Document:

Exhibit
4.2

 

Execution
Copy

 

AMENDED AND
RESTATED

 

TRUST AGREEMENT

 

between

 

HSBC AUTO
RECEIVABLES CORPORATION,

 

and

 

U.S. BANK TRUST NATIONAL ASSOCIATION

Owner Trustee

 

Dated as of July 26,
2006

 

 

TABLE OF CONTENTS

 

	
   

  	
   

  	
  Page

  	 

	 
	
   

  	
   

  
	 
	
  ARTICLE I Definitions

  	
  1

  
	 
	
   

  	
   

  
	 
	
   

  	
  Section 1.1.

  	
  Capitalized Terms

  	
  1

  
	 
	
   

  	
  Section 1.2.

  	
  Other Definitional Provisions

  	
  3

  
	 
	
   

  	
  Section 1.3.

  	
  Action by or Consent of Noteholders and
  Certificateholders

  	
  3

  
	 
	
   

  	
  Section 1.4.

  	
  Material Adverse Effect

  	
  4

  
	 
	
   

  	
   

  	
   

  	
   

  
	 
	
  ARTICLE II Organization

  	
  4

  
	 
	
   

  	
   

  
	 
	
   

  	
  Section 2.1.

  	
  Name

  	
  4

  
	 
	
   

  	
  Section 2.2.

  	
  Office

  	
  4

  
	 
	
   

  	
  Section 2.3.

  	
  Purposes and Powers

  	
  4

  
	 
	
   

  	
  Section 2.4.

  	
  Appointment of Owner Trustee

  	
  5

  
	 
	
   

  	
  Section 2.5.

  	
  Initial Capital Contribution of Owner Trust Estate

  	
  5

  
	 
	
   

  	
  Section 2.6.

  	
  Declaration of Trust

  	
  5

  
	 
	
   

  	
  Section 2.7.

  	
  Liability

  	
  6

  
	 
	
   

  	
  Section 2.8.

  	
  Title to Owner Trust Estate

  	
  6

  
	 
	
   

  	
  Section 2.9.

  	
  Situs of Owner Trust Estate

  	
  6

  
	 
	
   

  	
  Section 2.10.

  	
  Representations and Warranties of the Depositor

  	
  6

  
	 
	
   

  	
  Section 2.11.

  	
  Federal Income Tax Allocations

  	
  8

  
	 
	
   

  	
  Section 2.12.

  	
  Covenants of the Depositor

  	
  8

  
	 
	
   

  	
  Section 2.13.

  	
  Covenants of the Certificateholders

  	
  9

  
	 
	
   

  	
   

  	
   

  	
   

  
	 
	
  ARTICLE III Certificates and Transfer of Interests

  	
  10

  
	 
	
   

  	
   

  	
   

  	
   

  
	 
	
   

  	
  Section 3.1.

  	
  Initial Ownership

  	
  10

  
	 
	
   

  	
  Section 3.2.

  	
  The Certificates

  	
  10

  
	 
	
   

  	
  Section 3.3.

  	
  Authentication of Certificates

  	
  11

  
	 
	
   

  	
  Section 3.4.

  	
  Registration of Transfer and Exchange of
  Certificates

  	
  11

  
	 
	
   

  	
  Section 3.5.

  	
  Mutilated, Destroyed, Lost or Stolen Certificates

  	
  12

  
	 
	
   

  	
  Section 3.6.

  	
  Persons Deemed Certificateholders

  	
  13

  
	 
	
   

  	
  Section 3.7.

  	
  Access to List of Certificateholders’ Names and
  Addresses

  	
  13

  
	 
	
   

  	
  Section 3.8.

  	
  Maintenance of Office or Agency

  	
  13

  
	 
	
   

  	
  Section 3.9.

  	
  ERISA Restrictions

  	
  13

  
	 
	
   

  	
  Section 3.10.

  	
  Securities Matters

  	
  14

  
	 
	
   

  	
  Section 3.11.

  	
  Distributions

  	
  14

  
	 
	
   

  	
  Section 3.12.

  	
  Certificate Paying Agent

  	
  14

  
	 
	
   

  	
   

  	
   

  	
   

  
	 
	
  ARTICLE IV Voting Rights and Other Actions

  	
  14

  
	 
	
   

  	
   

  	
   

  	
   

  
	 
	
   

  	
  Section 4.1.

  	
  Prior Notice to Holders with Respect to Certain
  Matters

  	
  14

  
	 
	
   

  	
  Section 4.2.

  	
  Action by Certificateholders with Respect to Certain
  Matters

  	
  15

  
	 
	
   

  	
  Section 4.3.

  	
  Action by Certificateholders with Respect to
  Bankruptcy

  	
  15

  
	 
	
   

  	
  Section 4.4.

  	
  Restrictions on Certificateholders’ Power

  	
  15

  
	 
	
   

  	
  Section 4.5.

  	
  Majority Control

  	
  16

  
						

 

 

	
   

  	
  Section 4.6.

  	
  [Reserved]

  	
  16

  
	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE V Certain Duties

  	
  16

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Section 5.1.

  	
  Accounting and Records to the Noteholders,
  Certificateholders, the Internal Revenue Service and Others

  	
  16

  
	
   

  	
  Section 5.2.

  	
  Signature on Returns; Tax Matters Partner

  	
  17

  
	
   

  	
   

  
	
  ARTICLE VI Authority and Duties of Owner Trustee

  	
  17

  
	
   

  	
   

  
	
   

  	
  Section 6.1.

  	
  General Authority

  	
  17

  
	
   

  	
  Section 6.2.

  	
  General Duties

  	
  18

  
	
   

  	
  Section 6.3.

  	
  Action upon Instruction

  	
  18

  
	
   

  	
  Section 6.4.

  	
  No Duties Except as Specified in this Agreement or
  in Instructions

  	
  19

  
	
   

  	
  Section 6.5.

  	
  No Action Except under Specified Documents or
  Instructions

  	
  19

  
	
   

  	
  Section 6.6.

  	
  Restrictions

  	
  19

  
	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE VII Concerning the Owner Trustee

  	
  20

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Section 7.1.

  	
  Acceptance of Trust and Duties

  	
  20

  
	
   

  	
  Section 7.2.

  	
  Furnishing of Documents

  	
  21

  
	
   

  	
  Section 7.3.

  	
  Representations and Warranties

  	
  21

  
	
   

  	
  Section 7.4.

  	
  Reliance; Advice of Counsel

  	
  22

  
	
   

  	
  Section 7.5.

  	
  Not Acting in Individual Capacity

  	
  22

  
	
   

  	
  Section 7.6.

  	
  Owner Trustee Not Liable for Certificates or
  Receivables

  	
  23

  
	
   

  	
  Section 7.7.

  	
  Owner Trustee May Own Certificates and Notes

  	
  23

  
	
   

  	
  Section 7.8.

  	
  Payments from Owner Trust Estate

  	
  23

  
	
   

  	
  Section 7.9.

  	
  Doing Business in Other Jurisdictions

  	
  23

  
	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE VIII Compensation of Owner Trustee

  	
  24

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Section 8.1.

  	
  Owner Trustee’s Fees and Expenses

  	
  24

  
	
   

  	
  Section 8.2.

  	
  Indemnification

  	
  24

  
	
   

  	
  Section 8.3.

  	
  Payments to the Owner Trustee

  	
  24

  
	
   

  	
  Section 8.4.

  	
  Non-recourse Obligations

  	
  25

  
	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE IX Termination of Agreement

  	
  25

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Section 9.1.

  	
  Termination of Agreement

  	
  25

  
	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE X Successor Owner Trustees and Additional
  Owner Trustees

  	
  26

  
	
   

  	
   

  
	
   

  	
  Section 10.1.

  	
  Eligibility Requirements for Owner Trustee

  	
  26

  
	
   

  	
  Section 10.2.

  	
  Resignation or Removal of Owner Trustee

  	
  27

  
	
   

  	
  Section 10.3.

  	
  Successor Owner Trustee

  	
  28

  
	
   

  	
  Section 10.4.

  	
  Merger or Consolidation of Owner Trustee

  	
  29

  
	
   

  	
  Section 10.5.

  	
  Appointment of Co-Trustee or Separate Trustee

  	
  29

  
	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE XI Miscellaneous

  	
  31

  

 

ii

 

	
   

  	
  Section 11.1.

  	
  Supplements and Amendments

  	
  31

  
	
   

  	
  Section 11.2.

  	
  No Legal Title to Owner Trust Estate in
  Certificateholders

  	
  32

  
	
   

  	
  Section 11.3.

  	
  Limitations on Rights of Others

  	
  32

  
	
   

  	
  Section 11.4.

  	
  Notices

  	
  32

  
	
   

  	
  Section 11.5.

  	
  Severability

  	
  33

  
	
   

  	
  Section 11.6.

  	
  Separate Counterparts

  	
  33

  
	
   

  	
  Section 11.7.

  	
  Assignments; Support Provider

  	
  33

  
	
   

  	
  Section 11.8.

  	
  Covenants of the Depositor

  	
  33

  
	
   

  	
  Section 11.9.

  	
  No Petition

  	
  33

  
	
   

  	
  Section 11.10.

  	
  No Recourse

  	
  33

  
	
   

  	
  Section 11.11.

  	
  Headings

  	
  34

  
	
   

  	
  Section 11.12.

  	
  GOVERNING LAW

  	
  34

  
	
   

  	
  Section 11.13.

  	
  Servicer

  	
  34

  
	
   

  	
  Section 11.14.

  	
  [Reserved].

  	
  34

  
	
   

  	
  Section 11.15.

  	
  Regulation AB

  	
  34

  
	
   

  	
  Section 11.16.

  	
   

  	
  35

  

 

EXHIBITS

 

	
  Exhibit A

  	
  Form of Certificate

  
	
  Exhibit B

  	
  Form of Certificate of
  Trust

  

 

iii

 

THIS AMENDED AND RESTATED TRUST AGREEMENT, dated as of
July 26, 2006, between HSBC AUTO RECEIVABLES CORPORATION, a Nevada corporation
(the “Depositor”), and U.S.
BANK TRUST NATIONAL ASSOCIATION, a national banking association, as
Owner Trustee (the “Owner Trustee”), amends and restates in its entirety that
certain Trust Agreement, dated as of June 26, 2006, between the Depositor and
the Owner Trustee.

 

ARTICLE I

 

Definitions

 

Section 1.1.            Capitalized
Terms. For all purposes of this Agreement, the following terms shall have
the meanings set forth below:

 

“Administrator” shall mean HSBC Bank USA, National
Association, or its successors, not in its individual capacity but solely as
administrator under the Transaction Documents to which it is a party, and any
successor administrator thereunder.

 

“Agreement” shall mean this Amended and Restated Trust
Agreement, as the same may be amended and supplemented from time to time.

 

“Benefit Plan” shall have the meaning assigned to such
term in Section 3.9.

 

“Certificates” means, if the Depositor elects (i) to
evidence its interest in certificated form pursuant to Section 3.2, the
certificate substantially in the form of Exhibit A or (ii) to have its interest
be uncertificated pursuant to Section 3.2, such uncertificated interest.

 

“Certificate Majority” shall have the meaning assigned
to such term in Section 4.1.

 

“Certificate Paying Agent” means the Administrator.

 

“Certificate Register” and “Certificate Registrar”
shall mean the register mentioned and the registrar appointed pursuant to
Section 3.4.

 

“Certificate of Trust” shall mean the Certificate of
Trust in the form of Exhibit B which was filed on June 26, 2006 pursuant to
§ 3810(a) of the Statutory Trust Statute.

 

“Code” shall mean the Internal Revenue Code of 1986,
as amended.

 

“Corporate Trust Office” shall mean, with respect to
the Owner Trustee, the office of the Owner Trustee located at 209 South LaSalle
Street, Suite 300, Chicago, Illinois 60604, Attention: Corporate Trust Services,
or at such other address as the Owner Trustee may designate by notice to the
Certificateholders and the Depositor, or the 

 

 

principal corporate trust office of any successor
Owner Trustee (the address of which the successor owner trustee will notify the
Certificateholders and the Depositor).

 

“Depositor” shall mean HSBC Auto Receivables
Corporation in its capacity as Depositor hereunder.

 

“ERISA” shall have the meaning assigned to such term
in Section 3.9.

 

“Expenses” shall have the meaning assigned to such
term in Section 8.2.

 

“Form 8-K”  shall mean a current report pursuant to
Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended.

 

“Holder” or “Certificateholder” shall mean a Person in
whose name a Certificate is registered on the Certificate Register.

 

“HSBC Finance” shall mean HSBC Finance Corporation.

 

“Indemnified Parties” shall have the meaning assigned
to such term in Section 8.2.

 

“Owner Trust Estate” shall mean all right, title and
interest of the Trust in and to the property and rights assigned to the Trust
pursuant to Article II of the Sale and Servicing Agreement, all funds on
deposit from time to time in the Trust Accounts and all other property of the
Trust from time to time, including any rights of the Owner Trustee and the
Trust pursuant to the Sale and Servicing Agreement and each Related Document.

 

“Owner Trustee” shall mean U.S. Bank Trust National
Association, a national banking association, not in its individual capacity but
solely as Owner Trustee under this Agreement, and any successor Owner Trustee
hereunder.

 

“Percentage Interest” shall mean, with respect to a
Certificate, the portion of the interests in the Trust represented by a
Certificate, as reflected in the Certificate Register.

 

“Sale and Servicing Agreement” means the Sale and
Servicing Agreement dated as of July 26, 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.

 

“Secretary of State” shall mean the Secretary of State
of the State of Delaware.

 

“Securities Act” shall have the meaning assigned to
such term in the Indenture.

 

“Series Trust Estate” shall mean the property granted
to the Indenture Trustee on behalf of the Trust pursuant to Section 1.02 of the
Series Supplement.

 

2

 

“Statutory Trust Statute” shall mean Chapter 38 of
Title 12 of the Delaware Code, 12 Del. Code § 3801 et seq. as the
same may be amended from time to time.

 

“Treasury Regulations” shall mean regulations,
including proposed or temporary regulations, promulgated under the Code. References
herein to specific provisions of proposed or temporary regulations shall
include analogous provisions of final Treasury Regulations or other successor
Treasury Regulations.

 

“Trust” shall mean the trust established by this
Agreement.

 

Section 1.2.            Other
Definitional Provisions.  (a)  Capitalized
terms used herein and not otherwise defined have the meanings assigned to them
in the Sale and Servicing Agreement or, if not defined therein, in the
Indenture; provided  that, as used herein, Series means only the
Series of Notes and Series of Certificates with respect to which the Trust is
the Issuer and only such Series Trust Estates included in the Owner Trust
Estate.

 

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

 

(c)           As
used in this Agreement 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 certificate or other document, and accounting terms
partly defined in this Agreement or in any such 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 certificate or other document, as applicable. To the
extent that the definitions of accounting terms in this Agreement or in any
such 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 certificate or other document shall control.

 

(d)           The
words “hereof,” “herein,” “hereunder” and words of similar import when used in
this Agreement shall refer to this Agreement as a whole and not to any
particular provision of this Agreement; Section and Exhibit references
contained in this Agreement are references to Sections and Exhibits in or to
this Agreement unless otherwise specified; and the term “including” shall mean “including
without limitation.”

