Document:

Exhibit
4.3

Execution Copy

 

SALE AND SERVICING
AGREEMENT

among

HSBC AUTOMOTIVE
TRUST (USA) 2006-3,

as Issuer,

HSBC AUTO
RECEIVABLES CORPORATION,

as Seller,

HSBC FINANCE
CORPORATION,

as Servicer

THE BANK OF
NEW YORK TRUST COMPANY, N.A.,

as Indenture Trustee

and

HSBC BANK USA,
NATIONAL ASSOCIATION,

as Administrator

Dated as of November 1,
2006

 

 

TABLE OF CONTENTS

	
  

  	
   

  	
   

  	
   

  	
  Page

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE I

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Definitions

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  SECTION 1.1.

  	
   

  	
  Definitions

  	
   

  	
  5

  
	
  SECTION 1.2.

  	
   

  	
  Other Interpretive Provisions

  	
   

  	
  21

  
	
  SECTION 1.3.

  	
   

  	
  Usage of Terms

  	
   

  	
  22

  
	
  SECTION 1.4.

  	
   

  	
  Certain References

  	
   

  	
  22

  
	
  SECTION 1.5.

  	
   

  	
  No Recourse

  	
   

  	
  22

  
	
  SECTION 1.6.

  	
   

  	
  Action by or Consent of Noteholders

  	
   

  	
  22

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE II

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Conveyance of
  Receivables

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  SECTION 2.1.

  	
   

  	
  Conveyance of Receivables

  	
   

  	
  23

  
	
  SECTION 2.2.

  	
   

  	
  Further Encumbrance of Owner Trust Estate

  	
   

  	
  27

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE III

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  The Receivables

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  SECTION 3.1.

  	
   

  	
  Representations and Warranties of Seller

  	
   

  	
  28

  
	
  SECTION 3.2.

  	
   

  	
  Repurchase upon Breach

  	
   

  	
  28

  
	
  SECTION 3.3.

  	
   

  	
  Custody of Receivables Files

  	
   

  	
  29

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE IV

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Administration
  and Servicing of Receivables

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  SECTION 4.1.

  	
   

  	
  Duties of the Servicer

  	
   

  	
  30

  
	
  SECTION 4.2.

  	
   

  	
  Collection of Receivable Payments; Modifications of
  Receivables

  	
   

  	
  31

  
	
  SECTION 4.3.

  	
   

  	
  Realization Upon Receivables

  	
   

  	
  34

  
	
  SECTION 4.4.

  	
   

  	
  Insurance

  	
   

  	
  35

  
	
  SECTION 4.5.

  	
   

  	
  Maintenance of Security Interests in Vehicles

  	
   

  	
  36

  
	
  SECTION 4.6.

  	
   

  	
  Covenants, Representations, and Warranties of
  Servicer

  	
   

  	
  37

  
	
  SECTION 4.7.

  	
   

  	
  Repurchase of Receivables Upon Breach of Covenant

  	
   

  	
  38

  
	
  SECTION 4.8.

  	
   

  	
  Total Servicing Fee; Payment of Certain Expenses by
  Servicer

  	
   

  	
  38

  
	
  SECTION 4.9.

  	
   

  	
  Servicer’s Certificate

  	
   

  	
  39

  
	
  SECTION 4.10.

  	
   

  	
  Annual Statement as to Compliance, Notice of
  Servicer Termination Event

  	
   

  	
  39

  
	
  SECTION 4.11.

  	
   

  	
  Access to Certain Documentation and Information
  Regarding Receivables

  	
   

  	
  40

  

 

 

 

	
  SECTION 4.12.

  	
   

  	
  Fidelity Bond and Errors and Omissions Policy

  	
   

  	
  40

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE V

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Trust Accounts;
  Distributions;

  	
   

  	
   

  
	
  Statements to
  Certificateholders and Noteholders

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  SECTION 5.1.

  	
   

  	
  Establishment of Trust Accounts

  	
   

  	
  41

  
	
  SECTION 5.2.

  	
   

  	
  Certain Reimbursements to the Servicer

  	
   

  	
  43

  
	
  SECTION 5.3.

  	
   

  	
  Application of Collections

  	
   

  	
  43

  
	
  SECTION 5.4.

  	
   

  	
  Additional Deposits

  	
   

  	
  43

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE VI

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  RESERVED

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE VII

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  RESERVED

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE VIII

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  The Seller

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  SECTION 8.1.

  	
   

  	
  Representations of Seller

  	
   

  	
  44

  
	
  SECTION 8.2.

  	
   

  	
  Corporate Existence

  	
   

  	
  46

  
	
  SECTION 8.3.

  	
   

  	
  Liability of Seller; Indemnities

  	
   

  	
  47

  
	
  SECTION 8.4.

  	
   

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

  	
   

  	
  48

  
	
  SECTION 8.5.

  	
   

  	
  Limitation on Liability of Seller and Others

  	
   

  	
  48

  
	
  SECTION 8.6.

  	
   

  	
  Seller May Own Certificates or Notes

  	
   

  	
  49

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE IX

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  The Servicer

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  SECTION 9.1.

  	
   

  	
  Representations of Servicer

  	
   

  	
  49

  
	
  SECTION 9.2.

  	
   

  	
  Liability of Servicer; Indemnities

  	
   

  	
  51

  
	
  SECTION 9.3.

  	
   

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

  	
   

  	
  53

  
	
  SECTION 9.4.

  	
   

  	
  Limitation on Liability of Servicer and Others

  	
   

  	
  53

  
	
  SECTION 9.5.

  	
   

  	
  Delegation of Duties

  	
   

  	
  54

  
	
  SECTION 9.6.

  	
   

  	
  Servicer Not to Resign

  	
   

  	
  55

  
	
  SECTION 9.7.

  	
   

  	
  Subservicing Agreements Between Servicer and
  Subservicers

  	
   

  	
  55

  
	
  SECTION 9.8.

  	
   

  	
  Successor Subservicers

  	
   

  	
  55

  

 

 ii
 

 

 

	
  ARTICLE X

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Default

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  SECTION 10.1.

  	
   

  	
  Servicer Termination Event

  	
   

  	
  56

  
	
  SECTION 10.2.

  	
   

  	
  Consequences of a Servicer Termination Event

  	
   

  	
  57

  
	
  SECTION 10.3.

  	
   

  	
  Appointment of Successor

  	
   

  	
  59

  
	
  SECTION 10.4.

  	
   

  	
  Notification to Noteholders

  	
   

  	
  59

  
	
  SECTION 10.5.

  	
   

  	
  Waiver of Past Defaults

  	
   

  	
  60

  
	
  SECTION 10.6.

  	
   

  	
  Successor to Servicer

  	
   

  	
  60

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE XI

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Termination

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  SECTION 11.1.

  	
   

  	
  Optional Purchase of All Receivables

  	
   

  	
  60

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE XII

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Administrative
  Duties of the Servicer

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  SECTION 12.1.

  	
   

  	
  Administrative Duties

  	
   

  	
  61

  
	
  SECTION 12.2.

  	
   

  	
  Records

  	
   

  	
  63

  
	
  SECTION 12.3.

  	
   

  	
  Additional Information to be Furnished to the Issuer

  	
   

  	
  64

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE XIII

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Miscellaneous
  Provisions

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  SECTION 13.1.

  	
   

  	
  Amendments

  	
   

  	
  64

  
	
  SECTION 13.2.

  	
   

  	
  Protection of Title to Series Trust Estate

  	
   

  	
  65

  
	
  SECTION 13.3.

  	
   

  	
  Notices

  	
   

  	
  67

  
	
  SECTION 13.4.

  	
   

  	
  Assignment

  	
   

  	
  67

  
	
  SECTION 13.5.

  	
   

  	
  Limitations on Rights of Others

  	
   

  	
  67

  
	
  SECTION 13.6.

  	
   

  	
  Severability

  	
   

  	
  68

  
	
  SECTION 13.7.

  	
   

  	
  Separate Counterparts

  	
   

  	
  68

  
	
  SECTION 13.8.

  	
   

  	
  Headings

  	
   

  	
  68

  
	
  SECTION 13.9.

  	
   

  	
  Governing Law

  	
   

  	
  68

  
	
  SECTION 13.10.

  	
   

  	
  Assignment to Indenture Trustee

  	
   

  	
  68

  
	
  SECTION 13.11.

  	
   

  	
  Nonpetition Covenants

  	
   

  	
  68

  
	
  SECTION 13.12.

  	
   

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

  	
   

  	
  69

  
	
  SECTION 13.13.

  	
   

  	
  Limitation of Liability of Issuer

  	
   

  	
  69

  
	
  SECTION 13.14.

  	
   

  	
  Independence of the Servicer

  	
   

  	
  69

  
	
  SECTION 13.15.

  	
   

  	
  No Joint Venture

  	
   

  	
  69

  
	
  SECTION 13.16.

  	
   

  	
  [Reserved]

  	
   

  	
  69

  
	
  SECTION 13.17.

  	
   

  	
  Regulation AB

  	
   

  	
  70

  

 

 iii
 

 

 

	
  SECTION 13.18.

  	
   

  	
  Information to Be Provided by the Indenture Trustee
  and the Administrator

  	
   

  	
  70

  
	
  SECTION 13.19.

  	
   

  	
  Waiver of Jury Trial

  	
   

  	
  70

  

EXHIBITS

	
  EXHIBIT A

  	
   

  	
  Form of Transfer Agreement

  

 

 iv

 

SALE
AND SERVICING AGREEMENT dated as of November 1, 2006, among HSBC AUTOMOTIVE
TRUST (USA) 2006-3, a Delaware statutory trust (the “Issuer” or the “Trust”),
HSBC AUTO RECEIVABLES CORPORATION, a Nevada corporation (the “Seller”), HSBC
FINANCE CORPORATION, a Delaware corporation (the “Servicer”), THE BANK OF
NEW YORK TRUST COMPANY, N.A., 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 and loan and
security agreements originated or acquired by HSBC Auto Finance Inc. (“HAFI”)
or any of its predecessors or Affiliates, including, but not limited to, HSBC
Auto Credit Inc. (“HACI”);

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

WHEREAS
the Servicer is willing to service all such Receivables;

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

ARTICLE I

Definitions

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

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

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

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

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

 

 

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

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

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

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

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

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

“Alliance
Relationship” means a third party finance company that originated and assigned
the Receivable with respect to a Financed Vehicle, directly or indirectly, to
HAFI or HACI under an Alliance Agreement and an Alliance Assignment.

“Alliance
Agreement” means any agreement between HAFI or one if its Affiliates and an
Alliance Relationship relating to the acquisition of Receivables from such
Alliance Relationship by HAFI or one of its Affiliates.

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

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

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

 6
 

 

 

“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.

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

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

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

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

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

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

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

“Commission”
means the Securities and Exchange Commission.

“Contract”
means a motor vehicle retail installment sales contract or a loan and security
agreement, as applicable.

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

 7
 

 

 

“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.

“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

 8
 

 

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;

(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;

 9
 

 

 

(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 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,

 10
 

 

 

(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.

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

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

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

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

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

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

 11
 

 

 

“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 at least 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 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;

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(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.

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

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

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

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

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

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

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

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

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

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

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

“Indenture
Trustee Fee” means the fees and reasonable out-of-pocket expenses due to the
Indenture Trustee in its capacity as indenture trustee for the Issuer as may be
set forth in that certain fee agreement between the Servicer and the Indenture
Trustee.

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

“Insurance
Policy” means, with respect to a Receivable, any insurance policy (including
the insurance policies described in Section 4.4 hereof) benefiting the holder
of the Receivable providing loss or physical damage, credit life, credit
disability,

 14
 

 

theft, mechanical
breakdown or similar coverage with respect to the Financed Vehicle or the
Obligor.

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

“Issuer”
means HSBC Automotive Trust (USA) 2006-3, 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. 
For Financed Vehicles registered in states which only issue confirmation
of the lienholder’s interest electronically, the “Lien Certificate” may consist
of notification of an electronic recordation, by either a third party service
provider or the relevant Registrar of Titles of the applicable state, which
indicates that the lien of the secured party on the Financed Vehicle is
recorded on the original certificate of title on the electronic lien and title
system of the applicable state.

