Document:

Exhibit 4.3

EXECUTION VERSION

____________________________________________________________________________________________________

SALE AND SERVICING
AGREEMENT

among

HSBC AUTOMOTIVE TRUST (USA) 2006-1,

as Issuer,

HSBC AUTO RECEIVABLES CORPORATION,

as Seller,

HSBC FINANCE CORPORATION,

as Servicer

THE BANK OF NEW YORK,

as Indenture Trustee

and

HSBC BANK USA,
NATIONAL ASSOCIATION,

as Administrator

Dated as of June 8,
2006

____________________________________________________________________________________________________

  
  

TABLE OF CONTENTS

 

	
   

  	
   

  	
   

  	
   

  	
  Page

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  ARTICLE I

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Definitions

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  SECTION 1.1.

  	
   

  	
  Definitions

  	
   

  	
  1

  
	
  SECTION 1.2.

  	
   

  	
  Other Interpretive Provisions

  	
   

  	
  21

  
	
  SECTION 1.3.

  	
   

  	
  Usage of Terms

  	
   

  	
  22

  
	
  SECTION 1.4.

  	
   

  	
  Certain References

  	
   

  	
  22

  
	
  SECTION 1.5.

  	
   

  	
  No Recourse

  	
   

  	
  22

  
	
  SECTION 1.6.

  	
   

  	
  Action by or Consent of Noteholders

  	
   

  	
  22

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  ARTICLE II

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Conveyance of
  Receivables

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  SECTION 2.1.

  	
   

  	
  Conveyance of Receivables

  	
   

  	
  22

  
	
  SECTION 2.2.

  	
   

  	
  Further Encumbrance of Owner Trust Estate

  	
   

  	
  26

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  ARTICLE III

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  The Receivables

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  SECTION 3.1.

  	
   

  	
  Representations and Warranties of Seller

  	
   

  	
  27

  
	
  SECTION 3.2.

  	
   

  	
  Repurchase upon Breach

  	
   

  	
  27

  
	
  SECTION 3.3.

  	
   

  	
  Custody of Receivables Files

  	
   

  	
  28

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  ARTICLE IV

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Administration
  and Servicing of Receivables

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  SECTION 4.1.

  	
   

  	
  Duties of the Servicer

  	
   

  	
  30

  
	
  SECTION 4.2.

  	
   

  	
  Collection of Receivable Payments; Modifications of
  Receivables

  	
   

  	
  31

  
	
  SECTION 4.3.

  	
   

  	
  Realization Upon Receivables

  	
   

  	
  33

  
	
  SECTION 4.4.

  	
   

  	
  Insurance

  	
   

  	
  34

  
	
  SECTION 4.5.

  	
   

  	
  Maintenance of Security Interests in Vehicles

  	
   

  	
  35

  
	
  SECTION 4.6.

  	
   

  	
  Covenants, Representations, and Warranties of
  Servicer

  	
   

  	
  36

  
	
  SECTION 4.7.

  	
   

  	
  Repurchase of Receivables Upon Breach of Covenant

  	
   

  	
  37

  
	
  SECTION 4.8.

  	
   

  	
  Total Servicing Fee; Payment of Certain Expenses by
  Servicer

  	
   

  	
  37

  
	
  SECTION 4.9.

  	
   

  	
  Servicer’s Certificate

  	
   

  	
  38

  
	
  SECTION 4.10.

  	
   

  	
  Annual Statement as to Compliance, Notice of
  Servicer Termination Event

  	
   

  	
  38

  
	
  SECTION 4.11.

  	
   

  	
  Access to Certain Documentation and Information
  Regarding Receivables

  	
   

  	
  40

  

 

 

	
  

  	
   

  	
   

  	
   

  	
   

  
	
  SECTION 4.12.

  	
   

  	
  Fidelity Bond and Errors and Omissions Policy

  	
   

  	
  40

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  ARTICLE V

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Trust Accounts;
  Distributions;

  	
   

  	
   

  
	
   

  	
   

  	
  Statements to
  Certificateholders and Noteholders

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  SECTION 5.1.

  	
   

  	
  Establishment of Trust Accounts

  	
   

  	
  40

  
	
  SECTION 5.2.

  	
   

  	
  Certain Reimbursements to the Servicer

  	
   

  	
  42

  
	
  SECTION 5.3.

  	
   

  	
  Application of Collections

  	
   

  	
  42

  
	
  SECTION 5.4.

  	
   

  	
  Additional Deposits

  	
   

  	
  42

  
	
   

  	
   

  	
  ARTICLE VI

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  RESERVED

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  ARTICLE VII

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  RESERVED

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  ARTICLE VIII

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  The Seller

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  SECTION 8.1.

  	
   

  	
  Representations of Seller

  	
   

  	
  43

  
	
  SECTION 8.2.

  	
   

  	
  Corporate Existence

  	
   

  	
  45

  
	
  SECTION 8.3.

  	
   

  	
  Liability of Seller; Indemnities

  	
   

  	
  46

  
	
  SECTION 8.4.

  	
   

  	
  Merger or Consolidation of, or Assumption of the
  Obligations of, Seller

  	
   

  	
  47

  
	
  SECTION 8.5.

  	
   

  	
  Limitation on Liability of Seller and Others

  	
   

  	
  48

  
	
  SECTION 8.6.

  	
   

  	
  Seller May Own Certificates or Notes

  	
   

  	
  48

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  ARTICLE IX

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  The Servicer

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  SECTION 9.1.

  	
   

  	
  Representations of Servicer

  	
   

  	
  48

  
	
  SECTION 9.2.

  	
   

  	
  Liability of Servicer; Indemnities

  	
   

  	
  51

  
	
  SECTION 9.3.

  	
   

  	
  Merger or Consolidation of, or Assumption of the
  Obligations of the Servicer

  	
   

  	
  52

  
	
  SECTION 9.4.

  	
   

  	
  Limitation on Liability of Servicer and Others

  	
   

  	
  53

  
	
  SECTION 9.5.

  	
   

  	
  Delegation of Duties

  	
   

  	
  53

  
	
  SECTION 9.6.

  	
   

  	
  Servicer Not to Resign

  	
   

  	
  54

  
	
  SECTION 9.7.

  	
   

  	
  Subservicing Agreements Between Servicer and
  Subservicers

  	
   

  	
  54

  
	
  SECTION 9.8.

  	
   

  	
  Successor Subservicers

  	
   

  	
  55

  

 ii
 

 

 

	
  

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  ARTICLE X

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Default

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  SECTION 10.1.

  	
   

  	
  Servicer Termination Event

  	
   

  	
  55

  
	
  SECTION 10.2.

  	
   

  	
  Consequences of a Servicer Termination Event

  	
   

  	
  56

  
	
  SECTION 10.3.

  	
   

  	
  Appointment of Successor

  	
   

  	
  58

  
	
  SECTION 10.4.

  	
   

  	
  Notification to Noteholders

  	
   

  	
  58

  
	
  SECTION 10.5.

  	
   

  	
  Waiver of Past Defaults

  	
   

  	
  59

  
	
  SECTION 10.6.

  	
   

  	
  Successor to Servicer

  	
   

  	
  59

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  ARTICLE XI

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Termination

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  SECTION 11.1.

  	
   

  	
  Optional Purchase of All Receivables

  	
   

  	
  59

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  ARTICLE XII

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Administrative
  Duties of the Servicer

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  SECTION 12.1.

  	
   

  	
  Administrative Duties.

  	
   

  	
  60

  
	
  SECTION 12.2.

  	
   

  	
  Records

  	
   

  	
  62

  
	
  SECTION 12.3.

  	
   

  	
  Additional Information to be Furnished to the Issuer

  	
   

  	
  63

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  ARTICLE XIII

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Miscellaneous
  Provisions

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  SECTION 13.1.

  	
   

  	
  Amendments

  	
   

  	
  63

  
	
  SECTION 13.2.

  	
   

  	
  Protection of Title to Series Trust Estate

  	
   

  	
  64

  
	
  SECTION 13.3.

  	
   

  	
  Notices

  	
   

  	
  66

  
	
  SECTION 13.4.

  	
   

  	
  Assignment

  	
   

  	
  66

  
	
  SECTION 13.5.

  	
   

  	
  Limitations on Rights of Others

  	
   

  	
  66

  
	
  SECTION 13.6.

  	
   

  	
  Severability

  	
   

  	
  67

  
	
  SECTION 13.7.

  	
   

  	
  Separate Counterparts

  	
   

  	
  67

  
	
  SECTION 13.8.

  	
   

  	
  Headings

  	
   

  	
  67

  
	
  SECTION 13.9.

  	
   

  	
  Governing Law

  	
   

  	
  67

  
	
  SECTION 13.10.

  	
   

  	
  Assignment to Indenture Trustee

  	
   

  	
  67

  
	
  SECTION 13.11.

  	
   

  	
  Nonpetition Covenants

  	
   

  	
  67

  
	
  SECTION 13.12.

  	
   

  	
  Limitation of Liability of the Owner Trustee, the
  Administrator and the Indenture Trustee

  	
   

  	
  68

  
	
  SECTION 13.13.

  	
   

  	
  Limitation of Liability of Issuer

  	
   

  	
  68

  
	
  SECTION 13.14.

  	
   

  	
  Independence of the Servicer.

  	
   

  	
  68

  
	
  SECTION 13.15.

  	
   

  	
  No Joint Venture

  	
   

  	
  68

  
	
  SECTION 13.16.

  	
   

  	
  [Reserved]

  	
   

  	
  68

  
	
  SECTION 13.17.

  	
   

  	
  Regulation AB

  	
   

  	
  69

  

 iii
 

 

 

	
  

  	
   

  	
   

  	
   

  	
   

  
	
  SECTION 13.18.

  	
   

  	
  Information to Be Provided by the Indenture Trustee
  and the Administrator

  	
   

  	
  69

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  EXHIBITS

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  EXHIBIT A

  	
   

  	
  Form of Transfer Agreement

  	
   

  	
  A-1

  

 

 iv

SALE AND SERVICING AGREEMENT dated as of June 8,
2006, among HSBC AUTOMOTIVE TRUST (USA) 2006-1, a Delaware statutory
trust (the “Issuer” or the “Trust”), HSBC AUTO RECEIVABLES CORPORATION, a
Nevada corporation (the “Seller”), HSBC FINANCE CORPORATION, a Delaware
corporation (the “Servicer”), THE BANK OF NEW YORK, a New York banking corporation, in its
capacity as Indenture Trustee, and HSBC BANK USA, NATIONAL ASSOCIATION, a
national banking association, in its capacity as Administrator.

WHEREAS the Issuer desires to purchase from time to
time Receivables arising in connection with motor vehicle retail installment
sale contracts originated or acquired by HSBC Auto Finance Inc. (“HAFI”) or any
of its predecessors or Affiliates, including, but not limited to, HSBC Auto
Credit Inc. (“HACI”);

WHEREAS the Seller will purchase from time to time
Receivables from HAFI or one or more of its Affiliates, including, but not
limited to, HACI, and is willing to sell Receivables to the Issuer;

WHEREAS the Servicer is willing to service all such
Receivables;

NOW, THEREFORE, in consideration of the
promises and the mutual covenants herein contained, the parties hereto agree as
follows:

ARTICLE I

Definitions

SECTION 1.1   Definitions.   Whenever
used in this Agreement, the following words and phrases shall have the
following meanings:

“Accounting Date” means, with respect to a
Distribution Date, the last day of the Collection Period immediately preceding
such Distribution Date.

“Actuarial Method” means the method of allocating a
fixed level monthly payment on an obligation between principal and interest,
pursuant to which the portion of such payment that is allocated to interest is
equal to the product of (a) 1/12, (b) the fixed annual rate of
interest on such obligation and (c) the outstanding principal balance of
such obligation.

“Actuarial Receivable” means a Receivable under which
the portion of the payment allocated to interest and the portion allocable to
principal is determined in accordance with the Actuarial Method.

“Addition Notice” means, with respect to any transfer
of Receivables to the Trust pursuant to Section 2.1 of this Agreement,
notice of the Seller’s election to transfer Receivables to the Trust, such
notice to designate the related Transfer Date, and the approximate principal
amount of Receivables to be transferred on such Transfer Date.

 

“Additional Principal Amount” has the meaning, if any,
assigned to such term in the Series Supplement.

“Administrator” means HSBC Bank USA, National
Association, a national banking association, as Administrator under the
Indenture and the other Basic Documents to which it is a party, or any
successor administrator under the Indenture appointed in accordance with such
agreement.

“Advanced Insurance Premiums” means any amounts due to
the Servicer for amounts advanced by the Servicer to acquire or maintain an LPI
Policy as to a Financed Vehicle.

“Affiliate” means, with respect to any specified
Person, any other Person controlling or controlled by or under common control
with such specified Person. For the purposes of this definition, “control” when
used with respect to any Person means the power to direct the management and
policies of such Person, directly or indirectly, whether through the ownership
of voting securities, by contract or otherwise; and the terms “controlling” and
“controlled” have meanings correlative to the foregoing.

“Aggregate Principal Balance” means, with respect to
any date of determination, the sum of the Principal Balances for all
Receivables (other than (i) any Receivable that has become a Liquidated
Receivable and (ii) any Receivable that has become a Repurchased
Receivable as of the date of determination).

“Agreement” means this Sale and Servicing Agreement,
as the same may be amended and supplemented from time to time.

“Amount Financed” means, with respect to a Receivable,
the aggregate amount advanced under such Receivable toward the purchase price
of the Financed Vehicle and any related costs, including amounts advanced in
respect of accessories, insurance premiums (other than premiums with respect to
LPI Policies), service and warranty contracts, sales tax, other items
customarily financed as part of retail motor vehicle installment sale contracts
and related costs.

“Annual Percentage Rate” or “APR” of a Receivable
means the annual percentage rate of finance charges or service charges, as
stated in the related Contract.

“Basic Documents” has the meaning assigned to such
term in the Series Supplement.

“Business Day” has the meaning assigned to such term
in the Series Supplement.

“Certificates” has the meaning assigned to such term
in the Trust Agreement.

“Certificateholder” means the holders of the
Certificates.

 6
 

 

“Class” means a class of Notes or Certificates, as the
context requires.

“Closing Date” has the meaning assigned to such term
in the Series Supplement.

“Code”  has the
meaning assigned to such term in the Trust Agreement.

“Collections” means, with respect to any Collection
Period, all amounts paid on or with respect to the Receivables, including all
payments of principal and interest, cancellation fees, administrative fees,
expenses and charges, late fees, payment fees, liquidation fees, Net
Liquidation Proceeds, proceeds of Insurance Policies and any Substitution
Adjustment Amounts, and received by the Servicer on or with respect to the
Receivables during such Collection Period; provided, however,
Collections shall not include taxes, assessments, Advanced Insurance Premiums
repaid by an Obligor or similar items or Repurchase Amounts.

“Collection Account” means the collection account
designated in the Series Supplement.

“Collection Period” means, (i) with respect to
the first Distribution Date, the period beginning on the opening of business on
the day after the related Cut-off Date and ending on the close of business on
the last day of the calendar month preceding such Distribution Date and (ii) with
respect to each subsequent Distribution Date, the preceding calendar month. Any
amount stated “as of the close of business of the last day of a Collection
Period” shall give effect to all applications of Collections on such day.

“Collection Records” means all manually prepared or
computer generated records relating to collection efforts or payment histories
with respect to the Receivables.

“Commission” means the Securities and Exchange
Commission.

“Contract” means a motor vehicle retail installment
sales contract.

“Controlling Party” has the meaning assigned to such
term in the Series Supplement.

“Corporate Trust Office” has the meaning assigned to
such term in the Series Supplement.

“Cram Down Loss” means, with respect to a Receivable,
if a court of appropriate jurisdiction in an insolvency proceeding shall have
issued a final order reducing the amount owed on a Receivable or otherwise
modifying or restructuring the scheduled payments to be made on a Receivable,
an amount equal to the excess of the Principal Balance of such Receivable
immediately prior to such order over the Principal Balance of such Receivable
as so reduced. A “Cram Down Loss” shall be deemed to have occurred on the date
of issuance of such order.

 7
 

 

“Cut-off Date” means, except as otherwise provided in
the Series Supplement, with respect to a Receivable, the date designated
in the related Transfer Agreement as the Cut-off Date for such Receivable transferred
to the Trust on the related Transfer Date.

“Dealer” means a dealer who sold a Financed Vehicle
and who originated and assigned the respective Receivable, directly or
indirectly, to HAFI or one of its Affiliates under a Dealer Agreement or
pursuant to a Dealer Assignment.

“Dealer Agreement” means any agreement between HAFI or
one if its Affiliates and a Dealer relating to the acquisition of Receivables
from a Dealer by HAFI or one of its Affiliates.

“Dealer Assignment” means, with respect to a Receivable,
the assignment by a Dealer conveying such Receivable to HAFI or one of its
Affiliates.

“Delivery” means, with respect to Trust Account
Property:

(1)           (a)           with respect to bankers’ acceptances,
commercial paper, negotiable certificates of deposit and other obligations that
constitute “instruments” within the meaning of Article 9 of the UCC,
transfer thereof:

(i)            by physical delivery to the
Administrator, indorsed to, or registered in the name of, the Administrator or
its nominee or indorsed in blank;

(ii)           by the Administrator continuously
maintaining possession of such instrument; and

(iii)          by the Administrator continuously
indicating by book-entry that such instrument is credited to the related Trust
Account;

(b)           with
respect to a “certificated security” (as defined in Article 8 of the UCC),
transfer thereof:

(i)            by (x) physical delivery of
such certificated security to the Administrator, provided that if the
certificated security is in registered form, it shall be indorsed to, or
registered in the name of, the Administrator or indorsed in blank, and (y) the
Administrator continuously maintaining possession of such certificated
security; or

(ii)           by another Person (not a securities
intermediary) (1) acquiring possession of such certificated security on behalf
of the Administrator, provided that if the certificated security is in
registered form, it shall be indorsed to, or registered in the name of, the
Administrator or indorsed in blank, or (2) having acquired possession of
such certificated security, acknowledging that it holds such certificated
security for 

 8
 

 

the Administrator, and, in either such case,
continuously maintaining possession of such certificated security; and

by the Administrator
continuously indicating by book-entry that such certificated security is
credited to the related Trust Account;

(c)           with
respect to any security issued by the U.S. Treasury, the Federal Home Loan
Mortgage Corporation or the Federal National Mortgage Association that is a
book-entry security held through the Federal Reserve System pursuant to federal
book entry regulations, transfer thereof pursuant to the following procedures,
all in accordance with applicable law, including applicable federal regulations
and Articles 8 and 9 of the UCC:

(i)            by (x) book-entry registration
of such property to an appropriate book-entry account maintained with a Federal
Reserve Bank by a securities intermediary that is also a “depositary” pursuant
to applicable federal regulations and issuance by such securities intermediary
of a deposit advice or other written confirmation of such book-entry
registration to the Administrator of the purchase by the securities
intermediary on behalf of the Administrator of such book-entry security; the
making by such securities intermediary of entries in its books and records
identifying such book-entry security held through the Federal Reserve System
pursuant to federal book-entry regulations as belonging to the Administrator
and continuously indicating that such securities intermediary holds such book-entry
security solely as agent for the Administrator or such additional or
alternative procedures as are appropriate under applicable law to effect a
complete transfer of ownership of such property to the Administrator or its
nominee or custodian; or (y) continuous book-entry registration of such
property to a book-entry account maintained by the Administrator with a Federal
Reserve Bank; and

(ii)           by the Administrator continuously
indicating by book-entry that such property is credited to the related Trust
Account;

(d)           with respect to any asset in the
Trust Accounts that is an “uncertificated security” (as defined in Article 8
of the UCC) and that is not governed by clause (c) above or clause (e) below:

(i)            transfer thereof:

(A)          by registration to
the Administrator as the registered owner thereof, on the books and records of
the issuer thereof; or

(B)           by another Person
(not a securities intermediary) (1) becoming the registered owner of the
uncertificated security on behalf of the Administrator, or (2) having become
the registered owner of the 

 9
 

 

uncertificated security, acknowledging that it holds such
uncertificated security for the Administrator; or

(ii)           the issuer of the
uncertificated security has agreed that it will comply with instructions
originated by the Administrator with respect to such uncertificated security
without further consent of the registered owner thereof; and

the Administrator
continuously indicating by book-entry that such uncertificated security is
credited to the related Trust Account;

(e)           in the case of a security in the
custody of or maintained on the books of a clearing corporation (as defined in Article 8
of the UCC) or its nominee, transfer thereof by causing:

(i)            the relevant clearing corporation to
credit such security to a securities account of the Administrator at such
clearing corporation; and

(ii)           the Administrator to continuously
indicate by book-entry that such security is credited to the related Trust
Account; or

(f)            with respect to a “security
entitlement” (as defined in Article 8 of the UCC) to be transferred to or
for the benefit of the Administrator and not governed by clauses (c) or (e) above,
transfer thereof by:

(i)            a securities intermediary’s (A) indicating
by book entry that the underlying “financial asset” (as defined in Article 8
of the UCC) has been credited to the Administrator’s “securities account” (as
defined in Article 8 of the UCC), (B) receiving a financial asset
from the Administrator or acquiring the underlying financial asset for the
Administrator, and in either case, accepting it for credit to the Administrator’s
securities account, or (C) becoming obligated under other law, regulation
or rule to credit the underlying financial asset to the Administrator’s
securities account,

(ii) the
making by the securities intermediary of entries on its books and records
continuously identifying such security entitlement as belonging to the
Administrator; and continuously indicating by book-entry that such securities
entitlement is credited to the Administrator’s securities account; and

(iii) the
Administrator’s continuously indicating by book-entry that such security
entitlement (or all rights and property of the Administrator representing such
securities entitlement) is credited to the related Trust Account; and/or

(2)           In
the case of any such asset, (i) compliance with such additional or
alternative procedures as are now or may hereafter become appropriate to effect
the 

 10
 

 

complete transfer of ownership of, or control over,
any such Trust Account Property to the Administrator free and clear of any
adverse claims, consistent with changes in applicable law or regulations or the
interpretation thereof, and (ii) the Administrator’s continuously
indicating by book entry that such asset is credited to the related Trust
Account.

In each case of delivery contemplated herein, the
Administrator shall make appropriate notations on its records, and shall cause
the same to be made on the records of its nominees, indicating that securities
are held in trust pursuant to and as provided in this Agreement.

“Depositor” means the Seller in its capacity as
Depositor under the Trust Agreement.

“Determination Date” means, unless otherwise provided
in the Series Supplement, the second Business Day preceding each
Distribution Date.

“Distribution Date” has the meaning assigned to such
term in the Series Supplement.

“Eligibility Criteria” means the criteria set forth in
the Schedule of Eligibility Criteria.

“Eligible Account” means, except as otherwise provided
in the Series Supplement, either (a) a segregated account with an
Eligible Bank or (b) a segregated trust account with the corporate trust
department of a depository institution with corporate trust powers organized
under the laws of the United States of America or any state thereof or the
District of Columbia (or any United States branch or agency of a foreign bank),
provided that such institution also must have a rating of Baa3 or higher from
Moody’s, a rating of BBB- or higher from Standard & Poor’s and a
rating of BBB- or higher from Fitch, in each case only if such Person is a
Rating Agency, with respect to long-term deposit obligations, or such other
lower ratings acceptable to the Rating Agency.

“Eligible Bank” means, except as otherwise provided in
the Series Supplement, any depository institution (which shall initially
be the Administrator), organized under the laws of the United States of America
or any one of the states thereof or the District of Columbia (or any United
States branch or agency of a foreign bank), which is subject to supervision and
examination by federal or state banking authorities and which at all times (a) has
a net worth in excess of $50,000,000 and (b) (i) has a rating of P-1
from Moody’s, A-1 from Standard & Poor’s and F1 from Fitch, in
each case only if such Person is a Rating Agency, with respect to short-term
deposit obligations, or such other lower ratings acceptable to the Rating
Agency, or (ii) if such institution has issued long-term unsecured debt
obligations, a rating acceptable to the Rating Agency with respect to long-term
unsecured debt obligations.

“Eligible Investments” shall mean, except as otherwise
provided in a Series Supplement, (i) negotiable instruments or
securities represented by instruments in 

 11
 

 

bearer or registered form (or, in the case of Eligible
Investments described in clause (a) of this definition, book-entry
securities representing such obligations), or (ii) securities entitlements
(as defined in Article 8 of the UCC) arising from Delivery of any such
negotiable instruments or securities in accordance with the provisions of
clause (1)(f) of the definition of such term, or (iii) in the case of
deposits described below, deposit accounts held in the name of the
Administrator in trust for the benefit of the Holders of the Securities,
subject to the exclusive custody and control of the Administrator and for which
the Administrator has sole signature authority, which evidence or arise out of,
as the case may be:

(a)           direct
obligations of, or obligations fully guaranteed as to timely payment by, the
United States of America;

(b)           demand
deposits, time deposits or certificates of deposit (having original maturities
of no more than 365 days) of depositary institutions or trust companies
incorporated under the laws of the United States of America or any state
thereof (or domestic branches of foreign banks) and subject to supervision and
examination by federal or state banking or depositary institution authorities; provided,
that at the time of the Trust’s investment or contractual commitment to invest
therein, the short-term debt rating of such depository institution or trust
company shall be satisfactory to the Rating Agency, and provided  further
that the “jurisdiction” of such depositary institution or trust company, for
purposes of Article 9 of the UCC, shall be a state in which Revised Article 9
of the UCC has become effective and in which security interests in deposit
accounts are subject to Article 9, as in effect therein;

(c)           commercial
paper (having original or remaining maturities of not more than 30 days)
having, at the time of the Trust’s investment or contractual commitment to
invest therein, a rating satisfactory to the Rating Agency;

(d)           investments
in money market funds having, at the time of the Trust’s investment therein, a
rating satisfactory to the Rating Agency;

(e)           demand
deposits, time deposits and certificates of deposit which are fully insured by
the FDIC having, at the time of the Trust’s investment therein, a rating
satisfactory to the Rating Agency;

(f)            bankers’
acceptances (having original maturities of no more than 365 days) issued by a
depository institution or trust company referred to in (b) above;

(g)           (x) time
deposits (having maturities not later than the succeeding Distribution Date)
other than as referred to in clause (e) above, with a Person the
commercial paper of which has a credit rating satisfactory to the Rating Agency
or (y) notes which are payable on demand issued by HSBC Finance
Corporation; provided such notes will constitute Eligible Investments
only if HSBC Finance Corporation has, at the time of the Trust’s investment in
such notes, a commercial paper rating of not less than A-1 by Standard &
Poor’s, P-1 by Moody’s and F1 by Fitch (or such other rating as shall be
satisfactory to such Rating Agency); or

 12
 

 

(h)           any
other investment of a type or rating that is acceptable to the Rating Agency.

Any of the foregoing Eligible Investments may be
purchased by or through the Administrator, the Indenture Trustee or through any
of their respective Affiliates.

“Eligible Servicer” means HSBC Finance Corporation,
which at the time of its appointment as Servicer, (i) is servicing a
portfolio of motor vehicle retail installment sales contracts and/or motor
vehicle installment loans, (ii) is legally qualified and has the capacity
to service the Receivables, (iii) has demonstrated the ability
professionally and competently to service a portfolio of motor vehicle retail
installment sales contracts and/or motor vehicle installment loans similar to
the Receivables with reasonable skill and care, (iv) is qualified and
entitled to use, pursuant to a license or other written agreement, and agrees
to maintain the confidentiality of, the software which the Servicer uses in
connection with performing its duties and responsibilities under this Agreement
or otherwise has available software which is adequate to perform its duties and
responsibilities under this Agreement and (v) has a net worth of at least
$50,000,000.

“Eligible Subservicer” means HSBC Auto Finance Inc. or
any wholly owned subsidiary of HSBC Finance Corporation which at the time of
its appointment as Subservicer, (i) is servicing a portfolio of motor
vehicle retail installment sales contracts and/or motor vehicle installment
loans, (ii) is legally qualified and has the capacity to service the
Receivables, (iii) has demonstrated the ability professionally and
competently to service a portfolio of motor vehicle retail installment sales
contracts and/or motor vehicle installment loans similar to the Receivables
with reasonable skill and care, and (iv) is qualified and entitled to use,
pursuant to a license or other written agreement, and agrees to maintain the
confidentiality of, the software which the Servicer uses in connection with
performing its duties and responsibilities under this Agreement or otherwise
has available software which is adequate to perform its duties and
responsibilities under this Agreement.

“Exchange Act” means the
Securities Exchange Act of 1934, as amended.

“Financed Vehicle” means a new or used automobile,
light duty truck or van securing an Obligor’s indebtedness under the respective
Receivable.

“Fitch” means Fitch Inc., or its successor.

“Grant” has the meaning assigned to such term in the
Indenture.

“HACI” means HSBC Auto Credit Inc., a Delaware
corporation. For the avoidance of doubt, HACI is an Affiliate of HAFI.

“HAFI” means HSBC Auto Finance Inc., a Delaware
corporation.

“Indenture” has the meaning assigned to such term in
the Series Supplement.

 13

 

“Indenture Trustee” means the Person acting as
Indenture Trustee under the Indenture, its successors in interest and any
successor Indenture Trustee under the Indenture.

“Indenture Trustee Fee” means the fees and reasonable
out-of-pocket expenses due to the Indenture Trustee as may be set forth in that
certain fee agreement dated as of the date hereof between the Servicer and the
Indenture Trustee.

“Insolvency Event” means, with respect to a specified
Person, (a) the filing of a petition against such Person or the entry of a
decree or order for relief by a court having jurisdiction in respect of such
Person or any substantial part of its property in an involuntary case under any
applicable federal or state bankruptcy, insolvency or other similar law now or
hereafter in effect, or appointing a receiver, liquidator, assignee, custodian,
trustee, sequestrator, or similar official for such Person or for any
substantial part of its property, or ordering the winding-up or liquidation of
such Person’s affairs, and such petition, decree or order shall remain unstayed
and in effect for a period of 60 consecutive days; or (b) the commencement
by such Person of a voluntary case under any applicable federal or state
bankruptcy, insolvency or other similar law now or hereafter in effect, or the
consent by such Person to the entry of an order for relief in an involuntary
case under any such law, or the consent by such Person to the appointment of or
taking possession by, a receiver, liquidator, assignee, custodian, trustee, sequestrator,
or similar official for such Person or for any substantial part of its
property, or the making by such Person of any general assignment for the
benefit of creditors, or the failure by such Person generally to pay its debts
as such debts become due, or the taking of action by such Person in furtherance
of any of the foregoing.

“Insurance Policy” means, with respect to a
Receivable, any insurance policy (including the insurance policies described in
Section 4.4 hereof) benefiting the holder of the Receivable providing loss
or physical damage, credit life, credit disability, theft, mechanical breakdown
or similar coverage with respect to the Financed Vehicle or the Obligor.

“Interest Period” has the meaning assigned to such
term in the Series Supplement.

“Issuer” means HSBC Automotive Trust (USA) 2006-1,
a Delaware statutory trust formed under the laws of the State of Delaware.

“Lien” means a security interest, lien, charge,
pledge, equity, or encumbrance of any kind, other than tax liens, mechanics’
liens and any liens that attach to the respective Receivable by operation of
law as a result of any act or omission by the related Obligor, provided that
the lien created by this Agreement or the Indenture shall not be deemed to
constitute a Lien.

“Lien Certificate” means, with respect to a Financed
Vehicle, an original certificate of title, certificate of lien or other
notification issued by the Registrar of Titles of the applicable state to a
secured party which indicates that the lien of the secured party 

 14
 

 

on the Financed Vehicle is recorded on the original
certificate of title. In any jurisdiction in which the original certificate of
title is required to be given to the Obligor, the term “Lien Certificate” shall
mean only a certificate or notification issued to a secured party. For Financed
Vehicles registered in states which only issue confirmation of the lienholder’s
interest electronically, the “Lien Certificate” may consist of notification of
an electronic recordation, by either a third party service provider or the
relevant Registrar of Titles of the applicable state, which indicates that the
lien of the secured party on the Financed Vehicle is recorded on the original
certificate of title on the electronic lien and title system of the applicable state.

“Liquidated Receivable” means, with respect to any
Collection Period, upon the earliest of any of the following to occur, a
Receivable as to which (i) such Receivable has been liquidated by the
Servicer through the sale of the Financed Vehicle, (ii) 90 days have
elapsed since the Servicer repossessed the Financed Vehicle, (iii) proceeds
have been received in respect of such Receivable which, in the Servicer’s
reasonable judgment, constitute the final amounts recoverable in respect of
such Receivable or (iv) 10% or more of a Scheduled Payment shall have
become 150 or more days delinquent (or, in the case where the Obligor of such
Receivable is subject to an Insolvency Event, 10% or more of a Scheduled
Payment shall have become 210 or more days delinquent); provided, however,
that the number of days specified in either clause (ii) or (iv) may
at the election of the Servicer be such shorter number of days as may from time
to time be consistent with the Servicer’s then-current collection policy. Any
Receivable that becomes a Repurchased Receivable on or before the related
Accounting Date shall not be a Liquidated Receivable.

“LPI Policy” has the meaning assigned to such term in Section 4.4(b).

“Master Receivables Purchase Agreements” has the
meaning assigned to such term in the Series Supplement.

“Monthly Records” means all records and data
maintained by the Servicer with respect to the Receivables, including the
following with respect to each Receivable: 
the account number; the originating Dealer, if any; Obligor name;
Obligor address; Obligor home phone number; Obligor business phone number;
original Principal Balance; original term; Annual Percentage Rate; current
Principal Balance; current remaining term; origination date; first payment
date; final scheduled payment date; next payment due date; date of most recent
payment; new/used classification; collateral description; days currently
delinquent; number of contract extensions (months) to date; amount of Scheduled
Payment; current Insurance Policy expiration date; and past due late charges.

“Moody’s” means Moody’s Investors Service, Inc.,
or its successor.

“Net Liquidation Proceeds” means, with respect to a
Liquidated Receivable, all amounts realized with respect to such Receivable
(other than amounts withdrawn or received from any Series Support) net of (i) reasonable
expenses incurred by the Servicer in connection with the collection of such
Receivable and the repossession 

 15
 

 

and disposition of the Financed Vehicle and (ii) amounts
that are required to be refunded to the Obligor on such Receivable; provided, however,
that the Net Liquidation Proceeds with respect to any Receivable shall in no
event be less than zero; provided, further, that, so long
as amounts are not traced to specific Receivables the Servicer shall reasonably
estimate, on or prior to each Accounting Date, the amount of Net Liquidation
Proceeds attributable to the Series Trust Estate.

“Noteholder” means the Person in whose name a Note is
registered on the Note Register.

“Notes” has the meaning assigned to such term in the
Indenture.

“Obligor” on a Receivable means the purchaser or
co-purchasers of the Financed Vehicle and any other Person who owes payments
under the Receivable.

“Officers’ Certificate” means a certificate signed by
the chairman of the board, the president, any executive vice president or any
vice president, any treasurer, assistant treasurer, secretary or assistant
secretary of the Seller or the Servicer, as appropriate.

“Opinion of Counsel” means an opinion of counsel who
may be counsel to the Servicer or the Seller, acceptable to the Indenture
Trustee and/or the Administrator, as the case may be.

“Other Conveyed Property” means all property conveyed
by the Seller to the Trust pursuant to Section 2.1(a)(ii) through
(xii) of this Agreement.

“Outstanding” has the meaning assigned to such term in
the Indenture.

“Outstanding Amount” has the meaning assigned to such
term in the Indenture.

“Owner Trust Estate” has the meaning assigned to such
term in the Trust Agreement.

“Owner Trustee” means the Person acting as Owner
Trustee under the Trust Agreement, its successors-in-interest or any successor
Owner Trustee under the Trust Agreement.

“Payment Record” means the record maintained by the
Servicer for the Trust as provided in Section 4.2(e) hereof.

“Person” means any individual, corporation, limited
liability company, estate, partnership, joint venture, association, joint stock
company, trust (including any beneficiary thereof), unincorporated organization
or government or any agency or political subdivision thereof.

 16
 

 

“Principal Balance” means, with respect to any
Receivable, as of any date, the Amount Financed minus (i) that portion of
all amounts received on or prior to such date and allocable to principal in
accordance with the Actuarial Method, or the Simple Interest Method, as
appropriate and (ii) any Cram Down Loss in respect of such Receivable. The
“Principal Balance” of a Repurchased Receivable or Liquidated Receivable shall
be deemed to be zero.

“Rating Agency” has the meaning assigned to such term
in the Series Supplement.

“Receivables” has the meaning assigned to such term in
the Series Supplement.

“Receivable Files” means the documents specified in Section 3.3.

“Receivables Purchase Agreement Supplement” means any
Receivables Purchase Agreement Supplement to any Master Receivables Purchase
Agreement.

“Record Date” with respect to each Distribution Date
means the Business Day immediately preceding such Distribution Date, unless
otherwise specified in the Series Supplement.

“Registrar of Titles” means, with respect to any
state, the governmental agency or body responsible for the registration of, and
the issuance of certificates of title relating to, motor vehicles and liens
thereon.

“Regulation AB” 
means Subpart 229.1100 - Asset Backed Securities (Regulation AB), 17
C.F.R. §§229.1100-229.1123, as such may be amended from time to time and
subject to such clarification and interpretation as have been provided by the
Commission in the adopting release (Asset-Backed Securities, Securities Act
Release No. 33-8518.70 Fed. Reg. 1, 506, 1,531 (January 7,
2005)) or by the staff of the Commission, or as may be provided by the
Commission or its staff from time to time.

“Related Documents” has the meaning assigned to such
term in the Series Supplement.

