# EDGAR Filing Document

**Accession Number:** 0001000045
**File Stem:** 0000950170-23-002704
**Filing Date:** 2023-2
**Character Count:** 431365
**Document Hash:** 2bc25ac1551ffc219f2c4162e1bfad56
**Contains OCR:** False
**Source Format:** 

## Filing Content

## Filing Summary
**0000950170-23-002704.hdr.sgml**: 20230214

**ACCESSION NUMBER**: 0000950170-23-002704

**CONFORMED SUBMISSION TYPE**: 10-Q

**PUBLIC DOCUMENT COUNT**: 75

**CONFORMED PERIOD OF REPORT**: 20221231

**FILED AS OF DATE**: 20230214

**DATE AS OF CHANGE**: 20230214

**FILER**: 

**COMPANY DATA:**
- **COMPANY CONFORMED NAME:** NICHOLAS FINANCIAL INC
- **CENTRAL INDEX KEY:** 0001000045
- **STANDARD INDUSTRIAL CLASSIFICATION:** SHORT-TERM BUSINESS CREDIT INSTITUTIONS [6153]
- **IRS NUMBER:** 593019317
- **STATE OF INCORPORATION:** FL
- **FISCAL YEAR END:** 0331

**FILING VALUES:**
- **FORM TYPE:** 10-Q
- **SEC ACT:** 1934 Act
- **SEC FILE NUMBER:** 000-26680
- **FILM NUMBER:** 23622617

**BUSINESS ADDRESS:**
- **STREET 1:** 2454 MCMULLEN BOOTH RD
- **STREET 2:** BLDG C SUITE 501B
- **CITY:** CLEARWATER
- **STATE:** FL
- **ZIP:** 33759
- **BUSINESS PHONE:** 7277260763

**MAIL ADDRESS:**
- **STREET 1:** 2454 MCMULLEN BOOTH RD
- **STREET 2:** BLDG C SUITE 501B
- **CITY:** CLEARWATER
- **STATE:** FL
- **ZIP:** 33759

?xml version="1.0" encoding="ASCII"? 10-Q

**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington, DC 20549**

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**FORM** 10-Q

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☒ **QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** 

**FOR THE QUARTERLY PERIOD ENDED** **December 31,** 2022

☐ **TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**

**FOR THE TRANSITION PERIOD FROM TO .**

**Commission file number:** 0-26680

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NICHOLAS FINANCIAL, INC.

**(Exact Name of Registrant as Specified in its Charter)** 

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---

| | |
|:---|:---|
| British Columbia, Canada | 59-2506879 |
| **(State or Other Jurisdiction of**<br>**Incorporation or Organization)** | **(I.R.S. Employer**<br>**Identification No.)** |

---

---

| | |
|:---|:---|
| 2454 McMullen Booth Road**,** Building C |  |
| Clearwater**,** Florida | 33759 |
| **(Address of Principal Executive Offices)** | **(Zip Code)** |

---

**<u>(</u>**727**<u>)</u>** 726-0763

**(Registrant's telephone number, including area code)**

------

Securities registered pursuant to Section 12(b) of the Act:

---

| | | |
|:---|:---|:---|
| **Title of each class** | **Trading**<br>**Symbol(s)** | **Name of each exchange on which registered** |
| Common Stock | NICK | NASDAQ |

---

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 and 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter periods that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the Registrant has submitted electronically, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.

---

| | | | |
|:---|:---|:---|:---|
| Large accelerated filer | ☐ | Accelerated filer | ☐ |
| Non-accelerated filer | ☒ | Smaller reporting company | ☒ |
|  |  | Emerging growth company | ☐ |

---

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by checkmark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes ☐ No ☒

As of February 10, 2023, approximately 12.7 million common shares, no par value, of the Registrant were outstanding (of which 5.4 million shares were held by the Registrant's principal operating subsidiary and pursuant to applicable law, not entitled to vote and 7.3 million shares were entitled to vote).

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**NICHOLAS FINANCIAL, INC.**

**FORM 10-Q**

**TABLE OF CONTENTS**

---

| | | |
|:---|:---|:---|
|  |  | **Page** |
| **<u>Part I .</u>** | [**<u>Financial Information</u>**](#part_i_financial_information) |  |
| Item 1. | [<u>Financial Statements (Unaudited)</u>](#item_1_financial_statements) | 1 |
|  | [<u>Condensed Consolidated Balance Sheets as of December 31, 2022 and March 31, 2022</u>](#consolidated_balance_sheets) | 1 |
|  | [<u>Condensed Consolidated Statements of Income for the three and nine months ended December 31, 2022 and 2021</u>](#consolidated_statements_income) | 2 |
|  | [<u>Condensed Consolidated Statements of Shareholders' Equity for the three and nine months ended December 31, 2022 and 2021</u>](#consolidated_statements_shareholders_equ) | 3 |
|  | [<u>Condensed Consolidated Statements of Cash Flows for the nine months ended December 31, 2022 and 2021</u>](#consolidated_statements_cash_flows) | 4 |
|  | [<u>Notes to the Consolidated Financial Statements</u>](#notes_to_consolidated_financial) | 5 |
| Item 2. | [<u>Management's Discussion and Analysis of Financial Condition and Results of Operations</u>](#item_2_managements_discussion_analysis_f) | 17 |
| Item 3. | [<u>Quantitative and Qualitative Disclosures about Market Risk</u>](#item_3_quantitative_qualitative_disclosu) | 29 |
| Item 4. | [<u>Controls and Procedures</u>](#item_4_controls_procedures) | 29 |
| **<u>Part II .</u>** | [**<u>Other Information</u>**](#part_iior_information) |  |
| Item 1. | [<u>Legal Proceedings</u>](#item_1_legal_proceedings) | 30 |
| Item 1A. | [<u>Risk Factors</u>](#item_1a_risk_factors) | 30 |
| Item 2. | [<u>Unregistered Sales of Equity Securities and Use of Proceeds</u>](#part_ii_unreg_sales_eq_sec_use_proceeds) | 31 |
| Item 3. | [<u>Defaults Upon Senior Securities</u>](#defaults_upon_senior_securities) | 31 |
| Item 6. | [<u>Exhibits</u>](#item_6_exhibits) | 32 |

---

------

**PART I. FINANCIAL INFORMATION**

**ITEM 1. FINANCIAL STATEMENTS**

Nicholas Financial, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(In thousands)

---

| | | |
|:---|:---|:---|
|  | **December 31, 2022<br>(Unaudited)** | **March 31, 2022** |
| **Assets** |  |  |
| Cash | $914 | $4775 |
| Finance receivables, net | 139719 | 168600 |
| Repossessed assets | 1041 | 658 |
| Operating lease right-of-use assets | 1176 | 4277 |
| Prepaid expenses and other assets | 615 | 1103 |
| Income taxes receivable | 945 | 989 |
| Property and equipment, net | 794 | 1783 |
| Deferred income taxes |  | 1385 |
| Total assets | $145204 | $183570 |
| **Liabilities and shareholders' equity** |  |  |
| Credit facility, net of debt issuance costs | $44624 | $54813 |
| Note payable | - | 3244 |
| &nbsp;&nbsp;Net long-term debt | 44624 | 58057 |
| Operating lease liabilities | 2736 | 4410 |
| Accounts payable and accrued expenses | 2264 | 4717 |
| Total liabilities | 49624 | 67184 |
| Commitments and contingencies (see Note 10) |  |  |
| Shareholders' equity |  |  |
| &nbsp;&nbsp;&nbsp;Preferred stock, no par: 5,000 shares authorized; none issued |  |  |
| &nbsp;&nbsp;&nbsp;Common stock, no par: 50,000 shares authorized; 12,658 and 12,673 shares issued,<br> respectively; and 7,290 and 7,546 shares outstanding, respectively | 35197 | 35292 |
| &nbsp;&nbsp;&nbsp;Treasury stock: 5,368 and 5,127 common shares, at cost, respectively | **(**76794**)** | (74405) |
| &nbsp;&nbsp;&nbsp;Retained earnings | 137177 | 155499 |
| Total shareholders' equity | 95580 | 116386 |
| Total liabilities and shareholders' equity | $145204 | $183570 |

---

See Notes to the Condensed Consolidated Financial Statements.

------

Nicholas Financial, Inc. and Subsidiaries

Condensed Consolidated Statements of Income

(Unaudited)

(In thousands, except per share amounts)

---

| | | | | |
|:---|:---|:---|:---|:---|
|  | **Three Months Ended December 31,** | **Three Months Ended December 31,** | **Nine Months Ended December 31,** | **Nine Months Ended December 31,** |
|  | **2022** | 2021 | **2022** | 2021 |
| Revenue: |  |  |  |  |
| &nbsp;&nbsp;&nbsp;Interest and fee income on finance receivables | $11268 | $12240 | $35580 | $37406 |
| &nbsp;&nbsp;&nbsp;Net gain on equity investments |  |  | 66 |  |
| &nbsp;&nbsp;&nbsp;Total revenue | 11268 | 12240 | 35646 | 37406 |
| Expenses: |  |  |  |  |
| &nbsp;&nbsp;&nbsp;Marketing | 177 | 389 | 1086 | 1338 |
| &nbsp;&nbsp;&nbsp;Administrative | 9398 | 8370 | 25066 | 23513 |
| &nbsp;&nbsp;&nbsp;Provision for credit losses | 10730 | 1675 | 23280 | 3800 |
| &nbsp;&nbsp;&nbsp;Depreciation and amortization | 97 | 104 | 339 | 276 |
| &nbsp;&nbsp;&nbsp;Interest expense | 1239 | 2613 | 2782 | 4923 |
| &nbsp;&nbsp;&nbsp;Total expenses | 21641 | 13151 | 52553 | 33850 |
| (Loss) income before income taxes | **(**10373**)** | (911) | **(**16907**)** | 3556 |
| Income tax expense (benefit) | 3000 | (209) | 1415 | 926 |
| Net (loss) income | $**(**13373**)** | $(702) | $**(**18322**)** | $2630 |
| Net (loss) income per share: |  |  |  |  |
| &nbsp;&nbsp;&nbsp;Basic | $**(**1.85**)** | $(0.09) | $**(**2.49**)** | $0.34 |
| &nbsp;&nbsp;&nbsp;Diluted | $**(**1.85**)** | $(0.09) | $**(**2.49**)** | $0.34 |

---

See Notes to the Condensed Consolidated Financial Statements.

------

Nicholas Financial, Inc. and Subsidiaries

Condensed Consolidated Statements of Shareholders' Equity

(Unaudited)

(In thousands)

---

| | | | | | |
|:---|:---|:---|:---|:---|:---|
|  | **Three Months Ended December 31, 2022** | **Three Months Ended December 31, 2022** | **Three Months Ended December 31, 2022** | **Three Months Ended December 31, 2022** | **Three Months Ended December 31, 2022** |
|  | **Common Stock** | **Common Stock** |  |  | **Total** |
|  | **Shares** | **Amount** | **Treasury<br>Stock** | **Retained<br>Earnings** | **Shareholders'<br>Equity** |
| Balance at September 30, 2022 | 7309 | $35172 | $**(**76684**)** | $150550 | $109038 |
| Issuance of restricted stock awards | **—** | **—** | **—** | **—** | **—** |
| Share-based compensation | **—** | 25 | **—** | **—** | 25 |
| Treasury stock | **(**19**)** | **—** | **(**110**)** | **—** | **(**110**)** |
| Net (loss) income | **—** | **—** | **—** | **(**13373**)** | **(**13373**)** |
| Balance at December 31, 2022 | 7290 | $35197 | $**(**76794**)** | $137177 | $95580 |
|  | **Three Months Ended December 31, 2021** | **Three Months Ended December 31, 2021** | **Three Months Ended December 31, 2021** | **Three Months Ended December 31, 2021** | **Three Months Ended December 31, 2021** |
|  | **Common Stock** | **Common Stock** |  |  | **Total** |
|  | **Shares** | **Amount** | **Treasury<br>Stock** | **Retained<br>Earnings** | **Shareholders'<br>Equity** |
| Balance at September 30, 2021 | 7583 | $35151 | $(73895) | $155833 | $117089 |
| Issuance of restricted stock awards | 5 |  |  |  |  |
| Exercise of stock options | 3 | 28 |  |  | 28 |
| Share-based compensation |  | 65 |  |  | 65 |
| Treasury stock | (6) |  | (65) |  | (65) |
| Net (loss) income |  |  |  | (702) | (702) |
| Balance at December 31, 2021 | 7585 | $35244 | $(73960) | $155131 | $116415 |
|  | **Nine Months Ended December 31, 2022** | **Nine Months Ended December 31, 2022** | **Nine Months Ended December 31, 2022** | **Nine Months Ended December 31, 2022** | **Nine Months Ended December 31, 2022** |
|  | **Common Stock** | **Common Stock** |  |  | **Total** |
|  | **Shares** | **Amount** | **Treasury<br>Stock** | **Retained<br>Earnings** | **Shareholders'<br>Equity** |
| Balance at March 31, 2022 | 7546 | $35292 | $**(**74405**)** | $155499 | $116386 |
| Issuance of restricted stock awards | 11 | **—** | **—** | **—** | **—** |
| Cancellation of restricted stock awards | **(**26**)** | **(**175**)** | **—** | **—** | **(**175**)** |
| Share-based compensation | **—** | 80 | **—** | **—** | 80 |
| Treasury stock | **(**241**)** | **—** | **(**2389**)** | **—** | **(**2389**)** |
| Net (loss) income | **—** | **—** | **—** | **(**18322**)** | **(**18322**)** |
| Balance at December 31, 2022 | 7290 | $35197 | $**(**76794**)** | $137177 | $95580 |
|  | **Nine Months Ended December 31, 2021** | **Nine Months Ended December 31, 2021** | **Nine Months Ended December 31, 2021** | **Nine Months Ended December 31, 2021** | **Nine Months Ended December 31, 2021** |
|  | **Common Stock** | **Common Stock** |  |  | **Total** |
|  | **Shares** | **Amount** | **Treasury<br>Stock** | **Retained<br>Earnings** | **Shareholders'<br>Equity** |
| Balance at March 31, 2021 | 7708 | $35064 | $(72343) | $152501 | $115222 |
| Issuance of restricted stock awards | 17 |  |  |  |  |
| Exercise of stock options | 3 | 28 |  |  | 28 |
| Share-based compensation |  | 152 |  |  | 152 |
| Treasury stock | (143) |  | (1617) |  | (1617) |
| Net (loss) income |  |  |  | 2630 | 2630 |
| Balance at December 31, 2021 | 7585 | $35244 | $(73960) | $155131 | $116415 |

---

See Notes to the Condensed Consolidated Financial Statements.

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Nicholas Financial, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(In thousands)

---

| | | |
|:---|:---|:---|
|  | **Nine Months Ended December 31,** | **Nine Months Ended December 31,** |
|  | **2022** | **2021** |
| **Cash flows from operating activities** |  |  |
| Net (loss) income | $**(**18322**)** | $2630 |
| Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities: |  |  |
| &nbsp;&nbsp;&nbsp;Depreciation and amortization | 339 | 276 |
| &nbsp;&nbsp;&nbsp;Amortization of debt issuance costs | 124 | 2158 |
| &nbsp;&nbsp;&nbsp;Non-cash lease expense | 1427 | (146) |
| &nbsp;&nbsp;&nbsp;Loss (Gain) on sale of property and equipment | 650 | (3) |
| &nbsp;&nbsp;&nbsp;Net gain on equity investments | **(**66**)** |  |
| &nbsp;&nbsp;&nbsp;Provision for credit losses | 23280 | 3800 |
| &nbsp;&nbsp;&nbsp;Amortization of dealer discounts | **(**4632**)** | (4771) |
| &nbsp;&nbsp;&nbsp;Amortization of insurance and fees commissions | **(**2395**)** | (1992) |
| &nbsp;&nbsp;&nbsp;Accretion of purchase price discount | **(**119**)** | (71) |
| &nbsp;&nbsp;&nbsp;Deferred income taxes | 1385 | 557 |
| &nbsp;&nbsp;&nbsp;Cancellations of restricted stock awards | **(**175**)** |  |
| &nbsp;&nbsp;&nbsp;Share-based compensation | 80 | 152 |
| Changes in operating assets and liabilities: |  |  |
| &nbsp;&nbsp;&nbsp;Prepaid expenses and other assets | **(**100**)** | 220 |
| &nbsp;&nbsp;&nbsp;Accounts payable and accrued expenses | **(**2453**)** | (742) |
| &nbsp;&nbsp;&nbsp;Income taxes receivable | 44 | (166) |
| Net cash (used in) provided by operating activities | **(**933**)** | 1902 |
| **Cash flows from investing activities** |  |  |
| &nbsp;&nbsp;&nbsp;Purchase and origination of finance receivables | **(**61769**)** | (79947) |
| &nbsp;&nbsp;&nbsp;Principal payments received on finance receivables and proceeds from repossessed assets sales | 74721 | 87689 |
| &nbsp;&nbsp;&nbsp;Purchase of equity investments | **(**7237**)** |  |
| &nbsp;&nbsp;&nbsp;Proceeds from sale of equity investments | 7303 |  |
| &nbsp;&nbsp;&nbsp;Purchases of property and equipment |  | (985) |
| Net cash provided by investing activities | 13018 | 6757 |
| **Cash flows from financing activities** |  |  |
| &nbsp;&nbsp;&nbsp;Repayments on credit facility | **(**27800**)** | (33300) |
| &nbsp;&nbsp;&nbsp;Proceeds from the credit facility | 17800 |  |
| &nbsp;&nbsp;&nbsp;Payment of loan originations fees | **(**313**)** | (217) |
| &nbsp;&nbsp;&nbsp;Repayment of PPP Loan | **(**3244**)** |  |
| &nbsp;&nbsp;&nbsp;Proceeds from exercise of stock options | **—** | 28 |
| &nbsp;&nbsp;&nbsp;Repurchases of treasury stock | **(**2389**)** | (1617) |
| Net cash used in financing activities | **(**15946**)** | (35106) |
| Net decrease in cash and restricted cash | **(**3861**)** | (26447) |
| Cash and restricted cash at the beginning of period | 4775 | 32977 |
| Cash and restricted cash at the end of period | $914 | $6530 |
| Supplemental disclosures, including noncash activities: |  |  |
| &nbsp;&nbsp;&nbsp;Interest paid | 2532 | 3005 |
| &nbsp;&nbsp;&nbsp;Income taxes paid | 24 | 541 |
| &nbsp;&nbsp;&nbsp;Transfer of finance receivables to repossessed assets | 6446 | 4682 |
| &nbsp;&nbsp;&nbsp;Leased assets obtained in exchange for new operating lease liabilities |  | 1993 |

---

See Notes to the Condensed Consolidated Financial Statements.

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**Notes to the Condensed Consolidated Financial Statements**

**Note** **1.** **Basis of** **Presentation**

Nicholas Financial, Inc. ("Nicholas Financial – Canada" or the Company) is a Canadian holding company incorporated under the laws of British Columbia with several wholly-owned United States subsidiaries, including Nicholas Financial, Inc., a Florida corporation ("NFI"). The accompanying condensed consolidated balance sheet as of December 31, 2022, and the accompanying unaudited interim condensed consolidated financial statements of Nicholas Financial – Canada, and its wholly-owned subsidiaries (collectively, the "Company"), have been prepared in accordance with accounting principles generally accepted in the United States ("U.S. GAAP") for interim financial information, with the instructions to Form 10-Q pursuant to the Securities Exchange Act of 1934, as amended, and with Article 8 of Regulation S-X thereunder. Accordingly, they do not include all of the information and notes to the consolidated financial statements required by U.S. GAAP for complete consolidated financial statements, although the Company believes that the disclosures made are adequate to ensure the information is not misleading. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for interim periods are not necessarily indicative of the results that may be expected for the year ending March 31, 2023. It is suggested that these condensed consolidated financial statements be read in conjunction with the consolidated financial statements and accompanying notes thereto included in the Company's Annual Report on Form 10-K for the year ended March 31, 2022 as filed with the Securities and Exchange Commission on June 24, 2022. The March 31, 2022 consolidated balance sheet included herein has been derived from the March 31, 2022 audited consolidated balance sheet included in the aforementioned Form 10-K.

The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change relate to the determination of the allowance for credit losses on finance receivables.

**Reclassifications**

In certain instances, amounts reported in prior years' consolidated financial statements have been reclassified to conform to the current financial statement presentation. Such reclassifications had no effect on previously reported net income (loss).

**Note** **2.** Revenue Recognition

Interest income on finance receivables is recognized using the interest method. Accrual of interest income on finance receivables is suspended when a loan is contractually delinquent for 61 days or more, or the collateral is repossessed, whichever is earlier. The Company reverses the accrual of interest income when the loan is contractually delinquent 61 days or more.

The Company defines a non-performing asset as one that is 61 or more days past due, a Chapter 7 bankruptcy account, or a Chapter 13 bankruptcy account that has not been confirmed by the courts, for which the accrual of interest income is suspended. Upon confirmation of a Chapter 13 bankruptcy account (BK13), the account is immediately charged-off. Upon notification of a Chapter 7 bankruptcy, an account is monitored for collectability. In the event the debtors' balance is reduced by the bankruptcy court, the Company records a loss equal to the amount of principal balance reduction. The remaining balance is reduced as payments are received. In the event an account is dismissed from bankruptcy, the Company will decide whether to begin repossession proceedings or to allow the customer to make regularly scheduled payments.

A dealer discount represents the difference between the finance receivable of a Contract, and the amount of money the Company actually pays for the Contract. The discount negotiated by the Company is a function of the lender, the wholesale value of the vehicle and competition in any given market. In making decisions regarding the purchase of a particular Contract the Company considers the following factors related to the borrower: place and length of residence; current and prior job status; history in making installment payments for automobiles; current income; and credit history. In addition, the Company examines its prior experience with Contracts purchased from the dealer, and the value of the automobile in relation to the purchase price and the term of the Contract.

The dealer discount is amortized as an adjustment to yield using the interest method over the life of the loan. The average dealer discount associated with new volume for the three months ended December 31, 2022 and 2021 was 6.8% and 6.8%, respectively, in relation to the total amount financed.

------

Unearned insurance and fee commissions consist primarily of commissions received from the sale of ancillary products. These products include automobile warranties, roadside assistance programs, accident and health insurance, credit life insurance, involuntary unemployment insurance coverage, and forced placed automobile insurance. These commissions are amortized over the life of the contract using the effective interest method.

**Note** 3. Earnings Per Share

The Company has granted stock compensation awards with nonforfeitable dividend rights which are considered participating securities. Earnings per share is calculated using the two-class method, as such awards are more dilutive under this method than the treasury stock method. Basic earnings per share is calculated by dividing net income allocated to common shareholders by the weighted average number of common shares outstanding during the period, which excludes the participating securities. The Company's participating securities are non-vested restricted shares which are not required to share losses, and accordingly, are not allocated losses in periods of net loss. Diluted earnings per share includes the dilutive effect of additional potential common shares from stock compensation awards. Earnings per share have been computed based on the following weighted average number of common shares outstanding:

---

| | | | | |
|:---|:---|:---|:---|:---|
|  | **Three months ended<br>December 31,<br>(In thousands, except<br>per share amounts)** | **Three months ended<br>December 31,<br>(In thousands, except<br>per share amounts)** | **Nine months ended<br>December 31,<br>(In thousands, except<br>per share amounts)** | **Nine months ended<br>December 31,<br>(In thousands, except<br>per share amounts)** |
|  | **2022** | 2021 | **2022** | 2021 |
| &nbsp;&nbsp;**Numerator** |  |  |  |  |
| Net (loss) income per consolidated statements of income | $**(**13373**)** | $(702) | $**(**18322**)** | $2630 |
| Percentage allocated to shareholders \* | 100<br>**%** | 100% | 100<br>**%** | 100% |
| Numerator for basic and diluted earnings per share | $**(**13373**)** | $(699) | $**(**18322**)** | $2617 |
| &nbsp;&nbsp;**Denominator** |  |  |  |  |
| Denominator for basic earnings per share - weighted-average shares outstanding | 7219 | 7621 | 7349 | 7593 |
| Dilutive effect of stock options | **—** |  | **—** |  |
| Denominator for diluted earnings per share | 7219 | 7621 | 7349 | 7593 |
| &nbsp;&nbsp;**Per share income from continuing operations** |  |  |  |  |
| Basic | $**(**1.85**)** | $(0.09) | $**(**2.49**)** | $0.34 |
| Diluted | **(**1.85**)** | (0.09) | **(**2.49**)** | 0.34 |
| \* Basic weighted-average shares outstanding | 7219 | 7621 | 7349 | 7593 |
| &nbsp;&nbsp;&nbsp;&nbsp;Basic weighted-average shares outstanding and unvested restricted stock units expected to vest | 7219 | 7658 | 7349 | 7630 |
| &nbsp;&nbsp;Percentage allocated to shareholders | 100<br>**%** | 100% | 100<br>**%** | 100% |

---

**Note** 4. Finance Receivables

Finance Receivables Portfolio, net

Finance receivables consist of Contracts and Direct Loans and are detailed as follows:

---

| | | |
|:---|:---|:---|
|  | **(In thousands)** | **(In thousands)** |
|  | **December 31,<br>2022** | **March 31,<br>2022** |
| Finance receivables | $155213 | $178786 |
| Accrued interest receivable | 2903 | 2315 |
| Unearned dealer discounts | **(**5463**)** | (6894) |
| Unearned insurance commissions and fees | **(**1889**)** | (2446) |
| Purchase price discount | **(**93**)** | (212) |
| Finance receivables, net of unearned | 150671 | 171549 |
| Allowance for credit losses | **(**10952**)** | (2949) |
| Finance receivables, net | $139719 | $168600 |

---

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Contracts and Direct Loans each comprise a portfolio segment. The following tables present selected information on the entire portfolio of the Company:

---

| | | |
|:---|:---|:---|
|  | **As of December 31,** | **As of December 31,** |
| **Contract Portfolio** | **2022** | **2021** |
| Average APR | 22.8<br>**%** | 22.8% |
| Average discount | 6.8<br>**%** | 7.4% |
| Average term (months) | 50 | 50 |
| Number of active contracts | 16364 | 20013 |

---

---

| | | |
|:---|:---|:---|
|  | **As of December 31,** | **As of December 31,** |
| **Direct Loan Portfolio** | **2022** | **2021** |
| Average APR | 30.0<br>**%** | 29.8% |
| Average term (months) | 26 | 26 |
| Number of active contracts | 6505 | 6103 |

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The Company purchases Contracts from automobile dealers at a negotiated price that is less than the original principal amount being financed by the purchaser of the automobile. The Contracts are predominantly for used vehicles. As of December 31, 2022, the average model year of vehicles collateralizing the portfolio was a 2012 vehicle.

Direct Loans typically range from $500 to $15 thousand and generally are secured by a lien on an automobile, watercraft or other permissible tangible personal property. The majority of Direct Loans was originated with current or former customers under the Company's automobile financing program. The typical Direct Loan represents a better credit risk than the typical Contract due to the customer's prior payment history with the Company; however, the underlying collateral is generally less valuable. In deciding whether to make a loan, the Company considered the individual's credit history, job stability, income, and impressions created during a personal interview with a Company loan officer. Additionally, because most of the Direct Loans made by the Company were made to current or former customers, the payment history of the borrower was a significant factor in making the loan decision. As of December 31, 2022, loans made by the Company pursuant to its Direct Loan program constituted approximately 15% of the aggregate principal amount of the Company's loan portfolio. Changes in the allowance for credit losses for both Contracts and Direct Loans are driven primarily by consideration of the composition of the portfolio, current economic conditions, the estimated net realizable value of the underlying collateral, historical loan loss experience, delinquency, non-performing assets, and bankrupt accounts when determining management's estimate of probable credit losses and adequacy of the allowance for credit losses. If the allowance for credit losses is determined to be inadequate, then an additional charge to the provision would be recorded to maintain adequate reserves based on management's evaluation of the risk inherent in the loan portfolio. Additionally, credit loss trends over several reporting periods are utilized in estimating losses and overall portfolio performance. Conversely, the Company identifies abnormalities in the composition of the portfolio, which would indicate the calculation was overstated and management judgment may be required to determine the allowance of credit losses for both Contracts and Direct Loans.

Each portfolio segment consists of smaller balance homogeneous loans which are collectively evaluated for impairment.

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Allowance for Credit Losses

The following table sets forth a reconciliation of the changes in the allowance for credit losses on Contracts and Direct Loans for the three months ended December 31, 2022 and 2021 (in thousands):

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| | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|
|  | **Three months ended December 31, 2022** | **Three months ended December 31, 2022** | **Three months ended December 31, 2022** | **Nine months ended December 31, 2022** | **Nine months ended December 31, 2022** | **Nine months ended December 31, 2022** |
|  | **Contracts** | **Direct Loans** | **Consolidated** | **Contracts** | **Direct Loans** | **Consolidated** |
| Balance at beginning of<br> period | $5088 | $2003 | $7091 | $1960 | $989 | $2949 |
| Provision for credit losses | 9132 | 1598 | 10730 | 19747 | 3533 | 23280 |
| Charge-offs | **(**7077**)** | **(**1056**)** | **(**8133**)** | **(**17266**)** | **(**2050**)** | **(**19316**)** |
| Recoveries | 1240 | 24 | 1264 | 3942 | 97 | 4039 |
| Balance at December 31,<br>2022 | $8383 | $2569 | $10952 | $8383 | $2569 | $10952 |
|  | Three months ended December 31, 2021 | Three months ended December 31, 2021 | Three months ended December 31, 2021 | Nine months ended December 31, 2021 | Nine months ended December 31, 2021 | Nine months ended December 31, 2021 |
|  | Contracts | Direct Loans | Consolidated | Contracts | Direct Loans | Consolidated |
| Balance at beginning of<br> period | $3716 | $746 | $4462 | $6001 | $153 | $6154 |
| Provision for credit losses | 1325 | 350 | 1675 | 2515 | 1285 | 3800 |
| Charge-offs | (3546) | (245) | (3791) | (9447) | (618) | (10065) |
| Recoveries | 1271 | 13 | 1284 | 3697 | 44 | 3741 |
| Balance at December 31,<br>2021 | $2766 | $864 | $3630 | $2766 | $864 | $3630 |

---

The Company uses the trailing twelve-month charge-offs, and applies this calculated percentage to ending finance receivables to calculate estimated probable credit losses for purposes of determining the allowance for credit losses. The Company then takes into consideration the composition of its portfolio, current economic conditions, estimated net realizable value of the underlying collateral, historical loan loss experience, delinquency, non-performing assets, and bankrupt accounts and adjusts the above, if necessary, to determine management's total estimate of probable credit losses and its assessment of the overall adequacy of the allowance for credit losses. By including recent trends such as delinquency, non-performing assets, and bankruptcy in its determination, management believes that the allowance for credit losses reflects the current trends of incurred losses within the portfolio and is better aligned with the portfolio's performance indicators.

The following table is an assessment of the credit quality by creditworthiness:

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| | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|
|  | **(In thousands)** | **(In thousands)** | **(In thousands)** | **(In thousands)** | **(In thousands)** | **(In thousands)** |
|  | **December 31, 2022** | **December 31, 2022** | **December 31, 2022** | December 31, 2021 | December 31, 2021 | December 31, 2021 |
|  | **Contracts** | **Direct Loans** | **Total** | Contracts | Direct Loans | Total |
| Performing accounts | $120299 | $22077 | $142376 | $147589 | $22216 | $169805 |
| Non-performing accounts | 11003 | 1623 | 12626 | 5891 | 329 | 6220 |
| Total | 131302 | 23700 | 155002 | 153480 | 22545 | 176025 |
| Chapter 13 bankruptcy<br>accounts | 163 | 48 | 211 | 142 | 6 | 148 |
| Finance receivables | $131465 | $23748 | $155213 | $153622 | $22551 | $176173 |

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A performing account is defined as an account that is less than 61 days past due. The Company defines an automobile contract as delinquent when more than 10% of a payment contractually due by a certain date has not been paid immediately by the following due date, which date may have been extended within limits specified in the servicing agreements or as a result of a deferral. The period of delinquency is based on the number of days payments are contractually past due, as extended where applicable.

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In certain circumstances, the Company will grant obligors one-month payment extensions. The only modification of terms in those circumstances is to advance the obligor's next due date by one month and extend the maturity date of the receivable. There are no other concessions, such as a reduction in interest rate, or forgiveness of principal or of accrued interest. Accordingly, the Company considers such extensions to be insignificant delays in payments rather than troubled debt restructurings.

A non-performing account is defined as an account that is contractually delinquent for 61 days or more or is a Chapter 13 bankruptcy account for which the accrual interest income has been suspended. The Company's charge-off policy is to charge off an account in the month the contract becomes 121 days contractually delinquent.

In the event an account is dismissed from bankruptcy, the Company will decide whether to begin repossession proceedings or to allow the customer to make regularly scheduled payments.

The following tables present certain information regarding the delinquency rates experienced by the Company with respect to Contracts and Direct Loans, excluding Chapter 13 bankruptcy accounts:

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| | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|
|  | **Contracts** | **Contracts** | **Contracts** | **Contracts** | **Contracts** | **Contracts** |
|  | **(In thousands, except percentages)** | **(In thousands, except percentages)** | **(In thousands, except percentages)** | **(In thousands, except percentages)** | **(In thousands, except percentages)** | **(In thousands, except percentages)** |
|  | **Balance<br>Outstanding** | **30 – 59<br>days** | **60 – 89<br>days** | **90 – 119<br>days** | **120+** | **Total** |
| **December 31, 2022** | $131302 | $16649 | $7351 | $3615 | $37 | $27652 |
|  |  | 12.68<br>**%** | 5.60<br>**%** | 2.75<br>**%** | 0.03<br>**%** | 21.06<br>**%** |
| March 31, 2022 | $154143 | $7097 | $2936 | $1183 | $48 | $11264 |
|  |  | 4.60% | 1.90% | 0.77% | 0.03% | 7.31% |
| December 31, 2021 | $153480 | $9886 | $4176 | $1662 | $53 | $15777 |
|  |  | 6.44% | 2.72% | 1.08% | 0.03% | 10.28% |

---

------

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| | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|
|  | **Direct Loans** | **Direct Loans** | **Direct Loans** | **Direct Loans** | **Direct Loans** | **Direct Loans** |
|  | **Balance<br>Outstanding** | **30 – 59<br>days** | **60 – 89<br>days** | **90 – 119<br>days** | **120+** | **Total** |
| **December 31, 2022** | $23700 | $2989 | $1102 | $515 | $6 | $4612 |
|  |  | 12.61<br>**%** | 4.65<br>**%** | 2.17<br>**%** | 0.03<br>**%** | 19.46<br>**%** |
| March 31, 2022 | $24376 | $607 | $197 | $77 | $— | $881 |
|  |  | 2.49% | 0.81% | 0.32% |  | 3.61% |
| December 31, 2021 | $22545 | $636 | $199 | $130 | $— | $965 |
|  |  | 2.82% | 0.88% | 0.58% |  | 4.28% |

---

**Note 5. Credit Facility**

<u>Wells Fargo Line of Credit</u>

On November 5, 2021, the Company through its subsidiaries (the "Borrowers") entered into a senior secured line of credit (the "Wells Fargo Line of Credit") pursuant to a loan and security agreement by and among the Borrowers, Wells Fargo Bank, N.A., as agent, and the lenders that are party thereto (the "WF Credit Agreement"). The prior line of credit (the "Ares Line of Credit") pursuant to a credit agreement among the Company's subsidiary NF Funding I, LLC, Ares Agent Services, L.P. and the lenders party thereto was paid off in connection with entering into the Wells Fargo Line of Credit.

Pursuant to the WF Credit Agreement, the lenders agreed to extend to the Borrowers a line of credit of up to $175 million. The availability of funds under the Wells Fargo Line of Credit was generally limited to an advance rate of between 80% and 85% of the value of eligible receivables, and outstanding advances under the Wells Fargo Line of Credit accrued interest at a rate equal to the Secured Overnight Financing Rate (SOFR) plus 2.25%. The commitment period for advances under the Line of Credit was three years (the expiration of that time period, the "Maturity Date").

Pursuant to the WF Credit Agreement, the Borrowers granted a security interest in substantially all of their assets as collateral for their obligations under the Wells Fargo Line of Credit.

The WF Credit Agreement and the other loan documents contained customary events of default and negative covenants, including but not limited to those governing indebtedness, liens, fundamental changes, investments, and sales of assets.

As of December 31, 2022, the Company had aggregate outstanding indebtedness under the Wells Fargo Line of Credit of $45.0 million, compared to $55.0 million as of March 31, 2022.

Future maturities of debt as of December 31, 2022 were as follows:

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| | |
|:---|:---|
| (in thousands) |  |
| FY2023 | $— |
| FY2024 |  |
| FY2025 | 45000 |
| FY2026 |  |
|  | $45000 |

---

As previously announced on Form 8-K filed on October 27, 2022, the Company received a letter from the agent of its lenders, notifying the Company that it was in default and instituting the default rate of interest effective as of August 31, 2022. In the letter, the lenders expressly reserved all rights and remedies available under the credit agreement. Among those rights and remedies was the ability of the lenders to accelerate all of the Company's obligations under the loan. The Company subsequently announced on Form 8-K filed on December 12, 2022 that it entered into an amendment to the WF Credit Agreement. Pursuant to the amendment, the lenders waived the event of default and the default rate of interest ceased being applicable as of December 6, 2022.

