necessary to take such an action at a meeting at which the holders
of all shares entitled to vote on the action were present and voted.

IN WITNESS WHEREOF, I have hereunto set my hand on this the 8th day of
October, 1997.

/s/ Frederick C. Summers, III
--------------------------------
Frederick C. Summers, III

<PAGE>

BYLAWS

SOVEREIGN CREDIT FINANCE II, INC.
(A TEXAS CORPORATION)

OFFICES

SECTION 1.01. PRINCIPAL OFFICE. The principal office of the
Corporation shall be in Dallas, Texas, or such other place as shall be
determined from time to time by the Board of Directors.

SECTION 1.02. OTHER OFFICES. The Corporation may also have offices at
such other places both within and without the State of Texas as the Board of
Directors may from time to time determine or the business of the Corporation
may require.

II.

SHAREHOLDERS

SECTION 2.01. TIME AND PLACE OF MEETINGS. Meetings of the
Corporation's shareholders shall be held at such time and place, within or
outside the State of Texas, as shall be determined by the Board of Directors
or by the written consent of all persons entitled to vote thereat.

SECTION 2.02. ANNUAL MEETINGS. Annual meetings of the Corporation's
shareholders shall be held on the second Thursday of January of each year, if
not a legal holiday, and if a legal holiday, then on the next business day
following, at 10:00 a.m., at which they shall elect a Board of Directors and
transact such other business as may properly be brought before the meeting.
The date of the annual meeting of the shareholders may be held on a date
different than that specified above if the Board of Directors so determines
and so states in the notice of the meeting or in a duly executed waiver
thereof.

SECTION 2.03. SPECIAL MEETINGS. Special meetings of the Corporation's
shareholders may be called at any time by the President or the Board of
Directors, and shall be called by the President or the Secretary at the
request in writing of the holders of not less than ten percent of all the
shares issued, outstanding and entitled to vote at the meeting. Such request
shall state the purpose of such special meeting. Business transacted at all
special meetings of the shareholders shall be confined to the purpose or
purposes stated in the notice of the meeting.

SECTION 2.04. NOTICE. Written or printed notice stating the place, day
and hour of any shareholder meeting and, in the case of a special meeting,
the purpose or purposes for which the

1
<PAGE>

meeting is called, shall be delivered not less than 10 nor more than 60 days
before the date of the meeting, either personally or by mail, by or at the
direction of the President, the Secretary or the officer or person calling
the meeting, to each shareholder of record entitled to vote at such meeting.
If mailed, such notice shall be deemed to be delivered when deposited in the
United States mail, postage prepaid, addressed to the shareholder at his
address as it appears on the stock transfer books of the Corporation.

SECTION 2.05. RECORD DATE. For the purpose of determining shareholders
entitled to notice of or to vote at any meeting of shareholders or any
adjournment thereof, or entitled to receive payment of any dividend, or in
order to make a determination of shareholders for any other proper purpose,
the Board of Directors of the Corporation shall fix in advance a date as the
record date for any such determination of shareholders, such date in any case
to be not more than 60 days after and, in case of a meeting of shareholders,
not less than 10 days prior to the date on which the particular action
requiring such determination of shareholders is to be taken. If a
determination of shareholders entitled to vote at any meeting of shareholders
has been made as provided in this Section, such determination shall apply to
any adjournment thereof as well. The stock transfer books of the Corporation
will not be closed for the purpose of making a determination of shareholders
under this Section.

SECTION 2.06. LIST OF SHAREHOLDERS. The officer or agent of the
Corporation having charge of the stock transfer books for shares of the
Corporation shall make, at least 10 days before each meeting of the
shareholders, a complete list of the shareholders entitled to vote at such
meeting or any adjournment thereof, arranged in alphabetical order, with the
address of and the number of voting shares held by each, which list, for a
period of 10 days prior to such meeting, shall be kept on file at the
registered office of the Corporation and shall be subject to inspection by
any shareholder at any time during the usual business hours. Such list shall
also be produced and kept open at the time and place of the meeting and shall
be subject to the inspection of any shareholder during the whole time of the
meeting. The original stock transfer books shall be prima facie evidence as
to who are the shareholders entitled to examine such list or transfer books
or to vote at any meeting of shareholders.

SECTION 2.07. QUORUM. The holders of a majority of the issued and
outstanding shares entitled to vote thereat, present in person or presented
by proxy, shall constitute a quorum at all meetings of the shareholders for
the transaction of business, except as otherwise provided by the
Corporation's Articles of Incorporation or by the Texas Business Corporation
Act (herein called the "Act"). If, however, such quorum shall not be present
or represented at any meeting of the shareholders, the shareholders entitled
to vote, present in person or represented by proxy, shall have power to
adjourn the meeting from time to time, without notice other than announcement
at the meeting, until a quorum shall be present or represented. At such
adjourned meeting at which a quorum shall be present or represented, any
business may be transacted which might have been transacted at the meeting as
originally notified. Once a quorum is constituted, the shareholders present
or represented by proxy at a meeting may continue to transact business until
adjournment, notwithstanding the subsequent withdrawal therefrom of such
number of shareholders as to leave less than a quorum.

2
<PAGE>

SECTION 2.08. VOTING. When a quorum is present at any meeting, the
vote of the holders of a majority of the shares present or represented by
proxy at such meeting and entitled to vote shall decide any question brought
before such meeting and shall be the act of the shareholders, unless the vote
of a greater number is required by the Act, the Articles of Incorporation or
these Bylaws.

Each shareholder shall at every meeting of the shareholders be entitled
to one vote in person or by proxy for each share having voting power held by
such shareholder, except to the extent that the voting rights of the shares
of any class or classes are limited or denied by the Articles of
Incorporation.

Every proxy must be executed in writing by the shareholder or by his
duly authorized attorney-in-fact. No proxy shall be valid after 11 months
from the date of its execution unless otherwise provided therein. Each proxy
shall be revocable unless the proxy form conspicuously states that the proxy
is irrevocable and the proxy is coupled with an interest.

Shares of its own stock belonging to the Corporation or held by it in a
fiduciary capacity shall not be voted, directly or indirectly, at any
meeting, and shall not be counted in determining the total number of
outstanding shares at any given time.

SECTION 2.09. ACTION BY WRITTEN CONSENT.

(a) Any action required to be taken at a meeting of the shareholders
may be taken without a meeting if a consent in writing, setting forth the
action so taken, shall be signed by all of the shareholders entitled to vote
with respect to the subject matter thereof, and such consent shall have the
same force and effect as a unanimous vote of the shareholders. The consent
may be in one or more counterparts, so long as each shareholder signs one of
the counterparts. The signed consent, or a signed copy thereof, shall be
placed in the minute book of the Corporation with minutes of the meetings of
shareholders.

(b) (1) Any action required by the Act to be taken at any annual or
special meeting of shareholders, may be taken without a meeting, without
prior notice, and without a vote, if a consent or consents in writing,
setting forth the action so taken, shall be signed by the holder or holders
of shares having not less than the minimum number of votes that would be
necessary to take such action at a meeting at which the holders of all shares
entitled to vote on the action were present and voted.

(2) Every written consent permitted by this subsection (b) shall
bear the date or signature of each shareholder who signs the consent. No
written consent permitted by this subsection (b) shall be effective to take
the action that is the subject of the consent unless, within 60 days after
the date of the earliest dated consent delivered to the Corporation in the
manner required by this subsection (b), a consent or consents signed by the
holder or holders of shares having not less than the minimum number of votes
that would be necessary to take the action that is the subject of the consent
are delivered to the Corporation by delivery to its registered office, its
principal place of business, or an officer or agent of the Corporation having
custody of the books in which

3
<PAGE>

proceedings of meetings of shareholders are recorded. Delivery shall be by
hand or certified or registered mail, return receipt requested. Delivery to
the Corporation's principal place of business shall be addressed to the
President or principal executive officer of the Corporation.

(3) A telegram, telex, cablegram, or similar transmission by a
shareholder, or a photographic, photostatic, facsimile, or similar
reproduction of a writing signed by a shareholder, shall be regarded as
signed by the shareholder for purposes of this subsection (b).

(4) Prompt notice of the taking of any action by shareholders
without a meeting by less than unanimous written consent pursuant to this
subsection (b) shall be given to those shareholders who did not consent in
writing to the action.

SECTION 2.10. PRESENCE AT MEETINGS BY MEANS OF COMMUNICATION EQUIPMENT.
Shareholders may participate in and hold a meeting of such shareholders by
means of conference telephone or similar communications equipment by means of
which all persons participating in the meeting can hear each other, and
participation in a meeting pursuant to this section shall constitute presence
in person at such meeting, except where a person participates in a meeting
for the express purpose of objecting to the transaction of any business on
the ground that the meeting is not lawfully called or convened.

III.

DIRECTORS

SECTION 3.01. GENERAL POWERS. The business and affairs of the
Corporation shall be managed by its Board of Directors, which may exercise
all of the powers of the Corporation and do all such lawful acts and things,
as are not by the Act, the Articles of Incorporation or these By-Laws
directed or required to be exercised or done by the shareholders.

SECTION 3.02. NUMBER OF DIRECTORS. The number of directors of the
Corporation shall be fixed from time to time by resolution of the Board of
Directors, but in no case shall the number of directors be less than one.
Until otherwise fixed by resolution of the Board of Directors or by amendment
to these By-Laws, the number of Directors shall be three. No decrease in the
number of directors shall have the effect of reducing the term of any
incumbent director. Directors shall be elected at each annual meeting of the
shareholders, except as provided in Section 3.03 of these By-Laws, and each
director shall hold office until the annual meeting of shareholders following
his election or until his successor is elected and qualified. Directors need
not be residents of the State of Texas or shareholders of the Corporation.

SECTION 3.03. VACANCIES. Subject to other provisions of this Section,
any vacancy occurring in the Board of Directors may be filled by the
affirmative vote of a majority of the remaining directors, though the
remaining directors may constitute less than a quorum of the Board of
Directors as fixed by Section 3.08 of these By-Laws. A director elected to
fill a vacancy shall be elected for

4
<PAGE>

the unexpired term of his predecessor in office. Any directorship to be
filled by reason of an increase in the number of directors may be filled by
election at an annual meeting or at a special meeting of shareholders called
for that purpose or may be filled by the Board of Directors for a term of
office continuing only until the next election of one or more directors by
the shareholders; provided that the Board of Directors may not fill more than
two such directorships during the period between any two successive annual
meetings of shareholders. The shareholders may, at any time, with or without
cause, terminate the term of office of all or any of the directors at any
meeting called for that purpose. Such removal shall be effective immediately
upon such shareholder action even if successors are not elected
simultaneously, and the vacancies on the Board of Directors caused by such
action shall be filled only by election by the shareholders.

SECTION 3.04. PLACE OF MEETINGS. The Board of Directors of the
Corporation may hold meetings, both regular and special, either within or
without the State of Texas.

SECTION 3.05. ANNUAL MEETINGS. The first meeting of each newly elected
Board of Directors shall be held, without further notice, immediately
following the annual meeting of the shareholders at the same place unless, by
unanimous consent of the directors then elected and serving, such time or
place shall be changed.

SECTION 3.06. REGULAR MEETINGS. Regular meetings of the Board of
Directors may be held with or without notice at such time and place as the
Board of Directors may determine by resolution.

SECTION 3.07. SPECIAL MEETINGS. Special meetings of the Board of
Directors may be called by or at the request of the Chairman of the Board of
Directors, the President, or the Secretary and shall be called by the
Secretary on the written request of a majority of the incumbent directors.
The person or persons authorized to call special meetings of the Board of
Directors may fix the place for holding any special meeting of the Board of
Directors called by them. Notice of any special meeting shall be given at
least 24 hours prior thereto if given either personally (including written
notice delivered personally or oral notice by telephone), by telegram, or by
facsimile transmission and at least 72 hours previous thereto if given by
written notice mailed to each director at the address of his business or
residence. If mailed, the notice shall be deemed to be delivered when
deposited in the United States mail addressed, in the above-specified manner,
with postage thereon prepaid. If notice be given by telegram, such notice
shall be deemed to be delivered when the telegram is delivered to the
telegraph company. Any director may waive notice of any meeting, as provided
in Section 4.02 of these By-Laws. The attendance of a director at a meeting
shall constitute a waiver of notice of such meeting, except where a director
attends a meeting for the express purpose of objecting to the transaction of
any business because the meeting was not lawfully called or convened.

SECTION 3.08. QUORUM AND VOTING. At all meetings of the Board of
Directors the presence of a majority of the number of directors fixed in the
manner provided by Section 3.02 of these By-Laws shall be necessary and
sufficient to constitute a quorum for the transaction of business, and the
affirmative vote of at least a majority of the directors present at any
meeting at which there is a quorum shall be the act of the Board of
Directors, except as may be otherwise specifically provided

5
<PAGE>

by the Act, the Articles of Incorporation, or these By-Laws. If a quorum
shall not be present at any meeting of directors, a majority of the directors
present thereat may adjourn the meeting from time to time without notice
other than announcement at the meeting, until a quorum shall be present. At
such adjourned meeting at which a quorum shall be present, any business may
be transacted which might have been transacted at the meeting as originally
notified. Once a quorum is constituted, the directors present at a meeting
may continue to transact business until adjournment, notwithstanding the
subsequent withdrawal therefrom of such number of directors as to leave less
than a quorum.

SECTION 3.09. EXECUTIVE COMMITTEE. The Board of Directors may, by
resolution adopted by a majority of the full Board of Directors, designate an
Executive Committee, to consist of two or more directors, one of whom shall
be designated as Chairman and shall preside at all meetings of such
Committee. To the extent provided in the resolution of the Board of
Directors, the Executive Committee shall have and may exercise all of the
authority of the Board of Directors in the management of the business and
affairs of the Corporation, subject to the limitations on the authority of
committees of the Board of Directors set forth in Article 2.36.B of the Act,
but the designation of such committee and the delegation thereof of authority
shall not operate to relieve the Board of Directors, or any member thereof,
of any responsibility imposed by law. The Executive Committee shall keep
regular minutes of its proceedings and report the same to the Board of
Directors when required. Any member of the Executive Committee may be
removed, with or without cause, by the affirmative vote of a majority of the
whole Board of Directors. If any vacancy or vacancies shall occur in the
Executive Committee, such vacancy or vacancies may be filled by the
affirmative vote of a majority of the whole Board of Directors.

SECTION 3.10. OTHER COMMITTEES. The Board of Directors may, by
resolution adopted by a majority of the full Board of Directors, designate
committees other than an Executive Committee, to consist of two or more
directors, one of whom shall be designated its Chairman and shall preside at
all meetings of such committee. The functions and responsibilities of any
such committee shall be specified in the resolution of the Board of Directors
creating the same. All such committees shall keep regular minutes of their
proceedings and report the same to the Board of Directors when requested.

SECTION 3.11. COMPENSATION OF DIRECTORS. Directors, as such, shall not
receive any stated salary for their services, but, by resolution of the Board
of Directors, a fixed sum and expenses of attendance, if any, may be allowed
for attendance at each regular or special meeting of the Board of Directors.
Nothing herein contained shall be construed to preclude any director from
serving the Corporation in any other capacity and receiving compensation
therefor. Members of the Executive Committee and other standing committees
may, by resolution of the Board of Directors, be allowed like compensation
for attending committee meetings.

SECTION 3.12. ACTION BY UNANIMOUS CONSENT. Any action required or
permitted to be taken at any meeting of the Board of Directors or of any
committee thereof may be taken without a meeting if a written consent,
setting forth the action so taken, is signed by all the members of the Board
of Directors or the committee, as the case may be, and such written consent
shall have the same force and effect as a unanimous vote at a meeting
lawfully called and held, and may be stated

6
<PAGE>

as such in any instrument or document filed with the Secretary of State of
Texas or delivered to any other person. Any such consent may be in one or
more counterparts. The signed consent, or a signed copy thereof, shall be
placed in the minute book of the Corporation with the minutes of the meetings
of the Board of Directors.

SECTION 3.13. PRESENCE AT MEETINGS BY MEANS OF COMMUNICATION EQUIPMENT.
Members of the Board of Directors or any committee designated by the Board of
Directors may participate in and hold a meeting of the Board or such
committee by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other, and participation in a meeting pursuant to this section shall
constitute presence in person at such meeting, except where a person
participates in the meeting for the express purpose of objecting to the
transaction of any business on the ground that the meeting is not lawfully
called or convened.

IV.

NOTICES

SECTION 4.01. FORM OF NOTICE. Whenever under the provisions of the
Act, the Articles of Incorporation or these By-Laws, notice is required to be
given to any director or shareholder, and no provision is made as to how such
notice shall be given, it shall not be construed to mean personal notice
exclusively, but any such notice may be given in writing, by mail, postage
prepaid, addressed to such director or shareholder at such address as appears
on the books of the Corporation. Any notice required or permitted to be
given by mail shall be deemed to be given at the time when the same be thus
deposited, postage prepaid, in the United States mail as aforesaid.

SECTION 4.02. WAIVER. Whenever any notice is required to be given to
any director or shareholder of the Corporation under the provisions of the
Act, the Articles of Incorporation or these By-Laws, a waiver thereof in
writing signed by the person or persons entitled to such notice, whether
before or after the time stated in such notice, shall be equivalent to the
giving of such notice.

OFFICERS

SECTION 5.01. GENERAL. The elected officers of the Corporation shall
be a President and a Secretary. The Board of Directors may also elect or
appoint a Chairman of the Board, one or more Vice Presidents and one or more
Assistant Secretaries, all of whom shall also be officers. Any two or more
officers may be held by the same person. Such other officers, including
assistant officers, and agents as may be deemed necessary may be elected or
appointed by the Board of Directors of chosen in such other manner as may be
prescribed by these Bylaws.

SECTION 5.02. ELECTION. The Board of Directors shall elect the
officers of the Corporation at each annual meeting of the Board of Directors.
The Board of Directors may appoint such other

7
<PAGE>

officers and agents as it shall deem necessary and shall determine the
salaries of all officers and agents from time to time. The officers shall
hold office until their successors are chosen and qualified. Officers need
not be members of the Board of Directors. Any officer elected or appointed
by the Board of Directors may be removed, with or without cause, at any time
by action of the Board of Directors. Election or appointment of an officer
or agent shall not of itself create contract rights.

SECTION 5.03. CHAIRMAN OF THE BOARD. The Board of Directors may elect,
but shall not be required to elect, a person to the position of Chairman of
the Board. If such officer shall be elected, he must be a director, and the
Chairman of the Board shall preside at all meetings of the Board of Directors
and the shareholders, and shall see that all orders and resolutions of the
Board of Directors are carried into effect.

SECTION 5.04. PRESIDENT. The President shall be the chief executive
officer of the Corporation and shall have responsibility for the general and
active management of the business of the Corporation. The President and such
other officers as the Board of Directors may determine shall execute all
contracts requiring a seal and shall also execute any mortgages, conveyances,
or other legal instruments in the name of and on behalf of the Corporation,
but this provision shall not prohibit the delegation of such powers by the
President or the Board of Directors to some other agent or attorney-in-fact
of the Corporation. In the event the office of the chief executive officer
shall be conferred by the Board of Directors on the Chairman of the Board,
the President shall be the chief operating officer, and shall generally
assist the Chairman of the Board in the management of the Corporation and
shall perform the duties and exercise the powers delegated by the Chairman of
the Board or the Board of Directors.

If the elected officers do not include a Chairman of the Board, or in
the absence or disability of the Chairman of the Board, the President shall
perform the duties and exercise the powers of the Chairman of the Board.

SECTION 5.05. VICE PRESIDENTS. The Vice Presidents shall generally
assists the President in the management of the Corporation and shall perform
the duties and exercise the powers delegated by the Chairman of the Board and
the President or from time to time assigned by the Board of Directors. The
Vice Presidents, in the order of their seniority or in any other order
determined by the Board of Directors, shall, in the absence or disability of
the President, perform the duties and exercise the powers of the President.

SECTION 5.06. SECRETARY. The Secretary shall attend all meetings of
the Board of Directors and the shareholders and record all votes and the
minutes of all proceedings in a book to be kept for that purpose, and shall
perform like duties for the Executive Committee and any other committees of
the Board when required. He shall give, or cause to be given, notice of all
meetings of the shareholders and special meetings of the Board of Directors,
and shall perform such other duties as may be prescribed by the Board of
Directors or the President, under whose supervision he shall be. He shall
keep in safe custody the seal of the Corporation.

SECTION 5.07. ASSISTANT SECRETARIES. Any Assistant Secretary shall, in
the absence or

8
<PAGE>

disability of the Secretary, perform the duties and exercise the powers of
the Secretary and shall perform such other duties as may be prescribed by the
Board of Directors or the President.

SECTION 5.08. BONDING. If required by the Board of Directors, all or
certain of the officers shall give the Corporation a bond in such form, in
such sum and with such surety or sureties as shall be satisfactory to the
Board, for the faithful performance of the duties of their office and for the
restoration to the Corporation, in case of their death, resignation,
retirement or removal from office, of all books, papers, vouchers, money, and
other property of whatever kind in their possession or under their control
belonging to the Corporation.

SECTION 5.09. VACANCIES. If the office of the President, Vice
President, Secretary, or Assistant Secretary (if any), becomes vacant by
reason of death, resignation, removal or otherwise, the Board of Directors
shall elect or appoint a successor who shall hold office for the unexpired
term, and until a successor is elected.

VI.

CERTIFICATES REPRESENTING SHARES

SECTION 6.01. FORM OF CERTIFICATES. The Corporation shall deliver
certificates representing all shares to which shareholders are entitled.
Certificates representing shares of the Corporation shall be in such form as
shall be approved and adopted by the Board of Directors and shall be numbered
consecutively and entered in the books of the Corporation as they are issued.
Each certificate shall state on the face thereof that the Corporation is
organized under the laws of the State of Texas, the name of the registered
holder, the number, class of shares, and the designation of the series, if
any, which said certificate represents, and either the par value of the
shares or a statement that the shares are without par value. Certificates
shall be signed by the President or any Vice President and by the Secretary
or any Assistant Secretary, and may be sealed with the seal of the
Corporation or a facsimile thereof. If any certificate is countersigned by a
transfer agent or registered by a registrar, either of which is other than
the Corporation or an employee of the Corporation, the signatures of the
Corporation's officers may be facsimiles. In case any officer or officers who
have signed, or whose facsimile signature or signatures have been used on
such certificate or certificates, shall cease to be such officer or officers
of the Corporation, before such certificate or certificates have been
delivered by the Corporation or its agents, such certificate or certificates
may nevertheless be issued and delivered as though the person or persons who
signed the certificate or certificates or whose facsimile signature or
signatures have been used thereon had not ceased to be such officer or
officers of the Corporation.

SECTION 6.02. LOST CERTIFICATES. The Corporation may direct that a new
certificate be issued in place of any certificate theretofore issued by the
Corporation alleged to have been lost or destroyed, upon the making of an
affidavit of that fact by the person claiming the certificate to be lost or
destroyed. When authorizing the issue of a new certificate, the Board of
Directors, in its discretion and as a condition precedent to the issuance
thereof, may require the owner of the lost or

9
<PAGE>

destroyed certificate, or his legal representative, to advertise the same in
such manner as it shall require and/or give the Corporation a bond in such
form, in such sum, and with such surety or sureties as it may direct as
indemnity against any claim that may be made against the Corporation with
respect to the certificate alleged to have been lost or destroyed.

SECTION 6.03. TRANSFER OF SHARES. Shares of stock shall be
transferable only on the books of the Corporation by the holder thereof in
person or by his duly authorized legal representative, who shall furnish
proper evidence of his authority to transfer, or by his attorney-in-fact
thereunto duly authorized by power of attorney executed and filed with the
Secretary of the Corporation. Subject to compliance with any restrictions on
transfer fully stated on the face or conspicuously noted on the face and
fully stated on the back of any certificate, upon surrender to the
Corporation or to the transfer agent of the Corporation of a certificate
representing shares duly endorsed or accompanied by proper evidence of
succession, assignment or authority to transfer, it shall be the duty of the
Corporation or the transfer agent of the Corporation to issue a new
certificate to the person entitled thereto, cancel the old certificate, and
record the transaction upon its books.

SECTION 6.04. REGISTERED SHAREHOLDERS. The Corporation shall be
entitled to recognize the holder of record of any share or shares of stock as
the holder in fact thereof and, accordingly, shall not be bound to recognize
any equitable or other claim to or interest in such share or shares on the
part of any other person, whether or not it shall have express or other
notice thereof, except as otherwise provided by law.

VII.

INDEMNIFICATION OF OFFICERS AND DIRECTORS

SECTION 7.01. DEFINITIONS IN THIS ARTICLE.

(a) "Indemnitee" means (i) any present or former director, advisory
director or officer of the Corporation, (ii) any person who served at the
Corporation's request as a director, officer, partner, venturer, proprietor,
trustee, employee, agent or similar functionary of another foreign or
domestic corporation, partnership, joint venture, sole proprietorship, trust,
employee benefit plan or other enterprise, and (iii) any person nominated or
designated by (or pursuant to authority granted by) the Board of Directors or
any committee thereof to serve in any of the capacities referred to in
clauses (i) or (ii) hereof.

(b) "Official Capacity" means (i) when used with respect to a director,
the office of director of the Corporation, and (ii) when used with respect to
a person other than a director, the elective or appointive office of the
Corporation held by such person or the employment or agency relationship
undertaken by such person on behalf of the Corporation, but in each case does
not include service for any other foreign or domestic corporation or any
partnership, joint venture, sole proprietorship, trust, employee benefit plan
or other enterprise.

10
<PAGE>

civil, criminal, administrative, arbitrative or investigative, any appeal in
such an action, suit or proceeding, and any inquiry or investigation that
could lead to such an action, suit or proceeding.

SECTION 7.02 INDEMNIFICATION. The Corporation shall indemnify every
Indemnitee against all judgments, penalties (including excise and similar
taxes), fines, amounts paid in settlement and reasonable expenses (including
court costs and attorneys' fees) actually incurred by the Indemnitee in
connection with any Proceeding in which he was, is or is threatened to be
named a defendant or respondent, by reason, in whole or in part, of his
serving or having served, or having been nominated or designated to serve, in
any of the capacities referred to in Section 7.01(a), if it is determined in
accordance with Section 7.04 that the Indemnitee (a) conducted himself in
good faith, (b) reasonably believed, in the case of conduct in his Official
Capacity, that his conduct was in the Corporation's best interests and, in
all other cases, that his conduct was at least not opposed to the
Corporation's best interests, and (c) in the case of any criminal proceeding,
had no reasonable cause to believe that his conduct was unlawful; provided,
however, that in the event that an Indemnitee is found liable to the
Corporation or is found liable on the basis that personal benefit was
improperly received by the Indemnitee the indemnification (i) is limited to
reasonable expenses actually incurred by the Indemnitee in connection with
the Proceeding and (ii) shall not be made in respect of any Proceeding in
which the Indemnitee shall have been found liable for willful or intentional
misconduct in the performance of his duty to the Corporation. The
termination of any Proceeding by judgment, order, settlement or conviction,
or on a plea of nolo contendere or its equivalent, is not of itself
determinative that the Indemnitee did not meet the requirements set forth in
clauses (a), (b) or (c) above. An Indemnitee shall be deemed to have been
found liable in respect of any claim, issue or matter only after the
Indemnitee shall have been so adjudged by a court of competent jurisdiction
after exhaustion of all appeals therefrom.

SECTION 7.03. SUCCESSFUL DEFENSE. Without limitation of Section 7.02
and in addition to the indemnification provided for in Section 7.02, the
Corporation shall indemnify every Indemnitee against reasonable expenses
(including court costs and attorneys' fees) incurred by such person in
connection with any Proceeding in which he is a witness or a named defendant
or respondent because he served in any of the capacities referred to in
Section 7.01(a), if such person has been wholly successful, on the merits or
otherwise, in defense of the Proceeding.

SECTION 7.04 DETERMINATIONS. The determination of indemnification under
Section 7.02 shall be made (a) by the Board of Directors by a majority vote
of a quorum consisting of directors who, at the time of such vote, are not
named defendants or respondents in the Proceeding; (b) if such a quorum
cannot be obtained, then by a majority vote of a committee of the Board of
Directors, duly designated to act in the matter by a majority vote of all
directors (including directors who are named defendants or respondents in the
Proceeding), such committee to consist solely of two or more directors who,
at the time of the committee vote, are not named defendants or respondents in
the Proceeding; (c) by special legal counsel selected by the Board of
Directors or a committee thereof by vote as set forth in clauses (a) or (b)
above, or, if the requisite quorum of all of the directors cannot be obtained
therefor and such committee cannot be established, by a majority vote of all
of the directors (including directors who are named defendants or respondents
in the Proceeding); or (d) by the shareholders in a vote that excludes the
shares held by directors that are named defendants

11
<PAGE>

or respondents in the Proceeding. Determination as to the reasonableness of
expenses shall be made in the same manner as the determination that
indemnification is permissible, except that if the determination that
indemnification is permissible is made by special legal counsel,
determination as to reasonableness of expenses must be made in the manner
specified in clause (c) above for the selection of special legal counsel. In
the event a determination is made under this Section 7.04 that the Indemnitee
has met the applicable standard of conduct as to some matters but not as to
others, amounts to be indemnified may be reasonably prorated. If, upon
application of an Indemnitee, a court of competent jurisdiction determines,
after giving any notice the court considers necessary, that the Indemnitee is
fairly and reasonably entitled to indemnification in view of all the relevant
circumstances, whether or not he has met the requirements set forth in
Section 7.02(a), (b) or (c) or has been found liable in the circumstances
described by Section 7.02(i) or (ii), the court may order the indemnification
that the court determines is proper and equitable; but if the person is found
liable to the Corporation or is found liable on the basis that personal
benefit was improperly received by the person, the indemnification shall be
limited to reasonable expenses actually incurred by the person in connection
with the Proceeding.