“Repurchase Amount” means, with respect to a
Receivable, the Principal Balance and all accrued and unpaid interest on the
Receivable, after giving effect to the receipt of any moneys collected (from
whatever source) on such Receivable, if any, as of the date of repurchase,
provided that, reductions in the Principal Balance resulting from such
Receivable becoming a Liquidated Receivable shall be disregarded.

“Repurchased Receivable” means a Receivable purchased
by the Servicer pursuant to Section 4.7 or repurchased by the Seller
pursuant to Section 3.2 or the Servicer pursuant to Section 11.1(a).

“Schedule of Eligibility Criteria” means the Schedule
of Eligibility Criteria attached as Schedule I to the Series Supplement.

 17
 

 

“Schedule of Receivables” has the meaning assigned to
such term in the Series Supplement.

“Scheduled Payment” means, with respect to any
Collection Period for any Receivable, the sum of (i) the amount set forth
in such Receivable as required to be paid by the Obligor in such Collection
Period and (ii) any outstanding Advanced Insurance Premiums. If after the
Closing Date, the Obligor’s obligation under a Receivable with respect to a
Collection Period has been modified so as to differ from the amount specified
in such Receivable as a result of (i) the order of a court in an
insolvency proceeding involving the Obligor, (ii) pursuant to the
Servicemembers Civil Relief Act, as amended, or similar state legislation or
regulation, or (iii) modifications or extensions of the Receivable permitted
by Sections 4.2(b) and (c), the Scheduled Payment with respect to such
Collection Period shall refer to the Obligor’s payment obligation under the
Receivable with respect to such Collection Period as so modified.

“Secured Parties” has the meaning assigned to such
term in the Series Supplement.

“Securities” means the Notes and the Certificates.

“Securityholders” means the Noteholders and the
Certificateholders.

“Seller” means HSBC Auto Receivables Corporation, a
Nevada corporation, and its successors in interest to the extent permitted
hereunder.

“Series” means the Notes and Certificates issued
pursuant to the Series Supplement.

“Series 2006-1 Notes” shall have the
meaning assigned to such term in the Series Supplement.

“Series Supplement” means, the Series Supplement,
dated as of the Closing Date, to this Agreement, the Indenture and the Trust
Agreement, among the Servicer, the Issuer, the Seller, the Indenture Trustee,
the Owner Trustee, the Delaware Trustee (if any) and the Administrator, as such
agreement may be amended or supplemented from time to time.

“Series Support” means any such rights and
benefits as specified in the Series Supplement provided to the Indenture
Trustee or the Noteholders of any Class pursuant to any letter of credit,
surety bond, cash collateral account, spread account, reserve account,
guaranteed rate agreement, maturity liquidity facility, interest rate swap
agreement, tax protection agreement or other similar arrangement. The
subordination of any Class to another Class shall be deemed to be Series Support.
Notwithstanding that such Series Support may be held by or in favor of the
Indenture Trustee for the benefit of any Class, only those Class(es) to which
such Series Support relates shall have any rights with respect thereto and
all payments thereunder received by the Indenture Trustee (or the Administrator
on its behalf) shall be distributed exclusively as prescribed in the Series Supplement.

 18
 

 

“Series Trust Estate” has the meaning assigned to
such term in the Series Supplement.

“Service Contract” means, with respect to a Financed
Vehicle, the agreement, if any, financed under the related Receivable that
provides for the repair of such Financed Vehicle.

“Servicer” means HSBC Finance Corporation, as the
servicer of the Receivables, and each Successor Servicer pursuant to Section 10.3.

“Servicer Credit Facility” means the credit facility
maintained by the Servicer with a Servicer Credit Facility Issuer pursuant to Section 4.2(e).

“Servicer Credit Facility Issuer” means a depository
institution or insurance company that qualifies pursuant to Section 4.2(e).

“Servicer’s Certificate” has the meaning assigned to
such term in the Series Supplement.

“Servicer Termination Event” means an event specified
in Section 10.1.

“Servicing Criteria” means the “servicing criteria”
set forth in Item 1122(d) of Regulation AB.

“Servicing Fee” has the meaning assigned to such term
in the Series Supplement.

“Servicing Fee Rate” means the rate per annum
specified in the Series Supplement.

“Simple Interest Method” means the method of
allocating a fixed level monthly payment on an obligation between principal and
interest, pursuant to which the portion of such payment that is allocated to
interest is equal to the product of (a) the fixed rate of interest on such
obligation, (b) the period of time (expressed as a fraction of a year,
based on the actual number of days in the calendar month and 365 or 360 days
(as applicable in the underlying document) in the calendar year) elapsed since
the preceding payment under the obligation was made and (c) the
outstanding principal balance of such obligation.

“Simple Interest Receivable” means a Receivable under
which the portion of the payment allocable to interest and the portion
allocable to principal is determined in accordance with the Simple Interest
Method.

“Standard & Poor’s” means Standard &
Poor’s Rating Services, a division of The McGraw-Hill Companies, Inc., or
its successor.

 19
 

 

“Subservicer” means, initially, HSBC Auto Finance
Inc., and any Eligible Subservicer with whom the Servicer has entered into an
agreement relating to subservicing the Receivables.

“Successor Servicer” has the meaning assigned to such
term in Section 10.3(a).

“Support Default” means a default relating to an
Insolvency Event with respect to, or the performance of, a Support Provider.

“Support Provider” means the Person, if any,
designated in the Series Supplement, as providing any Series Support,
other than HSBC Finance Corporation or any of its Affiliates or the Noteholders
of any Class which is subordinated to any other Class.

“Transfer Agreement” means the agreement among the
Issuer, the Seller, the Servicer, the Indenture Trustee and the Administrator,
substantially in the form of Exhibit A.

“Transfer Date” means, with respect to Receivables,
any date on which Receivables are to be transferred to the Trust pursuant to
this Agreement and a related Transfer Agreement.

“Treasury Regulations” 
has the meaning assigned to such term in the Trust Agreement.

“Trust” means the Issuer.

“Trust Account Property” means the Trust Accounts, all
amounts and investments held from time to time in any Trust Account (whether in
the form of deposit accounts, book-entry securities, uncertificated securities
or otherwise), and all proceeds of the foregoing.

“Trust Accounts” has the meaning assigned to such term
in the Series Supplement.

“Trust Agreement” has the meaning assigned to such
term in the Series Supplement.

“Trust Officer” means, (i) in the case of the
Indenture Trustee, any officer within the Corporate Trust Office of the
Indenture Trustee, including any President, Vice President, Assistant Vice
President, Assistant Treasurer, Assistant Secretary, Financial Services Officer
or any other officer of the Indenture Trustee, customarily performing functions
similar to those performed by any of the above designated officers and in each
case having direct responsibility for the administration of the Indenture, (ii) in
the case of the Administrator, any officer within the Corporate Trust Office of
the Administrator, and (iii) in the case of the Owner Trustee, any officer
in the corporate trust office of the Owner Trustee or any agent of the Owner
Trustee under a power of attorney with direct 

 20
 

 

responsibility for the administration of this
Agreement or any of the Basic Documents or Related Documents on behalf of the
Owner Trustee.

“UCC” means the Uniform Commercial Code as in effect
in the relevant jurisdiction on the date of this Agreement.

SECTION 1.2.   Other Interpretive
Provisions.   (a)  Capitalized terms used herein and not
otherwise defined herein have the meanings assigned to them in the Indenture,
the Series Supplement or the Trust Agreement.

(b)           All
terms defined in this Agreement shall have the defined meanings when used in
any instrument governed hereby and in any certificate or other document made or
delivered pursuant hereto unless otherwise defined therein.

(c)           As
used in this Agreement, in any instrument governed hereby and in any
certificate or other document made or delivered pursuant hereto or thereto,
accounting terms not defined in this Agreement or in any such instrument,
certificate or other document, and accounting terms partly defined in this
Agreement or in any such instrument, certificate or other document to the
extent not defined, shall have the respective meanings given to them under
generally accepted accounting principles as in effect on the date of this
Agreement or any such instrument, certificate or other document, as applicable.
To the extent that the definitions of accounting terms in this Agreement or in
any such instrument, certificate or other document are inconsistent with the
meanings of such terms under generally accepted accounting principles, the
definitions contained in this Agreement or in any such instrument, certificate
or other document shall control.

(d)           Any
agreement, instrument or statute defined or referred to herein or in any
instrument or certificate delivered in connection herewith means such
agreement, instrument or statute as from time to time amended, modified or
supplemented and includes (in the case of agreements or instruments) references
to all attachments thereto and instruments incorporated therein.

(e)           Any
term defined herein, which is otherwise defined in the Series Supplement,
shall have the meaning specified therefor in the Series Supplement,
whether or not the definition in this Agreement includes a phrase to the effect
that such term may be otherwise defined in the Series Supplement.

(f)            In
the event that with respect to the Series there is no Support Provider,
any references herein or in any other of the Basic Documents to the consent of,
or acceptability to, the Support Provider shall be deemed to be deleted.

(g)           In
the event that with respect to the Series, the Indenture and Series Supplement
do not provide for the purchase by the Noteholders of Additional Principal
Amounts, any references herein or in any other Basic Document to Additional
Principal Amounts shall be deemed to be deleted.

 21

 

SECTION 1.3. Usage of Terms. With
respect to all terms used in this Agreement, the singular includes the plural
and the plural includes the singular; words importing any gender include the
other gender; references to “writing” include printing, typing, lithography,
and other means of reproducing words in a visible form; references to
agreements and other contractual instruments include all subsequent amendments
thereto or changes therein entered into in accordance with their respective
terms and not prohibited by this Agreement; references to Persons include their
permitted successors and assigns; the terms “include” or “including” mean “include
without limitation” or “including without limitation;” the words “herein”, “hereof”
and “hereunder” and other words of similar import refer to this Agreement as a
whole and not to any particular Article, Section or other subdivision, and
Article, Section, Schedule and Exhibit references, unless otherwise
specified, refer to Articles and Sections of Schedules and Exhibits to this
Agreement.

SECTION 1.4. Certain References. All
references to the Principal Balance of a Receivable as of any date of
determination shall refer to the close of business on such day, or as of the
first day of an Interest Period shall refer to the opening of business on such
day. All references to the last day of an Interest Period shall refer to the
close of business on such day.

SECTION 1.5. No Recourse. Without
limiting the obligations of the Servicer or Seller hereunder, no recourse may
be taken, directly or indirectly, under this Agreement or any certificate or
other writing delivered in connection herewith or therewith, against any
stockholder, officer or director, as such, of the Servicer or Seller, or of any
of their respective Affiliates, predecessors or successors.

SECTION 1.6. Action by or Consent of
Noteholders. Whenever any provision of this Agreement refers to action
to be taken, or consented to, by Noteholders, such provision shall be deemed to
refer to the Noteholders of record as of the Record Date immediately preceding
the date on which such action is to be taken, or consent given, by Noteholders.
Solely for the purposes of any action to be taken, or consented to, by
Noteholders, any Note registered in the name of HAFI or any Affiliate thereof
shall be deemed not to be outstanding; provided,
however, that, solely for the purpose of
determining whether the Indenture Trustee is entitled to rely upon any such
action or consent, only Notes which a Trust Officer of the Indenture Trustee actually
knows to be so owned shall be so disregarded.

ARTICLE II

Conveyance of Receivables

SECTION 2.1. Conveyance of Receivables.
(a)  Subject to the conditions set forth in paragraph (b) below, in
consideration of the Issuer’s delivery to or upon the order of the Seller on a
Transfer Date (which may include the Closing Date) of the net proceeds of the
issuance of Notes or from any Additional Principal Amount thereunder and the
other amounts to be distributed from time to time to the Seller in accordance with
the terms of this Agreement and the Series Supplement, the Seller shall,

 22
 

 

from time to time, sell, transfer, assign, set over
and otherwise convey to the Issuer, without recourse (subject to the
obligations set forth herein), all right, title and interest of the Seller in
and to: 

(i)                each
and every Receivable listed on the Schedule of Receivables and all monies paid
or payable thereon or in respect thereof after the related Cut-off Date
(including amounts due on or before such Cut-off Date but received by HSBC
Finance, the Servicer, HAFI or any Affiliate of HAFI that is a seller under a
Master Receivables Purchase Agreement or the Seller after such Cut-off Date);

(ii)               the
security interests in the related Financed Vehicles granted by Obligors
pursuant to the related Receivables and any other interest of the Seller in
such Financed Vehicles;

(iii)              all
rights of HAFI or any Affiliate of HAFI that is the seller under a Master
Receivables Purchase Agreement against the Dealers pursuant to Dealer
Agreements or Dealer Assignments related to such Receivables; 

(iv)              any
proceeds and the right to receive proceeds with respect to such Receivables
repurchased by a Dealer pursuant to a Dealer Agreement;

(v)               all
rights under any Service Contracts on the related Financed Vehicles;

(vi)              any
proceeds and the right to receive proceeds with respect to such Receivables
from claims on any Insurance Policy covering the related Financed Vehicles or
Obligors;

(vii)             all
items contained in the related Receivables Files with respect to the
Receivables; and any and all other documents that HAFI or any Affiliate of HAFI
that is a seller under a Master Receivables Purchase Agreement, the Seller or
the Servicer, as applicable, keeps on file in accordance with its customary
procedures relating to the related Receivables, the Obligors or the Financed
Vehicles;

(viii)            all
funds on deposit from time to time in the Trust Accounts (including all
investments and proceeds thereof);

(ix)              all
property (including the right to receive future Net Liquidation Proceeds) that
secures a Receivable and that has been acquired by or on behalf of the Seller
pursuant to liquidation of such Receivable;

 23
 

 

(x)               all
of the Seller’s right, title and interest in its rights and benefits, but none
of its obligations or burdens, under each of the Master Receivables Purchase
Agreements and the Receivables Purchase Agreement Supplements, including the
delivery requirements, representations and warranties and the cure and
repurchase obligations of HAFI or any Affiliate of HAFI that is a seller under
a Master Receivables Purchase Agreement or HSBC Finance Corporation, as
applicable, under each of the Master Receivables Purchase Agreements and the
related Receivables Purchase Agreement Supplements, after the related Cut-off Date;

(xi)              on
the Closing Date, one share of Class SV Preferred Stock of the Seller
together with the exclusive right to vote such share; and

(xii)             all
present and future claims, demands, causes and choses in action in respect of
any or all of the foregoing and all payments on or under and all proceeds of
every kind and nature whatsoever in respect of any or all of the foregoing,
including all proceeds of the conversion, voluntary or involuntary, into cash
or other liquid property, all cash proceeds, accounts, accounts receivable,
notes, drafts, acceptances, chattel paper, checks, investment property, deposit
accounts, insurance proceeds, condemnation awards, rights to payment of any and
every kind and other forms of obligations and receivables, instruments and
other property which at any time constitute all or part of or are included in
the proceeds of any of the foregoing.

(b)           The
Seller shall transfer to the Issuer the Receivables and the other property and
rights related thereto described in paragraph (a) above only upon the
satisfaction of each of the following conditions on or prior to the related
Transfer Date (if the Transfer Date is not also the Closing Date):

(i)                the
Seller shall have provided the Indenture Trustee, the Administrator and the
Owner Trustee with an Addition Notice not later than five days prior to such
Transfer Date and shall have provided any information reasonably requested by
any of the foregoing with respect to the related Receivables;

(ii)               the
Seller shall have delivered to the Owner Trustee a duly executed Transfer
Agreement which shall include supplements to Schedule A (which may be in
electronic format), listing the Receivables to be transferred to the Issuer;

(iii)              the
Servicer, on behalf of the Issuer, shall have delivered to the Indenture
Trustee and the Administrator a supplemental schedule to the Series Supplement
(which may be in 

 24
 

 

electronic
format), listing the Receivables to be pledged to the Indenture Trustee under
the Indenture;

(iv)              the
Seller shall, to the extent required by Section 4.2, have deposited in the
Collection Account all Collections received after the related Cut-off Date in
respect of the Receivables to be transferred;

(v)               as
of each Transfer Date, (A) the Seller shall not be insolvent and shall not
become insolvent as a result of the transfer of Receivables on such Transfer
Date, (B) the Seller shall not intend to incur or believe that it shall
incur debts that would be beyond its ability to pay as such debts mature, (C) such
transfer shall not have been made with actual intent to hinder, delay or
defraud any Person and (D) the assets of the Seller shall not constitute
unreasonably small capital to carry out its business as conducted;

(vi)              each
of the representations and warranties made by the Seller pursuant to Section 3.1
with respect to the Receivables to be transferred on such Transfer Date shall
be true and correct as of the related Transfer Date, and the Seller shall have
performed all obligations to be performed by it hereunder on or prior to such
Transfer Date;

(vii)             the
Seller shall, at its own expense, on or prior to the Transfer Date indicate in
its computer files that the Receivables identified in the Transfer Agreement
have been sold to the Trust pursuant to this Agreement;

(viii)            the
Seller shall have taken any action necessary or, if required by the Indenture
Trustee, advisable to obtain and maintain the first priority perfected
ownership interest of the Trust in the Owner Trust Estate;

(ix)              the
Issuer shall have taken any action necessary or, if required by the Indenture
Trustee, advisable to obtain and maintain the first priority perfected security
interest of the Indenture Trustee, for the benefit of the Noteholders, in the Series Trust
Estate;

(x)               no
selection procedures adverse to the interests of the Noteholders or any Support
Provider shall have been utilized in selecting the related Receivables;

(xi)              the
addition of any such Receivables shall not cause the Trust to be treated as an
association or publicly traded partnership taxable as a corporation for federal
income tax

 25
 

 

purposes, or
cause the Notes to fail to qualify as debt for federal income tax purposes;

(xii)             if
required by any of the Related Documents, the Issuer shall simultaneously
transfer to the Administrator any amounts required to be deposited in the
related Trust Accounts with respect to the Receivables transferred on such
Transfer Date; and

(xiii)            the
Seller shall have delivered to the Indenture Trustee and the Administrator an
Officers’ Certificate confirming the satisfaction of each condition precedent
specified in this paragraph (b).

The Seller covenants that in the event any of the
foregoing conditions precedent are not satisfied with respect to any Receivable
on the date required as specified above, the Seller will immediately repurchase
such Receivable from the Trust, at a price equal to the Repurchase Amount
thereof, in the manner specified in Section 5.4.

It is the intention of the Seller that the transfer
and assignment contemplated by this Agreement and each related Transfer
Agreement shall constitute a sale of the related Receivables, other than for
federal income tax purposes, and the related Other Conveyed Property from the
Seller to the Issuer and the beneficial interest in and title to such property
shall not be part of the Seller’s estate in the event of the filing of a
bankruptcy petition by or against the Seller under any bankruptcy law. In the
event that, notwithstanding the intent of the Seller, the transfer and
assignment contemplated hereby and thereby is held not to be a sale, this
Agreement and the related Transfer Agreement and financing statements described
in this Agreement, shall constitute a Grant by the Seller of a valid and
continuing first priority perfected security interest in the property referred to
in this Section 2.1 to the Issuer. The Seller hereby authorizes the Issuer
to file such financing statements as it deems necessary in connection with the
security interest granted pursuant to the preceding sentence.

(c)           Notwithstanding
the provisions of this Section 2.1 and any other provisions of any
Transaction Document that purport to allow multiple conveyances of Receivables
from the Seller to the Issuer, the parties hereto agree that, other than the
conveyance of (i) the Receivables on the Closing Date and (ii) any
Eligible Substitute Receivables on any date hereafter, the Seller shall not
convey any Receivables to the Trust pursuant to this Agreement or any Transfer
Agreement.

SECTION 2.2. Further Encumbrance of Owner
Trust Estate. (a)  Immediately upon the conveyance to the Trust by the
Seller of Receivables and the related Other Conveyed Property pursuant to Section 2.1,
all right, title and interest of the Seller in and to such Receivables and such
Other Conveyed Property shall terminate, and all such right, title and interest
shall vest in the Issuer, in accordance with the Trust Agreement and Sections
3802 and 3805 of the Statutory Trust Statute (as defined in the Trust
Agreement).

 26
 

 

(b)           Immediately
upon the vesting of any Receivables and the related Other Conveyed Property,
the Trust shall have the sole right to pledge or otherwise encumber such
property subject to the terms of the Basic Documents. Pursuant to the Indenture
and the Series Supplement, the Trust will grant a security interest in the
Series Trust Estate to secure the repayment of the Notes. The Certificates
shall represent the beneficial ownership interest in the Receivables and the
Other Conveyed Property, and the Certificateholders shall be entitled to
receive distributions with respect thereto as set forth in the Series Supplement.

(c)           The
Indenture Trustee shall hold the Series Trust Estate for the benefit of
the Secured Parties. Following the payment in full of the Notes and the release
and discharge of the Indenture and the Series Supplement, all covenants of
the Issuer under Article III of the Indenture and the Series Supplement
shall, until payment in full of the Certificates, remain as covenants of the
Issuer for the benefit of the Certificateholders, enforceable by the Certificateholders
to the same extent as such covenants were enforceable by the Secured Parties
prior to the discharge of the Indenture. Any rights of the Indenture Trustee
under Article III of the Indenture and the Series Supplement,
following the discharge of the Indenture and the Series Supplement, shall
vest in the Certificateholders.

(d)           The
Indenture Trustee shall, at such time as there are no Securities outstanding
and all sums due to the Indenture Trustee or any agent or counsel thereof
pursuant to the Indenture as supplemented by the Series Supplement, have
been paid, pursuant to Section 4.1 of the Indenture, and subject to
satisfaction of the conditions set forth therein, release the Lien of the Series Supplement
and the Indenture with respect to the Series Trust Estate.

ARTICLE III

The Receivables

SECTION 3.1. Representations and Warranties of
Seller. The Seller represents and warrants as to the related
Receivables that the representations and warranties set forth on the Schedule
of Eligibility Criteria are, or will be, true and correct as of the respective
dates specified in such Schedule. The Issuer is deemed to have relied on such
representations and warranties in acquiring the related Receivables and the
related Securityholders shall be deemed to rely on such representations and
warranties in purchasing the Notes and Certificates or any Additional Principal
Amounts thereunder. Such representations and warranties shall survive the sale,
transfer and assignment of the Owner Trust Estate to the Issuer and any pledge
of the Series Trust Estate to the Indenture Trustee pursuant to the
Indenture and the Series Supplement.

SECTION 3.2. Repurchase upon Breach.
(a)  The Seller, the Servicer, any Trust Officer of the Indenture Trustee,
the Administrator or the Owner Trustee, as the case may be, shall inform each
of the other parties to this Agreement promptly, in writing, upon the discovery
of any breach of the Seller’s representations and warranties made pursuant to Section 3.1;
provided, however,
that the failure to give any such notice

 27
 

 

 

shall not derogate from
any obligations of the Seller under this Section 3.2. As of the last day
of the second (or, if the Seller so elects, the first, or with respect to any
exceptions appearing on any exception report delivered by the Indenture
Trustee, the first) month following the discovery by the Seller or receipt by
the Seller of notice of such breach (or such longer period not in excess of 120
days, as may be agreed upon by the Indenture Trustee and the Servicer), unless such
breach is cured by such date, the Seller shall have an obligation to repurchase
or cause HAFI or an Affiliate of HAFI that is the seller under a Master
Receivables Purchase Agreement or HSBC Finance Corporation, as applicable, to
repurchase any Receivable in which the interests of the Securityholders are
materially and adversely affected by any such breach. In consideration of and
simultaneously with the repurchase of the Receivables, the Seller shall remit,
or cause HAFI or an Affiliate of HAFI that is the seller under a Master
Receivables Purchase Agreement or HSBC Finance Corporation, as applicable, to
remit, to the Collection Account the Repurchase Amount in the manner specified
in Section 5.4 and the Issuer shall execute such assignments and other documents
reasonably requested by such person in order to effect such repurchase. The
sole remedy of the Issuer, the Owner Trustee, the Indenture Trustee, the
Administrator and the related holders with respect to a breach of
representations and warranties pursuant to Section 3.1 and the agreement
contained in this Section shall be the repurchase by the Seller of the
Receivables pursuant to this Section, subject to the conditions contained
herein or to enforce the obligation of HAFI or an Affiliate of HAFI that is the
seller under a Master Receivables Purchase Agreement or HSBC Finance
Corporation, as applicable, to the Seller to repurchase such Receivables
pursuant to the related Master Receivables Purchase Agreement. None of the
Owner Trustee, the Indenture Trustee or the Administrator shall have a duty to
conduct any affirmative investigation as to the occurrence of any conditions
requiring the repurchase of any Receivable pursuant to this Section.

(b)           Pursuant
to Section 2.1 of this Agreement and pursuant to the related Transfer
Agreement, the Seller conveyed to the Trust all of the Seller’s right, title
and interest in its rights and benefits, but none of its obligations or
burdens, under the Master Receivables Purchase Agreements and the related
Receivables Purchase Agreement Supplements, including the Seller’s rights under
the Master Receivables Purchase Agreements and the delivery requirements,
representations and warranties and the cure or repurchase obligations of HAFI
or an Affiliate of HAFI that is the seller under a Master Receivables Purchase
Agreement or HSBC Finance Corporation, as applicable, thereunder. The Seller
hereby represents and warrants to the Trust that such assignment is valid,
enforceable and effective to permit the Trust to enforce such obligations of
HAFI or an Affiliate of HAFI that is the seller under a Master Receivables
Purchase Agreement and HSBC Finance Corporation under the Master Receivables
Purchase Agreements.

SECTION 3.3. Custody of Receivables Files. In
connection with the sale, transfer and assignment of the Receivables to the
Trust pursuant to this Agreement and pursuant to the related Transfer
Agreement, the Servicer shall act, until such time as the Servicer resigns as
Servicer or is replaced as Servicer pursuant to the terms of this Agreement, as
custodian for the benefit of the Indenture Trustee of the following documents
or instruments with respect to each Receivable:

 28
 

 

 

(i)                The
fully executed original of the Contract (together with any agreements modifying
the Contract, including, without limitation, any extension agreements);

(ii)               The
original credit application, or a physical or electronic copy thereof, of each
Obligor, fully executed by each such Obligor on the customary form used by
HAFI, an Affiliate of HAFI, or the related Dealer, as applicable, or on a form
approved by HAFI or an Affiliate of HAFI, as applicable, for such application;
and

(iii)              (A) The
Lien Certificate (when received), unless such Lien Certificate is currently
being held by a third-party on behalf of the Servicer, in accordance with its
customary procedures, and otherwise such documents, if any, that HAFI or any
Affiliate of HAFI that is the seller under a Master Receivables Purchase
Agreement, as applicable, keeps on file in accordance with its customary
procedures indicating that the Financed Vehicle is owned by the Obligor and
subject to the interest of HAFI or any Affiliate of HAFI that is the seller
under a Master Receivables Purchase Agreement as first lienholder or secured
party (including any Lien Certificate received by HAFI or any Affiliate of HAFI
that is the seller under a Master Receivables Purchase Agreement, as
applicable), or, (B) documentation reflecting the assignment of a third
party’s interest in the Lien Certificate, or (C) if such Lien Certificate
has not yet been received, a copy of the application therefor, showing any of
HAFI, any Affiliate of HAFI that is a seller under a Master Receivables
Purchase Agreement, a third party assigning its interest in the Lien
Certificate or a Dealer as secured party (in the case of a Dealer, the
application shall be to obtain title in the name of HAFI or any Affiliate of
HAFI that is a seller under a Master Receivables Purchase Agreement); and

(iv)              Documents
evidencing or relating to any Insurance Policy, to the extent such documents
are maintained by or on behalf of the Seller, HAFI or any Affiliate of HAFI
that is a seller under a Master Receivables Purchase Agreement, unless such
documents are currently being held by a third-party on behalf of the Servicer,
in accordance with its customary procedures.

At such time as
the Servicer resigns as Servicer or is replaced as Servicer pursuant to the
terms of this Agreement, the Successor Servicer shall act as custodian of the
Receivables Files.

Notwithstanding
the foregoing, the Servicer may appoint a subcustodian, which subcustodian may
hold physical possession of some or all of the Receivable Files. The 

 29

 

Indenture Trustee shall have no liability for the acts
or omissionns of any custodian or subcustodian.

ARTICLE IV

Administration and Servicing of Receivables

SECTION 4.1.   Duties of the Servicer.   The
Servicer is hereby authorized to act as agent for the Trust (and also on behalf
of the Indenture Trustee and the Noteholders) and in such capacity shall
manage, service, administer and make collections on the Receivables, and
perform the other actions required by the Servicer under this Agreement, the
Indenture and the Series Supplement. The Servicer agrees that its
servicing of the Receivables shall be carried out in accordance with customary
and usual procedures of institutions which service motor vehicle retail
installment sales contracts and, to the extent more exacting, the degree of
skill and attention that the Servicer exercises with respect to all comparable
motor vehicle receivables that it services for itself or others. In performing
such duties, so long as HSBC Finance Corporation is the Servicer, it shall
comply with the standard and customary procedures for servicing all of its
comparable motor vehicle receivables. The Servicer’s duties shall include,
without limitation, collection and posting of all payments, responding to
inquiries of Obligors on the Receivables, investigating delinquencies, sending
monthly billing statements to Obligors, reporting any required tax information
to Obligors, monitoring the collateral, accounting for collections and
furnishing monthly and annual statements to the Indenture Trustee, the
Administrator and the Noteholders with respect to distributions, monitoring the
status of Insurance Policies with respect to the Financed Vehicles and
performing the other duties specified herein. The Servicer shall also
administer and enforce all rights and responsibilities of the holder of the
Receivables provided for in the Dealer Agreements (and HSBC Finance Corporation
shall make commercially reasonable efforts to obtain possession of the Dealer
Agreements, to the extent it is necessary to do so), the Dealer Assignments,
the Master Receivables Purchase Agreements, and the Insurance Policies, to the
extent that such Dealer Agreements, Dealer Assignments, the Master Receivables
Purchase Agreements, and Insurance Policies relate to the Receivables, the
Financed Vehicles or the Obligors. To the extent consistent with the standards,
policies and procedures otherwise required hereby, the Servicer shall follow
its customary standards, policies, and procedures and shall have full power and
authority, acting alone, to do any and all things in connection with such
managing, servicing, administration and collection that it may deem necessary
or desirable. In performing such duties, the Servicer or any Subservicer may
delegate their duties in accordance with Section 9.5 hereof. Without
limiting the generality of the foregoing, the Servicer is hereby authorized and
empowered by the Trust to execute and deliver, on behalf of the Trust, any and
all instruments of satisfaction or cancellation, or of partial or full release
or discharge, and all other comparable instruments, with respect to the
Receivables and with respect to the Financed Vehicles. The Servicer is hereby
authorized to commence, in its own name or in the name of the Trust, a legal
proceeding to enforce a Receivable pursuant to Section 4.3 or to commence
or participate in any other legal proceeding (including, without limitation, a
bankruptcy proceeding) relating to or involving a Receivable, an Obligor or a
Financed Vehicle. If the Servicer

 30
 

 

commences or participates in such a legal proceeding
in its own name, the Trust shall thereupon be deemed to have automatically
assigned such Receivable to the Servicer solely for purposes of commencing or
participating in any such proceeding as a party or claimant, and the Servicer
is authorized and empowered by the Trust to execute and deliver in the Servicer’s
name any notices, demands, claims, complaints, responses, affidavits or other
documents or instruments in connection with any such proceeding. The Indenture
Trustee and the Owner Trustee shall furnish the Servicer with any powers of
attorney and other documents which the Servicer may reasonably request and
which the Servicer deems necessary or appropriate and take any other steps
which the Servicer may deem reasonably necessary or appropriate to enable the
Servicer to carry out its servicing and administrative duties under this
Agreement.

SECTION 4.2.   Collection of Receivable
Payments; Modifications of Receivables.   (a)  Consistent with the
standards, policies and procedures required by this Agreement, the Servicer
shall make reasonable efforts to collect all payments called for under the
terms and provisions of the Receivables as and when the same shall become due,
and shall follow such collection procedures as it follows with respect to all
comparable motor vehicle receivables that it services for itself or others and
otherwise act with respect to the Receivables, the Dealer Agreements, the
Dealer Assignments, the Master Receivables Purchase Agreements, the Insurance
Policies and the Other Conveyed Property in such manner as will, in the
reasonable judgment of the Servicer, maximize the amount to be received by the
Trust with respect thereto. Consistent with the foregoing, the Servicer may, if
it determines in its reasonable judgment that such action would maximize the
amount to be received by the Trust, arrange for the sale by the Trust of
Liquidated Receivables with respect to which the related Financed Vehicle has
been sold, and the net proceeds of such sale shall be included in Net
Liquidation Proceeds. The Servicer is authorized in its discretion to waive any
prepayment charge, late payment charge or any other similar fees that may be
collected in the ordinary course of servicing any Receivable. 

(b)           The Servicer may at any time agree to a modification or
amendment of a Receivable in order to (i) change the Obligor’s regular due date to a date within 30 days of when
such due date occurs or (ii) re-amortize the Obligor’s obligation under
the Receivable following a partial prepayment of principal; provided, however,
that no re-amortization permitted by this clause (ii) shall extend the
maturity date of any Receivable. The Servicer may elect, at any time and
from time to time in accordance with its customary procedures, to defer a
Scheduled Payment for one month; provided, however, that (i) the
Obligor has paid all amounts due on the Receivable as of the date such deferral
is granted, (ii) the Servicer believes in good faith that such deferral
will maximize the amount to be received with respect to such Receivable and is
otherwise in the best interests of the Trust and (iii) a deferral permitted by this sentence shall not
extend the maturity date of such Receivable.

(c)           The Servicer may grant payment extensions on, or other
modifications or amendments to, a Receivable in accordance with its customary
procedures if the Servicer believes in good faith that such extension,
modification or amendment is necessary to avoid a default on such Receivable,
will maximize the amount

 31
 

 

to be received with respect to such Receivable, and is
otherwise in the best interests of the Trust; provided, however,
that if the Servicer extends the date for final payment by the Obligor of any
Receivable beyond the last day of the Collection Period immediately preceding
the Final Scheduled Distribution Date of the Notes, the Servicer will (or will
cause HAFI as subservicer to) promptly purchase such Receivable by depositing
the related Repurchase Amount into the Collection Account.

(d)           Except
as otherwise provided below in Section 4.2(e) hereof, the Servicer
shall deposit Collections in immediately available funds on or with respect to
Receivables into the Collection Account as promptly as possible after the date
of processing of such Collections, but in no event later than the second
Business Day following the date of processing.

(e)           Subject
to the express terms of the Series Supplement, but notwithstanding
anything else in this Agreement to the contrary, for so long as (i) HSBC
Finance Corporation remains the Servicer and maintains a commercial paper
rating of not less than A-1 by Standard & Poor’s, P-1 by
Moody’s and F1 by Fitch (or such other rating as shall be satisfactory to such
Rating Agency), in each case only if such Person is a Rating Agency, and for
five Business Days following any reduction of any such rating or (ii) a
Servicer Credit Facility is maintained in effect by the Servicer in form and
substance acceptable to the Rating Agency (such acceptability to be evidenced
in writing by the Rating Agency to the effect that failure to make the
aforementioned deposit on the basis of the maintenance of the Servicer Credit
Facility will not adversely affect the then current rating of the Notes) issued
by a Servicer Credit Facility Issuer having a rating on its (A) short-term
obligations of at least P-1 by Moody’s, A-1 by Standard &
Poor’s and F1 by Fitch (or such other rating as shall be satisfactory to such
Rating Agency), in each case only if such Person is a Rating Agency, and (B) long
term obligations of at least A2 by Moody’s, A by Standard & Poor’s,
and A by Fitch, in each case only if such Person is a Rating Agency, the
Servicer shall not be required to make deposits of Collections on or with
respect to Receivables as provided in Section 4.2(d), but may make one or
more deposits of Collections (excluding any portion of such funds which the
Servicer may retain in accordance with Section 4.8 or pay directly to the
Seller in its capacity as Certificateholder in accordance with Section 5.1(f))
with respect to the Series Trust Estate with respect to a Collection
Period into the Collection Account in immediately available funds not later
than 1:00 P.M., Central time, on the Business Day immediately preceding
the related Distribution Date. The Servicer shall give written notice to the
Indenture Trustee and the Administrator if it is required to deposit funds in
accordance with Section 4.2(d). If, during any Collection Period that the
Servicer is required to deposit funds in accordance with Section 4.2(d),
the Servicer satisfies either condition of the first sentence of this Section 4.2(e) such
that the Servicer is no longer required to deposit funds in accordance with Section 4.2(d),
the Servicer may, as of the date of such satisfaction but subject to the
provisions of this Section 4.2(e), withdraw from the Collection Account
all of the Collections which it has deposited thereto in accordance with Section 4.2(d) during
such Collection Period, and retain such funds in the manner provided in the
first sentence of this Section 4.2(e).

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(f)            Notwithstanding
anything else in the Basic Documents to the contrary, with respect to any
Collection Period and whether the Servicer is required to make deposits of
Collections pursuant to Section 4.2(d) or Section 4.2(e), (i) the
Servicer shall only be required to deposit Collections into the Collection
Account up to an aggregate amount of Available Funds required to be distributed
on or prior to the related Distribution Date pursuant to the terms of the Basic
Documents and (ii) if at any time prior to such Distribution Date the
amount of Collections deposited into the Collection Account exceeds the amount
required to be deposited pursuant to clause (i) above, the Servicer shall
be permitted to direct the Administrator to withdraw the excess from the
Collection Account and pay such amount pursuant to the Basic Documents. Subject
to the immediately preceding sentence, the Servicer may retain its Servicing
Fee pursuant to Section 4.8 and shall not be required to deposit it in the
Collection Account.

