NICK Nicholas Financial Inc Bc

Item 1.01 Entry into a Material Definitive Agreement.

As part of the restructuring plan disclosed in response to Item 8.01 of this Current Report on Form 8-K, on November 3, 2022, Nicholas Financial, Inc., a Florida corporation (“Nicholas”) and indirect wholly-owned subsidiary of Nicholas Financial, Inc., a British Columbia company and the registrant (the “Company”), entered into a loan servicing agreement (the “Servicing Agreement”) with Westlake Portfolio Management, LLC, a California limited liability company (“Westlake”).

Pursuant to the Servicing Agreement, on or around the “Closing Date” (expected to occur prior to early December 2022), Westlake will begin servicing all receivables held by Nicholas under its automobile finance installment 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.” Nicholas expects to add additional receivables to the receivables pool covered under the Servicing Agreement from time to time in the future. All receivables remain vested in Nicholas.

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, Nicholas 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, Nicholas 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 expects to classify such fees as administrative costs on its financial statements. The disclosure on administrative costs included in Item 2.05 of this Current Report on Form 8-K, which relates solely to the initial receivables, is incorporated herein by reference. Any additional receivables will also be subject to such servicing fees and presented as administrative costs on the Company’s financial statements. Collections of amounts made after accounts have been charged off are split between Nicholas and Westlake. Nicholas 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 Nicholas’ prior written consent. If certain events specified in the Servicing Agreement occur (“Servicer Termination Events”), Nicholas is entitled to terminate Westlake’s rights and obligations and appoint a successor servicer under the agreement.

The Servicing Agreement will become effective after Nicholas has transferred the relevant receivables files to Westlake and expires upon the earliest to occur of (i) the date on which Nicholas 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 Nicholas 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.