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    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong>UNITED
      STATES</strong></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong>SECURITIES
      AND EXCHANGE COMMISSION</strong></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong>WASHINGTON,
      D.C. 20549</strong></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong>FORM
      8-K</strong></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong>CURRENT
      REPORT</strong></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong>Pursuant
      to Section 13 or 15(d) of the</strong></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong>Securities
      Exchange Act of 1934</strong></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Date
      of
      report (Date of earliest event reported): </font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong>December
      4, 2006</strong></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong>DIRECT
      GENERAL CORPORATION</strong></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">(Exact
      Name of Registrant as Specified in Charter)</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"><br></div>
    <div>
      <table cellpadding="0" cellspacing="0" width="100%">

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              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong>Tennessee</strong></font></div>
            </td>
            <td valign="top" width="27%">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong>000-50360</strong></font></div>
            </td>
            <td valign="top" width="27%">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong>62-1564496</strong></font></div>
            </td>
          </tr>
          <tr>
            <td valign="top" width="27%">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">(State
                or other jurisdiction</font></div>
            </td>
            <td valign="top" width="27%">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">(Commission</font></div>
            </td>
            <td valign="top" width="27%">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">(I.
                R. S. Employer</font></div>
            </td>
          </tr>
          <tr>
            <td valign="top" width="27%">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">of
                incorporation)</font></div>
            </td>
            <td valign="top" width="27%">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">File
                Number)</font></div>
            </td>
            <td valign="top" width="27%">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Identification
                No.)</font></div>
            </td>
          </tr>

      </table>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong>1281
      Murfreesboro Road Nashville, Tennessee&#160;</strong></font><font id="TAB2" style="COLOR: black; LETTER-SPACING: 243pt">&#160;<font id="TAB2" style="LETTER-SPACING: 9pt">&#160;<font id="TAB2" style="LETTER-SPACING: 9pt">&#160;&#160;<font id="TAB2" style="LETTER-SPACING: 9pt">&#160;&#160;&#160;</font>&#160;<font id="TAB2" style="LETTER-SPACING: 9pt">&#160;&#160;&#160;</font>&#160;<font id="TAB2" style="LETTER-SPACING: 9pt">&#160;&#160;&#160;</font>&#160;<font id="TAB2" style="LETTER-SPACING: 9pt">&#160;&#160;&#160;</font>&#160;&#160;</font>&#160;&#160;&#160;</font>&#160;<font id="TAB2" style="LETTER-SPACING: 9pt">&#160;&#160;&#160;</font>&#160;<font id="TAB2" style="LETTER-SPACING: 9pt">&#160;&#160;&#160;</font>&#160;<font id="TAB2" style="LETTER-SPACING: 9pt">&#160;&#160;&#160;</font>&#160;</font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong>37217</strong></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;
      (Address of Principal Executive Offices)&#160;&#160;&#160;&#160;&#160;<font id="TAB2" style="LETTER-SPACING: 9pt">&#160; &#160;&#160;</font>&#160;<font id="TAB2" style="LETTER-SPACING: 9pt">&#160;&#160;&#160;</font>&#160;<font id="TAB2" style="LETTER-SPACING: 9pt">&#160;&#160;&#160;</font>&#160;<font id="TAB2" style="LETTER-SPACING: 9pt">&#160;&#160;&#160;</font>&#160;<font id="TAB2" style="LETTER-SPACING: 9pt">&#160;&#160;&#160;</font>&#160;<font id="TAB2" style="LETTER-SPACING: 9pt">&#160;&#160;&#160;</font>&#160;</font><font id="TAB2" style="COLOR: black; LETTER-SPACING: 243pt">&#160;<font id="TAB2" style="LETTER-SPACING: 9pt">&#160;&#160;&#160;</font>&#160;<font id="TAB2" style="LETTER-SPACING: 9pt">&#160;&#160;&#160;</font>&#160;<font id="TAB2" style="LETTER-SPACING: 9pt">&#160;&#160;&#160;</font>&#160;<font id="TAB2" style="LETTER-SPACING: 9pt">&#160;&#160;&#160;</font>&#160;<font id="TAB2" style="LETTER-SPACING: 9pt">&#160;</font><font id="TAB2" style="LETTER-SPACING: 9pt">&#160;&#160;&#160;&#160;
</font></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">(Zip
      Code)</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Registrant's
      telephone number, including area code: </font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong>(615)
      399-4700</strong></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong>Not
      Applicable</strong></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">(Former
      name or former address, if changed since last report)</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Check
      the
      appropriate box below if the Form 8-K filing is intended to simultaneously
      satisfy the filing obligation of the registrant under any of the following
      provisions:</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Wingdings">o</font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">
      Written
      communications pursuant to Rule 425 under the Securities Act (17 CFR
      230.425)</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Wingdings">x</font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">
      Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
      240.14a-12)</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 18pt; TEXT-INDENT: -18pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Wingdings">o</font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">
      Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange
      Act
      (17 CFR 240.14d-2(b))</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 18pt; TEXT-INDENT: -18pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Wingdings">o</font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">
      Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange
      Act
      (17 CFR 240.13e-4(c))</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><br></div>
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    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong>Item
      1.01</strong></font><font id="TAB2" style="COLOR: black; LETTER-SPACING: 27pt">&#160;</font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong>Entry
      Into a Material Definitive Agreement.</strong></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font id="TAB1" style="MARGIN-LEFT: 36pt"></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><u>Merger
      Agreement</u></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font id="TAB1" style="MARGIN-LEFT: 36pt"></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">On
      December 4, 2006, Direct General Corporation (the "Company") entered into an
      Agreement and Plan of Merger (the "Merger Agreement") with Elara Holdings,
      Inc.
      ("Parent") and Elara Merger Corporation ("Merger Sub"). </font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font id="TAB1" style="MARGIN-LEFT: 36pt"></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Under
      the
      terms of the Merger Agreement, Merger Sub will be merged with and into the
      Company, the separate corporate existence of Merger Sub shall cease, and the
      Company shall continue as the surviving corporation and as a wholly owned
      subsidiary of Parent (the "Merger"). Parent and Merger Sub are entities owned
      and controlled by Fremont Partners III, L.P., Fremont Partners III Side-by-Side,
      L.P., Fremont Investors X, L.L.C., and TPG Partners V, L.P.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font id="TAB1" style="MARGIN-LEFT: 36pt"></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">The
      board
      of directors of the Company (acting upon the unanimous recommendation of the
      special committee, the members of which are not affiliated with Parent or Merger
      Sub and are not members of the Company's management) has adopted the Merger
      Agreement and approved the transactions contemplated thereby upon the terms
      and
      subject to the conditions set forth in the Merger Agreement. </font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font id="TAB1" style="MARGIN-LEFT: 36pt"></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Pursuant
      to the Merger Agreement, at the effective time of the Merger, each outstanding
      share of common stock of the Company (the "Common Stock"), will be cancelled
      and
      converted into the right to receive $21.25 in cash, without interest, upon
      surrender of the certificate representing the outstanding share of Common Stock.