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

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

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

 15
 

 

 

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

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

“Net
Liquidation Proceeds” means, with respect to a Liquidated Receivable, all
amounts realized with respect to such Receivable (other than amounts withdrawn
or received from any Series Support) net of (i) reasonable expenses incurred by
the Servicer in connection with the collection of such Receivable and the
repossession and disposition of the Financed Vehicle and (ii) amounts that are
required to be refunded to the Obligor on such Receivable; provided, however, that the Net
Liquidation Proceeds with respect to any Receivable shall in no event be less
than zero; provided, further, that, so long as amounts are
not traced to specific Receivables the Servicer shall reasonably estimate, on
or prior to each Accounting Date, the amount of Net Liquidation Proceeds
attributable to the Series Trust Estate.

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

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

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

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

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

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

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

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

 16
 

 

 

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

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

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

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

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

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

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

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

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

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

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

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

 17
 

 

 

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

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

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

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

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

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

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

“Securities”
means the Notes and the Certificates.

“Securityholders”
means the Noteholders and the Certificateholders.

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

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

“Series
2006-3 Notes” shall have the meaning assigned to such term in the Series
Supplement.

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

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

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

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

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

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

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

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

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

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

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

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

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“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., and any Eligible Subservicer with
whom the Servicer has entered into an agreement relating to subservicing the
Receivables.

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

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

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

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

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

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

“Trust”
means the Issuer.

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

 20
 

 

 

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

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

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

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

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

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

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

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

 21
 

 

 

(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.

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

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

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

SECTION 1.6.                Action by or Consent of
Noteholders.  Whenever any provision
of this Agreement refers to action to be taken, or consented to, by
Noteholders, such provision shall be deemed to refer to the Noteholders of
record as of the Record Date immediately preceding the date on which such
action is to be taken, or consent given, by Noteholders.  Solely for the purposes of any action to be
taken, or consented to, by Noteholders, any Note registered in the name of HAFI
or any Affiliate thereof shall be deemed not to be outstanding; provided, however,
that, solely for the purpose of

 22
 

 

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 Servicer,
HAFI or any Affiliate of HAFI that is a seller under a Master Receivables
Purchase Agreement or the Seller after such Cut-off Date);

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

(iii)          all rights of HAFI
or any Affiliate of HAFI that is the seller under a Master Receivables Purchase
Agreement against the Dealers pursuant to Dealer Agreements or Dealer
Assignments or against the Alliance Relationships pursuant to Alliance
Agreements and Alliance 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 or by an Alliance Relationship pursuant
to an Alliance 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;

 23
 

 

 

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

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

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

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

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

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

(b)           The Seller shall transfer to the Issuer the Receivables
and the other property and rights related thereto described in paragraph (a)
above only upon

 24
 

 

the satisfaction of each of the following
conditions on or prior to the related Transfer Date (if the Transfer Date is
not also the Closing Date):

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

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

(iii)          the Servicer, on
behalf of the Issuer, shall have delivered to the Indenture Trustee and the
Administrator a supplemental schedule to the Series Supplement (which may be in
electronic format), listing the Receivables to be pledged to the Indenture
Trustee under the Indenture;

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

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

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

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

 25
 

 

 

(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 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

 26
 

 

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 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.

 27

 

ARTICLE III

The Receivables

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

SECTION 3.2.                Repurchase
upon Breach.  (a)  The Seller, the Servicer, any Trust Officer
of the Indenture Trustee, the Administrator or the Owner Trustee, as the case
may be, shall inform each of the other parties to this Agreement promptly, in
writing, upon the discovery of any breach of the Seller’s representations and
warranties made pursuant to Section 3.1; provided,
however, that the failure to give any such
notice shall not derogate from any obligations of the Seller under this Section
3.2.  As of the last day of the second
(or, if the Seller so elects, the first, or with respect to any exceptions
appearing on any exception report delivered by the Indenture Trustee, the
first) month following the discovery by the Seller or receipt by the Seller of
notice of such breach (or such longer period not in excess of 120 days, as may
be agreed upon by the Indenture Trustee and the Servicer), unless such breach is
cured by such date, the Seller shall have an obligation to repurchase or cause
HAFI or an Affiliate of HAFI that is the seller under a Master Receivables
Purchase Agreement or HSBC Finance Corporation, as applicable, to repurchase
any Receivable in which the interests of the Securityholders are materially and
adversely affected by any such breach. 
In consideration of and simultaneously with the repurchase of the
Receivables, the Seller shall remit, or cause HAFI or an Affiliate of HAFI that
is the seller under a Master Receivables Purchase Agreement or HSBC Finance
Corporation, as applicable, to remit, to the Collection Account the Repurchase
Amount in the manner specified in Section 5.4 and the Owner Trustee on behalf
of 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.

 28
 

 

 

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

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

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

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

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

 29
 

 

that is a seller under a Master Receivables Purchase Agreement, an
Alliance Relationship assigning its interest in the Lien Certificate or a
Dealer as secured party (in the case of a Dealer, the application shall be to
obtain title in the name of HAFI or any Affiliate of HAFI that is a seller
under a Master Receivables Purchase Agreement); and

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

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

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

ARTICLE IV

Administration and Servicing of Receivables

SECTION 4.1.                Duties of the Servicer.  The Servicer is hereby authorized to act as
agent for the Trust (and also on behalf of the Indenture Trustee and the
Noteholders) and in such capacity shall manage, service, administer and make
collections on the Receivables, and perform the other actions required by the
Servicer under this Agreement, the Indenture and the Series Supplement.  The Servicer agrees that its servicing of the
Receivables shall be carried out in accordance with customary and usual
procedures of institutions which service motor vehicle retail installment sales
contracts and/or motor vehicle installment loans and, to the extent more
exacting, the degree of skill and attention that the Servicer exercises with
respect to all comparable motor vehicle receivables that it services for itself
or others.  In performing such duties, so
long as HSBC Finance Corporation is the Servicer, it shall comply with the
standard and customary procedures for servicing all of its comparable motor
vehicle receivables.  The Servicer’s
duties shall include, without limitation, collection and posting of all payments,
responding to inquiries of Obligors on the Receivables, investigating
delinquencies, sending monthly billing statements to Obligors, reporting any
required tax information to Obligors, monitoring the collateral, accounting for
collections and furnishing monthly and annual statements to the Indenture
Trustee, the Administrator and the Noteholders with respect to distributions,
monitoring the status of Insurance Policies with respect to the Financed
Vehicles and performing the other duties specified herein.

 30
 

 

The Servicer shall also administer and
enforce all rights and responsibilities of the holder of the Receivables
provided for in the Dealer Agreements (and HSBC Finance Corporation shall make
commercially reasonable efforts to obtain possession of the Dealer Agreements,
to the extent it is necessary to do so), the Dealer Assignments, the Alliance
Agreements, the Alliance Assignments, the Master Receivables Purchase
Agreements, and the Insurance Policies, to the extent that such Dealer
Agreements, Dealer Assignments, Alliance Agreements, the Alliance Assignments,
the Master Receivables Purchase Agreements, and Insurance Policies relate to
the Receivables, the Financed Vehicles or the Obligors.  To the extent consistent with the standards,
policies and procedures otherwise required hereby, the Servicer shall follow
its customary standards, policies, and procedures and shall have full power and
authority, acting alone, to do any and all things in connection with such
managing, servicing, administration and collection that it may deem necessary
or desirable.  In performing such duties,
the Servicer or any Subservicer may delegate their duties in accordance with
Section 9.5 hereof.  Without limiting the
generality of the foregoing, the Servicer is hereby authorized and empowered by
the Trust to execute and deliver, on behalf of the Trust, any and all
instruments of satisfaction or cancellation, or of partial or full release or
discharge, and all other comparable instruments, with respect to the
Receivables and with respect to the Financed Vehicles.  The Servicer is hereby authorized to
commence, in its own name or in the name of the Trust, a legal proceeding to
enforce a Receivable pursuant to Section 4.3 or to commence or participate in
any other legal proceeding (including, without limitation, a bankruptcy
proceeding) relating to or involving a Receivable, an Obligor or a Financed
Vehicle.  If the Servicer commences or
participates in such a legal proceeding in its own name, the Trust shall
thereupon be deemed to have automatically assigned such Receivable to the
Servicer solely for purposes of commencing or participating in any such
proceeding as a party or claimant, and the Servicer is authorized and empowered
by the Trust to execute and deliver in the Servicer’s name any notices,
demands, claims, complaints, responses, affidavits or other documents or
instruments in connection with any such proceeding.  The Indenture Trustee and the Owner Trustee
shall furnish the Servicer with any powers of attorney and other documents
which the Servicer may reasonably request and which the Servicer deems
necessary or appropriate and take any other steps which the Servicer may deem
reasonably necessary or appropriate to enable the Servicer to carry out its
servicing and administrative duties under this Agreement.

SECTION 4.2.                Collection of Receivable
Payments; Modifications of Receivables. 
(a)  Consistent with the
standards, policies and procedures required by this Agreement, the Servicer
shall make reasonable efforts to collect all payments called for under the
terms and provisions of the Receivables as and when the same shall become due,
and shall follow such collection procedures as it follows with respect to all
comparable motor vehicle receivables that it services for itself or others and
otherwise act with respect to the Receivables, the Dealer Agreements, the
Dealer Assignments, the Alliance Agreements, the Alliance Assignments, the
Master Receivables Purchase Agreements, the Insurance Policies and the Other
Conveyed Property in such manner as will, in the reasonable judgment of the
Servicer, maximize the amount to be

 31
 

 

received by the Trust with respect
thereto.  Consistent with the foregoing,
the Servicer may, if it determines in its reasonable judgment that such action
would maximize the amount to be received by the Trust, arrange for the sale by
the Trust of Liquidated Receivables with respect to which the related Financed
Vehicle has been sold, and the net proceeds of such sale shall be included in
Net Liquidation Proceeds.  The Servicer
is authorized in its discretion to waive any prepayment charge, late payment
charge or any other similar fees that may be collected in the ordinary course
of servicing any Receivable.

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

(c)           The Servicer may grant payment extensions on, or other
modifications or amendments to, a Receivable in accordance with its customary
procedures if the Servicer believes in good faith that such extension,
modification or amendment is necessary to avoid a default on such Receivable,
will maximize the amount to be received with respect to such Receivable, and is
otherwise in the best interests of the Trust; provided, however,
that if the Servicer extends the date for final payment by the Obligor of any
Receivable beyond the last day of the Collection Period immediately preceding
the Final Scheduled Distribution Date of the Notes, the Servicer will (or will
cause HAFI or HACI to) promptly purchase such Receivable by depositing the
related Repurchase Amount into the Collection Account.

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

(e)           Subject to the express terms of the Series Supplement, but
notwithstanding anything else in this Agreement to the contrary, for so long as
(i) HSBC Finance Corporation remains the Servicer and maintains a commercial
paper rating of not less than A-1 by Standard & Poor’s, P-1 by Moody’s and
F1 by Fitch (or such other rating as shall be satisfactory to such Rating
Agency), in each case only if such Person is a Rating Agency, and for five
Business Days following any reduction of any such rating or (ii) a Servicer
Credit Facility is maintained in effect by the Servicer in form and substance
acceptable to the Rating Agency (such acceptability to be evidenced in writing
by the Rating Agency to the effect that failure to make the aforementioned
deposit on the basis of the maintenance of the Servicer Credit Facility will
not adversely affect the then current rating of the Notes) issued by a Servicer
Credit Facility Issuer having a rating on

 32
 

 

its (A) short-term obligations of at least
P-1 by Moody’s, A-1 by Standard & Poor’s and F1 by Fitch (or such other
rating as shall be satisfactory to such Rating Agency), in each case only if
such Person is a Rating Agency, and (B) long term obligations of at least A2 by
Moody’s, A by Standard & Poor’s, and A by Fitch, in each case only if such
Person is a Rating Agency, the Servicer shall not be required to make deposits
of Collections on or with respect to Receivables as provided in Section 4.2(d),
but may make one or more deposits of Collections (excluding any portion of such
funds which the Servicer may retain in accordance with Section 4.8 or pay
directly to the Seller in its capacity as Certificateholder in accordance with
Section 5.1(f)) with respect to the Series Trust Estate with respect to a
Collection Period into the Collection Account in immediately available funds
not later than 1:00 P.M., Central time, on the Business Day immediately
preceding the related Distribution Date. 
The Servicer shall give written notice to the Indenture Trustee and the
Administrator if it is required to deposit funds in accordance with Section
4.2(d).  If, during any Collection Period
that the Servicer is required to deposit funds in accordance with Section 4.2(d),
the Servicer satisfies either condition of the first sentence of this Section
4.2(e) such that the Servicer is no longer required to deposit funds in
accordance with Section 4.2(d), the Servicer may, as of the date of such
satisfaction but subject to the provisions of this Section 4.2(e), withdraw
from the Collection Account all of the Collections which it has deposited
thereto in accordance with Section 4.2(d) during such Collection Period, and
retain such funds in the manner provided in the first sentence of this Section
4.2(e).

