Purchase and Sale Agreement

EXHIBIT 2.1

PURCHASE AND SALE AGREEMENT

BY AND AMONG

THE EQUITYHOLDERS OF USAGENCIES, L.L.C.
SIGNATORY HERETO
AS SELLERS

AND

AFFIRMATIVE INSURANCE HOLDINGS, INC.

AS BUYER

Dated as of October 3, 2006

TABLE OF CONTENTS

		Page
ARTICLE 1 DEFINITIONS			1
1.1 Definitions			1
ARTICLE 2 PURCHASE AND SALE			10
2.1 Purchase and Sale of the Units and Closing Transactions			10
2.2 Purchase Price			11
2.3 Closing			13
2.4 Actions at Closing			13
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF SELLERS			14
3.1 Ownership; Capacity, Etc. of Sellers			14
3.2 Organization, Qualification, and Power			15
3.3 Capitalization; Constituent Documents			15
3.4 Noncontravention			16
3.5 Financial Statements			17
3.6 Absence of Changes or Events			17
3.7 Statutory Financial Statements			19
3.8 Title to Properties			20
3.9 Equipment, Etc			20
3.10 Receivables			20
3.11 Affiliated Transactions			20
3.12 Intellectual Property			20
3.13 Insurance			21
3.14 Real Property			21
3.15 Leases			22
3.16 Material Contracts			22
3.17 Directors and Officers			23
3.18 Bank Accounts			23
3.19 Litigation			23
3.20 Employee Benefit Plans; Labor Relations			24
3.21 Reinsurance			25
3.22 Taxes			25
3.23 Compliance with Applicable Laws; Insurance Business			26
3.24 Environmental Matters			28
3.25 Brokers’ Fees			29
3.26 Absence of Other Warranties			29
3.27 Cash Management			29
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF BUYER			29
4.1 Organization, Qualification, and Corporate Power			29
4.2 Availability of Funds			30
4.3 Authorization of Transaction			30
4.4 Noncontravention			30
4.5 Investment Intent			30

TABLE OF CONTENTS
(continued)

		Page
4.6 Brokers’ Fee			30
4.7 Investigation and Evaluation of Business			31
4.8 Information on Change of Control Applications			31
FOR REPRESENTATIONS AND WARRANTIES			31
5.1 Disclosure Schedule			31
ARTICLE 6 COVENANTS; ADDITIONAL AGREEMENTS			32
6.1 General			32
6.2 Notices and Consents			32
6.3 Regulatory Matters and Approvals			32
6.4 Confidentiality			33
6.5 Operation of Business			33
6.6 Full Access			35
6.7 Notice of Developments			36
6.8 Exclusivity			36
6.9 Insurance, Exculpation			36
6.10 Tax Matters			36
6.11 Non-Competition; No Solicitation			41
6.12 Release			43
6.13 Drag-Along			44
ARTICLE 7 CONDITIONS TO OBLIGATION TO CLOSE			44
7.1 Conditions to Obligation of the Buyer			44
7.2 Conditions to Obligation of Sellers			45
7.3 Deemed Waiver			46
7.4 Frustration of Closing Conditions			46
7.5 Specific Performance			46
ARTICLE 8 TERMINATION			47
8.1 Termination of Agreement			47
8.2 Effect of Termination			47
8.3 Fees and Expenses			48
ARTICLE 9 SURVIVAL; INDEMNIFICATION			48
9.1 Survival			48
9.2 Indemnification			49
9.3 Third Party Claims			50
9.4 Limitations on Indemnification			51
9.5 Remedies Exclusive			52

TABLE OF CONTENTS
(continued)

		Page
ARTICLE 10 MISCELLANEOUS			53
10.1 Press Releases and Public Announcements			53
10.2 No Third-Party Beneficiaries			53
10.3 Agreement			53
10.4 Succession and Assignment			53
10.5 Counterparts and Determination of Effective Date			54
10.6 Headings			54
10.7 Notices			54
10.8 Governing Law			55
10.9 Amendments and Waivers			55
10.10 Severability			56
10.11 Construction			56
10.12 Incorporation of Exhibits and Disclosure Schedule			56
10.13 Consent to Jurisdiction			56
10.14 Determination of Several Liability of Sellers			56
ARTICLE 11 SELLERS’ COMMITTEE; POWER OF ATTORNEY			56
11.1 Sellers’ Committee, Etc			56

Exhibits:

A — List of Sellers
B — Certain Officers of the Buyer
C — Payments to Sellers
D — Form of Escrow Agreement
E — Applicable Area
F — Lenders

Schedules:

3.1(a) Ownership; Capacity, Etc. of Sellers
3.2 Organization, Qualification and Power
3.4 Noncontravention
3.5 Indebtedness
3.6 Absence of Changes or Events
3.7(b) Statutory Accounting Practices
3.7(d) Securities
3.8 Title to Properties
3.9 Equipment, Etc.
3.11 Affiliated Transactions
3.12 Intellectual Property
3.12(c) Fees Payable Under Intellectual Property Licenses and/or Maintenance Agreements
3.13 Insurance
3.14 Real Property
3.15 Leases
3.16 Material Contracts
3.17 Directors and Officers
3.18 Bank Accounts
3.19(a) Claims Under Policies of Automobile Insurance
3.19(b) Subrogation and Salvage Claims
3.20 Employee Benefit Plans; Labor Relations
3.21 Reinsurance
3.22 Taxes