      Except for certain options held by certain continuing investors, each company
      option, whether vested or unvested, outstanding immediately prior to the
      effective time of the Merger, will be cancelled in exchange for the right to
      receive the excess, if any, of the Merger consideration over the per share
      exercise price of the Common Stock subject to such option.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font id="TAB1" style="MARGIN-LEFT: 36pt"></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">The
      Company has made customary representations and warranties and covenants in
      the
      Merger Agreement.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font id="TAB1" style="MARGIN-LEFT: 36pt"></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">The
      Company is subject to a "no-shop" restriction on its ability to solicit
      third-party proposals, provide information and engage in discussions with third
      parties. The no-shop provision is subject to a "fiduciary-out" provision that
      allows the Company to provide information and participate in discussions with
      respect to third party proposals submitted.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font id="TAB1" style="MARGIN-LEFT: 36pt"></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">The
      Company may terminate the Merger Agreement under certain circumstances,
      including if its Board of Directors determines in good faith that it has
      received a superior offer and it otherwise complies with certain terms of the
      Merger Agreement. In connection with such termination, the Company must pay
      a
      fee of $13 million to Parent. In certain other circumstances, the Merger
      Agreement provides for Parent or the Company to pay to the other party a fee
      of
      $13 million upon termination of the Merger Agreement. </font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font id="TAB1" style="MARGIN-LEFT: 36pt"></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Parent
      has obtained equity and debt financing commitments for the transactions
      contemplated by the Merger Agreement, the aggregate proceeds of which will
      be
      sufficient for Parent to pay the aggregate Merger consideration and all related
      fees and expenses. In addition, the Company has entered into a Limited Guarantee
      with Fremont Partners III, L.P., Fremont Partners III Side-by-Side, and TPG
      Partners V, L.P., who each irrevocably and unconditionally guarantee Parent&#8217;s
      obligation in the event that the Merger Agreement is terminated and Parent
      is
      obligated to pay a termination fee. A form of the Limited Guarantee is attached
      as Exhibit 2.2. </font></div>
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    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><font id="TAB2" style="LETTER-SPACING: 9pt">&#160;&#160;&#160;</font>&#160;Consummation
      of the Merger is subject to various conditions, including approval of the Merger
      by the Company's shareholders, expiration or termination of applicable waiting
      periods under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, receipt
      of all authorizations, consents, and approvals required by any state insurance
      department or financing department, and other customary closing conditions.
      The
      parties expect to close the transaction during the first half of 2007.
</font></div>
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    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font id="TAB1" style="MARGIN-LEFT: 36pt"></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">The
      foregoing summary of the Merger Agreement and the transactions contemplated
      thereby does not purport to be complete and is subject to, and qualified in
      its
      entirety by, the full text of the Merger Agreement attached as Exhibit 2.1.
      </font></div>
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    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font id="TAB1" style="MARGIN-LEFT: 36pt"></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">The
      Merger Agreement has been included to provide investors and security holders
      with information regarding its terms. It is not intended to provide any other
      factual information about the Company. The representations, warranties and
      covenants contained in the Merger Agreement were made only for purposes of
      such
      agreement and as of specific dates, were solely for the benefit of the parties
      to such agreement, and may be subject to limitations agreed upon by the
      contracting parties, including being qualified by confidential disclosures
      exchanged between the parties in connection with the execution of the Merger
      Agreement. The representations and warranties may have been made for the
      purposes of allocating contractual risk between the parties to the agreement
      instead of establishing these matters as facts, and may be subject to standards
      of materiality applicable to the contracting parties that differ from those
      applicable to investors. Investors are not third-party beneficiaries under
      the
      Merger Agreement and should not rely on the representations, warranties and
      covenants or any descriptions thereof as characterizations of the actual state
      of facts or condition of the Company or Parent or any of their respective
      subsidiaries or affiliates. Moreover, information concerning the subject matter
      of the representations and warranties may change after the date of the Merger
      Agreement, which subsequent information may or may not be fully reflected in
      the
      Company's public disclosures.</font></div>
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    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font id="TAB1" style="MARGIN-LEFT: 36pt"></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><u>Termination
      of the 1996 Employee Stock Incentive Plan and the 2003 Equity Incentive
      Plan</u></font></div>
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    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font id="TAB1" style="MARGIN-LEFT: 36pt"></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Upon
      consummation of the Merger, each company option, whether vested or unvested,
      outstanding immediately prior to the effective time of the Merger, will be
      cancelled in exchange for the right to receive the excess, if any, of the Merger
      consideration over the per share exercise price of the Common Stock subject
      to
      such option. Also upon the consummation of the Merger, the Company&#8217;s 1996
      Employee Stock Incentive Plan and the 2003 Equity Incentive Plan will terminate.
      </font></div>
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      Additional Information will be filed with the SEC:</em></font></div>
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    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font id="TAB1" style="MARGIN-LEFT: 36pt"></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">In
      connection with the proposed Merger, the Company will prepare a proxy statement
      for the shareholders of the Company to be filed with the Securities and Exchange
      Commission ("SEC"). Before making any voting decision, the company's
      shareholders are urged to read the proxy statement regarding the Merger
      carefully in its entirety when it becomes available because it will contain
      important information about the proposed transaction. The Company's shareholders
      and other interested parties will be able to obtain, without charge, a copy
      of
      the proxy statement (when available) and other relevant documents filed with
      the
      SEC from the SEC's website at http://www.sec.gov. The Company's shareholders
      and
      other interested parties will also be able to obtain, without charge, a copy
      of
      the proxy statement and other relevant documents (when available) by directing
      such request to Direct General Corporation, Investor Relations, 2813 Business
      Park Drive, Building I, Memphis, TN 38118, or through the company's website
      at
      www.directgeneral.com. </font></div>
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    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><font id="TAB2" style="LETTER-SPACING: 9pt">&#160;&#160;&#160;</font>&#160;The
      Company
      and its directors and officers may be deemed to be participants in the
      solicitation of proxies from the Company's shareholders with respect to the
      Merger. Information about the Company's directors and executive officers and
      their ownership of the Company's common stock is set forth in the proxy
      statement for the Company's 2006 Annual Meeting of Shareholders, which was
      filed
      with the SEC on March 15, 2006. Shareholders and investors may obtain additional
      information regarding the interests of the Company and its directors and
      executive officers in the Merger, which may be different than those of the
      Company's shareholders generally, by reading the proxy statement and other
      relevant documents regarding the Merger, which will be filed with the
      SEC.</font></div>
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      of Directors or Principal Officers; Election of Directors; Appointment of
      Principal Officers; Compensatory Arrangements of Certain Officers.
