Document:

Exhibit 4.3

 

EXECUTION
COPY

 

 

 

MASTER SALE AND SERVICING
AGREEMENT

 

among

 

HSBC AUTOMOTIVE TRUST 2005-1,

as Issuer,

 

HSBC AUTO RECEIVABLES
CORPORATION,

as Seller,

 

HSBC FINANCE CORPORATION,

as Master Servicer

 

WELLS FARGO BANK, NATIONAL
ASSOCIATION,

as Indenture Trustee

 

and

 

HSBC BANK USA, NATIONAL
ASSOCIATION,

as Administrator

 

Dated as of June 22, 2005

 

 

 

TABLE OF CONTENTS

 

	
   

  	
  ARTICLE I

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Definitions

  	
   

  
	
   

  	
   

  	
   

  
	
  SECTION 1.1.

  	
  Definitions

  	
   

  
	
  SECTION 1.2.

  	
  Other Interpretive Provisions

  	
   

  
	
  SECTION 1.3.

  	
  Usage of Terms

  	
   

  
	
  SECTION 1.4.

  	
  Certain References

  	
   

  
	
  SECTION 1.5.

  	
  No Recourse

  	
   

  
	
  SECTION 1.6.

  	
  Action by or Consent of Noteholders

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  ARTICLE II

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Conveyance of Receivables

  	
   

  
	
   

  	
   

  	
   

  
	
  SECTION 2.1.

  	
  Conveyance of Receivables

  	
   

  
	
  SECTION 2.2.

  	
  Further Encumbrance of Owner Trust Estate

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  ARTICLE III

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  The Receivables

  	
   

  
	
   

  	
   

  	
   

  
	
  SECTION 3.1.

  	
  Representations and Warranties of Seller

  	
   

  
	
  SECTION 3.2.

  	
  Repurchase upon Breach

  	
   

  
	
  SECTION 3.3.

  	
  Custody of Receivables Files

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  ARTICLE IV

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Administration
  and Servicing of Receivables

  	
   

  
	
   

  	
   

  	
   

  
	
  SECTION 4.1.

  	
  Duties of the Master Servicer

  	
   

  
	
  SECTION 4.2.

  	
  Collection of Receivable Payments;
  Modifications of Receivables

  	
   

  
	
  SECTION 4.3.

  	
  Realization Upon Receivables

  	
   

  
	
  SECTION 4.4.

  	
  Insurance

  	
   

  
	
  SECTION 4.5.

  	
  Maintenance of Security Interests in
  Vehicles

  	
   

  
	
  SECTION 4.6.

  	
  Covenants, Representations, and Warranties
  of Master Servicer

  	
   

  
	
  SECTION 4.7.

  	
  Repurchase of Receivables Upon Breach of
  Covenant

  	
   

  
	
  SECTION 4.8.

  	
  Total Servicing Fee; Payment of Certain
  Expenses by Master Servicer

  	
   

  
	
  SECTION 4.9.

  	
  Master Servicer’s Certificate

  	
   

  
	
  SECTION 4.10.

  	
  Annual Statement as to Compliance, Notice
  of Master Servicer Termination Event

  	
   

  
	
  SECTION 4.11.

  	
  Annual Independent Accountants’ Report

  	
   

  

 

 

	
  SECTION 4.12.

  	
  Access to Certain Documentation and Information Regarding Receivables

  	
   

  
	
  SECTION 4.13.

  	
  Fidelity Bond and Errors and Omissions
  Policy

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  ARTICLE V

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Trust
  Accounts; Distributions;

  	
   

  
	
   

  	
  Statements
  to Certificateholders and Noteholders

  	
   

  
	
   

  	
   

  	
   

  
	
  SECTION 5.1.

  	
  Establishment of Trust Accounts

  	
   

  
	
  SECTION 5.2.

  	
  Certain Reimbursements to the Master
  Servicer

  	
   

  
	
  SECTION 5.3.

  	
  Application of Collections

  	
   

  
	
  SECTION 5.4.

  	
  Additional Deposits

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  ARTICLE VI

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  RESERVED

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  ARTICLE VII

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  RESERVED

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  ARTICLE VIII

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  The
  Seller

  	
   

  
	
   

  	
   

  	
   

  
	
  SECTION 8.1.

  	
  Representations of Seller

  	
   

  
	
  SECTION 8.2.

  	
  Corporate Existence

  	
   

  
	
  SECTION 8.3.

  	
  Liability of Seller; Indemnities

  	
   

  
	
  SECTION 8.4.

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

  	
   

  
	
  SECTION 8.5.

  	
  Limitation on Liability of Seller and
  Others

  	
   

  
	
  SECTION 8.6.

  	
  Seller May Own Certificates or Notes

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  ARTICLE IX

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  The Master Servicer

  	
   

  
	
   

  	
   

  	
   

  
	
  SECTION 9.1.

  	
  Representations of Master Servicer

  	
   

  
	
  SECTION 9.2.

  	
  Liability of Master Servicer; Indemnities

  	
   

  
	
  SECTION 9.3.

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

  	
   

  
	
  SECTION 9.4.

  	
  Limitation on Liability of Master Servicer and Others

  	
   

  
	
  SECTION 9.5.

  	
  Delegation of Duties

  	
   

  
	
  SECTION 9.6.

  	
  Master Servicer Not to Resign

  	
   

  
	
  SECTION 9.7.

  	
  Subservicing Agreements Between Master
  Servicer and Subservicers

  	
   

  
	
  SECTION 9.8.

  	
  Successor Subservicers

  	
   

  

 

ii

 

	
   

  	
  ARTICLE X

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Default

  	
   

  
	
   

  	
   

  	
   

  
	
  SECTION 10.1.

  	
  Master Servicer Termination Event

  	
   

  
	
  SECTION 10.2.

  	
  Consequences of a Master Servicer
  Termination Event

  	
   

  
	
  SECTION 10.3.

  	
  Appointment of Successor

  	
   

  
	
  SECTION 10.4.

  	
  Notification to Noteholders and
  Certificateholders

  	
   

  
	
  SECTION 10.5.

  	
  Waiver of Past Defaults

  	
   

  
	
  SECTION 10.6.

  	
  Successor to Master Servicer

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  ARTICLE XI

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Termination

  	
   

  
	
   

  	
   

  	
   

  
	
  SECTION 11.1.

  	
  Optional Purchase of All Receivables

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  ARTICLE XII

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Administrative
  Duties of the Master Servicer

  	
   

  
	
   

  	
   

  	
   

  
	
  SECTION 12.1.

  	
  Administrative Duties.

  	
   

  
	
  SECTION 12.2.

  	
  Records

  	
   

  
	
  SECTION 12.3.

  	
  Additional Information to be Furnished to
  the Issuer

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  ARTICLE XIII

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Miscellaneous Provisions

  	
   

  
	
   

  	
   

  	
   

  
	
  SECTION 13.1.

  	
  Amendments

  	
   

  
	
  SECTION 13.2.

  	
  Protection of Title to Series Trust
  Estate

  	
   

  
	
  SECTION 13.3.

  	
  Notices

  	
   

  
	
  SECTION 13.4.

  	
  Assignment

  	
   

  
	
  SECTION 13.5.

  	
  Limitations on Rights of Others

  	
   

  
	
  SECTION 13.6.

  	
  Severability

  	
   

  
	
  SECTION 13.7.

  	
  Separate Counterparts

  	
   

  
	
  SECTION 13.8.

  	
  Headings

  	
   

  
	
  SECTION 13.9.

  	
  Governing Law

  	
   

  
	
  SECTION 13.10.

  	
  Assignment to Indenture Trustee

  	
   

  
	
  SECTION 13.11.

  	
  Nonpetition Covenants

  	
   

  
	
  SECTION 13.12.

  	
  Limitation of Liability of the Owner
  Trustee and the Indenture Trustee

  	
   

  
	
  SECTION 13.13.

  	
  Limitation of Liability of Issuer

  	
   

  
	
  SECTION 13.14.

  	
  Independence of the Master Servicer.

  	
   

  
	
  SECTION 13.15.

