<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
Quarterly Report under Section 13 or 15(d) of the
Securities Exchange Act of 1934
For Quarter Ended September 30, 1999 Commission File Number 1-9828
GAINSCO, INC.
(Exact name of registrant as specified in its charter)
Texas 75-1617013
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
500 Commerce Street Fort Worth, Texas 76102
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (817) 336-2500
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding twelve (12) months, and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
As of September 30, 1999, there were 20,919,833 shares outstanding of the
registrant's Common Stock, $.10 par value.
<PAGE> 2
GAINSCO, INC. AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS:
Independent Auditors' Review Report 3
Consolidated Balance Sheets as of September 30, 1999
(unaudited) and December 31, 1998 4
Consolidated Statements of Operations for the Three Months
and Nine Months Ended September 30, 1999 and 1998 (unaudited) 6
Consolidated Statements of Cash Flows for the Nine Months
Ended September 30, 1999 and 1998 (unaudited) 7
Notes to Consolidated Financial Statements
September 30, 1999 and 1998 (unaudited) 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 16
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 21
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 21
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. 22
SIGNATURE 23
</TABLE>
2
<PAGE> 3
INDEPENDENT AUDITORS' REVIEW REPORT
The Board of Directors and Shareholders of GAINSCO, INC. and subsidiaries
We have reviewed the accompanying consolidated balance sheet of GAINSCO, INC.
and subsidiaries as of September 30, 1999, and the related consolidated
statements of operations for the three month and nine month periods ended
September 30, 1999 and 1998, and consolidated statements of cash flows for the
nine month periods ended September 30, 1999 and 1998. These financial statements
are the responsibility of the Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the financial statements referred to above for them to be in
conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of GAINSCO, INC. and subsidiaries as
of December 31, 1998, and the related consolidated statements of operations,
statements of shareholders' equity and comprehensive income, and statements of
cash flows for the year then ended (not presented herein); and in our report
dated February 19, 1999, we expressed an unqualified opinion on those
consolidated financial statements. In our opinion, the financial information set
forth in the accompanying consolidated condensed balance sheet as of December
31, 1998, is fairly presented, in all material respects, in relation to the
consolidated balance sheet from which it has been derived.
/S/KPMG LLP
Dallas, Texas
October 26, 1999
3
<PAGE> 4
PART I. FINANCIAL INFORMATION
GAINSCO, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
<TABLE>
<CAPTION>
September 30 December 31
Assets 1999 1998
------------ ------------
(unaudited)
<S> <C> <C>
Investments
Fixed maturities:
Bonds held to maturity, at amortized cost (fair
value: $42,745,872 - 1999, $60,978,145 - 1998) $ 42,463,502 59,788,233
Bonds available for sale, at fair value (Amortized cost:
$155,206,217 - 1999, $143,806,030 - 1998) 153,524,420 145,588,002
Certificates of deposit, at cost (which approximates
fair value) 595,000 595,000
Marketable securities, at fair value (cost: $340,168 - 1999,
$318,436 - 1998) 239,613 268,585
Short-term investments, at cost (which approximates
fair value) 18,858,333 4,749,139
------------ ------------
Total investments 215,680,868 210,988,959
Cash 3,457,284 3,982,059
Accrued investment income 3,757,449 4,224,230
Premiums receivable (net of allowance for doubtful
accounts: $47,000 - 1999, $81,000 - 1998) 23,471,066 14,885,063
Reinsurance balances receivable 4,768,475 2,392,576
Ceded unpaid claims and claim adjustment expenses 39,015,781 35,030,001
Ceded unearned premiums 25,603,750 22,387,599
Deferred policy acquisition costs 15,082,078 11,320,142
Property and equipment (net of accumulated depreciation
and amortization: $8,401,529 - 1999, $8,175,798 - 1998) 6,518,268 6,716,636
Current Federal income taxes (note 1) -- 5,031,950
Deferred Federal income taxes (note 1) 7,994,455 6,669,093
Management contract 1,650,071 1,687,571
Other assets 4,098,342 3,216,611
Goodwill (note 1) 16,523,234 17,057,772
------------ ------------
Total assets $367,621,121 345,590,262
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE> 5
GAINSCO, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
<TABLE>
<CAPTION>
September 30 December 31
1999 1998
------------- -------------
(unaudited)
<S> <C> <C>
Liabilities and Shareholders' Equity
Liabilities:
Unpaid claims and claim adjustment expenses $ 135,044,356 136,798,149
Unearned premiums 83,841,901 63,601,677
Commissions payable 1,336,913 4,279,431
Accounts payable 4,756,034 7,311,920
Reinsurance balances payable 8,388,046 1,327,997
Deferred revenue 1,356,902 1,935,290
Drafts payable 6,384,850 5,834,846
Note payable (note 3) 18,000,000 18,000,000
Dividends payable (note 4) 365,749 365,690
Current Federal income taxes (note 1) 294,942 --
Other liabilities 306,324 651,364
------------- -------------
Total liabilities 260,076,017 240,106,364
------------- -------------
Shareholders' Equity (note 4):
Preferred stock ($100 par value, 10,000,000 shares
authorized, none issued) -- --
Common stock ($.10 par value, 250,000,000 shares authorized, 21,763,927
issued at September 30, 1999,
21,740,657 issued at December 31, 1998) 2,176,393 2,174,066
Additional paid-in capital 87,826,099 87,778,548
Accumulated other comprehensive income (loss) (note 1) (1,158,528) 1,138,941
Retained earnings 26,395,665 22,086,868
Treasury stock (844,094 shares at September 30, 1999 and
December 31, 1998) (7,694,525) (7,694,525)
------------- -------------
Total shareholders' equity 107,545,104 105,483,898
------------- -------------
Total liabilities and shareholders' equity $ 367,621,121 345,590,262
============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE> 6
GAINSCO, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three months Nine months
ended September 30 ended September 30
--------------------------------- ---------------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues:
Premiums earned (note 2) $ 30,210,872 22,961,060 79,463,729 69,735,212
Net investment income 2,380,581 2,536,044 6,867,530 7,505,167
Net realized gains (note 1) 22,539 242,249 681,438 556,116
Insurance services 482,853 633,180 1,641,463 1,850,400
------------ ------------ ------------ ------------
Total revenues 33,096,845 26,372,533 88,654,160 79,646,895
------------ ------------ ------------ ------------
Expenses:
Claims and claim adjustment expenses
(note 2) 21,853,230 15,737,047 53,631,751 69,433,537
Commissions 7,236,544 4,842,508 20,583,786 16,506,909
Change in deferred policy acquisition costs (1,018,458) 273,729 (3,761,936) 1,507,113
Interest expense (note 3) 327,841 -- 941,008 --
Amortization expense 172,031 -- 516,528 --
Underwriting and operating expenses 3,092,504 4,158,087 10,531,953 12,695,372
------------ ------------ ------------ ------------
Total expenses 31,663,692 25,011,371 82,443,090 100,142,931
------------ ------------ ------------ ------------
Income (loss) before Federal income taxes 1,433,153 1,361,162 6,211,070 (20,496,036)
Federal income taxes:
Current expense (benefit) 129,942 (140,694) 912,969 (4,105,685)
Deferred expense (benefit) (107,514) 104,809 (77,849) (4,658,360)
------------ ------------ ------------ ------------
Total taxes 22,428 (35,885) 835,120 (8,764,045)
------------ ------------ ------------ ------------
Net income (loss) $ 1,410,725 1,397,047 5,375,950 (11,731,991)
============ ============ ============ ============
Earnings (loss) per share:
Basic $ .07 .07 .26 (.56)
============ ============ ============ ============
Diluted $ .07 .07 .25 (.56)
============ ============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE> 7
GAINSCO, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Nine Months ended September 30
---------------------------------
1999 1998
------------ -----------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 5,375,950 (11,731,991)
Adjustments to reconcile net income (loss) to cash provided by operating
activities:
Depreciation and amortization 3,167,409 3,610,719
Change in deferred Federal income taxes (77,849) (4,658,360)
Change in accrued investment income 466,781 1,469,491
Change in premiums receivable (8,586,003) 3,755,727
Change in reinsurance balances receivable (2,375,899) (661,526)
Change in ceded unpaid claims and claim adjustment
expenses (3,985,780) (4,451,382)
Change in ceded unearned premiums (3,216,151) (3,564,257)
Change in deferred policy acquisition costs (3,761,936) 1,507,113
Change in other assets (881,731) (498,759)
Change in unpaid claims and claim adjustment
expenses (1,753,793) 24,328,961
Change in unearned premiums 20,240,224 (1,944,559)
Change in commissions payable (2,942,518) 1,202,868
Change in accounts payable (2,555,886) (1,110,129)
Change in reinsurance balances payable 7,060,049 2,574,296
Change in deferred revenue (578,388) 257,533
Change in drafts payable 550,004 (2,187,776)
Change in other liabilities (345,040) (301,087)
Change in current Federal income taxes 5,356,868 (4,100,365)
------------ ------------
Net cash provided by operating activities $ 11,156,311 3,496,517
------------ ------------
</TABLE>
See accompanying notes to consolidated financial statements.
(continued)
7
<PAGE> 8
GAINSCO, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Nine Months ended September 30
---------------------------------
1999 1998
------------ ------------
<S> <C> <C>
Cash flows from investing activities:
Bonds held to maturity:
Matured $ 16,639,999 22,873,069
Purchased -- (1,210,688)
Bonds available for sale:
Sold 18,894,471 38,576,136
Matured 6,721,142 1,520,000
Purchased (38,731,216) (23,538,400)
Certificates of deposit matured 370,000 545,000
Certificates of deposit purchased (370,000) (545,000)
Marketable securities:
Purchased (21,732) --
Net change in short-term investments (14,109,194) (38,778,366)
Property and equipment purchased (27,363) (358,597)
------------ ------------
Net cash used for investing activities (10,633,893) (916,846)
------------ ------------
Cash flows from financing activities:
Cash dividends paid (1,097,071) (1,095,989)
Proceeds from exercise of stock options 49,878 84,748
Treasury stock acquired -- (142,191)
------------ ------------
Net cash used for financing activities (1,047,193) (1,153,432)
------------ ------------
Net increase (decrease) in cash (524,775) 1,426,239
Cash at beginning of period 3,982,059 696,513
------------ ------------
Cash at end of period $ 3,457,284 2,122,752
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
8
<PAGE> 9
GAINSCO, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
(1) Summary of Accounting Policies
(a) Basis of Consolidation
In the opinion of management, the accompanying consolidated
financial statements contain all adjustments, consisting only
of normal recurring adjustments, necessary to present fairly
the financial position of GAINSCO, INC. and subsidiaries (the
"Company") as of September 30, 1999, the results of operations
and the statements of cash flows for the three months and nine
months ended September 30, 1999 and 1998, on the basis of
generally accepted accounting principles. The December 31,
1998 balance sheet included herein is derived from the
consolidated financial statements included in the Company's
1998 Annual Report to Shareholders.
The accompanying consolidated financial statements are
prepared in conformity with generally accepted accounting
principles. The preparation of financial statements in
conformity with generally accepted accounting principles
requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could
differ from those estimates.