SECTION 7.05 ADVANCEMENT OF EXPENSES. Reasonable expenses (including
court costs and attorney's fees) incurred by an Indemnitee who was or is a
witness or was, is or is threatened to be made a named defendant or
respondent in a Proceeding shall be paid or be reimbursed by the Corporation
at reasonable intervals in advance of the final disposition of such
Proceeding, and without making any of the determinations specified in Section
7.04, after receipt by the corporation of (a) a written affirmation by such
Indemnitee of his good faith belief that he has met the standard of conduct
necessary for indemnification by the Corporation under Section 7.02 and (b) a
written undertaking by or on behalf of such Indemnitee to repay the amount
paid or reimbursed by the Corporation if ultimately it shall be determined
that he has not met that standard or if it is ultimately determined that he
is not entitled to be indemnified against expenses incurred by him in
connection with that Proceeding pursuant to Section 7.04. Such written
undertaking shall be an unlimited obligation of the Indemnitee but need not
be secured and it may be accepted without reference to financial ability to
make repayment. Notwithstanding any other provision of this article, the
Corporation shall pay or reimburse expenses (including attorneys' fees)
incurred by an Indemnitee in connection with his appearance as a witness or
other participation in a Proceeding at a time when he is not named a
defendant or respondent in the Proceeding.

SECTION 7.06 EMPLOYEE BENEFIT PLANS. For purposes of this article, the
Corporation shall be deemed to have requested an Indemnitee to serve an
employee benefit plan whenever the performance by him of his duties to the
Corporation also imposes duties on or otherwise involves services by him to
the plan or participants or beneficiaries of the plan. Excise taxes assessed
on an Indemnitee with respect to an employee benefit plan pursuant to
applicable law shall be deemed fines. Action taken or omitted by an
Indemnitee with respect to an employee benefit plan in the performance of his
duties for a purpose reasonably believed by him to be in the interest of the
participants and beneficiaries of the plan shall be deemed to be for a
purpose which is not opposed to the best interests of the Corporation.

SECTION 7.07 OTHER INDEMNIFICATION AND INSURANCE. The indemnification
provided by this

12
<PAGE>

article shall (a) not be deemed exclusive of, or to preclude, any other
rights to which those seeking indemnification may at any time be entitled
under the corporation's articles of incorporation, any law, agreement or vote
of shareholders or disinterested directors, or otherwise, or under any policy
or policies of insurance purchased and maintained by the corporation on
behalf of any Indemnitee, both as to action in his Official Capacity and as
to action in any other capacity, (b) continue as to a person who has ceased
to be in the capacity by reason of which he was an Indemnitee with respect to
matters arising during the period he was in such capacity, and (c) inure to
the benefit of the heirs, executors and administrators of such a person.

SECTION 7.08 NOTICE. Any indemnification of or advance of expenses to
an Indemnitee in accordance with this article shall be reported in writing to
the shareholders of the Corporation with or before the notice or waiver of
notice of the next shareholders' meeting or with or before the next
submission to shareholders of a consent to action without a meeting, and, in
any case, within the 12 month period immediately following the date of the
indemnification or advance.

SECTION 7.09 EFFECT OF AMENDMENT. No amendment, modification or repeal
of this article or any provision hereof shall in any manner terminate, reduce
or impair the right of any past, present or future Indemnitees to be
indemnified by the Corporation, nor the obligation of the Corporation to
indemnify any such Indemnitees, under and in accordance with the provisions
of this article as in effect immediately prior to such amendment,
modification or repeal with respect to claims arising from or relating to
matters occurring, in whole or in part, prior to such amendment, modification
or repeal, regardless of when such claims may arise or be asserted.

VIII.

GENERAL PROVISIONS

SECTION 8.01 DIVIDENDS. Dividends upon the outstanding shares of the
Corporation, subject to the provisions of the Act and the Articles of
Incorporation and any agreements or obligations of the Corporation, if any,
may be declared by the Board of Directors at any regular or special meeting.
Dividends may be declared and paid in cash, in property, or in shares of the
Corporation, provided all such declarations and payments of dividends shall
be in strict compliance with all applicable laws and the Articles of
Incorporation. The Board of Directors may fix in advance a record date for
the purposes of determining shareholders entitled to receive payment of any
dividend, such record date to be not more than 60 days prior to the payment
date of such dividend. In the absence of any action by the Board of
Directors, the date upon which the Board of Directors adopts the resolution
declaring such dividend shall be the record date.

SECTION 8.02 RESERVES. There may be created by resolution of the Board
of Directors out of the surplus of the Corporation such reserve or reserves
as the Board of Directors from time to time, in its discretion, deems proper
to provide for contingencies, or to equalize dividends, or to repair or
maintain any property of the Corporation, or for such other proper purpose as
the Board shall deem beneficial to the Corporation, and the Board may modify
or abolish any reserve in the

13
<PAGE>

same manner in which it was created.

SECTION 8.03. FISCAL YEAR. The fiscal year of the Corporation shall be
fixed from time to time by resolution of the Board of Directors.

SECTION 8.04. SEAL. The Corporation may have a seal which may be used
by causing it or a facsimile thereof to be impressed or affixed or in any
manner reproduced. Any officer of the Corporation shall have authority to
affix the seal to any document requiring it.

SECTION 8.05. RESIGNATION. Any director, officer or agent of the
Corporation may resign by giving written notice to the President or the
Secretary. The resignation shall take effect at the time specified therein,
or immediately if no time is specified therein. Unless specified in such
notice, the acceptance of such resignation shall not be necessary to make it
effective.

SECTION 8.06. REPAYMENT REQUIREMENT. If any payment made to an officer
of the Corporation for salary, commission, bonus, interest, rent,
entertainment reimbursement or otherwise shall be disallowed in whole or in
part by the Internal Revenue Services as an expense, the amount disallowed
shall be reimbursed by such officer to the Corporation. It shall be the duty
of the Board of Directors to enforce repayment of each such amount
disallowed. In lieu of payment by the officer, subject to the determination
of the Board of Directors, proportionate amounts may be withheld from his
future compensation payments until the amount owed to the Corporation has
been recovered. The provisions of this Section 8.06 shall be deemed part of
the contract of employment between the Corporation and each of its officers.

SECTION 8.07. GENERAL. In the absence of any specific provision in
these By-Laws with respect to any matter, reference is here made to the
general corporation laws of the State of Texas governing the existence and
operation of this Corporation.

IX.

AMENDMENTS TO BYLAWS

SECTION 9.01. AMENDMENTS. These By-Laws may be altered, amended,
modified or repealed, or new By-Laws may be adopted, by the Board of
Directors or by the shareholders.

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<PAGE>

CERTIFICATE OF ADOPTION

The undersigned, Secretary of Sovereign Credit Finance II, Inc. (the
"Corporation"), hereby certifies that the foregoing By-Laws were duly adopted
by a written Unanimous Consent of the Directors of the Corporation, dated
October 9, 1997.

/s/ Christopher R. Frattaroli
----------------------------------------
Christopher R. Frattaroli, Secretary

<PAGE>

SOVEREIGN CREDIT FINANCE II, INC.

AND

STERLING TRUST COMPANY,
TRUSTEE

NOTES
DUE FEBRUARY 15, 2002

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

INDENTURE

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

DATED AS OF JANUARY 31, 1998

<PAGE>

CROSS-REFERENCE TABLE

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

i
<PAGE>

317 (a)(1) 6.8
(a)(2) 6.9
(b) 5.2
318 (a) 11.1

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

"N/A" means Not Applicable

ii
<PAGE>

TABLE OF CONTENTS

PAGE
HEADING NUMBER
- ------- ------

RECITALS OF THE COMPANY. . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

ARTICLE ONE - DEFINITIONS AND INCORPORATION BY REFERENCE

Section 1.1 Definitions. . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.2 Incorporation by Reference of Trust Indenture Act. . . . .10
Section 1.3 Rules of Construction. . . . . . . . . . . . . . . . . . .11

ARTICLE TWO - THE SECURITIES

Section 2.1 Forms Generally. . . . . . . . . . . . . . . . . . . . . .11
Section 2.2 Form of Note . . . . . . . . . . . . . . . . . . . . . . .12
Section 2.3 Denominations. . . . . . . . . . . . . . . . . . . . . . .15
Section 2.4 Execution and Authentication . . . . . . . . . . . . . . .15
Section 2.5 Registrar and Paying Agent . . . . . . . . . . . . . . . .16
Section 2.6 Holder Lists . . . . . . . . . . . . . . . . . . . . . . .16
Section 2.7 Transfer and Exchange. . . . . . . . . . . . . . . . . . .16
Section 2.8 Replacement Notes. . . . . . . . . . . . . . . . . . . . .17
Section 2.9 Temporary Notes. . . . . . . . . . . . . . . . . . . . . .17
Section 2.10 Cancellation . . . . . . . . . . . . . . . . . . . . . . .17
Section 2.11 Defaulted Interest . . . . . . . . . . . . . . . . . . . .17
Section 2.12 Persons Deemed Owners. . . . . . . . . . . . . . . . . . .18

ARTICLE THREE - REDEMPTION

Section 3.1 General. . . . . . . . . . . . . . . . . . . . . . . . . .18
Section 3.2 Notice of Redemption . . . . . . . . . . . . . . . . . . .18
Section 3.3 Effect of Notice of Redemption . . . . . . . . . . . . . .19
Section 3.4 Deposit of Redemption Amount . . . . . . . . . . . . . . .19

ARTICLE FOUR - ACCOUNTS, DISBURSEMENTS AND RELEASES

Section 4.1 Trust Account; Operating Account . . . . . . . . . . . . .19
Section 4.2 General Provisions Regarding Trust Account . . . . . . . .22
Section 4.3 Reports by Trustee . . . . . . . . . . . . . . . . . . . .23

iii
<PAGE>
PAGE
HEADING NUMBER
- ------- ------

ARTICLE FIVE - COVENANTS

Section 5.1 Payment of Principal and Interest. . . . . . . . . . . . .23
Section 5.2 Money for Note Payments to be Held in Trust. . . . . . . .24
Section 5.3 Payment of Taxes and Other Claims. . . . . . . . . . . . .25
Section 5.4 Maintenance of Properties. . . . . . . . . . . . . . . . .25
Section 5.5 Limitation on Investment Activities. . . . . . . . . . . .26
Section 5.6 Compliance Certificates. . . . . . . . . . . . . . . . . .26
Section 5.7 Reporting. . . . . . . . . . . . . . . . . . . . . . . . .26
Section 5.8 Performance of Obligations; Servicing Agreement. . . . . .27
Section 5.9 Negative Covenants . . . . . . . . . . . . . . . . . . . .27

ARTICLE SIX - DEFAULTS AND REMEDIES

Section 6.1 Events of Default. . . . . . . . . . . . . . . . . . . . .29
Section 6.2 Acceleration . . . . . . . . . . . . . . . . . . . . . . .30
Section 6.3 Remedies . . . . . . . . . . . . . . . . . . . . . . . . .30
Section 6.4 Waiver of Past Defaults. . . . . . . . . . . . . . . . . .31
Section 6.5 Control by Majority. . . . . . . . . . . . . . . . . . . .31
Section 6.6 Limitation on Suits. . . . . . . . . . . . . . . . . . . .31
Section 6.7 Rights of Holders to Receive Payment . . . . . . . . . . .31
Section 6.8 Collection Suit by Trustee . . . . . . . . . . . . . . . .32
Section 6.9 Trustee may File Proofs of Claim . . . . . . . . . . . . .32
Section 6.10 Priorities . . . . . . . . . . . . . . . . . . . . . . . .32
Section 6.11 Undertaking for Costs. . . . . . . . . . . . . . . . . . .32
Section 6.12 Stay, Extension or Usury Laws. . . . . . . . . . . . . . .33

ARTICLE SEVEN - TRUSTEE

Section 7.1 Duties of Trustee. . . . . . . . . . . . . . . . . . . . .33
Section 7.2 Rights of Trustee. . . . . . . . . . . . . . . . . . . . .34
Section 7.3 Individual Rights of Trustee . . . . . . . . . . . . . . .35
Section 7.4 Trustee's Disclaimer . . . . . . . . . . . . . . . . . . .35
Section 7.5 Notice of Default. . . . . . . . . . . . . . . . . . . . .35
Section 7.6 Reports by Trustee to Holders. . . . . . . . . . . . . . .35
Section 7.7 Compensation and Indemnity . . . . . . . . . . . . . . . .36
Section 7.8 Replacement of Trustee . . . . . . . . . . . . . . . . . .36
Section 7.9 Successor Trustee by Merger, etc.. . . . . . . . . . . . .37
Section 7.10 Eligibility; Disqualification. . . . . . . . . . . . . . .37
Section 7.11 Preferential Collection of Claims Against Company. . . . .37
Section 7.12 Withholding Taxes. . . . . . . . . . . . . . . . . . . . .38

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HEADING NUMBER
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ARTICLE EIGHT - DISCHARGE OF INDENTURE

Section 8.1 Satisfaction and Discharge of Indenture. . . . . . . . . .38
Section 8.2 Application of Trust Money . . . . . . . . . . . . . . . .39
Section 8.3 Repayment to Company . . . . . . . . . . . . . . . . . . .39

ARTICLE NINE - AMENDMENTS, SUPPLEMENTS AND WAIVERS

Section 9.1 Without Consent of Holders . . . . . . . . . . . . . . . .39
Section 9.2 With Consent of Holders. . . . . . . . . . . . . . . . . .40
Section 9.3 Compliance with Trust Indenture Act. . . . . . . . . . . .40
Section 9.4 Revocation and Effect of Consents. . . . . . . . . . . . .40
Section 9.5 Notation on or Exchange of Notes . . . . . . . . . . . . .41
Section 9.6 Trustee to Sign Amendments, etc. . . . . . . . . . . . . .41

ARTICLE TEN - MEETINGS OF HOLDERS

Section 10.1 Purposes for Which Meetings may be Called. . . . . . . . .41
Section 10.2 Manner of Calling Meetings . . . . . . . . . . . . . . . .42
Section 10.3 Call of Meetings by Company or Holders . . . . . . . . . .42
Section 10.4 Who may Attend and Vote at Meetings. . . . . . . . . . . .42
Section 10.5 Regulations may be Made by Trustee; Conduct of the Meeting;
Voting Rights. . . . . . . . . . . . . . . . . . . . . . .42
Section 10.6 Exercise of Rights of Trustee or Holders may not be Hindered
or Delayed by Call of Meeting. . . . . . . . . . . . . . .43
Section 10.7 Evidence of Actions by Holders . . . . . . . . . . . . . .43

ARTICLE ELEVEN - MISCELLANEOUS

Section 11.1 Trust Indenture Act Controls . . . . . . . . . . . . . . .43
Section 11.2 Notices. . . . . . . . . . . . . . . . . . . . . . . . . .43
Section 11.3 Communication by Holders with Other Holders. . . . . . . .44
Section 11.4 Certificate and Opinion as to Conditions Precedent . . . .44
Section 11.5 Rules by Paying Agent and Registrar. . . . . . . . . . . .45
Section 11.6 Legal Holidays . . . . . . . . . . . . . . . . . . . . . .45
Section 11.7 Governing Law. . . . . . . . . . . . . . . . . . . . . . .45
Section 11.8 No Adverse Interpretation of Other Agreements. . . . . . .45
Section 11.9 No Recourse Against Others . . . . . . . . . . . . . . . .45
Section 11.10 Successors . . . . . . . . . . . . . . . . . . . . . . . .45
Section 11.11 Duplicate Originals. . . . . . . . . . . . . . . . . . . .45
Section 11.12 Severability . . . . . . . . . . . . . . . . . . . . . . .46
Section 11.13 Headings . . . . . . . . . . . . . . . . . . . . . . . . .46

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ARTICLE TWELVE - AGREEMENTS OF SERVICER

Section 12.1 General. . . . . . . . . . . . . . . . . . . . . . . . . .46
Section 12.2 Master Collections Account . . . . . . . . . . . . . . . .46
Section 12.3 Servicer Acting as Custodian . . . . . . . . . . . . . . .47
Section 12.4 Records. . . . . . . . . . . . . . . . . . . . . . . . . .47
Section 12.5 Payment of Fees and Expenses of Trustee. . . . . . . . . .47
Section 12.6 Servicing Compensation . . . . . . . . . . . . . . . . . .48
Section 12.7 Realization upon Defaulted Contracts . . . . . . . . . . .48
Section 12.8 Appointment of Custodian for Contract Documents. . . . . .48
Section 12.9 Purchase of Eligible Contracts . . . . . . . . . . . . . .49
Section 12.10 Reporting by the Servicer. . . . . . . . . . . . . . . . .51
Section 12.11 Annual Accountants' Reports. . . . . . . . . . . . . . . .51
Section 12.12 Representations and Warranties Concerning the Servicer . .52
Section 12.13 Corporate Existence; Status as Servicer; Merger. . . . . .53
Section 12.14 Performance of Obligations . . . . . . . . . . . . . . . .53
Section 12.15 The Servicer Not to Resign; Assignment . . . . . . . . . .53
Section 12.16 Representations and Warranties as to the Contracts . . . .54
Section 12.17 Purchase of Certain Contracts. . . . . . . . . . . . . . .56
Section 12.18 Indemnification. . . . . . . . . . . . . . . . . . . . . .56
Section 12.19 Termination. . . . . . . . . . . . . . . . . . . . . . . .57
Section 12.20 Amendment. . . . . . . . . . . . . . . . . . . . . . . . .57
Section 12.21 Inspection and Audit Rights. . . . . . . . . . . . . . . .57

ARTICLE THIRTEEN - ADDITIONAL LENDER

Section 13.1 Indenture Subject to Terms of Additional Borrowing . . . .58

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

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

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

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THIS INDENTURE, dated as of January 31, 1998 is between SOVEREIGN CREDIT
FINANCE II, INC., a Texas corporation (the "Company"), having its principal
office at 4015 Beltline Road, Building B, Dallas, Texas 75244 and Sterling
Trust Company, as Trustee (the "Trustee"), a trust company organized and
existing under the laws of the State of Texas and having its principal office
at 7901 Fish Pond Road, Waco, Texas 76710.

RECITALS OF THE COMPANY

The Company has duly authorized the execution and delivery of this
Indenture and the issuance of its Notes Due February 15, 2002 in the maximum
aggregate principal amount of $10,000,000 (the "Notes").

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

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

ARTICLE ONE

DEFINITIONS AND INCORPORATION BY REFERENCE

Section 1.1 Definitions.

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

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

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

"Affiliate" means, as to any Person, any other Person which directly or
indirectly controls, or is under common control with, or is controlled by,
such Person. As used in this definition "control" (including, with its
correlative meanings, "controlled by" and "under common control with") means
possession, directly or indirectly, of power to direct or cause the direction
of management or policies (whether through ownership of capital stock,
partnership interests, by contract or otherwise), provided that, in any
event, any Person which owns directly or indirectly 10%

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

"Allowed Expenses" means any amounts due the Trustee under Section 7.7,
any Servicing Fees, any fees payable for the transfer of the lien reflected
in the Title Documents into and out of the Company's name, any federal, state
and local taxes and assessments incurred by the Company (including corporate
franchise taxes and any payments by the Company to any of its Affiliates as
reimbursements for tax payments made by such Affiliate for the Company's
benefit or the benefit obtained by the Company from use of tax losses
employed by such Affiliate to offset taxable income of the Company), any bank
service charges and account fees relating to the Accounts and the
subscription escrow account established for the receipt of the proceeds from
the offering and sale of the Notes, the lockbox fees, account fees and bank
service charges relating to the Collections Account, any legal and accounting
fees and printing expenses (excluding Offering Expenses, but including those
otherwise incurred to comply with reporting and other requirements under
Federal and state securities laws and for reports, compliance certificates
and opinions required by the Indenture), premiums for vehicle value
insurance, charges for vehicle warranty repair service contracts (including
fees paid to vehicle dealers), any Liquidation Expenses (as to each Financed
Vehicle, limited to the related Liquidation Proceeds), any Insurance Expenses
(as to each Financed Vehicle, limited to the related Insurance Proceeds), and
any other Allowed Expenses as described in or defined by the prospectus which
offers the Notes for sale.

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

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

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

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

"Collections Account" means the lockbox account created and maintained
by the Servicer

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<PAGE>

in the Company's name and designated as such pursuant to Section 12.2.

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

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

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

"Contract Documents" means with respect to each Contract, (i) the
original Contract; (ii) either the original Title Document for the related
Financed Vehicle showing the Obligor (or the originating dealer, in the case
of a lease) as the owner and the Servicer or the Company as first lienholder
or an official receipt from the responsible state or local governmental
authority showing that an application has been made (and the required fees
have been paid) for registration of the Title Documents for such Financed
Vehicle in the names of the Obligor (or the originating dealer, in the case
of a lease) as owner and the Servicer or the Company as first lienholder (or
such other evidence of perfection of the security interest in the related
Financed Vehicle granted by such Contract, as determined by the Company to be
permitted or required to perfect such security interest under the laws of the
applicable jurisdiction, or a guarantee from the dealer selling such Financed
Vehicle that the Title Document for such Financed Vehicle showing the
Servicer or the Company as first lienholder has been applied for); (iii) the
related Assignment; and (iv) any agreement(s) modifying the Contract
(including, without limitation, any extension agreement(s)).

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

"Due Date" means as to any installment payable by an Obligor on a
Contract, the date upon

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<PAGE>

which such installment is due.

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

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

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

(i) United States Obligations;

(ii) demand and time deposits in, certificates of deposit of,
banker's acceptances issued by, or federal funds sold by any depository
institution or trust company (including the Trustee) incorporated under
the laws of the United States of America or any state thereof and subject
to supervision and examination by federal and/or state banking authorities,
so long as such institution or company has a combined capital and surplus
of at least $15,000,000;

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

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

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

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

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

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

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<PAGE>

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

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

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

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

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

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

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

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

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

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<PAGE>

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

"Liquidation Proceeds" means the amounts received by the Servicer
(before reimbursement for Liquidation Expenses) in connection with the
liquidation of any Defaulted Contract and the sale of any repossessed or
returned Financed Vehicle related thereto, whether through repurchase by the
motor vehicle dealer who originated the Contract, receipt of Insurance
Proceeds, repossession, sale or otherwise.

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

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

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

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

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

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

"Notes" means the Notes Due February 15, 2002, as amended or
supplemented from time to time, that are issued under this Indenture.

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

"Offering Amount" shall mean the $10,000,000 in aggregate principal
amount of the Notes that may be issued under this Indenture.

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<PAGE>

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

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

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

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

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

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

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

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

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

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

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

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<PAGE>

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

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

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

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

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

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

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

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

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

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

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

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

"Report Date" means the 20th day (or the Business Day next succeeding
such day

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if such day is not a Business Day) of each month during the existence of this
Indenture.

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

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

"SEC" means the Securities and Exchange Commission.

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

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

"Servicing Agreement" means the Master Contract Purchase Agreement and
the Servicing Agreement, each dated as of January 31, 1998, by and between
the Company and the Servicer, providing among other things, for the
purchasing, collecting and servicing of the Contracts, as said agreements may
be amended or supplemented from time to time as permitted hereby and thereby.
Such term shall also include any purchasing and servicing agreements entered
into with a successor servicer and any separate servicing agreement for the
servicing of Contracts.

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

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

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

"Stated Maturity" means February 15, 2002.

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

"Title Document" means with respect to any Financed Vehicle, the
certificate of title for, or

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other evidence of ownership of, such Financed Vehicle issued by the Registrar
of Titles in the jurisdiction in which such Financed Vehicle is registered.

"Trust Account" means the trust account controlled by the Trustee and
designated as such pursuant to Section 4.1, which account may be a
sub-account (for accounting purposes) of a general account maintained by the
Trustee.

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

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

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

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

Section 1.2 Incorporation by Reference of Trust Indenture Act.

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

"Commission" means the SEC.

"indenture securities" means the Notes.

"indenture securityholder" means a Holder.

"indenture to be qualified" means this Indenture.

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

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

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

Section 1.3 Rules of Construction.

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Unless the context otherwise requires:

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

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

(3) "or" is not exclusive; and

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

ARTICLE TWO

THE SECURITIES

Section 2.1 Forms Generally.

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

"Reference is hereby made to the further provisions of this Note set
forth on the reverse hereof which provisions shall for all purposes have
the same effect as if set forth at this place."

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

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Section 2.2 Form of Note.

(a) The form of Note is as follows:

SOVEREIGN CREDIT FINANCE II, INC.

NOTES DUE FEBRUARY 15, 2002

$ No.
--------------- -------------

Sovereign Credit Finance II, Inc., a corporation duly organized and
existing under the laws of the State of Texas (herein referred to as the
"Company"), for value received, hereby promises to pay to
_____________________________ or registered assigns, the principal sum of
_____________________________ dollars, and to pay interest (computed on the
basis of a 360-day year consisting of 12 months of 30 days each) on the
unpaid portion of said principal sum outstanding from time to time from the
date of issue, until the principal amount of this Note is paid in full, at
the rate of eleven percent (11.0%) per annum, which interest shall be due and
payable upon the 15th day of each calendar month (for such interest accruing
through the last day of the prior calendar month) during the term of this
Note commencing with the second calendar month following the calendar month
in which this Note is issued (each a "Payment Date"). The principal sum
hereof shall be due and payable on February 15, 2002 (the "Stated Maturity"),
at which time all then unpaid principal and accrued interest hereunder shall
be due and payable.

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

This Note is one of a duly authorized issue of Notes of the Company,
designated as its Notes Due February 15, 2002 (herein called the "Notes"),
all issued and to be issued under an Indenture dated as of January 31, 1998
(herein called the "Indenture"), between the Company and Sterling Trust
Company (the "Trustee", which term includes any successor Trustee under the
Indenture), to which Indenture and all indentures supplemental thereto
reference is hereby made for a statement of the respective rights thereunder
of the Company, the Trustee and the Holders of the Notes, and the terms upon
which the Notes are, and are to be, authenticated and delivered. All
capitalized terms used in this Note which are defined in the Indenture shall
have the meanings assigned to them in the Indenture.

Payment of the outstanding principal of and accrued interest on this
Note at the Stated Maturity or of the Redemption Price payable on any
Redemption Date as of which this Note has been called for redemption shall be
made upon presentation of this Note to the Paying Agent appointed by the
Company for such purpose. Payments of all installments of interest due and
payable on any Payment Date (other than the Stated Maturity) shall be made by
check mailed to the

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Person whose name appears as the Holder of this Note on the Note Register as
of the first day of the month in which such Payment Date occurs (the "Record
Date") without requiring that this Note be submitted for notation of payment.
Checks returned undelivered will be held for payment to the Person entitled
thereto, subject to the terms of the Indenture, at the office or agency in
the United States of America designated by the Company for such purpose
pursuant to the Indenture.

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

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

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

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

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

The Indenture permits, with certain exceptions as therein provided, the
amendment thereof and the modification of the rights and obligations of the
Company and the rights of the Holders of the Notes under the Indenture at any
time by the Company with the consent of the Majority Holders. The Indenture
also contains provisions permitting the Majority Holders, on behalf of the
Holders of all the Notes, to waive compliance by the Company with certain
provisions of the Indenture and

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<PAGE>

certain past defaults under the Indenture and their consequences. Any such
consent or waiver by the Holder of this Note shall be conclusive and binding
upon such Holder and upon all future holders of this Note and of any Note
issued upon the registration of transfer hereof or in exchange hereof or in
lieu hereof whether or not notation of such consent or waiver is made upon
this Note. The Indenture also permits the Trustee to amend or waive certain
terms and conditions set forth in the Indenture without the consent of
Holders of the Note issued thereunder.

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

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

The Indenture and this Note are hereby expressly limited so that in no
contingency or event, whether by reason of acceleration of the maturity of
this Note or otherwise, shall the amount paid, or agreed to be paid by the
Company for the use, forbearance, or detention of the money loaned under this
Note or otherwise or for the payment or performance of any covenant or
obligation contained herein or the Indenture or in any other document
evidencing, securing or pertaining hereto, exceed the maximum amount
permissible under applicable law, as now or as hereafter amended. If from
any circumstances whatsoever fulfillment of any provision hereof or any of
such other documents, at the time performance of such provision shall be due,
shall involve transcending the limit of validity prescribed by law, then IPSO
FACTO, the obligation to be fulfilled shall be reduced to the limit of such
validity, and if from any such circumstances the Holder of this Note shall
ever receive interest or anything which might be deemed interest under
applicable law which should exceed the highest lawful rate, such amount which
would be excessive interest shall be applied to the reduction of the
principal of this Note and not to the payment of interest, or if such
excessive interest exceeds the unpaid balance of principal of this Note such
excess shall be refunded to the Company. All sums paid or agreed to be paid
to the Holder of this Note for the use, forbearance or detention of the
indebtedness of the Company to the Holder of this Note shall, to the extent
permitted by applicable law, be amortized, prorated, allocated and spread
throughout the full term of such indebtedness until payment in full so that
the actual rate of interest on account of such indebtedness is uniform, or
does not exceed the maximum rate permitted by applicable law as now or
hereafter amended, throughout the term thereof. The terms and provisions of
this paragraph shall control and supersede every other provision of this Note
and the Indenture. The Company hereby waives, to the extent permitted by
applicable law, all of its rights or protections afforded by any applicable
usury or interest limitation law.

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

IN WITNESS WHEREOF, Sovereign Credit Finance II, Inc. has caused this
instrument to

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<PAGE>

be duly executed under its corporate seal.

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

SOVEREIGN CREDIT FINANCE II, INC.

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

Attest:

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

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

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

STERLING TRUST COMPANY, as Trustee,
Paying Agent and Registrar

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

Section 2.3 Denominations.

