(Translation) Annex 1 CONDITIONS OF BONDS These Conditions of Bonds shall apply to the issue of HSBC FINANCE CORPORATION JAPANESE YEN BONDS - TWELFTH SERIES (2006) (the "Bonds") pursuant to lawful authorization by HSBC Finance Corporation (the "Company"). 1. Amount, Denomination and Form The aggregate principal amount of the Bonds is 15,000,000,000. The Bonds are issued in a single denomination of 100,000,000 each. No Bond may be split into Bonds of a smaller denomination or consolidated with any other Bond. The certificates for the Bonds (the "Bond Certificates") are issued exclusively in bearer form with interest coupons attached thereto (the "Coupons"), and shall not be exchangeable for Bond Certificates in registered form. 2. Status of the Bonds and Negative Pledge (1) The Bonds and the Coupons constitute direct, unconditional, unsubordinated and (subject to the provisions of this Condition 2(2)) unsecured obligations of the Company, and rank and will rank pari passu without any preference among themselves and at least pari passu with all other unsubordinated and unsecured obligations of the Company, present and future (save for certain mandatory exceptions provided by law). (2) The Company will not issue, assume or guarantee any indebtedness for borrowed money (referred to as "indebtedness", which term shall not include any guarantee, cash deposit or other recourse obligation in connection with the sale, securitization or discount by the Company of finance or accounts receivables, trade acceptances or other paper arising in the ordinary course of its business) secured by a mortgage, security interest, pledge or lien (referred to as "mortgage" or "mortgages") of or upon any property of the Company, now owned or hereafter acquired, unless the Bonds then outstanding are effectively secured by such mortgage equally and ratably with (or at the option of the Company, prior to) all other indebtedness secured thereby for so long as such other indebtedness shall be so secured. The foregoing covenant, however, will not apply to: (i) mortgages on any property acquired, constructed or improved by, or on any shares of capital stock or indebtedness acquired by, the Company after the - 1 -
issuance of the Bonds (a) to secure the payment of all or any part of the purchase price of such property, shares of capital stock or indebtedness upon the acquisition thereof by the Company, or (b) to secure any indebtedness issued, assumed or guaranteed by the Company prior to, at the time of, or within 360 days after (x) in the case of property, the later of the acquisition, completion of construction (including any improvements on existing property) or commencement of commercial operation of such property or (y) in the case of shares of capital stock or indebtedness, the acquisition of such shares of capital stock or indebtedness, which indebtedness is issued, assumed or guaranteed for the purpose of financing or refinancing all or any part of the purchase price of such property, shares of capital stock or indebtedness and, in the case of property, the cost of construction thereof or improvements thereon, provided that in the case of any such acquisition, construction or improvement of property, the mortgage shall not apply to any property, shares of capital stock or indebtedness theretofore owned by the Company other than, in the case of any such construction or improvement, any theretofore unimproved or substantially unimproved real property on which the property so constructed or the improvement is located; (ii) (iii) (iv) (v) (vi) (vii) mortgages on any property, shares of capital stock or indebtedness, which mortgages exist at the time of acquisition by the Company; mortgages on any property of a corporation, which mortgages exist at the time such corporation merges or consolidates with or into the Company or which mortgages exist at the time of a sale or transfer of all or substantially all of the assets of such corporation to the Company; mortgages to secure any indebtedness of the Company to any subsidiary, or the indebtedness of, or performance of obligations by, one of its subsidiaries to another subsidiary; mortgages in favor of the United States (as defined in Condition 5) or any State, or any department, agency or instrumentality or political subdivision of the United States or any State thereof, or in favor of any other country or political subdivision, to secure partial, progress, advance or other payments pursuant to any contract or statute or to secure any indebtedness incurred or guaranteed for the purpose of financing or refinancing all or any part of the purchase price of the property, shares of capital stock or indebtedness subject to such mortgages, or the cost of construction or improvement of the property subject to such mortgages; mortgages on properties financed through tax-exempt municipal obligations; provided that such mortgages are limited to the property so financed; mortgages existing on the issuance of the Bonds; and - 2 -
(viii) any extension, renewal, refunding or replacement (or successive extensions, renewals, refundings or replacements), in whole or in part, of any mortgage referred to in the foregoing clauses (i) through (vii), inclusive; provided, however, that the principal amount of indebtedness secured thereby does not exceed the principal amount of indebtedness secured at the time by such extension, renewal, refunding or replacement; provided, further, that such extension, renewal, refunding or replacement of such mortgage is limited to all or a part of the property, shares of capital stock or indebtedness subject to such mortgage so extended, renewed, refunded or replaced. Notwithstanding the foregoing, the Company may, without equally and ratably securing the Bonds, issue, assume or guarantee indebtedness secured by a mortgage not excepted by clauses (i) through (viii) of the preceding paragraph, if