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 September 30, 2008

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

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

Not applicable
(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 þ       No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o  Accelerated filer þ  Non-accelerated filer   o
(Do not check if a smaller reporting company) Smaller reporting company o 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o      No þ

As of November 10, 2008, there were 48,089,667 shares outstanding of the registrant’s common stock, par value $0.01 per share.

FIRST ACCEPTANCE CORPORATION
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 2008

INDEX

 Ex-10

 EX-31.1

 EX-31.2

 EX-32.1

 EX-32.2

i

PART I — FINANCIAL INFORMATION

     Item 1. Financial Statements

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

	September 30,			June 30,
	2008			2008
	(Unaudited)
ASSETS
Fixed maturities, available-for-sale at fair value (amortized cost of $192,972 and $190,040, respectively)	$	189,040		$	189,570
Cash and cash equivalents		29,101			38,646
Premiums and fees receivable, net of allowance of $852 and $651		57,662			63,377
Reinsurance receivables		293			283
Deferred tax asset, net		15,892			17,593
Other assets		10,578			9,894
Property and equipment, net		4,659			4,876
Deferred acquisition costs		4,690			4,549
Goodwill		138,082			138,082
Identifiable intangible assets		6,360			6,360
TOTAL ASSETS	$	456,357		$	473,230
LIABILITIES AND STOCKHOLDERS’ EQUITY
Loss and loss adjustment expense reserves	$	98,631		$	101,407
Unearned premiums and fees		70,274			77,237
Notes payable and capitalized lease obligations		2,633			4,124
Debentures payable		41,240			41,240
Payable for securities		—			1,045
Other liabilities		19,246			22,718
Total liabilities		232,024			247,771
Stockholders’ equity:
Preferred stock, $.01 par value, 10,000 shares authorized		—			—
Common stock, $.01 par value, 75,000 shares authorized; 48,055 shares issued and outstanding		481			481
Additional paid-in capital		463,096			462,601
Accumulated other comprehensive loss		(3,932	)		(470	)
Accumulated deficit		(235,312	)		(237,153	)
Total stockholders’ equity		224,333			225,459
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	456,357		$	473,230

See notes to consolidated financial statements.

1

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

	Three Months Ended
	September 30,
	2008			2007
Revenues:
Premiums earned	$	61,838		$	74,803
Commission and fee income		8,243			9,298
Investment income		2,723			3,027
Other		(1,215	)		30
		71,589			87,158
Costs and expenses:
Losses and loss adjustment expenses		43,732			57,671
Insurance operating expenses		21,446			23,986
Other operating expenses		392			505
Litigation settlement		145			—
Stock-based compensation		495			324
Depreciation and amortization		469			368
Interest expense		1,157			1,341
		67,836			84,195
Income before income taxes		3,753			2,963
Provision for income taxes		1,912			1,071
Net income	$	1,841		$	1,892
Net income per share:
Basic and diluted	$	0.04		$	0.04
Number of shares used to calculate net income per share:
Basic		47,655			47,615
Diluted		49,244			49,536
Reconciliation of net income to comprehensive income (loss):
Net income	$	1,841		$	1,892
Net unrealized change in investments		(3,462	)		2,019
Other		—			(167	)
Comprehensive income (loss)	$	(1,621	)	$	3,744

See notes to consolidated financial statements.

2

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

	Three Months Ended
	September 30,
	2008			2007
Cash flows from operating activities:
Net income	$	1,841		$	1,892
Adjustments to reconcile net income to cash provided by (used in) operating activities:
Depreciation and amortization		469			368
Stock-based compensation		495			324
Deferred income taxes		1,701			924
Other-than-temporary impairment on investment securities		1,265			—
Other		(11	)		(9	)
Change in:
Premiums and fees receivable		5,670			1,233
Deferred acquisition costs		(141	)		(235	)
Loss and loss adjustment expense reserves		(2,776	)		2,476
Unearned premiums and fees		(6,963	)		(3,255	)
Litigation settlement		145			—
Other		(4,226	)		(733	)
Net cash provided by (used in) operating activities		(2,531	)		2,985
Cash flows from investing activities:
Purchases of fixed maturities, available-for-sale		(10,036	)		(7,512	)
Maturities and paydowns of fixed maturities, available-for-sale		3,409			3,072
Sales of fixed maturities, available-for-sale		2,488			802
Net change in receivable/payable for securities		(1,045	)		18,974
Capital expenditures		(254	)		(176	)
Other		(85	)		(22	)
Net cash provided by (used in) investing activities		(5,523	)		15,138
Cash flows from financing activities:
Payments on borrowings		(1,491	)		(6,442	)
Net cash used in financing activities		(1,491	)		(6,442	)
Net increase (decrease) in cash and cash equivalents		(9,545	)		11,681
Cash and cash equivalents, beginning of period		38,646			34,161
Cash and cash equivalents, end of period	$	29,101		$	45,842

See notes to consolidated financial statements.

3

FIRST ACCEPTANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(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, 2008.

2. Investments

     Fair Value

     Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Company holds fixed maturities investments, which are carried at fair value.

     Fair value measurements are generally based upon observable and unobservable inputs. Observable inputs are based on market data from independent sources, while unobservable inputs reflect the Company’s view of market assumptions in the absence of observable market information. All assets and liabilities that are carried at fair value are classified and disclosed in one of the following categories:

        Level 1 — Quoted prices in active markets for identical assets or liabilities.

        Level 2 — Quoted market prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; and model driven valuations that use observable market data.

        Level 3 — Instruments that use model driven valuations that do not have observable market data.

     Level 1 assets and liabilities primarily consist of financial instruments whose value is based on quoted market prices.

     Level 2 assets and liabilities include those financial instruments that are valued by quoted market prices in markets that are not active or by independent pricing services or valued using models or other valuation techniques. All significant inputs are observable, or derived from observable information in the marketplace, or are supported by observable levels at which transactions are executed in the market place.

     Level 3 assets and liabilities include financial instruments whose fair value is estimated based on non-binding broker quotes or by model driven valuations that utilize significant inputs not based on, or corroborated by, readily available market information.

4

FIRST ACCEPTANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)

     The following table presents the fair-value measurements for each major category of assets that are measured on a recurring basis as of September 30, 2008 (in thousands).

			Fair Value Measurements Using
			Quoted Prices
			in Active		Significant
			Markets for		Other		Significant
			Identical		Observable		Unobservable
			Assets		Inputs		Inputs
Description	Total		(Level 1)		(Level 2)		(Level 3)
Fixed maturities:
U.S. government and agencies	$	31,378	$	31,378	$	—	$	—
State		7,561		—		7,561		—
Political subdivisions		3,362		—		3,362		—
Revenue and assessment		29,881		—		29,881		—
Corporate bonds		52,111		—		52,111		—
Collateralized mortgage obligations		64,747		—		63,668		1,079
Total fixed maturities		189,040		31,378		156,583		1,079
Cash and cash equivalents		29,101		29,101		—		—
Total	$	218,141	$	60,479	$	156,583	$	1,079

     Based on the above categorization, the following table represents the quantitative disclosure for those major assets included in category Level 3 as of September 30, 2008 (in thousands).

	Fair Value
	Measurements
	Using Significant
	Unobservable
	Inputs
	(Level 3)
Balance at July 1, 2008	$	167
Total gains or losses (realized or unrealized):
Included in net income		(99	)
Included in comprehensive income (loss)		—
Purchases, sales, issuances and settlements		(17	)
Transfers in and/or out of Level 3		1,028
Balance at September 30, 2008	$	1,079

     Gains or losses included in net income are included in other revenues within the consolidated statements of operations. Of the $1.1 million fair value of securities in Level 3, which consists of 3 securities, each are priced based on non-binding broker quotes.

5

FIRST ACCEPTANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)

     Investment Income and Net Realized Gains and Losses

     The major categories of investment income follow (in thousands).

	Three Months Ended
	September 30,
	2008			2007
Fixed maturities, available-for-sale	$	2,630		$	2,667
Cash and cash equivalents		179			445
Other		29			29
Investment expenses		(115	)		(114	)
	$	2,723		$	3,027

     Net realized capital gains (losses) on investments, which are included in other revenues within the consolidated statements of operations, from fixed maturities available-for-sale follow (in thousands).

	Three Months Ended
	September 30,
	2008			2007
Gains	$	59		$	37
Losses		(9	)		(7	)
Other-than-temporary impairment		(1,265	)		—
	$	(1,215	)	$	30

     Fixed Maturities, Available-for-sale

     The following table summarizes our fixed maturity securities at September 30, 2008 (in thousands).

			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
U.S. government and agencies	$	30,310	$	1,154	$	(86	)	$	31,378
State		7,418		163		(20	)		7,561
Political subdivisions		3,365		19		(22	)		3,362
Revenue and assessment		29,928		276		(323	)		29,881
Corporate bonds		55,427		105		(3,421	)		52,111
Collateralized mortgage obligations		66,524		419		(2,196	)		64,747
	$	192,972	$	2,136	$	(6,068	)	$	189,040

     The number of securities with gross unrealized gains and losses follows. Gross unrealized losses are further segregated by the length of time that individual securities have been in a continuous unrealized loss position.

	Gross Unrealized Losses				Gross
	Less than		12 months		Unrealized
As of:	12 months		or longer		Gains
September 30, 2008		95		14		107
June 30, 2008		79		16		108

6

FIRST ACCEPTANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)

     The fair value and gross unrealized losses of those securities in a continuous unrealized loss position for longer than 12 months at September 30, 2008 follows. Gross unrealized losses are further segregated by the percentage of amortized cost.

	Number				Gross
	of		Fair		Unrealized
Gross Unrealized Losses	Securities		Value		Losses
Less than 10%		4	$	1,247	$	(76	)
Greater than 10%		10		6,970		(1,875	)
		14	$	8,217	$	(1,951	)

     The following table sets forth the amount of gross unrealized loss by current severity (as compared to amortized cost) and length of time that individual securities have been in a continuous unrealized loss position at September 30, 2008 (in thousands).

	Fair Value of
	Securities with					Severity of Gross Unrealized Losses
	Gross		Gross									Greater
Length of	Unrealized		Unrealized			Less			5% to			than
Gross Unrealized Losses:	Losses		Losses			than 5%			10%			10%
Less than or equal to:
Three months	$	21,729	$	(446	)	$	(347	)	$	(99	)	$	—
Six months		41,865		(2,242	)		(458	)		(937	)		(847	)
Nine months		12,551		(1,222	)		(208	)		(70	)		(944	)
Twelve months		2,294		(207	)		(54	)		—			(153	)
Greater than twelve months		8,217		(1,951	)		(20	)		(56	)		(1,875	)
Total	$	86,656	$	(6,068	)	$	(1,087	)	$	(1,162	)	$	(3,819	)

     Other-Than-Temporary Impairment

     The determination of whether unrealized losses are “other-than-temporary” requires judgment based on subjective as well as objective factors. The Company routinely monitors its fixed maturities portfolio for changes in fair value that might indicate potential impairments and performs detailed reviews on such securities. Changes in fair value are evaluated to determine the extent to which such changes are attributable to (i) fundamental factors specific to the issuer or (ii) market-related factors such as interest rates or sector declines.

     Securities with declines attributable to issuer-specific fundamentals are reviewed to identify all available evidence to estimate the potential for impairment. Resources used include historical financial data included in SEC filings for corporate bonds and performance data regarding the underlying loans for collateralized mortgage obligations (“CMOs”). Securities with declines attributable to market or sector declines where the Company has the intent and ability to hold these securities for a period of time sufficient to allow for any anticipated recovery in fair value are not deemed to be other-than-temporary.

     The issuer-specific factors considered in reaching the conclusion that securities with declines are not other-than-temporary include (i) the extent and duration of the decline in fair value, including the duration of any significant decline in value, (ii) whether the security is current as to payments of principal and interest, (iii) a valuation of any underlying collateral, (iv) current and future conditions and trends for both the business and its industry, (v) changes in cash flow assumptions for CMOs and (vi) rating agency actions. Based on these factors, the Company will make a determination as to the probability of recovering principal and interest on the security.

7

FIRST ACCEPTANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)

     Other-than-temporary impairment (“OTTI”) charges of $1.3 million for the three months ended September 30, 2008 include $0.6 million for certain non-agency CMOs and $0.7 million for two corporate bonds. Due to the deterioration in liquidity in the credit markets, yields on certain non-agency CMOs declined below projected book yields requiring the impairment of those CMOs totaling $0.6 million under the guidance set forth in Emerging Issues Task Force Issue No. 99-20, “Recognition of Interest Income and Impairment on Purchased Beneficial Interests and Beneficial Interests That Continue to Be Held by a Transferor in Securitized Financial Assets.” Other than the decline in the yields of these securities resulting from changes in prepayment assumptions, the underlying assets of these securities continue to perform within expectations. The Company also recognized OTTI charges of $0.7 million related to two corporate bonds. These bonds were considered to be impaired based on the extent and duration of the declines in their fair values and issuer-specific fundamentals relating to (i) poor operating results and weakened financial conditions, (ii) negative industry trends further impacted by the recent economic turmoil, and (iii) a series of downgrades to their credit ratings. Based on these factors, the Company does not believe that these bonds will recover their unrealized losses in the near future. The Company believes that the remaining securities having unrealized losses at September 30, 2008 were not other-than-temporarily impaired and that it has the ability and intent to hold these securities for a period of time sufficient to allow for recovery of their impairment.