</strong></font></div>
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    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font id="TAB1" style="MARGIN-LEFT: 36pt"></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><u>Certain
      Resignation and Restrictive Covenants Agreements</u></font></div>
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    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font id="TAB1" style="MARGIN-LEFT: 36pt"></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">On
      December 4, 2006, and in connection with the Merger, the Company entered into
      Resignation and Restrictive Covenants Agreements with Parent and each of William
      C. Adair and Jacqueline C. Adair. The effectiveness of each agreement is
      conditioned upon the consummation of the Merger. Under the terms of each
      executive&#8217;s respective agreement, Mr. Adair will resign from his position as
      Chairman and Chief Executive Officer of the Company, but continue to serve
      as a
      director of the Company, and Ms. Jacqueline Adair will resign from her position
      as Executive Vice President and Chief Operating Officer of the Company. Each
      of
      the agreements contains five year non-competition and non-solicitation of
      employees and customers clauses, as well as a non-disclosure
      clause.</font></div>
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    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font id="TAB1" style="MARGIN-LEFT: 36pt"></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Mr.
      Adair&#8217;s agreement waives section 3.3(i) of the Executive Employment Agreement,
      entered into on July 21, 2003, between Mr. Adair and the Company, which would
      have otherwise entitled Mr. Adair to a lump sum payment in the event of
      termination of his employment in connection with a change of control. Upon
      effectiveness of his new agreement, Mr. Adair will be entitled to receive
      severance payments in accordance with Section 3.3 of his former agreement,
      which
      will include continued payment of Mr. Adair&#8217;s most recent salary for a period of
      twenty-four months, continued eligibility of Mr. Adair for all Company benefit
      plans for a period of twenty-four months, immediate vesting of outstanding,
      unvested Company stock options, and the right to retain two vehicles. Mr.
      Adair&#8217;s Resignation and Restrictive Covenants Agreement is attached as Exhibit
      10.1 hereto.</font></div>
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    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font id="TAB1" style="MARGIN-LEFT: 36pt"></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Upon
      effectiveness of her new agreement, Ms. Jacqueline Adair will be entitled to
      receive severance payments in accordance with Section 3.3 of her Executive
      Employment Agreement, entered into on July 21, 2003, between Ms. Jacqueline
      Adair and the Company, which will include continued payment of Ms. Jacqueline
      Adair&#8217;s most recent salary for a period of twenty-four months, continued
      eligibility of Ms. Jacqueline Adair for all Company benefit plans for a period
      of twenty-four months, immediate vesting of outstanding, unvested Company stock
      options, and the right to retain one vehicle. Ms. Jacqueline Adair&#8217;s Resignation
      and Restrictive Covenants Agreement is attached as Exhibit 10.2
      hereto.</font></div>
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    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font id="TAB1" style="MARGIN-LEFT: 36pt"></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><u>Certain
      Employment Agreements</u></font></div>
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    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><font id="TAB2" style="LETTER-SPACING: 9pt">&#160;&#160;&#160;</font>&#160;On
      December
      4, 2006, and in connection with the Merger, the Company entered into Employment
      Agreements with Parent and each of Tammy R. Adair and J. Todd Hagely. The
      effectiveness of each agreement is conditioned upon consummation of the Merger.
      Ms. Tammy Adair will continue to serve as President of the Company with an
      annual base salary of $300,000 and Mr. Hagely will continue to serve as
      Executive Vice President and Chief Financial Officer of the Company with an
      annual base salary of $215,000. Each executive will be entitled to participate
      in a bonus plan and a Parent stock option plan to be adopted by the Company&#8217;s
      board of directors. </font></div>
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    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font id="TAB1" style="MARGIN-LEFT: 36pt"></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">The
      term
      of each employment agreement ends at such time that the executive&#8217;s employment
      is terminated by either the Company or the employee. Each agreement contains
      customary terms regarding competing with the Company during and after the term
      of employment and non-competition and non-solicitation following termination
      of
      the executive&#8217;s employment.</font></div>
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    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font id="TAB1" style="MARGIN-LEFT: 36pt"></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Each
      employment agreement provides for certain payments if the employment of
      executive is terminated by the executive for good reason or by the Company,
      other than for death, disability, or cause. In such circumstances, Ms. Tammy
      Adair would be entitled to receive, among other things, two-hundred percent
      of
      the her annual base salary in effect at the time of termination, payable over
      twenty-four months, and continued health benefits for twenty-four months. Mr.
      Hagely would be entitled to receive, among other things, one-hundred percent
      of
      his respective base salary in effect at the time of termination, payable over
      twelve months, and continued health benefits for twelve months. </font></div>
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    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font id="TAB1" style="MARGIN-LEFT: 36pt"></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Ms.
      Tammy
      Adair&#8217;s agreement is attached as Exhibit 10.3,and Mr. Hagely&#8217;s agreement is
      attached as Exhibit 10.4.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font id="TAB1" style="MARGIN-LEFT: 36pt"></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><u>Indemnification
      Agreements </u></font></div>
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    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font id="TAB1" style="MARGIN-LEFT: 36pt"></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">On
      December 4, 2006, the Company entered into indemnification agreements with
      each
      of William C. Adair, Jr., Jacqueline C. Adair, Fred H. Medling, Raymond L.
      Osterhout, and Stephen L. Rohde, who are each directors. Each agreement provides
      that the Company will indemnify and advance expenses to the director in
      connection with any action, suit, or other proceeding that arises out of or
      is
      related to service by the director as a member of the Company&#8217;s board of
      directors or any committee thereof and to which the director is or is threatened
      to be made a party. In addition, the Company will indemnify the director against
      expenses, judgments, penalties, fines and amounts paid in settlements actually
      and reasonably incurred by the director or on his or her behalf. The
      indemnification agreements are not exclusive of any other rights to
      indemnification that the directors may have under applicable law, the Company&#8217;s
      charter, its bylaws, any other agreement, or otherwise. The rights granted
      under
      the agreements shall last until the later of ten years after the director ceases
      being a director or until all indemnifiable proceedings are terminated. A form
      of the Indemnification Agreement is attached hereto as Exhibit
      10.5.</font></div>
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    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font id="TAB1" style="MARGIN-LEFT: 36pt"></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">On
      December 4, 2006, the Company entered into indemnification agreements with
      each
      member of the Special Committee of the board of directors, which includes Fred
      H. Medling, Raymond L. Osterhout, and Stephen L. Rohde. Each agreement provides
      that the Company will indemnify and advance expenses to the director in
      connection with any action, suit, or other proceeding that arises out of or
      is
      related to service by the director as a member of the Special Committee of
      the
      Company&#8217;s board of directors and to which the director is or is threatened to be
      made a party. In addition, the Company will indemnify the director against
      expenses, judgments, penalties, fines and amounts paid in settlements actually
      and reasonably incurred by the director or on his or her behalf. The
      indemnification agreements are not exclusive of any other rights to
      indemnification that the directors may have under applicable law, the Company&#8217;s
      charter, its bylaws, any other agreement, or otherwise. The rights granted
      under
      the agreements shall last until the later of ten years after the director ceases
      being a director or until all indemnifiable proceedings are terminated. A form
      of the Special Committee Indemnification Agreement is attached hereto as Exhibit
      10.6. </font></div>
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    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font id="TAB1" style="MARGIN-LEFT: 36pt"></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">On
      December 5, 2006, the Company issued a press release announcing that it had
      entered into the Merger Agreement. A copy of the press release is attached
      as
      Exhibit 99.1 hereto.</font></div>
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    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
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      C. Adair, Jr. Trust, entered into a Shareholder Voting Agreement with Parent,
      pursuant to which such shareholder agrees to vote in favor of the Merger and
      agrees to, or refrain from, taking certain actions in connection therewith.
