10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended March 31, 2007

or

o 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: 001-12117

First Acceptance Corporation

(Exact name of registrant as specified in its charter)

Delaware	75-1328153
(State or other jurisdiction	(I.R.S. Employer
of incorporation or organization)	Identification No.)
3322 West End Ave, Suite 1000
Nashville, Tennessee	37203
(Address of principal executive offices)	(Zip Code)

(615) 844-2800
(Registrant’s telephone number, including area code)

3813 Green Hills Village Drive
Nashville, Tennessee 37215
(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes x             No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer ¨                      Accelerated filer ý                      Non-accelerated filer ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o             No x

As of May 10, 2007, there were outstanding 47,602,524 shares of the registrant’s common stock, par value $0.01 per share.

FIRST ACCEPTANCE CORPORATION
FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 2007

INDEX

 Ex-10.1 Second Amendment to the First Acceptance Corporation 2002 Long Term Incentive Plan

 Ex-10.2 Form of Restricted Stock Award Agreement of Outside Directors

 Ex-10.3 Form of Indemnification Agreement between the Company and each of the Company's directors and executive officers

 Ex-31.1 Section 302 Certification of the CEO

 Ex-31.2 Section 302 Certification of the CFO

 Ex-32.1 Section 906 Certification of the CEO

 Ex-32.2 Section 906 Certification of the CFO

i

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

FIRST ACCEPTANCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)

	March 31, 2007
	(Unaudited)			June 30, 2006
ASSETS
Fixed maturities, available for sale at fair value (amortized cost $161,830 and $131,291, respectively)	$	162,084		$	127,828
Cash and cash equivalents		29,522			31,534
Premiums and fees receivable		83,676			64,074
Reinsurance recoverables		688			1,344
Receivable for securities		1,025			999
Deferred tax asset		44,405			48,068
Other assets		7,105			7,796
Property and equipment, net		3,957			3,376
Foreclosed real estate held for sale		234			87
Deferred acquisition costs		6,052			5,330
Goodwill		138,082			137,045
Identifiable intangible assets		6,514			6,825
TOTAL ASSETS	$	483,344		$	434,306
LIABILITIES AND STOCKHOLDERS’ EQUITY
Loss and loss adjustment expense reserves	$	77,019		$	62,822
Unearned premiums and fees		102,665			78,331
Notes payable and capitalized lease obligations		24,931			24,026
Payable for securities		—			4,914
Other liabilities		12,937			10,790
Total liabilities	$	217,552		$	180,883
Stockholders’ equity:
Preferred stock, $.01 par value, 10,000 shares authorized		—			—
Common stock, $.01 par value, 75,000 shares authorized; 47,603 and 47,535 shares issued and outstanding, respectively		476			475
Additional paid-in capital		460,528			459,049
Accumulated other comprehensive income (loss)		165			(3,463	)
Accumulated deficit		(195,377	)		(202,638	)
Total stockholders’ equity	$	265,792		$	253,423
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	483,344		$	434,306

See notes to consolidated financial statements.

1

FIRST ACCEPTANCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
(in thousands, except per share data)

	Three Months Ended						Nine Months Ended
	March 31,						March 31,
	2007			2006			2007			2006
Revenues:
Premiums earned	$	79,282		$	55,147		$	219,126		$	142,717
Fee income		10,412			7,311			29,179			20,340
Transaction service fee		—			3,100			850			3,100
Gains on sales of foreclosed real estate		—			2,817			—			3,638
Investment income		2,292			1,646			6,336			3,961
(Losses) gains on sales of investments		(3	)		47			(85	)		51
	$	91,983		$	70,068		$	255,406		$	173,807
Costs and expenses:
Losses and loss adjustment expenses	$	60,202		$	38,374		$	167,508		$	97,303
Insurance operating expenses		25,244			21,046			71,082			52,774
Other operating expenses		560			742			2,186			1,964
Stock-based compensation		295			72			752			418
Depreciation and amortization		404			346			1,192			779
Interest expense		445			457			1,275			457
	$	87,150		$	61,037		$	243,995		$	153,695
Income before income taxes	$	4,833		$	9,031		$	11,411		$	20,112
Provision for income taxes		1,767			3,167			4,150			6,735
Net income	$	3,066		$	5,864		$	7,261		$	13,377
Net income per share:
Basic	$	0.06		$	0.12		$	0.15		$	0.28
Diluted	$	0.06		$	0.12		$	0.15		$	0.27
Number of shares used to calculate net income per share:
Basic		47,603			47,510			47,578			47,474
Diluted		49,691			49,570			49,666			49,541
Reconciliation of net income to comprehensive income:
Net income	$	3,066		$	5,864		$	7,261		$	13,377
Net unrealized appreciation (depreciation) on investments		568			(1,652	)		3,628			(2,945	)
Comprehensive income	$	3,634		$	4,212		$	10,889		$	10,432

See notes to consolidated financial statements.

2

FIRST ACCEPTANCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(in thousands)

	Nine Months Ended
	March 31,
	2007			2006
Cash flows from operating activities:
Net income	$	7,261		$	13,377
Adjustments to reconcile net income to cash from operating activities:
Depreciation and amortization		1,192			779
Stock-based compensation		752			418
Amortization of premium on fixed maturities		174			386
Deferred income taxes		3,574			6,523
Gains on sales of foreclosed real estate		—			(3,638	)
Losses (gains) on sales of investments		85			(51	)
Change in:
Premiums and fees receivable		(19,602	)		(22,905	)
Reinsurance recoverables		656			2,396
Deferred acquisition costs		(722	)		(2,136	)
Loss and loss adjustment expense reserves		14,197			14,725
Unearned premiums and fees		24,334			30,138
Other		2,838			(373	)
Net cash provided by operating activities		34,739			39,639
Cash flows from investing activities:
Purchases of fixed maturities, available-for-sale		(79,849	)		(49,778	)
Maturities and paydowns of fixed maturities, available-for-sale		5,119			6,065
Sales of fixed maturities, available-for-sale		43,932			9,789
Sales of investment in mutual fund		—			10,679
Net (decrease) increase in payable/receivable for securities		(4,940	)		1,436
Acquisitions of property and equipment		(1,305	)		(1,301	)
Proceeds from sales of foreclosed real estate		—			4,512
Improvements to foreclosed real estate		(147	)		—
Cash paid for acquisition, net of cash acquired		(1,037	)		(29,831	)
Net cash used in investing activities		(38,227	)		(48,429	)
Cash flows from financing activities:
Proceeds from borrowings		5,000			30,000
Payments on borrowings		(4,252	)		—
Net proceeds from issuance of common stock		728			121
Exercise of stock options		—			421
Net cash provided by financing activities		1,476			30,542
Net (decrease) increase in cash and cash equivalents		(2,012	)		21,752
Cash and cash equivalents at beginning of period		31,534			24,762
Cash and cash equivalents at end of period	$	29,522		$	46,514

See notes to consolidated financial statements.

3

FIRST ACCEPTANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)
(Unaudited)

1. General

     The consolidated financial statements of First Acceptance Corporation (the “Company”) included herein have been prepared without audit pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Accordingly, certain information and disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been omitted. In the opinion of management, the consolidated financial statements reflect all adjustments (consisting of normal recurring adjustments) necessary for a fair statement of the interim periods. Certain reclassifications have been made to the prior year’s consolidated financial statements to conform with the current year presentation.

     The results of operations for the interim periods are not necessarily indicative of the results of operations to be expected for the full year. These consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements included in its Annual Report on Form 10-K for the fiscal year ended June 30, 2006.

2. Net Income Per Share

     The following table sets forth the computation of basic and diluted net income per share:

	Three Months Ended				Nine Months Ended
	March 31,				March 31,
	2007		2006		2007		2006
Net income	$	3,066	$	5,864	$	7,261	$	13,377
Weighted average common basic shares		47,603		47,510		47,578		47,474
Effect of dilutive securities — options		2,088		2,060		2,088		2,067
Weighted average common dilutive shares		49,691		49,570		49,666		49,541
Basic net income per share	$	0.06	$	0.12	$	0.15	$	0.28
Diluted net income per share	$	0.06	$	0.12	$	0.15	$	0.27

3. Stock-Based Compensation

     During the nine months ended March 31, 2007, the Company issued 635 stock options to employees under its 2002 Long Term Incentive Plan (the “Plan”). The options were issued at a weighted average exercise price of $11.61 per share. The options expire over ten years and vest equally in annual installments with 285 shares vesting over five years and 350 shares vesting over four years. Compensation expense related to these options was $3,976, of which $1,596 will be amortized through September 2010, $599 through October 2010, $1,596 through September 2011, and $185 through February 2012. None of these options were exercisable at March 31, 2007. There were no options exercised or forfeited during the nine months ended March 31, 2007. Shares remaining available for issuance under the Plan were 3,337 at March 31, 2007.

4. Business Combination

     In accordance with the terms of the acquisition agreement related to the purchase of certain assets of two non-standard automobile insurance agencies under common control in Chicago, Illinois effective January 12, 2006, additional consideration of $1,037 was paid to the seller in March 2007 based on the attainment of certain financial targets, as defined. No further amounts are due from the Company. The payment of additional consideration increased goodwill at March 31, 2007.