(g)           In
the event that a Servicer Credit Facility is maintained and HSBC Finance does
not maintain the commercial paper rating prescribed in Section 4.2(e)(i) above,
the Servicer shall within two Business Days of the date of processing of
Collections on or with respect to Receivables notify the Indenture Trustee, the
Administrator and the Servicer Credit Facility Issuer in writing of the amount
of Collections that would otherwise be deposited in the Collection Account and
the Servicer shall establish and maintain for the Trust a Payment Record in
which the payments on or with respect to the Receivables shall be credited and
the Servicer shall notify the Indenture Trustee, the Administrator and the
Servicer Credit Facility Issuer in writing as promptly as practicable (but in
any event prior to the Determination Date for the following Distribution Date)
of the amounts so credited on or with respect to the Receivables that are to be
included in Collections (as determined for this purpose after giving effect to
the exclusions described above) for the related Distribution Date and of the
amounts so credited which will constitute a part of Collections (as determined
for this purpose after giving effect to the exclusions described above) for the
second following Distribution Date. The Payment Record shall be made available
for inspection during normal business hours of the Servicer upon request of the
Indenture Trustee, the Administrator or any Servicer Credit Facility Issuer.

SECTION 4.3.   Realization Upon Receivables.   (a) 
Consistent with the standards, policies and procedures required by this
Agreement, the Servicer shall use its best efforts to repossess (or otherwise
comparably convert the ownership of) and liquidate any Financed Vehicle
securing a Receivable with respect to which the Servicer has determined that
payments thereunder are not likely to be resumed, as soon as is practicable
after default on such Receivable but in no event later than the date on which
10% or more of a Scheduled Payment has become 150 days delinquent (other than
in the case of Financed Vehicles where neither the Financed Vehicle nor the
Obligor can be physically located by the Servicer (using procedures consistent
with the standards, policies and procedures of the Servicer required by this
Agreement) and other than in the case of an Obligor who is subject to a
bankruptcy proceeding); provided, however, that the Servicer may elect not to
repossess a Financed Vehicle within such time period if in its good faith
judgment it determines that the proceeds ultimately recoverable with respect to
such Receivable would be increased by forbearance. The Servicer is authorized
to follow such customary practices and procedures as it shall deem necessary

 33
 

 

or advisable, consistent with the standard of care
required by Section 4.1, which practices and procedures may include
reasonable efforts to realize upon any recourse to Dealers, the sale of the
related Financed Vehicle at public or private sale, the submission of claims
under an Insurance Policy and other actions, including, without limitation,
entering into settlements with Obligors, by the Servicer in order to realize
upon such a Receivable. The foregoing is subject to the provision that, in any
case in which the Financed Vehicle shall have suffered damage, the Servicer
shall not expend funds in connection with any repair or towards the
repossession of such Financed Vehicle unless it shall determine in its
discretion that such repair and/or repossession shall increase the proceeds of
liquidation of the related Receivable by an amount greater than the amount of
such expenses. The Servicer shall be entitled to recover all reasonable
expenses incurred by it in the course of repossessing and liquidating a
Financed Vehicle but only from the liquidation proceeds of the vehicle or under
the related Dealer Agreement. The Servicer shall pay on behalf of the Trust any
personal property taxes assessed on repossessed Financed Vehicles. The Servicer
shall be entitled to reimbursement of any such tax from Net Liquidation
Proceeds with respect to such Receivable.

(b)           If
the Servicer elects to commence a legal proceeding to enforce a Dealer
Agreement or Dealer Assignment, the act of commencement shall be deemed to be
an automatic assignment from the Trust to the Servicer of the rights under such
Dealer Agreement and Dealer Assignment for purposes of collection only. If, however, in any enforcement suit or legal
proceeding it is held that the Servicer may not enforce a Dealer Agreement or Dealer
Assignment on the grounds that it is not a real party in interest or a Person
entitled to enforce the Dealer Agreement or Dealer Assignment, the Indenture
Trustee, at the Servicer’s written direction and expense, or the Seller, at the
Seller’s expense, shall take such steps as the Servicer deems reasonably
necessary to enforce the Dealer Agreement or Dealer Assignment, including
bringing suit in its name or the name of the Seller, the Trust or the Owner
Trustee. All amounts recovered shall be remitted directly by the Servicer as
provided in Section 4.2(d) or 4.2(e), as applicable.

SECTION 4.4.   Insurance.   (a) 
The Servicer shall require, in accordance with its customary servicing policies
and procedures, that each Financed Vehicle be insured by the related Obligor
under an insurance policy covering physical loss and damage to the related
Financed Vehicle and shall monitor the status of such physical loss and damage
insurance coverage thereafter, in accordance with its customary servicing
procedures. Each Receivable requires the Obligor to obtain such physical loss
and damage insurance, naming HAFI or any Affiliate of HAFI that is the seller
under a Master Receivables Purchase Agreement, as applicable, and its
successors and assigns as loss payee, and with respect to liability coverage,
additional insureds, and permits the holder of such Receivable to obtain
physical loss and damage insurance at the expense of the Obligor if the Obligor
fails to maintain such insurance. If the Servicer shall determine that an
Obligor has failed to obtain or maintain a physical loss and damage Insurance
Policy covering the related Financed Vehicle which satisfies the conditions set
forth in the related Eligibility Criteria (including, without limitation,
during the repossession of such Financed Vehicle) the Servicer shall, in
accordance with its customary servicing procedures, enforce the rights of the
holder of the Receivable under

 34
 

 

 the Receivable
to require the Obligor to obtain such physical loss and damage insurance in
accordance with its customary servicing policies and procedures.

(b)           The
Servicer may, if an Obligor fails to obtain or maintain a physical loss and
damage Insurance Policy, obtain insurance with respect to the related Financed
Vehicle and advance on behalf of such Obligor, as required under the terms of
the Insurance Policy, the premiums for such insurance (such insurance policy
being referred to herein as an “LPI Policy”). All LPI Policies shall be
endorsed with clauses providing for loss payable to the Servicer or a Seller. Any
cost incurred by the Servicer in maintaining such LPI Policy shall be recoverable
only out of premiums paid by the Obligors or Net Liquidation Proceeds with
respect to the Receivable, as provided in Section 4.4(c).

(c)           In
connection with any LPI Policy obtained hereunder, the Servicer may, in the
manner and to the extent permitted by applicable law, require the Obligors to
repay any Advanced Insurance Premiums to the Servicer. In no event shall the
Servicer include the amount of the premium in the Amount Financed under the
Receivable. The Servicer will not add any Advanced Insurance Premium to the
Principal Balance of the related Receivable, and amounts allocable thereto will
not be available for distribution on the Notes. The Servicer shall retain and
separately administer the right to receive payments from or pay rebates to Obligors
with respect to LPI Policies. If an Obligor makes a payment with respect to a
Receivable having an LPI Policy in place that is less than the Scheduled
Payment, then, unless otherwise required by applicable law or the terms of the
related Receivable, the Servicer shall apply the payment first to any accrued
and unpaid interest on the Receivable, then to any outstanding Advanced
Insurance Premium, and then to principal and other amounts due on the
Receivable in accordance with the Servicer’s standard and customary servicing
procedures. Unless otherwise required by applicable law or the terms of the
related Receivable, Net Liquidation Proceeds on any Receivable will be applied
first to the Principal Balance until paid in full, then to other amounts due from
the Obligor, including any outstanding Advanced Insurance Premiums, in
accordance with the terms of the related Receivable and the Servicer’s standard
and customary servicing procedures.

(d)           The
Servicer may sue to enforce or collect upon the Insurance Policies, in its own
name, if possible, or as agent of the Trust. If the Servicer elects to commence
a legal proceeding to enforce an Insurance Policy, the act of commencement
shall be deemed to be an automatic assignment of the rights of the Trust under
such Insurance Policy to the Servicer for purposes of collection only. If, however, in any enforcement suit or legal
proceeding it is held that the Servicer may not enforce an Insurance Policy on
the grounds that it is not a real party in interest or a holder entitled to
enforce the Insurance Policy, the Indenture Trustee, at the Servicer’s written
direction and expense, or the Seller, at the Seller’s expense, shall take such
steps as the Servicer deems reasonably necessary to enforce such Insurance
Policy, including bringing suit in its name or the name of the Trust or the
Owner Trustee.

SECTION 4.5.   Maintenance of Security
Interests in Vehicles.   Consistent with the policies and procedures
required by this Agreement, the Servicer

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shall take such steps on behalf of the Trust as are
necessary to maintain perfection of the security interest created by each
Receivable in the related Financed Vehicle on behalf of the Trust or as the
Indenture Trustee shall reasonably request, including, but not limited to,
obtaining the execution by the Obligors and the recording, registering, filing,
re-recording, re-filing, and re-registering of all security agreements,
financing statements and continuation statements as are necessary to maintain
the security interest granted by the Obligors under the respective Receivables.
The Owner Trustee, on behalf of the Trust, hereby authorizes the Servicer, and
the Servicer agrees, to take any and all steps necessary to re-perfect such
security interest on behalf of the Trust as necessary because of the relocation
of a Financed Vehicle or for any other reason. In the event that the assignment
of a Receivable to the Trust is insufficient, without a notation on the related
Financed Vehicle’s certificate of title, or without fulfilling any additional
administrative requirements under the laws of the state in which the Financed
Vehicle is located, to perfect a security interest in the related Financed
Vehicle in favor of the Trust, the Seller hereby agrees to cause HAFI or any
Affiliate of HAFI that is the seller under a Master Receivables Purchase
Agreement, as applicable, to treat the designation of HAFI or any Affiliate of
HAFI that is the seller under a Master Receivables Purchase Agreement, as
applicable, as the secured party on the certificate of title as a designation
in its capacity as agent of the Trust for such limited purpose.

SECTION 4.6.   Covenants, Representations, and
Warranties of Servicer.   By its execution and delivery of this
Agreement, the Servicer makes the following representations, warranties and
covenants on which the Issuer relies in accepting the Receivables, on which the
Administrator relies in authenticating the Notes, on which the Noteholders rely
in purchasing the Notes and any Additional Principal Amount thereunder, on
which the Owner Trustee relies in executing the Certificates.

The Servicer covenants as follows:

(i)            Liens in Force.
The Financed Vehicle securing each Receivable shall not be released in whole or
in part from the security interest granted by the Receivable, except upon
payment in full of the Receivable or as otherwise contemplated herein;

(ii)           No Impairment.
The Servicer shall do nothing to impair the rights of the Trust or the
Noteholders in the Receivables, the Dealer Agreements, the Dealer Assignments,
the Master Receivables Purchase Agreements, the Insurance Policies or the Other
Conveyed Property;

(iii)          No Amendments.
The Servicer shall not extend or otherwise amend the terms of any Receivable,
except in accordance with Section 4.2;

(iv)          Restrictions on
Liens. The Servicer shall not (i) create, incur or suffer to exist, or
agree to create, incur or suffer to exist, or consent to cause or permit in the
future (upon the 

 36
 

 

happening of a
contingency or otherwise) the creation, incurrence or existence of any Lien or
restriction on transferability of the Receivables except for the Lien in favor
of the Indenture Trustee for the benefit of the Secured Parties, and the
restrictions on transferability imposed by this Agreement or (ii) sign or
file under the Uniform Commercial Code of any jurisdiction any financing
statement which names HAFI, the Servicer or any Affiliate thereof as a debtor,
or sign any security agreement authorizing any secured party thereunder to file
such financing statement, with respect to the Receivables, except in each case
any such instrument solely securing the rights and preserving the Lien in favor
of the Indenture Trustee for the benefit of the Secured Parties;

(v)           Servicing of
Receivables. The Servicer shall service the Receivables as required by the
terms of this Agreement and in material compliance with its standard and customary
procedures for servicing all its other comparable motor vehicle receivables and
in compliance with applicable law; and

(vi)          Relocations of
Principal Office. The Servicer shall notify in writing the Indenture
Trustee and the Administrator of any relocation of the Servicer’s principal
office set forth in Section 13.3 hereof and all Receivables Files shall be
maintained by the Servicer in the United States.

SECTION 4.7.   Repurchase of Receivables Upon
Breach of Covenant.   Upon
discovery by any of the Servicer, the Seller, or a Trust Officer of any of the
Owner Trustee, the Indenture Trustee or the Administrator of a breach of any of
the covenants set forth in Sections 4.5 or 4.6, the party discovering such
breach shall give prompt written notice to the others; provided, however, that the
failure to give any such notice shall not affect any obligation of the Servicer
under this Section 4.7. As of the second Accounting Date following its
discovery or receipt of notice of any breach of any covenant set forth in
Sections 4.5 or 4.6 which materially and adversely affects the interests of the
Securityholders in any Receivable (including any Liquidated Receivable) or the
related Financed Vehicle (or, if such second Accounting Date is more than 45
days after discovery or receipt by the Servicer of notice of such breach, then
the first Accounting Date so following), the Servicer shall, unless such breach
shall have been cured in all material respects, repurchase from the Trust the
Receivable affected by such breach and, on the date specified in Section 5.4,
the Servicer shall pay the related Repurchase Amount and deposit such
Repurchase Amounts into the Collection Account. It is understood and agreed
that the obligation of the Servicer to repurchase any Receivable (including any
Liquidated Receivable) with respect to which such a breach has occurred and is
continuing shall, if such obligation is fulfilled, constitute the sole remedy against
the Servicer for such breach.

SECTION 4.8.   Total Servicing Fee; Payment of
Certain Expenses by Servicer.   So as long as:  (i) HSBC Finance Corporation is the
Servicer, (ii) the Servicer

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is permitted to make deposits of Collections in
accordance with Section 4.2(e) hereof and (iii) the Servicer’s Certificate
delivered with respect to such Distribution Date indicates that Available Funds
with respect to such Distribution Date are sufficient to make the distributions
required to be made on such Distribution Date in respect of the Servicing Fee
payable to HSBC Finance Corporation as Servicer (and all other distributions
required to be made on such Distribution Date having a higher priority than the
distribution of the Servicing Fee payable to HSBC Finance Corporation as
Servicer), the Servicer shall be entitled to retain out of amounts otherwise to
be deposited in the Collection Account with respect to a Collection Period, the
Servicing Fee payable to HSBC Finance Corporation as Servicer for such
Collection Period. The Servicer shall be required to pay all expenses incurred
by it in connection with its activities under this Agreement (including taxes
imposed on the Servicer, expenses incurred in connection with distributions and
reports made by the Servicer to Securityholders, all fees and expenses of the
Owner Trustee, the Indenture Trustee and the Administrator), except taxes
levied or assessed against the Trust, and claims against the Trust in respect
of indemnification, which taxes and claims in respect of indemnification
against the Trust are expressly stated to be for the account of HSBC Finance
Corporation. The Servicer shall not be entitled to reimbursement of Advanced
Insurance Premiums except as set forth in Section 4.4(c). The Servicer
shall be liable for the fees, charges and expenses of the Owner Trustee, the
Indenture Trustee, the Administrator, any Subservicer and their respective
agents.

SECTION 4.9.   Servicer’s Certificate.   No
later than 10:00 a.m. Central time on each Determination Date, the
Servicer shall deliver to the Administrator, and cause to be delivered via
access to its or its Affiliate’s web-site address to the Rating Agencies, the
Indenture Trustee and the Owner Trustee, a Servicer’s Certificate executed by a
responsible officer or agent of the Servicer containing among other things, all
information necessary to enable the Administrator to make the distributions
with respect to the related Distribution Date pursuant to the Series Supplement.
In addition to the information set forth in the preceding sentence, the
Servicer’s Certificate shall also contain the information required by the Series Supplement.

SECTION 4.10.   Annual Statement as to
Compliance, Notice of Servicer Termination Event.   (a)  The
Servicer shall deliver, and, to the extent required by Section 1123 of
Regulation AB, shall cause each Subservicer to deliver, to the Seller, the
Indenture Trustee, the Administrator and the Owner Trustee an Officer’s
Certificate satisfying the requirements of Section 1123 of Regulation AB
signed by a responsible officer of the Servicer or such Subservicer, as
applicable, for the year ended December 31 (or other applicable date) of
the immediately preceding year, and stating that (i) a review of the
activities of the Servicer or such Subservicer, as applicable, during the
preceding 12-month period (or such shorter or longer, as applicable,
period since the Closing Date) and of its performance under this Agreement has
been made under such officer’s supervision, and (ii) to such officer’s
knowledge, based on such review, the Servicer or such Subservicer, as
applicable, has fulfilled in all material respects all of its obligations under
this Agreement throughout such period, or, if there has been a failure to
fulfill any such obligation in any material respect, specifying each such
failure known to such officer and the nature and status thereof.

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The Officer’s
Certificates referred to in this Section 4.10(a) will be delivered on
or before March 15 of each calendar year, beginning March 15, 2007,
unless the Issuer is not required to file periodic reports under the Exchange
Act, in which case the certificates may be delivered within 90 days after the
end of each calendar year.

(b)           The
Seller or the Servicer shall deliver to the Indenture Trustee, the
Administrator, the Owner Trustee, the Servicer or the Seller (as applicable)
promptly after having obtained knowledge thereof, but in no event later than
five (5) Business Days thereafter, written notice in an Officer’s
Certificate of any event that with the giving of notice or lapse of time, or
both, would become a Servicer Termination Event under Section 10.1.

(c)             The
Servicer shall, and, to the extent required by Section 1122 of Regulation
AB, shall cause each Subservicer to:

(i)    deliver to the Indenture
Trustee, the Administrator and the Owner Trustee, a report, for the year ended December 31
of the preceding calendar year, on its assessment of compliance during the
preceding calendar year with the Servicing Criteria applicable to it, including
disclosure of any material instance of non-compliance identified by the
Servicer or such Subservicer, as applicable, that satisfies the requirements of
Rule 13a-18 and 15d-18 under the Exchange Act and Item 1122 of
Regulation AB under the Securities Act; and

(ii)    cause an independent
registered public accounting firm that is qualified and independent within the
meaning of Rule 2-01 of Regulation S-X under the Securities Act to
deliver to the Indenture Trustee, the Administrator and the Owner Trustee an
attestation report that satisfies the requirements of Rule 13a-18 or
Rule 15d-18 under the Exchange Act and Item 1122 of Regulation AB,
with respect to each assessment of compliance with Servicing Criteria delivered
pursuant to clause (i) above. Such attestation report will be addressed to
the board of directors of the Servicer or such Subservicer, as applicable, and
to the Indenture Trustee, the Administrator and the Owner Trustee and will be
in accordance with Rules 1-02(a)(3) and 2-02(g) of
Regulation S-X under the Securities Act. The firm may render other services to
the Servicer, such Subservicer or the Seller, but the firm must indicate in
each attestation report that it is qualified and independent within the meaning
of Rule 2-01 of Regulation S-X under the Securities Act.

The reports referred to in this Section 4.10(c) will
be delivered on or before March 15 of each calendar year, beginning March 15,
2007, unless the Issuer is not required to file periodic reports under the
Exchange Act, in which case the reports may be delivered within 90 days after
the end of each calendar year.

 39
 

 

(d)           If
directed by the Seller, the Servicer will prepare, execute, file and deliver
all reports, statements, information, certificates or other documentation
required to be delivered by the Issuer pursuant to the Exchange Act and the
Sarbanes-Oxley Act of 2002 and the rules thereunder.

Section
4.11.   Access to Certain Documentation and Information Regarding
Receivables.   The Servicer shall provide to representatives of the
Indenture Trustee and the Owner Trustee reasonable access to the documentation
regarding the Receivables. In each case, such access shall be afforded without
charge but only upon reasonable request and during normal business hours. Nothing
in this Section shall derogate from the obligation of the Servicer to
observe any applicable law prohibiting disclosure of information regarding the
Obligors, and the failure of the Servicer to provide access as provided in this
Section as a result of such obligation shall not constitute a breach of
this Section.

Section
4.12.   Fidelity Bond and Errors and Omissions Policy.   The
Servicer or such Eligible Subservicer that is performing the servicing duties
of the Servicer, has obtained, and shall continue to maintain in full force and
effect, a Fidelity Bond and Errors and Omissions Policy of a type and in such
amount as is customary for servicers engaged in the business of servicing motor
vehicle receivables.

ARTICLE V

Trust Accounts; Distributions;

Statements to Certificateholders and Noteholders

Section 5.1.   Establishment
of Trust Accounts.   (a)  (i)  Name: Steven H.
Smith Title: Vice President and Assistant Treasurer The Administrator shall
establish and maintain the Trust Accounts required to be established and
maintained pursuant to the Series Supplement, and such Trust Accounts
shall be subject to the sole dominion and control of the Administrator on
behalf of the Indenture Trustee for the benefit of the Noteholders.

(ii)                   No
Trust Account shall be maintained with an institution other than the
Administrator unless such institution agrees in writing to the provisions of
this Section 5.1 as if such institution were the Administrator, except
that the Administrator shall continue to be the “entitlement holder” of the
related Trust Account.

(iii)                  With
respect to any Trust Account Property held from time to time in any Trust
Account, the Administrator agrees that (A) such Trust Account Property
shall at all times be credited in the Administrator’s books and records to the
relevant Trust Account, (B) any Eligible Investment constituting a deposit
account shall be, except as otherwise provided herein, subject to the exclusive
custody and control of the Administrator, and, if the Administrator is not the
depositary bank with which such deposit account is maintained, the
Administrator shall be the depositary bank’s customer with respect thereto, and
(C) any Eligible Investment other than a deposit account shall be held,
pending maturity or disposition by the Administrator, in accordance with the
relevant terms of the definition of “Delivery.” 
The Administrator acknowledges and 

 40
 

 

agrees that (i) each item of property (whether
investment property, financial asset, security, instrument, cash or any other
type of property) credited to a Trust Account that is a “securities account,”
(as defined in Article 8 of the UCC) shall be treated as a “financial
asset” within the meaning of Article 8 of the UCC, (ii) it shall act
as a “securities intermediary” (as defined in Article 8 of the UCC) with
respect to each Trust Account which is a “securities account” and a “bank” (as
defined in Article 9 of the UCC) with respect to each Trust Account that
is a “deposit account” (as defined in Article 9 of the UCC), and (iii) each
Trust Account is either a “securities account” or a “deposit account.”

(b)           Except
as otherwise provided in the Series Supplement, funds on deposit in the
Trust Accounts shall be invested by the Administrator (or any custodian with
respect to funds on deposit in any such account) in Eligible Investments
selected in writing by the Servicer (pursuant to standing instructions or
otherwise) which absent any instruction shall be the investments specified in
clause (d) of the definition of Eligible Investments set forth herein. Unless
otherwise agreed in writing by the Rating Agencies, funds on deposit in any
Trust Account shall be invested in Eligible Investments that will mature so
that such funds will be available at the close of business on the Business Day
immediately preceding the following Distribution Date. Funds deposited in a
Trust Account on the day immediately preceding a Distribution Date and
representing the proceeds of Eligible Investments are required to be held
overnight in an Eligible Account and shall be included in Available Funds (as
defined in the Series Supplement) for the succeeding Distribution Date.

(c)           All
investment earnings of monies deposited in the Trust Accounts shall be
deposited (or caused to be deposited) by the Administrator in the Collection
Account no later than the close of business on the Business Day immediately
preceding the related Distribution Date, and any loss resulting from such
investments shall be charged to the Collection Account. The Servicer will not
direct the Administrator to make any investment of any funds held in any of the
Trust Accounts unless the security interest granted and perfected in such
account will continue to be perfected in such investment, in either case
without any further action by any Person, and, in connection with any direction
to the Administrator, to make any such investment, if necessary, the Servicer
shall deliver to the Administrator and the Indenture Trustee an Opinion of
Counsel to such effect.

(d)           The
Administrator shall not in any way be held liable by reason of any
insufficiency in any of the Trust Accounts resulting from any loss on any
Eligible Investment included therein except for losses attributable to the
Administrator’s negligence or bad faith.

(e)           If
(i) the Servicer shall have failed to give investment directions for any
funds on deposit in the Trust Accounts to the Administrator by 2:00 p.m.
Eastern Time (or such other time as may be agreed by the Issuer and the
Administrator) on any Business Day; or (ii) an Event of Default shall have
occurred and be continuing, the Administrator shall, to the fullest extent practicable,
invest and reinvest funds in the Trust Accounts in one or more Eligible
Investments in accordance 

 41
 

 

with paragraph (b) above; provided that,
if following an Event of Default amounts are to be distributed to
Securityholders other than on a Distribution Date, investments shall mature on
the Business Day preceding any such proposed date of distribution.

(f)            The
Administrator shall possess all right, title and interest in all funds on
deposit from time to time in the Trust Accounts and in all proceeds thereof and
all such funds, investments, proceeds and income shall be part of the Series Trust
Estate. Except as otherwise provided herein, the Trust Accounts shall be under
the sole dominion and control of the Administrator for the benefit of the Secured
Parties. If, at any time, any Trust Account ceases to be an Eligible Account,
the Administrator (or the Servicer on its behalf) shall within five Business
Days (or such longer period as to which each Rating Agency may consent)
establish a new Trust Account as an Eligible Account and shall transfer any
cash and/or any investments to such new Trust Account. In connection with the
foregoing, the Servicer agrees that, in the event that any of the Trust
Accounts are not accounts with the Administrator, the Servicer shall notify the
Administrator in writing promptly upon any of such Trust Accounts ceasing to be
an Eligible Account. The Servicer may net against any deposits required to be
made to the Collection Account on the Business Day before any Determination
Date amounts that the Seller, as Certificateholder or otherwise, is entitled to
receive as distributions from the Collection Account on the related
Distribution Date.

Section
5.2.   Certain Reimbursements to the Servicer.   The Servicer
shall be entitled to withhold from amounts otherwise required to be remitted to
the Collection Account with respect to a Collection Period an amount in respect
of funds deposited with respect to prior Collection Periods in the Collection
Account but later determined by the Servicer to have resulted from mistaken
deposits or postings or checks returned for insufficient funds; provided, that, such
withholding may be made only following certification by the Servicer of such
amounts and the provision of such information to the Indenture Trustee and the
Administrator as may be necessary in the opinion of the Indenture Trustee and
the Administrator to verify the accuracy of such certification.

Section
5.3.   Application of Collections.   All Collections for the
Collection Period shall be applied by the Servicer as follows:  with respect to each Simple Interest
Receivable (other than a Repurchased Receivable), payments by or on behalf of
the Obligor, (other than amounts, if any, collected with respect to
administrative fees, including late fees, prepayment fees and liquidation fees
collected on the Receivable) shall be applied to interest and principal in
accordance with the Simple Interest Method. With respect to each Actuarial
Receivable, (other than a Repurchased Receivable), payments by or on behalf of
the Obligor, (other than amounts, if any, collected with respect to
administrative fees, including late fees, prepayment fees and liquidation fees
collected on the Receivable) shall be applied to interest and principal in
accordance with the Actuarial Method.

Section
5.4.   Additional Deposits.

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(a)           HAFI,
any Affiliate of HAFI that is the seller under a Master Receivables Purchase
Agreement, HSBC Finance Corporation and the Seller, as applicable, shall
deposit or cause to be deposited in the Collection Account on the Business Day
preceding the Distribution Date following the date on which such obligations
are due the aggregate Repurchase Amount with respect to Repurchased
Receivables.

(b)           The
Servicer agrees for the benefit of the Indenture Trustee that any amounts
payable by the Servicer to the Seller under the Master Receivables Purchase
Agreement to which the Servicer is a party which are to be paid by the Seller
to the Indenture Trustee for the benefit of the Secured Parties shall be paid
by the Servicer, on behalf of the Seller, directly to the Administrator (on
behalf of the Indenture Trustee).

ARTICLE VI

RESERVED

ARTICLE VII

RESERVED

ARTICLE VIII

The Seller

Section
8.1.   Representations of Seller.   The Seller makes the
following representations on which the Issuer is deemed to have relied in
acquiring the Receivables and on which the Noteholders are deemed to have
relied on in the purchasing of Notes and any Additional Principal Amount and on
which each Support Provider shall be deemed to have relied on providing the Series Support.
Except as otherwise specifically provided, the representations speak as of the
Closing Date and as of each Transfer Date and shall survive each sale of the
Receivables to the Issuer and each pledge thereof to the Indenture Trustee
pursuant to the Indenture and the Series Supplement.

(a)           Representations
in Transfer Agreement. The representations and warranties set forth on the
Schedule of Eligibility Criteria attached as Schedule I to the Series Supplement
are true and correct with respect to the Receivables included in the Series Trust
Estate.

(b)           Organization
and Good Standing.   The Seller has been duly organized and is validly
existing as a corporation in good standing under the laws of the State of
Nevada, with power and authority to own its properties and to conduct its
business as such properties are currently owned and such business is currently
conducted, and had at all relevant times, and now has, power, authority and
legal right to acquire, own and sell the Owner Trust Estate transferred to the
Trust.

(c)           Due
Qualification.   The Seller is duly qualified to do business as a foreign
corporation in good standing and has obtained all necessary licenses 

 43
 

 

and approvals in all jurisdictions where the failure
to do so would materially and adversely affect the Seller’s ability to transfer
the Receivables and the Other Conveyed Property to the Trust pursuant to this
Agreement, or the validity or enforceability of the Receivables and the Other
Conveyed Property or to perform the Seller’s obligations hereunder and under
the Related Documents to which the Seller is a party.

(d)           Power
and Authority.   The Seller has the power and authority to execute and
deliver this Agreement and the Related Documents to which it is a party and to
carry out its terms and their terms, respectively; the Seller has full power
and authority to sell and assign the Owner Trust Estate to be sold and assigned
to and deposited with the Trust by it and has duly authorized such sale and
assignment to the Trust by all necessary corporate action; and the execution,
delivery and performance of this Agreement and the Related Documents to which
the Seller is a party have been duly authorized by the Seller by all necessary
corporate action.

(e)           Valid
Sale, Binding Obligations.   This Agreement and each related Transfer
Agreement effects a valid sale, transfer and assignment of the Owner Trust
Estate, enforceable against the Seller and creditors of and purchasers from the
Seller; and this Agreement and the Related Documents to which the Seller is a
party, when duly executed and delivered, shall constitute legal, valid and
binding obligations of the Seller enforceable in accordance with their
respective terms, except as enforceability may be limited by bankruptcy,
insolvency, reorganization or other similar laws affecting the enforcement of
creditors’ rights generally and by equitable limitations on the availability of
specific remedies, regardless of whether such enforceability is considered in a
proceeding in equity or at law.

(f)            No
Violation.   The consummation of the transactions contemplated by this
Agreement and the Related Documents and the fulfillment of the terms of this
Agreement and the Related Documents shall not (A) conflict with, result in
any breach of any of the terms and provisions of, or constitute (with or
without notice, lapse of time or both) a default under, the articles of
incorporation or by-laws of the Seller, or any indenture, agreement, mortgage,
deed of trust or other instrument to which the Seller is a party or by which it
is bound, (B) result in the creation or imposition of any Lien upon any of
its properties pursuant to the terms of any such indenture, agreement,
mortgage, deed of trust or other instrument, other than this Agreement, or (C) violate
any law, order, rule or regulation applicable to the Seller of any court
or of any federal or state regulatory body, administrative agency or other
governmental instrumentality having jurisdiction over the Seller or any of its
properties, except in the case of (A), (B) or (C) where any such
default, Lien or violation shall not materially and adversely affect the
interest of the Noteholders or the Trust in the Series Trust Estate.

(g)           No
Proceedings.   There are no proceedings or investigations pending or,
to the Seller’s knowledge, threatened against the Seller, before any court,
regulatory body, administrative agency or other tribunal or governmental
instrumentality having jurisdiction over the Seller or its properties (A) asserting
the invalidity of this Agreement or any of the Related Documents, (B) seeking
to prevent the issuance of any Securities or the consummation of any of the
transactions contemplated 

 44
 

 

by this Agreement or any of the Related Documents, (C) seeking
any determination or ruling that might materially and adversely affect the
performance by the Seller of its obligations under, or the validity or
enforceability of, this Agreement or any of the Related Documents, or (D) seeking
to adversely affect the federal income tax or other federal, state or local tax
attributes of the Securities.

(h)           Approvals.   All
approvals, authorizations, consents, orders or other actions of any person,
corporation or other organization, or of any court, governmental agency or body
or official, required in connection with the execution and delivery by the
Seller of this Agreement and the other Related Documents to which it is a
party, and the consummation of the transactions contemplated hereby and thereby
have been or will be taken or obtained on or prior to the Closing Date and each
Transfer Date.

(i)            No
Consents.   The Seller is not required to obtain the consent of any
other party or any consent, license, approval or authorization, or registration
or declaration with, any governmental authority, bureau or agency in connection
with the execution, delivery, performance, validity or enforceability of this
Agreement which has not already been obtained.

(j)            No
Lien Filings.   The Seller is not aware of any judgment lien filings or
tax lien filings against itself.

(k)           Chief
Executive Office. The chief executive office of the Seller is at 1111 Town
Center Drive, Las Vegas, Nevada 89144.

Section 8.2.   Corporate
Existence.   (a)  During the term of this Agreement, the
Seller will keep in full force and effect its existence, rights and franchises
as a corporation under the laws of the jurisdiction of its incorporation and
will obtain and preserve its qualification to do business in each jurisdiction
in which such qualification is or shall be necessary to protect the validity
and enforceability of this Agreement, the Related Documents and each other
instrument or agreement necessary or appropriate to the proper administration
of this Agreement and the transactions contemplated hereby.

(b)           During
the term of this Agreement, the Seller shall observe the applicable legal
requirements for the recognition of the Seller as a legal entity separate and
apart from its Affiliates, including as follows:

(i)            the Seller shall
not engage in any other business other than as provided in Article THIRD
of Seller’s Articles of Incorporation;

(ii)           the Seller shall
maintain corporate records and books of account separate from those of its
Affiliates;

(iii)          except as otherwise
provided in this Agreement, the Seller shall not commingle its assets and funds
with those of its Affiliates;

 45
 

 

(iv)          the Seller shall hold
such appropriate meetings of its Board of Directors as are necessary to
authorize all the Seller’s corporate actions required by law to be authorized
by the Board of Directors, shall keep minutes of such meetings and of meetings
of its stockholder(s) and observe all other customary corporate
formalities or shall obtain written consents in lieu of formal meetings of its
Board of Directors or stockholder(s) (and any successor Seller that is not
a corporation shall observe similar procedures in accordance with its governing
documents and applicable law);

(v)           the Seller shall at
all times hold itself out to the public under the Seller’s own name as a legal
entity separate and distinct from its Affiliates;

(vi)          the Seller shall not
become involved in the day-to-day management of any other Person;

(vii)         the Seller shall not
guarantee any other Person’s obligations or advance funds to any other Person
for the payment of expenses or otherwise;

(viii)        the Seller shall not
act as an agent of any other Person in any capacity;

(ix)           the Seller shall
not dissolve or liquidate, in whole or in part; and

(x)            all transactions
and dealings between the Seller and its Affiliates will be conducted on an arm’s-length
basis.

(c)           During
the term of this Agreement, the Seller will comply with the limitations on its
business and activities, as set forth in its Articles of Incorporation, and
will not incur indebtedness other than pursuant to or as expressly permitted by
the Related Documents.

(d)           During
the term of this Agreement, the Seller will ensure that its corporate records
indicate that the Indenture Trustee has the exclusive right to vote the Class SV
Preferred Stock.

Section
8.3.   Liability of Seller; Indemnities.   The Seller shall be
liable in accordance herewith only to the extent of the obligations
specifically undertaken under this Agreement by the Seller and the
representations made by the Seller under this Agreement.

(a)           The
Seller shall indemnify, defend and hold harmless the Issuer, the Owner Trustee,
the Indenture Trustee and the Administrator from and against any taxes that may
at any time be asserted against any such Person with respect to the 

 46
 

 

transactions contemplated in this Agreement and any of
the Basic Documents (except any income taxes arising out of fees paid to the
Owner Trustee, the Indenture Trustee or the Administrator, and except any taxes
to which the Owner Trustee, the Indenture Trustee or the Administrator may
otherwise be subject to), including any sales, gross receipts, general
corporation, tangible personal property, privilege or license taxes (but, in
the case of the Issuer, not including any taxes asserted with respect to
federal or other income taxes arising out of distributions on the Certificates
and the Notes) and costs and expenses in defending against the same.

(b)           The
Seller shall indemnify, defend and hold harmless the Issuer, the Owner Trustee,
the Indenture Trustee and the Administrator against any loss, liability or
expense incurred by reason of (i) the Seller’s willful misfeasance, bad faith
or negligence in the performance of its duties under this Agreement, or by
reason of reckless disregard of its obligations and duties under this Agreement
and (ii) the Seller’s or the Issuer’s violation of federal or state
securities laws in connection with the offering and sale of the Notes.

(c)           The
Seller shall indemnify, defend and hold harmless the Owner Trustee, the
Indenture Trustee and the Administrator and their respective officers,
directors, employees and agents from and against any and all costs, expenses,
losses, claims, damages and liabilities arising out of, or incurred in
connection with, the acceptance or performance of the trusts and duties set
forth herein and in the Basic Documents, except to the extent that such cost,
expense, loss, claim, damage or liability shall be due to the willful
misfeasance, bad faith or negligence (except for errors in judgment) of the
Person seeking indemnification.

Indemnification under this Section shall survive
the resignation or removal of the Owner Trustee, the Indenture Trustee or the
Administrator and the termination of this Agreement or the Indenture or the
Trust Agreement, as applicable, and shall include reasonable fees and expenses
of counsel and other expenses of litigation. If the Seller shall have made any
indemnity payments pursuant to this Section and the Person to or on behalf
of whom such payments are made thereafter shall collect any of such amounts
from others, such Person shall promptly repay such amounts to the Seller,
without interest.