  	
  No Joint Venture

  	
   

  

 

iii

 

	
   

  	
  EXHIBITS

  	
   

  
	
   

  	
   

  	
   

  
	
  Exhibit A

  	
  -

  	
  Form of Transfer Agreement

  	
   

  
				

 

iv

 

MASTER SALE AND SERVICING
AGREEMENT dated as of June 22, 2005, among HSBC AUTOMOTIVE TRUST 2005-1,
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 “Master Servicer”), WELLS FARGO BANK, NATIONAL
ASSOCIATION, a national banking association, 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 Master
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:

 

“Accountants’ Report”
means the report of a firm of nationally recognized independent accountants
described in Section 4.11.

 

“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.

 

“Administrative Agent”
means the Person, if any, specified in the Note Purchase Agreement.

 

“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.

 

“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
Master 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, service and warranty contracts, 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.

 

2

 

“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.

 

“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 Master Servicer on or
with respect to the Receivables during such Collection Period; provided,
however, Collections shall not include taxes, assessments 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.

 

“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.

 

“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.

 

3

 

“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 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;

 

4

 

(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 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

 

5

 

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 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.

 

6

 

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 earlier of
the fifth calendar day (or if such day is not a Business Day, the immediately
following Business Day) or the third 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 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

 

7

 

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

 

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

 

8

 

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 Master
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
Master 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 Master 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.

 

“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.

 

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

 

9

 

“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 Master 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 2005-1, 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 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.

 

10

 

“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 Master Servicer through the sale of the Financed Vehicle, (ii) 90
days have elapsed since the Master Servicer repossessed the Financed Vehicle, (iii) proceeds
have been received in respect of such Receivable which, in the Master 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 Master Servicer be such shorter number of days as may
from time to time be consistent with the Master 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.

 

“Managing Agent” means,
with respect to any Purchaser Group, the Person specified as the Managing Agent
for such Purchaser Group from time to time pursuant to the Note Purchase
Agreement (including, without limitation, Schedule I thereto) or any
Joinder Agreement thereto or any Assignment and Acceptance Agreement thereto.

 

“Majority Purchaser” has
the meaning assigned to such term in the Note Purchase Agreement.

 

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

 

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

 

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

 

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

 

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

 

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

 

“Monthly Records” means
all records and data maintained by the Master 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

 

11

 

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 Master Servicer in
connection with the collection of such Receivable and the repossession 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 Master 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.

 

“Note Purchase Agreement”
has the meaning, if any, assigned to such term in the Series Supplement.

 

“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 Master
Servicer, as appropriate.

 

“Opinion of Counsel”
means an opinion of counsel who may be counsel to the Master Servicer or the
Seller, acceptable to the Indenture Trustee 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.

 

12

 

“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 Master 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.

 

“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.

 

“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

 

13

 

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 Master Servicer pursuant to Section 4.7
or repurchased by the Seller pursuant to Section 3.2 or the Master
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.

 

“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 amount set
forth in such Receivable as required to be paid by the Obligor in such
Collection Period.  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 (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 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 2005-1
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 Master Servicer,
the Issuer, the Seller, the Indenture Trustee, the Owner Trustee 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,

 

14

 

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.

 

“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.

 

“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.

 

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

 

“Successor Master
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.

 

15

 

“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 Master 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.

 

“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 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
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.

 

16

 

(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.

 

(h)                                 In
the event that with respect to the Series, the Indenture and Series Supplement
do not provide for an Administrative Agent or any Managing Agent, any
references herein or in any other Basic Document to an Administrative Agent
shall be deemed to be deleted.

 

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

 

17

 

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 Master 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 Master 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, 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 Master Servicer, HAFI or any Affiliate of HAFI that is a seller

 

18

 

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 Master 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;

 

(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 

 

19

 

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 Master 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 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;

 

20

 

(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 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

 

21

 

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).

 

(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

 

22

 

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 Master 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 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

 

23

 

the Indenture Trustee and the Master 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 Master Servicer shall act, until such time as the Master
Servicer resigns as Master Servicer or is replaced as Master 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:

 

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

 

24

 

(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)                               The original certificate
of title (when received) 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, if such original certificate of title 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 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.

 

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

 

Notwithstanding the foregoing, the Master Servicer may appoint a
subcustodian, which subcustodian may hold physical possession of some or all of
the Receivable Files.  The Indenture
Trustee shall have no liability for the acts or omissions of any such custodian
or subcustodian.

 

ARTICLE IV

 

Administration and Servicing of Receivables

 

SECTION 4.1.                       Duties
of the Master Servicer. 
The Master 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

 

25

 

Master Servicer under this Agreement, the Indenture and the Series Supplement.  The Master 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 Master 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 Master Servicer, it shall comply with the standard
and customary procedures for servicing all of its comparable motor vehicle
receivables.  The Master 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 Master 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 Master 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 Master
Servicer or any Subservicer may delegate their duties in accordance with Section 9.5
hereof.  Without limiting the generality
of the foregoing, the Master 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
Master 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
Master Servicer 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 Master Servicer solely for purposes of commencing or
participating in any such proceeding as a party or claimant, and the Master
Servicer is authorized and empowered by the Trust to execute and deliver in the
Master 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 Master Servicer with any powers of attorney
and other documents which the Master Servicer may reasonably request and which
the Master Servicer deems necessary or appropriate and take any other steps
which

 

26

 

the Master Servicer may deem reasonably necessary or appropriate to
enable the Master 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 Master 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 Master Servicer, maximize the amount to be received by the Trust with
respect thereto.  Consistent with the
foregoing, the Master 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 Master 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
Master 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 Scheduled Payments on 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 Master Servicer may elect, at any time and from time to time in
accordance with its customary procedures, to defer a Scheduled Payment on a
Receivable 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 Master 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
Master Servicer may grant payment extensions on, or other modifications or
amendments to, a Receivable in accordance with its customary procedures if the
Master Servicer believes in good faith that such extension, modification or
amendment is necessary to avoid a default on such Receivable, will maximize the
amount to be received with respect to such Receivable, and is otherwise in the
best interests of the Trust; provided, however, that if the Master 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 Master Servicer will (or
will cause HAFI as subservicer to) promptly purchase such Receivable by
depositing the related Repurchase Amount into the Collection Account.

 

27

 

(d)                                 Except
as otherwise provided below in Section 4.2(e) hereof, the Master
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 Master 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
Master Servicer Credit Facility is maintained in effect by the Master 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 Master
Servicer Credit Facility will not adversely affect the then current rating of
the Notes) issued by a Master 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 Master 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 Master 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 Master 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 Master Servicer is required to
deposit funds in accordance with Section 4.2(d), the Master Servicer
satisfies either condition of the first sentence of this Section 4.2(e) such
that the Master Servicer is no longer required to deposit funds in accordance
with Section 4.2(d), the Master 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).

 

(f)                                    Notwithstanding
anything else in the Basic Documents to the contrary, with respect to any
Collection Period and whether the Master Servicer is required to make deposits
of Collections pursuant to Section 4.2(d) or Section 4.2(e), (i) the
Master 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

 

28

 

the Collection Account exceeds the amount required to
be deposited pursuant to clause (i) above, the Master 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 Master 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 Master Servicer Credit Facility is maintained, the Master
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 Master Servicer Credit Facility Issuer in writing of the
amount of Collections that would otherwise be deposited in the Collection
Account and the Master 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 Master Servicer shall notify the Indenture Trustee,
the Administrator and the Master 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 Master Servicer upon request
of the Indenture Trustee, the Administrator or any Master Servicer Credit
Facility Issuer.

 

SECTION 4.3.                       Realization
Upon Receivables.  (a) 
Consistent with the standards, policies and procedures required by this
Agreement, the Master 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 Master 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 Master Servicer (using
procedures consistent with the standards, policies and procedures of the Master
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 Master 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 Master Servicer is authorized to follow
such customary practices and procedures as it shall deem necessary 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 Master 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 Master Servicer

 

29

 

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 Master 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 Master Servicer shall pay on behalf of
the Trust any personal property taxes assessed on repossessed Financed
Vehicles.  The Master Servicer shall be
entitled to reimbursement of any such tax from Net Liquidation Proceeds with
respect to such Receivable.

 

(b)                                 If
the Master 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 Master 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 Master 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 Master Servicer’s
written direction and expense, or the Seller, at the Seller’s expense, shall
take such steps as the Master 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 Master Servicer as provided in Section 4.2(d) or
4.2(e), as applicable.