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

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

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giving effect to the exclusions described
above) for the related Distribution Date and of the amounts so credited which
will constitute a part of Collections (as determined for this purpose after
giving effect to the exclusions described above) for the second following
Distribution Date.  The Payment Record
shall be made available for inspection during normal business hours of the
Servicer upon request of the Indenture Trustee, the Administrator or any
Servicer Credit Facility Issuer.

SECTION 4.3.                Realization Upon Receivables.  (a) 
Consistent with the standards, policies and procedures required by this
Agreement, the Servicer shall use its best efforts to repossess (or otherwise
comparably convert the ownership of) and liquidate any Financed Vehicle
securing a Receivable with respect to which the Servicer has determined that
payments thereunder are not likely to be resumed, as soon as is practicable
after default on such Receivable but in no event later than the date on which
10% or more of a Scheduled Payment has become 150 days delinquent (other than
in the case of Financed Vehicles where neither the Financed Vehicle nor the
Obligor can be physically located by the Servicer (using procedures consistent
with the standards, policies and procedures of the Servicer required by this
Agreement) and other than in the case of an Obligor who is subject to a
bankruptcy proceeding); provided, however, that the Servicer may elect not to
repossess a Financed Vehicle within such time period if in its good faith
judgment it determines that the proceeds ultimately recoverable with respect to
such Receivable would be increased by forbearance.  The Servicer is authorized to follow such
customary practices and procedures as it shall deem necessary 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 or Alliance Relationships, the sale of the related Financed Vehicle at
public or private sale, the submission of claims under an Insurance Policy and
other actions, including, without limitation, entering into settlements with
Obligors, by the Servicer in order to realize upon such a Receivable.  The foregoing is subject to the provision
that, in any case in which the Financed Vehicle shall have suffered damage, the
Servicer shall not expend funds in connection with any repair or towards the
repossession of such Financed Vehicle unless it shall determine in its
discretion that such repair and/or repossession shall increase the proceeds of
liquidation of the related Receivable by an amount greater than the amount of
such expenses.  The Servicer shall be
entitled to recover all reasonable expenses incurred by it in the course of
repossessing and liquidating a Financed Vehicle but only from the liquidation
proceeds of the vehicle or under the related Dealer Agreement or Alliance
Agreement.  The Servicer shall pay on
behalf of the Trust any personal property taxes assessed on repossessed
Financed Vehicles.  The Servicer shall be
entitled to reimbursement of any such tax from Net Liquidation Proceeds with
respect to such Receivable.

(b)           If the Servicer elects to commence a legal proceeding to
enforce a Dealer Agreement, Dealer Assignment, Alliance Agreement or Alliance
Assignment, the act of commencement shall be deemed to be an automatic
assignment from the Trust to the Servicer of the rights under such Dealer
Agreement, Dealer Assignment, Alliance Agreement or Alliance Assignment, for
purposes of collection only.  If, however, in any enforcement suit or legal
proceeding it is held that the Servicer may not enforce a Dealer Agreement,
Dealer Assignment, Alliance Agreement or

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Alliance Assignment on the grounds that it is
not a real party in interest or a Person entitled to enforce such Dealer
Agreement, Dealer Assignment, Alliance Agreement or Alliance Assignment, the
Indenture Trustee, at the Servicer’s written direction and expense, or the
Seller, at the Seller’s expense, shall take such steps as the Servicer deems
reasonably necessary to enforce such Dealer Agreement, Dealer Assignment,
Alliance Agreement or Alliance Assignment, including bringing suit in its name
or the name of the Seller, the Trust or the Owner Trustee.  All amounts recovered shall be remitted directly
by the Servicer as provided in Section 4.2(d) or 4.2(e), as applicable.

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

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

(c)           In connection with any LPI Policy obtained hereunder, the
Servicer may, in the manner and to the extent permitted by applicable law,
require the Obligors to repay any Advanced Insurance Premiums to the
Servicer.  In no event shall the Servicer
include such Advanced Insurance Premiums in the Amount Financed under the
Receivable.  The Servicer will not add any
Advanced Insurance Premium to the Principal Balance of the related Receivable,
and amounts allocable thereto will not be available for distribution on the
Notes.  The Servicer shall retain and
separately administer the right to receive payments from or pay rebates to
Obligors with respect to

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LPI Policies. 
If an Obligor makes a payment with respect to a Receivable having an LPI
Policy in place that is less than the Scheduled Payment, then, unless otherwise
required by applicable law or the terms of the related Receivable, the Servicer
shall apply the payment first to any accrued and unpaid interest on the
Receivable, then to any outstanding Advanced Insurance Premium, and then to
principal and other amounts due on the Receivable in accordance with the
Servicer’s standard and customary servicing procedures.  Unless otherwise required by applicable law
or the terms of the related Receivable, Net Liquidation Proceeds on any
Receivable will be applied first to the Principal Balance until paid in full,
then to other amounts due from the Obligor, including any outstanding Advanced
Insurance Premiums, in accordance with the terms of the related Receivable and
the Servicer’s standard and customary servicing procedures.

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

SECTION 4.5.                Maintenance of Security
Interests in Vehicles.  Consistent
with the policies and procedures required by this Agreement, the Servicer shall
take such steps on behalf of the Trust as are necessary to maintain perfection
of the security interest created by each Receivable in the related Financed
Vehicle on behalf of the Trust or as the Indenture Trustee shall reasonably
request, including, but not limited to, obtaining the execution by the Obligors
and the recording, registering, filing, re-recording, re-filing, and
re-registering of all security agreements, financing statements and
continuation statements as are necessary to maintain the security interest
granted by the Obligors under the respective Receivables.  The Owner Trustee, on behalf of the Trust,
hereby authorizes the Servicer, and the Servicer agrees, to take any and all
steps necessary to re-perfect such security interest on behalf of the Trust as
necessary because of the relocation of a Financed Vehicle or for any other
reason.  In the event that the assignment
of a Receivable to the Trust is insufficient, without a notation on the related
Financed Vehicle’s certificate of title, or without fulfilling any additional
administrative requirements under the laws of the state in which the Financed
Vehicle is located, to perfect a security interest in the related Financed
Vehicle in favor of the Trust, the Seller hereby agrees to cause HAFI or any
Affiliate of HAFI that is the seller under a Master Receivables Purchase
Agreement, as applicable, to treat the designation of HAFI or any Affiliate of
HAFI that is the seller under a Master Receivables Purchase Agreement, as
applicable, as the secured party on the certificate of title as a designation
in its capacity as agent of the Trust for such limited purpose.

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

The
Servicer covenants as follows:

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

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

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

(iv)          Restrictions on
Liens.  The Servicer shall not (i)
create, incur or suffer to exist, or agree to create, incur or suffer to exist,
or consent to cause or permit in the future (upon the happening of a
contingency or otherwise) the creation, incurrence or existence of any Lien or
restriction on transferability of the Receivables except for the Lien in favor
of the Indenture Trustee for the benefit of the Secured Parties, and the
restrictions on transferability imposed by this Agreement or (ii) sign or file
under the Uniform Commercial Code of any jurisdiction any financing statement
which names HAFI, the Servicer or any Affiliate thereof as a debtor, or sign
any security agreement authorizing any secured party thereunder to file such
financing statement, with respect to the Receivables, except in each case any
such instrument solely securing the rights and preserving the Lien in favor of
the Indenture Trustee for the benefit of the Secured Parties;

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

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

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

SECTION 4.8.                Total Servicing Fee; Payment
of Certain Expenses by Servicer.  So
as long as:  (i) HSBC Finance Corporation
is the Servicer, (ii) the Servicer is permitted to make deposits of Collections
in accordance with Section 4.2(e) hereof and (iii) the Servicer’s Certificate
delivered with respect to such Distribution Date indicates that Available Funds
with respect to such Distribution Date are sufficient to make the distributions
required to be made on such Distribution Date in respect of the Servicing Fee
payable to HSBC Finance Corporation as Servicer (and all other distributions
required to be made on such Distribution Date having a higher priority than the
distribution of the Servicing Fee payable to HSBC Finance Corporation as
Servicer), the Servicer shall be entitled to retain out of amounts otherwise to
be deposited in the Collection Account with respect to a Collection Period, the
Servicing Fee payable to HSBC Finance Corporation as Servicer for such
Collection Period.  The Servicer shall be
required to pay all expenses incurred by it in connection with its activities
under this Agreement (including taxes imposed on the Servicer, expenses
incurred in connection with distributions and reports made by the Servicer to
Securityholders, all fees and expenses of the Owner Trustee, the Indenture
Trustee and the Administrator), except taxes levied or assessed against the
Trust, and claims against the Trust in respect of indemnification, which taxes
and claims in respect of indemnification against the Trust are expressly stated
to be for the account of HSBC Finance Corporation.  The Servicer shall not be entitled to
reimbursement of Advanced Insurance Premiums except as set forth in Section
4.4(c).  The Servicer shall be liable for
the fees, charges and expenses of

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the Owner Trustee, the Indenture Trustee, the
Administrator, any Subservicer and their respective agents.

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

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

The Officer’s
Certificates referred to in this Section 4.10(a) will be delivered on or before
March 15 of each calendar year, beginning March 15, 2007, unless the Issuer is
not required to file periodic reports under the Exchange Act, in which case the
certificates may be delivered on or before March 31 of each calendar year.

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

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

(i)                            deliver to the
Indenture Trustee, the Administrator and the Owner Trustee, a report, for the
year ended December 31 of the preceding calendar year, on its assessment of
compliance during the

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preceding calendar year with the Servicing Criteria
applicable to it, including disclosure of any material instance of
non-compliance identified by the Servicer or such Subservicer, as applicable,
that satisfies the requirements of Rule 13a-18 and 15d-18 under the Exchange
Act and Item 1122 of Regulation AB under the Securities Act; and

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

The reports referred to in this Section 4.10(c) will
be delivered on or before March 15 of each calendar year, beginning March 15,
2007, unless the Issuer is not required to file periodic reports under the
Exchange Act, in which case the reports may be delivered on or before March 31
of each calendar year.

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

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

SECTION 4.12.              Fidelity Bond and Errors and
Omissions Policy.  The Servicer or
such Eligible Subservicer that is performing the servicing duties of the
Servicer, has obtained, and shall continue to maintain in full force and
effect, a Fidelity

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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.

(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 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

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Business Day immediately preceding the
following Distribution Date.  Funds
deposited in a Trust Account on the day immediately preceding a Distribution
Date and representing the proceeds of Eligible Investments are required to be
held overnight in an Eligible Account and shall be included in Available Funds
(as defined in the Series Supplement) for the succeeding Distribution Date.

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

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

(e)           If (i) the Servicer shall have failed to give investment
directions for any funds on deposit in the Trust Accounts to the Administrator
by 2:00 p.m. Eastern Time (or such other time as may be agreed by the Issuer
and the Administrator) on any Business Day; or (ii) an Event of Default shall
have occurred and be continuing, the Administrator shall, to the fullest extent
practicable, invest and reinvest funds in the Trust Accounts in one or more
Eligible Investments in accordance with paragraph (b) above; provided
that, if following an Event of Default amounts are to be distributed to
Securityholders other than on a Distribution Date, investments shall mature on
the Business Day preceding any such proposed date of distribution.

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

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Seller, as Certificateholder or otherwise, is
entitled to receive as distributions from the Collection Account on the related
Distribution Date.

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

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

SECTION 5.4.                Additional Deposits.