the aggregate amount of such indebtedness, together with all other indebtedness of, or guaranteed by, the Company existing at such time and secured by mortgages not so excepted, does not at the time exceed 10% of the Company's Consolidated Net Worth. As used herein, "Consolidated Net Worth" shall be the difference between the Company's consolidated assets and consolidated liabilities as shown on the Company's most recent audited consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States. In addition, an arrangement with any person providing for the leasing by the Company of any property, which property has been or is to be sold or transferred by the Company to such person with the intention that such property be leased back to the Company, shall not be deemed to create any indebtedness secured by a mortgage if the obligations in respect of such lease would not be included as liabilities on a consolidated balance sheet of the Company. If any mortgage is provided by the Company for the Bonds pursuant to this Condition 2(2), the Company shall take any and all steps necessary for creation and perfection of such mortgage for the Bonds in accordance with applicable laws and regulations. The Company shall, upon completion of the valid creation of such mortgage, give public notice to the effect that such mortgage has been duly and validly created and perfected under applicable laws and regulations. All expenses incurred in connection with the creation, perfection, maintenance and execution of such mortgage shall be borne by the Company. 3. Fiscal Agent and Non-appointment of Commissioned Companies for Bondholders (1) Mizuho Corporate Bank, Ltd. acts as fiscal agent (the "Fiscal Agent") of the Company in respect of the Bonds. The Fiscal Agent shall perform the duties and functions provided for in these Conditions of Bonds and the Fiscal and Paying Agency Agreement (the "Agency Agreement") dated February 3, 2006 among the Company and the Fiscal Agent and the Paying Agent (as defined in Condition 5). The Fiscal Agent is acting solely on behalf of the Company and does not assume - 3 -
any obligation towards or relationship of agency or trust for or with the holders of the Bonds (the "Bondholders") or the Coupons. A copy of the Agency Agreement together with these Conditions of Bonds shall be kept at the Head Office of the Fiscal Agent and shall be made available for perusal or photocopying by any Bondholder during normal business hours. All expenses incurred for such photocopying shall be borne by the applicant therefor. (2) No commissioned companies for bondholders under Article 297 of the Commercial Code of Japan (Law No. 48 of 1899, as amended) are appointed in respect of the Bonds since the Bonds satisfy the conditions set forth in the proviso to said Article 297. (3) The Company may from time to time vary the appointment of the Fiscal Agent, provided that the appointment of the Fiscal Agent shall continue until the replacement fiscal agent shall be effectively appointed. In such case the Company shall give prior public notice thereof to the Bondholders. 4. Recording of Bonds The recording agency for the Bonds (the "Recording Agency") is Mizuho Corporate Bank, Ltd. The Bondholders have the option to record their Bonds at any time. The recording of the Bonds at the request of initial subscribers thereto at the time of the initial issue of the Bonds shall be made at the expense of the Company; otherwise the recording of the Bonds shall be made at the expense of the applicant therefor. Any expenses incurred in connection with the preparation and delivery of the Bond Certificates and the Coupons upon cancellation of the recording of recorded Bonds shall be for the account of the applicant therefor. 5. Place of Payment The paying agent for the Bonds (the "Paying Agent") and its offices at which the payment of principal of and interest on the Bonds may be made are as follows: Mizuho Corporate Bank, Ltd. - Head Office and Osaka Office The Company may from time to time vary the appointment of the Paying Agent(s). In such case the Company shall give prior public notice thereof to the Bondholders. Notwithstanding the foregoing, no Paying Agent may be appointed by the Company in the United States or may make any payment of principal of or interest on the Bonds within the United States. No payment of principal of or interest on any Bond will be made at the office of any Paying Agent maintained by the Company outside of Japan, nor will any payment be made by transfer to an account maintained with a bank located in, or by check mailed to an address in, the United States. - 4 -
As used in these Conditions of Bonds, the term United States means the United States of America (including the States and the District of Columbia) and its possessions (including Puerto Rico, The U.S. Virgin Islands, Guam, American Samoa, Wake Island and Northern Mariana Islands). 6. Interest Each Bond shall bear interest at the rate of 2.54% per annum of its principal amount. The Bonds shall bear interest from and including February 17, 2006, payable semi-annually in arrears on February 16 and August 16 of each year in respect of the six-month period to and including each such date. Interest for any period of less than six months shall be payable for the actual number of days included in such period computed on the basis of a 365-day year. Amounts resulting from this calculation will be rounded to the nearest Japanese Yen, with five-tenths or more of one Japanese yen to be rounded upwards to the nearest one Japanese yen for each Bond. Each date set for payment of interest in this paragraph is hereinafter referred to as an "Interest Payment Date". The Bonds shall cease to bear interest after the date on which they become due for redemption; provided, however, that should the Company fail to redeem any of the Bonds when due, then the Company shall pay accrued interest on the unpaid principal amount for the actual number of days of the period from but excluding the due date to and including the date of the actual redemption of such Bond, computed on the basis of a 365-day year at the rate specified in the first paragraph of this Condition 6. Such period, however, shall not exceed 14 days commencing the date on which a public notice is given by the Company or the Fiscal Agent in accordance with the last paragraph of Condition 8. 