4

5. Segment Information

     The Company operates in two business segments with its primary focus being the selling, servicing and underwriting of non-standard personal automobile insurance. The real estate and corporate segment consists of activities related to the disposition of foreclosed real estate held for sale, interest expense associated with all debt and other general corporate overhead expenses.

     The following table presents selected financial data by business segment:

	Three Months Ended					Nine Months Ended
	March 31,					March 31,
	2007			2006		2007			2006
Revenues:
Insurance	$	91,977		$	66,876	$	255,244		$	169,470
Real estate and corporate		6			3,192		162			4,337
Consolidated total	$	91,983		$	70,068	$	255,406		$	173,807
Income (loss) before income taxes:
Insurance	$	6,123		$	7,110	$	15,445		$	18,614
Real estate and corporate		(1,290	)		1,921		(4,034	)		1,498
Consolidated total	$	4,833		$	9,031	$	11,411		$	20,112

	March 31,		June 30,
	2007		2006
Total assets:
Insurance	$	445,403	$	383,337
Real estate and corporate		37,941		50,969
Consolidated total	$	483,344	$	434,306

5

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

     Management’s Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements which involve risks and uncertainties. The Company’s actual results may differ significantly from the results discussed in the forward-looking statements. Factors that might cause such a difference include those discussed in Item 1A. “Risk Factors” in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2006. The following discussion should be read in conjunction with the Company’s consolidated financial statements included with this report and our consolidated financial statements and related Management’s Discussion and Analysis of Financial Condition and Results of Operations for the fiscal year ended June 30, 2006 included in our Annual Report on Form 10-K.

General

     As of March 31, 2007, we leased and operated 468 retail locations, staffed by employee-agents. Our employee-agents exclusively sell insurance products either underwritten or serviced by us. As of March 31, 2007, we wrote non-standard personal automobile insurance in 12 states and were licensed in 13 additional states. See the discussion in Item 1. “Business — General” in our Annual Report on Form 10-K for the fiscal year ended June 30, 2006 for additional information with respect to our business.

     The following table shows the changes in the number of our retail locations for the periods presented. Retail location counts are based upon the date that a location commenced writing business. In prior years, we reported this information based upon the date that a location was leased. Information for all prior periods presented has been restated to conform to the current period’s method of presentation.

	Three Months Ended						Nine Months Ended
	March 31,						March 31,
	2007			2006			2007			2006
Retail locations — beginning of period		467			351			460			248
Opened		5			28			18			132
Acquired		—			72			—			72
Closed		(4	)		(4	)		(10	)		(5	)
Retail locations — end of period		468			447			468			447

     The following tables show the number of our retail locations by state.

	March 31,				December 31,				June 30,
	2007		2006		2006		2005		2006		2005
Alabama		25		25		25		25		25		25
Florida		42		40		41		35		39		20
Georgia		63		63		63		63		63		62
Illinois		82		86		85		15		86		5
Indiana		27		25		26		26		26		21
Mississippi		8		8		8		8		8		8
Missouri		15		20		15		19		18		14
Ohio		30		30		30		30		30		29
Pennsylvania		25		20		26		18		25		7
South Carolina		28		12		26		4		21		—
Tennessee		20		20		20		20		20		20
Texas		103		98		102		88		99		37
Total		468		447		467		351		460		248

Critical Accounting Policies

     There have been no significant changes to our critical accounting policies and estimates during the nine months ended March 31, 2007 compared with those disclosed in Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Policies” included in our Annual Report on Form 10-K for the fiscal year ended June 30, 2006.

6

Consolidated Results of Operations

Overview

Our primary focus is the selling, servicing and underwriting of non-standard personal automobile insurance. Our real estate and corporate segment consists of activities related to the disposition of foreclosed real estate held for sale, interest expense associated with debt, and other general corporate overhead expenses. Our insurance operations generate revenues from selling, servicing and underwriting non-standard personal automobile insurance policies in 12 states. We conduct our underwriting operations through three insurance company subsidiaries, First Acceptance Insurance Company, Inc., First Acceptance Insurance Company of Georgia, Inc. and First Acceptance Insurance Company of Tennessee, Inc. Our insurance revenues are primarily generated from:

• premiums earned, including policy and renewal fees, from (i) sales of policies issued by our insurance company subsidiaries, net of the portion of those premiums ceded to reinsurers, and (ii) the sales of policies issued by our managing general agency (“MGA”) subsidiaries that are assumed 100% by our insurance company subsidiaries through quota-share reinsurance;

• fee income, including installment billing fees on policies written and fees for other ancillary services (principally a motor club product); and

• investment income earned on the invested assets of the insurance company subsidiaries.

     The following table presents gross premiums earned by state and includes policies written by the insurance company subsidiaries and policies issued by our MGA subsidiaries on behalf of other insurance companies that are assumed 100% by one of our insurance company subsidiaries through quota-share reinsurance. Although we are licensed in Texas, we currently write some business in Texas through the Texas county mutual insurance company system that is assumed 100% by one of our insurance company subsidiaries. Premiums ceded during the nine months ended March 31, 2006 reflect only the cost of catastrophic reinsurance. Effective April 14, 2006, we elected to not renew our catastrophic reinsurance.

	Three Months Ended March 31,								Nine Months Ended March 31,
	2007		2006			Change			2007		2006			Change
	(in thousands)
Gross premiums earned:
Georgia	$	18,087	$	17,409		$	678		$	52,863	$	51,481		$	1,382
Florida		14,993		8,028			6,965			40,833		15,241			25,592
Illinois		8,410		2,196			6,214			22,681		2,574			20,107
Alabama		7,845		7,426			419			22,417		21,357			1,060
Texas		8,098		5,025			3,073			22,051		10,327			11,724
Tennessee		6,082		6,082			—			17,865		18,293			(428	)
Ohio		4,289		3,613			676			12,132		10,184			1,948
South Carolina		4,520		331			4,189			9,361		365			8,996
Indiana		2,110		1,689			421			6,040		4,217			1,823
Pennsylvania		1,961		612			1,349			4,717		1,055			3,662
Missouri		1,600		1,409			191			4,487		3,866			621
Mississippi		1,287		1,355			(68	)		3,679		3,833			(154	)
Total gross premiums earned		79,282		55,175			24,107			219,126		142,793			76,333
Premiums ceded		—		(28	)		28			—		(76	)		76
Total net premiums earned	$	79,282	$	55,147		$	24,135		$	219,126	$	142,717		$	76,409

     The following table presents the change in the total number of policies in force for the insurance operations for the periods presented. Policies in force increase as a result of new policies issued and decrease as a result of policies that cancel or expire and are not renewed.

	Three Months Ended				Nine Months Ended
	March 31,				March 31,
	2007		2006		2007		2006
Policies in force — beginning of period		217,560		132,861		200,401		119,422
Net increase during period		29,474		54,187		46,633		67,626
Policies in force — end of period		247,034		187,048		247,034		187,048

7

     Insurance companies present a combined ratio as a measure of their overall underwriting profitability. The components of the combined ratio are as follows:

     Loss Ratio — Loss ratio is the ratio (expressed as a percentage) of losses and loss adjustment expenses incurred to premiums earned and is a basic element of underwriting profitability. We calculate this ratio based on all direct and assumed premiums earned, net of ceded reinsurance.

     Expense Ratio — Expense ratio is the ratio (expressed as a percentage) of operating expenses to premiums earned. This is a measurement that illustrates relative management efficiency in administering our operations. We calculate this ratio on a net basis as a percentage of net premiums earned. Insurance operating expenses are reduced by fee income from insureds and, for the period from January 1, 2006 through December 31, 2006, the transaction service fee we received for servicing the run-off business previously written by the Chicago agencies whose business we acquired in January 2006.

     Combined Ratio — Combined ratio is the sum of the loss ratio and the expense ratio. If the combined ratio is at or above 100%, an insurance company cannot be profitable without sufficient investment income. The following table presents the combined ratios for the insurance operations for the periods presented.

	Three Months Ended						Nine Months Ended
	March 31,						March 31,
	2007			2006			2007			2006
Loss and loss adjustment expense		75.9	%		69.6	%		76.5	%		68.2	%
Expense		18.7	%		19.3	%		18.7	%		20.6	%
Combined		94.6	%		88.9	%		95.2	%		88.8	%

     The invested assets of the insurance operations are generally highly liquid and consist substantially of taxable, readily marketable, investment grade, municipal and corporate bonds and collateralized mortgage obligations. We invest in certain securities issued by political subdivisions in the states of Georgia and Tennessee, as these investments enable our insurance company subsidiaries to obtain premium tax credits. Investment income is comprised primarily of interest earned on these securities, net of related investment expenses. Realized gains and losses on our investment portfolio may occur from time to time as changes are made to our holdings to enable premium tax credits or based upon changes in interest rates and changes in the credit quality of securities held.