3.22(b)(iv) 280G Person
3.23(a) Permits

3.23(b) Forms of Insurance Policies and Riders; Forms of Premium Finance Agreements and related Premium Finance Forms

3.23(c) Compliance with Applicable Laws
3.23(e) Deposits
3.24 Environmental Matters
6.5(b) Operation of Business in the Ordinary Course

6.5(b)(ii) Transfer, Sale, Issuance of Units, Membership Interest, Etc.
6.12 Releases
6.11(b) List of Officers and Senior Managers

9.2(a)(iv) Certain Indemnity Items

PURCHASE AND SALE AGREEMENT

     THIS PURCHASE AND SALE AGREEMENT (the “Agreement”) dated as of the 3rd day of October, 2006 and to become effective in accordance with Section 10.5 (the “Effective Date”), by and among Affirmative Insurance Holdings, Inc., a Delaware corporation (the “Buyer”) and the Persons identified on Exhibit A (collectively, the “Sellers”) that are signatories hereto. The Buyer and the Sellers are hereinafter sometimes referred to collectively as the “Parties” or singly as a “Party”.

     WHEREAS, each of the Sellers owns (i) that number of Units (as defined below), of USAgencies, L.L.C., a Louisiana limited liability company (the “TARGET”), set forth opposite such Seller’s name under the heading “Units Owned” on Exhibit A and (ii) that number of options to acquire Units (“Options”) set forth opposite such Seller’s name under the heading “Options Owned” on Exhibit A; and

     WHEREAS, (i) the Sellers desire to sell to the Buyer, and the Buyer desires to purchase from the Sellers, all of the issued and outstanding membership interests of the TARGET (the “Units”) and (ii) with funds provided by the Buyer, Buyer desires the TARGET to, and the Sellers desire to cause the TARGET to cancel the Options, in each case on the terms and subject to the conditions set forth in this Agreement.

     NOW, THEREFORE, in consideration of the premises and the mutual promises herein made, and in consideration of the representations, warranties and covenants herein contained, the Parties agree as follows.

ARTICLE 1

DEFINITIONS

     1.1 Definitions. As used in this Agreement, the following terms shall have the definitions set forth below:

     “Accounting Firm” has the meaning set forth in Section 2.2(d).

     “Actual Book Value Adjustment” has the meaning set forth in Section 2.2(d).

     “Actual Closing Book Value” has the meaning set forth in Section 2.2(d).

     “Actual Indebtedness” has the meaning set forth in Section 2.2(d).

     “Actual Transaction Expenses” has the meaning set forth in Section 2.2(d).

     “Additional Non-Compete Consideration” has the meaning set forth in the definition of Transaction Expenses in this Section 1.1.

     “Adjusted Book Value” means, at the applicable date, the Book Value on such date adjusted to disregard the positive or negative effects, net of taxes, of (a) unrealized gains or losses accruing on the investment portfolio after June 30, 2006, (b) any losses or expenses that are the result of a natural catastrophe occurring after the Effective Date, (c) any claim settlement

of the business interruption insurance claim currently being negotiated with Hartford Insurance Company recognized after the Effective Date, (d) any prior treaty year ceding commission adjustments paid or payable by GMAC RE Corporation (“GMAC”) and recorded after the Effective Date, (e) any current treaty year ceding commission adjustments resulting from a change in the commission rate that are paid or payable by GMAC and recorded after the Effective Date, and (f) the after tax effect of any Transaction Expenses to the extent such expenses have reduced Book Value prior to the applicable date.

     “Affiliate” of any Person means another Person that directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with, such first Person.

     “Affiliated Group” has the meaning set forth in Section 3.22.

     “Agreement” means this Purchase and Sale Agreement (including the Exhibits hereto and the Disclosure Schedule) and all amendments hereto made in accordance with the provisions of Section 10.9.

     “Applicable Area” has the meaning set forth in Section 6.11(e).

     “Audited Financial Statements” has the meaning set forth in Section 3.5.

     “Avaya Obligations” means payments for the hardware, software and services related to the purchase and implementation of phone switch and routing system, handsets, call center management systems, call accounting system, call quality and call recording systems, telephony hardware monitoring system, interactive voice response system, including pay-by-phone and related voice-user interface applications, voicemail, Aspect workforce management system, and related applications, as described in purchase agreements with Avaya, Inc. dated June 1, 2005, and as amended through July 2006.

     “Base Purchase Price” has the meaning set forth in Section 2.2(a).

     “Benefit Plan” has the meaning set forth in Section 3.20.

     “Book Value” means at the applicable date an amount equal to all of the assets of TARGET minus all of the liabilities of TARGET as set forth on the consolidated balance sheet of TARGET at such date, prepared in accordance with GAAP consistent with past practices.

     “Book Value Adjustment” equals an amount by which the TARGET Projected Book Value as of the Closing Balance Sheet Date exceeds the Book Value as of the Closing Balance Sheet Date, which shall not be a negative number.

     “Business” means the businesses of TARGET and its Subsidiaries including the non-standard automobile insurance and premium finance business conducted by TARGET and its Subsidiaries.

     “Business Guidelines” has the meaning set forth in Section 3.23(b).

     “Buyer” has the meaning set forth in the preface above.