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

Section 2.4 Execution and Authentication.

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

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

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<PAGE>

the certificate of authentication on the Note on behalf of the Trustee. The
signature shall be conclusive evidence that the Note has been authenticated
under this Indenture.

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

Section 2.5 Registrar and Paying Agent.

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

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

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

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

Section 2.6 Holder Lists.

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

Section 2.7 Transfer and Exchange.

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

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<PAGE>

exchange other than an exchange pursuant to Section 2.9 or 9.5, and may
charge a reasonable fee to the Holder for any change of address.

Section 2.8 Replacement Notes.

If a Holder claims that a Note has been lost, destroyed or wrongfully
taken, the Company shall issue and the Trustee shall authenticate a
replacement Note if the requirements for the issuance of replacement
securities pursuant to the Uniform Commercial Code, as enacted in the State
of Texas, are met. An indemnity bond must be sufficient in the judgment of
the Company and the Trustee to protect the Company, the Trustee, the Paying
Agent and the Registrar from any loss which any of them may suffer if a Note
is replaced. The Company may charge for its expenses in replacing a Note.

Section 2.9 Temporary Notes.

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

Section 2.10 Cancellation.

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

Section 2.11 Defaulted Interest.

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

Section 2.12 Persons Deemed Owners.

Prior to due presentment for registration of transfer of any Note, the
Company, the Trustee,

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<PAGE>

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

ARTICLE THREE

REDEMPTION

Section 3.1 General.

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

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

Section 3.2 Notice of Redemption.

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

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

(i) the Redemption Date;

(ii) the Redemption Price;

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

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

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

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<PAGE>

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

Section 3.3 Effect of Notice of Redemption.

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

Section 3.4 Deposit of Redemption Amount.

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

ARTICLE FOUR

ACCOUNTS, DISBURSEMENTS AND RELEASES

Section 4.1 Trust Account; Operating Account.

(a) Prior to the initial authentication and delivery of any Notes, the
Trustee shall open, at one or more depository institutions (which may be the
Trustee), a trust account which shall have a sub-account denominated "Trust
Account--Sterling Trust Company, as trustee in respect of Notes Due February
15, 2002" (such sub-account is hereinafter referred to as the "Trust
Account"). The Trust Account shall be an Eligible Account, and funds in the
Trust Account shall not be commingled with any other moneys of the Company or
the Servicer. The Company shall also open, at one or more depository
institutions, an account in its own name for use in holding the Company's
funds and in paying the Company's expenditures (the "Operating Account").
The Trust Account and the Operating Account are sometimes collectively
referred to as the "Accounts" or individually as an "Account". The Company
shall give the Trustee at least five Business Days' written notice of any
change in the location of the Operating Account and any related account
identification information.

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

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<PAGE>

Proceeds.

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

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

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

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

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

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

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

FOURTH, to the transfer to the Trust Account for the PRO RATA payment
of principal owing on the Notes on the Stated Maturity; and

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

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

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<PAGE>

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

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

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

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

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

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

(j) Subject to the requirements of any Additional Lender, during the
continuance of an Event of Default, upon the written request of a Trust
Officer from time to time but in any event not less often than the Business
Day next preceding each Payment Date, the Company shall cause to be
transferred from the Operating Account to the Trust Account all of the funds
in the Operating Account, less any amounts due the Trustee under Section 7.7.

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

(l) So long as no Event of Default shall have occurred and be
continuing, any funds in the Trust Account shall be invested and reinvested
by the Trustee at the Company's direction in one

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<PAGE>

or more Eligible Investments. All income or other gain from investment of
moneys deposited in the Trust Account shall be deposited therein immediately
upon receipt, and any loss resulting from such investment shall be charged to
such Account.

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

Section 4.2 General Provisions Regarding Trust Account.

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

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

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

(d) All investments of funds in the Trust Account and all sales of
Eligible Investments held in the Trust Account shall, except as otherwise
expressly provided in this Indenture, be made by the Trustee in accordance
with a Company Order. Such Company Order may specify actions (including,
without limitation, that such funds shall not be invested, in which case such
funds shall remain deposited in the Trust Account) or may be a general,
standing order authorizing the Trustee to act within certain general
parameters or to act on written, telegraphic or telephonic instructions of
specified personnel or agents of the Company. In order to insure that the
Trustee can invest funds

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in the Trust Account or sell any investment in the Trust Account, the Company
Order with respect thereto must be received by the Trustee no later than 9:00
a.m. on the date specified in the Company Order for effecting such
transaction.

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

Section 4.3 Reports by Trustee.

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

ARTICLE FIVE

COVENANTS

Section 5.1 Payment of Principal and Interest.

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

(b) Each installment of interest on the Notes is due and payable as
specified on the form of Note set forth in Section 2.2. Any installment of
interest which is not paid when and as due shall bear interest at the rate of
11% per annum from the date due to the date of payment thereof. Unless such
Note becomes due and payable at an earlier date by declaration of
acceleration, call for redemption or otherwise, the principal of each Note
shall be due and payable at the Stated Maturity; provided, however, the final
payment of principal of and interest on each Note (or the Redemption Price
thereof if the Notes called for redemption) shall be payable only upon
presentation and surrender thereof to the Paying Agent. The Trustee shall
notify the Person in whose name a Note

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is registered at the Record Date for the Payment Date next preceding the
Payment Date on which the Company expects that the final payment of principal
and interest on such Note will be paid. Such notice shall be mailed no
earlier than the 60th day, and no later than the 20th day, prior to such
Payment Date and shall specify that such final payment will be payable only
upon presentation and surrender of such Notes and shall specify the name and
address of the Paying Agent where such Notes may be presented and surrendered
for payment of such final payment. Notices in connection with redemptions of
Notes shall be mailed to Holders as provided in Section 3.2.

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

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

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

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

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

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

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

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

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

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

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

Section 5.3 Payment of Taxes and Other Claims.

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

Section 5.4 Maintenance of Properties.

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

Section 5.5 Limitation on Investment Activities.

The Company will not register as, or conduct its business or take any
action which shall cause it to become, or to be deemed to be, an "investment
company" as defined under the provisions

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of and subject to registration under the Investment Company Act of 1940, as
amended.

Section 5.6 Compliance Certificates.

(a) Commencing with fiscal year ending December 31, 1998, the Company
shall deliver to the Trustee within 120 days after the end of each fiscal
year of the Company a certificate of a firm of independent accountants with
respect to the compliance by the Company and the Servicer, in all material
respects, with their respective obligations arising under this Indenture. If
such accountant knows of a default, the certificate shall describe the
default.

(b) Commencing with the fiscal quarter ending June 30, 1998, on or
before 45 days after the end of each fiscal quarter of the Company, the
Company shall deliver an Officers' Certificate to the Trustee to the effect
that a review of the activities of the Company during the Company's preceding
fiscal quarter has been made under the supervision of the officers executing
such Officers' Certificate with a view to determining whether during such
period the Company and the Servicer have performed and observed all of their
obligations under this Indenture, and either (A) stating that to the best of
their knowledge no default by the Company or the Servicer under this
Indenture has occurred and is continuing, or (B) if such a default has
occurred and is continuing, specifying such default and the nature and status
thereof.

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

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

Section 5.7 Reporting.

(a) Commencing with fiscal year ending December 31, 1998, the Company
shall file with the Trustee copies of any annual reports and other
information, documents, and statements (or copies of such portions of any of
the foregoing as the SEC may by rules and regulations prescribe) which the
Company may be required to file with the SEC pursuant to Section 13 or 15(d)
of the Securities Exchange Act, which filing shall be made within 15 days
after the Company makes such filing with the SEC. The Company also shall
comply with the other provisions of TIA Section 314(a).

(b) If the Company is not subject to Section 13 or 15(d) of the
Exchange Act, then the Company shall file with the Trustee such of the
supplementary and periodic information, documents and reports which would be
required under Section 13 of the Exchange Act if the Notes were listed or
registered on a national securities exchange, which filing shall be made
within 15 days after the Company would otherwise have been required to make
such filing with the SEC.

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

Section 5.8 Performance of Obligations; Servicing Agreement.

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

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

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

Section 5.9 Negative Covenants.

The Company will not:

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

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

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

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<PAGE>

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

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

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

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

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

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

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

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

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ARTICLE SIX

DEFAULTS AND REMEDIES

Section 6.1 Events of Default.

An "Event of Default" shall occur if:

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

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

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

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

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

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

(A) commences a voluntary case;

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

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

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

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

(A) for relief in an involuntary case;

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

Section 6.2 Acceleration.

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

Section 6.3 Remedies.

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

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

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

Section 6.4 Waiver of Past Defaults.

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

Section 6.5 Control by Majority.

The Majority Holders may direct the time, method and place of conducting
any proceeding for any remedy available to the Trustee or exercising any
trust or power conferred on it. However, the Trustee may refuse to follow
any direction that conflicts with law or this Indenture, that is unduly
prejudicial to the rights of Holders not joining in such direction, or that
would involve the Trustee in personal liability.

Section 6.6 Limitation on Suits.

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

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

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

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

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

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

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

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

Section 6.7 Rights of Holders to Receive Payment.

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

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Section 6.8 Collection Suit by Trustee.

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

Section 6.9 Trustee may File Proofs of Claim.

(a) The Trustee may file such proofs of claim and other papers or
documents as may be necessary or advisable in order to have the claims of the
Trustee and the Holders allowed in any judicial proceedings relative to the
Company, its creditors or its property.

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

Section 6.10 Priorities.

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

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

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

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

FOURTH, to the Company.

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

Section 6.11 Undertaking for Costs.

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

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Section 6.12 Stay, Extension or Usury Laws.

The Company agrees (to the extent that it may lawfully do so) that it will
not at any time insist upon, or plead, or in any manner whatsoever claim, and
will resist any and all efforts to be compelled to take the benefits or
advantage of any stay or extension law or any usury or other law, wherever
enacted, now or at any time hereafter in force, which would prohibit or forgive
the Company from paying all or any portion of the principal of and/or interest
on the Notes as contemplated herein, or which may affect the covenants or
performance of this Indenture, and the Company (to the extent that it may
lawfully do so) hereby expressly waives all benefit or advantage of any such law
and agrees that it will not hinder, delay or impede the execution of any power
herein granted to the Trustee, but will suffer and permit the execution of any
such power as though no such law has been enacted.

ARTICLE SEVEN

TRUSTEE

Section 7.1 Duties of Trustee.

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

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

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

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

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

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

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

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

(iv) the Trustee shall not be required to expend or risk its own
funds or otherwise incur any financial liability in the performance of
any of its duties hereunder, or in the exercise of any of its rights or
powers, if it shall have reasonable grounds for believing that repayment
of such funds or adequate indemnity against such risk or liability is not
reasonably assured to it.

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

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

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

Section 7.2 Rights of Trustee.

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

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

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

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

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

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matters at it may see fit.

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

Section 7.3 Individual Rights of Trustee.

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

Section 7.4 Trustee's Disclaimer.

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

Section 7.5 Notice of Default.

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

Section 7.6 Reports by Trustee to Holders.

(a) Within 60 days after each December 31 beginning with December 31,
1998, the Trustee shall, to the extent required by TIA Section 313(a), mail
to each Holder a brief report dated as of such December 31 that complies with
TIA Section 313(a). The Trustee shall also, to the extent required by TIA
Section 313(b), comply with TIA Section 313(b)(1) and (2).

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

Section 7.7 Compensation and Indemnity.

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

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

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

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

Section 7.8 Replacement of Trustee.

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

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

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

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

(b) If the Trustee resigns or is removed or if a vacancy exists in the
office of Trustee for any reason, the Company shall promptly appoint a
successor Trustee. The resignation or removal

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of the Trustee shall not be effective until a successor Trustee has been
appointed and has assumed the responsibilities of Trustee hereunder.

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

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

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

Section 7.9 Successor Trustee by Merger, etc.

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

Section 7.10 Eligibility; Disqualification.

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

Section 7.11 Preferential Collection of Claims Against Company.

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

Section 7.12 Withholding Taxes.

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

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requirements in connection therewith.

ARTICLE EIGHT

DISCHARGE OF INDENTURE

Section 8.1 Satisfaction and Discharge of Indenture.

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

(1) either

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

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

(i) have become due and payable, or

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

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

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

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

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

Notwithstanding the satisfaction and discharge of this Indenture, the
obligations of the

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Company under Sections 7.7 and 8.3 shall survive.

Section 8.2 Application of Trust Money.

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

Section 8.3 Repayment to Company.

The Trustee and the Paying Agent shall promptly pay to the Company upon
request any money or securities held by them at any time in excess of the
amounts needed to pay and discharge the Notes in full. The Trustee and the
Paying Agent shall pay the Company upon request for any money or securities
held by them for the payment of principal or interest that remains unclaimed
for two years. After such payment to the Company, Holders entitled to such
funds must look to the Company for the payment of such unclaimed principal or
interest.

ARTICLE NINE

AMENDMENTS, SUPPLEMENTS AND WAIVERS

Section 9.1 Without Consent of Holders.

(a) The Company and the Trustee may amend or supplement this Indenture or
the Notes without notice to or consent of any Holder:

(i) to cure any ambiguity, defect or inconsistency in this Indenture
or the Notes;

(ii) to effect a merger or consolidation in conformance with Section
5.9(iv);

(iii) to provide for uncertificated Notes in addition to or in
place of certificated Notes;

(iv) to make any change that does not materially adversely affect the
rights of any Holder; or

(v) to modify or add to the provisions of this Indenture to the
extent necessary to qualify it under the TIA or under any similar federal
statute hereafter enacted.

(b) The Trustee may waive compliance by the Company with any provisions
of this Indenture or the Notes without notice to or consent of any Holder if
the waiver does not materially

39
<PAGE>

adversely affect the rights of any Holder.

Section 9.2 With Consent of Holders.

(a) The Company and the Trustee may amend or supplement this Indenture
or the Notes without notice to any Holder but with the written consent of the
Majority Holders. The Majority Holders may waive compliance by the Company
with any provision of this Indenture or the Notes without notice to any
Holder. However, without the consent of each Holder adversely affected, an
amendment, supplement or waiver, including a waiver pursuant to Section 6.4,
may not:

(i) reduce the amount of Notes whose Holders must consent to an
amendment, supplement or waiver;

(ii) reduce the rate of or extend the time for payment of interest
on any Note;

(iii) reduce the principal of or extend the Stated Maturity of any
Note; or

(iv) make any Note payable in money other than that stated in the
Note.

(b) After an amendment under this Section becomes effective, the
Company shall mail to Holders a notice briefly describing the amendment. The
Trustee may in its discretion determine whether or not any Notes would be
adversely affected, materially or otherwise, by any supplemental indenture
and any such determination shall be conclusive upon the Holders of all Notes,
whether theretofore or thereafter authenticated and delivered hereunder. The
Trustee shall not be liable for any such determination made in good faith.

Section 9.3 Compliance with Trust Indenture Act.

Every amendment to or supplement of this Indenture or the Notes shall
comply with the TIA as then in effect so long as this Indenture shall then be
qualified under the TIA.

Section 9.4 Revocation and Effect of Consents.

(a) A consent to an amendment, supplement or waiver by a Holder shall
bind the Holder and every subsequent Holder of a Note or portion of a Note
that evidences the same debt as the consenting Holder's Note, even if
notation of the consent is not made on any Note. However, any such Holder or
subsequent Holder may revoke the consent as to such Holder's Note or portion
of a Note. The Trustee must receive the notice of revocation before the date
the amendment, supplement or waiver becomes effective.

(b) After an amendment, supplement or waiver becomes effective, it
shall bind every Holder unless it makes a change described in clause (ii),
(iii), (iv) or (v) of Section 9.2(a). In that case the amendment, supplement
or waiver shall bind each Holder who has consented to it and every subsequent
Holder of a Note or portion of a Note that evidences the same debt as the
consenting

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Holder's Note.

Section 9.5 Notation on or Exchange of Notes.

If an amendment, supplement or waiver changes the terms of a Note, the
Trustee may require the Holder to deliver it to the Trustee. The Trustee may
place an appropriate notation on the Note concerning the changed terms and
return it to the Holder. Alternatively, if the Company or the Trustee so
determines, the Company in exchange for the Note shall issue, and the Trustee
shall authenticate, a new Note that reflects the changed terms.

Section 9.6 Trustee to Sign Amendments, etc.

The Trustee shall sign any amendment, supplement or waiver authorized
pursuant to this Article if the amendment, supplement or waiver does not
adversely affect the rights of the Trustee. If it does, the Trustee may but
need not sign it. The Company may not sign an amendment or supplement until
such amendment or supplement is approved by the Chairman of the Board,
President or any Vice President of the Company or any other officer of the
Company customarily performing functions similar to those performed by any of
the above designated officers, and such approval shall evidence the Company's
determination that such amendment, supplement or waiver is authorized
pursuant to this Article.

ARTICLE TEN

MEETINGS OF HOLDERS

Section 10.1 Purposes for Which Meetings may be Called.

A meeting of Holders may be called for the following purposes:

(a) to give any notice to the Company or to the Trustee, or to give any
direction to the Trustee, or to waive or to consent to the waiving of any
Event of Default hereunder and its consequences;

(b) to remove the Trustee, appoint a successor Trustee or apply to a
court for a successor Trustee;

(d) to take any other action (i) authorized to be taken by or on behalf
of the Holders of any specified aggregate principal amount of the Notes under
this Indenture, or authorized or permitted by law, or (ii) which the Trustee
deems necessary or appropriate in connection with the administration of the
Indenture.

Section 10.2 Manner of Calling Meetings.

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(a) The Trustee may call a meeting of Holders to take any action
specified in Section 10.1. Notice setting forth the time and place of, and
the action proposed to be taken at, such meeting shall be mailed by the
Trustee to the Company and to the Holders not less than ten or more than 60
days prior to the date fixed for the meeting.

(b) Any meeting shall be valid without notice if the Holders of all
Notes are present in person or by proxy, or if notice is waived before or
after the meeting by the Holders of all Notes, and if the Company and the
Trustee are either present and not objected to holding the meeting without
notice or have, before or after the meeting, waived notice.

Section 10.3 Call of Meetings by Company or Holders.

In case at any time the Company or the Holders of not less than 10% in
aggregate principal amount of the Outstanding Notes shall have requested in
writing that the Trustee call a meeting of Holders to take any action
specified in Section 10.1, and the Trustee shall not have mailed the notice
of such meeting within 20 days after receipt of such request, then the
Company or the Holders of Notes in the amount above specified may determine
the time and place for such meeting and may call such meeting by mailing
notice thereof.

Section 10.4 Who may Attend and Vote at Meetings.

To be entitled to vote at any meetings of Holders, a person shall (a) be
a Holder, or (b) be a person appointed by an instrument in writing as proxy
for a Holder. The only persons who shall be entitled to be present or to
speak at any meeting of Holders shall be the persons entitled to vote at such
meeting and their counsel and any representatives of the Trustee and the
Company and their counsel.

Section 10.5 Regulations may be Made by Trustee; Conduct of the Meeting;
Voting Rights.

(a) The Trustee may make such reasonable regulations as it may deem
advisable for any meeting of Holders, to prove the registered holding of
Notes, the appointment of proxies, and other evidence of the right to vote,
to fix a record date and to provide for such other matters concerning the
conduct of the meeting as it shall deem appropriate.

(b) At any meeting each Holder or proxy thereof shall be entitled to
one vote for each $1,000 principal amount of Notes registered in such
Holder's name; provided, however, that the Company shall not be entitled to
vote with respect to any Notes held of record by it. At any meeting of
Holders, the presence of persons holding or representing any number of Notes
shall be sufficient for a quorum.

Section 10.6 Exercise of Rights of Trustee or Holders may not be Hindered
or Delayed by Call of Meeting.

Nothing in this Article shall be deemed or construed to authorize or
permit, by reason of any

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<PAGE>

call of a meeting of Holders or any rights expressly or impliedly conferred
hereunder to make such call, any hindrance or delay in the exercise of any
rights conferred upon or reserved to the Trustee or to the Holders by this
Indenture or the Notes.

Section 10.7 Evidence of Actions by Holders.

Whenever the Holders of a specified percentage in aggregate principal
amount of the Notes may take any action, the fact that the Holders of such
percentage have acted may be evidenced by (a) instruments of similar tenor
executed by Holders in person or by attorney or written proxy, or (b) the
Holders voting in favor thereof at any meeting of Holders called and held in
accordance with the provisions of this Article, or (c) by a combination
thereof. The Trustee may require proof of any matter concerning the execution
of any instrument by a Holder or the Holder's attorney or proxy as it shall
deem necessary.

ARTICLE ELEVEN

MISCELLANEOUS

Section 11.1 Trust Indenture Act Controls.

If any provision of this Indenture limits, qualifies, or conflicts with the
duties imposed on any Person by Sections 310 through 317, inclusive, of the TIA,
the duties imposed under such Sections of the TIA shall control.

Section 11.2 Notices.

(a) Any notice or communication shall be sufficiently given if in writing
and delivered in person or mailed by first class mail addressed as follows:

if to the Company: Sovereign Credit Finance II, Inc.
4015 Beltline Road, Building B
Dallas, Texas 75244
Attn: A. Starke Taylor, III, President

if to SCH: Sovereign Credit Holdings, Inc.
4015 Beltline Road, Building B
Dallas, Texas 75244
Attn: A. Starke Taylor, III, President

if to the Trustee: Sterling Trust Company
7901 Fish Pond Road
Waco, Texas 76710
Attn: Paul E. Skretny, President

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<PAGE>

if to the Servicer: Sovereign Associates, Inc.
4015 Beltline Road, Building B
Dallas, Texas 75244
Attn: A. Starke Taylor, III, President

(b) The Company or the Trustee by notice to the other may designate
additional or different addresses for subsequent notices or communications.

(c) Any notice or communication mailed to a Holder shall be mailed
first class, postage prepaid to such Person at such Person's address as it
appears on the Note Register of the Registrar and shall be sufficiently given
to such Person if so mailed within the time prescribed. If the Company mails
a notice or communication to Holders, it shall mail a copy to the Trustee at
the same time.

(d) Failure to mail a notice or communication to a Holder or any defect
in it shall not affect its sufficiency with respect to other Holders. If a
notice or communication is mailed in the manner provided above, it is duly
given, whether or not the addressee receives it.

Section 11.3 Communication by Holders with Other Holders.

Holders may communicate pursuant to TIA Section 312(b) with other
Holders with respect to their rights under this Indenture or the Notes. The
Company, the Trustee, the Registrar and anyone else shall have the protection
of TIA Section 312(c).

Section 11.4 Certificate and Opinion as to Conditions Precedent.

(a) Upon any request or application by the Company to the Trustee to
take any action under this Indenture, the Company shall furnish to the
Trustee:

(i) an Officer's Certificate stating that, in the opinion of the
signers, all conditions precedent, if any, provided for in this Indenture
relating to the proposed action have been complied with; and

(ii) an Opinion of Counsel stating that, in the opinion of such
counsel, all such conditions precedent have been complied with.

(b) Each certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture shall include (i) a
statement that the person making such certificate or opinion has read such
covenant or condition; (ii) a brief statement as to the nature and scope of
the examination or investigation upon which the statements or opinions
contained in such certificate or opinion are based; (iii) a statement that,
in the opinion of such person, he has made such examination or investigation
as is necessary to enable him to express an informed opinion as to whether or
not such covenant or condition has been complied with; and (iv) a statement
as to whether or not, in the opinion of such person, such condition or
covenant has been complied with.

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Section 11.5 Rules by Paying Agent and Registrar.

The Paying Agent or Registrar may make reasonable rules for its
functions.

Section 11.6 Legal Holidays.

A "Legal Holiday" is a Saturday, a Sunday, or a day on which banking
institutions are not required to be open in the State of Texas. If a Payment
Date is a Legal Holiday at a place of payment, payment may be made at that
place on the next succeeding day that is not a Legal Holiday.

Section 11.7 Governing Law.

The laws of the State of Texas shall govern this Indenture and the Notes.

Section 11.8 No Adverse Interpretation of Other Agreements.

This Indenture may not be used to interpret another indenture, loan or
debt agreement of the Company or an Affiliate of the Company. Any such
indenture, loan or debt agreement may not be used to interpret this Indenture.

Section 11.9 No Recourse Against Others.

No recourse may be taken, directly or indirectly, against any
incorporator, subscriber to the capital stock, stockholder, officer,
director, agent or employee of the Company or the Servicer or of any
predecessor or successor of the Company or the Servicer with respect to the
obligations of the Company or the Servicer with respect to the Notes or under
this Indenture or any certificate or other writing delivered in connection
herewith or therewith, and all such liability is waived and released by the
Trustee and all Holders.

Section 11.10 Successors.

All agreements of the Company and the Servicer in this Indenture and the
Notes shall bind their respective successors. All agreements of the Trustee
in this Indenture shall bind its successor.

Section 11.11 Duplicate Originals.

The parties may sign any number of copies of this Indenture. Each
signed copy shall be an original, but all of them together represent the same
agreement.

Section 11.12 Severability.

If any provision of this Indenture is held to be illegal, invalid, or
unenforceable under the present or future laws effective during the term of
this Indenture, such provision shall be fully severable; this Indenture shall
be construed and enforced as if such illegal, invalid, or unenforceable

<PAGE>

provision had never comprised a part of this Indenture; and the remaining
provisions of this Indenture shall remain in full force and effect and shall
not be affected by the illegal, invalid, or unenforceable provision or by its
severance from this Indenture. Furthermore, in lieu of such illegal, invalid,
or unenforceable provision, there shall be added automatically as a part of
this Indenture a provision as similar in terms to such illegal, invalid, or
unenforceable provision as may be possible and still be legal, valid, and
enforceable.

Section 11.13 Headings.

The headings contained herein are for purposes of convenience only, and
shall not be deemed to constitute a part of this Indenture or to affect the
meaning or interpretation of this Indenture in any way.

ARTICLE TWELVE

AGREEMENTS OF SERVICER

Section 12.1 General.

(a) The Servicer agrees that all covenants, representations and
warranties made by the Servicer in the Servicing Agreement with respect to
the Contracts shall also be for the benefit of the Trustee and the Holders.

(b) In carrying out its servicing obligations with respect to the
Contracts, the Servicer agrees that it will use its customary and usual
procedures in servicing motor vehicle retail installment contracts and
obligations and, to the extent more exacting, the procedures used by the
Servicer in respect of such contracts serviced by it for its own account.
After the execution and delivery of this Indenture, the Servicer shall
deliver to the Company and the Trustee a list of officers of the Servicer
involved in, or responsible for, the administration and servicing of the
Contracts, which list shall from time to time be updated by the Servicer on
request of the Trustee or the Company. The Servicer shall take all actions
that are necessary or desirable to maintain continuous perfection and
priority of the security interests granted by the Obligors in the Financed
Vehicles, including, but not limited to, obtaining the execution by the
Obligors on, and the filing of, all security agreements, financing
statements, continuation statements or other instruments as are necessary to
maintain the security interests granted by the Obligors under the respective
Contracts.

Section 12.2 Collections Account.

(a) The Servicer shall maintain, in the Company's name, at a depository
institution (which may be the Trustee), a lock box account (the "Collections
Account"). The Collections Account shall be an Eligible Account. The
Servicer shall give the Trustee and the Company at least five Business Days'
written notice of any change in the location of the Collections Account and
any related account identification information.

<PAGE>

(b) The Servicer agrees to direct all Obligors to remit all collections
and payments directly to, or otherwise cause all payments on the Contracts to
be deposited in, the Collections Account. The Servicer agrees and covenants
to provide payment books to all Obligors with remittance instructions
directing all payments to be remitted directly to the Collections Account and
that all cash, checks, notes, drafts and other items which it otherwise
receives and which are attributable to the Contracts shall be promptly
deposited into the Collections Account. The Servicer shall likewise deposit
in the Collections Account within two Business Days of receipt all
Liquidation Proceeds and Insurance Proceeds. The Servicer shall cause to be
transferred to the Operating Account, at least weekly, all funds in the
Collections Account that are attributable to the Contracts.

Section 12.3 Servicer Acting as Custodian.

The Servicer acknowledges that any collections or proceeds from the
Contracts in the Collections Account, or otherwise in the possession or
control of the Servicer, are the Company's property. In holding such
proceeds and collections, the Servicer agrees to act as custodian and bailee
of the Company and the Additional Lender, if any, at all times.

Section 12.4 Records.

The Servicer shall retain all data (including, without limitation,
computerized records) relating directly to or maintained in connection with
the servicing of the Contracts at its office in Dallas, Texas, or at the
office of any party with whom the Servicer may subcontract for the
performance of its duties and obligations arising under the Servicing
Agreement and this Indenture. Within 15 days after the change in the
servicing office where such data is located, the Servicer shall give the
Trustee notice of the location of the new servicing office of the Servicer or
its subcontractor. The Servicer shall give the Trustee access to all data
(including, without limitation, computerized records) at all reasonable times.

Section 12.5 Payment of Fees and Expenses of Trustee.

(a) The Servicer shall, if the Company does not so pay, pay the fees
and expenses of the Trustee under the Indenture as such fees and expenses
become payable from time to time pursuant to Section 7.7 of this Indenture.
The Servicer shall be entitled to seek reimbursement for such fees and
expenses from any funds of the Company.

(b) Prior to the termination of this Indenture, the obligations of the
Servicer under this Indenture shall not be subject to any defense,
counterclaim or right of offset which Servicer has or may have against the
Company or the Trustee, whether in respect of this Indenture, any Contract,
or otherwise.

Section 12.6 Servicing Compensation.