7. Redemption and Purchase (1) Unless previously redeemed, or purchased and cancelled, the Bonds shall be redeemed on February 16, 2021 at a price equal to their principal amount. (2) If: (i) as a result of any change in the laws, regulations or rulings of the United States or of any political subdivision thereof or any authority or agency therein or thereof having power to tax (the "U.S. Laws") or in the interpretation or administration of any U.S. Law which becomes effective after the issuance of the Bonds, the Company would be required to pay Additional Amounts as provided in Condition 9(1), and such obligation cannot be avoided by the Company taking reasonable measures available to it; or - 5 -
(ii) (iii) (iv) the Company becomes obligated to pay any Additional Amount pursuant to Condition 9(1) and the Company is prohibited by any U.S. Law from paying all or any part of such Additional Amount; or the Company shall determine that any payment made outside the United States by the Company or any Paying Agent in respect of any Bond or Coupon would, under any present or future laws or regulations of the United States affecting taxation or otherwise, be subject to any certification, information or other reporting requirement with regard to the nationality, residence or identity of a beneficial owner of such Bond or Coupon who is a United States Alien (as defined in Condition 9(2)) (other than a requirement that (a) would not be applicable to a payment made (x) directly to the beneficial owner or (y) to a custodian, nominee or other agent of the beneficial owner, or (b) could be satisfied by the holder, custodian, nominee or other agent certifying that the beneficial owner is not a United States person, provided, however, that in each case referred to in (a) (y) or (b) payment by any such custodian, nominee or agent to the beneficial owner is not otherwise subject to any such requirement); and in the case of (i), (ii) or (iii) above, such circumstances are evidenced by the delivery by the Company to the Fiscal Agent of a certificate signed by two officers of the Company stating that the said circumstances prevail and describing the facts leading thereto and an opinion of independent legal advisers of recognized standing to the effect that such circumstances prevail, the Company may, at its option (in the case of (i) above), and shall (in the cases of (ii) and (iii) above, subject as provided below), having given public notice to the Bondholders of the relevant matters at least 14 days prior to the proposed redemption date (which notice shall be irrevocable except as provided below), redeem all (but not some only) of the outstanding Bonds at a price equal to 100% of the principal amount thereof, together with accrued interest (if any) to and including the redemption date, but without reduction for applicable withholding or deduction (except for the case where the Company is prohibited by any U.S. Law from paying all or any part of the Additional Amount referred to in Condition 9(1)); provided, however, that in the case of (ii) above, the redemption shall be made as soon as practicable but not later than 40 days after (a) the occurrence of the event giving rise to the obligation of the Company to pay any Additional Amounts or (b) the date on which such U.S. Law becomes effective, whichever is later; provided, further, that in the case of (i) above, the certificate and the opinion referred to in (iv) above shall be delivered to the Fiscal Agent at least 30 days prior to the proposed redemption date and no such notice of redemption may be given earlier than 90 days prior to the earliest date on which the Company would be obligated to pay such Additional Amounts were a payment in respect of the Bonds then due; in the case of (ii) above, the certificate and the opinion referred to in (iv) above shall be delivered to the Fiscal Agent promptly following (a) the occurrence of the event giving rise to the obligation of the Company to pay any Additional Amounts or (b) - 6 -
the date on which such U.S. Law becomes effective, whichever is later, but in no event later than 30 days prior to the proposed redemption date; and in the case of (iii) above, the Company shall make such determination as soon as practicable and give prompt notice thereof (the "Determination Notice") to the Fiscal Agent in writing and also promptly give public notice of such determination and relevant matters to the Bondholders, and such redemption will take place within one year from the date of such public notice and the Company shall give further notice in writing to the Fiscal Agent setting forth the proposed redemption date at least 30 days prior to the proposed redemption date. Notwithstanding the provisions of (iii) above, the Company shall not redeem the Bonds if the Company shall subsequently determine, based upon the written opinion of independent legal counsel of recognized standing not less than 30 days prior to the date fixed for redemption, that subsequent payments would not be subject to any such requirement in which case the Company shall give prompt notice of such determination and deliver such opinion to the Fiscal Agent and give public notice thereof to the Bondholders at least 14 days prior to the date fixed for redemption, and upon such public notice any earlier redemption notice will be revoked and of no further effect. Notwithstanding the foregoing, if and so long as all