3. Notes Payable

     The Company entered into an amendment to its credit agreement effective September 10, 2008. The amended terms (i) accelerated the maturity date of the term loan facility to October 31, 2008, (ii) eliminated the revolving credit facility and (iii) removed all financial covenants for the remaining term. The unpaid balance under the Company’s credit agreement as of September 30, 2008 was $2.5 million, which was paid in full on October 31, 2008. The Company entered into an interest rate swap agreement in January 2006 that fixed the interest rate on the term loan facility at 6.63%. Effective September 30, 2008, the Company cancelled the interest rate swap agreement for $0.1 million.

4. Net Income Per Share

     The following table sets forth the computation of basic and diluted net income per share (in thousands, except per share data).

	Three Months Ended
	September 30,
	2008		2007
Net income	$	1,841	$	1,892
Weighted average common basic shares		47,655		47,615
Effect of dilutive securities		1,589		1,921
Weighted average common dilutive shares		49,244		49,536
Basic and diluted net income per share	$	0.04	$	0.04

     For the three months ended September 30, 2008, options to purchase approximately 5.4 million shares of common stock, a dilutive effect of approximately 1.2 million shares, and 0.4 million shares of restricted common stock were included in the computation of diluted income per share. For the three months ended September 30, 2007, options to purchase approximately 4.7 million shares of common stock, a dilutive effect of approximately 1.9 million shares, were included in the computation of diluted income per share.

8

FIRST ACCEPTANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)

5. Income Taxes

     Net deferred tax assets in the accompanying balance sheets as of September 30, 2008 and June 30, 2008 include deferred tax assets of $47.5 million and $47.7 million, respectively, and a related valuation allowance of $31.6 million and $30.1 million, respectively. The Company continues to assess the realization of its deferred tax assets, including net operating loss (“NOL”) carryforwards, which comprise the majority of its deferred tax assets. As of June 30, 2008, the deferred tax asset related to the federal NOL carryforwards that expire in fiscal year 2009 were fully allowed for through the valuation allowance. The Company’s assessment of the realization of its remaining deferred tax assets at September 30, 2008 resulted in an increase of $1.5 million to the valuation allowance related to the changes in unrealized losses and other-than-temporary impairment on investment securities.

     A valuation allowance is recognized if, based on the weight of available evidence, it is more likely than not that some portion, or all, of the deferred tax assets will not be realized. The Company considers positive and negative evidence to determine the sufficiency of its valuation allowance, including its historical and forecasted future taxable income. Management remains optimistic about the Company’s future outlook and expects to generate taxable income sufficient to realize its remaining net deferred tax assets.

     However, the Company’s evaluation includes multiple assumptions and estimates that may change over time. Current market conditions could create greater volatility in operating results. Management is closely monitoring trends in premiums written, premiums earned, policies in force, underwriting profits and their impact on forecasted operating results. If the Company were to incur actual cumulative losses over a three-year period or forecast near term losses, which would indicate uncertainty regarding its ability to generate taxable income and realize tax benefits in future years, the Company may be required to record an additional valuation allowance that could have a materially adverse impact on its results of operations and financial position.

6. Goodwill and Identifiable Intangible Assets

     After considering recent trends in the Company’s results, including premiums written, premiums earned and policies in force, the estimated future discounted cash flows associated with its goodwill and identifiable intangible assets were compared with their carrying amounts to determine if a write down to market value or discounted cash flow value was necessary. Based on this evaluation, the Company concluded that goodwill and other identifiable intangible assets were fully realizable as of September 30, 2008. However, the Company’s evaluation includes multiple assumptions, including estimated discounted cash flows and estimates that may change over time. If future discounted cash flows become less than those projected by the Company, an impairment charge may become necessary that could have a materially adverse impact on the Company’s results of operations and financial position.

7. Litigation

     The Company is named as a defendant in various lawsuits, arising in the ordinary course of business, generally relating to its insurance operations. All legal actions relating to claims made under insurance policies are considered by the Company in establishing its loss and loss adjustment expense reserves. The Company also faces lawsuits that seek damages beyond policy limits, commonly known as bad faith claims, as well as class action and individual lawsuits that involve issues arising in the course of the Company’s business. The Company continually evaluates potential liabilities and reserves for litigation of these types using the criteria established by Financial Accounting Standards Board (“FASB”) Statement No. 5, Accounting for Contingencies (“SFAS 5”). Pursuant to SFAS 5, reserves for a loss may only be recorded if the likelihood of occurrence is probable and the amount can be reasonably estimated. If a loss, while not probable, is judged to be reasonably possible, management will disclose, if it can be estimated, a possible range of loss or state that an estimate cannot be made. Management considers each legal action using SFAS 5 and records reserves for losses as warranted by establishing a reserve within its consolidated balance sheet in loss and loss adjustment expense reserves for bad faith claims and in other liabilities for other lawsuits. Amounts incurred are recorded within the Company’s consolidated statement of operations in losses and loss adjustment expenses for bad faith claims and in insurance operating expenses for other lawsuits unless otherwise disclosed.

     Certain claims and legal actions have been brought against the Company for which an accrual of a loss has been made under SFAS 5. The Company is a party to litigation in Alabama and Georgia in which allegations are made with respect to its sales practices, primarily the sale of motor club memberships currently or formerly sold in those states. Annette Rush v. Village Auto Insurance Company, Inc. (now known as First Acceptance Insurance Company of Georgia, Inc.) was filed on October 26, 2005, as a putative class action in the Superior Court of Fulton County, Georgia. Margaret Franklin v. Vesta Insurance Corp., et al. was filed on July 14, 2006, as a putative class

9

FIRST ACCEPTANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)

action in the Circuit Court of Bullock County, Alabama. Keisha Milbry Monday, et al. v. First Acceptance Corp., et al. was filed on February 13, 2007, in the Circuit Court of Bullock County, Alabama. Solomon and Catherine Warren, et al. v. First Acceptance Corp., et al. was filed on November 9, 2007, in the Circuit Court of Barbour County, Alabama. The suits generally allege that the Company implemented a program to convince its consumers who purchased automobile insurance policies to also purchase motor club memberships or that the Company charged its consumers billing fees associated with its products that were not properly disclosed, and seek unspecified damages and attorneys’ fees. The Company has denied all allegations of wrongdoing, has vigorously defended itself against these actions, and believes the Company has meritorious defenses to these claims.

     Notwithstanding the foregoing, to avoid the uncertainty, risks and costs of further litigation, the Company entered into a settlement agreement effective September 10, 2008 with the plaintiffs in the Georgia litigation. Pursuant to the terms of the settlement agreement, the plaintiffs in the Georgia litigation were divided into two classes: (i) persons who were insured by the Company on September 1, 2008 who purchased an automobile club membership with their automobile insurance and (ii) persons who were insured by the Company prior to September 1, 2008 who purchased an automobile club membership with their automobile insurance. Pursuant to the terms of the settlement, each class member who was insured by the Company on September 1, 2008 will receive a premium credit equal to 100% of the amounts he or she paid for automobile club memberships and deferred billing fees against the premium for a new or renewal automobile insurance policy (as applicable) for up to twelve months of liability or uninsured motorist coverage issued by the Company prior to December 31, 2009, unless he or she elects, prior to December 31, 2008, to receive instead of the premium credit a reimbursement certificate that provides for cash reimbursement of up to a maximum total payment of $50 for any rental or towing expenses incurred by the class member on or before December 31, 2009 as a result of the disablement of his or her vehicle because of an accident. Each class member who was insured by the Company prior to September 1, 2008 will receive a reimbursement certificate that provides for cash reimbursement of up to a maximum total payment of $50 for any rental or towing expenses incurred by the class member on or before December 31, 2009 as a result of the disablement of his or her vehicle because of an accident, unless he or she elects, prior to December 31, 2008, to receive instead of the reimbursement certificate, a premium credit equal to 100% of the amounts he or she paid for automobile club memberships and deferred billing fees against the premium for a new automobile insurance policy for up to twelve months of liability or uninsured motorist coverage issued by the Company prior to June 30, 2010. Any premium credits issued to class members as described above will be prorated over a twelve-month term not to extend beyond June 30, 2011, and the class member will be entitled to the prorated premium credit only so long as he or she keeps their insurance premiums current during the twelve-month term. No benefits will be available to class members until January 1, 2009. The Company has also agreed to strengthen its disclosures to customers of all relevant fees, charges and coverages. In addition, the Company has agreed to pay $3.8 million in fees and expenses for the attorneys for the Georgia plaintiffs and pay all costs associated with the administration of the settlement. The settlement agreement is subject to approval by the court, and the Company expects the court to hold a hearing to consider the settlement in November 2008.

     The Company has also agreed upon preliminary settlement terms with the plaintiffs in the Alabama litigation. The preliminary settlement terms provide for benefits to the Alabama plaintiffs substantially similar to the benefits to be paid to the Georgia plaintiffs, and a payment of $2.5 million in fees and expenses for the attorneys for the Alabama plaintiffs. The settlement of the Alabama litigation is subject to the negotiation of a definitive settlement agreement and approval of the settlement agreement by the applicable courts.

     At this time, the Company is unable to estimate the total costs associated with the Georgia and Alabama litigation settlements. The costs of the settlements will depend, among other factors, upon whether class members receive premium credits or reimbursement certificates pursuant to the terms of the settlements and the rate of redemption and forfeiture of the premium credits and reimbursement certificates. The Company estimates that there are approximately 11,000 persons who were insured by the Company on September 1, 2008 and approximately 155,000 persons who were insured by the Company prior to September 1, 2008 that, pursuant to the terms of the settlement agreement, are members of the plaintiff class in the Georgia litigation. The Company estimates that there are approximately 55,000 persons who were insured by the Company prior to September 1, 2008 that, pursuant to the proposed settlement terms, would be eligible to be members of the plaintiff class in the Alabama litigation. Through September 30, 2008, the total amount received by the Company relating to motor club memberships and deferred billing fees is $25.3 million for the State of Georgia and $5.8 million for the State of Alabama.

10

FIRST ACCEPTANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)

     The litigation settlement costs are set forth separately in the consolidated statements of operations. The Company anticipates that its payment of $6.3 million in plaintiffs’ attorneys’ fees and expenses and the $0.4 million in estimated costs associated with the administration of the settlement, both of which were previously accrued at June 30, 2008, will occur in calendar year 2009, after the final approval from the courts. The Company will accrue additional amounts relating to the costs of the litigation settlements when those amounts become reasonably estimable.

     The Company is currently in discussions with its insurance carriers regarding coverage for the costs and expenses incurred relating to the litigation settlements and is not able currently to estimate the amount, if any, that it may receive from its insurance carriers. As a result, the Company has not accrued any amount at September 30, 2008 for insurance recoveries that may offset the costs and expenses relating to the litigation settlements. Any such insurance recoveries will be recorded in the Company’s operating results during the periods in which the recoveries are determined to be probable.

     The litigation settlement accrual of $6.3 million as well as the remaining estimated costs associated with the administration of the settlement accrual of $0.4 million as of September 30, 2008 are classified within other liabilities on the Company’s consolidated balance sheet. The associated litigation costs for the three months ended September 30, 2008 of $0.1 million relate to costs incurred in connection with the Company’s defense of the litigation and are classified within litigation settlement in the consolidated statements of operations.

8. Segment Information

     The Company operates in two business segments: (i) insurance operations and (ii) real estate and corporate. The Company’s primary focus is 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 (in thousands).

	Three Months Ended
	September 30,
	2008			2007
Revenues:
Insurance	$	71,556		$	87,089
Real estate and corporate		33			69
Consolidated total	$	71,589		$	87,158
Income (loss) before income taxes:
Insurance	$	5,763		$	5,061
Real estate and corporate		(2,010	)		(2,098	)
Consolidated total	$	3,753		$	2,963

	September 30,		June 30,
	2008		2008
Total assets:
Insurance	$	443,475	$	458,121
Real estate and corporate		12,882		15,109
Consolidated total	$	456,357	$	473,230

11

FIRST ACCEPTANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)

9. Recent Accounting Pronouncements

     Effective July 1, 2008, the Company adopted the provisions of the FASB Statement No. 157, Fair Value Measurements (“SFAS 157”), which defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. This statement applies under other accounting pronouncements that require or permit fair value measurements, the FASB having previously concluded in those accounting pronouncements that fair value is the relevant measurement attribute. Accordingly, this statement does not require any new fair value measurements. The adoption of SFAS 157 did not have a material impact on the results of operations or financial position of the Company. In October 2008, the FASB issued Staff Position No. FAS 157-3, Determining the Fair Value of a Financial Asset When the Market for That Asset is Not Active (“FSP 157-3”). FSP 157-3 clarifies the application of SFAS 157 in cases where a market is not active. The Company has considered the guidance provided by FSP 157-3 in its determination of estimated fair values as of September 30, 2008, and the impact was not material.

     Effective July 1, 2008, the Company adopted the provisions of the FASB Statement No. 159, Establishing the Fair Value Option for Financial Assets and Liabilities (“SFAS 159”), which includes an amendment to FASB Statement No. 115, Accounting for Certain Investments in Debt and Equity Securities (“SFAS 115”). SFAS 159 permits entities to choose to measure many financial instruments and certain other items at fair value. The objective is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. This statement is expected to expand the use of fair value measurement, which is consistent with the FASB’s long-term measurement objectives for accounting for financial instruments. This statement applies to all entities and most of the provisions of this statement apply only to entities that elect the fair value option. However, the amendment to SFAS 115 applies to all entities with available-for-sale and trading securities. The Company did not elect the fair value option and, as a result, the adoption of SFAS 159 did not have a material impact on the Company’s results of operations or financial position.