Section
8.4.   Merger or Consolidation of, or Assumption of the Obligations of,
Seller.   Any Person (a) into which the Seller may be merged or
consolidated, (b) which may result from any merger or consolidation to
which the Seller shall be a party or (c) which may succeed to the
properties and assets of the Seller substantially as a whole, which Person in
any of the foregoing cases (x) has articles of incorporation containing
provisions relating to limitations on business and other matters substantially
identical to those contained in the Seller’s articles of incorporation and (y) executes
an agreement of assumption to perform every obligation of the Seller under this
Agreement and the other Related Documents shall be the successor to the Seller
hereunder without the execution or filing of any document or any further act by
any of the parties to this Agreement.

 47
 

 

Section 8.5.   Limitation
on Liability of Seller and Others.   (a)  The Seller and any
director or officer or employee or agent of the Seller may rely in good faith
on the written advice of counsel or on any document of any kind, prima facie
properly executed and submitted by any Person respecting any matters arising
under any Basic Document. The Seller shall not be under any obligation to
appear in, prosecute or defend any legal action that shall not be incidental to
its obligations under this Agreement, and that in its opinion may involve it in
any expense or liability. Except as provided in Section 8.3 hereof,
neither the Seller nor any of the directors, officers, employees or agents of
the Seller acting in such capacities shall be under any liability to the Trust,
the Securityholders, any Support Provider or any other Person for any action
taken or for refraining from the taking of any action in good faith in such capacities
pursuant to this Agreement; provided, however, that this
provision shall not protect the Seller or any such person against any liability
which would otherwise be imposed by reason of willful misfeasance, bad faith or
negligence in the performance of duties or by reason of reckless disregard of
obligations and duties hereunder.

(b)           All
obligations of the Seller under this Agreement (including, but not limited to,
repurchase and indemnification obligations) and under any of the Related
Documents shall be limited in recourse to property, if any, which the Seller
may hold from time to time, not subject to any Lien.

Section
8.6.   Seller May Own Certificates or Notes.   The Seller
and any Affiliate thereof may in its individual or any other capacity become
the owner or pledgee of Certificates or Notes with the same rights as it would
have if it were not the Seller or an Affiliate thereof, except as expressly
provided herein or in any Basic Document. Notes or Certificates so owned by the
Seller or such Affiliate shall have an equal and proportionate benefit under
the provisions of the Basic Documents, without preference, priority, or distinction
as among all of the Notes or Certificates; provided,
however, except in the event that all
outstanding Notes and Certificates are owned by the Seller and/or any
Affiliates thereof, that any Notes or Certificates owned by the Seller or any
Affiliate thereof, during the time such Notes or Certificates are owned by
them, shall be without voting rights for any purpose set forth in the Basic
Documents. The Seller shall notify the Owner Trustee, the Indenture Trustee and
the Administrator promptly after it or any of its Affiliates become the owner
or pledgee of a Certificate or a Note.

ARTICLE IX

The Servicer

Section
9.1.   Representations of Servicer.   The Servicer makes the
following representations on which the Issuer is deemed to have relied in
acquiring the Owner Trust Estate, on which the Noteholders are deemed to have
relied in the purchasing of Notes and any Additional Principal Amount, and on
which Support Provider shall be deemed to have relied in providing the Series Support.
The representations speak as of the execution and delivery of this Agreement,
the Closing Date and as of each Transfer Date and shall survive the sale of the
Owner Trust Estate to 

 48
 

 

the Issuer and the pledge of the Series Trust
Estate to the Indenture Trustee pursuant to the Indenture.

(i)            Organization and
Good Standing.   The Servicer has been duly organized and is validly
existing and in good standing under the laws of its jurisdiction of
organization, with power, authority and legal right to own its properties and
to conduct its business as such properties are currently owned and such
business is currently conducted, and had at all relevant times, and now has,
power, authority and legal right to enter into and perform its obligations
under this Agreement and the other Related Documents to which it is a party.

(ii)           Due Qualification.   The
Servicer is duly qualified to do business as a foreign corporation in good
standing and has obtained all necessary licenses and approvals, in all
jurisdictions in which the ownership or lease of property or the conduct of its
business (including the servicing of the Receivables as required by this
Agreement) requires or shall require such qualification; except where the
failure to qualify or obtain licenses or approvals would not have a material
adverse effect on its ability to perform its obligations as Servicer under this
Agreement and the other Related Documents to which it is a party.

(iii)          Power and
Authority.   The Servicer has the power and authority to execute and
deliver this Agreement and the Related Documents to which it is a party  and to carry out its terms and their terms,
respectively, and the execution, delivery and performance of this Agreement and
the Related Documents to which the Servicer is a party have been duly
authorized by the Servicer by all necessary corporate action.

(iv)          Binding
Obligation.   This Agreement and the Related Documents to which the
Servicer is a party shall constitute legal, valid and binding obligations of
the Servicer enforceable in accordance with their respective terms, except as
enforceability may be limited by bankruptcy, insolvency, reorganization, or
other similar laws affecting the enforcement of creditors’ rights generally and
by equitable limitations on the availability of specific remedies, regardless
of whether such enforceability is considered in a proceeding in equity or at
law.

(v)           No Violation.   The
consummation of the transactions contemplated by this Agreement and the Related
Documents to which the Servicer is a party, and the fulfillment of the terms of
this Agreement and the Related Documents to which the Servicer is a party,
shall not (A) conflict with, result in any 

 49
 

 

breach of any
of the terms and provisions of, or constitute (with or without notice or lapse
of time) a default under, the articles of incorporation or bylaws of the
Servicer, or any indenture, agreement, mortgage, deed of trust or other
instrument to which the Servicer is a party or by which it is bound, or (B) result
in the creation or imposition of any Lien upon any of its properties pursuant
to the terms of any such indenture, agreement, mortgage, deed of trust or other
instrument, or (C) violate any law, order, rule or regulation
applicable to the Servicer of any court or of any federal or state regulatory
body, administrative agency or other governmental instrumentality having
jurisdiction over the Servicer or any of its properties, except in the case of
(A), (B) or (C) where any such default, Lien or violation shall not
materially and adversely affect the interest of the Noteholders or the Trust in
the Series Trust Estate or affect the Servicer’s ability to perform its
obligations under this Agreement.

(vi)          No Proceedings.   There
are no proceedings or investigations pending or, to the Servicer’s knowledge,
threatened against the Servicer, before any court, regulatory body,
administrative agency or other tribunal or governmental instrumentality having
jurisdiction over the Servicer or its properties (A) asserting the
invalidity of this Agreement or any of the Related Documents, (B) seeking
to prevent the issuance of the Securities or the consummation of any of the
transactions contemplated by this Agreement or any of the Related Documents, or
(C) seeking any determination or ruling that might materially and
adversely affect the performance by the Servicer of its obligations under, or
the validity or enforceability of, this Agreement or any of the Related
Documents or (D) seeking to adversely affect the federal income tax or
other federal, state or local tax attributes of the Securities.

(vii)         Approvals.   All
approvals, authorizations, consents, orders or other actions of any person,
corporation or other organization, or of any court, governmental agency or body
or official, required in connection with the execution and delivery by the
Servicer of this Agreement and the consummation of the transactions
contemplated hereby have been or will be taken or obtained on or prior to the
Closing Date.

(viii)        No Consents.   The
Servicer is not required to obtain the consent of any other party or any
consent, license, approval or authorization, or registration or declaration
with, any governmental authority, bureau or agency in connection with the
execution, delivery, performance, validity or enforceability of this Agreement
which has not already been obtained.

 50
 

 

(ix)           Chief Executive
Office.   The chief executive office of the Servicer is located at 2700
Sanders Road, Prospect Heights, Illinois 
60070.

Section 9.2.   Liability
of Servicer; Indemnities.   (a)  The Servicer (in its
capacity as such) shall be liable hereunder only to the extent of the
obligations in this Agreement specifically undertaken by the Servicer and the
representations made by the Servicer.

(b)           The
Servicer shall defend, indemnify and hold harmless the Trust, the
Administrator, the Indenture Trustee, the Owner Trustee, each Support Provider
and their respective officers, directors, agents and employees, from and
against any and all costs, expenses, losses, damages, claims and liabilities,
including reasonable fees and expenses of counsel and expenses of litigation
arising out of or resulting from the use, ownership or operation of, or lien
on, any Financed Vehicle.

(c)           The
Servicer (when the Servicer is HSBC Finance Corporation or an Affiliate of HSBC
Finance Corporation) shall indemnify, defend and hold harmless the Trust, the Administrator,
the Indenture Trustee, the Owner Trustee, each Support Provider and their
respective officers, directors, agents and employees and from and against any
taxes that may at any time be asserted against any of such parties with respect
to the transactions contemplated in this Agreement, including, without
limitation, any sales, gross receipts, tangible or intangible personal
property, privilege or license taxes (but not including any federal or other
income taxes) and costs and expenses in defending against the same, except to
the extent that such costs, expenses, losses, damages, claims and liabilities
arise out of the negligence or willful misconduct of such parties. The Servicer
hereby agrees to indemnify the Indenture Trustee as set forth in Section 6.7(a) of
the Indenture and the Administrator as set forth in Section 6.17(b) of
the Indenture.

(d)           The
Servicer (when the Servicer is not HSBC Finance Corporation) shall indemnify,
defend and hold harmless the Trust, the Administrator, the Indenture Trustee,
the Owner Trustee, each Support Provider and their respective officers,
directors, agents and employees from and against any taxes with respect to the
sale of Receivables in connection with servicing hereunder that may at any time
be asserted against any of such parties with respect to the transactions
contemplated in this Agreement, including, without limitation, any sales, gross
receipts, tangible or intangible personal property, privilege or license taxes
(but not including any federal or other income taxes) and costs and expenses in
defending against the same, except to the extent that such costs, expenses,
losses, damages, claims and liabilities arise out of the negligence or willful
misconduct of such parties.

(e)           The
Servicer shall indemnify, defend and hold harmless the Trust, the
Administrator, the Indenture Trustee, the Owner Trustee, each Support Provider
and their respective officers, directors, agents and employees from and against
any and all costs, expenses, losses, claims, damages, and liabilities to the
extent that such cost, expense, loss, claim, damage, or liability arose out of,
or was imposed upon the 

 51
 

 

Trust, the Administrator, the Indenture Trustee or the
Owner Trustee, by reason of the breach of this Agreement by the Servicer, the
negligence, misfeasance, or bad faith of the Servicer in the performance of its
duties under this Agreement or the Series Supplement or by reason of
reckless disregard of its obligations and duties under this Agreement or the Series Supplement,
except to the extent that such costs, expenses, losses, damages, claims, and
liabilities arise out of the negligence or willful misconduct of the Person
seeking indemnification.

(f)            The
Servicer (when the Servicer is HSBC Finance Corporation or an Affiliate of HSBC
Finance Corporation) shall indemnify, defend and hold harmless the Trust, the
Administrator, the Indenture Trustee, the Owner Trustee and their respective
officers, directors, agents and employees from and against any loss, liability
or expense incurred by reason of the violation by Servicer of federal or state
securities laws in connection with the registration or the sale of the
Securities, except to the extent that such costs, expenses, losses, damages,
claims, and liabilities arise out of the negligence or willful misconduct of
such parties.

(g)           Indemnification
under this Article shall survive the termination of this Agreement and
will survive the early resignation or removal of any of the parties hereto and
shall include, without limitation, reasonable fees and expenses of counsel and
expenses of litigation. If the Servicer has made any indemnity payments
pursuant to this Article and the recipient thereafter collects any of such
amounts from others, the recipient shall promptly repay such amounts collected
to the Servicer, without interest. Notwithstanding any other provision of this
Agreement, the obligations of the Servicer shall not terminate or be deemed
released upon the resignation or termination of HSBC Finance Corporation as the
Servicer and shall survive any termination of this Agreement.

Section
9.3.   Merger or Consolidation of, or Assumption of the Obligations of
the Servicer.   Any Person (i) into which the Servicer may be
merged or consolidated, (ii) resulting from any merger or consolidation to
which the Servicer shall be a party, (iii) which acquires by conveyance,
transfer, or lease substantially all of the assets of the Servicer, or (iv) succeeding
to the business of the Servicer, in any of the foregoing cases shall execute an
agreement of assumption to perform every obligation of the Servicer under this
Agreement and each Related Document and, whether or not such assumption
agreement is executed, shall be the successor to the Servicer under this
Agreement and each Related Document without the execution or filing of any
paper or any further act on the part of any of the parties to this Agreement or
the Series Supplement, anything in this Agreement or the Series Supplement
to the contrary notwithstanding. Notwithstanding the foregoing, the Servicer
shall not merge or consolidate with any other Person or permit any other Person
to become a successor to the Servicer’s business, unless the Servicer shall
have delivered to the Owner Trustee and the Indenture Trustee an Officer’s
Certificate and an Opinion of Counsel each stating that such consolidation, merger
or succession and such agreement of assumption comply with this Section 9.3
and that all conditions precedent, if any, provided for in this Agreement
relating to such transaction have been complied with.

 52

 

Section 9.4.   Limitation
on Liability of Servicer and Others.   (a)  None of the
Servicer, the Administrator, the Indenture Trustee, or any of the directors or
officers or employees or agents of any such Persons shall be under any
liability to the Trust, except as provided in this Agreement and each Related
Document, for any action taken or for refraining from the taking of any action
pursuant to this Agreement or a Related Document; provided, however, that this
provision shall not protect the Servicer, the Administrator, the Indenture
Trustee or any such Persons against any liability that would otherwise be
imposed by reason of willful misfeasance, bad faith or negligence (excluding
errors in judgment) in the performance of duties (including negligence with respect
to the Servicer’s indemnification obligations hereunder), by reason of reckless
disregard of obligations and duties under this Agreement and each Related
Document or any violation of law by the Servicer, the Administrator, the
Indenture Trustee or such person, as the case may be; provided, further,
that this provision shall not affect any liability to indemnify the Indenture
Trustee, the Administrator or the Owner Trustee for costs, taxes, expenses,
claims, liabilities, losses or damages paid by the Indenture Trustee, the
Administrator or the Owner Trustee, in their individual capacities. The
Servicer, the Administrator, the Indenture Trustee and any director, officer,
employee or agent of such Persons may rely in good faith on the written advice
of counsel or on any document of any kind prima facie properly executed and
submitted by any Person pertaining to any matters arising under this Agreement.
The Indenture Trustee shall not be required to expend or risk its own funds or
otherwise incur financial liability in the performance of any of its duties
hereunder, or in the exercise of any of its rights or powers, if the repayment
of such funds or adequate written indemnity against such risk or liability is
not reasonably assured to it in writing prior to the expenditure of risk of
such funds or incurrence of financial liability.

(b)           Unless
serving as Successor Servicer pursuant to Sections 10.2 and 10.3 hereof, and
notwithstanding any other provision to the contrary herein, the Indenture
Trustee and the Administrator shall not be liable for any obligation of the
Servicer contained in this Agreement or any Related Document, and the Owner
Trustee, the Seller and the Noteholders shall look only to the Servicer to
perform such obligations.

(c)           The
parties expressly acknowledge and consent to the initial Indenture Trustee
acting in the potential dual capacity of Successor Servicer and in the capacity
as Indenture Trustee. Such Indenture Trustee may, in such dual or other
capacity, discharge its separate functions fully, without hindrance or regard
to conflict of interest principles, duty of loyalty principles or other breach
of fiduciary duties to the extent that any such conflict or breach arises from
the performance by such Indenture Trustee of express duties set forth in this
Agreement in any of such capacities, all of which defenses, claims or
assertions are hereby expressly waived by the other parties hereto and the
Noteholders except in the case of negligence or willful misconduct by such
Indenture Trustee.

Section
9.5.   Delegation of Duties.   Subject to Section 9.7, in
the ordinary course of business, the Servicer and the Subservicer, provided it
is HAFI, at any time may delegate any of their duties hereunder to any Person,
including any of their Affiliates, who agrees to conduct such duties in
accordance with standards employed by 

 53
 

 

the Servicer or such Subservicer in compliance with Section 4.1.
Such delegation shall not relieve the Servicer of its liabilities and
responsibilities with respect to such duties and shall not constitute a
resignation within the meaning of Section 9.6.

Section
9.6.   Servicer Not to Resign.   Subject to the provisions of Section 9.3,
the Servicer shall not resign from the obligations and duties hereby imposed on
it except (i) upon determination that the performance of its obligations
or duties hereunder are no longer permissible under applicable law or are in
material conflict by reason of applicable law with any other activities carried
on by it or its subsidiaries or Affiliates, or (ii) upon satisfaction of
the following conditions:  (a) the
Servicer has proposed a successor servicer to the Indenture Trustee in writing
and such proposed successor servicer is reasonably acceptable to the Indenture
Trustee; (b) such proposed successor servicer has agreed in writing to
assume the obligations of Servicer hereunder and under each Basic Document to
which it is a party and (c) the Servicer has delivered to the Indenture
Trustee an Opinion of Counsel to the effect that all conditions precedent to
the resignation of the Servicer and the appointment of and acceptance by the
proposed successor servicer have been satisfied; provided, however, that, in the
case of clause (i) above, no such resignation by the Servicer shall become
effective until the Indenture Trustee shall have assumed the Servicer’s
responsibilities and obligations hereunder or the Indenture Trustee shall have
designated a successor servicer in accordance with Section 10.3 which
shall have assumed such responsibilities and obligations. Any such resignation
shall not relieve the Servicer of responsibility for any of its obligations
hereunder arising prior to the effective date of such resignation. Any such
determination permitting the resignation of the Servicer pursuant to clause (i) above
shall be evidenced by an Opinion of Counsel to such effect delivered to the
Indenture Trustee.

Section
9.7.   Subservicing Agreements Between Servicer and Subservicers.   The
Servicer initially appoints HAFI to subservice the Receivables. From time to
time after the Closing Date, the Servicer may enter into a subservicing
agreement with any Person other than HAFI which is an Eligible Subservicer and
is in compliance with the laws of each state necessary to enable it to perform
the obligations of the Servicer pursuant to this Agreement. Any such
subservicing agreement shall be consistent with and not violate the provisions
of this Agreement. The Servicer shall not be relieved of its obligations under
this Agreement and each Basic Document to which it is a party notwithstanding
any agreement relating to subservicing and the Servicer shall be obligated to
the same extent and under the same terms and conditions as if it alone were
servicing and administering the Receivables. For purposes of this Agreement and
each Related Document, the Servicer shall be deemed to have received payments
on Receivables when any Subservicer has received such payments. The parties
hereto acknowledge that with respect to statements or certificates required to
be delivered by the Servicer in accordance with this Agreement and the Series Supplement,
including, but not limited to, Sections 4.9, 4.10 and 14.7 hereof, unless
otherwise required pursuant to this Agreement or pursuant to applicable law,
that a statement or certificate delivered by a subservicer shall be sufficient
to discharge the Servicer’s obligation to deliver such certificate or
statement.

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Section 9.8.   Successor
Subservicers.   The Servicer may terminate any Subservicer and either
directly service the related Receivables itself or enter into an agreement with
a successor Subservicer that is an Eligible Subservicer. None of the Owner
Trustee, the Administrator or the Indenture Trustee shall have a duty or
obligation to monitor or supervise the performance of any Subservicer.

ARTICLE X

Default

Section
10.1.   Servicer Termination Event.   For purposes of this
Agreement, each of the following shall constitute a “Servicer Termination Event”:

(a)           Any
failure by the Servicer to deliver, or cause to be delivered, to the
Administrator for distribution pursuant to the terms of this Agreement or any
Basic Document, any proceeds or payment required to be so delivered by the
Servicer under the terms of this Agreement or any Basic Document (including
deposits of the Repurchase Amount pursuant to Section 4.7) that continues
unremedied for a period of three Business Days after written notice is received
by the Servicer from the Administrator or the Indenture Trustee or after
discovery of such failure by a responsible officer of the Servicer (but in no
event later than three Business Days after the Servicer is required to make
such delivery or deposit);

(b)           Failure
on the part of the Servicer duly to observe or perform any other covenants or
agreements of the Servicer set forth in this Agreement or the Basic Documents,
which failure (i) materially and adversely affects the rights of
Noteholders (determined without regard to the availability of funds under any Series Support)
and (ii) continues unremedied for a period of 60 days after the date on
which written notice of such failure, requiring the same to be remedied, shall
have been given to the Servicer by the Administrator or the Indenture Trustee
or after discovery thereof by the Servicer;

(c)           The
entry of a decree or order for relief by a court or regulatory authority having
jurisdiction in respect of the Servicer in an involuntary case under the
federal bankruptcy laws, as now or hereafter in effect, or another present or
future, federal bankruptcy, insolvency or similar law, or appointing a
receiver, liquidator, assignee, trustee, custodian, sequestrator or other
similar official of the Servicer or of any substantial part of its property or
ordering the winding up or liquidation of the affairs of the Servicer or the
commencement of an involuntary case under the federal bankruptcy laws, as now
or hereinafter in effect, or another present or future federal or state
bankruptcy, insolvency or similar law and such case is not dismissed within 60
days;

(d)           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 

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substantial part of its property or the making by the
Servicer of an assignment for the benefit of creditors or the failure by the
Servicer generally to pay its debts as such debts become due or the taking of
corporate action by the Servicer in furtherance of any of the foregoing; or

(e)           Any
representation, warranty or certification of the Servicer made in this
Agreement or any Basic Document or any certificate, report or other writing
delivered pursuant hereto or thereto shall prove to be incorrect in any
material respect as of the time when the same shall have been made, and the
incorrectness of such representation, warranty or statement has a material
adverse effect on the interests of the Indenture Trustee in the Series Trust
Estate and, within 60 days after written notice thereof shall have been given
to the Servicer by the Indenture Trustee or the Administrator after discovery
thereof by the Servicer, the circumstances or condition in respect of which
such representation, warranty or statement was incorrect shall not have been
eliminated or otherwise cured.

Notwithstanding the foregoing, a delay in or failure
of performance under Section 10.1(a) for a period of three Business
Days or under Section 10.1(b) for a period of 60 days, shall not
constitute a Servicer Termination Event if such delay or failure could not be
prevented by the exercise of reasonable diligence by the Servicer and such
delay or failure was caused by an act of God, acts of declared or undeclared
war, terrorism, public disorder, rebellion or sabotage, epidemics, landslides,
lightning, fire, hurricanes, earthquakes, floods or similar causes. The
preceding sentence shall not relieve the Servicer from using its best efforts
to perform its obligations in a timely manner in accordance with the terms of
this Agreement, and the Servicer shall provide the Administrator, the Indenture
Trustee and the Seller with an Officers’ Certificate giving prompt notice of
such failure or delay by it, together with a description of its efforts to so
perform its obligations.

Section
10.2.   Consequences of a Servicer Termination Event.   If a
Servicer Termination Event shall occur and be continuing, the Indenture Trustee
(to the extent a Trust Officer of the Indenture Trustee has actual knowledge or
has received written notice thereof), by notice given in writing to the Rating
Agencies and the Servicer may and shall, at the written direction of the
Controlling Party, terminate all of the rights and obligations of the Servicer,
including in its capacity as custodian, under this Agreement and the other
Basic Documents to which it is a party. On or after the receipt by the Servicer
of such written notice, all authority, power, obligations and responsibilities
of the Servicer, including in its capacity as custodian, under this Agreement,
whether with respect to the Notes, the Receivables or the Other Conveyed
Property or otherwise, automatically shall pass to, be vested in, and become
obligations and responsibilities, of the Indenture Trustee (or such other
Successor Servicer appointed by the Controlling Party pursuant to Section 10.3);
provided, however,
that the Successor Servicer shall have (i) no liability with respect to
any obligation which was required to be performed by the terminated Servicer
prior to the date that the Successor Servicer becomes the Servicer or any claim
of a third party based on any alleged action or inaction of the terminated
Servicer, (ii) no obligation to perform any repurchase or advancing
obligations, if any, of the terminated Servicer, (iii) no obligation to
pay any of the fees 

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and expenses of any other party involved in this
transaction not expressly assumed by the Servicer and (iv) no liability or
obligation with respect to any Servicer indemnification obligations of any
prior servicer including the original servicer.

Notwithstanding anything contained in this Agreement
to the contrary, the Indenture Trustee as Successor Servicer and any other
Successor Servicer, are authorized to accept and rely on all of the accounting,
records (including computer records) and work of the prior Servicer relating to
the Receivables (collectively, the “Predecessor Servicer Work Product”) without
any audit or other examination thereof, and the Indenture Trustee or other
Successor Servicer shall have no duty, responsibility, obligation or liability
for the acts and omissions of the prior Servicer. If any error, inaccuracy,
omission or incorrect or non-standard practice or procedure (collectively, “Errors”)
exist in any Predecessor Servicer Work Product and such Errors make it
materially more difficult to service or should cause or materially contribute
to the Indenture Trustee or other Successor Servicer making or continuing any
Errors (collectively, “Continued Errors”), the Indenture Trustee or other
Successor Servicer, as the case may be, shall have no duty, responsibility,
obligation or liability for such Continued Errors; provided, however, that the Indenture Trustee or other Successor Servicer
agrees to use its best efforts to prevent further Continued Errors. In the
event that the Indenture Trustee or other Successor Servicer becomes aware of
Errors or Continued Errors, such Indenture Trustee or other Successor Servicer
shall, with the prior consent of Noteholders representing 66-2/3% of the
outstanding Notes, use its best efforts to reconstruct and reconcile such data
as is commercially reasonable to correct such Errors and Continued Errors and
to prevent future Continued Errors.

The Successor Servicer is authorized and empowered by
this Agreement to execute and deliver, on behalf of the terminated Servicer, as
attorney-in-fact or otherwise, any and all documents and other instruments and
to do or accomplish all other acts or things necessary or appropriate to effect
the purposes of such notice of termination, whether to complete the transfer
and endorsement of the Owner Trust Estate and related documents to show the
Trust as lienholder or secured party on the related Lien Certificates, or
otherwise. The terminated Servicer agrees to cooperate with the Successor
Servicer in effecting the termination of the responsibilities and rights of the
terminated Servicer, including in its capacity as custodian, under this
Agreement, including, without limitation, the transfer to the Successor
Servicer for administration by it of all cash amounts that shall at the time be
held by the terminated Servicer for deposit, or have been deposited by the
terminated Servicer, in a Trust Account and the delivery to the Successor
Servicer of all Receivable Files being held by the terminated Servicer in its
capacity as custodian, Monthly Records and Collection Records and a computer
tape in readable form as of the most recent Business Day containing all
information necessary to enable the Successor Servicer to service the Owner
Trust Estate. If requested by the Controlling Party, the Successor Servicer
shall direct the Obligors to make all payments under the Receivables directly
to the Successor Servicer (in which event the Successor Servicer shall process
such payments in accordance with Section 4.2(d) or 4.2(e), as
applicable). The terminated Servicer shall grant the Indenture Trustee and the
Successor Servicer reasonable access to the terminated Servicer’s premises at
the terminated Servicer’s expense.

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Section 10.3.   Appointment
of Successor.   (a)  On and after the time the Servicer
receives a notice of termination pursuant to Section 10.2 or upon the
resignation of the Servicer pursuant to Section 9.6, the Servicer shall
continue to perform all servicing functions under this Agreement until the date
specified in such termination notice or until such resignation becomes
effective or until a date mutually agreed upon by the Servicer and the
Indenture Trustee. The Indenture Trustee shall as promptly as possible after
such termination or resignation appoint an Eligible Servicer as a successor
servicer (the “Successor Servicer”), and such Successor Servicer shall accept
its appointment by a written assumption in a form reasonably acceptable to the
Indenture Trustee. In the event that a Successor Servicer has not been
appointed or has not accepted its appointment at the time when the Servicer
ceases to act as Servicer, the Indenture Trustee without further action shall
automatically be appointed the Successor Servicer. The Indenture Trustee may
delegate any of its servicing obligations to an Affiliate or agent in
accordance with Section 9.5. Notwithstanding the foregoing, the Indenture
Trustee shall, if it is legally unable so to act, petition a court of competent
jurisdiction to appoint any established institution qualifying as an Eligible
Servicer as the Successor Servicer hereunder. The Indenture Trustee or the
Successor Servicer, as the case may be, shall be the successor in all respects
to the Servicer in its capacity as servicer under this Agreement and the
transactions set forth or provided for in this Agreement, and shall be subject
to all the rights, responsibilities, restrictions, duties, liabilities and
termination provisions relating thereto placed on the Servicer by the terms and
provisions of this Agreement, except as otherwise stated herein. The Indenture
Trustee or the Successor Servicer,
as the case may be, shall take such action, consistent with this Agreement, as
shall be necessary to effectuate any such succession. The Successor Servicer
shall be subject to termination under Section 10.2 upon the occurrence of
any Servicer Termination Event applicable to it as Servicer.

(b)           Subject
to Section 9.6, no provision of this Agreement shall be construed as
relieving the Indenture Trustee of
its obligation to succeed as Successor Servicer upon the termination of the
Servicer pursuant to Section 10.2 or the resignation of the Servicer
pursuant to Section 9.6.

(c)           Any
Successor Servicer shall be entitled to such compensation (whether payable out
of the Collection Account or otherwise) equal to the compensation the Servicer
would have been entitled to under this Agreement if the Servicer had not
resigned or been terminated hereunder or such other amount as may be agreed to
by the Successor Servicer and the Indenture Trustee and consented to by the
Holders of a majority of the Outstanding Amount of Notes. In addition, any
Successor Servicer shall be entitled to reasonable transition expenses incurred
in acting as Successor Servicer payable by the outgoing Servicer, and to the
extent such transition expenses have not been paid by the outgoing Servicer,
such Successor Servicer shall be entitled to reimbursement for such reasonable
expenses pursuant to the Series Supplement.

Section
10.4.   Notification to Noteholders.   Upon any termination of,
or appointment of a successor to, the Servicer the Indenture Trustee shall give
prompt written notice thereof to each Noteholder.

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Section 10.5.   Waiver
of Past Defaults.   The Controlling Party or, with the consent of the
Controlling Party, a majority of the Noteholders may, on behalf of all
Securityholders, waive any default by the Seller or the Servicer in the
performance of their obligations hereunder and its consequences, except the
failure to make any distributions required to be made to Noteholders or to make
any required deposits of any amounts to be so distributed. Upon any such waiver
of a past default, such default shall cease to exist, and any default arising
therefrom shall be deemed to have been remedied for every purpose of this
Agreement. No such waiver shall extend to any subsequent or other default or
impair any right consequent thereon except to the extent expressly so waived.

Section 10.6.   Successor
to Servicer.   (a)  The Indenture Trustee, in its capacity as
successor to the Servicer, shall perform such duties and only such duties as
are specifically set forth in this Agreement and each Related Document with
respect to the assumption of any servicing duties and no implied covenants or
obligations shall be read into this Agreement against the Indenture Trustee.

(b)           In
the absence of bad faith or negligence on its part, each of the Indenture
Trustee and the Administrator may
conclusively rely as to the truth of the statements and the correctness of the
opinions expressed therein, upon certificates or opinions furnished to them and
conforming to the requirements of this Agreement and the Series Supplement;
but in the case of any such certificates or opinions, which by any provision
hereof are specifically required to be furnished to the Indenture Trustee
and/or the Administrator, the Indenture Trustee and/or the Administrator, as the case may be, shall be under
a duty to examine the same and to determine whether or not they conform to the
requirements of this Agreement and the Series Supplement.

(c)           The
Indenture Trustee shall have no
liability for any actions taken or omitted by the terminated Servicer.

ARTICLE XI

Termination

Section 11.1.   Optional
Purchase of All Receivables.   (a)  To the extent and under
the circumstances provided in the Series Supplement, the Servicer and HAFI
each shall have the option to effect a “clean-up” redemption or purchase of the
Series Trust Estate.

(b)           Upon
any sale of the assets included in the Series Trust Estate permitted by
the Series Supplement, the Servicer shall instruct the Indenture Trustee
(or the Administrator on behalf of the Indenture Trustee) to deposit the
proceeds from such sale, after all payments and reserves therefrom (including
the expenses of such sale) have been made, in the Collection Account.

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(c)           The
Servicer shall notify the Owner Trustee, the Indenture Trustee and the
Administrator of any termination of the Trust as soon as practicable after the
Servicer has received notice thereof.

(d)           Following
the satisfaction and discharge of the Indenture, the payment in full of the
principal of and interest on the Notes, the satisfaction of all payment
obligations under the Basic Documents and termination of any Series Support
(as provided therein), the Certificateholders will succeed to the rights of the
Noteholders hereunder and the Owner Trustee will succeed to the rights of, and
assume the obligations of, the Indenture Trustee and the Administrator pursuant
to this Agreement.

ARTICLE XII

Administrative Duties of the Servicer

SECTION 12.1.   Administrative
Duties.

(a)           Duties
with Respect to the Indenture.   The Servicer shall perform all its
duties and the duties of the Issuer under the Indenture. In addition, the
Servicer shall consult with the Owner Trustee as the Servicer deems appropriate
regarding the duties of the Issuer under the Indenture. The Servicer shall
monitor the performance of the Issuer and shall advise the Owner Trustee when
action is necessary to comply with the Issuer’s duties under the Indenture. The
Servicer shall prepare for execution by the Issuer or shall cause the
preparation by other appropriate Persons of all such documents, reports,
filings, instruments, certificates and opinions as it shall be the duty of the
Issuer to prepare, file or deliver pursuant to the Indenture. In furtherance of
the foregoing, the Servicer shall take all necessary action that is the duty of
the Issuer to take pursuant to the Indenture, including, without limitation,
pursuant to Sections 2.7, 3.3, 3.4, 3.5, 3.6, 3.7, 3.9, 3.10, 3.17, 7.3, 8.3,
9.2, 9.3, 11.1 and 11.15 of the Indenture.

(b)           Duties
with Respect to the Issuer.

(i)            In addition to the
duties of the Servicer set forth in this Agreement or any of the Related
Documents, the Servicer shall perform such calculations and shall prepare for
execution by the Issuer or the Owner Trustee, or shall cause the preparation by
other appropriate Persons of all such documents, reports, filings, instruments,
certificates and opinions as it shall be the duty of the Issuer or the Owner
Trustee, to prepare, file or deliver pursuant to this Agreement or any of the
Related Documents or under state and federal tax and securities laws, and at
the request of the Owner Trustee shall take all appropriate action that it is
the duty of the Issuer to take pursuant to this Agreement or any of the Basic
Documents, including, without limitation, pursuant to Sections 2.6 and 2.11 of
the Trust Agreement. In accordance with the directions of the Issuer or the
Owner Trustee, the Servicer shall administer, perform or supervise the
performance of such other

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activities in
connection with the Owner Trust Estate (including the Related Documents) as are
not covered by any of the foregoing provisions and as are expressly requested
by the Issuer or the Owner Trustee and are reasonably within the capability of
the Servicer.

(ii)           Notwithstanding
anything in this Agreement or any of the Basic Documents to the contrary, the
Servicer shall be responsible for promptly notifying the Owner Trustee, the
Indenture Trustee and the Administrator in the event that any withholding tax
is imposed on the Issuer’s payments (or allocations of income) to a
Certificateholder as contemplated by this Agreement. Any such notice shall be
in writing and specify the amount of any withholding tax required to be
withheld by the Owner Trustee, the Indenture Trustee or the Administrator
pursuant to such provision.

(iii)          Notwithstanding
anything in this Agreement or the Basic Documents to the contrary, the Servicer
shall be responsible for performance of the duties of the Issuer and the Seller
set forth in Section 5.1(a), (b), (c) and (d) of the Trust
Agreement with respect to, among other things, accounting and reports to Owners
(as defined in the Trust Agreement); provided,
however, that once prepared by the Servicer,
the Depositor shall retain responsibility for the distribution of such
information as may be required under the Code and applicable Treasury
Regulations (including Schedule K-1, if applicable) under Section 5.1(b) of
the Trust Agreement to enable each Certificateholder to prepare its federal and
state income tax returns.

(iv)          The Servicer shall
perform the duties of the Depositor specified in Section 10.2 of the Trust
Agreement required to be performed in connection with the resignation or
removal of the Owner Trustee, and any other duties expressly required to be
performed by the Servicer under this Agreement or any of the Related Documents.

(v)           The Servicer, on
behalf of the Seller, shall direct the Issuer to request the tender of all or a
portion of the Notes in accordance with the Indenture or the Series Supplement.

(vi)          In carrying out the
foregoing duties or any of its other obligations under this Agreement, the
Servicer may enter into transactions with or otherwise deal with any of its
Affiliates; provided, however, that the terms of any such transactions or dealings shall
be in accordance with any directions received from 

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the Issuer and
shall be, in the Servicer’s opinion, no less favorable to the Issuer in any
material respect.

(c)           Tax
Matters.   The Servicer shall prepare and file, or cause to be prepared
and filed, on behalf of the Seller, all tax returns, tax elections, financial
statements and such annual or other reports of the Issuer as are necessary for
preparation of tax reports as provided in Article V of the Trust
Agreement, including Form 1099. All tax returns of the Issuer shall will
be signed in accordance with Article V of the Trust Agreement.

(d)           Non-Ministerial
Matters.   With respect to matters that in the reasonable judgment of
the Servicer are non-ministerial, the Servicer shall not take any action
pursuant to this Article XII unless within a reasonable time before the
taking of such action, the Servicer shall have notified the Owner Trustee, the
Indenture Trustee and the Administrator of the proposed action and the Owner
Trustee, the Indenture Trustee or the Administrator shall not have withheld
consent or provided an alternative direction. For the purpose of the preceding
sentence, “non-ministerial matters” shall include:

(A)                              the
initiation of any claim or lawsuit by the Issuer and the compromise of any
action, claim or lawsuit brought by or against the Issuer (other than in
connection with the collection of the Receivables);

(B)                                the
appointment of successor Note Registrars, successor Note Paying Agents,
successor Indenture Trustees or successor Administrators pursuant to the
Indenture or the consent to the assignment by the Note Registrar, Note Paying
Agent, the Administrator or Indenture Trustee of its obligations under the
Indenture; and

(C)                                the
removal of the Indenture Trustee or the Administrator.