The amendment furthermore reduced the maximum amount available under the WF Credit Facility from $175 million to $60 million, and also reduced the availability of funds under the credit facility from an advance rate of between 80% and 85% of the value of eligible receivables to an advance rate of 50% of the value of eligible receivables, and changed the maturity date of the WF Credit Facility from November 5, 2024 to May 31, 2023. The Company incurred overall costs associated with the restructuring in the amount of $0.3 million.

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As described in Note 15. Subsequent Events, the Company refinanced the WF Credit Facility on January 18, 2023.

**Note 6. RESERVED**

**Note 7. Income Taxes**

The Company recorded an income tax expense of approximately $3.0 million for the three months ended December 31, 2022 compared to an income tax benefit of approximately $209 thousand for the three months ended December 31, 2021. The Company's effective tax rate decreased to -29.1% for the three months ended December 31, 2022 from 22.9% for the three months ended December 31, 2021. The Company recorded an income tax expense of approximately $1.4 million for the nine months ended December 31, 2022 compared to an income tax expense of approximately $926 thousand for the nine months ended December 31, 2021. The Company's effective tax rate decreased to -8.42% for the nine months ended December 31, 2022 from 26.0% for the nine months ended December 31, 2021. The lower effective tax rate for the three months ended December 31, 2022 and the lower effective tax rate for the nine months ended December 31, 2022 were attributed to a deferred income tax valuation allowance of $5.7 million recorded during the three months ended December 31, 2022.

The net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes are reflected in deferred income taxes. Significant components of the Company's deferred tax assets consist of the following:

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| | | |
|:---|:---|:---|
|  | **(In thousands)** | **(In thousands)** |
|  | **December 31, 2022** | **March 31, 2022** |
| Deferred Tax Assets: |  |  |
| &nbsp;&nbsp;Federal and State net operating loss carryforwards | $2365 | $507 |
| &nbsp;&nbsp;Share-based compensation | 14 | 79 |
| &nbsp;&nbsp;Allowance for credit losses not currently deductible for tax purposes | 2998 | 900 |
| &nbsp;&nbsp;Right of use liability | 675 | 1094 |
| &nbsp;&nbsp;Other items | 119 | 175 |
| Gross deferred tax assets | 6171 | 2755 |
| &nbsp;&nbsp;Valuation allowance for deferred tax assets | **(**5723**)** | - |
| Net deferred tax assets | 448 | 2755 |
| Deferred tax liabilities: |  |  |
| &nbsp;&nbsp;Right of use asset | 290 | 1061 |
| &nbsp;&nbsp;Other items | 158 | 309 |
| Total deferred tax liabilities | 448 | 1370 |
| Net deferred income taxes | $- | $1385 |

---

Income tax expense reflects an effective U.S tax rate, which differs from the corporate tax rate for the following reasons:

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| | | |
|:---|:---|:---|
|  | **(In thousands)** | **(In thousands)** |
|  | **Three months ended** | **Nine months ended** |
|  | **December 31, 2022** | **December 31, 2022** |
| Income tax expense at Federal statutory rate | $(2178) | $(3530) |
| State income taxes, net of Federal benefit | (398) | (645) |
| Increase (decrease) resulting from: |  |  |
| &nbsp;&nbsp;Change in Valuation Allowance | 5723 | 5723 |
| &nbsp;&nbsp;Other | (147) | (133) |
| Income tax expense | $3000 | $1415 |

---

As of December 31, 2022 the Company has not generated sufficient positive evidence of future earnings to support a position that it will be able to realize its net deferred tax asset. The Company has significant negative evidence to overcome in the form of cumulative pre-tax losses from continuing operations as well as projected losses for the current year. Therefore, it will continue to maintain a full valuation allowance on its U.S. federal and state net deferred tax asset. The change in the valuation allowance offset

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the income tax benefit related to the pre-tax loss for the quarter ended December 31, 2022. The Company does not have any material unrecognized tax benefits as of December 31, 2022.

The Company experienced a net change in valuation allowance of $5.7 million for the three and nine months ended December 31, 2022.

**Note 8. Leases**

The Company maintains lease agreements related to its branch network, central business operational hub in Charlotte, NC and its corporate headquarters in Clearwater, FL. The branch lease agreements range from one to five years and generally contain options to extend from one to three years. The corporate headquarters lease agreement was renewed with a lease maturity date of January 31, 2026. The lease agreement for the operational hub in Charlotte, NC expires in February 2029. The Company expects to terminate the lease agreement for its operational hub in Charlotte, NC in the current fiscal year. All of the Company's lease agreements are considered operating leases. None of the Company's lease payments are dependent on a rate or index that may change after the commencement date, other than the passage of time.

The Company's lease liability was $2.7 million and $4.4 million as of December 31, 2022 and March 31, 2022, respectively. This liability is based on the present value of the remaining minimum rental payments using a discount rate that is determined based on the Company's incremental borrowing rate. The lease asset was $1.2 million and $4.3 million as of December 31, 2022 and March 31, 2022, respectively.

As part of the restructuring plan announced in November 2022, the Board of Directors of the Company determined to close its operating branches. Consistent with this significant reduction in footprint, the Company impaired substantially all of its operating lease right-of-use assets, which resulted in approximately $1.4 million impairment cost.

Future minimum lease payments under non-cancellable operating leases in effect as of December 31, 2022, are as follows:

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| | |
|:---|:---|
| in thousands |  |
| FY2023 (remaining three months) | $234 |
| FY2024 | 797 |
| FY2025 | 738 |
| FY2026 | 502 |
| FY2027 | 346 |
| Thereafter | $521 |
| Total future minimum lease payments | 3138 |
| Present value adjustment | (402) |
| Operating lease liability | $2736 |

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**Note 9. Fair Value Disclosures**

The Company's financial instruments consist of cash, finance receivables, repossessed assets, the line of credit, and the note payable. Each of these financial instruments are not carried at fair value.

Finance receivables, net, approximates fair value based on the price paid to acquire Contracts. The price paid reflects competitive market interest rates and purchase discounts for the Company's chosen credit grade in the economic environment. This market is highly liquid as the Company acquires individual loans on a daily basis from dealers.

The initial terms of the Contracts generally range from 12 to 72 months. Beginning in December 2017, the maximum initial term of a Contract was reduced to 60 months. The initial terms of the Direct Loans generally range from 12 to 60 months. If liquidated outside of the normal course of business, the amount received may not be the carrying value.

Repossessed assets are valued at the lower of the finance receivable balance prior to repossession or the estimated net realizable value of the repossessed asset. The Company estimates the net realizable value using estimated auction wholesale proceeds less costs to sell plus insurance claims outstanding, if any.

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Based on these market conditions, the fair value of the line of credit as of December 31, 2022 was estimated to be equal to the book value. The interest rate for the line of credit is a variable rate based on SOFR pricing options.

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| | | | | |
|:---|:---|:---|:---|:---|
|  | **(In thousands)** | **(In thousands)** | **(In thousands)** | **(In thousands)** |
|  | **Fair Value Measurement Using** | **Fair Value Measurement Using** | **Fair Value Measurement Using** |  |
| **Description** | **Level 1** | **Level 2** | **Level 3** | **Carrying<br>Value** |
| Cash and restricted cash: |  |  |  |  |
| &nbsp;&nbsp;&nbsp;**December 31, 2022** | $914 | $- | $- | $914 |
| &nbsp;&nbsp;&nbsp;March 31, 2022 | $4775 | $- | $- | $4775 |
| Finance receivables: |  |  |  |  |
| &nbsp;&nbsp;&nbsp;**December 31, 2022** | $- | $- | $139719 | $139719 |
| &nbsp;&nbsp;&nbsp;March 31, 2022 | $- | $- | $168600 | $168600 |
| Repossessed assets: |  |  |  |  |
| &nbsp;&nbsp;&nbsp;**December 31, 2022** | $- | $- | $1041 | $1041 |
| &nbsp;&nbsp;&nbsp;March 31, 2022 | $- | $- | $658 | $658 |
| Credit facility: |  |  |  |  |
| &nbsp;&nbsp;&nbsp;**December 31, 2022** | $- | $- | $45000 | $45000 |
| &nbsp;&nbsp;&nbsp;March 31, 2022 | $- | $- | $55000 | $55000 |
| Note Payable: |  |  |  |  |
| &nbsp;&nbsp;&nbsp;**December 31, 2022** | $- | $- | $- | $- |
| &nbsp;&nbsp;&nbsp;March 31, 2022 | $3244 | $- | $- | $3244 |

---

The Company may be required, from time to time, to measure certain assets and liabilities at fair value on a nonrecurring basis. There were none at December 31, 2022 and March 31, 2022 and there were no nonrecurring fair value measurements during the three and nine months ended December 31, 2022 and 2021.

Level 2 assets are financial assets and liabilities that do not have regular market pricing, but whose fair value can be determined based on other data values or market pricing.

At each reporting period, all assets and liabilities for which the fair value measurement is based on significant unobservable inputs are classified as Level 3. Management has determined that this level to be most appropriate for the line of credit.

**Note 10. Commitments and Contingencies**

The Company currently is not a party to any pending legal proceedings other than ordinary routine litigation incidental to its business, none of which, if decided adversely to the Company, would, in the opinion of management, have a material adverse effect on the Company's financial condition or results of operations.

**Note 11. Recent Accounting Pronouncements**

In June 2016, the Financial Accounting Standard Board (FASB) issued the Accounting Standard Updates (ASU) 2016-13 Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. Among other things, the amendments in this ASU require the measurement of all expected credit losses for financial instruments held at the reporting date based on historical experience, current conditions and reasonable and supportable forecasts. Companies will now use forward-looking information to better inform their credit loss estimates. Many of the loss estimation techniques applied today will still be permitted, although the inputs to those techniques will change to reflect the full amount of expected credit losses. The ASU also requires additional disclosures related to estimates and judgments used to measure all expected credit losses. The new guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022, and early adoption is permitted. The Company is currently evaluating the impact of the adoption of this ASU on the consolidated financial statements and is collecting and analyzing data that will be needed to produce historical inputs into any models created as a result of adopting this ASU. At this time, the Company believes the adoption of this ASU will likely have a material effect and is expected to increase the overall allowance for credit losses.

In March 2020, the FASB issued ASU 2020-04 Reference Rate Reform (Topic 848): Facilitating of the Effects of Reference Rate Reform on Financial Reporting, which provides optional expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships, and other transactions in which the reference London Interbank Offered Rate (LIBOR) or another reference rate is expected to be discontinued as a result of the Reference Rate Reform. This ASU was intended to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting. This ASU was effective immediately and is

------

effective through December 31, 2022. The adoption of this ASU did not have a material effect on the Company's consolidated financial statements.

The Company does not believe there are any other recently issued accounting standards that have not yet been adopted that will have a material impact on the Company's consolidated financial statements.

**Note 12. Stock Plans**

In May 2019, the Company's Board of Directors ("Board") authorized a new stock repurchase program allowing for the repurchase of up to $8.0 million of the Company's outstanding shares of common stock in open market purchases, privately negotiated transactions, or through other structures in accordance with applicable federal securities laws. The authorization was effective immediately.

The timing and actual number of repurchases will depend on a variety of factors, including stock price, corporate and regulatory requirements and other market and economic conditions. The Company's stock repurchase program may be suspended or discontinued at any time.

In August 2019, the Company's Board authorized additional repurchases of up to $1.0 million of the Company's outstanding shares.

The following table summarizes treasury share transactions under the Company's stock repurchase program:

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| | | | | |
|:---|:---|:---|:---|:---|
|  | **Three months ended December 31,<br>(In thousands)** | **Three months ended December 31,<br>(In thousands)** | **Three months ended December 31,<br>(In thousands)** | **Three months ended December 31,<br>(In thousands)** |
|  | **2022** | **2022** | **2021** | **2021** |
|  | **Number of<br>Shares** | **Amount** | **Number of<br>Shares** | **Amount** |
| Treasury shares at the beginning of period | 5349 | $**(**76684**)** | 5082 | $(73895) |
| Treasury shares purchased | 19 | **(**110**)** | 6 | (65) |
| Treasury shares at the end of period | 5368 | $**(**76794**)** | 5088 | $(73960) |
|  | **Nine months ended December 31,<br>(In thousands)** | **Nine months ended December 31,<br>(In thousands)** | **Nine months ended December 31,<br>(In thousands)** | **Nine months ended December 31,<br>(In thousands)** |
|  | **2022** | **2022** | **2021** | **2021** |
|  | **Number of Shares** | **Amount** | **Number of Shares** | **Amount** |
| Treasury shares at the beginning of period | 5127 | $**(**74405**)** | 4945 | $(72343) |
| Treasury shares purchased | 241 | **(**2389**)** | 143 | (1617) |
| Treasury shares at the end of period | 5368 | $**(**76794**)** | 5088 | $(73960) |

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For the three months ended December 31, 2022, the Company repurchased approximately 19 thousand shares of common stock at an aggregate cost of $110 thousand and average cost per share of $5.79.

For the nine months ended December 31, 2022, the Company repurchased approximately 241 thousand shares of common stock at an aggregate cost of $2.4 million and average cost per share of $8.69.

**Note 13. Note Payable**

On May 27, 2020, the Company obtained a loan in the amount of approximately $3.2 million from a bank in connection with the U.S. Small Business Administration's ("SBA") Paycheck Protection Program (the "PPP Loan"). Pursuant to the Paycheck Protection Program, all or a portion of the PPP Loan may be forgiven if the Company uses the proceeds of the PPP Loan for its payroll costs and other expenses in accordance with the requirements of the Paycheck Protection Program. The Company used the proceeds of the PPP Loan for payroll costs and other covered expenses and sought full forgiveness of the PPP Loan. The Company submitted a forgiveness application to Fifth Third Bank, the lender, on December 7, 2020 and submitted supplemental documentation on January 16, 2021. On December 27, 2021 SBA informed the Company that no forgiveness was granted. The Company filed an appeal with SBA on January 5, 2022. On May 6, 2022 the Office of Hearing and Appeals SBA (OHA) rendered a decision to deny the appeal. The Company subsequently repaid the outstanding principal balance of $3.2 million plus accrued and unpaid interest of $65 thousand on May 23, 2022.

**Note 14. Restructuring Activities**

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On July 18, 2022, the Company announced its plan to close eleven branches and a consolidation of workforce impacting approximately 44 employees.

The Company then announced on Form 8-K filed on November 3, 2022 a change in its operating strategy and restructuring plan with the goal of reducing operating expenses and freeing up capital. As part of this plan, the Company has shifted from a decentralized to a regionalized business model and has entered into a loan servicing agreement with Westlake Portfolio Management, LLC ("WPM").

While the Company intends to continue Contract purchase and origination activities, albeit on a much smaller scale, its servicing, collections and recovery operations will be outsourced to WPM. The Company has ceased originations of Direct Loans.

As part of this restructuring plan, the Company announced the closure of its branches and will continue operating from its corporate headquarters in Clearwater, FL and central business operational hub in Charlotte, NC. Consistent with this significant reduction in footprint, the Company reduced its workforce to approximately 18 employees as of January 2023.

The Company anticipates that execution of its evolving restructuring plan will free up capital and permit the Company to allocate excess capital to increase shareholder returns, whether by acquiring loan portfolios or businesses or by investing outside of the Company's traditional business. The overall timeframe and structure of the Company's restructuring remains uncertain.

Costs related to the restructuring plan are summarized as follows:

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| | | | |
|:---|:---|:---|:---|
|  | **(In thousands)** | **(In thousands)** | **(In thousands)** |
|  | **Total Cost** | **Incurred to Date** | **Remaining cost** |
| Branch Closures | $3088 | $2565 | 522 |
| Severance | 555 | 555 |  |
| Cease-use of contractual services | 820 | 660 | 160 |
| Professional fees | 323 | 215 | 108 |
| Other | 26 | 17 | 9 |
| Total restructuring cost | $4812 | $4012 | $799 |

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For further information refer to the disclosure under "Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations – Restructuring and Change in Operating Strategy."

**Note 15. Subsequent Events**

On January 18 , 2023, the Company through its subsidiaries entered into a Loan and Security Agreement (the "Loan Agreement") with Westlake Capital Finance, LLC, a California limited liability company, pursuant to which the Lender is providing the Borrowers a senior secured revolving credit facility in the principal amount of up to $50 million (the "Credit Facility").

The Lender is an affiliate of WPM, the servicer of substantially all of the Company's receivables under its automobile finance installment contracts and direct loans. We refer to the Lender and WPM collectively as "Westlake."

The availability of funds under the Credit Facility is generally limited to an advance rate of between 70% and 85% of the value of the Borrowers' eligible receivables. Outstanding advances under the Credit Facility will accrue interest at a rate equal to the secured overnight financing rate (SOFR) plus a specified margin, subject to a specified floor interest rate. For the quarter ending March 31, 2023, the Borrowers expect to incur interest payments between $0.7 million and $0.9 million. Unused availability under the Credit Agreement will accrue interest at a low interest rate. The commitment period for advances under the Credit Facility is two years. We refer to the expiration of that time period as the "Maturity Date."

The Loan Agreement contains customary events of default and negative covenants, including but not limited to those governing indebtedness, liens, fundamental changes, and sales of assets. The Loan Agreement also requires the Borrowers to maintain (i) a minimum tangible net worth equal to the lower of $40 million and an amount equal to 60% of the outstanding balance of the Credit Facility and (ii) an excess spread ratio of no less than 8.0%. Pursuant to the Loan Agreement, the Borrowers granted a security interest in substantially all of their assets as collateral for their obligations under the Credit Facility. If an event of default occurs, Westlake could increase borrowing costs, restrict the Borrowers' ability to obtain additional advances under the Credit Facility, accelerate all amounts outstanding under the Credit Facility, enforce their interest against collateral pledged under the Loan Agreement or enforce such other rights and remedies as they have under the loan documents or applicable law as secured lenders.

------

If the Borrowers prepay the loan and terminate the Credit Facility prior to the Maturity Date, then the Borrowers would be obligated to pay Westlake a termination fee in an amount equal to a percentage of the average outstanding principal balance of the Credit Facility during the immediately preceding 90 days. If the Borrowers were to sell their accounts receivable to a third .party prior to the Maturity Date, then the Borrowers would be obligated to pay Westlake a fee in an amount equal to a specified percentage of the proceeds of such sale.

On January 18, 2023, in connection with entering into the Loan Agreement, the Borrowers terminated the WF Credit Agreement, and the indebtedness under that agreement (consisting of a revolving line of credit in a maximum principal amount of $60 million (with an outstanding balance of approximately $43 million)) was repaid in full. The Company did not incur any termination penalties in connection with the termination of the WF Credit Agreement.

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**ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS**

**<u>Forward-Looking Information</u>**

This Quarterly Report on Form 10-Q contains various forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Such statements are based on management's current beliefs and assumptions, as well as information currently available to management. When used in this document, the words "anticipate", "estimate", "expect", "forecast", "will", "would", "may", "plan," "believe", "intend" and similar expressions are intended to identify forward-looking statements. Although Nicholas Financial, Inc., including its subsidiaries (collectively, the "Company," "we", "us", or "our") believes that the expectations reflected or implied in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to be correct. As a result, actual results could differ materially from those indicated in these forward-looking statements. Forward-looking statements in this Quarterly Report may include, without limitation statements about (1) the expected benefits, costs and timing of the Company's restructuring and change in operating strategy, including its servicing arrangement with Westlake Portfolio Management, LLC (collectively with its affiliate Westlake Capital Finance, LLC, "Westlake") (including without limitation the servicing fees, classified as administrative costs), its loan agreement with Westlake (including without limitation anticipated interest payments thereunder), and its exit and disposal activities; (2) the availability and use of excess capital (including by acquiring loan portfolios or businesses or by investing outside of the Company's traditional business); (3) the continuing impact of COVID-19 on our customers and our business, (4) projections of revenue, income, and other items relating to our financial position and results of operations, (5) statements of our plans, objectives, strategies, goals and intentions, (6) statements regarding the capabilities, capacities, market position and expected development of our business operations, and (7) statements of expected industry and general economic trends. These statements are subject to certain risks, uncertainties and assumptions that may cause results to differ materially from those expressed or implied in forward-looking statements, including without limitation:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•the risk that the anticipated benefits of the restructuring and change in operating strategy, including the servicing and financing arrangements with Westlake (including without limitation the expected reduction in overhead, streamlining of operations or reduction in compliance risk), do not materialize to the extent expected or at all, or do not materialize within the timeframe targeted by management;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•the risk that the actual servicing fees paid by the Company under the Westlake servicing agreement, which the Company is classifying as administrative costs on its financial statements, exceed the range estimated;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•the risk that the actual interest payments made by the Company under the Westlake loan agreement exceed the range estimated;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•risks arising from the loss of control over servicing, collection or recovery processes that we have controlled in the past and potentially, termination of these services by Westlake (a failure of Westlake to perform their services under the servicing agreement in a satisfactory manner may have a significant adverse effect on our business);

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•the risk that the actual costs of the exit and disposal activities in connection with the consolidation of workforce and closure of offices exceed the Company's estimates or that such activities are not completed on a timely basis;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•the risk that the Company underestimates the staffing and other resources needed to operate effectively after consolidating its workforce and closing offices;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•uncertainties surrounding the Company's success in developing and executing on a new business plan;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•uncertainties surrounding the Company's ability to use any excess capital to increase shareholder returns, including without limitation, by acquiring loan portfolios or businesses or investing outside of the Company's traditional business;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•the ongoing impact on us, our employees, our customers and the overall economy of the COVID-19 pandemic and measures taken in response thereto;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•the ongoing impact on us, our customers and the overall economy of the supply constraints, especially with respect to energy, caused by the COVID-19 pandemic and the Russian invasion of Ukraine and related economic sanctions;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•availability of capital (including the ability to access bank financing);

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•recently enacted, proposed or future legislation and the manner in which it is implemented, including tax legislation initiatives or challenges to our tax positions and/or interpretations, and state sales tax rules and regulations;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•fluctuations in the economy;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•the degree and nature of competition and its effects on the Company's financial results;

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&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•fluctuations in interest rates;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•effectiveness of our risk management processes and procedures, including the effectiveness of the Company's internal control over financial reporting and disclosure controls and procedures;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•demand for consumer financing in the markets served by the Company;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•our ability to successfully develop and commercialize new or enhanced products and services;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•the sufficiency of our allowance for credit losses and the accuracy of the assumptions or estimates used in preparing our financial statements;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•increases in the default rates experienced on our automobile finance installment contracts ("Contracts") or direct loans ("Direct Loans");

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•higher borrowing costs and adverse financial market conditions impacting our funding and liquidity;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•regulation, supervision, examination and enforcement of our business by governmental authorities, and adverse regulatory changes in the Company's existing and future markets, including the impact of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Dodd-Frank Act") and other legislative and regulatory developments, including regulations relating to privacy, information security and data protection and the impact of the Consumer Financial Protection Bureau's (the "CFPB") regulation of our business;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•fraudulent activity, employee misconduct or misconduct by third parties, including representatives or agents of Westlake;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•media and public characterization of consumer installment loans;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•failure of third parties to provide various services that are important to our operations;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•alleged infringement of intellectual property rights of others and our ability to protect our intellectual property;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•litigation and regulatory actions;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•our ability to attract, retain and motivate key officers and employees;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•use of third-party vendors and ongoing third-party business relationships, particularly our relationship with Westlake;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•cyber-attacks or other security breaches suffered by us or Westlake;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•disruptions in the operations of our or Westlake's computer systems and data centers;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•the impact of changes in accounting rules and regulations, or their interpretation or application, which could materially and adversely affect the Company's reported consolidated financial statements or necessitate material delays or changes in the issuance of the Company's audited consolidated financial statements;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•uncertainties associated with management turnover and the effective succession of senior management;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•our ability to realize our intentions regarding strategic alternatives, including the failure to achieve anticipated synergies;

the risk factors discussed under "Item 1A – Risk Factors" in our Annual Report on Form 10-K, and our other filings made with the U.S. Securities and Exchange Commission ("SEC").

Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, estimated or expected. All forward-looking statements included in this Quarterly Report are based on information available to the Company as the date of filing of this Quarterly Report, and the Company assumes no obligation to update any such forward-looking statement. Prospective investors should also consult the risk factors described from time to time in the Company's other filings made with the SEC, including its reports on Forms 10-K, 10-Q, 8-K and annual reports to shareholders.

**<u>Restructuring and Change in Operating Strategy</u>**

**July 2022 Announcement**

On July 18, 2022, the Company announced its plan to close eleven branches and a consolidation of workforce impacting approximately 44 employees.

**Change in Operating Strategy**

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The Company announced on Form 8-K filed on November 3, 2022 a change in its operating strategy and restructuring plan with the goal of reducing operating expenses and freeing up capital. As part of this plan, the Company has shifted from a decentralized to a regionalized business model and entered into a loan servicing agreement with Westlake Portfolio Management, LLC ("WPM", and, collectively with its affiliate, Westlake Capital Finance, LLC, "Westlake"). An affiliate of Westlake, Westlake Services, LLC, is the beneficial owner of approximately 6.8% of the Company's common stock.

While the Company intends to continue Contract purchase and origination activities, albeit on a much smaller scale, its servicing, collections and recovery operations have been outsourced to Westlake. The Company has ceased originations of Direct Loans.

The Company anticipates that execution of its evolving restructuring plan will free up capital and permit the Company to allocate excess capital to increase shareholder returns, whether by acquiring loan portfolios or businesses or by investing outside of the Company's traditional business. The overall timeframe and structure of the Company's restructuring remains uncertain.

**Westlake Servicing Agreement**

As part of the restructuring plan, the Company entered into a loan servicing agreement (the "Servicing Agreement") with Westlake Portfolio Management, LLC.

Pursuant to the Servicing Agreement, on December 1, 2022, Westlake began servicing all receivables held by the Company under its Contracts and Direct Loans, except for charged-off and certain other receivables. Those receivables covered by the Servicing Agreement as of the Closing Date are referred to as the "initial receivables." The Company expects to add additional Contract receivables to the receivables pool covered under the Servicing Agreement from time to time in the future, but will no longer originate Direct Loans. All receivables remain vested in the Company.

More specifically, Westlake has agreed to manage, service, administer and make collections on the receivables, as well as perform certain other duties specified in the agreement, in accordance with servicing practices and standards used by prudent sale finance companies or lending institutions that service motor vehicle secured retail installment contracts of the same type. Westlake will maintain custody of the receivable files and lien certificates, acting as custodian for the Company.

Under the Servicing Agreement, the Company has agreed to pay Westlake a boarding fee with respect to the initial receivables, and boarding fees based on a percentage of any additional receivables to be added to the pool in the future. In addition, the Company is obligated to pay Westlake monthly servicing fees depending on the aggregate principal balance of receivables, the types of services provided by Westlake and the payment status of the various loans. The Company classifies such servicing fees as administrative costs on its financial statements. Estimates of such administrative costs applied to the initial receivables are provided below under "Exit and Disposal Activities." Estimated servicing fees for the quarter ending March 31, 2023 are between $2.7 million and $3.9 million. Collections of amounts made after accounts have been charged off are split between the Company and Westlake. The Company must also reimburse Westlake for certain expenses specified in the Servicing Agreement.

The Servicing Agreement contains representations and warranties by both parties. It allows Westlake to delegate its duties under the agreement to an affiliate or subservicer with the Company's prior written consent. If certain events specified in the Servicing Agreement occur ("Servicer Termination Events"), the Company is entitled to terminate Westlake rights and obligations and appoint a successor servicer under the agreement.

The Servicing Agreement expires upon the earliest to occur of (i) the date on which the Company sells, transfers or assigns all outstanding receivables to a third party (including to Westlake), (ii) the date on which the last receivable is repaid or otherwise terminated and (iii) 3 years from the Closing Date. If the Company terminates the Agreement other than for a Servicer Termination Event, it is obligated to pay Westlake a termination fee if the termination occurs prior to the third anniversary of the Closing Date, which fee, if payable, is expected to exceed $1 million.

**Exit and Disposal Activities**

As part of this restructuring plan, the Company announced the closure of its branches. Consistent with this significant reduction in footprint, the Company reduced its workforce to approximately 18 employees as of January 2023.

The expected total remaining charges to be incurred by the Company are approximately 0.8 million, all of which are expected to be cash expenditures.

Of these expected total charges, the Company estimates incurring approximately $0.5 million for lease terminations, $0.3 million for cease-use of contractual services and other restructuring costs.

------

The closing of branches and consolidation of the workforce is expected to be completed by March 31, 2023. The Company recorded the majority of lease terminations and employee-related charges in the third quarter of Fiscal Year 2023. The above estimates of charges and timelines could change as the Company's plans evolve and become finalized. The Company expects significant annual operating cost savings to substantially exceed the upfront costs associated with the restructuring.

**Westlake Loan Agreement**

On January 18 , 2023, the Company, through its subsidiaries, entered into a Loan and Security Agreement (the "Loan Agreement") with Westlake, pursuant to which Westlake is providing the Company a senior secured revolving credit facility in the principal amount of up to $50 million (the "Credit Facility").

The availability of funds under the Credit Facility is generally limited to an advance rate of between 70% and 85% of the value of the Company's eligible receivables. Outstanding advances under the Credit Facility will accrue interest at a rate equal to the secured overnight financing rate (SOFR) plus a specified margin, subject to a specified floor interest rate. For the quarter ending March 31, 2023, the Company expects to incur interest payments between $0.7 million and $0.9 million. Unused availability under the Credit Agreement will accrue interest at a low interest rate. The commitment period for advances under the Credit Facility is two years. We refer to the expiration of that time period as the "Maturity Date."

The Loan Agreement contains customary events of default and negative covenants, including but not limited to those governing indebtedness, liens, fundamental changes, and sales of assets. The Loan Agreement also requires the Company to maintain (i) a minimum tangible net worth equal to the lower of $40 million and an amount equal to 60% of the outstanding balance of the Credit Facility and (ii) an excess spread ratio of no less than 8.0%. Pursuant to the Loan Agreement, the Company granted a security interest in substantially all of their assets as collateral for their obligations under the Credit Facility. If an event of default occurs, Westlake could increase borrowing costs, restrict the Company's ability to obtain additional advances under the Credit Facility, accelerate all amounts outstanding under the Credit Facility, enforce their interest against collateral pledged under the Loan Agreement or enforce such other rights and remedies as they have under the loan documents or applicable law as secured lenders.

If the Company prepays the loan and terminate the Credit Facility prior to the Maturity Date, then the Company would be obligated to pay Westlake a termination fee in an amount equal to a percentage of the average outstanding principal balance of the Credit Facility during the immediately preceding 90 days. If the Company were to sell its accounts receivable to a third party prior to the Maturity Date, then the Company would be obligated to pay Westlake a fee in an amount equal to a specified percentage of the proceeds of such sale.

On January 18, 2023, in connection with entering into the Loan Agreement, the Company terminated its credit agreement with Wells Fargo (the "WF Credit Agreement"), and the indebtedness under that agreement (consisting of a revolving line of credit in a maximum principal amount of $60 million (with an outstanding balance of approximately $43 million)) was repaid in full. The Company did not incur any termination penalties in connection with the termination of the WF Credit Agreement.

**<u>Litigation and Legal Matters</u>**

See "Item 1. Legal Proceedings" in Part II of this Quarterly Report below.

**<u>Critical Accounting Estimates</u>**

The Company's critical accounting estimate (i.e., that involves a significant level of estimation uncertainty and has or is reasonably likely to have a material impact on the Company's financial condition or results of operations) relates to the allowance for credit losses. It is based on management's opinion of an amount that is adequate to absorb losses incurred in the existing portfolio. Because of the nature of the customers under the Company's Contracts and Direct Loan program, the Company considers the establishment of adequate reserves for credit losses to be imperative.

The Company uses trailing twelve-month net charge-offs as a percentage of average finance receivables, and applies this calculated percentage to ending finance receivables to calculate estimated future probable credit losses for purposes of determining the allowance for credit losses. The Company then takes into consideration the composition of its portfolio, current economic conditions, estimated net realizable value of the underlying collateral, historical loan loss experience, delinquency, non-performing assets, and bankrupt accounts and adjusts the above, if necessary, to determine management's total estimate of probable credit losses and its assessment of the overall adequacy of the allowance for credit losses. Management utilizes significant judgment in determining probable incurred losses and in identifying and evaluating qualitative factors. This approach aligns with the Company's lending policies and underwriting standards.

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If the allowance for credit losses is determined to be inadequate, then an additional charge to the provision is recorded to maintain adequate reserves based on management's evaluation of the risk inherent in the loan portfolio. Conversely, the Company could identify abnormalities in the composition of the portfolio, which would indicate the calculation is overstated and management judgment may be required to determine the allowance of credit losses for both Contracts and Direct Loans.

Contracts are purchased from many different dealers and are all purchased on an individual Contract-by-Contract basis. Individual Contract pricing is determined by the automobile dealerships and is generally the lesser of the applicable state maximum interest rate, if any, or the maximum interest rate which the customer will accept. In most markets, competitive forces will drive down Contract rates from the maximum rate to a level where an individual competitor is willing to buy an individual Contract. The Company generally purchases Contracts on an individual basis.

The Company has detailed underwriting guidelines it utilizes to determine which Contracts to purchase. These guidelines are specific and are designed to provide reasonable assurance that the Contracts purchased have common risk characteristics.

**<u>Introduction</u>**

The Company finances primary transportation to and from work for the subprime borrower. We do not finance luxury cars, second units or recreational vehicles, which are the first payments customers tend to skip in time of economic insecurity. We finance the main and often only vehicle in the household that is needed to get our customers to and from work. The amounts we finance are much lower than most of our competitors, and therefore the payments are significantly lower, too. The combination of financing a "need" over a "want" and making that loan on comparatively affordable terms incentivizes our customers to prioritize their account with us.

For the three months ended December 31, 2022, the dilutive loss per share was $1.85 as compared to dilutive loss per share of $0.09 for the three months ended December 31, 2021. Net loss was $13.4 million for the three months ended December 31, 2022 as compared to net loss of $0.7 million for the three months ended December 31, 2021. Interest and fee income on finance receivables decreased 7.9% to $11.3 million for the three months ended December 31, 2022 as compared to $12.2 million for the three months ended December 31, 2021. Provision for credit losses increased 541.6% to $10.7 million for the three months ended December 31, 2022 as compared to $1.7 million for the three months ended December 31, 2021.

For the nine months ended December 31, 2022, the dilutive loss per share was $2.49 as compared to dilutive earnings per share of $0.34 for the nine months ended December 31, 2021. Net loss was $18.3 million for the nine months ended December 31, 2022 as compared to net income of $2.6 million for the nine months ended December 31, 2021. Interest and fee income on

finance receivables decreased 4.7% to $35.6 million for the nine months ended December 31, 2022 as compared to $37.4 million

for the nine months ended December 31, 2021. Provision for credit losses increased 513.1% to $23.3 million for the nine months

ended December 31, 2022 as compared to $3.8 million for the nine months ended December 31, 2021.

**<u>Non-GAAP financial measures</u>**

From time-to-time the Company uses certain financial measures derived on a basis other than generally accepted accounting principles ("GAAP"), primarily by excluding from a comparable GAAP measure certain items the Company does not consider to be representative of its actual operating performance. Such financial measures qualify as "non-GAAP financial measures" as defined in SEC rules. The Company uses these non-GAAP financial measures in operating its business because management believes they are less susceptible to variances in actual operating performance that can result from the excluded items and other infrequent charges. The Company may present these financial measures to investors because management believes they are useful to investors in evaluating the primary factors that drive the Company's core operating performance and provide greater transparency into the Company's results of operations. However, items that are excluded and other adjustments and assumptions that are made in calculating these non-GAAP financial measures are significant components to understanding and assessing the Company's financial performance. Such non-GAAP financial measures should be evaluated in conjunction with, and are not a substitute for, the Company's GAAP financial measures. Further, because these non-GAAP financial measures are not determined in accordance with GAAP and are, thus, susceptible to varying calculations, any non-GAAP financial measures, as presented, may not be comparable to other similarly titled measures of other companies.

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| | | | | |
|:---|:---|:---|:---|:---|
|  | **Three months ended<br>December 31,<br>(In thousands)** | **Three months ended<br>December 31,<br>(In thousands)** | **Nine months ended December 31,<br>(In thousands)** | **Nine months ended December 31,<br>(In thousands)** |
|  | **2022** | **2021** | **2022** | **2021** |
| **Portfolio Summary** |  |  |  |  |
| Average finance receivables (1) | $165783 | $176949 | $174004 | $179333 |
| Average indebtedness (2) | $52577 | $64824 | $59739 | $72002 |
| Interest and fee income on finance receivables | $11268 | $12240 | $35580 | $37406 |
| Interest expense | 1239 | 2613 | 2782 | 4923 |
| Net interest and fee income on finance receivables | $10029 | $9627 | $32798 | $32483 |
| Portfolio yield (3) | 27.19% | 27.67% | 27.26% | 27.81% |
| Interest expense as a percentage of average finance receivables | 2.99% | 5.91% | 2.13% | 3.66% |
| Provision for credit losses as a percentage of average finance<br> receivables | 25.89% | 3.79% | 17.84% | 2.83% |
| Net portfolio yield (3) | (1.69)% | 17.98% | 7.29% | 21.32% |
| Operating expenses as a percentage of average finance receivables (4) | 23.34% | 20.04% | 20.30% | 18.68% |
| Pre-tax yield as a percentage of average finance receivables (5) | (25.03)% | (2.06)% | (13.01)% | 2.64% |
| Net charge-off percentage (6) | 16.57% | 5.67% | 8.79% | 4.70% |
| Finance receivables |  |  | $155213 | $176173 |
| Allowance percentage (7) |  |  | 7.06% | 2.06% |
| Total reserves percentage (8) |  |  | 10.78% | 6.00% |

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**Note:** All three-month and nine-month of income performance indicators expressed as percentages have been annualized.