As compensation for the performance of its obligations under the
Servicing Agreement and subject to the terms of this Section, the Servicer
shall be entitled to receive payment of the Servicing

<PAGE>

Fees from the Company, out of amounts available for that purpose in the
Operating Account. Payment of such Servicing Fees shall be conditioned upon
the availability in the Operating Account of amounts intended for such
purpose after satisfaction of all higher priority applications of such funds
under Section 4.1(f), any deficiency being carried over and not payable
(without accountability for interest) until sufficient amounts become
available for that purpose in the Operating Account. The Servicer shall pay
all expenses incurred by it in connection with its servicing activities under
the Servicing Agreement and shall not be entitled to reimbursement of such
expenses except to the extent they constitute Liquidation Expenses and can be
reimbursed out of related Liquidation Proceeds.

Section 12.7 Realization upon Defaulted Contracts.

In accordance with the servicing procedures specified in the Servicing
Agreement, the Servicer shall repossess, or otherwise comparably convert the
ownership of, any Financed Vehicle securing a Defaulted Contract and as to
which no satisfactory arrangements can be made for collection of delinquent
payments pursuant to the Servicing Agreement. In connection with such
repossession or other conversion, the Servicer shall follow such practices
and procedures as it shall deem necessary or advisable and as shall be normal
and usual for responsible holders of retail installment sales contracts and
obligations and as shall be in compliance with all applicable laws, and, in
connection with the repossession of any Financed Vehicle or other proceedings
with respect to any Defaulted Contract, may commence and prosecute any
judicial proceedings in respect of such Contract in its own name, or if the
Servicer deems it necessary, in the name of the Company, on behalf of the
Company. The Servicer's obligations under this Section are subject to the
provision that, in the case of damage to a Financed Vehicle from an uninsured
cause, the Servicer shall not be required to expend its own funds in
repairing such motor vehicle unless it shall determine (i) that such
restoration will increase the Liquidation Proceeds of the related Contract,
after reimbursement to itself for such expenses, and (ii) that such expenses
will be recoverable by it either as Liquidation Expenses or as expenses
recoverable under an applicable insurance policy. The Servicer shall be
responsible for all other costs and expenses incurred by it in connection
with any action taken in respect of a Defaulted Contract, provided, however,
that it shall be entitled to reimbursement of such costs and expenses to the
extent they constitute Liquidation Expenses or expenses recoverable under an
applicable insurance policy.

Section 12.8 Collecting Title Documents Not Delivered at the Closing Date.

(a) If the Title Document for a Financed Vehicle does not reflect the
Company as lienholder at the time of the Company's purchase direct from a
Dealer of the related Contract, the Servicer shall confirm, prior to the
Company's purchase, that an appropriate application has been made to transfer
the lien on the Title Document to the Company. If the Title Document for a
Financed Vehicle reflects the Servicer as lienholder at the time of the
Company's purchase of the related Contract, the Servicer shall, in connection
with the Company's purchase, make an appropriate application to transfer the
lien on the Title Document to the Company.

(b) In the case of any Contract in respect of which the Title Document
for the related

<PAGE>

Financed Vehicle showing the Servicer as first lienholder has been applied
for in connection with the purchase of the Contract, the Servicer shall use
reasonable efforts to obtain such Title Document and promptly upon receipt
thereof to make application for the transfer of the lien noted thereon to the
Company. In the case of any Contract in respect of which the Title Document
for the related Financed Vehicle showing the Company as first lienholder has
been applied for in connection with the purchase of the Contract or
thereafter, the Servicer shall use reasonable efforts to obtain such Title
Document and to deliver it to the Company (or other Person appointed as
custodian for the Contract Documents) as promptly as possible. If such Title
Document showing the Company as first lienholder is not received by the
Company (or custodian) within 120 days after the Purchase Date, then the
representation and warranty in Section 12.16 in respect of such Contract
shall be deemed to have been incorrect in a manner that materially and
adversely affects the Holders.

(c) The Servicer shall deliver to the Trustee on a monthly basis a
listing of Contracts which as of the date prior to such delivery do not show
the Servicer or the Company as first lienholder on the Title Documents for
such Contracts.

(d) Any fees charged for the transfer of liens on the Title Documents
for the Financed Vehicles into or out of the Company's name shall be paid by
the Company as an Allowed Expense.

Section 12.9 Purchase of Eligible Contracts.

(a) Eligible Contracts shall be purchased on behalf of the Company by
the Servicer (or its subcontractors) pursuant to the terms of the Servicing
Agreement and this Indenture. In carrying out its purchase obligations, the
Servicer agrees that it will use its customary and usual procedures in
purchasing motor vehicle retail installment contracts (and obligations) and,
to the extent more exacting, the procedures used by the Servicer in respect
of such contracts (and obligations) purchased by it for its own account. The
Company and the Servicer shall agree from time to time as to which Eligible
Contracts are to be purchased by the Company from or through Servicer. The
purchase prices for any such purchases shall be payable from the funds in the
Operating Account. On or prior to each Report Date, the Company and the
Servicer shall deliver to the Trustee the Monthly Report of the Company and
the Servicer which shall set forth the following:

(i) information regarding the terms and conditions of each Eligible
Contract (and the related Financed Vehicle) for which the purchase price
was paid by the Company during the month covered by the Monthly Report,
including at least the following: the number assigned to such Contract by
the Servicer, the name of the Obligor, the purchase price paid by the
Company for such Contract, the dealer's sales price for the Financed
Vehicle (in the case of a vehicle sale), the vehicle identification number
for the Financed Vehicle, the date on which the Contract was originated by
the motor vehicle dealer selling or leasing the Financed Vehicle, the
number of unpaid installments (or term), and the aggregate unpaid
installments (including lease payments) in dollar amount;

(ii) a confirmation of the accuracy of the representations and
warranties set forth in Section 12.16 of this Indenture with respect to
such Contracts;

<PAGE>

(iii) a confirmation that the Servicer has performed all of its
obligations under the Servicing Agreement with respect to such Contracts,
that there is no Event of Default under this Indenture and that such
Contracts conform to the purchasing criteria set forth in the Servicing
Agreement and in EXHIBIT A attached hereto;

(iv) a confirmation that the fair value of the Contracts purchased
during the month covered by the Monthly Report is at least equal to the
purchase price paid therefor by the Company;

(v) a confirmation of the month-ending balance in the Operating
Account and that the funds remaining in the Operating Account will be
sufficient to pay the interest owing on the Notes on the next Payment Date
and any anticipated Allowed Expenses during the current month;

(vi) a confirmation that the provisions of Section 5.9(vii) of this
Indenture requiring the Company and the Servicer to obtain all necessary
licenses, permits and governmental approvals in any jurisdiction related to
the Eligible Contracts covered by the Monthly Report have been satisfied;
and

(vii) such other information reasonably requested by the Trustee.

(b) The Company acknowledges that the Servicer also purchases motor
vehicle retail installment contracts (or obligations) on behalf of various
other parties. Servicer agrees that any motor vehicle retail installment
contracts (or obligations) purchased by it shall be assigned to the various
parties for which the Servicer purchases such contracts, including the
Company, on a basis which takes into account the respective periods of time
the purchasing parties have been in existence, the cost of the available
contract package, the amount of their unexpended funds, and the need to
diversify their holdings.

(c) The purchase price payable by the Company for each Contract shall
equal the actual out-of-pocket price payable by the Servicer for the purchase
of the Contract (inclusive of any incentives paid to dealers on a per
Contract basis, such as a volume bonus). Notwithstanding the foregoing, with
respect to any Contract which has been purchased by the Company from the
Servicer or any of its Affiliates and for which the Servicer or such
Affiliate has received one or more installments from the Obligor prior to the
purchase of the Contract by the Company and is retaining such installments
for its own account rather than transferring them to the Company's account,
the purchase price payable by the Company shall be determined to provide the
Company an internal rate of return on its investment in the Contract from the
remaining unpaid installments equal to the original purchaser's initial
internal rate of return on its investment in the Contract, as of its purchase
from the originating dealer, assuming in both cases that the Contract was
paid in full in accordance with its scheduled installments. In addition, no
Contract purchased by the Company from the portfolio of the Servicer or any
of its Affiliates may be in default at the time of purchase by the Company or
have violated the purchasing criteria set forth in EXHIBIT A attached hereto
(with all references to the Company deemed to refer to the Servicer or such
Affiliate) or in the Servicing

<PAGE>

Agreement at the time of its purchase by the Servicer or such Affiliate.

(d) Servicer and the Company may amend the purchasing criteria set
forth in the Servicing Agreement with the exception of the purchasing
criteria set forth on EXHIBIT A to this Indenture, for which the prior
written consent of the Trustee or the Majority Holders must be obtained.

(e) Without the prior consent of the Trustee, neither the Servicer nor
the Company shall make any payments or withdrawals from funds in the
Operating Account for the purchase of any Contracts during the continuance of
an Event of Default.

Section 12.10 Reporting by the Servicer.

On or prior to each Report Date, the Servicer shall render to the
Trustee the Monthly Report in respect of the immediately preceding Collection
Period, which shall set forth the following:

(a) A confirmation that all proceeds (including all written
installments, Full Prepayments, Net Liquidation Proceeds or Net Insurance
Proceeds) received by Servicer during such Collection Period and attributable
to the Contracts (and any related Financed Vehicles) owned by the Company
have been deposited into the Collections Account;

(b) A confirmation that all funds that were deposited into the
Collections Account during such Collection Period and that were attributable
to the Contracts and related Financed Vehicles owned by the Company have been
transferred to the Operating Account;

(c) Attached to the Monthly Report should be detailed collection,
receivables and delinquency reports listing, by Contract, the proceeds
received and applied for each Contract during such Collection Period and
deposited in the Collections Account (including any Net Liquidation Proceeds
and Net Insurance Proceeds and any prepayments by Obligors) and the unpaid
installment balance and the past due installments as of the end of the
Collection Period for each Contract;

(d) Attached to the Monthly Report should be a detailed repossession,
liquidation and loss report listing, by Contract, Contracts assigned for
repossession, the repossessions of Financed Vehicles, the sales of
repossessed Financed Vehicles and resulting proceeds, any Net Insurance
Proceeds and any other Net Liquidation Proceeds during the Collection Period;
and

(e) Any other information relating to the Contracts reasonably
requested by the Trustee.

Section 12.11 Annual Accountants' Reports.

On or before 120 days after the end of each fiscal year of the Servicer,
the Servicer and the Company shall deliver to the Trustee separate reports,
prepared by a firm of independent accountants selected by the Servicer and the
Company, that (i) they have examined the balance sheets of the Servicer and the
Company as of the last day of said fiscal year and the related statements of

<PAGE>

operations, retained earnings and changes in financial position for such
fiscal year and have issued an opinion thereon, specifying the date thereof,
(ii) they have also examined certain documents and records relating to the
Contracts, (iii) their examination as described under clauses (i) and (ii)
above was made in accordance with generally accepted auditing standards and
accordingly included such tests of the accounting records and such other
auditing procedures as they considered necessary in the circumstances, and
(iv) their examinations described under clause (i) and (ii) above disclosed
no exceptions which, in their opinion, were material, relating to such
Contracts, or, if any such exceptions were disclosed thereby, setting forth
such exceptions which, in their opinion, were material.

Section 12.12 Representations and Warranties Concerning the Servicer.

The Servicer represents and warrants to the Company and the Trustee as
follows:

(a) The Servicer (i) has been duly organized and is validly existing
and in good standing as a corporation organized and existing under the laws
of the State of Texas, (ii) has qualified to do business as a foreign
corporation and is in good standing in each jurisdiction where the character
of its properties or the nature of its activities makes such qualification
necessary, and (iii) has full power, authority and legal right to own its
property, to carry on its business as presently conducted, and to enter into
and perform its obligations under this Indenture.

(b) The execution and delivery by the Servicer of this Indenture are
within the corporate power of the Servicer and have been duly authorized by
all necessary corporate action on the part of the Servicer. Neither the
execution and delivery of this Indenture, nor the consummation of the
transactions herein contemplated, nor compliance with the provisions hereof,
will conflict with or result in a breach of, or constitute a default under,
any of the provisions of any law, governmental rule, regulation, judgment,
decree or order binding on the Servicer or its properties or the charter or
bylaws of the Servicer, or any of the provisions of any indenture, mortgage,
contract or other instrument to which the Servicer is a party or by which it
is bound or result in the creation or imposition of any lien, charge or
encumbrance upon any of its property pursuant to the terms of any such
indenture, mortgage, contract or other instrument.

(c) The Servicer is not required to obtain the consent of any other
party or consent, license, approval or authorization of, or registration or
declaration with, any governmental authority, bureau or agency in connection
with the execution, delivery, performance, validity or enforceability of this
Indenture.

(d) This Indenture has been duly executed and delivered by the Servicer
and the provisions of Article Twelve hereof constitute legal, valid and
binding covenants enforceable against the Servicer in accordance with their
terms (subject to applicable bankruptcy and insolvency laws and other similar
laws affecting the enforcement of creditors' rights generally).

(e) There are no actions, suits or proceedings pending or, to the
knowledge of the Servicer, threatened against or affecting the Servicer,
before or by any court, administrative agency,

<PAGE>

arbitrator or governmental body with respect to any of the transactions
contemplated by the Servicing Agreement or this Indenture.

Section 12.13 Corporate Existence; Status as Servicer; Merger.

(a) The Servicer shall keep in full effect its existence, rights and
franchises as a corporation under the laws of the State of Texas, and will
obtain and preserve its qualification to do business as a foreign corporation
in each jurisdiction in which such qualification is or shall be necessary to
protect the validity and enforceability of the Contract Documents, this
Indenture and the Servicing Agreement.

(b) The Servicer shall not consolidate with or merge into any other
corporation or convey, transfer or lease substantially all of its assets as
an entirety to any person unless the corporation formed by such consolidation
or into which the Servicer has merged or the person which acquires by
conveyance, transfer or lease substantially all the assets of the Servicer as
an entirety is an entity organized and existing under the laws of the United
States or any state or the District of Columbia and executes and delivers to
the Company and the Trustee an agreement in form and substance reasonably
satisfactory to the Company and the Trustee, which contains an assumption by
such successor entity of the due and punctual performance and observance of
each covenant and condition to be performed or observed by the Servicer under
this Indenture and the Servicing Agreement.

Section 12.14 Performance of Obligations.

(a) The Servicer shall punctually perform and observe all of its
obligations and agreements contained in this Indenture and the Servicing
Agreement.

(b) The Servicer shall not take any action, or permit any action to be
taken by others, which would excuse any person from any of its covenants or
obligations under any of the Contract Documents, or which would result in the
amendment, hypothecation, subordination, termination or discharge of, or
impair the validity or effectiveness of, any of the Contract Documents or any
such instrument, except as expressly provided herein and therein.

Section 12.15 The Servicer Not to Resign; Assignment.

(a) The Servicer shall not resign from the duties and obligations
hereby imposed on it unless, by reason of change in applicable legal
requirements, the continued performance by the Servicer of its duties under
this Indenture would cause it to be in violation of such legal requirements
in a manner which would result in a material adverse effect on the Servicer
or its financial condition. No such resignation shall become effective unless
and until a new industry qualified servicer acceptable to the Company is
willing to service the Contracts and enters into a servicing agreement with
the Company in form and substance substantially similar to the Servicing
Agreement and assumes, pursuant to a written instrument reasonably
satisfactory to the Trustee, the obligations and duties of the Servicer
arising under this Indenture. No such resignation shall affect the
obligation

<PAGE>

of the Servicer to repurchase any Contract pursuant to Section 12.17.

(b) The Servicer may not assign this Indenture or the Servicing
Agreement or any of its rights, powers, duties or obligations hereunder,
provided that the Servicer may assign this Indenture and the Servicing
Agreement in connection with a consolidation, merger, conveyance, transfer or
lease made in compliance with Section 12.13(b), and provided further that the
Servicer may contract with industry qualified third parties for the
performance of its duties under the Servicing Agreement and this Indenture,
except that any such contract shall not relieve the Servicer from liability
for its obligations under the Servicing Agreement and this Indenture.

Section 12.16 Representations and Warranties as to the Contracts.

With respect to each Contract, the Servicer represents and warrants to
the Company, effective as of the Purchase Date for such Contract, which
representations and warranties shall be reaffirmed by delivery of the
Assignment for such Contract signed by the Servicer, as follows:

(a) All of the representations and warranties with respect to the
Servicer set forth in Section 12.12 continue to be true and correct;

(b) In acting with respect to each Contract, Servicer shall comply in
all material respects with, all applicable Federal, state and local laws,
regulations and official rulings;

(c) Each Contract (i) shall have been originated in the United States
of America by a dealer for the retail sale or lease of a Financed Vehicle in
the ordinary course of such dealer's business, shall have been fully and
properly executed by the parties thereto and shall have been validly assigned
by such dealer to Servicer in accordance with its terms, (ii) shall have
created or shall create a valid, subsisting, and enforceable first priority
security interest in favor of Servicer or the Company in the Financed
Vehicle, (iii) shall contain customary and enforceable provisions such that
the rights and remedies of the holder thereof shall be adequate for
realization against the collateral of the benefits of the security, (iv)
shall provide for, in the event that such Contract is prepaid, a prepayment
that fully pays the principal balance, (v) met at the time of its purchase
from the originating dealer in all material respects all purchasing criteria
set forth on EXHIBIT A attached hereto and in the Servicing Agreement, and
(vi) shall not be a Defaulted Contract.

(d) (i) The Title Document for the related Financed Vehicle shows (or
if a new or replacement Title Document is applied for with respect to such
Financed Vehicle, the official receipt from the responsible state or local
governmental authority indicating that an application has been made and that
the Title Document, when issued, will show) the Servicer or the Company as
the holder of a first priority security interest in such Financed Vehicle,
(ii) within 120 days after the Purchase Date for the Contract relating to the
Financed Vehicle, the Title Document for such Financed Vehicle will show the
Company as the holder of a first priority security interest in such Financed
Vehicle, and (iii) the Company, upon delivery of the Assignment, will have a
valid and enforceable security interest in the Financed Vehicle to the same
extent as the security interest of the Person named as the original secured
party under the related Contract.

<PAGE>

(e) Each dealer from whom the Contract is purchased shall be required
to represent and warrant that each Contract and the sale or lease of the
Financed Vehicle shall have complied at the time it was originated in all
material respects with all requirements of applicable federal, state, and
local laws, and regulations thereunder, including without limitation, usury
laws, the Federal Truth-In-Lending Act, the Equal Credit Opportunity Act, the
Fair Credit Reporting Act, the Fair Debt Collection Practices Act, the
Federal Trade Commission Act, the Federal Reserve Board's Regulations B and
Z, and state adaptations of the National Consumer Act and of the Uniform
Consumer Credit Code, and other consumer laws and equal credit opportunity
and disclosure laws.

(f) Each Contract shall represent the genuine, legal, valid, and
binding payment obligation in writing of the Obligor, enforceable by the
holder thereof in accordance with its terms subject to the effect of
bankruptcy, insolvency, reorganization, or other similar laws affecting the
enforcement of creditor's rights generally.

(g) No provision of a Contract shall have been waived, amended or
modified, except as disclosed in writing by Servicer.

(h) No right of rescission, set off, counterclaim, or defense shall
have been asserted or threatened with respect to any Contracts.

(i) The Assignment constitutes an enforceable sale and transfer of the
Contract from the Servicer (or other Person from whom the Contract is
purchased) to the Company and it is the intention of the Servicer that the
beneficial interest in and title to the Contracts not be part of Servicer's
estate in the event of the filing of a bankruptcy petition by or against
Servicer under bankruptcy law.

(j) Immediately prior to the Assignment herein contemplated, Servicer
(or other Person from whom such Contract is purchased by the Company) had
good and marketable title to each Contract free and clear of all liens,
encumbrances, security interests, and rights of others and, immediately upon
the transfer thereof pursuant to the Assignment, the Company shall have good
and marketable title to each Contract, free and clear of all liens,
encumbrances, security interest, and right of others.

(k) No Contract shall have been originated in, or shall be subject to
the laws of, any jurisdiction under which the sale, transfer, and assignment
of such Contract to the Company or the Trustee would be unlawful, void, or
voidable.

Section 12.17 Purchase of Certain Contracts.

(a) The representations and warranties of the Servicer set forth in
Section 12.16 with respect to each Contract shall survive delivery of the
Contract Documents to the Company and shall continue so long as such Contract
remains outstanding. Upon discovery by the Company, the Servicer or the
Trustee that any of such representations or warranties was incorrect as of
the time made or that any of the Contract Documents relating to any such
Contract has not been properly

<PAGE>

executed by the Obligor or the Servicer or contains a material defect or has
not been received by the Company, the party making such discovery shall give
prompt notice to the Trustee (other than in cases where the Trustee has given
notice thereof) and to the other party (or parties in cases where the Trustee
has given notice thereof). If any such defect, incorrectness or omission
materially and adversely affects the interest of the Holders in and to the
related Contracts, the Servicer shall, within 90 days after discovery thereof
or receipt of notice thereof, cure the defect or eliminate or otherwise cure
the circumstances or condition in respect of which the representation or
warranty was incorrect as of the time made. If the Servicer is unable to do
so, it shall purchase such Contract from the Company through a deposit into
the Collections Account no later than the end of the calendar month after
which such 90-day period expired of an amount equal to the product of (x) the
Price/Payments Ratio multiplied by (y) the aggregate unpaid installments on
the Contract. Upon any such purchase, the Company shall execute and deliver
such instruments of transfer or assignment, in each case without recourse, as
shall be necessary to vest in the Servicer any Contract purchased hereunder.

(b) It is understood that, without limiting the meaning of the term
"materially and adversely affects", the interest of the Holders shall be
deemed materially and adversely affected if (i) the Company, the Trustee or
any of such Holders are put under any obligation to pay any other Person any
sum of money as a result of a defect or misrepresentation described in
subsection (a) above, or (ii) the Trustee or the Majority Holders, acting
reasonably, determine, by written notice to the Company, that such defect or
misrepresentation materially and adversely affects the interests of the
Holders in and to a Contract.

Section 12.18 Indemnification.

Servicer hereby indemnifies and holds harmless Trustee and its
successors and their respective officers, directors, employees, agents and
attorneys against any and all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, claims, costs, expenses and
disbursements of any kind or nature whatsoever which may be imposed on,
incurred by or asserted against Trustee or its successors, or their
respective officers, directors, employees, agents or attorneys, due to (i)
any breach by Servicer of its representations, warranties or covenants
provided for in the Servicing Agreement or this Indenture, or (ii) any action
or inaction of Servicer, or through Servicer, in any way relating to, or
arising out of, the Servicing Agreement or this Indenture, any and all
transfers or assignments of the Contracts, or any of the transactions
contemplated herein or therein or the creation or collection or enforcement
of any of the Contracts. Servicer, however, does not assume the risk of
uncollectibility and does not indemnify Trustee and/or its successors, or
their officers, directors, employees, agents or attorneys, against the
uncollectibility of all or any part of the Contracts as against the Obligor
thereof, except for uncollectibility resulting from a breach by Servicer of
any warranty, representation or covenant contained herein. The indemnities
contained in this Section shall survive any termination of this Indenture or
the Servicing Agreement.

Section 12.19 Termination.

The respective duties and obligations of the Servicer under this Article
Twelve shall terminate upon the earlier of (i) the satisfaction and discharge
of this Indenture pursuant to Article

<PAGE>

Eight, or (ii) the latest to occur of (A) the final payment or other
liquidation of the last Outstanding Contract owned by the Company, and (B)
the disposition of all property acquired upon repossession or comparable
conversion of any Financed Vehicle securing a Contract.

Section 12.20 Amendment.

(a) The provisions of this Article Twelve may be amended from time to
time by the Company, the Servicer and the Trustee, without the consent of any
Holder, provided that such action shall not adversely affect in any material
respect the interests of any Holder.

(b) The provisions of this Article Twelve may also be amended from time
to time by the Company, the Servicer and the Trustee, with the consent of the
Majority Holders for the purpose of adding any provisions to or changing in
any manner or eliminating any of the provisions of this Article, provided,
however, that no such amendment shall, without consent of each Holder, (i)
alter the priorities with which any allocation of funds shall be made under
this Article; (ii) deprive any such Holder of the benefit of this Indenture;
or (iii) modify this Section.

(c) Promptly after the execution of any amendment pursuant to Section
12.20(b), the Company shall cause to be sent to each Holder a notice setting
forth in general terms the substance of such amendment. Any failure to do so
shall not affect the validity of such amendment.

(d) It shall not be necessary, in any consent of Holders under this
Section, to approve the particular form of any proposed amendment, but it
shall be sufficient if such consent shall approve the substance thereof. The
manner of obtaining such consents and of evidencing the authorization of the
execution thereof by Holders shall be subject to such reasonable regulations
as the Trustee may prescribe.

(e) Any amendment or modification effected contrary to the provisions
of this Section shall be void.

Section 12.21 Inspection and Audit Rights.

The Servicer agrees that, upon reasonable prior notice, it will permit
any representative of the Trustee, during the Servicer's normal business
hours, to examine all of the books of account, records, reports and other
papers of the Servicer relating to the Contracts, to make copies and extracts
therefrom, to cause such books to be audited by independent accountants
selected by the Trustee, and to discuss the affairs, finances and accounts
relating to the Contracts with the Servicer's officers, employees and
independent accountants (and by this provision the Servicer hereby authorizes
said accountants to discuss with such representatives such affairs, finances
and accounts), all at such reasonable times and as often as may be reasonably
requested. Any expense incident to the reasonable exercise by the Trustee of
any right under this Section shall be borne by the Trustee and reimbursed to
it by the Company under Section 7.7.

<PAGE>

ARTICLE THIRTEEN

ADDITIONAL LENDER

Section 13.1 Indenture Subject to Terms of Additional Borrowing.

In addition to the Notes, the Company intends to pursue an Additional
Lender to borrow funds with which to purchase additional Contracts. The
Company anticipates that any Additional Borrowings from the Additional Lender
will be secured by first priority security interests in all the Contracts
owned by the Company and all other assets of the Company. The provisions of
this Indenture, and the rights and duties of the Company, the Servicer and
the Trustee hereunder, shall at all times, anything else herein to the
contrary notwithstanding, be subject to the terms and provisions of the
Additional Borrowing.

IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be
duly executed, as of the day and year first above written.

STERLING TRUST COMPANY,
as Trustee

By:
--------------------------------
-------------------, President

Attest:

- --------------------------------
- -------------------, Secretary

SOVEREIGN CREDIT FINANCE II, INC.

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

Attest:

- --------------------------------
- -------------------, Secretary

58
<PAGE>

The undersigned Sovereign Associates, Inc. joins in this Indenture for
the sole purpose of evidencing its agreement to the covenants,
representations and warranties pertaining to it that are set forth in Article
Twelve of this Indenture and not for the purpose of guarantying or otherwise
covenanting to pay the Notes or to perform any of the Company's obligations.

SOVEREIGN ASSOCIATES, INC.

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

Attest:

- --------------------------------
- -------------------, Secretary

The undersigned Sovereign Credit Holdings, Inc. joins in this Indenture
for the sole purpose of evidencing its agreement to the indemnity and hold
harmless provisions pertaining to it that are set forth in Section 7.7(a)(ii)
of this Indenture and not for the purpose of guarantying or otherwise
covenanting to pay the Notes or to perform any of the Company's obligations.

SOVEREIGN CREDIT HOLDINGS, INC.

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

Attest:

- --------------------------------
- -------------------, Secretary

59
<PAGE>

THE STATE OF TEXAS )
)
COUNTY OF MCLENNAN )

BEFORE ME, the undersigned authority, on this day personally appeared
_____________________, President of Sterling Trust Company, a Texas
corporation, known to me to be the person and officer whose name is
subscribed to the foregoing instrument, and acknowledged to me that he or she
executed the same for the purposes and consideration therein expressed, in
the capacity therein stated and as the act and deed of said corporation.

GIVEN UNDER MY HAND AND SEAL OF OFFICE, this the ____ day of
___________________, 199_.

[SEAL]
-----------------------------------
Notary Public in and for the
State of Texas
Print Name:
------------------------
My Commission Expires:
-------------

THE STATE OF TEXAS )
)
COUNTY OF DALLAS )

BEFORE ME, the undersigned authority, on this day personally appeared A.
Starke Taylor, III, President of Sovereign Credit Finance II, Inc., a Texas
corporation, known to me to be the person and officer whose name is
subscribed to the foregoing instrument, and acknowledged to me that he
executed the same for the purposes and consideration therein expressed, in
the capacity therein stated and as the act and deed of said corporation.

GIVEN UNDER MY HAND AND SEAL OF OFFICE, this the ____ day of
___________________, 199_.

[SEAL]
-----------------------------------
Notary Public in and for the
State of Texas
Print Name:
------------------------
My Commission Expires:
-------------

60
<PAGE>

THE STATE OF TEXAS )
)
COUNTY OF DALLAS )

BEFORE ME, the undersigned authority, on this day personally appeared A.
Starke Taylor, III, President of Sovereign Associates, Inc., a Texas
corporation, known to me to be the person and officer whose name is subscribed
to the foregoing instrument, and acknowledged to me that he executed the same
for the purposes and consideration therein expressed, in the capacity therein
stated and as the act and deed of said corporation.

GIVEN UNDER MY HAND AND SEAL OF OFFICE, this the ____ day of
____________________, 199_.

[SEAL]
-----------------------------------
Notary Public in and for the
State of Texas
Print Name:
------------------------
My Commission Expires:
-------------

THE STATE OF TEXAS )
)
COUNTY OF DALLAS )

BEFORE ME, the undersigned authority, on this day personally appeared A.
Starke Taylor, III, President of Sovereign Credit Holdings, Inc., a Texas
corporation, known to me to be the person and officer whose name is
subscribed to the foregoing instrument, and acknowledged to me that he
executed the same for the purposes and consideration therein expressed, in
the capacity therein stated and as the act and deed of said corporation.

GIVEN UNDER MY HAND AND SEAL OF OFFICE, this the ____ day of
___________________, 199_.