12

FIRST ACCEPTANCE CORPORATION 10-Q

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. Our 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 our Annual Report on Form 10-K for the fiscal year ended June 30, 2008. The following discussion should be read in conjunction with our 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, 2008 included in our Annual Report on Form 10-K.

General

     As of September 30, 2008, we leased and operated 429 retail locations (or “stores”), staffed by employee-agents. Our employee-agents exclusively sell insurance products either underwritten or serviced by us. As of September 30, 2008, 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, 2008 for additional information with respect to our business.

     The following table shows the change in the number of our retail locations for the periods presented. Retail location counts are based upon the date that a location commenced or ceased writing business.

	Three Months Ended
	September 30,
	2008			2007
Retail locations — beginning of period		431			462
Opened		1			1
Closed		(3	)		(5	)
Retail locations — end of period		429			458

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

	September 30,				June 30,
	2008		2007		2008		2007
Alabama		25		25		25		25
Florida		39		41		40		41
Georgia		61		62		61		62
Illinois		81		81		80		81
Indiana		19		23		19		24
Mississippi		8		8		8		8
Missouri		13		16		14		15
Ohio		29		30		29		30
Pennsylvania		18		24		19		25
South Carolina		28		28		28		28
Tennessee		20		20		20		20
Texas		88		100		88		103
Total		429		458		431		462

13

FIRST ACCEPTANCE CORPORATION 10-Q

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 sales of policies written and assumed by our insurance company subsidiaries;

• commission and fee income, including installment billing fees on policies written, agency fees and commissions and fees for other ancillary products and services; and

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

     The following table presents premiums earned by state (in thousands).

	Three Months Ended
	September 30,
	2008		2007
Premiums earned:
Georgia	$	13,427	$	16,103
Florida		7,616		12,361
Illinois		7,361		8,169
Texas		7,002		8,526
Alabama		6,572		7,504
South Carolina		5,450		5,640
Tennessee		4,415		5,522
Ohio		3,451		4,000
Pennsylvania		2,787		2,301
Indiana		1,563		1,968
Missouri		1,128		1,470
Mississippi		1,066		1,239
Total premiums earned	$	61,838	$	74,803

     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 are canceled or expire and are not renewed.

	Three Months Ended
	September 30,
	2008			2007
Policies in force — beginning of period		194,079			226,974
Net decrease during period		(23,524	)		(14,463	)
Policies in force — end of period		170,555			212,511

     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.

14

FIRST ACCEPTANCE CORPORATION 10-Q

     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.

     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 loss, expense and combined ratios for our insurance operations for the periods presented.

	Three Months Ended
	September 30,
	2008			2007
Loss and loss adjustment expense		70.7	%		77.1	%
Expense		21.4	%		19.6	%
Combined		92.1	%		96.7	%

Investments

     We use the services of an independent investment manager to manage our fixed maturities investment portfolio. The investment manager conducts, in accordance with our investment policy, all of the investment purchases and sales for our insurance company subsidiaries. Our investment policy has been established by the Investment Committee of our Board of Directors and specifically addresses overall investment goals and objectives, authorized investments, prohibited securities, restrictions on sales by the investment manager and guidelines as to asset allocation, duration and credit quality. The portfolio is compared with a customized index. We do not invest in equity securities. Management and the Investment Committee meet regularly to review the performance of the portfolio and compliance with our investment guidelines.

     The invested assets of the insurance company subsidiaries consist substantially of marketable, investment grade, U.S. government securities, municipal bonds, corporate bonds and collateralized mortgage obligations (“CMOs”). We also invest a portion of the portfolio in certain securities issued by political subdivisions which 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, which are included in other revenues in our consolidated statements of operations, may occur from time to time as changes are made to our holdings to obtain premium tax credits or based upon changes in interest rates.

     Our consolidated investment portfolio was $189.0 million at September 30, 2008 and consisted of fixed maturity securities, all carried at fair value with unrealized gains and losses reported as a separate component of stockholders’ equity on an after-tax basis. At September 30, 2008, we had gross unrealized gains of $2.1 million and gross unrealized losses of $6.1 million, which resulted in a net unrealized loss of $3.9 million on our fixed maturity securities.

     At September 30, 2008, 99.8% of our investment portfolio was rated “investment grade” (a credit rating of AAA to BBB) by nationally recognized rating agencies. The average credit rating of our fixed maturity portfolio was AA+ at September 30, 2008. Investment grade securities generally bear lower yields and lower degrees of risk than those that are unrated or non-investment grade. Management believes that a high quality investment portfolio is more likely to generate a stable and predictable investment return.

     Investments in CMOs were $64.7 million at September 30, 2008 and represented 34% of our fixed maturity portfolio. CMOs are subject to significant extension risk in periods of rising interest rates and economic decline as mortgages may be repaid slower than expected. As of September 30, 2008, all of our CMOs were considered investment grade. In addition, 96% of the CMOs were rated AAA and 79% of our CMOs were backed by agencies of the United States government. Of the non-agency CMOs, 81% were rated AAA.

15

FIRST ACCEPTANCE CORPORATION 10-Q

     The following table summarizes our fixed maturity securities at September 30, 2008 (in thousands).

			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
U.S. government and agencies	$	30,310	$	1,154	$	(86	)	$	31,378
State		7,418		163		(20	)		7,561
Political subdivisions		3,365		19		(22	)		3,362
Revenue and assessment		29,928		276		(323	)		29,881
Corporate bonds		55,427		105		(3,421	)		52,111
Collateralized mortgage obligations		66,524		419		(2,196	)		64,747
	$	192,972	$	2,136	$	(6,068	)	$	189,040

     The following table sets forth the scheduled maturities of our fixed maturity securities at September 30, 2008 based on their fair values (in thousands). Actual maturities may differ from contractual maturities because certain securities may be called or prepaid by the issuers.

					Securities
	Securities		Securities		with No		All
	with		with		Unrealized		Fixed
	Unrealized		Unrealized		Gains or		Maturity
	Gains		Losses		Losses		Securities
One year or less	$	6,257	$	1,383	$	580	$	8,220
After one through five years		43,479		19,318		544		63,341
After five through ten years		13,194		27,812		—		41,006
After ten years		2,186		9,083		457		11,726
No single maturity date		34,646		29,060		1,041		64,747
	$	99,762	$	86,656	$	2,622	$	189,040

Three Months Ended September 30, 2008 Compared with the Three Months Ended September 30, 2007

     Consolidated Results

     Revenues for the three months ended September 30, 2008 decreased 18% to $71.6 million from $87.2 million in the same period last year. Net income for the three months ended September 30, 2008 was $1.8 million, compared with net income of $1.9 million for the three months ended September 30, 2007. Basic and diluted net income per share was $0.04 for both the three months ended September 30, 2008 and 2007.

     Insurance Operations

     Revenues from insurance operations were $71.6 million for the three months ended September 30, 2008, compared with $87.1 million for the three months ended September 30, 2007. Income before income taxes from insurance operations for the three months ended September 30, 2008 was $5.8 million, compared with $5.1 million for the three months ended September 30, 2007.

     Premiums Earned

     Premiums earned decreased by $13.0 million, or 17%, to $61.8 million for the three months ended September 30, 2008 from $74.8 million for the three months ended September 30, 2007. The decrease in premiums earned was due to declines in policies written resulting from the current recessionary conditions, rate increases taken in a number of states to improve underwriting profitability and the closure of 48 poor performing stores since January 2007.

     Approximately 78% of the $13.0 million decline in premiums earned for the three months ended September 30, 2008 was in our Florida, Georgia, Texas and Tennessee markets. These states collectively accounted for 52% of premiums earned during the three months ended September 30, 2008, down from 57% for the same period in the prior year.

16

FIRST ACCEPTANCE CORPORATION 10-Q

Our premiums earned in these states were adversely affected by the current recessionary conditions, as well as a decline in used car sales, which have historically been a significant contributor to new policy growth in these markets. Additionally, the decline in our Florida market was due to a January 1, 2008 rate increase to improve our underwriting profitability.

     The total number of insured policies in force at September 30, 2008 decreased 20% over the same date in 2007 from 212,511 to 170,555, primarily due to the factors noted above. At September 30, 2008, we operated 429 stores, compared with 458 stores at September 30, 2007.

     Commission and Fee Income

     Commission and fee income decreased 11% to $8.2 million for the three months ended September 30, 2008 from $9.3 million for the three months ended September 30, 2007. The decrease in fee income was a result of the decrease in policies in force, partially offset by higher fee income in Florida.

     Investment Income

     Investment income decreased during the three months ended September 30, 2008 primarily as a result of the decrease in the total amount of invested assets and the decline in yields on cash equivalents. At September 30, 2008 and 2007, the tax-equivalent book yields for our fixed maturities portfolio were 5.2%, with effective durations of 3.50 and 3.26 years, respectively. The yields for the comparable customized indices were 5.5% and 5.1% at September 30, 2008 and 2007, respectively.

     Other

     Included in other revenues during the three months ended September 30, 2008 is $1.3 million of charges related to other-than-temporary impairment (“OTTI”) on investments comprised of $0.6 million for certain non-agency CMOs and $0.7 million for two corporate bonds. Management’s assessment of whether an impairment is other-than-temporary includes an evaluation of factors such as the credit quality of the investment, the duration of the impairment, issuer-specific fundamentals, our ability and intent to hold the investment until recovery or maturity and overall economic conditions. If it is determined that the value of any investment is other-than-temporarily impaired, the impairment would be charged against earnings and a new cost basis for the security would be established. Due to the deterioration in liquidity in the credit markets during calendar 2008, yields on certain non-agency mortgage-backed securities declined below projected book yield requiring a $0.6 million impairment of these securities under the guidance set forth in Emerging Issues Task Force Issue No. 99-20 “Recognition of Interest Income and Impairment on Purchased Beneficial Interests and Beneficial Interests That Continue to Be Held by a Transferor in Securitized Financial Assets”. We also recognized OTTI charges of $0.7 million related to two corporate bonds due to the extent and duration of the declines in their fair values and issuer-specific fundamentals. We believe that the remaining securities having unrealized losses at September 30, 2008 were not other-than-temporarily impaired and that we have the ability and intent to hold these securities for a period of time sufficient to allow for recovery of their impairment.

     Losses and Loss Adjustment Expenses

     The loss and loss adjustment expense ratio was 70.7% for the three months ended September 30, 2008, compared with 77.1% for the three months ended September 30, 2007. For the three months ended September 30, 2008, we experienced favorable development of approximately $1.4 million for losses occurring prior to calendar year 2008. For the three months ended September 30, 2007, we did not experience any significant development for prior accident periods. In addition, we did not experience any significant weather-related losses during the three months ended September 30, 2008.

     Excluding the favorable development noted above, the loss and loss adjustment expense ratio for the three months ended September 30, 2008 was 73.0%. The improvement over the same period last year was the result of rate increases taken in early 2008 in our Florida, Illinois, Indiana, Texas and South Carolina markets and the continued improvement in our underwriting and claim handling practices.

17

FIRST ACCEPTANCE CORPORATION 10-Q

     Operating Expenses

     Insurance operating expenses decreased 11% to $21.4 million for the three months ended September 30, 2008 from $24.0 million for the three months ended September 30, 2007. This decrease was primarily a result of a reduction in costs (such as variable employee-agent compensation and premium taxes) that vary along with the decrease in premiums earned as well as savings realized from the closure of underperforming stores.

     The expense ratio increased from 19.6% for the three months ended September 30, 2007 to 21.4% for the same period in the current fiscal year. This increase was primarily due to the decline in premiums earned discussed above.

     Overall, the combined ratio decreased to 92.1% for the three months ended September 30, 2008 from 96.7% for the three months ended September 30, 2007.

     Litigation Settlement

     Litigation settlement costs for the three months ended September 30, 2008 of $0.1 million relate to the costs incurred in connection with our defense of the litigation in Alabama and Georgia. We have entered into a settlement agreement relating to the Georgia litigation effective September 10, 2008, which is subject to approval by the court, and have agreed upon preliminary settlement terms with the plaintiffs in the Alabama actions. The settlement of the Alabama litigation is subject to negotiation of a definitive settlement agreement and approval by the applicable courts. Pursuant to the litigation settlements, we would (i) provide the plaintiffs with either a premium credit towards a future insurance policy or a reimbursement certificate for certain future towing and rental expenses, (ii) strengthen our disclosures to customers of all relevant fees, charges and coverages, (iii) pay an aggregate of $6.3 million in fees and expenses for the attorneys for the plaintiffs and (iv) pay the costs associated with the administration of the settlements.

     At this time, we are unable to estimate the total costs associated with the Georgia and Alabama litigation settlements. The costs of the settlements will depend, among other factors, upon whether class members receive premium credits or reimbursement certificates pursuant to the terms of the settlements and the rate of redemption and forfeiture of the premium credits and reimbursement certificates. The litigation settlement costs are set forth separately in the consolidated statements of operations. We anticipate that our payment of the $6.3 million in plaintiffs’ attorneys’ fees and expenses and the $0.4 million in estimated costs associated with the administration of the settlement, both of which were accrued at June 30, 2008, will occur in calendar year 2009, after the final approvals from the courts.