(1)Average finance receivables represent the average of finance receivables throughout the period. (This is considered a non-GAAP financial measure).

(2)Average indebtedness represents the average outstanding borrowings under the Credit Facility. (This is considered a non-GAAP financial measure).

(3)Portfolio yield represents interest and fee income on finance receivables as a percentage of average finance receivables. Net portfolio yield represents (a) interest and fee income on finance receivables minus (b) interest expense minus (c) the provision for credit losses, as a percentage of average finance receivables. (This is considered a non-GAAP financial measure).

(4)Operating expenses as presented include restructuring cost of approximately $3.2 million. Operating expenses net of restructuring cost (a non-GAAP financial measure), as a percentage of average finance receivable would have been 15.52% and 17.82% for the three and nine months ended December 31, 2022, respectively.

(5)Pre-tax yield represents net portfolio yield minus operating expenses (marketing, salaries, employee benefits, depreciation, and administrative), as a percentage of average finance receivables. (This is considered a non-GAAP financial measure).

(6)Net charge-off percentage represents net charge-offs (charge-offs less recoveries) divided by average finance receivables outstanding during the period. (This is considered a non-GAAP financial measure).

(7)Allowance percentage represents the allowance for credit losses divided by finance receivables outstanding as of ending balance sheet date.

(8)Total reserves percentage represents the allowance for credit losses, purchase price discount, and unearned dealer discounts divided by finance receivables outstanding as of ending balance sheet date.

**<u>Analysis of Credit Losses</u>**

The Company uses a trailing twelve-month charge-off analysis to calculate the allowance for credit losses and takes into consideration the composition of the portfolio, current economic conditions, estimated net realizable value of the underlying collateral, historical loan loss experience, delinquency, non-performing assets, and bankrupt accounts when determining management's estimate of probable credit losses and adequacy of the allowance for credit losses. By including recent trends such as delinquency, non-performing assets, and bankruptcy in its determination, management believes that the allowance for credit losses reflects the current trends of incurred losses within the portfolio and is better aligned with the portfolio's performance indicators.

If the allowance for credit losses is determined to be inadequate, then an additional charge to the provision is recorded to maintain adequate reserves based on management's evaluation of the risk inherent in the loan portfolio. Conversely, the Company could identify abnormalities in the composition of the portfolio, which would indicate the calculation is overstated and management judgment may be required to determine the allowance of credit losses for both Contracts and Direct Loans.

Non-performing assets are defined as accounts that are contractually delinquent for 61 or more days past due or Chapter 13 bankruptcy accounts. For these accounts, the accrual of interest income is suspended, and any previously accrued interest is reversed.

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Upon notification of a bankruptcy, an account is monitored for collection with other Chapter 13 accounts. In the event the debtors' balance is reduced by the bankruptcy court, the Company will record a loss equal to the amount of principal balance reduction. The remaining balance will be reduced as payments are received by the bankruptcy court. In the event an account is dismissed from bankruptcy, the Company will decide based on several factors, whether to begin repossession proceedings or allow the customer to begin making regularly scheduled payments.

Beginning March 31, 2018, the Company allocated a specific reserve for the Chapter 13 bankruptcy accounts using a look back method to calculate the estimated losses. Based on this look back, management calculated a specific reserve of approximately $110 thousand for these accounts as of December 31, 2022.

The provision for credit losses increased to $10.7 million for the three months ended on December 31, 2022, from $8.9 million for the three months ended on September 30, 2022, and $1.7 million for the three months ended on December 31, 2021, due to a substantial increase in the net charge-off percentage. The net charge-off percentage increased to 16.57% for the three months ended on December 31, 2022, from 12.4% for the three months ended on September 30, 2022, and 5.67% for the three months ended on December 31, 2021, primarily driven by increased delinquencies and loan defaults. (See note 6 in the Portfolio Summary table in the "Introduction" above for the definition of net charge-off percentage). Management attributes these increased delinquencies and loan defaults primarily to the fact that the beneficial impact of the government's prior COVID-19-related assistance to the Company's customers had subsided at a time when those customers began facing increased inflationary pressures affecting their cost of living, and expects that the net charge-off percentage will remain, for the foreseeable future, at levels higher than those experienced in prior years for the same reasons.

The delinquency percentage for Contracts more than twenty-nine days past due, excluding Chapter 13 bankruptcy accounts, as of December 31, 2022 was 21.1%, an increase from 10.3% as of December 31, 2021. The delinquency percentage for Direct Loans more than twenty-nine days past due, excluding Chapter 13 bankruptcy accounts, as of December 31, 2022 was 19.5%, an increase from 4.3% as of December 31, 2021. The changes in delinquency percentage for both Contracts and Direct Loans was driven primarily by market and economic pressure and its adverse impact on consumers.

In accordance with our policies and procedures, certain borrowers qualify for, and the Company offers, one-month principal payment deferrals on Contracts and Direct Loans.

**Three months ended December 31, 2022 compared to three months ended December 31, 2021**

**<u>Interest and Fee Income on Finance Receivables</u>**

Interest and fee income on finance receivables, which consist predominantly of finance charge income, decreased 7.9% to $11.3 million for the three months ended December 31, 2022, from $12.2 million for the three months ended December 31, 2021. The decrease was primarily due to an increased level of charged off accounts as discussed above. The Company also reduced its originations of Contracts and discontinued originating Direct Loans pursuant to its restructuring plan.

The portfolio yield decreased to 27.2% for the three months ended December 31, 2022, compared to 27.7% for the three months ended December 31, 2021. The net portfolio yield decreased to (1.7)% for the three months ended December 31, 2022, compared to 18.0% for the three months ended December 31, 2021. The substantial erosion in net portfolio yield was primarily caused by the significant increase in the provision for credit losses, as described under "Analysis of Credit Losses" and the change in the Company's operating strategy.

As part of the Company's restructuring and change in operating strategy disclosed above, management expects that operating expenses will decline as the Company transitions its servicing and collections activities to Westlake under the Servicing Agreement, although the effects of this decline will likely not begin materializing until the fourth quarter of fiscal year 2023. The Company estimates that administrative costs with respect to the initial pool of receivables serviced by Westlake will be as disclosed above under "Restructuring and Change in Operating Strategy—Exit and Disposal Activities."

**<u>Operating Expenses</u>**

Operating expenses increased to $9.7 million for the three months ended December 31, 2022 compared to $8.9 million for the three months ended December 31, 2021. The increase in operating expenses was primarily attributed to restructuring cost associated with branch closures, severance expenses, impairment charges for leased assets and cease-use of contractual services, for the total of $3.2 million, and to boarding and servicing fees paid to Westlake under our servicing agreement with them and reported under administrative expense of $0.6 million. These factors more than offset the beneficial effects of the decrease in salary and wages as a result of the Company's headcount reduction. Similarly, operating expenses as a percentage of average finance receivables, also increased to 23.3% for the three months ended December 31, 2022 from 20.0% for the three months ended December 31, 2021 as a result of the factors above and a decrease in the average receivables balance.

------

**<u>Provision Expense</u>**

The provision for credit losses increased to $10.7 million for the three months ended December 31, 2022 from $1.7 million for the three months ended December 31, 2021, largely due to an increase in the net charge-off percentage to 16.6% for the three months ended December 31, 2022 from 5.7% for the three months ended December 31, 2021.

**<u>Interest Expense</u>**

Interest expense was $1.2 million for the three months ended December 31, 2022 and $2.6 million for the three months ended December 31, 2021. The following table summarizes the Company's average cost of borrowed funds:

---

| | | | | |
|:---|:---|:---|:---|:---|
|  | **Three months ended<br>December 31,** | **Three months ended<br>December 31,** | **Nine months ended<br>December 31,** | **Nine months ended<br>December 31,** |
|  | **2022** | **2021** | **2022** | **2021** |
| Variable interest under the line of credit facility | **3.63%** | 1.00% | **2.15%** | 1.00% |
| Credit spread under the line of credit facility | **4.40%** | 3.75% | **2.97%** | 3.75% |
| Average cost of borrowed funds | **8.03%** | 4.75% | **5.12%** | 4.75% |

---

SOFR rates have increased to 4.12%, which represented the daily SOFR rate as required under the WF Credit Agreement, as of December 31, 2022 compared to 0.14% as of December 31, 2021. For further discussions regarding interest rates see "Note 5. Credit Facility".

On October 20, 2022, the Company received a letter from the agent of its lenders notifying the Company that it was instituting the default rate of interest of 2.5% imposed effective as of August 31, 2022 in connection with an event of default that occurred by virtue of the Company's failure to comply with Section 6.3(a) of the Loan Agreement (EBITDA Ratio) for the calendar month ending August 31, 2022.

The Company subsequently announced on Form 8-K filed on December 12, 2022 that it entered into an amendment to the WF Credit Agreement. Pursuant to the amendment, the lenders waived the event of default, and the default rate of interest ceased being applicable as of December 6, 2022.

The amendment furthermore reduced the maximum amount available under the WF Credit Facility from $175 million to $60 million, reduced the availability of funds from an advance rate of between 80% and 85% of the value of eligible receivables to an advance rate of 50% of the value of eligible receivables, and changed the maturity date of the WF Credit Facility from November 5, 2024 to May 31, 2023. The Company incurred non-refundable overall costs associated with the restructuring in the amount of $0.3 million.

As described under "Westlake Loan Agreement" above and "Liquidity and Capital Resources" below, on January 18 , 2023, the Company entered into a Loan and Security Agreement (the "Loan Agreement") with Westlake, pursuant to which Westlake is providing the Company a senior secured revolving credit facility in the principal amount of up to $50 million (the "Credit Facility"). This Credit Facility bears interest at higher rates than did the WF Credit Agreement. For the quarter ending March 31, 2023, the Company expects to incur interest payments between $0.7 million and $0.9 million.

**<u>Income Taxes</u>**

The Company established a valuation allowance for deferred tax asset in the amount of $5.7 million during the three months ended December 31, 2022, which resulted in the income tax expense of approximately $3.0 million for the three months ended December 31, 2022 compared to income tax benefit of approximately $209 thousand for the three months ended December 31, 2021. The Company's effective tax rate decreased to -29.1% for the three months ended December 31, 2022 from 22.9% for the three months ended December 31, 2021.

**Nine months ended December 31, 2022 compared to nine months ended December 31, 2021**

**<u>Interest Income and Loan Portfolio</u>**

Interest and fee income on finance receivables, decreased 4.7% to $35.6 million for the nine months ended December 31, 2022 from $37.4 million for the nine months ended December 31, 2021. The decrease was partly due to a lower average discount and a 3.0% decrease in average finance receivables to $174.0 million for the nine months ended December 31, 2022 when compared to $179.3 million for the corresponding period ended December 31, 2021. The decrease in average finance receivables was primarily due to the Company's commitment to maintaining its conservative underwriting practices, which typically allows more aggressive competitors to purchase a contract from a dealer.

------

The portfolio yield decreased to 27.3% for the nine months ended December 31, 2022 compared to 27.8% for the nine months ended December 31, 2021. The net portfolio yield decreased to 7.3% for the nine months ended December 31, 2022 compared to 21.3% for the nine months ended December 31, 2021, respectively. The substantial erosion in net portfolio yield was primarily caused by the significant increase in the provision for credit losses, as described under "Analysis of Credit Losses" and the change in the Company's operating strategy.

**<u>Operating Expenses</u>**

Operating expenses increased to approximately $26.5 million for the nine months ended December 31, 2022 from approximately $25.1 million for the nine months ended December 31, 2021. Operating expenses as a percentage of average finance receivables increased to 20.3% for the nine months ended December 31, 2022 from 18.7% for the nine months ended December 31, 2021. The increase in operating expenses was primarily attributed to restructuring cost associated with branch closures, severance expenses, impairment charges for leased assets and cease-use of contractual services, for the total of approximately $4.0 million, and to boarding and servicing fees paid to Westlake under our servicing agreement with them and reported under administrative expense of $0.6 million. These factors more than offset the beneficial effects of the decrease in salary and wages as a result of the Company's headcount reduction.

**<u>Provision Expense</u>**

The provision for credit losses increased to $23.3 million for the nine months ended December 31, 2022 from $3.8 million for the nine months ended December 31, 2021, largely due to an increase in the net charge-off percentage to 8.8% for the nine months ended December 31, 2022 from 4.7% for the nine months ended December 31, 2021.

**<u>Interest Expense</u>**

Interest expense was $2.8 million for the nine months ended December 31, 2022 and $4.9 million for the nine months ended December 31, 2021. The decrease in interest expense was primarily driven by a reduced amount of average indebtedness to $59.7 million from $72.0 million for the nine month ended December 31, 2022 and 2021, respectively.

------

**<u>Income Taxes</u>**

The Company established a valuation allowance for deferred tax asset in the amount of $5.7 million during the three months ended December 31, 2022, which resulted in income tax expense of approximately $1.4 million for the nine months ended December 31, 2022 compared to income tax expense of approximately $0.9 million for the nine months ended December 31, 2021. The Company's effective tax rate decreased to -8.42% for the nine months ended December 31, 2022 from 26.0% for the nine months ended December 31, 2021.

**<u>Contract Procurement</u>**

As of December 31, 2022, the Company purchased Contracts in the states listed in the table below. The Contracts purchased by the Company are predominantly for used vehicles for the three-month periods ended December 31, 2022 and 2021, less than 1% were for new vehicles.

The following tables present selected information on Contracts purchased by the Company.

---

| | | | | | |
|:---|:---|:---|:---|:---|:---|
|  | **As of<br>December 31,** | **Three months ended<br>December 31,** | **Three months ended<br>December 31,** | **Nine months ended<br>December 31,** | **Nine months ended<br>December 31,** |
|  | **2022** | **2022** | **2021** | **2022** | **2021** |
| **State** | **Number of<br>branches** | **Net Purchases<br>(In thousands)** | **Net Purchases<br>(In thousands)** | **Net Purchases<br>(In thousands)** | **Net Purchases<br>(In thousands)** |
| FL | **-** | $**955** | $3388 | $**9582** | $9621 |
| OH | **-** | **571** | 2539 | **6773** | 8677 |
| GA | **-** | **416** | 2247 | **5103** | 7664 |
| KY | **-** | **175** | 1003 | **2796** | 3802 |
| MO | **-** | **292** | 1135 | **2841** | 3920 |
| NC | **-** | **227** | 1752 | **3977** | 4710 |
| IN | **-** | **208** | 1071 | **2326** | 3150 |
| SC | **-** | **575** | 1376 | **2893** | 3587 |
| AL | **-** | **393** | 911 | **2919** | 2695 |
| MI | **-** | **35** | 800 | **549** | 2103 |
| NV | **-** | **47** | 557 | **1150** | 1751 |
| TN | **-** | **288** | 486 | **1203** | 1449 |
| IL | **-** | **157** | 356 | **1109** | 1102 |
| PA | **-** | **59** | 622 | **1139** | 1354 |
| TX | **-** | **—** | 516 | **594** | 1178 |
| WI | **-** | **—** | 312 | **344** | 832 |
| ID | **-** | **8** | 186 | **343** | 560 |
| UT | **-** | **8** | 69 | **102** | 300 |
| AZ | **-** | **39** | 154 | **128** | 210 |
| KS | **-** | **57** | - | **75** | - |
| Total | &nbsp;&nbsp;&nbsp;**-** | $**4511** | $19480 | $**45947** | $58665 |

---

---

| | | | | |
|:---|:---|:---|:---|:---|
|  | **Three months ended<br>December 31,<br>(Purchases in thousands)** | **Three months ended<br>December 31,<br>(Purchases in thousands)** | **Nine months ended<br>December 31,<br>(Purchases in thousands)** | **Nine months ended<br>December 31,<br>(Purchases in thousands)** |
| **Contracts** | **2022** | **2021** | **2022** | **2021** |
| Purchases | $**4511** | $19480 | $**45947** | $58665 |
| Average APR | **22.4%** | 23.1% | **22.7%** | 23.1% |
| Average discount | **6.8%** | 6.8% | **6.6%** | 6.8% |
| Average term (months) | **48** | 47 | **48** | 47 |
| Average amount financed | $**11778** | $11228 | $**11765** | $10906 |
| Number of Contracts | **383** | 1735 | **3913** | 5389 |

---

------

**<u>Direct Loan Origination</u>**

The following table presents selected information on Direct Loans originated by the Company.

---

| | | | | |
|:---|:---|:---|:---|:---|
| **Direct Loans** | **Three months ended<br>December 31,<br>(Originations in thousands)** | **Three months ended<br>December 31,<br>(Originations in thousands)** | **Nine months ended<br>December 31,<br>(Originations in thousands)** | **Nine months ended<br>December 31,<br>(Originations in thousands)** |
| **Originated** | **2022** | **2021** | **2022** | **2021** |
| Purchases/Originations | $**1080** | $8505 | $**15822** | $21282 |
| Average APR | **29.6%** | 31.8% | **30.4%** | 30.6% |
| Average term (months) | **27** | 24 | **26** | 25 |
| Average amount financed | $**4128** | $3727 | $**4277** | $4173 |
| Number of loans | **245** | 2282 | **3662** | 5186 |

---

**<u>Liquidity and Capital Resources</u>**

The Company's cash flows are summarized as follows:

---

| | | |
|:---|:---|:---|
|  | **Nine months ended<br>December 31,<br>(In thousands)** | **Nine months ended<br>December 31,<br>(In thousands)** |
|  | **2022** | **2021** |
| Cash provided by (used in): |  |  |
| Operating activities | $**(933)** | $1902 |
| Investing activities | **13018** | 6757 |
| Financing activities | **(15946)** | (35106) |
| Net decrease in cash | $**(3861)** | $(26447) |

---

The Company's primary use of working capital for the quarter ended December 31, 2022 was funding the purchase of Contracts, which are financed substantially through cash from principal and interest payments received, and the Company's line of credit.

Please refer to "Note 5 – Credit Facility" for disclosure on the Company's prior credit facility with Wells Fargo under the WF Credit Agreement, which disclosure is incorporated herein by reference.

On January 18 , 2023, the Company through its subsidiaries, entered into a Loan and Security Agreement (the "Loan Agreement") with Westlake, pursuant to which Westlake is providing the Company a senior secured revolving credit facility in the principal amount of up to $50 million (the "Credit Facility").

The availability of funds under the Credit Facility is generally limited to an advance rate of between 70% and 85% of the value of the Company's eligible receivables. Outstanding advances under the Credit Facility will accrue interest at a rate equal to the secured overnight financing rate (SOFR) plus a specified margin, subject to a specified floor interest rate. For the quarter ending March 31, 2023, the Company expects to incur interest payments between $0.7 million and $0.9 million. Unused availability under the Credit Agreement will accrue interest at a low interest rate. The commitment period for advances under the Credit Facility is two years. We refer to the expiration of that time period as the "Maturity Date."

The Loan Agreement contains customary events of default and negative covenants, including but not limited to those governing indebtedness, liens, fundamental changes, and sales of assets. The Loan Agreement also requires the Company to maintain (i) a minimum tangible net worth equal to the lower of $40 million and an amount equal to 60% of the outstanding balance of the Credit Facility and (ii) an excess spread ratio of no less than 8.0%. Pursuant to the Loan Agreement, the Company granted a security interest in substantially all of their assets as collateral for their obligations under the Credit Facility. If an event of default occurs, Westlake could increase borrowing costs, restrict the the Company's ability to obtain additional advances under the Credit Facility, accelerate all amounts outstanding under the Credit Facility, enforce their interest against collateral pledged under the Loan Agreement or enforce such other rights and remedies as they have under the loan documents or applicable law as secured lenders.

If the Company prepays the loan and terminate the Credit Facility prior to the Maturity Date, then the Company would be obligated to pay Westlake a termination fee in an amount equal to a percentage of the average outstanding principal balance of the Credit Facility during the immediately preceding 90 days. If the Company were to sell its accounts receivable to a third party prior to the

Maturity Date, then the Company would be obligated to pay Westlake a fee in an amount equal to a specified percentage of the proceeds of such sale.

------

On January 18, 2023, in connection with entering into the Loan Agreement, the Company terminated the WF Credit Agreement, and the indebtedness under that agreement (consisting of a revolving line of credit in a maximum principal amount of $60 million (with an outstanding balance of approximately $43 million)) was repaid in full. The Company did not incur any termination penalties in connection with the termination of the WF Credit Agreement.

On May 27, 2020, the Company obtained a loan in the amount of approximately $3.2 million from a bank in connection with the U.S. Small Business Administration's ("SBA") Paycheck Protection Program (the "PPP Loan"). Pursuant to the Paycheck Protection Program, all or a portion of the PPP Loan may be forgiven if the Company uses the proceeds of the PPP Loan for its payroll costs and other expenses in accordance with the requirements of the Paycheck Protection Program. The Company used the proceeds of the PPP Loan for payroll costs and other covered expenses and sought full forgiveness of the PPP Loan. The Company submitted a forgiveness application to Fifth Third Bank, the lender, on December 7, 2020 and submitted supplemental documentation on January 16, 2021. On December 27, 2021 SBA informed the Company that no forgiveness was granted. The Company filed an appeal with SBA on January 5, 2022. On May 6, 2022 the Office of Hearing and Appeals SBA (OHA) rendered a decision to deny the appeal. The Company subsequently repaid the outstanding principal balance of $3.2 million plus accrued and unpaid interest of $65 thousand on May 23, 2022.

The Company has begun its restructuring process to substantially decrease operating expenses and is developing a strategy with respect to its long-term use of cash. The related disclosure contained in "Restructuring and Change in Operating Strategy" is incorporated herein by reference.

**<u>Off-Balance Sheet Arrangements</u>**

The Company does not engage in any off-balance sheet financing arrangements.

------

**ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK**

Not Applicable.

**ITEM 4. CONTROLS AND PROCEDURES**

<u>Evaluation of Disclosure Controls and Procedures</u>

In accordance with Rule 13a-15(b) of the Securities Exchange Act of 1934 (the "Exchange Act"), as of the end of the period covered by this Quarterly Report on Form 10-Q, the Company's management evaluated, with the participation of the Company's President and Chief Executive Officer and Chief Financial Officer, the effectiveness of the Company's disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act). Based upon their evaluation of these disclosure controls and procedures, the President and Chief Executive Officer and the Chief Financial Officer have concluded that the disclosure controls and procedures were effective as of the end of the period covered by this Quarterly Report on Form 10-Q.

<u>Changes in internal control over financial reporting</u>.

No change in the Company's internal control over financial reporting occurred during the Company's fiscal quarter ended December 31, 2022 that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting, other than the following:

In connection with its restructuring and change in operating strategy, the Company has outsourced its servicing, collection and recovery operations to a third party (Westlake) and has reduced its full-time financial reporting, accounting, compliance, and clerical personnel from 23 to 7 employees, including its Chief Financial Officer. The outsourcing of servicing, collection and recovery operations affects the initiation, authorization, recording, processing and/or reporting of transactions in the Company's financial statements.

------

**PART II—OTHER INFORMATION**

**ITEM 1. Legal Proceedings**

The Company currently is not a party to any pending legal proceedings other than ordinary routine litigation incidental to its business, that, if decided adversely to the Company, would, in the opinion of management, have a material adverse effect on the Company's financial condition or results of operations.

**ITEM 1A. Risk Factors**

In addition to the Risk Factor below and the other information set forth in this report, especially in the section "PART I – Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations – Forward Looking Statements," you should carefully consider the factors discussed in Part I "Item 1A. Risk Factors" in the Company's Annual Report on Form 10-K for the year ended March 31, 2022, which could materially affect our business, financial condition or future results. The risks described in the Form 10-K are not the only risks facing the Company. Additional risks and uncertainties not currently known to the Company or that the Company currently deems to be immaterial also may materially adversely affect our business, financial condition and/or operating results.

**As part of its restructuring and change in operating strategy, the Company has outsourced its servicing, collection and recovery operations and is substantially dependent on Westlake for generation of revenue and debt financing.** 

As part of the Company's restructuring and change in operating strategy, in December 2022, Westlake began servicing all receivables held by the Company under its Contracts and Direct Loans, except for charged-off and certain other receivables. The Company expects to add additional Contract receivables to the receivables pool covered under the servicing agreement with Westlake from time to time in the future, but will no longer originate Direct Loans. As a result, the Company has significantly reduced its footprint, closing all of its branches and retaining only 18 employees as of January 2023.

In January 2023, two of the Company's subsidiaries entered into a loan agreement with Westlake, pursuant to which Westlake is providing a senior secured revolving credit facility in the principal amount of up to $50 million. This facility replaced the Company's prior facility with Wells Fargo.

Additional details on the servicing agreement, exit and disposal activities and loan agreement are incorporated herein by reference to "Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations – Restructuring and Change in Operating Strategy" in this quarterly report on Form 10-Q.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•The Company's restructuring and change in operating strategy is subject to various risks, including without limitation: the risk that anticipated benefits of the restructuring and change in operating strategy, including the servicing and financing arrangements with Westlake (including without limitation the expected reduction in overhead, streamlining of operations or reduction in compliance risk), do not materialize to the extent expected or at all, or do not materialize within the timeframe targeted by management;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•the risk that the actual servicing fees paid by the Company under the Westlake servicing agreement, which the Company is classifying as administrative costs on its financial statements, exceed the range estimated;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•the risk that the actual interest payments made by the Company under the Westlake loan agreement exceed the range estimated;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•risks arising from the loss of control over servicing, collection or recovery processes that we have controlled in the past and potentially, termination of these services by Westlake (a failure of Westlake to perform their services under the servicing agreement or the loan agreement in a satisfactory manner may have a significant adverse effect on our business);

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•the risk that the actual costs of the exit and disposal activities in connection with the consolidation of workforce and closure of offices exceed the Company's estimates or that such activities are not completed on a timely basis;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•the risk that the Company underestimates the staffing and other resources needed to operate effectively after consolidating its workforce and closing offices;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•uncertainties surrounding the Company's success in developing and executing on a new business plan;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•uncertainties surrounding the Company's ability to use any excess capital to increase shareholder returns, including without limitation, by acquiring loan portfolios or businesses or investing outside of the Company's traditional business.

------

The materialization of any of these risks may adversely affect our results of operations or financial position, potentially to a material extent.

**ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds**

The table below sets forth the information with respect to purchase made by or on behalf of the Company or any "affiliated purchaser" (as defined in Rule 10b-18(a)(3) under the Exchange Act) of our shares of common stock during the three months ended December 31, 2022.

---

| | | | | |
|:---|:---|:---|:---|:---|
|  | **Total Number<br>of Shares<br>Purchased** | **Average Price<br>Paid per Share** | **Total Number<br>of Shares<br>Purchased as<br>Part of Publicly<br>Announced<br>Plans or<br>Programs** | **Approximate<br>Dollar Value of<br>Shares that<br>May Yet Be<br>Purchased<br>Under Plans or<br>Programs** |
| Period | **(In thousands, except for average price paid per share)** | **(In thousands, except for average price paid per share)** | **(In thousands, except for average price paid per share)** | **(In thousands, except for average price paid per share)** |
| October 1, 2022 to October 31, 2022 | 18 | $5.75 | 18 | $2669 |
| November 1, 2022 to November 30, 2022 | 1 | 6.80 | 1 | 2662 |
| December 1, 2022 to December 31, 2022 | - | - | - | 2662 |
| Total | 19 | $6.28 | 19 |  |

---

In May 2019, the Company's Board of Directors ("Board") authorized a new stock repurchase program allowing for the repurchase of up to $8.0 million of the Company's outstanding shares of common stock in open market purchases, privately negotiated transactions, or through other structures in accordance with applicable federal securities laws. The authorization was effective immediately.

The timing and actual number of sharers will depend on a variety of factors, including stock price, corporate and regulatory requirements and other market and economic conditions. The Company's stock repurchase program may be suspended or discontinued at any time.

In August 2019, the Company's Board authorized additional repurchase of up to $1.0 million of the Company's outstanding shares.

**ITEM 3. Defaults Upon Senior Securities**

None.

------

**ITEM 6. EXHIBITS**

---

| | |
|:---|:---|
| **Exhibit No.** | **Description** |
| &nbsp;&nbsp;&nbsp;&nbsp;10.1+ | [<u>Servicing Agreement among Nicholas Financial, Inc., Nicholas Data Services, Inc. and Westlake Portfolio Management, LLC</u>](nick-ex10_1.htm) |
| &nbsp;&nbsp;&nbsp;&nbsp;10.2+ | [<u>Loan and Security Agreement among Nicholas Financial, Inc., Nicholas Data Services, Inc. and Westlake Capital Finance, LLC</u>](nick-ex10_2.htm) |
| &nbsp;&nbsp;&nbsp;&nbsp;31.1 | [<u>Certification of the Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002</u>](nick-ex31_1.htm) |
| &nbsp;&nbsp;&nbsp;&nbsp;31.2 | [<u>Certification of the Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002</u>](nick-ex31_2.htm) |
| &nbsp;&nbsp;&nbsp;&nbsp;32.11 | [<u>Certification of the Principal Executive Officer Pursuant to 18 U.S.C. § 1350</u>](nick-ex32_1.htm) |
| &nbsp;&nbsp;&nbsp;&nbsp;32.21 | [<u>Certification of the Principal Financial Officer Pursuant to 18 U.S.C. § 1350</u>](nick-ex32_2.htm) |
| 101.INS | Inline XBRL Instance Document |
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document |
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document |
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document |
| 101.LAB | Inline XBRL Taxonomy Extension Labels Linkbase Document |
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document |
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) |

---

+ Portions of this exhibit have been redacted in accordance with Item 601(b)(10)(iv) of Regulations S-K.

<sup>1</sup> This certification accompanies the Quarterly Report on Form 10-Q and is not filed as part of it.

------

**SIGNATURES**

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized.

**NICHOLAS FINANCIAL, INC.**

(Registrant)

---

| | |
|:---|:---|
| Date: February 14, 2023 | /s/ Mike Rost |
|  | Mike Rost |
|  | Chief Executive Officer |
|  | (Principal Executive Officer) |

---

---

| | |
|:---|:---|
| Date: February 14, 2023 | /s/ Irina Nashtatik |
|  | Irina Nashtatik |
|  | Chief Financial Officer |
|  | (Principal Financial Officer) |

---

------

## Ex-10

\*\*\*Portions of this exhibit have been redacted in accordance with Item 601(b)(10) of Regulation S-K. The information is both not material and is the type that the registrant treats as private or confidential. Confidential information would cause competitive harm to the registrant if publicly disclosed. [\*\*\*] indicates that information has been redacted. \*\*\*

------

**NICHOLAS FINANCIAL, INC.**<br>

and

**WESTLAKE PORTFOLIO MANAGEMENT, LLC**,<br>as Servicer

___________________________

SERVICING AGREEMENT<br>

Dated as of November 3, 2022

__________________________

------

**TABLE OF CONTENTS**

<u>Page</u>

---

| | | |
|:---|:---|:---|
| ARTICLE I Definitions | ARTICLE I Definitions | 3 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section 1.1 | Definitions | 3 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section 1.2 | Accounting Terms and Determinations | 10 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section 1.3 | Computation of Time Periods | 10 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section 1.4 | Interpretation | 10 |
| ARTICLE II Boarding Matters; Access to receivable files AND LIEN CERTIFICATES | ARTICLE II Boarding Matters; Access to receivable files AND LIEN CERTIFICATES | 11 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section 2.1 | Receivables; Boarding Fee | 11 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section 2.2 | Custody of Receivable Files and Lien Certificates. | 11 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section 2.3 | Access to and Release of Receivable Files. | 13 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section 2.4 | Transition Procedures | 13 |
| ARTICLE III Administration and Servicing of Receivables | ARTICLE III Administration and Servicing of Receivables | 14 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section 3.1 | Duties of the Servicer | 14 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section 3.2 | Collection of Receivable Payments; Modifications of Receivables | 16 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section 3.3 | Realization Upon Receivables | 17 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section 3.4 | Insurance; GAP Waivers | 17 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section 3.5 | Maintenance of Security Interests in Vehicles | 19 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section 3.6 | Additional Servicer Covenants | 19 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section 3.7 | Servicing Fee; Payment of Certain Expenses by Servicer | 20 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section 3.8 | Servicer's Certificate | 20 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section 3.9 | Customer Information | 21 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section 3.10 | Waiver of Liens | 22 |
| ARTICLE IV Payments | ARTICLE IV Payments | 23 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section 4.1 | Certain Reimbursements to the Servicer | 23 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section 4.2 | Payment Date Matters | 23 |
| ARTICLE V The COMPANY | ARTICLE V The COMPANY | 24 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section 5.1 | Representations of the Company | 24 |
| ARTICLE VI The Servicer | ARTICLE VI The Servicer | 25 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section 6.1 | Representations of the Servicer | 25 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section 6.2 | Liability of Servicer; Indemnities | 26 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section 6.3 | Merger or Consolidation of, or Assumption of the Obligations of the Servicer | 27 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section 6.4 | Limitation on Liability of Servicer and Others | 27 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section 6.5 | Delegation of Duties | 28 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section 6.6 | Servicer Not to Resign; Force Majeure Event | 28 |
| ARTICLE VII Default | ARTICLE VII Default | 29 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section 7.1 | Servicer Termination Event | 29 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section 7.2 | Consequences of a Servicer Termination Event | 29 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section 7.3 | Appointment of Successor Servicer | 30 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section 7.4 | Waiver of Past Defaults | 30 |
| ARTICLE VIII Miscellaneous Provisions | ARTICLE VIII Miscellaneous Provisions | 31 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section 8.1 | Term | 31 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section 8.2 | Amendment | 31 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section 8.3 | Conditions Precedent | 31 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section 8.4 | Notices | 31 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section 8.5 | Out of Pocket Expenses | 31 |

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| | | |
|:---|:---|:---|
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section 8.6 | Assignment | 32 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section 8.7 | Limitations on Rights of Others | 32 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section 8.8 | Confidentiality; Securities Laws | 32 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section 8.9 | Severability | 33 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section 8.10 | Separate Counterparts | 33 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section 8.11 | Headings | 33 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section 8.12 | GOVERNING LAW | 34 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section 8.13 | SUBMISSION TO JURISDICTION | 34 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section 8.14 | COSTS | 34 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section 8.15 | WAIVER OF JURY TRIAL | 34 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section 8.16 | Independence of the Servicer | 34 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section 8.17 | Further Assurances | 34 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section 8.18 | No Joint Venture | 34 |
|  | SCHEDULES |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Schedule A — | Schedule of Receivables | SA-1 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Schedule B — | Collection Policy | SB-1 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Schedule C — | Transition Procedures | SC-1 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Schedule D | Information Security Requirements  | SD-1 |
|  | EXHIBITS |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Exhibit A—  | Form of Servicer's Certificate | A-1 |

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This SERVICING AGREEMENT dated as of November 3, 2022 (as amended, restated, supplemented or otherwise modified from time to time, this "<u>Agreement</u>"), is among NICHOLAS FINANCIAL, INC., a Florida corporation ("<u>Company</u>'), and WESTLAKE PORTFOLIO MANAGEMENT, LLC, a California limited liability company ("<u>Servicer</u>"), as the servicer.

WHEREAS, the Company originates and acquires Receivables.

WHEREAS, Company desires to enter into this Agreement pursuant to which Servicer will perform the servicing duties with respect to the Receivables as described herein for an on behalf of Company.

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

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ARTICLE I <br>Definitions

Section 1.1 <u>Definitions</u>. Whenever used in this Agreement, the following words and phrases shall have the following meanings:

"<u>Accepted Servicing Practices</u>" means, with respect to any Receivable, those servicing practices and standards (including collection procedures) of prudent sale finance companies or lending institutions that service motor vehicle secured retail installment contracts of the same type as the Receivable in the jurisdiction where the related Financed Vehicle is titled, which in no instance shall be less than (i) the practices and standards, requirements and restrictions established by Applicable Law or (ii) to the extent in accordance with Applicable Law, the policies and practices set forth in the Collection Policy.

"Additional Servicing Compensation" means any or all of the following, to the extent applicable: (a) General Fees, (b) custodian fees of $[\*\*\*] per Receivable other than Charged Off Receivables, (c) Payment Processing Fees, (d) repossession surcharges of $[\*\*\*] per repossessed Financed Vehicle, and (e) an amount corresponding to [\*\*\*]% of Post Charge Off Collections.

"<u>Additional Receivables</u>" means Receivables that are added to the coverage of this Agreement as agreed upon by the Company and the Servicer on one or more Additional Receivables Coverage Dates.

"<u>Additional Receivables Coverage Date</u>" means a date agreed upon by the Company and the Servicer upon which additional Receivables will be covered by, and serviced by the Servicer pursuant to, this Agreement.

"<u>Affiliate</u>" 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. A Person shall not be deemed to be an Affiliate of any Person solely because such other Person has the contractual right or obligation to manage such Person unless such other Person controls such Person through equity ownership or otherwise.

"<u>Amount Financed</u>" 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, voluntary debt cancellation coverage addenda, other items customarily financed as part of motor vehicle retail installment contracts, and related costs.

"<u>Applicable Law</u>" means all requirements of applicable federal, State and local laws and regulations, except for requirements that do not affect the enforceability of the Receivables and that do not impose any liability on the Servicer or the Company.

"<u>APR</u>" of a Receivable means the annual percentage rate of finance charges or service charges, as stated in the related Contract.