     “Buyer Indemnitees” has the meaning set forth in Section 9.2(a).

     “Closing” has the meaning set forth in Section 2.3.

     “Closing Balance Sheet” has the meaning set forth in Section 2.2(b).

     “Closing Balance Sheet Date” has the meaning set forth in Section 2.2(b).

     “Closing Date” has the meaning set forth in Section 2.3.

     “Closing Purchase Price” has the meaning set forth Section 2.2(c).

     “Closing Statement” has the meaning set forth in Section 2.2(d).

     “Code” means the Internal Revenue Code of 1986, as amended.

     “Confidentiality Agreement” has the meaning set forth in Section 6.4.

     “Consolidated Balance Sheet” has the meaning set forth in Section 2.2(b).

     “Constructive Knowledge” means, with respect to a Person, the knowledge that such Person should reasonably be deemed to have on the applicable date based on the books, records, files or other documents in the possession of such Person on or prior to such date.

     “Contracts” means any agreement, contract, instrument, commitment, arrangement or understanding, whether oral or written, including all amendments thereto.

     “Deposit” has the meaning set forth in Section 3.23(e).

     “Determination Date” has the meaning set forth in Section 8.1(d).

     “Disclosure Schedule” has the meaning set forth in Article 3.

     “Dispute Notice” has the meaning set forth in Section 2.2(d).

     “Drag-Along” has the meaning set forth in Section 6.13.

     “Effective Date” has the meaning set forth in the preface above.

     “Electronic Data Room” has the meaning set forth in Section 3.23(a).

     “Environmental Law” means any Law enacted and in effect on or prior to the Closing Date relating to the protection of the environment public health or safety, worker health or safety, or the manufacture, use, transport, treatment, storage, disposal, handling, control, clean-up, release or threatened release of noise, radiation, mold, pollutants, contaminants, by products, petroleum products, asbestos, urea formaldehyde insulation, polychlorinated biphenyls or any substance listed, classified or regulated as hazardous or toxic under such Law, order or other requirement of Law.

     “Equipment” has the meaning set forth in Section 3.9.

     “Escrow Account” has the meaning set forth in Section 2.1(d).

     “Escrow Agreement” has the meaning set forth in Section 2.1(d).

     “Escrow Amount” has the meaning set forth in Section 2.1(d).

     “Estimated Book Value Adjustment” has the meaning set forth in Section 2.2(b).

     “Estimated Closing Book Value” has the meaning set forth in Section 2.2(b).

     “Estimated Closing Statement” has the meaning set forth in Section 2.2(b).

     “Estimated Indebtedness” has the meaning set forth in Section 2.2(b).

     “Estimated Transaction Expenses” has the meaning set forth in Section 2.2(b).

     “ERISA” means the Employee Retirement Income Security Act of 1974, as amended.

     “Excluded Debt” has the meaning set forth in Section 2.2(b).

     “Excluded Persons” has the meaning set forth in Section 6.11(a).

     “Existing Reinsurance Agreements” has the meaning set forth in Section 3.21.

     “Financial Statements” has the meaning set forth in Section 3.5.

     “Final Closing Balance Sheet” has the meaning set forth in Section 2.2(d).

     “Final Purchase Price” has the meaning set forth in Section 2.2(e)(ii).

     “Forms” has the meaning set forth in Section 3.23(b).

     “Fundamental Representations” has the meaning set forth in Section 9.1.

     “GAAP” means United States generally accepted accounting principles as in effect from time to time, and, with respect to Interim Financial Statements, subject to year end and other consolidating adjustments (which will not be material individually or in the aggregate to members’ equity or net income) and to Reclassifications and Changes.

     “Governmental Entity” means any government or subdivision thereof, whether domestic or foreign, or any administrative, governmental, quasi-governmental or regulatory authority, agency, department, division, commission, court, tribunal or body, whether domestic, foreign or multinational.

     “Hart-Scott-Rodino Act” means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended.

     “Hazardous Substance” means any material defined as a toxic or hazardous substance pursuant to 42 U.S.C. § 9601(14).

     “Indebtedness” means, without duplication, the sum of (a) the principal amount of any indebtedness of the TARGET and its Subsidiaries for borrowed money outstanding as of immediately prior to the Closing, together with all prepayment premiums or penalties and other amounts becoming due as a result of the Transactions, (b) all payment obligations of the TARGET and its Subsidiaries for the deferred purchase price for purchases of property outside the Ordinary Course of Business arising in connection with transactions occurring prior to the Closing which are not evidenced by trade payables, (c) leases in existence immediately prior to the Closing to which the TARGET or any Subsidiary is a party which are capital leases as of the Closing, as determined in accordance with GAAP, (d) any off-balance sheet financing of the TARGET and its Subsidiaries in existence immediately prior to the Closing, (e) any payment obligations of the TARGET and its Subsidiaries in respect of banker’s acceptances or letters of credit in existence immediately prior to the Closing which are not evidenced by trade payables, (f) any liability of the TARGET and its Subsidiaries with respect to interest rate swaps, collars, caps and similar hedging obligations in existence immediately prior to the Closing, (g) any indebtedness of the type referred to in clauses (a) through (f) above of any Person other than the TARGET and its Subsidiaries in existence immediately prior to the Closing which is either guaranteed by, or secured by a security interest upon any property owned by, the TARGET or any of its Subsidiaries, and (h) any unpaid interest, prepayment premiums or penalties accrued or owing on any such indebtedness of the TARGET and its Subsidiaries; provided that “Indebtedness” shall not include the Avaya Obligations.