certification, information or other reporting requirements referred to in (iii) above would be fully satisfied by payment of a United States backup withholding tax or similar charge (but without any requirement to disclose the nationality, residence or identity of the beneficial owner thereof), the Company may elect (notwithstanding the provisions of Condition 9(1)(iii)) in the Determination Notice to pay Additional Amounts in accordance with Condition 9(1), provided, however, that in the case of such election, the Company shall give public notice of such election and relevant matters to the Bondholders in the public notice of such determination with respect to (iii) above. In the event that the Company elects to pay such Additional Amounts and as long as it is obligated to pay such Additional Amounts, the Company will have the right, at its sole option, at any time, to redeem the Bonds, in whole but not in part, at a price equal to 100% of the principal amount thereof, together with accrued interest (if any) to and including the redemption date, including any Additional Amounts required to be paid under the above paragraph, provided, however, that the Company shall give notice to such effect to the Fiscal Agent in writing at least 30 days prior to the proposed redemption date and shall give public notice of the relevant matters to the Bondholders at least 14 days prior to the proposed redemption date. Any certificate and opinion delivered by the Company to the Fiscal Agent pursuant to this Condition 7(2) shall be kept at the Head Office of the Fiscal Agent and shall be made available for perusal or photocopying by any Bondholder during normal business hours. All expenses incurred for such photocopying shall be borne by the applicant therefor. - 7 -
"United States person" means a citizen or resident of the United States, a corporation, partnership or other entity created or organized in or under the laws of the United States or any political subdivision thereof or therein, or an estate or trust described in Section 7701 (a)(30) of the United States Internal Revenue Code of 1986, as amended (the "Code") (taking into account changes thereto and associated effective dates, elections and transition rules). All expenses necessary for the procedures under this Condition 7(2) shall be borne by the Company. (3) The Company or any of its subsidiaries may at any time purchase the Bonds in the market or otherwise and retain, resell and/or cancel them (in the case of cancellation, together with all unmatured Coupons appertaining thereto). (4) Except as otherwise provided in these Conditions of Bonds, the Company may not redeem principal of the Bonds prior to the maturity thereof. 8. Payment With respect to a Bond represented by a Bond Certificate, payment of principal shall be made upon surrender of the Bond Certificate and payment of interest shall be made upon surrender of the relevant Coupon, at any of the offices of the Paying Agent(s) set forth in Condition 5, except as provided in Condition 13. With respect to a recorded Bond, payment of principal shall be made upon surrender of the relevant principal payment voucher, and payment of interest shall be made upon surrender of the relevant interest payment voucher, at the office of the Paying Agent designated by the Bondholder in his application for the recording of the Bond. Such Paying Agent shall confirm that each relevant payment voucher surrendered bears the seal impression of the relevant Bondholder as registered with the Recording Agency. Any Bond Certificate surrendered for redemption shall be presented together with all unmatured Coupons appertaining thereto, failing which an amount equal to the face value of the missing unmatured Coupon shall be deducted from the principal; provided, however, that the holder of any such missing Coupon may, upon surrender of such Coupon within the extinctive prescription period of five years from the relevant redemption date of the Bond Certificate to which such Coupon pertains, receive the amount so deducted. If any due date for the payment of principal of or interest on the Bonds falls on a day which is not a day on which banks are open for business in Japan, the Bondholders shall not be entitled to payment of the amount due until the next following day on which banks are open for business in Japan and shall not be entitled to the payment of any further interest or other payment in respect of such delay. - 8 -
If the full amount of principal of or interest on the Bonds payable on any due date is received by the Fiscal Agent after such due date, the Company shall, or shall cause the Fiscal Agent to, give public notice to that effect to the Bondholders as soon as practicable but not later than 14 days after receipt of such amount by it. All expenses incurred in connection with the said public notice shall be borne by the Company. 9. Taxation (1) All payments of principal of, interest on and all other amounts payable in respect of any Bond shall be made free and clear of and without withholding or deduction for or on account of any and all present or future taxes, assessments or other governmental charges of whatever nature imposed or levied by or on behalf of the United States or any political subdivision thereof or any authority or agency therein or thereof having power to tax, unless the withholding or deduction of such taxes, assessments or other governmental charges is required by law. In that event, the Company will pay in the manner set forth in Condition 8 such additional amounts (the "Additional Amounts") as may be necessary in order that the net amounts receivable by the holder of any Bond or Coupon, who is a United States Alien, after such withholding or deduction shall equal the respective amounts which would have been receivable by such holder in the absence of such withholding or deduction; except that the obligation to pay such