(e)           Exceptions.   Notwithstanding
anything to the contrary in this Agreement, except as expressly provided herein
or in the other Basic Documents, the Servicer, in its capacity hereunder, shall
not be obligated to, and shall not, (1) make any payments to the
Noteholders or Certificateholders under the Basic Documents, (2) sell any
portion of the Series Trust Estate pursuant to the Basic Documents, (3) take
any other action that the Issuer directs the Servicer not to take on its behalf
or (4) in connection with its duties hereunder assume any indemnification
obligation of any other Person.

(f)            Neither
the Indenture Trustee nor any Successor Servicer shall be responsible for any
obligations or duties of a predecessor Servicer under Section 12.1.

Section
12.2.   Records.   The Servicer shall maintain appropriate books
of account and records relating to services performed under this Agreement,
which books of account and records shall be accessible for inspection by the
Issuer and the Indenture Trustee at any time during normal business hours.

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Section
12.3.   Additional Information to be Furnished to the Issuer.   The
Servicer shall furnish to the Issuer and the Indenture Trustee, from time to
time such additional information regarding the Owner Trust Estate as the Issuer
and the Indenture Trustee shall reasonably request.

ARTICLE XIII

Miscellaneous Provisions

Section
13.1.   Amendments.   (a)  This Agreement may be
amended by the parties hereto at any time when no Securities are outstanding
without the requirement of any consents or the satisfaction of any conditions
set forth below.

(b)           Except
as otherwise provided in the Series Supplement, this Agreement may be
amended from time to time by the parties hereto, by a written instrument signed
by each of the parties hereto without the consent of any of the
Securityholders, provided that (i) an Opinion of Counsel for the Seller
(which Opinion of Counsel may, as to factual matters, rely upon Officers’
Certificates of the Seller or the Servicer) is addressed and delivered to the
Indenture Trustee and the Administrator, dated the date of any such amendment,
to the effect that the conditions precedent to any such amendment, including
those of Section 13.2(h) hereof, have been satisfied and (ii) the
Seller shall have delivered to the Indenture Trustee and the Administrator, an
Officer’s Certificate dated the date of any such amendment, stating that the
Seller reasonably believes that such amendment will not have a material adverse
effect on the rights of the Noteholders.

(c)           Except
as otherwise provided in the Series Supplement, subject to Section 13.2(h) hereof,
this Agreement may also be amended from time to time by the Servicer, the
Seller, the Indenture Trustee and the Administrator, with the prior written
consent of the Holders of Notes evidencing not less than a majority of the
Outstanding Amount of Notes and the Certificate Majority, for the purpose of
adding any provisions to or changing in any manner or eliminating any of the
provisions of this Agreement or of modifying in any manner the rights of the
Securityholders; provided, however, that no such amendment shall (i) reduce
in any manner the amount of or delay the timing of any distributions to be made
to Securityholders or deposits of amounts to be so distributed or the amount
available under any Series Support without the consent of each affected
Securityholder, (ii) change the definition of or the manner of calculating
the interest of any Securityholder without the consent of each affected
Securityholder, or (iii) reduce the aforesaid percentage of Noteholders or
Certificateholders required to consent to any such amendment.

Promptly after the execution of any such amendment or
supplement, the Indenture Trustee shall furnish
written notification of the substance of such amendment or supplement to each
Securityholder.

It shall not be necessary for the consent of
Certificateholders or Noteholders pursuant to this Section to approve the
particular form of any amendment, 

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but it shall be sufficient if such consent shall
approve the substance thereof. The manner of obtaining such consents (and any
other consents of Noteholders or Certificateholders provided for in this
Agreement) and of evidencing the authorization of any action by Noteholders or
Certificateholders shall be subject to such reasonable requirements as the
Indenture Trustee or the Owner Trustee, as the case may be, may prescribe,
including the establishment of record dates.

The Owner Trustee, the Indenture Trustee and the
Administrator may, but shall not be obligated to, enter into any amendment which
affects the Issuer’s, the Owner Trustee’s, the Indenture Trustee’s or the
Administrator’s, as the case may be, own rights, duties or immunities under
this Agreement or otherwise.

Prior to the execution of any amendment to this
Agreement, the Indenture Trustee and the Administrator shall be entitled to
receive and rely upon an Opinion of Counsel stating that the execution of such
amendment is authorized and permitted by this Agreement and that all conditions
precedent to the execution and delivery of such amendment have been satisfied.

Section 13.2.   Protection
of Title to Series Trust Estate.   (a)  The Seller shall
execute and file such financing statements and cause to be executed and filed
such continuation statements, all in such manner and in such places as may be
required by law fully to preserve, maintain and protect the interest of the
Issuer in the Owner Trust Estate and the Indenture Trustee in the Series Trust
Estate.

(b)           Neither
the Seller nor the Servicer shall change its name, identity or corporate
structure in any manner that would, could or might make any financing statement
or continuation statement filed in accordance with paragraph (a) above
seriously misleading within the meaning of Sections 9-503(a), 9-506
and 9-507 of the UCC, unless it shall have given the Owner Trustee and
the Indenture Trustee at least thirty days’ prior written notice thereof and
shall have promptly filed appropriate amendments to all previously filed
financing statements or continuation statements.

(c)           Each
of the Seller and the Servicer shall have an obligation to give the Owner
Trustee and the Indenture Trustee prompt notice of any change in its state of
incorporation if, as a result of such change, the applicable provisions of the
UCC would require the filing of any amendment of any previously filed financing
or continuation statement or of any new financing statement and shall promptly
file any such amendment. The Servicer shall at all times maintain each office
from which it shall service Receivables within the United States of America.

(d)           The
Servicer shall maintain accounts and records as to each Receivable accurately
and in sufficient detail to permit (i) the reader thereof to know at any
time the status of such Receivable, including payments and recoveries made and
payments owing (and the nature of each) and (ii) reconciliation between
payments or recoveries on (or with respect to) each Receivable and the amounts
from time to time deposited in the Collection Account in respect of such
Receivable.

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(e)           The
Servicer shall maintain or cause to be maintained, a computer system so that,
from and after the time of sale under this Agreement and each Transfer
Agreement of the Receivables to the Issuer, such master computer records
(including any backup archives) that refer to a Receivable shall indicate
clearly the interest of the Trust in such Receivable and that such Receivable
is owned by the Trust and such Receivable has been pledged pursuant to the
Indenture. Indication of the Trust’s and the Indenture Trustee’s interest in a
Receivable shall be deleted from or modified on such computer systems when, and
only when, the related Receivable shall have been paid in full, repurchased by
HAFI, any Affiliate of HAFI that is the seller under a Master Receivables
Purchase Agreement, HSBC Finance Corporation or the Seller or otherwise
disposed of by the Issuer in accordance with the terms of this Agreement.

(f)            If
at any time the Seller, HAFI or any Affiliate of HAFI that is the seller under
a Master Receivables Purchase Agreement shall propose to sell, grant a security
interest in or otherwise transfer any interest in motor vehicle receivables to
any prospective purchaser, lender or other transferee, the Servicer shall give
to such prospective purchaser, lender or other transferee computer tapes,
records or printouts (including any restored from backup archives) that, if
they shall refer in any manner whatsoever to any Receivable, shall indicate
clearly that such Receivable has been sold and is owned by the Trust unless
such Receivable has been paid in full, been repurchased by HAFI, any Affiliate
of HAFI that is the seller under a Master Receivables Purchase Agreement, HSBC
Finance Corporation or the Seller or has otherwise been disposed of by the
Issuer in accordance with the terms of this Agreement.

(g)           Upon
request, the Servicer shall furnish or cause to be furnished to the Owner
Trustee or the Indenture Trustee, within five Business Days, a list of all
Receivables (by contract number) then held as part of the Series Trust
Estate, together with a reconciliation of such list to the related Schedule of
Receivables and to any Servicer’s Certificates furnished before such request
indicating removal of Receivables from the Series Trust Estate. The
Indenture Trustee shall hold any such list and Schedule of Receivables for
examination by interested parties during normal business hours at the Corporate
Trust Office upon reasonable notice by such Persons of their desire to conduct
an examination.

(h)           The
Servicer shall deliver to the Owner Trustee, the Indenture Trustee and the
Administrator:

(1)           simultaneously with the execution and
delivery of the Agreement and, if required pursuant to Section 13.1, of
each amendment, an Opinion of Counsel stating that, in the opinion of such
Counsel, in form and substance reasonably satisfactory to the addressees of
such Opinion, either (A) all financing statements and continuation
statements have been executed and filed that are necessary fully to preserve
and protect the interest of the Trust and the Indenture Trustee in the
Receivables then held as part of the Series Trust Estate, or (B) no
such action shall be necessary to preserve and protect such interest or (C) any
action which is necessary to preserve and protect such interest during the
following 12-month period; and

 65
 

 

(2)           on or before March 31 of each
year beginning with March 31, 2007, dated as of a date during such period,
stating that, in the opinion of such counsel, either (A) all financing
statements and continuation statements have been executed and filed that are
necessary fully to preserve and protect the interest of the Trust and the
Indenture Trustee in the Series Trust Estate or (B) no such action
shall be necessary to preserve and protect such interest.

Each Opinion of Counsel referred to in clause (1) or
(2) above shall specify any action necessary (as of the date of such
opinion) to be taken in the following year to preserve and protect such
interest.

Section
13.3.   Notices.   All demands, notices and communications upon
or to the Seller, Servicer, the Owner Trustee, the Administrator, the Indenture
Trustee or any other Person entitled to receive a notice, shall be in writing,
personally delivered, or mailed by certified mail, sent by confirmed telecopier
transmission, or at the consent of the receiving party by electronic mail, and
shall be deemed to have been duly given upon receipt at the address specified
in the Series Supplement. Any notice required or permitted to be mailed to
a Noteholder or Certificateholder shall be given by first class mail, postage
prepaid, at the address of such Holder as shown in the Certificate Register or
Note Register, as applicable. Any notice so mailed within the time prescribed
in the Agreement shall be conclusively presumed to have been duly given, whether
or not the Certificateholder or Noteholder shall receive such notice.

Section
13.4.   Assignment.   This Agreement shall inure to the benefit
of and be binding upon the parties hereto and their respective successors and
permitted assigns. Notwithstanding anything to the contrary contained herein,
except as provided in Sections 8.4 and 9.3 and as provided in the provisions of
this Agreement concerning the resignation of the Servicer, this Agreement may
not be assigned by the Seller or the Servicer, the Owner Trustee, the
Administrator and the Indenture Trustee. In the event that a successor Issuer
is formed as permitted by the Series Supplement, such Issuer shall succeed
to all of the rights and obligations of the predecessor Issuer hereunder; and
all references to the Issuer hereunder shall thereafter be deemed to be
references to such successor Issuer.

Section
13.5.   Limitations on Rights of Others.   The provisions of
this Agreement are solely for the benefit of the parties hereto and for the
benefit of the Certificateholders (including the Seller), the Indenture
Trustee, the Administrator, the Owner Trustee, any Support Provider and the
Secured Parties, as third-party beneficiaries. Each Support Provider shall be
entitled to rely upon and directly enforce such provisions of this Agreement,
the Series Supplement and the Indenture so long as no default with respect
to such Support Provider shall have occurred and be continuing; provided that
nothing herein shall affect or limit the Support Provider’s rights as subrogee
to the Noteholders. Nothing in this Agreement or in the Series Supplement,
whether express or implied, shall be construed to give to any other Person any
legal or equitable right, remedy or claim in the Owner Trust Estate or under or
in respect of this Agreement or any covenants, conditions or provisions
contained herein.

 66
 

 

Section 13.6.   Severability.   Any
provision of this Agreement that is prohibited or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining
provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.

Section
13.7.   Separate Counterparts.   This Agreement and each
Transfer Agreement may be executed by the parties hereto in separate
counterparts, each of which when so executed and delivered shall be an
original, but all such counterparts shall together constitute but one and the
same instrument.

Section
13.8.   Headings.   The headings of the various Articles and
Sections herein are for convenience of reference only and shall not define or
limit any of the terms or provisions hereof.

Section
13.9.   Governing Law.   THIS AGREEMENT AND EACH TRANSFER
AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW
YORK, WITHOUT REFERENCE TO ITS CONFLICT OF LAWS PROVISIONS WHICH WOULD REQUIRE
THE APPLICATION OF THE LAWS OF ANY OTHER JURISDICTION, AND THE OBLIGATIONS,
RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE
WITH SUCH LAWS.

Section
13.10.   Assignment to Indenture Trustee.   The Seller hereby
acknowledges and consents to any mortgage, pledge, assignment and grant of a
security interest by the Issuer to the Indenture Trustee pursuant to the
Indenture, as supplemented by the Series Supplement for the benefit of the
Secured Parties of all right, title and interest of the Issuer in, to and under
the Series Trust Estate.

Section 13.11.   Nonpetition
Covenants.   (a)  Notwithstanding any prior termination of
this Agreement or the Series Supplement, none of the Servicer, the Seller
or any Secured Party shall, prior to the date which is one year and one day
after the termination of this Agreement and the payment in full of all
obligations of the Issuer under the Basic Documents, acquiesce, petition or otherwise
invoke or cause the Issuer to invoke the process of any court or government
authority for the purpose of commencing or sustaining a case against the Issuer
under any federal or state bankruptcy, insolvency or similar law or appointing
a receiver, liquidator, assignee, trustee, custodian, sequestrator or other
similar official of the Issuer or any substantial part of its property, or
ordering the winding up or liquidation of the affairs of the Issuer.

(b)           Notwithstanding
any prior termination of this Agreement or the Series Supplement, neither
the Servicer nor any Secured Party shall, prior to the date that is one year
and one day after the termination of this Agreement, acquiesce to, petition or
otherwise invoke or cause the Seller to invoke the process of any court or
government authority for the purpose of commencing or sustaining a case against
the Seller under any federal or state bankruptcy, insolvency or similar law,
appointing a receiver, liquidator, assignee, trustee, custodian, sequestrator,
or other similar official of 

 67
 

 

the Seller or any substantial part of its property, or
ordering the winding up or liquidation of the affairs of the Seller.

Section 13.12.   Limitation
of Liability of the Owner Trustee, the Administrator and the Indenture Trustee.   (a)  Notwithstanding
anything contained herein to the contrary, this Agreement and the Series Supplement
have been countersigned by the Owner Trustee not in its individual capacity but
solely in its capacity as Owner Trustee of the Issuer and in no event shall the
Owner Trustee in its individual capacity or, except as expressly provided in
the Trust Agreement, as Owner Trustee have any liability for the representations,
warranties, covenants, agreements or other obligations of the Issuer hereunder
or in any of the certificates, notices or agreements delivered pursuant hereto,
as to all of which recourse shall be had solely to the assets of the Issuer. For
all purposes of this Agreement and the Series Supplement, in the
performance of its duties or obligations hereunder or in the performance of any
duties or obligations of the Issuer hereunder, the Owner Trustee shall be
subject to, and entitled to the benefits of, the terms and provisions of
Articles VI, VII and VIII of the Trust Agreement.

(b)           Notwithstanding
anything contained herein to the contrary, this Agreement has been executed and
delivered by the Persons acting as the Indenture Trustee and the Administrator
not in their individual capacity but solely as Indenture Trustee or
Administrator, as applicable, and in no event shall such Persons have any
liability for the representations, warranties, covenants, agreements or other
obligations of the Issuer hereunder or in any of the certificates, notices or
agreements delivered pursuant hereto, as to all of which recourse shall be had
solely to the assets of the Issuer.

Section
131.13.   Limitation of Liability of Issuer.   The Issuer shall
have no liability to the Servicer except for payment of the Servicing Fee and
reimbursement of repossession and liquidation expenses. The Issuer shall have
no obligation to indemnify the Servicer for costs or expenses, except with
respect to the preceding sentence.

Section
13.14.   Independence of the Servicer.   For all purposes of
this Agreement, the Servicer shall be an independent contractor and shall not
be subject to the supervision of the Issuer, the Indenture Trustee, the
Administrator or the Owner Trustee with respect to the manner in which it
accomplishes the performance of its obligations hereunder. Unless expressly
authorized by this Agreement or the Series Supplement, the Servicer shall
have no authority to act for or represent the Issuer or the Owner Trustee in
any way and shall not otherwise be deemed an agent of the Issuer or the Owner
Trustee.

Section
13.15.   No Joint Venture.   Nothing contained in this Agreement
or the Series Supplement (i) shall constitute the Servicer and either
of the Issuer or the Owner Trustee as members of any partnership, joint
venture, association, syndicate, unincorporated business or other separate
entity, (ii) shall be construed to impose any liability as such on any of
them or (iii) shall be deemed to confer on any of them any express,
implied or apparent authority to incur any obligation or liability on behalf of
the others.

Section
13.16.   [Reserved].

 68
 

 

Section 13.17.   Regulation
AB.   The Seller,
the Servicer, the Indenture Trustee and the Administrator acknowledge
and agree that the purpose of this Section 13.17 is to facilitate
compliance by the Seller with the provisions of Regulation AB and related rules and
regulations of the Commission. The Seller shall not exercise its right to
request delivery of information or other performance under these provisions
other than in good faith, or for purposes other than compliance with the
Securities Act, the Exchange Act and the rules and regulations of the
Commission under the Securities Act and the Exchange Act. The Servicer, the
Indenture Trustee and the Administrator acknowledge that interpretations of the
requirements of Regulation AB may change over time, whether due to interpretive
guidance provided by the Commission or its staff, consensus among participants
in the asset-backed securities markets, advice of counsel, or otherwise, and
agrees to comply with requests made by the Seller or the Servicer in good faith
for delivery of information under these provisions on the basis of evolving
interpretations of Regulation AB. The Servicer, the Indenture Trustee and the
Administrator shall cooperate fully with the Seller and the Issuer to deliver
to the Seller and the Issuer (including the Servicer and any other assignees or
designees) any and all statements, reports, certifications, records and any
other information necessary in the good faith determination of the Seller or
the Servicer to permit the Seller to comply with the provisions of Regulation
AB, together with such disclosures relating to the Servicer, the Subservicer,
the Indenture Trustee, the Administrator and the Receivables, or the servicing
of the Receivables, reasonably believed by the Seller or the Servicer to be
necessary in order to effect such compliance.

Section
13.18.   Information to Be Provided by the Indenture Trustee and the
Administrator.   For so long as the Issuer is required to report under
the Exchange Act, each of the Indenture Trustee and the Administrator shall (i) on
or before the fifth Business Day of each month, provide to the Servicer, in
writing, such information regarding the Indenture Trustee or the Administrator,
as applicable, as is requested by the Servicer for the purpose of compliance
with Items 1117 and 1119 of Regulation AB; provided,
however, that neither the
Indenture Trustee nor the Administrator shall be required to provide such
information in the event that there has been no change to the information
previously provided by the Indenture Trustee or the Administrator, as
applicable, to the Servicer, and (ii) as promptly as practicable following
notice to or discovery by a Responsible Officer of the Indenture Trustee or the
Administrator, as applicable, of any changes to such information, provide to
the Servicer, in writing, such updated information.

 69

 

IN WITNESS WHEREOF, the parties hereto have caused
this Sale and Servicing Agreement to be duly executed and delivered by their
respective duly authorized officers as of the day and the year first above
written.

	
  

  	
  HSBC AUTOMOTIVE TRUST (USA) 2006-1

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  U.S. Bank Trust National Association, 

  not in its individual capacity but solely as 

  Owner Trustee on behalf of the Trust

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ PATRICIA
  M. CHILD

  	
   

  	
   

  
	
   

  	
   

  	
  Name: Patricia M. Child

  	
   

  	
   

  
	
   

  	
   

  	
  Title: Vice President

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  HSBC AUTO RECEIVABLES CORPORATION,

     as Seller

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ STEVEN H.
  SMITH

  	
   

  	
   

  
	
   

  	
   

  	
  Name: Steven H. Smith

  	
   

  	
   

  
	
   

  	
   

  	
  Title: Vice President and Assistant Treasurer

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  HSBC FINANCE CORPORATION,

     as Servicer

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ DENNIS J.
  MICKEY

  	
   

  	
   

  
	
   

  	
   

  	
  Name: Dennis J. Mickey

  	
   

  	
   

  
	
   

  	
   

  	
  Title: Vice President and Assistant Treasurer

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  THE BANK OF NEW YORK, not in its individual 

     capacity but solely as Indenture Trustee

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ ALAN LI

  	
   

  	
   

  
	
   

  	
   

  	
  Name: Alan Li

  	
   

  	
   

  
	
   

  	
   

  	
  Title: Assistant Treasurer

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  HSBC BANK USA, NATIONAL ASSOCIATION,

     as Administrator

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ ELENA
  ZHENG

  	
   

  	
   

  
	
   

  	
   

  	
  Name: Elena Zheng

  	
   

  	
   

  
	
   

  	
   

  	
  Title: Assistant Vice President

     HSBC Bank USA, N.A.

  	
   

  	
   

  

 

EXHIBIT A

FORM OF TRANSFER AGREEMENT

TRANSFER No.                           
of Receivables dated as of                             
pursuant to the Sale and Servicing Agreement dated as of June 8, 2006 (the
“Sale and Servicing Agreement”), among HSBC AUTOMOTIVE TRUST (USA) 2006-1,
a Delaware statutory trust (the “Issuer” or the “Trust”), HSBC AUTO RECEIVABLES
CORPORATION, a Nevada corporation (the “Seller”), HSBC FINANCE CORPORATION, a
Delaware corporation (the “Servicer”), THE BANK OF NEW YORK, a New York banking
corporation, in its capacity as Indenture Trustee (the “Indenture Trustee”) and
HSBC BANK USA, NATIONAL ASSOCIATION, a national banking association, in its
capacity as Administrator (the “Administrator”).

W I T N E S S E T H:

WHEREAS pursuant to the Sale and Servicing Agreement,
the Seller wishes to convey the Receivable to the Issuer; and

WHEREAS, the Issuer is willing to accept such
conveyance subject to the terms and conditions hereof.

NOW, THEREFORE, the Issuer, the Seller, the Servicer,
the Indenture Trustee and the Administrator hereby agree as follows:

1.             Defined
Terms.   Capitalized terms used herein shall have the meanings ascribed
to them in the Sale and Servicing Agreement unless otherwise defined herein.

“Cut-off Date” shall mean, with respect to the
Receivables conveyed hereby, the close of business on                     ,
20    .

“Transfer Date” shall mean, with respect to the
Receivables conveyed hereby,                     ,
        .

2.             List
of Receivables.   Annexed hereto is Schedule A listing the Receivables
that constitute the Receivables to be conveyed pursuant to the Sale and
Servicing Agreement and this Agreement on the Transfer Date.

3.             Conveyance
of Receivables.   The Seller does hereby sell, transfer, assign, set
over and otherwise convey to the Issuer, without recourse (except as expressly provided in the Sale and Servicing Agreement),
all right, title and interest of the Seller in and to:

(a)           each
and every Receivable listed on Schedule A and all monies paid or payable
thereon or in respect thereof after the related Cut-off Date (including amounts
due on or before the related Cut-off Date but received by 

 

HAFI (or any predecessor
or Affiliate of HAFI, as applicable) or Seller on or after such date);

(b)          the security interests in the related
Financed Vehicles granted by Obligors pursuant to such Receivables and any
other interest of the Seller in such Financed Vehicles;

(c)           all
rights of the Seller against Dealers pursuant to Dealer Agreements or Dealer
Assignments related to such Receivables;

(d)           any
proceeds and the right to receive proceeds with respect to such Receivables
repurchased by a Dealer pursuant to a Dealer Agreement;

(e)           all
rights of the Seller under any Service Contracts on the related Financed
Vehicles;

(f)            any
proceeds and the right to receive proceeds with respect to such Receivables
from claims on any Insurance Policy covering the related Financed Vehicles or
Obligors;

(g)           all
items contained in the Receivables Files with respect to such Receivables and
any and all other documents that HAFI, any Affiliate of HAFI that is the seller
under a Master Receivables Purchase Agreement, the Seller or the Servicer, as
applicable, keeps on file in accordance with its customary procedures relating
to the related Receivables, the related Financed Vehicles or Obligors;

(h)           all
funds on deposit from time to time in the Trust Accounts (including all
investments and proceeds thereof);

(i)            all
property (including the right to receive future Net Liquidation Proceeds) that
secures each related Receivable and that has been acquired by or on behalf of
the Seller or the Trust pursuant to liquidation of such Receivable;

(j)            all
of Seller’s right, title and interest in its rights and benefits, but none of
its obligations or burdens, under each of the Master Receivables Purchase
Agreements and the Receivables Purchase Agreement Supplements, including the
delivery requirements, representations and warranties and the cure and
repurchase obligations of HAFI, any Affiliate of HAFI that is the seller under
a Master Receivables Purchase Agreement or HSBC Finance Corporation, as
applicable, under each of the Master Receivables Purchase Agreements and
related Receivables Purchase Agreement Supplements, on or after the related
Cut-off Date;

(k)           on
the initial Transfer Date only, one share of Class SV Preferred Stock of
the Seller together with the exclusive right to vote such share; and

 A-2
 

 

(l)            all
present and future claims, demands, causes and chooses in action in respect of
any or all of the foregoing and all payments on or under and all proceeds of
every kind and nature whatsoever in respect of any or all of the foregoing,
including all proceeds of the conversion, voluntary or involuntary, into cash
or other liquid property, all cash proceeds, accounts, accounts receivable,
notes, drafts, acceptances, chattel paper, checks, deposit accounts, insurance
proceeds, condemnation awards, rights to payment of any and every kind and
other forms of obligations and receivables, instruments and other property which
at any time constitute all or part of or are included in the proceeds of any of
the foregoing.

4.             Representations
and Warranties of the Seller.   The Seller hereby represents and
warrants to the Issuer as of the Transfer Date that:

(a)           Each
of its representations set forth in Sections 3.1 and 8.1 of the Sale and
Servicing Agreement are true and correct as if made on the Transfer Date,
except if specified to be true as of an earlier date, in which case, such
representations and warranties are true as of such earlier date.

(b)           The
aggregate of the Principal Balances of the Receivables listed on Schedule A
annexed hereto and conveyed to the Issuer pursuant to this Agreement as of the
Cut-off Date is $                      .

5.             Conditions
Precedent.   The obligation of the Issuer to acquire the Receivables
hereunder is subject to the satisfaction, on or prior to the Transfer Date, of
the following conditions precedent:

Representations and Warranties.   Each
of the representations and warranties made by the Seller in Section 4 of
this Agreement shall be true and correct as of the Transfer Date.

Sale and Servicing Agreement Conditions.   Each
of the conditions set forth in Section 2.1(b) to the Sale and
Servicing Agreement shall have been satisfied.

Additional Information.   The
Seller shall have delivered to the Issuer such information as was reasonably
requested by the Issuer to satisfy itself as to the accuracy of the
representations and warranties set forth in Section 4 of this Agreement.

6.             Ratification
of Agreement.   As supplemented by this Agreement, the Sale and
Servicing Agreement is in all respects ratified and confirmed and the Sale and
Servicing Agreement as so supplemented by this Agreement shall be read, taken
and construed as one and the same instrument.

7.             Counterparts.
This Agreement may be executed in two or more counterparts (and by different
parties in separate counterparts), each of which shall be an original but all
of which together shall constitute one and the same instrument.

 A-3
 

 

8.             GOVERNING
LAW.   THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF
THE STATE OF NEW YORK, WITHOUT REFERENCE TO ITS CONFLICT OF LAW PROVISIONS, AND
THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER SHALL BE
DETERMINED IN ACCORDANCE WITH SUCH LAWS.

 A-4
 

 

IN WITNESS WHEREOF, the Issuer, the Seller and the
Servicer have caused this Agreement to be duly executed and delivered by their
respective duly authorized officers as of day and the year first above written.

	
  

  	
  HSBC AUTOMOTIVE TRUST (USA) 2006-1

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  U.S. Bank Trust National Association, 

  not in its individual capacity but solely as 

  Owner Trustee on behalf of the Trust

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  	
   

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  HSBC AUTO RECEIVABLES CORPORATION, 

     as Seller

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  	
   

  	
   

  
	
   

  	
   

  	
  Title

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  HSBC FINANCE CORPORATION,

     as Servicer

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  	
   

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  	
   

  

 

 A-5
 

 

 

	
  Acknowledged and Accepted:

  
	
   

  
	
  THE BANK OF NEW YORK,

  
	
     not in its individual capacity but solely as

  
	
     Indenture Trustee

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  HSBC BANK USA, NATIONAL ASSOCIATION,

  
	
     as Administrator

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  

 

 A-6Exhibit 4.4

EXECUTION VERSION

 

 

HSBC FINANCE
CORPORATION,

as Servicer,

HSBC AUTOMOTIVE TRUST (USA) 2006-1,

as Issuer,

HSBC AUTO RECEIVABLES CORPORATION,

as Seller,

THE BANK OF NEW YORK,

as Indenture Trustee,

U.S. BANK TRUST NATIONAL ASSOCIATION,

as Owner Trustee,

HSBC BANK USA,
NATIONAL ASSOCIATION,

as Administrator

 

SERIES SUPPLEMENT

Dated as of June 8, 2006

to the

INDENTURE

Dated as of June 8, 2006

to the

SALE AND SERVICING
AGREEMENT

Dated as of June 8,
2006

and to the

AMENDED AND
RESTATED TRUST AGREEMENT

Dated as of June 8,
2006

 

 

 

TABLE OF
CONTENTS

 

	
  

  	
   

  	
  Page

  
	
   

  	
   

  	
   

  
	
  ARTICLE I CREATION OF THE NOTES

  	
   

  	
  1

  
	
   

  	
   

  	
   

  
	
  SECTION 1.01.

  	
   

  	
  DESIGNATION.

  	
   

  	
  1

  
	
  SECTION 1.02.

  	
   

  	
  PLEDGE OF
  SERIES TRUST ESTATE.

  	
   

  	
  1

  
	
  SECTION 1.03.

  	
   

  	
  PAYMENTS AND
  COMPUTATIONS.

  	
   

  	
  2

  
	
  SECTION 1.04.

  	
   

  	
  DENOMINATIONS.

  	
   

  	
  3

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE II DEFINITIONS

  	
   

  	
  3

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  SECTION 2.01.

  	
   

  	
  DEFINITIONS.

  	
   

  	
  3

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE III DISTRIBUTIONS AND
  STATEMENTS TO NOTEHOLDERS; SERIES SPECIFIC COVENANTS

  	
   

  	
  10

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  SECTION 3.01.

  	
   

  	
  TRUST ACCOUNTS.

  	
   

  	
  10

  
	
  SECTION 3.02.

  	
   

  	
  RESERVE ACCOUNT.

  	
   

  	
  11

  
	
  SECTION 3.03.

  	
   

  	
  DISTRIBUTIONS.

  	
   

  	
  11

  
	
  SECTION 3.04.

  	
   

  	
  STATEMENTS TO
  NOTEHOLDERS.

  	
   

  	
  13

  
	
  SECTION 3.05.

  	
   

  	
  REPORTING REQUIREMENTS.

  	
   

  	
  15

  
	
  SECTION 3.06.

  	
   

  	
  COMPLIANCE WITH
  WITHHOLDING REQUIREMENTS.

  	
   

  	
  16

  
	
  SECTION 3.07.

  	
   

  	
  SPECIAL COVENANTS AND
  ACKNOWLEDGEMENTS.

  	
   

  	
  16

  
	
  SECTION 3.08.

  	
   

  	
  INCOME TAX
  CHARACTERIZATION.

  	
   

  	
  16

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE IV EVENTS OF DEFAULT;
  REMEDIES

  	
   

  	
  17

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  SECTION 4.01.

  	
   

  	
  EVENTS OF DEFAULT.

  	
   

  	
  17

  
	
  SECTION 4.02.

  	
   

  	
  RIGHTS UPON EVENT OF
  DEFAULT.

  	
   

  	
  18

  
	
  SECTION 4.03.

  	
   

  	
  REMEDIES.

  	
   

  	
  19

  
	
  SECTION 4.04.

  	
   

  	
  PRIORITIES.

  	
   

  	
  20

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE V PREPAYMENT,
  REDEMPTION AND SUBSTITUTION

  	
   

  	
  21

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  SECTION 5.01.

  	
   

  	
  OPTIONAL “CLEAN-UP”
  REDEMPTION.

  	
   

  	
  21

  
	
  SECTION 5.02.

  	
   

  	
  OPTIONAL SUBSTITUTION.

  	
   

  	
  21

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE VI MISCELLANEOUS

  	
   

  	
  22

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  SECTION 6.01.

  	
   

  	
  RATIFICATION OF BASIC
  DOCUMENTS.

  	
   

  	
  22

  
	
  SECTION 6.02.

  	
   

  	
  COUNTERPARTS.

  	
   

  	
  22

  
	
  SECTION 6.03.

  	
   

  	
  GOVERNING LAW.

  	
   

  	
  22

  
	
  SECTION 6.04.

  	
   

  	
  AMENDMENTS WITHOUT
  CONSENT OF NOTEHOLDERS.

  	
   

  	
  22

  
	
  SECTION 6.05.

  	
   

  	
  AMENDMENTS WITH CONSENT
  OF THE NOTEHOLDERS.

  	
   

  	
  24

  
	
  SECTION 6.06.

  	
   

  	
  AUTHORITY TO REGISTER
  NOTES AND FILE REPORTS.

  	
   

  	
  26

  
	
  SECTION 6.07.

  	
   

  	
  AUTHORITY TO PERFORM
  DUTIES OF THE ISSUER.

  	
   

  	
  26

  
	
  SECTION 6.08.

  	
   

  	
  NOTICES.

  	
   

  	
  26

  
	
  SECTION 6.09.

  	
   

  	
  [RESERVED].

  	
   

  	
  27

  

 

	
  Schedule I

  	
   

  	
  Eligibility Criteria

  	
   

  	
  SCH-I-1

  
	
  Schedule II

  	
   

  	
  Schedule of Receivables

  	
   

  	
  SCH-II-1

  
	
  Exhibit A

  	
   

  	
  Form of Servicer’s
  Certificate

  	
   

  	
  EXH-A-1

  
	
  Exhibit B

  	
   

  	
  Forms of Notes

  	
   

  	
  EXH-B-1

  

 

This Series Supplement, dated as of June 8,
2006, is by and among HSBC Finance Corporation, a Delaware corporation, as
Servicer (the “Servicer”), HSBC Automotive Trust (USA) 2006-1, a
Delaware statutory trust, as Issuer (the “Issuer” or the “Trust”),
HSBC Auto Receivables Corporation, a Nevada corporation, as Seller (the “Seller”),
The Bank of New York, a New York banking corporation, as trustee for the
Noteholders (the “Indenture Trustee”), U.S. Bank Trust National
Association, a national banking association, as owner trustee for the
Certificateholders (the “Owner Trustee”), and HSBC Bank USA, National
Association, a national banking association, as administrator (the “Administrator”).

RECITALS

This Series Supplement is executed and delivered
by the parties hereto pursuant to Section 9.3 of the Indenture (the “Indenture”)
dated as of June 8, 2006 among the Issuer, the Indenture Trustee and the
Administrator and pursuant to Section 3.2 of the Trust Agreement between
the Seller and the Owner Trustee. In the event that any term or provision
contained herein shall conflict with or be inconsistent with any term or
provision contained in the Indenture or the Trust Agreement, the terms and
provisions of this Series Supplement shall govern.

ARTICLE I

CREATION OF THE NOTES

SECTION 1.01.              Designation.

(a)           There
is hereby created a series of Notes, substantially in the form of Exhibit B
hereto, to be issued pursuant to the Indenture and this Series Supplement
to be known as “HSBC Automotive Trust (USA) 2006-1, Series 2006-1
Notes” (as used herein, the “Notes”). The Notes shall be issued in four
classes (each, a “Class”):  Class A-1
Notes in an aggregate initial principal amount of $246,600,000 (the “Class A-1
Notes”), Class A-2 Notes in an aggregate initial principal amount
of $227,000,000 (the “Class A-2 Notes”), Class A-3
Notes in an aggregate initial principal amount of $352,000,000 (the “Class A-3
Notes”), and Class A-4 Notes in an aggregate initial principal
amount of $118,718,000 (the “Class A-4 Notes” and, together with
the Class A-1 Notes, the Class A-2 Notes and the Class A-3
Notes, the “Class A Notes”).

(b)           There
is hereby created a series of Certificates to be issued pursuant to the Trust
Agreement and this Series Supplement to be known as the “HSBC Automotive
Trust (USA) 2006-1, Series 2006-1 Certificates” (as used
herein, the “Certificates”).

SECTION 1.02.              Pledge of Series Trust Estate.