     We are currently in discussions with our insurance carriers regarding coverage for the costs and expenses incurred relating to the litigation settlements and are not able currently to estimate the amount, if any, that we may receive from our insurance carriers. As a result, we have not accrued any amount at September 30, 2008 for insurance recoveries that may offset the costs and expenses relating to the litigation settlements. Any such insurance recoveries will be recorded in our operating results during the periods in which the recoveries are probable. For additional information with respect to the litigation settlements, see “Part II — Item 1. Legal Proceedings.”

     Real Estate and Corporate

     Loss before income taxes for the three months ended September 30, 2008 was $2.0 million, compared with a loss of $2.1 million for the three months ended September 30, 2007. During the three months ended September 30, 2008, we incurred $0.2 million of interest expense in connection with credit facility borrowings compared with $0.3 million for the three months ended September 30, 2007. In addition, we incurred $1.0 million of interest expense during both the three months ended September 30, 2008 and September 30, 2007 related to the debentures issued in June 2007.

18

FIRST ACCEPTANCE CORPORATION 10-Q

Liquidity and Capital Resources

     Our primary sources of funds are premiums, fees and investment income from our insurance company subsidiaries and commissions and fee income from our non-insurance company subsidiaries that sell ancillary products to our insureds. Our primary uses of funds are the payment of claims and operating expenses. Operating activities for the three months ended September 30, 2008 used $2.5 million of cash, compared with $3.0 million provided in the same period in fiscal 2008. The decrease in cash provided by operating activities was the result of a decrease in cash collected on premiums written. Net cash used in investing activities for the three months ended September 30, 2008 was $5.5 million, compared with net cash provided by investing activities of $15.1 million for the same period in fiscal 2008. Both periods reflect net additions to our investment portfolio, while the three months ended September 30, 2007 includes the settlement of a $20.0 million receivable for securities in July 2007. Financing activities for the three months ended September 30, 2008 included a principal prepayment of $1.0 million on our term loan facility in August 2008, while the three months ended September 30, 2007 included the repayment of $5.0 million related to our revolving credit facility. The three months ended September 30, 2008 and 2007 included scheduled quarterly principal payments on our term loan facility of $0.4 million and $1.4 million, respectively. We paid the final $2.5 million principal payment and terminated our term loan facility in October 2008.

     Our holding company requires cash for general corporate overhead expenses and debt service. However, we are part of an insurance holding company system with substantially all of our operations conducted by our insurance company subsidiaries. Accordingly, the holding company’s primary sources of unrestricted cash to meet its obligations are dividends from our insurance company subsidiaries and from our non-insurance company subsidiaries that sell ancillary products to our insureds. The holding company will also receive cash from operating activities as a result of investment income and the ultimate liquidation of our foreclosed real estate held for sale. In addition, as a result of our net operating loss (“NOL”) carryforwards, taxable income generated by the insurance company subsidiaries through June 30, 2009 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 NOL carryforwards. Future taxable losses by the holding company will also provide cash through this agreement should the insurance company subsidiaries generate taxable income.

     We anticipate that our insurance company subsidiaries will pay the amounts due under our Georgia litigation settlement, which includes $3.8 million in plaintiffs’ attorneys’ fees and expenses, $0.4 million in estimated costs associated with the administration of the settlement and amounts to be paid with regards to premium credits and reimbursement certificates. The Alabama litigation settlement, which includes $2.5 million in plaintiffs’ attorneys’ fees and expenses, will be paid by the holding company as the insurance company subsidiaries are not part of the settlement.

     After the October 2008 termination of our credit facilities, the debt service requirements of the holding company will be limited to the debentures payable. Such debentures are interest-only and mature in full in July 2037. Annual interest is fixed through July 2012 at $3.8 million. The Company is currently in discussions with other financial institutions regarding a new revolving credit facility. However, no assurances can be made that financing will be available or, if available, will be available on satisfactory terms.

     During October 2008, the insurance company subsidiaries paid ordinary dividends to the holding company of $2.5 million. These dividends were used to repay the $2.5 million in debt noted above. At September 30, 2008, we had $1.3 million available in unrestricted cash and investments outside of the insurance company subsidiaries. These funds and the additional unrestricted cash from the sources as noted above will be used to pay future expenses outside of the insurance company subsidiaries.

     State insurance laws limit the amount of dividends that may be paid from our 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 our insurance company subsidiaries have sufficient financial resources available to support their net premium writings in both the short-term and the reasonably foreseeable future.

19

FIRST ACCEPTANCE CORPORATION 10-Q

     Based on our December 31, 2007 statutory capital and surplus, our ordinary dividend capacity for calendar 2008 is approximately $11 million. Such amount is limited however to the amount of earned surplus of First Acceptance Insurance Company, Inc., which at September 30, 2008 was approximately $7 million.

     We believe that existing cash and investment balances, when combined with anticipated cash flows as noted above, will be adequate to meet our expected liquidity needs, for both the holding company and its insurance company subsidiaries, in both the short-term and the reasonably foreseeable future. Our growth strategy 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 on favorable terms, or at all, or that any such financing would not negatively impact our results of operations.

Credit Facility

     We entered into an amendment to the credit agreement effective September 10, 2008. The amended terms (i) accelerated the maturity date of the term loan facility to October 31, 2008, (ii) eliminated the revolving credit facility and (iii) removed all financial covenants for the remaining term. The unpaid balance under our credit agreement as of September 30, 2008 was $2.5 million, which was repaid on October 31, 2008. We terminated this credit facility effective October 31, 2008. We entered into an interest rate swap agreement in January 2006 that fixed the interest rate on the term loan facility at 6.63%. In addition, effective September 30, 2008, we cancelled the interest rate swap agreement for $0.1 million.

Critical Accounting Policies

     There have been no significant changes to our critical accounting policies and estimates during the three months ended September 30, 2008 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, 2008.

Off-Balance Sheet Arrangements

     There have been no new off-balance sheet arrangements since June 30, 2008. Refer to Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Off-Balance Sheet Arrangements” included in our Annual Report on Form 10-K for the fiscal year ended June 30, 2008.

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

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

20

FIRST ACCEPTANCE CORPORATION 10-Q

     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, 2008.

     You should not place undue reliance on any forward-looking statements. 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

     Market risk represents the potential economic loss arising from adverse changes in the fair value of financial instruments. Our exposures to market risk relate primarily to our investment portfolio, which is exposed primarily to interest rate risk and credit risk. The fair value of our fixed maturity portfolio is directly impacted by changes in market interest rates; generally, the fair value of fixed-income investments moves inversely with movements in market interest rates. Our fixed maturity portfolio is comprised of substantially all fixed rate investments with primarily short-term and intermediate-term maturities. This portfolio composition allows flexibility in reacting to fluctuations of interest rates. The portfolios of our insurance company subsidiaries are managed to achieve an adequate risk-adjusted return while maintaining sufficient liquidity to meet policyholder obligations.

Interest Rate Risk

     The fair values of our fixed maturity investments fluctuate in response to changes in market interest rates. Increases and decreases in prevailing interest rates generally translate into decreases and increases, respectively, in the fair values of those instruments. Additionally, the fair values of interest rate sensitive instruments may be affected by the creditworthiness of the issuer, prepayment options, relative values of alternative investments, the liquidity of the instrument and other general market conditions.

     The following table summarizes the estimated effects of hypothetical increases and decreases in interest rates resulting from parallel shifts in market yield curves on our fixed maturity portfolio (in thousands). It is assumed that the effects are realized immediately upon the change in interest rates. The hypothetical changes in market interest rates do not reflect what could be deemed best or worst case scenarios. Variations in market interest rates could produce significant changes in the timing of repayments due to prepayment options available. For these reasons, actual results might differ from those reflected in the table.

	Sensitivity to Instantaneous Interest Rate Changes (basis points)
	(100)		(50)		0		50		100		200
Fair value of fixed maturity portfolio	$	196,288	$	192,669	$	189,040	$	185,372	$	181,701	$	174,416

21

FIRST ACCEPTANCE CORPORATION 10-Q

     The following table provides information about our fixed maturity investments at September 30, 2008 which are sensitive to interest rate risk. The table shows expected principal cash flows (at par value, which differs from amortized cost as a result of discounts at the time of purchase and other-than-temporary impairment) by expected maturity date for each of the five fiscal years and collectively for all fiscal years thereafter (in thousands). Callable bonds and notes are included based on call date or maturity date depending upon which date produces the most conservative yield. CMOs and sinking fund issues are included based on maturity year adjusted for expected payment patterns. Actual cash flows may differ from those expected.

Year Ended June 30,	Amount
2009	$	17,649
2010		14,862
2011		20,558
2012		26,105
2013		21,116
Thereafter		95,884
Total	$	196,174
Fair value	$	189,040

     With regards to interest rate risk on our outstanding debt, at September 30, 2008, the unpaid balance due under the credit facility was $2.5 million. The interest rate on this borrowing was fixed through an interest rate swap agreement. This debt was repaid in full in October 2008. On June 15, 2007, our newly formed wholly-owned unconsolidated trust entity, First Acceptance Statutory Trust I, used the proceeds from its sale of trust preferred securities to purchase $41.2 million of junior subordinated debentures. The debentures pay a fixed rate of 9.277% until July 30, 2012, after which the rate becomes variable (LIBOR plus 375 basis points).

Credit Risk

     Credit risk is managed by diversifying the portfolio to avoid concentrations in any single industry group or issuer and by limiting investments in securities with lower credit ratings. The largest investment in any one fixed maturity security, excluding U.S. government and agency securities, is $2.7 million, or 1% of the fixed maturity portfolio. The top five investments make up 5% of the fixed maturity portfolio. The average credit quality rating for our fixed maturity portfolio was AA+ at September 30, 2008. There are no fixed maturities in the portfolio that have not produced investment income during the previous twelve months.

     The following table shows our fixed maturity portfolio by Standard & Poor’s Corporation rating as of September 30, 2008 (in thousands).

			% of					% of
	Amortized		Amortized			Fair		Fair
Comparable Rating	Cost		Cost			Value		Value
AAA	$	102,017		52.9	%	$	101,812		53.9	%
AA+, AA, AA-		34,620		17.9	%		33,852		17.9	%
A+, A, A-		47,801		24.8	%		45,368		24.0	%
BBB+, BBB, BBB-		8,194		4.2	%		7,668		4.0	%
Total investment grade		192,632		99.8	%		188,700		99.8	%
BB+, BB, BB-		340		0.2	%		340		0.2	%
Total non-investment grade		340		0.2	%		340		0.2	%
Total	$	192,972		100.0	%	$	189,040		100.0	%

22

FIRST ACCEPTANCE CORPORATION 10-Q

     The mortgage industry has experienced a rise in mortgage delinquencies and foreclosures, particularly among lower quality exposures (“sub-prime” and “Alt-A”). As a result of these increasing delinquencies and foreclosures, many CMOs with underlying sub-prime and Alt-A mortgages as collateral experienced significant drops in fair value. We have only modest exposure to sub-prime investments and no exposure to Alt-A investments. At September 30, 2008, our fixed maturity portfolio included three CMOs having sub-prime exposure with a fair value of $1.3 million, all of which were rated investment grade. These securities are paying their principal and periodic interest timely and the underlying assets of these securities continue to perform within expectations.

     In early 2008, several municipal bond insurers had their credit ratings downgraded or placed under review by the major nationally recognized credit rating agencies. Fitch, one of the nationally recognized credit rating agencies, downgraded AMBAC to a rating of AA from AAA. Our investment portfolio consists of $40.8 million of municipal bonds, of which $29.3 million are insured. Of the insured bonds, 47% are insured with MBIA, 18% with FGIC, 21% with AMBAC and 14% with XL Capital. These securities are paying their principal and periodic interest timely.

     The following table presents the underlying ratings as of September 30, 2008, represented by the lower of either Standard and Poor’s, Fitch’s, or Moody’s ratings, of the municipal bond portfolio (in thousands).

	Insured					Uninsured					Total
			% of					% of					% of
	Fair		Fair			Fair		Fair			Fair		Fair
	Value		Value			Value		Value			Value		Value
AAA	$	—		0	%	$	3,833		33	%	$	3,833		10	%
AA+, AA, AA-		16,715		57	%		6,655		58	%		23,370		57	%
A+, A, A-		9,653		33	%		1,035		9	%		10,688		26	%
BBB+, BBB, BBB-		1,355		5	%		—		0	%		1,355		3	%
NR (not rated)		1,558		5	%		—		0	%		1,558		4	%
Total	$	29,281		100	%	$	11,523		100	%	$	40,804		100	%

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

     Our chief executive officer and chief financial officer have reviewed and evaluated the effectiveness of our 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 September 30, 2008. Based on that evaluation, our chief executive officer and chief financial officer have concluded that our disclosure controls and procedures effectively ensure that information required to be disclosed by us in the reports that we file or submit 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 our internal control over financial reporting that has materially affected or is reasonably likely to materially affect our internal control over financial reporting.