Additional Amounts shall not apply to: (i) any tax, assessment or governmental charge that would not have been so imposed but for the existence of any present or former connection between such holder (or between a fiduciary, settlor, beneficiary, partner, member or shareholder of, or holder of power over, such holder, if such holder is an estate, trust, partnership, limited liability company or corporation; or between an estate, trust, partnership or limited liability company in which such holder is a fiduciary, settlor, beneficiary, partner or member) and the United States, including, without limitation, such holder (or such fiduciary, settlor, beneficiary, partner, member, shareholder, estate, trust, partnership, limited liability company or holder of a power), being considered as: (a) (b) (c) being or having been present or engaged in a trade or business in the United States or having had a permanent establishment therein; or having a current or former relationship with the United States, including a relationship as a citizen or resident or being treated as a resident thereof; or being or having been a personal holding company, a controlled foreign corporation, a passive foreign investment company, a foreign personal holding company with respect to the United States, a corporation that has accumulated earnings to avoid United States federal income tax or a private foundation or other tax-exempt organization; or - 9 -
(d) an actual or constructive "10% shareholder" of the Company as defined in Section 871(h)(3) of the Code; or (ii) (iii) (iv) (v) (vi) (vii) any holder who is a fiduciary, partnership, limited liability company or other than the sole beneficial owner of the Bond or Coupon, but only to the extent that a beneficiary or settlor with respect to such fiduciary or a member of such partnership or limited liability company or a beneficial owner of the Bond or Coupon would not have been entitled to the payment of an Additional Amount had such beneficiary, settlor, member or beneficial owner been the holder of such Bond or Coupon; or any tax, assessment or governmental charge (including, without limitation, backup withholding tax) that would not have been imposed or withheld but for the failure to comply with certification, identification, documentation or information reporting requirements concerning the nationality, residence, identity or connection with the United States of a holder or a beneficial owner of such Bond or Coupon, if, without regard to any tax treaty, such compliance is required by statute or regulation of the United States as a precondition to relief or exemption from such tax, assessment or governmental charge; or any tax, assessment or governmental charge that would not have been so imposed or withheld but for the presentation by the holder of such Bond or Coupon for payment on a date more than 30 days after the Relevant Date; or any estate, inheritance, gift, sales, transfer, excise, wealth or personal property tax or any similar tax, assessment or governmental charge; or any tax, assessment or governmental charge that is payable otherwise than by deduction or withholding by the Company or a Paying Agent from the payment of the principal of or interest on such Bond or Coupon; or any tax, assessment or governmental charge that would not have been imposed or withheld but for the treatment of the interest paid by the Company as contingent interest described in Section 871(h)(4) of the Code or interest described in Section 881(c)(3)(A) of the Code; or (viii) any tax, assessment or governmental charge that would not have been imposed or withheld but for an election by the holder the effect of which is to make the payment of the principal of or interest (or any other amount) on a Bond or Coupon by the Company or a Paying Agent subject to United States federal income tax; or (ix) any combination of items (i), (ii), (iii), (iv), (v), (vi), (vii) or (viii). - 10 -
(2) For the purpose of these Conditions of Bonds, "United States Alien" means any person who, for United States federal income tax purposes, is a foreign corporation, a nonresident alien individual, a nonresident alien fiduciary of a foreign estate or trust; or a foreign partnership one or more of the members of which is, for United States federal income tax purposes, a foreign corporation, a nonresident alien individual or a nonresident alien fiduciary of a foreign estate or trust; and the "Relevant Date" means, in respect of any payment, the date on which such payment first becomes due and payable, but if the full amount of the moneys payable has not been received by the Fiscal Agent on or prior to such due date, it means the first date on which, the full amount of such moneys having been so received and being available for payment to Bondholders, public notice to that effect shall have been duly given by the Company or the Fiscal Agent in accordance with the last paragraph of Condition 8. (3) Any reference in these Conditions of Bonds to principal or interest shall be deemed also to refer to any Additional Amounts which may be payable in respect of principal or interest, respectively, under Condition 7(2) or this Condition 9. 10. Events of Default The following events or circumstances (each an "Event of Default") shall be acceleration events in relation to the Bonds, namely: (i) (ii) (iii) (iv) Non-payment: the Company fails to pay any amount of principal in respect of the Bonds on the due date for payment thereof or fails to pay any amount of interest in respect of the Bonds within 30 days of the due date for payment thereof; or Breach of other obligations: the Company defaults in the performance or observance of any of its other obligations under or in respect of the Bonds or the Agency Agreement and (except in any case where such default is incapable of remedy when no such continuation or notice, as is hereinafter mentioned, will be required) such default remains unremedied for 30 days after written notice requiring such default to be remedied has been delivered to the Head Office of the Fiscal Agent on behalf of the Company by any Bondholder (such notice to be accompanied by a Bond Certificate, or in the case of the recorded Bond, a certificate issued by the Recording Agency, showing the holding of any Bond by the relevant Bondholder); or Inability to meet financial obligations: the Company announces its inability to meet its financial obligations; or Indebtedness for borrowed money: the Company defaults for 30 days after notice in the payment of principal or interest with respect to any indebtedness under any fiscal, issue and paying agency agreement, indenture or similar agreement under which the Company has outstanding any - 11 -