     “Indemnified Party” means, in the case of an indemnification claim pursuant to Section 9.2(a), the Buyer Indemnitees, and in the case of an indemnification claim pursuant to Section 9.2(b), the Sellers Indemnitees and their estates, heirs, personal representatives and successors.

     “Indemnified Party Tax Increase” has the meaning set forth in Section 6.10(g).

     “Indemnifying Party” means, in the case of an indemnification claim pursuant to Section 9.2(a), the Sellers (severally, not jointly), and in the case of an indemnification claim pursuant to Section 9.2(b), the Buyer.

     “Indemnity Cap” has the meaning set forth in Section 9.4.2.

     “Indemnity Threshold” has the meaning set forth in Section 9.4.1.

     “Insurance Departments” means the Commissioner of Insurance of the State of Louisiana, the Department of Insurance of the State of New York, and the departments of insurance of the states in which TARGET’s Subsidiaries are domiciled or where the conduct of their Business requires the approval by such departments of the Transactions.

     “Insurance Subsidiary” means a Subsidiary of TARGET which is licensed as an insurance company.

     “Intellectual Property” has the meaning set forth in Section 3.12(a).

     “Interim Financial Statements” has the meaning set forth in Section 3.5.

     “Investment Policies” has the meaning set forth in Section 3.23(b).

     “Item of Dispute” has the meaning set forth in Section 2.2(d).

     “Knowledge of Buyer” means the actual and Constructive Knowledge of the officers of the Buyer listed on Exhibit B.

     “Knowledge of Sellers” means the actual knowledge and Constructive Knowledge of each of the Persons listed on Exhibit A.

     “Law” shall mean any statute, law, ordinance, rule, or regulation of any Governmental Entity.

     “Leased Real Property” means all leasehold or subleasehold estates and other rights to use or occupy any real property, or other interests in real property held by the TARGET or any of its Subsidiaries.

     “Leases” has the meaning set forth in Section 3.15.

     “Liens” means mortgages, deeds of trust, pledges, liens, encumbrances, charges, hypothecations, restrictions, preferences, priorities, easements, covenants, encroachments, or security interests.

     “Loss” or “Losses” has the meaning set forth in Section 9.2(a).

     “MAE Book Value” means (a) $88.8 million as of October 31, 2006, (b) $90.1 million as of November 30, 2006, (c) $91.5 million as of December 31, 2006, (d) $92.9 million as of January 31, 2007, and (e) $94.3 million as of February 28, 2007.

     “Marsh Litigation” means Nickey L. Marsh v. US Agencies Casualty Insurance Co. matter filed October 24, 2003 and any litigation, arbitration, negotiations, settlements, and/or disputes related thereto.

     “Material Adverse Effect” means any effect, change, development, state of facts, or circumstance that individually or taken as a whole with all other such effects, changes, developments, states of fact, or circumstances has or is reasonably expected to have a material adverse effect on (a) the business, assets, liabilities, financial condition or results of operations of the TARGET and its Subsidiaries taken as a whole or (b) the ability of the Buyer to operate the TARGET and its Subsidiaries or conduct the Business immediately after the Closing in substantially the same manner as such operations were being conducted by TARGET and its Subsidiaries prior to the Closing (disregarding for purposes of this clause (b) any specific effect, change, development, state of facts, or circumstance existing or occurring prior to the Closing Date that is solely attributable to or solely impacts the Buyer or its Affiliates and is not connected in any way to the operation of the TARGET and its Subsidiaries or the conduct of the Business prior to the Closing), which shall include, without limitation, any effect, change, development, state of facts, or circumstance that has resulted in the Adjusted Book Value falling below the MAE Book Value as of the applicable date for such MAE Book Value or is reasonably expected to result in a 10% reduction in the projected consolidated revenues of the TARGET and its Subsidiaries for fiscal year 2007 of $104.7 million; provided that any such effect, change, development, state of facts or circumstances described above attributable to or resulting from any action or omission of TARGET or any of its Subsidiaries taken with the express prior written

consent of the Buyer shall not be considered for purposes of determining whether a Material Adverse Effect exists.

     “Material Contracts” has the meaning set forth in Section 3.16(a).

     “Mr. Ernst” means Norman F. Ernst.

     “OFI” means the Office of Financial Institutions of the State of Louisiana.

     “Operating Agreement” means that certain Operating Agreement of TARGET, L.L.C., effective as of January 1, 2002, as amended, including the First, Second, Third, Fourth and Fifth Amendments to the Operating Agreement.

     “Option Exercise Amount” means the aggregate exercise price of all Options outstanding immediately prior to their cancellation pursuant to Section 2.4(b).

     “Optionholder” means a holder of one or more Options.

     “Options” has the meaning set forth in the first WHEREAS clause above.

     “Option Plan” means TARGET’S Executive Stock Option Plan effective September 1, 1998, as may be amended, supplemented and/or restated from time to time.

     “Ordinary Course of Business” means the ordinary course of business consistent with past custom and practice (including with respect to quantity and frequency) or with the business plan as of the date hereof, as the case may be, of TARGET and its Subsidiaries.

     “Party” has the meaning set forth in the preface above.