Three and Nine Months Ended March 31, 2007 Compared With Three and Nine Months Ended March 31, 2006

     Consolidated Results

     Revenues for the three months ended March 31, 2007 increased 31% to $92.0 million from $70.1 million in the same period last year. Net income for the three months ended March 31, 2007 was $3.1 million, compared with $5.9 million for the three months ended March 31, 2006. Both basic and diluted net income per share were $0.06 for the three months ended March 31, 2007, compared with $0.12 for the three months ended March 31, 2006.

     Revenues for the nine months ended March 31, 2007 increased 47% to $255.4 million from $173.8 million in the same period last year. Net income for the nine months ended March 31, 2007 was $7.3 million, compared with $13.4 million for the nine months ended March 31, 2006. Both basic and diluted net income per share were $0.15 for the nine months ended March 31, 2007, compared with $0.28 and $0.27, respectively, for the nine months ended March 31, 2006.

     Insurance Operations

     Revenues from insurance operations were $92.0 million for the three months ended March 31, 2007, compared with $66.9 million for the three months ended March 31, 2006. For the nine months ended March 31, 2007, revenues from insurance operations were $255.2 million, compared with $169.5 million for the nine months ended March 31, 2006.

     Income before income taxes was $6.1 million for the three months ended March 31, 2007, compared with $7.1 million for the three months ended March 31, 2006. Income before income taxes for the nine months ended March 31, 2007 was $15.4 million, compared with $18.6 million for the nine months ended March 31, 2006.

8

     Premiums Earned

     Premiums earned increased by $24.1 million, or 44%, to $79.3 million for the three months ended March 31, 2007 from $55.1 million for the three months ended March 31, 2006. The increase was due primarily to the development of additional retail locations. Approximately 67% of the premium growth was in Florida and Texas, where we opened 81 locations in fiscal year 2006, and Chicago, where we acquired 72 locations in January 2006. The total number of insured policies in force at March 31, 2007 increased 32% over the same date in 2006 from 187,048 to 247,034. At March 31, 2007, we operated 468 retail locations (or “stores”), compared with 447 stores at March 31, 2006.

     For the nine months ended March 31, 2007, premiums earned increased by $76.4 million, or 54%, to $219.1 million from $142.7 million for the nine months ended March 31, 2006. Approximately 75% of the premium growth was in Florida, Texas and Illinois.

     Fee Income and Transaction Service Fee

     Fee income increased 42% to $10.4 million for the three months ended March 31, 2007, from $7.3 million for the three months ended March 31, 2006. For the nine months ended March 31, 2007, fee income increased 43% to $29.2 million from $20.3 million for the nine months ended March 31, 2006. These increases were the result of the growth in net premiums earned. However, fee income increased at a rate lower than our increase in premiums earned because we charge lower fees in Florida compared with our other states.

     Revenues for the nine months ended March 31, 2007 included $0.9 million from a transaction service fee earned in connection with the Chicago acquisition for servicing the run-off business previously written by the Chicago agencies whose assets we acquired in January 2006. We will not receive this transaction service fee in future periods.

     Investment Income

     Investment income increased primarily as a result of the increase in invested assets generated in connection with our growth and, to a lesser extent, as a result of the shift in our portfolio from tax-exempt to taxable investments. The weighted average investment yields for our fixed maturities portfolio were 5.2% and 5.1% at March 31, 2007 and 2006, respectively, with effective durations of 3.44 years and 3.41 years at March 31, 2007 and 2006, respectively. The yields for the comparable Lehman Brothers indices were 5.0% and 5.1% at March 31, 2007 and 2006, respectively.

     Loss and Loss Adjustment Expenses

     The loss and loss adjustment expense ratio was 75.9% for the three months ended March 31, 2007 compared with 69.6% for the same period last year. The increase in the ratio was the result of a change in our business mix resulting from premium growth in our emerging states of Florida and Texas where we anticipated higher loss ratios and adverse development related to prior accident quarters of approximately $2.3 million. The adverse development primarily related to losses occurring in the preceding accident quarter and was the result of an unanticipated increase in the frequency of Personal Injury Protection (“PIP”) losses in Florida and an unexpected increase in the paid severity of physical and property damage losses in certain states. Excluding this adverse development, the loss and loss adjustment expense ratio for the current quarter was 73.1%, which is an improvement over the re-estimated calendar 2006 accident year ratio of 74.3%, primarily as a result of recent premium rate actions.

     The loss and loss adjustment expense ratio was 76.5% for the nine months ended March 31, 2007 compared with 68.2% for the same period last year. In addition to the factors noted above, we had previously reported that the three months ended September 30, 2006 included adverse development related to prior accident quarters of approximately $3.7 million. This adverse development related primarily to the estimation of the severity of losses in Florida and Texas, where we had significant growth during 2006, and Georgia, where we reduced our physical damage premium rates effective January 2006. We increased premium rates in Florida (effective in December 2006), in South Carolina (effective in both January and March 2007), and in Georgia (effective in March 2007). We are currently in the process of reviewing our rates in Pennsylvania and Texas.

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     Operating Expenses

     Insurance operating expenses increased 20% to $25.2 million for the three months ended March 31, 2007 from $21.0 million for the three months ended March 31, 2006. For the nine months ended March 31, 2007, operating expenses increased 34% to $71.1 million from $52.8 million for the nine months ended March 31, 2006. These increases are primarily due to the costs associated with new stores (including those acquired in Chicago) and expenses (such as variable employee-agent compensation and premium taxes) that vary along with the increase in premiums earned.

     The expense ratio decreased from 19.3% and 20.6% for the three and nine-month periods ended March 31, 2006, respectively, to 18.7% for the same periods this year. These decreases are primarily as a result of the increase in premiums earned from new stores without a corresponding increase in fixed operating costs (such as advertising, rent and base compensation of our employee-agents).

     Overall, the combined ratio increased to 94.6% for the three months ended March 31, 2007 from 88.9% for the three months ended March 31, 2006, and to 95.2% for the nine months ended March 31, 2007 from 88.8% for the nine months ended March 31, 2006 as a result of the higher loss and loss adjustment expense ratio.

     Real Estate and Corporate

     Loss before income taxes for the three months ended March 31, 2007 was $1.3 million compared with income of $1.9 million for the three months ended March 31, 2006. For the nine months ended March 31, 2007, loss before income taxes was $4.0 million, compared with income of $1.5 million for the nine months ended March 31, 2006.

     The three and nine-month periods ended March 31, 2006 included gains on sales of foreclosed real estate held for sale of $2.8 million and $3.6 million, respectively. There were no gains on sales of foreclosed real estate held for sale during the three and nine-month periods ended March 31, 2007.

Liquidity and Capital Resources

     Our primary sources of funds are premiums, fee income and investment income. Our primary uses of funds are the payment of claims and operating expenses. Operating activities for the nine months ended March 31, 2007 provided $34.7 million of cash, compared with $39.6 million provided in the same period in fiscal 2006. Net cash used by investing activities for the nine months ended March 31, 2007 was $38.2 million, compared with $48.4 million in the same period in fiscal 2006. Both periods reflect net additions to our investment portfolio as a result of the increase in premiums earned. During the nine months ended March 31, 2007, we sold fixed maturity investments of $43.9 million that were subsequently reinvested in certain states in order to help obtain premium tax credits in these states. In December 2006, we borrowed $5.0 million from our revolving credit facility and used the proceeds to increase the statutory capital and surplus of the insurance company subsidiaries.

     During the nine months ended March 31, 2007, we increased the statutory capital and surplus of the insurance company subsidiaries by a total of $14.7 million to support additional premium writings. Of this capital contribution, $2.7 million came from funds our holding company received from the insurance company subsidiaries through an intercompany tax allocation agreement under which the holding company was reimbursed for current tax benefits utilized through the recognition of tax net operating loss carryforwards. The balance of the capital contribution came from $7.0 million of unrestricted cash and $5.0 million from the borrowing under the revolving credit facility. At March 31, 2007, we had $0.8 million available in unrestricted cash outside of the insurance company subsidiaries, which was used in April 2007 to pay a scheduled quarterly payment of principal and interest on our notes payable to banks. Future debt payments will be serviced by the additional unrestricted cash from the sources described in the next paragraph.

     We are part of an insurance holding company system with substantially all of our operations conducted by our insurance company subsidiaries. The holding company receives cash from operating activities as a result of fees for ancillary services and the ultimate liquidation of our foreclosed real estate held for sale. Cash could also be made available through loans from financial institutions, the sale of common stock, and dividends from our insurance company subsidiaries. In addition, as a result of our tax net operating loss carryforwards, taxable income generated by the insurance company subsidiaries will provide cash to the holding company through an intercompany tax allocation agreement through which the insurance company subsidiaries reimburse the holding company for current tax benefits utilized through recognition of the net operating loss carryforwards.

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     State insurance laws limit the amount of dividends that may be paid from the insurance company subsidiaries. These limitations relate to statutory capital and surplus and net income. In addition, the National Association of Insurance Commissioners Model Act for risk-based capital (“RBC”) provides formulas to determine the amount of statutory capital and surplus that an insurance company needs to ensure that it has an acceptable expectation of not becoming financially impaired. A low RBC ratio would prevent an insurance company from paying dividends. Statutory guidelines suggest that the insurance company subsidiaries should not exceed a ratio of net premiums written to statutory capital and surplus of 3-to-1. We believe that the insurance company subsidiaries have sufficient financial resources available to support their net premium writings in both the short-term and the reasonably foreseeable future.