indebtedness (other than the Bonds) and which results in the aggregate principal amount of indebtedness of the Company in excess of U.S.$150,000,000 becoming due and payable prior to maturity, which acceleration has not been rescinded or annulled; or (v) (vi) Appointment of receiver: the entry by a court having jurisdiction in the premises of (a) a decree or order for relief in respect of the Company in an involuntary case or proceeding under any applicable United States federal or state bankruptcy, insolvency, reorganization or other similar law or (b) a decree or order appointing a conservator, receiver, liquidator, assignee, trustee, sequestrator or any other similar official of the Company, or of substantially all of the property of the Company, or ordering the winding up or liquidation of the affairs of the Company and the continuance of any such decree or order for relief or any such other decree or order unstayed and in effect for a period of 60 consecutive days; or Voluntary bankruptcy proceedings: the commencement by the Company of a voluntary case or proceeding under any applicable United States federal or state bankruptcy, insolvency, reorganization or other similar law or to the commencement of any bankruptcy or insolvency case or proceeding, or the filing by the Company of a petition or answer or consent seeking reorganization or relief under any applicable United States federal or state law, or the consent by the Company to the filing of such petition or to the appointment of or taking possession by a custodian, receiver, liquidator, assignee, trustee, sequestrator or similar official of the Company or of substantially all of the property of the Company, or the making by the Company of an assignment for the benefit of creditors, or the taking of corporate action by the Company in furtherance of any such action, or admission by the Company in writing of its inability to pay its debts generally as they become due. If an Event of Default shall have occurred and be continuing with respect to any Bond, then and in each and every such case, any Bond shall, at the option of and upon written notice to the Fiscal Agent at its Head Office by the then holder thereof (such notice to be accompanied by a Bond Certificate, or in the case of the recorded Bond, a certificate issued by the Recording Agency, showing the holding of such Bond by the relevant holder thereof), mature and become due and payable, unless such Bond shall have already become due and payable, upon the date that such written notice is received by the Fiscal Agent at its Head Office on behalf of the Company at a price equal to 100% of the principal amount hereof, together with accrued interest to such date, unless prior to such date all Events of Default in respect of all the Bonds shall have been cured. If (a) any of the events specified in items (ii) through (vi) above has occurred or (b) any circumstance exists which would with the lapse of time or the giving of notice or both constitute any of such events, the Company shall immediately or in case of (b) above immediately when such circumstance comes to knowledge of the Company, notify the - 12 -
Fiscal Agent of such event and shall immediately give public notice of such event to the Bondholders. If the event specified in item (i) above or any circumstance exists which would with the lapse of time constitute such event shall have occurred and be continuing, the Company shall also immediately notify the Fiscal Agent of such event and give public notice of such event to the Bondholders. 11. Bondholders' Meetings The Bondholders' meetings relating to the Bonds shall be governed by the relevant and applicable provisions of the Commercial Code of Japan. Such Bondholders' meetings shall be held in Tokyo. For the purpose of this Condition 11, the Bonds, if any, then held by the Company shall, pursuant to Article 339 of the Commercial Code of Japan, be disregarded and deemed not to be outstanding. All reasonable expenses necessary for the procedures under this Condition 11 shall be borne by the Company. 12. Merger, Consolidation, Sale or Conveyance (1) The Company will not merge or consolidate with or into any other corporation or sell, convey, transfer or otherwise dispose of all or substantially all of its properties to any other corporation, unless (i) either the Company shall be the continuing corporation, or the successor corporation (if other than the Company) (the "successor corporation") shall be a corporation organized and existing under the laws of the United States or of a state thereof and such successor corporation shall expressly assume the due and punctual payment of the principal of, and interest on (and Additional Amounts, if any, with respect to) all the Bonds, according to their tenor, and the due and punctual performance of all of the covenants and obligations of the Company under the Bonds and the Agency Agreement by supplemental agreement executed by and among the Fiscal Agent and the successor corporation and/or the Company, and (ii) the Company or such successor corporation, as the case may be, shall not, immediately after such merger or consolidation, or such sale, conveyance, transfer or other disposition, be in default in the performance of any such covenants or obligations, and (iii) the Company and such successor corporation shall comply with all requirements of any applicable law required for the transactions contemplated by this Condition 12. (2) Upon any such merger, consolidation, sale, conveyance, transfer or other disposition, such successor corporation shall succeed to and be substituted for, and may exercise every right and power of and be subject to all the obligations of, the Company under the Agency Agreement and the Bonds, with the same effect as if such successor corporation had been named as the Company therein and herein, and the Company shall be released from all its liability as obligor under the Bonds and the Agency Agreement. - 13 -