     “Payoff Letter” has the meaning set forth in Section 7.1(g).

     “Permits” has the meaning set forth in Section 3.23(a).

     “Permitted Liens” means (a) Liens for taxes, assessments or other governmental charges or levies not yet due or that are being contested in good faith by appropriate proceedings and for which appropriate reserves have been established in accordance with GAAP consistently applied, (b) statutory Liens of landlords and Liens of carriers, warehousemen, mechanics, materialmen and other such liens imposed by law and created in the Ordinary Course of Business for amounts not past due, (c) Liens (other than any Lien imposed by ERISA) incurred or deposits made in the Ordinary Course of Business in connection with worker’s compensation, unemployment insurance or other types of social security, (d) minor defects of title, easements, rights-of-way, restrictions and other similar charges or encumbrances not materially detracting from the value and use of the Real Property or interfering with the ordinary conduct of the Business, and (v) Liens not described in items (a) through (d) above that are listed on Schedule 3.8 and arise out of liabilities reflected on the Financial Statements.

     “Person” means an individual, partnership, corporation, limited liability company, association, joint stock company, trust, joint venture, unincorporated organization or Governmental Entity.

     “Pre-Closing Covenants” has the meaning set forth in Section 9.1.

     “Prior Period” has the meaning set forth in Section 6.10(b).

     “Prohibited Business” has the meaning set forth in Section 6.11(a).

     “Pro Rata Share” means, with respect to any Unitholder or Optionholder, the quotient obtained by dividing (i) the aggregate number of outstanding Units held by such Unitholder or Optionholder assuming the exercise of all outstanding Options held by such Unitholder or Optionholder by (ii) the aggregate number of outstanding Units assuming the exercise of all outstanding Options, as set forth on Exhibit A. For purposes of Section 2.4(a), a Unitholder’s Pro Rata Share will be calculated assuming that such Unitholder does not own any Options. For purposes of Section 2.4(b), an Optionholder’s Pro Rata Share will be calculated assuming that such Optionholder does not own any Units (other than those issuable upon exercise of Options held by such Optionholder).

     “Real Property” means any real property owned by TARGET or its Subsidiaries and the Leased Real Property.

     “Reclassifications and Changes” means the following reclassifications and changes in presentation to be consistent with the past practice of the TARGET and its Subsidiaries: (a) the reclassification of catastrophe and contingent ceded commission from selling, general and administrative expenses (“SG&A”) to premiums ceded, (b) the reclassification of ceding commission as an allocated reduction to loss adjustment expense and SG&A, (c) the reclassification of depreciation and amortization as a separate item from SG&A, (d) the reclassification of reinsurance payable as an offset to reinsurance recoverables and receivables, and (e) the reclassification of LIFCO, L.L.C., deferred origination fees as an offset to premium finance contracts receivable.

     “Related Document” means the Escrow Agreement.

     “Restricted Period” has the meaning set forth in Section 6.11(a).

     “SAP” has the meaning set forth in Section 3.7(b).

     “SEC” means the Securities and Exchange Commission.

     “Securities Act” means the Securities Act of 1933, as amended.

     “Securities Exchange Act” means the Securities Exchange Act of 1934, as amended.

     “Sellers” has the meaning set forth in the preface above.

     “Sellers Indemnitees” has the meaning set forth in Section 9.2(b).

     “Seller’s Purchase Price Indemnity Cap” has the meaning set forth in Section 9.2(c).

     “Sellers’ Committee” has the meaning set forth in Article 11.

     “Software” means all material computer software used by TARGET or its Subsidiaries in the conduct of the Business.

     “Statutory Statements” has the meaning set forth in Section 3.7.

     “Straddle Period” has the meaning set forth in Section 6.10(a).

     “Subsidiary” means any corporation, partnership, limited liability company or other business entity with respect to which a specified Person (or a Subsidiary thereof) owns a majority of the ownership interests therein or has the power to vote or direct the voting of sufficient securities thereof to elect a majority of its directors or other persons performing similar functions.

     “TARGET” has the meaning set forth in the preface above.

     “TARGET Projected Book Value” means (a) $92.5 million if the Closing Balance Sheet Date is October 31, 2006, (b) $95.0 million if the Closing Balance Sheet Date is November 30, 2006, (c) $97.5 million if the Closing Balance Sheet Date is December 31, 2006, (d) $100 million if the Closing Balance Sheet Date is January 31, 2007, and (e) $102.5 million if the Closing Balance Sheet Date is February 28, 2007.

     “Tax Claim” has the meaning set forth in Section 6.10(f).

     “Tax Dispute Notice” has the meaning set forth in Section 6.10(a).

     “Taxes” has the meaning set forth in Section 3.22(a).

     “Tax Indemnified Party” has the meaning set forth in Section 6.10(f).

     “Tax Indemnifying Party” has the meaning set forth in Section 6.10(f).

     “Tax Losses” has the meaning set forth in Section 6.10(c).

     “Tax Returns” has the meaning set forth in Section 3.22(a).

     “Third Party Claim” has the meaning set forth in Section 9.3.

     “Trademarks” has the meaning set forth in Section 3.12(a).

     “Transactions” means the transactions contemplated by this Agreement and the Related Document.