"<u>Authoritative Copy</u>" means, with respect to any Electronic Contract, a copy of such Electronic Contract that is unique, identifiable and, except as otherwise provided in Section 9-105 of the UCC, unalterable and has no watermark or other marking that would indicate that it is a "copy" or "duplicate" or not an original or not an "authoritative" copy.

"<u>Base Servicing Fee</u>" means a dollar amount equal to 3.25% per annum of the Pool Balance.

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"<u>Boarding Fee</u>" means a nonrefundable fee in the amount equal to, in the case of (i) the Initial Receivables, [\*\*\*]% of the Pool Balance, not to exceed [\*\*\*]Dollars ($[\*\*\*]) and (ii) any Additional Receivables, [\*\*\*] Dollars ($[\*\*\*]) for each such Additional Receivable, excluding Charged Off Receivables.

"<u>Business Day</u>" means any day other than a Saturday, a Sunday, a legal holiday or other day on which commercial banking institutions located in Los Angeles, California, or any other location of any successor Servicer are authorized or obligated by law, executive order or governmental decree to be closed.

"<u>Charged Off Receivable</u>" means a Receivable for which all or a portion of any payment due and owing thereon is more than one hundred twenty (120) days past due on the last day of a Collection Period. A Charged Off Receivable will no longer accrue interest and the Servicer will report the charged off status to credit bureaus as applicable.

"<u>Closing Date</u>" means November 3, 2022, or the first Business Day thereafter on which all conditions to the effectiveness of this Agreement have been satisfied.

"<u>Collection Account</u>" means the collection account of the Company's subsidiary, NF Funding I, LLC, ending in [\*\*\*] maintained at Wells Fargo Bank, N.A., into which Collections will be deposited pursuant to this Agreement, whether directly or from deposit from amounts on deposit in the Westlake Account.

"<u>Collection Period</u>" means, with respect to (i) the First Payment Date, the period beginning on the Closing Date and ending on, and including, the last day of the related calendar month, and (ii) each subsequent Payment Date, the immediately preceding calendar month.

"<u>Collection Policy</u>" means the policies and procedures of the Servicer provided to the Company and described on Schedule B, as such policies and procedures may be updated by the Servicer and agreed to by the Company from time to time.

"<u>Collection Records</u>" means all manually prepared or computer-generated records relating to collection efforts or payment histories with respect to the Receivables.

"<u>Collections</u>" means, with respect to any Payment Date, all monies collected by the Servicer on or in respect of the Receivables and the Financed Vehicles during the related Collection Period, including Insurance Proceeds, Net Liquidation Proceeds, Recoveries and Post Charge Off Collections.

"<u>Company</u>" has the meaning set forth in the recitals.

"<u>Company Indemnified Parties</u>" has the meaning set forth in Section 6.2(c).

"<u>Contract</u>" means a motor vehicle retail installment contract executed by an Obligor for a Financed Vehicle under which an extension of credit (i.e., a Receivable) by its originator was made in the ordinary course of business to such Obligor, which is secured by such Financed Vehicle, and which, for the sake of clarity, may consist of a contract originated by the Company as a direct loan or a contract originated by a third party and subsequently purchased by the Company.

"<u>Cram Down Loss</u>" means, with respect to a Receivable that has not become a Charged Off Receivable, if a court of appropriate jurisdiction in a proceeding related to an Insolvency Event shall have issued an order reducing the amount owed on the Receivable or otherwise modifying or restructuring the related Scheduled Payments, an amount equal to (i) the excess of the Principal Balance of such Receivable immediately prior to such order over the Principal Balance of such Receivable as so reduced and/or (ii) if such court shall have issued an order reducing the effective rate of interest on such Receivable, the excess of the Principal Balance of

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such Receivable immediately prior to such order over the net present value (using as the discount rate the higher of the APR on such Receivable or the rate of interest, if any, specified by the court in such order) of the Scheduled Payments as so modified or restructured. A "Cram Down Loss" shall be deemed to have occurred on the date of issuance of such order.

"<u>Customer Information</u>" means, with respect to the Receivables and the related Financed Vehicles, each Obligor's name, address, telephone numbers and all account and other information, including payment information, regarding such Obligor, the related Receivable and Financed Vehicle and all records, data and information pertaining to the foregoing.

"<u>Cutoff Date</u>" means, with respect to (i) the Initial Receivables, and (ii) any Additional Receivables, the date agreed upon between the Company and the Servicer.

"<u>Data Breach</u>" means any actual, suspected or threatened breaches of the security or confidentiality of any Customer Information within the Servicer's possession, control or that the Servicer is otherwise obligated to maintain under this Agreement.

"<u>Disposition Expenses</u>" means customary and reasonable actual out of pocket expenses incurred and paid by the Servicer to unaffiliated third parties in disposing of a repossessed Financed Vehicle (not including overhead) and may include impound fees, storage fees, transport fees, cleaning expenses, auction fees, applicable legal fees and other related costs.

"<u>Electronic Contract</u>" means a Contract that constitutes "electronic chattel paper" under and as defined in Section 9-102(a)(31) of the UCC.

"<u>Exchange Act</u>" has the meaning set forth in Section 8.8(c).

"<u>Financed Vehicle</u>" means an automobile, sport utility vehicle, light duty truck or van, or any other type of motor vehicle, together with all accessions thereto, securing an Obligor's indebtedness under the related Receivable.

"<u>First Payment Date</u>" means the 15<sup>th</sup> day of the calendar month immediately following the month in which the Closing Date occurs, or, if such day is not a Business Day, the immediately succeeding Business Day.

"<u>Force Majeure Event</u>" means fire, flood, earthquake, elements of nature of acts of God, acts of war, acts of a public enemy, acts of a nation or any state, territory, province or other political division, terrorism, riots, civil disorders, rebellions or revolutions, epidemics, theft, quarantine restrictions, freight embargoes or any other similar cause beyond the reasonable control and without the fault or negligence of the Servicer.

"<u>GAAP</u>" means generally accepted accounting principles in effect in the United States.

"<u>GAP Waiver</u>" means, with respect to any Receivable, any voluntary debt cancellation coverage obtained by an Obligor pursuant to the related Contract and financed as part of such Receivable.

"<u>General Fees</u>" means late fees, prepayment fees, NSF fees and similar fees specified in the related Contracts collected from the Obligors pursuant to such Contracts.

"<u>Information Security Requirements</u>" has the meaning set forth in Section 3.9(a).

"<u>Initial Receivables</u>" means the Receivables covered by this Agreement as of the Closing Date.

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"<u>Insolvency Event</u>" means, with respect to a specified Person, (i) the filing of a petition against such Person or the entry of a decree or order for relief by a court having jurisdiction in the premises in respect of such Person or any substantial part of its property in an involuntary case under any Insolvency Law, 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 or such Person's affairs, and such petition, decree or order shall remain unstayed and in effect for a period of 60 consecutive days; or (ii) the commencement by such Person of a voluntary case under any Insolvency Law, 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.

"<u>Insolvency Laws</u>" means the Bankruptcy Code and all other applicable liquidation, conservatorship, bankruptcy, moratorium, arrangement, rearrangement, receivership, insolvency, reorganization, suspension of payments, marshaling of assets and liabilities or similar debtor relief laws from time to time in effect affecting the rights of creditors generally.

"<u>Insolvency Proceeding</u>" means, with respect to any Person, any bankruptcy, insolvency, arrangement, rearrangement, conservatorship, moratorium, suspension of payments, readjustment of debt, reorganization, receivership, liquidation, marshaling of assets and liabilities or similar proceeding of or relating to such Person under any Insolvency Laws.

"<u>Insurance Policy</u>" means, with respect to a Receivable, any insurance policy benefiting the holder of such Receivable providing loss or physical damage, credit life, credit disability, theft, mechanical breakdown or similar coverage with respect to the related Financed Vehicle or Obligor.

"<u>Insurance Proceeds</u>" means any proceeds from claims on any Insurance Policy.

"<u>Lien</u>" 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 a Financed Vehicle by operation of law as a result of any act or omission by the Servicer.

"<u>Lien Certificate</u>" means, with respect to a Financed Vehicle, an original certificate of title (or an electronic copy thereof), 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 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.

"<u>Liquidation Proceeds</u>" means, with respect to a Charged Off Receivable, all amounts (other than Insurance Proceeds) received in connection with the liquidation of such Receivable, whether through the sale or assignment of such Receivable, the sale by the Servicer or otherwise, including the sale or other disposition of the related Financed Vehicle.

"<u>Monthly Records</u>" means all records and data maintained by the Servicer with respect to the Receivables, including, with respect to each Receivable, (i) the account number, (ii) the originating party, (iii)

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Obligor name, (iv) Obligor address, (v) Obligor home phone number, (vi) Obligor business phone number, (vii) original term, (viii) APR, (ix) Principal Balance as of the Cutoff Date, (x) current remaining term, (xi) origination date, (xii) first payment date, (xiii) final scheduled payment date, (xiv) next payment due date, (xv) date of most recent payment, (xvi) new/used classification, (xvii) collateral description, (xviii) days currently delinquent, (xix) number of contract extensions (months) to date, (xx) amount of Scheduled Payment, (xxi) past due late charges and (xxii) if applicable, repossession and payoff history.

"<u>Net Liquidation Proceeds</u>" means, with respect to a Charged Off Receivable, Liquidation Proceeds net of (i) reasonable and actual out-of-pocket expenses incurred by the Servicer in connection with the collection of such Charged Off Receivable and the repossession and disposition of the related Financed Vehicle (excluding overhead and expenses incurred in the normal course of business) and (ii) amounts that are required to be refunded to the related Obligor; provided, however, that the Net Liquidation Proceeds with respect to any Charged Off Receivable shall in no event be less than zero.

"<u>Obligor</u>" on a Receivable means the purchaser or co-purchasers of the related Financed Vehicle and any other Person who owes payments under such Receivable, including any guarantor.

"<u>Original Pool Balance</u>" means the aggregate Principal Balance of the Initial Receivables as of the Cutoff Date.

"<u>Out of Pocket Expenses</u>" means the expenses described in section 8.5 of this Agreement.

"<u>Payment Date</u>" means (i) the First Payment Date and (ii) with respect to each calendar month following the month in which the First Payment Date occurs, the 15th day of such calendar month, or, if such day is not a Business Day, the immediately succeeding Business Day.

"<u>Payment Processing Fees</u>" means processing fees charged by the Servicer to Obligors and/or incurred by the Servicer from a third party pursuant to the related Contracts electing certain payment options.

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

"<u>Pool Balance</u>" means, as of any date of determination, the aggregate Principal Balance of the Receivables (excluding Charged Off Receivables) at the end of the preceding Collection Period.

"<u>Post Charge Off Collections</u>" means, with respect to any Receivable that became a Charged Off Receivable (i) prior to the date the related Financed Vehicle was repossessed, Collections and (ii) after the date the related Financed Vehicle was repossessed, Collections less all related Net Liquidation Proceeds.

"<u>Principal Balance</u>" means, with respect to any Receivable, as of any date, the sum of (i) the Amount Financed minus (ii) the sum of (a) that portion of all amounts received on or prior to such date and allocable to principal in accordance with the terms of such Receivable, (b) any related Cram Down Loss and (c) any reduction of the Principal Balance in accordance with Section 3.4(c).

"<u>Receivable File</u>" means, with respect to a Receivable, copies of (i) the related Obligor's credit application, (ii) the Contract, (iii) the bill of sale, (iv) the Lien Certificate and such other documents, if any, that the Company 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 the Company as first lienholder or secured party, or, if such Lien Certificate has not yet been received, a copy of the application, receipt or other evidence of title therefor, showing the originator or the Company as secured party, (v) the voluntary debt cancellation coverage addendum

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or proof of insurance, (vi) references provided by the Obligor, (vii) any notice of intent to dispose of the Financed Vehicle with applicable proof of mailing, (viii) any notice of deficiency balance/surplus and (ix) such other documents as the Servicer shall keep on file in accordance with its customary procedures relating to a Receivable and as needed in order to accomplish its duties under this Agreement.

"<u>Receivables</u>" means all rights to receive payments under all indebtedness owed to Company by an Obligor under a Contract, whether constituting an account, chattel paper or general intangible, arising out of or in connection with the refinancing or loan made by Company (or a predecessor in interest to Company) with respect to a Financed Vehicle in connection therewith, and includes the right of payment of any finance charges and other obligations of such Obligor with respect thereto, but excluding any such indebtedness that as of the Closing Date (i) is a Charged Off Receivable or (ii) has not yet become a Charged Off Receivable if the related Obligor is subject to any Insolvency Proceeding, in each case which are subject to this Agreement. A schedule of the Initial Receivables as of the Closing Date appears in Schedule A**,** which schedule will be updated by a schedule of all Additional Receivables as of the related Additional Receivables Coverage Date.

"<u>Recoveries</u>" means, with respect to any Charged Off Receivable, (i) the sum of all (a) Net Liquidation Proceeds, (b) Insurance Proceeds and (c) other monies received from the related Obligor that is allocable to principal, interest, fees and expenses due under such Receivable, minus (ii) all payments required by Applicable Law to be remitted to the related Obligor.

"<u>Recovery Expenses</u>" means, with respect to a Charged Off Receivable, all (i) Repossession Expenses and (ii) Disposition Expenses.

"<u>Registrar of Titles</u>" 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.

"<u>Reimbursable Expenses</u>" means certain expenses reimbursable to the Servicer and calculated as described in Schedule A to Exhibit A, provided that cost, expenses, losses, damages, claims and liabilities, including fees and expense of counsel and expenses of litigation, incurred by Servicer arising out of or in connection with any conduct or events described in Section 6.2(b) of this Agreement shall not constitute Reimbursable Expenses.

"<u>Repossession Expenses</u>" means the customary and reasonable actual out of pocket expenses (not including overhead) incurred and paid by the Servicer in repossessing the Financed Vehicle for a Receivable in default.

"<u>Schedule of Receivables</u>" means the schedule of Receivables attached as Schedule A, which schedule will be updated by a schedule of all Additional Receivables as of the related Additional Receivables Coverage Date.

"<u>Scheduled Payment</u>" means, with respect to any Collection Period for any Receivable, the amount set forth in such Receivable as required to be paid by the Obligor in such Collection Period. If after the Closing Date, the Obligor's monthly payment obligation under a Receivable has been modified so as to differ from the amount specified in such Receivable (i) as a result of the order of a court in an insolvency proceeding involving the Obligor, (ii) pursuant to the Servicemembers Civil Relief Act or similar legislation or (iii) as a result of modifications or extensions of the Receivable permitted by Section 3.2(d), the Scheduled Payment shall refer to the Obligor's payment obligation with respect to such Collection Period as so modified.

"<u>Servicer</u>" means Westlake Portfolio Management, LLC, a California limited liability company, as a party to this Agreement, its permitted successors and assigns, and each successor Servicer appointed pursuant to Section 7.3.

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"<u>Servicer Employees</u>" has the meaning set forth in Section 3.4(d).

"<u>Servicer Termination Event</u>" means an event specified in Section 7.1.

"<u>Servicer's Certificate</u>" means an officer's certificate of the Servicer delivered pursuant to Section 3.8, substantially in the form of Exhibit A.

"<u>Servicing Fee</u>" means, with respect to any Collection Period, the sum of the following for such Collection Period: (i) the Base Servicing Fee, (ii) any Additional Servicing Compensation and (iii) all Reimbursable Expenses, in each case as defined herein and further described in Schedule A to Exhibit A and as set forth in the Servicer's Certificate for such Collection Period, and either (a) retained by the Servicer pursuant to Section 3.2(b) or (b) paid to the Servicer pursuant to Section 4.2.

"<u>State</u>" means any State of the United States and the District of Columbia.

"<u>Title Expenses</u>" means the actual out of pocket expenses paid by the Servicer to unaffiliated third parties relating to the administration of the Lien Certificates for the Receivables.

"<u>Transition Procedures</u>" means the payment and servicing transition procedures described in Schedule C.

"<u>UCC</u>" means the Uniform Commercial Code as in effect in the relevant jurisdiction.

"<u>United States</u>" or "<u>U.S.</u>" means the United States of America.

"<u>Westlake Account</u>" means account [\*\*\*] at Wells Fargo Bank, N.A., into which Servicer will initially deposit all Collections received directly by it.

"<u>Westlake Account Reserve</u>" means, (i) as of any day following a Payment Date on which a Westlake Reserve Deficit exists, the lesser of (x) an amount equal to the amount of such Westlake Reserve Deficit as reduced by the aggregate amount of Collections retained in respect of such Westlake Reserve Deficit on each preceding day, if any and (y) all Collections deposited into the Westlake Account on such day and (ii) with respect to any other day, [\*\*\*]% of all Collections deposited into the Westlake Account on such day.

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"<u>Westlake Reserve Deficit</u>" means the amount specified in Section 4.2(b).

Section 1.2 <u>Accounting Terms and Determinations</u>. Unless otherwise defined or specified herein, all accounting terms shall be construed herein, all accounting determinations hereunder shall be made, all financial statements required to be delivered hereunder shall be prepared and all financial records shall be maintained in accordance with GAAP.

Section 1.3 <u>Computation of Time Periods</u>. Unless otherwise stated in this Agreement, in the computation of a period of time from a specified date to a later specified date, the word "from" means "from and including" and the words "to" and "until" each mean "to but excluding".

Section 1.4 <u>Interpretation</u>. When used in this Agreement, unless a contrary intention appears: (i) a term has the meaning assigned to it; (ii) "or" is not exclusive; (iii) "including" means including without limitation; (iv) words in the singular include the plural and words in the plural include the singular; (v) 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; (vi) references to a Person are also to its successors and permitted assigns; (vii) the words "hereof", "herein" and "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 hereof; (viii) references contained herein to Article, Section, subsection, Schedule and Exhibit, as applicable, are references to Articles, Sections, subsections, Schedules and Exhibits in this Agreement unless otherwise specified; (ix) references to "writing" include printing, typing, lithography and other means of reproducing words in a visible form; and (x) the term "proceeds" has the meaning set forth in the applicable UCC.

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ARTICLE II <br>Boarding Matters; Access to receivable files AND LIEN CERTIFICATES

Section 2.1 <u>Receivables; Boarding Fee</u>.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)The Receivables subject to this Agreement will consist of the Initial Receivables and Additional Receivables added to the coverage of this Agreement on one or more Additional Receivable Coverage Dates. On each Additional Receivable Coverage Date, the Company shall deliver to the Servicer a new list identifying all Receivables subject to this Agreement, which shall be included as part of Schedule A hereto. The Receivables subject to this Agreement shall remain vested in the Company and shall be retained and maintained, in trust, by the Servicer by will of the Company in such custodial capacity only. Record title to each Receivable and each related loan shall remain in the name of the Company.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)The Company shall pay to the Servicer the related Boarding Fee and accrued Out of Pocket Expenses by no later than, in the case of (i) the Initial Receivables, the First Payment Date and (ii) Additional Receivables, the related Additional Receivables Coverage Date. The Company hereby acknowledges and agrees that the Boarding Fee and accrued Out of Pocket Expenses have been fully earned and are nonrefundable once paid to the Servicer.

Section 2.2 <u>Custody of Receivable Files and Lien Certificates</u>.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)Unless otherwise specified herein, the Servicer shall maintain (i) electronic copies or physical possession (in the capacity set forth in clause (c) below) of the instruments and documents that are part of the Receivable Files and (ii) physical possession (in the capacity set forth in clause (c) below) of such other instruments or documents added to or that modify or supplement the terms or conditions of the instruments and documents that are part of the Receivable Files and all other instruments, documents, correspondence and memoranda generated by or coming into the possession of the Servicer (including insurance premium receipts, ledger sheets, payment records, insurance claim files, correspondence and current and historical computerized data files) that are required to document or service the Receivables; provided that, at the request of the Company, the Servicer shall deliver physical possession of all such documents to the Company. Delivery of the Receivable Files to the Servicer hereunder and the servicing activities contemplated hereby shall not be deemed to convey to the Servicer any of the Company's beneficial or legal ownership right, title and interest therein. The Servicer recognizes that the Company solely holds all beneficial and legal ownership right, title and interest in the Receivables, the Receivable Files and all rights and benefits pertaining thereto.

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&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)The Servicer shall hold or shall cause its third-party vendor DealerCenter or Dealertrack to hold the Lien Certificates in a fire rated storage vault under its exclusive custody and control in accordance with customary standards for such custody.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c)In holding and maintaining the Receivable Files and Lien Certificates, the Servicer shall act as agent, bailee and custodian for the Company, and the Company shall retain all right, title and interest to the Receivables Files and Lien Certificates. The Servicer shall notify the Company by written notice of any change in the location of any Receivable Files or Lien Certificates. The Servicer shall designate and identify, by a unique number, all Receivable Files as a discrete pool of accounts and shall provide that unique pool number to the Company. The Servicer shall carry out such policies and procedures in accordance with its customary actions with respect to the handling and custody of the Receivable Files and Lien Certificates, which shall at all times meet or exceed Accepted Servicing Practices, so that the integrity and physical possession of the Receivable Files and Lien Certificates will be maintained. All of the Servicer's records pertaining to the Receivable Files and Lien Certificates shall contain an indication that such records and the Receivables which are the subject of such records are owned by the Company.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d)If Company suffers losses or damages as a result of the destruction or loss of any Receivable File, any instrument or document comprising part of a Receivable File or any Lien Certificate, the Servicer shall, (i) at the request of such Company, make any appropriate claim under any bond or insurance and (ii) to the extent of such Company losses or damages, pay the proceeds thereof into the Collection Account unless the Servicer has replaced the lost or destroyed items or has otherwise reimbursed such Company for such losses or damages.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e)The Servicer shall not deliver physical possession of, or otherwise transfer, assign, pledge, mortgage, convey or dispose of any Receivable Files or Lien Certificates to any Person other than in connection with the Servicer's exercise of remedies against an Obligor or as directed by the Company.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(f)The Servicer specifically acknowledges and agrees that in the event that it shall either be terminated pursuant to Section 7.1 or resigns pursuant to Section 6.6, it shall:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i)deliver or cause to be delivered the Receivable Files and Lien Certificates as directed by the Company; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii)maintain the Receivable Files and the Lien Certificates and continue in the performance of its duties and the enjoyment of its rights under this Agreement, until the orderly transfer of the Receivable Files and the Lien Certificates to the Company or a successor servicer, notwithstanding that such appointment and/or transfer may occur after the effective date of the termination or resignation of the Servicer designated in the written notice of termination or resignation.

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Section 2.3 <u>Access to and Release of Receivable Files</u>.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)The Servicer shall provide to representatives of the Company reasonable access to the documentation regarding the Receivables. Such access shall be afforded in each case without charge but only upon reasonable request and during normal business hours. Nothing in this Section shall affect 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. The Servicer will provide the Company and its respective representatives with copies, or otherwise allow them to make copies, of the Receivable Files, the Lien Certificates and the records of the Servicer relating to this Agreement during the term of this Agreement and for a period of five years after termination of this Agreement.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)The Servicer shall review the Receivable Files to confirm the contents of each Receivable File includes all applicable items, including an original retail installment contract, an application and a Lien Certificate, and that the Obligor's name in the Servicer's records matches the name on the Receivable, in each case on or prior to the date hereof. Servicer acknowledges that Servicer has been provided access to all documents for each Receivable File (other than those specified in clause (ix) of the definition thereof) as may be required by Applicable Law in order for the Servicer to render the services as contemplated by this Agreement.

Section 2.4 <u>Transition Procedures</u>. The Company and the Servicer shall use their respective best efforts to effect the transfer of servicing contemplated by this Agreement in accordance with the Transition Procedures, with such changes as the Servicer and the Company may mutually agree, by no later than forty-five (45) Business Days following execution of this Agreement.

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ARTICLE III <br>Administration and Servicing of Receivables

Section 3.1 <u>Duties of the Servicer</u> .

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)The Servicer is hereby authorized to act as agent for the Company 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. In performing its duties hereunder, the Servicer shall have full power and authority to do or cause to be done any and all things in connection with such servicing and administration which it may deem necessary or desirable, within the terms of this Agreement. The Servicer is authorized in its discretion, but in accordance with Accepted Servicing Practices, to waive any late payment charge or NSF fee at the time of payoff that Company has a right to collect in the ordinary course of servicing any Receivable.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)The Servicer agrees that its servicing of the Receivables shall be carried out in accordance with customary and usual procedures of institutions which service motor vehicle retail installment sales contracts and, to the extent more exacting, the degree of skill and attention that the Servicer exercises from time to time with respect to all comparable motor vehicle receivables that it services for itself or others. In performing such duties, the Servicer shall substantially comply with the Collection Policy and Accepted Servicing Practices in such a manner as will, in its reasonable judgment, maximize the amount to be received by the Company. The Servicer's duties shall include:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i)responding timely to inquiries, demands or complaints of Obligors, including in relation to disputes reported to a credit reporting agency, the Better Business Bureau or other non-governmental organizations, and governmental authorities regarding the Receivables, including requests for payoff amounts;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii)investigating delinquencies and making reasonable efforts to collect any past due payments, including by sending past due notices to Obligors via the U.S. Postal Service, electronic mail and by initiating telephone or text message contact with Obligors;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iii)for Obligors that the Servicer is unable to contact using Obligor information contained in the current loan record, such as when the address is determined to be invalid (address skips) or the telephone number is determined to be invalid (telephone skips), performing activities commonly referred to as skip tracing;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iv)maintaining a log of communications with Obligors in default and maintaining a Receivable history of payments made and documentary evidence of the Servicer's efforts to affect a cure of any delinquency or default and to collect the Receivable;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(v)providing information to the Company and assisting the Company in administering and enforcing all rights and responsibilities of the Company in the Receivables, including, subject to Section 3.1(d), commencing legal proceedings to enforce the Receivables, as the Servicer deems to be reasonably necessary;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(vi)providing accounting and oversight information to the Company, including providing billing statements to Obligors, reporting any required tax information to Obligors, monitoring the collateral, accounting for collections and furnishing daily delinquency and cash collections reports and monthly and annual statements to the Company with respect to payments and monitoring the status of Insurance Policies;

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&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(vii)keeping, storing and maintaining access to books, records and documents pertaining to the Receivables, including collection efforts, and making periodic reports in accordance with this Agreement; such records shall be maintained for a period of at least five years from the last activity date on the related Receivable and may not be destroyed or otherwise disposed of except as provided herein and as allowed by Applicable Law;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(viii)complying with commercially reasonable written instructions of the Company necessary to comply with any regulatory requirements applicable to, or agreed to by, the Company or any supervisory rules agreed to or imposed on the Company and delivered to Servicer from time to time with respect to the servicing of the Receivables;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ix)remitting to Obligors any overpayments or surplus balances as required to be remitted pursuant to Applicable Law; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(x)performing the other duties specified herein.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c)The Servicer shall also administer and enforce all rights and responsibilities of the Company provided for in the Insurance Policies to the extent that such 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, collection and enforcement that it may deem necessary or desirable, it being understood, however, that the Servicer shall at all times remain responsible to the Company for performance of its duties and obligations hereunder. Without limiting the generality of the foregoing, the Servicer is hereby authorized and empowered to execute and deliver 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 the Financed Vehicles; provided, however, that notwithstanding the foregoing, the Servicer shall not, except pursuant to an order from a court of competent jurisdiction or as otherwise required by Applicable Law, release an Obligor from payment of any unpaid amount under any Receivable or waive the right to collect the unpaid balance of any Receivable from the Obligor, except in accordance with the Collection Policy.

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&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e)Servicer will promptly provide notice to Company of any notices, demands, claims, complaints arising out of or in connection with any Receivable, any conduct or events described in Section 6.2(b) of this Agreement, any commencement of a lawsuit or other legal action that requests as a part thereof class action certification, and any lawsuit or other legal action brought by a governmental or regulatory authority, including any attorney general. Servicer will provide the Company reports updating the status of each pending litigation or arbitration on a quarterly basis. The reports shall contain sufficient detail to inform the Company as to the current status of each pending matter.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(f)Notwithstanding any provision herein to the contrary, the Servicer shall not have access to or control of the Authoritative Copy of any Electronic Contract. In the event that any Receivable has been paid in full, the Servicer shall notify the Company, so that the Authoritative Copy of the related Electronic Contract can be removed from the applicable vault and returned to the related Obligor, marked as paid in full.

Section 3.2 <u>Collection of Receivable Payments; Modifications of Receivables</u>.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)Consistent with the standards, policies and procedures required by this Agreement, including Accepted Servicing Practices, the Servicer (i) 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 automobile receivables that it services for itself or others and otherwise act with respect to the Receivables and the Insurance Policies in such manner as will, in the reasonable judgment of the Servicer, maximize the amount to be received by the Company with respect thereto and (ii) 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.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)The Servicer shall cause all collections on or in respect of the Receivables and Financed Vehicles received by it from whatever source after the related Cutoff Date to be deposited into the Westlake Account, other than amounts that are made by or on behalf of any Obligor directly into the Collection Account. The Servicer shall remit all funds in the Westlake Account representing Collections to the Collection Account within two Business Days of receipt thereof; provided that an amount equal to the Westlake Account Reserve may be retained in the Westlake Account, which shall be used solely to compensate and reimburse the Servicer for (i) [\*\*\*]% of all Payment Processing Fees, [\*\*\*]% of all General Fees and [\*\*\*]% of all Post Charge Off Collections, (ii) all Recovery Expenses and all other Reimbursable Expenses and (iii) repayment of any applicable Westlake Reserve Deficit. The related Servicer's Certificate will reflect all activity relating to the Receivables and this Agreement into and from the Westlake Account during each Collection Period (including the components of amounts withheld or reimbursed to the Servicer or paid from the Westlake Account Reserve).

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c)The Servicer shall (i) allocate collections on or in respect of the Receivables between principal and interest in accordance with the terms of the related Contracts, (ii) post payments received by the Servicer to the applicable Obligor's records within two Business Days of receipt and (iii) allocate payments to principal, interest, late fees, NSF fees and Obligor-incurred expenses in accordance with the applicable Receivables consistent with the Collection Policy and Accepted Servicing Practices.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d)The Servicer may grant payment extensions on, or other modifications or amendments to, a Receivable in accordance with the Collection Policy and Accepted Servicing Practices, but only if it believes in good faith that such Receivable is in default or a default on such Receivable is reasonably foreseeable and an extension, modification or amendment will improve the timeliness or amount of collections on such Receivable and will maximize the amount to be received by the Company with respect to such Receivable, and is otherwise in the best interest of the Company.

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&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e)The Servicer shall use its best efforts to notify or direct Obligors to make all payments on the Receivables, whether by check, ACH deposit or by direct debit of the Obligor's bank account, directly to the Collection Account.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(f)The Servicer at all times will hold all Collections received in the Westlake Account or otherwise received by the Servicer in trust for the sole and exclusive benefit of the Company and shall provide to Company information on Collections through daily cash remittances, daily collections/dashboard reports, and monthly servicer reports.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(g)The Servicer shall reasonably maintain accurate records of all communications with Obligors (including all call recordings), pursuant to the Collection Policy and Applicable Law, and shall furnish copies of the same to the Company upon request.

Section 3.3 <u>Realization Upon Receivables</u>.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)Consistent with the standards, policies and procedures required by this Agreement, including Accepted Servicing Practices, the Servicer shall use its best efforts to repossess (or otherwise comparably convert the ownership of) and liquidate, as soon as is practicable, 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. The Servicer may, however, 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 3.2, which practices and procedures may include the sale of the related Financed Vehicle at public or private sale, the submission of claims under an Insurance Policy and other actions by the Servicer in order to realize upon such 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 expects in its sole 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, using its best efforts and good faith judgment, and in accordance with Acceptable Servicing Practices, shall make reasonable efforts to collect any deficiencies owed on a Receivable after the related Financed Vehicle has been liquidated. The Servicer shall pay on behalf of the Company any personal property taxes assessed on repossessed Financed Vehicles and shall be entitled to reimbursement of any such tax from the related Liquidation Proceeds.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)The Servicer shall execute and deliver, on behalf of the Company, consistent with Accepted Servicing Practices, 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 the Financed Vehicles; provided, however, that notwithstanding the foregoing, the Servicer shall not, except pursuant to a judicial order from a court of competent jurisdiction, or as otherwise required by Applicable Law, release or waive the right to collect the unpaid balance on any Receivable, except in accordance with the Collection Policy.

Section 3.4 <u>Insurance; GAP Waivers</u>.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)The Servicer shall monitor the status of physical loss and damage insurance coverage covering the Financed Vehicles pursuant to the related Contracts in accordance with its customary servicing procedures.

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&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)The Servicer may sue to enforce or collect upon the Insurance Policies, in its own name, if possible, or as agent of the Company. 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 Company 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 Company, at such Company's expense, shall take such steps as the Servicer deems necessary to enforce such Insurance Policy, including bringing suit in its name or the name of Company.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c)The Servicer may cancel GAP Waivers for each Receivable on a pro-rata basis or on a calculation required by Applicable Law, in which case the Servicer will refund the applicable premium to the related Obligor and the Principal Balance of the related Receivable will be reduced by the amount of such refund.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d)The Servicer shall maintain, at its own expense, a fidelity bond and "Errors and Omissions" insurance, with broad coverage on all officers, employees or other persons under the Servicer's direct control acting in any capacity requiring such persons to handle funds, money, documents or papers relating to the Receivables ("<u>Servicer Employees</u>") and shall require any subservicer to cover its employees under a substantially similar insurance policy to the extent reasonable for the activities of such subservicer with respect to this Agreement. Any such fidelity bond and Errors and Omissions Insurance policy shall protect and insure Servicer (or any subservicer, as applicable) against losses, including forgery, theft, embezzlement, fraud, errors and omissions and negligent acts of such Servicer Employees (or the employees of such subservicer, as applicable). No provision of this <u>Section 3.4(d)</u> requiring such Errors and Omissions Insurance policy shall diminish or relieve Servicer from its duties and obligations as set forth in this Agreement. The foregoing requirements may be met by an Affiliate of Servicer, provided that any bond or insurance coverage maintained by such Affiliate extends to Servicer.

The Servicer shall (on behalf of itself and its Affiliates) at all times and at its sole cost and expense, also keep in full force and effect until one (1) year after termination of this Agreement, (i) comprehensive general liability insurance policies with reasonable coverage (satisfied through any combination of primary and secondary policies and including any umbrella policy) and (ii) workers compensation insurance in compliance with Applicable Law. The Servicer shall require any subservicer to carry insurance that is substantially similar in amount and scope of coverage to the extent reasonable for the activities of such subservicer with respect to this Agreement. The foregoing requirements may be met by an Affiliate of Servicer, provided that any bond or insurance coverage maintained by such Affiliate extends to Servicer.

Upon the written request of the Company, the Servicer shall cause to be delivered to the Company a certificate of insurance evidencing such required coverages.

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Section 3.6 <u>Additional Servicer Covenants</u> . The Servicer additionally covenants as follows:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i)<u>Liens in Force</u>. 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.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii)<u>No Impairment</u>. The Servicer shall do nothing to impair the rights of Company in the Receivables or the Insurance Policies except as otherwise expressly provided herein.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iii)<u>Restrictions on Liens</u>. The Servicer shall not (a) 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 any Lien in favor of the Company and the restrictions on transferability imposed by this Agreement or (b) sign or file under the UCC of any jurisdiction any financing statement which names the Servicer as a secured party, or in its capacity as the Servicer, sign any security agreement authorizing any secured party thereunder to file any such financing statement, with respect to the Receivables, except in each case any such instrument solely securing the rights and preserving any Lien of the Company.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iv)<u>Compliance</u>. The Servicer shall comply with (i) all Applicable Laws that govern the furnishing of information to consumer credit reporting agencies, as well as all Applicable Laws governing debt collection practices, including the Fair Debt Collection Practices Act, (ii) all Applicable Laws otherwise applicable to Servicer's performance of its duties under this Agreement (whether relating to the Servicer managing, servicing, administering or making collections on Receivables or relating to any other duties it has under this Agreement), including all data privacy laws and regulations, and the Company's privacy notice in effect for the Receivables, including its provisions on third party solicitations.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(v)<u>Collection Policy</u>. The Servicer shall provide prompt written notice of all material modifications to the Collection Policy and will not implement any such change without the prior written consent of the Company unless such modification is required by Applicable Law.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(vi)<u>Licenses</u>. The Servicer, at its expense, shall obtain and maintain all State and federal licenses, registrations, permits, franchises and approvals required by the laws of any jurisdiction to be held in connection with servicing of the Receivables and shall make all filings and pay all fees as may be required in connection therewith during the term of the Agreement, except where failure to be in compliance could not reasonably be expected to prevent Servicer from performing its obligations under this Agreement or to materially impair the rights or interests of the Company in the Receivables.

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&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(vii)<u>Maintenance of Records</u>. 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 Westlake Account or the Collection Account in respect of such Receivable.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(viii)<u>Notice of Servicer Termination Events</u>. The Servicer shall deliver to the Company, promptly after having obtained knowledge thereof, but in no event later than five days thereafter, an officer's certificate of any event which with the giving of notice, the lapse of time or both, would become a Servicer Termination Event.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ix)<u>Additional Information</u>. The Servicer shall furnish to the Company from time to time such additional information regarding the Receivables, the Financed Vehicles and the Obligors as the Company, shall reasonably request.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(x)<u>Exceptions</u>. Except as expressly provided herein, the Servicer shall not be obligated to, and shall not, take any action that Company directs it not to take on its behalf.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(xi)<u>Acknowledgment of Prior Liens</u>. The Company and the Servicer hereby acknowledge that a perfected lien upon the Receivables and the Receivable Files by the Company.