Reference is made to the Company's annual consolidated
financial statements for the year ended December 31, 1998 for
a description of all other accounting policies. Certain
reclassifications have been made to the 1998 amounts to
conform to the 1999 presentation.
(b) Investments
Bonds held to maturity are stated at amortized cost, bonds
available for sale and marketable securities are stated at
fair value with changes in fair value recorded as a component
of accumulated other comprehensive income. Short-term
investments are stated at cost. The "specific identification"
method is used to determine costs of investments sold.
Provisions for possible losses are recorded when the values
have experienced impairment considered "other than temporary".
The bonds available for sale had an unrealized loss of
$1,093,168 at September 30, 1999, net of the deferred tax
benefit of $588,629 and an unrealized gain at December 31,
1998 of $1,158,282 net of the deferred tax expense of
$623,690. The marketable securities had an unrealized loss of
$65,360 at September 30, 1999, net of the deferred tax benefit
of $35,194, and an unrealized loss at December 31, 1998 of
$47,532.
Proceeds from the sale of bond securities totaled $2,845,644
and $24,292,490 for the three months ended September 30, 1999
and 1998, respectively, and $18,894,471 and $38,576,136 for
the nine months ended September 30, 1999 and 1998,
respectively. Realized gains were $22,539 and $247,572 for the
three months ended September 30, 1999 and 1998, respectively,
and $681,438 and $572,505 for the nine months ended September
30, 1999 and 1998,
9
<PAGE> 10
GAINSCO, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
respectively. Realized losses were $0 and $5,323 for the three
months ended September 30, 1999 and 1998, respectively, and $0
and $16,389 for the nine months ended September 30, 1999 and
1998, respectively.
(c) Federal Income Taxes
The Company and its subsidiaries file a consolidated Federal
income tax return. Deferred income tax items are accounted for
under the asset and liability method which provides for
temporary differences between the reporting of earnings for
financial statement purposes and for tax purposes, primarily
deferred policy acquisition costs, the discount on unpaid
claims and claim adjustment expenses and the nondeductible
portion of the change in unearned premiums. The Company paid
income taxes of $700,161 during the nine months ended
September 30, 1999. The Company paid no income taxes during
the three months ended September 30, 1999 or during the 1998
periods. The Company received Federal income tax refunds
totaling $5,144,060 during the three months ended September
30, 1999.
(d) Earnings Per Share
The following table sets forth the computation of basic and
diluted earnings per share:
<TABLE>
<CAPTION>
Three months Nine months
ended September 30 ended September 30
------------------------------ ------------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Numerator:
Net income (loss) $ 1,410,725 1,397,047 5,375,950 (11,731,991)
----------- ----------- ----------- -----------
Denominator:
Denominator for basic
earnings per share-
weighted average shares 20,902,381 20,896,563 20,898,890 20,876,795
Effect of dilutive securities:
Employee stock options 211,448 342,671 207,162 405,037
----------- ----------- ----------- -----------
Denominator for diluted
earnings per share-
weighted average shares
and assumed conversions 21,113,829 21,239,234 21,106,052 21,281,832
=========== =========== =========== ===========
Basic earnings (loss) per share $ .07 .07 .26 (.56)
=========== =========== =========== ===========
Diluted earnings (loss) per share $ .07 .07 .25 (.56)
=========== =========== =========== ===========
</TABLE>
10
<PAGE> 11
GAINSCO, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
(e) Accumulated Comprehensive Income
The other comprehensive income amounts included in accumulated
comprehensive income consisted of net unrealized gains
(losses) on fixed maturities and marketable securities of
$(1,158,528) and $1,138,941 at September 30, 1999 and December
31, 1998, respectively. Total comprehensive income (loss)
consisting of net income (loss) and the changes in unrealized
gains (losses) on fixed maturities and marketable securities
was $1,308,113 and $2,389,564 for the three months ended
September 30, 1999 and 1998, respectively, and $3,078,481 and
$(11,076,102) for the nine months ended September 30, 1999 and
1998, respectively.
(f) Goodwill
Goodwill, which represents the excess of purchase price over
fair value of net assets acquired, is amortized on a
straight-line basis over the expected periods to be benefited,
25 years. The Company will periodically review the
recoverability of goodwill based on an assessment of future
operations to ensure it is appropriately valued.
(2) Reinsurance
The amounts deducted in the Consolidated Statements of Operations for
reinsurance ceded for the three months and nine months ended September
30, 1999 and 1998, respectively, are set forth in the following table.
Premiums and claims ceded to the commercial automobile plans of
Arkansas, California, Louisiana, Mississippi and Pennsylvania are
designated as "plan servicing".
<TABLE>
<CAPTION>
Three months Nine months
ended September 30 ended September 30
------------------------------ -----------------------------
1999 1998 1999 1998
----------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Premiums earned $ 3,914,378 180,563 7,487,764 977,157
Premiums earned -
plan servicing $ 74,528 925,602 957,808 2,793,577
Premiums earned -
fronting arrangements $11,949,587 11,015,983 37,365,561 29,654,146
Claims and claim
adjustment expenses $ 3,583,172 1,360,804 9,587,590 3,611,114
Claims and claim
adjustment expenses -
plan servicing $ 994,304 812,097 3,461,187 3,681,997
Claims and claim
adjustment expenses -
fronting arrangements $10,134,206 7,540,188 29,067,452 23,574,857
</TABLE>
11
<PAGE> 12
GAINSCO, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
The amounts included in the Consolidated Balance Sheets for reinsurance
ceded to the commercial automobile plans of Arkansas, California,
Louisiana, Mississippi and Pennsylvania, and the fronting arrangements
as of September 30, 1999 and December 31, 1998 were as follows:
<TABLE>
<CAPTION>
1999 1998
----------- ----------
<S> <C> <C>
Unearned premiums -
plan servicing $ 18,273 1,139,560
Unearned premiums -
fronting arrangements $17,222,679 20,194,814
Unpaid claims and claim
adjustment expenses -
plan servicing $ 8,806,952 9,380,484
Unpaid claims and claim
adjustment expenses -
fronting arrangements $15,352,496 13,927,694
</TABLE>
The Company remains directly liable to its policyholders for all policy
obligations and the reinsuring companies are obligated to the Company
to the extent of the reinsured portion of the risks. The Company does
not have a provision for uncollectible reinsurance and does not feel
one is warranted since all of the reinsurers on its treaties are rated
"A-(Excellent)" or better by A.M. Best Company and/or the Company is
adequately collateralized on existing and anticipated claim recoveries.
(3) Note Payable
In December of 1998, the Company entered into a note payable for
$18,000,000 with a commercial bank. Interest is due monthly at an
interest rate that approximates the 30-day London Interbank Offered
Rate (LIBOR) plus 175 basis points (7.10875% and 6.7842% at September
30, 1999 and December 31, 1998, respectively). Principal payments of
$500,000 are to be paid each quarter beginning January 1, 2000 with the
balance of $10,500,000 due at maturity of the note on October 1, 2003.
The Company recorded interest expense of $327,841 and $941,008 for the
three months and nine months ended September 30, 1999, respectively.
The Company paid interest of $327,841 and $1,042,872 for the three
months and nine months ended September 30, 1999.
(4) Shareholders' Equity
As of September 30, 1999 there were 271,507 options outstanding to
purchase common stock (options), at an average exercise price of $2.66
per share, that had been granted to officers and directors of the
Company under the 1990 Stock Option Plan, 671,930 options, at an
average exercise price of $8.71 per share, that had been granted to
officers and directors of the Company under the 1995 Stock Option Plan,
12
<PAGE> 13
GAINSCO, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
and 579,710 options at an average exercise price of $5.75 per share
that had been granted to Glenn W. Anderson under an employment
agreement.
As of December 31, 1998, the Company had purchased 844,094 shares of
its common stock at a cost of $7,694,525. The Company has no plans to
purchase additional shares.
The Company's policy is to pay a quarterly cash dividend of $.0175 per
share every quarter until further action is taken by the Board of
Directors. A cash dividend of $365,749 was paid on October 15, 1999.
(5) Segment Reporting
The Company makes operating decisions and assesses performance for the
commercial lines segment and the personal lines segment. The commercial
lines segment writes primarily commercial auto, auto garage, general
liability, professional liability and property. The personal lines
segment writes primarily personal auto and mobile home coverages.
The Company considers many factors including the nature of the
insurance product and distribution strategies in determining how to
aggregate operating segments.