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      21%
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      Current Report and the exhibits furnished herewith contain 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.
      These forward-looking statements include statements regarding expectations
      as to
      the completion of the Merger and the other transactions contemplated by the
      Merger Agreement. The forward-looking statements contained herein involve risks
      and uncertainties that could cause actual results to differ materially from
      those referred to in the forward-looking statements. Such risks include, but
      are
      not limited to, the ability of the parties to the Merger Agreement to satisfy
      the conditions to closing specified in the Merger Agreement. More information
      about the Company and other risks related to the Company are detailed in the
      Company's most recent annual report on Form 10-K for the fiscal year ended
      December 31, 2005, and its quarterly reports on Form 10-Q and current reports
      on
      Form 8-K as filed with the SEC. The Company does not undertake an obligation
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    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
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          <tr>
            <td valign="bottom" width="9%" style="border-bottom: black thin solid;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong>Exhibit
                Number </strong></font></div>
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              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left">&#160;</div>
            </td>
            <td align="left" valign="bottom" width="62%" style="border-bottom: black thin solid;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong>Description
                </strong></font></div>
            </td>
          </tr>
          <tr>
            <td valign="top" width="9%">&#160;</td>
            <td align="left" valign="bottom" width="2%">&#160;</td>
            <td align="right" valign="bottom" width="62%">&#160;</td>
          </tr>
          <tr>
            <td valign="top" width="9%">
              <div style="DISPLAY: block; MARGIN-LEFT: 18pt; TEXT-INDENT: -18pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">2.1</font></div>
            </td>
            <td align="left" valign="bottom" width="2%">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left">&#160;</div>
            </td>
            <td align="left" valign="bottom" width="62%">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Agreement
                and Plan of Merger, dated as of December 4, 2006, by and among Elara
                Holdings, Inc., Elara Merger Corporation and Direct General
                Corporation*</font></div>
            </td>
          </tr>
          <tr>
            <td valign="top" width="9%">&#160;</td>
            <td align="left" valign="bottom" width="2%">&#160;</td>
            <td align="right" valign="bottom" width="62%">&#160;</td>
          </tr>
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            <td valign="top" width="9%">
              <div style="DISPLAY: block; MARGIN-LEFT: 18pt; TEXT-INDENT: -18pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">2.2</font></div>
            </td>
            <td align="left" valign="bottom" width="2%">&#160;</td>
            <td align="left" valign="bottom" width="62%">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Form
                of Limited Guarantee, dated as of December 4, 2006, by Guarantor
                in favor
                of Direct General Corporation.</font></div>
            </td>
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          <tr>
            <td valign="top" width="9%">&#160;</td>
            <td align="left" valign="bottom" width="2%">&#160;</td>
            <td align="left" valign="bottom" width="62%">&#160;</td>
          </tr>
          <tr>
            <td valign="top" width="9%">
              <div style="DISPLAY: block; MARGIN-LEFT: 18pt; TEXT-INDENT: -18pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">10.1</font></div>
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            <td align="left" valign="bottom" width="2%">&#160;</td>
            <td align="left" valign="bottom" width="62%">
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                and Restrictive Covenants Agreement, dated as of December 4, 2006,
                by and
                between William C. Adair, Direct General Corporation, and Elara Holdings,
                Inc.</font></div>
            </td>
          </tr>
          <tr>
            <td valign="top" width="9%">&#160;</td>
            <td align="left" valign="bottom" width="2%">&#160;</td>
            <td align="left" valign="bottom" width="62%">&#160;</td>
          </tr>
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            <td valign="top" width="9%">
              <div style="DISPLAY: block; MARGIN-LEFT: 18pt; TEXT-INDENT: -18pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">10.2</font></div>
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            <td align="left" valign="bottom" width="62%">
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                and Restrictive Covenants Agreement, dated as of December 4, 2006,
                by and
                between Jacqueline C. Adair, Direct General Corporation, and Elara
                Holdings, Inc.</font></div>
            </td>
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            <td align="left" valign="bottom" width="2%">&#160;</td>
            <td align="left" valign="bottom" width="62%">&#160;</td>
          </tr>
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            <td valign="top" width="9%">
              <div style="DISPLAY: block; MARGIN-LEFT: 18pt; TEXT-INDENT: -18pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">10.3</font></div>
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            <td align="left" valign="bottom" width="2%">&#160;</td>
            <td align="left" valign="bottom" width="62%">
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                Agreement, dated as of December 4, 2006, by and between Tammy R.