     “Transaction Expenses” means the following: (a) to the extent not paid prior to or on the Closing Balance Sheet Date or not reflected as a payable or other liability on the Closing Balance Sheet or Final Closing Balance Sheet, as the case may be, (i) all of the costs, fees and expenses incurred by (A) the Sellers to the extent TARGET or any of its Subsidiaries is responsible for the payment thereof or (B) the TARGET and its Subsidiaries prior to the Closing, in each case, in connection with the investigating, pursuing and completing the Transactions and (ii) all of the payments related to the items set forth on the “Transaction Expenses Schedule” attached hereto, (b) all fees payable to Cochran Caronia Waller LLC upon the consummation of

the Transactions, and (c) $400,000 in respect of non-compete payments to be made to Mr. Ernst upon the consummation of the Transactions at the Closing (“Additional Non-Compete Consideration”). It is understood, that the items in clauses (b) and (c) in this definition of Transaction Expenses shall not be included in the Closing Balance Sheet and Final Closing Balance Sheet.

     “Transfer Taxes” has the meaning set forth in Section 8.3(b).

     “Underwriting Practices” has the meaning set forth in Section 3.23(b).

     “Unitholder” means a holder of Units.

     “Units” has the meaning set forth in the second WHEREAS clause above, and includes the restricted Units identified on Exhibit A.

     1.2 Use of Words and Phrases. “Herein”, “hereby”, “hereunder”, “hereof”, “hereinabove”, “hereinafter” and other equivalent words refer to this Agreement as a whole and not solely to the particular Section of this Agreement in which any such word is used. The definitions set forth in Section 1.1 hereof include both the singular and the plural. Whenever used in this Agreement, any pronoun shall be deemed to include both singular and plural and to cover all genders. All references to dollars in this Agreement shall mean U.S. dollars.

ARTICLE 2

PURCHASE AND SALE

     2.1 Purchase and Sale of the Units and Closing Transactions.

          (a) In accordance with, and subject to, the provisions of this Agreement, at the Closing the Buyer shall purchase from each Seller, and each Seller shall transfer, convey, assign, and deliver to Buyer, all of such Seller’s right, title and interest in and to the Units owned by such Seller as set forth on Exhibit A free and clear of all Liens, warrants, options, calls, commitments, proxies and voting agreements and with no restriction on the voting rights, if any, and other incidents of record and beneficial ownership pertaining thereto. Upon the issuance to Sellers of any Units and/or Options between the Effective Date and the Closing Date, the Sellers shall promptly deliver an updated Exhibit A to Buyer, which shall reflect such additional Units and/or Options. The Units purchased pursuant to this Section 2.1(a) shall constitute 100% of the equity interest in the Company as of the Closing Date.

          (b) As consideration for the Units (i) simultaneously with the Closing, Buyer shall make a payment to each Unitholder in immediately available funds equal to the amount as determined pursuant to Section 2.4(a)(ii)(A), (ii) simultaneously with the Closing, Buyer shall make a payment to each Optionholder in immediately available funds equal to the amount as determined pursuant to Section 2.4(b), and (iii) Buyer shall make the additional payments, if any, required by Section 2.2(f).

          (c) Simultaneously with the Closing, Buyer shall repay, or cause to be repaid, on behalf of the TARGET and its Subsidiaries, the then outstanding balance of any

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Indebtedness other than the Excluded Debt, by wire transfer of immediately available funds as directed by the holders of such Indebtedness in the Payoff Letters.

          (d) Simultaneously with the Closing, Buyer shall deposit $20,000,000 (the “Escrow Amount”) in an escrow account (the “Escrow Account”) established pursuant to the terms and conditions of an escrow agreement (the “Escrow Agreement”), by and among the Escrow Agent, Buyer and the Sellers’ Committee substantially in the form of Exhibit D attached hereto. The Escrow Amount will be distributed in accordance with the terms of the Escrow Agreement and, until distributed in accordance with the terms of the Escrow Agreement, will be available to pay any amounts owed to Buyer pursuant to the Agreement.

          (e) Simultaneously with the Closing, Buyer shall pay, or cause to be paid, on behalf of the Sellers and the TARGET (as applicable), the Estimated Transaction Expenses by wire transfer of immediately available funds as directed by the Sellers’ Committee.

     2.2 Purchase Price.

          (a) The Base Purchase Price. For purposes of this Agreement, the “Base Purchase Price” shall be equal to $200,000,000.

          (b) The Closing Estimates. At least three (3) business days prior to the Closing Date, the Sellers’ Committee shall (i) deliver to Buyer an estimated consolidated balance sheet of the TARGET and its Subsidiaries (the “Closing Balance Sheet”) as of the last day of the most recent full month ending immediately prior to or on the Closing Date (the “Closing Balance Sheet Date”), and (ii) deliver to Buyer a statement (based on the Closing Balance Sheet for purposes of clauses (C) and (D)) (the “Estimated Closing Statement”) which shall set forth written estimates of: (A) Indebtedness as of the opening of business on the Closing Date (“Estimated Indebtedness”) other than any Indebtedness relating to the $20 million Floating Rate Subordinated Notes due 2035 issued pursuant to the Indenture between TARGET and JPMorgan Chase, as trustee, dated as of March 29, 2005 (the “Excluded Debt”), (B) all Transaction Expenses (the “Estimated Transaction Expenses”), (C) Book Value as of the Closing Balance Sheet Date (the “Estimated Closing Book Value”), and (D) the Book Value Adjustment as of the Closing Balance Sheet Date (the “Estimated Book Value Adjustment”).