[SEAL]
-----------------------------------
Notary Public in and for the
State of Texas
Print Name:
------------------------
My Commission Expires:
-------------

61
<PAGE>

EXHIBIT A

CONTRACT PURCHASE CRITERIA

SOVEREIGN CREDIT FINANCE II, INC.

The following purchasing criteria shall govern all purchases of Eligible
Contracts by the Company and no Contract shall be purchased that does not
materially meet such criteria.

I. PURCHASE PRICE AND COLLATERAL RATIOS

A. The purchase price for a Contract must involve an initial payment
to the Dealer which does not exceed the average retail value of a Financed
Vehicle plus tax, title, license and warranty. Average retail value shall be
measured by the MANNHEIM GOLD BOOK, NATIONAL AUTO RESEARCH BLACK BOOK or the
NATIONAL AUTOMOBILE DEALERS USED CAR GUIDE used car market guides, or other
nationally published used car market guides. If measured by the MANNHEIM
GOLD BOOK, the retail value of a Financed Vehicle shall be adjusted upward to
reflect the generally lower values provided by this publication when compared
to other publications.

B. The purchase price for a Contract must involve an initial payment
to the Dealer of no more than 90% of the principal plus accrued interest
(pay-off balance) of such Contract.

C. The age of each Financed Vehicle must be 7 years or less for
automobiles or 8 years or less for trucks.

D. Miles may not exceed 110,000 for automobiles or 135,000 for trucks,
unless the Dealer guarantees payments under the applicable Contract.

II. DOWN PAYMENT RATIO

A. Obligors on all Contracts must be required to have made a down
payment (cash plus net trade-in allowance) of at least 10% of the Dealer's
cost (excluding sale preparation expenses) in the Financed Vehicle.

III. CONTRACT TERMS

A. All Contracts must have an original term of 44 months or less
although 54 month terms will be permitted where the Financed Vehicle is a
1991 or later model, or where lower depreciation or stronger credit history
justifies a 54 month term.

B. No Contract may violate any applicable usury laws of any state or
of the United States.

C. Each Contract shall be in the form of industry-standard consumer
automobile retail

A-1

<PAGE>

installment contracts or notes issued by the Texas Independent Automobile
Dealers Association if the Contract originated in Texas or by any similar
association of dealers in any other state in which the Contract originated.

IV. CREDIT CRITERIA

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

A. Personal reference with address and telephone number.

B. Copy of credit application executed by Obligor which contains the
necessary information to verify by telephone or otherwise the Obligor's
address, employment and personal references and to obtain a credit report
from a credit reporting agency.

C. Obligor must have a valid driver's license.

D. No cosigners, except immediate family members.

E. Obligor must be at least 18 years old.

To the extent that, in the Servicer's good faith judgement, Contracts
which do not satisfy the criteria specified in I(A) through III(A) above may
be purchased for a purchase price which would be beneficial to the Company,
Servicer may purchase such Contracts.

A-2

<PAGE>

EXHIBIT B

MONTHLY REPORT CERTIFICATE

For Month: _________, 199__ (the "Collection Period")

Company: Sovereign Credit Finance II, Inc.

Servicer: Sovereign Associates, Inc.

Indenture: Dated as of January 31, 1998

Trustee: Sterling Trust Company

I. PURCHASING ACTIVITIES (INDENTURE, SECTION 12.9)

A. EXHIBIT I hereto lists each Contract for which the purchase price
was paid by Company during the Collection Period and includes for each
Contract (and related Financed Vehicle) at least the following information:

1. Contract number
2. Name of Obligor
3. Purchase price paid by Company
4. Dealer's sales price for Financed Vehicle
5. Vehicle identification number (VIN) for Financed Vehicle
6. Origination date
7. Number of unpaid installments in dollar amount
8. Aggregate unpaid installments in dollar amount

B. Servicer and Company confirm with respect to such Contracts that:

1. The representations and warranties set forth in Section 12.16 of
the Indenture are accurate;

2. The aggregate fair value of such Contracts is at least their
aggregate purchase price paid by Company;

3. Servicer has performed all of its obligations under the Servicing
Agreement; there is no Event of Default under the Indenture; and the
purchased contracts conform to the purchasing criteria set forth in the
Servicing Agreement and Exhibit A to the Indenture; and

4. The provisions of Section 5.9(vii) of the Indenture requiring
Company and Servicer to obtain all necessary licenses, permits and
governmental approvals in any required jurisdiction have been satisfied.

B-1

<PAGE>

C. Servicer hereby assigns and transfers to Company any such purchased
Contracts for which it holds title, without recourse or warranty except as
otherwise provided in the Indenture or Servicing Agreement.

D. Servicer and Company confirm that the available funds in the
Operating Account will be sufficient to pay the total interest installments
due on the Notes at the next Payment Date, which amount is $_________, and
anticipated Allowed Expenses during the current month.

II. SERVICING ACTIVITIES (INDENTURE, SECTION 12)

A. Servicer confirms that:

1. All proceeds (including all installments, Full Prepayments, Net
Liquidation Proceeds and Net Insurance Proceeds) received by it during the
Collection Period attributable to Contracts (and any related Financed
Vehicles) owned by Company have been deposited into the Collections
Account;

2. All funds that were deposited into the Collections Account during
the Collection Period and that were attributable to the Contracts (and
related Financed Vehicle) owned by Company have been transferred to the
Operating Account; and

3. A review of the activities of Servicer during the Collection
Period has been made under the supervision of the officer executing this
Certificate with a view to determining whether during such period Servicer
has performed and observed, in all material respects, its obligations under
the Indenture and the Servicing Agreement, and, to such officer's
knowledge, no default by Servicer under the Indenture or the Servicing
Agreement has occurred and is continuing.

B. EXHIBIT II hereto lists, by each Contract owned by Company, the
daily proceeds received from such Contracts and deposited in the Collections
Account, including any Net Liquidation Proceeds and Net Insurance Proceeds
and any prepayments by Obligors.

C. EXHIBIT III hereto lists, as of month end, the unpaid installment
balance and any past due installments for each Contract owned by Company.

D. EXHIBIT IV hereto lists, by each Contract owned by the Company, the
Contracts assigned for repossession, the repossessions of Financed Vehicles,
the sales of repossessed Financed Vehicles and resulting proceeds, any
Insurance Proceeds and any other Liquidation Proceeds during the month.

III. DISBURSEMENT ACTIVITIES (INDENTURE, SECTION 4.1)

A. Reconciliation of Operating Account

1. Balance of beginning of month: $______
2. Total Deposits: $______
3. Withdrawals $______
Offering Expenses: $______
Interest on Notes: $______
Allowed Expenses paid: $______
Contracts purchased: $______
Subtotal: $______
4. Balance at end of month: $______

B. Allowed Expenses paid during month from Operating Account:

1. Servicing Fees (______ Contracts x $20): $______
2. Investor Administration Fees: $______
3. Purchase Administration Fees
(Contracts x $500, or 5% of
installments due): $______
4. Bank Fees: $______
5. Accounting Fees: $______
6. Legal Fees: $______
7. Income Taxes: $______
8. Corporate Franchise Taxes: $______
9. Trustee Fees: $______
10. Liquidation Expenses: $______
11. Vehicle Warranty Repair Service Contracts: $______
12. Repossession Fees (Repossessions x $125): $______
Total: $______

C. Company confirms that:

1. All withdrawals and payments from the Operating Account during
the month conformed to the requirements of the Indenture;

IV. INTEREST PAYMENTS ON NOTES (INDENTURE, SECTION 5.1)

A. EXHIBIT V hereto sets forth a listing of the interest and any
principal payable to each Holder on the next Payment Date. The Company
certifies that computation of interest has been made in conformance with the
Indenture.

All capitalized terms used herein and not otherwise herein defined shall
have the same meaning as set forth in the Indenture.

Company and Servicer certify that, to the best of their knowledge, the
foregoing and attached information is true and correct.

B-3

<PAGE>

Dated: ___________________, 199__.

SOVEREIGN ASSOCIATES, INC.

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

SOVEREIGN CREDIT FINANCE II, INC.

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

B-4

<PAGE>

EXHIBITS DESCRIPTION
- -------- -----------

I Purchased Contract Information
II Daily Contract Collections Journal
III Contract Receivables Report
IV Repossession and Liquidation Report
V Holder Interest Report

B-5

<PAGE>

EXHIBIT C

TRUSTEE'S FEES

Sovereign Credit Finance II, Inc.
Notes
Due February 15, 2002

Acceptance Fee (payable upon execution
of Indenture) $7,000.00

Annual Administration Fee
(billed quarterly) $7,500.00

Paying Agent/Registrar Services $4.00 per year per Note

Interest Checks $1.00 per month per Note
Note Register Revisions, Transfers,
Exchanges and Replacement Notes $25.00 each

Expedited Deliveries (per delivery, in
addition to out-of-pocket) $10.00 each

All out-of-pocket expenses such as postage, overnight mail costs, etc. will
be billed at cost to the Company. The Trustee understands that the closing
of the Note issuance will be completed in Dallas and there will not be any
travel expenses charged to the Company. If Trustee's duties are modified
beyond a DE MINIMUS extent, Trustee reserves the right to reevaluate its fees.

C-1

<PAGE>

FREDERICK C. SUMMERS, III
A PROFESSIONAL CORPORATION
ATTORNEY AT LAW

1400 St. Paul Place
750 North St. Paul Street
Dallas, Texas 75201
Telephone (214) 981-3816
Facsimile (214) 981-3839

November 12, 1997

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

Re: 11% Notes Due February 15, 2002

Gentlemen:

We refer to the Form SB-2 Registration Statement (the "Registration
Statement") of Sovereign Credit Finance II, Inc., a Texas corporation (the
"Company"), filed with the Securities and Exchange Commission under file
number 333-_________ for the purpose of registering under the Securities Act
of 1933, as amended, the Company's 11% Notes Due February 15, 2002 in the
aggregate principal amount of $10,000,000 (the "Notes"), the Prospectus
contained therein (the "Prospectus"), and the form of Indenture (the
"Indenture") relating to the Notes attached as Exhibit 4.1 to the
Registration Statement.

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

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

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

We hereby consent to the references to this firm under the caption "Legal
Matters" in the Prospectus and the filing with the Securities and Exchange
Commission of this letter as an exhibit

<PAGE>

to the Registration Statement.

Very truly yours,

FREDERICK C. SUMMERS, III
A PROFESSIONAL CORPORATION

By: /s/ Frederick C. Summers, III
------------------------------------
Frederick C. Summers, III

<PAGE>

FREDERICK C. SUMMERS, III
A PROFESSIONAL CORPORATION
ATTORNEY AT LAW

1400 St. Paul Place
750 North St. Paul Street
Dallas, Texas 75201
Telephone (214) 981-3816
Facsimile (214) 981-3839

November 12, 1997

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

Re: 11% Notes Due February 15, 2002

Gentlemen:

We refer to the Form SB-2 Registration Statement (the "Registration
Statement") of Sovereign Credit Finance II, Inc., a Texas corporation (the
"Company"), filed with the Securities and Exchange Commission under file
number 333-_________ for the purpose of registering under the Securities Act
of 1933, as amended, the Company's 11% Notes Due February 15, 2002 in the
aggregate principal amount of $10,000,000 (the "Notes"), and the Prospectus
contained therein (the "Prospectus"). The purpose of this letter is to
advise you that the discussion under the caption "Certain Federal Income Tax
Considerations" in the Prospectus reflects the opinion of Frederick C.
Summers, III, A Professional Corporation, as to the tax matters discussed
therein.

We hereby consent to the references to this firm under the captions
"Certain Federal Income Tax Considerations" and "Legal Matters" in the
Prospectus and the filing with the Securities and Exchange Commission of
this letter as an exhibit to the Registration Statement.

Very truly yours,

FREDERICK C. SUMMERS, III
A PROFESSIONAL CORPORATION

By: /s/ Frederick C. Summers, III
-----------------------------------
Frederick C. Summers, III

<PAGE>

MASTER CONTRACT PURCHASE AGREEMENT

This Master Contract Purchase Agreement (this "Agreement") effective
as of January 31, 1998, is entered into by and between Sovereign Associates,
Inc, a Texas corporation ("Purchasing Agent"), and Sovereign Credit Finance
II, Inc., a Texas corporation ("Buyer").

BACKGROUND STATEMENT

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

STATEMENT OF AGREEMENT

In consideration of the mutual covenants contained herein and for
other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, Buyer and Purchasing Agent agree as follows:

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

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

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

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

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

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

(f) "Purchased Contracts" shall mean all Qualified Contracts
purchased by Buyer from or through the Purchasing Agent in accordance with
the terms and conditions of this

<PAGE>

Agreement, including those within a Purchased Contract Pool.

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

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

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

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

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

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

2. PROCEDURE FOR PURCHASE. At any time and from time to time until
the termination of this Agreement, the Buyer may request the Purchasing Agent
(i) to solicit from Dealers offers to sell to Buyer Qualified Contracts and
Qualified Contract Pools, or (ii) to offer to sell to Buyer Qualified
Contract and Qualified Contract Pools, from the portfolio of Contracts owned
by Purchasing Agent, which portfolio may include Contracts purchased by
Purchasing Agent from affiliates of Sovereign. Purchasing Agent shall be
obligated to use reasonable efforts to solicit from Dealers offers to sell to
Buyer Qualified Contracts and Qualified Contract Pools as soon as practicable
following any such request by the Company. In addition, in deciding whether
to offer to sell Qualified Contracts to the Buyer or any other purchaser who
is affiliated or not affiliated with the Purchasing Agent and for whom
Purchasing Agent is also purchasing Contracts, the Purchasing Agent shall
select such Contracts from the Qualified Contracts that are or become
available for purchase, such selection to be based upon the respective
periods of time the purchasing entities have been in existence, the cost of
the available Contracts, the amount of their unexpended funds and the need to
diversify their holdings; provided, however, that Purchasing Agent shall give
priority to purchases on behalf of the limited purpose, securitization
subsidiaries of Sovereign (whether of Sovereign Credit Corporation or its
parent, Sovereign Credit Holdings, Inc.), including Buyer, over purchases on
behalf of Sovereign or Purchasing Agent. Purchasing Agent reserves the right
to offer to sell Qualified Contract Pools to the parties for which it
purchases Contracts on any other basis that it deems to be equitable. The
Buyer shall be obligated to purchase from Dealers through the Purchasing
Agent or from the Purchasing Agent or Sovereign affiliates any Contracts
properly offered for sale to it, in accordance with the terms of this
Agreement, up to a maximum aggregate Purchase Price that may

<PAGE>

be specified by the Buyer in its request, if such Contracts constitute
Qualified Contracts and/or Qualified Contract Pools.

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

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

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

Purchasing Agent will charge a processing fee to the various dealers
from which it purchases Contracts on behalf of the Buyer, which fee is
currently $275 per Contract purchased. Purchasing Agent may pay a portion of
such fee, in the amount of $50 per Contract purchased, to one or more third
parties as a finder's fee in connection with the purchase of each Contract.
Purchasing Agent

<PAGE>

reserves the right to increase the amount of the processing fee which it
charges from time to time, and to increase or decrease the amount of the
finder's fee.

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

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

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

(a) ORGANIZATION AND GOOD STANDING. Purchasing Agent is a
corporation duly organized, validly existing and in good standing under the
laws of Texas, and has full corporate power, authority and legal right to own
its properties and conduct its business as such properties are presently
owned and such business is presently contemplated, and to execute, deliver
and perform its obligations under this Agreement.

(b) DUE QUALIFICATION. The Purchasing Agent is duly qualified and
has registered as a foreign corporation in each state where such
qualification is required in order to perform its obligations pursuant to
this Agreement and has obtained all necessary licenses, approvals or consents
as are required under applicable law to perform its duties hereunder.

(c) DUE AUTHORIZATION. The execution, delivery and
performance of this Agreement has been duly authorized by the Purchasing
Agent by all necessary corporate action on the part of the Purchasing Agent.

(d) BINDING OBLIGATION. This Agreement constitutes a legal, valid
and binding obligation of the Purchasing Agent, enforceable in accordance
with its terms, except as enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws now
or hereinafter in effect which affect the enforcement of creditors' rights in
general, and except as such enforceability may be limited by general
principles of equity (whether considered in a proceeding at law or in
equity).

(e) NO VIOLATION. The execution and delivery of this Agreement by
the Purchasing Agent, and the performance of the transactions contemplated by
this Agreement and the fulfillment of the terms hereof applicable to the
Purchasing Agent, will not conflict with, violate, result in any breach of
any of the material terms and provisions of, or constitute (with or without
notice or lapse of time or both) a default under, any requirement of law
applicable to the Purchasing Agent or any indenture, contract, agreement,
mortgage, deed of trust or other installment to which the Purchasing Agent is
a party or by which it is bound.

7. REPRESENTATIONS, WARRANTIES AND COVENANTS OF PURCHASING AGENT
REGARDING

<PAGE>

CONTRACTS. The Purchasing Agent further represents and warrants to, and
covenants with Buyer as follows:

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

(b) Each Qualified Contract (i) shall have been originated in the
United States of America by a Dealer for the retail sale of a Financed
Vehicle in the ordinary course of such Dealer's business, shall have been
fully and properly executed by the parties thereto and shall have been
validly assigned by such Dealer to Purchasing Agent, a Sovereign affiliate,
or to Buyer in accordance with its terms, (ii) shall have created or shall
create a valid, subsisting, and enforceable first priority security interest
in the Financed Vehicle in favor of the owner of the Qualified Contract,
(iii) shall contain customary and enforceable provisions such that the rights
and remedies of the holder thereof shall be adequate for realization against
the collateral and of the benefits of the security, (iv) shall provide for,
in the event that such Qualified Contract is prepaid, a prepayment that fully
pays the principal balance, (v) shall meet at the time of its purchase from
the originating Dealer in all material respects all purchasing criteria set
forth on EXHIBIT A attached hereto, and (vi) shall have been validly assigned
by Purchasing Agent or Sovereign affiliate to Buyer if the Qualified Contract
was assigned by the Dealer to the Purchasing Agent or Sovereign affiliate and
has been purchased by Buyer.

(c) Purchasing Agent shall require each Dealer from which a
Qualified Contract is purchased to represent and warrant that such Qualified
Contract and the sale of the related Financed Vehicle complied, at the time
the Contract was originated or made, in all material respects with all
requirements of applicable federal, state and local laws, and regulations
thereunder, including, without limitation, usury laws, the Federal
Truth-In-Lending Act, the Equal Credit Opportunity Act, the Fair Credit
Reporting Act, the Fair Debt Collection Practices Act, the Federal Trade
Commission Act, the Federal Reserve Board's Regulations B and Z, state
adaptations of the National Consumer Act and of the Uniform Consumer Credit
code, and other consumer laws and equal credit opportunity and disclosure
laws.

(d) Each Qualified Contract shall represent the genuine, legal,
valid and binding payment obligation in writing of the Obligor, enforceable
by the holder thereof in accordance with its terms subject to the effect of
bankruptcy, insolvency, reorganization, or other similar laws affecting the
enforcement of creditors' rights generally.

(e) (i) The Certificate of Title for such Financed Vehicle shows
(or if a new or replacement Certificate of Title is applied for with respect
to such Financed Vehicle, the official receipt from the responsible state or
local governmental authority shall indicate that an application has been made
and that the Certificate of Title, when issued, will show within 120 days)
the Purchasing Agent or the Buyer as the holder of a first priority security
interest in such Financed Vehicle, (ii) within 120 days after the Purchase
Date for the Contract relating to the Financed Vehicle, the Certificate of
Title for such Financed Vehicle will show the Buyer as the holder of a first
priority security interest in such Financed Vehicle, and (iii) the Buyer,
upon delivery of the

<PAGE>

transfer to it, will have a valid and enforceable security interest in the
Financed Vehicle to the same extent as the security interest of the person or
entity named as the original secured party under the related Contract.

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

(g) To the knowledge of Purchasing Agent, at the time of its
purchase by the Buyer, no right of rescission, setoff, counterclaim, or
defense shall have been asserted or threatened with respect to any Qualified
Contract.

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

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

(a) ORGANIZATION AND GOOD STANDING. Buyer is a corporation duly
organized, validly existing and in good standing under the laws of Texas, and
has full corporate power, authority and legal right to own its properties and
conduct its business as such properties are presently owned and such business
is presently contemplated, and to execute, deliver and perform its
obligations under this Agreement.

(b) DUE QUALIFICATION. The Buyer is duly qualified and has
registered as a foreign corporation in each state where such qualification is
required in order to perform its obligations pursuant to this Agreement and
has obtained all necessary licenses, approvals or consents as are required
under applicable law to perform its duties hereunder.

(c) DUE AUTHORIZATION. The execution, delivery and
performance of this Agreement has been duly authorized by the Buyer by all
necessary corporate action on the part of the Buyer.

(d) BINDING OBLIGATION. This Agreement constitutes a legal, valid
and binding obligation of the Buyer, enforceable in accordance with its
terms, except as enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws now or
hereinafter in effect which affect the enforcement of creditors' rights in
general, and except as such

<PAGE>

enforceability may be limited by general principles of equity (whether
considered in a proceeding at law or in equity).

(e) NO VIOLATION. The execution and delivery of this Agreement by
the Buyer, and the performance of the transactions contemplated by this
Agreement and the fulfillment of the terms hereof applicable to the Buyer,
will not conflict with, violate, result in any breach of any of the material
terms and provisions of, or constitute (with or without notice or lapse of
time or both) a default under, any requirement of law applicable to the Buyer
or any indenture, contract, agreement, mortgage, deed of trust or other
installment to which the Buyer is a party or by which it is bound.

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

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

11. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors
and assigns. Purchasing Agent may contract with others for the performance
of any or all of its obligations hereunder. Any such contract, however,
shall not relieve Purchasing Agent from liability for its obligations
hereunder.

<PAGE>

12. MODIFICATIONS AND WAIVERS. No delay on the part of any party in
exercising any right, power or privilege hereunder shall operate as a waiver
thereof, nor shall any waiver of any right, power or privilege hereunder
operate as a waiver of any other right, power or privilege hereunder, nor
shall any single or partial exercise of any right, power or privilege
hereunder preclude any other or further exercise thereof, or the exercise of
any other right, power or privilege hereunder. All rights and remedies
herein provided are cumulative and are not exclusive of any rights or
remedies which the parties hereto may otherwise have at law or in equity. No
waiver shall be valid in the absence of the written and signed consent of the
party against which enforcement of such is sought.

13. NOTICE. Except as otherwise specifically provided herein, any
notice hereunder shall be in writing (including telecopy communication) and,
if mailed, shall be deemed to be given when sent by registered or certified
mail, postage prepaid, or if telecopied when transmitted, or otherwise when
delivered in person to the addressee and a receipt given therefor, in all
such instances addressed to the respective parties as follows:

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

To Buyer: Sovereign Credit Finance II, Inc.
4015 Beltline Road
Building B
Dallas, Texas 75244
Attn: A. Starke Taylor, III, President

or at such other address as the addressee may, by written notice received by
the other party hereto, designate as the appropriate address for purposes of
notice hereunder.

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

15. CHOICE OF LAW. THIS AGREEMENT AND THE VALIDITY AND ENFORCEMENT
HEREOF SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE SUBSTANTIVE
LAWS OF THE STATE OF TEXAS.

16. SEVERABILITY. If any provision of this Agreement is held to be
illegal, invalid or unenforceable under present or future laws effective
during the term of this Agreement, the legality, validity and enforceability
of the remaining provisions of this Agreement shall not be affected thereby,
and in lieu of each such illegal, invalid or unenforceable provision there
shall be added automatically as a part of this Agreement a provision as
similar in terms to such illegal, invalid or unenforceable provision as may
be possible and be legal, valid and enforceable.

<PAGE>

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

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

19. SURVIVAL. All covenants, agreements, undertakings, indemnities,
representations and warranties made herein shall survive both the execution
and the termination hereof and shall not be affected by any investigation
made by any party.

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

PURCHASING AGENT:

SOVEREIGN ASSOCIATES, INC.

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

BUYER:

SOVEREIGN CREDIT FINANCE II, Inc.

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

<PAGE>

MASTER CONTRACT PURCHASE AGREEMENT

EXHIBIT A

QUALIFIED CONTRACT CRITERIA

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

I. PURCHASE PRICE AND COLLATERAL RATIOS

B. The purchase price for a Contract must involve an initial payment
to the Dealer of no more than 90% of principal plus accrued interest (pay-off
balance) of such Contract.

C. The age of each Financed Vehicle must be 7 years or less for
automobiles or 8 years or less for trucks.

D. Miles may not exceed 110,000 for automobiles or 135,000 for trucks,
unless the Dealer guarantees payments under the applicable Contract.

II. DOWN PAYMENT RATIO

III. CONTRACT TERMS

B. No Contract may violate any applicable usury laws of any state or
of the United States.

A-1

<PAGE>

C. Each Contract shall be in the form of industry-standard consumer
automobile retail installment contracts or notes issued by the Texas
Independent Automobile Dealers Association if the Contract originated in
Texas or by any similar association of dealers in any other state in which
the Contract originated.

IV. CREDIT CRITERIA

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

A. Personal reference with address and telephone number.

C. Obligor must have a valid driver's license.

D. No cosigners, except immediate family members.

E. Obligor must be at least 18 years old.

To the extent that, in the Purchasing Agent's good faith judgement,
Contracts which do not satisfy the criteria specified in I(A) through III(A)
above may be purchased for a purchase price which would be beneficial to the
Buyer, Purchasing Agent may purchase such Contracts.

A-2

<PAGE>

SERVICING AGREEMENT

This Servicing Agreement (this "Agreement"), effective as of January 31,
1998, is entered into by and between Sovereign Associates, Inc., a Texas
corporation (the "Servicer"), and Sovereign Credit Finance II, Inc., a Texas
corporation ("Buyer").

BACKGROUND STATEMENT

This Agreement shall govern the collection and servicing responsibilities
with respect to any and all of the Purchased Contracts purchased by Buyer
from Servicer pursuant to that certain Master Contract Purchase Agreement
(herein so called) by and between Buyer and Servicer of even date herewith.

STATEMENT OF AGREEMENT

1. Appointment of and Acceptance by the Servicer of Servicing
Obligations.

(a) The Servicer, on behalf of Buyer, shall during the term of
this Agreement manage, administer and collect each of the Purchased Contracts
(as defined in the Master Contract Purchase Agreement), shall exercise
discretionary powers involved in such management, administration and
collection, and shall bear all costs and expenses incurred in connection
therewith that may be necessary or advisable in carrying out this Agreement.
In the management, administration and collection of the Purchased Contracts,
the Servicer shall use at least the same care and apply the same policies
that it would exercise if it owned the Purchased Contracts, including but not
limited to the servicing criteria as set forth in EXHIBIT A attached hereto.

(b) The Servicer shall have full power and authority to do those
things in connection with such servicing, administration and collection
activities which it may deem necessary or desirable in order to maximize
receipts collected from Obligors or foreclosure and sale of Financed Vehicles
underlying the Purchased Contracts. Without limiting the generality of the
foregoing, the Servicer is hereby authorized and empowered to execute and
deliver, on behalf of Buyer, instruments of satisfaction or cancellation, or
of partial or full release or discharge, and all other comparable
instruments, in order to evidence payments received with respect to the
Purchased Contracts and, after the delinquency of any Purchased Contracts and
to the extent permitted under and in compliance with applicable law and
regulations, to commence enforcement proceedings with respect to such
Purchased Contracts; PROVIDED, HOWEVER, that the Servicer shall not commence
any legal action against an Obligor in the name of Buyer without the prior
written consent of the Buyer. Buyer shall furnish the Servicer with any
powers of attorney and other documents necessary or appropriate to enable the
Servicer to carry out its servicing and administrative duties hereunder.

(c) The Servicer may contract with industry-qualified third
parties to perform its obligations hereunder. The performance by any third
party will not relieve the Servicer from

<PAGE>

liability for its obligations under this Agreement.

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

3. COMPENSATION. In exchange for the services provided to Buyer as
described and governed herein, SAI shall be paid, on or before the 15th day
of the month following a month in which such services are provided, a
Contract Servicing Fee (herein so called) equal to $20.00 times the aggregate
number of Purchased Contracts serviced by SAI during such prior month. Such
aggregate number of Purchased Contracts shall equal the sum of all Purchased
Contracts less all Purchased Contracts that have been previously paid in full
by their Obligors, and less all Purchased Contracts in which an Obligor
default has occurred and the Servicer has assigned the related Financed
Vehicle for repossession, and less any Purchased Contract that has been
charged off.

Additionally, the Servicer shall be reimbursed by Buyer for any
third-party expenditures with respect to any particular Contract, which
expenditures may, at the option of the Servicer, be paid from the proceeds
from collection or from resale of the repossessed Financed Vehicle relating
to that Contract.

4. REPRESENTATIONS AND WARRANTIES OF THE SERVICER. The Servicer
represents and warrants to Buyer as follows:

(a) ORGANIZATION AND GOOD STANDING. Servicer is a corporation
duly organized, validly existing and in good standing under the laws of
Texas, and has full corporate power, authority and legal right to own its
properties and conduct its business as such properties are presently owned
and such business is presently contemplated, and to execute, deliver and
perform its obligations under this Agreement.

(b) DUE QUALIFICATION. The Servicer is duly qualified and has
registered as a foreign corporation in each state where such qualification is
required in order to perform its obligations pursuant to this Agreement and
has obtained all necessary licenses, approvals or consents as are required
under applicable law to perform its duties hereunder.

(c) DUE AUTHORIZATION. The execution, delivery and performance of
this Agreement has been duly authorized by the Servicer by all necessary
corporate action on the part of the Servicer.