 

SECTION 4.4.                       Insurance.  (a)  The Master 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 Master 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 Master Servicer shall be
diligent in carrying out its customary servicing procedures to enforce the
rights of the holder of the Receivable under 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
Master 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 Master Servicer elects to commence a
legal proceeding to enforce an Insurance Policy, the act of

 

30

 

commencement shall be deemed to be an automatic
assignment of the rights of the Trust under such Insurance Policy to the Master
Servicer for purposes of collection only. 
If, however, in any enforcement suit
or legal proceeding it is held that the Master 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
Master Servicer’s written direction and expense, or the Seller, at the Seller’s
expense, shall take such steps as the Master 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 Master Servicer 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 Master Servicer, and the Master
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 Master Servicer.  By its execution and delivery of this
Agreement, the Master 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 Master 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;

 

31

 

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

 

(iv)                              Restrictions
on Liens.  The Master 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
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 Master 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 Master 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 Master
Servicer shall notify in writing the Indenture Trustee of any relocation of the
Master Servicer’s principal office set forth in Section 13.3 hereof and
all Receivables Files shall be maintained by the Master Servicer in the United
States.

 

SECTION 4.7.                       Repurchase
of Receivables Upon Breach of Covenant.  Upon discovery by any of the Master 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 Master 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)

 

32

 

or the related Financed Vehicle (or, if such second Accounting Date is
more than 45 days after discovery or receipt by the Master Servicer of notice
of such breach, then the first Accounting Date so following), the Master
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 Master 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 Master 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 Master Servicer for such breach.

 

SECTION 4.8.                       Total Servicing Fee;
Payment of Certain Expenses by Master Servicer.  So as long as:  (i) HSBC Finance Corporation is the
Master Servicer, (ii) the Master Servicer is permitted to make deposits of
Collections in accordance with Section 4.2(e) hereof and (iii) the
Master 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
Master 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 Master Servicer), the
Master 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 Master Servicer for such
Collection Period.  The Master Servicer
shall be required to pay all expenses incurred by it in connection with its
activities under this Agreement (including taxes imposed on the Master
Servicer, expenses incurred in connection with distributions and reports made
by the Master 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 Master 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.                       Master
Servicer’s Certificate. 
No later than 10:00 a.m. Central time on each Determination Date,
the Master Servicer shall deliver, and cause to be delivered via access to its
or its Affiliate’s web-site address, to the Rating Agencies, the Indenture
Trustee, the Administrator and the Owner Trustee, a Master Servicer’s
Certificate executed by a responsible officer or agent of the Master 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 Master Servicer’s Certificate shall also contain
the information required by the Series Supplement.

 

SECTION 4.10.                 Annual
Statement as to Compliance, Notice of Master Servicer Termination
Event.  (a)  The Master Servicer
shall deliver or cause to be

 

33

 

delivered to the Indenture Trustee, the Administrator and the Owner
Trustee on or before April 30 (or 120 days after the end of the Master
Servicer’s fiscal year, if other than December 31) of each year, beginning
on April 30 in calendar year 2006, an Officer’s Certificate signed by any
responsible officer of the Master Servicer, or such Eligible Subservicer who is
performing the servicing duties of the Master Servicer, dated as of December 31
(or other applicable date) of the immediately preceding year, stating that (i) a
review of the activities of the Master Servicer, or such Eligible Subservicer
who is performing the servicing duties of the Master Servicer, 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 Master Servicer, or such Eligible
Subservicer who is performing the servicing duties of the Master Servicer, has
in all material respects fulfilled all its obligations under this Agreement
throughout such period, or, if there has been a default in the fulfillment of
any such obligation, specifying each such default known to such officer and the
nature and status thereof.

 

(b)                                 The
Master Servicer, or such Eligible Subservicer who is performing the servicing
duties of the Master Servicer, shall deliver to the Indenture Trustee, the
Administrator and the Owner Trustee, and, in the event that such notice is
delivered by the Subservicer, to the Master Servicer, promptly after having
obtained knowledge thereof, but in no event later than two (2) Business
Days thereafter, written notice in an Officer’s Certificate of any event which
with the giving of notice or lapse of time, or both, would become a Master
Servicer Termination Event under Section 10.1(a).  The Seller or the Master Servicer shall
deliver to the Indenture Trustee, the Administrator, the Owner Trustee, the
Master Servicer or the Seller (as applicable) promptly after having obtained
knowledge thereof, but in no event later than two (2) Business Days
thereafter, written notice in an Officer’s Certificate of any event which with
the giving of notice or lapse of time, or both, would become a Master Servicer
Termination Event under any other clause of Section 10.1.

 

SECTION 4.11.                 Annual
Independent Accountants’ Report.  (a)  The Master Servicer shall cause a
firm of nationally recognized independent certified public accountants (the “Independent
Accountants”), who may also render other services to the Master Servicer or to
the Seller, to deliver to the Indenture Trustee, the Administrator and the
Owner Trustee on or before April 30 (or 120 days after the end of the
Master Servicer’s fiscal year, if other than December 31) of each year,
beginning on April 30 in calendar year 2006 with respect to the twelve
months (or shorter applicable period) ended the immediately preceding December 31
(or other applicable date), a report showing that, for the prior calendar year
the accounting firm has performed procedures in order to provide a report on
management’s assertion that the servicing of receivables has been conducted in
compliance with the terms and conditions set forth in Articles IV and V of this
Agreement and applicable provisions of the Series Supplement related to
the servicing of receivables and the reporting thereof and that assertion is
fairly presented.

 

(b)                                 On
or before April 30 of each calendar year, beginning with April 30 in
calendar year 2006, the Master Servicer shall cause a firm of nationally recognized
independent public accountants (who may also render other services to the 

 

34

 

Master Servicer or the Seller) to furnish an
agreed-upon procedures report to the Indenture Trustee, the Administrator and
the Master Servicer to the effect that they have applied certain agreed-upon
procedures comparing the mathematical calculations of each amount set forth in
the Master Servicer’s Certificates delivered pursuant to Section 4.9
during the period covered by such report with the Master Servicer’s computer
reports which were the source of such amounts and that on the basis of such
comparison, such accountants are of the opinion that such amounts are in
agreement, except for such exceptions as they believe to be immaterial and such
other exceptions as shall be set forth in such statement.

 

(c)                                  In
the event such Independent Accountants require the Indenture Trustee and/or the
Administrator to agree to the procedures to be performed by such firm in any of
the reports required to be prepared pursuant to this Section 4.11, the
Master Servicer shall direct the Indenture Trustee and/or the Administrator in
writing to so agree; it being understood and agreed that the Indenture Trustee
and/or the Administrator will deliver such letter of agreement in conclusive
reliance upon the direction of the Master Servicer, and the Indenture Trustee
and/or the Administrator has not made any independent investigation as to, and
shall have no obligation or liability in respect of, the sufficiency, validity
or correctness of such procedures.

 

SECTION 4.12.                 Access
to Certain Documentation and Information Regarding Receivables.  The Master 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 Master Servicer to observe any applicable law
prohibiting disclosure of information regarding the Obligors, and the failure
of the Master Servicer to provide access as provided in this Section as a
result of such obligation shall not constitute a breach of this Section.

 

SECTION 4.13.                 Fidelity Bond and Errors
and Omissions Policy.  The Master
Servicer or such Eligible Subservicer that is performing the servicing duties
of the Master 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) 
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.

 

35

 

(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 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 Master 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.  All Eligible Investments will be
held to maturity.

 

(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 Master 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

 

36

 

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 Master 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 Master 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 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 Master 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 Master Servicer agrees that, in the event that any of the Trust
Accounts are not accounts with the Administrator, the Master Servicer shall
notify the Administrator in writing promptly upon any of such Trust Accounts
ceasing to be an Eligible Account. The Master 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 Master Servicer.  The Master 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 Master 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 Master
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.

 

37

 

SECTION 5.3.                       Application
of Collections.  All Collections for
the Collection Period shall be applied by the Master 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.

 

(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
Master Servicer agrees for the benefit of the Indenture Trustee that any
amounts payable by the Master Servicer to the Seller under the Master
Receivables Purchase Agreement to which the Master 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 Master 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

 

38

 

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 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,

 

39

 

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 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

 

40

 

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;

 

(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.