 

(e)           The
definitions contained in this Agreement 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.

 

Section 1.3.            Action
by or Consent of Noteholders and Certificateholders. Whenever any provision
of this Agreement refers to action to be taken, or consented to, by Noteholders
or Certificateholders, such provision shall be deemed to refer to the
Certificateholder or Noteholder, as the case may be, of record as of the Record
Date immediately preceding the date on which such action is to be taken, or 

 

3

 

consent given, by Noteholders or Certificateholders. Solely for the
purposes of any action to be taken, or consented to, by Noteholders, any Note
registered in the name of the Depositor or any Affiliate thereof shall be
deemed not to be outstanding; provided, however, that, solely for
the purpose of determining whether the Indenture Trustee is entitled to rely
upon any such action or consent, only Notes that a Responsible Officer of the
Owner Trustee or the Indenture Trustee, as the case may be, either actually
knows to be so owned or has received written notice thereof shall be so
disregarded.

 

Section 1.4.            Material
Adverse Effect. Whenever a determination is to be made under this Agreement
as to whether a given event, action, course of conduct or set of facts or
circumstances could or would have a material adverse effect on the Noteholders
or Certificateholders (or any similar or analogous determination), such
determination shall be made without taking into account the funds available
from claims under any policy or other Series Support.

 

ARTICLE II

 

Organization

 

Section 2.1.            Name.
There is hereby formed a trust to be known as “HSBC Automotive Trust (USA) 2006-2”,
in which name the Owner Trustee may conduct the business of the Trust, make and
execute contracts and other instruments on behalf of the Trust and sue and be
sued.

 

Section 2.2.            Office.
The principal place of business of the Trust for purposes of Delaware law shall
be in care of the Owner Trustee at the Corporate Trust Office of the Owner Trustee
or at such other address as the Owner Trustee may designate by written notice
to the Certificateholders and the Depositor. The Trust may establish additional
offices located at such place or places inside or outside the State of Delaware
as the Owner Trustee may designate from time to time by written notice to the
Certificateholders and the Depositor.

 

Section
2.3.            Purposes and Powers.
 (a)  The purpose of the Trust
is, and the Trust shall have the power and authority, to engage in the
following activities:

 

(i)            to
issue the Notes pursuant to the Indenture and the Series Supplement and the
Certificates pursuant to this Agreement and the Series Supplement, and to sell
the Notes;

 

(ii)           with
the proceeds of the sale of the Notes, to fund the expense of obtaining any
Series Support and to pay the organizational, start-up and transactional
expenses of the Trust and to pay the balance to the Depositor pursuant to the
Sale and Servicing Agreement;

 

(iii)          with
respect to the Series Trust Estate, to assign, grant, transfer, pledge,
mortgage and convey the Series Trust Estate to the Indenture Trustee pursuant
to the Indenture and the Series Supplement for the benefit of the Secured
Parties;

 

4

 

(iv)          to
enter into and perform its obligations under the Basic Documents and the
Related Documents, in each case, to which it is a party;

 

(v)           to
acquire, hold and manage the Owner Trust Estate;

 

(vi)          to
make distributions on the Certificates in accordance with their respective
terms;

 

(vii)         to
own Class SV Preferred Stock of the Depositor;

 

(viii)        to
engage in those activities, including entering into agreements, that are
necessary, suitable or convenient to accomplish the foregoing or are incidental
thereto or connected therewith; and

 

(ix)           subject
to compliance with the Basic Documents and the Related Documents, to engage in
such other activities as may be required in connection with conservation of the
Owner Trust Estate and the making of distributions to the Certificateholders
and the Noteholders.

 

(b)           The
Trust is hereby authorized to engage in the foregoing activities. The Trust
shall not engage in any activity other than in connection with the foregoing or
other than as required or authorized by the terms of this Agreement, the Basic
Documents or any Related Documents.

 

Section
2.4.            Appointment of Owner
Trustee. The Depositor hereby appoints the Owner Trustee as trustee of the
Trust effective as of the date hereof, to have all the respective rights,
powers and duties set forth herein.

 

Section
2.5.            Initial Capital
Contribution of Owner Trust Estate. The Depositor hereby sells, assigns,
transfers, conveys and sets over to the Owner Trustee, on behalf of the Trust,
as of the date hereof, the sum of $1,000 and one share of Class SV Preferred
Stock of the Depositor. The Owner Trustee hereby acknowledges receipt in trust
from the Depositor, as of the date hereof, of the foregoing contribution, which
shall constitute the initial Owner Trust Estate. The Depositor shall pay
organizational expenses of the Trust as they may arise.

 

Section 2.6.            Declaration
of Trust. The Owner Trustee hereby declares that it will hold the Owner
Trust Estate in trust upon and subject to the conditions set forth herein, on
behalf of the Trust, for the use and benefit of the Certificateholders, subject
to the obligations of the Trust under the Basic Documents. It is the intention
of the parties hereto that the Trust constitute a statutory trust under the Statutory
Trust Statute and that this Agreement constitute the governing instrument of
such statutory trust. It is the intention of the parties hereto that, solely
for federal income tax purposes, the Trust shall be disregarded as an entity
separate from the Certificateholder; provided, however, that in
the event Certificates are owned by more than one Certificateholder, it is the
intention of the parties hereto that, solely for federal income tax purposes,
the Trust shall then be treated as a partnership and that, unless otherwise
required by appropriate tax authorities, only after such time the Trust will
file or cause to be filed annual or other 

 

5

 

necessary returns, reports and other forms consistent with the
characterization of the Trust as a partnership for such tax purposes. Effective
as of the date hereof, the Owner Trustee shall have all rights, powers and
duties set forth herein and to the extent not inconsistent herewith, in the Statutory
Trust Statute with respect to accomplishing the purposes of the Trust. The
Owner Trustee shall file the Certificate of Trust with the Secretary of State.

 

Section
2.7.            Liability.  (a)  The Depositor shall pay
organizational expenses of the Trust as they may arise or shall, upon the
request of the Owner Trustee, promptly reimburse the Owner Trustee for any such
expenses paid by the Owner Trustee.

 

(b)           No
Holder, other than to the extent set forth in clause (a), shall have any
personal liability for any liability or obligation of the Trust.

 

Section
2.8.            Title to Owner Trust
Estate.  (a)  Legal title
to all of the Owner Trust Estate shall be vested at all times in the Trust as a
separate legal entity except where applicable law in any jurisdiction requires
title to any part of the Owner Trust Estate to be vested in a trustee or
trustees, in which case title shall be deemed to be vested in the Owner
Trustee, a co-trustee and/or a separate trustee, as the case may be.

 

(b)           The
holders of the Certificates shall not have legal title to any part of the
Series Trust Estate. The Holders of the Certificates shall be entitled to
receive distributions with respect to their undivided ownership interest
therein in accordance with the terms hereof and the Series Supplement. No
transfer, by operation of law or otherwise, of any right, title or interest by
any Certificateholder of its ownership interest in the Owner Trust Estate shall
operate to terminate this Agreement or the trusts hereunder or entitle any
transferee to an accounting or to the transfer to it of legal title to any part
of the Series Trust Estate.

 

Section
2.9.            Situs of Owner Trust
Estate. The Trust will be located in the State of Delaware and administered
in the State of Delaware and the State of Illinois. All bank accounts
maintained by the Owner Trustee on behalf of the Trust shall be located with
the Certificate Paying Agent in the State of New York. Payments will be
received by the Certificate Paying Agent on behalf of the Trust in New York and
payments will be made by the Trust from New York. The Trust shall not have any
employees in any state other than Delaware; provided, however,
that nothing herein shall restrict or prohibit the Owner Trustee, the Servicer
or any agent of the Trust from having employees within or without the State of
Delaware. The principal office of the Trust will be at the Corporate Trust
Office of the Owner Trustee.

 

Section
2.10.          Representations and
Warranties of the Depositor. The Depositor makes the following
representations and warranties on which the Owner Trustee relies in accepting
the Owner Trust Estate in trust and executing the Certificates and Notes and
upon which any Support Provider relies in providing any Series Support. Each of
the following representations and warranties shall be deemed to be made on each
date on which a Series Trust Estate is pledged under the Indenture.

 

6

 

(a)           Organization
and Good Standing. The Depositor is duly organized and validly existing as
a Nevada corporation with power and authority to own its properties and to
conduct its business as such properties are currently owned and such business
is presently conducted and is proposed to be conducted pursuant to this
Agreement and the Basic Documents.

 

(b)           Due
Qualification. It 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 its property, the conduct of
its business and the performance of its obligations under this Agreement and
the Basic Documents requires such qualification and in which the failure to so
qualify would have a material adverse effect on the business, properties,
assets or condition (financial or otherwise) of the Depositor.

 

(c)           Power
and Authority. The Depositor has the corporate power and authority to execute
and deliver this Agreement and to carry out its terms; the Depositor has full
power and authority to sell and assign the property to be sold and assigned to
and deposited with the Trust; the Depositor has duly authorized such sale,
assignment and deposit to the Trust by all necessary corporate action; and the
execution, delivery and performance of this Agreement has been duly authorized
by the Depositor by all necessary corporate action.

 

(d)           Binding
Obligations. This Agreement, when duly executed and delivered, shall
constitute legal, valid and binding obligations of the Depositor enforceable
against the Depositor in accordance with its 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.

 

(e)           No
Consent Required. To the best knowledge of the Depositor, no consent,
license, approval or authorization or registration or declaration with, any
Person or with any governmental authority, bureau or agency is required in
connection with the execution, delivery or performance of this Agreement and
the Related Documents, except for such as have been obtained, effected or made
or as to which a failure to obtain, effect or make would not have a material
adverse effect on the business, properties, assets or condition (financial or
other) of the Depositor.

 

(f)            No
Violation. The consummation of the transactions contemplated by this
Agreement and the fulfillment of the terms hereof do not 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 by-laws of the Depositor, or any material indenture, agreement or other
instrument to which the Depositor is a party or by which it is bound; nor
result in the creation or imposition of any Lien upon any of its properties
pursuant to the terms of any such indenture, agreement or other instrument
(other than pursuant to the Basic Documents or any applicable Related
Documents); nor violate any law or, to the best of the Depositor’s knowledge,
any order, rule or regulation 

 

7

 

applicable to the
Depositor of any court or of any federal or state regulatory body,
administrative agency or other governmental instrumentality having jurisdiction
over the Depositor or its properties, provided, however, that the
Receivables will not satisfy the Eligibility Criteria set forth in Schedule I
to the Series Supplement until the date on which such Receivables are
transferred to the Issuer.

 

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

 

Section
2.11.          Federal Income Tax
Allocations.  (a)  For so
long as the Trust has a single owner for federal income tax purposes, it will,
pursuant to Treasury Regulations promulgated under section 7701 of the Code, be
disregarded as an entity separate from the Certificateholder for all federal
income tax purposes. Accordingly, for federal income tax purposes, the
Certificateholder will be treated as (i) owning all assets owned by the Trust,
(ii) having incurred all liabilities incurred by the Trust, and (iii) all
transactions between the Trust and the Certificateholder will be disregarded.

 

(b)           Neither
the Owner Trustee nor any Certificateholder will, under any circumstances, and
at any time, make an election on IRS Form 8832 or otherwise, to classify the
Trust as an association taxable as a corporation for federal, state or any
other applicable tax purpose.

 

(c)           In
the event that the Trust has two or more equity owners for federal income tax
purposes, the Trust will be treated as a partnership. At any such time that the
Trust has two or more equity owners, this Agreement will be amended, in
accordance with Section 11.1 herein, and appropriate provisions will be added
so as to provide for treatment of the Trust as a partnership.

 

Section
2.12.          Covenants of the
Depositor. The Depositor agrees and covenants for the benefit of the Owner
Trustee and the Indenture Trustee for the benefit of the Secured Parties,
during the term of this Agreement, and to the fullest extent permitted by
applicable law, that:

 

(a)           (i)
it shall not create, incur or suffer to exist any indebtedness or (ii) engage
in any business, except (x) as permitted by its articles of incorporation and
the Related Documents and (y) in connection with a securitization transaction
(including warehousing transactions) and the related documents in which the
related indebtedness is issued pursuant to an indenture having a provision
substantially similar to Section 11.18 

 

8

 

of the Indenture; provided,
however, that no other Series shall be issued under the Basic Documents
so long as the Notes are outstanding;

 

(b)           it
shall not, for any reason, institute proceedings for the Trust to be
adjudicated bankrupt or insolvent, or consent to the institution of bankruptcy
or insolvency proceedings against the Trust, or file a petition seeking or
consenting to reorganization or relief under any applicable federal or state
law relating to the bankruptcy of the Trust, or consent to the appointment of a
receiver, liquidator, assignee, trustee, sequestrator (or other similar
official) of the Trust or a substantial part of the property of the Trust or cause
or permit the Trust to make any assignment for the benefit of creditors, or
admit in writing the inability of the Trust to pay its debts generally as they
become due, or declare or effect a moratorium on the debt of the Trust or take
any action in furtherance of any such action;

 

(c)           it
shall obtain from each counterparty to each Basic Document to which it or the
Trust is a party and each other agreement entered into on or after the date
hereof to which it or the Trust is a party, an agreement by each such
counterparty that prior to the occurrence of the event specified in
Section 9.1(e) such counterparty shall not institute against, or join any
other Person in instituting against, it or the Trust, any bankruptcy,
reorganization, arrangement, insolvency or liquidation proceedings or other
similar proceedings under the laws of the United States or any state of the
United States; and

 

(d)           it
shall not, for any reason, withdraw or attempt to withdraw from this Agreement,
dissolve, institute proceedings for it to be adjudicated a bankrupt or
insolvent, or consent to the institution of bankruptcy or insolvency
proceedings against it, or file a petition seeking or consenting to
reorganization or relief under any applicable federal or state law relating to
bankruptcy, or consent to the appointment of a receiver, liquidator, assignee,
trustee, sequestrator (or other similar official) of it or a substantial part
of its property, or make any assignment for the benefit of creditors, or admit
in writing its inability to pay its debts generally as they become due, or
declare or effect a moratorium on its debt or take any action in furtherance of
any such action.

 

Section
2.13.          Covenants of the
Certificateholders. Each Certificateholder agrees:

 

(a)           to
be bound by the terms and conditions of the related Certificates, of this
Agreement and, with respect to the holders of Certificates, of the Series
Supplement, including any supplements or amendments hereto and to perform the
obligations of a Certificateholder as set forth therein or herein, in all
respects as if it were a signatory hereto. This undertaking is made for the
benefit of the Trust, the Owner Trustee and the Secured Parties;

 

(b)           to
hereby appoint the Owner Trustee as such Certificateholder’s agent and attorney-in-fact
to sign any federal income tax information return filed on behalf of the Trust,
if any, and agree that, if requested by the Trust, it will sign such federal
income tax information return in its capacity as holder of an interest in the
Trust. 