The following tables present a summary of segment income (loss) before
Federal income taxes for the quarters ending September 30, 1999 and
1998 and the nine months ending September 30, 1999 and 1998:
<TABLE>
<CAPTION>
Quarter ending September 30, 1999
---------------------------------------------------------------
Commercial Personal
Lines Lines Other Total
---------- -------- -------- --------
(Amounts in thousands)
<S> <C> <C> <C> <C>
Gross premiums written $ 24,854 10,546 -- 35,400
======== ======== ======== ========
Premiums earned $ 23,161 7,050 -- 30,211
Net investment income 1,300 1,081 -- 2,381
Net realized gains -- -- 23 23
Insurance services -- 247 235 482
Expenses (24,095) (6,978) (91) (31,164)
-------- -------- -------- --------
Operating income 366 1,400 167 1,933
Interest expense -- (328) -- (328)
Amortization expense -- (172) -- (172)
-------- -------- -------- --------
Income before
Federal income taxes $ 366 900 167 1,433
======== ======== ======== ========
Combined ratio (GAAP basis) 104.0% 99.0% 102.8%
======== ======== ========
</TABLE>
13
<PAGE> 14
<TABLE>
<CAPTION>
Quarter ending September 30, 1998
----------------------------------------------------------
Commercial Personal
Lines Lines Other Total
---------- -------- -------- --------
(Amounts in thousands)
<S> <C> <C> <C> <C>
Gross premiums written $ 22,722 -- -- 22,722
======== ===== ======== ========
Premiums earned $ 22,961 -- 22,961
Net investment income 2,536 -- -- 2,536
Net realized gains -- -- 242 242
Insurance services -- -- 634 634
Expenses (23,988) -- (1,024) (25,012)
-------- ----- -------- --------
Operating income (loss) 1,509 -- (148) 1,361
Interest expense -- -- -- --
Amortization expense -- -- -- --
-------- ----- -------- --------
Income (loss) before $ 1,509 -- (148) 1,361
======== ===== ======== ========
Federal income taxes
Combined ratio (GAAP basis) 104.5% -- 104.5%
======== ===== ========
</TABLE>
<TABLE>
<CAPTION>
Nine months ending September 30, 1999
---------------------------------------------------------------
Commercial Personal
Lines Lines Other Total
---------- -------- -------- --------
(Amounts in thousands)
<S> <C> <C> <C> <C>
Gross premiums written $ 70,312 28,056 -- 98,368
======== ======== ======== ========
Premiums earned $ 66,732 12,732 -- 79,464
Net investment income 5,594 1,274 -- 6,868
Net realized gains -- -- 681 681
Insurance services -- 964 678 1,642
Expenses (66,674) (12,698) (1,614) (80,986)
-------- -------- -------- --------
Operating income (loss) 5,652 2,272 (255) 7,669
Interest expense -- (941) -- (941)
Amortization expense -- (517) -- (517)
-------- -------- -------- --------
Income (loss) before
Federal income taxes $ 5,652 814 (255) 6,211
======== ======== ======== ========
Combined ratio (GAAP basis) 99.9% 99.7% 99.8%
======== ======== ========
</TABLE>
14
<PAGE> 15
<TABLE>
<CAPTION>
Nine months ending September 30, 1998
----------------------------------------------------------
Commercial Personal
Lines Lines Other Total
---------- -------- -------- --------
(Amounts in thousands)
<S> <C> <C> <C> <C>
Gross premiums written $ 65,018 -- -- 65,018
======== ===== ======== ========
Premiums earned $ 69,735 -- 69,735
Net investment income 7,505 -- -- 7,505
Net realized gains -- -- 556 556
Insurance services -- -- 1,851 1,851
Expenses (97,026) -- (3,117) (100,143)
-------- ----- -------- --------
Operating loss (19,786) -- (710) (20,496)
Interest expense -- -- -- --
Amortization expense -- -- -- --
Loss before
Federal income taxes $(19.786) -- (710) (20,496)
======== ===== ======== ========
Combined ratio (GAAP basis) 139.1% -- 139.1%
======== ===== ========
</TABLE>
Weather related claims of approximately $700,000 adversely impacted the
combined ratio during the third quarter of 1999.
(6) Subsequent Event
On October 4, 1999 the Company closed the transactions contemplated by
the Securities Purchase Agreement dated as of June 29, 1999 between the
Company and Goff Moore Strategic Partners, L.P., a Texas limited
partnership ("GMSP"). At the closing the Company sold to GMSP for an
aggregate purchase price of $31,620,000 (i) 31,620 shares of GNA's
Series A Convertible Preferred Stock, which are convertible into shares
of GNA's Common Stock, par value $0.10 per share ("Common Stock"), at a
conversion price of $5.10 per share (subject to adjustment as described
therein), (ii) a five year Warrant to purchase an aggregate of
1,550,000 shares of Common Stock at an exercise price of $6.375 per
share (subject to adjustment as described therein) and (iii) a seven
year Warrant to purchase an aggregate of 1,550,000 shares of Common
Stock at an exercise price of $8.50 per share (subject to adjustment as
described therein). The Company and its insurance company subsidiaries
entered into Investment Management Agreements with GMSP, pursuant to
which GMSP will manage their respective investment portfolios.
Completion of these Transactions concluded the strategic alternatives
review process that the Company initiated in 1998. Proceeds from the
GMSP transactions will be available for acquisitions, investments and
other corporate purposes.
15
<PAGE> 16
GAINSCO, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Results of Operations
Gross premiums written for the third quarter of 1999 were $35,399,741 versus
$22,722,054 for the comparable 1998 period representing a 56% increase of which
47 percentage points were attributable to personal lines and 9 percentage points
were attributable to commercial lines. For the first nine months of 1999 gross
premiums written have increased 51% from the comparable 1998 period, personal
lines accounted for 43 percentage points and commercial lines accounted for 8
percentage points. The following table presents, for each major product line,
gross premiums written for the periods indicated:
<TABLE>
<CAPTION>
Three months Nine months
ended September 30 ended September 30
-------------------------------------------- ---------------------------------------------
1999 1998 1999 1998
------------------- ------------------- -------------------- -------------------
(Amounts in thousands)
<S> <C> <C> <C> <C> <C> <C>
Commercial lines $24,854 71% $22,722 $70,312 71% $65,018
Personal lines 10,546 29% -- 28,056 29% --
------- --- ------- ------- --- -------
Total $35,400 100% $22,722 $98,368 100% $65,018
======= === ======= ======= === =======
</TABLE>
For the third quarter of 1999 COMMERCIAL LINES are up 9% over the comparable
1998 period. Auto is up 18%, garage is down 8% and general liability is up 15%,
in each case as compared to the third quarter of 1998. For the first nine months
of 1999 COMMERCIAL LINES are up 8% over the comparable 1998 period. Auto is up
13%, garage is down 11% and general liability is up 7%, in each case as compared
to the first nine months of 1998. Auto is up primarily because of increased
market activity in certain classes of business. Garage is down primarily because
of continued intense competition most notably in Florida. General liability is
up primarily in Texas because of marketing efforts the Company has implemented
to grow this line of business. PERSONAL LINES is primarily Florida personal auto
which comes from the acquisition of the Lalande Group in the fourth quarter of
1998. For the first nine months of 1999, gross premium written percentages by
state/product line are as follows: Florida personal auto (26%), Texas commercial
auto (18%), and Texas general liability (6%) with no other state/product line
comprising 5% or more. Premiums earned increased 32% and 14% for the three
months and nine months ended September 30, 1999, respectively, as a result of
the increase in premiums written.
Net investment income decreased 6% and 8% for the third quarter and first nine
months of 1999, respectively,
16
<PAGE> 17
as a result of reinvesting maturities at lower yields because of shorter
durations. At September 30, 1999, 75% of the Company's investments were in
investment grade tax-exempt bonds with an average maturity of 3.1 years. On a
taxable equivalent basis the return on average investments is 5.9% for 1999 and
6.2% for 1998. The Company has the ability to hold its bond securities until
their maturity date. At September 30, 1999, approximately 13% of the Company's
investments were in U.S. Treasury securities and 8% were in short-term money
market funds.
The Company recorded net realized capital gains of $22,539 during the third
quarter of 1999 versus $242,249 for the comparable 1998 period, which brings net
realized capital gains for the nine months to $681,438 versus $556,116 for the
same period in 1998. All of the gains were generated from the bonds available
for sale category of the fixed maturity portfolio.
Insurance services revenues decreased $150,327 in the third quarter of 1999 from
the third quarter of 1998. For the first nine months of 1999 a decrease of
$208,937 has been recorded from the comparable 1998 period. These decreases are
attributable to the run-off of the plan servicing and premium finance operations
and the discontinuance of the computer software operation. These decreases are
offset to some extent by claim adjusting fees earned from outside parties
through the Lalande group.
Claims and claim adjustment expenses (C & CAE) increased $6,116,183 in the third
quarter of 1999 from the third quarter of 1998. The C & CAE ratio was 72.3% in
the third quarter of 1999 versus 68.5% in 1998 for the comparable period. The
increase includes claims of approximately $700,000 from Hurricane Floyd and
other weather-related catastrophes in the third quarter of 1999 and reduced
earnings per share by approximately $.02 per share. C & CAE decreased
$15,801,786 for the first nine months of 1999 from the comparable 1998 period.
The first nine months of 1998 included approximately $24,380,000 in unfavorable
C & CAE development from prior accident years. The C & CAE ratio was 67.5% for
the first nine months of 1999 and 99.6% for the comparable 1998 period.
The ratio of commissions to gross premiums written was 20% for the third quarter
of 1999 versus 21% for the comparable 1998 period and it was 21% for the first
nine months of 1999 as compared to 25% for the comparable 1998 period.
Commissions were higher for the nine month 1998 period compared to 1999 period
primarily due to a decrease in commission income of approximately $2,592,000 for
the first nine months of 1998 as a result of reducing previously accrued
reinsurance commission. Reinsurance commissions were reduced due to a higher
expected ultimate C & CAE ratio. The ratio of commissions to premiums earned is
higher in the 1999 periods than in the 1998 periods primarily due to the
increase in gross premiums written.
The change in deferred policy acquisition costs (DAC) resulted in a net increase
to income of $1,018,458 for the third quarter of 1999 versus a net decrease of
$273,729 in the third quarter of 1998. A net increase of $3,761,936 was recorded
for the first nine months of 1999 versus a net decrease of $1,507,113 in the
comparable 1998 period. The change in the amount of the increase or decrease in
DAC between comparable periods is directly related to the rate at which unearned
premiums are growing or declining as a result of the growth rate of premium
writings. Since DAC (asset) is a function of unearned premiums (liability) the
change in unearned premiums correlates to the change in DAC. The ratio of DAC to
net unearned premiums was 26% at September 30, 1999 and 1998, respectively.
Interest expense is from the note payable and amortization expense relates to
the goodwill recorded. The note payable and goodwill were recorded in
conjunction with the Lalande acquisition that was made in the fourth quarter of
1998.
Underwriting and operating expenses decreased 26% in the third quarter of 1999
from 1998 and decreased 17%
17
<PAGE> 18
for the first nine months of 1999 from 1998, primarily as a result of legal
fees, consulting fees, expenses associated with (1) the plan servicing
operation, which is now in run-off , and (2) the discontinuance of the computer
software operation.
The effective tax rates of 2% for the third quarter of 1999 and 13% for the
first nine months of 1999 are primarily the result of tax-exempt income
comprising a major portion of income before taxes. The tax benefit recorded in
the first nine months of 1998 was due to the net loss for the period which
resulted primarily from the large increase in C & CAE reserves.
Liquidity and Capital Resources
The primary sources of the Company's liquidity are funds generated from
insurance premiums, net investment income and maturing investments. The
short-term investments and cash are intended to provide adequate funds to pay
claims without selling the fixed maturity investments. At September 30, 1999 the
Company held short-term investments and cash of $22,315,617 which the Company
believes is adequate liquidity for the payment of claims and other short-term
commitments.