     We believe that existing cash and investment balances, when combined with anticipated cash flows generated from operations and dividends from our insurance company subsidiaries, will be adequate to meet our expected liquidity needs in both the short-term and the reasonably foreseeable future. Our growth strategy includes possible acquisitions. Any acquisitions or other unexpected growth opportunities may require external financing, and we may from time to time seek to obtain external financing. We cannot assure that additional sources of financing will be available to us or that any such financing would not negatively impact our results of operations.

Chicago Acquisition

     In order to gain a presence in the market, on January 12, 2006, we acquired certain assets (principally the trade names, customer lists and relationships and the lease rights to 72 retail locations) of two non-standard automobile insurance agencies under common control in Chicago, Illinois for $30.0 million in cash. In addition, in accordance with the terms of the acquisition, $1.0 million of additional consideration was paid in March 2007 based on attainment of certain financial targets. No further amounts are due from the Company.

     In connection with the acquisition, we concurrently entered into, and borrowed under, a credit agreement with two banks consisting of a $5 million revolving facility and a $25 million term loan facility, both maturing on June 30, 2010. Both facilities bear interest at LIBOR plus 175 basis points per annum. We entered into an interest rate swap agreement on January 17, 2006 that fixed the interest rate on the term loan facility at 6.63% through June 30, 2010. The term loan facility is due in equal quarterly installments of $1.4 million, plus interest, beginning April 30, 2006 and ending April 30, 2010 with a final payment of $1.4 million due on June 30, 2010. Both facilities are secured by the common stock and certain assets of our non-regulated subsidiaries. For the three and nine-month periods ended March 31, 2007, we incurred $0.4 million and $1.3 million, respectively, of interest expense in connection with the noted credit agreement. The credit agreement contains certain financial covenants. At March 31, 2007, the unpaid balance due under the facilities was $24.4 million and we were in compliance with all such covenants.

Off-Balance Sheet Arrangements

     We have no off-balance sheet arrangements, other than leases accounted for as operating leases in accordance with generally accepted accounting principles, or financing activities with special-purpose entities.

Forward-Looking Statements

     This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements made in the report, other than statements of historical fact, are forward-looking statements. You can identify these statements from our use of the words “may,” “should,” “could,” “potential,” “continue,” “plan,” “forecast,” “estimate,” “project,” “believe,” “intent,” “anticipate,” “expect,” “target,” “is likely,” “will,” or the negative of these terms, and similar expressions. These statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements may include, among other things:

• statements and assumptions relating to future growth, income, income per share and other financial performance measures, as well as management’s short-term and long-term performance goals;

• statements relating to the anticipated effects on results of operations or financial condition from recent and expected developments or events;

• statements relating to our business and growth strategies; and

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• any other statements or assumptions that are not historical facts.

     We believe that our expectations are based on reasonable assumptions. However, these forward-looking statements involve known and unknown risks, uncertainties and other important factors that could cause our actual results, performance or achievements, or industry results to differ materially from our expectations of future results, performance or achievements expressed or implied by these forward-looking statements. In addition, our past results of operations do not necessarily indicate our future results. We discuss these and other uncertainties in Item 1A. “Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended June 30, 2006.

     You should not place undue reliance on any forward-looking statements contained herein. These statements speak only as of the date of this report. Except as otherwise required by applicable laws, we undertake no obligation to publicly update or revise any forward-looking statements or the risk factors described in this report, whether as a result of new information, future events, changed circumstances or any other reason after the date of this report.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

     We have an exposure to interest rate risk relating to fixed maturity investments. Changes in market interest rates directly impact the market value of our fixed maturity securities. Some fixed maturity securities have call or prepayment options. This subjects us to reinvestment risk as issuers may call their securities, which could result in us reinvesting the proceeds at lower interest rates. We manage exposure to interest rate risks by adhering to specific guidelines in connection with our investment portfolio. We invest primarily in municipal and corporate bonds and collateralized mortgage obligations that have been rated “A” or better by Standard & Poors. At March 31, 2007, 89.7% of our investment portfolio was invested in securities rated “AA” or better by Standard & Poors, and 99.2% was invested in securities rated “A” or better by Standard & Poors. We have not recognized any other than temporary losses on our investment portfolio. We also utilize the services of a professional fixed income investment manager.

     As of March 31, 2007, the impact of an immediate 100 basis point increase in market interest rates on our fixed maturities portfolio would have resulted in an estimated decrease in fair value of 3.6%, or approximately $7.1 million. Conversely, as of the same date, the impact of an immediate 100 basis point decrease in market interest rates on our fixed maturities portfolio would have resulted in an estimated increase in fair value of 3.3%, or approximately $6.6 million.

     In connection with the January 12, 2006 Chicago acquisition, we entered into a new $30.0 million credit facility that includes a $25.0 million term loan facility and a $5.0 million revolving facility. Although we have fixed the interest rate of the $25.0 million term loan facility through an interest rate swap agreement, we have interest rate risk with respect to the revolving facility, which bears interest at a floating rate of LIBOR plus 175 basis points per annum. At March 31, 2007, $5.0 million was borrowed under the revolving facility.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

     The Company’s chief executive officer and chief financial officer have reviewed and evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended, or Exchange Act) as of March 31, 2007. Based on that evaluation, the Company’s chief executive officer and chief financial officer have concluded that the Company’s disclosure controls and procedures effectively ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms.

Changes in Internal Control Over Financial Reporting

     During the period covered by this report, there has been no change in the Company’s internal control over financial reporting that has materially affected or is reasonably likely to materially affect the Company’s internal control over financial reporting.

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PART II — OTHER INFORMATION

Item 6. Exhibits

The following exhibits are attached to this report:

10.1	Second Amendment to the First Acceptance Corporation 2002 Long Term Incentive Plan.
10.2	Form of Restricted Stock Award Agreement of Outside Directors.
10.3	Form of Indemnification Agreement between the Company and each of the Company’s directors and executive officers.
31.1	Certification of Chief Executive Officer pursuant to Rule 13a-14(a).
31.2	Certification of Chief Financial Officer pursuant to Rule 13a-14(a).
32.1	Chief Executive Officer’s Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Chief Financial Officer’s Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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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.

	FIRST ACCEPTANCE CORPORATION
May 10, 2007	By:	/s/ Stephen J. Harrison
		Stephen J. Harrison
		President and Chief Executive Officer

May 10, 2007	By:	/s/ Edward L. Pierce
		Edward L. Pierce
		Executive Vice President, Chief Financial Officer

May 10, 2007	By:	/s/ Kevin P. Cohn
		Kevin P. Cohn
		Vice President, Chief Accounting Officer

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EX-10.1

Exhibit 10.1

SECOND AMENDMENT TO THE
FIRST ACCEPTANCE CORPORATION
2002 LONG TERM INCENTIVE PLAN

     WHEREAS, First Acceptance Corporation (the “Company”) maintains the First Acceptance Corporation 2002 Long Term Incentive Plan (the “Plan”); and

     WHEREAS, pursuant to Article 9 of the Plan, the Board of Directors of the Company (the “Board”) may amend the Plan; and

     WHEREAS, the Board desires to amend the Plan to revise the provisions in Article 11 of the Plan regarding capital adjustments (or other similar event) to the shares granted thereuder.

     NOW, THEREFORE, effective as of the date hereof, the Board hereby amends the Plan as follows:

     1. Article 11 of the Plan is amended to read as follows:

ARTICLE 11
CAPITAL ADJUSTMENTS

     In the event that any dividend or other distribution (whether in the form of an extraordinary cash dividend, dividend of Common Stock, other securities, or other property), recapitalization, stock split, reverse stock split, rights offering, reorganization, merger, consolidation, split-up, spin-off, split-off, combination, subdivision, or exchange of Common Stock or other securities of the Company, issuance of warrants or other rights to purchase Common Stock or other securities of the Company, or other similar corporate transaction or event affects the Common Stock, then the Committee shall, in an equitable and proportionate manner, adjust any or all of the (i) the number of shares and type of Common Stock (or the securities or property) which thereafter may be made the subject of Awards, (ii) the number of shares and type of Common Stock (or other securities or property) subject to outstanding Awards, (iii) the number of shares and type of Common Stock (or other securities or property) specified as the annual per-participant limitation under Section 6.6 of the Plan, (iv) the Option Price of each outstanding Award, (v) the amount, if any, the Company pays for forfeited shares of Common Stock in accordance with Section 6.5, and (vi) the number of or SAR Price of shares of Common Stock then subject to outstanding SARs previously granted and unexercised under the Plan to the end that the same proportion of the Company’s issued and outstanding shares of Common Stock in each instance shall remain subject to exercise at the same aggregate SAR Price; provided however, that the number of shares of Common Stock (or other securities or property) subject to any Award shall always be a whole number. In lieu of the foregoing, the Committee may make provision for a cash payment to the holder of an outstanding Award, except as may otherwise be provided in an applicable Award Agreement. Notwithstanding the foregoing, no such adjustment or cash payment shall be made or authorized to the extent that such adjustment or cash payment would cause the Plan or any Stock Option to violate Code Section 422. Such adjustments shall be made

in accordance with the rules of any securities exchange, stock market, or stock quotation system to which the Company is subject. No adjustment or cash payment will be required under this Article 11 for the issuance of Common Stock for such consideration, not less than the par value of the Common Stock, as may be determined from time to time by the Board to be fair consideration.