Section 3.7 <u>Servicing Fee; Payment of Certain Expenses by Servicer</u>.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)<u>Servicing Fee</u>. As consideration for the Servicer performing certain servicing functions in accordance with this Agreement, pursuant to Section 4.2, the Servicing Fee shall be paid to the Servicer monthly in arrears on each Payment Date out of the aggregate Westlake Account Reserve as of such Payment Date, except for the components of the Servicing Fee that may be retained by, or reimbursed to, the Servicer pursuant to Section 3.2(b).

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)<u>Collection Related Fees</u>. So long as Westlake Portfolio Management, LLC is the Servicer, Servicer will be entitled to additional consideration for performing services in accordance with this Agreement in the form of retaining as compensation amounts set forth in Section 3.2(b).

Section 3.8 <u>Servicer's Certificate</u>. No later than 12:00 p.m., Pacific Time, five days before each Payment Date, the Servicer shall deliver (facsimile or electronic delivery being acceptable) to the Company a Servicer's Certificate containing, among other things, the following information for such Payment Date and the related Collection Period: (i) the aggregate amount of (a) Collections and any deposits into and withdrawals from the Westlake Account during such Collection Period relating to the Receivables and (b) Westlake Account Reserve retained during such Collection Period, (ii) the amounts (a) of any distribution owing to the Servicer pursuant to Section 4.2 representing (A) amounts described in Section 3.2(b), (B) amounts described in Section 4.1 and (C) any other component of the Servicing Fee owing to the Servicer on the related Payment Date and (b) remitted to the Collection Account representing (a) interest and (b) principal, (iii) the number of and aggregate Principal Balance of Receivables that, as of the last day of such Collection Period, are delinquent (a) 30 days, (b) 60 days, (c) 90 days and (d) 120 days or less that are not Charged Off Receivables and have not been repossessed and sold, (iv) the total number of Receivables that became Charged Off Receivables during such Collection Period, (vi) as of the last day of such Collection Period, (a) the number and current trial balance of the Receivables and (b) the weighted average remaining term to maturity of the Receivables, (vi) all information necessary to enable the Company to reconcile the aggregate cash flows with respect to the Receivables for such Collection Period and Payment Date, (vii) the aggregate amount of (a) General Fees, Payment Processing Fees and any collection-related fees collected by the Servicer during such Collection Period and (b) other amounts collected or retained

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by, or reimbursed to, the Servicer during such Collection Period pursuant to Sections 3.2(b) and 4.1, (viii) the aggregate amounts of Insurance Proceeds and Post Charge Off Collections collected by the Servicer during such Collection Period and (ix) such other information as reasonably requested from time to time by the Company. Each Receivable which became a Charged Off Receivable or which was paid in full during the related Collection Period shall be separately identified by account number.

Section 3.9 <u>Customer Information</u>.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)Each party shall take all steps necessary and appropriate to maintain all Customer Information. The Company shall own all Customer Information. Without limiting the foregoing, the Servicer will maintain appropriate information security controls as more particularly set forth in <u>Schedule D</u> hereto (the "Information Security Requirements"). The Servicer will not use Customer Information except to the extent permitted by this Agreement or Applicable Law.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)The Servicer shall notify the Company of each Data Breach as soon as reasonably practicable after it becomes aware thereof. In the event of a Data Breach, the Servicer shall cooperate with the Company in responding to the Data Breach and, with the consent of the Company and at the Servicer's own expense, shall take appropriate actions to secure the Customer Information, mitigate the harm caused by such breach (including provision of a credit monitoring service and payment of fees, fines and penalties, if reasonable and customary), and provide required or appropriate notice to Obligors and/or governmental authorities.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c)During the term of this Agreement and for as long as the Servicer retains any Customer Information, the Company, its representatives and agents will be entitled to conduct audits of the Servicer's relevant operations, facilities and system to confirm that the Servicer has complied with the Information Security Requirements. Any such audit shall be scheduled with reasonable prior notice and conducted during normal business hours and shall not unreasonably interfere with the Servicer's business activities. The Servicer may require any such auditor to sign a customary confidentiality agreement. In the event that any such audit results in the discovery of material security risks to the Customer Information, the Servicer shall respond to the Company in writing with the Servicer's plan to promptly take reasonable measures and corrective actions necessary to effectively eliminate the risk, at no cost to the Company. The Servicer shall have thirty (30) days to cure such security risk, unless the parties mutually agree in writing to a longer period of time for such cure. The Company's right to conduct such audits, and any exercise of such right, shall not in any way diminish or affect the Servicer's duties and liabilities under this Agreement.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d)Notwithstanding the foregoing, nothing herein shall be construed as to prohibit the Servicer from marketing services or products to the Obligors, subject to Applicable Law, privacy notices of the Company and as permitted by the Receivable Files.

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&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e)The Company and the Servicer shall adopt and maintain reasonable procedures relating to administrative, technical and physical safeguards to (i) ensure the security and confidentiality of any Customer Information that such party receives, (ii) protect against any anticipated threats or hazards to the security or integrity of any Customer Information that such party receives, (iii) protect against the unauthorized access to or use of any Customer Information that such party has in its possession which could result in substantial harm or inconvenience to any Obligor and (iv) ensure the proper disposal of any Customer Information that such party has in its possession.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(f)The rights and obligations of the parties under this Section shall survive the termination of this Agreement.

Section 3.10 <u>Waiver of Liens</u>. Except as expressly provided in Section 4.1 of this Agreement, Servicer agrees that it shall have no right of setoff or banker's lien against, and no right to otherwise deduct from, (i) any Collections received in the Westlake Account or otherwise by the Servicer and held in trust for the Company or (ii) any funds and other property held in the Collection Account for any amount owed to it by the Company or any other Person.

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ARTICLE IV <br>Payments

Section 4.1 <u>Certain Reimbursements to the Servicer</u>. The Servicer will be entitled to be reimbursed from amounts deposited into the Collection Account the amounts (i) deposited in the Collection Account but later determined by the Servicer in good faith to have resulted from mistaken deposits or postings or checks returned for insufficient funds and (ii) paid by Obligors that were deposited in the Collection Account but that do not relate to principal and interest payments due on the Receivables other than as provided for in this Agreement, in each case to the extent such amounts exceed the Westlake Account Reserve.

Section 4.2 <u>Payment Date Matters</u>.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)On each Payment Date, if the aggregate Westlake Account Reserve for the related Collection Period exceeds the aggregate Servicing Fee as set forth on the Servicer's Certificate delivered in respect of such Payment Date, Servicer shall remit such excess to the Collection Account on such Payment Date.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)If on any Payment Date the aggregate Servicing Fee as set forth on the Servicer's Certificate delivered in respect of such Payment Date is greater than the aggregate Westlake Account Reserve for the related Collection Period (a "<u>Westlake Reserve Deficit</u>"), such Westlake Reserve Deficit shall be cured in accordance with Section 3.2(b).

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ARTICLE V <br>The COMPANY

Section 5.1 <u>Representations of the Company</u>. Company makes the following representations on which the Servicer is deemed to have relied in agreeing to service the Receivables, which shall survive the execution and termination of this Agreement.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)<u>Power and Authority</u>. Company has the power and authority to execute and deliver this Agreement and to carry out its terms and their terms, respectively and the execution, delivery and performance of this Agreement have been duly authorized by it by all necessary corporate action.

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ARTICLE VI <br>The Servicer

Section 6.1 <u>Representations of the Servicer</u>. The Servicer makes the following representations on which the Company is deemed to have relied in appointing the Servicer to service the Receivables, which shall survive the execution and termination of this Agreement.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)<u>Organization and Good Standing</u>. The Servicer has been duly organized and is validly existing and in good standing as a limited liability company under the laws of the State of California, 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 service the Receivables and to enter into and perform its obligations under this Agreement.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)<u>Due Qualification</u>. The Servicer is duly qualified to do business as a foreign limited liability company, is in good standing and has obtained all necessary licenses and approvals, in all jurisdictions in which the ownership or lease of property or the conduct of its business (including the servicing of the Receivables pursuant to this Agreement) requires or shall require such qualification.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c)<u>Power and Authority</u>. The Servicer has the power and authority to execute and deliver this Agreement and to carry out its terms and their terms, respectively, and the execution, delivery and performance of this Agreement have been duly authorized by the Servicer by all necessary limited liability company action.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d)<u>Binding Obligation</u>. This Agreement shall constitute the legal, valid and binding obligation of the Servicer enforceable 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.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e)<u>No Violation</u>. The consummation of the transactions contemplated by, and the fulfillment of the terms of, this Agreement shall 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 organization or operating agreement 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 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 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.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(f)<u>No Proceedings</u>. 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 (i) asserting the invalidity this Agreement, (ii) seeking to prevent the consummation of any of the transactions contemplated this Agreement or (iii) 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.

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&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(g)<u>No Consents</u>. 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.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(h)<u>Furnishing of Information</u>. All Servicer's Certificates, monthly reports, information, exhibits, financial statements, documents, books, records or reports furnished or to be furnished by the Servicer to the Company or any of its respective representatives in connection with this Agreement are or will be accurate, true and correct in all material respects.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i)<u>Servicer's Performance</u>. The Servicer has the knowledge, the experience, the personnel and the systems, financial and operational capacity available to timely and adequately perform its obligations hereunder.

Section 6.2 <u>Liability of Servicer; Indemnities</u>.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(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 and covenants made by the Servicer.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)The Company shall defend, indemnify and hold harmless Servicer and its Affiliates, and their respective owners, officers, members, directors, managers, employees, agents and lenders (the "Servicer Indemnified Parties") from and against any and all costs, expenses, losses, damages, claims and liabilities, including reasonable fees and expenses of counsel and expenses of litigation, (i) to the extent that such cost, expense, loss, claim, damage or liability arose out of, or was imposed upon any of the Servicer Indemnified Parties by reason of any third party claims arising (A) from the breach of this Agreement by the Company, (B) from the negligence, misconduct or bad faith of the Company in the performance of its duties under this Agreement, (C) by reason of reckless disregard by the Company of its obligations and duties under this Agreement, or (D) from any Data Breach, to the extent such Data Breach arises from or relates to Company's access to Servicer's systems or data. Notwithstanding the foregoing, the Company shall not be obligated to provide any such indemnity to the extent that any such claim arises out of the negligence, misconduct or bad faith by Servicer or Servicer's failure to comply with, or perform its obligations under, this Agreement and, as such, Company's indemnity obligation shall be based upon its comparative degree of fault with respect to such claim.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c)The Servicer shall defend, indemnify and hold harmless Company and its Affiliates, and their respective owners, officers, members, directors, managers, employees, agents and lenders (the "Company Indemnified Parties") from and against any and all costs, expenses, losses, damages, claims and liabilities, including reasonable fees and expenses of counsel and expenses of litigation, (i) arising out of or resulting from the Servicer or any Affiliate thereof managing, servicing, administering or making collections on Receivables and (ii) to the extent that such cost, expense, loss, claim, damage or liability arose out of, or was imposed upon the Company Indemnified Parties by reason of any third party claims arising (A) from the breach of this Agreement by the Servicer, (B) from the negligence, misconduct or bad faith of the Servicer in the performance of its duties under this Agreement, (C) by reason of reckless disregard by the Servicer of its obligations and duties under this Agreement or (D) from any Data Breach, except to the extent such Data Breach arises from or relates to Company's access to Servicer's systems or data. Notwithstanding the foregoing, the Servicer shall not be obligated to provide any such indemnity to the extent that any such claim arises out of the negligence, misconduct or bad faith by Company or Company's failure to comply with, or perform its obligations under, this Agreement and, as such, Servicer's indemnity obligation shall be based upon its comparative degree of fault with respect to such claim.

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&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d)Indemnification under this Section shall survive the termination or assignment of this Agreement.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e)Indemnification under this Section shall include reasonable fees and expenses of counsel and expenses of litigation (including costs and expenses (including reasonable fees and expenses of counsel and court costs and losses) incurred in any action, claim or suit brought to enforce Company's right to indemnification or legal fees and expenses incurred in actions involving the Servicer). If the Servicer has made any indemnity payments pursuant to this Article and Company thereafter collects any of such amounts from others, Company shall promptly repay such amounts collected to the Servicer, without interest.

Section 6.3 <u>Merger or Consolidation of, or Assumption of the Obligations of the Servicer</u>. The Servicer shall not merge or consolidate with any other Person, convey, transfer or lease substantially all its assets as an entirety to another Person or permit any other Person to become the successor to its business unless, after the merger, consolidation, conveyance, transfer, lease or succession, the successor or surviving entity shall be capable of fulfilling the duties of the Servicer contained in this Agreement. 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, whether or not such assumption agreement is executed, shall be the successor to the Servicer under this Agreement without the execution or filing of any paper or any further act on the part of any of the parties to this Agreement, anything in this Agreement to the contrary notwithstanding; provided, however, that nothing contained herein shall be deemed to release the Servicer from any obligation. The Servicer shall provide at least ten (10) Business Days' prior notice of any merger, consolidation or succession pursuant to this Section to the Company. Notwithstanding the foregoing, the Servicer shall not merge or consolidate with any other Person or permit any other Person to become a successor to its business, unless (a) immediately after giving effect to such transaction, no representation or warranty made pursuant to Section 6.1 shall have been breached (for purposes hereof, such representations and warranties shall speak as of the date of the consummation of such transaction) and (b) the Servicer shall have delivered to the Company 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 and that all conditions precedent, if any, provided for in this Agreement relating to such transaction have been complied with.

Section 6.4 <u>Limitation on Liability of Servicer and Others</u>. Neither the Servicer nor any of its members, directors or officers or employees or agents shall have any liability to the Company, except as provided under this Agreement, for any action taken or for refraining from the taking of any action pursuant to this Agreement or for errors in judgment; provided, however, that this provision shall not limit the liability of the Servicer or any such Person against any material breach of any covenants, warranties or representations made herein or any liability that would otherwise be imposed by reason of willful misfeasance in the performance of duties or by reason of gross negligence in the performance of its duties under this Agreement. Except as provided in this Agreement, the Servicer shall not be under any obligation to prosecute any legal action that shall not be incidental to its duties to service the Receivables in accordance with this Agreement; provided, however, that the Servicer shall undertake any reasonable action that it may deem necessary, or desirable in respect of this Agreement and the rights and duties of the parties to this Agreement and the interests of the Company under the Agreement in accordance with the Servicer's standard practices, policies and procedures which the Servicer exercises with respect to the Receivable Files relating to all comparable automotive receivables that the Servicer has serviced for itself or others. In such event, the legal expenses and costs of such action and any liability resulting therefrom shall be borne by Company except to the extent such action or liability resulting therefrom relates to the willful misfeasance of the Servicer in the performance of its duties or by reason of gross negligence of the Servicer in the performance of its duties under this Agreement. The Servicer will defend any action in respect of its servicing of the Receivables at the Servicer's expense.

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Section 6.5 <u>Delegation of Duties</u>.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)With the prior written consent of the Company, the Servicer may delegate its duties under this Agreement to an Affiliate or a subservicer. The Servicer also may at any time perform through sub-contractors approved by the Company the specific duties of (i) repossession of Financed Vehicles, (ii) tracking maintenance of required Insurance Policies and (iii) pursuing the collection of deficiency balances on certain Charged Off Receivables and may perform other specific duties through such sub-contractors in accordance with the Servicer's customary servicing policies and procedures. No delegation or sub-contracting by the Servicer of its duties herein in the manner described in this Section shall relieve the Servicer of its responsibility with respect to such duties. The Servicer shall be responsible for the acts and omissions of such Affiliates and subservicers as if they were the acts and omissions of its employees.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)References in this Agreement or any subservicing or sub-contracting agreement to actions taken, or to be taken, permitted to be taken or restrictions on actions permitted to be taken, by the Servicer in servicing the Receivables shall include actions taken, or to be taken, permitted to be taken or restrictions on actions permitted to be taken, by a subservicer on behalf of the Servicer. Each subservicing or sub-contracting agreement will be upon such terms and conditions as are not inconsistent with this Agreement and the standard of care set forth herein and as the Servicer and the related subservicer have agreed. All compensation payable to a subservicer under a subservicing or sub-contracting agreement shall be payable by the Servicer from the Servicing Fee or otherwise from its own funds.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c)Notwithstanding any subservicing or sub-contracting agreement or any of the provisions of this Agreement relating to agreements or any arrangements between the Servicer or a subservicer or any reference to actions taken through such entities or otherwise, the Servicer shall remain obligated and liable for the servicing and administering of the Receivables in accordance with this Agreement without diminution of such obligation or liability by virtue of such subservicing or sub-contracting agreements.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d)Any subservicing or sub-contracting agreement that may be entered into and any other transactions or servicing arrangements relating to or involving a subservicer shall be deemed to be between the subservicer and the Servicer alone, and the Company shall not be deemed parties thereto and shall have no obligations, duties or liabilities with respect to such subservicer.

Section 6.6 <u>Servicer Not to Resign; Force Majeure Event</u>.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)<u>Servicer Not to Resign</u>. Subject to the provisions of Section 6.3, the Servicer shall not resign from the obligations and duties imposed on it by this Agreement as Servicer except upon a determination that the performance of its duties under this Agreement is no longer permissible by law. Any such determination permitting the resignation of the Servicer shall be evidenced by an opinion of counsel to such effect delivered and acceptable to the Company. No resignation of the Servicer shall become effective until a successor Servicer shall have assumed the responsibilities and obligations of the resigning Servicer.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)<u>Force Majeure Event</u>. Notwithstanding any other provision of this Agreement, if and to the extent that Servicer's performance of any of its obligations under this Agreement is prevented, hindered or delayed by any Force Majeure Event, and such non-performance, hindrance or delay could not have been prevented by reasonable precautions, then the Servicer will be excused for such non-performance, hindrance or delay, as applicable, of those obligations affected by the Force Majeure Event for as long as such Force Majeure Event continues.

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ARTICLE VII <br>Default

Section 7.1 <u>Servicer Termination Event</u>. Each of the following shall constitute a "<u>Servicer Termination Event</u>":

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)failure by the Servicer to deposit any proceeds or payment received, subject to the terms of this Agreement, to the Collection Account that continues unremedied for a period of five Business Days after written notice is received by the Servicer from Company, or after discovery of such failure by the Servicer;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)failure by the Servicer to observe its covenants and agreements set forth in Section 6.3;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c)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, which failure (i) materially and adversely affects the Company and (ii) continues unremedied for a period of 30 days after knowledge thereof by the Servicer or 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 Company, whichever is earlier;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d)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 Insolvency Laws 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 and the continuance of any such decree or order unstayed and in effect for a period of 60 consecutive days or the commencement of an involuntary case under Insolvency Laws and such case is not dismissed within 60 days;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e)the commencement by the Servicer of a voluntary case under Insolvency Laws, 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

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(f)any representation, warranty or statement of the Servicer made in this Agreement or any certificate, report or other writing delivered pursuant hereto 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, individually or collectively with any and all other incorrect representations, warranties or statements, a material adverse effect on Company and, within 30 days after knowledge thereof by the Servicer or after written notice thereof shall have been given to the Servicer by Company, the circumstances or condition in respect of which such representation, warranty or statement was incorrect shall not have been eliminated or otherwise cured.

Section 7.2 <u>Consequences of a Servicer Termination Event</u>. If a Servicer Termination Event shall occur and be continuing, Company may, by 30 days' notice given in writing to the Servicer, terminate all of the rights and obligations of the Servicer under this Agreement. On or after the receipt by the Servicer of such written notice or upon termination of the term of the Servicer, all authority, power, obligations and responsibilities of the Servicer under this Agreement, whether with respect to the Receivables or otherwise, automatically shall pass to, be vested in and become obligations and responsibilities of the Company (or any successor Servicer appointed pursuant to Section 7.3); provided, however, that the successor Servicer shall have no liability with respect to any

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Section 7.3 <u>Appointment of Successor Servicer</u>.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)On and after the time the Servicer receives a notice of termination pursuant to Section 7.2 or upon the resignation of the Servicer pursuant to Section 6.6, the successor Servicer appointed by the Company 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 initial Servicer by the terms and provisions of this Agreement except as otherwise stated herein. The Company and such successor Servicer shall take such action, consistent with this Agreement, as shall be necessary to effectuate any such succession. If a successor Servicer is acting as Servicer hereunder, it shall be subject to termination under Section 7.2 upon the occurrence of any Servicer Termination Event applicable to it as Servicer.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)The successor Servicer shall have (i) no liability with respect to any obligation which was required to be performed by the predecessor Servicer prior to the date that the successor Servicer become the Servicer or any claim based on any alleged action or inaction of the predecessor Servicer) and (ii) no liability or obligation with respect to any Servicer indemnification obligations of any prior Servicer including the original Servicer. Any successor Servicer appointed pursuant to this Section will be an established institution engaged in the business of servicing subprime automobile loans.

Section 7.4 <u>Waiver of Past Defaults</u>. The Company may waive any default by the Servicer in the performance of its obligations hereunder and its consequences. Upon any such waiver of a past default, such default shall cease to exist, and any Servicer Termination Event 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 thereto.

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ARTICLE VIII <br>Miscellaneous Provisions

Section 8.1 <u>Term</u>.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)This Agreement shall expire upon the earliest to occur of (i) the date on which the Company sells, transfers or assigns all outstanding Receivables to a third party (including to the Servicer), (ii) the date on which the last Receivable is repaid or is otherwise terminated, and (iii) three (3) years from the date of the Closing Date.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)In the event that the Company terminates this Agreement other than for a Servicer Termination Event, the Company shall pay the Servicer a fee out of the Collections equal to 1.00% of the Pool Balance if said termination is prior to the third anniversary of the Closing Date. The Company and the Servicer agree that in such an event, the Servicer's damages would be uncertain and difficult, if not impossible, to accurately estimate. Accordingly, the Company and the Servicer agree that the foregoing fee is not a penalty, but instead is intended by the parties to be, and shall be deemed, liquidated damages and no other damages will be payable to the Servicer for termination of this Agreement. Notwithstanding the foregoing, in the event the Company terminates this Agreement due to the sale of all Receivables serviced under this Agreement to Servicer or any of Servicer's Affiliates, the above-referenced fee shall be inapplicable.

Section 8.2 <u>Amendment</u>. Neither this Agreement nor any provision hereof may be amended, supplemented or modified except pursuant to an agreement or agreements in writing entered into by the Servicer and the Company, and, with respect to Section 8.6, Wells Fargo.

Section 8.3 <u>Conditions Precedent</u>. The effectiveness of this Agreement is subject to the fulfillment of each of the following conditions: the Company shall have transferred the Receivable Files (other than those specified in clause (ix) of the definition thereof) to the Servicer.

Section 8.4 <u>Notices</u>. All demands, notices and communications upon or to Company or the Servicer under this Agreement shall be in writing, personally delivered, electronically delivered, mailed by certified mail, return receipt requested, Federal Express or similar overnight courier service, and shall be deemed to have been duly given upon receipt (i) in the case of the Servicer, to Westlake Portfolio Management, LLC, 4751 Wilshire Boulevard, Suite 100, Los Angeles, California 90010, Attention: Chief Financial Officer, or in the case of electronic format to [\*\*\*], [\*\*\*] and [\*\*\*], (ii) in the case of Company, to Nicholas Financial, Inc., 2454 McMullen Booth Road, Building C, Clearwater, Florida 33759, Attention: Chief Executive Officer and Chief Financial Officer, or in the case of electronic format to [\*\*\*] and [\*\*\*] or (iii) in the case of any of the foregoing entities, at such other address as provided to the other entities in clauses (i) through (ii) above.

Section 8.5 <u>Out of Pocket Expenses</u>. In addition to the Boarding Fee, Servicing Fees, and other Reimbursable Expenses, the Company shall pay to the Servicer on the First Payment Date an amount equal to all payments, advances, charges, costs, and expenses, including reasonable attorneys' fees, expended, or incurred by the Servicer in connection with (i) the negotiation and preparation of this Agreement, (ii) filing, recording and search fees and costs, (iii) costs or expenses required to be paid by the Servicers that are paid, incurred or advanced by the Servicer (collectively, "Out of Pocket Expenses") on or prior to the Closing Date, provided that such Out of Pocket Expenses are supported by detailed written invoices which are provided to Company in advance of the First Payment Date. Notwithstanding the foregoing, to the extent that Collections prior to the First Payment Date are insufficient to fully reimburse Servicer for Out of Pocket Expenses, Company shall pay such amount to the Servicer on the subsequent Payment Date.

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Section 8.6 <u>Assignment</u>. This Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective successors and permitted assigns (it being acknowledged by the parties that Wells Fargo Bank, N.A. ("Wells Fargo") is a collateral assignee of the Company and its rights and benefits hereunder and, as such, Wells Fargo is a third party beneficiary and is entitled to enforce the rights and benefits of the Company hereunder. Notwithstanding anything to the contrary contained herein, except as provided in Sections 6.3 and 7.3, this Agreement may not be assigned by the Servicer without the prior written consent of the Company and Wells Fargo.

Section 8.7 <u>Limitations on Rights of Others</u>. The provisions of this Agreement are solely for the benefit of the parties hereto. 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 under or in respect of this Agreement or any covenants, conditions or provisions contained herein.

Section 8.8 <u>Confidentiality; Securities Laws</u>.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)In performing their obligations pursuant to this Agreement, each of the Servicer, on one hand, and the Company, on the other hand, may have access to and receive disclosure of certain confidential information about the other, including the names and addresses of the Servicer's or Company's customers or members, marketing plans and objectives, research and test results, pricing policies and practices, computer software (including programs, source code, record layouts and report formats), know-how, processes and methods, and other information which is confidential and the property of the party disclosing the information (collectively, "<u>Confidential Information</u>"). The Servicer and the Company agree that the term Confidential Information shall include this Agreement, the Collection Policy, the Receivable Files and the Lien Certificates. Confidential Information of the Servicer or the Company shall not include information in the public domain or which is independently developed by the Servicer (in the case of information of the Company) or by Company (in the case of information of the Servicer). The Servicer and the Company agree that, except as set forth in Section 8.8(c), Confidential Information shall be used by each party hereto solely in the performance of its obligations under this Agreement. The Servicer and the Company shall receive Confidential Information in confidence and shall not disclose Confidential Information to any third party, except as may be permitted hereunder, or as may be necessary to perform its obligations hereunder, or as may be otherwise agreed in writing by the party hereto furnishing the information, or as required by Applicable Law or any regulatory authority, including as may be necessary for examination by State licensing authorities, under federal securities laws and the rules and regulations of the Securities and Exchange Commission or in connection with any litigation or legal proceeding relating to this Agreement or the enforcement of rights hereunder. Notwithstanding the foregoing, each party hereto may share Confidential Information with its Affiliates, and its and its Affiliates' partners, directors, officers, managers, members, employees, investors, potential investors, financing providers, potential financing providers, assignees and potential assignees and agents, including accountants, legal counsel and other advisors (it being understood that such Person to whom such disclosure is made will be informed of the confidential nature of such Confidential Information and agree to keep such Confidential Information confidential).

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)Except in the circumstances set forth in Section 8.8(c), in the event that any party hereto (each, a "<u>Restricted Party</u>") is requested or required (by oral questions, interrogatories, requests for information or documents, subpoena, civil investigative demand or similar process) to disclose any Confidential Information, such Restricted Party will provide the other parties hereto with prompt notice of such request(s), subject to Applicable Laws, so that such other parties may seek an appropriate protective order or other appropriate remedy and/or waive the Restricted Party's compliance with the provisions of this Agreement. In the event that such other party does not seek such a protective order or other remedy, or such protective order or other remedy is not obtained, or such other party grants a waiver hereunder, the Restricted Party may furnish that portion (and only that portion) of the Confidential Information which the Restricted Party is legally compelled to disclose

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and will exercise such efforts to obtain reasonable assurance that confidential treatment will be accorded any Confidential Information so furnished as a Restricted Party would reasonably exercise in assuring the confidentiality of any of its own confidential information.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c)The Servicer acknowledges and agrees that the Company's ultimate parent company is subject to public disclosure and filing requirements under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the rules and regulations of the Securities and Exchange Commission thereunder, that it is required under such laws to file a current report on Form 8-K (the "Form 8-K") within four business days after entering into this Agreement, that it is required to file a copy of this Agreement as an exhibit to its quarterly report on Form 10-Q for the period ending December 31, 2022, and that, notwithstanding anything to the contrary in this Agreement, the Company's and its parents' compliance with such requirements shall not constitute a breach of this Agreement; provided, however, that the Company will make reasonable efforts to omit from the Form 8-K and redact from the filed copy of the Agreement specific provisions or terms as permitted under federal securities laws, and agrees to provide to the Servicer, prior to filing the Form 8-K and the redacted copy of the Agreement, as applicable, the relevant document in the form in which it is proposed to be filed.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d)Upon request or upon any expiration or termination of this Agreement, each party hereto shall return to each other party hereto or destroy (as the latter may instruct) all of the latter's Confidential Information in the former's possession which is in any written or other recorded form, including data stored in any computer medium; provided, however, that each party hereto may retain the Confidential Information of any other party hereto (but subject to the requirements of this Section) to the extent that such other party needs access to such information to continue to perform any of its obligations hereunder or to broker or service the Receivables or otherwise perform obligations owed by each party hereto to the other parties hereto, as necessary for auditing purposes, or as may be required by Applicable Law.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e)The Servicer acknowledges that it is aware, and that it will advise its directors, officers, employees, agents, and advisors who are informed as to the matters that are the subject of this Agreement, that federal securities laws prohibit any person who has received from an issuer, such as the Company, material, non-public information concerning the matters that are the subject of this Agreement from purchasing or selling securities of such issuer or from communicating such information to any other person under circumstances in which it is reasonably foreseeable that such person is likely to purchase or sell such securities.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(f)The rights and obligations of the parties under this Section 8.8 shall survive the termination of this Agreement.

Section 8.9 <u>Severability</u>. 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 of this Agreement, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction.

Section 8.10 <u>Separate Counterparts</u>. 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 8.11 <u>Headings</u>. 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 of this Agreement.

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Section 8.12 **<u>GOVERNING LAW</u>. THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH, AND THIS AGREEMENT AND ALL MATTERS ARISING OUT OF OR RELATING IN ANY WAY TO THIS AGREEMENT SHALL BE GOVERNED BY, THE LAW OF THE STATE OF DELAWARE, WITHOUT GIVING EFFECT TO ITS CONFLICT OF LAW PROVISIONS.**

Section 8.13 **<u>SUBMISSION TO JURISDICTION</u>. THE PARTIES AGREE THAT ANY AND ALL CLAIMS AND DISPUTES ARISING OUT OF OR RELATING TO THIS AGREEMENT, INCLUDING, BUT NOT LIMITED TO, FORMATION, VALIDITY, INTERPRETATION, OR ALLEGED BREACH OF THIS AGREEMENT, SHALL BE BROUGHT IN STATE COURTS LOCATED IN THE STATE AND COUNTY OF THE NON-MOVING PARTY.**

Section 8.14 **<u>COSTS</u>. THE PREVAILING PARTY IN ANY ACTION TO ENFORCE THIS AGREEMENT SHALL BE ENTITLED TO REASONABLE ATTORNEYS' FEES AND ALL OTHER COSTS AND EXPENSES OF THE PROCEEDINGS.**

Section 8.15 **<u>WAIVER OF JURY TRIAL</u>. TO THE EXTENT PERMITTED BY APPLICABLE LAW, EACH PARTY HERETO IRREVOCABLY WAIVES ALL RIGHT OF TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM BASED ON, OR ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT OR ANY MATTER ARISING HEREUNDER.**

Section 8.16 <u>Independence of the Servicer</u>. For all purposes of this Agreement, the Servicer shall be an independent contractor and, except as otherwise provided herein, shall not be subject to the supervision of Company with respect to the manner in which the Servicer accomplishes the performance of its obligations hereunder. Unless expressly authorized by this Agreement, the Servicer shall have no authority to act for or represent Company in any way and shall not otherwise be deemed an agent of the Company.

Section 8.17 <u>Further Assurances</u>. The Company and the Servicer agrees to do and perform, from time to time, any and all acts and to execute any and all further instruments required or reasonably requested by another party hereto more fully to effect the purposes of this Agreement.

Section 8.18 <u>No Joint Venture</u>. Nothing contained in this Agreement shall (i) constitute the Servicer and Company as members of any partnership, joint venture, association, syndicate, unincorporated business or other separate entity, (ii) be construed to impose any liability as such on any of them or (iii) 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.

[Remainder of Page Intentionally Left Blank]

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

WESTLAKE PORTFOLIO MANAGEMENT, LLC,

as Servicer

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| | | |
|:---|:---|:---|
| By: | /s/ Todd Laruffa | /s/ Todd Laruffa |
|  | Name: | Todd Laruffa |
|  | Title: | Vice President |

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NICHOLAS FINANCIAL, INC.,

as Company

---

| | | |
|:---|:---|:---|
| By: | /s/ Michael Rost | /s/ Michael Rost |
|  | Name: | Michael Rost |
|  | Title: | CEO |

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Servicing Agreement

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SCHEDULE A

SCHEDULE OF RECEIVABLES

[Omitted in reliance on Item 601(a)(5) of Regulation S-K]

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SCHEDULE B

COLLECTION POLICY <br>

[Omitted in reliance on Item 601(a)(5) of Regulation S-K]

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SCHEDULE C

TRANSITION PROCEDURES

[Omitted in reliance on Item 601(a)(5) of Regulation S-K]

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SCHEDULE D

INFORMATION SECURITY REQUIREMENTS

[Omitted in reliance on Item 601(a)(5) of Regulation S-K]

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EXHIBIT A

FORM OF SERVICER'S CERTIFICATE

[Omitted in reliance on Item 601(a)(5) of Regulation S-K]

17839331v3 A-1

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## Ex-10

\*\*\*Portions of this exhibit have been redacted in accordance with Item 601(b)(10) of Regulation S-K. The information is both not material and is the type that the registrant treats as private or confidential. Confidential information would cause competitive harm to the registrant if publicly disclosed. [\*\*\*] indicates that information has been redacted. \*\*\*

LOAN AND SECURITY AGREEMENT

BY AND BETWEEN

**WESTLAKE CAPITAL FINANCE, LLC** <br>a California limited liability company

4751 Wilshire Blvd, Suite 100, Los Angeles, California 90010

AS LENDER,

**NICHOLAS FINANCIAL, INC.**<br>a Florida corporation

2454 McMullen Booth Rd, Bldg C, Clearwater, Florida 33759

**NICHOLAS DATA SERVICES, INC.**<br>a Florida corporation

2454 McMullen Booth Rd, Bldg C, Clearwater, Florida 33759

COLLECTIVELY, AS BORROWER

**Loan Facility:** $50,000,000

Dated as of January 18, 2023

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**<u>**TABLE OF CONTENTS**</u>**

**<u>Page</u>**

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| | | | |
|:---|:---|:---|:---|
| 1. | GENERAL TERMS. | GENERAL TERMS. | 1 |
|  | 1.1 | Definitions | 1 |
|  | 1.2 | Singular and Plural Terms | 7 |
|  | 1.3 | Accounting Principles | 7 |
|  | 1.4 | Exhibits Incorporated | 7 |
|  | 1.5 | References | 7 |
|  | 1.6 | Other Terms | 7 |
|  | 1.7 | Headings | 8 |
|  | 1.8 | Other Documents | 8 |
|  | 1.9 | Intention | 8 |
|  | 1.10 | Recitals | 8 |
| 2. | THE LOAN | THE LOAN | 8 |
|  | 2.1 | Purpose of the Loan and Use of Loan Funds | 8 |
|  | 2.2 | Loan Account and Borrowing Base | 8 |
|  | 2.3 | The Note | 9 |
|  | 2.4 | Method of Payment | 9 |
|  | 2.5 | Interest Rate and Loan Payments. | 9 |
|  | 2.6 | Full Recourse; Payments | 11 |
|  | 2.7 | Loan Closing Fee | 11 |
|  | 2.8 | Term of Loan | 11 |
|  | 2.9 | Extension of Maturity Date | 11 |
|  | 2.10 | Incremental Loans | 11 |
| 3. | CONDITIONS PRECEDENT. | CONDITIONS PRECEDENT. | 11 |
|  | 3.1 | Closing | 11 |
| 4. | COLLATERAL. | COLLATERAL. | 13 |
|  | 4.1 | Pledge of Collateral | 13 |
|  | 4.2 | Further Assurances | 13 |
| 5. | SERVICING OF RECEIVABLES. | SERVICING OF RECEIVABLES. | 13 |
|  | 5.1 | Servicer | 13 |
|  | 5.2 | Lender's Notification Rights | 13 |
|  | 5.3 | Attorney-in-Fact | 13 |
| 6. | DISBURSEMENT OF LOAN FUNDS. | DISBURSEMENT OF LOAN FUNDS. | 14 |
|  | 6.1 | Funding Requests | 14 |
| 7. | REPRESENTATIONS AND WARRANTIES. | REPRESENTATIONS AND WARRANTIES. | 14 |
|  | 7.1 | Consideration | 14 |
|  | 7.2 | Organization; Ownership; Power; Qualification | 14 |
|  | 7.3 | Powers | 14 |
|  | 7.4 | Authorization of Loan Documents. | 14 |
|  | 7.5 | No Material Adverse Change or Default | 14 |
|  | 7.6 | Title to Assets | 14 |
|  | 7.7 | Litigation; Adverse Facts | 15 |
|  | 7.8 | Disclosure | 15 |
|  | 7.9 | Payment of Taxes | 15 |
|  | 7.10 | Securities Activities | 15 |

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i

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| | | | |
|:---|:---|:---|:---|
|  | 7.11 | Government Regulations | 15 |
|  | 7.12 | Financial Condition | 15 |
|  | 7.13 | Other Loan Documents | 15 |
|  | 7.14 | USA Patriot Act Notification | 15 |
|  | 7.15 | Accuracy and Completeness of Information | 16 |
| 8. | COVENANTS OF BORROWER. | COVENANTS OF BORROWER. | 16 |
|  | 8.1 | Consideration | 16 |
|  | 8.2 | Acknowledgement of Borrowers Regarding Collateral | 16 |
|  | 8.3 | Compliance With Applicable Laws | 16 |
|  | 8.4 | Books and Records | 17 |
|  | 8.5 | Assessments | 17 |
|  | 8.6 | Reporting Requirements | 17 |
|  | 8.7 | Representations and Warranties | 18 |
|  | 8.8 | Trade Names | 18 |
|  | 8.9 | Notice of Litigation | 18 |
|  | 8.10 | Existence, Properties | 18 |
|  | 8.11 | Notice of Default | 18 |
|  | 8.12 | Other Information | 18 |
|  | 8.13 | Operations | 18 |
|  | 8.14 | Financial Covenants | 18 |
|  | 8.15 | Rights of Inspection | 19 |
|  | 8.16 | Insurance | 19 |
| 9. | NEGATIVE COVENANTS | NEGATIVE COVENANTS | 21 |
|  | 9.1 | Payments to and Transactions with Affiliates | 21 |
|  | 9.2 | Indebtedness | 21 |
|  | 9.3 | Guaranties | 21 |
|  | 9.4 | Nature of Business | 21 |
|  | 9.5 | Negative Pledge | 21 |
|  | 9.6 | Ownership | 21 |
|  | 9.7 | Amendment to Subordinated Debt | 22 |
|  | 9.8 | Asset Sales | 22 |
| 10. | EVENTS OF DEFAULT AND REMEDIES. | EVENTS OF DEFAULT AND REMEDIES. | 22 |
|  | 10.1 | Events of Default | 22 |
|  | 10.2 | Remedies | 23 |
|  | 10.3 | Cure Right | 24 |
| 11. | PARTICIPATIONS. | PARTICIPATIONS. | 24 |
|  | 11.1 | Permitted Participants; Effect | 24 |
|  | 11.2 | Voting Rights | 25 |
|  | 11.3 | Taxes; Indemnification | 25 |
| 12. | MISCELLANEOUS. | MISCELLANEOUS. | 25 |
|  | 12.1 | Assignment. | 25 |
|  | 12.2 | Notices | 26 |
|  | 12.3 | Inconsistencies With the Loan Documents | 26 |
|  | 12.4 | No Waiver | 26 |
|  | 12.5 | Incorporation of Preamble; Recitals and Exhibits | 26 |
|  | 12.6 | Payment of Expenses | 26 |
|  | 12.7 | Indemnification | 27 |
|  | 12.8 | Further Assurances | 27 |
|  | 12.9 | Titles and Headings | 27 |
|  | 12.10 | Brokers | 27 |

---

ii

------

---

| | | | |
|:---|:---|:---|:---|
|  | 12.11 | Change, Discharge, Termination or Waiver | 27 |
|  | 12.12 | Choice of Law | 27 |
|  | 12.13 | Counterparts | 28 |
|  | 12.14 | Time Is of the Essence | 28 |
|  | 12.15 | Attorneys' Fees | 28 |
|  | 12.16 | Joint and Several Liability | 28 |
|  | 12.17 | Dispute Resolution | 28 |
| 13. | RELEASE OF COLLATERAL | RELEASE OF COLLATERAL | 29 |
| 14. | EXHIBITS | EXHIBITS | 30 |

---

iii

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**LOAN AND SECURITY AGREEMENT**

THIS LOAN AND SECURITY AGREEMENT ("**Agreement**"), is entered into as of the date set forth above, by and between WESTLAKE CAPITAL FINANCE, LLC, a California limited liability company ("**Lender**"), NICHOLAS FINANCIAL, INC., a Florida corporation, and NICHOLAS DATA SERVICES, INC., a Florida corporation (collectively, "**Borrower**"). Lender and Borrower, for and in consideration of the recitals and mutual promises contained herein, confirm and agree as follows.