(d) BINDING OBLIGATION. This Agreement constitutes a legal, valid
and binding obligation of the Servicer, enforceable in accordance with its
terms, except as enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws now or
hereinafter in effect which affect the enforcement of creditors' rights in
general, and except as such enforceability may be limited by general
principles of equity (whether considered in a proceeding at law or in
equity).

(e) NO VIOLATION. The execution and delivery of this Agreement by
the Servicer,

<PAGE>

and the performance of the transactions contemplated by this Agreement and
the fulfillment of the terms hereof applicable to the Servicer, will not
conflict with, violate, result in any breach of any of the material terms and
provisions of, or constitute (with or without notice or lapse of time or
both) a default under, any requirement of law applicable to the Servicer or
any indenture, contract, agreement, mortgage, deed of trust or other
installment to which the Servicer is a party or by which it is bound.

5. REPRESENTATIONS AND WARRANTIES OF THE BUYER. The Buyer represents
and warrants to Servicer as follows:

(c) DUE AUTHORIZATION. The execution, delivery and
performance of this Agreement has been duly authorized by the Buyer by all
necessary corporate action on the part of the Buyer.

6. COVENANTS OF THE SERVICER. The Servicer further warrants to and
covenants with Buyer as follows:

(a) COLLECTIONS ACCOUNT. From and after the date hereof until
such time as this

<PAGE>

Agreement terminates, Servicer shall at its own expense, direct all Obligors
on the Purchased Contracts to remit all collections and payments directly to,
or otherwise cause all payments on the Purchased Contracts to be deposited
in, a Collections Account (herein so called) in the name of the Buyer.
Servicer shall direct all Obligors to utilize payment books with remittance
instructions directing all payments to be remitted to the Collections
Account. Servicer agrees that all cash, checks, notes, drafts or other items
which it receives otherwise than through the Collections Account attributable
to the Purchased Contracts, including proceeds from resale of repossessed
Financed Vehicles and recoveries on insurance claims, shall be deposited in
the Collections Account within two business days of receipt. All collections
and payments attributable to the Purchased Contracts shall be transferred
from the Collections Account to the Buyer's operating account on at least a
weekly basis.

(b) OPERATIONS. The Servicer shall collect payments from the
Purchased Contracts in an orderly and efficient manner consistent with good
business practices and in accordance with all applicable federal, state and
local laws and regulations.

(c) RECORDS. So long as Buyer has not given notice of termination
pursuant to Section 2, the Servicer shall (i) hold in trust and safely keep
all Purchased Contract closing documents and such other documents as may be
required for the enforcement of the Purchased Contracts; (ii) keep such
accounts and other records as will enable Buyer to determine the status of
the Purchased Contracts; (iii) keep such books and records at its offices
identified in Section 14 herein; and (iv) permit Buyer and its
representatives at any time to inspect, audit, check and make abstracts from
Servicer's accounts, records, correspondence and other papers pertaining to
the Purchased Contracts. Servicer shall maintain its respective records with
respect to the Purchased Contracts in a manner such that the Servicer can
produce a computer file containing a listing (by Obligor) of all Purchased
Contracts, together with the account balance of such accounts and the payment
history related thereto. The Servicer shall provide Buyer with monthly
reports updating the information relating to account balances and activity
and the amounts collected on the Purchased Contracts during the proceeding
month.

(d) CONTINUATION STATEMENTS. If Buyer so requests, the Servicer
shall execute and file documents which shall create a first priority security
interest in favor of Buyer in Financed Vehicles, including registration of
the Certificates of Title in the name of Buyer, and/or any other documents
requested by Buyer or which may be required by law to preserve and protect
the interest of Buyer in and to the Purchased Contracts.

(e) PRINCIPAL EXECUTIVE OFFICE. The Servicer shall not, without
providing 30 days' notice to Buyer, and without filing such amendments to any
previously filed financing statements as Buyer may require, (i) change the
county where its principal executive office, or the office where the records
relating to the Purchased Contracts are kept, is located, or (ii) change its
name, identity or corporate structure in any manner which would, could or
might make any financing statement or continuation statement filed by Buyer
or the Servicer or any provision hereof seriously misleading within the
meaning of Section 9-402(g) of any applicable enactment of the Texas Uniform
Commercial Code.

<PAGE>

(f) NO IMPAIRMENT. The Servicer will duly fulfill all obligations
on its part to be fulfilled under or in connection with each Purchased
Contract and will do nothing to materially impair the rights of Buyer in the
Purchased Contracts.

(g) COMPLIANCE WITH LAW. The Servicer will comply in all material
respects with all acts, rules, regulations, orders, decrees and directions of
any governmental authority applicable to the Purchased Contracts or any part
thereof; PROVIDED, HOWEVER, that the Servicer may contest any act,
regulation, order, decree or direction in any reasonable manner which shall
not materially and adversely affect the rights of Buyer in the Purchased
Contracts. The Servicer will comply, in all material respects, with any
obligation of a holder of a Purchased Contract to the Obligor thereof arising
under such Purchased Contract or under applicable law.

7. MAINTENANCE OF INTERNAL CONTROL AND PROCEDURES. Servicer shall, at
all times during the term of this Agreement, follow internal control
procedures consistent with loan servicing industry standards and, at the
request of Buyer, will supply same in written form for review purposes.

8. COMPUTER. Servicer shall, at all times during the term of this
Agreement, utilize in the operation of its business the industry standard
computer software and contract information maintenance system.

9. SERVICER EVENTS OF DEFAULT. The occurrence and continuation of any
one of the following events shall be a "Servicer Event of Default" under this
Agreement:

(a) Failure on the part of the Servicer to remit collections on
the Purchased Contracts to the Collections Account or the Buyer's operating
account when due in accordance with Section 6(a) and continuance of such
failure for five business days. For purposes of this Agreement, "business
day" shall mean any day other than a Saturday, Sunday or legal holiday; or

(b) An involuntary case is commenced or filed against the Servicer
under the federal bankruptcy laws, as now or hereafter in effect, or any
other present or future federal or state bankruptcy, insolvency or similar
law, or for the appointment of a receiver, liquidator, assignee, trustee,
custodian, sequestrator or other similar official of the Servicer or of any
substantial part of its property, or for the winding up of the affairs of,
liquidation, dissolution, or reorganization of the Servicer and the
continuance of such case or filing unstayed for a period of 30 consecutive
days; or

<PAGE>

(c) An order for relief shall be entered in a case under title 11
of the United States Code in which the Servicer is a debtor, or the
commencement by the Servicer of a voluntary case under the federal bankruptcy
laws, as now or hereafter in effect, or any other present or future federal
or state bankruptcy, insolvency or similar law, or the consent by the
Servicer to the appointment of or taking possession by a receiver,
liquidator, assignee, trustee, custodian, sequestrator or other similar
official of the Servicer or of any substantial part of its property or the
making by the Servicer of an assignment for the benefit of creditors.

(d) Failure by Servicer to service and collect amounts due from
Obligors under Purchased Contracts in accordance with the servicing criteria
described in EXHIBIT A attached hereto, and the continuance of such failure
for 30 days after written notice by Buyer of such failure.

10. REMEDIES. If a Servicer Event of Default shall have occurred and
be continuing, Buyer may, by notice given in writing to the Servicer,
immediately terminate all of the rights and obligations of the Servicer under
this Agreement. Notwithstanding any termination of the rights and
obligations of the Servicer, the Servicer shall remain responsible for any
acts or omissions to act by it as Servicer prior to such termination. In the
event of such termination:

(a) Buyer is hereby authorized and empowered (upon the failure of
the Servicer to cooperate) to execute and deliver, on behalf of the Servicer
as attorney-in-fact or otherwise, all documents and other instruments upon
the failure of the Servicer to execute or deliver such documents or
instruments, and to do and accomplish all other acts or things necessary or
appropriate to effect the purposes of a transfer of servicing rights to a
successor servicer;

(b) The Servicer agrees to cooperate with Buyer and any successor
servicer in effecting the termination of the responsibilities and rights of
the Servicer to conduct servicing hereunder, including, without limitation,
the transfer to such successor servicer of all authority of the Servicer to
service the Purchased Contracts provided for under this Agreement, including,
without limitation, all authority over all collections which shall on the
date of transfer be held by the Servicer for deposit or which shall
thereafter be received with respect to the Purchase Contracts; and

(c) The Servicer shall promptly transfer its records relating to
the Purchased Contracts to a successor servicer in such form as such
successor servicer may reasonably request and shall promptly transfer to such
successor servicer all other records, correspondence and documents necessary
for the continued servicing of the Purchased Contracts in the manner and at
such times as the successor servicer shall reasonably request. To the extent
that compliance with this Section shall require the Servicer to disclose to
such successor servicer information of any kind which the Servicer reasonably
deems to be confidential, such successor servicer shall be required to enter
into such customary licensing and confidentiality agreements as the Servicer
shall deem necessary to protect its interest.

11. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successor and
assigns. The Servicer may contract with others for the performance of any or
all of its obligations arising hereunder but no such contract

<PAGE>

shall relieve Servicer from liability for its performance hereunder.

12. BUYER EVENT OF DEFAULT; SERVICER'S REMEDIES. In the event that
Buyer should fail to pay any fees or compensation due under this Agreement,
within ten (10) days of the date they are due or are submitted for payment,
whichever is less, or shall fail to perform any of its duties or to observe
or perform any other term, covenant, condition or agreement provided within
this Agreement, said failure shall constitute an event of default by the
Buyer. In the event of such default, Servicer shall have the option of
immediately terminating this Agreement by written notice to Buyer in addition
to all remedies available in equity or law.

13. MODIFICATIONS AND WAIVERS. No delay on the part of any party in
exercising any right, power or privilege hereunder shall operate as a waiver
thereof, nor shall any waiver of any right, power or privilege hereunder
operate as a waiver of any other right, power or privilege hereunder, nor
shall any single or partial exercise of any right, power or privilege
hereunder preclude any other or further exercise thereof, or the exercise of
any other right, power or privilege hereunder. All rights and remedies
herein provided are cumulative and are not exclusive of any rights or
remedies which the parties hereto may otherwise have at law or in equity. No
waiver shall be valid in the absence of the written and signed consent of the
party against which enforcement of such is sought.

14. NOTICE. Except as otherwise specifically provided herein, any
notice hereunder shall be in writing (including telecopy communication) and,
if mailed, shall be deemed to be given when sent by registered or certified
mail, postage prepaid or if telecopied when transmitted, or otherwise when
delivered in person to the addressee and a receipt given therefor, in all
such instances addressed to the respective parties as follows:

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

To Buyer: Sovereign Credit Finance II, Inc.
4015 Beltline Road
Building B
Dallas, Texas 75244
Attn: A. Starke Taylor, III, President

or at such other address as the addressee may, by written notice received by
the other party hereto, designate as the appropriate address for purposes of
notice hereunder.

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

16. CHOICE OF LAW. THIS AGREEMENT AND THE VALIDITY AND

<PAGE>

ENFORCEMENT HEREOF, SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
SUBSTANTIVE LAWS OF THE STATE OF TEXAS.

17. SEVERABILITY. If any provision of this Agreement is held to be
illegal, invalid or unenforceable under present or future laws effective
during the term of this Agreement, the legality, validity and enforceability
of the remaining provisions of this Agreement shall not be affected thereby,
and in lieu of each such illegal, invalid or unenforceable provision there
shall be added automatically as a part of this Agreement a provision as
similar in terms to such illegal, invalid or unenforceable provision as may
be possible and be legal, valid and enforceable.

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

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

20. SURVIVAL. All covenants, agreements, undertakings, indemnities,
representations and warranties made herein shall survive both the execution
and the termination hereof and shall not be affected by any investigation
made by any party.

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

BUYER:

SOVEREIGN CREDIT FINANCE II, INC.

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

SERVICER:

SOVEREIGN ASSOCIATES, INC.

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

<PAGE>

SERVICING AGREEMENT

EXHIBIT A

SERVICING CRITERIA

At all times during the term of the Servicing Agreement as set forth
in Section 2 therein, Servicer shall, in addition to its other duties under
the Servicing Agreement, observe the following covenants and criteria
(referred to as the "servicing criteria):

I. COLLECTION POLICY

1. All Obligors under related Contracts will be issued a preprinted
payment book or other\remittance advice or instructions which will
specifically request that all payments be made to the Buyer's Collections
Account lockbox.

2. Servicer shall contact any Obligor on a past due Contract within
ten days after the payment due date for the purpose of pursuing collection
and shall adequately update all credit and collection file records with
respect to such activities.

3. Any material extensions or modifications of Contracts, or
acceptances of partial payments of Obligors, and any related necessary
Contract amendments and/or default waivers by Servicer, shall be approved by
the chief credit officer or president of Servicer, and all necessary third
party charges and explanations relating thereto shall be documented in the
collection file records.

II. FORECLOSURE/REPOSSESSION POLICY

1. Servicer shall define as delinquent and pursue repossession action,
subject to compliance with all state and federal laws relating thereto,
against the Financed Vehicle underlying any Contract whose Obligor (i) is
three payments past due in the case of Contracts requiring biweekly or
semi-monthly payments, and has failed for 30 days to remit any sums against
payment obligations under the respective Contract, or (ii) is two payments
past due in the case of Contracts requiring monthly payments, and has failed
for 60 days to remit any sums against payment obligations under the
respective Contract. Nothing contained in this Section shall be construed to
limit Servicer from pursuing repossession or any other collection technique,
subject to related state and federal laws, sooner than the time contemplated
above if Servicer in its discretion deems such activity to be prudent and in
the best interests of Servicer or Buyer.

2. For each chargeoff of any material unpaid amount from an Obligor
under any Contract, Servicer shall document the reasons for such chargeoff
and shall maintain all third-party related documentation for such chargeoff.

A-2

<PAGE>

FORM OF SUBSCRIPTION ESCROW AGREEMENT

THIS AGREEMENT made effective on January 31, 1998 by and between
Sovereign Credit Finance II, Inc., a Texas corporation (the "Company") and
Overton Bank and Trust, N.A. ("Agent").

WHEREAS, the Company is offering for subscription, up to $10,000,000 in
principal amount of its 11% Notes due February 15, 2002 (the "Notes") on the
terms and conditions set forth in the Prospectus (the "Prospectus") filed
with the Securities and Exchange Commission in connection with the Company's
Form SB-2 Registration Statement, File No. 333-_________; and

WHEREAS, the Company appoints the Agent to perform the services of
depository and escrow agent pursuant to the terms and conditions of this
Agreement with respect to subscriptions to the Company made by prospective
purchasers of the Notes (the "Investors");

NOW, THEREFORE, the parties hereto agree as follows:

1. Investor checks shall be delivered and made payable to Agent until
the earlier of (i) the date that Agent receives Investor checks aggregating
at least $500,000 (the "Minimum Subscription"), or (ii) April 30, 1998 (the
"Subscription Cut-off Date"). Participating Broker/Dealers shall transmit
Investor checks and subscription agreements to the Company by noon of the
next business day following receipt by the Broker/Dealer. The Company will
then promptly forward to Agent the Investor check together with a statement
identifying such Investor by name, address and Federal tax identification
number, and Agent shall deposit all subscription checks and other payments
for the Notes by Investors which it receives into an escrow account
maintained by Agent (the "Escrow Fund").

2. The Company reserves the right to reject any subscription. The
Company shall promptly refund the subscription amount which has been rejected
to the Investor unless the subscription amount is on deposit with Agent, in
which case Agent, upon written direction of the Company, shall make such
refund with interest, if any, as soon as Agent has collected funds on such
Investor's check.

3. Prior to the close of business on the Subscription Cut-Off Date,
Agent shall verify with the Company whether or not subscriptions for the
Minimum Subscription have been received.

4. If the Minimum Subscription has been received by Agent prior to the
close of business on the Subscription Cut-Off Date, the Company shall advise
Agent in writing that the subscription was successful. Agent shall then and
thereafter remit collected funds together with any interest earned thereon to
the Company at the Company's request and in the Company's sole discretion.
Amounts received by Agent in forms other than cash shall be available for
transfer to the Company or to the Investor, as the case may be, once Agent
has collected funds.

5. If Agent has not received (i) Investor checks or other payments
evidencing the subscription of at least the Minimum Subscription prior to the
close of business on the Subscription Cut-Off Date, AND (ii) within a
reasonable time after the Subscription Cut-Off Date, written advice from the
Company as required by Paragraph 4 above concerning the success of the
subscription, all

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subscriptions and amounts paid in respect thereto shall be promptly returned
to the Investors together with any interest which has been earned thereon.

6. Agent shall have no authority or obligation to exercise discretion
as to the investment of the Escrow Fund, but will invest and reinvest the
Escrow Fund in short term debt obligations issued or guaranteed by, and
bearing the full faith and credit as to the repayment of full principal and
interest of, the United States of America, or will deposit the Escrow Fund in
any time or savings deposit of the Agent, not to exceed $100,000 at any one
institution, of any federally insured bank chartered and supervised by the
United States of America and holding FDIC (or its successor) insurance. The
subscription payments will be invested three business days after presentation
of such payments to the Agent.

7. Agent shall be under no duty or responsibility to enforce
collection of any checks delivered to Agent hereunder. Agent shall promptly
notify and return to the Company any check or instrument received from the
Company or Investor upon which payment is refused, together with the related
documents which were delivered to Agent. If any check or instrument
delivered to Agent under this Agreement is uncollectible, Agent shall notify
the Company and shall deliver the returned check or instrument to the Company.

8. Agent shall provide all administrative and reporting services
contemplated by this Agreement to effect the purpose stated herein.

9. Agent is not a party to, nor is it bound by, any agreement out of
which this Agreement may arise including, but not limited to, the Prospectus.
Agent is not charged with notice of the existence of any agreement out of
which this Agreement may arise other than the Prospectus.

10. The Agent may resign, for any reason, upon ten (10) days written
notice to the parties to this Agreement. Upon expiration of such ten (10)
days notice period (or as soon as practicable with respect to funds that are
not collected funds at the expiration of such period), the Agent shall
deliver all cash or property in its possession under this Agreement to any
successor Agent appointed by the Company, or if no successor Agent has been
appointed, to any court of competent jurisdiction in Dallas County, Texas.
Upon either such delivery, Agent shall be released from any and all liability
under this Agreement.

11. Agent may act upon any notice, request, certificate, approval,
consent or other paper believed by it to be genuine and to be signed by the
proper party or parties. Agent shall not be required to take any action (or
refrain from taking any action) if, in the reasonable opinion of Agent, such
action (or inaction) could expose Agent to a risk of incurring costs,
expenses or liabilities against which Agent has not, in its reasonable
opinion, received adequate indemnity and security.

12. The Agent shall be entitled to compensation from the Company for
acting hereunder in accordance with the fee schedule attached as EXHIBIT A
hereto. Agent fees will be paid by the Company to the Agent in accordance
with the attached fee schedule. The Agent shall also be entitled to
reimbursement of out-of-pocket expenses incurred in connection with the
performance

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of its services as Agent, including reasonable fees and disbursements of
legal counsel. The Agent shall be entitled to payment of its fees and
reimbursement of its expenses out of the Escrow Fund and the rights of
Investors and Company shall be subordinate to the right of Agent to receive
such payments hereunder in the event that the funds in the Escrow Fund are
insufficient to satisfy such payments to the Agent.

13. Agent and its affiliates shall not be liable, responsible, or
accountable for damages or otherwise to the Company or any Broker/Dealer for
any act or omission under the provisions of this Agreement, unless such act
or omission constitutes gross negligence, willful misconduct, or fraud on
behalf of the Agent.

14. The Agent, its affiliates, and each of its officers, directors,
employees, agents and attorneys (collectively, the "Indemnified Parties")
shall be indemnified against and be held harmless by the Company from any and
all losses, costs, damages, expenses, claims and attorney's fees suffered or
incurred by the Indemnified Parties as a result of, in connection with or
arising from, or out of, but not limited to, the acts or omissions of any
Indemnified Party in performance of or pursuant to this Agreement, except
such acts or omissions as may result from such Indemnified Party's willful
misconduct, gross negligence or fraud.

15. The Agent shall not be responsible for the sufficiency or accuracy,
or the form, execution, validity or genuineness, of documents or securities
now or hereafter deposited or received hereunder, or of any endorsement
thereon, or for any lack of endorsement thereon, or for any description
therein, nor shall it be responsible or liable in any respect on account of
the identity, authority or rights of any person executing, depositing or
delivering or purporting to execute, deposit or deliver any such document,
security or endorsement or this Agreement, or on account of or by reason of
forgeries, false representations, or the exercise of its discretion in any
particular manner, nor shall the Agent be liable for any mistake of fact or
of law or any error of judgment, or for any act or omission, except as a
result of its gross negligence or willful malfeasance. The Agent's liability
for any grossly negligent performance or non-performance shall not exceed its
fees and charges in connection with the services provided hereunder. Under
no circumstances shall Agent be liable for any general or consequential
damages or damages caused, in whole or in part, by the action or inaction of
the Company or any of its agents or employees. Agent shall not be liable for
any damage, loss, liability or delay caused by accidents, strikes, fire,
flood, war, riot, equipment breakdown, electrical or mechanical failure, acts
of God or any cause which is reasonably unavailable or beyond its reasonable
control.

16. In the event of any disagreement involving a party to this
Agreement resulting in adverse claims or demands being made in connection
with the subject matter of this Agreement, or in the event that the Agent is
in doubt as to what action it should take hereunder, the Agent may, at its
option, refuse to comply with any claims or demands on it, or refuse to take
any other action hereunder so long as such disagreement continues or such
doubt exists, and in any such event, the Agent shall not be or become liable
in any way or to any person for its failure or refusal to act, and the Agent
shall be entitled to continue to refrain from acting until (i) the rights of
all parties have been fully and finally adjudicated by a court of competent
jurisdiction or (ii) all differences shall

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have been adjudged and all doubt resolved by agreement among all of the
interested persons, and the Agent shall have been notified thereof in writing
signed by all such persons. In addition to the foregoing remedies, the Agent
is hereby authorized in the event of any doubt as to the course of action it
should take under this Agreement, to petition the District Court of Dallas
County, Texas, for instructions or to interplead the funds or assets so held
into such court. The parties agree to the jurisdiction of said court over
their persons as well as all amounts on deposit in the Escrow Fund. In the
event of any dispute and/or any litigation concerning the subject matter of
the Agreement (including any litigation incident to the resignation of
Agent), Agent shall be entitled to retain counsel of its choice and Company
shall indemnify, defend and hold harmless Agent of and from any and all
costs, loss, damage and exposure associated with such dispute and/or
litigation, including all reasonable and necessary attorney's fees of Agent
incurred in connection with such dispute and/or litigation. Parties hereto
agree that Agent shall be entitled to recover such cost, loss, damages or
expense (including attorney fees) directly from the funds on deposit with
Agent or interplead with a court (as permitted under this Agreement) without
prejudice to Agent's further right of recovery against any party hereto in
the event such funds shall be insufficient to fully reimburse Agent. This
provision shall survive the resignation of Agent.

17. Each party to this Agreement shall be deemed conclusively to have
given and delivered any notice, request or instruction required to be given
or delivered hereunder if the same is in writing, signed by such party and
mailed by first class mail, postage prepaid, addressed to the other party
hereto, at the address set forth below; provided, however, that the
verification required of Agent by Paragraph 3 above, shall be given orally
(by telephone or in person) by contacting the officer of the Company
executing this Agreement on behalf of the Company at (214) 960-0196, and then
confirmed in writing if the Company so requests. Any written notices
required by this Agreement shall be addressed as follows:

If to Agent: Overton Bank and Trust, N.A.
Attention: Trust Division
8201 Preston
Dallas, Texas 75225

If to Company: Sovereign Credit Finance II, Inc.
4015 Beltline Road, Building B
Dallas, TX 75244
Attn: A. Starke Taylor, III, President

18. This Agreement expressly and exclusively sets forth the duties of
Agent with respect to any and all matters pertinent hereto and no implied
duties or obligations shall be read into this Agreement against Agent.

19. Unless and until the Escrow Fund is delivered to the Company under
Paragraph 4, it is specifically recognized and agreed that the Company shall
not have any right, title or interest in such funds; it being the intention
of the parties hereto that the Escrow Fund shall not be subject to claims
against the Company or any of its affiliates unless and until the Minimum
Subscriptions

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are achieved and delivery of the funds thereof is made, as aforesaid, and the
escrow account hereunder is ended.

20. THIS ESCROW AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS, EXCEPT THAT THE PORTIONS OF
THE TEXAS TRUST CODE, SECTION 111.001, ET SEQ. OF THE PROPERTY CODE, V.A.T.S.
CONCERNING FIDUCIARY DUTIES AND LIABILITIES OF TRUSTEE SHALL NOT APPLY TO
THIS AGREEMENT. THE PARTIES EXPRESSLY WAIVE SUCH DUTIES AND LIABILITIES, IT
BEING THEIR INTENT TO CREATE SOLELY AN AGENCY RELATIONSHIP AND HOLD AGENT
LIABLE ONLY IN THE EVENT OF ITS GROSS NEGLIGENCE, WILLFUL MISCONDUCT OR IN
ORDER TO OBTAIN THE LOWER FEE SCHEDULE RATES AS SPECIFICALLY NEGOTIATED WITH
AGENT. ANY LITIGATION CONCERNING THE SUBJECT MATTER OF THIS AGREEMENT SHALL
BE EXCLUSIVELY PROSECUTED IN THE COURTS OF DALLAS COUNTY, TEXAS, AND ALL
PARTIES CONSENT TO THE EXCLUSIVE JURISDICTION AND VENUE OF THOSE COURTS.
This Agreement shall inure to and be binding upon the parties hereto, their
successors and assigns. The terms of this Agreement shall commence with the
date hereof and shall continue until the offering of the Minimum
Subscriptions is achieved or fails to be achieved by the Subscription Cut-Off
Date, and the Escrow Fund is disposed of under Paragraphs 4 or 5. All
protections and indemnities benefitting Agent (and any other Indemnified
Party) are cumulative of any other rights it (or they) may have by law or
otherwise, and shall survive the termination of this Agreement or the
resignation or removal of the Agent.

21. Except as otherwise required by law, neither Agent nor any
successor Agent shall be required to obtain or post a bond or any other
security in connection with the performance of its services hereunder.

22. No amendment to this Agreement shall be binding unless such
amendment is in writing and signed by the Agent or any successor Agent and
the Company.

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered by duly authorized representatives as of the date
first above written.

COMPANY:

SOVEREIGN CREDIT FINANCE II, INC.

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

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AGENT:

OVERTON BANK AND TRUST, N.A.

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

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EXHIBIT A

FEE SCHEDULE

ACCEPTANCE FEE. All legal instruments will be reviewed by counsel for the
Overton Bank and Trust, N.A. prior to account acceptance. All legal expenses
incurred in this review and during the period of escrow will be borne by the
parties in interest.

SUBSCRIPTION ESCROW. Receiving deposits from two or more investors or
subscribers, providing investor recordkeeping, investment of funds as
directed, and disbursement of funds on initial closing; there is a $5,000
minimum per year or for any portion of a year.

Up to $10,000,000 in aggregate deposits .060%
Next $20,000,000 in aggregate deposits .040%
Next $20,000,000 in aggregate deposits .010%
Next $20,000,000 in aggregate deposits .009%
Balance of deposits .006%

Minimum annual fee: $5,000 for any portion of the year

IN CASE OF RETURN OF SUBSCRIPTION FUNDS TO INVESTORS:

Allocation of interest, disbursements, 1099
reporting relating to return of
subscription funds $7 per participant

NOTE: This fee structure is limited to 500 participants; an additional
charge of $1.00 per participant will apply if the aggregate escrow
exceeds 500 participants.

TRANSACTION CHARGES. Normal transactions including book entries, cash
receipts and disbursements, and wire transfers will be done at no charge.
Foreign securities will be assessed transaction fees as incurred.

INSTALLATION CHARGES. Software installation in connection with on-line
services will be done for an initial set up fee of $250.00 and will include
four hours of user training. Installation and training at Company's offices
will be billed based on an hourly rate of $35 per hour.

ON-LINE ACCESS CHARGES. For accounts with on-line access capability, a time
usage fee will be assessed at the per minute rate currently in effect.

EXTRAORDINARY SERVICES AND OUT-OF-POCKET EXPENSES. For services which cannot
be presently anticipated but which may be necessary or desirable, a
reasonable fee will be charged based on nature of the work, time involved,
and responsibility involved.

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$10,000,000

SOVEREIGN CREDIT FINANCE II, INC., Company

11% NOTES DUE FEBRUARY 15, 2002

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

BROKER-DEALER SELLING AGREEMENT

,
--------------

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

Dear Sirs:

Sovereign Credit Finance II, Inc., a Texas corporation (the
"Company"), has duly authorized the issuance of $10,000,000 aggregate
principal amount of its 11% Notes due February 15, 2002 (the "Notes"). The
Notes are to be issued pursuant to an Indenture (the "Indenture") dated as of
January 31, 1998, 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, 1998 (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, 1998 (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")

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

(b) To be effective and binding on the Company, any Subscription
Agreement submitted by a Purchaser must be accepted by the Company. The
Subscription Agreement may be executed on the Purchaser's behalf by the
Purchaser's registered representative, in which event the registered
representative must confirm the accuracy, completeness and binding effect of
the information, representations, warranties and agreements set forth in the
Subscription Agreement with respect to the Purchaser. The Company reserves
the right to reject subscriptions from any Purchasers for any reason;
provided, however, the Company shall have no right to reject subscriptions
and later accept new subscriptions directly from the same Purchasers in order
to circumvent any payment of fee to the Broker-Dealer. With respect to any
outstanding, unaccepted Subscription Agreements on or about the Offering
Termination Date, the Company may limit the principal amount of the Notes to
be purchased under such Subscription Agreements to the extent necessary to
limit the aggregate principal amount of the Notes to be sold by the Company
in the offering to $10,000,000. 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 $10,000,000 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 SB-2 (No. 333-________) 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

2
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(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 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

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Agreement, the Servicing Agreement, the Indenture, the Notes, and the
Subscription Escrow Agreement dated as of January 31, 1998 (the "Escrow
Agreement") by and between the Company and Overton Bank and Trust, N.A..