     Upon the occurrence of any such adjustment or cash payment, the Company shall provide notice to each affected Participant of its computation of such adjustment or cash payment which shall be conclusive and shall be binding upon each such Participant.

EX-10.2

Exhibit 10.2

RESTRICTED STOCK AWARD AGREEMENT

     THIS RESTRICTED STOCK AWARD AGREEMENT (this “Agreement”) is made and entered into as of the ___ day of ___, ___ (the “Date of Grant”), between First Acceptance Corporation, a Delaware corporation (the “Company”), and ___ (the “Participant”). Capitalized terms not otherwise defined herein shall have the meaning ascribed to such terms in the First Acceptance Corporation 2002 Long Term Incentive Plan, as amended (the “Plan”).

     WHEREAS, the Company has adopted the Plan, which permits the issuance of restricted shares of the Company’s common stock, par value $0.01 per share (the “Common Stock”); and

     WHEREAS, pursuant to the Plan, the Board has granted an award of restricted stock to the Participant as provided herein;

     NOW, THEREFORE, in consideration of the mutual covenants hereinafter set forth and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound hereby, agree as follows:

     1. Grant of Restricted Stock.

          (a) The Company hereby grants to the Participant an award (the “Award”) of ___ shares of Common Stock of the Company (the “Stock” or the “Restricted Stock”) on the terms and conditions set forth in this Agreement and as otherwise provided in the Plan.

          (b) The Participant’s rights with respect to the Award shall remain forfeitable at all times prior to the date on which the restrictions shall lapse in accordance with Section 3 hereof.

     2. Terms and Rights as a Stockholder.

          (a) Except as provided herein and subject to such other exceptions as may be determined by the Committee in its discretion, the “Restriction Period” for Restricted Shares granted herein shall expire on the date that is six (6) months after the Date of Grant (as may be adjusted in accordance with Section 7 hereof.)

          (b) The Participant shall have all rights of a stockholder with respect to the Restricted Stock, including the right to receive dividends and the right to vote such Stock, subject to the following restrictions:

(i)	the Participant shall not be entitled to delivery of the stock certificate for any Stock until the expiration of the Restriction Period as to such Stock;
(ii)	none of the Restricted Stock may be sold, assigned, transferred, pledged, hypothecated or otherwise encumbered or disposed of during the Restriction Period as to such Stock; and
(iii)	except as otherwise determined by the Committee at or after the grant of the Award hereunder, all of the Restricted Stock shall be forfeited, and all rights of the Participant to such Stock shall terminate, without further obligation on the part of the Company, unless the Participant remains in the continuous service as a director of the Company for the entire Restriction Period.

          Any Stock, any other securities of the Company and any other property (except for cash dividends) distributed with respect to the Restricted Stock shall be subject to the same restrictions, terms and conditions as such Restricted Stock.

          (c) Notwithstanding the foregoing, the Restriction Period shall automatically terminate as to all Restricted Stock awarded hereunder (as to which such Restriction Period has not previously terminated) upon the occurrence of the following events:

(i)	termination of the Participant’s service as a director with the Company which results from the Participant’s death, Retirement (as defined in the Plan) or Total and Permanent Disability (as defined in the Plan); or
(ii)	the occurrence of a Change in Control.

     3. Termination of Restrictions. At the end of the Restriction Period as to any portion of the Restricted Stock, or at such earlier time as may be determined by the Committee, all restrictions set forth in this Agreement or in the Plan relating to such portion of the Restricted Stock shall lapse as to such portion of the Restricted Stock, and a stock certificate for the appropriate number of shares of such Stock, free of the restrictions and restrictive stock legend, shall be delivered to the Participant or the Participant’s beneficiary or estate, as the case may be, pursuant to the terms of this Agreement.

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     4. Delivery of Stock.

          (a) As of the date hereof, certificates representing the Restricted Stock shall be registered in the name of the Participant and held by the Company or transferred to a custodian appointed by the Company for the account of the Participant subject to the terms and conditions of the Plan and shall remain in the custody of the Company or such custodian until their delivery to the Participant or Participant’s beneficiary or estate as set forth in Sections 4(b) and (c) hereof or their reversion to the Company as set forth in Sections 2(b) and 4(d) hereof.

          (b) Certificates representing Restricted Stock in respect of which the Restriction Period has lapsed pursuant to this Agreement shall be delivered to the Participant as soon as practicable following the date on which the restrictions on such Restricted Stock lapse.

          (c) Certificates representing Restricted Stock in respect of which the Restriction Period lapsed upon the Participant’s death shall be delivered to the executors or administrators of the Participant’s estate as soon as practicable following the receipt of proof of the Participant’s death satisfactory to the Company.

          (d) By accepting the grant of Restricted Stock under this Agreement, Participant shall irrevocably grant to the Company a power of attorney to transfer any shares forfeited to the Company and agrees to execute any documents requested by the Company in connection with such forfeiture and transfer. Participant hereby acknowledges that any breach by it of its obligations under this Section 4(d) would cause substantial and irreparable damage to the Company, and that money damages would be an inadequate remedy therefore, and, accordingly, acknowledges and agrees that the Company shall be entitled to specific performance to remedy the breach of such obligations (in addition to the other rights and remedies provided for herein).

          (e) The face of each certificate representing Restricted Stock shall bear a legend in substantially the following form:

TRANSFER OF THIS STOCK IS RESTRICTED IN ACCORDANCE WITH CONDITIONS PRINTED ON THE REVERSE OF THIS CERTIFICATE.

          (f) The reverse of each certificate representing Restricted Stock shall bear a legend in substantially the following form:

THE SHARES OF STOCK EVIDENCED BY THIS CERTIFICATE ARE SUBJECT TO AND TRANSFERABLE ONLY IN ACCORDANCE WITH THAT CERTAIN FIRST ACCEPTANCE

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CORPORATION LONG TERM INCENTIVE PLAN (THE “PLAN”), A COPY OF WHICH IS ON FILE AT THE PRINCIPAL OFFICE OF THE COMPANY IN NASHVILLE, TENNESSEE. NO TRANSFER OR PLEDGE OF THE SHARES EVIDENCED HEREBY MAY BE MADE EXCEPT IN ACCORDANCE WITH AND SUBJECT TO THE PROVISIONS OF SAID PLAN. BY ACCEPTANCE OF THIS CERTIFICATE, ANY HOLDER, TRANSFEREE OR PLEDGEE HEREOF AGREES TO BE BOUND BY ALL OF THE PROVISIONS OF SAID PLAN.

     5. Effect of Lapse of Restrictions. To the extent that the Restriction Period applicable to any Restricted Stock shall have lapsed, the Participant may receive, hold, sell or otherwise dispose of such Stock free and clear of the restrictions imposed under the Plan and this Agreement.

     6. No Right to Continued Service. This Agreement shall not be construed as giving Participant the right to be retained as a director of the Company or any Subsidiary or Affiliate.

     7. Adjustments. The Committee shall make equitable and proportionate adjustments in the terms and conditions of, and the criteria included in, this Award in recognition of unusual or nonrecurring events (including, without limitation, the events described in Article 11 of the Plan) affecting the Company, any Subsidiary or Affiliate, or the financial statements of the Company or any Subsidiary or Affiliate, or of changes in applicable laws, regulations, or accounting principals in accordance with the Plan.

     8. Amendment to Award. Subject to the restrictions contained in Section 9 of the Plan, the Committee may waive any conditions or rights under, amend any terms of, or alter, suspend, discontinue, cancel or terminate, the Award, prospectively or retroactively; provided that any such waiver, amendment, alteration, suspension, discontinuance, cancellation or termination that would adversely affect the rights of the Participant or any holder or beneficiary of the Award shall not to that extent be effective without the consent of the Participant, holder or beneficiary affected.

     9. Withholding of Taxes. If the Participant makes an election under section 83(b) of the Code with respect to the Award, the Award made pursuant to this Agreement shall be conditioned upon the prompt payment to the Company of any applicable withholding obligations or withholding taxes by the Participant (“Withholding Taxes”). Failure by the Participant to pay such Withholding Taxes will render this Agreement and the Award granted hereunder null and void ab initio and the Restricted Stock granted hereunder will be immediately cancelled. If the Participant does not make an election under section 83(b) of the Code with respect to the Award, upon the lapse of the

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Restriction Period with respect to any portion of Restricted Stock (or property distributed with respect thereto), the Company shall satisfy the required Withholding Taxes as set forth by Internal Revenue Service guidelines for the employer’s minimum statutory withholding with respect to Participant and issue vested shares to the Participant without Restriction.