**<u>RECITALS</u>**

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**A.**Borrower and Wells Fargo Bank, N.A. ("**Wells Fargo**") are parties to that certain Loan and Security Agreement, dated as of November 5, 2021, as amended, pursuant to which Wells Fargo extended to Borrower a revolving credit facility ("**Existing Loan**").

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**B.**Borrower has, and expects to have, Receivables (as defined below) which the Borrower intends to finance in its automobile financing businesses.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**C.**Borrower has applied to Lender for a revolving line of credit in the initial sum of the Maximum Aggregate Commitment to provide Borrower with funds in connection with the repayment of the Existing Loan and to finance Borrower's working capital for receivables growth.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**D.**Lender is willing to make such Loan upon the terms and conditions set forth herein.

**<u>AGREEMENT</u>**

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

**1.** **GENERAL TERMS.** 

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1.1.<u>Definitions</u>. As used herein, the following terms shall have the meanings set forth below:

"**Adjusted Tangible Net Worth**" means Borrower's Tangible Net Worth minus the sum of (a) Borrower's aggregate Receivables, which are contractually delinquent by more than one hundred twenty (120) days, and (b) the amount by which the then required minimum allowance for loan losses exceeds Borrower's actual allowance for loan losses as reported on the most recent financial statements provided to Lender.

"**Advance**" means each advance of the Loan made by Lender to Borrower pursuant to this Agreement.

"**Advance Rate**" means 85.00%, less the aggregate of (a) any reduction based on the weighted-average loan-to-value of the Receivables as detailed in Schedule 1 attached hereto and (b) any reduction based upon the Collateral Performance Indicator as detailed in Schedule 2, each as of the end of each month then most recently ended for which monthly reports have been delivered to Lender pursuant to Section 8.6

"**Affiliate**" of any Person means (i) any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such Person and (ii) any other Person that beneficially owns at least ten percent (10%) of the voting common stock or partnership interest or limited liability company interest, as applicable, of such 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, partnership interests, by contract or otherwise, and the terms "**controlling**" and "**controlled**" have meanings correlative to the foregoing.

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"**Agreement**" means this Loan and Security Agreement, as the same may be amended and supplemented as hereinafter provided.

"**Authorization Form**" means that certain Signature Authorization Form and Disbursement Instructions of even date herewith executed by Borrower.

"**Borrower**" means, collectively, Nicholas Financial, Inc., a Florida corporation, and Nicholas Data Services, Inc., a Florida corporation, whose addresses are set forth in Section 12.2 of this Agreement.

"**Borrowing Base**" means, as of the date of determination, and subject to change from time to time as described below, an amount equal to the sum of the Advance Rate multiplied by the aggregate balance of outstanding Eligible Receivables.

"**Borrowing Base Certificate**" means a certificate, in form and substance reasonably satisfactory to Lender, delivered to Lender by Borrower in accordance with Section 2.2 and 6.1 setting forth the adjusted Receivables balance for the preceding Calendar Month. An initial form of the Borrowing Base Certificate is attached hereto as **Exhibit "C"**.

"**Business Day**" means each day of the year other than Saturdays, Sundays, holidays, and days on which banking institutions are generally authorized or obligated by law or executive order to close.

"**Calendar Month**" means any one (1) of the twelve (12) calendar months of the year. With respect to any payment or obligation that is due or required to be performed within a specified number of Calendar Months, then such payment or obligation shall become due on the day in the last of such specified number of Calendar Months that corresponds numerically to the date on which such payment or obligation was incurred or commenced; provided, however, that with respect to any obligation that was incurred or commenced on the 29th, 30th or 31st day of any Calendar Month and if the Calendar Month in which such payment or obligation would otherwise become due does not have a numerically corresponding date, such obligation shall become due on the first day of the next succeeding Calendar Month.

"**Calendar Quarter**" means a period of three (3) consecutive Calendar Months ending upon any of March 31, June 30, September 30 or December 31.

"**Change of Control**" means the occurrence of any of the following events: (i) an acquisition of Borrower by another entity or individual by means of any transaction or series of related transactions (including, without limitation, any reorganization, merger or consolidation but excluding any merger effected exclusively for the purpose of changing the domicile of Borrower); (ii) the sale of all or substantially all of the assets of Borrower or (iii) any "person" or "group" (within the meaning of Sections 13(d) and 14(d) of the Securities Exchange Act of 1934), other than Magnolia Capital, becomes the beneficial owner (as defined in Rule 13d-3 under the Securities Exchange Act of 1934), directly or indirectly, of fifty percent (50%) or more, of the stock of Nicholas Financial, Inc., a corporation organized under the law of the Province of British Columbia ("**Parent**"), having the right to vote for the election of members of the Board of Directors of Parent.

"**Chattel Paper**" shall have the meaning given in the Uniform Commercial Code as in effect in the state of Borrower's principal place of business from time to time.

"**Closing Conditions**" means those certain conditions to the closing of the Loan, as set forth in Section 3.1 below.

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"**Closing Date**" means: (i) in connection with the initial advance of Loan funds in the amount of the Initial Loan Amount to be made by Lender to Borrower as of the date of this Agreement, the Initial Closing Date; and (ii) with respect to any additional advances of Loan funds made by Lender to Borrower in connection with an increase in the Initial Loan Amount up to the Maximum Aggregate Commitment amount, the date on which any such additional advances are funded and all the conditions herein are satisfied.

"**Collateral Performance Indicator**" means as of the end of each calendar month, the sum of:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i)(A) Receivables greater than fifty-nine (59) days contractually past due, divided by (B) total Receivables;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii)(A) Net Charge-Offs for the twelve (12) month period ending on such date divided by (B) average Principal Receivables outstanding during such twelve (12) month period; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iii)(A) Receivables for which there has been a related repossession of collateral, which is not more than sixty (60) days past due on a contractual basis, divided by (B) total Receivables.

"**Contracts**" mean any motor vehicle installment loan contract or retail installment sales contract (including the security interest in the vehicle financed thereunder and any and all rights to receive payments thereunder) between Borrower and any obligor.

"**Commitment Termination Date**" means the earlier of: (a) the Maturity Date, or (b) the date on which the commitments are terminated and the Loan becomes due and payable pursuant to Section 10.2.

"**Compliance Certificate**" means that certain certificate to be delivered by Borrower as provided herein substantially in the form attached hereto as **Exhibit "A"**.

"**Day**" or "**Days**" means calendar days unless expressly stated to be Business Days.

"**Debt**" means, as to any Person, total outstanding liabilities that would appear upon a balance sheet of such Person prepared in accordance with GAAP; provided however, outstanding liabilities shall also include liabilities based upon a consolidation of assets of said Person, which Debt shall be calculated in form and manner consistent with the calculation determined by Lender in connection with the underwriting of the Loan.

"**Default**" means an event, condition or circumstance which, with the giving of notice or the passage of time, or both, would constitute an Event of Default.

"**Default Interest Rate**" means a rate of interest equal to the rate otherwise applicable hereunder from time to time plus [\*\*\*]percent ([\*\*\*]%) per annum.

"**Eligible Assignee**" means (a) Lender; (b) an Affiliate of Lender; (c) any other commercial bank, financial institution, institutional lender or "accredited investor" (as defined in Reg D of the US Securities & Exchange Commission) which is a Tier 1 capital provider and with an office in the United States approved by the Lender and Borrower in writing (provided, however, that Borrower shall have no right of approval following the occurrence and during the continuance of an Event of Default).

"**Eligible Receivables**" mean, as of the date of determination, Receivables (net of unearned interest, fees, dealer reserves, holdbacks, discounts, insurance premiums and commissions thereon) which are Chattel Paper, which conform to the warranties set forth in this Agreement, as applicable, in which Lender has a validly perfected first-priority Lien, and which satisfy the requirements set forth in Schedule 4.

"**Event of Default**" means the occurrence of any of the events listed in Section 10.1 of this Agreement.

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"**Excess Spread Ratio**" means, with respect to any Interest Payment Date and the related Calendar Month, the prior three month average, inclusive of the related Calendar Month, of the product of (i) twelve (12) and (ii) a fraction, (a) the numerator of which is equal to all interest collections related to the Receivables during such Calendar Month, less (1) all servicing fees payable to Servicer related to such Calendar Month, and (2) all interest payable to Lender under this Agreement, less any payments received by Borrower related to any interest rate hedge during the Calendar Month and (b) the denominator of which is equal to the Principal Receivables balance, exclusive of interest and fees, as of the last day of the related Calendar Month.

"**Financing Statement**" collectively means such UCC–1 financing statements in favor of Lender, as secured party, perfecting Lenders' security interest in the personal property portion of any collateral now owned or hereafter acquired by Borrower and pledged under the terms of this Agreement or any other Loan Documents, which Financing Statement shall be in form and substance satisfactory to Lender, to be filed in the Office of the Secretary of State of Borrower's principal place of business and in such other offices for recording or filing such statements in such jurisdictions as Lender shall desire to perfect Lenders' security interest or reflect such interest in appropriate public records. Borrower hereby authorizes Lender to file the Financing Statement and such continuation statements as may be required from time to time.

"**First Payment Date**" means the fifth (5<sup>th</sup>) day of the first full Calendar Month after the Initial Closing Date or, in Lender's sole discretion, the fifth day (5<sup>th</sup>) of the second Calendar Month after the Initial Closing Date.

"**GAAP**" means generally accepted accounting principles consistently applied throughout the periods covered by the applicable financial statements.

"**Governmental Authority**" means (a) any governmental municipality or political subdivision thereof, (b) any governmental or quasi–governmental agency, authority, board, bureau, commission, department instrumentality or public body, or (c) any court, administrative tribunal or public utility.

"**Initial Closing Date**" means the date of this Agreement.

"**Initial Loan Amount**" means the amount not to exceed Forty-Three Million Dollars ($43,000,000).

"**Interest Expense**" means, for any calendar month, total interest expense (including that portion attributable to capital leases in accordance with GAAP and capitalized interest) premium payments, debt discount, fees, charges and related expenses with respect to all outstanding Debt, including all commissions, discounts and other fees and charges owed with respect to letters of credit and bankers' acceptances, but excluding net payments (less net credits) under interest rate derivatives to the extent such net payments are allocable to such period in accordance with GAAP, in each case whether or not paid in cash during such period.

"**Interest Payment Date**" means the First Payment Date and the date that is the fifth (5<sup>th</sup>) day after the first day of each Calendar Month thereafter.

"**Interest Rate**" shall have the meaning set forth in the Note. The Interest Rate shall be calculated on the basis of a 360–day year and the actual number of days elapsed.

"**Lender**" or "**Lenders**" means, as applicable, Westlake Capital Finance, LLC, its successors and assigns under this Agreement.

"**Lien**" means, with respect to any property, any mortgage or deed of trust, lien, pledge, negative pledge or other agreement not to pledge, hypothecation, assignment, deposit arrangement, charge, claim, security interest, title

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"**Loan**" means the revolving line of credit to be made available by Lender to Borrower pursuant to this Agreement.

"**Loan Documents**" means such documents that Lenders may reasonably require, in form and content satisfactory to Lender, duly executed (and acknowledged where necessary) by the appropriate parties thereto, including without limitation, this Agreement, the Note, each security instrument, the assignment documents, the Financing Statement, and any resolutions for Borrower as required by Lender in its reasonable discretion.

"**Loan Term**" means the period commencing on the Initial Closing Date and ending on the Maturity Date.

"**Magnolia Capital**" means any and all of Magnolia Capital Fund, LP, a Delaware limited partnership, and The Magnolia Group, LLC, an Oklahoma limited liability company, and each of their respective Affiliates.

"**Materially Adverse Effect**" means any materially adverse effect upon (a) the properties, business, assets, liabilities, financial condition, results of operations or assets of a Borrower taken as a whole, or (b) the binding nature, validity, or enforceability of this Agreement, the Note or any other Loan Documents, or (c) the ability of the Borrower to perform the payment obligations or other material obligations under this Agreement or any other Loan Documents, or (d) the value of any collateral or upon the rights, benefits or interests of the Lender in and to the Loan or the rights of the Lender in any collateral; in each case, whether resulting from any single act, omission, situation, status, event or undertaking, or taken together with other such acts, omissions, situations, statuses, events or undertakings.

"**Maturity Date**" means: (a) the date on which the Loan becomes due and payable, which date shall be two (2) years from the date first written above; or (b) such other earlier date resulting from the acceleration of all sums due and owing under the Loan, as provided in the Note and the other Loan Documents.

"**Maximum Aggregate Commitment**" means Fifty Million Dollars ($50,000,000).

"**Net Charge-Offs**" means Principal Receivable charge offs (including principal and fees with respect thereto) less bad debt recoveries where such charge offs shall occur no later than 120 days of account delinquency.

"**Note**" means that certain promissory note of even date herewith in the amount of the Maximum Aggregate Commitment amount pursuant to Section 2.3, in substantially the form of Exhibit B attached hereto and made part hereof, evidencing the joint and several obligation of Borrower to repay the Loan, and any and all amendments, renewals, replacements or substitutions therefor.

"**Obligation**" means all Advances to, and debts (including principal, interest, fees, costs, and expenses), liabilities, covenants, and indemnities of, Borrower arising under any Loan Documents or otherwise with respect to any Loan (including payments in respect of reimbursement of disbursements made under letters of credit, interest thereon and obligations to provide cash collateral therefor), whether direct or indirect, absolute or contingent, due or to become due, now existing or hereafter arising.

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"**Organizational Documents**" means all documents evidencing and/or relating to the formation of any Person (that is not a natural person) and the continued existence and good standing of any said Person.

"**Permitted Indebtedness**" means (a) borrowings from Lender hereunder; (b) Subordinated Debt; (c) trade indebtedness in the normal and ordinary course of business for value received; (d) indebtedness and obligations incurred to purchase or lease fixed or capital assets; (e) unsecured Debt in an aggregate amount not to exceed $2,000,000 at any time; and (f) other indebtedness and obligations permitted by Lender pursuant to the terms of Article 8 and Article 9 of this Agreement.

"**Permitted Liens**" means (a) Liens granted to the Lender herein, (b) Liens existing as of the date hereof and disclosed to the Lender in Schedule 6 attached hereto, (c) judgment Liens arising solely as a result of the existence of judgments, orders, or awards that do not constitute an Event of Default under Section 10.1(g) of this Agreement, (d) Liens for unpaid taxes, assessments, or other governmental charges or levies that either (i) are not yet delinquent, or (ii) are being contested in good faith by appropriate proceedings and adequate reserves with respect thereto have been made in accordance with GAAP, (e) the interests of lessors under operating leases, (f) purchase money Liens or the interests of lessors under capital leases to the extent that such Liens or interests secure purchase money indebtedness and so long as (i) such Lien attaches only to the asset purchased or acquired and the proceeds thereof, and (ii) such Lien only secures the Debt that was incurred to acquire the asset purchased or acquired or any refinancing indebtedness in respect thereof, (g) non-exclusive licenses of patents, trademarks, copyrights, and other intellectual property rights in the ordinary course of business, (h) rights of setoff or bankers' liens upon deposits of cash in favor of banks or other depository institutions, solely to the extent incurred in connection with the maintenance of such deposit accounts in the ordinary course of business, and (i) Liens of the Servicer granted pursuant to any servicing agreement between Borrower and the Servicer.

"**Person**" means a natural person, a partnership, a joint venture, an unincorporated association, a limited liability company, a corporation, a trust, any other legal entity, or any Governmental Authority.

"**Pledged Assets**" means at any time all then outstanding Receivables and the Borrower's right, title and interest in the Collateral, including without limitation, the Contracts related thereto, Related Security all amounts payable to, or for the benefit of, the Borrower under the Contracts, if any, entered into by the Borrower, all rights and claims of the Borrower in and under the Contracts, all books and records related to any of the foregoing, all proceeds of the foregoing, in each case whether now or hereafter existing and all real or personal property related to the Receivables securing all obligations under the Contracts.

"**Principal Receivables**" means gross Receivables (including discounts), less unearned interest and unearned commissions.

"**Receivables**" mean any motor vehicle installment loan contract or retail installment sales contract (including the security interest in the vehicle financed thereunder and any and all rights to receive payments thereunder), together with all lien, title retention and security agreements, chattel mortgages, chattel paper, bailment leases, installment sale agreements, instruments, consumer finance paper and/or promissory notes securing and evidencing loans made, and/or time sale transactions acquired.

"**Related Security**" means, with respect to any Receivable: (a) all right, title and interest in and to all Contracts that relate to such Receivable; (b) all other security interests or liens and property subject thereto from time to time purporting to secure payment of such Receivable, whether pursuant to the Contract related to such Receivable or otherwise; (c) all UCC financing statements covering any collateral securing payment of such Receivable; and (d) all guarantees and other agreements or arrangements of whatever character from time to time supporting or securing payment of such Receivable whether pursuant to the Contract related to such Receivable or otherwise.

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"**Senior Debt**" means the aggregate consolidated indebtedness (including cash overdrafts, but no unearned discounts) of Borrower other than Subordinated Debt.

"**Servicer**" means Westlake Portfolio Management, LLC, or any successor servicer approved by Lender in its reasonable discretion.

"**SOFR Rate**" means a rate equal to the secured overnight financing rate as administered by the Federal Reserve Bank of New York (or a successor administrator).

"**Subordinated Debt**" means any indebtedness of Borrower for borrowed money which shall contain provisions subordinating the payment of such indebtedness and the liens and security interests securing such indebtedness to Senior Debt, in form, substance and extent acceptable to Lender in its sole discretion.

"**Tangible Net Worth**" means, at any date, the amount of the capital stock liability of Borrower on a consolidated basis (but excluding the effect of intercompany transactions) <u>plus</u> (or minus in the case of a deficit) its capital surplus and earned surplus <u>minus</u>, to the extent not otherwise excluded, (i) the cost of treasury shares and (ii) the amount equal to the value shown on its books of intangible assets (i.e., goodwill), including the excess paid for assets acquired over their respective book values on the books of the Person from which acquired.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1.2.<u>Singular and Plural Terms</u>. Any defined term used in the plural in any Loan Documents shall refer to all members of the relevant class and any defined term used in the singular shall refer to any number of the members of the relevant class.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1.3.<u>Accounting Principles</u>. Any accounting term used and not specifically defined in any Loan Document shall be construed, and all financial data required to be submitted under any Loan Documents shall be prepared, in conformity with GAAP or such other accounting methods as reasonably approved by Lender in each instance applied on a consistent basis. Notwithstanding the foregoing, if at any time any change in GAAP would affect the computation of any covenant (including the computation of any financial covenant) and/or pricing grid set forth in this Agreement or any other Loan Document, Borrower and Lender shall negotiate in good faith to amend such covenant and/or pricing grid to preserve the original intent in light of such change; provided further, that until so amended, (i) such covenant and/or pricing grid shall continue to be computed in accordance with the application of GAAP prior to such change and (ii) Borrower shall provide to Lender a written reconciliation in form and substance reasonably satisfactory to Lender, between calculations of such covenant and/or pricing grid made before and after giving effect to such change in GAAP. Whenever the term "Borrower" is used in respect of a financial covenant or a related definition, it shall be understood to mean each Borrower and their subsidiaries on a consolidated basis, unless the context clearly requires otherwise. Notwithstanding anything to the contrary contained in the definitions of "Debt," any change in accounting for leases pursuant to GAAP resulting from the adoption of Financial Accounting Standards Board Accounting Standards Update No. 2016-02, Leases (Topic 842), to the extent such adoption requires treating any lease (or similar arrangement conveying the right to use) as a capital lease where such lease (or similar arrangement) would not have been required to be so treated under GAAP as in effect prior to the adoption thereof, such lease shall not be considered a capital lease, and all calculations and deliverables under this Agreement or any other Loan Document shall be made or delivered, as applicable, in accordance therewith.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1.4.<u>Exhibits Incorporated</u>. All exhibits to this Agreement, as now existing and as the same may from time to time be supplemented, modified or amended, are incorporated herein by this reference.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1.5.<u>References</u>. Any reference to any Loan Documents or other document shall include such document both as originally executed and as it may from time to time be supplemented, modified or amended. References herein to Articles, Sections and Exhibits shall be construed as references to this Agreement unless a different document is named. References to subparagraphs shall be construed as references to the same section in which the reference appears unless a different section is named.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1.6.<u>Other Terms</u>. The term "document" is used in its broadest sense and encompasses agreements, certificates, opinions, consents, instruments and other written material of every kind. The terms "including" and "include" mean

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"including (include) without limitation." The term "or" is not exclusive. The requirement that any party "deliver" any item to another party shall be construed to require that the first party "deliver or cause to be delivered" such item to the second party. The term "any," as a modifier to any noun, shall be construed to mean "any or all" preceding the same noun in the plural. The term "agreement" includes both written and oral agreements. The terms "law" and "laws," unless otherwise modified, mean, collectively, all federal, state and local laws, rules, regulations, codes and administrative and judicial precedents. The terms "herein," "hereunder" and other similar compounds of the word "here" refer to the entire document in which the term appears and not to any particular provision or section of the document. The use of the pronoun "its" shall be deemed to also refer to "his," "hers," "its," or "theirs." This Section 1.6 shall apply to all of the Loan Documents.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1.7.<u>Headings</u>. Section and section headings are included in the Loan Documents for convenience of reference only and are not part of the Loan Documents for any other purpose.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1.8.<u>Other Documents</u>. In the event of any conflict between the provisions of this Agreement and those of any other Loan Documents, this Agreement shall prevail.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1.9.<u>Intention</u>. The provisions of this Article 1 shall not apply in any instance where a different meaning, construction or reference is clearly intended.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1.10.<u>Recitals</u>. Borrower has applied to Lender for the Loan for the purposes set forth herein. Lender is willing to make such Loan to Borrower on the terms and subject to the conditions contained in this Agreement and the other Loan Documents.

**2.** **<u>THE LOAN</u>.** Subject to the terms and conditions of this Agreement, Lender agrees to make Advances to Borrower during the term of this Agreement, and so long as there has not occurred an Event of Default, unless otherwise provided for herein, in a total aggregate principal amount not to exceed the Maximum Aggregate Commitment, and Borrower promises to repay such Loan on the terms and conditions set forth below and in the Note, and any other Loan Documents.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.1.<u>Purpose of the Loan and Use of Loan Funds</u>. Until the Commitment Termination Date, Borrower may request Lender to make Advances to Borrower and, subject to the terms and conditions of this Agreement, the Lender agrees to lend each requested Advance up to such Lender's Maximum Aggregate Commitment which Borrower may repay and reborrow from time to time. The aggregate unpaid principal amount at any one time outstanding of all Advances shall not exceed the lesser of the Maximum Aggregate Commitment or the Borrowing Base in effect as of the date of determination. The Loan and Advances shall be used to repay the Existing Loan and finance Borrower's working capital for receivables growth and for other lawful purposes except as limited under this Agreement.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.2.<u>Loan Account and Borrowing Base</u>.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)Lender shall establish on its books an account in the name of Borrower (the "**Borrower's Loan Account**"). A debit balance in Borrower's Loan Account shall reflect the amount of Borrower's indebtedness to Lender from time to time by reason of Advances and other appropriate charges (including, without limitation, interest charges) hereunder. On the first (1<sup>st</sup>) of each month, Lender shall provide to Borrower a statement of Borrower's Loan Account (including adjustments determined by Lender pursuant to Section 2.5 of this Agreement) which statement shall be considered correct and accepted by Borrower and conclusively binding upon Borrower unless Borrower notify Lender to the contrary within thirty (30) days of Lender's providing such statement to Borrower.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)Borrower shall prepare a completed Borrowing Base Certificate as of each month end and forward such statement to Lender by the 10<sup>th</sup> day of the following month, or the next Business Day if such day is not a Business Day, or as may be more frequently required by Lender from time to time.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c)Each Advance made hereunder shall, in accordance with GAAP, be entered as a debit to Borrower's Loan Account. Any Advance requested under this Section shall be made as of the effective date proposed by Borrower and shall be in a principal amount which, when aggregated with all other Advances then outstanding, shall not exceed the lesser of the then effective Borrowing Base or Maximum Aggregate Commitment.

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&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d)At all times, the outstanding balance of the Loan shall be equal to or greater than Ten Million Dollars ($10,000,000.00).

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e)The Loan shall be due and payable on the Commitment Termination Date. Upon the occurrence of an Event of Default, Lender shall have rights and remedies available to it under Article 10 of this Agreement.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(f)Lender has the right, in its reasonable discretion (but without any obligation), at any time and from time to time, to set aside reasonable reserves against the Borrowing Base in such amounts as it may deem appropriate.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.3.<u>The Note</u>. The indebtedness of Borrower to Lender hereunder shall be evidenced by the Note executed by Borrower in favor of Lender in the Maximum Aggregate Commitment amount, which shall be substantially in the form of Exhibit B attached hereto and made part hereof, dated the same date as this Agreement. The aggregate principal amount of the Note will be the aggregate Advance amounts; <u>provided</u>, however, that notwithstanding the face amount of the Note, Borrower's liability under the Note shall be limited at all times to the actual indebtedness (principal, interest and fees) then outstanding and owing by Borrower to Lender hereunder. In the event of any inconsistency between the Note and this Agreement, the provisions of this Agreement shall prevail.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.4.<u>Method of Payment</u>. Borrower shall make all payments of principal and interest on the Note in lawful money of the United States of America and in funds immediately available by wire transfer, to Lender at its address referred to in Section 12.2 of this Agreement or at such other address as Lender otherwise directs. Whenever any payment is due on a day, which is not a Business Day, the date for payment shall be extended to the next succeeding Business Day and interest shall be paid for such extended time. As soon as practicable after Lender receives payment from Borrower, but in no event later than one (1) Business Day after such payment has been made, subject to Section 2.2, Lender will cause to be distributed like funds relating to the payment of principal, interest or fees (other than amounts payable to Lender to reimburse Lender for fees and expenses payable solely to Lender pursuant to the terms of this Agreement) or expenses payable to Lender in accordance with the terms of this Agreement. Borrower's obligations to Lender with respect to such payment shall be discharged by making such payments to Lender pursuant to this Section 2.4 or, if not timely paid or any Event of Default or Default then exists, may be added to the principal amount of the Loans outstanding.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.5.<u>Interest Rate and Loan Payments</u>.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.5.1.<u>Interest Payments</u>. During the Loan Term, all unpaid and accrued interest at the interest rate set forth in the Note, including terms incorporated by reference therein, and shall be payable monthly in arrears as it accrues on the principal from time to time outstanding, commencing on the First Payment Date and continuing on each Interest Payment Date thereafter, until the Note is paid in full by Borrower to Lender at the address provided therein. In the absence of an Event of Default or Default hereunder, and prior to maturity, the outstanding balance of the Loan will bear interest at an annual rate at all times equal to three and thirty-five hundredths percent 3.35% per annum above the SOFR Rate; which shall be determined as of the first Business Day of each Calendar Month and applicable to such month; provided, however, that such interest rate shall not at any time be less than five and thirty-five hundredths' percent (5.35%).

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.5.2.<u>Unused Rate</u>. In addition to interest owing pursuant to Section 2.5.1 above, Borrower shall pay additional interest on an amount equal to the Shortfall Amount ("**Additional Interest**") during each calendar month that the outstanding principal balance of the Loan on the date of determination is less than the Maximum Aggregate Commitment. For purposes hereof, the "**Shortfall Amount**" means the difference between (x) the Maximum Aggregate Commitment and (y) the actual average outstanding principal balance of the Loan for such calendar month (the "**Average Balance**"). The Additional Interest, on an annual basis, shall be [\*\*\*]%.

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&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.5.3.<u>Mandatory Prepayment</u>. Commencing with the First Payment Date, and continuing on each Interest Payment Date thereafter until , in addition to the payment of interest and Additional Interest set forth in Sections 2.5.1 and 2.5.2 above, Borrower shall also make a monthly principal payment to Lender in the event that, pursuant to the Borrowing Base Certificate provided to Lender for a particular month, the total amounts outstanding hereunder exceeds the Borrowing Base available for that month, whether established by the Borrowing Base Certificate provided to Lender for that particular month or otherwise. Borrower shall pay to Lender on such Interest Payment Date, or the following Business Day if such Interest Payment Date is not a Business Day, and without demand or notice of any kind required, the amount by which Borrower's indebtedness hereunder exceeds the Borrowing Base then applicable, together with all accrued interest on the amount so paid and any fees and costs incurred in connection therewith.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)On the Maturity Date, any and all sums due and owing under the Note shall be paid in full based on the interest rate and terms set forth in the Note. All installments of principal and interest of the Note shall be payable in lawful money of the United States of America, at such place as Lender may designate in writing from time to time.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)Compliance with the payment provisions in this Section shall be evidenced by the monthly financial reports to be provided to Lender pursuant to this Agreement. Borrower acknowledges that Borrower's financial strength was a material consideration and inducement to Lender's agreement to make the Loan to Borrower.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.5.4.<u>Optional Prepayments</u>2.5.5 . Borrower may prepay the Loan from time to time in full upon seven (7) Business Day's prior written notice to Lender, provided that in the event the Borrower repays the Loan in full by means other than cash flow of Borrower prior to the Commitment Termination Date or the obligations are accelerated following the occurrence of an Event of Default, Borrower shall pay to Lender a sum equal to [\*\*\*] percent ([\*\*\*]%) of the average outstanding principal balance of the Loan during the immediately preceding 90 days (the "**90-Day Average**") as a prepayment fee if such prepayment is within twelve (12) months of the Initial Closing Date and [\*\*\*] percent ([\*\*\*]%) of the 90-Day Average thereafter (the "**Termination Fee**"). Notwithstanding the forgoing, if Borrower sells Receivables pursuant to Section 8.18, Borrower shall pay to Lender a sum equal to [\*\*\*] percent ([\*\*\*]%) of the proceeds of such sale as a prepayment fee (the "**Third-party Sale Fee**"). Borrower acknowledges that the Termination Fee and Third-party Sale Fee are estimates of Lender's damages in the event of early termination or prepayment and is not a penalty. In the event of termination of the credit facility established pursuant to this Agreement, all of the obligations shall be immediately due and payable upon the termination date stated in any notice of termination. All undertakings, agreements, covenants, warranties and representations of Borrower contained in the Loan Documents shall survive any such termination, and Lender shall retain its liens in the Collateral and all of its rights and remedies under the Loan Documents notwithstanding such termination until Borrower has paid the obligations to Lender, in full, in immediately available funds, together with the Termination Fee. No Termination Fee or Third-party Sale Fee shall be payable in connection a payment of the Loan on or after the Commitment Termination Date.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.5.6.<u>Rate After Default</u>. During the continuance of an Event of Default hereunder or under any of the Loan Documents, at the option of Lender, the outstanding principal balance of the Loan shall bear interest, payable on demand, at a rate per annum equal to the applicable Default Interest Rate. The application of the Default Interest Rate shall not be interpreted or deemed to extend any cure period set forth in this Agreement or otherwise to limit any of Lender's remedies under this Agreement or any of the other Loan Documents.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.5.7.<u>Computation of Interest</u>. Interest shall be calculated on a 360–day year for amounts disbursed under the Loan, but, in any case, shall be computed for the actual number of days in the period for which interest is charged, which period shall consist of 365 days on an annual basis, and 366 days on a leap year. If any payment of interest under the Note would otherwise be due on a day which is not a Business Day, the payment instead shall be due on the next succeeding Business Day and such extension of time shall be included in computing the interest due in respect of said payment.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.5.8.<u>No Deductions</u>. All payments of principal or interest under the Note shall be made without deduction of any present and future taxes, levies, imposts, deductions, charges or withholding, which amounts shall be paid by Borrower. Borrower will pay the amounts necessary such that the gross amount of the payments received by Lender is not less than that required by the Note.

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&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.6.<u>Full Recourse; Payments</u>. The Loan shall be full recourse against Borrower. All amounts payable by Borrower on or with respect to the Loan, or pursuant to the terms of any other Loan Documents, shall be paid in lawful money of the United States of America to Lender in same day funds, not later than 2:00 p.m., California time on the date due.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.7.<u>Loan Closing Fee</u>. Borrower shall pay to Lender a nonrefundable fee in an amount equal to [\*\*\*]Dollars ($[\*\*\*]) on or prior to the Initial Closing Date ("**Loan Closing Fee**"). Borrower hereby acknowledges and agrees that the Loan Closing Fee has been fully earned and is nonrefundable once it is paid to Lender.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.8.<u>Term of Loan</u>. All amounts due and owing under the Note and all interest and other charges thereon shall be due and payable on the Maturity Date.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.9.<u>Extension of Maturity Date</u>. Borrower may no earlier than ninety (90) days and no later than thirty (30) days prior to the Maturity Date send a written request to Lender to extend the Maturity Date for an additional period of one (1) year. The extension of the Maturity Date pursuant to this Section 2.9 shall not be effective unless (i) no Default or Event of Default shall have occurred and be continuing on the date of such extension and immediately after giving effect thereto; and (ii) each of the representations and warranties contained in this Agreement and in each of the other Loan Documents shall be true and correct in all material respects (unless the relevant representation and warranty already contains a materiality qualifier, in which case such representation and warranty shall be true and correct in all respects) on and as of the date of such extension after giving effect thereto, as though made on and as of such date (or, if any such representation and warranty is expressly stated to have been made as of a specific date, as of such specific date).