(3) Prior to the time (if practicable and lawful) when such merger, consolidation, sale, conveyance, transfer or other disposition shall be referred to the shareholders of the Company for adoption or approval, and after such merger, consolidation, sale, conveyance, transfer or other disposition shall have taken effect, the Company (or, as the case may be, the successor corporation) shall promptly notify the Fiscal Agent and shall, only in the event that the Company is not the continuing corporation, give public notice of the relevant matters to the Bondholders. Prior to the time such merger, consolidation, sale, conveyance, transfer or other disposition shall have taken effect, the Company (or, as the case may be, the successor corporation) shall deliver to the Fiscal Agent a certificate signed by two officers of the Company (or, as the case may be, the successor corporation) stating that such transaction will take effect in compliance with all the conditions referred to in above (i), (ii) and (iii) of this Condition 12(1) and an opinion or letter of legal counsel (including in-house counsel) of the Company (or, as the case may be, the successor corporation) to the effect that the Company (or, as the case may be, the successor corporation) complies or upon consummation of such transaction will comply with all such conditions. All expenses necessary for the procedure under this Condition 12 shall be borne by the Company. The said certificate and opinion or letter shall be kept at the Head Office of the Fiscal Agent and shall be made available for perusal or photocopying by any Bondholder during normal business hours. All expenses incurred for such photocopying shall be borne by the applicant therefor. 13. Replacement of Bonds The Fiscal Agent on behalf of the Company shall prepare and deliver substitute Bond Certificates or Coupons to the holders of lost, stolen, destroyed or mutilated Bond Certificates or Coupons, upon application by any such holder, which must be accompanied by a certified transcript of a decision of nullification of such Bond Certificates or Coupons rendered by a Japanese court; provided, however, that as to those Bonds or Coupons which have then matured, the principal or interest shall be paid by the Paying Agent(s) without surrender of the Bond Certificates or the Coupons upon presentation of a certified transcript of a decision of nullification of such Bond Certificates or Coupons. Any Japanese court having jurisdiction over the place of principal and interest payment shall have jurisdiction concerning the procedures for the nullification decision regarding the Bond Certificates or the Coupons. If a holder of a Bond Certificate or a Coupon which has been lost, stolen, destroyed or mutilated makes a request, for the purpose of obtaining a decision of nullification, for a certificate to the effect that such Bond Certificate or Coupon has been issued by the Company, the Fiscal Agent shall prepare and deliver such certificate. If it is possible for the Fiscal Agent to identify mutilated Bond Certificates or Coupons, it shall, upon surrender to it of such Bond Certificates or Coupons, prepare and deliver substitute Bond Certificates or Coupons therefor without requiring a nullification decision and destroy the surrendered Bond Certificates or Coupons. The actual expenses incurred in respect of the preparation and delivery of substitute Bond Certificates or Coupons or said certificate shall be borne by the applicant therefor. - 14 -
14. Registration Book The registration book for the Bonds shall be prepared and administered by the Fiscal Agent on behalf of the Company, and kept at its Head Office. 15. Prescription The period of extinctive prescription shall be ten years for the principal of the Bonds and five years for the interest on the Bonds pursuant to Article 316 of the Commercial Code of Japan. 16. Notices All public notices relating to the Bonds shall be published once in the Japanese Official Gazette (if possible) and once in a daily Japanese newspaper published in both Tokyo and Osaka reporting on general affairs. Direct notification to individual Bondholders need not be made. Such public notices to be given by the Company shall, upon the request and at the expense of the Company, be given by the Fiscal Agent on behalf of the Company. The Agency Agreement provides that the Company shall request the Fiscal Agent in writing to give such public notices on behalf of the Company whenever necessary. 