 

41

 

(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
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

 

42

 

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.

 

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

 

43

 

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 Master Servicer

 

SECTION 9.1.                       Representations of
Master Servicer.  The Master 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 the Issuer and the
pledge of the Series Trust Estate to the Indenture Trustee pursuant to the
Indenture.

 

(i)                                     Organization
and Good Standing.  The Master
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 Master 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 Master Servicer under this
Agreement and the other Related Documents to which it is a party.

 

(iii)                               Power and Authority.  The Master 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 Master
Servicer is a party have been duly authorized by the Master Servicer by all
necessary corporate action.

 

44

 

(iv)                              Binding
Obligation.  This Agreement and the
Related Documents to which the Master Servicer is a party shall constitute
legal, valid and binding obligations of the Master 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 Master Servicer is a party, and the fulfillment of the terms of this
Agreement and the Related Documents to which the Master Servicer is a party,
shall not (A) conflict with, result in any 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 Master Servicer,
or any indenture, agreement, mortgage, deed of trust or other instrument to
which the Master 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 Master Servicer of any court or of any federal or state regulatory
body, administrative agency or other governmental instrumentality having
jurisdiction over the Master 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 Master Servicer’s
ability to perform its obligations under this Agreement.

 

(vi)                              No
Proceedings.  There are no
proceedings or investigations pending or, to the Master Servicer’s knowledge,
threatened against the Master Servicer, before any court, regulatory body,
administrative agency or other tribunal or governmental instrumentality having
jurisdiction over the Master 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 Master Servicer of its obligations
under, or the validity or enforceability of, this Agreement or any of the
Related Documents or (D) seeking to

 

45

 

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 Master 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 Master 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.

 

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

 

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

 

(b)                                 The
Master 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
Master Servicer (when the Master 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 Master
Servicer hereby agrees to indemnify the Administrator as set forth in Section 6.17(b) of
the Indenture.

 

46

 

(d)                                 The
Master Servicer (when the Master 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
Master 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 Trust, the Administrator, the Indenture Trustee or the Owner
Trustee, by reason of the breach of this Agreement by the Master Servicer, the
negligence, misfeasance, or bad faith of the Master 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
Master Servicer (when the Master 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 Master
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 Master
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 Master Servicer, without
interest.  Notwithstanding any other
provision of this Agreement, the obligations of the Master Servicer shall not
terminate or be deemed released upon the resignation or termination of HSBC
Finance Corporation as the Master Servicer and shall survive any termination of
this Agreement.

 

SECTION 9.3.                       Merger or Consolidation
of, or Assumption of the Obligations of the Master Servicer.  Any Person (i) into which the Master
Servicer may

 

47

 

be merged or consolidated,
(ii) resulting from any merger or consolidation to which the Master
Servicer shall be a party, (iii) which acquires by conveyance, transfer,
or lease substantially all of the assets of the Master Servicer, or (iv) succeeding
to the business of the Master Servicer, in any of the foregoing cases shall
execute an agreement of assumption to perform every obligation of the Master
Servicer under this Agreement and each Related Document and, whether or not
such assumption agreement is executed, shall be the successor to the Master
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 Master
Servicer shall not merge or consolidate with any other Person or permit any
other Person to become a successor to the Master Servicer’s business, unless
the Master 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.

 

SECTION 9.4.                       Limitation on
Liability of Master Servicer and Others. 
(a)  None of the Master 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 Master 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 Master 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 Master
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
Master 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 Master Servicer pursuant to Sections 10.2 and 10.3 hereof,
and notwithstanding any other provision to the contrary

 

48

 

herein, the Indenture Trustee and the Administrator shall
not be liable for any obligation of the Master Servicer contained in this
Agreement or any Related Document, and the Owner Trustee, the Seller and the
Noteholders shall look only to the Master 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 Master 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 Master 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 the Master Servicer or such Subservicer
in compliance with Section 4.1. 
Such delegation shall not relieve the Master 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.                       Master Servicer Not to Resign.  Subject to the provisions of Section 9.3,
the Master 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 Master Servicer has proposed a successor servicer to the
Indenture Trustee in writing and such proposed successor servicer is reasonably
acceptable to the Indenture Trustee and the Administrative Agent, where one
exists, or otherwise, the Managing Agents; (b) such proposed successor
servicer has agreed in writing to assume the obligations of Master Servicer
hereunder and under each Basic Document to which it is a party and (c) the
Master Servicer has delivered to the Indenture Trustee an Opinion of Counsel to
the effect that all conditions precedent to the resignation of the Master
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 Master Servicer shall become effective until the Indenture
Trustee shall have assumed the Master 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 Master 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 

 

49

 

the Master 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
Master Servicer and Subservicers. The Master Servicer initially appoints HAFI
to subservice the Receivables.  From time
to time after the Closing Date, the Master 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 Master Servicer pursuant to this
Agreement.  Any such subservicing
agreement shall be consistent with and not violate the provisions of this
Agreement.  The Master 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 Master 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 Master 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
Master Servicer in accordance with this Agreement and the Series Supplement,
including, but not limited to, Sections 4.9, 4.10 and 4.11 hereof, that a
statement or certificate delivered by a subservicer shall be sufficient to discharge
the Master Servicer’s obligation to deliver such certificate or statement.

 

SECTION 9.8.                       Successor Subservicers.  The Master 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.                 Master Servicer
Termination Event.  For purposes of
this Agreement, each of the following shall constitute a “Master Servicer
Termination Event”:

 

(a)                                  Any
failure by the Master 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 Master 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
Master Servicer from the Administrator or the Indenture Trustee or after
discovery of such failure by a responsible officer of the Master Servicer (but
in no event later than three Business Days after the Master Servicer is
required to make such delivery or deposit);

 

50

 

(b)                                 Failure
on the part of the Master Servicer duly to observe or perform any other
covenants or agreements of the Master 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 Master Servicer
by the Administrator or the Indenture Trustee or after discovery thereof by the
Master Servicer;

 

(c)                                  The
entry of a decree or order for relief by a court or regulatory authority having
jurisdiction in respect of the Master 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 Master Servicer or of any substantial part of its
property or ordering the winding up or liquidation of the affairs of the Master
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; or

 

(d)                                 The
commencement by the Master 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
Master Servicer to the appointment of or taking possession by a receiver,
liquidator, assignee, trustee, custodian, sequestrator or other similar
official of the Master Servicer or of any substantial part of its property or
the making by the Master Servicer of an assignment for the benefit of creditors
or the failure by the Master Servicer generally to pay its debts as such debts
become due or the taking of corporate action by the Master Servicer in
furtherance of any of the foregoing; or

 

(e)                                  Any
representation, warranty or certification of the Master 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 Master Servicer by the Indenture Trustee or after discovery thereof by
the Master 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 Master Servicer Termination Event if such
delay or failure could not be prevented by the exercise of reasonable diligence
by the Master 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,

 

51

 

lightning, fire,
hurricanes, earthquakes, floods or similar causes.  The preceding sentence shall not relieve the
Master Servicer from using its best efforts to perform its obligations in a
timely manner in accordance with the terms of this Agreement, and the Master
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 Master
Servicer Termination Event.  If a
Master 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 Master Servicer may and shall, at the written
direction of the Controlling Party, terminate all of the rights and obligations
of the Master 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 Master Servicer
of such written notice, all authority, power, obligations and responsibilities
of the Master 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 Master Servicer appointed by the Controlling Party pursuant to Section 10.3);
provided, however,
that the Successor Master Servicer shall have (i) no liability with
respect to any obligation which was required to be performed by the terminated
Master Servicer prior to the date that the Successor Master Servicer becomes
the Master Servicer or any claim of a third party based on any alleged action
or inaction of the terminated Master Servicer, (ii) no obligation to
perform any repurchase or advancing obligations, if any, of the terminated
Master Servicer, (iii) no obligation to pay any of the fees and expenses
of any other party involved in this transaction not expressly assumed by the
Master Servicer and (iv) no liability or obligation with respect to any
Master Servicer indemnification obligations of any prior master servicer
including the original master servicer.