With regard to long term liquidity, the average duration of the investment
portfolio is approximately 3.0 years which approximates the average payout
period of claims. The fair value of the fixed maturity portfolio at September
30, 1999 was $1,399,427 below amortized cost.
Investments increased as a result of net cash provided by operating activities.
The increase in premiums receivable is a result of a greater level of premium
writings in the third quarter of 1999 than in the fourth quarter of 1998.
Reinsurance balances receivable increased primarily because of claim
recoverables from plan servicing and personal auto. Ceded unpaid claims and
claim adjustment expenses increased primarily due to an increase in claims from
fronting and from personal auto which had very small balances at December 31,
1998 since it was acquired in October, 1998. Ceded unearned premiums increased
primarily because of the increase in personal auto writings. Deferred policy
acquisition costs (DAC) increased as a direct result of the increase in unearned
premiums. DAC was 26% and 27% of net unearned premiums at September 30, 1999 and
at December 31, 1998, respectively. Current Federal income taxes receivable
decreased primarily as a result of receiving the tax refund for 1998. The
increase in deferred Federal income taxes recoverable is primarily related to
the increase in unearned premium reserves.
Unpaid claims and claim adjustment expenses decreased primarily as a result of
the amount of prior accident year claims in the commercial lines that were
closed during the first nine months of 1999. This resulted in the number of
outstanding claims decreasing 16% in the first nine months of 1999. Unearned
premiums increased as a result of the growth in gross premiums written discussed
previously. Commissions payable decreased as a result of settling balances with
reinsurers during the second quarter of 1999. The decrease in accounts payable
was primarily due to a decrease in premiums payable to outside insurers from the
personal auto operation. The increase in reinsurance balances payable is
primarily attributable to the increase in personal auto writings and increased
activity in the fronting operation.
An accumulated other comprehensive loss of $1,158,528 was recorded at September
30, 1999 as a result of the net unrealized losses on the bonds available for
sale as a result of the general increase in interest rates.
The Company is not aware of any current recommendations by the regulatory
authorities, which if implemented, would have a material effect on the Company's
liquidity, capital resources or results of operations.
GMSP Transactions
On October 4, 1999 the Company closed the transactions contemplated by the
Securities Purchase Agreement dated as of June 29, 1999 between the Company and
Goff Moore Strategic Partners, L.P., a Texas limited Partnership ("GMSP"). At
the closing the Company sold to GMSP for an aggregate purchase price of
$31,620,000 (i) 31,620 shares of GNA's Series A Convertible Preferred Stock,
which are convertible into shares of GNA's Common Stock, par value $0.10 per
share ("Common Stock"), at a conversion price of $5.10 per share (subject to
adjustment as described therein), (ii) a five year Warrant to purchase an
aggregate of 1,550,000 shares of Common Stock at an exercise price of $6.375 per
share (subject to adjustment as described therein) and (iii) a seven year
Warrant to purchase an aggregate of 1,550,000 shares of Common Stock at an
exercise price of $8.50 per share (subject to adjustment as described therein).
The Company and its insurance company subsidiaries entered into Investment
Management Agreements with GMSP, pursuant to which GMSP will manage their
respective investment portfolios. Completion of these Transactions concluded the
strategic alternatives review process that the Company initiated in 1998.
Proceeds from the GMSP transactions will be available for acquisitions,
investments and other corporate purposes.
18
<PAGE> 19
Quantitative and Qualitative Disclosures About Market Risk
Market risk is the risk of economic losses due to adverse changes in the
estimated fair value of a financial instrument as the result of changes in
equity prices, interest rates, foreign exchange rates and commodity prices. The
Company's consolidated balance sheets include assets whose estimated fair values
are subject to market risk. The primary market risk to the Company is interest
rate risk associated with investments in fixed maturities. The Company has no
foreign exchange or commodity risk, and its exposure to equity risk is
immaterial.
Interest Rate Risk
The Company's fixed maturity investments are subject to interest rate risk.
Increases and decreases in interest rates typically result in decreases and
increases in the fair value of these investments.
Most of the Company's investable assets come from premiums paid by
policyholders. These funds are invested predominately in high quality, U.S.
government and municipal bonds with relatively short durations. The fixed
maturity portfolio is exposed to interest rate fluctuations; as interest rates
rise, fair values decline and as interest rates fall, fair values rise. The
changes in the fair value of the fixed maturity portfolio are presented as a
component of shareholders' equity in accumulated other comprehensive income, net
of taxes.
The effective duration of the fixed maturity portfolio is managed with
consideration given to the estimated duration of the Company's liabilities. The
Company has investment policies which limit the maximum duration and maturity of
the fixed maturity portfolio.
The Company utilizes the modified duration method to estimate the effect of
interest rate risk on the fair values of its fixed maturity portfolio. The
usefulness of this method is to a degree limited, as it is unable to accurately
incorporate the full complexity of market interactions.
Year 2000 Readiness
Y2K Problem A "Year 2000 problem" exists worldwide because many existing
computer programs use only the last 2 digits to refer to a year. Therefore,
these computer programs do not properly recognize a year that begins with "20"
instead of the familiar "19". If not corrected, many computer applications could
fail or create erroneous results. In addition to the two-digit portion of the
problem, the Year 2000 is a leap year.
Company Readiness The Company appointed a Year 2000 team involving personnel
from all business units responsible for implementing the project, while the
department Vice Presidents formed the Year 2000 steering committee. The project
scope encompassed information technology, including hardware and software
whether developed internally or externally, building systems, vendors, banks,
agents, reinsurers and the Company's exposure relating to policy coverage.
The Company has completed the assessment phase, the strategy phase, the analysis
phase and the planning phase for its hardware and software systems,
non-information technology equipment and strategic business relationships. The
Company believes that it has completed the remediation and testing phase of all
mission critical systems and all hardware. The Company is either in the
remediation or testing phase of its non-mission critical software. The Company
anticipates that its non-mission critical software will be compliant by November
30, 1999. The foregoing readiness analysis does not apply to software and
hardware for certain operations which are in a runoff phase.
During 1998 the Company contracted with a major consulting vendor to perform due
diligence assessment and testing of its Year 2000 project. While assessing the
Company's readiness, the vendor identified some programs that required
additional remediation and re-testing. The Company believes that it has
corrected all the identified non-conforming programs.
The Company has performed a written survey of all strategic business partners
including producers, general agents, material vendors, reinsurers, reinsurance
intermediaries, utilities, telecommunications services, web hosting providers,
Internet service providers, hardware providers, software providers and financial
institutions. The Company is monitoring the progress of the partners, which if
impaired by a Year 2000 problem, would have a material impact on the Company.
The Company has established contingency plans in the event that a material
business partner is not Year 2000 ready. However, there can be no assurance that
all material business partners will be Year 2000 ready and such could have a
material effect on the Company's financial position.
A comprehensive review was performed by the Company of the insurance policies
written by it and its underwriting guides to determine Year 2000 exposure. The
Company made a decision to exclude Year 2000 exposures from all insurance
policies written by it and began adding exclusions in November 1997. The Company
believes Year 2000 liabilities are not fortuitous in nature and would not be
covered under its insurance policies. The Company believes that its coverage
exposure with respect to Year 2000 losses will not be material. However, changes
in social and legal trends may establish coverage unintended for Year 2000
exposures by re-interpreting insurance contracts and exclusions. Litigation with
respect to Year 2000 claims and the attendant costs are to be expected. It is
impossible to predict what exposure insurance companies may bear for the Year
2000 losses.
The Company has established contingency plans for hardware and software failures
with respect to the Year 2000 problem. Since the Company's mission critical
systems and hardware are believed to be Year 2000 compliant and have been
assessed by an outside vendor, the Company does not expect any material Year
2000 failures. The Company believes that it has reviewed all material business
partners' readiness, and has been advised that their mission critical systems
and software are believed to be Year 2000 compliant. If, in the event
19
<PAGE> 20
the Company becomes aware of a strategic partner's failure to be prepared, the
Company will evaluate using another vendor.
Costs The Company estimates that its costs of addressing the Year 2000 problem
will aggregate approximately $920,000, including modifying or replacing software
and other systems, hiring Year 2000 solution providers and internal assessment,
remediation and testing. Of this amount, approximately $900,000 has been
expensed and approximately $20,000 remains to be expended. These costs are being
funded by internally generated funds.
Forward Looking Statements
Statements made in this report that are not strictly historical may be
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. Investors are cautioned that all forward-looking
statements involve certain risks and uncertainties that could cause actual
results to differ materially from those contained in the forward-looking
statements. Important factors include, but are not limited to, (a) heightened
competition, including price competition from existing competitors, from newly
formed competitors and from the entry into the Company's markets by standard
insurance companies which historically have not competed in the Company's
specialty markets, (b) overcapitalization of the insurance industry, (c)
contraction of the markets for the Company's various lines of business, (d)
development and performance of new specialty programs, (e) the ongoing level of
claims and claims-related expenses, (f) adequacy of claim reserves, (g) the
ability to complete value-adding acquisitions, (h) the ability of the Company to
fully integrate newly acquired companies and their customers and managers into
the Company's business, (i) the ability of the Company to timely and effectively
invest the proceeds of the GMSP transactions and to implement new strategies for
the investment of the Company's securities portfolios under the investment
management agreement with GMSP, (j) effects of Year 2000 problems encountered by
the Company and those with whom it deals, and (k) general economic conditions
including fluctuations in interest rates.
20
<PAGE> 21
PART II. OTHER INFORMATION
GAINSCO, INC. AND SUBSIDIARIES
Item 1. Legal Proceedings
The Company is a defendant in the proceedings styled William Steiner v.
Joseph D. Macchia, Joel C. Puckett, Daniel J. Coots and GAINSCO, INC.,
filed in the United States District Court for the Northern District of
Texas, Fort Worth Division. In that case, the plaintiff asserts claims
on behalf of a putative class of persons who purchased the Company's
common stock between August 6, 1997 and July 16, 1998, inclusive. The
plaintiff asserts claims under sections 10(b) and 20(a) of the
Securities Exchange Act of 1934, alleging principally that the Company
did not establish adequate reserves for claims and claim adjustment
expenses in its financial statements and, therefore, they did not
reflect the Company's true financial position and results of operations
in accordance with generally accepted accounting principles. The
Company believes that it has meritorious defenses to plaintiff's claims
and intends to vigorously defend the action.
In the normal course of its operations, the Company has been named as
defendant in various legal actions seeking payments for claims denied
by the Company and other monetary damages. In the opinion of the
Company's management the ultimate liability, if any, resulting from the
disposition of these claims will not have a material adverse effect on
the Company's consolidated financial position or results of operations.