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.10.<u>Incremental Loans</u>. Borrower may request an increase to the Maximum Aggregate Commitment subject to the following terms and conditions:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)Borrower may not request any increase to the Maximum Aggregate Commitment if an Event of Default then exists or would result from such increase;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)The aggregate amount of increases to the Maximum Aggregate Commitment shall not exceed $25,000,000;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c)Each increase in the Maximum Aggregate Commitment and all Advances made under such increase (i) shall be evidenced by a replacement promissory note in the principal amount of the new Maximum Aggregate Commitment, which shall be exchanged for the then-current Note, (ii) shall be subject to the same terms applicable to the Loan prior to such increase in the Maximum Aggregate Commitment, and (iii) shall be subject to the satisfaction of the conditions set forth in Section 3.1; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d)Lender, at Lender's sole discretion, shall have agreed to such increase to the Maximum Aggregate Commitment.

**3.** **CONDITIONS PRECEDENT.**

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.1.<u>Closing</u>**.** Lender's obligations to disburse Loan proceeds in the amount of the Initial Loan Amount on the Initial Closing Date, disburse additional Loan proceeds up to the Maximum Aggregate Commitment amount on any subsequent Closing Date, and otherwise perform under this Agreement are expressly conditioned upon Borrower's satisfaction of the following conditions (collectively "**Closing Conditions**"):

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)Borrower's delivery to Lender of the Loan Documents, together with such other documents that Lender may reasonably require, in form and content satisfactory to Lender, duly executed (and acknowledged where necessary) by the appropriate parties thereto;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)Borrower's delivery to Lender of lien and judgment search results with respect to the Borrower;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c)Borrower's delivery to Lender of Borrower's most recent year-end audited financial statements, or such financial statements satisfactory to Lender in Lender's sole discretion;

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&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d)Lender shall have received evidence satisfactory to it that any and all approvals and licenses from, and all filings and registrations with, any governmental or other regulatory authority, including all necessary consents to the closing of this Agreement, have been obtained or made, are in full force and effect and are not subject to any pending or, to the knowledge of the Borrower, threatened reversal or cancellation;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e)The representations and warranties of Borrower contained in all of the Loan Documents shall be correct in all respects on the Initial Closing Date and each Closing Date thereafter, and no Event of Default (or no event which, with the giving of notice and/or the passage of time, could become an Event of Default) shall have occurred and be continuing as of the date of the disbursement;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(f)Borrower shall have submitted to Lender for its approval the Organizational Documents for Borrower;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(g)The payment of the Loan Closing Fee, reasonable attorneys' fees, document review fees, appraisal fees, broker fees (if any), and other closing costs incurred by Lender in connection with the closing of the Loan;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(h)A Financing Statement shall have been filed with the applicable Secretary of State covering the Pledged Assets, and Lender's security interest in all of the Pledged Assets must be duly perfected and in a first lien position;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i)Lender shall have received evidence to Lender's satisfaction of all insurance required by Lender, as provided herein;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(j)A duly executed power of attorney substantially in the form attached hereto Exhibit D ("**Power of Attorney**");

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(k)Borrower represents and warrants that all Collateral pledged under this Agreement, or to secure Borrower's obligations under this Agreement, shall have the value not less than which Borrower represented to Lender, or as otherwise required under this Agreement, and that Borrower will provide or cause to be provided evidence to support the foregoing upon request, and Lender may rely on such representations or any other evidence without inquiry or investigation.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(l)Any due diligence conducted by Lender and the related findings with respect to this Agreement shall be satisfactory to Lender in Lender's sole and absolute discretion.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(m)If the disbursement of the initial advance under the Loan has not been made on or before thirty (30) days after the date of this Agreement because of Borrower's failure to satisfy said conditions or any of Lender's other customary loan disbursement conditions, Lender shall have the right to terminate this Agreement in its sole discretion. In such event, Borrower shall immediately pay to Lender the Loan Closing Fee referenced in this Agreement and all costs related to and arising from Lender's on-site due diligence, and thereafter neither Borrower nor Lender shall have any further rights or obligations hereunder.

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**4.** **COLLATERAL.**

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.1.<u>Pledge of Collateral</u>. For the purpose of securing the Loan, or any other indebtedness of Borrower to Lender, Borrower hereby grants Lender a security interest in all of Borrower's assets and properties, now owned and hereinafter acquired, wherever located, including at any time all then outstanding Receivables, the Contracts related thereto, Related Security, Pledged Assets, Property, all inventory, parts and accessories inventory, equipment, goods, fixtures, accounts, deposit accounts, accounts receivable, holdback reserves, payment intangibles, instruments, commercial tort claims, letter of credit rights, investment property, securities and securities accounts, and general intangibles of Borrower; any cash, money, or other property of Borrower in the possession, custody or control of Lender; all accessions to, substitutions for, and all replacements of any of the foregoing; all chattel paper, documents, instruments, monies, documents of title, residues and property of any kind related to any of the foregoing; all books and records of Borrower related to any of the foregoing, including without limitation, computer programs, print-outs, and other computer hardware and software materials and records pertaining to any of the foregoing; together with all proceeds and products of the foregoing, including, without limitation, proceeds of insurance policies insuring any of the foregoing (collectively, "**Collateral**"). All security interest granted in this Agreement is in addition to and not in substitution of any right of offset, netting, or reclamation that Lender may have against Borrower pursuant to any contract or applicable law.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.2.<u>Further Assurances</u>. Borrower shall promptly and duly execute and deliver any and all such further instruments and documents and take such further actions as Lender may deem desirable to protect the Collateral or otherwise obtain the full benefits of this Agreement and of the rights and powers herein granted, including without limitation, the following: (i) execute such supplemental documents as Lender may require to evidence or perfect the security interest granted hereunder or under any other Loan Documents; (ii) provide Lender and its agents and contractors with full access to the Collateral, including any and all books and records, related thereto; and (iii) deliver to Lender all Collateral consisting of negotiable documents, chattel paper, and instruments not deposited for collection in the aggregate (in each case, accompanied by bills of sale and any other instruments of transfer executed for Borrower) promptly after Borrower receives the same. By execution hereof by Borrower Lender is authorized to file any financing or continuation statements under the Uniform Commercial Code with respect to the security interest granted hereunder or under any other Loan Documents.

**5.** **SERVICING OF RECEIVABLES.** 

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5.1.<u>Servicer</u>. Borrower shall, except as otherwise agreed upon between Borrower and Servicer in writing, at all times remain solely responsible for the servicing and administration of the Receivables.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5.2.<u>Lender's Notification Rights</u>. Notwithstanding anything to the contrary contained in this Agreement, including, without limitation, Section 5.1 hereof, Borrower shall be required to provide notice to Lender in connection with:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)any adoption or implementation of a business plan prepared by Borrower or obligor with respect to the Receivables;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)modifications to the disbursement conditions for any escrow or impound held in conjunction with the Receivables;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c)at any time with respect to proposals to take any significant action with respect to the Receivables (and to consider alternative actions recommended by Lender); or

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d)any material alteration to the Receivables.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e)any material modifications to Borrower's information systems, not less than thirty (30) days before such modifications are to occur.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5.3.<u>Attorney-in-Fact</u>. During the continuance of an Event of Default beyond any applicable grace and/or cure period, Borrower hereby makes, constitutes, and appoints Lender as its attorney-in-fact, which appointment shall be coupled with an interest and shall be irrevocable until the all obligations of Borrower under the Loan Documents have been satisfied or an Event of Default has been cured, to do the following: a) execute, acknowledge, endorse, obtain, and deliver all instruments, documents, or other items which may be necessary to receive and enforce performance of the Contracts; b)

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give any notice to obligor; c) enforce, compromise, settle, or discharge any of Borrower's claims arising from the Contracts; d) file, settle, or compromise any claim or take any action, either in its name or in Borrower's name, to enforce or preserve Lender's rights under the Contracts, and e) on behalf of Borrower, provide any consent, make any decision or refrain from making any decision with respect to the Contracts. This power of attorney is solely for Lender's benefit. Lender shall have the right but not the obligation to exercise any of the foregoing powers.

**6.** **DISBURSEMENT OF LOAN FUNDS.**

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;6.1.<u>Funding Requests</u>**.** Loan proceeds in the amount of the Initial Loan Amount shall be disbursed at the Initial Closing Date in accordance with the terms and conditions of this Agreement. Additional. Borrower shall notify Lender in writing on or before the date of each additional requested Advance, specifying the date and amount of the Advance. Loan proceeds available up to the Maximum Aggregate Commitment pursuant to the Borrowing Base Certificate shall be disbursed on any subsequent Closing Date in accordance with the terms and conditions of this Agreement. Lender shall not have any obligation to disburse any portion of the Loan, however, unless and until Borrower has fulfilled (at Borrower's sole cost and expense) to Lender's satisfaction all of the Closing Conditions.

**7.** **REPRESENTATIONS AND WARRANTIES.**

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;7.1.<u>Consideration</u>. As an inducement to Lender to execute this Agreement and to disburse the proceeds of the Loan, Borrower represents and warrants to Lender that the following statements set forth in this Section 7 are true, correct and complete as of the date hereof and will be true, correct and complete as of the Initial Closing Date and any subsequent Closing Date.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;7.2.<u>Organization; Ownership; Power; Qualification</u>. Borrower is duly organized, validly existing and in good standing under the laws of the state of Borrower's formation. Borrower is duly qualified, in good standing and authorized to do business in each jurisdiction in the nature of Borrower's business requires such qualification or authorization, except where failure to be so qualified could not reasonably be expected to have a Materially Adverse Effect.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;7.3.<u>Powers</u>. Borrower has all requisite power and authority, rights and franchises to carry on its business as now conducted and as proposed to be conducted, and to enter into and perform this Agreement and the other Loan Documents executed by Borrower. The addresses of the Borrower's chief executive office and principal place of business is as set forth below in Section 12.2.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;7.4.<u>Authorization of Loan Documents</u>.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;7.1.1.<u>No Conflict</u>. The execution, delivery and performance of the Loan Documents by Borrower, will not violate (a) any legal requirement affecting Borrower, or (b) any agreement to which Borrower is bound or to which it is a party, and will not result in or require the creation (except as provided in or contemplated by this Agreement) of any lien upon any of Borrower's assets.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;7.1.2.<u>Binding Obligations</u>1.1.1 . This Agreement and the other Loan Documents have been duly executed by Borrower and are legally valid and binding obligations of Borrower enforceable against Borrower as applicable, in accordance with their respective terms, except as enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws affecting creditors' rights generally and by general principles of equity.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;7.5.<u>No Material Adverse Change or Default</u>. There exists no material violation of, material adverse change to, or material default by Borrower, and no event has occurred which, upon the giving of notice or the passage of time, or both, would constitute a material default by Borrower or result in a Material Adverse Effect with respect to the terms of any instrument evidencing or securing any debt of Borrower with respect to the Loan Documents.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;7.6.<u>Title to Assets</u>. Borrower has good, legal and marketable title to all of its assets. With respect to the Pledged Assets and Related Security, Borrower will diligently and in good faith endeavor to obtain valid title with the Lien of Borrower noted thereon. The Pledged Assets and Collateral are not subject to any liens other than Permitted Liens. Except for financing statements evidencing Permitted Liens, no financing statement under the Uniform Commercial Code as in effect in any jurisdiction and no other filing which names Borrower as debtor or which covers or purports to cover any

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of the Pledged Assets and Collateral is currently effective and on file in any state or other jurisdiction, and Borrower has not signed or authorized any such financing statement or filing or any security agreement authorizing any secured party thereunder to file any such financing statement or filing.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;7.7.<u>Litigation; Adverse Facts</u>. There is no action, suit, investigation, proceeding or arbitration at law or in equity or before or by any foreign or domestic court or other governmental entity ("**Legal Action**"), pending or threatened against or affecting Borrower or any of its assets which could reasonably be expected to result in any Materially Adverse Effect in the business, operations, assets or condition (financial or otherwise) of Borrower or would materially and adversely affect Borrower's ability to perform its obligations under the Loan Documents. There is no basis known to Borrower for any such action, suit or proceeding. Borrower is not (a) in violation of any applicable law which violation materially and adversely affects or may materially and adversely affect the business, operations, assets or condition (financial or otherwise) of Borrower, (b) subject to, or in default with respect to, any other legal requirement that would have a materially adverse effect on the business, operations, assets or condition (financial or otherwise) of Borrower, or (c) in default with respect to any agreement to which Borrower is a party or by which it is bound. There is no Legal Action pending or threatened against or affecting Borrower questioning the validity or the enforceability of this Agreement or any of the other Loan Documents.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;7.8.<u>Disclosure</u>. There is no fact known to Borrower that materially and adversely affects the business, operations, assets or condition (financial or otherwise) of Borrower that has not been disclosed in this Agreement or in other documents, certificates and written statements furnished to Lender in connection herewith.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;7.9.<u>Payment of Taxes</u>. All tax returns and reports of Borrower required to be filed by it have been timely filed, and all taxes, assessments, fees and other governmental charges upon Borrower and upon its properties, assets, income and franchises which are due and payable have been paid prior to delinquency. Borrower knows of no proposed tax assessment against Borrower that would be material to the condition (financial or otherwise) of Borrower, and Borrower has not contracted with any government entity in connection with such taxes.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;7.10.<u>Securities Activities</u>. Borrower is not engaged principally, or as one of its important activities, in the business of extending credit for the purpose of purchasing or carrying any margin stock (as defined within Regulations G, T and U of the Board of Governors of the Federal Reserve System), and none of the value of Borrower's assets consists of such margin stock. No part of the Loan will be used to purchase or carry any margin stock or to extend credit to others for that purpose or for any other purpose that violates the provisions of Regulations U or X of said Board of Governors.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;7.11.<u>Government Regulations</u>. Borrower is not required to register as an investment company under the Investment Company Act of 1940, the Federal Power Act, the Public Utility Holding Company Act of 1995, the Interstate Commerce Act or to any federal or state statute or regulation limiting its ability to incur indebtedness for money borrowed.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;7.12.<u>Financial Condition</u>. The financial statements and all financial data previously delivered to Lender in connection with the Loan and/or relating to the Receivables and Borrower are true, correct and complete in all material respects. Such financial statements comply with the requirements of Section 8.6 and fairly present the financial position of the parties who are the subject thereof as of the date thereof. No material adverse change has occurred in such financial position and, except for this Loan, no borrowings have been made by Borrower since the date thereof which are secured by, or might give rise to, a lien or claim against the assets of Borrower. Borrower is solvent and will not become insolvent after giving effect to the transactions contemplated hereby; the Borrower is paying its debts as they become due; and Borrower, after giving effect to the transactions contemplated hereby, will have adequate capital to conduct its business. For the purpose of clarity, failure to satisfy the foregoing conditions shall Constitute and Event of Default and the Default Interest Rate shall thereafter be applicable.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;7.13.<u>Other Loan Documents</u>. Each of the representations and warranties of Borrower contained in any of the other Loan Documents is true and correct in all respects. All of such representations and warranties are incorporated herein for the benefit of Lender.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;7.14.<u>USA Patriot Act Notification</u>. Borrower agrees to provide evidence of the identity of Borrower that Lender may request from time to time to permit Lender to verify the identity of Borrower or to otherwise comply with applicable governmental laws and regulations, including without limitation Section 326 of the USA Patriot Act of 2001, 31 U.S.C. 5318.

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&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;7.15.<u>Accuracy and Completeness of Information</u>. All information, reports, prospectuses and other papers and data relating to Borrower and furnished by Borrower to Lender, taken as a whole, were, at the time furnished, true, complete and correct in all material respects to the extent necessary to give Lender true and accurate knowledge of the subject matter, and all final projections, consisting of a combined projected cash flow statement, an income statement, and a balance sheet for Borrower (collectively, the "**Projections**"): (i) are based on estimates and assumptions believed to be reasonable and (ii) reflect, as of the date prepared, the reasonable estimate of Borrower of the results of operations and other information projected therein for the periods covered thereby. The Projections and the other pro forma financial information furnished at any time by Borrower to Lender pursuant to this Agreement have been prepared in good faith based on assumptions believed by Borrower to be reasonable at the time made, it being recognized by Lender that such financial information as it relates to future events is not to be viewed as fact and that actual results during the period or periods covered by such financial information may differ from the Projections by a material amount and Borrower, however, makes no representation as to its ability to achieve the results set forth in the Projections. Borrower understands that all such statements, representations and warranties shall be deemed to have been relied upon by Lender as a material inducement to make each extension of credit hereunder.

**8.** **COVENANTS OF BORROWER.**

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;8.1.<u>Consideration</u>. As an inducement to Lender to execute this Agreement and to disburse the proceeds of the Loan, Borrower hereby covenants as set forth in this Article 8, which covenants shall remain in effect so long as the Note shall remain unpaid or any obligation of Borrower under any of the other Loan Documents remains outstanding or unperformed.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;8.2.<u>Acknowledgement of Borrowers Regarding Collateral</u>. Each Borrower understands and agrees that:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;8.2.1.unless and to the extent otherwise released by the Lender in writing, the Collateral pledged by each Borrower will secure the entire amount of the Loan under the Note and the other Loan Documents;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;8.2.2.a default by any or all of the entities comprising Borrower under the Note, security documents or other Loan Documents will also constitute a default under the entire Loan and all other Loan Documents executed or delivered to evidence or secure the Loan or any portion thereof;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;8.2.3.no Borrower will be entitled to the release of Lender's security interest in any portion of the Collateral owned by such Borrower until the entire Loan has been paid in full;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;8.2.4.a result of the structure of the Loan is that all of the Collateral, regardless of the form by which it is encumbered or the ownership, shall now be security for the repayment of all of the Note, and shall be available to satisfy the obligations incurred in connection with the entire Loan and Note;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;8.2.5.a default by any Borrower under any Note or the Loan Documents could result in the judicial or non-judicial sale of some or all the Collateral for the Loan, and the application of the proceeds from such sale to complete or only partial satisfaction of the joint and several obligations of the respective Borrower under the Note or Loan Documents.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;8.3.<u>Compliance With Applicable Laws</u>. All Receivables shall comply in all material respects with all applicable federal, state and local laws, rules, regulations, proclamations, statutes, orders and interpretations at the time when Lender obtains any interest therein pursuant to this Agreement. Borrower shall comply in all respects with all local, state and federal laws and regulations applicable to its business including without limitation the consumer finance laws (including complying with privacy notice requirements under the Gramm-Leach-Bliley Act), anti-terrorism laws and all laws and regulations of the Governmental Authorities, and the provisions and requirements of all franchises, permits, certificates of compliance and approval issued by regulatory authorities and other like grants of authority held by Borrower; and notify Lender immediately (and in detail) of any actual or alleged failure to comply with or perform, breach, violation or default under any such laws or regulations or under the terms of any of such franchises or licenses, grants of authority, or of the occurrence or existence of any facts or circumstances which with the passage of time, the giving of notice or otherwise could create such a breach, violation or default or could occasion the termination of any of such franchises or grants of authority.

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&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;8.4.<u>Books and Records</u>. Borrower shall keep and maintain full and accurate accounts and records of Borrower's operations with respect to the Loan, the Collateral and all transactions with respect thereto consistent with sound accounting practices for Borrower's type of business, and permit Lender, or its representatives to inspect and copy the same upon reasonable notice to Borrower and during normal business hours upon any date prior to the repayment in full of the Loan; provided that, so long as no Event of Default is continuing, such inspections shall be limited to once per calendar year except in the case of inspections resulting or arising from Governmental Authority. Borrower will comply with Lender's reasonable requirements, from time to time in effect, including those concerning the submission of reports on all items of Collateral including those which are deemed to be delinquent.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;8.5.<u>Assessments</u>. Borrower shall pay or discharge all lawful claims, including taxes, assessments and governmental charges or levies imposed upon Borrower or its income or profits or upon any property belonging to Borrower, prior to the date upon which penalties attach thereto and, if reasonably required by Lender, shall submit evidence satisfactory to Lender confirming the payment of all such taxes, assessments and charges; provided that Borrower shall have the right to contest the validity thereof in good faith by appropriate proceedings so long as adequate reserves with respect thereto have been made in accordance with GAAP.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;8.6.<u>Reporting Requirements</u>. Borrower shall furnish or cause to be furnished to Lender:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;8.6.1.Within twenty (20) days after the end of each month, company prepared consolidated financial statements of Borrower's businesses for such previous month, consisting of a balance sheet income statement, statement of cash flow and consolidating schedules as of the end of such month, all in reasonable detail, prepared in accordance with GAAP consistently applied, subject to year-end adjustments.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;8.6.2.Within one hundred twenty (120) days after the close of each fiscal year, commencing with the fiscal year ending December 31 of the year this Agreement is entered into, consolidated and consolidating financial statements of Borrower for the fiscal year then ended consisting of a balance sheet, income statement and statement of cash flow of Borrower as of the end of such fiscal year, all in reasonable detail, including all supporting schedules and footnotes, prepared in accordance with GAAP consistently applied, and shall be audited and certified without qualification by an independent certified public accountant selected by Borrower and reasonably acceptable to Lender and accompanied by the unqualified opinion of such accountant; and cause Lender to be furnished at the time of completion thereof, a copy of any management letter for Borrower prepared by such certified public accounting firm.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;8.6.3.Within twenty (20) days after the end of each month (or more frequently as reasonably requested by Lender from time to time),, for the month then ending, reports in form and substance satisfactory to Lender, setting forth an aging of Receivables, a Borrowing Base Certificate, a static pool report and detailed delinquency report, each in a form acceptable to Lender, a covenant compliance certificate for each of Borrower, books and records consisting of data tape information and also such other documentation and information promptly after request therefor by Lender.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;8.6.4.Due within fifteen (15) days of filing or upon the request of Lender from time to time and at any time, as applicable, copies of Borrower's income tax returns, including any schedules attached thereto, filed with the Internal Revenue Service.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;8.6.5.Within one hundred twenty (120) days after the close of each fiscal year, an annual Compliance Certificate executed by the president or chief executive officer of each Borrower along with any other documentation and information Lender may reasonably request.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;8.6.6.Within twenty (20) days after the end of each month (or more frequently as reasonably requested by Lender from time to time), for the month then ending, reports in form and substance satisfactory to Lender, setting forth all of Borrower's vehicle inventory.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;8.6.7.Within twenty (20) days after the end of each month (or more frequently as reasonably requested by Lender from time to time), copies of the most recent month-end account statements for each deposit and checking account maintained by Borrower.

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&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;8.7.<u>Representations and Warranties</u>. Until repayment of the Note, the representations and warranties set forth herein and in the other Loan Documents shall remain true and complete in all material respects.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;8.8.<u>Trade Names</u>. Borrower shall immediately notify Lender in writing, of any change in the legal, trade or fictitious business names used by Borrower and shall, upon Lender's request, execute any additional financing statements and other certificates necessary to reflect the change in trade names or fictitious business names.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;8.9.<u>Notice of Litigation</u>. Borrower shall give, or cause to be given, prompt written notice to Lender of (a) any action or proceeding which is instituted against Borrower in any federal or state court or before any commission or other regulatory body, federal, state or local, foreign or domestic, or any such proceedings which, if adversely determined, could result in a judgment or order requiring the payment by Borrower in excess of the lesser of (i) Two Hundred Fifty Thousand Dollars ($250,000.00) or (ii) an amount which could have a Material Adverse Effect on the business, operations, assets or condition (financial or otherwise) of Borrower (as reasonably determined by Lender), (b) any enforcement action or investigation instituted or, to Borrower's knowledge, threatened against any Borrower or any of its subsidiaries by any Governmental Authority, including without limitation any proceeding or action to be commenced by the filing of a stipulation and consent; and (c) any other action, event or condition of any nature which could have a Material Adverse Effect upon the business, operations, management, assets, properties, ownership or condition (financial or otherwise) of Borrower.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;8.10.<u>Existence, Properties</u>. Borrower will (a) do or cause to be done all things necessary to preserve and keep in full force and effect its existence, rights and franchises and comply with all laws applicable to it; (b) maintain, preserve and protect all franchises, licenses and trade names and preserve all the remainder of its property used or useful in the conduct of its business; and (c) maintain in effect insurance with responsible and reputable insurance companies or associations in such amounts and covering such risks as shall be consistent with prudent business practices in the industry and furnish to Lender from time to time, upon their request therefor, evidence of same.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;8.11.<u>Notice of Default</u>. Borrower will promptly notify Lender of the occurrence of any Default or Event of Default.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;8.12.<u>Other Information</u>. From time to time upon request of Lender, Borrower will furnish to Lender such additional information and reports regarding the Collateral and the operations, businesses, affairs, prospects and financial condition of Borrower and its subsidiaries as Lender may reasonably request.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;8.13.<u>Operations</u>. Borrower shall maintain satisfactory credit underwriting and operating standards, including, with respect to each obligor of each Receivable, the completion of an adequate investigation of such obligor and a determination that the credit history and anticipated performance of such obligor is and will be satisfactory and meets the standards generally observed by prudent finance companies.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;8.14.<u>Financial Covenants</u>. Financial covenants described in this Section 8.14, together with all other financial covenants and restrictions set forth in this Agreement shall be monitored as described below by Lender.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;8.14.1.<u>Minimum Tangible Net Worth</u>. As of the end of each calendar month, Borrower's Tangible Net Worth shall be no less than the lower of $40,000,000 and an amount corresponding to 60% of outstanding balance of the Loan.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;8.14.2.<u>Excess Spread Ratio</u>. As of the end of each Calendar Month, Borrower's Excess Spread Ratio shall be at least 8.0%.

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&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;8.14.3.<u>[Reserved]</u>.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;8.14.4.<u>No Other Debt</u>. Except as may be provided in the Loan Documents, Borrower shall have no other debt, other than Permitted Indebtedness, without the prior written consent of Lender, which consent shall be given in Lender's sole and absolute discretion. Any and all inter-company loans and loans to Borrower shall be approved by Lender in its reasonable discretion and if so approved, shall be subordinate to the Loan, and all said parties shall execute any subordination agreement required by Lender.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)The financial statements delivered to Lender shall include a reaffirmation of the financial representations, warranties, covenants and agreements set forth in this Section 8.14, duly executed by Borrower.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)Without limiting the foregoing, Borrower specifically represents, warrants, covenants and agrees that in no event shall Borrower incur any liability or transfer any property or other assets of Borrower which liability or transfer would result in a violation of the financial covenants set forth in this Section 8.14, and acknowledge that said representation, warranty, covenant and agreement was and is a material inducement to Lender to enter into the Loan with Borrower.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;8.15.<u>Rights of Inspection</u>. Lender, or its representatives, at any time after (i) the occurrence of and continuation of any Event of Default hereunder or (ii) in connection with any regulatory requirements or requirements of Lender's auditors, upon Lender 's reasonable notice but no more often than once per year, unless a default has occurred or is required by regulatory requirements, shall have the right at the sole cost and expense of Borrower, and subject to the rights of obligor, Borrower will permit Lender and/or its representatives upon reasonable prior notice to the relevant party, (a) to examine and audit, during normal business hours or at such other times as might be reasonable under applicable circumstances, any and all of the books, records, financial statements, credit and collection policies, operating and reporting procedures and information systems, their respective directors, officers and employees, or other information of the Borrower, (b) to perform field exams or otherwise inspect and examine the Receivables (subject to the Borrower's rights under the documents); and (c) to verify Lender's collateral pursuant to the Loan Documents or any portion or portions thereof or, Borrower's compliance with the provisions of this Agreement. In addition, following the occurrence of and continuation of any Event of Default hereunder or (ii) in connection with any regulatory requirements or requirements of Lender's auditors, upon Lender's reasonable notice but no more often than once per year, unless a default has occurred or is required by regulatory requirements, Lender, at the sole cost and expense of Borrower, Lender and/or its representatives upon reasonable prior notice to the relevant party, will be permitted to examine and audit, during normal business hours or at such other times as might be reasonable under applicable circumstances, any and all of the books, records, financial statements, credit and collection policies, operating and reporting procedures and information systems, or other information of their respective directors, officers and employees, relating to the Receivables.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;8.16.<u>Insurance</u>.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;8.16.1.<u>General Liability Insurance</u>. Borrower shall, at Borrower's expense, obtain and keep in force until full payment of the Loan a policy of commercial general liability insurance in an occurrence form providing for broad form property damage coverage, broad form contractual coverage, personal injury, and bodily injury, and products and complete operations coverage, insuring Borrower, and naming Lender as additional named insured, against any liability arising out of or in connection with the Loan, Lender's activities in connection with the Loan, or the Receivables, or any other claim arising out of the Receivables or the Loan. Such insurance policy shall be in such amounts and covering such risks as shall be consistent with prudent business practices in the industry and reasonably acceptable to Lender.

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&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;8.16.2.<u>Conditional Assignment</u>. If requested by Lender during the continuance of an Event of Default, Borrower shall execute and deliver to Lender a conditional assignment in form and content acceptable to Lender in its sole discretion of all proceeds from any claim Borrower may have under any of the insurance policies described hereinabove. This assignment of proceeds will be conditioned on the occurrence of an "**Event of Loss**" as defined under Borrower's insurance policies. If requested by Lender upon the occurrence of an Event of Default, upon any event of loss Lender may give notice of the assignment to Borrower's insurers so that proceeds due to Borrower are paid to Lender. Upon receipt of insurance proceeds, Lender will disburse the proceeds, in the same manner as loan proceeds are disbursed by Lender under its standard construction loan documents, to Borrower for items which were the subject of the insurance claim.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;8.16.3.<u>Power of Attorney</u>. Borrower shall, upon demand, execute and deliver to Lender a power of attorney to make any claim Borrower may have under any policy of insurance described hereinabove. This power of attorney may be exercised by Lender on the occurrence of an "**Event of Loss**" as defined under Borrower's insurance policies and Borrower's failure to make a claim or cooperate with the insurance companies covering the loss. Lender's exercise of any rights under the Power of Attorney shall not release Borrower from any obligation to Lender or waive any right Lender may have against Borrower.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;8.16.4.<u>General</u>. Borrower shall obtain and keep in force all other insurance required by Lender, Governmental Authorities, this Agreement, or applicable law. Borrower shall deliver evidence satisfactory to Lender of any such other required insurance.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;8.16.5.<u>Payment</u>. The required insurance premiums shall be prepaid by Borrower no less than thirty (30) days in advance of the date when such payments are due to be in compliance with this Agreement. In the event Borrower fails to procure and/or maintain such insurance, Lender may, but is not obligated to, procure the same and Borrower shall pay to Lender during the term hereof, upon receipt of an invoice therefor, the premiums for any insurance obtained by Lender pursuant to Section 8.16 above. If Lender secures such insurance, Lender may, at its sole option and without notice to Borrower, any contractor, or any other party, secure such insurance solely to protect Lender's interests and not the interests of any other party.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;8.16.6.<u>Insurance Policies</u>. All required insurance shall be procured and maintained in financially sound and generally recognized responsible insurance companies. All property policies evidencing the required insurance shall name Lender as first mortgagee, and all liability policies evidencing the required insurance shall name Lender as additional insured. All policies shall provide for payment to Lender of the net proceeds of insurance resulting from any claim for loss or damage thereunder (except in the case of liability insurance, in which case the net proceeds shall be paid directly to the aggrieved party), shall not be cancelable as to the interests of Lender due to the acts of Borrower, and shall provide for at least thirty (30) days' prior written notice of the cancellation or modification (including reduction in coverage) thereof to Lender or in the case of non-payment of premiums, ten (10) day's prior written notice.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;8.16.7.<u>Right of First Refusal</u>. During the term of this Agreement (the "**ROFR Period**"), Borrower shall not, directly or indirectly through an affiliate, enter into any agreement or consummate any transaction relating to the sale of Receivables, or participation interest thereof, with any Person other than Lender (a "**Third-party Transaction**"), except as provided for in this Section 8.18, and in no case more than once per calendar year without Lender's written consent, which may be withheld at Lender's sole discretion.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)If, at any time during the ROFR Period, Borrower receives a bona fide offer for a Third-party Transaction that Borrower desires to accept (each, a "**Third-party Offer**"), Borrower shall immediately following receipt of the Third-party Offer, notify Lender in writing (the "**Offer Notice**") of the identity of all proposed parties to such Third-party Transaction and the material financial and other terms and conditions of such Third-party Offer (the "**Material Terms**"). Each Offer Notice constitutes an offer made by Borrower to enter into an agreement with Lender on the same Material Terms of such Third-party Offer (the "**ROFR Offer**").

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&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)At any time prior to the expiration of the ten (10) day period following Lender's receipt of the Offer Notice (the "**Exercise Period**"), Lender may accept the ROFR Offer by delivery to Borrower of a written notice of acceptance or binding letter of intent containing the Material Terms and any standard and customary conditions applicable to a transaction of this nature, executed by Lender; provided, however, that Lender is not required to accept any non-financial terms or conditions contained in any Material Terms that cannot be fulfilled by Lender as readily as by any other Person.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c)If, by the expiration of the Exercise Period, Lender has not accepted the ROFR Offer, and provided that Borrower has complied with all of the provisions of this Section 8.18, at any time during the sixty (60) day period following the expiration of the Exercise Period, Borrower may consummate the Third-party Transaction with the counterparty identified in the applicable Offer Notice, on the Material Terms that are the same or more favorable to Borrower as the Material Terms set forth in the Offer Notice. If such Third-party Transaction is not consummated within sixty (60) days, the terms and conditions of this Section 8.18 will again apply and Borrower shall not enter into any Third-party Transaction during the ROFR Period without affording Lender the right of first refusal on the terms and conditions of this Section 8.18.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d)For the avoidance of doubt, the terms and conditions of this Section 8.18 apply to each Third-party Offer received by Borrower during the ROFR Period.

**9.** **<u>NEGATIVE COVENANTS</u>**. Borrower covenants and agrees with Lenders that until all obligations have been indefeasibly satisfied in full and the commitments have expired or otherwise have been terminated, Borrower will not do any of the following without the prior written consent of Lender:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;9.1.<u>Payments to and Transactions with Affiliates</u>. Unless otherwise agreed to by Lender, in its sole discretion, in writing: (a) Make any loan, advance, extension of credit or payment to any Affiliate, officer, employee, member, manager, equity interest holder or director of any Borrower or any Affiliate or (b) enter into any other transaction, including, without limitation, the purchase, sale, lease or exchange of property, or the rendering or any service, to or with any Affiliate or any equity interest holder, officer, or employee of the Borrower or any Affiliate except for other transactions with or services rendered to any Affiliate of the Borrower in the ordinary course of business and pursuant to the reasonable requirements of the business of such Affiliate and upon terms found by the board of directors and/or managers of the Borrower to be fair and reasonable and no less favorable to a Borrower than such Borrower would obtain in a comparable arms' length transaction with a Person not affiliated with or employed by the Borrower; provided, however, that Borrowers may in any event pay reasonable compensation to any such employee or officer in the ordinary course of Borrowers' business consistent and commensurate with industry custom and practice for the services provided by such Person. Notwithstanding anything contained herein to the contrary, in no event shall Borrower be restricted from making investments in and loans to any Affiliate so long as Borrower would remain in compliance with the financial covenants contained in Section 8.14 after giving effect thereto.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;9.2.<u>Indebtedness</u>. Borrow any monies or create any Debt except for Permitted Indebtedness.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;9.3.<u>Guaranties</u>. Guarantee or assume or agree to become liable in any way, either directly or indirectly, for any additional indebtedness or liability of others except to endorse checks or drafts in the ordinary course of business.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;9.4.<u>Nature of Business</u>. Engage in any business other than the business in which Borrower currently is engaged or make any material change in the nature of the financings which such Borrower extends, (including without limiting the generality of the foregoing, matters relating to size, type, term, nature and dollar amount), except, in either case, to the extent determined by the board of directors of Borrower to be in the best interest of Borrower; provide that, in no event will Borrower engage in any business that involves unlawful activities or that would result in Lender being unable under applicable law to make or maintain the Loan.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;9.5.<u>Negative Pledge</u>. Assign, discount, pledge, sell, grant a Lien (other than Permitted Liens) in or otherwise dispose of or encumber any Receivables or the Collateral except as contemplated by this Agreement.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;9.6.<u>Ownership</u>. Allow any Change of Control.

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&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;9.7.<u>Amendment to Subordinated Debt</u>. (a) Amend or permit the amendment of any of the documents and instruments evidencing Subordinated Debt, or (b) make any prepayment on account of Subordinated Debt which is not otherwise allowed to be made under the subordination provisions applicable to such Subordinated Debt.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;9.8.<u>Asset Sales</u> . Sell, transfer or otherwise dispose of any property (including the Collateral) other than in the normal course of business.