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

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

ARTICLE VI

RESERVED

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ARTICLE VII

RESERVED

ARTICLE VIII

The Seller

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

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

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

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

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

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

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

 45
 

 

registration or declaration with, any
governmental authority, bureau or agency in connection with the execution,
delivery, performance, validity or enforceability of this Agreement which has
not already been obtained.

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

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

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

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

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

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

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

(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;

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

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

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

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

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

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

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

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

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

 47
 

 

Issuer’s violation of federal or state
securities laws in connection with the offering and sale of the Notes.

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

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

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

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

 48
 

 

reason of willful misfeasance, bad faith or
negligence in the performance of duties or by reason of reckless disregard of
obligations and duties hereunder.

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

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

ARTICLE IX

The Servicer

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

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

 49
 

 

 

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

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

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

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

 50
 

 

adversely affect the interest of the Noteholders or the Trust in the
Series Trust Estate or affect the Servicer’s ability to perform its obligations
under this Agreement.

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

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

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

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

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

(b)           The Servicer shall defend, indemnify and hold harmless the
Trust, the Administrator, the Indenture Trustee, the Owner Trustee, each
Support Provider and their respective officers, directors, agents and
employees, from and against

 51
 

 

any and all costs, expenses, losses, damages,
claims and liabilities, including reasonable fees and expenses of counsel and
expenses of litigation arising out of or resulting from the use, ownership or
operation of, or lien on, any Financed Vehicle.

(c)           The Servicer (when the Servicer is HSBC Finance
Corporation or an Affiliate of HSBC Finance Corporation) shall indemnify,
defend and hold harmless the Trust, the Administrator, the Indenture Trustee,
the Owner Trustee, each Support Provider and their respective officers, directors,
agents and employees and from and against any taxes that may at any time be
asserted against any of such parties with respect to the transactions
contemplated in this Agreement, including, without limitation, any sales, gross
receipts, tangible or intangible personal property, privilege or license taxes
(but not including any federal or other income taxes) and costs and expenses in
defending against the same, except to the extent that such costs, expenses,
losses, damages, claims and liabilities arise out of the negligence or willful
misconduct of such parties.  If a tax is
levied or assessed upon the Trust or upon all or any part of the Owner Trust
Estate under HB3 (as defined below), which tax becomes due and payable and is
unpaid after the Closing Date, the Servicer shall pay such tax (or cause such
tax to be paid) to the applicable taxing authority on behalf of the Trust.  Notwithstanding anything to the contrary
contained herein, nothing in this Agreement should be read to imply that the
Trust is doing business in Texas, has sufficient nexus with Texas in order for
HB3 to apply to the Trust or is otherwise subject to the tax described in
HB3.  For the purposes of this Section
9.2, “HB3” shall mean House Bill No. 3 (signed by the Governor of the State of
Texas on May 19, 2006) and the corresponding sections of Title 2 of the Texas
Tax Code implementing House Bill No. 3 and the rules and regulations
promulgated thereunder implementing House Bill No. 3.  The Servicer hereby agrees to indemnify the
Indenture Trustee as set forth in Section 6.7(a) of the Indenture and the
Administrator as set forth in Section 6.17(b) of the Indenture.

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

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

 52
 

 

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

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

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

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

SECTION 9.4.                Limitation on Liability of
Servicer and Others.  (a)  None of the Servicer, the Administrator, the
Indenture Trustee, or any of the directors or

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officers or employees or agents of any such
Persons shall be under any liability to the Trust, except as provided in this
Agreement and each Related Document, for any action taken or for refraining
from the taking of any action pursuant to this Agreement or a Related Document;
provided, however,
that this provision shall not protect the Servicer, the Administrator, the
Indenture Trustee or any such Persons against any liability that would
otherwise be imposed by reason of willful misfeasance, bad faith or negligence
(excluding errors in judgment) in the performance of duties (including
negligence with respect to the Servicer’s indemnification obligations
hereunder), by reason of reckless disregard of obligations and duties under
this Agreement and each Related Document or any violation of law by the
Servicer, the Administrator, the Indenture Trustee or such person, as the case
may be; provided, further, that this provision shall not affect
any liability to indemnify the Indenture Trustee, the Administrator or the
Owner Trustee for costs, taxes, expenses, claims, liabilities, losses or
damages paid by the Indenture Trustee, the Administrator or the Owner Trustee,
in their individual capacities.  The
Servicer, the Administrator, the Indenture Trustee and any director, officer,
employee or agent of such Persons may rely in good faith on the written advice
of counsel or on any document of any kind prima facie properly executed and
submitted by any Person pertaining to any matters arising under this
Agreement.  The Indenture Trustee shall
not be required to expend or risk its own funds or otherwise incur financial
liability in the performance of any of its duties hereunder, or in the exercise
of any of its rights or powers, if the repayment of such funds or adequate
written indemnity against such risk or liability is not reasonably assured to
it in writing prior to the expenditure of risk of such funds or incurrence of
financial liability.

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

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

SECTION 9.5.                Delegation of Duties.  Subject to Section 9.7, in the ordinary
course of business, the Servicer and the Subservicer, provided it is HAFI, at
any time may delegate any of their duties hereunder to any Person, including
any of their Affiliates, who agrees to conduct such duties in accordance with
standards employed by the Servicer or such Subservicer in compliance with
Section 4.1.  Such delegation shall

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not relieve the Servicer of its liabilities and
responsibilities with respect to such duties and shall not constitute a
resignation within the meaning of Section 9.6.

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

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

SECTION 9.8.                Successor Subservicers.  The Servicer may terminate any Subservicer
and either directly service the related Receivables itself or enter into an

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agreement with a successor Subservicer that
is an Eligible Subservicer.  None of the
Owner Trustee, the Administrator or the Indenture Trustee shall have a duty or
obligation to monitor or supervise the performance of any Subservicer.

ARTICLE X

Default

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

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

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

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

(d)           The commencement by the Servicer of a voluntary case under
the federal bankruptcy laws, as now or hereafter in effect, or any other
present or future, federal or state, bankruptcy, insolvency or similar law, or
the consent by the Servicer to the appointment of or taking possession by a
receiver, liquidator, assignee, trustee, custodian, sequestrator or other
similar official of the Servicer or of any substantial part of its property or
the making by the Servicer of an assignment for the benefit of creditors or the
failure by the Servicer generally to pay its debts as such debts

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become due or the taking of corporate action
by the Servicer in furtherance of any of the foregoing; or

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

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

SECTION 10.2.              Consequences of a Servicer
Termination Event.  If a Servicer
Termination Event shall occur and be continuing, the Indenture Trustee (to the
extent a Trust Officer of the Indenture Trustee has actual knowledge or has
received written notice thereof), by notice given in writing to the Rating
Agencies and the Servicer may and shall, at the written direction of the
Controlling Party, terminate all of the rights and obligations of the Servicer,
including in its capacity as custodian, under this Agreement and the other
Basic Documents to which it is a party. 
On or after the receipt by the Servicer of such written notice, all
authority, power, obligations and responsibilities of the Servicer, including
in its capacity as custodian, under this Agreement, whether with respect to the
Notes, the Receivables or the Other Conveyed Property or otherwise,
automatically shall pass to, be vested in, and become obligations and
responsibilities, of the Indenture Trustee (or such other Successor Servicer
appointed by the Controlling Party pursuant to Section 10.3); provided, however,
that the Successor Servicer shall have (i) no liability with respect to any
obligation which was required to be performed by the terminated Servicer prior
to the date that the Successor Servicer becomes the Servicer or any claim of a
third party based on any alleged action or inaction of the terminated Servicer,
(ii) no obligation to perform any repurchase or advancing obligations, if any,
of the terminated Servicer, (iii) no obligation to pay any of the fees and
expenses of any other party involved in this transaction not expressly assumed
by the

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Servicer and (iv) no liability or obligation
with respect to any Servicer indemnification obligations of any prior servicer
including the original servicer.

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

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

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

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

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

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

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

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

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

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

ARTICLE XI

Termination

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

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

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

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

ARTICLE XII

Administrative Duties of the Servicer

SECTION 12.1.              Administrative Duties.

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

(b)           Duties with Respect to the Issuer.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

ARTICLE XIII

Miscellaneous Provisions

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

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

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

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

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

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

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

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

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

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

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

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

 65
 

 

 

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

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

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

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

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

 66
 

 

 

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

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

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

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

SECTION 13.5.              Limitations on Rights of Others.  The provisions of this Agreement are solely
for the benefit of the parties hereto and for the benefit of the
Certificateholders (including the Seller), the Indenture Trustee, the
Administrator, the Owner Trustee, HACI, HAFI 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.

 67
 

 

 

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

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

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

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

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

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

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

 68
 

 

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

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

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

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

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

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

SECTION 13.16.            [Reserved]

 69
 

 

 

 

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

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

SECTION 13.19.            Waiver of Jury Trial.  Each party to this Agreement hereby
irrevocably waives, to the fullest extent permitted by applicable law, any and
all right to trial by jury in any legal proceeding arising out of or relating
to this Agreement, the Notes or the transactions contemplated hereby.

 70

 

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

	
  

  	
  HSBC AUTOMOTIVE TRUST (USA) 2006-3

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
  U.S. Bank Trust National Association,

  
	
   

  	
   

  	
   

  	
  not in its individual capacity but solely as

  Owner Trustee on behalf of the Trust

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Patricia M. Child

  
	
   

  	
   

  	
  Name: Patricia M. Child

  
	
   

  	
   

  	
  Title:   Vice
  President

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  HSBC AUTO RECEIVABLES CORPORATION,

  
	
   

  	
   

  	
  as Seller

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Steven H. Smith

  
	
   

  	
   

  	
  Name: Steven H. Smith

  
	
   

  	
   

  	
  Title:   Vice
  President and Assistant Treasurer

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  HSBC FINANCE CORPORATION,

  
	
   

  	
   

  	
  as Servicer

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ William H. Kesler

  
	
   

  	
   

  	
  Name: William H. Kesler

  
	
   

  	
   

  	
  Title:  
  Senior Vice President - Treasurer

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  THE BANK OF NEW YORK TRUST

  
	
   

  	
   

  	
  COMPANY, N.A., not in its individual

  
	
   

  	
   

  	
  capacity but solely as Indenture Trustee

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Cindi Garcia

  
	
   

  	
   

  	
  Name: Cindi Garcia

  
	
   

  	
   

  	
  Title:   Trust
  Officer

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  HSBC BANK USA, NATIONAL ASSOCIATION,

  
	
   

  	
   

  	
  as Administrator

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Fernando Acebedo

  
	
   

  	
   

  	
  Name: Fernando Acebedo

  
	
   

  	
   

  	
  Title:   Vice
  President

  

 

 

 

	
  Acknowledged and accepted solely for

  
	
  purposes of Article IV and Section 9.5 hereof

  
	
   

  
	
   

  
	
  HSBC AUTO FINANCE INC., as Subservicer

  
	
   

  
	
   

  
	
  By:

  	
  /s/ Joan M. Coppenrath

  	
   

  
	
   

  	
  Name: Joan M. Coppenrath

  
	
   

  	
  Title:  Vice
  President and Treasurer

  

 

 

EXHIBIT
A

FORM OF TRANSFER
AGREEMENT

TRANSFER
No.                           
of Receivables dated as of                             
pursuant to the Sale and Servicing Agreement dated as of November 1, 2006 (the “Sale
and Servicing Agreement”), among HSBC AUTOMOTIVE TRUST (USA) 2006-3, a Delaware
statutory trust (the “Issuer” or the “Trust”), HSBC AUTO RECEIVABLES
CORPORATION, a Nevada corporation (the “Seller”), HSBC FINANCE CORPORATION, a
Delaware corporation (the “Servicer”), THE BANK OF NEW YORK TRUST COMPANY,
N.A., 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 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 and against
Alliance Relationships pursuant to Alliance Agreements and Alliance 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 or by an Alliance Relationship pursuant to an Alliance
Agreement;

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

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

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

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

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

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

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

 A-2
 

 

 

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

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

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

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

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

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

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

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

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

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

 A-3
 

 

 

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

 A-4
 

 

 

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

	
  

  	
  HSBC AUTOMOTIVE TRUST (USA) 2006-3

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   U.S. Bank Trust
  National Association,

  
	
   

  	
   

  	
   not in its
  individual capacity but solely as

   Owner Trustee on behalf of the Trust

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  HSBC AUTO RECEIVABLES CORPORATION,

  
	
   

  	
   

  	
  as Seller

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  HSBC FINANCE CORPORATION,

  
	
   

  	
   

  	
  as Servicer

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  

 

 A-5
 

 

 

	
  Acknowledged and Accepted:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  THE BANK OF NEW YORK TRUST

  	
   

  	
   

  
	
  COMPANY, N.A.,
  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 Servicer,

HSBC AUTOMOTIVE TRUST (USA) 2006-3,

as Issuer,

HSBC AUTO RECEIVABLES CORPORATION,

as Seller,

THE BANK OF NEW YORK TRUST COMPANY, N.A.,

as Indenture Trustee,

U.S. BANK TRUST NATIONAL ASSOCIATION,

as Owner Trustee,

HSBC BANK USA, NATIONAL ASSOCIATION,

as Administrator

 

SERIES SUPPLEMENT

Dated as of November 1, 2006

to the

INDENTURE

Dated as of November 1, 2006

to the

SALE AND SERVICING
AGREEMENT

Dated as of
November 1, 2006

and to the

AMENDED AND
RESTATED TRUST AGREEMENT

Dated as of
November 1, 2006

 

 

TABLE OF CONTENTS

	
  

  	
   

  	
   

  	
  Page

  
	
   

  	
   

  	
   

  
	
  ARTICLE
  I CREATION OF THE NOTES

  	
   

  	
  1

  
	
   

  	
   

  	
   

  
	
  SECTION 1.01.