The Company's management believes that unpaid claims and claim
adjustment expenses are adequate to cover liabilities from claims which
arise in the normal course of its insurance business.
Item 4. Submission of Matters to a Vote of Security Holders
A Special Meeting of Shareholders of the Company was held on September
21, 1999 in Fort Worth, Texas. At the Special Meeting, shareholders
approved the GMSP transactions previously described under "Management's
Discussion and Analysis of Financial Conditions and Results of
Operations - GMSP Transactions." The results of the voting were as
follows:
For: 15,456,248
Against: 438,782
Abstentions and
Brokers Non-Votes: 75,887
21
<PAGE> 22
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
3.7 Bylaws of Registrant as amended through October 13,
1999.
11. The statement re computation of per share earnings is
included in the notes to consolidated financial
statements.
27. Financial Data Schedule for the period ended
September 30, 1999.
(b) Reports on Form 8-K
Form 8-K Report filed July 2, 1999 reporting under Item 5 that
on June 29, 1999 the Company entered into a Securities
Purchase Agreement with Goff Moore Strategic Partners, L.P., a
Texas limited partnership. No financial statements were filed
with the Form 8-K report.
Item 15. Awareness Letter of KPMG LLP
22
<PAGE> 23
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 to sign on behalf of the Registrant as
well as in his capacity as Chief Financial Officer.
GAINSCO, INC.
Date: November 12, 1999
By /s/ Daniel J. Coots
-------------------------------------
Daniel J. Coots
Senior Vice President, Treasurer and
Chief Financial Officer
23
<PAGE> 24
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
3.7 Bylaws of Registrant as amended through October 13,
1999.
11. The statement re computation of per share earnings is
included in the notes to consolidated financial
statements.
15. Awareness Letter of KPMG LLP
27. Financial Data Schedule for the period ended
September 30, 1999.
</TABLE>
<PAGE> 1
EXHIBIT 3.7
BYLAWS
OF
GAINSCO, INC.
As amended as of October 13, 1999
Contents
<TABLE>
<S> <C>
ARTICLE 1: OFFICES
1.01 Registered Office and Agent
1.02 Other Offices
ARTICLE 2: SHAREHOLDERS
2.01 Place of Meetings
2.02 Annual Meeting
2.03 Voting List
2.04 Special Meetings
2.05 Notice
2.06 Quorum
2.07 Majority Vote; Withdrawal of Quorum
2.08 Method of Voting
2.09 Record Date; Closing Transfer Books
2.10 Action Without Meeting
2.11 Order of Business at Meetings
2.12 Notice of Matters to be Considered
2.13 Nominations
ARTICLE 3: DIRECTORS
3.01 Management
3.02 Number; Qualifications; Election; and Term
3.03 Change in Number
3.04 Removal
3.05 Vacancies
3.06 Election of Directors
3.07 Place of Meetings
3.08 First Meeting
3.09 Regular Meetings
3.10 Special Meetings
3.11 Quorum; Majority Vote
3.12 Compensation
3.13 Procedure
3.14 Interested Directors and Officers
3.15 Action Without Meeting
3.16 Advisory Directors
</TABLE>
<PAGE> 2
<TABLE>
<S> <C>
ARTICLE 4: NOTICE AND ATTENDANCE THROUGH USE OF ELECTRONIC EQUIPMENT
4.01 Method
4.02 Waiver
4.03 Telephone and Similar Meetings
ARTICLE 5: OFFICERS AND AGENTS
5.01 Number; Qualification; Election; Term
5.02 Removal
5.03 Vacancies
5.04 Authority
5.05 Compensation
5.06 President
5.07 Vice Presidents
5.08 Secretary
5.09 Assistant Secretary
5.10 Treasurer
5.11 Assistant Treasurer
5.12 Chairman of the Board
5.13 Vice-Chairman of the Board
5.14 Second Vice Presidents
ARTICLE 6: CERTIFICATES AND SHAREHOLDERS
6.01 Certificates
6.02 Issuance
6.03 Payment for Shares
6.04 Subscriptions
6.05 Lien
6.06 Lost, Stolen or Destroyed Certificates
6.07 Registration of Transfer
6.08 Registered Shareholders
6.09 Denial of Preemptive Rights
ARTICLE 7: GENERAL PROVISIONS
7.01 Dividends and Reserves
7.02 Books and Records
7.03 Annual Statement
7.04 Checks and Notes
7.05 Fiscal Year
7.06 Seal
7.07 Indemnification; Insurance
7.08 Resignation
7.09 Amendment of Bylaws
7.10 Construction
7.11 Table of Contents; Headings
7.12 Relation to Articles of Incorporation
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
ARTICLE 8: COMMITTEES
8.01 Designation
8.02 Number; Qualification; Term
8.03 Authority
8.04 Change in Number
8.05 Removal
8.06 Vacancies
8.07 Meetings
8.08 Quorum; Majority Vote
8.09 Compensation
</TABLE>
<PAGE> 4
ARTICLE 1: OFFICES
1.01 Registered Office and Agent. The registered office of the
corporation shall be at 500 Commerce Street, Fort Worth, Texas 76102. The name
of the registered agent at such address is Glenn W. Anderson. Anything in these
Bylaws to the contrary notwithstanding revision of the registered office or the
registered agent of the corporation in accordance with the provisions of the
Texas Business Corporation Act shall automatically and without further action
amend this section to name such newly adopted office or registered agent.
1.02 Other Offices. The corporation may have offices at other places
both within and without the State of Texas as the board of directors may
determine or as the business of the corporation may require.
ARTICLE 2: SHAREHOLDERS
2.01 Place of Meetings. All meetings of the shareholders shall be held
at such time and place, in or out of the State of Texas, as shall be stated in
the notice of the meeting or in a waiver of notice.
2.02 Annual Meeting. An annual meeting of the shareholders shall be
held each year at a time and on a day as may be selected by the board of
directors. At the meeting, the shareholders shall elect directors and transact
such other business as may properly be brought before the meeting.
2.03 Voting List. At least ten days before each meeting of
shareholders, a complete list of the shareholders entitled to vote at the
meeting, arranged in alphabetical order, with the address of each and the number
of voting shares held by each, shall be prepared by the officer or agent having
charge of the stock transfer books. The list, for a period of ten days prior to
the meeting, shall be kept on file at the registered office of the corporation
and shall be subject to inspection by any shareholder at any time during usual
business hours. The list shall also be produced and kept open at the time and
place of the meeting during the whole time thereof, and shall be subject to the
inspection of any shareholder during the whole time of the meeting.
2.04 Special Meetings. Special meetings of the shareholders, for any
purpose or purposes, unless otherwise prescribed by statute or by the articles
of incorporation, may be called by the president, the Board of Directors, or the
holders of not less than twenty-five percent of all of the shares entitled to
vote at the meetings. Business transacted at a special meeting shall be confined
to the objects stated in the notice of the meeting.
2.05 Notice. Written or printed notice stating the place, day and hour
of the meeting and, in the case of a special meeting, the purpose or purposes
for which the meeting is called, shall be delivered not less than ten nor more
than fifty days before the date of the meeting, either personally or by mail, by
or at the direction of the president, the secretary, or the officer or person
calling the meeting, to each shareholder of record entitled to vote at the
meeting. If mailed, such notice shall be deemed to be delivered when deposited
in the United States mail addressed to the shareholder at his address as it
appears on the stock transfer books of the corporation, with postage thereon
prepaid.
2.06 Quorum. At all meetings of the shareholders, the presence in
person or by proxy of the holders of a majority of the shares issued and
outstanding and entitled to vote will be necessary and
<PAGE> 5
sufficient to constitute a quorum for the transaction of business except as
otherwise provided by law, the articles of incorporation or these bylaws. If a
quorum is not present or represented at a meeting of the shareholders, the
shareholders entitled to vote, present in person or represented by proxy, shall
have power to adjourn the meeting from time to time, without notice (other than
announcement at the meeting of the time and place at which the meeting is to be
reconvened) until a quorum is present or represented. At such adjourned meeting
at which a quorum is present or represented, any business may be transacted
which might have been transacted at the meeting as originally notified. For
purposes of determining the presence or absence of a quorum under this bylaw
2.06, abstentions and broker non-votes (as such terms are defined in bylaw 2.07)
shall be treated as shares present and entitled to vote.
2.07 Majority Vote; Withdrawal of Quorum. When a quorum is present at
any meeting of the shareholders, the vote of the holders of a majority of the
shares entitled to vote, present in person or represented by proxy and voting
"for" or "against" any question brought before the meeting shall decide such
question, unless the question is one upon which, by express provision of law,
the articles of incorporation or these bylaws, a different vote is required in
which case such express provision shall govern and control the decision of such
question but if such other express provision does not specify that the
affirmative vote of a given percent of outstanding shares are required, the
matter shall be approved or adopted if the required percent of the shares
entitled to vote, present in person or represented by proxy and voting "for" or
"against" such matter has voted "for". Abstentions and broker non-votes are not
counted (even though such shares are considered present and entitled to vote for
purposes of determining a quorum pursuant to bylaw 2.06). The term "abstentions"
shall refer to shares which are not voted "for" or "against" a particular
question by a holder or holders present in person or by proxy at a meeting and
entitled to vote such shares on such question. The term "broker non-vote" shall
refer to shares held by brokers or nominees as to which instructions have not
been received from the beneficial owners or persons entitled to vote and that
the broker or nominee does not have discretionary power to vote on the
particular question on which the vote is being counted. Anything herein to the
contrary notwithstanding, any alteration, amendment, or repeal of bylaws 2.07,
3.02, 3.03, 3.04, 3.05, 3.11 and 7.09, or adoption of any provision inconsistent
therewith, by the shareholders shall require the vote of the holders of
two-thirds (2/3) of the shares having voting power. The shareholders present at
a duly organized meeting may continue to transact business until adjournment,
notwithstanding the withdrawal of enough shareholders to leave less than a
quorum.
2.08 Method of Voting. Each outstanding share shall be entitled to one
vote on each matter submitted to a vote at a meeting of shareholders. At any
meeting of the shareholders, every shareholder having the right to vote may vote
either in person, or by proxy executed in writing by the shareholder or by his
duly authorized attorney-in-fact. No proxy shall be valid after seven months
from the date of its execution, unless otherwise provided in the proxy. Each
proxy shall be revocable unless expressly provided therein to be irrevocable and
unless otherwise made irrevocable by law. Each proxy shall be filed with the
secretary of the corporation prior to or at the time of the meeting. Voting for
directors shall be in accordance with Section 3.06 of these bylaws. Any vote may
be taken by voice or by show of hands unless someone entitled to vote objects,
in which case, written ballots shall be used.