          (c) The Closing Purchase Price. For the purposes of this Agreement the “Closing Purchase Price” shall mean an amount equal to the Base Purchase Price, minus (A) the amount of Estimated Indebtedness and minus (B) the Estimated Transaction Expenses and minus (C) the Estimated Book Value Adjustment.

          (d) The Final Closing Balance Sheet and Closing Statement. Promptly, but in any event within 90 days, after the Closing, (i) Buyer shall prepare and deliver to the Sellers’ Committee a draft consolidated balance sheet of the TARGET and its Subsidiaries as of the Closing Balance Sheet Date prepared in accordance with GAAP consistent with TARGET’s past practice (the “Final Closing Balance Sheet”), and (ii) Buyer shall prepare and deliver to the Sellers’ Committee a statement (based on the Final Closing Balance Sheet for purposes of clauses (C) and (D)) (the “Closing Statement”) setting forth (A) the actual Indebtedness as of the opening of business on the Closing Date other than the Excluded Debt (the “Actual Indebtedness”), (B) the actual Transaction Expenses (the “Actual Transaction

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Expenses”), (C) the actual Book Value as of the Closing Balance Sheet Date (the “Actual Closing Book Value”), and (D) the actual Book Value Adjustment as of the Closing Balance Sheet Date (the “Actual Book Value Adjustment”). From and after Closing, the Buyer shall provide the Sellers’ Committee and its representatives with reasonable access to all books, records, files, work papers and other documents, personnel, offices and other facilities and properties of the Business necessary to verify the Final Closing Balance Sheet and the Closing Statement. Unless within the forty-five (45) day period following the Buyer’s delivery of the Final Closing Balance Sheet and Closing Statement, the Sellers’ Committee has tendered a written notice to the Buyer (the “Dispute Notice”) to the effect that items contained in the Final Closing Balance Sheet or the Closing Statement have not been prepared in accordance with this Section 2.2, and outlining in reasonable detail the items in dispute and the basis for the Sellers’ Committee’s disagreement (each such item, an “Item of Dispute”), the Closing Statement shall be conclusive and binding upon the Buyer and each of the Sellers. If the Sellers’ Committee delivers a Dispute Notice to the Buyer within such forty-five (45) day period, the Buyer and the Sellers’ Committee shall use reasonable efforts to resolve their differences concerning the Items of Dispute, and if any Item of Dispute is so resolved, the Closing Statement and Final Closing Balance Sheet shall be modified if necessary to reflect such resolution. If any Item of Dispute remains unresolved after fifteen business days from the Buyer’s receipt of the Dispute Notice, either Buyer or the Sellers’ Committee may retain the Dallas office of Deloitte Touche Tohmatsu, or such other firm of independent accountants of national or regional recognition agreed upon by the Buyer and the Sellers’ Committee (the “Accounting Firm”), to resolve such remaining Items of Dispute. The Buyer and the Sellers’ Committee agree to execute, if requested by the Accounting Firm, a reasonable engagement letter in customary form. The Buyer and the Sellers’ Committee shall request that the Accounting Firm render a determination as to each unresolved Item of Dispute (and as to no other matter) within thirty (30) days of its retention, and the Buyer and the Sellers’ Committee shall cooperate fully with the Accounting Firm and promptly provide all documents and information requested by the Accounting Firm so as to enable it to make such determination as quickly and as accurately as practicable. The Accounting Firm’s determination as to each Item of Dispute submitted to it shall be in writing, shall be within the range of the amount contested by the Buyer and the Sellers’ Committee, shall conform with this Section 2.2 and shall be conclusive and binding upon the Buyer and each of the Sellers, shall be deemed a final arbitration award that is binding on each of the Parties hereto, and no Party shall seek further recourse to courts or other tribunals, other than for enforcement thereof. The Closing Statement and Final Closing Balance Sheet shall be modified if necessary to reflect such determination. The Accounting Firm shall allocate its costs and expenses between the Buyer, on the one hand, and the Sellers, on the other hand, based upon the percentage which the portion of the contested amount not awarded to each Party bears to the amount actually contested by such Party. Any fees and disbursements allocated to the Sellers in accordance with the immediately preceding sentence shall be payable from the Escrow Amount then held and not previously distributed in accordance with the terms of the Escrow Agreement. In acting under this Agreement, the Accounting Firm shall be entitled to the privileges and immunities of arbitrators.

          (e) The Final Purchase Price.

               (i) The Final Purchase Price shall be determined on the following date: (A) if a Dispute Notice is not tendered by the Sellers’ Committee within forty-five (45) days following delivery of the Final Closing Balance Sheet and Closing Statement, the

first business day following the end of such forty-five (45) day period, or (B) if a Dispute Notice is properly tendered by the Sellers’ Committee, the first business day following the final resolution pursuant to Section 2.2(d) of all Items of Dispute specified in such Dispute Notice.

               (ii) The “Final Purchase Price” shall mean an amount equal to the Base Purchase Price, minus (A) the amount of Actual Indebtedness, as set forth in the Closing Statement, minus (B) the amount of Actual Transaction Expenses as set forth in the Closing Statement, minus (C) the Actual Book Value Adjustment.

          (f) The Post-Closing Adjustment Payment.