     10. Plan Governs. The Participant hereby acknowledges receipt of a copy of the Plan and agrees to be bound by all the terms and provisions thereof. The terms of this Agreement are governed by the terms of the Plan, and in the case of any inconsistency between the terms of this Agreement and the terms of the Plan, the terms of the Plan shall govern.

     11. Severability. If any provision of this Agreement is, or becomes, or is deemed to be invalid, illegal, or unenforceable in any jurisdiction or as to any Person or the Award, or would disqualify the Plan or Award under any laws deemed applicable by the Committee, such provision shall be construed or deemed amended to conform to the applicable laws, or if it cannot be construed or deemed amended without, in the determination of the Committee, materially altering the intent of the Plan or the Award, such provision shall be stricken as to such jurisdiction, Person or Award, and the remainder of the Plan and Award shall remain in full force and effect.

     12. Notices. All notices required to be given under this Grant shall be deemed to be received if delivered or mailed as provided for herein, to the parties at the following addresses, or to such other address as either party may provide in writing from time to time.

To the Company:	First Acceptance Corporation
	3813 Green Hills Village Drive
	Nashville, Tennessee 37215
	Attn: Secretary
	Facsimile: (615) 844-2898
To the Participant:	The address then maintained with respect to the Participant in the Company’s records.

     13. Governing Law. The validity, construction and effect of this Agreement shall be determined in accordance with the laws of the State of Delaware without giving effect to conflicts of laws principles.

     14. Successors in Interest. This Agreement shall inure to the benefit of and be binding upon any successor to the Company. This Agreement shall inure to the benefit of the Participant’s legal representatives. All obligations imposed upon the Participant and all rights granted to the Company under this Agreement shall be binding upon the Participant’s heirs, executors, administrators and successors.

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     15. Resolution of Disputes. Any dispute or disagreement which may arise under, or as a result of, or in any way related to, the interpretation, construction or application of this Agreement shall be determined by the Committee. Any determination made hereunder shall be final, binding and conclusive on the Participant and the Company for all purposes.

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     IN WITNESS WHEREOF, the parties have caused this Restricted Stock Award Agreement to be duly executed effective as of the day and year first above written.

FIRST ACCEPTANCE CORPORATION:
 

By:  

Its:  

PARTICIPANT:
 

Name:  

Address:  

Signature Page to Restricted Stock Award Agreement

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EX-10.3

Exhibit 10.3

INDEMNIFICATION AGREEMENT

     This INDEMNIFICATION AGREEMENT (the “AGREEMENT”) is made and entered into as of the ___ day of ___, ___, by and between First Acceptance Corporation, a Delaware corporation (including any successors thereto, the “COMPANY”), and___ (“INDEMNITEE”).

RECITALS:

     A. Competent and experienced persons are reluctant to serve or to continue to serve corporations as directors, officers, or in other capacities unless they are provided with adequate protection through insurance or indemnification (or both) against claims and actions against them arising out of their service to and activities on behalf of those corporations.

     B. The current uncertainties relating to the availability of adequate insurance for directors and officers have increased the difficulty for corporations to attract and retain competent and experienced persons.

     C. The Board of Directors of the Company (the “BOARD”) has determined that the continuation of present trends in litigation will make it more difficult to attract and retain competent and experienced persons, that this situation is detrimental to the best interests of the Company’s stockholders, and that the Company should act to assure its directors and officers that there will be increased certainty of adequate protection in the future.

     D. It is reasonable, prudent, and necessary for the Company to obligate itself contractually to indemnify its directors and officers to the fullest extent permitted by applicable law in order to induce them to serve or continue to serve the Company.

     E. Indemnitee is willing to serve and continue to serve the Company on the condition that he be indemnified to the fullest extent permitted by law.

     F. Concurrently with the execution of this Agreement, Indemnitee is agreeing to serve or to continue to serve as a director or officer of the Company.

AGREEMENTS:

     NOW, THEREFORE, in consideration of the foregoing premises, Indemnitee’s agreement to serve or continue to serve as a director or officer of the Company, and the covenants contained in this Agreement, the Company and Indemnitee hereby covenant and agree as follows:

     1. Certain Definitions:

          For purposes of this Agreement:

          (a) Change of Control: shall mean the occurrence of any of the following events:

               (i) The acquisition by any individual, entity, or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the “EXCHANGE ACT”))(a “PERSON”) of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of either (x) the then outstanding shares of common stock of the Company (the “OUTSTANDING COMPANY COMMON STOCK”) or (y) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the “OUTSTANDING COMPANY VOTING SECURITIES”); provided, however, that for purposes of this paragraph (i), the following acquisitions shall not constitute a Change of Control: (A) any acquisition directly from the Company or any Subsidiary thereof, (B) any acquisition by the Company or any Subsidiary thereof, (C) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any Subsidiary of the Company, or (D) any acquisition by any entity or its security holders pursuant to a transaction which complies with clauses (A) and (B) of paragraph (iii) below; or

               (ii) Individuals who, as of the date of this Agreement, constitute the Board (the “INCUMBENT BOARD”) cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the date of this Agreement whose election, or nomination for election by the Company’s stockholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; or

               (iii) Consummation of a reorganization, merger, or consolidation or sale or other disposition of all or substantially all of the assets of the Company or an acquisition of assets of another entity (a “BUSINESS COMBINATION”), in each case, unless, immediately following such Business Combination, (A) the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 50% of, respectively, the then outstanding shares of common stock or other equity interests and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors (or similar governing body), as the case may be, of the entity resulting from such Business Combination (including, without limitation, an entity which as a result of such transaction owns the Company or all or substantially all of the Company’s assets either directly or through one or more Subsidiaries) in proportions not materially different from their ownership, immediately prior to such Business Combination, of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be, and (B) at least a majority of the members of the board of directors (or similar governing body) of the entity resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board, providing for such Business Combination, or

               (iv) Approval by the stockholders of the Company of a complete liquidation or dissolution of the Company.

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          (b) Claim: shall mean any threatened, pending, or completed action, suit, or proceeding (including, without limitation, securities laws actions, suits, and proceedings and also any cross claim or counterclaim in any action, suit, or proceeding), whether civil, criminal, arbitral, administrative, or investigative in nature, or any inquiry or investigation (including discovery), whether conducted by the Company or any other Person.

          (c) Expenses: shall mean all costs, fees and expenses (including, without limitation, attorneys’ and expert witnesses’ fees and disbursements, fees of private investigators and professional advisors, court costs, transcript costs and travel expenses), and obligations paid or incurred in connection with investigating, defending (including affirmative defenses and counterclaims), being a witness in, or participating in (including on appeal), or preparing to defend, be a witness in, or participate in, any Claim relating to any Indemnifiable Event.

          (d) Indemnifiable Event: shall mean any actual or alleged act, omission, statement, misstatement, event, or occurrence related to the fact that Indemnitee is or was a director, officer, agent, or fiduciary of the Company, or is or was serving at the request of the Company as a director, officer, trustee, agent, or fiduciary of another corporation, partnership, joint venture, employee benefit plan, trust, or other enterprise, or by reason of any actual or alleged thing done or not done by Indemnitee in any such capacity. For purposes of this Agreement, the Company agrees that Indemnitee’s service on behalf of or with respect to any Subsidiary or employee benefits plan of the Company or any Subsidiary of the Company shall be deemed to be at the request of the Company.

          (e) Indemnifiable Liabilities: shall mean all Expenses and all other liabilities, damages (including, without limitation, punitive, exemplary, and the multiplied portion of any damages), judgments, payments, fines, penalties, amounts paid in settlement, and awards paid or incurred that arise out of, or in any way relate to, any Indemnifiable Event.

          (f) Potential Change of Control: shall be deemed to have occurred if (i) the Company enters into an agreement, the consummation of which would result in the occurrence of a Change of Control; (ii) any Person (including the Company) publicly announces an intention to take or to consider taking actions that, if consummated, would constitute a Change in Control; or (iii) the Board adopts a resolution to the effect that, for purposes of this Agreement, a Potential Change of Control has occurred.

          (g) Reviewing Party: shall mean (i) a member or members of the Board who are not parties to the particular Claim for which Indemnitee is seeking indemnification or (ii) if a Change of Control has occurred and Indemnitee so requests, or if the members of the Board so elect, or if all of the members of the Board are parties to such Claim, Special Counsel.

          (h) Special Counsel: shall mean special, independent legal counsel selected by Indemnitee and approved by the Company (which approval shall not be unreasonably withheld), and who has not otherwise performed material services for the Company or for Indemnitee within the last three years (other than as Special Counsel under this Agreement or similar agreement).

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          (i) Subsidiary: shall mean, with respect to any Person, any corporation or other entity of which a majority of the voting power of the voting equity securities or equity interest is owned, directly or indirectly, by that Person.