                Adair,
                Direct General Corporation, and Elara Holdings, Inc.</font></div>
            </td>
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          <tr>
            <td valign="top" width="9%">&#160;</td>
            <td align="left" valign="bottom" width="2%">&#160;</td>
            <td align="left" valign="bottom" width="62%">&#160;</td>
          </tr>
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            <td valign="top" width="9%">
              <div style="DISPLAY: block; MARGIN-LEFT: 18pt; TEXT-INDENT: -18pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">10.4</font></div>
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            <td align="left" valign="bottom" width="62%">
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                Agreement, dated as of December 4, 2006, by and between J. Todd Hagely,
                Direct General Corporation, and Elara Holdings, Inc.</font></div>
            </td>
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            <td valign="top" width="9%">&#160;</td>
            <td align="left" valign="bottom" width="2%">&#160;</td>
            <td align="left" valign="bottom" width="62%">&#160;</td>
          </tr>
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            <td valign="top" width="9%">
              <div style="DISPLAY: block; MARGIN-LEFT: 18pt; TEXT-INDENT: -18pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">10.5</font></div>
            </td>
            <td align="left" valign="bottom" width="2%">&#160;</td>
            <td align="left" valign="bottom" width="62%">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Form
                of Director Indemnification Agreement, dated as of December 4, 2006,
                by
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            </td>
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          <tr>
            <td valign="top" width="9%">&#160;</td>
            <td align="left" valign="bottom" width="2%">&#160;</td>
            <td align="left" valign="bottom" width="62%">&#160;</td>
          </tr>
          <tr>
            <td valign="top" width="9%">
              <div style="DISPLAY: block; MARGIN-LEFT: 18pt; TEXT-INDENT: -18pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">10.6</font></div>
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            <td align="left" valign="bottom" width="62%">
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                of Special Committee Indemnification Agreement, dated as of December
                4,
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            </td>
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          <tr>
            <td valign="top" width="9%">&#160;</td>
            <td align="left" valign="bottom" width="2%">&#160;</td>
            <td align="left" valign="bottom" width="62%">&#160;</td>
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            <td valign="top" width="9%">
              <div style="DISPLAY: block; MARGIN-LEFT: 18pt; TEXT-INDENT: -18pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">99.1</font></div>
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            <td align="left" valign="bottom" width="2%">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left">&#160;</div>
            </td>
            <td align="left" valign="bottom" width="62%">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Press
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            </td>
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            <td align="left" valign="bottom" width="2%">&#160;</td>
            <td align="right" valign="bottom" width="62%">&#160;</td>
          </tr>
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            <td valign="top" width="9%">
              <div style="DISPLAY: block; MARGIN-LEFT: 18pt; TEXT-INDENT: -18pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">*</font></div>
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              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left">&#160;</div>
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    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 27pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Pursuant
      to the requirements of the Securities Exchange Act of 1934, the registrant
      has
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      duly authorized.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Date:
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    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 216pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">DIRECT
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    <div style="DISPLAY: block; MARGIN-LEFT: 216pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">(Registrant)</font></div>
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    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><br></div><br>
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                Number </strong></font></div>
            </td>
            <td align="left" valign="bottom" width="2%" style="border-bottom: black thin solid;">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left">&#160;</div>
            </td>
            <td align="left" valign="bottom" width="62%" style="border-bottom: black thin solid;">
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                </strong></font></div>
            </td>
          </tr>
          <tr>
            <td valign="top" width="9%">&#160;</td>
            <td align="left" valign="bottom" width="2%">&#160;</td>
            <td align="right" valign="bottom" width="62%">&#160;</td>
          </tr>
          <tr>
            <td valign="top" width="9%">
              <div style="DISPLAY: block; MARGIN-LEFT: 18pt; TEXT-INDENT: -18pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">2.1</font></div>
            </td>
            <td align="left" valign="bottom" width="2%">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left">&#160;</div>
            </td>
            <td align="left" valign="bottom" width="62%">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Agreement
                and Plan of Merger, dated as of December 4, 2006, by and among Elara
                Holdings, Inc., Elara Merger Corporation and Direct General
                Corporation*</font></div>
            </td>
          </tr>
          <tr>
            <td valign="top" width="9%">&#160;</td>
            <td align="left" valign="bottom" width="2%">&#160;</td>
            <td align="right" valign="bottom" width="62%">&#160;</td>
          </tr>
          <tr>
            <td valign="top" width="9%">
              <div style="DISPLAY: block; MARGIN-LEFT: 18pt; TEXT-INDENT: -18pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">2.2</font></div>
            </td>
            <td align="left" valign="bottom" width="2%">&#160;</td>
            <td align="left" valign="bottom" width="62%">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Form
                of Limited Guarantee, dated as of December 4, 2006, by Guarantor
                in favor
                of Direct General Corporation.</font></div>
            </td>
          </tr>
          <tr>
            <td valign="top" width="9%">&#160;</td>
            <td align="left" valign="bottom" width="2%">&#160;</td>
            <td align="left" valign="bottom" width="62%">&#160;</td>
          </tr>
          <tr>
            <td valign="top" width="9%">
              <div style="DISPLAY: block; MARGIN-LEFT: 18pt; TEXT-INDENT: -18pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">10.1</font></div>
            </td>
            <td align="left" valign="bottom" width="2%">&#160;</td>
            <td align="left" valign="bottom" width="62%">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Resignation
                and Restrictive Covenants Agreement, dated as of December 4, 2006,
                by and
                between William C. Adair, Direct General Corporation, and Elara Holdings,
                Inc.</font></div>
            </td>
          </tr>
          <tr>
            <td valign="top" width="9%">&#160;</td>
            <td align="left" valign="bottom" width="2%">&#160;</td>
            <td align="left" valign="bottom" width="62%">&#160;</td>
          </tr>
          <tr>
            <td valign="top" width="9%">
              <div style="DISPLAY: block; MARGIN-LEFT: 18pt; TEXT-INDENT: -18pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">10.2</font></div>
            </td>
            <td align="left" valign="bottom" width="2%">&#160;</td>
            <td align="left" valign="bottom" width="62%">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Resignation
                and Restrictive Covenants Agreement, dated as of December 4, 2006,
                by and
                between Jacqueline C. Adair, Direct General Corporation, and Elara
                Holdings, Inc.</font></div>
            </td>
          </tr>
          <tr>
            <td valign="top" width="9%">&#160;</td>
            <td align="left" valign="bottom" width="2%">&#160;</td>
            <td align="left" valign="bottom" width="62%">&#160;</td>
          </tr>
          <tr>
            <td valign="top" width="9%">
              <div style="DISPLAY: block; MARGIN-LEFT: 18pt; TEXT-INDENT: -18pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">10.3</font></div>
            </td>
            <td align="left" valign="bottom" width="2%">&#160;</td>
            <td align="left" valign="bottom" width="62%">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Employment
                Agreement, dated as of December 4, 2006, by and between Tammy R.
                Adair,
                Direct General Corporation, and Elara Holdings, Inc.</font></div>
            </td>
          </tr>
          <tr>
            <td valign="top" width="9%">&#160;</td>
            <td align="left" valign="bottom" width="2%">&#160;</td>
            <td align="left" valign="bottom" width="62%">&#160;</td>
          </tr>
          <tr>
            <td valign="top" width="9%">
              <div style="DISPLAY: block; MARGIN-LEFT: 18pt; TEXT-INDENT: -18pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">10.4</font></div>
            </td>
            <td align="left" valign="bottom" width="2%">&#160;</td>
            <td align="left" valign="bottom" width="62%">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Employment
                Agreement, dated as of December 4, 2006, by and between J. Todd Hagely,
                Direct General Corporation, and Elara Holdings, Inc.</font></div>
            </td>
          </tr>
          <tr>
            <td valign="top" width="9%">&#160;</td>
            <td align="left" valign="bottom" width="2%">&#160;</td>
            <td align="left" valign="bottom" width="62%">&#160;</td>
          </tr>
          <tr>
            <td valign="top" width="9%">
              <div style="DISPLAY: block; MARGIN-LEFT: 18pt; TEXT-INDENT: -18pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">10.5</font></div>
            </td>
            <td align="left" valign="bottom" width="2%">&#160;</td>
            <td align="left" valign="bottom" width="62%">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Form
                of Director Indemnification Agreement, dated as of December 4, 2006,
                by
                and between Director and the Company</font></div>
            </td>
          </tr>
          <tr>
            <td valign="top" width="9%">&#160;</td>
            <td align="left" valign="bottom" width="2%">&#160;</td>
            <td align="left" valign="bottom" width="62%">&#160;</td>
          </tr>
          <tr>
            <td valign="top" width="9%">
              <div style="DISPLAY: block; MARGIN-LEFT: 18pt; TEXT-INDENT: -18pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">10.6</font></div>
            </td>
            <td align="left" valign="bottom" width="2%">&#160;</td>
            <td align="left" valign="bottom" width="62%">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Form
                of Special Committee Indemnification Agreement, dated as of December
                4,
                2006, by and between Member and the Company</font></div>
            </td>
          </tr>
          <tr>
            <td valign="top" width="9%">&#160;</td>
            <td align="left" valign="bottom" width="2%">&#160;</td>
            <td align="left" valign="bottom" width="62%">&#160;</td>
          </tr>
          <tr>
            <td valign="top" width="9%">
              <div style="DISPLAY: block; MARGIN-LEFT: 18pt; TEXT-INDENT: -18pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">99.1</font></div>
            </td>
            <td align="left" valign="bottom" width="2%">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left">&#160;</div>
            </td>
            <td align="left" valign="bottom" width="62%">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Press
                Release dated December 5, 2006</font></div>
            </td>
          </tr>
          <tr>
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            <td align="left" valign="bottom" width="2%">&#160;</td>
            <td align="right" valign="bottom" width="62%">&#160;</td>
          </tr>
          <tr>
            <td valign="top" width="9%">
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            </td>
            <td align="left" valign="bottom" width="2%">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left">&#160;</div>
            </td>
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                and exhibits omitted pursuant to Item 601(b)(2) of Regulation S-K.