The Issuer hereby Grants to the Indenture Trustee, for
the benefit of the Secured Parties, all of the Issuer’s right, title and interest
(but none of its obligations) in and to all personal property, whether now
owned or hereafter acquired and whether general intangibles, accounts, chattel
paper, claims and causes of action, deposit accounts, documents, goods,
instruments, money or constituting other personal property of any nature
whatsoever, including, without limitation: 
(a) each and every Receivable listed as a Receivable on the
Schedule of Receivables attached hereto as Schedule II and all monies paid or
payable thereon or in respect thereof after the applicable Cut-off Date
(including amounts due on or before the applicable Cut-

 

off Date but received by HAFI, HACI, HSBC Finance, the
Seller, the Servicer or the Issuer after the applicable Cut-off Date); (b) all
security interests in the related Financed Vehicles granted by Obligors
pursuant to such Receivables and any other interest of the Issuer in the
related Financed Vehicles; (c) all rights of HAFI against Dealers pursuant
to Dealer Agreements or Dealer Assignments related to such Receivables; (d) any
proceeds and the right to receive proceeds with respect to such Receivables
repurchased by a Dealer pursuant to a Dealer Agreement; (e) all rights
under any Service Contracts on the related Financed Vehicles; (f) any
proceeds and the right to receive proceeds with respect to such Receivables
from claims under any Insurance Policies covering the related Financed Vehicles
or Obligors; (g) all funds on deposit from time to time in the Trust
Accounts (including all investments and proceeds thereof); (h) all rights
of the Seller in and to the Master Receivables Purchase Agreements and related
Receivables Purchase Agreement Supplements, including all delivery requirements
and representations and warranties and the cure and repurchase obligations of
HAFI, HACI or HSBC Finance, as applicable, under the Master Receivables
Purchase Agreements and such Receivables Purchase Agreement Supplements; (i) all
property (including the right to receive future Net Liquidation Proceeds) that
secures such Receivables and that has been, or at any time is, acquired by or
on behalf of the Issuer pursuant to liquidation of such Receivables; (j) all
items contained in the Receivable Files with respect to such Receivables and
any and all other documents that the Servicer, the Seller, HAFI or HACI keeps
on file in accordance with its customary procedures relating to such
Receivables, the related Financed Vehicles or Obligors; (k) all rights of
the Issuer in and to the Sale and Servicing Agreement and the Transfer
Agreement or Transfer Agreements (including all rights of the Seller under the
Master Receivables Purchase Agreements and related Receivables Purchase
Agreement Supplements assigned to the Issuer pursuant to the Sale and Servicing
Agreement and the related Transfer Agreement or Transfer Agreements); (l) one
share of the Class SV Preferred Stock of the Seller together with the
exclusive right to vote such share; and (m) all present and future (i) claims,
demands, causes and choses in action in respect of any or all of the foregoing,
and (ii) payments on or under, and all proceeds of every kind and nature
whatsoever in respect of, any or all of the foregoing, including all proceeds
of the conversion thereof, whether voluntary or involuntary, into cash or other
liquid property, cash proceeds, accounts, accounts receivable, notes, drafts,
acceptances, chattel paper, checks, investment property, deposit accounts,
insurance proceeds, condemnation awards, rights to payment of any and every
kind and other forms of obligations and receivables, instruments and other
property which at any time constitute all or part of or are included in the
proceeds of any of the foregoing (collectively, the “Series Trust
Estate”).

The foregoing Grant is made in trust to the Indenture
Trustee for the benefit of the Secured Parties. The Indenture Trustee hereby
acknowledges such Grant, accepts the trust under the Indenture and this Series Supplement
in accordance with the provisions of the Indenture and this Series Supplement
and agrees to perform its duties required in the Indenture and in this Series Supplement
in accordance with the provisions hereof and of the Indenture to the best of
its ability to the end that the interests of such parties, recognizing the
priorities of their respective interests, may be adequately and effectively
protected.

SECTION 1.03.              Payments and Computations.

All amounts to be paid or deposited by any Person
hereunder shall be paid or deposited in accordance with the terms hereof no
later than 12:00 noon (New York City time) on 

 2
 

 

the day when due in immediately available funds. Notwithstanding
the foregoing, any amounts required to be paid by the Indenture Trustee or the
Administrator hereunder shall be paid in accordance with the terms hereof no
later than 3:00 p.m. (New York City time) on the day when due, in
immediately available funds.

SECTION 1.04.              Denominations.

The Notes of each Class shall be issued in
denominations of $100,000 and integral multiples of $1,000 in excess thereof,
except that one Note of each Class may be issued in a denomination other
than an integral multiple of $1,000.

ARTICLE II

DEFINITIONS

SECTION 2.01.              Definitions.

(a)           Whenever
used in this Series Supplement and when used in the Related Documents, the
following words and phrases shall have the following meanings, and the
definitions of such terms are applicable to the singular as well as the plural
forms of such terms and to the masculine as well as to the feminine and neuter
genders of such terms. Unless otherwise defined in this Series Supplement,
terms defined in the Basic Documents are used herein as therein defined. References
to sections, unless otherwise indicated, are to sections of this Series Supplement.
References to any Basic Document, or to any other agreement, document or other
record defined herein, shall mean such Basic Document or other record as from
time to time amended or supplemented.

“Aggregate Note Principal Balance” means, (i) with
respect to all of the Notes, as of any date, the aggregate outstanding
principal amount of all of the Notes on such date and (ii) with respect to
any Class of the Notes, as of any date, the aggregate outstanding
principal amount of all of the Notes of such Class on such date.

“Aggregate Optimal Note Principal Balance” means, with
respect to any Distribution Date, the product of (x) 61% and (y) the
Pool Balance as of the close of business on the last day of the prior
Collection Period.

“Available Funds” means, with respect to any
Distribution Date and the related Collection Period, the sum of (i) the
Collections for such Collection Period, (ii) investment earnings realized
on the Collection Account and the Reserve Account during such Collection
Period, (iii) all Repurchase Amounts deposited in the Collection Account
during such Collection Period and (iv) all proceeds of any liquidation, in
whole or in part, of the assets of the Trust.

“Basic Documents” means this Series Supplement,
the Sale and Servicing Agreement, the Certificate of Trust, the Trust
Agreement, the Indenture, the Control Agreement, the Master Receivables
Purchase Agreements, each Transfer Agreement related to the Owner Trust Estate
and all other documents and certificates delivered therewith or pursuant
thereto in connection with the Notes or the Certificates.

 3
 

 

 

“Business Day” means a day other than a Saturday, a
Sunday or other day on which commercial banks located in the states of Illinois
or New York are authorized or obligated by law to be closed.

“Certificate of Trust” shall mean the Certificate of
Trust filed for the Trust.

“Certificateholders” means the holders of the
Certificates.

“Class A Interest Carryover Shortfall” means,
with respect to any Distribution Date and each class of Class A Notes, the
sum of:  (i) the excess of (a) the
related Class A Interest Distributable Amount for the preceding
Distribution Date, over (b) the amount actually paid as interest to the Class A
Noteholders on such preceding Distribution Date (under the Indenture), plus (ii) interest on such excess, to the extent
permitted by law, at a rate per annum equal to the related Note Rate with
respect to the Class A Notes from such preceding Distribution Date to but
excluding the current Distribution Date.

“Class A Interest Distributable Amount” means,
with respect to any Distribution Date and each class of Class A Notes, an
amount equal to the sum of:  (i) the
aggregate amount of interest accrued on the Class A Notes at the related
Note Rate from and including the preceding Distribution Date (or, in the case
of the initial Distribution Date, from and including the Closing Date) to but
excluding the current Distribution Date plus (ii) the
related Class A Interest Carryover Shortfall for the current Distribution
Date.

“Class A Noteholders” means the Holders of the Class A
Notes.

“Class A Additional Principal Distributable
Amount” means, with respect to a Distribution Date, the positive excess, if
any, of (i) the Aggregate Note Principal Balance after giving effect to
distribution of the Class A Minimum Principal Distributable Amount on such
Distribution Date pursuant to Section 3.03(a)(iv) over (ii) the
Aggregate Optimal Note Principal Balance for such Distribution Date.

“Class A Minimum Principal Distributable Amount”
means, with respect to any Distribution Date, the greatest of (i) the
least of (A) the Optimal Principal Distributable Amount for such
Distribution Date, (B) the excess of the aggregate of the Principal
Balances of the Receivables as of the last day of the second preceding
Collection Period, over the aggregate of the Principal Balances of the
Receivables as of the last day of the immediately preceding Collection Period,
and (C) the Aggregate Note Principal Balance, (ii) on the Scheduled
Maturity Date for any Class of the Notes, the amount necessary to reduce
the Aggregate Note Principal Balance of such Class to zero, and (iii) the
positive excess, if any, of the Aggregate Note Principal Balance prior to
making any distribution on such Distribution Date over the Pool Balance as of
the last day of the preceding Collection Period.

“Class A-1 Noteholders” means the Holders
of the Class A-1 Notes.

“Class A-1 Scheduled Maturity Date” means June 18,
2007.

“Class A-2 Noteholders” means the Holders
of the Class A-2 Notes.

 4
 

 

 

“Class A-2 Scheduled Maturity Date” means June 17,
2009.

“Class A-3 Noteholders” means the Holders
of the Class A-3 Notes.

“Class A-3 Scheduled Maturity Date” means June 17,
2011.

“Class A-4 Noteholders” means the Holders
of the Class A-4 Notes.

“Class A-4 Scheduled Maturity Date” means March 18,
2013.

“Closing Date” means June 8, 2006.

“Collection Account” means the Eligible Account
created pursuant to Section 3.01, which shall be account no. 10-879490
reference HSBC Auto 2006-1 Collection Account at the Administrator, ABA No. 021001088.

“Collections” has the meaning assigned to such term in
the Sale and Servicing Agreement.

“Control Agreement” means the deposit account control
agreement dated as of June 8, 2006 among the Issuer, the Indenture Trustee
and the Administrator.

“Controlling Party” means the Indenture Trustee for
the benefit of and acting solely at the direction of the Holders of a majority
of the Outstanding Amount of the Notes.

“Corporate Trust Office” means, (i) with respect
to the Owner Trustee, the office of the Owner Trustee, which at the time of
execution of this Series Supplement is 209 South LaSalle Street, Suite 300,
Chicago, Illinois 60604, Attention: Corporate Trust Services, (ii) with
respect to the Indenture Trustee, the corporate trust office of the Indenture
Trustee, which at the time of execution of this Series Supplement is 101 Barclay Street, 8 West ABS, New York, New York
10286, and (iii) with respect to the Administrator, the corporate
trust office of the Administrator, which at the time of execution of this Series Supplement
is 452 Fifth Avenue, New York, New York 10018.

“Cut-off Date” means, with respect to the Receivables
transferred and assigned to the Issuer on the Closing Date, the close of
business on May 29, 2006.

“Definitive Notes” means the Notes that have been
certificated and fully registered in accordance with Section 2.12 of the
Indenture.

“Determination Date” has the meaning assigned to such
term in the Sale and Servicing Agreement.

“Distribution Date” means, with respect to each
Collection Period, the seventeenth day of the calendar month next commencing
after the last day of such Collection Period, or if such day is not a Business
Day, the immediately following Business Day, commencing July 17, 2006.

 5
 

 

 

“Eligibility Criteria” means the criteria for
eligibility for Eligible Receivables set forth on Schedule I hereto.

“Eligible Investments” means, with respect to funds in
the Collection Account and Reserve Account, “Eligible Investments” as defined
in the Sale and Servicing Agreement, except that (i) all references in
such definition to “rating satisfactory to the Rating Agency” or words of
similar import shall mean ratings of not less than “A-1+” or “AAA” by
Standard & Poor’s, “P-1” or “Aaa” by Moody’s Investors Service, “F1”
or “AAA” by Fitch, Inc., or the equivalent such ratings by another Rating
Agency (whichever is applicable), and (ii) unless otherwise agreed in
writing by the Rating Agencies, all such investments shall have maturities at
the time of the acquisition thereof occurring no later than the Business Day
immediately preceding the Distribution Date following such date of acquisition.

“Eligible Receivable” means a Receivable that
satisfies the Eligibility Criteria.

“Eligible Substitute Receivable” means a Receivable
substituted by the Servicer or HAFI pursuant to Section 5.02, which on the
date of such substitution must:

(i) have a Principal Balance not substantially
greater or less than the Principal Balance of such elected substituted
Receivable;

(ii) have a current Annual Percentage Rate of not
less than the Annual Percentage Rate of such elected substituted Receivable and
not substantially greater than the Annual Percentage Rate of such elected
substituted Receivable;

(iii) have a (A) remaining term to maturity
not more than six months earlier or later than the remaining term to maturity
of such elected substituted Receivable and (B) maturity date not later
than the last day of the Collection Period immediately preceding the month in
which the Final Scheduled Distribution Date occurs;

(iv) satisfy the Eligibility Criteria, to the
extent such criteria do not pertain exclusively to the Receivables transferred
on the Closing Date; and

(v) be the obligation of an Obligor whose credit
profile is substantially similar to that of the Obligor under the elected
substituted Receivable;

provided, however, that
notwithstanding (i) through (v) above, an auto loan may qualify as an
Eligible Substitute Receivable if each of the Rating Agencies confirms such
substitution.

“Event of Default” shall have the meaning assigned to
such term in Section 4.01.

“Final Scheduled Distribution Date” means March 18,
2013.

“HACI” means HSBC Auto Credit Inc., a Delaware
corporation.

“HAFI” means HSBC Auto Finance Inc., a Delaware
corporation.

 6
 

 

 

“HSBC Finance” means HSBC Finance Corporation, a
Delaware corporation.

“Indenture” means the indenture dated as of June 8,
2006 among the Issuer, the Indenture Trustee and the Administrator, as
supplemented by this Series Supplement.

“Initial Reserve Account Deposit” means 1% of the Pool
Balance as of the Cut-off Date.

“Interest Period” means, with respect to any
Distribution Date, the period from and including the prior Distribution Date
(or, in the case of the first Interest Period, from and including the Closing
Date) through (and including) the day preceding such Distribution Date.

“Master Receivables Purchase Agreements” means,
collectively, (i) the Master Receivables Purchase Agreement dated as of November 18,
2002, between HAFI and the Seller, as such agreement may be amended or
supplemented from time to time, and (ii) the Master Receivables Purchase
Agreement dated as of August 8, 2002, between HACI and the Seller, as such
agreement may be amended or supplemented from time to time.

“Note Rate” means the per annum rate of interest due
with respect to each Class of Notes as set forth below for the respective Class of
Notes:

Class A-1
Notes:  5.27575%

Class A-2
Notes:  5.40%

Class A-3
Notes:  5.43%

Class A-4 Notes: 
5.52%

Interest on the Class A-1
Notes will be calculated on the basis of a 360-day year and the actual
number of days elapsed in an applicable Interest Period. Interest on the Class A-2,
Class A-3 and Class A-4 Notes will be calculated on the
basis of a 360-day year consisting of twelve 30-day months.

“Notes” or “Class A Notes” means, collectively,
the Class A-1 Notes, the Class A-2 Notes, the Class A-3
Notes and the Class A-4 Notes.

“Optimal Principal Distributable Amount” means, with
respect to any Distribution Date, the excess, if any, of (i) the Aggregate
Note Principal Balance immediately prior to such Distribution Date over (ii) the
Aggregate Optimal Note Principal Balance for such Distribution Date.

“Original Pool Balance” means the aggregate of the
Principal Balances of the Receivables as of the Cut-off Date.

“Overcollaterization Amount” means, as of any date of
determination, the positive excess, if any, of the Pool Balance over the
Aggregate Note Principal Balance.

“Owner Trust Estate” has the meaning assigned to such
term in the Trust Agreement.

 7
 

 

 

“Owner Trustee” means U.S. Bank Trust National
Association, not in its individual capacity but solely as trustee under the
Trust Agreement, its successors-in-interest or any successor Owner Trustee
under the Trust Agreement.

“Pledge” means the Grant by the Issuer hereunder to
the Indenture Trustee for the benefit of the Secured Parties in accordance with
Section 1.02 in and to the Series Trust Estate.

“Pool Balance” means, as of any date of determination,
the aggregate of the outstanding Principal Balances of the Receivables, unless
otherwise specified, as of the close of business on the preceding Business Day.

“Principal Balance Shortfall” means, (i) with
respect to a Distribution Date, the positive excess, if any, of the Aggregate
Note Principal Balance (after giving effect to the distribution pursuant to Section 3.03(a)(iv) on
such Distribution Date and prior to making any distribution pursuant to Section 3.03(b) on
such Distribution Date) over the Pool Balance as of the close of business on
the last day of the preceding Collection Period and (ii) with respect to
the Scheduled Maturity Date for any Class of the Notes, the outstanding
principal balance of such Class of the Notes (after giving effect to the
distribution pursuant to Section 3.03(a)(iv)).

“Rating Agencies” means Standard & Poor’s,
Moody’s Investors Service and Fitch, Inc. If any such organization or a
successor does not maintain a rating on the Notes, “Rating Agency” shall be a
nationally recognized statistical rating organization or other comparable
Person designated by the Seller, notice of which designation shall be given to
the Administrator, the Indenture Trustee, the Owner Trustee and the Servicer.

“Rating Agency Condition” means, with respect to any
action, written confirmation from each Rating Agency rating the Notes that such
action will not result in a reduction or withdrawal of its then current rating
of the Notes.

“Receivables” means each receivable listed on the
Schedule of Receivables, which (a) has not been released from the Series Trust
Estate as provided herein or in the Indenture and (b) is not a Liquidated
Receivable.

“Redemption Price” has the meaning specified in Section 5.01.

“Related Documents” means the Basic Documents and the
Revolving Credit Agreement.

“Reserve Account” means the Reserve Account, which
shall be an Eligible Account created pursuant to Section 3.01 and which
shall be account no. 10-879491, reference HSBC Auto 2006-1 Reserve
Account at the Administrator, ABA No. 021001088.

“Reserve Account Balance” means, with respect to a
Distribution Date, the amount on deposit in the Reserve Account as of the close
of business on the Business Day immediately preceding such Distribution Date; provided,
however, that such determination shall be made immediately after the
deposit to the Collection Account effected pursuant to Section 5.1(c) of
the Sale and Servicing Agreement.

 8
 

 

 

“Reserve Account Shortfall Amount” means, with respect
to any Distribution Date, the excess of: 
(x) the Targeted Reserve Account Balance for such Distribution Date
over (y) the Reserve Account Balance for such Distribution Date.

“Revolving Credit Agreement” means the Revolving
Credit Agreement, dated as of March 1, 1998, between HSBC Finance
Corporation and the Seller.

“Sale and Servicing Agreement” means the Sale and
Servicing Agreement dated as of June 8, 2006, among the Issuer, the
Seller, the Servicer, the Indenture Trustee and the Administrator, as such
agreement may be amended or supplemented from time to time.

“Scheduled Maturity Date” means, with respect to the Class A-1
Notes, the Class A-1 Scheduled Maturity Date, with respect to the Class A-2
Notes, the Class A-2 Scheduled Maturity Date, with respect to the Class A-3
Notes, the Class A-3 Scheduled Maturity Date and, with respect to
the Class A-4 Notes, the Class A-4 Scheduled Maturity
Date.

“Schedule of Receivables” means, as to any date, the
schedule of all retail installment sales contracts held as part of the Series Trust
Estate on such date. The initial Schedule of Receivables is attached hereto as
Schedule II. The Schedule of Receivables will be amended from time to time to
reflect the removal of Receivables and the addition of any Eligible Substitute
Receivables to the Series Trust Estate.

“Secured Parties” means, collectively, the Holders
from time to time of the Notes.

“Securities” means the Notes and the Certificates.

“Series Supplement” means this Series Supplement
to the Indenture, Sale and Servicing Agreement and the Trust Agreement.

“Series Support” means, with respect to the
Notes, the Certificates and the Reserve Account.

“Series Trust Estate” means the property Granted
to the Indenture Trustee pursuant to Section 1.02.

“Servicer’s Certificate” means, with respect to the
Notes and Certificates, a report in substantially the form of Exhibit A
hereto (appropriately completed), furnished by the Servicer to the
Administrator, the Indenture Trustee and the Owner Trustee pursuant to the Sale
and Servicing Agreement.

“Servicing Fee” means, (i) with
respect to the initial Collection Period, the fee payable to the Servicer for servicing rendered during
such Collection Period, which shall be equal to $2,737,154.55, and (ii) with
respect to any other Collection Period, the fee payable to the Servicer for
services rendered during such Collection Period, which shall be equal to
one-twelfth of the Servicing Fee Rate multiplied by the Aggregate Principal
Balances of the Receivables determined as of the first day of such Collection
Period. For the avoidance of doubt, the Servicing Fee does not include any
administrative fees, expenses or charges paid by or on behalf of Obligors
during any Collection Period.

 9
 

 

 

“Servicing Fee Rate”
means 2.25% per annum.

“Substitution Adjustment
Amount” means, as to any Receivable for which the Servicer elects to substitute
pursuant to Section 5.02(a) and the date on which a substitution
thereof occurs pursuant to Section 5.02, the sum of:

(i) the excess, if any, of (a) the Principal
Balance of such elected Receivable plus any
amounts charged off by the Servicer with respect to such elected Receivable as
of the end of the related Collection Period preceding the date of substitution
(after the application of any principal payments received on such elected
Receivable on or before the date of the substitution of the applicable Eligible
Substitute Receivable or Receivables) over (b) the aggregate Principal
Balance of the applicable Eligible Substitute Receivable or Receivables, plus

(ii) accrued
and unpaid interest to the end of such Collection Period computed on a daily
basis at the Annual Percentage Rate on the Principal Balance of such elected
Receivable outstanding from time to time.

“Targeted Reserve Account Balance” means, with respect
to any Distribution Date, the lesser of: (i) the greater of (a) 3% of
the outstanding Pool Balance as of the end of the related Collection Period,
and (b) $27,371,545.47 (2% of the Pool Balance as of the Cut-off Date) and
(ii) the Aggregate Note Principal Balance.

“Trust Accounts” means the Collection Account and the
Reserve Account.

“Trust Agreement” means
the Trust Agreement, dated as of May 26, 2006, between the Seller and the
Owner Trustee, as amended and restated as of June 8, 2006 and as
supplemented by this Series Supplement.

“Underwriter” means HSBC
Securities (USA) Inc., as representative of the underwriters named in the
Underwriting Agreement.

ARTICLE III

DISTRIBUTIONS AND STATEMENTS TO

NOTEHOLDERS; SERIES SPECIFIC COVENANTS

SECTION 3.01.              Trust Accounts.

(a)           The
Administrator, for the benefit of the Secured Parties, shall establish and
maintain an account (the “Collection Account”) as a segregated trust
account in the Administrator’s corporate trust department, identified as the “Collection
Account for HSBC Automotive Trust (USA) 2006-1, in trust for the Secured
Parties.”  The Administrator shall make
or permit withdrawals from the Collection Account only as provided in this Series Supplement.

(b)           The
Administrator, for the benefit of the Secured Parties, shall establish and
maintain an account (the “Reserve Account”) as a segregated trust
account in the Administrator’s corporate trust department, identified as the “Reserve
Account for HSBC Automotive Trust (USA) 2006-1, in trust for the Secured
Parties.”  The Administrator shall make 

 10
 

 

or permit withdrawals from the Reserve Account only as
provided in this Series Supplement. On the Closing Date, the Reserve
Account will be funded with the Initial Reserve Account Deposit.

(c)           In
the event that any Trust Account ceases to be an Eligible Account, the
Administrator, within five Business Days, shall establish such Trust Account as
a new account which is an Eligible Account. No withdrawals may be made of funds
in any Trust Account except as provided in this Series Supplement. Except
as specifically provided in this Series Supplement, funds in the Trust
Accounts shall not be commingled with any other moneys. All moneys deposited
from time to time in each of the Trust Accounts shall be invested and
reinvested by the Administrator in Eligible Investments selected in writing by
the Servicer (pursuant to standing instructions or otherwise) which, absent any
instruction, shall be investments of the type specified in clause (d) of
the definition of Eligible Investments. The provisions of Section 5.1 of
the Sale and Servicing Agreement shall apply to the investment of funds in the
Trust Accounts.

SECTION 3.02.              Reserve Account.

On the earlier of (x) the maturity date of the
Notes (whether by acceleration or otherwise), and (y) the Final Scheduled
Distribution Date, the amount on deposit in the Reserve Account shall be
withdrawn from the Reserve Account and distributed in accordance with Section 4.04.

SECTION 3.03.              Distributions.

(a)           On
each Distribution Date, the Administrator shall (based solely on the
information contained in the Servicer’s Certificate delivered with respect to
such Distribution Date) distribute the following amounts from and, to the
extent of, Available Funds with respect to the Collection Period immediately
preceding such Distribution Date, in the following order of priority:

(i)            to the Servicer, if HSBC Finance is
no longer acting as Servicer, the Servicing Fee for the related Collection
Period;

(ii)           to the Administrator, the Indenture
Trustee and the Owner Trustee, any accrued and unpaid fees and any unreimbursed
costs and expenses (including to any successor Servicer, reasonable transition
expenses in an amount not to exceed $100,000 per servicing transfer), in each
case, to the extent such fees have not been previously paid by the Servicer or
the Seller;

(iii)          to the Class A Noteholders in
proportion to the interest due on each Class of Notes, the Class A
Interest Distributable Amount;

(iv)          to the Class A Noteholders, the Class A
Minimum Principal Distributable Amount;

(v)           to the Reserve Account, the Reserve
Account Shortfall Amount, if any;

 11
 

 

 

(vi)          to the Class A Noteholders, the Class A
Additional Principal Distributable Amount;

(vii)         to the Administrator, the Indenture
Trustee and the Owner Trustee, any accrued and unpaid indemnity amounts, in
each case, to the extent such amounts have not been previously paid by the
Servicer or the Seller;

(viii)        if HSBC Finance is acting as the
Servicer, the Servicing Fee for the related Collection Period (unless the
Servicer has retained such amount in accordance with Section 4.8 of the
Sale and Servicing Agreement) or if a successor Servicer has been appointed, reasonable
transition expenses in excess of the amounts paid in priority (i) above;
and

(ix)           to the holders of the Certificates,
any remaining Available Funds.

Amounts to be distributed in reduction of the
outstanding principal balance of the Class A Notes pursuant to Section 3.03(a)(iv) or
(vi) or Section 3.03(b) shall be distributed in reduction of the
outstanding principal balance of the Class A-1 Notes until the
principal balance of the Class A-1 Notes is reduced to zero;
thereafter such amount shall be distributed in reduction of the outstanding
principal balance of the Class A-2 Notes until the principal balance
of the Class A-2 Notes is reduced to zero; thereafter such amount
shall be distributed in reduction of the outstanding principal balance of the Class A-3
Notes until the principal balance of the Class A-3 Notes is reduced
to zero; and thereafter such amount shall be distributed in reduction of the
outstanding principal balance of the Class A-4 Notes until the
principal balance of the Class A-4 Notes is reduced to zero.

(b)            If on a Determination Date, the
Servicer’s Certificate delivered with respect to the related Distribution Date
indicates that (i) the amount of Available Funds with respect to such
Distribution Date is not sufficient, when distributed in accordance with Section 3.03(a),
to cause the amounts specified in Section 3.03(a)(i), (ii) and (iii) with
respect to such Distribution Date to be paid in full; or (ii) if after
giving effect to the distribution of Available Funds pursuant to Section 3.03(a)(iv) on
a Distribution Date there exists a Principal Balance Shortfall, the
Administrator shall withdraw from the Reserve Account and distribute as follows
an amount up to the amount which when distributed, first in
accordance with Section 3.03(a)(i), (ii) and (iii); and second, in reduction of the
outstanding principal balance of the Class A Notes, but only to the extent
necessary to eliminate the Principal Balance Shortfall, shall cause the amounts
specified in Section 3.03(a)(i), (ii) and (iii) to be paid in
full and such Principal Balance Shortfall to be eliminated.

(c)            [Reserved].

(d)            [Reserved].

(e)            Each Certificateholder, by its
acceptance of its Certificate will be deemed to have consented to the
provisions of paragraph (a) above relating to the priority of
distributions, and will be further deemed to have acknowledged that no property
rights in any amount or the proceeds of any such amount shall vest in such
Certificateholder until such amounts have been distributed to such Certificateholder
in accordance with the terms of the Trust 

 12
 

 

Agreement
and this Series Supplement; provided, that the foregoing shall not
restrict the right of any Certificateholder, upon compliance with the
provisions hereof, from seeking to compel the performance of the provisions
hereof by the parties hereto. Each Certificateholder, by acceptance of its
Certificate, further specifically acknowledges that it has no right to or
interest in any monies at any time held in the Reserve Account, such monies
being held in trust for the benefit of the Secured Parties.

 

(f)             Amounts
on deposit in the Reserve Account on any Distribution Date (after giving effect
to all distributions made on such Distribution Date) in excess of the Targeted
Reserve Account Balance for such Distribution Date shall be released first, to
the Servicer for any Servicing Fees then due and unpaid pursuant to Section 3.03(a)(viii),
and any remainder shall be paid to the holders of the Certificates.

 

(g)            In
the event that the Reserve Account is maintained with an institution other than
the Administrator, the Servicer shall instruct and cause such institution to
transfer the amounts to be distributed therefrom in accordance with Section 3.03(b) to
the Administrator for distribution pursuant to Section 3.03(a) one
Business Day prior to the related Distribution Date.

 

(h)            Unless
Definitive Notes are issued pursuant to Section 2.12 of the Indenture,
with respect to Notes registered on the related Record Date in the name of a
nominee of the Clearing Agency, payment will be made by wire transfer to an
account designated by such nominee, without presentation or surrender of the
Notes or the making of any notation thereon.

 

(i)             If
not theretofore paid in full, all amounts outstanding with respect to the Class A-1
Notes shall be due and payable on the Class A-1 Scheduled Maturity
Date; if not theretofore paid in full, all amounts outstanding with respect to
the Class A-2 Notes shall be due and payable on the Class A-2
Scheduled Maturity Date; if not theretofore paid in full, all amounts
outstanding with respect to the Class A-3 Notes shall be due and
payable on the Class A-3 Scheduled Maturity Date; and if not
theretofore paid in full, all amounts outstanding with respect to the Class A-4
Notes shall be due and payable on the Class A-4 Scheduled Maturity
Date.

 

SECTION 3.04.       Statements
to Noteholders.

 

(a)            On
or prior to each Determination Date, the Servicer shall deliver to the
Administrator (with an instruction for the Administrator to forward to each
Noteholder of record and to each Certificateholder of record), and make
available (via access to its or its Affiliate’s website address) to the Rating
Agencies, the Indenture Trustee and any other interested party, a statement
setting forth at least the following information as to the Notes to the extent
applicable:

 

(i)           the amount of such distribution
allocable to interest on or with respect to each Class of Notes;

 

(ii)          the amount of such distribution
allocable to principal of each Class of Notes;

 13
 

 

(iii)         the aggregate outstanding principal
amount of each Class of the Notes after giving effect to payments
allocated to principal reported under (ii) above;

(iv)          the current Note Rate applicable to
each Class of Notes;

(v)           the Class A Interest Carryover
Shortfall, if any, with respect to each Class of Notes;

(vi)          the Pool Balance at the beginning of
the related Collection Period;

(vii)         the Pool Balance at the end of the
related Collection Period;

(viii)        the amount of Collections for the
related Collection Period;

(ix)           the amount of Collections allocable
to principal payments on the Receivables for the related Collection Period;

(x)            the Net Liquidation Proceeds for
such Collection Period;

(xi)           the principal amount of Receivables
which were repurchased during the related Collection Period;

(xii)          the Substitution Adjustment Amount for
the related Collection Period;

(xiii)         the weighted average coupon of the
Receivables;

(xiv)        the weighted average remaining maturity
of the Receivables;

(xv)         the Collection Account and Reserve
Account investment income for the related Collection Period;

(xvi)        the beginning Reserve Account Balance;

(xvii)       the Targeted Reserve Account Balance;

(xviii)      the Reserve Account Shortfall Amount, if
any, for such Distribution Date;

(xix)         the Reserve Account deposit, if any,
for such Distribution Date;

(xx)          the release from the Reserve Account
pursuant to Sections 3.03(b) and (f), if any, for such Distribution Date;

(xxi)         the ending Reserve Account Balance;

(xxii)        the Overcollateralization Amount prior
to payments allocated to principal under (ii) above;

 14
 

 

 

(xxiii)       the Overcollateralization Amount after
giving effect to payments allocated to principal under (ii) above;

(xxiv)       the amount of the Servicing Fee paid to
the Servicer with respect to the related Collection Period;

(xxv)        the Principal Balance and percentage of
the Pool Balance of Receivables that are one payment delinquent;

(xxvi)       the Principal Balance and percentage of
the Pool Balance of Receivables that are two payments delinquent;

(xxvii)      the Principal Balance and percentage of
the Pool Balance of Receivables that are three or more payments delinquent;

(xxviii)      the Principal Balance and percentage of
the Pool Balance of Receivables that are two or more payments delinquent;

(xxix)        the Principal Balance and percentage of
the Pool Balance of repossessed vehicles;

(xxx)         the Principal Balance of Receivables
that were extended or modified (and delinquency reset) during the related
Collection Period; and

(xxxi)        the Principal Balance of Receivables
that were extended or modified (and delinquency reset) during the related
Collection Period as a percentage of the Pool Balance at the end of such
Collection Period.

Each amount set forth pursuant to paragraphs (i) and
(ii) above shall be expressed as a dollar amount per $1,000 of the initial
principal balance of the applicable Class of Notes.

(b)           The
Administrator may, but is not obligated to, make available to the parties
hereto and to each of the Noteholders, via the Administrator’s internet
website, all information referred to in this Section 3.04 available each
month and, with the consent or at the direction of the Seller, such other
information regarding the Notes and/or the Receivables as the Administrator may
have in its possession, but only with the use of a password provided by the
Administrator.

The Administrator’s internet website, if applicable,
shall be specified by the Administrator from time to time in writing to the
parties hereto and the Noteholders. In connection with providing access to the
Administrator’s internet website, the Administrator may require registration
and the acceptance of a disclaimer. The Administrator shall not be liable for
its dissemination of information in accordance with this Series Supplement.

SECTION 3.05.              Reporting Requirements.

(a)           The
Servicer’s Certificate shall be in the form attached as Exhibit A
hereto.

 15
 

 

 

(b)           By
January 31 of each calendar year, commencing January 31, 2007, the
Servicer on behalf of the Issuer shall prepare and distribute to the
Administrator and the Indenture Trustee a statement containing such information
as is required to be provided by an issuer of indebtedness under the Code and
such other customary information as is necessary to enable the Noteholders to
prepare their tax returns.

(c)           If
an Event of Default occurs and is continuing and if it is either known by, or
written notice of the existence thereof has been delivered to, a Responsible
Officer of the Administrator or the Indenture Trustee, the Administrator or the
Indenture Trustee, as the case may be, shall mail to each Noteholder notice of
the Default within 30 days after such knowledge or notice occurs.

SECTION 3.06.              Compliance With Withholding Requirements.

Notwithstanding any other provisions of this Series Supplement
or the Indenture to the contrary, the Administrator and the Indenture Trustee
shall comply with all federal withholding requirements respecting payments (or
advances thereof) to the Noteholders as may be applicable to instruments
constituting indebtedness for federal income tax purposes. Any amounts so
withheld shall be treated as having been paid to the applicable Noteholders for
all purposes of the Indenture. In no event shall the consent of any Noteholder
be required for any such withholding.

SECTION 3.07.              Special Covenants and Acknowledgements.

With respect to the Notes, the Issuer hereby
represents and warrants, as of the Closing Date:

(i)            Valid Pledge. It is the
intention of the Issuer that the Pledge herein contemplated hereby constitutes
the Grant of a perfected, first priority security interest in the Series Trust
Estate to the Indenture Trustee for the benefit of the Secured Parties.

(ii)           Governmental Authorization. Other
than the filing of the financing statements required hereunder, no
authorization or approval or other action by, and no notice to or filing with,
any governmental authority or regulatory body is required for the due
execution, delivery and performance by the Issuer of this Series Supplement,
the Indenture, and each Related Document to which it is a party.

SECTION 3.08.              Income Tax Characterization.

For purposes of federal
income, state and local income and franchise and any other income taxes, the
parties to this Series Supplement, and each owner of a beneficial interest
in the Notes by acceptance of such interest, agree to treat the Notes as
indebtedness and hereby instruct the Indenture Trustee to treat the Notes as
indebtedness for federal and state tax reporting purposes.

 16

 

ARTICLE IV

EVENTS OF DEFAULT; REMEDIES

SECTION 4.01.              Events of Default.

“Event of Default”, wherever used herein, means any
one of the following events (whatever the reason for such Event of Default and
whether it shall be voluntary or involuntary or be effected by operation of law
or pursuant to any judgment, decree or order of any court or any order, rule or
regulation of any administrative or governmental body):

(i)            default in the payment of any
interest on any Note when the same becomes due and payable, and such default
shall continue for a period of five calendar days; or

(ii)           default in the payment of the
outstanding principal balance of any Class of Notes on the related
Scheduled Maturity Date, which default shall continue for a period of five
calendar days; or

(iii)          the Aggregate Note Principal Balance
on any Distribution Date exceeds the Pool Balance as of the last day of the
prior Collection Period after the application of all Available Funds and after
making any distribution pursuant to Section 3.03(b); or

(iv)          default in the observance or
performance of any covenant or agreement of the Issuer made in the Related
Documents (other than a covenant or agreement, a default in the observance or
performance of which is elsewhere in this Section specifically dealt
with), or any representation or warranty of the Issuer made in the Related
Documents or in any certificate or other writing or record delivered pursuant
thereto or in connection therewith proving to have been incorrect in any
material respect as of the time when the same shall have been made and has a
material adverse effect on the Noteholders, and such default shall continue or
not be cured, or the circumstance or condition in respect of which such
misrepresentation or warranty was incorrect shall not have been eliminated or
otherwise cured, for a period of 60 days after there shall have been given, by
registered or certified mail, to the Issuer by the Indenture Trustee or the
Administrator or to the Issuer and the Indenture Trustee by the Holders of at
least 25% of the Outstanding Amount of the Notes, a written notice specifying
such default or incorrect representation or warranty and requiring it to be
remedied and stating that such notice is a “Notice of Default” hereunder; or

(v)           the filing of a decree or order for
relief by a court having jurisdiction in the premises in respect of the Issuer
or any substantial part of the Series Trust Estate in an involuntary case
under any applicable federal or state bankruptcy, insolvency or other similar
law now or hereafter in effect, or appointing a receiver, liquidator, assignee,
custodian, trustee, sequestrator or similar official of the Issuer or for any
substantial part of the Series Trust Estate, or ordering the winding-up or
liquidation of the Issuer’s affairs, and such decree

 17
 

 

 

or order shall remain unstayed and in effect for a period of 60
consecutive days; or

(vi)          the commencement by the Issuer of a
voluntary case under any applicable federal or state bankruptcy, insolvency or
other similar law now or hereafter in effect, or the consent by the Issuer to
the entry of an order for relief in an involuntary case under any such law, or
the consent by the Issuer to the appointment or taking possession by a
receiver, liquidator, assignee, custodian, trustee, sequestrator or similar
official of the Issuer or for any substantial part of the Series Trust
Estate, or the making by the Issuer of any general assignment for the benefit
of creditors, or the failure by the Issuer generally to pay its debts as such
debts become due, or the taking of action by the Issuer in furtherance of any
of the foregoing.