               (i) Payment by the Buyer. If the Final Purchase Price exceeds the Closing Purchase Price, the Buyer shall, within five (5) business days after the date the Final Purchase Price is determined under Section 2.2, deliver to the Sellers’ Committee a wire transfer of immediately available funds in an aggregate amount equal to the Final Purchase Price minus the Closing Purchase Price. Such payment shall be distributed by the Sellers’ Committee to the Sellers in accordance with their Pro Rata Share of such amount.

               (ii) Payment by the Sellers. If the Closing Purchase Price exceeds the Final Purchase Price, the Buyer and the Sellers’ Committee shall instruct the Escrow Agent to distribute an amount equal to such excess to the Buyer from the Escrow Amount, and/or to the extent the Escrow Amount is insufficient to pay such excess, then the Sellers shall (which obligation shall be several, but not joint), within five (5) business days after the date the Final Purchase Price is determined under Section 2.2, deliver to the Buyer a wire transfer of immediately available funds in an aggregate amount equal to such excess less any amounts paid from the Escrow Amount in respect thereof. Any payments made from the Escrow Amount to Buyer pursuant to this Section 2.2(f)(ii) shall be refunded into the Escrow Account pursuant to the terms and conditions of Section 3(b) of the Escrow Agreement.

          (g) The Excluded Debt shall be excluded from all calculations pursuant to Section 2.2 other than the Estimated Book Value Adjustment and the Actual Book Value Adjustment.

     2.3 Closing. The closing of the transactions contemplated by this Agreement (the “Closing”) shall take place at the offices of McDermott Will & Emery LLP, 227 West Monroe Street, Chicago, Illinois 60606, commencing at 9:00 a.m. local time on the fifth (5th) business day following the satisfaction or waiver of all conditions to the obligations of the Parties to consummate the Transactions (other than conditions with respect to actions the respective Parties will take at the Closing itself) or such other place and date as the Parties may mutually determine (the “Closing Date”).

     2.4 Actions at Closing.

          (a) Subject to the terms and conditions of this Agreement, at the Closing, (i) the Sellers will deliver to the Buyer (A) certificates evidencing all the outstanding Units duly endorsed in blank, or accompanied by stock powers duly executed in blank; (B) a receipt for the Closing Purchase Price less the Escrow Amount; (C) the deliveries listed in Section 7.1, (ii) the Buyer will deliver (A) to each of the Unitholders an amount equal to such

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Unitholder’s Pro Rata Share of the sum of (x) the Closing Purchase Price less the Escrow Amount and (y) the Option Exercise Amount, by wire transfer in immediately available funds to one or more bank accounts as directed by the respective Sellers as set forth on Exhibit C; and (B) to the Sellers’ Committee, the deliveries listed in Section 7.2. The amount delivered by the Buyer to the Unitholders holding Restricted Units shall be reduced by withholding Taxes or other amounts required to be withheld by Law, and the Buyer shall deliver all such withheld amounts to the TARGET at the Closing and shall cause the TARGET to make timely payment thereof as required by applicable Laws.

          (b) Subject to the terms and conditions of this Agreement, immediately prior to the Closing, all Options, whether or not then exercisable, shall be (or, if not previously exercisable, shall become) exercisable and such Options shall be cancelled by TARGET at the Closing, and each Optionholder shall be entitled to receive from the Buyer, by wire transfer of immediately available funds to one or more bank accounts designated by the respective Optionholders, in consideration for the cancellation of such Options, an amount equal to the excess, if any, of (i) such Optionholder’s Pro Rata Share of the sum of (x) the Closing Purchase Price less the Escrow Amount and (y) the Option Exercise Amount over (ii) the aggregate exercise price of such Options, reduced by applicable withholding Taxes or other amounts required to be withheld by Law, and the Buyer shall deliver all such withheld amounts to the TARGET at the Closing and shall cause the TARGET to make timely payment thereof as required by applicable Laws, all as set forth on Exhibit C.

ARTICLE 3

REPRESENTATIONS AND WARRANTIES OF SELLERS

     The Sellers represent and warrant to the Buyer that the statements contained in this Article 3 are correct and complete as of the Effective Date and will be correct and complete as of the Closing Date (as though made then and as though the Closing Date were substituted for the Effective Date through this Article), except as set forth in the Disclosure Schedule identified in this Article 3 (the “Disclosure Schedule”); provided, however, each Seller represents and warrants to the Buyer, solely with respect to such Seller, the matters set forth in Section 3.1. The numbering of the Disclosure Schedule will correspond to the numbered and lettered Sections contained in this Article 3.

     3.1 Ownership; Capacity, Etc. of Sellers.

          (a) Such Seller is the lawful record and beneficial owner of the Units and Options set forth opposite such Seller’s name on Exhibit A and has good title to such Units and Options, free and clear of any Liens (other than the Liens set forth on Schedule 3.1(a) which will be released prior to the Closing), warrants, options, calls, commitments, proxies and voting agreements and with no restriction on the voting rights, if any, and other incidents of record and beneficial ownership pertaining thereto. Such Seller is not the subject of any bankruptcy, reorganization or similar proceeding.

          (b) Such Seller, to the extent not an individual, is duly organized, validly existing and in good standing under the laws of the state of its formation and has all

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*		To be updated for changes between signing and closing.
**		Restricted Units not yet issued.