  	
  Designation

  	
   

  	
  1

  
	
  SECTION 1.02.

  	
  Pledge of Series Trust Estate

  	
   

  	
  1

  
	
  SECTION 1.03.

  	
  Payments and Computations

  	
   

  	
  3

  
	
  SECTION 1.04.

  	
  Denominations

  	
   

  	
  3

  
	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE
  II DEFINITIONS

  	
   

  	
  3

  
	
   

  	
   

  	
   

  
	
  SECTION 2.01.

  	
  Definitions

  	
   

  	
  3

  
	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE III DISTRIBUTIONS AND STATEMENTS TO
  NOTEHOLDERS; SERIES SPECIFIC COVENANTS

  	
   

  	
  10

  
	
   

  	
   

  	
   

  
	
  SECTION 3.01.

  	
  Trust Accounts

  	
   

  	
  10

  
	
  SECTION 3.02.

  	
  Reserve Account

  	
   

  	
  11

  
	
  SECTION 3.03.

  	
  Distributions

  	
   

  	
  11

  
	
  SECTION 3.04.

  	
  Statements to Noteholders

  	
   

  	
  13

  
	
  SECTION 3.05.

  	
  Reporting Requirements

  	
   

  	
  15

  
	
  SECTION 3.06.

  	
  Compliance With Withholding Requirements

  	
   

  	
  16

  
	
  SECTION 3.07.

  	
  Special Covenants and Acknowledgements

  	
   

  	
  16

  
	
  SECTION 3.08.

  	
  Income Tax Characterization

  	
   

  	
  16

  
	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE
  IV EVENTS OF DEFAULT; REMEDIES

  	
   

  	
  17

  
	
   

  	
   

  	
   

  
	
  SECTION 4.01.

  	
  Events of Default

  	
   

  	
  17

  
	
  SECTION 4.02.

  	
  Rights Upon Event of Default

  	
   

  	
  18

  
	
  SECTION 4.03.

  	
  Remedies

  	
   

  	
  19

  
	
  SECTION 4.04.

  	
  Priorities

  	
   

  	
  20

  
	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE
  V PREPAYMENT, REDEMPTION AND SUBSTITUTION

  	
   

  	
  21

  
	
   

  	
   

  	
   

  
	
  SECTION 5.01.

  	
  Optional “Clean-Up” Redemption

  	
   

  	
  21

  
	
  SECTION 5.02.

  	
  Optional Substitution

  	
   

  	
  21

  
	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE
  VI MISCELLANEOUS

  	
   

  	
  22

  
	
   

  	
   

  	
   

  
	
  SECTION 6.01.

  	
  Ratification of Basic Documents

  	
   

  	
  22

  
	
  SECTION 6.02.

  	
  Counterparts

  	
   

  	
  22

  
	
  SECTION 6.03.

  	
  GOVERNING LAW

  	
   

  	
  22

  
	
  SECTION 6.04.

  	
  Amendments Without Consent of Noteholders

  	
   

  	
  22

  
	
  SECTION 6.05.

  	
  Amendments With Consent of the Noteholders

  	
   

  	
  24

  
	
  SECTION 6.06.

  	
  Authority to Register Notes and File Reports

  	
   

  	
  26

  
	
  SECTION 6.07.

  	
  Authority to Perform Duties of the Issuer

  	
   

  	
  26

  
	
  SECTION 6.08.

  	
  Notices

  	
   

  	
  26

  
	
  SECTION 6.09.

  	
  [Reserved]

  	
   

  	
  27

  
	
   

  	
   

  	
   

  
	
  Schedule I

  	
  Eligibility Criteria

  	
   

  	
   

  
	
  Schedule II

  	
  Schedule of Receivables

  	
   

  	
   

  
	
  Exhibit A

  	
  Form of Servicer’s Certificate

  	
   

  	
   

  
	
  Exhibit B

  	
  Forms of Notes

  	
   

  	
   

  
					

 

This Series Supplement, dated as of November 1, 2006,
is by and among HSBC Finance Corporation, a Delaware corporation, as Servicer
(the “Servicer”), HSBC Automotive Trust (USA) 2006-3, a Delaware
statutory trust, as Issuer (the “Issuer” or the “Trust”), HSBC
Auto Receivables Corporation, a Nevada corporation, as Seller (the “Seller”),
THE BANK OF NEW YORK TRUST COMPANY, N.A., 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 November 1, 2006 among the Issuer, the Indenture Trustee and the
Administrator and pursuant to Section 3.2 of the Trust Agreement between the
Seller and the Owner Trustee.  In the
event that any term or provision contained herein shall conflict with or be
inconsistent with any term or provision contained in the Indenture or the Trust
Agreement, the terms and provisions of this Series Supplement shall govern.

ARTICLE I

CREATION OF THE NOTES

SECTION 1.01.              Designation.

(a)           There is hereby created a series of Notes,
substantially in the form of Exhibit B hereto, to be issued pursuant to
the Indenture and this Series Supplement to be known as “HSBC Automotive Trust
(USA) 2006-3, Series 2006-3 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 $208,700,000 (the “Class
A-1 Notes”), Class A-2 Notes in an aggregate initial principal amount of
$196,300,000 (the “Class A-2 Notes”), Class A-3 Notes in an aggregate
initial principal amount of $283,600,000 (the “Class A-3 Notes”), and
Class A-4 Notes in an aggregate initial principal amount of $150,149,000 (the “Class
A-4 Notes” and, together with the Class A-1 Notes, the Class A-2 Notes and
the Class A-3 Notes, the “Class A Notes”).

(b)           There is hereby created a series of
Certificates to be issued pursuant to the Trust Agreement and this Series
Supplement to be known as the “HSBC Automotive Trust (USA) 2006-3, Series
2006-3 Certificates” (as used herein, the “Certificates”).

SECTION 1.02.              Pledge of Series
Trust Estate.

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

 

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

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

 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 $25,000 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 lesser of (i) 66% of the Pool Balance
as of  the close of business on the last
day of the immediately preceding Collection Period and (ii) the Pool Balance as
of the close of business on the last day of the immediately preceding
Collection Period less $39,607,599.59 (which is 3.4% of the aggregate principal
balance of the auto loans as of the Cut-Off Date), but not less than zero.

“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.

 3
 

 

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

“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.

 4
 

 

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

“Class A-1 Scheduled Maturity Date” means November 19,
2007.

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

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

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

“Class A-3 Scheduled Maturity Date” means September
19, 2011.

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

“Class A-4 Scheduled Maturity Date” means September
17, 2013.

“Closing Date” means November 1, 2006.

“Collection Account” means the Eligible Account
created pursuant to Section 3.01, which shall be account no. 10-879781 reference HSBC Auto 2006-3 Collection
Account at the Administrator, ABA No. 021001088.

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

“Control Agreement” means the deposit account control
agreement dated as of November 1, 2006 among the Issuer, the Indenture Trustee
and the Administrator.

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

“Corporate Trust Office” means, (i) with respect to
the Owner Trustee, the office of the Owner Trustee, which at the time of
execution of this Series Supplement is 209 South LaSalle Street, Suite 300,
Chicago, Illinois 60604, Attention: Corporate Trust Services, (ii) with respect
to the Indenture Trustee, the corporate trust office of the Indenture Trustee,
which at the time of execution of this Series Supplement is 2 North LaSalle Street, Suite 1020, Chicago,
Illinois 60602, 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 October 16, 2006.

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

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

 5
 

 

“Distribution Date” means, with respect to each
Collection Period, the seventeenth day of the calendar month next commencing
after the last day of such Collection Period, or if such day is not a Business
Day, the immediately following Business Day, commencing December 18, 2006.

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

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

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

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

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

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

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

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

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

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

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

“Final Scheduled Distribution Date” means September
17, 2013.

 6
 

 

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

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

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

“Indenture” means the indenture dated as of November
1, 2006 among the Issuer, the Indenture Trustee and the Administrator, as
supplemented by this Series Supplement.

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

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

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

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

Class A-1
Notes:  5.36200%

Class A-2
Notes:  5.38%

Class A-3
Notes:  5.28%

Class A-4 Notes:  5.34%

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

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

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

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

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

 7
 

 

“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 Servicer.

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

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

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

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

“Reserve Account” means the Reserve Account, which
shall be an Eligible Account created pursuant to Section 3.01 and which shall
be account no. 10-879782,
reference HSBC Auto 2006-3 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

 8
 

 

be made immediately after
the deposit to the Collection Account effected pursuant to Section 5.1(c) of
the 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.

“Sale and Servicing Agreement” means the Sale and
Servicing Agreement dated as of November 1, 2006, among the Issuer, the Seller,
the Servicer, the Indenture Trustee and the Administrator, as such agreement
may be amended or supplemented from time to time.

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

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

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

“Securities” means the Notes and the Certificates.

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

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

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

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

“Servicing Fee” means,
(i) with respect to the initial Collection Period, the fee payable to the Servicer for servicing rendered during
such Collection Period, which shall be equal to $3,276,363.94, and (ii) with respect to any other
Collection Period, the fee payable to the Servicer for services rendered during
such Collection Period, which shall be equal to one-twelfth of the Servicing
Fee Rate multiplied by the Aggregate Principal Balances of the

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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 Servicer elects to substitute
pursuant to Section 5.02(a) and the date on which a substitution thereof occurs
pursuant to Section 5.02, the sum of:

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

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

“Targeted Reserve Account Balance” means, with respect
to any Distribution Date, the lesser of: (i) the greater of (a) 3% of the
outstanding Pool Balance as of the end of the related Collection Period, and
(b) $23,298,588.00 (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 October 11, 2006, between the Seller and the
Owner Trustee, as amended and restated as of November 1, 2006 and as
supplemented by this Series Supplement.

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

“Underwriting Agreement”
means the underwriting agreement, dated as of October 23, 2006 among HSBC
Securities (USA) Inc., HSBC Finance Corporation and HSBC Auto Receivables
Corporation.

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

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Administrator’s corporate trust department, identified as the “Collection
Account for HSBC Automotive Trust (USA) 2006-3, in trust for the Secured
Parties.”  The Administrator shall make
or permit withdrawals from the Collection Account only as provided in this
Series Supplement.

(b)           The Administrator, for the benefit of the
Secured Parties, shall establish and maintain an account (the “Reserve
Account”) as a segregated trust account in the Administrator’s corporate
trust department, identified as the “Reserve Account for HSBC Automotive Trust
(USA) 2006-3, 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, within five Business Days, shall
establish such Trust Account as a new account which is an Eligible
Account.  No withdrawals may be made of
funds in any Trust Account except as provided in this Series Supplement.  Except as specifically provided in this
Series Supplement, funds in the Trust Accounts shall not be commingled with any
other moneys.  All moneys deposited from
time to time in each of the Trust Accounts shall be invested and reinvested by
the Administrator in Eligible Investments selected in writing by the Servicer
(pursuant to standing instructions or otherwise) which, absent any instruction,
shall be investments of the type specified in clause (d) of the definition of
Eligible Investments.  The provisions of
Section 5.1 of the Sale and Servicing Agreement shall apply to the investment
of funds in the Trust Accounts.