SECTION 4.02.              Rights Upon Event of Default.

(a)           If
an Event of Default shall have occurred and be continuing, the Indenture
Trustee may, or if so requested in writing by Holders holding Notes
representing at least 66-2/3% of the Outstanding Amount of the Notes
shall, declare by written notice to the Issuer that the Notes have become due
and payable, whereupon they shall become, immediately due and payable at 100%
of the outstanding principal balance of the Notes and accrued interest thereon
(together with interest accrued at the relevant Note Rate on such overdue
interest).

(b)           At
any time after such declaration of acceleration of maturity has been made and
before a judgment or decree for payment of the money due has been obtained by
the Indenture Trustee, the Controlling Party, by written notice to the Issuer
and the Servicer, may rescind and annul such declaration and its consequences
if:

(i)            the Issuer has paid or deposited
with the Indenture Trustee (or the Administrator on behalf of the Indenture
Trustee) a sum sufficient to pay:

(A)          all payments of
principal and interest on all Notes and all other amounts that would then be
due hereunder or upon such Notes if the Event of Default giving rise to such
acceleration had not occurred; and

(B)           all sums paid or
advanced by the Indenture Trustee hereunder and the reasonable compensation,
expenses, disbursements and advances of the Indenture Trustee and its agents
and counsel; and

(ii)           all Events of Default, other than the
nonpayment of the principal of the Notes that has become due solely by such
acceleration, have been cured or waived as provided in Section 5.9 of the
Indenture.

No such rescission shall affect any subsequent default
or impair any right consequent thereto.

 18
 

 

 

SECTION 4.03.              Remedies.

If an Event of Default shall have occurred and be
continuing, the Indenture Trustee, subject to Section 11.17 of the
Indenture, may exercise any of the remedies specified in Article V of the
Indenture and, in addition, may do one or more of the following:

(i)            institute Proceedings in its own
name and as trustee of an express trust for the collection of all amounts then
payable on the Notes or under the Indenture with respect thereto, whether by
declaration or otherwise, enforce any judgment obtained, and collect from the
Issuer and any other obligor upon such Notes moneys adjudged due;

(ii)           institute Proceedings from time to
time for the complete or partial foreclosure of the Indenture with respect to
the Series Trust Estate;

(iii)          exercise any remedies of a secured
party under the UCC and take any other appropriate action to protect and
enforce the rights and remedies of the Indenture Trustee and the Holders of the
Notes; and

(iv)          sell the Series Trust Estate or
any portion thereof or rights or interest therein, at one or more public or
private sales called and conducted in any manner permitted by law; provided,
however, that the Indenture Trustee may not sell or otherwise liquidate the
Series Trust Estate following an Event of Default unless:

(x)            the proceeds of such sale or
liquidation distributable to the Noteholders are sufficient to discharge in
full all amounts then due and unpaid upon such Notes for principal and
interest, or

(y)           the Indenture Trustee determines that
the Series Trust Estate will not continue to provide sufficient funds for
the payment of principal of and interest on the Notes as they would have become
due if the Notes had not been declared due and payable, and the Indenture
Trustee obtains the consent of the Holders of 66-2/3% of the Outstanding
Amount of the Notes, or

(z)            if the provisions of neither
subparagraph (x) nor subparagraph (y) are satisfied, if the Indenture
Trustee obtains the consent of the Holders of 100% of the Outstanding Amount of
the Notes.

In determining such sufficiency or insufficiency with
respect to clause (y), the Indenture Trustee may, but need not, obtain and rely
upon an opinion of an independent investment banking or accounting firm of
national reputation as to the feasibility of such proposed action and as to the
sufficiency of the Series Trust Estate for such purpose. Any reasonable
costs and expenses incurred by the Indenture Trustee in obtaining such opinion
shall be costs and expenses of the Indenture Trustee pursuant to Section 3.03(a)(ii) of
this Series Supplement.

 19
 

 

 

SECTION 4.04.              Priorities.

(a)           On
and after the maturity date of the Notes (by acceleration or otherwise),
including, without limitation, on and after the Final Scheduled Distribution
Date, all Available Funds, all amounts on deposit in the Reserve Account
withdrawn in accordance with Section 3.02 and any proceeds of the
liquidation of all or any portion of the Series Trust Estate pursuant to Section 4.03(iv) (which
proceeds the Indenture Trustee shall remit to the Administrator), shall be
applied by the Administrator, based upon information most recently provided to
it by the Servicer, on the date of distribution in the following order of
priority:

FIRST:                to the
Servicer, if HSBC Finance is no longer acting as Servicer, the Servicing Fee
for the related Collection Period;

SECOND:           to the
Administrator, the Indenture Trustee and the Owner Trustee, any accrued and
unpaid fees and any unreimbursed costs and expenses (including to any successor
Servicer, reasonable transition expenses in an amount not to exceed $100,000
per servicing transfer), in each case, to the extent such fees have not been
previously paid by the Servicer or the Seller;

THIRD:              to Class A
Noteholders for amounts due and unpaid on the Class A Notes for interest, pro
rata, in accordance with the amounts due and payable on the Class A
Notes on the date of distribution for interest without preference or priority
of any kind;

FOURTH:          to the Class A
Noteholders for amounts due and unpaid on the Class A Notes for principal,
pro  rata, in accordance with the respective aggregate outstanding
principal balance of each Class of Class A Notes without preference
or priority of any kind;

FIFTH:               to the
Administrator, the Indenture Trustee and the Owner Trustee, any accrued and
unpaid indemnity amounts, in each case, to the extent such fees have not been
previously paid by the Servicer or the Seller;

SIXTH:               to the
Servicer, if HSBC Finance is acting as Servicer, for any Servicing Fees then
due and unpaid; and

SEVENTH:         to the
Certificateholders, any remaining Available Funds.

(b)           The
Administrator may fix a record date and distribution date for any payment to
Noteholders pursuant to this Section 4.04. At least 15 days before such
record date, the Administrator shall mail to the Noteholders a notice that
states the record date, the distribution date and the amount to be paid.

 20
 

 

 

ARTICLE V

PREPAYMENT, REDEMPTION AND SUBSTITUTION

SECTION 5.01.              Optional “Clean-Up” Redemption.

On any Distribution Date occurring on or after the
date upon which the Pool Balance shall have been reduced to an amount which is
less than or equal to 10% of the Original Pool Balance, the Servicer and HAFI
shall each have the option to purchase the outstanding Receivables at a price
equal to the aggregate Repurchase Amount for such Receivables; provided,
however, such aggregate Repurchase Amount shall not be less than the
then Aggregate Note Principal Balance, plus all accrued and unpaid interest
thereon and all fees and other amounts owing to the Administrator, the
Indenture Trustee, the Owner Trustee and the Servicer (if other than HSBC
Finance) under the Related Documents (the “Redemption Price”). The
Servicer or HAFI shall give the Servicer (if other than HSBC Finance), the
Administrator, the Indenture Trustee and the Owner Trustee at least 10 days
irrevocable prior written notice of the date on which the Servicer or HAFI, as
applicable, intends to exercise such option to purchase. Not later than 12:00 P.M.,
New York City time, on the day prior to such Distribution Date, the Servicer or
HAFI, as applicable, shall deposit such amount in the Collection Account in
immediately available funds for distribution pursuant to Section 3.03. Such
purchase option is subject to payment in full of the aggregate Repurchase
Amount described herein.

SECTION 5.02.              Optional Substitution.

(a)           At
any time the Servicer and HAFI shall each have the right, in their respective
sole discretion, but not the obligation, to elect (by written notice sent to
the Indenture Trustee and the Owner Trustee) to substitute in the place of any
Receivable an Eligible Substitute Receivable or Receivables; provided that the
aggregate Principal Balance of all Eligible Substitute Receivables substituted pursuant
to this Section shall not exceed 2% of the Pool Balance as of the initial
Cut-off Date; provided further that prior to any such substitution the Servicer
shall give written notice to each Rating Agency of any such substitution.

(b)           For
any Collection Period during which the Servicer or HAFI substitutes one or more
Eligible Substitute Receivables, the Servicer shall determine the Substitution
Adjustment Amount. The Servicer or HAFI, as applicable, shall deposit the
Substitution Adjustment Amount in the Collection Account no later than the
Business Day immediately preceding the Distribution Date in the month following
the end of the Collection Period in which such substitution occurs. The
Servicer shall amend the Schedule of Receivables to reflect the removal of any
Receivable for which the Servicer or HAFI has made a substitution election
pursuant to Section 5.02(a) from the terms of this Agreement and the
substitution of the Eligible Substitute Receivable or Receivables. Upon such
substitution, the Eligible Substitute Receivable or Receivables shall be
subject to the terms of this Agreement in all respects, and the Seller shall be
deemed to have represented that each such Eligible Substitute Receivable or
Receivables, as of the date of substitution, satisfies the Eligibility
Criteria, to the extent such criteria do not pertain exclusively to the
Receivables transferred on the Closing Date. The Indenture Trustee and the
Owner Trustee shall, upon receipt by each of the Indenture Trustee and the
Owner Trustee of an officer’s certificate from an officer of the Servicer
certifying that the conditions in this Section 5.02(b) have been
satisfied, take any action requested by the Servicer or HAFI, as

 21
 

 

the case may be, to effect the reconveyance of such
Receivable for which the Servicer or HAFI, as the case may be, has made a
substitution election so removed from the Series Trust Estate to the
Servicer or HAFI, as the case may be. The procedures applied by the Servicer or
HAFI in selecting each Eligible Substitute Receivable shall not be adverse to
the interests of the Noteholders and shall be comparable to the selection
procedures applicable to the Receivables originally conveyed hereunder.

(c)           In
the case of a substitution pursuant to this Section, upon receipt by the
Indenture Trustee of (i) a Servicer’s Certificate to the effect that the
Substitution Adjustment Amount, if any, has been so deposited in the Collection
Account and (ii) an Officer’s Certificate reciting the transfer and
assignment of the Eligible Substitute Receivable(s) to the Indenture
Trustee, the Indenture Trustee shall execute and deliver such instrument of
transfer or assignment presented to it by the Servicer, in each case without
recourse, as shall be necessary to vest in the Servicer or HAFI, as applicable,
legal and beneficial ownership of such Receivable for which the Servicer has
made a substitution election (including any property acquired in respect
thereof or proceeds of any insurance policy with respect thereto).

ARTICLE VI

MISCELLANEOUS

SECTION 6.01.              Ratification of Basic Documents.

Each of the Basic Documents (to the extent
appropriate, as supplemented by this Series Supplement) is in all respects
ratified and confirmed and each of the Basic Documents, as so supplemented by
this Series Supplement shall be read, taken and construed as one and the
same instrument.

SECTION 6.02.              Counterparts.

This Series Supplement may be executed in one or
more counterparts, each of which so executed shall be deemed to be an original,
but all of which shall together constitute but one and the same instrument.

SECTION 6.03.              GOVERNING LAW.

THIS SERIES SUPPLEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, WITHOUT
REFERENCE TO ITS CONFLICT OF LAWS PROVISIONS WHICH WOULD REQUIRE THE
APPLICATION OF THE LAWS OF ANY OTHER JURISDICTION, AND THE OBLIGATIONS, RIGHTS
AND REMEDIES OF THE PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH
SUCH LAWS.

SECTION 6.04.              Amendments Without Consent of Noteholders.

(a)           Without
the consent of the Noteholders and with prior written notice to the Rating
Agencies, as evidenced in writing to the Administrator, the Indenture Trustee
and the Issuer, when authorized by an Issuer Order, at any time and from time
to time, the parties hereto

 22
 

 

 

may enter into one or more amendments hereto, in form
satisfactory to the Administrator, the Indenture Trustee, the Owner Trustee,
for any of the following purposes:

(i)            to correct or amplify the
description of any property at any time subject to the lien of the Indenture as
supplemented by this Series Supplement, or better to assure, convey and
confirm unto the Indenture Trustee, if any, any property subject or required to
be subjected to the lien of the Indenture as supplemented by this Series Supplement,
or subject to the lien of the Indenture as supplemented by this Series Supplement
additional property;

(ii)           to evidence the succession, in
compliance with the applicable provisions hereof, of another person to the
Issuer, and the assumption by any such successor of the covenants of the Issuer
herein and in the Notes contained;

(iii)          to add to the covenants of the Issuer,
for the benefit of the Noteholders, or to surrender any right or power herein
conferred upon the Issuer;

(iv)          to convey, transfer, assign, mortgage
or pledge any property to or with the Indenture Trustee, if any;

(v)           to cure any ambiguity, to correct or
supplement any provision herein which may be inconsistent with any other
provision herein or to make any other provisions with respect to matters or
questions arising under the Indenture, the Trust Agreement or in this Series Supplement;
provided that such action shall not adversely affect the interests of
the Noteholders;

(vi)          to evidence and provide for the
acceptance of the appointment hereunder and under the Indenture by a successor
indenture trustee with respect to the Notes and to add to or change any of the
provisions of the Indenture or of this Series Supplement as shall be
necessary to facilitate the administration of the trusts hereunder by more than
one indenture trustee, pursuant to the requirements of Article V of the
Indenture; or

(vii)         to modify, eliminate or add to the
provisions of the Indenture or of this Series Supplement to such extent as
shall be necessary to effect the qualification of the Indenture under the TIA
or under any similar federal statute hereafter enacted and to add to the
Indenture such other provisions as may be expressly required by the TIA.

Each of the Administrator, the Indenture Trustee and
the Owner Trustee is hereby authorized to join in the execution of any
amendment and to make any further appropriate agreements and stipulations that
may be therein contained.

(b)           Except
as otherwise provided herein, the Issuer, the Indenture Trustee and the
Administrator, when authorized by an Issuer Order, may, also without the
consent of any of the Noteholders and with prior written notice to the Rating
Agencies by the Issuer, as evidenced in writing to the Indenture Trustee and
the Administrator, enter into an amendment hereto for the purpose of adding any
provisions to, or changing in any manner or eliminating any of the

 23
 

 

 

provisions of, the Indenture or of this Series Supplement
of modifying in any manner the rights of the Noteholders under the Indenture or
under this Series Supplement; provided, however, that such
action shall not, as evidenced by an Opinion of Counsel, adversely affect in
any material respect the interests of any Noteholder; provided, further,
that with respect to tax matters, such action shall not be deemed to adversely
affect in any material respect the interests of any Noteholder if, for federal
income tax purposes, the action does not cause the issuing entity to be treated
as an association or publicly traded partnership taxable as a corporation, or
the Notes that were characterized as debt at the time of issuance to fail to
qualify as debt.

SECTION 6.05.              Amendments With Consent of the Noteholders.

Except as otherwise provided herein, the Issuer, the
Indenture Trustee and the Administrator, when authorized by an Issuer Order
provided by the Servicer, also may, with prior written notice to the Rating
Agencies and with the consent of the Holders of not less than a majority of the
Outstanding Amount of each Class of affected Notes, by Act of such Holders
delivered to the Issuer, the Indenture Trustee and the Administrator, enter
into an amendment hereto for the purpose of adding any provisions to, or
changing in any manner or eliminating any of the provisions of, this Series Supplement
or of modifying in any manner the rights of the Noteholders under the Indenture
or under this Series Supplement; provided, however, that no
such amendment shall, without the consent of the Holder of each Outstanding
Note affected thereby:

(i)            change the date of payment of any
installment of principal of or interest on any Note, or reduce the principal
amount thereof, the interest rate thereon, change the provision of the
Indenture relating to the application of collections on, or the proceeds of the
sale of, all or any portion of any Series Trust Estate to payment of
principal of or interest on the Notes, or change any place of payment where, or
the coin or currency in which, any Note or the interest thereon is payable;

(ii)           impair the right to institute suit
for the enforcement of the provisions of the Indenture requiring the
application of funds available therefor, as provided in Article V of the
Indenture, to the payment of any such amount due on the Notes on or after the
respective due dates thereof;

(iii)          reduce the percentage of the
Outstanding Amount of the Notes, the consent of the Holders of which is
required for this Series Supplement, or the consent of the Holders of
which is required for any waiver of compliance with certain provisions of the
Indenture or certain defaults hereunder and their consequences provided for in
the Indenture;

(iv)          modify or alter the provisions of the
proviso to the definition of the term “Outstanding”;

(v)           reduce the percentage of the
Outstanding Amount of the Notes required to direct the Indenture Trustee to
direct the Issuer to sell or liquidate the Series Trust Estate pursuant to
the Indenture;

 24
 

 

 

(vi)          modify any provision of this Section except
to increase any percentage specified herein or to provide that certain
additional provisions of the Indenture or the Basic Documents cannot be
modified or waived without the consent of the Holder of each Outstanding Note
affected thereby;

(vii)         modify any of the provisions of the
Indenture in such manner as to affect the calculation of the amount of any
payment of interest or principal due on any Note on any Distribution Date
(including the calculation of any of the individual components of such
calculation) or to affect the rights of the Holders of Notes to the benefit of
any provisions for the mandatory redemption of the Notes contained herein; or

(viii)        permit the creation of any lien ranking
prior to or on a parity with the lien of the Indenture with respect to any part
of the Series Trust Estate or, except as otherwise permitted or contemplated
herein or the Related Documents, terminate the lien of the Indenture on any
property at any time subject hereto or deprive the Holder of any Note of the
security provided by the lien of the Indenture.

It shall not be necessary for any Act of Noteholders
under this Section to approve the particular form of an amendment to this Series Supplement,
but it shall be sufficient if such Act shall approve the substance thereof.

Promptly after the execution by the Issuer, the
Indenture Trustee and the Administrator of an amendment to this Series Supplement,
the Administrator shall, upon written instruction from the Issuer or the
Indenture Trustee, mail to the Noteholders a notice setting forth in general
terms the substance hereof. Any failure of the Administrator to mail such
notice, or any defect therein, shall not, however, in any way impair or affect
the validity of any amendment to this Series Supplement.

Prior to the execution of any amendment to this Series Supplement,
the Indenture Trustee, the Administrator and the Owner Trustee shall be
entitled to receive and rely upon an Opinion of Counsel stating that the
execution of such amendment is authorized and permitted by this Series Supplement.
The Indenture Trustee, the Administrator and the Owner Trustee may, but shall
not be obligated to, enter into any such amendment which affects the Indenture
Trustee’s, the Administrator’s or the Owner Trustee’s, as the case may be, own
rights, duties or immunities under this Series Supplement.

By its acceptance of its interest in the Notes, each
owner of a beneficial interest in a Note shall be deemed to have agreed that
prior to the date which is one year and one day after the termination of the
Indenture, such Person shall not acquiesce, petition or otherwise invoke or cause
the Issuer or the Seller to invoke the process of any governmental authority
for the purpose of commencing or sustaining a case against the Seller or Issuer
under any federal or state bankruptcy, insolvency or similar law or appointing
a receiver, liquidator, assignee, trustee, custodian, sequestrator or other
similar official of or for the Issuer or the Seller or any substantial part of
its property or ordering the winding-up or liquidation of the affairs of the
Issuer or the Seller.

 25
 

 

 

SECTION 6.06.              Authority to Register Notes and File Reports.

The Issuer hereby authorizes the Seller (and, at the
Seller’s direction, the Servicer) to prepare and execute on behalf of the
Issuer, filings with the Securities and Exchange Commission and any applicable
state agencies of documents required to register or qualify the Notes for
public distribution and to file, on a periodic basis or as otherwise may be
required, such documents or records as may be required by rules and
regulations prescribed by such authorities.

SECTION 6.07.              Authority to Perform Duties of the Issuer.

(a)           The
Issuer hereby designates the Servicer its agent and attorney-in-fact to execute
or otherwise authenticate any financing statement, continuation statement or
other instrument or record required by the Indenture Trustee pursuant to Section 3.5
of the Indenture; provided that such designation shall not be deemed to
create a duty in the Indenture Trustee to monitor the compliance of the
Servicer with respect to its duties under Section 3.5 of the Indenture or
the adequacy of any financing statement, continuation statement or other
instrument or record prepared by the Servicer.

(b)           The
Issuer hereby appoints the Servicer to assist the Issuer in performing its
duties under the Related Documents, including, but not limited to,
Sections 2.13 and 3.9 of the Indenture, and the Servicer hereby accepts
such appointment.

SECTION 6.08.              Notices.

All demands, notices and communications upon or to the
Seller, the Servicer, the Owner Trustee, the Indenture Trustee or the
Administrator shall be in writing, personally delivered, or mailed by certified
mail, or sent by confirmed telecopier transmission and shall be deemed to have
been duly given upon receipt (a) in the case of the Seller, to HSBC Auto
Receivables Corporation, 1111 Town Center Drive, Las Vegas, Nevada 89144, with
a copy to HSBC Finance Corporation, 2700 Sanders Road, Prospect Heights,
Illinois, 60070, Attention:  Treasurer,
Telecopier # (847) 205-7538, (b) in the case of the Servicer, if
HSBC Finance Corporation is the Servicer, to HSBC Finance Corporation, 2700
Sanders Road, Prospect Heights, Illinois 60070, 
Attention: Treasurer, Telecopier # (847) 205-7538, (c) in the
case of the Issuer, at the Corporate Trust Office of the Owner Trustee,
Telecopier # (312) 325-8905, (d) in the case of the Owner Trustee,
at its Corporate Trust Office, Telecopier # (312) 325-8905, (e) in
the case of the Indenture Trustee, at the Corporate Trust Office of the
Indenture Trustee, Attention: Corporate Trust Office-HSBC Automotive Trust
(USA) 2006-1, Telecopier # (212) 815-2493, (f) in the case of
the Administrator, at the Corporate Trust Office of the Administrator,
Attention: Corporate Trust/ABS Group, Telecopier # (212) 525-1300. Any
notice required or permitted to be mailed to a Noteholder or Certificateholder
shall be given by first class mail, postage prepaid, at the address of such
Holder as shown in the Certificate Register or Note Register, as applicable. Any
notice so mailed within the time prescribed in the Agreement shall be
conclusively presumed to have been duly given, whether or not the
Certificateholder or Noteholder shall receive such notice.

 26
 

 

 

SECTION 6.09.              [Reserved].

[Reminder of page intentionally left blank]

 

 27

 

IN WITNESS WHEREOF, the
parties hereto have caused this Series Supplement to be fully executed by
their respective officers as of the day and year first above written.

	
  

  	
  HSBC FINANCE CORPORATION,

  
	
   

  	
     as Servicer

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Dennis J. Mickey

  
	
   

  	
   

  	
  Name: 

  	
  Dennis J. Mickey

  
	
   

  	
   

  	
  Title:

  	
  Vice President and Assistant Treasurer

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  HSBC AUTOMOTIVE TRUST (USA) 2006-1, as Issuer

  
	
   

  	
     by U.S. Bank Trust National Association, not
  in its 

     individual capacity but solely as Owner Trustee

  
	
   

  	
   

  
	
   

  	
  By: 

  	
  /s/ Patricia M. Child

  
	
   

  	
   

  	
  Name: 

  	
  Patricia M. Child

  
	
   

  	
   

  	
  Title: 

  	
  Vice President

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  HSBC AUTO RECEIVABLES CORPORATION,

  
	
   

  	
     as Seller

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Steven H. Smith

  
	
   

  	
   

  	
  Name: 

  	
  Steven H. Smith

  
	
   

  	
   

  	
  Title:

  	
  Vice President and Assistant Treasurer

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  THE BANK OF NEW YORK,

  
	
   

  	
     as Indenture Trustee

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Alan Li

  
	
   

  	
   

  	
  Name:

  	
  Alan Li

  
	
   

  	
   

  	
  Title: 

  	
  Assistant Treasurer

  
	
   

  	
   

  	
   

  	
   

  

 

 

 

	
  

  	
  U.S. BANK TRUST NATIONAL ASSOCIATION,

  
	
   

  	
     not in its individual capacity but solely as
  Owner Trustee

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Patricia M. Child

  
	
   

  	
   

  	
  Name:

  	
  Patricia M. Child

  
	
   

  	
   

  	
  Title: 

  	
  Vice President

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  HSBC BANK USA, NATIONAL ASSOCIATION,

     as Administrator

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Elena Zheng

  
	
   

  	
   

  	
  Name: 

  	
  Elena Zheng

  
	
   

  	
   

  	
  Title: 

  	
  Assistant Vice President

  
	
   

  	
   

  	
   

  	
  HSBC Bank USA, N.A.

  

 

 

[Signature Page for
Series Supplement]

 

Schedule I

Eligibility Criteria

“Eligible Receivable” means a Receivable with
respect to which each of the following is true as of the Closing Date:

(a)           that
(i) was originated directly by HACI or HAFI with the consumer or was
originated by a Dealer for the retail sale of a Financed Vehicle in the
ordinary course of such Dealer’s business and (A) in the case of a
receivable originated by HACI or HAFI, such entity had all necessary licenses
and permits to originate receivables in the state where such entity was
located, and, (B) in the case of a Dealer originated receivable, such
Dealer had all necessary licenses and permits to originate receivables in the
state where such Dealer was located, and such receivable was purchased by HAFI
from such Dealer under an existing Dealer Agreement with HAFI, and (C) in
the case of a Dealer originated receivable or a receivable originated by HACI
or HAFI, such receivable was purchased (x) by HARC pursuant to the terms
of the Master Receivables Purchase Agreements and (y) by the Issuer
pursuant to the Sale and Servicing Agreement; and each Receivable was validly
assigned (1) if Dealer originated, by such Dealer to HAFI, (2) by
HAFI or HACI, as applicable, to HARC pursuant to the terms of the Master
Receivables Purchase Agreements, (3) by HARC to the Issuer pursuant to the
Sale and Servicing Agreement and (4) by the Issuer to the Indenture
Trustee pursuant to the Indenture, (ii) was fully and properly executed by
the parties thereto, (iii) contains customary and enforceable provisions
such as to render the rights and remedies of the holder thereof adequate for
realization against the collateral security, and (iv) is fully amortizing
and provides for level monthly payments (provided that the payment in
the first Collection Period and the final Collection Period of the term of the
Receivable may be minimally different from the level payment) which, if made
when due, shall fully amortize the Amount Financed over the original term;

(b)           that
was originated without any fraud or material misrepresentation on the part of a
Dealer, the Obligor, HAFI or HACI, as applicable;

(c)           with
respect to which 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
Billing Act, the Fair Credit Reporting Act, the Fair Debt Collection Practices
Act, the Federal Trade Commission Act, the Magnuson-Moss Warranty Act, the
Federal Reserve Board’s Regulations “B” and “Z”, the Servicemembers Civil
Relief Act, as amended, and state adaptations of the National Consumer Act and
of the Uniform Consumer Credit Code and other consumer credit laws and equal
credit opportunity and disclosure laws) in respect of all of the Receivables,
each and every sale of Financed Vehicles and the sale of any physical damage,
loss, credit life and credit accident and health insurance and any extended
service contracts, have been complied with in all material respects, and each
Receivable and the sale of the Financed Vehicle evidenced by each Receivable
and the sale of any physical damage, loss, credit life and credit accident and
health insurance and any extended service contracts complied at the time it was
originated or made and now complies in all material respects with all
applicable legal requirements;

 SCH-I-1
 

 

(d)           that
was originated in, and the related Obligor is a resident of, the United States
of America and, at the time of origination materially conformed to all
underwriting and funding guidelines of HAFI applicable thereto and that has
been serviced in material conformity with procedures applicable to receivables
that are serviced by the Servicer for its own account;

(e)           which
represents the genuine, legal, valid and binding payment obligation of the
Obligor thereon, enforceable by the holder thereof in accordance with its
terms, except (A) as enforceability may be limited by bankruptcy,
insolvency, reorganization or similar laws affecting the enforcement of
creditors’ rights generally and by equitable limitations on the availability of
specific remedies, regardless of whether such enforceability is considered in a
proceeding in equity or at law and (B) as such Receivable may be modified
by the application of the Servicemembers Civil Relief Act, as amended; and all
parties thereto had full legal capacity to execute and deliver such Receivable
and all other documents related thereto and to grant the security interest
purported to be granted thereby;

(f)            which
is not due from the United States of America or any state or from any agency,
department, subdivision or instrumentality thereof;

(g)           which,
as of the Cut-off Date, (i) had an original term of not more than 72
months, (ii) has a remaining term of not more than 72 months, (iii) had
a remaining Amount Financed of at least $3,000 and not more than $40,000, (iv) had
an Annual Percentage Rate of at least 6.50% and not more than 27.00%, (v) was
not more than 30 days contractually delinquent, (vi) no funds have been
advanced by the Issuer, the Servicer, HAFI, HACI, any Dealer, or anyone acting
on behalf of any of them in order to cause such Receivable to qualify under subclause
(iv) of this clause (g) and (vii) had no provision
thereof waived, altered or modified in any respect since its origination;

(h)           with
respect to which the information pertaining to such Receivable set forth in
each Schedule of Receivables is true and correct in all material respects;

(i)            with
respect to which HAFI will have caused the portions of HAFI’s  and the Servicer’s servicing records relating
to such Receivable to be clearly and unambiguously marked to show that such
Receivable has been transferred by HAFI or HACI to HARC in accordance with the
terms of the Master Receivables Purchase Agreements and by HARC to the Issuer
pursuant to the Sale and Servicing Agreement, and by the Issuer to the
Indenture Trustee pursuant to the Indenture;

(j)            with
respect to which the computer tape or listing to be made available by HAFI to
HARC, the Servicer or the Indenture Trustee is complete and accurate and
includes a description of the same Receivables that are, or will be, described
in the related Schedule of Receivables;

(k)           which
constitutes tangible chattel paper within the meaning of the UCC;

(l)            of
which there is only one original executed copy;

(m)          with
respect to which there exists a Receivable File and such Receivable File
contains, without limitation, (a) a fully executed original of the
Contract or an electronic

 SCH-I-2
 

 

copy thereof, (b) a certificate of insurance,
application form for insurance signed by the Obligor, or a signed
representation letter from the relevant Obligor named pursuant to which the
Obligor has agreed to obtain physical damage insurance for the related Financed
Vehicle, (c) the original Lien Certificate or application therefor, or a
physical or electronic copy thereof, showing HAFI, HACI or a third party
assigning its interest in the Lien Certificate, as applicable, as first
lienholder (which, for Financed Vehicles registered in states that issue confirmation
of the lienholder’s interest electronically, the “Lien Certificate” may consist
of notification of an electronic recordation, by either a third party service
provider or the relevant Registrar of Titles of the applicable state, which
indicates that the lien of the secured party on the Financed Vehicle is
recorded on the original certificate of title on the electronic lien and title
system of the applicable state) and (d) an original credit application, or
a physical or electronic copy thereof, signed by the Obligor; and (x) each
of the documents relating thereto which is required to be signed by the Obligor
has been signed by the Obligor in the appropriate spaces and (y) all
blanks on any form relating thereto to be completed have been properly filled
in and each form has otherwise been correctly prepared; and, notwithstanding
the above, with respect to which, a copy of the complete Receivable File for
such Receivable, which fulfills the documentation requirements of HAFI as in
effect at the time of purchase is in the possession of the Servicer or
Subservicer;

(n)           which
has not been satisfied, subordinated or rescinded, and the Financed Vehicle
securing such Receivable has not been released from the lien of such Receivable
in whole or in part;

(o)           which
was not originated in, and is not subject to the laws of, any jurisdiction the
laws of which would make unlawful, void or voidable the sale, transfer and
assignment of such Receivable and with respect to which there is no agreement
with any account debtor that prohibits, restricts or conditions the assignment
of any portion of such Receivable;

(p)           which
has not been sold, transferred, assigned or pledged to any Person other than to
(i) HAFI by a Dealer, (ii) HARC by HAFI or HACI, as applicable,
pursuant to the terms of the Master Receivables Purchase Agreements, (iii) the
Issuer by HARC pursuant to the terms of the Sale and Servicing Agreement and (iv) the
Indenture Trustee by the Issuer pursuant to the terms of the Indenture. No
Dealer has a participation in, or other right to receive, proceeds of any
Receivable. Neither HAFI nor HACI, as applicable, HARC nor the Issuer has taken
any action to convey any right to any Person that would result in such Person
having a right to payments received under the related Insurance Policy or the
related Dealer Agreement or Dealer Assignment or to payments due under such
Receivable;

(q)           which
creates a valid, binding and enforceable first priority security interest in
favor of HAFI or HACI, as applicable, in the Financed Vehicle;

(r)            which
is secured by an enforceable and perfected first priority security interest in
the Financed Vehicle in favor of HAFI or HACI, as applicable, as secured party,
which security interest is prior to all other Liens upon and security interests
in such Financed Vehicle which now exist or may hereafter arise or be created
(except, as to priority, for any Lien for taxes, labor or materials affecting a
Financed Vehicle); and, with respect to which there are

 SCH-I-3
 

 

 

no Liens or claims for taxes, work, labor or materials
affecting the related Financed Vehicle which are or may be Liens prior or equal
to the lien of such Receivable;

(s)           as
to which the Seller has not authorized the filing of, and is not aware of any
financing statements against the Seller that include a description of the
collateral covering such Receivable, other than any financing statements (i) relating
to the sale of such Receivable by HARC to the Issuer pursuant to the terms of
the Sale and Servicing Agreement, or (ii) that have been terminated;

(t)            as
to which all filings (including, without limitation, UCC filings) required to
be made by any Person and actions required to be taken or performed by any
Person in any jurisdiction to give the Indenture Trustee a first priority
perfected lien on, or ownership interest in, the Receivables and the proceeds
thereof have been made, taken or performed;

(u)           as
to which, immediately prior to the transfer and assignment of such Receivable
by the Seller pursuant to the Sale and Servicing Agreement, the Seller has good
and marketable title thereto, free and clear of any and all liens, claims or
encumbrances of any person;

(v)           as
to which HAFI or HACI, as applicable, HARC or the Issuer has not done anything
to convey any right to any Person that would result in such Person having a
right to payments due under such Receivable or otherwise to impair the rights
of the Indenture Trustee, the Noteholders or the Certificateholders in such
Receivable or the proceeds thereof;

(w)          which
is not assumable by another Person in a manner which would release the Obligor
thereof from such Obligor’s obligations with respect to such Receivable;

(x)            which
is not subject to any right of rescission, setoff, counterclaim or defense and
no such right has been asserted or threatened with respect thereto;

(y)           except
for payment delinquencies continuing for a period of not more than 30 days as
of the applicable Cut-Off Date, the Seller has no knowledge that a default,
breach, violation or event permitting acceleration under the terms of the
Receivable existed as of the applicable Cut-Off Date or that any
continuing condition that with notice or lapse of time, or both, would
constitute a default, breach, violation or event permitting acceleration under
the terms of the Receivable had arisen as of the applicable Cut-Off Date and
the Seller has not waived any of the foregoing;

(z)            at
the time of the origination of which, the related Financed Vehicle was covered
by a comprehensive and collision insurance policy (i) in an amount at
least equal to the lesser of (a) its maximum insurable value and (b) the
principal amount due from the Obligor thereunder, (ii) naming HAFI or
HACI, as applicable, and its successors and assigns as loss payee and (iii) insuring
against loss and damage due to fire, theft, transportation, collision and other
risks generally covered by comprehensive and collision coverage and with
respect to which the Obligor is required to maintain physical loss and damage
insurance, naming HAFI or HACI, as applicable, and its successors and assigns
as additional insured parties, and such Receivable permits the holder thereof
to obtain physical loss and damage insurance at the expense of the Obligor if
the Obligor fails to do so;

 SCH-I-4
 

 

 

(aa)         with
respect to which the following is true:

The Lien Certificate for the related Financed Vehicle
shows, or if a new or replacement Lien Certificate is being applied for with
respect to such Financed Vehicle the Lien Certificate will be received within
270 days of the Closing Date and will show, HAFI, HACI or a third party
assigning its interest in the Lien Certificate, as applicable, named as the
original secured party under such Receivable and, accordingly, HAFI, HACI or
such third party, as applicable, will be the holder of a first priority security
interest in such Financed Vehicle. With respect to each Receivable for which
the Lien Certificate has not yet been returned from the Registrar of Titles,
HAFI has either applied for or received written evidence from the related
Dealer or the Obligor that such Lien Certificate showing HAFI, HACI or a third
party assigning its interest in the Lien Certificate, as applicable, as first
lienholder has been applied for. If the Receivable was originated in a state in
which a filing or recording is required of the secured party to perfect a
security interest in motor vehicles, such filings or recordings have been duly
made to show HAFI, HACI or a third party assigning its interest in the Lien
Certificate, as applicable, named as the original secured party under the
related Receivable;

(bb)         with
respect to which the related Contract contains no mark or notation indicating
that such Contract has been sold or pledged by the Seller to any person other
than the Issuer;

(cc)         as
to which no selection procedures adverse to the Noteholders or the
Certificateholder have been utilized in selecting such Receivable from all
other similar Receivables purchased or originated by HAFI or originated by
HACI;

(dd)         as
to which, as of the Cut-off Date, no Obligor had been identified on the records
of HAFI as being the subject of a current bankruptcy proceeding; and

(ee)         as to which all funds have been fully advanced to or
on behalf of the related Obligor in accordance with its terms.