 

Notwithstanding anything
contained in this Agreement to the contrary, the Indenture Trustee as Successor
Master Servicer and any other Successor Master Servicer, are authorized to
accept and rely on all of the accounting, records (including computer records)
and work of the prior Master 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 Master
Servicer shall have no duty, responsibility, obligation or liability for the
acts and omissions of the prior Master 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 Master Servicer making or continuing any
Errors (collectively, “Continued Errors”), the Indenture Trustee or other Successor
Master 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 Master
Servicer agrees to use its best efforts to prevent further Continued
Errors.  In the event that the Indenture
Trustee or other Successor Master Servicer becomes aware of Errors or Continued
Errors, such Indenture Trustee or other

 

52

 

Successor Master 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 Master
Servicer is authorized and empowered by this Agreement to execute and deliver,
on behalf of the terminated Master 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 Master Servicer agrees to cooperate with the Successor
Master Servicer in effecting the termination of the responsibilities and rights
of the terminated Master Servicer, including in its capacity as custodian,
under this Agreement, including, without limitation, the transfer to the Successor
Master Servicer for administration by it of all cash amounts that shall at the
time be held by the terminated Master Servicer for deposit, or have been
deposited by the terminated Master Servicer, in a Trust Account and the
delivery to the Successor Master Servicer of all Receivable Files being held by
the terminated Master 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
Master Servicer to service the Owner Trust Estate.  If requested by the Controlling Party, the Successor
Master Servicer shall direct the Obligors to make all payments under the
Receivables directly to the Successor Master Servicer (in which event the Successor
Master Servicer shall process such payments in accordance with Section 4.2(d) or
4.2(e), as applicable).  The terminated
Master Servicer shall grant the Indenture Trustee and the Successor Master
Servicer reasonable access to the terminated Master Servicer’s premises at the
terminated Master Servicer’s expense.

 

SECTION 10.3.                 Appointment of Successor.  (a)  On and after the time the Master
Servicer receives a notice of termination pursuant to Section 10.2 or upon
the resignation of the Master Servicer pursuant to Section 9.6, the Master
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 Master 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 Master Servicer”),
and such Successor Master Servicer shall accept its appointment by a written
assumption in a form reasonably acceptable to the Indenture Trustee.  In the event that a Successor Master Servicer
has not been appointed or has not accepted its appointment at the time when the
Master Servicer ceases to act as Master Servicer, the Indenture Trustee without
further action shall automatically be appointed the Successor Master 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 Master Servicer hereunder.  The Indenture Trustee or the Successor Master
Servicer, as the case may be, 

 

53

 

shall be the successor in
all respects to the Master 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 Master
Servicer by the terms and provisions of this Agreement, except as otherwise
stated herein.  The Indenture Trustee or the Successor Master 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 Master Servicer shall be subject to termination under Section 10.2
upon the occurrence of any Master Servicer Termination Event applicable to it
as Master 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 Master Servicer upon the termination of the
Master Servicer pursuant to Section 10.2 or the resignation of the Master
Servicer pursuant to Section 9.6.

 

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

 

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 Master 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 Master
Servicer.  (a)  The Indenture Trustee,
in its capacity as successor to the Master 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.

 

54

 

(b)                                 In
the absence of bad faith or negligence on its part, 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 it 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 Master 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 Master
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 Master Servicer shall instruct 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.

 

(c)                                  Notice
of any termination of the Trust shall be given by the Master Servicer to the Owner
Trustee, the Indenture Trustee and the Administrator as soon as practicable
after the Master 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 Master Servicer

 

SECTION 12.1.                 Administrative Duties.

 

(a)                                  Duties
with Respect to the Indenture.  The
Master Servicer shall perform all its duties and the duties of the Issuer under
the Indenture.  In addition, the Master
Servicer shall consult with the Owner Trustee as the Master Servicer deems

 

55

 

appropriate regarding the duties of the Issuer under
the Indenture.  The Master 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 Master 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 Master 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 Master Servicer set forth in this Agreement or
any of the Related Documents, the Master 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 Master Servicer shall administer, perform or
supervise the performance of such other 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 Master Servicer.

 

(ii)                                  Notwithstanding
anything in this Agreement or any of the Basic Documents to the contrary, the
Master 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 Master Servicer
shall be

 

56

 

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 Master
Servicer, the Depositor shall retain responsibility under Section 5.1(b) of
the Trust Agreement for the distribution of the Schedule K-1s
necessary to enable each Certificateholder to prepare its federal and state
income tax returns.

 

(iv)                              The
Master 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 Master Servicer under this Agreement or any of
the Related Documents.

 

(v)                                 The
Master 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 Master 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 the Issuer and shall be, in the Master Servicer’s opinion, no less
favorable to the Issuer in any material respect.

 

(c)                                  Tax
Matters. The Master 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 without limitation forms 1099 and 1066.  All tax returns will be signed by the Seller.

 

(d)                                 Non-Ministerial
Matters.  With respect to matters
that in the reasonable judgment of the Master Servicer are non-ministerial, the
Master Servicer shall not take any action pursuant to this Article XII
unless within a reasonable time before the taking of such action, the Master
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);

 

57

 

(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 Master 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 Master 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 Master Servicer shall be responsible
for any obligations or duties of a predecessor Master Servicer under Section 12.1.

 

SECTION 12.2.                 Records.  The Master 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.

 

SECTION 12.3.                 Additional Information
to be Furnished to the Issuer.  The
Master 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 Master 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 

 

58

 

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 Master Servicer,
the Seller, the Indenture Trustee and the Administrator, with the prior written
consent of the Administrative Agent, where one exists, or otherwise the
Managing Agents, 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 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, 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 or 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.

 

59

 

(b)                                 Neither
the Seller nor the Master 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 Master 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 Master Servicer shall at all times
maintain each office from which it shall service Receivables within the United
States of America.

 

(d)                                 The
Master 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.

 

(e)                                  The
Master 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 Master 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.

 

60

 

(g)                                 Upon
request, the Master 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 Master 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
Master 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

 

(2)                                  on
or before March 31 of each year beginning with March 31, 2006, 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, the Master 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.

 

61

 

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 Master Servicer, this Agreement may not be assigned by the
Seller or the Master Servicer, the Owner Trustee, the Administrator, the
Indenture Trustee and the Administrative Agent, where one exists, or otherwise,
the Managing Agents.  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.

 

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.

 

62

 

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 Master
Servicer, the Seller, the Administrative Agent, any Managing Agent 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, none of
the Master Servicer, any Managing Agent, the Administrative Agent or 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 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 Person have any liability for the
representations, warranties, covenants, agreements or other obligations of

 

63

 

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

 

SECTION 13.14.           Independence of the Master
Servicer.  For all purposes of this
Agreement, the Master 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 Master 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 Master 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.

 

64

 

IN WITNESS WHEREOF, the
parties hereto have caused this Master 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
  2005-1

  
	
   

  	
   

  	
   

  
	
   

  	
  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 &
  Assistant Treasurer

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  HSBC FINANCE
  CORPORATION,

  
	
   

  	
   

  	
  as Master Servicer

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By: 

  	
  /s/ Edgar D. Ancona

  
	
   

  	
   

  	
  Name: Edgar D. Ancona

  
	
   

  	
   

  	
  Title: Senior Vice
  President - Treasurer

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  WELLS FARGO BANK,
  NATIONAL 

  
	
   

  	
   

  	
  ASSOCIATION, not in its
  individual capacity

  but solely as Indenture Trustee

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By: 

  	
  /s/ Cory Branden

  
	
   

  	
   

  	
  Name: Cory Branden

  
	
   

  	
   

  	
  Title: Vice President

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  HSBC BANK USA, NATIONAL
  ASSOCIATION,

  
	
   

  	
   

  	
  as Administrator

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Susie Moy

  
	
   

  	
   

  	
  Name: Susie Moy

  
	
   

  	
   

  	
  Title: Vice President

  

 

2

 

EXHIBIT A

 

FORM OF TRANSFER AGREEMENT

 

TRANSFER No.                             
of Receivables dated as of                           
pursuant to the Master Sale and Servicing Agreement dated as of June 22,
2005 (the “Sale and Servicing Agreement”), among HSBC AUTOMOTIVE TRUST 2005-1,
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 “Master Servicer”), WELLS FARGO BANK, NATIONAL
ASSOCIATION, a national banking association 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 Master 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 Master
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 $1,535,203,825.12.