 

9

 

Each
Certificateholder also hereby agrees that in its tax returns it will not take
any position inconsistent with those taken in any tax returns that may be filed
by the Trust;

 

(c)           if
such Certificateholder is other than an individual or other entity holding its
Certificate through a broker who reports securities sales on Form 1099-B, to
notify the Owner Trustee of any transfer by it of a Certificate in a taxable
sale or exchange, within 30 days of the date of the transfer;

 

(d)           until
the completion of the events specified in Section 9.1(e), not to, for any
reason, institute proceedings for the Trust or the Depositor to be adjudicated
a bankrupt or insolvent, or consent to the institution of bankruptcy or insolvency
proceedings against the Trust, or file a petition seeking or consenting to
reorganization or relief under any applicable federal or state law relating to
bankruptcy, or consent to the appointment of a receiver, liquidator, assignee,
trustee, sequestrator (or other similar official) of the Trust or a substantial
part of its property, or cause or permit the Trust to make any assignment for
the benefit of its creditors, or admit in writing its inability to pay its
debts generally as they become due, or declare or effect a moratorium on its
debt or take any action in furtherance of any such action; and

 

(e)           that
there shall not be more than 98 other holders of Certificates.

 

ARTICLE III

 

Certificates and Transfer
of Interests

 

Section 3.1.            Initial
Ownership. Upon the formation of the Trust by the contribution by the
Depositor pursuant to Section 2.5, the Trust shall issue an uncertificated
ownership interest in the Trust (the “Uncertificated Certificate”) to the
Depositor. Unless and until the Depositor transfers all or a portion of the
Percentage Interest represented by such Uncertificated Certificate, such
Uncertificated Certificate shall represent one hundred percent (100%) of the
Percentage Interest. Upon issuance, the Certificates shall be fully paid and
nonassessable.

 

Section 3.2.            The
Certificates.  (a)   The
Certificates shall be in uncertificated form with records of interest ownership
maintained by the Certificate Registrar in the Certificate Register. If, on or
after the Closing Date, the holder of any Uncertificated Certificate delivers
to the Owner Trustee a written request that the Uncertificated Certificate
specified in such request be issued in certificated form (a related “Certification
Request”), the Owner Trustee shall promptly issue such Certificate to the
holder thereof in certificated form. If a Certification Request has been
delivered, the Certificate will be issued in registered form, substantially in
the form of Exhibit A, and shall upon issue, be executed and delivered by the
Depositor to the Owner Trustee for authentication and redelivery as provided in
Section 3.3.

 

(b)           If
the Certificates are in certificated form, they shall be executed on behalf of
the Trust by manual or facsimile signature of an authorized officer of the
Owner Trustee. Certificates bearing the manual or facsimile signatures of
individuals 

 

10

 

who were, at the
time when such signatures shall have been affixed, authorized to sign on behalf
of the Trust, shall be validly issued and entitled to the benefit of this
Agreement, notwithstanding that such individuals or any of them shall have
ceased to be so authorized prior to the authentication and delivery of such
Certificates or did not hold such offices at the date of authentication and
delivery of such Certificates.

 

(c)           A
transferee of a Certificate (whether in certificated or uncertificated form)
shall become a Certificateholder, and shall be entitled to the rights and
subject to the obligations of a Certificateholder hereunder, upon due
registration of such Certificate in such transferee’s name pursuant to
Section 3.4. Any transfer of a Certificate (whether in certificated or
uncertificated form) shall satisfy each of the transfer restrictions set forth
herein and other requirements set forth in the form of Certificate attached
hereto as Exhibit A.

 

(d)           No
Certificates shall be issued under this Agreement unless such Certificates have
been authorized pursuant to the Series Supplement and all conditions precedent
to the issuance thereof, as specified in the Series Supplement shall have been
satisfied. All Certificates issued under this Agreement shall be in all
respects entitled to the benefits hereof and of the Owner Trust Estate.

 

Section 3.3.            Authentication
of Certificates. If the Certificates are in certificated form, the Owner
Trustee shall cause the related Certificates to be executed on behalf of the
Trust, authenticated and delivered to or upon the written order of the
Depositor, signed by its chairman of the board, its president or any vice
president, its treasurer or any assistant treasurer without further corporate
action by the Depositor, in authorized denominations. No Certificate shall
entitle its holder to any benefit under this Agreement or, with respect to a
Series, the Series Supplement, or shall be valid for any purpose, unless there
shall appear on such Certificate a certificate of authentication substantially
in the form set forth in Exhibit A, executed by the Owner Trustee or its
authenticating agent, by manual signature; such authentication shall constitute
conclusive evidence that such Certificate shall have been duly authenticated
and delivered hereunder. All Certificates shall be dated the date of their
authentication.

 

Section 3.4.            Registration
of Transfer and Exchange of Certificates.  (a)  The Certificate Registrar shall
keep or cause to be kept, at the office or agency maintained pursuant to
Section 3.8, a Certificate Register in which, subject to such reasonable
regulations as it may prescribe, the Owner Trustee shall provide for the
registration of Certificates (whether in certificated or uncertificated form)
and of transfers and exchanges of Certificates (whether in certificated or
uncertificated form) as herein provided. The Owner Trustee shall be the initial
Certificate Registrar.

 

(b)           The
Certificate Registrar shall provide the Indenture Trustee and the Administrator
with a list of the names and addresses of the Certificateholders on the Closing
Date in the form which such information is provided to the Certificate
Registrar by the Depositor. Upon any transfers of Certificates, the Certificate
Registrar shall notify the Indenture Trustee and the Administrator of the name
and address of the transferee in writing, by facsimile, on the day of such transfer.

 

11

 

(c)           If
a Certificate is in certificated form, upon surrender for registration of
transfer of any Certificate to the Certificate Registrar at the office or
agency maintained pursuant to Section 3.8, the Owner Trustee shall
execute, authenticate and deliver, in the name of the designated transferee or
transferees, one or more new Certificates of the same Series in the aggregate
Percentage Interest to be transferred, dated the date of authentication by the
Owner Trustee or any authenticating agent. If a Certificate is in
uncertificated form, upon representation of such Certificate in accordance with
Section 3.2, the Certificate Registrar shall reflect in the Certificate
Register the transfer of the relevant Percentage Interest. If a Certificate is
in certificated form, at the option of the Holder thereof, such Certificate may
be exchanged for one or more other Certificates of the same Series in
authorized denominations of a like Percentage Interest upon surrender of the
Certificates of the same Series, to be exchanged at the office or agency
maintained pursuant to Section 3.8. Certificates may be issued in any
Percentage Interest not to exceed 100%.

 

(d)           Every
Certificate presented or, in the case of certificated Certificates, surrendered
for registration of transfer or exchange shall be accompanied by a written
instrument of transfer in form satisfactory to the Owner Trustee and the
Certificate Registrar duly executed by the Certificateholder or his attorney
duly authorized in writing, with such signature guaranteed by an “eligible
guarantor institution” meeting the requirements of the Certificate Registrar,
which requirements include membership or participation in the Securities
Transfer Agent’s Medallion Program (“STAMP”) or such other “signature guarantee
program” as may be determined by the Certificate Registrar in addition to, or
in substitution for, STAMP, all in accordance with the Exchange Act. Each
certificated Certificate surrendered for registration of transfer or exchange
shall be canceled and subsequently disposed of by the Owner Trustee in
accordance with its customary practice.

 

(e)           No
service charge shall be made for any registration of transfer or exchange of
Certificates, but the Owner Trustee or the Certificate Registrar may require
payment of a sum sufficient to cover any tax or governmental charge that may be
imposed in connection with any transfer or exchange of Certificates.

 

Section 3.5.            Mutilated,
Destroyed, Lost or Stolen Certificates. If (a) any mutilated Certificate
shall be surrendered to the Certificate Registrar, or if the Certificate
Registrar shall receive evidence to its satisfaction of the destruction, loss
or theft of any Certificate and (b) there shall be delivered to the Certificate
Registrar and the Owner Trustee, such security or indemnity as may be required
by them to hold each of them harmless, then in the absence of notice that such
Certificate shall have been acquired by a bona fide purchaser, the Owner
Trustee on behalf of the Trust shall execute and the Owner Trustee or its
authenticating agent shall authenticate and deliver, in exchange for or in lieu
of any such mutilated, destroyed, lost or stolen Certificate, a new Certificate
of like Series principal balance. In connection with the issuance of any new
Certificate under this Section, the Owner Trustee or the Certificate Registrar
may require the payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in connection therewith. Any duplicate
Certificate issued pursuant to this section shall constitute conclusive
evidence of an ownership interest in the Trust, as if 

 

12

 

originally issued, whether or not the lost, stolen or destroyed
Certificate shall be found at any time.

 

Section 3.6.            Persons
Deemed Certificateholders. Every Person by virtue of becoming a
Certificateholder in accordance with this Agreement and the rules and
regulations of the Certificate Registrar shall be deemed to be bound by the
terms of this Agreement. Prior to due presentation of a Certificate for
registration of transfer, the Owner Trustee and the Certificate Registrar and
any agent of the Owner Trustee and the Certificate Registrar may treat the
Person in whose name any Certificate shall be registered in the Certificate
Register as the owner of such Certificate for the purpose of receiving
distributions pursuant hereto, the Indenture or the Series Supplement (in the
case of a Certificate) and for all other purposes whatsoever, and none of the
Owner Trustee, the Certificate Registrar nor any agent of the Owner Trustee or
the Certificate Registrar shall be bound by any notice to the contrary.

 

Section 3.7.            Access
to List of Certificateholders’ Names and Addresses. The Owner Trustee or
the Certificate Registrar shall furnish or cause to be furnished to the Servicer,
the Depositor, the Indenture Trustee or the Administrator within 15 days after
receipt by the Owner Trustee or the Certificate Registrar of a request therefor
from such Person in writing, a list, of the names and addresses of the
Certificateholders as of the most recent Record Date. If three or more Holders
of Certificates or one or more Holders of Certificates evidencing not less than
25% of the Percentage Interest apply in writing to the Owner Trustee or the
Certificate Registrar, and such application states that the applicants desire
to communicate with other Certificateholders with respect to their rights under
this Agreement, under the Certificates of such Series or under the Series
Supplement and such application is accompanied by a copy of the communication
that such applicants propose to transmit, then the Owner Trustee or the
Certificate Registrar shall, within five Business Days after the receipt of
such application, afford such applicants access during normal business hours to
the current list of Certificateholders of such Series. Each Holder, by
receiving and holding a Certificate, shall be deemed to have agreed not to hold
any of the Depositor, the Servicer, the Owner Trustee or any agent thereof
accountable by reason of the disclosure of its name and address, regardless of
the source from which such information was derived.

 

Section 3.8.            Maintenance
of Office or Agency. The Owner Trustee or the Certificate Registrar shall
maintain in Chicago, Illinois, an office or offices or agency or agencies where
Certificates may be surrendered for registration of transfer or exchange and
where notices and demands to or upon the Owner Trustee in respect of the
Certificates and the Basic Documents may be served. The Owner Trustee initially
designates its Corporate Trust Office for such purposes. The Owner Trustee
shall give prompt written notice to the Depositor, the Certificateholders and
any Support Provider of any change in the location of the Certificate Register
or any such office or agency.

 

Section 3.9.            ERISA
Restrictions. The Certificates may not be acquired by or for the account of
(i) an employee benefit plan (as defined in § 3(3) of the Employee Retirement
Income Security Act of 1974, as amended (“ERISA”)) that is subject to the
provisions of Title I of ERISA, (ii) a plan (as defined in § 4975(e)(1) of
the 

 

13

 

Code) that is subject to Section 4975 of the Code or (iii) any entity
whose underlying assets include assets of a plan described in (i) or (ii) by
reason of such plan’s investment in the entity (each, a “Benefit Plan”). The
Certificate Registrar shall not register the transfer of a Certificate unless
the transferee has delivered to the Owner Trustee a representation letter in
form and substance satisfactory to the Owner Trustee to the effect that the
transferee is not, and is not acquiring the Certificate for the account of, a
Benefit Plan.

 

Section 3.10.          Securities
Matters. Notwithstanding anything contained herein to the contrary, the
Owner Trustee shall not be responsible for ascertaining whether any transfer
complies with the registration provisions or exemptions from the Securities
Act, the Exchange Act, applicable state securities law or the Investment
Company Act; provided, however, that if a certificate is
specifically required to be delivered to the Owner Trustee by a purchaser or
transferee of a Certificate, the Owner Trustee shall be under a duty to examine
the same to determine whether it conforms to the requirements of this Agreement
and shall promptly notify the party delivering the same if such certificate
does not so conform.

 

Section 3.11.          Distributions.
Distributions shall be made from time to time by the Owner Trustee or the
Certificate Paying Agent in accordance with the Percentage Interests of the
Certificateholders.

 

Section 3.12.          Certificate
Paying Agent. Distributions to be made in respect of the Certificates
pursuant to this Agreement, or the Series Supplement shall be made by the
Certificate Paying Agent, by wire transfer or check mailed to the
Certificateholder of record in the Certificate Register without the
presentation or surrender of the Certificate or the making of any notation
thereon, except as provided in Section 9.1(c) with respect to the final
distribution on a Certificates.

 

ARTICLE IV

 

Voting Rights and Other
Actions

 

Section 4.1.            Prior
Notice to Holders with Respect to Certain Matters. With respect to the
following matters, the Owner Trustee shall not take action unless at least 30
days before the taking of such action, the Owner Trustee shall have notified
the Certificateholders in writing of the proposed action and Certificateholders
holding, in the aggregate, greater than 50% of the Percentage Interests (a “Certificate
Majority”) shall not have notified the Owner Trustee in writing prior to the
30th day after such notice is given that such Certificateholders have withheld
consent or provided alternative direction:

 

(a)           the
election by the Trust to file an amendment to the Certificate of Trust, which
amendment shall have satisfied the Rating Agency Condition (unless such
amendment is required to be filed under the Statutory Trust Statute or unless
such amendment would not materially and adversely affect the interests of the
Holders);

 

14

 

(b)           the
amendment of the Indenture by a supplemental indenture in circumstances where
the consent of any Noteholder is required;

 

(c)           the
amendment of the Indenture by a supplemental indenture in circumstances where
the consent of any Noteholder is not required and such amendment materially
adversely affects the interest of the Certificateholders;

 

(d)           except
pursuant to Section 13.1(b) of the Sale and Servicing Agreement, the
amendment, change or modification of the Sale and Servicing Agreement, except
to cure any ambiguity or defect or to amend or supplement any provision in a
manner that would not materially adversely affect the interests of the
Certificateholders; or

 

(e)           the
Depositor shall not, without the unanimous consent of the holders of the Class
SV Preferred Stock of the Depositor, institute proceedings to be adjudicated
insolvent, or consent to the institution of any bankruptcy or insolvency case
or proceedings against it, or file or consent to a petition under any
applicable federal or state law relating to bankruptcy, seeking the Depositor’s
liquidation or reorganization or any other relief for the Corporation as
debtor, or consent to the appointment of a receiver, liquidator, assignee,
trustee, custodian or sequestrator (or other similar official) of the
Corporation or a substantial part of its property, or make any assignment for
the benefit of creditors, or admit in writing its inability to pay its debts
generally as they become due, or take any corporate action in furtherance of
such action.