                The
                Company agrees to furnish supplementally a copy of any omitted schedule
                to
                the SEC upon request. </font></div>
            </td>
          </tr>

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Unassociated Document
UNITED
      STATES
SECURITIES
      AND EXCHANGE COMMISSION
WASHINGTON,
      D.C. 20549
FORM
      8-K
CURRENT
      REPORT
Pursuant
      to Section 13 or 15(d) of the
Securities
      Exchange Act of 1934
Date
      of
      report (Date of earliest event reported):
December
      4, 2006
DIRECT
      GENERAL CORPORATION
(Exact
      Name of Registrant as Specified in Charter)
Tennessee
000-50360
62-1564496
(State
                or other jurisdiction
(Commission
(I.
                R. S. Employer
of
                incorporation)
File
                Number)
Identification
                No.)
1281
      Murfreesboro Road Nashville, Tennessee
37217
(Address of Principal Executive Offices)
(Zip
      Code)
Registrant's
      telephone number, including area code:
(615)
      399-4700
Not
      Applicable
(Former
      name or former address, if changed since last report)
Check
      the
      appropriate box below if the Form 8-K filing is intended to simultaneously
      satisfy the filing obligation of the registrant under any of the following
      provisions:
o
Written
      communications pursuant to Rule 425 under the Securities Act (17 CFR
      230.425)
x
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
      240.14a-12)
o
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange
      Act
      (17 CFR 240.14d-2(b))
o
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange
      Act
      (17 CFR 240.13e-4(c))
Item
      1.01
Entry
      Into a Material Definitive Agreement.
Merger
      Agreement
On
      December 4, 2006, Direct General Corporation (the "Company") entered into an
      Agreement and Plan of Merger (the "Merger Agreement") with Elara Holdings,
      Inc.
      ("Parent") and Elara Merger Corporation ("Merger Sub").
Under
      the
      terms of the Merger Agreement, Merger Sub will be merged with and into the
      Company, the separate corporate existence of Merger Sub shall cease, and the
      Company shall continue as the surviving corporation and as a wholly owned
      subsidiary of Parent (the "Merger"). Parent and Merger Sub are entities owned
      and controlled by Fremont Partners III, L.P., Fremont Partners III Side-by-Side,
      L.P., Fremont Investors X, L.L.C., and TPG Partners V, L.P.
The
      board
      of directors of the Company (acting upon the unanimous recommendation of the
      special committee, the members of which are not affiliated with Parent or Merger
      Sub and are not members of the Company's management) has adopted the Merger
      Agreement and approved the transactions contemplated thereby upon the terms
      and
      subject to the conditions set forth in the Merger Agreement.
Pursuant
      to the Merger Agreement, at the effective time of the Merger, each outstanding
      share of common stock of the Company (the "Common Stock"), will be cancelled
      and
      converted into the right to receive $21.25 in cash, without interest, upon
      surrender of the certificate representing the outstanding share of Common Stock.
      Except for certain options held by certain continuing investors, each company
      option, whether vested or unvested, outstanding immediately prior to the
      effective time of the Merger, will be cancelled in exchange for the right to
      receive the excess, if any, of the Merger consideration over the per share
      exercise price of the Common Stock subject to such option.
The
      Company has made customary representations and warranties and covenants in
      the
      Merger Agreement.
The
      Company is subject to a "no-shop" restriction on its ability to solicit
      third-party proposals, provide information and engage in discussions with third
      parties. The no-shop provision is subject to a "fiduciary-out" provision that
      allows the Company to provide information and participate in discussions with
      respect to third party proposals submitted.
The
      Company may terminate the Merger Agreement under certain circumstances,
      including if its Board of Directors determines in good faith that it has
      received a superior offer and it otherwise complies with certain terms of the
      Merger Agreement. In connection with such termination, the Company must pay
      a
      fee of $13 million to Parent. In certain other circumstances, the Merger
      Agreement provides for Parent or the Company to pay to the other party a fee
      of
      $13 million upon termination of the Merger Agreement.
Parent
      has obtained equity and debt financing commitments for the transactions
      contemplated by the Merger Agreement, the aggregate proceeds of which will
      be
      sufficient for Parent to pay the aggregate Merger consideration and all related
      fees and expenses. In addition, the Company has entered into a Limited Guarantee
      with Fremont Partners III, L.P., Fremont Partners III Side-by-Side, and TPG
      Partners V, L.P., who each irrevocably and unconditionally guarantee Parent's
      obligation in the event that the Merger Agreement is terminated and Parent
      is
      obligated to pay a termination fee. A form of the Limited Guarantee is attached
      as Exhibit 2.2.
1
Consummation
      of the Merger is subject to various conditions, including approval of the Merger
      by the Company's shareholders, expiration or termination of applicable waiting
      periods under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, receipt
      of all authorizations, consents, and approvals required by any state insurance
      department or financing department, and other customary closing conditions.
      The
      parties expect to close the transaction during the first half of 2007.
The
      foregoing summary of the Merger Agreement and the transactions contemplated
      thereby does not purport to be complete and is subject to, and qualified in
      its
      entirety by, the full text of the Merger Agreement attached as Exhibit 2.1.