(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

4
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have been examined by Belew Averitt LLP, who are independent public
accountants within the meaning of the Act and the Rules and Regulations, as
indicated in their reports filed therewith.

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

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

(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.

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(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 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.

6
<PAGE>

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.

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

7
<PAGE>

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,

8
<PAGE>

that the Broker-Dealer shall be responsible for and shall pay any attorneys'
fees and any expenses incurred in investigating, preparing or defending
against any litigation, commenced or threatened, or any claim whatsoever
resulting from or based upon the gross negligence or willful conduct of the
Broker-Dealer) and (B) the Company will not be liable for any indemnification
obligation pursuant to clause (ii) of this Section 7(a) to the extent but
only to the extent that any such loss, liability, claim, damage or expense
arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission made in the Registration Statement
or the Prospectus or any Preliminary Prospectus, or any such amendment or
supplement thereto, or any Blue Sky Application, in reliance upon and in
conformity with written information furnished to the Company by the
Broker-Dealer expressly for use therein and such indemnity with respect to
any Preliminary Prospectus shall not inure to the benefit of the
Broker-Dealer or any person controlling the Broker-Dealer from whom the
person asserting any such loss, claim, damage or liability purchased the
Notes which are the subject thereof if such person did not receive a copy of
the Prospectus (or, in the event it is amended or supplemented, such
Prospectus as amended or supplemented) at or prior to the confirmation of the
sale of such Note to such person and the untrue statement or omission of a
material fact contained in any Preliminary Prospectus was corrected in the
Prospectus (or the Prospectus as amended or supplemented). 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

9
<PAGE>

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 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

10
<PAGE>

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, Overton Bank and Trust, N.A. (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

11
<PAGE>

with the Subscription Agreement directly to the Company. The Company shall be
responsible for depositing Purchaser funds received by it by noon of the
business day following its receipt thereof.

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

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

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

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

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

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,

12
<PAGE>

SOVEREIGN CREDIT FINANCE II, INC.

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

Accepted as of the date first above written:

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

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

<PAGE>

SOVEREIGN CREDIT FINANCE II, INC. SUBSCRIPTION
11% AUTOMOBILE CONTRACT NOTES DUE FEBRUARY 15, 2002

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

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

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

Amount Subscribed Check here if Subscriber
$4,000 min. purchase has previously subscribed
($2,000 for IRA's) in THIS offering
- ------------------ ----------------

$ Yes / / No / /
-----------------------

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

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

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

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

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

Residence Address:

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

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

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

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

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

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

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

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

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

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

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

3. REGISTERED REPRESENTATIVE STATEMENT - I hereby represent on recommending
the purchase of 11% Automobile Contract Notes Due February 15, 2002 that I,
the Registered Representative, have responsible grounds to believe that the
investment is suitable for the subscriber based upon information available to
me as conveyed by the subscriber or his/her agent.

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

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

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

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

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

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

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

5. SIGNATURES

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

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

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

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

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

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

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

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

6. BROKER-DEALER INFORMATION

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

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

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

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

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

FOR USE OF SOVEREIGN CREDIT FINANCE II, INC.

Amount: $ Acceptance Date:
----------------------- -----------------------------
<PAGE>

SUBSCRIPTION AGREEMENT

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

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

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

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

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

5. SUITABILITY. If an Arizona, Arkansas, Missouri, New Mexico, Oklahoma,
Texas, or Wisconsin subscriber, the subscriber represents that he/she/it has
either (a) an annual gross income of at least $45,000 and a net worth of at
least $45,000 exclusive of the subscriber's principal residence and its
furnishings and personal use automobiles; or (b) a net worth of at least
$150,000, exclusive of the subscriber's principal residence and its
furnishings and personal use automobiles. If a California, Iowa, Michigan,
or North Carolina subscriber, the subscriber represents that he/she/it has
either (a) an annual gross income of at least $60,000 and a net worth of at
least $60,000 exclusive of the subscriber's principal residence and its
furnishings and personal use automobiles; or (b) a net worth of at least
$225,000, exclusive of the subscriber's principal residence and its
furnishings and personal use automobiles. If an Indiana subscriber, the
subscriber represents that he/she/it has 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. If a subscriber is a fiduciary account, the subscriber
represents that the foregoing standards are met by the beneficiary, the
fiduciary account, or by the donor or grantor who directly or indirectly
supplies the funds to purchase the securities if the donor or grantor is the
fiduciary.

The capitalized terms used have the meanings assigned to them in the
Prospectus unless the context otherwise requires.

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

SUBSCRIPTION INSTRUCTIONS

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

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

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

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

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

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

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

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

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

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

<PAGE>

PROMISSORY NOTE

$250,000.00 January 31,
1998

AS HEREINAFTER STATED, for value received, the undersigned, as Maker,
hereby promises to pay on demand to Sovereign Credit Finance II, Inc., as
Holder, at 4015 Beltline Road, Building B, Dallas, Texas 75244, or such
other place in the State of Texas as Holder may hereafter designate in
writing, the entire principal sum of $250,000.00, together with interest at
the rate of 10% per annum.

If at any time fulfillment of any provision hereof shall involve
transcending the limit of validity prescribed by law, then IPSO FACTO, the
obligation to be fulfilled shall be reduced to the limit of such validity and
if the Holder shall ever receive as interest or otherwise an amount which
would exceed the highest lawful rate, any excessive amount shall be used to
reduce the principal.

If this Note is placed in an attorney's hands for collection, or
collected by a suit or through a bankruptcy, or probate, or any other court
or proceeding, either before or after maturity, then in any of said events,
the Holder hereof shall have the right to recover all attorney's fees,
litigation expenses, and collection costs, necessary to recover the sums owed
hereunder.

The Maker of this Note waives all demand, presentment, notice of
dishonor, diligence in collection, notice of protest, and notice of
acceleration, and agrees to all extensions and partial payments before or
after maturity without prejudice to Holder.

No delay or omission on the part of the holder in exercising any right
under this Note shall operate as a waiver of such right or of any other right
under this Note. A waiver on any one occasion shall not be construed as a
bar to or waiver of any right or remedy on any future occasion.

"Maker":

SOVEREIGN CREDIT CORPORATION

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

<PAGE>

Belew Averitt LLP
Certified Public Accountants
and Consultants
A member of Horwath International

2020 Plaza of the Americas North
Dallas, Texas 75201-2867

Tel: 214-969-7007 - Fax: 214-953-0722

CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

We consent to the inclusion in this registration statement on Form SB-2 of
our report dated October 9, 1997, on our audit of the financial statements of
Sovereign Credit Finance II, Inc. as of October 9, 1997. We also consent to
the reference to our firm in the prospectus.

/s/ Belew Averitt LLP
---------------------------------
Belew Averitt LLP

Dallas, Texas
November 14, 1997

<PAGE>

Securities Act of 1933 File No. 333-__________

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

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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

FORM T-1

STATEMENT OF ELIGIBILITY UNDER THE TRUST INDENTURE ACT OF 1939 OF A CORPORATION
DESIGNATED TO ACT AS TRUSTEE

CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A TRUSTEE
PURSUANT TO SECTION 305(b)(2) [X]

STERLING TRUST COMPANY
(Exact name of trustee as specified in its charter)

TEXAS
(Jurisdiction of incorporation or organization if not a U.S. national bank)

76-0115756
(I.R.S. Employer Identification Number)

7901 FISH POND ROAD, WACO, TEXAS
(Address of principal executive offices)

76710
(Zip code)

PAUL E. SKRETNY, CEO
7901 FISH POND ROAD
WACO, TEXAS 76710
(254) 751-1505
(Name, address and telephone number of agent for service)

SOVEREIGN CREDIT FINANCE II, INC.
(Exact name of obligor as specified in its charter)

TEXAS
(State or other jurisdiction of incorporation or organization)

75-2728381
(I.R.S. Employer Identification Number)

4015 BELTLINE ROAD, BUILDING B, DALLAS, TEXAS
(Address of principal executive offices)

75244
(Zip code)

11% NOTES DUE FEBRUARY 15, 2002
(Title of indenture securities)

The application relates to all of the securities registered pursuant to the
delayed offering registration statement.

<PAGE>

ITEM 1. GENERAL INFORMATION

(a) Sterling Trust Company (the Trustee ) is subject to the examining
or supervisory authority of the following authorities:

Texas Department of Banking

(b) The Trustee is authorized to exercise corporate trust powers.

ITEM 2. AFFILIATIONS WITH THE OBLIGOR.

Sovereign Credit Finance II, Inc. (the "Obligor"), is not affiliated with the
Trustee.

ITEM 3. VOTING SECURITIES OF THE TRUSTEE.

As of October 15, 1997, the Trustee has no outstanding voting securities.

ITEM 4. TRUSTEESHIPS UNDER OTHER INDENTURES.

The Trustee is not a trustee under any other indenture under which any other
securities, or certificates of interest or participation in any other
securities, of the Obligor are outstanding.

ITEM 5. INTERLOCKING DIRECTORATES AND SIMILAR RELATIONSHIPS WITH THE OBLIGOR
OR UNDERWRITERS.

Neither the Trustee, nor any of the directors or executive officers of the
Trustee is a director, officer, partner, employee, appointee, or
representative of the Obligor or of any underwriter for the Obligor.

ITEM 6. VOTING SECURITIES OF THE TRUSTEE OWNED BY THE OBLIGOR OR ITS
OFFICIALS.

As of October 15, 1997, neither the Obligor, nor any of its directors,
partners or executive officers beneficially owned any voting securities of
the Trustee.

ITEM 7. VOTING SECURITIES OF THE TRUSTEE OWNED BY THE UNDERWRITERS OR THEIR
OFFICIALS.

As of October 15, 1997, no underwriter for the Obligor, nor any director,
partner or executive officer of any such underwriter, beneficially owned any
voting securities of the Trustee.

ITEM 8. SECURITIES OF THE OBLIGOR OWNED OR HELD BY THE TRUSTEE.

As of October 15, 1997, the Trustee did not beneficially own any securities
of the Obligor, nor did the Trustee hold any such securities as collateral
security for obligations in default.

ITEM 9. SECURITIES OF THE UNDERWRITERS OWNED OR HELD BY THE TRUSTEE.

As of October 15, 1997, the Trustee did not beneficially own any securities
of any underwriter for the Obligor, nor did the Trustee hold any such
securities as collateral security for obligations in default.

ITEM 10. OWNERSHIP OR HOLDINGS BY THE TRUSTEE OF VOTING SECURITIES OF
CERTAIN AFFILIATES OR SECURITY HOLDERS OF THE OBLIGOR.

As of October 15, 1997, the Trustee did not beneficially own or hold as
collateral security for any obligations in default any voting securities of
any person who, to the Trustee's knowledge, (l) owned 10% or more of the
voting securities of the Obligor, or (2) is an affiliate, other than a
subsidiary, of the Obligor.

<PAGE>

ITEM 11. OWNERSHIP OR HOLDINGS BY THE TRUSTEE OF ANY SECURITIES OF A PERSON
OWNING 50 PERCENT OR MORE OF THE VOTING SECURITIES OF THE OBLIGOR.

As of October 15, 1997, the Trustee did not beneficially own or hold as
collateral security for any obligations in default any securities of any
person, who to the trustee's knowledge, owned 50% or more of the voting
securities of the Obligor.

ITEM 12. INDEBTEDNESS OF THE OBLIGOR TO THE TRUSTEE.

As of October 15, 1997, the Obligor was not indebted to the Trustee.

ITEM 13. DEFAULTS BY THE OBLIGOR.

(a) There has been no default with respect to the securities under this
indenture.

(b) The Trustee is not a trustee under another indenture under which any
other securities, or certificates of interest or participation in any
other securities, of the Obligor are outstanding, nor a trustee for
more than one outstanding series of securities under the indenture.

ITEM 14. AFFILIATIONS WITH THE UNDERWRITERS.

No underwriter of the Obligor is an affiliate of the Trustee.

ITEM 15. FOREIGN TRUSTEE.

This item is not applicable.

ITEM 16. LIST OF EXHIBITS.

16.1 Articles of Association of Sterling Trust Company.

16.2 Certificate of Authority of Sterling Trust Company to commence
business.

16.3 Authorization of Sterling Trust Company to exercise corporate trust
powers.

16.4 By-Laws of Sterling Trust Company.

16.5 Not applicable.

16.6 Consent of Trustee.

16.7 Latest Report of Condition of Sterling Trust Company.

16.8 Not applicable.

16.9 Not applicable.

<PAGE>

SIGNATURE

Pursuant to the requirements of the Trust Indenture Act of 1939, the Trustee,
Sterling Trust Company, a corporation organized and existing under the laws
of the State of Texas, has duly caused this statement of eligibility to be
signed on its behalf by the undersigned, thereunto duly authorized, all in
the city of Waco, and State of Texas, on the 3rd day of November, 1997.

STERLING TRUST COMPANY
(Trustee)

By: /s/ Paul E. Skretny
------------------------------------
Paul E. Skretny
Chief Executive Officer

<PAGE>

NOTE

The answers to this statement insofar as such answers relate to what persons
have been underwriters for any securities of the obligor within three years
prior to the date of filing this statement, or what persons are owners of 10%
or more of the voting securities of the obligor, or affiliates, are based
upon information furnished to the Trustee by the obligor. While the Trustee
has no reason to doubt the accuracy of any such information, it cannot accept
any responsibility therefor.

SIGNATURE

Pursuant to the requirements of the Trust Indenture Act of 1939, the Trustee,
Sterling Trust Company, a corporation organized and existing under the laws
of the State of Texas, has duly caused this statement of eligibility to be
signed on its behalf by the undersigned, thereunto duly authorized, all in
the City of Waco, and State of Texas, on the 3rd day of November, 1997.

STERLING TRUST COMPANY
(Trustee)

By: /s/ Paul E. Skretny
-------------------------------------
Paul E. Skretny, CEO

<PAGE>

EXHIBIT 16.1

Articles of Association of Sterling Trust Company.

<PAGE>

ARTICLES OF INCORPORATION

STERLING TRUST COMPANY

I, the undersigned natural person of the age of eighteen (18) years or
more, acting as incorporator of a corporation under Article 1513a Revised
Civil Statutes of Texas, hereby adopt the following Articles of Incorporation
for such corporation:

ARTICLE ONE

The name of the Corporation is STERLING TRUST COMPANY.

ARTICLE TWO

The period of the Corporation's duration is perpetual.

ARTICLE THREE

The purpose for which the Corporation is organized is: to act as
trustee, executor, administrator, or guardian when designated by any person,
corporation, or court to do so, and as agent for the performance of any
lawful act, including the right to receive deposits made by agencies of the
United States of America for the authorized account of any individual, and to
act as attorney-in-fact for reciprocal or inter-insurance exchange, and to
lend and accumulate money without banking privileges, when licensed under
the provisions of Subtitle II of Title 79, Revised Civil Statutes of Texas,
1925, as amended. The Corporation shall also have the power (i) to purchase,
sell, discount and negotiate with or without its endorsement or guaranty,
notes, drafts, checks, bills of exchange, acceptances, including bankers'
acceptances, cable transfers and other evidences of indebtedness; (ii) to
purchase and sell, with or without its endorsement or guaranty, stocks, bonds,
securities, including the obligation of the United States or any States
thereof; (iii) to issue debentures, bonds and promissory notes, to accept
bills or drafts drawn upon it, but in no event having liabilities outstanding
thereon at any one time exceeding five times the capital stock and surplus of
the Corporation; provided, however, that with the consent in writing of the
Banking Commissioner of the State of

<PAGE>

Texas the Corporation may have outstanding at any one time ten times its
capital stock and surplus; and (iv) generally, to exercise such powers as are
incidental to the powers conferred by Article 1513 of the Revised Civil
Statutes of Texas. In addition, the Corporation shall have all of the powers
conferred by law, including, but not limited to, those powers set forth in
the Texas Business Corporation Act, including Article 2.02 thereof, to the
extent that they are not inconsistent with the provisions of Article 1513a
of the Revised Civil Statutes of Texas, and subject further to the minimum
capitalization requirements of the State of Texas for Corporations organized
under Article 1513a, as amended.

ARTICLE FOUR

The total number of shares of all classes of stock which the Corporation
shall have authority to issue is six million (6,000,000) shares, of which two
million (2,000,000) shares, no par value shall be a class designated "Common
Stock-Class A Voting Stock", and two million (2,000,000) shares, no par
value, shall be a class designated "Common Stock-Class B Non-Voting Stock",
and two million (2,000,000) shares, no par value, shall be a class designated
"Preferred Stock." Holders of Common Stock-Class A Voting Stock are granted
voting rights equal to one (1) vote per share, and holders of Common
Stock-Class B Non-Voting Stock are denied voting rights.

1. Shares of Preferred Stock may be issued from time to time in one or more
series, each such series to have distinctive serial designations, as shall
hereafter be determined in the resolution or resolutions providing for the
issuance of such Preferred Stock from time to time adopted by the Board of
Directors pursuant to authority so to do which is hereby vested in the
Board of Directors.

2. Each series of Preferred Stock may:

A. have such numbers of shares;

B. have such voting powers, full or limited, or may be without voting
powers;

2
<PAGE>

C. be subject to redemption at such time or times and at such prices;

D. be entitled to receive dividends (which may be cumulative or
noncumulative) at such rate or rates, on such conditions, from
such date or dates, and at such times, and payable in preference
to, or in such relation to, the dividends payable on any other
class or series of stock;

E. have such rights upon the dissolution of, or upon any
distribution of the assets of, the Corporation;

F. be made convertible into, or exchangeable for, shares of other
class or classes (except a class having prior or superior rights
and preferences as to dividends or distribution of assets upon
liquidation) or of any other series of the same or any other
class or classes of stock of the Corporation at such price or
prices or at such rates of exchange, and with such adjustments;

G. be entitled to the benefit of a sinking fund or purchase fund to
be applied to the purchase or redemption of shares of such series
in such amount or amounts;

H. be entitled to the benefit of conditions and restriction upon the
creation of indebtedness of the Corporation or any subsidiary,
upon the issue of any additional stock (including additional
shares of such series or of any other series) and upon the
payment of dividends or the making of other distributions on, and
the purchase, redemption or other acquisition by the Corporation
or any subsidiary of any outstanding stock of the Corporation;
and

I. have such other relative, participating, optional or other
special rights, and qualifications, limitations or restrictions
thereof;

all as shall be stated in said resolution or resolutions providing for the
issue of such Preferred Stock. Except where otherwise set forth in the
resolution or resolutions adopted by the Board of Directors providing for
the issue of any series of Preferred Stock, the number of shares
comprising such series may be increased or decreased (but not below the
number of shares then outstanding) from time to time by like action of the
Board of Directors.

3. Shares of any series of Preferred Stock which have been redeemed
(whether through the operation of a sinking fund or otherwise) or
purchased by the Corporation, or which, if convertible or exchangeable,
have been converted into or exchanged for shares of stock of any other
class or classes shall have the status of authorized and unissued shares
of

3
<PAGE>

Preferred Stock and may be reissued as a part of the series of which
they were originally a part or may be reclassified and reissued as part
of a new series of Preferred Stock to be created by resolution or
resolutions of the Board of Directors or as part of any other series of
Preferred Stock, all subject to the conditions or restrictions on issuance
set forth in the resolution or resolutions adopted by the Board of
Directors providing for the issue of any series of Preferred Stock and to
any filing required by law.

4. Except as otherwise provided by law or by the resolution or resolutions
of the Board of Directors providing for the issue of any series of the
Preferred Stock, the Common Stock shall have the exclusive right to vote
for the election of Directors and for all other purposes, each holder of
the Common Stock being entitled to one vote for each such share held.

Subject to all of the rights of the Preferred Stock or any series
thereof, the holders of the Common Stock shall be entitled to receive, when,
as and if declared by the Board of Directors, out of funds legally available
therefor, dividends payable in cash, stock or otherwise.

Upon any liquidation, dissolution or winding-up of the Corporation,
whether voluntary or involuntary, and after the holders of the Preferred
Stock of each series shall have been paid in full the amounts to which they
respectively shall be entitled or a sum sufficient for such payment in full
shall have been set aside, the remaining net assets of the Corporation shall
be distributed pro rata to the holders of the Common Stock in accordance with
their respective rights and interests, to the exclusion of the holders of the
Preferred Stock.

ARTICLE FIVE

The Corporation will not commence business until it has received for the
issuance of its shares consideration of the value of FIVE HUNDRED THOUSAND
DOLLARS ($500,000.00) consisting of money, labor done or property actually
received.

4
<PAGE>

ARTICLE SIX

The shareholders of the Corporation shall have no preemptive rights to
acquire additional, unissued or treasury shares of the Corporation, or
securities of the Corporation convertible into or carrying a right to
subscribe to or acquire shares, and such preemptive rights are hereby
expressly denied.

ARTICLE SEVEN

At each election for Directors of the Corporation, each shareholder
entitled to vote at such election shall have the right to vote, in person or
by proxy, only the number of shares owned by him for as many persons as there
are Directors to be elected, and no shareholder shall ever have the right or
be permitted to cumulate his votes on any basis, any and all rights of
cumulative voting being hereby expressly denied.

ARTICLE EIGHT

Any action taken or to be taken by the shareholders of the Corporation,
which, but for the provisions of this Article, require the vote or
concurrence of the holders of more than a majority of the shares entitled to
be cast thereon, including specifically and without limitation, the following
actions:

1. Any merger or consolidation of this Corporation with another corporation;

2. Any amendment of these Articles of Incorporation;

3. Any sale, lease, exchange or other disposition of all, or substantially
all, the property and assets with, or without the goodwill of the
Corporation, not made in the usual or regular course of business;

4. Any vote of the shareholders of the Corporation on a resolution to
dissolve the Corporation;

5. Any purchase by this Corporation, directly or indirectly, of its own
shares to the extent of the aggregate of unrestricted capital surplus
available therefor, and unrestricted reduction surplus available therefor;
and

6. Any distribution out of reduction surplus of the Corporation;

SHALL REQUIRE, AND SHALL ONLY REQUIRE, a majority vote of the Shareholders of
Common Stock-Class A Voting Stock in attendance in a meeting called for such
purpose, and any other such vote on behalf of

5
<PAGE>

other classes or series of stock as may be required by Article 4.03 of the
Texas Business Corporation Act or other applicable law, the necessity of
which vote has not been negated by the preceding provisions of these Articles
of Incorporation. All other matters of the Corporation requiring a vote of
the Shareholders will require only a simple majority of those Shareholders of
Common Stock-Class A Voting Stock who are in attendance at a meeting called
for such purpose.

ARTICLE NINE

The address of the initial Registered Office of the Corporation is: 6202
Tarnef, Houston, Texas 77074 and the name of the initial Registered Agent at
such address is Thomas E. Nevotti.

ARTICLE TEN

The number of Directors constituting the initial Board of Directors is
one (1), and the name and address of the person who is to serve as Director
until the first Annual Meeting of the Shareholders or until his successor(s)
is elected and qualified is: Thomas E. Nevotti, 6202 Tarnef, Houston, Texas
77074.

ARTICLE ELEVEN

The name and address of the Incorporator is: Thomas E. Nevotti, 6202
Tarnef, Houston, Texas 77074.

IN WITNESS WHEREOF, I have hereunto set my hand this 29th day of August,
1984.

/s/ Thomas E. Nevotti
----------------------------------------------
THOMAS E. NEVOTTI, INCORPORATOR

<PAGE>

EXHIBIT 16.2

Certificate of Authority of Sterling Trust Company
to commence business.

<PAGE>
202020-19-CEB-CH

[SEAL]

THE STATE OF TEXAS

SECRETARY OF STATE

CERTIFICATE OF INCORPORATION

STERLING TRUST COMPANY
CHARTER NUMBER 718715

THE UNDERSIGNED, AS SECRETARY OF STATE OF THE STATE OF TEXAS, HEREBY
CERTIFIES THAT ARTICLES OF INCORPORATION FOR THE ABOVE CORPORATION, DULY
SIGNED AND VERIFIED HAVE BEEN RECEIVED IN THIS OFFICE AND ARE FOUND TO
CONFORM TO LAW.

ACCORDINGLY THE UNDERSIGNED, AS SUCH SECRETARY OF STATE, AND BY VIRTUE
OF THE AUTHORITY VESTED IN HIM BY LAW, HEREBY ISSUES THIS CERTIFICATE OF
INCORPORATION AND ATTACHES HERETO A COPY OF THE ARTICLES OF INCORPORATION.

DATED AUGUST 30, 1984

[SEAL] /s/ (Illegible)
ASSISTANT SECRETARY OF STATE
-----------------------------------
Secretary of State

<PAGE>

EXHIBIT 16.3

Authorization of Sterling Trust Company
to exercise corporate trust powers.

<PAGE>

DEPARTMENT OF BANKING
STATE OF TEXAS

CERTIFICATE OF AUTHORITY

S-030-718715
----------------
charter number

[SEAL]

This is to certify that

STERLING TRUST COMPANY
--------------------------
corporate name

is duly authorized under the laws of the State of Texas to

conduct business as a Trust Company at

4547 LAKE SHORE DRIVE
---------------------------

Waco, McLennan County
---------------------------
Texas

In witness whereof, I have hereunto set my
hand at the City of Austin, Travis County,
in the State of Texas, on this the 8th day of
June, 1988.

Kenneth W. Littlefield
-----------------------------------------------------
Kenneth W. Littlefield, Banking Commissioner of Texas

<PAGE>

EXHIBIT 16.4

Bylaws of Sterling Trust Company.

<PAGE>

AMENDMENT NUMBER ONE

TO THE

STERLING TRUST COMPANY BYLAWS

Pursuant to Article VIII, Section 8.01 of the Sterling Trust Company
("Corporation") Bylaws, and pursuant to a meeting of the Board of Directors
of the Corporation, held on March 17, 1993, the Bylaws of the Corporation
shall be amended in the following particulars:

Section 3.14, "Indemnification of Directors and Officers" shall be
removed in its entirety, and replaced with the following Section 3.14:

3.14 INDEMNIFICATION OF DIRECTORS AND OFFICERS: The directors and
officers of Sterling Trust Company will not be liable to the corporation
or its shareholders for monetary damages for acts or omissions that
occur in the directors' and officers' capacity as directors and officers.
This article does not limit the liability of the directors and officers
for acts or omissions for: (1) a breach of the duty of loyalty to the
corporation or its shareholders or members; (2) a bad faith breach of a
director's and officer's duty to the corporation, intentional
misconduct, or a knowing violation of the law; (3) a transaction from
which a director and officer received an improper benefit, whether or
not the benefit resulted from an action taken within the scope of the
director's and officer's office; or (4) an act or omission for which the
liability of a director and officer is expressly provided by an
applicable statute.

I hereby certify that this is a true and correct copy of the action taken in
the aforementioned meeting of the directors of Sterling Trust Company on
March 17, 1993.

3/17/93 by: /s/ (Illegible)
- ------------------------------ ----------------------------------\
Date President

<PAGE>

BY-LAWS

STERLING TRUST COMPANY

ARTICLE I

REGISTERED OFFICE

1.01 The principal office shall be in Waco, McLennan County, Texas,
and the Corporation may have offices at such other places as the business of
the Corporation may require.

ARTICLE II

SHAREHOLDERS

2.01 PLACE OF MEETINGS: All meetings of the Shareholders shall be
held at the registered office of the Corporation, or any other place within
or without this State, as may be designated for that purpose from time to
time by the Board of Directors.

2.02 ANNUAL MEETINGS: The annual meetings of the Shareholders shall be
held on the first Monday of August of each year. If this day falls on a
legal holiday, the annual meeting shall be held at the same time on the next
following business day thereafter.

2.03 NOTICE OF MEETING: Notice of the meeting, stating the place, day
and hour of the meeting, and, in case of a special meeting, the purpose or
purposes for which the meeting is called shall be given in writing to each
Shareholder entitled to vote at the meeting, at least ten (10), but not more
that fifty (50), days before the date of the meeting, either personally or by
mail

<PAGE>

or other means of written communication, addressed to the Shareholder at his
address appearing on the books of the Corporation or given by him to the
Corporation for the purpose of notice. Notice of adjourned meetings is not
necessary unless the meeting is adjourned for thirty (30) days or more, in
which case notice of the adjourned meeting shall be given as in the case of
any special meeting.

2.04 SPECIAL MEETINGS: Special meetings of the Shareholders for any
purpose or purposes whatsoever may be called at any time by the President, or
by the Board of Directors, or by any one (1) or more Directors, or by one or
more Shareholders, holding not less than one-tenth (1/10) of all shares
entitled to vote at the meeting.

2.05 QUORUM: A majority of the voting shares constitutes a quorum for
the transaction of business. Business may be continued after withdrawal of
enough Shareholders to leave less than a quorum.

2.06 VOTING: Only persons in whose names shares appear on the share
records of the Corporation on the date on which notice of the meeting is
mailed shall be entitled to vote at such meeting, unless some other day is
fixed by the Board of Directors for the determination of Shareholders of
record. No Shareholder shall have the right to cumulate his votes at any
election for Directors of this Corporation. Voting for the election of
Directors shall be by voice unless any Shareholder demands a ballot vote
before the voting begins.

<PAGE>

2.07 PROXIES: Every person entitled to vote or execute consents may
do so either in person or by written proxy executed in writing by the
Shareholder or his duly authorized attorney-in-fact.