23

FIRST ACCEPTANCE CORPORATION 10-Q

PART II — OTHER INFORMATION

Item 1. Legal Proceedings

     We are a party to litigation in Alabama and Georgia in which allegations are made with respect to our sales practices, primarily the sale of motor club memberships currently or formerly sold in those states. Annette Rush v. Village Auto Insurance Company, Inc. (now known as First Acceptance Insurance Company of Georgia, Inc.) was filed on October 26, 2005, as a putative class action in the Superior Court of Fulton County, Georgia. Margaret Franklin v. Vesta Insurance Corp., et al. was filed on July 14, 2006, as a putative class action in the Circuit Court of Bullock County, Alabama. Keisha Milbry Monday, et al. v. First Acceptance Corp., et al. was filed on February 13, 2007, in the Circuit Court of Bullock County, Alabama. Solomon and Catherine Warren, et al. v. First Acceptance Corp., et al. was filed on November 9, 2007, in the Circuit Court of Barbour County, Alabama. The suits generally allege that we implemented a program to convince our consumers who purchased automobile insurance policies to also purchase motor club memberships or that we charged our consumers billing fees associated with our products that were not properly disclosed, and seek unspecified damages and attorneys’ fees. We have denied all allegations of wrongdoing, have vigorously defended the Company against these actions, and believe that we have meritorious defenses to these claims.

     Notwithstanding the foregoing, to avoid the uncertainty, risks and costs of further litigation, we have entered into a settlement agreement effective September 10, 2008 with the plaintiffs in the Georgia litigation. Pursuant to the terms of the settlement agreement, the plaintiffs in the Georgia litigation were divided into two classes: (i) persons who were insured by the Company on September 1, 2008 who purchased an automobile club membership with their automobile insurance and (ii) persons who were insured by the Company prior to September 1, 2008 who purchased an automobile club membership with their automobile insurance. Pursuant to the terms of the settlement, each class member who was insured by the Company on September 1, 2008 will receive a premium credit equal to 100% of the amounts he or she paid for automobile club memberships and deferred billing fees against the premium for a new or renewal automobile insurance policy (as applicable) for up to twelve months of liability or uninsured motorist coverage issued by the Company prior to December 31, 2009, unless he or she elects, prior to December 31, 2008, to receive instead of the premium credit a reimbursement certificate that provides for cash reimbursement of up to a maximum total payment of $50 for any rental or towing expenses incurred by the class member on or before December 31, 2009 as a result of the disablement of his or her vehicle because of an accident. Each class member who was insured by the Company prior to September 1, 2008 will receive a reimbursement certificate that provides for cash reimbursement of up to a maximum total payment of $50 for any rental or towing expenses incurred by the class member on or before December 31, 2009 as a result of the disablement of his or her vehicle because of an accident, unless he or she elects, prior to December 31, 2008, to receive instead of the reimbursement certificate, a premium credit equal to 100% of the amounts he or she paid for automobile club memberships and deferred billing fees against the premium for a new automobile insurance policy for up to twelve months of liability or uninsured motorist coverage issued by the Company prior to June 30, 2010. Any premium credits issued to class members as described above will be prorated over a twelve-month term not to extend beyond June 30, 2011, and the class member will be entitled to the prorated premium credit only so long as he or she keeps their insurance premiums current during the twelve-month term. No benefits will be available to class members until January 1, 2009. We have also agreed to strengthen our disclosures to customers of all relevant fees, charges and coverages. In addition, we have agreed to pay $3.8 million in fees and expenses for the attorneys for the Georgia plaintiffs and pay all costs associated with the administration of the settlement. The settlement agreement is subject to approval by the court, and we expect the court to hold a hearing to consider the settlement in November 2008.

     We have also agreed upon preliminary settlement terms with the plaintiffs in the Alabama litigation. The preliminary settlement terms provide for benefits to the Alabama plaintiffs substantially similar to the benefits to be paid to the Georgia plaintiffs, and a payment of $2.5 million in fees and expenses for the attorneys for the Alabama plaintiffs. The settlement of the Alabama litigation is subject to the negotiation of a definitive settlement agreement and approval of the settlement agreement by the applicable courts.

     At this time, we are unable to estimate the total costs associated with the Georgia and Alabama litigation settlements. The costs of the settlements will depend, among other factors, upon whether class members receive premium credits or reimbursement certificates pursuant to the terms of the settlements and the rate of redemption and forfeiture of the premium credits and reimbursement certificates. We estimate that there are approximately 11,000 persons who were insured by the Company on September 1, 2008 and approximately 155,000 persons who

24

FIRST ACCEPTANCE CORPORATION 10-Q

were insured by the Company prior to September 1, 2008 that, pursuant to the terms of the settlement agreement, are members of the plaintiff class in the Georgia litigation. We estimate that there are approximately 55,000 persons who were insured by the Company prior to September 1, 2008 that, pursuant to the proposed settlement terms, would be eligible to be members of the plaintiff class in the Alabama litigation. Through September 30, 2008, the total amount received by the Company relating to motor club memberships and deferred billing fees is $25.3 million for the State of Georgia and $5.8 million for the State of Alabama.

     At June 30, 2008, we had accrued an aggregate of $6.7 million related to the expenses of the litigation settlements, consisting of $6.3 million in plaintiffs’ attorneys’ fees and expenses and $0.4 million in estimated costs associated with the administration of the settlement. We will accrue additional amounts relating to the costs of the litigation settlements when those amounts become reasonably estimable.

Item 6. Exhibits

The following exhibits are attached to this report:

10	Stipulation and Agreement of Settlement, made and entered into as of September 10, 2008, by First Acceptance Insurance Company of Georgia, Inc., and its predecessors and affiliates, Village Auto Insurance Company, U.S. Auto Insurance Company, and Transit Auto Club, Inc., and Annette Rush and all other persons similarly situated by and through their undersigned attorneys of record.
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.

25

FIRST ACCEPTANCE CORPORATION 10-Q

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
November 10, 2008	By:	/s/ Kevin P. Cohn
	Kevin P. Cohn
	Senior Vice President and Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)

26

EX-10

Exhibit 10

IN THE SUPERIOR COURT OF FULTON COUNTY
STATE OF GEORGIA

ANNETTE RUSH, individually	)
and on behalf of a class of citizens	)
in Georgia similarly situated,	)
	)
Plaintiff,	)
	)
v.	)	CASE NO.: 2005-CV-107983
	)
VILLAGE AUTO INSURANCE	)
COMPANY, INC.,	)
	)
Defendant.	)

STIPULATION AND AGREEMENT OF SETTLEMENT

          This Stipulation and Agreement of Settlement (the “Settlement”) is made and entered into by First Acceptance Insurance Company of Georgia, Inc., and its predecessors and affiliates, Village Auto Insurance Company, U.S. Auto Insurance Company, and Transit Auto Club, Inc. (collectively or individually, as the context requires, “Village Auto”), by and through their undersigned attorneys of record, and Annette Rush and all other persons similarly situated by and through their undersigned attorneys of record. This Settlement is intended fully, finally, and forever to resolve, discharge, and settle this Action and the Released Claims (as defined below) without costs and with prejudice, upon and subject to the terms and conditions hereof, and subject to the approval of the Superior Court of Fulton County, Georgia.

RECITALS

          1.1 The above-captioned action (the “Action”) was initially filed in this Court on October 26, 2005, as a proposed class action on behalf of all Georgia Policyholders insured by Village Auto who had purchased an automobile club membership from Transit Auto Club, Inc. (the “Class”).

          1.2 The Complaint, as amended, asserted both legal and equitable claims and alleged that Village Auto, among other charges, breached its contractual duties to the class by selling them automobile club memberships and charging deferred billing fees thereon. Village Auto answered the Complaint and denied that it had breached any equitable or contractual obligations to Georgia Policyholders. This Action addressed only Village Auto’s conduct in Georgia with respect to the Class under Georgia law.

          1.3 This Settlement is a compromise of disputed claims made to avoid the uncertainty, risks, costs, and delays of further litigation. Village Auto does not admit liability to any Class Member and Village Auto does not admit liability in any case. Village Auto also denies any wrongful conduct toward Georgia Policyholders in the marketing or sale of or billing for automobile club memberships.

          1.4 The Parties and their counsel are satisfied that the terms and conditions of this Settlement are fair, reasonable and adequate, particularly due to

2

the likelihood that continued litigation would be protracted, entail risks, and involve substantial expense.

          1.5 This Settlement also implements certain procedures which Village Auto will use in the future in the marketing and sale of automobile club memberships if it continues offering that product.

DEFINITIONS

          2. Certain Definitions

     The following terms used throughout the Agreement have the meaning specified below:

          2.1 “Agreement” means this Stipulation and Agreement of Settlement.

          2.2 “Class Member” means a person included within the Settlement Class.

          2.3 “Court” means the Superior Court of Fulton County, Georgia.

          2.4 “Defendants” means all those companies defined as “Village Auto” on page 1 of this Agreement.

          2.5 “Defendants’ counsel” means any member or associate of Troutman Sanders LLP, Atlanta, Georgia.

          2.6 “Final Approval” of this Settlement means the last date by which all of the following shall have occurred:

3

          (a) Entry by the Court of the Settlement Order and Final Judgment in the form attached as Exhibit “C;

          (b) The Court has made a final order awarding attorneys’ fees and costs, if any; and

          (c) Thirty-one days having passed after entry of the orders provided for in subparagraphs (a) and (b) above, whichever occurs last, without any appeals being taken, or, if appeals or requests for review have been taken, orders have been entered affirming said order or orders or denying review after exhaustion of all appellate remedies.

          2.7 “Georgia Policyholders” means any policyholders insured in Georgia by Village Auto on or after October 26, 1999 who purchased an automobile club membership from Village Auto.

          2.8 “Order Directing Distribution” means the order issued by the Court on or after Final Approval, directing the provision of Settlement Benefits to the Settlement Class and payment for attorneys’ fees and costs in the form attached hereto as Exhibit “B” without material modification (except as agreed in writing by the signatories hereto).

          2.9 “Parties” mean the Representative Plaintiff, the Settlement Class and all of its Members, and Defendants, and “Party” means any of said Parties.

4

          2.10 “Plaintiff” means the Representative Plaintiff and Members of the Settlement Class.

          2.11 “Plaintiff’s counsel” means any member or associate of McCallum, Hoaglund, Cook & Irby, L.L.P., Birmingham, Alabama, or any member or associate of The Finley Firm, P.C., Atlanta, Georgia, and C. Ronald Ellington, Athens, Georgia.

          2.12 “Preliminary Approval” of this Agreement shall mean that the Court has entered an order in the same material content as Exhibit “A” attached hereto, preliminarily approving the terms and conditions of this Agreement, without material modification that is not consented to by the Parties, including the manner of providing notice to the Settlement Class and the form and content of the exhibits attached hereto.

          2.13 “Released Claims” means those claims set forth in Section 11 of this Agreement.

          2.14 “Released Parties” means the Defendants, their parents, subsidiaries, affiliates, and their respective predecessors, successors and/or assignees, attorneys, accountants, representatives, past or present officers, inside and outside directors, employees, and/or agents.

          2.15 “Representative Plaintiff” means Annette Rush.

5

          2.16 “Settlement Class” means the class of persons as stipulated in Section 3 of this Agreement.

          2.17 “Settlement Benefits” mean the benefits to be distributed to the Settlement Class pursuant to Section 8 of this Agreement and the Order Directing Class Distribution.

          2.18 “Settlement Order and Final Judgment” means a final order and judgment in the same content as Exhibit “C” issued by the Court approving and incorporating this Settlement without modification (except as agreed in writing by the signatories hereto) as binding upon the parties.

     As used herein, the plural of any defined term includes the singular thereof, and the singular of any defined term includes the plural thereof as the context may require.

TERMS OF SETTLEMENT

          3. Certification of the Settlement Class

          3.1 On December 6, 2006, the Court certified a Plaintiff class and subclass thereof, to-wit: (1) current and former insureds of Village Auto who purchased an automobile club membership along with automobile insurance; and (2) current and former insureds of Village Auto who were assessed a deferred billing fee in connection with their automobile club membership.

6

          3.2 The Parties agree that the Settlement Class shall consist exclusively of the class and subclass certified by the Court.

          3.3 Any Class Member may individually elect to opt out of the Settlement Class, within the time and in the manner specified in the Class Notice, with the effect that the rights of each such Class Member who opts out shall not be affected by this Settlement. Such opt out rights may be exercised only individually by a Class Member, and not by any other person in a representative capacity. Defendants shall have the right to withdraw from this Agreement if the number of potential Class Members who elect to be excluded from the Settlement Class exceeds five percent of the Class. Defendants must so elect to withdraw, in writing to Plaintiff’s Counsel, within seven (7) days after the deadline for receipt of requests for exclusion. If Defendants choose to exercise this right to withdrawal, this Agreement shall be null and void for all purposes.

          4. Addition of Defendants for Settlement Purposes

          4.1 For settlement purposes only, the parties hereby agree, subject to the approval of the Court pursuant to § 9-11-20 of the Georgia Civil Practice Act to add the Defendants not now parties to this Action by order in materially the same content as Exhibit “A.” In the event the Court declines to execute and enter an Order in form and substance similar to Exhibit “A,” then the Defendants shall

7

have the right to withdraw from this Agreement. If Defendants choose to exercise this right to withdrawal, this Agreement shall be null and void for all purposes.

          5. Resolution of Claims

          5.1 Plaintiff and Plaintiff’s Counsel agree that the use by the Defendants in Georgia of the sales and marketing techniques described in Exhibit “D” (the “Sales Approach”) will make more transparent the sale of automobile club memberships, though it is not the intent of this Settlement to preclude the Defendants from using other marketing approaches in the sale of automobile club memberships that comply with Georgia law, nor is it the intent of this Settlement to require the Defendants to continue to offer their own automobile club memberships in the future.