The
      Merger Agreement has been included to provide investors and security holders
      with information regarding its terms. It is not intended to provide any other
      factual information about the Company. The representations, warranties and
      covenants contained in the Merger Agreement were made only for purposes of
      such
      agreement and as of specific dates, were solely for the benefit of the parties
      to such agreement, and may be subject to limitations agreed upon by the
      contracting parties, including being qualified by confidential disclosures
      exchanged between the parties in connection with the execution of the Merger
      Agreement. The representations and warranties may have been made for the
      purposes of allocating contractual risk between the parties to the agreement
      instead of establishing these matters as facts, and may be subject to standards
      of materiality applicable to the contracting parties that differ from those
      applicable to investors. Investors are not third-party beneficiaries under
      the
      Merger Agreement and should not rely on the representations, warranties and
      covenants or any descriptions thereof as characterizations of the actual state
      of facts or condition of the Company or Parent or any of their respective
      subsidiaries or affiliates. Moreover, information concerning the subject matter
      of the representations and warranties may change after the date of the Merger
      Agreement, which subsequent information may or may not be fully reflected in
      the
      Company's public disclosures.
Termination
      of the 1996 Employee Stock Incentive Plan and the 2003 Equity Incentive
      Plan
Upon
      consummation of the Merger, each company option, whether vested or unvested,
      outstanding immediately prior to the effective time of the Merger, will be
      cancelled in exchange for the right to receive the excess, if any, of the Merger
      consideration over the per share exercise price of the Common Stock subject
      to
      such option. Also upon the consummation of the Merger, the Company's 1996
      Employee Stock Incentive Plan and the 2003 Equity Incentive Plan will terminate.
Important
      Additional Information will be filed with the SEC:
In
      connection with the proposed Merger, the Company will prepare a proxy statement
      for the shareholders of the Company to be filed with the Securities and Exchange
      Commission ("SEC"). Before making any voting decision, the company's
      shareholders are urged to read the proxy statement regarding the Merger
      carefully in its entirety when it becomes available because it will contain
      important information about the proposed transaction. The Company's shareholders
      and other interested parties will be able to obtain, without charge, a copy
      of
      the proxy statement (when available) and other relevant documents filed with
      the
      SEC from the SEC's website at http://www.sec.gov. The Company's shareholders
      and
      other interested parties will also be able to obtain, without charge, a copy
      of
      the proxy statement and other relevant documents (when available) by directing
      such request to Direct General Corporation, Investor Relations, 2813 Business
      Park Drive, Building I, Memphis, TN 38118, or through the company's website
      at
      www.directgeneral.com.
2
The
      Company
      and its directors and officers may be deemed to be participants in the
      solicitation of proxies from the Company's shareholders with respect to the
      Merger. Information about the Company's directors and executive officers and
      their ownership of the Company's common stock is set forth in the proxy
      statement for the Company's 2006 Annual Meeting of Shareholders, which was
      filed
      with the SEC on March 15, 2006. Shareholders and investors may obtain additional
      information regarding the interests of the Company and its directors and
      executive officers in the Merger, which may be different than those of the
      Company's shareholders generally, by reading the proxy statement and other
      relevant documents regarding the Merger, which will be filed with the
      SEC.
Item
      5.02
Departure
      of Directors or Principal Officers; Election of Directors; Appointment of
      Principal Officers; Compensatory Arrangements of Certain Officers.
Certain
      Resignation and Restrictive Covenants Agreements
On
      December 4, 2006, and in connection with the Merger, the Company entered into
      Resignation and Restrictive Covenants Agreements with Parent and each of William
      C. Adair and Jacqueline C. Adair. The effectiveness of each agreement is
      conditioned upon the consummation of the Merger. Under the terms of each
      executive's respective agreement, Mr. Adair will resign from his position as
      Chairman and Chief Executive Officer of the Company, but continue to serve
      as a
      director of the Company, and Ms. Jacqueline Adair will resign from her position
      as Executive Vice President and Chief Operating Officer of the Company. Each
      of
      the agreements contains five year non-competition and non-solicitation of
      employees and customers clauses, as well as a non-disclosure
      clause.
Mr.
      Adair's agreement waives section 3.3(i) of the Executive Employment Agreement,
      entered into on July 21, 2003, between Mr. Adair and the Company, which would
      have otherwise entitled Mr. Adair to a lump sum payment in the event of
      termination of his employment in connection with a change of control. Upon
      effectiveness of his new agreement, Mr. Adair will be entitled to receive
      severance payments in accordance with Section 3.3 of his former agreement,
      which
      will include continued payment of Mr. Adair's most recent salary for a period of
      twenty-four months, continued eligibility of Mr. Adair for all Company benefit
      plans for a period of twenty-four months, immediate vesting of outstanding,
      unvested Company stock options, and the right to retain two vehicles. Mr.
      Adair's Resignation and Restrictive Covenants Agreement is attached as Exhibit
      10.1 hereto.
Upon
      effectiveness of her new agreement, Ms. Jacqueline Adair will be entitled to
      receive severance payments in accordance with Section 3.3 of her Executive
      Employment Agreement, entered into on July 21, 2003, between Ms. Jacqueline
      Adair and the Company, which will include continued payment of Ms. Jacqueline
      Adair's most recent salary for a period of twenty-four months, continued
      eligibility of Ms. Jacqueline Adair for all Company benefit plans for a period
      of twenty-four months, immediate vesting of outstanding, unvested Company stock
      options, and the right to retain one vehicle. Ms. Jacqueline Adair's Resignation
      and Restrictive Covenants Agreement is attached as Exhibit 10.2
      hereto.
Certain
      Employment Agreements
On
      December
      4, 2006, and in connection with the Merger, the Company entered into Employment
      Agreements with Parent and each of Tammy R. Adair and J. Todd Hagely. The
      effectiveness of each agreement is conditioned upon consummation of the Merger.
      Ms. Tammy Adair will continue to serve as President of the Company with an
      annual base salary of $300,000 and Mr. Hagely will continue to serve as
      Executive Vice President and Chief Financial Officer of the Company with an
      annual base salary of $215,000. Each executive will be entitled to participate
      in a bonus plan and a Parent stock option plan to be adopted by the Company's
      board of directors.
3
The
      term
      of each employment agreement ends at such time that the executive's employment
      is terminated by either the Company or the employee. Each agreement contains
      customary terms regarding competing with the Company during and after the term
      of employment and non-competition and non-solicitation following termination
      of
      the executive's employment.
Each
      employment agreement provides for certain payments if the employment of
      executive is terminated by the executive for good reason or by the Company,
      other than for death, disability, or cause. In such circumstances, Ms. Tammy
      Adair would be entitled to receive, among other things, two-hundred percent
      of
      the her annual base salary in effect at the time of termination, payable over
      twenty-four months, and continued health benefits for twenty-four months. Mr.
      Hagely would be entitled to receive, among other things, one-hundred percent
      of
      his respective base salary in effect at the time of termination, payable over
      twelve months, and continued health benefits for twelve months.
Ms.
      Tammy
      Adair's agreement is attached as Exhibit 10.3,and Mr. Hagely's agreement is
      attached as Exhibit 10.4.
Indemnification
      Agreements
On
      December 4, 2006, the Company entered into indemnification agreements with
      each
      of William C. Adair, Jr., Jacqueline C. Adair, Fred H. Medling, Raymond L.