SECTION 3.02.              Reserve Account.

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

SECTION 3.03.              Distributions.

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

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

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

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

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

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

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

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

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(c)           [Reserved].

(d)           [Reserved].

(e)           Each Certificateholder,
by its acceptance of its Certificate will be deemed to have consented to the
provisions of paragraph (a) above relating to the priority of distributions,
and will be further deemed to have acknowledged that no property rights in any
amount or the proceeds of any such amount shall vest in such Certificateholder
until such amounts have been distributed to such Certificateholder in accordance
with the terms of the Trust Agreement and this Series Supplement; provided,
that the foregoing shall not restrict the right of any
Certificateholder, upon compliance with the provisions hereof, from seeking to
compel the performance of the provisions hereof by the parties hereto.  Each Certificateholder, by acceptance of its
Certificate, further specifically acknowledges that it has no right to or
interest in any monies at any time held in the Reserve Account, such monies
being held in trust for the benefit of the Secured Parties.

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

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

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

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

SECTION 3.04.              Statements to
Noteholders.

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

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

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

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

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

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

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

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

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

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

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

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

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

(xiii)         the weighted average coupon of the
Receivables;

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

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

(xvi)        the beginning Reserve Account Balance;

(xvii)       the Targeted Reserve Account Balance;

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

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

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

(xxi)         the ending Reserve Account Balance;

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

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

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

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

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

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

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

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

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

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

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

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

The Administrator’s internet website, if applicable,
shall be specified by the Administrator from time to time in writing to the
parties hereto and the Noteholders.  In

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connection with providing
access to the Administrator’s internet website, the Administrator may require
registration and the acceptance of a disclaimer.  The Administrator shall not be liable for its
dissemination of information in accordance with this Series Supplement.

SECTION 3.05.              Reporting
Requirements.

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

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

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

SECTION 3.06.              Compliance With
Withholding Requirements.

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

SECTION 3.07.              Special Covenants
and Acknowledgements.

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

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

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

 16
 

 

SECTION 3.08.              Income Tax
Characterization.

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

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

 17
 

 

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

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

SECTION 4.02.              Rights Upon Event
of Default.

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

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

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

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

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

 18
 

 

(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.

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

 19
 

 

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.

SECTION 4.04.              Priorities.

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

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

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

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

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

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

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

SEVENTH:         to the Certificateholders, any remaining
Available Funds.

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

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ARTICLE
V

PREPAYMENT, REDEMPTION AND SUBSTITUTION

SECTION 5.01.              Optional “Clean-Up”
Redemption.

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

SECTION 5.02.              Optional
Substitution.

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

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

 21
 

 

this Section 5.02(b) have been satisfied,
take any action requested by the Servicer or HAFI, as the case may be, to
effect the reconveyance of such Receivable for which the Servicer or HAFI, as
the case may be, has made a substitution election so removed from the Series
Trust Estate to the Servicer or HAFI, as the case may be.  The procedures applied by the Servicer or
HAFI in selecting each Eligible Substitute Receivable shall not be adverse to
the interests of the Noteholders and shall be comparable to the selection
procedures applicable to the Receivables originally conveyed hereunder.

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

ARTICLE
VI

MISCELLANEOUS

SECTION 6.01.              Ratification of
Basic Documents.

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

SECTION 6.02.              Counterparts.

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

SECTION 6.03.              GOVERNING LAW.

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

SECTION 6.04.              Amendments
Without Consent of Noteholders.

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

 22
 

 

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

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

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

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

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

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

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

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

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

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

 23
 

 

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

SECTION 6.05.              Amendments With
Consent of the Noteholders.

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

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

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

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

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

 24
 

 

(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, except as otherwise permitted or contemplated
herein or the Related Documents, terminate the lien of the Indenture on any
property at any time subject hereto or deprive the Holder of any Note of the
security provided by the lien of the Indenture.

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

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

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

By its acceptance of its interest in the Notes, each
owner of a beneficial interest in a Note shall be deemed to have agreed that
prior to the date which is one year and one day after the termination of the
Indenture, such Person shall not acquiesce, petition or otherwise invoke or
cause the Issuer or the Seller to invoke the process of any governmental
authority for the purpose of commencing or sustaining a case against the Seller
or Issuer under any federal or state

 25
 

 

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

SECTION 6.07.              Authority to
Perform Duties of the Issuer.

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

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

SECTION 6.08.              Notices.

All demands, notices and communications upon or to the
Seller, the Servicer, the Owner Trustee, the Indenture Trustee or the
Administrator shall be in writing, personally delivered, or mailed by certified
mail, or sent by confirmed telecopier transmission and shall be deemed to have
been duly given upon receipt (a) in the case of the Seller, to HSBC Auto
Receivables Corporation, 1111 Town Center Drive, Las Vegas, Nevada 89144, with a
copy to HSBC Finance Corporation, 2700 Sanders Road, Prospect Heights,
Illinois, 60070, Attention:  Treasurer,
Telecopier # (847) 205-7538, (b) in the case of the Servicer, if HSBC Finance
Corporation is the Servicer, to HSBC Finance Corporation, 2700 Sanders Road,
Prospect Heights, Illinois 60070, 
Attention: Treasurer, Telecopier # (847) 205-7538, (c) in the case of
the Issuer, at the Corporate Trust Office of the Owner Trustee, Telecopier #
(312) 325-8905, (d) in the case of the Owner Trustee, at its Corporate Trust
Office, Telecopier # (312) 325-8905, (e) in the case of the Indenture Trustee,
at the Corporate Trust Office of the Indenture Trustee, Attention: Corporate
Trust Office-HSBC Automotive Trust (USA) 2006-3, Telecopier # 312-827-8562, (f)
in the case of the Administrator, at the Corporate Trust Office of the
Administrator, Attention: CTLA - Structured Finance, 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

 26
 

 

Register, as
applicable.  Any notice so mailed within
the time prescribed in the Agreement shall be conclusively presumed to have
been duly given, whether or not the Certificateholder or Noteholder shall
receive such notice.

SECTION 6.09.              [Reserved].

[Reminder of page intentionally left blank]

 27

 

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

	
  

  	
  HSBC FINANCE CORPORATION,

  
	
   

  	
    as Servicer

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ William H.
  Kesler

  	
   

  
	
   

  	
   

  	
  Name: William H.
  Kesler

  
	
   

  	
   

  	
  Title: Senior
  Vice President - Treasurer

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  HSBC AUTOMOTIVE
  TRUST (USA) 2006-3,

  
	
   

  	
    as Issuer

  
	
   

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

  
	
   

  	
    individual capacity but solely as Owner
  Trustee

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Patricia M.
  Child

  	
   

  
	
   

  	
   

  	
  Name: Patricia
  M. Child

  
	
   

  	
   

  	
  Title: Vice
  President

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  HSBC AUTO
  RECEIVABLES CORPORATION,

  
	
   

  	
    as Seller

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Steven H.
  Smith

  	
   

  
	
   

  	
   

  	
  Name: Steven H.
  Smith

  
	
   

  	
   

  	
  Title: Vice
  President and Assistant Treasurer

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  THE BANK OF
  NEW YORK TRUST

  COMPANY, N.A.,

  
	
   

  	
    as Indenture Trustee

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Cindi Garcia
  as Trustee

  	
   

  
	
   

  	
   

  	
  Name: Cindi
  Garcia

  
	
   

  	
   

  	
  Title: Trust
  Officer

  

 

 

	
  

  	
  U.S. BANK TRUST
  NATIONAL ASSOCIATION,

  
	
   

  	
    not in its individual capacity but solely
  as Owner

  
	
   

  	
    Trustee

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Patricia M.
  Child

  	
   

  
	
   

  	
   

  	
  Name: Patricia
  M. Child

  
	
   

  	
   

  	
  Title: Vice
  President

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  HSBC BANK USA,
  NATIONAL ASSOCIATION,

  
	
   

  	
    as Administrator

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Fernando
  Acebedo

  	
   

  
	
   

  	
   

  	
  Name: Fernando
  Acebedo

  
	
   

  	
   

  	
  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 HACI or HAFI with the consumer, was originated
by a Dealer for the retail sale of a Financed Vehicle in the ordinary course of
such Dealer’s business, or was originated by an Alliance Relationship and sold
to HACI or HAFI and (A) in the case of a receivable originated by HACI or
HAFI, such entity had all necessary licenses and permits to originate
receivables in the state where such entity was located, and (B) in the case of
a Dealer originated receivable, such Dealer had all necessary licenses and
permits to originate receivables in the state where such Dealer was located,
and such receivable was purchased by HAFI from such Dealer under an existing
Dealer Agreement or Dealer Assignment with HAFI, and (C) in the case of a
receivable originated by an Alliance Relationship, such Alliance Relationship
had all necessary licenses and permits to originate receivables in the state
where such Alliance Relationship was located, and such receivable was purchased
by HACI or HAFI from such Alliance Relationship under an existing Alliance
Agreement and Alliance Assignment with HACI or HAFI, as applicable, and (D) in
the case of a Dealer originated receivable or a receivable originated by HACI,
HAFI or an Alliance Relationship, such receivable was purchased (x) by
HARC pursuant to the terms of the Master Receivables Purchase Agreements and
(y) by the Issuer pursuant to the Sale and Servicing Agreement; and each
Receivable was validly assigned (1) if Dealer originated, by such Dealer
to HAFI, (2) if originated by an Alliance Relationship, by such Alliance
Relationship to HAFI or HACI, as applicable, (3) by HAFI or HACI, as
applicable, to HARC pursuant to the terms of the Master Receivables Purchase
Agreements, (4) by HARC to the Issuer
pursuant to the Sale and Servicing Agreement and (5) 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, an Alliance Relationship, 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

 I-1
 

 

health insurance and any
extended service contracts, have been complied with in all material respects,
and each Receivable and the sale of the Financed Vehicle evidenced by each
Receivable and the sale of any physical damage, loss, credit life and credit
accident and health insurance and any extended service contracts complied at
the time it was originated or made and now complies in all material respects
with all applicable legal requirements;

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

(e)           which
represents the genuine, legal, valid and binding payment obligation of the
Obligor thereon, enforceable by the holder thereof in accordance with its
terms, except (A) as enforceability may be limited by bankruptcy, insolvency,
reorganization or similar laws affecting the enforcement of creditors’ rights
generally and by equitable limitations on the availability of specific
remedies, regardless of whether such enforceability is considered in a
proceeding in equity or at law and (B) as such Receivable may be modified by
the application of the Servicemembers Civil Relief Act, as amended, or similar
state regulation; 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 $50,000, (iv) had an
Annual Percentage Rate of at least 6.50% and not more than 27.00%, (v) was not
more than 30 days contractually delinquent, (vi) no funds have been advanced by
the Issuer, the Servicer, HAFI, HACI, any Dealer, any Alliance Relationship or
anyone acting on behalf of any of them in order to cause such Receivable to
qualify under subclause (iv) of this clause (g) and (vii) had no
provision thereof waived, altered or modified in any respect since its
origination;

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

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

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

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

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

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

(p)           which
has not been sold, transferred, assigned or pledged to any Person other than to
(i) HAFI by a Dealer, (ii) HACI or HAFI, as applicable, by an
Alliance Relationship, (iii) HARC by HAFI or HACI, as applicable, pursuant to
the terms of the Master Receivables Purchase Agreements, (iv) the Issuer
by HARC pursuant to the terms of the Sale and Servicing Agreement, (v) the
Indenture Trustee by the Issuer pursuant to the terms of the Indenture, (vi) the
Household Automotive Warehouse Trust by HARC pursuant to the terms of the
master sale and servicing agreement, dated as of December 18, 2001 as amended
and restated from time to time, among HSBC Finance Corporation, HARC, Household
Automotive Warehouse Trust and Wells Fargo Bank, National Association, (vii)
Wells Fargo Bank, National Association by Household Automotive Warehouse Trust
pursuant to the terms of the indenture, dated as of December 18, 2001 as
amended and restated from time to time, among Household Automotive Warehouse
Trust, HSBC Finance Corporation and Wells Fargo Bank, National Association and
(viii) HARC, in connection with a prior securitization of such Receivable