 

The Owner Trustee shall notify the Certificateholders
in writing of any appointment of a successor Note Registrar or Certificate
Registrar within five Business Days thereof.

 

Section 4.2.            Action
by Certificateholders with Respect to Certain Matters. The Owner Trustee
shall not have the power (a) to remove the Servicer under the Sale and
Servicing Agreement or (b) except as expressly provided in the Indenture and
the Series Supplement and at the written direction of the Certificateholders,
sell the Receivables after the termination of the Indenture. The Owner Trustee
shall take the actions referred to in the preceding sentence only upon written
instructions signed by the Certificateholders and the furnishing of
indemnification satisfactory to the Owner Trustee by the Certificateholders.

 

Section 4.3.            Action
by Certificateholders with Respect to Bankruptcy. Until one year and one
day following the date of payment in full of the Notes, the Owner Trustee shall
not have the power to, and shall not, commence any proceeding or other actions
contemplated by Section 2.13(d) hereof relating to the Trust without the
prior written consent of all the Certificateholders and the delivery to the
Owner Trustee by each such Certificateholder of a certificate certifying that
such Certificateholder reasonably believes that the Trust is insolvent.

 

Section 4.4.            Restrictions
on Certificateholders’ Power.  (a)  The
Certificateholders shall not direct the Owner Trustee to take or refrain from
taking any

 

15

 

action if such action or inaction would be contrary to any obligation
of the Trust or the Owner Trustee under this Agreement or any of the Basic
Documents or would be contrary to Section 2.3 or otherwise contrary to law
nor shall the Owner Trustee be obligated to follow any such direction, if
given.

 

(b)           No
Certificateholder shall have any right by virtue or by availing itself of any
provisions of this Agreement to institute any suit, action, or proceeding in
equity or at law upon or under or with respect to this Agreement or any Basic
Document, unless there are no outstanding Notes and unless the Certificate Majority
previously shall have given to the Owner Trustee a written notice of default
and of the continuance thereof, as provided in this Agreement, and also unless
the Certificate Majority shall have made written request upon the Owner Trustee
to institute such action, suit or proceeding in its own name as Owner Trustee
under this Agreement and shall have offered to the Owner Trustee such
reasonable indemnity as it may require against the costs, expenses and
liabilities to be incurred therein or thereby, and the Owner Trustee, for 30
days after its receipt of such notice, request, and offer of indemnity, shall
have neglected or refused to institute any such action, suit, or proceeding,
and during such 30-day period no request or waiver inconsistent with such
written request has been given to the Owner Trustee pursuant to and in
compliance with this section or Section 6.3; it being understood and
intended, and being expressly covenanted by each Certificateholder with every
other Certificateholder and the Owner Trustee, that no one or more Holders of
Certificates shall have any right in any manner whatever by virtue or by
availing itself or themselves of any provisions of this Agreement to affect,
disturb, or prejudice the rights of the Holders of any other of the
Certificates, or to obtain or seek to obtain priority over or preference to any
other such Holder, or to enforce any right under this Agreement, except in the
manner provided in this Agreement and for the equal, ratable, and common
benefit of all Certificateholders. For the protection and enforcement of the
provisions of this Section 4.4, each and every Certificateholder and the
Owner Trustee shall be entitled to such relief as can be given either at law or
in equity.

 

Section 4.5.            Majority
Control. No Certificateholder shall have any right to vote or in any manner
otherwise control the operation and management of the Trust except as expressly
provided in this Agreement. Except as expressly provided herein, any action
that may be taken by the Certificateholders under this Agreement may be taken
by the Certificate Majority. Except as expressly provided herein, any written
notice of the Certificateholders delivered pursuant to this Agreement shall be
effective if signed by the Certificate Majority at the time of the delivery of
such notice.

 

Section 4.6.            [Reserved]

 

ARTICLE V

 

Certain Duties

 

Section 5.1.            Accounting
and Records to the Noteholders, Certificateholders, the Internal Revenue
Service and Others. Subject to Sections 12.1(b)(iii) and 12.1(c) of the Sale
and Servicing Agreement, the Servicer, on behalf of the Trust and Depositor,
shall (a) maintain or cause to be maintained the books of the Trust on a
calendar year basis on the accrual method of accounting, including, without 

 

16

 

limitation, the allocations of net income under Section 2.11, (b)
deliver (or cause to be delivered) to each Certificateholder, as may be
required by the Code and applicable Treasury Regulations, such information as
may be required (including Schedule K-1, if applicable) to enable each
Certificateholder to prepare its federal and state income tax returns, (c) file
or cause to be filed, if necessary, such tax returns relating to the Trust
(including a partnership information return, Form 1065, if applicable), and
direct the Owner Trustee to or may itself, as the case may be, make such
elections as may from time to time be required or appropriate under any
applicable state or federal statute or rule or regulation thereunder so as to
maintain the Trust’s characterization as a disregarded entity, or if
applicable, as a partnership, for federal income tax purposes and (d) collect
or cause to be collected any withholding tax as described in and in accordance
with the Sale and Serving Agreement or the Series Supplement with respect to
income or distributions to Certificateholders and the appropriate forms
relating thereto. The Owner Trustee or the Servicer, as the case may be, shall
make all elections pursuant to this Section 5.1 as directed in writing by
the Depositor. The Owner Trustee shall sign all tax information returns, if
any, filed pursuant to this Section 5.1 and any other returns as may be
required by law, and in doing so shall rely entirely upon, and shall have no
liability for information provided by, or calculations provided by, the
Depositor or the Servicer. The Owner Trustee shall elect under
Section 1278 of the Code to include in income currently any market
discount that accrues with respect to the Receivables. The Owner Trustee shall
not make the election provided under Section 754 of the Code unless
required by law.

 

Section 5.2.            Signature
on Returns; Tax Matters Partner.  (a)  Notwithstanding
the provisions of Section 5.1 and in the event that the Trust is
characterized as a partnership for federal income tax purposes, the Owner
Trustee shall sign on behalf of the Trust the tax returns of the Trust, unless
applicable law requires a Certificateholder to sign such documents, in which
case such documents shall be signed by the Depositor.

 

(b)           In
the event that the Trust is characterized as a partnership for federal income
tax purposes, the Depositor shall be the “tax matters partner” of the Trust
pursuant to the Code.

 

ARTICLE VI

 

Authority and Duties of
Owner Trustee

 

Section 6.1.            General
Authority. The Owner Trustee is authorized and directed to execute and
deliver on behalf of the Trust the Basic Documents to which the Trust is named
as a party and each certificate or other document attached as an exhibit to or
contemplated by the Basic Documents to which the Trust is named as a party and
any amendment thereto, in each case, in such form as the Depositor shall
approve as evidenced conclusively by the Owner Trustee’s execution thereof, and
on behalf of the Trust, to direct the Administrator to authenticate and deliver
the Notes. In addition to the foregoing, the Owner Trustee is authorized, but
shall not be obligated, to take all actions required of the Trust pursuant to
the Basic Documents. The Owner Trustee is also 

 

17

 

authorized to execute and deliver on behalf of the Trust, at the
Depositor’s or the Servicer’s direction, any documents that may be required to
be executed by the Trust in connection with any state business licenses (and
any renewal thereof) required to be obtained or maintained by the Trust. The
Owner Trustee is further authorized from time to time to take such action as
the Certificate Majority recommends with respect to the Basic Documents so long
as such activities are consistent with the terms of the Basic Documents.

 

Section 6.2.            General
Duties. It shall be the duty of the Owner Trustee to discharge (or cause to
be discharged) all of its responsibilities pursuant to the terms of this
Agreement and to administer the Trust in accordance with the provisions of this
Agreement and in the interest of the Holders, subject to the Basic Documents. Notwithstanding
the foregoing, the Owner Trustee shall be deemed to have discharged its duties
and responsibilities hereunder and under the Basic Documents to the extent the Servicer
has agreed in the Sale and Servicing Agreement to perform any act or to
discharge any duty of the Trust or the Owner Trustee hereunder or under any
Basic Document and the Owner Trustee shall not be liable for the default or
failure of the Servicer to carry out its obligations under the Sale and
Servicing Agreement.

 

Section 6.3.            Action
upon Instruction.  (a)  Subject to Article IV, the Certificate
Majority shall have the exclusive right to direct the actions of the Owner
Trustee in the management of the Trust, so long as such instructions are not
inconsistent with the express terms set forth herein or in any Basic Document. The
Certificate Majority shall not instruct the Owner Trustee in a manner inconsistent
with this Agreement or the Basic Documents.

 

(b)           The
Owner Trustee shall not be required to take any action hereunder or under any
Basic Document if the Owner Trustee shall have reasonably determined, or shall
have been advised by counsel, that such action is likely to result in liability
on the part of the Owner Trustee or is contrary to the terms hereof or of any
Basic Document or is otherwise contrary to law.

 

(c)           Whenever
the Owner Trustee is unable to decide between alternative courses of action
permitted or required by the terms of this Agreement or any Basic Document, the
Owner Trustee shall promptly give notice (in such form as shall be appropriate
under the circumstances) to the Certificate Majority requesting instruction as
to the course of action to be adopted, and to the extent the Owner Trustee acts
in good faith in accordance with any written instruction of the Certificate
Majority, the Owner Trustee shall not be liable on account of such action to
any Person. If the Owner Trustee shall not have received appropriate
instruction within ten days of such notice (or within such shorter period of
time as reasonably may be specified in such notice or may be necessary under
the circumstances) it may, but shall be under no duty to, take or refrain from
taking such action, not inconsistent with this Agreement or the Basic Documents
or as it shall deem to be in the best interests of the Certificateholders, and
shall have no liability to any Person for such action or inaction.

 

18

 

(d)           In
the event that the Owner Trustee is unsure as to the application of any
provision of this Agreement or any Basic Document or any such provision is
ambiguous as to its application, or is, or appears to be, in conflict with any
other applicable provision, or in the event that this Agreement permits any
determination by the Owner Trustee or is silent or is incomplete as to the
course of action that the Owner Trustee is required to take with respect to a
particular set of facts, the Owner Trustee may give notice (in such form as
shall be appropriate under the circumstances) to the Certificate Majority
requesting instruction and, to the extent that the Owner Trustee acts or
refrains from acting in good faith in accordance with any such instruction
received, the Owner Trustee shall not be liable, on account of such action or
inaction, to any Person. If the Owner Trustee shall not have received
appropriate instruction within 10 days of such notice (or within such shorter
period of time as reasonably may be specified in such notice or may be
necessary under the circumstances) it may, but shall be under no duty to, take
or refrain from taking such action, not inconsistent with this Agreement or the
Basic Documents, as it shall deem to be in the best interests of the
Certificateholders, and shall have no liability to any Person for such action
or inaction.

 

Section 6.4.            No
Duties Except as Specified in this Agreement or in Instructions. The Owner
Trustee shall not have any duty or obligation to manage, make any payment with
respect to, register, record, sell, dispose of, or otherwise deal with the
Owner Trust Estate, or to otherwise take or refrain from taking any action
under, or in connection with, any document contemplated hereby to which the
Owner Trustee is a party, except as expressly provided by the terms of this
Agreement or in any document or written instruction received by the Owner
Trustee pursuant to Section 6.3; and no implied duties or obligations
shall be read into this Agreement or any Basic Document against the Owner
Trustee. The Owner Trustee shall have no responsibility for filing any
financing or continuation statement in any public office at any time or to
otherwise perfect or maintain the perfection of any security interest or lien
granted to it hereunder or to prepare or file any Commission filing for the
Trust or to record this Agreement or any Basic Document. The Owner Trustee
nevertheless agrees that it will, at its own cost and expense, promptly take
all action as may be necessary to discharge any Liens on any part of the Owner
Trust Estate that result from actions by, or claims against, the Owner Trustee
(solely in its individual capacity) and that are not related to the ownership
or the administration of the Owner Trust Estate.

 

Section 6.5.            No
Action Except under Specified Documents or Instructions. The Owner Trustee
shall not manage, control, use, sell, dispose of or otherwise deal with any
part of the Owner Trust Estate except (i) in accordance with the powers granted
to and the authority conferred upon the Owner Trustee pursuant to this
Agreement, (ii) in accordance with the Basic Documents or any Related Document
and (iii) in accordance with any document or instruction delivered to the Owner
Trustee pursuant to Section 6.3.

 

Section 6.6.            Restrictions.
The Owner Trustee shall not take any action (a) that is inconsistent with the
purposes of the Trust set forth in Section 2.3 or (b) that, to the actual
knowledge of the Owner Trustee, would result in the Trust being treated as an
association or publicly traded partnership taxable as a corporation for federal
income tax 

 

19

 

purposes. The Certificateholders shall not direct the Owner Trustee to
take action that would violate the provisions of this Section.

 

ARTICLE VII

 

Concerning the Owner
Trustee

 

Section 7.1.            Acceptance
of Trust and Duties. The Owner Trustee accepts the trust hereby created and
agrees to perform its duties hereunder with respect to such trust but only upon
the terms of this Agreement. The Owner Trustee and the Certificate Paying Agent
also agree to disburse all monies actually received by it constituting part of
the Owner Trust Estate upon the terms of this Agreement or the Basic Documents.
The Owner Trustee shall not be answerable or accountable hereunder or under any
Basic Document under any circumstances, except (i) for its own willful
misconduct, bad faith or negligence, (ii) in the case of the inaccuracy of any
representation or warranty contained in Section 7.3 expressly made by the
Owner Trustee in its individual capacity, (iii) for liabilities arising from
the failure of the Owner Trustee to perform obligations expressly undertaken by
it in the last sentence of Section 6.4 hereof, (iv) for any investments
issued by the Owner Trustee or any branch or affiliate thereof in its
commercial capacity or (v) for taxes, fees or other charges on, based on or
measured by, any fees, commissions or compensation received by the Owner
Trustee. In particular, but not by way of limitation (and subject to the
exceptions set forth in the preceding sentence):

 

(a)           the
Owner Trustee shall not be liable for any error of judgment made by a
Responsible Officer of the Owner Trustee;

 

(b)           the
Owner Trustee shall not be liable with respect to any action taken or omitted
to be taken by it in accordance with the instructions of the Certificate
Majority, the Depositor, the Servicer or any Certificateholder;

 

(c)           no
provision of this Agreement or any Basic Document shall require the Owner
Trustee to expend or risk funds or otherwise incur any financial liability in
the performance of any of its rights or powers hereunder or under any Basic
Document if the Owner Trustee shall have reasonable grounds for believing that
repayment of such funds or adequate indemnity against such risk or liability is
not reasonably assured or provided to it;

 

(d)           under
no circumstances shall the Owner Trustee be liable for indebtedness evidenced
by or arising under any of the Basic Documents or any Related Document,
including the principal of and interest on the Notes;

 

(e)           the
Owner Trustee shall not be responsible for or in respect of the validity or
sufficiency of this Agreement or for the due execution hereof by the Depositor
or for the form, character, genuineness, sufficiency, value or validity of any
of the Owner Trust Estate or for or in respect of the validity or sufficiency
of the Basic Documents or any Related Document, other than the certificate of
authentication on the Certificates, and 

 

20

 

the Owner Trustee
shall in no event assume or incur any liability, duty or obligation to the
Depositor, any Support Provider, the Indenture Trustee, the Administrator, the
Certificate Paying Agent, any Noteholder or to any Certificateholder, other
than as expressly provided for herein or in the Basic Documents;

 

(f)            the
Owner Trustee shall not be liable for the default or misconduct of the
Depositor, any Support Provider, the Indenture Trustee, the Administrator or
the Servicer under any of the Basic Documents or otherwise and the Owner
Trustee shall have no obligation or liability to perform the obligations under
this Agreement or the Basic Documents that are required to be performed by the
Depositor or the Certificate Paying Agent under this Agreement, by the
Indenture Trustee or the Administrator under the Indenture, the Series
Supplement or any Related Document or the Servicer under the Sale and Servicing
Agreement or the Series Supplement; and

 

(g)           the Owner Trustee shall be under no obligation to exercise
any of the rights or powers vested in it by this Agreement, or to institute,
conduct or defend any litigation under this Agreement or otherwise or in
relation to this Agreement or any Basic Document at the request, order or
direction of the Certificate Majority or any of the Certificateholders, unless
such Certificate Majority or Certificateholders have offered to the Owner
Trustee security or indemnity satisfactory to it against the costs, expenses
and liabilities that may be incurred by the Owner Trustee therein or thereby.
The right of the Owner Trustee to perform any discretionary act enumerated in
this Agreement or in any Basic Document shall not be construed as a duty, and
the Owner Trustee shall not be answerable for other than its negligence, bad
faith or willful misconduct in the performance of any such act.