2.09 Record Date; Closing Transfer Books. The board of directors may
fix in advance a record date for the purpose of determining shareholders
entitled to notice of or to vote at a meeting of the shareholders, the record
date to be not less than ten (10) nor more than sixty (60) days prior to the
meeting; or the board of directors may close the stock transfer books for such
purpose for a period of not less than ten nor more than sixty (60) days prior to
such meeting. In the absence of any action by the board of
<PAGE> 6
directors, the date upon which the notice of the meeting is mailed shall be the
record date.
2.10 Action Without Meeting. Any action required by statute to be taken
at a meeting of the shareholders, or any action which may be taken at a meeting
of the shareholders, may be taken without a meeting if a consent in writing,
setting forth the action so taken, shall be signed by all of the shareholders
entitled to vote with respect to the subject matter thereof and such consent
shall have the same force and effect as a unanimous vote of the shareholders.
The consent may be in more than one counterpart so long as each shareholder
signs one of the counterparts. The consent shall be placed in the Minute Book.
2.11 Order of Business at Meetings. The order of business at annual
meetings and so far as practicable at other meetings of shareholders shall be as
follows unless changed by the board of directors:
(1) call to order
(2) proof of due notice of meeting
(3) determination of quorum and examination of proxies
(4) announcement of availability of voting list (see
Bylaw 2.03)
(5) announcement of distribution of annual statement (see
Bylaw 8.03)
(6) reading and disposing of minutes of last meeting of
shareholders
(7) reports of officers and committees
(8) appointment of voting inspectors
(9) unfinished business
(10) new business
(11) nomination of directors
(12) opening of polls for voting
(13) recess
(14) reconvening; closing of polls
(15) report of voting inspectors
(16) other business
(17) adjournment
2.12 Notice of Matters to be Considered. At an annual meeting of the
shareholders, only such business shall be conducted as shall have been properly
brought before the meeting. To be properly brought before an annual meeting,
business must be specified in the notice of meeting (or any supplement thereto)
given by or at the direction of the board of directors, otherwise properly
brought before the meeting by or at the direction of the board of directors, or
otherwise properly brought before the meeting by a shareholder. In addition to
any other applicable requirements, for business to be properly brought before an
annual meeting by a shareholder, the shareholder must have given timely notice
thereof in writing to the secretary of the corporation. To be timely, a
shareholder's notice must be delivered to or mailed and received at the
principal executive offices of the corporation not less than fifty (50) days nor
more than seventy-five (75) days prior to the meeting; provided, however, that
in the event that less than sixty-five (65) days' notice or prior public
disclosure of the date of the meeting is given or made to shareholders, notice
by the shareholder to be timely must be so received not later than the close of
business on the 15th day following the day on which such notice of the date of
the annual meeting was mailed or such public disclosure was made. A
shareholder's notice to the secretary shall set forth as to each matter the
shareholder proposes to bring before the annual meeting (i) a brief description
of the business desired to be brought before the annual meeting and the reasons
for conducting such business at the annual meeting, (ii) the name and record
address of the shareholder proposing such business, (iii) the class and number
of
<PAGE> 7
shares of the corporation which are beneficially owned by the shareholder, and
(iv) any material interest of the shareholder in such business.
Notwithstanding anything in these Bylaws to the contrary, no business
shall be conducted at the annual meeting except in accordance with the
procedures set forth in this Section 2.12; provided, however, that nothing in
this Section 2.12 shall be deemed to preclude discussion by any shareholder of
any business properly brought before the annual meeting in accordance with said
procedure.
The chairman of an annual meeting shall, if the facts warrant,
determine and declare to the meeting that business was not properly brought
before the meeting in accordance with the provisions of this Section 2.12, and
if he should so determine, he shall so declare to the meeting and any such
business not properly brought before the meeting shall not be transacted.
2.13 Nominations. Only persons who are nominated in accordance with the
following procedures shall be eligible for election as directors. Nominations of
persons for election to the board of directors of the corporation may be made at
a meeting of shareholders by or at the direction of the board of directors by
any nominating committee or person appointed by the board of directors or by any
shareholder of the corporation entitled to vote for the election of directors at
the meeting who complies with the notice procedures set forth in this Section
2.13. Such nominations, other than those made by or at the direction of the
board of directors, shall be made pursuant to timely notice in writing to the
secretary of the corporation. To be timely, a shareholder's notice shall be
delivered to or mailed and received at the principal executive offices of the
corporation not less than fifty (50) days nor more than seventy-five (75) days
prior to the meeting; provided, however, that in the event that less than
sixty-five (65) days' notice or prior public disclosure of the date of the
meeting is given or made to shareholders, notice by the shareholder to be timely
must be so received not later than the close of business on the 15th day
following the date on which such notice of the date of the meeting was mailed or
such public disclosure was made. Such shareholder's notice to the secretary
shall set forth (a) as to each person whom the shareholder proposes to nominate
for election or re-election as a director, (i) the name, age, business address
and residence address of the person, (ii) the principal occupation or employment
of the person, (iii) the class and number of shares of capital stock of the
corporation which are beneficially owned by the person, and (iv) any other
information relating to the person that is required to be disclosed in
solicitations for proxies for election of directors pursuant to Regulation 14A
under the Securities Exchange Act of 1934, as amended; and (b) as to the
shareholder giving the notice, (i) the name and record address of the
shareholder and (ii) the class and number of shares of capital stock of the
corporation which are beneficially owned by the shareholder. The corporation may
require any proposed nominee to furnish such other information as may reasonably
be required by the corporation to determine the eligibility of such proposed
nominee to serve as a director of the corporation. No person shall be eligible
for election as a director of the corporation unless nominated in accordance
with the procedures set forth herein.
The chairman of the meeting shall, if the facts warrant, determine and
declare to the meeting that a nomination was not made in accordance with the
foregoing procedure, and if he should so determine, he shall so declare to the
meeting and the defective nomination shall be disregarded.
ARTICLE 3: DIRECTORS
3.01 Management. The business and affairs of the corporation shall be
managed by the board of directors who may exercise all such powers of the
corporation and do all such lawful acts and things as
<PAGE> 8
are not (by statute or by the articles of incorporation or by these bylaws)
directed or required to be exercised or done by the shareholder.
3.02 Number; Qualifications; Election; and Term. The board of directors
shall consist of nine (9) directors until changed by resolution adopted by the
board of directors pursuant to Bylaw 3.03. None of the members of the board of
directors need to be shareholders or residents of the State of Texas. The
directors shall be elected at the annual meeting of the shareholders, except as
provided in Bylaws 3.03 and 3.05. Each director shall hold office until his
successor shall be elected and shall qualify.
3.03 Change in Number. The number of directors may be increased or
decreased from time to time by resolution adopted by the Board of Directors but
no decrease shall have the effect of shortening the term of any incumbent
director.
3.04 Removal. Any director may be removed either for or without cause
at any special or annual meeting of shareholders, by the affirmative vote of
over two-thirds in number of shares of the shareholders present in person or by
proxy at such meeting and entitled to vote for the election of such director if
notice of intention to act upon such matter shall have been given in the notice
calling such meeting.
3.05 Vacancies. Any vacancy occurring in the board of directors (by
death, resignation or removal) may be filled by an affirmative vote of a
majority of the remaining directors though less than a quorum of the board of
directors. A director elected to fill a vacancy shall be elected for the
unexpired term of his predecessor in office. Any directorship to be filled by
reason of an increase in the number of directors shall be filled either (i) by
election at an annual meeting or at a special meeting of shareholders called for
that purpose or (ii) by the Board, provided the Board may not fill more than two
such directorships during the period between any two successive annual meetings
of shareholders.
3.06 Election of Directors. Directors shall be elected by plurality
vote. Cumulative voting shall not be permitted.
3.07 Place of Meetings. Meetings of the board of directors, regular or
special, may be held either within or without the State of Texas.
3.08 First Meeting. The first meeting of each newly elected board shall
be held without further notice immediately following the annual meeting of
shareholders, and at the same place, unless (by unanimous consent of the
directors then elected and serving) such time or place shall be changed.
3.09 Regular Meetings. Regular meetings of the board of directors may
be held without notice at such time and place as shall from time to time be
determined by the board.
3.10 Special Meetings. Special meetings of the board of directors may
be called by the president on three days' notice to each director, either
personally or by mail or by telegram. Special meetings shall be called by the
president or secretary in like manner and on like notice on the written request
of a majority of the directors. Except as otherwise expressly provided by
statute, or by the articles of incorporation, or by these bylaws, neither the
business to be transacted at, nor the purpose of, any special meeting need be
specified in a notice or waiver of notice.
<PAGE> 9
3.11 Quorum; Majority Vote. At all meetings of the board of directors,
a majority of the board of directors fixed by these Bylaws shall constitute a
quorum for the transaction of business. The act of a majority of the directors
present at any meeting at which a quorum is present shall be the act by the
board of directors, except as otherwise specifically provided by statute, by the
Articles of Incorporation or by these Bylaws. Anything herein to the contrary
not withstanding, any alteration, amendment, or repeal of Bylaws 2.07, 3.02,
3.03, 3.04, 3.05, 3.11 and 7.09, or adoption of any provision inconsistent
therewith, by the board of directors shall require the affirmative vote of
two-thirds (2/3) of the board of directors of the corporation. If a quorum is
not present at a meeting of the board of directors, the directors present
thereat may adjourn the meeting from time to time, without notice other than
announcement at the meeting, until a quorum is present.
3.12 Compensation. By resolution of the board of directors, the
directors may be paid their expenses, if any, of attendance at each meeting of
the board of directors and may be paid a fixed sum for attendance at each
meeting of the board of directors or a stated salary as director. No such
payment shall preclude any director from serving the corporation in any other
capacity and receiving compensation therefor. Members of the Executive Committee
or of special or standing committees may, by resolution of the board of
directors, be allowed like compensation for attending committee meetings.
3.13 Procedure. The board of director shall keep regular minutes of its
proceedings. The minutes shall be placed in the minute book of the corporation.