          5.2 The Defendants agree to create a list of Class Members based on the stipulated class definition within a reasonable time after Preliminary Approval, consistent with the obligations and time frame established in Section 6 below. The list of Class Members will remain the confidential property of the Defendants, will be subject to the protective order entered by the Court, and all copies or versions will be returned to the Defendants within forty-five (45) days after Final Approval or within ten days after the entry of the Order Directing Class Distribution, whichever is later.

8

          5.3 The parties agree that this Settlement has conferred a substantial and tangible benefit on the Settlement Class.

          6. Class Notice

          6.1 No later than September 15, 2008, the Defendants, using U.S. Bank or another third party settlement administrator of their choice (that will be subject to Plaintiff’s Counsel’s approval not unreasonably withheld), shall cause notice to be sent to each Class Member. The Defendants, using their third party settlement administrator, will make a good faith effort to identify the last known address of each Class Member, and the Defendants shall cause notice to be sent to that address. The notice shall have substantially the same content as Exhibit “E” attached hereto. If a notice is returned for whatever reason, the sole obligation of the Defendants and their settlement administrator will be to remail the notice one time to another address, if any, identified through NCOA.

          6.2 In addition, seasonably after Preliminary Approval, the Defendants shall cause notice to be published in one edition of the following newspapers: the Albany Herald; the Athens Banner Herald ; the Atlanta Journal/Constitution; the Augusta Chronicle; the Brunswick News; the Columbus Ledger-Enquirer;; the Macon Telegraph & News; the Rome News Tribune; the Savannah Tribune and the Valdosta Daily Times. The published notice shall be substantially the same in form and content as Exhibit “E” attached hereto.

9

          7. Class Settlement Procedures

          7.1 The Parties shall move for a Preliminary Approval order, substantially in the form of Exhibit “A” hereto, preliminarily approving this Settlement as fair, just, reasonable, and adequate, approving notice to the Settlement Class as described in Section 6 above, and setting a hearing to consider final approval of the Settlement Order and Judgment and any objections to its fairness.

          7.2 Subject to the Court’s approval as set forth in Subsection 7.1 above, the Parties agree that, after Preliminary Approval, a Notice of Proposed Class Action Settlement and Release of Claims, in substantially the form and content of Exhibit “E” hereto, will be sent to the last known address reflected on the Defendants’ Georgia automobile policy master records of each Settlement Class Member, as updated through NCOA, if necessary, as set forth in Subsection 6.1 above. In addition, notice will be published, in substantially the form and content of Exhibit “E” hereto, as set forth in Subsection 6.2 above.

          7.3 Any Class Member seeking to be excluded from the Class must send a request for exclusion to the third party settlement administrator, which request must be received within the time specified in the notice.

          7.4 Any Class Member may object and appear at the Fairness Hearing in the manner and within the time frame specified in the Class Notice.

10

          7.5 At or before the Fairness Hearing, the Parties shall move for a Settlement Order and Final Judgment, substantially in the form of Exhibit “C” hereto, granting final approval of this Settlement as fair, reasonable, adequate, and binding on all Members of the Settlement Class who have not excluded themselves, awarding attorneys’ fees and costs, and effecting the releases as set forth in Section 11 below.

          7.6 A website shall be created and maintained at the reasonable expense of the Defendants for access by Class Members and other interested persons and shall contain the Complaint, the Answer, this Agreement, Class Notice, the Preliminary Approval Order, and any other materials ordered by the Court.

          7.7 A toll free number will be maintained at the reasonable expense of the Defendants for a period of not less than forty-five (45) days following the mailing of the Class Notice to respond to inquiries concerning the Settlement.

          7.8 The Defendants or their third party administrator shall timely and periodically report to the Court and Plaintiff’s Counsel by affidavit concerning the actions they have taken to comply with this Agreement. Plaintiff’s Counsel will engage in due diligence to monitor the settlement administration.

11

          8. Settlement Benefits

          8.1 The Defendants acknowledge their obligation to provide benefits in accordance with Subsection 8.2. Except as provided herein in Subsections 5.2, 6.1, 6.2, 7.6 and 7.7, concerning certain matters to be accomplished at the Defendants’ expense, this obligation shall constitute the entire consideration to be paid by or on behalf of the Defendants in connection with the Settlement, exclusive of Plaintiff ‘s class representative fee and Plaintiff’s Counsel’s attorney’s fees.

          8.2 The Settlement Benefits will consist of the following: (a) Each current Georgia Policyholder according to the Defendants’ records as of September 1, 2008, will receive 100% credit of the amounts he paid for automobile club memberships and deferred billing fees, prorated over a twelve-month term, against liability or uninsured motorist coverage on a new or renewal automobile policy, unless, by the deadline stated in the benefit election form attached to the class notice, the current Georgia Policyholder executes and returns to the settlement administrator the form, electing to receive instead of policy credit a benefit providing for cash reimbursement up to a maximum total payment of $50 for any rental or towing expenses incurred by the Georgia Policyholder on or before than December 31, 2009, a result of vehicle disablement by accident; and (b) Each former Georgia Policyholder will receive a certificate providing for

12

cash reimbursement up to a maximum total payment of $50 for any rental or towing expenses incurred by the Georgia Policyholder on or before December 31, 2009, as a result of vehicle disablement by accident, unless, by the deadline stated in the benefit form attached to the class notice, the former Georgia Policyholder executes and returns to the settlement administrator the benefit form, electing to receive instead of the certificate 100% credit of the amounts he paid for automobile club memberships and deferred billing fees, prorated over a twelve-month term, against liability or uninsured motorist coverage he chooses to purchase from the Defendants on or before June 30, 2010. A current or former Georgia Policyholder will be entitled to the prorated credit only as long as he keeps his insurance premiums current during the twelve-month term. Nothing in this Settlement Agreement shall obligate the Defendants to offer to accept or accept coverage on any former Georgia Policyholder for whom the Defendants would decline to offer insurance coverage under their current, regular underwriting criteria at the time of such application. No benefits will be paid until expiration of the deadline for alternative election stated in the class notice.

          8.3 If any Settlement Class Member chooses to opt out of the Settlement, no benefit will be provided to such Settlement Class Member.

13

          9. Agreements of Plaintiff’s Counsel

          9.1 Within forty-five (45) days after Final Approval of this Agreement or within ten days after entry of the Order Directing Distribution, which ever is later, Plaintiff’s Counsel shall return to the Defendants the list of Class Members and all copies or versions thereof. Plaintiff’s Counsel agree not to disseminate or disclose the information from the list of Class Members to any person without the Defendants’ prior written approval. Plaintiff’s Counsel further agree not to initiate contact with persons whose identities they learned from such list or learned from exclusion requests for the purpose of offering legal services to or entering into an individual attorney-client relationship with any of them. Plaintiff’s Counsel are not otherwise prohibited by this Agreement from representing any Class Member or former Class Member who has opted out of this Settlement person who initiates contact with them, except as to the subject matter of this Action, unless this Settlement fails to receive Final Approval. This provision is not intended to violate any professional or ethical considerations.

          9.2 Within forty-five (45) days after Final Approval of this Settlement, or within ten days after the disbursements contemplated in Section 8, which ever is later, Plaintiff’s Counsel shall return to the Defendants all documents and all copies of such documents produced by the Defendants to Plaintiffs during the course of this litigation, including, but not limited to, all

14

electronic data, and all copies thereof, including any copies provided by Plaintiff’s Counsel to third persons.

          9.3 Nothing in this Agreement shall preclude Plaintiff’s Counsel from seeking judicial relief to enforce this Agreement.

          10. Incentive Award, and Attorneys’ Fees and Costs

          10.1 Upon order of the Court, all counsel of record for Plaintiffs shall make application to the Court and the Defendants will not object to, for an award of attorneys’ fees and reimbursement of expenses in an amount not to exceed Three Million Eight Hundred Thousand Dollars ($3,800,000) to be paid three business days after Final Approval by the Defendants outside the benefits otherwise due the Settlement Class. The Court shall conduct a hearing at which the Court shall ascertain and award attorneys’ fees in an amount not to exceed Three Million Eight Hundred Thousand Dollars ($3,800,000) to all Plaintiff’s Counsel in this action. The Parties further agree that the Settlement has conferred a substantial and common benefit on the Settlement Class and Georgia Policyholders. In addition, Plaintiff will apply for an incentive award of $15,000 for her maintenance of this Action on behalf of the Settlement Class. Such award will be paid by Defendants within three business days after Final Approval.

15

          11. Release and Covenant Not to Sue

          11.1 Upon Final Approval, all Class Members who have not timely and properly excluded themselves, regardless of whether such Class Members have claimed or obtained benefits hereunder, shall release and forever discharge the Released Parties from (a) any and all claims relating to automobile club memberships or deferred billing fees which were asserted or could have been asserted in the Complaint and any Amended Complaint, whether known or unknown, suspected or unsuspected, concealed or unconcealed, tangible or intangible, whether sounding in contract, tort, unjust enrichment or any other theory, including without limitation any claim that the Released Parties violated any Unfair Claims Practices statute, any consumer fraud statute, or any other statutory or common law requirement, claims of any bad faith, breach of contract, or any other claim; and (b) any claim of fraud in the inducement of this Settlement.

          11.2 This Settlement reflects, among other things, the compromise and Settlement of disputed claims, and neither the Settlement nor the releases given herein, nor any consideration therefor, nor any actions taken to carry out this Settlement are intended to be, nor may they be deemed or construed to be, an admission or concession of liability, or of the validity of any claim, or of any point of fact or law (including but not limited to the propriety of class certification) on

16

the part of any Party. The Defendants deny the allegations of the Complaints filed in this Action.

          12. Miscellaneous Provisions

          12.1 In the event that the Court issues an order preliminarily or finally approving this Settlement in a form or content materially different from this Settlement Agreement submitted to the Court, including all attached exhibits, both parties will have the option to withdraw from this Agreement, and this Agreement shall become null and void for all purposes.

          12.2 The Parties acknowledge that this Settlement Agreement is subject to the approval of the Board of Directors of First Acceptance Corporation. In the event such approval is not secured by September 1, 2008, then this Settlement shall be null and void, and no term or condition of this Settlement shall have any effect, nor shall any such matter be admissible in evidence for any purpose in this action or in any other proceeding.

          12.3 This Settlement is intended to and shall be governed by the laws of the State of Georgia.

          12.4 The Parties will not take any action which would interfere with the performance of this Agreement by any of the Parties hereto or which would adversely affect any of the rights provided for herein, nor, at any time shall any of the Parties or their counsel seek to solicit or otherwise encourage Class Members

17

to submit written objections to the Settlement or to appeal from any of the Court’s orders approving the Settlement. Nothing herein precludes any of the Parties from filing an appeal if deemed necessary by such Party to advance, protect, or vindicate its rights.

          12.5 This Settlement was entered into only for purposes of compromise and settlement and is not an admission of liability by the Defendants or an admission that a class should be certified. In the event that Final Approval of this Settlement, without modification, does not occur for any reason, then no term or condition of this Settlement shall have any effect, nor shall any such matter be admissible in evidence for any purpose in this action or in any other proceeding.

          12.6 The terms and conditions set forth in this Settlement constitute the complete and exclusive agreement between the Parties relating to the subject matter of this Settlement, superseding all previous negotiations, representations, and understandings, and may not be contradicted or supplemented by evidence of any prior or contemporaneous agreement. The Parties further intend that this Settlement constitutes the complete and exclusive statement of its terms as between the Parties and that no extrinsic evidence whatsoever may be introduced in any judicial proceeding involving this Settlement. Prior or contemporaneous representations not contained in this Settlement shall be of no force or effect. Any

18

modification of the Settlement must be in writing signed by Plaintiff’s Counsel, the Representative Plaintiffs and Village Auto.

          12.7 The determination of the terms of, and the drafting of, this Agreement has been by mutual agreement after negotiation, with consideration by and participation of all Parties and their counsel.

          12.8 This Agreement shall be binding upon and inure to the benefit of the representative heirs, successors and assigns of the Parties.

          12.9 After preliminary approval without material modification, the waiver by one Party of any provision or breach of this Agreement shall not be deemed a waiver of any other provision or breach of this Agreement.

          12.10 This Agreement shall become effective upon its execution by all of the undersigned. The Parties may execute this Agreement in counterparts, and execution of counterparts shall have the same force and effect as if all Parties had signed the same instrument.

          IN WITNESS HEREOF, the undersigned, being duly authorized, have caused this Agreement to be executed on the dates shown below and agree that it shall take effect on the date it is executed by all of the undersigned.

DATED: August                     , 2008.

19

/s/ Charles A. McCallum, III

Charles A. McCallum, III

McCallum, Hoaglund, Cook & Irby, L.L.P.