17. Currency Indemnity In the event of a judgment or order being rendered by any court for the payment of the principal of or interest on the Bonds, and such judgment or order being expressed in a currency other than Japanese yen, any amount received or recovered in such currency by any Bondholder or holder of Coupons in respect of such judgment or order shall only constitute a discharge to the Company to the extent of the amount received or recovered in Japanese yen and the Company undertakes to pay to such Bondholder and holder of Coupons the amount necessary to make up any deficiency arising or resulting from any variation in rates of exchange between (a) the date as of which any amount expressed in Japanese yen is (or is to be treated as) converted for the purposes of any such judgment or order, and (b) the date or dates of discharge of such judgment or order (or part thereof). To the extent permitted by any applicable law, the above undertaking shall constitute a separate and independent obligation of the Company from its other obligations, shall give rise to a separate and independent cause of action against the Company, shall apply irrespective of any indulgence granted by any Bondholder or holder of Coupons from time to time and shall continue in full force and effect notwithstanding any judgment or order. 18. Governing Law and Jurisdiction Except as to the authorization relating to the issuance by the Company of the Bonds, the Bonds, the form and substance of the Bond Certificates and the Coupons and all the rights and obligations of all the parties concerned, including the Bondholders, arising - 15 -
thereunder shall in all respects be governed by and construed in accordance with the laws of Japan. Except as otherwise provided in these Conditions of Bonds, the place of performance of obligations pertaining to the Bonds is Tokyo, Japan. Any legal action or other court procedure against the Company arising from or relating to the Bonds, Bond Certificates, Coupons or these Conditions of Bonds may be instituted in the Tokyo District Court, to the jurisdiction of which the Company hereby expressly, unconditionally and irrevocably submits. The Company hereby appoints a director of CH Projects Management Ltd., in Tokyo, Japan as the authorized agent of the Company upon whom process and any judicial or other court documents may be served in any legal or other court procedural action arising from or relating to the Bonds, Bond Certificates, Coupons or these Conditions of Bonds that may be instituted in Japan; the Company hereby designates the address from time to time of CH Projects Management Ltd., currently at Chiyoda House 301, 17-8 Nagatacho 2-chome, Chiyoda-ku, Tokyo 100-0014, Japan, as the address to receive such process and any judicial or other court documents; and the Company hereby agrees to take, from time to time and so long as any of the Bonds shall remain outstanding, any and all action (including the execution and filing of any and all documents and instruments) that may be necessary to effect and to continue such appointment and designation in full force and effect. If at any time such agent shall not, for any reason, serve as such authorized agent, the Company shall immediately appoint, and it hereby undertakes to take any and all action that may be necessary to effect the appointment of, a successor authorized agent in Tokyo, Japan. The Company shall notify the Fiscal Agent of the appointment of such successor agent and give a public notice thereof to the Bondholders. Nothing in this Condition 18 shall affect the right of the Bondholders to institute legal action against the Company in any court of competent jurisdiction under applicable laws or to serve process in any manner otherwise permitted by law. 19. Conversion into Book-Entry Transfer Bonds If any of the Bonds are converted into book-entry transfer bonds as defined in the Law Concerning Book-Entry Transfer of Corporate Bonds, Etc. of Japan (Law No. 75 of 2001, as amended, the "Book-Entry Transfer Law") after all necessary procedures have duly been taken by the Company and the relevant Bondholders pursuant to the Book-Entry Transfer Law, the manner of calculation and payment of principal of and interest on such Bonds in the form of book-entry transfer bonds, how to identify the Bondholders in the form of book-entry transfer bonds, how to exercise its rights under such Bonds in the form of book-entry transfer bonds, how to transfer such Bonds in the form of book-entry transfer bonds and all other related matters in respect of the Bonds to which such book-entry transfer system for corporate bonds, etc. applies, shall all be subject to the Book-Entry Transfer Law, the business regulations of the book-entry transfer institution under the - 16 -
Book-Entry Transfer Law and other rules and regulations relating to book-entry transfer bonds. - 17 -
(Translation) Annex 2 100,000,000 No. HSBC FINANCE CORPORATION JAPANESE YEN BONDS - TWELFTH SERIES (2006) Unsecured Amount 100,000,000 Interest Rate: 2.54 % per annum Due February 16, 2021 This Bond is one of HSBC Finance Corporation Japanese Yen Bonds - Twelfth Series (2006) in the aggregate principal amount of 15,000,000,000 issued on February 16, 2006 by HSBC Finance Corporation pursuant to the lawful authorization and in accordance with the Conditions of Bonds appearing on the reverse hereof. February 16, 2006 HSBC Finance Corporation By: Assistant Treasurer (Facsimile Signature) [The following legend will be printed in English at the bottom of the face side of the Bond Certificates.] Any United States person who holds this obligation will be subject to limitations under the United States income tax laws, including the limitations provided in Sections 165(j) and 1287(a) of the Internal Revenue Code. - 18 -
(Translation) Annex 3 HSBC FINANCE CORPORATION JAPANESE YEN BONDS - TWELFTH SERIES (2006) S e m i A n n u a l Unsecured Interest Coupon of 100,000,000 Bond For 1,270,000 Payable on February 16 / August 16, 20 I n t e r February 16, 2006 e s t No. HSBC Finance Corporation By: Assistant Treasurer (Facsimile Signature) [The following legend will be printed in English at the bottom of the face side of the Coupons.] Any United States person who holds this obligation will be subject to limitations under the United States income tax laws, including the limitations provided in Sections 165(j) and 1287(a) of the Internal Revenue Code. - 19 -