 

Section 7.2.            Furnishing of Documents. The
Owner Trustee shall furnish to the Certificateholders promptly upon receipt of
a written request therefor, duplicates or copies of all reports, notices,
requests, demands, certificates, financial statements and any other instruments
furnished to the Owner Trustee under the Basic Documents.

 

Section 7.3.            Representations and Warranties.
The Owner Trustee hereby represents and warrants, in its individual capacity,
to the Depositor, the Holders and any Support Provider (which shall have relied
on such representations and warranties in issuing any policy relating to Series
Support), that:

 

(a)           It
is a national banking association, duly organized, validly existing and in good
standing under the laws of the United States. It has all requisite power and
authority to execute, deliver and perform its obligations under this Agreement.

 

(b)           It
has taken all actions necessary to authorize the execution and delivery by it
of this Agreement, and this Agreement will be executed and delivered by one of
its officers who is duly authorized to execute and deliver this Agreement on
its behalf.

 

(c)           Neither
the execution nor the delivery by it of this Agreement, nor the consummation by
it of the transactions contemplated hereby nor compliance by it 

 

21

 

with any of the
terms or provisions hereof will contravene any federal or Delaware state law,
governmental rule or regulation governing the banking or trust powers of it or
any judgment or order binding on it, or constitute any default under its
charter documents or by-laws or any indenture, mortgage, contract, agreement or
instrument to which it is a party or by which any of its properties may be
bound.

 

(d)           This
Agreement constitutes the legal, valid and binding obligation of the Owner
Trustee, enforceable against it in accordance with its terms except as the
enforceability thereof may be limited by bankruptcy, insolvency, moratorium,
reorganization or other similar laws affecting the enforcement of creditors’
rights generally and by general principles of equity.

 

(e)           It
is authorized to exercise trust powers in the State of Delaware as and to the
extent contemplated herein and it has a principal place of business in the
State of Delaware.

 

Section 7.4.            Reliance; Advice of Counsel.  (a)  The Owner Trustee shall incur
no liability to anyone in acting upon any signature, instrument, notice,
resolution, request, consent, order, certificate, report, opinion, bond or
other document or paper believed by it to be genuine and believed by it to be
signed by the proper party or parties. The Owner Trustee may accept a certified
copy of a resolution of the board of directors or other governing body of any
corporate party as conclusive evidence that such resolution has been duly
adopted by such body and that the same is in full force and effect. As to any
fact or matter the method of the determination of which is not specifically
prescribed herein, the Owner Trustee may for all purposes hereof rely on a
certificate, signed by the president or any vice president or by the treasurer,
secretary or other authorized officers of the relevant party, as to such fact
or matter, and such certificate shall constitute full protection to the Owner
Trustee for any action taken or omitted to be taken by it in good faith in
reliance thereon.

 

(b)           In
the exercise or administration of the trusts hereunder and in the performance
of its duties and obligations under this Agreement or the Basic Documents, the
Owner Trustee (i) may act directly or through its agents or attorneys pursuant
to agreements entered into with any of them, and the Owner Trustee shall not be
liable for the conduct or misconduct of such agents or attorneys if such agents
or attorneys shall have been selected by the Owner Trustee with reasonable
care, and (ii) may consult with counsel, accountants and other skilled persons
to be selected with reasonable care and employed by it. The Owner Trustee shall
not be liable for anything done, suffered or omitted in good faith by it in
accordance with the written opinion or advice of any such counsel, accountants
or other such persons and according to such opinion not contrary to this
Agreement or any Basic Document.

 

Section 7.5.            Not Acting in Individual Capacity.
Except as provided in this Article VII, in accepting the trusts hereby created
the Owner Trustee acts solely as Owner Trustee hereunder and not in its
individual capacity and all Persons having any claim against the Owner Trustee
by reason of the transactions contemplated by this 

 

22

 

Agreement or any Basic Document shall look
only to the Owner Trust Estate for payment or satisfaction thereof.

 

Section 7.6.            Owner Trustee Not Liable for
Certificates or Receivables. The recitals contained herein and in
certificated Certificates (other than the signature and countersignature of the
Owner Trustee on such Certificates) shall be taken as the statements of the
Depositor and the Owner Trustee assumes no responsibility for the correctness
thereof. The Owner Trustee makes no representations as to the validity or
sufficiency of this Agreement, of any Basic Document or of the Certificates
(other than the signature and countersignature of the Owner Trustee on
certificated Certificates) or the Notes, or of any Receivable or related
documents. The Owner Trustee shall at no time have any responsibility or
liability for or with respect to the legality, validity and enforceability of
any Receivable, or the perfection and priority of any security interest created
by any Receivable in any Financed Vehicle or the maintenance of any such
perfection and priority, or for or with respect to the sufficiency of the Owner
Trust Estate or its ability to generate the payments to be distributed to
Certificateholders under this Agreement or the Noteholders under the Indenture,
including, without limitation:  the
existence, condition and ownership of any Financed Vehicle; the existence and
enforceability of any insurance thereon; the existence and contents of any
Receivable on any computer or other record thereof; the validity of the
assignment of any Receivable to the Trust or of any intervening assignment; the
completeness of any Receivable; the performance or enforcement of any
Receivable; the compliance by the Depositor, the Servicer or any other Person
with any warranty or representation made under any Basic Document or in any
related document or the accuracy of any such warranty or representation or any
action of the Indenture Trustee, the Administrator or the Servicer or any
subservicer taken in the name of the Owner Trustee.

 

Section 7.7.            Owner Trustee May Own
Certificates and Notes. The Owner Trustee in its individual or any other capacity
may become the owner or pledgee of Certificates or Notes and may deal with the
Depositor, the Indenture Trustee, the Administrator and the Servicer in banking
transactions with the same rights as it would have if it were not Owner
Trustee.

 

Section 7.8.            Payments from Owner Trust Estate
All payments to be made by the Owner Trustee or any Certificate Paying Agent
under this Agreement or any of the Basic Documents shall be made only from the
income and proceeds of the Owner Trust Estate and only to the extent that the
Owner Trustee shall have received income or proceeds from the Owner Trust
Estate to make such payments in accordance with the terms hereof. The Owner
Trustee, or any successor thereto, in its individual capacity, shall not be
liable for any amounts payable under this Agreement or any of the Basic
Documents.

 

Section 7.9.            Doing Business in Other
Jurisdictions. Notwithstanding anything contained herein to the contrary,
the Owner Trustee (in its individual and trustee capacities) shall not be
required to take any action in any jurisdiction other than in the State of
Delaware if the taking of such action will, even after the appointment of a
co-trustee or separate trustee in accordance with Section 10.5 hereof, (i)
require the consent 

 

23

 

or approval or authorization or order of or
the giving of notice to, or the registration with or the taking of any other
action in respect of, any state or other governmental authority or agency of
any jurisdiction other than the State of Delaware; (ii) result in any fee, tax
or other governmental charge under the laws of the State of Delaware becoming
payable by the Owner Trustee (in its individual capacity); or (iii) subject the
Owner Trustee (in its individual capacity) to personal jurisdiction in any
jurisdiction other than the State of Delaware for causes of action arising from
acts unrelated to the consummation of the transactions by the Owner Trustee (in
its individual and trustee capacities) contemplated hereby.

 

ARTICLE
VIII

 

Compensation
of Owner Trustee

 

Section 8.1.            Owner Trustee’s Fees and Expenses.
The Owner Trustee shall receive as compensation for its services hereunder such
fees as have been separately agreed upon before the date hereof between HSBC
Finance and the Owner Trustee, and the Owner Trustee shall be entitled to be
reimbursed by the Depositor for its other reasonable expenses hereunder,
including the reasonable compensation, expenses and disbursements of such
agents, representatives, experts and counsel as the Owner Trustee may employ in
connection with the exercise and performance of its respective rights and
duties hereunder or under the Basic Documents.

 

Section 8.2.            Indemnification. To the
fullest extent permitted by applicable law, the Depositor shall be liable as
primary obligor for, and shall indemnify the Owner Trustee (in its individual
and trustee capacities) and its officers, directors, successors, assigns,
agents and servants (collectively, the “Indemnified Parties”) from and against,
any and all liabilities, obligations, losses, damages, taxes, claims, actions
and suits, and any and all reasonable costs, expenses and disbursements
(including reasonable legal fees and expenses) of any kind and nature
whatsoever (collectively, “Expenses”) which may at any time be imposed on,
incurred by, or asserted against the Owner Trustee (in its trust or individual
capacities) or any Indemnified Party in any way relating to or arising out of
this Agreement or the Basic Documents, the Owner Trust Estate, the
administration of the Owner Trust Estate or the action or inaction of the Owner
Trustee hereunder, except only that the Depositor shall not be liable for or
required to indemnify the Owner Trustee from and against Expenses arising or
resulting from any of the matters described in the third sentence of
Section 7.1 with respect to the Owner Trustee. The indemnities contained
in this Section 8.2 and the rights under Section 8.1 shall survive
the resignation or termination of the Owner Trustee or the termination of this
Agreement. In any event of any claim, action or proceeding for which indemnity
will be sought pursuant to this Section, the Owner Trustee’s choice of legal
counsel shall be subject to the approval of the Depositor which approval shall
not be unreasonably withheld.

 

Section 8.3.            Payments to the Owner Trustee.
Any amounts paid to the Owner Trustee in its trustee capacity pursuant to this
Article VIII shall be deemed not to be a part of the Owner Trust Estate
immediately after such payment and any amounts so 

 

24

 

paid to the Owner Trustee in its individual
capacity shall not be so paid out of the Owner Trust Estate but shall be the
property of the Owner Trustee in its individual capacity.

 

Section 8.4.            Non-recourse Obligations.
Notwithstanding anything in this Agreement or any Basic Document, the Owner
Trustee agrees in its individual capacity and in its capacity as Owner Trustee
for the Trust that all obligations of the Trust to the Owner Trustee
individually or as Owner Trustee for the Trust shall be recourse to the Owner
Trust Estate only and specifically shall not be recourse to the assets of any
Certificateholder.

 

ARTICLE
IX

 

Termination
of Agreement

 

Section 9.1.            Termination of Agreement.  (a)  This Agreement shall terminate
and the Trust shall dissolve, wind up, terminate and be of no further force or
effect upon the latest to occur of (i) the maturity or other liquidation of the
last Receivable (including the optional purchase by the Depositor or the
Servicer of the corpus of the Trust as described in Section 11.1 of the
Sale and Servicing Agreement) and the subsequent distribution of amounts in
respect of such Receivables as provided in the Basic Documents and, with
respect to amounts released from the Lien of the Indenture, distribution
thereof to the Certificateholders, or (ii) the payment to Noteholders and
Certificateholders of all amounts required to be paid to them pursuant to the
Indenture and this Agreement, including, with respect to amounts released from
the Lien of the Indenture, distribution thereof to the Certificateholders and
the payment to any Support Provider of all amounts payable or reimbursable to
it pursuant to the Series Supplement; provided, however, that the
rights to indemnification under Section 8.2 and the rights under
Section 8.1 shall survive the termination of the Trust. The Servicer shall
promptly notify the Owner Trustee of any prospective termination pursuant to
this Section 9.1. The bankruptcy, liquidation, dissolution, death or
incapacity of any Certificateholder shall not (x) operate to terminate this
Agreement or the Trust, nor (y) entitle such Certificateholder’s legal
representatives or heirs to claim an accounting or to take any action or
proceeding in any court for a partition or winding up of all or any part of the
Trust or Owner Trust Estate nor (z) otherwise affect the rights, obligations
and liabilities of the parties hereto.

 

(b)           Except
as provided in clause (a), neither the Depositor nor any other
Certificateholder shall be entitled to revoke or terminate the Trust.

 

(c)           If
any Certificates are in certificated form, notice of any termination of a
Series Trust Estate, specifying the Distribution Date upon which the
Certificateholders of such Series shall surrender their Certificates to the
Certificate Paying Agent for payment of the final distribution and
cancellation, shall be given by the Owner Trustee by letter to
Certificateholders of such Series mailed within five Business Days of receipt of
notice of such termination given pursuant to Section 9.1(a) hereof, stating (i)
the Distribution Date upon or with respect to which final payment of the
Certificates of such Series shall be made upon presentation and surrender of
the 

 

25

 

Certificates of
such Series at the office of the Certificate Paying Agent therein designated,
(ii) the amount of any such final payment, (iii) that the Record Date otherwise
applicable to such Distribution Date is not applicable, payments being made
only upon presentation and surrender of the Certificates of such Series at the
office of the Certificate Paying Agent therein specified and (iv) interest will
cease to accrue on the Certificates of such Series. The Owner Trustee shall
give such notice to the Certificate Registrar (if other than the Owner Trustee)
and the Certificate Paying Agent at the time such notice is given to
Certificateholders. Upon presentation and surrender of the Certificates of such
Series, the Certificate Paying Agent shall cause to be distributed to
Certificateholders of such Series amounts distributable pursuant to the Series
Supplement.

 

(d)           If
any Certificates are in certificated form, in the event that all of the
Certificateholders holding certificated Certificates of such Series shall not
surrender their Certificates for cancellation within six months after the date
specified in the above-mentioned written notice, the Certificate Paying Agent
shall give a second written notice to the remaining Certificateholders holding
certificated Certificates of such Series to surrender their Certificates for
cancellation and receive the final distribution with respect thereto. If within
one year after the second notice all the certificated Certificates of such Series
shall not have been surrendered for cancellation, the Certificate Paying Agent
may take appropriate steps, or may appoint an agent to take appropriate steps,
to contact the remaining Certificateholders holding certificated Certificates
concerning surrender of their Certificates, and the cost thereof shall be paid
out of the funds and other Series Trust Estate assets that shall remain subject
to this Agreement. Any funds remaining in the Trust after exhaustion of such
remedies shall be distributed, subject to applicable escheat laws, by the
Certificate Paying Agent to the Depositor and Holders shall look solely to the
Depositor for payment.