     2. Indemnification and Expense Advancement.

          (a) The Company shall indemnify Indemnitee and hold Indemnitee harmless to the fullest extent permitted by law, as soon as practicable but in any event no later than 30 days after written demand is presented to the Company, from and against any and all Indemnifiable Liabilities. In connection with the foregoing obligation, the Company agrees that the Reviewing Party shall make a determination (in a written opinion, in any case in which Special Counsel is involved) as to Indemnitee’s entitlement to indemnification under Section 145 of the Delaware General Corporation Law, as amended from time to time (“APPLICABLE LAW”). Notwithstanding the foregoing, nothing contained in this Agreement shall require any determination under this Section 2(a) to be made by the Reviewing Party prior to the disposition or conclusion of the Claim against the Indemnitee. If there has been a Change of Control, the Reviewing Party shall be Special Counsel, if Indemnitee so requests, in accordance with the terms of Section 3 hereof.

          (b) If so requested by Indemnitee, the Company shall advance to Indemnitee all reasonable Expenses incurred by Indemnitee to the fullest extent permitted by law (or, if applicable, reimburse Indemnitee for any and all reasonable Expenses incurred by Indemnitee and previously paid by Indemnitee) within ten business days after such request (an “EXPENSE ADVANCE”). The Company shall be obligated from time to time at the request of Indemnitee to make or pay an Expense Advance in advance of the final disposition or conclusion of any Claim and in advance of any determination by the Reviewing Party as to Indemnitee’s entitlement to indemnification hereunder.

          (c) If, when, and to the extent that the Reviewing Party determines that Indemnitee would not permitted to be indemnified with respect to a Claim under Applicable Law, the Company shall be entitled to be reimbursed by Indemnitee and Indemnitee hereby agrees to reimburse the Company without interest (which agreement shall be an unsecured obligation of Indemnitee) for all related Expense Advances theretofore made or paid by the Company in the event that it is determined that indemnification would not be permitted under Applicable Law, if and only to the extent such reimbursement is required by Applicable Law; provided, however, that if Indemnitee commences legal proceedings in a court of competent jurisdiction to secure a determination that Indemnitee could be indemnified under Applicable Law, any determination made by the Reviewing Party that Indemnitee would not be permitted to be indemnified under Applicable Law shall not be binding, and the Company shall be obligated to continue to make Expense Advances until a final judicial determination is made with respect thereto (as to which all rights of appeal therefrom have been exhausted or lapsed), which determination shall be conclusive and binding. If there has been no determination by the Reviewing Party or if the Reviewing Party determines that Indemnitee substantively is not permitted to be indemnified in whole or part under Applicable Law, Indemnitee shall have the right to commence litigation in the Delaware Court of Chancery to enforce the Company’s obligations and the Indemnitee’s rights under this Agreement or to challenge any adverse

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determination made by the Reviewing Party or any aspect thereof, and the Company hereby consents to service of process and to appear in any such proceeding.

          (d) Nothing in this Agreement, however, shall require the Company to indemnify Indemnitee with respect to any Claim initiated by Indemnitee, other than a Claim solely seeking enforcement of the Company’s indemnification obligations to Indemnitee or the Indemnitee’s rights under this Agreement, any counterclaims or affirmative defenses asserted by Indemnitee in an action brought against Indemnitee, or a Claim authorized by the Board.

     3. Change of Control. The Company agrees that if there is a Change of Control and if Indemnitee requests in writing that Special Counsel be the Reviewing Party, then Special Counsel shall be the Reviewing Party. In such a case, the Company agrees not to request or seek reimbursement from Indemnitee of any indemnification payment or Expense Advances unless Special Counsel has rendered its written opinion to the Company and Indemnitee that the Company was not or is not permitted under Applicable Law to indemnify Indemnitee. However, if Indemnitee has commenced legal proceedings in a court of competent jurisdiction to secure a determination that Indemnitee could be indemnified under Applicable Law, any determination made by Special Counsel that Indemnitee would not be permitted to be indemnified under Applicable Law shall not be binding, and the Company shall be obligated to continue to make Expense Advances, until a final judicial determination is made with respect thereto (as to which all rights of appeal therefore have been exhausted or lapsed), which determination shall be conclusive and binding. The Company agrees to pay the fees of Special Counsel and to indemnify Special Counsel against any and all expenses (including attorneys’ fees), claims, liabilities, and damages arising out of or relating to this Agreement or Special Counsel’s engagement pursuant hereto.

     4. Establishment of Trust. In the event of a Potential Change of Control or a Change of Control, the Company shall, upon written request by Indemnitee, create a trust for the benefit of Indemnitee (the “TRUST”) and from time to time upon written request of Indemnitee shall fund the Trust in an amount equal to all Indemnifiable Liabilities reasonably anticipated at the time to be incurred in connection with any Claim. The amount to be deposited in the Trust pursuant to the foregoing funding obligation shall be determined by the Reviewing Party. The terms of the Trust shall provide that, upon a Change of Control, (i) the Trust shall not be revoked or the principal thereof invaded, without the written consent of Indemnitee; (ii) the trustee of the Trust shall advance, within ten business days of a request by Indemnitee, any and all reasonable Expenses to Indemnitee (and Indemnitee hereby agrees to reimburse the Trust under the circumstances in which Indemnitee would be required to reimburse the Company for Expense Advances under this Agreement), (iii) the Trust shall continue to be funded by the Company in accordance with the funding obligation set forth above; (iv) the trustee of the Trust shall promptly pay to Indemnitee all amounts for which Indemnitee shall be entitled to indemnification pursuant to this Agreement; and (v) all unexpended funds in the Trust shall revert to the Company upon a final determination by the Reviewing Party or a court of competent jurisdiction, as the case may be, that Indemnitee has been fully indemnified under the terms of this Agreement. The trustee of the Trust shall be chosen by Indemnitee, and shall be an institution that is not affiliated with Indemnitee. Nothing in this Section 4 shall relieve the Company of any of its obligation under this Agreement.

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     5. Indemnification for Additional Expenses. The Company shall indemnify Indemnitee against any and all costs and expenses (including attorneys’ and expert witnesses’ fees) and, if requested by Indemnitee, shall (within two business days of that request) advance those costs and expenses to Indemnitee, that are incurred by Indemnitee if Indemnitee, whether by formal proceedings or through demand and negotiation without formal proceedings: (a) seeks to enforce Indemnitee’s rights under this Agreement, (b) seeks to enforce Indemnitee’s rights to expense advancement or indemnification under any other agreement or provision of the Company’s Certificate of Incorporation (the “CERTIFICATE OF INCORPORATION”) or Bylaws (the “BYLAWS”) now or hereafter in effect relating to Claims for Indemnifiable Events, or (c) seeks recovery under any directors’ and officers’ liability insurance policies maintained by the Company, in each case regardless of whether Indemnitee ultimately prevails; provided that a court of competent jurisdiction has not found Indemnitee’s claim for indemnification or expense advancements under the foregoing clauses (a), (b) or (c) to be frivolous, presented for an improper purpose, without evidentiary support, or otherwise sanctionable under Federal Rule of Civil Procedure No. 11 or an analogous rule or law, and provided further, that if a court makes such a finding, Indemnitee shall reimburse the Company for all amounts previously advanced to Indemnitee pursuant to this Section 5. Subject to the provisos contained in the preceding sentence, to the fullest extent permitted by law, the Company waives any and all rights that it may have to recover its costs and expenses from Indemnitee.

     6. Partial Indemnity. If Indemnitee is entitled under any provision of this Agreement to indemnification by the Company for some, but not all, of Indemnitee’s Indemnifiable Liabilities, the Company shall indemnify Indemnitee for the portion thereof to which Indemnitee is entitled.

     7. Contribution.

          (a) Contribution Payment. To the extent the indemnification provided for under any provision of this Agreement is determined (in the manner hereinabove provided) not to be permitted under applicable law, the Company, in lieu of indemnifying Indemnitee, shall, to the extent permitted by law, contribute to the amount of any and all Indemnifiable Liabilities incurred or paid by Indemnitee for which such indemnification is not permitted. The amount the Company contributes shall be in such proportion as is appropriate to reflect the relative fault of Indemnitee, on the one hand, and of the Company and any and all other parties (including officers and directors of the Company other than Indemnitee) who may be at fault (collectively, including the Company, the “THIRD PARTIES”), on the other hand.

          (b) Relative Fault. The relative fault of the Third Parties and the Indemnitee shall be determined (i) by reference to the relative fault of Indemnitee as determined by the court or other governmental agency or (ii) to the extent such court or other governmental agency does not apportion relative fault, by the Reviewing Party after giving effect to, among other things, the relative intent, knowledge, access to information, and opportunity to prevent or correct the relevant events, of each party, and other relevant equitable considerations. The Company and Indemnitee agree that it would not be just and equitable if contribution were determined by pro rata allocation or by any other method of allocation that does take account of the equitable considerations referred to in this Section 7(b).

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     8. Burden of Proof. In connection with any determination by the Reviewing Party or in any judicial proceeding to determine whether Indemnitee is entitled to be indemnified under any provisions of this Agreement or to receive contribution pursuant to Section 7 of this Agreement, to the extent permitted by law the burden of proof shall be on the Company to establish that Indemnitee is not so entitled.