3.14 Interested Directors and Officers .
(a) An otherwise valid contract or transaction between
the corporation and one or more of its directors or
officers, or between the corporation and any other
corporation, partnership or other entity in which one
or more of the directors or officers are directors or
officers or have a financial interest, shall be valid
notwithstanding that the director or officer is
present at or participates in the meeting of the
board of directors or committee thereof which
authorizes the contract or transaction, or solely
because his or their votes are counted for such
purposes, if:
(1) The material facts as to his relationship or
interest and as to the contract or
transaction are disclosed or are known to
the board of directors or the committee, and
the board of directors or committee in good
faith authorizes the contract or transaction
by the affirmative vote of a majority of the
disinterested directors, even though the
disinterested directors be less than a
quorum; or
(2) The material facts as to his relationship or
interest and as to the contract or
transaction are disclosed or are known to
the shareholders entitled to vote thereon,
and the contract or transaction is
specifically approved in good faith by vote
of the shareholders; or
(3) The contract or transaction is fair as to
the Corporation as of the time it is
authorized, approved, or ratified by the
board of directors, a committee thereof, or
the shareholders.
<PAGE> 10
(b) Common or interested directors may be counted in
determining the presence of a quorum at a meeting of
the board of directors.
3.15 Action Without Meeting. Any action required or permitted to be
taken at a meeting of the board of directors may be taken without a meeting if a
consent in writing, setting forth the action so taken, is signed by all members
of the board of directors. Such consent shall have the same force and effect as
a unanimous vote at a meeting and may be stated as such in any document or
instrument filed with the Secretary of State.
3.16 Advisory Directors. The board of directors, by resolution adopted
by not less than a majority of the directors then in office, may from time to
time appoint such number of individuals as it may deem appropriate to serve as
advisory directors at the pleasure of the board of directors. Advisory directors
may be given such designations (including without limitation "advisory
director," "director emeritus" or "honorary director") as the board of directors
may from time to time determine. Advisory directors are not, and shall not have
the duties and responsibilities of, directors of the corporation, and the terms
"director" or "member of the board of directors" as used in these Bylaws shall
not be deemed to mean or include advisory directors. Without limiting the
generality of the foregoing, advisory directors shall not be entitled (a) to
receive any notice of any meeting of the board of directors, (b) to attend any
meeting of the board of directors except at the invitation of the board of
directors, (c) to vote on any matter presented for action by the board of
directors or, except at the invitation of the board of directors, to participate
in the consideration of any such matter or the formulation or determination of
corporate policy, (d) to receive any non-public information regarding the
business or affairs of the corporation or any matters presented for action or
consideration by the board of directors, or (e) to receive any compensation for
serving as an advisory director except as the board of directors may otherwise
determine by resolution.
3.17 Chairman of Board. The board of directors may from time to time
elect from their number individuals to serve as chairman of the board. The
chairman of the board, if one shall be elected, shall preside at all meetings of
the shareholders and the directors. In addition, the chairman of the board shall
perform such services for the board of directors and such additional duties, and
shall exercise such powers, as the board of directors may from time to time
prescribe, but shall not be deemed an officer or employee of the corporation by
virtue of holding such position.
ARTICLE 4: NOTICE AND ATTENDANCE THROUGH USE OF ELECTRONIC EQUIPMENT
4.01 Method. Whenever by statute or the articles of incorporation or
these bylaws, notice is required to be given to any director or shareholder, and
no provision is made as to how the notice shall be given, it shall not be
construed to mean personal notice, but any such notice may be given (a) in
writing, by mail, postage prepaid, addressed to the director or shareholder at
the address appearing on the books of the corporation, or (b) in any other
method permitted by law. Any notice required or permitted to be given by mail
shall be deemed given at the time when the same is thus deposited in the United
States mails.
4.02 Waiver. Whenever, by statute or the articles of incorporation or
these bylaws, notice is required to be given to any shareholder or director, a
waiver thereof in writing signed by the person or persons entitled to such
notice, whether before or after the time stated in such notice, shall be
equivalent to the giving of such notice. Attendance of a director at a meeting
shall constitute a waiver of notice of such
<PAGE> 11
meeting, except where a director attends for the express purpose of objecting to
the transaction of any business on the ground that the meeting is not lawfully
called or convened.
4.03 Telephone and Similar Meetings. Shareholders, directors and
committee members may participate in and hold a meeting by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting shall constitute presence in person at the meeting,
except where a person participates in the meeting for the express purpose of
objecting to the transaction of any business on the ground that the meeting is
not lawfully called or convened.
ARTICLE 5: OFFICERS AND AGENTS
5.01 Number; Qualification; Election; Term.
(a) The corporation shall have:
(1) a president, a vice president, a secretary and a
treasurer, and
(2) such other officers (including a chairman of the
board and additional vice presidents) and assistant officers and agents as the
board of directors may think necessary.
(b) No officer or agent need be a shareholder, a director or a
resident of Texas.
(c) Officers named in Section 5.01(a)(1) shall be elected by
the board of directors on the expiration of an officer's term or whenever a
vacancy exists. Officers and agents named in Section 5.01(a)(2) may be elected
by the board at any meeting.
(d) Unless otherwise specified by the board at the time of
election or appointment, or in any employment contract approved by the board,
each officer's and agent's term shall end at the first meeting of directors
after the next annual meeting of shareholders. He shall serve until the end of
his term or, if earlier, his death, resignation or removal.
(e) Any two or more offices may be held by the same person,
except that the president and the secretary shall not be the same person.
5.02 Removal. Any officer or agent elected or appointed by the board of
directors may be removed by the board of directors whenever in its judgment the
best interests of the corporation will be served thereby. Such removal shall be
without prejudice to the contract rights, if any, of the person so removed.
Election or appointment of an officer or agent shall not of itself create
contract rights.
5.03 Vacancies. Any vacancy occurring in any office of the corporation
(by death, resignation, removal or otherwise) maybe filled by the board of
directors.
5.04 Authority. Officers and agents shall have such authority and
perform such duties in the management of the corporation as are provided in
these bylaws or as may be determined by resolution of the board of directors not
inconsistent with these bylaws.
5.05 Compensation. The compensation of officers and agents shall be
fixed from time to time by the board of directors.
<PAGE> 12
5.06 President. The president shall be the chief executive officer of
the corporation; he shall preside at all meetings of the shareholders and the
board of directors, shall have general and active management of the business and
affairs of the corporation, shall see that all orders and resolutions of the
board are carried into effect. He shall perform such other duties and have such
other authority and powers as the board of directors may from time to time
prescribe.
5.07 Vice Presidents. The vice presidents, in the order of their
seniority unless otherwise determined by the board of directors, shall, in the
absence or disability of the president, perform the duties and have the
authority and exercise the powers of the president. They shall perform such
other duties and have such other authority and powers as the board of directors
may from time to time prescribe or as the president may from time to time
delegate.
5.08 Secretary.
(a) The secretary shall attend all meetings of the board of
directors and all meetings of the shareholders and record the minutes of all
proceedings in a book to be kept for that purpose.
(b) The secretary shall give, or cause to be given, notice of
all meetings of the shareholders and special meetings of the board of directors.
(c) The secretary shall keep in safe custody the seal of the
corporation and, when authorized by the board of directors or the executive
committee, affix the same to any instrument requiring it.
(d) The secretary shall be under the supervision of the
president and shall perform such other duties and have such other authority and
powers as the board of directors may from time to time prescribe or as the
president may from time to time delegate.
5.09 Assistant Secretary. The assistant secretary shall, in the absence
or disability of the secretary, perform the duties and have the authority and
exercise the powers of the secretary. He shall perform such other duties and
have such other powers as the board of directors may from time to time prescribe
or as the president may from time to time delegate.
5.10 Treasurer.
(a) The treasurer shall have the custody of the corporate
funds and securities and shall keep full and accurate accounts of receipts and
disbursements of the corporation and shall deposit all monies and other valuable
effects in the name and to the credit of the corporation in such depositories as
may be designated by the board of directors.
(b) He shall disburse the funds of the corporation as may be
ordered by the board of directors, taking proper vouchers for such
disbursements, and shall render to the president and directors, at the regular
meetings of the board, or whenever they may require it, an account of all his
transactions as treasurer and of the financial condition of the corporation.
<PAGE> 13
(c) If required by the board of directors, he shall give the
corporation a bond in such form, in such sum, and with such surety or sureties
as shall be satisfactory to the board for the faithful performance of the duties
of his office and for the restoration to the corporation, in case of his death,
resignation, retirement or removal from office, of all books, papers, vouchers,
money and other property of whatever kind in his possession or under his control
belonging to the corporation.
(d) He shall perform such other duties and have such other
authority and powers as the board of directors may from time to time prescribe
or as the president may from time to time delegate.
5.11 Assistant Treasurer. The assistant treasurer shall, in the absence
or disability of the treasurer, perform the duties and have the authority and
exercise the powers of the treasurer. He shall perform such other duties and
have such other powers as the board of directors may from time to time prescribe
or the president may from time to time delegate.
5.12 Second Vice Presidents. The board of directors may designate vice
presidents to serve in the absence of the vice president in charge of any area
of responsibility and, in such event, to perform the duties and have the
authority of such absent vice president. Additionally, a second vice president
shall perform such other duties and have such other authority and powers as the
board of directors may from time to time prescribe.
ARTICLE 6: CERTIFICATES AND SHAREHOLDERS
6.01 Certificates. Certificates in the form determined by the board of
directors shall be delivered representing all shares to which shareholders are
entitled. Certificates shall be consecutively numbered and shall be entered in
the books of the corporation or its agents as they are issued. Each certificate
shall state on its face the holder's name, the number and class of shares, the
par value of shares or a statement that such shares are without par value, and
such other matters as may be required by law. They shall be signed by the
president or a vice president and such other officer or officers as the board of
directors shall designate, and may be sealed with the seal of the corporation or
a facsimile thereof. If any certificate is countersigned by a transfer agent or
registered by a registrar (either of which is other than the corporation or an
employee of the corporation), the signature of any such officer may be
facsimile. In case any officer who has signed or whose facsimile signature has
been placed upon such certificate shall have ceased to be such officer before
such certificate is issued, it may be issued by the corporation with the same
effect as if he were such officer at the date of its issuance.
6.02 Issuance. Shares (both treasury and authorized but unissued) may
be issued for such consideration (not less than par value) and to such persons
as the board of directors may determine from time to time. Shares may not be
issued until the full amount of the consideration, fixed as provided by law, has
been paid.
6.03 Payment for Shares.
(a) Kind. The consideration for the issuance of shares shall
consist of money paid, labor done (including services actually performed for the
corporation) or property (tangible or intangible) actually received. Neither
promissory notes nor the promise of future services shall constitute payment for
shares.
