WAIVER AND SIXTH AMENDMENT TO REVOLVING CREDIT AND TERM LOAN AGREEMENT

Exhibit 10.38

WAIVER AND SIXTH AMENDMENT TO
REVOLVING CREDIT AND TERM LOAN AGREEMENT

     THIS WAIVER AND SIXTH AMENDMENT TO REVOLVING CREDIT AND TERM LOAN AGREEMENT (this “Waiver and Amendment”) is dated the 10^th day of September, 2008 by and among FIRST ACCEPTANCE CORPORATION (the “Borrower”), SUNTRUST BANK as Administrative Agent and as a Lender and FIRST BANK as a Lender.

RECITALS:

     A. The Borrower, Administrative Agent and Lenders are parties to a Revolving Credit and Term Loan Agreement dated as of January 12, 2006 (as previously amended by the Waiver and First Amendment to Revolving Credit and Term Loan Agreement, as previously amended by the Waiver and Second Amendment to Revolving Credit and Term Loan Agreement, as previously amended by the Waiver and Third Amendment to Revolving Credit and Term Loan Agreement, as previously amended by the Waiver and Fourth Amendment to Revolving Credit and Term Loan Agreement, as previously amended by the Waiver and Fifth Amendment to Revolving Credit and Term Loan Agreement, and as amended from time to time, collectively, the “Credit Agreement”).

     B. Borrower has requested a waiver of compliance by the Borrower with certain provisions of the Credit Agreement, wishes to permanently prepay principal amounts owed under the Credit Agreement and has requested that certain provisions of the Credit Agreement be amended.

     C. Subject to the terms of this Sixth Amendment to Revolving Credit and Term Credit Agreement, the Lenders have agreed to such waivers and amendments as set forth herein.

     D. Terms not defined herein shall have the meanings ascribed to such terms in the Credit Agreement.

     NOW, THEREFORE, in consideration of the foregoing, the covenants and agreements contained herein, and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows:

     Section 1. Waiver of Compliance with Section 6.1 for Certain Period. Compliance by the Borrower with the terms of Section 6.1 of the Credit Agreement for the quarter ending June 30, 2008 is hereby waived.

     Section 2. Waiver of Compliance with Section 6.2 for Certain Period. Compliance by the Borrower with the terms of Section 6.2 of the Credit Agreement for the quarter ending June 30, 2008 is hereby waived.

     Section 3. Waiver of Compliance with Section 6.6 for Certain Period. Compliance by the Borrower with the terms of Section 6.6 of the Credit Agreement for the quarter ending June 30, 2008 is hereby waived.

     Section 4. Financial Covenant Waiver. Compliance with the terms of Section 6.1, 6.2, 6.3, 6.5 and 6.6 of the Credit Agreement for the quarter ending September 30, 2008 is hereby waived.

     Section 5. Cancellation of Revolving Loan Commitment. Effective as of the date hereof, the Borrower shall not be entitled to request, and the Lenders shall not be required to make, any Revolving Loans. The Revolving Commitments are hereby cancelled.

     Section 6. Mandatory Principal Prepayment. The parties acknowledge that the Borrower made a principal prepayment of $1,000,000 with respect to the Term Loans on August 8, 2008.

     Section 7. Full Payment of Outstanding Term Loan. The outstanding principal balance of the Term Loans, together with accrued interest, shall be paid in full by the Borrower on or before October 31, 2008. In addition, the Borrower shall pay any and all other amounts due under the Credit Agreement on or before October 31, 2008.

     Section 8. Representations and Warranties. To induce the Administrative Agent, the Issuing Bank, the Swingline Lender and the Lenders to enter into this Waiver and Amendment, the Borrower hereby represents and warrants to the Lenders that:

     (a) Reaffirmation. As of the date of this Waiver and Amendment and after giving effect to this Waiver and Amendment, the representations and warranties set forth in Article IV of the Credit Agreement are true and correct in all material respects (except to the extent that any such representation or warranty expressly relates to a specified earlier date, in which case such representation or warranty shall be true and correct as of such earlier date, and except for changes in facts and circumstances which are not prohibited by the terms of the Credit Agreement); and

     (b) No Default. As of the date hereof and after giving effect to this Waiver and Amendment, no Default or Event of Default shall have occurred and be continuing.

     Section 9. Payment of Expenses. The Borrower agrees to pay or reimburse the Administrative Agent for its reasonable out-of-pocket costs and expenses incurred in connection with the preparation and execution of this Waiver and Amendment.