 

(e)           Any
funds remaining in the Trust after funds for final distribution have been
distributed or set aside for distribution in accordance with Section 3808 of
the Statutory Trust Statute shall be distributed by the Certificate Paying
Agent to the Depositor.

 

(f)            Upon
the winding up of the Trust and its termination, the Owner Trustee shall cause
the Certificate of Trust to be canceled by filing a certificate of cancellation
with the Secretary of State in accordance with the provisions of
Section 3810 of the Statutory Trust Statute.

 

ARTICLE
X

 

Successor
Owner Trustees and Additional Owner Trustees

 

Section 10.1.          Eligibility Requirements for Owner
Trustee. The Owner Trustee shall at all times be a corporation or national
banking association (i) satisfying the provisions of Section 3807(a) of the
Statutory Trust Statute, (ii) authorized to exercise corporate trust powers; (iii)
having a combined capital and surplus of at least $50,000,000 and subject to
supervision or examination by federal or state authorities; (iv) having (or
having a parent which has) a rating of at least Baa3 by Moody’s or A-1 by
Standard & 

 

26

 

Poor’s; and (v) acceptable to the
Certificateholders. If such corporation shall publish reports of condition at
least annually, pursuant to law or to the requirements of the aforesaid
supervising or examining authority, then for the purpose of this Section, the
combined capital and surplus of such corporation shall be deemed to be its
combined capital and surplus as set forth in its most recent report of
condition so published. In case at any time the Owner Trustee shall cease to be
eligible in accordance with the provisions of this Section, the Owner Trustee
shall resign immediately in the manner and with the effect specified in
Section 10.2.

 

Section 10.2.          Resignation or Removal of Owner
Trustee. The Owner Trustee may at any time resign and be discharged from
the trusts hereby created by giving written notice thereof to the Depositor (or
in the event that the Depositor is not the sole Certificateholder, the
Certificate Majority), any Support Provider and the Servicer. As a condition
precedent to the effectiveness of any such resignation, the Owner Trustee
shall, at least 30 calendar days prior to the effective date of such
resignation, provide to the Depositor and the Servicer written notice of any
successor owner trustee pursuant to this Section, in form and substance
reasonably satisfactory to the Depositor and the Servicer, containing all
information reasonably requested by the Depositor and Servicer in order for the
Depositor to comply with its reporting obligations under Item 6.02 of Form 8-K
with respect to the resignation of the Owner Trustee. Upon receiving such
notice of resignation, the Depositor shall promptly appoint a successor Owner
Trustee meeting the qualifications set forth in Section 10.1 herein, by written
instrument, in duplicate, one copy of which instrument shall be delivered to
the resigning Owner Trustee and one copy to the successor Owner Trustee; provided
that the Depositor shall have received written confirmation from each of
the Rating Agencies that the proposed appointment will not result in an
increased capital charge to any Support Provider by either of the Rating
Agencies. If no successor Owner Trustee shall have been so appointed and have
accepted appointment within 30 days after the giving of such notice of
resignation, the resigning Owner Trustee or any Support Provider may petition
any court of competent jurisdiction for the appointment of a successor Owner
Trustee.

 

If at any time the Owner Trustee shall cease to be
eligible in accordance with the provisions of Section 10.1 and shall fail
to resign after written request therefor by the Depositor, or if at any time
the Owner Trustee shall be legally unable to act, or shall be adjudged bankrupt
or insolvent, or a receiver of the Owner Trustee or of its respective property
shall be appointed, or any public officer shall take charge or control of the
Owner Trustee or of its respective property or affairs for the purpose of
rehabilitation, conservation or liquidation, then the Depositor may remove the
Owner Trustee. If the Depositor shall remove the Owner Trustee under the
authority of the immediately preceding sentence, the Depositor shall promptly
appoint a successor Owner Trustee meeting the qualifications set forth in
Section 10.1 herein, by written instrument, in triplicate, one copy of
which instrument shall be delivered to the outgoing Owner Trustee so removed,
one copy to any Support Provider and one copy to the successor Owner Trustee.
As a condition precedent to such removal and appointment described in the two
preceding sentences, the Owner Trustee shall provide to the Depositor and the
Servicer, at least 30 calendar days prior to the effective date of such removal
and appointment, written notice to the Depositor and the Servicer, in form and
substance 

 

27

 

reasonably satisfactory to the Depositor and the
Servicer, containing all information reasonably requested by the Depositor and
the Servicer in order for the Depositor to comply with its reporting obligation
under Item 6.02 of Form 8-K with respect to the removal of the outgoing Owner
Trustee and the appointment of a successor Owner Trustee.

 

In addition, if the Owner Trustee shall fail to
fulfill its obligations under Section 10.2 (with respect to notice to the
Depositor or the Servicer), and such failure continues for the lesser of 10
calendar days or such period in which the applicable report under the Exchange
Act can be filed timely (without taking into account any extensions), then the
Depositor may remove the Owner Trustee. If the Depositor removes the Owner
Trustee under the authority of the immediately preceding sentence, the
Depositor shall promptly appoint a successor Owner Trustee by written
instrument in duplicate, one copy of which shall be delivered to the Owner
Trustee so removed and one copy to the successor Owner Trustee.

 

Any resignation or removal of the Owner Trustee and
appointment of a successor Owner Trustee pursuant to any of the provisions of
this Section 10.2 shall not become effective until acceptance of appointment by
the successor Owner Trustee pursuant to Section 10.3 and payment of all
fees and expenses owed to the outgoing Owner Trustee. The Depositor shall
provide notice of such resignation or removal of the Owner Trustee to each of
the Rating Agencies.

 

In connection with its resignation or removal, the
Owner Trustee agrees to cooperate with any successor Owner Trustee in effecting
the termination of the Owner Trustee’s responsibilities and rights hereunder
and shall promptly provide such successor Owner Trustee all documents and
records reasonably requested by it to enable it to assume the Owner Trustee’s
functions hereunder; provided however, the
Owner Trustee shall not be required to incur any expenses for which it will not
be promptly reimbursed.

 

Section 10.3.          Successor Owner Trustee. Any
successor Owner Trustee appointed pursuant to Section 10.2 shall execute,
acknowledge and deliver to the Depositor, the Servicer, any Support Provider
and to its predecessor Owner Trustee an instrument accepting such appointment
under this Agreement, and thereupon the resignation or removal of its
predecessor shall become effective and the successor Owner Trustee, without any
further act, deed or conveyance, shall become fully vested with all the rights,
powers, duties and obligations of its predecessor under this Agreement, with
like effect as if originally named as Owner Trustee. The predecessor Owner
Trustee shall upon payment of its fees and expenses deliver to the successor
Owner Trustee all documents and statements and monies held by it under this
Agreement; and the Depositor and the predecessor Owner Trustee shall execute
and deliver such instruments and do such other things as may reasonably be
required for fully and certainly vesting and confirming in the successor Owner
Trustee all such rights, powers, duties and obligations.

 

28

 

No successor Owner Trustee shall accept appointment as
provided in this Section 10.3 unless at the time of such acceptance such
successor Owner Trustee shall be eligible pursuant to Section 10.1.

 

Upon acceptance of appointment by a successor Owner
Trustee pursuant to this Section, the Servicer shall mail notice of the
successor of such Owner Trustee to all Certificateholders, the Indenture
Trustee, the Administrator, the Noteholders and the Rating Agencies. If the
Servicer shall fail to mail such notice within 10 days after acceptance of
appointment by the successor Owner Trustee, the successor Owner Trustee shall
cause such notice to be mailed at the expense of the Servicer.

 

Any successor Owner Trustee appointed pursuant to this
Section 10.3 shall promptly file an amendment to the Certificate of Trust with
the Secretary of State identifying the name and principal place of business of
such successor Owner Trustee in the State of Delaware.

 

Section 10.4.          Merger or Consolidation of Owner
Trustee. Any corporation into which the Owner Trustee may be merged or
converted or with which it may be consolidated, or any corporation resulting
from any merger, conversion or consolidation to which the Owner Trustee shall
be a party, or any corporation succeeding to all or substantially all of the
corporate trust business of the Owner Trustee, shall be the successor of the
Owner Trustee hereunder, provided such corporation shall be eligible pursuant
to Section 10.1, without the execution or filing of any instrument or any
further act on the part of any of the parties hereto, anything herein to the
contrary notwithstanding; provided, further, that the Owner
Trustee shall mail notice of such merger or consolidation to the Rating
Agencies, the Depositor and the Servicer.

 

In addition, as a condition precedent to the
effectiveness of any merger or consolidation of the Owner Trustee, the Owner
Trustee shall deliver to the Depositor and the Servicer, at least 30 calendar
days prior to the effective date of any merger or consolidation of the Owner
Trustee, written notice thereof, in form and substance reasonably satisfactory
to the Depositor and the Servicer, containing all information reasonably
requested by the Depositor and the Servicer in order for the Depositor to
comply with its reporting obligations under Item 6.02 of Form 8-K with respect
to a successor Owner Trustee. If the Owner Trustee shall fail to fulfill its
obligations under Section 10.4 (with respect to notice to the Depositor or the
Servicer), and such failure continues for the lesser of 10 calendar days or
such period in which the applicable report under the Exchange Act can be filed
timely (without taking into account any extensions), then the Depositor may
remove the Owner Trustee. If the Depositor removes the Owner Trustee under the
authority of the immediately preceding sentence, the Depositor shall promptly
appoint a successor Owner Trustee by written instrument in duplicate, one copy
of which shall be delivered to the Owner Trustee so removed and one copy to the
successor Owner Trustee.

 

Section 10.5.          Appointment of Co-Trustee or
Separate Trustee. Notwithstanding any other provisions of this Agreement,
at any time, for the purpose of meeting any legal requirements of any
jurisdiction in which any part of the Owner Trust 

 

29

 

Estate or any Financed Vehicle may at the
time be located, the Servicer and the Owner Trustee acting jointly shall have
the power and shall execute and deliver all instruments to appoint one or more
Persons approved by the Owner Trustee and any Support Provider to act as
co-trustee, jointly with the Owner Trustee, or separate trustee or separate
trustees, of all or any part of the Owner Trust Estate, and to vest in such
Person, in such capacity, such title to the Trust, or any part thereof, and,
subject to the other provisions of this Section, such powers, duties,
obligations, rights and trusts as the Servicer and the Owner Trustee may
consider necessary or desirable. If the Servicer shall not have joined in such
appointment within 15 days after the receipt by it of a request so to do, the
Owner Trustee, subject to the approval of the Certificate Majority (which
approval shall not be unreasonably withheld), shall have the power to make such
appointment. No co-trustee or separate trustee under this Agreement shall be
required to meet the terms of eligibility as a successor trustee pursuant to
Section 10.1 and no notice of the appointment of any co-trustee or
separate trustee shall be required pursuant to Section 10.3.

 

Each separate trustee and co-trustee shall, to the
extent permitted by law, be appointed and act subject to the following
provisions and conditions:

 

(i)            all
rights, powers, duties and obligations conferred or imposed upon the Owner
Trustee shall be conferred upon and exercised or performed by the Owner Trustee
and such separate trustee or co-trustee jointly (it being understood that such
separate trustee or co-trustee is not authorized to act separately without the
Owner Trustee joining in such act), except to the extent that under any law of
any jurisdiction in which any particular act or acts are to be performed, the
Owner Trustee shall be incompetent or unqualified to perform such act or acts,
in which event such rights, powers, duties and obligations (including the
holding of title to the Trust or any portion thereof in any such jurisdiction)
shall be exercised and performed singly by such separate trustee or co-trustee,
but solely at the direction of the Owner Trustee;

 

(ii)           no
trustee under this Agreement shall be personally liable by reason of any act or
omission of any other trustee under this Agreement; and

 

(iii)          the
Servicer and the Owner Trustee acting jointly may at any time accept the
resignation of or remove any separate trustee or co-trustee.

 

Any notice, request or other writing given to the
Owner Trustee shall be deemed to have been given to each of the then separate
trustees and co-trustees, as effectively as if given to each of them. Every
instrument appointing any separate trustee or co-trustee shall refer to this
Agreement and the conditions of this Article. Each separate trustee and
co-trustee, upon its acceptance of the trusts conferred, shall be vested with
the estates or property specified in its instrument of appointment, either
jointly with the Owner Trustee or separately, as may be provided therein,
subject to all the provisions of this Agreement, specifically including every
provision of this Agreement relating to the conduct of, affecting the liability
of, or affording protection to, the Owner Trustee. Each such instrument shall
be filed with the Owner Trustee and a copy thereof given to the Servicer.

 

30

 

Any separate trustee or co-trustee may at any time
appoint the Owner Trustee, its agent or attorney-in-fact with full power and
authority, to the extent not prohibited by law, to do any lawful act under or
in respect of this Agreement on its behalf and in its name. If any separate
trustee or co-trustee shall die, become incapable of acting, resign or be
removed, all of its estates, properties, rights, remedies and trusts shall vest
in and be exercised by the Owner Trustee, to the extent permitted by law,
without the appointment of a new or successor trustee.

 

ARTICLE
XI

 

Miscellaneous

 

Section 11.1.          Supplements and Amendments.  (a) 
This Agreement may be amended from time to time by the parties hereto by
a written instrument signed by each of them, without the consent of any of the
Securityholders; provided that an Opinion of Counsel for the Depositor
(which Opinion of Counsel may, as to factual matters, rely upon Officer’s
Certificates of the Depositor) is addressed and delivered to the Owner Trustee,
dated the date of any such amendment, to the effect that the conditions
precedent to any such amendment have been satisfied and the Depositor shall have
delivered to the Owner Trustee an Officer’s Certificate dated the date of any
such Amendment, stating that the Depositor reasonably believes that such
Amendment will not have a material adverse effect on the Securityholders.

 

(b)           This
Agreement may also be amended from time to time with the consent of the
Noteholders evidencing not less than a majority of the Outstanding Amount of
the Notes, and the consent of the Certificateholders representing at least a
50% Percentage Interest, for which the Seller has not delivered an Officer’s
Certificate stating that there is no material adverse effect, 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, payments
received that are required to be distributed on any Security without the
consent of the related Securityholder, or (ii) reduce the aforesaid
percentage of Securities the Holder of which are required to consent to any
such amendment, without the consent of the Holders of all such Certificates
then outstanding or (iii) for federal income tax purposes, cause the Trust to
be treated as an association or publicly traded partnership taxable as a
corporation, or the Notes to fail to be treated as indebtedness.

 

Prior to the execution of any such amendment or
consent, the Owner Trustee shall furnish written notification of the substance
of such amendment or consent to each Certificateholder, the Indenture Trustee,
the Administrator and each of the Rating Agencies.