 

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 Master 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
  2005-1

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
  U.S. Bank 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 Master Servicer

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  

 

A-5

 

	
  Acknowledged and
  Accepted:

  	
   

  
	
   

  	
   

  	
   

  
	
  WELLS FARGO BANK,
  NATIONAL ASSOCIATION,

  	
   

  
	
   

  	
  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
COPY

 

 

HSBC FINANCE
CORPORATION,

as Master
Servicer,

 

HSBC AUTOMOTIVE
TRUST 2005-1,

as Issuer,

 

HSBC AUTO
RECEIVABLES CORPORATION,

as Seller,

 

WELLS FARGO BANK,
NATIONAL ASSOCIATION,

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 22,
2005

to the

 

INDENTURE

 

Dated as of June 22,
2005

 

MASTER SALE AND
SERVICING AGREEMENT

 

Dated as of June 22,
2005

 

and to the

 

AMENDED AND
RESTATED TRUST AGREEMENT

 

Dated as of June 22,
2005

 

 

 

TABLE OF
CONTENTS

 

	
  ARTICLE I
  CREATION OF THE NOTES

  	
   

  
	
   

  	
   

  	
   

  
	
  SECTION 1.01.

  	
  DESIGNATION.

  	
   

  
	
  SECTION 1.02.

  	
  PLEDGE OF
  SERIES TRUST ESTATE.

  	
   

  
	
  SECTION 1.03.

  	
  PAYMENTS
  AND COMPUTATIONS.

  	
   

  
	
  SECTION 1.04.

  	
  DENOMINATIONS.

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE II
  DEFINITIONS

  	
   

  
	
   

  	
   

  	
   

  
	
  SECTION 2.01.

  	
  DEFINITIONS.

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE III
  DISTRIBUTIONS AND STATEMENTS TO NOTEHOLDERS; SERIES SPECIFIC COVENANTS 

  	
   

  
	
   

  	
   

  	
   

  
	
  SECTION 3.01.

  	
  TRUST
  ACCOUNTS.

  	
   

  
	
  SECTION 3.02.

  	
  RESERVE
  ACCOUNT.

  	
   

  
	
  SECTION 3.03.

  	
  DISTRIBUTIONS.

  	
   

  
	
  SECTION 3.04.

  	
  STATEMENTS
  TO NOTEHOLDERS.

  	
   

  
	
  SECTION 3.05.

  	
  REPORTING
  REQUIREMENTS.

  	
   

  
	
  SECTION 3.06.

  	
  COMPLIANCE
  WITH WITHHOLDING REQUIREMENTS.

  	
   

  
	
  SECTION 3.07.

  	
  SPECIAL
  COVENANTS AND ACKNOWLEDGEMENTS.

  	
   

  
	
  SECTION 3.08.

  	
  TAX
  CHARACTERIZATION.

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE IV
  EVENTS OF DEFAULT; REMEDIES

  	
   

  
	
   

  	
   

  	
   

  
	
  SECTION 4.01.

  	
  EVENTS OF
  DEFAULT.

  	
   

  
	
  SECTION 4.02.

  	
  RIGHTS
  UPON EVENT OF DEFAULT.

  	
   

  
	
  SECTION 4.03.

  	
  REMEDIES.

  	
   

  
	
  SECTION 4.04.

  	
  PRIORITIES.

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE V
  PREPAYMENT, REDEMPTION AND SUBSTITUTION

  	
   

  
	
   

  	
   

  	
   

  
	
  SECTION 5.01.

  	
  OPTIONAL
  “CLEAN-UP” REDEMPTION.

  	
   

  
	
  SECTION 5.02.

  	
  OPTIONAL
  SUBSTITUTION.

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE VI
  MISCELLANEOUS

  	
   

  
	
   

  	
   

  	
   

  
	
  SECTION 6.01.

  	
  RATIFICATION
  OF BASIC DOCUMENTS.

  	
   

  
	
  SECTION 6.02.

  	
  COUNTERPARTS.

  	
   

  
	
  SECTION 6.03.

  	
  GOVERNING
  LAW.

  	
   

  
	
  SECTION 6.04.

  	
  AMENDMENTS
  WITHOUT CONSENT OF NOTEHOLDERS.

  	
   

  
	
  SECTION 6.05.

  	
  AMENDMENTS
  WITH CONSENT OF THE NOTEHOLDERS.

  	
   

  
	
  SECTION 6.06.

  	
  AUTHORITY
  TO REGISTER NOTES AND FILE REPORTS.

  	
   

  
	
  SECTION 6.07.

  	
  AUTHORITY
  TO PERFORM DUTIES OF THE ISSUER.

  	
   

  
	
  SECTION 6.08.

  	
  NOTICES.

  	
   

  

 

	
  Schedule I

  	
  Eligibility
  Criteria

  	
   

  
	
  Schedule II

  	
  Schedule of
  Receivables

  	
   

  
	
  Exhibit A

  	
  Form of
  Master Servicer’s Certificate

  	
   

  
	
  Exhibit B

  	
  Forms
  of Notes

  	
   

  

 

 

 

This Series Supplement, dated as of June 22,
2005, is by and among HSBC Finance Corporation, a Delaware corporation, as
Master Servicer (the “Master Servicer”), HSBC Automotive Trust 2005-1, a
Delaware statutory trust, as Issuer (the “Issuer” or the “Trust”),
HSBC Auto Receivables Corporation, a Nevada corporation, as Seller (the “Seller”),
Wells Fargo Bank, National Association, a national banking association, 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 22, 2005 among the Issuer, the Indenture Trustee and the
Administrator and pursuant to Section 3.2 of the Amended and Restated
Trust Agreement (the “Trust Agreement”)
dated as of June 22, 2005 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 2005-1, Series 2005-1 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 $333,600,000 (the “Class A-1 Notes”), Class A-2
Notes in an aggregate initial principal amount of $251,300,000 (the “Class A-2
Notes”), Class A-3 Notes in an aggregate initial principal amount of $264,800,000
(the “Class A-3 Notes”), and Class A-4 Notes in an aggregate
initial principal amount of $148,182,000 (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 2005-1, Series 2005-1 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, investment property, letter-of-credit rights, letters of credit,
money, minerals before extraction 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 or any Affiliate of HAFI
that is the seller under a Master Receivables Purchase Agreement, HSBC Finance,
the Seller, the Master 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 or any Affiliate
of HAFI that is the seller under a Master Receivables Purchase Agreement
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 or any Affiliate of HAFI that is the
seller under a Master Receivables Purchase Agreement 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 Master Servicer, the Seller, HAFI or any Affiliate of HAFI
that is the seller under a Master Receivables Purchase Agreement 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 Master 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 Master 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.

 

2

 

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 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) 55% 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 Master 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 

 

3

 

Trust Estate and all other documents and certificates
delivered therewith or pursuant thereto in connection with the Notes or the
Certificates.

 

“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 July 17,
2006.

 

4

 

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

 

“Class A-2 Scheduled Maturity Date” means September 17,
2008.

 

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

 

“Class A-3 Scheduled Maturity Date” means February 17,
2010.

 

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

 

“Class A-4 Scheduled Maturity Date” means June 18,
2012.

 

“Closing Date” means June 22, 2005.

 

“Collection Account” means the Eligible Account
created pursuant to Section 3.01, which shall be account no. 10-879111 reference
HSBC Auto 2005-1 Collection Account at the Administrator, ABA No. 021001088.

 

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

 

“Control Agreement” means the deposit account control
agreement dated as of June 22, 2005 among the Issuer, the Indenture
Trustee, HSBC Bank USA, National Association 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 Sixth
Street and Marquette Avenue, MAC N9311-161, Minneapolis, Minnesota 55479 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 June 6, 2005.

 

“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 Master 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 

 

5

 

Period, or if such day is not a Business Day, the
immediately following Business Day, commencing in July 2005.

 

“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 Master 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 Master 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 June 18,
2012.

 

6

 

“HACI” means HSBC Auto Credit Inc. (f/k/a Household
Automotive Credit Corporation), a Delaware corporation.  For the avoidance of doubt, HACI is an
Affiliate of HAFI.

 

“HAFI” means HSBC Auto Finance Inc. (f/k/a Household
Automotive Finance Corporation), a Delaware corporation.