      Osterhout, and Stephen L. Rohde, who are each directors. Each agreement provides
      that the Company will indemnify and advance expenses to the director in
      connection with any action, suit, or other proceeding that arises out of or
      is
      related to service by the director as a member of the Company's board of
      directors or any committee thereof and to which the director is or is threatened
      to be made a party. In addition, the Company will indemnify the director against
      expenses, judgments, penalties, fines and amounts paid in settlements actually
      and reasonably incurred by the director or on his or her behalf. The
      indemnification agreements are not exclusive of any other rights to
      indemnification that the directors may have under applicable law, the Company's
      charter, its bylaws, any other agreement, or otherwise. The rights granted
      under
      the agreements shall last until the later of ten years after the director ceases
      being a director or until all indemnifiable proceedings are terminated. A form
      of the Indemnification Agreement is attached hereto as Exhibit
      10.5.
On
      December 4, 2006, the Company entered into indemnification agreements with
      each
      member of the Special Committee of the board of directors, which includes Fred
      H. Medling, Raymond L. Osterhout, and Stephen L. Rohde. Each agreement provides
      that the Company will indemnify and advance expenses to the director in
      connection with any action, suit, or other proceeding that arises out of or
      is
      related to service by the director as a member of the Special Committee of
      the
      Company's board of directors and to which the director is or is threatened to be
      made a party. In addition, the Company will indemnify the director against
      expenses, judgments, penalties, fines and amounts paid in settlements actually
      and reasonably incurred by the director or on his or her behalf. The
      indemnification agreements are not exclusive of any other rights to
      indemnification that the directors may have under applicable law, the Company's
      charter, its bylaws, any other agreement, or otherwise. The rights granted
      under
      the agreements shall last until the later of ten years after the director ceases
      being a director or until all indemnifiable proceedings are terminated. A form
      of the Special Committee Indemnification Agreement is attached hereto as Exhibit
      10.6.
Item
      7.01
Regulation
      FD Disclosure.
On
      December 5, 2006, the Company issued a press release announcing that it had
      entered into the Merger Agreement. A copy of the press release is attached
      as
      Exhibit 99.1 hereto.
4
Item
      8.01
Other
      Events.
Shareholder
      Voting Agreement
On
      December 4, 2006, Tammy R. Adair, in her capacity as sole trustee of the William
      C. Adair, Jr. Trust, entered into a Shareholder Voting Agreement with Parent,
      pursuant to which such shareholder agrees to vote in favor of the Merger and
      agrees to, or refrain from, taking certain actions in connection therewith.
      The
      shares subject to the Shareholder Voting Agreement represent approximately
      21%
      of the aggregate voting power of the Common Stock. The Company is not a party
      to
      the Shareholder Voting Agreement.
Forward-Looking
      Statements:
This
      Current Report and the exhibits furnished herewith contain 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.
      These forward-looking statements include statements regarding expectations
      as to
      the completion of the Merger and the other transactions contemplated by the
      Merger Agreement. The forward-looking statements contained herein involve risks
      and uncertainties that could cause actual results to differ materially from
      those referred to in the forward-looking statements. Such risks include, but
      are
      not limited to, the ability of the parties to the Merger Agreement to satisfy
      the conditions to closing specified in the Merger Agreement. More information
      about the Company and other risks related to the Company are detailed in the
      Company's most recent annual report on Form 10-K for the fiscal year ended
      December 31, 2005, and its quarterly reports on Form 10-Q and current reports
      on
      Form 8-K as filed with the SEC. The Company does not undertake an obligation
      to
      update forward-looking statements.
Item
      9.01
Financial
      Statements and Exhibits.
(d)
Exhibits:
Exhibit
                Number
Description
2.1
Agreement
                and Plan of Merger, dated as of December 4, 2006, by and among Elara
                Holdings, Inc., Elara Merger Corporation and Direct General
                Corporation*
2.2
Form
                of Limited Guarantee, dated as of December 4, 2006, by Guarantor
                in favor
                of Direct General Corporation.
10.1
Resignation
                and Restrictive Covenants Agreement, dated as of December 4, 2006,
                by and
                between William C. Adair, Direct General Corporation, and Elara Holdings,
                Inc.
10.2
Resignation
                and Restrictive Covenants Agreement, dated as of December 4, 2006,
                by and
                between Jacqueline C. Adair, Direct General Corporation, and Elara
                Holdings, Inc.
10.3
Employment
                Agreement, dated as of December 4, 2006, by and between Tammy R.
                Adair,
                Direct General Corporation, and Elara Holdings, Inc.
10.4
Employment
                Agreement, dated as of December 4, 2006, by and between J. Todd Hagely,
                Direct General Corporation, and Elara Holdings, Inc.
10.5
Form
                of Director Indemnification Agreement, dated as of December 4, 2006,
                by
                and between Director and the Company
10.6
Form
                of Special Committee Indemnification Agreement, dated as of December
                4,
                2006, by and between Member and the Company
99.1
Press
                Release dated December 5, 2006
*
Schedules
                and exhibits omitted pursuant to Item 601(b)(2) of Regulation S-K.
                The
                Company agrees to furnish supplementally a copy of any omitted schedule
                to
                the SEC upon request.
5
SIGNATURE
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.
Date:
      December 4, 2006
DIRECT
      GENERAL CORPORATION
(Registrant)
By:
/s/
      Ronald F. Wilson
Name:
Ronald
                F. Wilson
Title:
Secretary
6
INDEX
      TO EXHIBITS
Exhibit
                Number
Description
2.1
Agreement
                and Plan of Merger, dated as of December 4, 2006, by and among Elara
                Holdings, Inc., Elara Merger Corporation and Direct General
                Corporation*
2.2
Form
                of Limited Guarantee, dated as of December 4, 2006, by Guarantor
                in favor
                of Direct General Corporation.
10.1
Resignation
                and Restrictive Covenants Agreement, dated as of December 4, 2006,
                by and
                between William C. Adair, Direct General Corporation, and Elara Holdings,
                Inc.
10.2
Resignation
                and Restrictive Covenants Agreement, dated as of December 4, 2006,
                by and
                between Jacqueline C. Adair, Direct General Corporation, and Elara
                Holdings, Inc.
10.3
Employment
                Agreement, dated as of December 4, 2006, by and between Tammy R.
                Adair,
                Direct General Corporation, and Elara Holdings, Inc.
10.4
Employment
                Agreement, dated as of December 4, 2006, by and between J. Todd Hagely,
                Direct General Corporation, and Elara Holdings, Inc.
10.5
Form
                of Director Indemnification Agreement, dated as of December 4, 2006,
                by
                and between Director and the Company
10.6
Form
                of Special Committee Indemnification Agreement, dated as of December
                4,
                2006, by and between Member and the Company
99.1
Press
                Release dated December 5, 2006
*
Schedules
                and exhibits omitted pursuant to Item 601(b)(2) of Regulation S-K.
                The
                Company agrees to furnish supplementally a copy of any omitted schedule
                to
                the SEC upon request.