 

It shall not be necessary for the consent of
Certificateholders, the Noteholders or the Indenture Trustee pursuant to this
Section to approve the particular form of any proposed amendment or consent,
but it shall be sufficient if such consent shall approve the substance thereof.
The manner of obtaining such consents (and any 

 

31

 

other consents of Certificateholders provided for in
this Agreement or in any other Basic Document) and of evidencing the
authorization of the execution thereof by Certificateholders shall be subject
to such reasonable requirements as the Owner Trustee may prescribe. Promptly
after the execution of any amendment to the Certificate of Trust, including,
without limitation, amendments pursuant this Section, the Owner Trustee shall
cause the filing of such amendment with the Secretary of State.

 

(c)           The
Owner Trustee shall not be required to enter into any amendment to this
Agreement which adversely affects their respective rights, duties or immunities
under this Agreement.

 

Section 11.2.          No Legal Title to Owner Trust
Estate in Certificateholders. The Certificateholders shall not have legal
title to any part of the Series Trust Estate. The Certificateholders shall be
entitled to receive distributions with respect to their undivided ownership
interest therein only in accordance with Articles III, V and IX. No transfer,
by operation of law or otherwise, of any right, title or interest of the
Certificateholders to and in their ownership interest in the Series Trust
Estate shall operate to terminate this Agreement or the trusts hereunder or
entitle any transferee to an accounting or to the transfer to it of legal title
to any part of the Series Trust Estate.

 

Section 11.3.          Limitations on Rights of Others.
The provisions of this Agreement are solely for the benefit of the Owner
Trustee, the Depositor, the Certificateholders, the Servicer and any Support
Provider, the Indenture Trustee, the Administrator and the Noteholders, and
nothing in this Agreement, whether express or implied, shall be construed to
give to any other Person any legal or equitable right, remedy or claim in the
Owner Trust Estate or under or in respect of this Agreement or any covenants,
conditions or provisions contained herein.

 

Section 11.4.          Notices.  (a)  Unless otherwise expressly
specified or permitted by the terms hereof, all notices shall be in writing and
shall be deemed given upon receipt personally delivered, delivered by overnight
courier or mailed first class mail or certified mail, in each case return
receipt requested, and shall be deemed to have been duly given upon receipt, if
to the Owner Trustee, addressed to its Corporate Trust Office; if to the
Depositor, addressed 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, Attn: Treasurer; if to any
Support Provider, at the address of such Support Provider as set forth in the
Series Supplement; or, as to each party, at such other address as shall be
designated by such party in a written notice to each other party.

 

(b)           Any
notice required or permitted to be given to a Certificateholder shall be given
by first-class mail, postage prepaid, at the address of such Holder as shown in
the Certificate Register. Any notice so mailed within the time prescribed in this
Agreement shall be conclusively presumed to have been duly given, whether or
not the Certificateholder receives such notice.

 

32

 

Section 11.5.          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 11.6.          Separate Counterparts. This
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 11.7.          Assignments; Support Provider.
This Agreement shall inure to the benefit of and be binding upon the parties
hereto and their respective successors and permitted assigns. This Agreement
shall also inure to the benefit of any Support Provider. Without limiting the
generality of the foregoing, all covenants and agreements in this Agreement
which confer rights upon any Support Provider shall be for the benefit of and
run directly to any Support Provider, and any Support Provider shall be
entitled to rely on and enforce such covenants, subject, however, to the
limitations on such rights provided in this Agreement and the Basic Documents.
The Support Provider, if any, may disclaim any of its rights and powers under
this Agreement (but not its duties and obligations under any Series Support)
upon delivery of a written notice to the Owner Trustee.

 

Section 11.8.          Covenants of the Depositor. The
Depositor will not at any time institute against the Trust any bankruptcy
proceedings under any United States federal or state bankruptcy or similar law
in connection with any obligations relating to the Certificates, the Notes,
this Agreement or any of the Basic Documents.

 

Section 11.9.          No Petition. To the fullest
extent permitted by applicable law, the Owner Trustee (not in its individual
capacity but solely as Owner Trustee), by entering into this Agreement, each
Certificateholder, by accepting a Certificate, and the Indenture Trustee, the
Administrator and each Noteholder by accepting the benefits of this Agreement,
hereby covenants and agrees that they will not at any time institute against
the Depositor, or join in any institution against the Depositor of, any
bankruptcy, reorganization, arrangement, insolvency or liquidation proceedings,
or other proceedings under any United States federal or state bankruptcy or
similar law in connection with any obligations relating to the Certificates,
the Notes, this Agreement, any of the Basic Documents, the Series Supplement or
any Related Documents.

 

Section 11.10.        No Recourse. Each
Certificateholder by accepting a Certificate acknowledges that such
Certificateholder’s Certificates represent beneficial interests in the Owner
Trust Estate only and do not represent interests in or obligations of the
Servicer, the Depositor, the Owner Trustee, the Indenture Trustee, the
Administrator, any Support Provider or any Affiliate thereof and no recourse
may be had against such parties or their assets, except as may be expressly set
forth or contemplated in this Agreement, the Certificates, the Basic Documents,
the Series Supplement or any Related Documents.

 

33

 

Section 11.11.        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 11.12.        GOVERNING LAW. THIS AGREEMENT
SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE,
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.

 

Section 11.13.        Servicer. The Servicer is
authorized to prepare, or cause to be prepared, execute and deliver on behalf
of the Trust all such documents, reports, filings, instruments, certificates
and opinions as it shall be the duty of the Trust or the Owner Trustee to
prepare, file or deliver pursuant to the Basic Documents, the Series Supplement
or any Related Documents. Upon written request, the Owner Trustee shall execute
and deliver to the Servicer a limited power of attorney appointing the Servicer
the Trust’s agent and attorney-in-fact to prepare, or cause to be prepared,
execute and deliver all such documents, reports, filings, instruments,
certificates and opinions.

 

Section
11.14.        [Reserved].

 

Section 11.15. Regulation
AB. The Seller, the Servicer and the Owner Trustee
acknowledge and agree that the purpose of this Section 11.15 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 Owner Trustee
acknowledges that interpretations of the requirements of Regulation AB may
change over time, whether due to interpretive guidance provided by the
Commission or its staff, consensus among participants in the asset-backed
securities markets, advice of counsel, or otherwise, and agrees to comply with
requests made by the Seller or the Servicer in good faith for delivery of
information under these provisions on the basis of evolving interpretations of
Regulation AB. The Owner Trustee 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 information regarding the Owner
Trustee that is necessary in the good faith determination of the Seller or the
Issuer to permit the Seller to comply with the provisions of Items 1109(a),
1109(b), 1117 and 1119 of Regulation AB. Without limiting the generality of the
foregoing, for so long as the Issuer is required to report under the
Exchange Act, the Owner Trustee shall (i) on or before the fifth Business Day
of each month, provide to the Servicer, in writing, such information regarding
the Owner Trustee as is requested by the Servicer for the purpose of compliance
with Items 1117 and 1119 of Regulation AB; provided,
however, that the Owner Trustee
shall not be required to provide such information in the event that there has
been no change to the information previously provided by the Owner Trustee to
the Servicer, and (ii) as promptly as practicable following notice to or
discovery by a Responsible Officer of the Owner Trustee of any 

 

34

 

changes to such information, provide to the
Servicer, in writing, such updated information.

 

Section 11.16. 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.

 

35

 

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

 

 

	
   

  	
  U.S. BANK TRUST
  NATIONAL 

  
	
   

  	
  ASSOCIATION,

  
	
   

  	
    as Owner Trustee

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Patricia M.
  Child

  
	
   

  	
   

  	
  Name: Patricia
  M. Child

  
	
   

  	
   

  	
  Title: Vice
  President

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  HSBC AUTO
  RECEIVABLES 

  
	
   

  	
  CORPORATION,

  
	
   

  	
  as Depositor

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Steven H.
  Smith

  
	
   

  	
   

  	
  Name: Steven H.
  Smith

  
	
   

  	
   

  	
  Title: Vice
  President and Assistant

  
	
   

  	
   

  	
  Treasurer

  
	
   

  	
   

  
	
  Acknowledged
  and Agreed:

  	
   

  
	
  HSBC
  FINANCE CORPORATION,

  	
   

  
	
  as
  Servicer

  	
   

  
	
   

  	
   

  
	
  By:
  

  	
  /s/
  Dennis J. Mickey

  	
   

  	
   

  
	
   

  	
  Name:
  Dennis J. Mickey

  	
   

  
	
   

  	
  Title:
  Vice President and Assistant Treasurer

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  HSBC
  BANK USA, NATIONAL ASSOCIATION,

  	
   

  
	
  not
  in its individual capacity

  	
   

  
	
  but
  solely as Certificate Paying Agent

  	
   

  
	
   

  	
   

  
	
  By:
  

  	
  /s/
  Susie Moy

  	
   

  	
   

  
	
   

  	
  Name:
  Susie Moy

  	
   

  
	
   

  	
  Title:
  Vice President

  	
   

  

 

[Signature
Page for Amended and Restated Trust Agreement]

 

36

 

EXHIBIT A

 

[FORM OF CERTIFICATE]

NUMBER

HSBC AUTOMOTIVE TRUST (USA) 2006-2

CERTIFICATE

 

SEE REVERSE FOR CERTAIN DEFINITIONS

 

THIS
CERTIFICATE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE “SECURITIES ACT”), OR THE SECURITIES LAWS OF ANY STATE IN RELIANCE
UPON EXEMPTIONS PROVIDED BY THE SECURITIES ACT AND SUCH STATE SECURITIES LAWS.
NO RESALE OR OTHER TRANSFER OF THIS CERTIFICATE MAY BE MADE UNLESS SUCH RESALE
OR TRANSFER (A) IS MADE IN ACCORDANCE WITH SECTION 3.4 OF THE AMENDED AND
RESTATED TRUST AGREEMENT PERTAINING TO THE HSBC AUTOMOTIVE TRUST (USA) 2006-2
(THE “AGREEMENT”) AND (B) IS MADE (i) PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT, (ii) IN A TRANSACTION EXEMPT FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND APPLICABLE STATE SECURITIES
LAWS, (iii) TO THE SELLER OR (iv) TO A PERSON WHO THE TRANSFEROR REASONABLY
BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE 144A
UNDER THE SECURITIES ACT THAT IS AWARE THAT THE RESALE OR OTHER TRANSFER IS
BEING MADE IN RELIANCE ON RULE 144A AND (C) UPON THE SATISFACTION OF CERTAIN
OTHER REQUIREMENTS SPECIFIED IN THE AGREEMENT. NEITHER THE DEPOSITOR, THE
SERVICER, THE TRUST NOR THE OWNER TRUSTEE IS OBLIGATED TO REGISTER THE CERTIFICATES
UNDER THE SECURITIES ACT OR ANY APPLICABLE STATE SECURITIES LAWS.

 

CERTIFICATE

 

evidencing a beneficial ownership interest in the
assets of the Trust relating to the Series Trust Estate, which includes a pool
of motor vehicle retail installment sale contracts sold to the Trust by HSBC
Auto Receivables Corporation.

 

(This Certificate does not represent an interest in or
obligation of HSBC Auto Receivables Corporation or any of its Affiliates,
except to the extent described below.)

 

THIS CERTIFIES THAT HSBC
Auto Receivables Corporation is the registered owner of a fully-paid and, to
the fullest extent permitted by applicable law, nonassessable beneficial
ownership interest representing a 100% Percentage Interest in the assets of
HSBC Automotive Trust (USA) 2006-2 (the “Trust”) formed by HSBC Auto 

 

A-1

 

Receivables Corporation, a Nevada corporation
(the “Depositor”) and the Series Trust Estate.

 

OWNER TRUSTEE’S CERTIFICATE OF AUTHENTICATION

 

This is one of the Certificates referred to in the within-mentioned
Agreement.

 

U.S.
BANK TRUST NATIONAL ASSOCIATION,

not
in its individual

capacity
but solely as

Owner
Trustee

 

	
  by

  	
   

  	
  Authenticating
  Agent

  
	
  by

  	
   

  

 

HSBC Automotive Trust (USA) 2006-2 (the “Trust”), was
created pursuant to a Trust Agreement, dated as of June 26, 2006 (the
“Agreement”), between the Depositor and U.S. Bank Trust National Association,
as owner trustee (the “Owner Trustee”), as amended and restated as of July 26,
2006 and as supplemented by a Series Supplement dated as of July 26, 2006 (the
“Series Supplement”). A summary of certain of the pertinent provisions of the
Agreement and Series Supplement is set forth below. To the extent not otherwise
defined herein, the capitalized terms used herein have the meanings assigned to
them in the Agreement and the Series Supplement.

 

This certificate is one of the duly authorized
certificates of Trust of HSBC Automotive Trust (USA) 2006-2 designated as
Certificates.

 

This Certificate is issued under and is subject to the
terms, provisions and conditions of the Agreement and the Series Supplement, to
which Agreement the holder of this Certificate by virtue of the acceptance
hereof assents and by which such holder is bound. The property of the Trust
consists of the Series Trust Estate which includes a pool of motor vehicle
retail installment sale contracts (the “Receivables”), all monies due
thereunder on or after specified Cut-off Dates, security interests in the
vehicles financed thereby, certain bank accounts and the proceeds thereof,
proceeds from claims on certain insurance policies and certain other rights
under the Agreement and the Sale and Servicing Agreement and each related
Transfer Agreement, all right, to and interest of, the Depositor in and to (i)
the Master Receivables Purchase Agreement dated as of December 18, 2001 between
HSBC Auto Finance Inc. (“HAFI”) and the Depositor, as such agreement may be
amended or supplemented from time to time, (ii) the Master Receivables Purchase
Agreement dated as of November 18, 2002 between HAFI and the Depositor, as such
agreement may be amended or supplemented from time to time, (iii) the Master
Receivables Purchase Agreement dated as of June 24, 2002 between HSBC Auto
Credit Inc. (“HACI”) and the Depositor, as such agreement may be amended or
supplemented from time to time, and (iv) the Master Receivables Purchase
Agreement 

 

A-2

 

dated as of August 8, 2002, between HACI and the
Depositor, as such agreement may be amended or supplemented from time to time.

 

The Notes have been issued pursuant to an Indenture
dated as of July 26, 2006 (the “Indenture”), among the Trust, HSBC Bank USA,
National Association, as Administrator and The Bank of New York, as Indenture
Trustee and the Series Supplement.

 

Under the Series Supplement, there will be distributed
on the 17th day of each month or, if such 17th day is not a Business Day, the
next Business Day (the “Distribution Date”), commencing on August 17, 2006, to
the Person in whose name this Certificate is registered at the close of
business on the Business Day preceding such Distribution Date (the “Record
Date”) such Certificateholder’s fractional undivided interest in any amount to
be distributed to Certificateholders on such Distribution Date.

 

The holder of this Certificate acknowledges and agrees
that its rights to receive distributions in respect of this Certificate are
subordinated to the rights of the Noteholders as described in the Sale and
Servicing Agreement, the Indenture, the Agreement and the Series Supplement, as
applicable.