<PAGE> 14
(b) Validation. In the absence of fraud in the transaction,
the judgment of the board of directors as to the value of consideration received
shall be conclusive.
(c) Effect. When consideration, fixed as provided by law, has
been paid, the shares shall be deemed to have been issued and shall be
considered fully paid and nonassessable.
(d) Allocation of Consideration. The consideration received
for shares shall be allocated by the board of directors in accordance with law,
between stated capital and capital surplus accounts.
6.04 Subscriptions. Unless otherwise provided in the subscription
agreement, subscriptions for shares, whether made before or after organization
of the corporation, shall be paid in full at such time or in such installments
and at such times as shall be determined by the board of directors. Any call
made by the board of directors for payment on subscriptions shall be uniform as
to all shares of the same series. In case of default in the payment on any
installment or call when payment is due, the corporation may proceed to collect
the amount due in the same manner as any debt due to the corporation.
6.05 Lien. For any indebtedness of a shareholder to the corporation,
the corporation shall have a first and prior lien on all shares of its stock
owned by him and on all dividends or other distributions declared thereon.
6.06 Lost, Stolen or Destroyed Certificates. The corporation shall
issue a new certificate in place of any certificate for shares previously issued
if the registered owner of the certificate:
(a) Claim. Makes proof in affidavit form that it has been
lost, destroyed or wrongfully taken; and
(b) Timely Request. Requests the issuance of a new certificate
before the corporation has notice that the certificate has been acquired by a
purchaser for value in good faith and without notice of an adverse claim; and
(c) Bond. Gives a bond in such form, and with such surety or
sureties, with fixed or open penalty, as the corporation may direct, to
indemnify the corporation (and its transfer agent and registrar, if any) against
any claim that may be made on account of the alleged loss, destruction or theft
of the certificate; and
(d) Other Requirements. Satisfies any other reasonable
requirements imposed by the corporation.
When a certificate has been lost, apparently destroyed or wrongfully taken, and
the holder of record fails to notify the corporation within a reasonable time
after he has notice of it, and the corporation registers a transfer of the
shares represented by the certificate before receiving such notification, the
holder of record is precluded from making any claim against the corporation for
the transfer or for a new certificate.
6.07 Registration of Transfer. The corporation shall register the
transfer of a certificate for shares presented to it for transfer if:
<PAGE> 15
(a) Endorsement. The certificate is properly endorsed by the
registered owner or by his duly authorized attorney; and
(b) Guarantee and Effectiveness of Signature. The signature of
such person has been guaranteed by a national banking association or member of
the New York Stock Exchange, and reasonable assurance is given that such
endorsements are effective; and
(c) Adverse Claims. The corporation has no notice of an
adverse claim or has discharged any duty to inquire into such a claim; and
(d) Collection of Taxes. Any applicable law relating to the
collection of taxes has been complied with.
6.08 Registered Shareholders. The corporation shall be entitled to
treat the holder of record of any share or shares of stock as the holder in fact
thereof and, accordingly, shall not be bound to recognize any equitable or other
claim to or interest in such share or shares on the part of any other person,
whether or not it has express or other notice thereof, except as otherwise
provided by law.
6.09 Denial of Preemptive Rights. No shareholder of corporation nor
other person shall have any preemptive rights whatsoever.
ARTICLE 7: GENERAL PROVISIONS
7.01 Dividends and Reserves.
(a) Declaration and Payment. Subject to statute and the
articles of incorporation, dividends may be declared by the board of directors
at any regular or special meeting and may be paid in cash, in property or in
shares of the corporation. The declaration and payment shall be at the
discretion of the board of directors.
(b) Record Date. The board of directors may fix in advance a
record date for the purpose of determining shareholders entitled to receive
payment of any dividend, the record date to be not more than fifty days prior to
the payment date of such dividend, or the board of directors may close the stock
transfer books for such purpose for a period of not more than fifty days prior
to the payment date of such dividend. In the absence of any action by the board
of directors, the date upon which the board of directors adopts the resolution
declaring the dividend shall be the record date.
(c) Reserves. By resolution the board of directors may create
such reserve or reserves out of the earned surplus of the corporation as the
directors from time to time, in their discretion, think proper to provide for
contingencies, or to equalize dividends, or to repair or maintain any property
of the corporation, or for any other purpose they think beneficial to the
corporation. The directors may modify or abolish any such reserve in the manner
in which it was created.
7.02 Books and Records. The corporation shall keep correct and complete
books and records of account and shall keep minutes of the proceedings of its
shareholders and board of directors, and shall keep at its registered office or
principal place of business, or at the office of its transfer agent or
registrar, a record of its shareholders, giving the names and addresses of all
shareholders and the number and class of the shares held by each.
<PAGE> 16
7.03 Annual Statement. The board of directors shall present at each
annual meeting of shareholders a full and clear statement of the business and
condition of the corporation, including a reasonably detailed balance sheet,
income statement and surplus statement.
7.04 Checks and Notes. All checks or demands for money and notes of the
corporation shall be signed by such officer or officers or such other person or
persons as the board of directors may from time to time designate.
7.05 Fiscal Year. The fiscal year of the corporation shall be fixed by
resolution of the board of directors.
7.06 Seal. The corporation seal (of which there may be one or more)
shall contain the name of the corporation and the name of the state of
incorporation. The seal may be used by impressing it or reproducing a facsimile
of it, or otherwise.
7.07 Indemnification; Insurance.
The corporation shall indemnify to the full extent permitted by law any
person who is made a named defendant or respondent in any action, suit or
proceeding, whether civil, criminal, administrative, arbitrative or
investigative, or in any appeal in such action, suit or proceeding, by reason of
the fact that he or she is or was a director or officer of the corporation,
against all expenses (including attorney's fees), judgments, fines and amounts
paid in settlement actually and reasonably incurred by such director or officer
in connection with any such action, suit or proceeding. The corporation may
indemnify other persons, as permitted by law. The corporation may advance
expenses to directors, officers or other persons, as permitted by law. The
corporation may purchase and maintain insurance on behalf of the directors,
officers or other persons, against any liability asserted against such persons
in their capacities as directors, officers or otherwise, of the corporation,
whether or not the corporation would have the power to indemnify such directors,
officers or other persons against such liability.
7.08 Resignation. Any director, officer or agent may resign by giving
written notice to the president or the secretary. The resignation shall take
effect at the time specified therein, or immediately if no time is specified
therein. Unless otherwise specified therein, the acceptance of such resignation
shall not be necessary to make it effective.
7.09 Amendment of Bylaws. These Bylaws may be altered, amended or
repealed or new Bylaws may be adopted by the board of directors (subject to the
shareholders repealing or changing the action of the board of directors, or
making new Bylaws, at an annual or special meeting called and held as provided
in these Bylaws) at any meeting at which a quorum is present.
7.10 Construction. Whenever the context so requires, the masculine
shall include the feminine and neuter, and the singular shall include the
plural, and conversely. If any portion of these bylaws shall be invalid or
inoperative, then, so far as is reasonable and possible:
(a) The remainder of these bylaws shall be considered valid
and operative, and
<PAGE> 17
(b) Effect shall be given to the intent manifested by the
portion held invalid or inoperative.
7.11 Table of Contents; Headings. The table of contents and headings
used in these bylaws have been inserted for convenience only and do not
constitute matter to be construed in interpretation.
7.12 Relation to Articles of Incorporation. These bylaws are subject to
and governed by the articles of incorporation.
ARTICLE 8: COMMITTEES
8.01 Designation. The board of directors may, by resolution adopted by
a majority of the whole board, designate from among its members an executive
committee and one or more such other committees as it may determine necessary.
8.02 Number; Qualification; Term. The executive committee and any other
designated committees shall consist of two or more directors, not less than a
majority of whom in each case shall be directors who are not officers or
employees of the Company. The committees shall serve at the pleasure of the
board of directors.
8.03 Authority. Each committee, to the extent provided in such
resolution, shall have and may exercise all of the authority of the board of
directors in the management of the business and affairs of the corporation,
except in the following matters and except where action of the full board of
directors is required by statute or by the articles of incorporation:
(a) Amending the articles of incorporation;
(b) Amending, altering or repealing the bylaws of the
corporation or adopting new bylaws;
(c) Approving and/or recommending or submitting to
shareholders:
(1) merger
(2) consolidation
(3) sale, lease (as Lessor), exchange or other
disposition of all or substantially all the property and assets of the
corporation;
(4) dissolution;
(d) Filling vacancies in the board of directors or any such
committee;
(e) Electing or removing officers of the corporation or
members of any such committee;
(f) Fixing compensation of any person who is a member of any
such committee;
(g) Declaring dividends;
(h) Altering or repealing any resolution of the board of
directors.
<PAGE> 18
8.04 Change in Number. The number of committee members may be increased
or decreased (but not below two) from time to time by resolution adopted by a
majority of the whole board of directors.
8.05 Removal. Any committee member may be removed by the board of
directors by the affirmative vote of a majority of the whole board, whenever in
its judgment the best interests of the corporation will be served thereby.
8.06 Vacancies. A vacancy occurring in any committee (by death,
resignation, removal or otherwise) may be filled by the board of directors in
the manner provided for original designation in paragraph 8.01.
8.07 Meetings. Time, place and notice (if any) of all committee
meetings shall be determined by the respective committee. (see also paragraph
4.03).
8.08 Quorum; Majority Vote. At meetings of any committee, a majority of
the number of members designated by the board of directors shall constitute a
quorum for the transaction of business. The act of a majority of the members
present at any meeting at which a quorum is present shall be the act of the
committee, except as otherwise specifically provided by statute or by the
articles of incorporation or by these bylaws. If a quorum is not present at a
meeting of the committee, the members present thereat may adjourn the meeting
from time to time, without notice other than an announcement at the meeting
until a quorum is present.
8.09 Compensation. Compensation of committee members shall be fixed
pursuant to the provisions of paragraph 3.12 of these bylaws.
<PAGE> 1
EXHIBIT 15
GAINSCO, INC.
Fort Worth, Texas
Ladies and Gentlemen:
Re: Registration Statement Nos. 33-48634 and 33-37070
With respect to the subject registration statements, we acknowledge our
awareness of the use therein of our report dated October 26, 1999 related to
our review of interim financial information.
Pursuant to Rule 436(c) under Securities Act of 1933, such report is not
considered part of a registration statement prepared or certified by an
accountant or a report prepared or certified by an accountant within the
meaning of sections 7 and 11 of the Act.
Very truly yours,
KPMG LLP
Dallas, Texas
November 12, 1999
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