**10.** **<u>EVENTS OF DEFAULT AND REMEDIES.</u>**

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;10.1.<u>Events of Default</u>. The occurrence of any one or more of the following after any applicable notice and cure period shall constitute an Event of Default under this Agreement:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)Failure by Borrower to pay any monetary amount when due under any Loan Documents and the expiration of ten (10) days after written notice of such failure by Lender to Borrower.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)Failure by Borrower to perform any obligation not involving the payment of money, including the financial covenants set forth in Section 8.14, or to comply with any other term or condition applicable to Borrower under any Loan Documents, and such failure is not cured within thirty (30) days following notice from Lender or knowledge thereof by senior management of Borrower, unless otherwise provided for herein.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c)Any representation or warranty by Borrower in any Loan Documents is materially false, incorrect, or misleading as of the date made.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d)Borrower (i) is unable or admits in writing its inability to pay its monetary obligations as they become due, (ii) makes a general assignment for the benefit of creditors, or (iii) applies for, consents to or acquiesces in the appointment of a trustee, receiver or other custodian for itself or its property or any part thereof, or in the absence of such application, consent or acquiescence, a trustee, receiver or other custodian is appointed for Borrower or the property of Borrower or any part thereof, and such appointment is not discharged within sixty (60) days.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e)Commencement of any case under the Bankruptcy Code, Title 11 of the United States Code or commencement of any other bankruptcy arrangement, reorganization, receivership, custodianship or similar proceeding under any federal, state or foreign law by or against Borrower, and such case is not discharged or dismissed within sixty (60) days.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(f)Any litigation or proceeding is commenced before any Governmental Authority against or affecting Borrower or the property of Borrower or any part thereof and such litigation or proceeding is not defended diligently and in good faith by Borrower.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(g)A final judgment or decree for monetary damages or a monetary fine or penalty (not subject to appeal or as to which the time for appeal has expired) is entered against Borrower by any Governmental Authority, which together with the aggregate amount of all other such judgments, decrees, fines and penalties against Borrower that remain unpaid or that have not been discharged or stayed, shall materially adverse effect the business, operations, assets or condition (financial or otherwise) of Borrower.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(h)Commencement of any action or proceeding which seeks as one of its remedies the dissolution of Borrower.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i)All or any part of the Property of Borrower is attached, levied upon or otherwise seized by legal process in a sum that would affect the ability of the Borrower to perform the payment obligations or other material obligations under this Agreement or any other Loan Documents, and such attachment, levy or seizure is not quashed, stayed or released within ninety (90) days of the date thereof;

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&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(j)A material adverse change in the business, operations, prospects or financial condition of any Borrower shall occur;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(k)The occurrence of any Event of Default, as such term is defined in any other Loan Documents;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(l)Failure of any holders of promissory notes arising from and relating to Borrower (other than Permitted Indebtedness) to subordinate such notes as Subordinated Debt within sixty (60) days of the date such promissory notes;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(m)The Collateral Performance Indicator exceeds [\*\*\*]% at the end of any Calendar Month; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(n)Servicer is not Westlake Portfolio Management, LLC.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;10.2. <u>Remedies</u>. Notwithstanding any provision to the contrary herein or any of the other Loan Documents, during the continuance of any Event of Default under this Agreement or during the continuance of an Event of Default under any of the other Loan Documents:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)Lender's obligation to make further disbursements of the Loan shall abate; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)if the Event of Default shall not be cured within the applicable notice and cure periods, then Lender shall, at its option, have the remedies provided in the Loan Documents breached by Borrower, including, without limitation, the option to declare all outstanding indebtedness to be immediately due and payable without presentment, demand, protest or notice of any kind:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c)Lender's obligation to make further disbursements to Borrower shall terminate;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d)Lender may, at its option, apply any of Borrower's funds in its possession to the outstanding indebtedness under the Note whether or not such indebtedness is then due;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e)Lender may exercise all rights and remedies available to it under any or all of the Loan Documents, security instruments, and applicable law;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(f)Without conducting a sale and without being deemed to have retained the Pledged Assets in full satisfaction of the amounts due and owing hereunder, Lender may retain the Pledged Assets and commence or continue collection of the Receivables. If Lender elects this remedy, Borrower agrees to join with Lender in the filing and prosecution of legal actions deemed appropriate by Lender for purposes of protecting Lender's security interest in the Receivables or pursuing collection or enforcement thereof;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(g)Lender may sell the Pledged Assets at public or private sale in accordance with the Uniform Commercial Code in force in the State of Borrower's principal place of business, on the date of this Agreement. The sale may be held at Lender's offices or elsewhere, for cash, on credit, or for future delivery and at such price or prices and upon such other terms as Lender may deem commercially reasonable. Lender shall not be obligated to make any sale even if notice of sale is given. Lender may adjourn any public or private sale from time to time by announcement at the time and place fixed therefor, and such sale may, without further notice, be made at the time and place to which it was so adjourned. Lender shall have the right to credit any bid it may enter at any sale hereunder against the debt in such order as Lender may elect, in lieu of paying the bid amount in cash at the sale. With respect to each such sale, Borrower agrees: (a) to assemble the Pledged Assets and make them available to Lender; and (b) that the sale will be deemed commercially reasonable if, before the date of the sale, Lender: (i) notifies Borrower of the sale in writing no less than ten (10) business days before such sale; (ii) publishes advertisements once each week for four consecutive weeks in The Wall Street Journal; and (iii) sends notices by facsimile to those institutional investors reasonably selected by Lender whom Lender believes are engaged in the purchase of assets similar to the Pledged Assets. At any sale of the Pledged Assets, Lender shall transfer all liens, rights, title, equities, and interest to the purchaser by recording an assignment of the Pledged Assets in the office of the appropriate recorder. Borrower shall remain liable for any deficiency following any sale. Lender may apply all proceeds received from any sale of, collection from, or other realization upon the collateral against the amounts due and owing under

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the Loan Documents in such order as Lender shall elect. Any surplus proceeds remaining after full payment of amounts owed to Lender shall be paid to Borrower, unless otherwise directed in writing by the Borrower. Lender may file suit to enforce its rights hereunder or under the other Loan Documents. Upon entry of an order by a court having jurisdiction, Lender may conduct a judicial or execution sale of the Pledged Assets in accordance with the terms of such order; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(h)Except as otherwise expressly provided in this Agreement, no remedy provided for by this Agreement shall be exclusive of any other remedy, each and every remedy shall be cumulative and in addition to any other remedy, and no delay or omission to exercise any right or remedy shall impair any such right or remedy or shall be deemed to be a waiver of an Event of Default. All sums expended by Lender pursuant to this Article 10 for such purposes shall be deemed to have been disbursed to and borrowed by Borrower and shall be secured by the Loan Documents and any security instrument.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;10.3.<u>Cure Right</u>. In the event Borrower fails to comply with the financial covenant contain in Section 8.14.1 (a "**TNW Default**") or an Event of Default occurs under Section 10.1(m) (a "**CPI Default**"), Borrower shall have the right to cure such Event of Default on the following terms and conditions (the "**Cure Right**"):

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)In the event the Borrower desires to exercise its Cure Right, the Borrower shall deliver to Lender irrevocable written notice of its intent to cure (a "**Cure Notice**") no later than the date on which financial statements for the applicable month are required to be delivered.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)In the event the Borrower delivers a Cure Notice with respect to a TNW Default, Parent shall issue capital stock for cash consideration in an amount equal to or greater than the amount necessary to cure the TNW Default on or before the date that is thirty (30) days after the date on which the Cure Notice was delivered to Lender (the "**Cure Date**"). Such cash consideration received by Parent shall be included in the calculation of the Borrower's Tangible Net Worth for the purposes of determining compliance with the financial covenant contained in Section 8.14.1.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c)In the event the Borrower delivers a Cure Notice with respect to a CPI Default, as of the Cure Date, the minimum Tangible Net Worth required pursuant to Section 8.14.1 shall be increased by an amount equal to the dollar value of delinquent Receivables causing the Collateral Performance Indicator to exceed [\*\*\*]%.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d)If a Cure Notice has been delivered, then from the end of the month related to such Cure Notice until the Cure Date, the Event of Default for which the Cure Notice was delivered shall not be deemed to exist, and Lender shall not accelerate the Loan, terminate its commitments to make Advances hereunder, impose interest at the Default Interest Rate or exercise any remedy against Borrower or its assets solely as a result of the Event of Default that has been (or is to be) cured by the Cure Right pursuant to the terms hereof.

**11.** **PARTICIPATIONS**.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;11.1.<u>Permitted Participants; Effect</u>. Any Lender may, in the ordinary course of its business and in accordance with applicable law in its sole and absolute discretion, and without cost or additional liability to Borrower, at any time sell to one or more Affiliates or other entities ("**Participant**" or "**Participants**") participating interests in the Obligations owing to such Lender, any Note held by such Lender, any commitment of such Lender or any other interest of such Lender under the Loan Documents. In the event of any such sale by a Lender of participating interests to a Participant subject to the terms hereof, (a) such Lender's obligations under the Loan Documents shall remain unchanged, (b) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations, (c) such Lender shall remain the owner of its Commitment and its portion of the Obligations and the holder of any Note issued to it in evidence thereof for all purposes under the Loan Documents, (d) all amounts payable by Borrower under this Agreement shall be determined as if such Lender had not sold such participating interests and Borrower shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under the Loan Documents.

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&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;11.2.<u>Voting Rights</u>. Any agreement or instrument pursuant to which a Lender sells such a participation shall provide that such Lender shall retain the sole right to enforce this Agreement and to approve any amendment, modification or waiver of any provision of this Agreement; provided that such agreement or instrument may provide that such Lender will not, without the consent of the Participant, agree to any amendment, waiver or other modification that would reduce the principal of, or interest on, the Loans or any fees or other amounts payable hereunder; postpone any date fixed for any payment of principal of, or interest on, the Loans or any fees or other amounts payable hereunder; or increase the Commitment or extend the maturity date of any Loans, in each case to the extent subject to such participation, or release all or substantially all of the Collateral.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;11.3.<u>Taxes; Indemnification</u>. The Lender that sells a participation shall (i) withhold or deduct from each payment to the holder of such participation the amount of any tax required under applicable laws to be withheld or deducted from such payment and not withheld or deducted therefrom by the Borrower, (ii) pay the tax so withheld or deducted by it to the appropriate taxing authority in accordance with applicable law and (iii) indemnify the Borrower for any losses, cost and expenses that they may incur as a result of any failure to so withhold or deduct and pay any such tax.

**12.** **MISCELLANEOUS**.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;12.1.<u>Assignment</u>

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)Borrower shall not assign this Agreement or any interest it may have in the monies due hereunder, without the prior written consent of Lender, which consent may be granted or withheld in Lender's sole and absolute discretion.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)Lender may at any time assign this Agreement, the Note and other Loan Documents to any Eligible Assignee, and upon such assignment Lender shall have no further obligation or liability of any nature in connection herewith. Upon such assignment, the provisions of this Agreement shall continue to apply to the Loan and such Eligible Assignee shall be substituted in the, place and stead of Lender hereunder with all rights, obligations and remedies of Lender herein provided, including without limitation the right to so further assign this Agreement, the Note and other Loan Documents.

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&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;12.2.<u>Notices</u>. All notices, requests, demands and consents to be made hereunder to the parties hereto shall be in writing and shall be delivered by hand or sent by registered mail or certified mail, postage prepaid, return receipt requested, through the United States Postal Service to the addresses shown below or such other address which the parties may provide to one another in accordance herewith. Such notices, requests, demands and consents, if sent by mail, shall be deemed given two (2) Business Days after deposit in the United States mail, and if delivered by hand, shall be deemed given when delivered.

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| | |
|:---|:---|
| If to Lender: | WESTLAKE CAPITAL FINANCE, LLC |
|  | 4751 Wilshire Boulevard, Suite 100 |
|  | Los Angeles, California 90010 |
|  | Attn: Todd Laruffa, Vice President |
| If to Borrower: | NICHOLAS FINANCIAL, INC. |
|  | 2454 McMullen Booth Rd, Bldg C |
|  | Clearwater, Florida 33759 |
|  | Attn:  |
| with a copy to: | Hill Ward Henderson |
|  | 101 E Kennedy Blvd, Suite 3700 |
|  | Tampa, FL 33602 |
|  | Attn: Zachary Watt |

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&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;12.3.<u>Inconsistencies With the Loan Documents</u>. In the event of any inconsistencies between the terms of this Agreement and any terms of any of the Loan Documents, the terms of this Agreement shall govern and prevail.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;12.4.<u>No Waiver</u>. No disbursement of proceeds of the Loan shall constitute a waiver of any conditions to Lender's obligation to make further disbursements nor, in the event Borrower is unable to satisfy any such conditions, shall any such waiver have the effect of precluding Lender from thereafter declaring such inability to constitute a default under this Agreement.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;12.5.<u>Incorporation of Preamble; Recitals and Exhibits</u>. The preamble, recitals and exhibits hereto are hereby incorporated into this Agreement.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;12.6.<u>Payment of Expenses</u>. Borrower shall pay all taxes and assessments and all expenses, charges, costs and fees provided for in this Agreement or relating to the Loan, including without limitation any actual fees incurred in connection with the Loan Documents, due diligence, fees of any consultants, Lender's processing and closing fees, reasonable fees and expenses of Lender's counsel, printing, photostatting and duplicating expenses, air freight charges, escrow fees, and fees for any appraisal, appraisal review, title search, title insurance, recording fees, and market or feasibility study required by Lender.

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&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;12.7.<u>Indemnification</u>. To the fullest extent permitted by law, Borrower agrees to protect, indemnify, defend and hold harmless Lender, and its directors, officers, agents and employees, from and against any and all liability, expense or damage of any kind or nature actually sustained or incurred and from any suits, claims or demands, including reasonable legal fees and expenses on account of any matter or thing or action or failure to act by Borrower, whether in suit or not, arising out of this Agreement or in connection herewith, other than such claims and liabilities as arise from the gross negligence or intentional misconduct of Lender. Upon receiving knowledge of any suit, claim or demand asserted by a third party that Lender believes is covered by this indemnity, Lender shall give Borrower notice of the matter and an opportunity to defend it, at Borrower's sole cost and expense, with legal counsel reasonably satisfactory to Lender. Lender may also require Borrower to so defend the matter. The obligations on the part of Borrower under this Section 12.7 shall survive the closing of the Loan and the repayment thereof.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;12.8.<u>Further Assurances</u>. The Borrower will promptly cure, or cause to be cured, defects in the creation and issuance of the Note and the execution and delivery of the Loan Documents (including, without limitation, this Agreement), resulting from any acts or failure to act by the Borrower or any employee or officer of the Borrower. The Borrower at its expense will promptly execute and deliver to the Lender, or cause to be executed and delivered to the Lender, all such other and further documents, agreements, and instruments in compliance with or accomplishment of the covenants and agreements of the Borrower in the Loan Documents, including this Agreement, or to correct any omissions in the Loan Documents, all as may be reasonably necessary or reasonably appropriate in connection therewith and as may be reasonably requested necessary to carry out the purposes of this Agreement.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;12.9.<u>Titles and Headings</u>. The titles and headings of sections of this Agreement are intended for convenience only and shall not in any way affect the meaning or construction of any provision of this Agreement.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;12.10.<u>Brokers</u>. Borrower and Lender represent to each other that none of them knows of any brokerage commissions or finders' fee due or claimed with respect to the transaction contemplated hereby, or, in the alternative, that Borrower has disclosed to Lender in writing any brokerage commissions or finders' fee due or claims with respect to the transaction contemplated hereby, and that Borrower shall be solely responsible for such brokerage commissions or finders' fee. Borrower and Lender shall indemnify and hold harmless the other party from and against any and all loss, damage, liability and expense, including costs and reasonable attorney fees, which such other party may incur or sustain by reason of or in connection with any misrepresentation by the indemnifying party with respect to the foregoing.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;12.11.<u>Change, Discharge, Termination or Waiver</u>. No provision of this Agreement may be changed, discharged, terminated or waived except in writing signed by the party against whom enforcement of the chance, discharge, termination or waiver is sought. No failure on the part of Lender to exercise and no delay by Lender in exercising any right or remedy under the Loan Documents or under the law shall operate as a waiver thereof.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;12.12.<u>Choice of Law; Venue</u>. This Agreement and the transaction contemplated hereunder shall be governed by and construed in accordance with the laws of the State of California, without giving effect to conflict of laws principles. Borrower submits to the personal jurisdiction and venue of the state courts of Los Angeles County, California, and agrees that any and all claims or disputes pertaining to this Agreement or any other Loan Document, or to any matter arising out of or related to this Agreement or any other Loan Document, initiated by Borrower against Lender, shall be brought in the state courts of Los Angeles County, California. Further, Borrower expressly consents to the jurisdiction and venue of the state courts of Los Angeles County, California, as to any legal or equitable action that may be brought in such court by Lender, and waives any objection based upon lack of personal jurisdiction, improper venue, or forum non-convenient with respect to any such action. Borrower acknowledges and agrees that Lender reserves the right to initiate and prosecute any action against Borrower in any court of competent jurisdiction, and Borrower consents to such forum as Lender may elect. Further, Borrower acknowledges and agrees that any preliminary or injunctive relief, claims or actions initiated by Lender due to Collateral location, including but not limited to, repossession, replevin, sequestration, or foreclosure, shall not preclude Lender from initiating any other claims or proceedings in any other venue, and Borrower expressly agrees that any and all claims or defenses that it may have with respect to Collateral location shall be exclusively subject to the venue elected by Lender. To the extent that Borrower initiates any claims or defenses contrary to the foregoing, Borrower expressly agrees to take all actions necessary to transfer venue in accordance with this section and to reimburse Lender for all costs, fees and reasonable attorneys' fees in enforcing this section.

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&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;12.13.<u>Counterparts</u>. This Agreement may be executed in any number of counterparts each of which shall be deemed an original, but all such counterparts together shall constitute but one agreement.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;12.14.<u>Time Is of the Essence</u>. Time is of the essence of this Agreement.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;12.15.<u>Attorneys' Fees</u>. In the event of any dispute arising out of this Agreement or any action or proceeding to enforce the provisions of this Agreement, the prevailing party in such dispute, action or proceeding shall be entitled to recover from the losing party all costs and expenses incurred by the prevailing party in connection therewith, including without limitation court costs and reasonable attorneys' fees and expenses. The amount of any moneys so expended or obligations so incurred by Lender, together with interest thereon at the Default Interest Rate, shall be repaid to Lender forthwith upon written demand therefor.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;12.16.<u>Joint and Several Liability</u>. If Borrower consists of more than one (1) person or entity, each shall be jointly and severally liable to perform the obligations of Borrower.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;12.17.<u>Dispute Resolution</u>. This section contains a jury waiver, arbitration clause, and a class action waiver. READ IT CAREFULLY.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;12.17.1.Jury Trial Waiver

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1.1.1.As permitted by applicable law, you and we each waive our respective rights to a trial before a jury in connection with any Dispute (as "**Dispute**" is hereinafter defined), and Disputes shall be resolved by a judge sitting without a jury. If a court determines that this provision is not enforceable for any reason and at any time prior to trial of the Dispute, but not later than 30 days after entry of the order determining this provision is unenforceable, any party shall be entitled to move the court for an order compelling judicial reference and staying or dismissing such litigation pending resolution ("**Reference Order**").

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;12.17.2.<u>Judicial Reference</u>. If a claim, dispute, or controversy arises between us with respect to this Agreement, related agreements, or any other agreement or business relationship between any of us whether or not related to the subject matter of this Agreement (all of the foregoing, a "**Dispute**"), and only if a jury trial waiver is not permitted by applicable law or ruling by a court, any of us may require that the Dispute be resolved by judicial reference pursuant to California Code of Civil Procedure Sections 638 et seq. By agreeing to resolve a Dispute by judicial reference, you are giving up any right you may have to a jury trial, as well as other rights you would have in court that are not available or are more limited in arbitration, such as the rights to discovery and to appeal.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)The referee shall be a retired California state court judge licensed to practice law in the State of California with at least ten (10) years' experience practicing commercial law. The Parties shall not seek to appoint a referee that may be disqualified pursuant to California Code of Civil Procedure Section 641 or 641.2 without the prior written consent of all Parties. If the Parties are unable to agree upon a referee within ten (10) calendar days after one Party serves a written notice of intent for judicial reference upon the other Party or Parties, then the referee will be selected by the court in accordance with California Code of Civil Procedure Section 640(b). The referee shall render a written statement of decision and shall conduct the proceedings in accordance with the California Code of Civil Procedure, the Rules of Court, and California Evidence Code, except as otherwise specifically agreed by the parties and approved by the referee. The referee's statement of decision shall set forth findings of fact and conclusions of law. The decision of the referee shall be entered as a judgment in the court in accordance with the provisions of California Code of Civil Procedure Sections 644 and 645. The decision of the referee shall be appealable to the same extent and in the same manner that such decision would be appealable if rendered by a judge of the superior court.

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&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)Disputes include matters relating to a deposit account, application for or denial of credit, enforcement of any of the obligations we have to each other, compliance with applicable laws and/or regulations, performance or services provided under any agreement by any party, including but not limited to the validity, enforceability, meaning, or scope of this arbitration provision, and including a dispute based on or arising from an alleged tort or matters involving either of our employees, agents, affiliates, or assigns of a party. However, Disputes do not include the validity, enforceability, meaning, or scope of this arbitration provision and such matters may be determined only by a court. If a third party is a party to a Dispute, we each will consent to including the third party in the judicial reference proceeding for resolving the Dispute with the third party. Venue for the arbitration proceeding shall be at a location determined by mutual agreement of the parties or, if no agreement, in the city and state where Lender is headquartered.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c)After entry of a Reference Order, the non-moving party shall commence the proceedings as noted herein. The moving party shall, at its discretion, also be entitled to commence such proceedings, but is under no obligation to do so, and the moving party shall not in any way be adversely prejudiced by electing not to commence arbitration. The referee will (i) hear and rule on appropriate dispositive motions for judgment on the pleadings, for failure to state a claim, or for full or partial summary judgment, (ii) will render a decision and any award applying applicable law, (iii) give effect to any limitations period in determining any Dispute or defense, (iv) enforce the doctrines of compulsory counterclaim, res judicata, and collateral estoppel, if applicable, (v) with regard to motions and the arbitration hearing, apply rules of evidence governing civil cases, and (vi) apply the law of the state specified in the agreement giving rise to the Dispute. Filing of a petition for judicial reference shall not prevent any party from (i) seeking and obtaining from a court of competent jurisdiction (notwithstanding ongoing arbitration) provisional or ancillary remedies including but not limited to injunctive relief, property preservation orders, foreclosure, eviction, attachment, replevin, garnishment, and/or the appointment of a receiver, (ii) pursuing non-judicial foreclosure, or (iii) availing itself of any self-help remedies such as setoff and repossession. The exercise of such rights shall not constitute a waiver of the right to submit any Dispute to judicial reference.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d)Judgment upon a referee's award may be entered in any court having jurisdiction except that, if the arbitration award exceeds $1,000,000, any party shall be entitled to a de novo appeal of the award before a panel of three arbitrators. To allow for such appeal, if the award (including Administrator, arbitrator, and attorney's fees and costs) exceeds $1,000,000, the referee will issue a written, reasoned decision supporting the award, including a statement of authority and its application to the Dispute. A request for de novo appeal must be filed with the referee within 30 days following the date of the award; if such a request is not made within that time period, the referee's decision shall become final and binding. On appeal, the arbitrators shall review the award de novo, meaning that they shall reach their own findings of fact and conclusions of law rather than deferring in any manner to the original arbitrator. Appeal of an award shall be pursuant to the JAMS arbitration appellate rules shall apply.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e)Judicial reference under this provision concerns a transaction involving interstate commerce and shall be governed by the California Code of Civil Procedure, the Rules of Court, and California Evidence Code, including without limitation the provisions of California Code of Civil Procedure Sections 640, 644 and 645. The provisions of this provision shall survive any termination, amendment, or expiration of this Agreement.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;12.17.3.<u>Class Action Waiver</u>. EACH PARTY WAIVES THE RIGHT TO LITIGATE IN COURT OR ARBITRATE ANY CLAIM OR DISPUTE AS A CLASS ACTION, EITHER AS A MEMBER OF A CLASS OR AS A REPRESENTATIVE, OR TO ACT AS A PRIVATE ATTORNEY GENERAL.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;12.17.4.<u>Reliance Waiver</u>. Each party (i) certifies that no one has represented to such party that the other party would not seek to enforce jury and class action waivers in the event of suit, and (ii) acknowledges that it and the other party have been induced to enter into this Agreement by, among other things, the mutual waivers, agreements, and certifications in this section.

**13.** **<u>RELEASE OF COLLATERAL</u>.** Except if Lender otherwise consents in writing, the Collateral, or any part thereof shall, not be released until all indebtedness and obligations of Borrower under the Loan Documents have been paid and performed in full.

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**14.** **<u>EXHIBITS</u>.** The following exhibits to this Agreement are fully incorporated herein as if set forth at length:

**Exhibit "A"** Compliance Certificate

**Exhibit "B"** Form of Promissory Note

**Exhibit "C"** Form of Borrowing Base Certificate

**Exhibit "D"** Form of Power of Attorney

[Signatures continued on the following pages.]

------

IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the day and year first above written.

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| | |
|:---|:---|
| **BORROWER**: | **BORROWER**: |
| NICHOLAS FINANCIAL, INC. | NICHOLAS FINANCIAL, INC. |
| a Florida corporation | a Florida corporation |
| By: | /s/ Michael Rost |
| Name: | Michael Rost |
| Title: | CEO |

---

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| | |
|:---|:---|
| NICHOLAS DATA SERVICES, INC.: | NICHOLAS DATA SERVICES, INC.: |
| a Florida corporation | a Florida corporation |
| By: | /s/ Michael Rost |
| Name: | Michael Rost |
| Title: | CEO |

---

---

| | |
|:---|:---|
| **LENDER**: | **LENDER**: |
| WESTLAKE CAPITAL FINANCE, LLC, | WESTLAKE CAPITAL FINANCE, LLC, |
| a California limited liability company | a California limited liability company |
| By: | /s/ Todd Laruffa |
| Name: | Todd Laruffa |
| Title: | Vice President |

---

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**EXHIBIT "A"**

**Form of Compliance Certificate**

WESTLAKE CAPITAL FINANCE, LLC

4751 Wilshire Blvd, Suite 100

Los Angeles, California 90010

Attn: Lowell Sandell

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| | |
|:---|:---|
| Re: | That certain Loan and Security Agreement dated as of January 19, 2023, as amended, modified, supplemented, restated, or renewed, from time to time, referred to in the singular as the "**Agreement**"), between [BORROWER #1] and [BORROWER #2] (collectively, "**Borrower**"), and WESTLAKE CAPITAL FINANCE, LLC, ("**Lender**"). |

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Capitalized terms used in this Certificate (including schedules and other attachments hereto, this "**Certificate**") without definition have the meanings specified in the Agreement.

The undersigned hereby certifies to Lender that the information furnished in the attached financial statements and schedules, including without limitation each of the calculations contained therein, are true, correct and complete in all material respects as of the last day of the relevant fiscal periods (such statements shall be referred to herein as the "**Financial Statements**", and the specific time period covered thereby shall be referred to herein as the "**reporting period**") and for such reporting periods.

The undersigned hereby further certifies to the Lender that:

**1.** **<u>Review of Condition</u>**. The undersigned has reviewed the terms of the Agreement, including, but not limited to, the representations and warranties of Borrower set forth in the Agreement and the Loan Documents, and has made, or caused to be made under his or her supervision, a review in reasonable detail of the transactions and condition of the undersigned through the reporting periods.

**2.** **<u>Representations and Warranties</u>**. The representations and warranties of each of the undersigned contained in the Loan Documents, including those contained in the Agreement, are true and accurate in all material respects as of the date hereof and were true and accurate in all material respects at all times during the reporting period, except as expressly noted on **Schedule "A"** hereto.

**3.** **<u>Covenants</u>**. During the reporting period, each of the undersigned observed and performed all of the respective covenants and other agreements under the Agreement and the Loan Documents, and satisfied each of the conditions contained therein to be observed, performed or satisfied by each of the undersigned, except as expressly noted on **Schedule "A"** hereto.

**4.** **<u>No Event of Default</u>**. To the undersigned's actual knowledge, no Event of Default exists as of the date hereof or existed at any time during the reporting period, except as expressly noted on **Schedule "A"** hereto.

**5.** **<u>No Material Adverse Change</u>**. There has been no material adverse change in the financial condition of the undersigned, or any other person or entity shown on the Financial Statements submitted to Lender, which change Lender may reasonably determine to have a material adverse effect on (a) the business, operations or condition of the **Receivables**, or (b) the ability of the undersigned to pay or perform said party's obligations in accordance with the terms of the Loan Documents.

Exhibit "A" - Page 1 Loan Agreement

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**6.** **<u>Compliance with Financial Covenants</u>**. As shown in the attached compliance package prepared in conjunction with the Agreement, each of the undersigned is in full compliance with the financial covenants set forth in Section 8.14 of the Agreement.

[The balance of this page is intentionally left blank.]

IN WITNESS WHEREOF, this Certificate is executed by the undersigned this ____ day of __________.

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| |
|:---|
| **BORROWER:** |
| NICHOLAS FINANCIAL INC., |
| a Florida corporation |
| By: |
| Name:  |
| Title: |

---

---

| |
|:---|
| NICHOLAS DATA SERVICES, INC., |
| a Florida corporation |
| By: |
| Name:  |
| Title: |

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Exhibit "A" - Page 2 Loan Agreement

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**EXHIBIT "B"**

**<u>Promissory Note</u>**

**[See Attached]** 

Exhibit "B" - Page 1 Loan Agreement

------

**EXHIBIT "C"**

**<u>Form of Borrowing Base Certificate</u>**

**[See Attached]** 

Exhibit "C" - Page 1 Loan Agreement

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**EXHIBIT "D"**

**<u>Form of Power of Attorney</u>**

**[See Attached]** 

Exhibit "D" - Page 1 Loan Agreement

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**SCHEDULE 1**

**Loan-to-Value** 

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| | |
|:---|:---|
| **LTV %** | **Advance Rate %** |
| < [\*\*\*]% | 85.00% |
| [\*\*\*]% - [\*\*\*]% | [\*\*\*] |
| [\*\*\*]% - [\*\*\*]% | [\*\*\*] |
| [\*\*\*]% - [\*\*\*]% | [\*\*\*] |
| [\*\*\*]% - [\*\*\*]% | [\*\*\*] |
| > [\*\*\*]% | [\*\*\*] |

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SCHEDULE 1-Page 1 Loan Agreement

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**SCHEDULE 2**

**Collateral Performance Indicator**

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| | |
|:---|:---|
| &nbsp;&nbsp;Collateral Performance Indicator | &nbsp;&nbsp;Advance Rate |
| &nbsp;&nbsp;Less than or equal to [\*\*\*]% | &nbsp;&nbsp;85% |
| &nbsp;&nbsp;Greater than [\*\*\*]% but less than or equal to [\*\*\*]% | &nbsp;&nbsp;[\*\*\*]% |
| &nbsp;&nbsp;Greater than [\*\*\*]% but less than or equal to [\*\*\*]% | &nbsp;&nbsp;[\*\*\*]% |
| &nbsp;&nbsp;Greater than [\*\*\*]% but less than or equal to [\*\*\*]% | &nbsp;&nbsp;[\*\*\*]% |
| &nbsp;&nbsp;Greater than [\*\*\*]% but less than or equal to [\*\*\*]% | &nbsp;&nbsp;[\*\*\*]% |
| &nbsp;&nbsp;Greater than [\*\*\*]% but less than or equal to [\*\*\*]% | &nbsp;&nbsp;[\*\*\*]% |
| &nbsp;&nbsp;Greater than [\*\*\*]% but less than or equal to [\*\*\*]% | &nbsp;&nbsp;[\*\*\*]% |
| &nbsp;&nbsp;Greater than [\*\*\*]% but less than or equal to [\*\*\*]% | &nbsp;&nbsp;[\*\*\*]% |
| &nbsp;&nbsp;Greater than [\*\*\*]% but less than or equal to [\*\*\*]% | &nbsp;&nbsp;[\*\*\*]% |
| &nbsp;&nbsp;Greater than [\*\*\*]% but less than or equal to [\*\*\*]% | &nbsp;&nbsp;[\*\*\*]% |
| &nbsp;&nbsp;Greater than [\*\*\*]% but less than or equal to [\*\*\*]% | &nbsp;&nbsp;70% |
| &nbsp;&nbsp;Greater than [\*\*\*]%  | &nbsp;&nbsp;Event of Default |

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SCHEDULE 2-Page 1 Loan Agreement

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**SCHEDULE 3**

**[Reserved]**

SCHEDULE 3-Page 1 Loan Agreement

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**SCHEDULE 4**

**Eligible Receivables**

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)Receivables for which a payment is not more than fifty-nine (59) days past due on a contractual basis;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)Receivables with both original and remaining term of not more than (72) months;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c)(a) Receivables with an original principal balance not exceeding Thirty-Five Thousand Dollars ($35,000);

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d)Receivables that have not been (i) rewritten or (ii) amended to restructure an otherwise delinquent or problem account.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e)The (i) account results from the performance of services by the Borrower in the ordinary course of its business; (ii) account represents a genuine obligation of the account debtor for services performed for and accepted by the account debtor; (iii) account is not subject to a right of rescission, offset, defense or counterclaim; and (iv) account debtor has not notified Borrower that it is claiming any defense to payment of the account, whether well-founded or otherwise;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(f)Receivables for which the purchase price has not been funded to the applicable dealer;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(g)The account receivables are not subject to any adverse circumstances that would compromise the quality of the account receivable as an investment acceptable to Lender, including, but not limited to the account debtor (i) filed, or had filed against it, any request or petition for liquidation, reorganization, arrangement, adjustment of debts, adjudication as bankrupt, winding-up, or voluntary or involuntary case under federal bankruptcy laws, (ii) admitted in writing or orally its inability to pay its debts as they become due, or become generally unable to pay its debts as they become due, (iii) made a total loss insurance claim with respect to the related receivable, or (iv) became insolvent;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i)Receivables not secured by a branded, salvage, rebuilt, wrecked, flood-damaged, Canadian import, gray market, commercial, government, or an inoperable vehicle;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(j)(Receivables that do not cause the unadjusted weighted average loan to value of Eligible Receivables, as of the time of origination, to exceed the amounts permitted in Schedule 1, where loan to value is calculated as the percentage equivalent of a fraction the numerator of which is the outstanding amount financed of such Receivable and the denominator of which is the book value of the related Receivable and such book value is the wholesale value set forth by Black Book, or other reasonable source if unavailable;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(k)Receivables for which Lender (or a custodian under a custodian agreement) has not received a valid Lien noting Borrower's security interest thereon and provided a copy of such Lien and the related Contract to Lender, where not more than ninety (90) days after the origination of the Receivable have passed;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(l)Receivables for which Borrower has not (i) received a valid title with the Lien of Borrower noted thereon and (ii) failed to provide such Lien to Lender within 15days after receipt of the Lien;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(m)Receivables due from an officer, director, investor, employee, subsidiary or affiliate of Borrower;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(n)Receivables due from an obligor who is not the obligor of any other ineligible Receivable;

SCHEDULE 4-Page 1 Loan Agreement

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&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(o)Receivables that have not been extended more than four (4) times with respect to any compromise, extension, rebate, adjustment, amendment or modification;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(p)Receivable balances that are not unearned, including, but not limited to, unearned finance charges, discount and reserves;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(q)Receivables that have not been repossessed voluntarily or involuntarily or are out for repossession;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(r)Receivables that are not subject to actual of threatened arbitration or ligation;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(s)Receivables which at the time of origination, the related obligor provided as its most recent billing address an address located in a state or one of the territories of the United States;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(t)Receivables where the related obligor is domiciled in the United States or one of its territories;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(u)Receivables not serviced, collected or enforced by a Person other than Borrower or Servicer without prior written consent of Lender; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(v)Receivables which, in Lender's sole but reasonable discretion, constitute acceptable collateral.

SCHEDULE 4-Page 2 Loan Agreement

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**SCHEDULE 5**

**[Reserved]**

SCHEDULE 5-Page 1 Loan Agreement

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**SCHEDULE 6**

**Permitted Liens**

17838083v3

SCHEDULE 6-Page 1 Loan Agreement

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## Ex-31

**Exhibit 31.1**

**CERTIFICATION PURSUANT TO RULE 13a-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002**

I, Mike Rost, certify that:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1.I have reviewed this quarterly report on Form 10-Q of Nicholas Financial, Inc.;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;a)Designed such disclosure controls and procedures, or caused such controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;c)Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;d)Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5.The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;a)all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;b)any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

---

| | |
|:---|:---|
| Date: February 14, 2023 | /s/ Mike Rost |
|  | Mike Rost |
|  | Chief Executive Officer |
|  | (Principal Executive Officer) |

---

------

## Ex-31

**Exhibit 31.2**

**CERTIFICATION PURSUANT TO RULE 13a-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002**

I, Irina Nashtatik, certify that:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1.I have reviewed this quarterly report on Form 10-Q of Nicholas Financial, Inc.;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;a)Designed such disclosure controls and procedures, or caused such controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;c)Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;d)Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5.The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;a)all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;b)any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

---

| | |
|:---|:---|
| Date: February 14, 2023 | /s/ Irina Nashtatik |
|  | Irina Nashtatik |
|  | Chief Financial Officer |
|  | (Principal Financial Officer) |

---

------

## Ex-32

**Exhibit 32.1**

**CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER**

Pursuant to 18 U.S.C. § 1350

Solely for the purpose of complying with 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, I, the undersigned President and Chief Executive Officer of Nicholas Financial, Inc. (the "Company"), hereby certify that the Quarterly Report on Form 10-Q of the Company for the period ended December 31, 2022 (the "Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

---

| |
|:---|
| /s/ Mike Rost |
| Mike Rost |
| Chief Executive Officer |
| (Principal Executive Officer) |

---

Dated: February 14, 2023

------

## Ex-32

**Exhibit 32.2**

**CERTIFICATION OF THE CHIEF FINANCIAL OFFICER**

Pursuant to 18 U.S.C. § 1350

Solely for the purpose of complying with 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, I, the undersigned Chief Financial Officer of Nicholas Financial, Inc. (the "Company"), hereby certify that the Quarterly Report on Form 10-Q of the Company for the period ended December 31, 2022 (the "Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

---

| |
|:---|
| /s/ Irina Nashtatik |
| Irina Nashtatik |
| Chief Financial Officer |
| (Principal Financial Officer) |

---

Dated: February 14, 2023

------