 

“HSBC Finance” means HSBC Finance Corporation (f/k/a
Household Finance Corporation).

 

“Indenture” means the indenture dated as of June 22,
2005 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 December 18,
2001, between HAFI and the Seller, as such agreement may be amended or
supplemented from time to time, (ii) 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, (iii) the
Master Receivables Purchase Agreement dated as of June 24, 2002, between HACI
and the Seller, as such agreement may be amended or supplemented from time to
time, and (iv) 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.

 

“Master Sale and Servicing Agreement” means the Master
Sale and Servicing Agreement dated as of June 22, 2005, among the Issuer,
the Seller, the Master Servicer, the Indenture Trustee and the Administrator,
as such agreement may be amended or supplemented from time to time.

 

“Master 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 Master Servicer to the
Administrator, the Indenture Trustee and the Owner Trustee pursuant to the
Master Sale and Servicing Agreement.

 

“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:  3.45833%

Class A-2
Notes:  3.92%

Class A-3
Notes:  4.15%

Class A-4 Notes:  4.35%

 

7

 

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.

 

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

 

“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 Master 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.

 

8

 

“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. 10-879112, reference Household Auto 2005-1 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 Master Sale and Servicing Agreement.

 

“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.

 

“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, Master Sale and Servicing Agreement and the Trust Agreement.

 

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

 

9

 

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

 

“Servicing Fee” means, (i) with respect to the
initial Collection Period, the fee payable to the Master Servicer for servicing rendered
during such Collection Period, which shall be equal to $2,302,805.74, and (ii) with
respect to any other Collection Period, the fee payable to the Master 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.

 

“Servicing Fee Rate” means 2.25% per annum.

 

“Substitution
Adjustment Amount” means, as to any Receivable for which the Master 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 Master 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) $30,704,076.50 (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 June 13, 2005, between the Seller and the Owner Trustee, as amended and
restated as of June 22, 2005 and as supplemented by this Series Supplement.

 

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

 

10

 

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 2005-1, 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 2005-1, in trust for the Secured Parties.”  The Administrator shall make 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,
as applicable, 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 Master 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 Master Sale and Servicing Agreement shall apply to the investment of
funds in the Trust Accounts to the same extent as they apply to the Collection
Account.

 

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 Master 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:

 

11

 

(i)                                     to
the Master Servicer, if HSBC Finance is no longer acting as Master 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
Master 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 Master Servicer);

 

(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;

 

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

 

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

 

(viii)                        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 Master 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), 

 

12

 

(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)                                  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 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.

 

(d)                                 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 Master Servicer for any Servicing Fees then due and unpaid pursuant to Section 3.03(a)(vii),
and any remainder shall be paid to the holders of the Certificates.

 

(e)                                  In
the event that the Reserve Account is maintained with an institution other than
the Administrator, the Master 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.

 

(f)                                    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.

 

(g)                                 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 Master Servicer shall deliver, and
cause to be delivered via access to its or its Affiliate’s web-site address, to
the Indenture 

 

13

 

Trustee and the Administrator
(with a copy to the Rating Agencies) for the Administrator to forward to each
Noteholder of record, and to each Certificateholder of record, 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 principal of each Class of Notes;

 

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

 

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

 

(iv)                              the
Class A Interest Carryover Shortfall, if any, and the change in such
amount from the preceding statement;

 

(v)                                 the
positive excess, if any, of the Aggregate Note Principal Balance over the Pool
Balance after giving effect to payments allocated to principal reported under (i) above
and the change in such amount from the preceding statement;

 

(vi)                              the
amount of the Servicing Fee paid to the Master Servicer with respect to such
Collection Period; and

 

(vii)                           the Targeted Reserve Account
Balance and the amount on deposit in the Reserve Account at the end of such
Distribution Date.

 

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 the
dissemination of information in accordance with this Series Supplement.

 

SECTION 3.05.                 Reporting
Requirements.

 

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

 

14

 

(b)                                 By
January 31 of each calendar year, commencing January 31, 2006, the
Master 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.                 Tax
Characterization.

 

It is the intent of the parties hereto that, for all federal,
state, local and foreign taxes, the Notes will be evidence of
indebtedness.  To the extent permitted by
law, the parties hereto, and each owner of a beneficial interest in the Notes
by acceptance of such interest, agrees to treat the Notes for purposes of all federal,
state, local and foreign taxes as indebtedness secured by the Series Trust
Estate.

 

15

 

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 

 

16

 

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 in its discretion 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 Master Servicer, may rescind and annul such declaration and its
consequences if:

 

(i)                                     the
Issuer has paid or deposited with 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.

 

17

 

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.

 

18

 

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 on the date of distribution in the following order
of priority:

 

FIRST:           amounts due and owing and required to be
distributed to the Master Servicer, if HSBC Finance is no longer acting as
Master Servicer, the Administrator, the Owner Trustee and the Indenture
Trustee, respectively, pursuant to priorities (i) and (ii) of Section 3.03(a) and
not previously distributed, in the order of such priorities and without
preference or priority of any kind within such priorities;

 

SECOND:                                            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;

 

THIRD:       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;

 

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

 

FIFTH:          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.

 

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 Master 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 

 

19

 

Master Servicer (if other than HSBC Finance) under the
Related Documents.  The Master Servicer or
HAFI shall give the Master 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 Master 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 Master 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 Master 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 Master Servicer shall give written notice to each Rating
Agency of any such substitution.

 

(b)                                 For
any Collection Period during which the Master Servicer or HAFI substitutes one
or more Eligible Substitute Receivables, the Master Servicer shall determine
the Substitution Adjustment Amount.  The
Master 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 Master Servicer shall amend the Schedule of
Receivables to reflect the removal of any Receivable for which the Master
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 shall, upon receipt by the Indenture Trustee of an officer’s
certificate from an officer of the Master Servicer certifying that the
conditions in this Section 5.02(b) have been satisfied, take any
action requested by the Master Servicer or HAFI, as the case may be, to effect
the reconveyance of such Receivable for which the Master Servicer or HAFI, as
the case may be, has made a substitution election so removed from the Series Trust
Estate to the Master Servicer or HAFI, as the case may be.  The procedures applied by the Master 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 Master 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 

 

20

 

Indenture Trustee,
the Indenture Trustee shall execute and deliver such instrument of transfer or
assignment presented to it by the Master Servicer, in each case without
recourse, as shall be necessary to vest in the Master Servicer or HAFI, as
applicable, legal and beneficial ownership of such Receivable for which the
Master 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 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 may enter into one or more amendments hereto, in form satisfactory
to the Administrator, the Indenture Trustee and 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;

 

21

 

(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 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 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.

 

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 Master Servicer, also may, with prior written notice to the
Rating Agencies and with the consent of the Holders of not less 

 

22

 

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;

 

(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, 

 

23

 

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

 

SECTION 6.06.                 Authority to
Register Notes and File Reports.

 

The Issuer hereby authorizes the Seller 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 Master 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 Master Servicer with respect to its duties under Section 3.5
of the 

 

24

 

Indenture or the
adequacy of any financing statement, continuation statement or other instrument
or record prepared by the Master Servicer.

 

(b)                                 The
Issuer hereby appoints the Master 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 Master Servicer hereby
accepts such appointment.

 

SECTION 6.08.                 Notices.

 

All demands, notices and communications upon or to the
Seller, the Master 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 Master Servicer, if HSBC Finance
Corporation is the Master 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 Services-Asset-Backed Administration, Telecopier # (612) 667-3464
and (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.