     Section 10. Conditions. The effectiveness of this Waiver and Amendment is subject to the satisfaction of the following conditions precedent:

     (a) The Lenders shall have received this Waiver and Amendment (and any other documents necessary to evidence the transactions relating thereto) duly executed by the Borrower and the Guarantors, as applicable;

     (b) No Default or Event of Default shall exist; and

     (c) The Administrative Agent shall have received an incumbency certificate with respect to the officer(s) of Borrower executing this Waiver and Amendment, a

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certificate of existence for the Borrower and resolutions of the Board of Directors of the Borrower.

     Section 11. Counterparts. This Amendment may be executed by one or more of the parties hereto on any number of separate counterparts, and all of said counterparts taken together shall be deemed to constitute one and the same instrument.

     Section 12. Severability; Headings. Any provision of this Waiver and Amendment which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability, without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. The section and subsection headings used in this Amendment are for convenience of reference only and are not to affect the construction hereof or to be taken into consideration in the interpretation hereof.

     Section 13. Continuing Effect of Other Documents. This Waiver and Amendment shall not constitute an amendment or waiver of any other provision of the Credit Agreement not expressly referred to herein and, except to the extent that the Credit Agreement expressly has been amended hereby, shall not be construed as a waiver or consent to any further or future action on the part of the Borrower that would require a waiver or consent of the Required Lenders or the Administrative Agent. Except as expressly amended, modified or supplemented hereby, the provisions of the Credit Agreement are and shall remain in full force and effect.

     Section 14. GOVERNING LAW. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES UNDER THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.

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     IN WITNESS WHEREOF, the parties hereto have executed this Waiver and Sixth Amendment to Revolving Credit and Term Loan Agreement as of the date first set forth above.

		FIRST ACCEPTANCE CORPORATION
		By:		/s/ Xxxxxxx Xxxxxxx
		Title:		Treasurer
		SUNTRUST BANK, as Administrative Agent and as a Lender
		By:		/s/ Xxxxxxx Xxxxxxxxxxx
		Title:		Director
		FIRST BANK, as a Lender
		By:		/s/ Xxxx Xxxxx
		Title:		Vice President

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CONSENT OF GUARANTORS

The undersigned, each a Guarantor, as defined in the Subsidiary Guarantee Agreement, hereby execute this Waiver and Sixth Amendment to Revolving Credit and Term Loan Agreement to evidence their consent thereto, as well as the transactions contemplated thereby, and agree that the Subsidiary Guarantee Agreement dated January 12, 2006, remains in full force and effect.

		USAUTO HOLDINGS, INC., as a Guarantor
		By:		/s/ Xxxxxxx Xxxxxxx
				Name: Xxxxxxx Xxxxxxx
				Title: Treasurer
		TRANSIT AUTOMOBILE CLUB, INC., as a Guarantor
		By:		/s/ Xxxxxxx Xxxxxxx
				Name: Xxxxxxx Xxxxxxx
				Title: Treasurer
		ALABAMA ACCEPTANCE INSURANCE AGENCY, INC., as a Guarantor
		By:		/s/ Xxxxxxx Xxxxxxx
				Name: Xxxxxxx Xxxxxxx
				Title: Treasurer
		ACCEPTANCE INSURANCE AGENCY OF TENNESSEE, INC., as a Guarantor
		By:		/s/ Xxxxxxx Xxxxxxx
				Name: Xxxxxxx Xxxxxxx
				Title: Treasurer

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		ACCEPTANCE INSURANCE AGENCY, INC., as a Guarantor
		By:		/s/ Xxxxxxx Xxxxxxx
				Name: Xxxxxxx Xxxxxxx
				Title: Treasurer
		FIRST ACCEPTANCE SERVICES, INC., as a Guarantor
		By:		/s/ Xxxxxxx Xxxxxxx
				Name: Xxxxxxx Xxxxxxx
				Title: Treasurer
		ACCEPTANCE INSURANCE AGENCY OF ILLINOIS, INC., as a Guarantor
		By:		/s/ Xxxxxxx Xxxxxxx
				Name: Xxxxxxx Xxxxxxx
				Title: Treasurer
		LNC HOLDINGS, INC., as a Guarantor
		By:		/s/ Xxxxxxx Xxxxxxx
				Name: Xxxxxxx Xxxxxxx
				Title: Treasurer
		ACCEPTANCE INSURANCE AGENCY OF TEXAS, INC., as a Guarantor
		By:		/s/ Xxxxxxx Xxxxxxx
				Name: Xxxxxxx Xxxxxxx
				Title: Treasurer

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