 I-3
 

 

pursuant to a sale and
servicing agreement in which HARC was a seller, or the related indenture, each
as supplemented by a series supplement. No Dealer nor Alliance Relationship has
a participation in, or other right to receive, proceeds of any Receivable.  Neither HAFI nor HACI, as applicable, HARC nor
the Issuer has taken any action to convey any right to any Person that would
result in such Person having a right to payments received under the related
Insurance Policy, the related Dealer Agreement or Dealer Assignment, or the
related Alliance Agreement and Alliance Assignment, as applicable, or to
payments due under such Receivable;

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

(r)            which
is secured by an enforceable and perfected first priority security interest in
the Financed Vehicle in favor of HAFI or HACI, as applicable, as secured party,
which security interest is prior to all other Liens upon and security interests
in such Financed Vehicle which now exist or may hereafter arise or be created
(except, as to priority, for any Lien for taxes, labor or materials affecting a
Financed Vehicle); and, with respect to which there are no Liens or claims for
taxes, work, labor or materials affecting the related Financed Vehicle which
are or may be Liens prior or equal to the lien of such Receivable;

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

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

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

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

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

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

(y)           except
for payment delinquencies continuing for a period of not more than 30 days as
of the applicable Cut-Off Date, the Seller has no knowledge that a default,
breach,

 I-4
 

 

violation or event
permitting acceleration under the terms of the Receivable existed as of
the applicable Cut-Off Date or that any continuing condition that with notice
or lapse of time, or both, would constitute a default, breach, violation or
event permitting acceleration under the terms of the Receivable had arisen as
of the applicable Cut-Off Date and the Seller has not waived any of the
foregoing;

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

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

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

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

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

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

 I-5
 

 

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

 I-6

 

Schedule II

Schedule of Receivables on File in Electronic Form

at Dewey Ballantine LLP

 II-1

 

Exhibit A

Form of Servicer’s Certificate

HSBC Automotive Trust (USA)  2006-3

Class A-1
Notes:  5.36200%

Class A-2
Notes:  5.38%

Class A-3
Notes:  5.28%

Class A-4
Notes:  5.34%

Servicer’s Certificate

(Delivered pursuant to Section 4.9 of

the Sale and Servicing Agreement)

Collection Period Beginning

Collection Period Ending

Previous Distribution Date

Distribution Date

Days in Interest Period

Months
Since Closing

I.  COLLECTION PERIOD
POOL BALANCE CALCULATION:

Beginning of Collection Period Pool Balance

Principal Receivables Added

Monthly Principal Amounts:

 
Principal Payments Received for the Collection Period

 
Liquidated Receivables for the Collection Period

 
Principal Amount of Repurchased Receivables for the Collection Period

End of Collection Period Pool Balance

End
of Collection Period Pool Factor

II.  COLLECTION PERIOD
NOTEHOLDER CALCULATIONS:

(a) Class
A-1

A.  
Information regarding distributions

  
1.   Total distribution per $1,000

  
2.   Principal distribution per
$1,000

  
3.   Interest distribution per
$1,000

B. 
Calculation of Class A-1 interest due

  
1.   Class A-1 related Note Rate

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

  
3.   Interest accrual convention

  
4.   Days in Interest Period

  
5.   Class A-1 interest due -
current period

 A-1
 

 

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

  
7.   Class A-1 interest paid

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

C. 
Calculation of Class A-1 principal balance

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

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

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

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

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

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

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

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

(b) Class
A-2

A.  
Information Regarding Distributions

  
1.   Total distribution per $1,000

  
2.   Principal distribution per
$1,000

   3.  
Interest distribution per $1,000

B. 
Calculation of Class A-2 interest due

  
1.   Class A-2 related Note Rate

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

  
3.   Interest accrual convention

  
4.   Days in Interest Period

  
5.   Class A-2 interest due -
current period

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

  
7.   Class A-2 interest paid

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

C. 
Calculation of Class A-2 principal balance

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

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

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

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

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

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

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

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

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

(c) Class
A-3

A.   Information Regarding Distributions

  
1.   Total distribution per $1,000

  
2.   Principal distribution per
$1,000

   3.  
Interest distribution per $1,000

 A-2
 

 

B. 
Calculation of Class A-3 interest Due

  
1.   Class A-3 related Note Rate

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

  
3.   Interest accrual convention

  
4.   Days in Interest Period

  
5.   Class A-3 interest due -
current period

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

  
7.   Class A-3 interest paid

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

C. 
Calculation of Class A-3 principal balance

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

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

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

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

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

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

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

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

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

(d) Class
A-4

A.   Information
Regarding Distributions

  
1.   Total distribution per $1,000

  
2.   Principal distribution per
$1,000

   3.  
Interest distribution per $1,000

B. 
Calculation of Class A-4 Interest Due

  
1.   Class A-4 related Note Rate

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

  
3.   Interest accrual convention

  
4.   Days in Interest Period

  
5.   Class A-4 interest due -
current period

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

  
7.   Class A-4 interest paid

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

C. 
Calculation of Class A-4 principal balance

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

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

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

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

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

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

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

 A-3
 

 

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

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

III.  PRINCIPAL DISTRIBUTABLE AMOUNT CALCULATION

 Aggregate
Optimal Note Principal Balance for the Distribution Date:

   Pool
Balance as of the end of the Collection Period

  
Factor

Aggregate Optimal Note Principal Balance for
the Distribution Date

Optimal
Principal Distributable Amount for the Distribution Date:

   The
excess, if any, of

    
(x) Aggregate Note Principal Balance over

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

Optimal Principal Distributable Amount

Class A
Minimum Principal Distributable Amount:

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

   (a)
The lesser of:

       
(i) Optimal Principal Distributable Amount

       
(ii) BOM Principal Balance less EOM Principal Balance

       
(iii) Aggregate Note Principal Balance

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

        
Aggregate Note Principal Balance to zero

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

        
Pool Balance

Class A Minimum Principal Distributable
Amount

Class A
Additional Principal Distributable Amount

  
Excess of:

    
(i) Aggregate Note Principal Balance

         
Less:  Class A Minimum Principal
Distributable Amount paid over

    
(ii) Aggregate Optimal Note Principal Balance

Class
A Additional Principal Distributable Amount

IV.   RESERVE ACCOUNT RECONCILIATION

Beginning Reserve Account Balance

Targeted Reserve Account Balance

Reserve Account Shortfall

Reserve Account Deposit

Reserve Account Release

Ending Reserve Account Balance

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

V.  OVERCOLLATERALIZATION CALCULATION

Overcollateralization
Amount prior to payments allocated to principal

 Overcollateralization Amount after giving
effect to payments allocated to principal

Ending
Overcollateralization Amount as a percentage of the Ending Pool Balance

 A-4
 

 

VI.  RECONCILIATION OF COLLECTION ACCOUNT

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

i. Collected Funds

  
(a)  Collections On Receivables

  
(b)  Net Liquidation Proceeds

  
(c)  Substitution Adjustment
Amounts

Total Collected Funds

ii. Collection and Reserve Account investment
income

iii. Repurchase Amounts deposited in the
Collection Account

iv. Proceeds of any liquidation of the Trust

Available
Funds for distribution

Distributions (Sect. 3.03)

(A)
Available Funds

(B) Servicing Fee

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

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

Remaining
available funds for interest distribution

(D) Class A Interest Distributable Amount paid

i. Class A-1 interest paid

ii. Class A-2 interest paid

iii. Class A-3 interest paid

iv. Class A-4 interest paid

Total Class A Interest Distributable Amount
paid

Remaining
Available Funds for principal distribution

(E) Class A Minimum Principal Distributable
Amount paid

i. Class A-1 minimum principal paid

ii. Class A-2 minimum principal paid

iii. Class A-3 minimum principal paid

iv. Class A-4 minimum principal paid

Class A Minimum Principal Distributable
Amount paid

Remaining
funds

(F) Reserve Account Shortfall Amount -
deposited

Remaining
funds

(G) Class A Additional Principal
Distributable Amount

i. Class A-1 additional principal
distributable amount

ii. Class A-2 additional principal
distributable amount

iii. Class A-3 additional principal
distributable amount

iv. Class A-4 additional principal
distributable amount

Class A Additional Principal Distributable
Amount - paid

 A-5
 

 

Remaining
funds

(H) Amount released from Reserve Account

Remaining
funds

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

Remaining
funds

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

(K)
Remaining Available Funds for distribution to Certificateholders

VII.  OTHER STATISTICS

Delinquency

A. One payment delinquent  - $

   % of
Principal Receivables

B. Two payments delinquent - $

   % of
Principal Receivables

C. Three or more payments delinquent - $

   % of
Principal Receivables

D. Two or more payments delinquent - $

   % of Principal Receivables

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

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

G. Repossessed Vehicles

   % of
Principal Receivables

H. Cumulative Net Loss Percentage

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

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

 A-6

 

Exhibit B

Forms of Notes

	
  REGISTERED

  	
   

  	
  $[              ]

  
	
  No. A-1

  	
   

  	
   

  

 

SEE REVERSE FOR CERTAIN DEFINITIONS

CUSIP NO. [                ]

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

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

HSBC AUTOMOTIVE TRUST
(USA) 2006-3

CLASS A-1 [           ]%
NOTE

HSBC Automotive Trust (USA) 2006-3, 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 [                                                                           ]
DOLLARS payable on each Distribution Date in an amount equal to the result
obtained by multiplying (i) a fraction the numerator of which is $[               ]
and the denominator of which is $[               ]
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 [                  ]
(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 November [   ],
2006.  Interest will be computed on the
basis of a 360-day year and the actual number of days elapsed in an
applicable Interest Period.  Such
principal of and interest on this Note shall be paid in the manner specified on
the reverse hereof.

The principal of and interest on this Note are payable
in such coin or currency of the United States of America as at the time of
payment is legal tender for payment of public and private debts.  All payments made by the Issuer with respect
to this Note shall be applied first to

 B-1
 

 

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

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

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

 B-2
 

 

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

	
  Date: November [   ], 2006

  	
   

  	
  HSBC AUTOMOTIVE TRUST (USA) 2006-3

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  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: November [   ], 2006

  	
  HSBC BANK USA, NATIONAL ASSOCIATION,

  
	
   

  	
  not in its individual capacity but solely as

  
	
   

  	
  Administrator

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  by:

  	
   

  	
   

  
	
   

  	
  Authorized Signatory

  
					

 B-4
 

 

[REVERSE OF NOTE]

This Note is one of a duly authorized issue of Notes
of the Issuer, designated as its Class A-1 [         ]%
Notes (herein called the “Class A-1 Notes”), all issued under an Indenture
dated as of November [   ], 2006 (such indenture, as
supplemented or amended, is herein called the “Indenture”), among the Issuer,
The Bank of New York Trust Company, N.A., 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 December 18,
2006.  The term “Distribution Date” shall
be deemed to include the Class A-1 Scheduled Maturity Date.

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

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

 B-5
 

 

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-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.

 B-6
 

 

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
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

  	
   

  	
  $[              ]

  
	
  No. A-2

  	
   

  	
   

  

 

SEE REVERSE FOR CERTAIN DEFINITIONS

CUSIP NO. [                  ]

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

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

HSBC AUTOMOTIVE TRUST
(USA) 2006-3

CLASS A-2 [      ]%
NOTE

HSBC Automotive Trust (USA) 2006-3, 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 [                                                                                          ]
DOLLARS payable on each Distribution Date in an amount equal to the result
obtained by multiplying (i) a fraction the numerator of which is $[            ]
and the denominator of which is $[            ]
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 [               ]
(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 November [   ],
2006.  Interest will be computed on the
basis of a 360-day year consisting of twelve 30-day months.