905 Montgomery Highway, Suite 201

Vestavia Hills, Alabama 35216

205-824-7767

Attorneys for Plaintiff

/s/ Herbert D. Shellhouse

Herbert D. Shellhouse

Troutman Sanders LLP

5200 Bank of America Plaza

600 Peachtree Street

Atlanta, Georgia 30308

404-885-3000

Attorneys for Defendants

20

A

EXHIBIT A

IN THE SUPERIOR COURT OF FULTON COUNTY
STATE OF GEORGIA

ANNETTE RUSH, individually	)
and on behalf of a class of citizens	)
in Georgia similarly situated,	)
	)
Plaintiff,	)
	)
v.	)	CASE NO. 2005-CV-107983
	)
VILLAGE AUTO INSURANCE	)
COMPANY, INC.,	)
	)
Defendant.	)

ORDER PRELIMINARILY APPROVING
SETTLEMENT AND APPROVING NOTICE TO CLASS MEMBERS

          Plaintiff and Defendant having made a joint oral motion for preliminary approval of Stipulation and Agreement of Settlement (“the Settlement”) between a Settlement Class and Defendants; and the Court having read and considered the Agreement,

          IT IS ORDERED that:

          1. For settlement purposes only, the Court finds that the prerequisites of O.C.G.A. § 9-11-20 are met and hereby adds U.S. Auto Insurance Company, First Acceptance Company of Georgia, and Transit Auto Club, Inc. as Defendants. Those parties have agreed to acknowledge process, and the parties have agreed that the time within which they have to file Answers is extended to and through the

EXHIBIT A

date of Final Approval. If Final Approval of the Settlement is not granted, or if final judgment as contemplated herein is not entered, this Order adding these additional Defendants as parties shall be vacated and the parties shall be restored without prejudice to their respective litigation positions prior to the date of this Order of Preliminary Approval.

          2. The Court finds that the manner and content of notice specified in the Settlement and in Exhibit “E” thereto will provide the best practicable notice to members of the Settlement Class and satisfies the requirements of due process. Notice shall be mailed to Settlement Class Members, at the Defendants’ expense, no later than September 15, 2008, in a form and content substantially identical to Exhibit “E” to the Settlement, and in substantially the manner specified in the Settlement. Notice also shall be published, at the Defendants’ expense, seasonably after preliminary approval of the Settlement, in a form and content substantially identical to Exhibit “E” to the Settlement, in substantially the manner specified in the Settlement. This notice will provide Class Members with the opportunity to request exclusion from the Settlement Class. Such opt out rights may be exercised only individually by a Class Member, and not by any other person in a representative capacity.

          3. The Court approves the administration of the proposed settlement in the manner set forth in the Settlement. In particular, the Defendants’ use of the

2

EXHIBIT A

Sales Approach described in the Settlement is approved as a basis for marketing automobile club memberships.

          4. A Fairness Hearing shall be held by this Court on November 21, 2008, at 2:00 p.m. to consider and finally determine:

a. Whether the Settlement should be finally approved by the Court as fair, reasonable, and adequate;

b. Whether attorneys’ fees should be awarded to Plaintiff’s Counsel, as provided in the Settlement;

c. Objections, if any, made to the Settlement, or any of its terms.

          The Fairness Hearing described in this paragraph may be postponed, adjourned, or continued by order of the Court without further notice.

          5. Any person who wishes to opt out of the Settlement Class must do so in a writing received at the addresses specified in the Notice on or before October 31, 2008, in the manner provided in the Notice approved in Paragraph 2 above. Any Settlement Class Member who has not requested exclusion and who objects to approval of the proposed settlement may appear at the Fairness Hearing in person or through counsel to show cause why the proposed settlement should not be approved as fair, reasonable, and adequate. However, no person (other than named parties) may be heard at the Fairness Hearing, or file papers or briefs in connection therewith, unless on or before November 15, 2008, such person has filed with the Clerk of the Court and served on counsel for the class and

3

EXHIBIT A

Defendants a timely written objection and notice of intent to appear, in accordance with the procedures specified in the Notice of Proposed Class Settlement and Release of Claims. Any member of the Settlement Class who does not make his objection to the settlement in the manner provided herein shall be deemed to have waived any such objection.

          6. Defendants’ Counsel, Plaintiff’s Counsel, and any other counsel for Plaintiffs or the Settlement Class, shall promptly furnish to all other counsel copies of any objection or written request for exclusion that comes into such counsel’s possession.

          7. If the Settlement is finally approved, the Court shall enter a Settlement Order and Judgment approving the Settlement in the form attached thereto and incorporating it as the judgment of the Court, which judgment shall be binding upon all members of the Settlement Class who have not previously requested exclusion in accordance with this Order and the terms of the Settlement.

          8. In the event that the proposed settlement reflected by the Settlement is not approved by the Court, or entry of a Settlement Order and Judgment as provided in the Settlement does not occur for any reason, then the Settlement, all drafts, negotiations, discussions, and documentation relating thereto, and all orders entered by the Court in connection therewith, shall become null and void, and shall not be used or referred to for any purpose in this Action or

4

EXHIBIT A

in any other proceeding. In such event, the Settlement and all negotiations and proceedings relating thereto shall be withdrawn without prejudice to the rights of any of the Parties thereto, who shall be restored to their respective positions as of the date of the execution of the Settlement.

     Date:                                                             

                                                                            
Judge, Superior Courts, A.J.C.

5

B

EXHIBIT B

IN THE SUPERIOR COURT OF FULTON COUNTY
STATE OF GEORGIA

ANNETTE RUSH, individually	)
and on behalf of a class of citizens	)
in Georgia similarly situated,	)
	)
Plaintiff,	)
	)
v.	)	CASE NO. 2005-CV-107983
	)
VILLAGE AUTO INSURANCE	)
COMPANY, INC., FIRST	)
ACCEPTANCE INSURANCE	)
COMPANY OF GEORGIA,	)
U.S. AUTO INSURANCE	)
COMPANY, and TRANSIT	)
AUTO CLUB, INC.,	)
	)
Defendants.

ORDER DIRECTING DISTRIBUTION

     This Court entered a Settlement Order and Final Judgment approving the settlement on November 21, 2008. In Paragraph 9 of the Settlement Order and Final Judgment, as contemplated by the parties in the Settlement Agreement, the Court awarded the sum of $3,800,000 to Plaintiff’s counsel to cover their fees for legal services, all of their costs, disbursements, out-of-pocket expenses and other expenditures in connection with this litigation.

     The time for appeal from the Order and Final Judgment has expired without the filing of a Notice of Appeal (or any appeal so filed has now been resolved in favor of the Settlement Order and Final Judgment without any possibility of further

EXHIBIT B

judicial review). This litigation is therefore ended, except for the ministerial steps required to execute the judgment. Accordingly, the Court issues this Order in aid of execution of the Order and Final Judgment.

     The Court hereby orders the Defendants to pay to the Plaintiff’s attorneys the sum of $3,800,000 in full and final satisfaction of their claims to attorneys’ fees and costs in this action.

     SO ORDERED, this                      day of                     , 2008.

                                                                            
Judge, Superior Courts, A.J.C.

2

C

EXHIBIT C

IN THE SUPERIOR COURT OF FULTON COUNTY
STATE OF GEORGIA

ANNETTE RUSH, individually	)
and on behalf of a class of citizens	)
in Georgia similarly situated,	)
	)
Plaintiff,	)
	)
v.	)	CASE NO. 2005-CV-107983
	)
VILLAGE AUTO INSURANCE	)
COMPANY, INC., FIRST	)
ACCEPTANCE INSURANCE	)
COMPANY OF GEORGIA,	)
U.S. AUTO INSURANCE	)
COMPANY, and TRANSIT	)
AUTO CLUB, INC.,	)
	)
Defendants.

SETTLEMENT ORDER AND FINAL JUDGMENT

     This action was heard on November 21, 2008, pursuant to the Order Preliminarily Approving Settlement and Approving Notice to Class Members (the “Preliminary Approval Order”) entered on August ___, 2008, for the purpose of determining: (i) whether the settlement of the action, on the terms and conditions set forth in the Stipulation and Settlement Agreement previously submitted to the Court (“Settlement Agreement”), should be approved as fair, reasonable and adequate; (ii) the amount of attorneys’ fees and expenses to award counsel for Plaintiffs; and (iii) whether a Settlement Order and Final Judgment should be entered.

     This class action, like any class action, cannot be compromised without the approval of this Court. Having conducted the analysis required by the statute, the Court finds and concludes that the requirements of O.C.G.A. § 9-11-23 have been satisfied, and that the settlement is fair, adequate and reasonable.

     Having considered the record in this action, IT IS HEREBY ORDERED, ADJUDGED AND DECREED as follows:

     1. This action has been certified as a class action on behalf of a class (“the Settlement Class”) consisting of citizens of the State of Georgia who are past insureds (within six years of the filing of the Plaintiff’s action) or current insureds of the Defendant or its affiliates and who paid or are currently paying “fees” or “dues” for “motor club” coverage through Transit Automobile Club or who paid or are currently paying a “billing fee” in connection with their “motor club” coverage.

     2. The Court finds that counsel for the Plaintiffs, McCallum, Hoaglund, Cook & Irby, L.L.P., and The Finley Firm have fairly and adequately represented the interests of the class.

     3. Based on the evidence presented at the hearing, the Court finds that notice has been given to the class pursuant to the Preliminary Approval Order, and that the notices sent to the class the Settlement Agreement were

2

the best notices practicable, satisfied due process requirements, and provided Class Members with fair and adequate notice of the hearing and adequate information concerning the hearing, the right to be excluded from the Class, the settlement, and the right of counsel for Plaintiffs to apply for an award of attorneys’ fees and expenses.

     4. The terms of the settlement, as set forth in the Settlement Agreement, are hereby determined to be fair, reasonable and adequate. Accordingly, said Settlement Agreement, including each of its respective terms and conditions, is hereby finally approved by and incorporated as part of this Settlement Order and Final Judgment. Words in this Settlement Order and Final Judgment have the same meaning as defined terms in the Settlement Agreement.

     5. The Court hereby enters judgment fully and finally terminating all claims, on the merits, against Village Auto Insurance Company, First Acceptance Insurance Company of Georgia, U.S. Auto Insurance Company, and Transit Auto Club, Inc., their parents, subsidiaries, affiliates, and their respective predecessors, successors and assignees, attorneys, accountants, representatives, past or present officers, inside and outside directors, representatives, employees, and agents (collectively, the “Released Parties”), and finds that all Class Members who have not timely

3

and properly excluded themselves, regardless of whether such Class Members have claimed or obtained benefits hereunder, have waived and are estopped from asserting against the Released Parties: (a) any and claims relating to motor club coverage or deferred billing fees associated therewith which were asserted or could have been asserted in the Complaint or any Amended Complaint, whether known or unknown, suspected or unsuspected, concealed or unconcealed, tangible or intangible, whether sounding in contract, tort, unjust enrichment or any other theory; and (b) any claim of fraud in the inducement of this Settlement; provided, however, class members do not release any claims based solely on the allegation that Village failed to pay benefits to which they were entitled under their motor club coverage.

     8. All members of the Settlement Class are barred and permanently enjoined from asserting, instituting, or prosecuting, either directly or indirectly, any claim adjudicated or foreclosed by this Judgment.

     9. The sum of Three Million Eight Hundred Thousand Dollars ($3,800,000) is hereby awarded as the entire attorneys’ fees and costs in this action, covering all fees for legal services, all costs, all disbursements, all out-of-pocket expenses and all other expenditures in connection with this litigation. This amount shall be allocated among all counsel representing

4

Plaintiffs or claiming an interest in the attorneys’ fees and expenses in this litigation as set forth in the separate order awarding attorneys’ fees. This sum shall be paid as provided in the Settlement Agreement upon execution by this Court of the Order Directing Distribution.

          10. The Sales Approach attached as Exhibit “D” to the Settlement Agreement is an acceptable approach for marketing coverage in the future. The Court hereby orders Village to continue the use of the Sales Approach or another approach that complies with Georgia law if it continues to market its own automobile club memberships. Neither plaintiffs’ counsel nor class members shall challenge in the future Village’s use of the Sale Approach in marketing motor club coverage.

     11. Neither this Final Judgment, the Settlement Agreement, the fact of settlement, the settlement proceedings, settlement negotiations, nor any related document, shall be used as an admission of any act or omission by Village or any other Released Party or be offered or received in evidence as an admission, concession, presumption, or inference of any wrongdoing by Village or any other Released Party in any proceeding other than such proceedings as may be necessary to consummate or enforce the Settlement Agreement.

5

     12. The parties are hereby authorized without further approval from the Court to adopt such amendments or modifications of the Settlement Agreement, and all exhibits thereto, as shall be consistent in all respects with this Settlement Order and Final Judgment and do not limit the rights of members in the Settlement Class.

     13. The Court retains jurisdiction over this Settlement to the extent necessary to implement, effectuate and administer this Settlement and this Settlement Order and Final Judgment.

     14. This Settlement Order and Final Judgment and the Settlement Agreement to which they relate are limited to claims made by Georgia Policyholders under Georgia law.

This                     day of                     , 2008.

                                                                           
Judge, Superior Courts, A.J.C.

6

D

EXHIBIT D

SALES APPROACH

1. If Village Auto continues to offer a motor club product, it will enhance the product with additional features yet to be determined and will revisit the issue of deferred billing fees thereon.

2. All fees, charges, and selected coverages will be disclosed to the customer at the time of application on a declaration or written summary sheet.

3. Village Auto’s computer system will not contain a “default” setting for coverages except those mandated by Georgia law.

E

IN THE SUPERIOR COURT OF FULTON COUNTY
STATE OF GEORGIA

ANNETTE RUSH, individually	)
and on behalf of a class of citizens	)
in Georgia similarly situated,	)
	)
Plaintiff,	)
	)
v.	)	CASE NO. 2005-CV-107983
	)
VILLAGE AUTO INSURANCE	)
COMPANY, INC., FIRST	)
ACCEPTANCE INSURANCE	)
COMPANY OF GEORGIA,	)
U.S. AUTO INSURANCE	)
COMPANY, and TRANSIT	)
AUTO CLUB, INC.,	)
	)
Defendants.