     9. No Presumption. For purposes of this Agreement, the termination of any Claim by judgment, order, settlement (whether with or without court approval), or conviction, or upon a plea on nolo contendere, or its equivalent, or an entry of an order of probation prior to judgment shall not create a presumption (other than any presumption arising as a matter of law that the parties may not contractually agree to disregard) that Indemnitee did not meet any particular standard of conduct or have any particular belief or that a court has determined that indemnification is not permitted by applicable law.

     10. Non-exclusivity; Changes in Law. The rights of Indemnitee hereunder shall be in addition to any other rights Indemnitee may have under the Bylaws or Certificate of Incorporation or the Delaware General Corporation Law or otherwise. To the extent that a change in the Delaware General Corporation Law (whether by statute or judicial decision) permits greater indemnification or advancement of expenses by agreement than would be afforded currently under this Agreement, it is the intent of the parties hereto that Indemnitee shall enjoy by this Agreement the greater benefits so afforded by that change, and this Agreement shall be deemed to be amended to such extent. Indemnitee’s rights under this Agreement shall not be diminished by any amendment to the Certificate of Incorporation or Bylaws, or of any other agreement or instrument to which Indemnitee is not a party, and shall not diminish any other rights that Indemnitee now or in the future has against the Company.

     11. Liability Insurance. The Company shall use commercially reasonable efforts to obtain and maintain in effect an insurance policy or policies with a reputable insurer providing directors’ and officers’ liability insurance coverage to Indemnitee in an amount which is not less than the greater of (i) $10 million, or (ii) the maximum amount of coverage available for the most favorably insured of the Company’s officers and directors, which policy or policies shall name the Indemnitee as an insured in such a manner as to provide Indemnitee the same rights and benefits as are accorded to the most favorably insured of the Company’s officers and directors.

     12. Period of Limitations. No action, lawsuit, or proceeding may be brought against Indemnitee or Indemnitee’s spouse, heirs, executors, or personal or legal representatives, nor may any cause of action be asserted in any such action, lawsuit, or proceeding, by or on behalf of the Company, after the expiration of two years after the statute of limitations commences with respect to Indemnitee’s act or omission that gave rise to the action, lawsuit, proceeding, or cause of action; provided, however, that, if any shorter period of limitations is otherwise applicable to any such action, lawsuit, proceeding, or cause of action, the shorter period shall govern.

     13. Amendments. No supplement, modification, or amendment of this Agreement shall be binding unless executed in writing by both of the parties hereto. No waiver of any provision of this Agreement shall be effective unless in a writing signed by the party granting the waiver. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute

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a waiver of any other provisions hereof (whether or not similar) nor shall that waiver constitute a continuing waiver.

     14. Other Sources. Indemnitee shall not be required to exercise any rights that Indemnitee may have against any other Person (for example, under an insurance policy) before Indemnitee enforces his rights under this Agreement. However, to the extent the Company actually indemnifies Indemnitee or advances him Expenses, the Company shall be subrogated to the rights of Indemnitee and shall be entitled to enforce any such rights which Indemnitee may have against third parties. Indemnitee shall assist the Company in enforcing those rights if it pays his costs and expenses of doing so. If Indemnitee is actually indemnified or advanced Expenses by any third party, then, for so long as Indemnitee is not required to disgorge the amounts so received, to that extent the Company shall be relieved of its obligation to indemnify Indemnitee or advance Indemnitee Expenses.

     15. Binding Effect. This Agreement shall be binding upon and inure to the benefit of and be enforceable by the parties hereto and their respective successors, assigns (including any direct or indirect successor by merger or consolidation), spouses, heirs, and personal and legal representatives. This Agreement shall continue in effect regardless of whether Indemnitee continues to service as an officer or director of the Company or another enterprise at the Company’s request.

     16. Severability. If any provision of this Agreement is held to be illegal, invalid, or unenforceable under present or future laws effective during the term hereof, that provision shall be fully severable; this Agreement shall be construed and enforced as if that illegal, invalid, or unenforceable provision had never comprised a part hereof; and the remaining provisions shall remain in full force and effect and shall not be affected by the illegal, invalid, or unenforceable provision or by its severance from this Agreement. Furthermore, in lieu of that illegal, invalid, or unenforceable provision, there shall be added automatically as a part of this Agreement a provision as similar in terms to the illegal, invalid, or unenforceable provision as may be possible and be legal, valid, and enforceable.

     17. Governing Law; Consent to Jurisdiction; Service of Process. This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of Delaware applicable to contracts made and to be performed in that state without giving effect to the principles of conflicts of laws. Each of the Company and the Indemnitee hereby irrevocably and unconditionally consents to submit to the exclusive jurisdiction of the Court of Chancery of the State of Delaware and the courts of the United States of America located in the State of Delaware (the “DELAWARE COURTS”) for any litigation arising out of or relating to this Agreement and the transactions contemplated hereby (and agrees not to commence any litigation relating thereto except in such courts), waives any objection to the laying of venue of any such litigation in the Delaware Courts and agrees not to plead or claim in any Delaware Court that such litigation brought therein has been brought in an inconvenient forum. Each of the parties hereto agrees (a) to the extent such party is not otherwise subject to service of process in the State of Delaware, to appoint and maintain an agent in the State of Delaware as such party’s agent for acceptance of legal process, and (b) that service of process may also be made on such party by prepaid certified mail with a proof of mailing receipt validated by the United States Postal Service constituting evidence of valid service. Service made pursuant to (a) or (b) above

8

shall have the same legal force and effect as if served upon such party personally within the State of Delaware.

     18. Headings. The headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement.

     19. Notices. Whenever this Agreement requires or permits notice to be given by one party to the other, such notice shall be in writing and shall be deemed to have been duly given (a) when delivered by hand, (b) when transmitted by facsimile and receipt is acknowledged, or (c) if mailed by certified or registered mail with postage prepaid, on the third business day after the date on which it is so mailed, to the address of the respective party as listed on the signature page hereto, or to such other address as may have been furnished in the same manner by any party to the other. Receipt of a notice by the Secretary of the Company shall be deemed receipt of such notice by the Company.

     20. Complete Agreement. This Agreement and the other agreements entered into concurrently herewith by the Company and the Indemnitee constitute the complete understanding and agreement among the parties with respect to the subject matter hereof and supersedes all prior agreements and understandings between the parties with respect to the subject matter hereof, other than any indemnification rights that Indemnitee may enjoy under the Certificate of Incorporation, the Bylaws, or the Delaware General Corporation Law.

     21. Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original, but in making proof hereof it shall not be necessary to produce or account for more than one such counterpart.

* * * * *

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     EXECUTED as of the date first written above.

FIRST ACCEPTANCE CORPORATION
By:
	Name:
	Title:

INDEMNITEE
 

Name: 

10

EX-31.1

Exhibit 31.1

SECTION 302 CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER

I, Stephen J. Harrison, President and Chief Executive Officer of First Acceptance Corporation, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of First Acceptance Corporation;
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;

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;

4. The registrant’s other certifying officer(s) 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:

(a)	Designed such disclosure controls and procedures, or caused such disclosure 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;
(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;
(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
(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 (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) 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):

(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
(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: May 10, 2007

/s/ Stephen J. Harrison

Stephen J. Harrison 

President and Chief Executive Officer 

EX-31.2

Exhibit 31.2

SECTION 302 CERTIFICATION OF THE CHIEF FINANCIAL OFFICER

I, Edward L. Pierce, Executive Vice President and Chief Financial Officer of First Acceptance Corporation, certify that:

1. I have reviewed this quarterly report on Form 10-Q of First Acceptance Corporation;

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;

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;

4. The registrant’s other certifying officer(s) 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:

(a)	Designed such disclosure controls and procedures, or caused such disclosure 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;
(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;
(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
(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 (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) 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):

(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
(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: May 10, 2007

/s/ Edward L. Pierce

Edward L. Pierce 

Executive Vice President and Chief Financial Officer 

EX-32.1

Exhibit 32.1

CERTIFICATION BY THE CHIEF EXECUTIVE OFFICER PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of First Acceptance Corporation (the “Company”) on Form 10-Q for the period ended March 31, 2007, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Stephen J. Harrison, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company at the dates and for the periods indicated.

/s/ Stephen J. Harrison

Stephen J. Harrison 

President and Chief Executive Officer 

May 10, 2007

A signed original of this written statement required by Section 906 has been provided to First Acceptance Corporation and will be retained by First Acceptance Corporation and furnished to the Securities and Exchange Commission or its staff upon request.

EX-32.2

Exhibit 32.2

CERTIFICATION BY THE CHIEF FINANCIAL OFFICER PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of First Acceptance Corporation (the “Company”) on Form 10-Q for the period ended March 31, 2007, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Edward L. Pierce, Executive Vice President and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company at the dates and for the periods indicated.

/s/ Edward L. Pierce

Edward L. Pierce 

Executive Vice President and
     Chief Financial Officer 

May 10, 2007

A signed original of this written statement required by Section 906 has been provided to First Acceptance Corporation, and will be retained by First Acceptance Corporation and furnished to the Securities and Exchange Commission or its staff upon request.