 SCH-I-5

 

Schedule II

Schedule of Receivables
on File in Electronic Form

at Dewey Ballantine LLP

 SCH-II-1

 

Exhibit A

Form of Servicer’s Certificate

HSBC
Automotive Trust (USA)  2006-1

Class A-1
Notes:  5.27575%

Class A-2
Notes:  5.40%

Class A-3
Notes:  5.43%

Class A-4
Notes:  5.52%

Servicer’s Certificate

(Delivered pursuant to Section 4.9
of

the Sale and Servicing
Agreement)

 

Collection Period Beginning

Collection Period Ending

Previous Distribution Date

Distribution Date

Days in Interest Period

Months Since Closing

I. COLLECTION
PERIOD POOL BALANCE CALCULATION:

Beginning of Collection Period Pool Balance

Principal Receivables Added

Monthly Principal Amounts:

  Principal Payments Received for
the Collection Period

  Liquidated Receivables for the
Collection Period

  Principal Amount of Repurchased
Receivables for the Collection Period

End of Collection Period Pool Balance

End of Collection Period
Pool Factor

II. COLLECTION
PERIOD NOTEHOLDER CALCULATIONS:

(a) Class A-1

A.  Information regarding
distributions

   1.  Total distribution per $1,000

   2.  Principal distribution per $1,000

   3.  Interest distribution per $1,000

B. Calculation of Class A-1 interest due

   1.  Class A-1 related Note Rate

   2.  Class A-1 note balance - beginning
of period

   3.  Interest accrual convention

   4.  Days in Interest Period

   5.  Class A-1 interest due - current
period

 EXH-A-1
 

 

 

   6.  Class A Interest Carryover Shortfall with
respect to Class A-1

   7.  Class A-1 interest paid

   8.  Class A-1 unpaid interest with
respect to the Distribution Date

 

C. Calculation of Class A-1 principal balance

   1. Class A-1 note
balance - beginning of period

   2. Class A-1
minimum principal distributable amount - due

   3. Class A-1
additional principal distributable amount - due

   4. Class A-1
minimum principal distributable amount - paid

   5. Class A-1
additional principal distributable amount - paid

   6. Class A-1 note
balance - end of period

   7. Class A-1 notes
as a percentage of the total Notes outstanding on the Distribution Date

   8. Class A-1 notes as a
percentage of the Pool Balance on the Distribution Date

(b) Class A-2

A.  Information Regarding
Distributions

   1.  Total distribution per $1,000

   2.  Principal distribution per $1,000

   3.  Interest distribution per $1,000

 

B. Calculation of Class A-2 interest due

   1.  Class A-2 related Note Rate

   2.  Class A-2 note balance - beginning
of period

   3.  Interest accrual convention

   4.  Days in Interest Period

   5.  Class A-2 interest due - current
period

   6.  Class A Interest Carryover Shortfall with
respect to Class A-2

   7.  Class A-2 interest paid

   8.  Class A-2 unpaid interest with
respect to the Distribution Date

 

C. Calculation of Class A-2 principal balance

   1. Class A-2 note
balance - beginning of period

   2. Class A-2
minimum principal distributable amount - due

   3. Class A-2
additional principal distributable amount - due

   4. Class A-2
minimum principal distributable amount - paid

   5. Class A-2
additional principal distributable amount - paid

   6. Class A-2 note
balance - end of period

   7. Class A-2 notes
as a percentage of the total Notes outstanding on the Distribution Date

   8. Class A-2 notes
as a percentage of the Pool Balance on the Distribution Date

   9. Class A-1 and A-2 notes
as a percentage of the Pool Balance on the Distribution Date

(c) Class A-3

A.  Information Regarding
Distributions

   1.  Total distribution per $1,000

   2.  Principal distribution per $1,000

   3.  Interest distribution per $1,000

 EXH-A-2
 

 

 

B. Calculation of Class A-3 interest Due

   1.  Class A-3 related Note Rate

   2.  Class A-3 note balance - beginning
of period

   3.  Interest accrual convention

   4.  Days in Interest Period

   5.  Class A-3 interest due - current
period

   6.  Class A Interest Carryover Shortfall with
respect to Class A-3

   7.  Class A-3 interest paid

   8.  Class A-3 unpaid interest with
respect to the Distribution Date

 

C. Calculation of Class A-3 principal balance

   1. Class A-3 note
balance - beginning of period

   2. Class A-3
minimum principal distributable amount - due

   3. Class A-3
additional principal distributable amount - due

   4. Class A-3 minimum
principal distributable amount - paid

   5. Class A-3
additional principal distributable amount - paid

   6. Class A-3 note
balance - end of period

   7. Class A-3 notes
as a percentage of the total Notes outstanding on the Distribution Date

   8. Class A-3 notes
as a percentage of the Pool Balance on the Distribution Date

   9. Class A-1, A-2 and A-3
notes as a percentage of the Pool Balance on the Distribution Date

(d) Class A-4

A.  Information Regarding
Distributions

   1.  Total distribution per $1,000

   2.  Principal distribution per $1,000

   3.  Interest distribution per $1,000

B. Calculation of Class A-4 Interest Due

   1.  Class A-4 related Note Rate

   2.  Class A-4 principal balance -
beginning of period

   3.  Interest accrual convention

   4.  Days in Interest Period

   5.  Class A-4 interest due - current
period

   6.  Class A Interest Carryover Shortfall with
respect to Class A-4

   7.  Class A-4 interest paid

   8.  Class A-4
unpaid interest with respect to the Distribution Date

C. Calculation of Class A-4 principal balance

   1. Class A-4 note
balance - beginning of period

   2. Class A-4
minimum principal distributable amount - due

   3. Class A-4
additional principal distributable amount - due

   4. Class A-4
minimum principal distributable amount - paid

   5. Class A-4
additional principal distributable amount - paid

   6. Class A-4 note
balance - end of period

   7. Class A-4. notes
as a percentage of the total Notes outstanding on the Distribution Date

 EXH-A-3
 

 

 

   8. Class A-4 Notes
as a percentage of the Pool Balance on the Distribution Date

   9. Class A-1, A-2, A-3
and A-4 notes as a percentage of the Pool Balance on the Distribution
Date

III. PRINCIPAL DISTRIBUTABLE AMOUNT
CALCULATION

 Aggregate Optimal Note
Principal Balance for the Distribution Date:

   Pool Balance as of the end of
the Collection Period

   Factor

Aggregate Optimal Note Principal Balance for the Distribution Date

Optimal Principal Distributable
Amount for the Distribution Date:

   The excess, if any, of

     (x) Aggregate Note
Principal Balance over

     (y) Aggregate Optimal
Note Principal Balance for such Distribution Date

Optimal Principal Distributable Amount

Class A Minimum Principal
Distributable Amount:

   Greater of (a), (b), or (c):

   (a) The lesser of:

        (i) Optimal Principal Distributable
Amount

        (ii) BOM Principal
Balance less EOM Principal Balance

        (iii) Aggregate Note
Principal Balance

   (b) The amount necessary
on a Note’s Scheduled Maturity Date to bring the Note’s

         Aggregate Note Principal
Balance to zero

   (c) The excess of the
Aggregate Note Principal Balance over the

         Pool Balance

Class A Minimum Principal Distributable Amount

Class A Additional Principal
Distributable Amount

   Excess of:

     (i) Aggregate Note
Principal Balance

          Less:  Class A Minimum Principal Distributable
Amount paid over

     (ii) Aggregate Optimal
Note Principal Balance

Class A Additional
Principal Distributable Amount

IV.  RESERVE ACCOUNT RECONCILIATION

Beginning Reserve Account Balance

Targeted Reserve Account Balance

Reserve Account Shortfall

Reserve Account Deposit

Reserve Account Release

Ending Reserve Account Balance

Ending Reserve Account
Balance as a percentage of the Ending Pool Balance

V. OVERCOLLATERALIZATION CALCULATION

Overcollateralization Amount prior to
payments allocated to principal

 Overcollateralization Amount after giving
effect to payments allocated to principal

Ending
Overcollateralization Amount as a percentage of the Ending Pool Balance

 EXH-A-4
 

 

 

VI. RECONCILIATION
OF COLLECTION ACCOUNT

 (A) Available
Funds (Sect. 2.01(a))

i. Collected Funds

   (a)  Collections On
Receivables

   (b)  Net Liquidation
Proceeds

   (c)  Substitution
Adjustment Amounts

Total Collected Funds

ii. Collection and Reserve Account investment income

iii. Repurchase Amounts deposited in the Collection Account

iv. Proceeds of any liquidation of the Trust

Available Funds for distribution

 

Distributions (Sect. 3.03)

(A) Available Funds

 

(B) Servicing Fee

i. Servicing Fee (If HSBC Finance no longer the Servicer)

(C) Unpaid Administrator, and Indenture and Owner Trustee fees

Remaining available funds for interest distribution

 

(D) Class A Interest Distributable Amount paid

i. Class A-1 interest paid

ii. Class A-2 interest paid

iii. Class A-3 interest paid

iv. Class A-4 interest paid

Total Class A Interest Distributable Amount paid

Remaining Available Funds for principal distribution

 

(E) Class A Minimum Principal Distributable Amount paid

i. Class A-1 minimum principal paid

ii. Class A-2 minimum principal paid

iii. Class A-3 minimum principal paid

iv. Class A-4 minimum principal paid

Class A Minimum Principal Distributable Amount paid

Remaining funds

 

(F) Reserve Account Shortfall Amount - deposited

Remaining funds

 

(G) Class A Additional Principal Distributable Amount

i. Class A-1 additional principal distributable amount

ii. Class A-2 additional principal distributable amount

iii. Class A-3 additional principal distributable amount

iv. Class A-4 additional principal distributable amount

Class A Additional Principal Distributable Amount - paid

 EXH-A-5
 

 

 

Remaining funds

 

(H) Amount released from Reserve Account

Remaining funds

 

(I) Unpaid Administrator, and Indenture and Owner Trustee
indemnity expenses

Remaining funds

 

(J) Servicing Fee (If HSBC Finance Is Servicer)

 

(K) Remaining
Available Funds for distribution to Certificateholders

VII. OTHER STATISTICS

Delinquency

A. One payment delinquent  — $

   % of Principal Receivables

B. Two payments delinquent - $

   % of Principal Receivables

C. Three or more payments delinquent - $

   % of Principal Receivables

D. Two or more payments delinquent - $

   % of Principal Receivables

 

E. Principal Balance of Receivables that were
extended or modified (and delinquency reset) during   the related Collection Period - $

F. Principal Balance of Receivables that were
extended or modified (and delinquency reset) during the related Collection
Period as a percent of the Pool Balance at the end of such Collection Period -
__%

 

G. Repossessed Vehicles

   % of Principal Receivables

H. Cumulative Net Loss Percentage

I. The weighted average coupon (WAC) was equal to

J. The weighted average remaining maturity (WARM) was equal to

 

 EXH-A-6

 

Exhibit B

Forms of Notes

 

 EXH-B-1

 

Exhibit B

Forms of Notes

REGISTERED                                                                                                                                                              $246,600,000

No. A-1

SEE REVERSE FOR CERTAIN DEFINITIONS

CUSIP NO. 404285
AA 6

Unless this Note is presented by an authorized
representative of The Depository Trust Company, a New York corporation (“DTC”),
to the Issuer or its agent for registration of transfer, exchange or payment,
and any Note issued is registered in the name of Cede & Co. or in such
other name as is requested by an authorized representative of DTC (and any
payment is made to Cede & Co. or to such other entity as is requested
by an authorized representative of DTC), ANY TRANSFER, PLEDGE OR OTHER USE
HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the
registered owner hereof, Cede & Co., has an interest herein.

THE PRINCIPAL OF THIS NOTE IS PAYABLE IN INSTALLMENTS
AS SET FORTH HEREIN. ACCORDINGLY, THE OUTSTANDING PRINCIPAL AMOUNT OF THIS NOTE
AT ANY TIME MAY BE LESS THAN THE AMOUNT SHOWN ON THE FACE HEREOF.

HSBC AUTOMOTIVE
TRUST (USA) 2006-1

CLASS A-1
5.27575% NOTE

HSBC Automotive Trust (USA) 2006-1, a statutory
trust organized and existing under the laws of the State of Delaware (herein
referred to as the “Issuer”), for value received, hereby promises to pay to
CEDE & CO., or registered assigns, the principal sum of TWO HUNDRED FORTY-SIX
MILLION SIX HUNDRED THOUSAND DOLLARS payable on each Distribution Date in an
amount equal to the result obtained by multiplying (i) a fraction the
numerator of which is $246,600,000 and
the denominator of which is $246,600,000 by
(ii) the aggregate amount, if any, payable from Available Funds in respect
of principal on the Class A-1 Notes pursuant to the Indenture; provided,
however, that the entire unpaid principal amount of this Note shall be
due and payable on June 18, 2007 (the “Class A-1 Scheduled
Maturity Date”). The Issuer will pay interest on this Note at the rate per
annum shown above on each Distribution Date until the principal of this Note is
paid or made available for payment. Interest on this Note will accrue for each
Distribution Date from the most recent Distribution Date on which interest has
been paid to but excluding such Distribution Date or, if no interest has yet
been paid, from June 8, 2006. Interest will be computed on the basis of a
360-day year and the actual number of days elapsed in an applicable
Interest Period. Such principal of and interest on this Note shall be paid in
the manner specified on the reverse hereof.

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 Issuer with respect to this Note shall be applied first to 

 B-1
 

 

interest due and payable on this Note as provided
above and then to the unpaid principal of this Note.

Reference is made to the further provisions of this
Note set forth on the reverse hereof, which shall have the same effect as
though fully set forth on the face of this Note.

Unless the certificate of authentication hereon has
been executed by the Administrator whose name appears below by manual
signature, this Note shall not be entitled to any benefit under the Indenture
referred to on the reverse hereof, or be valid or obligatory for any purpose.

 B-2
 

 

IN WITNESS WHEREOF, the Issuer has caused this
instrument to be signed, manually or in facsimile, by its Authorized Officer as
of the date set forth below.

	
  Date: June 8, 2006

  	
   

  	
  HSBC AUTOMOTIVE TRUST (USA) 2006-1

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  By:

  	
  U.S. BANK TRUST
  NATIONAL ASSOCIATION, not in its individual capacity but solely as Owner
  Trustee

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
   

  	
   

  	
  Title:

  

 

 B-3
 

 

ADMINISTRATOR’S
CERTIFICATE OF AUTHENTICATION

This is one of the Notes designated above and referred
to in the within-mentioned Indenture.

	
  Date: June 8, 2006

  	
  HSBC BANK USA, NATIONAL ASSOCIATION,

  not in its individual capacity but solely as

  Administrator

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  by

  	
   

  
	
   

  	
   

  	
  Authorized Signatory

  

 B-4
 

 

[REVERSE OF NOTE]

This Note is one of a duly authorized issue of Notes
of the Issuer, designated as its Class A-1 5.27575% Notes (herein
called the “Class A-1 Notes”), all issued under an Indenture dated
as of June 8, 2006 (such indenture, as supplemented or amended, is herein
called the “Indenture”), among the Issuer, The Bank of New York, as indenture trustee
(the “Indenture Trustee”, which term includes any successor Indenture Trustee
under the Indenture) and HSBC Bank USA, National Association, as administrator
(the “Administrator”, which term includes any successor Administrator under the
Indenture) to which Indenture and all indentures supplemental thereto reference
is hereby made for a state­ment of the respective rights and obligations
thereunder of the Issuer, the Indenture Trustee, the Administrator and the
Holders of the Notes. The Notes are subject to all terms of the Indenture. All
terms used in this Note that are defined in the Indenture, as supplemented or
amended, shall have the meanings assigned to them in or pursuant to the
Indenture, as so supplemented or amended.

The Class A-1 Notes, the Class A-2
Notes, the Class A-3 Notes and the Class A-4 Notes
(together, the “Notes”) are and will be equally and ratably secured by the
collateral pledged as security therefor as provided in the Indenture.

Principal of the Class A-1 Notes will be
payable on each Distribution Date in an amount described on the face hereof. “Distribution
Date” means the seventeenth day of each month, or, if any such date is not a
Business Day, the next succeeding Business Day, commencing on July 17,
2006. The term “Distribution Date” shall be deemed to include the Class A-1
Scheduled Maturity Date.

As described above, the entire unpaid principal amount
of this Note shall be due and payable on the Class A-1 Scheduled
Maturity Date. This Note is also subject to redemption when the Pool Balance is
reduced to an amount that is less than or equal to 10% of the original Pool
Balance. Notwithstanding the foregoing, the entire unpaid principal amount of
the Notes shall be due and payable on any date on or after which an Event of
Default shall have occurred and be continuing if the Indenture Trustee in its
discretion or if requested by Holders of the Notes representing at least 66
2/3% of the Outstanding Amount of the Notes have declared the Notes to be
immediately due and payable in the manner provided in the Indenture. All
principal payments on the Class A-1 Notes shall be made pro rata to
the Class A-1 Noteholders entitled thereto.

Payments of interest on this Note due and payable on
each Distribution Date, together with the installment of principal, if any, to
the extent not in full payment of this Note, shall be made by check mailed to
the Person whose name appears as the Holder of this Note (or one or more
Predecessor Notes) on the Note Register as of the close of business on each Record
Date, except that with respect to Notes registered on the Record Date in the
name of the nominee of the Clearing Agency (initially, such nominee to be Cede &
Co.), payments will be made by wire transfer in immediately available funds to
the account designated by such nominee. Such checks shall be mailed to the
Person entitled thereto at the address of such Person as it appears on the Note
Register as of the applicable Record Date without requiring that this Note be
submitted for notation of payment. Any reduction in the principal amount of
this Note (or any one or more Predecessor Notes) effected by any payments made
on any Distribution Date shall be binding upon all future Holders of this Note
and of any Note issued upon the registration of 

 B-5
 

 

transfer hereof or in exchange hereof or in lieu
hereof, whether or not noted hereon. If funds are expected to be available, as
provided in the Indenture, for payment in full of the then remaining unpaid
principal amount of this Note on a Distribution Date, then the Administrator,
in the name of and on behalf of the Issuer, will notify the Person who was the
Holder hereof as of the Record Date preceding such Distribution Date by notice
mailed prior to such Distribution Date and the amount then due and payable shall
be payable only upon presentation and surrender of this Note at the
Administrator’s principal Corporate Trust Office or at the office of the
Administrator’s agent appointed for such purposes located in New York, New
York.

The Issuer shall pay interest on overdue installments
of interest at the Class A-1 Note Rate to the extent lawful.

As provided in the Indenture and subject to certain
limitations set forth therein, the transfer of this Note may be registered on
the Note Register upon surrender of this Note for registration of transfer at
the office or agency designated by the Issuer pursuant to the Indenture, (i) duly
endorsed by, or accompanied by a written instrument of transfer in form
satisfactory to the Indenture Trustee duly executed by, the Holder hereof or
his attorney duly authorized in writing, with such signature guaranteed by an “eligible
guarantor institution” meeting the requirements of the Note Registrar which
requirements include membership or participation in Securities Transfer Agents
Medallion Program (“Stamp”) or such other “signature guarantee program” as may
be determined by the Note Registrar in addition to, or in substitution for,
Stamp, all in accordance with the Exchange Act, and (ii) accompanied by
such other documents as the Indenture Trustee may require, and thereupon one or
more new Notes of authorized denominations and in the same aggregate principal
amount will be issued to the designated transferee or transferees. No service
charge will be charged for any registration of transfer or exchange of this
Note, but the transferor may be required to pay a sum sufficient to cover any
tax or other governmental charge that may be imposed in connection with any
such registration of transfer or exchange.

Each Noteholder or Note Owner, by acceptance of a Note
or, in the case of a Note Owner, a beneficial interest in a Note covenants and
agrees that no recourse may be taken, directly or indirectly, with respect to
the obligations of the Issuer, the Owner Trustee, the Administrator or the Indenture
Trustee on the Notes or under the Indenture or any certificate or other writing
delivered in connection therewith, against (i) the Seller, the Servicer,
the Indenture Trustee, the Administrator or the Owner Trustee in its individual
capacity, (ii) any owner of a beneficial interest in the Issuer or (iii) any
partner, owner, beneficiary, agent, officer, director or employee of the
Seller, the Servicer, the Indenture Trustee, the Administrator or the Owner
Trustee in its individual capacity, any holder of a beneficial interest in the
Issuer, the Seller, the Servicer, the Owner Trustee, the Administrator or the
Indenture Trustee or of any successor or assign of the Seller, the Servicer,
the Indenture Trustee, the Administrator or the Owner Trustee in its individual
capacity, except as any such Person may have expressly agreed (it being
understood that the Indenture Trustee and the Owner Trustee have no such
obligations in their individual capacity) and except that any such partner,
owner or beneficiary shall be fully liable, to the extent provided by
applicable law, for any unpaid consideration for stock, unpaid capital
contribution or failure to pay any installment or call owing to such entity.

Prior to the due presentment for registration of
transfer of this Note, the Issuer, the Indenture Trustee and the Administrator
and any agent of the Issuer, the Indenture Trustee or the 

 B-6
 

 

Administrator may treat the Person in whose name this
Note (as of the day of determination or as of such other date as may be specified
in the Indenture) is registered as the owner hereof for all purposes, whether
or not this Note be overdue, and none of the Issuer, the Indenture Trustee, the
Administrator 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 Issuer and the rights of the Holders of the Notes under the
Indenture at any time by the Issuer with the consent of the Noteholders
representing a majority of the Outstanding Amount of all Notes at the time
Outstanding.

The term “Issuer” as used in this Note includes any
successor to the Issuer under the Indenture.

The Issuer is permitted by the Indenture, under
certain circumstances, to merge or consolidate, subject to the rights of the
Indenture Trustee and the Noteholders under the Indenture.

The Notes are issuable only in registered form in
denominations as provided in the Indenture, subject to certain limitations
therein set forth.

This Note and the Indenture shall be construed in
accordance with the laws of the State of New York, without reference to its
conflict of law provisions, and the obligations, rights and remedies of the
parties hereunder and thereunder shall be determined in accordance with such
laws.

No reference herein to the Indenture and no provision
of this Note or of the Indenture shall alter or impair the obligation of the
Issuer, which is absolute and unconditional, to pay the principal of and
interest on this Note at the times, place, and rate, and in the coin or
currency herein prescribed.

Anything herein to the contrary notwithstanding,
except as expressly provided in the Indenture or the Basic Documents, neither
U.S. Bank Trust National Association in its individual capacity, any owner of a
beneficial interest in the Issuer, nor any of their respective partners,
beneficiaries, agents, officers, directors, employees or successors or assigns
shall be personally liable for, nor shall recourse be had to any of them for,
the payment of principal of or interest on, or performance of, or omission to
perform, any of the covenants, obligations or indemnifications contained in
this Note or the Indenture, it being expressly understood that said covenants,
obligations and indemnifications have been made by the Owner Trustee for the
sole purposes of binding the interests of the Owner Trustee in the assets of
the Issuer. The Holder of this Note by the acceptance hereof agrees that except
as expressly provided in the Indenture or the Basic Documents, in the case of
an Event of Default under the Indenture, the Holder shall have no claim against
any of the foregoing for any deficiency, loss or claim therefrom; provided,
however, that nothing contained herein shall be taken to prevent
recourse to, and enforcement against, the assets of the Issuer for any and all
liabilities, obligations and undertakings contained in the Indenture or in this
Note.

 B-7
 

 

ASSIGNMENT

Social Security or
taxpayer I.D. or other identifying number of assignee

FOR VALUE RECEIVED, the undersigned hereby sells,
assigns and transfers unto _______________________________________
                                (name and address of assignee)

the within Note and all
rights thereunder, and hereby irrevocably constitutes and appoints, attorney,
to transfer said Note on the books kept for registration thereof, with full
power of substitution in the premises.

Dated                                                                         (1)                                                                                                       
                                                                                                Signature
Guaranteed:

(1)    NOTE: The
signature to this assignment must correspond with the name of the registered
owner as it appears on the face of the within Note in every particular, without
alteration, enlargement or any change whatsoever.

 B-8
 

 

REGISTERED                                                                                                                                                  $227,000,000

No. A-2

SEE REVERSE FOR CERTAIN DEFINITIONS

CUSIP NO. 404285 AB 4

Unless this Note is presented by an authorized
representative of The Depository Trust Company, a New York corporation (“DTC”),
to the Issuer or its agent for registration of transfer, exchange or payment,
and any Note issued is registered in the name of Cede & Co. or in such
other name as is requested by an authorized representative of DTC (and any
payment is made to Cede & Co. or to such other entity as is requested
by an authorized representative of DTC), ANY TRANSFER, PLEDGE OR OTHER USE
HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the
registered owner hereof, Cede & Co., has an interest herein.

THE PRINCIPAL OF THIS NOTE IS PAYABLE IN INSTALLMENTS
AS SET FORTH HEREIN. ACCORDINGLY, THE OUTSTANDING PRINCIPAL AMOUNT OF THIS NOTE
AT ANY TIME MAY BE LESS THAN THE AMOUNT SHOWN ON THE FACE HEREOF.

HSBC AUTOMOTIVE
TRUST (USA) 2006-1

CLASS A-2
5.40% NOTE

HSBC Automotive Trust (USA) 2006-1, a statutory
trust organized and existing under the laws of the State of Delaware (herein
referred to as the “Issuer”), for value received, hereby promises to pay to
CEDE & CO., or registered assigns, the principal sum of TWO HUNDRED
TWENTY-SEVEN MILLION DOLLARS payable
on each Distribution Date in an amount equal to the result obtained by
multiplying (i) a fraction the numerator of which is $227,000,000 and the denominator of which
is $227,000,000 by (ii) the
aggregate amount, if any, payable from Available Funds in respect of principal
on the Class A-2 Notes pursuant to the Indenture; provided, however,
that the entire unpaid principal amount of this Note shall be due and payable
on June 17, 2009 (the “Class A-2 Scheduled Maturity Date”). The
Issuer will pay interest on this Note at the rate per annum shown above on each
Distribution Date until the principal of this Note is paid or made available for
payment. Interest on this Note will accrue for each Distribution Date from the
most recent Distribution Date on which interest has been paid to but excluding
such Distribution Date or, if no interest has yet been paid, from June 8,
2006. Interest will be computed on the basis of a 360-day year consisting
of twelve 30-day months.

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 Issuer 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.

Reference is made to the further provisions of this
Note set forth on the reverse hereof, which shall have the same effect as
though fully set forth on the face of this Note.

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Unless the certificate of authentication hereon has
been executed by the Administrator whose name appears below by manual signature,
this Note shall not be entitled to any benefit under the Indenture referred to
on the reverse hereof, or be valid or obligatory for any purpose.

 B-10
 

 

IN WITNESS WHEREOF, the Issuer has caused this
instrument to be signed, manually or in facsimile, by its Authorized Officer as
of the date set forth below.

	
  Date: June 8, 2006

  	
  HSBC AUTOMOTIVE TRUST (USA) 2006-1

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  U.S. BANK TRUST NATIONAL 

  ASSOCIATION, not in its individual capacity but 

  solely as Owner Trustee

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  	
   

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  	
   

  

 

 B-11
 

 

                       ADMINISTRATOR’S
CERTIFICATE OF AUTHENTICATION

This is one of the Notes designated above and referred
to in the within-mentioned Indenture.

	
  Date: June 8, 2006

  	
  HSBC BANK USA, NATIONAL ASSOCIATION,
 not in its individual capacity but
  solely as Administrator

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  by

  	
   

  
	
   

  	
  Authorized Signatory

  

 

 B-12
 

 

[REVERSE OF NOTE]

This Note is one of a duly authorized issue of Notes
of the Issuer, designated as its Class A-2 5.40% Notes (herein
called the “Class A-2 Notes”), all issued under an Indenture dated
as of June 8, 2006 (such indenture, as supplemented or amended, is herein
called the “Indenture”), among the Issuer, The Bank of New York, as indenture
trustee (the “Indenture Trustee”, which term includes any successor Indenture
Trustee under the Indenture) and HSBC Bank USA, National Association, as
administrator (the “Administrator”, which term includes any successor
Administrator under the Indenture) to which Indenture and all indentures
supplemental thereto reference is hereby made for a state­ment of the
respective rights and obligations thereunder of the Issuer, the Indenture
Trustee, the Administrator and the Holders of the Notes. The Notes are subject
to all terms of the Indenture. All terms used in this Note that are defined in
the Indenture, as supplemented or amended, shall have the meanings assigned to
them in or pursuant to the Indenture, as so supplemented or amended.

The Class A-1 Notes, the Class A-2
Notes, the Class A-3 Notes and the Class A-4 Notes
(together, the “Notes”) are and will be equally and ratably secured by the
collateral pledged as security therefor as provided in the Indenture.

Principal of the Class A-2 Notes will be
payable on each Distribution Date in an amount described on the face hereof. “Distribution
Date” means the seventeenth day of each month, or, if any such date is not a
Business Day, the next succeeding Business Day, commencing on July 17,
2006. The term “Distribution Date” shall be deemed to include the Class A-2
Scheduled Maturity Date.

As described above, the entire unpaid principal amount
of this Note shall be due and payable on the Class A-2 Scheduled
Maturity Date. This Note is also subject to redemption when the Pool Balance is
reduced to an amount that is less than or equal to 10% of the original Pool
Balance. Notwithstanding the foregoing, the entire unpaid principal amount of
the Notes shall be due and payable on any date on or after which an Event of
Default shall have occurred and be continuing if the Indenture Trustee in its
discretion or if requested by Holders of the Notes representing at least 66
2/3% of the Outstanding Amount of the Notes have declared the Notes to be
immediately due and payable in the manner provided in the Indenture. All
principal payments on the Class A-2 Notes shall be made pro rata to
the Class A-2 Noteholders entitled thereto.

Payments of interest on this Note due and payable on
each Distribution Date, together with the installment of principal, if any, to
the extent not in full payment of this Note, shall be made by check mailed to
the Person whose name appears as the Holder of this Note (or one or more
Predecessor Notes) on the Note Register as of the close of business on each
Record Date, except that with respect to Notes registered on the Record Date in
the name of the nominee of the Clearing Agency (initially, such nominee to be
Cede & Co.), payments will be made by wire transfer in immediately
available funds to the account designated by such nominee. Such checks shall be
mailed to the Person entitled thereto at the address of such Person as it
appears on the Note Register as of the applicable Record Date without requiring
that this Note be submitted for notation of payment. Any reduction in the
principal amount of this Note (or any one or more Predecessor Notes) effected
by any payments made on any Distribution Date shall be binding upon all future
Holders of this Note and of any Note issued upon the registration of 

 B-13
 

 

transfer hereof or in exchange hereof or in lieu
hereof, whether or not noted hereon. If funds are expected to be available, as
provided in the Indenture, for payment in full of the then remaining unpaid
principal amount of this Note on a Distribution Date, then the Administrator,
in the name of and on behalf of the Issuer, will notify the Person who was the
Holder hereof as of the Record Date preceding such Distribution Date by notice
mailed prior to such Distribution Date and the amount then due and payable
shall be payable only upon presentation and surrender of this Note at the
Administrator’s principal Corporate Trust Office or at the office of the
Administrator’s agent appointed for such purposes located in New York, New
York.

The Issuer shall pay interest on overdue installments
of interest at the Class A-2 Note Rate to the extent lawful.

As provided in the Indenture and subject to certain
limitations set forth therein, the transfer of this Note may be registered on
the Note Register upon surrender of this Note for registration of transfer at
the office or agency designated by the Issuer pursuant to the Indenture, (i) duly
endorsed by, or accompanied by a written instrument of transfer in form
satisfactory to the Indenture Trustee duly executed by, the Holder hereof or
his attorney duly authorized in writing, with such signature guaranteed by an “eligible
guarantor institution” meeting the requirements of the Note Registrar which
requirements include membership or participation in Securities Transfer Agents
Medallion Program (“Stamp”) or such other “signature guarantee program” as may
be determined by the Note Registrar in addition to, or in substitution for,
Stamp, all in accordance with the Exchange Act, and (ii) accompanied by
such other documents as the Indenture Trustee may require, and thereupon one or
more new Notes of authorized denominations and in the same aggregate principal
amount will be issued to the designated transferee or transferees. No service
charge will be charged for any registration of transfer or exchange of this
Note, but the transferor may be required to pay a sum sufficient to cover any
tax or other governmental charge that may be imposed in connection with any
such registration of transfer or exchange.

Each Noteholder or Note Owner, by acceptance of a Note
or, in the case of a Note Owner, a beneficial interest in a Note covenants and
agrees that no recourse may be taken, directly or indirectly, with respect to
the obligations of the Issuer, the Owner Trustee, the Administrator or the
Indenture Trustee on the Notes or under the Indenture or any certificate or
other writing delivered in connection therewith, against (i) the Seller,
the Servicer, the Indenture Trustee, the Administrator or the Owner Trustee in
its individual capacity, (ii) any owner of a beneficial interest in the
Issuer or (iii) any partner, owner, beneficiary, agent, officer, director
or employee of the Seller, the Servicer, the Indenture Trustee, the
Administrator or the Owner Trustee in its individual capacity, any holder of a
beneficial interest in the Issuer, the Seller, the Servicer, the Owner Trustee,
the Administrator or the Indenture Trustee or of any successor or assign of the
Seller, the Servicer, the Indenture Trustee, the Administrator or the Owner
Trustee in its individual capacity, except as any such Person may have expressly
agreed (it being understood that the Indenture Trustee and the Owner Trustee
have no such obligations in their individual capacity) and except that any such
partner, owner or beneficiary shall be fully liable, to the extent provided by
applicable law, for any unpaid consideration for stock, unpaid capital
contribution or failure to pay any installment or call owing to such entity.

Prior to the due presentment for registration of
transfer of this Note, the Issuer, the Indenture Trustee and the Administrator
and any agent of the Issuer, the Indenture Trustee or the 

 B-14
 

 

Administrator may treat the Person in whose name this
Note (as of the day of determination or as of such other date as may be
specified in the Indenture) is registered as the owner hereof for all purposes,
whether or not this Note be overdue, and none of the Issuer, the Indenture
Trustee, the Administrator 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 Issuer and the rights of the Holders of the Notes under the
Indenture at any time by the Issuer with the consent of the Noteholders
representing a majority of the Outstanding Amount of all Notes at the time
Outstanding.

The term “Issuer” as used in this Note includes any
successor to the Issuer under the Indenture.

The Issuer is permitted by the Indenture, under
certain circumstances, to merge or consolidate, subject to the rights of the
Indenture Trustee and the Noteholders under the Indenture.

The Notes are issuable only in registered form in
denominations as provided in the Indenture, subject to certain limitations
therein set forth.

This Note and the Indenture shall be construed in
accordance with the laws of the State of New York, without reference to its
conflict of law provisions, and the obligations, rights and remedies of the
parties hereunder and thereunder shall be determined in accordance with such
laws.

No reference herein to the Indenture and no provision
of this Note or of the Indenture shall alter or impair the obligation of the
Issuer, which is absolute and unconditional, to pay the principal of and
interest on this Note at the times, place, and rate, and in the coin or
currency herein prescribed.

Anything herein to the contrary notwithstanding,
except as expressly provided in the Indenture or the Basic Documents, neither
U.S. Bank Trust National Association in its individual capacity, any owner of a
beneficial interest in the Issuer, nor any of their respective partners,
beneficiaries, agents, officers, directors, employees or successors or assigns
shall be personally liable for, nor shall recourse be had to any of them for,
the payment of principal of or interest on, or performance of, or omission to
perform, any of the covenants, obligations or indemnifications contained in
this Note or the Indenture, it being expressly understood that said covenants,
obligations and indemnifications have been made by the Owner Trustee for the
sole purposes of binding the interests of the Owner Trustee in the assets of
the Issuer. The Holder of this Note by the acceptance hereof agrees that except
as expressly provided in the Indenture or the Basic Documents, in the case of
an Event of Default under the Indenture, the Holder shall have no claim against
any of the foregoing for any deficiency, loss or claim therefrom; provided,
however, that nothing contained herein shall be taken to prevent
recourse to, and enforcement against, the assets of the Issuer for any and all
liabilities, obligations and undertakings contained in the Indenture or in this
Note.

 B-15
 

 

ASSIGNMENT

Social Security or
taxpayer I.D. or other identifying number of assignee

FOR VALUE RECEIVED, the undersigned hereby sells, assigns
and transfers unto _______________________________________

(name and address of assignee)

the within Note and all
rights thereunder, and hereby irrevocably constitutes and appoints, attorney,
to transfer said Note on the books kept for registration thereof, with full
power of substitution in the premises.

Dated                                                                         (1)                                                                                                       
                                                                                                Signature
Guaranteed:

(1)    NOTE: The
signature to this assignment must correspond with the name of the registered
owner as it appears on the face of the within Note in every particular, without
alteration, enlargement or any change whatsoever.

 B-16

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