 

25

 

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
  Master Servicer

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By: 

  	
  /s/ Edgar D. Ancona

  	
   

  
	
   

  	
   

  	
  Name:
  

  	
  Edgar D. Ancona

  
	
   

  	
   

  	
  Title:

  	
  Senior Vice President -
  Treasurer

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  HSBC
  AUTOMOTIVE TRUST 2005-1,

  
	
   

  	
    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: 

  	
  Steven H. Smith

  	
   

  
	
   

  	
   

  	
  Name:
  

  	
  /s/
  Steven H. Smith

  
	
   

  	
   

  	
  Title:

  	
  Vice
  President & Assistant Treasurer

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  WELLS
  FARGO BANK, NATIONAL

  ASSOCIATION,

  
	
   

  	
    as
  Indenture Trustee

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By: 

  	
  /s/ Cory Branden

  	
   

  
	
   

  	
   

  	
  Name:
  

  	
  Cory
  Branden

  
	
   

  	
   

  	
  Title:

  	
  Vice
  President

  
						

 

 

	
   

  	
  U.S.
  BANK TRUST NATIONAL ASSOCIATION,

  
	
   

  	
    as
  Owner Trustee

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By: 

  	
  /s/ Patricia M. Child

  	
   

  
	
   

  	
   

  	
  Name:
  

  	
  Patricia
  M. Child

  
	
   

  	
   

  	
  Title:

  	
  Vice
  President

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  HSBC BANK USA, NATIONAL ASSOCIATION,

  
	
   

  	
    as
  Administrator

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By: 

  	
  /s/ Susie Moy

  	
   

  
	
   

  	
   

  	
  Name:
  

  	
   Susie Moy

  
	
   

  	
   

  	
  Title:

  	
  Vice
  President

  
					

 

[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 HAFI (or any predecessor or Affiliate of HAFI,
as applicable) 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 HAFI (or any predecessor or
Affiliate of HAFI, as applicable), 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 (or any predecessor or
Affiliate of HAFI, as applicable) from such Dealer under an existing Dealer
Agreement with HAFI (or any predecessor or Affiliate of HAFI, as applicable),
and (C) in the case of a Dealer originated receivable or a receivable
originated by HAFI (or any predecessor or Affiliate of HAFI, as applicable)
such receivable was purchased (x) by HARC pursuant to the terms of the
Master Receivables Purchase Agreements, (y) by the Issuer pursuant to the
Master Sale and Servicing Agreement; and each Receivable was validly assigned (1) if
Dealer originated, by such Dealer to HAFI (or any predecessor or Affiliate of HAFI,
as applicable), (2) by HAFI (or any predecessor or Affiliate of HAFI, as
applicable) to HARC pursuant to the terms of the Master Receivables Purchase
Agreements, (3) by HARC to the Issuer pursuant to the Master 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 

 

 

SCH-I-1

 

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;

 

(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 (or of any predecessor or Affiliate
of HAFI, as applicable) applicable thereto and that has been serviced in
material conformity with procedures applicable to receivables that are serviced
by the Master 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 24.95%, (v) was
not more than 30 days contractually delinquent, (vi) no funds have been
advanced by the Issuer, the Master Servicer, HAFI, any predecessor or Affiliate
of HAFI, 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 (or any predecessor or Affiliate of HAFI, as applicable)
will have caused the portions of HAFI’s (or any HAFI predecessor’s or HAFI
Affiliate’s, as applicable) and the Master 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 any predecessor or Affiliate
of HAFI, as applicable) to HARC in accordance with the terms of the Master
Receivables Purchase Agreements and by HARC to the Issuer pursuant to the
Master 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 (or
any predecessor or Affiliate of HAFI, as applicable) to HARC, the Master
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;

 

SCH-I-2

 

(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, (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 (or any predecessor or Affiliate of HAFI, as applicable) as first
lienholder 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 (or any predecessor or
Affiliate of HAFI, as applicable) as in effect at the time of purchase is in
the possession of the Master 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 (or any predecessor or Affiliate of HAFI, as applicable) by a
Dealer, (ii) HARC by HAFI (or any predecessor or Affiliate of HAFI, as
applicable) pursuant to the terms of the Master Receivables Purchase
Agreements, (iii) the Issuer by HARC pursuant to the terms of the Master
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 any
predecessor or Affiliate of HAFI, 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 any predecessor or Affiliate of HAFI, 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 any predecessor or Affiliate of HAFI,
as 

 

SCH-I-3

 

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 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 Master 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 any predecessor or Affiliate of HAFI, 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)                                 as
to which there has been no default, breach, violation or event permitting
acceleration under the terms of such Receivable (other than payment
delinquencies permitted by clause (g)(iv) above) and no condition exists
or event has occurred and is continuing that with notice, the lapse of time or
both would constitute a default, breach, violation or event permitting
acceleration under the terms of such Receivable, and there has been no waiver
of any of the foregoing, and with respect to which the related Financed Vehicle
had not been repossessed;

 

(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 any
predecessor or Affiliate of HAFI, 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 

 

SCH-I-4

 

insurance, naming HAFI (or any predecessor or
Affiliate of HAFI, 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;

 

(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
180 days of the Closing Date and will show, HAFI (or any predecessor or
Affiliate of HAFI, as applicable) named as the original secured party under
such Receivable and, accordingly, HAFI (or any predecessor or Affiliate of HAFI,
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
(or any predecessor or Affiliate of HAFI, 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 (or any predecessor or Affiliate of
HAFI, 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 by HAFI or any predecessor or Affiliate of HAFI;

 

(dd)                          as
to which, as of the Cut-off Date, no Obligor had been identified on the records
of HAFI (or any predecessor or Affiliate of HAFI, as applicable) 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-I

 

Exhibit A

 

Form of Master
Servicer’s Certificate

 

HSBC Automotive Trust 2005-1

Class A-1 3.45833% Notes

Class A-2 3.92% Notes

Class A-3 4.15% Notes

Class A-4 4.35% Notes

 

Master Servicer’s Certificate

(Delivered pursuant to Section 4.9 of

the Master Sale and Servicing Agreement)

 

Collection
Period Beginning

Collection
Period Ending

Previous
Distribution Date

Distribution
Date

Days
in Interest Period

Days
in Collection 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.  
Accrual convention

   4.  
Days in Interest Period

   5.   Class A-1
interest due - current period

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

 

EXH-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.  
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.   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.   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

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

 

EXH-A-3

 

   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.  CERTIFICATE
CALCULATION

Beginning
Certificate Balance

Ending
Certificate Balance

Ending
Certificate Balance 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 Master 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

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

Remaining
funds

 

EXH-A-5

 

(G) Amount
released from Reserve Account

Remaining
funds for Servicing Fee

 

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

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

 

Repossessed
Vehicles

   % of Principal Receivables

Cumulative
Net Loss Percentage

The
weighted average coupon (WAC) was equal to

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

  	
   

  	
  $333,600,000

  

No. A-1

 

SEE REVERSE FOR
CERTAIN DEFINITIONS

 

CUSIP NO. 44328F AA 7

 

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 2005-1

 

CLASS A-1 3.45833% NOTE

 

HSBC Automotive Trust 2005-1, 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 THREE HUNDRED THIRTY-THREE
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 $333,600,000 and the denominator of which is $333,600,000
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 July 17, 2006 (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 22, 2005. 
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 22,
  2005

  	
  HSBC AUTOMOTIVE TRUST
  2005-1

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  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 22,
  2005

  	
  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 3.45833% Notes (herein called
the “Class A-1 Notes”), all issued under an Indenture dated as of June 22,
2005 (such indenture, as supplemented or amended, is herein called the “Indenture”),
among the Issuer, Wells Fargo Bank, National Association, 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 18,
2005.  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

  	
   

  	
  $251,300,000

  

No. A-2

 

SEE REVERSE FOR
CERTAIN DEFINITIONS

 

CUSIP NO. 44328F AB 5

 

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 2005-1

 

CLASS A-2 3.92% NOTE

 

HSBC Automotive Trust 2005-1, 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 FIFTY-ONE MILLION
THREE 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 $251,300,000 and the denominator of which is $251,300,000 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 September 17, 2008 (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 22, 2005. 
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.

 

B-9

 

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-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 22,
  2005

  	
  HSBC AUTOMOTIVE TRUST
  2005-1

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  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 22,
  2005

  	
  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 3.92% Notes (herein called the “Class A-2
Notes”), all issued under an Indenture dated as of June 22, 2005 (such
indenture, as supplemented or amended, is herein called the “Indenture”), among
the Issuer, Wells Fargo Bank, National Association, 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 18,
2005.  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 

 

B-13

 

be binding upon all future Holders of this Note and of
any Note issued upon the registration of transfer hereof or in exchange hereof
or in lieu hereof, whether or not 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, the Administrator or of any
successor or assign of the Seller, the Servicer, the Indenture Trustee 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.

 

B-14

 

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 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 

 

B-15

 

against, the assets of the Issuer for any and all
liabilities, obligations and undertakings contained in the Indenture or in this
Note.

 

B-16

 

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-17

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