2.08 CONSENT OF ABSENTEES: No defect in the calling or noticing of a
Shareholders' meeting will affect the validity of any action at the meeting
if a quorum was present, and if each Shareholder not present in person or by
proxy, signs a written waiver of notice, consent to the holding of the
meeting, or approval of the minutes, either before or after the meeting, and
such waivers, consents or approvals are filed with the corporate records or
made a part of the minutes of the meeting.

2.09 ACTION WITHOUT MEETING: Action may be taken by Shareholders
without a meeting if each Shareholder entitled to vote signs a written
consent to the action and such consents are filed with the Secretary of the
Corporation.

ARTICLE III

DIRECTORS

3.01 POWERS: The Directors shall act only as a board and an individual
Director shall have no power as such. All corporate powers of the Corporation
shall be exercised by, or under the authority of, and the business and
affairs of the Corporation shall be controlled by the Board of Directors,
subject, however, to such limitations as are imposed by law, the Articles of
Incorporation, or these By-Laws, as to actions to be authorized or approved
by the Shareholders. The Board of Directors may, by

<PAGE>

contract or otherwise, give general or limited or special power and authority
to the officers and employees of the Corporation to transact the general
business, or any special business, of the Corporation, and may give powers of
attorney to agents of the Corporation to transact any special business
requiring such authorization.

3.02 NUMBER AND QUALIFICATION OF DIRECTORS: The authorized number of
Voting Directors of this Corporation shall be a minimum of five (5) and a
maximum of twenty-five (25) Voting Directors, and there shall be a minimum of
zero (0) and a maximum of twenty-five (25) Advisory Directors. The Directors
need not be Shareholders of this Corporation; a majority of the Directors
shall be residents of the State of Texas. The number of Directors may be
increased or decreased from time to time by amendment to these By-Laws, but
no decrease shall have the effect of shortening the term of any incumbent
Directors. Any directorship to be filled by reason of an increase in the
number of Directors shall be filled by election at an annual meeting or at a
special meeting of Shareholders called for that purpose.

3.03 ELECTION AND TERM OF OFFICE: The Directors shall be elected
annually by the Shareholders entitled to vote, and shall hold office until
their respective successors are elected, or until their death, resignation or
removal.

3.04 VACANCIES: Vacancies in the Board of Directors may be filled by a
majority of the remaining Directors, though less than a quorum, or by a sole
remaining Director. The Shareholders may elect a Director at any time to fill
any vacancy not filled

<PAGE>

by the Directors.

3.05 REMOVAL OF DIRECTORS: The entire Board of Directors or any
individual Director may be removed from office with or without cause by vote
of the holders of a majority of the shares entitled to vote for Directors, at
any regular or special meeting of the Shareholders.

3.06 PLACE OF MEETINGS: All meetings of the Board of Directors shall
be held at the principal office of the Corporation or at such place within or
without the State of Texas as may be designated from time to time by
resolution of the Board or by written consent of all of the members of the
Board.

3.07 REGULAR MEETINGS: Regular meetings of the Board of Directors
shall be held, without call or notice, immediately following each annual
meeting of the Shareholders of this Corporation, and at such other times as
the Directors may determine.

3.08 SPECIAL MEETINGS -- CALL AND NOTICE: Special meetings of the
Board of Directors for any purpose shall be called at any time by the
President, or if he is absent or unable or refuses to act, by any Vice
President or any two Directors. Written notices of the special meetings,
stating the time, and in general terms the purpose or purposes thereof, shall
be mailed or telegraphed or personally delivered to each Director not later
than the day before the day appointed for the meeting.

3.09 QUORUM: A majority of the authorized number of Directors shall be
necessary to constitute a quorum for the tran-

<PAGE>

saction of business, except to adjourn as hereinafter provided. Every act or
decision done or made by a majority of the Directors present shall be
regarded as the act of the Board of Directors unless a greater number be
required by law or by the Articles of Incorporation.

3.10 BOARD ACTION WITHOUT MEETING: Any action required or permitted to
be taken by the Board of Directors may be taken without a meeting and with
the same force and effect as a unanimous vote of Directors, if all members of
the Board shall individually or collectively consent in writing to such
action.

3.11 ADJOURNMENT -- NOTICE: A quorum of the Directors may adjourn any
Directors' meeting to meet again at a stated day and hour. Notice of the time
and place of holding an adjourned meeting need not be given to absent
Directors if the time and place is fixed at the meeting adjourned. In the
absence of a quorum, a majority of the Directors present at any Directors'
meeting, either regular or special, may adjourn from time to time until the
time fixed for the next regular meeting of the Board.

3.12 CONDUCT OF MEETINGS: The President, or in his absence, any
Director selected by the Directors present, shall preside at meetings of the
Board of Directors. The Secretary of the Corporation, or in his absence, any
person appointed by the presiding officer, shall act as Secretary of the
Board of Directors.

3.13 COMPENSATION: Directors and members of committees may receive
such compensation, if any, for their services, and

<PAGE>

such reimbursement for expenses as may be fixed or determined by resolution
of the Board.

3.14 INDEMNIFICATION OF DIRECTORS AND OFFICERS: The Board of Directors
may authorize the Corporation to pay expenses incurred by, or to satisfy a
judgment or fine rendered or levied against, present or former Directors,
officers or employees of this Corporation as provided by Article 2.02(a)(16)
of the Texas Business Corporation Act.

ARTICLE IV

OFFICERS

4.01 TITLE AND APPOINTMENT: The officers of the Corporation shall be a
President, one or more Vice-Presidents, a Secretary, and such other
additional Vice-Presidents, Assistant Vice-Presidents or other officers as
the Board of Directors shall from time to time determine. All officers shall
be elected by and hold office at the pleasure of the Board of Directors, which
shall fix the compensation and tenure of all officers.

4.02 POWERS AND DUTIES OF OFFICERS: The officers of this Corporation
shall have the powers and duties generally ascribed to the respective
offices, and such additional authority or duty as may from time to time be
established by the Board of Directors.

ARTICLE V

EXECUTION OF INSTRUMENTS

5.01 AUTHORIZATION: The Board of Directors may, in its discretion,
determine the method and designate the signatory

<PAGE>

officer or officers, or other person or persons, to execute any corporate
instrument or document, or to sign the corporate name without limitation,
except where otherwise provided by law, and such execution or signature shall
be binding upon the Corporation.

ARTICLE VI

ISSUANCE AND TRANSFER OF SHARES

6.01 CERTIFICATES FOR PAID AND UNPAID SHARES: Certificates for shares
of the Corporation shall be issued only when fully paid.

6.02 SHARE CERTIFICATES: The Corporation shall deliver certificates
representing all shares to which Shareholders are entitled, which certificates
shall be in such form and device as the Board of Directors may provide. Each
certificate shall bear upon its face the statement that the Corporation is
organized in Texas, the name in which it is issued, the number and class of
shares and series, and the par value or a statement that the shares are
without par value. The certificates shall be signed by the President or a
Vice President and the Secretary or an Assistant Secretary, which signatures
may be in facsimile if the certificates are not to be countersigned by a
transfer agent or registered by a registrar, and the seal of the Corporation
shall be affixed thereto. The certificates shall contain on the faces or
backs such recitations or references as are required by law.

6.03 REPLACEMENT OF CERTIFICATES: No new certificates shall be issued
until the former certificate for the shares

<PAGE>

represented thereby shall have been surrendered and cancelled, except in the
case of lost or destroyed certificates for which the Board of Directors may
order new certificates to be issued upon such terms, conditions and
guarantees as the Board or Shareholders may see fit to impose, including the
filing of sufficient indemnity.

6.04 TRANSFER OF SHARES: Shares of the Corporation may be transferred
by endorsement by the signature of the owner, his agent, attorney or legal
representative, and the delivery of the certificate. The transferee in any
transfer of shares shall be deemed to have full notice of and consent to, the
By-Laws of the Corporation to the same extent as if he had signed a written
assent thereto.

ARTICLE VII

RECORDS AND REPORTS

7.01 BOOKS AND RECORDS: All books and records provided for by statute
shall be open to inspection of the Shareholders from time to time and to the
extent expressly provided by statute, and not otherwise. The Directors may
examine such books and records at all reasonable times.

7.02 CLOSING STOCK TRANSFER BOOKS: The Board of Directors may close the
transfer books in their discretion for a period not exceeding fifty (50) days
preceding any meeting, annual or special, of the Shareholders, or the day
appointed for the payment of a dividend.

<PAGE>

ARTICLE VIII

AMENDMENT OF BY-LAWS

8.01 AMENDMENT OF BY-LAWS: The power to alter, amend or repeal these
By-Laws is vested in the Directors, subject to repeal or change by action of
the Shareholders.

ADOPTED by the Board of Directors on the 17th day of October, 1988.

MIKE PREY
---------------------------------

<PAGE>

EXHIBIT 16.6

Consent of Trustee.

<PAGE>

CONSENT OF TRUSTEE

We hereby consent that reports of examinations by Federal, State,
Territorial, or District authorities may be furnished by such authorities to
the Commission upon request therefor.

STERLING TRUST COMPANY
(Trustee)

By: /s/ Paul E. Skretny
-----------------------------------
Paul E. Skretny
President

<PAGE>

EXHIBIT 16.7

Latest Report of Condition of Sterling Trust Company.

<PAGE>

[SEAL]

DEPARTMENT OF BANKING
Trust Company
Quarterly Report of Condition and Income

- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Name and Address:

Sterling Trust Company
7901 Fish Pond Road
Waco, Texas 76710

- -------------------------------------------------------------------------------
Charter Number: Reporting Period: January 1 through

76-0115756 06/30/97
-----------------------------
(Month, Day, Year)

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

This Report of Condition and Income must be signed by an authorized
officer(s) and attested by not less than three directors other than the
officer(s) signing the report.

I, THE UNDERSIGNED OFFICER, DO HEREBY DECLARE THAT THIS REPORT OF CONDITION
AND INCOME HAS BEEN PREPARED IN CONFORMANCE WITH OFFICIAL INSTRUCTIONS AND IS
TRUE AND CORRECT.

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

/s/ Michele B. Maruri 8/15/97
Signature of Officer Authorized to Sign Report Date Signed

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

Michele B. Maruri, Chief Financial Officer (254)751-1505
Name and Title of Officer Authorized to Sign Report Area Code/Phone Number

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

WE, THE UNDERSIGNED DIRECTORS, ATTEST THE CORRECTNESS OF THIS REPORT OF
CONDITION AND INCOME AND DECLARE THAT IS HAS BEEN EXAMINED BY US AND TO THE
BEST OF OUR KNOWLEDGE AND BELIEF HAS BEEN PREPARED IN CONFORMANCE WITH
OFFICIAL INSTRUCTIONS AND IS TRUE AND CORRECT.

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

/s/ Kent R. Snodgrass /s/ Paul E. Skretny /s/ Michele B. Maruri
Signature of Director Signature of Director Signature of Director

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

1 of 10
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------
SECTION A NAME AND ADDRESS
BALANCE SHEET Sterling Trust Company
as of 7901 Fish Pond Road
06 / 30 / 97 Waco, Texas 76710
(Month, Day, Year)
- --------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------
ASSETS Mil Thou Hun
- --------------------------------------------------------------------------------------------------
1. Cash 1
- --------------------------------------------------------------------------------------------------
1a. Mutual Funds 1a
- --------------------------------------------------------------------------------------------------
1b. Money Market Mutual Funds 795 330 1b
- --------------------------------------------------------------------------------------------------
2. Investment Securities (Schedule A1, Column B, Line 5) 2
- --------------------------------------------------------------------------------------------------
3. Corporate Stock 3
- --------------------------------------------------------------------------------------------------
4. Trading Account Securities 4
- --------------------------------------------------------------------------------------------------
5. Loans (Net) 5
- --------------------------------------------------------------------------------------------------
6. Premises, furniture & fixtures, & other assets representing premises 442 704 6
- --------------------------------------------------------------------------------------------------
7. Real Estate Owned other than premises 7
- --------------------------------------------------------------------------------------------------
8. Other Assets (Schedule A2, Line 16) 429 282 8
- --------------------------------------------------------------------------------------------------
9. TOTAL ASSETS (sum of 1 through 8) 1 667 316 9
- --------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------

LIABILITIES & EQUITY CAPITAL

- --------------------------------------------------------------------------------------------------
10. Accounts Payable 25 271 10
- --------------------------------------------------------------------------------------------------
11. Accrued Taxes 61 240 11
- --------------------------------------------------------------------------------------------------
12. Accrued Interest 12
- --------------------------------------------------------------------------------------------------
13. Mortgage indebtedness 13
- --------------------------------------------------------------------------------------------------
14. Other liabilities for borrowed money 14
- --------------------------------------------------------------------------------------------------
15. Subordinated notes and debentures 15
- --------------------------------------------------------------------------------------------------
16. Other liabilities (Schedule A3, Line 7) 69 269 16
- --------------------------------------------------------------------------------------------------
17. TOTAL LIABILITIES (sum of 10 through 16) 155 780 17
- --------------------------------------------------------------------------------------------------
18. EQUITY CAPITAL & RESERVES (Schedule A4, Column E, Line 11) 1 511 536 18
- --------------------------------------------------------------------------------------------------
19. TOTAL LIABILITIES & EQUITY CAPITAL (sum of 17 and 18) 1 667 316 19
- --------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------
</TABLE>

<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------
SCHEDULE A1 - INVESTMENT SECURITIES A. B.
Market Value Book Value
- --------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------
Type of Investment Mil Thou Hun Mil Thou Hun
- --------------------------------------------------------------------------------------------------
1. U.S. Government obligations 1
- --------------------------------------------------------------------------------------------------
2. U.S. Government agencies obligations 2
- --------------------------------------------------------------------------------------------------
3. State, county & municipal obligations 3
- --------------------------------------------------------------------------------------------------
4. Other bonds, notes and debentures 4
- --------------------------------------------------------------------------------------------------
5. TOTAL INVESTMENT SECURITIES (sum of 1 through 4) 5
- --------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------
SCHEDULE A2 - OTHER ASSETS Mil Thou Hun
- --------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------
1. Accounts receivable 273 730 1
- --------------------------------------------------------------------------------------------------
2. Due from affiliates or subsidiaries (Net) 2 677 2
- --------------------------------------------------------------------------------------------------
3. Interest earned or accrued but not collected 3
- --------------------------------------------------------------------------------------------------
4. Prepaid expenses 47 880 4
- --------------------------------------------------------------------------------------------------
5. Cash items not in the process of collection 5
- --------------------------------------------------------------------------------------------------
6. Deferred tax assets (Net) 24 355 6
- --------------------------------------------------------------------------------------------------
7. Accrued interest purchased on securities 7
- --------------------------------------------------------------------------------------------------
8. Margin accounts 8
- --------------------------------------------------------------------------------------------------
9. Purchased computer software 80 640 9
- --------------------------------------------------------------------------------------------------
10. Direct lease financing 10
- --------------------------------------------------------------------------------------------------
11. Investment in unconsolidated subsidiaries & associated companies 11
- --------------------------------------------------------------------------------------------------
12. Cash surrender value of life insurance policies 12
- --------------------------------------------------------------------------------------------------
13. Furniture and equipment rented to others 13
- --------------------------------------------------------------------------------------------------
14. Goodwill 14
- --------------------------------------------------------------------------------------------------
15. All other (itemize amounts over 25% of line 16) 15
- --------------------------------------------------------------------------------------------------
16. TOTAL OTHER ASSETS (sum of 1 through 15) 429 282 16
- --------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------
SCHEDULE A3 - OTHER LIABILITIES Mil Thou Hun
- --------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------
1. Due to affiliates or susidiaries (Net) 1
- --------------------------------------------------------------------------------------------------
2. Dividends declared but not yet paid 2
- --------------------------------------------------------------------------------------------------
3. Expenses accrued and unpaid 69 269 3
- --------------------------------------------------------------------------------------------------
4. Minority interest in consolidated subsidiaries 4
- --------------------------------------------------------------------------------------------------
5. Deferred income taxes 5
- --------------------------------------------------------------------------------------------------
6. All other (itemize amounts over 25% of line 7) 6
- --------------------------------------------------------------------------------------------------
7. TOTAL OTHER LIABILITIES (sum of 1 through 6) 69 269 7
- --------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------
</TABLE>

3 of 10
<PAGE>

Memoranda

1. Itemize adjustements shown in item 2:

2. Itemize other increases or decreases shown in item 10:

4 of 10
<PAGE>

- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECTION B - INCOME AND EXPENSES Mil Thou Hun
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
1. Operating Income:
- -------------------------------------------------------------------------------
1a. Interest and fees on loans 1a
- -------------------------------------------------------------------------------
1b. Interest on balances with depositor
institutions 22 020 1b
- -------------------------------------------------------------------------------
1c. Interest on U.S. Treasury securities 1c
- -------------------------------------------------------------------------------
1d. Interest on obligations of other U.S.
Government agencies and corporations 1d
- -------------------------------------------------------------------------------
1e. Interest on obligations of States and
political subdivisions of the United
States 1e
- -------------------------------------------------------------------------------
1f. Interest on other bonds, notes, and
debentures 1f
- -------------------------------------------------------------------------------
1g. Dividends on corporate stock 1g
- -------------------------------------------------------------------------------
1h. Income from lease financing 1h
- -------------------------------------------------------------------------------
1i. Income from fiduciary activities
(Section D, line 5) 2 164 507 1i
- -------------------------------------------------------------------------------
1j. Other services charges, commissions
and fees 1j
- -------------------------------------------------------------------------------
1k. Other income (Schedule B1, Line 8) 1k
- -------------------------------------------------------------------------------
1l. TOTAL OPERATING INCOME
(sum of 1a through 1k) 2 186 527 1l
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
2. Operating Expenses
- -------------------------------------------------------------------------------
2a. Salaries and wages 655 093 2a
- -------------------------------------------------------------------------------
2b. Employee benefits 116 752 2b
- -------------------------------------------------------------------------------
2c. Audits and examinations 23 671 2c
- -------------------------------------------------------------------------------
2d. Marketing 14 206 2d
- -------------------------------------------------------------------------------
2e. Interest on borrowed money 2e
- -------------------------------------------------------------------------------
2f. Interest on subordinated notes and
debentures 2f
- -------------------------------------------------------------------------------
2g. Occupancy expense (Net of Rental
Income) 81 317 2g
- -------------------------------------------------------------------------------
2h. Furniture and equipment expense 162 722 2h
- -------------------------------------------------------------------------------
2i. Provision for possible loan losses 2i
- -------------------------------------------------------------------------------
2j. Other operating expenses (Schedule B2,
Line 14) 467 394 2j
- -------------------------------------------------------------------------------
2k. TOTAL OPERATING EXPENSES
(sum of 2a through 2j) 1 521 155 2k
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
3. Income before income taxes and
securities gains (1l minus 2k) 665 372 3
- -------------------------------------------------------------------------------
4. Securites gains (losses) 4
- -------------------------------------------------------------------------------
5. Applicable income taxes 226 396 5
- -------------------------------------------------------------------------------
6. Net income (3 plus or minus 4 and 5) 438 976 6
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
7. Extraordinary items (net of tax effect) 7
- -------------------------------------------------------------------------------
8. NET OPERATING INCOME (6 plus or minus 7) 438 976 8
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------

5 of 10
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SCHEDULE B1 - OTHER OPERATING INCOME Mil Thou Hun
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
1. Investment advisory services (trust accounts) 1
- --------------------------------------------------------------------------------
2. Investment advisory services (non-trust accounts) 2
- --------------------------------------------------------------------------------
3. Income from affiliates (Schedule D1, Line 6) 3
- --------------------------------------------------------------------------------
4. Trading account (Net) 4
- --------------------------------------------------------------------------------
5. Equity in net income of unconsolidated subsidiaries 5
- --------------------------------------------------------------------------------
6. Data processing (non-affiliate) 6
- --------------------------------------------------------------------------------
7. All other (non-affiliate) 7
- --------------------------------------------------------------------------------
8. TOTAL OTHER OPERATING INCOME (sum of 1 through 7) 8
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SCHEDULE B2 - OTHER OPERATING EXPENSES Mil Thou Hun
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
1. Directors and committee fees 12 500 1
- --------------------------------------------------------------------------------
2. Insurance 13 383 2
- --------------------------------------------------------------------------------
3. Legal fees 34 593 3
- --------------------------------------------------------------------------------
4. Losses on the sale of assets (excluding securities) 4
- --------------------------------------------------------------------------------
5. Amortization of intangible assets 5
- --------------------------------------------------------------------------------
6. Franchise taxes 31 083 6
- --------------------------------------------------------------------------------
7. Travel & entertainment 26 692 7
- --------------------------------------------------------------------------------
8. Broker/Dealer (non-affiliate) 8
- --------------------------------------------------------------------------------
9. Investment advisory services (non-affiliate) 9
- --------------------------------------------------------------------------------
10. Referral fees (non-affiliate) 10
- --------------------------------------------------------------------------------
11. Data processing (non-affiliate) 11
- --------------------------------------------------------------------------------
12. Affiliate service(s) (Schedule D2, Line 7) 12
- --------------------------------------------------------------------------------
13. All other (non-affiliate) 349 143 13
- --------------------------------------------------------------------------------
14. TOTAL OTHER OPERATING EXPENSES (sum of 1 through 13) 467 394 14
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>

<CAPTION>
- ---------------------------------------------------------------------
- ---------------------------------------------------------------------
SECTION C F.
REPORT OF TRUST TOTALS
ASSETS

- ---------------------------------------------------------------------
- ---------------------------------------------------------------------
Bil Mil Thou
- ---------------------------------------------------------------------
<S> <C> <C>
1. Noninterest Bearing Deposits 1
- ---------------------------------------------------------------------
2. Interest Bearing Deposits 2
- ---------------------------------------------------------------------
3. U.S.G.'s & Agency Obligations 3
- ---------------------------------------------------------------------
4. State, Co. & Muni. Obligations 4
- ---------------------------------------------------------------------
5. Money Market Mutual Funds 5
- ---------------------------------------------------------------------
6. Other Short Term Obligations 6
- ---------------------------------------------------------------------
7. Other Notes & Bonds 7
- ---------------------------------------------------------------------
8. Common & Preferred Stocks 8
- ---------------------------------------------------------------------
9. Real Estate Mortgages 9
- ---------------------------------------------------------------------
10. Real Estate 10
- ---------------------------------------------------------------------
11. Miscellaneous Assets 11
- ---------------------------------------------------------------------
12. Total Discretionary Assets 12
(sum of 1 through 11)
- ---------------------------------------------------------------------
13. Total # of Discretionary 13
Accounts
- ---------------------------------------------------------------------
14. Total Non-Discretionary Assets 1 305 874 14
- ---------------------------------------------------------------------
15. Total # of Non-Discretionary
Accounts 28 398 15
- ---------------------------------------------------------------------
16. TOTAL ASSETS
(sum of 12 and 14) 1 305 874 16
- ---------------------------------------------------------------------
17. TOTAL # OF ACCOUNTS
(sum of 13 and 15) 28 398 17
- ---------------------------------------------------------------------
- ---------------------------------------------------------------------
18. MEMORANDA
TOTAL LIABILITIES 18
- ---------------------------------------------------------------------
- ---------------------------------------------------------------------
</TABLE>

7 of 10

<PAGE>

DO NOT USE MORE THAN ONE LINE PER FUND OR REPEAT THE INSTITUTION NAME IF IT
IS INCLUDED IN THE NAME OF THE FUND. IF MORE THAN 10 FUNDS ARE BEING
REPORTED, PLEASE REPRODUCE ADDITIONAL COPIES OF THIS SCHEDULE AND MUMBER
PAGES ACCORDINGLY.

<TABLE>
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
SCHEDULE C1 A. B. C. D.
COLLECTIVE INVESTMENT Classification Type of Total Number of
FUNDS Code Fund Code Fund Assets Participating Accounts
in Fund
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Name of Fund Bil Mil Thou
- -----------------------------------------------------------------------------------------------------------------
1. 1
- -----------------------------------------------------------------------------------------------------------------
2. 2
- -----------------------------------------------------------------------------------------------------------------
3. 3
- -----------------------------------------------------------------------------------------------------------------
4. 4
- -----------------------------------------------------------------------------------------------------------------
5. 5
- -----------------------------------------------------------------------------------------------------------------
6. 6
- -----------------------------------------------------------------------------------------------------------------
7. 7
- -----------------------------------------------------------------------------------------------------------------
8. 8
- -----------------------------------------------------------------------------------------------------------------
9. 9
- -----------------------------------------------------------------------------------------------------------------
10. 10
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
Classification Codes
(Enter only one code Type of Fund
in Column A for each fund) (Enter only one code in Column B for each fund)
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
01 Personal Trust 01 Equity 07 Mortgage
- -----------------------------------------------------------------------------------------------------------------
02 Employee Benefit 02 Diversified or Balanced 08 Foreign Equity
- -----------------------------------------------------------------------------------------------------------------
03 Keogh (HR 10) 03 Fixed Income 09 Foriegn Fixed Income
- -----------------------------------------------------------------------------------------------------------------
04 Charitable Trust 04 Municipal Bond 10 Index Equity
- -----------------------------------------------------------------------------------------------------------------
05 Other 05 Real Estate Equity 11 Index Fixed Income
- -----------------------------------------------------------------------------------------------------------------
06 Short Term Investment 12 Other
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
SCHEDULE C2 A. B.
CORPORATE TRUSTS Number of Principal Amount of
Accounts Outstanding Securities
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
Type of Account Bil Mil Thou
- -----------------------------------------------------------------------------------------------------------------
1. Corporate Securities Trusteeships
- -----------------------------------------------------------------------------------------------------------------
2. Tax Exempt & Other Muncipal Securities Trusteeships
- -----------------------------------------------------------------------------------------------------------------
3. Stock or Bond Transfer Agent or Registrar
- ------------------------------------------------------------------------------------------
4. Mutual Fund Transfer Agent
- ------------------------------------------------------------------------------------------
5. Separate Dividend & Interest/Coupon Paying Agent
- ------------------------------------------------------------------------------------------
6. All Other Corporate Agencies
- -----------------------------------------------------------------------------------------------------------------
7. TOTALS
=================================================================================================================
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
SECTION D (CONFIDENTIAL
FIDUCIARY INCOME INFORMATION)
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
INCOME FROM FIDUCIARY ACTIVITIES Mil Thou Hun
- -----------------------------------------------------------------------------------------------------------------
1. Gross Fees, Commissions & Other Fiduciary Income
- -----------------------------------------------------------------------------------------------------------------
1a. Employee Benefit Trust Accounts 1 657 587 1a
- -----------------------------------------------------------------------------------------------------------------
1b. Personal Trust & Estate Accounts 1b
- -----------------------------------------------------------------------------------------------------------------
1c. Employee Benefit Agency Accounts 1c
- -----------------------------------------------------------------------------------------------------------------
1d. Other Agency Accounts 79 240 1d
- -----------------------------------------------------------------------------------------------------------------
1e. Corporate Trust & Agency Accounts 11 658 1e
- -----------------------------------------------------------------------------------------------------------------
1f. All Other Fiduciary Income 416 022 1f
- -----------------------------------------------------------------------------------------------------------------
1g. Gross Fiduciary Income (sum of 1a through 1f) 2 164 507 1g
- -----------------------------------------------------------------------------------------------------------------
2. Settlements, Surcharges & Other Losses
- -----------------------------------------------------------------------------------------------------------------
2a. Employee Benefit Trust Accounts - Discretionary Accounts 2a
- -----------------------------------------------------------------------------------------------------------------
2b. Personal Trust & Estate Accounts - Discretionary Accounts 2b
- -----------------------------------------------------------------------------------------------------------------
2c. Employee Benefit Agencies - Discretionary Accounts 2c
- -----------------------------------------------------------------------------------------------------------------
2d. Other Agency Accounts - Discretionary Accounts 2d
- -----------------------------------------------------------------------------------------------------------------
2e. Employee Benefit Trust Accounts - Non-Discretionary Accounts 2e
- -----------------------------------------------------------------------------------------------------------------
2f. Personal Trust & Estate Accounts - Non-Discretionary Accounts 2f
- -----------------------------------------------------------------------------------------------------------------
2g. Employee Benefit Agencies - Non-Discretionary Accounts 2g
- -----------------------------------------------------------------------------------------------------------------
2h. Other Agency Accounts - Non-Discretionary Accounts 2h
- -----------------------------------------------------------------------------------------------------------------
2i. Corporate Trust & Agency Accounts 2i
- -----------------------------------------------------------------------------------------------------------------
2j. All Other Activities 2j
- -----------------------------------------------------------------------------------------------------------------
2k. Gross Settlements, Surcharges & Other Losses (sum of 2a through 2j) 2k
- -----------------------------------------------------------------------------------------------------------------
3. Recoveries to Previously Reported Losses 3
- -----------------------------------------------------------------------------------------------------------------
4. Net Settlements, Surcharges & Other Losses (2k minus 3) 4
- -----------------------------------------------------------------------------------------------------------------
5. FIDUCIARY INCOME (LOSS) (1g minus 3) 2 164 507 5
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
Gross Settlements, Surcharges & Other Losses by Type
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
6. Investment 6
- -----------------------------------------------------------------------------------------------------------------
7. Administrative 7
- -----------------------------------------------------------------------------------------------------------------
8. Operational 8
- -----------------------------------------------------------------------------------------------------------------
9. Gross Settlements, Surcharges & Other Losses (sum of 6 through 8) (line 9 must equal 2k) 9
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
</TABLE>

<PAGE>

10 of 10

<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
AUDITED BALANCE SHEET DATED OCTOBER 9, 1997 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>

<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> OCT-09-1997
<PERIOD-START> OCT-09-1997
<PERIOD-END> OCT-09-1997
<CASH> 1,000
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,000
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,000
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 1,000
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 1,000
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 0
<EPS-PRIMARY> 0
<EPS-DILUTED> 0

</TABLE>