Escrow Agreement Dated March 31, 2005

ESCROW AGREEMENT


THIS ESCROW AGREEMENT (this "Agreement") is made as of March 31, 2005, by and among First Acceptance Corporation, a Delaware corporation ("FAC"), and Stephen J. Harrison and Thomas M. Harrison, Jr. (collectively, the "Harrisons").


WHEREAS, FAC, the Harrisons and certain other parties entered into that certain Agreement and Plan of Merger, dated as of December 15, 2003 (the "Merger Agreement"), pursuant to which FAC acquired USAuto Holdings, Inc., a Delaware corporation ("USAuto"); and


WHEREAS, pursuant to Section 1.7(a) of the Merger Agreement, the Harrisons are entitled to receive up to an additional 750,000 shares of FAC common stock (the "Shares") upon the attainment of targeted levels of "Adjusted EBITDA" of USAuto and its subsidiaries, as defined in the Merger Agreement; and


WHEREAS, pursuant to the Merger Agreement, Adjusted EBITDA was to be determined by the Audit Committee of the Board of Directors of FAC (the "Audit Committee") and FAC's Chief Financial Officer based upon the audited consolidated net income of USAuto and its subsidiaries for the twelve-month period ended December 31, 2004 (the "Earnout Period"); and


WHEREAS, the fiscal year of FAC and USAuto ends on June 30 each year and the financial statements of FAC and USAuto for the Earnout Period are not audited by FAC's independent auditor; and


WHEREAS, the Audit Committee has reviewed the computation of Adjusted EBITDA for the Earnout Period, as determined by FAC's Chief Financial Officer based upon unaudited financial information, and reviewed such computation with FAC's independent auditor and the Audit Committee has determined that it believes the Adjusted EBITDA target set forth in the Merger Agreement has been met and the Harrisons are entitled to receive all of the Shares; and


WHEREAS, after consultation with the Audit Committee and FAC's Chief Financial Officer, the Board of Directors of FAC has determined that it is impracticable for FAC to obtain an audit of the consolidated net income of USAuto and its subsidiaries for the Earnout Period as set forth in the Merger Agreement and that, if it were practicable to obtain such an audit, the financial burden of obtaining such an audit is not in the best interest of FAC or its stockholders; and


WHEREAS, the Harrisons have agreed with the Audit Committee's calculation of Adjusted EBITDA for the Earnout Period, but FAC and the Harrisons have determined that it is in the best interest of FAC, its stockholders and the Harrisons that the Shares be issued to the Harrisons and held in escrow pending the completion of the audit of FAC's financial statements for the fiscal year ended June 30, 2005; and


WHEREAS, FAC and the Harrisons desire to enter into this Agreement to establish an escrow fund on the terms and conditions set forth in this Agreement.


NOW, THEREFORE, in consideration of the foregoing and the mutual covenants and agreements contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and intending to be legally bound hereby, the parties hereto do hereby agree as follows:


1. ESCROW. Upon execution of this Agreement and without any further act of the Harrisons, FAC shall cause its transfer agent and registrar to issue 350,000 shares of FAC common stock to each of Stephen J. Harrison and Thomas M. Harrison, Jr. and to deposit the Shares with FAC, such deposit to constitute an escrow fund (the "Escrow Fund") to be governed by the terms and conditions of this Agreement. Upon execution of this Agreement, the Harrisons shall deliver to FAC executed stock powers for the certificates representing the Shares. FAC hereby agrees to act as escrow agent and to hold, safeguard and disburse the Escrow Fund pursuant to the terms and conditions of this Agreement, and shall treat the Escrow Fund as a trust fund in accordance with the terms of this Agreement and not as the property of FAC or the Harrisons. Any cash dividends, dividends payable in securities or other distributions in kind made in respect of the Shares shall be added to the Escrow Fund. The Harrisons shall have voting rights with respect to the Shares (and on any voting securities added to the Escrow ...