NOTICE OF PROPOSED CLASS ACTION SETTLEMENT AND RELEASE OF CLAIMS

TO: GEORGIA POLICYHOLDERS OF VILLAGE AUTO INSURANCE COMPANY, FIRST ACCEPTANCE INSURANCE COMPANY OF GEORGIA, AND U.S. AUTO INSURANCE COMPANY, WHO PURCHASED MOTOR CLUB COVERAGE FROM TRANSIT AUTO CLUB, INC. (HEREINAFTER REFFERED TO COLLECTIVELY AS “VILLAGE”)

          THIS NOTICE IS BEING PUBLISHED BY ORDER OF THE COURT TO INFORM YOU OF THE PROPOSED SETTLEMENT OF A CLASS ACTION. YOUR RIGHTS MAY BE AFFECTED BY THE LEGAL PROCEEDINGS DESCRIBED BELOW. YOU NEED NOT RESPOND TO THIS NOTICE IN ORDER TO RECEIVE SETTLEMENT BENEFITS. IF YOU DO NOT WANT TO BE PART OF THE SETTLEMENT, YOU MUST TAKE THE STEPS DESCRIBED IN THIS NOTICE BY OCTOBER 31, 2008. OTHERWISE, YOU MAY BE BOUND BY ALL OF THE TERMS OF THE PROPOSED SETTLEMENT. IF YOU CURRENTLY HAVE OR INTEND TO MAKE A FORMAL CLAIM AGAINST VILLAGE REGARDING YOUR MOTOR CLUB COVERAGE OR DEFERRED BILLING FEES IN CONNECTION THEREWITH, THE PROPOSED SETTLEMENT MAY AFFECT YOUR RIGHTS.

IF YOU HAVE ANY QUESTIONS, YOU MAY CALL 800-254-4993 AND SPEAK TO A REPRESENTATIVE.
PLEASE DO NOT CONTACT THE COURT, VILLAGE OR YOUR INSURANCE AGENT.

A class action lawsuit against Village has been filed in the Superior Court of Fulton County in Atlanta, Georgia (the “Action”). The parties have reached a proposed settlement. The Court has authorized publication of this notice. The plaintiff in the Action alleged, on behalf of herself and a class of current and former Georgia policyholders of the Village companies, that there were certain deficiencies in the marketing of motor club memberships and the imposition of deferred billing fees in connection therewith. Village does not admit liability on any individual claim. The plaintiff and Village have entered into a settlement agreement (the “Settlement Agreement”) in order to avoid the costs, uncertainty, and risks of further litigation and to resolve Georgia policyholders’ claims related to motor club memberships.

The court has certified a Settlement Class for injunctive, equitable and monetary relief.

The class is defined as:

“All citizens of the State of Georgia who are past insureds (within six years of the filing of Plaintiff’s action) or current insureds of the Defendant or its affiliates and who paid or are currently paying “fees” or “dues” for “motor club” coverage though Transit Automobile Club;

“All citizens of the State of Georgia who are past insureds (within six years of the filing of Plaintiff’s action) or current insureds of the Defendant or its affiliates and who paid or are currently paying a “billing fee” in connection with their “motor club” coverage through Transit Automobile Club.”

If you are a Class Member, you need to decide whether to decline further participation in the class. To be excluded, you must send a written notice stating “I request to be excluded from the settlement class.” Your notice must also contain your name and address and must be signed and dated by you. This written notice should be sent to Rush v. Village Auto Settlement Administrator, P.O. Box 56380, Jacksonville, FL 32241-6380 so that it is received by October 31, 2008. If you are excluded, you will not be able to receive any benefit available under the proposed settlement and you will not be bound by any orders or judgments entered in this case. An exclusion request for your claim(s) must be filed in an individual capacity, not by any representative. If you remain in the Class, your interests will be represented without cost by class counsel, and you will be bound by all orders and judgments entered by the Court, whether favorable or unfavorable to the Class.

If the settlement is approved and you do not exclude yourself from the Class, you will be entitled to benefit as follows: Each Current Georgia Policyholder will be entitled to a credit upon a new or renewal automobile policy with Village for 100% of the amounts the Current Policyholder paid for automobile club memberships and deferred billing fees, to be prorated over a twelve-month renewal term and applied first to uninsured motorist coverage, if purchased, then to liability coverage, or, at the Current Policyholder’s election, to a cash reimbursement of up to $50 for towing and rental charges paid by the Current Policyholder; (b) Each Former Georgia Policyholder will be entitled to a cash reimbursement of up to $50 for towing and rental charges paid by the Former Policyholder or, at the Former Policyholder’s election, to a credit upon a new automobile policy with Village for 100% of the amounts the Former Policyholder paid for automobile club memberships and deferred billing fees, to be prorated over a twelve-month renewal term and applied first to uninsured motorist coverage, if purchased, then to liability coverage. The cash reimbursement benefit is available for accidents occurring between January 1, 2009 and December 31, 2009. These benefits are more fully described in the Benefit Form that accompanies this notice as mailed to Policyholders . IF YOU ARE READING THIS NOTICE IN A NEWSPAPER AND DID NOT RECEIVE A COPY OF THIS NOTICE AND ENCLOSED BENEFIT FORM BY MAIL, CALL 800-254-4993 AND A BENEFIT FORM WILL BE MAILED TO YOU. All claims relating to motor club memberships or deferred billing fees that have been or could have been asserted in the respective class periods in the Action will be released.

The Court has designated the following counsel to represent the Class for the purposes of settlement of this lawsuit:

Charles A. McCallum, III, Esq.	James Benjamin Finley, Esq.	C. Ronald Ellington, Esq.
R. Brent Irby, Esq.	The Finley Firm, P.C.	135 Braver Trail
McCallum, Hoaglund, Cook & Irby,	2931 North Druid Hills Road, Suite A	Athens, Georgia 30605
L.L.P.	Atlanta, Georgia 30329
905 Montgomery Highway, Suite 201
Vestavia Hills, Alabama 35216

You will not be separately charged for the services of these or any other counsel representing the Class in this Action. You have the right to retain your own attorney in this matter, but if you do, you will be responsible for paying your own attorneys’ fees and expenses. Plaintiff will apply to the Court for an award of attorneys’ fees and costs not to exceed a total of $3,800,000 on behalf of the counsel which have represented the plaintiff in this class action. If the Court approves the application, the settlement will not be reduced by that amount.

The Court will hold a hearing on November 21, 2008, at 2:00 o’clock p.m. Eastern Time, to consider whether to approve the proposed settlement and to determine the amount of attorneys’ fees and expenses to award to the plaintiffs’ counsel, at the Superior Court of Fulton County, Georgia, Fulton County Justice Center, Courtroom T4955, 185 Central Avenue, Atlanta, Georgia. Unless you request exclusion, you may file a written objection by October 31, 2008, to any aspect of the proposed settlement or the amount of attorneys’ fees, but you will be bound by the orders and judgments entered in this case, even if the Court does not agree with your objections. Each written objection should state the case name and number and include (i) a statement of your objections, as well as the specific reasons you have for each objection, including any legal support you wish to bring to the Court’s attention and any evidence you wish to introduce in support of your objection(s), (ii) your name, address and telephone number, (iii) the policy number(s) of your policy(ies), and (iv) the claim number(s) of your claim(s). Objections should be sent to the following addresses:

Clerk of the Court	Charles A. McCallum, III, Esq.	Herbert D. Shellhouse, Esq.
Superior Court of	R. Brent Irby, Esq.	Troutman Sanders LLP
Fulton County	McCallum, Hoaglund, Cook & Irby, L.L.P.	600 Peachtree Street, Suite 5200
185 Central Avenue	905 Montgomery Highway, Suite 201	Atlanta, Georgia 30308
Atlanta, Georgia 30303	Vestavia Hills, Alabama 35216

Whether you filed a timely written objection or not, you may appear at the Fairness Hearing, either in person or through an attorney retained and paid by you. If you or your attorney wants to be heard at the Fairness Hearing, you or your attorney must file a notice of intention to appear with the Clerk of the Court by November 15, 2008, with copies received by the plaintiffs’ counsel and Village’s counsel, at the addresses provided above.

Please call 800-254-4993 with any questions you may have about the settlement or visit www.rushclassactionsettlement.com.

PLEASE DO NOT CALL THE COURT, THE CLERK OF COURT, VILLAGE OR YOUR INSURANCE AGENT.

DATED: September 11, 2008

This Notice Has Been Approved by Hon. T. Jackson Bedford, Jr., Judge, Superior Courts, A.J.C.

Rush v. Village Auto Settlement Administrator
P.O. Box 56380
Jacksonville, FL 32241-6380

<First Name> <Last Name>
<address>
<City, State Zip>

SETTLEMENT BENEFIT FORM
FOR CURRENT POLICYHOLDERS

	Important: A notice has been delivered to your address based on information contained in the records of Village Auto concerning a class settlement of claims involving motor club membership and deferred billing fees in connection therewith. This Benefit Form entitles you to the benefits set forth in the notice. Subject to the terms set forth herein, you will automatically receive a 100% credit for all motor club charges and deferred billing fees you paid to Village Auto on your next insurance renewal or new application with Village Auto on or before December 31, 2009, prorated over twelve months and applied to uninsured motorist coverage, if purchased, unless you elect to receive to cash reimbursement up to a maximum of $50 for towing/rental car expenditures as described below. You must be insured continuously for each of the twelve months in order to receive the full policy credit.
	ALL BENEFITS ARE CONDITIONED UPON FINAL COURT APPROVAL OF THE PARTIES’ SETTLEMENT.
	Towing/Rental Reimbursement Benefit:
o	By checking the box to the left and returning this completed form to the Rush v. Village Auto Settlement Administrator, P.O. Box 56380, Jacksonville, FL 32241-6380 by December 31, 2008, you will be entitled to a cash reimbursement up to $50 for towing/rental charges you incur as a result of a vehicle accident disablement that occurs on or before December 31, 2009. The vehicle must be registered in your name at the time of the accident, and you must submit your reimbursement form, proof of registration and the accident report, and evidence that you paid for a towing/ rental as a result of the disablement.

1. Please write the full name of the Class Member.

Class Member Current Name:
	(print)
Former Name (if different):
	(print)

SEE REVERSE

2. Please fill in the information below.

Current Address:

Current Telephone:

	Date:
signature

Rush v. Village Auto Settlement Administrator
P.O. Box 56380
Jacksonville, FL 32241-6380

<First Name> <Last Name>
<address>
<City, State Zip>

SETTLEMENT BENEFIT FORM
FOR FORMER POLICYHOLDERS

	Important: A notice has been delivered to your address based on information contained in the records of Village Auto concerning a class settlement of claims involving motor club membership and deferred billing fees in connection therewith. This Benefit Form entitles you to the benefits set forth in the notice. Subject to the terms set forth herein, you will automatically receive a cash reimbursement benefit up to $50 for towing/ rental car expenditures if your vehicle was disabled in an accident unless you elect to receive a 100% credit for all motor club charges and deferred billing fees you paid to Village Auto on your new application for insurance with Village Auto. If you choose the cash reimbursement certificate, the vehicle must be registered in your name at the time of the accident, you must submit your reimbursement form, proof of registration and the accident report, and evidence that you paid for a towing/ rental as a result of the disablement.
	ALL BENEFITS ARE CONDITIONED UPON FINAL COURT APPROVAL OF THE PARTIES’ SETTLEMENT.
	Insurance Benefit:
o	By checking the box to the left and completing and returning this form to the Rush v. Village Auto Settlement Administrator, P.O. Box 56380, Jacksonville, FL 32241-6380 by December 31, 2008, you elect the insurance credit benefit and request that 100% of eligible payments you made for motor club and deferred billing fees be credited on a monthly prorated basis on a new application for insurance with Village Auto. You understand Village Auto will prorate the credit over twelve months, and it will be applied only to uninsured motorist coverage or liability coverage if you do not purchase uninsured motorist coverage. You must be insured continuously for each of the twelve months in order to receive the full policy credit. Your credit is available at any time up to June 30, 2010 when you apply for a new policy with Village Auto.

1. Please write the full name of the Class Member.

Class Member Current Name:
	(print)
Former Name (if different):
	(print)

SEE REVERSE

2. Please fill in the information below.

Current Address:

Current Telephone:

	Date:
signature

EX-31.1

Exhibit 31.1

FIRST ACCEPTANCE CORPORATION 10-Q

SECTION 302 CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER

I, Stephen J. Harrison, 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: November 10, 2008

By:	/s/ Stephen J. Harrison
Stephen J. Harrison
Chief Executive Officer

EX-31.2

Exhibit 31.2

FIRST ACCEPTANCE CORPORATION 10-Q

SECTION 302 CERTIFICATION OF THE CHIEF FINANCIAL OFFICER

I, Kevin P. Cohn, Senior 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: November 10, 2008

By:	/s/ Kevin P. Cohn
Kevin P. Cohn
Senior Vice President and Chief Financial Officer

EX-32.1

Exhibit 32.1

FIRST ACCEPTANCE CORPORATION 10-Q

CERTIFICATION 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 September 30, 2008, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Stephen J. Harrison, 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

Chief Executive Officer

November 10, 2008

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

FIRST ACCEPTANCE CORPORATION 10-Q

CERTIFICATION 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 September 30, 2008, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Kevin P. Cohn, Senior 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/ Kevin P. Cohn Kevin P. Cohn

Senior Vice President and Chief Financial Officer

November 10, 2008

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.