 

Distributions on this Certificate will be made as
provided in the Agreement by the Owner Trustee by wire transfer or check mailed
to the Certificateholder of record in the Certificate Register without the
presentation or surrender of this Certificate or the making of any notation
hereon. Except as otherwise provided in the Agreement and notwithstanding the
above, the final distribution on this Certificate will be made after due notice
by the Owner Trustee of the pendency of such distribution and only upon
presentation and surrender of this Certificate at the office or agency
maintained for the purpose by the Owner Trustee in the Corporate Trust Office.

 

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

 

Unless the certificate of authentication hereon shall
have been executed by an authorized officer of the Owner Trustee, by manual
signature, this Certificate shall not entitle the holder hereof to any benefit
under the Agreement or the Sale and Servicing Agreement or be valid for any
purpose.

 

THIS
CERTIFICATE SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
DELAWARE, 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-3

 

IN WITNESS WHEREOF, the Owner Trustee, on behalf of
the Trust and not in its individual capacity, has caused this Certificate to be
duly executed.

 

 

	
   

  	
  HSBC
  AUTOMOTIVE TRUST (USA) 2006-2

  
	
   

  	
   

  
	
   

  	
  By:
  U.S. Bank Trust National Association,

  
	
   

  	
  not
  in its individual capacity but solely as 

  
	
   

  	
  Owner
  Trustee

  
	
   

  	
   

  
	
  Dated:

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  

 

A-4

 

(Reverse of Certificate)

 

The Certificates do not represent an obligation of, or
an interest in, the Depositor, the Servicer, the Owner Trustee or any
Affiliates of any of them and no recourse may be had against such parties or
their assets, except as may be expressly set forth or contemplated herein or in
the Agreement, the Indenture, the Basic Documents or any Related Documents. In
addition, this Certificate is not guaranteed by any governmental agency or
instrumentality and is limited in right of payment to certain collections with
respect to the Receivables, as more specifically set forth herein and in the
Sale and Servicing Agreement. A copy of each of the Sale and Servicing
Agreement, the Agreement and the Series Supplement may be examined during
normal business hours at the principal office of the Depositor, and at such
other places, if any, designated by the Depositor, by any Certificateholder
upon written request.

 

As provided in the Agreement and subject to certain
limitations therein set forth, the transfer of this Certificate is registrable
in the Certificate Register upon surrender of this Certificate for registration
of transfer at the offices or agencies of the Certificate Registrar maintained
by the Owner Trustee in the Corporate Trust Office, accompanied by a written
instrument of transfer in form satisfactory to the Owner Trustee and the
Certificate Registrar duly executed by the holder hereof or such holder’s
attorney duly authorized in writing, and thereupon one or more new Certificates
in authorized denominations evidencing the same aggregate interest in the Trust
will be issued to the designated transferee. The initial Certificate Registrar
appointed under the Agreement is the Owner Trustee.

 

The Certificates are issuable as registered
Certificates in any Percentage Interest not to exceed 100%. As provided in the
Agreement and subject to certain limitations therein set forth, Certificates
are exchangeable for new Certificates in authorized denominations evidencing
the same aggregate Percentage Interest, as requested by the holder surrendering
the same. No service charge will be made for any such registration of transfer
or exchange, but the Owner Trustee or the Certificate Registrar may require
payment of a sum sufficient to cover any tax or governmental charge payable in
connection therewith.

 

The Owner Trustee and the Certificate Registrar and
any agent of the Owner Trustee or the Certificate Registrar may treat the
person in whose name this Certificate is registered as the owner hereof for all
purposes, and none of the Owner Trustee, the Certificate Registrar nor any such
agent shall be affected by any notice to the contrary.

 

The Certificates may not be acquired by or for the
account of (a) an employee benefit plan (as defined in § 3(3) of ERISA)
that is subject to the provisions of Title I of ERISA, (b) a plan (as defined
in § 4975(e) (1) of the Code) that is subject to § 4975 of the Code
or (c) any entity whose underlying assets include plan assets by reason of such
plan’s investment in the entity (each, a “Benefit Plan”). The Certificate
Registrar shall not register the transfer of a Certificate unless the
transferee has delivered to the Owner Trustee a representation letter in form
and substance satisfactory to the 

 

A-5

 

Owner Trustee to the effect that the transferee is
not, and is not acquiring the Certificate for the account of, a Benefit Plan.

 

The recitals contained herein shall be taken as the
statements of the Depositor or the Servicer, as the case may be, and the Owner
Trustee assumes no responsibility for the correctness thereof. The Owner Trustee
makes no representations as to the validity or sufficiency of this Certificate
or of any Receivable or related document.

 

Unless the certificate of authentication hereon shall
have been executed by an authorized officer of the Owner Trustee, by manual or
facsimile signature, this Certificate shall not entitle the holder hereof to
any benefit under the Agreement or the Sale and Servicing Agreement or be valid
for any purpose.

 

A-6

 

ASSIGNMENT

 

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

PLEASE
INSERT SOCIAL SECURITY

OR
OTHER IDENTIFYING NUMBER

OF
ASSIGNEE

 

(Please
print or type name and address, including postal zip code, of assignee)

 

the
within Certificate, and all rights thereunder, hereby irrevocably constituting
and appointing

 

	
   

  
	
   

  
	
   

  
	
   

  
	
   

  
	
   

  
	
   

  	
   Attorney
  to transfer said Certificate on the books of the Certificate Registrar, with
  full power of substitution in the

  
	
  premises.

  

 

Dated:

 

	
   

  	
   

  	
  *

  
	
   

  	
  Signature
  Guaranteed:

  
	
   

  	
   

  	
  *

  

 

*              NOTICE:  The signature to this assignment must
correspond with the name of the registered owner as it appears on the face of
the within Certificate in every particular, without alteration, enlargement or
any change whatever. Such signature must be guaranteed by an “eligible
guarantor institution” meeting the requirements of the Certificate Registrar,
which requirements include membership or participation in STAMP or such other
“signature guarantee program” as may be determined by the Certificate Registrar
in addition to, or in substitution for, STAMP, all in accordance with the
Securities Exchange Act of 1934, as amended.

 

A-7

 

EXHIBIT B

 

[FORM OF CERTIFICATE OF TRUST]

 

CERTIFICATE OF TRUST

OF

HSBC AUTOMOTIVE TRUST (USA) 2006-2

 

THIS Certificate of Trust of HSBC Automotive Trust
(USA) 2006-2 (the “Trust”) is being duly executed and filed on behalf of the
Trust by the undersigned, as trustee, to form a statutory trust under the
Delaware Statutory Trust Act (12 Del. C. § 3801 et seq.)
(the “Act”).

 

1.             Name.
The name of the statutory trust formed by this Certificate of Trust is HSBC
Automotive Trust (USA) 2006-2.

 

2.             Delaware
Trustee. The name and business address of the trustee of the Trust with a
principal place of business in the State of Delaware are U.S. Bank Trust
National Association, 300 Delaware Avenue, 8th Floor, Wilmington, Delaware
19801.

 

3.             Effective
Date. This Certificate of Trust shall be effective upon filing.

 

IN
WITNESS WHEREOF, the
undersigned have duly executed this Certificate of Trust in accordance with
Section 3811(a)(1) of the Act.

 

 

	
   

  	
  U.S.
  BANK TRUST NATIONAL 

  
	
   

  	
  ASSOCIATION,

  
	
   

  	
  not
  in its individual capacity but solely as 

  
	
   

  	
  Owner
  Trustee

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  

 

B-1Exhibit
4.3

 

Execution
Copy

 

SALE AND SERVICING
AGREEMENT

among

HSBC AUTOMOTIVE TRUST (USA) 2006-2,

as Issuer,

HSBC AUTO RECEIVABLES CORPORATION,

as Seller,

HSBC FINANCE CORPORATION,

as Servicer

THE BANK OF NEW YORK,

as Indenture Trustee

and

HSBC BANK USA, NATIONAL ASSOCIATION,

as Administrator

Dated as of July 26, 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

  	
   

  	
  36

  
	
  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

  	
   

  	
  58

  
	
  SECTION
  10.4.

  	
   

  	
  Notification
  to Noteholders

  	
   

  	
  59

  
	
  SECTION
  10.5.

  	
   

  	
  Waiver of
  Past Defaults

  	
   

  	
  59

  
	
  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

  	
   

  	
  63

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  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

  	
   

  	
  67

  
	
  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

  	
   

  	
  69

  

 

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 July 26, 2006,
among HSBC AUTOMOTIVE TRUST (USA) 2006-2, a Delaware statutory trust (the “Issuer”
or the “Trust”), HSBC AUTO RECEIVABLES CORPORATION, a Nevada corporation (the “Seller”),
HSBC FINANCE CORPORATION, a Delaware corporation (the “Servicer”), THE BANK OF NEW YORK, a New York
banking corporation, in its capacity as Indenture Trustee, and HSBC BANK USA,
NATIONAL ASSOCIATION, a national banking association, in its capacity as
Administrator.

 

WHEREAS the Issuer desires to purchase from time to
time Receivables arising in connection with motor vehicle retail installment
sale contracts 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 for amounts advanced by the Servicer to acquire or maintain an LPI
Policy as to a Financed Vehicle.

 

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

 

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

 

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

 

“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;

 

12

 

(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.

 

13

 

“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 as may be set forth in that
certain fee agreement dated as of the date hereof between the Servicer and the
Indenture Trustee.

 

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

 

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

 

14

 

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

 

“Issuer” means HSBC Automotive Trust (USA) 2006-2, 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.

 

“Monthly Records” means all records and data
maintained by the Servicer with respect to the Receivables, including the
following with respect to each Receivable:

 

15

 

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 2006-2 Notes” shall have the meaning assigned
to such term in the Series Supplement.

 

18

 

“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.

 

19

 

“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 as subservicer to) promptly
purchase such Receivable by depositing the related Repurchase Amount
into the Collection Account.

 

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

 

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

 

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

 

33

 

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

 

34

 

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 or a Seller. Any
cost incurred by the Servicer in maintaining such LPI Policy shall be
recoverable only out of premiums paid by the Obligors or Net Liquidation
Proceeds with respect to the Receivable, as provided in Section 4.4(c).

 

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

 

35

 

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.

 

SECTION 4.6.        Covenants,
Representations, and Warranties of Servicer. By its execution and delivery
of this Agreement, the Servicer makes the

 

36

 

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

 

(vi)          Relocations
of Principal Office. The Servicer shall notify in writing the Indenture
Trustee and the Administrator of

 

37

 

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

 

38

 

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 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

 

39

 

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
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.

 

40

 

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 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

 

41

 

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

 

42

 

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

 

ARTICLE VII

RESERVED

 

43

 

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.

 

(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

 

44

 

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 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.

 

45

 

(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;

 

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

 

46

 

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

 

47

 

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

 

48

 

(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.

 

(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

 

49

 

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
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.

 

50

 

(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 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.

 

51

 

(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 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,

 

52

 

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 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

 

53

 

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 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.

 

54

 

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

 

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

 

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

 

55

 

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

 

56

 

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

 

57

 

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.

 

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

 

58

 

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.

 

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

 

59

 

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.

 

(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

 

60

 

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 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.

 

61

 

(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 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

 

62

 

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.

 

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.

 

63

 

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, 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

 

64

 

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.

 

(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

 

65

 

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

 

(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

 

66

 

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.

 

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

 

67

 

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

 

68

 

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].

 

SECTION 13.17.    Regulation
AB. The Seller, the
Servicer, the Indenture Trustee and the Administrator acknowledge and
agree that the purpose of this Section

 

69

 

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

 

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

 

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) 2006-2

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  U.S. Bank Trust National Association,

  not in its individual capacity but solely as

  Owner Trustee on behalf of the Trust

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Patricia M. Child

  	
   

  
	
   

  	
   

  	
  Name: Patricia M. Child

  
	
   

  	
   

  	
  Title: Vice President

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  HSBC AUTO RECEIVABLES CORPORATION,

  
	
   

  	
   

  	
  as Seller

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Steven H. Smith

  	
   

  
	
   

  	
   

  	
  Name: Steven H. Smith

  
	
   

  	
   

  	
  Title: Vice President and Assistant Treasurer

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  HSBC FINANCE CORPORATION,

  
	
   

  	
   

  	
  as Servicer

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Dennis J. Mickey

  	
   

  
	
   

  	
   

  	
  Name: Dennis J. Mickey

  
	
   

  	
   

  	
  Title: Vice President and Assistant Treasurer

  
	
   

  	
   

  	
   

  
	
   

  	
  THE BANK OF NEW YORK, not in its individual

  
	
   

  	
   

  	
  capacity but solely as Indenture Trustee

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Alan Li

  	
   

  
	
   

  	
   

  	
  Name: Alan Li

  
	
   

  	
   

  	
  Title: Assistant Treasurer

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  HSBC BANK USA, NATIONAL ASSOCIATION,

  
	
   

  	
   

  	
  as Administrator

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Susie Moy

  	
   

  
	
   

  	
   

  	
  Name: Susie Moy

  
	
   

  	
   

  	
  Title: Vice President

  
					

 

 

EXHIBIT A

 

FORM OF TRANSFER AGREEMENT

 

TRANSFER No.                  
of Receivables dated as of                
pursuant to the Sale and Servicing Agreement dated as of July 26, 2006 (the “Sale
and Servicing Agreement”), among HSBC AUTOMOTIVE TRUST (USA) 2006-2, a Delaware
statutory trust (the “Issuer” or the “Trust”), HSBC AUTO RECEIVABLES CORPORATION,
a Nevada corporation (the “Seller”), HSBC FINANCE CORPORATION, a Delaware
corporation (the “Servicer”), THE BANK OF NEW YORK, a New York banking
corporation, in its capacity as Indenture Trustee (the “Indenture Trustee”) and
HSBC BANK USA, NATIONAL ASSOCIATION, a national banking association, in its
capacity as Administrator (the “Administrator”).

 

W I T N E S S E T H:

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

 

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

 

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

 

(c)           all rights of the Seller against
Dealers pursuant to Dealer Agreements or Dealer Assignments 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) 2006-2

  
	
   

  	
   

  
	
   

  	
  By:

  	
  U.S.
  Bank Trust National Association,

  not in its individual capacity but solely as

  Owner Trustee on behalf of the Trust

  
	
   

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  HSBC AUTO RECEIVABLES CORPORATION,

  
	
   

  	
   

  	
  as Seller

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  HSBC FINANCE CORPORATION,

  
	
   

  	
   

  	
  as Servicer

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  
					

 

A-5

 

	
  Acknowledged and Accepted:

  	
   

  
	
   

  	
   

  
	
  THE BANK OF NEW YORK,

  	
   

  
	
   

  	
  not in its individual
  capacity but solely as

  	
   

  
	
   

  	
  Indenture Trustee

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  By:

  	
   

  	
   

  	
   

  
	
   

  	
  Name:

  	
   

  	
   

  
	
   

  	
  Title:

  	
   

  	
   

  
	
   

  	
   

  
	
  HSBC BANK USA, NATIONAL ASSOCIATION,

  	
   

  
	
   

  	
  as Administrator

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  By:

  	
   

  	
   

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  

 

A-6

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00107-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00107-of-00352.parquet"}]]