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

 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: November [   ], 2006

  	
  HSBC AUTOMOTIVE TRUST (USA) 2006-3

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  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: November [   ], 2006

  	
  HSBC BANK USA, NATIONAL ASSOCIATION,

  
	
   

  	
  not in its individual capacity but solely as

  
	
   

  	
  Administrator

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  by:

  	
   

  	
   

  
	
   

  	
  Authorized Signatory

  
					

 B-12
 

 

[REVERSE OF NOTE]

This Note is one of a duly authorized issue of Notes
of the Issuer, designated as its Class A-2 [   ]% Notes (herein
called the “Class A-2 Notes”), all issued under an Indenture dated as of
November [   ], 2006 (such indenture, as supplemented or
amended, is herein called the “Indenture”), among the Issuer, The Bank of New
York Trust Company, N.A., 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 December 18,
2006.  The term “Distribution Date” shall
be deemed to include the Class A-2 Scheduled Maturity Date.

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

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

 B-13
 

 

transfer hereof or in
exchange hereof or in lieu hereof, whether or not noted hereon.  If funds are expected to be available, as
provided in the Indenture, for payment in full of the then remaining unpaid
principal amount of this Note on a Distribution Date, then the Administrator,
in the name of and on behalf of the Issuer, will notify the Person who was the
Holder hereof as of the Record Date preceding such Distribution Date by notice
mailed prior to such Distribution Date and the amount then due and payable
shall be payable only upon presentation and surrender of this Note at the
Administrator’s principal Corporate Trust Office or at the office of the
Administrator’s agent appointed for such purposes located in New York, New
York.

The Issuer shall pay interest on overdue installments
of interest at the Class A-2 Note Rate to the extent lawful.

As provided in the Indenture and subject to certain
limitations set forth therein, the transfer of this Note may be registered on
the Note Register upon surrender of this Note for registration of transfer at
the office or agency designated by the Issuer pursuant to the Indenture, (i)
duly endorsed by, or accompanied by a written instrument of transfer in form
satisfactory to the Indenture Trustee duly executed by, the Holder hereof or his
attorney duly authorized in writing, with such signature guaranteed by an “eligible
guarantor institution” meeting the requirements of the Note Registrar which
requirements include membership or participation in Securities Transfer Agents
Medallion Program (“Stamp”) or such other “signature guarantee program” as may
be determined by the Note Registrar in addition to, or in substitution for,
Stamp, all in accordance with the Exchange Act, and (ii) accompanied by such
other documents as the Indenture Trustee may require, and thereupon one or more
new Notes of authorized denominations and in the same aggregate principal
amount will be issued to the designated transferee or transferees.  No service charge will be charged for any
registration of transfer or exchange of this Note, but the transferor may be
required to pay a sum sufficient to cover any tax or other governmental charge
that may be imposed in connection with any such registration of transfer or
exchange.

Each Noteholder or Note Owner, by acceptance of a Note
or, in the case of a Note Owner, a beneficial interest in a Note covenants and
agrees that no recourse may be taken, directly or indirectly, with respect to
the obligations of the Issuer, the Owner Trustee, the Administrator or the
Indenture Trustee on the Notes or under the Indenture or any certificate or
other writing delivered in connection therewith, against (i) the Seller,
the Servicer, the Indenture Trustee, the Administrator or the Owner Trustee in
its individual capacity, (ii) any owner of a beneficial interest in the Issuer
or (iii) any partner, owner, beneficiary, agent, officer, director or employee
of the Seller, the Servicer, the Indenture Trustee, the Administrator or the
Owner Trustee in its individual capacity, any holder of a beneficial interest
in the Issuer, the Seller, the Servicer, the Owner Trustee, the Administrator
or the Indenture Trustee or of any successor or assign of the Seller, the
Servicer, the Indenture Trustee, the Administrator or the Owner Trustee in its
individual capacity, except as any such Person may have expressly agreed (it
being understood that the Indenture Trustee and the Owner Trustee have no such
obligations in their individual capacity) and except that any such partner,
owner or beneficiary shall be fully liable, to the extent provided by
applicable law, for any unpaid consideration for stock, unpaid capital
contribution or failure to pay any installment or call owing to such entity.

Prior to the due presentment for registration of
transfer of this Note, the Issuer, the Indenture Trustee and the Administrator
and any agent of the Issuer, the Indenture Trustee or the

 B-14
 

 

Administrator may treat
the Person in whose name this Note (as of the day of determination or as of
such other date as may be specified in the Indenture) is registered as the
owner hereof for all purposes, whether or not this Note be overdue, and none of
the Issuer, the Indenture Trustee, the Administrator nor any such agent shall
be affected by notice to the contrary.

The Indenture permits, with certain exceptions as
therein provided, the amendment thereof and the modification of the rights and
obligations of the Issuer and the rights of the Holders of the Notes under the
Indenture at any time by the Issuer with the consent of the Noteholders representing
a majority of the Outstanding Amount of all Notes at the time Outstanding.

The term “Issuer” as used in this Note includes any
successor to the Issuer under the Indenture.

The Issuer is permitted by the Indenture, under
certain circumstances, to merge or consolidate, subject to the rights of the
Indenture Trustee and the Noteholders under the Indenture.

The Notes are issuable only in registered form in
denominations as provided in the Indenture, subject to certain limitations
therein set forth.

This Note and the Indenture shall be construed in
accordance with the laws of the State of New York, without reference to its
conflict of law provisions, and the obligations, rights and remedies of the
parties hereunder and thereunder shall be determined in accordance with such
laws.

No reference herein to the Indenture and no provision
of this Note or of the Indenture shall alter or impair the obligation of the
Issuer, which is absolute and unconditional, to pay the principal of and
interest on this Note at the times, place, and rate, and in the coin or
currency herein prescribed.

Anything herein to the contrary notwithstanding,
except as expressly provided in the Indenture or the Basic Documents, neither
U.S. Bank Trust National Association in its individual capacity, any owner of a
beneficial interest in the Issuer, nor any of their respective partners,
beneficiaries, agents, officers, directors, employees or successors or assigns
shall be personally liable for, nor shall recourse be had to any of them for,
the payment of principal of or interest on, or performance of, or omission to
perform, any of the covenants, obligations or indemnifications contained in
this Note or the Indenture, it being expressly understood that said covenants,
obligations and indemnifications have been made by the Owner Trustee for the
sole purposes of binding the interests of the Owner Trustee in the assets of
the Issuer.  The Holder of this Note by
the acceptance hereof agrees that except as expressly provided in the Indenture
or the Basic Documents, in the case of an Event of Default under the Indenture,
the Holder shall have no claim against any of the foregoing for any deficiency,
loss or claim therefrom; provided, however, that nothing
contained herein shall be taken to prevent recourse to, and enforcement
against, the assets of the Issuer for any and all liabilities, obligations and
undertakings contained in the Indenture or in this Note.

 B-15

 

ASSIGNMENT

Social Security or taxpayer I.D. or other identifying
number of assignee

	
  FOR VALUE RECEIVED, the
  undersigned hereby sells, assigns and transfers unto

  
	
   

  	
   

  
	
  (name and address of assignee)

  

 

the within Note and all
rights thereunder, and hereby irrevocably constitutes and appoints, attorney,
to transfer said Note on the books kept for registration thereof, with full
power of substitution in the premises.

 

	
  Dated

  	
   

  	
  (1)

  	
   

  	
   

  
	
   

  	
   

  	
  Signature Guaranteed:

  

 

(1) NOTE: The signature
to this assignment must correspond with the name of the registered owner as it
appears on the face of the within Note in every particular, without alteration,
enlargement or any change whatsoever.

 B-16
 

 

 

	
  REGISTERED

  	
   

  	
  $[              ]

  
	
  No. A-3

  	
   

  	
   

  

 

SEE REVERSE FOR CERTAIN DEFINITIONS

CUSIP NO. [               ]

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

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

HSBC AUTOMOTIVE TRUST
(USA) 2006-3

CLASS A-3 [      ]%
NOTE

HSBC Automotive Trust (USA) 2006-3, 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 [                                                                                          ]
DOLLARS payable on each Distribution Date in an amount equal to the result
obtained by multiplying (i) a fraction the numerator of which is $[            ]
and the denominator of which is $[            ]
by (ii) the aggregate amount, if any, payable from Available Funds in
respect of principal on the Class A-3 Notes pursuant to the Indenture; provided,
however, that the entire unpaid principal amount of this Note shall be
due and payable on [               ]
(the “Class A-3 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 November [   ],
2006.  Interest will be computed on the
basis of a 360-day year consisting of twelve 30-day months.

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

 B-17
 

 

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-18
 

 

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: November [   ], 2006

  	
  HSBC AUTOMOTIVE TRUST (USA) 2006-3

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  U.S. BANK TRUST NATIONAL

  
	
   

  	
  ASSOCIATION, not in its individual capacity but

  
	
   

  	
  solely as Owner Trustee

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  
					

 B-19
 

 

ADMINISTRATOR’S
CERTIFICATE OF AUTHENTICATION

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

	
  Date: November [   ], 2006

  	
  HSBC BANK USA, NATIONAL ASSOCIATION,

  
	
   

  	
  not in its individual capacity but solely as

  
	
   

  	
  Administrator

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  by:

  	
   

  	
   

  
	
   

  	
  Authorized Signatory

  
					

 B-20
 

 

[REVERSE OF NOTE]

This Note is one of a duly authorized issue of Notes
of the Issuer, designated as its Class A-3 [   ]% Notes (herein
called the “Class A-3 Notes”), all issued under an Indenture dated as of
November [   ], 2006 (such indenture, as supplemented or
amended, is herein called the “Indenture”), among the Issuer, The Bank of New
York Trust Company, N.A., 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-3 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 December 18,
2006.  The term “Distribution Date” shall
be deemed to include the Class A-3 Scheduled Maturity Date.

As described above, the entire unpaid principal amount
of this Note shall be due and payable on the Class A-3 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-3 Notes shall be made pro rata to the Class
A-3 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-21
 

 

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-3 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-22
 

 

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-23

 

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-24
 

 

 

	
  REGISTERED

  	
   

  	
  $[              ]

  
	
  No. A-4

  	
   

  	
   

  

 

SEE REVERSE FOR CERTAIN DEFINITIONS

CUSIP NO. [               ]

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

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

HSBC AUTOMOTIVE TRUST
(USA) 2006-3

CLASS A-4 [      ]%
NOTE

HSBC Automotive Trust (USA) 2006-3, 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 [                                                                                          ]
DOLLARS payable on each Distribution Date in an amount equal to the result
obtained by multiplying (i) a fraction the numerator of which is $[            ]
and the denominator of which is $[            ]
by (ii) the aggregate amount, if any, payable from Available Funds in
respect of principal on the Class A-4 Notes pursuant to the Indenture; provided,
however, that the entire unpaid principal amount of this Note shall be
due and payable on [               ]
(the “Class A-4 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 November [   ],
2006.  Interest will be computed on the
basis of a 360-day year consisting of twelve 30-day months.

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

 B-25
 

 

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-26
 

 

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: November [   ], 2006

  	
  HSBC AUTOMOTIVE TRUST (USA) 2006-3

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  U.S. BANK TRUST NATIONAL

  
	
   

  	
  ASSOCIATION, not in its individual capacity but

  
	
   

  	
  solely as Owner Trustee

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  
					

 B-27
 

 

ADMINISTRATOR’S
CERTIFICATE OF AUTHENTICATION

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

	
  Date: November [   ], 2006

  	
  HSBC BANK USA, NATIONAL ASSOCIATION,

  
	
   

  	
  not in its individual capacity but solely as

  
	
   

  	
  Administrator

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  by:

  	
   

  	
   

  
	
   

  	
  Authorized Signatory

  
					

 B-28
 

 

[REVERSE OF NOTE]

This Note is one of a duly authorized issue of Notes
of the Issuer, designated as its Class A-4 [   ]% Notes (herein
called the “Class A-4 Notes”), all issued under an Indenture dated as of
November [   ], 2006 (such indenture, as supplemented or
amended, is herein called the “Indenture”), among the Issuer, The Bank of New
York Trust Company, N.A., 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-4 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 December 18,
2006.  The term “Distribution Date” shall
be deemed to include the Class A-4 Scheduled Maturity Date.

As described above, the entire unpaid principal amount
of this Note shall be due and payable on the Class A-4 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-4 Notes shall be made pro rata to the Class
A-4 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-29
 

 

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-4 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-30
 

 

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-31
 

 

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-32

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